INQUISITION NEWS: Bank of America Becomes Bank of Asia as Deals Resume

Bank of America Becomes Bank of Asia as Deals Resume

Bank of America Becomes Bank of Asia as Deals Resume

By Cathy Chan

Bank of America is headed for its best year advising on mergers and acquisitions in Asia-Pacific since 2005, and arranging initial public offerings since 2007, data compiled by Bloomberg show. Photographer: Jin Lee/Bloomberg

A black leather couch in Jayanti Bajpai’s 17th-floor Hong Kong office bears witness to Bank of
America Corp.’s turn of fortune in Asia.

Twenty months ago, Bajpai sat on the sofa with discouraged
Merrill Lynch & Co. colleagues, asking them one at a time to
focus on the benefits of the firm’s merger with Bank of America,
the largest U.S. lender by assets, he said. By the end of last
year, conversations held on the same couch, which overlooks Hong
Kong Park, had turned to deals.

Bank of America is headed for its best year advising on
mergers and acquisitions in Asia-Pacific since 2005, and
arranging initial public offerings since 2007, data compiled by
Bloomberg show. The combined companies have generated 30 percent
more revenue from traditional investment-banking businesses in
the region than they did as separate entities, according to a
person with knowledge of the matter who asked not to be
identified because the figures aren’t public.

“It’s basically getting the focus back,” said Bajpai, 45,
a 23-year Merrill Lynch veteran named co-head of Asia-Pacific
corporate and investment banking in March 2009. “We spent five
months stabilizing the ship, and then it turned. People were
worried about the bank’s future, rather than worrying about the
bank’s business.”

Winning Market Share

The Charlotte, North Carolina-based bank is winning market
share for equity underwriting at the expense of UBS AG,
Citigroup Inc. and Credit Suisse Group AG after hiring almost
400 staff in Asia since early 2009 and focusing on integrating
Merrill Lynch’s investment-banking business with Bank of
America’s corporate-banking platform. In M&A, the company has
gained market share from Citigroup and Nomura Holdings Inc.

The acquisition of Merrill Lynch helped the lender
establish a global footprint in such businesses as advising on
deals, sales and trading and wealth management. It also deepened
corporate-client relationships by providing a wider range of
products and more conduits for raising capital.

Bank of America is ranked sixth advising on M&A and fifth
on IPOs in the region this year, rising from 10th place in 2008
when the merger with Merrill Lynch was announced, Bloomberg data
show. The bank is trailing Zurich-based UBS, Morgan Stanley,
Frankfurt-based Deutsche Bank AG, JPMorgan Chase & Co. and
Goldman Sachs Group Inc. in Asia-Pacific M&A advisory work this
year and the latter four in IPOs. Morgan Stanley, Goldman Sachs,
JPMorgan and Citigroup are all based in New York.

‘Obvious Improvement’

“They’ve made obvious improvement this year, as the whole
team in Asia has solidified after key management was in place,”
said Ambrose Chang, who helps manage $3 billion at Daiwa SB
Investments HK Ltd. in Hong Kong. “Right after the merger was
announced, I barely received calls from their brokers, who were
uncertain about their future. Things have now normalized, and
they’re doing more IPOs and share placements.”

Bank of America, which didn’t have an investment-banking
team in Asia, has benefited from Merrill Lynch’s strength in the
Asia-Pacific capital-markets business. The U.S. brokerage was
one of the top five IPO arrangers in the region from 2001 to
2007, except in 2003 and 2005, Bloomberg data show.

“While they’ve started climbing from the bottom of the
ladder, there is still room to grow,” Chang said of Bank of
America’s investment-banking operation in Asia. “It’s uncertain
how much synergy the two firms can create because banks are more
conservative about risk-taking and that could hinder the
expansion of a pure brokerage firm like Merrill.”

Trailing in China

One key country where Bank of America trails investment-
banking rivals is China: Unlike such firms as Goldman Sachs and
UBS, the company still lacks a partner in the world’s fastest-
growing major economy that would allow it to underwrite share
and bond sales.

The bank hired former Goldman Sachs Group Inc. partner
Peter MacDonald as vice chairman for Asia-Pacific in July to
help speed up its expansion in China. Hong Kong-based
MacDonald spent 17 years at Goldman Sachs, including a stint as
chief operating officer of the firm’s Chinese venture partner.

Bank of America derived 9 percent of its total revenue from
Asia for the year ended Dec. 31, 2009, the first since the
merger, up from 2.4 percent in the previous two years, according
to the company’s annual reports.

Net income from Asia surged almost sevenfold to $5.1
billion at the end of last year, in part because the bank sold a
portion of its stake in China Construction Bank Corp., the
nation’s second-biggest lender.

“There had not been enough investment in the Bank of
America platform, and the Merrill operation was distracted over
the past couple of years,” Brian Brille, 50, Bank of America’s
Asia-Pacific president, said in an interview. “Now, with the
successful integration, what happened in the last 12 to 18
months is extraordinary.”

