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

China Merchants Bank H / Equity Bottom-Up

*Good 1Q21 Bottom-Line: China Merchants Bank (3968.HK) [CMB] reported 1Q21 results of CNY 32.0 bn, increasing CNY 11.3 bn (54.4%) linked quarter. Results were driven by net interest income improvement; robust fee growth; and an operating expense reduction; and *Credit Wall Continues To Grow: Net new problem loans continue to accelerate at an Indian bank pace of CNY 18.9 bn or 138.5% on an annualized basis, accelerating form the 04.7% growth rate posted in 4Q20. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 184% - suggesting that even the mighty are falling.

*Good 1Q21 Bottom-Line: China Merchants Bank (3968.HK) [CMB] reported 1Q21 results of CNY 32.0 bn, increasing CNY 11.3 bn (54.4%) linked quarter. Results were driven by net interest income improvement; robust fee growth; and an operating expense reduction; and *Credit Wall Continues To Grow: Net new problem loans continue to accelerate at an Indian bank pace of CNY 18.9 bn or 138.5% on an annualized basis, accelerating form the 04.7% growth rate posted in 4Q20. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 184% - suggesting that even the mighty are falling. 

China Merchants Bank – Pig Still In Python

China Huarong Asset Management / Equity Bottom-Up

*Already On Edge:  Again in mainland China, there have been rumblings of another credit default over the past several days. The CBIRC disclosed that China Huarong Asset Management (2799.HK) [Huarong] is actively working with its auditor to complete its annual report. The issue appears to be Huarong’s legacy exposure associated with the misdeeds of its former Chairman, which still need to be addressed post-removal in 2018; and *Another Audit Delay: Huarong is delaying its 2020 earnings results beyond the April 30, 2021 deadline, which, in our view, only exacerbates concerns over a potential Huarong default. Ironic, given that Huarong was supposed to help mainland China clean up its bad debt mess. This further delay will not help bond liquidity which already appears to have disappeared. Contagion risk remains a real threat as bondholders likely sell other holdings.

*Already On Edge:  Again in mainland China, there have been rumblings of another credit default over the past several days. The CBIRC disclosed that China Huarong Asset Management (2799.HK) [Huarong] is actively working with its auditor to complete its annual report. The issue appears to be Huarong’s legacy exposure associated with the misdeeds of its former Chairman, which still need to be addressed post-removal in 2018; and *Another Audit Delay: Huarong is delaying its 2020 earnings results beyond the April 30, 2021 deadline, which, in our view, only exacerbates concerns over a potential Huarong default. Ironic, given that Huarong was supposed to help mainland China clean up its bad debt mess. This further delay will not help bond liquidity which already appears to have disappeared. Contagion risk remains a real threat as bondholders likely sell other holdings.

China Huarong Asset Management  - This Can’t Be Good

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: Momentum behind the recent Treasury market rally may be starting to slow. Greater conviction is likely to build over the weeks which follow as economic data is published, rather than result from this week’s FOMC meeting.It is unlikely that the Fed will signal that it is ready to start tapering its asset purchase program this week. We are yet to see the whites of wage-growth eyes. Meanwhile, Canada became the first major economy to signal an exit from asset purchases. Canada’s central bank also indicated that a rate rise is now expected in the second half of 2022. Global interest rates did not react.  However, we may be tricked into seeing things which not there as upcoming wage data may point to rapidly falling wages.As such, the narrative remains left to be taken in the fixed income markets.  We may have reached a peak in short positioning unwinding and the re-entry of Japanese investors in the market is also taken as a given. Unexpectedly good economic data over the next few weeks could be bad for Treasury yields.  This could re-ignite the reflation and carry-trade rallies.While Treasuries continue to tread water, spreads on US CCC rated notes continued to trade at levels not seen since prior to the Global Financial Crisis in 2007. Investors are becoming concerned that the stretch for yield may be overdone. Excess US spread compression could benefit Asia HY as investors move offshore to grab better yields and excess spreads.In the bank credit markets, Asia-headquartered institution performed across the credit continuum while European bank bond remained stuck with carry-trade unwind performance. The combination of spread tightening and Treasury bond curve flattening generated positive total returns amongst Asia banks.We will hit the peak in bank earnings reports in the upcoming week. US banks set a high bar for performance by generating stellar investment banking and progressively improving core banking results over the last two weeks. They then signaled that they anticipate significantly higher interest rates later this year by raising record breaking amounts in the debt capital markets. Other banks may follow with material debt issuance over the next few weeks after reporting earnings this week.  We explore these market themes within.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is repricing for lower growth and lower rates over a longer time-period. This should be risk asset supportive as the US dollar finally weakens. The risk is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.

