Royal Bank of Scotland Plc is closing its equity capital market and corporate finance units in South Korea and cash equities businesses in Indonesia, Korea and Singapore in the latest move to cut the size of its struggling investment bank.
The decision sheds light on the British lender's recent agreement with CIMB Group Holdings Bhd for the sale of Asian assets, signalling that Malaysia's second-biggest bank is eyeing RBS's Hong Kong, India and Australian businesses to boost its investment banking presence in Asia.
The plan is in line with Chief Executive Nazir Razak's ambitions to make CIMB a leading Asian financial services firm.
CIMB has in recent years significantly boosted its presence in Southeast Asia through banking and brokerage assets acquisitions in Indonesia, Singapore and Thailand.
CIMB said earlier this month that it had entered into exclusive talks with RBS to acquire some of its Asia-Pacific cash equities and investment banking businesses.
The main idea behind the acquisition is for CIMB to secure a presence beyond ASEAN, said Chris Eng, head of research at Malaysian broker OSK. The main markets that will benefit them from RBS are places they don't have, such as Hong Kong, Australia and Northeast Asia.
An RBS spokeswoman said 70 employees would be impacted by the closure of the units and that it would work closely with CIMB to conclude the deal for the other Asian units.
For commercial reasons, we have agreed with CIMB that the cash equities, ECM and corporate finance businesses in Korea and cash equities in Indonesia and Singapore will not ultimately transfer as part of the sale, RBS said. We have therefore made the decision to initiate steps to wind down these businesses commencing today.
NORTH ASIA'S CHARM
A significant chunk of RBS' operations are in Hong Kong, Singapore, Australia and India. It has offices in 11 countries across the region, including China.
North Asia is a lucrative market for brokers as a recent study by Greenwich Associates showed that of the Asian equity commissions paid by institutions to brokers, approximately 42 percent originated with trades of Hong Kong and Chinese stocks, compared with 41 percent recorded in 2010.
South Korea is a distant second with a 14 percent share of Asian equity commission payments, followed closely by India at 13 percent.
Southeast Asia accounts for a small portion of commissions although allocations have increased in 2011 from 2010, the report said.
But it is unlikely to be easy sailing for CIMB in Hong Kong, where Wall Street and European banks control a sizeable portion of the cash equities and investment banking business.
The deal with CIMB came after an auction for the sale of Asian assets of RBS attracted interest from firms including Bank of China Ltd and Japan's Mizuho Financial Group Inc.
RBS has halved the size of its investment bank as part of a major retreat since its 2008 taxpayer bailout, and has been forced by the British government and lower profitability across the industry to extend the retreat further.
Earlier this year, the bank had said it would exit its cash equities, corporate broking, equity capital markets and mergers and acquisitions businesses globally.
(Additional reporting by Yantoultra Ngui in Kuala Lumpur; Editing by Chris Lewis)