atans1

DBS: FTs balls up cont’d

In Banks on 14/05/2010 at 10:46 am

[Update on 14 July 2010 -- What DBS's system failure shows http://atans1.wordpress.com/2010/07/14/dbs-what-the-systems-failure-report-shows/]

Much has been written by those who think the FT policy is wrong. What I find strange is that they do not write about what has happened at DBS. I have blogged on this before http://atans1.wordpress.com/2010/03/24/dbs-what-the-new-chairman-shld-be-looking-at/ and http://atans1.wordpress.com/2010/03/31/dbs-what-the-new-chairman-should-be-looking-at-iii/

And here I continue (feeling grumpy today) giving more  examples of where the FTs went wrong, quoting in italics BT (that nation-building, constructive, newspaper). I give no dates of when the articles were written as I’ve taken them from various articles over the last two months. I think DBS must have been doing a PR exercise building up its relatively new CEO.

But in doing so, BT inadvertently reminded us of DBS’s missteps that can be blamed on the FTs. Either that or there are “subversives” at BT that the ISD have failed to root out (Or are there subversives at the the ISD too?). If you think I’m as mad as a Paki conspiracy theorist, remember ST was rebuked by the government for its AWARE coverage. It was too pro smelly, hairy feminists and pinkos for many of us, and the government rebuke showed us that we were right.

Bet wrongly on Chola

An analysis by BT shows DBS is likely to have suffered a heavy loss on its investment in Chola. At 3.76 billion rupees (S$118 million), the sale price was $29 million below DBS’s total investment of $147 million in Chola since late 2005, based on data from the two companies’ past annual reports.

Bad acquisition strategy

Could DBS’s minority stakes in banks in Thailand and the Philippines – also a legacy of past forays abroad – be the next to go?”

‘As a general rule, minority stakes are not attractive,’ DBS chief executive Piyush Gupta told Reuters in an interview in Hong Kong on March 25. ‘The only reason you would want a minority stake is, really, if you think you have a pathway to control the big strategic agenda around it.’

It is not yet clear if he will apply this thinking only to new acquisitions. But if he is serious about refocusing DBS on its core strengths, then its bank holdings in Thailand and the Philippines are suitable candidates for divestment.

In 1998, DBS bought controlling stakes in banks in both countries – 50.3 per cent of Thai Danu Bank and 60 per cent of Bank of Southeast Asia in the Philippines. …

In 2001, DBS’s Philippine subsidiary was absorbed into Bank of the Philippines Islands, in which DBS now has a 20.3 per cent stake. In 2004, its Thai unit merged with the Industrial Finance Corporation of Thailand and Thai Military Bank to form TMB Bank, leaving DBS with a stake of just 16.1 per cent in the new entity. Subsequent share issues by TMB have diluted DBS’s stake in the bank to just 7 per cent.

Ignoring connecting with S’poreans

POSB’s latest campaign – already dubbed by one wit as the baby-account war – hopes to recover some lost ground after it let slip the so-called baby bonus accounts to rivals OCBC Bank and Standard Chartered Bank.

DBS lost this group of customers in 2008 when its bid failed to retain the Children Development Accounts (CDA). The baby bonus accounts are a no-brainer yearly addition of 40,000 new customers – roughly the number of babies born here each year. OCBC and Stanchart won the right to offer CDAs after the government called a tender in 2008. POSB had been handling the CDAs since the government launched it in 2001 as part of the effort to raise the fertility rate.

‘To be honest, the CDA is a great government scheme – it’s a pity we don’t have it,’ said Rajan Raju, head of DBS Bank’s consumer banking yesterday.

It’s not just babies, POSB is going after schoolkids and the baby boomers too and it’s all part of an overall strategy to live up to its community bank tag, said Mr Raju.

‘We’re coming back to the community in many ways. We’re proud that we’re neighbours first and bankers second,’ he said.

Only an FT could have made this mistake

POSB’s latest strategy is the latest phase of a journey since the bank was acquired by DBS some 12 years ago, he said.