Executive Summary: Momentum behind the recent Treasury market rally may be starting to slow. Greater conviction is likely to build over the weeks which follow as economic data is published, rather than result from this week’s FOMC meeting.It is unlikely that the Fed will signal that it is ready to start tapering its asset purchase program this week. We are yet to see the whites of wage-growth eyes. Meanwhile, Canada became the first major economy to signal an exit from asset purchases. Canada’s central bank also indicated that a rate rise is now expected in the second half of 2022. Global interest rates did not react.  However, we may be tricked into seeing things which not there as upcoming wage data may point to rapidly falling wages.As such, the narrative remains left to be taken in the fixed income markets.  We may have reached a peak in short positioning unwinding and the re-entry of Japanese investors in the market is also taken as a given. Unexpectedly good economic data over the next few weeks could be bad for Treasury yields.  This could re-ignite the reflation and carry-trade rallies.While Treasuries continue to tread water, spreads on US CCC rated notes continued to trade at levels not seen since prior to the Global Financial Crisis in 2007. Investors are becoming concerned that the stretch for yield may be overdone. Excess US spread compression could benefit Asia HY as investors move offshore to grab better yields and excess spreads.In the bank credit markets, Asia-headquartered institution performed across the credit continuum while European bank bond remained stuck with carry-trade unwind performance. The combination of spread tightening and Treasury bond curve flattening generated positive total returns amongst Asia banks.We will hit the peak in bank earnings reports in the upcoming week. US banks set a high bar for performance by generating stellar investment banking and progressively improving core banking results over the last two weeks. They then signaled that they anticipate significantly higher interest rates later this year by raising record breaking amounts in the debt capital markets. Other banks may follow with material debt issuance over the next few weeks after reporting earnings this week.  We explore these market themes within.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is repricing for lower growth and lower rates over a longer time-period. This should be risk asset supportive as the US dollar finally weakens. The risk is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  

Bank Credit Weekly: Momentum Slows as Conviction Is Lacking

*Weak Results Showing No Signs Of Improvement: Ping An Insurance (2318.HK) [Ping An] reported results for 1Q21, coming in at CNY 27.2 bn which declined CNY 12.9 bn (32.0%) linked quarter. Ping An was pelted on two fronts this quarter: a) investment income declined CNY 55.8 bn (77.9%) linked quarter as the gross investment yield was cut in half to 3.1% - impacted by a CNY 18.2 bn impairment loss related to China Fortune Land (600340.CH); and b) expenses increased CNY 21.5 bn (8.5%), driven by claims which increased CNY 38.8 bn (25.8%); andBank Improvement:  Ping An Bank (000001.CH) [PAB], reported reported results of CNY 10.1 bn – increasing CNY 3.6 bn (55.2%) on a linked quarter basis. By our analysis, we find that credit weakness continues to occur as net new NPLs have increased CNY 4.2 bn or 53.6% on an annualized basis. In fairness, however, this is far better than the CNY 20.5 bn or a massive 241% (223% in 3Q20) increase on an annualized basis. We find that PAB’s reserves still remain light by CNY 19 bn if we assume a 2x NPL ratio – but sub stantially better than 4Q20.

