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>While maybe deflation may not be a concern right now, we believe that high real rates will be a consideration of the Fed</li>
<li>With average lending rates at 8.5% in August and the All Urban CPI Index recording 2.5% inflation in the August, real lending rates are high at 5.97%</li>
<li>When figures were similar, it was July/August 2007 - rarely has there been a time in recent years, where real loan rates have been so high, without Fed reaction</li>
</ul>


While maybe deflation may not be a concern right now, we believe that high real rates will be a consideration of the Fed
With average lending rates at 8.5% in August and the All Urban CPI Index recording 2.5% inflation in the August, real lending rates are high at 5.97%
When figures were similar, it was July/August 2007 - rarely has there been a time in recent years, where real loan rates have been so high, without Fed reaction


Fed Rate Cut - Real Lending Rates at 5.97% Near Where Peaking In August 2007

Equity Bottom-Up

<ul>
<li>HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures. </li>
<li>The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.</li>
<li>Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC. </li>
</ul>


HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures. 
The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.
Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC. 


HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

<ul>
<li>Total impairment costs are soaring now at Citigroup up to USD3.5bn in 4Q23 compared with an average charge of USD1.8-1.9bn in the recent preceding quarters. </li>
<li>Net interest income appears to be topping out now, as there is generally a lagged impact on funding in a rising rate environment. </li>
<li>The implications of the Citi results, steeped in geopolitical risk, are not positive for large global banks, major US banks in particular and <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> specifically. </li>
</ul>


Total impairment costs are soaring now at Citigroup up to USD3.5bn in 4Q23 compared with an average charge of USD1.8-1.9bn in the recent preceding quarters. 
Net interest income appears to be topping out now, as there is generally a lagged impact on funding in a rising rate environment. 
The implications of the Citi results, steeped in geopolitical risk, are not positive for large global banks, major US banks in particular and HSBC Holdings (5 HK) specifically. 


Citigroup - Impairment Costs Far Higher than Any Recent Quarter & Net Interest Income near Halting

<ul>
<li>
<a href="https://www.smartkarma.com/entities/ally-financial-inc" target="_blank" data-smartkarma-citation="entities:9683:1" rel="noopener">Ally Financial (ALLY US)</a> gave a poor view of now and the immediate future for credit costs within its primary loan book, used cars for subprime borrowers</li>
<li>There is often good read-through for mainstream banks and overall credit metrics, we saw this in Thailand before 1997 and in the US with Indymac, Countrywide, Household</li>
<li>If the Fed has a better view on granular data than one single finance company, we believe they will use this data when considering rate cut magnitude, <span><strong>next week</strong></span>
</li>
</ul>



Ally Financial (ALLY US) gave a poor view of now and the immediate future for credit costs within its primary loan book, used cars for subprime borrowers
There is often good read-through for mainstream banks and overall credit metrics, we saw this in Thailand before 1997 and in the US with Indymac, Countrywide, Household
If the Fed has a better view on granular data than one single finance company, we believe they will use this data when considering rate cut magnitude, next week



Ally Financial - Suggests Large Fed Cut, Credit Cost Guidance Worsening, Fringe Finco View Can Lead

<ul>
<li>The risk for US small banks is clear with the major charge taken by <a href="https://www.smartkarma.com/entities/new-york-community-bancorp" target="_blank" data-smartkarma-citation="entities:1193:1" rel="noopener">New York Community Bank (NYCB US)</a> for its CRE exposure</li>
<li>Small banks in the US, those outside the largest 25 by assets, have 45% of their loans in CRE which equates to 2.9x shareholders' equity </li>
<li>The reality is that NYCB's credit costs are now far higher than in the recessionary period of the early 1990s, showing what some banks can face in coming quarters</li>
</ul>


The risk for US small banks is clear with the major charge taken by New York Community Bank (NYCB US) for its CRE exposure
Small banks in the US, those outside the largest 25 by assets, have 45% of their loans in CRE which equates to 2.9x shareholders' equity 
The reality is that NYCB's credit costs are now far higher than in the recessionary period of the early 1990s, showing what some banks can face in coming quarters


US Banks - NYCB Credit Costs Are Much Higher than in the Early 1990s

United States

Citigroup Inc. is a diversified financial services holding company that provides a broad range of financial services to consumer and corporate customers. The Company services include investment banking, retail brokerage, corporate banking, and cash management products and services. Citigroup serves customers globally.

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Fed Rate Cut - Real Lending Rates at 5.97% Near Where Peaking In August 2007

Real rates are too high in the US and they have been rising sharply. This is likely where the the Fed will need to focus when considering rate...

Daniel Tabbush

HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

HSBC still carries its 19% investment in BoCom at a very high value compared with the market value and with a far weaker China outlook, we are not...

Daniel Tabbush

Citigroup - Impairment Costs Far Higher than Any Recent Quarter & Net Interest Income near Halting

Citigroup is now seeing its impairment costs far higher than any recent quarter, and much of this is from unfunded commitments. Its net interest...

Daniel Tabbush

Ally Financial - Suggests Large Fed Cut, Credit Cost Guidance Worsening, Fringe Finco View Can Lead

New disclosure, comments, guidance from Ally Financial show a major deterioration in credit metrics now, in coming months, which can mean a larger...

Daniel Tabbush

US Banks - NYCB Credit Costs Are Much Higher than in the Early 1990s

US CRE loan risk is clearest now with the NYCB charge taken in 4Q23, putting its credit costs now well higher than the recessionary period in...

Daniel Tabbush

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