L4T Leadership Series - Dato' Seri Nazir Tun Abdul Razak

5th of May 2009 was the inaugural lecture series for L4T (Leaders for Tomorrow) .

The first speaker is Dato' Seri Nazir Tun Abdul Razak, CEO of CIMB Group. He talked on "Opportunities in Adversity".

Dato' Seri Nazir is a strong believer in opportunity in adversities. He prefers to look at glass half full, and believe that great success can be found at the extreme end of the failure. He believes in people who have failed and then learned the lesson, picked ownself up and then rebounced.

He recalled the force of crisis shook the established order, and CIMB managed to grow as Malaysia's largest merchant bank after the crisis. Despite that, they still incur one major loss, which was a great lesson learned.

During downturn, do not cut back, and invest in the branding. CIMB went into Ringgit-denominated bond market and when came out from crisis, it had a niche there. CIMB was the only merchant bank not distracted by the crisis then.

Another scenario was in 2002, when CIMB decided to get listed, and made an IPO offer of 1.75 . CIMB has facilitated many IPOs, and hence is deemed as an expert in it. However, in the 1st 4 months, its share price does not move. It was terribly embarrassing, and it was as if CIMB can't even list its own company. The market could not readily accept the listing. So, it has to go back to the drawing board.

Understood that the market may not understand the business model, so CIMB decided to pay up around 20% of dividend within 3 months of IPO. That gave some visibility to CIMB and it tried to resell its new business proposition. Then, finally, CIMB went up 174% within 1st year and 363% within 1st 3 years. That was one of the great successes of IPO.

In 2005, CIMB market value was 3 times its book value, whereas for CAHB was just 0.9 time. CAHB got Mckinsey to look into what to do, and around that time CIMB has bought over GKGoh. Dato' Seri Nazir realized that CIMB was too small and hence, it would be tough to compete at regional level. So, the proposal was for CIMB to merge with BCB, and with Nazir being the CEO.

Back then, CIMB's market capitalization was just RM6 Billion with 1,000 employees, but today, as an universal bank, its market capitalization was around RM30 Billion with 36,000 employees.

Dato' Seri Nazir talked on personal career development. When he first came back from UK and tried to apply for CIMB, General Manager of CIMB back then, Robert rejected him. He was very dejected. Nazir appealed to Senior General Manager of Corporate Finance and eventually got accepted as employee No. 67. One of the reasons he got turned down was that he was not an accountant.

Steve Wong was his supervisor, and he is a nightmare boss. Worked late, and really expected a lot from Nazir. Nazir got scoled by him many times, but Nazir credited him for making him tough, and learn through the challenging time and it helped in the long term.

Nazir advised us to leverage and work as a team. Even as a rookie, Nazir has a council of advisers, whom he trusted and gave him impartial advice. He was fortunate to have Azlina as his wife together with him since his Bristol's days.

We need people whom we can go to and strategize, whether during chips going up or down. We shouldn't get carried away by status or position, as all those are just temporary. We should always keep our feet at the ground.

During the Q&A, Nazir mentioned that it is just impossible to do due diligence within 48 hours to decide to acquire another bank. It usually takes at least 6 months to do so. At one point, CIMb was about the same market capitalization as Barclays. However, Nazir mentioend that it is not impossible for Asian banks to take great transformation.

As of now, total write offs by banks are around $1.5 trillion and he expected maybe another $1 trillion could be written off.

Nazir complained that US lending practice is irresponsible. The leverage was just too high, and if in Malaysia, Bank Negara Malaysia would not have approved that kind of leverage. There are a lot of processes to check, even just for credits. US banks believed that house prices would continue to go up, so their lending policy was very lax. There is a massive need for US and Europe to deleverage.

In this region, the Central banks of different countries (Malaysia, Singapore, Thailand, Indonesia) communicated with each other every 2-3 weeks.

Nazir believed that this current crisis may mean that the colonial mentality would go away.

Nazir believed that we do not have much excesses and the disclosure of executive compensation is fine. The transformation to IB model and allow to tap on money market is good. This will underlie the logic of universal bank, where even Goldman Sachs and Morgan Stanley went n this path.

