Banking

No major surprises from the banks. DBS kicked off the season with 3Q07 net earnings of S$610m, up 11% YoY, and slightly above market estimate of S$600m as polled by Bloomberg. UOB followed with net earnings of S$501, up 8% YoY, and slightly above market expectation of S$480m. OCBC posted net profits of S$463m, up 22% YoY, and slightly below market estimate of S$477m. Overall, 3Q results from the local banks contained no major surprises as earnings were fairly in line with market expectation. Strong fee-related income. On the whole, all three banks posted earnings that were slightly better than expectations. In total, the three banks delivered total earnings of S$1,574m in 3Q07, up 13% YoY. Several key operations stood out, especially the strong double-digit increase in Fee & Commission Income enjoyed by all three banks (ranging from 36% to 45%). This came from several fee-related operations such as stockbroking, investment banking, fund management, wealth management, loans and trade related activities. CDO exposure. Together with the results, there were further updates on the three banks' CDO portfolios. All three made allowances for their CDO portfolios, but with the present credit woes, more could be in store for 4Q07. With this uncertainty, this could cap the performances of the local banks in the months ahead. UOB made additional allowances of S$20m in 3Q07, DBS has set aside S$70m and OCBC S$221m for their ABS CDO portfolios. Lowering FY07 estimates, but UOB & DBS remain as BUY. While shortterm selling pressure for US banks could continue to exert pressure on Singapore banks, we believe that medium to longer term prospects for the local banks remain good as regional economies continue to do well, with developing Asia expected to grow 9.8% in 2007 and 8.8% in 2008, according to IMF. In addition, the local banking is still robust with healthy loans numbers due to strong property sales and construction boom. However, with the 3Q results, and taking into consideration the likelihood of further provisions, we have revised down our FY07 earnings estimates for UOB and DBS. We have marked down earnings for DBS from S$2461m to S$2392m and for UOB from S$2,227m to S$2,112m. However, despite these adjustments, we are retaining our BUY ratings for both stocks and our fair value estimates are S$25.40 and S$23.30 for DBS and UOB,