Financial Industry 07 (Jul 18 - Dec 24)

[winston]

HK Strategy: HK financials’ increasing focus on shareholders’ return

The latest results announcement season highlighted Hong Kong (HK) banks’ increasing focus on shareholder return with dividends and share buybacks.

The expectation of interest rate cuts to be pushed back to 3Q24, coupled with a relatively tight liquidity environment in HK is likely to keep the HIBOR at a relatively higher level, should lend further support HK banks.

Within HK banks, we prefer HK international banks which could benefit from fee and loan growth outside of HK and Mainland China.

HK international banks’, i.e. both HSBC (5 HK) and Standard Chartered (SCB, 2888 HK), better-than-expected guidances are getting traction.

With HSBC’s investment thesis has been pretty well communicated, we believe SCB is likely to have more near-term incremental flow.

We retain our preference of BOCHK among HK domestic banks given relatively cheap valuation among its local peers and potential earnings upward revision.

Source: OCBC

[behappyalways]

Watch: Billionaire Real Estate Investor Expects 'One Or Two' Bank Failures A Week, UK Economist Says "Entering A New Dark Age"
https://www.zerohedge.com/economics/wat ... -economist

[winston]

by behappyalways:-

Russia Confiscates €800 Million From Deutsche Bank, Unicredit And Commerzbank

Source: Zero Hedge

https://www.zerohedge.com/crypto/russia ... ommerzbank

[behappyalways]

Rumors Of Another Bank Crisis Swirl As Big Banks Dump Loans
https://dashboard.verifiedinvesting.com ... dump-loans

[behappyalways]

The Music Just Stopped: Japan Banking Giant Norinchukin To Liquidate $63 Billion In Treasuries & European Bonds To Plug Massive Unrealized Losses
https://www.zerohedge.com/markets/music ... d-european

[winston]

Top US Banks Withstand Annual Ritual Of Federal Reserve ‘Stress Tests’ (Financial Times)

What’s our take?

These hypothetical scenarios do provide good insights into how well banks could handle stressful situations but they’re not perfect.

For example, they didn’t account for the banking crisis in March of 2023 when 3 banks were completely wiped out in 1 month.

Analysts estimate that despite passing the tests, several of the major banks will see their capital requirements increase and that may reduce the dividends and buybacks for shareholders of these banks

Source: Simply Wall Street

[behappyalways]

'Bank Failures Are Almost Certain To Follow': The CRE Crisis Has Gone Nowhere...
https://www.zerohedge.com/markets/bank- ... ne-nowhere

[winston]

HK Strategy: Divergence in shareholders’ return among HK financials

Most Hong Kong (HK) banks under coverage have reported quarterly and interim results.

So far, the latest results season reiterated our preference for HK international banks with upside surprise in share buyback, better-than-expected results, more resilient outlook and guidance and relatively lower exposure to HK commercial real estate (CRE).

We continue to prefer HK international banks, i.e. HSBC (5 HK) and Standard Chartered Bank (SCB, 2888 HK).

HSBC’s investment thesis has been well communicated in prior reports, and we believe SCB is likely to have more near-term incremental flow given its positive surprise in share buybacks.

Both HSBC and SCB have delivered a larger-than-expected share buyback programs which offer around 13-15% of total shareholders return, i.e. dividend and share buyback.

With solid capital positions and common equity Tier 1 (CET1) ratios above their own target range, we believe fundamentals should support share buybacks going into 2H24.

We forecast share buybacks for HSBC and SCB to amount to USD10b and USD2.5b in 2024 respectively.

Among the HK banks under our coverage, Hang Seng Bank (HSB, 11 HK) has a higher exposure to HK CRE of around 18% as of 2023 and therefore would be more vulnerable to a further deterioration in HK CRE market.

To recap, HSB’s HK CRE impaired ratio increased materially by 89bps year-on-year (YoY) to 1.9% as of 2023.

We recommend to take profit in HSB and switch into HSBC and SCB within HK banks.

With a relatively more conservative stance of HK banks, the potential drag on capital from rising concerns about HK CRE risks may be small but it could weigh on banks’ capability and willingness in further enhancing shareholders’ return.

Source: OCBC

[winston]

China’s state-owned banks face thinner margins amid Beijing’s call to support economy

At a time when the country faces unprecedented challenges, these state-owned banking giants show their importance as the economy’s lifeline

by Yuke Xie

China’s largest state-owned banks are expected to struggle with thinner margins later this year and into 2025, according to analysts, after these lenders this week reported profit declines amid Beijing’s call to extend a lifeline to the troubled property sector and support the economy.

The Industrial and Commercial Bank of China, the world’s biggest bank by assets, on Friday reported a net profit of 170.5 billion yuan (US$24 billion) for the six months ended June 30, down 1.8 per cent compared with the previous year.

Source: SCMP

https://www.scmp.com/business/banking-f ... pe=section

[winston]

<Research>UBS Expects CN to Cut Mortgage Rates in Next 6-12 Mths; 100 bps Cut in Book Yield May Hit CN Bank NP by 12%

Bloomberg reported last Friday (30 Aug) that China is considering allowing homeowners to refinance in mortgages to reduce borrowing costs for related families.

If the report is true, the potential impact could be much greater than the September 2023 one-off rate cut, UBS released a research report saying.

UBS saw 3 potential scenarios, in the order of deeper impact to Chinese banks: one-off coordinated rate cut similar to September 2023; borrowers can refinance at the latest rate at any time, but only with their current lender; and borrowers can refinance freely with their current lender or a different bank.

The timing of implementation is unclear, but UBS believed that this could happen within 6-12 months.

UBS estimated that the average yield of mortgage balance for July was 4.11%, 77 bps higher than the rate of newly issued mortgages in recent months.

It is expected that the rate for new mortgages will continue to fall, with the Chinese media reporting that the mortgage rate in Guangzhou is already as low as 2.89%.

Assuming a 100 bps cut in book yield, UBS estimated that the underlying factor alone would reduce the net interest margin for Chinese banks by 11 bps, which, if fully converted, would be expected to result in a 7% drop in Chinese banks' net interest income or a 12% decline in the industry's net profit.

Source: AAStocks Financial News

http://www.aastocks.com/en/stocks/news/ ... -news/AAFN