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| July 3, 2001 | atimes.com | ||
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Southeast Asia
Shake-up strikes Singapore's banks By Lynette Ong SINGAPORE - In the past weeks, Singapore's banking industry has seen a flurry of action that could potentially change its entire landscape. The industry has witnessed a series of merger and acquisition bids that would reduce the number of local banks from the existing five to three - or even two. The Overseas Chinese Banking Corp (OCBC) started the ball rolling when it put up a S$4.8 billion (US$2.7 billion) all-cash offer for Keppel Capital Holdings (KCH), which owns the island's smallest bank, Keppel TatLee. This broke the long-standing reticence among domestic banks, despite repeated calls by the government, to consolidate. With a small population base of 4 million, the island can only accommodate two strong local banks, claims the Monetary Authority of Singapore, the country's quasi-central bank. Shortly after, the Development Bank of Singapore (DBS) launched an unsolicited bid for the country's fourth largest bank, the Overseas Union Bank (OUB), in a S$9.4 billion cash-and-share offer. If the deal goes through, the combined DBS and OUB group will undoubtedly become a formidable player in Asia's banking scene, given that DBS is already Southeast Asia's largest bank by asset value. But that's not all. These two unions, if successfully merged, would leave the United Overseas Bank (UOB) - currently the second largest - in the lurch and renders it a marginal player. In a surprise move UOB chairman Wee Cho Yaw decided to go head-on with DBS by making an S$10 billion bid for OUB. The offer consists of S$4.02 in cash and 0.52 of one UOB share for each OUB share - which values OUB at 1.94 times its book value compared to 1.8 times that DBS has offered.
The merger talks so far have benefited the share prices of the preys. KCH shareholders couldn't be happier to see their share price hit a 52-week high of S$3.66 despite weak market sentiment. DBS, on the other hand, has been punished for its ambitions as the share price has plunged to a 52-week low of S$12.4. OUB has also seen its share surging to a seven-month high of S$8.7. Many analysts agree that a DBS/OUB merger will help to reduce the DBS Group's cost structure by integrating the two operations - its current cost-to-income ratio of 42.5 percent is the highest among all the local banks. However, DBS Bank's financial strength will be under strain if it ups its offer to outbid UOB. Credit rating agency Moody's Investor Service has placed DBS's rating of B on review for possible downgrade following the bank's successive rounds of overseas acquisitions that has raised its risks and financing costs. Just two months ago, DBS paid a whopping S$10.5 billion for Dao Heng Bank in Hong Kong. The sum paid for, which was more than 3.3 times of Dao Heng's book value, left many analysts wondering whether the Singapore giant had overpaid for its aspirations to gain a foothold in the greater China market. Some skeptics doubt whether DBS Bank, acting in the best interests of all its shareholders, is genuinely interested in its smaller local rival. The bank, with an asset value of S$111.5 billion, is currently Singapore's largest - and the Singapore government owns 37 percent of it. Without acquiring another local partner, DBS, or the government, risks losing its dominant position in the banking industry. A union of UOB and OUB will give it the size to become the fourth largest foreign bank in Malaysia, trailing behind only foreign giants, namely HSBC, Standard Chartered and Citibank. With a combined asset base of 17.4 billion ringitt (US$4.6 billion), the group will own the largest foreign network with a total of 37 branches nationwide. On the other hand, acquiring OUB will give DBS back-door entry to the protected Malaysian market. Government-linked corporations in Singapore have encountered resistance when trying to penetrate its neighbor's market. Singapore Telecom's proposed takeover of a Malaysian telecom, Time Engineering, was thwarted by Malaysian authorities due to concern over SingTel's main shareholder - the government of Singapore. Therefore, DBS will need the blessing of Bank Negara (the central bank) to take over OUB's operations in Malaysia. Market analysts generally favor a merger of OCBC and KCH. A union will provide economies of scale and create opportunities for cost-savings by rationalizing their back office operations, technology and processing activities. The question that hangs in the mind of consumers is choice - which will be significantly curtailed as a result of consolidation. The SME market, which has traditionally been served by smaller banks such as Keppel TatLee and OUB, fears the bigger unions will overlook them. Market watchers are also concern over possible massive retrenchments - since most bank branches are only a stone's throw away from one another. However, without consolidation, small local banks will not be able to withstand the onslaught of foreign competition. The Monetary Authority of Singapore (MAS) has announced a second round of liberalization of the island's financial sector by giving foreign banks more scope to compete in the local retail market. "Being a big bank is no guarantee of success ... but being a small bank is definitely a significant handicap," says chairman of the MAS, Lee Hsien-Loong. Size does matter after all. ((c)2001 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.) |
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