DBS & UOB

So investors sold DBS on news of its Bank Danamon purchase. It closed 0.39 lower (2.75%) to 13.79. About a quarter of the sellers seemed to have bot UOB which closed up o.36 (1.97%) to 18.64.

As to OCBC, it closed down 0.03 (o.33%) to 8.96. Unlike DBS and UOB, a large chunk of its profits comes from life insurance. Hence, it was of no interest to those who wanted out of DBS but wanted exposure to S’pore banks. And there is the uncertainity of what the new CEO will want to do. The retiring CEO did a good job: he stuck to the basics of banking and life insurance.

DBS: Investors don’t like the Indon deal

Well DBS is down 0.44 to 13.74 some 3% from Friday’s close.

Despite all the propoganda from our constructive, nation-building mainstream media, aided and abetted by the wires and most brokers, investors don’t like the Bank Danamon deal. To be fair, investors nowadays don’t like their investee companies doing mega strategic deals (like Pru’s attempted purchase of AIA last year) because the historical numbers (still disputed) seem to show that strategic deals destroy shareholder value.

Well the non-Temasek shareholders of DBS will have an opportunity to reject the deal, if they think that Temasek benefits far more than DBS? BTW, did you know that when DBS bot PosBank from Temasek all that many years ago, it was a great deal for Temasek, not so gd for DBS .

Another Ang Mog bank retreats from Thailand

HSBC recently put put up a “For Sale” on its retail banking network in Thailand.

Now ING is doing the same for its stake in a Thai bank. http://www.reuters.com/article/2012/03/23/us-ing-tmb-idUSBRE82M05520120323. ING has  put a US$775m price on its 31%  stake in TMB. It .bought the stake in Thailand’s seventh-largest lender in 2007 for US$607m. Nice profit if it gets its asking price.

 

Wall St’s finest after the collapse of Bear

Citigroup’s down 82%

http://dealbook.nytimes.com/2012/03/16/how-wall-street-has-fared-after-bears-fall/?nl=business&emc=edit_dlbkpm_20120316

Citi cont’d

Citigroup’s CEO Vikram Pandit said the bank still has capacity to return more capital to shareholders and will seek clearance for a “meaningful” payout after the Federal Reserve rejected an initial plan, the wires report. The Fed allowed f\JPMorgan Chase and Wells Fargo to increase their payouts.

Despite this failure to payout more to shareholders, Vikram S. Pandit could see a total of US$53 million in compensation for 2011, from his yearly pay combined with a multi-year retention package, Bloomberg News reports, citing filings and an analyst’s estimate. Could remind TOC and TRE readers or their usual writers of the transport and HDB ministers who “retired” after failing to anticipate the problems that increased FTs would cause in their portfolios and of “50-year flood” Yacoob who got moved to MICA after Orchard Rd was hit by two such floods in two months in 2010.

Related post: http://atans1.wordpress.com/2012/03/14/citi-falls-fed-test-one-of-only-four-that-failed/

Citi falls Fed test: one of only four that failed

Four US financial institutions, including Citigroup, have failed stress tests designed to show they could withstand a financial shock. The Federal Reserve said Citi, SunTrust, Ally Financial and MetLife failed to show they have enough capital to survive another serious downturn.

Citigroup is the third-largest US bank. The majority of the 19 tested passed.

All those tested are in a much stronger position than they were after the 2008 financial crisis, the Fed added.The Fed tested the banks’ ability to withstand a similar crisis that triggered a rise in unemployment to 13%, a 50% fall in share prices and a 21% drop in house prices. Their strength is assessed by the amount of “buffer” best-quality assets, known as Tier 1 capital, they would hold if such conditions occurred. The regulator said Citigroup had a Tier 1 capital ratio of 4.9%.

Reminder, GIC still has a substantial stake in Citi. SIGH.

Update at 6.15pm on 14 March 2012: Despite failing the test, Vikram S. Pandit, Citigroup’s chief executive, could see a total of US$53 million in compensation for 2011, from his yearly pay combined with a multi-year retention package, Bloomberg News reports, citing filings and an analyst’s estimate.

Casinos: Good for our banks

No, not profits from lending to gamblers and loan sharks but from raising money for Sands.

Las Vegas Sands, controlled by Sheldon Anderson, hired DBS Bank, OCBC Bank and UOB to coordinate a S$4.6bn loan for Marina Bay Sands, Bloomberg News reports. The loan may be split into a S$4.1 billion term facility and a S$500 million revolving credit facility.

How to analyse a bank

Here’s a good report analysing why JPMorgan Chase should be broken up

http://dealbook.nytimes.com/2012/02/27/dividing-dimon-analyst-presents-case-for-a-jpmorgan-split/?src=dlbksb

HSBC: Which number to focus on?

 (Or “HSBC: Glass half empty or half full?” or “The difficulty of analysing a company esp a bank”)

HSBC Holdings, one of Europe’s biggest banks, said on Monday that its profit rose 27 percent last year in part because of greater demand for loans in the developing world.

(“Profit” here means profit attributable to shareholders)

http://dealbook.nytimes.com/2012/02/27/hsbc-profit-rises-on-demand-from-emerging-markets/?src=dlbksb

But FT preferred to focus on the 6% fall in pre-tax underlying profits to US$17.7 bn.

But pre-tax profits actually rose 15% to US$21.9bn. But FT, rightly in my view, took out the US$13.9bn gain in the value of the bank’s own credit. This is Alice-in-wonderland accounting that banks have to use (some happily, some reluctantly). The weaker banks love it.

HSBC is currently the most profitable Western bank, with its nearest rival, JP Morgan having profits 15% lower.

HSBC Asia Pacific posted profits before tax of US$13.3 billion – 15% more year on year. The region accounted for 61% of the group’s total pre-tax profit.

