Senior-level departures at BOCI have raised questions about the investment bank's ability to chart a clear and consistent
Hong Kong-based Bank of China International (BOCl) has come
a long way since it was set up in London in 1996. However, it has been rocked by recent
senior managerial departures that have raised questions about its ability to retain top talent
and forge a clear and consistent strategic direction. Worse still, the departure of a top
analyst criticized by former Chinese premier Zhu Rongji underlined a lack of independence at the investment bank when it comes to commenting on issues sensitive to the authorities in Beijing.
Over the past seven years, BOCI has been expanding on the back
of the strong Chinese economy. Originally specialising in corpo-rate finance, BOCI now
offers a wide range of financial services, including equity sales and fund management. In
1998 its headquarters were relocated to Hong Kong where its parent, Bank of China, is the
largest bank in terms of assets after HSBC. Two years later, BOCI opened representative
offices in Beijing and Shanghai.
China specialist boutique
Its political connections
on the mainland have brought in a number of deals, including the first-ever H-share listing,
Tsingtao Beer, and the ongoing partial privatisation of utili-ties in Shenzhen. According to
company spokeswoman Melody Wang, BOCI is "a profit entity, without doubt".
Campbell, BOCI's head of corpo-rate finance in London, describes his bank as a China
specialist boutique, with ambition to become a regional heavyweight with a glob-al sales
support. "China is the place in the world where big deals are done at the moment. And we
are the people that are doing the deals." he says. His London office covers most of the rest
of the world market, while Hong Kong takes care of Asian sales.
But the opening of the
two domestic rep-resentative offices suggests a rather different strategic emphasis. 'l think
they will focus on developing their share in the domestic market," says Jonathan Anderson,
former IMF Beijing resident representative and now chief Asian economist at UBS
He adds that, if BOCI wants to become a regional heavyweight in the future, it
would take ye' ars to build up the necessary expertise
beyond China. In the domestic
market, it is playing to its strengths. But anything could happen in 10 or 20 years' time.
Who knows?" he says.
As BOCT strives to make more of an impact on the mainland, it
will compete head-on with market leader China Interna-tional Capital Corp (CICC), a joint
venture between Morgan Stanley Dean Witter and China Construction Bank. Last year,
CICC served as lead underwriter of four stock offerings that raised nearly Yn36bn, accord-
ing to the Securities Association of China. These included the Yn11.5bn A-share offer-ing
by China United Telecommunications and the Yn11lbn domestic IPO by China Merchants
Bank. Its profits were also the highest in the investment banking sector, at Y05m, despite
an overall decline in fund-raising on the A-share market and a fall in stock-trading
Much of CICC's underwriting success can be attributed to its excellent relations
with the Chinese government, say analysts
indeed, one of its employees is Levin Zhu
Yunlai. son of Zhu Rongji.
BOCI itself is hardly short of mainland connections, including
former employees who now hold top positions elsewhere. High among them is former
president Liu Mingkang, who was concurrently president of Bank of China, left in March this
year to take up the post of the newly-created nation-al banking regulator. Liu's experience
will be badly missed. A fluent English speaker who holds an MBA from a business school
in London, Liu is one of the best-known Chi-nese bankers in the international banking
In February former managing director Lee Lam resigned, followed a month
later by Henry Tsang, its head of investment banking. Tsang left to become a partner in a
direct investment firm after only nine months at BOCI. He had formerly worked for Merrill
Lynch for 16 years and Bear Stearns for six years, the last three as president of its Asian
business. The fact that such high calibre staff left BOCI after such a short period of
employment can only have had a damaging impact on staff morale.
However, none of
these departures were as dramatic as that of Ho Cheuk-yuet,
BOCI's former head of
research. Last Sep-tember, Ho published a report that recom-mended the scrapping of the
Hong Kong dol-lar peg to the US dollar. The peg was created in 1983 to stabilise Hong
Kong's currency when uncertainty over the terms of the British handover created much
volatility in the territory's stock and property markets. It has been a key element of the Hong
Kong government's economic policy ever since.
