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DBS stock up on Bowa takeover

DBS Group Holdings Ltd (星展銀行集團), Southeast Asia's largest bank, rose in Singapore trading on plans to expand into Taiwan in its first major acquisition in seven years.

DBS rose S$0.28, or 1.6 percent, to S$17.98 (US$12.66) at the 5:05pm close, after gaining as much as 3.2 percent earlier yesterday. The bank based in Singapore is taking over Bowa Commercial Bank Co's (寶華銀行) assets in exchange for a NT$44.5 billion (US$1.4 billion) payment by Taiwan's state-owned Central Depository Insurance Corp (CDID).

DBS officially inked a contract with the CDID on Sunday afternoon to take over Bowa Bank.

"This adds to DBS' mainland China strategy to capture small, medium enterprise trade, investment flows and wealth management fees," Citigroup Inc analyst Robert Kong said in a report yesterday. "We would not expect DBS to enter the saturated mortgage and credit card space."

The acquisition expands DBS' presence in Taiwan, where it has only one branch in Taipei, and broaden its revenue-base beyond its two biggest markets, Hong Kong and Singapore. DBS will compete with about 40 local banks and more than 30 foreign financial services companies in Asia's fourth-largest banking market.

DBS said the purchase is its first "significant" acquisition since it bought Hong Kong's Dao Heng Bank Group (道亨銀行集團), in 2001. The company paid US$5.4 billion for Hong Kong's fourth-largest bank and has not acquired a 100 percent stake in any company since.

DBS paid three times book value to add Dao Heng's S$34 billion in assets to its S$113 billion, with some investors saying at the time it overpaid. The stock fell by a record 30 percent in 2001, the year DBS bought Dao Heng.

The Singapore bank's shares have risen 75 percent in the past five years, lagging behind its two local rivals. Overseas-Chinese Banking Corp more than doubled, while United Overseas Bank Ltd gained 82 percent.

With the latest acquisition, DBS said it would get NT$66.3 billion of loans, NT$92.3 billion of deposits, as well as 39 branches.

The government is encouraging mergers and acquisitions in the nation's financial industry by weeding out its weakest banks after consumer banks suffered losses in 2005 and 2006 from surging defaults on credit cards. The government took control of Bowa in August.

In bank auctions, the winning bidder receives money from the government to take over assets, including branches and at least half of the employees. The winning bidder in government auctions is the company that offers to take over the bank's assets for the least amount of money.
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