Banking Weekly Review: 15th – 21st December 2008

December 23, 2008 at 2:07 am Leave a comment

· When it rains, it pours
Financial institutions around the world, already reeling from the worst meltdown in recent decades were slapped with another shocker when it was recently discovered that hedge fund trader and one-time Nasdaq chairman Bernard Madoff had lost about USD50bn of investors’ funds in a fraud that had been running for more than a decade. Financial institutions are still
counting the costs of their exposures to the scheme.
· Hong Leong Bank raises funds for investments
Hong Leong Bank announced its intention to raise up to RM1.1bn in nominal value unsecured and unsubordinated bonds to subscribe for foreign currency denominated principal protected investments through its subsidiaries. The tenure of the bonds will be 4 years from the date of
issuance. No details have been released as to which foreign currencies it plans to invest these funds in, nor the type of instruments for us to make further comments on this. We will however monitor this with keenness.
· Valuations undemanding
While we continue to maintain our NEUTRAL stance on the sector as a whole, we are positive on the propsects of and expect stronger recoveries in the share prices of AMMB Holdings and BCHB Holdings when market conditions improve.
While we don’t think we’re out of the woods altogether with this current ecomomic and financial climate and do expect another interest rate cut and a slight rise in loan delinquencies and thereby impacting earnings of most financial institutions, we are still positive on the prospects of AMMB desipte its recent share price recovery, which is more a result of its deep
undervaluation vis-à-vis its peers we believe. Maybank’s potential impairments on its overseas acquistions continue to concern us, despite its current weak share price. For the more risk averse, Public Bank will continue to remain a solid investment into strength, despite its investment risk-rewards leaving slightly lesser scope for upsides as compared to the rest. Its attractive dividend yields adds to the strong investment merits in the stock. The same can be
said about Hong Leong Bank.

WHEN IT RAINS, IT POURS

With financial institutions around the world already reeling from close to RM1tn in losses and/or write-offs as a result of the sub-prime led meltdown, recent revelation of a longrunning fraud to the tune of RM50bn served as another dampener to the already fragile state of affairs in the global financial system. The scheme led by one-time Nasdaq chairman and now-disgraced hedge fund manager Bernard Madoff which had been giving out “too good to be true” average annual returns of 11% over the last 15 years came to head when investors started seeking the returns of their invested funds, only to be told there was none. The mess has been far reaching, spanning from the United States across Europe and into Asia, with governments and financial institutions still counting the costs of their respective exposures. The following are just some of the estimated losses that these respective financial institutions will or have incurred, with more to be revealed in the coming weeks for sure.

PNB AND LTAT JOINS THE FRAY THIS WEEK

PNB and LTAT were back in the fray last week, accumulating shares in Maybank and Affin Holdings respectively, joining EPF which had been steadily accumulating shares in financial institutions over the last few weeks. AMMB continued to perform admirably in terms of share price movement, recovering another 5.2% after last week’s 8.5% to close the week at RM2.43. Public Bank also performed added on another 4.2% for the week to close at RM8.60. Share prices of most other banking stocks under coverage showed little or no movement.

BANKING NEWSFLOWS

· Friends Provident PLC is determined to turn AmLife Insurance Berhad, AMMB Holding’s life insurance unit into the biggest and most successful player in the market by “throwing its weight” behind the company and lending its strength in product development, marketing and customer service. The Takaful market is another area it plans to explore, with global market contributions expected to grow by 15-20% per annum to USD7.4bn (RM26.5bn) by 2015.
· Hong Leong Bank announced its intention to raise up to RM1.1bn in nominal value unsecured and unsubordinated bonds to subscribe for foreign currency denominated principal protected investments through its subsidiaries. The tenure of the bonds will be 4 years from the date of issuance.
· Bumiputra Commerce Holdings will rename BankThai PLC and appoint a new chief executive officer after completing a mandatory offer to purchase shares it does not already own in the bank by next month. The bank’s integration into the Group, and transformation is expected to take 3 years. The total acquisition cost is expected to be as much as 20bn baht (RM2bn), including a capital injection of about 6bn baht (RM600mn). The bank is also expected to record a net loss this year after it wrote down all its investments in collateralized debt obligations, and may start to make operational profits next year.
· Macquarie Group Ltd, Australia’s largest investment bank raised USD1.2bn in capital during the week by selling government-guaranteed bonds. This comes fresh on the back of Wetpac, ANZ and Commonwealth Bank’s capital raising exercise the week before.
· Citigroup Inc. opened its first rural lender in China’s Hubei province and is looking at launching more. Hubei Jingzhou Gong’an Citi Lending Co will rely on the New York-based bank for capital as it does not take deposits.

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