Bank results down 4%, CEO’s salary down 18%.
Own shares in Haw Par which has stake in UOB.
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.
Or how the Germans can force the US to bailout the Eurozone by allowing Deutsche Bank to “fail”. Taunus Corp is the U.S.’s eighth-largest bank holding company. Taunus is the North American subsidiary of Germany’s Deutsche Bank.
Think I’m looney?. The Germans are already playing one big game of “chicken” with investors and the people of PIIGS (Not that these investors and people deserve our sympathy.) Waz another bloodless variation of this game to the nation whose leaders in the 20th century started two world wars in the hope of global domination, or at least European domination.
And the IMF has in what appeared to be an attempt to help countries such as France and Spain stave off the crisis, the IMF said that member countries with a track record of implementing “sound policies” could access up to 10 times their contributions to the fund. It did not say which countries it meant but said it was establishing a flexible liquidity line which would act as “insurance against future shocks and as a short-term liquidity window to address the needs of crisis bystanders”.
The problem with a bank’s balance sheet is that on the left side nothing’s right and on the right side nothing’s left.
Think Lehman’s and Dexia’s balance sheets. One day AAA, six months’s later rubbish. That fast leh?
Profit and loss accounts are just as rubbishy. Recently UBS’s third quater profit fell to 1.02 billion Swiss francs (US$1.2 billion) in the three months ended Sept. 30 from 1.66 billion francs in the period a year earlier. The trading loss of 1.85bn Swiss francs (alleged caused by a rogue trader) and charges linked to a cost-cutting plan were partly offset by an accounting gain on the bank’s own credit of 1.8 billion francs and the sale of some investments.
Now this accounting treatment was not not only used by UBS. According to the FT’s Lex, four-fifths of the US$16bn net profits in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.
Lex describes the accounting treament thus: ” Try this on your credit card company: your creditworthiness has weakened, so you write down the value of what you owe them to reflect the greater riskthat you will not pay it back and credit the difference to your personal account. That is what exactly accounting allows”.
Readers will know by now that UBS, where GIC is a major long-term (and suffering) investor, is planning to reduce the scale of its investment banking operations, the source of its on-going problems since 2007.
But they may not know “What they are trying to do has never been done before,” Christopher Wheeler, an analyst at Mediobanca, said. “They want to shrink the investment bank by choice, which means unwinding positions without loss and running down their books while keeping the morale among staff, and it’s unclear who’s running the shop.”
And don’t be fooled by its latest results. Despite being hit by a 1.85bn-franc loss from deals made by an alleged rogue trader, it just made a better-than-expected third-quarter net profit of 1bn Swiss francs (US$1.1bn).
The loss was almost entirely offset by a 1.77bn-franc accounting gain that came from changes to the value of the bank’s own debt. One of these days, I’ll blog on the Alice-in-Wonderland accounting that allows this type of gain to materialise. According to the FT’s Lex, four-fifths of the US$16bn net profits in the latest announced results of (BoA, Citi, JPMorgan, Morgan Stanley and Goldman Sachs came from using used the same accounting treatment of the banks’ own debts.
What worries me most about the credit crunch, is that if one of my cheques is returned stamped ‘insufficient funds’. I won’t know whether that refers to mine or the bank’s.
Not true of our three local banks, they got lots of capital. They are using it to attract private banking clients. Even DBS, who blew up S’pore clients but compensated HK clients.
Despite the following and other rants, ‘Temasek’s S$650m issue of bonds exchangeable into StanChart shares was oversubscribed.”The order was $1.25 bn,” it was reported. I was not surprised.
Singapore Notes ranted, Stanchart shares are currently trading at £13.73 (yesterday’s quote); the highest level reached during last year was £19.75. The British £ has also taken a pounding, diving from S$2.90 to S$2 yesterday, a stomach churning plunge of 30%. Yahoo! Finance indicates today’s range will be £1.9907 – £1.9937.
So what fool (as in “fool me, hah?’) would bet that the Stanchart share price would go up 27% in 3 years’ time? That’s a tantalising return of 9% per annum, assuming the pound-euro correlation doesn’t get any worse. Reuters is reporting a sterling drop, as latest UK data adds to the gloomy outlook.
Juz look at the volatility of the share price. In the last 12 months, it has been up to £19.75. More than 27% from current prices. And in November 2008 it was trading around £8. Investors buying the bonds are betting that StanChart’s share price recovers within three years. Not an unreasonable bet, given the volatility of StanChart’s (and other banks’) share price in recent years. Interesting chart.
At worse, they lose their funding costs (if they borrow money to buy the bond) or opportunity costs (if they invest in cash or bonds) for three years. Their upside is 27%++.
To quote Reuters Breakviews, One part would be a zero-yield bond, with a face value of S$36. Assume lenders to triple-A rated Temasek normally demand a 1.8 per cent annual return, and the bond is worth around S$34.50 today.
The other part is a call option on Stanchart shares.
Plug the lender’s current price, its forecast 3.5 per cent dividend yield, and the implied volatility of Stanchart’s stock into an options calculator, and it looks to be worth S$4.50.
Put together, the two bits of paper have a total value of S$39 – some 8 per cent more than investors paid. Taz why the issue was oversubscribed.
Unlike me, the writer thinks it ain’t such a gd deal, But it’s probably not such a sweet deal. The value of the call option is inflated because Stanchart’s shares are twice as volatile as they were before the summer.
If the shares return to their steadier state, the option is worth closer to S$1, leaving the value of the whole package a little below the sticker price. I think volatility will persist.
‘The writer goes on to talk about the deal’s advantages for Temasek, For Temasek, there are obvious attractions. Even if all the bonds are exchanged for shares, it will retain a 17 per cent stake in Stanchart.
And if the shares don’t rise much, the fund will have borrowed S$650 million interest free.
But for all that, the savings are small. Say Temasek had simply borrowed directly from the bond markets. Over three years, its total interest bill would be less than S$40 million.
Moreover, the bond issue triggered a mini-rout in Stanchart shares, leaving Temasek with a paper loss on its remaining stake 10 times the size of the interest costs it saved.
Other than demonstrating its financial prowess, Temasek doesn’t have much to show for its wizardry. True but given the jitteriness of the markets, the shares would have fallen for other reasons. Banks are not the flavour of the month.
I’m surprised that a blogger whom I respect could get it so wrong with his analysis of Temasek’s stake in StanChart and the share price that investors can buy into StanChart via Temasek’s latest bond issue.
Singapore Notes reports, “The zero coupon bonds which mature in 2014 can be exchanged for Stanchart shares at £36.29 per share during a 3 year holding period, a 27% premium over Monday’s price of £14.29 on the London Stock Exchange.” A 27% premium to £14.29 works out to £18.15. not £36.29.
As to the value of Temasek’s stake in S$, he used as his starting point, “the purchase of a 11.5 % stake from Khoo Teck Puat’s estate in 2006. Then Stanchart shares were trading at £15.24, when the exchange rate was S$2.90 to £1.”
Since then there have been two massive and deeply discounted rights issues. The one in November 2008 was done at £3.90, a 48.7% discount to the last done share price before the rights issue announcement. The rights ratio was 30 new shares for 91 existing shares. In October 2010, it called for a 1 for 8 rights issue priced at £12.80, a 32% discount to the last done share price before the rights issue announcement.
When the Americans and British saved their leading banks in 2008, the Europeans (especially the French) were sneering at them for allowing their banks to overlend or overinvest in AAA mortgage securities. The Europeans (read French) knew better.
Now the European banks, especially the French ones are in deep trouble, over lending to the PIIGS (five weak European countries). And the French government is afraid to help them because giving them state aid will threaten Frances’s AAA ratings.
Gets better still. The sub-prime crisis blew-out in 2007 because a French bank (can’t remember which one) stopped issuing the daily valuations of two of its mutual funds that invested in US sub-prime mortgages. It said it couldn’t establish a market value for these securities.
That forced other banks to revalue downwards their holdings of mortgage securities. This affected the Americans most.
This excessive capital requirement is the reason why OCBC paid such a high price for the Asian private banking business of ING and why DBS and UOB are trying harder to build up decent private banking businesses, despite repeatedly failing to do so in the past.
While private banking itself does not use up much capital, clients and prospects want to put their money in banks that have plenty of capital. A very high capital base is a great comfort blanket. As is the conservative nature of a bank. OCBC and UOB have both and while DBS’s FTs are more cowboyish, they have been kept in check, so far.
OCBC’S private bank claims that it is attracting assets from the Singapore branches of French banks as the euro region’s debt crisis frightens their local clients. Defections from French banks helped generate net new money of about US$4 billion for Bank of Singapore this year, the CEO said recently.
Private banking looks like a good use of the local banks’ capital, given that their conservatism and regulatory requirements require them to hold excessive amounts of capital.
But they are late in the game where economies of scale matter. Example: OCBC’s private bank (the biggest by far of the three local banks) had US$29.6 billion of assets under management at the end of June, less than 9% of the total at BNP Paribas’s wealth management unit. And this French bank is not a serious player in the either the Asian or international private banking industry.
In a new index on financial secrecy, S’pore is only ranked sixth. The Financial Secrecy Index 2011, puts Switzerland on top, followed by the Cayman Islands, Luxembourg, Hong Kong and the USA.
The Tax Justice Network, the group behind the report, says, “[A] secrecy jurisdiction provides facilities that enable people or entities escape or undermine the laws, rules and regulations of other jurisdictions elsewhere, using secrecy as a prime tool.”
