Wing Hang Bank

Acquisitions no easy way for Singaporean banks to win in Hong Kong, mainland China

OCBC sees opportunities with high-price deal for Wing Hang but it needs to outdo rivals

PUBLISHED : Monday, 07 April, 2014, 4:38am
UPDATED : Monday, 07 April, 2014, 8:37am

Can Singaporean banks win more business in Hong Kong or even in the much bigger mainland market simply through high-cost acquisitions?

Some analysts ask if the HK$38.4 billion Oversea-Chinese Banking Corp, Singapore's second-biggest bank, is paying for Wing Hang Bank is too steep.

OCBC chief executive Samuel Tsien says it is not, given the opportunities emerging from the economic integration between Hong Kong and the mainland in recent years.

Tsien says OCBC can grab these business opportunities and gain a foothold in the city through Wing Hang, the eighth-largest lender in the city and one of the few family-controlled banks.

That is a typical line any chief executive would give for an investment in Hong Kong or on the mainland, but the market reality is a lot different.

OCBC is not the first Singaporean bank to acquire a lender in the city. Its bigger rival, DBS, bought Dao Heng Bank in 2001, a milestone deal that later proved a misstep for Southeast Asia's largest bank.

DBS bought Dao Heng for about HK$45 billion, or 3.3 times book value.

At the time, many analysts had questioned if it had paid too much, to which senior DBS executives responded with a line that was more or less that taken by Tsien last week about more business opportunities through the acquisition.

DBS was eventually forced to make a S$2.1 billion write-down for Dao Heng, mainly because of its deteriorating credit quality. This is not to suggest that OCBC may end up doing so, but history is a mirror to the future.

OCBC naturally cares about its valuation of the Wing Hang deal. Only that it has a calculation different from Wing Hang's.

OCBC had insisted its acquisition should translate into 1.77 times the price-book value of Wing Hang's consolidated net book value at the end of last year, indicating it did not pay too much for the deal.

In comparison, mainland investment firm Yue Xiu recently offered a price-book value of 2.08 times for Chong Hing Bank, also a small family-controlled lender in Hong Kong.

But Wing Hang executives told shareholders and the media that the transaction meant 2.02 times the adjusted book value excluding the final dividend and property revaluation reserve.

Analysts say both calculations are correct because the two banks' accounting standards are different. However, as long as the seller and buyer can agree on the transaction price, the rest is nitty-gritty.

More than 10 years after the Dao Heng deal, DBS, controlled by the Singaporean government, has certainly become better known in Hong Kong through its marketing and branding efforts. But its business still lags behind those of Bank of China (Hong Kong), HSBC, Standard Chartered, Hang Seng Bank (a subsidiary of HSBC) and Bank of East Asia.

BOCHK, HSBC and Standard Chartered are also the city's three note-issuing banks, with vast automated teller machine and branch networks across the city that DBS or OCBC - even after their acquisitions - cannot compete with.

Then again, if DBS or OCBC feel their priority in Hong Kong is high-profit corporate banking rather than retail banking, they do not need that many branches.

Hong Kong is, after all, one of the world's most expensive cities and high rents and staff wages can easily eat into the margins of any business.

The good thing for Hong Kong is it now has more Singaporean banks, which will bolster the city's image as a leading financial centre.

But for Singaporean banks to stand out among the tough local competition, they ought to have a more convincing story than "acquisition can help get more business". It is never that easy in the banking business.

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