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

<ul><li>We should not forget about the latent, but hidden risk facing banks off balance sheet.</li><li><em>In a crisis, when banks become risk averse, and where companies find economic circumstances changing radically, there is more risk that these so-called off balance sheet items move on-balance sheet. Unwittingly.</em></li><li>This can result in a spur of unwanted loan growth for banks, and it also something to watch for. High loan growth at a time of risk aversion can simply be the off balance sheet moving on balance sheet. This is generally poor quality growth.</li><li>Some banks traditionally touted as safe havens have surprisingly high Off Balance Sheet Liabilities to Equity.&nbsp;It is impossible to say if these banks will face difficulties with customers drawing down on these off balance sheet facilities or not, but holding all else equal, these banks are far more exposed vs. capital than others in Asia.</li></ul><p>More below the fold....&nbsp;</p>

We should not forget about the latent, but hidden risk facing banks off balance sheet.In a crisis, when banks become risk averse, and where companies find economic circumstances changing radically, there is more risk that these so-called off balance sheet items move on-balance sheet. Unwittingly.This can result in a spur of unwanted loan growth for banks, and it also something to watch for. High loan growth at a time of risk aversion can simply be the off balance sheet moving on balance sheet. This is generally poor quality growth.Some banks traditionally touted as safe havens have surprisingly high Off Balance Sheet Liabilities to Equity.&nbsp;It is impossible to say if these banks will face difficulties with customers drawing down on these off balance sheet facilities or not, but holding all else equal, these banks are far more exposed vs. capital than others in Asia.More below the fold....&nbsp;

<p><em>&ldquo;We offer a wide range of banking and financial services in mainland China, through our local subsidiaries HSBC Bank (China) Company Limited and Hang Seng Bank (China) Limited. We also participate indirectly in mainland China through our associate, Bank of Communications.&rdquo;</em></p><p>This is one of three introductory paragraphs to its Asia business in HSBC&rsquo;s 2014 Annual Report. As at last year, the bank had US$38bn worth of loans in China.</p><p>This is more than Singapore, Malaysia, India, or Indonesia. It is not a particularly small amount of credit.</p><p>This is more disconcerting today than two weeks ago, given&nbsp;the Yuan devaluation.</p><p>More below the fold....</p>

&ldquo;We offer a wide range of banking and financial services in mainland China, through our local subsidiaries HSBC Bank (China) Company Limited and Hang Seng Bank (China) Limited. We also participate indirectly in mainland China through our associate, Bank of Communications.&rdquo;This is one of three introductory paragraphs to its Asia business in HSBC&rsquo;s 2014 Annual Report. As at last year, the bank had US$38bn worth of loans in China.This is more than Singapore, Malaysia, India, or Indonesia. It is not a particularly small amount of credit.This is more disconcerting today than two weeks ago, given&nbsp;the Yuan devaluation.More below the fold....

Thematic (Sector/Industry)

<p>It is the chunky corporate loans that are most bothersome to banks, as an economy slows.</p><p>This is one reason that risk-weightings tend to be fairly high for these compared with traditional retail mortgage loans.</p><p><em>Seasoning</em> refers to if a loan has been tried and tested; If it has withstood an economic downturn.</p><p>A default becomes more likely in year two or three of a loan facility, if the business plan is not &nbsp;on track, rather than the first year of the loan's life.</p><p>In this note we examine the size of banks unseasoned corporate loan book, comparing Chinese banks and Australian banks.&nbsp;</p><p>If indeed the economy in China is as weak as the PBOC&rsquo;s actions suggest, or simply as weak as much of the macro/micro data reveals, then those&nbsp;banks with a high proportion of unseasoned corporate loans could see bad loan ratios rise exponentially over the coming 24 months, as corporate business plans fail.</p><p>More below the fold.....</p>

It is the chunky corporate loans that are most bothersome to banks, as an economy slows.This is one reason that risk-weightings tend to be fairly high for these compared with traditional retail mortgage loans.Seasoning refers to if a loan has been tried and tested; If it has withstood an economic downturn.A default becomes more likely in year two or three of a loan facility, if the business plan is not &nbsp;on track, rather than the first year of the loan's life.In this note we examine the size of banks unseasoned corporate loan book, comparing Chinese banks and Australian banks.&nbsp;If indeed the economy in China is as weak as the PBOC&rsquo;s actions suggest, or simply as weak as much of the macro/micro data reveals, then those&nbsp;banks with a high proportion of unseasoned corporate loans could see bad loan ratios rise exponentially over the coming 24 months, as corporate business plans fail.More below the fold.....

