DBS on Constellation Notes

Monday, August 10, 2009

DBS Bank: 'definitely' no note buyback

DBS Bank: 'definitely' no note buyback
China Daily
By George Ng (HK Edition)
Updated: 2009-08-08 07:46



HONG KONG: DBS Bank (Hong Kong) Ltd will "definitely" not buy back the Constellation Notes from its clients despite the fact that other banks have agreed to buy back another structured product they sold to investors, the bank's top executive said Friday.

"We have explained very clearly the risks involved when we sold the product to investors ... we have reviewed all complaints (regarding the sales of the product) and have made proper compensation in cases that involved mis-selling," said Chief Executive Officer Amy Yip, fielding media questions at a press briefing for the group's quarterly results.

"There will be no further settlement," she said. "We definitely won't buy back the notes." Yip emphasized that the structure of the Constellation notes is very different from the so-called Lehman Brothers minibonds.

Last month, 16 banks offered to pay at least 60 cents on the dollar to investors for the minibonds guaranteed by Lehman Brothers that lost their value after the US investment bank collapsed.

Linked to the credit of a basket of companies including Lehman, the value of the Constellation notes will be reduced whenever any of the reference institutions suffers from credit events such as bankruptcy or default.

DBS said in a statement in October last year that the possibility of the 4,700 investors losing their entire investment of $241-million in the Constellation notes "is likely to materialize".

Meanwhile, Koh Boon Hui, chairman of DBS Group Holdings Ltd, parent of DBS Bank (Hong Kong) Ltd, told the same press briefing that the group will "definitely" not reduce its headcounts further.

Rather, the bank will do "necessary" recruiting in Hong Kong as business improves with the economy, Yip added.

DBS, Singapore's largest bank and one of Southeast Asia's largest banks, cut 900 jobs late last year after the global financial crisis hit the world, with half of the headcount reductions coming from its Hong Kong unit.

The DBS group yesterday reported a net profit of 552 million Singapore dollars (S$) in the second quarter, up 21 percent from the first quarter as revenue growth boosted earnings before bad-debt allowances to a record S$1.6 billion.

On a year-on-year basis, net profit fell 17 percent from S$668 million as improved operating performance was offset by higher bad-debt allowances, the group said.

DBS set aside S$466 million for bad debts, almost eight times more than a year earlier, with non-performing loan ratio rising to 2.8 percent from 1.4 percent a year ago.

Meanwhile, the bank's Hong Kong unit, DBS Bank (Hong Kong) Ltd, reported a net profit of HK$532 million for the second quarter, down 21 percent from a year ago as non-interest income dropped 20 percent to S$632 million while bad-debt provisions surged 61 percent to S$373 million.

Compared with the first quarter, net profit was up 12 percent as net interest income improved by 5 percent to $1.19 billion while bad-debt provisions declined by 17 percent.

The non-performing loan ratio of the Hong Kong unit rose sharply from 1.7 percent in December to 2.6 percent in March and then retreated to 2.4 percent in June.

Posted by Loh Hon Chun at 1:24 AM