While global banks pare down their businesses thanks to increasing regulatory requirements, they’ve suddenly become the regional item of choice for Asian financial shoppers.
According to The Wall Street Journal, approximately $96 billion of diverse assets including businesses and portfolio loans have piqued the interest of Asian buyers. Sellers from European banks are looking to decrease their balance sheets as buyers are on the lookout in this current buyers’ market.
Hot Companies for Sale
HSBC Holdings plc (NYSE:HBC) has been trying to dump its retail operation in South Korea to the Korean company, KDB Financial Group; it has completed deals such as the sale of its retail and wealth management businesses in Thailand to the Bank of Ayudhya.
Mitsui Sumitomo Insurance Co. (TYO:8316) one of Japan’s largest life insurers as defined from premiums, purchased a 50 percent share in Indonesia’s conglomerate Sinar Mas Group’s life insurance division for $815 million.
Even the U.S. has jumped in with the brokerage firm Piper Jaffray Co. (NYSE:PJC) trying to sell its Hong Kong arm; this has spurred interest from Chinese brokers. Across the pond, French banks have jumped in trying to grab discounted billion dollar loan portfolios.
The sales have also drawn new players to game. This includes the Malaysian CIMB Group Holdings Bhd.
CIMB Chief Executive Nazir Razak said of the recent activity, “The future was always going to be about the rise of many regional players; there is such a thing as being too big to manage.”
CIMB is currently holding talks to purchase RBS’s (LON:RBS) Asian equities franchise at a cheap price while eyeing cost cuts. The firm has expanded after a numerous acquisitions including an investment boutique and a Southeast Asian bank.
Razak has been instrumental in assisting the Malaysian government to forge ahead with plans to make the country a regional hub for financial services.
Japan’s Sumitomo Mitsui Financial Group Inc. has also joined the party.
Recently, Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) purchased the Royal Bank of Scotland Group PLC’s (LON:RBS) aviation leasing business for $7.2 billion. In a display of two different cultures trying to work together, SMFG spent a lot of time reviewing the business and played hardball in negotiations.
It wasn’t the first opportunity that has come to the large Japanese bank. According to The Wall Street Journal, in January the bank’s president, Koichi Miyata, said opportunities including European assets and businesses from financial firms valued at $96 billion have crossed his path.
With declining sales prices, comes an increased number of transactions. According to Dealoic, the Asian financial sector incurred 996 transactions in 2011 with the dollar value dropping 15 percent from the previous year.
What’s a Western Bank to Do?
Western banks are conflicted with the current landscape: they want Asian growth but also deal with pressure from home. In Asia, banking revenues have seen an annual average growth rate of 9 percent in the three years as compared to either flat or declining figures in Western markets, reported The Wall Street Journal.
Executives involved in the Asian markets are witnessing a reversal of the marketplace from 1997 with the low prices.
Many executives at foreign firms in the region spent a large part of their careers building up their businesses since the Asian financial crisis hit 15 years ago, only to now see parts sold at bargain levels.
Charles-Everard de T’Serclaes, head of J.P. Morgan Chase’s (NYSE:JPM) financial institutions group for South East Asia said, “The reverse of 1997 is happening; Asian banks and insurers are looking to use their high trading multiples to buy assets that are owned by western institutions in Asia. Some Southeast Asian financial institutions are rounding out regional platforms; Japanese insurers are gaining momentum overseas and the Chinese haven’t really started yet.”
As the U.S. slowly recovers, don’t expect to see U.S. banks excluded from the Asian shopping spree. They may be in the background for now but it will change. We don’t like to be excluded from growth opportunities.