Académique Documents
Professionnel Documents
Culture Documents
June 2015
Asian banks
Derek Ovington
Head of Asia Banks Research
derek.ovington@clsa.com
+852 2600 8730
Contents
Executive summary ............................................................................ 3
Dawn of a new order .......................................................................... 6
OPM wars ......................................................................................... 14
I like big banks and I cannot lie ....................................................... 30
Mythbusters ..................................................................................... 42
Age and guile beat youth, innocence and a bad haircut .................... 59
Company profiles
The Usual Suspects
HSBC .................................................................................................. 69
Citigroup ............................................................................................. 97
Standard Chartered ............................................................................ 117
Emerging challengers
Bank of China .......................... 147
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derek.ovington@clsa.com
5 June 2015
Asian banks
Executive summary
Asian cross-border
banking still dominated
by HSBC, Citigroup
and StanChart
Population, growth and financialisation - Asian banking can grow faster for longer
Credit/GDP (%)
350
UK
Japan
300
China
Hong Kong
250
Taiwan
Malaysia
200
150
USA
Eurozone
Korea
Thailand
India
100
Singapore
Australia
= population 300m
Philippines
50
0
Indonesia
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Asias banking
opportunity is vast,
but fragmented and
hard to access
However, while the opportunity is vast and there are many players in Asian
cross-border banking, the reality is the markets are fragmented, highly varied
and there are few banks with the scale and platform to compete. These are
the Usual Suspects - HSBC, Citigroup and StanChart - and there are fewer
than a dozen realistic challengers.
Few banks have scale and true cross-border specialisation in Asian banking
4,000
3,500
ICBC
3,000
MUFG
JPM
2,000
1,500
Mizuho
SMFG
Citi
ANZ
500
0
StanChart
UBS
1,000
= US$5bn in Asian
cross-border revenue
HSBC
BOC
2,500
10
SG & MY banks
20
30
40
BEA
50
60
70
80
5 June 2015
derek.ovington@clsa.com
3
Asian banks
Executive summary
We often hear the assertion that the longstanding regional leaders have seen
their primacy eroded, that the competitive environment has shifted
structurally. We dont see the evidence for it. To the contrary, our analysis of
the banks and markets suggests that the Usual Suspects have entrenched
and persistent advantages. In overall scale, in the breadth and depth of their
regional networks and in their deposit funding bases, HSBC, Citigroup and
StanChart are in a league of their own.
Asian cross-border banking revenue by geographical mix
25
(US$bn)
Australia
Korea
Philippines
20
China
India
Thailand
Hong Kong
Singapore
Other
Taiwan
Indonesia
Japan
Malaysia
15
10
5
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Franchise strength
HSBC
Citi
The usual
suspects
StanChart
BOC
ANZ
UOB
Maybank
DBS
Mizuho
CIMB
OCBC
SMFG
Regional challengers
MUFG
Ambition/ aggression
3
derek.ovington@clsa.com
5 June 2015
Asian banks
Executive summary
At the other extreme, we have two SELL recommendations in the list, but
here the link is more tenuous. Brian Waterhouses SELL recommendation on
SMFG is driven more by the overall group outlook and disappointment over
the stinginess of recent capital management than its Asian operations, which
are proportionately small. Anand Pathmakanthans SELL recommendation on
CIMB reflects the tough earnings outlook for the group overall, though the
observed earnings weakness in its material Indonesian operations is a
significant contributor to group underperformance.
CLSA
rec
Target Upside
(%)
PE
(x)
EPS gwth
(%)
PB
(x)
Div yield
(%)
FY1
FY2
FY1
FY2
FY1
FY2
FY1
FY2
10.1
18.3
10.1
1.00
0.97
5.3
6.0
HSBC
5 HK
73.90
186
O-PF
80.00
8.3
11.1
Citigroup
C US
55.63
169
BUY
73.00
31.2
9.9
8.7 154.3
14.2
0.81
0.75
0.3
1.2
StanChart
2888 HK
122.20
40
BUY
180.00
47.3
8.8
7.3
76.6
19.7
0.84
0.80
5.5
5.5
BOC
3988 HK
5.18
208
BUY
6.30
21.6
6.9
6.6 (2.2)
4.9
0.97
0.88
4.8
5.0
MUFG
8306 JP
914
104
O-PF
990
8.3
11.5
10.5
9.3
8.9
0.79
0.74
2.0
2.2
ANZ
ANZ AU
31.92
69
U-PF
33.50
4.9
11.9
11.7
3.1
1.8
1.65
1.57
5.8
5.9
DBS
DBS SP
20.11
37
O-PF
22.70
12.9
11.8
10.9
9.6
8.6
1.25
1.16
3.0
3.2
UOB
UOB SP
22.72
27
O-PF
26.05
14.7
11.3
10.9
1.8
3.7
1.24
1.16
3.5
3.6
OCBC
OCBC SP
10.04
30
U-PF
11.10
10.6
10.6
10.5 (7.9)
1.6
1.23
1.14
3.8
4.0
SMFG
8316 JP
5,574
64
SELL
4,800
(13.9)
10.3
28.3
6.8
0.82
0.79
2.7
2.2
Mizuho
8411 JP
267
53
U-R
235
(12.1)
10.8
10.5 (2.6)
3.3
0.77
0.74
2.8
2.8
CIMB
CIMB MK
5.32
12
SELL
4.70
(11.7)
11.2
10.5
19.2
13.5
1.12
1.05
3.4
3.9
Maybank
MAY MK
9.16
24
O-PF
10.00
9.2
13.1
12.4 (5.4)
5.2
1.53
1.45
6.1
6.4
Challengers
9.6
Note: Sorted by relative size in Asian cross-border banking; Raising target from HK$76 to HK$80; Moving from Underperform to Under Review.
Source: CLSA, company data
5 June 2015
derek.ovington@clsa.com
5
Asian banks
Asian century
Asia, by which we mean East Asia, South Asia and the Pacific countries 1 ,
reached a rough level of economic parity - as measured in US-dollar GDP with North America and Europe in the 1990s. As Figure 1 shows, however,
Japan led that drive to parity. In the following two decades Japans economy
has declined significantly in relative size but that descent has been more than
offset by China, primarily, but also by growth in the rest of Asia.
Figure 1
25,000
(US$bn)
China
Other Asia-Pac
N America
20,000
S Asia
Japan
Euro area
GFC
15,000
10,000
5,000
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
While these relative growth trends had been obvious for years, if not decades,
the GFC that erupted in 2008 was a pivotal moment in the ascendancy of Asia
as the new economic centre of the world. The USA suffered a material
setback in economic growth and the Eurozone is still limping through a drawn
out recovery. It was also during this period that China surpassed Japan as
the worlds second-largest economy, more than doubling its nominal GDP
since 2008, while Japan has been treading water.
Asias relative underdevelopment promises
sustained superior
structural growth
Given Asias population preponderance (60% of the worlds people) and scope
for catch-up growth of relatively underdeveloped economies, it is no
surprise that the region has finally reclaimed its position of economic
dominance, lost when the West industrialised in the 18th and 19th Centuries.
This is all pretty obvious and well-known. Things get more interesting and
complicated when we look at the relative size of banking and credit markets.
Banking as an industry both drives and feeds off economic growth, through
the creation and intermediation of money and credit. That is, banking growth
is necessarily correlated with economic development.
Asia traditionally incorporates the bulk of Turkey, much of the Middle-East, Central Asia
and trans-Ural Russia. We exclude these in our definition of Asia.
derek.ovington@clsa.com
5 June 2015
Asian banks
That said, the size and sophistication of banking systems often lags the
development of host economies. Richer countries tend to have deeper and
more sophisticated financial systems. Thus, the size of Asias banking and
credit markets have lagged Western capital markets. To this structural
issue we can also speculate on the extent of overleveraging in Western
economies in recent decades, resulting in their current debt hangover
and sluggish growth.
Figure 2
40,000
(US$bn)
China
Other Asia-Pac
N America
35,000
S Asia
Japan
Euro area
GFC
30,000
25,000
20,000
15,000
10,000
5,000
2013
2012
2010
2011
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1998
1999
1997
1996
1995
1994
1993
1992
1991
1990
Asia has yet to surpass the massive North American market in aggregate
credit. However, it overtook Europe during the GFC - despite, again,
Japans relative decline - and is gaining quickly on USA/North America.
Figure 3
25
(%)
Cagr 1990-2008
Cagr 2008-2013
20
15
10
5
0
(5)
China
Japan
S Asia
Other
Asia-Pac
N America
Euro area
World
5 June 2015
derek.ovington@clsa.com
7
Asian banks
250
Japan
200
China
150
USA,
US$32tn
100
Other Asia
India
50
Eurozone
Size of bubble =
private sector credit
GDP per capita (US$)
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Even Figure 4 above doesnt do justice to Asias potential, as the current pool
of credit is skewed by those relatively more developed countries, eg, Korea,
Australia and the financial centres of Hong Kong and Singapore. If we break
down Asia by country the banking growth potential of India, Indonesia and
the Philippines becomes even more stark.
Figure 5
Asias population
preponderance in poor,
underdeveloped financial
systems implies much
more rapid structural
growth than in the West
Population, growth and financialisation - Asian banking can grow faster for longer
Credit/GDP (%)
350
China
Taiwan
Malaysia
200
150
India
Singapore
Hong Kong
250
100
UK
Japan
300
USA
Korea
Eurozone
Thailand
Australia
= population 300m
Philippines
50
0
Indonesia
0
10,000
30,000
40,000
50,000
60,000
70,000
derek.ovington@clsa.com
5 June 2015
Asian banks
Moreover, the previous analysis does not include frontier markets in Asia
that have huge populations but are economically underdeveloped and
underpenetrated in banking terms. Just four of these frontier countries
comprise half a billion people: Bangladesh (population: 157m people),
Myanmar (51m), Pakistan (196m) and Vietnam (90m). These four countries
are 50% larger than the European Union in population, but tiny in their
relative economic and financial size.
Cross-border opportunity
Hopefully the preceding section has convinced the reader of the stupendous
scale and scope of the growth opportunity in Asian banking. Now for the bad
news: in practice its hard to access.
Stijn Claessens and Neeltje van Horen of the IMF2 track the degree of global
financial integration and their data shows considerable variation in the share
of Asian banking assets controlled by foreign banks.
Figure 6
Thailand
Taiwan
Singapore
Philippines
Malaysia
Korea
2013
Indonesia
India
Hong
Kong
China
Australia
2005
Japan
(%)
EU
100
90
80
70
60
50
40
30
20
10
0
USA
Occasional windows of
opportunity when
access improved
5 June 2015
derek.ovington@clsa.com
9
Asian banks
In practice, entry into many Asian banking markets has thus been limited to
historical windows of opportunity. Growing openness and sophistication
should lower these barriers over time, but Asias banking markets today are
highly balkanised and difficult to access for most foreign banks.
There are thus many barriers for foreign banks, whether those banks come
from Asia itself or elsewhere, in exploiting the growth potential of many
markets. This has contributed to the dearth of indigenous regional
champions in Asian banking. Most Asian banks focus nearly exclusively on
their home market and do not participate in the growth of other Asian
banking systems or the growing cross-border banking opportunities from
banking corporate customers international needs.
Similarly, even the largest global banks from other regions (ie, Europe and
the USA) tend to concentrate their Asian operations in the most easilyaccessed wholesale capital markets - ie, investment banking and wholesale
lending - and do not reach down into full service commercial banking, let
alone retail banking.
There is a small number of exceptional banks, both from Asia and elsewhere,
that do have material regional spread and diversification, but these positions
have been hard won through historical legacy or cross-border acquisition. As
these banks are the subject of this report, we will be discussing them at
length in the following sections.
Growing opportunity in
servicing the cross-border
banking needs of regional
and global corporations
Aside from the natural desire to participate in the variety of rapidly growing
Asian banking systems, cross-border banking also taps into the emerging
needs of regional and global multinational corporations that straddle multiple
countries and demand banking support and services.
Given the earlier discussion on the growing economic clout of Asia it should
not be too surprising that Asian companies now dominate the ranks of the
Fortune Global 500 (see Figure 7 below), overtaking both Europe and the USA
in the past dozen years, driven primarily by the rise of corporate China to add
to the existing ranks of Japanese giants.
These Asian corporations need banking support not just in their home
countries, but regionally and globally. Servicing these corporations is a major
opportunity that will be captured by banks that either have or develop the
necessary capabilities and geographical footprint.
Figure 7
250
2001
2014
200
150
100
50
0
North America
Europe
Asia
10
derek.ovington@clsa.com
5 June 2015
Asian banks
One way to gauge the growth opportunity in this space is to consider Asias
changing trade patterns. Most observers of Asias economic growth miracles
understand the importance of trade and net exports in helping countries like
Japan, Korea, Taiwan, Singapore and China drive economic growth. Currentaccount surpluses with Western countries - principally the USA - were the
flipside of domestic savings-investment imbalances in fixed exchange-rate
regimes required to support rapid capital accumulation and industrialisation.
However, as shown in Figure 9, even as early as 2000 exports to other Asian
countries were far more dominant export destinations for Asian countries
than North America and Europe.
Figure 8
(US$tn)
Exports to:
Other
S & C America
North America
Middle East
Europe
Asia
Africa
6
5
4
3
2
1
0
Africa
Asia
Europe
Middle East
North
America
S. & C.
America
Other
In recent decades broader and more nuanced economic growth, involving far
more complicated supply chains, has driven considerable growth within Asia
as Asian economies have traded more with each other. Intra-regional trade
has thus grown even faster relative to exports to North America and Europe
over the past 13 years, despite being the largest share (see Figure 10 below).
Figure 9
Figure 10
100
(%)
80
60
World
26
18
S & C America
North America
17
Other
S & C America
49
Africa
16
North America
Middle East
Asia
16
15
Europe
40
20
Other
10
Middle East
53
15
Europe
Asia
11
Africa
2000
2013
18
10
15
(%)
20
5 June 2015
derek.ovington@clsa.com
11
Asian banks
Regional integration
Although Asias banking landscape is fragmented and highly varied, there are
identifiable economic groupings, or proto-groupings, that increase economic
and financial integration. The most obvious examples are Greater China, as
Hong Kong and Taiwan have become more integrated with the mainland, and
Asean, as it moves towards and through the creation of the Asean Economic
Community (AEC) by end-December 2015.
Credit/GDP (%)
350
300
UK
USA
Japan
Singapore
China
250
200
Korea
Taiwan
Hong Kong
Malaysia
150
Australia
100
India
Philippines
50
0
Eurozone
Thailand
= US$10tn in credit
5
Indonesia
50
500
16,000
(US$bn)
(m)
Banking loans
Population (RHS, log scale)
14,000
1,000
12,000
10,000
100
8,000
6,000
10
4,000
2,000
Pakistan
Bangladesh
Philippines
Vietnam
Indonesia
Thailand
Malaysia
Singapore
HK
Taiwan
India
Australia
Korea
Japan
1
China
12
derek.ovington@clsa.com
5 June 2015
Asian banks
2. Financial centres - at the other extreme are the small city-states - ie,
Hong Kong and Singapore - with highly developed capital markets. In
absolute size these are relatively small credit systems but relative to their
small populations highly sophisticated. These centres are also important as
booking centres for regional banking and typically serve as hubs for
regional and global banking groups, with Hong Kong increasingly
dominated by Greater China and Singapore likewise the entrept for Asean
and, to a lesser degree, South Asia.
Medium-sized markets
offer opportunities but
are neither compelling
nor easy to enter
5 June 2015
derek.ovington@clsa.com
13
Asian banks
OPM wars
Never get involved in a land war in Asia.
~ General Douglas MacArthur
Silo markets
Patchwork of fragmented
silo markets
In this section we introduce the key players in the contest for OPM, ie, other
peoples money, the Asian cross-border banking prize. As noted above, Asias
banking systems show little relative international integration, with the
exception of open regional financial centres like Hong Kong and Singapore.
Asias banking landscape is thus characterised by fragmented and silo-like
country-level banking systems.
Most Asian banks are highly focused on domestic opportunities and tend not to
pursue cross-border banking. There are good economic reasons to stay put. The
opportunities in some domestic banking systems are simply much more attractive,
eg, high-growth and/or high-return banking systems like Indonesia and India.
Moreover, a bank expanding out of its home country into a foreign market typically
sails into two headwinds: losing its home ground advantage and suffering the
scale and inertia disadvantages of a new entrant. The latter point explains why
foreign expansion is often pursued via cross-border acquisitions.
Many European and North American banks have been drawn to Asia. For
some their Asian operations are sizeable. Relative to their global scale,
however, Asia is a small contributor for all but a handful of Western banks.
Figure 13 maps out the global assets and Asia-cross border revenue of large
European, North American and Asian banks. By Asian cross-border revenues
we refer only to banking revenue earned in Asian markets, excluding a banks
home country, whereas assets include all (ie, global) banking assets.
Figure 13
Western and Asian banks by global assets and Asian cross-border revenue
3,500
3,000
(US$bn)
Assets
(US$bn)
Western banks
30
25
2,500
20
2,000
15
1,500
10
1,000
500
0
HSBC
BARC
RBS
BNP
CA
DB
UBS
CS
SG
BPCE
Sant
ING
STAN
Unicredit
Nordea
BBVA
State
JPM
BoAML
Citi
Wells
BoNYM
NAB
CBA
WBC
ANZ
ICBC
CCB
ABC
BOC
CDB
Bocom
CMB
Minsheng
BOCHK
HSB
BEA
SBI
BOB
ICICI
BOI
PNB
HDFCB
Canara
Axis
Corp
Kotak
BMRI
BRI
BCA
BNI
MUFG
Mizuho
SMFG
Hana
Shinhan
KB
Woori
IBK
Maybank
CIMB
Public
BDO
MBT
BPI
DBS
OCBC
UOB
BoT
Mega
TCB
CTBC
Land
First
BBL
SCB
KTB
KBANK
Note: Asian cross-border revenue includes revenue from Asian countries excluding a banks home market. Source: CLSA, company data
14
derek.ovington@clsa.com
5 June 2015
Asian banks
1. Asia has relatively few truly large banks by global standards, with only
Chinese, Japanese and, to a lesser extent, Australian banks comparable in
size to the largest European and US banks.
3. In fact, there are only about a dozen banks globally that have a sizeable
cross-border presence in Asia, and there are three to four in particular that
stand above their peers: HSBC, Citigroup, StanChart and Bank of China.
But what if we place Asian cross-border revenue in the context of total Asian
revenue? Figure 14 below shows all Asian revenues for the same banks, but
split between domestic (home-country) Asian banking revenue and those
from foreign countries in Asia. Naturally, for European and North American
banks all Asian revenues are cross-border.
Figure 14
100
(US$bn)
Western banks
90
70
80
60
70
50
60
50
40
40
30
30
20
20
10
HSBC
BARC
RBS
BNP
CA
DB
UBS
CS
SG
BPCE
Sant
ING
STAN
Unicredit
Nordea
BBVA
State
JPM
BoAML
Citi
Wells
BoNYM
NAB
CBA
WBC
ANZ
ICBC
CCB
ABC
BOC
CDB
Bocom
CMB
Minsheng
BOCHK
HSB
BEA
SBI
BOB
ICICI
BOI
PNB
HDFCB
Canara
Axis
Corp
Kotak
BMRI
BRI
BCA
BNI
MUFG
Mizuho
SMFG
Hana
Shinhan
KB
Woori
IBK
Maybank
CIMB
Public
BDO
MBT
BPI
DBS
OCBC
UOB
BoT
Mega
TCB
CTBC
Land
First
BBL
SCB
KTB
KBANK
10
0
80
This reinforces the key points more starkly: the Chinese banking industry is
massive but remarkably domestically focused, as are the vast majority of
Asian banks.
Very few Western banks
with Asian operations
that are large in absolute
and relative size
5 June 2015
Similarly, there are very few Western banks that have both material scale in
Asian banking revenues and see those Asian revenues as a material
proportion of group revenues. StanChart is the Western bank most clearly
focused on Asia but even HSBC earns close to two fifths of its revenue from
Asia and Citigroup a fifth. Among the second-tier are large
wholesale/investment banks like JPMorgan, UBS, Deutsche Bank, Bank of
America Merrill Lynch and Credit Suisse, which have material Asian revenues
but these are typically a much smaller proportion of global group revenues
and highly skewed to investment banking as opposed to commercial banking.
derek.ovington@clsa.com
15
Asian banks
Keeping these three criteria in mind and weeding out the smaller banks in
Asia we recut the data to produce the following chart, highlighting in yellow
those banks that best make the cut.
Figure 15
Few banks have both scale and true cross-border specialisation in Asian banking
4,000
3,500
ICBC
3,000
The list of banks with
material cross-border
revenues in Asia and
relative specialisation is
much smaller and led by
HSBC, Citi and StanChart
MUFG
JPM
2,000
1,500
Mizuho
SMFG
Citi
ANZ
500
0
StanChart
UBS
1,000
= US$5bn in Asian
cross-border revenue
HSBC
BOC
2,500
10
SG & MY banks
20
30
40
BEA
50
60
70
80
and Credit Suisse have sizeable Asian revenues but these are concentrated
in capital markets/investment banking and wealth management in
developed financial centres, not broader commercial banking.
Less focus - banking giants JPMorgan and ICBC have sizeable crossborder Asian banking revenues, but these are a small proportion of group
revenues and more a function of overall scale than strategic focus.
There are two more banks that we believe are more arguable cases:
Deutsche Bank and BNP Paribas.
Deutsche Bank and BNP
Paribas are both arguable
cases given their scale in
Asian and globally
16
Both are large global players with sizeable Asian revenues and a broad base
of commercial banking operations across Asia. They are both noticeably
prominent in transactional banking in Asia, helped by their leadership in
Europe - their strength in servicing the European side of Asia-Europe banking
is clearly an advantage.
derek.ovington@clsa.com
5 June 2015
Asian banks
However, for both Deutsche and BNP, Asia is a relatively small regional
contributor and, aside from the consequently arguable strategic focus, this
creates a material problem in our analysis: neither bank reports considerable
financial data on its Asian operations. This makes it difficult for us to compare
their Asian operations with peers in any detail. As a result we will occasionally
make reference to these banks in following discussion, but will not focus
much analysis upon them directly.
Our list of regional leaders and challengers is thus highlighted in Figure 16.
Figure 16
Banks with Asian x-border scale and specialisation, ranked by x-border revenues
30
25
(US$bn)
23.7
20
14.7
15
12.6
12.0
10
2.7
2.7
2.4
2.4
2.3
2.2
1.9
1.9
ANZ
DBS
UOB
OCBC
SMFG
Mizuho
CIMB
Maybank
5.7
5
MUFG
BOC
StanChart
Citi
HSBC
We present more detailed company summaries at the end of the report, but
we provide some background on these banks below before we move on to
more detailed comparative analysis in Section 3.
We focus first on current
and traditional leaders
5 June 2015
HSBC
HSBC was founded in Hong Kong and Shanghai in 1865, growing to dominate
the Hong Kong banking industry and even to function occasionally as its
lender of last resort before the formal creation of the Hong Kong Monetary
Authority in 1993. From its dominant position in Hong Kong, HSBC grew
throughout Asia, benefiting from the reach of the British colonial empire.
From the late 1980s, HSBC expanded aggressively into the UK, North America
and Europe in the pursuit of a more global footprint and diversification away
from concentration in Hong Kong, prior to the handover of control of the
HKSAR to the Peoples Republic of China in 1997.
derek.ovington@clsa.com
17
Asian banks
The acquisition of
Midland Bank triggered
the redomicile from
Hong Kong to the UK
The pivotal acquisitions were Midland Bank in the UK over 1987-92, which
triggered the creation of HSBC Holdings and redomicile from Hong Kong to
the UK, and Household International, a US subprime lender in 2003. These
two acquisitions radically shifted HSBCs geographical focus to Europe and
North America, visible from 1991 to 2005 in Figure 17 below.
Figure 17
100
80
(%)
Hong Kong
Rest of A-P
27
LatAm
10
13
32
44
40
35
35
49
18
7
6
23
N America
10
11
9
20
MidEast
14
4
60
Europe
9
1991
2000
15
2005
20
2014
Household purchase in
USA was exceptionally
destructive
HSBC retains by far the leading position in Hong Kong, owns 19% of Chinas
sixth-largest bank (Bank of Communications) and has a strong platform of
banking operations right across Asia. Geographically, it is most skewed to the
UK and Hong Kong banking markets, but has sizeable exposure to the rest of
Asia, North America, Latin America and the Middle-East.
18
Citigroup
Citigroup is the creation of multiple mergers - most importantly the TravelersCiticorp merger of 1998 - but the core antecedent that gifted todays group
with its Asian network was International Banking Corporation (IBC). IBC was
a US bank founded in Connecticut in 1901 to specialise in Asian trade finance,
opening branches in Shanghai, Singapore, Hong Kong, Yokohama and Manila
in 1902 and Bombay soon after.
IBC was acquired by National City Bank (founded as City Bank of New York in
1812) over 1915-18. From that point on National City Bank (later renamed
First National City Bank, then Citibank) was the most international of the
USAs banks and it continued to build upon its Asian and Latin American
network, unrivalled by any other US bank.
5 June 2015
Asian banks
100
80
60
N America
(%)
11
20
9
LatAm
EMEA
Asia-Pacific
18
20
12
15
21
15
19
40
59
62
57
45
20
0
Citicorp 1991
2000
2005
2014
5 June 2015
Unlike HSBC, however, StanChart from the 1980s onwards shed its exposure
to domestic Western banking markets (principally the UK and USA) to focus
strategically on Asia, the Middle-East and Africa. This explains why its
proportional focus on Asia is so much greater than Western banking peers.
derek.ovington@clsa.com
19
Asian banks
Figure 19
100
80
(%)
Hong Kong
Other Asia
6
20
11
60
40
20
0
Africa
Mid-East
12
12
Europe
Americas
5
7
10
10
28
36
30
29
1992
2000
50
46
22
22
2005
2014
An impressive network in
growth regions is a good
basis for long-term
expansion
Bank of China
Bank of Chinas cross-border Asian banking revenues are much larger than
the other banks in this group, but it shares with them a relatively recent
history of cross-border growth and success. This is driven largely by:
1) the rapid growth of Chinas banking system since the 1980s;
2) Bank of Chinas legacy as Chinas most international bank; and
3) the success of Bank of China (HK), formed in 2001.
A multi-decade headstart
over its mainland peers
20
While BOC was subsumed into the PBOC over 1949-79, its foundation dates
back to the dying days of the Qing dynasty, in 1905. In 1979 it was carved
out of the PBOC and re-established as a separate policy bank to focus on
international and foreign-exchange banking. This has given BOC a multidecade headstart in international operations over domestic peers.
derek.ovington@clsa.com
5 June 2015
Asian banks
Figure 20
Figure 21
100
(%)
Mainland China
2
20
80
26
Other
5
15
500
450
(bn)
Mainland China
Other
21
400
67
350
300
60
250
40
78
72
81
150
20
2004
2007
200
51
2
100
21
50
81
2014
369
141
2004
2007
2014
International operations
have not grown as a
share of the group, but
have grown quickly in
absolute terms
For BOCs geographical split we show both the proportion and actual amount
of revenue. While its foreign operations have actually shrunk as a percentage
of group revenue from 2004 to 2014, this is only because domestic China has
grown explosively. By any reasonable measure, BOCs offshore revenue has
grown quickly: ex-mainland revenue has posted 16% Cagr since 2004, or
28% if we exclude the more established Hong Kong, Macau and Taiwan
operations. As these numbers are in renminbi, which has appreciated
materially over the period, US-dollar-equivalent growth was higher.
That said, we estimate more than half of BOCs foreign exposure is in Hong
Kong, in the form of its 66%-owned subsidiary, BOC (HK). The rest of its
international exposure is spread relatively thinly around Asia and the world.
This means BOC arguably lacks critical mass outside of Greater China.
However, given corporate Chinas rapidly growing need for international
banking support as it expands globally, we expect BOCs international
operations to continue to grow strongly. BOC will almost certainly be a
stronger international player in 5-10 years time.
Domestic consolidation
has concentrated Japans
regional champions into
three megabanks
5 June 2015
21
Asian banks
Figure 22
100
Japan
(%)
Americas
Europe
Asia x-JP
Other
80
60
40
20
0
Mar 04
Mar 09
MUFJ
Mar 14
Mar 04
Mar 09
Mizuho
Mar 14
Mar 04
Mar 09
Mar 14
SMFG
MUFG is Japans largest financial group and one of the worlds largest banks,
with total assets of over 286tn. It is the result of two decades of mergers,
including the city banks Bank of Tokyo, Mitsubishi Bank, Sanwa Bank and
Tokai Bank and a number of trust banks. The final merger in 2005 was of
Mitsubishi Tokyo Financial Group and UFJ Holdings.
In Japan, MUFG runs a universal bank model, as well as securities,
investment banking, credit cards and consumer finance. Like other Japanese
megabanks it has been growing its offshore operations aggressively in recent
years. Its offshore loan book has grown 65% over the past three years, to
represent a third of group loans, spread across Asia, EMEA and the Americas.
MUFG took a 72% stake in Bank of Ayudhya in Thailand in 2013.
Mizuho is Japans second-largest universal bank, competing across retail
banking, corporate banking and securities. It was formed from the 2000
merger of Dai-Ichi Kangyo Bank (once the worlds largest bank), Fuji Bank
and Industrial Bank of Japan, inheriting the historical corporate-banking
strength and relationships of these banks.
Mizuho has nearly doubled its overseas loan book over the past three years,
taking it from 12% of group loans to 20%, with more than half of offshore
exposure in Asia, followed in size by the Americas, then Europe.
22
derek.ovington@clsa.com
5 June 2015
Asian banks
Figure 23
100
(%)
Singapore
Hong Kong
Other China
Malaysia
Indonesia
Thailand
India
Other Asia
Rest of World
80
60
40
20
0
2000
2007
DBS
2014
2000
2007
OCBC
2014
2000
2007
2014
UOB
Before the late 1990s the only material offshore presence of the Singapore
banks were relatively inert colonial legacy positions in Malaysia that predated
independence, alongside small outposts around the region and globe.
