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Thai banker makes a US$2.7b bet to secure family’s legacy

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Chin Sophonpanich founded Bangkok Bank in 1944, when he branched out from selling construction materials and canned goods.

[SINGAPORE] For Thailand’s oldest banking family, it’s a legacy-defining deal 25 years in the making. That's how long Chartsiri Sophonpanich has been waiting to turn Bangkok Bank into a key regional player in Southeast Asia. His winning takeover bid for Indonesia's PT Bank Permata in December is a US$2.7 billion bet that now is the time to jettison decades of caution and secure his family's legacy for a fourth generation.

It's an uncharacteristically bold - some analysts say risky - move for the 60-year-old banker whose early ambitions were laid low by the Asian financial crisis. But after years of lagging behind rivals by playing it safe, the Permata acquisition could be Chartsiri's last big chance to revitalise the US$9 billion lender that enjoyed breakneck growth under both his father and grandfather.

"Where there is danger, there is gain," said Piti Sithi-Amnuai, the Thai lender's 87-year-old chairman, who has worked at the bank for more than half a century, overlapping with Chartsiri's grandfather Chin and father Chatri. "Chartsiri's legacy is to grow Bangkok Bank even greater than his grandfather. I believe that is his aim, his goal."

Chin Sophonpanich founded Bangkok Bank in 1944, when he branched out from selling construction materials and canned goods.

He went on to become one of the region's most prominent bankers, financing the empire-building of ethnic Chinese tycoons in Southeast Asia including Malaysia's richest man Robert Kuok.

When Chartsiri - known as Tony - took over as president in 1994, Bangkok Bank had a market capitalization of US$8.2 billion, the most among Southeast Asian lenders. But the Asian financial crisis, which originated in Thailand and triggered a currency devaluation, hit the country's banks hard. Within a year, Bangkok Bank's value had shrunk to US$2 billion.

Chartsiri, in his late 30s at the time, had to battle a mountain of nonperforming loans that peaked at more than 40 per cent of the bank's total lending. The lender was forced to make several rounds of share sales, diluting the Sophonpanich family's holdings to about 13 per cent by 1999 from about a third before the crisis.

Some of Chartsiri's trademark caution stems from the searing experience of those days, Piti said.

In the years that followed, Bangkok Bank lagged behind local rivals in growing assets and failed to translate Thailand's largest branch network into a meaningful retail expansion, according to Bloomberg Intelligence analyst Diksha Gera. Instead it stuck to what it knew best - corporate lending.

Kasikornbank and Siam Commercial Bank grew their share of consumer banking and later ventured into wealth management to tap into the country's increasing prosperity, overtaking Bangkok Bank.

Regional lenders like Singapore-based DBS Group Holdings raced ahead via acquisitions.

As rivals overtook it, Chartsiri looked for a time at domestic deals but saw few opportunities for growth in Thailand's saturated market, said a person familiar with his thinking.

Permata had been on his radar for years and when it came on the market, he shed his conservatism and got involved in the detailed planning, said another person familiar. Both people asked not to be identified discussing private matters.

The purchase crystallises an ambition to build a leading regional bank that Chartsiri articulated just after taking over as president.

DEAL DOUBTS

Concerns about the deal are reflected in the lender's shares, which fell 5 per cent in the month following Bangkok Bank's winning bid, compared with a more than 1 per cent gain in Thailand's benchmark index.

Chartsiri has said he plans to keep the current management in place and grow return-on-equity to double digits from about 7 per cent now. Bangkok Bank's own ROE has languished below 9 per cent from 2016 on, and is currently 2 percentage points below the average for Thailand's major banks, according to data compiled by Bloomberg.

It's uncertain whether the bank "would be particularly skilled at turning Permata around or pushing it to new levels" given its limited presence in Indonesia and inexperience with acquisitions, said Kevin Kwek, an analyst at Sanford C. Bernstein in Singapore.

The deal to buy Permata from Standard Chartered and Jakarta-listed PT Astra International still needs approval from Bangkok Bank shareholders and regulators in both Thailand and Indonesia.

Prapas Tonpibulsak, the chief investment officer at Talis Asset Management, which owns shares in the lender, is more optimistic, calling the move overseas "game changing." The price tag of 1.8 times book value for the largest overseas acquisition by a Thai lender is justified, he said. "Permata is an exceptional case because it's a rare opportunity."

The lender offers Bangkok Bank access to an attractive market, with more than 40 per cent of Indonesia's 260 million population aged between 25 and 54, compared with Thailand's aging population of about 70 million. It has exposure to corporate banking, retail lending and small- and medium-sized enterprises, as well as a network of 330 branches.

"We believe that our Bangkok Bank customers can make good use of Permata," Chartsiri said in an interview last month. He and the bank didn't respond to questions on previous plans for an overseas takeover or the current size of the family's holdings.

A successful acquisition would move Chartsiri out of the shadow of his father Chatri, who rapidly grew Bangkok Bank in the 1980s and early 1990s. Frequently pictured on the social pages with prominent figures including former Prime Minister Prem Tinsulanonda, Chatri was a dominating figure in Thailand's business circles.

Chartsiri has a reputation for working into the wee hours of the morning and being more low-key. Educated at the Massachusetts Institute of Technology, he spent time at Citigroup in New York before joining Bangkok Bank in 1986 and being groomed to take over the family business.

Although Chartsiri has been president for a quarter century, he's the second-youngest on a board of directors dominated by members in their 70s or 80s.

Chairman Piti said Chartsiri's sons will probably take over the bank at some point, given the tradition among many ethnic Chinese business families.

Chanond and Chanand, both in their 20s and in junior roles, were included in some discussions about the Permata acquisition, people with knowledge of the matter said.

"It's best that they make the decision," Chartsiri said when asked whether he is grooming his children to succeed him. "Of course we give them the chance and opportunities."

BLOOMBERG