More top execs depart Bank of America-Merrill Lynch

M&A head Kalpana Desai announces she will be leaving just days after Margaret Ren departs the firm.

Kalpana Desai, head of mergers and acquisitions for Asia-Pacific (ex-Japan), will be leaving Bank of America-Merrill Lynch after a transition period of a few weeks, according to sources and an internal memo seen by FinanceAsia. The announcement of her departure comes only a week after veteran China banker Margaret Ren left the firm.

A string of high-level bankers have left Merrill Lynch since Bank of America acquired the firm on January 1, which isn't exactly surprising in the wake of a merger. Add in that BoA has taken US government money and is now saddled with restrictions on pay and bonuses as a result, plus a global recession that is hitting banks hard, and it's easy to see why departures are on the increase.

As we wrote in January, the changes underway at Merrill Lynch as the investment bank tweaks its teams are likely to come out in dribs and drabs over the next few months, if not years. After all, as many as 35,000 jobs may be eliminated in the next three years as the two US banks combine.

Indeed, aside from Desai and Ren, there are market rumours that at least one other Hong Kong-based, high-level Merrill Lynch-Bank of America banker has been in discussion with the firm about a departure -- whether it has been put-off, or stalled, remains unclear. Merrill Lynch representatives in Hong Kong declined to comment.

Desai has had an 11-year career at Merrill Lynch. Sources told FinanceAsia last night that she is considering a few options now, but has a long period of non-compete and therefore will be on gardening leave for some time, even after the agreed handover period. She is expected to remain in Asia and in investment banking, add the sources.

Desai joined the M&A group at Merrill Lynch in Hong Kong in 1998 and became a managing director of the investment banking division in 2001. She was made head of Asia M&A in 2002 and became head of Asia-Pacific (ex-Japan) M&A in 2008.

During Desai's innings, Merrill was on the sell-side when PCCW agreed in 2000 to pay $28 billion for Cable & Wireless Hong Kong Telecom and represented United Overseas Bank when it paid $5.5 billion in 2001 to acquire the Overseas Union Bank, which is still the largest takeover in Singapore so far. The investment bank was also involved in a number of China cross-border deals, including representing the target when Lenovo spent $1.25 billion to buy IBM's personal computer division in 2004.

Desai has also advised on deals like the establishment of the cross-ownership and operational partnership between Cathay Pacific Airways and Air China, and the Asia Aluminum privatisation. The latter, which was completed in May 2006, also involved Sheldon Trainor who gave up his position as head of Asia investment banking at Merrill last year, but negotiated a deal where he could carry on as an advisor to BoA for several months as he simultaneously set up his own private equity firm.

The Asia Aluminum story is a tale of our times. In the spring of 2006 majority shareholder and chairman, Kwong Wui-chun, needed to raise $500 million to take the company private, which was tricky enough given that Asia Aluminum had a market cap of only about $350 million at the time. But on top of that, it also had a $450 million high-yield bond outstanding, which would have been expensive to take out because of its restrictive covenants.

Merrill Lynch tackled the problem by using a so-called wrap-around financing solution that left the existing bonds untouched, but generated enough returns to attract interest from investors to raise the cash. The bank also secured an irrevocable undertaking from seven institutions, who held a majority of the independent shares, that they would vote in favour of the proposal. At the time Desai told FinanceAsia: "This is the first time that irrevocables of this nature have been obtained in a Hong Kong privatisation offer and they were an important factor in the success of the transaction."

The transaction may have been successfully completed, but arguably didn't turn out to be much of a success for Asia Aluminum. Given the current financial environment, the aluminium producer found it increasingly difficult to service the debt that it incurred as part of the aggressively leveraged buyout. In February the company launched a tender to buy back its international debt, but after failing to attract much support it withdrew its offer in March. Asia Aluminum is currently in the hands of provisional liquidators.

Bank of America-Merrill Lynch topped the Dealogic league table on M&A activity for 2008. But a substantial part of the firm's ranking was derived from one transaction: the restructuring of the China telecommunications sector. Some specialists suggest the telecom deal was driven by the government -- and not the advisers -- thus this was not a traditional M&A mandate. Sources also add that the telecom advisory deals were not revenue-spinners for the firms involved, and that building relationships in the corridors of power in China was the driver rather than the fees. During 2008 Merrill was also on the sell-side, along with accounting firm PricewaterhouseCoopers, for the $4.4 billion takeover of Asiana Airlines by Korea Express.
Three of Merrill's largest deals in 2008 were in India, where the firm's subsidiary DSP Merrill Lynch is well-entrenched and highly regarded, and may well have driven deals done there. Indeed, in March, Merrill promoted DSP banker Jayanti Bajpai to co-head corporate and investment banking for Asia-Pacific along with Jiro Seguchi, which is proof that not all Merrill bankers are moving on in the post BoA world order. 
In 2009, Merrill Lynch is number six in the M&A league tables on announced deals, which includes credit given by Dealogic for advising on Bank of America's $7.3 billion equity sell-down in China Construction Bank. It was also one of seven banks to advise on the merger of India's Reliance Petroleum into Reliance Industries earlier this year, garnering $1.7 billion worth of league table credit for volume. But like on other merger-ratio mandates, fees on this deal were not substantial, add specialists.

While Desai was head of M&A for Asia-Pacific (ex-Japan), the firm is now going to have four M&A heads in the region -- for Japan, Australia, India and Asia. Michael Cho, a 15-year Merrill Lynch veteran, will head Asia M&A. David Petrie, another 15-year employee with the firm, will head Australia M&A and will also remain head of multi-industries in Australia. Raj Balakrishnan, who has been with the firm for 13 years, will continue to head India M&A and Yuichiro Wakatsuki, who joined Merrill Lynch in 2000, will head Japan M&A.

As for Ren, she was hired as chairman of Merrill Lynch's China investment banking business in February 2007 and reported to Trainor. The daughter-in-law of former Chinese premier Zhao Ziyang, Ren had been out of the industry for a while as she was subject to an inquiry by US regulators over alleged wrongdoing relating to China Life Insurance's $3.5 billion IPO. Her former employer, Citigroup, which was one of the lead managers of that IPO, suspended her in June 2004 and she left the US bank shortly afterwards. However, in September of 2006, the US Securities and Exchange Commission formally cleared Ren.

Prior to joining Merrill Lynch, Ren worked with Bear Stearns and had a well established reputation as one of China's better connected bankers and deal rainmakers. During the red-chip euphoria of the late-1990s she was able to win IPO mandates for Bear Stearns even though the US firm had one of the smaller investment banking presences in the region. At Citi she became a vice-chairman of investment banking for Asia, and again helped secure the firm some major China mandates.

Ren's strengths and relationships were primarily with China's major state-owned enterprises and the government though, which may be less valuable for an international investment bank today when so much of China's future growth is focused on the private entrepreneurial firms. While there is still a healthy amount of M&A activity and the odd giant SOE to take public, most industries in China have now seen their flagship companies complete an IPO, and the listing of several railway infrastructure companies over the past 18 months may well have marked the end of a trend that has seen China open up its SOEs to international investors on a sector-by-sector basis. Merrill Lynch last arranged an IPO for a major SOE in December 2006, when it helped China Communications Construction Co, the country's largest designer and builder of ports, to raise $2.1 billion.  

Meanwhile, Bank of America has its own SOE relationships through its strategic tie-up with China Construction Bank, which it may have deemed sufficient in the current environment. 

Bank of America-Merrill Lynch's investment banking business in China will now be led by country head Erh Fei Liu, head of private sector coverage Rodney Tsang, and vice-chairman for China investment banking Catherine Cai.

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