DBS boss Gupta faces biggest test in Indonesia

Last Updated: Mon, Apr 02, 2012 07:27 hrs

By Kevin Lim and Saeed Azhar

SINGAPORE (Reuters) - After two years of hard work to improve Singapore's largest bank and lift its underperforming Hong Kong unit, DBS Group chief executive Piyush Gupta is embarking on his biggest challenge yet - a $7.24 billion takeover of Indonesia's Bank Danamon.

Gupta, 52, a graduate of the prestigious Indian Institute of Management, joined DBS in November 2009 from Citigroup where he was last head of Southeast Asia and Australasia.

"You look at the results in the last two years and look at all the operational metrics - you've seen an incredible story there," Dilhan Pillay Sandrasegara, head of portfolio management at Singapore state investor Temasek Holdings, told Reuters in a recent interview. "It augurs well for DBS."

Now a Singapore citizen, Gupta has spent a large part of his career in India and Southeast Asia, areas where DBS is keen to grow. Those who know him say he is meticulous and hardworking but some question his abilities as a visionary leader.

His achievements at DBS include strong growth in private and premium banking, a higher market share in loans and a foothold in the fast-growing area of yuan-denominated offshore bond issuance and deposits by tapping into the bank's relatively large presence in Hong Kong.

DBS had record net profit of more than S$3 billion last year and ranked top this year in customer satisfaction among the city-state's financial institutions in a survey by Singapore Management University.

Before Gupta's arrival, DBS was often criticised for poor service, high workforce turnover and hiring outsiders, many of them foreigners, to replace long-serving local staff. A joke at the time was that DBS stood for "Don't be Singaporean".

DBS has agreed to pay about $4.93 billion in shares and the rest in cash for Danamon - a 52 percent premium that surprised some investors.

Temasek, which will sell its controlling stake in Danamon to DBS, now owns 29 percent of the Singapore bank and that would rise to about 40 percent with the deal in Indonesia.

The takeover poses many challenges for DBS but the biggest will be convincing investors it is not overpaying as it did when it bought Hong Kong's Dao Heng Bank more than a decade ago.

Gupta, a keen golfer, also must show he is equally adept at taking over and integrating a new operation as he is at improving existing businesses.

DBS is also looking to expand in Malaysia, saying on Monday it got approval to start talks to buy an effective 14 percent stake in Alliance Financial Group - again from Temasek - worth about $270 million.


"We think DBS's turnaround is under way and has started generating significant alpha," JPMorgan analyst Harsh Wardhan Modi said in a recent note, referring to a risk-adjusted measure of investment return.

The risk, he said, came from mergers and acquisitions that erode value.

Gupta was one of Citigroup's earliest recruits in Asia under the U.S. bank's management associate programme and he benefited from its policy of moving people across businesses.

People who have worked with him say he has a good grasp of detail that reflects his experience in consumer and corporate banking. He is tough on senior managers but charming with customers and junior employees.

In Southeast Asia, he built up Citigroup's branch network in Malaysia and helped Indonesia to restructure its debts after the Asian financial crisis of 1997-98.

In 2000, at the height of the dotcom bubble, he left Citigroup to head an Internet portal called go4i.com. It folded despite backing from the private equity arm of Chase Manhattan Bank and one of India's top media firms.

Two former colleagues, who declined to be identified, said while Gupta was highly rated as an operations man at Citigroup, he was not seen as someone who could lead the breaking of new ground.

Teguh Hartanto, a senior banking analyst at PT Bahana Securities in Jakarta, said DBS faces several hurdles in ensuring Danamon will be a reliable contributor to profits.

"The challenge for Danamon is harder over the coming years as their cost of funding is expensive compared to other banks," Hartanto said. "Perhaps Temasek thinks it's time to let DBS take over Danamon to lower its risk."

(Additional reporting by Janeman Latul in JAKARTA; Editing by John O'Callaghan and Robert Birsel)

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