Yesterday, StanChart was the top performer in the FTSE 100, adding 7% thanks to JP Morgan upgrading its rating on the bank’s shares to “overweight” from “neutral”.in a note to clients.
Archive for the ‘Banks’ Category
The British bank added the former leaders of Interpol (a S’porean) and the Swift bank messaging network and a former counterterrorism adviser to President George W. Bush.
But this lack of Asian experience shows that the directors think that the main priorities for the bank are to shore up capital (rights issue coming) and mending ties with US regulators. He has great credentials for these tasks. Temasek seems to agree. it welcomed Mr. Winters, who “brings with him considerable experience, as well as an excellent reputation for building good teams.”
(*Btw, “inspired choice” is FT’s description)
Still the lack of Asian experience could become a major issue because there is expected to be an exodus of experienced managers. He may find replacements but changes will be disruptive if not problematic.
STANDARD CHARTERED OVERHAULS LEADERSHIP The British bank Standard Chartered responded on Thursday to shareholders’ calls for change, announcing a sweeping management overhaul including the departure of its chief executive, its chairman, the head of Asian markets and several directors, Jenny Anderson and Chad Bray write in DealBook. In a move that surprised many, it named William T. Winters, the 53-year-old former head of JPMorgan Chase’s investment bank ‒ who was once seen as a candidate to succeed Jamie Dimon ‒ to take the helm.
Mr. Winters, who will join the bank on May 1 and become chief executive in June, will succeed Peter Sands, one of the longest-serving chief executives in British finance. He will receive a base salary of 1.15 million pounds, or about $1.8 million, as well as a pension and other benefits. As the bank’s leader, Mr. Winters will not have it easy. The bank has been hurt in recent years by regulatory fines and investigations and by its focus on emerging markets. It has slashed thousands of jobs, closed its stock trading and underwriting unit and is looking to cut $400 million in costs. Impairments for bad loans, including in the mining sector, have soared.
But Mr. Winters, an American, appears up to the task. In a call with reporters, John W. Peace, the chairman, said that Mr. Winters had “great respect among regulators, clients and the market” and a solid understanding of the global regulatory environment. Temasek Holdings, which owns almost 18 percent of Standard Chartered, declined to comment on whether it had pressed for management changes. But it said that it welcomed Mr. Winters, who “brings with him considerable experience, as well as an excellent reputation for building good teams.”
Related article: http://blogs.reuters.com/breakingviews/2015/02/26/stanchart-board-clearout-is-only-the-first-step/
The British bank HSBC is facing battles on multiple fronts. Already forced to apologize for helping clients hide their income from tax authorities, the bank also had to explain on Monday why its chief executive, Stuart Gulliver, went to lengths for years to hide his bonus, at least from his co-workers, Jenny Anderson writes in DealBook. On top of all that, HSBC, which generates much of its income from Asia, reported abysmal results for 2014, saying that its profit fell 15 percent, to $13.7 billion, compared with $16.2 billion in 2013.
The Guardian newspaper reported late Sunday that Mr. Gulliver held at least 5 million pounds, or $7.7 million, in a Swiss account through a Panamanian company until 2003. Mr. Gulliver said on Monday that the account was legal and that he had paid all the required taxes, but his maneuvers nevertheless compound a problem for the bank’s reputation, which is still dealing with the fallout from efforts by its Swiss private banking arm to help wealthy clients evade taxes, Ms. Anderson writes.
Mark Gilbert of Bloomberg View writes: “The cascade of recent revelations suggests HSBC still hasn’t learned its lesson and is more of a social menace than a social good. Mr. Gulliver’s personal tax arrangements may not be illegal, but they are surely ill-advised and inappropriate.” Unless Douglas Flint, HSBC’s chairman, “pulls off an Oscar-worthy performance at Wednesday’s parliamentary hearing, HSBC will only have itself to blame if the authorities decide the bank is too big to regulate and respond by seeking its dismemberment.”
Update on 26 Feb 2015 at 6.30 am
More than a tax problem : http://www.bbc.com/news/business-31590613
Major shareholders getting cranky: http://www.bbc.com/news/business-31618032
The u/m aricle in early Feb reminded me of something I read last yr about an SME bank in the UK
DBS Bank has launched a programme to provide financing to technology start-ups and expand capital-raising options for technopreneurs.
Tech start-ups can tap the new DBS venture debt programme for working capital, buying fixed assets and even project financing*.
Our SMEs (small and medium enterprises) are always KPKBing money not enough. Govt says got plenty of schemes. Why no use? SMEs reply that terms too stringent, and the people administering the schemes are clueless about their businesses. .
Well the UK, where SMEs too are cocal in complaining about funding, has the British Business Bank. It does things differently
BBB devolves responsibility for choosing its investments to private-sector expertise by allowing the Angel CoFund board, composed of independent bankers and investors, to make the investment decisions. “This is a financial strategy to complement the government’s industrial strategy”, says Mr Morgan. It also uses the expertise of peer-to-peer lenders like Funding Circle, to which it has given £40m. Mr Morgan says the bank can thereby avoid crowding out the private sector. Its investments are always in the equity of a business, but it never takes a majority share.
*To qualify, tech start-ups must be backed by DBS’s partner venture capitalists, who include Vertex Venture, Monk’s Hill Ventures and Golden Gate Ventures. They should have raised at least $1 million of Series A funding, been in operation for at least a year, been incorporated for at least two years and have demonstrated that their business model is commercially viable.
“Start-ups in Singapore primarily rely on venture capital to fund their operations,” DBS said in a statement on Thursday.
(Or “HSBC and the right Chinese tycoons”)
HSBC is traditionally Li’s go-to bank for financing deals with its dominant local presence and a dedicated team to cover Li’s companies earned US$136 million in fees.Goldman Sachs has emerged as Li’s favored bank, pulling in an estimated $220 million in fees from Li’s two main companies Hutchison Whampoa and Cheung Kong Holdings since 2000.
Do remember that HSBC’s fees are on top of the interest it gets on its loans to these cos.
HSBC sold him Wharf once upon a time (the ang moh MD of wharf was angry as he said he could have arranged a better price) and both never looked back.
Which reminds me of the man who laid the foundation that made HSBC a global bank. Lee Quo-wei, the former chairman of Hong Kong’s Hang Seng Bank Ltd died on 12th August 2013, age 95
After joining Hang Seng Bank in 1946, Mr Lee was among those who transformed Hang Seng into the second-largest Hong Kong-based lender from a money-changing shop founded 13 years earlier. He helped Hang Seng end a bank run in 1965 with a capital injection from Hongkong & Shanghai Banking Corp, now HSBC. Four years later he was part of the team that created the Hang Seng Index.
Mr Lee was appointed executive chairman of Hang Seng Bank in 1983, according to a statement from current chairman Raymond Ch’ien. He retired in 1998, becoming honorary chairman and later honorary senior adviser.
If Hongkong Bank did not buy Hang Seng (at a good price from Hongkong Bank’s perspective, Mr Lee used to say to HSBC’s ang moh executives), HSBC, would not have become so entrenched into the HK economy. Look at StanChart and taz the best HSBC would have become.
As a shareholder of HSBC, I thank him.
Btw, It may be hard to imagine but once upon a time Bangkok Bank, OCBC were the rising banks while StanChart and HSBC were seen as the relics (albeit still powerful and rich) of colonialism.
The CEOs of Llyods and HSBC UK are reported to be hot favourites according to Bloomberg http://www.bloomberg.com/news/articles/2015-01-28/lloyds-hsbc-executives-seen-as-favored-for-stanchart-ceo-role. Both are Portuguese. And the latter is gayhttp://www.theguardian.com/business/2015/jan/18/hsbcs-antonio-simoes-says-being-gay-was-key-to-career-success .
Wespac’s CEO is also in the frame.
Another report says that our very own Gupta (FT turned new citizen) is also a possible candidate.
Given that StanChart is big in M’sia, Hk, India and Indonesia, and wants to be big in China, I somehow don’t think appointing a gay is on the cards
FT’s Lombard thinks that “ex-StanChart guy Alex Thursby” will get the nod.
