HONG KONG/SINGAPORE Banking group OCBC (OCBC.SI) clinched a deal to buy Dutch-based ING Group NV's (ING.AS) private banking unit in Asia for $1.5 billion in a deal which would elevate it to Singapore's second-ranked bank by assets.
In the biggest deal in the private banking industry since the financial crisis, OCBC beat HSBC Holdings Plc (HSBA.L) (0005.HK) with a bid worth 5.8 percent of the target's assets, or more than double what Julius Baer Group AG BAER1.VX paid for ING's Swiss banking assets earlier this month.
"Pricing appears full given it's from a distressed seller and the recent earnings stream looks highly leveraged and volatile," said Matthew Wilson, a banking analyst at Morgan Stanley, which has an "underweight" rating on OCBC.
A number of private banking assets have come up for sale as banks restructure following state bailouts and industry consolidation is picking up pace.
OCBC will more than triple its private banking assets to $23 billion with the deal, moving from being Singapore's third-biggest bank to second by assets after DBS (DBSM.SI), which earlier dropped out of the race to buy the ING assets.
CEO David Conner said the bank will now look to expand its private bank operations beyond Asia and is considering a Middle Eastern and European marketing team to attract new clients.
He said the dynamics of the Asian business, recovering from the crisis but in a region seen as having many untapped millionaires, was different to a more mature European market.
"We are not embarrassed in any way or surprised by the fact that we paid what we think is a healthy price for the franchise," Conner said. "This is a rare opportunity to acquire an Asian private bank franchise."
Merrill Lynch/Capgemini see 8.8 percent growth a year until 2018 in the wealth of Asia's high-net worth individuals.
ING's sale of its Asian private bank, with about $16 billion in assets, is its third major disposal in less than a month and the second in the Asia-Pacific region, as it seeks to restructure following a government bailout in October 2008.
Analysts said the price was good for ING but it was unfortunate it was selling assets in the present market.
"ING continues to sell future profitability and presence in important growth markets," SNS Securities said in a research note.
OCBC shares erased early gains to close 1 percent down at S$7.60, while ING rose 1.6 percent to 12.68 euros at 1025 GMT, after reaching their highest level in almost a year.
OCBC said the deal would cut its Tier 1 capital by 1.5 percentage points to 13.9 percent. Conner said the bank had no need to raise more capital and Standard & Poor's Ratings Services said its OCBC ratings were unaffected by the deal.
Citigroup analyst Robert Kong said OCBC's Tier 1 capital exceeded 12.5 percent, still giving it ample ammunition to seek M&A opportunities.
OCBC's private bank, which lost a third of its bankers to foreign rivals in 2006, is run by French national Olivier Denis, but the integrated private bank will be run by the head of the ING arm, Renato de Guzman.
Conner said OCBC had come to a retention agreement with senior ING staff.
ING is in the process of raising 6 billion euros to 8 billion through asset sales under a restructuring programme announced in April and plans to ultimately exit 10 of the 48 countries where it does business.
The restructuring follows 10 billion euros in state aid ING received in October 2008 and a 22 billion euro asset guarantee it received from the Dutch state in January 2009.
($1=1.389 Singapore Dollar)