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Quick Thought Of The Week: Activism

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An activist investor has set its sights on one of Singapore’s banks. It hasn’t said which one, yet.

But there are only three banks listed in Singapore. That is unless we count deposit-taking outfit, Hong Leong Finance (SGX: S41), as a bank too, which it isn’t.

So, we have a one-in-three chance of correctly guessing which one it might be.

But Singapore banks have not performed that badly. So, why would Judah Value Activist Fund want to take on one of the Singapore banks. It said it wants to make it more efficient.

Over the last decade, the total return of DBS Group (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39) and United Overseas Bank (SGX: U11) have outperformed many of its peers….

…. The median annual total return for both Asian and European banks has been around 7%. DBS, OCBC and UOB have delivered 9.5%, 7.4% and 7.6%, respectively. So, on a total return basis, Singapore banks have not disappointed.

The three Singapore banks have also performed well in terms of their return on shareholder funds. So, in that sense, they are quite efficient.

Over the last decade, DBS has generated, on average, $10 of bottom-line profit on every $100 of shareholder funds. OCBC and UOB have both delivered $11 on every $100 of shareholder equity.

On balance, Singapore banks have done well. But can they improve? The answer is yes, of course they can. Every company can always try to be more efficient.

But efficiency should never be at the expense of stakeholder safety. We should remember that stakeholders are not just shareholders but also customers and staff.

A version of this article first appeared in Stock Advisor Singapore and Stock Advisor Gold.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.The Motley Fool Singapore has recommended shares of DBS Group and UOB. Motley Fool Singapore Director David Kuo owns shares in DBS, OCBC and UOB.