UOB’s net profit could have been S$70m higher in 4Q11

That is if we back out the EU debt related losses.

CIMB sees catalysts from a better 1Q12 when EU debt-related losses no longer impinge on P&L and another quarter of margin expansion drives topline.

Here’s more from CIMB:

No more EU debt-related losses
Our estimates suggest that UOB’s 4Q net profit (S$558m) could have been S$60m-S$70m higher, if we back out losses related to the EU bank debt divestment in 4Q. Headline profit would have been 11-12% higher if this did not show up. With UOB’s S$2.3bn EU bank debt portfolio (4Q10) whittled down to S$0.6bn (4Q11), we think that UOB will surprise on both trading gains and provisions in 1Q12.

1Q12 margins look good
Management has guided that an environment of tight liquidity enables banks that are sound, willing to lend larger quantum at longer tenures, a chance to tweak pricing upwards. Our ground checks suggest that spreads for large corporates are now 160-180bp above cost of funds, vs. 70-80bp nine months ago. Also, the latest update from management confirmed that January margins were marginally higher. We think 1Q12 will serve to confirm that UOB’s margins had bottomed in 3Q11.

Strong funding position enables asset growth
Not only is the margin compression trend arrested, we think that a rapid build-up of US$-deposits confirms management’s comments that strong Singapore banks have benefitted from deposits looking for safe havens. With loads of lending opportunities from trade finance, regional infrastructure projects, an ability to develop funding sources is key. We see more and more signs of the rise in Asian banks. Strong US$-deposit growth in 4Q for the Singapore banks was a start. IFR Asia report on the Marina Bay Sand’s S$4.6bn refinancing deal was also telling for the lack of European names on the syndicate.