For the record, Temasek has big stakes in three of the four biggest banks. Cheong all the way?
And we own a big chunk of it still. ((((((
FT’s banking editor suggested that it could be split five ways: “into an equity and fixed-income trading entity; an advisory platform; a US retail bank network; a global trade finance shop; and an emerging markets retail bank.” [This para added at 6.07am on day of publication.]
OCBC and CIMB have signed non-disclosure agreements as they consider bidding for General Electric’s stake in Bank of Ayudhya, Bloomberg News reports. MayBank is interested as usual, but doing nothing, as usual. I’m surprised that OCBC is interested.
Bank of Ayudhya is Thailand’s top or second-ranked provider of credit cards, car loans and personal finance, having bot businesses from HSBC, GE and AIG, among others.
The British bank where Temasek has a controlling stake of 19%, which agreed in August to pay the New York state’s top banking regulator US$340 million to settle money-laundering allegations (and in the process making a PAP apologist look even more stupid: he attacked the NY regulator as a “rogue prosecutor”), may be at risk of losing money on a US$1 billion loan to an Indonesian tycoon to buy shares in an Indon mining company*controlled by the family of an indon presidential candidate. He bought the shares at abt 11 sterling last yr. Now under 150 pence.
In the 70s and 80s, StanChart was the go-to bank for goofs but in the 1990s and noughties (aside from employing one TJS) it gained a reputation as a bank that didn’t do silly things: not anymore.
So far in the scheme of things, the losses are “peanuts”. Let’s hope there is no mega encore.
Even the govt in UK is setting one up to bring together ‘alphabet soup of existing schemes’ http://www.guardian.co.uk/business/blog/2012/sep/03/business-bank-george-osborne.
We too have ‘alphabet soup of existing financing schemes’ to help SMEs. But SMEs are always asking for more for whatever reason.
And this. A new institute has been set up to offer subsidised business consulting for SMEs. United Overseas Bank (UOB) and the Singapore Management University (SMU have set up the UOB-SMU Asian Enterprise Institute, which aims to equip local firms with information and expertise to help their regional expansion.http://www.channelnewsasia.com/stories/singaporebusinessnews/view/1227153/1/.html
General Electric is analysing options for its US$2.1 bn stake (33%) in Bank of Ayudhya. MayBank touted as possible buyer.
Buying this stake would add one more piece to the jigsaw being built after the purchase of Kim Eng (has big presence in Thai stk mkt). As usual MayBank is playing catch up to CIMB.
As GIC still has a loss position in Citi (though it has realised profits to offset the loss, unlike in UBS), tot I’d update readers
A few years ago, DBS sold HN5 Notes to its valued Treasure customers, blowing the buyers to kingdom come and discriminated against locals when it came to compensation.
So when early in 2011, when it started pushing yuan deposits and other investments linked to the yuan to its customers, I tot “No, not again”. By early May 2011, it had sold more than 27 billion yuan (S$5.2 billion) of investments linked to the Chinese currency to wealthy investors here it boasted.
Well 2011 wasa not a gd year for the yuan, and 2012 has been a disaster.
While most economists expect the renminbi will stay flat or rise slightly over the next year, financial markets tell a different story.
In the non-deliverable forward market, where traders place bets on the future exchange rate, the yuan or renminbi is priced to fall 1.3 per cent against the dollar over the next 12 months.
Some experts say the decline will be much more substantial. Jim Walker, an economist who predicted the 1997 Asian financial crisis, forecasts a 5 per cent depreciation over the next year because “corporate financials in China are deteriorating dramatically. Extract from last week’s FT.
And we know S$ has been appreciating vis-a-vis the US$.
Interestingly OCBC, Singapore’s second-biggest bank, was not aggressively promoting offshore yuan deposits to Singapore customers due to the risk of near-term losses as the local currency is likely to appreciate at a faster pace.
“We’re pretty cautious with regard to offshore RMB business in terms of deposits. For a Singaporean, we think it is not very wise,” CEO David Conner said at an earnings briefing in May 2011.
Depositors in Vietnam have withdrawn hundreds of millions of US dollars from one of the country’s largest banks after the arrest of one of its founders. StanChart has a 15% stake in this bank.
The CEO of Asia Commercial Bank, Ly Xuan Hai, has been arrested on suspicion of committing economic crimes.
What this run shows is that:
— Doing biz in Vietnam can be dangerous if the authorities don’t like you.
