Published February 14, 2009

DBS profit slumps 40 per cent

By CONRAD TAN

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DBS Group's fourth-quarter net profit fell 40 per cent to $295 million compared to a year earlier, missing analysts' estimates as the bank suffered from a sharp fall in fee income and higher charges for bad loans.

OPTIMISTIC DBS chairman Koh Boon Hwee and CFO Chng Sok Hui at the announcement of DBS's full-year results yesterday. Mr Koh said the bank is well-positioned to weather the storms ahead

But the bank's senior management said yesterday that it expects to remain profitable and plans to take advantage of the fallout from the financial crisis to increase its market share in Singapore-dollar loans.

The decline in profit was much steeper than analysts expected. Analysts surveyed by Reuters had forecast an average of $324 million in net profit, while those polled by Bloomberg had expected $310 million. Compared to the previous quarter, DBS's net profit for the three months to end-December slid 22 per cent.

Still, 'it's a relief that we didn't see any nasty surprises', said David Lum, an analyst at the Daiwa Institute of Research. 'It was in line with the guidance that they had given.'

DBS's share price ended 3.2 per cent higher at $8.39, after climbing as much as 3.6 per cent earlier.

DBS will still pay bonuses to its staff for 2008, though the payouts will be reduced to reflect the lower profits of the group compared to 2007.

Allowances for bad loans and other losses jumped 48 per cent to $269 million from a year earlier, due to higher charges for loans to small and medium enterprises (SMEs) in Hong Kong and mainland China and private-banking clients in Singapore and Hong Kong.

But 'the rest of the portfolio looks like it's holding up', said Mr Lum. 'At least that's positive news, that we didn't get another disastrous quarter.'

The proportion of non-performing loans on DBS's books rose slightly to 1.5 per cent from 1.1 per cent a year earlier and 1.3 per cent in Q3.

Its earnings were also hit by one-time charges including $45 million for compensation paid to the 900 staff that it fired in November, as well as a $47 million charge for impairment in the value of its stake in Thailand's TMB Bank.

Related articles: Click here for DBS's news release Financial statements Presentation slides

DBS's investment in TMB is now worth just $76 million, compared to more than $470 million in early 2007.

Brandon Ng, an analyst at Phillip Securities, said the results were 'below expectations'.

Annualised earnings per share - or what the group would have earned for the whole year if its earnings continued at the same pace - fell to 80 cents, from 88 cents in the third quarter and $1.21 a year earlier, after adjusting for the increase in the number of shares following DBS's recent $4 billion rights issue.

For the full year, the group's net profit fell 15 per cent to $1.93 billion.

Chairman Koh Boon Hwee, who is overseeing management of the group, said that DBS is 'well-positioned to weather the storms ahead' and would focus on organic growth and growing its market share in key markets, especially Singapore and Hong Kong.

'While other banks may be distracted by head-office issues, or are curtailed in their ability to lend due to capital constraints, we aren't similarly hampered,' he added.

DBS's net customer loans grew by $18 billion or 16.6 per cent over the year to $126.5 billion at the end of December. More than half the growth was from Sing-dollar lending, which boosted DBS's market share of Singapore-currency loans to 20 per cent at the end of 2008, from 18 per cent a year earlier, said Mr Koh.

Over the quarter, Sing-dollar loans grew about 4 per cent, although DBS chief financial officer Chng Sok Hui said that the increase 'reflects primarily loans that were booked in the third quarter and were drawn down in the fourth quarter' rather than loans to new customers. Overall customer loans fell one per cent as corporate loans in other currencies shrank.

'It's interesting that they're pulling their loans everywhere except Singapore, where they're still growing,' said Mr Lum.

'I think it's the first time that they mentioned that they want to try to take market share in Singapore - I've never heard them adopt that type of position before.'

Net interest income in the fourth quarter from the group's main lending business grew 5 per cent to $1.12 billion compared to a year earlier, supported by the rapid expansion in its loans book. But DBS's net interest margin - which measures how profitable its loans are after deducting funding costs - fell to 2.04 per cent from 2.11 per cent a year earlier.

That margin is likely to be squeezed further as interest rates fall, reducing the rates that the bank can charge on loans, said Phillips Securities' Mr Ng. 'With interest rates so low, it's quite challenging for bank to keep up their margins.'

Non-interest income slumped 24 per cent to $360 million as fees and commissions from wealth management, investment banking and stockbroking services collapsed amid the violent financial-market turmoil in the final months of last year.

