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

*Archegos Charges Higher, 1Q21 Results Reduce Capital Raise Risk: The immediate financial impact from Archegos is larger than expected (USD 4.7 bn). The combination of stellar 1Q21 results plus the decision to manage 1H21 capital charges has allowed Credit Suisse Group (CSGN.VX) [Credit Suisse] to preserve its a 2020 dividend. Fortunately, the big profit beat has cushioned the blow from poor risk management allowing CET1 to remain above 12%. The fear of an equity capital raise seems to have abated for the moment; and *Outclassed By US Counterparts: Goldman Sachs &amp; Co. (GS.US) [Goldman], in typically fashion, always to seems to have the best information at the earliest possible instance, and as a result were able to act early and decisively – coming through the Archegos liquidations thus far relatively unscathed.  Other prime brokers, including Credit Suisse which didn’t have close to the full Archegos picture, were caught with their pants down in what was supposed to be an orderly unwind descended into chaos.

*Archegos Charges Higher, 1Q21 Results Reduce Capital Raise Risk: The immediate financial impact from Archegos is larger than expected (USD 4.7 bn). The combination of stellar 1Q21 results plus the decision to manage 1H21 capital charges has allowed Credit Suisse Group (CSGN.VX) [Credit Suisse] to preserve its a 2020 dividend. Fortunately, the big profit beat has cushioned the blow from poor risk management allowing CET1 to remain above 12%. The fear of an equity capital raise seems to have abated for the moment; and *Outclassed By US Counterparts: Goldman Sachs &amp; Co. (GS.US) [Goldman], in typically fashion, always to seems to have the best information at the earliest possible instance, and as a result were able to act early and decisively – coming through the Archegos liquidations thus far relatively unscathed.  Other prime brokers, including Credit Suisse which didn’t have close to the full Archegos picture, were caught with their pants down in what was supposed to be an orderly unwind descended into chaos.

Thematic (Sector/Industry)

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value. 

China Banks – Big Capital Raises Coming

Industrial Bank Co Ltd A / Equity Bottom-Up

*Weak 4Q20 Numbers: Industrial Bank (601166.CH) [Industrial] reported fairly disappointing 4Q20 earnings result of CNY 14.8 bn – declining CNY 4.5 bn (23.5%) on a linked quarter basis. From an operating perspective, Industrial struggled this quarter with negative operating jaws, as revenues declined CNY 925 mn (1.8%) whilst expenses increased CNY 3.4 bn (27.2%); and*COVID Credit Hangover Persists: In our view, the stated credit figures far from tell the entire story. Net new NPLs amounted to CNY 20.6 bn or increasing an alarming 145.4% on an annualized basis. When one considers the continued high level break-down in credit quality, reserves would appear to be incredibly light by CNY 36 bn, in our view, which amounts to about two quarters of pre-tax results at Industrial.

*Weak 4Q20 Numbers: Industrial Bank (601166.CH) [Industrial] reported fairly disappointing 4Q20 earnings result of CNY 14.8 bn – declining CNY 4.5 bn (23.5%) on a linked quarter basis. From an operating perspective, Industrial struggled this quarter with negative operating jaws, as revenues declined CNY 925 mn (1.8%) whilst expenses increased CNY 3.4 bn (27.2%); and*COVID Credit Hangover Persists: In our view, the stated credit figures far from tell the entire story. Net new NPLs amounted to CNY 20.6 bn or increasing an alarming 145.4% on an annualized basis. When one considers the continued high level break-down in credit quality, reserves would appear to be incredibly light by CNY 36 bn, in our view, which amounts to about two quarters of pre-tax results at Industrial.    

China Citic Bank Corp Ltd H / Equity Bottom-Up

*Poor Result Even Before Provision Cut:China CITIC Bank (998.HK) [CITIC] reported 2H20 results of CNY 23.6 bn, declining CNY 3.6 bn (13.3%) HOH. Unlike other mainland Chinese banks, CITIC gives almost no breakdown of revenues. Nevertheless, the poor HOH results were driven by negative operating jaws as revenues declined CNY 9.2 bn (9.1%) while operating expenses increased CNY 6.6 bn (27.8%); and*Credit Still A Major Challenge: Riskier and chunkier real estate and construction NPLs increased 211 bp and 293 bp HOH, respectively. Further, we note zero reprieve in net new NPL growth at CNY 41.1 bn  - growing 106.9% on an annualized basis – this remains very troubling. We calculate that the accelerated net new NPL growth has caused CITIC to be underprovided for in the neighborhood of CNY 101 bn or nearly a full year of stated PBT.

