Why Sam is big on Asian FIG

ABN AMRO''s global head of financial institutions (FIG) and public sector, Sam Zavatti sees enormous potential in Asia.

How are you splitting your time between London and Hong Kong?

Zavatti: Actually, it's working quite well. The nature of my position is a global one. Therefore my presence is required in multiple locations and where we're building up our businesses. So where do I spend most of my time? I spend about 50% of my time in Europe, 25% in the US and the remainder in Asia-Pacific.

But you still retain a residence in Hong Kong?

My family resides in Hong Kong for educational reasons. Both my daughters are at a critical period and I don't want to disrupt their educational set up. The bank has agreed and supported this move.

Also it's good, and somewhat unusual for a major Western bank to have a member of the wholesale bank's management committee in Asia which, along with Europe, is where we view the growth opportunities.

What's your target for how much of the profit/ revenue should come out of Asia?

Let me give you a little bit of background. The organizational growth of ABN AMRO's financial institutions group only took place a year and half ago. The bank initially focused on Europe and followed with the development of FI platforms in the US and Asia Pacific.  So the Asia-Pacific financial institutions management team only came on board in terms of critical mass in April 2001. Here in Asia we have talented individuals who've joined from Bank of America ? where I was before ? from JPMorgan and Citibank as well as from other investment banks and the insurance industry. So the Asian team is now extremely strong. It can provide coverage in all sectors ? both bank and non-bank. The growth of our Asia business has gone from 10% of global revenues ? before this team was created ? to its current 30%. That's significant growth in a short period of time.

I could see the Asia-Pacific contribution being closer to 40%. Why? Europe is our home market, but the growth and development of the Asia-Pacific economies will expand tremendously. You have two giants, in terms of China and India, and lots of deregulation, WTO and all the various factors. Then you have the tremendous changes going on in Korea, which are happening very fast. Thirdly, you have the Southeast Asian economies that have gone through a difficult time ? the banking sectors particularly ? and they are emerging from this and then there is the banking consolidation happening across markets, that creates opportunities for a bank like ABN AMRO to work with the indigenous banks, especially on the cross-border business. So I see Asia as being a major contributor to the future growth of ABN AMRO's global financial institutions business. I can see Europe and Asia as being the two big blocks where we have the greatest growth.

When you talk about this block of revenue, what is that composed of?

In terms of clients, it's a mix, although right now it is predominantly banks. You will see that percentage change and you will see the non-banks, particularly the insurance sector growing more in the medium term; and also the investment management type sectors will also become part of that revenue growth.

In terms of products, the good news is that it's a broad group. There is the flow products, the transactions services, the trade, the payments, the custody, and foreign exchange businesses in which we are strong and in which we continue to invest. That base is a big focus area and will continue to grow. Then we have the global markets products which are another ABN AMRO strength such as derivatives, debt capital raising, hybrid structures, and securitization. The latter will play a more important role as banks start to reallocate their asset allocation.

Finally, and also very importantly, because of the consolidation that you're seeing in the banking industry, banks are wanting to do equity offerings ? particularly if they want to lower government ownership. Lastly we have corporate finance advisory, both M&A as well as bancassurance which is also a growing business in Asia.

So the wealth of opportunities from a product point of view is going to be significant.

What's your view on the potential for the development of bancassurance?

Bancassurance will be very focused on a few countries. The indigenous banks in these markets will want to become partners with the global companies and use their branch network as a distribution base for these other products.  We're seeing that in Korea and Indonesia.  India will soon join that group as will Malaysia.

Do you worry that competition in Asia is so fiercely competitive that it's really driving down margins in most products?

Yes, very much so. But relative to Europe or the US, they are still attractive. That is why you have all the majors in Asia-Pacific including the bulge bracket investment banks competing for business in Asia.

The margins are thin on public issues, but when you leverage that to below the line products like derivatives it looks a lot better.

Is the business moving against the monolines, because they lack the local bank licenses and local presences to do a lot of the swaps and derivatives business?

The way banking is evolving, institutions need to be able to do three things. One, they need to have a global reach, where you can provide solutions in various countries around the world. Two, you need to have a multiproduct capability, besides just a pure investment banking capability. More and more institutions are looking at how they can have a deeper relationship and be supported in other product areas. Thirdly, it's about credit capacity. An increasing number of clients are asking for credit and want a commitment. You need to use your balance sheet more and more to do investment banking type transactions. And concurrent with that, a large number of our bank clients are asking for technology assistance because technology is very expensive. A global bank that has global technology can provide that required transfer.

How big is the FIG opportunity in China?

It's evolving. You have to look at it in stages. Stage one is rather limited. The first thing that needs to be set up here is a banking infrastructure, and once you get that you can introduce new products and services and introduce new technology. So the opportunity is significant in the medium term and substantial in the long term. WTO will play a big role.

My view is that China will be a huge market for the global banks in the medium to long term. But you've got to be here now to develop the base for these long term opportunities.

In the year 2010, can you see a situation where 25% of the Chinese banking market is held by foreigners?

I could see that, if WTO is implemented on time. The key is the development of a local capital market and a local interbank market. You get those two, and the infrastructure development, and then you have more of a level playing field, which should translate into better products and services for the end user, the corporates and the retail clients.

Short term, do you see the biggest opportunity for your FIG business being Korea?

Absolutely, and we are following the consolidation of that banking industry very closely. You had phase one right after the crisis. Phase two is starting to take place. Then in phase three you'll have the creation of three or four megabanks. Our strategy is to work with the survivors.

Who will these banks be?

Kookmin will definitely be a megabank. The holding company structure of Woorie and the universal banking approach suggests it will also be a megabank. The third and fourth place is up for grabs. It's probably too soon to tell.

Is consolidation in Taiwan ready to happen?

I was betting it would happen two years ago and it hasn't. It will happen, but it will be slower than other countries such as Korea. But Taiwan is overbanked and the consolidation needs to happen.  It holds tremendous opportunities in terms of wealth creation products. It has a very high standard of living and a lot of disposable income. Personal assets in Taiwan are bigger than in Korea.

So will Taiwan look like Korea - three megabanks?

Ideally, if you look at the size of the country and the nature of its exports, you'd envisage three. But again, there's a lot of work that needs to be done on banking infrastructure and governance.

Will Taiwan thus generate a lot of FIG investment banking fees?

I believe the fees will be less attractive than other countries. The way it's structured now, the government-owned banks have to get approval from the Assembly for fees. So when the Assembly see these fees they are shocked, because they are not used to seeing fees like these. So that's an inhibiting factor. It's much more of an issue than people think.

Whereas in Korea, they realize you need to pay to get top notch solutions and services. It will change in Taiwan, but it will take some time. So I wouldn't estimate a big wallet  for investment banking fees yet.

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