Strong Profits For UOB

Source : Today, Wednesday , August 8, 2007

Bank moves to allay concerns over its exposure to CDOs

UNITED Overseas Bank (UOB) returned a strong $1.1-billion net profit for the first half of this year. Excluding a one-time gain of $689 million in the same period a year earlier, this is a 25-per-cent increase from $882 million.

Interest income rose 15 per cent to $1.5 billion compared to the first half of last year. Non-interest income from foreign exchange securities also surged 46.6 per cent to $968 million.

“We remain positive about the region’s prospects despite shortterm uncertainties,”said Mr Wee Ee Cheong (picture), chief executive officer of UOB. “I am particularly heartened by the strong growth in our non-interest income.”

Mr Wee added: “We will continue to build capabilities on that front.”

CLSA analyst Thilan Wickramasinghe said: “I’m glad to see this sort of growth.” “On the interest income side you aren’t going to get this sort of margin improvement.”

While the bank returned better-than-expected results, its shares had been hit by problems over the US sub-prime mortgage market.

The bank clarified yesterday that it does not have direct exposure to US sub-prime mortgages. UOB’s investments in collaterised debt obligations (CDOs) stand at $392 million, of which $301 million is in higher-rated corporate CDOs.

The remaining $91 million are exposed to high-grade asset-backed securities (ABS) CDOs.

UOB said it does not own any riskier mezzanine ABS CDOs in its portfolio, nor were there any downgrades in its investments.

UOB explained that since 2004, it had been liquidating its exposure to CDOs, paring it down from $580 million to current levels. The bank made a $34-million impairment charge for its CDO investments as of end-June, and an unrealised loss at current prices of $15 million is expected as of end-July this year.

Bank shares were roiled recently by concerns over their exposure to these risky products, and banks have been disclosing their holdings in a bid to allay those ears.

UOB shares gained 30 cents, or 1.5 per cent, to close at $20 yesterday