IMPLICATIONS OF OCBC'S ACQUISITION OF BARCLAYS' WEALTH BUSINESS IN ASIA

Some analysts remain negative.

OCBC, through its private banking arm Bank of Singapore, has clinched the bid to acquire Barclays’ wealth management business in Singapore and Hong Kong for USD320m (S$430m) cash.

The purchase price is set at 1.75% of Barclays WIM SG and HK’s assets under management (AUM) that are transferred to Bank of Singapore upon completion of the transaction.

Here's what analysts had to say regarding the recent acquisition:

RHB

The proposed acquisition would increase Bank of Singapore’s AUM by 33.3% from USD55.0bn (31 Dec 2015) to USD73.3bn. Management sees the acquisition as a strategic move to deepen Bank of Singapore’s franchise in Singapore and Hong Kong, the two leading wealth management (WM) and private banking centres. As of the end-2015, DBS had AUM of SGD146bn (USD102.92bn).

With little overlap in clientrelationships between Bank of Singapore and Barclays WIM SG and HK, management expects the acquisition to be earnings accretive after the first year

and expects to complete the deal by end-2016. OCBC's consolidated WM income, including life insurance by Great Eastern Holdings (GE SP, Non-rated), asset management by Lion Global Investors and brokerage services by OCBC Securities, amounted to SGD2.35bn (up 6% YoY) in 2015 or 27% of group total income.

The proposed acquisition will be financed via internally generated funds and would have minimal impact on OCBC Bank’s capital position. OCBC’s fully loaded common equity tier-1 improved to 11.8% in Dec 2015 from 10.6% in Dec 2014.

Overall, we believe this acquisition would be positive for fee income growth over the longer term.

Ng Li Hiang, MayBank Kim Eng

We have previously estimated that if one of the Singapore banks succeeds in bidding for this acquisition (based on price/AUM of 1.5%), there will be a 1-1.4% accretion in profits and fully-loaded CET1 ratio will reduce by 33-45bps . Based on price/AUM of 1.75%, the acquisition will contribute ~1.1% to OCBC’s 2017 net profits. Fully-loaded CET1 ratio will reduce by ~44bps from 11.8% to 11.4%. Management has previously indicated that 11.4% is the level that they are comfortable at.

While this provides an opportunity for OCBC to broaden and complement its WM franchise especially in Singapore and Greater China, we do not change our view on the back of this acquisition. 

We continue to believe that topline growth will slow and NPLs could arise from the O&G support services segment.

Lim Sue Lin, analyst, DBS

We view this transaction as positive for OCBC as it will continue to raise the bank's wealth management income momentum. Since the acquisition of ING Private Bank Asia (renamed BoS), OCBC has successfully seen its wealth management income rise sequentially. This acquisition will further seal its wealth management business franchise. The acquisition is expected to be
accretive to OCBC Bank’s earnings per share and return on equity after the first year.

Yuxuan HE, analyst, KGI Fraser Securities

The acquisition of Barclays WIM business (with AUM of USD18.3bn) will increase Bank of Singapore’s total AUM by 33.3% to USD73.3bn, up from its previously reported AUM figure of USD55.0bn as at 31 December 2015. The acquisition will also see Bank of Singapore climb four positions higher to 7th spot in the 2015 AUM league table for private banks (Figure 5), ahead of the likes of Morgan Stanley Private Wealth Management (AUM of USD72.0bn), JP Morgan Private Bank (AUM of USD65.0bn) and BNP Paribas WM (AUM of USD64.5bn).

Barclays WIM’s strong coverage of ultra high net worth clients should improve the branding and prestige of Bank of Singapore, strengthening the bank’s ability to attract new clients in the region. With the banking sector’s loan growth expected to stay low and NIMs to remain flattish in the near term, we believe growing the wealth management business will be increasingly important for Singapore banks as they tap on the rapidly growing wealth management space in the region.

While we are positive on the bank’s strong banking franchise and its recent acquisition, we continue to remain cautious on the near-term challenges that the bank might face in its oil & gas loan portfolio if the current oversupply in oil persist well into the year.

Potential upside risks include more frequent interest rate hikes by the U.S. Federal Reserve, which could drive domestic interest rates higher and also better than expected economic data. Potential downside risks include no further rate hikes by the U.S. Federal Reserve and also worse than expected economic data.

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