Alex Thursby, who went on to run ANZ’s Asian businesses and is now the CEO of National Bank of Abu Dhabi. In his current role, he is trying to drive a bank that will become multinational by following trade within the emerging world – what he calls the West-East corridor. But when asked if this looks a lot like a StanChart model, he says: “I think this has similarities with the Standard Chartered of old. The Stanchart model has changed over the years since I was there, and whether it’s changed for better or worse is for others to make a judgment on.”
Thursby’s words are carefully chosen but he’s clearly referring to StanChart’s ventures into financial markets businesses that it used to leave to the pure-play investment banks. And it is notable that the financial markets business is the one that is causing the problems in the bank today; the warning today says that division is the “main challenge” facing the bank and that everything else is in line with expectations. The head of that business, Lenny Feder, is to take a 12 month sabbatical for personal reasons, the bank says, and will not return to that role afterwards.
The financial markets business in StanChart parlance includes some things that others might consider mainstream, like foreign exchange, but it also houses equities and commodities, among other things. Peter Sands, speaking about the reduced performance, said today that the business was being hit by falling volumes in rates, squeezed margins, regulatory changes, and the fact that less business is done in a low-rate environment.
None of which would have had much impact on the Standard Chartered model of old. Which raises a further question: perhaps this most storied and reliable of institutions should get back to doing what it’s good at. It might be boring. But it works.
It jus shuttered its cash equity biz, if you must know.
“They rigged the money market, they rigged the mortgage market, they rigged the precious metals market, they rigged the foreign exchange market. Only a couple more markets to go and we’re in danger someone might have to ask if these banks are fit for purpose,” FT reader.
“Industries tend to attract people who have personalities that fit the industry norm. For decades petroleum engineers were alcoholics; police officers were people who needed the imprimatur of authority over others; and bankers were basically con artists making their living through deceit.”—on “Lying, cheating bankers”, November 22nd 2014
So not surprising
FINANCE START-UPS COURTING AN ANTI-FINANCE CROWD: Profit is usually a top priority on Wall Street, but some of the latest ventures into finance by start-ups seem to be inspired more by Karl Marx than John Pierpont Morgan. A number of new financial start-ups are trying to reach younger and middle-class Americans by upending the customary fee structure of traditional brokerage firms and money managers. They are backed by deep-pocketed venture capital investors – and even celebrities like the rapper Snoop Dogg – who are wagering that these upstarts can challenge the Wall Street establishment.
Aspiration, a start-up wealth manager in Los Angeles, which had its official debut last month, is asking customers to pay whatever they think is “fair.” That can be as much as 2 percent of their assets, or as low as zero. Reflecting its high-minded goals, the company has also pledged to donate 10 percent of its revenue to charity. Robinhood, a new brokerage firm based in Palo Alto, Calif., whose founders were inspired by the Occupy Wall Street movement, introduced an app this month that lets customers trade stocks without paying commissions. But for all their slick technology and fresh ideas, start-ups like Aspiration and Robinhood face considerable challenges, not least of which is figuring out how to turn a profit.
TEST FOR POST-CRISIS BANKING SYSTEM The market turmoil this week will test Washington’s efforts over the last five years to bolster the financial system, Peter Eavis reports in DealBook. Investors are stampeding out of risky markets, dumping junk bonds issued by American energy companies that have borrowed heavily to exploit the shale oil boom. A steep slide in the price of oil could now cause some of the companies to default, analysts say. But the most dangerous pain is occurring abroad, particularly in Russia, which is dealing with a currency crisis.
“Such difficulties echo the crisis that buffeted markets in the developing world in 1998, when Russia actually defaulted on debt denominated in rubles,” Mr. Eavis writes. Back then, contagion made its way onto Wall Street through an enormous hedge fund called Long-Term Capital Management that nearly collapsed after making bets way beyond its means. “The parallels with 1998 have led investors and regulators to ask if any similarly dangerous weak points exist today. And if they do, the question is whether the big banks are sturdy enough to bear the shocks,” Mr. Eavis writes.
For the moment, many specialists say the system is sufficiently girded. For one, the big banks today rely less on borrowed money to finance their trading and lending. And the Wall Street banks are not lending as much money to hedge funds and other investors to make highly speculative bets. Still, the big banks continue to rely on billions of dollars in short-term loans that could dry up in a panic. And some investors are concerned about geopolitical risks undermining economic confidence. The plunging oil price, for instance, could create even harder economic times for countries like Russia and Iran. But low oil prices might also constrain governments that have stoked instability.
BOND INVESTORS SKITTISH OVER EMERGING MARKETS The biggest energy companies in some of the biggest emerging markets ‒ Petrobras in Brazil, Pemex in Mexico, Gazprom in Russia ‒ sold billions of dollars of bonds to investors eager to capitalize on the high interest rates. But as the price of oil tumbles and local currencies plunge in value, those bonds are looking shaky, Landon Thomas Jr. writes in DealBook. Concerns are now mounting that their troubles will unleash a new wave of market contagion as big funds unload their stocks, bonds and other investments in these countries, Mr. Thomas writes.
The steep slide in the Russian ruble ‒ and the collapse of the country’s bond and stock markets ‒ has already rattled investors, driving a sell-off in Mexico and Brazil. Like Russia, these countries also relied on cheap money to bankroll their energy investments and fund their growth. Economists have also warned of broader economic ripples if big, state-run companies like Petrobras and Gazprom are cut off from the bond market and lack alternative financing options. The bond yields of all three companies, which move in the opposite direction of their underlying price, have surged in recent days.
The debt issued by Petrobras, Pemex and Gazprom can be found in the portfolios of bond investors worldwide, including BlackRock, Pimco and Franklin Templeton. Now investors are realizing just how risky these bonds are. Pimco’s Emerging Market Corporate Bond Fund, for instance, has seen its performance sag and investors withdraw their cash. The fund’s assets now stand at $496 million, compared with $1.5 billion in late 2013, suggesting it can’t weather too much more.
DBS, UOB and MayBank are reported as interested in the intl side of Coutts Bank, while is for sale.
Hope they realise that the Queen of England banks with Coutts Bank, UK, which is not for sale.
Remember a “PAP is always right” man KPKBing when StanChart was charged that the reulator was a “rogue regulator”. StanChart then made the dean of LKY School look dumb, really dumb, by pleading guiltyy
Double confirm that StanChart is a rogue bank and the PAP apologist is a fool because now: The management of Standard Chartered is facing renewed pressure after being placed under fresh scrutiny by US regulators.
Two years after being fined more than £400m for breaching US sanctions towards Iran, the bank revealed that a two-year deferred prosecution agreement (DPA) that was imposed at the time was being extended for three years.
The US authorities are now investigating whether Standard Chartered breached its sanctions rules beyond 2007, the period when the previous offences for which the bank was penalised took place.
Looks like Santa didn’t bring Ho a nice Christmas present, giving her a turd instead. Juz look at share price chart from FT. [Chart added at 11.30 am]
The second biggest shareholder in Standard Chartered (after Temasek with around 27%) is standing by the embattled Asia-focused bank, continuing to buy the stock and insisting that nothing is “fundamentally wrong” with the company.
Martin Gilbert, chief executive of Aberdeen Asset Management PLC, said that funds run by his company have been “buyers of the stock in a fairly modest way,” despite a series of profit warnings that have sent Standard Chartered’s share price down 33% this year.
“We do not think there is anything fundamentally wrong with the bank,” said Mr. Gilbert, during a call to discuss Aberdeen’s results. He said that revenue growth had slowed but added that he would prefer the bank’s existing management team, headed by chief executive Peter Sands, to “sort it out” rather than looking for a replacement: “They have to really get on with it, I would say, and have a look at the costs.”
Aberdeen owns 7% of the bank, according to Factset, and, as of Oct. 31 2014, that had not changed since last year. Some Aberdeen funds have “topped up” their positions this month however, according to an Aberdeen spokesman.
The value of Standard Chartered shares held by the emerging markets-focused fund manager slid from a peak of $5.1 billion in February last year to $2.6 billion in October, according to Factset data. Part of that was due to an 8% reduction in the size of Aberdeen’s stake at the end of last year, but most was due to the bank’s falling share price.
Temasek is one of the shareholders pressing for a change of mgt, other reports claim.
But no need to panic or curse Temasek*: Standard & Poor’s says bank is going through times but it still among world’s most creditworthy commercial lenders.
It has some big exposures to heavily indebted clients, such as India’s Ruia brothers, who control the Essar Group, and Indonesian billionaire Samin Tan.
