Keefe, Bruyette & Woods (KBW) is perhaps most remembered for the tragedy when 67 of its 172 New York employees perished when the South tower of the World Trade Center, where the firm was headquartered at that time, collapsed after the September 11 2001 terrorist attack.
Almost nine years later, the institutionally oriented securities broker/dealer and full service investment bank is coming to Asia in a major way in an obviously aggressive move to open up the regional market for its financial specialist services. In May 2010, KBW opened its office in Hong Kong with a crack team of 16, a rather sizeable number if one considers that most foreign firms start their local operations with only a handful of people on the ground, if any. In addition, the firm is deploying a team of four experienced professionals for its office in Tokyo.
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| Michaud: A fully functional team from the beginning |
A fair share of KBW’s newly-formed Asian team worked together previously at Fox-Pitt Kelton, an investment bank which was acquired by Macquarie Bank in late 2009. “The idea is to have a fully functional team from the beginning. We think it is great that they have all worked together and it will give us an advantage in terms of timing our services,” says Thomas Michaud, KBW vice-chairman and president and chairman of KBW Asia, its newly-formed regional unit.
In an interview with The Asset, Michaud says KBW is initially establishing three business units in the region: cash equities, capital markets and cross-border merger advisory.
KBW admits that the businesses they are targeting, especially cash equities and capital raising, are already crowded spaces in Asia, yet they are optimistic that their chances of success are strengthened by what they see as the ongoing trend towards increasing specialization in the global and regional markets.
Vasco Moreno, global business coordinator for KBW Asia and CEO of London-based KBW, says that among the competitive edge KBW brings to the cash equities business is its strong and established relationships with a good number of major institutional investors in the financial services sector in the region. “When we talk about large investors in Asian financials, we already have a lot of those relationships. They are some of our best accounts in both the US and Europe. So the ability to actually cross-sell into those accounts is easy for us. That is the reason why we are confident about our success,” Moreno explains.
Stronger dedicated sales force
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| Moreno: The ability to cross-sell is easy for us |
Another competitive edge is KBW’s business operating model which is that of an investment bank that specializes exclusively in the financial services sector. This model contrasts with that of other investment banks which still follow the regional operating model in Asia, according to Moreno. “When I first moved to London in the mid-90s, we used to have exactly the same model that you have here in Asia,” Moreno recalls. “For the cash equity business, we had a Portuguese desk, a Spanish desk, and UK desk, for example. But in the past 15 years, we went to a sector-based model where you may still have 10 people looking at banks but this time they are looking at banks on a sector-wide basis. We feel this will happen in Asia as well and KBW is already there. The market will hopefully move towards a model that suits what we are trying to offer.”
On the capital raising side, Moreno says KBW plans to focus its efforts on mid-cap and small-cap companies which the larger investment banks tend to ignore. “Other institutions may be just trying to get the next deal in, particularly in the mid-small cap side of that capital raising equation. That is going to be playing much to our strength. It may be that the big bulge bracket players don’t really care if you are raising US$500 million, 250 million or a billion. It is too small for them. The fee is not good enough. But for us that would be a very nice fee to have,” Moreno says.
Michaud adds that while KBW may not be as sizeable as the major investment banks, in terms of resources dedicated to financial services, they are among the leaders. “We have a stronger sales force that talks just about financial stocks. Being a specialist means offering a different service and a different business model. And we are the only global firm doing this, so we think it is a major advantage,” Michaud says.
In terms of cross-border merger advisory, KBW is banking on its extensive experience in mid-cap and small-cap in cross border M&A deals that it has done in Europe, North America, Australia. Its more recent mandates include a US$63 million deal for the sale by Portugal’s Millennium Banco Comercial Portugues of its North American operations to Investors Bancorp in March 2010 and the US$742 million deal for the sale by AIG of HSB Group, a wholly-owned subsidiary of AIG and parent company of the Hartford Steam Boiler Inspection and Insurance Company to Munich Re in December 2008. In Febuary 2003, KBW packaged the US$35 million merger of the US-based Panasia Bank with Korea’s Woori Financial Group.
KBW Asia is fully integrated with the firm’s other business units in the US and Europe, offering sales, trading and research of Asian financial companies to clients around the world. The firm has launched research coverage on 51 publicly-traded financial services companies throughout Asia, with plans to launch coverage on several dozen more by this summer. In addition to individual stock coverage, the Asian research team plans to publish thematic regional reports providing in-depth analysis of current topics impacting the sector.
