UOB's profit seen to have increased 10% in 4Q11

An analyst expects the bank to post a S$574m net profit when it announces its 4Q11 results on 24 February.

CIMB forecasts a net profit of S$574m (+10% qoq) vs. consensus S$578m. They expect PPOP (+4% qoq) to be
up because of a recovery in trading incomes.

Here's more from CIMB:

Trading-related income took a hit in 3Q mostly from forex, with UOB wrong-footed by dollar strength. We think that losses should unwind as the dollar weakened in 4Q. Although that would be positive, it might yet be offset by actualised losses from the disposal of its European bank-debt portfolio; we don’t think the losses will be big.

Recently, UOB pared down its EU bank exposure aggressively from S$1.5bn (end-3Q) to S$1.2bn (Nov) to about S$800m now. In Jan, global bank bonds had their strongest month after the ECB injected €489m into the euro zone’s banking system to avert a liquidity crunch, possibly offering UOB a window to unwind much of its EU bank papers. UOB’s net exposure to EU bank debt has been reduced and the previous negative EU association should fade.

The focus for UOB should thus be on its operational trends. Red flags were raised in 3Q from: 1) negative margin guidance; 2) initial signs of NPLs; and 3) broad-based weakening fee streams. UOB’s loan growth had lagged its peers in earlier quarters because it eschewed chasing after US$ loan opportunities, unlike its peers, on dollar liquidity concerns.

Since then, it has diversified its dollar-funding base and now appears more equipped for pursuing opportunities. 3Q’s loan-growth gap (vs. peers) had already closed as Singapore and regional corporate loans were drawn down. Investors will be watching whether this would sustain and whether it came at the expense of margins.

Initial guidance on fee income in 4Q was quite positive, with management suggesting that DCM (debt capital markets), commodity trades and structured products from treasury contributed. We expect 2H DPS to be S$0.50, bringing full-year DPS to S$0.70 (unchanged).