Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: European bank AT1 significantly outperformed Asia as each EU benchmark Basel III bond tightened during the week. Concurrently, increased risk appetite resulted in performance across the credit continuum in Asia bank bonds. A steepening US Treasury yield curve and risk-on market sentiment drove bank credit spreads tighter, globally. Please see our <a href="https://www.smartkarma.com/insights/bank-macro-manifest-risk-rally-gathers-steam-as-bad-news-more-stimulus" target="_blank" data-smartkarma-citation="insights:47886" rel="noopener">Bank Macro Manifest: Risk Rally Gathers Steam as Bad News = More Stimulus</a> for more details.Europe’s AT1 performance further compressed option adjusted spreads between European AT1 and Asia financial institutions to 50bps inside 2019 levels. This begs the question of how much more spread compression is possible.Globally, <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit's (UCG IM)</a> 8% coupon 2024 callable note led AT1 and broader bank bond performance, tightening 102bps over the week. This outperformance coincided with positive risk asset sentiment following the announcement that former ECB President Mario Draghi was asked to form Italy’s next government. Investors may wish to consider what additional catalyst could drive spreads tighter. UniCredit is expected to report earnings on Thursday, 11 February.In Asia, Nanyang Commercial Bank led AT1 bond performance by tightening another 54bps on the week. Relative to <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia's (23 HK)</a> 5 5/8% coupon 2022 callable note, the Nanyang outperformance is beginning to look overdone. Please see <a href="https://www.smartkarma.com/insights/bank-credit-compass-credit-tourist-may-vacate-if-real-fundamentals-do-not-catch-up" target="_blank" rel="noopener">Bank Credit Compass: Credit Tourist May Vacate if Real Fundamentals Do Not Catch-Up</a> for more details.<a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" rel="noopener">State Bank of India's (SBIIN)</a> prediction of double-digit returns following results that were better than expectations, drove its shares to a 40% gain during the week. SBIIN’s credit was already there, in our view, but other India-headquartered bank credits may benefit.Meanwhile, in the broader Emerging Market (EM) Senior Unsecured HY area, Turkish bank bonds continued to catch-up with their higher rated EM peers with several notes tightening by +60bps over the week. Given the positive developments in Turkey over the last few weeks and the global risk-on environment, several of these banks continue to trade wide relative to most other EM banks.Market Outlook: Investors remain susceptible to management’s prophecies. Asset quality indicators may greatly underestimate the level of troubled debt due to continued forbearance, restructuring efforts and early-stage aging. This is driving provisioning costs lower than would be expected in a more normal operating environment. The value of these reports is significantly diminished for credit investors. Financial repression creates a market, which in its nature, is always a one-sided bet with the Fed / ECB/ BOJ. There is limited price discovery.  As such, credit value should remain driven by larger market forces.

Executive Summary: European bank AT1 significantly outperformed Asia as each EU benchmark Basel III bond tightened during the week. Concurrently, increased risk appetite resulted in performance across the credit continuum in Asia bank bonds. A steepening US Treasury yield curve and risk-on market sentiment drove bank credit spreads tighter, globally. Please see our Bank Macro Manifest: Risk Rally Gathers Steam as Bad News = More Stimulus for more details.Europe’s AT1 performance further compressed option adjusted spreads between European AT1 and Asia financial institutions to 50bps inside 2019 levels. This begs the question of how much more spread compression is possible.Globally, UniCredit's (UCG IM) 8% coupon 2024 callable note led AT1 and broader bank bond performance, tightening 102bps over the week. This outperformance coincided with positive risk asset sentiment following the announcement that former ECB President Mario Draghi was asked to form Italy’s next government. Investors may wish to consider what additional catalyst could drive spreads tighter. UniCredit is expected to report earnings on Thursday, 11 February.In Asia, Nanyang Commercial Bank led AT1 bond performance by tightening another 54bps on the week. Relative to Bank of East Asia's (23 HK) 5 5/8% coupon 2022 callable note, the Nanyang outperformance is beginning to look overdone. Please see Bank Credit Compass: Credit Tourist May Vacate if Real Fundamentals Do Not Catch-Up for more details.State Bank of India's (SBIIN) prediction of double-digit returns following results that were better than expectations, drove its shares to a 40% gain during the week. SBIIN’s credit was already there, in our view, but other India-headquartered bank credits may benefit.Meanwhile, in the broader Emerging Market (EM) Senior Unsecured HY area, Turkish bank bonds continued to catch-up with their higher rated EM peers with several notes tightening by +60bps over the week. Given the positive developments in Turkey over the last few weeks and the global risk-on environment, several of these banks continue to trade wide relative to most other EM banks.Market Outlook: Investors remain susceptible to management’s prophecies. Asset quality indicators may greatly underestimate the level of troubled debt due to continued forbearance, restructuring efforts and early-stage aging. This is driving provisioning costs lower than would be expected in a more normal operating environment. The value of these reports is significantly diminished for credit investors. Financial repression creates a market, which in its nature, is always a one-sided bet with the Fed / ECB/ BOJ. There is limited price discovery.  As such, credit value should remain driven by larger market forces.

