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

*Greensill Bankruptcy: Greensill Capital (Greensill) has filed for insolvency in the United Kingdom today after Apollo Global Management’s (APO.US) [Apollo] walked away from this deal. Lawyers for Greensill cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In addition, Greensill allegedly has USD 5 bn in risk outstanding to  GFG Alliance Group (GFG) – a company owned by Sanjeev Gupta, who appears to be at the center of this debacle; and*Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. With the UK and European Central Bank (ECB) asking their institutions for their Greensill and GFG exposures, no doubt the hit parade will continue.

*Greensill Bankruptcy: Greensill Capital (Greensill) has filed for insolvency in the United Kingdom today after Apollo Global Management’s (APO.US) [Apollo] walked away from this deal. Lawyers for Greensill cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In addition, Greensill allegedly has USD 5 bn in risk outstanding to  GFG Alliance Group (GFG) – a company owned by Sanjeev Gupta, who appears to be at the center of this debacle; and*Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. With the UK and European Central Bank (ECB) asking their institutions for their Greensill and GFG exposures, no doubt the hit parade will continue.

*Greensill Blow Up: Greensill Capital (Greensill) is close to bankruptcy. Greensill’s troubles began when its credit insurer, Bond and Credit Company (BCC), a unit of Tokio Marine (8766.JP), decided to not renew Greensill’s insurance likely given the failures of NMC Health, Agritrade, and BrightHouse that borrowed through the Greensill-backed Credit Suisse Group (CSGN.VX) [Credit Suisse] funds; and *Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk.

*Greensill Blow Up: Greensill Capital (Greensill) is close to bankruptcy. Greensill’s troubles began when its credit insurer, Bond and Credit Company (BCC), a unit of Tokio Marine (8766.JP), decided to not renew Greensill’s insurance likely given the failures of NMC Health, Agritrade, and BrightHouse that borrowed through the Greensill-backed Credit Suisse Group (CSGN.VX) [Credit Suisse] funds; and *Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. 

Credit Suisse – Another European Daisy Chain

*Another Poor Set Of Results Expected: Pre-market on March 12, 2021, AIA Group (1299.HK) [AIA] is set to release its 4Q20/full year  results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 33% YOY on a constant exchange rate basis – declining on a linked quarter basis, due largely to weaker volumes and margins.AIA’s product mix remains sub-optimal with the single premium product remaining the focus due to the COVID-19 impact on face-to-face agency sales;  and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 60% plus YOY decline in VONB would not be out of the question as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well.

*Another Poor Set Of Results Expected: Pre-market on March 12, 2021, AIA Group (1299.HK) [AIA] is set to release its 4Q20/full year  results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 33% YOY on a constant exchange rate basis – declining on a linked quarter basis, due largely to weaker volumes and margins.AIA’s product mix remains sub-optimal with the single premium product remaining the focus due to the COVID-19 impact on face-to-face agency sales;  and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 60% plus YOY decline in VONB would not be out of the question as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well. 

AIA Group – 4Q Results Likely To Remain Very Challenging

*Swimmingly Down Under: Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay] reported FY 1H21 operating results. Although operating losses expectedly persist (AUD 79.2 mn vs. AUD 8.2 mn in 2H20), the numbers overall exhibited significant improvement: Financially, we see a light at the end of the tunnel for Afterpay on two fronts: a) receivables impairment increased AUD 25.4 mn (54.5%) HOH. As the global market recover post-vaccine, we’d expect impairments to decline; and b) fair value losses increased AUD 63.7 mn (58.6x). Simply excluding the fair value challenge, After pay would have operated at break-even;  and*Tencent’s Midas Touch: Tencent continues to hit it out of the park with its Afterpay stake. In addition to its superb return on investment of nearly 322% over the past nine  months since the stake announcement - -even after giving back some of its gains, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

*Swimmingly Down Under: Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay] reported FY 1H21 operating results. Although operating losses expectedly persist (AUD 79.2 mn vs. AUD 8.2 mn in 2H20), the numbers overall exhibited significant improvement: Financially, we see a light at the end of the tunnel for Afterpay on two fronts: a) receivables impairment increased AUD 25.4 mn (54.5%) HOH. As the global market recover post-vaccine, we’d expect impairments to decline; and b) fair value losses increased AUD 63.7 mn (58.6x). Simply excluding the fair value challenge, After pay would have operated at break-even;  and*Tencent’s Midas Touch: Tencent continues to hit it out of the park with its Afterpay stake. In addition to its superb return on investment of nearly 322% over the past nine  months since the stake announcement - -even after giving back some of its gains, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways. 

Thematic (Sector/Industry)

*Yield Steepening Likely Leads To FRB Action: The recent turmoil in the US bond market has now led to expectations that the Federal Reserve Board (FRB) may announce interest rate policy tweaks as soon as its next meeting on March 16th. The FRB appears to seek inflation, and the question would appear to be when (not if) the FRB will become more aggressive in preventing the long end of the curve from further steepening; and*Watch Your Financial Positions: Coupled with a rapid economic recovery  - especially given the US lead with vaccination rollouts, the steep yield curve has led to YTD US financial sector outperformance. However, if the FRB begins flattening the yield curve, sentiment is likely to quickly turn. As such, near-term caution for financials is likely warranted ahead of next FRB meeting as the recent bond market volatility is likely to force the FRB’s hand on Yield Curve Control (YCC).

*Yield Steepening Likely Leads To FRB Action: The recent turmoil in the US bond market has now led to expectations that the Federal Reserve Board (FRB) may announce interest rate policy tweaks as soon as its next meeting on March 16th. The FRB appears to seek inflation, and the question would appear to be when (not if) the FRB will become more aggressive in preventing the long end of the curve from further steepening; and*Watch Your Financial Positions: Coupled with a rapid economic recovery  - especially given the US lead with vaccination rollouts, the steep yield curve has led to YTD US financial sector outperformance. However, if the FRB begins flattening the yield curve, sentiment is likely to quickly turn. As such, near-term caution for financials is likely warranted ahead of next FRB meeting as the recent bond market volatility is likely to force the FRB’s hand on Yield Curve Control (YCC).

Federal Reserve Board – Doing The Twist

China

iShares FTSE A50 China Index ETF is an exchanged-traded fund established in Hong Kong. The investment objective of the iShares FTSE A50 China Index ETF is to provide investment results that, before fees and expenses, closely correspond to the performance of A50 Index.

iShares FTSE/Xinhua A50 China (2823 HK)

Credit Suisse – Greensill Goes BK

CREDIT SUISSE: Greensill has filed for insolvency. Lawyers for Greensill cited its inability to repay a USD 140 mn bridge loan from Credit Suisse...

Thomas J. Monaco

Credit Suisse – Another European Daisy Chain

CREDIT SUISSE: Greensill is close to bankruptcy. Credit Suisse , GAM , Tokio Marine, SoftBank and others are likely to see additional weakness...

Thomas J. Monaco

AIA Group – 4Q Results Likely To Remain Very Challenging

AIA GROUP: Pre-market on March 12th, AIA is to release 4Q20/full year results. AIA’s overall VONB is expected to decline 33% YOY- due largely to...

Thomas J. Monaco

Tencent Holdings – Money to Burn

TENCENT HOLDINGS: Tencent's Afterpay expectedly reported FY 1H21 operating losses, but the numbers overall exhibited significant improvement as it...

Thomas J. Monaco

Federal Reserve Board – Doing The Twist

FEDERAL RESERVE BOARD: There are expectations of FRB interest rate policy tweaks as soon as its next meeting. If the FRB flattens the curve,...

Thomas J. Monaco