FinanceAsia: So what is the status of Bank of America's investment banking business in Asia?
Shankar: We are disengaging from M&A advisory and equity related investment banking. We will continue to stay in debt-related investment banking -- syndicated loans, project finance and fixed income. That's the status.
Why was it decided to stop M&A and equity investment banking?
It was due to the strategic imperatives of the bank. They were looking to cut their global expenses and have decided to focus on a few things internationally, and at this point in time they felt that M&A advisory and equity was not core.
It seems that when things get tough for US banks at home, they cut resources in Asia.
With a name like Bank of America, the bank has to keep a very strong presence in America. Generally, institutions tend to place most of their resources in their home markets. You cannot ignore it. So the US has first call on the bank's resources. Then the longer the distance from head quarters, the less call on resources that region has.
What has happened to the clients with whom you had M&A and equity mandates?
We had to disengage them all. We have now terminated 99% of them and by July 31 we will essentially be out of the business. We worked with the clients to make sure they were not left high and dry. We provided assistance to them throughout the transition. When they were able to find another adviser, we transferred all the files and models to that adviser.
So have all the staff now left? And how many have been affected?
The total number of staff impacted by this decision was about 40 professionals. Of those, four or five have decided to stay with the bank in corporate banking type positions. The balance of 35 has left.
And so what are you going to do now?
I am going to CLSA. I will be working for Mike McCoy and Rodney Smyth. I am joining them as a senior managing director with the firm. A few of the Bank of America people are joining with me.
How many are you taking?
At this point, four are coming with me but a further two or three could come later as well. But CLSA is a very strong player in the investment banking scene and they dont need to hire big teams. They need 'infills', if you will.
So what will your focus be at CLSA?
Broadly speaking, it will be investment banking and corporate finance. But specifically, CLSA is going to start to have access to debt and be able to provide its clients with debt through structured finance and mezzanine finance products. This will be linked to equity and M&A take-out by CLSA. The balance sheet will be that of Credit Lyonnais. So my focus in the first six months is to make sure that gets going. Its a new departure for CLSA.
Have you been talking to CLSA about joining them for a while or has this just happened?
I have been talking to them for around nine months. I know Gary Coull very well. He is a good friend.
How would you describe the investment banking business in Asia and the opportunities for investment banks here in Asia?
Well, number one, you have got to be in it for the long haul. Number two, you have got to be fully committed to it. This is not a game played from the service line; it is played from the base line or from the net. You are talking about economies that are the fastest growing in the world so there will be a huge accumulation of wealth here. There is going to be more institutionalization of pensions and social security. There is going to be more corporate reform. There is going to be more focus on corporate governance. And there will be more and more disintermediation of traditional banks. If you add up all these factors, you dont need to be a genius to work out that this is going to be a damn good business going forward.
So opportunities abound?
Correct. But in the investment banking business as in any other business you have your cycles. You cannot look at this as a quarter-to-quarter business, nor even as a year-to-year business. You have to take a four to five year view. The other aspect is that you have to keep your costs under control in the investment banking business which I managed to do here [at bank of America]. We never lost money during the five years I have been here. CLSA is very similar in that they have a very lean cost structure. There aren't as many elephant deals here as you have on Wall Street. Asia is a different market. It is like a cricket game where there are lots of singles and twos rather than fours and sixes.
What impact has the mergers of commercial and investment banks had on the market?
In Asia, the one that has clearly made its presence felt through a universal banking platform is Citi/Salomon. It is still too early to say what impact JPMorgan/Chase will have. I think they will have an impact going forward, but I think they are still digesting the mergers. At Bank of America, we really have not built up the investment banking platform, especially in equity research and equity sales and trading. We were always very targeted and very niche.
So what lessons will you be taking to your new job?
The key lesson is that focus is very important. Focus on the right clients. Focus on the things that you do well. Repeat business is better than a series of one offs. And keep costs under control.