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

Equity Bottom-Up

<ul>
<li><em><strong>DBS reported a weak set of 4Q21 results of SGD 1.4 bn, down SGD 307 mn (18.1%) linked quarter and driven by negative operating jaws; </strong></em></li>
<li><em><strong>While provisions weren’t reversed this quarter, reserves should still be shored up in the neighborhood of SGD 1.1 bn – amounting to about a half quarter of operating results; and  </strong></em></li>
<li><em><strong>Three transactions in the span of a year is too much. DBS needs to focus on improving its own legacy issues before taking on those of other financial institutions. </strong></em></li>
</ul>


DBS reported a weak set of 4Q21 results of SGD 1.4 bn, down SGD 307 mn (18.1%) linked quarter and driven by negative operating jaws; 
While provisions weren’t reversed this quarter, reserves should still be shored up in the neighborhood of SGD 1.1 bn – amounting to about a half quarter of operating results; and  
Three transactions in the span of a year is too much. DBS needs to focus on improving its own legacy issues before taking on those of other financial institutions. 


DBS Group Holdings – Weak Print, But Credit Improves

<p><strong><em>*Overstated 3Q21 Result: </em></strong>DBS Group Holdings (DBS.SP) [DBS] reported 3Q21 results of SGD 1.7 bn, flat linked quarter. When one accounts for the unnecessary negative loss provision of SGD 70 mn (down 188.6%) while credit was weaker, DBS’ results would appear to be grossly overstated;</p><p><strong><em>*Watch Your Credit: </em></strong>We struggle continue to believe that DBS’ due diligence had actually caught all of LVB’s risk (see discussion below), and remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs. DBS has disclosed absolutely nothing about Shenzhen Rural Commercial Bank’s (SRCB) fundamentals. We feel that reserves should be shored up in the neighborhood of SGD 1.1 bn – amounting now to about a half quarter of operating results; and </p><p><em><strong>*Deal Distractions Mount: </strong></em> While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on those of other financial institutions.</p>

*Overstated 3Q21 Result: DBS Group Holdings (DBS.SP) [DBS] reported 3Q21 results of SGD 1.7 bn, flat linked quarter. When one accounts for the unnecessary negative loss provision of SGD 70 mn (down 188.6%) while credit was weaker, DBS’ results would appear to be grossly overstated;*Watch Your Credit: We struggle continue to believe that DBS’ due diligence had actually caught all of LVB’s risk (see discussion below), and remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs. DBS has disclosed absolutely nothing about Shenzhen Rural Commercial Bank’s (SRCB) fundamentals. We feel that reserves should be shored up in the neighborhood of SGD 1.1 bn – amounting now to about a half quarter of operating results; and *Deal Distractions Mount:  While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on those of other financial institutions.

DBS Group Holdings – Pushing The Envelope

<p><strong><em>*Results Better Than Expected: </em></strong>Bank of East Asia (23.HK) [BEA] reported 1H21 results of HKD 2.3 bn – improving HKD 579 mn (34.3%) HOH despite a tax rate of 14.9% (negative 6.8% in 2H20). Results were supported by both a reduced loss provision and net interest income improvement; and  </p><p><strong><em>*Credit Turn, But Premature Provision Cut: </em></strong> By our analysis, we find that credit deterioration appears to be decelerating as net new NPLs have increased 29.3% on an annualized basis versus over 60% at 2H20. Assuming that the decelerated breakdown in credit at BEA holds, we find that loss reserves remain wanting by HKD 4.5 bn or nearly one year of bottom-line results. </p>

*Results Better Than Expected: Bank of East Asia (23.HK) [BEA] reported 1H21 results of HKD 2.3 bn – improving HKD 579 mn (34.3%) HOH despite a tax rate of 14.9% (negative 6.8% in 2H20). Results were supported by both a reduced loss provision and net interest income improvement; and  *Credit Turn, But Premature Provision Cut:  By our analysis, we find that credit deterioration appears to be decelerating as net new NPLs have increased 29.3% on an annualized basis versus over 60% at 2H20. Assuming that the decelerated breakdown in credit at BEA holds, we find that loss reserves remain wanting by HKD 4.5 bn or nearly one year of bottom-line results. 

