Singapore’s DBS takes more writedowns, Q4 falls 18 pct

Saeed Azhar
15 Feb 08

DBS, Southeast Asia’s biggest bank by assets, said quarterly profits fell 18 percent due to further writedowns linked to the global credit crisis, but the decline was less than feared and its shares rose.

The Singapore lender said it was cautiously optimistic about the year ahead despite financial market turmoil wrought by the U.S. subprime mortgage collapse and expectations of slowing global economic growth.

DBS announced S$200 million ($141 million) in writedowns, including S$170 million on subprime-related collateralised debt obligations (CDOs). The charges were at the top end of market forecasts for S$150-S$200 million.

“They have taken the CDO medicine,” said Matthew Wilson, analyst at Morgan Stanley, adding that loan growth was expected to remain strong though DBS may face pressure from lower interest margins and volatile markets that may hurt fees.

The bank also took an additional loss of S$146 million on a special-purpose vehicle that invests in debt such as CDOs, spreading it over 2007 and 2006, while it plans to take another S$86 million loss on it in the first quarter of 2008.

DBS said it divided up the S$1 billion vehicle last month into riskier and less risky debt instruments. This reduced direct exposure to risky debt derivatives to S$1.5 billion, from S$2.36 billion at the end of September.

“We view this as a very positive development as it clearly quantifies the losses and should work toward removing the overhang from the stock,” said Harsh Modi, an analyst at JPMorgan.

DBS shares, 28 percent-held by state investor Temasek Holdings, were up 2.8 percent by 0639 GMT, outperforming a 0.4 percent rise Singapore Straits Times Index .FTSTI, but the stock is still down about 14 percent this year as credit worries weigh on financial shares around the world.

DBS also took another S$67 million impairment charge for its 6.8 percent stake in Thailand’s TMB Bank TMB.BK to reflect the falling value of its investment in the loss-making lender.

Jeanette Wong, chief financial officer at DBS, said the bank still plans to keep its stake in TMB, despite the value of its stake falling by 45 percent in 2007 from S$460 million in 2004.

DBS said the additional charges cover the risks associated with U.S. subprime assets as it had written down 90 percent of the S$267 million debt linked to risky U.S. mortgages.

October-December net profit fell to S$491 million from S$596 million a year earlier. Four analysts had expected profit of S$466 million. Full-year earnings, including one-off charges and goodwill, edged up to S$2.28 billion from S$2.27 billion in 2006.


The writedowns come before the bank’s new chief executive Richard Stanley joins on May 1. Stanley, the head of Citigroup in China, replaces Jackson Tai, who resigned last year, and is expected to breathe life into its China business and expand beyond Singapore.

“I believe that despite the turmoil in the global financial market today, banks in Asia are much less affected,” said Chairman Koh Boon Hwee. “Our balance sheet is strong and I remain cautiously optimistic about the year ahead.”

Standard & Poor’s estimates that the total exposure of Asian banks to structured derivative instruments is about $34 billion – only 10 perent of their equity and far less than their U.S. and European peers.

But with investor fears of a U.S. recession and a global credit crunch threatening to slow Asian economies and corporate borrowings, analysts have become more bearish on bank earnings.

UBS expects the Singapore economy to grow at 3.5 percent, slower than a government forecast of 4-6 percent and following a 7.7 percent year-on-year expansion in 2007.

Singapore’s central bank warned in December that the worsening of the credit squeeze or a sharp slowdown in the U.S. economy may hurt profits of Singapore banks in 2008.

But other analysts said loan demand will still be healthy, helped by a property boom and billions of dollars of state spending on two subway lines and a new expressway.

BNP Paribas expects loans to grow 13 percent in 2008, slowing from 20 percent in 2007 – the fastest since September 1995.

DBS said lending grew 25 percent in the quarter from a year earlier to S$108.4 billion, led by loans to regional businesses and mortgages.

DBS shares fell around 8 percent last year on worries about its direct exposure to the credit turmoil. It trailed local rivals United Overseas Bank, which rose 2.6 percent, and Oversea-Chinese Banking Corp, which advanced 7.7 percent. OCBC reports its quarterly results on Feb 21 and UOB on Feb 27.

DBS will pay a 20 cent dividend, increasing the 2007 payout to 80 cents from 71 cents in 2006.

Editing by Neil Chatterjee and Lincoln Feast…