Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

It’s taken time, but we now have a good view on financial impact to UK from leaving the EU. Trade figures are cratering. It may not be the best time to be predominately focused on UK lending, as is HSBC.

It’s taken time, but we now have a good view on financial impact to UK from leaving the EU. Trade figures are cratering. It may not be the best time to be predominately focused on UK lending, as is HSBC. 

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Bank Negara Indonesia Persero / Equity Bottom-Up

*Capital Raise Coming:Without any detail whatsoever, on March 10, 2021, the Ministry of State-Owned Enterprises (MOSOE) announced that Bank Negara Indonesia (BBNI.IJ) [BBNI] will seek a rights offering sometime in 2022; and*Big Dilution Expected Given Awful Credit Metrics:BBNI’s stated capital levels are low by sector comparison at a 16.8% CAR. Net new NPLs have increased 206.0% on an annualized basis – the absolute worst we have witnessed regionally this quarter. We calculate a minimum loss reserve shortfall of IDR 29.7 tn which represents 28% of stated capital – intimating a significant capital is on the horizon.

*Capital Raise Coming:Without any detail whatsoever, on March 10, 2021, the Ministry of State-Owned Enterprises (MOSOE) announced that Bank Negara Indonesia (BBNI.IJ) [BBNI] will seek a rights offering sometime in 2022; and*Big Dilution Expected Given Awful Credit Metrics:BBNI’s stated capital levels are low by sector comparison at a 16.8% CAR. Net new NPLs have increased 206.0% on an annualized basis – the absolute worst we have witnessed regionally this quarter. We calculate a minimum loss reserve shortfall of IDR 29.7 tn which represents 28% of stated capital – intimating a significant capital is on the horizon. 

Bank Negara Indonesia – MOSOE Tosses A Grenade

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Treasuries may have seen the worst of their sell-off and, if not, the moves higher from here may be less violent. This would create the foundation for improved risk asset performance. While bond yields moved abruptly higher on Friday, the more significant development was the modest bearish reaction by risk assets.The Fed’s FOMC will meet on Wednesday and expectations are rising that members may signal earlier rate hikes in the infamous Dot Plot survey. We are set-up for two potentially disappointing outcomes which could create buying opportunities. We outline these within.Concurrently, we believe the US economy would be better off without a Treasury security exemption in calculating the SLR. Impacted banks could easily issue Preferred Securities or other AT1 notes rather than be forced sellers in the Treasury market. This would also re-align US banks towards making loans again.Financials remain the sweet spot in Asia credit. Levered to the economy and rising rates, this is the place to be at this point in the market cycle. Nonetheless, total returns in Asia’s financial and HY indexes were negative week-on-week.   European AT1 outperformed Asia’s financial sector indexes and generated positive total returns. This outperformance was driven by the European Central Bank’s (ECB) announcement that it would front-load additional asset purchases over the next few months.In Asia, short duration bank bonds keep pace with Treasury weakness to end the week unchanged on a total return basis. In index terms, only Asia’s AT1 tightened by an amount sufficient to offset the weakness in Treasuries.In the rating world, Moody’s Investors Service placed <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a> on review for a potential downgrade last week. We think this is mistaken. HSBC has underperformed similarly rated institutions for years, while its capital levels have remained at or above these peers. As such, we do not believe the rating agency should prejudge HSBC’s recently updated strategy to increase focus on wealth management and financing opportunities in China’s Greater Bay area.  Fortunately, the credit market seems to agree with us. Please see <a href="https://www.smartkarma.com/insights/hsbc-on-review-for-downgrade-buy-the-dips" target="_blank" data-smartkarma-citation="insights:48993" rel="noopener">HSBC: On Review for Downgrade, Buy the Dips</a> for more details.Rather than lower HSBC’s fundamental rating, we believe Moody’s should revisit its recent decision to upgrade <a href="https://www.smartkarma.com/entities/credit-suisse-group-ag" target="_blank" data-smartkarma-citation="entities:22253:1" rel="noopener">Credit Suisse Groups'  (CSGN VX)</a> fundamental score. The recent Greensill scandal raises serious questions regarding risk and oversight in Credit Suisse’s asset management operations. These may have long term capital, revenue and bond value implications. Please see: <a href="https://www.smartkarma.com/insights/credit-suisse-greensill-sows-reputation-risks-underweight-cs-bonds" target="_blank" data-smartkarma-citation="insights:48839" rel="noopener">Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds</a> for more details.Market Outlook: The US economy may run very hot before we see a change in Fed policy regarding short-term interest rates and the US dollar should remain stronger than analysts forecasted at year-end. Broadly, this is not Emerging Market (EM) friendly; however, a strong US economic rebound should benefit EM and European financials.

