By Kevin Lim and Saeed Azhar
SINGAPORE, April 2 (Reuters) – After two years of hard work
to improve Singapore’s largest bank and lift its underperforming
Hong Kong unit, DBS Group chief executive Piyush Gupta
is embarking on his biggest challenge yet – a $7.24 billion
takeover of Indonesia’s Bank Danamon.
Gupta, 52, a graduate of the prestigious Indian Institute of
Management, joined DBS in November 2009 from Citigroup
where he was last head of Southeast Asia and Australasia.
“You look at the results in the last two years and look at
all the operational metrics – you’ve seen an incredible story
there,” Dilhan Pillay Sandrasegara, head of portfolio management
at Singapore state investor Temasek Holdings, told
Reuters in a recent interview. “It augurs well for DBS.”
Now a Singapore citizen, Gupta has spent a large part of his
career in India and Southeast Asia, areas where DBS is keen to
grow. Those who know him say he is meticulous and hardworking
but some question his abilities as a visionary leader.
His achievements at DBS include strong growth in private and
premium banking, a higher market share in loans and a foothold
in the fast-growing area of yuan-denominated offshore bond
issuance and deposits by tapping into the bank’s relatively
large presence in Hong Kong.
DBS had record net profit of more than S$3 billion ($2.39
billion) last year and ranked top this year in customer
satisfaction among the city-state’s financial institutions in a
survey by Singapore Management University.
Before Gupta’s arrival, DBS was often criticised for poor
service, high workforce turnover and hiring outsiders, many of
them foreigners, to replace long-serving local staff. A joke at
the time was that DBS stood for “Don’t be Singaporean”.
DBS has agreed to pay about $4.93 billion in shares and the
rest in cash for Danamon – a 52 percent premium that surprised
some investors.
Temasek, which will sell its controlling stake in Danamon to
DBS, now owns 29 percent of the Singapore bank and that would
rise to about 40 percent with the deal in Indonesia.
The takeover poses many challenges for DBS but the biggest
will be convincing investors it is not overpaying as it did when
it bought Hong Kong’s Dao Heng Bank more than a decade ago.
Gupta, a keen golfer, also must show he is equally adept at
taking over and integrating a new operation as he is at
improving existing businesses.
DBS is also looking to expand in Malaysia, saying on Monday
it got approval to start talks to buy an effective 14 percent
stake in Alliance Financial Group – again from Temasek
– worth about $270 million.
“TURNAROUND”
“We think DBS’s turnaround is under way and has started
generating significant alpha,” JPMorgan analyst Harsh Wardhan
Modi said in a recent note, referring to a risk-adjusted measure
of investment return.
The risk, he said, came from mergers and acquisitions that
erode value.
Gupta was one of Citigroup’s earliest recruits in Asia under
the U.S. bank’s management associate programme and he benefited
from its policy of moving people across businesses.
People who have worked with him say he has a good grasp of
detail that reflects his experience in consumer and corporate
banking. He is tough on senior managers but charming with
customers and junior employees.
In Southeast Asia, he built up Citigroup’s branch network in
Malaysia and helped Indonesia to restructure its debts after the
Asian financial crisis of 1997-98.
In 2000, at the height of the dotcom bubble, he left
Citigroup to head an Internet portal called go4i.com. It folded
despite backing from the private equity arm of Chase Manhattan
Bank and one of India’s top media firms.
Two former colleagues, who declined to be identified, said
while Gupta was highly rated as an operations man at Citigroup,
he was not seen as someone who could lead the breaking of new
ground.
Teguh Hartanto, a senior banking analyst at PT Bahana
Securities in Jakarta, said DBS faces several hurdles in
ensuring Danamon will be a reliable contributor to profits.
“The challenge for Danamon is harder over the coming years
as their cost of funding is expensive compared to other banks,”
Hartanto said. “Perhaps Temasek thinks it’s time to let DBS take
over Danamon to lower its risk.”
