RBS signs MOU with CIMB to sell part of Asia-Pacific business

CIMB continues to make the right moves to expand across the region. 

FINANCE ASIA:

The potential sale will include the UK bank's cash equities, ECM, M&A and corporate finance divisions in Asia and Australia.

After six weeks of trying to find a buyer for parts of its Asia-Pacific business, Royal Bank of Scotland yesterday signed a memorandum of understanding with Malaysia’s CIMB Group. The aim is to finalise a sale and purchase agreement during the next few weeks that will cover the cash equities, equity capital markets, M&A and corporate finance divisions in Asia-Pacific, including Australia, a source said.

The MOU was confirmed by CIMB and RBS in separate statements, but neither party provided any further details. CIMB said the MOU will allow it to negotiate exclusively with RBS to finalise the scope and terms of a sale.

There has been no information about what price CIMB may be paying or what kind of arrangement it is prepared to offer for the existing employees in these businesses, but the MOU suggests that RBS feels there is more value in selling these businesses than to close them down — which is what it has decided to do with these same divisions in Europe.

The main reason for the restructuring of RBS’s wholesale business and the decision to exit the cash equities, ECM and corporate finance businesses globally is clearly a need to cut costs and the management is believed to have come under a lot of pressure from the UK government, which owns 82% of the bank, to get this done quickly.

However, for the people negotiating a potential sale in Asia-Pacific, a key driver has been to enable a large portion of its employees to continue their work under a new roof. One source said that the businesses covered by the MOU employ about 600 people and at the moment the intention is for CIMB to buy the business with the employees. However, it is unlikely that it will end up keeping them all.

For CIMB, the most interesting part of RBS will be its businesses in North Asia and Australia, where the Malaysian bank has a limited presence but is keen to expand as it pushes ahead with its plans to become a regional investment bank. On the other hand, there is bound to be quite a bit of overlap with CIMB’s existing businesses in Southeast Asia and one can expect more job losses among the current RBS staff there.

Overall though, sources argue that the RBS business is a good fit for CIMB and one person noted that the two businesses combined would have ranked in the top 10 in ECM activity across Asia-Pacific last year and close to, if not inside, the top 10 in the brokerage of cash equities.

As with any merger, CIMB will have to work to realise the value of the business, but, assuming it does happen, the acquisition will give it the building blocks to become a competitive force in an Asia-Pacific context.

The MOU comes after RBS 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.

Initially, the bank was hoping to find one buyer for the entire business across the three regions and sources said there were some potential buyers looking at that. However, quite quickly it became clear that the best option to find interested buyers would be to sell different regions separately.

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. The agreement also includes the transfer of “certain other cash equities professionals” to Jefferies. The sale is expected to complete by the end of the first quarter.

However, on February 11 — less than one month after the initial exit announcement — 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. The closures will affect 200 to 300 employees and, if nothing else, they show the pressure the bank is under to get out of these businesses.

Aside from CIMB, there were a number of other interested parties for the Asia-Pacific businesses, including China International Capital Corp (CICC), but the Malaysian bank appears to have gained the advantage because of its ability to move quickly. Lazard is advising RBS on the sale.

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 global transaction services (GTS), and will be led by John Hourican.