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

Mitsubishi UFJ Financial (MUFG) / Equity Bottom-Up

Mitsubishi UFJ Financial (MUFG) (8306 JP)

*Morgan Stanley/Eaton Vance Transaction: Morgan Stanley (MS.US) announced its intention to acquire Eaton Vance for approximately USD 7 bn in a 50/50 cash/stock transaction. According to MS, this transaction is expected to be earnings break-even on deal consummation. We are less optimistic;  *MUFG Should Worry About Dilution: Mitsubishi UFJ Financial Group (8306.JP) [MUFG] collectively owns 22.6% of the outstanding shares of MS on a fully diluted basis; prior to both the E*Trade Financial and Eaton Vance (EV.US) transactions MS represented an estimated and outsized 25.4% of MUFG's FY (March) 2020 bottom-line - despite MUFG's high reliance on gains.In aggregate, both transactions dilute MUFG's MS stake by 3.57% to 18.99%. Both transactions are anticipated to dilute MUFG's earnings attributable to Morgan Stanley by USD 175 mn or close to 9.0% YOY or 2.2% overall for MUFG in FY 2020 – assuming the status quo on securities gains; and*MUFG Already Has Enough Headaches: Earnings at MUFG remain quite tenuous. Outside of its high reliance on volatile sources of securities trading, impairment losses associated with its ownership stake in Bank Danamon (BNMN.IJ),  earnings pressures from Union Bank in California,  the re-jigging of the systems integration at MUFG NICOS too should continue to weigh on future results.

*Morgan Stanley/Eaton Vance Transaction: Morgan Stanley (MS.US) announced its intention to acquire Eaton Vance for approximately USD 7 bn in a 50/50 cash/stock transaction. According to MS, this transaction is expected to be earnings break-even on deal consummation. We are less optimistic;  *MUFG Should Worry About Dilution: Mitsubishi UFJ Financial Group (8306.JP) [MUFG] collectively owns 22.6% of the outstanding shares of MS on a fully diluted basis; prior to both the E*Trade Financial and Eaton Vance (EV.US) transactions MS represented an estimated and outsized 25.4% of MUFG's FY (March) 2020 bottom-line - despite MUFG's high reliance on gains.In aggregate, both transactions dilute MUFG's MS stake by 3.57% to 18.99%. Both transactions are anticipated to dilute MUFG's earnings attributable to Morgan Stanley by USD 175 mn or close to 9.0% YOY or 2.2% overall for MUFG in FY 2020 – assuming the status quo on securities gains; and*MUFG Already Has Enough Headaches: Earnings at MUFG remain quite tenuous. Outside of its high reliance on volatile sources of securities trading, impairment losses associated with its ownership stake in Bank Danamon (BNMN.IJ),  earnings pressures from Union Bank in California,  the re-jigging of the systems integration at MUFG NICOS too should continue to weigh on future results. 

Mitsubishi UFJ Financial Group – MS Continues to Dilute MUFG

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.

There appears to be a recurring theme with banks, whereby those with high credit costs early in the year relative to recent years, see a marked decline in the June quarter. The opposite also appears to be the case for some, and <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN),</a> if not the poster-child is a good example. For this global behemoth, where even in the best times its returns are often subpar, its underwhelming operating results should not surprise.

There appears to be a recurring theme with banks, whereby those with high credit costs early in the year relative to recent years, see a marked decline in the June quarter. The opposite also appears to be the case for some, and HSBC Holdings (HSBA LN), if not the poster-child is a good example. For this global behemoth, where even in the best times its returns are often subpar, its underwhelming operating results should not surprise.

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a bottom-line of NOK 5.0 bn – exceeding 1Q20 results by NOK 1.0 bn or 25.5%. This outperformance was even more pronounced on an operating basis with 2Q20 ahead of the linked quarter result by NOK 1.8 bn or 55.3%. Results were primarily driven by a NOK 3.7 bn (63.3%) decline in loss provisions – which may be somewhat premature; and a NOK 572 mn (9.7%) decline in operating expenses due primarily to lower pension costs.*Management Quite Positive: Management seems to be pleased where DNB is heading, as CEO Braathen has stated that "we’ve seen a gradual but much more rapid recovery than I think we dared to hope for entering the quarter”, and that “June, in particular, was a very strong month for activities in investment banking and housing sales and consumer spending"; and   *Possible Dividend Return: DNB does have best-in-class capital with its CET1 of 18.2%, which is already back above 17.9% pre-COVID-19 CET1 target and nearing its prior peak (4Q19) of 18.6%. Politics aside, DNB does appear to be the first European bank which will be allowed to resume both dividends and share buybacks.

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a bottom-line of NOK 5.0 bn – exceeding 1Q20 results by NOK 1.0 bn or 25.5%. This outperformance was even more pronounced on an operating basis with 2Q20 ahead of the linked quarter result by NOK 1.8 bn or 55.3%. Results were primarily driven by a NOK 3.7 bn (63.3%) decline in loss provisions – which may be somewhat premature; and a NOK 572 mn (9.7%) decline in operating expenses due primarily to lower pension costs.*Management Quite Positive: Management seems to be pleased where DNB is heading, as CEO Braathen has stated that "we’ve seen a gradual but much more rapid recovery than I think we dared to hope for entering the quarter”, and that “June, in particular, was a very strong month for activities in investment banking and housing sales and consumer spending"; and   *Possible Dividend Return: DNB does have best-in-class capital with its CET1 of 18.2%, which is already back above 17.9% pre-COVID-19 CET1 target and nearing its prior peak (4Q19) of 18.6%. Politics aside, DNB does appear to be the first European bank which will be allowed to resume both dividends and share buybacks.

