Clare Jim & Saeed Azhar
OCBC, the smallest of Singapore’s three local banks, has agreed to buy ING’s private banking unit in Asia for $1.5 billion, sources said on Thursday, a surprise outcome in a complex drawn-out auction.
OCBC beat HSBC to the deal, which could be transformational for it since its private bank is smaller than its Singapore rivals’ and the wealth management business in Asia is relatively untapped. Singapore’s biggest bank DBS pulled out of the race for the ING asset a few weeks ago. “They had a very small private banking operation. What this would do is put the private bank on a firmer footing,” Trevor Kalcic, banking analyst at RBS in Singapore, said of OCBC.
ING’s sale of its Asian private bank with an estimated $16 billion in assets is its third major disposal in less than a month and the second in the Asia-Pacific region, as it seeks to raise capital to pay back bailout money to the Dutch government.
OCBC, which halted its shares pending an announcement that sources said was due around 0400 GMT, was the unexpected winner in a deal bankers earlier had said could be clinched by HSBC.
OCBC, which has not disclosed its private banking assets, lost a third of its bankers to foreign rivals in 2006. It also controls insurance firm Great Eastern and asset manager Lion Global Investors.
OCBC had surplus capital of S$15 billion ($11 billion), or a tier-1 ratio of 15.4 percent as of June, exceeding 12.5 percent for its peers, according to Citigroup analyst Robert Kong.
This suggests that OCBC enjoys excess tier-1 capital of S$2.5-3 billion over its peers, giving it ample ammunition to seek M&A opportunities, Kong said.
Asset prices questioned
ING’s private bank in Asia is run by Renato de Guzman, who has been instrumental in building the business in his home country Philippines and Indonesia.
The sale of the Asian assets came after it struck a deal to sell its Swiss private banking unit to Julius Baer for 344 million euros on Oct 7.
ING is in the midst of raising 6 billion euros to 8 billion euros through asset sales under a restructuring program it announced in April. It plans to ultimately exit 10 of the 48 countries where it does business.
The restructuring follows 10 billion euros in state aid ING received in Oct. 2008 and a 22 billion euro asset guarantee it received from the Dutch state in Jan. 2009.
Both its restructuring plan and the asset guarantee are under review by the European Commission, though the asset guarantee in particular has received a frosty reception.
On Sept.15, the EU extended its review of the facility, saying it appeared the Dutch state may have paid too much for the assets and ING might have gotten an unfair deal.
That review is expected to be completed by the end of this year, European Competition Commissioner Neelie Kroes told the Dutch parliament on Oct. 13.
Analysts’ worst-case scenarios envision a hit to ING of up to one billion euros if the portfolio is repriced — enough to potentially push its core Tier I capital ratio below 7 percent.
The asset sale program is seen as one potential way to offset a capital hit, though analysts have been unhappy with the sales thus far. In particular, they have found fault with both the prices paid and the fact that ING is selling assets in a still-depressed market. ($1=1.389 Singapore Dollar)