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

Genworth Financial Inc Cl A / Equity Bottom-Up

<ul>
<li>
Deal Update: Genworth Financial (GNW.US) [Genworth] announced that it and merger partner, China Oceanwide (715.HK), have entered into an extension of the merger deadline for the deal from March 31 to June 30 - the 14th waiver. There now appears to be some uncertainty in the disclosure that the required loan extension had not yet been secured by China Oceanwide is a bit disconcerting after all of this time and especially during the current environment;</li>
<li>
Virginia Approval: In addition, Genworth also announced that the Commonwealth of Virginia’s insurance regulator had re-approved the merger - a requirement by the state that arose after Genworth infused USD 100 mn into Genworth Life Insurance Company of New York (GLICNY); and</li>
<li>
Material Adverse Condition?: Mortgage firms are bracing for a wave of missed payments as many mortgage holders have lost their jobs. Genworth mortgage insurance in the US essentially guarantees mortgage payments for those mortgagees who cannot come up with a 20% downpayment. If homeowners miss payments, Genworth is contractually obligated to continue forwarding on monies to the mortgage owners. As such, Genworth (and its Canadian and Australian subsidiaries) will have to come up of billions of USD on short notice to cover their financial obligations without access to Federal Reserve emergency lending facilities. China Oceanwide may finally walk away from this deal once and for all by invoking the material adverse condition clause.   </li>
</ul>



Deal Update: Genworth Financial (GNW.US) [Genworth] announced that it and merger partner, China Oceanwide (715.HK), have entered into an extension of the merger deadline for the deal from March 31 to June 30 - the 14th waiver. There now appears to be some uncertainty in the disclosure that the required loan extension had not yet been secured by China Oceanwide is a bit disconcerting after all of this time and especially during the current environment;

Virginia Approval: In addition, Genworth also announced that the Commonwealth of Virginia’s insurance regulator had re-approved the merger - a requirement by the state that arose after Genworth infused USD 100 mn into Genworth Life Insurance Company of New York (GLICNY); and

Material Adverse Condition?: Mortgage firms are bracing for a wave of missed payments as many mortgage holders have lost their jobs. Genworth mortgage insurance in the US essentially guarantees mortgage payments for those mortgagees who cannot come up with a 20% downpayment. If homeowners miss payments, Genworth is contractually obligated to continue forwarding on monies to the mortgage owners. As such, Genworth (and its Canadian and Australian subsidiaries) will have to come up of billions of USD on short notice to cover their financial obligations without access to Federal Reserve emergency lending facilities. China Oceanwide may finally walk away from this deal once and for all by invoking the material adverse condition clause.   


