Financial Industry 01 (Jul 08 - Aug 09)

[winston]

UBS will post a first-quarter loss and cut 8,700 more jobs as it struggles to recover, its new chief executive says

Source: CNN

[financecaptain]

The following regarding current loan growth in Singapore from one of Phillip Securitites' Research.

"Key risk is loans growth Singapore total loans contracted for the 4th time in February to –0.24% mom. Just for the two months of January and February, YTD total loans contracted 0.61%. There were only two occurrences in the last 20 years that we saw loans contract, -2.9% in 1999 and –1% in 2002 and since loans growth is closely tied to the economy, it is probable that loans will contract for the third time since 1999. We are projecting system loans to contract 4%."

Margins for local banks may have widened significantly, however, challenges will come from negative loan growth and rising NPLs. Same goes for the other financial institutions like finance companies. lease companies etc.

[winston]

Superanalyst Whitney says latest bank rally is "Great White Wash" By Sean Goldsmith:

The latest round of superb earnings from banks was all a "Great White Wash" according to analyst Meredith Whitney. Most of the earnings came from technical, one-time factors.

After the government announced it would buy agency paper from banks, the top 10 banks increased their holding in agency paper, only to write it up, and sell it to the government, banking huge gains. Banks also derived billions in earnings from changes in FASB accounting rules. But the fundamentals are deteriorating...

Banks are shrinking lending, so any losses will be magnified... and those losses are accelerating. They're also cutting available credit lines by hundreds of billions of dollars to reduce risk, but this will only further pressure the consumer, who looks at the credit card as a source of income.

[winston]

So why the need to do the Stress Test if the banks have adequate capital ? And how did he know that they have adequate capital when they have not even done the test yet ? Or did he know that all of them will pass the Stress Test because he knows that the standard is very low on those tests ...

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Most banks have adequate capital: Geithner

WASHINGTON - Most US banks have enough capital to keep lending but a pile of bad debts is fostering doubts about their health and slowing a recovery, US Treasury Secretary Timothy Geithner said on Tuesday.

[winston]

How widespread are problems like this ?

Bank officer to die for 1.3b yuan gambling spree

A postal bank official in Guangdong has been sentenced to death for siphoning off more than 1.3 billion yuan (HK$1.48 billion) to pay off her gambling debts.

He Liqiong, 45, was given the death penalty by an intermediate court for the crimes, which occurred between 2003 and 2005, Xinhua News Agency said.

She was convicted of siphoning deposits from a post office bank in Foshan city to pay off debts incurred while gambling in casinos in Macau.

He's chief accomplice was given a life sentence, while four others were sentenced to up to five years in prison.

AGENCE FRANCE-PRESSE

[millionairemind]

Just run the printing press at full speed ahead, in 24hrs, you will get your $10B

BofA and Citi in last push on stress tests

By Francesco Guerrera in New York

Published: May 3 2009 22:36 | Last updated: May 3 2009 22:36

Citigroup and Bank of America are working on plans to raise more than $10bn each in fresh capital, even as they launch last-ditch attempts to convince the US government they do not need to bolster their balance sheets.

People close to the situation said Citi, BofA and at least two other lenders will on Monday attempt to convince the Treasury and the Federal Reserve that the findings of “stress tests” into their financial health were too pessimistic.
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But with time running out – the government will present the final test results to 19 banks tomorrow with an announcement scheduled for Thursday – both Citi and BofA are looking at how they could raise extra capital.

Preliminary findings have revealed that Citi, which has already been bailed out three times by the authorities, could need an extra $10bn or more if the economy worsens. BofA, which has had $45bn in government aid, was found to need well in excess of $10bn, people familiar with the matter said.

Regional lenders Wells Fargo and PNC Financial were also among the banks that would need to raise more capital unless they could persuade the authorities their findings were wrong, said people close to the situation.

Citi is believed to be considering a plan to convert more than $15bn in trust preferred shares – a hybrid of debt and equity – into common stock. Since trust preferred shares are held by non-government investors, this conversion could enable the authorities to inject further funds into the bank without raising its stake beyond the 36 per cent it has already agreed to buy. People close to Citi say it would have to force holders of trust preferred shares to convert them into common stock, which ranks below those securities and does not pay a yearly interest rate, by threatening to stop paying interest if they reject the offer.

The banks and the government declined to comment.

