Last year's three-way merger between Chase, Jardine Fleming and JP Morgan created a number of challenges and opportunities for the combined entity's equities business in Asia. Historically, Jardine Fleming's strong local franchises had enabled it to stay at the forefront of the domestic equities business. However, the onset of the regional crisis in 1997, which dried up the domestic IPO market, combined with a growing predilection for ADR offerings by the region's blue chips, saw the bank slip back down the league tables and the US investment banks muscle in.
Steenman, who has been head of Asian equity capital markets at Jardine Fleming since mid 1998 intends to change all this. Prior to JF, the Dutchman developed a reputation for 'friendly' aggression as he built up ABN Amro's equity business during the mid 1990s and he says he relishes the challenge of being able to perform a similar feat at JP Morgan.
During 2000, JP Morgan ranked seventh in the Asian equity league tables according to figures supplied by Capital Data Equityware. With a 2.81% market share, it led 13 deals and raised a total of $1.196 billion. In the US, the tech boom and specialist skills of H&Q enabled it to rank one notch higher at sixth, while in Europe, it only managed to achieve 16th slot.
Over lunch with FinanceAsia, Steenman and Fane, who hails from JF's debonair school of banking, explained their tactics.
Q: Let's cut straight to the chase. Your competitors say that Jardine Fleming was unable to bring the most vital ingredient to the merger - US distribution. They also say that the only way you'll be able to win business is by cutting fees and that this is what you've been doing quite aggressively over the past few months. How have you been dealing with criticism like this?
Michiel Steenman (pictured right): Actually, I love it when our competitors bad mouth us, because it shows how concerned they're becoming about our growing strength. Where the fee issue is concerned it?s just not true. Full stop.
Q: But on the Sembcorp Industries secondary placement you're only charging 1.5% aren't you?
Rupert Fane: Yes, but Singaporean companies expect to be charged lower fees than virtually anyone else in Asia. Where, for example, ADR fees would normally be 5% to 7%, they average 2.5% to 5% in Singapore. So too, regional IPO fees average 2% to 4%, but can be as low as 1% in Singapore. All three of the big IPO privatizations last year for SMRT Corp, SIA Engineering and Singapore Airport Terminal Services charged 2% each. There was also a $46.3 million block trade for Keppel Marine Industries last June that only charged 1%.
MS: There?s no doubt that we're competitive. But the fact is that we don't go around winning business by cutting fees to the bone. Do you think we'd have won the mandate for Sembcorp Industries had we done a bad job for Sembcorp Logistics, which raised $119.2 million in December under the lead of what was then still Jardine Fleming? Of course not. And that deal was so successful it outperformed the index for a month after launch.
Q: And what about the distribution argument leveled at you?
MS: It's a great misnomer peddled by other US investment banks. But for some reason in the JF days, it took an enormous amount of persuasion to get clients to believe a non-US house was capable of doing an ADR. Now that we have the JP Morgan platform and brand name, however, we should be out of the woods. The firm is a very active trader on both the NYSE and Nasdaq. It is also the world's largest ADR administrator and has done many ADR's from both Latin America and Europe. We were recently global coordinator for Telefonica Moviles' $2.8 billion ADR for instance.
Q: But JP Morgan had no equity presence in Asia?
MS: It's been acknowledged that pulling out of Asia was a strategic mistake and the bank was trying to rectify it shortly before the merger by building a new platform starting in Japan. Getting back to the distribution issue, the problem at Jardine Fleming pre-merger was one of perception. The fact is that JF?s US institutional placement of Asian equity product was second to none.
MS: Yes. Look at the McLagan surveys, which are published every year and rank brokers by the amount of business they do with US investors. We are in the top five for every country in the region. It?s the industry standard and we come out on top. Overall, since 1993 for Rule 144a deals, we?ve ranked second for distribution of Asian equity ex-Japan to US investors.