But the facts won’t stop Philip Ang, TOC’s and TRE’s star analyst, from cursing and ranting: he’s so bad that in a piece on a GIC, London investment, he left out the rental yields out of his calculation because he said that the income was “peanuts” (my word, not his). Well commercial property yields are a gd 6%, and have been as high as 8% in some yrs recently.
Top bosses at Standard Chartered admitted the bank’s performance had been disappointing as they announced plans to close 100 branches in a $400m (£250m) cost-cutting drive to win back support from disgruntled investors.
The admission was made as the bank’s top management team began three days of presentations to investors, who have endured a 30% drop in share values. There are also concerns about whether the bank has enough capital.
At the start of the three-day presentation, the new finance director, Andy Halford, said: “We recognise our recent performance has been disappointing and are determined to get back on to a trajectory of sustainable, profitable growth, delivering returns above our cost of capital.”
Above is FT’s headline for today.
Ho, Aberdeen, Blackrock and L&G baring their fangs? TRE ranters and other anti-PAP paper activists, pls note that Temasek has been pushing for a succession plan for some time.
But they can rejoice ’cause sharesclosed at £9.39 on Friday – down from £18 less than two years ago.
They will be celebrating.
Is StanChart a rogue bank?
Standard Chartered Plc (STAN) fell for a fourth consecutive day in London after U.S. prosecutors reopened investigations to determine whether the bank, which entered into a deferred prosecution agreement in 2012, withheld evidence of Iran sanctions violations.
The U.S. Justice Department, Manhattan District Attorney Cyrus Vance Jr. and Benjamin Lawsky, superintendent of New York’s Department of Financial Services, are all reopening their original inquiries into the London-based lender to determine whether it intentionally withheld information from regulators before the 2012 settlements, according to two people briefed on the matter, who asked not to be identified because the probes are confidential.
Temasek wants clear succession plan at stanChart
Standard Chartered has announced a 16% fall in operating profit because of a restructuring of its South Korean business and an increase in bad loans.
The Asia-focused lender said pre-tax profits fell to $1.5bn (£930m) in the July-to-September quarter compared to the same period a year ago.
Standard Chartered also warned full-year earnings would fall because of weak trading activity.
FT reports that some of the major shareholders have been pressing for the CEO to be sacked if things don’t improve soon. It also reports that Temasek is “pressing for a clear plan of succession”.
Jack Ma, Alibaba’s founder, is a hero. He slew eBay in China. Now he is going up against new giants by shaking up China’s state-dominated finance industry. His business, the Zhejiang Ant Small and Micro Financial Services Group, processes payments, sells insurance and runs one of the world’s largest money market funds, placing it in competition with banks controlled by the Chinese government. It is a precarious position.
One problem after another. Can’t do anything right. Please American regulators, upset an Arab one.
Standard Chartered Could Face U.A.E. Legal Action Standard Chartered’s unit in the United Arab Emirates may face legal challenges after the British bank agreed to close some accounts as part of a deal with New York State’s banking regulator. Standard Chartered agreed on Tuesday to pay a $300 million fine for running afoul of a 2012 settlement to resolve accusations that the bank processed transactions for Iran and other countries blacklisted by the United States.
Star British fund manager Neil Woodford sold his fund’s stake in HSBC (HSBA.L) last month, citing concerns about the impact of potential fines from several industry-wide investigations on the banking group.
Banks in Europe and the United States have been fined for a variety of transgressions as regulators increase their scrutiny of financial institutions
“I am worried that the ongoing investigation into the historic manipulation of Libor and foreign exchange markets could expose HSBC to significant financial penalties,” Woodford said in a blog posting on his fund’s website.
“Not only are these potentially serious offences in the eyes of the regulator, but HSBC is very able to pay a substantial fine,”
For Woodford, who began building a stake in the UK’s biggest lender in 2013 after avoiding the sector since 2002, HSBC was “a different beast” to its peers, many of which still had problems over the quality of their loan books, capital adequacy and high leverage ratios.
In spite of the fact he considered HSBC a “conservatively-managed, well-capitalised business with a good spread of international assets”, Woodford said he had become concerned in recent weeks about the threat of “fine inflation”.
From the $1.9 billion paid by HSBC in 2012 over money laundering to the $16.7 billion set to be paid by Bank of America over its role in selling toxic mortgages, fines were increasing, Woodford said, and looked to be based on a company’s ability to pay “rather than the scale of the transgression”.
With the size of any potential fine “unquantifiable”, Woodford said he was concerned about HSBC’s dividend payouts. The stock currently yields 4.8 percent, against a FTSE100 average of 3.8 percent.
“A substantial fine could hamper HSBC’s ability to grow its dividend, in my view. I have therefore sold the fund’s position in HSBC, reinvesting the proceeds into parts of the portfolio in which I have greater conviction,” he said. Reuters
For the record, HSBC is trading at 1.1x book, its European peers are at 0.9, while StanChart is at 1.03. Our banks are at 1.3.
Standard Chartered has said first-half operating profits will be 20% lower than a year earlier, blaming a slump in income from its financial markets business.
The warning comes only three months after the Asia-focused lender reported its first fall in annual profits for a decade.
The UK bank had been expected to show a modest bounce-back this year.
But it said tougher regulations and low market volatility had hurt revenues.
Standard Chartered said its interest rate and foreign exchange trading had been particularly hit.
Chirantan Barua, an analyst at Bernsteinm said: “Cyclical headwinds are yet to arrive in full force in the bank’s two key markets – Hong Kong and Singapore. Not that Korea or India is out of the woods either.
“Pack that in with a challenging and uncertain capital regime that won’t be resolved until the end of the year and you have a great deal of uncertainty around the stock.”
StanChart shows the peril of investing in a stock listed overseas overseas that operates internationally. When profits were gd, sterling was weak against all major currencies. When sterling is strong, profits no gd. Note the value of sterling is irrelevant to the underlying profits or losses of most of bank’s international operations.
ON AN afternoon in early summer a prospective customer walked into the gleaming new branch established in Shanghai’s free-trade zone by DBS, a Singaporean bank that, like many of its international rivals, has long touted China’s great promise for its business. The lobby was empty, save for a guard playing a video game. A log showed that the branch was attracting just two or three visitors a day. DBS remains optimistic about China and says that most of its free-trade-zone transactions are routed through other locations. But the torpid atmosphere at the branch points to foreign banks’ struggle to crack open the Chinese market.
To be fair to DBS its New Citizen CEO is not like the FT CEO of OCBC who may have blundered.
OCBC is offering to buy Wing Hang Bank’s shares for 125 Hong Kong dollars (US$16.12) each, in a big bet on China’s sustained economic growth. OCBC hopes the deal will springboard its growth into mainland China through the Hong Kong bank’s cross-border operations, and give it a foothold in Macau.
OCBC and Wing Hang Bank, one of Hong Kong’s last remaining family-owned lenders, began discussions on a possible deal late last year, and in January entered exclusive talks (after ANZ and UOB balked at the family’s asking price), which were extended twice as they argued over price.
The most recent comparable transaction (and bargaining benchmark for the family), the 2013 sale of Chong Hing Bank, went for 2.35 times book value including the value of a special dividend related to Chong Hing’s real estate. Accounting for the increase Wing Hang ascribes to the value of its property, the OCBC offer is closer to 2 times book value, a discount, compared to the Chong Hing deal, considering Wing Hang’s return on equity averaged 11.3% for the past three years, versus 7.8% for Chong Hing, according to Capital IQ.
Still OCBC shareholders were not that happy and its share price suffered.
What is unknown is the value of Wing Hang’s Hong Kong real estate, on some of the busiest shopping streets in the world. These could be worth even more than the bank says. A government index of Hong Kong retail properties has risen 400% over the past decade. Yet the company’s revaluation over the acquisition cost of the property is less than 100%.
If enough of Wing Hang’s minority shareholders refuse the price on offer, however, OCBC might prefer to raise it or offer* or bear the cost of maintaining the Wing Hang listing, and the cost of failing to fully integrate the bank.
Update at 6’00am: Here’s someone who thinks OCBC got sold a dog.
