UNITED Overseas Bank (UOB) reported a net profit of $501 million for the third quarter, an 8.2-per-cent increase from the previous year’s $463 million. But compared to the second quarter, its profit after tax was down 14.3 per cent.
The bank cited “lower trading and investment income resulting from mark-to-market losses from widening credit spreads triggered by the US sub-prime crisis”.
Its net profit after tax in the nine months ended Sept 30 was $1,603 million, up 19.2 per cent from the $1,345 million in the previous year’s corresponding nine months.
As with DBS Group Holdings, none of the $388 million collaterised debt obligations (CDOs) in UOB’s portfolio were in default. But it made a $20-million provision in the third quarter for the CDOs, bringing total provisions to $55 million. Another $46-million provision was made for mark-to-market losses taken to the bank’s reserves, UOB said.
Banks’ exposures to CDOs have been in the spotlight ever since the United States subprime housing mortgage crisis emerged in the second quarter, creating turmoil in global financial markets. Some bonds, including CDOs, are backed by those risky, high-yielding assets.
DBS, the first bank to issue its third-quarter report, recognised $112 million in CDO related provisions and losses. That figure included a $70-million “prudential reserve” against the $275-million CDOs with exposure to US sub-prime assets.
UOB Group’s deputy chairman and chief executive officer Wee Ee Cheong said: “We are pleased with the results achieved. Despite uncertainties in the financial market, our core business remains strong.”
He said that the impact of the credit volatility on UOB’s core business had been minimal, aided by its diversified portfolio in both business and geographical terms.
Mr Wee said the group “will ride out this uncertain period and continue to focus on our core business. We continue to maintain a strong liquidity and capital position so that we have flexibility to scale up for further expansion, particularly in the region where we have been building our capability.”
Net interest income was $714 million, up 4.4 per cent from last year’s $684 million.
Net interest margin slipped to 1.93 per cent from 1.97 per cent a year earlier and 2.04 per cent in the second quarter.
Though up from the year earlier’s $337 million, non-interest income — at $393 million in the third quarter — was down sharply from the second quarter’s $536 million.
Daiwa Institute of Research analyst David Lum said “there was no surprise for the charges it took for sub-prime and CDOs” but interest income was weaker than expected.
UOB shares resumed trading in the afternoon, after the release of the results at midday. At the close, they fell 50 cents, or 2.3 per cent, to $21.50
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