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

*Outclassed By US Counterparts:Goldman Sachs &amp; Co. (GS.US) [Goldman], in typically fashion, always to seems to have the best information at the earliest possible instance, and as a result were able to act early and decisively – coming through the Archegos liquidations thus far relatively unscathed.  Other prime brokers, including Credit Suisse Group (CSGN.VX) [Credit Suisse] which didn’t have close to the full Archegos Capital Management picture, were caught with their pants down in what was supposed to be an orderly unwind descended into chaos; and  *Capital Implications Are Significant At Credit Suisse:The problem for Credit Suisse is the potential peak level of losses that likely will cause it to breach regulatory triggers. Several factors must still be adjusted from consensus forecasts: CHF 2.0 bn from Greensill (not including Sanjeev Gupta/GFG’ Liberty Commodities insolvency filing); CHF 2.0 bn Mozambique debt scandal; and the potential CHF 7.0 bn Archegos exposure.  In addition, operational risk weightings/capital requirements are likely to increase. In aggregate, we find that Credit Suisse’s CET1 would decline to 10.8% against the likely increased CET1 target and intimates a potential capital raise, dividend cut, and share buyback suspension.

*Outclassed By US Counterparts:Goldman Sachs &amp; Co. (GS.US) [Goldman], in typically fashion, always to seems to have the best information at the earliest possible instance, and as a result were able to act early and decisively – coming through the Archegos liquidations thus far relatively unscathed.  Other prime brokers, including Credit Suisse Group (CSGN.VX) [Credit Suisse] which didn’t have close to the full Archegos Capital Management picture, were caught with their pants down in what was supposed to be an orderly unwind descended into chaos; and  *Capital Implications Are Significant At Credit Suisse:The problem for Credit Suisse is the potential peak level of losses that likely will cause it to breach regulatory triggers. Several factors must still be adjusted from consensus forecasts: CHF 2.0 bn from Greensill (not including Sanjeev Gupta/GFG’ Liberty Commodities insolvency filing); CHF 2.0 bn Mozambique debt scandal; and the potential CHF 7.0 bn Archegos exposure.  In addition, operational risk weightings/capital requirements are likely to increase. In aggregate, we find that Credit Suisse’s CET1 would decline to 10.8% against the likely increased CET1 target and intimates a potential capital raise, dividend cut, and share buyback suspension.

Credit Suisse Group – Capital Raise Likely Coming

*Taking It On The Chin…Again:Having finally seen enough of this feckless global investment bank, S&amp;P Global Ratings has finally come around (took you long enough) and downgraded its outlook on all Credit Suisse entities to negative from stable. Putting S&amp;P over the edge was Credit Suisse’ exposure to Archegos Capital Management (Archegos) share liquidation as a result of margin calls whereby the bank is amongst the most exposed;  and*Ratings Agency Concerns: While Credit Suisse seems to be in competition with Deutsche Bank (DBK.GY) as the world’s most poorly managed bank, we find it incredulous that its actually S&amp;P calling out Credit Suisse for risk management. There are too many market participants have very little discipline, and to make matters worse, central banks have been all too happy to remove the moral hazard involved with excessive risk taking. In our view, the credit ratings agency model is permanently broken as waterfall risks in various corporates, rated pools and tranches have become increasingly significant with the markets unable to self-regulate and regulators either unable to regulate (or told not to regulate).

*Taking It On The Chin…Again:Having finally seen enough of this feckless global investment bank, S&amp;P Global Ratings has finally come around (took you long enough) and downgraded its outlook on all Credit Suisse entities to negative from stable. Putting S&amp;P over the edge was Credit Suisse’ exposure to Archegos Capital Management (Archegos) share liquidation as a result of margin calls whereby the bank is amongst the most exposed;  and*Ratings Agency Concerns: While Credit Suisse seems to be in competition with Deutsche Bank (DBK.GY) as the world’s most poorly managed bank, we find it incredulous that its actually S&amp;P calling out Credit Suisse for risk management. There are too many market participants have very little discipline, and to make matters worse, central banks have been all too happy to remove the moral hazard involved with excessive risk taking. In our view, the credit ratings agency model is permanently broken as waterfall risks in various corporates, rated pools and tranches have become increasingly significant with the markets unable to self-regulate and regulators either unable to regulate (or told not to regulate). 