Bank Credit Weekly: AT1 Outperformance in Risk-On Environment

Silver Point

Thomas J. Monaco

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

*PRA Changes Its Tune On Dividends: The United Kingdom’s (UK) Prudential Regulatory Authority (PRA) recommended last week that the that UK banks can resume paying dividends subject to FY 2020 results. Linking dividends to the recent success of profitability mirrors Federal Reserve Board policy for the large US banks; and *HSBC Should Stand Pat On The Dividend: While its true that HSBC North America (HSBCNA) doesn’t contribute to the bottom-line, it has weighed down Group results through 3Q20 with losses of USD 963 mn. This thing simply needs to go. With this kind of uncertainty along with risks in France and Asia – again exacerbated by COVID-19 – HSBC Holdings Plc (HSBA/LN/5.HK) should be conserving capital especially if the weak HSBCNA is considered a takeunder candidate.

*PRA Changes Its Tune On Dividends: The United Kingdom’s (UK) Prudential Regulatory Authority (PRA) recommended last week that the that UK banks can resume paying dividends subject to FY 2020 results. Linking dividends to the recent success of profitability mirrors Federal Reserve Board policy for the large US banks; and *HSBC Should Stand Pat On The Dividend: While its true that HSBC North America (HSBCNA) doesn’t contribute to the bottom-line, it has weighed down Group results through 3Q20 with losses of USD 963 mn. This thing simply needs to go. With this kind of uncertainty along with risks in France and Asia – again exacerbated by COVID-19 – HSBC Holdings Plc (HSBA/LN/5.HK) should be conserving capital especially if the weak HSBCNA is considered a takeunder candidate.

HSBC Holdings Plc – PRA Says Yes, But Management Should Say No

Bespoke Research on China and neighbouring regions, Bixmoor

Bixmoor

Bespoke Research on China and neighbouring regions

Bixmoor specialises in providing bespoke research to business, governments and the financial community on China and neighbouring regions. We seek to build long-term relationships with our clients, based on our expertise, our reliability and our determination to find the right solution.

Thematic (Sector/Industry)

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased debt in many countries, including a good number in the European Union, whose debt levels are masked by accounting procedures.

The Potential for National Financial Default

Co-founder & Managing Director, Marketnomix 

Rajan Govil

Co-founder & Managing Director

Marketnomix 

Macroeconomics

The Seasonally adjusted unemployment rate in the Eurozone continued its downward trend, coming in at 10.2% in March 2016 compared to 10.4% in February and 11.2% in March 2015. The unemployment rate was at its lowest level since August 2011, and the gradual improvement in the labor market is expected to continue.The decline in the unemployment was largely across the board amongst the Eurozone members. It decreased to 10% in France in March 2016 compared to 10.2% in February while it fell to 4.2%…

The Seasonally adjusted unemployment rate in the Eurozone continued its downward trend, coming in at 10.2% in March 2016 compared to 10.4% in February and 11.2% in March 2015. The unemployment rate was at its lowest level since August 2011, and the gradual improvement in the labor market is expected to continue.The decline in the unemployment was largely across the board amongst the Eurozone members. It decreased to 10% in France in March 2016 compared to 10.2% in February while it fell to 4.2%…

Eurozone: Seasonally Adjusted Unemployment Rate Continues to Trend Downwards

FX Strategist

Greg Gibbs

Fundamental analysis of topical themes in FX

Amplifying Global FX Capital

Amplifying Global FX Capital was founded in 2015 and is fully owned by Greg Gibbs. It is a registered company both in Australia and Colorado, USA and is a licensed in Australia to provide financial services.