The government’s policy is to encourage the growth of wealth management here so that S’pore can be the Switzerland of the East. Well, the central bank and the Attorney-General’s Chambers have a lot of work to do to make S’pore a better secrecy jurisdiction. Hong Kong is a better secrecy juridiction than S’pore. And S’pore and Hong Kong are rivals in the race to be the leading wealth management centre in East Asia.
At least, this report shows S’pore is a better global citizen than Switzerland, Hong Kong and the USA. But where’s the money in being a responsible, decent chap?
I don’t know what shocked me most.
I read in Monday’s Today that despite being the largest single shareholder in UBS (6.4%), GIC was not consulted on the management change when the CEO resigned. He resigned over differences in strategy and corporate governance issues.
Yesterday evening Reuters reported that “GIC supported former chief executive Oswald Gruebel’s strategic plan for the bank and believed he could have stayed on to manage it through the latest crisis, a source with direct knowledge of the matter said on Tuesday … GIC’s support of Mr Gruebel until the very end also shows that while his leaving may have satisfied some shareholders, it hardly reassured the Singapore fund, which owns 6.4 per cent of the bank.” (Sorry I don’t have the link as I got the report via BT Online.)
Given that GIC is the single largest shareholder and supported his plan, and the board was meeting in S’pore, GIC should have been consulted. Would any company where Warren Buffett is the single largest shareholder dare sack a CEO that had his backing? Unlikely.
Time for GIC to gain some respect by flexing its financial muscles. No more Ang Moh Tua Kee pls.
The investment bank of UBS “now looks as likely to die as it is to live,” writes Felix Salmon of Reuters. Selling or spinning off the unit don’t look like great options in the current environment, he says.
So there goes GIC thesis of a unique franchise combining wealth mgt and investment banking.
Remember, GIC has a 6.4% interest in this dog with fleas and GIC is down around S$10bn as of Thursday last week. Since then the loss has reduced to S$9.75bn. Even Mrs Goh Chok Tong would not call this sum “peanuts”.
Not easy to lose US$2bn. It takes a large amount of capital to be put at risk and one has to settle trades with real money. And one has to know how to fool the risk management system.As someone who has “arbitraged”, I know that if I can’t close positions on the same day, someone in the firm will know abt the trades as the firm has to borrow money to fund a trade, or expect payment from a counterparty.
As this article explains, it’s never a one- person show, no matter what mgt claims.
GIC’s big loss-making investment in UBS happened on Tony Tan’s watch at GIC.
Given the latest problem at UBS, a US$2bn “unauthorized” loss (anyone ever heard of an “authorized” loss?”, and Tony Tan’s boasting of his expertise, PM should ask him for advice on what to do with this long-term investment?
Too bad, the president can only give advice and be a security guard. In investment management and investment banking, there is a school of thought that believes that those who created the shit, should clean up the mess themselves.
Update at 4.15pm on 16 September 2011
Local paper reported that the book loss on GIC’s 6.4% in UBS is S$10bn based on yesterday’s closing price of UBS shares.
A consortium that includes Temasek and its wholly owned hedge fund Seatown Holdings has acquired a 5% stake in China Construction Bank it was reported on 30 August 2011
It had unloaded a portion of its own stake in the Chinese lender about a month ago, when, by my calculations, the price of CCB shares was abt 10% higher. And given that it bought the latest batch of shares at a discount, Temask could have made 20% on the sale and repurchase.
Description of trades
When Warren E. Buffett invests in a troubled company, he gets a good deal. Dealbreaker’s Matt Levine crunched the numbers on Mr. Buffett’s Bank of America investment and estimates that the bank’s implied stock price in the $5 billion deal was $5.28 per share, more than $2 lower than where it currently trades. Note the way he uses less than precise assumptions to avoid getting into complications.
London-based, Asia-focused Standard Chartered Bank (Temasek owns 19%) has reported that pre-tax profits for the first six months of the year were $3.6bn (£2.2bn), up 17% from last year.
Profits grew in all the regions where Standard Chartered operates, except for its biggest market, India, where profits fell by 5%.
Profits grew by 23% in Hong Kong, 34% in Singapore, 14%in South Korea and 19% in China.Income from the Middle East grew 4%, in Africa it grew 10% and in the Americas and Europe it grew 11%.
It blamed rising interest rates, growing competition and regulatory changes for falling profits in India. It made a big bet in India financing takeover details. Will be interesting to see if these give the bank the same death-defying experiences as it gave some Wall Strret banks in the 1980s and 1990s. https://atans1.wordpress.com/2010/09/10/stanchart-getting-too-aggressive/
HSBC has said it will cut 30,000 jobs by 2013 and exit operations in 20 countries as it looks to save billions of dollars.
The announcement came as the bank reported pre-tax profits for the first six months of the year of $11.5bn (£7bn), up 3% on the $11.1bn the bank made a year earlier. A very decent set of results.
As a shareholder, I can only say “about time”.
First, Banking 101. The more capital a bank is required to hold, the less it can lend. It will make smaller profits, compared to a bank that needs to hold less capital.
Next some definitions. DBS Group, United Overseas Bank (UOB), OCBC Bank are required to hold a minimum Tier 1 capital adequacy ratio (CAR) of 6% and a total CAR of 10%.
International rules will require banks to hold a minimum common equity Tier 1 (CET1) CAR of 4.5%. MAS has decided that locally incorporated banks meet this rule from Jan 1, 2013 – two years ahead of the international 2015 timeline.
MAS will raise the minimum CET1 CAR to 6.5% from Jan 1, 2015. It will also bring the minimum Tier 1 CAR to 8%. The total CAR will remain at 10%.
MAS will also introduce a capital conservation buffer of 2.5% above the CET1 CAR. This will be phased in from 2016 to 2019.
So by 2019 locally incorporated banks will have to maintain a CET1 CAR of at least 9%, Tier 1 CAR of 8%. and CAR at 10%.
But one OCBC estimates that its CET1 CAR would be around 10.8% cent based on the bank’s financial position as at March 31, 2o11. Its Tier 1 and total CAR are estimated at 14.1% and 16.9% respectively.
It’s only 2011 but OCBC’s CET1CAR is 20% above 2019’s required levels, while Tier 1 and total CAR are 76% and 69% more than required.
This is a lot higher than needed for a bank whose main markets (S’pore, Malaysia and Hong Kong) are safe, mature and well regulated markets. True OCBC is also into “cowboy” countries like China and Indonesia but these countries contribute little to revenue.
Too much capital relative to assets and liabilities is unfair to shareholders, while not benefiiting depositors and other creditors. It only makes life easy for regulators.
So OCBC should return excess capital in the form of dividends (I’m not in favour of buy-backs, something I’ll explain one of these days). Of course OCBC could decide to increase its balance sheet, but that usually leads to tears for shareholders.
Yesterday the three local banks did well with investors demanding their shares.
In a Bloomberg survey on the world’s strongest banks, S’pore banks occupied three of the top 10 positions. OCBC was number one, DBS was 5th and UOB was 6th.
If I were a shareholder in one of these three banks, I’d be upset that the banks were such inefficient users of capital because the stronger the bank is, the less its earnings potential.
Standard Chartered was ranked 15th. It needs to have plenty of capital around because it does business in some really difficult markets like places like the Ivory Coast where its operations were closed for several months.
It also does some risky business like lending for M&A transactions in India.
Our three local banks operate in safe markets. OCBC and UOB are heavily dependent on S’pore and M’sia while DBS is dependent on S’pore and HK. Yes they also do business in riskier places like Indonesia (all three), mainland China (again all three) and India (DBS). But these places contribute “peanuts” to earnings and assets.
They are also conservative in the businesses that they do.
So they don’t need to be such inefficient users of capital. They can easy operate safely with capital ratios similar to that of Standard Chartered. Thois would increase earnings.
HSBC’s CEO said that it would now focus its wealth management business on 18 key economies, and limit retail banking to markets where it can achieve profitable scale.
The bank is also streamlining IT operations and the operational structure. It hopes to save up to $3.5bn (£2bn; 2.4bn euros)
The bank said it would be directing investment into fast-growing national economies including Mexico and Turkey, and to certain wider regions, such as Asia and the Middle East. Asia means China (including Taiwan and HK), India, Indonesia, Malaysia and S’pore.
The UK remains a core market.
Market was not impressed with HSBC shares down 0.8%. Analysts and investors were disappointed that the bank did not come out with more details e.g. the number of jobs that would be lost to show that the bank is serious.
HSBC shares may rise by at least 44% if it focuses on markets that generate higher returns according to an analyst at Investec Securities, Bloomberg reports.
HSBC could climb to about 950 pence a share if Gulliver commits to ensuring all businesses generate a return on equity exceeding 10 percent, Gareth Hunt, a banking analyst at Investec Securities in London, wrote in a note to investors today. The London-based bank needs to cut costs in the U.K., reallocate capital at its U.S. division and sell parts of the business that aren’t profitable enough, he wrote. Gulliver, who took over as CEO in January, will brief analysts on his plan for the bank on May 11.
A customer, a politician, who owed 68 million rupiah on his Citigold card, died on March 29 while meeting with bank staff, Gatot Eddy Pramono, head of the South Jakarta Police District. said. Four people are suspected of being involved in the death, he said, Bloomberg reports.
FT reports that three external debt collectors working for Citi have been detained, and face possible murder charges.
