Mary MacLeod is busy. She might also have, right now, the most interesting job in investment banking in the world.
New Zealand born and Australia trained, MacLeod jumped companies and cultures early last year, swapping a super-steady job in Hong Kong as Asia-Pacific chief operating officer at Deutsche Bank for the uncharted and politically shark-infested waters of ICBC International (ICBCI), the foreign division of Beijing’s largest lender, ICBC Bank.
In so doing, deputy CEO MacLeod became the most powerful foreign banker in the People’s Republic of China, in charge of hiring and firing at a brokerage that sees itself as China’s premier global investment bank and the natural heir and successor to Goldman Sachs. No pressure there, then.
Not that the concept of stress seems to exist in her lexicon. Meeting at her offices in Hong Kong’s Three Pacific Place, MacLeod appears the epitome of a cool head. She arrives looking unflustered, clutching only a sheaf of notes.
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| Mary MacLeod, ICBCI |
MacLeod has little time for tomfoolery or small talk. Time restrictions mean it’s straight down to business, and she briefly outlines ICBCI’s ambitions. "In the short to medium term, our aim is to become the leading investment bank in greater China, then to be the leading investment bank in Asia," she says, settling quickly into a rhythm. "Longer term, ICBC Bank is globalizing its operations, so it makes sense that its investment bank, ICBCI, would follow the same trajectory."
Not that this means emulating the west’s troubled, retrenching investment banks. Beijing, post-financial crisis, has grown to resent, even ridicule, the brokerages (with the exception of Goldman Sachs) that it once lauded and courted. Imitating a financial model it views as both failed and barbarically imperialist would be a step too far.
So MacLeod adds a sizeable caveat. "We aren’t trying to turn ICBCI into a western investment bank. Our aim is unquestionably to build a global investment bank with Chinese characteristics. We want to build a culture that is uniquely our own, that is both global and Chinese, that can sit comfortably in any part of the world."
There is, however, no doubting the sincerity of ICBCI’s aspirations. This is an organization that genuinely sees itself as a future great: a brokerage that will one day advise on global mega-mergers and underwrite stock listings from London to Lagos. And it sees this as its time in the sun. ICBC Bank chairman Jiang Jianqing regularly refers to 2012 as the year of investment banking in speeches and internal memos.
As Chinese corporates expand into markets once dominated by the west, Beijing wants party-directed lenders such as ICBC to channel funding into asset-hungry mainland corporates. In the same vein, it wants the likes of ICBCI to advise those corporates on who to buy and where, and to help them load up on fresh equity and debt as they take on the world.
"Ten years ago," says MacLeod, "Chinese companies sourced around 3% of their non-debt corporate funding from the capital markets. Today, it’s 18% and growing. As China’s corporate landscape changes and as PRC corporations expand their global needs, we want to be there alongside them."
Such a shift in the fabric of global investment banking would have seemed preposterous a few years ago. Now, the prospect of a global Chinese broking powerhouse doesn’t seem outlandish.
However, global domination is a way off. ICBCI is still learning how to walk. As recently as late 2008, the brokerage was still clad in the moth-eaten clothing of its stodgy forerunner, ICEA Securities, a Z-list brokerage with an empty mandate book and less appeal than roadkill.
So ICBC Bank decided to do the humane thing, killing off ICEA and resurrecting the brokerage as ICBCI, adding an I to the group acronym to denote its global aspirations. In doing so, the brokerage followed the lead set by Bank of China International (BOCI) and since copied by every mainland lender with global ambitions.
After its inauguration, the brokerage barely paused for breath before splashing its cash. According to one insider with knowledge of the situation, ICBCI has spent "tens of millions of US dollars on new bankers", and is preparing to spend "tens of millions more" next year.
Lee Zhang was the first to join. The 47-year-old rainmaker left Deutsche Bank in April 2010 for a dual role that saw him become a senior executive vice-president at ICBC Bank and chairman at the new ICBCI.