Wing Hang gives it greater opportunity to finance trade between China and other parts of Asia such as Malaysia and Indonesia, where it already has a foothold. Wing Hang’s strong funding base – loans were just 73 percent of deposits at the end of last year – is another advantage, as is its ability to capitalise on the yuan’s growing international popularity. About 17 percent of Wing Hang’s deposits are currently in the Chinese currency.
Nevertheless, the purchase brings risks to OCBC investors. China’s economic slowdown is creating credit wobbles, while Hong Kong’s property boom is bound to have led to some lending excesses. Meanwhile, rising interest rates in the United States could reverse the cheap deposits that have flowed into both Hong Kong and Singapore in recent years. Shareholders, who will probably be asked to help finance the purchase, may pay a high short-term price for OCBC’s long-term China ambition.
*OCBC has said the bid, a 50% premium to the then stock price, is generous.
DBS Bank yesterday said that it will buy the Asian private banking business of Societe Generale for US$220 million, accelerating its ambition of becoming a leading wealth manager in Asia.
The deal will also widen the gap with DBS’s closest rival, the Bank of Singapore, a unit of OCBC Bank.
The price represents about 1.75 per cent of assets under management (AUM), based on the AUM of Societe Generale Private Banking Asia (SGPB Asia) of US$12.6 billion as at last Dec 31. This is a steal: OCBC in 2oio paid US$1.46bn which represents 5.8% of the unit’s assets under management, after adjusting for surplus capital of US$550m*.
Last Tuesday’s BT went on: DBS’s AUM will go up by about 23 per cent to S$85 billion from the current S$69 billion with the purchase, seven months after it was reported the French lender wanted to divest the business to redeploy capital into its core markets.
Swiss bank UBS is the largest private bank in Asia-Pacific, followed by Citi Private Bank and Credit Suisse, in that order according to trade journal Private Banker International in a 2012 survey.
That survey ranked DBS and Bank of Singapore ninth and 10th, respectively.
DBS is onto a winner with this FT and his FT COO. Well DBS deserves it, given the FTs it has had where “T” stands for Trash. SGX needs that kind of luck where both its CEO and COO are FTs where “T” certainly doesn’t stand for Talent. They did Temasek no favours by saying everything was kosher about the share price movements of Olam (More on this next week).
Coming back to OCBC. Its CEO is a Hongkie FT with great credentials. But he hasn’t shown whether the “T” is for Talent or Trash. So far the mkt inclines to the latter. OCBC’s share price crashed (and have yet to recover) when OCBC annced purchase of Hong Kong’s Wing Hang Bank few months ago. Deal is still pending. Hopefully, it dies a natural death.
My fav bank is still UOB where the chairman and CEO are true blue S’poreans. But UOB has limited visions which suits my taste here. DBS is for those who want to own a bank can be the leading regional bank in place of CIMB. It always had the vision but the FTs leading it let it down. Gupta has the talent (and luck) to make it the leading regional bank despite DBS not having significant presences in Indonesia and M’sia. It’s expansion plans in Indonesia were thwarted. S’pore has to play ball with Indonesia (allowing Indonesian banks more privileges here) for DBS to be able to buy Temasek’s Bank Danamon stake.
Finally, yesterday’s BT had a story about the difficulties our three banks were facing. UOB’s finance director said “Funding pressures will serve as a growth constraint for mid-sized banks like us outside of Singapore, particularly amid a backdrop of tightened liquidity conditions in the region. UOB has always emphasised funding stability. We must also be selective in the customer segment we engage in and avoid large concentration risks.” Taz straight talk.
So is [C]ompetition in US-dollar funding is likely to intensify, given the anticipated growth in trade financing, and the liquidity requirements of Basel III, says OCBC’s Mr Tan. Trade financing is still mostly greenback-denominated.
DBS’s Ms Chng says: “The so-called ‘balkani-sation’ of the financial landscape is an emerging risk, potentially resulting in captive capital and liquidity pools within each jurisdiction and impacting the pursuit of synergies across regional operations.”
But sadly they couldn’t resist sprouting PR rubbish
“From a capital perspective,” says Darren Tan, chief financial officer of OCBC Bank, which is negotiating to buy Hong Kong’s Wing Hang Bank, “we prefer to acquire majority stakes where possible. However, in instances where a majority stake is not immediately available, we will still give the opportunity due consideration if there is strategic value in the acquisition.”
United Overseas Bank’s approach to overseas growth is to expand the platform for customers to tap trade flows within the region, says its CFO, Lee Wai Fai.
DBS puts priority on pursuing organic growth, and adopts “a disciplined approach” to M&A, says Chng Sok Hui, its CFO … She adds that DBS is adopting a digital strategy to expand its footprint in growth markets.
What do they mean?
*My 2010 analysis: But maybe OCBC shld have waited. The purchase of ING’s Asian private banking business could come to haunt OCBC. A few days before this deal was annced, ING sold its European biz, at a fraction of the multiple that it got for Asia. Only time will tell if the growth in Asian wealth and OCBC’s ability to grow the private banking biz will justify the hefty premium that OCBC paid.
It paid 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.
Trumpets pls. BTW, I don’t blame the previous FT CEO of OCBC, Richard O’Connor. He was retiring. In such circumstances, usually the CEO would not take the lead in such a move: he’d go with the flow. Rightly, as he wouldn’t be the person running the show.. This is what happened here, I’m reliably informed. BTW too, he did a great job. Ngiam Tong Dow (remember him) called him an honorary S’porean, I think.
Lower economic growth prospects and tighter credit conditions could create a tougher operating environment for the banking sector here and in the region, said a report by Standard & Poor’s (S&P) late last week.
S&P expects S’pore’s GDP) growth to fall to 3.4 % this year, from 3.7% last year.
The report also notes that corporate and household indebtedness has been on the rise here. The situation could worsen this year, in anticipation of interest rates rising; higher borrowing costs amid rising. See DBS’s CEO’s tots below* and related post https://atans1.wordpress.com/2014/01/16/why-banks-tested-for-50-plunge-in-property-prices-and-other-wonderful-tales/
Related articles: The three local banks posted their reports last week too and for quick snap-shots (not the usual ST or BT fluff)
Charts on banks’ loans etc
Cheap way of owning UOB shares
Update at 6.ooam:
South-east Asia’s three biggest lenders, DBS, Oversea-Chinese Banking Corp and United Overseas Bank, have seen their share prices rise this week after posting solid results last Friday. Common trends in the fourth quarter were better margins, trade finance-driven loan growth, seasonally softer treasury earnings and no asset quality weakness, CIMB noted.
UOB, despite being the smallest of the trio, has been particularly impressive with its fee income and regional strategies, CMC Markets Analyst Desmond Chua told TODAY.
“In terms of fee income, it has performed relatively well while the market has been lacklustre, in part due to a higher interest outlook. Its diversification to grow in regional emerging markets has also helped it maintain loan growth despite weaker mortgage demand in Singapore,” he said.
“On the other hand, OCBC’s share price might have been affected by the prospect of its overpriced acquisition of Wing Hang Bank in Hong Kong while DBS hasn’t been able to impress with its fee-based revenue in recent times despite aggressively attacking this space,” he added.
UOB’s net interest margin, which is the highest among local banks at 1.72 per cent full-year, is another advantage for the lender, Voyage Research’s Deputy Research Head Ng Kian Teck added. “UOB has historically been good on this front, and it means the bank can churn the most value out of every dollar loaned — that’s what’s attracting the investors,” he said.
All three banks ended last year on a positive note, with their fourth-quarter net profit rising between 6 and 11 per cent on the back of strong growth in net interest income.
The banks have also continued to solidify their regional presence, drawing more revenue from overseas than before.
“Their return on equity is healthier vis-a-vis the other industries, which are facing greater margin pressure due to higher wages. But the banks have been able to control this issue better.”
CMC Markets’ Mr Chua is also bullish, saying: “I’m looking at the banking space being an outperformer this year even though interest rates are bound to rise. Their tactical diversification across this region allows them to tap into Indonesia’s emerging affluent segment, for example.
Update at 5.15pm:Can Singapore safely deflate its property market? http://www.cnbc.com/id/101409247
*DBS Bank chief executive Piyush Gupta expects home prices to fall by 10-15 per cent this year – more than the 10 per cent forecast by property consultants – but says that this decline would not make a material impact on the bank’s loan book. Speaking at DBS’s Q4 results briefing, he said it is likely that the prices of high-end homes will slide 15 per cent, and that for lower-end ones, by 10 per cent.