Opening up of Singapore
market triggered
domestic consolidation
and a push offshore
5 June 2015
The most regionally aggressive and ambitious Singapore bank has been
DBS. Established as the Development Bank of Singapore in 1968 by its
government, DBS focused primarily on corporate and wholesale banking
until the 1998 acquisition of the government-controlled Post Office Savings
Bank (POSB). This retail banking acquisition gave DBS a large domestic
deposits and mortgages business. DBS made a number of mostly
expensive and unsuccessful foreign acquisitions in the late 1990s and early
2000s in Thailand, Indonesia and the Philippines but by far its most
material purchase was the Dao Heng Group from 2001. This immediately
gave it the fifth-largest banking operation in Hong Kong and remains the
nucleus of its Hong Kong operations - by far its largest offshore business.
derek.ovington@clsa.com
23
Asian banks
. . . but it remains of
small scale relative to
regional leaders
Malaysias leading
regional players have
expended their foreign
operations dramatically
over the past decade
100
(%)
Malaysia
Singapore
Indonesia
Thailand
2002
2008
Other
80
60
40
20
0
2002
2008
2014
Maybank
2014
CIMB
24
derek.ovington@clsa.com
5 June 2015
Asian banks
Indonesia is a major
contributor to the group
CIMB has been an active acquirer regionally through the past dozen years. It
acquired Bank Niaga (now CIMB Niaga) in Indonesia in 2002, followed by
Bank Lippo in 2008. In 2008 CIMB acquired Bank Thai Public (now CIMB
Thai). CIMB has also been an acquirer in investment banking. In 2005 it
acquired Singapore-based GK Goh and in 2012 it acquired the bulk of Royal
Bank of Scotlands Asia-Pacific investment banking business. Last year it
launched a three-way merger with RHB Capital and Malaysian Building
Society, abandoned in January due to market conditions and sentiment.
Unsurprisingly, CIMBs ex-Malaysian operations are dominated by its
acquisitions of the past decade, led by Indonesia and Thailand, though CIMB
has also grown organically in Singapore, Cambodia and elsewhere in Asia.
ANZ - with friends like these
ANZ is the most Asia-focused Australian bank and historically the smallest of
the Big-4 in its domestic operations, where it has had a relatively stronger
skew to corporate/institutional banking than peers. Its offshore operations
outside of Australia and New Zealand are concentrated in Asia, mostly in
wholesale banking. It also holds strategic stakes in banks in China, Malaysia
and Indonesia. Its Asian earnings add up to around 12% of group-adjusted
NPAT - material but not large enough, yet, to be critical.
5 June 2015
25
Asian banks
Figure 25
(%)
100
Australia
NZ
Asia
EU & Am
Pacific
80
60
40
20
0
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Boosted by some
successful opportunistic
acquisitions
ANZ has acquired several strategic stakes in Asian regional banks over the
past two decades: a 39% stake in Panin Bank (Indonesia), accumulated over
1999-2010; a 20% stake in Shanghai Rural Commercial Bank (China) in
2005, a 19.9% stake (since diluted to 14%) in Bank of Tianjin (China) in
2006 and a stake of 24% in AMMB (Malaysia) in 2006. ANZ is reported to be
in negotiations to sell its stake in Panin Bank to Mizuho of Japan.
As shown below, ANZ is relatively unusual among the banks in this report in
deriving the bulk (at least prior to FY14) of its Asian earnings from the equityaccounted earnings streams of its associate investments in regional partners.
As we will discuss in the next section, this significantly impedes ANZs ability
to exploit its network. An alternative way to put this is that the accounting
earnings base overstates the strength of ANZs regional franchise.
Figure 26
900
800
700
600
500
400
(US$m)
Asia w/sale
Asia retail
Metrocard (Phil)
AMMB (Malaysia)
Shanghai RCB (China)
Bank of Tianjin (China)
Panin Bank (Indo.)
300
200
100
0
(100)
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
26
derek.ovington@clsa.com
5 June 2015
Asian banks
1,800
1,600
1,400
1,200
1,000
(US$bn)
BoCom
CDB
ABC
BOC
CCB
ICBC
800
600
400
200
0
2007
2008
2009
2010
2011
2012
2013
2014
As seen earlier in Figure 14 these banks are now so massive that even
modest proportional expansion out of their domestic market implies a large
absolute impact. As shown in Figure 27, they have rapidly accumulated a
substantial pile of assets outside of mainland China and momentum suggests
that they will continue to grow ever larger. While BOC stands out as the
mainland Chinese bank that is most internationally active, ICBC, CDB and
CCB have all grown substantial foreign assets in half a dozen years.
Chinas largest banks are following a similar path to the large Japanese banks
of the 1980s, which burst onto the global scene with massive balance sheets
after Japans arrival as a major economic power.
However, similar to their 1980s Japanese counterparts, the Chinese banks with the notable exception of BOC - lack the breadth and depth of
international network to penetrate deeply into Asian regional and global
banking systems. This limits significantly their capacity to compete in fullservice commercial banking outside of mainland China and Hong Kong.
Figure 28
Six largest Chinese banks foreign currency assets, deposits, wholesale liabilities
1,800
FX
FX
FX
FX
(US$bn)
1,600
1,400
assets (LHS)
deposits (LHS)
w/sale liabilities (LHS)
w/sale liabilities as % of FX assets
(%)
35
30
1,200
25
1,000
800
20
600
400
15
200
0
2007
2008
2009
2010
2011
2012
2013
2014
10
5 June 2015
derek.ovington@clsa.com
27
Asian banks
This is most visible in the Chinese banks funding base, which is massively
skewed to their domestic renminbi deposits. With relatively weaker depositgathering capacity outside of mainland China these banks are highly
dependent upon wholesale funding to support US-dollar lending. This is
shown in Figure 28 and Figure 29. The latter demonstrates that growth in
foreign-currency lending has generally driven forex LDRs well above 100% - a
tell-tale sign of a weak deposit franchise.
Figure 29 overstates their funding capacity, as foreign currency for these banks
includes Hong Kong dollars, which is the third-most important currency for the
Chinese banks, given their foreign operations are dominated by Hong Kong,
where they have established banking operations over the past two decades.
220
(%)
ICBC
CCB
BOC
ABC
BoCom
200
180
160
140
120
100
80
60
2007
2008
2009
2010
2011
2012
2013
2014
Figure 30
250
(US$bn)
US$ loans
(%)
1,351
250
200
193
179
150
133
140
200
134
150
100
100
50
0
1,500
300
50
ABC
BOC
CCB
ICBC
BoCom
CDB
28
derek.ovington@clsa.com
5 June 2015
Asian banks
This doesnt preclude the Chinese banks competing aggressively for wholesale
business but, much like the Japanese banks before them, weak
deposit/liability franchises outside of Greater China are a material headwind.
In conclusion, while we see the mainland Chinese banks - excluding BOC - as
relatively weaker regional competitors outside of Greater China, their sheer
size and financial muscle suggests that they are highly likely to emerge as
formidable regional competitors in the medium to long term. This will require
greater investment in network and development of their funding base.
5 June 2015
derek.ovington@clsa.com
29
Asian banks
Because of the caveats above, we hesitate to attach too much weight to these
results, but its hard not to conclude that there is a substantial divide between
the leading players and the rest, at least when measured by the perceptions
of the most important customer base in regional cross-border banking.
Figure 31
80
(%)
2010
2011
2012
2013
2014
2015
70
60
50
40
30
20
10
0
HSBC
StanChart
Citi
ANZ
Deutsche
DBS
BOC
30
derek.ovington@clsa.com
5 June 2015
Asian banks
Figure 32
60
(%)
2010
2011
2012
2013
2014
2015
50
40
30
20
10
0
HSBC
Citi
Deutsche
StanChart
BOC
Figure 33
60
(%)
2010
2012
2011
2013
2014
50
40
30
20
10
0
HSBC
StanChart
Citi
Deutsche
Barclays
ANZ
JPM
Figure 34
50
(%)
2011
2012
2013
2014
45
40
35
30
25
20
15
10
5
0
HSBC
StanChart
Citi
Deutsche
ANZ
RBS
5 June 2015
derek.ovington@clsa.com
31
Asian banks
Comment
Banking and capital markets services for large corporates,
institutions and governments
Banking services for small/medium enterprises up to local/mid-tier
corporates
Retail and private banking services for the mass-market up to
high-net worth individuals
Comment
Broad & deep participation with high market share - a leading
presence in the domestic market
A scale player, but not in top tier
Small or niche operations
Zero or only nominal presence
Source: CLSA
We provide the aggregate scores across all of the 12 countries, but these
should be interpreted as a measure of breadth and diversity rather than
overall strength. So, for instance, Citigroup scores highest, given it has
material operations across so many countries (ie, excellent breadth and
diversity), but this doesnt necessarily mean that we score it overall as a
superior regional franchise to HSBC, say, which is much larger overall, but
less diversified and more concentrated, eg, in Hong Kong.
The results are colour-coded for easy visual recognition, and show the Usual
Suspects as being generally well-represented in most markets - particularly
the key financial centres of Hong Kong and Singapore and the megamarkets
of China, India and Indonesia. At the other extreme are the Malaysian banks
and two of the Japanese megabanks, with relatively thin exposure to many
markets. The remaining banks cluster in the middle with varying
concentrations of strength and weakness.
32
derek.ovington@clsa.com
5 June 2015
5 June 2015
Figure 36
HSBC
Financial centres
W3 C3 R3
Hong Kong
Citi
StanChart
BOC
MUFG
ANZ
DBS
UOB
OCBC
SMFG
Mizuho
CIMB
Maybank
W3 C1 R2
W3 C2 R3
W3 C3 R3
W2 C- R-
W2 C- R-
W2 C2 R2
W1 C1 R-
W1 C2 R1
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
9
W3 C1 R2
6
W3 C1 R2
8
W3 C2 R2
9
W2 C- R-
2
W2 C- R-
2
W2 C1 R1
6
W3 C3 R3
2
W2 C3 R3
4
W2 C3 R3
1
W1 C- R-
1
W1 C- R-
1
W2 C1 R1
1
W2 C1 R2
Singapore
W2 C1 R1
W2 C1 R1
W2 C1 R1
W3 C3 R3
W2 C- R-
W1 C1 R-
W1 C1 R-
W1 C1 R-
W1 C1 R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
India
4
W2 C1 R1
4
W2 C1 R1
4
W2 C1 R1
9
W1 C- R-
2
W1 C- R-
2
W1 C- R-
2
W1 C1 R-
2
W- C- R-
2
W- C- R-
1
W1 C- R-
1
W1 C- R-
1
W- C- R-
1
W- C- R-
Indonesia
4
W2 C1 R1
4
W2 C1 R1
4
W2 C1 R1
1
W1 C- R-
1
W2 C- R-
1
W1 C1 R1
2
W1 C1 R-
0
W1 C1 R1
0
W1 C1 R1
1
W1 C- R-
1
W1 C- R-
0
W2 C2 R2
0
W1 C2 R2
W2 C1 R1
W3 C- R1
W- C- R-
W1 C- R-
W2 C- R-
W3 C3 R3
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W- C- R-
Korea
4
W1 C- R-
4
W2 C1 R1
0
W2 C1 R1
1
W1 C- R-
2
W1 C- R-
9
W1 C- R-
1
W1 C- R-
1
W- C- R-
1
W- C- R-
1
W1 C- R-
1
W1 C- R-
1
W- C- R-
0
W- C- R-
Malaysia
1
W2 C1 R1
4
W2 C1 R1
4
W2 C1 R1
1
W1 C- R-
1
W1 C- R-
1
W1 C2 R2
1
W1 C- R-
0
W1 C2 R2
0
W1 C2 R2
1
W1 C- R-
1
W1 C- R-
0
W3 C3 R3
0
W3 C3 R3
Taiwan
4
W2 C- R-
4
W2 C1 R1
4
W2 C1 R1
1
W3 C1 R1
1
W1 C- R-
5
W1 C- R-
1
W1 C1 R1
5
W1 C1 R-
5
W1 C1 R-
1
W1 C- R-
1
W1 C- R-
9
W- C- R-
9
W- C- R-
Thailand
2
W1 C- R-
4
W2 C1 R1
4
W2 C1 R1
5
W1 C- R-
1
W2 C2 R2
1
W- C- R-
3
W1 C- R-
2
W1 C1 R1
2
W- C- R-
1
W2 C- R-
1
W2 C- R-
0
W1 C1 R1
0
W1 C- R-
W1 C1 R1
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R1
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W1 C- R-
W2 C- R-
W2 C1 R1
W2 C- R-
W1 C- R-
W3 C3 R3
W1 C- R1
W- C- R-
W- C- R-
W- C- R-
W3 C3 R3
W3 C3 R3
W- C- R-
W- C- R-
2
W: 23
C: 9
R: 10
T: 42
42
4
W: 26
C: 10
R: 15
T: 53
51
2
W: 23
C: 11
R: 12
T: 46
46
1
W: 19
C: 7
R: 7
T: 33
33
9
W: 20
C: 5
R: 5
T: 30
30
1
W: 15
C: 8
R: 8
T: 31
31
0
W: 14
C: 9
R: 6
T: 29
29
0
W: 10
C: 10
R: 7
T: 27
27
0
W: 9
C: 10
R: 7
T: 26
26
9
W: 15
C: 3
R: 3
T: 21
21
9
W: 15
C: 3
R: 3
T: 21
21
0
W: 12
C: 7
R: 7
T: 26
26
0
W: 10
C: 6
R: 7
T: 23
23
Developing growth
W1 C- RPhilippines
Geriatric
Japan
TOTALS
Source: CLSA
33
Asian banks
Middle-markets
Australia
derek.ovington@clsa.com
Mega-markets
China
Asian banks
Brute strength,
scale is important
Size matters
In terms of raw size, there is an obvious and substantial difference between
HSBC, Citigroup and StanChart - the Usual Suspects - and the other regional
players. On the available data of cross-border revenue, assets and loans,
HSBC is clearly the leader, followed by Citigroup and StanChart, with a tail of
much smaller players.
BOC is the significant anomaly among the challenger banks, with large
cross-border scale, but this overstates the strength of BOCs regional platform
given this mass of banking operations is highly concentrated just in Hong
Kong and Taiwan, as we will demonstrate shortly.
Figure 37
30
(US$bn)
23.7
25
20
14.7
15
12.6
12.0
10
2.7
2.7
2.4
2.4
2.3
2.2
1.9
1.9
ANZ
DBS
UOB
OCBC
SMFG
Mizuho
CIMB
Maybank
5.7
5
MUFG
StanChart
BOC
0
HSBC
Citi
Note: ANZ includes proportional revenue of associate investments. Source: CLSA, company data
Figure 38
1,200
1,000
(US$bn)
879
800
600
474
542
346
400
216
200
90
101
70
121
155
124
44
64
SMFG
Mizuho
Maybank
84
32
43
Maybank
Mizuho
76
CIMB
SMFG
81
CIMB
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
0
HSBC
Citi
Figure 39
364
300
221
200
218
96
100
60
66
66
OCBC
162
UOB
400
(US$bn)
DBS
500
ANZ
MUFG
BOC
StanChart
Citi
HSBC
34
derek.ovington@clsa.com
5 June 2015
Asian banks
Geographical breadth
While aggregate cross-border banking size is telling, its also important to
know where each bank is concentrated regionally, shown in Figures 40-41.
Figure 40
(US$bn)
25
Australia
Singapore
China
Indonesia
Hong Kong
Malaysia
Taiwan
Philippines
Japan
Thailand
Korea
Other
India
20
15
10
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Figure 41
100
(%)
Australia
Singapore
China
Indonesia
Hong Kong
Malaysia
Taiwan
Philippines
Japan
Thailand
Korea
Other
India
80
60
40
20
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
5 June 2015
derek.ovington@clsa.com
35
Asian banks
These charts show tremendous variety in geographical mix across the various
banks. It should be obvious that there is no one Asia cross-border banking
market. While it may be asserted that, for example, bank XYZ is winning
share in Asia this is a meaningless statement given Asia is so fragmented.
We will tease out more detail on individual countries later, but we make some
initial observations from these charts:
New Kids on the Block - all other banks tend to have specific geographical
Most diversified
Citigroup - arguably the most diversified of the big Asian regional players,
Dominated by strategic
investments
Asean focus
Asean focus
CIMB and Maybank - the Malaysian banks are heavily skewed to their
other Greater China, ie, Hong Kong (where it is the second-largest banking
group after HSBC) and Taiwan. Its operations in the rest of Asia are much
smaller in significance (relatively) and arguably lack critical mass.
books spread thinly across many regional offices, but this belies limited
penetration of local banking systems and high reliance upon lending to
Japanese corporate clients in the region.
which increased materially for OCBC with the Wing Hang purchase, so
OCBCs key exposures are Malaysia (in life insurance, as well as banking),
Hong Kong, Indonesia and mainland China.
home Asean region, notably Indonesia, Singapore and (for CIMB) Thailand.
In the following charts (Figures 42-53) we show these same banks revenues
for each of the relevant countries to demonstrate relative size.
Note that in the case of Singapore and Malaysia we show the home revenue of
the Singaporean and Malaysian banks to provide some context on relative size.
36
derek.ovington@clsa.com
5 June 2015
Asian banks
Figure 43
(US$bn)
3.0
1.6
(US$bn)
2.5
1.4
1.2
2.0
1.0
1.5
0.8
0.6
1.0
0.4
0.5
0.2
Mizuho
CIMB
Maybank
Mizuho
CIMB
Maybank
Mizuho
CIMB
Maybank
OCBC
SMFG
UOB
(US$bn)
1.8
1.6
12
1.4
10
1.2
1.0
0.8
0.6
0.4
0.2
DBS
ANZ
MUFG
BOC
StanChart
HSBC
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
0.0
HSBC
Figure 46
Figure 47
DBS
ANZ
MUFG
BOC
Maybank
CIMB
0.0
Mizuho
0.0
SMFG
0.2
OCBC
0.2
UOB
0.4
DBS
0.4
ANZ
0.6
MUFG
0.6
BOC
0.8
StanChart
0.8
Citi
1.0
HSBC
1.0
(US$bn)
StanChart
1.2
Citi
(US$bn)
HSBC
1.2
SMFG
2.0
SMFG
(US$bn)
14
Citi
16
OCBC
OCBC
Figure 45
UOB
Figure 44
UOB
DBS
ANZ
MUFG
BOC
StanChart
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Citi
0.0
0.0
HSBC
1.8
5 June 2015
derek.ovington@clsa.com
37
Asian banks
Figure 48
Figure 49
1.6
4.0
CIMB
Maybank
CIMB
Maybank
0.05
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
0.00
DBS
0.10
ANZ
0.15
MUFG
0.20
BOC
0.25
(US$bn)
StanChart
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Citi
(US$bn)
0.30
HSBC
0.35
Figure 52
Figure 53
(US$bn)
0.6
4.0
(US$bn)
0.5
3.5
3.0
0.4
2.5
0.3
2.0
1.5
0.2
1.0
0.1
0.5
DBS
ANZ
MUFG
BOC
StanChart
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Citi
0.0
0.0
HSBC
4.5
Maybank
Mizuho
Mizuho
Figure 51
CIMB
SMFG
SMFG
SMFG
Figure 50
Mizuho
OCBC
OCBC
OCBC
UOB
UOB
UOB
DBS
ANZ
MUFG
BOC
StanChart
(US$bn)
HSBC
Maybank
CIMB
Mizuho
SMFG
OCBC
0.0
UOB
0.5
0.0
DBS
1.0
0.2
ANZ
1.5
0.4
MUFG
2.0
0.6
BOC
2.5
0.8
StanChart
3.0
1.0
Citi
1.2
HSBC
3.5
Citi
(US$bn)
1.4
38
derek.ovington@clsa.com
5 June 2015
Asian banks
The US dollar is the key functional currency for corporations in Asia and we
have seen several episodes in the past decade where dollar liquidity has dried
up, hurting those banks dependent upon wholesale funding. Thus, funding
from corporate and other customers is a vitally important component of
running a successful/sustainable cross-border banking operation in Asia.
Unfortunately, most of the banks reviewed in this report do not provide a
good country-level breakdown of their deposits. However, we can construct an
aggregate cross-border picture of loan/deposit ratios using available data and
after making reasonable guesstimates for a number of the banks. This is
shown in Figure 54.
Figure 54
250
(%)
194
200
177
149
150
67
Citi
75
81
BOC
63
HSBC
100
StanChart
109
116
98
101
90
94
50
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
The most striking observation is that the Usual Suspects and the Japanese
banks are at opposite ends of the spectrum. HSBC, Citigroup and StanChart
have strong deposit franchises with low LDRs whereas the Japanese banks do
not, with high LDRs. While the Japanese banks have sizeable loan books
across Asia, they do not have deposit/liability franchises to match. This is a
tell-tale sign of relatively shallow banking penetration for these groups.
US$ loan/deposit ratio is
not always the same as
overall cross-border LDR
BOC also appears to have a solid deposit base, given its Asian cross-border LDR,
but it should be remembered from Figure 30 in Section 2 that this is massively
skewed by its Hong Kong and Taiwan operations, which are highly liquid.
Elsewhere it is far more reliant upon wholesale funding, so the overall picture is
deceptive. For instance, its 2014 US$ LDR was 133%, versus 77% in HK$.
The other regional banks - the Singaporean and Malaysian banks, ANZ - are
in-between, with generally aggressive LDR ratios relative to the big regional
leaders, and this reflects the fact that their cross-border banking operations
are relatively weaker deposit-gathering franchises.
5 June 2015
DBS is a good example of this, both because its Hong Kong operation is one
of the more sizeable cross-border businesses of this group, but also has a
long history and available data. Figure 55 shows that DBSs Hong Kong
operation has seen much higher LDR ratios than the Hong Kong system
itself, despite its Hong Kong operation losing market share in lending. We
discuss this further in Section 4, but it appears that the DBS franchise in
Hong Kong has actually deteriorated since DBS bought the Dao Heng
banking group in 2001.
derek.ovington@clsa.com
39
Asian banks
Figure 55
DBS Hong Kong lending market share and LDR versus system
(%)
160
(%)
140
120
6.0
5.5
100
80
5.0
60
40
4.5
20
0
2008
2009
2010
2011
2013
2012
2014
4.0
Note: DBS Hong Kong includes subsidiary and branch operations. Source: CLSA, company data
Financial performance
Assessing and comparing profitability across these regional banking business
is complicated by varying degrees of data availability, as well as the often
material differences in a groups business mix and geographical exposure.
Geographical reporting on
profitability is often
rubbery and unreliable for
use in benchmarking
On the data front, most banks do not provide more than cursory P&L and
balance sheet items across individual countries. Group-level accounts
generally reflect management accounting of geographical divisions, and these
often do not marry up with subsidiary accounts, which can often be materially
skewed by intra-group items and allocations.
None of the banks provide equity allocations by region or country, so ROE is
near-impossible to derive or estimate with accuracy.
2.5
(%)
2013
2014
2.0
1.5
1.0
0.5
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
0.0
40
derek.ovington@clsa.com
5 June 2015
Asian banks
This chart must be treated with caution because of the material differences in
business structure and reporting across the banks.
Structural differences eg, large associate
earnings - can have
a big impact
For instance, ANZ has the lowest profitability, but this reflects the fact that we
have not included associate earnings and investments from the calculation.
Why do we exclude these earnings? Because such earnings generate high
ROAs when compared to the relevant denominator, ie, the investment in
equity of the associate. If they are not excluded they skew the ROA.
Unfortunately, while the pretax ROA for ANZ thus reflects its wholly-owned
operations in a more comparable way to other banks, these represent the
minority of ANZs Asian earnings and we suspect attract sizeable cost
allocations from group level. In short, the ANZ figures arent very meaningful.
Similarly, HSBCs Asian pretax ROA is understated in these calculations as we
have excluded the associate income and investments from its Chinese
associates (principally BoCom in Asia). If we were to include these associates,
its pretax ROA would be 1.66% in 2014 and 1.91% in 2013. Note, that it was
much higher in 2013 due to the inclusion of the Industrial Bank and Ping An
associate earnings in that year, which dropped out in 2014 following the sale
of the stake in Ping An and the change in accounting treatment for Industrial
Bank. Bank-specific factors can make a material difference to comparisons.
Geographical footprint
makes a difference given
country-based differences
in ROA
5 June 2015
derek.ovington@clsa.com
41
Asian banks
Section 4: Mythbusters
Mythbusters
If you see a Swiss banker jumping out a window, follow him - there is
sure to be profit in it.
~ Voltaire
We challenge some
popular assertions
Before we proceed to our conclusions, wed like to use some of our data to
challenge a number of popular assertions on the kind of network banking
dominated by the Usual Suspects, particularly in Asia.
The Economist newspaper has done us a large favour by summarising many
of these assertions in a recent article, reinforcing its modern reputation for
bien pensant conformism. Thus we were disappointed but not terribly
surprised by the article from its 7 March edition: A world of pain - the giants
of global finance are in trouble.
Fortunately for this report the article was well-timed and reasonably
comprehensive, summarising in one piece the most prominent and
commonly-cited assertions on this complicated issue:
The global network bank model is in deep trouble and domestic lenders
are doing far better than these global banks;
The global banks results have been weak, generating low ROEs and . . .
The global network bank model is in trouble because (1) these giant firms
proved hard to manage;
proved to be fiercer than expected. That is, The global giants also lost
market share in Asia to so-called super-regional banks, such as ANZ of
Australia and DBS of Singapore. Big local banks in emerging markets, such
as ICBC in China Itau in Brazil and ICICI in India also began to build out
cross-border operations.
The global network bank model is in trouble because (3) there has been a
There are new competitors to push down margins, ie, Japanese banks
are on a cross-border lending bender for the first time since the 1980s.
Chinas banks are steadily expanding.
This is undoubtedly true, in that many observers question the benefits to size
for JPM. Our analyst, Mike Mayo, is one of them, noting that its capitaladequacy burden is much larger than peers due to its size and complexity and
that the group has failed to demonstrate the benefits of its scale.
However, we disagree with the inference that this has necessary implications
for the network bank model. Rather, it is a function of JPMs sheer size notably in its home market - and the complexity and capital intensity of its
investment bank, notably following its 2008 purchase of Bear Stearns.
42
derek.ovington@clsa.com
5 June 2015
Section 4: Mythbusters
Asian banks
Put another way, we would argue that JPMs problems do not arise from its
international network, so much as its domestic footprint and business mix.
Are HSBCs returns falling
because of its networking
banking operations?
Again, it is true that HSBC has resiled from its previous ROE target of 1215% in the medium term, settling for more than 10% in the new operating
environment. However, that qualifier is important - as HSBC explained itself
(see Figure 57, from HSBCs 2014 results presentation) the regulatory
imposition of higher capital adequacy requirements, increased regulatory
costs and the UK bank levy have all compressed HSBCs return potential.
Figure 57
Source: HSBC
While HSBCs capital requirements include an additional buffer for its rating as
a Global Systemically Important Bank (G-SIB), this is only one component
of the increased capital required by its regulator, the PRA.
Increased capital
intensity isnt an issue
specific to network
banking
5 June 2015
derek.ovington@clsa.com
43
Asian banks
Section 4: Mythbusters
Figure 58
(%)
8
6
4
2
0
Europe
Mena
Group
(2)
(4)
2009
2010
HK
N America
2011
Rest of Asia
LatAm
2012
2013
2014
The implication that HSBCs returns have been retarded by its network
banking model thus doesnt hold up under scrutiny. The vast bulk of HSBCs
return problems can be attributed to regulatory overkill, the UK - its home
market - and the USA, where the Household Finance business it acquired
blew up.
Citigroup is awaiting the results of its annual exam from the
Wed argue that the immediate cause of Peter Sands resignation is this shareprice chart, triggered by successive earnings disappointments at StanChart.
Figure 59
StanChart certainly
has been failing to
match peers
350
(Rebased)
STAN
BARC
HSBC
LLOY
RBS
300
250
200
150
100
50
Jan 12
May 12
Sep 12
Jan 13
May 13
Sep 13
Jan 14
May 14
Sep 14
44
derek.ovington@clsa.com
5 June 2015
Asian banks
Section 4: Mythbusters
Wed suggest that its rare to find shareholders willing to accept that degree
of underperformance without demanding accountability from a CEO and, as
we discuss in this report, StanChart has clearly underperformed in
fundamental terms in recent years.
Its possible to overstate
recent underperformance
within the context of a
longer-term view
Figure 60
Figure 61
160
140
(Rebased)
BARC
250
HSBC
LLOY
RBS
(Rebased)
STAN
BARC
HSBC
LLOY
RBS
STAN
200
120
100
150
80
60
100
40
20
50
0
(20)
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
Is network banking an
inferior business model?
We shouldnt confuse
stock performance with
underlying business
performance - theyre not
always the same
5 June 2015
The Economist does not define how Lloyds has recovered smartly but, given
its vastly superior share-price performance (see Figure 59 above) over still
lacklustre EPS growth (see Figure 60), wed suggest its the former that drove
the judgement. However, this is a very specific case. As those charts show,
LLOY endured a massive collapse in earnings and book value and was rescued
by the UK government. Given this context, recovery from that nasty nadir
tells us precisely nothing about the implied superiority of domestic lending
over network banking - LLOY is simply a stock that has enjoyed a successful
resurrection after bombing out.
derek.ovington@clsa.com
45
Asian banks
Section 4: Mythbusters
Similarly, the high price/book multiples attached to Wells Fargo and other
midsize firms suggests that these banks achieve higher returns than
network banks and this is true:
Figure 62
Price/book ratio versus ROE for European and North American banks
PB (x)
2.5
2.0
1.5
Wells Fargo
RBC
CIBC
US Bancorp
NBC
Lloyds
JPM
1.0
RBS
Citi
BMPS
0.5
0.0
R2 = 84%
HSBC
StanChart
N America
Eurozone
UK
Commerzbank
ROE (%)
0
10
12
14
16
18
20
However, this isnt new. Wells Fargo has long been a high-return, high
multiple bank, as have other banks like, for example, the Canadian banks.
