Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Thematic (Sector/Industry)

<div><p>In tomorrow's Smartkarma Webinar, <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> talks about the myriad risks global banks are facing all at once. The webinar will be held on 22 April 2020 at 1700hrs Singapore/Hong Kong time.</p></div><hr><div><div><div class="content-highlight"><h2>
<a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=98886398668" target="_blank" rel="noopener">Register for the Webinar here</a>.</h2></div></div></div><hr><div>
<p>Daniel Tabbush has 25 years experience analyzing Asia-Pacific banks, including HSBC, Standard Chartered, Japanese and Australian banks. At the same time, his research and consulting focuses on global banking issues, including the regulatory environment. He was the Head of Asian Bank research at the number one Asian brokerage CLSA for most of his career, overseeing coverage of 80 banks and 10 analysts in Asia-Pacific.</p>
<p>Daniel started his own independent bank research and consultancy in 2012, under the banner name Tabbush Report. Since 2014, he has been a member of University of California San Diego Economics Leadership Council (ELC), supporting Economic students at the University through this alumni association, and providing guidance on Economics program development. Daniel grew up in Los Angeles, graduated from UCSD in Economics, cum laude and with Phi Beta Kappa honors. He lives with his family in Bangkok, and enjoys cooking, running and chess.</p>
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In tomorrow's Smartkarma Webinar, Daniel Tabbush talks about the myriad risks global banks are facing all at once. The webinar will be held on 22 April 2020 at 1700hrs Singapore/Hong Kong time.
Register for the Webinar here.
Daniel Tabbush has 25 years experience analyzing Asia-Pacific banks, including HSBC, Standard Chartered, Japanese and Australian banks. At the same time, his research and consulting focuses on global banking issues, including the regulatory environment. He was the Head of Asian Bank research at the number one Asian brokerage CLSA for most of his career, overseeing coverage of 80 banks and 10 analysts in Asia-Pacific.
Daniel started his own independent bank research and consultancy in 2012, under the banner name Tabbush Report. Since 2014, he has been a member of University of California San Diego Economics Leadership Council (ELC), supporting Economic students at the University through this alumni association, and providing guidance on Economics program development. Daniel grew up in Los Angeles, graduated from UCSD in Economics, cum laude and with Phi Beta Kappa honors. He lives with his family in Bangkok, and enjoys cooking, running and chess.


Smartkarma Webinar | Global Banks: The Purge

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

Sumitomo Mitsui Financial Group / Equity Bottom-Up

<p><em><strong>* Pre-COVID-19 Challenges:</strong></em>SMBC Americas Holdings (8316.JP) [SMBCA] had a number of challenges even prior to the impact of COVID-19, which included: remaining profitable after two consecutive quarters of losses due to volatile capital markets revenues; weak NIMs attributed to a wholesale funded balance sheet; and an elevated cost structure with an efficiency and overhead ratio of 70.6% and 4.63% at 4Q19, respectively;</p><div><p><em><strong>*  COVID-19 Earnings Impact:</strong></em>Our “burn down” results for SMBCA suggest that the 4Q19 Tier 1 capital ratio would decline from 15.9% to 12.4% - implying that it would remain “well-capitalized”. Nevertheless, we believe that COVID-19 will be more of a significant earnings event which would amount to close to 10 years of SMBCA’s operating results; and</p></div><div><p><em><strong>* SMFG’s Chronic Challenges:</strong></em> Sumitomo Mitsui Financial Group (8316.JP) [SMFG] relies quite heavily on lower quality volatile sources of trading revenue, has significant Softbank risk, and it expanded late to USD-based Asia. The current environment is likely to cause a bit of delay in partnership expansion as well. SMBCA’s earnings at risk of USD 1 bn should translate into 1.9% of SMFG’s bottom-line. </p></div>

* Pre-COVID-19 Challenges:SMBC Americas Holdings (8316.JP) [SMBCA] had a number of challenges even prior to the impact of COVID-19, which included: remaining profitable after two consecutive quarters of losses due to volatile capital markets revenues; weak NIMs attributed to a wholesale funded balance sheet; and an elevated cost structure with an efficiency and overhead ratio of 70.6% and 4.63% at 4Q19, respectively;*  COVID-19 Earnings Impact:Our “burn down” results for SMBCA suggest that the 4Q19 Tier 1 capital ratio would decline from 15.9% to 12.4% - implying that it would remain “well-capitalized”. Nevertheless, we believe that COVID-19 will be more of a significant earnings event which would amount to close to 10 years of SMBCA’s operating results; and* SMFG’s Chronic Challenges: Sumitomo Mitsui Financial Group (8316.JP) [SMFG] relies quite heavily on lower quality volatile sources of trading revenue, has significant Softbank risk, and it expanded late to USD-based Asia. The current environment is likely to cause a bit of delay in partnership expansion as well. SMBCA’s earnings at risk of USD 1 bn should translate into 1.9% of SMFG’s bottom-line. 

