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.

Thematic (Sector/Industry)

It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for almost every reporting bank in the June quarter, at least so far. Most will recognize by now that this crisis is not like past crises, and that as we turn economies back on, together with unprecedented stimulus, low interest rates, the recovery profile can also be very different. We are seeing this within many economies and Japan’s banks stand out, globally. Their credit cost delta is generally higher than others and what matters more is that some have seen their previous six months’ credit costs still far higher than recent years. This can mean substantially lower provisions in coming quarters, leading to substantially higher profit.

It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for almost every reporting bank in the June quarter, at least so far. Most will recognize by now that this crisis is not like past crises, and that as we turn economies back on, together with unprecedented stimulus, low interest rates, the recovery profile can also be very different. We are seeing this within many economies and Japan’s banks stand out, globally. Their credit cost delta is generally higher than others and what matters more is that some have seen their previous six months’ credit costs still far higher than recent years. This can mean substantially lower provisions in coming quarters, leading to substantially higher profit.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/784/original/2020-07-30_08-23-32.png?1596065031" class="editor-image img-responsive" data-smartkarma-image-id="148784"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/785/original/2020-07-30_08-24-39.png?1596065092" class="editor-image img-responsive" data-smartkarma-image-id="148785"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/148/786/original/2020-07-30_08-25-16.png?1596065140" class="editor-image img-responsive" data-smartkarma-image-id="148786"></figure><div class="content-caption">Source • Japan Analytics</div>
29th JULY - As the pace of announcements picks up, <a href="https://www.smartkarma.com/entities/ana-holdings-inc" target="_blank" data-smartkarma-citation="entities:5308:1" rel="noopener">ANA (9202 JP)</a>, <a href="https://www.smartkarma.com/entities/showa-corp" target="_blank" data-smartkarma-citation="entities:15079:1" rel="noopener">Showa (7274 JP)</a>, and <a href="https://www.smartkarma.com/entities/isetan-mitsukoshi-holdings-ltd" target="_blank" data-smartkarma-citation="entities:18871:1" rel="noopener">Isetan Mitsukoshi (3099 JP)</a> were the three 'worst' large-cap results yesterday in terms of our scoring methodology. In the DETAIL below, we cover all the results and forecasts for companies with a market cap of over ¥100 billion and make some trading suggestions.
<hr>
DAILY STATS
</div><hr><div>85 Quarterly Results</div><div><ul>
<li>
Results Score: 30 Positive / 5 Neutral / 50 Negative</li>
<li>
Average Results Score Change: -2.4</li>
<li>
Average % Change in Revenue: -9.7% Quarter YoY / -2.7% Rolling TTM YoY </li>
<li>
Average Operating Profit Margin Change: -1.0ppt</li>
<li>
Percentage Making Quarterly Losses: 24%</li>
</ul></div><hr><div> 35 Annual • 15 Interim Forecasts/Revisions</div><div><ul>
<li>
Annual Forecast/Revision Score: 6 Positive / 1 Neutral / 28 Negative</li>
<li>
Interim Forecast/Revision Score Change: 4 Positive / 0 Neutral / 11 Negative</li>
<li>
Average Forecast/Revision Score Change: -12.8</li>
</ul></div>


Source • Japan Analytics
29th JULY - As the pace of announcements picks up, ANA (9202 JP), Showa (7274 JP), and Isetan Mitsukoshi (3099 JP) were the three 'worst' large-cap results yesterday in terms of our scoring methodology. In the DETAIL below, we cover all the results and forecasts for companies with a market cap of over ¥100 billion and make some trading suggestions.

DAILY STATS
85 Quarterly Results

Results Score: 30 Positive / 5 Neutral / 50 Negative

Average Results Score Change: -2.4

Average % Change in Revenue: -9.7% Quarter YoY / -2.7% Rolling TTM YoY 

Average Operating Profit Margin Change: -1.0ppt

Percentage Making Quarterly Losses: 24%
 35 Annual • 15 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 6 Positive / 1 Neutral / 28 Negative

Interim Forecast/Revision Score Change: 4 Positive / 0 Neutral / 11 Negative

Average Forecast/Revision Score Change: -12.8


🇯🇵 JAPAN • Results & Revisions 29th July - Kao, SMFG, Nomura, NRI, Asahi Holdings, NRE

