CWT

CWT: Announced that it is open to buying MF Global assets in SG, to boost its foray into financial services. While this is not a new area that they're going into, financial services represents only a small fraction of CWT's business, and Kim Eng do not expect any acquisition to be material at the moment.

CWT began its foray into financial services in Nov10 with the formation of Straits Financial to begin clearing futures and derivatives trades for clients in US, with plans to expand those activities into Asia, and Straits Financial has been actively growing its footprint.

We note that Straits Financial has already taken advantage of the collapse of MF Global, whereby Co. has hired eight former MF Global employees in the US since its collapse. While such a deal does provide an interesting outlook for CWT, we note of certain questions which investors will be pondering upon in light of the latest deal:

1) Will CWT be taking on more risky/speculative trading activities going forward? (Recall Noble’s 3Q11 loss)
2) Will CWT be able to adequately compensate their commodities traders as opposed to the major Banks/Commodity houses?
3) In an industry where financing and size plays a very important factor in maximizing margins, CWT’s much smaller size/balance sheet could place it in a detrimental position (in terms of DD and SS flows) when competing against much larger peers?