Complete Property Market Updates of Singapore

May 12, 2008

Banks rally on hope that worst of credit crunch is over

Filed under: About Singapore,Financing,General — Propertymarketupdates @ 2:11 am

FOR many investors, United Overseas Bank’s (UOB’s) first-quarter results yesterday provided further proof that the worst effects of the global credit crunch might be over for Singapore banks.

On one hand, UOB’s first-quarter earnings of $529 million disappointed analysts, who had estimated that it would report a profit of as much as $538.5 million.

On the other hand, there was widespread relief among traders that its latest write-down of $43 million meant UOB had now made full provisions for holdings of collateralised debt obligations.

These are the financial derivatives linked to the United States sub-prime crisis, which burnt a big hole in the balance sheets of many global banks.

This has also raised hopes that the two other local banks – DBS Group Holdings and OCBC Bank – will paint the same positive picture when they report their own first- quarter results today.

And the ground could not have been sweeter for Singapore banks too, as their businesses continue to expand on the domestic market.

In a report on Monday, UOB Kay Hian noted that borrowings in the building and construction sector had jumped sharply, following loans to Marina Bay Sands and Resort World at Sentosa.

Local banks would also benefit from a huge demand for loans, as infrastructural projects such as the Downtown MRT Line and Marina Coastal Expressway projects get under way.

Unlike foreign banks, which have to rely on the interbank market for funding, local banks enjoy another advantage – cheaper funding from the huge deposit bases that retail customers maintain with them.

For those daunted by the big outlay needed to buy bank shares, one way to gain exposure is to buy covered warrants. These instruments give them the option to buy the counter at a pre-determined level, known as the strike price, over a period of three to six months.

For UOB, Deutsche Bank has a call with a strike price of $21.30 that expires in September.

For exposure to DBS, the bank has a call with a strike price of $19.50 expiring in October.

Source : Straits Times – 7 May 2008

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