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

<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

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

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?

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

*Much Better Than Expected: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] posted 3Q20 net profit of SGD 1.0 bn, an SGD 298 mn (40.8%) increase on a linked quarter basis – well ahead of consensus. Two factors pushed the outperformance: 1) a somewhat justifiable SGD 400 mn (53.3%) decline in loss provisions (unlike DBS Group Holdings [DBS.SP]), as OCBC witnessed “negative”growth in net new NPLs; and 2) a 290 bp decline in its tax rate to 13.1%, which was additive to the bottom-line by SGD 36 mn or 3.6%;*Credit Improving In Reality: By our calculation, given the SGD 99 mn in net recoveries, we find that new new NPL growth was actually negative on an annualized basis at 2.3%. While we are ecstatic to see negative growth in net new NPLs on the back of strong net recoveries of previously charged off loans, we continue to believe that credit risk will remain elevated. As such, we find that reserves should be bolstered by SGD 288 mn – 25% of pre-tax results, which is a far cry from where currently DBS is; and*Insurance Weakness: Great Eastern Holdings (GE.SP) [Great Eastern] reported 3Q20 bottom-line results of SGD 287.9 mn, declining SGD 9.6 mn (3.2%) linked quarter. On an operating basis excluding market-related gains, the decline in profits was even more pronounced at SGD 24.6 mn or 9.4% over the period due to new business strain. New Business Embedded Value (NBEV) margins continued their descent to 37.0%  - down 1.1% linked quarter due a weaker Malaysian component. Management’s confidence is low and it anticipates the weaker economic environment to pose continued headwinds, and will reassess the dividend.

*Much Better Than Expected: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] posted 3Q20 net profit of SGD 1.0 bn, an SGD 298 mn (40.8%) increase on a linked quarter basis – well ahead of consensus. Two factors pushed the outperformance: 1) a somewhat justifiable SGD 400 mn (53.3%) decline in loss provisions (unlike DBS Group Holdings [DBS.SP]), as OCBC witnessed “negative”growth in net new NPLs; and 2) a 290 bp decline in its tax rate to 13.1%, which was additive to the bottom-line by SGD 36 mn or 3.6%;*Credit Improving In Reality: By our calculation, given the SGD 99 mn in net recoveries, we find that new new NPL growth was actually negative on an annualized basis at 2.3%. While we are ecstatic to see negative growth in net new NPLs on the back of strong net recoveries of previously charged off loans, we continue to believe that credit risk will remain elevated. As such, we find that reserves should be bolstered by SGD 288 mn – 25% of pre-tax results, which is a far cry from where currently DBS is; and*Insurance Weakness: Great Eastern Holdings (GE.SP) [Great Eastern] reported 3Q20 bottom-line results of SGD 287.9 mn, declining SGD 9.6 mn (3.2%) linked quarter. On an operating basis excluding market-related gains, the decline in profits was even more pronounced at SGD 24.6 mn or 9.4% over the period due to new business strain. New Business Embedded Value (NBEV) margins continued their descent to 37.0%  - down 1.1% linked quarter due a weaker Malaysian component. Management’s confidence is low and it anticipates the weaker economic environment to pose continued headwinds, and will reassess the dividend.

*Negative Operating Jaws Were A Surprise: DBS Group Holdings (DBS.SP) [DBS] reported 3Q20 results of SGD 1.3 bn, increasing SGD 50 mn (4.0%) on a linked quarter basis. Results were solely led on a justified SGD 295 mn (34.7%) reduction in loss provisions, which point to DBS’real challenges with negative operating jaws; and*Credit Risk Rising: By our calculation, and despite the net recovery of SGD 24 mn, we find that net new NPLs continue to increase – up SGD 272 mn or 18.9% on an annualized basis. Management too was less sanguine about credit quality on a go forward basis, expecting a re-acceleration of NPL formation in 2021 as COVID-19 government programs are set to expire. We feel that reserves should be shored up in the neighborhood of SGD 1.3 bn – amounting to a full quarter of results – and intimating this quarter was more managed than DBS would have the investment community believe.

*Negative Operating Jaws Were A Surprise: DBS Group Holdings (DBS.SP) [DBS] reported 3Q20 results of SGD 1.3 bn, increasing SGD 50 mn (4.0%) on a linked quarter basis. Results were solely led on a justified SGD 295 mn (34.7%) reduction in loss provisions, which point to DBS’real challenges with negative operating jaws; and*Credit Risk Rising: By our calculation, and despite the net recovery of SGD 24 mn, we find that net new NPLs continue to increase – up SGD 272 mn or 18.9% on an annualized basis. Management too was less sanguine about credit quality on a go forward basis, expecting a re-acceleration of NPL formation in 2021 as COVID-19 government programs are set to expire. We feel that reserves should be shored up in the neighborhood of SGD 1.3 bn – amounting to a full quarter of results – and intimating this quarter was more managed than DBS would have the investment community believe.      

DBS Group Holdings – Not Trending The Right Way Yet

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 – 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

Oversea Chinese Banking Corp. – Solid

OVERSEA CHINESE BANKING CORP.: Credit Showing Signs Of Recovery With Negative NPL Growth - Offsetting Weakness In NIMs and Insurance.

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

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

Oversea Chinese Banking Corp. – Solid

OVERSEA CHINESE BANKING CORP.: Credit Showing Signs Of Recovery With Negative NPL Growth - Offsetting Weakness In NIMs and Insurance.

Thomas J. Monaco

DBS Group Holdings – Not Trending The Right Way Yet

DBS GROUP HOLDINGS: Trends Are Poor. Costs Higher, Revenues Lower, and Provision Trend Likely To Be Reversed As We Head Into 2021.

Thomas J. Monaco