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

<p><strong><em>*Poor US Results:</em></strong> In our latest review of HSBC Holdings’ (5.HK/HSBA.LN) [HSBC] US subsidiary, HSBC North America (HSBCNA), we note that fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed 3Q20 results actually were. According to the 3Q20 US regulatory report, HSBCNA reported bottom-line results if USD 160.0 mn, a USD 111.3 mn (228.5%) increase linked quarter. 3Q20 results were driven by two factors: a massive loss provision and tax rate decline; </p><p><strong><em>*We Anxiously Await HSBC’s US Departure: </em></strong>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; and </p><p><strong><em>*HSBCNA Should Be Sold: </em></strong>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. </p>

*Poor US Results: In our latest review of HSBC Holdings’ (5.HK/HSBA.LN) [HSBC] US subsidiary, HSBC North America (HSBCNA), we note that fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed 3Q20 results actually were. According to the 3Q20 US regulatory report, HSBCNA reported bottom-line results if USD 160.0 mn, a USD 111.3 mn (228.5%) increase linked quarter. 3Q20 results were driven by two factors: a massive loss provision and tax rate decline; *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; and *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. 

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Private Capital Markets

GoTo Gojek Tokopedia Tbk PT / Private Capital Markets

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<p><a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> has bought a further 18% stake in Indonesia's <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> bringing its total state to 22.16%. The transaction was executed at 1.14x PBV and a significant discount to the last traded price.</p>
<p><a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> has a market capitalization of IDR42.3tn (US$2.9bn), which values Gojek's stake in the bank at IDR9.3tn (US$641m).</p>
<p>Gojek's Indonesia users will in the future be able to open a bank account with <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> and manage their finances through the <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> App. </p>
<p>The <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> deal marks an opportunity for <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> to capitalize on its vast user base, especially through GoPay, to offer customers digital banking products and other financial services.</p>
<p><a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> has already moved its focus to digital banking, targeting SMEs and retail customers. GoPay also recently received investment from <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> and <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a>, which also provides a strong backing and the potential for collaboration from two heavyweight foreign investors</p>
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<div>For <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ</a>, this will help it develop a process through which it can work with other banks, as well as providing customers with an increasing array of digital financial solutions.</div>
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<div>The deal also demonstrates that management is focused on building its competitive advantage in Indonesia rather than being sidelined any merger considerations with <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP),</a> which seems increasingly unlikely. </div>
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<p>Gojek is also seen to be on the path to profitability, with all its services generating positive margins on a product basis. <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> also recently received US$150m in new money from <a href="https://www.smartkarma.com/entities/telekomunikasi-indonesia" target="_blank" data-smartkarma-citation="entities:1051:1" rel="noopener">Telekomunikasi Indonesia (TLKM IJ),</a> which represented another heavyweight local shareholder on top of <a href="https://www.smartkarma.com/entities/astra-international-tbk-pt" target="_blank" data-smartkarma-citation="entities:46:1" rel="noopener">Astra International (ASII IJ)</a> and Djarum Group. </p>
<p>We look at the background of the <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> management team below the fold, which seems well-suited to building this future collaboration.</p>
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Gojek (1379371D IJ) has bought a further 18% stake in Indonesia's Bank Jago (ARTO IJ) bringing its total state to 22.16%. The transaction was executed at 1.14x PBV and a significant discount to the last traded price.
Bank Jago (ARTO IJ) has a market capitalization of IDR42.3tn (US$2.9bn), which values Gojek's stake in the bank at IDR9.3tn (US$641m).
Gojek's Indonesia users will in the future be able to open a bank account with Bank Jago (ARTO IJ) and manage their finances through the Gojek (1379371D IJ) App. 
The Bank Jago (ARTO IJ) deal marks an opportunity for Gojek (1379371D IJ) to capitalize on its vast user base, especially through GoPay, to offer customers digital banking products and other financial services.
Bank Jago (ARTO IJ) has already moved its focus to digital banking, targeting SMEs and retail customers. GoPay also recently received investment from Facebook Inc A (FB US) and Paypal Holdings (PYPL US), which also provides a strong backing and the potential for collaboration from two heavyweight foreign investors

For Gojek (1379371D IJ, this will help it develop a process through which it can work with other banks, as well as providing customers with an increasing array of digital financial solutions.

The deal also demonstrates that management is focused on building its competitive advantage in Indonesia rather than being sidelined any merger considerations with Grab (0967655D SP), which seems increasingly unlikely. 



