Affin June 2012

Bank of East Asia (BEA) could release its 23.5 percent stake in Affin Holdings Bhd as it shifts its focus to Greater China. A shift in BEA’s strategy to focus on Greater China could mean that is no longer keen on leveraging on its relationship with Affin. This leads to the conjecture that it may release its stake in Affin. It could result in the meger of Affin Holdings Bhd and HLB Bhd.

 

BEA has disposed of its businesses in the US and Canada where it once sought growth overseas in areas with large ethnic Chinese populations. Furthermore, media reports have indicated that BEA’s largest shareholder and Spain ’s fourth largest bank, Caxia Bank, may cut its stake in the group. However, it is difficult to ascertain if Spanish regulators would force Caxia Bank to cut its stake to shore up capital and provisions to counter asset quality risks. At the very least, regulators may stop Caxia from increasing its stake in BEA. This implies a higher probability for Guoco Group, BEA’s second largest shareholder to pursue BEA for a potential takeover.

 

In the past three years (2009-2012), Guoco has been steadily increasing its stake in BEA to 15.3% stake as at March 31, 2012 fuelling speculation it was trying to gain control of BEA. Guoco faces one less hurdle if Caxia sells its 17% stake in BEW. Assuming Guoco does control of BEA, HLBB would emerge as a distant cousin of Affin’s/ Would HLBB merge with Affin or would Affin be divested?

 

Market observers noted that in the current (June 2012) situation, despite a common indirect shareholder via Guoco, there would be no compulsion for HLBB to merge with Affin as Guoco’s stake in BEA is only an investment rather than a strategic stake. Guoco owns 25% stake of HLFG Bhd which in turn owns 61.3% stake in HLBB.

 

Even if BEA decides to sell its stake in Affin, HLBB may not necessarily be its acquirer, especially since the group completed the acquisition of EON capital bHd only in 2011 and still reaping merger synergies. It also saw little accretion to this marriage, contrary to the HLBB-EON Cap merger .

Affin… dated April 2012

While the focus has been on firming up its foundation on local shores through a bank-wide transformation the last seven years, Affin Bank has not let slip expansion opportunities across the seas too.

One such is through its partnership with Hong Kong-based Bank of East Asia Ltd (BEA) which Affin is banking on as the route into China ’s unexplored Islamic banking landscape.

However, talks about venturing into China is still in its preliminary stage and Affin believes that it should go through the process of engaging the Chinese authorities before further commenting on the matter.

That said, the potential for spreading its wings abroad is there. With a connection with BEA, Affin can join forces to leverage on its global reach and experience.

BEA first surfaced as a substantial shareholder in Affin in June 2007. The bank started actively picking up shares in Affin in the middle of 2009 and is now the second largest stakeholder with a 23.52% block.

In August 2010, Affin Bank’s parent company Affin Holdings Bhd (AHB) signed a memorandum of understanding with BEA establishing a strategic partnership to jointly develop their business potential in mainland China , Hong Kong , Malaysia and other key markets where they both operate.

Affin’s interest in introducing Islamic banking to the China market has been on the table since and BEA has been playing a role in expediting talks with the China Banking Regulatory Commission.

Affin has a mind to market Islamic banking products in the Muslim-majority population areas in north-western China where BEA has a branch in Urumqi .

The strategic alliance will place both Affin and BEA in a better position in many important Asian markets. The areas where both banking group could explore include treasury, Islamic banking, investment banking and asset management.

Alliance Research banking analyst Cheah King Yoong says the partnership will be beneficial to both parties. The strategic partnership could be fruitful for both sides is Affin leveraging on BEA’s extensive network and expertise in the region to launch its Islamic products.

While he says there is not much information available at the moment, BEA has been interested to increase its stake in Affin. Therefore, the potential for BEA to increase its stake in AHB is imminent, in view of further liberalisation in the domestic banking sector by Bank Negara in December 2011 with the unveiling of the Financial Sector Blue Print.

Around South-East Asia , Affin has also expressed keen interest in Indonesian bank PT Bank Ina Perdana, which if acquired, Affin intends as a full-fledged Islamic bank. The group is now (April 2012) waiting for the Indonesian central bank, Bank Sentral Republik Indonesia’s formal agreement to allow Affin to hold at least a 51% stake in the small bank. Affin would not be interested in acquiring should it end up holding less than 50% stake.

Other than Indonesia , Affin also hopes to establish banking operations in recently democratised Myanmar but such ambitions depend on the Government’s relations with Myanmar .

BEA, incorporated in Hong Kong in 1918, provides comprehensive commercial and retail banking services. It is listed on the Hong Kong Stock Exchange and is one of the constituent stocks of the Hang Seng Index. As the largest independent local bank in Hong Kong , it has total consolidated assets amounting to HK$611.4bil (RM241.44bil) as at Dec 31, 2011. The bank also operates one of the largest banking networks in Hong Kong , with more than 150 branches and financial centres throughout the city.

BEA entered the mainland China market in 1920 when it first opened a branch in Shanghai . It is the largest foreign bank in China with more than 100 outlets in major urban centres the country over.

In other parts of the world, BEA has presence in North America, the UK , Singapore and Malaysia . It has branches in Los Angeles and New York as well as a New York-based subsidiary, Bank of East Asia (US) and North America .

As a gauge of the banking group’s size, BEA operates more than 220 outlets and employs over 12,000 people worldwide.

In 2007, it was one of the first foreign banks to receive approval from the China Banking Regulatory Commission to establish a locally-incorporated bank in mainland China , the Bank of East Asia (China) Ltd, which offers a full range of banking and financial services.

BEA is 15.09%-owned by Tan Sri Quek Leng Chan through Guoco Group Ltd.