SG Banks: UBS note that falling book value was a big concern in 2008 recession due to write-downs on the AFS portion of investment securities. Do not expect a similar occurrence this time around. Believe risk now comes from EU debt securities but impact should not be large. E.g a 25% reduction in UOB’s European debt securities’ value would cut book value only 2.9%.
Estimate that in 3Q the better-rated EU banks’ bond values fell no more than 4% and the impact on book value is negligible. Very strong Tier-1 capital ratios and the lack of toxic assets should protect book value from contraction.
Add that DBS is attractively priced at 0.9x 2011E P/BV; and like OCBC as believe its wealth management strategy will increase profitability in the long run. Believe that a sustainable performance should only occur when GDP troughs and expect this to be in 1Q12.
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