DBS (Development Bank of Singapore)

[dreamybear]

I wonder what is the competitive advantage of a digital bank especially if it is just relying on operational & cost efficiency and data mining. Currently, most traditional banks already have quite a substantial online presence and comprehensive offerings.

If one factors in compliance(KYC, money laundering), regulations and deposit insurance, I believe the cost of operating a digital banks may not low.

Previously, the "hype" was peer-to-peer lending/crowdlending where investors can choose to lend to people shunned by banks, but it may not end up well.
https://www.dw.com/en/chinas-peer-to-pee...a-47634861

For my personal stock portfolio, I am not worried abt the competition brought abt by digital banks unto the traditional dominant local banks.
( UK’s bank challengers are fading in fight with big four - https://www.ft.com/content/77ef93ec-e100...5a370481bc )

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Access to good data 'key to winning digital bank licence
Published Jan 11, 2020, 5:00 am SGT

With many hats thrown into the ring, access to good data will determine who wins Singapore's digital bank race, brokerage Maybank Kim Eng said this week....

The applicants are targeting groups that they view as underbanked - low-income individuals, early-income millennials, start-ups and micro small and medium-sized enterprises....

https://www.straitstimes.com/business/ba...nk-licence

[karlmarx]

The new players may not possess revolutionary technology, but their mere entrance into the market will mean that more competitive offerings for customers will be introduced.

Since it is in the regulator's interest that the new entrants can offer better value proposition to customers, and do so in a sustainable manner over the long run, it is likely that they will pick the ones with the best prospective business model.

Particularly threatening to the 3 local banks will be the 2 new deposit-taking digital banks. Grab/singtel appears to have the greatest potential to gain market share, given the size of their existing customer base. Even if they do not lower their own net interest margin by borrowing at a higher cost and lending for a lower fee -- which is unlikely, at least during the initial period -- they can offer banking+transport+telecom packages that offers superior value.

The 3 local banks will respond, but most likely in traditional ways which means lowering their net interest margin. Ditto for the 3 finance companies, and the 3 pawnbrokers.

[weijian]

While most companies have been buying back stock actively in the last month, the undisputed champion would have to be DBS.

4th Dec 2020: Owns 4,150,000 shares
23rd March 2020: Owns 25,550,000 shares
Shares bought back in 2020 = 25,550,000 - 4,150,000 = 21,400,000 shares. Assuming an average cost of $20 and we are looking at 428mil SGD spent!

I do believe the bank has faith that they surely wouldn't be asking for money "in a position of strength" in another few months down the road, as they did more than 10 years ago.

[Bibi]

Here it comes. Its like a new virus. Delaying, removing, suspending etc..


https://links.sgx.com/1.0.0/corporate-an...bd11ce881e

[weijian]

Here it comes. Its like a new virus. Delaying, removing, suspending etc..


https://links.sgx.com/1.0.0/corporate-an...bd11ce881e

Hi Bibi,
I read the announcement and my takeaway is that they are removing the dividend as a technicality issue. The technicality issue is that the 31st March AGM has been delayed and hence the record/pay out dates have to be shifted as well, since the dividend resolution needs to be approved in the AGM. I do not think DBS is doing a "Bonvest" per say.

That said, it seems like most companies with FY ending Dec 31st would not be paying out their final dividends on time. I wonder if the mass gathering ban does not get removed in a few months' time, would we actually have the companies do the "right" thing of using 1Q/2Q20's interim dividend (doesn't need to go through AGM) as a substitute for their FY19 final dividend?

[thinknotleft]

While most companies have been buying back stock actively in the last month, the undisputed champion would have to be DBS.

4th Dec 2020: Owns 4,150,000 shares
23rd March 2020: Owns 25,550,000 shares
Shares bought back in 2020 = 25,550,000 - 4,150,000 = 21,400,000 shares. Assuming an average cost of $20 and we are looking at 428mil SGD spent!

I do believe the bank has faith that they surely wouldn't be asking for money "in a position of strength" in another few months down the road, as they did more than 10 years ago.

If DBS turns out ok no need to ask for money and its share price recover, DBS management should be praised for intelligent capital allocation in buying its shares at low prices

If DBS needs to ask for money in future, then DBS management will be blamed for spending close of half a billion in share buybacks. 

It is probably brave of DBS management to buy close to half a billion of their shares during this period. 

p.s. I have been slowly buying DBS shares this few weeks. Hence I am happy to see DBS buying back its shares.

[Bibi]

Here it comes. Its like a new virus. Delaying, removing, suspending etc..


https://links.sgx.com/1.0.0/corporate-an...bd11ce881e

Hi Bibi,
I read the announcement and my takeaway is that they are removing the dividend as a technicality issue. The technicality issue is that the 31st March AGM has been delayed and hence the record/pay out dates have to be shifted as well, since the dividend resolution needs to be approved in the AGM. I do not think DBS is doing a "Bonvest" per say.

That said, it seems like most companies with FY ending Dec 31st would not be paying out their final dividends on time. I wonder if the mass gathering ban does not get removed in a few months' time, would we actually have the companies do the "right" thing of using 1Q/2Q20's interim dividend (doesn't need to go through AGM) as a substitute for their FY19 final dividend?

Hi Weijian,

Definitely DBS is not Bonvest. But i forsee many co will delay dividend payment based on this. I thought shareholders can vote via proxy form without attending agm?

