Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

On Friday post market close, S&amp;P Dow Jones announced the results of the September review for the <a href="https://www.smartkarma.com/entities/s-p-500" target="_blank" data-smartkarma-citation="entities:22886:1" rel="noopener">S&amp;P 500 (SPX INDEX)</a> that will be effective after the close of trading on 17 September.There are 3 inclusion -  <a href="https://www.smartkarma.com/entities/match-group-inc" target="_blank" data-smartkarma-citation="entities:25903:1" rel="noopener">Match Group Inc (MTCH US)</a>, <a href="https://www.smartkarma.com/entities/ceridian-hcm-holding-inc" target="_blank" data-smartkarma-citation="entities:27122:1" rel="noopener">Ceridian HCM Holding Inc (CDAY US)</a> and <a href="https://www.smartkarma.com/entities/brown-brown-inc" target="_blank" data-smartkarma-citation="entities:19532:1" rel="noopener">Brown &amp; Brown (BRO US)</a>, while the exclusions are <a href="https://www.smartkarma.com/entities/unum-group" target="_blank" data-smartkarma-citation="entities:2521:1" rel="noopener">Unum Group (UNM US)</a>, <a href="https://www.smartkarma.com/entities/national-oilwell-varco-inc" target="_blank" data-smartkarma-citation="entities:3046:1" rel="noopener">National Oilwell Varco (NOV US)</a> and <a href="https://www.smartkarma.com/entities/perrigo-co-plc" target="_blank" data-smartkarma-citation="entities:869:1" rel="noopener">Perrigo Co Plc (PRGO US)</a>.There are inclusions/exclusions to the S&amp;P MidCap 400 and the S&amp;P SmallCap 600 as well.The stocks with the largest impact from passive buying are <a href="https://www.smartkarma.com/entities/match-group-inc" target="_blank" data-smartkarma-citation="entities:25903:1" rel="noopener">Match Group Inc (MTCH US)</a>, <a href="https://www.smartkarma.com/entities/tandem-diabetes-care-inc" target="_blank" data-smartkarma-citation="entities:20893:1" rel="noopener">Tandem Diabetes Care (TNDM US)</a>, <a href="https://www.smartkarma.com/entities/brown-brown-inc" target="_blank" data-smartkarma-citation="entities:19532:1" rel="noopener">Brown &amp; Brown (BRO US)</a>, UniqureNV (QURE US) and <a href="https://www.smartkarma.com/entities/ceridian-hcm-holding-inc" target="_blank" data-smartkarma-citation="entities:27122:1" rel="noopener">Ceridian HCM Holding Inc (CDAY US)</a>.The stocks with the largest impact from passive selling are <a href="https://www.smartkarma.com/entities/united-insurance-holdings-corp" target="_blank" data-smartkarma-citation="entities:19222:1" rel="noopener">United Insurance Holdings (UIHC US)</a>, <a href="https://www.smartkarma.com/entities/team-inc" target="_blank" data-smartkarma-citation="entities:6811:1" rel="noopener">Team Inc (TISI US)</a>, <a href="https://www.smartkarma.com/entities/unum-group" target="_blank" data-smartkarma-citation="entities:2521:1" rel="noopener">Unum Group (UNM US)</a>, <a href="https://www.smartkarma.com/entities/perrigo-co-plc" target="_blank" data-smartkarma-citation="entities:869:1" rel="noopener">Perrigo Co Plc (PRGO US)</a> and <a href="https://www.smartkarma.com/entities/national-oilwell-varco-inc" target="_blank" data-smartkarma-citation="entities:3046:1" rel="noopener">National Oilwell Varco (NOV US)</a>.There are a lot of other stocks that will have a lot to buy/sell from passive funds due to changes in the number of shares and free float and due to funding flows.

On Friday post market close, S&amp;P Dow Jones announced the results of the September review for the S&amp;P 500 (SPX INDEX) that will be effective after the close of trading on 17 September.There are 3 inclusion -  Match Group Inc (MTCH US), Ceridian HCM Holding Inc (CDAY US) and Brown &amp; Brown (BRO US), while the exclusions are Unum Group (UNM US), National Oilwell Varco (NOV US) and Perrigo Co Plc (PRGO US).There are inclusions/exclusions to the S&amp;P MidCap 400 and the S&amp;P SmallCap 600 as well.The stocks with the largest impact from passive buying are Match Group Inc (MTCH US), Tandem Diabetes Care (TNDM US), Brown &amp; Brown (BRO US), UniqureNV (QURE US) and Ceridian HCM Holding Inc (CDAY US).The stocks with the largest impact from passive selling are United Insurance Holdings (UIHC US), Team Inc (TISI US), Unum Group (UNM US), Perrigo Co Plc (PRGO US) and National Oilwell Varco (NOV US).There are a lot of other stocks that will have a lot to buy/sell from passive funds due to changes in the number of shares and free float and due to funding flows.

