DBs ocBc merger no thanks

					today Wednesday september 14, 2011     12

                            comment&analysis

                           DBs-ocBc merger?
                               no thanks
                                                                        Monetary Authority of Singapore’s website.
                                                                             According to the MAS, besides United
                                                                        Overseas Bank, OCBC Bank and DBS, there
                                                                        is also the UOB subsidiary Far Eastern Bank,
                                                      Conrad raj
                                              conrad@mediacorp.com.sg   and the OCBC subsidiaries, Bank of Singa-
                                                                        pore and Singapore Island Bank.

                      O    nce again the possibility of DBS Bank
                           and Oversea-Chinese Banking Corpo-
                      ration merging is being raised — this time
                                                                             Earlier the market had more than a
                                                                        dozen local banks. First Tat Lee Bank merged
                                                                        with Keppel Bank and that entity was swal-
                      by Nomura Equity Research. While certain          lowed up by OCBC which had previously
                      quarters in Government and at Temasek             taken over the Bank of Singapore. POSB
                      Holdings may welcome the possible move,           Bank got bought up by DBS while Overseas
                      a merger of the two will certainly be met         Union Bank got taken over by UOB which
                      with dismay by the business community.            had earlier taken control of Far Eastern
                           Nomura’s speculation comes a year            Bank, Lee Wah Bank and Chung Khiaw Bank.
                      after former Minister Mentor Lee Kuan Yew              The inital round of mergers — prior to
                      called for a consolidation of the local bank-     the mid ’80s — did indeed help UOB and
                      ing sector. Mr Lee felt that the three local      OCBC to scale up. But the later rounds did
                      banks had to combine to expand meaning-           not deliver as much and for their respective
                      fully within and outside of Singapore.            customers, especially the SMEs, the reduc-
                           “I would have preferred personally that      tion in choice left many of them stranded
                      there be only two banks, because I don’t          without loan facilities as a different set of
                      think Singapore is big enough for three           risk management rules kicked in.
                      banks,” he told 600 bankers gathered for               In the case of DBS’ purchase of POSB
                      the 37th annual Association of Banks in           Bank, thousands of the latter’s customers
                      Singapore (ABS) dinner on June 25 last year.      were denied banking facilities as DBS felt,
                           Mr Lee further noted: “You can’t go          at the time, that it was not at all viable to
                      abroad in a big way because there’s a limit to    maintain accounts below a certain level
                      what you can do in the Singapore market and       (the policy was later changed).
                      you need a big solid bank with the capabilities        With less competition, transaction costs
                      and the capital to debt ratios to go abroad.”     also went up as the banks started charging
                           Like Mr Lee, the advocates of merger         for services previously free or minimal.
                      almost invariably cite size as the main rea-           And will all the benefits cited by
                      son for such a move. As Nomura put it: “A         Nomura be realised?
                      merged banking group would rank well                   After all, there are plenty of overlap-
                      within the top 30 banks globally by mar-          ping customers, especially among the
                      ket capitalisation and provide a distinct,        sought-after wealthier customers who are
                      wholly pan-Asian franchise headquartered          loath to keep all their eggs in one basket.
                      in AAA-rated Singapore, boosting customer         Many are likely to move — at least part of
                      acquisition and franchise valuation.”             their wealth and business — to other banks,
                           It further noted that: “Geographically,      perhaps to foreign banks like Citi, Standard
                      we believe OCBC would deliver dominance           Chartered or HSBC.
                      of the core SGD (Singapore dollar) market              So the merged entity may not have the
                      (citing a 35 per cent market share) and           sum total of the separate banks.
                      a deep, scaled up ASEAN presence, the                  Like I had said previously, instead of
                      latter a key gap for DBS that otherwise           spending their time, money and effort in
                      would require expensive and integration-          the local mergers in the mid/late ’80s, per-
                      challenging acquisitions to bridge.               haps they would have been better off pur-
                           “Operationally, OCBC’s peer-leading,         chasing banks overseas. But then in those
                      strongly branded fee income franchise             days, the MAS did not really encourage
                      would offer DBS opportunity to integrate          our local banks from venturing too much
                      and scale-up highly synergistic product           overseas. The MAS probably felt that our
                      platforms i.e. life insurance, private bank-      banks just did not have the capacity or the
                      ing and Islamic finance; while expertise          resources to take on foreign partners.
                      in SMEs (small and medium sized enter-                 Although much of their more recent
                      prises), CASA (current accounts/savings           experience overseas has been far from
                      accounts) capture and risk management             satisfactory, our local banks should take
                      would also be very valuable.”                     another look at foreign ventures.
                           For the critics, a merger would mean              Let’s at least maintain the current trin-
                      one less competitor — not good where cus-         ity and if someone or some group here
                      tomers really want to be spoilt for choice.       can raise the money and resources to start
                      I had argued against further consolidation        another bank, it should be looked upon
                      then and do so again.                             favourably. ¢
                           Barely two decades ago, we had more
                      than half-a-dozen independent local banks,           Conrad Raj is Today’s editor-at-large.
                      now we have just three–four, if you in-
                      clude the locally-incorporated company of             >> dbs to double China
                      America’s Citibank and six if you look at the       share of group profit 36

				
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posted:9/16/2011
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