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.

Equity Bottom-Up

It’s as if the bank had no idea about the credit cycle in the first few quarters of last year. HSBC was expensing about US$700 million a quarter very steadily – which is also curious. It feels to us the bank was caught out, trying to keep profit respectable, but the economics of its clients made it impossible to continue.

It’s as if the bank had no idea about the credit cycle in the first few quarters of last year. HSBC was expensing about US$700 million a quarter very steadily – which is also curious. It feels to us the bank was caught out, trying to keep profit respectable, but the economics of its clients made it impossible to continue.

BEA is showing us all too clearly how credit costs for China bad loans can accelerate and impact profit. The risk is ultimately highest with China’s banks, but also foreign banks operating in China. This includes BEA, DBS and StanChart, to name but a few. The acceleration of credit costs in 2H15 for BEA’s China business is testimony to the continued deterioration in the Mainland, despite all the concerns flagged for so long.It has not run its course yet, the China bad loan cycle.<figure class="editor-figure"><figure class="editor-figure"><img src="https://static-prod.smartkarma.com/images/media/000/005/612/original/BEA%20loan%20loss%20reserve.PNG?1455524922" class="editor-image img-responsive" data-smartkarma-image-id="5612"><figcaption class="figcaption">BEA - Loan loss</figcaption></figure></figure>…

BEA is showing us all too clearly how credit costs for China bad loans can accelerate and impact profit. The risk is ultimately highest with China’s banks, but also foreign banks operating in China. This includes BEA, DBS and StanChart, to name but a few. The acceleration of credit costs in 2H15 for BEA’s China business is testimony to the continued deterioration in the Mainland, despite all the concerns flagged for so long.It has not run its course yet, the China bad loan cycle.BEA - Loan loss…

BEA Shows How Credit Costs Can Ratchet Up

Beside the fact that small banks in Hong Kong rarely, if ever, sell out at low multiples or in any period, other than a raging bull market, it is worthwhile to examine Bank of East Asia more closely.Does anybody remember DBS’s acquisition of Dao Heng Bank in the early 1990’s at over 3x price to book? Since Wing Hang was sold already to OCBC a few years ago, overpaying-Singaporean banks are now few and far between.One primary consideration that any suitor may have, following the Elliott letter prompting a sale, is the bank’s underlying book value. And the first place any due diligence team may look is BEA’s China exposure, both on and off-balance sheet.

Beside the fact that small banks in Hong Kong rarely, if ever, sell out at low multiples or in any period, other than a raging bull market, it is worthwhile to examine Bank of East Asia more closely.Does anybody remember DBS’s acquisition of Dao Heng Bank in the early 1990’s at over 3x price to book? Since Wing Hang was sold already to OCBC a few years ago, overpaying-Singaporean banks are now few and far between.One primary consideration that any suitor may have, following the Elliott letter prompting a sale, is the bank’s underlying book value. And the first place any due diligence team may look is BEA’s China exposure, both on and off-balance sheet.

Before Diving Headlong into BEA, We Examine It More Closely

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

Risks regarding bill-financing business have recently become a new source of concern for Chinese banks.  Bill-financing frauds seen at both the Agricultural Bank of China, or ABC, and China Citic Bank, or Citic, indicate high operational risks.Since late 2015, the China Banking Regulatory Commission has been strengthening controls by identifying violations, including fraudulent transactions, the use of financing to inflate deposits and loans, and adjustments intended to lower capital charges.  We expect this to negatively affect certain banks with relatively heavy business exposures, including ABC, China Minsheng Bank, or CMBC, and Citic.Analyst: Iris Tan, CFA

Risks regarding bill-financing business have recently become a new source of concern for Chinese banks.  Bill-financing frauds seen at both the Agricultural Bank of China, or ABC, and China Citic Bank, or Citic, indicate high operational risks.Since late 2015, the China Banking Regulatory Commission has been strengthening controls by identifying violations, including fraudulent transactions, the use of financing to inflate deposits and loans, and adjustments intended to lower capital charges.  We expect this to negatively affect certain banks with relatively heavy business exposures, including ABC, China Minsheng Bank, or CMBC, and Citic.Analyst: Iris Tan, CFA 

Tightened Regulations on China's Bill Financing Pose NIM Pressures for Certain Banks

The NPL crisis is upon us in China. It’s playing out even if it appears slow.Some of the first movers to show NPLs provide a guide as to what to expect for the more late bloomers.  The former group includes more foreign names and less mainstream banks. The latter group includes the large SOE banks and mainstream large banks.Along with a risk of rising NPLs, China's banks will also have to face liquidity, capital and off-balance sheet risks.

The NPL crisis is upon us in China. It’s playing out even if it appears slow.Some of the first movers to show NPLs provide a guide as to what to expect for the more late bloomers.  The former group includes more foreign names and less mainstream banks. The latter group includes the large SOE banks and mainstream large banks.Along with a risk of rising NPLs, China's banks will also have to face liquidity, capital and off-balance sheet risks.

Hong Kong

The Bank of East Asia, Limited and its subsidiaries provide general banking, related financial, business corporate, and investor services.

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Bank of East Asia (23 HK)

Spectacular Loss for HSBC

It’s as if the bank had no idea about the credit cycle in the first few quarters of last year. HSBC was expensing about US$700 million a quarter...

Daniel Tabbush

BEA Shows How Credit Costs Can Ratchet Up

BEA is showing us all too clearly how credit costs for China bad loans can accelerate and impact profit. The risk is ultimately highest with...

Daniel Tabbush

Before Diving Headlong into BEA, We Examine It More Closely

Beside the fact that small banks in Hong Kong rarely, if ever, sell out at low multiples or in any period, other than a raging bull market, it is...

Daniel Tabbush

Tightened Regulations on China's Bill Financing Pose NIM Pressures for Certain Banks

Risks regarding bill-financing business have recently become a new source of concern for Chinese banks. Bill-financing frauds seen at both the...

Morningstar, Inc.

It Is All Playing Out with China's Banks

The NPL crisis is upon us in China. It’s playing out even if it appears slow.Some of the first movers to show NPLs provide a guide as to what to...

Daniel Tabbush

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