March 20, 2019 / 6:50 AM / 4 months ago

Breakingviews - Citic and CLSA will survive boss departure

CLSA Chairman and CEO Jonathan Slone meets reporters during CLSA investors conference in Hong Kong, China September 19, 2016. REUTERS/Bobby Yip

HONG KONG (Reuters Breakingviews) - CLSA will survive the departure of its bosses. Jonathan Slone is quitting, shortly after its chairman left. The moves have led to whispers of a culture clash with China’s Citic Securities, which bought the Hong Kong brokerage for $1.3 billion in 2013. Bank mergers are always challenging. Still, it’s too early to write this one off.

News of Slone’s departure just two weeks after chairman Tang Zhenyi left the legendary pan-Asian brokerage raises painful memories of banking deals gone awry, from Nomura’s acquisition of Lehman Brothers’ international operations in 2008 to the litany of breakups between Western banks and their joint-venture partners in China. The Financial Times reported Citic staff thought CLSA bankers were overpaid, while CLSA employees thought they were being asked to help Citic work on questionable mandates from Beijing. But while there may well be differences, the departure of an executive after a relatively long tenure is not necessarily a symptom of disfunction in this case.

It’s difficult to gauge how successful this deal has been for Citic financially, as the firm doesn’t break out earnings at CLSA. When it bought the brokerage, Citic Securities wanted to create a global investment bank to rival Wall Street’s titans. While it is far from being in the same league as Goldman Sachs, the deal has given it an international edge over most Chinese rivals.

CLSA still enjoys a well-regarded presence in Southeast Asia, which is a selling point given Chinese corporate interest in the region. Trading of equities and derivatives was its biggest business last year, accounting for 66 percent of revenue, followed by investment banking at 15 percent, according to CLSA. As China opens its capital markets, the company’s strengths in research and secondary trading buttress Citic’s domestic expertise. Chinese fund managers will need credible analysis of foreign companies going forward, and vice versa. Hiring international bankers will still be easier for Citic than it would be for most other mainland brokerages, given the Western investment-banking style culture that CLSA brings to the combined group. The two sides still have plenty of reasons to get along.

Breakingviews

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