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

*Gross Operating Revenues Do NOT Cover Recurring Costs At HSBCNA: HSBC Holdings plc (HSBC) [5.HK/HSBA.LN] is a complete and utter mess. Nowhere is this more evident than in the United States.  HSBC North America (US only) [HSBCNA] reported a troubling result for 1Q20, losing USD 1.17 bn versus a positive USD 11.8 mn in 4Q19. First and foremost, recurring costs of USD 1.3 bn exceed operating revenues by USD 449.0 mn (versus USD 460.6 mn in 4Q19) for cost/income ratio of 153% - a chronic problem for HSBCNA;*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 globsal taxation, low taxes can mask the many mistakes that HSBC makes – particularly in the USA; 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. Knowing HSBC management as we do, they will continue making the same mistakes over and over again.

*Gross Operating Revenues Do NOT Cover Recurring Costs At HSBCNA: HSBC Holdings plc (HSBC) [5.HK/HSBA.LN] is a complete and utter mess. Nowhere is this more evident than in the United States.  HSBC North America (US only) [HSBCNA] reported a troubling result for 1Q20, losing USD 1.17 bn versus a positive USD 11.8 mn in 4Q19. First and foremost, recurring costs of USD 1.3 bn exceed operating revenues by USD 449.0 mn (versus USD 460.6 mn in 4Q19) for cost/income ratio of 153% - a chronic problem for HSBCNA;*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 globsal taxation, low taxes can mask the many mistakes that HSBC makes – particularly in the USA; 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. Knowing HSBC management as we do, they will continue making the same mistakes over and over again.   

<ul>
<li class="MsoListParagraphCxSpFirst">
Weak 1Q20 Result: HSBC Holdings plc (HSBA.LN/5.HK) [HSBC] reported 1Q20 earnings of USD 2.25bn – missing consensus forecasts by 13%. Linked quarter, however, results did improve over the USD 5.3 bn loss, as total significant losses of USD 8.2 bn were not incurred during 1Q20. That said, the miss versus consensus can be attributed to an enormous USD 2.3 bn (313%) increase in loss provisioning;</li>
<li class="MsoListParagraphCxSpMiddle">
Guidance Should Have Been Pulled: In this environment, its difficult to forecast anything – yet HSBC presses on. Weaker for longer credit environment, slower global growth, NIM compression, and a more punitive regulatory regime will challenge HSBC’s  return profile; and</li>
<li class="MsoListParagraphCxSpLast">
Credit Is Falling Off a Cliff: Stage 3 loans increased USD 1.1 bn (7.6%) to USD 15.6 bn and amount to 1.50% - up 10 bp linked quarter, which for some reason feels substantially light given the early stage entry of Asia into the COVID-19 Crisis. When accounting for the level of NCOs, we find that HSBC’s net new NPLs amounted to USD 2.2 bn for an annualized increase of 62.4%. </li>
</ul>



Weak 1Q20 Result: HSBC Holdings plc (HSBA.LN/5.HK) [HSBC] reported 1Q20 earnings of USD 2.25bn – missing consensus forecasts by 13%. Linked quarter, however, results did improve over the USD 5.3 bn loss, as total significant losses of USD 8.2 bn were not incurred during 1Q20. That said, the miss versus consensus can be attributed to an enormous USD 2.3 bn (313%) increase in loss provisioning;

Guidance Should Have Been Pulled: In this environment, its difficult to forecast anything – yet HSBC presses on. Weaker for longer credit environment, slower global growth, NIM compression, and a more punitive regulatory regime will challenge HSBC’s  return profile; and

Credit Is Falling Off a Cliff: Stage 3 loans increased USD 1.1 bn (7.6%) to USD 15.6 bn and amount to 1.50% - up 10 bp linked quarter, which for some reason feels substantially light given the early stage entry of Asia into the COVID-19 Crisis. When accounting for the level of NCOs, we find that HSBC’s net new NPLs amounted to USD 2.2 bn for an annualized increase of 62.4%. 


Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

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A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues unabated. But if things are tough for retailers they are equally bad for UK property companies with a significant proportion of retail in their portfolios. Declining rents and rising yields are not positive for valuations. Landlords also have to deal with an increasing incidence of tenant insolvencies. 
British Land: what does it do ?
British Land is the third largest property company in the FTSE100 with a market capitalisation of £5.6bn and property portfolio of £12.8bn split almost equally between Retail and Central London offices. 
Why is it in the Short portfolio ?
Trading pressure in the retail sector is translating into rent reductions for landlords, or worse, vacant space. Yields are rising due to decreased investment demand. Property consultancies anticipate a double digit decline in retail capital values over the next two years. The consensus expectation is for British Land's EPRA NAV to decline 8% over the next two years.

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues unabated. But if things are tough for retailers they are equally bad for UK property companies with a significant proportion of retail in their portfolios. Declining rents and rising yields are not positive for valuations. Landlords also have to deal with an increasing incidence of tenant insolvencies. 
British Land: what does it do ?
British Land is the third largest property company in the FTSE100 with a market capitalisation of £5.6bn and property portfolio of £12.8bn split almost equally between Retail and Central London offices. 
Why is it in the Short portfolio ?
Trading pressure in the retail sector is translating into rent reductions for landlords, or worse, vacant space. Yields are rising due to decreased investment demand. Property consultancies anticipate a double digit decline in retail capital values over the next two years. The consensus expectation is for British Land's EPRA NAV to decline 8% over the next two years.    

British Land (BLND:LN): Retail in Reverse

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

SPDR FTSE UK All Share / Equity Bottom-Up

<blockquote>Political Risk is all about EM, isn't it?</blockquote>Try the UK. It has an EM stock market anyway.<blockquote>Oh you mean Brexit?</blockquote>No, comrade.Corbyn-McDonnell plan to "reprogramme" the economy.And it doesn't look like a walk in the park. Sort of Soviet-Latino mix.<blockquote>Sounds like a Kalashnikov. Do I pack my bags and head for New Zealand? Sell my assets?</blockquote>It may not come to pass but never say never. Suggest some tweaking.

Political Risk is all about EM, isn't it?Try the UK. It has an EM stock market anyway.Oh you mean Brexit?No, comrade.Corbyn-McDonnell plan to "reprogramme" the economy.And it doesn't look like a walk in the park. Sort of Soviet-Latino mix.Sounds like a Kalashnikov. Do I pack my bags and head for New Zealand? Sell my assets?It may not come to pass but never say never. Suggest some tweaking.

United Kingdom

SPDR FTSE UK All Share ETF is an open ended, UCITS IV compliant exchange traded fund, domiciled in Ireland. The fund's objective is to track the performance of FTSE All Share Index. The Fund invests in physical securities in the index.

SPDR FTSE UK All Share (FTAL LN)

HSBC Holdings - Fire Sale Time

*Gross Operating Revenues Do NOT Cover Recurring Costs At HSBCNA: HSBC Holdings plc (HSBC) [5.HK/HSBA.LN] is a complete and utter mess. Nowhere is...

Thomas J. Monaco

HSBC Holdings Plc – Not Buying It

Weak 1Q20 Result: HSBC Holdings plc (HSBA.LN/5.HK) [HSBC] reported 1Q20 earnings of USD 2.25bn – missing consensus forecasts by 13%. Linked...

Thomas J. Monaco

British Land (BLND:LN): Retail in Reverse

A ‘perfect storm’ is enveloping UK retailers. Brexit uncertainty is reducing footfall and sales and the structural shift to e-commerce continues...

Boost Research

UK Political Risk: Like It or Lump It

Political Risk is all about EM, isn't it?Try the UK. It has an EM stock market anyway.Oh you mean Brexit?No, comrade.Corbyn-McDonnell plan to...

Paul Hollingworth