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

*It Keeps Getting Worse: Between China Evergrande Group’s (3333.HK) [Evergrande] operational and liquidity troubles, large property price discounts, the precipitous drop in the value of its non-property-related development business, and a more challenging industry outlook, we would expect that Evergrande’s corporate restructure to be riddled with challenges; and *Authorities Finally Stepping In: The China Financial Stability and Development Committee (CFSDC) has signed off on Evergrande’s proposal to renegotiate debt payment deadlines with banks and other creditors, after the company missed interest and principal payments on several loans and delayed payments to suppliers amid difficulties accessing new financing – signaling that Evergrande has been greenlighted to re-negotiate funding terms with creditors.

*It Keeps Getting Worse: Between China Evergrande Group’s (3333.HK) [Evergrande] operational and liquidity troubles, large property price discounts, the precipitous drop in the value of its non-property-related development business, and a more challenging industry outlook, we would expect that Evergrande’s corporate restructure to be riddled with challenges; and *Authorities Finally Stepping In: The China Financial Stability and Development Committee (CFSDC) has signed off on Evergrande’s proposal to renegotiate debt payment deadlines with banks and other creditors, after the company missed interest and principal payments on several loans and delayed payments to suppliers amid difficulties accessing new financing – signaling that Evergrande has been greenlighted to re-negotiate funding terms with creditors.

China Evergrande Group – Not Likely A Smooth Restructure

*Another Poor Showing: Hang Seng Bank (11.HK) [Hang Seng] reported a 1H21 result of HKD 8.8 bn, improving HKD 1.2 bn (16.3%) HOH. However, core operating results improved only nominally by HKD 52 mn or 0.8% over the period. Were it not for the unreasonable decline of HKD 639 mn (65.3%) in loss provisions as credit deteriorated, results would have been far worse;  and*Provisions Now Significantly Understated: While the current NPL ratio is not alarming on its face, the HOH increase in net new NPLs is HKD 1.7 bn or 23.5% annualized - decelerating from the HKD 3.0 bn or 201% annualized at 2H20. We find Hang Seng under-provided for to the tune of HKD 10.6 bn or nearly 1.5x the bank’s core operating result.

*Another Poor Showing: Hang Seng Bank (11.HK) [Hang Seng] reported a 1H21 result of HKD 8.8 bn, improving HKD 1.2 bn (16.3%) HOH. However, core operating results improved only nominally by HKD 52 mn or 0.8% over the period. Were it not for the unreasonable decline of HKD 639 mn (65.3%) in loss provisions as credit deteriorated, results would have been far worse;  and*Provisions Now Significantly Understated: While the current NPL ratio is not alarming on its face, the HOH increase in net new NPLs is HKD 1.7 bn or 23.5% annualized - decelerating from the HKD 3.0 bn or 201% annualized at 2H20. We find Hang Seng under-provided for to the tune of HKD 10.6 bn or nearly 1.5x the bank’s core operating result.

Hang Seng Bank – Wuihfung Remains In Full Control

*Poor 2Q21 Result: DBS Group Holdings (DBS.SP) [DBS] reported 2Q21 results of SGD 1.7 bn, decreasing SGD 304  mn (15.1%) on a linked quarter basis. The weaker results were driven primarily by an overall revenue decline, a loan provision increase, and a higher tax rate;*Watch Your Credit: We struggle continue to believe that DBS’ due diligence had actually caught all of LVB’s risk (see discussion below), and remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs. DBS has disclosed absolutely nothing about Shenzhen Rural Commercial Bank’s (SRCB) fundamentals. By our calculation, and given the NCOs of SGD 69 mn, we find that net new NPLs have re-accelerated – up SGD 266 mn or increasing 18.0% annualized versus SGD 85 mn or 5.6% in 1Q21. We feel that reserves should be shored up in the neighborhood of SGD 2.5bn – amounting now to about two quarters of operating results; and *Deal Distractions Mount:  While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on those of other financial institutions.

*Poor 2Q21 Result: DBS Group Holdings (DBS.SP) [DBS] reported 2Q21 results of SGD 1.7 bn, decreasing SGD 304  mn (15.1%) on a linked quarter basis. The weaker results were driven primarily by an overall revenue decline, a loan provision increase, and a higher tax rate;*Watch Your Credit: We struggle continue to believe that DBS’ due diligence had actually caught all of LVB’s risk (see discussion below), and remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs. DBS has disclosed absolutely nothing about Shenzhen Rural Commercial Bank’s (SRCB) fundamentals. By our calculation, and given the NCOs of SGD 69 mn, we find that net new NPLs have re-accelerated – up SGD 266 mn or increasing 18.0% annualized versus SGD 85 mn or 5.6% in 1Q21. We feel that reserves should be shored up in the neighborhood of SGD 2.5bn – amounting now to about two quarters of operating results; and *Deal Distractions Mount:  While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on those of other financial institutions.

