DBS Group Holdings Ltd., Southeast Asia's biggest bank by assets, fell to the lowest in five years on concern its compensation to customers of structured products tied to Lehman Brothers Holdings Inc. will reduce profit.
DBS shares fell as much as 7.8 percent to S$10.70, the lowest since July 7, 2003. The stock traded at S$10.96 at the midday break in Singapore, down 47 percent this year.
The bank said late yesterday it expects compensation to customers in Singapore and Hong Kong to amount to as much as S$80 million ($53 million). More than 500 investors held public rallies in Singapore for two straight weeks to seek compensation for losses on Lehman-linked products.
``Whilst the earnings impact from the Lehman Minibond sales is seen to be small, we continue to be cautious on DBS,'' Leng Seng Choon, an analyst at DMG & Partners Securities Pte, said in a note today, estimating the compensation will lower DBS's profit by about 3 percent. ``We are reviewing our DBS earnings forecast.''
DBS and lenders including Malayan Banking Bhd. and BOC Hong Kong (Holdings) Ltd. sold structured products such as those guaranteed by Lehman, some of which defaulted following the New York-based firm's collapse. A backlash among investors who bought the securities prompted central banks in Hong Kong and Singapore to investigate how the products were marketed.
`Not Large'
``We have found that a number of cases did not meet the standards DBS upholds and the bank will be compensating these customers with effect from tomorrow,'' DBS said in a statement to the Singapore exchange yesterday.
DBS said 4,700 customers in Singapore and Hong Kong invested S$360 million in these products. In Singapore, 1,400 customers invested S$103 million in High Notes 5.
While the compensation ``is not large versus a profit base of over S$2 billion, we believe there will be further negative earnings news over the next few quarters as the downtown deepens,'' Citigroup Inc. said in a note today, retaining its ``sell'' recommendation on DBS shares.
Along with DBS's High Notes 5, Merrill Lynch & Co.'s Jubilee Series 3 and the so-called Minibond program were also tied to Lehman. Lehman, once the No. 4 U.S. securities firm, filed for bankruptcy protection on Sept. 15, falling victim to the global financial crisis that has generated $658.5 billion of writedowns and credit losses.
Restructuring Minibonds
The Monetary Authority of Singapore said yesterday two international financial institutions have offered to restructure the notes to allow them to run to maturity, a move that could help investors recoup some losses. It didn't release the terms of the proposals, saying talks are confidential.
Other financial companies have also said they plan to compensate some investors. Malayan Banking or Maybank, the largest Malaysian bank by assets, said yesterday it will pay ``deserving'' customers who purchased minibonds. The company has interviewed some of the investors and is working out details of the compensation plans, the bank said in an e-mailed statement.
Hong Leong Finance Ltd. said in a statement it will buy back minibonds from customers who were at Singapore's retirement age of 62 at the time of the purchase and aren't educated beyond grade school.
Hong Kong banks last week said they agreed to a government plan to buy back the products, some of which were sold as ``minibonds,'' at market value. Singapore's Monetary Authority said banks ``should take responsibility'' and it's investigating investors' claims that they were misled on the sale of the Lehman- linked structured products.
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