Charlotte-based firm eyes principal finance and opportune hires to expand franchise
It is no secret that Wachovia Securities is a major player in the U.S. securitization markets. The firm, which in April restructured its fixed-income and equity divisions into a single global capital markets group, features prominently in league tables for CDOs, equipment finance deals, CMBS and other asset classes.
It would be fair to say less is known of Wachovia's attempts to develop business outside of North America. That could be about to change. Wachovia has identified Asia as an area of significant potential. To this end, the firm recently hired Greg Donohugh, previously senior vice president of CDOs and structured credit at Lehman Brothers, as its managing director of fixed income in the region.
Although Wachovia has not been as visible as other international banks, its Asian franchise is by no means starting from zero. However, Donohugh admits that building up its business is a significant challenge.
"Wachovia currently has 16 representative offices in Asia with around 1,000 employees, and the firm has been established here in one guise or another for over 30 years," says Donohugh. "Hong Kong is our biggest office, followed by Taiwan, Korea and China. Right now, the focus will be on these North Asian markets, although we will try to work our way country by country."
"We already have a good platform, but are only beginning to scratch the surface," he added. "The regional office representatives have strong relationships with banks and other financial institutions. We hope to add Wachovia's expertise in structured finance, leveraging our global fixed-income platform to service clients effectively."
Donohugh says the drive to further structured finance business in Asia began some time before he joined the firm. "Starting in 2000, we significantly expanded the distribution of ABS and CDO products in Asia," he said.
Can a franchise be exported?
Wachovia has a leading U.S. franchise in areas such as ABS, CMBS and CDO products, which the hopes it can distribute
in Asia. In the environment of tightening treasury markets, Asian clients have warmed to structured finance products that offer high rating stability and improved pickup over similarly rated investment alternatives, Donohugh said.
In 2003, just as Wachovia was looking at ways to build its Asian structured finance business, SARS hit and everything was put on hold. That was the situation until earlier this year when, with Donohugh now on board, Asian expansion was back on the agenda.
To date, the primary focus has been to distribute U.S.-originated products to Asian investors. There is some irony in this as most offshore securitization transactions launched out of Asia are placed with institutional buyers in the U.S. and Europe.
Donohugh agrees it is important for Wachovia to execute Asian-originated deals. "The largest component of the global capital markets group is fixed income, which is divided into structured products, credit products and global rates," he explains. "Given that the Asia business is an offshoot of the U.S. operation, we will be concentrating on both distribution and origination of these products. In fact, the debt capital markets teams in the U.S. and London are already participating in the effort to expand our Asian franchise.
"We have already completed transactions with clients in the region, which have not been publicized," adds Donohugh. "We have a big group of structured finance professionals in New York, London and Charlotte - each with diversity of product knowledge and experience. Many have been involved with Asian markets in the past and are able to bring support to our efforts here."
When pressed on how Wachovia can differentiate itself in Asia from other, more-established houses, Donohugh believes flexibility is key. "Wachovia really benefits from the way the firm is organized," he reasons.
At many banks, business units operate in silos: with one team working on CMBS, another on future flow deals and another on CDOs, but not necessarily together. "All of these products fall under the structured finance group, and this lack of separation allow us to respond rapidly to our clients," Donohugh said. The firm has also grown on the back of its technical knowledge and risk management.
While other firms downsize...
This may be true for Wachovia as far as its reputation in North America is concerned. Nevertheless, offering expert advice from Charlotte and New York may not be so impressive to some Asian clients, for whom face-to-face meetings are important. Other banks that have tried to secure Asian mandates from outside the region have found that conducting relationships long-distance does not work.
Donohugh, with more than a decade of experience in Asia under his belt, acknowledges this challenge: "Our expertise in the U.S. and Europe will help us to grow, although, of course, we will be developing resources on the ground in the region."
Wachovia intends to take advantage of opportune hires. Despite the anticipated rising interest rate environment and decline in fixed-income volume, the firm is still lean, relatively speaking. This gives Wachovia an opportunity to nab some high-quality personnel and expand the business when other firms may be trying to reduce overheads, he explained.
"Another way we will look to expand the business is through principal investment," adds Donohugh. "In the U.S., Wachovia's principal investment in sectors such as real estate has helped develop the franchise. This is something we want to expand in Asia, which of course could lead to securitization opportunities."
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