*Kick In The Pants: On July 21, 2021, HSBC Holdings plc (5.HK/HSBA.LN) [HSBC] and many of the other major Hong Banks finally had the epiphany of declining mortgages to borrowers on two of Evergrande Group’s (3333.HK) residential developments in Hong Kong. On July 22, 2021, the Hong Kong Monetary Authority (HKMA) hauled HSBC and its colleagues in to explain the no lend decision on Evergrande’s two Hong Kong in process property  developments. Wouldn’t you know it, this subtle re-think request caused the banks to reverse course; and*Daisy Chain:This move by the HKMA and clearly prompted by authorities in mainland China intimates that Evergrande poses significant systemic risk for mainland China. Government officials in Shenyang are prompting SOEs to increase their ownership in Shengjing Bank (2966.HK), which is 36% owned by Evergrande and lent it an estimated USD 15.5 bn.

*Kick In The Pants: On July 21, 2021, HSBC Holdings plc (5.HK/HSBA.LN) [HSBC] and many of the other major Hong Banks finally had the epiphany of declining mortgages to borrowers on two of Evergrande Group’s (3333.HK) residential developments in Hong Kong. On July 22, 2021, the Hong Kong Monetary Authority (HKMA) hauled HSBC and its colleagues in to explain the no lend decision on Evergrande’s two Hong Kong in process property  developments. Wouldn’t you know it, this subtle re-think request caused the banks to reverse course; and*Daisy Chain:This move by the HKMA and clearly prompted by authorities in mainland China intimates that Evergrande poses significant systemic risk for mainland China. Government officials in Shenyang are prompting SOEs to increase their ownership in Shengjing Bank (2966.HK), which is 36% owned by Evergrande and lent it an estimated USD 15.5 bn.    

HSBC Holdings Plc – Strong Armed By The HKMA

*Earnings Miss: HDFC Bank (HDFCB.IN) [HDFCB] released another disappointing set of results, as its FY 1Q22 bottom-line result declined another INR 4.6 bn (5.6%) to INR 77.3 bn on a linked quarter basis. The earnings disappointment came from a net interest income decline, a loss provision increase, and fee revenue weakness; and*Credit Challenged Still: We calculate that net new NPLs actually increased a whopping INR 57.6 bn or 152.8% on an annualized basis – accelerating from the INR 49.2 bn or 130.4% increase posted in FY 4Q20. By our calculation, reserves are massively short by nearly INR 316 bn or nearly an entire year of core operating results.

*Earnings Miss: HDFC Bank (HDFCB.IN) [HDFCB] released another disappointing set of results, as its FY 1Q22 bottom-line result declined another INR 4.6 bn (5.6%) to INR 77.3 bn on a linked quarter basis. The earnings disappointment came from a net interest income decline, a loss provision increase, and fee revenue weakness; and*Credit Challenged Still: We calculate that net new NPLs actually increased a whopping INR 57.6 bn or 152.8% on an annualized basis – accelerating from the INR 49.2 bn or 130.4% increase posted in FY 4Q20. By our calculation, reserves are massively short by nearly INR 316 bn or nearly an entire year of core operating results. 

HDFC Bank – Is This Really India’s Best Bank?

United Kingdom

HSBC Holdings plc is the holding company for the HSBC Group. The Company provides a variety of international banking and financial services, including retail and corporate banking, trade, trusteeship, securities, custody, capital markets, treasury, private and investment banking, and insurance. HSBC Holdings operates worldwide.

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HSBC Holdings (HSBC US)

China Evergrande Group – Not Likely A Smooth Restructure

CHINA EVERGRANDE: Evergrande’s operational and liquidity troubles continue, and the CFSDC has signed off on Evergrande’s proposal to renegotiate...

Thomas J. Monaco

Hang Seng Bank – Wuihfung Remains In Full Control

HANG SENG BANK: Hang Seng reported a poor 1H21 HOH operating result. If provisions didn't decline 65%, results would have been worse. It under...

Thomas J. Monaco

DBS Group Holdings – Bad Print

DBS: DBS QOQ 2Q21 results declined 15.1% due to poor revenues and higher provisions. We worry that DBS has not caught the LVB risk, net new NPLs re...

Thomas J. Monaco

HSBC Holdings Plc – Strong Armed By The HKMA

HSBC HOLDINGS: HSBC had an epiphany of declining mortgages on two of Evergrande’s local developments. The HKMA wanted an explanation and wouldn’t...

Thomas J. Monaco

HDFC Bank – Is This Really India’s Best Bank?

HDFC Bank: HDFCB QOQ results declined 5.6% due to a net interest income and fee revenue along with a loss provision increase. Reserves appear...

Thomas J. Monaco

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