• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
November 26, 2009 Asia Pacific: BanksGoldman Sachs Global Investment Research 1
 
November 26, 2009
Asia Pacific: Banks
HSBC/STAN exposures to UAE, amid Dubai World standstill request
Backdrop
Many investors have asked about HSBC/STAN exposure to Dubai World (aleading government-linked property developer/holding company) and itsaffiliates, amidst Nov 26 press reports of Dubai World’s request for a creditorstandstill agreement on its c.US$59bn debts (source: Bloomberg).Both HSBC and STAN have declined to comment on individual firmexposures. However, press reports (Bloomberg, FT), past descriptions byboth banks of their UAE wholesale banking businesses, and HSBC’s/STAN’sstatus as the largest and second largest foreign banks in the UAE would allsuggest some level of exposure to Dubai World and other similar entities.
Context on likely HSBC, STAN exposures
HSBC had US$15.9bn of loans/advances to the UAE as at end-June 2009.More specifically, HSBC had US$3.475bn of real estate and mortgage loanexposure to the UAE as of the same period, representing 25.9% and 2.7%of our 2010E net profit and shareholders’ equity projections for the group.STAN had US$12.3bn of cross-border loan exposure to the UAE as at end-June 2009 (and US$7.8bn of locally-booked loans to the UAE as at YE08).More specifically, STAN had US$1.674bn of real estate and mortgage loanexposure to the Middle East/South Asia region as of the same date. Weestimate c.60% of this exposure, or US$1.0bn, was to the UAE,representing 22.4% and 3.4% of our 2010E NPAT and shareholders’ equityprojections for STAN.
More clarity needed; first stab at worse-case loss estimates
Immediate questions include:
how much actual exposure do HSBC, STANhave to Dubai World and other potentially similar situations, and whatlevel of ultimate write-downs may need to be taken, what impact to EPS,BVPS?
Key swing factors:
level of continued support from other parts ofthe UAE, mode of loan restructuring undertaken by major creditors, degreeof knock-on impacts to other UAE corporates, other emerging markets.Our first stab at potential worst-case loss estimates suggest a manageableimpact: assuming a 50% NPL ratio/50% loss given default on commercialreal estate loans, and a 20% NPL ratio/50% loss given default on mortgageloans, we estimate the potential credit losses to HSBC and STAN atUS$611mn and US$177mn – or 4.6% and 3.9% of 2010E NPAT, 0.5% and0.6% of 2010E equity.
ANALYTICS
Note we have opted to use 2010E as opposed to 2009Eprojections on two premises: that 2010 is a morenormalized year versus 2009, and that clarity onexposure/needed haircuts is unlikely until 2010.See Exhibit 2 for a ranking of foreign banks in the UAE byloans and by deposits, as sourced from the Emirates BanksAssociation. Note that HSBC and STAN are the largest andsecond largest, by a considerable margin.
HSBCSTANUAE exposures (no breakout avail for Dubai)
aTotal loans and advances, end June 0915,906 Total loans and advances, YE0817,537 Total loans and advances, end June 0816,416 
Memo: customer deposits, end June 0919,284 
UAE cross-border exposures (no breakout avail for Dubai)
bEnd June 0912,357 YE0810,535 End June 0810,949 2010E net profit13,3984,4892010E shareholders equity128,16729,121UAE exposure as % of 2010E NPAT119%275%UAE exposure as % of 2010E equity12%42%
On UAE commercial real estate exposures
STAN had US$680mn of commercial real estate loans and US$994mn of mortgage loansto Middle East/South Asia at end-Jun 09; we estimate c.60% of this combined exposure(or US$1,004mn) to the UAE, or 22.4% of 2010E NPAT and 3.4% of 2010E equityHSBC had US$1,755mn of commercial real estate and US$1,720mn of mortgage loanexposure to the UAE as at end-Jun 09; this US$3.475bn combined exposureequates to 25.9% of 2010E NPAT and 2.7% of 2010E equity.
Potential credit loss analysis
Commercial real estate exposures
1,755408
Assumed NPL ratio on commercial real estate loans
50%50%
Assumed loss given default
50%50%
Potential credit loss on CRE
439102 
Mortgage loan exposures
1720596 
Assumed NPL ratio on mortgage loans
20%25%
Assumed loss given default
50%50%
Potential credit loss on mortage loans
17275 
Total potential credit losses
611177 
As % of 2010E net profit
4.6%3.9%
As % of 2010E equity
0.5%0.6%
Source: Company data, Goldman Sachs Research estimates.
 
