DBS clambers up the ladder to service the super-wealthy
DBS Bank announced yesterday that it was acquiring the Asian private banking arm of Societe Generale. The bank is now well-placed to service the growing number of ultra-rich individuals in Singapore.
The US$220 million (S$280 million) deal, to be funded out of the bank's internal cash resources, is expected to increase DBS' high net worth assets under management (AUM) by more than 20 per cent.
The move is another key play in the wealth management sector, following OCBC Bank's acquisition in 2009 of the ING Asian Private Bank, since renamed Bank of Singapore, for US$1.5 billion.
According to a report released by property consultancy Knight Frank earlier this month, Singapore is tipped to be the Asian city with the most people with at least US$30 million in net assets in 2023. Worldwide, it will be second only to London.
In a business where talent comes at a steep price and size matters, DBS' move is strategic.
Mr Alan Lau, head of financial services tax at KPMG Singapore, said: "The global banking giants like UBS and Credit Suisse are where they are today because of their sheer size in private wealth management... DBS recognises that the consolidation route is clearly the way forward."
Mr Lau added that one of the biggest challenges in the private banking sector is the high cost-revenue ratio.
Finding the right people to serve ultra-rich clients is not easy, and these employees command a high pay, he said. What's more, servicing the clients and providing fringe benefits do not come cheap.
With the transaction, DBS will look to absorb the majority of Societe Generale Private Banking (SGPB) Asia's 330 staff, further strengthening its ranks.
Adjunct Associate Professor Ho Kok Yong of the Nanyang Technological University's business school said the move made sense as it was difficult to grow customer base organically. Clients normally follow relationship managers, who DBS has acquired.
"Moreover, DBS' acquisition of SocGen at US$220m for an AUM of US$12.6 billion is relatively cheap compared to Bank of Singapore's deal, at US$1.46 billion for AUM of US$15.8 billion," he said.
DBS' clients will have access to SGPB's products in Europe and, conversely, SGPB's clients will have access to DBS private banking offerings in Asia.
There will be "cost synergies" from the pooling of infrastructure, IT and other support services, said DBS.
Factoring in attrition, Ms Tan Su Shan, who heads consumer banking and wealth management at DBS, said the bank hopes to retain at least US$10 billion.
DBS chief executive Piyush Gupta said yesterday that the bank already achieved its target last year, to have the wealth management business account for about 12 per cent of the top line.
The bank hopes to further "scale up" the business and this figure to 15 per cent in the next few years, added Mr Gupta.