SINGAPORE : Shares of DBS Group, the largest lender in Southeast Asia, remained under pressure Wednesday on investors' concerns over its exposure to the troubled US sub-prime mortgage market, dealers said. At the close, DBS was off 1.5 percent or 30 cents at S$19.50 while the main Straits Times Index was 0.25 percent lower, or 8.34 points, at 3,334.66.
DBS announced Monday its exposure to collateralised debt obligations (CDOs) almost doubled to S$2.4 billion because the bank had to inject funds into an asset-backed commercial paper conduit following recent market volatility.
CDOs are securities backed by a range of assets including bonds, loans and their derivatives, including corporate loans, high-grade mortgages, sub-prime mortgages, car loans and credit card debt.
Losses from them are not likely to be realised unless the banks encounter defaults or are forced to sell the debt securities before maturity.
The Singapore bank said Monday it had "minimal exposure" to the troubled US mortgage market despite almost doubling its CDOs to S$2.4 billion.
"DBS has one of the strongest capital positions of banks operating in Asia and we have minimal exposure to the US sub-prime mortgage market," said group chief financial officer Jeanette Wong.
Most analysts were confident the CDO exposure would have limited impact on DBS's earnings although US investment bank Goldman Sachs downgraded its rating on the lender from "buy" to "neutral".
"It's so insignificant really when you look at it. It's going to have a negligible effect," David Lum, a banking analyst with Daiwa Institute of Research, told AFP.
He is still maintaining an "outperform" rating on DBS even after the Monday announcement.
Goldman Sachs, which downgraded its rating, said there were "no visible near-term catalysts to mitigate its (DBS') CDO exposure overhang".
"While we believe DBS' strong fundamentals remain largely intact and recent share price correction a tad overdone, (the) CDO/US sub-prime problem will likely be a slow motion, long-tailed headwind with worse-than-expected ultimate losses, in our view," it said.
Merrill Lynch, which has a "buy" recommendation on DBS, said the CDOs will "have a moderate impact" on the bank's profits.
"Therefore, the drop in DBS's market value of several times its gross CDO exposure exaggerates the likely damage to its long-term earnings power or capital ratios," it said.
Global markets have taken a beating in recent weeks due to concern about the US sub-prime mortgage market, in which housing loans were extended to borrowers with patchy pasts who are now defaulting.
The market woes have triggered fears of a global liquidity crunch as exposed investors scramble to cover their losses. - AFP/ch
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