By Ignatius Low

THE financial landscape has changed irrevocably and things will never be the same again.

That is the first thing DBS chairman Koh Boon Hwee tells you as he starts speaking, and it is a line he will repeat at least 10 times over the next hour.

He wants you to remember it, because it will dictate the bank's strategy going into the global economic downturn and the way it deals with customers and staff in future.

For example, it was one of the main reasons why DBS is cutting 900 jobs - or 6 per cent of its workforce.

A hiring freeze was already in place and wage cuts had been considered. But this crisis required more drastic action.

'This is not a cyclical event for the industry where, after a while, we bounce back and everything is normal,' says the corporate titan.

'The change in the way that financial institutions operate is going to be permanent. A wage cut is a temporary solution because you must eventually put it back.'

What are the earth-shattering changes that have permanently altered the way banks operate?

Mr Koh reels off three - the growth of derivatives that allowed tremendous leverage, the securitisation of loans and an abundance of liquidity and cheap funds.

All three were factors which had driven the financial sector's growth in recent times, he explains. But they will now come under greater scrutiny, forcing changes in the industry.

So making the job cuts was 'not an easy decision', Mr Koh says. Especially since the jobs lost are not coming back.

'The easiest thing to do is not to do it. We already have the challenge of dealing with High Notes 5, why take this on at this time?'

But he says that the board and senior management needed to recognise that their job is 'not to dwell on the past or just deal with the present, it must be to position the bank for the future'.

The decision was also influenced by labour laws in the various countries that DBS operated. Pay cuts would be felt most in Singapore where wages are more flexible, adds Mr Koh.

Yet another key piece of the puzzle was identifying where the bank can be more efficient and productive - a theme insiders say Mr Koh has been focused on since becoming chairman in early 2006.

'The way the organisation has developed, there are certain things that no longer need to be done,' he says.

'When things are good, the nature of organisations is that duplication and overlaps develop. You can no longer afford that and there are some businesses which you know aren't going to come back.'

What businesses are those, you ask.

'Ah, that, I'm not telling you!' he says, laughing.

High Notes 5 fiasco

The boardroom veteran turns dead serious when he talks about the recent High Notes 5 fiasco that the bank has become embroiled in.

About 1,400 investors sank $103 million into High Notes 5, a structured product which DBS issued and sold. The product was linked to Lehman Brothers and when the investment bank collapsed, the investment became worthless.

Some are alleging the products were mis-sold to them by relationship managers who never explained the risks fully.

'We have learnt something from this and I believe that we will do things differently. Not all of it is going to be popular,' he says.

But he draws the line at other suggestions for change, like blanket rules that completely ban the sale of some investments to 'vulnerable' investors who are elderly or lowly-educated.

'Using indicators like age or education is not particularly effective,' he says.

'I like to think that when I'm 62, I can still invest without somebody telling me that when I'm past a certain age, I can't.

'And some very successful business people who are extremely astute never made it past secondary school or college. Are we going to tell them, because they have only 10 years of education, they are not qualified to do this?'

Neither is he supportive of a nationwide crackdown on relationship managers and sales targets in banks that some have blamed for hard-sell on the ground.

'I think selling is something that happens in all businesses. There is not going to be an easy substitute for having quotas for salespeople for any kind of product, whether you sell computers or automobiles,' he says.

'You walk into a shopping mall or even food joints and you are always being besieged by salespeople. But you can't totally check your personal accountability at the door and say that because I was being sold, I took it.'

Mr Koh warns that cracking down too hard on the sales process could prove bad for Singapore as a financial centre, if Singapore says no and financial innovation happens elsewhere.

'We will always be in the backwaters, we will sit there and wait for people to come to us,' he says.

'Well, the world is not going to beat a path to Singapore's door. I think it would be wrong to be so blanket about it, for Singapore and for our banking industry.'

When asked about the damage that the High Notes 5 fiasco has dealt DBS' reputation and whether in retrospect, the bank should not have sold the product, he cedes little ground.

'We don't like the fact that our customers have lost money, no one does,' he says.

'Are there individual instances where we could have done better? The answer is yes, and we will make restitution.'

What is not correct, says Mr Koh, is to simply assume that all relationship managers are irresponsible, or that they all set out to mislead customers.

'Many of our people believed in the products at the time that they were launched because many DBS staff members bought the same products.

'The bank believed in the product because we took the customers' money and invested it accordingly.'

Mr Koh also urges perspective.

'In the month of September alone, the loss on the Singapore stock market was $95 billion. In October, $125 billion.

'So the crisis is personal to us because our customers have been affected, but this crisis is also very broad, because it affects almost everyone across the board.'

Rival Banks

He saves a sharp retort for rivals like OCBC Bank, whose CEO was recently quoted as saying that unlike DBS, it had deliberately refrained from selling structured products like Lehman Minibonds to the mass market.

'In hindsight, all of us should have known better,' he says. 'When DBS issued its preference shares, we made a decision to keep it to only institutional customers because we were concerned that the product may not be suitable for retail. I think we were criticised for that.'

Both OCBC Bank and UOB sold preference shares to retail investors, in the wake of DBS' refusal to.

'Today, corresponding issues are trading 10 to 15 per cent down, but no one's come back to vindicate us for the decision we made,' he notes.

Indeed, Mr Koh stiffens with pride when he talks about the way the bank has handled the High Notes crisis.

'You know, an event like this either tears the organisation apart or gels the team. I'm really extremely proud of the people in DBS,' he says.

'First of all, we have tried to deal with the issue in as open and transparent a manner as possible. We have held open forums for people to come. As far as I know, we are still the only ones to have done that.

'Many more of DBS' staff handle customers face-to-face and over the telephone. I can tell you that they've taken some abuse, and yet our people have remained calm throughout.'

He says the experience has brought people together more strongly than he has seen in the past three years.

'The thing I'm proudest of is that I observe a tenacity in our people in the face of the adversity that we are facing. I observe a degree of perseverance which I think can make us all proud.'

Still, the public backlash is a lesson not lost on DBS.

'People in Singapore hold DBS to a much higher standard of accountability. And we are deeply appreciative of the fact that there is this emotional commitment from the people of Singapore to DBS,' he says.

'We are just going to have to work extremely hard to re-earn their trust. We've taken a hit but we will overcome.'

This article was first published in The Straits Times on November 12, 2008.