*Weak Results Showing No Signs Of Improvement: Ping An Insurance (2318.HK) [Ping An] reported results for 1Q21, coming in at CNY 27.2 bn which declined CNY 12.9 bn (32.0%) linked quarter. Ping An was pelted on two fronts this quarter: a) investment income declined CNY 55.8 bn (77.9%) linked quarter as the gross investment yield was cut in half to 3.1% - impacted by a CNY 18.2 bn impairment loss related to China Fortune Land (600340.CH); and b) expenses increased CNY 21.5 bn (8.5%), driven by claims which increased CNY 38.8 bn (25.8%); andBank Improvement:  Ping An Bank (000001.CH) [PAB], reported reported results of CNY 10.1 bn – increasing CNY 3.6 bn (55.2%) on a linked quarter basis. By our analysis, we find that credit weakness continues to occur as net new NPLs have increased CNY 4.2 bn or 53.6% on an annualized basis. In fairness, however, this is far better than the CNY 20.5 bn or a massive 241% (223% in 3Q20) increase on an annualized basis. We find that PAB’s reserves still remain light by CNY 19 bn if we assume a 2x NPL ratio – but sub stantially better than 4Q20.

*Many Moving Parts: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, remains challenged. For 1Q21, PAB reported results of CNY 10.1 bn – increasing CNY 3.6 bn (55.2%) on a linked quarter basis. Revenues, however, did increase CNY 4.8 bn (13.0%), much of which, in our view, can likely be attributed to gains while operating expenses contracted CNY 802 mn or 6.2% over the period; and*Credit Seeing Improvement: By our analysis, we find that credit weakness continues to occur as net new NPLs have increased CNY 4.2 bn or 53.6% on an annualized basis. In fairness, however, this is far better than the CNY 20.5 bn or a massive 241% (223% in 3Q20) increase on an annualized basis. Assuming the credit break in the PAB portfolio continues to remain at the current improved level, we find that PAB’s reserves still remain quite light by CNY 19 bn if we assume a 2x NPL ratio. This shortfall represents 6% of stated equity.

*Many Moving Parts: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, remains challenged. For 1Q21, PAB reported results of CNY 10.1 bn – increasing CNY 3.6 bn (55.2%) on a linked quarter basis. Revenues, however, did increase CNY 4.8 bn (13.0%), much of which, in our view, can likely be attributed to gains while operating expenses contracted CNY 802 mn or 6.2% over the period; and*Credit Seeing Improvement: By our analysis, we find that credit weakness continues to occur as net new NPLs have increased CNY 4.2 bn or 53.6% on an annualized basis. In fairness, however, this is far better than the CNY 20.5 bn or a massive 241% (223% in 3Q20) increase on an annualized basis. Assuming the credit break in the PAB portfolio continues to remain at the current improved level, we find that PAB’s reserves still remain quite light by CNY 19 bn if we assume a 2x NPL ratio. This shortfall represents 6% of stated equity.  

Hong Kong

Dah Sing Banking Group Limited, through its subsidiaries, provides personal banking, commercial banking, and treasury services.  The Group's operations are primarily based in Hong Kong.

Bank of Tianjin Co. Ltd. operates as a commercial bank. The Company offers deposits, loans, investment banking, currency trading, investment management, credit cards, and other financial services.

Dah Sing Financial Holdings Ltd through its subsidiaries, offers general banking services. The Company also invests in properties and provides insurance broking and nominee services.

Public Financial Holdings Ltd, through its subsidiaries, operates in the deposit taking, personal and commercial lending, credit card, mortgage financing, stockbroking, and property investment businesses.  The Company also provides financing to purchasers of taxis and public light buses, leases taxis, and trades taxi cabs and taxi licenses.

China Zheshang Bank Co. Ltd. operates as a commercial bank. The Bank offers deposits, loans, international settlement, wealth management and other related financial services.

China Taiping Insurance Holdings Company Ltd., through subsidiaries, underwrites life and property/casualty insurance and reinsurance.

Guoco Group Limited, through its subsidiaries, develops, invests in, and manages properties as well as provides stock, commodity and bullion broking, insurance, and fund management services.

Far East Horizon Ltd is a financial services provider. The Company specializes in providing financing solutions through equipment-based financial leasing. Far East currently targets industries that include healthcare, education, infrastructure construction, shipping, printing and machinery industries.

