S'pore banks close the gap with international icons, but may have further to fall
By CONRAD TAN
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(SINGAPORE) What a difference a year makes. The market value of banks worldwide has plunged sharply since the worst of the financial crisis began, though most Asian banks have so far suffered less severe falls than their counterparts in the US and Europe.
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Based on Wednesday's closing share prices, the Singapore banks have substantially narrowed the gap with some of their global peers in terms of market capitalisation - the number of their outstanding ordinary shares multiplied by the share price - by virtue of having experienced smaller declines.
At the end of February last year, United Overseas Bank, DBS Group and OCBC Bank were each worth US$19.7 billion, US$18.9 billion and US$17.2 billion, respectively, according to Forbes.
In the US, Bank of America (BOA) was then worth US$176.5 billion and Citigroup US$123.4 billion.
In the UK, HSBC was valued by shareholders at US$180.8 billion, Royal Bank of Scotland was worth US$76.6 billion, and Barclays' market cap was US$62.4 billion - more than three times that of UOB - at the time the biggest of the Singapore-listed banks by market cap.
Just over a year later, DBS - which has overtaken UOB - now has a market cap roughly equal to that of the UK's Barclays and RBS, at about US$11 billion.
All three Singapore banks are now worth more than Citi, which had a market cap of just US$6.19 billion at the end of Wednesday, based on its closing share price of US$1.13.
But some analysts here warned that the share prices of Singapore and other Asian banks could still have some way to fall as the recession deepens and losses on bad loans mount.
'The Singapore banks probably have a lot more downside,' said Kevin Scully, who heads independent equity research firm NetResearch Asia here.
'The banks in the US and Europe have fallen more because their provisions and NPLs (non-performing loans) are much higher,' he added. 'Our NPL cycle is lagging that of the US.'
Measured in US dollars, the market value of many of the world's biggest banks has slumped by more than half over the past 12 months - and by more than 80 per cent in the case of Citi, BOA, Barclays and RBS.
Many of the banks that have seen their market value collapse have had to be bailed out by governments - in some cases, more than once.
Asian banks have generally fared better, but not all have been spared. The market cap of India's ICICI Bank has plunged 79 per cent to just US$6.16 billion, from nearly US$30 billion at the end of February last year.
Major European banks including France's Societe Generale and Italy's UniCredit Group have also seen their share prices - and market cap - plummet recently over fears that their exposure to developing countries in eastern Europe may lead to large losses as economic conditions there deteriorate.
Canadian banks have held up quite well, relative to their largest US and European peers. That isn't surprising: the country's biggest banks, including Royal Bank of Canada, Toronto- Dominion Bank and Bank of Nova Scotia, have all reported profits for the three months to end-January, in sharp contrast to the recent staggering losses revealed by many of their peers elsewhere.
Only the biggest of the Chinese banks - ICBC, China Construction Bank and Bank of China - still have a market cap above US$100 billion. Even JPMorgan, which has so far weathered the crisis much better than its US rivals, has seen its market value fall steeply, from US$136.9 billion to US$72.5 billion.
Fluctuations in foreign-exchange markets - at least partly influenced by the same concerns that have hammered banking stocks - have also contributed to some of the sharp declines.
The Korean won, for instance, has lost some 40 per cent of its value against the US dollar since the end of February last year. By contrast, the Singapore dollar has depreciated only 10 per cent against the US dollar over the same period, while the Chinese yuan has gained nearly 4 per cent.
As a result, the market cap of Korea's largest banks has fallen much faster than that of some of their overseas peers. At US$6.7 billion, Shinhan Financial - among the country's biggest financial groups - is now worth less than Singapore's OCBC; a year ago, Shinhan was bigger than each of the Singapore banks.
Fears that banks could be forced to raise more capital by selling new shares that would dilute existing shareholders have also depressed banks' share prices everywhere.
'Some of the banks in the US will probably need more government support or even risk being nationalised,' said David Lum, an analyst at the Daiwa Institute of Research here.
'We don't really see that situation here in Asia' but 'there is a concern' that Asian banks could still need to raise more equity, he added.
Leng Seng Choon, an analyst at DMG & Partners Securities, expects loan-loss provisions at the Singapore banks to rise in the months ahead, but said that the banks had been quite careful in their lending practices even during the previous boom. 'This will be a plus in the current environment - it will help contain the rise in bad loans'.
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