OCBC-Wing Hang Talks Evoke Memories of DBS Foray: Southeast Asia

OCBC-Wing Hang Talks Evoke Memories of DBS Foray: Southeast Asia

Oversea-Chinese Banking Corp. (OCBC)’s talks to buy Wing Hang Bank Ltd. are reminding investors of the decade of writedowns DBS Group Holdings Ltd. went through to integrate its purchase of a Hong Kong-based lender.OCBC, Southeast Asia’s second-biggest lender, said Jan. 6 it was in exclusive talks through the end of the month with Wing Hang’s (302) biggest shareholders to buy the bank, which has a market value of HK$36 billion ($4.6 billion). OCBC shares fell to a more than six-month low in Singapore yesterday amid concern it may pay too much for the acquisition.

While the negotiations may lead nowhere, they stirred memories of DBS’s $5.4 billion purchase of Dao Heng Bank Ltd. in 2001, which has cost the Singaporean lender at least S$2.1 billion ($1.7 billion) in writedowns. DBS (DBS)’s management at the time was more experienced running investment banks than commercial banks, according to Macquarie Group Ltd. (MQG)’s 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 Corp. and associated companies. 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.

Deal Makers

DBS was a local commercial bank until the end of the 1990s, run mostly by people seconded from the government, CEO Piyush Gupta said in November 2011. The lender then focused on hiring CEOs with deal-making experience or investment-banking backgrounds, he said.

Jackson Tai was the lender’s president and chief operating officer during the Dao Heng takeover and was CEO from 2002 to 2007. He had a 25-year career in investment banking with what was then known as J.P. Morgan & Co. before joining DBS in 1999. Tai’s successor, the now-deceased Richard Stanley, was Citigroup Inc.’s China head and had worked in the U.S. lender’s global corporate investment bank in Singapore.

Before Gupta took over in November 2009, DBS’s managers didn’t know whether a branch or a customer was profitable, and they lacked uniform practices, the current CEO told the Foreign Correspondents Association in Singapore two years later. Part of his efforts in the first years of his tenure to boost profitability included standardizing management practices.

Rising Profit

Under the stewardship of a commercial banker with 27 years’ experience with Citigroup, DBS has had 13 consecutive quarters of profit growth. Profit at the lender’s Hong Kong unit rose 15 percent in the nine months through September from a year earlier to a record, according to data provided by DBS.

Edna Koh, a Singapore-based spokeswoman for DBS, directed Bloomberg News to the company’s most recent financial statements when queried on the bank’s integration of Dao Heng.

“I don’t think it would be fair to make the comparison that since DBS and Dao Heng was so disastrously bad, this one is also going to be as bad,” said Macquarie’s Smith, referring to a possible takeover of Wing Hang by OCBC.

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 Southeast Asia. The bank has 16 branches in China, one in Taiwan and one in Hong Kong, CFO Tan wrote in an e-mailed statement yesterday.

Branch Network

The lender’s shares fell 1.2 percent to S$9.75 in Singapore yesterday, the lowest close since June 24, amid mounting concern it would overpay for Wing Hang. A purchase of the Hong Kong lender would be OCBC’s biggest, surpassing the $2.8 billion it paid in 2001 for Keppel Capital Holdings Ltd.

The Singaporean bank had offered less than the two times book value Wing Hang was seeking, people familiar with the matter said Jan. 3. The lender is currently valued at 1.8 times book, data compiled by Bloomberg show. DBS purchased Dao Heng at 3.3 times book.

Wing Hang has 70 branches in Hong Kong, Macau and mainland China. The bank’s presence across southern China’s Pearl River Delta makes it a more attractive target than other smaller family-owned banks in the city, Grace Wu, an analyst at Daiwa Capital Markets Hong Kong Ltd., said in September.

‘Toehold’

“Greater China presents excellent prospects for OCBC as China increasingly becomes the driver of economic growth in the region,” Tan, the bank’s CFO, said in his e-mail.

Buying Wing Hang would give OCBC a good “toehold” to expand into China and allow it to expand its trade-financing capabilities, according to Aberdeen Asset Management Asia Ltd.’s Christopher Wong. His company is OCBC’s second biggest shareholder with a 7.7 percent stake, according to data compiled by Bloomberg.

The acquisition “shouldn’t be looked at from a short-term perspective, but how they can develop the business over time,” said Wong, who’s based in Singapore. “We are long-term investors, so we will evaluate it from a longer term perspective.”

To contact the reporter on this story: Sanat Vallikappen in Singapore at vallikappen@bloomberg.net