The Banking and Strategy Initiative

Chillin' out till it needs to be funded

ING gets to make a profit, Buyer Beware?

The Discussion on Citi, BofA results, GS bonuses and JPM’s growth is scheduled on the same Diwali weekend as well..

The ING Sale: Will OCBC grow into a larger Pan Asian role?

ING has sold the Asian private banking business to OCBC, which was having difficulty in growing in Asia but has made rapid strides in expanding in KL and can now focus again on Singapore. The $1.46 billion price ( Sing $ 2 billion) for assets that are not growing is based on the assumed scalability of the asset base of $15-16 billion. The unit was costed for $1 billion for the bank in its balance sheet. The N11 will thus provide a second chance to OCBC to grow.

OCBC has a healthy 60-40 split of interest and non interest income from its current assets ( economic assets or people assets in the case of fee based income) and as expected Q2 income went down with decrease in advisory and other fee based income to S$ 466mn or USD 335 million ( EUR 221 m). Also, interestingly OCBC currently has one of the most healthy cost-income ratios of 34% which can equip it with the necessary depth in absorbing any new costs and continue during the lean times where larger competition from US/Europe/India apart from JPM and GS is unlikely to withstand the current cost of business.

However its Private Banking acquisition may well add to its woes in the region as it has failed to grow beyond Malaysia and Singapore and PB assets may be offshore banking assets domiciled in these other ASEAN countries and even India. OCBC currently earns only 20% of its bank profits or $77 million from Consumer Financial Services where it has been hiding its Private Banking assets presumably. Even in that, as much as $ 10 million is from Islamic Banking in Malaysia (Bank Negara) The transaction adds just about $20 million to OCBC profits and margins may reduce further. However, it looks as if these assets would be lazy and no flight of assets to other competition in the region will ensue whether SocGen or Deutsche Bank

At this stage let me also reiterate that it is important to know that the final price is closer to the author’s estimation for this deal as well as the UBS captive sale, the Satyam sale , the AIG Investments sale, except for the Nan Shan Insurance unit for Life Insurance, Valuation premium is no longer for the selling brand ( Citi BPO assets for over $505 million just a year back) but for real business and real value delivered to the acquirer..The bear phase as always is a euphemism for the opportunity to deliver justice to buyers of economic value over noise)

Fortunately, Julius Baer is happy with its progress in Swiss assets from the acquisition as the Swiss pie is a little more localised and protected by Swiss banking law and does not expose the niche bank to new ( see ING sells Private Banking assets) Julius Baer has paid a half a billion dollars for the Swiss Assets


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