An internal investigation into the death didn’t reveal any physical violence, Citigroup’s Mukhtar said April 5. The bank had been working with the client and had offered to waive as much as 40 percent of the principal amount, he said, Bloomberg reported.
More than 50% of its profits come from emerging markets juz when emerging markets are losing their attractiveness to global investors.
Given Cit’s record of losing serious money by jumping into markets late (think sub-prime, and lending to finance LBOs, US property (in the 80s) and Latin America (in the 80s too), S,poreans should be concerned., given GIC’s 5%(?) odd stake in Citi,
The Fed notified financial institutions that passed a second round of stress tests that they can begin returning money to their shareholders, The results are confidential but already some US banks are saying they will raise dividends this year. Among them are Citi rivals JPMorgan and Wells Fargo. Citi says that only in 2012, will it consider raising its dividends, It got a lousy rating?
And I now know why the executive director of GIC is looking to increase US exposure. Read the rest of this entry »
HSBC said its Asian operations can sustain return on equity of as much as five percentage points above the lender’s global target as growth outpaces other regions. It’s global target is 15%.
BTW the 2008 financial crisis enabled me to double my holdings in HSBC via its rights issue. But there were times when my balls shrunk.
Our MSM focused on the fact that last yr was Citi’s first profitable yr since 2007. But it didn’t say much abt fact that Citi’s latest quarterly profits disappointed the mkt because they are due to a tax credit and a transfer from its reserves, nothing to do improving operations.
Could it be because GIC stills owns a lot of it? And with a GE coming, the “constructive, nation building” media don’t want to remind us that returns for shareholders are not going to be great for some time?
As this article shows, Temasek shld not have been so hasty in selling its stake in BoA, which it got after BoA bot Merrill Lynch where Temasek had a big investment. BOA is doing the things that attracted it to spend US$5.9 bn buying shares in Merill Lynch. Temasek lost US$4.6 bn, it was reported.
Shortly before Temasek sold, MM had said that S’pore Inc’s investments in Citi, UBS, and Merill Lynch had a time-frame of 30 yrs. Temasek held its ML investment for over a yr. GIC still owns shares in Citi (profitable), and UBS (big loss).
Bank of America is headed for its best year advising on mergers and acquisitions in Asia-Pacific since 2005, and arranging initial public offerings since 2007, data compiled by Bloomberg show. The combined companies have generated 30 percent more revenue from traditional investment-banking businesses in the region than they did as separate entities … Read the rest of this entry »
Citi executives celebrated the new branch, which was modeled after high-tech branches in Singapore and Hong Kong that were apparently very well received by customers there.
Err OK HK too.
DBS seems to be getting its act together. In November, the CEO (FT turned citizen) said he planned to improve return on equity by building businesses that cater to wealthy individuals and small companies, and by expanding in China, India and Indonesia. Well with two moves made in December, he seems to be keeping to his word.
It will take over Royal Bank of Scotland Group Plc’s retail and commercial banking businesses in China, it was annced last week. This is possibly a high risk move but if things work out reasonably well, it would have added bulk to its China operations, giving it credibility with potential customers. The risk is that it will assume US$900m of structured notes that RBS sold to its depositors. We know what can happen when DBS plays around with these deposits: customers lose wealth, and if they are S’poreans, get screwed https://atans1.wordpress.com/2010/08/06/what-abt-high-notes-sm-goh/.
Earlier in the month, it annced the sale of its asset management arm to Japan’s Nikko Asset Management for S$137 million. DBS will then acquire a 7.25% stake in Nikko Asset and distribute Nikko funds through its branches throughout the region. This move shows Read the rest of this entry »
Like other brokers, OCBC is bullish for next yr. But there are some picks that are unique to OCBC.
Our picks for 2011 are Ascott Residence Trust, Biosensors International Group, CapitaLand, DBS Group Holdings, Ezra Holdings, Genting Singapore, Hyflux, Pacific Andes Resources Development, Keppel Corporation, Mapletree Logistics Trust, Noble Group, Olam International, Sembcorp Marine, StarHub, United Overseas Bank, United Overseas Land and Venture Corp.
Remember the “S” stands for “Shanghai” and “H” for Hongkong.
Growth in China has averaged around 10 percent a year for the last decade and shows little sign of slowing. As trade flows with the rest of the world increase — HSBC says they will reach $5 trillion by 2015, which means growth of 13 percent a year — more of China’s cross-border trade will be settled in yuan.
On paper, HSBC is well placed to take a good chunk of business in that yuan-denominated trade. It is often one of the first foreign entities to win key licenses in China. It was the first to settle a cross-border yuan trade last year, the first to handle a yuan-denominated interest rate swap in Hong Kong in October, and it became the first international bank to complete yuan settlements in six continents with a deal in Brazil last month. … Read the rest of this entry »
StanChart shares have fallen 6% since last Thursday when it told the market that costs were rising and wholesale banking revenues weak.
For StanChart, growth is proving costly. The British bank with a strong focus on Asian emerging markets said last Thursday that it had another record year to look forward to, predicting further growth in its pre-tax profit for both the consumer and banking wings of its business. However, such growth comes at a high price, and costs for the bank have been growing faster than it would ordinarily allow.
Its finance director said the bank would try to slow cost growth next year until it draws level with income growth once again.
Reminder: Temasek has 19% of StanChart and the bank is one of its best picks ever.
As of the end of the third quarter, John Paulson had reduced his stake in Bank of America by about 30 million shares, to 137.8 million shares. And he cut his holdings in Citigroup by about 82.7 million shares, to 424 million shares. He had been buying BoA in early 2009 juz when Temasek was cutting its losses, losing in the process “US$4.6 billion loss on a US$5.9 billion dollar investment” according to a CNBC report.
Looks like he is no longer bullish on US banks.
George Soros sold over half of one million shares of SPDR Gold Trust to finish the quarter with 4.7 million shares. John Paulson maintained a 31.5 million share holding of the exchange traded fund through the quarter.
John Paulson remains bullish on gold while Soros is trimming his stake and laughing all the way to the bank. Remember he called gold a bubble in the making, and jumped into it earlier this year.
But investors can lose possibly serious money. The reasons?
The DBS 4.7% preference shares are perpetual. This means you will not be able to get yr principal back unless the bank exercises a call option in 2020. The call option means that if in 2020, interest rates are lower than today’s pathetic rates, DBS can repay investors and borrow at a lower rate.
BUT if interest rates are say 10% (they are on average 0.6% today) and rising, DBS will not redeem the shares. Holders are then stuck forever (but getting the 4.7% per annum interest) unless they sell in the market.
When one sells in the stock market, the amount paid will reflect the prevailing interest rate and the creditworthiness of DBS. If interest rates have risen from the 0.6% average, you will lose part of yr principal. If interest rates are around 10%, one could possibly easily lose 10% of the face-value of the amount bought.
By buying this preference share, investors are betting that for the next 10 yrs, interest rates will trend lower. DBS is betting that interest rates will rise.
And remember DBS has form in selling a product that loses investors money. Investors in its HN5 Notes lost everything while investors in Lehman’s minibonds at least recovered 50% of their investments. And Lehman went bust!
BTW potential investors may want to recall what DBS did to investors of its HN5 notes https://atans1.wordpress.com/2010/08/06/what-abt-high-notes-sm-goh/
The CEO of StanChart’s SE Asian operations said recently that Standard Chartered had no plans to spend the proceeds of a £3.3bn (US$5.3bn) rights issue on a significant acquisition in Asia. The bank planned to expand in the region largely through organic growth, rather than acquisitions.
The bank was not looking for any “transformational transactions” in SE Asia, although it might seek to acquire small businesses specialising in sectors or products that would add to its operations.
This would rule out a bid for DBS. Many had speculated (self included) that the bank might be preparing to spend part of the rights issue proceeds on a large acquisition. A very few (self included) speculated that DBS was a target, given that DBS is so badly managed and Temasek is a controlling shareholder in both.
DBS reminds me of StanChart in the 70s and 80s, when the latter got almost everything wrong. Only in the 90s did it get its act together. For younger readers, in the 60s Hongkong Bank and StanChart were roughly the same size, even though the former was already the leading bank in HK.
Standard Chartered bought two smallish S’pore-based businesses
— an aircraft leasing business in 2008; and
— a small factoring business earlier this year.
In 2008, it bot the private banking business of American Express in £430m.
Investors pushed the price up 3% after the result was announced because the financier had claimed US$8 billion plus punitive damages. If he had won, Citigroup would have been in serious trouble. The money was not “peanuts” and the loss of reputation was not minor. GIC (they still own a big swag of Citi) and other shareholders might have ended up with a worthless investment.
Hence the surprise that Citi was prepared to fight the case rather than settle.
15 rules that apply even if you have yr own private banker. Remember that most PBs are rewarded like brokers and relationship mgrs: The more they sell you, the bigger their pay. And the riskier the product, the bigger the commissions.
15. There is no free lunch: Repeat after me: There is no free money, no riskless trade, no way to turn lead into gold. If you remember no other rule, this one will save your bacon time and again.
5. Motivation: What is the motivation of the person selling you any product? Is it the long term stability and financial health of your organization — or their own fees and commissions?
4. Asymmetrical Information: In all negotiated sales, one party has far more information, knowledge and data about the product being bought and sold. One party knows its undisclosed warts and risks better than the other. Which person are you?
3. Legal Docs protect the preparer (and its firm), not you
2. Overly Optimistic Assumptions: Imagine the worst case scenario. How bad is it? Now multiply it by 3X, 5X 10X, 100X. Due to your own flawed wetware, cognitive preferences, and inherent biases, you have a strong disinclination – even an inability — to consider the true, Armageddon-like worst case scenario.