Genworth Financial – MAC Clause Could Be Invoked

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/809/original/2020-04-01_05-33-05.png?1585686825" class="editor-image img-responsive" data-smartkarma-image-id="125809"></figure><div class="content-caption">Source • Japan Analytics</div>TUESDAY 31st MARCH - Shareholder returns are now being sacrificed to shore up corporate cash flows in Japan. Yesterday saw<a href="https://www.smartkarma.com/entities/nippon-sheet-glass-co-ltd" target="_blank" data-smartkarma-citation="entities:9013:1" rel="noopener">Nippon Sheet Glass (5202 JP)</a> and <a href="https://www.smartkarma.com/entities/nextgen-inc" target="_blank" data-smartkarma-citation="entities:20914:1" rel="noopener">Nextgen (3842 JP)</a> cancel their payouts, and reductions from <a href="https://www.smartkarma.com/entities/shinsho-corp" target="_blank" data-smartkarma-citation="entities:6333:1" rel="noopener">Shinsho (8075 JP)</a>, <a href="https://www.smartkarma.com/entities/hakuto-co-ltd" target="_blank" data-smartkarma-citation="entities:6207:1" rel="noopener">Hakuto (7433 JP)</a>, and <a href="https://www.smartkarma.com/entities/nipro-corp" target="_blank" data-smartkarma-citation="entities:18346:1" rel="noopener">Nipro (8086 JP)</a>. Nipro has 'form' in this regard, but it is interesting to note that 2020's payout will be less than the ¥16 paid in 2009. We shall be covering the topic of "Dividends at Risk" in a forthcoming Insight. There were no large-cap results or revisions yesterday, but our scoring was five positive to six negative for results and eight positive to eleven negative for revisions.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/811/original/2020-04-01_05-56-47.png?1585688222" class="editor-image img-responsive" data-smartkarma-image-id="125811"></figure><div class="content-caption">Source • Japan Analytics</div><a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-gro" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (8306 JP)</a> - MUFG chooses not to make forecasts, so we are reliant on Nikkei 'previews' for 'updates'. A ¥360b (US$3.34b) writedown of MUFG's stake in banks in Indonesia, Thailand, and the Philippines is to be booked for the fiscal year that ended yesterday. MUFG shares fell 5.4%, and Banks was the worst-performing Sector on the day. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/814/original/File%202020-04-01%206%2010%2027.jpeg?1585689079" class="editor-image img-responsive" data-smartkarma-image-id="125814"></figure><div class="content-caption">Source • covid19japan.com</div>LOCKDOWN CORNER - By emphatically denying rumours of an impending 'lockdown' for Tokyo from tomorrow, the Government has limited their options for doing so without loss of credibility with the public. A rumour that Google Japan was suppressing searches about the rumour only helped to fan the flames and anxiety. Panic-buying re-emerged in grocery stores.  COVID-19 cases in Tokyo are now growing at an exponential rate, eclipsing the rest of Japan, with the majority of new cases are not conforming to Japan's pre-ordained epidemiological tracing protocols. Governor Koike held an emergency meeting with Prime Minister Abe last night. While the Tokyo Metropolitan Government is encouraging social distancing, only the national government can invoke stricter measures under the recently-enacted emergency laws. The current uncertainty over the Tokyo lockdown is not market-positive. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/820/original/2020-04-01_05-07-12.png?1585690885" class="editor-image img-responsive" data-smartkarma-image-id="125820"></figure><div class="content-caption">Source • Deutsche Bank</div>HISTORIC - Deutsche Bank has estimated that COVID-19 will result in a year-on-year economic contraction of 3.9%, lower than that of 2009. Were Tokyo to lockdown for a month, the 2009 decline would probably be exceeded.

Source • Japan AnalyticsTUESDAY 31st MARCH - Shareholder returns are now being sacrificed to shore up corporate cash flows in Japan. Yesterday sawNippon Sheet Glass (5202 JP) and Nextgen (3842 JP) cancel their payouts, and reductions from Shinsho (8075 JP), Hakuto (7433 JP), and Nipro (8086 JP). Nipro has 'form' in this regard, but it is interesting to note that 2020's payout will be less than the ¥16 paid in 2009. We shall be covering the topic of "Dividends at Risk" in a forthcoming Insight. There were no large-cap results or revisions yesterday, but our scoring was five positive to six negative for results and eight positive to eleven negative for revisions.Source • Japan AnalyticsMitsubishi UFJ Financial (8306 JP) - MUFG chooses not to make forecasts, so we are reliant on Nikkei 'previews' for 'updates'. A ¥360b (US$3.34b) writedown of MUFG's stake in banks in Indonesia, Thailand, and the Philippines is to be booked for the fiscal year that ended yesterday. MUFG shares fell 5.4%, and Banks was the worst-performing Sector on the day. Source • covid19japan.comLOCKDOWN CORNER - By emphatically denying rumours of an impending 'lockdown' for Tokyo from tomorrow, the Government has limited their options for doing so without loss of credibility with the public. A rumour that Google Japan was suppressing searches about the rumour only helped to fan the flames and anxiety. Panic-buying re-emerged in grocery stores.  COVID-19 cases in Tokyo are now growing at an exponential rate, eclipsing the rest of Japan, with the majority of new cases are not conforming to Japan's pre-ordained epidemiological tracing protocols. Governor Koike held an emergency meeting with Prime Minister Abe last night. While the Tokyo Metropolitan Government is encouraging social distancing, only the national government can invoke stricter measures under the recently-enacted emergency laws. The current uncertainty over the Tokyo lockdown is not market-positive. Source • Deutsche BankHISTORIC - Deutsche Bank has estimated that COVID-19 will result in a year-on-year economic contraction of 3.9%, lower than that of 2009. Were Tokyo to lockdown for a month, the 2009 decline would probably be exceeded.

