Equity Thoughts : Banking On Singapore Banks

12/01/2015 by

This post was written for www.hnworth.com, a site targeting high net worth individuals in Singapore.

Have fun reading !

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Last week in Singapore has been about 2 things as far as the financial sector is concerned.

UOB suing Lippo Group and 7 individuals for inflating housing loans that has resulted in 37 out of 38 defaults for a certain high end development in Sentosa. http://www.singaporelawwatch.sg/slw/headlinesnews/55272-uob-sues-lippo-group-subsidiary-and-7-others.html

And Stanchart deciding quite abruptly to exit the equity business and cutting 2,000 jobs globally in an effort to cut costs after a poor quarterly showing and a profit warning in Oct last year on account of potential bad loans in India and China. http://news.sky.com/story/1404195/standard-chartered-to-axe-thousands-more-jobs

All signs were there for Stanchart 18 months ago when Muddy Waters was seen shorting their bonds as early as May 2013 which I predicted was a long haul affair. https://tradehaven.net/market/muddy-waters-fascination-for-stanchart-bonds/

This was followed by their involvement in the Qingdao port commodity fraud earlier in 2014 which they had then provisioned for and a US$370 mio fine for money laundering lapses by the New York Department of Financial Services in Aug. http://www.wsj.com/articles/missing-qingdao-copper-spawns-web-of-lawsuits-1411409796

http://www.straitstimes.com/news/business/banking/story/standard-chartered-fined-370m-over-money-laundering-controls-us-regulato

As Stanchart stock price hit a 12 month low in December, we saw DBS, UOB and OCBC broach their 12 month highs during that time in a stark contrast.

DBS has the most analysts rooting for her as Citi sees them as the cleanest beneficiary of rising US short-term interest rates with the management asserting that a 1% rise in short term rates will add S$ 800 mio to profits due to the floating rate loans that they mostly carry in their books. Note that net revenue is near S$ 10 bio, thus S$ 800 mio is a hefty sum.

Temasek, be proud. The POSB sacrifice has been worthy indeed.

DBS and UOB both have not indulged in stock buybacks for the entire 2014 where we saw 121 days of stock buybacks out of OCBC. Neither has Stanchart too, I noticed, even as their stock price started plunging in June 2014.

As I have always considered Stanchart to be a local bank with Temasek owning 17.7%, I did a table comparing analysts recommendations since Nov last year and her fortunes look poorly compared to the 3 locals.