SMBC Americas Holdings – Expecting 19% NPLs in USA

<p><strong><em>* All That Glitters Isn’t Gold: </em></strong>Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on capital markets businesses. However, as a sector, these subsidiaries are NIM-challenged, wholesale funded, and have bloated cost structures (like their parent companies) - all of which challenge operating returns; </p><p><strong><em>* COVID-19 Challenges At US Franchises: </em></strong>Our “burn down” results for MUFGA were a surprise. We calculate that MUFG Americas’ (8306.JP) [MUFGA] 4Q19 CET1/Tier 1 capital ratios would decline from 14.1% to 3.9% - implying a regulatory capital shortfall, while the same analysis suggests COVID-19 will be a multi-year earnings event for both SMBC Americas (8316.JP) [SMBCA] and Mizuho Americas (8411.JP); and</p><p><strong><em>* Exhaustive Megbank Challenges: </em></strong>Japanese Megabanks were struggling to meet their FY (March) 2020 and 2021 business plans. Chronic weak returns, weak/negative growth in Japan, increased reliance of volatile capital markets revenues, impairments charges on previous acquisitions, EPS deal dilution, Softbank Group (9984.JP) exposures, and growth in Asia (Ex-Japan) risk just as the USD significantly strengthened all continue to hamper Megabank returns – even before the impact of COVID-19.  </p>

* All That Glitters Isn’t Gold: Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on capital markets businesses. However, as a sector, these subsidiaries are NIM-challenged, wholesale funded, and have bloated cost structures (like their parent companies) - all of which challenge operating returns; * COVID-19 Challenges At US Franchises: Our “burn down” results for MUFGA were a surprise. We calculate that MUFG Americas’ (8306.JP) [MUFGA] 4Q19 CET1/Tier 1 capital ratios would decline from 14.1% to 3.9% - implying a regulatory capital shortfall, while the same analysis suggests COVID-19 will be a multi-year earnings event for both SMBC Americas (8316.JP) [SMBCA] and Mizuho Americas (8411.JP); and* Exhaustive Megbank Challenges: Japanese Megabanks were struggling to meet their FY (March) 2020 and 2021 business plans. Chronic weak returns, weak/negative growth in Japan, increased reliance of volatile capital markets revenues, impairments charges on previous acquisitions, EPS deal dilution, Softbank Group (9984.JP) exposures, and growth in Asia (Ex-Japan) risk just as the USD significantly strengthened all continue to hamper Megabank returns – even before the impact of COVID-19.  

Japan Mega Banks – Avenue of the Americas

<p><strong><em>* Decent 2019 Results:</em></strong>Chailease Holding (5871.TT) [Chailease], Taiwan’s top leasing services provider,  reported 2019 net income of NTD 15.5 bn, increasing 15.7% YOY – as lower credit costs and non-operating gains more than offset the accounting changes which negatively impact fee revenues;  </p><p><strong><em>* Recovering Results in March: </em></strong>Chailease reported preliminary revenue of NTD 4.8 bn for March 2020, up 2% YOY and 8% MOM. Taiwan, mainland China and ASEAN reported 1Q20 revenue grew by 21%, negative 8%, and 18% YOY, respectively. Mainland Chinese revenue resumed growth at 14% MOM, as most of the impact from the COVID-19 pandemic occurred in February; and</p><p><em><strong>* Mainland China Credit Watch:</strong></em>According to management, 2% of mainland China clients have asked for a grace period (maximum of 3 months) and 1% will need to restructure repayment terms. We estimate that this would bring the mainland Chinese delinquency ratio to between 4.8%-5.0%. </p>

* Decent 2019 Results:Chailease Holding (5871.TT) [Chailease], Taiwan’s top leasing services provider,  reported 2019 net income of NTD 15.5 bn, increasing 15.7% YOY – as lower credit costs and non-operating gains more than offset the accounting changes which negatively impact fee revenues;  * Recovering Results in March: Chailease reported preliminary revenue of NTD 4.8 bn for March 2020, up 2% YOY and 8% MOM. Taiwan, mainland China and ASEAN reported 1Q20 revenue grew by 21%, negative 8%, and 18% YOY, respectively. Mainland Chinese revenue resumed growth at 14% MOM, as most of the impact from the COVID-19 pandemic occurred in February; and* Mainland China Credit Watch:According to management, 2% of mainland China clients have asked for a grace period (maximum of 3 months) and 1% will need to restructure repayment terms. We estimate that this would bring the mainland Chinese delinquency ratio to between 4.8%-5.0%. 

