Sumitomo Trust Buys DBS Asset for $105 Million to Tap Asia's Millionaires

Sumitomo Trust & Banking Co.’s Nikko Asset Management Co. unit agreed to buy DBS Asset Management from DBS Group Holdings Ltd. for S$137 million ($105 million) to tap business from the expanding ranks of wealthy Asians.

Under the accord, DBS will also take a 7.25 percent stake in Nikko Asset and the combined firm’s managed assets will total more than $150 billion, the companies said in a joint statement filed to the Singapore stock exchange today.

Japanese banks are increasing investment in financial firms outside the country to counter slowing lending demand at home. The deal would help Sumitomo Trust increase asset management for Asians outside of Japan as the region’s wealth expansion outpaces the rest of the world.

“Asian riches are attracting Japanese lenders for future business growth,” Nana Otsuki, a Tokyo-based analyst at UBS AG, said before today’s announcement. “It’s a fee business, which Japanese lenders tend to prefer as it doesn’t require substantial risk taking.”

The number of millionaires in the Asia-Pacific region reached 3 million in 2009, matching those in Europe for the first time, according to a June report by Capgemini and Bank of America Corp.’s Merrill Lynch unit. Asian millionaires’ assets rose 31 percent to $9.7 trillion, the study showed.

Wealth in the region, excluding Japan, is likely to climb at almost double the global pace through 2014, the Boston Consulting Group said in June.

‘Major Step’

“By expanding its distribution network and investment platform in Asia, especially in Singapore and Hong Kong, Nikko Asset has taken a major step toward becoming the region’s leading investment manager,” Hitoshi Tsunekage, Sumitomo Trust’s president and chief executive officer, said in the statement.

Nikko Asset CEO Tim McCarthy said assets under management could increase to $200 billion within two to three years “depending on decent market conditions,” and exceed $250 billion in five to seven years. The company plans to increase staff including analysts and trainers, he said at a press conference in Singapore today.

“If you look at this region and Singapore being the hub, it’s not at all unreasonable to expect growth here over the next five years of as much as $10 billion,” McCarthy said. He added Japan was a “massive source of dollars for investment” as was China, while Australia and New Zealand were also growth markets.

‘Same Shop’

No jobs will be cut following the deal, said Piyush Gupta, chief executive officer of DBS Group, Southeast Asia’s biggest lender and the parent company of DBS Bank Ltd., which owns the asset management firm. The transaction wasn’t motivated by cost- cutting, he said at the same press briefing.

“When you start adding more scale, you can take more portfolios and pump them through the same shop,” he said. That would deliver “advantages” such as lower per unit costs rather than a “reduction in expenses per say.”

The combined assets under management that DBS will inject into Nikko Asset totaled $7 billion as of September, according to the statement. The transaction excludes Changsheng Fund Management, which is 33 percent owned by DBS Asset and will be directly held by DBS Group. The bank said its relationship with the Chinese firm is an important step in executing the bank’s strategy in China.

Sumitomo Trust’s shares rose 0.2 percent to 459 yen at the close in Tokyo. DBS climbed 0.3 percent to S$14.08 at the Singapore close, the highest since Nov. 11.

Sumitomo Trust’s deal followed Mitsubishi UFJ Financial Group Inc.’s November purchase of Royal Bank of Scotland Group Plc’s project-finance assets, and Mizuho Financial Group Inc.’s $500 million accord for a stake in BlackRock, the world’s biggest money manager.

Sumitomo Trust is set to merge with Chuo Mitsui Trust Holdings Inc. in a transaction that would make it Japan’s fifth- biggest lender.

To contact the reporters on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net; Joyce Koh in Singapore at Jkoh38@bloomberg.net.

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net.

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