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

*Results Ahead Of Consensus: Bank of America (BAC.US) [BAC] reported 4Q20 bottom-line results of USD 5.2 bn, increasing USD 768 mn (17.3%) linked quarter. Results were driven by two factors: a) a USD 1.3 bn reduction in loss provision, tracking the overall improvement in net new NPLs; and b) a USD 474 mn (3.3%) decline in costs attributed to the 55.4% reduction in other operating expenses;*BAC Still Needs To Focus On Credit Quality: BAC’s NPLs increased USD 386 mn (8.2%) linked quarter and represent 55 bp of total loans – up 5 bp linked quarter due to both the NPL increase and the 2.9% contraction in loans outstanding. Although the NPL ratio is generally low, we are concerned with both the 30-89 days past due and commercial receivable criticisms which both increased; and*Buyback Will Be Attempted:BAC’s Standardized CET1 remained roughly unchanged linked quarter at 11.9%, and is 140 bp above BAC's capital requirement target.This should allow BAC to execute a share buyback of USD 3.2 bn in 1Q21 – USD 2.9 bn under the income test plus USD 300 mn to offset employee issuance.

*Results Ahead Of Consensus: Bank of America (BAC.US) [BAC] reported 4Q20 bottom-line results of USD 5.2 bn, increasing USD 768 mn (17.3%) linked quarter. Results were driven by two factors: a) a USD 1.3 bn reduction in loss provision, tracking the overall improvement in net new NPLs; and b) a USD 474 mn (3.3%) decline in costs attributed to the 55.4% reduction in other operating expenses;*BAC Still Needs To Focus On Credit Quality: BAC’s NPLs increased USD 386 mn (8.2%) linked quarter and represent 55 bp of total loans – up 5 bp linked quarter due to both the NPL increase and the 2.9% contraction in loans outstanding. Although the NPL ratio is generally low, we are concerned with both the 30-89 days past due and commercial receivable criticisms which both increased; and*Buyback Will Be Attempted:BAC’s Standardized CET1 remained roughly unchanged linked quarter at 11.9%, and is 140 bp above BAC's capital requirement target.This should allow BAC to execute a share buyback of USD 3.2 bn in 1Q21 – USD 2.9 bn under the income test plus USD 300 mn to offset employee issuance. 

Bank of America – Driven Entirely By Credit

*Super Results And Will Only Get Better: JP Morgan Chase &amp; Co (JPM.US) [JPM] reported 4Q20 bottom-line results of USD 12.1 bn, increasing USD 2.7 bn (28.5%) linked quarter. On a core operating basis, we note an even stronger QOQ improvement, with numbers coming in at USD 12.1 bn or USD 3.1 bn (34.6%) higher than 3Q20. Results were essentially driven by a reserve reversal of USD 1.9 bn, which no doubt will be a consistent theme in 2021;*Credit Weakness Significantly Decelerates: We find that net new NPLs on a linked quarter amounted to only USD 1 mn or well under 1.0% on an annualized basis. The pace of increase has decelerated from the 7.0% and 26% posted in 3Q20 and 2Q20, respectively; and*Solid Share Buyback In Place: JPM noted that it could repurchase a maximum number of shares of USD 4.5 bn for 1Q21.

*Super Results And Will Only Get Better: JP Morgan Chase &amp; Co (JPM.US) [JPM] reported 4Q20 bottom-line results of USD 12.1 bn, increasing USD 2.7 bn (28.5%) linked quarter. On a core operating basis, we note an even stronger QOQ improvement, with numbers coming in at USD 12.1 bn or USD 3.1 bn (34.6%) higher than 3Q20. Results were essentially driven by a reserve reversal of USD 1.9 bn, which no doubt will be a consistent theme in 2021;*Credit Weakness Significantly Decelerates: We find that net new NPLs on a linked quarter amounted to only USD 1 mn or well under 1.0% on an annualized basis. The pace of increase has decelerated from the 7.0% and 26% posted in 3Q20 and 2Q20, respectively; and*Solid Share Buyback In Place: JPM noted that it could repurchase a maximum number of shares of USD 4.5 bn for 1Q21. 

*Results Supported By Lack Of Provisions: Citigroup (C.US) [Citi] reported 4Q20 bottom-line results of USD 4.6 bn, increasing USD 1.5 bn (47.2%) linked quarter. Citi did not provision in 4Q20 an reversed USD 46 mn – enabling its loss provision to decline USD 2.4 bn (101.9%) linked quarter;*Despite Reserve Release, Credit Materially Worse: Despite the perception of improved credit quality improvement in the US and in contravention to JPM, Citi’s NPLs increased USD 395 mn (7.4%) on a linked quarter basis to USD 5.7 bn. Net new NPLs increased USD 1.8 bn or 136.8% on an annualized basis – accelerating versus the 114.3% posted in 3Q20;*Problematic Cost Basis: Although expenses did exhibit a USD 250 mn (2.3%) linked quarter improvement. Despite the expense improvement, Citi’s C/I ratio continues to worsen – increasing 1.6% to 66.0%. We are hopeful that new CEO Jane Fraser can finally turn this ship around, and enable Citi to achieve its targeted 12% ROTCE over time.