Gojek is also seen to be on the path to profitability, with all its services generating positive margins on a product basis. Gojek (1379371D IJ) also recently received US$150m in new money from Telekomunikasi Indonesia (TLKM IJ), which represented another heavyweight local shareholder on top of Astra International (ASII IJ) and Djarum Group. 
We look at the background of the Bank Jago (ARTO IJ) management team below the fold, which seems well-suited to building this future collaboration.











































Gojek (1379371D IJ) - Upping the Ante on Financial Services

<p> <strong><em>*Always The Magician: </em></strong>Founded in 2010, Metro Bank plc (MTRO.LN) [Metro] was the first de novo high street bank in the United Kingdom in over 150 years. After a period of rapid growth, Metro ran into some difficulties. Over the years, we have learned never to count out Founder Vernon Hill (former Chair and Founder of former Commerce Bancorp in New Jersey) who always walks between the raindrops. Metro has moved forward with the sale of its mortgage portfolio to Natwest Group plc on December 18, 2020; and</p><p> <strong><em>*Large Capital Gain: </em></strong>The sold Metro portfolio should provide the company with and GBP 83mm gain on sale – representing 42% of market-cap. The sale of 20% of Metro’s loan portfolio also removes Metro’s need to issue expensive MREL debt versus its prior debt guidance issuance of between GBP 200-300 mn. </p>

 *Always The Magician: Founded in 2010, Metro Bank plc (MTRO.LN) [Metro] was the first de novo high street bank in the United Kingdom in over 150 years. After a period of rapid growth, Metro ran into some difficulties. Over the years, we have learned never to count out Founder Vernon Hill (former Chair and Founder of former Commerce Bancorp in New Jersey) who always walks between the raindrops. Metro has moved forward with the sale of its mortgage portfolio to Natwest Group plc on December 18, 2020; and *Large Capital Gain: The sold Metro portfolio should provide the company with and GBP 83mm gain on sale – representing 42% of market-cap. The sale of 20% of Metro’s loan portfolio also removes Metro’s need to issue expensive MREL debt versus its prior debt guidance issuance of between GBP 200-300 mn. 

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p>There is a healthy concern that the Fed is spiking this holiday season’s punch bowl while the ECB is sweetening the brew with additional TLTROs and less collateral. US federal stimulus may add the moonshine. These actions will impact Asia’s risk assets. Thin markets could see outsized moves as year-end event deadlines approach. Risk remains to the downside as positive outcomes are already priced in. Nonetheless, the Fed continues to underwrite this market although the longevity is open to debate despite recent announcements. Credit investors cannot fight the Fed, but you can fight the urge to overindulge.</p><p>Two days after the Fed announcement to extend the longevity, but not alter the duration, of its bond purchases, FOMC members openly began to qualify this decision. The announcement is tantamount to spiking the punch bowl. Price discovery is already distorted in the credit markets and excessive risk taking is already encouraged. With economic recovery priced-into risk assets but mispriced in risk-free assets due to central bank policies, the ability to hedge market downturns may be impaired. This could exacerbate a market correction. This risk remains some time off, but it may approach at some point in 2021 and begin to get priced in much earlier.</p><p>The failure of the Fed to alter the duration of its bond purchases should embolden the market to break the psychological 1% barrier on the 10-year Treasury bond, especially if we see a US federal stimulus package over the weekend. This would be beneficial to bank securities over the short term, especially if it occurs in tandem with continued bear steepening from the short end of the curve. Concurrently, higher rates would raise the real effective rate and could be dollar negative. Asia and EM securities could follow, then retrace positive moves.</p><p>Work through the weekend to agree additional US federal stimulus may bear fruit as a compromise on ending the Fed’s emergency lending programs is reached. A limited agreement is priced-in, but downside may also be limited as the early January Senate run-off race in Georgia will become the focus irrespective of the current stimulus bill. The run-off race outcome could deliver even more stimulus shorter thereafter.</p><p>In Europe, fishing rights are damming the works towards a Brexit deal. This disagreement could be bridged. Meanwhile, Christmas is effectively cancelled in London due to the virus while other US and European jurisdictions continue to see increased economic impacts. Rolling lockdowns do not improve consumer confidence and Q1 2021 economic contractions may ensue. This could impact Asia asset values.</p><p>In Asia itself, China-centric risk assets continue to perform, although these still have a long way to catchup with the recent US rally. Positive sentiment that China’s economy will continue to outperform are tempered with caution regarding the potential for increased defaults. Vaccine expectations continue to power other markets in Asia in a cognitive dissonance trade which ignores vaccine distribution and time extension risks.</p><p><strong>Market Outlook: </strong>Positive stimulus or Brexit news could lead to a strong start in Asia as the week begins. However, a buy the rumor, sell the fact tactical trade could then ensue. Thin markets may exacerbate price moves over the next two to three weeks. This may confuse noise for signals. We think it better to fade a further market rally. At the same time, we would avoid extending into any year-end decline.</p>

