Commentary

In Part Three of a special series of reports regarding conduct risk/consumer protection regulations, we start with an overview of existing Asia Pacific regulations designed to address misleading and deceptive practices.

Over the past one week, markets have been on a roller coaster due to various global & domestic factors. One of the key concerns was ‘Chinese Credit Crunch’. China being the 2nd biggest economy in the world contributing a substantial portion of the global GDP, felt like sharing some insights regarding the same to dispel fear among the investing public.

When talking about infrastructure investment, one thinks of various types of risks starting from political risks, operational risks, over-running cost & time risks, and so-on. These types of risks make the investment unattractive to investors.

Transaction Banking in Asia is dominated by the ‘Big Three’ of Standard Chartered, HSBC and Citigroup - however the emergence of ambitious competition from abroad poses distinct challenges to both large and small banks.

Bank fraud costs financial institutions in Asia a combined total of $1 billion annually – a figure that was quoted as recently as last year. But the costs of fraud go beyond just that of monetary losses. Banks have to also consider the shadow costs – such as the possible damage to their reputations, and loss or decrease of trust between them and their existing customers.

Alan Greenspan, chairman of the US Federal Reserve during 1987-2006, was often heralded as the most celebrated central banker of modern times. The years after 2008 have not necessarily been kind to his professional reputation however. A number of commentators including Paul Krugman and George Cooper (the latter’s work “The origin of financial crises: Central banks, credit bubbles and the efficient market fallacy” is a very worthwhile read for all students of finance) have highlighted the long-term impact of the “Greenspan put” and how the era of cheap money during 2000-2006 was a prime causal factor of the financial crash.

Ethics is more important in any profession. Without ethics an institution cannot run professionally, it can run only in its own way.

Investors recognize that Southeast Asia is one of key markets in the decade. Stable GDP growth, political stability, and rising stock markets drive growth of the middle class and massive spending. Major players of the western countries aim to get their foothold in the region. Some of regional and local private equity (PE) players aim to make exit of their investments. AEC in 2015 onward should create opportunity for companies with good business model to expand regionally for capturing 600 population and over 100 million middle class by 2016. I am an optimistic view that it should be the right timing on getting into the region of key players. There are several alternatives of making the best exit for PE players – going initial public offering (IPO), trade sale, or management buyout. Each one has pros and cons on pursuing it.

Did you know that there are over 2.5 billion people without any bank accounts in the world, and most of them are in Asia? And less than one quarter of the world’s 2.4 billion poor have a bank account. Managing their money using formal financial services – savings accounts, loans, insurance, and remittances -- is a wonderful, terrible, impossible dream for many, many families.

Given that RMB is fungible offshore, the emergence of new offshore centres simply expands the existing regime instead of creating competing systems. As such, we do not expect the recent development to have much impact on Hong Kong; especially when the market is already relatively mature after eight years of development. Being an important entrepot of the mainland, Hong Kong is currently handling more than 80% of all RMB payments and receiving over 50% of all letters of credit sent by banks in China (Chart 1).

Like or not, Jamie Dimon, JP Morgan Chase’s (NYSE: JPM) iconic Chairman & CEO, survived a referendum vote of his leadership over his bank. On May 21, the combative leader of the bank just scored a resounding victory. In what has to be considered something of a shocker, just 32.2 percent of shareholders voted in favor of the split, compared with 40 percent last year.

In Part Two of a special series of reports regarding conduct risk and consumer protection regulations, we continue with a brief history on the principles of fair treatment.

Asian banking success is traditionally measured by Market Share, Wallet Share and Customer Satisfaction rankings. Yet an oft-overlooked metric is ‘Mind Share’. How can banks that are operating in highly competitive and increasingly interconnected Asian markets garner greater support and advocacy of their products and services? This strategic and commonly misunderstood challenge is a clear differentiator between some of the key banks in Asia, and their competitive position against rivals. The concept also offers a valuable opportunity for growth and overall competitive positioning fulfilment.

At the risk of generalising, whilst buyout deals do exist (but are rare), most Private Equity Funds in Asia typically take minority stakes in companies (about 20%) and work with the founders to grow these companies for IPO or for trade sales. This means that in Asia, the PE Firm cannot replace the management of such companies easily and thus in Asia it usually takes more than mere capital to grow a company and prepare the target company for an exit.

Since reference rate is at its lowest throughout the history, whilst inflation stays low, the banks struggle to earn yield. The big banks cut interest rate for their clients with pleasure and aggressively grab loan market share as a means to maintain their profitability and bottom line growth.

Investment banking in Asia has been affected by weak earnings forecasts in the profits of targets (thus resulting in fewer large deals), increased capital adequacy regulation from regulators (so less liquidity they can put into deals which results in a reduced risk appetite for deals) and the general weak macro economy. The confluence of these factors have could be part of the reason for the reduction in general merger and acquisition activity in Asia.