Merrill Lynch recently announced that Aj Rahman and Samuel Poon were to become the co-heads of investment banking in the Asia Pacific region. Rahman and Poon have served at the coal face of Asia's capital markets for many years. Rahman has run Merrill's ECM business, while Poon has run DCM and more recently corporate finance at the thundering herd. Here they talk to FinanceAsia.com about the recent reorganizations within Merrill and plans for the future.
What is the party line behind the recent reorganization of Merrill Lynch in Asia?
Rahman: The firm globally has gone through a period of reengineering to fully understand the opportunities going forward and to find the appropriate size of the firm to avail itself of those opportunities. This is part of a global programme. So we've done a systematic review of all our businesses. We want to make sure that the message that gets out is that we remain very client focused. We have ensured that the coverage we have is the right size for the clients we are targeting.
How big are you now in Asia compared to your competitors after this recent round of right sizing?
Poon: It's difficult to answer in a meaningful way because this isn't just about headcount in specific locations. Investment banking is a global business. Clients will be serviced by Merrill bankers from country disciplines, sector disciplines and from product disciplines, according to their needs. However, you do need a critical mass based in the region and in that regard we are in line with all the other leading investment banks in the region.
Rahman: Looking back on my most recent experience running equity capital markets, we have had one of the smallest groups in Asia with about 10 professionals in Hong Kong. Yet we have done more in terms of market share than anyone else. So it is not a hindrance to success. We will continue to try to run the most profitable business we can run.
Given that Merrill Lynch has been focused on the private client business for the past few years, is there now a refocusing of resources within the firm on the investment banking side of the business?
Poon: The leaders of Merrill Lynch looked at the business and have said that there are no sacred cows. Everyone has to justify their existence by performance. All the speculation about us cutting this and us cutting that is just that ? speculation. On the other hand, each business has to contribute to the overall success of the firm.
Rahman: I don't think there is really any de-emphasizing of one business and emphasizing of another. It is a total assessment of each business and the opportunity each one offers. This is a pursuit of what will be the most successful lines of business for Merrill Lynch globally.
Poon: The fact is that there are still tremendous synergy opportunities, which we are not realizing that much at the moment. The private client business is a very important business and has great synergies with the investment banking business. For instance in Taiwan, we are acting very closely with the private client business to get a common target base. So each business - while it has to justify its own performance - will also work more closely together to generate more synergies.
So what are your strategic plans for investment banking in Asia?
Rahman: Our plans are part of the emerging new world at Merrill. We have gone through a re-engineering at the firm, but for those people who remain, the opportunities are very exciting. We now have a very lean and focused organizational structure where the emphasis is going to move to productivity, proactivity and profitability. So from where we are sitting, the opportunities are larger than they ever have been.
Remember, Asia is coming off a pretty weak base. There has been less than $15 billion of new equity and equity linked issues this year. In previous years that figure was $50 billion. But as we start to see the effects of the stimulation that's happening in the US economy and issuers return to the capital markets, the opportunities are quite significant. So now we are properly lined up to maximize that potential in a way that is going to be profitable for the firm.
Poon: If you look at Merrill's performance this year, we should be very proud. In the three key product areas of equity, debt and M&A we have done very well. Aj has already referred to the equity side where in a declining market we have increased our market share. If you look at the top five M&A deals, we are involved in four of them. The fifth is OCBC/Keppel where we were conflicted. On the debt side, we have been following a focused strategy. The deals we have done have been for blue chip clients such as Hutchison, Kepco and even PCCW ? a client we were never able to work for previously due to our role as adviser to Cable & Wireless. So our performance this year has been the best on the street and we have a very bright future for 2002 and beyond.
It seems strange then that since you have had such a good year, the cuts should fall so heavily on investment banking in Asia?
Rahman: The cuts are all around and in all departments, not just investment banking. Given that Samuel and I have been out in Asia for a number of years and being producing managers, our level of interaction with corporate clients has been high. So our combination will be a very effective force to lead the firm closer to our clients and help us develop strong relationships for the long term.
How will it work between you two? Do you have specific responsibilities divided up or will it be more of a good cop/bad cop situation?
Poon: Aj and I have worked together for more than ten years. We have worked together in London and in Hong Kong. Right now we haven't had time to iron out the division of labour, but I am sure the partnership will be seamless. The firm wants us to be very involved in client work not just paper work.
So has one layer of management effectively been taken out of the hierarchy?
Rahman: You could say that. We now have front line guys running the business and we are naturally client focused.
One area that seems to have been targeted in the recent cuts is the FIG side. Again, given that you have had a good year in FIG and that this sector looks ripe going forward, why has this area been cut and what are your plans for the future?
Poon: You must be referring to the departure of Steve Theobald. Steven's at a stage in his life where he has decided to do something else and we respect his decision. That is all. But as you said, if you look at all the major FIG deals of the year, we have played a role in all them, where we have not been conflicted out. When we do these deals we bring bankers in who have the relevant experience from all over the world. And our bankers in the region have a lot of industry expertise in the financial sector as well, including myself. We are sad to see Steve go, given his seniority, but it does not affect our operations at all.
Some of your competitors complain that you are like the cuckoos of the capital markets ? you muscle in on other people's territories and steal their deals. They further contest that you do not have the deep strategic relationships that they have with their clients. How do you answer those charges?
Rahman: If you look at what we have done on the ECM side, the quality business we have done over the past few years has been with the best companies in every country concerned. Throughout the region we target the super-core accounts and they are the strongest, best companies in that country. In order to do that effectively, you have to have a very strategic outlook. Our results speak for themselves.
Poon: You have mentioned that we tend to execute very well. That is exactly how you build good relationships. Once you have done one good bit of business for them, they tend to trust you with another. That is what has happened with all the super-core accounts whom we've succeeded in building excellent relationships with over the last couple of years.
So the message is that you are still strong and your competitors should fear you as much as ever?
Rahman: That is exactly right.
