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)

<ul>
<li>Bank of East Asia's profit release shows substantial rise of impairment costs </li>
<li>HK consensus data shows significant outflow of persons in past 18 months</li>
<li>Long term Hang Seng Bank data shows risk to profit from impairments</li>
</ul>


Bank of East Asia's profit release shows substantial rise of impairment costs 
HK consensus data shows significant outflow of persons in past 18 months
Long term Hang Seng Bank data shows risk to profit from impairments


China and US Equity Analyst

Roger Xie

<ul>
<li>Hong Kong de facto central bank, HKMA (Hong Kong Monetary Authority), issued a strategic paper exploring the feasibility of issuing a retail-focused CBDC (central bank digital currency), an e-HKD, within 12 months. One of the major use cases of e-HKD is to link with e-CNY and facilitate cross-border payment or transfer. This has underscored China's ambition to take further step rolling out its most advanced digital currency among major economies.</li>
<li>Based on the latest quarterly statistics on mobile app usage, digital currency app has become a dominant factor in user engagement. Stock trading and crypto trading apps show much higher daily user visits and viewing time, compared with other financial management apps. The proliferation of CBDC (central bank digital currency), such as e-HKD and e-CNY, will likely accelerate user growth and engagement. The major crypto exchange <a href="https://www.smartkarma.com/entities/coinbase-global-inc" target="_blank" data-smartkarma-citation="entities:32227:1" rel="noopener">Coinbase (COIN US)</a> has shown its registered users jumping 65% year-over-year in 21Q1 during the wider acceptancy of bitcoin. </li>
<li>We expect the majority of Hong Kong-based retail banks will likely roll out their own mobile apps with capability to transact on e-HKD and e-CNY in near term. The successful integration of this feature might likely impact user engagement, which might become a key KPI for banks' mobile app in our view. MAU/DAU (Month/Daily Active User) might become the differentiators for Hong Kong based retail banks such as  <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a> , <a href="https://www.smartkarma.com/entities/hang-seng-bank-ltd" target="_blank" data-smartkarma-citation="entities:24:1" rel="noopener">Hang Seng Bank (11 HK)</a> , <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia (23 HK)</a> , <a href="https://www.smartkarma.com/entities/boc-hong-kong-holdings-ltd" target="_blank" data-smartkarma-citation="entities:343:1" rel="noopener">BOC Hong Kong (BOC HK) (2388 HK)</a> , <a href="https://www.smartkarma.com/entities/dah-sing-financial-holdings" target="_blank" data-smartkarma-citation="entities:589:1" rel="noopener">Dah Sing Financial (440 HK). </a>
</li>
</ul>


Hong Kong de facto central bank, HKMA (Hong Kong Monetary Authority), issued a strategic paper exploring the feasibility of issuing a retail-focused CBDC (central bank digital currency), an e-HKD, within 12 months. One of the major use cases of e-HKD is to link with e-CNY and facilitate cross-border payment or transfer. This has underscored China's ambition to take further step rolling out its most advanced digital currency among major economies.
Based on the latest quarterly statistics on mobile app usage, digital currency app has become a dominant factor in user engagement. Stock trading and crypto trading apps show much higher daily user visits and viewing time, compared with other financial management apps. The proliferation of CBDC (central bank digital currency), such as e-HKD and e-CNY, will likely accelerate user growth and engagement. The major crypto exchange Coinbase (COIN US) has shown its registered users jumping 65% year-over-year in 21Q1 during the wider acceptancy of bitcoin. 
We expect the majority of Hong Kong-based retail banks will likely roll out their own mobile apps with capability to transact on e-HKD and e-CNY in near term. The successful integration of this feature might likely impact user engagement, which might become a key KPI for banks' mobile app in our view. MAU/DAU (Month/Daily Active User) might become the differentiators for Hong Kong based retail banks such as  HSBC Holdings (5 HK) , Hang Seng Bank (11 HK) , Bank of East Asia (23 HK) , BOC Hong Kong (BOC HK) (2388 HK) , Dah Sing Financial (440 HK). 



