Published November 5, 2008
UBS breaks losing streak with Q3 profit
Earnings hit 296m francs; bank doing better in Asia Pacific

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(ZURICH) UBS posted a net profit of 296 million Swiss francs (S$377 million) for the third quarter yesterday - its first after four consecutive quarterly losses.
It predicted customers would continue withdrawing funds in the last three months of the year but the government bailout is helping to stem the outflow.
The bank benefited from a 913 million franc tax credit and a revaluation of its credit positions that led to a 2.21 billion franc gain on its books.
Switzerland's largest bank said its investment business recorded writedowns and losses of US$4.4 billion during the quarter. Net new money (a key indicator of future business) remained negative during the three months to September, with customers withdrawing 84 billion francs during the period.
It had already reported most of its third-quarter figures last month when it announced it was getting a 6 billion franc capital injection from the Swiss government and was also unloading US$60 billion of risky assets into a central bank fund.
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The bank, the world's largest wealth manager, said yesterday that it had seen some improvement in client flows since the central bank deal: 'Whilst the situation was very difficult at the start of October, there have been encouraging signs for net new money flows following the announcement.' But it expected market conditions to remain 'challenging' and shrinking client assets to affect fees.
'UBS will be able to reverse outflows only when the company goes back to profit,' said Georg Kanders, a bank analyst with WestLB.
But UBS has been doing better in Asia Pacific. Rory Tapner, chairman & chief executive of UBS Asia Pacific, said that to the end of the third quarter and despite the trying market conditions, the bank performed well in Asia Pacific.
'Wealth management saw positive net new money inflows year to date and global asset management recorded year-on-year revenue growth.
'Investment banking maintained its position as the top revenue-generating business in the region while FX (foreign exchange) posted outstanding absolute performance,' said Mr Tapner.
'The short-term economic environment is very challenging across the region, but the medium to long-term economic outlook for Asia Pacific remains attractive and we will continue to invest selectively in our businesses,' he added.
The stock is down nearly 60 per cent since the start of the year, slightly underperforming the European index, which is 52 per cent lower this year.
UBS CFO John Cryan reiterated that the bank should return to profitability in 2009 but said he expected the bank to take a 2 billion franc hit in the fourth quarter if its funding costs remain at current levels.
The third quarter was helped by a gain on its own credit of 2.2 billion francs, plus a tax credit of 913 million francs.
UBS also expects a loss of about 4 billion francs on equity sold to the central bank fund in the fourth quarter.
'The total loss is about 6 billion Swiss francs. It cannot be offset by new revenues. They will show a loss in the fourth quarter,' WestLB's Mr Kanders said.
UBS was hit earlier than most of its rivals in the financial crisis by its investment bank's foray into the US sub-prime market. It has made more writedowns than any other European bank, adding a further US$4.4 billion of writedowns in the quarter to bring its total in the crisis to almost US$49 billion.
About 6 billion francs will be used to bolster the bank's reserves, resulting in the government holding a 9.3 per cent stake in UBS.
Most of the bailout money will be used to transfer sub-prime-related assets and other high-risk securities from UBS to a so-called 'bad bank', whose sole purpose is to sell the risky investments. Any profits will be split between UBS and the Swiss National Bank.
However, its legal woes continue as it faces dozens of claims in the US from clients who bought '100 per cent principal-protected notes' issued by Lehman Brothers Holdings that are now almost worthless.
Six attorneys hired to represent clients in the cases say UBS brokers touted the so-called structured notes as low-risk investments and failed to emphasise they were unsecured obligations of Lehman, which filed for bankruptcy in September. -- Reuters, AP, Bloomberg

Published November 5, 2008
iPhone subsidies bite a chunk off SingTel Q2 income
Telco confident that move to tie in customers will pay off over time
By WINSTON CHAI

