I’m surprised to learn that the State Bank of India is bigger than DBS. And that Bank Central Asia is bigger than OCBC and that ICICI Bank and Bank Rakyat Indonesia are bigger than UOB.
I’m surprised to learn that the State Bank of India is bigger than DBS. And that Bank Central Asia is bigger than OCBC and that ICICI Bank and Bank Rakyat Indonesia are bigger than UOB.
According to a recent survey, HT says HSBC’s market penetration of corporate banking relationships in Asia (ex Japan) at 60%, StanChart’s at 50% and Citi’s at 44%. ANZ and DBS followed with 34 and 33%.
United Overseas Bank (UOB) posted a 4.4 per cent fall in first-quarter net profit, as lower wealth management fees and trading income more than offset higher net interest income. (CNA)
OCBC had a 14 per cent decline in quarterly net profit. Unlike UOB and DBS it has adopted a bankassurance model which depends on income from its life insurance division.
Oversea-Chinese Banking Corp (OCBC), Singapore’s second-biggest lender, announced on Friday (Apr 29) a 14 per cent decline in quarterly net profit, as its insurance income dipped and allowances rose.
For the three months ended March, net profit was S$856 million, down from S$993 million a year ago.
Profit from its life assurance unit plummeted 58 per cent, a fall of S$116 million, largely due to unrealised mark-to-market losses from subsidiary Great Eastern Holdings’ bond and equity investment portfolio, the bank said.
Wealth management income, comprising income from insurance, private banking, asset management, stockbroking and other wealth management products, was down 17 per cent to S$482 million, from S$583 million a year ago. (CNA)
DBS’s results should be a lot closer to UOB’s than OCBC’s, unless there’s something really nasty at DBS’s Indonesian business.
Too much capital: The average Tier 1 capital ratio at OCBC, DBS and United Overseas Bank was a unhealthy 14% at the end of last year.
each dollar of Oversea-Chinese Banking Corp.’s assets earns only 1.2 cents in operating revenue before provisions, compared with 1.6 cents for Hang Seng Bank in Hong Kong.
The narrow wiggle room for liquidity calls for caution. Hang Seng Bank’s loan-to-deposit ratio is less than 72 percent, by Bloomberg’s calculations, and 85 percent for OCBC. It’s hard to see Singapore lenders aggressively expanding their loan books if deposit growth doesn’t keep pace. But as Bloomberg Intelligence analyst Diksha Gera noted recently, HSBC and Malaysia’s Maybank are joining Citigroup and Standard Chartered in locally incorporating their Singapore retail banks. Growing competition for deposits at home could whittle away margins.
They are tiny in private banking, not only globally but refionally too.
In October lat yr, it was reported by CBA DBS’ private banking arm is now the eighth largest in the Asia Pacific, according to a widely followed industry ranking released on Friday (Oct 16), after assets under management (AUM) grew by by 35 per cent last year.
Private Banker International (PBI), an industry journal, said DBS’s AUM for high-net-worth clients rose 35 per cent to US$73 billion last year, helped by the Singapore lender’s acquisition of Societe Generale’s Asian private banking business.
No where near the global giants
See if you can spot OCBC or UOB.
DBS, StanChart kanna mark by China for gaming the Chinese FX regome:
FT reported last week:
The latest tightening comes after the central bank temporarily suspended some foreign banks in China, including Standard Chartered, Deutsche Bank and Singapore’s DBS, from conducting certain foreign exchange transactions designed to arbitrage the gap between the onshore and offshore renminbi exchange rates.
HSBC is really an old friend of China. It may be the bank of choice for Chaqco and other Mexican drug lords, but it doesn’t game PRC regulations.
Citigroup plans to double the number of wealth management clients in Asia in the next five years to one million, as the bank seeks to capitalise on an emerging middle class in the region.
Going by Citi’s track record in joining any party when it’s about to end (sub-prime lending, commerical property lending etc) our local banks who are trying to get big in privaye banking should be wary.
DBS’ private banking arm is now the eighth largest in the Asia Pacific, according to a widely followed industry ranking released on Friday (Oct 16), after assets under management (AUM) grew by by 35 per cent last year.
Private Banker International (PBI), an industry journal, said DBS’s AUM for high-net-worth clients rose 35 per cent to US$73 billion last year, helped by the Singapore lender’s acquisition of Societe Generale’s Asian private banking business.
“Other factors that contributed to (DBS’) success are a focus on digital banking, innovation, and the ability to retain customers as their individual wealth grows,” it added.
PBI had ranked DBS number nine in its previous ranking. Overall, PBI estimates that total AUM in Asia Pacific increased by 12 per cent to US$1.54 trillion last year.
(CNA sometime back)
China’s Postal Savings Bank Said to Be Near $6.5 Billion Sale. Postal Savings Bank of China, which has the most outlets of any lender in the nation, is nearing an agreement to raise more than $6.5 billion from investors including UBS Group and Temasek Holdings ahead of a planned initial public offering, Bloomberg News reports, citing people familiar with the matter.
(NYT Dealbook last Thursday)
The story also says that DBS will buy a stake.
HohoHo still bullish on China it seems and doubling her bets down. The problem for us is that these stakes cannot be divested completely without upsetting the Chinese. The ang moh banks were able to divest their cornerstone stakes in Chinese banks. They like Temasek got their stakes at “special” prices, but unlike them Temasek is stuck with these stakes, only able to add or decrease at the margins.
Meanwhile rights issues are expected necause of expected bad loans.
In https://atans1.wordpress.com/2015/08/10/pm-aiming-left-to-hit-the-centre-axed-pap-mps-who-dont-get-it/ I pointed out that MP Liang Eng Wah didn’t have a clue about financial sustainability. Turns out
Liang Eng Wah in his day job is an MD at DBS it appears and he is also chairing the Parliamentary committee on finance and trade. If this is the kind of talent we have in banking and politics……. jeez!
I didn’t realise that DBS would employ as a MD someone who doesn’t know finance.
Thank God I don’t own DBS shares. Btw, I have Haw Paw shares which has a stake in UOB. Depending on the relative share prices, I get a big discount on the operating biz of Haw Par. The Wees also control Haw Par.
As readers will know Ho Ching has big markers on StanChart and Chinese banks.
Once regarded as a proxy for the growth of Asian markets in commodity-rich nations like Indonesia, StanChart has today become a victim of the reversal of fortune suffered by many emerging markets and their heavily indebted corporate borrowers …
Much of the lending to Asia outside of China assumed the region would grow on the back of insatiable demand from China. Much of the lending to China itself was based on that same expectation. That faulty thinking was then compounded by assuming that the value of the Chinese property used to back the loans would also continue to rise. But local banks in China, such as Agricultural Bank of China, are beginning to report that their bad loans have doubled — although officially they remain under 3 per cent. (Excerpt from recent FT article)
Ho Ho HO.
But it’s our problem too now that Tharman is now using projected long term returns from Temasek to spend our money on ourselves. Cybernuts might want to note that their heloo, Ong Teng Cheong, wanted to lock-up all the returns from the reserves (more LKY and Dr Goh). It was Ah Loong that fought him. Ah loong is the real people’s hero. if Ong had his way, we’d be pressing our noses on the iron bars guarding our reserves: Money, money everywhere/ Not a cent to spend/ Give thanks to Ong Teng Cheong
But the pix’s not that great for our local banks either: what with DBS’s exposure to Greater China and Indonesia, OCBC’s exposure to Greater China, and UOB’s and OCBC’s exposure to M’sia. Btw, OCBC has FTs as its Chairman and CEO, while DBS and UOB have true blue S’porans (Yes, I’m counting Gupta as a local. He’s a real talent.)
And if property prices tank here …
DBS, UOB and MayBank are reported as interested in the intl side of Coutts Bank, while is for sale.
Hope they realise that the Queen of England banks with Coutts Bank, UK, which is not for sale.
Standard Chartered has said first-half operating profits will be 20% lower than a year earlier, blaming a slump in income from its financial markets business.
The warning comes only three months after the Asia-focused lender reported its first fall in annual profits for a decade.
The UK bank had been expected to show a modest bounce-back this year.
But it said tougher regulations and low market volatility had hurt revenues.
Standard Chartered said its interest rate and foreign exchange trading had been particularly hit.
Chirantan Barua, an analyst at Bernsteinm said: “Cyclical headwinds are yet to arrive in full force in the bank’s two key markets – Hong Kong and Singapore. Not that Korea or India is out of the woods either.
“Pack that in with a challenging and uncertain capital regime that won’t be resolved until the end of the year and you have a great deal of uncertainty around the stock.”
StanChart shows the peril of investing in a stock listed overseas overseas that operates internationally. When profits were gd, sterling was weak against all major currencies. When sterling is strong, profits no gd. Note the value of sterling is irrelevant to the underlying profits or losses of most of bank’s international operations.
