Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Our biggest concerns have stemmed from a handful of large-cap China internet names, which have held back the MSCI EM and Hang Seng indexes. We are also getting a breakout above $93.50-93.75 on the US dollar, a concerning risk-off signal. Still, our list of concerns remains short, and our outlook remains neutral yet constructive overall.

Our biggest concerns have stemmed from a handful of large-cap China internet names, which have held back the MSCI EM and Hang Seng indexes. We are also getting a breakout above $93.50-93.75 on the US dollar, a concerning risk-off signal. Still, our list of concerns remains short, and our outlook remains neutral yet constructive overall.

Global Cyclical Value Sectors Improving -- Buying Financials and Energy Names: ING Groep, Many More

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Equity Bottom-Up

Mizuho Financial Group / Equity Bottom-Up

The last day of September.  The end of the first half of the financial year.  A particularly busy day for bankers, with a surge in banking transactions as customers close out the half-year.  The FSA breathing down your neck for the multiple systems failures you have already had this year.  The last thing you need on this day is another systems failure.  But that is exactly what happened yesterday afternoon.  That makes eight straight systems failures since February 2021 for Mizuho Bank and the embattled management team of <a href="https://www.smartkarma.com/entities/mizuho-financial-group-inc" target="_blank" data-smartkarma-citation="entities:219:1" rel="noopener">Mizuho Financial Group (8411 JP)</a>, the latest mishap coming only one week after the FSA issued a Business Correction Order to the bank and the holding company in respect of the previous systems failures.  Mizuho’s reputation with the financial authorities will not have been enhanced by this latest revelation.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but problematic banking group.

The last day of September.  The end of the first half of the financial year.  A particularly busy day for bankers, with a surge in banking transactions as customers close out the half-year.  The FSA breathing down your neck for the multiple systems failures you have already had this year.  The last thing you need on this day is another systems failure.  But that is exactly what happened yesterday afternoon.  That makes eight straight systems failures since February 2021 for Mizuho Bank and the embattled management team of Mizuho Financial Group (8411 JP), the latest mishap coming only one week after the FSA issued a Business Correction Order to the bank and the holding company in respect of the previous systems failures.  Mizuho’s reputation with the financial authorities will not have been enhanced by this latest revelation.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but problematic banking group.

Mizuho Financial Group (8411 JP):  Straight Eight

Thematic (Sector/Industry)

Loan data for August 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for all Japanese commercial banks is now in negative territory, driven by a sharp YoY decline in lending by the major banks over the last four months.  Even on a month-on-month basis, total lending by Japanese banks has been falling for four out of the last five months.  Credit lines that were drawn down in 2020 as Japan went into nationwide COVID-induced lockdown, but were ultimately largely unneeded, are now being repaid.Interest rates remain at rock bottom, a fact that helps minimize funding costs, while the recovery in the stock market has given the banks some valuable ‘breathing space’ to offset rising credit costs with gains on selling some of the investment portfolio.  Nevertheless, margins remain under intense pressure, pushing core earnings down.  The quality of bank profits therefore continues to deteriorate, even though bottom-line profits for 1H FY3/2022 are likely to exceed most banks’ cautious initial earnings guidance.  That said, we expect few banks to opt to raise their full-year guidance significantly, regardless of 1H FY3/2022 results (due out mid-November).The Japanese banking sector in 2021 has outperformed Topix for the first time in several years, aided by a weakening Yen against the US$.  Yet, as we head into the third quarter of FY3/2022, much of the earlier outperformance by the banking sector against Topix has already been given back.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/232/501/original/8300-WR-JBanks-2021-0719-TooLow4Zero-TPNBNKvsTPX+2015-2021.jpg?1632884040" class="editor-image img-responsive" data-smartkarma-image-id="232501"></figure></section>

Loan data for August 2021 from both the Japanese Bankers Association (JBA) and the Bank of Japan (BoJ) confirm that YoY loan growth for all Japanese commercial banks is now in negative territory, driven by a sharp YoY decline in lending by the major banks over the last four months.  Even on a month-on-month basis, total lending by Japanese banks has been falling for four out of the last five months.  Credit lines that were drawn down in 2020 as Japan went into nationwide COVID-induced lockdown, but were ultimately largely unneeded, are now being repaid.Interest rates remain at rock bottom, a fact that helps minimize funding costs, while the recovery in the stock market has given the banks some valuable ‘breathing space’ to offset rising credit costs with gains on selling some of the investment portfolio.  Nevertheless, margins remain under intense pressure, pushing core earnings down.  The quality of bank profits therefore continues to deteriorate, even though bottom-line profits for 1H FY3/2022 are likely to exceed most banks’ cautious initial earnings guidance.  That said, we expect few banks to opt to raise their full-year guidance significantly, regardless of 1H FY3/2022 results (due out mid-November).The Japanese banking sector in 2021 has outperformed Topix for the first time in several years, aided by a weakening Yen against the US$.  Yet, as we head into the third quarter of FY3/2022, much of the earlier outperformance by the banking sector against Topix has already been given back.“Caveat Emptor!” (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for the remainder of 2021 and beyond.