🇯🇵 JAPAN • Revisions & Results Update 31st March > Dividends at Risk

* Large Debt Levels: SoftBank Group (SoftBank) is a Death Star for credit markets, having greater than USD 250 bn in debt, commitments, and lease obligations, and Japan’s three largest banks already hold about USD 13 bn in SoftBank debt on balance sheet at FY 3/19;  * Credit Downgrade to Junk Inevitable: A credit downgrade will require higher capital charges.  Manageable in isolation; however, given the herd mentality risks, the worst case scenario (SoftBank filing) is certainly a plausible outcome. Softbank is just another example of top-of-the-cycle activism which was all about replacing one form of financial engineering with another without creating real value; and   * WeWorks Bankruptcy On The Table: The April 1 USD 3bn financing round from Softbank is now in danger of falling apart, as Softbank appears to be using the US investigation as an out clause. WeWorks board already weighing litigation. Softbank has guided to already having provided USD $13.4 bn to WeWorks, including USD 5 bn in working capital since October 2019. In our view, WeWorks is likely to file bankruptcy sometime in 1H20 as tenants simply will not/cannot  pay rent.

* Large Debt Levels: SoftBank Group (SoftBank) is a Death Star for credit markets, having greater than USD 250 bn in debt, commitments, and lease obligations, and Japan’s three largest banks already hold about USD 13 bn in SoftBank debt on balance sheet at FY 3/19;  * Credit Downgrade to Junk Inevitable: A credit downgrade will require higher capital charges.  Manageable in isolation; however, given the herd mentality risks, the worst case scenario (SoftBank filing) is certainly a plausible outcome. Softbank is just another example of top-of-the-cycle activism which was all about replacing one form of financial engineering with another without creating real value; and   * WeWorks Bankruptcy On The Table: The April 1 USD 3bn financing round from Softbank is now in danger of falling apart, as Softbank appears to be using the US investigation as an out clause. WeWorks board already weighing litigation. Softbank has guided to already having provided USD $13.4 bn to WeWorks, including USD 5 bn in working capital since October 2019. In our view, WeWorks is likely to file bankruptcy sometime in 1H20 as tenants simply will not/cannot  pay rent. 

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative performance.  Some regional bank stocks rose as much as 35% for the week, while even the mighty megabank <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-gro" target="_blank" rel="noopener" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> rose an eyebrow-raising 17%.  Regrettably, this is not evidence of a paradigm shift in the Japanese banking sector’s fundamental outlook, but more like a knee-jerk reaction to the Bank of Japan’s efforts to restore order to the somewhat chaotic financial markets through buying ETFs, perhaps aided – if financial media are to be believed  –  by government-owned pension funds such as the GPIF.The Yen has not weakened against the US Dollar, as one might have expected if international investors had been adopting a ‘risk on’ approach, but has failed several times to break though the Y112 level (as noted recently by Smartkarma contributor <a href="https://www.smartkarma.com/profiles/campbell-gunn" target="_blank" rel="noopener" data-smartkarma-citation="accounts:2531">Campbell Gunn</a>) and is now in sharp retreat: a ‘risk off’ reaction.  This is not good news for Japanese financial stocks.The fundamental outlook for Japan’s banks has not improved: if anything, the outlook for FY3/2021 and beyond is now even more challenging than FY3/2020 has been.  As we have frequently pointed out in past Insights, margins remain under downward pressure generally, many regional banks remain underwater on their core domestic businesses, credit costs are rising across the board for all banks and many may face substantial losses on their investment portfolios as they close their accounts for FY3/2020.  Under the circumstances, the recent strength in Japanese bank stock prices is logically unsustainable without further massive intervention by the Japanese financial authorities and the further disruption of price discovery.Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!”  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative performance.  Some regional bank stocks rose as much as 35% for the week, while even the mighty megabank Mitsubishi UFJ Financial (MUFG) (8306 JP) rose an eyebrow-raising 17%.  Regrettably, this is not evidence of a paradigm shift in the Japanese banking sector’s fundamental outlook, but more like a knee-jerk reaction to the Bank of Japan’s efforts to restore order to the somewhat chaotic financial markets through buying ETFs, perhaps aided – if financial media are to be believed  –  by government-owned pension funds such as the GPIF.The Yen has not weakened against the US Dollar, as one might have expected if international investors had been adopting a ‘risk on’ approach, but has failed several times to break though the Y112 level (as noted recently by Smartkarma contributor Campbell Gunn) and is now in sharp retreat: a ‘risk off’ reaction.  This is not good news for Japanese financial stocks.The fundamental outlook for Japan’s banks has not improved: if anything, the outlook for FY3/2021 and beyond is now even more challenging than FY3/2020 has been.  As we have frequently pointed out in past Insights, margins remain under downward pressure generally, many regional banks remain underwater on their core domestic businesses, credit costs are rising across the board for all banks and many may face substantial losses on their investment portfolios as they close their accounts for FY3/2020.  Under the circumstances, the recent strength in Japanese bank stock prices is logically unsustainable without further massive intervention by the Japanese financial authorities and the further disruption of price discovery.Japanese banks have underperformed Topix virtually unchecked since 2015.  We expect this trend to continue.  “Caveat Emptor!”  (May the Buyer Beware) remains our advice to would-be investors in Japanese bank stocks for FY3/2021 and beyond.