*Results Supported By Lack Of Provisions: Citigroup (C.US) [Citi] reported 4Q20 bottom-line results of USD 4.6 bn, increasing USD 1.5 bn (47.2%) linked quarter. Citi did not provision in 4Q20 an reversed USD 46 mn – enabling its loss provision to decline USD 2.4 bn (101.9%) linked quarter;*Despite Reserve Release, Credit Materially Worse: Despite the perception of improved credit quality improvement in the US and in contravention to JPM, Citi’s NPLs increased USD 395 mn (7.4%) on a linked quarter basis to USD 5.7 bn. Net new NPLs increased USD 1.8 bn or 136.8% on an annualized basis – accelerating versus the 114.3% posted in 3Q20;*Problematic Cost Basis: Although expenses did exhibit a USD 250 mn (2.3%) linked quarter improvement. Despite the expense improvement, Citi’s C/I ratio continues to worsen – increasing 1.6% to 66.0%. We are hopeful that new CEO Jane Fraser can finally turn this ship around, and enable Citi to achieve its targeted 12% ROTCE over time.

*Weak Conference Highlighted By What Wasn’t Discussed: Link REIT (823.HK) [Link] discussed its continued operational and strategic challenges through the COVID-19 pandemic. Hong Kong shopping mall occupancy remains between 95%-96%, with rental reversion rates still tracking at negative 2.6%. Additional deals from mainland China expected to be yield accretive; and*New Acquisition Strategy: While it sounds ridiculous, Link has apparently had an epiphany with respect to evaluating portfolio acquisitions based on growth and risk/reward. If this is now the case, what was management actually thinking with The Cabot in London on July 26, 2020.

*Weak Conference Highlighted By What Wasn’t Discussed: Link REIT (823.HK) [Link] discussed its continued operational and strategic challenges through the COVID-19 pandemic. Hong Kong shopping mall occupancy remains between 95%-96%, with rental reversion rates still tracking at negative 2.6%. Additional deals from mainland China expected to be yield accretive; and*New Acquisition Strategy: While it sounds ridiculous, Link has apparently had an epiphany with respect to evaluating portfolio acquisitions based on growth and risk/reward. If this is now the case, what was management actually thinking with The Cabot in London on July 26, 2020.   

Genworth Financial Inc Cl A / Equity Bottom-Up

*No Deal, Move On: China Oceanwide (715.HK) still does not have the money to consummate the Genworth Financial (GNW.US) [Genworth] transaction – missing its merger agreement deadline for the 17th time on December 31, 2020.  Genworth announced that while the merger agreement still remains in effect, management does “not believe a closing can occur in the near-term”; and  *Update Call January 5, 2021: Genworth is hosting a pre-market update call on January 5, 2021 which should provide more color on its contingency plans.

*No Deal, Move On: China Oceanwide (715.HK) still does not have the money to consummate the Genworth Financial (GNW.US) [Genworth] transaction – missing its merger agreement deadline for the 17th time on December 31, 2020.  Genworth announced that while the merger agreement still remains in effect, management does “not believe a closing can occur in the near-term”; and  *Update Call January 5, 2021: Genworth is hosting a pre-market update call on January 5, 2021 which should provide more color on its contingency plans.

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)

Bank of America – Driven Entirely By Credit

BANK OF AMERICA: BAC's 4Q20 bottom-line of USD 5.2 bn increased 17.3% driven by a USD 1.3 bn reduction in provisions. NPLs increased 8.2%, as did...

Thomas J. Monaco

JP Morgan Chase & Co. – Just Wow

JP MORGAN CHASE: JPM] reported 4Q20 bottom-line results increased 28.5% linked quarter, driven by a reserve reversal. Net new NPLs on a linked...

Thomas J. Monaco

Citigroup – Massive Clean Up Required

CITIGROUP: Citi reported 4Q20 results of USD 4.6 bn, increasing USD 1.5 bn (47.2%) linked quarter due to a 102% provision decline. Net new NPLs...

Thomas J. Monaco

Link REIT – Novel Acquisition Approach

LINK REIT: Link recently discussed its continued operational and strategic challenges through the COVID-19 pandemic. Link has apparently had an...

Thomas J. Monaco

Genworth Financial –What A Surprise…

GENWORTH FINANCIAL: China Oceanwide Simply Does Not Have The Money To Consummate This Transaction, And Genworth Needs To Move On - But It Wont Be...

Thomas J. Monaco