OCBC - RHB Invest 2016-04-07: Wins Bid For Barclays’ Wealth Management Business

OCBC - RHB Invest 2016-04-07: Wins Bid For Barclays’ Wealth Management Business OVERSEA-CHINESE BANKING CORP OCBC O39.SI 

OCBC - Wins Bid For Barclays’ Wealth Management Business 

  • OCBC has clinched the bid to acquire Barclays’ wealth management business in Singapore and Hong Kong for USD320m cash. 
  • The purchase price represents 1.75% of AUM which is reasonable, in our view. 
  • Although near term earnings enhancement would likely be modest, we see the acquisition as a strategic move that would strengthen Bank of Singapore’s franchise in Singapore and Hong Kong – the two private banking hubs in Asia. 
  • We maintain our BUY rating and GGM-derived TP of SGD9.60 (10% upside). 

Wins bid. 

  • OCBC Bank’s wholly-owned Bank of Singapore has entered into an agreement to acquire the Wealth and Investment Management business of Barclays Bank PLC in Singapore and Hong Kong (Barclays WIM SG and HK). 
  • According to news reports, OCBC and DBS Group (DBS SP, BUY, TP SGD16.70) were both vying for the business. 

Valuing deal at 1.75% of AUM. 

  • 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. 
  • Based on Barclays WIM SG and HK’s AUM of USD18.3bn as at 31 Dec 2015, the indicative price is USD320m which is fair in our view. 
  • Recall that in 2014, DBS acquired Societe Generale Banking Asia's (SGPB Asia) private banking business in Singapore and Hong Kong at 1.75% of AUM; this is also lower than the 5.8% of AUM that OCBC paid for ING’s Asia private bank in 2009. 

Strengthening presence in core markets. 

  • 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). 

To lift growth in WM income from 2017. 

  • With little overlap in client relationships 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. 

Maintain BUY and SGD9.60 TP. 

  • 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. 
  • BUY rating and GGM-derived TP of SGD9.60 maintained. 



Singapore Research RHB Invest | http://www.rhbinvest.com.sg/ 2016-04-07
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.60 Same 9.60


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