Finance

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

At DBS Bank, 2016 has officially become a year to forget. Or perhaps it will be the year that prompts the bank to go back to basics and abandon a decade of more aggressive growth, which now increasingly appears to have come at the expense of healthy conservatism.

The latest setback was dealt by the Monetary Authority of Singapore, which announced Tuesday that it fined the lender following a probe of fund flows linked to embattled Malaysian sovereign wealth fund 1Malaysia Development Bhd., or 1MDB.

Cost of Profit
DBS has doubled its net profit since 2009 even as local interest rates dropped. The aggressive growth may not have come for free
Source: Bloomberg

The central bank imposed a S$1 million ($726,000) penalty on DBS for 10 breaches of anti-money laundering rules. (UBS was fined S$1.3 million, while Falcon Private Bank was ordered to pay S$4.3 million and cease its operations in the city.)

The amount may be small change for DBS, which had more than S$1 billion of net income in the second quarter, but the significance should not be underestimated.

The MAS has employed a lighter touch in dealing with banking misbehavior than some jurisdictions. In 2013, for instance, the regulator concluded that 19 banks may have tried to manipulate local benchmark rates. Unlike its peers in the U.S. and U.K., which forced banks to pay hundreds of millions of dollars to settle lawsuits, Singapore asked the lenders to post billions in reserves without interest for a year. After the period lapsed, the authority returned most of the cash.

Hence, the DBS fine is meaningful not for the amount, but for the message it sends.

Singapore's biggest lender has been hit by a succession of public crises. In early August, the bank said it had been keeping Swiber afloat even as signs mounted that the oil-services company was about to go bankrupt. Swiber is in judicial management and a string of industry bankruptcies and restructurings have followed. Earlier this year, DBS Chief Executive Officer Piyush Gupta had said the sector wasn't a problem for the bank.

Wild Singapore
DBS's stock has seen a year of volatility amid fluctuating energy prices and a string of public setbacks
Source: Bloomberg

Swiber's bankruptcy caused losses to investors who had bought the company's bonds, sold by banks including DBS. The MAS is reviewing local laws to prevent banks from assigning "accredited investor" status to individuals (many of whom bought Swiber bonds) whose wealth is mostly in property. That could take a toll on DBS's private banking operations.

These cases combined are unlikely to have a major impact on the bank's earnings. They're sure to have serious implications on how it approaches its business, though. Given how seriously Singapore takes rules, the DBS board is probably having some difficult meetings these days. Don't be surprised if a strategy shift starts to become apparent. Boring may be less profitable, but it also causes far fewer headaches.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net