As regards HSBC S’pore, it posted a pre-tax profit of US$595 million for FY2011, up 14% from a year ago.  A lot better than OCBC’s and UOB’s S’pore operations. I plan to blog on how well Citi’s, HSBC’sand StanChart’s S’pore operations compare to our three local banks, one of these days. BTW StanChart juz reported that its pre-tax profit from it’s S’pore operations has hit US$1bn, up 40%.

Another reason not to buy a structured product

(Or “Another reason not to trust yr bank”)

“Exactly how did Wall Street price the loans that it bundled into securities and sold to investors?”

Answer: There is evidence that “prices on some of the loans … were artificially inflated at the time of purchase”.

http://www.nytimes.com/2012/02/05/business/an-investment-wipeout-that-didnt-have-to-happen.html?_r=1&ref=business&nl=business&emc=dlbka35

A worrying economic signal?

Investors are in the mood to take more risk in return for higher rewards. They are in “risk on” mode.

Recently, the Baltic Dry Index has fallen to a 25-year-low (since then it has risen by 1.9%) prompting concern that history is about to repeat itself. In the past, say 2008, a weak index foretold a recession, or at least an economic slowdown.But this time there been some special factors at play, according to conventional wisdom. The boom in the Baltic Dry seen before the financial crash and recession was in large part the result of a shortage of ships, which pushed up the cost of carrying freight. There are now far more ships with greater capacity and, because it has taken time for the vessels to be built, the extra capacity has become available when ship owners least want it. A, short-term factor, has been that the Chinese New Year holidays fell early this year, depressing trade in Asia.

Still a 2.9% fall in German industrial production in December suggests that the index might have collapsed due to both increased supply of shipping and weak demand. Germany is the world’s biggest exporter and the hefty slump in output at the tail end of 2011 coincided with the intensification of the crisis in the euro zone. Remember, too, that Germany exports machines to make goods to China.

Update on !0 februart 2012 at 7.05am:

Imports into China fell by 15.3% In January, and this cannot be all due to the Chinese New Year holiday factor. Exports dipped 0.5% from a year earlier hurt by sluggish demand and factories being shut during the Lunar New Year.

This resulted in a trade surplus of $27.3bn which was a six-month high.

More

DBS customers and investors: Be glad that hackers were only M’sian

If I had an internet banking account with DBS, given its track record in IT , I would be afraid, very afraid. Read how smart hackers can be: http://www.bbc.co.uk/news/technology-16812064

If you bank with HSBC, Citi, OCBC or UOB, relax. These banks have gd IT track records here, even though HSBC and Citi have a lot of FTs from India, more possibly than DBS. UOB and OCBC: true blue S’poreans in their IT departments (OK, more than in DBS).

If I had shares in DBS, I’d be afraid that another security problem could cause very serious damage to DBS’ reputation and pockets.

S’pore Property: But would banks be allowed to?

Mortgage rates make the difference

So what contributed to the recent decoupling of Singapore and Hong Kong home prices?

The simple answer is mortgage rates.

Driven by strong loan growth and rising loan-to-deposit ratios, Hong Kong banks have raised their mortgage rate spreads since early this year [2011]. This has resulted in higher mortgage rates and reduced demand for residential properties, which in turn led to the slide in private home prices since September.

On the other hand, the Government’s property cooling efforts have so far been thwarted by very low mortgage rates. With base interest rates remaining near record lows and Singapore banks charging very low mortgage spreads, affordability remains high.

However, there is a risk that Singapore mortgage rates would rise next year from their current low levels. Like their Hong Kong peers, Singapore banks have also experienced strong loan growth over the past year, which in turn has pushed up their loan-to-deposit ratios – although it must be said that ratios in Singapore dollars are generally still low.

Moreover, with the debt crisis that is plaguing the European Union, there has been anecdotal evidence that some European banks are pulling back their credit lines in Singapore to help boost capital ratios as required by the EU debt plan. If these banks continue to deleverage, it could result in less competition in the lending market for Singapore banks, which may then feel comfortable enough to raise their lending spreads, including mortgage spreads.

In fact, during the 2008/2009 global financial crisis, local banks such as UOB and OCBC were able to increase their net interest margins as foreign banks reduced their lending activities in Singapore.

Thus, while the recent decoupling in Singapore and Hong Kong residential property prices may make for an interesting read, we do not expect it to last for long, especially with the latest round of cooling measures introduced in Singapore.

http://www.todayonline.com/Commentary/EDC111223-0000039/A-tale-of-two-cities

Should happen as this UBS analyst postulated in late Dec 2011. But if the government thinks property prices will tank, not juz fall a little, the local banks will “do the right thing” by home owners, but not investors. It has happened before. In the crisis in the mid 80s, when many home owners had negative equity, the banks “did the right thing” and did not ask for more equity. Home owners had gd reason to vote PAP.  

 

 

OCBC: Standards even lower than PM?

PM said abt his ministers as reported in the media: Negligent or dishonest ministers will be sacked, but short of that, there is a need to handle exits decorously and with dignity – and not turn them into public spectacles that deter more good people from entering politics.

“If a minister doesn’t perform well despite his best efforts, then I will move him to a less demanding portfolio where he is able to perform or, if necessary, I may have to phase him out discreetly,” he said. “Not every person who comes into government will succeed as minister. It’s a difficult job.”

What the Fish? Where’s the accountability? Looks like once a minister, can skive or tuang, juz need to show trying. No wonder Lim Hng Kiang is still a minister. Bet you he is the MR3 minister who gets more than other ministers except PM and DPMs. He’s got the senority being a cabinet minister since 1994. Raymond Lim and Mah should cry,”Not fair, PM”, and “Why us, and not Yacoob?”.