1. Reward is ALWAYS relative to Risk: If any product or investment sounds like it has lots of upside, it also has lots of risk. (If you can disprove this, there is a Nobel waiting for you).
This will remind you the last time the general US equity market went up, but the index of US banking stocks went down. The general US mkt tanked shortly thereafter and Temasek and GIC lost billions. Chart
Recently the US general mkt is powering ahead, while bank stocks are falling.
Remember JR from Dallas?
He recently won US$11.1m++ from Citi. The arbitrator held that Citi’s broking arm had breached its fiduciary duty to him. This sum includes US$10m in puntitive damages.
And Terra Firma (a British private equity firm), is suing Citigroup over its disputed take- over of EMI for £4.2bn on the eve of the credit crunch. It is demanding compensation for EMI’s accumulated losses of £1.75bn and a punitive sum worth three times that figure, which would give TF £7bn.
The crux of Guy Hand’s case is that his private equity firm Terra Firma was allegedly tricked into buying EMI in 2007 by leading Citigroup financial adviser David Wormsley. Hands alleges that Wormsley tried to force up the price during the sale by telling him that another bidder … was still in the running. Guardian
And in 2008 in S’pore, Singapore Tycoon Oei Hong Leong, who was widely dubbed “The Man with the Midas Touch,” sued Citigroup for negligence and misrepresentation after he lost $1billion on foreign exchange and U.S. Treasury bond transactions last year.
The matter was settled out of court, in 2009.
Remember “The Citi never sleeps”? Well so did the Eye of Sauron, the master of the orcs and other baddies in Tolkien’s Lord of the Rings.
Could DBS be a takeover target for StanChart? The latter has just launched a 3.2bn sterling rights issue which would make it one of the top 20 banks by market cap. Temasek would surely be glad that one of its best performing investments relieves it of a dog of an investment. StanChart is itself the subject of talk that JPMorgan wants it.https://atans1.wordpress.com/2010/09/22/stanchart-a-takeover-target/
The only advantage for StanChart to own DBS is that it will finally have a market where it is the dominant player. It has never had a market where it dominated, unlike HSBC which parlayed its dominance in HK into being a global player.
As to DBS’s other biz, they are dross compared to similar biz owned by StanChart.
BTW, DBS is late to another party.
In June DBS Group annced that it was looking looking to expand its Global Transaction Services (GTS) biz by doubling its current annual revenue of S$800 million in less than three years.
The newly appointed, Thomas J McCabe, managing director of Global Transaction Services, said the expansion will be carried out in a two-pronged approach.
This involves both building on its current Internet banking platform for its corporate clients and grooming GTS staff to meet their clients’ growing needs.
The bank is investing S$9 million on a new technology platform, including smartphone applications, to make its Internet banking service more functional.
The problem is that this biz which covers such services as corporate cash management, foreign exchange, trade finance, global custody and hedge-fund administration, is the new in-thing for much bigger and experienced banks because it provides steady income and is not too capital-intensive,. Some banks have moved investment bankers into this dull biz.
Looks like DBS has not changed, moving late into a fashionable biz where it has no special expertise. BTW Merrill Lynch and Citi had a reputation of moving late into biz where they had no special skills. Subprime is a classic example. Here’s an article on Citi’s latest possible folly: spending on new biz. Remember many of DBS’s FTs are ex- Citibankers, as is OCBC’s CEO. Only UOB is run by a true-blue S’porean.
Morgan Stanley is very bullish on OCBC and neutral on UOB. It ignores DBS.
Why Overweight OCBC: Our analysis shows that OCBC is more geared to upside from improved global sentiment than UOB is. In particular, it is likely to benefit sooner from improved capital markets revenues, given its greater exposure (23% of total revenues, compared with 13% for UOB) and its reliance on wholesale and private banking rather than mass affluent wealth management. In addition, as a more geared bank, it would benefit more from falling risk premia for banks.
In addition, OCBC’s greater overseas contribution and stronger growth track record give us more comfort in our higher growth forecasts for this stock.
Catalysts aplenty: We see many possible triggers for a rerating. These include an improving global economic outlook(more in line with Morgan Stanley estimates) or a lift in rates. Also, the 3Q results, due on October 29 for UOB and on November1 for OCBC, could act as a catalyst if the rate of margin compression seen in Q210 eases, or if the weak 2Q trading profit trends are reversed.
The main risk to our relative call would be rising leverage premia for banks, putting more pressure on levered OCBC, or a share buyback from UOB, which we estimate has the potential to raise its valuation by 15%. However, with UOB’s management keen to hold on to capital, the latter looks unlikely, and we believe OCBC’s higher growth offers better probability of returns.
I never realised that OCBC had the weaker capital base. But then by global standards it is overcapitalised. MAS never bot into into the view that banks don’t need capital if they are well managed.
Switzerland has proposed new rules that will make UBS less profitable. As GIC is 45% underwater on its UBS investment, this means it may take longer for GIC to breakeven on this dog with fleas. MM’s talk of 30 years may be an understatement. And he was talking of profit not breakeven.
And GIC may have to invest more in UBS if it decides that it wants to maintain its present holding. These rules means UBS will have to raise capital.
Finance 101: the more capital is required to hold, the less funds it has to make money because capital has to be invested in very safe assets, normally government bonds of the supervising country.
UBS and Credit Suisse will have to accumulate billions of francs in extra capital under proposals from a Swiss expert group on the role of banks deemed “too big to fail.”
The recommendations will oblige Switzerland’s two top banks to maintain supplementary national capital standards far in excess of the Basel III rules agreed by international regulators last month. note
The proposals will oblige the banks to hold total capital equivalent to 19 per cent of the risk weighted assets on their balance sheets, based on their current figures.
Under the proposals, the first 10 per cent of capital will have to be strictly defined “common equity” – meaning capital of the highest quality. The requirement is three percentage points more than the 7 per cent proposed under Basel III for banks to pay bonuses. FT reports.
The second link talks abt GIC’s and Temasek’s pre -crisis strategy of investing in efficient (in hindsight thinly capitalised) banks.
The unrealised loss is S$5.5bn or 28.8% of the total investment in both banks. (S$18.1bn). This can fund slightly more than 13 of VB’s Kiddie Games and buy the poor (he berates) all the hawker and restaurant meals (sharks’ fin combs included) they will ever.
At last Friday’s closing price of US$3.90, Citi’s shares would be worth about US$4.4 bn, compared to the US$3.3 bn (S$4.3bn) cost. This gives GIC a paper profit of US$1.1 billion (S$1.5bn). Gd job GIC. And I didn’t take into account the profit it made selling part of its stake.
But GIC’s investment of 11 bn Swiss francs (originally convertible notes issued by UBS) or S$14.8bn is showing an unrealised loss of 4.9 bn francs (S$6.6 bn) based on last Friday’s closing price, even taking into the 2 bn francs it received in interest.
GIC now owns 3.8% of Citi’s common stock and 6.4% of UBS’s common stock, GIC said at a briefing on its latest annual report on Tuesday.
(Updated on 13 October)
No not Temasek as predator. Remember it has 18% of StanChart.
But what abt JP Morgan? Top FT reporter Francesco Guerrera analyses
The international conundrum is more complex. JPMorgan earns some 75 per cent of its revenues in the US, a slow-growing, developed country. By contrast, Citi derives some 40 per cent of its revenues from Latin America and Asia, emerging economies with a bright future that are also HSBC’s stomping ground.
Those lenders’ competitive advantage is their ability to offer boring-but-lucrative commercial banking and cash management services to thousands of companies.
JPMorgan has a deep commercial banking network in the US – its most profitable business – but lags overseas.
The bank already works with more than 2,000 foreign companies but Mr Dimon would love to get that number to nearer 4,000 and do more with each of them.
To this end, JPMorgan is adding 250 bankers and $50bn in extra lending to lure foreign companies. But that could take decades and the bank might want to shorten the wait with bolt-on acquisitions (as its investment bank did with Britain’s Cazenove and RBS Sempra).
The recent moves by Heidi Miller, a veteran executive, to lead the international effort, and Doug Braunstein, a takeover specialist, to the role of finance chief, certainly point in that direction.
But, as my GPS intones when I get lost, “there is a better way” – in theory at least – and it leads to Standard Chartered.
A well-run, commercial and retail bank with strongholds in Asia, Latin America and Africa, StanChart could be the answer to Mr Dimon’s problems.
It would not come cheap – its valuation is well above JPMorgan’s – and a bid by Mr Dimon would trigger a war with HSBC and China’s ICBC, among others.
But JPMorgan’s good health affords its chief the luxury of time.
On 12 October 2010, StanChart was up 2% on rumours that JP Chase would bid.
catching up. But Shanghai’s catching up fast.
Taz the conclusion of the latest Global Financial Centres Index (GFCI).
London and New York with 772 and 770 points respectively out of a possible 1,000, are joint leaders (a two-point margin is statistically “peanuts”). Hong Kong has 760. Singapore is 4th, 32 points behind Hong Kong, but could soon join the top ranks (i.e. close the gap), according to GFCI.
Shanghai has risen five places to sixth, which puts it in the top 10 for the first time since the survey began in 2005. There are now four Asian cities in the top 10.
