THERE is no question that OCBC Bank has paid top dollar to kickstart its private bank business.
No matter how one slices and dices it, the US$1.46 billion or S$2 billion that OCBC will pay for ING Asia Private Bank (IAPB) is a substantial premium of 5.8 per cent over the assets under management (AUM).
Last week, under pressure to return money to the Dutch government, ING first sold its Swiss operations for 520 million Swiss francs (S$714 million) to Julius Baer, representing a smaller premium of 2.3 per cent of AUM. At an analyst and media conference yesterday, an elated David Conner, OCBC's chief executive, said that he was 'not embarrassed' by the 'healthy price' the bank paid. He defended the transaction as a transformational one for OCBC, putting it on par with local rival DBS's private bank.
The purchase more than triples OCBC's private client assets to US$22.5 billion or about S$31 billion, which is on a level with DBS's S$30 billion AUM. It also boosts the number of relationship managers to 200 from 50.
It was a 'rare' transaction, he said. While there are private banks put up for sale in the West, this is clearly not the case in Asia.
He also said that ING's Swiss operations were more mass affluent, with a piece of private banking, and so did not merit a higher premium.
Critically, Asian private bank clients are more lucrative than European ones because they trade actively, he said.
But OCBC's cost does not stop at S$2 billion. It has to pay expensive retention contracts - probably lasting three years - to IAPB senior managers led by chief executive Renato De Guzman. Mr Conner declined to divulge details of the retention contracts.
The issue is not that OCBC overpaid - it has to, given that there were some eight bidders. It's about how well the bank is able to retain and grow the assets. And it's about getting clients to transact again, and their reluctance to do so post-financial crisis is a challenge facing the industry.
Tricky too for OCBC is whether Mr Guzman can persuade his clients to stick with OCBC. After all, they could have signed up with ING simply because it is a European bank.
Which was why Mr Conner assured everybody that he would not change a thing at IAPB and would take time to ponder over a re-branding of the business.
Sure, the financial crisis has benefited the rock-solid Singapore banks in that clients have diversified some of their assets to the local players. But as DBS private bank head Kwong Kin Mun noticed, private bank money is extremely mobile.
'We noticed a trend of clients diversifying out of American and European banks to Asian banks,' Mr Kwong told BT last month.
'We noticed new funds coming from other banks at the beginning of 2008 and reaching a peak in the last quarter of the year.'
There has since been a leakage because of government guarantees on bank deposits and clients shopping for higher interest rates, he said.
International banks have managed to dominate Asia's private banking market so far because of sophisticated offerings or riskier products with the potential of making more money.
As Mr Conner alluded to in what might be called his 'secret weapon' - mentioned twice yesterday - IAPB's valuation system gives mark-to-market, hour-by-hour valuation of the clients' position.
This, presumably, could be important for clients. Recently, for example, a dispute between Citi's private bank and well-known tycoon Oei Hong Leong - in the end settled amicably - revolved in part over information about trading exposure.
While Mr Conner was clearly enjoying himself, minority shareholders of OCBC were not in a celebratory mood. OCBC ended eights cents down yesterday on heavy volume of 8.7 million shares against a daily six-month average of 5.3 million. Both DBS and United Overseas Bank rose 16 cents each to close at $13.34 and $17.14 respectively.
Perhaps OCBC shareholders were doing their own math.