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

*Results Supported By Lack Of Provisions: Citigroup (C.US) [Citi] reported 4Q20 bottom-line results of USD 4.6 bn, increasing USD 1.5 bn (47.2%) linked quarter. Citi did not provision in 4Q20 an reversed USD 46 mn – enabling its loss provision to decline USD 2.4 bn (101.9%) linked quarter;*Despite Reserve Release, Credit Materially Worse: Despite the perception of improved credit quality improvement in the US and in contravention to JPM, Citi’s NPLs increased USD 395 mn (7.4%) on a linked quarter basis to USD 5.7 bn. Net new NPLs increased USD 1.8 bn or 136.8% on an annualized basis – accelerating versus the 114.3% posted in 3Q20;*Problematic Cost Basis: Although expenses did exhibit a USD 250 mn (2.3%) linked quarter improvement. Despite the expense improvement, Citi’s C/I ratio continues to worsen – increasing 1.6% to 66.0%. We are hopeful that new CEO Jane Fraser can finally turn this ship around, and enable Citi to achieve its targeted 12% ROTCE over time.

*Results Supported By Lack Of Provisions: Citigroup (C.US) [Citi] reported 4Q20 bottom-line results of USD 4.6 bn, increasing USD 1.5 bn (47.2%) linked quarter. Citi did not provision in 4Q20 an reversed USD 46 mn – enabling its loss provision to decline USD 2.4 bn (101.9%) linked quarter;*Despite Reserve Release, Credit Materially Worse: Despite the perception of improved credit quality improvement in the US and in contravention to JPM, Citi’s NPLs increased USD 395 mn (7.4%) on a linked quarter basis to USD 5.7 bn. Net new NPLs increased USD 1.8 bn or 136.8% on an annualized basis – accelerating versus the 114.3% posted in 3Q20;*Problematic Cost Basis: Although expenses did exhibit a USD 250 mn (2.3%) linked quarter improvement. Despite the expense improvement, Citi’s C/I ratio continues to worsen – increasing 1.6% to 66.0%. We are hopeful that new CEO Jane Fraser can finally turn this ship around, and enable Citi to achieve its targeted 12% ROTCE over time.

*Weak Conference Highlighted By What Wasn’t Discussed: Link REIT (823.HK) [Link] discussed its continued operational and strategic challenges through the COVID-19 pandemic. Hong Kong shopping mall occupancy remains between 95%-96%, with rental reversion rates still tracking at negative 2.6%. Additional deals from mainland China expected to be yield accretive; and*New Acquisition Strategy: While it sounds ridiculous, Link has apparently had an epiphany with respect to evaluating portfolio acquisitions based on growth and risk/reward. If this is now the case, what was management actually thinking with The Cabot in London on July 26, 2020.

*Weak Conference Highlighted By What Wasn’t Discussed: Link REIT (823.HK) [Link] discussed its continued operational and strategic challenges through the COVID-19 pandemic. Hong Kong shopping mall occupancy remains between 95%-96%, with rental reversion rates still tracking at negative 2.6%. Additional deals from mainland China expected to be yield accretive; and*New Acquisition Strategy: While it sounds ridiculous, Link has apparently had an epiphany with respect to evaluating portfolio acquisitions based on growth and risk/reward. If this is now the case, what was management actually thinking with The Cabot in London on July 26, 2020.   

Genworth Financial Inc Cl A / Equity Bottom-Up

*No Deal, Move On: China Oceanwide (715.HK) still does not have the money to consummate the Genworth Financial (GNW.US) [Genworth] transaction – missing its merger agreement deadline for the 17th time on December 31, 2020.  Genworth announced that while the merger agreement still remains in effect, management does “not believe a closing can occur in the near-term”; and  *Update Call January 5, 2021: Genworth is hosting a pre-market update call on January 5, 2021 which should provide more color on its contingency plans.

*No Deal, Move On: China Oceanwide (715.HK) still does not have the money to consummate the Genworth Financial (GNW.US) [Genworth] transaction – missing its merger agreement deadline for the 17th time on December 31, 2020.  Genworth announced that while the merger agreement still remains in effect, management does “not believe a closing can occur in the near-term”; and  *Update Call January 5, 2021: Genworth is hosting a pre-market update call on January 5, 2021 which should provide more color on its contingency plans.

*SAMR Sideshow: The State Administration for Market Regulations (SAMR) fined Alibaba Holdings (BABA.US) [Alibaba] on December 14, 2020, SAMR has also launched an inquiry into alleged monopolistic practices at Alibaba whereby it pressures merchants who sell goods on Taobao and Tmall to commit to not selling on competitor platforms which is considered “standard market practice” by Alibaba. The most equitable outcome to this practice, in our view, could be the termination of these exclusive relationships, which no doubt will negatively impact revenues – but this is just a sideshow; and*Moving A Rubber Tree Plant: More importantly, however, Alibaba’s Ant Group was summoned to meet with the People’s Bank of China (PBOC), China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC), and State Administration of Foreign Exchange (SAFE) – which now follow the abrupt cancellation of Ant Group’s enormous USD 34 bn IPO – the largest IPO in history. A crackdown on Alibaba/Ant and other fintech firms was likely to happen at some point given the unbridled systemic risk they pose both on the lending and funding front which is overshadowed by technology.

