Advantage zyaada's  Instablog

Facebook has kicked off the non advertising led era of brand reputation management, product launches and the knowledge era for brands and products everywhere with a very simple proposition. It is going to cost you a packet and you are doing it because you are getting what you want. In effect, you choose your specific segments of Facebook users from healthcare users to premium hotel services user or even mothercare and feminine hygiene product users and instead of just paying for banal advertising , you pay for engaging the consumers. First off, you would pay $10K and $30K for holding contests and while basic pages remain free, Facebook will control both look and performance. More details here Also, all these launches coming without fanfare is a step in the right direction as information economy holds and knowledge is at a premium. Also, as more than 40 million users spend 30 minutes and more on the site, they will soon start allocating more time to stay in touch. All in all, another far thinking proposition which seems to have outlasted its detractors in the last 2-3 years. Are things looking up for Twitter?

P&G, Pepsi and even those with primarily domestic markets in the USA like Kraft and the sports brands will definitely find this a paying proposition and not to denigrate advertising but at a much more premium and effective brand value than two-bit clicks and CTRs

This is not a part of the FACEBOOK VS. TWITTER series 19/800 esp. not the part where “facebook wins”, just one of those things we started, socially!

The ING Sale: Will OCBC grow into a larger Pan Asian role?

ING has sold the Asian private banking business to OCBC, which was having difficulty in growing in Asia but has made rapid strides in expanding in KL, Taiwan and can now focus again on Singapore. The $1.46 billion price ( Sing $ 2 billion) for assets that are not growing is based on the assumed scalability of the asset base of $15-16 billion. The unit was costed for $1 billion for the bank in its balance sheet. The N11 will thus provide a second chance to OCBC to grow.

OCBC has a healthy 60-40 split of interest and non interest income from its current assets ( economic assets or people assets in the case of fee based income) and as expected Q2 income went down with decrease in advisory and other fee based income to S$ 466mn or USD 335 million ( EUR 221 m). Also, interestingly OCBC currently has one of the most healthy cost-income ratios of 34% which can equip it with the necessary depth in absorbing any new costs and continue during the lean times where larger competition from US/Europe/India apart from JPM and GS is unlikely to withstand the current cost of business.

However its Private Banking acquisition may well add to its woes in the region as it has failed to grow beyond Malaysia and Singapore and PB assets may be offshore banking assets domiciled in these other ASEAN countries and even India. OCBC currently earns only 20% of its bank profits or $77 million from Consumer Financial Services where it has been hiding its Private Banking assets presumably. Even in that, as much as $ 10 million is from Islamic Banking in Malaysia (Bank Negara) The transaction adds just about $20 million to OCBC profits and margins may reduce further. However, it looks as if these assets would be lazy and no flight of assets to other competition in the region will ensue whether SocGen or Deutsche Bank

At this stage let me also reiterate that it is important to know that the final price is closer to the author’s estimation for this deal as well as the UBS captive sale, the Satyam sale , the AIG Investments sale, except for the Nan Shan Insurance unit for Life Insurance, Valuation premium is no longer for the selling brand ( Citi BPO assets for over $505 million just a year back) but for real business and real value delivered to the acquirer..The bear phase as always is a euphemism for the opportunity to deliver justice to buyers of economic value over noise)

Fortunately, Julius Baer is happy with its progress in Swiss assets from the acquisition as the Swiss pie is a little more localised and protected by Swiss banking law and does not expose the niche bank to new ( see ING sells Private Banking assets) Julius Baer has paid a half a billion dollars for the Swiss Assets

ING is trying to sell its Private Bank in Asia because it needs the $1 billion from the sale to cover the $11 billion borrowed from the Dutch Government (Netherlands, Prince Philip)

The erstwhile sponsor of the New York Marathon, is also considering the withdrawal of ING Direct from USA after its recent failures. It had walked into a sale of ABN AMRO where it was thwarted by RBS and Barclays in 2007. It also sponsors the Renault F1 team, is AAA rated with central risk management from Netherands HO, and is 81st in the World’s Top 100 brands. Though it has recently been favored by Market pundits, it remains at the bottom of the Euro top 25 much like Alonso’s podium achievements this year, ranking just 2/3rd of SocGen which in itself is hardly known outside France despite the excellent branch network both share. Loan loss provisions are nearing trillions of Dollars ( EUR 852 million at 1.16% of RWA on a Balance sheet of EUR 1.1 billion only) Also the claim Tier I ratio of 9.4% is still low in terms of TCE

I have the usual objections to the sale:

1. For the buyer, It will never include sizable offshore assets from India as it works out of Hongkong, Singapore and maybe Philipines and in India it is independently owned and controlled by the ING and Vysya JV with ING stake at around 41%

2. The China assets in Private Banking will again likely be structured products and other such which are not going to be of any significant continuous revenue and where the customers are locked in.

3. Offshore Banking assets are being purchased by Swiss major Julius Baer who have no experience in Asia or DBS which has no real experience in Banking outside commercial bills discounting and trade services for SMEs. Thus the point also being made is that bank regulation does not ssolve all problems, it only creates more.

4. If a wealth management major does snag the bank, the expectation from the new provider would be of tax efficient structures, which have historically been rare in Asia unless tax avoidance is counted as another viable structure And the European structures or the ones in Bermuda are not going to be able to offer hope to such wealth list honchos as may be 1-2% of the ING portfolio

5. A lot of these wealth assets have historically been mortgaged/remortgaged or otherwise suspended assets from heirs and fourth generation entrepeneurs which are not what you would find in a Swiss vault

6. Fee structures are tightly regulated in the Asian market and new sources of fee revenue may not be possible.

All that said, I really don’t know the asset size that ING Wealth Management holds in Asia, but it would seem possible that the $1 billion price may be way off the price recd in the red tag sale underway.

September 09, 2009 By: zyakaira Category: Financial Services, Global, Infrastructure, Investments, US