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

Of Australia’s largest banks, there are few that reveal improving core net interest income. Macquarie is unique in this respect and further enters the current period of inflation, recovery with far higher assets.

Of Australia’s largest banks, there are few that reveal improving core net interest income. Macquarie is unique in this respect and further enters the current period of inflation, recovery with far higher assets. 

Macquarie – Don’t You Forget About Me

Thematic (Sector/Industry)

Several large global banks saw bad loans rise a reasonable amount during last and then fall during the first quarter this year. The experience at HSBC is worse, and directionally at odds at present. It does not feel like the quintessential recovery bank in FY21, and where DBS glows in comparison.

Several large global banks saw bad loans rise a reasonable amount during last and then fall during the first quarter this year. The experience at HSBC is worse, and directionally at odds at present. It does not feel like the quintessential recovery bank in FY21, and where DBS glows in comparison. 

HSBC – Underwhelms Against DBS, Global Peers

Alpha-Centric ESG Research

Kyle Rudden

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in <a href="https://www.smartkarma.com/insights/bitcoin-on-balance-sheets-indirect-crypto-exposure-considerations-for-crypto-leery-esg-investors" target="_blank" data-smartkarma-citation="insights:52207" rel="noopener">Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors</a>. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates <a href="https://www.smartkarma.com/entities/bitcoin-usd" target="_blank" data-smartkarma-citation="entities:25895:1" rel="noopener">Bitcoin (XBT)</a>'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates Bitcoin (XBT)'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: A liquidity driven melt-up remains the key driver of bank credit spread performance. As US banks push deposits into money market funds, to manage their Supplemental Leverage Ratio requirements, the short end of the rates market continues to push investors up the curve to generate returns. Awash with still rising liquidity, this melt-up is the key driver of credit spread outperformance.Risk asset volatility and talking about, talking about, talking about tapering had little lasting impact on US interest rates over the last week. In fact, rate curve flattening, and forward breakeven rate declines, suggest that the interest rate market may buy the Fed’s assessment of inflation as being transitory. While the transitory mantra is believed, whispers of supply driven growth constraints are being mentioned. This would be interest rate and credit spread positive as it would extend the duration of the recovery and thereby delay late-stage economic cycle repositioning.The risk is clearly that the rates market is underpricing the potential for an extended period of higher than anticipated inflation. However, holding cash is expensive and moving too early to position for higher or longer than anticipated inflation may be career ending. Ergo, the silent self-doubtful suffering of the rate and credit markets.We elaborate on these themes within.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.

Executive Summary: A liquidity driven melt-up remains the key driver of bank credit spread performance. As US banks push deposits into money market funds, to manage their Supplemental Leverage Ratio requirements, the short end of the rates market continues to push investors up the curve to generate returns. Awash with still rising liquidity, this melt-up is the key driver of credit spread outperformance.Risk asset volatility and talking about, talking about, talking about tapering had little lasting impact on US interest rates over the last week. In fact, rate curve flattening, and forward breakeven rate declines, suggest that the interest rate market may buy the Fed’s assessment of inflation as being transitory. While the transitory mantra is believed, whispers of supply driven growth constraints are being mentioned. This would be interest rate and credit spread positive as it would extend the duration of the recovery and thereby delay late-stage economic cycle repositioning.The risk is clearly that the rates market is underpricing the potential for an extended period of higher than anticipated inflation. However, holding cash is expensive and moving too early to position for higher or longer than anticipated inflation may be career ending. Ergo, the silent self-doubtful suffering of the rate and credit markets.We elaborate on these themes within.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.

Bank Credit Weekly: Liquidity Driven Melt-Up Pulls Spreads Tighter

Executive Summary:<a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered's (STAN LN)</a> Q1 performance looked good optically, when seen from a sharp angle, but the issue is whether this is sustainable. We think not for three reasons.First, StanLn was rather coy regarding the likely impact on revenues and reserving from the on-going Covid-19 disaster in India. Second, aside from the potentially negative revenue impact from India, StanLn does not anticipate an increase in revenues overall until next year, despite the phantom 4% increase in Q1 lending quarter-on-quarter. Third, expenses rose faster than revenues during the quarter. We would not be surprised to see another costly restructuring announcement before year-end.To its credit, Standard Chartered’s expected credit loss reserve release is better substantiated than that undertaken by <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a>.Nonetheless, management’s unchanged revenue expectations juxtaposed with inorganic regional growth opportunities creates a situation which may be unpleasant for credit investors. Given the double jeopardy facing StanLn’s capital buffer and near-term loss absorbing ability, we would prefer to position within less event sensitive securities, such as StanLn’s Tier 2 bonds.

Executive Summary:Standard Chartered's (STAN LN) Q1 performance looked good optically, when seen from a sharp angle, but the issue is whether this is sustainable. We think not for three reasons.First, StanLn was rather coy regarding the likely impact on revenues and reserving from the on-going Covid-19 disaster in India. Second, aside from the potentially negative revenue impact from India, StanLn does not anticipate an increase in revenues overall until next year, despite the phantom 4% increase in Q1 lending quarter-on-quarter. Third, expenses rose faster than revenues during the quarter. We would not be surprised to see another costly restructuring announcement before year-end.To its credit, Standard Chartered’s expected credit loss reserve release is better substantiated than that undertaken by HSBC Holdings (HSBA LN).Nonetheless, management’s unchanged revenue expectations juxtaposed with inorganic regional growth opportunities creates a situation which may be unpleasant for credit investors. Given the double jeopardy facing StanLn’s capital buffer and near-term loss absorbing ability, we would prefer to position within less event sensitive securities, such as StanLn’s Tier 2 bonds.

Standard Chartered Q1 Results: Unsustainable and Event Risk Is Not Priced In

United States

Citigroup Inc. is a diversified financial services holding company that provides a broad range of financial services to consumer and corporate customers. The Company services include investment banking, retail brokerage, corporate banking, and cash management products and services. Citigroup serves customers globally.

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Citigroup Inc (C US)

Macquarie – Don’t You Forget About Me

There are few banks that reveal improving core net interest income. Macquarie is unique in this respect and further enters the current period of...

Daniel Tabbush

HSBC – Underwhelms Against DBS, Global Peers

Several large global banks saw bad loans rise a reasonable amount during last and then fall during the first quarter this year. The experience at...

Daniel Tabbush

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

Bitcoin holdings by issuers and investors is driving crypto custody demand. Big banks are stepping. A big opportunity, but some ESG investors might...

Kyle Rudden

Bank Credit Weekly: Liquidity Driven Melt-Up Pulls Spreads Tighter

Liquidity remains the key driver of bank credit spread performance. The risk is that the rates market is underpricing the potential for an extended...

Hank Calenti, CFA

Standard Chartered Q1 Results: Unsustainable and Event Risk Is Not Priced In

Standard Chartered’s Q1 performance looked good optically, when seen from a sharp angle. Is this sustainable? We think not for 3 reasons and prefer...

Hank Calenti, CFA

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