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OCBC piles into quest for the next billionaire client

by April 8, 2016 General

OCBC has been on an acquisition spree, and is keen to expand asset-lite wealth management. — File picOCBC has been on an acquisition spree, and is keen to expand asset-lite wealth management. — File picHONG KONG, April 8 — Every day, it seems, another bank makes a play for Asia’s rich, keen for a foothold in the region with more millionaires than North America.

In January, UBS announced plans to bulk up in China; earlier this week Credit Suisse targeted regional expansion.

Yesterday, Oversea-Chinese Banking Corp turned up the heat with plans to buy Barclays’s Asian wealth arm in a US$320 milllion (RM1.26 billion) deal.

The challenge for OCBC, Singapore’s second-largest bank, is to make the deal work just as the field becomes more crowded and the gains harder to achieve.

OCBC beat out two of its hometown rivals to bag the UK lender’s regional wealth operations, giving it a boost in Hong Kong and Singapore and increasing assets under management at its Bank of Singapore unit by 33.3 per cent to US$73.3 billion, the bank said.

OCBC has been on an acquisition spree, and is keen to expand asset-lite wealth management.

Six years ago, it bought ING’s Asian private-banking business, and in 2014 acquired Hong Kong’s Wing Hang Bank, a family-owned lender with branches in China.

The Barclays deal will vault OCBC to seventh place, from 11th, in the ranks of Asian private-banking franchises measured by assets under management, according to data from Asian Private Banker—ahead of Morgan Stanley’s wealth arm, but below DBS, Singapore’s biggest bank, with US$75 billion.

Barclays wealth assets under management, Hong Kong/Singapore

US$18.3 billion

Barclays began expanding its Asian wealth business alongside investment banking after the financial crisis, but remains a small player: It had US$18.3 billion in assets under management in Hong Kong and Singapore, according to OCBC.

The purchase price is 1.75 per cent of that total, a metric deemed fair by analysts at Malaysia’s RHB Capital, who say DBS paid a similar amount for Societe Generale’s Asian private-banking business in 2014.

It’s also below the 5.8 per cent of assets under management that OCBC paid for ING’s Asian banking business in 2010. Regionwide, the Barclays unit oversees US$36 billion, Asian Private Banker data show.

That Singapore banks were on the shortlist to acquire the Barclays unit shows the pressure to expand.

The top three institutions in the nation of 5.7 million people — DBS, OCBC and United Overseas Bank — have been seeking new markets, especially in private banking as European lenders exit businesses they regard as noncore.

As Gadfly’s Andy Mukherjee noted, Singapore banks face a sliding real estate market at home and possible nonperforming loan blowouts from exposure to China and rig-builders. They ought to dominate their domestic private-banking market, at the very least.

Singapore is adding millionaires at a faster pace than Hong Kong, according to WealthInsight, though the former British colony and Asian arch-rival still has more of them.

OCBC, like any buyer of private-banking assets, faces challenges. Not all Barclays clients are likely to stay with the new owner. Costs of wealth management in the region are high and spiraling.

Rich Asians tend to have several private bankers at different institutions competing for their business, economic growth has slowed, and relationship managers’ salaries are rising.

Catching and keeping Asia’s next billionaire has become a harder game to play. — Bloomberg

* This column does not necessarily reflect the opinion of Bloomberg LP and its owners.