DBS CEO Piyush Gupta said on Monday that the trade war’s biggest impact on the bank wasn’t from any direct impact on the economy, but rather from the hit to market sentiment.
Issuance in the equity and debt capital markets has “fallen off a cliff,” showing up in the investment-banking fee income, Gupta said at a press conference for the bank’s third quarter results.
He added that wealth-management fee income was “flattish” in the third quarter, when normally it could be expected to grow.
“Market sentiment and anxiety cause some slowdown in some activities that we would normally expect to continue growing. And until that anxiety [isn’t] there, I don’t see people coming back to this market in a hurry,” Gupta said.
On Monday, Singapore’s largest bank, DBS, said its net profit for the third quarter rose 76 percent on-year to S$1.41 billion, missing some analysts’ forecasts. Wealth-management fees were up 7 percent on-year at S$292 million, with higher bancassurance income offset by lower investment sales income, it said. Investment banking fees dropped by two-thirds in the quarter, the bank said.
The impact of the U.S.’s continuing trade war on market sentiment could be seen in the whiplash market action in the U.S. last week.
Stocks had rallied on optimism on U.S.-China trade talks, but that quickly dissipated on Friday. White House economic adviser and former CNBC commentator told CNBC on Friday that he wasn’t as optimistic about a deal with China as he used to be and he contradicted earlier reports that U.S. President Trump had asked officials to draw up a proposed U.S.-China trade deal.
Gupta noted the impact to sentiment could affect “animal spirits,” and eventually the real economy, but he was skeptical it would have much direct impact.
“You can see some early slowdown in PMIs in a number of countries across the region. But our own sense is that the direct impact of the trade war on the macro economy will not be as material as people worry,” he said.
“One reason for that is we think the supply chains are very hard to dislocate. Our own sense is that the technology supply chains can not be shifted around in anything less than three or four years,” Gupta said.
Even for the non-technology supply chain, moving hundreds of billions of dollars worth of production out of China is not an easy feat, he noted.
“You’ve got to get land and people and train people and hire people. This doesn’t happen overnight,” he said, adding that even then, the production was likely to move to other Asian nations, including Vietnam, Thailand, Indonesia and Malaysia.
Gupta also saw a potential silver-lining to the trade war clouds.
With trade-war fears dampening bond and equity issuance, there’s now a “massive deep pipeline” of potential issuance ahead, including “hundreds of billions” worth of bonds that will need to be refinanced over the next 18 months, Gupta said.
If there’s a trade deal, “I think you’ll see a massive resurgence in business volume,” Gupta said. “But people are waiting for some degree of certainty before they come back to the market.”