CIMB May Miss Break-Even Target on RBS Banking Units Buy

By Sanat Vallikappen - Aug 23, 2013

CIMB Group Holdings Bhd. (CIMB), Malaysia’s second-largest bank by assets, may not break even as planned by the end of this year on its 2012 purchase of most of Royal Bank of Scotland Group Plc (RBS)’s Asia-Pacific investment banking assets.

As stocks and currencies slide, “I don’t know” if the businesses will cover costs associated with the acquisition, Chief Executive Officer Nazir Razak said in an interview with Bloomberg TV’s Haslinda Amin yesterday.

CIMB bought most of RBS’s Asia-Pacific cash equities and investment banking units last year for 88.4 million pounds ($138 million) to extend its regional reach. The Malaysian lender and larger rival Malayan Banking Bhd. (MAY) have been expanding abroad as the Association of Southeast Asian Nations further opens the region’s markets to create an economic zone modeled after the European Union by 2015.

“Investment banking business is a function of markets,” said Nazir, speaking in Singapore. “If the markets are effectively much slower than what we forecast, it might not meet the original target.”

The MSCI Asia Pacific Index fell 0.8 percent yesterday, extending its six-day slump to 4.7 percent as the prospect of reduced U.S. monetary stimulus and Asia’s faltering growth outlook fueled a sell-off. The Philippine Stock Exchange Index tumbled 6 percent, the most in two months, as trading resumed after a three-day closure. Indonesia’s (JCI) benchmark fell 1.1 percent, dropping 20 percent from a record three months ago.

Currency Slide

Thailand’s baht and the Malaysian ringgit slumped to three-year lows against the dollar yesterday and the Indonesian rupiah sank to the lowest since 2009.

“Currencies have depreciated significantly, interest rates are about to rise, and where borrowers and companies haven’t quite factored this situation in or didn’t quite believe it would come so soon, some would have to feel some pain,” the bank’s chief executive said.

Investment banking contributes 5 percent of CIMB’s annual profits and any delay in breaking even on the RBS acquisition is “not going to rock the boat,” said Nazir, the younger brother of Malaysia’s Prime Minister Najib Razak.

Shares of CIMB fell 0.1 percent at 7.57 ringgit in Kuala Lumpur as of 12:25 p.m. today, compared with a 0.4 percent gain for the benchmark FTSE Bursa Malaysia KLCI Index. The stock has declined 0.9 percent this year.

Southeast Asia

On June 10, CIMB said it won approval from Bursa Malaysia Securities Bhd. to sell shares on the Stock Exchange of Thailand. Subsidiary CIMB Thai Bank Pcl (CIMBT), which has 150 branches in the country is “very small,” Nazir said.

“Banking is a business of size” and the listing will allow customers to perceive CIMB as “a much bigger bank” in the country, he said.

In other Southeast Asian countries such as Cambodia and Vietnam, the bank will seek to start fresh operations, he said.

In the Philippines, where CIMB in June had to scrap a plan to buy 60 percent of Bank of Commerce from San Miguel and other shareholders for 12.2 billion pesos ($276 million), it will pursue acquisitions. “We will revisit Philippines and try and find other opportunities,” said Nazir.

CIMB’s April 2012 purchase included RBS’s cash equities units in Australia, China, Hong Kong, Taiwan, the U.S. and the U.K., and equity capital markets and mergers and acquisitions divisions in Australia, China, Hong Kong, Indonesia, Malaysia, Singapore, Taiwan and Thailand.

CIMB retained more than half of the 600 staff employed by RBS in the region, Nazir said in an interview in June 2012.