As for the higher interest rates expected with the shrinking of monetary stimulus policy by the US, he said he was not expecting it to have any effect on DBS. “The Singapore portfolio is really driven on income considerations . . . As I’ve said before, the pressure will likely start coming when unemployment rises – more than when property prices change.” Singapore’s unemployment rate is now at a low 1.8 per cent.
Mr Gupta said: “All our stress tests in the past have shown that we can easily withstand a 20 per cent reduction in Singapore property prices without material impact on our portfolio. We stress-test (for a) 20 (per cent fall in property prices), but don’t expect it to happen; our stress tests are always calibrated to go off the charts. My own sense is that there will be a correction of 10-15 per cent.”
He noted that the market was already stabilising and that the froth was running off, but that if this continued, the government would roll back some of the macro prudential measures. Sales of new mortgages have plunged 30-35 per cent at DBS, and by 40-50 per cent at OCBC Bank as a result of the stricter loan rules.
Mr Gupta likened the Singapore property market to that of New York and London, where prices held up even during the financial crisis between 2008 and 2012. While prices in the rest of the US fell by about a third, prices in New York slipped by only 10 per cent. It was a similar situation in London, another city where the demand is not dependent on the state of the domestic economy.
Mr Gupta said he expects regional money buying properties here to also put a floor under prices. With the slower sales, DBS’s $49.1 billion mortgage book is likely to grow by $2 billion to $2.5 billion this year, down from $3.5 billion last year and $5 billion the year before that, said Mr Gupta.
OCBC Bank chief operating officer Ching Wei Hong said of the new mortgage sales having declined across the board: “That’s expected, given all the cooling measures that have been imposed. We’ve built up a healthy inventory level. The inventory drives the growth of (the loan) book, going into 2014 and 2015. Beyond 2015 H2 and 2016, if conditions remain the same, we’ll see a bit of tapering in that period.”
(BT article last Saturday)
(Update on 23 January 2014: TOC has confirmed that his present employer is Crossinvest*: Mr Casey’s firm Crossinvest Asia is investigating his comments and is set to take “appropriate action” once the review is completed, British newspaper, The Independent reported.
In a statement, Managing director Christophe Audergon said: “Crossinvest does not condone the comments. We believe they were made in poor taste.”
I’m very certain, he will be moving on from Crossinvest given that: The Company was created out of a Swiss single family office with almost three decades of leading experience and presence in Switzerland. We operate based on the finest Swiss Private banking traditions.
Well among the finest Swiss Private banking traditions are
— discretion; and.
— operating in the shadows, leaving no fingerprints behind.
Don’t see Casey meeting these standards.
As to my thinking he worked at HSBC, it was an honest mistake.)
I am a long-time shareholder (since 1984) and a client (since 1981), and am someone who has had friends working there: locals and international officers, and am writing this letter more in sorrow than anger.
I hope HSBC does the right thing by S’poreans especially its local customers, and moves on the FT (where T stands for Trash not Talent) by the name of Anton Casey out of the bank. His so-called attempt at humour does not reflect well on the bank because he is holding a senior position in wealth management.
One would be reasonable in wondering of the quality and discretion of HSBC’s management when such a senior executive exercises such an appalling lack of judgement and sensitivity. Especially since HSBC prides itself on being the “global local bank”.
His behaviour also insults the international officers. I knew and worked with a few of them in the early 1980s on various projects. They were all minor public school boys who would never ever stoop to such insulting behaviour which they would have rightly called ‘hooliganish” and “racist”.
HSBC has always had a tradition of good customer service: it even built larger-than-usual cashier windows in Mexican branches to get more notes through, making it easier for the drug barons to deposit cash.https://atans1.wordpress.com/2012/07/18/hsbc-returned-to-roots/
So in the spirit of serving the customer and being the “global local bank”, move him out of the bank. His apology should not excuse his most unbecoming behaviour.
CI aka E.K. Tan
So gd, that RHB Bank S’pore expects to triple profit by 2016.
RHB Bank will aggressively expand its Singapore business by three-fold within the next two years, by focusing on the small and medium enterprise business, wealth management as well as corporate and investment banking.
To meet the increased business needs, RHB Bank Singapore will be doubling its staff strength from the current 500 to 1000, the bank said Thursday.
The aggressive expansion in Singapore is part of the group’s regional strategy, said to U Chen Hock, director of group international business at RHB Banking Grou… the official opening of RHB’s latest branch in Westgate Mall in East Jurong. . (Last week’s BT)
Maybe RHB’s mgt doesn’t read a certain Forbes contributor (no not refering to one LKY), or TRE readers’ comments on S’pore’s prospects or that more than 90% of the Marina Bay Suites are unoccupied: only 20 of the 221 units at the 66-storey tower are occupied. . But I do know that the RHB research institute has a well respected economist.
Standard Chartered had a bad start to the hols. Last Monday, its shares fell sharply on the possibility that it might call for a rights issue in the wake of weakish results. They’ve since recovered but there was another sharp fall on Fridaty, albeit from a much recovered position.
It has also been forced to strip its finance boss of his responsibilities to oversee the lender’s risk division following pressure from the Bank of England.
Richard Meddings, who has been group finance director of Standard Chartered since November 2006, had to hand over governance responsibility of risk to Peter Sands after the Prudential Regulation Authority said it was concerned with Meddings holding two conflicting roles, according to news reports.
In particular, the PRA, the Bank of England’s financial watchdog, was concerned with the potential conflict between Meddings’ finance responsibility and his duty to oversee risk operations.
All this against the background that it is no longer an ang moh favourite because emerging markets are no longer in fashion. Their economies are slowing while the Western economies are recovering. And the wall of money is returning to the West.
BTW, those readers of TRE who bitch that Temasek lost money on StanChart and say that I didn’t know this fact are daft: all they needed to do is to google up StanChart’s 10 yr price. But if anyone wants to see the numbers: here’s why.
I’ve blogged before that Temasek loves China banks while ang mohs were running away.
Well since late June, Chinese bank shares have been on a roll, example ICBC (where Temasek had been picking up shares this yr) is up more than 22%. Recent Chinese economic data has got investors buying the banks again, ang mohs included. So much so that some smaller Chinese banks are planning IPOs in HK.
Anyway,Jack, the usual suspects, and the readers of TRE, TOC and TRS needn’t yet bang their [ ] in frustration. Firstly, Temasek can never ever exit these investments given that S’pore wants to be China’s friend. Temasek got big chunks of BoC and CCB at a “special” price.. It can only play around the margins, reducing its cost of these investments.
Then are there two more reasons why we should be worried about Temasek’s punt:-
The biggest threat to Chinese banks’ cozy oligopoly … Online groups Alibaba and Tencent are making incursions into the country’s financial services market, providing an alternative to the capped deposit rates and sluggish service offered by the country’s big lenders. The disruptors are taking on risks, and savers should be glad. http://blogs.reuters.com/breakingviews/2013/10/10/tech-disruptors-could-save-chinas-savers/
Alibaba, the e-commerce group that just bought a 51 percent stake in asset manager Tianhong for $193 million, is the banks’ main foe. By July it had made over $16 billion in short-term loans to companies who sell goods on its sites. Its real-time records of borrowers’ cashflows and counterparties aid lending decisions.
Banks’ deposits are also under threat. WeChat, the mobile chat app that clocked up over 300 million users within two years of being launched by gaming group Tencent, is working on distributing wealth products via smartphones, and offering payment for fund managers, according to Chinese media. Alibaba lets users reinvest surplus balances in their online payment accounts into money market funds. That gives savers a better return than the 3 percent capped rate they get on bank deposits.
Tech companies’ desire to disrupt the financial services sector is understandable. China’s big banks make returns on equity in excess of 20 percent.
This blog has been pointing out why ang mohs don’t like Chinese banks, while Temasek loves them.
This short video shows the strengths of Chinese banks in size and income from interest (Big 4 in global top 10). The latter must surely be a consideration in why Temasek invests in three of them.
