Jan 09, 2014

    OCBC bid evokes DBS' experience

    OCBC Bank's talks to buy Wing Hang Bank are reminding investors of the decade of writedowns DBS Group Holdings went through to integrate its purchase of a Hong Kong-based lender.

    OCBC, South-east Asia's second-biggest bank, said on Monday it was in exclusive talks through the end of the month with Wing Hang's biggest investors to buy the company, which has a market value of HK$36 billion (S$5.9 billion).

    OCBC shares fell to a more-than-six-month low on Tuesday, amid concern it may overpay.

    While the negotiations may lead nowhere, they stirred memories of DBS' US$5.4-billion purchase of Dao Heng Bank in 2001, which has cost the Singapore lender at least S$2.1 billion in writedowns.

    DBS' management at the time was more experienced running investment banks than commercial lenders, according to Macquarie Group's Mr Matthew Smith. OCBC's prospects may be better, he said.

    With DBS, "I don't think they really went and tried in the first decade or so after the acquisition to try to manage it as a proper commercial bank," said Singapore-based Smith. "DBS in 2001 was run by investment bankers, which is not the case with OCBC today. These guys are proper commercial bankers."

    OCBC chief executive officer Samuel Tsien, who has headed the bank since April 2012, ran the lender's global corporate bank from 2007. Before that, he spent 30 years with Bank of America and associated companies.

    Mr Darren Tan, who joined OCBC as head of asset and liability management in its global treasury division in 2007, is now its chief financial officer.

    Mr Kevin Kwek, a Sanford C. Bernstein analyst in Singapore, wrote in a note on Tuesday that it took DBS years to figure out what best to do with Dao Heng. For Wing Hang, "OCBC will have to communicate hard at the outset on how it is different and work equally hard to prove it in the years to come".

    Under the stewardship of CEO Piyush Gupta, a commercial banker with 27 years' experience with Citigroup, DBS has had 13 consecutive quarters of earnings growth.

    OCBC, which gets about two thirds of its revenue at home, is stepping up overseas expansion plans as it seeks to offset the lowest lending margins in South-east Asia.

    The bank has 16 branches in China, one in Taiwan and one in Hong Kong, Mr Tan wrote in a statement.

    The Singapore bank had offered less than the two times book value Wing Hang was seeking, people familiar with the matter said on Jan 3.

    The lender is valued at 1.8 times book, data compiled by Bloomberg shows.

    Mr Kwek estimates a bid valuation of about 1.8 to 2 times. DBS purchased Dao Heng for 3.3 times book.

    "Greater China presents excellent prospects for OCBC as China increasingly becomes the driver of economic growth in the region," Mr Tan said in his e-mail.