UOB Beats Forecasts With Second-Quarter Profit Of $585m

Source : The Straits Times, Aug 08, 2007

STRONG loans growth and sales of wealth management products helped to drive second-quarter net profit at United Overseas Bank (UOB) to a higher-thanexpected $585 million.

The result compares with the $1.13 billion net profit posted for the three months ended June 30 last year, when massive one-off gains from the sale of assets boosted the bottom line. Excluding those gains, UOB's net profit would be up 32 per cent this year.

Its performance trumped the average forecast of $528 million by four analysts in a Reuters poll.

UOB declared a special dividend of 15 cents per share and an interim dividend of 20 cents a share.

The robust result and the bank's reassurance yesterday that its exposure to collateralised debt obligations (CDOs) was 'immaterial', prompted investors to push the counter up 30 cents to close at $20. CDOs are instruments backed by loans and asset-backed bonds.

UOB released its results at lunch time.

Half-year net profits were at $1.1 billion, down 30 per cent from $1.57 billion a year ago. Earnings per share rose 26 per cent to $1.42. Net asset value per share rose 4.5 per cent to $10.95 at the end of June.

Against the current backdrop of 'uncertain times' and 'volatile markets', UOB deputy chairman and chief executive Wee Ee Cheong noted at a press conference yesterday that the bank is diversifying its regional portfolio and sources of income.

The bank saw particularly strong growth in non-interest income, which rose 73 per cent to $536 million during the quarter. This segment comprised 39 per cent of total income in the first half of this year.

A star performer in the fee income pool was UOB's fund management business, which rose 136 per cent in the second-quarter to $99 million, and climbed 77 per cent in the first half.

Mr Terence Ong, UOB's senior executive vice-president for global markets and investment management, noted that UOB Asset Management makes fees of less than $20 million from managing portfolios of CDOs each year.

Mr Ong said fee income from UOB Asset Management may see a decline going forward, due to shrinking risk appetite among investors for CDOs amid concerns about these securities. 'It is a temporary setback but there will not be a very big impact on UOB Asset Management's profit and loss.'

UOB has made cumulative provisions of $34 million for its exposure to the CDO market as at the end of last month. It made $20 million of provisions last year, and the rest in previous years.

During the quarter, net interest income rose 13.4 per cent to $761 million. Loans totalled $82.5 billion at the end of June, up 17.5 per cent from a year ago.

UOB's impairment charges more than doubled to $81 million. About half was due to a drop in value of its Thai and Malaysian operations, while the remainder was a result of the lower value of the investment portfolio of its life insurance business UOB Life.