The group declared a final dividend of 14 cents a share for the quarter, to be paid on April 29. The dividend is roughly equivalent to the 17 cents a share paid a year earlier, after adjusting for the recent rights issue.

'We have remained and we expect to remain profitable,' said Mrs Chng.

Mr Koh said that DBS will still pay bonuses to its staff for 2008, though the payouts will be reduced to reflect the lower profits of the group compared to 2007.

He also dismissed suggestions that there would be major changes at DBS while its chief executive, Richard Stanley, is being treated for cancer.

'There will be no significant change during his period of absence. He is sick, but he is coming back,' said Mr Koh. 

Published February 14, 2009

Starry-eyed in a job desert

Fresh finance graduates struggle to adjust expectations as dream jobs go up in smoke

By JOYCE HOOI

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EVEN as well-heeled chief executives of American banks are being called before Congress to defend their use of corporate jets, local finance graduates have also come crashing down to earth. Job offers that were once plentiful have evaporated and pay packages have shrunk. But some still refuse to accept the new realities and have turned their backs on jobs they see as less prestigious.

'This year's cohort of 500 business students are facing challenges in finding jobs in view of the recession Singapore is experiencing.' Gillian Yeo, executive associate dean, Nanyang Business School

Khai, a finance graduate who had emerged last year among the top of his cohort, is still reeling from a fruitless job search, ongoing since last September. The 23-year-old who speaks four languages - Japanese and Malay in addition to English and Mandarin - has sent out 15 applications and sat through seven interviews to date.

'It has been whittled down to just one company with a potential interview,' he said. Despite this, he has held out on applying to smaller outfits like local analyst firms and brokerages - including one he interned with last year - though he would have stood a better chance with them. 'It just wasn't something that fitted my long-term career path,' he said.

It is now dawning on graduates like him that it is time to adjust expectations as they face increased competition from experienced employees who are not as picky as fresh graduates.

Moses Largado, 23, recalled getting through to the final round of interviews for a trading position with a foreign investment bank last year, in which none of the nine short-listed fresh graduates were hired. 'The bank ended up picking two experienced hires from Hong Kong for the position,' he said.

'Some professionals with two years of experience are more than willing to take a pay cut of 10-15 per cent for an entry level position with the sales and trading desk at that bank,' Mr Largado estimates. Having a specific department in mind has also not made the job search in a tightening market any easier for finance graduates like Mr Largado's coursemate, Wee Tze Yi.

The 24-year-old, who graduated last year, had approached close to 30 institutions, but only for trading or buy-side research positions because those had been his sole areas of interest - only to encounter resounding silence.

Alongside expectations that are lagging reality, some graduates have been somewhat passive about their job search. Frederic Lee, 26, had interned with a Big Four accounting firm and received a favourable appraisal but he received no response when he applied to it for a job. He did not follow up with a call. 'I'd lost the human resources person's number,' he said.

As recently as early last year, finance graduates were expecting an annual starting pay of $110,000 as the industry norm. Such expectations have been dealt a swift and brutal blow with one newly hired entry-level banker whom BT spoke to bemoaning his starting salary of 'only $55,000 a year'.

Singapore Management University has taken to advising its students not to be choosy about jobs. 'These difficult times are unprecedented, and for this batch of graduating students, it will be a baptism of fire,' said Ruth Chiang, SMU's director of career services.

But such expectations of hefty pay cheques had primarily been fuelled by the global banks, which are themselves now cutting back on hiring and bracing themselves for austere times.

The hiring landscape this year is a bleak one compared to just two years ago. Of the 15 finance graduates BT spoke to, only four had managed to secure jobs.

In 2007, the National University of Singapore reported that close to 100 per cent of its business graduates gained employment within six months of graduation, with 80 per cent getting a job before graduation, according to its Graduate Employment Survey.

Today, in sombre contrast, the school is telling graduating students to brace themselves and moderate salary expectations.

'Although campus recruitment activities are continuing, the pace has slowed slightly. Given the volatility of the current environment, we can expect some recruiters to relook their recruitment plans,' said Joan Tay, the director of career services for the NUS Business School.

Hiring freezes have also adversely affected business students at Nanyang Technological University compared to their accounting faculty brethren.

'78 per cent of our cohort of 700 accountancy students graduating this May have already found jobs, which is quite similar to previous years.

'However, this year's cohort of 500 business students are facing challenges in finding jobs in view of the recession Singapore is experiencing,' said Professor Gillian Yeo, the executive associate dean at NTU'S Nanyang Business School.

