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)

We have seen with many European and US banks, a sharp reduction of credit costs during 2Q20 compared with 1Q20.  Even in Japan some banks have taken exceptionally high credit costs during the March quarter, suggesting there can be a major reduction during 1Q21 ending in June. There is an altogether different concern from some of Latin America’s largest banks. <a href="https://www.smartkarma.com/entities/itau-unibanco-holding-sa-9d47d196-e503-471b-a84e-ca4401033062" target="_blank" data-smartkarma-citation="entities:24550:1" rel="noopener">Itau Unibanco Holding Sa (ITUB4 BZ)</a> and <a href="https://www.smartkarma.com/entities/banco-santander-mexico-sa-in" target="_blank" data-smartkarma-citation="entities:27672:1" rel="noopener">Banco Santander Mexico-B (BSMXB MM)</a> are two that stand out, with incredibly low provision expenses during 1Q20 relative to FY19. This can mean a sharp rise during 2Q20. We have already seen this with some LatAm peers.

We have seen with many European and US banks, a sharp reduction of credit costs during 2Q20 compared with 1Q20.  Even in Japan some banks have taken exceptionally high credit costs during the March quarter, suggesting there can be a major reduction during 1Q21 ending in June. There is an altogether different concern from some of Latin America’s largest banks. Itau Unibanco Holding Sa (ITUB4 BZ) and Banco Santander Mexico-B (BSMXB MM) are two that stand out, with incredibly low provision expenses during 1Q20 relative to FY19. This can mean a sharp rise during 2Q20. We have already seen this with some LatAm peers. 

LatAm Banks – Late Bloomers On Credit Costs?

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>Banks in EM need to be prepared for the deteriorating credit quality outlook, as the Covid-19 driven contraction in GDP growth and economic activity takes hold</li>
<li>In this report, we look at the 1Q20 data in terms of balance sheet resilience – leverage ratio as well as NPL ratio and coverage – and which banks have been most proactive in the bolstering of loan loss provisioning</li>
<li>We then apply our valuation screen to see which attractively valued stocks – in terms of book value versus returns – are best prepared for the potential credit quality challenges, from loan loss provisioning and capital buffer perspectives</li>
<li>Our conclusions are that the best ranked are <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a> in Asia, <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a> and <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> in LatAm and <a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> of Egypt in CEEMEA</li>
<li>We also identify another four EM banks that rank solidly in the “runners up” category, and which we discuss in the report</li>
<li>By contrast, the three Indian banks included in this report generally rank poorly</li>
<li>Risks to our positively viewed EM banks include a more protracted and deeper hit to emerging economies adding to NPLs and needing further big bad loan provision charges, along with lower loan volumes and tighter lending spreads</li>
</ul>


Banks in EM need to be prepared for the deteriorating credit quality outlook, as the Covid-19 driven contraction in GDP growth and economic activity takes hold
In this report, we look at the 1Q20 data in terms of balance sheet resilience – leverage ratio as well as NPL ratio and coverage – and which banks have been most proactive in the bolstering of loan loss provisioning
We then apply our valuation screen to see which attractively valued stocks – in terms of book value versus returns – are best prepared for the potential credit quality challenges, from loan loss provisioning and capital buffer perspectives
Our conclusions are that the best ranked are China Merchants Bank H (3968 HK) in Asia, Credicorp Ltd (BAP US) and Grupo Financiero Banorte-O (GFNORTEO MF) in LatAm and Commercial International Bank (COMI EY) of Egypt in CEEMEA
We also identify another four EM banks that rank solidly in the “runners up” category, and which we discuss in the report
By contrast, the three Indian banks included in this report generally rank poorly
Risks to our positively viewed EM banks include a more protracted and deeper hit to emerging economies adding to NPLs and needing further big bad loan provision charges, along with lower loan volumes and tighter lending spreads


Emerging Market Banks: Measuring Their Response and Resilience to the Tougher Credit Quality Outlook

