Thursday March 7, 2013

Mega bank merger on the cards?

Raison D'etre - Risen Jayaseelan

The FSA, if enforced, could be a catalyst for Public Bank and Hong Leong Bank to pool their resources together for a stronger management group

THE banking landscape is getting a jolt from the new Financial Services Act (FSA).

Apart from giving the central bank more supervisory powers over financial institutions and their holding companies, the new comprehensive piece of legislation re-introduces the 10% cap on individuals' interest in banks.

The jury is still out on whether this would be enforced though, and if enforced, what timeline would be given to the parties.

What is interesting is that the prominent individuals in Malaysia's banking sector who need to sell down are the two Chinese banking tycoons, namely, Tan Sri Quek Leng Chan and Tan Sri Teh Hong Piow, the respective owners of Hong Leong Bank Bhd (HLBB) and Public Bank Bhd (PBB).

The two still own significant chunks of their banks. Quek's interest in HLBB is more than 60%, while Teh controls about 24% of PBB.

It has almost become a standing joke among the banking fraternity that the one mega banking merger in Malaysia that should or could but would never happen is the marriage between HLBB and PBB.

Why it wouldn't happen relates to issues of personalities and valuation, people speculate.

But consider this: will the implementation of the FSA, combined with the ageing profile of these two tycoons, become a catalyst to this possible merger?

This purely speculative theory has some merit. Firstly, if the deal is done via a share swap, then it would reduce the shareholdings of both Quek and Teh in the merged bank. Quek will be diluted more, considering that HLBB's market capitalisation of RM26bil is less than half the size of PBB's RM57bil.

Both banks could pool their strong management teams to create an even stronger management group.

Bank mergers are generally being encouraged because of the pressing need for banks to have scale and operating efficiency. And with global and local industry regulation increasing, this will lead to increased operating expenses. Hence, larger banking groups would be in a better position to compete. The merged entity holds the potential of becoming a formidable banking group in Malaysia.

There is also a theory that from a sociopolitical and socioeconomic point of view, such a merger bodes well, considering the current ownership and customer base of both banks.

One of the biggest challenges for such a deal to materialise, though, would be the issue of valuation. Both are savvy bankers who have created value in their banks.

It is unfathomable that either one would give in to a deal that does not push for the maximum value of their Malaysian banking groups. In such a case, can a deal ever be struck?

In any case, all this is just coffee-shop talk. We are unaware of any formal moves to prepare for such a merger. In fact, there's nothing to say that both these individuals would continue to be allowed to hold on to their stakes in these banks, like they have done before. Only time will tell.

  • News editor Risen Jayaseelan reckons that aside from the FSA, other events may take place that could spur on this deal to fruition.

    • E-mail this story
    • Print this story
    • Bookmark and Share