This could be an Asian century, if there is tectonic shift, and if Asian really make it open. China has an important role to play, and China has built up 2 trillion worth of reserves and have not been investing in investment banks. Today, consumers in Indonesia can buy Chinese goods traded in Rupiahs.

Nazir believed that Malaysian companies are not as competitive as it should be. Khazanah has done a good job, but it started at a low base. We had to get people to think regional, and very few Malaysian companies are ready for regional. He cited that Air Asia and Petronas are the exception.

On Vision 2020, he felt that we need a new direction and the new administration need to set up a new agenda and direction. We will not reach the number based on Vision 2020. The changing in paradigm requires us to adapt and change.

We need to always change ourselves to stay relevant and never take what we are today for granted. Others will catch up. Our role and responsibility will change over time and we have to reinvent ourselves. Every season is different.

On the issues of bringing bank Malaysians, Nazir feels that ti is very important agenda. Realistically speaking, we need to really go for them, and offer the recruits an enabling environment, and have a decent chance to get where they deserve. Some people might be feeling that the overall feel is that the country is not enabling. People don't think that they can truly achieve what they dream, and the perception is there, and it is derived due to some reality. There is a lot for the new leadership to do on this.

Nazir has gone on record a few times to ask for review of NEP. The policy needs to provide affirmative action, but need to make people believe what they build is theirs.

We used to be able to say "political stability" as a selling point for Malaysia, but now, we can't. Nazir stressed that if Barisan got it right, then they will be able to remain in government. 8th of March provided the check and balance, and the vote was mainly of people against Barisan, perhaps due to the arrogance built up.

CIMB contribution to our human capital would be to invest a lot to hire quite a number of them and train them.

In terms of property price, it hasn't gone down much for Malaysia. Worse is around KLCC area, where price has dropped by about 15%. We don't have a bubble built up.

If we are not at the right position, then we have to think to bring us to right position. We need to look at cross border opportunities.

As CEO, Nazir set the agenda and have long term vision for CIMB. It is to be a leading regional universal bank. To acquire a bank is easy, but to integrate it and enable customers to do cross border transaction conveniently would require huge system integration investment. CIMB needs to pump in RM600 Million on that. Currently, CIMB has the largest branch network in ASEAN.

System is by far the most critical component, and need to invest a lot on it, to get the system right. Need to be able to recognize the customers, irrespective of country.

On the merger with BCB, it is a huge transformational challenge. A lot of tactic involved, and need to get 80% of BCB senior management to leave. Nazir stressed on high performance and build in a 6-month Mutual Separation Scheme, where bonus period was within it, and those top performers were rewarded handsomely. In the end, 12.5% of ex-BCB staff took it up.

For Southern Bank, it was on infusion of culture. On Day 1, Nazir spent 15 minutes 1-on-1 with the senior management team of Southern Bank. People are happy with the opportunities, and they don't like politics or impediments. Nazir contacted Public Bank and Hong Leong CEO not to pinch Southern Bank staff initially. However, Nazir didn't inform his staff, and end up his staff pinched some Hong Leong's staff.

For any merger or acquisition to make sense, it needs to create value. Economy of scale is a thing, but need to look at the cost. For the merger, CIMB issue a report to show the synergy value and cost of integration and 1 year after that, has a report card to show its progress. This shows what it achieves based on what it promises.

On education, Nazir agreed that we have a big screw up in it. Our education system is found wanting, and Malaysians have been unfairly under-educated. And we need a long-term solution to improve the schools. Nazir proposed that we take 1% of the stimulus package to hire teachers from Mumbai, Beijing etc to accelerate the process to teach our students. Even this, we will only see the fruits in several years.

In the mean time, we have to live iwth retraining. The immigration department need to revamp as well, as the policy to bring a foreign labour and knowledge worker is the same.

Nazir stressed that the new Prime Minister gets the point that he needs to deliver, or else he will have no job to do in 3-4 years' time. Some of the stuff that the Prime Minister tries to do, he gets pushed back.

Thanks.

Next session for Leaders for Tomorrow would be Tun Daim Zainuddin on 26th May 2009 at Menara SBB, Plaza Damansara.




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