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

<ul>
<li>HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures. </li>
<li>The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.</li>
<li>Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC. </li>
</ul>


HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures. 
The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.
Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC. 


HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>There are 5 changes for the <a href="https://www.smartkarma.com/entities/shanghai-stock-exchange-sse-50-a-share-index" target="_blank" data-smartkarma-citation="entities:31073:1" rel="noopener">SSE50 Index (SSE50 INDEX)</a> that will be implemented at the close on 14 June. There is over 1x ADV to trade on most stocks.</li>
<li>The index committee has focused on sector balance with higher ranked stocks from the Financials sector ignored and lower ranked stocks from other sectors included.</li>
<li>The adds have outperformed the deletes over the last 6 months and positioning (especially on the surprises) could lead to further upside for a long/short trade.</li>
</ul>


There are 5 changes for the SSE50 Index (SSE50 INDEX) that will be implemented at the close on 14 June. There is over 1x ADV to trade on most stocks.
The index committee has focused on sector balance with higher ranked stocks from the Financials sector ignored and lower ranked stocks from other sectors included.
The adds have outperformed the deletes over the last 6 months and positioning (especially on the surprises) could lead to further upside for a long/short trade.


SSE50/SSE180 Index Rebalance: Heavy Focus on Sector Balance

<ul>
<li>With the review period nearing completion, 6 stocks are in inclusion zone and 8 are in deletion zone. However, there can be a maximum of 5 changes at a review.</li>
<li>We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn (US$1.34bn). Index arb balances could increase the impact on the stocks.</li>
<li>The inflows into mainland China ETFs have further increased the flow and impact on the potential changes. The potential adds have continued to outperform the potential deletes.</li>
</ul>


With the review period nearing completion, 6 stocks are in inclusion zone and 8 are in deletion zone. However, there can be a maximum of 5 changes at a review.
We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn (US$1.34bn). Index arb balances could increase the impact on the stocks.
The inflows into mainland China ETFs have further increased the flow and impact on the potential changes. The potential adds have continued to outperform the potential deletes.


SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade

<ul>
<li>HSBC will release its results on Thursday and there remains risk of far worse credit metrics, not only related to CRE lending in HK and China</li>
<li>Construction loan risks are tangentially related to CRE and are also considered fairly high risk, where HSBC can see sizable migration to stage 3 loans</li>
<li>HSBC remains highly concentrated in UK and N America in its wholesale lending book, which we do not believe is well understood, and risky given economies</li>
</ul>


HSBC will release its results on Thursday and there remains risk of far worse credit metrics, not only related to CRE lending in HK and China
Construction loan risks are tangentially related to CRE and are also considered fairly high risk, where HSBC can see sizable migration to stage 3 loans
HSBC remains highly concentrated in UK and N America in its wholesale lending book, which we do not believe is well understood, and risky given economies


HSBC - Results on Thursday, Risk of BoCom Mark Down, Heavy UK, US Corporate Lending Not Positive

<ul>
<li>In the most recent quarters HSBC saw its NIM decline from around 1.7% to 1.5%</li>
<li>As the bank de-risks its CRE lending it is left with a greater proportion of bad CRE loans</li>
<li>There can be more significant impairment charges on BoCom, the USD3bn done was small</li>
</ul>


In the most recent quarters HSBC saw its NIM decline from around 1.7% to 1.5%
As the bank de-risks its CRE lending it is left with a greater proportion of bad CRE loans
There can be more significant impairment charges on BoCom, the USD3bn done was small


HSBC - The Narrative Seems to Be Missing Many Points of the Reality

China

Bank of Communications Co.,Ltd. provides banking services. The Company offers deposits, loans, domestic settlement, currency trading, and other services. Bank of Communications provides its services to individuals, enterprises, and other clients.

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Bank of Communications (601328 CH)

HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

HSBC still carries its 19% investment in BoCom at a very high value compared with the market value and with a far weaker China outlook, we are not...

Daniel Tabbush

SSE50/SSE180 Index Rebalance: Heavy Focus on Sector Balance

There are 5 changes for the SSE50 Index that will be implemented at the close on 14 June. Sector balance was a big consideration at the review....

Brian Freitas

SSE50 Index Rebalance Preview: 5 Changes and US$2.7bn Round-Trip Trade

There could be 5 index changes in June. We estimate a one-way turnover of 7% at the June rebalance leading to a one-way trade of CNY 9.7bn...

Brian Freitas

HSBC - Results on Thursday, Risk of BoCom Mark Down, Heavy UK, US Corporate Lending Not Positive

Bank of Nova Scotia's further and sizeable goodwill impairment on its China bank holding during its 4Q ending October 2024, suggests that HSBC may...

Daniel Tabbush

HSBC - The Narrative Seems to Be Missing Many Points of the Reality

The HSBC narrative seems to be missing much of the reality: the sharp drop in NIM in 4Q23, the worsening proportion of bad CRE loans to total, and...

Daniel Tabbush

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