Overseas Chinese Banking Corporation (OCBC Bank)

(03-02-2014, 03:45 PM)felixleong Wrote: If u are looking to invest in local banks, still got 2 weeks till their full year results on feb 14. Maybe ocbc would shed more light on their acquisition? One big potential bonus that might take place is the dropping of wing hang, since investors are sooo uncomfortable with this deal. Management really have to convince us on what shareholder value they can bring in.

Great Eastern will report first this week...i think we might see a capital reduction from them to pay out to OCBC for their WHB acquisition

(03-02-2014, 04:04 PM)toiletsiao Wrote:

(03-02-2014, 03:45 PM)felixleong Wrote: If u are looking to invest in local banks, still got 2 weeks till their full year results on feb 14. Maybe ocbc would shed more light on their acquisition? One big potential bonus that might take place is the dropping of wing hang, since investors are sooo uncomfortable with this deal. Management really have to convince us on what shareholder value they can bring in.

Great Eastern will report first this week...i think we might see a capital reduction from them to pay out to OCBC for their WHB acquisition

I think dropping out of the wing hang deal at this stage is very slim as it will be very damaging to its reputation especially after all that has been reported in the news.

The best you can wish for is a DBS-Danamon styled wrench from the HK regulators, so that OCBC has a good reason to bow out which is also quite unlikely at this stage.

I wish they can sell out a stake in GE or sell the entire UE away to raise $$$ instead, however market is quite bad now.. which also means its difficult to cash out on these 2 businesses.
However yeah, a capital reduction from GE would be very very helpful to OCBC.

In 2012 GE made like $2.51 per share in earnings, mainly due to their juicy sale of FNN and APB.
However they were damn niao when paying dividends... only 37 cents was paid out in 2012...
Hopefully this time round they can pass the cash to their parents OCBC, who is very very in need of cash now ^_^

Just curious is OCBC really the most undervalued among the 3 banks? In terms of PE, DBS is selling for a forward 11.2x PE. Thus in terms of PE valuation, DBS is still cheaper than OCBC.

This is unless Wing Hang is to be sold to OCBC at less than 15x PE and is capable of helping OCBC grow its EPS by 10% annually in the short run. OCBC has to be at 8.92 to match DBS's 11.2x PE

As interest rates eventually rises, the spread between the short borrowings and long lending of banks widens , this would likely improve the profitability of banks provided that :

(1)Loan Defaulters are minimal
(2)Investors/Speculators choose to keep their assets financed using debt (despite the higher interest repayments) and choose not to liquidate them and park the proceeds in safer heavens such as e.g bonds/plain vanilla fix deposits

However this draws up another issue and that is if interest rates are on the raise, does it make any sense for one to hold on to an asset which requires higher capex then before when cheaper and less riskier assets are aplenty?

Will This trigger another Black Swan event when banks are made to hold a plethora of collateralize assets in which they have problems selling?

Just my 2 cents.

You have to understand the model of banking. The banks are paid to hold the assets thus making themselves less liquid. In a way, bank provides a service to make everyone else more liquid and itself less liquid and makes profit from it.

A bank trying to sell everything illiquid on the book hardly makes any profit. Plus, no other industry has the holding power of banks as banks are able to leverage up to 10 - 20 times. What other industries can have such high leverage and be solvent?

(04-02-2014, 08:29 PM)freedom Wrote: You have to understand the model of banking. The banks are paid to hold the assets thus making themselves less liquid. In a way, bank provides a service to make everyone else more liquid and itself less liquid and makes profit from it.

A bank trying to sell everything illiquid on the book hardly makes any profit. Plus, no other industry has the holding power of banks as banks are able to leverage up to 10 - 20 times. What other industries can have such high leverage and be solvent?

If I am not mistaken, the subprime foreclosure back in the 06 was due to the stupendous amount of defaulters who were unable/prefer not to repay their mortages and thus leaving the banks operating there with plenty of properties /(collaterized debt obligations) which yields near to nothing and finally causing a crash.

(05-02-2014, 10:45 AM)InvestArk Wrote:

(04-02-2014, 08:29 PM)freedom Wrote: You have to understand the model of banking. The banks are paid to hold the assets thus making themselves less liquid. In a way, bank provides a service to make everyone else more liquid and itself less liquid and makes profit from it.

A bank trying to sell everything illiquid on the book hardly makes any profit. Plus, no other industry has the holding power of banks as banks are able to leverage up to 10 - 20 times. What other industries can have such high leverage and be solvent?

If I am not mistaken, the subprime foreclosure back in the 06 was due to the stupendous amount of defaulters who were unable/prefer not to repay their mortages and thus leaving the banks operating there with plenty of properties /(collaterized debt obligations) which yields near to nothing and finally causing a crash.

If you are paying $100 for something worth only $50, no matter what you are buying, be it subprime mortgage or gold or diamond, you are going to make a loss.

Crisis did not happen because banks were lending. Crisis happened because banks were not lending wisely.Actually, it is not the banks that were not lending wisely. It is the investors that mispriced the assets(the MBS or CDOs). Most banks just provided a service demanded by unintelligent MBS/CDO investors.

(05-02-2014, 10:45 AM)InvestArk Wrote:

(04-02-2014, 08:29 PM)freedom Wrote: You have to understand the model of banking. The banks are paid to hold the assets thus making themselves less liquid. In a way, bank provides a service to make everyone else more liquid and itself less liquid and makes profit from it.

A bank trying to sell everything illiquid on the book hardly makes any profit. Plus, no other industry has the holding power of banks as banks are able to leverage up to 10 - 20 times. What other industries can have such high leverage and be solvent?

If I am not mistaken, the subprime foreclosure back in the 06 was due to the stupendous amount of defaulters who were unable/prefer not to repay their mortages and thus leaving the banks operating there with plenty of properties /(collaterized debt obligations) which yields near to nothing and finally causing a crash.

From my layman understanding, I don't think there will be "stupendous amount of defaulter" in Singapore, ha ha.

I would be much more worried if the government did not kick in the 7 or 8 round of property cooling measures and let the property prices balloon up indefinitely.

Look at it this way, if there is no funds out there dumping the three bank share furiously , and no short seller trying to take advantage of the situation, do you have any chance to scoop up quality A+ blue chip share at cheap cheap price ?

(05-02-2014, 10:58 AM)freedom Wrote:

(05-02-2014, 10:45 AM)InvestArk Wrote:

(04-02-2014, 08:29 PM)freedom Wrote: You have to understand the model of banking. The banks are paid to hold the assets thus making themselves less liquid. In a way, bank provides a service to make everyone else more liquid and itself less liquid and makes profit from it.

A bank trying to sell everything illiquid on the book hardly makes any profit. Plus, no other industry has the holding power of banks as banks are able to leverage up to 10 - 20 times. What other industries can have such high leverage and be solvent?

If I am not mistaken, the subprime foreclosure back in the 06 was due to the stupendous amount of defaulters who were unable/prefer not to repay their mortages and thus leaving the banks operating there with plenty of properties /(collaterized debt obligations) which yields near to nothing and finally causing a crash.

If you are paying $100 for something worth only $50, no matter what you are buying, be it subprime mortgage or gold or diamond, you are going to make a loss.

Crisis did not happen because banks were lending. Crisis happened because banks were not lending wisely.Actually, it is not the banks that were not lending wisely. It is the investors that mispriced the assets(the MBS or CDOs). Most banks just provided a service demanded by unintelligent MBS/CDO investors.

Thank you freedom for your explanation, and based on that , one could say the nature of the misppricing of assets might also be very much possible for our banks ( although unlikely)