Japanese Bank Lending:  Too Low For Zero

In Japanese lore, 7 is a lucky number.  But not if you are a member of the embattled management team of <a href="https://www.smartkarma.com/entities/mizuho-financial-group-inc" target="_blank" data-smartkarma-citation="entities:219:1" rel="noopener">Mizuho Financial Group (8411 JP)</a>.  Mizuho Bank has now had seven systems failures so far this year, prompting an unprecedented response from the FSA.  The FSA has not only issued Mizuho Bank with yet another Business Correction Order (BCO) but has also taken the highly unusual step of announcing that it will be closely monitoring the forthcoming detailed inspection of the group’s seemingly troubled ‘MINORI’ core computer system, while stopping short of directing operations itself.While management searches for solutions, and the inevitable finger-pointing continues, the bank’s reputation erodes.  Foreign investors still own in aggregate over 22% of MHFG’s stock (as of 31 March 2021), although this ratio may have changed significantly within the last six months.  While the Topix and Nikkei 225 indices have risen to levels not seen in over three decades, with banks initially outperforming the broader Topix index for the first time since 2015, the banking sector is now losing momentum as credit concerns build.  In short, there are far better investment opportunities to be found elsewhere in the Japanese stock market.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

In Japanese lore, 7 is a lucky number.  But not if you are a member of the embattled management team of Mizuho Financial Group (8411 JP).  Mizuho Bank has now had seven systems failures so far this year, prompting an unprecedented response from the FSA.  The FSA has not only issued Mizuho Bank with yet another Business Correction Order (BCO) but has also taken the highly unusual step of announcing that it will be closely monitoring the forthcoming detailed inspection of the group’s seemingly troubled ‘MINORI’ core computer system, while stopping short of directing operations itself.While management searches for solutions, and the inevitable finger-pointing continues, the bank’s reputation erodes.  Foreign investors still own in aggregate over 22% of MHFG’s stock (as of 31 March 2021), although this ratio may have changed significantly within the last six months.  While the Topix and Nikkei 225 indices have risen to levels not seen in over three decades, with banks initially outperforming the broader Topix index for the first time since 2015, the banking sector is now losing momentum as credit concerns build.  In short, there are far better investment opportunities to be found elsewhere in the Japanese stock market.Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Mizuho Financial Group (8411 JP):  Not So Lucky 7

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

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

*USB Pounces Quickly: US Bancorp (USB.US) announced the acquisition of MUFG’s West Coast regional bank (Union Bank) for USD 8.0 bn in a 70/30 cash/stock transaction. Admittedly, this transaction is smaller than we had anticipated – only being Union Bank, the largest portion of MUFG Americas, MUFG’s US bank holding company; and  *Headache Relieved: MUFG recently received a regulatory C&amp;D for "unsafe and unsound practices" with respect to operational risk management and non-compliance with security standards. USB is now the responsible party. MUFG receives USD 5.5 bn in cash and a 2.9% stake in USB, and likely will record a gain of JPY 150 bn. At MUFG Americas, approximately USD 22.6 bn in assets remains at the CIB.

*USB Pounces Quickly: US Bancorp (USB.US) announced the acquisition of MUFG’s West Coast regional bank (Union Bank) for USD 8.0 bn in a 70/30 cash/stock transaction. Admittedly, this transaction is smaller than we had anticipated – only being Union Bank, the largest portion of MUFG Americas, MUFG’s US bank holding company; and  *Headache Relieved: MUFG recently received a regulatory C&amp;D for "unsafe and unsound practices" with respect to operational risk management and non-compliance with security standards. USB is now the responsible party. MUFG receives USD 5.5 bn in cash and a 2.9% stake in USB, and likely will record a gain of JPY 150 bn. At MUFG Americas, approximately USD 22.6 bn in assets remains at the CIB. 

Japan

Mitsubishi UFJ Financial Group, Inc. (MUFG) is a holding company established through the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings. As a financial group, the Company provides a variety of financial and investment services including commercial banking, trust banking, international finance, and assets management services.

Mitsubishi UFJ Financial (MUFG) (8306 JP)

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Mitsubishi UFJ Financial (MUFG) (8306 JP)

Global Cyclical Value Sectors Improving -- Buying Financials and Energy Names: ING Groep, Many More

Continued rising rates is likely to support value Sectors moving forward (especially Financials and Energy), and it also typically indicates...

Vermilion Research

Mizuho Financial Group (8411 JP): Straight Eight

With the FSA breathing down Mizuho's neck for the multiple systems failures already this year, the last thing the bank needed was another one. But...

J. Brian Waterhouse

Japanese Bank Lending: Too Low For Zero

Data for August 2021 from both the JBA and the BoJ confirm that YoY loan growth for all Japanese commercial banks has turned negative, driven by a...

J. Brian Waterhouse

Mizuho Financial Group (8411 JP): Not So Lucky 7

In Japanese lore, 7 is a lucky number. But not if you are the management team of Mizuho Financial Group (8411 JP). Mizuho Bank has now had seven...

J. Brian Waterhouse

Mitsubishi UFJ Financial – Sayonara

MUFG: US Bancorp announced the acquisition of MUFG’s West Coast Union Bank for USD 8.0 bn. MUFG recently received a regulatory C&D for "unsafe and...

Thomas J. Monaco

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