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Munshi Ahmed for Asiaweek.
"I do have a time horizon" for retirement, says Olds.

A Patient Acquirer
DBS wants to expand — but not at any price

The task for John Olds when he took over as CEO at DBS Bank a little more than two years ago was to turn Singapore's premier financial institution into a world-class franchise. The benchmark: an annual return on equity of 20%, which would put it in line with the Asian operations of HSBC and Citibank. Last year, DBS earned less than 10% ROE. But Olds, 56, seems to be making headway. One of the best-capitalized institutions in the world, DBS is forecast to achieve an ROE of 14% this year and 16% in 2001. The 20%-standard is in sight for 2003. American Olds, formerly a top executive with J.P. Morgan, spoke with Asiaweek's Assif Shameen.

DBS lost to Standard Chartered Bank in the bidding for Chase Manhattan's Hong Kong retail banking assets.

We are already in Hong Kong with DBS Kwong On Bank. But we need a bigger presence and will get it over time. We prefer to negotiate rather than get into a bidding contest, especially when the franchise is so heavily dependent on the people who are running it. Our bid [for Chase's retail operations] included a stipulation that people would have to stay for a minimum of two years to ensure a smooth transition. Hong Kong is clearly becoming more competitive and seeing a decline in [interest-rate] spreads. The price Stanchart paid was higher than what we thought was sensible for us. For Stanchart, which is a leader in credit cards there, arguably the business was worth more. But there is no disappointment at DBS. If we had lost by [$29 million] it would be one thing, but losing by [$232 million] doesn't bother us because the franchise wasn't worth that much for us.

So is your regionalization plan intact?

Very much so. Over the next decade, there will be significant changes in [Asian] markets, so we are not falling over ourselves to do something today. Why don't we give [Hong Kong] a wide berth and move on? Because we think it is important to enhance our franchise there. Malaysia is going through a series of administrative mergers because authorities realize that competitiveness is a function of size. When [Malaysia] reopens, we will be there. We have been approached by people [who are looking for us to take a] minority interest in a company where we believe we would need a majority stake to introduce best practices. Sometimes, there have been majority interests available at prices we believe are unrealistic. Sometimes, in discussions with current management or shareholders we have failed to find common interests. I cannot stress too much that these are early days.

You've said that DBS had made three bad investment decisions.
Basically, Bank of Southeast Asia in the Philippines, Thai Danu in Thailand, which was badly executed, and our investment [in joint venture Buana Bank] in Indonesia. [All three were acquired before Olds became CEO.] It took two years to clean Bank of Southeast Asia. Ultimately, I think we'll sell our interest in that bank. Thai Danu required an immense amount of management time because we acquired it at the depth of the Crisis.

How long will it take for DBS to become a world-class bank?

You will see the first manifestations of it in two to three years. How long does it take to get to world class and stay there? Forever. You never stop. It would be wrong to surmise that you can go out, hire the best people, achieve world class standards within three years, and then try to sustain that after they leave. The further you are away from the major market centers like New York or London, the harder it is to sustain world-class competitiveness.

Unlike some of your rivals, you have ruled out forming a stand-alone Internet bank.

There is no way of defining an Internet strategy looking out five years. So you define it for the next year or two. First, we want to have a platform that is scalable. As we move to overseas markets, we want to be able to put our platform underneath our acquisitions so we can effectively control operations, proliferate products and services, and give customers a sense that they'll have the same service level and products in each market. Second, we want to achieve efficiencies by centralizing processing. Banks have never been great at capturing scale advantages, but processing is one area where they can. Third, we believe wireless application protocols will be a key to expanding business electronically. But we don't want to shift all our resources toward marketing what's on the screen and impoverish everything behind it.

Will DBS consider selling out to someone like HSBC or Stanchart?
If some giant wants to come and gobble us up and is willing to pay a big premium, the board will have to consider whether that is a better fate than trying to build a franchise on our own. Ultimately, the return we give to our shareholders is more important. We want to be part of something that is world class. I wouldn't rule out being part of a global franchise. But I'd rather try to first determine our own fate.

There are rumors you may be leaving DBS.

I do have a time horizon (laughs). We have been trying to strengthen the management team and provide for an orderly succession. It's an issue that the board and the CEO talk about, as they do in other organizations. At the appropriate moment, we'll make a decision when it is time for me to retire.

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