DBS Group 4th-Quarter Net Falls on Mortgage Charges (Update1)

By Jean Chua


Feb. 15 (Bloomberg) -- DBS Group Holdings Ltd., Southeast Asia's largest bank, said fourth-quarter profit fell 18 percent after it wrote down investments linked to U.S. subprime mortgages.

Net income fell to S$491 million ($346 million) in the three months ended Dec. 31, from S$596 million a year earlier, the Singapore bank said in a statement to the stock exchange today. That higher than the S$435.5 million median estimate of eight analysts Bloomberg News surveyed.

Singapore lowered its 2008 economic growth forecast yesterday and said the city-state risks falling into a recession, posing a challenge for Richard Stanley, the Citigroup Inc. executive who takes the helm in May. DBS said it has now provided for 90 percent of S$267 million in investments linked to the subprime market.

``There will be a slowdown, that's inevitable,'' said Anand Pathmakanthan, analyst at Nomura Securities in Kuala Lumpur. ``The next question for DBS is where are they going to grow, that's really going to be Stanley's job.''

Stanley, 47, Citigroup's top banker in China, was hired by the Singapore bank for his expertise in emerging markets. DBS is seeking to expand in China, either by setting up new branches or through acquisitions.

DBS is setting aside funds for losses in collateralized debt obligations, joining global banks that have written down $146 billion amid the U.S. mortgage market collapse. The bank had a S$170 million ``allowance'' in the fourth quarter for CDOs affected by the U.S. mortgage market collapse. That's almost two- thirds of its CDO portfolio linked to the subprime market.

CDO Writedowns

DBS also took an additional S$30 million allowance for the remaining S$944 million of CDO investments.

``There's nothing you can do about provisions,'' Pathmakanthan said. ``That's done. The real issue is the future of the franchise.''

DBS's net interest income, or interest revenue from borrowers after interest paid to depositors, climbed 14 percent to S$1.06 billion from S$932 million, it said in the statement. Analysts expect loans growth to slow with the risk of a recession.

``I think there's going to be less credit demand, especially from export-oriented companies,'' said Thilan Wickramasinghe, a banking analyst at CLSA Ltd. in Singapore.

Fee income rose 25 percent to S$379 million, helped by stockbroking and wealth management fees. Investment banking and loan syndication income declined, the bank said.

Loans rose 25 percent to S$108.4 billion from S$86.6 billion a year earlier. Singapore lending rose 20 percent to S$233.4 billion in December, the highest since 1991 when records were kept, the Monetary Authority of Singapore said on Jan. 31. The gain from a year earlier was also the most since September 1995, the city- state's central bank said, based on a preliminary estimate.

``The underlying core operations are still faring very well, especially with the December loan growth numbers, which is still growing very strongly,'' said David Lum, an analyst at Daiwa Institute of Research Singapore Pte, who has an ``outperform'' recommendation on the stock. ``The external concerns are just non- core.''