But WTF? OCBC is going one step “betterest”.

“After the succession, OCBC’s corporate bank will be divided into corporate banking and commercial banking, which will be led by Mr George Lee, currently head of investment banking, and Mr Linus Goh, currently head of enterprise banking and financial Institutions”.

I mean OCBC’s investment bank is a complete failure and the guy running it will run the corporate bank? Albeit one that is less impt than the previous corporate bank. At least PM moves duds to portfolios where he thinks they can’t do much damage. OCBC moves an underperformer to where he can damage the brand seriously.

Think I’ll stick to UOB, that I hold via Haw Par.

Citigroup: Its day is coming

 UBS and Citigroup are stocks that the SDP, and KennethJ use to beat up GIC (and its then executive director) regularly

This explains why Citigroup might be the stock to own.

 Citi’s a strange creature. It’s dysfunctional. Its never missed a major financial crisis (loans to the developing world and US property loans in the late 1970s and 1980s; LBO loans in the late 1980s; dotcom stock recommendations in the late 1990s; and sub-prime mortgages recently). But at the operational level, it produces good managers who are in demand when it comes to running medium-sized banks in developing countries. The CEOs of DBS and OCBC were from Citi, as was  the CEO of RHB Babk.

When SPH & DBS team up well, S’pore Inc can be Awesome

If anyone thinks that SPH’s publications have lost their clout because of new media, citing the bad reception that Pay Wayang, SMRTgate and PondingGate got from the public despite these publications spinning all the way for the White Side, the way that they covered DBS’s CloneGate shows their clout, even in the age of new media.

Customers were reassured, and the usual moaners were ignored by the public even though DBS is part of the Temasek Group (that S’poreans love to hate partly because its CEO is the wife of the PM), and the public and its customers often view DBS as dysfunctional.

SPH’s publications when combined with an effective public communications strategy is a fearsome tool.

DBS got its strategy right, moving “quickly to assure customers that their losses will be covered and investigations are underway. Experts were immediately put on air not to put a spin on why it’s not a big deal, but rather explain concisely how the scam probably occurred and is being carried out,” Words of the Cze. (If it had tried to weasel its way out, I for one would have asked how come the data theft could have occured at two high traffic ATMs, and why OCBC or UOB were not hit first? Why was DBS so dysfunctional?)

Don’t believe me? Reading ST (and MediaCorp’s freesheet) even I tot DBS was being generous in quickly compensating its customers until I read this in ST’s Forum. It reminded me (a trained lawyer who did a lot of banking legal work) that  it was DBS that lost money, not the affected customers, “When someone deposits money with a bank, he is in effect lending money to it. Property rights to the money pass to the bank. In return, the bank owes its customer a debt. At that point, any money stolen or pilfered from the bank is its money, not its customer’s,” SMU academic. (BTW, I get the impression that a very impt KPI for SMU academics is how often they are quoted in the local MSM. One wonders if they have time to do other things.)

The PAP, SMRT and PUB did not get their public communications strategy right (see the above link on what PUB and SMRT did wrong) and SPH could not play its traditional constructive, nation-building role in helping out the White Side.

Coming back to DBS. When its CEO early last week ( his second anniversary at DBS) came out boasting of his achievements, I tot, “Nemesis” and “What bad news is he foreshadowing?”. Well Nemesis has struck and DBS has reacted very, very well to what could have been a major public relations fiasco. As to the bad news, “Watch and wait”.

But DBS is no longer dysfunctional. Could it be a turnaround situation, worth investing in? In Q3 2011, DBS’s return on equity was ahead of OCBC and UOB. BTW I own Haw Par shares which is a play on UOB.

Ghosts haunting Citigroup this Christmas

(Another piece in an occasional series wondering why anyone would want to be a Citi customer. No, never had any account with Citi, nor ever sought one.)

1. Another soured deal that it did with a wealthy client

Saudi businessman Ghazi Abbar, who claims in an affidavit he lost $383 million of his family’s fortune on investments with Citigroup Inc., was sold one of the transactions even though the bank questioned his ability to properly manage them, according to an internal memo.

http://www.bloomberg.com/news/2011-11-30/citigroup-saudi-deal-haunts-pandit-as-family-claims-383-million-wipeout.html

2. Bloomberg reports, Part of the New York-based bank’s retail business will be suspended for 30 days by the Japanese Financial Services Agency, said one of the people, who asked not to be named because the matter isn’t yet public. Citigroup’s trading unit will be suspended from selling products tied to interest rates for 10 days and its head, Brian McCappin, may resign, the person said.

Citigroup Chief Executive Officer Vikram Pandit is trying to restore the bank’s reputation in Japan. Regulators punished the company twice in seven years after finding fault with its private-banking operation and a lack of internal controls.

The trading unit will be banned from selling certain products in Japan tied to the London and Tokyo interbank offered rates, or Libor and Tibor, the person said. These are rates at which banks are willing to lend money to each other. Citigroup employees tried to improperly influence Tibor to the firm’s advantage, two people familiar with the matter said earlier this month.

Related posts

http://atans1.wordpress.com/2011/07/01/behind-yr-payments-to-citi/

http://atans1.wordpress.com/2011/04/09/citi-owe-it-money/

http://atans1.wordpress.com/2010/11/06/citigroup-wins-life-or-death-fraud-case/

http://atans1.wordpress.com/2011/08/06/why-do-people-like-being-citi-clients/

Banks can lose money on private banking business

Our three local banks are targeting private banking because Asians are getting richer and richer, it’s a steady, cash generating business providing a great annuity revenue, and it allows them to take advantage of their large capital base (they are among the safest banks in the world) which is a drag on earnings. One report has DBS as the “strongest bank” in the world, while another has OCBC. Me, I say OCBC because less FTs there, even its ang moh CEO is more-or-less localised. And it has the Lee family as a contrilling shareholder. They are super conservative.

