OCBC / Wing Hang: difficult dollars; one reason OCBC would buy a lender ranked 12th in its home market is that more deposits provide a buffer against the rising cost of money

January 8, 2014 Leave a comment

January 6, 2014 12:46 pm

OCBC / Wing Hang: difficult dollars

Deal marks high tide in the flood of Fed money to Asia

Farewell, cheap money – you will be missed. Few places have enjoyed the flood of easy dollars, courtesy of the Federal Reserve, as much as Singapore and Hong Kong. So OCBC, Singapore’s second-biggest lender, entering exclusivity talks to take over Hong Kong’s Wing Hang looks like a case of two banks, stranded by a receding tide, clinging together.The situation is not so desperate or poetic, though one reason OCBC would buy a lender ranked 12th in its home market is that more deposits provide a buffer against the rising cost of money. Wing Hang has a good retail business in China’s Pearl River Delta and Macau – another appeal for OCBC, whose big Malaysian business is a drag on growth. Trading at a flashy 1.7 times book, against a pedestrian return on equity of less than 10 per cent, Wing Hang is no bargain, unless compared with the eye-popping 3.5 times book that DBS, OCBC’s home rival, paid for Dao Heng a decade ago.

Should the deal go through, Fed tapering will remain a worry. Hong Kong and Singapore are the big Asian markets most closely linked to US monetary policy through their dollar-pegged currencies. Optimists note that squeezed net interest margins are set to improve. But it is not clear that the shift to paying more for money, and charging more for it, will be smooth – especially in two banking systems that are operating with loan-to-deposit ratios at decade highs. System deposits have risen by a compound 6 and 9 per cent a year in Singapore and Hong Kong, respectively, during the past five years, according to Barclays. Credit growth has run at 11 and 14 per cent.

OCBC is unlikely to present the deal, when and if it closes, as a liquidity grab. It will find a growth angle to play up. But the deal would still mark the point when the tide of dollar inflows started to recede.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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