Senior management at Barclays and Royal Bank of Scotland finally lost patience with their investment bank businesses. Last month, bosses at the two UK lenders announced job cuts and a slimming of their operations, provoked by a series of rate-rigging scandals and fines, too many loss-making departments and pressure to pay high bonuses even to underperforming staff.
It would seem an unpromising environment for a small investment boutique to embark on a growth strategy. Yet, SC Lowy, a fixed income specialist based in Hong Kong, believes niche players can prosper as global banks retrench.
“I noticed that during the worst phases of the 2008 global financial crisis, smaller brokers supplied liquidity to the bond markets when the large banks retreated. That provided a compelling reason for us to set up our own firm,” co-founder Michel Löwy told FinanceAsia in an interview at his Central offices.
The firm focuses on trading the Asian loan and high yield bond markets, has taken advantage of distressed situations in South Korea, opened a Sydney office in March 2014 and three months later was granted a UK FCA licence to expand into the European loan market.
SC Lowy sources under-performing or distressed loans from commercial banks where it has built up relationships during several years. Some are sold on immediately to clients, other are held until the firm finds a willing buyer and occasionally it works with the borrower to restructure the loan.
Löwy and former Deutsche Bank colleague and co-founder Soo Cheon Lee own the majority of the company’s shares, and a 40% stake was sold to private equity firms in 2010.
This model includes exploiting openings in on-shore Asian markets. In January 2014, SC Lowy bought distressed Korean lender Shinmin Savings Bank and opened a Seoul office in office in the same month. A year later the re-named Choeun Mutual Savings acquired Golden Bridge Savings.
Meanwhile, trading volumes have grown by 20%-to-30% every year since 2011, amounting to $5.4 billion in 2014, the firm estimates its market share in Asia Pacific (ex-Japan) loan trading at about 30% and the staff count has risen from nine at launch to 32 today, said Löwy.
Primary market openings
Last month, it hired another former Deutsche fixed income specialist, Florian Schmidt, from ING to lead the firm’s expansion into primary debt issuance in the region.
SC Lowy was the advisor for debtor-in-possession private financing deal for Korea Line in 2013, and last year was a lead manager for a $125 million five-year high yield bond public issuance by China’s Redco Properties.
Löwy believes that Schmidt can help build a primary market franchise by concentrating on borrowers too small for the large banks to court.
SC Lowy has forged strong links with Australian and Indonesian mining companies, Chinese property firms in China and shipping companies in Korea and Indonesia. Schmidt’s first prospecting trip was to China.
“The next step is to grow our European business," Lowy said, "where the secondary loan market is much more active than in Asia. The greatest potential in this region is the high yield bond market, so we’ll continue to boost our investment and raise our presence.”
“Also, we are looking for opportunities to replicate our South Korea venture by taking advantage of on-shore opportunities in China, India or Indonesia.”