Staged control of Bank Danamon in Indonesia (2017)

A steep entry fee, and the logic of holding it whole

How to read this decision divides on whether you look only at the goodwill impairment or at the business beyond it. A price of about twice net assets was high, and it was foreseeable from the outset that an accounting loss would appear if the share price fell. That MUFG nevertheless moved to take Danamon whole was for one reason: with interest margins thinning at home, it needed to place the retail and small-business base of a growing Indonesia inside the consolidation, not in an alliance. It was a move that applied to Southeast Asia’s largest market the method tried with Bank of Ayudhya — folding a strong local bank in as a subsidiary.

The question that remains is when this bank will produce a return on the more than $5.3B (¥600bn) of capital left lying in it. An impairment lightens the books, but it also lifts the weight of goodwill amortization off the profits that follow. MUFG’s Southeast Asian web — local banks lined up across Thailand, Vietnam, the Philippines and Indonesia — has grown, through a long stretch of low domestic rates, into one of its few sources of growth earnings. Whether Danamon, taken on whole, can carry a corner of that web in a market of more than 200 million people is what the merit of this expensive purchase hangs upon.