This reflects generally superior ROE, driven by its particular business and
geographical mix, as well as superior execution.
Figure 63
3.5
(x)
Wells Fargo
Citigroup
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: CLSA
However, the fact that high-return banks like Wells Fargo exist and trade on
higher multiples than, say, Citigroup does not necessarily imply that network
banking is an inherently bad business or, more importantly, is getting worse.
All it tells us is that Wells Fargo is a high-return bank.
Again, we are faced with a non-sequitur argument.
A different - and perhaps more interesting - angle on this issue is the
observation that network banks in Asia earn lower returns than domestic
lenders in Asian countries. Weve seen this observation raised in relation to
StanChart recently, but it similarly misses a very important point: network
banks cater to a difference client mix, with a different mix of business, to
most banks in Asian domestic banking markets.
46
derek.ovington@clsa.com
5 June 2015
Asian banks
Section 4: Mythbusters
Most notably, the core client base for network banks are multinationals
corporations (MNC), not retail or SME clients. This has dramatic implications
for returns, as MNCs are sophisticated and demanding clients, thus unwilling
to pay rich profit spreads to their relationship banks. We should not be
surprised, therefore, that banks focused on MNCs like HSBC, Citigroup or
StanChart should have a different return profile to domestically-focused
banks in various markets.
(%)
3
2
1
0
(1)
(2)
(3)
(4)
2006
Europe
NA
2007
2008
HK
LatAm
2009
RAP
Group
2010
2011
Mena
2012
2013
2014
5 June 2015
derek.ovington@clsa.com
47
Asian banks
Section 4: Mythbusters
Figure 65
Likewise, Citigroups
problems arent
due to Asia
3.0
(%)
NA
EMEA
LatAm
Asia
Group
2.5
2.0
1.5
1.0
0.5
0.0
(0.5)
(1.0)
(1.5)
(2.0)
2007
2008
2009
2010
2011
2012
2013
2014
Figure 66
SG
Africa
HK
Mesa
(%)
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(0.5)
(1.0)
2006
2007
2008
IN
EU & Ams
2009
2010
KR
Group
2011
2012
Other A-P
2013
2014
Is networking banking
more difficult to manage?
48
5 June 2015
Asian banks
Section 4: Mythbusters
ineffective integration. Again, HSBC is a good example given its anti-moneylaundering failures in Mexico (it acquired Banco Internacional in 2002) and
facilitation of tax evasion in Swiss private banking (it acquired Republic Bank
in 1999, which formed the core of its global private banking operation).
However, this isnt about
network banking
For instance, the Asian regional banking platforms of HSBC, Citigroup and
StanChart have not seen much acquisition activity in the past decade and are
run on generally common systems with a common culture. The exceptions
that arguably prove the rule are Citigroups and StanCharts respective
acquisitions in Korea (Citigroup acquired KorAm Bank in 2003 and StanChart
bought Korea First Bank in 2005). However, the underperformance of these
acquired businesses is due more to the generally woeful profitability of the
entire Korean banking industry than any particular problem arising from the
Citigroup or StanChart approach to network banking.
Cost/income can be a
misleading measure of
cost efficiency when
applied to banks that are
very different
On the final point, that cost/income ratios are bloated by being in lots of
countries and, by implication, worse than local banks as a result, its
important once again to clarify. A wholesale-focused network bank will have
a different return and risk profile from a local bank servicing a materially
different customer base, with different products and different cost, risk and
profit structures. It is thus not a realistic comparison. Further, the
cost/income ratio is often an unreliable measure of cost efficiency given the
denominator (ie, income, or revenue) does not necessarily have a decisive
bearing on cost-efficiency.
The point here is not that one particular business mix or mode of operation is
inherently superior to another, but that we have to allow for fundamental
business differences not just across countries but also across different banks
when assessing performance. Blanket statements like the one made by The
Economist above show no such differentiation and are not meaningful.
Figure 67
Figure 68
2.0
RAP
2013
2012
2011
2010
2009
2008
2007
HK
2006
2013
2012
2011
2010
2009
2008
0.0
2007
2006
0.5
2005
10
2004
1.0
2003
20
2002
1.5
2001
30
2005
HK
2004
40
2.5
2003
RAP
2002
50
2000
(%)
3.0
2001
(%)
2000
60
Note: HK = Hong Kong, RAP = Rest of Asia-Pacific. Source: CLSA, company data
5 June 2015
derek.ovington@clsa.com
49
Section 4: Mythbusters
Asian banks
As
a result these firms have all too often been tempted to make a
fast buck. Citi made a kamikaze excursion into mortgage-backed
bonds in 2005-08. StanChart made loans to indebted Asian tycoons.
Hindsight is always
20/20, but how could
Citigroup - a big retail and
investment bank - not be
exposed to MBS?
The first assertion here is particularly ignorant. Citigroup was and remains
one of the largest retail banks in the USA. Moreover, since the 1998 TravelersCiticorp merger the core of Citigroups investment banking business has been
the former Salomon Bros - a core bulge-bracket bond firm and the pioneer
in mortgage-backed securities from the days of Lewis Ranieri. Citigroup was
thus inevitably exposed to the US mortgage meltdown in the GFC - no
kamikaze excursion was necessary. It is possible to argue about the degree
to which it was exposed and management handling of its exposure, but it
would be nave in the extreme to expect Citigroup to have been able to dodge
that particular bullet altogether given the configuration of its US operations.
The second assertion, that: StanChart made loans to indebted Asian tycoons.
is unsubstantiated. It is nevertheless true that StanChart (like most banks in
Asia) makes loans to Asian tycoons, but it has done so since the 19th Century,
and thrived doing so, notwithstanding these customers occasionally
defaulting. Thats a known hazard in banking - bad debts are a cost of doing
business. The implication is that StanChart has somehow deviated from its
previous path (making a fast buck), but this isnt proven.
Is competition tougher
for the network banks?
First question: how is
competition defined and
measured? Data backing
this assertion is
usually absent
50
No
However, being familiar with both of these super-regional banks and having
gone through the exercise in Section 3 of comparing their cross-border
franchises to peers we find the assertions above to be grossly overstated, if
not simply wrong.
Taking ANZ first, it should be apparent from our work in Sections 2 and 3 that
the bulk of its Asian banking earnings is associate income from its portfolio of
strategic investments in a variety of banks. However, this is not an integrated
business; it is a bundle of non-controlling stakes in disparate, unconnected
banks. This portfolio certainly has value, and wed argue that ANZ has done
well as an investor. However, this investment portfolio is not an effective
competitive network and will attract growing capital-adequacy deductions
under the phase-in of Basel 3.
derek.ovington@clsa.com
5 June 2015
Asian banks
Section 4: Mythbusters
ANZs wholly-owned
operations are of small
scale and have not won
material share
ANZs wholly-owned operations in Asia have grown nicely off a small base,
augmented by some opportunistic bolt-on acquisitions, but are still of small
scale in all relevant markets. The largest concentrations are naturally in
Hong Kong and Singapore but in both of these markets ANZ is an also-ran in
comparison to the Usual Suspects and local players. Wed also note that
there is no evidence that we can see of material gains in market share.
In the case of DBS, it was shown in Section 3 that its only material
operation outside of Singapore is in Hong Kong. It has grown its other
Greater China exposure quickly, but this is a trivial slice of the Chinese
market. Not only that, it is largely trade-finance provided to mainland
China corporations by DBSs Singapore balance sheet. DBSs on-theground presence in mainland China is small, with inadequate deposit
funding to sustain the groups overall increase in loans to mainland clients.
The lack of organic, on-the-ground funding is a tell-tale sign of a weak
cross-border franchise.
Figure 69
60,000
(S$m)
50,000
40,000
30,000
20,000
10,000
0
1Q05
1Q06
1Q07
1Q08
1Q09
1Q10
1Q11
1Q12
1Q13
1Q14
1Q15
Even in Hong Kong - DBSs one large cross-border operation - its franchise
has deteriorated over the years. Since 2008 it has lost material share in
Hong Kong loans and has only maintained share in deposits.
Figure 70
Figure 71
4.5
(%)
DBS branch
4.0
DBS branch
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
(%)
2008
2009
2010
2011
2012
2013
2014
2008
2009
2010
2011
2012
2013
2014
Note: Includes both DBS subsidiary and branch operations. Source: CLSA, HKMA, company data
5 June 2015
derek.ovington@clsa.com
51
Asian banks
Section 4: Mythbusters
DBSs HK operations
appear to have lost
ground since it bought
them in early 2000s
100
(%)
ex-HK
Trade finance
80
Other comm.
Transport
60
Manufacturing
W/sale & retail
40
Finance
Commercial property
20
Other personal
Home loans
2008
2009
2010
2011
2012
2013
2014
Note: Includes both DBS subsidiary and branch operations in Hong Kong. Source: CLSA, company data
52
Not in Asia
Similarly, Chinas leading regional challenger is not ICBC, but BOC, and even
BOC has a relatively weak presence outside of Hong Kong and Taiwan. We
have no doubt that the large China banks will become more formidable
competitors in time, but they are many years away from establishing strong
regional or global platforms.
5 June 2015
Asian banks
Section 4: Mythbusters
However, the fact that banks in the West - and, to a lesser extent, the rest of
the world - have seen a dramatic escalation in regulatory oversight does not
necessarily imply that network banking has become relatively more difficult or
less profitable than other banking models as a result. For instance, all banks,
regardless of their business model and structure have to hold more capital
these days, not just network banks.
As we show below, its far from obvious that network banks have been
disproportionately hit by regulatory fines and costs. It is a sad fact that the
banks worst hit by increased regulatory burden are domestic banks in the UK
and USA. This happens to include HSBC, Citigroup and StanChart because of
their domicile and geographical exposures but it is not because they are
network banks - quite the contrary, as we will show.
Figure 73
Figure 74
Figure 75
14,000
12,000
(US$m)
Retail
9,000
Wholesale
8,000
Retail
Wholesale
6,000
8,000
5,000
6,000
4,000
USA
Rest of World
Wholesale
400
200
1,000
UK
Retail
600
2,000
2,000
(US$m)
800
3,000
4,000
1,200
1,000
7,000
10,000
(US$m)
UK
USA
Rest of World
UK
USA
Rest of World
Note: Accumulated amounts of regulatory fines, penalties, settlements and levies for the period 2009-14. Source: CLSA, company data
5 June 2015
derek.ovington@clsa.com
53
Asian banks
Section 4: Mythbusters
The rest of the world simply hasnt generated anything like these regulatory
imposts. That HSBC, Citigroup and StanChart have been fined by UK and US
regulators is undoubtedly due in large part to the fact that these three banks
are domiciled and thus regulated in these countries. However, as we discuss
below, the details on the fines and levies shows that these imposts have, in
the main, not been due to network-banking activities, but specifically
domestic banking issues.
However, money
laundering and US
sanctions violations have
clearly been a painful
area for many banks
The one clear issue where network banking has been in the regulatory
gunsights has been money-laundering and US sanctions violations, as a key
part of network banking is facilitating cross-border financial flows. The fines in
this area represent US$967m in USA-imposed fines for StanChart and
US$1,921m in global fines for HSBC. This is clearly the leading share of
StanCharts regulatory cost but, hard as it may be to believe, its actually a
small proportion of HSBCs total regulatory imposts over 2009-14.
Its also very important to note in relation to the US sanctions violations that
StanChart and HSBC (among other banks) were fined for activities that took
place a decade ago, in the lead-up to the GFC, not in the recent past.
Its certainly also arguable in the case of US sanctions violations (the key
issue for StanChart, as HSBC also had material money-laundering failures in
relation to its Mexican operations) that the fines represent as much US
regulatory hubris in its regulators extra-territorial control of US-dollar
transfers outside of the USA as evidence of any criminal activity facilitated by
these banks.
So where did the rest of the regulatory fines come from? In short: domestic
retail and wholesale banking were the primary drivers, not network banking.
We provide a table for HSBC - by far the worst hit - to highlight the various
imposts. These show conclusively that by far the biggest regulatory problem
for HSBC has not been money-laundering, tax evasion and sanctions but
ordinary retail banking in the UK, as well as the USA, by a wide margin.
Figure 76
2010
2011
2012
2013
317
78
898
570
2,338
571
375
1,235
916
2014
TOTAL
1,187
16
632
1,275
1,100
1,187
333
632
5,824
3,157
375
550
550
100
1,546
257
49
84
100
1,546
257
35
54
derek.ovington@clsa.com
5 June 2015
Section 4: Mythbusters
Asian banks
The IMF, in its April, 2015 Financial Stability Report makes a similar point,
contrasting the international expansion of the Chinese and Japanese banks,
observing that both groups have followed their domestic customers overseas.
However, the pattern of growth has generally involved considerable
acquisition activity by the Japanese banks, whereas the Chinese banks have
grown their loan books more organically.
These banks are clearly
growing their Asian
businesses . . .
The kernel of truth here is that, as we showed earlier, Japanese and Chinese
banks have indeed grown their offshore operations rapidly. However, we point
out the following:
1. Japanese banks have long - ie, since the 1980s - been active participants
in Asian and global banking. They were competitive lenders one and two
decades ago and remain competitive. We are thus doubtful that they have
materially tilted competitive intensity;
5 June 2015
derek.ovington@clsa.com
55
Asian banks
Section 4: Mythbusters
40
(%)
MUFG
BOC
35
Mizuho
CCB
SMFG
ICBC
ABC
30
25
20
15
10
5
0
2008
2009
2010
2012
2011
2013
2014
80
(%)
Domestic
Foreign
68
70
60
50
40
35
30
18
20
10
10
18
22
18
33
17
10
0
(10)
(2)
MUFG
(1)
Mizuho
(1)
SMFG
ABC
BOC
CCB
ICBC
56
3. Chinese banks have grown very quickly (see Figure 78 above, for example)
but off a generally small base (see Figure 79) and with a substantial skew
to the Greater China markets of Hong Kong and Taiwan. As we discussed
earlier in Section 3 this is most obviously the case for the most
internationally active Chinese bank, BOC; and
derek.ovington@clsa.com
5 June 2015
Asian banks
Section 4: Mythbusters
Figure 79
Foreign loans (in US$bn) of Japanese and Chinese banks, 2008 and 2014
(US$bn)
500
2008
2014
450
388
400
350
303
300
250
214
206
181
200
150
150
114
109
107
93
100
64
50
0
MUFG
Mizuho
ABC
SMFG
27
18
BOC
CCB
ICBC
Lastly, as The Economist and the IMF both acknowledge, much of the growth
in the foreign operations of Chinese and Japanese banks has simply filled the
void left by retreating European banks. We can see in Figure 80 that global
banks claims on Asian countries show UK (ie, HSBC and StanChart), US and
Japanese banks gaining at the expense of (non-UK) European banks. Note
that Chinese banks reporting data is not available in the BIS data set.
Figure 80
1,800
(US$bn)
UK
USA
Japan
Europe ex-UK
1,600
1,400
1,200
1,000
800
600
400
200
0
Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14
Source: CLSA, Bank for International Settlements
From their peak level of March, 2008, European banks, excluding the UK,
have shed US$615bn in claims on Asia, as of September, 2014. That is nearly
double the increase in Japanese banks claims on Asia (ex-Japan).
It also understates the true extent of European banks retreat, as the UK
banks sector includes both Asian leaders like HSBC and StanChart (which
have driven the increased exposure of the UK to Asia), as well as banks like
RBS and Barclays that have shrunk their Asian exposures. Indeed, RBS and
Barclays have reduced their aggregate credit exposure to Asia by around
150bn since 2008.
5 June 2015
derek.ovington@clsa.com
57
Section 4: Mythbusters
Asian banks
If rising Chinese and Japanese banks have simply replaced European banks
as marginal competitors in Asia can we safely conclude that overall
competition has increased in Asian cross-border banking? We dont think so.
Regional market is
competitive, but its hard
to demonstrate that it has
become materially more
competitive
58
derek.ovington@clsa.com
5 June 2015
Asian banks
Franchise assessment
HSBC
Citi
StanChart
BOC
MUFG
ANZ
DBS
UOB
OCBC
SMFG
Mizuho
CIMB
Maybank
Scale
Breadth
Depth
Funding
5
4
3
4
4
2
2
2
2
3
3
1
1
4
5
4
1
3
3
2
2
2
3
3
2
2
5
3
4
4
2
2
2
1
1
1
1
1
1
5
5
4
2
1
2
2
1
2
1
1
2
2
4.6
4.2
3.8
2.6
2.4
2.0
2.2
1.6
1.8
1.8
2.0
1.6
1.6
2
1
1
4
4
3
4
2
3
4
4
3
2
Asia x-border
revenue
(US$bn)
23.7
14.7
12.6
12.0
5.7
2.7
2.7
2.4
2.4
2.3
2.2
1.9
1.9
As % of
group
revenue
38
21
69
19
13
12
38
42
43
7
9
30
35
Scale - this compares not just the aggregate size of Asian cross-border
operations, but also global group resources, to measure the financial muscle
of a banking group, and thus capacity to drive resources into its Asian
regional platform. So, for example, this favours the global giants like HSBC,
Citigroup and MUFG, as well as the very large regional banks, eg, BOC and
the other Japanese megabanks.
A broad network of
coverage is important
5 June 2015
derek.ovington@clsa.com
59
Asian banks
Material operations at
country level entrench
the network
25
Scale
Breadth
Depth
Funding
Structure
20
15
10
5
Maybank
CIMB
Mizuho
SMFG
OCBC
UOB
DBS
ANZ
MUFG
BOC
StanChart
Citi
HSBC
Source: CLSA
60
Our Usual Suspects and challenger banks are scored on a relative basis,
from 1-5, 1 being the weakest and 5 the best relative score. We use a
simple average of these scores to derive the overall score which we then use
to represent our - necessarily subjective - view of the strength and capability
of the respective Asian cross-border franchises. The aggregated scores (ie,
the sum of the five scores) are shown in Figure 82 above for a visual
comparison. Note that we sort the banks by Asian cross-border revenues.
derek.ovington@clsa.com
5 June 2015
Asian banks
How do we interpret the table and chart? Not surprisingly given our earlier
commentary we rank the Usual Suspects highly. Similarly, the smaller
Malaysian and Singaporean (ie, UOB) banks with a narrower geographical
focus on Asean dont score as well. However, there are some relative
surprises, for example we rate DBS as a stronger overall franchise than ANZ,
and largely because ANZ suffers from the relative lack of integration between
its associate investments and its own wholly-owned network.
The banks that emerge in the strong second tier of competitors - ie, those
more likely to represent a competitive threat to the Usual Suspects within a
reasonable timeframe - are BOC, MUFG and DBS, with ANZ and perhaps
Mizuho and SMFG lagging. We discuss the competitive implications in more
detail later in this section. However, before we progress it would be helpful to
quickly summarise our thoughts on the individual banks.
Bank-level summaries
HSBC (Avg: 4.6)
Scale (5)
Structure
(4)
Breadth
(4)
Funding
(5)
Depth
(5)
Breadth
(5)
Funding
(5)
Depth
(3)
Funding
(4)
5 June 2015
Breadth
(4)
Depth
(4)
61
Breadth
(1)
Funding
(2)
Depth
(3)
Breadth
(3)
Funding
(1)
Depth
(2)
ANZ (Avg: 2)
Scale (2)
Structure
(1)
Breadth
(3)
Funding
(2)
Depth
(2)
Breadth
(2)
Funding
(2)
Depth
(2)
Funding
(1)
62
Breadth
(2)
Depth
(1)
Asian banks
derek.ovington@clsa.com
5 June 2015
Breadth
(2)
Funding
(2)
Depth
(1)
Breadth
(3)
Funding
(1)
Depth
(1)
Mizuho (Avg: 2)
Scale (3)
Structure
(2)
Breadth
(3)
Funding
(1)
Depth
(1)
Breadth
(2)
Funding
(2)
Depth
(1)
Funding
(2)
5 June 2015
Breadth
(2)
Depth
(1)
Asian banks
derek.ovington@clsa.com
63
Asian banks
We included not just a scoring of relative franchise strength above, but also
our assessment of each banks relative ambition or aggression to grow larger
and measures of absolute size (actual cross-border revenue), as well as
relative materiality of Asian cross-border business for each bank.
So, for instance, we can use the scoring to map out the players according to
their relative strength and ambition to form a view on which banks are most
likely to present the most competitive threat. That is, our assumption is that
the banks most likely to disrupt the competitive environment are those with a
powerful combination of:
Franchise strength
5
4
StanChart
HSBC
Citi
The usual
suspects
BOC
ANZ
UOB
OCBC
SMFG
Regional challengers
DBS
Mizuho
CIMB
Maybank
MUFG
Ambition/ aggression
Ambition/aggression
Mizuho
MUFG
SMFG
OCBC
CIMB
ANZ
HSBC
UOB
Maybank
1
0
DBS
BOC
StanChart
Citi
10
20
30
40
50
60
70
80
90
100
64
derek.ovington@clsa.com
5 June 2015
Asian banks
Immediate challengers
face significant hurdles . . .
. . . which can be
overcome, but not
easily or quickly
Asia is more material for some banks. For many of the banks in this
Contrasting strategic
positions imply some
banks are more likely to be
sellers, others acquirers
5 June 2015
constraints. BOC, MUFG, DBS and ANZ arguably form the vanguard of
regional challengers, but have significant limitations in their current
network configuration - noticeably they lack depth and/or breadth in their
regional footprint, requiring much more investment - and perhaps
acquisitions - to match the capability of the Usual Suspects.
to overcome. We see little scope for the competitive positions of the
various banks listed here to change materially over the coming one to two
years. True structural change requires considerable time and resources to
effect organically and fast-tracking such changes through acquisition is
usually expensive and risky.
to be the scale players from China and Japan. BOC and MUFG have
significant limitations but have a solid starting position and the financial
resources, given sufficient time and ambition, to develop into stronger
players. BOC, in particular, has progressed at an impressive rate in the
past decade. Longer-term we must also allow for other mainland banks particularly ICBC and CCB - to follow BOCs path offshore. For the large
banks of China and Japan, however, there is likely to be a significant
return sacrifice required to deal into many markets, eg, the premium
prices required to purchase entry and/or sunk costs attached to building
from subscale positions.
derek.ovington@clsa.com
65
Asian banks
Competition is dynamic,
with relative winners and
losers, but the structural
growth backdrop for Asia
remains attractive
Our final point is that, while competitive shifts within Asia can obviously
benefit or hurt individual banks in a relative sense, we should remember the
key points from Section 1: Asia has a superior structural growth profile
relative to North America and Europe.
We can allow for cyclical downturns - and higher US-dollar interest rates also
pose a headwind for many markets - but absolute growth in credit and
revenue is thus likely to remain relatively stronger in Asian cross-border
banking into the medium and longer term. This remains a positive backdrop
for all of the banks above.
As noted above, for many of the banks the Asia ex-Japan exposure is
relatively immaterial, thus makes little difference to our view of the stocks.
The best example of this is the Japanese megabanks: at 7-13% of group
revenue Asia ex-Japan is less likely to be a material driver of the fundamental
outlook for MUFG, SMFG and Mizuho.
Three BUYs:
Citigroup (C US, BUY)
StanChart (2888 HK, BUY)
BOC (3988 HK, BUY)
Two SELLs:
SMFG (8316 JP, SELL)
CIMB (CIMB MK, SELL)
At the other extreme, we have two SELL recommendations in the list, but
here the link is more tenuous. Brian Waterhouses SELL recommendation on
SMFG is driven more by the overall group outlook and disappointment over
the stinginess of recent capital management. Anand Pathmakanthans SELL
recommendation on CIMB reflects the tough earnings outlook for the group
overall, though the observed earnings weakness in the Indonesian operations
is a significant contributor to group underperformance.
Figure 85
CLSA
rec
Target Upside
(%)
PE
(x)
EPS gwth
(%)
PB
(x)
Div yield
(%)
73.90
55.63
122.20
186
169
40
O-PF
BUY
BUY
80.00
73.00
180.00
8.3
31.2
47.3
FY1
11.1
9.9
8.8
FY2 FY1
10.1 18.3
8.7 154.3
7.3 76.6
FY2
10.1
14.2
19.7
FY1
1.00
0.81
0.84
FY2
0.97
0.75
0.80
FY1
5.3
0.3
5.5
FY2
6.0
1.2
5.5
5.18
914
31.92
20.11
22.72
10.04
5,574
267
5.32
9.16
208
104
69
37
27
30
64
53
12
24
BUY
O-PF
U-PF
O-PF
O-PF
U-PF
SELL
U-R
SELL
O-PF
6.30
990
33.50
22.70
26.05
11.10
4,800
235
4.70
10.00
21.6
8.3
4.9
12.9
14.7
10.6
(13.9)
(12.1)
(11.7)
9.2
6.9
11.5
11.9
11.8
11.3
10.6
10.3
10.8
11.2
13.1
6.6
10.5
11.7
10.9
10.9
10.5
9.6
10.5
10.5
12.4
4.9
8.9
1.8
8.6
3.7
1.6
6.8
3.3
13.5
5.2
0.97
0.79
1.65
1.25
1.24
1.23
0.82
0.77
1.12
1.53
0.88
0.74
1.57
1.16
1.16
1.14
0.79
0.74
1.05
1.45
4.8
2.0
5.8
3.0
3.5
3.8
2.7
2.8
3.4
6.1
5.0
2.2
5.9
3.2
3.6
4.0
2.2
2.8
3.9
6.4
(2.2)
9.3
3.1
9.6
1.8
(7.9)
28.3
(2.6)
19.2
(5.4)
66
derek.ovington@clsa.com
5 June 2015
Asian banks
Company profiles
The Usual Suspects
HSBC .................................................................................................. 69
Citigroup ............................................................................................. 97
Standard Chartered ............................................................................ 117
Emerging challengers
Bank of China .................................................................................... 147
MUFG ............................................................................................... 151
ANZ Bank .......................................................................................... 155
DBS .................................................................................................. 159
UOB ................................................................................................. 163
OCBC ................................................................................................ 167
SMFG ................................................................................................ 171
Mizuho Financial ................................................................................. 175
CIMB ................................................................................................ 179
Maybank ........................................................................................... 183
Unless otherwise stated, all prices quoted herein are as at close of business 3 June 2015, with the
exception of Citigroup, which is a republished note priced to 2 February 2015
Sorted by relative size in Asian cross-border banking
5 June 2015
derek.ovington@clsa.com
67
Asian banks
Notes
68
derek.ovington@clsa.com
5 June 2015
HSBC
HK$73.90 - OUTPERFORM
Atlas slugged
Derek Ovington
5 June 2015
Hong Kong
Financial services
Reuters
Bloomberg
ADR
0005.HK
5 HK
HBC.N
Asia in focus
HSBCs birthplace of Hong Kong dominates the Asian business, generating
more than one-half of regional profit before tax and greater than one-third of
global PBT. It is a formidable business, but HSBCs network-banking
operations across the rest of the region also have scale, diversity, earnings
power and more than a century of legacy backing their competitive position.
HK$84.20/64.65
HK$80.00
+8%
Shares in issue
Free float (est.)
19,217.9m
82.0%
Market cap
US$185,969m
HK$1,914.4m
(US$246.9m)
1M
3M
12M
(4.0)
(2.3)
(4.0)
5.9
(5.4)
6.0
(9.3)
(23.6)
(9.3)
(HK$)
90
115
110
105
85
100
80
95
75
90
70
85
80
65
75
60
55
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
70
Oct 13
65
Jun 15
13A
21,301
15,631
0.84
13.8
11.4
0.88
10.8
5.1
1.0
9.1
14A
19,115
13,115
0.69
(17.9)
13.9
0.81
11.8
5.2
1.0
7.4
15CL
20,607
15,901
0.81
97
18.3
11.7
0.86
11.1
5.3
1.0
8.7
16CL
23,038
17,903
0.90
102
10.1
10.6
0.94
10.1
6.0
1.0
9.3
17CL
25,991
20,322
0.99
103
10.9
9.6
1.04
9.2
6.1
0.9
10.0
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
HSBC - O-PF
HSBC is one of the worlds largest banks, and one of its most globally
diversified. Established in Hong Kong and Shanghai (hence the name . . .)
during the British colonial era in 1865, Wayfoong ( - hui-feng meaning abundant exchange or plentiful remittances) grew quickly to
dominate Hong Kong banking.
70
(US$bn)
Hong Kong
Rest of Asia Pacific
Europe
MidEast
North America
Latin America
60
50
40
6.1
6.5
8.2
2.5
19.8
1.7
21.6
30
2.2
3.5
20
11.0
10.9
10
0
21.6
0.7
3.5
1.7
1991
12.7
9.6
5.8
2000
2005
2014
Other N.
America
0.4%
Brazil
7.4%
Canada
3.0%
Mexico
3.5%
Other Latin
America
1.7%
UK
24.7%
USA
9.4%
France
4.5%
Other MENA
1.7%
UAE
2.2%
Other Asia
11.5%
Hong Kong
21.1%
Other Europe
5.0%
China
3.8%
70
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
Other N.
America
0.3%
Canada
3.6%
Brazil
2.6%
Mexico
1.6%
USA
9.5%
Other MENA
1.1%
Other Latin
America
0.5%
UK
33.1%
UAE
2.0%
Other Asia
11.4%
France
4.6%
Hong Kong
21.7%
China
3.8%
Other Europe
4.3%
. . . but principally a
network bank elsewhere
HSBC retains by far the leading position in Hong Kong. It owns 19% of
Chinas sixth-largest lender (Bank of Communications) and has a strong
platform of banking operations across Asia. Geographically, it is most skewed
to the UK and Hong Kong, but has sizeable exposure to the rest of Asia, North
America, Latin America and the Middle East.
