BackUBS set to diversify to tap corporate banking as deals slow
UBS set to diversify to tap corporate banking as deals slow
PremiumChanging focus: Aashish Kamat, the new UBS India managing director and CEO. Abhijit Bhatlekar/Mint
Mumbai:UBS AG, Switzerland’s largest bank with $41.67 billion (around ₹ 2.3 trillion) in market capitalization, is looking to diversify into corporate banking, offering letters of credit, trade financing, transaction banking and cash management services to companies as it battles a slowdown in its main investment banking and wealth management business in India, managing director and group chief executive officer (CEO) Aashish Kamat said in an interview on Tuesday.
“Deals are becoming harder and there is a lot more linkage to balance sheet. This year in the first six months, the fee pool was only $150 million compared to $1 billion for a full-year basis or $500 million on a half yearly in the best of times. The whole investment banking paradigm is going to change drastically and we can’t run a franchise based on a bull market because every market comes in cycles and waves," Kamat said, explaining the rationale behind the change.
It will be difficult for UBS to gain a foothold in the transaction banking business with just a single branch, said Manish Ostwal, senior analyst at Kisan Ratilal Choksey Shares and Securities Pvt. Ltd (KRC).
“Transaction banking is dominated by larger foreign banks like Standard Chartered Plc, Citibank NA and Deutsche Bank AG, which have branches in all the big cities of India. With a single branch, it’s difficult to gain market share unless they only focus on the top end," Ostwal said.
But Kamat said he is confident of doing business with only a single branch. “I don’t think we need more branches. We have not even applied for any more with the Reserve Bank of India (RBI) because we think that the UBS brand is big enough to attract clients, especially the big Swiss companies looking to invest here," he said.
UBS in India is also relying on its wealth management division as it aims to tap the growing investment needs of high net worth individuals (HNIs) in the country.
Globally, the bank has $1.5 trillion assets under management and Kamat said there is increasing evidence of appetite for Indian paper. “In the latest State Bank of India (SBI) bond sale, our order book of more than $250 million was one of the biggest," Kamat said.
SBI raised $1.25 billion by selling five-year bonds due in 2017 at 4.125% in July in what was the first international bond issue by an Indian entity in five months.
Kamat said synergies between investment banking and wealth management are also an opportunity locally because of the large amount of mid-cap companies that need financing to expand.
However, Ostwal of KRC pointed out that wealth management in India, just like equity capital markets, is heavily linked to the stock market.
“People have made more money investing in gold and real estate because equity markets have been subdued for the last one year," Ostwal said. “Even local portfolio management companies have seen assets shrink and there is no saying when the markets will recover."
On 25 July, Business Standard newspaper reported, citing sources within RBI, that UBS’ India net profit had dropped 47% to ₹ 31 crore for fiscal 2011-12 from ₹ 58 crore in the previous year because of losses in the treasury and wealth management businesses.
But Kamat denied there were any losses. “There were no losses in treasury and wealth management. There were lower profits because RBI changed some things in the foreign exchange market, which hit trading last year and the wealth management business had a burn in terms of expenses because we are still building that business," Kamat said. Kamat said UBS’s endeavour in India from hereon will be to stabilize earnings from the more “lumpy" investment banking piece.
“I think it is a new stable avenue. Corporate banking is stable, investment banking is lumpy but when you get corporate banking with fixed income, currency and commodities, it’s stable, lets you subsidise investment banking, just like Standard Chartered, Citibank and HSBC (Hongkong and Shanghai Banking Corp. Ltd) have huge investment banking teams which are subsidized by corporate banking," he said.
“We will start with Swiss clients and go on from there," he said.
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