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

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

*Morgan Stanley/Eaton Vance Transaction: Morgan Stanley (MS.US) announced its intention to acquire Eaton Vance for approximately USD 7 bn in a 50/50 cash/stock transaction. According to MS, this transaction is expected to be earnings break-even on deal consummation. We are less optimistic;  *MUFG Should Worry About Dilution: Mitsubishi UFJ Financial Group (8306.JP) [MUFG] collectively owns 22.6% of the outstanding shares of MS on a fully diluted basis; prior to both the E*Trade Financial and Eaton Vance (EV.US) transactions MS represented an estimated and outsized 25.4% of MUFG's FY (March) 2020 bottom-line - despite MUFG's high reliance on gains.In aggregate, both transactions dilute MUFG's MS stake by 3.57% to 18.99%. Both transactions are anticipated to dilute MUFG's earnings attributable to Morgan Stanley by USD 175 mn or close to 9.0% YOY or 2.2% overall for MUFG in FY 2020 – assuming the status quo on securities gains; and*MUFG Already Has Enough Headaches: Earnings at MUFG remain quite tenuous. Outside of its high reliance on volatile sources of securities trading, impairment losses associated with its ownership stake in Bank Danamon (BNMN.IJ),  earnings pressures from Union Bank in California,  the re-jigging of the systems integration at MUFG NICOS too should continue to weigh on future results.

*Morgan Stanley/Eaton Vance Transaction: Morgan Stanley (MS.US) announced its intention to acquire Eaton Vance for approximately USD 7 bn in a 50/50 cash/stock transaction. According to MS, this transaction is expected to be earnings break-even on deal consummation. We are less optimistic;  *MUFG Should Worry About Dilution: Mitsubishi UFJ Financial Group (8306.JP) [MUFG] collectively owns 22.6% of the outstanding shares of MS on a fully diluted basis; prior to both the E*Trade Financial and Eaton Vance (EV.US) transactions MS represented an estimated and outsized 25.4% of MUFG's FY (March) 2020 bottom-line - despite MUFG's high reliance on gains.In aggregate, both transactions dilute MUFG's MS stake by 3.57% to 18.99%. Both transactions are anticipated to dilute MUFG's earnings attributable to Morgan Stanley by USD 175 mn or close to 9.0% YOY or 2.2% overall for MUFG in FY 2020 – assuming the status quo on securities gains; and*MUFG Already Has Enough Headaches: Earnings at MUFG remain quite tenuous. Outside of its high reliance on volatile sources of securities trading, impairment losses associated with its ownership stake in Bank Danamon (BNMN.IJ),  earnings pressures from Union Bank in California,  the re-jigging of the systems integration at MUFG NICOS too should continue to weigh on future results. 

Mitsubishi UFJ Financial Group – MS Continues to Dilute MUFG

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

In last week’s Compass we noted the S&amp;P 500 was near the top end of the uptrend channel and that the index could fall 2.75%-3.25% before we get to uptrend support. Considering the S&amp;P 500 fell roughly 1% last week we believe the recent pause appears to be a normal and healthy pullback within the multi-month uptrend. Despite the potential for additional backing-and-filling toward the uptrend support, our expectation is that this uptrend continues, supporting our overall positive outlook.

In last week’s Compass we noted the S&amp;P 500 was near the top end of the uptrend channel and that the index could fall 2.75%-3.25% before we get to uptrend support. Considering the S&amp;P 500 fell roughly 1% last week we believe the recent pause appears to be a normal and healthy pullback within the multi-month uptrend. Despite the potential for additional backing-and-filling toward the uptrend support, our expectation is that this uptrend continues, supporting our overall positive outlook.

S&P 500: A Pause in the Uptrend - More Consolidation Expected.

United States

Eaton Vance Corp. creates, markets, and manages mutual funds.  The Company also provides management and counseling services to individual and institutional clients.  Eaton Vance currently provides investment advisory or administration services to individual and institutional accounts, as well as funds.

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Eaton Vance (EV US)

Mitsubishi UFJ Financial Group – MS Continues to Dilute MUFG

MUFG Receives Additional Dilution From Morgan Stanley In Another Overpriced US Transaction. Eaton Vance Was The Fourth In a Series of Wealth...

Thomas J. Monaco

S&P 500: A Pause in the Uptrend - More Consolidation Expected.

In last week’s Compass we noted the S&P 500 was near the top end of the uptrend channel and that the index could fall 2.75%-3.25% before we get...

Vermilion Research

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