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Oversea-Chinese Banking Corp. Limited’s S$6.2 Billion Acquisition Is Finally Done: What’s Next?

So it is finally official. Oversea-Chinese Banking Corp. Limited (SGX: O39) has successfully taken over the Hong Kong-based Wing Hang Bank.

Starting 1 October 2014, Wing Hang Bank will be known formally as OCBC Wing Hang. OCBC has also completed its recent Rights Issue exercise which helped the bank to raise capital to fund the acquisition. Everything seems to have fallen into place now. So, what’s next?

Integration

Now, the work of merging the two banks begins. When the acquisition was first announced, OCBC revealed that there were synergies to be found in a combined entity.

In a report published this week, business newswire The Edge identified one of the areas where synergies can be found and that’s in the trade flow business. With the network of Wing Hang Bank in Hong Kong and China, OCBC can now tap into the trade flows between Greater China and Southeast Asia. OCBC had estimated that the trade flow between the two regions had came up to US$690 billion last year. That’s a huge opportunity for OCBC.

Cross-selling

Besides trying to capture some of the trade flow business, there’s also the opportunity for OCBC and Wing Hang Bank to cross-sell its products to customers from both banks. This includes products from OCBC’s insurance subsidiary, Great Eastern Holding Limited (SGX: G07), and its private banking outfit, Bank of Singapore.

Risk of clashing cultures

The financial effects of cross-selling products and tapping into trade flows between China and Southeast Asia can be easy to spot. But, there is one aspect of the integration process which will almost never show up in the financials of OCBC – yet, it is just as important as the financial figures.

That aspect is the integration of culture between the two banks. Often, mergers and acquisitions fail due to a mismatch in culture with top management failing to pay enough attention to the issue. Wing Hang Bank, given its geographical base in Hong Kong and the fact that it is run by its founding family till today, might have a unique corporate culture which is hard to change. If OCBC fails to cross the culture-huddle with Wing Hang, all the synergistic benefits discussed above might just come to naught.

Foolish Summary

It was only in early July when there were some doubts about how smooth the acquisition process might be for OCBC. Those clouds have since cleared. But, new ones might be rolling in over the horizon now regarding the integration of OCBC and Wing Hang Bank.