SINGAPORE After two years of hard work to improve Singapore's largest bank and lift its underperforming Hong Kong unit, DBS Group (DBSM.SI) chief executive Piyush Gupta is embarking on his biggest challenge yet - a bid for Indonesia's Bank Danamon (BDMN.JK).
Gupta, 52, a graduate of the prestigious Indian Institute of Management, joined DBS in November 2009 from Citigroup (C.N) 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 earlier 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 popular joke at the time was that DBS stood for "Don't be Singaporean".
Temasek, which owns 29 percent of DBS, is in talks to sell its 68 percent stake in Danamon to the Singapore lender in a deal likely to be worth more than $3.2 billion.
Taking over Danamon poses many challenges but the biggest will be persuading investors that DBS will not overpay 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.
"We think DBS's turnaround is under way and has started generating significant alpha (a risk-adjusted measure of investment return)," JPMorgan analyst Harsh Wardhan Modi said in a recent note.
The risk, he said, comes from mergers and acquisitions that erode value.
INDONESIA WILL BE TESTING
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 named, said that 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.
Gupta will be tested in Indonesia where rules on foreign bank ownership change frequently.
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 question is: How high is the valuation for Danamon?" he said. "The challenge for Danamon is harder over the coming years as their cost of funding is expensive compared to other banks."
Danamon, he added, will also be hurt by new Indonesian central bank rules on downpayments as around 50 percent of its profit comes from its unit Adira Finance.
"Perhaps Temasek thinks it's time to let DBS take over Danamon to lower its risk," Hartanto said.
(Additional reporting by Janeman Latul in JAKARTA; Editing by John O'Callaghan and Jonathan Thatcher)