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great insight from d.o.g.
I went to search on the POSB acquisition and stumbled onto UOB acquisition of OUB in 2001. At that point in time, DBS offered to acquire OUB while OCBC wanted to acquire Keppel Tat Lee Bank. This leave WCY with no choice as it is either he offers for one of the targets or UOB will get acquired sooner or later.
He chooses to bid for OUB (which makes sense given that DBS will become a super big bank if it acquired OUB) instead. DBS offered $1.14 in cash and 0.61 in new share (9.4b), while WCY counter with a $4.02 in cash and 0.52 new share(10b). DBS could not offer higher as at that point in time, it simply does not have enough cash to do so.
DBS has also been known to make several mistakes in the past decade.
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Hi d.o.g,
Thank you for sparing time to answer our questions. Your posts read like Sherlock Holmes at work. Mystery solved.
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Trust yourself only with your money
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Yes great insight. D.o.g truly deserve the high reputation. So I guess DBS previous CEO Jackson tai did a bad job.
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just like to add that during the dbs right issue period, i remember someone said this right issue is raised "from a position of strength". trust these bankers mgt to add these flowery words
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Thanks D.O.G. Interesting idea to look at the bank's writeoffs over the long term, esp. in recessions. Are there any other numbers you would look at to judge their a bank's quality of earnings?
I wait until there is money lying in the corner, and all I have to do is go over there and pick it up.
Jim Rogers
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Buffett uses ROE, ROA, P/B and management to explain his decision to buy Wells Fargo in one of his shareholder's letter
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I thought the piece below from the just published Edge Weekend edition was a good read vis-a-vis DBS - gives some useful information - and worthwhile adding to this thread.
I note what DBS CEO Gupta says about his bank's capital adequacy ratios etc. Personally speaking, I do not place the greatest faith on stress tests and such ratio's. Dexia, a Belgian-French Bank, apparently passed such tests with "glowing colours" a couple of years ago ........... look what happened to it in the second half of last year!
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The EDGE Weekend Comment Feb 10
DBS's 4Q11 above consensus, CEO positive on prospects
By Goola Warden
DBS Group Holdings reported a net profit of $731 million for 4Q11 which was up 8% from a year ago but down 4% from the previous quarter. It was above the consensus estimate of $693 million and beat the highest estimates by JPMorgan of $720 million. However, CEO Piyush Gupta says loan growth of 28% y-o-y is unlikely to be repeated, and the most likely growth figure for this year would be in the low double digits for both loans and deposits. Also, CFO Chng Sok Hui says the low tax rate of 6.5% for 4Q -- partly responsible for the profit uplift -- came about because DBS booked tax-exempt income and is unlikely to be repeated.
For the fourth quarter, net interest income increased 6% q-o-q as loans grew 5% from the previous quarter and net interest margins were flat at 1.73% q-o-q. This helped to offset lower non-interest income due to seasonally quieter markets at year-end, Chng said. Fee income fell 14% q-o-q as lower contributions from loan activities, stockbroking and investment banking were partially offset by increases in wealth management and credit cards. Income from customer flows for treasury products was also lower. Expenses rose 4% and profit before allowances declined 8%. Total allowances were down but specific allowances more than doubled q-o-q due largely to a legacy exposure in the shipping industry, Chng said.
For the full year 2011, DBS reported record net profit of $3.035 billion up 15% from last year. Return on equity rose to 11% from 10.2% a year ago. FY11 deposit growth of $31.3 billion, or 16.7% y-o-y, was one third SGD, one third USD -- which Gupta says were from US and European MNCs -- and one third other currencies.
DBS’s tier-one capital adequacy ratio of 12.9% and total CAR of 15.8% are well above regulatory requirements. These figures incorporate Basel 2.5 rules which took effect from Dec 31 2011. Liquidity remains healthy with the loan-deposit ratio at 86%. Deposits grew 16% or $32 billion during the year to $225 billion.
Gupta says economic activity is fairly robust in Singapore and the region. “We’re not seeing the train coming off the rails. There is no hard landing yet,” he says, “customer orderbooks are still good.” Still he acknowledges that Asian growth is set to slow. But so far there are no signs of stress in DBS’s portfolio.
Pricing power is returning for loans, Gupta adds, which is why net interest margins have stabilised at 1.73%. He admits there is something of a war for deposits in Hong Kong, and banks have to pay some 60bps above LIBOR to attract deposits in the SAR. On the other hand, DBS is able to tap the wholesale funding market. “We’ve been able to price commercial paper at 10 to 15 bps below LIBOR which is cheaper than the cost of deposits,” he says.
DBS Hong Kong net profits were flat at $571 million, in SGD terms. However, net profits from greater China (mainland China and Taiwan), and South and South East Asia (India and Indonesia) rose 53% to $587 million, accounting 19% of profits, up from 14% in 2010. Gupta has a target of 30% contributions from the markets outside of Hong Kong and Singapore.
DBS remains the favourite bank with analysts. CIMB says “DBS remains our top pick in the sector. A seasonally slow quarter was as expected but 1) stable margins; 2) healthy deposit growth; 3) Hong Kong looking more stable (NIM +10bp qoq); 4) improved capital ratios; and 5) below-peer valuations (1.1 times price to book) should support further outperformance.” CIMB is forecasting a net profit of $2.99 billion for FY2012.
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Vested in DBS 4.7% p.a. Preference Shares but not their equity,
RBM
RBM, Retired Botanic MatSalleh
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Inspired by this thread, and because bank shares have fallen for a year, I took a look at the local banks:
Part 1: Intro & Non-interest Income
Part 2: Losses & Leverage
Part 3: Deposits & Derivatives
Part 4: Returns and Valuations
I found that, over the long term:
- OCBC is the most conservative bank, with the lowest allowances and highest returns/risk-weighted-assets
- DBS has the lowest cost of deposits
- UOB has the highest ROA
Personally, I think banks are
slightly cheap now. I could buy half a position if I had lots of money and nowhere else to put it.
I wait until there is money lying in the corner, and all I have to do is go over there and pick it up.
Jim Rogers
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