Sceptics would say DBS has so far ‘wasted’ the acquisition which gave it the biggest deposit base of all banks here.

DBS is looking to make POSB a holistic bank that provides more than just basic banking services, to offer savings, investments and growth products, said Mr Raju.

Most or 92 per cent of respondents in a 2006 survey are satisfied with POSB’s service. But given that it has 3.5 million customers, that would still leave 280,000 with issues.

Many complaints are to do with its long queues, which is being tackled.

By year end, the group will have more than 1,000 ATMs compared to the 967 now, Mr Raju said.

Its ATMs are the most heavily used in the world, according to vendor NCR, he said. Monthly usage for the most popular ATMs is more than 40,000 versus less than 10,000 at other machines, said Mr Raju.

POSB understands what customers want, which is simple products that people can understand and sign up for, he said. ‘We have very little fine print, what you see is what you get.’

‘At this point, people remain risk averse,’ said Mr Raju. ‘They come to POSB to find protection and investment products.’

Late into mobile banking

DBS Bank and POSB customers can now perform transactions on their mobile phones.

DBS has finally joined rivals OCBC Bank, Citibank and Standard Chartered Bank in offering banking via the mobile phone, a popular facility among young professionals.  The service, called mBanking, allows customers to review their banking and credit card accounts, transfer funds and pay bills.

But  do they have any valuables after HN5 Notes?

[A] premium safe deposit centre for DBS Treasures members. Occupying two levels, it offers high-net-worth clients exclusive surroundings to store and indulge in their valuables. Gourmet coffee and sparkling water are served free of charge. And the washrooms are laid out with Molton Brown hand wash and lotions.

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  1. Like you, I’m also skeptical of ex Citibankers and the so-called FT leaders. However, it is too easy to say that DBS’s problems stem from having FTs as CEOs. David Connor who has been helming OCBCs since 2003, is also an ex Citibanker and American. Yet, he has managed to deliver better returns to OCBC’s shareholders than DBS’s. I think the biggest problem underlying DBS is that its biggest shareholder, doesn’t seem to care about long term value creation through bread and butter banking businesses and instead prefers instant gratification by overpaying for acquisitions but yet not knowing what to do with the acquired pieces. Both its competitors, UOB and OCBC are owned by families who ironically have been running their banks much better than “professionally run” DBS. The track record of DBS in its acquisitions is tragic, and almost hilarious (if not for the fact that I’m a Singaporean) – overpaying for Dao Heng, wasting the POSB franchise, the disastrous Thai Danu Bank deal, expensive build out of Choya, paying for slow growth BPI etc. Another irony is that for the deals that DBS passed up on, they would have been a home run for DBS has they taken place (e.g. Bank Mandiri and Danamon in 2003/2004).

    Now, the question is if DBS is worth more today in its entirety or sum of the parts. What if DBS is taken apart and sold? Say, DBS can first declare a special dividend and return a big sum to shareholders, running down its excess capital? Then sell Dao Heng at >2x P/B to a Chinese bank. Next POSB can be sold to one of the foreign banks (HSBC, Stanchart, ANZ?) and then DBS to a local bank. Do we really need 3 local banks when there are so many foreign banks in Singapore? If DBS can’t generate the ROEs that its competitors can, maybe it’s time to think out of the box. After all, it’s almost 10 yrs since they bought Dao Heng Bank and shareholders are still waiting to see the returns on the 3x P/B deal.

    • OCBC’s CEO operates in an environment where the local executives still run the show. In DBS, FTs control the daily operations of many biznesses and are accountable to no-one. The FT that approved HN5 Notes is still pontificating. Anywhere else he would take the rap, rightly or wrongly. Here the impression is given that a “countryman” is taken care of.

      LKY is pretty touchy when it comes to hereditary succession. He needn’t be. UOB has three hereditary bankers at the helm in a row. And it goes from strength to strength.

      Moral of story Citibankers are gd when alone at top or in lesser positions. But never get them together. Look at DBS and Citi.

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