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

Thematic (Sector/Industry)

* ECB Potentially Killing Dividends: The European Central Bank (ECB) is likely to make a final decision next week on whether to allow banks to pay dividends in 2020 from 2019 results. The ECB leaning towards not allowing banks to pay dividends;*Asia-Pacific Likely To Follow: The financial sectors of Japan, Australia, mainland China, and India had been experiencing feeling capital pressures prior to COVID-19, now the entire Asia-Pacific regions would appear to be in the same boat. As such, we look for the entire region to follow the ECB’s lead on dividends – possibly even some of the ECB’s more ridiculous capital forbearance moves; and    *Europeans Banks Not Likely At Risk: BNP Paribas (BNP.FP) and Intesa Sanpaolo (ISP.IM) likely have the best lobbying power to pay a dividend in the event that national regulators are given the discretion to allow dividends. On a regulatory capital basis, as noted in our “DNB ASA – Window to Be Constructive Is Now Open” report dated July 13, 2020, DNB ASA (DNB.NO) remains best positioned to resume dividend payment and share buybacks, as CET1 is already back in compliance with pre-COV-19 capital target excluding all regulatory forbearance.

* ECB Potentially Killing Dividends: The European Central Bank (ECB) is likely to make a final decision next week on whether to allow banks to pay dividends in 2020 from 2019 results. The ECB leaning towards not allowing banks to pay dividends;*Asia-Pacific Likely To Follow: The financial sectors of Japan, Australia, mainland China, and India had been experiencing feeling capital pressures prior to COVID-19, now the entire Asia-Pacific regions would appear to be in the same boat. As such, we look for the entire region to follow the ECB’s lead on dividends – possibly even some of the ECB’s more ridiculous capital forbearance moves; and    *Europeans Banks Not Likely At Risk: BNP Paribas (BNP.FP) and Intesa Sanpaolo (ISP.IM) likely have the best lobbying power to pay a dividend in the event that national regulators are given the discretion to allow dividends. On a regulatory capital basis, as noted in our “DNB ASA – Window to Be Constructive Is Now Open” report dated July 13, 2020, DNB ASA (DNB.NO) remains best positioned to resume dividend payment and share buybacks, as CET1 is already back in compliance with pre-COV-19 capital target excluding all regulatory forbearance.

ECB Dividend Action Likely Leads to Similar Moves In Asia

Equity Bottom-Up

*Operating Losses Posted Early In Cycle: Kasikornbank PCL (KBANK-R.TB) [KBank] reported 2Q20 results of THB 2.2 bn  - declining THB 5.2 bn (70.5%) on a linked quarter basis. Operating results which exclude the gain on sale of securities, however, were far worse than expectations at negative THB 2.8 bn versus a positive THB 7.5 bn in 1Q20;   *Elevated Credit Risk and Provisions: Credit risk remains elevated at 2Q20, as stated NPLs and impaired assets increased THB 4.5 bn (5.7%) and THB 14.1 bn (5.2%), respectively, and represent 3.92% and 13.38% of total loans. Net new NPLs and net new impaired loans have increased THB 13.9 bn and THB 15.1 bn linked quarter or by 70.3% and 22.3% on annualized basis, respectively.  While provisions covered NCOs by 217%, we continue to believe that KBank’s loan loss reserve falls short by close to THB 50.0 bn or nearly 10 quarters of 2Q20 pre-tax results; and   *NIM Pressures Expected: On a linked quarter basis, we find that net interest income declined THB 1.0 bn (3.6%) reflecting the BOT’s reduction in benchmark lending rates which caused NIM to contract 27 bp to 3.22%. While we anticipate the roll forward of lower lending rates to continue to impact NIMs, we are also fearful that the rising loan default rates will be additive to foregone interest income and that increased balance sheet liquidity will pressure NIMs as well.

