Saturday, June 18, 2011

Personal: The curse of merger and acquisition

Sometimes, becoming a bigger entity is bad. It is now an open secret that Maybank and CIMB are fighting to be the biggest bank, not only in Malaysia but South East Asia generally. The takeover of RHBCap will catapult CIMB to be the biggest bank in Malaysia, with an asset base of RM405 billion (as at 31st March 2011) while the Maybank-RHBCap combined will solidify their status quo as the biggest bank in Malaysia and SEA (in term of market value). 

The tussle had heightened up to a new milestone when the current shareholder,Abu Dhabi Commercial Bank (ADCB) sold their 25 percent stakes to their parent company, Aabar Investment PJSC yestersday. With a price tag of RM5.9 billion, the stakes are valued at 2.25 times of their book price which stands at RM4.79. Although the valuations are on the high side when compared to the recent banking M&A (Hong Leong Bank and EONCap mergers at 1.42 times), it deserves such premium as RHBCap is much bigger entity and the stakes are hard to come by. At a price of  RM10.80 paid by Aabar Investment, it seems difficult for both CIMB and Maybank to match the price.

However, the main objective that I would like to share is the effects to the customers. Could you imagine what will happen to man on the street if the M&A takes place? I believe that RHBCap should be left as an entity rather being merged with bigger banks. 

If you read articles by analyst, you will find words like "synergies, efficiency, higher profit and   potential expansion". But what happen to words like "duplication, interruption of service and monopoly" which will not be mentioned in the articles. As we could predict either CIMB-RHBCap or Maybank-RHBCap will have huge number of branch duplication. It is not economical to keep two branches side-by-side, resulted from the merging of the two banks. Therefore we will have less access to the bank branch. Besides that,  it is inevitable for staffs to be options to be retrenched as a part of rationalization of branches.

Combined banks will also have a bigger market share, which might give them a greater power to control the market by having less competition. I give you an analogy, let say you sell product A and your rival also sell the same product. Luckily, you manage to throw out your competitor and bought over their business. Therefore you can have greater market share and importantly control your product price, or even increase them since the competition is no more there. That is what I mean the effect to the customer.

The banks might be more selective to dish out loans, and chooses their customers. Since I am not analyst so I can see this clearly. Haha

Foot Note: This is just my humble opinion for our banking industry. I am not responsible to any damage that will be caused from my article . I would suggest that we should change to Islamic banking that have proved better compared to the conventional banking. =)

No comments:

Post a Comment