But it wasn't just the unattractiveness of DBS's offer that left OUB shareholders cold. The bid was mired in bad publicity from the start--culminating in a public apology by Chairman S. Dhanabalan and a S$2 million (US$1.1 million) payout as compensation for defaming the directors of rival bidder United Overseas Bank and OUB in a document distributed to European investors.

With DBS bowing out of the race, United Overseas Bank and OUB are likely to merge--becoming Singapore's largest domestic bank in terms of assets. United Overseas has extended its friendly cash-and-stock offer for OUB to August 31, but has already received 82.7 percent of OUB's issued and paid-up share capital.

But what does DBS's loss mean for shareholders? While an in-market domestic merger certainly would have brought cost synergies and removed OUB as a competitor, says Alastair Macdonald, an analyst at BNP Paribas, "it's not a disaster for DBS." For one thing, he argues, there's not much room for banks to expand market share in Singapore's tiny, low-growth domestic market. Margins are already low and loan growth is expected to remain low for the next few years. Competition on consumer loans, for instance, has reached its height; banks have slashed mortgage rates three times over the past 12 months. The close of the OUB saga also means DBS can concentrate on the integration of its recent S$10 billion acquisition of Dao Heng Bank in Hong Kong, Macdonald and other analysts say.

"It's not a huge loss," says Kevin Scully, managing director of NetResearch Asia. "They don't need more Singapore assets given they have 5 million account holders and there are only 4 million people in Singapore." Indeed, news of the lapsed bid sent DBS stock shooting back up to S$13.70--the price it had been trading at before the bid announcement on June 22. It fell as low as S$12.40 a share during the six-week drama.

"DBS didn't really want OUB in the first place," argues one analyst who requested anonymity, referring to the government's wish to speed up the pace of consolidation in the industry. "There was an overlap of assets and they'd have to sack 40 percent of their staff in general from the combined entity." Adds Wong Heng Hwai, an analyst at RHB-Cathay Securities in Singapore: "Even if United Overseas and OUB merge, I don't think they are going to be a significant threat. DBS has the lowest cost of funds in the industry."

To be sure, some analysts argue DBS eroded its capital base by paying too hefty a premium for Dao Heng Bank, and that the money could have been put to better use consolidating its position at home and gaining entry into the Malaysian market. DBS--the only Singaporean bank without a retail presence in Malaysia--has long coveted a franchise there, argues Paul Sheehan, co-head of Asia Financial Institutions Research at Lehman Brothers in Hong Kong. Malaysia is one of the missing links in the bank's regional acquisition strategy, and it is likely to remain a closed market for several more years to come: New foreign entrants will be allowed into the market only after 2007-08.

QUID PRO QUO
A chunk of the non-Singaporean banking operations of OUB comes from its Malaysian subsidiary's 13 branches, Sheehan notes. The Malaysian branches provide more than 10 percent of OUB's total income, despite having a proportionately smaller asset base. This is mainly due to the extremely high return on assets stemming from wide net-interest margins. OUB's overall business in Malaysia is also growing faster than its business in Singapore, Sheehan says.

But most Singaporean analysts argue that the loss of Malaysia was not a big deal. "I don't think DBS is in a hurry to get a banking presence there because the economic and political situation is quite uncertain," argues Wong of RHB-Cathay, adding that nonperforming loans in Malaysia have been "creeping up."

Singapore is scheduled to award two Qualifying Full Bank licences--which allow a foreign bank to set up more branches and open freestanding cash machines--by the end of the year. If one of those went to Maybank, the Malaysians might allow a Singapore bank to take an associate stake in a Malaysian bank. "There might be some horse trading," says Scully.