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(SINGAPORE) Singapore Telecommunications (SingTel) has warned that its second-quarter profits will be dragged down by the heavy cost of subsidising Apple's iPhone 3G and lower contributions from its overseas units.
In a regulatory statement posted yesterday, the operator said hefty iPhone subsidies could take a $71 million bite out of its Q2 income in Singapore and Australia.
Ebitda (earnings before interest, taxes, depreciation and amortisation) for its local operations will be reduced by around $27 million, while earnings for its Australian unit Optus could be lowered by almost A$44 million (S$44.74 million)
'Higher subsidy costs are associated with iPhone 3G. Consequently, the successful iPhone 3G initiative will have a dilutive impact on earnings and margins in the near term,' SingTel said.
The operator was given first dibs on selling the much-hyped touchscreen handset in Singapore on Aug 22. A similar timed exclusive deal was sealed for its associate Globe Telecom in the Philippines, while Indian subsidiary Bharti and Optus sold the iPhone 3G under non-exclusive arrangements.
Unlike its predecessor, Apple's second-generation handset is sold with heavy operator subsidies to lower their retail pricing in the hope of driving mass adoption.
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In Singapore, consumers can even get their hands on the handset for free if they sign up for a SingTel plan which costs $205 a month.
This means telcos will have to live with lower profit margins in the short term in the hope of recovering them in the long run with multi-year subscription contracts and increased data usage through services such as Web surfing and music downloads.
'The group is confident that this strategy of expanding and acquiring high-value data-centric 3G subscribers is value-accretive,' SingTel stressed.
The company revealed that it has collectively sold more than 170,000 iPhones in Singapore, Australia, India and the Philippines as at the end of September.
While it declined to provide an individual breakdown, BT understands that more than 35,000 units have been sold locally since its debut.
Besides enduring the short-term pain caused by iPhone subsidies, the company is also reeling from the negative impact of currency volatility in Q2 with the Sing dollar appreciating against other regional currencies.
Profit contribution from Optus will be muted due to the plummeting Australian dollar. Earnings from SingTel's associates in six emerging markets (India, Bangladesh, Indonesia, Pakistan, the Philippines and Thailand), which account for 42 per cent of its earnings, will also take a major hit.
The Indian rupee and Thai baht nose-dived some 17 per cent against Sing dollar in the September quarter from a year earlier, while the Indonesian rupiah, Filipino peso and Bangladesh taka fell 7.9 per cent, 7.6 per cent and 8.4 per cent respectively.
On the bright side, SingTel said it will book a one-time foreign exchange gain of $67 million in Q2 following a capital reduction in its Australian unit.
To cope with growing adversity, SingTel has already introduced cutting measures such as a headcount freeze and major advertising cutbacks in Singapore, while its Optus has culled 115 jobs from its networks division. The company is set to unveil more details of its cost-cutting effort at its Q2 results briefing on Nov 12.
Following its warning, OCBC is putting its 'buy' rating and $3.85 fair value for SingTel under review.
The operator's share closed 8.4 per cent lower at $2.30 yesterday.

Published November 5, 2008
M'sia pads up Budget as chill wind blows
Najib announces RM7b stimulus package, revises growth, deficit estimates
By S JAYASANKARAN IN KUALA LUMPUR

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MALAYSIAN Deputy Prime Minister Najib Razak presented an essentially revised Budget 2009 before Parliament yesterday that included an additional RM7 billion (S$2.9 billion) stimulus package as a 'policy response' against the spill- over effects of the global financial crisis.

Winding up the debate for the 2009 Budget, Mr Najib, who is also finance minister, also revised downwards Malaysia's real growth in gross domestic product terms in 2009.
Mr Najib estimated that it would slow to 3.5 per cent - from 5.4 per cent previously - while its budget deficit would remain flat at 4.8 per cent of GDP instead of coming back down to 3.6 per cent as had been forecast earlier. Inflation, however, would moderate at between 3 and 4 per cent.
Mr Najib said that the higher deficit was due to lower revenue collection to RM168.7 billion from RM176.22 billion. Previously, revenue had been predicated on US$125-a-barrel oil and RM5,000 a tonne of crude palm oil. Both have more than halved in value.
Mr Najib said the government 'was not in denial' and was 'aware that Malaysia is not exempt or sheltered from the risks of challenging global developments.'
On the consumption front, the finance minister took a leaf out of the opposition's book and proposed that mandatory employee contributions to the Employees Provident Fund be cut by 3 percentage points to 8 per cent on a voluntary basis for two years.
Should everyone do so, Mr Najib estimated that consumers would have an extra RM4.8 billion to spend. The proposal had originally come from opposition leader Anwar Ibrahim.
The new measures will bring relief to analysts and private economists who had worried that the government's seeming unwillingness to come to terms with the changing global landscape suggested that it had been in denial since the Budget was originally passed almost two months ago.
Even so, some wondered if Kuala Lumpur was not being too optimistic about its growth estimate. UBS, for example, had forecast zero growth for Malaysia next year while more optimistic numbers - CLSA for example - had been between 2 and 3 per cent.
Still, most would agree with the government that Malaysia was in fairly good financial shape.
Mr Najib said that the country's international reserves remained at 37 per cent of GDP while the banking system's non-performing loans stood at 2.4 per cent of gross loans. Meanwhile, the capital adequacy ratios of the banks were at 13.2 per cent, well above the international standard of 8 per cent.
The finance minister, however, did not clarify where exactly the extra RM7 billion would come from beyond a vague 'savings on fuel subsidies.' Even so, he said that the amount would be divided between 'high multiplier effect' projects such as roads, schools, public transport and a high speed broadband project throughout Peninsular Malaysia.
Mr Najib also came out with at least one interesting proposal which was welcomed by analysts. His suggestion: that the government tender out to the private sector large parcels of government land in and around the capital for development.
These parcels of land - in Jalan Cochrane, Sungei Buloh and Ampang Hilir respectively - are either occupied by government quarters or are being used for research purposes by agricultural agencies and had long been targeted by influential businessmen as easy pickings. Putting it up for open, and competitive, tender would certainly fetch the government a better price.
Other liberalisation measures announced by the finance minister include:
The abolition of import duty and approved permits for cement and long iron and steel products;
The waiver of Foreign Investment Committee approvals for foreign purchases of commercial land worth RM500,000 or more;
The granting of work permits directly to knowledge workers instead of their employers.