Merrill Lynch maps out India strategy, eyes retail (2024)

MUMBAI: For the bulge-bracket investment banker Merrill Lynch the game has just begun. After pouring in $500m to buy a majority stake in its Indian JV, it hopes to emerge as a financial powerhouse.

As a part of its long-term strategy, the US bank will look at a banking license in India, and explore ways to step into retail. It���s also open to an inorganic growth as and when the market opens up. The firm also plans to start activities like private equity, distressed fund management and real estate funds in India.

In an exclusive interview to ET, Dow Kim, executive VP and president of Merrill���s global markets and investment banking group, said, ���We would like to create the kind of business we have in the US, which would include a full suite of products and services, including fixed income, debt market derivatives, principal investments, foreign currency exchange, commodities trading, interest rate derivatives and so on. India in the long term will have all these including investment banking and private equity. We want to fully leverage our local and global operations. India will be one of the world���s major economies in the long run.���

This means Merrill Lynch would like to have a full presence in India. Says Kim, ���We are looking at expanding the global Merrill Lynch franchise here and effectively deploying our full range of products and services ��� whether it���s in private equity, real estate opportunities or principal investments, we will look at boosting our presence.���

Products in forex and derivatives can be offered in India only by commercial banks. ML is currently in the process of increasing its stake in its JV with DSP to 90%. Currently, ML has investment banking, brokerage and wealth managment business in India. It also has an NBFC and a stake in the AMC business.

On the time frame for starting the new businesses, Kim said, ���The sooner we have these businesses in India the better.���

Kim���s ascent to the top followed the departure of Arshad Zakaria in ���03 who then headed investment banking and global markets in ML. After Mr Zakaria���s departure, ML named Greg Fleming and Kim as co-chiefs of the division.

The firm is also open to enter the retail market in India where currently among foreign banks only Citi, HSBC, StanChart and ABN Amro are present. ���We will also assess opportunities in consumer financing. Young demographics, increasing wealth, and sustained high rates of economic growth make India���s retail market attractive,��� he said. ML has retail operations in the US, Latin America, Switzerland, Japan and other parts of EMEA. The US bank is also open to acquisitions in the banking and the NBFC space. ���We will look at all avenues of growth. To the extent that there are opportunities to grow we are not going to limit ourselves to a capital threshold,��� he adds.

According to Hemendra Kothari, chairman, DSP Merrill Lynch, ���Expansion depends on the opportunity and the profitability. We will look at various opportunities about how to grow the business here. The good news is that because of Merrill Lynch the operations in India are not capital constrained.���

On its recent investments of $500m to increase its stake in India in the Indian JV, Mr Kim said, ���The reason we invested $500m in the Indian franchise is that the country, economy and the financial markets are at an inflection point. You have to be in the US, Europe, China and India in the long term.���

Currently about half of ML���s global markets and investment banking (GMI) revenue comes from outside the US. Asia contributes a significant number. Refusing to put a number to the private equity chest, Mr Kim said, ���We don���t see a particular allocation for private equity for India. It���s all a function of opportunity. We will build our global private equities platform in partnership with our clients.���

The GMI business is one of the major drivers for ML. Out of a pre-tax earnings of $1.9bn in the third quarter of ���05, the GMI business��� contribution was at $1.3bn. Incidentally the quarter recorded the highest pre-tax earnings which ML had ever generated.

Kim is regarded by the media as one of Wall Street���s best kept secrets. He barely gives interviews and is one of the best paid bankers in Wall Street and in ML his package is only next to ML chairman & CEO E Stanley O���Neal. His rise in the firm can be called nothing less than meteoric. From an yen-option trader in Tokyo in just over a decade he now co-heads Merill���s global and investment banking business.

���I have been in the job for the last two and a half years. Our goal was to make Merrill Lynch the leading global markets and investment bank with diversified clients across different asset classes and a high contribution from different geographic locations and both organic and inorganic growth,��� he told ET, in what was one of his rare interactions with the Press.

A trader at heart, Kim still enters the trading floor, though occasionally. ���The only reason why I would enter the trading floor these days is to set an example. I will do it just to set the tone.��� Like other investment bankers who have been picking up talent from IIMs, Merrill Lynch is also looking at hiring for its global operations. ���We want to hire more individuals not only locally but also for our operations globally. We have stepped up the process,��� says Kim.