Remember DBS sold S’poreans and Honkies toxic notes and paid off Honkies but gave the finger to S’poreans? https://atans1.wordpress.com/2010/08/06/what-abt-high-notes-sm-goh/
Well Raju Rajan was the then head of consumer banking. He has “decided to pursue new opportunities outside DBS’. BTW before he became head of consumer banking, he headed DBS’s IT team. The failure of the systems was on his successor’s watch.
Citing unnamed sources, Reuters reported he is going to Deutsche Asset Management. Death wish by Deutsche?
Now that Mr “destroyer of value” has left, is DBS a screaming buy?
It has a great chairman. It recently appointed two gd men as head of consumer banking and as S’pore country mgr. And it appointed Bertie Cheng as its adviser. Mr PosBank had retired moons ago after DBS bot PosBank. Read the rest of this entry »
Morgan Stanley’s Qing Wang created a new tracking concept, the China Macro Risk Radar (CMRR). The goal is to provide a framework to asses and monitor risk events of low to moderate probability (high probability events already have their own standing at the firm and are singled out in client calls) and high impact.
As part of its inaugural edition, MS has assigned 10 risk events to four different categories on the CMRR – each risk event is assessed according to six aspects, including its description, content, potential impact, likelihood, timeframe, and evolving direction. The top 10 event that shld concern investors can be summarized along the following four verticals:
Risk Category A: Macroeconomic
Risk Event 1: Massive NPLs
Risk Event 2: Local Governments Default
Risk Event 3: Economic Hard Landing
Risk Category B: Policy and Regulatory Changes
Risk Event 4: Rapid Wage Increase
Risk Event 5: Introduction of Property Tax
Risk Event 6: Resource Tax Reform
Risk Category C: Financial Market Shocks
Risk Event 7: Property Bubble Burst
Risk Event 8: Commodity Prices Spike
Risk Category D: External Shocks
Risk Event 9: European Sovereign Debt Crisis Redux
Risk Event 10: Trade Protectionism
According to Global Finance, DBS is the world’s 23rd safest bank. In Asia, HSBC is the safest bank (19th). But in Asia Pacific region, Oz banks are even safer with National Australia Bank, Westpac, and Commonwealth Bank (at 11, 12, and 13 respectively)
French, Dutch and German banks occupy most of the top positions in the Global Finance survey, which uses long-term credit ratings from agencies Moody’s, Standard & Poor’s and Fitch, and analysis of total assets owned by the 500 largest banks in the world to do the survey.
The safest bank is Germany’s KfW , followed by Frances’s CDC and Bank Nederlandse Gemeenten (BNG) of the Netherlands.
US banks are dogs (and taz insulting dogs), with BNY Mellon at position 30, JP Morgan Chase (40), Wells Fargo (42) and US Bancorp (47).
Is Standard Charterd (which like HSBC) had a good crisis taking on too much risk? We shld care as Temasek owns 18% of StanChart, and StanChart is one of its best performing investments.
Ranked 14th among merger advisers in India in 2009, StanChart is now number two (and could be soon Numo Uno) by financing takeovers in the world’s second-fastest growing major market for M&A deals, Bloomberg reports.
The problem is that in the 1980s and 1990s, major US investment banks and European universal banks got into serious trouble by financing takeovers in the US. The deals went sour when the economy collapsed. The banks had tot financing takeovers was a gd way (“no brainer”) of getting into the lucrative M&A game. They forgot that these loans are margin financing by another name.
Is StanChart repeating the same mistake? Maybe it thinks India’s economy may never collapse. But never take for granted anything about a country that needs “divine help” to get ready for the October Commonwealth Games.
Some analysts and accounting experts (among the latter Lynn Turner), a former chief accountant at the Securities and Exchange Commission, say Citi must set aside funds to cover US$50bn of deferred taxes.
These assets are important to Citi. At the end of the second quarter, deferred tax assets made up more than a third of Citi’s tangible equity. So if he had to set aside funds, this would reduce its capitalratios and weaken its balance sheet.
To avoid setting aside funds, Citi has to be confident it will earn US$99bn in taxable income during the next two decades. It says it can.
However as its pre-tax losses in 2008 and 2009 topped US$60bn, these critics ask why it should be trusted. They have a point, while between 2002-2006 period Citi had annual pre-tax profits of at least US$20bn, this got wiped out by the recent losses.
Err so will this “30-yr” investment be around in 30 yrs time, let alone make money for GIC, as MM predicted? Remember Temasek cut loss on its Merrill Lynch investment, after doubling down, and juz before market turned.
Of the 90 publicly listed Chinese property developers listed on the Shanghai and Shenzhen stock exchanges, almost two-thirds of them reported negative operating cash flows for the first half of 2010.
This makes clear why the Chinese authorities had earlier asked the banks to use a 60% haircut in estimating residential property losses.https://atans1.wordpress.com/2010/08/11/temasek-what-abt-these-chinese-property-charts/
Looks like trouble for the Chinese property developers and banks may be coming sooner than later, and for China bank bull Temasek. A repeat of Merrill Lynch and Barclays?
Remember Temasek owns 4% of Bank of China; and 6% of China Construction Bank. And StanChart is a cornerstone investor in Agricultural Bank of China with abt 1% paying US$500m for this privilege). Temasek owns 18% of StanChart.
And what about CapLand and KepLand, with their biggish exposure to Chinese residential properties?
Might sound dumb to ask given that the Chinese banks that Temasek invests in are some of the largest in the world, and given that China’s economy is growing like the bean stalk in the story Jack and the Bean Stalk. But then Shin, Merrill Lynch and ABC Learning were “no brainers”.
State agency Central Huijin Investments did something strange recently. It has controlling stakes in nearly all of China’s largest banks, including China Construction Bank (6% owned by Temasek), Agricultural Bank of China (StanChart is a cornerstone investor with abt 1% paying US$500m for this privilege) and Bank of China (4% by Temasek) . Temasek owns 18% of StanChart.
Huijin just raised Rmb40bn (US$5.9bn) as part of a Rmb187.5bn fund raisng. The aim of raising the Rmb187.5bn is to recapitalise Chinese banks it controlled.
Sounds prudent given the explosive loan growth rates of the banks brought about by Chinese attempts to stimulate the economy.
But this is the weird bit: the state-controlled banks were estimated to have bought more than 80% of Huijin’s first bond issue, on orders from their shareholder. If this is repeated, this means the Chinese banks are lending money to their controlling shareholder so that the shareholder can buy shares in them. No new cash is invested by the controlling shareholder.
Sounds something that only Wall Street cowboys would dream of doing.
Except that the Wall Street cowboys would be in jail for pulling off this stunt, unless of course, if a Texan is president.
If you still believe that yr bank has your best interests at either because either you are that kind of person, or because you think that its in the bank’s interest to treat you fairly, read this.
Its about alleged double dealing by an American bank. The bank’s behaviour towards a long-time client is staggering to a cynic like me.
A judge found that JPMorgan’s deal with Inbursa was “an end-run, if not a downright sham” that was intended to circumvent Cablevision’s right to veto the loan’s sale. Note Cablevision and Inbursa belong to rival Mexican conglomerates, who row incessantly in Mexico. Read the rest of this entry »
If youbelieve that yr friendly consumer bank has your best interests at either because either you are that kind of person, or because you think that its in the bank’s interest to treat you fairly, read http://www.fisca.sg/financial_education?mode=PostView&bmi=392161.
A S’porean relates her experiences in getting a bank to release her from a guarantee on a loan that had been repaid. The bank kept making misrepresentations to her. Only her persistance and complaints to MAS resulted in the bank giving something which it had a duty to give to her.
If you think she is a trouble maker, remember this: The bank didn’t want to release her because it wanted to hold her liable for other possible debts in the future, even though the debt she had acted for as guarantor had been repaid. Taz how two-timing banks can be.
Standard Chartered moved V. Shankar from S’pore to Dubai, a few months ago, to head the bank’s Gulf base in the Dubai International Financial Centre. He is chief executive responsible for Europe, the Middle East, Africa and the Americas.
He is a S’porean, home-grown talent, I’ve been assured by people from Stan Chart.
Chinese banks have been ordered to account for around Rmb2,300bn ($340bn) in off-balance sheet loans in a move that could put some lenders under serious stress and require another large round of capital-raising, reports FT.
Lenders must put all loans sold or transferred to lightly regulated Chinese trust companies back on their books by the end of 2011. And must stop using “informal securitisation” to evade regulatory requirements.
Trying to ensure that banks don’t do what Citi, Merrill Lynch and other US banks were doing? Concealing their leverage albeit legally.
Reminder: Other big problematic numbers are loans to local governments, more than US$230bn of which are considered to be at serious risk of default, and real estate exposure, which accounts for roughly one-tenth of the big banks’ corporate loan books. FT
We live in interesting times.
The central bank has given DBS Bank an unprecedented public censure and instructed the 27%-owned Temasek bank to put aside S$230m to cover its operational risks. Gd for MAS, and SM Goh (chairman of MAS), Tharman and Hng Kiang. The last two ministers also sit on MAS’ board.
There is another thing to be put right, SM, Tharman and Hng Kiang.
DBS’ Hong Kong unit recently agreed to pay out HK$651 million or about S$115 million to some clients who bought products linked to Lehman Brothers. As HK$1.3 billion of notes were sold, the compensation received works out to 49% of amount invested.
In S’pore, it sold a similar product, HN5 Notes. DBS issued, arranged and distributed HN5. A total of S$103.7 million worth of HN5 were sold to 1,083 retail clients between 30 March and 30 April 2007, according to a July 2009 MAS report.