But Investec, a South African investment bank is a lesson for our local banks. In November 2011, it posted a 2% decline in first half earnings after recording a loss at its private banking business and a sharp drop in deal flow.

It had been reducing dependence on lending and deals, and asset and wealth management now account for 40% of operating income, compared with 29% a year ago.

But the private banking division lost £4.9m, hurt by real estate woes in Ireland and Australia. Operating profit before exceptional items totalled £223.63m in the six months to end September, compared to £228.16m in the same period last year.

So losing money in private banking is a possibility

Worse our banks have to spend a lot juz to be in the game. OCBC despite acquiring ING’s Asian private banking biz*, is still a midget even in regional terms when compared to Citi, HSBC, UBS and Credit Suisse. The Bank of Singapore (OCBC’s private bank) expanded its assets under management by 11% in the first nine months of 2011 to US$29 billion. Peanuts by int’l standards.

——

*It paid, in 2010, US$1.46bn which represents 5.8% of the unit’s assets under management, after adjusting for surplus capital of US$550m. This compares with the 2.3% measure paid by Julius Baer for ING’s Swiss assets which is in line with another European purchase by an American private equity group of a smallish private banking outfit — RHJI’s purchase of Kleinworth Benson from Commerzbank. To be fair to OCBC, it was rumoured that HSBC was willing to pay the same price, but lost out when it was unwilling to give promises that staff would not dismissed. OCBC was willing to give this promise.

EuroLand Trojan Horse in US financial system?

Or how the Germans can force the US to bailout the Eurozone by allowing Deutsche Bank to  “fail”. Taunus Corp is the U.S.’s eighth-largest bank holding company. Taunus is the North American subsidiary of Germany’s Deutsche Bank.

http://www.bloomberg.com/news/2011-11-21/johnson-deutsche-bank-could-transfer-contagion.html

Think I’m looney?. The Germans are already playing one big game of “chicken” with investors and the people of  PIIGS (Not that these investors and people deserve our sympathy.) Waz another bloodless variation of this game to the nation whose leaders in the 20th century started two world wars in the hope of global domination, or at least European domination.

And the IMF has in what appeared to be an attempt to help countries such as France and Spain stave off the crisis, the IMF said that member countries with a track record of implementing “sound policies” could access up to 10 times their contributions to the fund. It did not say which countries it meant but said it was establishing a flexible liquidity line which would act as “insurance against future shocks and as a short-term liquidity window to address the needs of crisis bystanders”.

Banks’ Alice-in-Wonderland Accounting

The problem with a bank’s balance sheet is that on the left side nothing’s right and on the right side nothing’s left.

Think Lehman’s and Dexia’s balance sheets. One day AAA, six months’s later rubbish. That fast leh?

Profit and loss accounts are just as rubbishy. Recently UBS’s third quater profit fell to 1.02 billion Swiss francs (US$1.2 billion) in the three months ended Sept. 30 from 1.66 billion francs in the period a year earlier. The trading loss of  1.85bn Swiss francs (alleged caused by a rogue trader) and charges linked to a cost-cutting plan were partly offset by an accounting gain on the bank’s own credit of 1.8 billion francs and the sale of some investments.

Now this accounting treatment was not not only used by UBS. According to the FT’s Lex, four-fifths of the US$16bn net profits  in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.

Lex describes the accounting treament thus: ” Try this on your credit card company: your creditworthiness has weakened, so you write down the value of what you owe them to reflect the greater riskthat you will not pay it back and credit the difference to your personal account. That is what exactly accounting allows”.

UBS: What else can go wrong?

Readers will know by now that UBS, where GIC is a major long-term (and suffering)  investor, is planning to reduce the scale of its investment banking operations, the source of its on-going problems since 2007.

But they may not know “What they are trying to do has never been done before,” Christopher Wheeler, an analyst at Mediobanca, said. “They want to shrink the investment bank by choice, which means unwinding positions without loss and running down their books while keeping the morale among staff, and it’s unclear who’s running the shop.”

And don’t be fooled by its latest results. Despite being hit by a 1.85bn-franc loss from deals made by an alleged rogue trader, it just made  a better-than-expected third-quarter net profit of 1bn Swiss francs (US$1.1bn).

The loss was almost entirely offset by a 1.77bn-franc accounting gain that came from changes to the value of the bank’s own debt. One of these days, I’ll blog on the Alice-in-Wonderland accounting that allows this type of gain to materialise. According to the FT’s Lex, four-fifths of the US$16bn net profits  in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.

“Insufficient funds”

What worries me most about the credit crunch, is that if one of my cheques is returned stamped ‘insufficient funds’. I won’t know whether that refers to mine or the bank’s.

Not true of our three local banks, they got lots of capital. They are using it to attract private banking clients. Even DBS, who blew up S’pore clients but compensated HK clients.

Temasek’s StanChart bonds: No losers?

Despite the following and other rants, ‘Temasek’s S$650m issue of bonds exchangeable into StanChart shares was oversubscribed.”The order was $1.25 bn,” it was reported. I was not surprised.

Singapore Notes ranted, Stanchart shares are currently trading at £13.73 (yesterday’s quote); the highest level reached during last year was £19.75. The British £ has also taken a pounding, diving from S$2.90 to S$2 yesterday, a stomach churning plunge of 30%. Yahoo! Finance indicates today’s range will be £1.9907 – £1.9937.

So what fool (as in “fool me, hah?’) would bet that the Stanchart share price would go up 27% in 3 years’ time? That’s a tantalising return of 9% per annum, assuming the pound-euro correlation doesn’t get any worse. Reuters is reporting a sterling drop, as latest UK data adds to the gloomy outlook.

