Published November 9, 2009

No easy ride in the saddle for Piyush Gupta

By SIOW LI SEN

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PIYUSH Gupta starts work at DBS today - but given the bank's latest strong third-quarter results, perhaps he could begin in the New Year.

It's not like DBS is crying out for a chief executive to run the business; after all, DBS (as did its rivals) performed just fine in the last 12 months or so when it was more or less without a driver at the helm amid the worst financial crisis since the Second World War.

This is due in part to a conservative regulator with its strict capital requirements, the government's Jobs Credit scheme, and other measures which kept at bay the feared upsurge in job losses and corporate defaults. Also helping is a recovery in the economy.

DBS recorded net earnings of $563 million for Q3 2009, up 40 per cent from a year ago and 2 per cent from the previous quarter in line with the economic rebound.

Net interest income reached a record while fee income was the highest in seven quarters as the bank not only expanded its market share but also managed to do so while increasing its margins following the retreat of international banks.

But with economies stabilising and a return to confidence among banks, competition should get keener.

There's no guarantee that the higher margins enjoyed this year by not just DBS but also other regional Asian banks will continue.

Tay Chin Seng, analyst at Macquarie Research Equities, said that in the short term, a DBS on auto-pilot works fine.

But a chief executive is not just a day-to-day guy; he should be setting the bank's strategic direction and having a vision of where the threats and opportunities are, said Mr Tay.

That's where some investors are getting nervous - knowing that a new CEO has to show he's worth the millions he's getting paid, and wondering what path he'll take to justify his remuneration.

DBS's last acquisition continues to rankle for some. When DBS bought Dao Heng Bank in 2001 - paying three times what it was worth - the bank was then Hong Kong's fourth largest bank by assets.

In the eight years since taking control, DBS has lost market share, fallen to No 5 by assets and lagged its peers with respect to revenue and returns, said Matthew Wilson, analyst at Morgan Stanley.

Revenue growth has been weak and core profitability has fallen from a respectable 1.4 per cent (in the top 3 in 2003) to the second lowest at 0.9 per cent in 2008, he said.

DBS's Hong Kong franchise needs fixing but Mr Gupta's experience has been South-east Asia and India. So what can he do?

Mr Wilson has even suggested that DBS sell Dao Heng to reinvest in South-east Asia, where the bank's natural strength is more apparent.

But where exactly in South-east Asia should it invest? Nothing is cheap and DBS faces regulatory hurdles in Malaysia and Indonesia, the two most stable and biggest markets after Singapore.

The bank can, of course, continue with its current course, expand slowly and organically via its existing operations. Its chairman said last month the bank hoped to have about 100 branches in Indonesia within three years, up from the present 40 - treading water, more or less.

Mr Gupta has an unenviable task ahead. Whichever route he takes will be scrutinised and dissected, and the results won't show up until later - not for at least three years, perhaps.