Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Metropolitan Bank & Trust / Equity Bottom-Up

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<p>On the <a href="https://www.phcc.gov.ph/press-releases/banks-mca-moa/" target="_blank" rel="noopener">5 November</a>, Bangko Sentral ng Pilipinas (BSP - the central bank of the Philippines), the Securities and Exchange Commission, Philippine Competition Commission (PCC), Philippine Deposit Insurance Corp, and the Cooperative Development Authority signed a multi-agency agreement to streamline the merger, consolidation, and acquisition (MCA) process to encourage consolidation in the banking sector.</p>
<p>BSP Governor Benjamin Diokno said the agreement "<em>aims to streamline processes, reduce processing time, and facilitate prompt action of applications for mergers, consolidations, and acquisitions</em>". PCC's Arsenio Balisacan added: "<em>We acknowledge that mergers, consolidations, and acquisitions can catalyse innovation in any industry, including banking, because of combined resources and expertise". </em></p>
<p>The agreement, in effect, harmonizes the paperwork across the various regulators, by reducing the number of documentary requirements to 30 from 58, which in turn lowers the total processing time to an expected 55 business days from an average of 160 business days currently.</p>
<p>According to the <a href="https://www.phcc.gov.ph/press-releases/banks-mca-moa/" target="_blank" rel="noopener">PCC</a>, the "<em>Implementing Guidelines on the procedures for MCA applications will subsequently be issued via a Joint Circular by the partner-agencies</em>".</p>
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<div id="gpt-ad-Instream_Video">For years, the various regulators have aimed to consolidate the Philippines' highly fragmented banking sector comprising mostly small rural lenders. Such inefficiencies have led to nine problematic banks being shut this year, including BSP's recent order to close United People’s Rural Bank Inc.</div>
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<div>The accord was also promulgated after the BSP stopped accepting digital banking license applications from 1 September 2021, with the number of digital lenders expected to be capped at seven for the next three years.</div>
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<div>The question is: who stands to benefit from this MCA streamlining?</div>
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<div><em>For more on M&amp;A in the Philippines, please see the <a href="https://www.smartkarma.com/insights/quiddity-philippines-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:31122" rel="noopener">Quiddity Philippines M&amp;A Guide 2019</a>. </em></div>
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On the 5 November, Bangko Sentral ng Pilipinas (BSP - the central bank of the Philippines), the Securities and Exchange Commission, Philippine Competition Commission (PCC), Philippine Deposit Insurance Corp, and the Cooperative Development Authority signed a multi-agency agreement to streamline the merger, consolidation, and acquisition (MCA) process to encourage consolidation in the banking sector.
BSP Governor Benjamin Diokno said the agreement "aims to streamline processes, reduce processing time, and facilitate prompt action of applications for mergers, consolidations, and acquisitions". PCC's Arsenio Balisacan added: "We acknowledge that mergers, consolidations, and acquisitions can catalyse innovation in any industry, including banking, because of combined resources and expertise". 
The agreement, in effect, harmonizes the paperwork across the various regulators, by reducing the number of documentary requirements to 30 from 58, which in turn lowers the total processing time to an expected 55 business days from an average of 160 business days currently.
According to the PCC, the "Implementing Guidelines on the procedures for MCA applications will subsequently be issued via a Joint Circular by the partner-agencies".

For years, the various regulators have aimed to consolidate the Philippines' highly fragmented banking sector comprising mostly small rural lenders. Such inefficiencies have led to nine problematic banks being shut this year, including BSP's recent order to close United People’s Rural Bank Inc.

The accord was also promulgated after the BSP stopped accepting digital banking license applications from 1 September 2021, with the number of digital lenders expected to be capped at seven for the next three years.


The question is: who stands to benefit from this MCA streamlining?




For more on M&amp;A in the Philippines, please see the Quiddity Philippines M&amp;A Guide 2019. 





Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>The Philippines Stock Exchange has announced the changes to the <a href="https://www.smartkarma.com/entities/philippines-stock-exchange-psei-index" target="_blank" data-smartkarma-citation="entities:22912:1" rel="noopener">Philippines Stock Exchange PSEi Index (PCOMP INDEX)</a> as part of the August rebalance.</p><p><a href="https://www.smartkarma.com/entities/ac-energy-corp" target="_blank" data-smartkarma-citation="entities:23188:1" rel="noopener">AC Energy Corp (ACEN PM)</a> and <a href="https://www.smartkarma.com/entities/converge-ict-solutions-inc-609f7498-aeeb-430e-a07d-50503172a1e3" target="_blank" data-smartkarma-citation="entities:31210:1" rel="noopener">Converge ICT Solutions (CNVRG PM)</a> have been added to the index while <a href="https://www.smartkarma.com/entities/emperador-inc" target="_blank" data-smartkarma-citation="entities:3485:1" rel="noopener">Emperador Inc (EMP PM)</a> and <a href="https://www.smartkarma.com/entities/dmci-holdings-inc" target="_blank" data-smartkarma-citation="entities:8026:1" rel="noopener">DMCI Holdings (DMC PM)</a> have been deleted.</p><p>There are minimal assets tracking the <a href="https://www.smartkarma.com/entities/philippines-stock-exchange-psei-index" target="_blank" data-smartkarma-citation="entities:22912:1" rel="noopener">Philippines Stock Exchange PSEi Index (PCOMP INDEX)</a>. However, there are active funds using the index as a benchmark and some of the funds track the benchmark pretty closely. The impact is clearly visible today with <a href="https://www.smartkarma.com/entities/emperador-inc" target="_blank" data-smartkarma-citation="entities:3485:1" rel="noopener">Emperador Inc (EMP PM)</a> and <a href="https://www.smartkarma.com/entities/dmci-holdings-inc" target="_blank" data-smartkarma-citation="entities:8026:1" rel="noopener">DMCI Holdings (DMC PM)</a> lower by 9.5% and 5%, while <a href="https://www.smartkarma.com/entities/ac-energy-corp" target="_blank" data-smartkarma-citation="entities:23188:1" rel="noopener">AC Energy Corp (ACEN PM)</a> and <a href="https://www.smartkarma.com/entities/converge-ict-solutions-inc-609f7498-aeeb-430e-a07d-50503172a1e3" target="_blank" data-smartkarma-citation="entities:31210:1" rel="noopener">Converge ICT Solutions (CNVRG PM)</a> are up 4% and 13% respectively.</p><p>We had <a href="https://www.smartkarma.com/entities/ac-energy-corp" target="_blank" data-smartkarma-citation="entities:23188:1" rel="noopener">AC Energy Corp (ACEN PM)</a> as an inclusion and <a href="https://www.smartkarma.com/entities/emperador-inc" target="_blank" data-smartkarma-citation="entities:3485:1" rel="noopener">Emperador Inc (EMP PM)</a> as a deletion. <a href="https://www.smartkarma.com/entities/dmci-holdings-inc" target="_blank" data-smartkarma-citation="entities:8026:1" rel="noopener">DMCI Holdings (DMC PM)</a> was a close delete. <a href="https://www.smartkarma.com/entities/converge-ict-solutions-inc-609f7498-aeeb-430e-a07d-50503172a1e3" target="_blank" data-smartkarma-citation="entities:31210:1" rel="noopener">Converge ICT Solutions (CNVRG PM)</a> was added following a rule change that was announced and implemented at the same time as the constituent changes and that resulted in the deletion of <a href="https://www.smartkarma.com/entities/dmci-holdings-inc" target="_blank" data-smartkarma-citation="entities:8026:1" rel="noopener">DMCI Holdings (DMC PM)</a> as well.</p><p>There are also some rule changes related minimum free float, to Fast Entry for stocks, and to the inclusion/exclusion cutoff rankings at the regular rebalances.</p>

The Philippines Stock Exchange has announced the changes to the Philippines Stock Exchange PSEi Index (PCOMP INDEX) as part of the August rebalance.AC Energy Corp (ACEN PM) and Converge ICT Solutions (CNVRG PM) have been added to the index while Emperador Inc (EMP PM) and DMCI Holdings (DMC PM) have been deleted.There are minimal assets tracking the Philippines Stock Exchange PSEi Index (PCOMP INDEX). However, there are active funds using the index as a benchmark and some of the funds track the benchmark pretty closely. The impact is clearly visible today with Emperador Inc (EMP PM) and DMCI Holdings (DMC PM) lower by 9.5% and 5%, while AC Energy Corp (ACEN PM) and Converge ICT Solutions (CNVRG PM) are up 4% and 13% respectively.We had AC Energy Corp (ACEN PM) as an inclusion and Emperador Inc (EMP PM) as a deletion. DMCI Holdings (DMC PM) was a close delete. Converge ICT Solutions (CNVRG PM) was added following a rule change that was announced and implemented at the same time as the constituent changes and that resulted in the deletion of DMCI Holdings (DMC PM) as well.There are also some rule changes related minimum free float, to Fast Entry for stocks, and to the inclusion/exclusion cutoff rankings at the regular rebalances.