Juz look at the volatility of the share price. In the last 12 months, it has been up to £19.75. More than 27% from current prices. And in November 2008 it was trading around £8. Investors buying the bonds are betting that StanChart’s share price recovers within three years. Not an unreasonable bet, given the volatility of StanChart’s (and other banks’) share price in recent years. Interesting chart.

At worse, they lose their funding costs (if they borrow money to buy the bond) or opportunity costs (if they invest in cash or bonds) for three years. Their upside is 27%++.

To quote Reuters Breakviews, One part would be a zero-yield bond, with a face value of S$36. Assume lenders to triple-A rated Temasek normally demand a 1.8 per cent annual return, and the bond is worth around S$34.50 today.

The other part is a call option on Stanchart shares.

Plug the lender’s current price, its forecast 3.5 per cent dividend yield, and the implied volatility of Stanchart’s stock into an options calculator, and it looks to be worth S$4.50.

Put together, the two bits of paper have a total value of S$39 – some 8 per cent more than investors paid. Taz why the issue was oversubscribed.

Unlike me, the writer thinks it ain’t such a gd deal, But it’s probably not such a sweet deal. The value of the call option is inflated because Stanchart’s shares are twice as volatile as they were before the summer.

If the shares return to their steadier state, the option is worth closer to S$1, leaving the value of the whole package a little below the sticker price. I think volatility will persist.

‘The writer goes on to talk about the deal’s advantages for Temasek, For Temasek, there are obvious attractions. Even if all the bonds are exchanged for shares, it will retain a 17 per cent stake in Stanchart.

And if the shares don’t rise much, the fund will have borrowed S$650 million interest free.

But for all that, the savings are small. Say Temasek had simply borrowed directly from the bond markets. Over three years, its total interest bill would be less than S$40 million.

Moreover, the bond issue triggered a mini-rout in Stanchart shares, leaving Temasek with a paper loss on its remaining stake 10 times the size of the interest costs it saved.

Other than demonstrating its financial prowess, Temasek doesn’t have much to show for its wizardry. True but given the jitteriness of the markets, the shares would have fallen for other reasons. Banks are not the flavour of the month.

Temasek’s StanChart Bond Issue

I’m surprised that a blogger whom I respect could get it so wrong with his analysis of Temasek’s stake in StanChart and the share price that investors can buy into StanChart via Temasek’s latest bond issue.

Singapore Notes reports, “The zero coupon bonds which mature in 2014 can be exchanged for Stanchart shares at £36.29 per share during a 3 year holding period, a 27% premium over Monday’s price of £14.29 on the London Stock Exchange.” A 27% premium to £14.29 works out to £18.15. not £36.29.

As to the value of Temasek’s stake in S$, he used as his starting point, “the purchase of a 11.5 % stake from Khoo Teck Puat’s estate in 2006. Then Stanchart shares were trading at £15.24, when the exchange rate was S$2.90 to £1.”

Since then there have been two massive and deeply discounted rights issues. The one in November 2008 was done at  £3.90, a 48.7% discount to the last done share price before the rights issue announcement. The rights ratio was 30 new shares for 91 existing shares. In October 2010, it called for a 1 for 8 rights issue priced at £12.80, a 32% discount to the last done share price before the rights issue announcement.

Swings and roundabouts

When the Americans and British saved their leading banks in 2008, the Europeans (especially the French) were sneering at them for allowing their banks to overlend or overinvest in AAA mortgage securities. The Europeans (read French) knew better.

Now the European banks, especially the French ones are in deep trouble, over lending to the PIIGS (five weak European countries). And the French government is afraid to help them because giving them state aid will threaten Frances’s AAA ratings.

Poetic justice.

Gets better still. The sub-prime crisis blew-out in 2007 because a French bank (can’t remember which one) stopped issuing the daily valuations of two of its mutual funds that invested in US sub-prime mortgages. It said it couldn’t establish a market value for these securities.

That forced other banks to revalue downwards their holdings of mortgage securities. This affected the Americans most.

S’pore banks: Is private banking the future?

It has been a regular complaint of mine that our three local banks have too much capital for their own good. See this and this.

This excessive capital requirement is the reason why OCBC paid such a high price for the Asian private banking business of ING and why DBS and UOB are trying harder to build up decent private banking businesses, despite repeatedly failing to do so in the past.

While private banking itself does not use up much capital, clients and prospects want to put their money in banks that have plenty of capital. A very high capital  base is a great comfort blanket. As is the conservative nature of a bank. OCBC and UOB have both and while DBS’s FTs are more cowboyish, they have been kept in check, so far.

OCBC’S private bank claims that it is attracting assets from the Singapore branches of French banks as the euro region’s debt crisis frightens their local clients. Defections from French banks helped generate net new money of about US$4 billion for Bank of Singapore this year, the CEO said recently.

Private banking looks like a good use of the local banks’ capital, given that their conservatism and regulatory requirements require them to hold excessive amounts of capital.

But they are late in the game where economies of scale matter. Example: OCBC’s private bank (the biggest by far of the three local banks) had US$29.6 billion of assets under management at the end of June, less than 9% of the total at BNP Paribas’s wealth management unit. And this French bank is not a serious player in the either the Asian or international private banking industry.

Financial secrecy: S’pore is only 6th

In a new index on financial secrecy, S’pore is only ranked sixth. The Financial Secrecy Index 2011, puts Switzerland on top, followed by the Cayman Islands, Luxembourg, Hong Kong and the USA.

The Tax Justice Network, the group behind the report, says, “[A] secrecy jurisdiction provides facilities that enable people or entities escape or undermine the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool.”

