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This article first appeared in The Edge Malaysia Weekly on August 7, 2017 - August 13, 2017

LAST week, Public Bank Bhd founder and non-executive chairman Tan Sri Teh Hong Piow became the second banking tycoon this year to announce his impending retirement. The first was AMMB Holdings Bhd chairman Tan Sri Azman Hashim.

“To have two owners of what are deemed to be owner-run banks leaving ... that’s quite a big thing, considering how few owner-run banks there are left in Malaysia. The industry landscape is surely changing,” remarks a seasoned banker.

Apart from Public Bank and AMMB, the only other owner-run banking group is Tan Sri Quek Leng Chan’s Hong Leong Bank Bhd.

“In Teh’s case, he remains a major shareholder and will take on an adviser’s role after he retires. Thus, one can argue that nothing really changes at the bank ... he will still be consulted on the major decisions,” the banker adds.

Teh will be named “chairman emeritus” upon his retirement. It is understood to be the first time anyone in the industry will hold such a title. The bank says this is in recognition of Teh’s contributions to the bank over the 51 years since he founded it on Dec 30, 1965.

Last Monday, Public Bank, the country’s third largest banking group by assets, announced that Teh, 86, wishes to relinquish his chairmanship on Jan 1, 2019. The fact that this is about 1½ years from now ensures a smooth transition.

Public Bank has a strong culture of promoting from within, and analysts see Teh’s deputy, Datuk Sri Lee Kong Lam, 75, as a strong contender for the chairmanship. Lam, who has 49 years of experience in the banking and finance industry, had worked at Bank Negara Malaysia prior to joining Public Bank in 1996.

As revered and highly respected as he is by shareholders and customers, Teh’s departure is not expected to affect the bank’s operations.

“The bank will continue to run relatively smoothly because his DNA in terms of how he wants the bank run is already so well embedded across the group, from upper to middle management, right down to backroom,” an analyst points out.

Given his age and increasing speculation about the state of his health, it is difficult to get an exact sense of how hands-on he has been in the group in recent times. However, sour-ces indicate that he still has a prominent say in major decisions. “Even though he seldom went in to the office in the last few years, he still chairs all the important meetings. The CEO [Tan Sri Tay Ah Lek] sees him regularly to brief him,” a senior banker shares with The Edge.

There was a knee-jerk reaction on the bank’s shares the day it announced the news. The stock shed 26 sen or 1.3 % to RM20.28 on heavy trading volume. Some 11.48 million shares changed hands, a 63.3% jump from the previous trading day and the heaviest volume in two months.

With Teh’s impending exit comes inevitable market speculation on whether this could signal other changes at the group: Will Teh sell his shares? Will there be a merger with another banking group?

Recall that some four months after AMMB’s Azman, 78,  announced his impending departure in January, the group entered into merger talks with rival RHB Bank Bhd. Azman has a 12.97% interest in AMMB and, like Teh, has no family member who is keen on taking over the business.

“I really wouldn’t speculate to that extent. Of course, one can’t entirely discount the possibility of a merger, but you must remember, it won’t be cheap for any bank looking at Public Bank. It’s trading at 2.3 times price to book ... a lot of the mergers these days are done by an exchange of shares. Of the two banks that are larger than Public Bank, CIMB Group Holdings Bhd is trading at 1.5 times price to book, while Malayan Banking Bhd’s (Maybank) is at 1.3 times ...  so it would be difficult. I don’t see a merger happening in the next 12 months,” a banking analyst tells The Edge.

Teh has a total equity interest of 23.54% (908.9 million shares) in Public Bank, held directly and through Consolidated Teh Holdings Sdn Bhd. The stake was valued at RM18.9 billion based on last Friday’s market close of RM20.76 per share.

Public Bank, long admired by its rivals, is the benchmark setter in the industry on important metrics like asset quality, return on equity and cost management — a testament to Teh’s prudent and conservative management from way back. It has top market shares in retail banking, and has a solid small and medium enterprise client base.

“The whole point about Public Bank is that it’s a nice bank to have and I’m sure other banks covet it, but it’s so expensive,” another analyst says. Public Bank itself has given no indication that it plans to deviate from its longtime strategy of organic growth.

Of the merger scenarios that have been bandied about by analysts in the past, Public Bank is seen to fit better with CIMB than Maybank.

“Maybank would of course be able to digest a bank the size of Public Bank, that wouldn’t be an issue. But, the concern is more about customer attrition. Public Bank has a strong Chinese customer base that may switch to Hong Leong Bank. There would be no point in Maybank paying a premium for Public Bank if it runs the risk of customer attrition.

“The bank is seen as a better fit with CIMB because CIMB is weak on the SME side ... it is building from a very low base versus Maybank, which has a bigger SME profile,” the first analyst says.

Analysts doubt Teh will sell his shares anytime soon. “I think the one difference between him and the the other prominent banker, Hong Leong’s Quek, is that the latter has so many other businesses. If the price was right, he would sell the bank and move on. But Teh is a thoroughbred banker. Apart from Lonpac [Insurance Bhd], which is also finance-related, banking is his main focus. It’s his baby and it keeps him going, so he’ll probably hang on to it,” one analyst says.

Teh will also retire as chairman in Public Islamic Bank Bhd and Public Investment Bank Bhd, on Jan 1  next year, but will stay on as non-executive director.

 

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