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

*Interesting Strategic Move: On December 23, 2020, Challenger (CGF.AU) announced its intention to acquire MyLifeMyFinance (MLMF), an Australian savings &amp; loan (S&amp;L) for AUD 35 mn from MyLifeMyMoney Superannuation Fund (known as “Catholic Super”). Following the acquisition, Challenger will hold an Australian Prudential Regulation Authority (APRA) authorized deposit-taking institution (ADI) license. Unlike traditional Australian banks, Challenger will relay far less on home lending an rather focus its asset generation on existing investment activities;  and*But A Pricey Deal: While this is an interesting strategic transaction for Challenger, it was not cheap. Challenger paid 2.4x P/BV for MLMF based on 3Q20 figures – well above the commercial bank average in Australia. We infer from Challenger’s guidance for FY 2021 that MLMF generates approximately AUD 2 mn per annum – implying a P/E of 17.5x. Taking its 60 bp cover of stated loans, we are confident that MLMF is actually understating its full cost by between AUD 2-3 mn. It’s a good thing the absolute dollar value was tiny.

*Interesting Strategic Move: On December 23, 2020, Challenger (CGF.AU) announced its intention to acquire MyLifeMyFinance (MLMF), an Australian savings &amp; loan (S&amp;L) for AUD 35 mn from MyLifeMyMoney Superannuation Fund (known as “Catholic Super”). Following the acquisition, Challenger will hold an Australian Prudential Regulation Authority (APRA) authorized deposit-taking institution (ADI) license. Unlike traditional Australian banks, Challenger will relay far less on home lending an rather focus its asset generation on existing investment activities;  and*But A Pricey Deal: While this is an interesting strategic transaction for Challenger, it was not cheap. Challenger paid 2.4x P/BV for MLMF based on 3Q20 figures – well above the commercial bank average in Australia. We infer from Challenger’s guidance for FY 2021 that MLMF generates approximately AUD 2 mn per annum – implying a P/E of 17.5x. Taking its 60 bp cover of stated loans, we are confident that MLMF is actually understating its full cost by between AUD 2-3 mn. It’s a good thing the absolute dollar value was tiny. 

*Near-Term Pain: The Australian Prudential Regulatory Authority (APRA) completed its review of WestPac’s risk governance program and Westpac is now likely to enter into enforcement action and remediation. In addition, APRA has also announced that it had taken action against Westpac New Zealand due to the subsidiary’s breach of liquidity requirements; and*Small Gain: Management announced the widely anticipated sale of its general insurance business to Allianz (ALV.GR) in addition to an exclusive 20-year agreement to distribute general insurance products to Westpac customers for AUD 725 mn.

*Near-Term Pain: The Australian Prudential Regulatory Authority (APRA) completed its review of WestPac’s risk governance program and Westpac is now likely to enter into enforcement action and remediation. In addition, APRA has also announced that it had taken action against Westpac New Zealand due to the subsidiary’s breach of liquidity requirements; and*Small Gain: Management announced the widely anticipated sale of its general insurance business to Allianz (ALV.GR) in addition to an exclusive 20-year agreement to distribute general insurance products to Westpac customers for AUD 725 mn.

WestPac Banking – One Step Forward, Two Steps Back

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.

The Asian trade deal just reached is historic, with China at its center while the Biden win suggests the US-China trade war may be a thing of the past. Australia benefits from a stronger China economy. Syndemic recovery clearest in the East, and with vaccine on the immediate horizon, has positive implications for growth, credit metrics, and bank profit. <a href="https://www.smartkarma.com/entities/westpac-banking-corp" target="_blank" data-smartkarma-citation="entities:444:1" rel="noopener">Westpac Banking (WBC AU)</a> has seen its returns fall to lower than all major peers, which can mean there is more to reverse in coming months.

The Asian trade deal just reached is historic, with China at its center while the Biden win suggests the US-China trade war may be a thing of the past. Australia benefits from a stronger China economy. Syndemic recovery clearest in the East, and with vaccine on the immediate horizon, has positive implications for growth, credit metrics, and bank profit. Westpac Banking (WBC AU) has seen its returns fall to lower than all major peers, which can mean there is more to reverse in coming months.

Westpac – China Recovery, Provision Delta

It was only a matter of time. Many banks are seeing the same theme: reduced credit costs supporting profit. Indonesia’s <a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" data-smartkarma-citation="entities:440:1" rel="noopener">Bank Central Asia (BBCA IJ)</a> is unique, in that it had more ROA to claw back. This is now coming through in the quarterly numbers, and this should continue, rather than be the end of it. There are further positive implications for dividends, especially with high capital, limited lending and better credit metrics.

It was only a matter of time. Many banks are seeing the same theme: reduced credit costs supporting profit. Indonesia’s Bank Central Asia (BBCA IJ) is unique, in that it had more ROA to claw back. This is now coming through in the quarterly numbers, and this should continue, rather than be the end of it. There are further positive implications for dividends, especially with high capital, limited lending and better credit metrics. 

Credit costs are down substantially at <a href="https://www.smartkarma.com/entities/wells-fargo-co" target="_blank" data-smartkarma-citation="entities:232:1" rel="noopener">Wells Fargo &amp; Co (WFC US)</a> in the latest quarter. This is understandable given its sharp rise during previous quarters and well higher than its own history. WFC had stood out here going on the quarter and we are seeing how it plays out. Long-term perspective shows even through the early 1990s that WFC may be in for a period of low provisions.

Credit costs are down substantially at Wells Fargo &amp; Co (WFC US) in the latest quarter. This is understandable given its sharp rise during previous quarters and well higher than its own history. WFC had stood out here going on the quarter and we are seeing how it plays out. Long-term perspective shows even through the early 1990s that WFC may be in for a period of low provisions.  

Wells Fargo – The Great Provision Delta

Australia

Commonwealth Bank of Australia provides banking, life insurance, and related services for individuals, small businesses and medium sized commercial enterprises. The Bank provides corporate and general banking, international financing, institutional banking and stock broking and funds management such as superannuation product.

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Commonwealth Bank of Australia (CBA AU)

Challenger - Big Opportunity

CHALLENGER LTD: Challenger announced its intention to acquire MyLifeMyFinance . This deal, while small, was not cheap - but no doubt will be...

Thomas J. Monaco

WestPac Banking – One Step Forward, Two Steps Back

WESTPAC BANKING: APRA Hits Westpac With Remediation For Risk Governance And New Zealand Liquidity Charges, While Allianz Buys Insurance Unit.

Thomas J. Monaco

Westpac – China Recovery, Provision Delta

Westpac Banking (WBC AU) has seen its ROA move to the lowest of the major Australian banks, to incredibly low levels, suggesting a recovery here...

Daniel Tabbush

BCA – Profit Returns

It was only a matter of time. Many banks are seeing the same theme: reduced credit costs supporting profit. Indonesia’s Bank Central Asia is...

Daniel Tabbush

Wells Fargo – The Great Provision Delta

Long-term perspective shows that Wells Fargo may be in for a period of incredibly low provisions, which should be beneficial to results going forward.

Daniel Tabbush

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