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

*We Anxiously Await HSBC’s US Departure: According the Financial Times on November 28, 2020, HSBC is considering offloading its entire US retail network - although a full exit from other businesses in the US is unlikely. The recommendation of a US exit is expected to be presented to the board as early as this week, although the Group is scheduled to provide an update on its plans for its French and US businesses in February 2021; *HSBCNA Should Be Sold: HSBCNA is a chronic mess, and there is absolutely no need for HSBC to maintain a full commercial/retail banking presence in the US. It cannot earn a positive return under its current structure; credit is again about to fall off a cliff; does not earning; NIMs are among the lowest in the USA; and capital is shortly about to fall below regulatory guidance. Further, the bad acquisitions and regulatory headaches should spur management to cut and run in the US. Knowing HSBC management as we do, they will continue making the same mistakes over and over again; and    *Hong Kong Tax Rate Continues To Mask Management’s Global Mistakes: When your core subsidiary in Hong Kong has a statutory corporate tax rate of 16.5% and the organization is not subject to global taxation, low taxes can mask the many mistakes that HSBC makes.

*We Anxiously Await HSBC’s US Departure: According the Financial Times on November 28, 2020, HSBC is considering offloading its entire US retail network - although a full exit from other businesses in the US is unlikely. The recommendation of a US exit is expected to be presented to the board as early as this week, although the Group is scheduled to provide an update on its plans for its French and US businesses in February 2021; *HSBCNA Should Be Sold: HSBCNA is a chronic mess, and there is absolutely no need for HSBC to maintain a full commercial/retail banking presence in the US. It cannot earn a positive return under its current structure; credit is again about to fall off a cliff; does not earning; NIMs are among the lowest in the USA; and capital is shortly about to fall below regulatory guidance. Further, the bad acquisitions and regulatory headaches should spur management to cut and run in the US. Knowing HSBC management as we do, they will continue making the same mistakes over and over again; and    *Hong Kong Tax Rate Continues To Mask Management’s Global Mistakes: When your core subsidiary in Hong Kong has a statutory corporate tax rate of 16.5% and the organization is not subject to global taxation, low taxes can mask the many mistakes that HSBC makes. 

HSBC Holdings Plc – Act Now, You’ll Never See These Prices Again

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.

Thematic (Sector/Industry)

We have seen with many European and US banks, a sharp reduction of credit costs during 2Q20 compared with 1Q20.  Even in Japan some banks have taken exceptionally high credit costs during the March quarter, suggesting there can be a major reduction during 1Q21 ending in June. There is an altogether different concern from some of Latin America’s largest banks. <a href="https://www.smartkarma.com/entities/itau-unibanco-holding-sa-9d47d196-e503-471b-a84e-ca4401033062" target="_blank" data-smartkarma-citation="entities:24550:1" rel="noopener">Itau Unibanco Holding Sa (ITUB4 BZ)</a> and <a href="https://www.smartkarma.com/entities/banco-santander-mexico-sa-in" target="_blank" data-smartkarma-citation="entities:27672:1" rel="noopener">Banco Santander Mexico-B (BSMXB MM)</a> are two that stand out, with incredibly low provision expenses during 1Q20 relative to FY19. This can mean a sharp rise during 2Q20. We have already seen this with some LatAm peers.

We have seen with many European and US banks, a sharp reduction of credit costs during 2Q20 compared with 1Q20.  Even in Japan some banks have taken exceptionally high credit costs during the March quarter, suggesting there can be a major reduction during 1Q21 ending in June. There is an altogether different concern from some of Latin America’s largest banks. Itau Unibanco Holding Sa (ITUB4 BZ) and Banco Santander Mexico-B (BSMXB MM) are two that stand out, with incredibly low provision expenses during 1Q20 relative to FY19. This can mean a sharp rise during 2Q20. We have already seen this with some LatAm peers. 

LatAm Banks – Late Bloomers On Credit Costs?

It is not easy to be excited about <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a> even if there are increasing signs of recovery in many areas where this global behemoth operates. And maybe that is the point: it is a global behemoth. It has demonstrated a poor ability at buying banks, at managing costs, and at benefitting from its unique footprint. Its sprawling operations make it a less leveraged, pure recovery play relative to domestic peers; and maybe this is the point, its leverage to recovery is muted by its shortcomings. A tiny domestic and fairly basic commercial bank, is a whole different story; there is less leakage, more recovery income can find its way to the bottom line. This is not HSBC.

It is not easy to be excited about HSBC Holdings (HSBA LN) even if there are increasing signs of recovery in many areas where this global behemoth operates. And maybe that is the point: it is a global behemoth. It has demonstrated a poor ability at buying banks, at managing costs, and at benefitting from its unique footprint. Its sprawling operations make it a less leveraged, pure recovery play relative to domestic peers; and maybe this is the point, its leverage to recovery is muted by its shortcomings. A tiny domestic and fairly basic commercial bank, is a whole different story; there is less leakage, more recovery income can find its way to the bottom line. This is not HSBC. 