*Operating Losses Posted Early In Cycle: Kasikornbank PCL (KBANK-R.TB) [KBank] reported 2Q20 results of THB 2.2 bn  - declining THB 5.2 bn (70.5%) on a linked quarter basis. Operating results which exclude the gain on sale of securities, however, were far worse than expectations at negative THB 2.8 bn versus a positive THB 7.5 bn in 1Q20;   *Elevated Credit Risk and Provisions: Credit risk remains elevated at 2Q20, as stated NPLs and impaired assets increased THB 4.5 bn (5.7%) and THB 14.1 bn (5.2%), respectively, and represent 3.92% and 13.38% of total loans. Net new NPLs and net new impaired loans have increased THB 13.9 bn and THB 15.1 bn linked quarter or by 70.3% and 22.3% on annualized basis, respectively.  While provisions covered NCOs by 217%, we continue to believe that KBank’s loan loss reserve falls short by close to THB 50.0 bn or nearly 10 quarters of 2Q20 pre-tax results; and   *NIM Pressures Expected: On a linked quarter basis, we find that net interest income declined THB 1.0 bn (3.6%) reflecting the BOT’s reduction in benchmark lending rates which caused NIM to contract 27 bp to 3.22%. While we anticipate the roll forward of lower lending rates to continue to impact NIMs, we are also fearful that the rising loan default rates will be additive to foregone interest income and that increased balance sheet liquidity will pressure NIMs as well.

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.

There is a major credit cost improvement across many banks globally during 2Q20. This is likely driven by improved credit modeling for defaults and losses, which will be driven in large part by economic recovery, rising oil prices and unprecedented central bank and government support. This does not mean that there risks do not remain, but it shows that perhaps many banks took too much provisions during 1Q20. Some banks stand out, where credit costs were several times higher than full year 2019.

There is a major credit cost improvement across many banks globally during 2Q20. This is likely driven by improved credit modeling for defaults and losses, which will be driven in large part by economic recovery, rising oil prices and unprecedented central bank and government support. This does not mean that there risks do not remain, but it shows that perhaps many banks took too much provisions during 1Q20. Some banks stand out, where credit costs were several times higher than full year 2019.

'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.

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/891/original/2020-07-20_11-11-13.png?1595211104" class="editor-image img-responsive" data-smartkarma-image-id="146891"></figure><div class="content-caption">Source • Japan Analytics</div>THE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing low of 1,236.34 on 16th March, the index has recovered by 27%. However, it has only been in the last ten trading days that the number of new two-year share price highs and lows has consistently been in double-digits.  This month has seen 136 new two-year lows and 214 new two-year highs. Whatever the impact of COVID-19 on earnings, the market is very clearly signalling its preferences for COVID 'Heroes &amp; Villains'. In the DETAIL section below, we shall look at the leading large caps in both categories and suggest opportunities in each.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/894/original/2020-07-20_11-42-42.png?1595213322" class="editor-image img-responsive" data-smartkarma-image-id="146894"></figure><div class="content-caption">Source • Japan Analytics</div>RELATIVE PRICE - We shall also conduct the same analysis using our Relative Price Score methodology. The July numbers are 469 Relative Price Score new lows and 229 new highs suggesting a high degree of market polarity as confirmed by the percentages of market value in Overbought and Oversold Stocks - which are both at twenty-year highs.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/146/895/original/2020-07-20_11-58-18.png?1595214235" class="editor-image img-responsive" data-smartkarma-image-id="146895"></figure><div class="content-caption">Source • Japan Analytics</div>RESULTS DRIVER - We expect the number of absolute 'heroes and villains' to increase in the next two months as the COVID fallout on earnings is revealed, and will provide further updates as we progress.

