Shareholders seen zeroing in on bad loans, dividend cuts, rights issue
By SIOW LI SEN
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BAD loans, more dividend cuts and the likelihood of a rights issue are probably among the issues to be raised at today's United Overseas Bank (UOB) annual general meeting.
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| United resolve: Unlike rivals DBS and OCBC, UOB cut its 2008 final dividend to 40 cents from 45 cents. It also did not rule out further cuts as it grappled with rising bad loans amid Singapore's worst downturn |
Shareholders may also want to gauge how hands-on chairman Wee Cho Yaw is in guiding the affairs of the bank given their faith in the veteran banker. Mr Wee has been chairman of the bank since 1974. He was also chief executive officer until April 27, 2007, when he passed the CEO mantle to his son, Ee Cheong.
As the economic bad news grinds relentlessly on, shareholders at the annual meetings of the other two local banks had focused on the rising tide of bad loans and their worries of how it would impact on the bottom line. Questions too were raised on the amount of toxic assets or collateralised debt obligations on the banks' books.
DBS Group Holdings and OCBC Bank have already held their annual meeting with shareholders.
In the fourth quarter of last year, all three local banks reported more bad loans and warned that the situation would get worse.
The deterioration in non-performing loans (NPL) was fastest at UOB. The NPL ratio at both DBS and OCBC in Q4 rose to 1.5 per cent, from 1.3 per cent previously. UOB's NPL ratio increased to 2 per cent from 1.5 per cent.
Nomura analyst Anand Pathmakanthan said in a note last week on the upcoming Q109 results that he was looking for quarter-on-quarter moderation in loan loss provisioning after the spike in Q408 due to NPL classification of certain large accounts. UOB had previously explained that the jump in NPL was due to a few large companies. The three Singapore banks report Q109 results next week.
UOB shareholders today are likely to ask the bank what measures it has in place to ameliorate the rising level of bad loans given that the economy is still heading south and more people are losing jobs.
Labour chief Lim Swee Say has warned Singaporeans to brace for more retrenchments. In the last quarter of last year, the number of workers who lost their jobs hit a quarterly high of 9,400 and Mr Lim has said that the layoffs in the first quarter of this year could exceed that.
Another burning question for UOB shareholders is whether there will be more dividend cuts.
Unlike rivals DBS and OCBC, which left 2008 dividends unchanged from 2007, UOB cut its 2008 final dividend to 40 cents from 45 cents. It also did not rule out further cuts as the bank grappled with rising bad loans amid Singapore's worst downturn.
However, Mr Wee Ee Cheong, during the Q408 results presentation, did rule out a rights issue as he said that the bank was confident that its present capital level was 'able to withstand near-term potential shocks and potential deterioration'.
But the perception continues to persist that UOB might go for a rights issue.
A JPMorgan report early this month analysed the three banks' trading and investment portfolios for likely changes in their values, and suggested that UOB's book value - what the bank's assets, less its liabilities, are worth on its books - 'is at a risk of substantial decline in Q1 2009, which could lead to a capital call by the bank'.
DBS raised $4 billion through a rights issue last December. OCBC at its April 17 shareholders' meeting said that it has no plans for a rights issue.
UOB's meeting today will be held at Pan Pacific Singapore at 3pm.
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