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

Equity Bottom-Up

*Lower Costs and Under-Provisioning Support Result: Bank Central Asia’ (BBCA.IJ) [BCA] reported 2Q20 earnings results of IDR of 5.7 bn, declining IDR 924 mn (14.0%) linked quarter – and missing consensus forecasts. However, if we exclude securities gains we find that core operating results actually improved linked quarter by IDR 1.3 bn (30.2%) to IDR 5.8 bn. While BCA was – like most banks around the word – was ravaged by credit weakness, the story for the quarter is management’s ability to quickly rein-in costs; and*Accelerating Credit Risk Supported By Lower Reserves: BCA’s NPLs increased IDR 2.5 bn (26.5%) linked quarter, and amount to 2.09% of total loans – up 18 bp over the period. 2020 guidance, however, remains unchanged at between 2.5-2.7%.NPL recognition of loans within the restructuring process/moratorium are throwing a wrench into BCA’s forecasts, however. As it stands, reserves were bled against both total loans and NPLs linked quarter (seemingly not taking potential losses of its forecast moratorium book into account) declined 25 bp and 45.3%, respectively, to 2.05% and 99.1%.

*Lower Costs and Under-Provisioning Support Result: Bank Central Asia’ (BBCA.IJ) [BCA] reported 2Q20 earnings results of IDR of 5.7 bn, declining IDR 924 mn (14.0%) linked quarter – and missing consensus forecasts. However, if we exclude securities gains we find that core operating results actually improved linked quarter by IDR 1.3 bn (30.2%) to IDR 5.8 bn. While BCA was – like most banks around the word – was ravaged by credit weakness, the story for the quarter is management’s ability to quickly rein-in costs; and*Accelerating Credit Risk Supported By Lower Reserves: BCA’s NPLs increased IDR 2.5 bn (26.5%) linked quarter, and amount to 2.09% of total loans – up 18 bp over the period. 2020 guidance, however, remains unchanged at between 2.5-2.7%.NPL recognition of loans within the restructuring process/moratorium are throwing a wrench into BCA’s forecasts, however. As it stands, reserves were bled against both total loans and NPLs linked quarter (seemingly not taking potential losses of its forecast moratorium book into account) declined 25 bp and 45.3%, respectively, to 2.05% and 99.1%.

Bank Central Asia – Hunkering Down Is Not Helping

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Spare a thought for the poor, embattled Japanese banker.  In this COVID-19-altered world, his biggest problem is that he has too much money.  Way, way too much money.  Money keeps piling in through the branch doors faster than he can put it to work, shovelling it out to customers as loans or investing it in minimal-return securities.
In our recent Insight <a href="https://www.smartkarma.com/insights/japanese-banks-ill-winds" target="_blank" data-smartkarma-citation="insights:41530" rel="noopener">Japanese Banks:  Ill Winds</a> we noted that YoY loan growth for the major Japanese banks in June 2020 hit an all-time record high of +9.4%.  That’s the good news.  The bad news is that average deposits at the major banks rose +10.3% YoY in May and then a record +12.0% YoY in June, according to the Japanese Bankers Association (JBA).  Major corporates drew down on their credit lines as a precaution against a prolonged economic downturn and then parked the additional cash with their bankers for safe-keeping until needed.  The megabankers are drowning in cash: their loan to deposit ratios (LDR)  -  an important measure of overall efficiency  -  have collapsed to just 52%, whereas back in 2001 they were close to 98%.  In the meantime, margins remain under pressure amidst this hyper-liquidity, banks are struggling to make any profit on their domestic book, unrealised securities gains have been whittled away, and credit costs are rising exponentially.
While many Japanese bank stocks have risen by double-digits over the last three months, rising on a gentle tide of cautious investor optimism over the outlook for recovery in Japan’s manufacturing sector post-COVID-19, it remains a fact that Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

Spare a thought for the poor, embattled Japanese banker.  In this COVID-19-altered world, his biggest problem is that he has too much money.  Way, way too much money.  Money keeps piling in through the branch doors faster than he can put it to work, shovelling it out to customers as loans or investing it in minimal-return securities.
In our recent Insight Japanese Banks:  Ill Winds we noted that YoY loan growth for the major Japanese banks in June 2020 hit an all-time record high of +9.4%.  That’s the good news.  The bad news is that average deposits at the major banks rose +10.3% YoY in May and then a record +12.0% YoY in June, according to the Japanese Bankers Association (JBA).  Major corporates drew down on their credit lines as a precaution against a prolonged economic downturn and then parked the additional cash with their bankers for safe-keeping until needed.  The megabankers are drowning in cash: their loan to deposit ratios (LDR)  -  an important measure of overall efficiency  -  have collapsed to just 52%, whereas back in 2001 they were close to 98%.  In the meantime, margins remain under pressure amidst this hyper-liquidity, banks are struggling to make any profit on their domestic book, unrealised securities gains have been whittled away, and credit costs are rising exponentially.
While many Japanese bank stocks have risen by double-digits over the last three months, rising on a gentle tide of cautious investor optimism over the outlook for recovery in Japan’s manufacturing sector post-COVID-19, it remains a fact that Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