[weijian]

@thinknotleft
- You basically map out the situations and one will eventually materialize in the future. The bravery of DBS management probably comes from the fact that they are currently more optimistic than the other way - the equity market dip is going to be 2015-like than 2008-like. There is no right or wrong.

- One definitely can't forget how much GIC/Temasek committed billions to the Western banks before the full force of GFC2008 came. It was of course left to risk-adverse/seeking individuals like Warren Buffett to wait for corporations to call and beg him for money towards the end. The former uses OPM, the latter uses his own money (well, BH's money technically). Could the bridge between an owner and manager be truly closed in terms of the risk/reward dichotomy?

- It always feel comfortable to be in the crowd, isn't it? As much, as I am cognizant towards the hazards of feeling comfortable while investing (especially in volatile markets), I still can't helping feel the same as you in these times!


@bibi
- You must have an AGM in the first place to allow proxy voting, isn't it? The current cancellation in AGM is probably in response to the fluidity of the situation as new rules seem to be implemented on a weekly pace currently.

- Based on the PR from ACRA/SGX RegCo/MAS on 25th March, it seems to suggest that virtual meetings are possible now. My guess is that most companies will be assessing this option in the days to come. So there should be more cancellations of existing announced AGMs and replacing them with 100% virtual ones.
PR: https://www.sgx.com/media-centre/2020032...g-meetings

[holymage]

Apparently, Jamie Dimon's thinking is rather differently from Piyush Gupta's. Personally I am unaware of the differences in capital structure for both companies as well as the risks to which both companies' loan exposure; time will tell whose decision making will be correct with respect to this current crisis.

https://reports.jpmorganchase.com/invest...etters.htm

Of course, we do not know how this crisis will ultimately end, including how long it will last, how much economic damage it will do, or how fast or slow the recovery will be. We have always been serious about stress testing and run an enormous number of tests per week so that we are prepared for most crises. But as is often the case, this “actual new crisis” – while it shares attributes with what is being stress tested – is dramatically different from the expected.

We stopped buying back our stock: We have always held the position that the highest and best use of our equity is to reinvest it in our own business and, of course, to be able to withstand tough times. Halting buybacks was simply a very prudent action – we don't know exactly what the future will hold – but at a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008. Our bank cannot be immune to the effects of this kind of stress.


Our 2019 pretax earnings were $48 billion3 – a huge and powerful earnings stream that enables us to absorb the loss of revenues and the higher credit costs that inevitably follow a crisis. For comparison, the Comprehensive Capital Analysis and Review (CCAR) results for 2020 that we submitted to the Federal Reserve in 2019 (which assumed outcomes like U.S. unemployment peaking at 10% and the stock market falling 50%) showed a decline in revenue of almost 20% and credit costs of approximately $20 billion more than what we experienced in 2019. We believe we would perform better than this if the Fed's scenario were to actually occur. But even in the Fed's scenario, we would be profitable in every quarter.4 These stress test results also show that following such a meaningful reduction in our revenue (and assuming we continue to pay dividends), our common equity Tier 1 (CET1) ratio would likely hold at a very strong 10%, and we would have in excess of $500 billion of liquid assets.

Additionally, we have run an extremely adverse scenario that assumes an even deeper contraction of gross domestic product, down as much as 35% in the second quarter and lasting through the end of the year, and with U.S. unemployment continuing to increase, peaking at 14% in the fourth quarter. Even under this scenario, the company would still end the year with strong liquidity and a CET1 ratio of approximately 9.5% (common equity Tier 1 capital would still total $170 billion). This scenario is quite severe and, we hope, unlikely. If it were to play out, the Board would likely consider suspending the dividend even though it is a rather small claim on our equity capital base. If the Board suspended the dividend, it would be out of extreme prudence and based upon continued uncertainty over what the next few years will bring.

[weijian]

hi holyimage,
Take a look at the sharebuyback trend of JP Morgan: https://ycharts.com/companies/JPM/stock_buyback
To verify the above is correct, i checked JP Morgan's 4Q19 earnings call and they indeed bought back 6.7bil of their stock, which tallies with the chart's 4Q19 statistics.

JP Morgan's 4Q19 earnings call: https://www.fool.com/earnings/call-trans...ransc.aspx

From the above trends, JP Morgan bought back ~44bil USD of stock from 2018-2020. In the same period, DBS bought back roughly ~500mil (2020) + 100mil SGD (2019) and 350mil (2018) = close to 1bil SGD worth of stock.


So a few things here:

- JP Morgan's market cap is about 15x of DBS, but did 50x more share buyback from 2018 to 2020 YTD.

- JP Morgan spent more as their share price rose, especially in 2H19, where prices were at record highs.

- Piyush Gupta's 2020 sharebuyback looks to be out of the norm as they were done early in the year (compared to 2019/2018). I can only speculate that he felt prices were low and buying back your shares at lower prices, makes better sense that buying them at high prices.

- It looks like Jamie Dimon is indeed different from Piyush Gupta. Because contrary to Gupta's actions, Dimon spent more to buy shares when prices were hitting new heights.

- I would have hope Jamie Dimon would act more rashly like a retail investor and buy more at this time. But alas, probably no one can get away from the institutional imperative. Of course, things have escalated and even Gupta has stopped share buyback since i last posted about it on 23rd March