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

*New Household Investors For HKEX:  SAFE is likely to make various changes to the current regulations which to allow greater individual participation in stock incentive schemes of overseas listed companies with the removal of quotas on F/X purchases. Enabling greater participation by mainland Chinese in outbound investments could be highly  supportive Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] trading volume going forward; and  *New CEO Should Focus On Mainland China: We are hopeful that the new appointed CEO Nicolas Aguzin (effective May 24, 2021) doesn’t allow himself to get distracted by his former swashbuckling colleagues from J.P. Morgan Chase &amp; Co. (JPM.US) at HKEX and their absurd deal making and that he can just focus on meeting both near and long-term targets.

*New Household Investors For HKEX:  SAFE is likely to make various changes to the current regulations which to allow greater individual participation in stock incentive schemes of overseas listed companies with the removal of quotas on F/X purchases. Enabling greater participation by mainland Chinese in outbound investments could be highly  supportive Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] trading volume going forward; and  *New CEO Should Focus On Mainland China: We are hopeful that the new appointed CEO Nicolas Aguzin (effective May 24, 2021) doesn’t allow himself to get distracted by his former swashbuckling colleagues from J.P. Morgan Chase &amp; Co. (JPM.US) at HKEX and their absurd deal making and that he can just focus on meeting both near and long-term targets.

Hong Kong Exchanges & Clearing – China, Not Deals Are Way Forward

*Gross Operating Revenues Do NOT Cover Recurring Costs At HSBCNA: HSBC Holdings plc’s (HSBC) [5.HK/HSBA.LN] US subsidiary, HSBC North America (US only) [HSBCNA], reported yet another troubling set of results for 4Q20, losing USD 152.6 mn – down USD 312.6 mn (195.4%) on a linked quarter basis. Excluding non-recurring items, core operating income declined USD 313.6 mn (230.1%) for a loss of USD 177.3 mn over the same period. As it stands again, HSBCNA’s operating costs exceed recurring revenues; *HSBCNA Is Evolving Into An Indian State Bank: Given the credit weakness, we find that NPL/TL and problem assets/TL ratios significantly worsened 92 bp and 160 bp linked quarter, respectively, to 2.82% and 5.01%. 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; and*HSBCNA Should Be Dumped At Any Price: 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. We look forward to Group results on February 23rd, and the clarity we will receive on its hot mess in the US.

*Gross Operating Revenues Do NOT Cover Recurring Costs At HSBCNA: HSBC Holdings plc’s (HSBC) [5.HK/HSBA.LN] US subsidiary, HSBC North America (US only) [HSBCNA], reported yet another troubling set of results for 4Q20, losing USD 152.6 mn – down USD 312.6 mn (195.4%) on a linked quarter basis. Excluding non-recurring items, core operating income declined USD 313.6 mn (230.1%) for a loss of USD 177.3 mn over the same period. As it stands again, HSBCNA’s operating costs exceed recurring revenues; *HSBCNA Is Evolving Into An Indian State Bank: Given the credit weakness, we find that NPL/TL and problem assets/TL ratios significantly worsened 92 bp and 160 bp linked quarter, respectively, to 2.82% and 5.01%. 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; and*HSBCNA Should Be Dumped At Any Price: 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. We look forward to Group results on February 23rd, and the clarity we will receive on its hot mess in the US.     

HSBC Holdings Plc –American Result Intimates Group Miss

Genworth Financial Inc Cl A / Equity Bottom-Up

*Aussie Business Weakens Again: Genworth Mortgage Insurance Australia (GMA.AU) [GMA] reported a FY 2H20 bottom-line loss of AUD 17.6 mn. Despite the loss, the level was an improvement of AUD 72.4 mn over the AUD 90.0 mn loss posted in FY 1H20. You simply cannot earn money if your combined ratio is 137.7% - albeit an improvement over the 215.0% posted during the previous half. Despite the expense ratio improvement of 127.4% to 20.5%, the claims ratio increase of 50.1% to 117.1% acted as quite the offset and drove the loss as the 4Q20 refinement of reserving due to COVID-19 related factors was the primary culprit; and*Genworth Still Waiting To Clear That Chinese Wall: 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.  While the merger agreement still remains in effect, management does “not believe a closing can occur in the near-term”, as Genworth (with no other option) continued to play this same old tired game with China Oceanwide by extending its merger agreement deadline.

*Aussie Business Weakens Again: Genworth Mortgage Insurance Australia (GMA.AU) [GMA] reported a FY 2H20 bottom-line loss of AUD 17.6 mn. Despite the loss, the level was an improvement of AUD 72.4 mn over the AUD 90.0 mn loss posted in FY 1H20. You simply cannot earn money if your combined ratio is 137.7% - albeit an improvement over the 215.0% posted during the previous half. Despite the expense ratio improvement of 127.4% to 20.5%, the claims ratio increase of 50.1% to 117.1% acted as quite the offset and drove the loss as the 4Q20 refinement of reserving due to COVID-19 related factors was the primary culprit; and*Genworth Still Waiting To Clear That Chinese Wall: 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.  While the merger agreement still remains in effect, management does “not believe a closing can occur in the near-term”, as Genworth (with no other option) continued to play this same old tired game with China Oceanwide by extending its merger agreement deadline.