Treasuries may have seen the worst of their sell-off and, if not, the moves higher from here may be less violent. This would create the foundation for improved risk asset performance. While bond yields moved abruptly higher on Friday, the more significant development was the modest bearish reaction by risk assets.The Fed’s FOMC will meet on Wednesday and expectations are rising that members may signal earlier rate hikes in the infamous Dot Plot survey. We are set-up for two potentially disappointing outcomes which could create buying opportunities. We outline these within.Concurrently, we believe the US economy would be better off without a Treasury security exemption in calculating the SLR. Impacted banks could easily issue Preferred Securities or other AT1 notes rather than be forced sellers in the Treasury market. This would also re-align US banks towards making loans again.Financials remain the sweet spot in Asia credit. Levered to the economy and rising rates, this is the place to be at this point in the market cycle. Nonetheless, total returns in Asia’s financial and HY indexes were negative week-on-week.   European AT1 outperformed Asia’s financial sector indexes and generated positive total returns. This outperformance was driven by the European Central Bank’s (ECB) announcement that it would front-load additional asset purchases over the next few months.In Asia, short duration bank bonds keep pace with Treasury weakness to end the week unchanged on a total return basis. In index terms, only Asia’s AT1 tightened by an amount sufficient to offset the weakness in Treasuries.In the rating world, Moody’s Investors Service placed HSBC Holdings (HSBA LN) on review for a potential downgrade last week. We think this is mistaken. HSBC has underperformed similarly rated institutions for years, while its capital levels have remained at or above these peers. As such, we do not believe the rating agency should prejudge HSBC’s recently updated strategy to increase focus on wealth management and financing opportunities in China’s Greater Bay area.  Fortunately, the credit market seems to agree with us. Please see HSBC: On Review for Downgrade, Buy the Dips for more details.Rather than lower HSBC’s fundamental rating, we believe Moody’s should revisit its recent decision to upgrade Credit Suisse Groups'  (CSGN VX) fundamental score. The recent Greensill scandal raises serious questions regarding risk and oversight in Credit Suisse’s asset management operations. These may have long term capital, revenue and bond value implications. Please see: Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds for more details.Market Outlook: The US economy may run very hot before we see a change in Fed policy regarding short-term interest rates and the US dollar should remain stronger than analysts forecasted at year-end. Broadly, this is not Emerging Market (EM) friendly; however, a strong US economic rebound should benefit EM and European financials.

Bank Credit Weekly: Inflection Point or Fed Disappoint?

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>The rotation into value stocks has lifted bank valuations across the board, especially in developed markets</li>
<li>Even if we could see a pause in the near term, we believe that the rotation has further to run</li>
<li>We screen our universe of European banks for attractive valuations and resilient balance sheets, especially on credit quality and capital, post 4Q20 results</li>
<li>We highlight <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a>, <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> and <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a>; we turn positive on <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a>, where we had previously been concerned about potentially problematic M&amp;A</li>
<li>In Northern Europe, <a href="https://www.smartkarma.com/entities/jyske-bank-a-s" target="_blank" data-smartkarma-citation="entities:22404:1" rel="noopener">Jyske Bank A/S (JYSK DC)</a> in Denmark screens well amongst the smaller caps, on both valuation and balance sheet strength</li>
<li>Risks to our view include a worse than expected macro-economic recovery with slower growth impacting credit quality, demand for credit and lower for longer interest rates and spreads</li>
</ul>


The rotation into value stocks has lifted bank valuations across the board, especially in developed markets
Even if we could see a pause in the near term, we believe that the rotation has further to run
We screen our universe of European banks for attractive valuations and resilient balance sheets, especially on credit quality and capital, post 4Q20 results
We highlight HSBC Holdings (HSBA LN), UniCredit SpA (UCG IM) and CaixaBank SA (CABK SM); we turn positive on Banco BPM SpA (BAMI IM), where we had previously been concerned about potentially problematic M&amp;A
In Northern Europe, Jyske Bank A/S (JYSK DC) in Denmark screens well amongst the smaller caps, on both valuation and balance sheet strength
Risks to our view include a worse than expected macro-economic recovery with slower growth impacting credit quality, demand for credit and lower for longer interest rates and spreads


