atans1

OCBC: Reward for avoiding balls-up?

In Corporate governance on 17/03/2010 at 5:52 am

OCBC Bank granted chairman Cheong Choong Kong more than 230,000 share options – the most he has received since being appointed chairman in July 2003.

Could this I wonder be for avoiding the investment mess-ups that happened at SIA when he was CEO? Make no mistake, he was a vv gd CEO: operationally. SIA went from “strength to strength” as the cliché goes.

But during his tenure, there were two big investment mess-ups — buying into Virgin Atlantic at a very gd price for one Richard Branson (at a time when he needed money) and Air NZ. Air NZ went bankrupt (mainly because of the crisis that hit the airline industry post 9/11) and it could have been worse. SIA wanted to increase its stake sometime before before 9/11 but was blocked by the NZ government because Air NZ was a “strategic asset”. While the Air NZ investment was only a peanuty S$403m, the 49% stake in Virgin cost £600m (US$960m).

But maybe OCBC shld have waited. The purchase of ING’s Asian private banking business could come to haunt OCBC. A few days before this deal was annced, ING sold its European biz, at a fraction of the multiple that it got for Asia. Only time will tell if the growth in Asian wealth and OCBC’s ability to grow the private banking biz will justify the hefty premium that OCBC paid.

It paid US$1.46bn which represents 5.8% of the unit’s assets under management, after adjusting for surplus capital of US$550m. This compares with the 2.3% measure paid by Julius Baer for ING’s Swiss assets which is in line with another European purchase by an American private equity group of a smallish private banking outfit — RHJI’s purchase of Kleinworth Benson from Commerzbank.

But to be fair to OCBC and its chairman, HSBC is rumoured to have also bid US$1.46bn but was unwilling to give an assurance that there would not be staff layoffs. OCBC was willing.

Update 22 April 2010

The media have reported that OCBC’s inhouse prvate banking team is unhappy, with resignations etc being made.

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