Is bank consolidation a good thing for Singapore?

Absolutely. Singapore banks did not have critical mass in terms of processing volume, or balance sheet power in terms of underwriting capability, and did not have access to big enough IT platforms. They also do not have the regional footprint to compete with today's world class banks.

Citigroup, HSBC and Standard Chartered all have significant regional footprints. This enables us to process regionally. Citigroup has a trade processing centre in Penang, a cash processing centre in Singapore, and a treasury processing centre in Sydney - all of them process for the region. This enables us to process our whole regional volume at a lower unit cost, and that is then being delivered to the Singapore client. So when you compare that with one of the previously unmerged banks in Singapore, they had no chance of delivering at the same unit cost.

The IT platform is a related issue. Given their previous size, they could not create IT platforms of the size that they now can.

And finally, in order to deal with large corporates, you need to have a regional sourcing of funds and regional distribution of funds. Eventually if you are going to deal with a SingTel, and your drawing power is just Singapore, you cannot compete with someone who can place around the region. So, I think, the regional footprint is a key thing.

The new banks will have a 15-20% market share each, and that will not just give them a better platform in Singapore but a much more viable platform in the region. So I think bank consolidation is good and it will professionalize them. Their enhanced size and scope will force them to professionalize and regionalize further. We figure they will be much more formidable as competitors once the newly merged entities settle down and start leveraging their combined strengths and synergies.

Does the merger process, and its potential difficulties offer the likes of Citi any competitive opportunities?

Yes. In the next three or four months that's definitely the case. Right now, their staff may feel unsettled, their clients likewise, and we can expect a period when their delivery systems will be slightly debilitated by all the reorganization.

A phenomenon called concentration overflow usually happens during such consolidation. A client with facilities in two banks that are merging, will now find those two facilities aggregated. The aggregation may cause problems for both the client and the bank. The bank may say it's beyond its comfort level, and the client will say it doesn't want such a large number of its eggs in one basket, because it wants to diversify its exposures to guard against a policy change, and make sure they are not beholden to one financial institution.

So we may have an opportunity in the short-run. But in the long-run, it means we have much more robust competition. So it's good for the client and good for Singapore. They will be able to play with us in the big leagues. You know, when SingTel buys Optus, Citi gets the lead role [arranging the financing] instead of a local bank. It may be logical for a GLC like Singtel to be giving the business to a Singapore bank. Instead, Citigroup was given the mandate because of its Aussie dollar placing power. Maybe post-merger, we'll have a more intense experience competing with the Singapore banks for such underwriting capability on a regional basis.

Also, the ability to draw world class talent is also determined by the scale of your business and operations. If you are a Singapore-based organization serving a largely domestic market, then the chances of hiring a 40 year old from New York with fire in his belly is very small. For them, Singapore wouldn't suffice as their oyster. They would need a more challenging responsibility, if not on a global basis, at least on a regional basis. However, now these post-merger banks are poised to compete for talent of at least a regional standing. The consolidation will certainly help local banks draw more world class talent, and sometimes that talent may be a world class Singaporean.

You previously ran Citi in Malaysia. What do you think are the chances of a merger between a Singapore and Malaysian banks?

I think it is highly unlikely that any of the three Singapore banks will be able to merge with the pure Malaysian banks. One of the reasons DBS wanted OUB was for its Malaysian piece, because the chances of a DBS merging with a Malaysian bank are low.

But the redistribution of international banks in Malaysia throws up possibilties. Foreign banks will be making tough decisions as to whether they have a future - as everyone realises you need scale - and thus it is much more likely there will be an acquisition of the foreign branch of a retreating foreign bank.

As a banker here, have you seen a marked slowdown in the Singapore economy?

Certainly. There is no question that the flows between Singapore and the region have declined. As you know, Singapore is an entrepot location for goods and services. This is a regional hub for management services and money flows. Singapore has prospered accordingly as an intermediary of flows. We bank a lot of multinationals that are the vehicles of these flows. These flows have slowed down. The slowdown in our trade and cash business is a strong signal of this slowdown, and it is largely driven by multinationals. The broad explanation is that this is an export-driven economy and the tech sector and electronics have declined significantly.

Our numbers reflect that. There's no question that the fourth quarter will be like the third, so we will need to see a turnaround in the OECD. That is going to be a first or second quarter 2002 event, and so we will continue to be in somewhat of a slump between now and the second half of next year.