Now back to the worrying analysis:
– With bad loans and competition rising, China’s largest banks face tougher times ahead. ChinaScope Financial, a research firm partly owned by Moody’s, a ratings agency, has analysed how declining net interest margins will affect China’s banks. It estimates that the sector will need an injection of $50 billion-100 billion over the next two years just to keep its capital ratios at today’s level. The managements of the Big Four realise this, and have won approval from their boards to raise over $40 billion in fresh capital over the next two years. But Andrew Sheng of the Fung Global Institute, a think-tank, reckons the sector will need to raise even more later: up to $300 billion over the next five years.
– China’s bad debts could blow a $500 billion hole in bank balance sheets. That’s roughly how much extra equity the eleven biggest lenders might need if 10 percent of their loans went sour, according to a Breakingviews calculator.
They don’t morph into geniuses, contrary to what the PAP implies.
Yesterday, I opined that Yaacob and Mah disprove the PAP Hard Truth reasoning that ministers must get paid very well. Well here’s evidence that high pay doesn’t result in gd returns for investors because bank executives get paid plenty of money but investors don’t benefit.
[I]f there might be a justification for high bank salaries, it is that they have delivered high rewards for investors, and that is clearly not the case. This seems to be a classic case of an inside job – of executives benefiting at the expense of shareholders.
What is … striking is the contrast with the performance of bank shares (see chart), with that of the salaries of bank executives. The inflection point in bank salaries goes back to the early 1980s and we could only get data for the chart back to 1994. But I suspect the longer-term trend would be the same as the 1980s was marked by the third world debt crisis that damaged so many bank balance sheets. As a humourist once wrote of British films
Isn’t it funny/
How they never make any money/
When everyone in the racket/
Cleans up a packet
ICBC pays 6.1%, while CCB and BoC pay 6%. If it had AgBank, it would get 6.4%.
Contrast this with the dividend yield it gets from
— DBS: 4.4% (UOB’s yield is 2.9% and OCBC’s is 3.2%)
— Bank Danamon: 2.4%
— StanChart: 3.5% (BTW, earlier this month the bank said that it was no longer targeting double digit revenue growth this year. Year-on-year revenue growth in the first six months was less than 5% for the first time in 10 yrs.)
But Chinese bank yields are so gd largely because Chinese banks are not popular with ang mohs: one-tenth share price falls this yr helped produce these yields. https://atans1.wordpress.com/2013/07/02/time-to-worry-about-temaseks-strategy-on-chinese-banks/
And there are gd reasons to be fearful. One is concern that there could be more bad debts building up in the system as the economy slows/
Another: ChinaScope Financial, a research firm, has analysed how increased competition and declining net interest margins will affect banks operating in China. The boffins conclude that the smallest local outfits, known as city commercial banks, and the middling private-sector banks will be hit hardest, but that returns on equity at the big five state banks will also be squeezed (see chart). They think the industry will need $50 billion-100 billion in extra capital over the next two years to keep its capital ratios stable.
The bigger worry for China’s state banks is the signal sent by the PBOC’s move. The central bank has affirmed its commitment to reform. If those reforms include the liberalisation of deposit rates, then something far more serious than a minor profit squeeze will befall China’s banks. Guaranteed profitability would end; banks would have to compete for customers; and risk management would suddenly matter. In short, Chinese bankers would have to start working for a living.
And two of China’s four “bad’ banks (they bot portfolios of dud loans from Chinese banks, the last time the Chinese cleaned up their banks in the late 1990s and early noughtie), are planning to raise capital via IPOs. They have impressive returns. But maybe China is preparing for the day it has to recapitalise the banks again. In such a case, the UK and US experience is that the other shareholders get diluted, and can lose serious money. Think UBS and RBS.
Even if there is no recapitalisation, there are likely to be rights issues, something that ang moh fund mgrs don’t like.
But to be fair, this big chart shows a possible reason why Temask is optimistic. Despite loan growth, bad loans are falling. But the economy was growing rapidly. And sceptics point out that the numbers may be flakey. In the 1990s, the real bad loan position was 20%, not the lowish figures reported at the time. Investors forget this ’cause banks were 100% govt owned.
Related (sort of) link: http://wikileaks.org/cable/2009/06/09SINGAPORE588.html
Graphics from FT.
A recent Pricewaterhouse Coopers report said the S’pore could overtake Switzerland as the top wealth centre in the world by 2015. Another report says that Singapore is tipped to overtake Switzerland to become the largest global offshore wealth center in terms of assets by 2020, according to London research firm, WealthInsight, in may http://edition.cnn.com/2013/05/13/business/singapore-rich-switzerland-wealth/index.html.
Our constructive, nation-building media was triumphalist.
But our PM is more realistic. He said S’pore is unlikely to overtake Switzerland as the biggest wealth centre in the world any time soon, http://www.tremeritus.com/2013/07/06/singapore-unlikely-to-overtake-switzerland-in-wealth-management/. “I read somewhere that we might overtake Switzerland. I don’t think that’s true. I don’t want that to be my marketing line,” the FT had him saying.
One advantage S’pore has is tax. Deloitte ranks Switzerland only in fifth place for tax competitiveness, behind Bahrain, Singapore, Hong Kong and the United Arab Emirates. S’pore also has an advantage in attracting Asian wealth, like not being part or near of China, while being in Asia.
But I think the PM is right (even though he cannot even get the haze issue right: he talked of the haze coming back “for weeks” about a month ago, but since then the reading was “moderate”, now “good”),
– Private banks in the Asian financial hub, Singapore, are the next target of tighter regulations after the crackdown in the U.S. and Europe on tax cheats. From July 1, any banks believed to be abetting tax evasion or having inadequate controls in place may face a heavy fine, criminal charges and possibly the loss of their license to operate in the city state. http://www.cnbc.com/id/100793751
— The G8 countries are getting more aggressive in making sure that places like Switzerland and S’pore cannot hide behind secrecy laws to avoid sharing info. In short, all offshore havens will have to be more transparent, and none will have an advantage over the others. Money moved from Switzerland to S’pore in the noughties because it was tot S’pore would not be forced to be more open; not true anymore.
The only adv that S’pore has over Switzerland, is that Asia is getting richer, esp China, and Asean; the latter with a population of over 620m, would be “the 21st century’s champion in fostering the vast middle class consumer market”, according to the Japanese PM. Asean is in our immediate neighbourhood, a great advantage. And S’pore has been a traditional regional financial, commercial and services centre.
Interestingly, not reported here, Deloitte says Hong Kong could overtake Switzerland as the world’s top wealth manager as early as 2019 if current asset growth rates are maintained. Being part of China has its advantages esp in attracting non-Chinese money that wants a piece of the action in China. And HK’s reputation for financial innovation doesn’t hinder.
Temasek owns big chunks in three out of four China’s major banks
— 2% of Bank of China
— 8% of China Construction Bank
Temasek has accumulated more than [US]$17 billion of holdings in Beijing-based ICBC, China Construction Bank Corp. (939) and Bank of China Ltd. over the past two years, according to data compiled by Bloomberg. Global firms including Goldman Sachs and Bank of America Corp. have divested holdings as new capital rules known as Basel III make it more expensive to hold minority stakes in banks. (Bloomberg few days ago)
S’poreans have to keep a beady eye on developments in the Chinese economy particularly in the financial sector.
Well things don’t look that rosy:
There is of course a second and much more disturbing possible implication of spiking lending rates in China – which is that the slowdown in credit creation will lead to tumbling asset prices, widespread bankruptcies and the crippling of the banking and wider financial system …
According to a recent and influential report by Fitch, outstanding loans by Chinese banks and shadow financial institutions were equivalent to 200% of GDP at the end of 2012, up from around 125% of GDP in 2008.
As quantum, domestic business and household debt at two times GDP is high – pretty similar, for example, to a debt burden on the UK private sector which has hobbled our [UK] economy.
But it is the stunning and unsustainably rapid rate of growth in Chinese credit creation, and who has borrowed the money, that are the main sources of concern.
Unless China is re-writing financial history, much of that money will have been lent without due care to businesses and individuals, and many of them will never be able to repay much of it.
As and when that is too conspicuous to ignore, banks and financial institutions will go bust – unless bailed out by central bank and government. http://www.bbc.co.uk/news/business-23000323*
Well in the case of the UK, two major banks were effectively nationalised, and the existing shareholders were left with “peanuts”. And UBS and Citi received injections of cash from their central banks in exchange for securities, exchanges that diluted their other shareholders, including GIC.