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

<ul>
<li>The nature of the COVID-19 induced sell-off has favoured Aggressive Growth strategies over Value this year.</li>
<li>During this period, the divergence in sector allocations between the two style groups has reached all-time wides. </li>
<li>The largest differences in sector allocations are in Consumer Staples and Discretionary, where Aggressive Growth funds are more heavily invested.  Value investors are more exposed to Energy, Materials and Utilities.</li>
<li>On a country level, China is the prominent weight for both style groups, though Aggressive Growth funds hold 5.36% more, on average. The largest difference is in India, where Aggressive Growth funds rank it as their 2nd largest country exposure at 12.26%, compared to the 5th highest in Value funds at 5.83%.</li>
<li>On a stock level, there are some striking differences in allocations.  For example, 72% of Aggressive Growth funds own <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a> versus only 10% of Value funds. Conversely, 69% of Value funds hold <a href="https://www.smartkarma.com/entities/china-construction-bank-corp" target="_blank" data-smartkarma-citation="entities:24567:1" rel="noopener">China Construction Bank (601939 CH)</a>  compared to just 7% of Aggressive Growth funds.</li>
</ul>The analysis is taken from our Global Emerging Market research, which covers 222 GEM active strategies with combined AUM of $360bn


The nature of the COVID-19 induced sell-off has favoured Aggressive Growth strategies over Value this year.
During this period, the divergence in sector allocations between the two style groups has reached all-time wides. 
The largest differences in sector allocations are in Consumer Staples and Discretionary, where Aggressive Growth funds are more heavily invested.  Value investors are more exposed to Energy, Materials and Utilities.
On a country level, China is the prominent weight for both style groups, though Aggressive Growth funds hold 5.36% more, on average. The largest difference is in India, where Aggressive Growth funds rank it as their 2nd largest country exposure at 12.26%, compared to the 5th highest in Value funds at 5.83%.
On a stock level, there are some striking differences in allocations.  For example, 72% of Aggressive Growth funds own HDFC Bank (HDFCB IN) versus only 10% of Value funds. Conversely, 69% of Value funds hold China Construction Bank (601939 CH)  compared to just 7% of Aggressive Growth funds.
The analysis is taken from our Global Emerging Market research, which covers 222 GEM active strategies with combined AUM of $360bn

<ul>
<li>Carlos Urzua, Mexico's finance minister, resigned yesterday citing many differences of opinion on public policy decisions and discrepancies in economic matters</li>
<li>President Andres Manuel Lopez Obrador (AMLO) stated that Urzua was not embracing the "transformation" by his administration</li>
<li>Urzua has been replaced by his deputy, the under-secretary of finance, Arturo Herrera who is seen as a technocratic (ex-World Bank), relatively safe pair of hands</li>
<li>The gorilla in the room remains Pemex, with its massive debt, and the possible construction of the "AMLO statement" refinery in Tabasco, which Urzua opposed</li>
<li>We fear that Herrera may be less able to re-direct AMLO away from his more populist policies, which points to the risk of an increasingly market-unfriendly Mexico going forward</li>
<li>At the start of the year, we thought that AMLO might be less bad than feared, and government bond prices suggested it was so; we now turn more cautious on Mexico</li>
<li>Although we retain our core positive recommendation in Mexican financials, <a href="https://www.smartkarma.com/entities/gentera-sab-de-cv" target="_blank" data-smartkarma-citation="entities:27889:1" rel="noopener">Gentera SAB De CV (GENTERA* MM EQUITY)</a> ,  we believe that <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MM)</a> in particular is at risk of further de-rating due to its government lending business</li>
</ul>


Carlos Urzua, Mexico's finance minister, resigned yesterday citing many differences of opinion on public policy decisions and discrepancies in economic matters
President Andres Manuel Lopez Obrador (AMLO) stated that Urzua was not embracing the "transformation" by his administration
Urzua has been replaced by his deputy, the under-secretary of finance, Arturo Herrera who is seen as a technocratic (ex-World Bank), relatively safe pair of hands
The gorilla in the room remains Pemex, with its massive debt, and the possible construction of the "AMLO statement" refinery in Tabasco, which Urzua opposed
We fear that Herrera may be less able to re-direct AMLO away from his more populist policies, which points to the risk of an increasingly market-unfriendly Mexico going forward
At the start of the year, we thought that AMLO might be less bad than feared, and government bond prices suggested it was so; we now turn more cautious on Mexico
Although we retain our core positive recommendation in Mexican financials, Gentera SAB De CV (GENTERA* MM EQUITY) ,  we believe that Grupo Financiero Banorte-O (GFNORTEO MM) in particular is at risk of further de-rating due to its government lending business


Mexican Finance Minister Resigns - Policy Risks Rising?

