The Federal Reserve's September surprise, which postponed the tapering of its asset purchases, dented otherwise solid earnings at two of Singapore's banks.
OCBC and DBS, two of Singapore's banking trio, reported solid earnings Friday, beating analysts' expectations amid solid lending growth and resilient asset quality, but both noted taper-related dents to trading and Treasury income. UOB is due to report earnings on November 5.
"We basically got the call on Fed tapering wrong. We were quite sure that there would be Fed tapering in September and effectively positioned for that," said Piyush Gupta, CEO of DBS, at a press conference. "We put on hedges on some of our Treasury positions. Clearly, when the Fed didn't taper and rates went the wrong way, our hedges started going out of the money," he added.
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"While we were conservative from a liquidity management standpoint, that also put some pressure on our income for the quarter," Gupta said.
While Gupta didn't say if DBS had reversed the trades, he said, "I don't think that the Fed is likely to taper anytime soon," noting "if you look at the (U.S.) data coming through, it's not that strong."
The U.S. economy "is sort of slowing and then you have the uncertainties coming from the politics," he said.
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DBS reported its Treasury-related revenue for September fell to S$104 million, from S$178 million in August and S$171 million in July, driven primarily by a drop in its trading income.
But the bank still reported net profit for the third quarter came in at S$862 million, up 1 percent from the year-earlier period, with higher allowances offsetting income increases. Analysts had expected net profit of around S$828 million, according to a Reuters poll.
But the quarterly net profit fell 3 percent from the second quarter on the decline in trading income. The net interest margin slipped to 1.60% in the third quarter from 1.67% in the year-earlier period and 1.62% in the second quarter.
CIMB said the results were in line with its expectations.
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"The results were not impressive but not worrying, either," CIMB said in a note. "Earnings quality was good since the results were driven by core-banking revenue," it said. "Asset quality is sound and there are no cost pressures."
OCBC also noted an earnings dent from Fed's 'non-taper,' with its net trading income for the quarter falling to S$47 million from S$144 million a year earlier and around S$90 million in the second quarter.
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"The challenging market conditions associated with the uncertainty over the timing of the U.S. Federal Reserve's tapering of bond purchases have reduced our income contribution from trading and market-related activities," Samuel Tsien, OCBC's CEO, said in a statement.
Overall, OCBC's earnings were still resilient, with third quarter net profit of S$759 million; analysts had expected S$642 million, according to a Reuters poll. Excluding a one-time S$1.13 billion gain in the year-earlier period from the sale of OCBC's stakes in Fraser & Neave and Asia Pacific Breweries, net profit was up around 5 percent from the year-earlier period.
— By CNBC's Leslie Shaffer. Follow her on Twitter: @LeslieShaffer1