UOB Q4 Result

Update: UOB Q4 profit falls 34% as bad debt charges rise

* Worst quarterly results since Q2 2003
* Q4 bad debt charges almost trebled to $381m
* Shares down 1%, reversing earlier gains

SINGAPORE - United Overseas Bank (UOB), Singapore's second-ranked lender, reported a bigger-than-expected 34 per cent drop in fourth-quarter profit as writedowns for bad debts trebled and fees from capital markets fell.

The results, UOB's worst since the second quarter of 2003, reflect the growing risks for Singapore banks' earnings as weakening Asian economies threaten to hurt asset quality, slow loan growth and boost credit costs.

UOB, controlled by chairman Wee Cho Yaw and his family, is considered the leader in Singapore's loan market for small- and medium-sized businesses, which have been hit hardest by a global economic slowdown and a downturn in the property market.

'That was a bit of shocker,' said David Lum, an analyst at Daiwa Institute of Research, referring to the $381 million in writedowns for bad debts. 'Clearly impairments are based on outlook that conditions will continue to deteriorate.'

Related articles: Click here for UOB's news release Click here for Group financial report

UOB chief executive Wee Ee Cheong, the son of the chairman, said the bank is not immune from the impact of the global financial crisis and will be prudent in managing its business.

Net profit for October-December fell to $332 million (US$216 million) from $506 million a year ago. Analysts had estimated, on average, a net profit of $468 million, according to six forecasts compiled by Reuters.

UOB wrote down $381 million in the fourth quarter in bad debt, up from $128 million a year earlier, mainly due to loans that turned sour and on losses on investment securities.

The market had begun to pare down their expectations after DBS Group, Southeast Asia's biggest bank, earlier this month reported a bigger-than-expected 40 per cent drop in quarterly profit, its worst result in three years.

Third-ranked Oversea-Chinese Banking Corp (OCBC) last week posted a 30 per cent drop in quarterly net profit.

UOB said net lending grew 7.7 per cent from a year earlier, slowing from an 18 per cent expansion in the third quarter.

Net interest income rose 29 per cent to $957 million from a year earlier, helped by a jump in net interest margins to 2.45 per cent in the fourth quarter as the global credit crisis jacked up borrowing costs. The margin was 2.21 per cent in the third quarter and 1.94 per cent a year ago.

Non-interest earnings, such as commissions and fees on investment products, fell 27 per cent to $391 million as capital markets tumbled.

UOB shares fell 1 per cent to US$10.26 in afternoon trade after the results, erasing gains of 1.5 per cent at the midday break.

The shares have underperformed its Singapore rivals this year, falling around 20 per cent, more than the 8 per cent decline in the benchmark Straits Times Index. -- REUTERS

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Wilmar International 4Q Financial Result

SINGAPORE - Wilmar International Ltd, the world's largest listed palm oil firm, posted on Friday a 60 per cent rise in fourth quarter net profit due to higher palm oil prices and processing margins.

Wilmar, which owns oil palm plantations and runs milling, crushing, refining and processing plants in Indonesia and Malaysia, earned US$374 million in the October-December quarter, up from US$234 million a year ago.

The figure was higher than analysts' forecast that earnings will come in around US$260 million.

Wilmar's net profit for the full year was US$1.53 billion, beating the average estimate of US$1.42 billion by 11 analysts polled by Thomson Reuters.

'We are cautiously optimistic on our group's prospects,' the firm said in a statement.

'The relative resilience in the demand for staple food commodities together with the strengths of our balance sheet and integrated business model will position us to weather the uncertainties ahead.' -- REUTERS

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Wilmar International

SINGAPORE, Feb 27 (Reuters) - Wilmar International <WLIL.SI>, the world's largest listed palm oil firm, is keen on acquiring assets and has about $1 billion available for mergers and acquisitions, its chief executive officer said on Friday.

Wilmar had about $2.5 billion in cash at the end of December and about $1 billion could be used for buying plantations, ships or food companies, CEO Kuok Khoon Hong told Reuters on the sidelines of the firm's results briefing.

"Dry bulk ships are very cheap now," he said.

Wilmar posted a higher-than-expected 60 percent rise in fourth-quarter net profit earlier on Friday and said it was "cautiously optimistic" about prospects.

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HSBC likes High-grade corp debt in HK,Singapore

HONG KONG, Feb 26 (Reuters) - HSBC Global Asset Management investment unit Halbis said it favours investment grade corporate bonds such those from Singapore and Hong Kong because borrowers in these countries have less refinancing needs.

