Euromoney, February 2017
CLSA has always had a unique position in Asian finance – to its competitors it has been a curiosity, but one secretly admired for its independence. Three years after its purchase by Citic Securities, it’s now the means by which the Chinese brokerage aims to take on the world. Outspoken CEO Jonathan Slone insists the firm will flourish while keeping its identity. Can he make it happen?
Why should you care about CLSA? It has always been interesting; a distinctively punchy, research-led brokerage known for its style and verve, but does the Hong Kong-based institution matter on a global scale?
There are two reasons CLSA matters more than its size would suggest. The first is the takeover of the business by Citic Securities, announced in 2012 and finally completed in 2013. After 20 years of watching international investment banks try to fight their way in to mainland China through restrictive joint venture structures they cannot control, this deal gives us the chance to watch the process in reverse: a big mainland brokerage going global and using a western house to do so.
CLSA is at the heart of China’s efforts to improve its ability to deploy and raise capital overseas; one of the most important market themes of the next 20 years. It is a fascinating combination and not an obvious one. Citic Securities, through its domestic and international arms, dominated investment banking league tables last year – and not just in volume terms in commoditized debt transactions, but also in fees. According to Dealogic, its net revenues from public deals in ex-Japan Asia investment banking in 2016 were $530 million, topping the region (although 98.6% of it came from mainland China), leaving Credit Suisse, the top-ranked multinational at $424 million, far behind.
It is powerful and state-backed, as part of the Citic Group SOE, yet not beyond reproach. Its censure by the China Securities Regulatory Commission, for violations of laws that led to the domestic stock market rout of 2015, is still evident in a media shyness across the group today.
CLSA, historically, has rarely troubled the league tables, but offers some of the best and most opinionated research around. Founded, after various uneasy early iterations, by two former South China Morning Post journalists, Gary Coull and Jim Walker, the house has retained a sense of journalistic antagonism and a readable style, often presenting its research with magazine-style satirical cartoons on the front.
It is the world’s largest remaining agency-model brokerage, staking its whole brand on its independence. In 2002 Asiamoney introduced a ‘most independent research’ category into its benchmark brokers poll; CLSA has won it every year bar 2005 (when it withdrew after suspending a country manager for trying to rig it). CLSA backs the biannual CG Watch, a benchmark study compiled with the Asian Corporate Governance Association, and the sense of a non-conflicted broker-cum-watchdog has made its research unique.
So the CLSA/Citic tie-up requires you to believe that a mainland state-backed brokerage can go truly global alongside its Chinese clients with a brassy western enterprise as its method of delivery. Doing so without compromising CLSA’s independence – a tough goal in any event as soon as it starts climbing the league tables – is a mighty ask and perhaps impossible.
The second reason to care about CLSA is that it is at the sharp end of a sad trend, the steady demise of cash equities and equity research as a sustainable business in its own right.
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