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

Postal Savings Bank of China C / Equity Bottom-Up

*Private Placement Coming: We firmly believe that Postal Savings Bank (1658.HK) [PSBC] will be named a D-SIB which will cause it to face immediate pressures to raise capital, given the unprecedented COVID-19 and failure to deal with their legacy problem assets. To that end, PSBC is raising CNY 30 bn (USD 4.3 bn) through a private placement of shares to parent China Post Group. PSBC aims to close this transaction by the end of 1Q21; and   *Starting Off From A Better Place Than Peer: We view PSBC as one of mainland China’s higher quality financial institutions but we do recognize that credit risks continue to accelerate. At 1H20, we note that credit continues to breakdown at an accelerated pace, as net new NPLs increased CNY 12.1 bn or 57% on an annualized basis. The on-balance defaulted bonds amount to about CNY 500 mn, suggesting a limited impact. Total credit exposure to Yongmei and Henan Energy is CNY 1 bn.

*Private Placement Coming: We firmly believe that Postal Savings Bank (1658.HK) [PSBC] will be named a D-SIB which will cause it to face immediate pressures to raise capital, given the unprecedented COVID-19 and failure to deal with their legacy problem assets. To that end, PSBC is raising CNY 30 bn (USD 4.3 bn) through a private placement of shares to parent China Post Group. PSBC aims to close this transaction by the end of 1Q21; and   *Starting Off From A Better Place Than Peer: We view PSBC as one of mainland China’s higher quality financial institutions but we do recognize that credit risks continue to accelerate. At 1H20, we note that credit continues to breakdown at an accelerated pace, as net new NPLs increased CNY 12.1 bn or 57% on an annualized basis. The on-balance defaulted bonds amount to about CNY 500 mn, suggesting a limited impact. Total credit exposure to Yongmei and Henan Energy is CNY 1 bn.

Postal Savings Bank – D-SIB Spurs Placement

*PRA Changes Its Tune On Dividends: The United Kingdom’s (UK) Prudential Regulatory Authority (PRA) recommended last week that the that UK banks can resume paying dividends subject to FY 2020 results. Linking dividends to the recent success of profitability mirrors Federal Reserve Board policy for the large US banks; and *HSBC Should Stand Pat On The Dividend: While its true that HSBC North America (HSBCNA) doesn’t contribute to the bottom-line, it has weighed down Group results through 3Q20 with losses of USD 963 mn. This thing simply needs to go. With this kind of uncertainty along with risks in France and Asia – again exacerbated by COVID-19 – HSBC Holdings Plc (HSBA/LN/5.HK) should be conserving capital especially if the weak HSBCNA is considered a takeunder candidate.

*PRA Changes Its Tune On Dividends: The United Kingdom’s (UK) Prudential Regulatory Authority (PRA) recommended last week that the that UK banks can resume paying dividends subject to FY 2020 results. Linking dividends to the recent success of profitability mirrors Federal Reserve Board policy for the large US banks; and *HSBC Should Stand Pat On The Dividend: While its true that HSBC North America (HSBCNA) doesn’t contribute to the bottom-line, it has weighed down Group results through 3Q20 with losses of USD 963 mn. This thing simply needs to go. With this kind of uncertainty along with risks in France and Asia – again exacerbated by COVID-19 – HSBC Holdings Plc (HSBA/LN/5.HK) should be conserving capital especially if the weak HSBCNA is considered a takeunder candidate.

HSBC Holdings Plc – PRA Says Yes, But Management Should Say No

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.

*November Market Stats Generally Positive: The Singapore Exchange (SGX.SP) [SGX] released its market statistics for November 2020. Unsurprisingly, the progress of the COVID-19 vaccine fuelled volume gains across the entire spectrum of SGX products; and*Taiwan Pressures: SGX ceased trading of MSCI Taiwan futures contracts on October 30, 2020 as these contracts moved to Hong Kong Exchanges &amp; Clearing (388.HK) [HKEx]. Notional value traded market share of SGX - while usually volatile - has begun gradually declining to 90.4% in November from 92.4% in October. This will have significant implications over how much market share and fee pressure will be placed on SGX's lucrative A50 contract.  

Singapore Exchange – Strains Seen For TW Futures

*Partnership With ZhongAn: AIA Group (1299.HK) [AIA] and ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn] majority owned ZA Tech Global (ZA Tech) subsidiary announced a regional strategic digital partnership. The partnership covers all of AIA’s markets excluding mainland China, and opens new regional sales opportunities for AIA;*Risks Remain: This new partnership, as potentially exciting as it is, in now way offsets the risks AIA is facing in mainland China, Hong Kong, and in its investment portfolio.

*Partnership With ZhongAn: AIA Group (1299.HK) [AIA] and ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn] majority owned ZA Tech Global (ZA Tech) subsidiary announced a regional strategic digital partnership. The partnership covers all of AIA’s markets excluding mainland China, and opens new regional sales opportunities for AIA;*Risks Remain: This new partnership, as potentially exciting as it is, in now way offsets the risks AIA is facing in mainland China, Hong Kong, and in its investment portfolio.

AIA Group – New Initiative Does Not Offset Risks

*RBA Speech – A Positive For Aussie BNPL: The Reserve Bank of Australia (RBA) indicated that the status-quo for the buy-now, pay-later (BNPL) sector is likely to continue into the foreseeable future – which is a significant positive for Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay]. Specifically, BNPL operators can still prevent merchants from passing on transaction fees;*Strong Momentum As We Head Into Holiday Season: Just as we head into the holiday season, Tencent’s Afterpay provided some strong key metrics in its latest media release as discussed in “Tencent Holdings – Father Christmas” note dated December 3, 2020.  What a magnificent six months this has been for Afterpay, and the next six months look to be even more transformational with operations beginning in the European Union, launches of banking products, and potentially the launch of the business in Asia (likely under the tutelage of Tencent); and*More Magic Fairy Dust: Tencent continues to hit it out of the park with its Afterpay stake. In addition to a superb return on investment of 400% over the past six months since the stake announcement, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

*RBA Speech – A Positive For Aussie BNPL: The Reserve Bank of Australia (RBA) indicated that the status-quo for the buy-now, pay-later (BNPL) sector is likely to continue into the foreseeable future – which is a significant positive for Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay]. Specifically, BNPL operators can still prevent merchants from passing on transaction fees;*Strong Momentum As We Head Into Holiday Season: Just as we head into the holiday season, Tencent’s Afterpay provided some strong key metrics in its latest media release as discussed in “Tencent Holdings – Father Christmas” note dated December 3, 2020.  What a magnificent six months this has been for Afterpay, and the next six months look to be even more transformational with operations beginning in the European Union, launches of banking products, and potentially the launch of the business in Asia (likely under the tutelage of Tencent); and*More Magic Fairy Dust: Tencent continues to hit it out of the park with its Afterpay stake. In addition to a superb return on investment of 400% over the past six months since the stake announcement, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

Hong Kong

CSOP FTSE China A50 ETF is an exchange-traded fund incorporated in Hong Kong. The Fund seeks to track the performance of the FTSE China A50 Index. The Fund invests most of its total assets in the equities of member companies of the FTSE China A50 Index. This is a RQFII fund.

CSOP FTSE China A50 (HKD) (2822 HK)

Postal Savings Bank – D-SIB Spurs Placement

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Singapore Exchange – Strains Seen For TW Futures

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AIA Group – New Initiative Does Not Offset Risks

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Tencent Holdings – After The Speech

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