Chailease Holding – Return to Growth In 1Q20

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/889/original/2020-04-01_12-59-11.png?1585713567" class="editor-image img-responsive" data-smartkarma-image-id="125889"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>DIVIDENDS AT RISK</strong> - As noted in our daily Results &amp; Revisions Updates in the last few days, Japanese companies are starting to shore up their cash flow but cutting or eliminating their dividends. Following <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC (5 HK) </a>and <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a> moves on April 1st, a wave of similar moves is expected in Japan. Although dividends are thought to be very 'sticky' in this market,  on average,  of the 75% of non-financial companies that pay dividends, 14% reduce their payouts each year. In FY2009 and FY2010, this ratio rose to one-third.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/899/original/2020-04-01_13-47-18.png?1585716458" class="editor-image img-responsive" data-smartkarma-image-id="125899"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>30% HAIRCUT</strong> - The 'stickiness' of Japanese dividends is clear from the trends in absolute values. The total amount of cash dividends paid by non-financial companies declined by 30% from 2008 to 2010 or by ¥1.8 trillion. Since the 2010 'low', total cash dividends paid by these companies have increased by 168% to ¥11.8 trillion, a 'trailing yield' of 2.4%. A 30% dividend haircut to ¥8.3 trillion would reduce the yield on current market cap to 1.7%, slightly above the 2010 low of 1.63%.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/905/original/2020-04-07_13-29-26.png?1586233784" class="editor-image img-responsive" data-smartkarma-image-id="126905"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>WHO'S CUTTING NEXT?</strong> - Some serial dividend 'cutters', like <a href="https://www.smartkarma.com/entities/nipro-corp" target="_blank" data-smartkarma-citation="entities:18346:1" rel="noopener">Nipro (8086 JP)</a> above, have already announced a cut for the fiscal year just ended. In the<strong> DETAIL</strong> section below, we shall attempt to highlight those larger (Market Cap &gt; ¥50b) companies with the greatest risk of having to cut their dividends.</p>

Source • Japan AnalyticsDIVIDENDS AT RISK - As noted in our daily Results &amp; Revisions Updates in the last few days, Japanese companies are starting to shore up their cash flow but cutting or eliminating their dividends. Following HSBC (5 HK) and Standard Chartered (STAN LN) moves on April 1st, a wave of similar moves is expected in Japan. Although dividends are thought to be very 'sticky' in this market,  on average,  of the 75% of non-financial companies that pay dividends, 14% reduce their payouts each year. In FY2009 and FY2010, this ratio rose to one-third.Source • Japan Analytics30% HAIRCUT - The 'stickiness' of Japanese dividends is clear from the trends in absolute values. The total amount of cash dividends paid by non-financial companies declined by 30% from 2008 to 2010 or by ¥1.8 trillion. Since the 2010 'low', total cash dividends paid by these companies have increased by 168% to ¥11.8 trillion, a 'trailing yield' of 2.4%. A 30% dividend haircut to ¥8.3 trillion would reduce the yield on current market cap to 1.7%, slightly above the 2010 low of 1.63%.Source • Japan AnalyticsWHO'S CUTTING NEXT? - Some serial dividend 'cutters', like Nipro (8086 JP) above, have already announced a cut for the fiscal year just ended. In the DETAIL section below, we shall attempt to highlight those larger (Market Cap &gt; ¥50b) companies with the greatest risk of having to cut their dividends.

🇯🇵 JAPAN • Dividends At Risk - The Serial 'Cutters'

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 (5 HK)

Smartkarma Webinar | Global Banks: The Purge

In tomorrow's Smartkarma Webinar, Daniel Tabbush talks about the myriad risks global banks are facing all at once. The webinar will be held on 22...

Smartkarma Research

SMBC Americas Holdings – Expecting 19% NPLs in USA

* Pre-COVID-19 Challenges:SMBC Americas Holdings (8316.JP) [SMBCA] had a number of challenges even prior to the impact of COVID-19, which included:...

Thomas J. Monaco

Japan Mega Banks – Avenue of the Americas

* All That Glitters Isn’t Gold: Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on...

Thomas J. Monaco

Chailease Holding – Return to Growth In 1Q20

* Decent 2019 Results:Chailease Holding (5871.TT) [Chailease], Taiwan’s top leasing services provider, reported 2019 net income of NTD 15.5 bn,...

Thomas J. Monaco

🇯🇵 JAPAN • Dividends At Risk - The Serial 'Cutters'

DIVIDENDS AT RISK - As noted in our daily Results & Revisions Updates in the last few days, Japanese companies are starting to shore up their...

Campbell Gunn

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