ON AN afternoon in early summer a prospective customer walked into the gleaming new branch established in Shanghai’s free-trade zone by DBS, a Singaporean bank that, like many of its international rivals, has long touted China’s great promise for its business. The lobby was empty, save for a guard playing a video game. A log showed that the branch was attracting just two or three visitors a day. DBS remains optimistic about China and says that most of its free-trade-zone transactions are routed through other locations. But the torpid atmosphere at the branch points to foreign banks’ struggle to crack open the Chinese market.
To be fair to DBS its New Citizen CEO is not like the FT CEO of OCBC who may have blundered.
OCBC is offering to buy Wing Hang Bank’s shares for 125 Hong Kong dollars (US$16.12) each, in a big bet on China’s sustained economic growth. OCBC hopes the deal will springboard its growth into mainland China through the Hong Kong bank’s cross-border operations, and give it a foothold in Macau.
OCBC and Wing Hang Bank, one of Hong Kong’s last remaining family-owned lenders, began discussions on a possible deal late last year, and in January entered exclusive talks (after ANZ and UOB balked at the family’s asking price), which were extended twice as they argued over price.
The most recent comparable transaction (and bargaining benchmark for the family), the 2013 sale of Chong Hing Bank, went for 2.35 times book value including the value of a special dividend related to Chong Hing’s real estate. Accounting for the increase Wing Hang ascribes to the value of its property, the OCBC offer is closer to 2 times book value, a discount, compared to the Chong Hing deal, considering Wing Hang’s return on equity averaged 11.3% for the past three years, versus 7.8% for Chong Hing, according to Capital IQ.
Still OCBC shareholders were not that happy and its share price suffered.
What is unknown is the value of Wing Hang’s Hong Kong real estate, on some of the busiest shopping streets in the world. These could be worth even more than the bank says. A government index of Hong Kong retail properties has risen 400% over the past decade. Yet the company’s revaluation over the acquisition cost of the property is less than 100%.
If enough of Wing Hang’s minority shareholders refuse the price on offer, however, OCBC might prefer to raise it or offer* or bear the cost of maintaining the Wing Hang listing, and the cost of failing to fully integrate the bank.
Update at 6’00am: Here’s someone who thinks OCBC got sold a dog.
Wing Hang gives it greater opportunity to finance trade between China and other parts of Asia such as Malaysia and Indonesia, where it already has a foothold. Wing Hang’s strong funding base – loans were just 73 percent of deposits at the end of last year – is another advantage, as is its ability to capitalise on the yuan’s growing international popularity. About 17 percent of Wing Hang’s deposits are currently in the Chinese currency.
Nevertheless, the purchase brings risks to OCBC investors. China’s economic slowdown is creating credit wobbles, while Hong Kong’s property boom is bound to have led to some lending excesses. Meanwhile, rising interest rates in the United States could reverse the cheap deposits that have flowed into both Hong Kong and Singapore in recent years. Shareholders, who will probably be asked to help finance the purchase, may pay a high short-term price for OCBC’s long-term China ambition.
*OCBC has said the bid, a 50% premium to the then stock price, is generous.
DBS Bank yesterday said that it will buy the Asian private banking business of Societe Generale for US$220 million, accelerating its ambition of becoming a leading wealth manager in Asia.
The deal will also widen the gap with DBS’s closest rival, the Bank of Singapore, a unit of OCBC Bank.
The price represents about 1.75 per cent of assets under management (AUM), based on the AUM of Societe Generale Private Banking Asia (SGPB Asia) of US$12.6 billion as at last Dec 31. This is a steal: OCBC in 2oio paid US$1.46bn which represents 5.8% of the unit’s assets under management, after adjusting for surplus capital of US$550m*.
Last Tuesday’s BT went on: DBS’s AUM will go up by about 23 per cent to S$85 billion from the current S$69 billion with the purchase, seven months after it was reported the French lender wanted to divest the business to redeploy capital into its core markets.
Swiss bank UBS is the largest private bank in Asia-Pacific, followed by Citi Private Bank and Credit Suisse, in that order according to trade journal Private Banker International in a 2012 survey.
That survey ranked DBS and Bank of Singapore ninth and 10th, respectively.
DBS is onto a winner with this FT and his FT COO. Well DBS deserves it, given the FTs it has had where “T” stands for Trash. SGX needs that kind of luck where both its CEO and COO are FTs where “T” certainly doesn’t stand for Talent. They did Temasek no favours by saying everything was kosher about the share price movements of Olam (More on this next week).
Coming back to OCBC. Its CEO is a Hongkie FT with great credentials. But he hasn’t shown whether the “T” is for Talent or Trash. So far the mkt inclines to the latter. OCBC’s share price crashed (and have yet to recover) when OCBC annced purchase of Hong Kong’s Wing Hang Bank few months ago. Deal is still pending. Hopefully, it dies a natural death.
My fav bank is still UOB where the chairman and CEO are true blue S’poreans. But UOB has limited visions which suits my taste here. DBS is for those who want to own a bank can be the leading regional bank in place of CIMB. It always had the vision but the FTs leading it let it down. Gupta has the talent (and luck) to make it the leading regional bank despite DBS not having significant presences in Indonesia and M’sia. It’s expansion plans in Indonesia were thwarted. S’pore has to play ball with Indonesia (allowing Indonesian banks more privileges here) for DBS to be able to buy Temasek’s Bank Danamon stake.
Finally, yesterday’s BT had a story about the difficulties our three banks were facing. UOB’s finance director said “Funding pressures will serve as a growth constraint for mid-sized banks like us outside of Singapore, particularly amid a backdrop of tightened liquidity conditions in the region. UOB has always emphasised funding stability. We must also be selective in the customer segment we engage in and avoid large concentration risks.” Taz straight talk.
So is [C]ompetition in US-dollar funding is likely to intensify, given the anticipated growth in trade financing, and the liquidity requirements of Basel III, says OCBC’s Mr Tan. Trade financing is still mostly greenback-denominated.
DBS’s Ms Chng says: “The so-called ‘balkani-sation’ of the financial landscape is an emerging risk, potentially resulting in captive capital and liquidity pools within each jurisdiction and impacting the pursuit of synergies across regional operations.”
But sadly they couldn’t resist sprouting PR rubbish
“From a capital perspective,” says Darren Tan, chief financial officer of OCBC Bank, which is negotiating to buy Hong Kong’s Wing Hang Bank, “we prefer to acquire majority stakes where possible. However, in instances where a majority stake is not immediately available, we will still give the opportunity due consideration if there is strategic value in the acquisition.”
United Overseas Bank’s approach to overseas growth is to expand the platform for customers to tap trade flows within the region, says its CFO, Lee Wai Fai.
DBS puts priority on pursuing organic growth, and adopts “a disciplined approach” to M&A, says Chng Sok Hui, its CFO … She adds that DBS is adopting a digital strategy to expand its footprint in growth markets.
What do they mean?
*My 2010 analysis: But maybe OCBC shld have waited. The purchase of ING’s Asian private banking business could come to haunt OCBC. A few days before this deal was annced, ING sold its European biz, at a fraction of the multiple that it got for Asia. Only time will tell if the growth in Asian wealth and OCBC’s ability to grow the private banking biz will justify the hefty premium that OCBC paid.
It paid US$1.46bn which represents 5.8% of the unit’s assets under management, after adjusting for surplus capital of US$550m. This compares with the 2.3% measure paid by Julius Baer for ING’s Swiss assets which is in line with another European purchase by an American private equity group of a smallish private banking outfit — RHJI’s purchase of Kleinworth Benson from Commerzbank.
Trumpets pls. BTW, I don’t blame the previous FT CEO of OCBC, Richard O’Connor. He was retiring. In such circumstances, usually the CEO would not take the lead in such a move: he’d go with the flow. Rightly, as he wouldn’t be the person running the show.. This is what happened here, I’m reliably informed. BTW too, he did a great job. Ngiam Tong Dow (remember him) called him an honorary S’porean, I think.
Lower economic growth prospects and tighter credit conditions could create a tougher operating environment for the banking sector here and in the region, said a report by Standard & Poor’s (S&P) late last week.
S&P expects S’pore’s GDP) growth to fall to 3.4 % this year, from 3.7% last year.
The report also notes that corporate and household indebtedness has been on the rise here. The situation could worsen this year, in anticipation of interest rates rising; higher borrowing costs amid rising. See DBS’s CEO’s tots below* and related post https://atans1.wordpress.com/2014/01/16/why-banks-tested-for-50-plunge-in-property-prices-and-other-wonderful-tales/
Related articles: The three local banks posted their reports last week too and for quick snap-shots (not the usual ST or BT fluff)
Charts on banks’ loans etc
Cheap way of owning UOB shares
Update at 6.ooam:
South-east Asia’s three biggest lenders, DBS, Oversea-Chinese Banking Corp and United Overseas Bank, have seen their share prices rise this week after posting solid results last Friday. Common trends in the fourth quarter were better margins, trade finance-driven loan growth, seasonally softer treasury earnings and no asset quality weakness, CIMB noted.
UOB, despite being the smallest of the trio, has been particularly impressive with its fee income and regional strategies, CMC Markets Analyst Desmond Chua told TODAY.
