[SINGAPORE] Taiwanese merchant bank China Development Financial Holding Corp (CDFH) is the latest to set its sights on the second-tier wealth market, with the planned acquisition of AmFraser Securities the latest piece in its ambitions, key executives said.
The plan is straightforward: to capture the cross-border capital flow potential as Taiwanese companies do more business in the region, and to get a foothold among the not-so-super-rich market segment.
KGI Securities, the securities arm of CDFH, is currently awaiting approval for its S$38 million purchase of AmFraser.
If it goes through, CDFH will gain a securities licence in Singapore.
Together with the derivatives capabilities of its 2013 tie-up with Ong First Tradition and CDFH's soon-to- be-completed acquisition of Taiwanese commercial lender Cosmos Bank, CDFH could soon expand from a merchant bank to a deposits-accepting full-service lender and broker, CDFH chief executive Paul Yang told journalists on Monday. And that will open new business doors.
"We will be moving into the wealth management business," Mr Yang said.
The wealth management business will try to capture individuals with about S$500,000 to about S$3 million in investible assets, KGI Hong Kong Group chief executive Reddy Wong said.
CDFH will not be the first to target that segment, however. A quick industry check showed that many retail banks already have platforms in that space.
The math is not difficult to understand. A 2012 study by consulting firm Oliver Wyman estimated that in the Asia-Pacific, people with US$1 million to US$5 million of assets held about US$5 trillion of assets that could be put to work. That was more than the US$3 trillion of assets held by those with at least US$25 million in assets.
But CDFH is hoping to leverage its traditional niche in serving small and medium size enterprises and business people.
"Our strategy will be different from that of the typical commercial bank... You're not going to see our people setting up a booth in the mall handing out flyers. We're going to stay very much corporate focused, but now with the relaxation of our regulatory limits, we can now extend that same service to individuals," Mr Yang said.
The plan for AmFraser is to turn it from a largely Singapore-focused equities house into part of a much broader outfit with offerings in derivatives and expertise that cross borders between North and South-east Asia.
KGI could help to list Taiwanese-owned properties in Singapore under trust structures, for example, while Singapore investors could have another avenue to access North Asian shares.
The AmFraser deal was a fortuitous opportunity for KGI, which began a joint venture with Ong First in 2013 but never really managed to grow that into the full securities broking arm that KGI had wanted.
Then AmFraser took a hit in the October 2013 penny stock crash - it faced losses of up to RM12 million (S$4.7 million) at one point - and parent AMMB Holdings was open to selling its Singapore securities business.
Mr Wong said he knew the baggage that came with AmFraser, but he was satisfied with what he saw in assessing the firm.
"There will be no way any of these bad things can continue to hide in AmFraser and with the regulator approving us in acquiring the company," he said. "That's why we're very comfortable coming in here."
He added: "With AmFraser it's a perfect match. After what happened, they basically scaled down almost every aspect of the business - the margin business, the corporate finance business, and it's purely a brokerage business - so it gave us a very good opportunity to come in and reinvent. And people were looking for that change in AmFraser after what happened. Everybody was kind of in a dire strait. So they wanted someone to come in, bring more experience, bring more capital to back the company."
KGI will import its established risk management practices, as well as teams that can improve the firm's products and help it to integrate with the rest of KGI's infrastructure, Mr Wong said.
"In three years it will be very different," he said.