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.

Thematic (Sector/Industry)

<ul><li>The polarization of the world&rsquo;s banks is gaining momentum.</li><li>The lumbering, large, globally systemically important banks are increasingly forced to shore up capital, limit their leverage, and limit potentially high return businesses.</li><li>Smaller, more domestic banks in Asia, and South East Asia in particular, are at the other end of this polarization.</li></ul>

The polarization of the world&rsquo;s banks is gaining momentum.The lumbering, large, globally systemically important banks are increasingly forced to shore up capital, limit their leverage, and limit potentially high return businesses.Smaller, more domestic banks in Asia, and South East Asia in particular, are at the other end of this polarization.

The World of Banking is Becoming Ever More Polarized

Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

Mark and JP once again highlight the fault lines that run through what they consider to be the most vulnerable part of the listed Chinese corporate sector, namely the industrial and materials companies which are the most symptomatic of the broader economy.Whilst there are a number of indications that the rate of economic growth may pick up a little over the short term (property sales, land sales, consumption incentives, fiscal policy), these sectors are indicative of a deep malaise at the heart of the economy.We are especially concerned about the blow out in working capital and the ongoing deterioration in the efficacy of credit growth.&nbsp;

Mark and JP once again highlight the fault lines that run through what they consider to be the most vulnerable part of the listed Chinese corporate sector, namely the industrial and materials companies which are the most symptomatic of the broader economy.Whilst there are a number of indications that the rate of economic growth may pick up a little over the short term (property sales, land sales, consumption incentives, fiscal policy), these sectors are indicative of a deep malaise at the heart of the economy.We are especially concerned about the blow out in working capital and the ongoing deterioration in the efficacy of credit growth.&nbsp;

China: Short-term stabilization possible but underlying fault lines remain

This report examines the underlying governance factors that have driven EM underperformance over the last five years.Brazil, Russia, Malaysia and Turkey appear to have entered a vicious circle whereby lower growth leads to currency devaluation leading to policies, which are negative for both equity investors and economies and so the whole process starts up again (we still believe that of the four Turkey has the best prospects of escaping from this vortex).Most disturbingly, we believe that China as well as Indonesia may be on the verge of joining this not very select group.While sentiment towards EM has the hallmark of a short term bottom with plenty of space for bear market rallies and short squeezes, there is little sign of the positive inflection in policies, which might mark a secular turning point in individual markets or in the broader asset class.

This report examines the underlying governance factors that have driven EM underperformance over the last five years.Brazil, Russia, Malaysia and Turkey appear to have entered a vicious circle whereby lower growth leads to currency devaluation leading to policies, which are negative for both equity investors and economies and so the whole process starts up again (we still believe that of the four Turkey has the best prospects of escaping from this vortex).Most disturbingly, we believe that China as well as Indonesia may be on the verge of joining this not very select group.While sentiment towards EM has the hallmark of a short term bottom with plenty of space for bear market rallies and short squeezes, there is little sign of the positive inflection in policies, which might mark a secular turning point in individual markets or in the broader asset class.

Many (un)happy returns in EM; governance and the vicious circle

<ul><li>Last year seven banks in China saw deposits contract. The year previous the number was one. </li><li>Deposit flight is one of the first things to look for in a banking crisis.&nbsp;</li><li>Even where deposits are simply being moved out of traditional banks and placed with a government policy bank, it can be a concern.</li><li>As bad loans worsen, banks find it increasingly difficult to pay back depositors, which can mean calling in loans. This only exacerbates financial stress for debtors.</li></ul>Full report below the fold....&nbsp;

Last year seven banks in China saw deposits contract. The year previous the number was one. Deposit flight is one of the first things to look for in a banking crisis.&nbsp;Even where deposits are simply being moved out of traditional banks and placed with a government policy bank, it can be a concern.As bad loans worsen, banks find it increasingly difficult to pay back depositors, which can mean calling in loans. This only exacerbates financial stress for debtors.Full report below the fold....&nbsp;

<ul><li>It is rare for bad loans to rise gradually as they peak.</li><li>In most all cases the rise of NPLs and corresponding credit costs is radical.</li><li>It is not steady and calm, in the throes of an NPL cycle.</li><li>The peak of credit costs can be well over 5x lows, and unlike typical forecasts.</li><li>With the signals being sent from Beijing, it suggests we are on the precipice of a radical rise in banks&rsquo; bad loans and associated credit costs.&nbsp;&nbsp;</li></ul>

It is rare for bad loans to rise gradually as they peak.In most all cases the rise of NPLs and corresponding credit costs is radical.It is not steady and calm, in the throes of an NPL cycle.The peak of credit costs can be well over 5x lows, and unlike typical forecasts.With the signals being sent from Beijing, it suggests we are on the precipice of a radical rise in banks&rsquo; bad loans and associated credit costs.&nbsp;&nbsp;

China

China Construction Bank Corporation provides a comprehensive range of commercial banking products and services to individuals and corporate customers. The Bank's business consists of three principal business segments: corporate banking, personal banking, and treasury operations. China Construction Bank also services infrastructure loans, residential mortgage, and bank cards.

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China Construction Bank H (939 HK)

The World of Banking is Becoming Ever More Polarized

The polarization of the world’s banks is gaining momentum. The lumbering, large, globally systemically important banks are increasingly forced to...

Daniel Tabbush

China: Short-term stabilization possible but underlying fault lines remain

Mark and JP once again highlight the fault lines that run through what they consider to be the most vulnerable part of the listed Chinese corporate...

John-Paul Smith

Many (un)happy returns in EM; governance and the vicious circle

This report examines the underlying governance factors that have driven EM underperformance over the last five years.Brazil, Russia, Malaysia and...

John-Paul Smith

Deposit Flight at China's Banks

Last year seven banks in China saw deposits contract. The year previous the number was one. Deposit flight is one of the first things to look...

Daniel Tabbush

China's NPL Growth will be Radical

It is rare for bad loans to rise gradually as they peak. In most all cases the rise of NPLs and corresponding credit costs is radical. It is not...

Daniel Tabbush

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