“In terms of fee income, it has performed relatively well while the market has been lacklustre, in part due to a higher interest outlook. Its diversification to grow in regional emerging markets has also helped it maintain loan growth despite weaker mortgage demand in Singapore,” he said.
“On the other hand, OCBC’s share price might have been affected by the prospect of its overpriced acquisition of Wing Hang Bank in Hong Kong while DBS hasn’t been able to impress with its fee-based revenue in recent times despite aggressively attacking this space,” he added.
UOB’s net interest margin, which is the highest among local banks at 1.72 per cent full-year, is another advantage for the lender, Voyage Research’s Deputy Research Head Ng Kian Teck added. “UOB has historically been good on this front, and it means the bank can churn the most value out of every dollar loaned — that’s what’s attracting the investors,” he said.
All three banks ended last year on a positive note, with their fourth-quarter net profit rising between 6 and 11 per cent on the back of strong growth in net interest income.
The banks have also continued to solidify their regional presence, drawing more revenue from overseas than before.
“Their return on equity is healthier vis-a-vis the other industries, which are facing greater margin pressure due to higher wages. But the banks have been able to control this issue better.”
CMC Markets’ Mr Chua is also bullish, saying: “I’m looking at the banking space being an outperformer this year even though interest rates are bound to rise. Their tactical diversification across this region allows them to tap into Indonesia’s emerging affluent segment, for example.
Update at 5.15pm:Can Singapore safely deflate its property market? http://www.cnbc.com/id/101409247
*DBS Bank chief executive Piyush Gupta expects home prices to fall by 10-15 per cent this year – more than the 10 per cent forecast by property consultants – but says that this decline would not make a material impact on the bank’s loan book. Speaking at DBS’s Q4 results briefing, he said it is likely that the prices of high-end homes will slide 15 per cent, and that for lower-end ones, by 10 per cent.
As for the higher interest rates expected with the shrinking of monetary stimulus policy by the US, he said he was not expecting it to have any effect on DBS. “The Singapore portfolio is really driven on income considerations . . . As I’ve said before, the pressure will likely start coming when unemployment rises – more than when property prices change.” Singapore’s unemployment rate is now at a low 1.8 per cent.
Mr Gupta said: “All our stress tests in the past have shown that we can easily withstand a 20 per cent reduction in Singapore property prices without material impact on our portfolio. We stress-test (for a) 20 (per cent fall in property prices), but don’t expect it to happen; our stress tests are always calibrated to go off the charts. My own sense is that there will be a correction of 10-15 per cent.”
He noted that the market was already stabilising and that the froth was running off, but that if this continued, the government would roll back some of the macro prudential measures. Sales of new mortgages have plunged 30-35 per cent at DBS, and by 40-50 per cent at OCBC Bank as a result of the stricter loan rules.
Mr Gupta likened the Singapore property market to that of New York and London, where prices held up even during the financial crisis between 2008 and 2012. While prices in the rest of the US fell by about a third, prices in New York slipped by only 10 per cent. It was a similar situation in London, another city where the demand is not dependent on the state of the domestic economy.
Mr Gupta said he expects regional money buying properties here to also put a floor under prices. With the slower sales, DBS’s $49.1 billion mortgage book is likely to grow by $2 billion to $2.5 billion this year, down from $3.5 billion last year and $5 billion the year before that, said Mr Gupta.
OCBC Bank chief operating officer Ching Wei Hong said of the new mortgage sales having declined across the board: “That’s expected, given all the cooling measures that have been imposed. We’ve built up a healthy inventory level. The inventory drives the growth of (the loan) book, going into 2014 and 2015. Beyond 2015 H2 and 2016, if conditions remain the same, we’ll see a bit of tapering in that period.”
(BT article last Saturday)
If it’s one thing S’poreans who are paying off the mortgages on their HDB flats can agree on, it is that the govt is stretching the truth when it says that HDB mortgage payments are affordable because mortgagors can use CPF money leh. They are not that daft not to realise that it affects their old-age funds. And anyway, it’s always nice to pay less.
So it’s interesting that DBS has a very gd scheme for HDB borrowers. So gd that only the daft wouldn’t apply for it. I’ll let BT explain:
Thousands of HDB homeowners are turning to DBS Bank for a mortgage product that guarantees savings.
Those who took up a POSB HDB loan when it was launched in April could be looking at savings of as much as $1,600 by next month, calculations from DBS showed.
The first POSB HDB loan pilot launch – where homebuyers enjoyed a floating-rate loan with interest capped below the HDB concessionary rate for 10 years – was fully sold.
The bank is now into its second offering, which charges the same rate but for eight years, said Ms Lui.
The current POSB HDB loan charges for the first eight years the three-month Sibor (Singapore interbank offered rate) plus 1.38 per cent, capped at the CPF Ordinary Account rate. The current CPF Ordinary Account rate is 2.50 per cent.
Thereafter, the loan charges three-month Sibor plus 1.48 per cent. The September three-month Sibor is 0.374 per cent.
The HDB concessionary loan now charges 2.60 per cent, which consists of 0.10 per cent plus the CPF Ordinary Account rate of 2.50 per cent. Based on the three-month Sibor of 0.38 per cent, borrowers who switch from the HDB concessionary loan will pay a lower interest rate of 1.75 per cent.
For a homebuyer refinancing from the HDB in April, based on a loan of $400,000 and 25-year tenor, the potential savings over six months amount to $1,684.
And should interest rates rise over the next eight years, DBS guarantees that it will be capped at the CPF Ordinary Account rate of 2.50 per cent or 0.10 per cent below the HDB concessionary rate.
Nice to see DBS returning to its roots as “Development Bank of S’pore”., and using the POSB brand which some Foreign Trash CEO tried to get rid off. Fortunately, he went before the POSB brand went. Gd work ,New Citizen Gupta.
But if DBS is doing gd, is this mortgage making money, on a risk-adjusted basis, for DBS? How come OCBC and UOB don’t have similar schemes? Maybe DBS is helping out in constructive nation-building? Err what about shareholder value for non-controlling shareholders and gd corporate governance?
Never mind, I don’t own DBS shares.
ICBC pays 6.1%, while CCB and BoC pay 6%. If it had AgBank, it would get 6.4%.
Contrast this with the dividend yield it gets from
— DBS: 4.4% (UOB’s yield is 2.9% and OCBC’s is 3.2%)
— Bank Danamon: 2.4%
— StanChart: 3.5% (BTW, earlier this month the bank said that it was no longer targeting double digit revenue growth this year. Year-on-year revenue growth in the first six months was less than 5% for the first time in 10 yrs.)
But Chinese bank yields are so gd largely because Chinese banks are not popular with ang mohs: one-tenth share price falls this yr helped produce these yields. https://atans1.wordpress.com/2013/07/02/time-to-worry-about-temaseks-strategy-on-chinese-banks/
And there are gd reasons to be fearful. One is concern that there could be more bad debts building up in the system as the economy slows/
Another: ChinaScope Financial, a research firm, has analysed how increased competition and declining net interest margins will affect banks operating in China. The boffins conclude that the smallest local outfits, known as city commercial banks, and the middling private-sector banks will be hit hardest, but that returns on equity at the big five state banks will also be squeezed (see chart). They think the industry will need $50 billion-100 billion in extra capital over the next two years to keep its capital ratios stable.
The bigger worry for China’s state banks is the signal sent by the PBOC’s move. The central bank has affirmed its commitment to reform. If those reforms include the liberalisation of deposit rates, then something far more serious than a minor profit squeeze will befall China’s banks. Guaranteed profitability would end; banks would have to compete for customers; and risk management would suddenly matter. In short, Chinese bankers would have to start working for a living.
And two of China’s four “bad’ banks (they bot portfolios of dud loans from Chinese banks, the last time the Chinese cleaned up their banks in the late 1990s and early noughtie), are planning to raise capital via IPOs. They have impressive returns. But maybe China is preparing for the day it has to recapitalise the banks again. In such a case, the UK and US experience is that the other shareholders get diluted, and can lose serious money. Think UBS and RBS.
Even if there is no recapitalisation, there are likely to be rights issues, something that ang moh fund mgrs don’t like.
But to be fair, this big chart shows a possible reason why Temask is optimistic. Despite loan growth, bad loans are falling. But the economy was growing rapidly. And sceptics point out that the numbers may be flakey. In the 1990s, the real bad loan position was 20%, not the lowish figures reported at the time. Investors forget this ’cause banks were 100% govt owned.
Related (sort of) link: http://wikileaks.org/cable/2009/06/09SINGAPORE588.html
Graphics from FT.
Maybe DBS should blame VivianB (and the PM) for taking a hard stand on the haze issue, even though this blog supports their stance because the Indon govt is naturally devious on this and other issues.
Seriously, DBS, Temasek and Indonesia all lose following DBS’ decision to allow its agreement to buy Temasek’s stake in Bank Danamon to lapse after the Indons only allowed it to buy up to 40% of Bank Danamon. It wanted DBS’s entire 67% stake and more: see Backgrounder at end of article for details.
Why DBS loses
Piyush Gupta, pulling his [US]$6.5 billion bid for PT Bank Danamon Indonesia, said his ambitions in Southeast Asia’s largest economy may be set back by about five years.
