JPMorgan Warns Of More Write-Downs For Local Banks

Source : The Straits Times, Nov 7, 2007

'IT AIN'T over yet,' JPMorgan's banking analysts have warned.

In a research note bearing this gloomy title, Mr Harsh Modi and Mr Sunil Garg anticipate that Singapore's three local banks will have to make further provisions for the plummeting value of their debt instruments in the coming months.

These instruments - collateralised debt obligations (CDOs) - are packaged from sub-prime mortgages in the United States.

Mr Modi and Mr Garg said prices of asset-backed securities linked to CDOs have slumped by about 50 per cent since Sept 30.

More gains by the Singdollar may add to losses by local banks from US dollar-denominated CDOs. That means more losses in the fourth quarter and beyond, they said.

'Among the three banks, we expect maximum impact for DBS, as its size of exposure is the largest at $2.36 billion.'

They expect DBS, which has made provisions of $85 million as at Sept 30, to make further mark-to-market losses of $116 million in the fourth quarter.

United Overseas Bank is expected to be least affected. It may take a further $10 million provision on top of $55 million it already reported.

But OCBC Bank, which yesterday announced an allowance worth $221 million against its CDO exposure of $270 million, far surpassed JPMorgan's expectations.

The analysts calculated that OCBC's total provisions would be about $166 million - $67 million in the fourth quarter.

OCBC's aggressive write-downs are prudent, given recent downgrades by rating agencies on the quality of CDOs, said Mr George Koh, a Cazenove analyst, in a note yesterday.