No change in fundamentals seen; year ahead still looks tough
By CONRAD TAN
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SINGAPORE bank stocks rose sharply yesterday amid a broad market rally across much of Asia. But analysts were quick to warn that little has changed in the outlook for banks here.
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| Outlook cloudy: With 19 US banks undergoing stress tests by regulators to determine whether they need more capital to withstand further losses if the recession worsens, not all of them are expected to pass |
'They still face a very challenging year and the economy is yet to face the worst,' said Pauline Lee, an analyst at Kim Eng Securities. 'The credit deterioration is just beginning. Concerns over rising non-performing loans linger.'
Shares in DBS Group and OCBC Bank closed at their highs for the day - DBS rose 3.8 per cent to $9.25, while OCBC gained 4.2 per cent to close at $5.69. United Overseas Bank shares finished 2.7 per cent higher at $10.78, after rising as much as 4.8 per cent earlier.
The Straits Times Index gained 2.6 per cent.
'But fundamentally, nothing has changed - it's still not so optimistic,' said Brandon Ng at Phillip Securities. Loans growth has weakened and interest rates are low, which makes lending less profitable, he pointed out. Still he is telling clients to 'ride the wave if you can'.
Other analysts said DBS's performance isn't likely to be hurt badly by the death of its chief executive Richard Stanley, who succumbed to infection on Saturday after more than two months of treatment for cancer.
'While he was on medical leave they formed a group to take over his functions,' said Kevin Scully, who heads independent equity research firm NetResearch Asia.
Ms Lee said 'nothing much has changed' at DBS, noting that chairman Koh Boon Hwee has overseen management of the group since Mr Stanley went on medical leave at the end of January.
In the coming months, 'if there is clear leadership, with a very clear direction, that would be a positive re-rating for the stock', Ms Lee added. 'It depends on how long they take to find a candidate - of course, the sooner, the better.'
Mr Scully cautioned against reading very much into yesterday's gains in equities. 'I don't think the markets have bottomed,' he said. 'The rally is obviously following what happened at Wells Fargo.'
Wells Fargo, one of the biggest US commercial banks, said last Thursday it expects to announce a record US$3 billion profit for the first quarter - much higher than analysts had forecast - when it publishes its financial results on April 22. The news sent stocks in the US soaring on Friday, when the Singapore market was closed for the Good Friday holiday.
But Mr Scully said he is 'not convinced that Wells Fargo was actually profitable'. He suggests its earnings were boosted by changes in mark-to-market guidelines announced by the US Financial Accounting Standards Board. The move has raised howls of protest from critics, who say the changes make it easier for banks to hide losses on assets such as mortgage- backed securities, as long as they judge the losses to be temporary.
There is further trouble ahead, Mr Scully believes. With 19 US banks undergoing 'stress tests' by regulators to determine whether they need more capital to withstand further losses if the recession is worse than expected, 'it's quite clear that not all of them passed', he said.
According to a Bloomberg report on Friday, the US Federal Reserve has asked several banks, including Goldman Sachs and Citigroup, not to reveal the results of the tests. 'If they all passed, they would have said that everybody passed,' Mr Scully said.
Some of the stronger banks may be asked by the US government to bail out the weaker banks, he suggested. In that case, even the strong banks would require more capital to finance the acquisitions - 'and that could mean further dilution for existing shareholders'.
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