Banks

Banks: The cloud over banks grows, as more houses downgrade the sector, with Citi the latest to join the crowd. The majority of views are similar - that banks will underperform as earnings headwinds mount and growth expectations moderate into 2011E. Slower 2H GDP growth, net interest margin pressure (rates to stay low) and rising costs to offset fee recovery and cycle low provisions. While the current surge in mortgage growth should slow sharply in 2011E as property measures take hold…

If one must get exposure to banks, we note the Street’s recent shift in preference toward DBS, and away from UOB, OCBC. Main reasons are DBS’ lower dependence on housing loans, lower relative valuations, and new CEO strategy that is showing early signs of bearing fruit. DBS’ share price has outperformed OCBC, UOB by 2%, 4% resp’tly over the past 1 mth, and we suspect the momentum could continue in the near term…

DBS: Citi downgrades to Hold, reduces target to $14.40 from $16.70
OCBC: Citi downgrades to Sell, reduces target to $8.40 from $9.90
UOB: Citi downgrades to Sell, reduces target to $17.80 from $22.05