Banks absent from top gainers list

BANKS were conspicuously absent from the list of top gainers in the stock market in 2007, due to the upheaval in financial markets and the banking sector in the second half of the year.

DBS Group, the largest of the three Singapore-listed banks by loans book, saw its market cap fall 8 per cent during the year to $31.4 billion.

United Overseas Bank (UOB), the second largest of the three, gained 2.6 per cent in market cap to end the year worth $30.3 billion.

OCBC Bank saw its market cap rise the fastest, growing 7.7 per cent to $25.9 billion.

This was in stark contrast with the previous year, when DBS led the banks' gains with a 38.1 per cent rise in market cap, followed by UOB with a 31.7 per cent increase while OCBC lagged, growing just 15.4 per cent.

All three banks' share prices continued to climb in the first few months of 2007. The frenzied buying and selling of properties and stocks at ever-higher prices amid the broader economic expansion that was taking place suggested excellent growth prospects for the banks' main lending business, as well as other activities such as stockbroking and wealth management. Investors piled into banking stocks.

At their peak in May - $24.90 for DBS, $24 for UOB and $9.70 for OCBC - the banks' share prices were respectively 10.2 per cent, 23.7 per cent and 26 per cent above their 2006 year-end values.

But signs of increasing distress in financial markets in June - including the near-collapse of two hedge funds managed by US investment bank Bear Stearns after massive losses linked to sub-prime mortgages there - shook the confidence of investors and the banks' share prices started to wobble.

As the crisis spread from the US housing market to mortgage lenders, banks and other financial institutions outside the US through debt securities backed by these high-risk mortgages, international fund managers sold shares in banks and other financial institutions around the world, causing a steep fall in the share prices of the Singapore-listed banks in late July and early August.

A subsequent recovery proved short-lived. The banks' share prices fell again in November despite relatively strong earnings growth in the third quarter, as investors braced themselves for further write- downs in the value of debt securities the banks hold that have been affected by the turmoil in financial markets worldwide.

Banking analysts now say they expect the banks' core lending business to remain strong in 2008, but say their share prices are likely to remain highly volatile at least until they publish their full-year 2007 results and convince investors that the worst of the financial storm is over.