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

*Greensill Tab Begins:Greensill Capital (Greensill) filed for insolvency in the United Kingdom after lawyers for had cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In particular, the allegations of fraud by Bafin and the British Business Bank removing the British government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk; and  *Credit Suisse Taking Steps: The hit parade continues. Credit Suisse has stated that the company’s Board is investigating its own ties with Greensill, replaced its asset management CEO, asset management will be segregated from international wealth management, and employee compensation could be subject to clawback.

*Greensill Tab Begins:Greensill Capital (Greensill) filed for insolvency in the United Kingdom after lawyers for had cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In particular, the allegations of fraud by Bafin and the British Business Bank removing the British government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk; and  *Credit Suisse Taking Steps: The hit parade continues. Credit Suisse has stated that the company’s Board is investigating its own ties with Greensill, replaced its asset management CEO, asset management will be segregated from international wealth management, and employee compensation could be subject to clawback. 

Credit Suisse Group – Greensill Fallout Continues

*Greensill Bankruptcy: Greensill Capital (Greensill) has filed for insolvency in the United Kingdom today after Apollo Global Management’s (APO.US) [Apollo] walked away from this deal. Lawyers for Greensill cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In addition, Greensill allegedly has USD 5 bn in risk outstanding to  GFG Alliance Group (GFG) – a company owned by Sanjeev Gupta, who appears to be at the center of this debacle; and*Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. With the UK and European Central Bank (ECB) asking their institutions for their Greensill and GFG exposures, no doubt the hit parade will continue.

*Greensill Bankruptcy: Greensill Capital (Greensill) has filed for insolvency in the United Kingdom today after Apollo Global Management’s (APO.US) [Apollo] walked away from this deal. Lawyers for Greensill cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In addition, Greensill allegedly has USD 5 bn in risk outstanding to  GFG Alliance Group (GFG) – a company owned by Sanjeev Gupta, who appears to be at the center of this debacle; and*Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. With the UK and European Central Bank (ECB) asking their institutions for their Greensill and GFG exposures, no doubt the hit parade will continue.

*Greensill Blow Up: Greensill Capital (Greensill) is close to bankruptcy. Greensill’s troubles began when its credit insurer, Bond and Credit Company (BCC), a unit of Tokio Marine (8766.JP), decided to not renew Greensill’s insurance likely given the failures of NMC Health, Agritrade, and BrightHouse that borrowed through the Greensill-backed Credit Suisse Group (CSGN.VX) [Credit Suisse] funds; and *Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk.

*Greensill Blow Up: Greensill Capital (Greensill) is close to bankruptcy. Greensill’s troubles began when its credit insurer, Bond and Credit Company (BCC), a unit of Tokio Marine (8766.JP), decided to not renew Greensill’s insurance likely given the failures of NMC Health, Agritrade, and BrightHouse that borrowed through the Greensill-backed Credit Suisse Group (CSGN.VX) [Credit Suisse] funds; and *Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. 

Credit Suisse – Another European Daisy Chain

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

The pricing of <a href="https://www.smartkarma.com/entities/credit-suisse-group-ag" target="_blank" data-smartkarma-citation="entities:22253:1" rel="noopener">Credit Suisse Group (CSGN VX)</a> bonds does not fully reflect the risks, complexity, and low capitalization of the firms’ underlying business model; nor does it capture potential franchise impairment from increasing reputation risk. The recent suspension of redemptions from certain CS funds is at best an embarrassment and at worst a signal that controls remain in need of considerable attention. This is unfortunate, as CS is highly geared to the business cycle and could outperform peers, if it can get its house in order. However, CS’s long-dated Additional Tier 1 bonds already trade tight relative to the challenges facing the firm. Please see: <a href="https://www.smartkarma.com/insights/credit-suisse-perfection-priced-into-long-dated-at1" target="_blank" data-smartkarma-citation="insights:48461" rel="noopener">Credit Suisse – Perfection Priced into Long-Dated AT1</a>. As such, we place an Underweight recommendation of CS notes.As Credit Suisse aims to increase its Asset Management (AM) business, the firm is caught between a rock and a hard place with its fund investors. CS froze $10 billion of AM funds linked to assets sourced from Greensill Capital. Known as CS Supply Chain Finance Funds, more than 1,000 institutional and professional investors cannot redeem their holdings in these funds. This also affects all pending redemption requests filed prior to the CS announcement of 1 March. This is not the first blemish on CS’s reputation as it has repeatedly stepped-in it over the last few years and we are increasingly concerned that it may not be the last. In this instance, however, there are reputational and fiduciary issues which could have a more detrimental impact on the franchise. Fortunately, CS cited its fiduciary duty in barricading fund redemptions. This irony seems lost in the marketplace.Taken together, this cannot endear investors in Asia to entrust their wealth with the firm. Asia is Credit Suisse’s targeted growth market. Other wealth managers may capitalize on the repeated missteps.  Furthermore, we also note that both CS and <a href="https://www.smartkarma.com/entities/ubs-group-ag" target="_blank" data-smartkarma-citation="entities:22590:1" rel="noopener">UBS Group (UBSG VX)</a> long duration bonds sold-off more than others during last week’s Treasury Tantrum. Bad volatility is not beneficial for CS’ or UBS’ wealth management franchises. However, CS widened by more than UBS and, unlike UBS, it did not tighten enough to offset the price decline. Taken together we perceive CS bonds as being at a greater risk of repricing downwards as the year progresses.

