By P. Gunasegaram
Tiger has a soft spot for Malayan Banking Bhd for obvious reasons. If a three-way merger takes place, that’s going to push the Tiger bank into a close second place in a field it has dominated for decades. Should Malayan Banking be worried? A true Tiger won’t and here’s why.
Sometimes, it is just not worth your while running around to catch a prey. Just lie down by the watering hole and sooner or later a tasty morsel will stride up almost to your jaws. And in one quick, elegant move, you have your meal.
If you are wondering what any of this has to do with the emergent merger of CIMB Group, RHB Capital and Malaysia Building Society Bhd or MBSB to form Malaysia’s largest banking group, bear with Tiger awhile and he will put your suspense to rest.
Tiger is old enough to remember the days when the top two banks were the bank with the Tiger logo, Malayan Banking Bhd, and Bank Bumiputra Malaysia Bhd. The first was set up in 1960 by Khoo Teck Puat but eventually ended up under Permodalan Nasional Bhd or PNB. (For a quick history of Malayan Banking go to How bad is Maybank’s loss?, a previous TigerTalk.)
Perhaps it is more relevant here to give some background on Bank Bumiputra. It was set up in 1965 with the primary purpose of helping bumiputeras in business. It grew rapidly and by the 1970s it was regularly vying with Malayan Banking for the largest bank in terms of assets.
So dominant were these two banks that the base lending rate in those days were fixed by reference to the rates of the two banks. But trouble started for Bank Bumiputra in the late seventies when a subsidiary, Bumiputra Malaysia Finance or BMF, inexplicably started lending money big time to Hong Kong property interests and in particular one George Tan and the Carrian group. It remains inexplicable to this day.
Some RM2 billion in loans proved unrecoverable in the eighties, becoming the largest banking loss in the world at that time, embarrassing the Malaysian government to no end and eventually requiring a rescue, the first in what will be three rescues, of Bank Bumiputra.
In the third rescue, CIMB came into the picture – in 1999. The then Bank of Commerce acquired an entity several times its size in Bank Bumiputra armed with a government assurance it will make good any loans that could not be recovered.
The larger bank was called Bumiputra-Commerce and the powers that be at the merged entity were determined to put the old Bank Bumiputra on a commercial footing instead of providing politically connected bumiputera businessmen easy terms for loans which they often times did not even pay back.
They did an admirable job, morphing into the current CIMB Group in several steps, two of which were the acquisition of Southern Bank Bhd and a subsequent reorganisation of the group after its banking operations were merged under a single universal bank. The group came under the leadership of Nazir Razak, who headed CIMB group before his brother became prime minister.
This is the CIMB Group which will merge – if all goes well – with RHB Capital and MBSB to form the largest banking group in terms of assets (see table) but not yet in terms of value, going by pre-suspension prices of the companies involved.
It is well worth noting that although CIMB Group, which includes the old Bank Bumiputra and some other banks absorbed before and after, currently is the second largest bank in terms of assets with RM380 billion. Malayan Banking’s assets are RM578 billion, over 52% higher.
Let’s look back to 2000. According to press reports at the time, Malayan Banking’s assets at the time were RM117.5 billion which were 43% higher compared to Bumiputra-Commerce’s RM82 billion at the time. That means Malayan Banking has widened the gap between it and the CIMB Group in the intervening period, despite CIMB Group’s many domestic mergers.
And now, if all goes well, in one giant leap (perhaps not, this is a long time in the making as CIMB Group and RHB have come close to tying the knot several times in the past) the merged bank — let’s call it CIMB-RHB, with apologies to MBSB — would be the largest in Malaysia in terms of assets, but not yet in terms of value (see table).
But should Malayan Banking be concerned about CIMB-RHB? And how much? As Tiger has pointed out, if you focus on growing the business and only merging or acquiring businesses when you need to, you can still grow faster than the other banks.
The strength that Malayan Banking has is that it is a damn good all-round bank and it really does not need to fill any gap in Malaysia (investment banking perhaps, but it is already working on that) and therefore does not need to merge or acquire, at least not domestically.
Let the competition go ahead and merge to acquire size which Malayan Banking already has, let them go through the rationalisation process which will inevitably take some time. Let the Tiger bank use the valuable time it has to grow, Tiger hates to use cliches, but yes, organically given its strong presence in all areas.
After all, few doubt that Malayan Banking dominates the consumer base and, on top of that, it is clean, competent and concentrated in the businesses it knows best. If it builds on that base, it will soon regain number one position as CIMB-RHB takes time to reposition after a tough merger exercise.
And then the Tiger bank can just lay in wait for the right moment and the right prey to come along and in in one swift move takes it chance, just like a Tiger at a watering hole. Really, there’s no need to play the size game as history has amply shown the Tiger bank from the days of Bank Bumiputra.
There’s a lot to be said – sometimes – for doing nothing while waiting for the right opportunity to come along.
GRRRRR!!!
You must be logged in to post a comment.