The lender had sought a controlling stake in Danamon as part of a strategy to expand in markets outside Singapore and Hong Kong, which jointly accounted for 83 percent of its profit in 2012. Average net interest margins for banks in its home market are 1.82 percent, according to data compiled by Bloomberg based on the latest company filings, lagging behind lenders in the rest of Southeast Asia. In Hong Kong, the measure is even lower at 1.66 percent, the data show. [Note that DBS gets 80% of its profits from S’pore and HK.]
In contrast, Indonesian lenders are the most profitable in the world’s 20 biggest economies, data compiled by Bloomberg show. Banks with a market value of at least $5 billion boast an average net interest margin of 6.6 percent, the data show.
DBS’s net interest margin shrank to 1.62 percent last quarter from 1.72 percent a year earlier, today’s earnings report showed. That’s the 15th straight year-on-year decline.
Note too that DBS doesn’t have much of an Asean presence outside S’pore. It has no retail network in peninsula Malaysia, unlike UOB and OCBC: a failure of its botched attempt to takeover OUB in the early noughties. And unlike Maybank and CIMB, its M’sian rivals, it has only “peanuts” in Indonesia. They, Maybank, in particular, have thriving and biggish S’pore operations.
— “DBS missed out on a value-creation opportunity,” Kevin Kwek, an analyst at Sanford C. Bernstein & Co. … The bank “will have to build up a presence in Indonesia the longer and harder way.”
— “Indonesia was supposed to give them a leg up in terms of growth,” said Julian Chua … at Nomura … “There may not be that many willing sellers of such a sizable bank.”
If you are wondering why the shares are up then, investors think DBS may use the $ to return some capital. Besides, the issue of shares to Temasek would have been dilutive. And Indonesia’s economy is slowing.
FTs can be blamed for these historical failings, though Gupta and his deputy are exceptions to the rule that in DBS the “T” stands for “Trash”, not “Talent”. They have stabilised DBS’ operationally. And are trying to repair the damage done by DBS’ earlier FT inspired strategy of buying non-controlling stakes in regional banks.
Why Temasek loses
Its involvement as a shareholder in both banks helped spark an anti-Singapore political backlash in Indonesia. The value of its investment has also been reduced by new Indonesian restrictions which limit single bank shareholders to a 40 percent stake. That makes Danamon a less attractive target because Basel capital rules make it expensive for banks to hold minority stakes in other lenders.
However, Temasek can also take comfort. It is under no immediate pressure to sell. And though Danamon shares fell by more than 13 percent on Aug. 1, Temasek’s 67 percent shareholding is still a highly successful investment.
The Japanese banks are seen as interested in the 40% stake that it can sell. They have been buying minority stakes in Indonesia and the region https://atans1.wordpress.com/2013/07/06/asean-round-up-30/, https://atans1.wordpress.com/2012/12/29/jappo-banks-step-up-presence-in-asean-region/
Why Indonesia loses
Here’s an alternate view that DBS and S’pore lost more than Indonesia: http://www.themalaymailonline.com/what-you-think/article/singapore-loses-much-more-than-indonesia-in-dbs-decision-vincent-lingga. I’m sure TRE posters and Balding would agree with this view.
Backgrounder from Bloomberg
DBS had proposed acquiring the 67.4 percent stake in Danamon held by Fullerton Financial by allowing it to swap its Danamon holdings into DBS shares. The exchange was to be at a price of 7,000 rupiah for each Danamon share and called for DBS to issue 439 million new shares to the Temasek unit at S$14.07 apiece, increasing the stake held in DBS by Singapore’s state-owned investment company to 40.4 percent from 29.5 percent.
Following that transaction, DBS would have made a tender offer for any remaining Danamon stock at 7,000 rupiah a share, taking its holding in the Indonesian bank to 99 percent.
Growing faster than Greater China
South East Asia is expected to drive growth in the luxury market in Asia this year. Analysts at Bain and Co predict that luxury goods sales will grow by 20% in 2013: Greater China only 6% http://www.bbc.co.uk/news/business-22564297
How Myanmar will connect up Asia
Great graphics: explains how the opening up of Burma will allow ships to by-pass the Malacca Straits.
DBS Group Holdings is hoping it will have to settle for the minority stake (40%) it has been offered in Indonesia’s Bank Danamon. It hopes that talks between the central banks of Indonesia and Singapore will clear the way for a majority takeover. Pending these, it may ask for an extension from seller Temasek Holdings.
Note that because UOB and OCBC have a bigger regional presence (thks to legacy branches in M’sia), they trade at a 25% to DBS in terms of book value.
Finally DBS has a FT CEO where the “T” stands for “Talent” not “Trash”. He had a bad start when its consumer banking IT systems failed at the beginning of tenure, for which he can’t be blamed. An earlier FT CEO where the “T” stood for “Trash” outsourced its IT systems, only for the process to be reversed by another FT(rash).
(Gupta, who oversaw a 29% jump in DBS shares last year, was awarded a S$3.5 million cash bonus and company stock valued at S$4.6 million as part of total compensation, according to the annual report. His base salary totalled S$1.2 million.)
In the early noughties, OCBC was the bank that never failed to screw-up. It had an FT (Still has one as CEO). Fortunately his replacement was a Talent (can’t call him Foreign, as he has been in and out of S’pore for decades). DBS became the “go to” bank for mess-ups. Now Gupta has got DBS into a “stable” state: gd for him and Temasek must be grateful.
And UOB’s true blue hereditary banker got a 30% pay rise last yr. Well those of us who hold UOB shares (indirectly in my case via Haw Par) can’t complain. UOB has avoided the “Trash” risk by keeping things local. And avoided problems.
Coming back to OCBC, pls send yr COO to PR class. OCBC’s COO said its differentiation strategy has been to re-orientate the consumer finance business from being product-centric to one centred on the customer. BT’s headline rightly screamed “OCBC shifts strategy to focus on the customer”, but this sadly sells OCBC short: it never was into product pushing like DBS where FD customers were targeted for HN5 Notes and were then left to swing in the wind, when Hongkies were compensated for similar notes.
As my mum still has her OCBC fixed deposits, I’m grateful. If she had been a DBS customer, she’d have been targeted by Team HN5, and lost her money.
Indonesian lenders the most profitable among the 20 biggest economies in the world, according to data compiled by Bloomberg. The average return on equity, a measure of how well shareholder money is reinvested, is 23 percent for the country’s five banks with a market value more than $5 billion … Returns in Indonesia, Southeast Asia’s largest economy, are driven by net interest margins, the difference between what banks charge for loans — an average of 12 percent, according to the central bank — and what they pay for deposits. The average margin for the country’s big banks is 7 percentage points, the highest of the 20 economies … Indonesia’s high net interest margins have prompted banks such as DBS Group Holdings Ltd. in Singapore, where the figure averages 2 percent, to look at acquisitions. DBS, Southeast Asia’s biggest lender, made a $6.8 billion bid in April for 99 percent of Bank Danamon and is awaiting regulatory clearance.
UOB and OCBC have an easier time because of their relatively large M’sian contributions to earnings. Malaysia is generous to its banks.
DBS’s core markets of S’pore and HK are very competitive and mature markets.
Shares in the London-listed Indonesian coal miner Bumi rise sharply for a second day after a proposal from Indonesia’s powerful Bakrie family to split from the firm. The dynastic Indonesian Bakrie family has proposed a split from Bumi that they helped to create with the British financier Nathaniel Rothschild. Wonder what the guy who bot at 11 thinks?
A.I.A. to pay US$1.7bn for ING’s Malaysia business. A.I.A. said the acquisition will catapult it to the No. 1 position in Malaysia’s lucrative life insurance market. For the Dutch insurer ING, it is the first major deal in its plan to divest its Asian assets.
The founders of Malaysia’s AirAsia, Tony Fernandes and Kamarudin Meranun, are set to launch three IPOs in 2013 worth more than US$500 million (S$614 million).
Tune Group, a financial services-to-discount hotel conglomerate owned by Fernandes and Kamarudin, is expected to launch US$65 million IPO of its insurance arm, Tune Insurance, not later than the first quarter of 2013, according to two sources with direct knowledge of the deal.
Meanwhile, AirAsia’s long-haul arm, AirAsia X, recently hired CIMB, Malayan Banking Bhd and Credit Suisse Group for a US$250 million IPO expected early next year.
The group is looking to list its Indonesia operations, Indonesia AirAsia, by the first quarter of next year in a deal that could raise up to US$200 million.
The listing plans also come at a time when Fernandes is stepping down as the chief executive officer of the Malaysian-listed airline to focus on regional growth through Indonesia. The group’s plan to buy up to 100 Airbus jets, potentially worth about US$9 billion, is designed to fuel the growth of what is becoming a cluster of related airlines under Fernandes, who placed a record order for Airbus jets last year.
With an operating fleet of more than 116 aircraft, AirAsia has ordered a total of 375 Airbus jets as part of dramatic expansion plans that include the acquisition of Indonesia’s Batavia Air.