Latin America
5%
N. America
7%
ME & Africa
7%
Europe
16%
Hong Kong
35%
Rest of Asia
Pacific
30%
5 June 2015
derek.ovington@clsa.com
71
Asian banks
HSBC - O-PF
As seen in the group mix of revenue, loans and PBT, it is very apparent that
HSBCs Hong Kong and Asian operations have in recent years been
disproportionately profitable relative to the bulk of balance-sheet weight
located in UK/Europe and North America. We discuss HSBCs return profile
and its struggle with profitability later in this report.
Going global
From its dominant position in Hong Kong, HSBC grew throughout Asia during
the 19th and 20th Centuries, benefiting from the reach of the British empire.
HSBC acquired
aggressively around the
world over the
past 25 years
From the late 1980s, HSBC expanded aggressively into the UK and Europe,
North America and Latin America. This was a pursuit of a more global
footprint but also a deliberate diversification away from concentration in Hong
Kong, prior to the British handover of control of the HKSAR to the Peoples
Republic of China in 1997. We include a group structure chart and summary
of key operating subsidiaries later in this HSBC company section.
100
90
80
70
60
50
(%)
Hong Kong
27
4
20
10
N. America
LatAm
10
13
32
35
11
9
44
35
49
18
7
6
23
10
0
Middle East
14
40
30
Europe
1991
2000
15
2005
20
2014
72
Household International
was a catastrophically
bad acquisition
HSBC retains by far the leading position in Hong Kong, owns 19% of Chinas
sixth-largest lender (Bank of Communications) and has a strong platform of
operations across Asia. Geographically, it is most skewed to the UK and Hong
Kong, but has sizeable exposure to the rest of Asia, North America, Latin
America and the Middle East.
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
100
(%)
Hong Kong
15
80
37
60
40
3
9
5
Middle East
8
28
4
38
30
8
22
(20)
LatAm
9
5
8
8
34
85
20
0
N. America
36
(5)
(4)
1991
2000
2005
2013
Asia in focus
HSBC has a
hometown advantage 150 years worth
HSBC was initially established in Hong Kong and Shanghai in 1865 and, while
Hong Kong remains its strongest base globally, the group spread rapidly
throughout Asia in the late 19th Century. In most of its Asian countries of
operation, from Japan to India, HSBC has typically had a presence for more
than a century.
Source: HSBC
5 June 2015
derek.ovington@clsa.com
73
Asian banks
HSBC - O-PF
Sizeable earnings in
China, India, Taiwan,
Singapore, Malaysia,
Australia and Indonesia
HSBCs Hong Kong
business is massive and
dominant, but the rest of
Asia is well diversified
Taiwan
2%
Singapore
6%
Other Asia
5%
Malaysia
5%
China
10%
Hong Kong
58%
Indonesia
2%
India
8%
Australia
4%
Source: CLSA, company data.
Profitability broadly follows the revenue base, with the notable exception that
PBT from China is a materially larger share of Asian PBT than revenue due to
the inclusion of equity-accounted earnings from HSBCs 19% stake in Bank of
Communications (BoCom).
Profitability broadly
matches revenue, except
China due to associate
income from BoCom
Singapore
4%
Malaysia
3%
China - assoc.
13%
Hong Kong
56%
China - HSBC
7%
Indonesia
1%
India
5%
Australia
3%
74
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
Singapore
9%
Taiwan
3%
Other Asia
6%
Malaysia
4%
China
10%
Hong Kong
59%
Indonesia
2%
India
2%
Australia
5%
9,000
(US$bn)
8,000
7,000
Retail
Commercial
Markets
Private banking
Other
6,000
5,000
4,000
3,000
2,000
1,000
0
Other Asia
Taiwan
Singapore
Malaysia
China associates
China HSBC
Indonesia
India
Australia
Hong Kong
(1,000)
5 June 2015
There are several points to make here. The first is that retail banking is most
heavily concentrated in Hong Kong, where HSBC is the dominant retail bank,
both via its own operations and its subsidiary Hang Seng Bank. In other
countries in Asia retail banking is much smaller in scale, servicing niche
segments (ie, expat professional, high-net-worth and private banking clients),
and HSBC is much more skewed to wholesale and commercial banking - ie,
network-banking operations.
derek.ovington@clsa.com
75
Asian banks
HSBC - O-PF
5,000
Hong Kong
(US$bn)
Australia
India
4,000
Indonesia
China - HSBC
3,000
Malaysia
Singapore
2,000
Taiwan
Other Asia
1,000
China - associates
0
(1,000)
Retail
Commercial
Markets
Private banking
Other
HSBCs associate
income from BoCom is
largely designated as
commercial banking
We isolate the China associates PBT to show the degree to which Bank of
Communications (ie, the only remaining major associate in Asia) is more
heavily skewed to commercial banking, versus the wholesale skew evident in
HSBCs regional operations.
The last business line is global private banking, for which HSBC has high
hopes, but remains by far the groups smallest division in Asia, as well as
globally. It is concentrated in Asias two leading private-banking centres of
Singapore and Hong Kong and is not material in size.
HSBC Asia PBT business mix by country in 2014 - Excluding Hong Kong
3,000
(US$bn)
Australia
India
2,500
Indonesia
China - HSBC
2,000
Malaysia
1,500
Singapore
1,000
Other Asia
Taiwan
China - associates
500
0
(500)
Retail
Commercial
Markets
Private banking
Other
76
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
Prior to 2014, HSBC reported the financial results for Asia via two geographic
segments, Hong Kong and rest of Asia Pacific (RAP). From 2014, HSBC has
chosen to include Hong Kong into RAP and not to report the HK division
results in the same detail. This is unfortunate, as it means we have lost the
detail in HSBCs single-most profitable country operation, globally, typically
representing a third or more of global PBT.
We provide financial summaries of these two segments at the back of this
HSBC note, but highlight the trend in ROA below.
(%)
3.0
HK
RAP
Asia
2.5
2.0
1.5
1.0
0.5
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
0.0
HSBCs Asian operations have generally produced a strong return profile, and
not just in its Hong Kong home base. However, the Hong Kong division
suffered a material step down in profitability after the financial crisis, whereas
the rest of Asia recovered to levels prevailing before the GFC. Why?
A decomposition of pretax ROA in below shows the key driver of Hong Kongs
decline in profitability was compression of net interest margin. This is
thoroughly unsurprising, given the known compression of net interest
margins in Hong Kong as a result of near-zero nominal interest rates. We
return to this issue later, as it is a global drag on HSBCs earnings, and is not
just Hong Kong-specific.
2006
2007
2008
2009
2010
2011
2012
2013
1.85
1.81
1.53
1.03
1.02
1.04
1.07
1.12
0.81
0.24
0.19
(0.03)
0.33
3.39
(1.29)
2.10
(0.07)
2.03
0.01
2.04
1.11
0.41
0.26
(0.14)
0.28
3.74
(1.25)
2.49
(0.08)
2.42
0.01
2.43
0.69
0.32
(0.39)
0.35
0.22
2.72
(1.06)
1.66
(0.20)
1.46
0.00
1.46
0.66
0.30
0.20
(0.18)
0.31
2.33
(0.97)
1.36
(0.12)
1.23
0.00
1.24
0.71
0.32
0.12
(0.10)
0.39
2.46
(1.07)
1.39
(0.03)
1.37
0.01
1.37
0.69
0.26
(0.11)
0.11
0.37
2.37
(1.05)
1.31
(0.03)
1.28
0.01
1.29
0.67
0.30
0.16
(0.08)
0.39
2.51
(0.98)
1.53
(0.01)
1.51
0.02
1.53
0.72
0.29
0.09
(0.09)
0.33
2.46
(0.94)
1.52
(0.03)
1.49
0.01
1.51
5 June 2015
derek.ovington@clsa.com
77
Asian banks
HSBC - O-PF
2004
BoCom
Industrial Bank
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
175
259
445
741
754
987
1,370
1,670
1,878
1,974
46
71
128
221
216
327
471
670
na
na
China - direct
32
96
133
181
319
111
215
706
792
746
978
Total
32
317
463
754
1,281
1,081
1,529
2,547
3,132
2,624
2,952
18,943
20,333
21,693
19,852
10,959
12,152
18,465
18,962
22,962
23,626
21,647
BoCom
0.9
1.2
2.2
6.8
6.2
5.3
7.2
7.3
7.9
9.1
Industrial Bank
0.2
0.3
0.6
2.0
1.8
1.8
2.5
2.9
0.0
0.0
China - direct
0.5
0.6
0.9
2.9
0.9
1.2
3.7
3.4
3.2
4.5
Total
1.6
2.1
3.8
11.7
8.9
8.3
13.4
13.6
11.1
13.6
Note: excludes earnings from Ping An, exited in 2012. Industrial Bank derecognised as an associate from 2013. Source: CLSA, company data
78
HSBCs own operations in China have grown strongly but remain highly
concentrated in wholesale banking - a much easier segment for it to
penetrate, given its competitive advantages, relative to retail and
commercial banking.
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
(US$m)
16
BoCom
3,000
China - direct
(%)
BoCom
14
Industrial Bank
Industrial Bank
12
2,500
10
2,000
1,500
1,000
2014
2013
2012
2011
2010
2009
2008
2005
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
500
2007
2006
3,500
1,200
(US$m)
1,000
Retail
Commercial
Markets
Private Bank
Other
800
600
400
200
0
(200)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Wholly-owned mainland
operations are under 5%
of group-adjusted PBT
Given the relative contributions, the key threat to HSBCs earnings and
balance sheet from a China downturn is thus not from its directly-owned
operations, but the risks to the BoCom equity-accounted earnings stream
and investment.
More importantly, as we flagged in our A city of two tales report, the key
risk for HSBC from a China downturn is likely to be the indirect/knock-on
effect on its Hong Kong earnings from a mainland-triggered blow to the
Hong Kong economy.
That this could emerge in the next few years, at a time when US-dollar (to
which the HK dollar is pegged) interest rates appear likely to normalise at
higher levels, making us cautious about the medium-term earnings outlook
for HSBCs HK/China operations, notwithstanding our confidence in the
strength of the groups Hong Kong and broader Asia franchise.
5 June 2015
derek.ovington@clsa.com
79
Asian banks
HSBC - O-PF
14
(US$)
BVPS
Share price
(US$)
EPS (RHS)
1.6
1.4
12
1.2
10
1.0
0.8
6
0.6
0.4
0.2
0
1992
1995
1998
2001
2003
2006
2009
0.0
2014
2012
While BVPS was rebuilt since 2008, EPS over 2010-14 averaged only US$0.78
- beneath the level of 2004. Even if we exclude the many exceptional items
over 2010-14, adjusted EPS still averaged only US$0.80.
HSBC suffered an apparently permanent negative shock to earnings capacity.
What happened?
We dig a little deeper, decomposing ROE into its drivers: ROA and leverage
(ie, assets/equity).
Deleveraging only
partially to blame ROA compression
more important
25
Assets/equity (x)
(%)
1.4
1.2
20
1.0
15
0.8
0.6
10
0.4
5
0.2
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0.0
1992
80
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
While HSBC has reduced leverage since 2008 due to higher capital-adequacy
requirements, assets/equity has only returned to the relative lows of 200203. In contrast, ROA has compressed dramatically from the pre-2006 period,
with only a modest recovery evident six years after the 2008 low.
(%)
Europe
HK
RAP
MENA
3
2
1
0
(1)
(2)
(3)
(4)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Note: RAP = Rest of Asia Pacific (includes Hong Kong from 2014); MENA = Middle East and North Africa
(including in RAP prior to 2008). Source: CLSA, company data
However, that does not explain why those regions ROAs have compressed.
Why have returns remained depressed for so long after the GFC? We
decompose group ROE and ROA on the next page. As it is a busy table, we
highlight the key drivers of operating profitability (OP %) below.
Revenue compression has
suppressed the rebound
of ROA, ROE
(%)
5
4
Net interest
Net fees
Opex
Credit costs
PPP
OP
3
2
1
0
(1)
(2)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
(3)
5 June 2015
derek.ovington@clsa.com
81
82
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest
2.23
2.11
2.11
2.67
2.49
2.09
2.04
1.79
1.70
1.67
1.58
1.47
1.39
1.32
1.29
Net fees
1.19
1.07
1.07
1.09
1.04
0.96
1.02
1.04
0.80
0.72
0.69
0.62
0.61
0.61
0.60
Trading income
0.26
0.24
0.18
0.23
0.22
0.39
0.49
0.47
0.30
0.41
0.29
0.24
0.26
0.32
0.25
Invt income
0.08
0.13
0.11
0.07
0.17
0.13
0.14
0.16
(0.09)
0.15
0.09
0.02
0.14
0.16
0.12
Net insurance
0.00
0.00
0.00
0.00
0.06
0.09
0.06
0.02
0.16
(0.08)
(0.02)
0.06
(0.04)
(0.07)
(0.05)
Other income
0.28
0.26
0.23
0.28
0.13
0.14
0.10
0.06
0.04
0.07
0.07
0.05
0.07
0.01
0.08
Non-int income
1.81
1.71
1.59
1.66
1.62
1.71
1.80
1.74
1.20
1.27
1.12
0.99
1.04
1.04
0.99
Revenue
4.04
3.82
3.70
4.34
4.11
3.80
3.85
3.53
2.90
2.93
2.70
2.46
2.43
2.36
2.28
(2.29)
(2.21)
(2.16)
(2.35)
(2.12)
(1.97)
(1.99)
(1.85)
(1.54)
(1.43)
(1.50)
(1.45)
(1.41)
(1.35)
(1.42)
1.75
1.61
1.54
1.98
1.99
1.83
1.86
1.69
1.36
1.51
1.20
1.01
1.02
1.01
0.86
(0.16)
(0.39)
(0.19)
(0.64)
(0.50)
(0.52)
(0.63)
(0.82)
(0.99)
(1.08)
(0.56)
(0.44)
(0.31)
(0.22)
(0.14)
Associates
0.00
0.01
0.01
0.01
0.02
0.04
0.05
0.07
0.07
0.07
0.10
0.12
0.13
0.09
0.09
Adjusted PBT
1.59
1.24
1.36
1.35
1.52
1.35
1.28
0.94
0.44
0.50
0.74
0.69
0.85
0.88
0.81
(0.39)
(0.31)
(0.36)
(0.33)
(0.37)
(0.33)
(0.30)
(0.15)
(0.13)
(0.03)
(0.19)
(0.12)
(0.22)
(0.19)
(0.17)
1.20
0.93
1.01
1.02
1.15
1.02
0.98
0.79
0.30
0.47
0.55
0.56
0.63
0.69
0.64
(0.15)
(0.15)
(0.12)
(0.10)
(0.11)
(0.05)
(0.07)
(0.07)
(0.04)
(0.05)
(0.06)
(0.06)
(0.07)
(0.08)
(0.06)
Adjusted ROA
1.05
0.78
0.89
0.93
1.04
0.97
0.91
0.73
0.27
0.42
0.49
0.50
0.56
0.61
0.58
0.00
(0.07)
(0.04)
(0.01)
0.02
0.03
0.02
0.17
(0.05)
(0.20)
0.02
0.09
(0.06)
(0.03)
(0.09)
Reported ROA
1.05
0.72
0.85
0.92
1.06
1.00
0.93
0.90
0.22
0.23
0.51
0.59
0.50
0.58
0.49
15.6
15.2
14.9
15.2
15.6
16.9
16.8
17.9
22.8
22.5
18.6
18.8
16.8
15.6
15.1
Adjusted ROE
16.4
11.9
13.2
14.1
16.2
16.4
15.3
13.0
6.1
9.5
9.2
9.4
9.4
9.5
8.7
Reported ROE
16.4
10.9
12.7
13.9
16.5
16.9
15.6
16.1
5.1
5.1
9.5
11.0
8.3
9.1
7.4
Op expenses
Preprovision profit
Credit charge
Estimated tax
Adjusted NPAT
Minorities, prefs
HSBC - O-PF
derek.ovington@clsa.com
2000
Asian banks
5 June 2015
Asian banks
HSBC - O-PF
A significant decline in
operating expenses and
credit costs was swamped
by the collapse in
revenues/average assets
interest income
While HSBC has achieved significant declines in operating expenses and credit
costs relative to average assets (the latter due primarily to cyclical
improvement), this was swamped by the collapse in revenue/average assets,
particularly net interest income. This is visible both in the compression of
preprovision profitability (PPP %) and operating profitability (OP %).
If we compare average returns for 2005-06 with those of 2013-14, the effects
are starkly visible - HSBC has suffered a huge reduction in revenue yield,
particularly net interest income, relative to the pre-GFC period.
1.4
(%)
1.27
1.2
1.0
0.8
0.6
0.4
+0.39
0.75
Credit
costs
Avg OP%
(2013-14)
+0.59
-0.76
0.2
-0.39
0.0
-0.15
(0.2)
(0.4)
-0.21
Avg OP%
(2005-06)
Net
interest
Net
fees
Trading
& invt
Net
insurance
& Other
Opex
The monetary
environment has
suppressed HSBCs
earnings capacity
Part of the explanation for the compression of revenue yield lies in the pattern
of HSBCs restructure since the GFC. In particular, the runoff of higher-yield
US consumer credit portfolios has hurt average yields, as did the divestment
of the US cards and retail services (CRS) business in 2012. HSBC has lost
about US$2.9bn in net fee income from cards since 2006, driving the bulk of
the decline in net fees/average assets.
HSBC net interest margin (NIM) and US$ 3M Libor
3.5
NIM (LHS)
(%)
US$ 3M Libor
(%)
3.0
6
5
2.5
2.0
1.5
1.0
2H14
1H14
2H13
1H13
2H12
1H12
2H11
1H11
2H10
1H10
2H09
1H09
2H08
1H08
2H07
1H07
0.0
2H06
1H06
0.5
5 June 2015
However, a large part - we would argue the greater part - of the compression
in revenue yield has been due to the squeeze of net interest margin as a
result of ultra-low interest rates in HSBCs major currencies: the US dollar
(and thus HK dollar) and British pound.
derek.ovington@clsa.com
83
Asian banks
HSBC - O-PF
4.0
(%)
3.5
Jan 11
3.0
Jan 14
2.5
Jun 15
Jan 13
2.0
Jan 12
1.5
1.0
0.5
0.0
1M
3M
6M
1Y
2Y
3Y
5Y
7Y
10Y
While we expect US-dollar interest rates to rise at some point (our economists
expect the first rate hike in September 2014), the recovery will be gradual, so is
more likely to benefit HSBC and other banks from 2016 at the earliest.
ROE recovery to be
gradual: 10-11% ROE in
16-17CL is not inspiring!
3.5
(%)
Adj ROA
NIM
(%)
18
16
3.0
14
2.5
12
2.0
10
1.5
8
6
1.0
0.5
2
17CL
16CL
15CL
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0
2000
0.0
HSBC is one of the worlds few truly global banking groups with, as we have
shown, a very strong footprint in Asian regional banking.
That said, the bulk of HSBCs balance sheet weight is locked in two regions of
the world - Europe and North America - currently generating little growth and
low returns due to macroeconomic constraints, most notably excessive debt
burdens and ultra-low interest rates.
84
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
Thus, while we are very positive on HSBCs Asian operations, this is not a
business that we can buy directly! The available stock we can purchase offers
a frustrating mix of structurally-advantaged growth and returns in Asia,
chained to a considerable amount of underperforming dead weight in Europe
and North America.
Forward price/book versus ROE - western banks
PB (x)
2.5
HSBC
StanChart
N. America
Eurozone
RBC
UK
2.0
R2
Wells Fargo
1.5
= 84%
US Bancorp
CIBC
NBC
Lloyds
JPM
1.0
RBS
0.5
0.0
Citi
BMPS
Commerzbank
ROE (%)
0%
5%
10%
15%
20%
As we acknowledged earlier, Asia - most particularly China and Hong Kong may be sliding into a much tougher operating environment in the coming
years. Conversely, recovery in the West is emerging, but proving to be
frustratingly slow.
There is strategic optionality in HSBC, however. Its review of its domicile, with
a potentially more radical restructure of the group, holds the promise of
structurally improving HSBCs return profile from its depressed state.
2.8
(x)
2.6
2.4
2.2
2.0
+1sd1.9x
1.8
1.6
avg1.44x
1.4
1.2
1.0
-1sd0.98x
0.8
0.6
0.4
Jun 05
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Source: CLSA
5 June 2015
derek.ovington@clsa.com
85
Asian banks
HSBC - O-PF
Forward price/earnings
45
(x)
40
35
30
25
+1sd22.73x
20
avg15.55x
15
10
-1sd8.36x
5
Jun 05
Earnings have been
bolstered by low credit
costs - price/preprovision
profit is less attractive
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
(x)
+1sd7.46x
7
6
avg6.03x
-1sd4.6x
4
3
2
1
Jun 05
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Source: CLSA
5.0
5.5
1.0
10.5
10.8
12.1
14.7
4.0
50.0
Target forward PB
=
=
(ROE - g)
(COE - g)
(10.8% - 4.0%)
(10.5% - 4.0%)
1.05
9.85
10.31
80.00
6.72
Valuation details
Investment risks
As a global bank, HSBC is
exposed to a number of
macroeconomic risks
which affect its P&L and
balance sheet
86
HSBC is one of the world's largest and most truly global banking groups with
operations diversified across a wide range of regions, principally UK/Europe,
Hong Asia & Asia, North America, Latin America and the Middle-East. It is
thus exposed to a number of macro-economic risks which affect its P&L and
balance sheet, notably the economic/business cycle (and interaction with the
credit cycle), interest rates and currency risk. As a large international bank
HSBC is exposed to market risk, through its involvement in capital markets as
both agent and principal, and operational risk given the wide range of its
financial processing and intermediation activities.
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
Short name
HSBC
Recommendation
B'berg code
5 HK
80.00
67.58
73.90
9.53
19,218
185
2005
2006
2007
Outperform
Upside/(downside) (%)
8.3
11.0
Implied PB (x)
1.05
2008
2009
2010
2011
2012
2013
2014
15CL
16CL
17CL
20,895
15,081
15,789
19,133
5,728
5,834
13,159
16,797
14,027
16,204
13,688
16,474
18,476
Growth (%)
14.4
4.7
21.2
(70.1)
1.9
125.6
27.6
(16.5)
15.5
(15.5)
20.4
12.2
13.1
NPAT (U$m)
15,060
15,699
19,043
5,546
5,565
12,746
16,224
13,454
15,631
13,115
15,901
17,903
20,322
14,581
15,399
15,360
6,699
10,362
12,320
13,837
15,172
16,468
15,451
16,731
18,774
21,237
Growth (%)
12.3
5.6
(0.3)
(56.4)
54.7
18.9
12.3
9.6
8.5
(6.2)
8.3
12.2
13.1
1.13
1.17
1.35
0.84
0.27
0.72
0.98
0.65
0.86
0.86
0.89
0.97
1.07
EPS (US$)
1.17
1.21
1.42
0.41
0.34
0.72
0.91
0.74
0.84
0.69
0.81
0.90
0.99
1.14
1.19
1.15
0.49
0.63
0.70
0.77
0.83
0.88
0.81
0.86
0.94
1.04
Growth (%)
11.1
4.2
(3.2)
(57.3)
28.8
10.7
10.5
7.6
6.3
(8.2)
5.7
9.8
10.5
DPS (US$)
0.64
0.71
0.78
0.56
0.34
0.36
0.41
0.45
0.49
0.50
0.51
0.57
0.58
13.5
13.4
8.1
14.5
29.8
15.0
9.6
14.8
12.9
13.5
11.7
10.6
9.6
13.9
13.6
10.0
12.0
16.0
15.5
11.3
13.1
12.2
11.5
11.1
10.1
9.2
7.4
6.7
4.3
2.4
4.5
6.4
5.6
7.2
7.4
7.7
7.6
6.9
6.2
2.23
1.98
1.22
0.89
1.39
1.35
1.02
1.19
1.16
1.00
1.00
0.97
0.94
4.0
4.4
6.8
9.5
3.4
3.3
4.7
4.1
4.5
5.4
5.4
6.0
6.1
0.28
0.24
0.14
0.07
0.15
0.16
0.13
0.15
0.15
0.13
0.13
0.13
0.13
17.3
23.9
26.5
7.4
(6.4)
3.8
4.1
5.4
(0.8)
(1.4)
2.9
5.2
5.3
20.2
12.5
25.0
18.8
(2.5)
2.2
10.7
(2.2)
(0.6)
(0.4)
3.2
5.2
5.3
9.6
17.3
13.5
(4.4)
(3.7)
6.1
(2.1)
5.8
(0.6)
(2.0)
3.8
5.2
5.3
101.6
98.3
91.3
85.8
79.5
79.7
76.4
75.7
74.0
73.1
73.0
73.0
73.0
2.89
2.94
2.86
2.87
2.91
2.55
2.32
2.13
1.97
1.80
1.80
1.89
2.00
0.25
0.16
0.06
0.03
0.04
0.13
0.18
0.19
0.16
0.14
0.14
0.13
0.13
3.14
3.10
2.91
2.90
2.94
2.68
2.51
2.32
2.13
1.94
1.94
2.03
2.12
0.8
10.1
9.6
12.6
(4.3)
(3.2)
3.1
(7.4)
(5.7)
(2.3)
3.6
9.9
10.2
26.7
18.8
20.8
(18.0)
2.7
(9.8)
(2.0)
2.6
(0.4)
(5.7)
3.9
3.9
5.4
3.80
3.85
3.53
2.90
2.93
2.70
2.46
2.43
2.36
2.28
2.29
2.34
2.40
45.0
46.9
49.4
41.5
43.2
41.5
40.3
42.8
44.1
43.2
43.3
41.9
40.8
1.97
1.99
1.85
1.54
1.43
1.50
1.45
1.41
1.35
1.42
1.41
1.39
1.38
Cost/income (%)
51.8
51.6
52.3
53.0
48.6
55.5
59.1
57.9
57.3
62.4
61.5
59.4
57.4
NPAs/RWAs (%)
1.39
1.47
1.69
2.36
3.01
4.53
3.80
3.83
3.62
2.66
2.45
2.25
2.14
99.1
98.4
97.4
88.5
75.3
40.5
38.4
37.6
38.4
38.1
41.2
45.0
49.0
1.51
1.54
1.92
2.50
2.77
2.05
1.83
1.59
1.50
1.25
1.23
1.26
1.33
0.52
0.63
0.82
0.99
1.08
0.56
0.44
0.31
0.22
0.14
0.14
0.16
0.18
1.83
1.86
1.69
1.36
1.51
1.20
1.01
1.02
1.01
0.86
0.88
0.95
1.02
0.97
0.91
0.73
0.27
0.42
0.49
0.50
0.56
0.61
0.58
0.61
0.65
0.69
16.9
15.6
16.1
5.1
5.1
9.5
11.0
8.3
9.1
7.4
8.7
9.3
10.0
16.4
15.3
13.0
6.1
9.5
9.2
9.4
9.4
9.5
8.7
9.1
9.7
10.4
7.8
8.2
7.5
7.0
9.4
10.5
10.1
12.3
13.6
10.9
11.3
11.4
11.4
9.0
9.4
8.7
8.3
10.8
12.1
11.5
13.4
14.5
12.5
12.9
12.8
12.7
12.7
13.5
11.4
11.5
13.7
15.2
14.1
16.1
17.8
15.6
16.1
16.0
15.9
RWA/Assets (%)
55.1
50.4
49.5
45.4
47.9
44.9
47.3
41.7
40.9
46.3
46.3
47.0
48.0
24.3
23.6
15.5
30.2
5.4
25.5
18.0
25.7
21.1
21.3
21.0
21.0
21.0
54.1
58.4
55.1
137.5
100.3
49.8
45.3
61.1
58.5
72.6
62.6
63.5
58.3
Revenue
Efficiency
Credit costs
Profitability
Capital Adequacy
Other
999
1,113
1,297
1,467
1,385
1,472
1,623
1,625
1,669
1,787
1,853
1,950
2,052
1,502
1,690
2,112
2,509
2,446
2,499
2,767
2,707
2,692
2,680
2,765
2,910
3,063
920
1,068
1,279
1,452
1,353
1,339
1,434
1,401
1,426
1,547
1,612
1,696
1,785
1,502
1,690
2,112
2,509
2,446
2,499
2,767
2,707
2,692
2,680
2,561
2,696
2,838
Avg equity
99
107
125
118
118
145
161
175
187
195
204
214
225
89
100
118
110
109
134
147
161
173
177
183
193
204
Avg liabilities
5 June 2015
derek.ovington@clsa.com
87
Asian banks
HSBC - O-PF
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
15CL
16CL
17CL
60,094
75,879
92,359
91,301
62,096
58,345
63,005
56,702
51,192
50,955
52,906
56,670
60,827
28,760
41,393
54,564
48,738
21,366
18,904
22,343
19,030
15,653
16,250
16,943
17,161
17,269
31,334
34,486
37,795
42,563
40,730
39,441
40,662
37,672
35,539
34,705
35,963
39,508
43,558
Other income
25,670
30,487
36,838
30,207
31,023
27,980
27,420
28,136
28,016
26,433
27,453
28,534
30,063
Total income
57,004
64,973
74,633
72,770
71,753
67,421
68,082
65,808
63,555
61,138
63,415
68,043
73,621
Op. expenses
Underlying profit
Credit charges
29,514
33,553
39,042
38,535
34,894
37,434
40,257
38,092
36,405
38,172
38,986
40,447
42,269
27,490
31,420
35,591
34,235
36,859
29,987
27,825
27,716
27,150
22,966
24,430
27,595
31,352
7,801
10,573
17,242
24,937
26,488
14,039
12,127
8,311
5,849
3,851
3,823
4,557
5,361
Associates
644
846
1,503
1,661
1,781
2,517
3,264
3,557
2,325
2,532
2,584
2,739
2,903
(70)
(388)
3,055
6,570
(6,533)
(63)
3,933
(5,215)
(1,246)
417
Exceptional items
703
781
1,305
(8,222)
1,460
635
(1,023)
2,902
185
(3,384)
(1,050)
(1,103)
(1,158)
20,966
22,086
24,212
9,307
7,079
19,037
21,872
20,649
22,565
18,680
22,141
24,675
27,737
5,093
5,215
3,757
2,809
385
4,846
3,928
5,315
4,765
3,975
4,650
5,182
5,825
15,873
16,871
20,455
6,498
6,694
14,191
17,944
15,334
17,800
14,705
17,491
19,493
21,912
Pre-tax profit
Taxation
Profit after tax
Minorities
Reported NPAT
792
1,082
1,322
770
860
1,032
1,147
1,307
1,596
1,017
1,017
1,017
1,017
15,081
15,789
19,133
5,728
5,834
13,159
16,797
14,027
16,204
13,688
16,474
18,476
20,895
Pref. dividends
21
90
90
182
269
413
573
573
573
573
573
573
573
15,060
15,699
19,043
5,546
5,565
12,746
16,224
13,454
15,631
13,115
15,901
17,903
20,322
(53)
(296)
2,581
4,587
(6,178)
(47)
3,227
(3,873)
(983)
328
532
597
1,103
(5,740)
1,381
473
(839)
2,155
146
(2,664)
(830)
(871)
(915)
14,581
15,399
15,360
6,699
10,362
12,320
13,837
15,172
16,468
15,451
16,731
18,774
21,237
Asset yield
6.01
6.82
7.12
6.23
4.48
3.96
3.88
3.49
3.07
2.85
2.86
2.91
2.96
Cost of funding
3.13
3.88
4.26
3.36
1.58
1.41
1.56
1.36
1.10
1.05
1.05
1.01
0.97
2.89
2.94
2.86
2.87
2.91
2.55
2.32
2.13
1.97
1.80
1.80
1.89
2.00
NPAT attributable
Adj NPAT
Drivers (%)
0.25
0.16
0.06
0.03
0.04
0.13
0.18
0.19
0.16
0.14
0.14
0.13
0.13
3.14
3.10
2.91
2.90
2.94
2.68
2.51
2.32
2.13
1.94
1.94
2.03
2.12
Other revenue/AIEA
2.57
2.74
2.84
2.06
2.24
1.90
1.69
1.73
1.68
1.48
1.48
1.46
1.46
Revenue/AIEA
5.70
5.84
5.76
4.96
5.18
4.58
4.20
4.05
3.81
3.42
3.42
3.49
3.59
AIEA/avg assets
66.5
65.9
61.4
58.5
56.6
58.9
58.6
60.0
62.0
66.7
67.0
67.0
67.0
Revenue/avg assets
3.80
3.85
3.53
2.90
2.93
2.70
2.46
2.43
2.36
2.28
2.29
2.34
2.40
Cost/avg assets
1.97
1.99
1.85
1.54
1.43
1.50
1.45
1.41
1.35
1.42
1.41
1.39
1.38
Underlying profit
1.83
1.86
1.69
1.36
1.51
1.20
1.01
1.02
1.01
0.86
0.88
0.95
1.02
B&DD/avg assets
0.52
0.63
0.82
0.99
1.08
0.56
0.44
0.31
0.22
0.14
0.14
0.16
0.18
Associates/avg assets
0.04
0.05
0.07
0.07
0.07
0.10
0.12
0.13
0.09
0.09
0.09
0.09
0.09
Pretax ROA
1.35
1.28
0.94
0.44
0.50
0.74
0.69
0.85
0.88
0.81
0.84
0.89
0.94
0.33
0.30
0.15
0.13
0.03
0.19
0.12
0.22
0.19
0.17
0.17
0.18
0.19
Post-tax ROA
1.02
0.98
0.79
0.30
0.47
0.55
0.56
0.63
0.69
0.64
0.67
0.71
0.75
Mins, prefs
0.05
0.07
0.07
0.04
0.05
0.06
0.06
0.07
0.08
0.06
0.06
0.05
0.05
0.97
0.91
0.73
0.27
0.42
0.49
0.50
0.56
0.61
0.58
0.61
0.65
0.70
16.9
16.8
17.9
22.8
22.5
18.6
18.8
16.8
15.6
15.1
15.1
15.1
15.0
Adj ROE
16.4
15.3
13.0
6.1
9.5
9.2
9.4
9.4
9.5
8.7
9.2
9.8
10.5
Loans to banks
137
199
247
160
186
214
189
160
126
117
120
127
133
Loans to customers
751
882
1,001
957
922
978
958
1,014
1,007
987
1,025
1,079
1,135
B&DD provisions
(11)
(14)
(19)
(24)
(26)
(20)
(18)
(16)
(15)
(12)
(13)
(14)
(15)
14
13
22
52
61
57
130
142
167
130
134
141
148
261
362
501
471
476
441
382
465
367
361
371
391
411
Financial invts
182
205
283
300
369
401
400
421
606
577
594
625
658
74
104
188
495
251
261
346
357
282
345
355
374
393
10
12
13
17
20
18
17
18
19
20
21
15
16
16
14
14
12
11
11
11
11
11
11
12
Goodwill
29
32
34
22
23
22
21
21
21
19
19
19
19
180
252
318
228
261
285
304
260
209
199
196
207
220
1,502
1,861
2,354
2,527
2,364
2,455
2,556
2,693
2,671
2,634
2,711
2,853
3,003
77
112
141
137
131
117
122
115
93
83
102
108
114
Deposits
739
897
1,096
1,115
1,159
1,228
1,254
1,340
1,361
1,351
1,404
1,477
1,555
Trading liabilities
236
297
405
322
348
389
351
392
296
267
328
345
363
Debt issues
205
253
271
209
177
179
162
149
133
123
151
159
167
Insurance liabilities
14
18
43
44
54
59
61
68
74
74
76
80
84
Derivative liabilities
74
101
183
487
248
259
345
359
274
341
350
369
388
Derivative assets
Associates/investments
Other assets
Total assets
Deposits from banks
Other liabilities
59
68
80
112
112
70
95
87
249
196
91
96
101
1,404
1,746
2,219
2,427
2,229
2,300
2,389
2,509
2,481
2,434
2,502
2,634
2,772
10
10
10
10
Pref/hybrid capital
12
12
12
12
Reserves
24
29
33
(4)
22
25
24
30
27
20
20
20
20
Retained earnings
56
65
81
81
87
99
112
120
129
137
146
156
167
86
101
120
85
120
139
150
165
171
179
187
198
209
10
10
10
10
91
107
127
92
127
146
158
173
179
188
197
207
219
Total liabilities
Minorities
Equity (incl. mins)
88
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
HSBC is configured
as a UK-domiciled
holding company
HSBC North
America Holdings
HSBC France
Assets: US$163bn
Assets: US$267bn
Bank of Communications
(19.0%)
Assets: US$55bn
Assets: US$186bn
Assets: US$32bn
Assets: US$40bn
Holding company
Operating subsidiary
Associate
This structure chart carries within it the history of the past 30-odd years, as
well as explaining much of HSBCs legacy issues with operating profitability
and regulatory problems. The key subsidiaries are:
The Hongkong and Shanghai Banking Corporation - the core
antecedent of the entire group and its second-largest operating entity
globally, HK&SHBC is HSBCs dominant entity in Asia. It not only owns
the subsidiaries in Asia, its massive balance sheet is also deployed
throughout the region in addition to dominating Hong Kongs financial
system directly.
