DBS

DBS (S$16.80): Potential bidder for Barclays Asian wealth business?

According to The Australian Financial Review, Barclays may be keen to sell its Asian wealth-management business (AWM), with CLSA highlighting that DBS could emerge as a potential bidder should such a scenario eventuate.

A successful acquisition could lift Singapore’s largest lender to rank amongst the Top 5 Asian private banks in terms of AUM.

Barclays’s sounded out to potential takers in the first week of Nov to gauge interest for a possible sale of its Asian wealth arm, as the British lender channels more efforts to its more profitable businesses in US and UK.

Following recent acquisitions of Societe Generale’s and Coutts’s private banking business in Asia, DBS is expected to be among the candidates in line with a potential consideration of US$665m if Barclays does make a final decision to divest its AWM business.

In 2014, Barclays’s wealth management arm is estimated to have at least US$36b of assets under management (AuM), but was incurring losses with revenue around US$234m.

Assuming the deal materialises, it will elevate DBS’s AUM of US$73b in 2014 to US$109b, pushing it up among the top 5 private banker in Asia, surpassing the likes of Deutsche, JP Morgan and Julius Bear.

DBS may also achieve its 15% revenue contribution target for its wealth business three to four years ahead of schedule, while overall group earnings could be bumped up by 3%, if it is able to align Barclays’s AWM CIR and revenue margin to that of its own (CIR: 60-65%, rev. margin: 85bps of AuM).

Nevertheless, this potential deal is insufficient to convince CLSA to rerate the bank and thereby it maintains an underperform rating with a TP of $17.15 on the counter.

DBS is currently trading at 1.1x P/B and offers a 3.6% indicative dividend yield.