Global corporate banks told to go to Asia to remain in the game

MANILA, Philippines - Highy-respected global management consulting firm is advising global banks to redeploy a huge portion of its experts and capital to Asia.

McKinsey and Company said that global banks must re-enter, expand or form new alliances in Asia, as developed countries may not give them serious and sustainable business for a significant period.

The Asian Development Bank (ADB) forecasts that developing Asia will grow by around 7.5 percent in 2011 and 2012.

“There are signs that growth in the region is shifting to more sustainable sources. Strong private domestic demand and intraregional trade boosted output in the first half of the year, as did rising employment and incomes, buoyant export prices, and investment. With ample fiscal space and low debt, governments also have room to support domestic demand,” it said in its quarterly report.

The report added that the fast-growing economies of East and Southeast Asia added nearly one percentage point to their annual growth in the past 30 years, by taking full advantage of having relatively young populations. This boost to growth, which was neither accidental nor automatic, helped them to transform their economies and reduce poverty.

The World Bank predicts that the region will grow 8.7 percent this year before dropping to 7.7 percent by 2012.

On the other hand, the euro zone will expand by just 0.7 percent this year before rising to 1.8 percent in 2012. The US could grow 3.3 percent this year, falling to three percent by 2012.

HSBC is well entrenched in the region, but magnified their intentions by relocating its group chief executive Michael Geoghegan to Hong Kong from London in February.

According to FinanceAsia, J.P. Morgan and Bank of America Merrill Lynch (BoA Merrill) seem to be slowly shifting its “troops” to Asia.

The respected regional financial publication said J.P. Morgan would be erecting a $100-million global investment, with a third focused on Asia.

“The bank hopes to deliver wholesale banking services, including credit, asset management, debt capital markets, operating services and syndicated loans to Asian, European and US multinational blue-chip companies, as well as large local corporates and financial institutions. The bank has already identified 1,600 potential companies,” it added.

BoA Merrill recently hired heavyweights such as Charles Alexander from Standard Chartered to be its head of corporate banking coverage for Asia-Pacific and Ivo Distelbrink from Citi as head of global treasury services for Asia, as part of its strategy to offer that complete range of financial solutions mentioned by Donofrio.

But well-entrenched banks like HSBC, and Citi, as well as Asia-Pacific’s rising regional banks, such as DBS, Bank of Singapore, CIMB, Korea Exchange Bank (KEB), and ANZ may have something to say about the “intruders.”

Local and regional banks have also expanded market share while majority of the global banks has been losing ground since in 2009. Chinatrust, HDFC and KEB were named as institutions that have cash management and corporate banking offerings comparable to foreign banks in their respective local markets, FinanceAsia said.

In fact, mergers and acquisitions were undertaken by the local and regional players just to prove that they were awash with cash.

Bharti Airtel’s acquired Zain’s African mobile operations for $10.7 billion and Geely’s acquisition of Volvo for $1.8 billion, both announced in March. In the first quarter, Asia ex-Japan mergers and acquisitions totaled $123.2 billion.

Last year, ANZ bought select retail and commercial assets from RBS in six regional markets that brought the bank 10,000 commercial clients that would have taken “years” to build up organically. It is said to be investigating possible acquisitions of Indonesia’s Panin Bank and KEB, while it was rumored to be mulling an alliance with Standard Chartered.