Singapore Banks - Maybank Kim Eng 2016-03-24: Not Without Risks

Singapore Banks DBS GROUP HOLDINGS LTD D05.SI OVERSEA-CHINESE BANKING CORP O39.SI UNITED OVERSEAS BANK LTD U11.SI

Singapore Banks - Not Without Risks

Barclays’ sale of its Singapore and Hong Kong private-wealth business has reportedly attracted the interest of all three Singapore banks, with DBS said to be leading the race.
Barclays managed USD36b of private-banking assets in Asia Pacific as at end-2014, of which sources said USD20b managed by its SG+HK wealth units, and have a purchase consideration of USD300m.

At price/AUM of 1.5%, we think this is reasonable based on past private banking transactions.
The sale of this business is part of its cost-cutting efforts and operational realignment.
We see an opportunity for Singapore banks to increase their share of the Asian wealth management (WM) industry and bolster earnings.
Still, we remain NEGATIVE on the sector with de-rating catalysts expected from slowing topline growth and rising NPLs.
For sector exposure, recommend UOB (UOB SP, HOLD, TP SGD16.96).

WM is increasingly important for Singapore banks. As at 2015, DBS’ WM income contributed 13% to its total income and OCBC’s, 27%. DBS and OCBC previously made acquisitions to expand in this space: OCBC acquired ING’s Asia Private Bank in 2009 for USD1.5b (price/AUM of 5.8%) while DBS bought Societe Generale’s Asian private-banking business in 2014 for USD220m (price/AUM of 1.75%).
Tapping growing wealth in Asia is meant to counteract slowing loan growth and revenue headwinds.

If one of the Singapore banks succeeds in bidding, we estimate 1-1.4% accretion for its 2016 net profits.
From our back-of-the-envelope assessment since data is lacking for Barclays’ Asian wealth unit, we estimate that fully-loaded CET1 for the purchasing bank could dwindle by 33-45bps.
With fully-loaded CET1 ratios at 11-12%, the banks could be operating close to their comfort level, leaving little room for growth.

We have not changed our view on the sector, still believing that topline growth for Singapore banks will slow while NPLs could potentially arise from the O&G support services segment and China’s onshore exposure.
Private banking transactions are not without risks as governments are now combating tax evasion and money laundering activities.
We remain negative on the sector with UOB as our preferred pick.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-03-24

Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 12.68 Same 12.68

SELL Maintain SELL 7.20 Same 7.20

HOLD Maintain HOLD 16.96 Same 16.96