The same report said DBS compensated investors S$7.8 million.
What this works out to is 7.5% of amount investments versus 49% in HK. Is this fair? Product is the same.
Force DBS to treat the S’porean investors fairly, ministers. You have the moral authority.
If you do, I’m sure the compensated HN5 investors, family and friends will remember the good deed when the GE comes. It’s “win, win” except for DBS. And even then its a peanutty S$51m, 44% of amount paid to the HongKies.
BTW I did not buy any of the credit-linked notes that failed. Not that “greedy”.
Cabinet minister and NTUC’s Secretary General Lim Swee Say is confident that Singapore will be able to replenish the S$4.5 billion drawn from the reserves over two to three years. He said Singapore makes sure that every dollar is put to good use and every extra dollar is put back into the reserves.
So is he saying the realised losses on Merrill Lynch (may have totalled US $4.6 billion) and Barclays (possibly 800 million pounds) were a good use of the reserves? BTW they total S$8bn at today’s rates. Almost more than double the amounts drawn down for WorkFare.
More to the point, how long will Temasek need to make up for the losses on just these two stocks? Remember its profits have fallen two years running.
The market is taking DBS’s write-off of another S$1 bn (S$1.3bn in 2005) on its S$10bn Dao Heng purchase of almost 10 yrs ago pretty well. The stock was up 0.20 to 14.60. Without the one-time charge, DBS would have reported earnings of S$718m, a record.
I’m surprised that market is not reacting badly to the reason for the write-off: difficulty in getting funding in the HK inter-bank market is how I interpret the gibberish put out on the write-off*.
The spin suggests DBS HK is a net borrower in the inter-bank market. Surprising as a local bank usually is a net lender. So either DBS HK is anaggressive lender to consumers, or locals don’t want to deposit money. Or both.
If this imbalance in deposits to loans sounds esoteric, remember why RBS had to rescued and Black Rock was nationalised by the British government:they were too dependent on inter-bank loans to fund their loan expanding books, funding which dried up.
As HK makes up about 20% of DBS Gp’s income, net profit and total assets, problems in HK will affect the Gp. Read the rest of this entry »
Chinese banks may struggle to recoup about 23% of the Rmb7,700bn (US$1,100bn) they’ve lent to finance local government infrastructure projects . reports Bloomberg quoting “a person with knowledge of data collected by the nation’s regulator”.
The estimate implies US$261bn of debt will go bad, almost five times the US$53.5bn the nation’s five largest banks are raising to replenish capital. Remember Temasek owns 4% of Bank of China and 6% of China Construction Bank, both of which have raised more capital from shareholders. And 18% -owned StanChart invested $500 million in Agricultural Bank of China’s recent IPO.
If the estimate proves even a bit correct, Temasek will be having to invest more in the next few years to avoid dilution.
Try this, Mr Bertie Cheng
Jason Goodman of advertising agency Albion, which runs campaigns for brands such as Skype, BlackBerry and Innocent, pitches a new High Street British bank:
DBS’ Hong Kong unit has agreed to pay out $651 million Hong Kong dollars or about S$115 million to some clients who bought products linked to Lehman Brothers. As HK$1.3 billion of notes were sold, the compensation received works out to 50% of amount invested.
In S’pore, it sold a similar product, HN5 Notes. DBS issued, arranged and distributed HN5. A total of S$103.7 million worth of HN5 were sold to 1,083 retail clients between 30 March and 30 April 2007, according to a July 2009 MAS report.
The same report said DBS compensated investors S$7.8 million.
What this works out to is 7.5% of amount investments. “Peanuts” as Mrs SM could have said, but didn’t.
Some MP should ask in Parly SM Goh, chairman of MAS, why did DBS screw its HN5 investors, esp as DBS said in a statement the settlement was made in the interests of its relationship with customers and of the Hong Kong financial system. So the peanuts paid to S’poreans was in the interests of its relationship with customers and of the S’pore financial system? Or it gives F#$%ALL to its relationship with S’porean customers and of the S’pore financial system?
By now, a lot has been written about what went wrong at DBS when its ATM and Internet banking systems went kaput for a while. This is a gd balanced article.
But I’m disappointed that no-one has pointed out that the failure shows that DBS tries to avoid telling the public and its customers things that negatively impact its image, while quickly giving out news that puts it in a good light. I find it strange that DBS could inform 10,000 of its customers that systems had been restored, yet failed to inform these same 10,000 customers that there was something rotten at DBS.
Next, while it kept the media informed of what it was doing to fix the problem, it didn’t alert the media immediately when it knew that there were going to be problems for its customers. The media could have advised DBS customers not to use the ATM machines and other affected services, making it a bit more convenient for customers.
Investors can reasonably wonder if DBS’s investor relation team will apply the same principles of “Delaying the release of bad news, while accentuating the good news”. Here’s hoping I’m wrong.
Time to buy the stock?
Everything that could have gone wrong has — from blowing up customer (HN5), losing money (Islamic Bank of Asia), CEO dying of cancer, losing status of top dog in region, bad strategy (tiny stakes in regional banks) and now juz after trumpeting its return to retail banking, a blow-up in its systems that took eight hrs to fix.
The thing to watch is the fate of Rajan “the wealth destroyer” (he signed off on the HN5 notes as head of consumer bank). He is implicated the the latest failure because he is still the head of consumer banking, and because before he became head of consumer banking, he was head of IT.
If he leaves ASAP after this balls-up, then we know DBS is serious abt fixing its “countrymen” problems, they stock could be worth a buy. And oh and the head of IT in DBS is an ang-moh.
BTW OCBC (FT CEO, but taz abt it) and UOB (proudly “home-grown” with some FTs) have not had a systems failure on this scale. Shows the lie to the “FT is best” policy, neh?
I’m putting DBS on my “Value?” watch”list. I’ve never ever owned DBS preferring HSBC and UOB (this via Haw Par).
I never regretted not owning DBS esp since 1998 when the CEO post became an FT only post and FTs dominated senior mgt.
Fat gd it did DBS’s shareholders including Temasek. According to the Boston Consulting Group, DBS has had a total shareholder return between 2005 and 2009 at negative 4.6%. OCBC had 2.4% relative total shareholder return and UOB 0.4%. OCBC has an FT CEO, but the rest of senior mgt is largely “home-grown”. UOB is on its third CEO from the Wee family (where banking is in the blood?), but the rest of top mgt is also largely home-grown.
But first, let’s add to the FT balls-up list. I’m not the only one amazed to read in BT that only now is DBS is rethinking the way it does wholesale banking in the Middle East, Europe and the United States, and is planning to focus more on supporting the overseas ventures of Asian businesses and rich clients, instead of broad corporate lending.
The bank will still lend to local firms in those markets, but will seek out those looking to invest in Asia or set up operations here.
Hell’s bells, I’m surprised that DBS is only thinking about this juz now. OCBC and UOB have been doing this from the day they set up overseas branches in faraway places. They never did corporate banking but focused on trade financing. So did OUB.
A major test of execution is what happens to the head of Consumer Banking, “Wealth Terminator” Rajan. He signed-off on the HN5 Notes and targeting their sale to fixed deposit customers.
But the appointment of the last CEO of POSBank is a gd sign, as is the chairman’s desire that the next CEO be “home -grown”.
Hopefully DBS will no longer be a place where “FTs rule OK”, but a meritocracy,that gives the same opportunities to home-grown staff as to FTs.
Switzerland yesterday ended months of uncertainty after the country’s parliament finally approved legislation allowing the transfer of 4,450 names of American clients suspected of evading taxes to be passed to the US authorities.
The decision followed days of parliamentary squabbles that threatened to delay the treaty.
Switzerland promised to deliver the names by August 19. A failure could have prompted US legal action against UBS, destroying shareholder value.
Apparently it is fashionable in the West to return to “simple” banking.
What can be more simple than PosBank’s model?
Hence the return of ex-CEO of PosBank CEO (a true blue S’porean) as adviser to FT-managed (badly) DBS. some FT fiascos.
Juz read what the new chairman (another true blue S’porean) has said abt the next CEO being a local. The bad news is that it may take another 10 years. Let’s hope the FT countrymen don’t gang up and get rid of him. DBS has been one mother cow for them.
The Swiss upper house on Wednesday rejected the idea of a popular referendum to decide on the UBS client data deal, putting it at loggerheads with the lower chamber and casting doubt on how Bern will keep its promises to Washington.
Reminder: So long as the deal is not approved, the danger is that the US may decide to prosecute UBS for helping its US clients evade taxes. This could destroy UBS .
As MM is among Time’s 100 world’s influential people and ST is forever playing up his influence with US policy makers and as he is chairman of GIC, shouldn’t he be calling the US president? The US has an interest in S’pore’s continued stability under the present government.
GIC can relax. Much earlier than expected the Swiss parly approved the deal.
If it had not been approved, UBS shareholders could have said bye-bye to their money. The US was threatening to indict UBS for assisting in the evasion of US taxes.
Update 16 June
Opps spoke too soon.There is a proposal for a national referendum on the accord, leaving its ultimate fate in doubt.
Will be a long hot summer as GIC (and we S’poreans) wait to see whether the US prosecutes UBS.
*And title was updated too to reflect continued uncertainty.
Islamic finance is set to play a bigger and more central role in global finance. This is because of greater awareness and adoption in more financial centres.
Trade and Industry Minister Lim Hng Kiang said this at the launch of the inaugural World Islamic Banking Conference Asia Summit in Singapore on Monday.
