The Stanchart rumour
THIS MONTH, THE chief executive of Singapore’s DBS Bank, Jackson Tai, will step down. With his departure to the US, Asia loses a strident advocate of the idea that a powerful pan-Asian institution can be built without the irksome distractions of a London or New York head office, or indeed more than a handful of westerners on the board or in management.
Tai is well known for his vision that DBS should be a pan-Asian bank, headquartered in Asia, run by Asians, for Asians. And he spent years working on it, starting as CFO when he joined from JPMorgan in 1999, and then, from 2002, as CEO. But has he managed to fulfil his goal?
DBS, the largest bank in southeast Asia by assets, is also the most regionally diverse locally headquartered institution. It is in 12 Asian markets; owns a significant business in Hong Kong; has a subsidiary in Indonesia; holds stakes in institutions in Thailand, India, Malaysia and the Philippines; and is locally incorporated in China. In the first nine months of 2007, 36% of revenues came from outside Singapore, and if the China business takes off from the platform of its new local licence, that figure will get much closer to the 50% that Tai and other DBS top brass have often targeted.
But that’s not quite the same as being a pan-Asian bank – not on the scale Tai envisaged, anyway. "DBS is seen as just a Singapore and Hong Kong play, and not the serious regional play I think they were hoping for," says Peter Sartori, a fund manager at Treasury Asia Asset Manager who used to hold the stock but sold out. Tai himself acknowledges the sense of a job uncompleted. "I think we have achieved an awful lot," he says of the regional expansion. "We also know we can do a lot more."
Ask any fund manager or analyst about Tai’s tenure at DBS, and almost instantly the subject of its 2001 purchase of Hong Kong’s Dao Heng Bank comes up – along with the price. At just over three times book value, it seemed a big price tag at the time and looks bigger still in hindsight, coming in the brief period of euphoria between the Asian financial crisis of 1997/98 and the tech stock crash of 2000/01. "Jack Tai will always be remembered for paying way over for Dao Heng: not a good legacy," one fund manager says. (In fact the deal went through when Tai’s predecessor, Philippe Paillart, was CEO, but Tai – who at the time of its announcement held the title of president – is widely credited with driving it.)
Still, that cost has long since been absorbed; although most market observers feel that DBS overpaid, none would deny that the deal transformed the bank. "Back in 1999, we were highly dependent on Singapore for growth," says Tai. "We needed to balance out and diversify our platform; we needed to build that diversity in our DNA." Dao Heng, now called DBS Hong Kong, has given the bank a strong position in serving small to medium-sized enterprises, a key driver of Tai’s philosophy: among other things it ranks second in Hong Kong for trade finance and is the leader in factoring – vital SME services. It also delivered a strong consumer banking franchise that has proven particularly effective in the marketing of structured investment products, an acknowledged DBS strength. But it’s this diversity, "the importance of being able to navigate markets across Asia for the benefit of our clients," that Tai comes back to as the transformational element.
Vital franchise
And it might be about to pay off in a different direction – China. Very few foreign banks have been granted licences for local incorporation so far, and it is likely that the Dao Heng franchise was vital to getting that licence. "I think it certainly helped," Tai says. "If you are evaluating the application back in Beijing I’m sure you would take comfort in DBS having a very strong, credible operation in Hong Kong." If that operation can translate its SME business to the mainland, it might yet turn out to have been a smarter buy than anyone thought.
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"I think we have achieved an awful lot. We also know we can do a lot more"
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The bank has struggled in some of its other regional adventures. Its involvement in Thailand pre-dates Tai. DBS bought a majority stake in Thai Danu Bank in 1998, after the financial crisis, and Tai still speaks with some wonder about the woeful state of the asset they ended up with; its loan book was so bad that DBS reported 13% non-performing loans at a group level in its 2000 accounts. DBS cleaned it up, but realized that the bank was too small, so merged it in 2004 with Thai Military Bank and Industrial Finance Corporation of Thailand. This made for a bigger bank but a smaller stake, just 16%; DBS wrongly believed it was going to be able to build from this into a position of control. When DBS found that it could not, it declined to take part in a recapitalization, and is expected to pull out altogether in time; Tai himself says: "We’ll have to see."
The bank’s involvement in Indonesia has also faced problems. DBS operates in 14 locations in eight Indonesian cities (it hopes for 20 in 11 by the end of the year) and boasts strong growth in wealth management in particular. But it faced the embarrassment this year of losing a licence it had only recently been awarded as a primary dealer – for failing to live up to a promise to the regulator to participate in government bond auctions. "We regret it," Tai says. "We disappointed the authorities who gave us that licence and I must say we disappointed ourselves. You seek a licence, you’d better go out and fulfil the obligations that come with that licence."