Oversea-Chinese Banking Corp Limited (SGX: O39), or OCBC for short, held its 2016 fourth quarter and full year earnings briefing in the middle of February.
As a quick background, OCBC is the longest established bank in Singapore, and today has operations in 18 countries and territories. It counts Singapore’s oldest life insurance group, Great Eastern Holding Limited (SGX: G07), as a subsidiary.
OCBC’s management covered a good number of topics during the earnings briefing. Here are five quotes investors may not want to miss.
The Barclays impact
In November 2016, OCBC completed the acquisition of Barclays’ wealth and investment management business in Singapore and Hong Kong. The acquisition lifted OCBC’s assets under management (AUM) from S$55 billion in 2015 to S$79 billion in 2016.
OCBC’s chief executive officer, Samuel Tsien, shared the following about the acquisition during the earnings briefing:
“And just in that one month alone, because we acquired Barclays at the end of November, at the end of December we already see growth. And we already see that our advisory services, our discretionary portfolio management services, has been able to penetrate into the Barclays space.”
OCBC is benefitting from cross-selling services to Barclays’ clients as well.
Was Great Eastern, um, great?
Tsien also had some thoughts to share on OCBC’s insurance subsidiary, Great Eastern:
“The headline numbers that were shown just now seems to indicate that there is some pressure on the earnings side. However, we are actually very encouraged by Great Eastern’s performance in terms of its underlying performance.”
Great Eastern accounted for 14% of OCBC’s 2016 net profit. But Tsien was more interested in one metric – new business creation:
“If you look at its net sales, it was up quite significantly, up 11%, and the new business embedded value is up by 22% on a year-on-year basis.
So the new business value creation is the most important element for our insurance business, because that is the future earnings that we’ll be able to derive from our insurance subsidiary.”
Industries under stress
The oil and gas industry may be receiving a lot of attention, but there may be other parts of the economy in Singapore which are facing difficulties. When asked about what industries may be under stress, Tsien responded:
“We are closely watching the retailing sector, the F&B sector, as well as the commodity processing sector, not the commodity traders, but the commodity processing sectors. Those are the sectors we are paying more attention to but, so far, they are performing quite all right.”
Tsien estimated that OCBC has exposure of between 11% and 12% to the sectors mentioned above.
Will interest rates rise due to the US rate hike?
OCBC expects to see some impact from interest rate hikes in the US. Lam Kun Kin, OCBC’s Senior Executive Vice President, said:
“… the correlation between the US and Singapore rates is really through the exchange rate mechanism. And to that extent, our longer-term view is that, because of the economic environment and recovery in the US, plus expectation of higher initial [trade], the trend for the US dollar will still be on up side.
As a result of the weaker Singapore dollar, there will be follow through pressure on the Singapore interest rate front. But the standard of pass through will probably be not be a one-to-one impact. But there will be some, I would say, based on historic, at least a 40% to 50% pass-through effect.”
To keep up to date on the latest financial and stock market news and for more investing insight, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.
Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of United Overseas Bank. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.