— Banks like StanChart and HSBC do biz in some dangerous places and their high capital ratios and conservative loan to deposit ratio have a purpose. But really do all three S’pore banks need to be among the 10 safest banks in the world?
Chief Justice Chan Sek Keong said in a written judgment: “In the light of the many allegations made against many financial institutions for ‘mis-selling’ complex financial products to linguistically and financially illiterate and unwary customers during the financial crisis in 2008, it may be desirable for the courts to reconsider whether financial institutions should be accorded full immunity for such ‘misconduct’ by relying on non-reliance clauses which unsophisticated customers might have been induced or persuaded to sign without truly understanding their potential legal effect on any form of misconduct or negligence on the part of the relevant officers in relation to the investment recommended by them.”
Or if DBS’s and UOB’s private banks are even trying?
Coutts recalls a story when a client dropped his wallet over the side of his yacht. One satellite-phone call later and the bank couriered out cards and cash to the next port he was going to. Then there was the diabetic client who got straight off an aircraft and into back-to-back meetings. When he finally checked into his hotel, there was nothing on the menu he could eat, so he called his bank – obviously – which duly sent a taxi there, complete with restaurant recommendations.
Private banks even send their clients’ children on boot camps for offspring of the ultra-rich. AH Loder Advisers has an annual dog sled expedition across the Arctic. While billed as leadership training, these trips are as much about ensuring the children stay with the bank when they inherit.
On 25 July, Mexican regulators have imposed a fine of US$27.5m on HSBC for its failure to comply with money-laundering regulations. The fine is the highest ever imposed by Mexican regulators. It constitutes 51.5% of the 2011 annual profit of HSBC’s Mexican subsidiary.
The week before, a United States Senate committee found that HSBC had provided a conduit for “drug kingpins and rogue nations”. HSBC’s head of compliance, David Bagley, resigned at the Senate committee hearing over allegations that the bank ignored warnings that Mexican drug money was being allowed to pass through the bank.
The US department of justice is conducting a criminal investigation into HSBC’s operations.
HSBS is expected to be fined heavily by the US.
So as a shareholder, I was upset that it didn’t use the defence that it was doing God’s work by laundering narco money. As the latest issue of the Economist writes: A gleaming chapel in Hidalgo state recently put up a bronze plaque thanking Heriberto Lazcano, head of the Zetas, for a donation. When the pope raised an eyebrow about such “narco alms”, a Mexican bishop, Ramón Godínez, replied that when Mary Magdalene washed Jesus’s feet with expensive perfume, he didn’t ask her how she paid for it. “There is no reason to burn money just because its origin is evil. You have to transform it. All money can be transformed, just as corrupted people can be transformed,” he said. With God as its money launderer, Mexico’s dirtiest industry should stay on a high.
If HSBC can surmount its current troubles, it has extraordinary opportunities. The year-long investigation was cited by the Senate as a test case. There is abundant evidence of other global banks having similar problems. Creating a compliance system that can satisfy regulation will not be cheap or simple. Companies in poor countries may find that their costs for routine transactions soar. But the rare banks that have the scale and the resources to operate in this environment will have a business niche to themselves. http://www.economist.com/blogs/schumpeter/2012/07/hsbc%E2%80%99s-grilling
As a shareholder with a barbed sense of humour, I can laugh all the way to the bank.
But if investment is another Merrill Lynch or Barclays or like GIC’s UBS nightmare, amount lost will be “peanuts”. Still.
Credit Suisse initiated a series of measures on July 18 to boost its capital position, including a 3.8 billion Swiss franc issue of mandatory convertible securities to new and existing investors.
The securities will pay an annual coupon of 4% until they convert into 234 million ordinary shares in March 2013. Half the issue will be taken up by strategic investors including Qatar Holding, Saudi Arabia’s Olayan Group, BlackRock Investment, Capital Research Global Investors, Norway’s Norges Bank and Temasek. Some of the strategic investors have also underwritten the other half of the issue, which will be offered to existing Credit Suisse shareholders.
Estimate of Temasek’s losses on ML and Barclays
Estimate of GIC’s loss on UBS:
As a shareholder of HSBC and shumeone with a barbed sense of humour, don’t know whether to cry, or laugh and commend HSBC.
The present CEO is trying to get HSBC back to its Asian (i.e Chinese) roots, out of adventures in the US and Latin America. Funny thing is that in these places it was returning to its roots.