The government’s policy is to encourage the growth of wealth management here so that S’pore can be the Switzerland of the East. Well, the central bank and the Attorney-General’s Chambers have a lot of work to do to make S’pore a better secrecy jurisdiction. Hong Kong is a better secrecy juridiction than S’pore. And S’pore and Hong Kong are rivals in the race to be the leading wealth management centre in East Asia.

At least, this report shows S’pore is a better global citizen than Switzerland, Hong Kong and the USA. But where’s the money in being a responsible, decent chap?

UBS: And GIC wasn’t consulted?

I don’t know what shocked me most.

I read in Monday’s Today that despite being the largest single shareholder in UBS (6.4%), GIC was not consulted on the management change when the CEO resigned. He resigned over differences in strategy and corporate governance issues.

Yesterday evening Reuters reported that “GIC supported former chief executive Oswald Gruebel’s strategic plan for the bank and believed he could have stayed on to manage it through the latest crisis, a source with direct knowledge of the matter said on Tuesday … GIC’s support of Mr Gruebel until the very end also shows that while his leaving may have satisfied some shareholders, it hardly reassured the Singapore fund, which owns 6.4 per cent of the bank.” (Sorry I don’t have the link as I got the report via BT Online.)

Given that GIC is the single largest shareholder and supported his plan, and the board was meeting in S’pore, GIC should have been consulted. Would any company where Warren Buffett is the single largest shareholder dare sack a CEO that had his backing? Unlikely.

Time for GIC to gain some respect by flexing its financial muscles. No more Ang Moh Tua Kee pls.

UBS: Why GIC may have to take a loss

The investment bank of UBS “now looks as likely to die as it is to live,” writes Felix Salmon of Reuters. Selling or spinning off the unit don’t look like great options in the current environment, he says.

So there goes GIC thesis of a unique franchise combining wealth mgt and investment banking.

Remember, GIC has a 6.4% interest in this dog with fleas and GIC is down around S$10bn as of Thursday last week. Since then the loss has reduced to S$9.75bn. Even Mrs Goh Chok Tong would not call this sum “peanuts”.

Sumething must be rotten with UBS’ mgt systems

Not easy to lose US$2bn. It takes a large amount of capital to be put at risk and one has to settle trades with real money. And one has to know how to fool the risk management system.As someone who has “arbitraged”, I know that if I can’t close positions on the same day, someone in the firm will know abt the trades as the firm has to borrow money to fund a trade, or expect payment from a counterparty.

As this article explains, it’s never a one- person show, no matter what mgt claims.

What’s yr advice on UBS, TT?

GIC’s big loss-making investment in UBS happened on Tony Tan’s watch at GIC.

Given the latest problem at UBS, a US$2bn “unauthorized” loss (anyone ever heard of an “authorized” loss?”, and Tony Tan’s boasting of his expertise, PM should ask him for advice on what to do with this long-term investment?

Too bad, the president can only give advice and be a security guard. In investment management and investment banking, there is a school of thought that believes that those who created the shit, should clean up the mess themselves.

Update at 4.15pm on 16 September 2011

Local paper reported that the book loss on GIC’s 6.4% in UBS is S$10bn based on yesterday’s closing price of UBS shares.

Temasek the hedge fund?

A consortium that includes Temasek and its wholly owned hedge fund Seatown Holdings has acquired a 5% stake in China Construction Bank it was reported on 30 August 2011

It had unloaded a portion of its own stake in the Chinese lender about a month ago, when, by my calculations, the price of CCB shares was  abt 10% higher. And given that it bought the latest batch of shares at a discount, Temask could have made 20% on the sale and repurchase.

Gd trade.

Description of trades

http://www.nytimes.com/reuters/2011/08/30/business/business-us-bankofamerica-ccb.html?nl=business&emc=dlbka32

Masterclass in analysis: Buffett’s BOA deal

When Warren E. Buffett invests in a troubled company, he gets a good deal. Dealbreaker’s Matt Levine crunched the numbers on Mr. Buffett’s Bank of America investment and estimates that the bank’s implied stock price in the $5 billion deal was $5.28 per share, more than $2 lower than where it currently trades. Note the way he uses less than precise assumptions to avoid getting into complications.

http://dealbreaker.com/2011/08/how-much-did-warren-buffett-pay-for-bofa-anyway/

Standard Chartered beats forecasts with 17% profit rise

London-based, Asia-focused Standard Chartered Bank (Temasek owns 19%) has reported that pre-tax profits for the first six months of the year were $3.6bn (£2.2bn), up 17% from last year.

Profits grew in all the regions where Standard Chartered operates, except for its biggest market, India, where profits fell by 5%.

Profits grew by 23% in Hong Kong, 34% in Singapore, 14%in South Korea and 19% in China.Income from the Middle East grew 4%, in Africa it grew 10% and in the Americas and Europe it grew 11%.

It blamed rising interest rates, growing competition and regulatory changes for falling profits in India.  It made a big bet in India financing takeover details. Will be interesting to see if these give the bank the same death-defying experiences as it gave some Wall Strret banks in the 1980s and 1990s. http://atans1.wordpress.com/2010/09/10/stanchart-getting-too-aggressive/

HSBC: Cutting the fat

HSBC has said it will cut 30,000 jobs by 2013 and exit operations in 20 countries as it looks to save billions of dollars.

The announcement came as the bank reported pre-tax profits for the first six months of the year of $11.5bn (£7bn), up 3% on the $11.1bn the bank made a year earlier. A very decent set of results.

As a shareholder, I can only say “about time”.

