for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up

Piyush Gupta might be banking’s boldest boss

MUMBAI (Reuters Breakingviews) - Buying bits of a bank is complex at the best of times. When it involves one of the planet’s most highly charged territorial disputes, it takes a truly daring chief executive to take the plunge. Piyush Gupta of $65 billion Singaporean lender DBS Group appears to be that CEO, whether he thinks of himself that way or not.

DBS Chief Executive Officer Piyush Gupta listens during their fourth quarter earnings announcement in Singapore February 22, 2016. DBS Group Holdings, Singapore's biggest lender, posted a 20 percent rise in quarterly profit that beat expectations, as its net interest margin rose to a five-year high. REUTERS/Edgar Su

The 62-year-old former Citigroup banker has led what’s now Singapore’s largest bank by assets since 2009. During that time, DBS’ total return to shareholders is more than 340%, around seven times the level of UBS and 11 times that of HSBC. In part DBS’ growth reflects Singapore’s own growing popularity as an easy place to live, work and invest, in contrast with an increasingly troubled Hong Kong.

Gupta may be paid a lot less than his Western peers - Jamie Dimon, who has run the $400 billion JPMorgan for just a few years longer, gets roughly triple the DBS boss’ annual $10 million. Yet the two banks trade on a similar multiple of 1.5 times their estimated 2022 book value, according to Refinitiv. Gupta’s 16% return on equity in the third quarter beat Dimon’s 15%.

It’s not just pay practices that are widely different. There is limited room for growth in DBS’ tiny home market, a city with a population of 5.5 million people. Gupta is addressing that by making acquisitions. DBS has swooped when Western rivals like Societe Generale and ANZ have retreated, or when banks fall into distress. Gupta’s recent buys include a 13% stake in China’s Shenzhen Rural Commercial Bank and a rescue of India’s Lakshmi Vilas Bank.

DBS’ purchase of Citi’s consumer arm in Taiwan, announced in January, fits the pattern. The U.S. bank run by Jane Fraser has been pulling back in some of its foreign markets to focus on cleaning up messes at home, including regulatory fines and embarrassing trading mistakes. Gupta is spending about $1.6 billion, including paying a $700 million premium, to expand its existing decades-old operation and make DBS the largest foreign bank by assets in Taiwan.

Taiwan has been a geopolitical hotspot for decades. But since DBS inked its deal, the self-ruled island that China claims as its own territory has only got hotter. Russia’s invasion of Ukraine, and Chinese President Xi Jinping’s securing of an unprecedented third term in power, have changed expectations of how quickly China might pursue its goal of reunification with the island. President Joe Biden has said the United States would be willing to use force to defend the island, though on Monday, after meeting Xi in person while at the G20 summit in Indonesia, added that he did not think China was planning any imminent assault. Xi’s statement included a pointed warning that Taiwan was “the first red line that must not be crossed”.

Gupta’s response is pragmatic – brutally so. He has consistently said that the bank spent a lot of time thinking through the geopolitical risk. And in a war, he pointed out earlier this month, the fate of its newly acquired consumer bank would be the least of DBS’ worries. He has a point, and it makes the deal look more logical than contrarian: as an Asia-centred financial institution, DBS has much greater exposure than its Western rivals to conflict in the region even without Citi’s cast-offs. Hong Kong and the rest of Greater China generated 24% of the bank’s net profit in 2021.

Gupta may quietly be hoping that his franchise would retain some value even in a conflict. Singapore has so far pursued a balancing act to stay on good terms with both China and the United States, the planet’s two largest economies. The Lion City backs Washington’s financial sanctions against Russia, while the city-state’s banks attract rich Chinese customers looking to diversify their risk away from their own country. By virtue of its nationality, DBS might have a slightly better chance of being able to appear neutral than U.S.-based Citi.

For now, the potential upside gives Gupta a reason to downplay the negatives. Taiwan is rich, boasting 870,000 millionaires, over 4% of the adult population, thanks to its vibrant technology industry. Citi’s 2.7 million Taiwan-based credit card customers are more affluent than DBS’ own and spend about 20% more, and the average balance held by Citi’s private-banking clients, at $2.5 million, is almost twice DBS’ average, Gupta says. DBS is buying a business that was earning a 21% return on equity before Covid-19.

Besides, sitting still isn’t an option. American banks are seeking growth too, bolstered by huge balance sheets and windfall profits from the pandemic. Fraser and her peers have been renewing efforts to open doors in China, some recently visiting Hong Kong. Citi and Goldman Sachs are among those looking to build up their transaction and trade finance businesses, which will include targeting profitable corporate relationships in DBS’ back yard.

That, plus the pressure to maintain that 1.5-times-book market value, means Gupta needs to keep finding ways to grow. Doing so means combining an opportunistic eye and political smarts with nerves of steel. The DBS chief’s Taiwanese expansion may make him appear more daring than his peers, but as an Asia-centred bank boss with big ambitions, he also has less choice.

Follow @ugalani on Twitter

CONTEXT NEWS

Singapore’s DBS Group said on Nov. 3 that it expects its acquisition of Citigroup’s consumer business in Taiwan to close in August.

“We spent a lot of time thinking through the geopolitics when we decided on the deal. Our strategy takes a healthy view on North Asia. If geopolitical tensions come to a stage where there is war, Taiwan is the least of our issues”, Chief Executive Piyush Gupta said in a post-earnings media briefing.

In January, DBS agreed to pay the U.S. bank cash for the net assets plus a premium of S$956 million, about $700 million. After factoring in a subsequent capital injection to grow the business and integration costs, its total outlay will rise to S$2.1 billion, about $1.6 billion.

U.S. President Joe Biden and Chinese President Xi Jinping held talks on Nov. 14 while at the G20 summit in Indonesia. Xi called Taiwan the “first red line” that must not be crossed in U.S.-China relations, Chinese state media reported after the meeting. Beijing has long said it would bring the self-governed island under its control.

Biden said he sought to assure Xi that U.S. policy on Taiwan, which has for decades been to support both Beijing’s ‘One China’ stance and Taiwan’s military, had not changed. “I do not think there’s any imminent attempt on the part of China to invade Taiwan,” Biden told reporters.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

for-phone-onlyfor-tablet-portrait-upfor-tablet-landscape-upfor-desktop-upfor-wide-desktop-up