S&P500 Index Rebalance: Swiping Right on Match

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

*Tax Loss Carryforwards Drive Bottom Line: Bank of America (BAC.US) [BAC] reported 2Q21 bottom-line results of USD 9.0 bn, increasing USD 1.4 bn (18.6%) linked quarter. The USD 1.2 bn usage of tax loss carryforwards was the sole reason BAC’s 2Q21 bottom-line exceeded that of 1Q21. If BAC were taxed at the 1Q21 rate, the bottom-line result would have been closer to USD 7.1 bn or USD 500 mn (6.6%) lower on a linked quarter basis; and*BAC’s Credit Quality Best Of Money Centers: We note that net new NPLs decelerated to USD 184 mn or 13.9% on an annualized basis – far better than the USD 957 mn or 74.8% posted in 1Q21. To put this result into perspective, JPM and Citigroup each reported large increases net new NPLs on a linked quarter basis of 177% and 48%, respectively. BAC would appear to have a very comfortable reserve cushion given the run rate in net new NPLs.

*Tax Loss Carryforwards Drive Bottom Line: Bank of America (BAC.US) [BAC] reported 2Q21 bottom-line results of USD 9.0 bn, increasing USD 1.4 bn (18.6%) linked quarter. The USD 1.2 bn usage of tax loss carryforwards was the sole reason BAC’s 2Q21 bottom-line exceeded that of 1Q21. If BAC were taxed at the 1Q21 rate, the bottom-line result would have been closer to USD 7.1 bn or USD 500 mn (6.6%) lower on a linked quarter basis; and*BAC’s Credit Quality Best Of Money Centers: We note that net new NPLs decelerated to USD 184 mn or 13.9% on an annualized basis – far better than the USD 957 mn or 74.8% posted in 1Q21. To put this result into perspective, JPM and Citigroup each reported large increases net new NPLs on a linked quarter basis of 177% and 48%, respectively. BAC would appear to have a very comfortable reserve cushion given the run rate in net new NPLs.  

*Weaker Result Across Almost All Geographic Segments: Citigroup (C.US) [Citi] reported 2Q21 bottom-line results of USD 6.2 bn, decreasing USD 1.7 bn (22.0%) linked quarter. On operating basis, Citi posted results of USD 6.0 bn, USD 1.5 bn (93.3%) ahead of 1Q21 numbers. Negative operating jaws (revenues down 8.7% and costs up 1.1%) and weakness in both Global Consumer and Institutional businesses broke Citi this quarter; and*Credit Weaker But Coverage Strong:  In light of NCOs, net new NPLs amount to USD 616 mn or increasing at the same exact pace as 1Q21 at 48.0% on an annualized basis – although not nearly as bad as JPM’s 177% increase. While reserve cover remains strong in aggregate, credit degradation appears to still be on the rise going forward at Citi. That being said, despite the elevated increase, Citi still appears likely to continue down the road of reserve releases.

*Weaker Result Across Almost All Geographic Segments: Citigroup (C.US) [Citi] reported 2Q21 bottom-line results of USD 6.2 bn, decreasing USD 1.7 bn (22.0%) linked quarter. On operating basis, Citi posted results of USD 6.0 bn, USD 1.5 bn (93.3%) ahead of 1Q21 numbers. Negative operating jaws (revenues down 8.7% and costs up 1.1%) and weakness in both Global Consumer and Institutional businesses broke Citi this quarter; and*Credit Weaker But Coverage Strong:  In light of NCOs, net new NPLs amount to USD 616 mn or increasing at the same exact pace as 1Q21 at 48.0% on an annualized basis – although not nearly as bad as JPM’s 177% increase. While reserve cover remains strong in aggregate, credit degradation appears to still be on the rise going forward at Citi. That being said, despite the elevated increase, Citi still appears likely to continue down the road of reserve releases.

