And then there's two?
by admin , March 1, 2010, 1600hrs
By the Corporate Observer Team
email@corporateobserver.com.sg
Are we seeing the return of Peter Seah as a major player in the local banking industry? More important, will Mr Seah be the impetus to finally complete the domestic banking consolidation?
The former deputy chairman and chief executive of the Overseas Union Bank (OUB) was recently appointed to the board of DBS Group. He looks set to take over at the helm of the government-linked company controlled by Temasek Holdings.
Barring unforeseen circumstances, we reckon Mr Seah could take the chairmanship from Mr Koh Boon Hwee by the bank’s next annual general meeting next month.
The move should hardly surprise anyone. The 63-year-old veteran banker has close ties with Temasek not just through his advisory role in the Finance Ministry company but also various key GLC positions in Singapore Technologies, Capitaland and Sembcorp. When Mr Seah left OUB after the merger with United Overseas Bank (UOB) in 2001, it was at the Singapore Technologies where he first re-emerged.
Mr Seah’s arrival as DBS chairman would certainly provide new fodder to the consolidation story.
Recent news reports on DBS have largely focused on the future expansion of the Singapore banking group, pointing to possible new exposures in various geographical locations. Newly appointed chief executive Piyushi Gupta said DBS would continue to focus on Asia because, “given where the world is and given where Asia is today, we are in the right part of the world.’'
In the next five years, DBS would aim to achieve a geographic mix with 60 per cent revenue coming from outside Singapore, compared with about 40 per cent currently, Gupta added.
Much of what Gupta said are not new. DBS past chief executives from the days of John Olds, Phillipe Pailllart and Jackson Tai have at one time or another talked about the various permutations of the local-foreign market mix.
But most observers have missed out on one key unfinished business.
Mr Seah’s entry could herald in that final merger and acquisition story among the three local banking groups. The Asian financial crisis and the financial reforms of the late 90s provided the momentum for last round of consolidation which took several players such as Tat Lee Bank, Keppel Bank and OUB out of circulation. Many bankers and corporate watchers believe there is one more consolidation to be done.
Even senior politicians have alluded to the two-bank scenario which they hope to see materialised. The question is what is the permutation.
Given the similarities between UOB and OCBC Bank in terms of business mix and geographical exposure, it has always appeared to make more sense for DBS to merge with one of two Chinese family controlled banks. For instance, UOB and OCBC are well entrenched in Malaysia but somewhat under-represented in Hong Kong and India. DBS, on the other hand, does not have a significant presence in Malaysia or even Indonesia where the other two have larger subsidiaries.
Mr Seah’s strong presence and experience in the regional banking business could provide the new momentum to get merger talks going again. Interestingly, his predecessor at OUB, Fock Siew Wah, had joined DBS as advisor after leaving the bank founded by the late Lien Ying Chow.
Mr Fock was said to have been instrumental in engineering the unsuccessful takeover bid of OUB by DBS which fell through but inadvertently led to the merger of OUB with UOB. Having lost control of the bank, Mr Seah declined to be part of the larger unit and left the banking industry.
Some ten years later, the former CEO of OUB could become the chairman of the largest bank in Singapore and it could be his turn now to turn predator and help the domestic banking industry complete its final consolidation.
WHY MARKET LIMITATIONS CAN CUT BOTH WAYS
One thing’s for sure, any further consolidation of the local banking industry would catch many observers off-guard. Mr Emmanual Daniel, president of banking intelligence firm The Asian Banker, felt that just a year after the battering of global markets, the three local banks are still “in a bit of flux”- with the focus for the next couple of years on boosting their market share in Singapore.
Another factor, he said, that affects their ability to acquire another franchise, be it local or overseas, is the management’s “bench strength”. And on this count, both DBS and OCBC are not in an enviable position.
Describing Singapore as a “low-margin and developed market”, Mr Kenneth Ng, CIMB-GK analyst, pointed out that the best of loan-growth and growth opportunities like private banking have already passed.
Which is why mergers and acquisitions (M&A) overseas are more plausible for the local banks- especially when so far, they have not had much to show despite wanting to generate more earnings outside of Singapore, said Mr Ng.
Mr Leng Seng Choon, DMG & Partners Securities analyst, reiterated there was not much additional benefit for the local banks for an in-market consolidation.
Said Mr Leng: “From the bank’s perspective, if they want to make an acquisition, it is to grow the market share or go into a new geographical area where there is growth potential. There is already a fair bit of overlapping in client base right now in Singapore, so what additional value can one obtain because you’re operating in the same market?”
But those who argue that a merger is unlikely given that the local banks are currently too weak or are more focused on growing the overseas pie are perhaps missing the point entirely.
It is precisely the limitations of the Singapore market that drive the local banks to band together in order to compete with the big boys- the likes of HSBC and Citigroup- both at home and abroad.
It would not surprise anyone if investment bankers are already knocking on the doors of DBS and OCBC, or UOB for that matter, with some sort of marriage proposal.
Our bet would be more of a DBS-OCBC merger than a DBS-UOB deal. Watch this space.
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