Gd analysis  http://dealbook.nytimes.com/2011/08/01/hsbc-to-cut-25000-more-jobs/?nl=business&emc=dlbka8

OCBC: look after yr shareholders, not yr creditors or regulators

First, Banking 101. The more capital a bank is required to hold, the less it can lend. It will make smaller profits, compared to a bank that needs to hold less capital.

Next some definitions. DBS Group, United Overseas Bank (UOB), OCBC Bank are required to hold a minimum Tier 1 capital adequacy ratio (CAR) of 6% and a total CAR of 10%.

International rules will require banks to hold a minimum common equity Tier 1 (CET1) CAR of 4.5%. MAS has decided that locally incorporated banks meet this rule from Jan 1, 2013 – two years ahead of the international 2015 timeline.

MAS will raise the minimum CET1 CAR to 6.5% from Jan 1, 2015. It will also bring the minimum Tier 1 CAR to 8%. The total CAR will remain at 10%.

MAS will also introduce a capital conservation buffer of 2.5% above the CET1 CAR. This will be phased in from 2016 to 2019.

So by 2019  locally incorporated banks will have to maintain a CET1 CAR of at least 9%, Tier 1 CAR of 8%. and CAR at 10%.

But one OCBC estimates that  its CET1 CAR would be around 10.8% cent based on the bank’s financial position as at March 31, 2o11. Its Tier 1 and total CAR are estimated at 14.1% and 16.9% respectively.

It’s only 2011 but OCBC’s CET1CAR is 20% above 2019′s required  levels, while  Tier 1 and total CAR are 76% and 69% more than required.

This is a lot higher than needed for a bank whose main markets (S’pore, Malaysia and Hong Kong) are safe, mature and well regulated markets. True OCBC is also into “cowboy” countries like China and Indonesia but these countries contribute little to revenue.

Too much capital relative to assets and liabilities is unfair to shareholders, while not benefiiting depositors and other creditors. It only makes life easy for regulators.

So OCBC should return excess capital in the form of dividends (I’m not in favour of buy-backs, something I’ll explain one of these days). Of course OCBC could decide to increase its balance sheet, but that usually leads to tears for shareholders.

Related post

http://atans1.wordpress.com/2011/05/12/local-bank-investors-are-strange/

Local bank investors are strange

Yesterday the three local banks did well with investors demanding their shares.

In a Bloomberg survey on the world’s strongest banks, S’pore banks occupied three of the top 10 positions. OCBC was number one, DBS was 5th and UOB was 6th.

If I were a shareholder in one of these three banks, I’d be upset that the banks were such inefficient users of capital because the stronger the bank is, the less its earnings potential.

Standard Chartered was ranked 15th. It needs to have plenty of capital around because it does business in some really difficult markets like places like the Ivory Coast where its operations were closed for several months.

It also does some risky business like lending for M&A transactions in India.

Our three local banks operate in safe markets. OCBC and UOB are heavily dependent on S’pore and M’sia while DBS is dependent on S’pore and HK. Yes they also do business in riskier places like Indonesia (all three), mainland China (again all three) and India (DBS). But these places contribute “peanuts” to earnings and assets.

They are also conservative in the businesses that they do.

So they don’t need to be such inefficient users of capital. They can easy operate safely with capital ratios similar to that of Standard Chartered. Thois would increase earnings.

HSBC: Plans don’t impress

HSBC’s CEO said that it would now focus its wealth management business on 18 key economies, and limit retail banking to markets where it can achieve profitable scale.

The bank is also streamlining IT operations and the operational structure. It hopes to save up to $3.5bn (£2bn; 2.4bn euros)

The bank said it would be directing investment into fast-growing national economies including Mexico and Turkey, and to certain wider regions, such as Asia and the Middle East. Asia means China (including Taiwan and HK), India, Indonesia,  Malaysia and S’pore.

The UK remains a core market.

Market was not impressed with HSBC shares down 0.8%. Analysts and investors were disappointed that the bank did not come out with more details e.g. the number of jobs that would be lost to show that the bank is serious.

HSBC: 44% price rise?

HSBC shares may rise by at least 44% if it focuses on markets that generate higher returns according to an analyst at Investec Securities, Bloomberg reports.

HSBC could climb to about 950 pence a share if Gulliver commits to ensuring all businesses generate a return on equity exceeding 10 percent, Gareth Hunt, a banking analyst at Investec Securities in London, wrote in a note to investors today. The London-based bank needs to cut costs in the U.K., reallocate capital at its U.S. division and sell parts of the business that aren’t profitable enough, he wrote. Gulliver, who took over as CEO in January, will brief analysts on his plan for the bank on May 11.

Citi: Owe it money?

A customer, a politician, who owed 68 million rupiah on his Citigold card, died on March 29 while meeting with bank staff, Gatot Eddy Pramono, head of the South Jakarta Police District. said. Four people are suspected of being involved in the death, he said, Bloomberg reports.

FT reports that three external debt collectors  working for Citi have been detained, and face possible murder charges.

An internal investigation into the death didn’t reveal any physical violence, Citigroup’s Mukhtar said April 5. The bank had been working with the client and had offered to waive as much as 40 percent of the principal amount, he said, Bloomberg reported.

Citi’s a US bank in name only

More than 50% of its profits come from emerging markets juz when emerging markets are losing their attractiveness to global investors.

Given Cit’s record of losing serious money by jumping into markets late (think sub-prime, and lending to finance LBOs, US property (in the 80s) and Latin America (in the 80s too), S,poreans should be concerned., given GIC’s 5%(?) odd stake in Citi,

Article

The Fed notified financial institutions that passed a second round of stress tests that they can begin returning money to their shareholders, The results are confidential but already some US banks are saying they will raise dividends this year. Among them are Citi rivals JPMorgan and Wells Fargo. Citi says that only in 2012, will it consider raising its dividends, It got a lousy rating?