PCOMP Index Rebalance: ACEN, CNVRG Added; EMP, DMCI Deleted

<p>The <a href="https://www.smartkarma.com/entities/philippines-stock-exchange-psei-index" target="_blank" data-smartkarma-citation="entities:22912:1" rel="noopener">Philippines Stock Exchange PSEi Index (PCOMP INDEX)</a> is the main index of the Philippines Stock Exchange (PSE). The index is free float market cap weighted and is made up of the 30 largest and most active common stocks listed at the PSE.</p><p>The next rebalance will become effective in mid-August and the changes will be announced around 5 trading days prior to implementation.</p><p>We see <a href="https://www.smartkarma.com/entities/ac-energy-corp" target="_blank" data-smartkarma-citation="entities:23188:1" rel="noopener">AC Energy Corp (ACEN PM)</a> as a likely inclusion in the index. Potential deletions are <a href="https://www.smartkarma.com/entities/emperador-inc" target="_blank" data-smartkarma-citation="entities:3485:1" rel="noopener">Emperador Inc (EMP PM)</a> on liquidity and possibly free float and <a href="https://www.smartkarma.com/entities/dmci-holdings-inc" target="_blank" data-smartkarma-citation="entities:8026:1" rel="noopener">DMCI Holdings (DMC PM)</a> as the lowest ranked index constituent.</p><p>There are minimal assets tracking the <a href="https://www.smartkarma.com/entities/philippines-stock-exchange-psei-index" target="_blank" data-smartkarma-citation="entities:22912:1" rel="noopener">Philippines Stock Exchange PSEi Index (PCOMP INDEX)</a>. However, there are active funds using the index as a benchmark and some of the funds track the benchmark pretty closely. Historically, the adds have performed well in the period leading up to implementation.</p>

The Philippines Stock Exchange PSEi Index (PCOMP INDEX) is the main index of the Philippines Stock Exchange (PSE). The index is free float market cap weighted and is made up of the 30 largest and most active common stocks listed at the PSE.The next rebalance will become effective in mid-August and the changes will be announced around 5 trading days prior to implementation.We see AC Energy Corp (ACEN PM) as a likely inclusion in the index. Potential deletions are Emperador Inc (EMP PM) on liquidity and possibly free float and DMCI Holdings (DMC PM) as the lowest ranked index constituent.There are minimal assets tracking the Philippines Stock Exchange PSEi Index (PCOMP INDEX). However, there are active funds using the index as a benchmark and some of the funds track the benchmark pretty closely. Historically, the adds have performed well in the period leading up to implementation.

PCOMP Index Rebalance Preview: Inclusion Fairly Certain; Deletion Undecided

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p><strong>Executive Sum</strong><strong>mary:</strong>  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.</p><p>Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. </p><p>As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.</p><p>Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.</p>