Roy Ramos
+852-2978-0457 | roy.ramos@gs.com Goldman Sachs (Asia) L.L.C.
Frederik Thomasen
+44(20)7552-9363 | frederik.thomasen@gs.com Goldman Sachs International
Gurpreet Singh Sahi
+852-2978-1287 | gurpreet.s.sahi@gs.com Goldman Sachs (Asia) L.L.C.
The Goldman Sachs Group, Inc. does and seeks to do business withcompanies covered in its research reports. As a result, investors shouldbe aware that the firm may have a conflict of interest that could affectthe objectivity of this report. Investors should consider this report asonly a single factor in making their investment decision. For Reg ACcertification, see the end of the text. Other important disclosures followthe Reg AC certification, or go to www.gs.com/research/hedge.html.Analysts employed by non-US affiliates are not registered/qualified asresearch analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research
 
November 26, 2009 Asia Pacific: BanksGoldman Sachs Global Investment Research 2
Exhibit 1:
 
HSBC and STAN: estimates of overall and commercial real estate exposure inthe UAE and potential credit losses: in a worst-case scenario, we expect a manageableimpact at less than 1% of equity, less than 5% of net profits
In US$mn
 
HSBCSTANUAE exposures (no breakout avail for Dubai)
aTotal loans and advances, end June 0915,906 Total loans and advances, YE0817,537 Total loans and advances, end June 0816,416 
Memo: customer deposits, end June 0919,284 
UAE cross-border exposures (no breakout avail for Dubai)
bEnd June 0912,357 YE0810,535 End June 0810,949 2010E net profit13,3984,4892010E shareholders equity128,16729,121UAE exposure as % of 2010E NPAT119%275%UAE exposure as % of 2010E equity12%42%
On UAE commercial real estate exposures
STAN had US$680mn of commercial real estate loans and US$994mn of mortgage loansto Middle East/South Asia at end-Jun 09; we estimate c.60% of this combined exposure(or US$1,004mn) to the UAE, or 22.4% of 2010E NPAT and 3.4% of 2010E equityHSBC had US$1,755mn of commercial real estate and US$1,720mn of mortgage loanexposure to the UAE as at end-Jun 09; this US$3.475bn combined exposureequates to 25.9% of 2010E NPAT and 2.7% of 2010E equity.
Potential credit loss analysis
Commercial real estate exposures
1,755408
Assumed NPL ratio on commercial real estate loans
50%50%
Assumed loss given default
50%50%
Potential credit loss on CRE
439102 
Mortgage loan exposures
1720596 
Assumed NPL ratio on mortgage loans
20%25%
Assumed loss given default
50%50%
Potential credit loss on mortage loans
17275 
Total potential credit losses
611177 
As % of 2010E net profit
4.6%3.9%
As % of 2010E equity
0.5%0.6%
 
Source: Company data, Goldman Sachs Research estimates.
 
November 26, 2009 Asia Pacific: BanksGoldman Sachs Global Investment Research 3
Exhibit 2:
 
HSBC and STAN are the largest foreign banks in the UAE, by a wide margin
In US$mn (converted from UAE dirham at 3.673: US$1)
Loans, YE08Deposits, YE08L/D
HSBC Bank Middle East17,03121,49979.2%Standard Chartered Bank7,7718,15995.3%Barclays Bank3,5771,334268.1%ABN AMRO2,2422,163103.7%Arab Bank2,0862,78075.0%Citibank1,9222,61473.5%Bank of Baroda1,7801,81498.1%Bank Saderat Iran1,7361,635106.2%BNP Paribas1,6881,485113.7%Lloyds TSB Bank1,5721,83885.5%Habib Bank1,4322,22764.3%United Bank83787795.4%Arab African Intl Bank688215320.3%Alahli Bank of Kuwai6331,03061.5%Bank Melli Iran59173680.3%Note:UAE exp as % of total loansYE08HSBC1.8%STAN4.5%UAE exp as % of 1H09 equityYE08HSBC14.7%STAN33.3%UAE exp as % of 2010E NPATYE08HSBC127.1%STAN173.1%
 
Source: Emirates Banks Association.
Companies mentioned in this note:
HSBC (0005.HK, share price HK$95.90 as at 25 Nov, Buy)Standard Chartered (2888.HK, share price HK$213.40 as at 25 Nov, Buy)Key risks to our price targets: earnings setbacks, US/Europe/Asia macro double-dip, asset qualitysetbacks including in the UAE.
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...