DBS' cancelled Danamon deal is its "first display of discipline on inorganic transactions since 2001": CLSA

Time to focus on maximising ROI in other businesses.

According to CLSA, DBS’ decision to walk away from the Danamon deal is a material positive.

Danamon was not the appropriate vehicle to realise the group’s strategy and now DBS can focus on maximising return on its investments in its wholesale, wealth-management, Singapore and Hong Kong business. 

Here's more from CLSA:

No transformational deals on the horizon
The recently cancelled Danamon transaction had been an overhang on DBS’s shares since April 2012. Aside from being the wrong vehicle for its growth ambitions, political and regulatory constraints had made the deal untenable.

DBS’s decision to walk away was its first display of discipline on inorganic transactions since 2001. Although there is always a possibility that it could pursue another sizeable asset to deepen and diversify its regional presence, we believe it is more likely to focus on organic growth during our forecast period.

Maximising organic initiatives
DBS aspires to be Asia’s leading bank and has spent the past three years investing in its businesses to facilitate its ascnet to the top.

The bank is slowly starting to demonstrate a more sustainable revenue base from its new and rejuvenated business.

Although there is still a long way to go, the progress in 2Q13 with respect to Hong Kong, increased customer-driven treasury flow and wealth management was encouraging. We expect fees and commissions to grow by 15% this year, versus 14% loan growth.

We assume that non-interest income will rise broadly in line with loan growth over 2014-15, but if DBS continues to dig deep and deliver more from its organic initiatives then there could be upside to our EPS and ROE forecasts.