China Development Bank Financial Leasing Co. Ltd. provides financial leasing services. The Company offers aircraft leasing, ship leasing, commercial vehicle leasing, construction machinery leasing, highway leasing, rail transit leasing, new energy leasing, enterprise equipment leasing, urban infrastructure leasing, house leasing, and other services. 

China Development Bank Financial Leasing (1606 HK)

First Pacific Company Limited is an investment holding company with operations located in Asia-Pacific. The Company principally invests in consumer food products, infrastructure, natural resources, and telecommunications.

AMMB Holdings Berhad is an investment holding company.  The Company, through its subsidiaries, provides merchant and commercial banking, retail financing, stock and futures broking, and investment advisory. AMMB also underwrites general insurance, provides asset and unit trust management, and nominees services.

Atlantic Union Bankshares Corporation provides banking services. The Bank checking accounts, lending, credit cards, online and mobile banking, and wealth and treasury management services. Atlantic Union Bankshares serves customers in the United States.

Community Bank System, Inc. is a holding company for Community Bank, N.A.  The Bank offers a range of commercial and retail banking services in each of its market areas to business, individual, agricultural, and governmental customers. Community Bank operates in northern New York to the southern tier, west to Lake Erie, and in northeastern Pennsylvania.

Cathay General Bancorp is the holding company for Cathay Bank.  The Bank accepts deposits and originates various loans, and offers trade financing, spot and forward contracts, internet banking, global investment services, and other services.  Cathay Bank operates in California, New York, Texas, Washington, and Massachusetts.

Fulton Financial Corporation is a multi-bank holding company. The Banks offer a full range of general retail and commercial banking services, including deposits, loans, equipment leasing and financing, and credit cards. Fulton operates in Pennsylvania, Maryland, Delaware, and New Jersey.

Huishang Bank Corporation Limited is a commercial bank. The Bank provides banking services including loans, money market operations, treasury business, investment and trading services, and valet transactions.

Taichung Commercial Bank conducts commercial banking and trust business.  The Bank accepts deposits, offers loans, as well as  invests in bonds and stocks. Taichung Commercial Banks provides bills and notes discounting, draft endorsement, domestic remittance, guarantee, and securities underwriting and brokerage services.

United Community Banks, Inc. is a multi-bank holding company with locations throughout north Georgia and western North Carolina.  The Banks are community oriented and offer retail and corporate banking services including checking, savings, and time deposit accounts, secured and unsecured loans, wire transfers, trust services, and rental of safe deposit boxes.

Associated Banc-Corp is a Midwest banking franchise headquartered in Green Bay, Wisconsin. The Bank offers a full range of financial products and services through banking locations serving communities throughout Wisconsin, Illinois, and Minnesota, and commercial financial services in Indiana, Michigan, Missouri, Ohio and Texas.

Mebuki Financial Group Inc. is a holding company established through the merger of Joyo Bank and Ashikaga Bank. As a financial group, the Company offers deposits, Loans, foreign exchange transactions, commercial and trust banking. Mebuki Financial Group also provides financial services such as letter of credit, credit cards and consulting.

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)

China Merchants Bank – Pig Still In Python

CHINA MERCHANTS BANK: CMB reported a 1Q21 QOQ results increase of 54.4% driven by net interest income; fee growth; and lower expenses. Net new...

Thomas J. Monaco

China Huarong Asset Management - This Can’t Be Good

CHINA HUARONG ASSET MANAGEMENT: Huarong is delaying its 2020 earnings results beyond the April 30, 2021 deadline, which, in our view, only...

Thomas J. Monaco

Bank Credit Weekly: Momentum Slows as Conviction Is Lacking

Momentum behind the Treasury market started to slow. Greater conviction is likely to build over the weeks which follow as economic data is...

Hank Calenti, CFA

Ping An Insurance – It’s Magic

PING AN INSURANCE: Ping An reported a QOQ 1Q21 earnings decline of 32.0% due and investment income decline and an expense increase. Despite the...

Thomas J. Monaco

Ping An Insurance – Sea Change At Bank

PING AN INSURANCE: PAB reported a 55.2% QOQ improvement in results. Net new NPLs have increased 53.6% on an annualized basis - far better than the...

Thomas J. Monaco

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