Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

The story for FY21 is all about recovery and low credit costs. But for some banks, credit costs can remain in reversal, given high charges taken last year and improving credit metrics since early last year. JPM shows this in spades.

The story for FY21 is all about recovery and low credit costs. But for some banks, credit costs can remain in reversal, given high charges taken last year and improving credit metrics since early last year. JPM shows this in spades.

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

*Results Materially Supported By Provision Reversals and Principal Transactions: Citigroup (C.US) [Citi] reported 1Q21 bottom-line results of USD 7.6 bn, increasing USD 3.7 bn (89.0%) linked quarter. Citi reversed provisions of USD 2.1 bn - increasing 43.7x versus 4Q20. In addition to the negative provision, Citi’s results were also supported by a USD 2.0 bn (99.7%) increase in principal transaction gains;*Credit Weaker But Coverage Strong: Net new NPLs came in about 1/3 of the previous quarter’s result came in at USD 635 mn or increasing 48.0% on an annualized basis – still far worse than JPM for the last three consecutive quarters. Citi’s loan loss reserve declined to 422% of NPLs and 325 bp of total loans – but still pretty darn good for the known and potential risk in the loan portfolio; and *Puzzling EM Exit: Citi also announced strategic changes in the Global Consumer Bank (GCB), where they are exiting 13 markets, of which ten are in Asia-Pacific. As rationale for the move, new CEO Jane Fraser believe that Citi "does not have the scale" to compete in those markets which account for USD 7 bn in allocated equity and USD 70 bn in loans. We await clarity on the potential restructuring costs and the capital release from these divestitures.

*Results Materially Supported By Provision Reversals and Principal Transactions: Citigroup (C.US) [Citi] reported 1Q21 bottom-line results of USD 7.6 bn, increasing USD 3.7 bn (89.0%) linked quarter. Citi reversed provisions of USD 2.1 bn - increasing 43.7x versus 4Q20. In addition to the negative provision, Citi’s results were also supported by a USD 2.0 bn (99.7%) increase in principal transaction gains;*Credit Weaker But Coverage Strong: Net new NPLs came in about 1/3 of the previous quarter’s result came in at USD 635 mn or increasing 48.0% on an annualized basis – still far worse than JPM for the last three consecutive quarters. Citi’s loan loss reserve declined to 422% of NPLs and 325 bp of total loans – but still pretty darn good for the known and potential risk in the loan portfolio; and *Puzzling EM Exit: Citi also announced strategic changes in the Global Consumer Bank (GCB), where they are exiting 13 markets, of which ten are in Asia-Pacific. As rationale for the move, new CEO Jane Fraser believe that Citi "does not have the scale" to compete in those markets which account for USD 7 bn in allocated equity and USD 70 bn in loans. We await clarity on the potential restructuring costs and the capital release from these divestitures.

*Results Better, But Likely Unsustainable: Bank of America (BAC.US) [BAC] reported 1Q21 bottom-line results of USD 7.6 bn, increasing USD 2.4 bn (45.2%) linked quarter. Results were driven by two factors: a) a negative USD 1.9 bn, in contravention to overall credit performance; and b) a USD 2.1 bn (147.3%) increase trading activities, the sustainability of which we call into question; and*BAC Still Needs To Focus On Credit Quality: Given the USD 774 mn in NCOs (33 bp annualized of total loans), we note that net new NPLs reversed course – increasing a a high 74.8% on an annualized basis. JPM and Citigroup each reported declines. Relative to NPLs, however, reserves – while still significant – declined 67.4% to 3.00x while declining 24 bp to 1.79% against total loans.

*Results Better, But Likely Unsustainable: Bank of America (BAC.US) [BAC] reported 1Q21 bottom-line results of USD 7.6 bn, increasing USD 2.4 bn (45.2%) linked quarter. Results were driven by two factors: a) a negative USD 1.9 bn, in contravention to overall credit performance; and b) a USD 2.1 bn (147.3%) increase trading activities, the sustainability of which we call into question; and*BAC Still Needs To Focus On Credit Quality: Given the USD 774 mn in NCOs (33 bp annualized of total loans), we note that net new NPLs reversed course – increasing a a high 74.8% on an annualized basis. JPM and Citigroup each reported declines. Relative to NPLs, however, reserves – while still significant – declined 67.4% to 3.00x while declining 24 bp to 1.79% against total loans.