DBS Group, South-east Asia’s largest lender, is selling more than half of its 20.3% stake in The Bank of Philippine Islands (BPI) to conglomerate Ayala Corp for 25.6 billion pesos (S$757.3 million). “With the divestment of a 10.4 per cent interest in BPI, DBS will hold an aggregate 9.9 per cent investment in the bank. DBS will continue to have representation on the BPI board.”.
DBS, which has been a strategic investor in BPI since 1999, would realise a gain of about S$450m against the carrying value of the investment.
Ayala is the biggest shareholder in BPI, the Philippines’ largest bank by market capitalisation.
DBS is selling the stake at a time when the Philippines stock market is among the best performing markets in South-east Asia. The Philippines main index has gained some 23% this year, with BPI 42%.
Nice little profit in a rising market. Can’t blame DBS for not trusting the bullishness that the Philippines has got its act together finally. It’s cyclical, juz like another peace treaty signed with Muslim rebels in the South.
Japan intends to start lending Burma money aiming to help transform Burma into a production and investment hub to rival Vietnam. “Japan’s big trading companies are at the forefront of the investment effort. Mitsubishi, Marubeni and Sumitomo have signed an agreement with the Myanmar government to develop the initial phase of Thilawa, a 2,400-hectare site close to the southern port of Yangon, which will feature housing, commercial space and an industrial park,” reports FT
A few years ago, DBS sold HN5 Notes to its valued Treasure customers, blowing the buyers to kingdom come and discriminated against locals when it came to compensation.
So when early in 2011, when it started pushing yuan deposits and other investments linked to the yuan to its customers, I tot “No, not again”. By early May 2011, it had sold more than 27 billion yuan (S$5.2 billion) of investments linked to the Chinese currency to wealthy investors here it boasted.
Well 2011 wasa not a gd year for the yuan, and 2012 has been a disaster.
While most economists expect the renminbi will stay flat or rise slightly over the next year, financial markets tell a different story.
In the non-deliverable forward market, where traders place bets on the future exchange rate, the yuan or renminbi is priced to fall 1.3 per cent against the dollar over the next 12 months.
Some experts say the decline will be much more substantial. Jim Walker, an economist who predicted the 1997 Asian financial crisis, forecasts a 5 per cent depreciation over the next year because “corporate financials in China are deteriorating dramatically. Extract from last week’s FT.
And we know S$ has been appreciating vis-a-vis the US$.
Interestingly OCBC, Singapore’s second-biggest bank, was not aggressively promoting offshore yuan deposits to Singapore customers due to the risk of near-term losses as the local currency is likely to appreciate at a faster pace.
“We’re pretty cautious with regard to offshore RMB business in terms of deposits. For a Singaporean, we think it is not very wise,” CEO David Conner said at an earnings briefing in May 2011.
(Or “Another reason why perps are so popular among coporates”)
As the sovereign debt crisis drags on, international lending by global banks in the fourth quarter last year fell by the largest amount since the Lehman Brothers crisis in 2008.
Gd news for our three local banks. They can expand their US$ lending activities (US$ is preferred currency of borrowers).
Expect them to raise more perps. They will be exploring the possibility of selling US$ perps to our local retailer investors to avoid having to swap the proceeds into US$. But retail investors don’t like foreign currency issues: juz look at Hutch Ports.
DBS is the 6th largest foreign bank in China proper. It has a strategy of expansion into China. So have UOB and OCBC.
Well, its a tough biz to be in. Non-Chinese banks have only 2% market share. Even HSBC, StanChart and Citi have problems http://www.bloomberg.com/news/2012-06-04/china-wall-hit-by-global-banks-with-2-market-share.html
DBS, OCBC and UOB shld juz not bother abt China.
(Or “Shume really stupid shareholders” or “Why SGX shld pay Mano Sabnani to conduct courses on asking sensible qns at AGMs and EGMs”)
Sometime back, the media reported that some daft shareholders (same people as those who complained at DBS AGM that DBS paid 50% premium over Bank Danamon’s share price to get controlling stake? I mean these people never ever heard of a premium needed to secure a controlling block?) abt CapitaLand’s China exposure and share price since 2008 or 2007 at its AGM.
Don’t they read the int’l media?
Example from BBC Online:”China has, thus far, avoided the much-feared hard landing,” said IHS Global’s Ren Xianfeng.
“Expect no major property meltdown or construction bust. Expect no deflationary spiral or banking crunch.”
Analysts said that given the steadiness of the property market, policymakers were likely to continue to ease their policies to boost growth.
Ting Liu of Bank of America-Merrill Lynch forecast that China’s economy was likely to grow at an annual rate on 8.5% in the second quarter, up from 8.1% in the first three months of the year.
And on the share price: don’t they realise that equity markets have had a choppy ride since 2008. And that China-related stocks have been the target of bear raids and that CapitaLand is an obvious target to short given that the stock is liquid and shares can be easily borrowed
In case anyone doesn’t understand the reference to Mano, he asks vv intelligent questions at AGMs and EGMs. Only one I can bitch abt is at K-Reit EGM when he queried the price paid for Ocean Towers from its parent. Shumething like Ocean Towers seldom gets sold at mkt price, except perhaps in distressed sale. Kanna pay premium.
By planning to allow financial institutions a maximum of 40% in an Indon bank (applicable only to new investors), the Indon central bank has blocked Temasek’s plan to sell its 67% stake in Bank Danamon to DBS Bank where it has a controlling stake.
On a day when banks (and other blue chips) are weak in local trading (UOB -1.5% and OCBC -0.5%) fact that DBS is only -o.6% shows that investors are not upset over the failure of the deal.
One reason is that institutional investors don’t like big “strategic” deals by their investments because they usually overpay and are prone to destroy shareholder value. Here while the price is decent, the issue of lots of new shares to Temasek is dilutive to earnings.
Ah well back to the drawing board DBS mgt to find a new driver for growth. Same too for Temasek’s financial enginners. The deal would have reduced Temasek’s direct exposure to Indonesia while increasing its exposure to DBS.
(or “The next, next disaster for retail investors & DBS”)
While reading this , I saw Calvin Yeo’s reply to a question on why corporates were issuing perps
… one reason is to diversify the sources of funding. Another reason is that the market cannot withdraw the financing facility like the bank can in a credit crunch. Investors also have generally less bargaining power than the banks, so it is harder for them to take action against the issuer or place restrictive covenants. As you see, the terms of the bond are drawn up by the issuer rather than the lender. For most loans, banks tend to be the ones giving the terms of the loan.
Another main reason is that banks don’t normally issue perpetual loans, you would have to issue perpetual bonds or preferred stocks for that.
On the issue of diversification, most European banks have been cutting back their lending outside their home markets because they are shrinking their balance sheets to meet the new capital rules. No-one wants to invest in them (on terms acceptable to the banks) because of the Euro crisis.
In Asia, the French banks (like Soc Gen, BNP and Credit Agricole) were once very big USD lenders, the currency of choice, to corporates. They have now withdrawn*. So corporates that used them, now have to find other lenders. Seems to have found a new source
of suckers in the retail mkt here.
See related post on central bank’s concerns.
Asian banks (including our DBS, OCBC and UOB) are increasing their USD lending to these corporates as the European withdrawal have improved USD lending margins (the Frogs were very, very aggressive) .
Let’s hope DBS doesn’t get too aggressive in USD lending. Not concerned by OCBC’s and UOB’s increased lending (I own Haw Par shares as partly as a play into UOB). They have conservative controlling shareholders and mgt (I’m assuming the newish CEO of OCBC is as conservative as O’Connor**). Can’t say the same abt the cowboys at DBS and Temasek, though DBS’s chairman and CEO have reputations as conservative bank executives. The Bank Danamon deal shows otherwise in my view.
*But European banks still have lots of exposure to S’pore or rather the other way round. See chart in http://www.zerohedge.com/news/why-stability-stalwart-singapore-should-be-scared-if-feta-truly-accompli. Nothing to worry abt as most of this exposure is not to locals because it’s offshored in turn. Do remember that S’pore is a major global financial market.
**Anyway someone in OCBC is a tough taskmaster. O’Connor earlier this yr said that working in OCBC for 10 yrs felt like 40 yrs. No wonder Tony Tan and Yong Pang How (remember him?) preferred to be cabinet minister and chief justice respectively. And remember O’Connor was from Citibank, not known for its relaxed style.
OCBC Bank was recently named as the world’s strongest bank for the second straight year by Bloomberg Markets Magazine. (The ranking featured 78 global banks with at least US$100 billion in total assets.They were assessed based on factors such as their Tier 1 capital ratio, loan-to-deposit ratio, ratio of non-performing assets to total assets and their efficiency ratio, which compares costs with revenues.)
OCBC said the bank’s strength is partly built on its “disciplined credit management practices and robust risk management capabilities”.
If I were the controlling shareholder of OCBC, I’d be very upset at this ranking because what it means is that OCBC is not making its assets work: it has too much capital. I’d tell the board that the most impt KPI should be that OCBC drops out of the top 10 on the list.
