DBS slips on on takeover concerns

Bank consolidation is moving ahead in Singapore's domestic market

SINGAPORE -- Shares in Singapore's biggest bank, DBS Group, hit two-year lows on Monday on concerns over its hostile $5.2 billion bid for smaller rival Overseas Union Bank.

DBS slumped to S$12.30 before finding some support around S$12.80, down S$0.90 or 6.5 percent.

OUB, the fourth largest of Singapore's five local banks, dropped to as low as S$8.70 before recovering to near its pre-suspension price of S$9.05. Just before the close, OUB was down 10 cents at S$8.95.

On Friday, DBS launched a stock and cash bid for OUB valued at S$9.4 billion, or $5.2 billion.

Second takeover bid this month

It is the second bank takeover move this month. On June 12, second-ranked Oversea-Chinese Banking Corp launched a $2.64 billion (S$4.8 billion) cash offer for Keppel Capital Holdings, which owns Keppel TatLee Bank.

The OCBC move on Keppel Capital was the first proposed merger in what could be a wave of bank consolidations in the small domestic market of Singapore, which has a population of only 4 million.

It follows a warning in May 1999 by the Monetary Authority of Singapore that there was room for only two strong local banks in Singapore.

DBS, which is also in the throes of a S$10.5 billion takeover of Hong Kong's Dao Heng Bank, has offered S$9.50 for each OUB share based on a ratio of 0.61 of a DBS share plus S$1.14 in cash.

DBS and OCBC were the two most actively traded shares Monday.

"It's just arbitrage play as expected," said Seah Hiang Hong, research head of Kim Eng Securities.

Overall weakness in bank shares on Monday was partly due to investors cashing out after driving them up on merger speculation in the wake of OCBC's offer for Keppel Capital two weeks ago.

Focus now on any move by UOB

Government-linked DBS is already the largest lender in Southeast Asia. It would become the third biggest bank in Asia outside Japan and Australia if the OUB deal goes through.

DBS assets would go from S$112 billion to S$194 billion if both the OCBC and Dao Heng Bank takeovers proceed.

Investment banking sources said the focus was now on when United Overseas Bank (UOB) would make a counter bid for either of the local banks under siege.

Analysts said UOB, controlled by veteran banker Wee Cho Yaw, must do something as it stands to be marginalized when the government fully liberalizes the banking sector, allowing in greater foreign competition.

Reuters contributed to this report.