OCBC cites compliance burden as reason to expand private bank

[SINGAPORE] Oversea-Chinese Banking Corp's Chief Executive Officer Samuel Tsien said surging compliance costs are one factor spurring him to expand his Asian wealth-management business, at a time when some overseas competitors are retreating.

That's because the rapidly expanding costs of complying with anti-money laundering, tax-compliance and other regulatory requirements - rising by 35 per cent annually across the whole bank - need to be spread out across as many fee-generating clients as possible, according to Mr Tsien.

"For us, it is very important to continue to build up the scale in this business," Mr Tsien said in an interview this week.

"Even if you have a smaller scale of wealth-management business, the extent of investment that you need to make sure that you are in compliance with all of the rules and regulation is as strong as when you have a large business. So again, scale comes in."

Banks like OCBC, Credit Suisse Group AG and UBS Group AG are building up their private-banking operations in Asia, attracted by the rapid increase in the number of millionaires in the region seeking wealth-management services.

At the same time, the industry is consolidating rapidly as smaller players sell out, deterred in part by the huge increases in compliance costs that have followed the crackdown on money laundering and tax avoidance following the global financial crisis.

Industry Consolidation

The Monetary Authority of Singapore, meanwhile, has stepped up its supervision of local institutions following anti-money laundering lapses at banks in the city linked to the troubled state investment fund 1Malaysia Development Bhd. OCBC hasn't been implicated in the 1MBD investigations.

In the latest example of the consolidation, OCBC's larger Singaporean rival DBS Group Holdings Ltd announced on Monday it is acquiring the wealth and retail assets of Australia & New Zealand Banking Group Ltd in five Asian markets for S$110 million, cementing its position as the country's top wealth manager, and keeping OCBC in the number two slot.

Mr Tsien said OCBC's compliance-related expenses have risen by 35 per cent in each of the past three years, and the bank views that level of growth as the "guiding pace" for future years as well.

If the higher costs are pushing some players to withdraw, for committed banks like OCBC it's a reason to continue growing, Mr Tsien said.

"This is an infrastructure cost," said Mr Tsien.

"So in the event that you are able to serve a larger client base, we are able to amortise the cost over a larger client base."

Europeans Retreat

DBS and OCBC have been in the forefront of the consolidation of the private-banking industry in Asia in recent years. OCBC's private-banking arm, Bank of Singapore, agreed to buy the Barclays Plc wealth-management business in Singapore and Hong Kong, which had US$18.3 billion of assets as of December.

DBS bought Societe Generale SA's Asian wealth-management division in 2014, and is one of the banks considering a bid for ABN Amro Group NV's private-banking business in Asia, according to people with knowledge of the matter.

Mr Tsien didn't rule out further acquisitions.

"We will continue to build up our wealth-management business both organically as well as if opportunities arise, we will look at those market opportunities as well," he said.

OCBC's deal with Barclays also illustrates some of the pitfalls of an acquisition strategy. Standard Chartered Plc has stepped up its hiring from Barclays ahead of the takeover, taking on more than 10 of the UK bank's relationship managers in Hong Kong, according to people familiar with the matter.

Mr Tsien said more than 50 per cent of the Barclays' assets and more than half the 88 relationship managers will transfer to Bank of Singapore by the time the deal is completed before year-end, a level that he is "comfortable" with.

The price OCBC will pay for the business will depend on the actual assets transferred. The Barclays deal will also bring new expertise to Bank of Singapore in areas such as foreign-exchange derivatives, Mr Tsien said.

Wealth Profits

Last week, OCBC reported higher-than-estimated profit for the third quarter, as wealth management and life-insurance revenue offset a decline in interest income and a jump in provisions for soured assets. Net income rose to S$943 million in the three months to September from S$902 million a year earlier, the bank said on Thursday.

OCBC has been building up its wealth-management operations since it acquired ING Groep NV's Asia wealth business in 2009, and re-branded it as Bank of Singapore. Total assets under management at the private bank stood at US$62 billion as of September, compared with S$159 billion at DBS's private bank and other wealth businesses.

BLOOMBERG