AmInvestment Bank Berhad - 2007 |
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| Report ID | 2842 | Popularity | 1703 views 30 downloads | |||||
| Report Date | Nov 2007 | Product | ||||||
| Company / Issuer | AmInvestment Bank Bhd | Sector | Finance - Financial Institution | |||||
| Price (RM) |
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| Rationale |
MARC has affirmed AmInvestment Bank Berhad’s (AmInvestment) financial institution ratings of AA-/MARC-1. The outlook of the ratings is stable. The affirmed ratings acknowledges AmInvestment’s sustainable franchise value, stable asset quality, high operating efficiency and sound risk management practices, as well as the very competitive environment for investment banking. The ratings incorporate a change in the bank’s risk profile following a major restructuring of AMMB Holdings Berhad (AmBank Group). The transfer of AmInvestment’s fund-based assets to the banking group has resulted in a business mix that is now focused on investment banking and stockbroking. The operations of AmBank Group have been reorganized into four major groups - banking group (commercial & Islamic banking), capital markets group (anchored by AmInvestment), asset management group and insurance group in line with its strategy to evolve into a universal bank. Post-restructuring, the four strategic groups or businesses are expected to be increasingly interconnected. An important rating implication arising from the adoption of the universal banking model could be an alignment of AmInvestment’s ratings to that of the ‘universal bank’ or AmBank group. At group level or the universal bank level, its component entities positively add to the diversification of revenues and earnings. Accordingly, the universal bank will benefit from an anticipated strengthening in the financial profile of its other core banking entity, AmBank (M) Berhad, arising from the latter’s strategic partnership with the Australia and New Zealand Banking Group Ltd (ANZ). Exposure to weaker entities in the group, meanwhile, is mitigated by the legal status of core entities, all of which are tightly regulated and supervised institutions. MARC believes that while positive momentum could develop on AmInvestment’s ratings over time as a result of stronger cohesion among the universal bank component entities, AmInvestment will face integration and execution challenges in the interim. As implied by the stable ratings outlook, no downward pressure on the ratings is currently envisaged. Future changes to AmInvestment’s ratings will be linked to its own stand-alone credit profile and that of the universal bank. AmInvestment continues to retain its position as a leading domestic investment bank, with strong footholds in debt and equity origination, funds management, debt trading, merger and acquisition (M&A) advisory services and stock broking services. The bank has also established a regional footprint in Singapore. MARC expects the distribution capabilities of AmInvestment to be enhanced given the retail presence of AmBank Group’s stockbroking entities, the operations of which AmInvestment will be increasingly integrated with. Asset quality at AmInvestment remains satisfactory. The bank’s positive asset quality trend as evidenced by a declining net non-performing loan (NPL) ratio of 4.3% in 2007 (FY2006: 6.7%), was aided by substantial write-offs of RM173.1 million coupled with a lower amount of new NPLs in 2007. MARC takes comfort in the bank’s strict investment guidelines. Approximately 84.1% of its private debt security holdings are conservatively rated single A or stronger on its internal ratings scale. AmInvestment’s performance is largely driven by the performance of its trading and investment portfolio which contributed about 53.7% of total income in FY2007 while fee-based and brokerage income contributed about 13.5%. Post-realignment, AmInvestment’s income would be derived primarily from fee and brokerage income which could result in a more volatile earnings base. The bank plans to return a significant amount of its core capital, amounting to about RM1.4 billion, to shareholders post-realignment. MARC believes that anticipated capitalisation levels after the return of capital and transfer of funds-based activities will be commensurate with the bank’s reduced risk activities and its current ratings. |
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