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

*Limited Impact: Singapore Exchange (SGX.SG) [SGX] announced that it was acquiring MaxxTrader from FlexTrade Systems for USD 125mn plus. This is SGX's third acquisition after BidFX and Scientific Beta in 2020. This deal is expected to provide SGX with the ability to leverage this franchise to set up an ECN FX marketplace as targeted under its medium-term plan; and*Distractions:As SGX needs to contend with a greater than expected impact from Hong Hong Exchanges &amp; Clearing (388.HK) competitive pressures for derivatives volumes, and the earlier-than-expected launch of HKEX's MSCI China A index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth.

*Limited Impact: Singapore Exchange (SGX.SG) [SGX] announced that it was acquiring MaxxTrader from FlexTrade Systems for USD 125mn plus. This is SGX's third acquisition after BidFX and Scientific Beta in 2020. This deal is expected to provide SGX with the ability to leverage this franchise to set up an ECN FX marketplace as targeted under its medium-term plan; and*Distractions:As SGX needs to contend with a greater than expected impact from Hong Hong Exchanges &amp; Clearing (388.HK) competitive pressures for derivatives volumes, and the earlier-than-expected launch of HKEX's MSCI China A index futures – on top of weaker equity volumes and fees, it continues to do numerous tiny bolt-on deals which appear to be more of a distraction than their worth.

Singapore Exchange - Another Deal, Another Distraction

*Recovery Continues: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] attended a competitor virtual conference last week, confirming that the positive trends in from 1Q21 are set to continue; and*Credit Improvement Re-Affirmed: We remain optimistic. According to management, credit quality trends remain quite favorable but still expects a gradual deterioration from loans under moratorium. Much of the anticipated deterioration in credit is likely to continue to come from Malaysia and Indonesia. For 1Q21, we calculated that net new NPL growth amounted to a very reasonable SGD 40 mn or 3.6% on an annualized basis for 1Q21 – which remains incredibly low.

*Recovery Continues: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] attended a competitor virtual conference last week, confirming that the positive trends in from 1Q21 are set to continue; and*Credit Improvement Re-Affirmed: We remain optimistic. According to management, credit quality trends remain quite favorable but still expects a gradual deterioration from loans under moratorium. Much of the anticipated deterioration in credit is likely to continue to come from Malaysia and Indonesia. For 1Q21, we calculated that net new NPL growth amounted to a very reasonable SGD 40 mn or 3.6% on an annualized basis for 1Q21 – which remains incredibly low.

Oversea Chinese Banking Corp. – Affirming Positive Trends

*Another Awful Result: Punjab National Bank (PNB.IN) [PNB] reported FY 4Q21 net income of INR 5.9 bn, increasing INR 803 mn  (15.9%) linked quarter. Excluding the gains in the consecutive quarters, PNB’s core operating results would have been a negative INR 3.9 bn in FY 4Q21 and negative INR 7.4 bn in FY 3Q21. Not good, but operating losses did moderately decline – or did they? Bizarrely, as gross stated NPLs increased 10.5% linked quarter, PNB in its infinite wisdom decided to cut loss provisions INR 7.5 bn (13.7%) linked quarter which was substantially additive to what appears to be an overstated bottom-line; and*Accelerating Credit Risk Leads to Technical Insolvency: Inclusive of the INR 68 bn NCO, we find that PNB’s level of net new NPLs actually increased INR 167 bn or 70.7% on an annualized basis. While we have very little confidence in PNB’s reporting of problem assets at this stage, we take their word for current NPLs and find that loss reserves are now light by at minimum of INR 1.1 bn  - or approximately 124% of stated book value. This is without accounting for the delayed or backlog provisions associated fraud accounts and ageing provisions.

*Another Awful Result: Punjab National Bank (PNB.IN) [PNB] reported FY 4Q21 net income of INR 5.9 bn, increasing INR 803 mn  (15.9%) linked quarter. Excluding the gains in the consecutive quarters, PNB’s core operating results would have been a negative INR 3.9 bn in FY 4Q21 and negative INR 7.4 bn in FY 3Q21. Not good, but operating losses did moderately decline – or did they? Bizarrely, as gross stated NPLs increased 10.5% linked quarter, PNB in its infinite wisdom decided to cut loss provisions INR 7.5 bn (13.7%) linked quarter which was substantially additive to what appears to be an overstated bottom-line; and*Accelerating Credit Risk Leads to Technical Insolvency: Inclusive of the INR 68 bn NCO, we find that PNB’s level of net new NPLs actually increased INR 167 bn or 70.7% on an annualized basis. While we have very little confidence in PNB’s reporting of problem assets at this stage, we take their word for current NPLs and find that loss reserves are now light by at minimum of INR 1.1 bn  - or approximately 124% of stated book value. This is without accounting for the delayed or backlog provisions associated fraud accounts and ageing provisions.  

