Here's why DBS is more profitable than Barclays

That is despite having only half the equity leverage of Barclays.

According to Nomura, though DBS is a significantly smaller banking group than Barclays, it is significantly more profitable as measured in terms of ROA and ROE, supported by better trajectories for key ratios such as cost income and loan deposit (LDR).

Further, its existing capital base already satisfies regulatory requirements (primarily Basel 3) and lends support to dividend expectations – by contrast, Barclays faces much greater uncertainty in this respect given the additional burdens anticipated from being classified as G-SIFI and having to implement the ICB’s “ring-fencing” recommendations.

Here's more from Nomura:

Sing banks continue to trade ~52-week highs despite lacklustre 2Q results, with re-rating momentum driven less by near-term operating data and more by buying support from the ongoing switch out of structurally-troubled developed market banks hobbled by recessionary core markets and a slew of regulatory headwinds. To better illustrate the underpinnings of what we see as a secular trend, we articulate top-down comparisons of developed market-centric Barclays vs. emerging Asia-centric DBS, highlighting:

 Operational: Where DBS’ earnings platform is underpinned by lower-beta commercial bank operations across Asia’s three key growth axes (i.e. Greater China, South Asia and Southeast Asia), c.80% of Barclays income comes from the recessionary UK, Europe and the Americas, and is also heavily investment banking-focused. Coupled with cost drags from issues such as UK bank levy, pension deficits and mis-selling, Barclays’ cost-income ratio at >60% appears sticky vs. DBS’ 42-45% range, in our view.

 Regulatory: Compared to the benign Asian bank regulatory landscape, developed market-straddling banks such as Barclays face a host of onerous overhangs that will have a continuing and significant negative impact on earnings and ROE – these include LIBOR-related liabilities, the still-evolving Dodd-Frank Act and UK-centric ICB “ring-fencing” proposals.

 Capital / liquidity: While being designated as a globally systematically important financial institution (G-SIFI) may deliver funding and branding advantages, Barclays will need additional capital (beyond Basel 3), underscoring Nomura UK bank analyst Chintan Joshi’s view that Barclays will need to retain earnings for years to comply with regulatory needs. DBS not only ducks these burdens but is also positioned to leverage LDR higher even as Barclays deleverages towards 100%. 

 Profitability: With ROA five times greater, helped by a much lower tax  burden than Barclays, DBS currently generates almost double the ROE despite only half the leverage. Barclays’ many operating, regulatory and capital challenges mean this ROE gap is likely to widen in DBS’ favour.