HSBC was used by “drug kingpins”, says the US Senate, something the bank agreed with. It will be fined heavily. But in the 19th century it was banker to Jardine Matheson and the other British and Indian drug lords who were selling opium into China.
Great ad slogan, “Trust us. The Mexican and Columbian drug cartens trusted us”. Or “Banker of choice to the drag barons of East & West throughout the ages”.
As you will know, OCBC and its Great Eastern Holdings insurance unit said they had been approached with an offer to buy their combined 18.2% stake in F&N as well as their 7.9% cent holding in Asia Pacific Breweries.
FT reports that the bidder is “a unit of ThaiBev”. It is Thailand’s largest and one of the largest beverage alcohol companies in South East Asia. Listed on SGX. Interestingly it has distilleries or breweries in Scotland, Poland, Ireland and France, in addition to Thailand and China. Makes Chang Beer.
Will never hear of this in our MSM, only why the Swiss bankers are rushing to Asia (and S’pore).
Geneva, which became a refuge in the 1960s for Egyptian cotton merchants fleeing President Gamal Abdel Nasser, developed as a Middle East banking center after King Fahd constructed a palace in the lakeside suburb of Collonge-Bellerive, where he held councils on summer evenings
Middle East has an estimated US$4.5 trillion of private wealth.
Too bad abt the investment banks though http://dealbook.nytimes.com/2012/05/24/in-the-persian-gulf-struggling-to-adapt-as-deals-dry-up/?src=dlbksb
15 major banks* (including another GIC investment UBS) were hit with credit downgrades on Thursday that could do more damage to their profitability, credit worthiness and further unsettle equity markets.
The credit agency, Moody’s Investors Service, which warned banks in February that a downgrade was possible, cut the credit scores of banks to new lows to reflect new risks that the industry has encountered since the financial crisis.
Citigroup was among the hardest hit. After the downgrades, the bank stands barely above the minimum for an investment grade rating, a sign of the difficult business conditions it faces.
Banks have struggled to improve their profits against the backdrop of the European sovereign debt crisis, a weak American economy and new regulations. The downgrades may amplify their problems. With lower ratings, creditors could charge the banks more on their loans. Big clients may also move their business to less-risky companies, further affecting earnings.
Wonder if LKY, who made the 30-yr comment, has repented making the comment?
Citi bitches: Citi said in a statement that Moody’s approach “fails to recognize Citi’s transformation over the past several years,” adding that “Citi strongly disagrees with Moody’s analysis of the banking industry and firmly believes its downgrade of Citi is arbitrary and completely unwarranted.”
But more woes: Citigroup seen as vulnerable to emerging markets’ currency movements Charles Peabody, an analyst for Portales Partners, estimated on “Bloomberg Surveillance” that $3 billion to $5 billion of Citigroup’s book value was vulnerable to changes in the value of the Mexican peso and the Brazilian real http://www.bloomberg.com/news/2012-06-20/citigroup-may-take-5-billion-hit-on-forex-peabody-says.html
Good news: It claims it is boosting revenue at its corporate and investment banking unit in with rising fees from debt underwriting and cash management as initial public offerings shrink http://www.bloomberg.com/news/2012-06-18/citigroup-asia-fees-rising-as-debt-sales-counter-equity-slowdown.html.
*Bank of America, Citigroup Morgan Stanley, JPMorgan Chase, Goldman Sachs, Credit Suisse, Deutsche Bank, UBS, HSBC, Barclays, BNP Paribas, Crédit Agricole, Société Générale, Royal Bank of Canada, and Royal Bank of Scotland.
When SVB Financial Group’s banking unit Silicon Valley Bank opens a branch or office or j/v here, we will know that S’pore has made it into the Silicon Valley ecosystem. It has juz opened its first int’l branch: in London. It will target Britain’s technology, life science, private equity and venture capital sectors
Silicon Valley Bank counts Cisco Systems, Mozilla and Pinterest, among its US clients.
Silicon Valley Bank also has offices in Israel, India and is expected to open a joint venture bank in China with Shanghai Pundong Development Bank.
When it comes to town, bang balls KennethJ, TJS, TRE, TOC, E-Jay, SDP etc. But don’t worry guys, it’ll be a long time, if ever, before the PAP government’s rhetoric becomes a reality*. In tomorrow’s post, I’ll link to stories which show how competitive Vietnam is becoming in software development to places like India, and that even Cambodia, with an American’s help, can use the internet get into a global biz competing with China and India.
*I mean juz see the BS around the comment made on LSD use, and on sex between adults juz because they are not married. So intolerant.