It can be done. UOB was at seventh place, down from sixth last year, while DBS fell three spots to eighth this year.
UOB and DBS are doing the right thing. Their core market (like that of OCBC) is S’pore and it’s a safe, boring, stable market where margins are only so-so. So not much capital is needed, if one sticks to the basics of banking, and not try to be a hedgie.
As to the right amount of capital, look at StanChart at no.12. It operates in a wide range of emerging markets, some in unstable parts of the world like West Africa and so needs to have capital lying around. If S’porean banks have abt the same level of capital, they should still be safe.
Temasek has agreed to buy Goldman Sachs’s shares in the Industrial and Commercial Bank of China (ICBC), the world’s largest bank. It will buy US$2.3bn worth of ICBC shares, taking its stake to 1.3% in the bank.
In an interview with Reuters at the end of March, Ho Ching’s presumed successor-in-training, Temasek’s head of portfolio management,acknowledged the heavy allocation to financials, but noted that it holds four very good banks: Bank of China, China Construction Bank, DBS Group and Standard Chartered. Well it has added ICBC to this list, and at a price close to the market price, unlike the stakes in the other two Chinese banks where it got a “special” price as a pre-IPO cornerstone investor.
But is it a wise move?
True, since the lows last October of the Chinese and HK stock markets, the shares of the four leading Chinese banks (including Bank of China, China Construction Bank and ICBC) have gone up by more than half, easily outperforming the broader market.
But since March, prices have been off (but masked by general market falls) because of concerns abt China’s growth, bad loans and comments by the Chinese PM, Wen Jiabao, who hinted of breaking the monopoly state-owned lenders have enjoyed in China’s banking sector. (The sector is dominated by four big state-owned banks and Temasek now has significant stakes in three of them.)
Mr Wen said that their monopoly was hurting businesses in the country, as they had few options to raise capital.
“Frankly, our banks make profits far too easily. Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital,” he was quoted as saying by China National Radio. “That’s why right now, as we’re dealing with the issue of getting private capital into the finance sector, essentially, that means we have to break up their monopoly.”
The lack of easy availability of capital has often been cited as threat to growth of small and medium-sized businesses in China. There have been fears that some of these businesses, seen as key to China’s growth, may turn to unofficial sectors for capital, increasing their borrowing costs substantially
But Temasek could be betting on, “Wen has one year left [in his term].” This was said by an unnamed Chinese state banker quoted by Reuters. “This is a task for the next generation of leaders. It cannot be accomplished within one year.”
But the banker could be wrong, Wen could be telling us what has been agreed upon between his generation and the next generation of leaders.
Remember, It took a beating on its finance industry holdings after the 2008 crisis, losing about $5 billion in stakes held in Barclays and Merrill Lynch, now part of Bank of America. It has since trimmed its financial holdings by 4 percentage points to 36 percent of the portfolio. Last month, it sold a 1.4 percent stake in India’s No.2 lender ICICI Bank. From said Reuters reported.
And of the remaining two “very good banks” where Temasek has significant stakes, DBS has juz decided to buy Temasek’s stake in Bank Danamon. Management will now be preoccupied with getting the deal approved by the Indonesian authorities, then integrating the bank into DBS. Before this deal, management had finally got to grips with DBS’s operational problems. The danger is that the focus on the Danamon deal may lead to backsliding in the area of operatons.
The genuine jewel is StanChart, but by global standards, it is “peanuts”.
TRE’s and TOC’s readers, and other S’porean netizens may not realise it, but Temasek doesn’t always lose money on its overseas investments.
In 2008, just before the financial crisis, Temasek sold its majority stake in BII for a price that put a value of the Indonesia bank of 4.6 times book value. The
sucker buyer was MayBank of M’sia. It paid Temasek US$1.13bn. NYT article. MayBank later justified its cock-up by pointing out that around the same time, HSBC paid around the same price (book value wise) for another Indon bank. Critics pointed out that in the context of MayBank’s financials, the amount was a big a sum while HSBC’s purchase was “peanuts” relative to HSBC’s financials.
Analysts now say that MayBank’s plans to sell a stake in BII for the same price as it paid Temasek is unrealistic.
Well the price that DBS is paying Temasek for its majority stake in Bank Danamon works out to be 2.6 times book value, and is considered reasonable but pricey. The premium over book has dropped substantially. But it is a gd deal.
And going back in history, Temasek got a great deal when it sold its PosBank stake to DBS. Foreign broker analysts (though not local broker analysts and our constructive, nation-building media) were grumbling that Temasek was getting DBS shares at a big discount to DBS’s fair value. FTR, no foreign analyst is arguing that Temasek is getting DBS shares at a big discount to its fair value in the Bank Danamon deal.
Moral of these examples: Temasek can do savvy deals with M’sians and DBS. Nothing to do with fact that DBS is controlled by Temasek. It’s that DBS likes to do “strategic” deals and, there are studies (dispued) which show that because strategic deals involve paying over the odds, shareholder value is destroyed in the process.
And consider this too. RRJ and Temasek have been big backers of the trend to use natural gas. Last year they put US$250m into Nasdaq-listed Clean Energy Fuels, a US-based group that provides natural gas fuel for transportation at gas stations in the US at a saving of US$2 a gallon.
That transaction, which closed in January or February this year, has already more than doubled in value.
And this looks pretty savvy too. Singapore state investor Temasek Holdings and private equity firm RRJ Capital bought nearly half of the shares in the $1.34 billion offering by PetroChina Co’s unit Kunlun Energy Co Ltd, two sources with direct knowledge of the deal said on Tuesday. $=US$
Kunlun Energy and Clean Energy Fuels have a similar mandate and RRJ hopes to bring the two together, according to one report. BTW RRJ is founded by a Malaysian Chinese.
Bang yr balls in frustration Ho Ching detractors, and all haters of the S’pore government and its agencies. Temasek can do savvy deals if M’sians are involved. Either as
suckers buyers or as co-investors.
Jokes aside, remember the lines from “If”
If you can meet with Triumph and Disaster
And treat those two impostors just the same;
Well in investing, as in other aspects of life, the line between success and failure is very, very narrow.
KKR and TPG, giant US private equity investors invested billions of their investors’ funds in TXU. One of the things they were betting on was that natutal gas prices would be priced-off oil prices for the foreeable future. Err now even Buffett has lost money buying TXU bonds. The problem is that recent technological developments mean that natural gas can be extracted from shale, decoupling its price from that of oil. Natural gas is no longer a scarce commodity.
Now all three have extremely gd track records as savvy investors. BTW Temasek’s Merrill Lynch deals would be like this deal. The conventional wisdom was that the deals were risky but that the prices paid reflected the risk and that in all probability the deals would work out for the investors.
Now the conventional wisdom was that the investors got things wrong* . But as FT’s Lex reports:
They paid too much. That was the consensus when 3G Capital took Burger King private in 2010 for a total enterprise value of $4bn, or nine times trailing earning before interest, taxes, depreciation and amortisation. How did things go? Well, Justice Holdings has just paid $1.4bn and will get 26 per cent of Burger King’s common shares in return. This now puts the enterprise value of Burger King at $8bn – an ev/ebitda multiple of 16 times (14 times if you follow Burger King’s practice of excluding restructuring and other costs). By comparison, the multiples for global powerhouses McDonald’s and Yum Brands are 11 and 14 times. Arcos Dorados, the largest Latin American McDonald’s franchisee, trades at 12 times.
3G’s partners put $1.2bn of cash into the original deal and borrowed the remainder of the price. They also paid themselves a near $400m dividend last year, thank you very much. If they had sold the whole company at the price Justice has paid, 3G would have more than doubled its money in a year and a half. Over the same period, McDonald’s and Yum shares have returned 38 per cent and 64 per cent, respectively. Consensus now: would you like fries with that, gentlemen.
*Bit like Temasek’s Shin deal. Brokers were telling their clients with shares in Shin to tender the shares. They would never see such a price again. But our nation-building, constructive media failed to report these views here.
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 .
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.
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.
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.
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.
A US court has decided that it would hear a lawsuit brought by Pinnacle Notes’ investors (see below for extract of BT report). It ruled that “generalised warnings of risk and of the possibility of adverse interests” between Morgan Stanley and the Pinnacle Notes investors were not sufficient to protect Morgan Stanleyagainst all allegations of fraud.
Meanwhile the S’pore court of appeal has told DBS High Notes 5 investors to bugger-off: “In view of our decision in this appeal, we think it apposite and timely to remind the general public that, under the law of contract, a person who signs a contract which is set out in a language he is not familiar with or whose terms he may not understand is nonetheless bound by the terms of that contract … The principle of caveat emptor applies equally to literates and illiterates.”
Wonder why the investors never alleged fraud by DBS? The S’porean legal system (like that of the English) requires a very high standard of proof if the plantiffs’ allege fraud. And if they fail to prove fraud, the consequences for the plaintiffs can be very serious in monetary terms. The US system is a lot more lax.
Poor DBS HN5 investors: their Hongkie cousins were treated better by DBS https://atans1.wordpress.com/2010/08/06/what-abt-high-notes-sm-goh/
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.
