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CIMB’s decision to sell half of its international brokerage operation to China Galaxy Securities is an interesting step that tells us just how much China is expected to dominate the entire region’s financial services in years ahead.
Why would CIMB, whose CIMB Securities International business holds the group’s ex-Malaysia stockbroking businesses in Indonesia, Singapore, Thailand, Hong Kong, South Korea, the UK and the US, choose to sell half of the operation?
Not for the money. It is true that the bank has pledged to cut costs. But the S$167 million ($120 million) price for 50% of the business, representing 1.3 times consolidated net asset value, is pretty inconsequential for a bank that is doing just fine financially. Its first-quarter results to March 31, 2017 showed a record quarterly net profit of RM1.18 billion ($277 million), up 43.7% year-on-year on a pre-tax basis. The bank’s common equity tier-1 ratio stood at a healthy 11.3% at the end of December 2016 and has been moving upwards.
One could argue that it is a low-return business. International banks are exiting Asian brokerage left, right and centre, and in January CLSA CEO Jonathan Slone, who runs the biggest pure-play brokerage left in the region, described the intense difficulties involved in keeping the business profitable.
