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.

Equity Bottom-Up

Australia & New Zealand Bankin / Equity Bottom-Up

Australia’s banks stand out in Asia-Pacific and globally, in many respects, with high wholesale funding, high dividend payout ratios and operating in a relatively benign environment for longer than others. <a href="https://www.smartkarma.com/entities/aust-and-nz-banking-group" target="_blank" data-smartkarma-citation="entities:443:1" rel="noopener">Australia And New Zealand Banking Group (ANZ) (ANZ AU)</a> shows this last aspect well, with credit costs in the latest year at just a fraction of its historical peak and also well below its long-term average; in fact, ANZ’s credit costs/loans is close to its all-time low over the past few decades. The risk of ramp up, is significant.

Australia’s banks stand out in Asia-Pacific and globally, in many respects, with high wholesale funding, high dividend payout ratios and operating in a relatively benign environment for longer than others. Australia And New Zealand Banking Group (ANZ) (ANZ AU) shows this last aspect well, with credit costs in the latest year at just a fraction of its historical peak and also well below its long-term average; in fact, ANZ’s credit costs/loans is close to its all-time low over the past few decades. The risk of ramp up, is significant.

Thematic (Sector/Industry)

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays, and general forbearance. It is not operational that banks do not report major deterioration in credit metrics. The greatest risk in NPL delta is for banks with essentially no bad loans at present, holding all else equal. The delta can be exponential, and can be mirrored by credit costs as well as other impairment costs. This may be the only time where India’s banks stand out relatively well compared with Asian and global peers. Hong Kong is where we are most concerned, but also Korea, Australia and UK.

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays, and general forbearance. It is not operational that banks do not report major deterioration in credit metrics. The greatest risk in NPL delta is for banks with essentially no bad loans at present, holding all else equal. The delta can be exponential, and can be mirrored by credit costs as well as other impairment costs. This may be the only time where India’s banks stand out relatively well compared with Asian and global peers. Hong Kong is where we are most concerned, but also Korea, Australia and UK.  

There is risk that banks will have to cancel, suspend or cut dividends. During a period of low-cost or free loans from governments and regulators to banks, it is difficult to envisage that regulators would sanction these very same banks to provide most of their earnings to shareholders. There are varying degrees of risk depending on payout ratios. Several banks around the world have reported dividend payout ratios at 70% or higher. There is more to lose at these banks, than others and this could be another source of concern, other than credit and liquidity risk. Australia’s banks seem to have all of these risks, in spades.

There is risk that banks will have to cancel, suspend or cut dividends. During a period of low-cost or free loans from governments and regulators to banks, it is difficult to envisage that regulators would sanction these very same banks to provide most of their earnings to shareholders. There are varying degrees of risk depending on payout ratios. Several banks around the world have reported dividend payout ratios at 70% or higher. There is more to lose at these banks, than others and this could be another source of concern, other than credit and liquidity risk. Australia’s banks seem to have all of these risks, in spades.

Credit default swap (CDS) are understandably surging for many global banks. These can be good indicators of relative credit risk for banks, e.g. how the credit markets view their chance of default. The move by the Fed overnight signals the concerns they have, but we are doubtful this resets risk to benign. We would not be surprised if CDS rates worsen in light of the concerted efforts of central banks. <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> saw its CDS rates rise far higher than many other large global banks, surely in part to the shut-down in Italy, but likely also due to its poor track record in the past with credit quality.

Credit default swap (CDS) are understandably surging for many global banks. These can be good indicators of relative credit risk for banks, e.g. how the credit markets view their chance of default. The move by the Fed overnight signals the concerns they have, but we are doubtful this resets risk to benign. We would not be surprised if CDS rates worsen in light of the concerted efforts of central banks. UniCredit SpA (UCG IM) saw its CDS rates rise far higher than many other large global banks, surely in part to the shut-down in Italy, but likely also due to its poor track record in the past with credit quality.

After the closing of books for end of calendar year 2019, there is a material event: coronavirus. Most of Asia’s banks have not yet reported results for the period, including any in China, Hong Kong and Singapore. We would expect that auditors or banks themselves, force commentary and disclosure on pending risks. This should show up in loan loss reserve build, e.g. higher credit costs. It is possible to show up in higher loss given default (LGD) or probability of default (PD) for some loan buckets. It would be wrong to assume that the quarter that recently ended will be robust, as it does not include January and February. Besides, conditions were far from strong in the first place: HK protests is just one reason.

After the closing of books for end of calendar year 2019, there is a material event: coronavirus. Most of Asia’s banks have not yet reported results for the period, including any in China, Hong Kong and Singapore. We would expect that auditors or banks themselves, force commentary and disclosure on pending risks. This should show up in loan loss reserve build, e.g. higher credit costs. It is possible to show up in higher loss given default (LGD) or probability of default (PD) for some loan buckets. It would be wrong to assume that the quarter that recently ended will be robust, as it does not include January and February. Besides, conditions were far from strong in the first place: HK protests is just one reason.

Australia

Westpac Banking Corporation offers general and savings banking services.  The Company provides investment portfolio management and advice, insurance services,  consumer finance, and money market services among other services.  Westpac Banking Corp. serves individuals, businesses, and corporations worldwide.

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Westpac Banking Corp Sp Adr (WBK US)

ANZ – At Historically Low Credit Costs

Australia’s banks stand out in Asia-Pacific and globally, in many respects, with high wholesale funding, high dividend payout ratios and operating...

Daniel Tabbush

Banks – Bad Loan Delta

During 2020 there will be dramatically higher bad loans for global banks. This is despite less strict NPL recognition, interest payment holidays,...

Daniel Tabbush

Global Banks – Dividend Risk

There is risk that banks will have to cancel, suspend or cut dividends. During a period of low-cost or free loans from governments and regulators...

Daniel Tabbush

Global Banks – Bank Default Insurance

Credit default swap (CDS) are understandably surging for many global banks. These can be good indicators of relative credit risk for banks, e.g....

Daniel Tabbush

Asian Banks – Material Event

After the closing of books for end of calendar year 2019, there is a material event: coronavirus. Most of Asia’s banks have not yet reported...

Daniel Tabbush

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