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

*Reserve Bank of Australia’s No Action On BNPL:The Reserve Bank of Australia (RBA) released a Retail Payments Review on May 28, 2021 discussing among other items the Buy Now Pay Later (BNPL) model. Specifically, the RBA reviewed whether the BNPL model should continue with its ‘no surcharge rules’ whereby merchants are precluded from passing along BNPL fees to its customers. The RBA concluded that it will not require the BNPL sector to change its ‘no surcharge rules’; and  *Tencent’s Midas Touch: Tencent continues to hit it out of the park with its Afterpay stake. In addition to its superb return on investment over the past nine months since the stake announcement - -even after giving back some of its gains, this alliance with Australia’s premier financial technology BNPL company is paying dividends to Tencent in numerous other ways.

*Reserve Bank of Australia’s No Action On BNPL:The Reserve Bank of Australia (RBA) released a Retail Payments Review on May 28, 2021 discussing among other items the Buy Now Pay Later (BNPL) model. Specifically, the RBA reviewed whether the BNPL model should continue with its ‘no surcharge rules’ whereby merchants are precluded from passing along BNPL fees to its customers. The RBA concluded that it will not require the BNPL sector to change its ‘no surcharge rules’; and  *Tencent’s Midas Touch: Tencent continues to hit it out of the park with its Afterpay stake. In addition to its superb return on investment over the past nine months since the stake announcement - -even after giving back some of its gains, this alliance with Australia’s premier financial technology BNPL company is paying dividends to Tencent in numerous other ways. 

*Recent USA Branch Disposal: As announced on February 22, 2021, HSBC Holdings plc (5.HK/HSBA.LN) [HSBC]  announced that is set to withdraw from U.S. retail banking, seeking to dispose of a business that has long underperformed. On May 26, 2021 HSBC and Cathay General Bancorp (CATY.US) [Cathay] in Los Angeles announced that Cathay will acquire 10 retail branches in California from HSBC. Cathay also acquired USD 0.8 bn in loans - residential mortgage, retail business banking, and personal loans, along with USD 1.0 bn in deposits;  and*HSBCNA Still A Chronic Headache: HSBCNA is a chronic mess, and there is absolutely no need for HSBC to maintain a full commercial/retail banking presence in the US. HSBCNA’s operating costs exceed recurring revenues. By our calculation, we note that net new problem loan growth is a scary USD 867.9 mn  - for an annualized rate of growth of 155.4% - in line with the Indian state banks. By our calculation, HSBCNA’s reserves are light by USD 3.8 bn or 17.6% of HSBCNA’s stated equity. We would have compared the reserve shortfall to PBT, but HSBCNA simply loses money on an operating basis.

*Recent USA Branch Disposal: As announced on February 22, 2021, HSBC Holdings plc (5.HK/HSBA.LN) [HSBC]  announced that is set to withdraw from U.S. retail banking, seeking to dispose of a business that has long underperformed. On May 26, 2021 HSBC and Cathay General Bancorp (CATY.US) [Cathay] in Los Angeles announced that Cathay will acquire 10 retail branches in California from HSBC. Cathay also acquired USD 0.8 bn in loans - residential mortgage, retail business banking, and personal loans, along with USD 1.0 bn in deposits;  and*HSBCNA Still A Chronic Headache: HSBCNA is a chronic mess, and there is absolutely no need for HSBC to maintain a full commercial/retail banking presence in the US. HSBCNA’s operating costs exceed recurring revenues. By our calculation, we note that net new problem loan growth is a scary USD 867.9 mn  - for an annualized rate of growth of 155.4% - in line with the Indian state banks. By our calculation, HSBCNA’s reserves are light by USD 3.8 bn or 17.6% of HSBCNA’s stated equity. We would have compared the reserve shortfall to PBT, but HSBCNA simply loses money on an operating basis.

