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DBS's latest purchase widens gap with BOS

It is buying the Asian private banking business of Societe Generale for US$220m

New phase: (Left to right): Ms Chng, Ms Tan and Mr Gougeon at the press conference on the deal; DBS's AUM will go up by about 23 per cent to S$85 billion from the current S$69 billion with the purchase. - PHOTO: KEVIN LIM/ THE STRAITS TIMES

[SINGAPORE] DBS Bank yesterday said that it will buy the Asian private banking business of Societe Generale for US$220 million, accelerating its ambition of becoming a leading wealth manager in Asia.

The deal will also widen the gap with DBS's closest rival, the Bank of Singapore, a unit of OCBC Bank.

The price represents about 1.75 per cent of assets under management (AUM), based on the AUM of Societe Generale Private Banking Asia (SGPB Asia) of US$12.6 billion as at last Dec 31.In 2009, OCBC paid US$1.4 billion for ING Asia Private Bank around 17 times its normalised 2008 net profit of US$88 million. ING Asia Private Bank, later renamed Bank of Singapore had US$16 billion AUM.

DBS's AUM will go up by about 23 per cent to S$85 billion from the current S$69 billion with the purchase, seven months after it was reported the French lender wanted to divest the business to redeploy capital into its core markets.

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Private banking in Asia is tough due to a shortage of experienced client advisers and increasingly complex regulatory demands plus very costly rentals.

A McKinsey Private Banking Survey 2012 said that Asia was growing fast, but profit margins were at record lows due to high cost.

Recently Singapore, the second largest wealth management centre after Switzerland, was found to be the most expensive city to live in, said the Economist Intelligence Unit.

The pressure to scale up is intense.

The purchase will significantly increase the scale of the group's wealth-management business, said DBS chief executive Piyush Gupta.

At a press conference on the deal, he said: "When we articulated our strategy four years ago, we had said wealth management will grow from 8 per cent to 12 per cent of DBS's business."

Last year, DBS's wealth-management business came close to 12 per cent of its topline, he said. With the purchase, this will grow to 15 per cent of DBS's business in three years, he said.

Last year, wealth management income of S$924 million made up 10.4 per cent of the group's S$8.9 billion.

The purchase, to be funded by cash, will likely complete in Q4. It is expected to be earnings-per-share (EPS) accretive a year after completion, DBS said.

It will lift its EPS by more than one per cent in two to three years and deliver S$50 million of profit before tax in Year 3, said Chng Sok Hui, DBS chief financial officer.

On SGPB Asia's attractions, Mr Gupta said that the bank "has built up a nice business over the past few years . . . of ultra high net worth clients in North Asia and South-east Asia".

Ultra high net worth clients generally refer to those who place at least US$30 million to US$50 million, respectively, with private banks.

The French private bank also has a proven track record in structured products and derivatives and a team of mature experienced employees, he said.

"It will lower the gap with the much larger private banks like UBS," he said.

Swiss bank UBS is the largest private bank in Asia-Pacific, followed by Citi Private Bank and Credit Suisse, in that order according to trade journal Private Banker International in a 2012 survey.

That survey ranked DBS and Bank of Singapore ninth and 10th, respectively.

UBS ended last year with Asia-Pacific AUM of 218 billion Swiss francs (S$316.13 billion) while it was 116 billion Swiss francs at Credit Suisse.

It will "push us further away from the guy behind us", said Tan Su Shan, DBS group head of consumer banking and wealth management, when asked if the combined AUM will catapult DBS into the top five of the AUM league.

Ms Tan refused to say who the guy is though it's believed to be the Bank of Singapore which ended last year with US$46 billion AUM.

The majority of the 330 people employed in Singapore and Hong Kong by SGPB Asia are expected to move over to DBS, said Ms Tan.

Olivier Gougeon, SGPB Asia's regional chief executive for the Asia-Pacific, and several top managers will also join DBS's private banking business.

SGPB Asia has 78 relationship managers and DBS, about 200, said Ms Tan.

DBS's private banking unit now employs 533 people and has a cost-to-income ratio (CI ratio) of 62 per cent.

Ms Tan, when asked how the deal will affect costs, replied: "There will be quite a lot of cost savings . . . and expect theirs (SGPB Asia's CI ratio) to come down."

Referring to DBS's CI ration after the integration, she added: "I will be happy with flat."

DBS's 62 per cent CI ratio is one of the lowest in the business, she added.