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

<p><strong>Executive Summary:</strong> Momentum behind the recent Treasury market rally may be starting to slow. Greater conviction is likely to build over the weeks which follow as economic data is published, rather than result from this week’s FOMC meeting.</p><p>It is unlikely that the Fed will signal that it is ready to start tapering its asset purchase program this week. We are yet to see the whites of wage-growth eyes. Meanwhile, Canada became the first major economy to signal an exit from asset purchases. Canada’s central bank also indicated that a rate rise is now expected in the second half of 2022. Global interest rates did not react.  However, we may be tricked into seeing things which not there as upcoming wage data may point to rapidly falling wages.</p><p>As such, the narrative remains left to be taken in the fixed income markets.  We may have reached a peak in short positioning unwinding and the re-entry of Japanese investors in the market is also taken as a given. Unexpectedly good economic data over the next few weeks could be bad for Treasury yields.  This could re-ignite the reflation and carry-trade rallies.</p><p>While Treasuries continue to tread water, spreads on US CCC rated notes continued to trade at levels not seen since prior to the Global Financial Crisis in 2007. Investors are becoming concerned that the stretch for yield may be overdone. Excess US spread compression could benefit Asia HY as investors move offshore to grab better yields and excess spreads.</p><p>In the bank credit markets, Asia-headquartered institution performed across the credit continuum while European bank bond remained stuck with carry-trade unwind performance. The combination of spread tightening and Treasury bond curve flattening generated positive total returns amongst Asia banks.</p><p>We will hit the peak in bank earnings reports in the upcoming week. US banks set a high bar for performance by generating stellar investment banking and progressively improving core banking results over the last two weeks. They then signaled that they anticipate significantly higher interest rates later this year by raising record breaking amounts in the debt capital markets. Other banks may follow with material debt issuance over the next few weeks after reporting earnings this week.  </p><p>We explore these market themes within.</p><p><strong>Market Outlook</strong>: 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.  </p>

Executive Summary: Momentum behind the recent Treasury market rally may be starting to slow. Greater conviction is likely to build over the weeks which follow as economic data is published, rather than result from this week’s FOMC meeting.It is unlikely that the Fed will signal that it is ready to start tapering its asset purchase program this week. We are yet to see the whites of wage-growth eyes. Meanwhile, Canada became the first major economy to signal an exit from asset purchases. Canada’s central bank also indicated that a rate rise is now expected in the second half of 2022. Global interest rates did not react.  However, we may be tricked into seeing things which not there as upcoming wage data may point to rapidly falling wages.As such, the narrative remains left to be taken in the fixed income markets.  We may have reached a peak in short positioning unwinding and the re-entry of Japanese investors in the market is also taken as a given. Unexpectedly good economic data over the next few weeks could be bad for Treasury yields.  This could re-ignite the reflation and carry-trade rallies.While Treasuries continue to tread water, spreads on US CCC rated notes continued to trade at levels not seen since prior to the Global Financial Crisis in 2007. Investors are becoming concerned that the stretch for yield may be overdone. Excess US spread compression could benefit Asia HY as investors move offshore to grab better yields and excess spreads.In the bank credit markets, Asia-headquartered institution performed across the credit continuum while European bank bond remained stuck with carry-trade unwind performance. The combination of spread tightening and Treasury bond curve flattening generated positive total returns amongst Asia banks.We will hit the peak in bank earnings reports in the upcoming week. US banks set a high bar for performance by generating stellar investment banking and progressively improving core banking results over the last two weeks. They then signaled that they anticipate significantly higher interest rates later this year by raising record breaking amounts in the debt capital markets. Other banks may follow with material debt issuance over the next few weeks after reporting earnings this week.  We explore these market themes within.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: Momentum Slows as Conviction Is Lacking

Philippines

Security Bank Corporation offers a wide variety of financial products and services. The Bank's services include peso, dollar and third currency deposits, domestic and international fund transfers, deposit pick-up and payroll services, and ancillary services.  Security Bank also provides working capital financing, term arrangements, loan syndication services.

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Security Bank (SECB PM)

Philippine Banks: Streamlining M&A

MBT PM's given its conservative approach during Covid has improved its overall asset quality, plus it has the highest NPL coverage among the top...

David Blennerhassett

PCOMP Index Rebalance: ACEN, CNVRG Added; EMP, DMCI Deleted

ACEN and CNVRG have been added to the index replacing EMP and DMC. Historically inclusions have outperformed the deletions. There are rule changes...

Brian Freitas

PCOMP Index Rebalance Preview: Inclusion Fairly Certain; Deletion Undecided

We see ACEN being included and EMP being deleted from the PCOMP at the August rebalance. Inclusions have historically performed well while the...

Brian Freitas

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

Asia’s Tier 2 notes slightly outperformed AT1 in May. Shorter-duration bonds outperformed although there was greater differentiation in longer...

Hank Calenti, CFA

Bank Credit Weekly: Momentum Slows as Conviction Is Lacking

Momentum behind the Treasury market started to slow. Greater conviction is likely to build over the weeks which follow as economic data is...

Hank Calenti, CFA

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