Credit Suisse Group – Hit Parade 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

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

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

Germany's chancellor Angela Merkel is on the way out. After 16 years she will resign as Chancellor later this year. Her likely successor, Mr. Laschet, has just been elected as CDU party leader.During Merkel's reign, her commitment to China was clear. She paid at least 12 official state visits to China to promote German interests. In hindsight, this led to debacles such as the promotion of <a href="https://www.smartkarma.com/entities/wirecard-ag" target="_blank" data-smartkarma-citation="entities:21743:1" rel="noopener">Wirecard AG (WDI GR)</a> to Chinese authorities.Another <a href="http://smart-home.haier.com/en/gsgg/P020200604563919508265.pdf" target="_blank" rel="noopener">interesting development was the 2018 announcement</a> between the Shanghai and German stock exchanges to list Chinese companies in Germany. They would be called "D Shares", D standing for Deutschland. The poster boy would be <a href="http://smart-home.haier.com/en/gsgg/P020200604563919508265.pdf" target="_blank" rel="noopener">Qingdao Haier</a>.Fast forward to 2021 and it is a late 2020 announcement by Haier that caught our attention. The company has announced in an official filing it will be aggressively buying D shares going forward.Why? After the recent Haier restructuring exercise, the D shares are now pari-passu with the H shares which are freely trading in HK. The D share experiment was clearly a flop and there is no logical reason for these D shares existing anymore. Outcome? Haier will buy 66 million EUR worth of D shares. It makes financial sense. Shareholders, in theory, should also be able to exchange D shares for H shares. Although, in practice, there is just one D share in the world and it has never been done before.Arbitrage Opportunity: <a href="https://www.smartkarma.com/entities/haier-smart-home-co-ltd-b3ef445f-0f54-4586-8c58-9073de98d60e" target="_blank" data-smartkarma-citation="entities:31105:1" rel="noopener">Haier Smart Home Co Ltd (6690 HK) closed at 35.20 HKD</a>Haier Smart Home D shares were recently trading at +/-2.48 EURAs a shareholder, you have the same rights (including dividends) when you are a D shareholder as an H shareholder. If this is true, the disconnect makes no sense, and once arbitrage funds find out it will disappear. ADTV for D shares is above 10M USD/day. This trade can be put on in size.The fair value of at today's FX is 3.74 EUR, which equates to +/-50% upside. The trade has more upside if the HK list-co does well, but has no downside unless the HK listing collapses significantly.

Germany's chancellor Angela Merkel is on the way out. After 16 years she will resign as Chancellor later this year. Her likely successor, Mr. Laschet, has just been elected as CDU party leader.During Merkel's reign, her commitment to China was clear. She paid at least 12 official state visits to China to promote German interests. In hindsight, this led to debacles such as the promotion of Wirecard AG (WDI GR) to Chinese authorities.Another interesting development was the 2018 announcement between the Shanghai and German stock exchanges to list Chinese companies in Germany. They would be called "D Shares", D standing for Deutschland. The poster boy would be Qingdao Haier.Fast forward to 2021 and it is a late 2020 announcement by Haier that caught our attention. The company has announced in an official filing it will be aggressively buying D shares going forward.Why? After the recent Haier restructuring exercise, the D shares are now pari-passu with the H shares which are freely trading in HK. The D share experiment was clearly a flop and there is no logical reason for these D shares existing anymore. Outcome? Haier will buy 66 million EUR worth of D shares. It makes financial sense. Shareholders, in theory, should also be able to exchange D shares for H shares. Although, in practice, there is just one D share in the world and it has never been done before.Arbitrage Opportunity: Haier Smart Home Co Ltd (6690 HK) closed at 35.20 HKDHaier Smart Home D shares were recently trading at +/-2.48 EURAs a shareholder, you have the same rights (including dividends) when you are a D shareholder as an H shareholder. If this is true, the disconnect makes no sense, and once arbitrage funds find out it will disappear. ADTV for D shares is above 10M USD/day. This trade can be put on in size.The fair value of at today's FX is 3.74 EUR, which equates to +/-50% upside. The trade has more upside if the HK list-co does well, but has no downside unless the HK listing collapses significantly.

Haier Smart Home: Forgotten D Shares = Equal to H Shares. Creates a Minimum 50% Return Opportunity

Germany

Wirecard AG offers Internet payment and processing services.  The Company provides software and systems for online payment, electronic funds transfer, fraud protection and enterprise solutions.  Wirecard also offers call center services.

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Wirecard AG (WDI GR)

Credit Suisse Group – Capital Raise Likely Coming

CREDIT SUISSE GROUP: Credit Suisse didn’t have close to the full family office picture. Potential aggregate losses likely will cause it to breach...

Thomas J. Monaco

Credit Suisse Group – Hit Parade Continues

CREDIT SUISSE GROUP: S&P Global Ratings has finally downgraded its outlook on all Credit Suisse entities to negative resultant over its exposure to...

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

Haier Smart Home: Forgotten D Shares = Equal to H Shares. Creates a Minimum 50% Return Opportunity

German listed Haier Smart Home D shares have been forgotten by Mr Market and create an arbitrage opportunity of 50% as they should trade pari-passu...

Nicolas Van Broekhoven

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