FA: In your results last year, 13% of the global profits and 14% of the global revenues came from Asia. How will that figure look this year?
Balme: At least the same. But going forward, Asia will become strategically more important for the bank.
FA: On the investment banking side, you are very focused on certain areas. BNP Paribas Peregrine is focused on small cap China business. BNP Paribas Oakreed is focused on Hong Kong dollar bonds. Do you have plans to become a full service firm or will you continue to focus on niche areas within the general investment banking market?
Balme: The global strategy is to be a global firm in all markets. But we also have to recognize that there are some businesses in which if we want to be successful and profitable we have to play in some niches where we know we have a good franchise or some specific knowledge, or a specific capacity to move faster and quicker than the competition. So it is true that we have that strategy of being very practical. Peregrine is a good example. The big, big IPOs go to the US firms because they have the US franchise. We realize that and we have created a strategy that ensures that we do the rest of the business. And we make as much -- if not more -- profit than the American banks using this strategy. But the global view is that over time we will become a full service firm covering all these markets.
FA: Francis Leung is moving away from your business -- the small niche that Peregrine dominated –- to a very different type of business. How will he fare?
Balme: It is still greater China, it is still corporate finance and very equity market driven. So he is still in what he knows best. But certainly, it [Citigroup] is a very different organization and he will have to adjust.
FA: And you think that BNP Paribas Peregrine will be fine without him?
Balme: Yes, we will be fine. The team is working well. Business is good. It is all doing very well.
FA: Where does Asia need finance and what can you do to provide that finance?
Balme: We have a strong position in the greater China equity markets. Our position is not that strong in South East Asia. We definitely want to build a better franchise in the Singapore and Malaysia markets. Today, those markets are not that big, but they may become bigger and more active. Australia is a market of great interest to us. We already have a brokerage and corporate finance business there but we certainly could do more. And Korea is a market where our presence is too small and where we could do more. We have hired a research team there and before the end of the year we will have a full corporate finance team in place.
Cheng: This is also very true for the loan market. We are very strong in the Hong Kong loan market in terms of arranging loans. Today we have a team in Hong Kong but we want to extend our capabilities to other Asian markets. So we are building up regional presence. If you look at the syndicated loan market, a lot of the loans going to other countries are syndicated out of Hong Kong. That is why we want to maintain our strong presence in HK and at the same time to expand in other countries in the region.
FA: Isn’t the loan market very competitive these days in terms of fees and spreads?
Balme: Yes it is. But in terms of the number of deals done this year, we have done more than any other bank in Hong Kong.
Cheng: You are also starting to see some resistance from the banks in terms of how low they are prepared to go with their margins. It is right or at least close to the bottom now.
FA: You have been fairly busy on the acquisition front over the past few years and you have mentioned certain areas where you want to expand -- consumer finance, asset management, retail banking, corporate finance and e-banking. In general, what is your approach to acquisitions? What do look for and what do you try to avoid?
Balme: There is no particular capital dedicated for Asia or capital dedicated for each business. We know where we want to expand and we know where we are not so keen to invest. Any project big or small in those areas which are considered as an area of strategic development of the bank, can be proposed. These are worked on by the development team we have in head office and with the specific business line locally.
FA: Have any of your acquisitions in Asia gone wrong?
Balme: No. We have been particularly successful in Asia.
FA: What lessons have you learnt from all these acquisitions?
Balme: There is a French expression which goes something like, 'buy when you hear the cannons and sell when you hear the bells'. So it is always better to buy in bad times. Peregrine is almost a perfect case study of this. We bought Peregrine at the worst time but it turned out to be the best time for buying.
FA: But you didn’t actually buy Peregrine as a corporate asset?
Balme: No, we took the full Greater China equity team, all the files, all the mandates and the name and some bits of furniture.
FA: Can you reveal what your return on investment with Peregrine has been?
Balme: Yes…excellent. But it was a unique case. You will not find many more of those today.
FA: You mentioned that you want to increase your private banking and asset management business. What are you going to do?
Balme: Here in Hong Kong we are probably number five or six in this business. And we definitely want to be stronger than that. We are a big team with something like 60 marketing officers. But we really want to go one step further. It is a question of the quality of the team we can assemble. In private banking you can acquire teams, but you cannot acquire businesses. In asset management you can acquire business. But in this area we don’t usually want to do full acquisitions; rather we want to do partnerships. We will join with a very good firm in the local markets with a strong and large customer base and a good knowledge of the local market. What we bring is the capacity to deliver global products to that clientele.