Copyright The Financial Times Limited 2009

[winston]

10 banks may need to raise capital under US tests

Ten of the country's 19 biggest banks subject to US government ''stress tests'' to measure their financial stability may need to raise more capital, the Wall Street Journal said.

The exact number of banks required to raise more funds has not yet been decided, the daily said, but those affected could include Wells Fargo, Bank of America and Citigroup.

The number of banks thought to need more funds had been 14 out of 19 at one point, the Journal said, citing sources.

US banking regulators and the Federal Reserve are set to release results on Thursday from stress tests of the 19 banks and estimates for further public aid to help boost the ailing economy.

The tests will cap a period of suspense that began when President Barack Obama's administration unveiled in February its overhaul of the bank bailout in a bid to restore stability to the financial system of the world's largest economy.

Fears surrounding Wells Fargo, Bank of America and Citigroup may have subsided, however, in light of the authorities' stress test efforts, the Journal said, noting that the three bank's stock prices have tripled since early March.

Bank-specific details are set to be unveiled Thursday after Wall Street closes for the night.

AGENCE FRANCE-PRESSE

[winston]

UPDATE 1-UOB, OCBC surprise with smaller Q1 profit drops

* UOB's Q1 net profit down 23 pct, OCBC's net falls 12 pct
* Both banks say outlook tough
* Analysts say asset quality not very bad, interest income up
* UOB shrs erase losses, up 0.2 pct after results, OCBC flat (Updates throughout with OCBC results, comments)

By Saeed Azhar SINGAPORE, May 6 (Reuters) - UOB and OCBC , Singapore's second and third-biggest banks, posted smaller-than-expected falls in net profits on Wednesday as they made more loans at higher rates which partially offset jumps in bad-debt charges.

Asia's economic slump is gradually showing up in soured loans and lower investment gains for banks, but analysts said the outlook would improve after the city-state suffered from its worst ever GDP contraction in the first quarter.

"The economy was very weak in the first quarter and the results were fairly resilient. If this is as bad as it gets, going forward results should be better," said David Lum, a banking analyst at Daiwa Institute of Research.

"The asset quality is not as alarming and the year-on-year loans and margins have improved." Both United Overseas Bank (UOB) and Oversea-Chinese Banking Corp (OCBC) sounded cautiously optimistic.

"The journey ahead remains tough, but we are confident that we will come out of the crisis stronger," UOB CEO Wee Ee Cheong said in a statement.

OCBC's chief executive David Conner said the economic outlook remains difficult and uncertain.

UOB's Jan-March net profit fell to S$409 million ($278 million) from S$529 million a year ago, against an average forecast of S$387 million by four analysts.

Bad-debt charges rose more than four-fold to S$378 million for the quarter from S$89 million in the year-ago quarter, largely due to losses on loans and investments due to the global economic downturn, the bank said.

OCBC's first-quarter net profit fell to S$545 million from S$622 million a year ago. Analysts had predicted a net profit of S$293 million, according to the average of five forecasts compiled by Reuters against a comparable figure of S$460 million a year ago that excluded exceptional items.

The bank benefited from higher insurance income from its subsidiary Great Eastern .

However, bad-debt charges rose to S$197 million compared with a writeback of S$8 million a year ago.

DBS Group , Southeast Asia's biggest bank, will report earnings on Friday.

Despite the optimism in the market that has boosted Singapore's financial index <.FTFSTAS8000> by half since March 10, not everyone is bullish on banks.

"We expect asset quality to show real deterioration in second half of 2009 as the NPL cycle lags," Morgan Stanley's Matthew Wilson wrote in a note about non-performing loans.

UOB chairman Wee Cho Yaw, whose family controls the lender, said earlier this month the financial crisis may last another 1-2 years and he is pessimistic about the outlook.

UOB said net lending grew 5.6 percent from a year earlier, against a 7.7 percent growth in the fourth quarter, while OCBC saw a loan growth of 7 percent in the first quarter.

The one consolation for both banks was a rise in net interest margin, as Singapore banks were able to charge higher prices on loans as foreign players scaled back from Asian markets.

Net interest margin for UOB rose to 2.41 percent from 2.20 percent a year ago and OCBC's net interest margin moved up to 2.42 percent from 2.17 percent a year ago.

[winston]

Beware bank stock surge amid bad news By SIOW LI SEN, Businesstimes

TURBOCHARGED bank stocks this week were said to be powered by a slew of encouraging news plus a wave of liquidity. But just glancing at recent headlines in this newspaper will show that there is still plenty of bad news out there.