So why is DBS cutting back on the activities of its Islamic banking activities?
Temasek should sort out the “FT is best policy” that dominates the thinking at DBS. It is on its 6th FT CEO in a row. It’s costing Temasek (and ultimately us) shareholder value.
Remember it was an FT that overpaid for Dao Heng Bank, and messed up the takeover of OUB. And the loss in market share in retail banking, so much so that the ex-CEO of PosBank has been brought back as adviser.
Other cock ups
In an implicit admission that the FTs have messed up POSB very badly,DBS has appointed Bertie Cheng, the former CEO of POSB, as an adviser on POSB.
True-blue S’poreans; POSB customers; and investors can only cheer the move! And ask, “Why not earlier?”
Bertie Cheng was the man who via POSB brought basic banking services to the majority of S’poreans with a blend of technology and personal service.
Extract from BT article
(If POSB so damned gd under under “Blow up Treasured Clients” Rajan, why the recent initiatives mentioned below and Bertie Cheng’s return? A spin too far?
Mr Cheng, who during his tenure as CEO of POSBank had helped to craft its identity as a people’s bank, was appointed as adviser on Tuesday.
Said Piyush Gupta, CEO of DBS Group: ‘I am confident that Bertie will help POSB to build on its heritage as the ‘People’s Bank’ and further entrench itself in the hearts and minds of generations of Singaporeans.’
‘Cheng, the iconic leader of the former statutory board POSBank, was associated with the bank for over 31 years, with the last 23 years as its CEO before he retired in 1997,’ said POSB.
Mr Cheng said he hopes ‘to provide insights on how the bank can build on its past to serve Singaporeans of today, and also tomorrow’.
In recent months, DBS Group has acted to fix its consumer banking business, particularly the POSB network, which – plagued by long queues at bank branches and ATMs – has lost market share to rivals that chipped away at its customer base.
In May, POSB announced that it would expand its distribution network as part of its move to reach out to customers.
It also announced in April two initiatives to make banking more accessible to Singaporeans on the move – increasing the number of self-service machines available and launching a mobile-phone banking service.
Now it’s the Islamic Bank of Asia. Reading between the lines of the MSM spin, clear that its Islamic bank foray ran into serious problems. It now wants to focus on investment banking and become more active in private equity while remaining committed to growing its Islamic banking franchise in this region. And cutting back on financing because of losses when financing Gulf cos.
Sounds a bit like Aztech and Novena: having failed in what they were doing, they tried something new. “So easy meh?”
Why can’t Temasek exercise its prerogatives as controlling shareholder and get rid of the FTs. I mean the locals at CapitaLand are doing a gd job in Islamic financing. Juz being an FT doesn’t mean the right to “Fail, try again, fail harder” ; misuse of a misquote of Samuel Beckett.
Temasek itself is hiring locals in senior positions, ignoring the “FT is best policy” .
OK maybe I’m hard on the FTs at DBS https://atans1.wordpress.com/2010/05/14/dbs-how-to-solve-the-ft-problem/
But at the very least, they do not have the luck that Napoleon expected his generals to have. He expected his generals to be brave, competent and leaders as given in his meritocratic army: but luck was different.
Backgrounder on Islamic Bank of Asia
DBS owns 50 per cent plus one share in IB Asia’s capital of US$500 million.
The rest was contributed by investors from the Gulf Cooperation Council countries – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
IB Asia said at the time [of its establishment] that it would offer commercial banking, corporate finance and capital market and private banking services, acting as a bridge for capital flows between Asia and the Middle East. (From BT)
Founding CEO retired last December. I’m not sure before or after Dubai World declared a debt moratorium causing problems for other Gulf companies.
Standard Chartered expects Indian profits to exceed HK for the first time next year, Richard Meddings, finance director, told the Financial Times. Hard to believe as HK is its core market.
But then StanChart executives, including Peter Sands, the group’s CEO, were in Mumbai to announce that the bank had obtained regulatory approval to become the first foreign company to list on an Indian stock exchange.
So a little cynicism is in order?
Seriously, Temasek with 19% of StanChart, must be commended for investing in a bank that now has as its two major markets, HK/China and India. Makes up for that FT dominated mongrel, DBS. Time to strip DBS to a local retail bank, and rename it POSB? Who needs one Asian champ and one Asian chump?
When you think about it, Temask’s banking strategy (Asian prong: stakes in two major Chinese banks, StanChart, and in Asian banks in Indonesia, M’sia, Pakistan etc) worked. Where it went wrong badly was in its Western investment banking strategy buying into Merrill Lynch and Barclays and cutting its losses when the hedgies were buying.)
Moral of story, something Dr Goh could have warned them against: “Ang Moh tua kee” strategy does not work.
Do what MM suggests, or worse (from perspective of the underperforming FTs) what the British navy in the early 18th century did, to those who mess up https://atans1.wordpress.com/2010/04/18/motivating-the-elite-learning-from-n-korea/
[Update on 14 July 2010 — What DBS’s system failure shows https://atans1.wordpress.com/2010/07/14/dbs-what-the-systems-failure-report-shows/]
Much has been written by those who think the FT policy is wrong. What I find strange is that they do not write about what has happened at DBS. I have blogged on this before https://atans1.wordpress.com/2010/03/24/dbs-what-the-new-chairman-shld-be-looking-at/ and https://atans1.wordpress.com/2010/03/31/dbs-what-the-new-chairman-should-be-looking-at-iii/
And here I continue (feeling grumpy today) giving more examples of where the FTs went wrong, quoting in italics BT (that nation-building, constructive, newspaper). I give no dates of when the articles were written as I’ve taken them from various articles over the last two months. I think DBS must have been doing a PR exercise building up its relatively new CEO.
But in doing so, BT inadvertently reminded us of DBS’s missteps that can be blamed on the FTs. Either that or there are “subversives” at BT that the ISD have failed to root out (Or are there subversives at the the ISD too?). If you think I’m as mad as a Paki conspiracy theorist, remember ST was rebuked by the government for its AWARE coverage. It was too pro smelly, hairy feminists and pinkos for many of us, and the government rebuke showed us that we were right.
Bet wrongly on Chola
An analysis by BT shows DBS is likely to have suffered a heavy loss on its investment in Chola. At 3.76 billion rupees (S$118 million), the sale price was $29 million below DBS’s total investment of $147 million in Chola since late 2005, based on data from the two companies’ past annual reports.
Bad acquisition strategy
Could DBS’s minority stakes in banks in Thailand and the Philippines – also a legacy of past forays abroad – be the next to go?”
‘As a general rule, minority stakes are not attractive,’ DBS chief executive Piyush Gupta told Reuters in an interview in Hong Kong on March 25. ‘The only reason you would want a minority stake is, really, if you think you have a pathway to control the big strategic agenda around it.’
It is not yet clear if he will apply this thinking only to new acquisitions. But if he is serious about refocusing DBS on its core strengths, then its bank holdings in Thailand and the Philippines are suitable candidates for divestment.
In 1998, DBS bought controlling stakes in banks in both countries – 50.3 per cent of Thai Danu Bank and 60 per cent of Bank of Southeast Asia in the Philippines. …
In 2001, DBS’s Philippine subsidiary was absorbed into Bank of the Philippines Islands, in which DBS now has a 20.3 per cent stake. In 2004, its Thai unit merged with the Industrial Finance Corporation of Thailand and Thai Military Bank to form TMB Bank, leaving DBS with a stake of just 16.1 per cent in the new entity. Subsequent share issues by TMB have diluted DBS’s stake in the bank to just 7 per cent.
Ignoring connecting with S’poreans
POSB’s latest campaign – already dubbed by one wit as the baby-account war – hopes to recover some lost ground after it let slip the so-called baby bonus accounts to rivals OCBC Bank and Standard Chartered Bank.
DBS lost this group of customers in 2008 when its bid failed to retain the Children Development Accounts (CDA). The baby bonus accounts are a no-brainer yearly addition of 40,000 new customers – roughly the number of babies born here each year. OCBC and Stanchart won the right to offer CDAs after the government called a tender in 2008. POSB had been handling the CDAs since the government launched it in 2001 as part of the effort to raise the fertility rate.
‘To be honest, the CDA is a great government scheme – it’s a pity we don’t have it,’ said Rajan Raju, head of DBS Bank’s consumer banking yesterday.
It’s not just babies, POSB is going after schoolkids and the baby boomers too and it’s all part of an overall strategy to live up to its community bank tag, said Mr Raju.
‘We’re coming back to the community in many ways. We’re proud that we’re neighbours first and bankers second,’ he said.
Only an FT could have made this mistake
POSB’s latest strategy is the latest phase of a journey since the bank was acquired by DBS some 12 years ago, he said.
Sceptics would say DBS has so far ‘wasted’ the acquisition which gave it the biggest deposit base of all banks here.
DBS is looking to make POSB a holistic bank that provides more than just basic banking services, to offer savings, investments and growth products, said Mr Raju.
Most or 92 per cent of respondents in a 2006 survey are satisfied with POSB’s service. But given that it has 3.5 million customers, that would still leave 280,000 with issues.
Many complaints are to do with its long queues, which is being tackled.
By year end, the group will have more than 1,000 ATMs compared to the 967 now, Mr Raju said.
Its ATMs are the most heavily used in the world, according to vendor NCR, he said. Monthly usage for the most popular ATMs is more than 40,000 versus less than 10,000 at other machines, said Mr Raju.