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.
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.
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 »
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/
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.
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 »
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).
The reason: most deals destroy value for acquirers. The evidence.
And think of DBS’s purchase of Dao Heng, and PosBank. And even Singtel’s purchase of Optus. A dirty secret that the public are not aware of is that value of Optus is less than what SingTel paid for it. https://atans1.wordpress.com/2010/01/15/singtel-lost-at-least-a2-billion-on-optus/
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.
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 »
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.
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.
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.
Temasek last week annced a new president and portfolio team head. We shld be glad that Temasek did not succumb to its flagship bank’s “FTs are best whether they perform or not”.
But let’s get serious. Let’s use this annc of personnel changes to reflect on why the departure of one Goodyear Chips could affect us.
Many moons ago (February I think) BT carried an article that backhandedly criticised Chip Goodyear saying that despite his sudden, unexplained departure from Temasek, he is still in demand from the corporate worl. (Can you see the spin for Temasek in this SPH publication, whose chairman is executive director of GIC?)
And well he should be in demand.
When he was hired to be CFO of Melbourne-based miner BHP in 1999, the “Big Australian” had lost its way. In the 1990s, it made a series of ill-conceived acquisitions and failed projects (err sounds like you-know whom’s recent record of Shin, Merrill Lynch, ABC Learning and Barclays), amid historically low commodity prices.
The then former investment banker (he was a CFO at another miner) was one half of an all-American dynamic duo (Sorry, I’m a Batman fan). The other was CEO Paul Anderson, who came from Duke Energy.
In their first two years, BHP got rid of 2,000 employees and A$6.9bn worth of assets. They then merged BHP with Billiton, creating the world’s biggest miner. And best of all the merger worked, a rarity in M&A.
A key legacy of his stint as CEO, analysts say, is the financial discipline he brought to BHP. He ensured it grew fast enough to capitalise on the commodities boom while avoiding the ill-conceived spending of the past; and all the while, returning cash to shareholders. A tradition that has continued.
Shortly after he took charge as CEO, it was announced that BHP would increase its capital management programme by more than four times to US$13bn, beginning with a US$2.5bn off-market return in Australia.
With the Singapore government tapping the reserves, someone with a track record of returning cash to shareholders while growing the portfolio is needed.
There is no Singaporean with these skills.
And as to the disagreement with the board, maybe he wanted to do big deals, while the board had already decided Temasek should become a hedgie.
And maybe his deals would have been in the extractive industry (mining and oil & gas). Remember MM had said GIC would not invest in mining ventures, because he didn’t understand mining? Though now that Temasek is dipping its toes in mining and oil & gas, Chips and the recently departed Michael Dee (ex-Morgan Stanley’s MD in oil town Houston) would be missed.
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.
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.
As the loan officers for a regional branch of a major Chinese bank were preparing to issue more loans their computer screens froze. It was not a system failure due to Vista problems, rather the bank’s intranet network had been deliberately shut down to stop new loans being made. Full article
The purpose of the above is to illustrate that if the authorities feel the need to control the property market, they can be ruthless.
China must tackle its property bubble for the sake of economic health and social stability, even if the market feels some short-term pain in the process, an official financial newspaper said on Thursday.
Monetary tightening, along with steps to control housing demand and expand supply, are the right policy choices for the government, the China Securities Journal said.
The front-page commentary adds to the impression that officials are determined to make a success of their latest crackdown on property speculation. Previous attempts to cool prices have been tempered by a fear of over-tightening because the property sector is a pillar of the economy. Reuters/ NYT report
So investors in S’pore property counters with big exposures in China, be warned.
I’m sure Temasek and its group cos are aware of how brutal the Chinese authorities can be.
But based on the Merrill Lynch/ BoA fiascos, who knows?
Cross -selling is the holy grail of banks with diverse business or product limes, and big branch networks.
So DBS with an extensive network of 81 branches and more than 900 ATMs in Singapore, including those belonging to POSB, want to do more cross-selling. The relatively newish CEO has spoken of the need to improve cross-selling and said DBS should offer a wider suite of products, including appropriate investment products, and sell more mortgages and unsecured loans.
DBS ‘s customers can only hope management have learnt the lessons of HN5 Notes. DBS issued and arranged HN5 Notes, selling in 2007 a total of $103.7 million worth of HN5 to 1,083 “Treasures” and “Emerging Affluence” retail clients. (This refers to clients with more than $200,000 (for “Treasures”) and $80,000 (for “Emerging Affluence”) assets respectively under management by DBS although the “Emerging Affluence” definition also takes into consideration the client’s income and occupation.)
The collapse of Lehman Brothers made the notes worthless. DBS offered only $7.6 million in compensation to 22.8% out of the 1000 odd investors. The compensation amounted to 7.3% of the amount that was invested.These sums were peanuty compared to the amounts that MayBank and Hong Leong Finance paid to minibonders. Some investors are suing.
And in HK, DBS said in a statement in October last year that 4,700 investors would their entire investment of $241-million in the Constellation 253 notes. They have not been compensated en-mass like the Hongkie minibonders who got 60% of the principal back, with the possibility of more. Again some are suing.
Shareholders can only hope that next time DBS successful cross sells, affluent customers don’t get made poor . True the notes made money for DBS, but at what cost to its reputation?
Up to you, chairman to make sure that when DBS cross-sells, customers tbenefit too. Or at least don’t get demoted from “Treasures” or “Emerging Affluence” to paupers or “the newly poor”.
I hope he remembers that the “holy grail”, though often sighted (tat’s the claim) has never been found. And that its search led to the demise of Camelot as Arthur’s knights focused on the search of the grail, rather than the defence of the realm. Must be a lesson somewhere in all of this for DBS, if not Citi.
Oh and I hope that a Singaporean chairman of an Asian bank realises the incongruity of following a European myth, which the “holy grail” is rather than an Asian truth. The holy grail is the cup that supposedly Jesus drank from at the “last supper”, before his execution on Good Friday.
He should ensure that any acquisition in Indonesia, India, Malaysia and Thailand, the countries where DBS says it would look for acquisition opportunities is disciplined in terms of valuation, strategic fit and execution. Investors still remember the Dao Heng fiasco, overpaying and having to take billion dollar impairement charge. And the purchase of POSB was not such a gd deal as anti-government subversives like to imply that it is.
Better still he shld relook at the rationale for these M&A activities.
DBS is Singapore and Hong Kong centric. But, in February, it said it was aiming to have 30 per cent of its revenue from South and South-east Asia, excluding Singapore, 30 per cent from Greater China and 40 per cent from Singapore within five years.
Morgan Stanley estimates that DBS would have to grow at a compounded annual growth rate of 40 per cent a year in South and South-east Asia to achieve its stated target in that region i.e. it would have to grow via acquisitions.
BTW last Friday BT reported that DBS’s CEO had said DBS had identified unnamed acquisition targets in Indonesia which shld worry investors.
Previous post on topic
He shld be relooking at FT policy — both in principle and execution.
CIMB is regarded as having overtaken DBS in the race to become a leading bank in the region according to Ranu Dayal of Boston Consulting, BT reported a few days ago, though DBS remains the biggest South-east Asian bank by market capitalisation.
Hey whaz this?
CIMB is from M’sia, a country that is not as meritocratic as S’pore according to the then SM and PM in the 1990s, now MM and SM respectively. While SM cocks things up regularly (for example, in the 1990s and early noughties, when he was PM, S’pore got complacent and productivity fell), MM gets most things right.
So how come CIMB overtakes our national banking champ (err shld it be chump?). Makes me ashamed to be a S’porean. I mean the meritocratic policy is in this region “uniquely S’porean”
Wait a minute, DBS has had Foreign Talents as CEOs and senior executives since the late 1990s. Could this be the problem? The FT policy trumps the meritocratic policy.
I am surprised that anti-government subversives are not using DBS to show up the government. Given the track record of DBS, one could reasonably argue that the FT policy is rubbish — overpaying for Dao Heng so much so that DBS had to take an impairement charge of over S$1 billion; making its Treasured clients (they are only S’poreans, not “countrymen”) poorer (HN5 notes); and running down the expensively acquired POSB brand before realising its potential and spending $ rebuilding the brand.
And the SDP and friends can reasonably cite CapitaLand, another TLC, as an example where FTs are scarce, but where locals do well at managing a TLC. The CEO is a local and so are many senior executves. It is the leading regional property company (by reputation and market cap) and a big player in China. More than can be said of FT-laden, spastic DBS.
Of course, one could argue that there is no casual relationship between bad performance and being FT-laden,and gd performance and being local-led. And that one FT- laden bank does taint other FT-led companies. So look at the other listed TLCs — Keppel, KepLand, SembCorp, SIA, SATS, ST Technologies, SIA Engr, SingTel, Starhub, M1 and NOL. And judge for yrself.
Back to DBS, yesterday BT had an article speculating what the incoming chairman could do for shareholders. Well he could relook the FT policy at DBS: is the policy flawed or just that the wrong FTs were recruited? Too many people from Citi, the bank that the US government had to rescue? As a HSBC shareholder and customer, I can attest to the damage that these ex-Citbankers did before they moved on.