Banker Departures

When Bajpai was asked to move to Hong Kong from London to
run Asia-Pacific investment banking by Andrea Orcel, 47, then
president of international global banking and wealth management,
morale was at a low point, following a flurry of senior
departures and cost-cutting, Bajpai said. He held his first
group meeting in March 2009.

“My message was very clear: ‘I have no doubt we will win.
We will go through an incredibly tough time, but we will come
out of this as a leading franchise,’” he said he told 400
investment bankers. “People were wondering if we were going to
survive.”

Merrill began losing bankers before Bank of America
completed its takeover on Jan. 1, 2009. Damian Chunilal, former
Asia-Pacific head of investment banking, left in November after
19 years with the firm. His exit was followed by that of Jason Brand, president of Asia-Pacific operations, and Raymundo Yu,
chairman of the region.

Treasury Hires

Nelson Chai, appointed by John Thain to replace Brand in
December 2008, quit two months after the former chief executive
officer was ousted. Chai was replaced in February 2009 by Kim
Hong, who was in the job for seven months. Jim Forbes, named
Asia-Pacific head of corporate and investment banking in
November 2008, returned to New York four months later and was
replaced by Bajpai and Jiro Seguchi, who focuses on Japan.

To boost the integration of corporate and investment
banking, the company this year hired Citigroup’s Ivo Distelbrink
to run global treasury services and Charles Alexander, 53, from
Standard Chartered Plc as head of corporate banking. The bank
has hired more than 120 people since the start of 2010 for
corporate banking and treasury services in Asia, a 30 percent
expansion of those operations, said a person with direct
knowledge of the matter who declined to be identified.

‘Multiplier Effects’

The expansion is led by Thomas Montag, 53, president of
global banking and markets, who has traveled to Asia four times
this year, according to Jessica Oppenheim, a spokeswoman in New
York for the bank. He was based in Tokyo and Hong Kong from 1998
through 2006 as a Goldman Sachs executive, including five years
as co-president of Japan. Merrill hired Montag in May 2008, five
months before it agreed to be purchased by Bank of America.

The bank secured an advisory role this year from Bharti
Airtel Ltd., India’s largest mobile-phone operator, after it
participated in arranging $7.5 billion of loans to the company
for its acquisition of the African assets of Mobile
Telecommunications Co., the Kuwaiti phone operator known as Zain.
That’s something it couldn’t have done without the Bank of
America platform, Bajpai said. The $9 billion transaction was
the bank’s biggest M&A advisory job in Asia-Pacific this year.

“One plus one doesn’t equal two -- it does equal three in
the sense that there are multiplier effects you’re getting from
having a corporate-banking platform,” said Bajpai. “Our
ability to compete has been significantly enhanced, and our
revenue streams have diversified.”

Reliance Industries

In October, the bank helped Reliance Industries Ltd., owner
of the world’s biggest oil-refining complex, arrange a $1.5
billion sale of senior notes, after advising the Mumbai-based
company on its $1.7 billion purchase of shale-gas assets from
Atlas Energy Inc. The sale was the biggest year-to-date
corporate bond offering from India. Citigroup, HSBC Holdings Plc
and Royal Bank of Scotland Group Plc also handled the sale.

“Their debt-market capabilities in the U.S. were important
to us for the bond issue,” Alok Agarwal, Reliance’s chief
financial officer, said in an interview. “If you look back over
a period of three years, other firms had built a stronger
franchise in India than either Bank of America or Merrill Lynch.
They have been able to catch up rapidly by offering a full suite
of products.”

Bank of America also advised Irving, Texas-based Pioneer
Natural Resources Co. on the sale of its Eagle Ford shale
formation to Reliance Industries in June.

Risk Analysis

Alexander, who worked for 10 years at Lehman Brothers
Holdings Inc. until March 2008, said he and Bajpai are on
regular calls with New York-based Marisa Harney, head of
international risk-strategy development; her team in Asia led by
Singapore-based Barbara Taylor; and Rahul Singhal, chief risk
officer in Hong Kong, to make decisions on deals, loans and
strategy after what he called a “thorough” risk analysis.

“We’re moving the needle in Asia, so we want to do more by
working closely with our risk partners,” Alexander said.

In Australia, the bank made more than 35 hires in the third
quarter of last year, including a team of 10 real estate bankers
lured from UBS. It also recruited Craig Drummond from Goldman
Sachs’s Australian securities unit as country CEO.

‘Top House’

Now Bank of America is having its best year in M&A in the
country in a decade, Bloomberg data show. It ranks sixth after
advising Newcrest Mining Ltd. on its A$9.2 billion ($8.9 billion)
purchase of Lihir Gold Ltd. and helping Carlyle Group and TPG
Capital buy Melbourne-based Healthscope Ltd. for A$2 billion.
The bank, the third-biggest M&A adviser in the country in 2000,
slumped to 24th in the past two years, the data show.

In China, Bajpai brought back Liu Erhfei, 52, one of the
most veteran Chinese bankers in Asia, this year from the firm’s
private-equity unit to lead the country’s investment-banking
business. He also hired Zhang Xiuping, 40, who helped boost
Deutsche Bank’s China M&A ranking to seventh place this year
from 12th when she joined the German lender in 2008.