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

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

Thematic (Sector/Industry)

We have now seen US bank giants, <a href="https://www.smartkarma.com/entities/jpmorgan-chase-co" target="_blank" data-smartkarma-citation="entities:277:1" rel="noopener">JPMorgan Chase &amp; Co (JPM US)</a> and <a href="https://www.smartkarma.com/entities/citigroup-inc" target="_blank" data-smartkarma-citation="entities:279:1" rel="noopener">Citigroup Inc (C US) </a>report their quarterly results. Both reveal a significant decline in credit costs. These banks are far more important to the world than the small Indonesian bank that revealed something similar, <a href="https://www.smartkarma.com/entities/bank-mestika-dharma-tbk-pt" target="_blank" data-smartkarma-citation="entities:9566:1" rel="noopener">Bank Mestika Dharma (BBMD IJ)</a>. The data from <a href="https://www.smartkarma.com/entities/commonwealth-bank-of-australia" target="_blank" data-smartkarma-citation="entities:14:1" rel="noopener">Commonwealth Bank of Australia (CBA AU)</a> too suggests that credit metrics are improving. We expect others in the US and elsewhere to follow suit, and especially where credit costs were exaggerated during early in the year. The credit cost delta will be key for banks now.

We have now seen US bank giants, JPMorgan Chase &amp; Co (JPM US) and Citigroup Inc (C US) report their quarterly results. Both reveal a significant decline in credit costs. These banks are far more important to the world than the small Indonesian bank that revealed something similar, Bank Mestika Dharma (BBMD IJ). The data from Commonwealth Bank of Australia (CBA AU) too suggests that credit metrics are improving. We expect others in the US and elsewhere to follow suit, and especially where credit costs were exaggerated during early in the year. The credit cost delta will be key for banks now.

Commonwealth Bank of Australia / Equity Bottom-Up

The theme is one of recovery, not from a major economic shock, or unsustainable economic misalignment. Rather as Mr Taleb puts it, governments' decision to shut down whole economies, is the Black Swan. Therefore recovery should be different as economies open, as the fear subsides, as it becomes increasingly clear that governments grossly over-reacted. CBA’s most recent update goes some way to showing how this is playing out and perhaps contradictory to stated economic growth rates.

The theme is one of recovery, not from a major economic shock, or unsustainable economic misalignment. Rather as Mr Taleb puts it, governments' decision to shut down whole economies, is the Black Swan. Therefore recovery should be different as economies open, as the fear subsides, as it becomes increasingly clear that governments grossly over-reacted. CBA’s most recent update goes some way to showing how this is playing out and perhaps contradictory to stated economic growth rates.

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)

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

Banks – Collapsing Credit Costs

After JP Morgan and Citigroup have confirmed our hypothesis of lower credit costs driving positive results at banks, expect this trend to continue...

Daniel Tabbush

CBA - Deferred Loans Collapsing

The Commonwealth Bank of Australia's most recent update shows another way the recovery is playing out - via lower deferrals.

Daniel Tabbush

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