It’s an ill wind that blows nobody any good, as the saying goes.  While Japanese industry is starting to count the economic cost of the coronavirus pandemic in terms of lost production and the global disruption to the supply chain, some Japanese banks have seen a remarkable surge in loan demand as major companies rush to secure lines of credit and draw down cash reserves in order to survive what is shaping up to be a prolonged economic recession.  Overall lending rose +6.8% YoY in June – the highest year-on-year increase recorded in the last 20 years, led by the megabanks and other major banks whose loan balances rose by an average of +9.4% YoY: a new all-time record.  Whether this is the start of a trend or is simply a short-term phenomenon remains to be seen, as is the question of whether these new loans are economically rational, depending on the interest rate applied.  ‘Profitless prosperity’ remains a clear and present danger for the Japanese banks post-COVID-19.Be that as it may, the fundamental outlook for Japan’s banks has not improved in CY2020: if anything, the outlook for FY3/2021 and beyond is even more uncertain than it was prior to the coronavirus pandemic.  As we have frequently pointed out in past Insights, margins remain under downward pressure, many banks (both big and small) remain underwater on their core domestic businesses, and credit costs are rising across the board as Japanese banks brace for a new wave of corporate failures in the wake of the coronavirus pandemic.While many Japanese bank stocks have risen by double-digits over the last three months, rising on a gentle tide of cautious investor optimism over the outlook for recovery in Japan’s manufacturing sector post-COVID-19, it remains a fact that Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

It’s an ill wind that blows nobody any good, as the saying goes.  While Japanese industry is starting to count the economic cost of the coronavirus pandemic in terms of lost production and the global disruption to the supply chain, some Japanese banks have seen a remarkable surge in loan demand as major companies rush to secure lines of credit and draw down cash reserves in order to survive what is shaping up to be a prolonged economic recession.  Overall lending rose +6.8% YoY in June – the highest year-on-year increase recorded in the last 20 years, led by the megabanks and other major banks whose loan balances rose by an average of +9.4% YoY: a new all-time record.  Whether this is the start of a trend or is simply a short-term phenomenon remains to be seen, as is the question of whether these new loans are economically rational, depending on the interest rate applied.  ‘Profitless prosperity’ remains a clear and present danger for the Japanese banks post-COVID-19.Be that as it may, the fundamental outlook for Japan’s banks has not improved in CY2020: if anything, the outlook for FY3/2021 and beyond is even more uncertain than it was prior to the coronavirus pandemic.  As we have frequently pointed out in past Insights, margins remain under downward pressure, many banks (both big and small) remain underwater on their core domestic businesses, and credit costs are rising across the board as Japanese banks brace for a new wave of corporate failures in the wake of the coronavirus pandemic.While many Japanese bank stocks have risen by double-digits over the last three months, rising on a gentle tide of cautious investor optimism over the outlook for recovery in Japan’s manufacturing sector post-COVID-19, it remains a fact that Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

Japan

Mitsubishi UFJ Financial Group, Inc. (MUFG) is a holding company established through the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings. As a financial group, the Company provides a variety of financial and investment services including commercial banking, trust banking, international finance, and assets management services.

Mitsubishi UFJ Financial (MUFG) ADR (MUFG US)

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Mitsubishi UFJ Financial (MUFG) ADR (MUFG US)

Japan Banks – Rare Time to Shine?

It is rare for Japan’s banks to shine. We wonder if this is now their time and even if only fleetingly so? Credit costs are down substantially for...

Daniel Tabbush

🇯🇵 JAPAN • Results & Revisions 29th July - Kao, SMFG, Nomura, NRI, Asahi Holdings, NRE

29th JULY - As the pace of announcements picks up, ANA (9202 JP), Showa (7274 JP), and Isetan Mitsukoshi (3099 JP) were the three 'worst'...

Campbell Gunn

Bank Central Asia – Hunkering Down Is Not Helping

*Lower Costs and Under-Provisioning Support Result: Bank Central Asia’ (BBCA.IJ) [BCA] reported 2Q20 earnings results of IDR of 5.7 bn, declining...

Thomas J. Monaco

Japanese Banks - Drowning in Liquidity

Spare a thought for the poor, embattled Japanese banker. In this COVID-19-altered world, his biggest problem is that he has too much money. Way,...

J. Brian Waterhouse

Japanese Banks: Ill Winds

It’s an ill wind that blows nobody any good, as the saying goes. While Japanese industry is starting to count the economic cost of the coronavirus...

J. Brian Waterhouse

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52-week Range

Market Cap (USDm)

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