Hong Kong to Embrace Digital Currency E-HKD, Boosting Fintech Investment and Connectivity With E-CNY

Silver Point

Thomas J. Monaco

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

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value. 

China Banks – Big Capital Raises Coming

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

* All That Glitters Isn’t Gold: Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on capital markets businesses. However, as a sector, these subsidiaries are NIM-challenged, wholesale funded, and have bloated cost structures (like their parent companies) - all of which challenge operating returns; * COVID-19 Challenges At US Franchises: Our “burn down” results for MUFGA were a surprise. We calculate that MUFG Americas’ (8306.JP) [MUFGA] 4Q19 CET1/Tier 1 capital ratios would decline from 14.1% to 3.9% - implying a regulatory capital shortfall, while the same analysis suggests COVID-19 will be a multi-year earnings event for both SMBC Americas (8316.JP) [SMBCA] and Mizuho Americas (8411.JP); and* Exhaustive Megbank Challenges: Japanese Megabanks were struggling to meet their FY (March) 2020 and 2021 business plans. Chronic weak returns, weak/negative growth in Japan, increased reliance of volatile capital markets revenues, impairments charges on previous acquisitions, EPS deal dilution, Softbank Group (9984.JP) exposures, and growth in Asia (Ex-Japan) risk just as the USD significantly strengthened all continue to hamper Megabank returns – even before the impact of COVID-19.

* All That Glitters Isn’t Gold: Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on capital markets businesses. However, as a sector, these subsidiaries are NIM-challenged, wholesale funded, and have bloated cost structures (like their parent companies) - all of which challenge operating returns; * COVID-19 Challenges At US Franchises: Our “burn down” results for MUFGA were a surprise. We calculate that MUFG Americas’ (8306.JP) [MUFGA] 4Q19 CET1/Tier 1 capital ratios would decline from 14.1% to 3.9% - implying a regulatory capital shortfall, while the same analysis suggests COVID-19 will be a multi-year earnings event for both SMBC Americas (8316.JP) [SMBCA] and Mizuho Americas (8411.JP); and* Exhaustive Megbank Challenges: Japanese Megabanks were struggling to meet their FY (March) 2020 and 2021 business plans. Chronic weak returns, weak/negative growth in Japan, increased reliance of volatile capital markets revenues, impairments charges on previous acquisitions, EPS deal dilution, Softbank Group (9984.JP) exposures, and growth in Asia (Ex-Japan) risk just as the USD significantly strengthened all continue to hamper Megabank returns – even before the impact of COVID-19.  

Japan Mega Banks – Avenue of the Americas

Hong Kong

The Bank of East Asia (BEA) is a Hong Kong-based financial services group offering comprehensive wholesale banking, personal banking, wealth management, and investment services. Its products include accounts, loans, credit cards, trade finance, and insurance. BEA was incorporated in 1918 and is headquartered in Central, Hong Kong.

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Bank of East Asia (23 HK)

Hong Kong - Exit This Way

Hong Kong's banks show sharply higher impairment costs, and partly from China related lending. This can continue. The acclerating and high HK...

Daniel Tabbush

Hong Kong to Embrace Digital Currency E-HKD, Boosting Fintech Investment and Connectivity With E-CNY

Hong Kong Monetary Authority issued a strategic paper exploring the feasibility of issuing e-HKD within 12 months. Banking app MAU/DAU might become...

Roger Xie

China Banks – Big Capital Raises Coming

CHINA BANKS: The PBOC and CBIRC released finalized new capital standards for the country’s D-SIBs. Equity raises require P/BV over 1.0x and many of...

Thomas J. Monaco

Another Day, Another Default

MAINLAND CHINA DEFAULT: Yongcheng Coal Defaulted On Its Debt, Leading To Concerns About The Credibility Of AAA Rated Corporates In Mainland China...

Thomas J. Monaco

Japan Mega Banks – Avenue of the Americas

* All That Glitters Isn’t Gold: Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on...

Thomas J. Monaco

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