After acquiring the Hong Kong-based Wing Hang Bank for over S$6.0 billion back in 2014, Oversea-Chinese Banking Corp Limited (SGX: O39) has revved up its mergers and acquisitions machine again. Earlier today, OCBC announced that its wholly-owned subsidiary and private-banking arm, Bank of Singapore, has entered into an agreement to buy over Barclays Bank PLC’s private wealth and investment management business in Singapore and Hong Kong. Bank of Singapore is itself an acquisition OCBC had made in 2010 from Dutch financial outfit ING Group NV. OCBC was reportedly competing with fellow Singapore banking giant DBS Group Holdings Ltd (SGX: D05), as well as Swiss…
Earlier today, OCBC announced that its wholly-owned subsidiary and private-banking arm, Bank of Singapore, has entered into an agreement to buy over Barclays Bank PLC’s private wealth and investment management business in Singapore and Hong Kong. Bank of Singapore is itself an acquisition OCBC had made in 2010 from Dutch financial outfit ING Group NV.
OCBC was reportedly competing with fellow Singapore banking giant DBS Group Holdings Ltd (SGX: D05), as well as Swiss bank Julius Baer, for the Barclays wealth and investment management business. In any case, Bank of Singapore has agreed to pay US$320 million (approximately S$434 million) for the acquisition, which will be funded solely with internal cash.
The particular Barclays business currently has US$18.3 billion in assets under management (AUM) and the purchase price of US$320 million is thus 1.75% of that. Some quick number crunching would reveal that the acquisition could cause Bank of Singapore’s overall AUM to increase by more than 33% from US$55 billion at end-2015 to US$73.3 billion post-merger
If the acquisition goes through smoothly, OCBC’s wealth management division would likely overtake United Overseas Bank Ltd’s (SGX: U11) in terms of the assets that are managed. UOB had stated in its recent 2015 annual report that it had S$85 billion in AUM at the end of 2015. But, DBS Group will still likely lead the pack among the banking trio as its AUM at end-2015 stood at S$146 billion.
An area of growth
Many banks outside of Asia are looking to scale down and/or exit some of their operations in the continent. For instance, the British banks, Barclays and Standard Chartered, have both been cutting jobs in Singapore.
But, OCBC still sees great potential in the wealth management sector in Asia, especially in China. With the potential acquisition of Barclays’ wealth and investment management business in Singapore and Hong Kong, it would help strengthen Bank of Singapore’s position as a global private bank in Asia.
There may be room for growth in the wealth management business, which generally targets high net-worth individuals as clients. In OCBC’s presentation materials discussing the acquisition, the bank said that the assets of high net-worth individuals in Asia are forecast to grow by 10.3% annually from US$15.8 trillion in 2014 to US$21.2 trillion in 2017.
OCBC also expects the acquisition to have a positive contribution to its earnings per share and return on equity after the first year. Given that there is little overlap in the clientele of Bank of Singapore and the acquisition target, as stated in OCBC’s press release on the matter, the merger may help increase Bank of Singapore’s reach in Singapore and Hong Kong significantly.
The acquisition, which is still subject to certain regulatory approval, looks great on paper. OCBC would be able to improve its earnings and grow its wealth and investment management division. But, integrating an acquired business can involve some kinks and it would up to OCBC and Bank of Singapore to ensure that the integration of the acquired Barclays business can proceed smoothly.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.