Halbis likes investment-grade corporate bonds issued by non-cyclical telecommunications and utilities sectors, she said.

China has about $2 trillion in foreign exchange reserves, the largest in the world.

Hong Kong, which has long benefited from its close links with the mainland, would also be in better shape than other export-oriented countries in the region, she said.

Even though the region will suffer from further deterioration, Asian countries remain relatively robust on the back of low external debt levels, healthy government fiscal accounts and comfortable foreign exchange coverage ratios, she said.

"These problems faced by Asian countries can be partly offset by the lowering of inflation pressure and stable current account outlook," Chan said.

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Hopes of Quick Rebound in China Strat to Fade

Hopes of Quick Rebound in China Start to Fade

Despite an Increase in Bank Lending, Steel Prices Fall, Demand for Exports Shrinks and Consumers Buy Fewer Foreign Goods

By ANDREW BATSON

BEIJING -- Hopes for an early recovery in China's economy are starting to unravel, undercutting the optimism that has helped to make the country's stock market the world's best performer this year.

Getty Images

A worker carries bottled gas past a ship in China. Despite more credit for industries such as shipbuilding, an early rebound is unlikely.

In recent weeks, some companies and investors had seized on a surge in bank lending and an upturn in steel prices -- a key indicator in China's industry-heavy economy -- as signs that a massive government stimulus program was already taking hold.

But now steel prices are falling again, and closer examination of the recent bank data suggests that many of the loans won't immediately fuel economic growth. Meanwhile, trade has continued to contract, as demand for Chinese exports from the U.S. and Europe wanes, and Chinese companies and consumers, in turn, buy fewer foreign goods.

The upshot is that a real pickup in China's economy could still be several months away, or longer. That's bad news for a global economy in which China is the only major power still growing.

"It would be a mistake to think that China could decouple from the rest of the world, or carry the rest of the world on its shoulders," said Bruce Kasman, chief economist for J.P. Morgan. "A sustained recovery in China is dependent on better news globally."

China's government has put about 230 billion yuan ($34 billion) into stimulus projects so far, with more to come. Many economists think it will take time for that jolt to work its way through the economy, and don't expect major effects to show up until around the second half of this year.

Local companies, more optimistic about the stimulus package, began bidding up steel prices and freight rates in December. Investors did the same with Chinese stocks: The benchmark Shanghai Composite Index at one point this month was up 30% for the year, though it has come down a bit since.

By the beginning of February, steel prices had gained about 15% from November lows. China is the world's largest consumer of the metal, and the run-up in prices got a lot of attention.

But much of that steel was stockpiled, rather than immediately used in factories or construction sites.

Inventories of some steel products rose more than 30% in January from December, the China Iron & Steel Association said in a report last week.

"Recent additions to inventories by dealers and users have led to a rebound in steel market prices ... [but] the steady increase in inventories will affect the stable operation of the steel market later on," it said.

The anticipated demand hasn't yet materialized, and those inventories are weighing on the market.

Average steel prices dropped 6.3% last week, after falling 3.2% the week before, according to Mysteel, a Shanghai-based research firm.

Getting a solid read on the Chinese economy has been particularly difficult in recent weeks because the weeklong Lunar New Year holiday fell earlier this year than in 2007, distorting annual comparisons of key indicators in January.

Other data reinforce the sense that economic activity has yet to revive. Industrial output in the business hub of Shanghai fell 12.7% from a year earlier in January -- even after adjusting for the holiday. Nationwide, industrial statistics haven't yet been published for January.

Also, imports nationwide fell 43.1% in January from a year earlier -- a drop that, allowing for the holiday impact, suggests slowing demand in China.

"Domestic demand for imports is still very weak, as the housing-construction slump continues, and the fiscal stimulus-induced investment demand has yet to come through," said UBS economist Wang Tao.

The huge expansion in lending in January -- banks made 1.62 trillion yuan in new loans, twice as much as last year -- was widely seen as a positive sign.

Associated Press

College students wait to enter at a job fair in Wuhan, in central China's Hubei province, Feb. 20, 2009. The once ravenous international appetite for Chinese-made goods is shrinking, leading to increased unemployment in the country.

But other data on deposits suggest companies are hoarding their cash rather than spending it, so those loans may not be immediately fueling economic growth.

Further doubts have been raised by the unusual nature of recent loans. Short-term bills accounted for 42% of new corporate lending in January, or 623.9 billion yuan, three times the already elevated level of November and December, and 10 times October's figure.

