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

*Third Indian Bank Failure In 15 Months: For the third time in 15 months, the Reserve Bank of India (RBI) took over a failing regional bank - announcing that it would limit deposit withdrawals and replace the board of directors at Lakshm Vilas Bank (LVB.IN) due to a "serious deterioration" in its finances. After the failure of Punjab and Maharashtra Co-operative Bank and Yes Bank (YES.IN); and 12 consecutive quarters of posting losses it should come as no surprise that the RBI placed LVB under moratorium through December 16, 2020; and*Not Letting Cash Burn A Hole In Its Pocket: On Novenber 17, 2020, the RBI also announced a draft scheme to merge LVB with DBS Bank India Limited, the 100%-owned subsidiary of DBS Bank Holdings (DBS.SP), which will infuse INR 25 bn into its subsidiary to absorb and recapitalize LVB. This transaction is riddled with problems and will certainly cost DBS far greater than its initial investment.

*Third Indian Bank Failure In 15 Months: For the third time in 15 months, the Reserve Bank of India (RBI) took over a failing regional bank - announcing that it would limit deposit withdrawals and replace the board of directors at Lakshm Vilas Bank (LVB.IN) due to a "serious deterioration" in its finances. After the failure of Punjab and Maharashtra Co-operative Bank and Yes Bank (YES.IN); and 12 consecutive quarters of posting losses it should come as no surprise that the RBI placed LVB under moratorium through December 16, 2020; and*Not Letting Cash Burn A Hole In Its Pocket: On Novenber 17, 2020, the RBI also announced a draft scheme to merge LVB with DBS Bank India Limited, the 100%-owned subsidiary of DBS Bank Holdings (DBS.SP), which will infuse INR 25 bn into its subsidiary to absorb and recapitalize LVB. This transaction is riddled with problems and will certainly cost DBS far greater than its initial investment.  

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

The news here is not that a foreign bank is investing in India. The issue is the value of the option that was just wasted. The fact is this transaction removes a major contingent investor from the rescue pool, and it signals the unwillingness of large, high quality, foreign banks to make significant investments in the financial system.We have more questions than answers at this point in time; however, the prognosis for the banking system is not great. This is bad news for other struggling financial institutions in India, including the non-bank sector.

The news here is not that a foreign bank is investing in India. The issue is the value of the option that was just wasted. The fact is this transaction removes a major contingent investor from the rescue pool, and it signals the unwillingness of large, high quality, foreign banks to make significant investments in the financial system.We have more questions than answers at this point in time; however, the prognosis for the banking system is not great. This is bad news for other struggling financial institutions in India, including the non-bank sector.

Lakshmi Vilas Bank: DBS Rescue Is a Wasted Option

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.

<a href="https://www.smartkarma.com/entities/dbs-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:22:1" rel="noopener">DBS Group Holdings (DBS SP)</a> will take over a failing bank in India. DBS Bank India may inject capital into <a href="https://www.smartkarma.com/entities/lakshmi-vilas-bank-ltd" target="_blank" data-smartkarma-citation="entities:17552:1" rel="noopener">Lakshmi Vilas Bank (LVB IN)</a>, before merging the latter into the former. There is no talk about what DBS will gain in return for this service, but we imagine it will be substantial and that there will be seem back-stop on credit deterioration. We do not view this recapitalization as onerous for DBS, where that is the typical knee-jerk reaction. In fact, this can be incredibly positive for DBS in terms of growth longer term.

DBS Group Holdings (DBS SP) will take over a failing bank in India. DBS Bank India may inject capital into Lakshmi Vilas Bank (LVB IN), before merging the latter into the former. There is no talk about what DBS will gain in return for this service, but we imagine it will be substantial and that there will be seem back-stop on credit deterioration. We do not view this recapitalization as onerous for DBS, where that is the typical knee-jerk reaction. In fact, this can be incredibly positive for DBS in terms of growth longer term. 

India Financials

Saumya Agarwal

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Corrigenda: There is an error in this Insight. Please note the change.
Correction: LVB’s paid-up share capital, reserves and surplus will be written off and the shares and debentures shall stand de-listed. Therefore, the pro-forma net worth will be Rs 85 Bn instead of the Rs 92 Bn mentioned in the Insight.
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In what appears to be a remarkable life-saving move for the distressed Lakshmi Vilas Bank, the RBI announced a draft scheme for the merger of Lakshmi Vilas Bank (LVB) with DBS India. RBI also placed the troubled bank under Moratorium effective immediately, for one month, till Dec 16,2020.
LVB had been desperately scouting for a buyer, to raise capital, after posting losses for 3 consecutive years which saw its net worth erode markedly. However, LVB’s earlier proposal to merge with India bulls Housing Finance was rejected by the RBI in 2019 and its recent talks with Clix Capital turned out to be inconclusive.


