HSBCÆs push into FIG

Co-head of HSBCÆs investment bank, Nick Bryan-Brown talks M&A.

Q: Is HSBC expanding its M&A team in Asia?

A: We’re certainly expanding our investment banking business. We have a slightly different structure to some other investment banks. Our industry groups do a significant amount of the execution of advisory deals as well as the origination. Our Advisory Group is focused more on Hong Kong corporates, particularly for regulatory-type transactions involving the Listing Rules and Takeovers Code. So our Advisory Group is slightly different to what you see at some other houses – where a deal originated by the industry group is executed by the M&A team. But are we expanding our capability in the advisory/M&A area? Yes we are.

Q: So you don’t actually have a dedicated M&A team?

A: We have an Advisory Group in Hong Kong which is 13 strong and focuses particularly on regulatory M&A work and the corporate finance side of capital markets transactions.  As I said, M&A work is also undertaken by the Industry Teams.

Q: How much of your time do you spend on M&A nowadays?

A: It’s probably 50/50 between M&A and capital markets work.

Q: From your perspective, has there been enormous growth in M&A in the last few years?

Nick BrownA: I’ve been in Asia since 1987, and to be honest, M&A on an Asian basis didn’t exist back then, and hasn’t really emerged strongly until the last three years. Hong Kong has always been an active M&A market – and Singapore to a certain extent – where the regulatory and cultural frameworks have been based on a UK model and have been more open. But outside that, M&A is a pretty recent phenomenon.

There’s been an explosion of M&A since the crisis. This has been partly driven by IMF reforms and financial necessity, but also by the changes going on in global industries. I don’t see that process reversing. M&A has been on a massive growth path and that will continue.

The thing that has surprised some is that a lot of that growth has been intra-Asian M&A, as opposed to inward M&A from the US and Europe. If you look at 1999 and 2000, Asian acquirers accounted for $50 billion and $120 billion respectively. European acquirers were only $10 billion and they were ahead of the Americans. So there’s a huge differential, even making allowances for the inaccuracy of statistics.

Q: Does that intra-Asian M&A play to HSBC’s strengths?

A: We have very strong relationships in Asia, so it's clearly important. But at the same time we have large teams on the ground elsewhere in the world and they have the ability to bring clients from outside Asia. And when North American companies come to Asia they will frequently talk to us because they perceive us as - correctly - having on-the-ground knowledge and good contacts in Asian markets.

Q: What would you say HSBC’s differentiating qualities are from the big M&A houses such as Goldman Sachs, Morgan Stanley, Merrill Lynch and UBS Warburg?

A: We’re relationship driven as a business and I think that's a strength. We mustn’t lose sight of that when we’re competing with bulge-bracket firms which are clearly strong competitors. We are getting better as an institution at supporting our clients with our balance sheet on the M&A side. We have not been good enough at this historically – nor at integrating the different product areas of the Bank.  We are getting better at this.

HSBC was slow as an institution to adapt to the changing world of investment banking - getting a unified name, specialized industry teams, and upgrading its investment banking products and capabilities. If you look back 10 years we were a dominant name in Asia. But as the Asian business - and competition - grew, we clearly did not go forward quickly enough. That’s now changing. We have made major hires and structural and organizational changes and there will be more to come. And I would say we see our competitive advantages as, one, our relationships, two, our balance sheet, and three, our breadth of products.

Q: Who are these key hires?

A: We’ve hired Dr Huan and seven others to expand our China team. Our China team is now 15 people, and that’s a significant change. We’ve also made a number of senior hires in the TMT and ECM areas. As you know, we hired Avi Bindra from Citigroup recently as a co-head of Investment Banking to strengthen our syndicated finance capabilities and we have further strengthened our DCM team which has performed very strongly this year.  We will make further hires this year, both geographically and in our core product areas. We need to further strengthen our FIG capabilities and our teams in Taiwan and Korea, which are the other key regional markets where we need to do more.

Q: Everyone is talking about FIG at the moment as the key area. Are you actually on the lookout for key FIG bankers?

A: We will strengthen our capabilities in that area. It’s been a slightly difficult product area for us historically, partly because there is a perceived reluctance by some clients that see themselves as our competitors to engage us on an advisory or ECM mandate.  HSBC obviously has an interest in looking for potential acquisitions itself in many areas of Asian financial services, and this also is a factor on how we advise outside clients. So historically, the FIG group was quite small and focused more - in previous years - on advising the Bank on transactions. Now it’s breaking out of that mould and advising outside parties.

So while last week we did close a deal on behalf of the Bank to buy Taiwan’s largest asset management company, we have also just done a major restructuring for ICBC, China’s biggest bank, of its Hong Kong business. The value of that was $360 million.  So FIG is an area where we will develop - there are significant opportunities in China, Hong Kong and across most of Asia.

Q: In terms of this consolidation in Hong Kong, how much of that will be driven by mainland Chinese banks buying the smaller banks?

A: There will definitely be an element of consolidation that is driven by mainland China. But I also think there’ll be consolidation among the players in Hong Kong. The only things that will hold that back will be who will be the first mover, who will get the top jobs, and pricing issues. In some ways the Dao Heng acquisition has set an aggressive benchmark which has raised expectations among some of these players.

Q: You have been quite active in Japan. Why is that?

A: We’ve done a lot of intra-Asian work from Japan. We’ve advised DoCoMo on perhaps more transactions than any other bank in the last 18 months. It’s a question of establishing a relationship, performing well, and then the client comes back to you. So we advised DoCoMo most recently on increasing its shareholding in Hutchison Telephone, that was announced last week. We advised them on their initial entry into that business about a year and a half ago, and we have also advised them on their 3G deals in Europe.

Q: Which of your non-Japan Asia M&A transactions do you think stand out?

A: Recently, obviously the ICBC deal. We’ve also advised Hutchison on its $210 million 3G deal in Australia with Telecom New Zealand, which was announced about two weeks ago. The AMC acquisition in Taiwan is valued at $200 million.

One of the points that I’d make is that our goal is to grow the average transaction size. Historically, our average transaction size has not been large enough. And yet the amount of work and risk involved in an M&A deal is often the same whether you are working on a $50 million deal or a $500 million one. So we are focusing our attention more effectively at the larger end. That is happening - and that brings us back to the issue of our investment in high quality bankers, getting our product range and focus right and judicious use of our balance sheet.