Hang Seng Bank - HSB is HSBCs local Hong Kong banking subsidiary,
serving the Cantonese-speaking mass-market retail and SME customer
segments in Hong Kong and Guangdong province in China. HK&SHBC took
a controlling stake in HSB in 1965 during a liquidity crisis and HSB
remains listed in Hong Kong, Bloomberg code 11 HK.
5 June 2015
derek.ovington@clsa.com
89
HSBC - O-PF
Asian banks
The Saudi British Bank - established in 1978 when the British Bank
of the Middle East (see above) converted its branch operations in Saudi
Arabia into a new listed bank in which HSBC retained a 40% stake.
The bank is listed on the Tadawul (Saudi SE) under Bloomberg code
SABB AB.
HSBC Bank Brasil - this lender was formed from selected assets and
liabilities of Banco Bamerindus do Brasil acquired by HSBC in 1997.
Grupo Financiero HSBC - HSBC acquired Grupo Financiero Bital (Banco
Internacional) in 2002.
HSBC Bank Argentina - formed from Grupo Roberts and controlled by
Midland Bank, with HSBC buying out minorities in 1997.
90
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
3,638
4,064
4,685
5,483
5,698
4,195
4,246
4,691
5,316
5,993
1,703
1,674
2,056
3,362
2,580
2,669
2,962
3,097
3,335
3,877
659
546
617
1,242
1,193
1,225
1,312
1,189
1,463
1,570
(6)
260
676
(1,191)
785
378
(537)
447
258
533
108
162
94
(309)
98
24
322
53
27
41
61
31
41
28
30
39
24
150
2,247
2,334
2,628
2,797
3,247
3,674
4,332
5,088
5,957
6,081
(2,154)
(2,059)
(2,699)
(3,208)
(1,922)
(4,392)
(4,762)
(4,593)
(6,366)
(6,570)
492
805
834
845
817
1,274
1,606
1,684
1,924
1,791
7,145
7,507
8,604
11,322
10,154
9,467
10,202
10,682
12,422
13,203
(2,558)
(2,867)
(3,269)
(3,780)
(3,943)
(3,946)
(4,431)
(4,758)
(4,848)
(5,045)
4,587
4,640
5,335
7,542
6,211
5,521
5,771
5,924
7,574
8,158
220
(146)
(172)
(231)
(765)
(500)
(114)
(156)
(74)
(137)
4,807
4,494
5,163
7,311
5,446
5,021
5,657
5,768
7,500
8,021
Associates
Pretax profit
Adj. pretax profit
Gross loans
23
23
19
28
15
35
55
82
68
4,830
4,517
5,182
7,339
5,461
5,029
5,692
5,823
7,582
8,089
4,830
4,517
5,182
7,339
5,461
5,029
5,692
5,823
7,582
8,089
79,394
83,606
84,647
90,014
100,953
100,185
141,320
158,246
174,086
195,998
- growth (%)
Deposits
5.7
5.3
1.2
6.3
12.2
(0.8)
41.1
12.0
10.0
12.6
178,033
173,726
196,691
234,488
250,517
275,441
297,484
315,345
346,208
365,993
- growth (%)
8.5
(2.4)
13.2
19.2
6.8
9.9
8.0
6.0
9.8
5.7
44.6
48.1
43.0
38.4
40.3
36.4
47.5
50.2
50.3
53.6
Assets
213,479
235,376
272,428
332,691
414,484
399,243
429,565
473,024
518,334
555,413
Avg assets
205,483
224,428
253,902
302,560
373,588
406,864
414,404
451,295
495,679
536,874
119,500
106,900
105,700
111,900
138,300
LDR (%)
Risk-weighted assets
Loan mix (%)
Home loans
37
34
34
33
33
35
30
30
30
27
Other personal
11
12
12
15
13
13
10
10
10
10
Real estate
13
15
15
14
14
14
14
13
13
13
10
10
11
11
10
28
29
27
26
27
25
32
34
34
36
100
100
100
100
100
100
100
100
100
100
Other property
Other commercial
1.77
1.81
1.85
1.81
1.53
1.03
1.02
1.04
1.07
1.12
Net fees
0.83
0.75
0.81
1.11
0.69
0.66
0.71
0.69
0.67
0.72
Net trading
0.32
0.24
0.24
0.41
0.32
0.30
0.32
0.26
0.30
0.29
0.27
0.06
0.19
0.26
(0.39)
0.20
0.12
(0.11)
0.16
0.09
Net insurance
0.05
0.12
(0.03)
(0.14)
0.35
(0.18)
(0.10)
0.11
(0.08)
(0.09)
Other
0.24
0.36
0.33
0.28
0.22
0.31
0.39
0.37
0.39
0.33
Revenue
3.48
3.34
3.39
3.74
2.72
2.33
2.46
2.37
2.51
2.46
(0.94)
Opex
(1.24)
(1.28)
(1.29)
(1.25)
(1.06)
(0.97)
(1.07)
(1.05)
(0.98)
PPP%
2.23
2.07
2.10
2.49
1.66
1.36
1.39
1.31
1.53
1.52
Credit charge
0.11
(0.07)
(0.07)
(0.08)
(0.20)
(0.12)
(0.03)
(0.03)
(0.01)
(0.03)
Operating profit %
2.34
2.00
2.03
2.42
1.46
1.23
1.37
1.28
1.51
1.49
Associates
0.01
0.01
0.01
0.01
0.00
0.00
0.01
0.01
0.02
0.01
Pretax ROA
2.35
2.01
2.04
2.43
1.46
1.24
1.37
1.29
1.53
1.51
2.35
2.01
2.04
2.43
1.46
1.24
1.37
1.29
1.53
1.51
5 June 2015
derek.ovington@clsa.com
91
Asian banks
HSBC - O-PF
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2,060
2,412
3,047
4,143
3,937
3,539
3,828
5,102
5,391
5,439
12,273
1,041
1,340
1,622
2,246
1,867
1,557
1,932
2,111
2,083
2,059
5,910
494
860
1,181
1,643
2,042
1,606
1,618
1,658
1,053
456
2,622
58
79
111
(171)
110
24
(16)
106
56
533
49
18
41
38
24
(19)
146
(23)
16
1,222
200
179
97
155
174
226
197
365
448
759
812
837
7,390
Net claims
(82)
(166)
(192)
(253)
28
(395)
(363)
(591)
(718)
(726)
(7,761)
Other income
146
335
765
798
1,055
1,238
1,598
1,711
1,824
2,633
2,331
3,808
5,017
6,722
8,960
8,981
8,003
9,232
10,713
10,572
11,978
23,677
(2,087)
(2,762)
(3,548)
(4,764)
(4,704)
(4,450)
(5,143)
(5,806)
(5,806)
(5,640)
(10,427)
1,721
2,255
3,174
4,196
4,277
3,553
4,089
4,907
4,766
6,338
13,250
(89)
(134)
(512)
(616)
(852)
(896)
(439)
(267)
(436)
(361)
(647)
1,632
2,121
2,662
3,580
3,425
2,657
3,650
4,640
4,330
5,977
12,603
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
Associates
215
453
865
1,348
1,297
1,543
2,252
2,831
3,106
1,787
2,022
- BoCom
175
259
445
741
754
987
1,370
1,670
1,878
1,974
- Ping An
17
245
518
324
551
848
946
763
- Industrial Bank
46
71
128
221
216
327
471
670
215
215
290
257
11
22
90
44
(91)
48
- Other
Net exceptionals
Pretax profit
Adj. pretax profit
Gross loans
- growth (%)
1,081
3,012
1,847
2,574
3,527
6,009
4,722
4,200
5,902
7,471
10,448
7,764
14,625
1,847
2,574
3,527
4,928
4,722
4,200
5,902
7,471
7,436
7,764
14,625
61,747
70,852
78,475
102,778
81,474
81,039
109,690
124,650
138,865
142,113
364,311
25.3
14.7
10.8
31.0
(20.7)
(0.5)
35.4
13.6
11.4
2.3
156.4
78,613
89,118
108,995
150,233
124,194
133,999
158,155
174,012
183,621
182,626
577,491
- growth (%)
20.1
13.4
22.3
37.8
(17.3)
7.9
18.0
10.0
5.5
(0.5)
216.2
LDR (%)
78.5
79.5
72.0
68.4
65.6
60.5
69.4
71.6
75.6
77.8
63.1
Assets
120,530
142,014
167,668
228,112
225,573
222,139
278,062
317,816
342,269
335,937
878,723
Avg assets
109,306
131,272
154,841
197,890
226,843
223,856
250,101
297,939
330,043
339,103
885,335
173,900
217,500
279,300
302,200
292,400
430,700
Deposits
Risk-weighted assets
Loan Mix (%)
Retail (RBWM)
38
39
37
34
34
38
35
33
33
33
32
Commercial (CMB)
27
27
28
32
27
28
29
31
32
34
37
Markets (GBM)
32
31
31
32
35
30
33
33
32
29
28
Private (GPB)
Other
100
100
100
100
100
100
100
100
100
100
100
1.88
1.84
1.97
2.09
1.74
1.58
1.53
1.71
1.63
1.60
1.39
Net fees
0.95
1.02
1.05
1.13
0.82
0.70
0.77
0.71
0.63
0.61
0.67
Net trading
0.45
0.66
0.76
0.83
0.90
0.72
0.65
0.56
0.32
0.13
0.30
0.05
0.06
0.08
0.08
(0.06)
0.04
0.07
(0.01)
0.04
0.38
0.10
Net insurance
0.01
(0.01)
(0.01)
(0.01)
0.10
(0.01)
0.03
0.06
0.03
0.03
(0.04)
Other
0.13
0.26
0.49
0.40
0.47
0.55
0.64
0.57
0.55
0.78
0.26
Revenue
3.48
3.82
4.34
4.53
3.96
3.58
3.69
3.60
3.20
3.53
2.67
(1.91)
(2.10)
(2.29)
(2.41)
(2.07)
(1.99)
(2.06)
(1.95)
(1.76)
(1.66)
(1.18)
1.57
1.72
2.05
2.12
1.89
1.59
1.63
1.65
1.44
1.87
1.50
(0.08)
(0.10)
(0.33)
(0.31)
(0.38)
(0.40)
(0.18)
(0.09)
(0.13)
(0.11)
(0.07)
Operating profit %
1.49
1.62
1.72
1.81
1.51
1.19
1.46
1.56
1.31
1.76
1.42
Associates
0.20
0.35
0.56
0.68
0.57
0.69
0.90
0.95
0.94
0.53
0.23
Net exceptionals
0.00
0.00
0.00
0.55
0.00
0.00
0.00
0.00
0.91
0.00
0.00
Pretax ROA
1.69
1.96
2.28
3.04
2.08
1.88
2.36
2.51
3.17
2.29
1.65
1.69
1.96
2.28
2.49
2.08
1.88
2.36
2.51
2.25
2.29
1.65
Opex
PPP%
Credit charge
Includes MENA to 2007; Asia includes Hong Kong from 2014. Source: CLSA, company data
92
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
HSBC Europe
Europe
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
9,098
8,221
8,289
7,746
9,696
12,268
11,250
11,001
10,394
10,693
10,611
5,980
6,299
7,108
8,431
7,492
6,267
6,371
6,236
6,169
6,032
6,042
997
3,036
4,529
6,943
5,357
5,459
2,863
2,161
2,707
4,423
2,534
362
144
1,226
1,113
(1,425)
282
2,468
(2,215)
418
1,351
Financial investments
838
439
624
1,326
418
50
486
515
364
379
772
Dividends
558
63
183
171
130
29
20
49
111
75
65
1,875
1,599
1,298
4,010
5,299
4,223
4,067
4,136
3,630
3,158
3,008
(1,628)
(818)
(531)
(3,479)
(3,367)
(5,589)
(4,706)
(3,499)
(4,630)
(4,740)
(3,819)
1,062
1,603
1,428
1,193
2,096
2,262
2,117
1,179
1,078
529
1,007
18,780
20,804
23,072
27,567
28,234
23,544
22,750
24,246
17,608
20,967
21,571
(12,028)
(12,639)
(13,871)
(16,525)
(16,072)
(13,988)
(15,445)
(17,069)
(19,095)
(17,613)
(20,217)
6,752
8,165
9,201
11,042
12,162
9,556
7,305
7,177
(1,487)
3,354
1,354
(1,033)
(1,929)
(2,155)
(2,542)
(3,754)
(5,568)
(3,020)
(2,512)
(1,921)
(1,530)
(764)
5,719
6,236
7,046
8,500
8,408
3,988
4,285
4,665
(3,408)
1,824
590
37
120
(72)
95
16
21
17
(6)
2,445
5,756
6,356
6,974
8,595
10,869
4,009
4,302
4,671
(3,414)
1,825
596
Preprovision profit
Credit charge
Operating profit
Associates
Net exceptionals
Pretax profit
Adj. pretax profit
Gross loans
5,756
6,356
6,974
8,595
8,424
4,009
4,302
4,671
(3,414)
1,825
596
282,476
316,028
396,175
456,206
430,050
445,616
441,462
439,578
468,761
461,673
414,157
- growth (%)
31.3
11.9
25.4
15.2
(5.7)
3.6
(0.9)
(0.4)
6.6
(1.5)
(10.3)
292,568
334,200
419,365
504,954
502,476
495,019
491,563
493,404
555,009
644,816
545,959
- growth (%)
20.5
14.2
25.5
20.4
(0.5)
(1.5)
(0.7)
0.4
12.5
16.2
(15.3)
LDR (%)
96.6
94.6
94.5
90.3
85.6
90.0
89.8
89.1
84.5
71.6
75.9
Assets
545,540
636,703
Avg assets
485,426
591,122
Deposits
Risk-weighted assets
339,700
301,600
340,200
314,700
300,100
375,400
43
38
38
34
30
34
33
35
37
39
40
Commercial (CMB)
24
21
21
24
20
20
21
23
23
23
26
Markets (GBM)
27
35
36
36
44
40
39
36
34
32
28
Private (GPB)
Other
100
100
100
100
100
100
100
100
100
100
100
Total
1.87
1.39
1.13
0.77
0.75
0.92
0.89
0.87
0.78
0.77
0.79
Net fees
1.23
1.07
0.97
0.84
0.58
0.47
0.51
0.49
0.46
0.43
0.45
Net trading
0.21
0.51
0.62
0.69
0.42
0.41
0.23
0.17
0.20
0.32
0.19
0.29
0.15
0.13
0.27
0.13
(0.10)
0.06
0.24
(0.13)
0.06
0.16
Net insurance
0.05
0.13
0.10
0.05
0.15
(0.10)
(0.05)
0.05
(0.07)
(0.11)
(0.06)
Other
0.22
0.27
0.19
0.12
0.16
0.17
0.17
0.09
0.08
0.04
0.08
Revenue
Opex
3.87
3.52
3.15
2.74
2.19
1.77
1.81
1.92
1.32
1.51
1.61
(2.48)
(2.14)
(1.89)
(1.64)
(1.25)
(1.05)
(1.23)
(1.35)
(1.43)
(1.27)
(1.51)
PPP%
1.39
1.38
1.26
1.10
0.94
0.72
0.58
0.57
(0.11)
0.24
0.10
(0.21)
(0.33)
(0.29)
(0.25)
(0.29)
(0.42)
(0.24)
(0.20)
(0.14)
(0.11)
(0.06)
Operating profit %
1.18
1.05
0.96
0.84
0.65
0.30
0.34
0.37
(0.26)
0.13
0.04
Associates
0.01
0.02
(0.01)
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Credit charge
Net exceptionals
0.00
0.00
0.00
0.00
0.19
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
1.19
1.08
0.95
0.85
0.84
0.30
0.34
0.37
(0.26)
0.13
0.04
1.19
1.08
0.95
0.85
0.65
0.30
0.34
0.37
(0.26)
0.13
0.04
5 June 2015
derek.ovington@clsa.com
93
Asian banks
HSBC - O-PF
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
14,993
14,887
14,268
14,847
15,218
13,670
12,439
11,480
8,117
5,742
5,015
3,535
4,606
4,766
5,810
5,227
4,817
3,664
3,308
2,513
2,143
1,940
415
1,013
1,358
(542)
(3,135)
331
314
(362)
507
948
411
434
(63)
1,750
3,737
(3,496)
111
964
(1,219)
(288)
(99)
236
88
58
245
(120)
296
143
262
251
294
257
32
42
85
105
77
53
42
40
61
77
44
553
602
492
449
390
309
245
236
193
34
(312)
(333)
(259)
(241)
(238)
(241)
(144)
(154)
(148)
(39)
718
740
922
360
23
566
233
226
406
(108)
584
20,170
22,079
21,627
22,783
21,179
16,305
17,047
16,000
10,681
8,803
8,152
Operating expenses
(9,070)
(10,217)
(10,193)
(10,556)
(9,359)
(8,391)
(8,322)
(8,919)
(8,940)
(6,416)
(6,429)
(10,564)
Preprovision profit
11,100
11,862
11,434
12,227
1,256
7,914
8,725
7,081
1,741
2,387
1,723
Credit charge
(5,022)
(5,038)
(6,796)
(12,156)
(16,795)
(15,664)
(8,295)
(7,016)
(3,457)
(1,197)
(322)
6,078
6,824
4,638
71 (15,539)
(7,750)
430
65
(1,716)
1,190
1,401
(8)
48
30
20
11
12
24
35
31
16
4,012
6,070
6,872
4,668
91 (15,528)
(7,738)
454
100
2,299
1,221
1,417
91 (15,528)
(7,738)
454
100
(1,713)
1,221
1,417
220,529
199,702
149,928
146,372
132,190
132,427
Goodwill amortisation
Operating profit
Associates
Net exceptionals
Pretax profit
Adj. pretax profit
Gross loans
6,070
6,872
4,668
254,346
270,770
285,234
- growth (%)
Deposits
301,840
272,304
28.5
6.5
5.3
5.8
(9.8)
(19.0)
(9.4)
(24.9)
(2.4)
(9.7)
0.2
132,900
125,830
120,922
145,173
143,532
149,157
158,486
171,126
149,037
196,495
138,884
(29.3)
- growth (%)
41.4
(5.3)
(3.9)
20.1
(1.1)
3.9
6.3
8.0
(12.9)
31.8
191.4
215.2
235.9
207.9
189.7
147.9
126.0
87.6
98.2
67.3
95.4
Assets
371,183
463,143
511,190
510,092
596,302
475,014
492,487
504,302
490,247
432,035
436,859
Avg assets
330,492
417,163
487,167
510,641
553,197
535,658
483,751
498,395
497,275
461,141
434,447
369,200
330,700
337,300
253,000
223,800
221,400
LDR (%)
Risk-weighted assets
Loan mix (%)
Retail (RBWM)
77
80
79
75
70
73
69
67
54
52
47
Commercial (CMB)
11
12
12
13
14
15
16
19
26
29
32
Markets (GBM)
11
14
13
11
16
14
16
Private (GPB)
Other
Total
100
100
100
100
100
100
100
100
100
100
100
4.54
3.57
2.93
2.91
2.75
2.55
2.57
2.30
1.63
1.25
1.15
Net fees
1.07
1.10
0.98
1.14
0.94
0.90
0.76
0.66
0.51
0.46
0.45
Net trading
0.13
0.24
0.28
(0.11)
(0.57)
0.06
0.06
(0.07)
0.10
0.21
0.09
0.08
0.14
0.02
0.41
0.67
(0.59)
0.06
0.25
(0.18)
0.02
0.05
Net insurance
0.07
0.06
0.05
0.04
0.03
0.01
0.02
0.02
0.01
0.00
0.00
Other
0.22
0.18
0.19
0.07
0.00
0.11
0.05
0.05
0.08
(0.02)
0.13
Revenue
Opex
PPP%
6.10
5.29
4.44
4.46
3.83
3.04
3.52
3.21
2.15
1.91
1.88
(2.74)
(2.45)
(2.09)
(2.07)
(3.60)
(1.57)
(1.72)
(1.79)
(1.80)
(1.39)
(1.48)
3.36
2.84
2.35
2.39
0.23
1.48
1.80
1.42
0.35
0.52
0.40
(1.52)
(1.21)
(1.40)
(2.38)
(3.04)
(2.92)
(1.71)
(1.41)
(0.70)
(0.26)
(0.07)
Operating profit %
1.84
1.64
0.95
0.01
(2.81)
(1.4)
0.09
0.01
(0.3)
0.26
0.32
Associates
0.00
0.01
0.01
0.00
0.00
0.00
0.00
0.01
0.00
0.01
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.81
0.00
0.00
Pretax ROA
1.84
1.65
0.96
0.02
(2.81)
(1.4)
0.09
0.02
0.46
0.26
0.33
1.84
1.65
0.96
0.02
(2.81)
(1.4)
0.09
0.02
(0.3)
0.26
0.33
Credit charge
94
derek.ovington@clsa.com
5 June 2015
Asian banks
HSBC - O-PF
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
1,310
1,750
4,197
5,576
6,458
5,573
6,311
6,956
6,984
6,186
5,310
459
537
1,630
2,153
2,167
1,729
1,749
1,781
1,735
1,701
1,415
54
409
537
548
701
848
733
1,378
971
936
856
186
237
320
364
495
425
550
667
326
691
129
39
84
253
176
168
98
137
227
82
84
20
11
12
14
15
596
746
1,076
1,594
1,717
1,900
2,054
2,653
2,452
1,830
1,523
(459)
(691)
(1,023)
(1,427)
(1,390)
(1,833)
(1,792)
(2,344)
(2,353)
(1,617)
(1,765)
28
188
91
228
300
133
141
328
253
1,115
149
2,119
3,168
6,835
9,254
10,513
9,024
9,731
11,453
10,951
10,568
8,272
(1,413)
(1,967)
(4,166)
(5,402)
(5,990)
(5,375)
(6,394)
(7,255)
(6,430)
(5,930)
(5,932)
706
1,201
2,669
3,852
4,523
3,649
3,337
4,198
4,521
4,638
2,340
(267)
(554)
(938)
(1,697)
(2,492)
(2,526)
(1,544)
(1,883)
(2,137)
(2,666)
(2,124)
439
647
1,731
2,155
2,031
1,123
1,793
2,315
2,384
1,972
216
Associates
12
Net exceptionals
11
440
647
1,735
2,178
2,037
1,124
1,795
2,315
2,384
1,972
216
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
Pretax profit
Adj. pretax profit
Gross loans
- growth (%)
440
647
1,735
2,167
2,037
1,124
1,795
2,315
2,384
1,972
216
7,809
10,103
37,180
49,915
44,287
50,182
59,997
57,949
55,771
46,482
45,652
39.3
29.4
268.0
34.3
(11.3)
13.3
19.6
(3.4)
(3.8)
(16.7)
(1.8)
10,958
16,545
50,861
61,292
59,443
72,889
88,526
78,760
66,556
54,199
48,588
- growth (%)
57.8
51.0
207.4
20.5
(3.0)
22.6
21.5
(11.0)
(15.5)
(18.6)
(10.4)
LDR (%)
71.3
61.1
73.1
81.4
74.5
68.8
67.8
73.6
83.8
85.8
94.0
Assets
17,368
24,734
80,771
99,056
102,946
115,967
139,938
144,889
131,277
113,999
115,354
Avg assets
14,959
21,051
52,753
89,914
101,001
109,457
127,953
142,414
138,083
122,638
114,677
81,700
95,900
102,300
97,900
89,500
88,800
Deposits
Risk-weighted assets
Loan mix (%)
Retail (RBWM)
49
51
45
45
44
41
36
34
32
31
29
Commercial (CMB)
21
36
32
34
37
38
43
46
47
45
47
Markets (GBM)
25
12
23
21
20
20
21
20
20
23
25
Private (GPB)
Other
100
100
100
100
100
100
100
100
100
100
100
Total
8.76
8.31
7.96
6.20
6.39
5.09
4.93
4.88
5.06
5.04
4.63
Net fees
3.07
2.55
3.09
2.39
2.15
1.58
1.37
1.25
1.26
1.39
1.23
Net trading
0.36
1.94
1.02
0.61
0.69
0.77
0.57
0.97
0.70
0.76
0.75
0.88
1.09
0.62
0.65
0.55
0.62
0.42
0.49
0.66
0.34
0.68
Net insurance
0.92
0.26
0.10
0.19
0.32
0.06
0.20
0.22
0.07
0.17
(0.21)
Other
0.19
0.89
0.17
0.25
0.30
0.12
0.11
0.23
0.18
0.91
0.13
Revenue
14.17
15.05
12.96
10.29
10.41
8.24
7.61
8.04
7.93
8.62
7.21
Opex
(9.45)
(9.34)
(7.90)
(6.01)
(5.93)
(4.91)
(5.00)
(5.09)
(4.66)
(4.84)
(5.17)
PPP (%)
4.72
5.71
5.06
4.28
4.48
3.33
2.61
2.95
3.27
3.78
2.04
(1.78)
(2.63)
(1.78)
(1.89)
(2.47)
(2.31)
(1.21)
(1.32)
(1.55)
(2.17)
(1.85)
2.93
3.07
3.28
2.40
2.01
1.03
1.40
1.63
1.73
1.61
0.19
Associates
0.01
0.00
0.01
0.01
0.01
0.00
0.00
0.00
0.00
0.00
0.00
Credit charge
Net exceptionals
0.00
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
2.94
3.07
3.29
2.42
2.02
1.03
1.40
1.63
1.73
1.61
0.19
2.94
3.07
3.29
2.41
2.02
1.03
1.40
1.63
1.73
1.61
0.19
5 June 2015
derek.ovington@clsa.com
95
Asian banks
HSBC - O-PF
2008
2009
2010
2011
2012
2013
2014
1,556
1,485
1,367
1,432
1,470
1,486
1,519
691
625
677
627
595
622
650
402
394
370
482
390
357
314
FV gains
10
(12)
(2)
(3)
Financial investments
16
(3)
(8)
(18)
22
Dividends
14
Net claims
Other income
71
(8)
59
(27)
49
32
Revenue
Operating expenses
Goodwill amortisation
Preprovision profit
Credit charge
Operating profit
Associates
Net exceptionals
Pretax profit
Adj pretax profit
Gross loans
- growth (%)
Deposits
- growth (%)
2,668
2,594
2,410
2,607
2,430
2,503
2,548
(959)
(1,001)
(1,078)
(1,159)
(1,166)
(1,289)
(1,216)
1,709
1,593
1,332
1,448
1,264
1,214
1,332
(279)
(1,334)
(627)
(293)
(286)
42
1,430
259
705
1,155
978
1,256
1,338
316
196
187
337
372
438
488
1,746
455
892
1,492
1,350
1,694
1,826
1,746
455
892
1,492
1,350
1,694
1,826
27,709
24,222
26,278
27,589
29,880
28,776
30,450
na
(12.6)
8.5
5.0
8.3
(3.7)
5.8
35,165
32,529
33,511
36,422
39,583
38,683
38,720
na
(7.5)
3.0
8.7
8.7
(2.3)
0.1
78.8
74.5
78.4
75.7
75.5
74.4
78.6
Assets
50,952
48,107
52,757
57,464
62,605
60,810
62,417
Avg assets
50,952
49,530
50,432
55,111
60,035
61,708
61,614
54,300
54,100
58,900
62,200
62,500
63,000
LDR (%)
Risk-weighted assets
Loan mix (%)
Retail (RBWM)
26
26
21
19
21
23
22
Commercial (CMB)
48
45
50
48
48
43
45
Markets (GBM)
24
29
29
33
31
34
33
Private (GPB)
Other
100
100
100
100
100
100
100
Net interest
3.05
3.00
2.71
2.60
2.45
2.41
2.47
Net fees
1.36
1.26
1.34
1.14
0.99
1.01
1.05
Net trading
0.79
0.80
0.73
0.87
0.65
0.58
0.51
0.02
0.04
0.01
0.01
0.00
(0.02)
0.05
Net insurance
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Other
0.02
0.14
(0.02)
0.11
(0.04)
0.08
0.05
Revenue
5.24
5.24
4.78
4.73
4.05
4.06
4.14
(1.88)
(2.02)
(2.14)
(2.10)
(1.94)
(2.09)
(1.97)
3.35
3.22
2.64
2.63
2.11
1.97
2.16
(0.55)
(2.69)
(1.24)
(0.53)
(0.48)
0.07
0.01
2.81
0.52
1.40
2.10
1.63
2.04
2.17
Associates
0.62
0.40
0.37
0.61
0.62
0.71
0.79
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
3.43
0.92
1.77
2.71
2.25
2.75
2.96
3.43
0.92
1.77
2.71
2.25
2.75
2.96
Total
ROA drivers (% of avg assets)
Opex
PPP%
Credit charge
Included in Rest of Asia Pacific prior to 2008. Source: CLSA, company data
96
derek.ovington@clsa.com
5 June 2015
Citigroup
US$47.72 - BUY
Mike Mayo
mike.mayo@clsa.com
+1 212 549 5000
Even while Citigroup needs to get back to average, Citi Asia is already
above-average and likely to get better based on our meeting with the CEO
of Asia. Structurally, it is a premier Asian bank that benefits from faster
growth, high-end customers, and better-than-peer performance.
