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

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] will report 1Q21 operating metrics on May 14, 2021. We anticipate a low base YOY rebound in VONB to USD 950 mn (15%). Mainland China and Malaysia should be this quarter’s standouts, whilst Hong Kong likely exhibits yet another decline in 1Q21 due to the border closure with mainland China;  and * China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong.

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] will report 1Q21 operating metrics on May 14, 2021. We anticipate a low base YOY rebound in VONB to USD 950 mn (15%). Mainland China and Malaysia should be this quarter’s standouts, whilst Hong Kong likely exhibits yet another decline in 1Q21 due to the border closure with mainland China;  and * China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong. 

AIA Group – 1Q21 Preview; Better But Off Low Base

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last Week in Event SPACE: Singapore Press, Tabcorp, Invesco Office, Justbon, IHH Healthcare, JD.com

On the 25 October 2013, <a href="https://www.smartkarma.com/entities/chong-hing-bank-ltd" target="_blank" data-smartkarma-citation="entities:344:1" rel="noopener">Chong Hing Bank (1111 HK)</a> ("CHB") <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2013/1025/ltn20131025786.pdf" target="_blank" rel="noopener">announced</a> an agreement with Yue Xiu (the investment arm of the Guangzhou municipal government) to acquire a maximum of 75% of the bank for a consideration of HK$11.5bn (HK$35.7/share, a 2.1x P/B).  The deal was subject to approval from the HKMA. It was Yue Xiu's intention to maintain the bank's listing.
That Offer was widely seen as supportive for the remaining family-owned banks in Hong Kong such as <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia (23 HK)</a>, <a href="https://www.smartkarma.com/entities/dah-sing-banking-group-ltd" target="_blank" data-smartkarma-citation="entities:342:1" rel="noopener">Dah Sing Banking (2356 HK)</a>, and Wing Hang Bank, the latter of which was taken out by <a href="https://www.smartkarma.com/entities/oversea-chinese-banking-corp" target="_blank" data-smartkarma-citation="entities:114:1" rel="noopener">OCBC (OCBC SP)</a> in 2014 at 1.81x P/B in a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0629/ltn20140629025.pdf" target="_blank" rel="noopener">US$4.9bn deal</a>.
The partial Offer for CHB closed on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0205/ltn201402051310.pdf" target="_blank" rel="noopener">5 February 2014</a>. Shares closed yesterday at HK$10.56/share (and 0.4x P/B), down ~70% from the Partial Offer Price. BEA and DSB have similarly languished, down 33% and 42% respectively in the last five years.
<h3>The New News</h3>
CHB was suspended at <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0506/2021050600453.pdf" target="_blank" rel="noopener">10.45am</a> this morning, but not before gaining 30% to close at HK$13.76/share. That's worth a second look.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/204/617/original/image_68039818121620283783177.png?1620283785" class="editor-image img-responsive" data-smartkarma-image-id="204617"></figure>

On the 25 October 2013, Chong Hing Bank (1111 HK) ("CHB") announced an agreement with Yue Xiu (the investment arm of the Guangzhou municipal government) to acquire a maximum of 75% of the bank for a consideration of HK$11.5bn (HK$35.7/share, a 2.1x P/B).  The deal was subject to approval from the HKMA. It was Yue Xiu's intention to maintain the bank's listing.
That Offer was widely seen as supportive for the remaining family-owned banks in Hong Kong such as Bank of East Asia (23 HK), Dah Sing Banking (2356 HK), and Wing Hang Bank, the latter of which was taken out by OCBC (OCBC SP) in 2014 at 1.81x P/B in a US$4.9bn deal.
The partial Offer for CHB closed on the 5 February 2014. Shares closed yesterday at HK$10.56/share (and 0.4x P/B), down ~70% from the Partial Offer Price. BEA and DSB have similarly languished, down 33% and 42% respectively in the last five years.
The New News
CHB was suspended at 10.45am this morning, but not before gaining 30% to close at HK$13.76/share. That's worth a second look.


Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop

*Positive Operating Jaws: China Everbright Bank (6818.HK) [CEB] reported 1Q21 results of CNY 11.5 bn, increasing CNY 3.3 bn (40.1%) linked quarter. When we exclude securities gains, results were less robust coming in at CNY 8.5 bn, but still improving CNY 1.8 bn (27.4%). Results were driven by CEB’s positive operating jaws, as revenues improved CNY 2.6 bn (7.7%) while costs declined CNY 660 mn (6.1%); and*Credit Wall Continues To Grow: Net new problem loans continue to accelerate at Indian bank pace of CNY 11.5 bn or 110.8% on an annualized basis. By our calculation, reserve are short in the neighborhood of CNY 103 mn which represents about three years of 1Q20 core operating results. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 77%.

*Positive Operating Jaws: China Everbright Bank (6818.HK) [CEB] reported 1Q21 results of CNY 11.5 bn, increasing CNY 3.3 bn (40.1%) linked quarter. When we exclude securities gains, results were less robust coming in at CNY 8.5 bn, but still improving CNY 1.8 bn (27.4%). Results were driven by CEB’s positive operating jaws, as revenues improved CNY 2.6 bn (7.7%) while costs declined CNY 660 mn (6.1%); and*Credit Wall Continues To Grow: Net new problem loans continue to accelerate at Indian bank pace of CNY 11.5 bn or 110.8% on an annualized basis. By our calculation, reserve are short in the neighborhood of CNY 103 mn which represents about three years of 1Q20 core operating results. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 77%. 

