With its agreement to buy ANZ’s Asian retail and wealth management business, Singapore’s DBS looks to have consolidated its position among the regional heavyweights of wealth management.
But it may simultaneously have ruled itself out of the bidding for ABN Amro’s Asian private banking arm, which has reportedly hired Lazard to advise on its sale.
It’s tricky enough to acquire and assimilate one new business; taking on two at once would be “too much work and too much risk”, said a source close to ABN Amro.
DBS chief executive Piyush Gupta (pictured below) said the bank was not done with acquisitions, during a press briefing yesterday in Singapore. He neither confirmed nor denied whether it was targeting an ABN Amro deal, saying only that it was open to acquisitions that met three criteria: they are strategically aligned to its business, they make economic sense, and management has the bandwidth to manage the new business.
If DBS were to drop out of the ABN Amro race, it would leave a clearer path for the other candidates, which are said to include Julius Baer, LGT and UOB. Sarasin has dropped out of the running, said the unnamed source.
First-round bids for the business are reportedly set to take place in the coming weeks. The business was tipped to be up for sale by AsianInvestor in September
Julius Baer, LGT and UOB could not be reached as of press time, while Sarasin declined to comment.
Meanwhile, the ANZ sale – valuing the assets at S$110 million above book – came as no surprise to the market. Early this year the Australian bank restructured its global wealth unit, folding most of it into its retail business, resulting in the departure of its global head of wealth and other executives.
Indeed, the transaction is yet another example of the consolidation trend that has been gathering pace in the wealth management industry in Asia. This year’s Barclays-OCBC deal and DBS’s purchase of Societe Generale’s private banking arm in 2014 are just two other recent examples.
There is a widespread consensus that – in light of narrowing margins, rising cost pressures and the need for a diversified product platform – achieving a certain size is key for an Asian private banking business to be sustainable. A figure of $40 billion in assets under management is often cited as this magic number.
Both ABN Amro (with around $20 billion in AUM) and ANZ’s Asia wealth arms are well below this threshold. ANZ’s retail and wealth business comprises Hong Kong, Singapore, Taiwan, Indonesia and China, representing total deposits of S$17 billion ($12.2 billion), loans of S$11 billion, investment AUM of S$6.5 billion and total revenue of S$825 million for fiscal year 2016.
DBS bulking up
The ANZ deal will add S$23 billion in AUM to DBS’s books, with high-net-worth clients accounting for S$6 billion. This will take the Singapore bank’s HNW assets to S$115 billion and its total wealth management AUM to S$182 billion.
The acquisition will add a large customer franchise in Indonesia and Taiwan. In Indonesia, DBS will gain about 410,000 customers, effectively increasing its base by six times. In Taiwan, it will add some 530,000 customers, expanding its base by 2.5 times. A significant portion of these are credit card customers.
Keith Pogson, senior partner in the Asia-Pacific financial services division at consultancy EY, described the acquisition as a great deal for DBS. It provides bulk in more markets, thereby reducing service costs, he told AsianInvestor, and in particular gives them a bigger presence in Indonesia, which is key from an Asean buildout perspective.
“Matterhorn or Merlion, private banking in the future will be defined by scale and service delivery,” added Pogson.
Subject to obtaining regulatory approvals, the ANZ-DBS transaction is expected to be completed progressively from the second quarter of next year onwards, and the target is for full completion in all markets by early 2018.
DBS said it would absorb 80% of the 4,500 ANZ staff across the five markets. In the near term, ANZ’s senior management will stay on to oversee the move and ensure a smooth transition, added the Singaporean bank. “As the business starts moving over through the course of the year, we will start bringing some of the senior personnel across.”
ANZ’s next steps
ANZ is now looking to focus on its institutional banking business in Asia, having failed to achieve the ambitious regional buildout envisaged by former chief executive Mike Smith.
“It’s not about restructuring in Asia. It’s about focus,” said ANZ CEO Shayne Elliott (pictured right) during a press briefing yesterday. The retail and wealth management arm is profitable, he added, but the bank doesn’t have the resources to build that business for the future.
ANZ is also looking to sell minority investments in four banks, namely Shanghai Rural Commercial Bank (20%), Bank of Tianjin (11.9%), Malaysia’s Ambank (23.6%) and Bank Panin in Indonesia (39%). Elliott said these were not core assets and ANZ would look to sell the stakes, totalling A$4 billion ($3.04 billion).
“Other than that we will continue to restructure,” he noted, as the sale to DBS did not cover ANZ’s retail business in Cambodia, the Philippines and Vietnam. Those businesses are still under review, and may also be sold, said Elliott.