Huang Mingxiang, a "tough and commercially-savvy banker", according to one insider, was appointed chief executive officer and vice-chairman at ICBCI. Huang, like Lee, also maintained his ties at group level (essential for such a bureaucratic and political institution) thanks to his role running the bank’s sprawling operations in the southern Guangdong province.
MacLeod joined early last year after a long courtship to oversee hiring and administration across the front and back end. The rest of the year saw a steady inflow of origination bankers with solid pedigrees, and a smaller number of execution specialists.
Wang Zhonghe (Charles Wang) also moved over in September 2011 from Deutsche, where he had most recently served as CEO of the German bank’s mainland joint venture, Zhong De Securities, becoming a second deputy CEO at ICBCI alongside MacLeod.
Gary Chan was encouraged to leave an ailing Macquarie to head the global equity capital markets team, while Wu Gang, a mainland-born banker with a plummy accent thanks to a private English education, was hired from RBS to run the mergers and acquisitions team.
And still they came. Ma Dongjun served his time at Lehman Brothers and Nomura before joining in May 2010 as ICBCI’s head of investment banking.
Lance Chen came in as head of execution in September 2011, having worked in investment banking for 20 years, most recently as a managing director at JPMorgan’s mainland China operations. Born in Taiwan (as is his wife, Yu Pei-pei, Goldman Sachs’s president of operations in Taipei), Chen was drawn to ICBCI as much by the higher salary-bonus package (rumoured to be $2 million, against an estimated $1.2 million at JPMorgan) as by a big dangling carrot – namely, the chance to rise more rapidly up the corporate ladder.
So too was John Fei, another long-time banker, who also joined in September 2011 as head of capital markets, having most recently served as head of investment banking at Zhong De Securities under Zhonghe Wang. Fei, insiders says, is very much seen as "Lee Zhang’s guy" – the likely successor to Wang as global head of investment banking within a few years. "He is a hard-driving deal junkie focused on clients’ needs," says a colleague. "He knows mainland politics well, from his time working in the PRC [for Zhong De]."
Looking at this core team of Mandarin speakers, you can see ICBCI’s expansion strategy at work. First they focus on banking China, helping mainland corporates raise equity in Hong Kong. Asia comes next, then the world. MacLeod notes: "China is where we have our natural home advantage and so that is where the vast majority of our effort is focused. ICBCI is barely two years old. We want to grow [market] share at home before we step further afield."
In terms of products, she adds, the focus is on ECM deals for the time being. "It’s 70% of the Hong Kong fee pool so, naturally, that makes most of our focus," she says. "We recently entered the debt markets in Hong Kong, and we are looking to actively engage in M&A deals out of China."
Beijing wants the investment bank to not only succeed, but also to blow both foreign and domestic competition out of the water – or so insiders at the brokerage feel. Executives at both bank and brokerage believe they are viewed by China’s leaders as the chosen ones.
"Beijing wants us to succeed," says one ICBCI banker, who goes as far as describing ICBCI as the "Goldman Sachs of Chinese investment banking". He adds: "There is a pecking order in China, and the [communist] party wants us to succeed. They see us as China’s number one."
ICBCI's domestic rivals are not cowed by this thinking: both BOCI and China Construction Bank International believe their institutions will lead China’s outward charge. Bankers at both rival Is scoffed at and dismissed ICBCI’s "ridiculous, arrogant" aspirations while talking up their own future number-one status.
ICBCI won’t have everything its own way, either in terms of domestic competition or when it comes to the brass neck needed to take on a host of vested global-banking interests.
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| ICBC Bank chairman Jiang Jianqing regularly refers to 2012 as the year of investment banking |
Already, its global-expansion strategy has been scaled back. Through most of last year, ICBCI talked internally about carpet-bombing the world with new offices across Europe, Asia and the Americas, followed by Africa and the Middle East.
Market turbulence reined in these bold ambitions. ICBCI emissaries are looking for more office space in London and New York, insiders say, but plans for branches in cities across Asia and the Americas have been put on ice.
However, there is only one market that is out of bounds for the foreseeable future: the People’s Republic itself. "We aren’t allowed to apply for a [mainland] A-share [underwriting licence]," says MacLeod, keeping a commendably straight face.
