Where Peregrine left off?
With total assets of S$2.2 billion ($1.26 billion), the newly merged DBS Vickers Securities is a giant in the Singapore market. FinanceAsia spoke to its chairman, Greg Seow; group CEO, Raymond Lim and; head of stockbroking, Edmund Lee about its regional ambitions
Q: How long has this deal been in the making?
Greg Seow: The initial discussions began towards the end of last year and most of the negotiations took place over December and January.
Q: What is the rationale behind the deal?
Seow: It is to create a pan-Asian securities brokerage firm. On the one hand you have Vickers’ established franchise in this part of the world – which is significant in Hong Kong as well as Thailand. And obviously in Singapore. This cements our market dominance in this part of the world, and provides the ability for us to combine that franchise with DBS’s financial resources, and huge customer base. Yodu put that together and it is a winning combination. We can help our institutional investors by linking origination through our capital markets activities.
Q: So is this part of DBS’s ambition to be a serious player in investment banking?
Seow: We are already a serious player in investment banking, but we want to enhance and build on that.
Q: I guess I mean on a regional basis. In Singapore you are a major player, but in Asia as a whole your investment banking operation is not as strong as Goldman Sachs’, for example.
Seow: Absolutely. We are a pan-Asian company, with pan-Asian aspirations and we want to ensure our investment banking reach is strong throughout the region. We are actively gearing up equity and debt capital markets in Singapore, actively gearing up in M&A, and the addition of the very strong corporate finance team from Vickers will help us achieve our goal.
Q: Do you not worry that investment banking in Asia is quite a saturated business?
Seow: Obviously there are niches in any market place. Our approach would be to focus on Asia because we are based in Asia, and we know Asia very well and look after our Asian investor base.
Edmund Lee: I don’t really think that investment banking is saturated. If you look at the bloodbath in Asia in 1997 many banks have not recovered and I don’t think they will recover in the next couple of years. That’s a tremendous opportunity for DBS to fill the space created by the collapse of the banking systems in Indonesia, the Philippines etc.
Raymond Lim: If you look at clients, they will have global panels. They might have three American investment banks that cover Asia, two Europeans, but right now there is no real Asian player. DBS has aspirations to make that list. We are trying to provide the Asian alternative. If you are an investor you might not listen to everything the American investment bank says and check with your European bank, but it would be good if there was a new Asian bank you could talk to.
Q: So you’re differentiating quality will be being ‘Asian’?
Lee: Yes. Asian-based, Asian-skillset, Asian on-the-ground. Who knows better than people who live here, breathe the air? That is the real differentiating factor for this organization.
Q: It’s very interesting. That sounds just like what Peregrine used to say.
Lee: Peregrine tried, and failed. Hopefully this combination of ours will succeed. We have the financial clout, the people, the market is open for us to attack. There is no reason for us to fail. If we fail, it will be the management’s fault.
Seow: This deal demonstrates the commitment of Vickers and DBS to build that pan-Asian investment banking powerhouse.
Lim: The Peregrine business model was right. They did really well. Their corporate governance was not good. What we’re saying is that we’re taking that business model – which was successful – and applying corporate governance of the highest standards. So we’re not going to be let down by poor corporate governance.
Q: Plus you have a commercial banking balance sheet…
Seow: Absolutely.
Lee: The entity will be able to cover debt to equity and anything in between. That's the value proposition for corporate customers.
Q: What kind of return on equity are you expecting from the investment banking business?
Seow: At the bank-wide level, our CEO has said we would like to have an ROE of at least 15%. Specific businesses will have specific targets and in the case of investment banking it will be quite high.
Q: How does this deal fit with Singapore’s ambition to be Asia’s premier financial centre?
Seow: We want to build operations and businesses in Singapore that reach out beyond Singapore into the region. This is the first step to cement DBS Vickers position in Asia.
Q:In terms of the high profile mandates in Asia, for example from China, most of the big investment banks are centred in Hong Kong. Will being in Singapore put you at a competitive disadvantage?
Lee: Not at all. The capital markets in the region have collapsed ex-China, so we’ve found that Philippine, Malaysian and Indonesian companies want to list in Singapore. We’ve led a few deals and as to China, we are doing a deal for a pork company in China that has a profit of $100 million, and is probably the largest food company in China. So Chinese companies want to list in Singapore too.
Lim: DBS Vickers has a strong corporate finance team in Hong Kong doing B Shares.
Q: Will you be hiring in Hong Kong?
Seow: We will see where there are gaps and where we need to hire more people.
Q: Is M&A an area of interest?
Seow: M&A is a growth business for us and we are hiring people in Singapore.
Q: Is this deal being funded through the $500 million sub debt deal DBS is doing?
Seow: No, through internal funds.
Q: So DBS still has a lot of cash to spend?
Lim: DBS would like to optimize its capital.
Q: Everyone knows DBS has the ability to buy any bank in Asia.
Seow: We look at opportunities all the time, but we don’t comment on them. Obviously DBS wants to enhance its market position in the region.
Q: Did you get advice on this transaction?
Seow: Goldman advised DBS on this transaction, and OUB advised Vickers. Merrill Lynch was the independent financial adviser.