Singapore banks cheap, but returns better after GDP troughs: At P/B ratios of 0.76-1.1x, the 3 banks have been cheaper only twice in 24 years, and price recovery typically begins when the economy is still in recession. But history suggests that buying even a month before GDP troughs can be costly, as an STI bear market's end is often characterized by a sharp bank sell-off. 4Q08 results were a reality check on asset quality/provisions, but the banks are well capitalized and we view that higher NPLs will not cause losses. Our Singapore STI target is 1500. Earnings cut 7-14% post 4Q08. New targets: DBS S$7.50, OCBC, S$4.25, UOB S$9.80.

Worse GDP news to come: Citi forecasts Singapore GDP of minus 5%yoy in 2009, with 1Q09 to contract as much as 10%yoy, and two further quarters of (lesser) yoy decline before a positive 4Q09. Citi's US 2009 GDP forecast is minus 2.7% with 2Q/3Q09 the period of worst contraction at minus 3.4%. This could prolong the current STI bear market as historically the STI has never returned to a bull market rally while the DJIA has been mired in a bear market.

Global bank risks also matter: Singapore banks are also unlikely to see a sustained rally in our view if global banks do not stabilize, or if there are further major capital needs. However, our study of deposit franchise values suggests that some of the US and UK's most crest-fallen names are already being valued at levels consistent with Asia's banks at the depth of the 1998 Crisis.

Signposts that the banks' bear-mkt is closer to the end: [1] 1Q09 is forecast to be the quarter of maximum Singapore GDP contraction, [2] Banks' 12m fwd consensus profit revisions are down 32%-48% from peak, overall STI market revisions down 24% from peak, [3] Banks' late cycle out- performance, especially the well-held UOB, has capitulated in recent weeks, [4] Price-wise the banks have retraced 76%-94% of the 2003-07 bull mkt. points gains, [5] We are in week 72 of the present STI recession bear mkt., versus an average 84 weeks historically.