We're seeing fewer and fewer family-owned banks. Is that a trend, which is set to continue?The issue with families is pretty broad and it really gets family-specific. As the environment changes and becomes more competitive, the problem with family ownership is coming up with capital in order to take advantage of consolidation without getting diluted. A lot of these families have been associated with these banks for generations, and when you go in on the M&A side, you can't discount the institutional knowledge that family has of the bank.
In Hong Kong, do you see more consolidation among the family owners of banks?
There is a definite trend towards more consolidation. Some families will hang in there and some will get out. Again, it will be interesting to see how the buy side structures the transaction. You are going in and buying relationships, and these relationships with customers can go to the most senior levels.
So you think keeping family members in the bank might be a strategy?It should be a consideration, whether it is a strategic ownership position or a management position. Also, the bank's identity comes into play. It is a very important aspect from the valuation and integration standpoint.
Do the families in Hong Kong see that the business is no longer so profitable, and is losing value each year? Do they see the writing on the wall?
Everybody in Hong Kong realizes the banking environment is very difficult now. Banks realize they are in a difficult environment, so they must be considering the trade-off between receiving a payout now versus in the future. It is a matter of how patient they are going to be.
How does a Hong Kong bank realize any value from its geographical position next to China?The skillset that can be acquired in Hong Kong is better for entering China than purchasing a skill, say, in Southeast Asia to enter China. Going the other way, Chinese banks also realize the value of owning a Hong Kong bank. It gives them more strategic flexibility. The whole scenario will, however, take some time to unfold. That's because if you are a mainland bank you will be asking, "Do I need to be geographically dispersed? I am in a relatively large untapped market, I have an advantage over non-Chinese entities," so there is a lot to be said for just focusing energies on China alone.
Are you bullish on FIG in Taiwan?
Yes, I am, although it will take some time. It is a bifurcated market. The government has come out and shown willingness to try and consolidate it with the M&A law, and the financial holding company law. There have been some merger announcements. That market will ultimately consolidate, but it is still a bit of a mystery as to who is going to consolidate with who. It will be interesting to see the relationship between government entities and private entities and how they position themselves relative to each other.
Do you sense much foreign interest in buying Taiwanese banks?
There is foreign interest in Taiwan both on the banking and insurance side. Firms view it as part of a greater China strategy.
Are families getting out of banking in Taiwan?
If you look at the ROEs for the Taiwan banking sector in the last 10 years, they have just plummeted systemic problems. Similar to Hong Kong there are a lot of entities in discussion with one another, but you run into fundamental problems about who will run the bank. So some of the same sentiments exist, such as thinking, "This is really a difficult banking sector, do I really want to do this?" but at the end of the day, the Hong Kong families have probably been thinking about this for a much longer period of time.
What are your views on Thailand's banking sector?
In a way, it is the same issue that exists in Taiwan, NPLs. Efforts are being made through the use of AMCs, but still it takes a long time to work out an NPL portfolio easily three years, probably longer.
If we assume Asia follows the US trend, there won't be any major family-owned banks.
The US culture and Asian cultures are very different. So I am not sure a direct comparison can be made. Ultimately it will come down to family members asking whether they have a compelling reason to invest more in the bank, in order to compete with those that are positioning themselves for the long-term competitive environment; or, do I just cash out now.
Can you see future mergers between Malaysian and Singaporean banks?
There would be great interest from the Singaporean side. Singapore is such a small market.
Why are Australian banks not interested in Asia?
There's a certain amount of fishing around going on but they need a comfort level. They probably want to do something significant, but at the same time not sink the ship.
Do you spend a lot of time in Korea?
We just finished a major restructuring project for Seoul Bank. The reason the restructuring was successful was that it was embraced by the shareholders and the management. We sent in a number of Deutsche Bank staff who were seasoned and who have worked in a number of countries with Deutsche Bank. So they were highly adaptable and had seen a number of banking situations. As a result, when they went in and worked with Seoul Bank's management to put in new risk management processes for treasury and credit, they knew the potential pitfalls.