DBS Shares Rally despite the Passing of Richard Stanley; Singapore Economy in the Dumps

As DBS staff bid their final farewell to chief executive Richard Stanley, who died of leukemia last Saturday, the shares of Singapore's biggest bank continued to rally. DBS stock price continued its rise, even as Mr. Stanley's cortege passed through Shenton Way this afternoon. This is despite the fact that in the last four months, it has been Mr. Koh Boon Hwee, Chairman of DBS and a non-banker, who has been steering the DBS ship amidst Stanley’s absence and Singapore's steepest recession.

DBS' stock rise comes amidst a broader market rally. It is thus not clear if the stock rise indicates that investors are placing confidence in the bank's chairman, or if it is a simply a stock movement in tandem with the broader market. The DBS board, nevertheless, feels that Mr Koh is worth his weight in gold.

In comparison to Mr. Stanley who was paid almost $5 million for eight months of work in 2008, Mr. Koh has received $2 million in 'special remuneration' from DBS for assuming an 'active management oversight' role from Jan 1 to April 30 last year. Mr. Koh has since donated this $2 million to charitable causes, but looks set to continue to receive this ‘special remuneration’ while the board searches for a successor.

Meanwhile, there is no pressure coming from political circles to expedite the process of leadership replacement. Tharman Shanmugaratnam has been quoted in the press as saying that DBS should not rush to find a new CEO. That is probably because the DBS board is itself staffed with ‘supermen,’ according to one DBS shareholder. That shareholder was referring to DBS director Christopher Cheng who sits on the boards of 152 companies.

Analysts have said that DBS may take a while to find a new CEO who can lead the bank through what has become the sharpest global economic downturn in decades. Indeed, the global downturn has hit export-oriented economies like Singapore particularly hard. Those who thought that the dismal 2008 fourth quarter GDP results were a flash in the pan were clearly in for a shock. On a seasonally annualized basis, real 2009 Q1 GDP contracted by 19.7% compared to the previous quarter, even worse than the 16.4% contraction in the fourth quarter of 2008.

Compared to the Q1 2008, MTI expects Q1 2009 real GDP to contract by 11.5%, more than twice the 4.2% contraction registered in the last quarter. MTI’s earlier forecasts had factored in the possibility of a weak quarter, now it is clear that those forecasts were woefully over optimistic. Hardest hit is the manufacturing industry, estimated to have contracted a whopping -29% in the first quarter. The manufacturing decline was led by the electronics and precision engineering segments, but chemicals and biomedical manufacturing also saw large declines.

Trade growth projections in 2009 have been revised downwards from between -19% and -17% to a staggering drop of between -25% and -22%. This comes in tandem with the weak global economic outlook, as forecast by organizations such as the World Bank, the IMF and the OECD. Hence, it is thus not a surprise that the MTI has reduced its economic growth forecast for 2009 to -6.0% to -9.0%.