(Adds analysts’ estimates in third paragraph.)
Feb. 8 (Bloomberg) -- Piyush Gupta, chief executive officer of DBS Group Holdings Ltd., Southeast Asia’s largest bank, picked banking over a passion for bird-watching three decades ago. Now his plans for regional expansion are taking flight.
Gupta, who joined the Singapore-based lender in 2009 after a 27-year career at Citigroup Inc., is positioning DBS to take advantage of rising wealth in Asia and to reduce reliance on its home market.
The shift in strategy has delivered profit of more than S$700 million ($560 million) in four of the last five quarters, a level last reached in mid-2004. Fourth-quarter results will be announced Feb. 10, with analysts predicting net income of S$704 million, the average of seven estimates compiled by Bloomberg.
“Over the past year and a half, you can see that DBS has become a much more dynamic organization,” said Yasmin Krishan, a client director who specializes in the financial industry at EMA Partners, a London-based executive search firm. “Before, they were regarded as a clumsy giant. You never thought of DBS as this exciting place.”
Gupta, 52, has focused on building DBS’s wealth-management business to reach rich Asians, particularly in China, India and Indonesia. He has hired new management, introduced products including Chinese yuan-denominated investments and pledged to spend S$250 million to expand over the next five years. He also set a 2013 target for the bank of 12 percent return on equity, which was 10.8 percent in the third quarter of last year.
The effort is paying off. Revenue in China for the first nine months of 2011 rose 47 percent from a year earlier, helped by the purchase of Royal Bank of Scotland Group Plc’s retail-and commercial-banking business in the country. It was up 35 percent in Indonesia, 34 percent in India and 18 percent in Taiwan. Fee revenue from wealth management jumped 58 percent.
Gupta also spent the last two years “putting the basics into place,” he told the Foreign Correspondents’ Association in Singapore in November. That meant standardizing management processes and strengthening technology and infrastructure. It included improving operations at its Hong Kong unit, the former Dao Heng Bank Group Ltd. acquired in 2001 for $5.4 billion.
“When I took a deep look at the business, it appeared to me that we had never put in place the plumbing or the architecture required to run a multinational company,” he said.
Before Gupta took over at DBS, managers didn’t know whether a branch or a customer was profitable, and they lacked uniform practices, Gupta said. He cited an example of an employee who, to prove a point, ran a credit application through the systems in Hong Kong and Singapore. It was approved in Hong Kong and declined in Singapore.
Gupta said he found striking differences from the procedures, customer focus and information systems at Citigroup, notwithstanding the New York-based bank’s $45 billion government bailout in 2008. Gupta, who grew up in New Delhi and earned a Master’s of Business Administration from the Indian Institute of Management in Ahmedabad, joined Citigroup in 1982, rising to head its Southeast Asia, Australia and New Zealand operations.
“There’s no question that a large part of what I learned at Citi is what we’re trying to implement at DBS,” Gupta said in an interview in November.
He set about cutting turnaround time for credit applications and new accounts, shortening wait times at the DBS call center and making branches and ATMs more efficient.
“He’s been a sharp executor,” said Sachin Nikhare, a Singapore-based banking analyst at IIFL Capital Pte.
Gupta said he wants DBS to be seen as a strong player in corporate banking in Asia, including in trade financing, cash management and treasury services.
“We want to move from being a loan house, and we were heavily a loan house, to being a diversified corporate bank,” Gupta said.
Gupta is seeking to lower Singapore’s contribution to the bank’s total revenue to 40 percent from 60 percent in five years by growing faster abroad than at home. Greater China and south and Southeast Asia would each account for 30 percent, DBS said. For the first nine months of 2011, revenue from Singapore was 62 percent of the total, unchanged from a year earlier.
At a media event in October, Gupta said the bank will continue to build the Singapore consumer franchise, which it inherited when it bought Singapore’s Post Office Savings Bank and its subsidiary Credit POSB Pte in 1998.
DBS was established in 1968 as a government-controlled development bank to spur Singapore’s industrialization three years after the country’s founding. Temasek Holdings Pte, the state-owned investment company, controls 27 percent of the bank. Peter Seah Lim Huat, chairman of DBS, is a member of Temasek’s advisory panel. Temasek Deputy Chairman Kwa Chong Seng sits on the board of DBS.
Gupta said DBS was a local commercial bank until the end of the 1990s, run mostly by people seconded from the government. DBS then departed from this by hiring CEOs with deal-making experience or investment-banking backgrounds, he said.