In 2007/2008, our SWFs’ bot into UBS (GIC), Citi (GIC) and Merrill Lynch (Temasek) in a big way that ST characterised then as showing S’pore was a tua kee investor.
We lost serious money in two of the 30-yr investments by 2009.
— Estimate of Temasek’s losses on ML and Barclays:
— Estimate of GIC’s loss on UBS:
(BTW, Temasek’s 2012 purchase of Credit Suisse mandatory bonds:
Superwoman Lina Chiam will raise the issue of Temasek’s strategy doubling up on Chinese banks in parly so that the finance minister’s rebuttal of her concern, will be a matter of public record, come the next GE.
*And not only ang mohs are worried about China and its financial system: http://blogs.reuters.com/breakingviews/2013/06/28/review-tales-from-chinas-wild-lending-frontier/
Growing faster than Greater China
South East Asia is expected to drive growth in the luxury market in Asia this year. Analysts at Bain and Co predict that luxury goods sales will grow by 20% in 2013: Greater China only 6% http://www.bbc.co.uk/news/business-22564297
How Myanmar will connect up Asia
Great graphics: explains how the opening up of Burma will allow ships to by-pass the Malacca Straits.
DBS Group Holdings is hoping it will have to settle for the minority stake (40%) it has been offered in Indonesia’s Bank Danamon. It hopes that talks between the central banks of Indonesia and Singapore will clear the way for a majority takeover. Pending these, it may ask for an extension from seller Temasek Holdings.
Note that because UOB and OCBC have a bigger regional presence (thks to legacy branches in M’sia), they trade at a 25% to DBS in terms of book value.
Carson Block Is Shorting Debt of Standard Chartered
Carson Block, the short-seller who runs Muddy Waters LLC, said he’s betting against the debt of Standard Chartered Plc (STAN) (STAN) because of “deteriorating” loan quality, triggering a 13.5 percent jump in the cost of insuring against losses on the debt of the British lender.
Somehow I don’t expect StanChart to go berserk like Olam, “Carson Block is outside of the bank and does not have access to the bank’s loan files,” said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. “He has very little ammunition in his gun to shoot at Standard Chartered at this point. He’s got one example of a large loan that appears to be something that possibly would not have been prudent to book.”
Finally DBS has a FT CEO where the “T” stands for “Talent” not “Trash”. He had a bad start when its consumer banking IT systems failed at the beginning of tenure, for which he can’t be blamed. An earlier FT CEO where the “T” stood for “Trash” outsourced its IT systems, only for the process to be reversed by another FT(rash).
(Gupta, who oversaw a 29% jump in DBS shares last year, was awarded a S$3.5 million cash bonus and company stock valued at S$4.6 million as part of total compensation, according to the annual report. His base salary totalled S$1.2 million.)
In the early noughties, OCBC was the bank that never failed to screw-up. It had an FT (Still has one as CEO). Fortunately his replacement was a Talent (can’t call him Foreign, as he has been in and out of S’pore for decades). DBS became the “go to” bank for mess-ups. Now Gupta has got DBS into a “stable” state: gd for him and Temasek must be grateful.
And UOB’s true blue hereditary banker got a 30% pay rise last yr. Well those of us who hold UOB shares (indirectly in my case via Haw Par) can’t complain. UOB has avoided the “Trash” risk by keeping things local. And avoided problems.
Coming back to OCBC, pls send yr COO to PR class. OCBC’s COO said its differentiation strategy has been to re-orientate the consumer finance business from being product-centric to one centred on the customer. BT’s headline rightly screamed “OCBC shifts strategy to focus on the customer”, but this sadly sells OCBC short: it never was into product pushing like DBS where FD customers were targeted for HN5 Notes and were then left to swing in the wind, when Hongkies were compensated for similar notes.
As my mum still has her OCBC fixed deposits, I’m grateful. If she had been a DBS customer, she’d have been targeted by Team HN5, and lost her money.
The map shows HSBC’s biz in terms of loans made as of 2010. S’pore is up there with China, Brazil, Oz and UAE. After the UK, Greater China (HK, China and S’pore) comes second. The bank is running down its US loan portfolio with continuing sales and write-downs.
BTW, the Argies are trying to shake down HSBC, accusing it of money laundering.
(Backgrounder: Temasek has biggish stakes in three out of the four major Chinese banks: doesn’t have shares in Agricultural Bank and CapLand is big and bullish on China).
Credit issues in Pearl Estuary region: http://blogs.reuters.com/breakingviews/2013/03/27/chinese-credit-alarms-sound-in-the-east/
And New rules will force mainstream lenders to cap their exposure to some of the riskier off-balance sheet products they have sold to customers – in particular, those that are effectively repackaged corporate debt. That limits a big source of risk for banks, but creates a new one for the Chinese economy.
The junk bond market in China took off this year. Although the deals still account for a small share of the global total, Chinese companies have sold $8 billion of high-yield bonds to overseas investors since January. That’s up from $2.3 billion during the same period a year earlier, according to figures from Dealogic … the Chinese market has its own set of potential problems, and some analysts worry that investors aren’t being properly compensated for the added layer of risks.
he bulk of the high-yield bonds in Asia this year — roughly half — come from Chinese real estate companies. The fear is that the housing market, which has been booming, is a bubble that will eventually burst.
Mainland China’s domestic bond market remains largely off limits to foreign buyers. So most investors buy offshore Chinese bonds, which are issued through holding companies headquartered in places like the Cayman Islands.
The bonds tend not to be backed by the actual businesses and underlying assets in mainland China. That means foreign bondholders may have little legal recourse if a company defaults on its debt, especially if local banks or other Chinese creditors make claims.
Bondholders are now facing such difficulties with the bankruptcy of Suntech Power.
And Citi leads the way.
Derivatives that pool credit- default swaps to make magnified bets on corporate debt, popularized in the last credit bubble, are making a comeback as investors search farther afield for alternatives to bonds at record-low yields.
Citigroup Inc. (C) is among banks that have sold as much as $1 billion of synthetic collateralized debt obligations this year, following $2 billion in all of 2012, according to estimates from the New York-based lender. Trading in so-called tranches of indexes that use a similar strategy to juice yields rose 61 percent in the past month.
I’m waiting for DBS to sell HN5 Notes again to blow up its Treasured customers again. Note the head of Consumer Banking ywas then an Indian FT. Now the head is a ex-PAP member, now NMP. .
“Cyprus is not just an island in the sun. We have developed a unique service sector which was based on confidence in the banking system,” George Vassiliou, a former prime minister, told the Guardian recently.
The “unique service” was laundering “dirty” money from Russia.
StanChart also does well in Asia (wholesale banking profits in Asia rose 10% over 2010-12). but it is a minnow compared to these banks.
And investment banks are looking increasingly for deals in Asean region. In the IPO league table in 2012with KL at 5th place and HK at 4th. SGX with two FTs leading it was nowhere.
CIMB has a very gd CEO who made the bank a regional player bigger than DBS by managing to pick-up a controlling stake in an Indon bank during the 2007 financial crisis at a song (usually foreigners get screwed in Indonesia), and the rest is history. Everyone else is now playing catch-up including MayBank.
Sadly, if BN does not win a two-thirds majority in the coming general elections, he will out on the street. As the election result is expected to be close, CIMB executives are assuming whoever wins, he will go. He is the younger brudder of the PM, and if BN does not win a two-thirds majority, he will be defenestrated, and younger brudder will follow.
But it’s always like that in M’sia. The CEOs, and controlling shareholder (unless it is a govt agency) are always vulnerable when there is a change of PM, or when there is an unsuccessful attempt to replace a PM.
Both were narco banks. They were founded in the 19th century to finance the trade in opium between British India and Manchu China. They moved on with HSBC becoming one of the biggest banks in the world while StanChart remained like HSBC, once was, a an emerging markets bank. But HSBC returned to its roots: HSBC was fined for providing help to the Mexican drug cartels (bank counters were made bigger to facilitate the handing over of bank notes). StanChart was fined for a technical offence.
HSBC’s Profit Fell 17% in 2012 on Money Laundering Fine. HSBC has since hired the former chief of the US Treasury department’s sanction unit to assist with compliance.
