DBS Group's announcement Monday updating its exposure to so-called collateralised debt obligations (CDO) are a lesson in what to do - and what not to do - when a crisis strikes. Any company dealing with accidents, emergencies or, well, problem mortgages, has only one option, for the benefit of staff, customers, suppliers and shareholders: don't just own up to problems, but go beyond the call of duty to disclose potential problems. And don't leave out any details.

The reason is very simple: the more you show you are honest about problems and you have a plan to fix them, the more credibility you will have. The more you come clean, the cleaner you are seen to be. Stakeholders are far more likely to forgive errors and even transgressions, and so will your shareprice. In DBS' case, this could have been applied when the markets first took a hit in late July (because, as we all know
by now, American consumers with patchy credit records hadn't been paying off their mortgages like they should have). A proactive statement to declare exposures – or the lack of exposures - could have been made within the first few days. Instead, DBS lodged a statement only on August 7, and only (as the first sentence tells us) "in response to queries from investors and the press..." Are we to interpret this to mean that if investors and the media hadn't started asking questions, DBS would not have come forth with the information?

It didn't seem at first as though DBS had anything to declare. It wrote four paragraphs about the exposures they have and finished by saying that it did "not expect any further losses to have a material impact on earnings or capital".
Well, that sounded reasonable enough.

But when CLSA pointed out, and Reuters highlighted, that DBS may have nearly double the S$1.3 bln worth of CDOs it first disclosed, any sense that DBS had done the right thing evaporated. Even though it confirmed that they were still comfortable with the exposure, four days had passed since the Reuters report citing CLSA, 20 days since its initial disclosure, and one month after the markets started tanking. It leads to the perception that information is only being shared when people are asking for it, or brokers are writing about it.

DBS may very well have been caught by surprise that its so-called Red Orchid Secured Assets (ROSA) had to draw on liquidity facilities provided by banks. Understandable, given that "DBS' CDOs in ROSA are not directly exposed to the US sub-prime mortgage market". Plus, who could have foreseen that even AAA/AA rated collateral was going to be caught up in the liquidity crunch that followed the initial collapse. As DBS says "we initially did not include ROSA as pat of DBS' own exposure to CDOs on the assumption that ROSA would continue to be funded by investors". In the end, it had to draw on its own funds. Some of the biggest banks on Wall Street availed themselves of hundreds of millions of dollars in cash by selling top quality assets to the Federal Reserve when no one else wanted to buy them. So if it's good enough for them it's certainly good enough for DBS.

But no matter how often CFO Jeanette Wong says "Our total CDO exposures make up only 1% of our overall assets with over 70% of this amount concentrated in the high quality AAA/AA+ space", or how often she points out that "DBS has one of the strongest capital positions of banks operating in Asia and we have minimal exposure to the US sub-prime mortgage market", we are now just waiting for the next broker report, or more questions from investors/the press, or perhaps the ongoing investigation by the Singapore Exchange to reveal whether there are more problems.

Your view: how would you rate DBS' public relations on the CDO issue?