DBS’s latest deal – which has been under secret negotiation since last October – sees the Singaporean bank expand its presence in Hong Kong. The acquisition was not unexpected, given DBS’s recent move to raise $782 million of non-cumulative perpetual tier 1 capital – further expanding its already heavy capital base. M&A specialists knew that this Goldman Sachs- and Morgan Stanley-led deal signalled an acquisition was on the cards.
And both the US banks have carved up the spoils on the M&A transaction too – making DBS a truly excellent client for both.
Interestingly, however, Goldman is advising DBS on the deal, which surprises some since Morgan Stanley has long been regarded as DBS’s ‘house bank’. Nonetheless, Goldman is regarded as having won its way into DBS’s affections in the last year or so through some severe bouts of client focus. DBS is the biggest fee-paying client in the FIG world, and both these M&A titans are reckoned to devote at least 50% of their FIG energies to DBS alone.
Morgan Stanley is in the deal – but on the other side. It and JPMorgan are advising the Guoco Group, which is selling its 71% stake in Dao Heng to DBS.
Guoco has been busy putting its house in order. It recently executed an asset swap between its finance arms to create a separate Singaporean finance and property arm. The sale of Dao Heng by Guoco – which is 32% owned by Malaysian tycoon Quek Leng Chan – completes the round of restructuring.
What does it signal? The Quek family (which controls Hong Kong-based Guoco and Hong Leong of Malaysia and Singapore) is one of the canniest Chinese trading families around. Perhaps the Queks reckon this to be the top of the market for their Hong Kong banking jewel?
With interest rate deregulation this summer, consolidation in the banking field is likely to hot up as smaller players bow to the might of HSBC and Bank of China’s market power. Keeping up with the heavy tech spending that will be necessary, will add to the strain.
Bigger picture, it also signals that Quek is trading out of the option of eventually forming a regional banking empire. Bank analysts note that Dao Heng was set up to complement Hong Leong Bank in Malaysia and Hong Leong’s Singapore finance house. However, he probably sensed that he would never get a Singapore banking license and has seen how owning a bank in Malaysia has become ever more trying. After all, when Malaysia’s Bank Negara announced it wanted to create six anchor banks in 1999, Hong Leong was not one of them. Although this plan was later rescinded it sent out a fairly clear signal that everyone – including investors – quickly noted.
And by selling Guoco’s Hong Kong banking assets to DBS, Quek is furthering the Singapore government’s goal of creating a truly regional bank.