Bank of America – Not Exactly A Shining Result

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: The narrative has changed and there is little to stand in the way of further Treasury market strength near term. This should lead to US dollar weakness and may be Emerging Market risk asset supportive. Nonetheless, we suspect that Asia will remain driven by concerns that China is tightening which could constrain investor sentiment in this market.Trading volume-, Treasury issuance- and economic data-risks were no match for short-position unwinding, data reappraisal, and Japanese investor re-entry into the Treasury bond market over the last week. Treasury yields continued their retracement, posting their biggest weekly rally since August. Furthermore, after the worst quarter since 1980, Treasuries have gained around 1% this month, paring 2021 losses to about 3.3%. We may have seen a sell-the-rumor, buy-the-fact market event occur with respect to Treasuries and the better-than-expected March economic data set.The narrative has changed to one that is Treasury bond supportive. Fixed income markets are discounting lower economic growth and price expectations. Scenarios with a declining growth rate may be increasingly discounted in the Treasury markets. With GDP growth anticipated to tail-off over the next few quarters, sustainable wage growth may not materialize. Meanwhile, supply chain bottlenecks and rising producer prices may negatively impact corporate margins rather than consumer wallets. We elaborate on each of these themes within.Against this backdrop, there are limited economic announcements which could impact the Treasury market over the next few weeks. Meanwhile, Japanese investors may find buying US$ denominated bonds attractive after hedging the currency risk. This may be risk asset supportive going forward.  We review this inside.In the bank credit markets, March’s carry trade outperformance continued to unwind as shorter-duration bonds outperformed during the week. All recent higher coupon outperformers experienced large spread declines. Even the Turkish bank credit curve behaved in a manner consistent with other bonds globally, rather than trade at a discount. We identify the winners and losers.In China, while the immediate threat of Credit Armageddon may be lower, the ultimate game plan for China Huarong Asset Management is yet to be known. As such, the market may remain skittish while trading opportunities remain amongst the other asset management companies. Please see: <a href="https://www.smartkarma.com/compose/insight/50463/China%20Huarong:%20Contagion%20Creates%20Opportunity.%20Read%20more:%20https:/skr.ma/SmFJQ" target="_blank" rel="noopener">China Huarong: Contagion Creates Opportunity</a> for more details.US banks set a high bar for performance by announcing stellar investment banking and progressively improving core banking results last week. Then they signaled that they anticipate significantly higher interest rates later this year by hitting the market for record breaking amounts. Middle East- and Asia-headquartered banks may lead the headlines next week. Amongst major European names, only Credit Suisse is scheduled to provide final Q1 results on Tuesday, 20 April. For our thoughts, please see: <a href="https://www.smartkarma.com/compose/insight/50463/Credit%20Suisse:%20Skating%20on%20a%20Thin%20Layer%20of%20Capital.%20Read%20more:%20https:/skr.ma/rGLd5" target="_blank" rel="noopener">Credit Suisse: Skating on a Thin Layer of Capital</a>.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is repricing for lower growth and lower rates over a longer time-period. This should be risk asset supportive as the US dollar finally weakens. The risk is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.

Executive Summary: The narrative has changed and there is little to stand in the way of further Treasury market strength near term. This should lead to US dollar weakness and may be Emerging Market risk asset supportive. Nonetheless, we suspect that Asia will remain driven by concerns that China is tightening which could constrain investor sentiment in this market.Trading volume-, Treasury issuance- and economic data-risks were no match for short-position unwinding, data reappraisal, and Japanese investor re-entry into the Treasury bond market over the last week. Treasury yields continued their retracement, posting their biggest weekly rally since August. Furthermore, after the worst quarter since 1980, Treasuries have gained around 1% this month, paring 2021 losses to about 3.3%. We may have seen a sell-the-rumor, buy-the-fact market event occur with respect to Treasuries and the better-than-expected March economic data set.The narrative has changed to one that is Treasury bond supportive. Fixed income markets are discounting lower economic growth and price expectations. Scenarios with a declining growth rate may be increasingly discounted in the Treasury markets. With GDP growth anticipated to tail-off over the next few quarters, sustainable wage growth may not materialize. Meanwhile, supply chain bottlenecks and rising producer prices may negatively impact corporate margins rather than consumer wallets. We elaborate on each of these themes within.Against this backdrop, there are limited economic announcements which could impact the Treasury market over the next few weeks. Meanwhile, Japanese investors may find buying US$ denominated bonds attractive after hedging the currency risk. This may be risk asset supportive going forward.  We review this inside.In the bank credit markets, March’s carry trade outperformance continued to unwind as shorter-duration bonds outperformed during the week. All recent higher coupon outperformers experienced large spread declines. Even the Turkish bank credit curve behaved in a manner consistent with other bonds globally, rather than trade at a discount. We identify the winners and losers.In China, while the immediate threat of Credit Armageddon may be lower, the ultimate game plan for China Huarong Asset Management is yet to be known. As such, the market may remain skittish while trading opportunities remain amongst the other asset management companies. Please see: China Huarong: Contagion Creates Opportunity for more details.US banks set a high bar for performance by announcing stellar investment banking and progressively improving core banking results last week. Then they signaled that they anticipate significantly higher interest rates later this year by hitting the market for record breaking amounts. Middle East- and Asia-headquartered banks may lead the headlines next week. Amongst major European names, only Credit Suisse is scheduled to provide final Q1 results on Tuesday, 20 April. For our thoughts, please see: Credit Suisse: Skating on a Thin Layer of Capital.Market Outlook: Already looking past upcoming spikes in inflation and job creation, the Treasury market is repricing for lower growth and lower rates over a longer time-period. This should be risk asset supportive as the US dollar finally weakens. The risk is that of impotent monetary policy and a constrained fiscal response in a shorter than expected business cycle.  