POSB understands what customers want, which is simple products that people can understand and sign up for, he said. ‘We have very little fine print, what you see is what you get.’
‘At this point, people remain risk averse,’ said Mr Raju. ‘They come to POSB to find protection and investment products.’
Late into mobile banking
DBS Bank and POSB customers can now perform transactions on their mobile phones.
DBS has finally joined rivals OCBC Bank, Citibank and Standard Chartered Bank in offering banking via the mobile phone, a popular facility among young professionals. The service, called mBanking, allows customers to review their banking and credit card accounts, transfer funds and pay bills.
But do they have any valuables after HN5 Notes?
[A] premium safe deposit centre for DBS Treasures members. Occupying two levels, it offers high-net-worth clients exclusive surroundings to store and indulge in their valuables. Gourmet coffee and sparkling water are served free of charge. And the washrooms are laid out with Molton Brown hand wash and lotions.
Temasek owns 19% of Standard Chartered. Standard Chartered has said that it made record profits and income in the first three months of 2010.The London-based bank, which operates mainly in Asia, said that it “remains in excellent shape”.
It did not release profit figures for the quarter, but the remarks in its trading update point to a strong 2010. “Overall, the group has had a very strong start to the year, despite margin headwinds and increasing competitive pressures”.
In the first half of 2009, Standard’s profits were a record US$2.84bn (£1.86bn), suggesting profits for the first quarter of that year of about $1.4bn.
The comment that it had “a record quarter in terms of both profit and income” for 2010 indicate it could beat these figures when it reports half-year results later in the year.
Wholesale banking, which includes advisory, trade finance and other investment banking business, saw client income rise by more than 20% on the first quarter of 2009 and contributed more than 80% of wholesale income, the bank said in its statement.
Wholesale banking has driven Standard Chartered’s growth in recent years and accounted for over 80% of group profit last year.
Plenty of ranting and raving on socio-political blogs blaming everything on the PAP for the rise in HDB flats. I’m sure the slowdown in the building of flats, coupled with the faster flow of FTs had something to do with the present price rises.
But a more important factor must be the willingness of the banks to lend. As BT reported last Saturday
BANK lending rose in March for the fifth straight month, as the economic outlook and business sentiment continued to improve, encouraging businesses and consumers to borrow and banks to lend.
Total Singapore-dollar bank lending here rose 0.5 per cent, or $1.54 billion, in March to $286.3 billion at the end of the month, driven by improvements in both business and consumer lending, the latest estimates from the Monetary Authority of Singapore show.
Compared to a year ago, bank lending was up 5.8 per cent, the fastest expansion since April last year.
The latest business expectations surveys published yesterday showed that firms in both the services and manufacturing sectors expect the business environment to improve further in the six months to end-September, compared to the previous half year. Within financial services, banks and finance companies were the most positive on the business outlook …
Consumer loans, which have grown steadily throughout the financial crisis and economic downturn, mainly due to housing loans, expanded another 0.8 per cent, or some $1 billion, in March to $131.2 billion.
Housing and bridging loans, were again the driving force for the growth, rising 1.4 per cent, or $1.3 billion, over the month to $95 billion at the end of March…
Overall, for the first three months of the year, bank lending grew 1.8 per cent, or $5 billion. Though smaller than the 2 per cent expansion in the fourth quarter of last year, the slower pace of growth in overall loans masks a recovery in loans to businesses, which expanded one per cent over the quarter, even as the growth in consumer loans slowed…
With renewed competition among the banks, particularly in the Singapore home loans segment, the banks’ net interest margins – which measure how profitable their lending activities are after deducting funding costs – are likely to have been squeezed in the first few months of the year, analysts said this week. That means the banks would need to increase the volume of loans they make, to keep their net interest income from falling.
So banks will continue to lend for housing and the rants will continue. And when the banks stop lending, and prices fall, the rants will be abt govmin allowing the value of HDB flats to fall, conveniently forgetting that flats are now easier for young couples to buy. Just like now the ranters conveniently do not mention that the escalating prices means older S’poreans can cash out and downgrade, or move on to other countries.
But don’t spare yr tears for the PAP: by making property prices the benchmark on how well they are doing for S’poreans, they are riding a mad beast that they cannot control. Either way they lose. Dr Goh Keng Swee and his dream team would have told them not to be sold stupid
As readers will be aware Temasek has strategic stakes in Bank of China (4%) and China Construction Bank (6%), two of the four biggest Chinese banks.
These investments have done well, but need cash because of the loans they were directed to make last year, when China wanted domestic demand to make up for weak exports. https://atans1.wordpress.com/2010/04/14/temask-profitable-holdings-require-more/
China Construction Bank has announced a plan to boost a balance sheet that has been eroded by a year-long lending binge. The world’s second-largest lender by market value, plans to raise up to Rmb75 billion (US$11 billion) from a rights issue which, if successful, will be the largest offering of its kind in Asia.
CCB will offer 0.7 rights share for every 10 existing A- and H-shares. The price will be no more than Rmb4.50 per rights share, according to a stock exchange filing on Thursday night last week.
Under the plan, approximately 16.36 billion new shares will be issued, of which 15.7 billion will be Hong Kong-listed H-shares directed to overseas investors. Only 630 million are Shanghai-listed A-shares earmarked for mainland investors. The proposal is pending shareholder and regulatory approvals.
Bank of China announced plans to sell U$5.8 billion worth of convertible bonds sometime back and we shall see if it needs more cash*.
AND Chinese banks, flush from record profits that were bolstered by a yearlong lending binge, are expected to face a business slowdown as Beijing tries to slow lending to keep the economy from overheating.
Full article from NYT.
Industrial and Commercial Bank of China, the world’s largest bank by market value, and Bank of China, the country’s third largest lender by assets, are reconsidering previously announced plans to sell convertible bonds and new shares in Shanghai and Hong Kong, according to analysts and Chinese media reports. The banks might be under pressure from to sell shares through a rights issue to existing large shareholders and by selling more shares in Hong Kong than in Shanghai, as a means of stabilising the Shanghai market.
A flaw in DBS’s Asian strategy is the lack of something decent in Malaysia: how can one be a leading regional bank without a sizeable Malaysian operation. As Citi, HSBC, and Standard Chartered; and OCBC and UOB know, banking in Malaysia is very, very profitable.
DBS’s FTs blotched a takeover bid for OUB about 10 years back, which would have given it a sizeable retail and SME presence in Malaysia: something that OCBC and UOB have. UOB took over OUB and in the process enlarged its Malaysian presence. And the no FTs, hereditary principle looked better than the FT policy.
So, DBS should look at taking over OCBC because of its sizeable Malaysian banking business: 25% of pre-tax profit in FY2009.
Now the rest of OCBC’s banking operations don’t fit into DBS because of the overlap in Singapore, HK, China, Indonesia and Thailand. Both banks have crummy operations in the last three countries, while in HK, DBS has a sizeable operation while OCBC has a small operation. As for life insurance, DBS has eschewed the bankassurance model that OCBC has adopted via its control of GE Life. So unless the FTs now want to do bankassurance, it has to sell the 87% of GE Life that OCBC has.
So one alternative is for DBS should bid for OCBC, retain its Malaysian operations and sell off its banking operations in Singapore and Asian other countries to ANZ Bank. As for the GE stake, if ANZ Bank is not interested, try MetLife and Zurich. https://atans1.wordpress.com/2010/03/09/ocbc-more-on-ge-life/
Or persuade ANZ Bank and an insurer to make a three-way bid, with the intention of dismembering OCBC ala what happened to ABN Ambro when RBS, Fortis and Santander bid for and dismembered ABN Ambro. True RBS and Fortis promptly went bust and had to be nationalised, but history does not necessarily repeat itself. And if ANZ Bank wants GE Life, make a two-party bid.
Sometime in March, I analysed how valuable GE Life is to OCBC based on the price that Prudential is paying for AIA. I said (now revised post to take account of the embedded valued -EV – revealed in the just released 2009 annual report) that the value to OCBC of its GE stake (based on the AIA valuation that the Prudential is working on) is S$3.15 share or S$10.5 billion in total. https://atans1.wordpress.com/2010/03/08/ocbc-value-to-be-unlocked-cash-returned-to-shareholders/
But I doubted that the value would be unlocked given that without GE Life OCBC would be only an SME bank its pretensions in private banking and investment banking notwithstanding.
But given the rumours that OCBC is on ANZ Bank’s target list, who knows except the controlling shareholder of OCBC whether value will be unlocked.
Tomorrow I will discuss why DBS should organise a consortium to takeover and dismember OCBC.
Err the SDP and its new media allies will spin this as: “Profitable investments — requires more money. Waz happening Temasek?”
As you will be aware Temasek has stakes in two Chinese banks; 4% in Bank of China, and 6% of China Construction Bank Corporation. These stakes are profitable.
But Temasek would need to invest more if it wants to maintain the size of its stake because they need a lot more capital.
China’s four biggest publicly traded banks (Industrial and Commercial Bank of China, Bank of Communications , Bank of China, China Construction Bank ) could face a combined capital shortfall of at least Rmb480bn (US$70bn) over the next five years, according to the president of Industrial and Commercial Bank of China, reports the FT.
All these banks have announced plans in the past month to raise fresh capital after orders to lend liberally last year. But the total amounts they plan to raise fall far short of the five-year estimate of Yang Kaisheng, ICBC president.
Poor Temasek: nothing satisfies critics gunning for you.