Banking Weekly Review : 5th – 11th January 2009

January 14, 2009 at 1:50 am Leave a comment

• Hong Leong Bank goes offshore
Hong Leong Bank (HLB), during the week, made the announcement that the State Bank of Vietnam had granted it a license to incorporate and operate a 100% wholly owned commercial bank in the country. HLB is required to commence operations within 12 months from the date of the issuance of the license. The banking group joins a growing line of domestic institutions widening their earnings bases by going overseas in the last 12 months.
• Big increase in shareholdings of Affin Holdings by LTAT
Share prices of banking stocks under coverage strenghtened during the month, even as the likes of EPF, PNB and LTAT eased off on their increaeses in shareholdings as compared to November. Bumiputra-Commerce was the only institution engaging in share buy-backs during the month as Hong Leong and Public Bank remained on the sidelines.
• Morgan Stanley and Citigroup to merge broking units
It was recntly reported that a merger of the two financial giant’s broking units is on the cards, which will make it the largest financial adviser to individuals, overtaking Bank of America after its recent purchase of Merrill Lynch. Citigroup had for some time now been under pressure to monetize some of its more valuable assets, as its Smith Barney franchise is certainly one for those. The deal may cost MS up to USD3bn, according to reports.
• Valuations relatively undemanding
While we don’t think we’re out of the woods altogether with this current economic 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. We continue to be positive on the prospects of Bumiputra-Commerce Holdings despite its recent run-up in share price, and expect strong recoveries when market conditions improve. Maybank’s overhang right now are the potential impairments on its overseas acquistions and continue to concern us, despite its current weak share price.
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.

HONG LEONG BANK GOES OFFSHORE
Hong Leong Bank (HLB), during the week, made the announcement that the State Bank of Vietnam had granted it a license to incorporate and operate a 100% wholly owned commercial bank in the country. HLB is required to commence operations within 12 months from the date of the issuance of the license. The banking group joins a growing line of domestic institutions widening their earnings bases by going overseas in the last 12 months.
With a young and growing population of over 86 million people and its gradual shift away from being an agrarian-based to a market economy, the country holds much promise for longer-term rewards. We have already seen other property and construction giants like Gamuda, SP Setia and Berjaya Land making forays into the country over the last 2 years, and more recently Maybank purchasing a 20% stake in An Binh Bank.
Purchasing power is still poor however, at only USD726 per capita at the market exchange rate, and gestation period may be long before any real rewards are seen.

BIG SHAREHOLDING INCREASE IN AFFIN HOLDINGS
Lembaga Tabung Angkatan Tentera (LTAT) increased its equity stake in Affin Holdings by making a huge puchase of 10.3m shares on the final day of the 2008, as reported by its filing to Bursa during the week. Elsewhere, the Employees Provident Fund continued on its consistent and weekly accumuluation of banking stocks. Share buy-back activity was nonexistent during the week. Share prices, meanwhile, had a decent run during the week with Bumiputra-Commerce registering the strongest gain of 12.9% for the week.

BANKING NEWSFLOWS FOR THE WEEK
• Bank of America (BOA) and Li Ka Shing raised USD2.83bn and USD524mn last week by selling their respective equity stakes in China Construction Bank and Bank of China. BOA, while registering a gain of USD1.1bn on the stake sale, still owns 16.6% of the Beijing-controlled lender. It is not clear as to whether Li registered gains on his stake sale or not.
• The Association of Banks in Malaysia, during the week, refuted claims that companies were finding it difficult to obtain credit. Its chairman said that there was no evidence from member banks of any unusual increase in loan application rejections last year, and added that there was ample liquidity in the system and banks’ ability to lend remains undiminished.
• Morgan Stanley (MS) may pay Citigroup Inc (Citi) as much as USD3bn for control of a venture that would combine their brokerage units and overtake Bank of America as the largest financial adviser to individuals. The deal, should it materialize, will see MS getting 51% of the new company and an option to acquire the rest over 3-5 years and recurring fee revenue and more potential banking customers while Citi would get cash for its Smith Barney brokerage.
• Robert Rubin, the former Treasury Secretary who advised Citigroup Inc as it lost USD20bn in the sub-prime mortgage crisis, resigned his position as senior counselor and won’t stand for re-election to the Board. He was widely criticized for collecting USD150mn in pay in a decade while failing to steer the Group away from sub-prime securities, but in turn leading it to 4 straight quarterly losses and receiving USD20bn in government investment in addition to an earlier USD25bn injection and a government guarantee on USD306bn in troubled assets.

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