Cyclically, revenue headwinds have hurt but performance should improve
as it benefits from restructuring that seems farther along than for the
firm as a whole. Citi Asia is one reason that Citis stock price discount to
tangible book seems like an investment opportunity, as discussed more
fully in our 200-page report Alpha banks.
Chris Spahr
+1 212 549 5005
3 February 2015
USA
Structural strength
Citi Asia (one-fifth of Citigroup) has a superior franchise based on competitor
positioning (top three in Asia), expansiveness (18 countries), consumer
clients (affluent and urban) and wholesale clients (emerging-market
champions, multinationals). ROA is one-tenth higher than regional
competitors (weighted average by market). Credit is better vs the likes of
StanChart, aided by changes in India and Korea and deeper moves into the
affluent. Citi looks to export Asian best practices, such as those related to
digital delivery, service, and systems.
Financial services
Reuters
Bloomberg
C.N
C US
US$56.37/45.68
US$73.00
+53%
Shares in issue
Free float (est.)
2,848.3m
62.0%
Market cap
US$144,567m
US$949.4m
(US$949.4m)
1M
3M
12M
(12.1)
(10.4)
(12.1)
(10.9)
(11.0)
(10.9)
0.6
(10.7)
0.6
(% )
150
(U S $ )
55
100
50
44
50
39
34
Jan -13
Jul-13
Jan -14
Jul-14
Citigroup (LH S)
Rel to 500 (RHS )
Source: Bloomberg
www.clsa.com
Financials
Year to 31 December
Operating income (US$m)
Net income (US$m)
EPS (US$)
CL/consensus (23) (EPS%)
EPS growth (% YoY)
ROA (%)
ROE (%)
PE (x)
PB (x)
DPS (US$)
Dividend yield (%)
13A
76,366
12,943
4.34
74.6
0.7
6.9
11.0
0.8
0.04
0.1
14A
76,882
6,694
2.20
(49.3)
0.4
3.4
21.7
0.7
0.04
0.1
15CL
74,314
16,508
5.50
102
149.9
0.9
8.1
8.7
0.7
0.34
0.7
16CL
78,960
18,689
6.40
109
16.4
1.0
8.8
7.5
0.6
0.77
1.6
17CL
84,748
20,280
7.15
110
11.6
1.1
9.1
6.7
0.6
1.14
2.4
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@tor proprietary database at clsa.com
Produced by CLSA Americas LLC. For important disclosures please refer to page 192.
Asian banks
Citigroup - BUY
AsiaXposiaTM
Asia
LatAm 19%
17%
EMEA
14%
North
America
42%
Holdings
8%
ICG
49%
Retail
banking
31%
Cards
20%
Note: ICG is Institutional Clients Group; 2014 full-year revenues excluding credit valuation and debt
valuation adjustments (CVA/DVA). Source: Company
Summary
We met with the CEO of Citi Asia (Stephen Bird), which comprises one-fifth of
Citi and consists of equal parts consumer and wholesale. For his entire time at
Citigroup, he has been in emerging markets and mostly in Asia. This includes
Singapore in 1998 and other positions during market turmoil, including
Argentina (2000), Japan consumer finance (2001-05) and the Global Financial
Crisis (as head of Citis Asia Consumer Banking from 2006-08). In other
words, this is not his first rodeo.
We used the meeting as a chance to take another look at the Asian franchise
and consult with CLSAs 20-person Asian banking team. The most exciting
takeaway is that Citi Asia can potentially reflect Citi (the entire firm) of the
future, at least based on customers, costs, and credit. First, with customers,
Citigroup has further transitioned from mass market to mass affluent, and Citi
Asia is farther along. This is a high-end business that has become higher end.
This partly reflects the history. Citi couldn't open so many branches and so
they were more selective. This also reflects a reaction to legacy problems,
which led to eliminating subprime, rejiggering India, and aligning other
markets. The 20-person on-the-ground CLSA Asian banking team agrees
about the competitive positioning.
Second, with costs, Citigroup as a whole is restructuring, and Citi Asia is
farther along and should see the benefits sooner. Theres direct benefits, such
as the completion of the Korea restructuring (estimated $300m of charges in
2014), retooling with Project Rainbow or systems standardization (est.
another $100m of charges), and front-loaded costs related to a new
insurance joint venture with AIA. There are also indirect benefits to Project
98
mike.mayo@clsa.com
5 June 2015
Citigroup - BUY
Asian banks
Structural strength
5 June 2015
mike.mayo@clsa.com
99
Asian banks
Citigroup - BUY
Compared to regional
peers, Citi is
outperforming in
terms of ROA
The ROA at Citi Asia is about one-tenth greater than those of regional peers
based on a weighted average of individual country ROAs (1.05% vs 0.95%).
Indeed, without Korean restructuring charges in 2014 (estimated $300m),
Citis ROA would have been slightly higher (1.08%). In part, the difference
reflects Citis product mix, which is very card heavy, and card activities tend
to have high ROAs in stable to benign consumer credit environments. On the
other hand, we should expect a greater differential given Citi has a more
focused distribution platform, which should keep costs lower over time.
Figure 1
Citi Asia
Wtd ROA
Australia
0.93
14.5
0.14
China
1.29
10.0
0.13
HK
0.72
10.1
0.07
India
1.02
10.2
0.10
Indonesia
2.69
4.0
0.11
Japan
0.44
2.5
0.01
Korea
0.48
10.0
0.05
Malaysia
1.15
4.0
0.05
Philippines
1.19
4.0
0.05
Singapore
1.04
10.3
0.11
Taiwan
1.22
8.2
0.10
Thailand
1.56
4.0
0.02
Other EM
1.32
8.2
0.02
0.95
1.01
1.07
1.05
Note: Weights are based on Citicorp Asia presentation November 2014; Other EM ROA is the average the
individual country ROAs less Japan, Korea and Australia; Australia and Japan weights are estimated and
based on DM Asia exposures further broken down by consumer loans. Country ROAs provided by CLSA
financial-services analysts covering each country. Source: CLSA, company
A good place to be
Asia should continue to grow at a faster pace than the USA given a variety of
reasons discussed by CLSA, such as an emerging middle class, faster
economic growth (more so in China and India), transition to capital markets,
and likely faster GDP growth. Per IMF estimates, GDP growth should be twice
as fast for emerging and developing Asia as for the USA for 2015-19 (est.
6.5% vs 2.9%).
100
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Asian banks
Citigroup - BUY
Figure 2
Key Asian markets should grow much faster than developed Western markets
(%)
2014E
2015E
7.3
6.5
6.9
5.6
4.2
5.0
4.6
4.2
3.2
2.2
3.0
3.3
2.2
1.7
0.8
Developed
markets
Emerging
markets
1.1
Euro Area
US
Asia (exChina)
ASEAN
India
China
Note: Citis Global Economic Outlook and Strategy October 2014. ASEAN includes the five largest countries in the region: Singapore, Indonesia,
Malaysia, Thailand and Philippines. Source: Company
Citi ranks top three in Asia along with HSBC and Standard Chartered in Asia
Pacific ex-Japan based on both size and expansiveness. On the one hand, Citi
ranks only 17% largest in Asia based on net income. Yet, it is broader than
others, including many Chinese and Japanese banks (and also Australian, to a
degree) that have very large domestic operations but not much elsewhere in
the region. Citi serves institutional and individual clients in 18 countries, with
over half of those contributing at least $1bn in annual revenue. Citi Asia
reports $15bn across the region in total. Thus, while Citi does not rank top
three in any given country, its regional presence is felt given its size, breadth
and legacy in the region.
Unique franchise
Citi ranks top three in Asia along with HSBC and Standard Chartered in Asia
Pacific ex-Japan based on both size and expansiveness. On the one hand, Citi
ranks only 17% largest in Asia based on net income. Yet, it is broader than
others, including many Chinese and Japanese banks (and also Australian, to a
degree) that have very large domestic operations but not much elsewhere in
the region. Citi serves institutional and individual clients in 18 countries, with
over half of those contributing at least $1bn in annual revenue. Citi Asia
reports $15bn across the region in total. Thus, while Citi does not rank top
three in any given country, its regional presence is felt given its size, breadth
and legacy in the region.
CLSA has a team of 20 analysts on-the-ground in Asia. The view of this team,
led by Derek Ovington, is that Citi has a unique franchise with an effective
strategy and valuable management, as summarized below for the region and
for specific countries on the subsequent few pages:
5 June 2015
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101
Asian banks
Citigroup - BUY
Citigroup is one of the few regional banking groups with a material network
across many key trading countries and financial centres in Asia, competing
in both wholesale/corporate and retail banking. Its spread of operations
enables it to compete effectively in transactional banking for multinational
corporations. Citis executives are, in general, well regarded and regularly
hired by competitors. For example, the current CEO of DBS (Piyush Gupta)
of Singapore is formerly of Citibank, as are HSBCs Head of Asia (Peter
Wong) and ANZs Head of Institutional and International Banking (Andrew
Geczy). We believe these competitive hires do not represent a brain-drain at
Citigroup, but rather that the firm has demonstrated an ability to identify
and develop local talent across the region, and that its management bench
is deep.
Citigroup has withstood the Global Financial Crisis, from an Asian marketshare point of view, and remains a keen competitor. In consumer banking,
Citi is a leading brand aimed at the lucrative professional/expatriate/massaffluent segment, with a particular strength in credit cards. Its key weakness
lies in its relatively small scale given its choice not to compete in the mass
market of consumer banking. In wholesale banking, Citigroup is a leading
investment bank, a top-three transactional bank and one of the largest
regional lenders in Asia, with a historical legacy and geographic spread
matched only by HSBC and Standard Chartered.
In terms of identifying regional market share, Citigroup and its main
competitors (HSBC and StanChart) are not huge by total loan book in Asia,
but these are sizable regional portfolios, as opposed to the domestic banking
operations of the large banks in China, Japan and Australia.
Figure 3
Figure 4
Other EM
8%
Taiwan
8%
DM
17%
Korea
10%
Other Asia
32%
ASEAN ex
Singapore
16%
China
10%
Hong Kong
10%
Korea
18%
India
10%
China
11%
Singapore
10%
Singapore
14%
Hong
Kong
14%
Australia
11%
Country-by-country analysis
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5 June 2015
Citigroup - BUY
Asian banks
China - Citi has been in China since 1902. Similar to other foreign banks
Hong Kong - Citi opened its first Hong Kong banking office in 1902 and is
India - Citi began operating in Kolkata in 1902. The firm offers a full suite
5 June 2015
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103
Citigroup - BUY
Asian banks
Figure 5
Strong franchise in an
attractive region
Japan - Citi opened its first Japanese branch in 1902 (in Yokohama) and
historically was a major foreign bank in both wholesale and retail banking
for most of last century. Citibank Asia operates a domestic banking
subsidiary in Japan with branches in all major urban centers. In terms of
deposits, Citibank Japan is currently ranked the 45th-largest bank with
deposits of ($33.11bn) as of end-September 2014. However, according to
CLSAs Japanese bank analyst Brian Waterhouse, severe interbank
competition for loan business and unacceptably low returns on most
commercial loans have limited Citibanks Japanese loan portfolio to just
$4.3bn, ranking the bank 148th-largest bank in Japan by loan assets.
Citibank is currently in the process of selling its retail deposits and credit
card businesses to Japanese megabank SMBC, reportedly for an amount in
the region of $340m.
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5 June 2015
Citigroup - BUY
Asian banks
Korea - In 1967, Citi became the first foreign bank to set up operations in
Korea. In November 2004, Citi became one of the largest local players
with its acquisition of KorAm Bank; however, it has been reducing its local
presence the past few years.
According to CLSAs Korean bank analyst Shaun Cochran, the overly tight
regulatory environment of Korea has led many foreign banks to severely
cut costs or close their Korean businesses. Citi Korea was not an exception
to this. Citi Capital Korea made net losses in 2011, 2012 and 2013, and
finally decided to sell off its Korean capital business. Citigroup announced
it will focus on consumer and corporate banking businesses which they will
not be closing down anytime in the future.
Citibank has adopted a digital sales model in which they shut down
physical locations and move everything on-line. Hence the bank has shut
down 56 branch offices and laid off 650 employees in 2014. Currently 91%
of Citibank Koreas transactions are done online (smartphone / internet).
In line with the digital sales model, Citibank Korea has recently created a
new department called customer franchise department which analyses
client information, digital banking, marketing / customer satisfaction data.
Malaysian bank analyst Asheefa Sarangi, Citi has been struggling to get
deposits in the door as balances are going backwards and it appears that
Citi is not paying up for liquidity in this competitive market. As a
consequence, loan growth is below the industry average. Citibank Malaysia
is consumer bank weighed towards credit cards (industry leading market
share but balances havent grown in the past year) and mortgages. Overall,
it has less than 2% market share. Citis subscale presence probably means
that they dont bring in enough revenues to cover their cost of investment
as the overhead ratio (expenses/revenues) is 53% based on local regulatory
filings. This, along with low leverage (<9x) is holding back ROE to 4.4%. On
the other hand, asset quality is holding up quite well.
complete range of retail and wholesale products and services. Per the
company, Citi is the largest banking employer in Singapore (10,000
workforce per Singapore Business Review; 2013 data). It is the site of
many processing and datacenter hubs serving 60 countries around the
world, and it is the regional service center supporting 16 Asian countries.
Including both wholesale and consumer activities, Citibank Singapore is
the seventh-largest bank in the country (based on 2013 data); however,
Citibank Singapore has less financial information disclosed than other
countries limiting direct performance comparisons with local competitors.
Taiwan - Citi opened its first branch in Taiwan in 1965. Citibank is one of
three foreign banks that has a meaningful presence in Taiwan, the other
two being HSBC and StanChart. But this is a market that is dominated by
local players, with the foreign peers trailing the local players materially in
terms of loans and assets. Citi does have a good presence in the credit
card business though, ranked third behind Chinatrust and Cathay.
5 June 2015
mike.mayo@clsa.com
105
Asian banks
Citigroup - BUY
Citicorp took a 50% stake in Bangkok First Investment Trust. In 1984, Citi
acquired the Mercantile Bank in Thailand that ultimately resulted in the
bank getting a full banking license at the start of the following year.
Today, Citi Thailand offers a full range of retail and wholesale banking
products and services, including credit cards, Ready Credit (a cash
product), personal loans and wealth management. Its market share is not
considered material relative to the large local banks according to CLSAs
Thailand bank analyst David Beller.
Figure 6
Bank
Assets
Loans
Deposits
Revenues
Net income
1
2
ICBC
3,237
1,757
2,475
103.2
44.2
CCB
2,680
1,522
2,105
90.0
36.9
Agricultural Bank
2,588
1,289
2,049
85.2
29.2
Bank of China
2,490
1,356
1,785
74.0
26.1
HSBC
2,647
1,140
1,520
61.0
16.1
Bocom
982
565
672
29.0
10.5
CMB
787
398
523
27.9
9.4
MUFG
2,192
866
1,362
40.8
9.1
Minsheng
574
284
387
20.8
7.3
10
CBA
11
SMFG
12
626
480
394
18.1
7.0
1,372
579
918
35.6
6.9
Westpac
609
461
364
15.9
6.1
13
ANZ Bank
610
416
403
15.3
5.7
14
Mizuho Financial
1,493
589
865
22.8
5.4
15
NAB
698
430
376
15.2
4.4
16
Standard Chartered
672
303
378
18.2
4.0
17
Citi Asia
337
157
246
14.7
3.6
18
280
137
195
5.9
3.2
19
DBS
319
201
232
7.2
3.1
20
OCBC
296
155
180
6.2
2.8
21
SBI
390
263
299
18.7
2.8
22
UOB
228
148
169
5.5
2.3
23
Shinhan
310
209
173
7.6
2.0
24
Maybank
171
111
120
5.0
1.8
25
Woori Financial
244
187
169
4.7
1.5
Note: Citi Asia assets based on average assets for 4Q14, loans and deposits as of 3Q14-end and revenues and net income as reported for full-year
2014; all other companies are CLSA estimates. Source: CLSA, companies
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5 June 2015
Asian banks
Citigroup - BUY
Operating primarily under the Citibank brand, Citis Asia Consumer represents
about a fifth of Global Consumer Banking revenue and a little less than one
third of consumer loans and deposits. It is one of the regions oldest (since
1902), broadest across countries (more so than HSBC, which is focused more
around Hong Kong) and largest retail distributors in Asia (130 Smart Banking
branches, 465 total retail branches, 2,500 ATMs), even though it does not
rank in the top three in consumer in any one country. The brand name carries
a degree of cachet. Through Citigold Private Client and Citigold banking
services, Citi Asia serves more than 600,000 of the region's most affluent
consumers. Citibank is also the top card issuer in Asia Pacific, with about 17m
open card accounts. Asia Consumer largest markets are mostly in developed
Asia (Korea, Singapore, Australia, Hong Kong and Taiwan) with growth
opportunities in Asias biggest consumer markets (China and India).
Figure 7
Figure 8
Figure 9
EMEA
3% Latin
America
13%
EMEA
4%
Latin
America
14%
North
America
52%
North
America
53%
Asia
31%
EMEA
4%
North
America
52%
Asia
30%
Latin
America
24%
Asia
20%
Note: average loans and deposits as of 4Q14; revenues are full-year 2014. Source: Company
Figure 10
Taiwan
8%
Australia
13%
Hong
Kong
12%
India
7%
Malaysia
6%
China
5%
Singapore
16%
Korea
26%
Japan
2%
Thailand
2%
Indonesia
1%
Other Asia
1%
5 June 2015
Over the long term, Asia Consumer should be its fastest-growing consumer
segment, and the unit should reflect Citis prototype for the rest of the
franchise for three reasons. First, the target segment is the affluent and
emerging affluent as opposed to the mass market. To that end, Citi has been
allowing exposures to down-market customers to roll off, such as in Korea, or
consumer finance in general across the region as a whole. Second, branch
networks are geared towards major metropolitan areas. If markets do not
have sufficient and consistent affluent customer base, Citi has been closing
mike.mayo@clsa.com
107
Asian banks
Citigroup - BUY
branches in rural areas, while adding new ones in urban ones. In certain
circumstances, Citi has been pulling out of entire countries such as Japan,
Pakistan and Guam. Citi intends to target more growth in Asia Consumer,
especially given favorable risk-adjusted returns due to the combination of an
ability to charge more for risk (as opposed to the USA) and customers who
pay back more often (as opposed to Latin America).
Aiding the client experience is integrating systems, which should also lead to
improved synergies. For example, Citi Asia has developed and launched a
common operating platform that serves as model for global Rainbow project.
It is also enhancing its retail ecosystem by optimizing physical and digital
touch points, creasing a lower-cost but high-impact footprint.
An opportunity for Citi Asia is its relationship with insurance company AIA,
which is the legacy Asia franchise of AIG. The arrangement allows for Citi to
switch from a somewhat generalized open-architecture platform to one that
eventually will exclusively sell AIA life insurance products across its entire
Asia branch network. While Citi has not given specific financial metrics with
regards to upfront costs that are shared with AIA (including training and
systems), the back-end revenue benefits have the potential to accelerate
revenue growth as well as improve the regions efficiency ratio. Citi said it
takes about two years for arrangements like the AIA-Citi deal work, and the
company entered this deal in December 2013.
Figure 11
Figure 12
Figure 13
EMEA
3%
North
America
53%
Asia
31%
Latin
America
13%
EMEA
4%
North
America
52%
Latin
America
14%
Asia
30%
EMEA
4%
North
America
52%
Asia
20%
Latin
America
24%
Note: average loans and deposits as of 4Q14; revenues are full-year 2014. Source: Company
108
mike.mayo@clsa.com
5 June 2015
Asian banks
Citigroup - BUY
Figure 14
Korea
7%
Other Asia
38%
Singapore
12%
Hong Kong
18%
China
18%
Australia
7%
Note: estimated loan mix based on Citicorp Asia loan mix by country as disclosed in a November 2014
presentation and adjusted for consumer loans by country as disclosed in its 4Q14 earnings presentation.
Source: CLSA, company
Per CLSAs Derek Ovington, all of the existing and budding regional wholesale
banking players see Citigroup as one of the top-three players. HSBC and
StanChart - the others in the top three - also nominate Citi as a key
competitor as well. Per league tables in 2014, Citi ranked No.2 in debt
underwriting, No.3 in M&A and No.6 in equity underwriting. In lending,
however, Citi ranks No.16, as the company has been deemphasizing excessive
balance sheet usage for several years. Citi also has been among the largest
foreign-exchange players in the region (along with Deutsche Bank).
Citigroups ICG revenues are materially higher than its US competitors with
significant operations in Asia. For example, Citis ICG businesses are over
50% larger than US competitor average. In addition, while Citis ICG revenue
growth rate has sluggish (0.5% Cagr between 2010 and 2014), it still has
been better than its US competitors, which collectively have averaged a
-2.8% Cagr over that same time period.
Figure 15
2011
2012
2013
2014
Cagr
7,029
7,192
7,102
7,382
7,172
0.5
GS
7,148
3,864
5,392
5,520
5,313
(7.1)
MS
4,320
3,302
2,824
4,593
4,397
0.4
BAC
4,187
10,890
3,478
4,442
na
nm
JPM
4,775
4,589
4,100
4,698
4,461
(1.7)
Note: 2014 is annualized data reported for the first nine months of 2014 for all companies except
Citigroup. Source: Companies
5 June 2015
mike.mayo@clsa.com
109
Asian banks
Citigroup - BUY
Figure 16
Market
Share
Number of
Issues
Morgan Stanley
53.4
5.3
368
Citigroup
49.3
4.9
219
46.8
4.7
397
45.1
4.5
422
Nomura
40.6
4.0
273
JP Morgan
36.5
3.6
175
Deutsche Bank
36.3
3.6
229
32.2
3.2
136
CITIC
29.5
2.9
87
10
UBS
Rank
Book Runner
Industry Total
28.8
2.9
149
1,004.7
100.0
4,325
Financial Advisor
Deal values
($bn)
Market
Share
Number of
Deals
1
2
Morgan Stanley
165.3
17.6
118
127.6
13.6
119
Citigroup
91.4
9.8
98
90.1
9.6
56
CITIC
81.2
8.7
42
UBS
78.6
8.4
72
Somerley
77.7
8.3
46
JP Morgan
69.2
7.4
78
58.2
6.2
38
10
Deutsche Bank
54.9
5.9
47
627.1
66.9
3,155
309.7
33.1
11,569
Industry Total
936.8
100.0
14,724
Book Runner
Volume
(US$bn)
Market
Share
Number of
Issues
1
2
Morgan Stanley
25.1
8.3
104
23.2
7.7
91
UBS
15.8
5.2
127
Deutsche Bank
15.5
5.1
69
Nomura
14.6
4.9
111
Citigroup
13.9
4.6
64
Credit Suisse
13.2
4.4
87
JP Morgan
12.1
4.0
70
10.6
3.5
51
10
CITIC
8.3
2.7
56
301.0
100.0
2,532
Industry Total
Note: 2014 issuance volume. Source: Thomson Reuters
Consistent with the change in the tone at the top of Citigroup, the company
insists that league tables are not the key measure of its success as opposed
110
mike.mayo@clsa.com
5 June 2015
Citigroup - BUY
Asian banks
to revenue growth and profitability. This should help Citigroup achieve its
ROA, ROE and efficiency targets. Also, compared to Citis consumer
businesses in Asia, ICG appears to be farther along given a more developed
client focus and somewhat less silo'ed approach. This creates more potential
for the firm to leverage its heft in the region. Citi remains a major player in
the region that varies by product. Per CLSAs Derek Ovington, all of the
existing and budding regional wholesale banking players see Citigroup as one
of the top-three players. HSBC and StanChart - the others in the top three also nominate Citi as a key competitor as well. Citi also has been among the
largest foreign-exchange players in the region (along with Deutsche Bank).