To some extent, the group’s global push has started. ICBC Bank owns 20% of South Africa’s Standard Bank, bought in 2007. In August, it snapped up Standard’s Argentina division for $600 million, acquiring 103 bank branches in a nation whose second-largest trading partner is China.
ICBC has also stated its desire to open a bank in Brazil and buy a US lender; at group level the bank has branches in 25 global cities, from Amsterdam to Toronto, and Hanoi to Doha. Each strategic move brings a new nation or region into play, for both bank and brokerage.
"Investment banking is a central plank of ICBC’s growth and transformation strategy," says one senior ICBCI executive. "As China’s capital markets become more sophisticated, it is very important that [we] offer the full spectrum of funding to our clients."
Another key facet of ICBCI’s future success lies in private equity, an area MacLeod is quick to highlight. "We have a principal business that is either investing its own capital or alongside fund structures," she says. "Proprietary investments are a very big opportunity for us. We like that model as it allows us to take care of [our clients] from cradle to maturity, providing seed capital, helping them grow, list, do secondary placements, and then on to M&A."
Sometimes, this model works wonders. When Trony Solar, a Shenzhen-based maker of thin-film solar wafers, pulled its planned $200 million New York initial stock sale in late 2009, ICBC Bank moved in, pumping $50 million-worth of fresh equity directly into the firm.
Less than a year later, in October 2010, Trony completed its IPO, this time in Hong Kong, raising HK$1.73 million ($222 million). But by then its underwriting team had shifted. JPMorgan was still on the ticket alongside CLSA. But Credit Suisse was gone, replaced by ICBCI.
ICBCI’s work on the IPO was noteworthy, highlighting the brokerage’s compelling attributes, as well as its deficiencies. One leading institutional investor said the Chinese broker was "invisible – I didn’t see them at all".
He adds: "It’s rare to see them on Hong Kong deals really. Their sales team is pretty weak; most global institutions won’t talk to them." That view is mirrored around the Hong Kong institutional investor arena, where ICBCI, like a rare jungle cat, is whispered about but rarely seen.
Here the problem is ICBCI’s lack of global clout. "They couldn’t sell [Trony] into the US as they don’t have an operating licence there," says a rival Chinese banker, who worked on the IPO. "They are limited to selling into Hong Kong, where their coverage is small on the institutional side, and the PRC."
Yet that’s where ICBCI came into its own, leaning on its parent’s contacts in the mainland. Despite "taking a back seat on the [Trony deal]", according to the banker, ICBCI covered 20% of the book, mainly through orders out of the mainland. It also dragged in a key anchor investor on the deal, Huadian Power International, a large Chinese power producer, which committed to buy $20 million-worth of equity.
ICBCI benefits from its parent’s financial power in other ways. ICBC Bank’s close ties to insurance organization AIA Group in the mainland, where it provides Bancassurance products, helped seal ICBCI’s role as one of 11 underwriters on AIA’s $20.5 billion October 2010 Hong Kong IPO. This strategy, notes MacLeod, mirrors ICBCI’s aim of becoming the world’s banker in China, accompanying foreign multinationals as they expand into the PRC.
The financial depth of ICBC and other mainland banks is also changing the way IPOs are financed and handled, at least in Hong Kong. Hard underwriting is in vogue, as Chinese brokerages look to muscle in on big-ticket equity deals.
Take October’s Hong Kong listing of Chinese brokerage Citic Securities. ICBCI and five other mainland brokerages offered to hard-underwrite the deal. Citic was tempted, but chose to accept $850 million in pre-IPO financing from six cornerstone investors. ICBCI’s clout wasn’t needed – but the brokerage is betting that its willingness to commit funding to a tough market will give it first underwriting dibs on Citic Group’s expected $10 billion listing this year.