European Bank Screens 4Q20 – Our Picks in the Rotation to Value

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Jardine Strategic Holdings / Equity Bottom-Up

Yesterday <a href="https://www.smartkarma.com/entities/jardine-strategic-holdings-ltd" target="_blank" data-smartkarma-citation="entities:15081:1" rel="noopener">Jardine Strategic Holdings (JS SP)</a> published its annual results in which it disclosed the NAV was 58.22 USD on 31/12/20. Contrast this with the 33 USD buyout offer tabled earlier this week. Something is seriously off here. Before one goes any further,<a href="https://www.jardines.com/assets/files/Investors/Reports/strategic/js-ar2019.pdf" target="_blank" rel="noopener"> please re-read the Corporate Governance (pages 136-141) of Jardine Strategic's 2019 annual report.</a> It will be good to contrast what is written there with what is happening in real-life.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/193/684/original/image_59443962741615508974779.png?1615508975" class="editor-image img-responsive" data-smartkarma-image-id="193684"></figure>The buzzword "du jour" for all investors is ESG. For the avoidance of doubt this stands for:Environmental, Social, and Governance.In the currently proposed buyout of <a href="https://www.smartkarma.com/entities/jardine-strategic-holdings-ltd" target="_blank" data-smartkarma-citation="entities:15081:1" rel="noopener">Jardine Strategic Holdings (JS SP)</a> by <a href="https://www.smartkarma.com/entities/jardine-matheson-holdings-ltd" target="_blank" data-smartkarma-citation="entities:19718:1" rel="noopener">Jardine Matheson Holdings (JM SP)</a> the entire board of both companies (largely the same people) is showing the investment community what it really thinks about the G in ESG. Given the transaction was advised by both <a href="https://www.smartkarma.com/entities/jpmorgan-chase-co" target="_blank" data-smartkarma-citation="entities:277:1" rel="noopener">JPMorgan Chase &amp; Co (JPM US)</a> and <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a> we now also know how "ingrained" the ESG ethos is in practice at those banks.Given the +/-85% ownership of Jardine Strategic by Matheson, one would expect that Matheson could not vote on the proposed transaction and only Jardine Strategic minorities would have an actual vote to deem this offer "fair and reasonable" and give it their thumbs up/down at an SGM. Not in this case. Matheson is intending to use its 85% votes to "ram" this offer across the finish line. Which explains why Matheson expects this deal to close by the end of April 2021. Some changes take decades at Jardine, others clearly don't.It is astonishing that not a single person in these large banking institutions has stood up to Jardine's board and challenged them on the "fairness", "correctness" and "governance" of its proposed 33 USD offer. It is not because you have found some loophole, as made clear by David Webb, in your byzantine listings between Bermuda-Singapore-London that you are required to put your "Gangster" hat on and use it. The "Governance" hat could have been used, a fair buyout of Strategic shareholders could have been chosen but...it was not. The 33 USD offer price might have been a 20% premium to last Friday's closing price but other than that it was a completely arbitrary number unrelated to its Net Asset Value.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/193/672/original/image_53585158121615504013720.png?1615504014" class="editor-image img-responsive" data-smartkarma-image-id="193672"></figure>Any ESG fund worth their name in salt should therefore shun Jardine and any of its subsidiaries as the directors at Jardine are mostly the same directors at <a href="https://www.smartkarma.com/entities/dairy-farm-intl-hldgs-ltd" target="_blank" data-smartkarma-citation="entities:7427:1" rel="noopener">Dairy Farm Intl Hldgs (DFI SP)</a>, <a href="https://www.smartkarma.com/entities/mandarin-oriental-intl-ltd" target="_blank" data-smartkarma-citation="entities:4773:1" rel="noopener">Mandarin Oriental Intl (MAND SP)</a>, <a href="https://www.smartkarma.com/entities/hongkong-land-holdings-ltd" target="_blank" data-smartkarma-citation="entities:15465:1" rel="noopener">Hongkong Land (HKL SP)</a>  and <a href="https://www.smartkarma.com/entities/jardine-cycle-carriage-ltd" target="_blank" data-smartkarma-citation="entities:347:1" rel="noopener">Jardine Cycle &amp; Carriage (JCNC SP)</a>. If you do invest in any of the above know one thing: the ESG statements in their annual reports are not worth the paper they are written on. Buyer beware.

