Tuesday, May 5, 2015

OCBC seeks to energise unprofitable China consumer banking unit

6 May7:31 AM

[SHANGHAI] Oversea-Chinese Banking Corp, Southeast Asia's second-largest lender, plans to remodel its unprofitable consumer-banking unit in China and focus on corporate banking in an effort to boost profits from the mainland.

The bank will add new customer segments and products to the consumer-banking operation, Kng Hwee Tin, chief executive officer of OCBC Bank (China) Ltd, said in a Tuesday interview. That requires training for staff members in the next six to nine months, she said, declining to give more details.

Foreign banks struggle to make money from their retail businesses in China, where they face lengthy approval processes for new branches that are pitted against the tens of thousands of outlets owned by the nation's largest banks. HSBC Holdings Plc has the largest foreign presence with more than 170 branches, compared with Agricultural Bank of China Ltd's 23,612. OCBC has 17.

"It's a very difficult business for us, we don't have the competitive advantage," said Ms Kng, 48. "It's small and not making money. We are thinking of remodeling it, as in what can we do better given our current footprint and our current investments."

Overseas banks hold less than 2 per cent of banking assets in China, the lowest share among emerging markets, according to a 2012 report from the International Monetary Fund.

Net income at OCBC's China unit surged 231 per cent to 238 million yuan ($38 million) last year thanks to higher income from corporate loans, fees from trade finance and settlement, and investment returns, according to the unit's annual report. The consumer-banking segment posted an operating loss of 175.8 million yuan.

"That's a market where we don't have a natural base of customers," said Ms Kng. "We are not at the end of the road to say we are closing the consumer business, we are not there yet. We are trying."

The lender will almost double its branch network and the about 800 employees it has in China after it absorbs the mainland operations of Wing Hang Bank Ltd, which OCBC acquired last year, according to Ms Kng. The bank has no plans to cut workers to save costs following the purchase, she said.

The US$5 billion Wing Hang acquisition, the biggest takeover of a Hong Kong lender since 2011, gave OCBC access to a city that is the biggest center for offshore yuan trading. Wing Hang's strength in serving small businesses in China will strengthen OCBC's portfolio of corporate customers, which comprises mainly Chinese companies, including state-owned enterprises, and clients seeking to invest in China, Ms Kng said.

The Singaporean bank plans to focus on its corporate- banking business in China as it tries to take advantage of growing trade ties between the mainland and Southeast Asia, Ms Kng said. The lender wants to increase its services to Chinese companies expanding outside of the mainland, she said.

"OCBC Group is very large in Southeast Asia, and we are frankly quite experienced," Ms Kng said. "The linkage between China and Southeast Asia, if you look at the trade flows, the investment flows, is something not to be understated."

Greater China, which includes the mainland, Hong Kong and Taiwan, contributed 19 percent of OCBC's pre-tax profit in the first quarter, compared with 12 percent a year ago, according to an April 30 statement.

Ms Kng was appointed head of OCBC in China in March 2013 after 20 years at the company in various positions including head of audit.

BLOOMBERG

Oil analysts practice cautious capitulation as crude surprises

6 May7:25 AM

[LONDON] As oil prices climbed above US$68 Tuesday for the first time since December, analysts at some of the world's biggest banks were holding onto views that this would be a bad year for crude - just not as terrible as they originally predicted.

Rather then extending last year's losses, Brent, the global benchmark, has rallied 49 percent from a six-year low in January as demand accelerated and the rapid growth in supplies started to slow.

The rebound is a shock. At the start of 2015, Bank of America Corp, Barclays Plc and Goldman Sachs Group Inc all predicted that oil might collapse to about US$30 a barrel. Now, though, they are raising their price estimates while remaining skeptical that crude will gain much above current levels. There are still risks, including US shale oil coming back into the market with the increase in prices, they say.

"We're past the lows for the oil market," Sabine Schels, an analyst at Bank of America in London, said by phone. "The balances are tightening. This is most visible in the US, where the surplus has eased significantly. Supply is still greater than demand, but less than it used to be."

Bank of America raised its 2015 Brent crude forecast to US$58 in a report on April 24, from US$52 previously. The bank said in a report dated Jan.15 that Brent would "spiral down" to US$31, and West Texas Intermediate crude, the US marker, to US$32, by the end of the first quarter. Brent rose as high as US$115.71 last June.

Barclays raised its 2015 forecast for average Brent prices to US$60 in a report on April 28, up from US$51 in February and US$44 in January, citing surprisingly strong Chinese demand growth of 700,000 barrels a day in the first quarter. Concern that the conflict in Yemen will curb Middle East supplies, and output disruptions from Norway to Mexico added to the revision.

"The range seems to have shifted with the price discovery process," Miswin Mahesh, an analyst at Barclays in London, said by phone. "It seems like a comfortable level now. What's changed is how quickly demand has adjusted higher. The first- quarter China numbers are a great example."

US drillers cut the number of oil rigs in operation since the start of the year by 55 percent since the start of the year, according to Houston-based field services company Baker Hughes Inc. Rigs targeting US oil slid by 24 to 679, the lowest level since September 2010, Baker Hughes said on May 1. The nation's output from tight-rock formations will decline in May, according to the Energy Information Administration.

"US producers have responded more aggressively than we had expected," Goldman Sachs analysts including New York-based Damien Courvalin said in an April 6 report. This gives "modest upside" to their three-month price target for WTI of US$40, according to the report. The bank wasn't able to make analysts available to interview for this article.

JPMorgan Chase & Co, which predicted that Brent could fall to US$38 in March, raised its forecasts for the year to US$62 on April 30.

"It's a tighter market than we were expecting and I think demand is the culprit," David Martin, JPMorgan's London-based head of global oil strategy, said by phone on May 1.

"Our view back in January was the build in stocks was really going to weigh on the crude market and depress the front end of the crude curve. We've seen upside surprises in demand, which have allowed refiners to run harder and absorb that crude."

Refiners globally processed an extra 1 million barrels a day last quarter compared with a year earlier. The bear market in Brent crude ended without the most pessimistic estimates being realised. The price has risen from a six-year low of US$45.19 on Jan. 13 and settled Tuesday in London at US$67.52 after rising as high as US$68.40.

Citigroup's Ed Morse predicted in a report dated Feb 9 that prices would "bottom" by the start of the second quarter, with WTI falling toward US$20. Goldman Sachs said in a report dated Jan 11 that Brent would trade at about US$42 in early April. Goldman president Gary Cohn told CNBC on Jan 26 that prices could fall to US$30.

Still, analysts maintain the view prices will struggle to advance significantly in the second half.

US shale supplies will prove more resilient than anticipated, as drilling resumes with rebounding prices, and demand in emerging economies will struggle to climb further as fuel subsidies are removed, Bank of America and Barclays predict. WTI may suffer a "double-dip" to US$50 in the third quarter, Bank of America says.

"Growth in emerging markets is still fairly uncertain - higher oil prices would risk the recovery we're seeing there," said Barclays's Mr Mahesh, who forecasts Brent will average US$61 and US$66 in the third and fourth quarters respectively. "I wouldn't say the worst is completely in the rear-view mirror."

BLOOMBERG

Tuesday, May 5, 2015