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)

The main lever for US banks and others is credit costs. This is clear in data during the three quarters thus far this year. After the closing of economies credit costs soared and with the re-opening they have collapsed. But operationally US banks can also benefit from the steepening yield curve. The spread of 10-year US Treasuries over 1-year paper continues to expand. With vaccines, the Biden win and a better understanding of the cost-benefit on how governments reacted early this year, there is likely more risk of the yield curve remaining steep.

The main lever for US banks and others is credit costs. This is clear in data during the three quarters thus far this year. After the closing of economies credit costs soared and with the re-opening they have collapsed. But operationally US banks can also benefit from the steepening yield curve. The spread of 10-year US Treasuries over 1-year paper continues to expand. With vaccines, the Biden win and a better understanding of the cost-benefit on how governments reacted early this year, there is likely more risk of the yield curve remaining steep.

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

*We Anxiously Await HSBC’s US Departure: According the Financial Times on November 28, 2020, HSBC is considering offloading its entire US retail network - although a full exit from other businesses in the US is unlikely. The recommendation of a US exit is expected to be presented to the board as early as this week, although the Group is scheduled to provide an update on its plans for its French and US businesses in February 2021; *HSBCNA Should Be Sold: 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. Knowing HSBC management as we do, they will continue making the same mistakes over and over again; and    *Hong Kong Tax Rate Continues To Mask Management’s Global Mistakes: When your core subsidiary in Hong Kong has a statutory corporate tax rate of 16.5% and the organization is not subject to global taxation, low taxes can mask the many mistakes that HSBC makes.

*We Anxiously Await HSBC’s US Departure: According the Financial Times on November 28, 2020, HSBC is considering offloading its entire US retail network - although a full exit from other businesses in the US is unlikely. The recommendation of a US exit is expected to be presented to the board as early as this week, although the Group is scheduled to provide an update on its plans for its French and US businesses in February 2021; *HSBCNA Should Be Sold: 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. Knowing HSBC management as we do, they will continue making the same mistakes over and over again; and    *Hong Kong Tax Rate Continues To Mask Management’s Global Mistakes: When your core subsidiary in Hong Kong has a statutory corporate tax rate of 16.5% and the organization is not subject to global taxation, low taxes can mask the many mistakes that HSBC makes. 

HSBC Holdings Plc – Act Now, You’ll Never See These Prices Again

European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<div>
<a href="https://www.smartkarma.com/entities/banco-de-sabadell-sa" target="_blank" data-smartkarma-citation="entities:21295:1" rel="noopener">Banco De Sabadell Sa (SAB SM)</a> 's (Sabadell) share price soared 24.59%  as investors discounted its acquisition by <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> before the announcement, and Tuesday's earnings of the Sabadell share price indicate that the market discounts a 30% premium over Friday's price.
Hours after the deal announcement, BBVA confirmed that it is holding talks with representatives of Sabadell for a potential merger between the two entities, as confirmed to the National Securities Market Commission (CNMV) in a relevant event notice.
Now the situation has changed for BBVA, which is in the drivers seat due to both a recent share price boost (pre-sale to PNC) and the proceeds from the sale to PNC, which increase its capital levels. Therefore BBVA is opportunistically proceeding before a vaccine-based economic recovery and timing both the sale to PNC and a potential acquisition of Sabadell to simultaneously happen.
</div>
The new entity would be the second largest in the Spanish market with assets valued at €596 bn, just behind the new CaixaBank-Bankia, and far ahead of Santander, which would occupy the third position.
An integration with Sabadell would reduce BBVA's exposure to emerging markets, while Sabadell is in a highly vulnerable position (balance sheet and profitability, ROE 1.5%), two good reasons why I believe that this deal will go ahead.
The operation makes sense, especially for BBVA, because Sabadell has lost more than 60% of its market value YTD, while BBVA has fallen by half, at 30%. At the beginning of 2020, BBVA was worth 5x Sabadell whilst now it is 10x Sabadell.
From my calculations, a cash deal should be preferred by BBVA on an EPS basis: 20.4% higher EPS achieved through the integration of Sabadell on 2023, vs. 7.0% in a paper deal.
By acquiring Sabadell at a 40% premium, BBVA would be doing a very good business, especially after selling its bank in the US for 9.7 billion euros and taking over Sabadell for around €2.7 bn. BBVA could even afford paying north of a 50% premium.
Recommendation is LONG Sabadell, TP 0.476 (8% spread to closing price on 18 November).
(please read on for deal maths)


Banco De Sabadell Sa (SAB SM) 's (Sabadell) share price soared 24.59%  as investors discounted its acquisition by Banco Bilbao Vizcaya Argentari (BBVA SM) before the announcement, and Tuesday's earnings of the Sabadell share price indicate that the market discounts a 30% premium over Friday's price.
Hours after the deal announcement, BBVA confirmed that it is holding talks with representatives of Sabadell for a potential merger between the two entities, as confirmed to the National Securities Market Commission (CNMV) in a relevant event notice.
Now the situation has changed for BBVA, which is in the drivers seat due to both a recent share price boost (pre-sale to PNC) and the proceeds from the sale to PNC, which increase its capital levels. Therefore BBVA is opportunistically proceeding before a vaccine-based economic recovery and timing both the sale to PNC and a potential acquisition of Sabadell to simultaneously happen.