From the early 2000s, DBS was run “almost more as an investment bank than a commercial bank,” said Matthew Smith, an analyst at Macquarie Capital Securities Singapore Pte.
When DBS hired Gupta’s predecessor, Richard Stanley, who ran Citigroup in China, the bank touted his deal-making skills. Stanley, who died in April 2009 after being diagnosed with leukemia, had replaced Jackson Tai, who joined from New York- based JPMorgan Chase & Co., where he was a managing director in the investment-banking division.
Gupta was appointed for his “strategic, yet detail- oriented” approach, according to a release announcing his appointment in September 2009.
Lack of Boundaries
Gupta has kept revenue from investment banking at the same level as his predecessors -- it was 2.7 percent in the first nine months of 2011, the same as in 2007 -- even as deal-making and capital-raising has declined since its 2007 peak.
A lack of “boundaries” under his predecessors meant the bank ended up with a lot of “hobby businesses” in the Middle East, Britain and the U.S., Gupta said. DBS had to write down more than S$1 billion in 2009 for nonperforming corporate loans in these areas as it turned its attention to Asia operations.
Revenue from what DBS calls the rest of the world dropped to 3.6 percent for the first nine months of 2011 from 5.1 percent at the end of 2009.
Like his predecessors, “Piyush also has ambitions of being a regional bank, but what he has done differently is that he has clearly articulated the vision, quantified it and has been a sharp executor,” said Nikhare of IIFL Securities. “While others would say, ‘We want to be a regional bank with a large Asia presence,’ he has firstly acknowledged, ‘We are a Singaporean bank with a regional presence.’”
DBS said in November 2010 it was aiming for “double- digit” percentage growth in the wealth-management business annually from emerging markets over the next few years, and to increase managed assets to $50 billion over three years. Managed assets grew $2 billion to $37 billion by the end of November, according to DBS.
To help reach the goal, DBS hired Su Shan Tan from Morgan Stanley to head the private banking unit in 2010 and started a special business unit last year for clients with investable assets of at least S$1.5 million, a separate tier from the bank’s services for people with more than S$5 million to invest. The lender also ran its first advertising campaign in Hong Kong and Singapore aimed at wealthy depositors last year.
“The private bank is getting very aggressive,” said Krishan of EMA Partners. “They’re recruiting. They’re coming up with products. They’re doing a lot more in that space.”
DBS’s private bank ranked 10th by assets in Asia in 2010, according to a Private Banker International survey, ahead of Bank of Singapore, the private-banking arm of Oversea-Chinese Banking Corp. Asia’s top three wealth managers were UBS AG, Citigroup and HSBC Holdings Plc, according to the survey.
Asia-Pacific millionaires outnumbered those in Europe for the first time in 2010, according to a survey by Capgemini SA and Bank of America Corp.’s Merrill Lynch Global Wealth Management. Asia’s 3.3 million high-net-worth individuals had $10.8 trillion in assets compared with the $10.2 trillion accumulated by their 3.1 million counterparts in Europe, according to the report published last June.
Before today, DBS had risen 1 percent in Singapore trading since Gupta took over on Nov. 9, 2009, while the benchmark Straits Times Index has gained 11 percent. Rivals United Overseas Bank Ltd. and Oversea-Chinese Banking lost 1.3 percent and gained 10 percent, respectively. OCBC has a larger presence in more profitable loan markets such as Malaysia and Indonesia. DBS rose 0.4 percent to S$13.57 as of 11:33 a.m. in Singapore.
“One reason for the underperformance of DBS is where we are in the interest-rate cycle, and DBS’s larger presence in low-margin markets such as Singapore, Hong Kong and Taiwan,” said Macquarie’s Smith, who has a neutral rating on DBS. “If interest rates were to rise, DBS could be the biggest beneficiary, aided by their low-cost funding base in Singapore.”
People who know Gupta say he has what it takes to reach the goals he has set for the bank.
“Whatever he puts his mind to, he does it well,” said Krishan of EMA Partners, who has known Gupta since a 1986 picnic outing with a group of friends in Mumbai including her to-be husband who was a Citibank colleague of Gupta’s. “Even outside of the bank, he is an extremely energetic person, very creative. He writes poetry -- fun, humorous, witty stuff.”
While still pursuing his passions for poetry and bird- watching, Gupta advised the 2011 graduating class at the National University of Singapore to find a professional calling as well.
“Going through life with ‘bird-watcher’ on my visiting card,” he said, “just didn’t seem like a tenable option.”
--Editors: Lars Klemming, Sheridan Prasso
To contact the reporter on this story: Sanat Vallikappen in Singapore at email@example.com
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