While it is still in negotiations with CIMB about a sale of part of its wholesale businesses in Asia-Pacific, Royal Bank of Scotland yesterday told staff and clients that some of the businesses in question will not be included in a potential sale to the Malaysian bank and will be closed down.
Specifically, this refers to the cash equities, equity capital markets (ECM) and corporate finance divisions in South Korea, and the cash equities businesses in Indonesia and Singapore. About 70 people who currently work for these businesses will lose their jobs as the operations are wound down.
The closures will only affect businesses that RBS has already said that it will exit, either through a sale or by winding them down. The bank will continue to have a presence in all three of these countries — and eight other markets in Asia-Pacific — through its remaining wholesale banking businesses, which include debt capital markets, the financial institutions group, FX and fixed-income banking, equity derivatives, as well as transaction services and risk management.
Yesterday’s announcement comes three weeks after RBS and CIMB said they had signed a memorandum of understanding that would enable them to enter exclusive negotiations with regard to a potential sale of RBS’s cash equities, ECM, M&A advisory and corporate finance divisions in Asia-Pacific, including Australia. The aim was to sign a sale and purchase agreement within a few weeks.
The fact that parts of these businesses have now been carved out from a potential deal and will instead be closed down will come as a disappointment, particularly to the employees in Korea, Singapore and Indonesia. However, it isn’t entirely surprising since there is an overlap between RBS and CIMB in certain markets, specifically in Southeast Asia where the Malaysian bank has a broad presence on the back of several other acquisitions in recent years.
In an internal announcement, RBS said that the goal was to sell all of the Asia-Pacific businesses together, but “for commercial reasons” it has agreed with CIMB that some of the businesses in Korea, Indonesia and Singapore will not be part of the sale.
The fact that CIMB isn’t interested in any of the businesses for sale in Korea is interesting as it suggests that the Malaysian bank doesn’t plan to expand into this market. It currently has no presence in Korea, according to its website.
At the time of the MOU one source said that CIMB was mostly interested in RBS’s businesses in North Asia and Australia, where it has a limited presence but is keen to expand as it pushes ahead with its plans to become a regional investment bank. It now seems as if CIMB’s interest in North Asia referred primarily to China.
However, according to a source, it seems likely that RBS’s securities joint venture in China will not be part of the sale either. While most banks have been setting up these JVs with the intention of being able to underwrite domestic A-share issues and eventually also participate in brokerage of domestic shares, the JVs are also able to underwrite domestic Chinese bond issues and this will fit well with RBS’s existing DCM and FX platforms in China. Notably, the UK bank has been putting a lot of focus on both onshore and offshore renminbi business.
Also, it isn’t clear whether China would allow RBS’s one-third stake in the JV to be transferred to a different international entity.
The JV with Guolian Securities opened for business at the end of May last year under the name of Huaying Securities, making RBS the first UK-based bank with direct access to China’s primary equity and bond markets. At the time, the JV partners said that Huaying plans to target China’s growing entrepreneurial sector, specifically small and medium-size private businesses that are looking to raise money in the equity capital markets for the first time.
According to a source, the businesses covered by the MOU with CIMB employ about 600 people, or about 20% of the roughly 3,000 employees that RBS has in Asia-Pacific. Excluding the 70 people that will now be let go in Korea, Indonesia and Singapore, this suggests that a bit more than 500 people will be affected by a CIMB acquisition. However, negotiations are ongoing and that number could still change.
So far, there has been no information about what price CIMB will pay for the RBS businesses or what kind of arrangement it is prepared to offer to the existing employees.
RBS, which is under pressure from the UK government to cut costs and to focus its resources on its key areas of strength, announced in mid-January that it would reorganise its wholesale business and close or sell its cash equities, mergers advisory, corporate broking and ECM operations in Europe, the Middle East and Africa, and Asia-Pacific as part of a plan to cut 3,500 investment banking jobs across the globe in the next three years. The UK government owns a total of 82% (including B-shares) of the bank following a rescue takeover during the global financial crisis.
On February 1, the bank announced that it had agreed to sell its RBS Hoare Govett corporate broking operations in the UK to Jefferies for a nominal cash consideration and on February 11 it told staff that it had decided to wind down parts of its ECM and cash equities business focusing on Europe, the Middle East and Africa (Emea) after failing to find a buyer.
As reported earlier, RBS is creating a new wholesale banking division out of its remaining businesses, called markets and international banking. The new division will incorporate debt capital markets and the financial institutions group, as well as the banking business that is currently part of global banking and markets (GBM) and the international arm of its global transaction services (GTS) division. The new division is led by John Hourican.