*SAMR Sideshow: The State Administration for Market Regulations (SAMR) fined Alibaba Holdings (BABA.US) [Alibaba] on December 14, 2020, SAMR has also launched an inquiry into alleged monopolistic practices at Alibaba whereby it pressures merchants who sell goods on Taobao and Tmall to commit to not selling on competitor platforms which is considered “standard market practice” by Alibaba. The most equitable outcome to this practice, in our view, could be the termination of these exclusive relationships, which no doubt will negatively impact revenues – but this is just a sideshow; and*Moving A Rubber Tree Plant: More importantly, however, Alibaba’s Ant Group was summoned to meet with the People’s Bank of China (PBOC), China Banking and Insurance Regulatory Commission (CBIRC), China Securities Regulatory Commission (CSRC), and State Administration of Foreign Exchange (SAFE) – which now follow the abrupt cancellation of Ant Group’s enormous USD 34 bn IPO – the largest IPO in history. A crackdown on Alibaba/Ant and other fintech firms was likely to happen at some point given the unbridled systemic risk they pose both on the lending and funding front which is overshadowed by technology.  

*Poor US Results: In our latest review of HSBC Holdings’ (5.HK/HSBA.LN) [HSBC] US subsidiary, HSBC North America (HSBCNA), we note that fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed 3Q20 results actually were. According to the 3Q20 US regulatory report, HSBCNA reported bottom-line results if USD 160.0 mn, a USD 111.3 mn (228.5%) increase linked quarter. 3Q20 results were driven by two factors: a massive loss provision and tax rate decline; *We Anxiously Await HSBC’s US Departure: According the Financial Times on November 28, 2020, HSBC is considering offloading its entire US retail network - although a full exit from other businesses in the US is unlikely. The recommendation of a US exit is expected to be presented to the board as early as this week, although the Group is scheduled to provide an update on its plans for its French and US businesses in February 2021; and *HSBCNA Should Be Sold: HSBCNA is a chronic mess, and there is absolutely no need for HSBC to maintain a full commercial/retail banking presence in the US. It cannot earn a positive return under its current structure; credit is again about to fall off a cliff; does not earning; NIMs are among the lowest in the USA; and capital is shortly about to fall below regulatory guidance. Further, the bad acquisitions and regulatory headaches should spur management to cut and run in the US. Knowing HSBC management as we do, they will continue making the same mistakes over and over again.

*Poor US Results: In our latest review of HSBC Holdings’ (5.HK/HSBA.LN) [HSBC] US subsidiary, HSBC North America (HSBCNA), we note that fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed 3Q20 results actually were. According to the 3Q20 US regulatory report, HSBCNA reported bottom-line results if USD 160.0 mn, a USD 111.3 mn (228.5%) increase linked quarter. 3Q20 results were driven by two factors: a massive loss provision and tax rate decline; *We Anxiously Await HSBC’s US Departure: According the Financial Times on November 28, 2020, HSBC is considering offloading its entire US retail network - although a full exit from other businesses in the US is unlikely. The recommendation of a US exit is expected to be presented to the board as early as this week, although the Group is scheduled to provide an update on its plans for its French and US businesses in February 2021; and *HSBCNA Should Be Sold: HSBCNA is a chronic mess, and there is absolutely no need for HSBC to maintain a full commercial/retail banking presence in the US. It cannot earn a positive return under its current structure; credit is again about to fall off a cliff; does not earning; NIMs are among the lowest in the USA; and capital is shortly about to fall below regulatory guidance. Further, the bad acquisitions and regulatory headaches should spur management to cut and run in the US. Knowing HSBC management as we do, they will continue making the same mistakes over and over again. 

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)

Citigroup – Massive Clean Up Required

CITIGROUP: Citi reported 4Q20 results of USD 4.6 bn, increasing USD 1.5 bn (47.2%) linked quarter due to a 102% provision decline. Net new NPLs...

Thomas J. Monaco

Link REIT – Novel Acquisition Approach

LINK REIT: Link recently discussed its continued operational and strategic challenges through the COVID-19 pandemic. Link has apparently had an...

Thomas J. Monaco

Genworth Financial –What A Surprise…

GENWORTH FINANCIAL: China Oceanwide Simply Does Not Have The Money To Consummate This Transaction, And Genworth Needs To Move On - But It Wont Be...

Thomas J. Monaco

Alibaba Group Holding – Go Limp

ALIBABA GROUP HOLDINGS: SAMR And Chinese Regulators Are Taking A Run At Alibaba/Ant Group Over Antitrust and Systemic Risk Issues.

Thomas J. Monaco

HSBC Holdings Plc – Cut and Run

HSBC HOLDINGS: HSBCNA fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed...

Thomas J. Monaco