Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: Given its business model, juxtaposed with its Additional Tier 1 (AT1) security ratings and capital buffer above which AT1 coupons may be suspended, <a href="https://www.smartkarma.com/entities/barclays-plc" target="_blank" data-smartkarma-citation="entities:1121:1" rel="noopener">Barclays' (BACR)</a> AT1 seems to trade in-line with its peers in the 2025 first call area. However, most of Barclays current stack of AT1 bonds does not look good value when considered relative to the level at which its Tier2 Subordinated debt trades.Barclays holding company Senior Unsecured debt trades at approximately the same level of <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> at certain points along their respective credit curves, despite having a lower credit rating.  Concurrently, in the Tier 2 Subordinated debt space, Barclays offers considerably more value than HSBC. Please see <a href="https://www.smartkarma.com/insights/barclays-bail-in-debt-value-relative-to-hsbc" target="_blank" data-smartkarma-citation="insights:52135" rel="noopener">Barclays: Bail-In Debt Value Relative to HSBC</a> for more details. In the AT1 area, the roles are reversed.Loaded with shorter first call dated AT1 notes, Barclays has yet to benefit from materially lower interest costs within its AT1 stack. Barclays was an early adopter in the AT1 issuance space. This aided it in bringing other AT1 issuers to the primary market. However, it also effectively created a first mover disadvantage given the level to which risk premiums and interest rates fell since the Covid-19 health crisis erupted. We expect that Barclays will greatly extend the maturity of its AT1 curve as its shorter maturity bonds are called.  Until then, we anticipate that HSBC’s AT1 notes may offer a more attractive spread pick-up.

Executive Summary: Given its business model, juxtaposed with its Additional Tier 1 (AT1) security ratings and capital buffer above which AT1 coupons may be suspended, Barclays' (BACR) AT1 seems to trade in-line with its peers in the 2025 first call area. However, most of Barclays current stack of AT1 bonds does not look good value when considered relative to the level at which its Tier2 Subordinated debt trades.Barclays holding company Senior Unsecured debt trades at approximately the same level of HSBC Holdings (HSBA LN) at certain points along their respective credit curves, despite having a lower credit rating.  Concurrently, in the Tier 2 Subordinated debt space, Barclays offers considerably more value than HSBC. Please see Barclays: Bail-In Debt Value Relative to HSBC for more details. In the AT1 area, the roles are reversed.Loaded with shorter first call dated AT1 notes, Barclays has yet to benefit from materially lower interest costs within its AT1 stack. Barclays was an early adopter in the AT1 issuance space. This aided it in bringing other AT1 issuers to the primary market. However, it also effectively created a first mover disadvantage given the level to which risk premiums and interest rates fell since the Covid-19 health crisis erupted. We expect that Barclays will greatly extend the maturity of its AT1 curve as its shorter maturity bonds are called.  Until then, we anticipate that HSBC’s AT1 notes may offer a more attractive spread pick-up.  

Barclays: AT1 Value Points Relative to HSBC

Executive Summary: The experience of the last year has proven <a href="https://www.smartkarma.com/entities/barclays-plc" target="_blank" data-smartkarma-citation="entities:1121:1" rel="noopener">Barclays (BACR)</a> CEO’s assertion that it is better to be a combination of an investment, commercial and retail bank rather than only two of those three segments. <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> is similarly constructed, albeit with a broader geographic focus. Meanwhile, from a credit perspective, HSBC is clearly a better, more diversified, credit. Nonetheless, some of Barclays’ debt securities already trade at levels which suggest that a higher credit rating may be appropriate.Either Barclays is a stronger credit than reflected in its rating or the melt-up phenomena taking place in the rates market is also applicable to credit rating perceptions. We see a mixture of both.Despite having a lower credit rating, Barclays holding company Senior Unsecured debt trades at approximately the same level of HSBC at certain points along their respective credit curves. Concurrently, in the Tier 2 Subordinated debt space, Barclays offers considerably more value than HSBC.

Executive Summary: The experience of the last year has proven Barclays (BACR) CEO’s assertion that it is better to be a combination of an investment, commercial and retail bank rather than only two of those three segments. HSBC Holdings (HSBA LN) is similarly constructed, albeit with a broader geographic focus. Meanwhile, from a credit perspective, HSBC is clearly a better, more diversified, credit. Nonetheless, some of Barclays’ debt securities already trade at levels which suggest that a higher credit rating may be appropriate.Either Barclays is a stronger credit than reflected in its rating or the melt-up phenomena taking place in the rates market is also applicable to credit rating perceptions. We see a mixture of both.Despite having a lower credit rating, Barclays holding company Senior Unsecured debt trades at approximately the same level of HSBC at certain points along their respective credit curves. Concurrently, in the Tier 2 Subordinated debt space, Barclays offers considerably more value than HSBC.

