UOB’s hiring halt a sign of further dividend cuts?; USD/SGD keeps falling
Analysts say UOB’s latest cost-cutting measures could portend more dividend cuts in 2020. Meanwhile, dovish fiscal expectations keep the USD pressured.
- UOB, Singapore's third largest bank, to freeze headcount until December 2021
- Analysts say the bank 'looks set to reduce operating expenses aggressively'
- USD/SGD drops for a third straight day ahead of US Federal Reserve meeting
UOB’s hiring freeze hints of dividend cuts: analyst
United Overseas Bank (UOB) has reportedly imposed a freeze on all hiring, wage increments and promotions.
Earlier this week, the bank sent an internal memo informing staff the hiring halt will last until December 2021, with pay raises and promotions to be stopped until further notice.
UOB shares fell as much as 1.4% on the IG platform following the reports.
Bloomberg Intelligence senior analyst Diksha Gera said the bank looks set to reduce operating expenses aggressively to support earnings as it battles Covid-19 headwinds in key markets.
‘Personnel costs are the largest cost component, comprising 61% of operating expenses in 2019,’ she wrote on Tuesday 15 September 2020, adding that UOB's cost-to-income ratio was 44.6% in 2019, and ‘weaker revenue could put upward pressure on this ratio’.
Gera further noted that the latest HR measures could also be a prelude to more dividend cuts this year, as the lender could see over 30% profit contraction due to continued economic headwinds in key markets.
UOB's higher exposure to small businesses in Singapore also raises its vulnerability against peers DBS and OCBC, she said.
The stock has a majority rating of ‘hold’ and 12-month average target price of S$21.87 from 18 analysts polled by Bloomberg, as of Wednesday 16 September 2020.
IG’s client analysis shows that 96% of opened accounts currently hold ‘long’ (buy) positions on UOB, indicating an expectation for share price to increase.
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USD to SGD in decline for a third straight day
The USD/SGD forex pair continues to decline, and is down roughly three pips (or 0.3%) on Wednesday 16 September 2020.
The pair is trading at 1.35790 as at 16:20 SGT.
The US Dollar Index is experiencing a dip on the back of improved investor sentiment ahead of the US Federal Reserve meeting later today – its last before the US Presidential Election.
The general expectation is for the Fed to maintain its dovish monetary policy stance and interest rate at near zero.
On the other hand, the market optimism helped to buoy Asian stocks on Wednesday morning, with Hong Kong’s Hang Seng Index, Japan’s Topix index and Australia’s ASX 200 up 0.4%, 0.1% and 0.7% respectively.
The Singapore dollar was not the only Asian currency to strengthen against the greenback on Wednesday, as evident by the Asian Dollar Index’s 0.28% rally. Gainers included the CNY (+0.4%), Korean Won (+0.4%), Thai Baht (+0.4%) and Malaysian Ringgit (+0.3%), although the Indonesian Rupiah fell 0.2%.
The USD has been facing weakness for most of this week, and is down roughly 0.8% since Monday 14 September 2020.
UOB forex analysts wrote that while they have been expecting the US dollar to trade upward towards 1.3770 since last week, the breach of their ‘strong support’ level at 1.3630 yesterday (low of 1.3628) indicates that their view is ‘wrong’.
‘The outlook for USD is neutral from here and it could consolidate and trade between 1.3560 and 1.3720 for a period of time,’ the analysts concluded.
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