Banking Weekly Review: 17th – 23rd November 2008

December 1, 2008 at 8:44 am Leave a comment

Weekly Review: 17th – 23rd November

• Global newsflows hogged the limelight during the week
In a week where the share price of Citigroup Inc went into a freefall, shedding as much as 60% of its value amid concerns of rising customer defaults in a worsening economy, more announcements of banking
“failures” surfaced where even the oil-rich Middle East has not been spared the contagion of the credit crisis. It was announced that Dubai’s two largest mortgage lenders, Amlak Finance PJSC and Tamweel PJSC will be taken over by a government-owned bank as the global financial crisis has squeezed their access to credit and slowed the regional property market.
• More buying as share prices fall
The Employees Provident Fund (EPF) was seen busily increasing its stake in banking groups again during the week, a move which we deem positive given our belief that shares of mos banking institutiions have been oversold on overly pessimistic concerns surrounding the global and domestic economy.
• Cessation of coverage on Affin Holdings
We ceased official coverage on Affin Holdings during the week for its relative illiquidity and on our view that certain other banking groups offer better exposure amid undervaluation at this point in time.
• Valuations relatively undemanding
Maybank may be starting to look a little attractive as its share price has been on the slide in recent weeks amid growing concerns of weakening earnings and more impairment charges for its recent overseas purchases. For immediate exposure to the sector however, we suggest Bumiputra- Commerce Holdings and AMMB Holdings as we believe concerns over significant weakening of earnings from non-interest income for appear to have more than priced-in. NPL ratios, while expected to rise slightly in the coming months, will not severely impact earnings as asset quality has improved much in recent years. We continue to maintain our NEUTRAL stance on the sector until we see consistent signs of strengthening banking statistics to match our optimism on the sector.

SHIVERS DOWN THE SPINE
The United States’ once-biggest bank by market value, Citgroup Inc, saw 60% of its market capitalization wiped out in a week amid concerns of rising customer defaults in a weakening economy. Sentiment certainly wasn’t helped by the fact that the Group announced its intention to lay off 52,000 employees worldwide, and wind down seven off-the-books investment funds after failing to save it. It is now widely speculated that the federal government will step in to aid the ailing institution, which has USD2tn in assets, far dwarfing the American International Group Inc which had previously gotten support from the government. The Group, once valued at USD274bn at the end of 2006 is now worth barely USD21bn as at last Friday’s close.
In another piece of global news which highlights the extent and reach of the global financial crisis, even the oil-rich Middle East has not been spared. Dubai’s two largest mortgage lenders, Amlak Finance PJSC and Tamweel PJSC will be taken over by a governmentowned bank (Real Estate Bank) as the global financial crisis has squeezed their access to credit and slowed the regional property market.
In Kuwait, the government is taking steps to recapitalize Gulf Bank KSC after the lender reported 375mn dinars (USD1.4bn) of losses in derivative trading.

ONLY ONE MAJOR SHAREHOLDER ACTIVE IN THE MARKET LAST WEEK
The Employees Provident Fund (EPF) was the only major shareholder active in the market last week, snapping up stocks in most of its banking shareholdings as share prices continued to slide. With the exception of Hong Leong Bank, all other banking stocks under coverage lost market capitalization last week. Bumiputra-Commerce continued on its share buy-back, and now holds 50.013m shares in treasury.

BANKING NEWSFLOWS
• AMMB Holdings announced the incorporation of AMAB Holdings during the week, which will function as the insurance holding company of AmAssurrance Berhad (the Group’s life insurance business) and AmG Insurance Berhad (the Group’s general insurance business). Related to this restructuring, the Group also announced that IAG International Pty Ltd, AMMB’s strategic partner in the present composite insurance business since 2006, will acquire an additional 19% equity interest to increase its stake in AmG from 30% to 49% and subsequently exit the life insurance business of the Group by selling to AMMB its 30% stake in AmAssurance. This will then pave the way for AMMB to enter into a separate strategic partnership in its life insurance business, of which it has identified Friends Provident plc subject to relevant regulatory approvals.
• Affin Holdings announced that it was not proceeding with a JV between whollyowned Affin Fund Management Berhad and Asia Equity Partners Sdn Bhd due to challenging financial market conditions.

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