SGX Checks DBS’ CDO Exposure

Source : Weekend TODAY, August 25, 2007

The failure to provide full and complete disclosure has raised a black mark ...— CLSA, in a research note

THE Singapore Exchange (SGX) is looking into DBS Group Holdings’ previously-underreported exposure to collateralised debt obligations (CDO), which repackage bonds, loans and credit-default swaps and use the income to pay investors.

The bank has $2.4 billion worth of exposure to CDOs, which is more than the $1.3 billion exposure it had initially disclosed on Aug 7 in the wake of the United States sub-prime mortgage meltdown.

This came to light on Aug 22 in a research note by brokerage firm, CLSA, followed by DBS’ confirmation of the figures to the media.

“As a matter of principle, we will look into anything particularly unusual. We will look into anything not consistent with disclosure regulations,” a senior exchange official told Dow Jones Newswires.

CLSA said in its note that DBS can “certainly bear the additional CDO exposure”.

But it added: “The bank’s failure to provide full and complete disclosure has raised a black mark against management transparency and corporate governance.”

The CLSA note said DBS might have more CDO exposure through a special purpose vehicle or conduit.

Shares of DBS fell after confirmation of the additional CDO exposure, closing at $20.30, down 1.5 per cent. The wider Singapore market ended down just 0.04 per cent.

DBS has said previously that it sold $2.6 billion in structured products involving
CDOs to institutional, private banking and retail investors.

In its note, CLSA said that of the $2.6 billion, “$1.1 billion is parked in a DBS conduit”.

To fund these CDOs, the conduit sells commercial paper that is renewable every three months to third parties.

CLSA said that in the event the paper is not renewed, “DBS is obligated to provide liquidity and as a result brings these onto their books.” The note added: “We believe this is a more than likely possibility, given the current market for CDOs.”

When contacted, a DBS spokesman said none of its CDO exposure, including the additional CDOs reported Friday, is linked to US sub-prime mortgages.

“We are comfortable with our exposure to the conduit,” she said, declining to comment further.

Singapore’s two other banks — OCBC and United Overseas Bank — do not have vehicles similar to DBS’, representatives told Dow Jones Newswires. — DOW JONES