Singapore Management University has taken to advising its students not to be choosy about jobs. 'These difficult times are unprecedented, and for this batch of graduating students, it will be a baptism of fire,' said Ruth Chiang, SMU's director of career services.

All three universities have reported that they are working closely with employers to secure jobs for their graduating students.

Some graduates such as Mr Largado and Mr Wee have decided to give the corporate sector a miss altogether.

Together, they have struck out as independent day traders, setting up office in a Tiong Bahru Soho unit. 'What's the point even if I get a job? The bank might retract the offer or fire me one month from now or even close down,' said Mr Wee, who has been trading currency, commodities and equities for the last three years. Starting out with $70,000 in capital, Mr Wee aims to double that sum by the end of the year.

But he admits: 'Even though we've been trading for three years, we are aware that the market has no favourites.'

Before graduates start looking at a Master's degree as a means of deferring their entry into the workforce, they should take heart from the fact that even though firms have cut down on hiring, they have not stopped altogether.

CIMB-GK Securities, a broking house, is in fact looking to increase its headcount of brokers and relationship managers, and will be scouring career seminars for fresh graduates this weekend.

'Fresh graduates will be considered alongside other experienced candidates as long as they possess the right qualifications and attributes for the positions,' said Carol Fong, the chief executive officer of CIMB-GK Securities.

Published February 13, 2009

M'sia Q4 exports fall 18.3%

For full year, manufactured export growth slows to only 1.8%, hit by collapse of global trade

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S exports shrank 18.3 per cent in the fourth quarter of 2008, with December the weakest month as the collapse in global trade continued to take a toll.

Bracing for downturn: Agriculture exports, mainly palm oil, rose 32% last year, but commodity prices have since buckled. Mining exports, mainly crude and refined petroleum and natural gas, expanded 42%

Shipments that month totalled RM46 billion (S$19.2 billion) - a drop of almost 15 per cent year on year and 11 per cent month on month - underscoring the challenges ahead.

In the first nine months, however, export growth was 16 per cent. And despite the softer Q4, all key sectors registered full-year expansion.

Manufactured exports were hit by the global slowdown most, expanding only 1.8 per cent from 2007. Because they account for about 70 per cent of total monthly exports - and because more than half of them are electrical and electronic (E&E) products - the sharp fall in world demand has led many factories and businesses to slash production or even retrench workers. E&E exports were hit hardest, shrinking 3.4 per cent to RM254 billion in 2008, from RM263 billion in 2007.

Mining exports, mainly crude and refined petroleum and natural gas, expanded 42 per cent. And agriculture exports, primarily palm oil, rose 32 per cent. But commodity prices have since buckled as economies cooled.

A continuing slide in exports appears inevitable, with those to China 17.5 per cent lower last month than a year ago. Initially optimistic that Malaysia would largely escape the effects of the global slowdown, the government has since acknowledged that a second stimulus package is needed to fend off a recession.

Some officials have privately conceded the economy could contract this year. Even so, the official growth forecast of 3.5 per cent has not been revised, despite more bearish projections from private economists, including one by CLSA of minus-5 per cent.

A mini-budget exceeding RM10 billion - expected to be tabled by Deputy Prime Minister and Finance Minister Najib Razak next month - is likely to include fiscal, monetary and structural reforms to boost the economy.

Still, with the first stimulus package of RM7 billion announced in November 2008 yet to be disbursed, businesses are concerned that such an apparent lack of urgency will do little to mitigate the deteriorating economy and rising unemployment.

Some concessions have been made in the past few months to facilitate businesses, including the automatic issue of manufacturing licences, soft loans to small and medium enterprises and a cut in power prices. But business chiefs say more drastic action is needed, especially as domestic consumption has crumbled.

Malaysia attracted a record RM63 billion in manufacturing investments last year - almost 75 per cent of it from foreigners. But a sharp fall is expected this year, as half of the developed economies are already in recession.

Significantly, domestic investors have not been re-investing as much as they were. Local investments in manufacturing totalled RM16.7 billion in 2008, down from RM26.5 billion in 2007.

The call for the government to review the New Economic Policy - particularly less investor-friendly elements such as the requirement for bumiputras to hold 30 per cent of corporate equity - has been growing louder, with many fingering it as one of the biggest obstacles to greater investment and competitiveness.

Total trade last year expanded almost 7 per cent to RM1.185 trillion. Exports grew almost 10 per cent to RM663.5 billion and imports 3.3 per cent RM521.5 billion. December's trade surplus was almost RM12 billion, as imports declined 23 per cent year on year and 14.5 per cent month on month.