Australia deal will test CIMB

MALAYSIA’S second-largest banking group, CIMB Group Holdings Bhd, is scoring some success in Australia’s investment banking scene.

Its partnership with the Royal Bank of Scotland is yielding some results, as highlighted by two major deals.

CIMB bankers elbowed their way past familiar names in the clubby world of Australian investment banking when they clinched the sellside mandate to advise Warrnambool Cheese and Butter Factory Co, the target in a three-way global takeover battle, according to Reuters.

Earlier his month, CIMB was the sole underwriter and bookrunner for a stake sale worth A$503mil (RM1.49bil) in the world’s No. 4 iron ore miner, Australia’s Fortescue Metals Group Ltd.

In its diversification overseas, CIMB not only brings its investment banking expertise abroad but has also to contend with big names in that particular country.

Among them is the chief executive of Lazard Australia, John Wylie, who is leading Murray Goulburn Co-Operative Ltd’s charge in the takeover battle, says Reuters.

The Australian corporate scene has large companies that offer more potential for advisory work.

CIMB’s networking and risk management expertise will be put to the test. Risk management, especially, is an area requiring a lot of experience and expertise.

In the recent penny stocks fiasco on the Singapore Exchange Ltd, CIMB said it had no margin exposure to the three stocks whose share prices went into a free fall, and that its losses were negligible.

Asia as a commodities trading hub received a boost via the US$150mil (RM483mil) purchase of the Singapore Mercantile Exchange Pte (SMX) by the IntercontinentalExchange Group Inc (ICE).

SMX operates futures markets in Singapore across metals, currencies, energy and agriculture but has attracted limited volumes since it started in 2010, says Reuters.

ICE has a significant Asian energy customer base that it will now serve out of Asia, unlike previously from Britain.

ICE’s customers in Asia have also been vocal about their concerns over the regulatory uncertainty in the United States and Europe, writes Reuters, quoting ICE’s chief financial officer Scott Hill.

When the deal is completed, Asia through Singapore will be part of ICE’s footprint in the United States, Canada, Brazil, London and Continental Europe.

It is worth noting that ICE is investing into SMX not because SMX is making money, but more to develop its presence in Asia.

In fact, SMX’s parent, Indian trading platform provider Financial Technologies, has run into regulatory difficulties, notes Reuters.

“We see the potential of the energy world maybe trading more in Asia than it does today, and we want to be prepared to serve that,” Hill said recently.

It is a positive sign that global trading groups like ICE view Asia as a growing market and are prepared to sink in money to develop that market.

Asian companies should brace themselves for higher premiums by constantly improving on bottomlines, quality and delivery.

The season of fines is not over. JP Morgan’s record US$13bil settlement related to home loan bonds is in marked contrast to the US$1.9bil penalty brought against HSBC for money laundering last December.

Now, individuals are the next target. The US authorities had so far struggled to charge senior individuals over the excesses of the financial crisis, says Reuters, quoting Columbia law school professor John Coffee. “But the government is still looking. We may yet see another shoe drop,” Coffee said.

Of the US$13bil resolution by JP Morgan, US$9bil will be paid to settle federal and state civil claims by various entities related to residential mortgage-backed securities, reports Reuters.

The remaining US$4bil will be used to reduce urban blight in areas such as Detroit, and to offer lower rate loans to low-income home buyers.

This settlement is, in a way, seeking justice for affected home-owners who should be reimbursed promptly, and credit unions that have been paying for losses caused by financial institutions covered by the settlement.

Columnist Yap Leng Kuen notes that money collected via fines is accounted for in a transparent manner.

Australia deal will test CIMB