We are producing a regular trading view orientated macroeconomic analysis of topical themes in global financial markets, with a particular focus on foreign exchange. We invite you to view an “executive summary” of these reports in “AmpGFX Reports” under our “Research” menu.

These reports are drawn from the analysis of Greg Gibbs and inform the capital management he undertakes on behalf of the company. The trading performance is posted periodically on our website. We aim to build our company into both a research and capital management business. We are currently in the planning phase for managing capital for wholesale customers.

Greg Gibbs has spent his working life of more than 26 years in financial markets, beginning in 1989 at the Reserve Bank of Australia, after completing a Bachelor of Economics Degree (Honours) at the Australian National University. He has been a CFA Charterholder since 2005. He has worked in Sydney, Singapore, New York and London for major global banks and presented on foreign exchange markets to major financial institutions and companies around the world, and maintained a high profile in the financial media.

Before Amplifying Global FX Capital, Greg was the Head of Asia Pacific Market Strategy at the Royal Bank of Scotland based Singapore. He now resides in Breckenridge Colorado.

The ECB delivered a comprehensive set of further policy easing measures.  But it eschewed the concept of a tiered rate policy, in contrast to the BoJ, and suggested that it was unlikely to target further declines in cash rates.  Its policies are more focused on boosting domestic asset prices and domestic bank lending and place less emphasis on a weaker exchange rate policy.  Since the ECB set its course to further ease policy at its 22-October 2015 policy meeting, the market has presumed that it favored lower interest rates.  It has now signaled it has reached bottom on this path, just as the BoJ has diverted its attention to negative interest rates.  As such, we see a case for a recovery in EUR/JPY, potentially retracing the significant fall since October last year.

The ECB delivered a comprehensive set of further policy easing measures.  But it eschewed the concept of a tiered rate policy, in contrast to the BoJ, and suggested that it was unlikely to target further declines in cash rates.  Its policies are more focused on boosting domestic asset prices and domestic bank lending and place less emphasis on a weaker exchange rate policy.  Since the ECB set its course to further ease policy at its 22-October 2015 policy meeting, the market has presumed that it favored lower interest rates.  It has now signaled it has reached bottom on this path, just as the BoJ has diverted its attention to negative interest rates.  As such, we see a case for a recovery in EUR/JPY, potentially retracing the significant fall since October last year.

AmpGFX - ECB and BoJ Policy Easing Paths Diverge

Germany

HSBC Trinkaus & Burkhardt AG is a German commercial bank that provides all types of banking services, especially investment banking.  The Bank is also active in asset management, corporate finance and securities trading.  HSBC Trinkaus & Burkhardt operates through several branches in Germany and various European subsidiaries.

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Hsbc Trinkaus & Burkhardt Ag (TUB GR)

Bank Credit Weekly: AT1 Outperformance in Risk-On Environment

European bank AT1 significantly outperformed Asia as each EU Basel III AT1 note tightened. Concurrently, increased risk appetite drove performance...

Hank Calenti, CFA

HSBC Holdings Plc – PRA Says Yes, But Management Should Say No

HSBC HOLDINGS: PRA Allowing UK Banks To Dividend But Is Restrictive. HSBC Should Stay Away From Cash Dividends Given The High Degree Of Balance...

Thomas J. Monaco

The Potential for National Financial Default

High debt burdens are not just a developing world phenomenon. The growth of Quantitative Easing programs has resulted in significantly increased...

Bixmoor

Eurozone: Seasonally Adjusted Unemployment Rate Continues to Trend Downwards

The Seasonally adjusted unemployment rate in the Eurozone continued its downward trend, coming in at 10.2% in March 2016 compared to 10.4% in...

Rajan Govil

AmpGFX - ECB and BoJ Policy Easing Paths Diverge

The ECB delivered a comprehensive set of further policy easing measures. But it eschewed the concept of a tiered rate policy, in contrast to the...

Greg Gibbs

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