Yuanta Financial Holding Co / Equity Bottom-Up

*Very Solid 1Q21: Yuanta Financial Holding (2885.TT) [Yuanta] reported 1Q21 results of NTD 9.4 bn, increasing NTD 4.9 bn (107.5%) linked quarter. Much of Yuanta’s linked quarter growth can be attributed to strong net interest income growth from both a margin loan and bank loan balance increases; a significant reduction in loss provisioning; and net fee improvement on the back of an ADTV increase on the TAIEX; and*Hidden Yuanta Earnings At Bank: At 21% of Yuanta’s bottom-line, Yunata Bank posted strong core operating results as well – NTD 2.0 bn, increasing NTD 731 mn or 59.2% linked quarter. Reserve cover of NPLs is extraordinary and the best we’ve seen in Asia thus far at 12.1x. By our calculation, Yuanta Bank has over reserved and can release upward of NTD 10.5 bn – representing over one quarter of Yuanta’s quarterly bottom-line.

*Very Solid 1Q21: Yuanta Financial Holding (2885.TT) [Yuanta] reported 1Q21 results of NTD 9.4 bn, increasing NTD 4.9 bn (107.5%) linked quarter. Much of Yuanta’s linked quarter growth can be attributed to strong net interest income growth from both a margin loan and bank loan balance increases; a significant reduction in loss provisioning; and net fee improvement on the back of an ADTV increase on the TAIEX; and*Hidden Yuanta Earnings At Bank: At 21% of Yuanta’s bottom-line, Yunata Bank posted strong core operating results as well – NTD 2.0 bn, increasing NTD 731 mn or 59.2% linked quarter. Reserve cover of NPLs is extraordinary and the best we’ve seen in Asia thus far at 12.1x. By our calculation, Yuanta Bank has over reserved and can release upward of NTD 10.5 bn – representing over one quarter of Yuanta’s quarterly bottom-line.

Yuanta Financial Holding – Firing On All Cylinders

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

Tencent Holdings – Awaiting The Big Hit

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] will report 1Q21 operating metrics on May 14, 2021. We anticipate a low base YOY rebound in VONB to USD 950 mn (15%). Mainland China and Malaysia should be this quarter’s standouts, whilst Hong Kong likely exhibits yet another decline in 1Q21 due to the border closure with mainland China;  and * China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong.

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] will report 1Q21 operating metrics on May 14, 2021. We anticipate a low base YOY rebound in VONB to USD 950 mn (15%). Mainland China and Malaysia should be this quarter’s standouts, whilst Hong Kong likely exhibits yet another decline in 1Q21 due to the border closure with mainland China;  and * China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong. 

AIA Group – 1Q21 Preview; Better But Off Low Base

Hong Kong

CSOP FTSE China A50 ETF is an exchange-traded fund incorporated in Hong Kong. The Fund seeks to track the performance of the FTSE China A50 Index. The Fund invests most of its total assets in the equities of member companies of the FTSE China A50 Index. This is a RQFII fund.

CSOP FTSE China A50 (HKD) (2822 HK)

Tencent Holdings – Shot, Score!!

TENCENT HOLDINGS: The RBA released a Retail Payments Review discussing among other items the BNPL model. The RBA concluded that it will not require...

Thomas J. Monaco

HSBC Holdings Plc – And So It Begins

HSBC HOLDINGS: HSBC is withdrawing from U.S. retail banking, and recently announced that it will sell 10 branches to Cathay General Bancorp in Los...

Thomas J. Monaco

Yuanta Financial Holding – Firing On All Cylinders

YUANTA FINANCIAL: Yuanta reported a QOQ 1Q21 results increase of 107.5%, attributed to strong net interest income growth and a provision reduction....

Thomas J. Monaco

Tencent Holdings – Awaiting The Big Hit

TENCENT HOLDINGS: Tencent] reported 1Q21 YOY total revenue growth of 25%, while non-GAAP operating profit increased just 20%. An FHC suggests...

Thomas J. Monaco

AIA Group – 1Q21 Preview; Better But Off Low Base

AIA GROUP: AIA reports 1Q21 metrics on May 14. We expect a low base YOY rebound in VONB of 15%. With weaker organic growth, AIA went on a deal...

Thomas J. Monaco