Bank Credit Weekly: Narrative Change Pushes Carry-Trade Unwind as Treasuries Rally

*Results Should Only Get Better: JP Morgan Chase &amp; Co (JPM.US) [JPM] reported 1Q21 bottom-line results of USD 13.9 bn, increasing USD 2.2 bn (18.4%) linked quarter. Results were essentially driven by two factors: a) revenue growth at the Corporate &amp; Investment Bank (CIB) of USD 3.3 bn (28.7%) due primarily to principal transactions which increased USD 3.0 bn (103%); and b) a reserve reversal of USD 4.2 bn – increasing USD 2.3 bn (120%) over 4Q20’s provision reversal. The strength of the bottom-line, should allow larger capital returns in 2Q21 predicated on the Federal Reserve Board’s (FRB) dividend payout ratio test; and*Credit Improvement: JPM’s net new NPLs linked quarter amounted to just USD 638 mn or a 22.2% increase on an annualized basis – which is incredibly good. Given the current risk profile of JPM’s loan portfolio that the company remains over-provided for and that we will continue to see loss provision reversals until loan growth returns in some meaningful way.

*Results Should Only Get Better: JP Morgan Chase &amp; Co (JPM.US) [JPM] reported 1Q21 bottom-line results of USD 13.9 bn, increasing USD 2.2 bn (18.4%) linked quarter. Results were essentially driven by two factors: a) revenue growth at the Corporate &amp; Investment Bank (CIB) of USD 3.3 bn (28.7%) due primarily to principal transactions which increased USD 3.0 bn (103%); and b) a reserve reversal of USD 4.2 bn – increasing USD 2.3 bn (120%) over 4Q20’s provision reversal. The strength of the bottom-line, should allow larger capital returns in 2Q21 predicated on the Federal Reserve Board’s (FRB) dividend payout ratio test; and*Credit Improvement: JPM’s net new NPLs linked quarter amounted to just USD 638 mn or a 22.2% increase on an annualized basis – which is incredibly good. Given the current risk profile of JPM’s loan portfolio that the company remains over-provided for and that we will continue to see loss provision reversals until loan growth returns in some meaningful way.

United States

JPMorgan Chase & Co. provides global financial services and retail banking. The Company provides services such as investment banking, treasury and securities services, asset management, private banking, card member services, commercial banking, and home finance. JP Morgan Chase serves business enterprises, institutions, and individuals.

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JPMorgan Chase & Co (JPM US)

JPM – Reversals Accelerate

The story is about recovery and low credit costs. Credit costs can remain in reversal, given high charges taken last year and improving credit...

Daniel Tabbush

Citigroup – Shifting Winds

CITIGROUP: Citi reported a QOQ 1Q21 bottom-line result increase of 89.0% due to provision reversals and principal transactions. Net new NPLs...

Thomas J. Monaco

Bank of America – Not Exactly A Shining Result

BANK OF AMERICA: BAC's QOQ 1Q21 bottom-line increased 45.2% driven by reserve releases and trading (not sustainable). Net new NPLs reversed course...

Thomas J. Monaco

Bank Credit Weekly: Narrative Change Pushes Carry-Trade Unwind as Treasuries Rally

The narrative has changed. There is little to stand in the way of further Treasury market strength near term. This should lead to US$ weakness and...

Hank Calenti, CFA

J.P Morgan Chase & Co. – Well On Track

JP MORGAN CHASE: JPM 1Q21 bottom-line results increased 18.4% linked quarter due to principal transactions and provision reversals. This should...

Thomas J. Monaco

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