*Poor Result Even Before Provision Cut:China CITIC Bank (998.HK) [CITIC] reported 2H20 results of CNY 23.6 bn, declining CNY 3.6 bn (13.3%) HOH. Unlike other mainland Chinese banks, CITIC gives almost no breakdown of revenues. Nevertheless, the poor HOH results were driven by negative operating jaws as revenues declined CNY 9.2 bn (9.1%) while operating expenses increased CNY 6.6 bn (27.8%); and*Credit Still A Major Challenge: Riskier and chunkier real estate and construction NPLs increased 211 bp and 293 bp HOH, respectively. Further, we note zero reprieve in net new NPL growth at CNY 41.1 bn  - growing 106.9% on an annualized basis – this remains very troubling. We calculate that the accelerated net new NPL growth has caused CITIC to be underprovided for in the neighborhood of CNY 101 bn or nearly a full year of stated PBT.

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div>The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.</div><div>There was no report from the SFC this week since Friday was a holiday. The report should be published on Wednesday when markets reopen. For the week from 29 March - 1 April, the highest shorts in notional terms were on <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, <a href="https://www.smartkarma.com/entities/tracker-fund-of-hong-kong-ltd" target="_blank" data-smartkarma-citation="entities:29257:1" rel="noopener">Tracker Fund of Hong Kong Ltd (2800 HK)</a>, <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <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/baidu-inc-a55ca720-5968-48f0-8194-ac94390d065c" target="_blank" data-smartkarma-citation="entities:32212:1" rel="noopener">Baidu (9888 HK)</a>. </div><div>In Japan, stocks that saw the most shorts were <a href="https://www.smartkarma.com/entities/base-inc" target="_blank" data-smartkarma-citation="entities:28353:1" rel="noopener">BASE Inc (4477 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc" target="_blank" data-smartkarma-citation="entities:1492:1" rel="noopener">GMO Payment Gateway (3769 JP)</a>, <a href="https://www.smartkarma.com/entities/freee-kk" target="_blank" data-smartkarma-citation="entities:28424:1" rel="noopener">freee (4478 JP)</a> and <a href="https://www.smartkarma.com/entities/sanken-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:6073:1" rel="noopener">Sanken Electric (6707 JP)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-airport-terminal-co" target="_blank" data-smartkarma-citation="entities:18034:1" rel="noopener">Japan Airport Terminal Co (9706 JP)</a>, <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-lease-finance" target="_blank" data-smartkarma-citation="entities:1467:1" rel="noopener">Mitsubishi UFJ Lease &amp; Finance (8593 JP)</a>, <a href="https://www.smartkarma.com/entities/change-inc" target="_blank" data-smartkarma-citation="entities:27414:1" rel="noopener">Change Inc (3962 JP)</a> and <a href="https://www.smartkarma.com/entities/benext-group" target="_blank" data-smartkarma-citation="entities:17685:1" rel="noopener">BeNEXT Group (2154 JP)</a>. Shorts increased in the Information Technology and Indsutrials sectors, and decreased in the the Energy sector.</div><div>In Korea, short increased on <a href="https://www.smartkarma.com/entities/samsung-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:191:1" rel="noopener">Samsung Electronics (005930 KS)</a>, <a href="https://www.smartkarma.com/entities/sk-hynix-inc" target="_blank" data-smartkarma-citation="entities:16955:1" rel="noopener">SK Hynix (000660 KS)</a>, <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> and <a href="https://www.smartkarma.com/entities/hyundai-motor-co" target="_blank" data-smartkarma-citation="entities:155:1" rel="noopener">Hyundai Motor Co (005380 KS)</a> while shorts decreased on <a href="https://www.smartkarma.com/entities/celltrion-inc" target="_blank" data-smartkarma-citation="entities:991:1" rel="noopener">Celltrion Inc (068270 KS)</a>, <a href="https://www.smartkarma.com/entities/samsung-biologics-co-ltd" target="_blank" data-smartkarma-citation="entities:22932:1" rel="noopener">Samsung Biologics Co., (207940 KS)</a>, <a href="https://www.smartkarma.com/entities/netmarble-corporation" target="_blank" data-smartkarma-citation="entities:22839:1" rel="noopener">Netmarble Corporation (251270 KS)</a> and <a href="https://www.smartkarma.com/entities/posco-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:12421:1" rel="noopener">Posco Chemical Co Ltd (003670 KS)</a>. </div><div>Stocks in Taiwan that saw the highest increase in shorts were <a href="https://www.smartkarma.com/entities/inventec-corp" target="_blank" data-smartkarma-citation="entities:20856:1" rel="noopener">Inventec Corp (2356 TT)</a>, <a href="https://www.smartkarma.com/entities/yageo-corporation" target="_blank" data-smartkarma-citation="entities:13212:1" rel="noopener">Yageo Corporation (2327 TT)</a>, <a href="https://www.smartkarma.com/entities/richwave-technology-corp" target="_blank" data-smartkarma-citation="entities:18629:1" rel="noopener">Richwave Technology (4968 TT)</a> and <a href="https://www.smartkarma.com/entities/asia-cement-corp" target="_blank" data-smartkarma-citation="entities:15350:1" rel="noopener">Asia Cement (1102 TT)</a> while shorts were covered on <a href="https://www.smartkarma.com/entities/taiwan-semiconductor-manufacturing-company" target="_blank" data-smartkarma-citation="entities:11230:1" rel="noopener">TSMC (2330 TT)</a>, <a href="https://www.smartkarma.com/entities/mediatek-inc" target="_blank" data-smartkarma-citation="entities:772:1" rel="noopener">Mediatek Inc (2454 TT)</a>, <a href="https://www.smartkarma.com/entities/united-microelectronics-corp" target="_blank" data-smartkarma-citation="entities:6450:1" rel="noopener">United Microelectronics Corp (2303 TT)</a> and <a href="https://www.smartkarma.com/entities/au-optronics-corp" target="_blank" data-smartkarma-citation="entities:6704:1" rel="noopener">AU Optronics (2409 TT)</a>. </div>

