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

China Huarong Asset Management / Equity Bottom-Up

*Another Potential Default:  Again in mainland China, there have been rumblings of another credit default over the past several days. The CBIRC disclosed that China Huarong Asset Management (2799.HK) [Huarong] is actively working with its auditor to complete its annual report. The issue appears to be Huarong’s legacy exposure associated with the misdeeds of its former Chairman, which still need to be addressed post-removal in 2018; and *Ratings Agencies Are More Than Culpable: Wouldn’t you know it, the sleepy, fee hungry ratings agencies (Standard &amp; Poors, Moody’s, and Fitch Ratings) finally put Huarong on review for a potential downgrade. C’mon guys, where have you been?

*Another Potential Default:  Again in mainland China, there have been rumblings of another credit default over the past several days. The CBIRC disclosed that China Huarong Asset Management (2799.HK) [Huarong] is actively working with its auditor to complete its annual report. The issue appears to be Huarong’s legacy exposure associated with the misdeeds of its former Chairman, which still need to be addressed post-removal in 2018; and *Ratings Agencies Are More Than Culpable: Wouldn’t you know it, the sleepy, fee hungry ratings agencies (Standard &amp; Poors, Moody’s, and Fitch Ratings) finally put Huarong on review for a potential downgrade. C’mon guys, where have you been?

China Huarong Asset Management  - Ratings Agencies Fail Us Again

Bank Of Ningbo Co Ltd A / Equity Bottom-Up

*Despite Cost Growth, Bank of Ningbo Pulls One Out: Bank of Ningbo (002142.CH) [Ningbo] reported 4Q20 bottom-line results of CNY 3.8 bn, increasing CNY 304 mn or 8.8% linked quarter. The linked quarter results improvement at Ningbo was driven by several factors: a) revenue improvement of CNY 571 mn (5.6%) and likely driven by loan growth of CNY 32.4 bn (5.0%); b) a CNY 752 mn (31.5%) reduction in loss provisioning; and c) a 6.3% reduction in Ningbo’s tax rate to 7.3%; and*Credit On Solid Footing: Despite the continued accelerated level of net new NPL growth at 83.4% on an annualized, Ninbo has a low base of NPLs.  It’s a good thing that Ningbo remains well-reserved and that credit risk appears quite manageable because capital levels remain somewhat challenged with a CET1 of just 9.5%.

*Despite Cost Growth, Bank of Ningbo Pulls One Out: Bank of Ningbo (002142.CH) [Ningbo] reported 4Q20 bottom-line results of CNY 3.8 bn, increasing CNY 304 mn or 8.8% linked quarter. The linked quarter results improvement at Ningbo was driven by several factors: a) revenue improvement of CNY 571 mn (5.6%) and likely driven by loan growth of CNY 32.4 bn (5.0%); b) a CNY 752 mn (31.5%) reduction in loss provisioning; and c) a 6.3% reduction in Ningbo’s tax rate to 7.3%; and*Credit On Solid Footing: Despite the continued accelerated level of net new NPL growth at 83.4% on an annualized, Ninbo has a low base of NPLs.  It’s a good thing that Ningbo remains well-reserved and that credit risk appears quite manageable because capital levels remain somewhat challenged with a CET1 of just 9.5%.  

*Focus On Positives: Given the scrutiny that Tencent Holdings (700.HK) [Tencent] has come under, it comes as no surprise that Tencent wanted to highlight its positive developments such as international expansion and tailwinds in gaming, potential ad load expansion in Video Accounts, and Mini Programs enrichment; and*Elephant In The Room: Over time, it is our belief that Tencent likely will be required to create a financial holding company for all of its banking, insurance, and payment services businesses – and be regulated along the lines of the banking sector. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks.

*Focus On Positives: Given the scrutiny that Tencent Holdings (700.HK) [Tencent] has come under, it comes as no surprise that Tencent wanted to highlight its positive developments such as international expansion and tailwinds in gaming, potential ad load expansion in Video Accounts, and Mini Programs enrichment; and*Elephant In The Room: Over time, it is our belief that Tencent likely will be required to create a financial holding company for all of its banking, insurance, and payment services businesses – and be regulated along the lines of the banking sector. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks.

