a Foreign Invasion
banks go slow on post-Crisis buyouts
By ASSIF SHAMEEN
"It's a good deal and I am happy that we've pulled it off," beams
Rana Talwar. Last week the Indian-born CEO of London-based Standard
Chartered Bank clinched a $1.32-billion deal to purchase Chase Manhattan's
Hong Kong retail operations. Just three months before, Stanchart bought
South Asia's biggest foreign banking venture, Grindlays, from Australia's
ANZ Bank for another $1.3 billion. "It gives us more satisfaction,"
Rana told Asiaweek, "that both in the Grindlays deal and Chase business,
other banks were eager to buy them and perhaps pay even more than
we've paid. Not only have we acquired these franchises, we have the
infrastructure and network that can truly add value to them over the
next few years."
The Chase purchase adds 700,000 Hong Kong credit-card clients to Stanchart's
1.2 million, giving it a share of over 25% in the lucrative market.
"As other foreign banks exit Asia, we have stepped in because as an
emerging-markets bank Stanchart understands the long-term potential
of these franchises." The recent deals are very much in line with
the strategy Rana articulated when he took over the bank nearly two
years ago. "We acquired Nakornthon Bank in Thailand," the banker recounts.
"We had an agreement to buy Bank Bali in Indonesia though we had to
walk away from that deal eventually because of an array of problems.
Now these two big franchises in Hong Kong and South and West Asia.
In the aftermath of the Crisis we've put together pieces in our puzzle
in 20 months or so that would have taken years to put together. We
said we would step in and do some bargain-hunting. Basically, we have
put our money where our mouth is."
Not many others have. "There have been too few deals in Asia," says
Raymond Lee, bank analyst for Salomon Smith Barney in Hong Kong. "Apart
from Stanchart, some Singapore banks like DBS, and HSBC's sole purchase
in Thailand, we have seen all the big cross-border deals. The main
reason is the price. The owners [of Asian banks] are just asking too
much." For his part, Stephen Long, head of Citibank's Asia Pacific
corporate banking group, based in Hong Kong, explains: "Buying banks
isn't just about price. There are issues like whether what you are
buying fits your existing business and overall strategy. We looked
at a lot of deals in Asia and there was nothing that fit our requirements.
Believe me, it wasn't for want of trying." Citigroup did buy 15% of
Taiwan's financial conglomerate, Fubon Group.
To many of the biggest multinational banks around the world, "Asian
banks don't hold the attraction that opportunities closer to home
do," says John Hobson, regional bank analyst at CS First Boston in
Hong Kong. "European banks are increasingly focused on cross-border
merger opportunities in Europe, and they don't want to be distracted
by buying a small bank somewhere in Asia. U.S. banks are looking to
expand their reach within the U.S. to serve customers coast to coast."
Indeed, some lenders like Bank of America and Chase have been winding
down or selling retail businesses in Asia. Adds Robert Rountree of
Prudential Bache Securities Asia, "Japanese banks have been reducing
exposure to Asia for years because of their own [domestic] problems."
That foreign banks will swamp Asia and buy up all distressed banks
in fire sales was all a false alarm. Some multinational institutions
that once spent a lot of time and resources building franchises in
Asia are starting to have a rethink. The Netherlands' ABN Amro bought
Bank of America's retail operations in India, Singapore and Taiwan,
expanded in Indonesia and acquired Bangkok-based Bank of Asia. It
also won a QFB (qualified foreign bank) license in Singapore to further
expand its branch network. Now analysts believe it is re-evaluating
its Asian strategy to focus on a few core markets rather than roll
out a pan-Asian network.
All that, concludes Hobson, "leaves the field to a handful of banks
that consider themselves global players like Citibank or HSBC." They
have the business model and global network to make the most from Asian
acquisitions. "The price is in the eye of the beholder," says Stanchart's
Rana. "People tell me we walked away with a few good deals because
we paid top dollar. We paid what we think the franchises are worth.
What is worth a lot to me because I can extract value by integrating
with my existing infrastructure isn't worth that much to a Singapore
bank that doesn't have the same economies of scale."
Given the emerging-markets thrust, Rana explains, "we are exiting
the U.K. consumer finance business because it is no longer central
to our strategy." Despite the Indian and Thai acquisitions, his gameplan
in Asia is to focus on three core markets: Hong Kong, Malaysia and
Singapore. "Hong Kong is Stanchart's largest single market," he explains.
"With the latest purchase we are now a very big player in Hong Kong.
In Singapore, we have a QFB license. In Malaysia we are not allowed
to open new branches. Clearly, if there were an opportunity, we would
like to expand our business and franchise in Malaysia and in Singapore."
The Bank Bali retreat notwithstanding, Stanchart is still interested
in Indonesia. "I don't expect us to make a big purchase within six
or even 12 months, but we will make a purchase there eventually,"
says Rana. "With its 210 million people and its huge natural resources,
Indonesia has the potential of being just the sort of emerging market
where we want to have a big presence." In the Philippines he aims
to "grow organically by opening a couple of branches a year." Despite
the fire-sale prices in Korea and Japan, Stanchart isn't biting, due
to the mammoth cost of building profitable retail operations there.
But the bank is targeting Taiwan. "The only missing piece in our Asian
puzzle," says Rana. "If and when foreign banks are allowed to buy
local banks, we'd probably be among the first. We are a very opportunistic
bank. If it is in the right geography at the right price, and fits
our existing business, you won't find us hesitating."
Long established in several Asian countries, Citibank wasn't buying
a bank just to break into new markets. "Unlike some of the other foreign
banks in the region, Citi has had a presence in key Asian markets
for nearly a century," says Long. "In many markets we are already
a leading player, maybe not as large as the biggest domestic bank,
but a substantial player in our own right. Even as some of our U.S.
and European competitors have been reducing exposure in Asia, Citibank
continues to grow its share substantially in most places. Our strategy
in Asia is to increasingly build relationships with small and medium-sized
companies." Also, its consumer banking strategy, focusing on a top-tier
clientele, has seen revenues climb sixfold since 1992.
A further damper on bank acquisitions, ATMs and Internet banking are
making many branches redundant. "Ten years ago we would have said
we need another dozen or so branches in Singapore," says Fritz Seegers
of Citibank's consumer banking for emerging Asian markets. "Now we
have four, and probably another couple would be more than enough."
One other impetus for acquisitions has retreated: the International
Monetary Fund. In many a Crisis-hit country, the IMF urged that some
distressed banks be sold to foreigners. Now, it often lets market
forces decide who buys what. As they should.
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