(Or “Another reason why perps are so popular among coporates”)
As the sovereign debt crisis drags on, international lending by global banks in the fourth quarter last year fell by the largest amount since the Lehman Brothers crisis in 2008.
Gd news for our three local banks. They can expand their US$ lending activities (US$ is preferred currency of borrowers).
Expect them to raise more perps. They will be exploring the possibility of selling US$ perps to our local retailer investors to avoid having to swap the proceeds into US$. But retail investors don’t like foreign currency issues: juz look at Hutch Ports.
BDO Unibank Inc., the Philippines largest lender on Tuesday priced the country’s largest share sale (US$1bn 1-for-3 rights offering at a 24.9% discount to its 15-day VWAP to give a total deal size of Ps43.5bn,US$1bn), to give the bank funds to compete for infrastructure lending. Details.
Teresita Sy-Coson, vice chairwoman of SM Investments Corp., said “Infrastructure is not our area of expertise, but we intend to join the government’s initiatives by providing funding for those who will take up those projects.” She is the daughteer of the controlling shareholder.
.The bank aims to reduce its dependence on consumer loans by tapping credit demand from the nation’s biggest companies, including Ayala Corp. (AC) and San Miguel Corp. (SMC), as they bid for $16 billion in infrastructure projects unveiled in 2010 by President Benigno Aquino. The fund infusion will also bolster Manila-based BDO’s risk buffers and spur overseas expansion, Sy-Coson said.
The Philippines’ PSE Composite Index is up 15% since the start of the year.
BDO Unibank is not the only bank bullish on the Philippines. In early May, CIMB agreed to buy just under 6o% of the Philippines’ Bank of Commerce (BOC) for 12.2 billion pesos (M$881 million) in cash, a move analysts said gives it early mover advantage in a market with high-growth banking potential.
Maybe if DBS can’t get its deal on Bank Danamon through or on acceptable terms, it should look North.
DBS has a 21.4% stake in BPI via its 40% stake in Ayala DBS where Ayala has the majority 60% stake. UOB seems to have a 2% stake in BDO Unibank. OCBC doesn’t seem to have a presence in the Philippines. All three local banks have subsidiaries in Indonesia.
Temasek is Filipino-lite. It doesn’t own anything direct in the Philippines: no banks, no telcos.
Its largest exposure is via Singtel which has a major investments in the Philippines (via Globe 47% which it controls together with Ayala 32%. Global is the second largest telco in the Philippines.
Keppel has some exposure via a shipyard but its not big.
If Temasek wants to go big in the Philippines, then DBS could be used.
DBS is the 6th largest foreign bank in China proper. It has a strategy of expansion into China. So have UOB and OCBC.
Well, its a tough biz to be in. Non-Chinese banks have only 2% market share. Even HSBC, StanChart and Citi have problems http://www.bloomberg.com/news/2012-06-04/china-wall-hit-by-global-banks-with-2-market-share.html
DBS, OCBC and UOB shld juz not bother abt China.
By planning to allow financial institutions a maximum of 40% in an Indon bank (applicable only to new investors), the Indon central bank has blocked Temasek’s plan to sell its 67% stake in Bank Danamon to DBS Bank where it has a controlling stake.
On a day when banks (and other blue chips) are weak in local trading (UOB -1.5% and OCBC -0.5%) fact that DBS is only -o.6% shows that investors are not upset over the failure of the deal.
One reason is that institutional investors don’t like big “strategic” deals by their investments because they usually overpay and are prone to destroy shareholder value. Here while the price is decent, the issue of lots of new shares to Temasek is dilutive to earnings.
Ah well back to the drawing board DBS mgt to find a new driver for growth. Same too for Temasek’s financial enginners. The deal would have reduced Temasek’s direct exposure to Indonesia while increasing its exposure to DBS.
(or “The next, next disaster for retail investors & DBS”)
While reading this , I saw Calvin Yeo’s reply to a question on why corporates were issuing perps
… one reason is to diversify the sources of funding. Another reason is that the market cannot withdraw the financing facility like the bank can in a credit crunch. Investors also have generally less bargaining power than the banks, so it is harder for them to take action against the issuer or place restrictive covenants. As you see, the terms of the bond are drawn up by the issuer rather than the lender. For most loans, banks tend to be the ones giving the terms of the loan.
Another main reason is that banks don’t normally issue perpetual loans, you would have to issue perpetual bonds or preferred stocks for that.