Yesterday, a report said that two smallish office buildings had found buyers at prices 35 per cent below what the owners paid for them in 2007. It added that bigger discounts are expected for larger office towers before buyers can be found.

The day before that, there were sweeping changes proposed to US tax rules which could deal a painful blow to Singapore, Hong Kong, Ireland and other locations favoured by US multinational companies for their overseas operations.

While the full details are still unknown, the proposals could have 'a great impact' on Singapore, a major centre for the regional headquarters and holding companies of foreign firms in Asia, said Owi Kek Hean, head of KPMG tax services here.

A pre-May Day release on unemployment showed that a record 12,600 workers here lost their jobs in just the first quarter alone. This easily beat the previous quarterly mark of 9,410 in the final three months of 2008, as a further sign of the growing economic crisis. Prior to that, the peak was 8,590 redundancies in the last quarter of 2001, after the dotcom bubble was punctured and the United States faced the Sept 11 terrorist attacks.

The overall unemployment rate rose from 2.5 per cent last December to 3.2 per cent in March. Among the resident labour force, the unemployment rate increased from 3.6 per cent in December to a five-year high of 4.8 per cent in March.

What has yet to make the headlines is the continued departure of foreign workers and the impact on the small shops and businesses which cater to them. In addition, as highly paid expats leave, they continue to add to the downward slide in rents of luxury housing, and weakening the ability of many locals to finance their investment properties.

The bank bosses of the three local banks have warned repeatedly that bad loans will rise along with unemployment. To date, non-performing loans (NPL) at the local banks remain small, although they continue to climb.

United Overseas Bank (UOB) said that while NPLs in Singapore held steady, they declined in Malaysia and the strongest rise came from Thailand, Indonesia and Greater China. OCBC said its Singapore and Malaysian NPLs rose modestly and the biggest jumps came from other Asean countries and Greater China.

But it is early days in the cycle yet. Shareholders should remember this.

[winston]

Kass: Short Bank Stocks Right Now

Hedge fund manager Doug Kass said he is selectively shorting U.S. financial stocks, which have more than doubled since bottoming in early March, on the belief that they have been "priced to perfection" ahead of the banks' stress test results later on Thursday.

"From my perch, investors should sober up and reduce their holdings in financials now," Kass said in a note to clients. "Financial stocks are now priced to perfection."

The KBW Bank Index .BKX of 24 large lenders, including 14 that are subject to the stress tests, jumped 25.8 percent in the first three days of this week and had more than doubled since bottoming on March 6.

However, it was down more than 5.2 percent on Thursday afternoon, awaiting the release of so-called bank stress-test results that are expected to force some banks to raise billions of dollars in capital.

In a follow-up interview with Reuters, Kass said: "I am legging into some shorts -- selectively." Kass is founder and president of Seabreeze Partners Management.

In a short sale, investors borrow shares and sell them, betting that the stock price will fall. The goal is to buy the shares back at a lower price, allowing the investor to return the shares to the broker while taking a profit on the spread between the original sale price and the cost of buying the shares back.

Kass argued that the overshoot to the downside through early March has now morphed into a frenzied buying stampede and "pricing disequilibrium" that is ignoring several factors.

Those include the damage to the banking industry's balance sheets, a continuing negative loan-loss cycle and the reduced earnings power of the industry, he said.

A series of dilutive capital raises has served -- and in the future will likely continue to serve -- to reduce the earnings power of many financial institutions, both from the standpoint of higher interest expenses and more shares outstanding, Kass said.

"Many financial institutions have jettisoned profitable businesses in order to replace the lost capital from the drain of toxic assets, serving to permanently cripple earnings power," he said. "While there has been second derivative improvement, there is growing evidence that the consumer loan-loss cycle will weigh on banking profits for years to come."

Kass said the commercial or non-residential real estate downturn is only beginning to be felt on banking industry profits. "It, too, will be a drag on earnings for several more years," he said.

Forward earnings power will be limited, owing to government restrictions on a reduced ability to lever up capital bases as well as a more moribund capital market in 2009-11, he said.

"The banking industry, more than nearly any other market sector, is exposed to a possible double-dip in the U.S. economy in late 2009-early 2010," Kass said. "Even if the economy does not double-dip, my baseline expectation of an uneven, lumpy and inconsistent economy over the next three years will prove hard for the financial industry to navigate in."

© 2009 Newsmax.

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