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.

Equity Bottom-Up

<ul>
<li>In the most recent quarters HSBC saw its NIM decline from around 1.7% to 1.5%</li>
<li>As the bank de-risks its CRE lending it is left with a greater proportion of bad CRE loans</li>
<li>There can be more significant impairment charges on BoCom, the USD3bn done was small</li>
</ul>


In the most recent quarters HSBC saw its NIM decline from around 1.7% to 1.5%
As the bank de-risks its CRE lending it is left with a greater proportion of bad CRE loans
There can be more significant impairment charges on BoCom, the USD3bn done was small


HSBC - The Narrative Seems to Be Missing Many Points of the Reality

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

Event-Driven

<ul>
<li>In a surprise, the Hang Seng index committee has decided not to make any constituent changes to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hang Seng Index (HSI INDEX)</a> at the March rebalance.</li>
<li>We now see the index reaching its 100-member target in 2025 at the earliest, though we would not be surprised to see it spill into 2026 as well.</li>
<li>Free float and capping changes will result in one-way turnover of 1.2% resulting in a round trip trade of HK$4.54bn. <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a> is the biggest sell.</li>
</ul>


In a surprise, the Hang Seng index committee has decided not to make any constituent changes to the Hang Seng Index (HSI INDEX) at the March rebalance.
We now see the index reaching its 100-member target in 2025 at the earliest, though we would not be surprised to see it spill into 2026 as well.
Free float and capping changes will result in one-way turnover of 1.2% resulting in a round trip trade of HK$4.54bn. HSBC Holdings (5 HK) is the biggest sell.


Hang Seng Index (HSI) Rebalance: Idling at 82 Members; 100 Members in 2025 at the Earliest

<ul>
<li>HK &amp; China CRE credit impaired loans are rising sharply and high in 3Q23. We believe there is risk that the bank has to take much higher credit costs. </li>
<li>Not only Mainland China CRE where there are risks. HSBC shows its ECL coverage ratio for HK CRE rising 45% over the past nine months, from 4Q22 to 3Q23. </li>
<li>LT credit costs shows HSBC's provisioning is like during a benign environment, at ~1/3 of its LT average. Its +34% QoQ credit costs in 4Q22 is worth keeping in mind. </li>
</ul>


HK &amp; China CRE credit impaired loans are rising sharply and high in 3Q23. We believe there is risk that the bank has to take much higher credit costs. 
Not only Mainland China CRE where there are risks. HSBC shows its ECL coverage ratio for HK CRE rising 45% over the past nine months, from 4Q22 to 3Q23. 
LT credit costs shows HSBC's provisioning is like during a benign environment, at ~1/3 of its LT average. Its +34% QoQ credit costs in 4Q22 is worth keeping in mind. 


HSBC - HK & China CRE Credit Impaired Loans Now 25.8% from 20.2% | ECL Coverage for HK CRE up 45%

<ul>
<li>HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures. </li>
<li>The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.</li>
<li>Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC. </li>
</ul>


HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures. 
The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.
Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC. 


HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

Index Rebalance

<ul>
<li>In a surprise, the Hang Seng index committee has decided not to make any changes to the <a href="https://www.smartkarma.com/entities/hong-kong-hang-seng-index" target="_blank" data-smartkarma-citation="entities:22899:1" rel="noopener">Hong Kong Hang Seng Index (HSI INDEX)</a> at the March rebalance.</li>
<li>This further delays the timeline for the index to reach 80 constituents. The earliest we will reach the target now is June 2023 (a year later than targeted).</li>
<li>Despite no changes to the index constituents, capping and float changes will lead to a one-way turnover of 2.61% resulting in a one-way trade of HK$5.1bn.</li>
</ul>


In a surprise, the Hang Seng index committee has decided not to make any changes to the Hong Kong Hang Seng Index (HSI INDEX) at the March rebalance.
This further delays the timeline for the index to reach 80 constituents. The earliest we will reach the target now is June 2023 (a year later than targeted).
Despite no changes to the index constituents, capping and float changes will lead to a one-way turnover of 2.61% resulting in a one-way trade of HK$5.1bn.


HSI Index Rebalance: No Changes & Further Delays to Reaching the 80 Member Target

United Kingdom

HSBC Holdings plc is the holding company for the HSBC Group. The Company provides a variety of international banking and financial services, including retail and corporate banking, trade, trusteeship, securities, custody, capital markets, treasury, private and investment banking, and insurance.  The Group operates worldwide.

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HSBC Holdings (5 HK)

HSBC - The Narrative Seems to Be Missing Many Points of the Reality

The HSBC narrative seems to be missing much of the reality: the sharp drop in NIM in 4Q23, the worsening proportion of bad CRE loans to total, and...

Daniel Tabbush

Hang Seng Index (HSI) Rebalance: Idling at 82 Members; 100 Members in 2025 at the Earliest

No changes for the HSI in March. There are free float and capping changes though. HSBC is a passive sell due to capping, ICBC and Trip.com are buys...

Brian Freitas

HSBC - HK & China CRE Credit Impaired Loans Now 25.8% from 20.2% | ECL Coverage for HK CRE up 45%

NYCB, Aozora, now Pfandbriefbank in Germany, CRE risks are clear. HSBC is not only exposed in places like Hong Kong and China, but also material...

Daniel Tabbush

HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

HSBC still carries its 19% investment in BoCom at a very high value compared with the market value and with a far weaker China outlook, we are not...

Daniel Tabbush

HSI Index Rebalance: No Changes & Further Delays to Reaching the 80 Member Target

In a surprise, there are no adds/deletes in March. There are some large capping changes that result in a one-way turnover of 2.6% and a one-way...

Brian Freitas

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