Corporate Loan Seasoning in Chinese and Australian Banks

Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
​
More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

<p><em><strong>&lsquo;Pay no attention to that man behind the curtain&rsquo;</strong>&nbsp;</em><em>- Wizard of Oz</em></p><p>The nature and scale of Beijing&rsquo;s reaction to the bursting of the China equity bubble should dispel two of the three myths which supposedly justified the bull market, namely that the administration was in firm control of events and that it was intent on implementing a programme of liberal reforms towards the economy and financial markets.</p><p>The one remaining myth, which is still being propagated by the China bulls, is that despite the continuing growth slowdown, the underlying state of the Chinese economy is sound. Mark is currently undertaking a study of the financial characteristics of the Chinese corporate sector, which we intend to publish in early September. For this piece I am taking some of his preliminary findings to <strong>illustrate the fault lines, which exist through the Chinese economy and which continue to underpin our bearish view towards the Chinese economy and equity market.</strong></p>

&lsquo;Pay no attention to that man behind the curtain&rsquo;&nbsp;- Wizard of OzThe nature and scale of Beijing&rsquo;s reaction to the bursting of the China equity bubble should dispel two of the three myths which supposedly justified the bull market, namely that the administration was in firm control of events and that it was intent on implementing a programme of liberal reforms towards the economy and financial markets.The one remaining myth, which is still being propagated by the China bulls, is that despite the continuing growth slowdown, the underlying state of the Chinese economy is sound. Mark is currently undertaking a study of the financial characteristics of the Chinese corporate sector, which we intend to publish in early September. For this piece I am taking some of his preliminary findings to illustrate the fault lines, which exist through the Chinese economy and which continue to underpin our bearish view towards the Chinese economy and equity market.

CHINA: Reform & Omnipotence Myths Dispelled

<div><div><div>Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche Bank towards the end of 2010 and the start of 2011, at a time when the consensus outlook for EM economies and equities was almost unanimously bullish.</div><div>&nbsp;</div><div>I made a number of tentative predictions and recommendations, which were generally greeted with a combination of indifference and skepticism and on occasion outright hostility among most, though not quite all of the bank&rsquo;s clients.</div><div>&nbsp;</div></div></div><div><div><strong>It seems that we may now be entering the final stage of EM relative underperformance, in line with our expectations in our initiation last year where we posited the relative trade was 2/3rds through.</strong></div></div>

Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche Bank towards the end of 2010 and the start of 2011, at a time when the consensus outlook for EM economies and equities was almost unanimously bullish.&nbsp;I made a number of tentative predictions and recommendations, which were generally greeted with a combination of indifference and skepticism and on occasion outright hostility among most, though not quite all of the bank&rsquo;s clients.&nbsp;It seems that we may now be entering the final stage of EM relative underperformance, in line with our expectations in our initiation last year where we posited the relative trade was 2/3rds through.

A Roadmap of the EM Bear Market and Three Myths about the China Bull Market

China

China Merchants Bank Co., Ltd. operates as a commercial bank. The Company provides deposits, loans, wealth management, asset custody, finance leasing, investment banking, and other banking services. China Merchants Bank conducts businesses domestically and internationally.

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China Merchants Bank H (3968 HK)

Beware of Banks' Off Balance Sheet Risk

We should not forget about the latent, but hidden risk facing banks off balance sheet. In a crisis, when banks become risk averse, and where...

Daniel Tabbush

HSBC Is Entrenched in China

“We offer a wide range of banking and financial services in mainland China, through our local subsidiaries HSBC Bank (China) Company Limited and...

Daniel Tabbush

Corporate Loan Seasoning in Chinese and Australian Banks

It is the chunky corporate loans that are most bothersome to banks, as an economy slows.This is one reason that risk-weightings tend to be fairly...

Daniel Tabbush

CHINA: Reform & Omnipotence Myths Dispelled

‘Pay no attention to that man behind the curtain’ - Wizard of OzThe nature and scale of Beijing’s reaction to the bursting of the China equity...

John-Paul Smith

A Roadmap of the EM Bear Market and Three Myths about the China Bull Market

Let me begin by revisiting the road map for the bear market in EM equities which I first outlined in my role as EM equity strategist for Deutsche...

John-Paul Smith

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