lender, Singapore-based DBS Group, has reported a 38 percent fall
in third-quarter net earnings to S$402 million ($266 million),
driven by lower fee-income and higher provisioning for exposure to
Lehman Brothers.
For the first nine months, net
earnings fell 13 percent year-on-year to S$1.67 billion. The group
recently announced sweeping job cuts, trimming 900 staff and
preparing itself for a potentially nasty economic downturn in the
Asia-Pacific region.
Go deeper with GlobalData
During the quarter, the bank suffered a loss of S$13 million due
to exposure to Lehman Brothers’ investment products. It has also
set aside a S$70 million charge as compensation for customers who
had bought Lehman-exposed investment products. DBS, along with
other banks in Singapore, has suffered a backlash from angry
customers in the wake of the market turmoil and the subsequent
collapse of some structured investment products.
“I feel deeply for our retail customers who are affected by
Lehman’s collapse and regret the anguish they are experiencing,”
said DBS’ CEO, Richard Stanley.
Talking about the wider economic conditions, he added: “With
strong capital and liquidity, I believe we are well positioned to
ride out the uncertainties ahead.”
However, it will not be a smooth road for DBS or other local
banks. Although they have limited exposure to ‘toxic’
collateralised debt obligations, their largely domestic operations
mean a significant exposure to the local economy. Ninety percent of
DBS’ profits come from Singapore and Hong Kong.
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By GlobalDataSingapore’s economy is highly reliant on global trade, with
merchandise exports at 220 percent of gross domestic product and
the US a significant trade partner. But gross domestic product
shrank 0.5 percent in the third quarter compared with a year
earlier, putting the island state into a technical recession, and
estimates of annual growth in 2009 of up to 6 percent may prove
very optimistic.
Recent third-quarter results of the island’s three local banks –
DBS, OCBC and United Overseas Bank – indicate a few rough quarters
ahead with DBS faring the worst. UOB reported a 5 percent drop in
Q3 earnings while OCBC posted a 13 percent decrease (see
Thinking smart about savings).
Customer outrage
The outrage from nearly 5,000 DBS customers in Singapore and
Hong Kong who invested – and lost – S$360 million in Lehman-backed
structured notes was well-documented in local television news
broadcasts. The investors, mostly made up of the mass-market
segment attracted by the high returns from investments as low as
S$5,000, took to the streets; local newspapers headlined with
retirees losing their life savings on their front pages.
The bank has since sought to compensate those affected. While
DBS Hong Kong will return 100 percent of investors’ money, the
Singapore office says it will deal with its customers on a
case-by-case basis. An investor complaint form posted online has
begun investigating potential mis-selling by its relationship
managers, but customers are complaining they are having to wait
between three to five weeks after filling out the forms before they
get a response from the bank.
With its reputation in tatters, the jury is still out on when
DBS will be able to recover from its woes. The central bank will
likely enforce greater regulation on product selling and has
already promised a review of the structured products industry –
which will impact the banks’ fee income further in the short
term.
Among other redundancies announced, 100 Standard Chartered
call-centre staff in Hong Kong will lose their jobs to nearby
Shenzhen in China. HSBC is laying off more than 600 staff,
especially in the consumer banking and information technology
departments.
After Singapore, Hong Kong has the largest exposure to exports
in Asia; it will also, moreover, be directly affected by a probable
slowdown in China’s economy in 2009.
Titien Ahmad