Citis ICG strategy in Asia mirrors its global focus generally. The product
offerings are similar given investment banking, trading, large corporate
lending (formerly known as legacy Banking & Securities activities) and cash
management, trade finance and securities and fund services (Citi Transaction
Services). Citi looks to focus on the markets and segments where it has a
competitive advantage, particularly the world's 1,000 largest corporate and
multinational customers and the world's 500 largest investors.
5 June 2015
mike.mayo@clsa.com
111
Asian banks
Citigroup - BUY
Citi Asias ROA has declined from 1.4% to 1.0% (2010-14) given sluggish
revenue growth in both consumer (margin pressure) and wholesale (fees)
and worse efficiency (56% to 59%). The main issue has been Consumer (1/2
of Asia), whose ROA declined from 2% to 1% and efficiency got much worse.
At least some of the issue, restructuring in Korea, seems done and should
help an improvement. Our expectation is that the ROA will increase back to
1.4%. Another issue is the change in tax allocation (to take advantage of
Citis large deferred tax asset base), which increased Citis effective tax rate
in Asia and, as a consequence, has hurt ROA by estimated 20bp.
On balance, our meeting with the CEO gave us increased confidence that Citi
can take advantage of its relative strengths and comparative advantages,
especially its brand (100% awareness in many countries) and unique countryspecific knowledge. Part of the expected improvement seems only a matter of
avoiding certain charges from 2014. We estimate that Citi Asias 2014 ROA of
1.05% is really closer to around 1.13% after adjusting total restructuring
charges, and this could increase to around 1.20% or more assuming midsingle digit growth in core drivers (assuming global growth of around 3% and
Asia growth of 4-5%) and increased optimization of core investments. Over
time, this growth rate along with higher interest rates, could push the regions
ROA back to around 1.4% (CLSA estimate).
Citicorp Asias revenues have not grown much since the Global Financial Crisis
with sluggish growth in both consumer (weakness due to margin
compression) and wholesale activities (weak fee growth). Combined revenue
growth has averaged just 0.5% in annual growth between 2010 and 2014.
Moreover, the overall expense level has increased (1.8% Cagr), and resulted
in a higher expense/revenue ratio (up 290bp to 59.0%). As a consequence,
Citi Asia ROA has been just a little north of 1% over the past three years even
though we believe its ROA should be closer to 1.4% (the level in 2010) or
higher. Achieving a 1.4% ROA in Citi Asia would improve consolidated ROA by
2-3bp and add around 40 cents to EPS.
Figure 19
2010
2011
2012
2013
2014
4Y Cagr (%)
NII
8,001
8,924
8,679
8,048
7,951
(0.2)
Fee revenues
6,437
6,292
6,351
6,958
6,767
1.3
14,438
15,216
15,030
15,006
14,718
0.5
Expenses
8,103
9,076
9,106
8,532
8,689
1.8
PPP
6,335
6,140
5,924
6,474
6,029
(1.2)
Credit losses
1,021
902
985
790
779
(6.5)
Reserve build/release
(356)
(46)
(46)
90
(176)
(16.1)
Total revenues
Provisions
665
856
939
880
603
(2.4)
Pretax income
5,670
5,284
4,985
5,594
5,426
(1.1)
Taxes
1,251
1,452
1,383
1,902
1,802
9.6
4,415
3,828
3,598
3,688
3,620
56.1
59.6
60.6
56.9
59.0
Non-controlling interest
Net income
Efficiency ratio (%)
Avg assets (US$bn)
ROA (%)
319
350
352
349
346
1.38
1.09
1.02
1.06
1.05
(4.8)
2.1
Note: years prior to 2014 have been restated based on the companys disclosures as of 2 April 2014. Source: company
112
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5 June 2015
Asian banks
Citigroup - BUY
Citi realizes that Citicorp Asia needs to improve its overall performance for the
company to surpass its Citicorp operating targets (mid-50s efficiency for
Citicorp and 90-110bp in ROA). Despite the sluggish revenue growth, Citi Asia
can grow the bottom line by improved allocation of finite resources across
products, markets and clients, standardizing platforms and processes,
rationalizing product offerings, simplifying organizational structure, and
centralizing resources in global and regional support sites. One consequence
of better expense discipline is that many growth investments become selffunded by shifting resources to higher-return opportunities (eg, recent
consumer actions).
Citis global operating structure and organization chart changed every few
years, creating confusion among global product and local client teams and at
a times leading to poor risk management outcomes, such as private banking
in Japan. Strategically, a consistent vision that includes accountable operating
targets for Asia as a whole should help drive results over time. To that end,
Citi looks to maintain focus on target client segments globally while also
efficiently serve target clients across multiple products and geographies.
Figure 20
Figure 21
400
9,000
60.0
350
1.40
8,800
59.0
300
1.20
8,600
58.0
250
1.00
8,400
57.0
200
0.80
8,200
56.0
150
0.60
8,000
55.0
100
0.40
7,800
54.0
50
0.20
53.0
9,200
7,600
Expenses ($m)
2010
2011
2012
2013
2014
Note: years prior to 2014 have been restated based on the companys
disclosures as of 2 April 2014. Source: Company
5 June 2015
Assets ($bn)
2010
2011
2012
ROA (%)
2013
2014
1.60
Note: years prior to 2014 have been restated based on the companys
disclosures as of 2 April 2014. Source: Company
Looking at Asia Consumer operating results since 2010, total revenues have
been flat with a 0.5% Cagr between 2010 and 2014 owing to margin
compression (largely in the retail bank) partially offset by good fee growth
(purchase sales volumes, higher client assets under management). Even
though Citi has been reducing its Asia country footprint and branch count
overall across the region (down about 700 branches at the end of 2010 to
465 as of year-end 2014), expenses have increased materially relative to
revenues (4% Cagr). Indeed, Asia Consumers efficiency ratio has increased
by about a fifth to 65% in 2014. Credit quality has been fairly consistent and
strong especially as Citi reduced its legacy consumer finance activities,
especially in Japan. Net-net, Citi Asia Consumer return on average assets has
declined about half since 2010, from 1.9% in 2010 to 1.0% during 2014.
mike.mayo@clsa.com
113
Asian banks
Citigroup - BUY
Figure 22
2010
2011
2012
2013
2014
4Y Cagr (%)
NII
5,090
5,377
5,154
4,756
4,581
(2.6)
Fee revenues
2,319
2,647
2,774
2,868
2,965
6.3
Total revenues
7,409
8,024
7,928
7,624
7,546
0.5
Expenses
4,186
4,759
4,898
4,586
4,896
4.0
PPP
3,223
3,265
3,030
3,038
2,650
(4.8)
Credit losses
1,013
883
841
782
779
(6.4)
Reserve build/release
(287)
(63)
(36)
40
(112)
(21.0)
Provisions
726
820
805
822
667
(2.1)
2,497
2,445
2,225
2,216
1,983
(5.6)
448
624
513
735
663
10.3
2,049
1,821
1,712
1,481
1,320
56.5
59.3
61.8
60.2
64.9
108
122
127
129
131
1.90
1.50
1.35
1.15
1.01
Pretax income
Taxes
Non-controlling interest
Net income
ROA (%)
(10.4)
5.0
Note: years prior to 2014 have been restated based on the companys disclosures as of 2 April 2014. Source: Company
114
mike.mayo@clsa.com
5 June 2015
Asian banks
Citigroup - BUY
Figure 23
Figure 24
140
64.0
120
62.0
100
60.0
80
58.0
60
56.0
40
4,000
54.0
20
3,800
52.0
5,000
Expenses ($m)
4,800
4,600
4,400
4,200
2010
2011
2012
2013
2014
Source: company
Assets ($bn)
ROA (%)
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
2010
2011
2012
2013
2014
Source: company
Asia wholesale revenues have been essentially flat since 2010 (0.5% Cagr),
reflecting lower fee revenues offset by higher spread income. Expense
management has been somewhat proportional to fee revenues, and as a
consequence expenses have declined (-0.8% Cagr). The positive operating
leverage has led to an improving efficiency ratio (52.9% in 2014, down 280bp
since 2010). The segments ROA was 1.1% in both 2010 and in 2014 though
it dipped in 2011 and 2012 due to higher credit costs.
5 June 2015
mike.mayo@clsa.com
115
Asian banks
Citigroup - BUY
Figure 25
2010
2011
2012
2013
2014
NII
2,911
3,547
3,525
3,292
3,370
3.7
Fee revenues
4,118
3,645
3,577
4,090
3,802
(2.0)
Total revenues
7,029
7,192
7,102
7,382
7,172
0.5
Expenses
3,917
4,317
4,208
3,946
3,793
(0.8)
PPP
3,112
2,875
2,894
3,436
3,379
2.1
19
144
(100.0)
Reserve build/release
(69)
17
(10)
50
(64)
(1.9)
Provisions
(61)
36
134
58
(64)
1.2
3,173
2,839
2,760
3,378
3,443
2.1
803
828
870
1,167
1,139
9.1
2,366
2,007
1,886
2,207
2,300
55.7
60.0
59.3
53.5
52.9
211
229
226
220
215
1.12
0.88
0.84
1.00
1.07
Credit losses
Pretax income
Taxes
Non-controlling interest
Net income
ROA (%)
4Y Cagr (%)
(0.7)
0.4
Note: years prior to 2014 have been restated based on the companys disclosures as of 2 April 2014; Asia ICG financial results based on Citicorp
Asia results less Asia Consumer (both disclosed) Source: Company
Valuation details
We believe the valuation of Citigroup should take into account the earnings
potential within its core franchise (Citicorp) and the potential for increased
consolidated returns on assets and equity if and when the company
undertakes a more aggressive look at its business model and capital
allocation. On the other hand, this valuation also needs to reflect the
company's earnings prospects over the next two to three years due to its
evolving business model (as Citigroup looks to shed its businesses in Citi
Holdings), as well as ongoing country and regulatory/political risks in the USA
and abroad. With these conditions in mind, we use a simple average of six
valuation techniques (PE, price-to-book, discount dividend model, PE/G ratio
analysis and sum of the parts for both PE and PB). This average yields a
target price of $73, which reflects 1.15x 15CL tangible book value of $63 per
share (minor variance due to rounding).
Investment risks
116
mike.mayo@clsa.com
5 June 2015
Standard Chartered
HK$122.20 - BUY
The hangover
Derek Ovington
5 June 2015
Hong Kong
Financial services
Reuters
Bloomberg
2888.HK
2888 HK
HK$174.00/103.10
HK$180.00
+47%
Shares in issue
Free float (est.)
2,473.0m
65.3%
Market cap
US$40,128m
The turnaround
StanCharts financial and share-price underperformance has already triggered
a substantial overhaul of senior executive ranks and the board, creating the
environment for a thorough review and restructure of the group under new
CEO Bill Winters, who takes the helm in June 2015. We anticipate heightened
focus on the three Cs of banking: costs, credit and capital, as well as an
overhaul of the financial markets business. More uncertain is the scope for
larger-scale strategic changes eg, redomiciling or large divestments.
HK$264.6m
(US$34.1m)
1M
3M
12M
(4.5)
(2.9)
(4.5)
4.0
(7.1)
4.0
(29.9)
(40.9)
(29.9)
(HK$)
(%)
Standard Chartered
Rel to HSI (RHS)
130
120
110
210
100
190
90
170
80
150
70
130
60
110
50
90
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
Oct 13
40
Jun 15
A moveable feast
StanChart is a stock in flux, given the likely overhaul of strategy and
operations. The strategic outlook is thus uncertain, but on one subject we are
confident: the share price has been pushed down to an excessive discount to
book value, let alone its normalised trading range, and we see considerable
upside from a multiyear turnaround. Our 12-month target is HK$180
(~14.16) - based on a Gordon Growth Model-derived PB target of 1.15x on
16CL BVPS - but there is more upside with execution on improved ROE. We
maintain our High-Conviction BUY rating.
Financials
Year to 31 December
Operating profit (US$m)
Net profit (US$m)
EPS (US$)
CL/consensus (28) (EPS%)
EPS growth (% YoY)
PE (x)
Adjusted EPS (US$)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
6,914
3,989
1.63
(17.5)
9.7
1.93
8.1
5.5
0.9
9.0
14A
5,264
2,512
1.02
(37.7)
15.5
1.35
11.7
5.5
0.9
5.6
15CL
6,387
4,510
1.79
130
76.6
8.8
1.88
8.4
5.5
0.8
9.8
16CL
7,632
5,508
2.15
135
19.7
7.3
2.24
7.0
5.5
0.8
11.2
17CL
9,553
6,943
2.65
148
23.5
5.9
2.75
5.7
6.7
0.7
13.0
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
Unlike HSBC, StanChart took a different path through the 1990s and 2000s,
opting to shed exposure to domestic banking in the UK and USA in favour of
increasing exposure to its existing geographic footprint of Asia, Africa and the
Middle East. Of these regions, Asia is - and always has been - dominant,
accounting for about 69% of global revenue in 2014. Visible in the revenue
mix below is the decisive shift further towards emerging markets, which has
long-coloured investor perceptions of the stock.
Revenue mix by geography
100
(%)
6
90
12
20
80
60
12
11
3
8
70
5
7
10
50
36
50
46
30
MESA
Other Asia
20
10
0
Europe
Africa
28
40
Americas
10
30
29
1992
2000
22
22
2005
2014
Hong Kong
Revenue by geography
20,000
(US$m)
18,000
Americas
16,000
Europe
14,000
12,000
Africa
10,000
MESA
8,000
6,000
Other Asia
4,000
2,000
0
Hong Kong
1992
2000
2005
2014
Note: MESA = Middle East and South Asia, or Middle East, North Africa and Pakistan.
Source: CLSA, company data
Commonly perceived
as an emergingmarkets bank
In practice, however, while StanChart is commonly perceived as an emergingmarkets bank, much of the increased exposure in Asia and the Middle East
was to relatively developed markets.
118
derek.ovington@clsa.com
5 June 2015
Asian banks
UK
5%
Americas
5%
Other Europe
1%
Hong Kong
22%
Africa
10%
Other MENAP
4%
China
5%
Taiwan
3%
UAE
6%
Korea
8%
Other Asean
9%
Singapore
11%
India
8%
Note: MESA = Middle East and South Asia, or Middle East, North Africa and Pakistan.
Source: CLSA, company data
Singapore operations
have grown rapidly
since 1999
StanChart is also highly unusual in that its single-largest market, Hong Kong,
is not its domicile (ie, the UK). StanChart is thus habitually a foreign bank
wherever it operates. The downside of this odd status is that StanChart thus
has no strong home market advantage, but it benefits from a genuinely
international outlook and extraordinary geographic diversification.
Other Europe
1.0%
Americas
3.8%
Hong Kong
21.4%
Africa
4.5%
Other MENAP
2.9%
China
5.5%
UAE
5.0%
Taiwan
4.2%
Other Asean
7.9%
Singapore
19.3%
Korea
9.9%
5 June 2015
derek.ovington@clsa.com
119
Asian banks
StanChart is primarily a
corporate/wholesale
bank, but does have a
material retail banking
business, concentrated in
selected markets
100
(%)
90
80
33
18
21
70
60
Commercial
Retail
Private
6
34
50
40
30
74
71
57
55
20
10
0
Revenue
PBT
Assets
Loans
To this core business, StanChart also reaches down into domestic retail and
SME banking in a number of countries, with a small private banking
operation. These smaller businesses tend to be niche-orientated in most
countries of operation - eg, targeting expatriate professionals, mass-affluent
customers - as StanChart has limited capacity (ie, distribution and brand) to
compete in the domestic mass market in all but a few countries. The compact
city-states of Hong Kong and Singapore are the key exceptions where
StanChart has been able to operate effectively as a universal bank.
Revenue mix by product group, 2014
Asset liability
management
3%
Retail
26%
Principal finance
2%
Transaction
banking
21%
Financial
markets
19%
Wealth
management
9%
Corporate
finance
14%
Lending
6%
120
derek.ovington@clsa.com
5 June 2015
Asian banks
In most countries of
operation StanChart is
predominantly a
wholesale bank
(US$m)
4,000
Consumer
Wholesale
3,500
3,000
58%
2,500
53%
2,000
1,500
53%
64%
33%
47%
42%
500
67%
47%
36%
27%
Hong
Kong
92%
70%
73%
1,000
Singapore
Korea
Other
Asia Pac
India
30%
MESA
Africa
8%
EU &
Americas
Note: MESA = Middle East and South Asia, or Middle East, North Africa and Pakistan.
Source: CLSA, company data
Wholesale
Consumer
4,000
0
46%
45%
49%
48%
47%
49%
8,000
50%
47%
12,000
61%
16,000
62%
20,000
62%
(US$m)
62%
24,000
62%
The corporate/wholesale
banking share of group
revenues stepped up
dramatically from 20072009 with a surge in
wholesale revenues
rather than a material fall
in consumer
56%
Wholesale revenue
eclipsed that for
consumer in 2007-09
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
5 June 2015
derek.ovington@clsa.com
121
Asian banks
(%)
12.0
8.4
7.6
9.4
5.0
EU/Am.
16.4
16.2
16.1
Total (ex-Korea)
Africa
India
(1.3)
MESA
12.8
12.6
11.6
Korea
14
12
10
8
6
4
2
0
(2)
(4)
Hong Kong
Singapore
In consumer, most
geographies achieved
solid growth
25
20
(%)
21.6
18.4
15.9
17.6
17.2
15
10
4.5
Africa
EU/Americas
15.2
Africa
EU/Americas
Total (ex-Korea)
MESA
14.7
MESA
India
Korea
14.9
14.2
13.8
India
15.8
(%)
13.7
10.6
Total (ex-Korea)
Korea
0.3
Singapore
18
16
14
12
10
8
6
4
2
0
Hong Kong
Koreas
underperformance is
starkly obvious
Singapore
Hong Kong
Cagr only from 2006-13 (acquired in 2005). Note: MESA = Middle East and South Asia, or Middle East,
North Africa and Pakistan. Source: CLSA, company data
122
derek.ovington@clsa.com
5 June 2015
Asian banks
StanChart has endured a torrid few years since 2012, which marked the peak
in earnings after an 11-year stretch of annual profit growth.
Years in the doghouse
20
18
FY2012
result
()
FY2011
result
1H12
result
16
1Q13
IMS
Investor
Day
Andy
Halford
appointed
GFD
1H13
result
3Q12
IMS
FY2013
result
1H13
pre-close
trading
update
14
12
10
8
Dec 11
Investor
trip
New York
DFS
settlement
Jun 12
1H14
result
CEO, board
changes
3Q13
IMS
1Q15
IMS
FY2014
result
Restructure,
Richard
Meddings
resigns as
GFD
Final
settlement
with US
authorities
Dec 12
1Q14
IMS
US$300m
settlement
with NYDFS
Jun 13
3Q14
IMS
1H14
pre-close
Investor trip
trading
update Extension of US
deferred prosecution
Dec 13
Jun 14
Dec 14
The decline in adjusted ROE from 12.6% to 7.4% over 2012-14 is wholly a
function of ROA compression, which declined from 0.84% in 2012 (almost
bang-on the 1992-12 average of 0.83%) to 0.47% in 2014.
The bulk of StanCharts
ROE deterioration is
driven by ROA
compression, not
reduced leverage
30
Assets/Equity (x)
(%)
1.4
1.2
25
1.0
20
0.8
15
0.6
10
0.4
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0.0
1994
1993
0.2
1992
There are two principal perspectives on this profit decline for StanChart:
analysis by geography and by business line.
5 June 2015
derek.ovington@clsa.com
123
Asian banks
We illustrate below the reported geographic PBT and PBT adjusted for
exceptional items. The key differences are primarily the US$1bn and
US$726m goodwill writeoffs in relation to Korea in 2013 and 2014, though
2012 includes US$667m in fines/settlements on US sanctions violations and
2014 also includes the related US$300m US civil penalty.
After a long string of
successive records, with
PBT peaking in 2012,
2013 and 2014 dragged
the group lower, primarily
on Koreas goodwill
writedowns
PBT by geography
8,000
7,000
Africa
6,000
MESA
5,000
Other Asia
4,000
India
3,000
Korea
2,000
Singapore
1,000
Hong Kong
Group
(1,000)
(2,000)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Note: MESA = Middle East and South Asia, or Middle East, North Africa and Pakistan from 2014.
Source: CLSA, company data
8,000
Europe & Americas
7,000
Africa
6,000
MESA
5,000
Other Asia
4,000
India
3,000
Korea
2,000
Singapore
1,000
Hong Kong
0
(1,000)
Group
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
124
As identified more clearly in the waterfall chart below, the key geographic
detractors from group-adjusted PBT over 2012-14 were Korea, other Asia
(principally Asean ex-Singapore) and the Americas and Europe divisions.
derek.ovington@clsa.com
5 June 2015
Asian banks
8,000
7,500
(US$m)
7,543
+59
-109
7,000
-659
6,500
-115
-536
6,000
-17
-98
5,559
5,500
5,000
-509
2012
Hong
Kong
Singapore Korea
India
Other
Asia
MESA
Africa
EU
& Am.
2014
Note: MESA = Middle East and South Asia, or Middle East, North Africa and Pakistan.
Source: CLSA, company data
In the other geographies, the principal cause of earnings decline was weak
trading income and higher credit costs, which brings us to the business-line
analysis.
The principal causes of outright earnings decline at the operating level were
the increase in credit costs and the decline in trading and investment income.
In US-dollar terms, the
biggest contributors to
operating profit decline
were credit costs and
trading income
8,000
7,500
(US$m)
+222
+100
7,302
+356
7,000
6,500
-1,066
-498
6,000
5,500
5,000
5,264
-1,152
2012
Net
interest
Net
fees
Trading
& invt
Other
rev
Opex
Credit
costs
2014
5 June 2015
125
Asian banks
1.3
(%)
1.2
1.18
1.1
1.0
-0.19%
0.9
+0.13%
-0.07%
0.8
+0.04%
-0.13%
0.7
0.6
0.74
-0.21%
2012
OP%
Net
interest
Net
fees
Trading
& Invt
Other
rev
Opex
Credit
costs
2014
OP%
However, the most destructive driver of ROA compression was the decline in
trading and investment income, knocking 21bps off ROA. The decline in
trading & investment income - admittedly a volatile line item - was
substantial in historical terms, as 2014 marked the low point relative to
average assets over the past two decades.
Relative to StanCharts
asset base and historical
experience, 2014 trading
income was very low.
Credit costs have been
higher historically though only in defined
economic cycles (ie, early
1990s recession, Asian
crisis, Sars, GFC)
Trading & investment income and credit cost divided by average assets
1.0
(%)
(%)
0.9
0.0
0.2
0.8
0.7
0.4
0.6
0.5
0.6
0.4
0.8
0.3
0.2
1.0
0.1
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1.2
1992
0.0
The good news is that both trading income and credit costs are volatile and/or
cyclical drivers subject to mean reversion. This gives us confidence that a
significant proportion of StanCharts earnings decline will be recovered on
normalisation of these ratios.
The recent compression of NIM, however, is largely driven by the monetary
environment, specifically ultra-low US-dollar yields, and thus highly
contingent on US Federal Reserve monetary policy.
126
derek.ovington@clsa.com
5 June 2015
5 June 2015
ROE decomposition
(% of avg assets)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Net interest
2.86
2.66
2.81
2.43
2.35
2.16
2.13
2.06
1.81
1.62
1.69
1.78
1.74
1.69
1.55
Net fees
0.94
0.90
0.91
0.95
0.98
0.75
0.75
0.87
0.72
0.72
0.84
0.71
0.66
0.62
0.59
Trading income
0.40
0.43
0.39
0.43
0.48
0.38
0.38
0.41
0.59
0.59
0.48
0.49
0.42
0.37
0.28
Invt income
0.02
0.02
0.02
0.06
0.13
0.08
0.09
0.17
0.12
0.17
0.10
0.04
0.10
0.05
0.02
Net insurance
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Other income
0.10
0.03
0.04
0.02
0.05
0.05
0.04
0.01
0.03
0.06
0.07
0.07
0.08
0.09
0.12
Non-int. income
1.46
1.38
1.35
1.46
1.64
1.26
1.27
1.47
1.46
1.55
1.50
1.30
1.26
1.13
1.01
Revenue
4.32
4.04
4.17
3.90
3.99
3.42
3.40
3.53
3.27
3.17
3.18
3.08
2.99
2.82
2.56
(2.87)
(2.37)
(2.35)
(2.18)
(2.10)
(1.90)
(1.92)
(2.04)
(1.87)
(1.69)
(1.80)
(1.73)
(1.59)
(1.51)
(1.46)
1.45
1.67
1.82
1.72
1.89
1.52
1.48
1.49
1.41
1.47
1.39
1.36
1.40
1.31
1.10
(0.50)
(0.67)
(0.66)
(0.45)
(0.16)
(0.18)
(0.26)
(0.27)
(0.44)
(0.45)
(0.19)
(0.18)
(0.22)
(0.26)
(0.36)
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.01
0.01
0.03
0.03
0.03
Adjusted PBT
0.96
1.00
1.16
1.27
1.73
1.34
1.22
1.22
0.97
1.03
1.21
1.19
1.21
1.08
0.77
Estimated tax
0.25
0.35
0.38
0.41
0.48
0.35
0.32
0.32
0.26
0.34
0.34
0.32
0.33
0.33
0.28
Adjusted NPAT
0.71
0.65
0.78
0.86
1.24
0.98
0.91
0.90
0.71
0.70
0.87
0.87
0.88
0.75
0.49
Minorities, prefs
0.06
0.07
0.13
0.07
0.05
0.03
0.04
0.06
0.05
0.04
0.04
0.03
0.03
0.03
0.03
Adjusted ROA
0.64
0.58
0.65
0.79
1.19
0.96
0.86
0.84
0.65
0.65
0.83
0.83
0.84
0.72
0.47
0.41
0.00
(0.05)
(0.01)
(0.05)
0.00
0.04
0.08
0.11
0.04
0.01
0.00
(0.07)
(0.11)
(0.11)
Reported ROA
1.06
0.58
0.60
0.78
1.14
0.96
0.90
0.92
0.77
0.70
0.84
0.83
0.77
0.60
0.35
16.3
17.3
14.3
15.9
17.2
20.9
17.4
16.6
19.0
19.0
16.1
15.0
14.9
14.9
15.9
Adjusted ROE
10.5
10.0
9.3
12.6
20.5
20.0
15.1
14.0
12.4
12.4
13.4
12.5
12.6
10.7
7.4
Reported ROE
17.2
10.0
8.6
12.5
19.7
20.0
15.7
15.4
14.6
13.3
13.5
12.5
11.5
9.0
5.6
Op. expenses
Preprovision profit
Credit charge
derek.ovington@clsa.com
2000
Asian banks
127
Asian banks
2015 a year of
dramatic change
The turnaround
Group CEO
Peter Sands
CEO,
Asia
CEO, Europe,
ME, Africa,
Americas
Group
Finance
Director
Jaspal Bindra
V. Shankar
Resignation
announced
Feb 15
Resignation
announced
Apr 15
Richard
Meddings
Group
Chief Risk
Officer
CIO, Group
Head, Tech
& Ops
Group
Head, HR
Richard
Goulding
Jan
Verplancke
Retirement
announced
Jan 15
CEO,
Wholesale
CEO,
Consumer
Mike Rees
Steve
Bertamini
Now Deputy
Group CEO,
replaced
by Sean
Wallace as
Group Head,
C&I
Resigned
Mar 14,
replaced by
Karen Fawcett
as Group Head,
Retail
Tracy Clarke
128
However, the strategic plan and direction of StanChart are obviously on hold
until new CEO Winters takes the helm in June 2015. Given the timing, it
seems most likely to us that the presentation of the 1H15 interim result
(scheduled for 5 August) would represent an opportune moment for Winters
to outline at least the sketchwork of his plan for StanChart.
derek.ovington@clsa.com
5 June 2015
Asian banks
The key issues that management CAN address (eg, unlike the
monetary/interest-rate environment) in our view are the usual three Cs of
banking - costs, credit and capital - plus financial markets performance.
10
Cost/assets (RHS)
0.5
5
0
(5)
(10)
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0.0
2000
10
2014
Cost/income
1.0
2013
20
15
2012
1.5
20
2011
30
25
2010
2.0
30
2009
40
Cost growth
2008
2.5
2007
50
Revenue growth
2006
3.0
(%)
35
2005
60
40
2004
3.5
2003
(%)
2002
(%)
70
2001
2000
Note: Costs exclude significant items and UK bank levy. Source: CLSA, company data
5 June 2015
derek.ovington@clsa.com
129
Asian banks
Credit costs/average
assets in 2014 did not
reach 2008-09 levels, but
are not too far off, despite
the absence of similar
widespread credit
stress conditions
This is highly suggestive
of StanChart-specific
problems in credit
underwriting and
management
(%)
1.4
ROA (LHS)
(%)
1.2
0.0
0.2
GFC
1.0
??
0.8
0.4
0.6
0.6
0.8
0.4
1.0
0.2
Asia crisis
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2002
2003
2001
2000
1999
1998
1997
1996
1995
1994
1993
1.2
1992
0.0
Regulatory capital
requirements are
materially higher
Relative growth of assets, RWA, CET-1 capital and adjusted NPAT (rebased to 100)
1,000
Assets
RWA
CET-1
NPAT
900
800
700
600
500
400
300
200
100
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: CLSA, company data
StanCharts RoRWA
has held up well
StanCharts RoRWA has held up well - boosted by the fall in average riskweights after Basel 2 was introduced in 2008 - in recent years (ie, 2010-12).