HSBC – Not Quintessential Recovery Bank

*FT Suggests Sea Change In US Strategy: In a Financial Times article dated May 25th“HSBC board rethinks overhaul and seeks even sharper cuts”, it was discussed that the Board is particularly scrutinizing the bank’s US business – questioning whether the US operation is viable at all. Seemingly, the Board is even contemplating a sale of this franchise; and   *Sale May Cause Group A Massive Capital Raise: In the case of the latest large bank transaction, BB&amp;T paid USD 28.2 bn in an all stock deal for SunTrust – a relatively clean bank in the US south. This amounted to deal metrics of 1.16x P/BV; 2.03x P/TBV; and a deposit premium of 2.44%, by our calculation, at the date of deal announcement. Provided that HSBC Holdings (HSBA.LN/5.HK) can find a cash buyer who only thinks it needs to account for Year 1 of operating losses and replenish the loss of regulatory capital, HSBCNA will cause HSBC to incur a loss on sale of between USD 14.1-16.7 bn. Year 2 valuation is even uglier, as report a loss of between USD 31.3-35.6 bn. A loss of this magnitude represents between 32.0%-36.4% of Group market cap.

*FT Suggests Sea Change In US Strategy: In a Financial Times article dated May 25th“HSBC board rethinks overhaul and seeks even sharper cuts”, it was discussed that the Board is particularly scrutinizing the bank’s US business – questioning whether the US operation is viable at all. Seemingly, the Board is even contemplating a sale of this franchise; and   *Sale May Cause Group A Massive Capital Raise: In the case of the latest large bank transaction, BB&amp;T paid USD 28.2 bn in an all stock deal for SunTrust – a relatively clean bank in the US south. This amounted to deal metrics of 1.16x P/BV; 2.03x P/TBV; and a deposit premium of 2.44%, by our calculation, at the date of deal announcement. Provided that HSBC Holdings (HSBA.LN/5.HK) can find a cash buyer who only thinks it needs to account for Year 1 of operating losses and replenish the loss of regulatory capital, HSBCNA will cause HSBC to incur a loss on sale of between USD 14.1-16.7 bn. Year 2 valuation is even uglier, as report a loss of between USD 31.3-35.6 bn. A loss of this magnitude represents between 32.0%-36.4% of Group market cap.

HSBC Holdings – Letting A Good Crisis Go To Waste

<ul>
<li>The trend of 2019’s payment services mega-deals is set to continue but in the form of a greater volume of small transactions.</li>
<li>Potential take-out candidates include the likes of: ACI Worldwide (ACIW.US); i3 Verticals (IIIV.US); and Repay Holdings (RPAY.US).</li>
<li> While US will expereince a continuation of deals, Asia will remain the FinTech M&amp;A hotbed. </li>
</ul>


The trend of 2019’s payment services mega-deals is set to continue but in the form of a greater volume of small transactions.
Potential take-out candidates include the likes of: ACI Worldwide (ACIW.US); i3 Verticals (IIIV.US); and Repay Holdings (RPAY.US).
 While US will expereince a continuation of deals, Asia will remain the FinTech M&amp;A hotbed. 


United States

U.S. Bancorp is a diversified financial services company that provides lending and depository services, cash management, foreign exchange and trust and investment management services.  The Company also provides credit card services, mortgage banking, insurance, brokerage, and leasing.  U.S Bancorp operates in the Midwest and Western United States.

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US Bancorp (USB US)

HSBC Holdings Plc – Act Now, You’ll Never See These Prices Again

HSBC HOLDINGS PLC: Financial Times Suggesting Board Will Be Presented With Options On US Franchise This Week. This Was A Long Time In Coming.

Thomas J. Monaco

LatAm Banks – Late Bloomers On Credit Costs?

We have seen with many European and US banks, a sharp reduction of credit costs during 2Q20 compared with 1Q20. Even in Japan some banks have...

Daniel Tabbush

HSBC – Not Quintessential Recovery Bank

It is not easy to be excited about HSBC Holdings (HSBA LN) even if there are increasing signs of recovery in many areas where this global behemoth...

Daniel Tabbush

HSBC Holdings – Letting A Good Crisis Go To Waste

*FT Suggests Sea Change In US Strategy: In a Financial Times article dated May 25th“HSBC board rethinks overhaul and seeks even sharper cuts”, it...

Thomas J. Monaco

US FinTech M&A Trend Set to Continue

The trend of 2019’s payment services mega-deals is set to continue but in the form of a greater volume of small transactions. Potential take-out...

Thomas J. Monaco

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