Because companies can borrow those bills for a lower interest rate than they earn on deposits, some economists think the surge comes more from financial engineering than actual borrowing.

"Recent monetary and credit data do not reflect real economic demand," said Ha Jiming, chief economist of China International Capital Corp.

Meanwhile, major Chinese port operators are reporting even lower volumes of containers coming through in February than in January, Citigroup analysts Ally Ma and Brian Lam wrote in a report this week.

Based on those data and other indicators, an annual decline of 20% or more in Chinese exports in coming months "seems inevitable," the analysts wrote.

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China Railway (0390.HK)

   STOCKS TO WATCH 
    * China Railway Group Ltd <0390.HK><601390.SS>, the country's 
biggest railway and highway builder, said on Thursday it had won 
contracts worth 22.62 billion yuan ($3.3 billion). 
    The award is among the biggest since the government unveiled 
a 4 trillion yuan ($585 billion) stimulus package, focused on 
infrastructure and social welfare, to prevent an abrupt economic 
slowdown amid a deepening global recession. 
    The combined value of the four contracts is equivalent to 
12.53 percent of 2007 revenue, China Railway said in a statement 
filed with the Shanghai Stock Exchange. 

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Citigroup Chafes Under U.S. Overseers

By MONICA LANGLEY and DAVID ENRICH

In a recent phone call with a senior government official, Citigroup Inc. Chief Executive Vikram Pandit revealed who's on top in the new world of American finance.

"Don't give up on us," Mr. Pandit said, pleading with the official not to push out top management. "Give us a chance to execute."

Mr. Pandit is on the verge of ceding yet more control to the government. Citigroup is in talks with federal officials about the U.S. taking greater ownership of the bank by converting its 7.8% stake of preferred shares to as much as 40% of Citigroup's common stock. Doing so would give the wobbling bank a desperately needed boost to its capital, but less control of its destiny.

Citigroup's request could also heighten political pressure to break up the financial titan, whose 1998 creation helped to dismantle the Depression-era law separating the banking and brokerage industries. For taxpayers, Citigroup's quest carries peril, because holders of common shares have the last claim to repayment in the event of a corporate liquidation.

Interviews with more than 30 banking-industry executives, regulators, government officials and others show that the U.S.-Citigroup relationship, one of the most important products of the American financial-system bailout, is off to a very rocky start.

Citigroup executives are attempting to strike a seemingly impossible balance: Run the business in a way that will please their new federal masters, but also help the bank rebound from $28 billion in losses over the past five quarters.

Former federal officials have dubbed Citigroup the "Death Star," comparing the bank's threat to the financial system with the planet-destroying super weapon in the "Star Wars" movies. Privately, in the words of one official, they regard the banking giant as "unmanageable."

Complicating the issue is the government's back-and-forth between bouts of micromanaging the banking giant and periods of ignoring it. In trying to be neither an active nor a passive investor, the U.S. is directing the business without a firm strategy or particular expertise.

Government and the Citi

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Vikram Pandit, CEO of Citigroup, testifies on the TARP funds before the House Financial Services Committee at the US Capitol in Washington, DC.

Central to the confusion: There's no one individual or entity in charge of the federal oversight of Citigroup.

That's because banks like Citigroup are regulated by a patchwork of agencies including the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. The Treasury Department also has oversight because it's the one that is injecting government capital into the banks. And members of Congress, who initially approved all that money, have their own stake in how things play out. All these interested parties have been handing Citigroup a jumble of sometimes conflicting orders, advice and critiques.

Officials with the Fed, for instance, informed Citigroup executives they have "observer rights" that entitle them to participate in the bank's board meetings. Though the government hasn't joined in so far, the fact that it might has led some Citigroup executives to complain privately that the U.S. now has "unlimited power" over the bank. One person close to the company compared the government's role to the sword of Damocles, an ever-present evil hanging over their heads.

A Citigroup spokeswoman said: "It has always been the case that when regulators ask to make a presentation to our board, we accommodate them."

On Tuesday, Mr. Pandit was in Washington for meetings with federal regulators and other officials, as questions loomed about his future and that of the company's board. Citigroup bankers sought to calm nervous clients this week. Some are worried about losing business during the uncertainty.

The federal government's new role in American finance has been staggering. In the past six months, the U.S. has injected nearly $200 billion into 419 banking institutions; guaranteed at least $420 billion in potential losses at multiple banks; directed several financial firms to merge; and has outlined plans to buy hundreds of billions of dollars in bad mortgages and other bad assets from banks. The U.S. also has agreed to prop up the commercial-paper market by buying more than $1 trillion of companies' short-term debt.

