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The US treasury market reaches breaking point

The US treasury market reaches breaking point

The structural issue that could cause the world's market of last resort to grind to a halt

Abigail Hofman:

Abigail Hofman:

I wonder if ______ is an extremely optimistic person or in a cocoon of senior management denial

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February 2001

The failed deals


Thus far, two mergers in Singapore’s financial sector have failed to go through, and several cross-border ventures have gone awry. Find out why.




Thus far, two mergers in Singapore's Financial sector have failed to go through, and several cross-border ventures have gone awry. One merger hardly got past the rumour stage. Overseas Chinese Banking Corporation and Overseas Union Bank apparently explored a possible merger towards the end of 1999, calling off talks early in 2000.
The banks' CEOs, Alex Au and Peter Seah, both professional bankers (which means not family members), apparently could not agree on terms for either price or control.
Neither of the banks sees a good reason to merge, beyond cost-cutting and pleasing the government. "I think the rumoured deal did not eventually take place for several reasons," says Roger Lum, banks analyst at CSFB. "They share many of the same customers, so there would be little to gain in terms of new customers; then there is the question of who would run the bank, and who would suffer the bigger job losses, that is, the ego got in the way. OUB management also seem to conclude that the only real benefit would be a one-off cost-cutting. We would add that an additional significant benefit would have been a larger and stronger Malaysian franchise when both their networks are combined, assuming the Malaysian authorities wouldn't oppose it."
DBS has explored linking up with an Australian bank, and got into deep discussions with Westpac towards the end of last year before those talks were also called off.
Instead of mergers they are trying other routes. Keppel TatLee has a potential investment from Allied Irish Banks for up to 24.9%, in the form of a call option. OUB appears ready to announce that a foreign bank has taken a 25% stake in the bank (all the money is on BNP Paribas, which has admitted that it wants a stake in a Singapore bank). OUB has also entered into a joint venture with First-e to build an internet bank, and OCBC is doing the same with ANZ.
But after all the fanfare last year, the enthusiasm has died down considerably at both banks. Peter Seah, chief executive officer of OUB, says: "As a result of First-e's merger with Uno, and of the MAS regulation that you need to put up S$100 million in capital just to get an internet bank started, we decided it was best to wait on proceeding. The high burn rates and worrisome figures of internet banks globally are not particularly encouraging either. So we're rethinking what to do. We're still interested in a stand-alone internet bank, but we're prepared to wait and see."
There was also one high-profile merger failure last year. In July, a group of minority shareholders led by hotelier Ong Beng Seng surprised almost everyone, including themselves, by securing enough votes to scupper the deal between Singapore's two leading brokerage Firms. Vickers Ballas and GK Goh had agreed on terms earlier in the year, and were so confident of getting shareholder approval that they had even integrated most of the business lines to such an extent that the merged Firm was a practical reality. It would have created the largest brokerage house in the region, offering research and trading across Asia.
All it took was 25% of the votes to stop the merger, which has led to calls to review the rules on minority shareholder rights. The logic of the deal ought to have been enough to push it through. First, both Firms acknowledged that consolidation was necessary, both locally and regionally, as did all the shareholders. Second, the government was about to lift fixed commissions on equity trading, which would hit profits and underscore the need to merge. Third, it was the expressed wish of the government, through deputy prime minister and head of the central bank Lee Hsieng Loong, that consolidation at home should proceed sooner rather than later.
And fourth, Singapore Technologies had, just a couple of years before, bought a 40% stake in Vickers Ballas, and was a driving force behind the deal. ST Group is one of the government-linked companies and its interest in Vickers, say those involved in the deal, stemmed partly from its desire to become a General Electric of Asia. "But they bit off more than they could chew with Vickers," says a banker. "They didn't understand the business or the way it was run."
That partly explains the desire to fold it in with GK Goh. Few thought the deal would fall through, especially considering who the CEO is - Lee Ho Ching, the wife of the deputy prime minister.
The deputy prime minister, six months on from the debacle, has a sanguine response when asked whether the failure of the two to merge concerns him, or dents his hopes for consolidation. "It was a pity that it failed," he says. "The minority shareholders wanted a better deal and under the takeover rules they only needed 25% of the votes to block the deal. Since then we've opened up the equity market by eliminating fixed-cost stockbroking commissions, and margins have fallen drastically. So the need for consolidation has increased. But at this stage we're more anxious about banks not sorting things out than about individual brokers not merging."






Dear Sirs, In view of what seems to be happening internationally with banks at the moment, I was wondering if you could advise me. If one of my cheques is returned marked ‘insufficient funds,’ how do I know whether that refers to you or to me?

A letter by a customer to a bank seen by Euromoney. One can’t help feeling that the balance of power in the relationship has changed somewhat

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