Not only are Asia-based companies providing investment banks with increased business, but many Western multinational companies (MNCs) are also eager to tap into the large markets in Asia and are scouring the competitive landscape for potential joint venture partners or acquisition candidates. These European and North American companies also face pressures from overseas competitors that threaten their competitive edge in labor-intensive industries.

The asset acquirers are becoming more global in scale and international in scope. Large private equity and hedge fund investors are scouring the globe looking for opportunities in India, China, Japan and South Korea and elsewhere in Asia. Global companies such as ExxonMobil, Citigroup, HSBC, Microsoft, Cisco Systems, IBM, Oracle, Google, Motorola, Hewlett-Packard, Ericsson and many more are all proactive acquirers globally.

When it comes to acquisitions, however, governments of Asian countries are generally more protective of their economies with respect to foreign firms than their counterparts in North America and Europe. Protective measures to keep market share in domestic hands are usually unilateral and unpredictable. For example, as foreign private equity funds report record returns on their Japanese investments, Japan's Ministry of Finance in 2004 proposed a 20 percent tax on capital gains made by private equity firms. In South Korea, the government reacted to perceived high foreign investment in banks with a new law in 2004 that restricts foreign investment in banks. U.S. buyout firm Lone Star's USD$1.2 billion purchase of Korea Exchange Bank (KEB) in 2003 continues to be in regulatory limbo. This resulted in the stall of Lone Star's plan to sell KEB to Kookmin Bank for USD$6.7 billion, as well as deadlock in a 2007 deal with HSBC for USD$6.3 billion. Temasek Holdings, a Singapore government investment arm, purchased Shin Corporation from the family of Thailand's then-prime minister for THB 73.3 billion (USD$1.9 billion). Nationalistic critics attacked the fact that the prime minister?s family was selling a national asset to a foreign country, was escaping capital gains tax and abused his power by changing a law allowing foreign entities to own up to 49 percent just days before the announcement of the sale. In China, private equity giant Carlyle Group's agreement to acquire a controlling 85 percent stake in a major Chinese heavy equipment manufacturer, Xugong Group Construction Machinery Co., was vetoed by the Chinese government. The deal raised concern among government officials that China might lose control of strategic industries. Throughout Asia, deals that have binding contracts and agreement from the companies themselves may turn into stalled or nullified deals because of political and regulatory fervor.

This environment of regulatory protection has been especially notable in Japan, which, unlike other developed economies, still does not have a fully developed market for M&A because the country has had a regulatory framework that has hindered development. Change in takeover laws has been slow but steady. In 1999, the Commercial Code in Japan was amended to allow compulsory and tax-deferred stock-for-stock exchanges. In 2003, another law permitted use of a non-Japanese company stock in stock-for-stock exchanges with Japanese companies that are in bankruptcy protection. Following that, in 2007, a law allowing foreign companies to buy Japanese companies through stock-for-stock exchanges took effect. In addition, takeover laws have lowered thresholds for permitting mergers without formal shareholder approvals. It is likely that with these regulatory changes and inflow of foreign buyers, M&A investment banking activity in Japan will grow significantly in the coming years.

Another example of the relatively immaturity of the M&A market in Japan is the fact that hostile takeovers in Japan are very rare because of what some refer to as a club-like business environment, in which many companies are connected to each other and keep mutually beneficial long-term relationships. Most Japanese investment banks with an extensive network of clients and cross shareholdings would prefer not to advise companies on unsolicited takeover bids.

Growth in private banking

Asia has traditionally been a cash-based area, but as the general economy has been on the rise in recent years across much of the region, the extremely wealthy have been turning to professional management of their assets. In the Asia Pacific region, private banking and wealth management for high net-worth individuals is still in its infancy, but it has been growing at an astounding pace -- this once-exclusive club has a growing member base. A report released by Merrill Lynch and Capgemini in October 2007 stated that the assets of high-net worth individuals in the Asia Pacific region rose to USD$8.4 trillion. Particularly in Singapore and Hong Kong, banks are aggressively courting people with loads of money in Asia and beyond.

Over the last few years, private banks and private banking arms of global banks have expanded frenetically, looking to capitalize on the growth potential of Asia. Some of the largest firms offering private banking services in Asia include Citigroup, Credit Suisse, Goldman Sachs, J.P. Morgan and UBS, and many others are getting in on the act. However, as concerns about write-downs from exposure to subprime have many investors understandably nervous, private banks have been trying to soothe the anxieties of their clients. Still, for those sitting comfortably in the lap of luxury and those recently joining the ranks across Asia, private banking continues to reach out.

Commercial and Retail Banking in Asia

The global economy has been hit hard by a clear downswing over the past couple of years, but things seem to be looking up in the Asia Pacific region, particularly in commercial and retail banking. According to a 2008 report from global industry observer Research and Markets, "the crisis in the inter-bank market as well as the soaring prices of oil and other raw materials has tended to obscure several other important trends." Across much of Asia, commercial banks have been booming, particularly in terms of lending and credit.

China

In Mainland China, things are still tightly controlled by the "big four" state-owned commercial banks: the Bank of China (BOC), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC) and Agricultural Bank of China (ABC). Cited in a recent joint study conducted by KPMG and Reuters, the China Regulatory Banking Commission reported that the big four controlled more than half of China's total banking assets as of late 2006. However, despite heavy regulations, a number of foreign banks have made inroads into China over the years, applying to incorporate locally and increasing their foothold in the country as China begins to open its arms to financial outsiders.

Although the actual percentage rate of growth appears to be slowing down a bit, China continues to grow at a cheetah's pace. As local wallets grow, so too do the banks. According to an August 2008 analysis of Chinese commercial banking by Research and Markets, "the excess savings within greater China and Japan remain enormous and are likely to grow. One expression of this will be the continuing growth in bank deposits that is, in absolute terms, considerably greater than the growth in lending." However, "central banks have, in much of the region, been moving to tighten monetary policy. This has already had an impact on the behavior of the banks."