Ho's report triggered a bout of
speculative selling that briefly forced up interest rates. Last November, when visiting the
SAR for the final time as China's premier, Zhu Rongji made no effort to conceal his
"Don't think you're just BOCI others think that you're speaking for Zhu
Rongji," he was quoted as saying during an address to Hong Kong executives of mainland
compa-nies. "I hope none of you will make the same mistake."
Zhu said people would
infer that the research reflected his views because Li Shan, the current chief executive
officer of BOCT, had been his student at Beijing's Qinghua University. Shortly afterwards,
the bank con-firmed that the author of the report had quit his job 'for personal reasons' just
a day before the premier's open criticism.
In February 2001, Ho
had been the most high profile of five senior executives that BOCI recruited in an effort to
boost its expertise. All five were poached from prominent for-eign investment banks, giving
BOCI much-needed global experience at the senior man-agement level.
Prior to joining
BOCI as its new head of research and managing director, Ho was HSBC's head of Greater
China sales and research. Before then he was deputy manag-ing director at CLSA, where
he was named -best China analyst by Asiamoney for three
consecutive years between
1994 and 1996.
Ho was by no means the only economist to call for a scrapping of the
peg. Jonathan Anderson of UBS Warburg believes that Ho's report was "moderate" in tone
and con-tained "well-laid out arguments against the peg nothing inflammatory".
"It is a
calm economic discussion that we all participate in," he says, adding that he himself had
written an article about a year and a half earlier that explored the possibili-ty of life without
The market's strong reaction to Ho's report can be put down to BOCI's status
as a state-controlled firm, says Anderson. "Peo-ple therefore tend to see [the report] as
repre seating the government view," he says.
Zhu's outburst drew widespread criticism
in Hong kong, particularly since his govern-ment had repeatedly pledged to uphold free-
dom of expression in the SAR.
"It's a sign of the immaturity of the main-land economy
that the government cannot distinguish between fair comments of private investment banks
and government policies," former investment banker, David Webb, was quoted as saying.
Webb, whose own website focuses on corporate governance, said it was "a dangerous
path" for the government to interfere in the analytical work of investment banks under state
Anderson agrees: "The [Chinese] leader-ship clearly didn't understand the
concept of institutional independence. They should have said nothing. It's a real test of
indepen-dence [for BOCI]."
By poaching top analysts from big
invest-ment banks, BOCI committed itself to assembling a reputable research team in a
highly competitive markeiplace. But its cred-ibility was undermined by Ho's departure,
which many believed demonstrated a lack of independence at the bank.
BOCI London acknowl-edges that it was "a most unfortunate episode that we have
hopefully put behind us". He has been working for the firm since January 2000 and cannot
recall any other similar inci-dent in the past.
"Every organisation has its problems," he
continues. "BOCI is no exception." But he has faith in its top management. We've got
some brilliant Chinese at the top who have been trained in the West and therefore know
how best BOCI should adapt in the market-place," he says.
He explains that China's
continuing strong economic growth, while much of the rest of the world is mired in
recession, is the single most important factor that attracts people like himself to the bank.
Before join-ing BOCI, he worked for the Hong Kong-based Crosby Financial
Recognising the appeal of BOCI in the regional financial market, Anderson is
san-guine about its recent troubles. It's a very competitive market. There's naturally a free
flow [of professionals," he says, implying that, like any other investment banks, BOCI has to
learn to handle the issue.
Paying the going rate to attract talent is one of those lessons.
Back in 2000, a top-level insider at BOCI revealed that the bank spent only 22 per cent of its
annual budget on compensation packages, compared with 55 per cent or more by the top
investment banks. BOCI was reported to be lobbying the central government for allowing it
to spend more to hire the best.
Chief executive officer Li Shan decided to triple bonus
pay-outs to staff only four months after he joined BOCI in 2001. Last year, he was quoted as
saying that BOCI needed to improve its pay scale to lure qual-ity bankers and compete with
its rivals. But Li, more than anyone else at BOCT, knows that there are cultural and
structural conflict at play that even he may not be able t -resolve in the near future.
BOCI positions itself in the market in future and how it goes about getting that will largely
depend on the reforms in China overall banking sector changes in corporal -structure and
ownership, corporate culture and degree of autonomy. The person who holds the key to its
future looks likely to h the national banking regulator and BOCI former president Liu