*Troubling Result: J.P. Morgan Chase &amp; Co (JPM.US) [JPM] reported 2Q21 bottom-line results of USD 11.9 bn, declining USD 2.4 bn (16.4%) linked quarter, as four out of five business units posted bottom-line declines pushing overall revenues lower USD 1.6 bn (5.0%). On a core operating basis, JPM’s results declined somewhat less – down USD 2.2 bn or 15.3% over the period. Results were weak almost across the board; and*Credit Quality Reversing Previous Gains: We calculate that net new NPLs linked quarter grew USD 4.9 bn bn or 177.3% on an annualized basis – a far cry from the 22.2% and 0.2% increase at 1Q21 and 4Q20, respectively. While JPM would appear on its face to be well-provided for, provision releases now appear to be coming to an end. If the current uptick in net new NPLs is here to stay, JPM would appear light on reserves in the neighborhood of USD 7.0 bn or 50% of quarterly PBT.

*Troubling Result: J.P. Morgan Chase &amp; Co (JPM.US) [JPM] reported 2Q21 bottom-line results of USD 11.9 bn, declining USD 2.4 bn (16.4%) linked quarter, as four out of five business units posted bottom-line declines pushing overall revenues lower USD 1.6 bn (5.0%). On a core operating basis, JPM’s results declined somewhat less – down USD 2.2 bn or 15.3% over the period. Results were weak almost across the board; and*Credit Quality Reversing Previous Gains: We calculate that net new NPLs linked quarter grew USD 4.9 bn bn or 177.3% on an annualized basis – a far cry from the 22.2% and 0.2% increase at 1Q21 and 4Q20, respectively. While JPM would appear on its face to be well-provided for, provision releases now appear to be coming to an end. If the current uptick in net new NPLs is here to stay, JPM would appear light on reserves in the neighborhood of USD 7.0 bn or 50% of quarterly PBT. 

*Competitor Call Confirms Business Is Dead: A competitor hosted a conference call with the management of HSBC Holdings plc (5.HK/HSBA.LN) [HSBC]. Much of the discussion centered on Hong Kong/Asia, where net interest income remains under pressure due to low spreads, credit remains benign, and now Wealth Management is again in focus; and    *Elephant In Room Not Discussed: CET 1 was 15.9% at 1Q21, and the Group continues to aim for between 14.0% -14.5%. Unfortunately there was no mention nor even a question on its US franchise, HSBC North America (HSBCNA), which if sold or even managed properly could would easily allow HSBC to realize its CET1 goal  - given the losses management still needs to take on that mess.

*Competitor Call Confirms Business Is Dead: A competitor hosted a conference call with the management of HSBC Holdings plc (5.HK/HSBA.LN) [HSBC]. Much of the discussion centered on Hong Kong/Asia, where net interest income remains under pressure due to low spreads, credit remains benign, and now Wealth Management is again in focus; and    *Elephant In Room Not Discussed: CET 1 was 15.9% at 1Q21, and the Group continues to aim for between 14.0% -14.5%. Unfortunately there was no mention nor even a question on its US franchise, HSBC North America (HSBCNA), which if sold or even managed properly could would easily allow HSBC to realize its CET1 goal  - given the losses management still needs to take on that mess.

HSBC Holdings Plc – Head Still Buried In The Sand

United States

Bank of America Corporation accepts deposits and offers banking, investing, asset management, and other financial and risk-management products and services.  The Company has a mortgage lending subsidiary, and an investment banking and securities brokerage subsidiary.

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Bank Of America (BAC US)

S&P500 Index Rebalance: Swiping Right on Match

There are 3 changes to the S&P500 that will be implemented at the close on 17 Sep. There are changes to the S&P400 & S&P600 as well. There will be...

Brian Freitas

Bank of America - Brian’s Song

Bank of America: USD 1.2 bn usage of tax loss carryforwards was the sole reason BAC’s 2Q21 results exceeded 1Q21. Net new NPLs decelerated from...

Thomas J. Monaco

Citigroup – Janes’ Pain

Citigroup: Citi reported a 22.0% QOQ 2Q21 bottom-line decline from negative operating jaws and weakness in Global Consumer and Institutional. Net...

Thomas J. Monaco

J.P. Morgan & Co. – Not Good Jamie

J.P. Morgan: JPM reported a QOQ decline in 2Q21 in bottom-line of 16.4%. Previous credit quality gains have reversed, leading us to question...

Thomas J. Monaco

HSBC Holdings Plc – Head Still Buried In The Sand

HSBC HOLDINGS: A competitor call with management centered on benign Hong Kong/Asia. The Group aim is a CET1 of 14-14.5%. No mention HSBC North...

Thomas J. Monaco

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