*AIA Needs To Slow It Down: Until recently AIA Group (1299.HK) [AIA] operated just five mainland Chinese provincial licenses. With Hong Kong falling down, mainland China has become AIA’s largest market in 2020, contributing 35% to AIA’s VONB. Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary; and  *Risks Of Aggressive Mainland Push: In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; getting the BEA Life team on the same with AIA Hong Kong; and potential impairments its USD-based investment portfolio.

*AIA Needs To Slow It Down: Until recently AIA Group (1299.HK) [AIA] operated just five mainland Chinese provincial licenses. With Hong Kong falling down, mainland China has become AIA’s largest market in 2020, contributing 35% to AIA’s VONB. Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary; and  *Risks Of Aggressive Mainland Push: In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; getting the BEA Life team on the same with AIA Hong Kong; and potential impairments its USD-based investment portfolio. 

*Trying SPACs On For Size: On March 31, 2021, the Singapore Exchange (SGX.SP) [SGX] issued a Consultation Paper on the Proposed Listing Framework for Special Purpose Acquisition Companies (SPACs). The Consultation Paper is seeking comments on policy/rule proposals to allow SPAC listings on SGX;  *Blank Check Companies: Special Purpose Acquisition Companies (SPACs) are not new and have historically focused on the Over the Counter (OTC) pink sheet companies. SPACs are essentially known as blank check companies, essentially a shell company which raises a significant amount cash in an IPO; and*Not A Panacea: SPACs are not the panacea which will resolve SGX’s weakened revenue stream. Keep in mind that the majority of the US-listed SPACs remain below their USD 10 per share offering price and only seven have actually returned capital to investors. As the world heads toward a zero interest rate environment coupled with the giant vortex of skittish liquidity backstopped by central banks, the SPAC frenzy looks to be just the latest in a long line of unintended consequences of risk taking.

*Trying SPACs On For Size: On March 31, 2021, the Singapore Exchange (SGX.SP) [SGX] issued a Consultation Paper on the Proposed Listing Framework for Special Purpose Acquisition Companies (SPACs). The Consultation Paper is seeking comments on policy/rule proposals to allow SPAC listings on SGX;  *Blank Check Companies: Special Purpose Acquisition Companies (SPACs) are not new and have historically focused on the Over the Counter (OTC) pink sheet companies. SPACs are essentially known as blank check companies, essentially a shell company which raises a significant amount cash in an IPO; and*Not A Panacea: SPACs are not the panacea which will resolve SGX’s weakened revenue stream. Keep in mind that the majority of the US-listed SPACs remain below their USD 10 per share offering price and only seven have actually returned capital to investors. As the world heads toward a zero interest rate environment coupled with the giant vortex of skittish liquidity backstopped by central banks, the SPAC frenzy looks to be just the latest in a long line of unintended consequences of risk taking.

Singapore Exchange – Into Merlion’s Mouth

Hong Kong

iShares MSCI Hong Kong ETF is an exchange-traded fund incorporated in the USA. The ETF's objective seeks to provide investment results that correspond to the performance of publicly traded securities in the Hong Kong market, as measured by the MSCI Hong Kong Index. The ETF invests in a representative sample of index stocks using a "portfolio sampling" technique.

iShares MSCI Hong Kong ETF (EWH US)

China Huarong Asset Management - Ratings Agencies Fail Us Again

CHINA HUARONG ASSET MANAGEMENT: There have been rumblings of another credit default over Huarong's unresolved legacy risks. The ratings agencies...

Thomas J. Monaco

Bank of Ningbo – A Good Result

BANK OF NINGBO: 4Q20 bottom-line increased 8.8% linked quarter driven by revenue improvement, a drop in loss provisioning, and a lower tax rate....

Thomas J. Monaco

Tencent Holdings – What Wasn’t Said

TENCENT HOLDINGS: Tencent receives a premium valuation which will be eroded over time, as it likely will be required to create an FHC. No matter...

Thomas J. Monaco

AIA Group – Headlong Into China

AIA GROUP: Concerned about weakening organic growth, AIA has gone on a deal-making spree, leading to massive managerial distractions. Fundamental...

Thomas J. Monaco

Singapore Exchange – Into Merlion’s Mouth

SINGAPORE EXCHANGE: SGX issued a Consultation Paper on SPACs seeking comments on policy proposals to allow SPAC IPOs. SPACs are not the panacea...

Thomas J. Monaco