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<ul>
<li>
<a href="https://www.smartkarma.com/entities/21296" target="_blank" data-smartkarma-citation="entities:21296:1">Banco Santander Sa (SAN SM)</a> has announced that it will make an all share, voluntary offer for <a href="https://www.smartkarma.com/entities/27672" target="_blank" data-smartkarma-citation="entities:27672:1">Banco Santander Mexico-B (BSMXB MM)</a> minorities</li>
<li>The offer values the c 25% free float in SanMex at €2.56bn, which implies, at current exchange rates, a premium of 14%</li>
<li>Santander management's rationale for the offer "reflects its confidence in Mexico and its Mexican subsidiary as well as their long term growth potential" and it increases"its capacity to generate capital organically"; this latter point is helpful, given Santander parent's tight core capital ratio</li>
<li>It is also opportunistic by Santander management, in our view; the maximum up-take of the offer implies 3.5% dilution at the parent, and SanMex is cheap on PBV compared to its quoted LatAm sister banks and versus its own history</li>
<li> We see the offer as, at best, fair, but certainly not generous. Still, this offer is positive for investor sentiment towards the Mexican banks and Santander Mexico share price in the very near term; it is also a small positive for Santander parent, in our view</li>
</ul>



Banco Santander Sa (SAN SM) has announced that it will make an all share, voluntary offer for Banco Santander Mexico-B (BSMXB MM) minorities
The offer values the c 25% free float in SanMex at €2.56bn, which implies, at current exchange rates, a premium of 14%
Santander management's rationale for the offer "reflects its confidence in Mexico and its Mexican subsidiary as well as their long term growth potential" and it increases"its capacity to generate capital organically"; this latter point is helpful, given Santander parent's tight core capital ratio
It is also opportunistic by Santander management, in our view; the maximum up-take of the offer implies 3.5% dilution at the parent, and SanMex is cheap on PBV compared to its quoted LatAm sister banks and versus its own history
 We see the offer as, at best, fair, but certainly not generous. Still, this offer is positive for investor sentiment towards the Mexican banks and Santander Mexico share price in the very near term; it is also a small positive for Santander parent, in our view


Santander's All-Share Offer for SanMex; Scooping up Minorities for a Modest Premium

Mexico

Grupo Financiero Banorte S.A.B. de C.V. is a financial institution in Mexico. The Company offers banking services, premium banking, wholesale banking, leasing and factoring, warehousing, insurance, pensions and retirement savings.

Grupo Financiero Banorte SAB d (GFNORTEO MF)

Price Gauge
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Grupo Financiero Banorte SAB d (GFNORTEO MF)

LatAm Banks – Late Bloomers On Credit Costs?

We have seen with many European and US banks, a sharp reduction of credit costs during 2Q20 compared with 1Q20. Even in Japan some banks have...

Daniel Tabbush

Emerging Market Banks: Measuring Their Response and Resilience to the Tougher Credit Quality Outlook

Banks in EM need to be prepared for the deteriorating credit quality outlook, as the Covid-19 driven contraction in GDP growth and economic...

Victor Galliano

EM Growth Vs Value: Maximum Divergence

The nature of the COVID-19 induced sell-off has favoured Aggressive Growth strategies over Value this year. During this period, the divergence in...

Steven Holden

Mexican Finance Minister Resigns - Policy Risks Rising?

Carlos Urzua, Mexico's finance minister, resigned yesterday citing many differences of opinion on public policy decisions and discrepancies in...

Victor Galliano

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

LatAm Banks – Late Bloomers On Credit Costs?

We have seen with many European and US banks, a sharp reduction of credit costs during 2Q20 compared with 1Q20. Even in Japan some banks have...

Daniel Tabbush

Emerging Market Banks: Measuring Their Response and Resilience to the Tougher Credit Quality Outlook

Banks in EM need to be prepared for the deteriorating credit quality outlook, as the Covid-19 driven contraction in GDP growth and economic...

Victor Galliano

EM Growth Vs Value: Maximum Divergence

The nature of the COVID-19 induced sell-off has favoured Aggressive Growth strategies over Value this year. During this period, the divergence in...

Steven Holden

Mexican Finance Minister Resigns - Policy Risks Rising?

Carlos Urzua, Mexico's finance minister, resigned yesterday citing many differences of opinion on public policy decisions and discrepancies in...

Victor Galliano

Santander's All-Share Offer for SanMex; Scooping up Minorities for a Modest Premium

Banco Santander Sa (SAN SM) has announced that it will make an all share, voluntary offer for Banco Santander Mexico-B (BSMXB MM) minorities The...

Boost Research