Caterpillar Inc employees check heavy machines to be delivered to Western Australia, New South Wales and northeastern China. JPMorgan Chase & Co provides global supply chain finance services for the US-based machinery company. [China Daily]
For Mike Cavanagh, chief executive officer of JPMorgan Chase & Co's treasury and securities services business, challenging times often provide the best opportunities for a company to stand out among its competitors.
"It's always true in banking that your clients remember you the most for the things you did for them when times are tough," said Cavanagh.
When times are good, everyone is knocking on the door to try and win business. But in a client-focused relationship, they will most remember what you did for them when others were scared to do something, he explained.
"We know that and we have learned that lesson in many places in many ways. So when times are tough, we are always very mindful of the need to stay committed on behalf of our clients," Cavanagh added.
With some international financial institutions pulling back on their investments in China amid the ongoing European debt crisis and the US economic slowdown, Cavanagh said now is the best time to strengthen J.P. Morgan's relationship with clients.
Currently, J.P. Morgan mainly operates three wholesale banking platforms in China: investment banking, treasury and securities services (TSS) and asset management, through its joint venture in China. The company's treasury and securities services business in China, which has seen significant investment in recent years, has been growing at a rapid pace, forming an important part of the company's broader China growth strategy.
"While our total revenue growth last year was around 7 percent, our international revenue growth was 17 percent and our growth in China was around 75 percent," said Cavanagh.
"Our multinational clients have become much more active in China, so we've been adding capabilities and resources to keep pace with our clients' needs. This has delivered some strong results," he said.
For Cavanagh, there are two key priorities for the company in terms of the clients that it seeks to serve.
"We will continue to add to our renminbi capabilities in payments and trade finance and we will continue to invest in our broader cash management and asset servicing capabilities to ensure we deliver an exceptional level of service to our global names entering China, the local subsidiaries of global companies in China and, of course, China's growing base of large domestic enterprises moving offshore," he said.
To that end, J.P. Morgan is deepening relationships with what the company expects will be a very long list of Chinese companies that, in five or 10 years down the road, will move outside China in a significant way and look to J.P. Morgan as their partner for global growth.
"TSS' headcount in China is going to grow in the next few years. We will continue to recruit more people to support the fast business growth in China as long as the China Banking Regulatory Commission allows us to continue building branches," said Cavanagh.
J.P. Morgan opened a branch in Harbin last year and received the regulator's approval to open a branch in Suzhou later this year. "We'll continue to open branches over the next few years," he added.
As more Chinese companies go global and look for merger and acquisition (M&A) opportunities, J.P. Morgan remains well placed to play a key role.
"We have the benefit of being a global bank. We can have a banker here in Beijing talking to the headquarters, yet in Sao Paulo, or New York, or London or Frankfurt, we can have a J.P. Morgan banker talking to the finance director of a Chinese company's foreign subsidiaries, providing strategic guidance, advice and holistic consultancy services in that local market," said Cavanagh.
For him, J.P. Morgan's leading middle market banking franchise makes it a logical choice when it comes to helping companies around the world build their US presence through an M&A strategy.
"We have more than 20,000 middle-sized companies who are also clients of ours. When they are looking to sell themselves, we'll advise," he said. "We can connect Chinese companies with the kinds of companies they might be looking to acquire in the US. We can lend money ourselves and we can help a company access the equity markets or the bond markets to finance transactions," Cavanagh said, adding there are an increasing number of Chinese companies coming to J.P. Morgan to seek such help.
Cavanagh said they always talk at J.P. Morgan about three things that make for good M&As.
"First, knowing what your own strategy is and how an acquisition helps fulfill your strategy.
"Second, you've got to get the financial side right. You've got to pay the right price for your shareholders and, a lot of times, companies (buyers and sellers) get caught up in deal fever - they become so eager to do a transaction that they lose sight of the economics of it. Some of the best deals we've been involved in are the ones we didn't do. We looked, we wanted to do them but the prices in the end didn't make sense and so we let someone else buy. You've got to know your limits," he said.
"Third, you should have the ability to execute. Mergers are difficult work and we often say you have to earn the right to do M&A because you have to run your own company quite well to think that you're going to be able to acquire someone else's and run it well. So often you see mistakes made when companies aren't running their own businesses well and yet they think a solution is going to be to acquire another business. And it's never a good idea, because so much hard work is involved."