Who’s who if the merger happens

By Stephanie Jacob

People are going to figure highly in the three-way merger between CIMB Group (CIMB), RHB Capital (RHB) and Malaysia Building Society Bhd (MBSB) who have entered into a 90-day exclusivity period aimed at a merger to create a mega bank.

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Most analysts and industry watchers agree that the success of the negotiations over a potential merger will largely depend on the price and valuations that are offered. However should talks be fruitful the success of the new mega bank will be highly dependent on who will helm it, and also how well operational costs can be rationalised.

A report from PublicInvest suggests that a potential merger might in fact be value destructive if not properly executed with cost increases being a key factor. It noted that both CIMB and RHB already have high cost-to-income ratios, which could rise further on factors such as high integration costs.

For instance, the new group will have 50% more branches than Malayan Banking while assets of the merged group will only be about 6.2% higher. Not only will there be a surfeit of people at the top, there are likely to be major branch rationalisations which will mean jobs being cut.

Who will be who in the new bank?

Banking groups have perhaps one of most complicated senior management structures around. There is the group chief executive officer (CEO), different regional and segmental CEOs, and the chairmanship.

If news of this potential three-way merger had emerged in June, not many would have looked further than current CIMB group CEO Nazir Razak to fill the position of group chief executive. Long known for his corporate savvy, Nazir is perhaps Malaysia’s most recognisable banker and would seemingly be the obvious choice.

However with CIMB announcing last week that Nazir will be redesignated as its chairman in September, his name is off the table – although it is a given that he will continue to be chairman of the enlarged group.

Sources consider it unlikely he will come back into an executive role. That said he will already head an executive committee of the board at the CIMB Group level, and therefore will likely monitor executive performance at the enlarged bank.

They add that the three groups were looking at the merger idea even before CIMB announced Nazir’s redesignation. So who then is to lead this banking behemoth as CEO?

Finding the right candidate for key posts it set to be tricky — names like Tengku Zafrul Abdul Aziz (head of investment banking), Lee Kok Kwan and (head of corporate banking), Renzo Viegas (head of consumer banking), all from CIMB are well known and respected within the industry. RHB is also not short of banking expertise with Kellee Kam (group managing director of RHB Cap) and Khairussaleh Ramli (MD of RHB Banking Group and RHB Bank Bhd) amongst others.

Comparing the senior management structure of CIMB and RHB, it is clear that some positions will have to be merged or rationalised. For example, CIMB has a separate CEO for its corporate, consumer and investment arms. On the other hand RHB has a separate MD for RHB Bank, investment bank and international business.

Looking at just the main positions that will need to be filled in the new entity, perhaps the most key are that of group CEO, head of corporate banking, head of consumer banking and head of investment banking.

The group CEO’s seat

If the merger happens, the group CEO seat will become the most sought after position in the new entity and all the names mentioned above will likely be vying for the top spot. Who gets the nod will largely be down to Khazanah and the Employees Provident Fund (EPF) , who are the substantial shareholders in the three entities. Nazir Razak’s views will also likely be taken into consideration.

With so much talent already available it is likely that the candidate will come from within. In determining the right candidate for the group CEO role, it is likely that experience as well expertise will be the tests used.

CIMB have not yet announced who will take over its own group CEO position after Nazir assumes the chairmanship. Popular industry opinion however seems to lean heavily towards current CIMB Investment Bank CEO Tengku Zafrul Abdul Aziz.

Zafrul returned to CIMB Investment in late-2013 (he worked for the bank early in his career), from Maybank Investment and was seen then, by many, as Nazir’s heir apparent — however many did not anticipate that the top job would become available so soon or that a merger of this size might come up.

Having held top positions for most of his career, such as CEO of Tune Money and then group director of K&N Kenanga, Zafrul is by no means fresh. However, the fact that he has not even been back at CIMB for one year, nor led one of the larger banking groups might affect his chances.

RHB’s group managing director meanwhile is Kellee Kam, who has been in the position since January 2012. Prior to that, Kam held senior positions throughout the group including group finance general manager and chief financial officer of RHB Capital.

Given that Kam has held senior spots at RHB since he joined in 2003 and the group CEO seat for two years now, he does seem to have what it takes to be CEO too. But all things considered, Zafrul can still be considered to be a favourite.

Who will lead commercial banking operations?

Assuming that Viegas, Lee and Khairussaleh are not tapped for the group chief position they will likely then be in line to lead the new entity’s commercial banking operations.

Khairussaleh is the MD for the RHB banking group. While at CIMB, commercial banking is split into corporate banking led by Lee and consumer banking led by Viegas. Given that the enlarged group’s structure remains unclear, it is difficult to determine if there will be room for all three.

However between their current roles, there appears to be redundancies. For example Khairussaleh spearheads RHB’s retail financial services and business banking among others — at CIMB, Viegas handles retail and Lee covers business banking.

Various scenarios could emerge including maintaining all three men, with Khairussaleh leading commercial as a whole and Viegas and Lee maintaining their respective positions.

However this seems unlikely as in every merger there has to be some measure of cost rationalisation. Maintaining three senior figures in positions which could be covered by two, or even narrowed into one might be seen as redundant.

Who will take charge of investment banking?

Zafrul currently heads up CIMB Investment Bank, while Mike Chan is in charge of RHB Investment Bank. This is another post that looks likely be rationalised into just one.

There are many scenarios that might affect who will eventually lead the enlarged group’s investment bank . If Zafrul does not get the top spot then he might maintain his current role.

On the other hand he might see it as nothing more than a consolation prize, which may be unsatisfactory — remembering that many considered him the next in line to the group chief’s chair at CIMB.

Chan also deserves due consideration on his own merit, having helmed RHB’s investment bank since 2011 when he was first made officer-in-charge. Before assuming the position, Chan was in charge of RHB Banking Group’s corporate banking segment.

Who will lead Islamic banking?

The enlarged group will also create Malaysia’s largest Islamic bank, a segment which is increasingly becoming a key part of any banking group’s portfolio. Unsurprisingly both CIMB and RHB currently have a specific heads to lead their Islamic operations.

At CIMB, Badlisyah Abdul Ghani is head of CIMB Islamic and operations in the Middle East and Brunei. Ibrahim Hassan meanwhile holds the managing director reins at RHB Islamic. This again gives rise to a clear redundancy that will have to be addressed.

Numerous redundancies to emerge throughout the new entity

The direct redundancies do not stop there, there will also be multiple chief financial officers, operating officers, risk officers etc.

It will not be limited to just the board and management. The inevitable rationalisation of branches all but guarantees lay-offs among lower management and non-executive staff. This unavoidable fact is already drawing the ire of the banking unions and their displeasure will surely get more vocal as negotiations progress.

As the players sit down to trash out the details of this potential merger over the next three months, the people factor is likely to be among the most heavily discussed and most difficult issue to solve.

Coming up next: What’s the Tiger bank to do now?

Yesterday: Ways and means to a banking behemoth