And I now know why the executive director of GIC is looking to increase US exposure.

HSBC: Asia flying

HSBC said its Asian operations can sustain return on equity of as much as five percentage points above the lender’s global target as growth outpaces other regions. It’s global target is 15%.

Bloomberg report.

BTW the 2008 financial crisis enabled me to double my holdings in HSBC via its rights issue. But there were times when my balls shrunk.

Citibank: What our MSM doesn’t tell us

Our MSM focused on the fact that last yr was Citi’s first profitable yr since 2007. But it didn’t say much abt fact that Citi’s latest quarterly profits disappointed the mkt because they are due to a tax credit and a transfer from its reserves, nothing to do improving operations.

Could it be because GIC stills owns a lot of it? And with a GE coming, the “constructive, nation building” media don’t want to remind us that returns for shareholders are not going to be great for some time?

MM got it right, Temasek got it wrong

As this article shows, Temasek shld not have been so hasty in selling its stake in BoA, which it got after BoA bot Merrill Lynch where Temasek had a big investment. BOA is doing the things that attracted it to spend US$5.9 bn buying shares in Merill Lynch. Temasek lost US$4.6 bn, it was reported.

Shortly before Temasek sold, MM had said that S’pore Inc’s investments in Citi, UBS, and Merill Lynch had a time-frame of 30 yrs. Temasek held its ML investment for over a yr. GIC still owns shares in Citi (profitable), and UBS (big loss).

(Aside so why should the young listen to him, when Temasek doesn’t? Other instances). Neither does it seem does the local media)

Bank of America is headed for its best year [2011]advising on mergers and acquisitions in Asia-Pacific since 2005, and arranging initial public offerings since 2007, data compiled by Bloomberg show. The combined companies have generated 30 percent more revenue from traditional investment-banking businesses in the region than they did as separate entities …

Citibanking: S’pore leads the way

NY follows.

Citi executives celebrated the new branch, which was modeled after high-tech branches in Singapore and Hong Kong that were apparently very well received by customers there.

Err OK HK too.

DBS: Three gd moves in 2010

DBS seems to be getting its act together. In November,  the CEO (FT turned citizen) said he planned to improve return on equity by building businesses that cater to wealthy individuals and small companies, and by expanding in China, India and Indonesia. Well with two moves made in December, he seems to be keeping to his word.

It will take over Royal Bank of Scotland Group Plc’s retail and commercial banking businesses in China, it was annced last week. This is possibly a  high risk move but if things work out reasonably well, it would have added bulk to its China operations, giving it credibility with potential customers. The risk is that it will assume US$900m of structured notes that RBS sold to its depositors.  We know what can happen when DBS plays around with these deposits: customers lose wealth, and if they are S’poreans, get screwed http://atans1.wordpress.com/2010/08/06/what-abt-high-notes-sm-goh/.

Earlier in the month, it annced the sale of  its asset management arm to Japan’s Nikko Asset Management for S$137 million. DBS will then acquire a 7.25%  stake in Nikko Asset and distribute Nikko funds through its branches throughout the region. This move shows

OCBC picks for 2011

Like other brokers, OCBC is bullish for next yr. But there are some picks that are unique to OCBC.

Our picks for 2011 are Ascott Residence Trust, Biosensors International Group, CapitaLand, DBS Group Holdings, Ezra Holdings, Genting Singapore, Hyflux, Pacific Andes Resources Development, Keppel Corporation, Mapletree Logistics Trust, Noble Group, Olam International, Sembcorp Marine, StarHub, United Overseas Bank, United Overseas Land and Venture Corp.

HSBC: Returning to its Chinese roots

Remember the “S” stands for “Shanghai” and “H” for Hongkong.

Growth in China has averaged around 10 percent a year for the last decade and shows little sign of slowing. As trade flows with the rest of the world increase — HSBC says they will reach $5 trillion by 2015, which means growth of 13 percent a year — more of China’s cross-border trade will be settled in yuan.

On paper, HSBC is well placed to take a good chunk of business in that yuan-denominated trade. It is often one of the first foreign entities to win key licenses in China. It was the first to settle a cross-border yuan trade last year, the first to handle a yuan-denominated interest rate swap in Hong Kong in October, and it became the first international bank to complete yuan settlements in six continents with a deal in Brazil last month. …

StanChart: Shares fall 6% in 2 days

StanChart shares have fallen 6% since last Thursday when it told the market that costs were rising and wholesale banking revenues weak.

For StanChart, growth is proving costly. The British bank with a strong focus on Asian emerging markets said last Thursday that it had another record year to look forward to, predicting further growth in its pre-tax profit for both the consumer and banking wings of its business. However, such growth comes at a high price, and costs for the bank have been growing faster than it would ordinarily allow.

Its finance director said the bank would try to slow cost growth next year until it draws level with income growth once again.

Reminder: Temasek has 19% of StanChart and the bank is one of its best picks ever.

Paulson, Soros selling out of their bets

As of the end of the third quarter, John Paulson had reduced his stake in Bank of America by about 30 million shares, to 137.8 million shares. And he cut his holdings in Citigroup by about 82.7 million shares, to 424 million shares. He had been buying BoA in early 2009 juz when Temasek was cutting its losses, losing in the process ”US$4.6 billion loss on a US$5.9 billion dollar investment” according to a CNBC report.

Looks like he is no longer bullish on US banks.

George Soros sold over half of one million shares of  SPDR Gold Trust to finish the quarter with 4.7 million shares. John Paulson maintained a 31.5 million share holding of the exchange traded fund through the quarter.

John Paulson remains bullish on gold while Soros is trimming his stake and laughing all the way to the bank. Remember he called gold a bubble in the making, and jumped into it earlier this year.