Sg Banks Short of Cash???

[makapaaa]

<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Something fishy is going on???

UOB selling preference shares <!--10 min-->
</TR><!-- headline one : end --><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Grace Ng, Finance Correspondent
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UNITED Overseas Bank (UOB) is said to be the latest local bank to raise funds from investors by selling preference shares - a generally popular investment option in uncertain times.
Retail investors are likely to get a bite of the offering which pays annual interest of 5.05 per cent, a whisker below OCBC Bank's 5.1 per cent preference shares offered earlier this month, sources said.
The bank is declining to confirm details of the offering.
The sources said UOB on Monday unveiled a 'soft launch' of the issue of securities for deep-pocketed investors priced at $50,000 per lot via several brokerages.
But the market sources say that the preference shares is also likely to be made available later in smaller amounts. They will be sold via UOB's channels and through an ATM tranche.
The bank is the third bank after rivals DBS and OCBC to offer preference shares to raise cash and strengthen its tier one regulatory capital base. This tier one capital is used as a buffer against the loans that a bank issues. Read the full story in Tuesday's edition of The Straits Times.

 

[BlueCat]

in a way,yes.
after OCBC,now UOB.
they must be getting ready to feel the domino effect of what is happenning in US.

 

[madmansg]

any banking expert here care to comment ?

if they charge interest rates of 3 percent but get leveraged of x 10 then they earn 30 percent while paying off 5 percent.

 

[pweesng]

you can't leverage on tier 1 capital dude...

There is no leverage or hedge on the bank's side here. Basically they issue the shares, and buffer against potential losses in the market. They will book the interest payable and put it under cost of running the business, or cost of equity.

The danger for an investor are:-
1) bank collapse
2) no hedge against inflation
3) in a rising interest scenario, you will suffer capital depreciation (worst if the pref share is perpetual)
4) illiquid market for these shares at times.

invest with caution.

 

[pia]

you can't leverage on tier 1 capital dude...

There is no leverage or hedge on the bank's side here. Basically they issue the shares, and buffer against potential losses in the market. They will book the interest payable and put it under cost of running the business, or cost of equity.

The danger for an investor are:-
1) bank collapse
2) no hedge against inflation
3) in a rising interest scenario, you will suffer capital depreciation (worst if the pref share is perpetual)
4) illiquid market for these shares at times.

invest with caution.

Hi Bro Pweesng,

Actually I was considering this pref shares based on your points:

1) bank collapse.. they may do badly, but collapsing? If they do, our money in their savings accounts do no better, do they?
2) at 5% against 1-2% interst rates they give, isn't it a hedge? And principal is intact.
3) understAnd this point.. sorry I didn't go into the propectus details.. is there a pull-out option after 5 years?
4) very valid.. investor needing liquidity should think twice

Any advice?

 

[hughgrant]

u guys bought the ocbc preferences shares?
good or not any advice