Lehman's Big Office Signals Big Plans For Singapore

Source : The Business Times, November 6, 2007

Empty space quickly filling up as it bulks up presence after leaving in the 90s

To get an idea of how Lehman Brothers sees its Singapore operations shaping up, one just has to consider its sprawling office in Suntec City.

'Asia is the fastest growing component (for the group); it used to make up 10 per cent of total revenue, it's going to be 20 per cent.'- Jasjit Bhattal, Lehman Brothers Asia-Pacific chief executive

At the end of last year, it had just 60 staff. The premises currently house 150, and the headcount could easily double to 300 in two years.

What is more, it would not even be a squeeze.

'The office is fitted for 500 people - we take a long term view of the business (usually) for three to five years; for Singapore, it's five to 10 years,' said Jasjit S 'Jesse' Bhattal, Lehman Brothers chief executive, Asia-Pacific, in a recent interview with BT.

And sure enough, in the past year the vast empty spaces in the office have quickly been occupied by new hires.

The bulge bracket Wall Street firm is determined to ride the strong wave of investment and growth in the region, and has plans to sell services to the burgeoning fund management industry here, especially hedge funds.

As part of the bulking up of its capital markets business, Lehman Brothers established a prime services group in Singapore this year to service the growing number of hedge funds.

Funds managed in Singapore reached S$900 billion by end-2006, a 24 per cent increase from 2005 fuelled in part by the rapid growth of hedge funds. The number of hedge funds in Singapore rose 76 per cent to 190 in 2006, while assets managed by these funds rose 150 per cent to US$26 billion.

A big draw for investment banks like Lehman Brothers is doing business with the Government of Singapore Investment Corporation (GIC) and Temasek Holdings. They rank third and seventh respectively on the Super Seven Sovereign Wealth Funds (SWF) with assets valued over US$100 billion, according to a recent study by London-based Standard Chartered Bank and Oxford Analytica, a consulting firm also based in London.

'We do work with GIC and Temasek,' said Mr Bhattal.

And yet, Lehman Brothers is still playing catch-up with the other major global investment banks such as Citi, Credit Suisse, Goldman Sachs, JP Morgan Chase, Merrill Lynch, Morgan Stanley and UBS.

Each of these banks already has several hundreds, if not thousands, of employees in Singapore competing to offer corporate advisory services, sell financial products and services to Asian corporates and fund managers and provide funding for mergers and acquisitions amid the booming regional economies.

This is in addition to having major trading operations in fixed income, equities, foreign exchange and commodities.

Lehman Brothers used to have a presence here but pulled out in the nineties as it decided to concentrate on building up its US business after a series of corporate moves which saw the firm regaining its independence in 1994.

Its Asian presence was basically confined to a fixed income house in Japan. Mr Bhattal himself is currently based in Tokyo.

In the last three to four years, Lehman Brothers has started looking again to the rest of Asia and its expansion has been at a blistering pace. Of its 3,000 people across Asia, 1,400 are in Japan while the 800 people it has now in Hong Kong has doubled from 18 months ago. Last year Lehman set up an office in India which is already 130-strong.

For the nine months to August 31, 2007, revenues from Asia-Pacific hit US$2.08 billion, compared with US$1.46 billion for the same nine-month period last year, up 43 per cent.

Revenue for the last quarter from Asia-Pacific was US$728 million out of total global revenues of US$4.31 billion, a 79 per cent increase from a year ago.

This year's financial market uncertainty will have no impact on its expansion plans for Asia, said Mr Bhattal.

Lehman Brothers was the first major Wall Street firm to report sub-prime losses. It posted writedowns of US$700 million and slashed 850 jobs in the US and UK.

'Our (Asia) business has not been affected at all; Q3 was one of our best quarters, it continues to be very robust,' he said.

'Asia is the fastest growing component (for the group); it used to make up 10 per cent of total revenue, it's going to be 20 per cent,' he said.

For the last quarter Asia accounted for 17 per cent of global revenues and Mr Bhattal expects this to reach 20 to 25 per cent in the next five years.

Would the shortage of experienced investment bankers across the region be an obstacle to his expansion plans?

'It is getting harder, clearly there is a considerable war for talent. While it is a challenge it is not a significant roadblock,' said Mr Bhattal.

Lehman Brothers believes in paying for performance, he said, noting the 49 per cent compensation ratio - typically the amount of money investment banks pay to employees as a percentage of revenues.

Compensation ratio at Goldman Sachs - regarded as the pack leader in terms of pay generosity - was 48 per cent of net revenues for the first nine months of 2007.