There is a healthy concern that the Fed is spiking this holiday season’s punch bowl while the ECB is sweetening the brew with additional TLTROs and less collateral. US federal stimulus may add the moonshine. These actions will impact Asia’s risk assets. Thin markets could see outsized moves as year-end event deadlines approach. Risk remains to the downside as positive outcomes are already priced in. Nonetheless, the Fed continues to underwrite this market although the longevity is open to debate despite recent announcements. Credit investors cannot fight the Fed, but you can fight the urge to overindulge.Two days after the Fed announcement to extend the longevity, but not alter the duration, of its bond purchases, FOMC members openly began to qualify this decision. The announcement is tantamount to spiking the punch bowl. Price discovery is already distorted in the credit markets and excessive risk taking is already encouraged. With economic recovery priced-into risk assets but mispriced in risk-free assets due to central bank policies, the ability to hedge market downturns may be impaired. This could exacerbate a market correction. This risk remains some time off, but it may approach at some point in 2021 and begin to get priced in much earlier.The failure of the Fed to alter the duration of its bond purchases should embolden the market to break the psychological 1% barrier on the 10-year Treasury bond, especially if we see a US federal stimulus package over the weekend. This would be beneficial to bank securities over the short term, especially if it occurs in tandem with continued bear steepening from the short end of the curve. Concurrently, higher rates would raise the real effective rate and could be dollar negative. Asia and EM securities could follow, then retrace positive moves.Work through the weekend to agree additional US federal stimulus may bear fruit as a compromise on ending the Fed’s emergency lending programs is reached. A limited agreement is priced-in, but downside may also be limited as the early January Senate run-off race in Georgia will become the focus irrespective of the current stimulus bill. The run-off race outcome could deliver even more stimulus shorter thereafter.In Europe, fishing rights are damming the works towards a Brexit deal. This disagreement could be bridged. Meanwhile, Christmas is effectively cancelled in London due to the virus while other US and European jurisdictions continue to see increased economic impacts. Rolling lockdowns do not improve consumer confidence and Q1 2021 economic contractions may ensue. This could impact Asia asset values.In Asia itself, China-centric risk assets continue to perform, although these still have a long way to catchup with the recent US rally. Positive sentiment that China’s economy will continue to outperform are tempered with caution regarding the potential for increased defaults. Vaccine expectations continue to power other markets in Asia in a cognitive dissonance trade which ignores vaccine distribution and time extension risks.Market Outlook: Positive stimulus or Brexit news could lead to a strong start in Asia as the week begins. However, a buy the rumor, sell the fact tactical trade could then ensue. Thin markets may exacerbate price moves over the next two to three weeks. This may confuse noise for signals. We think it better to fade a further market rally. At the same time, we would avoid extending into any year-end decline.

Bank Credit Weekly: Fed Spikes While the ECB Sweetens the Punch Bowl

<p><strong><em>*PRA Changes Its Tune On Dividends:</em></strong> The United Kingdom’s (UK) Prudential Regulatory Authority (PRA) recommended last week that the that UK banks can resume paying dividends subject to FY 2020 results. Linking dividends to the recent success of profitability mirrors Federal Reserve Board policy for the large US banks; and</p><p> <strong><em>*HSBC Should Stand Pat On The Dividend: </em></strong>While its true that HSBC North America (HSBCNA) doesn’t contribute to the bottom-line, it has weighed down Group results through 3Q20 with losses of USD 963 mn. This thing simply needs to go. With this kind of uncertainty along with risks in France and Asia – again exacerbated by COVID-19 – HSBC Holdings Plc (HSBA/LN/5.HK) should be conserving capital especially if the weak HSBCNA is considered a takeunder candidate.</p>

*PRA Changes Its Tune On Dividends: The United Kingdom’s (UK) Prudential Regulatory Authority (PRA) recommended last week that the that UK banks can resume paying dividends subject to FY 2020 results. Linking dividends to the recent success of profitability mirrors Federal Reserve Board policy for the large US banks; and *HSBC Should Stand Pat On The Dividend: While its true that HSBC North America (HSBCNA) doesn’t contribute to the bottom-line, it has weighed down Group results through 3Q20 with losses of USD 963 mn. This thing simply needs to go. With this kind of uncertainty along with risks in France and Asia – again exacerbated by COVID-19 – HSBC Holdings Plc (HSBA/LN/5.HK) should be conserving capital especially if the weak HSBCNA is considered a takeunder candidate.

HSBC Holdings Plc – PRA Says Yes, But Management Should Say No

Hong Kong

Standard Chartered plc is an international banking group operating principally in Asia, Africa, and the Middle East.  The Company offers its products and services in the personal, consumer, corporate, institutional and treasury areas.

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Standard Chartered (2888 HK)

HSBC Holdings Plc – Cut and Run

HSBC HOLDINGS: HSBCNA fundamentals continue to worsen – although management seems to hope that no one will notice the poor quality and how managed...

Thomas J. Monaco

Gojek (1379371D IJ) - Upping the Ante on Financial Services

Gojek's recent move to increase its stake in Bank Jago to 22% signals it intends to move into providing a broader range of financial services.

Angus Mackintosh

Metro Bank Plc – Emrys

METRO BANK PLC: Metro was the first de novo high street bank in the United Kingdom in over 150 years. Metro ran into some difficulties, and moved...

Thomas J. Monaco

Bank Credit Weekly: Fed Spikes While the ECB Sweetens the Punch Bowl

The Fed spikes while the ECB sweetens the seasonal punch bowl. US stimulus may add the moonshine. This could be a festive week for bank securities....

Hank Calenti, CFA

HSBC Holdings Plc – PRA Says Yes, But Management Should Say No

HSBC HOLDINGS: PRA Allowing UK Banks To Dividend But Is Restrictive. HSBC Should Stay Away From Cash Dividends Given The High Degree Of Balance...

Thomas J. Monaco

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