Source • Japan AnalyticsTHE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing low of 1,236.34 on 16th March, the index has recovered by 27%. However, it has only been in the last ten trading days that the number of new two-year share price highs and lows has consistently been in double-digits.  This month has seen 136 new two-year lows and 214 new two-year highs. Whatever the impact of COVID-19 on earnings, the market is very clearly signalling its preferences for COVID 'Heroes &amp; Villains'. In the DETAIL section below, we shall look at the leading large caps in both categories and suggest opportunities in each.Source • Japan AnalyticsRELATIVE PRICE - We shall also conduct the same analysis using our Relative Price Score methodology. The July numbers are 469 Relative Price Score new lows and 229 new highs suggesting a high degree of market polarity as confirmed by the percentages of market value in Overbought and Oversold Stocks - which are both at twenty-year highs.Source • Japan AnalyticsRESULTS DRIVER - We expect the number of absolute 'heroes and villains' to increase in the next two months as the COVID fallout on earnings is revealed, and will provide further updates as we progress. 

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a bottom-line of NOK 5.0 bn – exceeding 1Q20 results by NOK 1.0 bn or 25.5%. This outperformance was even more pronounced on an operating basis with 2Q20 ahead of the linked quarter result by NOK 1.8 bn or 55.3%. Results were primarily driven by a NOK 3.7 bn (63.3%) decline in loss provisions – which may be somewhat premature; and a NOK 572 mn (9.7%) decline in operating expenses due primarily to lower pension costs.*Management Quite Positive: Management seems to be pleased where DNB is heading, as CEO Braathen has stated that "we’ve seen a gradual but much more rapid recovery than I think we dared to hope for entering the quarter”, and that “June, in particular, was a very strong month for activities in investment banking and housing sales and consumer spending"; and   *Possible Dividend Return: DNB does have best-in-class capital with its CET1 of 18.2%, which is already back above 17.9% pre-COVID-19 CET1 target and nearing its prior peak (4Q19) of 18.6%. Politics aside, DNB does appear to be the first European bank which will be allowed to resume both dividends and share buybacks.

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a bottom-line of NOK 5.0 bn – exceeding 1Q20 results by NOK 1.0 bn or 25.5%. This outperformance was even more pronounced on an operating basis with 2Q20 ahead of the linked quarter result by NOK 1.8 bn or 55.3%. Results were primarily driven by a NOK 3.7 bn (63.3%) decline in loss provisions – which may be somewhat premature; and a NOK 572 mn (9.7%) decline in operating expenses due primarily to lower pension costs.*Management Quite Positive: Management seems to be pleased where DNB is heading, as CEO Braathen has stated that "we’ve seen a gradual but much more rapid recovery than I think we dared to hope for entering the quarter”, and that “June, in particular, was a very strong month for activities in investment banking and housing sales and consumer spending"; and   *Possible Dividend Return: DNB does have best-in-class capital with its CET1 of 18.2%, which is already back above 17.9% pre-COVID-19 CET1 target and nearing its prior peak (4Q19) of 18.6%. Politics aside, DNB does appear to be the first European bank which will be allowed to resume both dividends and share buybacks.

DNB ASA – Window To Be Constructive Is Open

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)

ECB Dividend Action Likely Leads to Similar Moves In Asia

* ECB Potentially Killing Dividends: The European Central Bank (ECB) is likely to make a final decision next week on whether to allow banks to pay...

Thomas J. Monaco

Kasikornbank – Pressure Cooker

*Operating Losses Posted Early In Cycle: Kasikornbank PCL (KBANK-R.TB) [KBank] reported 2Q20 results of THB 2.2 bn - declining THB 5.2 bn (70.5%)...

Thomas J. Monaco

Banks – Credit Cost Delta

There is a major credit cost improvement across many banks globally during 2Q20. This is likely driven by improved credit modeling for defaults and...

Daniel Tabbush

🇯🇵 JAPAN • The Hundred Days War - COVID Heroes & Villains

THE 'HUNDRED DAYS WAR' - It is almost one hundred days since the equity markets began to discount the onset of COVID-19. Since the TOPIX closing...

Campbell Gunn

DNB ASA – Window To Be Constructive Is Open

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a...

Thomas J. Monaco

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