Genworth Financial – Wrong Time For An Aussie Fail

*Negative Operating Remain Troubling: DBS Group Holdings (DBS.SP) [DBS] reported 4Q20 results of SGD 1.0 bn, declining SGD 285 mn (22.0%) on a linked quarter basis. Results remain troubling across the board, as this is the second consecutive quarter that DBS reported negative operating jaws whilst the decline in loss provisions reversed course on weaker credit;*Credit Risk Challenges Management: We remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs, as this improvement would appear to be in contravention to the stress being experienced regionally. By our calculation, we find that net new NPLs continue to increase – up SGD 631 mn or increasing 41.7% on an annualized basis – more than doubling the figures of SGD 272 mn or 18.9% on an annualized basis for 3Q20. We feel that reserves should be shored up in the neighborhood of SGD 2.8bn – amounting now to three plus full quarters of results, comparing very unfavorably to the SGD 1.3 bn calculated (one quarter of results) just a quarter earlier and suggest that Lakshmi Vilas Bank’s (LVB) risk is not under the control; and *India Deal Poses Significant Challenges: : By our calculation and based on LVB’s FY 2Q21 results, the company would appear to be insolvent to the tune of INR 39 bn – nearly 56% greater than the DBS Bank India capital infusion. LVB loses money on an operating basis prior to loss provisions, as revenues (no clarity on what is recurring) of INR 15.4 bn are less than operating expenses of INR 16.0 bn – or by 3.7% at FY 2Q21; et al.  DBS expects DBS India to return to profitability and that the LVB deal will be ROE accretive over the next 12-24 months. We’d like some of what management is smoking.

*Negative Operating Remain Troubling: DBS Group Holdings (DBS.SP) [DBS] reported 4Q20 results of SGD 1.0 bn, declining SGD 285 mn (22.0%) on a linked quarter basis. Results remain troubling across the board, as this is the second consecutive quarter that DBS reported negative operating jaws whilst the decline in loss provisions reversed course on weaker credit;*Credit Risk Challenges Management: We remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs, as this improvement would appear to be in contravention to the stress being experienced regionally. By our calculation, we find that net new NPLs continue to increase – up SGD 631 mn or increasing 41.7% on an annualized basis – more than doubling the figures of SGD 272 mn or 18.9% on an annualized basis for 3Q20. We feel that reserves should be shored up in the neighborhood of SGD 2.8bn – amounting now to three plus full quarters of results, comparing very unfavorably to the SGD 1.3 bn calculated (one quarter of results) just a quarter earlier and suggest that Lakshmi Vilas Bank’s (LVB) risk is not under the control; and *India Deal Poses Significant Challenges: : By our calculation and based on LVB’s FY 2Q21 results, the company would appear to be insolvent to the tune of INR 39 bn – nearly 56% greater than the DBS Bank India capital infusion. LVB loses money on an operating basis prior to loss provisions, as revenues (no clarity on what is recurring) of INR 15.4 bn are less than operating expenses of INR 16.0 bn – or by 3.7% at FY 2Q21; et al.  DBS expects DBS India to return to profitability and that the LVB deal will be ROE accretive over the next 12-24 months. We’d like some of what management is smoking. 

DBS Group Holdings – COVID & India Not A Good Combo

*New CEO: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] announced that it has appointed Mr. Nicolas Aguzin as its next CEO - effective May 24, 2021.This is an interesting hire, as Mr. Aguzin has virtually no exchange experience and is seemingly not a Mandarin speaker; and*Focus, Focus, Focus:  Let’s just hope and pray that the new CEO doesn’t come from a  swashbuckling deal team.  To be clear, we believe that HKEx has enormous potential provided that it can avoid franchise transforming deals every half decade.

*New CEO: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] announced that it has appointed Mr. Nicolas Aguzin as its next CEO - effective May 24, 2021.This is an interesting hire, as Mr. Aguzin has virtually no exchange experience and is seemingly not a Mandarin speaker; and*Focus, Focus, Focus:  Let’s just hope and pray that the new CEO doesn’t come from a  swashbuckling deal team.  To be clear, we believe that HKEx has enormous potential provided that it can avoid franchise transforming deals every half decade. 

Hong Kong Exchanges & Clearing – No Experience Necessary

China

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 (82822 HK)

Hong Kong Exchanges & Clearing – China, Not Deals Are Way Forward

HONG KONG EXCHANGES & CLEARING: SAFE is making changes to regulations and allow greater individual participation in stock incentive schemes. We...

Thomas J. Monaco

HSBC Holdings Plc –American Result Intimates Group Miss

HSBC HOLDINGS PLC: HSBCNA reported troubling results in 4Q20 - declining 195% linked quarter, as operating costs exceed recurring revenues. This...

Thomas J. Monaco

Genworth Financial – Wrong Time For An Aussie Fail

GENWORTH FINANCIAL: Genworth Mortgage Insurance Australia reported a FY 2H20 bottom-line loss as its combined ratio was 137.7%. China Oceanwide...

Thomas J. Monaco

DBS Group Holdings – COVID & India Not A Good Combo

DBS GROUP HOLDINGS: DBS reported a 4Q20 results decline of 22.0% linked quarter. Results remain troubling across the board. India deal poses...

Thomas J. Monaco

Hong Kong Exchanges & Clearing – No Experience Necessary

HONG KONG EXCHANGES & CLEARING: HKEX appointed Mr. Nicolas Aguzin as CEO. This is an interesting hire, as Mr. Aguzin has no exchange experience. We...

Thomas J. Monaco