Overhaul of Bailout

Besides the Citigroup move, the government's latest to-do list includes an overhaul of its $150 billion bailout of American International Group Inc. Starting this week, banking regulators will conduct "stress tests" to gauge the health of the nation's top 20 banks. And in the coming weeks, the government plans to orchestrate a restructuring of the nation's auto industry, after loaning a total of $17.4 billion to General Motors Corp. and Chrysler LLC, both of which are now seeking billions more.

Citigroup's bid for yet more help is sure to complicate a partnership already strained by miscommunications and missteps. Since the government shored up the embattled bank with fresh capital over the past few months, it has issued some broad directives: ordering Citigroup to sell assets to raise money and curtail risky investments, urging a reshuffle of its board, and warning that if it needs more taxpayer money, management may be booted.

But even as the government has ensured Citigroup's survival for now, bank executives say they have been left to read tea leaves about how to implement federal directives.

U.S. officials say Citigroup's problems are wide-ranging, presenting issues for various governmental agencies -- all of which are also engaged in handling problems involving other banks and the economy. Some officials say they have given Citigroup executives broad outlines of what they'd like the company to do. They say thus far it's not been the government's position to give Citigroup a specific playbook about how to put directives in place. The current talks for federal assistance, however, could result in more direct orders on how Citigroup should proceed.

Regarding the government's relationship with Citigroup, a company spokeswoman said in a statement: "We maintain constant and open communication with all of our regulators."

In recent weeks, Citigroup executives have reached out to various government officials for guidance -- with little to show for their effort. Last week, Mr. Pandit met with Lawrence Summers, the government's chief economic adviser, in the White House's West Wing. Mr. Summers made clear that he wouldn't discuss Citigroup specifically, and Mr. Pandit emerged from the meeting with no better idea of where the Obama administration stands in managing ties with the big bank.

Amid the anxiety, Edward Kelly, a senior investment banker and one of Mr. Pandit's closest confidants, used his personal misfortune to ease tension within Citigroup. After a trying visit to Washington to brief regulators, Mr. Kelly returned to his Baltimore home tired -- and soon woke up to a screeching smoke alarm. Finding flames in his home office and working to halt the fire from spreading, Mr. Kelly burned his right hand and arm so badly that doctors kept him home for several days to prevent infection.

In a flurry of phone calls while he was home recuperating, Mr. Kelly joked to colleagues that he was putting out fires at both his home and his company.

Spotty Communications

Communications from government officials, meanwhile, have been spotty. Friday afternoon, after the bank's shares had closed the week at an 18-year low of $1.95, top executives reached out to the Office of the Comptroller of the Currency and the New York Fed. They wanted to discuss Citigroup's proposal to substantially enlarge the government's ownership stake. The conversations were constructive, but they couldn't progress much until they heard from Treasury, the government arm that had invested in Citigroup's preferred stock and therefore would need to bless converting that stake into common shares.

Through the weekend, Citigroup didn't hear from Treasury officials. Then on Sunday evening, Mr. Pandit's phone rang. It was Treasury Secretary Timothy Geithner, calling with a message: "I think we just need to do something." Mr. Geithner was short on specifics, but said he was ready to entertain Citigroup's idea of converting a big chunk of the government's preferred stock into common shares.

The government's ongoing pressure to slim down the company has forced Citigroup executives to consider a range of unwanted options. They agreed in January to spin off the Smith Barney brokerage unit into a joint venture with Morgan Stanley after insisting for years that they wouldn't part with the business. The bank has also split itself into two parts, with the goal of selling additional assets and businesses.

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Baltimore Business Journal

Citigroup investment banker Edward Kelly

Executives are now wrestling with the possibility of shedding the company's lucrative Banamex consumer-banking unit in Mexico, even as Citigroup officially insists that is unlikely to happen. Following his meeting with Mr. Summers last week, Mr. Pandit flew to Mexico City, trying to calm Banamex employees who were convinced that the U.S. government would force Citigroup to sell the business.

Citigroup's every move is now under the public microscope. In late January, as news was about to break about Citigroup's plans to buy a $42 million corporate jet, Mr. Pandit huddled with Citigroup executives in the firm's Manhattan headquarters. Mr. Pandit suggested the company simply cancel the order to minimize the bad publicity.

