In today’s briefing:
- Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still
- Japanese Banks – Nearing the Yield Curve Control End-Game
- Fed Watch: Why Should the Fed Abandon the Planned Year-End Hike?
- STAN – Stage 2 Loans Surge | Expect Migration to Stage 3 Loans | Credit Costs Can Move 50% Higher
- DBS – Fines, Negative Loan Growth, Greater China CRE Risks, UOB & STAN & HSBC Illustrative
- China Minsheng Bank’s NII Decline Has Slowed for 3Q23, Asset Quality Stabilized For Now
- FX Watch – Exploring FX Fundamentals
- Indonesian Banks Screener; Negara Remains the Stand Out
- Marsh & McLennan Companies: String Of Recent Acquisitions Driving Growth? – Major Drivers
- Bakkt Holdings, Inc. – Lightning Network Going Mainstream
Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still
- 40% of Banks outside the Top 7 (none of which offered H1 guidance) in the TOPIX Banks Index have now changed H1 guidance or reported H1. 2 reported both up.
- 92% of the others have revised up H1 net income guidance a weighted average of 47%. Net Interest Income, Corporate fees/comms are up, expenses and credit costs are down.
- Big tables with data, reasons for guidance changes, and buyback history of each presented below.
Japanese Banks – Nearing the Yield Curve Control End-Game
- The latest BoJ adjustment to its yield curve control lifts the hard yield ceiling of 1% on 10 year JGBs, making it “a reference” and allowing yields to exceed it
- 10 year JGB yields are close to 1%, with Japanese bond yields steepening further which is positive for Japanese banks, especially those with a high share of floating-rate credit exposures
- We stick with our positive views on Resona, Mizuho, SMFG and Hachijuni; we add Concordia to our buy list for its high share of floating rate credit exposure
Fed Watch: Why Should the Fed Abandon the Planned Year-End Hike?
- Welcome to our short and sweet Fed preview.
- No one expects policy action from the Fed this week, but Powell could decide to reiterate that the dot plot remains intact given the most recent information received.
- We doubt that Powell will bring about a strong guidance for a December hike, but unless the wheels come off, it’s very likely that they will be tempted to deliver that hike come December.
STAN – Stage 2 Loans Surge | Expect Migration to Stage 3 Loans | Credit Costs Can Move 50% Higher
- Our focus is not on the decimation of earnings at Standard Chartered (STAN LN) but rather the granular detail of stage 2 and stage 3 loans
- There is tremendous growth in stage 2 loans in the quarter, which means the bank enters the quarter with a far higher pool that can migrate to stage 3
- Stage 3 remains markedly higher provisions, and the bank’s rise in credit costs is still fairly low, it can rise another 50% before hitting average rates
DBS – Fines, Negative Loan Growth, Greater China CRE Risks, UOB & STAN & HSBC Illustrative
- The MAS is not at all happy with the frequent digital banking services outages at DBS (DBS SP). There will be fines and higher required capital.
- The outlook for the home market lending is already poor, with negative loan growth in recent months. Probes of money laundering will likely make lending even more sparse.
- UOB (UOB SP) , Standard Chartered (STAN LN) , HSBC Holdings (HSBA LN) results are all illustrative of risks facing DBS (DBS SP) before results come out, especially credit costs.
China Minsheng Bank’s NII Decline Has Slowed for 3Q23, Asset Quality Stabilized For Now
- NII decline has slowed but the overall profitability is lacklustre
- Asset quality stabilized for now, real estate exposure remains a concern
- We believe the turnaround of the bank is still pretty far off.
FX Watch – Exploring FX Fundamentals
- Hello everyone, and welcome to a shorter piece on where to find fundamental value in the current FX environment.
- We’ll take a trip back to the theory books and use some of the good old correlations and fundamental value metrics to give some insights on the best FX bets now that the tightening cycle is likely soon coming to an end.
- Read along, as we run through the most important pairs below.
Indonesian Banks Screener; Negara Remains the Stand Out
- Bank Negara remains our top pick for its deep value attributes of low PE multiples and its very attractive PEG ratio, whilst improving post-provision returns and registering strong liquidity
- We also keep Bank Mandiri on a buy rating, for its premium returns and undemanding PE multiples; Bank Central Asia, albeit fully valued in our view, has impressive return
- Bank Rakyat again registered worsening pre-provision returns in 3Q23, along with cost of risk; its heavily MSME focused loan mix implies a high structural cost of risk going forward
Marsh & McLennan Companies: String Of Recent Acquisitions Driving Growth? – Major Drivers
- Marsh & McLennan Companies, Inc. managed to exceed the revenue and earnings expectations of Wall Street.
- The company achieved an unprecedented quarterly underlying revenue growth over two decades and reported substantial growth in adjusted EPS.
- Marsh McLennan Agency acquired Graham Company, a top-100 US insurance and benefits broker and risk management consultancy, bolstering the company’s Mid-Atlantic presence.
Bakkt Holdings, Inc. – Lightning Network Going Mainstream
- On October 23, Bakkt announced that it was supporting the new Universal Money Address (UMA) open standard for money transmission.
- This is being done in collaboration with Lightspark, where Bakkt will be one of its initial partners.
- The initial launch of the UMA- capable Lightning service will support cross-border remittances, B2B settlement, instantaneous deposits and withdrawals for trading, or globally interoperable P2P.
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