China Everbright Bank – Credit Remains Troublesome

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: The US Treasury bond market rally gave up the ghost at the longer-end of the curve while excess cash levels compressed rates at the short-end last week. The Treasury curve bull steepened for the first time in over three weeks.Market participants re-positioned into month-end and ahead of April data releases over the next two weeks. Expectations are for strong economic data. High readings could prove bearish for Treasury prices. However, since the markets are forward looking, the question is also why are rates not already higher?As markets focused on upside inflation risks, with commodity prices continuing to surge, both Sweden’s Riksbank and the Bank of Japan highlighted soft inflation pressures in their latest policy meetings. These statements may add to uncertainty over how sustainable the current rise in US inflation may prove to be.At the same time, the run-off of the US Treasury Department’s cash balances at the Fed continues to keep pressure on repo rates. This in turn is resulting in a melt-up with two year and under area yields being squeezed tighter as investors move up the curve for a return. For more on this melt-up approach, please see: <a href="https://www.smartkarma.com/compose/insight/50971/Bank%20Credit%20Strategy:%20Melt-Up%20Before%20Meltdown,%20Where%20to%20Position.%20Read%20more:%20https:/skr.ma/W1NcQ" target="_blank" rel="noopener">Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position</a>. In bank credit, with short-end interest rates compressing week-on-week and short-end credit tightening, positive total returns were easy to generate. Although credit spreads tightened more in the long- than short-end, Treasury curve steepening meant that positive total returns were not realized in longer dated notes. Most Asia-headquartered bank credits tightened by two- to three- basis points week-on-week. Tier 2 and HY Senior Unsecured notes tended to outperform on a spread basis. Most European-headquartered bank credits tightened by three- to four- basis points week-on-week. Lower risk Senior Bail-in bonds delivered higher average spread tighteningWith peak earnings season now behind us, the upcoming week will essentially complete Q1 reports for most major financial institutions. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow. May is historically the start of a bullish period for Treasuries. However, as we start the month, the absence of evidence should not be taken as evidence of its absence. Various holidays around the world may reduce visibility over the next week. Markets in China, Japan and the UK are closed on Monday, with those in Tokyo and China shut through Wednesday. Look to the end of the week for more directionality. We explore these market themes within.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is more constrained in terms of rates than was previously expected. This should be risk asset supportive. The concern is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.

Executive Summary: The US Treasury bond market rally gave up the ghost at the longer-end of the curve while excess cash levels compressed rates at the short-end last week. The Treasury curve bull steepened for the first time in over three weeks.Market participants re-positioned into month-end and ahead of April data releases over the next two weeks. Expectations are for strong economic data. High readings could prove bearish for Treasury prices. However, since the markets are forward looking, the question is also why are rates not already higher?As markets focused on upside inflation risks, with commodity prices continuing to surge, both Sweden’s Riksbank and the Bank of Japan highlighted soft inflation pressures in their latest policy meetings. These statements may add to uncertainty over how sustainable the current rise in US inflation may prove to be.At the same time, the run-off of the US Treasury Department’s cash balances at the Fed continues to keep pressure on repo rates. This in turn is resulting in a melt-up with two year and under area yields being squeezed tighter as investors move up the curve for a return. For more on this melt-up approach, please see: Bank Credit Strategy: Melt-Up Before Meltdown, Where to Position. In bank credit, with short-end interest rates compressing week-on-week and short-end credit tightening, positive total returns were easy to generate. Although credit spreads tightened more in the long- than short-end, Treasury curve steepening meant that positive total returns were not realized in longer dated notes. Most Asia-headquartered bank credits tightened by two- to three- basis points week-on-week. Tier 2 and HY Senior Unsecured notes tended to outperform on a spread basis. Most European-headquartered bank credits tightened by three- to four- basis points week-on-week. Lower risk Senior Bail-in bonds delivered higher average spread tighteningWith peak earnings season now behind us, the upcoming week will essentially complete Q1 reports for most major financial institutions. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow. May is historically the start of a bullish period for Treasuries. However, as we start the month, the absence of evidence should not be taken as evidence of its absence. Various holidays around the world may reduce visibility over the next week. Markets in China, Japan and the UK are closed on Monday, with those in Tokyo and China shut through Wednesday. Look to the end of the week for more directionality. We explore these market themes within.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is more constrained in terms of rates than was previously expected. This should be risk asset supportive. The concern is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  

Bank Credit Weekly: Bull Steepening, but Is It Sustainable?

Hong Kong

The Bank of East Asia, Limited and its subsidiaries provide general banking, related financial, business corporate, and investor services.

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Bank of East Asia (23 HK)

AIA Group – 1Q21 Preview; Better But Off Low Base

AIA GROUP: AIA reports 1Q21 metrics on May 14. We expect a low base YOY rebound in VONB of 15%. With weaker organic growth, AIA went on a deal...

Thomas J. Monaco

Last Week in Event SPACE: Singapore Press, Tabcorp, Invesco Office, Justbon, IHH Healthcare, JD.com

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop

A 30% gain ahead of suspension suggests there is evident news leakage of something big afoot, which would have a positive read-across for the other...

David Blennerhassett

China Everbright Bank – Credit Remains Troublesome

CHINA EVERBRIGHT BANK: Operating results grew 27.4% QOQ, driven by positive operating jaws. Credit continues to weaken and the loss reserve...

Thomas J. Monaco

Bank Credit Weekly: Bull Steepening, but Is It Sustainable?

Treasury yields bull steepened while the melt-up led credit total returns. Yield conviction may build as April economic data is published; however,...

Hank Calenti, CFA

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