On the issue of diversification, most European banks have been cutting back their lending outside their home markets because they are shrinking their balance sheets to meet the new capital rules. No-one wants to invest in them (on terms acceptable to the banks) because of the Euro crisis.
In Asia, the French banks (like Soc Gen, BNP and Credit Agricole) were once very big USD lenders, the currency of choice, to corporates. They have now withdrawn*. So corporates that used them, now have to find other lenders. Seems to have found a new source
of suckers in the retail mkt here.
See related post on central bank’s concerns.
Asian banks (including our DBS, OCBC and UOB) are increasing their USD lending to these corporates as the European withdrawal have improved USD lending margins (the Frogs were very, very aggressive) .
Let’s hope DBS doesn’t get too aggressive in USD lending. Not concerned by OCBC’s and UOB’s increased lending (I own Haw Par shares as partly as a play into UOB). They have conservative controlling shareholders and mgt (I’m assuming the newish CEO of OCBC is as conservative as O’Connor**). Can’t say the same abt the cowboys at DBS and Temasek, though DBS’s chairman and CEO have reputations as conservative bank executives. The Bank Danamon deal shows otherwise in my view.
*But European banks still have lots of exposure to S’pore or rather the other way round. See chart in http://www.zerohedge.com/news/why-stability-stalwart-singapore-should-be-scared-if-feta-truly-accompli. Nothing to worry abt as most of this exposure is not to locals because it’s offshored in turn. Do remember that S’pore is a major global financial market.
**Anyway someone in OCBC is a tough taskmaster. O’Connor earlier this yr said that working in OCBC for 10 yrs felt like 40 yrs. No wonder Tony Tan and Yong Pang How (remember him?) preferred to be cabinet minister and chief justice respectively. And remember O’Connor was from Citibank, not known for its relaxed style.
OCBC Bank was recently named as the world’s strongest bank for the second straight year by Bloomberg Markets Magazine. (The ranking featured 78 global banks with at least US$100 billion in total assets.They were assessed based on factors such as their Tier 1 capital ratio, loan-to-deposit ratio, ratio of non-performing assets to total assets and their efficiency ratio, which compares costs with revenues.)
OCBC said the bank’s strength is partly built on its “disciplined credit management practices and robust risk management capabilities”.
If I were the controlling shareholder of OCBC, I’d be very upset at this ranking because what it means is that OCBC is not making its assets work: it has too much capital. I’d tell the board that the most impt KPI should be that OCBC drops out of the top 10 on the list.
It can be done. UOB was at seventh place, down from sixth last year, while DBS fell three spots to eighth this year.
UOB and DBS are doing the right thing. Their core market (like that of OCBC) is S’pore and it’s a safe, boring, stable market where margins are only so-so. So not much capital is needed, if one sticks to the basics of banking, and not try to be a hedgie.
As to the right amount of capital, look at StanChart at no.12. It operates in a wide range of emerging markets, some in unstable parts of the world like West Africa and so needs to have capital lying around. If S’porean banks have abt the same level of capital, they should still be safe.
Last month, Temasek bought US$2.3bn worth of shares in Industrial and Commercial Bank of China (ICBC), taking its overall stake in the bank to 1.3%. I commented that it was increasing its bet on the big Chinese banks (it owned big stakes in three of them) when the mood on them was getting bearish.
Well it is now sell US$2.4bn worth of its shares in Bank of China and China Construction Bank.
So overall, it is reducing its stakes in BoC and CCB (locking in some profits: it got into these at very attractive prices as a cornerstone pre-IPO investor) while adding a stake in ICBC to the mix at a slight discount to the market.
Update on 4 May 2012 at 3.10pm: More details http://www.bloomberg.com/news/2012-05-02/temasek-selling-2-4-billion-in-boc-china-construction.html
Regular readers will know that Temasek’s investments in Bank of China and China Construction Bank are great investments. It came in as a pre-IPO cornerstone investor and unlike the Western banks that had similar status had not sold out. Gd friend of China. It trades out and in of these stocks to make realised profits. But these trading profits are peanuts as the trading positions are peanuts in relation to its holdings in these banks
And that it recently bot Goldman Sach’s remaining stake in ICBC, at a slight discount to its mkt price.
As this article explains these banks have an unending appetite for capital because they are “squeezed for capital”. So Temasek has to be willing to cough up more of our money if it wants to avoid being diluted when rights issues are called.
