Bundy gives the Merrill view

There is a new strategy at work at Merrill Lynch. Vice-chairman, Greg Bundy is now splitting his time between Sydney and Hong Kong – keeping an apartment in both financial centres.

This is in line with Merrill’s new approach to Asia. It is now integrating Asia and Australia, and treating it as one geography. Such a move has, for example, seen Michelle Ring move to Sydney to head South East Asian research.

Australia is a key component of the Asian strategy Bundy says. “In Australia we’ve found a very good workforce. So we’ve filled a lot of key spots from Australia, particularly in IT. Over the past three years, we’ve sent over 100 Australians to Singapore, Hong Kong, London or New York.”

He says that integrating Australia with Asia also makes sense from a client perspective. “As far, as our Australian clients are concerned, it is a core part of their strategies to get bigger and expand outside Australia, and often that means Asia – just look at Telstra.”

He says Merrill is focusing on some core markets and sectors. “Merrill’s strategy mirrors that of our clients. We see opportunities in North Asia: meaning Korea, Taiwan, and Greater China. And in terms of sectors we like Energy and the more defensive plays. We also like good companies in the technology sector, in areas like semi-conductors.”

He adds: “A lot of our time and effort is spent on China. It has the world’s highest growth rate, and with its entry into the WTO approaching, the opportunities are enormous.

“We’ve been one of the leading bankers in China. And we are looking to expand our rep offices in Beijing and Shanghai by eventually adding equity and fixed income people over the next five years.”

But what percentage of investment banking revenues should China comprise? “Investment banking revenues fluctuate, but Hong Kong and Greater China ought to be the leading P&L for investment banking in Asia, making up a third to 50% of revenues.”
Has the firm decided to de-emphasize South East Asia? “We have a footprint in all the South East Asian countries. We still have research people there, but increasingly we’ve found a lot of investors stop in Hong Kong and Singapore. Hong Kong, Singapore and Sydney are our three critical centres.”

And is the rumour true that Merrill has cutback 30% of its research analysts in the region? “We have not cutback 30% of our research staff. That is wishful thinking by our competitors.”

He is realistic, however, about the effects of the U-shaped recovery in the US on Asia. “Clearly, despite some good fundamentals in Korea, Taiwan and China, the spectre of recession in the US will slow things down.”

But he adds: “What I see in the US is a corporate earnings recession. However GDP growth is still moving ahead.

“There are two positives to this. Firstly, lower interest rates benefit emerging markets. And secondly – I used to run the asset management business in the US – in recent years we’ve seen such a narrow focus by US funds on tech that it has sucked funds from elsewhere. Now I think the diversification theme we had in the early 90s will come back, and that should benefit Asia.”

He notes: “It’s a difficult time right now. But it’s also a great time to pick up market share.”

He says one of the key trends he sees in Asia is the growth of M&A. And what he likes about M&A is that it “gets you into a strategic relationship with the CEO”.

And he concludes: “In Merrill’s eyes, Asia is not just the future, it’s happening now. Our Asia Pacific revenues [including Australia] were $1.2 billion last year, which was a record. That’s up from $500 million two years earlier.

“When a business starts to earn more than a billion dollars, it can’t be ignored.”