The new entity would be the second largest in the Spanish market with assets valued at €596 bn, just behind the new CaixaBank-Bankia, and far ahead of Santander, which would occupy the third position.
An integration with Sabadell would reduce BBVA's exposure to emerging markets, while Sabadell is in a highly vulnerable position (balance sheet and profitability, ROE 1.5%), two good reasons why I believe that this deal will go ahead.
The operation makes sense, especially for BBVA, because Sabadell has lost more than 60% of its market value YTD, while BBVA has fallen by half, at 30%. At the beginning of 2020, BBVA was worth 5x Sabadell whilst now it is 10x Sabadell.
From my calculations, a cash deal should be preferred by BBVA on an EPS basis: 20.4% higher EPS achieved through the integration of Sabadell on 2023, vs. 7.0% in a paper deal.
By acquiring Sabadell at a 40% premium, BBVA would be doing a very good business, especially after selling its bank in the US for 9.7 billion euros and taking over Sabadell for around €2.7 bn. BBVA could even afford paying north of a 50% premium.
Recommendation is LONG Sabadell, TP 0.476 (8% spread to closing price on 18 November).
(please read on for deal maths)

BBVA-Sabadell "Merger" Conversations, Deal Numbers

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.

Banco Bilbao Vizcaya Argentari / Event-Driven

<ul>
<li>In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction</li>
<li>The attractive price tag of USD11.6bn (€9.7bn) provides <a href="https://www.smartkarma.com/entities/banco-bilbao-vizcaya-argentari" target="_blank" data-smartkarma-citation="entities:21251:1" rel="noopener">Banco Bilbao Vizcaya Argentari (BBVA SM)</a> with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13th November</li>
<li>The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%</li>
<li>Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020</li>
<li>BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting</li>
<li>The big question is how management will focus on excess capital redeployment through potential M&amp;A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&amp;A options in this report</li>
<li>Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle</li>
</ul>


In our view, the PNC-BBVA USA Bancshares deal reflects the trend towards “in country” domestic bank consolidation in developed markets, given very low interest rates, the pressure on fees and the need to focus on opex reduction
The attractive price tag of USD11.6bn (€9.7bn) provides Banco Bilbao Vizcaya Argentari (BBVA SM) with a big capital uplift at a limited cost to earnings; it reflects a historic (2019A) PE multiple of 19.7x and PTBV ratio of 1.34x, equivalent to 45% of market cap on at the close of 13th November
The US commercial bank disposal also gives BBVA a 294bps boost to its core capital ratio, which stood at 11.52% at 3Q20 end, and post deal would result in CET1 ratio of c 14.5%
Even though BBVA’s disposal will be EPS dilutive post-deal, the cost of foregone earnings is relatively low, given the sale price; USA Bancshares accounted for less than 10% of groups earnings in 2019 and 13% of the group’s gross income in the first nine months of 2020
BBVA management intends to redeploy capital in its core markets, and also has the option to do a large share buy-back at current share prices, ECB permitting
The big question is how management will focus on excess capital redeployment through potential M&amp;A going forward, and will look to redress the earnings split between its core emerging (c 70%) and developed markets (c 30%), post this disposal; we put forward our views on M&amp;A options in this report
Risks to our positive view on BBVA include the ECB maintaining strict regulatory constraints on a share buyback; also that BBVA is selling its USA franchise at a relatively low point in the macro-economic cycle


BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?

The concern now is that the sizeable credit cost delta seen in the latest quarter and for some in the second quarter, now wanes.  This is entirely due to the risk of increased of economic shutdown around the world and for some, a reversion to remaining closed to tourism and relatively normal living. We are seeing this is large countries in Europe now. Bank analysis is wholly different in the current environment, and at the whim of fearful governments – the antithesis of the private sector. We believe there are three considerations now that drive bank profit: 1) vaccine, 2) rationality and 3) excessive fear.

The concern now is that the sizeable credit cost delta seen in the latest quarter and for some in the second quarter, now wanes.  This is entirely due to the risk of increased of economic shutdown around the world and for some, a reversion to remaining closed to tourism and relatively normal living. We are seeing this is large countries in Europe now. Bank analysis is wholly different in the current environment, and at the whim of fearful governments – the antithesis of the private sector. We believe there are three considerations now that drive bank profit: 1) vaccine, 2) rationality and 3) excessive fear.

Global Banks – Waning Credit Cost Delta

United States

PNC Financial Services Group, Inc. is a diversified financial services organization.  The Company provides regional banking, wholesale banking, and asset management services nationally and in the Company's primary regional markets.

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PNC Financial Services Group (PNC US)

US Banks – Borrow Short, Lend Long

While credit costs will remain a key focus for US banks over the coming quarters, we must not lose sight of the steepening yield curve and what it...

Daniel Tabbush

HSBC Holdings Plc – Act Now, You’ll Never See These Prices Again

HSBC HOLDINGS PLC: Financial Times Suggesting Board Will Be Presented With Options On US Franchise This Week. This Was A Long Time In Coming.

Thomas J. Monaco

BBVA-Sabadell "Merger" Conversations, Deal Numbers

By acquiring Sabadell at a 40% premium, BBVA would be doing a very good business, especially after selling its bank in the US for 9.7 billion euros...

Jesus Rodriguez Aguilar

BBVA: So Long, Sun-Belt – What Next; Buybacks and Potentially M&A?

BBVA's sale of its US bank will give it excess capital to redeploy, in both share buybacks and potentially M&A too; we explore some potential M&A...

Victor Galliano

Global Banks – Waning Credit Cost Delta

Bank analysis is wholly different in the current environment. We believe there are three considerations now that drive bank profit: 1) vaccine, 2)...

Daniel Tabbush

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