An Australian who recently retired as head of Standard Chartered’s business in China believes there’s a strong chance of a major Chinese lender picking up a cornerstone stake in one of Oz’s big four banks within a few years. The Age carried an interview with Mike Pratt, , who says it’s “highly possible” that a major Chinese player will take a stake of up to 15% in a major Australian bank this decade”.
ANZ Bank would make the most sense, given its super-regional bank strategy. Commonwealth Bank is increasing its presence in Asia but is nowhere as regional as ANZ Bank.
Westpac (a portmanteau of “Western-Pacific”) despite its name, and National Australia Bank both focus on Oz after misadventures abroad.
Temasek has agreed to buy Goldman Sachs’s shares in the Industrial and Commercial Bank of China (ICBC), the world’s largest bank. It will buy US$2.3bn worth of ICBC shares, taking its stake to 1.3% in the bank.
In an interview with Reuters at the end of March, Ho Ching’s presumed successor-in-training, Temasek’s head of portfolio management,acknowledged the heavy allocation to financials, but noted that it holds four very good banks: Bank of China, China Construction Bank, DBS Group and Standard Chartered. Well it has added ICBC to this list, and at a price close to the market price, unlike the stakes in the other two Chinese banks where it got a “special” price as a pre-IPO cornerstone investor.
But is it a wise move?
True, since the lows last October of the Chinese and HK stock markets, the shares of the four leading Chinese banks (including Bank of China, China Construction Bank and ICBC) have gone up by more than half, easily outperforming the broader market.
But since March, prices have been off (but masked by general market falls) because of concerns abt China’s growth, bad loans and comments by the Chinese PM, Wen Jiabao, who hinted of breaking the monopoly state-owned lenders have enjoyed in China’s banking sector. (The sector is dominated by four big state-owned banks and Temasek now has significant stakes in three of them.)
Mr Wen said that their monopoly was hurting businesses in the country, as they had few options to raise capital.
“Frankly, our banks make profits far too easily. Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital,” he was quoted as saying by China National Radio. “That’s why right now, as we’re dealing with the issue of getting private capital into the finance sector, essentially, that means we have to break up their monopoly.”
The lack of easy availability of capital has often been cited as threat to growth of small and medium-sized businesses in China. There have been fears that some of these businesses, seen as key to China’s growth, may turn to unofficial sectors for capital, increasing their borrowing costs substantially
But Temasek could be betting on, “Wen has one year left [in his term].” This was said by an unnamed Chinese state banker quoted by Reuters. “This is a task for the next generation of leaders. It cannot be accomplished within one year.”
But the banker could be wrong, Wen could be telling us what has been agreed upon between his generation and the next generation of leaders.
Remember, It took a beating on its finance industry holdings after the 2008 crisis, losing about $5 billion in stakes held in Barclays and Merrill Lynch, now part of Bank of America. It has since trimmed its financial holdings by 4 percentage points to 36 percent of the portfolio. Last month, it sold a 1.4 percent stake in India’s No.2 lender ICICI Bank. From said Reuters reported.
And of the remaining two “very good banks” where Temasek has significant stakes, DBS has juz decided to buy Temasek’s stake in Bank Danamon. Management will now be preoccupied with getting the deal approved by the Indonesian authorities, then integrating the bank into DBS. Before this deal, management had finally got to grips with DBS’s operational problems. The danger is that the focus on the Danamon deal may lead to backsliding in the area of operatons.
The genuine jewel is StanChart, but by global standards, it is “peanuts”.
Going into the earnings season, these two big banks have reversed roles: Bank of America, which last year faced concerns about its health, has rallied this year, while Citigroup now confronts doubts.
For the record:
— Temasek dumped its stake in BoA in 2009 when hedgies were buying, losing, it is estimated US$4.6bn;
— GIC is now sitting on paper losses on its remaining stake in Citi (stake was profitable last July, see link below); and
— one LKY said in 2008 that these (and UBS, where GIC still has unrealised losses) were beyond long-term investments. There were 30-year investments.
Bank results down 4%, CEO’s salary down 18%.
Own shares in Haw Par which has stake in 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.
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 .
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.
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.
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.
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.
Here’s a good report analysing why JPMorgan Chase should be broken up
(Or “HSBC: Glass half empty or half full?” or “The difficulty of analysing a company esp a bank”)
(“Profit” here means profit attributable to shareholders)
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%.
(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”.
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.
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.
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 . 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.
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.
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.
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.
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.
(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.
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.
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.