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

Thematic (Sector/Industry)

*Document 15: Recently the China Bank and Insurance Regulatory Commission (CBIRC) issued guidance to both banks and insurers on implicit debt of local government financing vehicles (LGFV) via Document 15 – tightening the screws even further;  and*No Let Up In Sight: Coupled with the structural reforms of an increase in risk-based capital minimums for certain state banks, the partial bank Wealth Management Product (WMP) resolution, and the recent reserve requirement ratio (RRR) reduction, these tightening measures should act to contain some of the out of control financial risk within the mainland Chinese financial system.

*Document 15: Recently the China Bank and Insurance Regulatory Commission (CBIRC) issued guidance to both banks and insurers on implicit debt of local government financing vehicles (LGFV) via Document 15 – tightening the screws even further;  and*No Let Up In Sight: Coupled with the structural reforms of an increase in risk-based capital minimums for certain state banks, the partial bank Wealth Management Product (WMP) resolution, and the recent reserve requirement ratio (RRR) reduction, these tightening measures should act to contain some of the out of control financial risk within the mainland Chinese financial system.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value. 

China Banks – Big Capital Raises Coming

*Reversing Course Again: On April 3, 2020, the European Insurance and Occupational Pensions Authority (EIOPA) - the European Union’s financial regulatory body which replaced the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) – in the context of the corona virus, released a statement urging insurers to “temporarily suspend all discretionary dividend distributions and share buybacks aimed at remunerating shareholders” in order to preserve capital. In an odd reversal of course, EIOPA has updated its commentary surrounding European insurance capital management; and  *Asia-Pacific Insurers Still At Risk: Asia-Pacific insurance counterparts previously acted in capital solidarity with their Western peer during COVID-19. Many Asia-Pacific insurers purchased USD-denominated assets in their desperate search for yield in this low/negative rate environment where the impact of credit default and ratings agency downgrades on their investment portfolios is likely to continue to be outsized and challenge capital their ratios. We are hopeful that the Asia-Pacific insurers - particularly in Japan, Australia, Taiwan, and South Korea – don’t behave as desperately as their European counterparts have.

*Reversing Course Again: On April 3, 2020, the European Insurance and Occupational Pensions Authority (EIOPA) - the European Union’s financial regulatory body which replaced the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) – in the context of the corona virus, released a statement urging insurers to “temporarily suspend all discretionary dividend distributions and share buybacks aimed at remunerating shareholders” in order to preserve capital. In an odd reversal of course, EIOPA has updated its commentary surrounding European insurance capital management; and  *Asia-Pacific Insurers Still At Risk: Asia-Pacific insurance counterparts previously acted in capital solidarity with their Western peer during COVID-19. Many Asia-Pacific insurers purchased USD-denominated assets in their desperate search for yield in this low/negative rate environment where the impact of credit default and ratings agency downgrades on their investment portfolios is likely to continue to be outsized and challenge capital their ratios. We are hopeful that the Asia-Pacific insurers - particularly in Japan, Australia, Taiwan, and South Korea – don’t behave as desperately as their European counterparts have. 

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

<ul type="disc">
<li>Canadian household debt to GDP stands at a record and about 70ppts higher than the US - house prices are at historically high levels versus incomes and rents.</li>
<li>In real terms, the median Toronto house price has doubled in real terms over the past decade – selling prices in the city were up 33% y/y last month, sparking the introduction of a 15% tax on foreign buyers.</li>
<li>Rising risk aversion reflected in tighter consumer lending criteria (particularly for subprime borrowers) will drag on growth next year…</li>
</ul>


Canadian household debt to GDP stands at a record and about 70ppts higher than the US - house prices are at historically high levels versus incomes and rents.
In real terms, the median Toronto house price has doubled in real terms over the past decade – selling prices in the city were up 33% y/y last month, sparking the introduction of a 15% tax on foreign buyers.
Rising risk aversion reflected in tighter consumer lending criteria (particularly for subprime borrowers) will drag on growth next year…


Canadian Canaries in the Basement, China Insurers Attractive…

Hong Kong

Ping An Securities Group (Holdings) Limited is an investment holding company with a business scope that includes securities dealing and financial services, such as brokerage, underwriting, financial advisory, loan financing, and insurance brokerage, as well as hotel and commercial property development. The company is headquartered in Admiralty, Hong Kong, and is currently in liquidation as of September 2022.

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Ping An Securities (231 HK)

China Banks – Screws Tighten On LGFVs

CHINA BANKS: Recently the CBIRC issued guidance on implicit LGFV debt via Document 15 – further tightening the screws on mainland China's financial...

Thomas J. Monaco

China Banks – Big Capital Raises Coming

CHINA BANKS: The PBOC and CBIRC released finalized new capital standards for the country’s D-SIBs. Equity raises require P/BV over 1.0x and many of...

Thomas J. Monaco

Asian Insurers – Mea, Mea EIOPA

ASIA INSURERS: On April 3, 2020, EIOPA temporarily suspended capital management activities," but just reversed course. Many Asia-Pacific insurers...

Thomas J. Monaco

Another Day, Another Default

MAINLAND CHINA DEFAULT: Yongcheng Coal Defaulted On Its Debt, Leading To Concerns About The Credibility Of AAA Rated Corporates In Mainland China...

Thomas J. Monaco

Canadian Canaries in the Basement, China Insurers Attractive…

Canadian household debt to GDP stands at a record and about 70ppts higher than the US - house prices are at historically high levels versus...

Sean Maher

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52-week Range

Market Cap (USDm)

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