The pricing of Credit Suisse Group (CSGN VX) bonds does not fully reflect the risks, complexity, and low capitalization of the firms’ underlying business model; nor does it capture potential franchise impairment from increasing reputation risk. The recent suspension of redemptions from certain CS funds is at best an embarrassment and at worst a signal that controls remain in need of considerable attention. This is unfortunate, as CS is highly geared to the business cycle and could outperform peers, if it can get its house in order. However, CS’s long-dated Additional Tier 1 bonds already trade tight relative to the challenges facing the firm. Please see: Credit Suisse – Perfection Priced into Long-Dated AT1. As such, we place an Underweight recommendation of CS notes.As Credit Suisse aims to increase its Asset Management (AM) business, the firm is caught between a rock and a hard place with its fund investors. CS froze $10 billion of AM funds linked to assets sourced from Greensill Capital. Known as CS Supply Chain Finance Funds, more than 1,000 institutional and professional investors cannot redeem their holdings in these funds. This also affects all pending redemption requests filed prior to the CS announcement of 1 March. This is not the first blemish on CS’s reputation as it has repeatedly stepped-in it over the last few years and we are increasingly concerned that it may not be the last. In this instance, however, there are reputational and fiduciary issues which could have a more detrimental impact on the franchise. Fortunately, CS cited its fiduciary duty in barricading fund redemptions. This irony seems lost in the marketplace.Taken together, this cannot endear investors in Asia to entrust their wealth with the firm. Asia is Credit Suisse’s targeted growth market. Other wealth managers may capitalize on the repeated missteps.  Furthermore, we also note that both CS and UBS Group (UBSG VX) long duration bonds sold-off more than others during last week’s Treasury Tantrum. Bad volatility is not beneficial for CS’ or UBS’ wealth management franchises. However, CS widened by more than UBS and, unlike UBS, it did not tighten enough to offset the price decline. Taken together we perceive CS bonds as being at a greater risk of repricing downwards as the year progresses.

Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds

Thematic (Sector/Industry)

*Texas Storms = Japan Risk:Insurers could suffer record 1Q20 catastrophic (CAT) losses after the historic State of Texas (and beyond) winter storm Uri, which crippled Texas’ electrical grid and caused extensive property damage. Most directly exposed would appear to be Sompo (~2%), and Tokio Marine (1%); and*Watch Your Reinsurance: The risk of this Uri event hitting reinsurance layers is quickly rising given the fluid events and the creep in losses. The situation looks to be quite dicey given the economic impact estimate of between USD 45-50 bn. Add this to Texas’ poor handling of COVID-19, and no doubt this CAT event will result higher bankruptcies across retail energy power companies, energy drillers, etc. which should be additive to reinsurance losses.

*Texas Storms = Japan Risk:Insurers could suffer record 1Q20 catastrophic (CAT) losses after the historic State of Texas (and beyond) winter storm Uri, which crippled Texas’ electrical grid and caused extensive property damage. Most directly exposed would appear to be Sompo (~2%), and Tokio Marine (1%); and*Watch Your Reinsurance: The risk of this Uri event hitting reinsurance layers is quickly rising given the fluid events and the creep in losses. The situation looks to be quite dicey given the economic impact estimate of between USD 45-50 bn. Add this to Texas’ poor handling of COVID-19, and no doubt this CAT event will result higher bankruptcies across retail energy power companies, energy drillers, etc. which should be additive to reinsurance losses.

Japan Insurers – Texas, Don’t Hold ‘Em

Japan

Tokio Marine Holdings, Inc., through subsidiaries, offers property, casualty and life insurance, and asset management services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Tokio Marine Holdings (8766 JP)

Credit Suisse Group – Greensill Fallout Continues

CREDIT SUISSE GROUP: The hits continue at CS. The Board is investigating ties with Greensill, replaced its AM CEO, AM will be segregated, and...

Thomas J. Monaco

Credit Suisse – Greensill Goes BK

CREDIT SUISSE: Greensill has filed for insolvency. Lawyers for Greensill cited its inability to repay a USD 140 mn bridge loan from Credit Suisse...

Thomas J. Monaco

Credit Suisse – Another European Daisy Chain

CREDIT SUISSE: Greensill is close to bankruptcy. Credit Suisse , GAM , Tokio Marine, SoftBank and others are likely to see additional weakness...

Thomas J. Monaco

Credit Suisse: Greensill Sows Reputation Risks, Underweight CS Bonds

CS bonds do not fully reflect the risks, complexity, and low capitalization of the firms’ underlying business model; nor do they capture potential...

Hank Calenti, CFA

Japan Insurers – Texas, Don’t Hold ‘Em

JAPAN INSURANCE: Insurers could suffer record 1Q20 catastrophic (CAT) losses after the Texas winter storm. Most directly exposed are Sompo (~2%)...

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)