Editor's note: He later emails statistics from the McLagan survey which show that JP Morgan is ranked: 4 out of 21 brokers in Hong Kong; 2 out of 17 in Korea; 3 out of 18 in Singapore; 4 out of 17 in Taiwan; 1 out of 18 in Thailand; 1 out of 19 in Indonesia; 1 out of 18 in the Philippines; and 1 out of 15 in Malaysia.
Q: How has the merger between the three firms been progressing? It all seems to be coming together quite quickly?
MS: The one thing that's amazed me more than anything else is how well and how quickly the integration has progressed. The firm is determined to create a world-class investment bank and I'm happy to say that the new compensation standard being used is consequently the highest of the three former entities.
Q: So you're a US investment bank now?
MS: No, I'd class us as a global investment bank. But having the JP Morgan brand name has definitely made a big difference. You notice it as soon as you walk into a client's office.
Q: How will this manifest itself in your business strategy?
MS: The best way to describe it would be to say that we're taking a bulge bracket approach. We have a very distinct sectoral focus, but where we distinguish ourselves is with the exceptionally strong country franchises we inherited from the three firms.
Individual clients definitely place a strong value on the country approach and I think it's important to have both at the end of the day. We're also very lucky in that we can plug straight into both the regional heads of investment banking and sector heads. Philip Lee in Singapore and Steve Lim in Korea, both heritage JP Morgan, are regarded as two of the most talented local bankers we have, while James Von Moltke's FIG team are doing great things.
Q: Does this approach extend to your research capabilities as well?
RF: Yes it does, and other firms like Goldman are also starting to roll out local as well as sectoral research now as well.
Q: How have you structured the actual ECM team?
MS: Well, I report to Carlos Hernandez, a heritage JP Morgan banker, who's global head of ECM. We also have a separate team in Japan headed by Masahiro Shimizu, another heritage Morgan banker. As I said before, JP had begun re-building its equities franchise just prior to the merger and we are still in hiring mode. At the moment, we have a team of seven and are close to appointing two more senior people in Tokyo.
Two weeks ago, we hired a new head for Australia and New Zealand, David Hancock. He's recently been working for a Telstra joint venture, but before that was head of investment banking at Salomon Smith Barney. He's very well known in the markets down under and worked at County Natwest for some years before SSB.
In Asia (ex-Japan) we have hubs in Hong Kong and now Singapore, where we've recently set up a satellite office under Olivier Stocker. He originally hails from the broking side at JF and has a team of three working for him.
In Hong Kong, we have a team of 18 at the moment led by three sector captains. Rupert here (pictured left), who never ceases to amaze me with the number of people he knows socially, covers TMT. He also works closely with Rosemary Chiu who covers tech companies ex-Korea and Taiwan, but also has a strong focus on China. Finally, there is Tira Wannamethee, who covers general industries and FIG and is heritage Morgan.
Q: You mentioned that Rosemary Chiu will be covering China. Is this going to be a big focus for you?
MS: I think China is already huge and is going to become particularly huge on the tech side. All the stuff you see coming out of Taiwan now will come out of China too within the next couple of years, whether it be a local manufacturer or joint venture under the likes of Philips or Samsung.
Indeed, it's already starting to happen and we think we have a chance to get in early. JF always had a strong focus on Taiwan, which we can bring to bear, while the heritage H&Q franchise brings a strong tech niche that will be important as well.
Q: Do you think China requires a different approach to the rest of Asia?
MS: China is definitely a country where it takes time for results to feed through. It also requires investment and a very strong commitment. But we've decided we will do anything it takes to show that commitment. In many ways, it?s a matter of making sure you have all the boxes ticked. And by this I mean that it's important, for example, to fly senior people out from New York and London, to have a global presence, to cover all the industries in depth and so on.
Q: Where do you think you stand now in Asia?
MS: I think we're in a very strong position. In terms of the breadth and depth of our organization we have the added luxury of employing one of the biggest teams in the region. Partly, this has come by default as a result of the merger, but it means that we can cover everyone!