Barclays: Bail-In Debt Value Relative to HSBC

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> there are 3 inclusions - <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a>, <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>.The 3 inclusions will increase the number of index constituents to 58. With the target of getting to 80 stocks by mid-2022, the expectation was for more stocks to be included at this review. What likely resulted in fewer stocks being added was the large turnover due to the capping changes.While we had expected the inclusion of <a href="https://www.smartkarma.com/entities/xinyi-solar-holdings-ltd" target="_blank" data-smartkarma-citation="entities:318:1" rel="noopener">Xinyi Solar Holdings (968 HK)</a> and <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a>, the inclusion of <a href="https://www.smartkarma.com/entities/byd-co-ltd-h" target="_blank" data-smartkarma-citation="entities:20962:1" rel="noopener">BYD (1211 HK)</a> will have a big impact since the stock has also been included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>. One-way turnover is estimated at 7.77% and will result in a one-way trade of HK$16.82bn.  The largest passive inflows will be on <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> as a result of the capping change from 5% to 8%, while the largest outflows will be from <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a> due to the capping change from 10% to 8%.There are only 10 trading days to implementation of the changes and we expect all 3 inclusions to open higher on Monday and continue to outperform the market over the period.

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 21 May. The constituent changes will be effective after the close of trading on 4 June.For the Hong Kong Hang Seng Index (HSI INDEX) there are 3 inclusions - Xinyi Solar Holdings (968 HK), BYD (1211 HK) and Country Garden Services Holdings (6098 HK).The 3 inclusions will increase the number of index constituents to 58. With the target of getting to 80 stocks by mid-2022, the expectation was for more stocks to be included at this review. What likely resulted in fewer stocks being added was the large turnover due to the capping changes.While we had expected the inclusion of Xinyi Solar Holdings (968 HK) and Country Garden Services Holdings (6098 HK), the inclusion of BYD (1211 HK) will have a big impact since the stock has also been included in the Hang Seng China Enterprises Index (HSCEI INDEX). One-way turnover is estimated at 7.77% and will result in a one-way trade of HK$16.82bn.  The largest passive inflows will be on Meituan (3690 HK) and Alibaba Group (9988 HK) as a result of the capping change from 5% to 8%, while the largest outflows will be from AIA Group Ltd (1299 HK), Tencent (700 HK) and HSBC Holdings (5 HK) due to the capping change from 10% to 8%.There are only 10 trading days to implementation of the changes and we expect all 3 inclusions to open higher on Monday and continue to outperform the market over the period.

HSI Index Rebalance: Only 3 Additions but BIG Turnover

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.

Thematic (Sector/Industry)

While most banks globally are seeing sharply lower credit costs in the March 2021 quarter, this is not the case in India. There are discreet risks in India related to the impact of poor air quality and the syndemic, but also with respect to pre-existing financial weakness and limited central bank relief.

While most banks globally are seeing sharply lower credit costs in the March 2021 quarter, this is not the case in India. There are discreet risks in India related to the impact of poor air quality and the syndemic, but also with respect to pre-existing financial weakness and limited central bank relief. 

Bond market data and technology, BondEvalue

BondEvalue

Bond market data and technology

BondEvalue is a Singapore-based Fintech that specializes in bond market data and technology. The company's information services business offers bond market data on hard-currency corporate & sovereign bonds across Asia, Middle East, Europe and the Americas. The data, which includes bond prices, yields, news and analytics, is offered to end investors via interactive Mobile and Web Apps. Investors can sign up for a free trial of the service either via the company's website (https://bondevalue.com) or by downloading the BondEvalue Mobile App (http://onelink.to/wej7jq). BondEvalue is also developing an electronic bond exchange, BondbloX in Singapore that allows investors to trade bonds electronically in smaller sizes (US$1,000 or equivalent). For more information, visit https://www.bondblox.com/

Bond Market Data and Technology

S&amp;P and Nasdaq both rose for the second day in a row and closed higher by 1.5% and 2.3% respectively on Friday. Even though growth and technology stocks stabilized after declining in the beginning of last week, S&amp;P and Nasdaq were down 1.1% and 2.2% down on a weekly basis. US 10Y Treasury yields declined for a second day to close at 1.64% after disappointing retail sales in the US. The week will see the release of FOMC minutes on Wednesday. US IG CDS spreads tightened by 1.6bp and HY spreads tightened by 7.1bp. EU main and crossover spreads tightened 1.3bp and 7.2bp. Asian equity indices had a mixed start while Asia ex-Japan CDS spreads were 0.7bp tighter.

HSBC, NAB, Shandong Hi Launch $ Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gain...

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.  The Group operates worldwide.

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HSBC Holdings (HSBA LN)

Barclays: AT1 Value Points Relative to HSBC

Barclays current stack of AT1 bonds does not look good value when considered relative to the level at which its Tier2 Subordinated debt trades....

Hank Calenti, CFA

Barclays: Bail-In Debt Value Relative to HSBC

Either Barclays is a stronger credit than reflected in its rating or the melt-up phenomena taking place in the rates market is also applicable to...

Hank Calenti, CFA

HSI Index Rebalance: Only 3 Additions but BIG Turnover

There are 3 inclusions (BYD, Xinyi Solar, CG Services) to the HSI taking the number of constituents up to 58. Turnover is high at 7.77% and will...

Brian Freitas

India – Not Time

There are discreet risks in India related to the impact of poor air quality and the syndemic, but also with respect to pre-existing financial...

Daniel Tabbush

HSBC, NAB, Shandong Hi Launch $ Bonds; Macro; Rating Changes; New Issues; Talking Heads; Top Gain...

S&P and Nasdaq both rose for the second day in a row and closed higher by 1.5% and 2.3% respectively on Friday. Even though growth and...

BondEvalue

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