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Sun 14 Mar 2010 04:00 AM

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Trading places

Are billionaire Malvinder Singh's plans for his India brokerage a sign of a change on proprietary trading?

Trading places
Malvinder Singh’s family in 2008 agreed to sell their 35 percent stake in Ranbaxy Laboratories to Japan’s Daiichi Sankyo Co for $2bn.
Trading places

Billionaire Malvinder Singh plans to eschew the Goldman model for his India brokerage, a sign of a wider sea change on proprietary trading.

Malvinder Singh, the 37-year-old Indian billionaire trying to build a global financial-services company, says there's one rival whose playbook he won't copy: Goldman Sachs Group Inc, the most profitable securities firm in Wall Street history.

"It's a great brand, done exceedingly well, but I think our model will be different," Singh said in an interview at his home in New Delhi.

Singh - who along with his brother has a net worth of $3bn according to Forbes - said that unlike New York-based Goldman Sachs, his company Religare Enterprises Ltd won't engage in proprietary trading. He cited a desire to avoid clients wondering whether his firm would put its own interests ahead of theirs in the quest for higher profits.

For US financial companies including Goldman Sachs, proprietary trading, or bets using the firm's own money, is a business under siege. President Barack Obama, facing pressure to fix a financial system that almost collapsed in 2008, has proposed barring banks from trading on their own account.

"In a way the world is steadily moving toward what is already the case in India," said Apurva Shah, head of research at Prabhudas Lilladher Pvt. in Mumbai.

"The line between investment banking, commercial banking, proprietary trading  has all been completely blurred in the West. That's not the case in India."

Shah, who doesn't cover New Delhi-based Religare, rates its rivals India Infoline Ltd, Motilal Oswal Financial Services Ltd and Edelweiss Capital Ltd "accumulate."

Forbes estimates that Singh and his younger brother Shivinder have a combined net worth of $3bn, ranking them as 17th among India's richest in 2009.

Singh's family in 2008 agreed to sell their 35 percent stake in Ranbaxy Laboratories Ltd, India's biggest drugmaker, to Japan's Daiichi Sankyo Co for about $2bn.

Malvinder Singh remained until May 2009 as chief executive of the company his grandfather bought in 1952. The graduate from Fuqua School of Business at Duke University, who joined Religare's board in December 2004, now focuses on the family's financial and health care businesses.

Religare, which offers insurance, broking, wealth advisory, asset management and investment banking services, said it may invest $1bn in buying stakes in asset management companies worldwide, and agreed to buy a majority stake in private equity firm Northgate Capital LLC.

The Indian company posted a profit of 647.9 million rupees ($14m) for the nine months ended December 31, compared with a loss of $72,960 a year earlier, as total income climbed 20 percent to $226.35m, according to a statement on its website.Goldman Sachs faced public scrutiny as it posted record annual profit of $13.4bn a year after receiving government bailout funds, which it repaid in June. The company, led by CEO Lloyd Blankfein, bounced back faster than rivals such as Morgan Stanley from the global financial crisis.

Other firms may find Goldman Sachs's model less attractive as regulators focus on capital levels and risk-taking, said Douglas G Ciocca, who helps oversee $1.9bn in assets, including Goldman Sachs shares, as managing director at Leawood, Kansas-based Renaissance Financial Corp.

"Firms would love to have the same profit-generating capability as Goldman Sachs, just not the same profit model," Ciocca said. "It seems they are saying we recognise the landscape has changed, the leverage and the model that Goldman took advantage of is not going to be in existence, so we're not setting out to fight it."

Opposition to a proposed ban on proprietary trading at US banks including Goldman Sachs is bogging down Obama's overhaul of financial rules.

The US president named his January 21 proposal after its chief proponent, ex-federal reserve chairman Paul Volcker, now a White House adviser.

Goldman Sachs, which generated at least 76 percent of 2009 revenue from trading and principal investments, gets the "great majority" of transactions from customers, according to chief financial officer David Viniar. About "10-ish percent" of the firm's revenue comes from "walled-off proprietary business that has nothing to do with clients," he said last month.

Singh said that while Religare could "absolutely" make money in proprietary trading, the possibility that clients would object prompted it to forego the activity.

"I'm not saying others are biased, but the customers know there's no such possibility, of a perception that, is something coming because of something else?" he said.

The New Delhi-based company, started in 1984, has expanded its network more than fourfold in less than four years to 2,042 locations across 546 cities and towns as of December 31.

Shares of Religare have almost doubled from its IPO price in November 2007, compared with a sixteen percent decline in India's benchmark Sensitive Index in the same period.

The company has operations in the UK, US, Brazil, South Africa, Dubai and Singapore following its purchase of Hichens, Harrison Plc, London's oldest independent stock-broking firm, in June 2008.

Religare plans to keep expanding abroad to capture more business from Indian companies seeking overseas acquisitions or stock market listings, said Singh.

Smaller companies seeking to compete with global firms such as Goldman Sachs may be forced to reconsider the decision to snub proprietary trading, said Taina Erajuuri, who helps manage $1.4bn in emerging markets at Fim Asset Management in Helsinki and holds shares in India's ICICI Bank Ltd and HDFC Bank Ltd.

"It is tough if you don't have proprietary trading because you are competing with companies like all the American houses and they are quite aggressive," Erajuuri said.

"If you want to be on a global basis, you need to have proprietary trading because that's the way the business is structured."