Singapore Bank has $4 billion in sub-prime CDOs

This is a bit odd to say the least. OCBC has $4 billion in CDOs backed partly by sub-prime and has been one of the bigger CDO issuers among Asian banks. So positive has this experience been that they are ready to begin issuing again...

Singapore's Banks Stage
Cautious Return to CDOs

By PATRICIA KOWSMANN
September 21, 2007; Page C2

SINGAPORE -- With investors world-wide still recoiling from risk, Singapore's big banks are starting to sell it again.

DBS Group Holdings Ltd., Southeast Asia's largest banking group by market capitalization, and Oversea-Chinese Banking Corp., Singapore's third-biggest bank, are making new, if cautious, bets on collateralized debt obligations, as they sense opportunities in a tainted market.

DBS is selling new collateralized debt obligations to buyers with a renewed appetite for risk, and Oversea-Chinese Banking said its insurance unit has launched a fund investing in the financial derivatives.

CDOs are pools of debt instruments, such as bonds or loans, that are repackaged into different slices carrying various levels of risk, then sold to investors. The CDO market has been walloped by the U.S. subprime-mortgage troubles, since some of the instruments are underpinned by such mortgages, which are extended to borrowers with risky credit profiles.

But most of Singapore's well-capitalized banks, which are considered the CDO specialists of Asia, excluding Japan, seem to think now is the time to return to the market as issuers.

We are "conscious of the current uncertainties surrounding the CDO and subprime mortgage-securities markets, but [believe] that fundamentally, CDO remains a sound investment instrument if it is properly structured to achieve the desired returns and risk profile," Oversea-Chinese Banking's insurance unit, Great Eastern Holding Ltd., said about the new fund.

The fund won't have direct exposure to subprime-mortgage securities and "aims to take advantage of current market conditions to offer high credit ratings, reasonably attractive returns and good insurance cover to policyholders," Great Eastern said. The target fund size is about 100 million Singapore dollars, or about US$66 million.

Oversea-Chinese Banking shares have fallen more than 6% since mid-July, when the credit markets were rattled by the subprime problems. The bank has said it holds US$430 million of CDOs, including US$181 million in asset-backed securities with various degrees of subprime exposure. Its majority-owned Lion Capital Management Ltd. unit holds about S$5.7 billion in CDOs, including S$1.5 billion in assets linked to U.S. subprime mortgages.

"To be honest, I was surprised that Great Eastern was pursuing this fund" given the current market conditions, an analyst with a Wall Street investment bank said. "But this shows the company thinks there is a market out there."

--James Glynn contributed to this article.

Write to Patricia Kowsmann at patricia.kowsmann@dowjones.com¹