Bank of East Asia – Premature Provision Cut

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Thematic (Sector/Industry)

<p>For our next Webinar, we welcome Insight Provider <a href="https://www.smartkarma.com/profiles/stanley-tsai-cfa" target="_blank" data-smartkarma-citation="accounts:1116" rel="noopener">Stanley Tsai, CFA</a>, who will present his views on positioning in China financials for the remainder of 2021 in the face of a slowing economy, renewed concerns over Covid-19, and asset quality challenges.</p><div><div><h3>The webinar will be hosted on Wednesday, 18 August 2021, 17:00 SGT/HKT.</h3></div></div><div><div>
<div class="content-highlight"><h2><a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=82322164524" target="_blank" rel="noopener">Register for the Webinar here</a></h2></div>
<p>Stanley Tsai has over two decades' experience as a financials specialist across equities and fixed income. He is currently an advisor to a private investment fund and a non-executive director of a US VC fund.</p>
</div></div>

For our next Webinar, we welcome Insight Provider Stanley Tsai, CFA, who will present his views on positioning in China financials for the remainder of 2021 in the face of a slowing economy, renewed concerns over Covid-19, and asset quality challenges.The webinar will be hosted on Wednesday, 18 August 2021, 17:00 SGT/HKT.
Register for the Webinar here
Stanley Tsai has over two decades' experience as a financials specialist across equities and fixed income. He is currently an advisor to a private investment fund and a non-executive director of a US VC fund.


Smartkarma Webinar | China Banks: Silver Linings Playbook

<p><strong><em>*Another Poor Showing: </em></strong>Hang Seng Bank (11.HK) [Hang Seng] reported a 1H21 result of HKD 8.8 bn, improving HKD 1.2 bn (16.3%) HOH. However, core operating results improved only nominally by HKD 52 mn or 0.8% over the period. Were it not for the unreasonable decline of HKD 639 mn (65.3%) in loss provisions as credit deteriorated, results would have been far worse;  and</p><p><strong><em>*Provisions Now Significantly Understated: </em></strong>While the current NPL ratio is not alarming on its face, the HOH increase in net new NPLs is HKD 1.7 bn or 23.5% annualized - decelerating from the HKD 3.0 bn or 201% annualized at 2H20. We find Hang Seng under-provided for to the tune of HKD 10.6 bn or nearly 1.5x the bank’s core operating result.</p>

*Another Poor Showing: Hang Seng Bank (11.HK) [Hang Seng] reported a 1H21 result of HKD 8.8 bn, improving HKD 1.2 bn (16.3%) HOH. However, core operating results improved only nominally by HKD 52 mn or 0.8% over the period. Were it not for the unreasonable decline of HKD 639 mn (65.3%) in loss provisions as credit deteriorated, results would have been far worse;  and*Provisions Now Significantly Understated: While the current NPL ratio is not alarming on its face, the HOH increase in net new NPLs is HKD 1.7 bn or 23.5% annualized - decelerating from the HKD 3.0 bn or 201% annualized at 2H20. We find Hang Seng under-provided for to the tune of HKD 10.6 bn or nearly 1.5x the bank’s core operating result.

Hang Seng Bank – Wuihfung Remains In Full Control

Hong Kong

BOC Hong Kong (Holdings) Limited provides a comprehensive range of financial products and services to retail and corporate customers.  Its products include retail banking, corporate banking, and treasury services.  The Company operates its branches in Hong Kong and China.

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BOC Hong Kong (BOC HK) (2388 HK)

DBS Group Holdings – Weak Print, But Credit Improves

DBS: DBS 4Q21 declined 18.1% QOQ and driven by negative operating jaws; While loss provisions weren’t reversed this quarter, reserves should be...

Thomas J. Monaco

DBS Group Holdings – Pushing The Envelope

DBS: DBS reported flat 3Q21 QOQ results. Accounting for the unnecessary negative loss provision of SGD 70 mn (down 188.6%) while credit was weaker,...

Thomas J. Monaco

Bank of East Asia – Premature Provision Cut

BANK OF EAST ASIA: BEA reported 1H21 HOH results improvement of 34.3% supported by both a reduced loss provision and net interest income...

Thomas J. Monaco

Smartkarma Webinar | China Banks: Silver Linings Playbook

Join us on 18 August, 5pm SGT, as we welcome Stanley Tsai, CFA, who will present his views on positioning in China financials in the face of a...

Smartkarma Research

Hang Seng Bank – Wuihfung Remains In Full Control

HANG SENG BANK: Hang Seng reported a poor 1H21 HOH operating result. If provisions didn't decline 65%, results would have been worse. It under...

Thomas J. Monaco

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