Analysts issue buy calls on banks after sub-prime assurances
By Alvin Foo
ANALYSTS have started issuing buy calls on Singapore banks after clear statements from the banks that they have insignificant exposure to the United States’ toxic mortgage market.
The positive sentiments come after a week where jittery investors sold down bank stocks, both in Singapore and across Asia. But assurances from United Overseas Bank (UOB), OCBC Bank and DBS Group Holdings over recent days seem to have steadied the ship.
A UBS Investment Research report on Monday noted that $8.2 billion worth of the three banks’ market capitalisation had been wiped out relative to their exposure to collateralised debt obligations (CDOs) of just $2.4 billion.
‘This is clearly an overreaction and we would urge investors to buy the Singapore banks…at current prices. The risk from CDOs has been priced in.’
CDOs are securities backed by a pool of bonds and loans, including mortgages, and lie at the centre of the US mortgage crisis. Millions of home owners are having trouble paying their instalments, which is undermining credit markets.
A UOB Kay Hian research note yesterday maintained its target price of $10.80 for OCBC’s stock. ‘The impact on OCBC’s financials is not expected to be material. We continue to recommend that investors buy OCBC during this period of share weakness,’ it said.
Insignificant exposure
DBS: US$850 million (S$1.28 billion) in collateralised debt obligations (CDOs) and collateralised loan obligations. Up to US$188 million have sub-prime exposure. DBS Asset Management has two CDO portfolios totalling $1.03 billion with no exposure.
UOB: $392 million in CDOs, with $91 million in high-grade asset-backed security CDOs. The bank has no direct exposure and little indirect exposure.
… more
Investors took the hint and sent UOB’s share price up 30 cents to $20 and OCBC’s stock 15 cents higher to $8.40. DBS’ share price, in contrast, fell 20 cents to $20.70.
All the banks have recently issued assurances to put investors’ minds at rest. The latest came yesterday when UOB chief executive Wee Ee Cheong used the bank’s first-half results briefing to state that it had CDO investments of $392 million, with $91 million in high-grade asset-backed securities.
He also said subsidiary UOB Asset Management manages $11.7 billion in CDOs for clients, of which $3 billion were in high-grade asset-backed securities CDOs.
UOB has no direct exposure to or investment in this portfolio, as the risks are borne by institutional investors. ‘Our exposure is minimum, and is immaterial,’ he said.
It also does not have direct exposure to US sub-prime mortgages.
Earlier yesterday, DBS stated that the bank and its asset management arm have no sub-prime exposure. Subsidiary DBS Asset Management has two CDO portfolios worth US$1.03 billion (S$1.55 billion) with no exposure to sub-prime mortgages.
DBS said in a statement: ‘DBS intends to hold the CDO portfolio until maturity and does not expect any losses to have a material impact on earnings or capital.’
It has also distributed US$1.7 billion in structured products involving CDOs, but these have no US sub-prime exposure.
On Monday, OCBC said its total exposure, including subsidiaries, was minimal and not at risk.
Source : Straits Times - 08 Aug 2007
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