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX's derivatives business volumes, and a further delay in HKEX's launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX's derivatives business volumes, and a further delay in HKEX's launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.

*Improving NIMs and Credit:CIMB Group (CIMB.MK) [CIMB] reported 1Q21 results of MYR 2.5 bn, increasing MYR 2.2 bn (10.6x) linked quarter. Excluding the one time gain of MYR 1.2 bn, CIMB’s core operatimg result came in at MYR 1.3 bn – increasing MYR 1.1 bn or 5.1x over the same period. 1Q21 results were driven by several factors: 1) net interest income improvement of MYR 169 mn (4.9%) which was driven by NIM ex-ansion of 15 bp and modest loan growth of MYR 718 mn or 0.2%; and 2) a MYR 1.5 bn (66.5%) decline in loss provisions tracking credit quality improvement in both Malaysia and Singapore; and 
*Credit Risk Decelerating: With NCOs of MYR 1.9 bn or at 1.60% annualized of total loans (decelerating from the MYR 1.9 bn posted in 4Q20), we find that net new NPLs increased only MYR 756 mn or 23.0% on an annualized basis – quite the decline from the MYR 2.6 bn or a whopping 83.5% on an annualized basis posted in 4Q20. We believe that reserves are too light by MYR 2.6 bn– which is nearly two quarters of core operating results.

*Improving NIMs and Credit:CIMB Group (CIMB.MK) [CIMB] reported 1Q21 results of MYR 2.5 bn, increasing MYR 2.2 bn (10.6x) linked quarter. Excluding the one time gain of MYR 1.2 bn, CIMB’s core operatimg result came in at MYR 1.3 bn – increasing MYR 1.1 bn or 5.1x over the same period. 1Q21 results were driven by several factors: 1) net interest income improvement of MYR 169 mn (4.9%) which was driven by NIM ex-ansion of 15 bp and modest loan growth of MYR 718 mn or 0.2%; and 2) a MYR 1.5 bn (66.5%) decline in loss provisions tracking credit quality improvement in both Malaysia and Singapore; and 
*Credit Risk Decelerating: With NCOs of MYR 1.9 bn or at 1.60% annualized of total loans (decelerating from the MYR 1.9 bn posted in 4Q20), we find that net new NPLs increased only MYR 756 mn or 23.0% on an annualized basis – quite the decline from the MYR 2.6 bn or a whopping 83.5% on an annualized basis posted in 4Q20. We believe that reserves are too light by MYR 2.6 bn– which is nearly two quarters of core operating results. 

United States

iShares MSCI Singapore 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 the Singaporean market, as measured by the MSCI Singapore 25/50 Index. The ETF invests in a representative sample of index stocks using a "portfolio sampling" technique. SGX Trading Name: IS MSCI SIN 100US$

iShares MSCI Singapore ETF (EWS US)

Singapore Exchange - Another Deal, Another Distraction

SINGAPORE EXCHANGE: SGX announced that it was acquiring MaxxTrader for USD 125mn plus, its third acquisition since 2020. Numerous bolt-on deals...

Thomas J. Monaco

Oversea Chinese Banking Corp. – Affirming Positive Trends

Oversea Chinese Banking Corp: OCBC confirmed that the positive trends are set to continue, and that credit quality remains favorable but with...

Thomas J. Monaco

Punjab National Bank – Cipher

PUNJAB NATIONAL BANK: PNB's operating results were a negative INR 3.9 bn in FY 4Q21. Bizarrely, as gross stated NPLs increased 10.5% linked...

Thomas J. Monaco

Singapore Exchange – Peripatetic

SINGAPORE EXCHANGE: SGX held an Analysts’ Day which discussed various aspects of its business. Management appears to be scrambling to offset...

Thomas J. Monaco

CIMB Group – A Positive Turn

CIMB GROUP: CIMB core results improved 5.1x linked quarter, driven by NIM expansion, loan growth, and decline in loss provisions. Loss reserves are...

Thomas J. Monaco