The Mitsubishi UFJ Financial Group “is among banks considering a purchase of TPG Capital’s $1.6 billion stake in Indonesia’s PT Bank Tabungan Pensiunan Nasional, two people with knowledge of the matter said,” Bloomberg News reports.
A bid by Malaysian low-cost carrier, AirAsia, to set up an airline in India has won approval from the Indian government.
It would be the first foreign company to try to capture the rising demand in India’s aviation sector.
AirAsia India would be a joint venture with the well-known Tata Group, based in Chennai in South India.
India’s aviation industry, which has suffered major losses, was opened to foreign investment last year.
The government now allows foreign companies to own up to 49% of a local airline.
AirAsia, which is Asia’s largest low-cost carrier, will make an initial investment of 800m rupees ($15m; £10m) and will own 49% of the new airline, while Tata Sons will have a 30% stake. Part of BBC report
Citigroup Makes Preparations for Profit-Sharing Plans Executives of Citigroup “stand to collect $579 million under profit-sharing plans that include the one shareholders voted against last year. The lender booked a $246 million expense in 2012 tied to the plans, adding to $285 million for the previous year and $48 million in 2010, according to regulatory filings,” Bloomberg News reports.
Charles Peabody, an analyst with Portales Partners LLC in New York, said the payouts are difficult to justify given last year’s shareholder rejection. Peabody, who told clients in a 2011 note that he was “dismayed” by the lack of stringent financial thresholds in that year’s plan, said today that Citigroup hasn’t done enough to tie pay to performance.
“The compensation plan was a travesty,” said Peabody, who has an underperform rating on the shares. “Citi’s board and management team continue to make a mockery of shareholder, political and regulatory demands that compensation reflect performance.” …The profit-sharing payouts are on top of annual salaries and bonuses granted to senior executives …
… Citigroup’s use of pretax profit to grant awards “sets the bar too low,” said Hodgson, the compensation analyst. “They’re not looking at anything else apart from pretax income, which is just not a good enough measure of a bank’s performance.”
*GIC still has a slug of Citi
Standard Chartered posted a slight increase in annual net profit in 2012. Its businesses in emerging economies offset a US$667 million fine in the United States connected to illegal money transfers.net income rose less than 1, to US$4.8 billion, compared with 2011, while revenue rose 8%, to US$19.1 billion. It was the 10th consecutive year that Standard Chartered had reported a yearly increase in its profit. Its vast operations across Asia, Africa and the Middle East helped protect the bank from many of the problems affecting developed economies like the United States and Europe … Standard Chartered has continued to expand in emerging markets by taking advantage of growing demand for financial services from both local companies and international entities looking to invest.
The bank said its operating income in China grew 21 percent last year, to $1 billion, as it benefited from expanding its local branch network sixfold since 2003. Standard Charted said it was now active in 25 emerging economies where its annual growth was in double digits.
Indonesian lenders the most profitable among the 20 biggest economies in the world, according to data compiled by Bloomberg. The average return on equity, a measure of how well shareholder money is reinvested, is 23 percent for the country’s five banks with a market value more than $5 billion … Returns in Indonesia, Southeast Asia’s largest economy, are driven by net interest margins, the difference between what banks charge for loans — an average of 12 percent, according to the central bank — and what they pay for deposits. The average margin for the country’s big banks is 7 percentage points, the highest of the 20 economies … Indonesia’s high net interest margins have prompted banks such as DBS Group Holdings Ltd. in Singapore, where the figure averages 2 percent, to look at acquisitions. DBS, Southeast Asia’s biggest lender, made a $6.8 billion bid in April for 99 percent of Bank Danamon and is awaiting regulatory clearance.
UOB and OCBC have an easier time because of their relatively large M’sian contributions to earnings. Malaysia is generous to its banks.
DBS’s core markets of S’pore and HK are very competitive and mature markets.
In Vietnam, the government’s planned sale of a 20% in Sabeco, a brewery, is expected this year, according to bankers.
Wilmar, one of Asia’s largest agribusinesses, and Cargill, the commodities’ trader are setting up in Burma.
18 companies, including Malaysia’s Axiata, Norway’s Telenor Group, parent of the Thai mobile operator DTAC, Digicel, the Caribbean based operator, and two Singaporean companies, Singapore Telecommunications, one of southeast Asia’s biggest telephone companies, and ST Telemedia, a unit of Temasek Holdings, have submitted proposals for the two telecoms licences
The Burma has abolished a 25-year-old ban on public gatherings of more than five people: more liberal than S’pore.
Malayan Banking Bhd (Maybank) has made a US$100 million capital injection into its Philippines operations.The banking group, the fourth largest in the region, on the previous Friday launched a new corporate head office in Manila and announced plans to double its number of branches in that country to 100 by 2014, and thereafter to 200 by 2018, Malaysia’s Business Times said.
It currently has 54 branches there, with another expected to open in the city of Davao by the end of this month.
Maybank Philippines Inc (MPI), which has been operating since 1997 and is now the 24th largest bank by assets, may eventually go for a listing there. The Philippine central bank had last year issued a directive, requiring banks controlled by their foreign counterparts to go for a listing on the Philippine Stock Exchange.
And wonder if the SME financing target mentioned in this BT report from sometime in the middle of 2012, was met. As not heard any more, I suspect not.
UP to $175 million of the $250 million the government has earmarked for investment in small- and medium-sized enterprises under the first phase of its public-private co-investment funding programme for local SMEs will be seeded with private equity funds by year-end.
The programme includes a fund-of-funds called the SME Catalyst Fund, which the $175 million investment falls under, and a direct co-investment fund called the SME Co-Investment Fund.
This means that some $350 million will be placed with the PE funds by the end of this year for investment in SMEs, as the private sector has to match dollar-for-dollar what the government is putting with the PE funds.
The $350 million is part of the first phase of the co-investment fund that is expected to come up to $500 million – $250 million from the government, and the other half from private sector capital.
As to whether the White paper on population reflects a U-turn on the policy of starving SMEs of cheap FTs, only time will tell. Watch and wait. Remember the WP was bitching in parly about the shortage of labour among SMEs. Chinese-owned SMEs fund the WP.
— Mitsubishi UFJ (MUFJ), Japan’s biggest bank, bought a 20% stake worth US$743m in state-owned VietinBank, the largest-ever merger or acquisition deal in Vietnam’s banking sector. The deal aims to boost “support for Japanese companies operating in Vietnam”, Bank of Tokyo-Mitsubishi UFJ president Nobuyuki Hirano said, and to tap South-east Asian markets; after seeing its profits tumble this year, like other Jappo banks.
The Japanese bank last month reported profit in the six months to September dived 58 per cent year on year to US$3.6 billion, due partly to declines in stock holdings.
VietinBank, or Vietnam Joint Stock Commercial Bank for Industry and Trade, said State Bank of Vietnam will still own the majority of its shares. For the record, it is Vietnam’s second largest bank by asseys.
— SMFG said it plans to expand its consumer finance business to target the growing middle classes in South-east Asia.
The new Greater East Asia Co-Prosperity Sphere?
No ASEAN round-up this hols week.
Among the details to emerge in the US investigation of HSBC as the narco barons banker of choice were the larger-than-usual cashier windows in Mexican branches to get more notes through. Nice to see that the bank that I use and invest in is so customer-friendly.
And its continuing to try to improve investor returns:
— The selling selling of its entire 15.6% stake in Ping An Insurance, the big insurer based in Shenzhen, to Charoen Pokphand Group* means HSBC has sold more than 40 noncore assets since the beginning of 2011 and booked about $4 billion in gains on those sales this year alone, DealBook reports. HSBC expects to book an after-tax gain of US$2.6 bn on the Ping An sale (more than enough to pay the US$1.9bn US fine).
— In October, it announced that it will close its Islamic finance operations in six markets, maintaining its presence only in Saudi Arabia, Malaysia, and a scaled-down operation in Indonesia.
*controlled by the Thai billionaire Dhanin Chearavanont. The deal is to be financed partly by the state lender China Development Bank,
“Analysts at Barclays recently highlighted concern over StanChart’s bad debt trends, evident in a 42 per cent increase in loan impairments in the first half of the year, compared with pre-tax profit growth of only 9 per cent,” reports FT. The growth is fastest since 2002.
So as StanChart still trades at a 25% to HSBC (1.5x book value versus 1.2X), this may account for the stories that Temasek wants out of its stake.