S&P reorganizes

Standard & Poor's (S&P) yesterday announced a wide-ranging reorganization of its businesses in Asia. The move will see the firm integrate and centralize its management, business development, administration and sales disciplines across all its products and services.

Tom Schiller has been promoted to be the new head of Asia Pacific from his previous role of running Japan and Korea. Under his guidance, the team will seek to leverage the full range of S&P's services spanning credit ratings, equity research, index services, risk solutions and fund analysis.

Reporting to Schiller will be three regional managers. Surinder Kapthalia will be based in Singapore running Southeast Asia. Yu-Tsung Chang will be based in Tokyo running Japan and Korea. Chris Dalton will be based in Melbourne managing Australia and New Zealand.

The reorganization is a recognition that S&P's business is more extensive that just credit ratings. As a result, the agency believes the integration and cross-fertilization engendered by the move will help those newer businesses to grow even faster.

Here Tom Schiller and Lorraine Tan, S&P's director of research of the Asian Equity Research Services division, discuss the implications of the integration.

Tom, What's the thinking behind this reorganization?

Schiller: It's basically to create a more unified S&P operation. In 2001 I was appointed to do something new for S&P, which was to run an integrated S&P business in Japan and Korea. We already had a full range of products and services there but they never really had a common management before. This has gone successfully so the idea is to do the same for the whole of Asia Pacific.

Why do you need this more coordinated approach? Is it because there are lots of overlaps in the customers and products you offer them?

Schiller: The ultimate customers are banks and institutional investors who use our products to make their decisions. Issuers in both equities and debt benefit from our services and request the rating but ultimately it's the banks and institutions who are our main customers. However, the people within the banks and institutional investors who use our services tend to be quite different. So it's not a question of going to them and trying to cross sell our products and services. It is more about having an integrated strategy and orientation to the different markets.

Within Asia Pacific, the opportunity is largely within the large domestic markets such as Japan, China and Australia. So it is good if you are not going into them in a fragmented way.

Would it be wrong to say you are de-emphasizing your traditional credit ratings business?

Schiller: Not necessarily de-emphasizing, but the reality is the bond markets are not as developed as the equity markets. Risk management around debt securities is not quite that developed here so there are other more important services we could be providing to the market

Such as?

Schiller: Risk management. In our risk solutions department we are working with some of the major banks in the region to help them upgrade their risk management practices so they can become more profitable and commercially oriented and less like public policy institutions. This also helps them meet the Basel II requirements.

Which parts of the S&P universe of products and services has been growing the fastest in Asia in recent months?

Schiller: In terms of growth rates it has been in our non-traditional areas such as risk solutions, equity research and funds ratings.

How has the equity research business been developing?

Tan: It's been growing in leaps and bounds. Globally, the market's acceptance of independent equity research has grown tremendously. A lot of it is down to awareness and the changes in the industry due to Spitzer. There have also been changes in how people look at research from investment banks. The costs of producing research are pretty high and so they have had to become a lot more efficient in how they execute it.

There has been a lot of dropped coverage over the past couple of years.

So will S&P be covering the stocks that others don't cover?

Tan: We are here to add value, provide some sort of benchmark for the market place and cover things that other people won't cover. Our recent deal with Scandinavian bank Nordea is a prime example of this. They decided it wasn't worthwhile doing their own research and they didn't have the global capability in any case. That's why they came to us and asked us to do it for them. We now provide those Scandinavian markets with global equity research.

Is that a model you are looking to repeat in Asia?

Tan: We hope so. It's one of the areas we're looking into. How it is structured depends on the entity that is interested.

You cover around 150 stocks in Asia at the moment. What kind of research do you offer? How does it differ from traditional research?

Tan: Essentially it's the same. The processes and viewpoints are the same. The main difference is that we target the retail segment and so we don't write reports that are as long. Our reports tend to be between five and fifteen pages, not 70 pages. We'll be doing more sector reports in the future. We do buy and sell recommendations based on our well-known stock appreciation ranking system called STARS.

Who pays for your research?

Tan: Sometimes it is specific clients like Nordea. We also have private banking clients who then pass it onto their clients. We do also have a couple of outsourced clients and we do co-branded portfolios for asset management companies.

Do you have any problems getting access into the corporates?

Tan: No not at all. The brand name is what matters in this case. People are quite willing to talk to S&P. They treat us the same as most other broking firm analysts anyway. It's a nice relationship actually.

Tom, is this what the new strategy is all about, leveraging off the strength of the S&P brand into other areas?

Schiller: Yes. There is a high recognition of the S&P brand in terms of the name, reputation, independence and objectivity of what we do. So we do want to leverage off that in terms of expanding into other areas. In recent years too, there has been a rapid increase in the value people put on independent information. Investors have become a bit disillusioned with the reputations of the traditional players in the market and are looking for someone to provide them with true independence.