<ul>
<li class="MsoListParagraphCxSpFirst">
Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread and national guard call-up.</li>
<li class="MsoListParagraphCxSpMiddle"> Financial and Sovereign Crises Underway: The safest credit markets are not properly functioning, and the symbiotic relationship between European financials and the sovereigns which is pressuring sovereign CDS spreads. With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” US banking system are now causing systemic wobbles. </li>
<li class="MsoListParagraphCxSpMiddle"> Equity Unravel Set to Continue: QE6 is not going to stop the equity market bleeding. Quant Funds are every bit as vulnerable as active management in times of stress. Risk Parity Funds have declined in size from USD 600 bn in February 2020 to USD 250 bn as at March 18, 2020. US brokers/investment banks for aggressively lending on margin to high net worth (HNW)/retail investors. Margin to the average retail client is up to 50% of the market value of their securities and are quite willing to lend up to 70% of the market value of a client's investment portfolio for the purchase of real estate - owner-occupied or on speculation.</li>
<li class="MsoListParagraphCxSpLast">
QE7 Is Not Far Behind:Beyond bailing out Boeing (BA.US) which is a national security priority, there will clearly be an all-time record handout coming with TARP 2. In addition, the FRB expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA. </li>
</ul>



Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread and national guard call-up.
 Financial and Sovereign Crises Underway: The safest credit markets are not properly functioning, and the symbiotic relationship between European financials and the sovereigns which is pressuring sovereign CDS spreads. With Eurozone firewalls already breached, the two Trojan horses of counterparty risk and a challenged corporate bond market (ratings agency risk and waterfall risks due to cascading BBB and B3 corporates) embedded within the “well-capitalized” US banking system are now causing systemic wobbles. 
 Equity Unravel Set to Continue: QE6 is not going to stop the equity market bleeding. Quant Funds are every bit as vulnerable as active management in times of stress. Risk Parity Funds have declined in size from USD 600 bn in February 2020 to USD 250 bn as at March 18, 2020. US brokers/investment banks for aggressively lending on margin to high net worth (HNW)/retail investors. Margin to the average retail client is up to 50% of the market value of their securities and are quite willing to lend up to 70% of the market value of a client's investment portfolio for the purchase of real estate - owner-occupied or on speculation.

QE7 Is Not Far Behind:Beyond bailing out Boeing (BA.US) which is a national security priority, there will clearly be an all-time record handout coming with TARP 2. In addition, the FRB expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA. 


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) ADR (MUFG US)

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Mitsubishi UFJ Financial (MUFG) ADR (MUFG US)

Genworth Financial – MAC Clause Could Be Invoked

Deal Update: Genworth Financial (GNW.US) [Genworth] announced that it and merger partner, China Oceanwide (715.HK), have entered into an...

Thomas J. Monaco

🇯🇵 JAPAN • Revisions & Results Update 31st March > Dividends at Risk

TUESDAY 31st MARCH - Shareholder returns are now being sacrificed to shore up corporate cash flows in Japan. Yesterday sawNippon Sheet Glass (5202...

Campbell Gunn

SoftBank Group - Nothing Works

* Large Debt Levels: SoftBank Group (SoftBank) is a Death Star for credit markets, having greater than USD 250 bn in debt, commitments, and lease...

Thomas J. Monaco

Japanese Banks: End of March Blues

Last week was an extraordinarily volatile period for Japanese bank stocks, with the sector rising around 14% after a protracted period of negative...

J. Brian Waterhouse

QE6 – To Infinity and Beyond

Darkest Hour Ahead: The US is entering its darkest hour with the dumb college kids at spring break being the tipping point for community spread...

Thomas J. Monaco

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