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.There was no report from the SFC this week since Friday was a holiday. The report should be published on Wednesday when markets reopen. For the week from 29 March - 1 April, the highest shorts in notional terms were on Tencent Holdings (700 HK), Tracker Fund of Hong Kong Ltd (2800 HK), Ping An Insurance (H) (2318 HK), Meituan (3690 HK) and Baidu (9888 HK). In Japan, stocks that saw the most shorts were BASE Inc (4477 JP), Toshiba Corp (6502 JP), GMO Payment Gateway (3769 JP), freee (4478 JP) and Sanken Electric (6707 JP) while shorts decreased on ENEOS Holdings (5020 JP), Japan Airport Terminal Co (9706 JP), Mitsubishi UFJ Lease &amp; Finance (8593 JP), Change Inc (3962 JP) and BeNEXT Group (2154 JP). Shorts increased in the Information Technology and Indsutrials sectors, and decreased in the the Energy sector.In Korea, short increased on Samsung Electronics (005930 KS), SK Hynix (000660 KS), Naver Corp (035420 KS) and Hyundai Motor Co (005380 KS) while shorts decreased on Celltrion Inc (068270 KS), Samsung Biologics Co., (207940 KS), Netmarble Corporation (251270 KS) and Posco Chemical Co Ltd (003670 KS). Stocks in Taiwan that saw the highest increase in shorts were Inventec Corp (2356 TT), Yageo Corporation (2327 TT), Richwave Technology (4968 TT) and Asia Cement (1102 TT) while shorts were covered on TSMC (2330 TT), Mediatek Inc (2454 TT), United Microelectronics Corp (2303 TT) and AU Optronics (2409 TT). 

Asia Short Interest: Tencent, Ping An, Baidu, BASE, Toshiba, GMO Payment, BeNext, Inventec, Mediatek

China

iShares FTSE A50 China Index ETF is an exchanged-traded fund established in Hong Kong. The investment objective of the iShares FTSE A50 China Index ETF is to provide investment results that, before fees and expenses, closely correspond to the performance of A50 Index.

iShares FTSE/Xinhua A50 China (2823 HK)

Credit Suisse Group – Painful To Watch

CREDIT SUISSE GROUP: The immediate impact from Archegos is larger than expected. However, the stellar 1Q21 results plus managing 1H21 capital...

Thomas J. Monaco

China Banks – Big Capital Raises Coming

CHINA BANKS: The PBOC and CBIRC released finalized new capital standards for the country’s D-SIBs. Equity raises require P/BV over 1.0x and many of...

Thomas J. Monaco

Industrial Bank – Not Out Of The Woods

INDUSTRIAL BANK: Industrial reported a disappointing QOQ 4Q20 earnings decline of 23.5%. Industrial struggled with negative operating jaws, and...

Thomas J. Monaco

China CITIC Bank – No Credit Deserved

China CITIC Bank: CITIC reported poor 2H20 results. Poor results were driven by negative operating jaws. Riskier real estate/construction NPLs...

Thomas J. Monaco

Asia Short Interest: Tencent, Ping An, Baidu, BASE, Toshiba, GMO Payment, BeNext, Inventec, Mediatek

The Insight looks at large short interest movements across HK, Japan, Korea and Taiwan stocks and highlights large increases/decreases in shorts to...

Brian Freitas