MUMBAI (Reuters Breakingviews) – Buying shares in a bank is complex at the best of times. When it comes to one of the most charged turf disputes on the planet, it takes a truly daring CEO to take the plunge. Piyush Gupta of the $65 billion Singaporean lender DBS Group seems to be that CEO, whether he considers himself that way or not.

The 62-year-old former Citigroup banker has run what is now Singapore’s largest bank by assets since 2009. During that time, DBS’s total shareholder return is over 340% , about seven times the level of UBS and 11 times that of HSBC. . DBS’s growth partly reflects Singapore’s growing popularity as a great place to live, work and invest, unlike an increasingly troubled Hong Kong.

Gupta can be paid far less than his Western peers – Jamie Dimon, who ran the $400 billion JPMorgan for a few more years, gets roughly triple the DBS boss’s $10 million a year. Yet both banks are trading at a similar multiple of 1.5 times their estimated 2022 book value, according to Refinitiv. Gupta’s 16% return on equity in the third quarter beat Dimon’s 15%.

It’s not just pay practices that are vastly different. There is limited room for growth in the small home market in DBS, a city of 5.5 million. Gupta solves this problem by making acquisitions. DBS plunged when Western rivals like Societe Generale and ANZ pulled out, or when banks fell into trouble. Gupta’s recent purchases include a 13% stake in China’s Shenzhen Rural Commercial Bank and a bailout of India’s Lakshmi Vilas Bank.

DBS’s purchase of Citi’s consumer arm in Taiwan, announced in January, fits the pattern. The Jane Fraser-led U.S. bank has retreated to some of its overseas markets to focus on cleaning up the mess at home, including regulatory fines and embarrassing business mistakes. Gupta is spending about $1.6 billion, including a $700 million bonus payment, to expand its decades-old operations and make DBS the largest foreign bank by assets in Taiwan.

Taiwan has been a geopolitical hotspot for decades. But since DBS signed its deal, the self-governing island that China claims as its own territory has only grown heated. Russia’s invasion of Ukraine and Chinese President Xi Jinping’s unprecedented third term in office have changed expectations about how quickly China could pursue its goal of reunification with the island. President Joe Biden has said the United States would be prepared to use force to defend the island, but on Monday, after meeting Xi in person at the G20 summit in Indonesia, he added that he did not believe that China foresaw an imminent assault. Xi’s statement included a pointed warning that Taiwan was “the first red line not to cross”.

Gupta’s answer is pragmatic – bluntly. He always said the bank spent a lot of time thinking about geopolitical risk. And in a war, he pointed out earlier this month, the fate of his newly acquired consumer bank would be the least of DBS’s worries. He’s right, and that makes the deal more logical than contrary: As an Asia-focused financial institution, DBS is far more exposed than its Western rivals to conflict in the region, even without the Citi junk. Hong Kong and the rest of Greater China generated 24% of the bank’s net profit in 2021.

Gupta may be quietly hoping that his franchise will retain some value even in the face of conflict. Singapore has so far sought a balance to stay on good terms with China and the United States, the world’s two largest economies. The Lion City supports Washington’s financial sanctions against Russia, while the city-state’s banks attract wealthy Chinese clients seeking to diversify their risk away from their own country. Due to its nationality, DBS might have a slightly better chance of being able to appear neutral than US-based Citi.

For now, the potential upside gives Gupta reason to play down the negatives. Taiwan is wealthy, with 870,000 millionaires, more than 4% of the adult population, thanks to its vibrant tech industry. Citi’s 2.7 million Taiwan-based credit card customers are better off than DBS’s and spend about 20% more, and the average balance held by Citi’s private banking customers at 2.5 million, is almost double the DBS average, says Gupta. DBS buys a company that had a return on equity of 21% before Covid-19.

Also, sitting still is not an option. U.S. banks are also looking for growth, buoyed by huge balance sheets and windfall profits from the pandemic. Fraser and his peers have renewed their efforts to open doors in China, some recently visiting Hong Kong. Citi and Goldman Sachs are among those looking to grow their transaction and trade finance businesses, which will include targeting profitable corporate relationships in DBS’s backyard.

That, added to the pressure to maintain that 1.5x market value, means Gupta must continue to find ways to grow. It means combining an opportunistic eye and political intelligence with nerves of steel. The DBS chief’s Taiwanese expansion may make him look bolder than his peers, but as an Asia-focused bank boss with big ambitions, he also has fewer choices.

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Singapore-based DBS Group said Nov. 3 that it expects its acquisition of Citigroup’s consumer business in Taiwan to be completed in August.

“We spent a lot of time thinking about geopolitics when we decided on the deal. Our strategy takes a healthy view of North Asia. If geopolitical tensions reach a stage where there is a war, Taiwan is the least of our problems,” chief executive Piyush Gupta said during a post-earnings press briefing.

In January, DBS agreed to pay the US bank in cash for the net assets plus a premium of S$956 million, or about $700 million. After factoring in a subsequent capital injection to grow the business and integration costs, its total expenditure will reach S$2.1 billion, or about $1.6 billion.

US President Joe Biden and Chinese President Xi Jinping held talks on November 14 at the G20 summit in Indonesia. Xi called Taiwan a “first red line” not to be crossed in US-China relations, Chinese state media reported after the meeting. Beijing has long said it would bring the self-governing island under its control.

Biden said he was seeking to assure Xi that US policy on Taiwan, which for decades has been to support both Beijing’s “One China” position and the Taiwanese military, has not changed. “I don’t think there is an imminent attempt by China to invade Taiwan,” Biden told reporters.

(Editing by John Foley and Thomas Shum)

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