Corrigenda: There is an error in this Insight. Please note the change.
Correction: LVB’s paid-up share capital, reserves and surplus will be written off and the shares and debentures shall stand de-listed. Therefore, the pro-forma net worth will be Rs 85 Bn instead of the Rs 92 Bn mentioned in the Insight.


In what appears to be a remarkable life-saving move for the distressed Lakshmi Vilas Bank, the RBI announced a draft scheme for the merger of Lakshmi Vilas Bank (LVB) with DBS India. RBI also placed the troubled bank under Moratorium effective immediately, for one month, till Dec 16,2020.
LVB had been desperately scouting for a buyer, to raise capital, after posting losses for 3 consecutive years which saw its net worth erode markedly. However, LVB’s earlier proposal to merge with India bulls Housing Finance was rejected by the RBI in 2019 and its recent talks with Clix Capital turned out to be inconclusive.

Lakshmi Vilas Bank Gets a Mighty Savior- To Be Merged with DBS Bank India

Potential returns from investing along <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> Additional Tier 1 (AT1) curve vary considerably between its Euro, Sterling, Singapore- and US- dollar bonds; however, this difference is not entirely driven by the choice of currency. The Singapore-dollar denominated securities offer the highest yield-to-call at current price levels; however, the question is whether you will get what you pay for in yield terms.At the other end of the yield spectrum, HSBC’s Euro-denominated AT1 securities offer significantly less yield-to-call. The question here is whether HSBC’s credit risk is appropriately priced in these securities.Yields available on the Sterling and US dollar denominated securities are somewhere between that available on the Singapore-dollar and Euro-denominated bonds, and they generally trend upwards over time. However, that does not necessarily equate with value for money.We examine these securities from a credit and extension risk perspective towards determining which bonds may ultimately provide a higher return over time.

Potential returns from investing along HSBC Holdings (HSBA LN) Additional Tier 1 (AT1) curve vary considerably between its Euro, Sterling, Singapore- and US- dollar bonds; however, this difference is not entirely driven by the choice of currency. The Singapore-dollar denominated securities offer the highest yield-to-call at current price levels; however, the question is whether you will get what you pay for in yield terms.At the other end of the yield spectrum, HSBC’s Euro-denominated AT1 securities offer significantly less yield-to-call. The question here is whether HSBC’s credit risk is appropriately priced in these securities.Yields available on the Sterling and US dollar denominated securities are somewhere between that available on the Singapore-dollar and Euro-denominated bonds, and they generally trend upwards over time. However, that does not necessarily equate with value for money.We examine these securities from a credit and extension risk perspective towards determining which bonds may ultimately provide a higher return over time.

HSBC’s AT1 Curve: Where Is the Cross-Currency Value?

Singapore

DBS Group Holdings Limited and its subsidiaries provide a variety of financial services.  The Company offers services including mortgage financing, lease and hire purchase financing, nominee and trustee, funds management, corporate advisory and brokerage .  DBS Group also acts as the primary dealer in Singapore government securities.

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DBS (DBS SP)

DBS Group Holdings – Dumb India Deal

DBS GROUP HOLDINGS: Transaction For Lakshmi Vilas Bank In India At INR 25 BN Is Way Too Pricey For Risk DBS Is Taking On. Price Will Ultimately Be...

Thomas J. Monaco

Lakshmi Vilas Bank: DBS Rescue Is a Wasted Option

The rescue of Lakshmi Vilas Bank raises more questions for bank creditors as it sets new lows in India’s bank resolution framework.

Hank Calenti, CFA

DBS – Fast Track Entry To India

DBS Bank India may inject capital into Lakshmi Vilas Bank, before merging it into its own business. DBS Group will gain substantial branches, fast...

Daniel Tabbush

Lakshmi Vilas Bank Gets a Mighty Savior- To Be Merged with DBS Bank India

In a remarkable move, the RBI announced a draft scheme for the merger of Lakshmi Vilas Bank with DBS India. It also placed the troubled bank under...

Saumya Agarwal

HSBC’s AT1 Curve: Where Is the Cross-Currency Value?

Potential returns from investing along HSBC’s Additional Tier 1 curve vary considerably between its Euro, Sterling, Singapore- and US- dollar...

Hank Calenti, CFA

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Market Cap (USDm)

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