Malaysia’s CIMB mulls next move after merger setback

By:
Rob Hartley
Published on:

Malaysia’s quest to create a regional champion with a large Islamic bank came to an end when a plan for a three-way merger was scrapped. The country’s second-largest lender by assets is now retrenching to boost returns and eyeing strategic acquisitions.

CIMB-R-600


Malaysian bank CIMB Group is set to slash costs in its investment banking business as part of a new strategic direction after the collapse of the country’s mega-merger.

The breakdown left CIMB, along with the other companies involved RHB Capital and Malaysia Building Society (MBSB), with the pressing need to dust off old strategic goals or hastily think up new ones.

The firms entered into an exclusivity agreement to discuss various deal specifics in July last year, but this was followed by an announcement on January 14 that several months of discussions had come to nothing.

After the collapse, CIMB issued a strategy document at the start of February revealing the company will look at reducing its overall investment banking operating cost by about 30% in 2015 along with reshuffling its divisions and some key personnel.

The company then followed this up with an announcement it would be closing its offices in Sydney and Melbourne – a decision impacting the majority of CIMB’s 103 Australian staff. CIMB bought several investment banking units in Asia-Pacific from Royal Bank of Scotland in 2012.

T18

The strategy document, dubbed T18, explains that CIMB Group expects to achieve certain targets at the end of financial year 2018, including ROE of more than 15%; CET1 of more than 11%; cost-to-income ratio of less than 50%; and for consumer banking to contribute approximately 60% of its income.

CIMB’s aims are also now understood to involve bringing down headcount and other costs across the group.

However, expansion is also on the agenda, with the company potentially seeking an acquisition or a licence in the Philippines, according to a senior CIMB source. One analyst highlighted Bank of Commerce as a potential target for CIMB in the Philippines as the Malaysian bank has been previously linked with it.

A licence for the Vietnamese market could also be sought, the source says.

The lenders involved in the merger were keen to point to economic conditions and an inability to create value for all stakeholders as two of the reasons for the breakdown of the deal, but the senior CIMB source highlights more specific reasoning for the failure of the merger.

"It meant getting rid of some people and also redeploying some people in the mega Islamic bank," says the source, stressing that voluntary redundancy was the aim. "Whether we could have pulled off the layoffs in this economy was not certain. We didn’t think the anticipated cost cuts could be met in this environment."