Hard underwriting does not always work. Take the XCMG Construction Machinery train crash in September, one of the ugliest (non-)Hong Kong listings in years. The Jiangsu firm’s IPO started off top-heavy, weighed down by six brokers, including Credit Suisse and Morgan Stanley. Then things got weird. Spooked by choppy markets, XCMG dragged in six more underwriters: Goldman Sachs and five Chinese brokerages. The trade-off was simple: pledge funding to the deal and you’re in. ICBCI happily stumped up $300 million. But when the newcomers realized they were the only ones promising to fund the sale, the recrimination and finger-pointing began. XCMG’s deal was slashed to $1.2 billion from $1.5 billion, then shelved altogether.
Failed deals such as these have kept ICBCI marooned in the equity league rankings. The brokerage placed 17th in the year to December 16 in terms of ECM deals done by Chinese firms in Hong Kong – replicating its ranking in 2010 and 2009.
Hard underwriting is fast becoming a bone of contention in Hong Kong, as Chinese brokers vie for supremacy with global investment banks. The former say they have no choice. "It is the only way to make our name," says a banker at CCBI. "We can’t claim to be better than Goldman Sachs, but we can offer one thing that everyone is short of in a bad market – hard cash."
MacLeod notes: "From [our] perspective, this trend in global capital markets is what helps us grow our market share more quickly than a standalone investment bank."
There are, inevitably, bugs in the system. ICBCI’s rise from the ashes of ICEA wasn’t without incident. Bankers at the defunct brokerage, mostly underperforming, old-Hong-Kong hands used to knocking off early on a Friday, grumbled in the local press when handed early retirement. Some remained, with MacLeod handed the delicate job of balancing bruised egos.
Insiders point to deficiencies in areas such as research, communications and human resources, with too many senior administrative staff being forced to micro-manage multiple roles at once.
MacLeod refuses to accept the suggestion that the platform is still incomplete but she is gearing up for a new hiring spree this year. "We have a very aggressive growth plan," she says. "We will hire front-office staff in execution and origination that will support the fund business. And we will hire across the back office to ensure we build out the infrastructure that helps us manage our growth and mitigate risk."
Sales and execution is another area of concern. The sales team is overseen by a respected ICBC veteran, Ye Weidong, and Laurie Jiang, brought in from JPMorgan, but the talent pool is ankle-deep.
This matters. ICBCI’s reputation on the global investor circuit is virtually nonexistent. Shares in Citic Securities were trading at HK$13.36 on December 16, less than 10 Hong Kong cents above its offer price. Trony Solar’s shares were trading at just HK$1.25 the same day, down from their offer price of HK$4.50. Investors on both sides of the fence are starting to take notice: ICBCI and its compatriots cannot afford too many more dud IPOs on their books.
Over time, its culture will have to change. It will need to employ more non-Mandarin speakers, though there likely won’t be any shortage of takers. Intriguingly, while many Chinese bankers sniff at the mere thought of joining ICBCI or another Chinese-global I, western bankers are taken by the idea.
"What attributes do I really have here," asks one European banker. "I’m good at what I do but my job really isn’t very complicated. The future [in Hong Kong] is with the Chinese banks. I should learn Mandarin and join ICBCI or BOCI."
Many leading foreign banks in Hong Kong are also privately rattled at the rise of the Is. "ICBCI is like a kid at the moment, but kids learn fast," says the head of Asia investment banking at a leading US firm. "They are going to be challenging for top spots on IPOs here maybe within a year or two, you can bank on that. What do the foreign banks do then? It’s going to be really tough for all of us."
ICBCI, of course, has far to go globally, particularly when it comes to cracking the likes of Europe or the US.
However, it’s hard to doubt that MacLeod chose the right path in leaving Deutsche. Her new job is complex: constant meetings interspersed with the delicate process of managing one of the world’s most political investment banks.
Yet it seems to be working. At the group’s annual offsite in the eastern city of Hangzhou in November, presided over by ICBC vice-chairman Yang Kaisheng, MacLeod opened events with a keynote speech delivered in solid Putonghua, a language alien to her 12 months ago.
She refuses to get drawn into discussion of the daily intricacies of her role, admitting only, with a small smile, that it’s a "fascinating role and a great opportunity", for a bank that has "all the necessary ingredients to build substantial scale globally". And with that, she’s off, drawn back into a mysterious world of endless Chinese meetings.