Lewis Kaden, a Citigroup vice chairman, resisted, arguing that the company needed to carefully word any public statement about the jet in order to avoid a fee from the plane's manufacturer. An internal debate ensued over how best to handle the matter, and the lack of a resolution transformed it into a politically potent multiday news story.

Federal officials were apoplectic. President Barack Obama branded Citigroup's plans to buy the plane "outrageous." Treasury officials phoned Citigroup executives and pressured them to scrap the order, which they did.

The tongue-lashing didn't stop there. Mr. Pandit received an earful from Rep. Nydia Velazquez (D., N.Y.). At a meeting in her Manhattan office, Rep. Velazquez scolded Mr. Pandit for not canceling the jet order sooner and suggested that he fire the Citigroup public-relations team for "bungling" the situation. Rep. Velazquez couldn't be reached for comment.

Sen. Charles Schumer (D., N.Y.) also met with Mr. Pandit after the plane debacle. "The dynamics are changing," he told Mr. Pandit. "Brace yourself for more accountability and stricter oversight. No more big executive pay, no more frills."

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Bloomberg News

Treasury Secretary Timothy Geithner

The scrutiny has Citigroup executives second-guessing everything, right down to the fresh-baked cookies offered at a recent corporate retreat in Armonk, N.Y. Seated in plush chairs around a three-story stone fireplace, some attendees wondered aloud if the cookies themselves might be portrayed as a frivolous use of taxpayer money.

In the wake of the airplane flap, federal regulators have begun demanding more detailed information from Citigroup about corporate expenses and individual departments' operating budgets. The government is specifically requesting information about expenses for any lavish parties or other corporate events.

The detailed nature of such requests startled some Citigroup executives, who weren't expecting to fork over such granular information. The company has responded by preemptively canceling several events, including a private-investor conference in Miami slated for April, where hotel rooms for hundreds of people were already reserved. A few groups of Citigroup bankers had planned to take top clients on ski trips in the Rocky Mountains; those plans were shelved. At the Inter-American Development Bank's annual conference, scheduled for March in Colombia, Citigroup won't be hosting its normal after-hours parties.

Citigroup officials are learning the hard way to play politics. Anticipating the political storm he would incite by flying to the nation's capital by private plane, Mr. Pandit now hops on commercial shuttle flights for the frequent trips to Washington. Other executives travel by Amtrak train.

Amid pressure to shake up its board, Citigroup initially suggested it would begin making director changes at the April shareholder meeting. The Fed rejected that, pushing lead director Richard Parsons to act sooner. The Fed has also frowned upon some potential nominees that Citigroup has informally pitched to the agency, saying Washington would prefer "tough-minded independent thinkers."

Though the company has lined up director candidates that it wants the Fed to approve, the candidates haven't agreed to the posts, waiting to see what happens to Citigroup's management, operations and future.

Citigroup's guessing game also extended to congressional hearings held earlier this month. Legislators pounded Mr. Pandit and other bank executives for putting their institutions in jeopardy. As Mr. Pandit prepared for the hearings, some Citigroup executives urged him to make two concessions: apologizing for the corporate-jet fiasco and agreeing not to get paid until Citigroup returns to profitability. Others argued that such conciliatory gestures would validate unfair criticisms of the company. Mr. Pandit ultimately made both concessions at the hearing.

Thawing Markets

Meantime, Citigroup has to stop the financial bleeding. Mr. Pandit last month told senior executives that the first quarter is essentially do-or-die: Citigroup needs to turn a profit to persuade the government and investors that it's viable.

Last week, Citigroup officials privately told regulators it had a profitable January. Credit and stock markets thawed that month, benefiting banks across the industry. "We've got to prove that our core business can make money," Mr. Pandit recently told top aides.

With the economy in a tailspin, some executives privately voiced skepticism that Mr. Pandit's goal of a profitable first quarter would be attainable. The Fed recently barred Citigroup from making acquisitions and reinforced restrictions on the bank's use of capital.

In a recent meeting with investment bankers, Citigroup's investment-banking chief, John Havens, was pushing his deputies to further streamline operations in order to reduce costs. One executive asked whether the changes needed to be made quickly. The question "is typical Citi," Mr. Havens replied, suggesting that decisions at the company take too long, according to a person at the meeting. "That's why Geithner is so intolerant with us these days," Mr. Havens told the bankers.

Now, gallows humor is setting in. This week, some employees noted that they always thought that working for Citigroup -- with its unwieldy bureaucracy and clashing fiefdoms -- was like working for the government anyway.

Write to Monica Langley at monica.langley@wsj.com and David Enrich at david.enrich@wsj.com

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