The US investment bank is also busy strengthening its franchise in the region with at least 10 senior hires over the past 12 months, including several within investment banking, and says it aims to grow its total headcount in Asia by 20% this year.
Here, the firmÆs global head of investment banking, Hugh McGee (also known as Skip), talks about Lehman BrothersÆ plans for the region and the opportunities it sees here.
In wake of the aggressive hiring, what is your strategy with regard to investment banking in Asia?
Skip McGee: I would say it is an ongoing, consistent and sustained investment commitment to the region. In all honesty we are probably a bit behind some of our competitors in terms of size in Asia, but we ramped up our investment significantly last year. ItÆs a multi-year program and we are absolutely committed to it. On one level the business is pretty simple: you hire good people, you deliver the entire firm to partner with clients, and over time good things happen. But the first part of that - recruiting good people - takes time. Growing organically is agonisingly slow at times, but we have found this to be a successful strategy elsewhere and it is one that we are implementing here in Asia as well.
What opportunities do you see in Asia and how do you approach them?
The exciting thing is the growth profile, which has been about 20% per year, compounded, for the past five years and the region is now solidly above 15% of the global market, as we measure it. Asia is a very large driver of global activity and is currently growing at a faster rate than the US and Europe. If you want to be a significant participant in the global markets, you have to be a significant participant in Asia.
Part of the message I bring to our staff here in Asia is the same as I would deliver in Europe and the US: develop long-term relationships with the right clients and deliver the full firm to them, and, internally, play as a unified team. Asia is just a huge opportunity and even though it seems like there is still a long way to go, our momentum is positive and our brand has never been in a better position.
How does Asia fit into Lehman Brothers globally in terms of the amount of resources committed?
If you look at the total amount of investment that we are making in the investment banking division, by far the biggest share this year is Asia and I think that will be true in the next couple of years as well. We are investing in India and in China, and we still have more to do in Japan. We are also building out our financing and industry capabilities here in Hong Kong. About 40% of what we do globally is here in Asia. Of the total global revenue opportunity, we estimate that 15%-16% comes out of Asia, while at Lehman Brothers, Asia makes up less than 10% of our investment banking revenues. Over the next several years, we also expect to have 15%-16% of our investment banking headcount located in Asia.
How much of your headcount is in Asia now?
On a senior basis it is close to 15%, but on a total investment banking headcount basis it is still a bit shy of that level.
What areas specifically do you feel you need to put more focus on?
Our investment banking footprint in Japan has yet to reach its full potential, probably both in terms of industry coverage and M&A. I also think we need additional fire power in terms of M&A in non-Japan Asia. In Australia, we have just made an acquisition of Grange Securities, which gives us a strong beachhead there. It will probably take a combination of internal transfers and some external hires to further build out our investment banking presence there. In India, we are getting pretty close in terms of what we need.
A lot of our (structured products) business is done as a joint venture between capital markets and banking and we have a lot of that capability in place. What we are trying to do now is to make sure we are at the right size in terms of the origination engine, i.e. the banking footprint.
In some markets, including India and China, you have had a later start than your competitors. How do you plan to catch up - especially in India which is so over-banked already?
I think this is no different to what we have done in Europe. There are always incumbents that you have to compete with. So, whatÆs our advantage? We have a global brand that is strong, we have great momentum as a franchise, we have great people and we do a very good job of delivering the entire firm to our clients with people working together as a team. We have to pick our spots, but in the areas that we decide to focus on we do quite well. We do have to close the gap in terms of the size of our investment banking business as some of our competitors have two or three times the number of bankers that we have and are able to cover more opportunities. So, yes, we are hiring, but we hire at a measured pace.
YouÆve just completed two benchmark China deals in one week. How are you going to be able to maintain that kind of momentum?
The honest response is these are big transactions and they are lumpy, meaning they donÆt come along every week. For example, the Citic IPO: we pitched for that deal for over a year before the actual selection to lead the offering. Are we positioning on other large opportunities? Absolutely. Do we know whether we will win those mandates? No. But having just done some big transactions, we have positive momentum in the market and we hope to have additional successes in the future.
China is still an incredibly competitive market. Having said that, I think our global brand has never been stronger, I think people are comfortable doing business with Lehman Brothers and deals like these make people realise that we are absolutely in the flow in this market.
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