UOB, Singapore’s second-biggest bank, is making a push into investment banking as it seeks to boost fee income and meet the growing needs of cash-rich companies in the region.
The bank, which is controlled by Singapore tycoon Wee Cho Yaw and his son Wee Ee Cheong, who is the CEO, is pushing into an area where its rival DBS has traditionally been more active.
Singapore’s three main lenders have been faced with limited growth in a mature market and have also been grappling with shrinking margins as rates have stayed low. To grow, they are looking at overseas acquisitions or leveraging their traditional lending relationships to cross-sell other products.
“Investment banking enhances the return on equity,” says Ronny Chng, the bank’s head of group investment banking, in an interview with FinanceAsia. “It makes a lot of sense for us because it’s an extension of our business.”
The bank set up a dedicated M&A team last year and has also been beefing up its local-currency bond origination and syndication in the region. It set up its bond desk in Singapore two years ago and has opened desks in Thailand and Malaysia within the past year-and-a-half. It also has plans to open an Indonesian rupiah bond desk and an offshore renminbi bond desk in Hong Kong. For now, the bank is only involved in local-currency bonds. Chng says that the bank will be hiring more staff but declines to give any numbers.
The 77-year-old UOB has typically been a lender to small and medium-sized enterprises, but many of its customers have grown much bigger over the years. A number of them are cash rich, and now have ambitions to match their size and have become more active on the M&A front.
“The UOB story is where we follow our clients,” says Chng. “Asian companies have grown from strength to strength, and when they do so, they have bigger ambitions and need more funding.”
Chng cites the example of Chinese and Thai companies, which have become far more active in recent years than in the past. Chinese companies were hardly active in the 1980s, but many of them have been making major acquisitions during the past decade, mostly through state-owned firms such as Cnooc and Sinopec. During the past year, Thai companies have also become active.
“There’s been a fair bit of activity from companies that have grown organicially over time and now want to leap,” said Chng. “That drives merger and acquisition activity and funding needs.”
One example of this is TCC Assets, Thai beer tycoon Charoen Sirivadhanabhakdi’s unlisted vehicle. TCC has been a longstanding client of UOB and when it made its multi-billion dollar acquisition of Fraser & Neave, UOB acted as a financial adviser and lender. DBS and Morgan Stanley were also advisors.
Its push into investment banking has helped to bolster the bank’s fee income. UOB posted a record fee income of S$453 million during the first quarter of 2013, a rise of nearly 17% from the previous quarter, due to higher loan-related and capital markets-related fee income.