Yesterday Jardine Strategic Holdings (JS SP) published its annual results in which it disclosed the NAV was 58.22 USD on 31/12/20. Contrast this with the 33 USD buyout offer tabled earlier this week. Something is seriously off here. Before one goes any further, please re-read the Corporate Governance (pages 136-141) of Jardine Strategic's 2019 annual report. It will be good to contrast what is written there with what is happening in real-life.The buzzword "du jour" for all investors is ESG. For the avoidance of doubt this stands for:Environmental, Social, and Governance.In the currently proposed buyout of Jardine Strategic Holdings (JS SP) by Jardine Matheson Holdings (JM SP) the entire board of both companies (largely the same people) is showing the investment community what it really thinks about the G in ESG. Given the transaction was advised by both JPMorgan Chase &amp; Co (JPM US) and HSBC Holdings (5 HK) we now also know how "ingrained" the ESG ethos is in practice at those banks.Given the +/-85% ownership of Jardine Strategic by Matheson, one would expect that Matheson could not vote on the proposed transaction and only Jardine Strategic minorities would have an actual vote to deem this offer "fair and reasonable" and give it their thumbs up/down at an SGM. Not in this case. Matheson is intending to use its 85% votes to "ram" this offer across the finish line. Which explains why Matheson expects this deal to close by the end of April 2021. Some changes take decades at Jardine, others clearly don't.It is astonishing that not a single person in these large banking institutions has stood up to Jardine's board and challenged them on the "fairness", "correctness" and "governance" of its proposed 33 USD offer. It is not because you have found some loophole, as made clear by David Webb, in your byzantine listings between Bermuda-Singapore-London that you are required to put your "Gangster" hat on and use it. The "Governance" hat could have been used, a fair buyout of Strategic shareholders could have been chosen but...it was not. The 33 USD offer price might have been a 20% premium to last Friday's closing price but other than that it was a completely arbitrary number unrelated to its Net Asset Value.Any ESG fund worth their name in salt should therefore shun Jardine and any of its subsidiaries as the directors at Jardine are mostly the same directors at Dairy Farm Intl Hldgs (DFI SP), Mandarin Oriental Intl (MAND SP), Hongkong Land (HKL SP)  and Jardine Cycle &amp; Carriage (JCNC SP). If you do invest in any of the above know one thing: the ESG statements in their annual reports are not worth the paper they are written on. Buyer beware.

G Stands for Governance: When Jardine Makes a Mockery of ESG; JS Publishes 58.22 USD NAV on 31/12/20

United Kingdom

HSBC Holdings plc is the holding company for the HSBC Group. The Company provides a variety of international banking and financial services, including retail and corporate banking, trade, trusteeship, securities, custody, capital markets, treasury, private and investment banking, and insurance.  The Group operates worldwide.

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HSBC Holdings (5 HK)

HSBC – Cratering UK Exports

We now have a good view on the financial impact to UK from leaving the EU. Trade figures are cratering. It may not be the best time to be...

Daniel Tabbush

Bank Negara Indonesia – MOSOE Tosses A Grenade

Bank Negara Indonesia: Without any detail the MOSOE announced that BBNI will seek a rights offering in 2022. We calculate a minimum loss reserve...

Thomas J. Monaco

Bank Credit Weekly: Inflection Point or Fed Disappoint?

We are set-up for 2 disappointing Fed outcomes which could create buying opportunities. Meanwhile, Treasuries may have seen the worst of their sell...

Hank Calenti, CFA

European Bank Screens 4Q20 – Our Picks in the Rotation to Value

The rotation to value benefits European banks, and there is further to go. 4Q20 results show resilient balance sheets; we focus on HSBC, Unicredit,...

Victor Galliano

G Stands for Governance: When Jardine Makes a Mockery of ESG; JS Publishes 58.22 USD NAV on 31/12/20

ESG is the buzzword "du jour". When the G in ESG gets put to the test in the recent Jardine Strategic buyout the 33 USD offer price looks extremely...

Nicolas Van Broekhoven

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