Update on 25 March 2010
Footie fans (FTs and those who hate RI, I assume) insist I post this to show that locals can be as rubbishy as FTs.
Our local banks were thrashed by Malaysian, Thai and Indonesian banks when measured by relative total shareholder return (RTSR) of mid-cap banks over the last five years according to a Boston Consulting Group (BCG) report.
OCBC was 11th, with a 2.4 per cent RTSR while UOB with 0.4 per cent RTSR was 18th. In the previous five year period 2004-2008, OCBC and UOB were placed 24th and 23rd respectively. They have improved.
DBS has a negative RTSR. It was ranked 35 over the five-year 2005-2009 period with an RTSR of minus 4.6 per cent. Previously, DBS ranked 49 out of 50 in the mid-cap bank category. Still bottom of the class but our national champ. Or shld it be our national chump?
“The rankings were for the biggest 100 banks as measured by capitalisation for which a five-year RTSR could be calculated; they were then split into two categories – large-cap and mid-cap. RTSR measures total shareholder return based on the change in share price and that includes gains from reinvesting dividends adjusted to the performance of the local stock market,” BT reported.
The following table is taken from BT.
The three banks (Credit Suisse, HSBC and JPMorgan Cazenove) supporting Prudential’s $35.5bn bid for AIA said on Thursday that the soveriegn wealth funds of Qatar (Qatar Holding LLC) and S’pore (GIC) have agreed to underwrite a significant portion of the US$20bn rights issue.
Bit surprised that given its record of big (and successful) bets on Asian banks (unlike on Western banks), Temasek isn’t an underwriter. Or maybe, it had its wings clipped? Or lost its nerve? Only time will tell us why.
Reminder: The Pru needs to raise the cash from its shareholders to fund most of of the deal. The group will also issue to AIG US$5.5bn of stock, US$3bn of convertible notes and US$2bn of preferred shares.
BTW, among the 30 -odd bank underwriters, Standard Chartered and United Overseas Bank are co-lead managers, while DBS is a mere co-manager.
No, I’m not a member or covert supporter of Dr Chee’s SDP, always looking to run-down S’pore.
I try to be a “special situations” investor: looking for situations where the conventional wisdom is wrong. At present, the conventional wisdom on China is “Short-term bear, long-term bull”. So CapitaLand is punished by the market for their US$2.2 billion deal while, the seller, OOIL’s share price is stable in a weak market.
But CapitaLand and DBS already big in China, want to be bigger: and KepLand are rumoured to be thinking of doing a big( S$186 million) property deal. Temasek have big direct investments too. They are big investors in several private equity funds and have big holdings in two Chinese banks: 4% of Bank of China and 6% of China Construction Bank*.
They are going against the consensus view that the least one can do is to be cautious in China.
If the listed TLCs get China right, they could be 20-baggers. Hence my interest in whether they are right. As for Temasek getting it right, Temasek, as its CEO says, belongs to us S’poreans.
Additional tots — 15 Feb 2010
But what are the odds of them getting it right?
Adam Smith (the economist. not the great US financial commentator of the 80s) wrote, “the chance of gain is by every man more or less overvalued”.
This more or less explains why great investors (defined here to include traders) like Buffett, Soros, Paul Johnson, Jim Rogers, Peter Lynch, Anthony Bolton and the old Kuwait Investment Office are so rare. They are better at judging the odds of getting things right.
And why the smart people in Temasek and GIC make mistakes. They are just like the other ordinary smart people managing money in SWFs, endowments, collective funds, pension funds, insurance companies and other institutional investors.
And why the smart people in CapLand and KepLand could be wrong. They could be like the smart managers in Time Warner that decided to merge Time Warner with AOL, or the managers at Sembcorp when they decided to go into property and Delifrance.
Incidentally, a BBC Online article examines what is driving the Chinese property market:
Demand for housing
Louis Kuijs, an economist at the World Bank in Beijing, says China still needed more houses, despite several years of fast-paced building, “In a rapidly growing country like China that still has a low stock of housing, there is a fundamental demand for new homes.”
Developers looking for sites
“In Beijing the search is still on for new sites for development.”
People still buying hses as an investment
One man says he has accepted an offer to relocate. He already has two apartments in Beijing and he is going to use the compensation to buy a third.
CapLand (and KeplLand?) could be right abt China.
*’We work really closely with Sasac, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of frankly defaulting loans already in China that no one is doing anything about,’
Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference last week. ‘At some point, there’s going to be a reckoning for that.’ — quote from BT.
“The property investment arm of Morgan Stanley is in final talks to sell a Chinese apartment complex to a unit of Singapore’s Keppel Land … The overall value of the luxury apartment property is estimated at about 900 million yuan (S$186 million) and Morgan Stanley has owned it for about five years,” from a BT report last week.
So KepLand are super bullish on China, just like fellow-TLC CapitaLand.
And DBS is ranked among the top three foreign banks, in terms of assets (2009 KPMG Research China Banking Industry), said DBS CEO Piyush Gupta. The bank expects to open 12 more branches over the next five years in China, he added. It currently has eight branches and seven sub-branches in eight cities across China.
One wonders if groupthink is at work in the Temasek group. In addition to the investments of these two property companies, and DBS, Temasek are big in China. They are big investors in several private equity funds and have big holdings in two Chinese banks: 4% of Bank of China and 6% of China Construction Bank.
Talk of a mega bet on China if all these are aggregated.
Or could there be a mastermind directing that investments be made in China? Temasek and the government have consistently denied that the government direct Temasek’s actions and that Temasek direct the actions of the companies where they have controlling interests.
Still the many S’poreans (I’m not one of them) who are conspiracy theorists or who practice the art of guessing what is going on behind the scenes — dietrologia in Italian, literally “behindologypoint” –would say, “They would say that, wouldn’t they?
And point to three pieces of “evidence” that there is a controlling brain that wants to bet big in China.
One is that in the late 1990s, when the government exhorted Singapore cos to go abroad, SingTel and DBS made very expensive acquisitions in Ozland and HK respectively.
Then there is MM Lee’s remark when asked why he intervened in an SIA dispute between its mgt and pilots. He is reported to have said,”We own it,” or words to that effect.
Finally, PM, SM, MM and other cabinet ministers are bullish on China.
I nearly bought minibonds in 2007, and since the failure of Lehman Brothers last year, I’ve been trying to understand why I nearly bought them. It is important to me as it could help me avoid a future disaster.
I always knew why I didn’t buy — greed. Dr Money sums this greed up nicely when he wrote, “Your money gets invested in risky bonds and derivatives. It means total returns are much higher, like 13 per cent or more. But all you see is your safe-looking 5 per cent return.
‘The difference of 13 – 5 = 8 per cent goes to the deal-maker while you must take all the risks. If the bonds default, you lose.”
Then there is the issue that if interest rates collapsed, the arranger could recall the note, while if inflation went to 10% (remember the price of oil then), I’d be stuck with 5%.
But I didn’t know why I nearly bought i.e. think it was a safe product, despite being “aware” of the risk premium. This is worrying. I could misanalyse again.
I’ve very recently come to the conclusion that my mind (without me being conscious of it — mindlessness in Zen) divided the risk element into two bits.
I “knew” (I was relying on the ads and a BT newspaper article) that
— I was (with many others) insuring someone against the failure of one of the six entities
— the product was highly leveraged
— derivatives were being used
— the combination of the last two meant that it was likely that if one entity got into trouble I would lose my money.
(Having read the prospectus last yr, the above points were confirmed.)
The probability of a default by Lehman or one of the entities.
My conscious mind came to the conclusion that the probability of default by Lehman or one of the six entities was very, very low (so far none of the six entities are in trouble). Dr Money had a great take on the improbability of an LB failure. I can do no better.
The very low probability of failure must have made me conclude that it was a safe product, and that LB had found investors who had mispriced risk — willing to pay the 13% mentioned by Dr Money. Not surprising as my experience as an arbitrageur (risk and straight) had taught me that risk is usually mispriced (investors are too cautious — Yes if I were still arbitraging, my employer would have lost big time in 2008 )
What has all this to do with forcing a settlement that Tan Kin Lian and others wanted? That the MAS refused to even think about. It told them to bugger off.
Supposing there was no mis-selling: investors in minibonds and DBS HN5 notes were told everything and I mean everything. Would investors still have bought?
I think that most would have. Of course they would deny this today. “They would, wouldn’t they?”
They would have been advised, and rightly so (at the time), that the very low probability of failure, meant that their principal was safe.
The lessons of the story- better to be lucky than smart and going for yield is dangerous.
Good 2010 and decade.
For those S’poreans who hate Temasek, forever gloating, whenever Temasek messes up, the pickings from Dubai are slim. The TLCs have tiny exposures there even CapitaLand and DBS, S’pore’s national champs active in the area.
Even Standard Chartered’s exposure to the part of Dubai World under restructuring, is according to the FT, US$350m: peanuts.
Gd work Singapore Inc.
The TLCs went to where the $ were Abu Dhabi.