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

*Poor Showing: Hang Seng Bank (11.HK) [Hang Seng] reported both a weak and low quality 2H20 result of HKD 7.5 bn, declining HKD 1.6 bn (17.5%) HOH. The decline in earnings was attributed to net interest income decline due to loan contraction, and NIM compression; and*Did HSBC Overstate Results?:While the current NPL ratio is not alarming, the HOH increase in net new NPLs is at HKD 3.0 bn  - which amounts to an alarming 201% increase on an annualized basis. This is not the first major subsidiary that HSBC is allowing to fall into the abys from a credit perspective, with HSBC North America (HSBCNA) posting net new problem loan growth at 155.4%. Like HSBCNA, we calculate Hang Seng under-provided for to the tune of HKD 6.3 bn or nearly 75% of the bank’s PBT. Combining both subsidiaries, we find that HSBC Holdings Plc overstated 2H20 results (adjusted for ownership) to the tune of USD 4.3 bn – just on these two subsidiaries alone.

*Poor Showing: Hang Seng Bank (11.HK) [Hang Seng] reported both a weak and low quality 2H20 result of HKD 7.5 bn, declining HKD 1.6 bn (17.5%) HOH. The decline in earnings was attributed to net interest income decline due to loan contraction, and NIM compression; and*Did HSBC Overstate Results?:While the current NPL ratio is not alarming, the HOH increase in net new NPLs is at HKD 3.0 bn  - which amounts to an alarming 201% increase on an annualized basis. This is not the first major subsidiary that HSBC is allowing to fall into the abys from a credit perspective, with HSBC North America (HSBCNA) posting net new problem loan growth at 155.4%. Like HSBCNA, we calculate Hang Seng under-provided for to the tune of HKD 6.3 bn or nearly 75% of the bank’s PBT. Combining both subsidiaries, we find that HSBC Holdings Plc overstated 2H20 results (adjusted for ownership) to the tune of USD 4.3 bn – just on these two subsidiaries alone.  

Hang Seng Bank – HSBC Fingerprints All Over This Print

*Continued Weak Great Eastern Core Returns: Great Eastern Holdings (GE.SP) [Great Eastern] reported 2H20 bottom-line results of SGD 688.5 mn, improving SGD 348.6 mn (102.5%) HOH. However, when we exclude 2H20’s net gains on sale of SGD 3.8 bn, core operating results were far from impressive at a loss of SGD 3.1 bn versus operating income SGD 217.3 mn in 1H20; and*Poor Readacross to Regional Insurers: Higher overall costs at Great Eastern during the half driven by claims and a change in contract liability increases would imply a negative readacross to AIA (1299.HK), Prudential (PRU.LN), ManuLife (MFC.CN), and of course the mainland Chinese insurers.

*Continued Weak Great Eastern Core Returns: Great Eastern Holdings (GE.SP) [Great Eastern] reported 2H20 bottom-line results of SGD 688.5 mn, improving SGD 348.6 mn (102.5%) HOH. However, when we exclude 2H20’s net gains on sale of SGD 3.8 bn, core operating results were far from impressive at a loss of SGD 3.1 bn versus operating income SGD 217.3 mn in 1H20; and*Poor Readacross to Regional Insurers: Higher overall costs at Great Eastern during the half driven by claims and a change in contract liability increases would imply a negative readacross to AIA (1299.HK), Prudential (PRU.LN), ManuLife (MFC.CN), and of course the mainland Chinese insurers. 

Oversea Chinese Banking Corp. – Great Eastern HOH Operating Results Flop

*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

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)

Hang Seng Bank – HSBC Fingerprints All Over This Print

HANG SENG BANK: Hang Seng reported both a weak and low quality 2H20 result - declining 17.5% HOH due loan contraction and NIM compression. The...

Thomas J. Monaco

Oversea Chinese Banking Corp. – Great Eastern HOH Operating Results Flop

OVERSEA CHINESE BANKING CORP: Great Eastern reported hefty 2H20 core operating losses. Higher overall costs HOH imply a negative readacross to...

Thomas J. Monaco

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