DNB ASA – Window To Be Constructive Is Open

*Insolvency Filing: Wirecard’s (WDR.GY) ongoing last minute negotiations with lenders (including the purported debt for equity swap and asset sales) fell apart, as the management board filed a surprise application for the opening of insolvency proceedings with the district court of Munich;*Risk Exposures Identified: The financial media has widely reported that the EUR 1.75 bn revolver has been almost fully drawn upon at approximately EUR 1.6 bn; and  *Sad Chapter Draws To A Close: Another sad chapter in European banking has now come to an abrupt close. Regulatory reform remains a political hot potato but there is zero evidence of resolve given the conflicted rating agencies, auditing business models, feckless regulators et al.

*Insolvency Filing: Wirecard’s (WDR.GY) ongoing last minute negotiations with lenders (including the purported debt for equity swap and asset sales) fell apart, as the management board filed a surprise application for the opening of insolvency proceedings with the district court of Munich;*Risk Exposures Identified: The financial media has widely reported that the EUR 1.75 bn revolver has been almost fully drawn upon at approximately EUR 1.6 bn; and  *Sad Chapter Draws To A Close: Another sad chapter in European banking has now come to an abrupt close. Regulatory reform remains a political hot potato but there is zero evidence of resolve given the conflicted rating agencies, auditing business models, feckless regulators et al.  

*Margin Loan Called: The EUR 150 mn margin loan, originally funded by Deutsche Bank (DBK.GR), to ex-CEO Braun has apparently been called due to the market sell-off in Wirecard’s (WDI.GR) shares;* Monies Not In Phils: As hard of a time we have in believing this given all of the fingerprints in this country, Bangko Sentral ng Pilipnas’ Governor Diokno has indicated that the missing EUR 1.9 bn had never entered the country's banking system. Further, BDO Unibank (BDO.PM) and Banko the Phillipne Islands (BPI/PM) did not incur any losses over Wirecard, and went on to say that identified rogue employees had forged management signatures; and*Tail Risk At Bank: As far as we can tell, there hasn’t been any commentary on Wirecard Bank’s potential exposures which would suggest additional tail risk. There is simply no rational way one can place a value on anything Wirecard-related.

*Margin Loan Called: The EUR 150 mn margin loan, originally funded by Deutsche Bank (DBK.GR), to ex-CEO Braun has apparently been called due to the market sell-off in Wirecard’s (WDI.GR) shares;* Monies Not In Phils: As hard of a time we have in believing this given all of the fingerprints in this country, Bangko Sentral ng Pilipnas’ Governor Diokno has indicated that the missing EUR 1.9 bn had never entered the country's banking system. Further, BDO Unibank (BDO.PM) and Banko the Phillipne Islands (BPI/PM) did not incur any losses over Wirecard, and went on to say that identified rogue employees had forged management signatures; and*Tail Risk At Bank: As far as we can tell, there hasn’t been any commentary on Wirecard Bank’s potential exposures which would suggest additional tail risk. There is simply no rational way one can place a value on anything Wirecard-related.

Germany

Deutsche Bank AG is a global financial service provider delivering commercial, investment, private, and retail banking. The Bank offers debt, foreign exchange, derivatives, commodities, money markets, repo and securitization, cash equities, research, equity prime services, loans, convertibles, advice on M&A and IPO's, trade finance, retail banking, asset management, and corporate investments.

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Deutsche Bank (DBK GR)

Mitsubishi UFJ Financial Group – MS Continues to Dilute MUFG

MUFG Receives Additional Dilution From Morgan Stanley In Another Overpriced US Transaction. Eaton Vance Was The Fourth In a Series of Wealth...

Thomas J. Monaco

HSBC – Unimpressive

There appears to be a recurring theme with banks, whereby those with high credit costs early in the year relative to recent years, see a marked...

Daniel Tabbush

DNB ASA – Window To Be Constructive Is Open

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a...

Thomas J. Monaco

Wirecard – Where’s Waldo

*Margin Loan Called: The EUR 150 mn margin loan, originally funded by Deutsche Bank (DBK.GR), to ex-CEO Braun has apparently been called due to the...

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Mitsubishi UFJ Financial Group – MS Continues to Dilute MUFG

MUFG Receives Additional Dilution From Morgan Stanley In Another Overpriced US Transaction. Eaton Vance Was The Fourth In a Series of Wealth...

Thomas J. Monaco

HSBC – Unimpressive

There appears to be a recurring theme with banks, whereby those with high credit costs early in the year relative to recent years, see a marked...

Daniel Tabbush

DNB ASA – Window To Be Constructive Is Open

*Stand Out Quarter For First Major European Out of The Box: DNB ASA (DNB.NO) [DNB] kicked off 2Q20 results season with a bang, reporting a...

Thomas J. Monaco

Wirecard – The Cookie Crumbles

*Insolvency Filing: Wirecard’s (WDR.GY) ongoing last minute negotiations with lenders (including the purported debt for equity swap and asset...

Thomas J. Monaco

Wirecard – Where’s Waldo

*Margin Loan Called: The EUR 150 mn margin loan, originally funded by Deutsche Bank (DBK.GR), to ex-CEO Braun has apparently been called due to the...

Thomas J. Monaco