130
derek.ovington@clsa.com
5 June 2015
Asian banks
(%)
30
ROE
(%)
RoRWA (RHS)
RoCET1
2.5
25
2.0
20
1.5
15
1.0
10
0.5
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0.0
1992
Put another way, StanChart has to squeeze more profit per dollar of RWA to
generate the same quantity of ROE as in the past. This is a structural issue
facing all banks, but StanChart has been late to reassess its portfolio of
business in terms of sustainable return on risk-weighted capital.
StanChart needs a period
of consolidation to
reprioritise growth in
high RoRWA areas
This has important ramifications for overall balance-sheet growth ie, as flagged
by StanChart, the balance sheet is unlikely to grow much in 2015 as RWAs are
rationalised - but is also likely to drive an overall review of business lines and
geographies to identify unsustainably low-RoRWA businesses for exit.
Financial markets - if credit costs were the single largest driver of 2012-14
earnings underperformance, trading & investment income was the secondlargest. To put this in perspective, the drop in trading & investment income
during 2012-14 was 0.22% of average assets, relative to a 2014 adjusted
ROA of 0.47% - ie, it was a substantial blow to ROA.
1.4
(%)
ROA
1.2
1.0
0.8
0.6
0.4
0.2
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0.0
StanChart has attributed the weakness in its Financial Markets income to two
principal factors: market conditions, ie, reduced volatility and thinner
margins, and own-account performance - ie, the performance of StanCharts
own balance-sheet/treasury positions.
5 June 2015
derek.ovington@clsa.com
131
Asian banks
We are sympathetic on the first issue, as weak FICC (fixed income, currencies
and commodities) trading revenue have been seen at other banks over 2014,
but we would argue that there were also StanChart-specific issues at play in
the underperformance of own-account income. That the head of the financial
markets business has been replaced is also highly suggestive that StanChart
took the same view.
Given that financial markets are a major business line for StanChart, we
would expect the division to attract particular scrutiny under new
management, not least given the background of Bill Winters in JPMorgans
financial markets division.
Domicile
The appropriateness of StanCharts UK domicile has been a recurring question
for many years now due to the absurdity of StanChart paying the UK bank
levy (US$366m in 2014, expected to rise to US$540m in 2015, or more than
10% of NPAT) on its global liabilities despite having relatively little funding
from the UK, simply because it is domiciled in the UK. If it were a foreign
bank, it would only pay the levy on UK-related liabilities.
The issue has gained added prominence recently given HSBCs announcement
that it would formally review its domicile. As StanChart has proportionally far
more to gain than HSBC from redomiciling, we would be amazed if the issue
were not formally reviewed by the new CEO.
132
derek.ovington@clsa.com
5 June 2015
Asian banks
. . . but difficult to
exit Korea at a
reasonable price
A moveable feast
30
(%)
ROE
(x)
Fwd PB (RHS)
25
2.5
2.0
20
1.5
15
1.0
10
0.5
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0.0
1990
5 June 2015
derek.ovington@clsa.com
133
Asian banks
3.0
(x)
2.5
2.0
+1sd2.04x
1.5
avg1.57x
-1sd1.11x
1.0
0.5
Jun 05
Likewise, the PER is well
beneath -1 S.D.
Even relative to
preprovision profits
StanChart look very cheap
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Forward PE ratio
24
(x)
22
20
18
16
14
12
10
8
6
4
Jun 05
+1sd16.13x
avg12.98x
-1sd9.83x
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
(x)
+1sd7.6x
7
avg6.39x
-1sd5.18x
5
4
3
2
Jun 05
It may be that low
interest rates devalue a
deposit-gathering
franchise, but we doubt to
this extent
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
0.20
(x)
0.18
+1sd0.18x
0.16
avg0.15x
0.14
0.12
-1sd0.12x
0.10
0.08
0.06
0.04
Jun 05
Feb 07
Sep 08
May 10
Jan 12
Sep 13
May 15
Source: CLSA
134
derek.ovington@clsa.com
5 June 2015
Asian banks
StanChart in a
state of flux
Setting a price target for StanChart at this time is difficult given the bank is in
a state of flux operationally and we have a few more months to wait before
the new CEO sets a new strategic agenda for the group.
In reality, we see StanChart as a multiyear turnaround as the stock stands to
benefit from recovery of ROE and thus recovery to a more appropriate PB
ratio. However, at CLSA we set price targets and recommendations on a 12month view, so our intermediate price target is set on the basis that we
consider 11.5% a realistic target for 16CL ROE, off which we base our forward
PB target of 1.15x 16CL book value per share, using the Gordon Growth
Model. Longer term, we view 12-13% as an appropriate ROE target given
normalised ROA of around 85-90bps, levered at 14-15x assets/equity.
5.0
5.5
Beta,
Target forward PB
(ROE - g)
(COE - g)
1.0
(11.5% - 4.0%)
10.5
11.5
14.4
19.79
15.3
22.83
4.0
40
6.9
(10.5% - 4.0%)
=
12M valuation ()
1.15
177
14.16
Source: CLSA
That the target PB multiple approximates one standard deviation beneath the
10-year average PB also suits our view, as this represents a realistic hurdle
for 12-month performance, while leaving the potential for StanChart to reach
towards 1.3x (the past five years average) or 1.4x (the 2009-13 average) in
the medium term range of two to four years.
Valuation details
Investment risks
5 June 2015
derek.ovington@clsa.com
135
Asian banks
Financial summaries
Short name
StanChart
B'berg code
2888 HK
Recommendation
BUY
HK$180.00
HK$132.50
HK$122.20
US$15.76
Upside/(downside) (%)
47.3%
2,473
12.1x
40
1.24x
Yr to 31 Dec
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
15CL
16CL
17CL
1,946
2,278
2,841
3,241
3,380
4,332
4,849
4,887
4,090
2,613
4,687
5,686
7,123
Growth (%)
23.3
17.1
24.7
14.1
4.3
28.2
11.9
0.8
(16.3)
(36.1)
79.4
21.3
25.3
NPAT (U$m)
1,917
2,253
2,813
3,131
3,279
4,231
4,748
4,786
3,989
2,512
4,586
5,585
7,022
1,918
2,162
2,567
2,665
3,074
4,181
4,760
5,247
5,001
3,692
4,808
5,825
7,284
Growth (%)
18.9
12.7
18.7
3.8
15.4
36.0
13.9
25.5
(4.7)
(26.2)
30.2
21.2
25.1
1.26
1.37
1.55
1.63
1.54
1.95
2.03
2.21
2.12
1.56
1.98
2.34
2.86
EPS (US$)
1.24
1.41
1.68
1.84
1.59
1.93
1.98
1.98
1.63
1.02
1.83
2.18
2.69
1.24
1.35
1.53
1.57
1.49
1.91
1.99
2.17
2.04
1.49
1.91
2.28
2.79
8.4
9.0
13.1
2.3
(4.7)
27.7
4.2
13.6
(5.7)
(27.0)
28.2
18.9
22.7
0.54
0.60
0.67
0.66
0.64
0.67
0.76
0.84
0.86
0.86
0.86
0.87
1.08
14.1
14.7
13.2
4.0
13.3
13.1
12.8
13.8
13.0
14.8
8.6
7.2
5.9
14.1
15.3
14.5
4.7
14.1
13.3
12.7
12.5
10.4
10.1
8.2
6.9
5.6
8.9
8.9
8.2
2.2
6.3
8.0
7.8
7.6
6.0
4.8
4.6
4.1
3.5
2.30
2.02
1.78
0.66
1.62
1.70
1.54
1.50
1.15
0.83
0.84
0.79
0.74
Growth (%)
DPS (US$)
Pricing & valuation
3.1
2.9
3.0
8.8
3.0
2.6
3.0
3.1
4.1
5.7
5.5
5.5
6.8
0.23
0.23
0.21
0.06
0.18
0.21
0.18
0.18
0.14
0.09
0.09
0.09
0.09
46.2
23.7
24.0
31.9
0.4
18.3
16.0
6.3
5.9
7.6
1.5
4.6
7.4
48.1
24.6
21.8
33.8
15.4
6.9
13.6
8.9
6.4
7.6
2.6
4.6
7.4
53.9
24.7
10.3
12.9
14.1
20.9
9.7
7.7
2.5
(1.9)
1.8
4.7
7.3
94.7
96.0
86.8
75.3
80.0
79.1
77.7
76.0
77.2
71.2
69.0
70.0
70.0
2.21
2.08
1.90
2.22
2.16
2.07
2.19
2.15
2.06
1.85
1.90
1.98
2.08
0.33
0.44
0.58
0.25
0.16
0.14
0.11
0.08
0.08
0.09
0.07
0.07
0.06
2.54
2.52
2.49
2.47
2.32
2.21
2.30
2.23
2.14
1.94
1.97
2.05
2.15
36.2
22.9
17.6
17.9
3.2
11.1
19.9
6.2
3.5
(1.4)
3.0
8.9
12.6
13.6
25.5
41.1
33.0
22.1
3.7
(1.2)
4.9
(4.3)
(3.7)
8.2
8.7
9.2
3.42
3.40
3.53
3.27
3.17
3.18
3.08
2.99
2.82
2.56
2.62
2.72
2.82
36.8
37.3
41.6
44.6
48.8
47.0
42.3
42.0
40.1
39.5
40.7
40.6
39.9
1.90
1.92
2.04
1.87
1.69
1.80
1.73
1.59
1.51
1.46
1.45
1.43
1.40
Cost/income (%)
55.5
56.4
57.9
57.1
53.4
56.4
56.0
53.2
53.5
57.1
55.2
52.5
49.6
NPAs/RWAs (%)
2.18
2.04
1.17
1.42
1.88
1.89
1.85
2.12
2.28
2.57
2.40
2.21
1.83
64.0
71.1
83.7
74.1
71.2
57.9
54.5
50.3
48.2
46.4
51.9
56.0
62.9
1.52
1.57
1.16
1.11
1.36
1.06
0.99
1.08
1.17
1.35
1.44
1.44
1.34
0.18
0.26
0.27
0.44
0.45
0.19
0.18
0.22
0.26
0.36
0.28
0.28
0.24
1.52
1.48
1.49
1.41
1.47
1.39
1.36
1.40
1.31
1.10
1.17
1.29
1.42
0.96
0.86
0.84
0.65
0.65
0.83
0.83
0.84
0.76
0.52
0.66
0.76
0.89
20.0
15.7
15.4
14.6
13.3
13.5
12.5
11.5
9.0
5.6
9.9
11.3
13.1
20.0
15.0
14.0
12.4
12.4
13.4
12.5
12.6
11.3
8.2
10.4
11.8
13.6
6.6
7.0
6.6
7.5
8.9
11.8
11.8
11.7
11.8
10.5
11.7
12.2
12.6
7.7
8.3
8.9
9.9
11.5
14.0
13.7
13.4
13.1
11.4
12.5
12.9
13.3
13.6
14.2
15.2
15.6
16.5
18.4
17.6
17.5
18.0
16.7
17.7
18.1
18.5
RWA/Assets (%)
58.5
57.7
56.2
43.4
49.0
47.4
45.2
47.4
47.8
47.1
48.0
48.0
48.0
26.5
25.9
25.9
26.8
32.5
27.9
27.2
27.2
30.7
36.1
26.0
25.0
25.0
43.6
42.5
39.9
35.6
39.9
34.5
38.3
42.5
52.8
84.7
47.1
39.9
40.0
Margins
Revenue
Efficiency
Credit costs
Profitability
Capital adequacy
Other
171
211
252
299
329
383
442
483
521
568
576
603
648
Avg assets
201
250
304
407
470
502
570
621
661
711
730
763
820
151
189
219
276
298
347
411
457
489
523
542
567
609
Avg liabilities
189
237
286
385
451
469
535
588
618
667
682
712
764
Avg equity
10
14
18
21
25
33
39
43
46
46
48
51
56
10
14
18
21
25
31
38
42
44
45
46
49
54
136
derek.ovington@clsa.com
5 June 2015
Asian banks
2005
8,750
4,415
4,335
1,495
769
262
6,861
3,811
3,050
367
0
0
(2)
2,681
710
1,971
25
1,946
29
1,917
0
(1)
1,918
2006
12,987
7,659
5,328
1,881
920
368
8,497
4,796
3,701
644
(2)
0
123
3,178
824
2,354
76
2,278
25
2,253
0
91
2,162
2007
16,176
9,911
6,265
2,661
1,261
548
10,735
6,215
4,520
818
1
0
332
4,035
1,046
2,989
148
2,841
28
2,813
0
246
2,567
2008
16,378
8,991
7,387
2,941
2,405
598
13,331
7,611
5,720
1,790
1
0
637
4,568
1,224
3,344
103
3,241
110
3,131
0
466
2,665
2009
12,926
5,303
7,623
3,370
2,890
997
14,880
7,952
6,928
2,102
21
0
304
5,151
1,674
3,477
97
3,380
101
3,279
0
205
3,074
2010
13,500
5,030
8,470
4,238
2,577
708
15,993
9,023
6,970
959
42
0
69
6,122
1,708
4,414
82
4,332
101
4,231
0
50
4,181
2011
16,584
6,431
10,153
4,046
2,645
741
17,585
9,848
7,737
1,019
74
0
(17)
6,775
1,842
4,933
84
4,849
101
4,748
0
(12)
4,760
2012
17,827
7,046
10,781
4,079
2,739
976
18,575
9,881
8,694
1,392
182
0
(633)
6,851
1,866
4,985
98
4,887
101
4,786
0
(461)
5,247
2013
17,593
6,437
11,156
4,101
2,408
953
18,618
9,958
8,660
1,746
226
106
(1,182)
6,064
1,864
4,200
110
4,090
101
3,989
73
(1,086)
5,001
2014
16,984
5,981
11,003
4,179
1,796
1,209
18,187
10,379
7,808
2,544
248
100
(1,377)
4,235
1,530
2,705
92
2,613
101
2,512
64
(1,244)
3,692
15CL
17,452
6,118
11,333
4,304
2,440
1,029
19,106
10,542
8,564
2,074
268
100
(400)
6,458
1,679
4,779
92
4,687
101
4,586
74
(296)
4,808
16CL
18,524
6,183
12,342
4,477
2,858
1,112
20,788
10,914
9,874
2,139
289
100
(420)
7,704
1,926
5,778
92
5,686
101
5,585
75
(315)
5,825
17CL
20,252
6,354
13,898
4,700
3,315
1,205
23,119
11,477
11,642
1,985
312
100
(450)
9,620
2,405
7,215
92
7,123
101
7,022
75
(338)
7,284
5.13
2.92
2.21
0.33
2.54
1.48
4.02
85.1
3.42
1.90
1.52
0.18
0.00
1.34
0.35
0.98
0.03
0.96
20.9
20.0
6.14
4.06
2.08
0.44
2.52
1.50
4.02
84.6
3.40
1.92
1.48
0.26
0.00
1.22
0.32
0.91
0.04
0.86
17.4
15.0
6.43
4.52
1.90
0.58
2.49
1.78
4.26
82.7
3.53
2.04
1.49
0.27
0.00
1.22
0.32
0.90
0.06
0.84
16.6
14.0
5.47
3.26
2.22
0.25
2.47
1.99
4.45
73.5
3.27
1.87
1.41
0.44
0.00
0.97
0.26
0.71
0.05
0.65
19.0
12.4
3.93
1.78
2.16
0.16
2.32
2.21
4.53
70.0
3.17
1.69
1.47
0.45
0.00
1.03
0.34
0.70
0.04
0.65
19.0
12.4
3.52
1.45
2.07
0.14
2.21
1.96
4.17
76.3
3.18
1.80
1.39
0.19
0.01
1.21
0.34
0.87
0.04
0.83
16.1
13.4
3.75
1.57
2.19
0.11
2.30
1.68
3.98
77.5
3.08
1.73
1.36
0.18
0.01
1.19
0.32
0.87
0.03
0.83
15.0
12.5
3.69
1.54
2.15
0.08
2.23
1.61
3.84
77.9
2.99
1.59
1.40
0.22
0.03
1.21
0.33
0.88
0.03
0.84
14.9
12.6
3.37
1.32
2.06
0.08
2.14
1.43
3.57
78.9
2.82
1.51
1.31
0.26
0.03
1.08
0.29
0.79
0.03
0.76
14.9
11.3
2.99
1.14
1.85
0.09
1.94
1.26
3.20
79.9
2.56
1.46
1.10
0.36
0.03
0.77
0.23
0.55
0.03
0.52
15.9
8.2
3.03
1.13
1.90
0.07
1.97
1.35
3.31
79.0
2.62
1.45
1.17
0.28
0.04
0.93
0.24
0.68
0.03
0.66
15.8
10.3
3.07
1.09
1.98
0.07
2.05
1.40
3.45
79.0
2.72
1.43
1.29
0.28
0.04
1.05
0.27
0.79
0.03
0.76
15.4
11.7
3.13
1.04
2.08
0.06
2.15
1.42
3.57
79.0
2.82
1.40
1.42
0.24
0.04
1.22
0.31
0.91
0.02
0.89
15.2
13.5
22
114
(2)
8
10
38
9
0
2
4
32
215
19
120
6
36
0
10
12
203
1
0
5
6
12
0
12
20
142
(2)
8
16
49
13
0
2
6
33
266
26
147
10
36
0
14
15
249
1
0
8
8
17
1
17
35
156
(2)
10
23
55
26
0
3
6
52
330
26
180
14
43
0
26
19
308
1
0
10
10
21
1
21
47
176
(2)
24
15
69
70
1
4
6
72
435
32
234
15
40
0
68
23
412
1
0
0
21
22
1
23
51
201
(3)
18
22
76
38
1
4
6
73
437
38
251
15
46
0
37
22
409
1
0
0
26
27
1
28
52
243
(3)
33
27
76
48
1
5
6
81
517
29
307
20
47
0
47
27
478
1
1
0
36
38
1
39
66
266
(3)
47
25
85
68
1
5
6
98
599
35
343
20
64
0
66
30
558
1
1
0
38
41
1
41
68
287
(3)
61
27
99
49
1
7
7
101
637
36
378
23
75
0
47
31
590
1
1
0
43
45
1
46
84
294
(3)
55
29
103
62
2
7
5
121
674
44
381
23
85
0
61
34
628
1
1
0
44
46
1
47
84
289
(4)
97
33
104
66
2
8
4
127
726
54
405
22
95
0
63
39
679
1
1
0
44
46
0
47
85
294
(4)
99
33
106
67
2
8
4
129
737
50
426
21
88
0
64
39
688
1
1
0
46
49
0
49
89
307
(4)
103
35
111
70
2
8
4
134
771
54
439
22
94
0
67
41
718
1
1
0
50
53
0
53
96
330
(4)
111
37
119
75
2
9
4
145
828
58
471
24
101
0
72
44
770
1
1
0
55
58
0
58
5 June 2015
derek.ovington@clsa.com
137
Asian banks
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2,227
3,247
4,069
4,740
5,227
5,399
6,216
7,276
7,694
7,558
7,657
802
972
1,273
1,901
1,887
2,068
2,534
2,647
2,614
2,629
2,834
431
529
521
726
1,877
1,896
1,788
1,771
1,918
1,644
1,181
Other income
Revenue
Operating expenses
Preprovision profit
Credit charge
90
192
468
1,025
782
854
591
617
722
759
804
3,550
4,940
6,331
8,392
9,773
10,217
11,129
12,311
12,948
12,590
12,476
(1,844)
(2,593)
(3,310)
(4,327)
(5,016)
(5,271)
(6,140)
(6,740)
(7,007)
(6,732)
(6,961)
1,706
2,347
3,021
4,065
4,757
4,946
4,989
5,571
5,941
5,858
5,515
(219)
(350)
(597)
(606)
(1,156)
(1,012)
(542)
(637)
(989)
(1,397)
(2,056)
1,487
1,997
2,424
3,459
3,601
3,934
4,447
4,934
4,952
4,461
3,459
Associates
(4)
24
42
73
115
224
239
Net exceptionals
(1,000)
(667)
Pretax profit
1,489
1,998
2,420
3,461
3,604
3,958
4,489
5,007
5,067
3,685
3,031
1,489
1,998
2,420
3,461
3,604
3,958
4,489
5,007
5,067
4,685
3,698
Operating profit
Gross loans
- growth (%)
Deposits
- growth (%)
LDR (%)
55,124
20.2
94,323 115,452 124,927 126,836 149,548 182,655 199,252 210,538 212,588 208,414
71.1
22.4
8.2
1.5
17.9
22.1
9.1
5.7
1.0
(2.0)
73,608 109,999 138,096 156,991 194,502 215,460 250,049 283,632 307,578 303,584 310,174
20.5
49.4
25.5
13.7
23.9
10.8
16.1
13.4
8.4
(1.3)
2.2
74.9
85.7
83.6
79.6
65.2
69.4
73.0
70.3
68.5
70.0
67.2
Assets
112,185 178,967 212,509 261,667 307,685 332,008 390,163 441,035 456,198 474,108 474,319
Avg assets
101,726 145,576 195,738 237,088 284,676 319,847 361,086 415,599 448,617 465,153 473,428
Risk-weighted assets
60,036
91,634 111,436 121,230 115,787 130,987 152,282 169,055 183,723 191,067 199,700
39
46
42
40
37
38
38
34
33
31
34
Other personal
14
13
12
12
13
12
13
14
15
15
17
Real estate
Other commercial
32
30
34
37
36
36
37
39
41
43
33
11
100
100
100
100
100
100
100
100
100
100
100
2.19
2.23
2.08
2.00
1.84
1.69
1.72
1.75
1.72
1.62
1.62
Net fees
0.79
0.67
0.65
0.80
0.66
0.65
0.70
0.64
0.58
0.57
0.60
Net trading
0.42
0.36
0.27
0.31
0.66
0.59
0.50
0.43
0.43
0.35
0.25
Other
0.09
0.13
0.24
0.43
0.27
0.27
0.16
0.15
0.16
0.16
0.17
Revenue
3.49
3.39
3.23
3.54
3.43
3.19
3.08
2.96
2.89
2.71
2.64
(1.81)
(1.78)
(1.69)
(1.83)
(1.76)
(1.65)
(1.70)
(1.62)
(1.56)
(1.45)
(1.47)
1.68
1.61
1.54
1.71
1.67
1.55
1.38
1.34
1.32
1.26
1.16
Opex
PPP%
Credit charge
(0.22)
(0.24)
(0.30)
(0.26)
(0.41)
(0.32)
(0.15)
(0.15)
(0.22)
(0.30)
(0.43)
1.46
1.37
1.24
1.46
1.26
1.23
1.23
1.19
1.10
0.96
0.73
Associates
0.00
0.00
0.00
0.00
0.00
0.01
0.01
0.02
0.03
0.05
0.05
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(0.21)
(0.14)
Pretax ROA
1.46
1.37
1.24
1.46
1.27
1.24
1.24
1.20
1.13
0.79
0.64
1.46
1.37
1.24
1.46
1.27
1.24
1.24
1.20
1.13
1.01
0.78
1.51
1.53
1.47
1.83
1.50
1.42
1.38
1.37
1.18
1.16
0.93
138
derek.ovington@clsa.com
5 June 2015
Asian banks
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
927
956
1,101
1,207
1,297
1,322
1,234
1,602
1,675
1,800
1,906
352
406
539
507
542
700
752
830
910
1,040
99
101
74
180
357
456
521
559
653
722
609
Other income
57
75
34
142
94
50
45
136
190
293
397
1,406
1,484
1,615
2,068
2,255
2,370
2,500
3,049
3,348
3,725
3,952
(660)
(649)
(720)
(825)
(1,030)
(1,168)
(1,355)
(1,395)
(1,572)
(1,666)
(1,792)
Revenue
Operating expenses
Preprovision profit
Credit charge
Operating profit
746
835
895
1,243
1,225
1,202
1,145
1,654
1,776
2,059
2,160
(125)
(117)
(7)
(50)
(183)
(145)
(43)
(103)
(109)
(135)
(272)
621
718
888
1,193
1,042
1,057
1,102
1,551
1,667
1,924
1,888
(1)
(5)
Associates
Net exceptionals
93
Pretax profit
621
718
888
1,193
1,041
1,052
1,102
1,551
1,667
1,924
1,981
621
718
888
1,193
1,041
1,052
1,102
1,551
1,667
1,924
1,888
21,744
21,641
22,086
23,411
28,065
30,039
43,577
50,531
52,839
59,259
61,643
4.3
(0.5)
2.1
6.0
19.9
7.0
45.1
16.0
4.6
12.2
4.0
32,083
33,670
39,199
48,575
63,601
71,750
76,815
89,278
6.9
4.9
16.4
23.9
30.9
12.8
7.1
16.2
11.9
8.4
6.4
41.9
56.7
56.6
52.9
54.8
53.6
Gross loans
- growth (%)
Deposits
- growth (%)
LDR (%)
67.8
64.3
56.3
48.2
44.1
Assets
48,478
49,943
49,831
61,348
77,627
Avg assets
43,937
49,211
49,887
55,590
69,488
84,683
Risk-weighted assets
20,337
21,281
23,784
25,330
21,072
24,706
31,138
31,528
36,534
39,610
41,676
Home loans
56
56
51
51
46
49
42
37
41
39
na
Other personal
10
10
10
10
10
10
10
11
13
13
na
Real estate
na
20
22
26
25
25
27
32
37
34
34
na
10
13
10
na
100
100
100
100
100
100
100
100
100
100
na
Other commercial
2.11
1.94
2.21
2.17
1.87
1.56
1.27
1.46
1.35
1.29
1.25
Net fees
0.74
0.72
0.81
0.97
0.73
0.64
0.72
0.68
0.67
0.65
0.68
Net trading
0.23
0.21
0.15
0.32
0.51
0.54
0.54
0.51
0.53
0.52
0.40
Other
0.13
0.15
0.07
0.26
0.14
0.06
0.05
0.12
0.15
0.21
0.26
Revenue
3.20
3.02
3.24
3.72
3.25
2.80
2.57
2.77
2.70
2.66
2.58
(1.50)
(1.32)
(1.44)
(1.48)
(1.48)
(1.38)
(1.39)
(1.27)
(1.27)
(1.19)
(1.17)
1.70
1.70
1.79
2.24
1.76
1.42
1.18
1.50
1.43
1.47
1.41
Opex
PPP%
Credit charge
(0.28)
(0.24)
(0.01)
(0.09)
(0.26)
(0.17)
(0.04)
(0.09)
(0.09)
(0.10)
(0.18)
1.41
1.46
1.78
2.15
1.50
1.25
1.13
1.41
1.35
1.37
1.23
Associates
0.00
0.00
0.00
0.00
0.00
(0.01)
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.06
Pretax ROA
1.41
1.46
1.78
2.15
1.50
1.24
1.13
1.41
1.35
1.37
1.30
1.41
1.46
1.78
2.15
1.50
1.24
1.13
1.41
1.35
1.37
1.23
5 June 2015
derek.ovington@clsa.com
139
Asian banks
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
312
277
348
301
469
764
860
977
1,144
1,070
1,164
114
139
159
233
246
291
400
509
551
581
582
81
84
56
80
359
357
367
571
377
311
171
14
59
278
243
180
111
129
131
170
116
513
514
622
892
1,317
1,592
1,738
2,186
2,203
2,132
2,033
(228)
(246)
(294)
(430)
(664)
(801)
(986)
(1,105)
(1,169)
(1,129)
(1,093)
Preprovision profit
285
268
328
462
653
791
752
1,081
1,034
1,003
940
Credit charge
(33)
(43)
(39)
(16)
(15)
(37)
(33)
(48)
(66)
(88)
(80)
Operating profit
252
225
289
446
638
754
719
1,033
968
915
860
Associates
(1)
Net exceptionals
(6)
Pretax profit
252
225
289
446
638
754
719
1,033
968
915
853
252
225
289
446
638
754
719
1,033
968
915
859
11,765
12,567
14,654
17,212
20,396
31,444
39,380
47,576
55,888
62,213
55,830
Gross loans
- growth (%)
20.3
6.8
16.6
17.5
18.5
54.2
25.2
20.8
17.5
11.3
(10.3)
14,794
16,820
16,304
21,284
33,857
43,670
52,675
65,352
76,448
79,007
78,958
- growth (%)
27.1
13.7
(3.1)
30.5
59.1
29.0
20.6
24.1
17.0
3.3
(0.1)
LDR (%)
79.5
74.7
89.9
80.9
60.2
72.0
74.8
72.8
73.1
78.7
70.7
Assets
20,414
23,602
25,393
39,362
51,246
62,137
82,007
102,768
107,973
115,561
120,845
Avg assets
18,082
22,008
24,498
32,378
45,304
56,692
72,072
92,388
105,371
111,767
118,203
Risk-weighted assets
13,892
11,770
13,681
15,008
15,064
21,531
29,294
36,465
45,064
44,120
44,120
43
33
24
27
30
26
27
23
26
22
na
Other personal
17
16
16
19
18
18
na
Real estate
na
30
44
50
48
33
36
40
43
47
51
na
Deposits
Other commercial
Financial & other
15
14
13
13
15
10
na
100
100
100
100
100
100
100
100
100
100
na
1.73
1.26
1.42
0.93
1.04
1.35
1.19
1.06
1.09
0.96
0.98
Net fees
0.63
0.63
0.65
0.72
0.54
0.51
0.56
0.55
0.52
0.52
0.49
Net trading
0.45
0.38
0.23
0.25
0.79
0.63
0.51
0.62
0.36
0.28
0.14
Other
0.03
0.06
0.24
0.86
0.54
0.32
0.15
0.14
0.12
0.15
0.10
Revenue
Opex
PPP%
Credit charge
2.84
2.34
2.54
2.75
2.91
2.81
2.41
2.37
2.09
1.91
1.72
(1.26)
(1.12)
(1.20)
(1.33)
(1.47)
(1.41)
(1.37)
(1.20)
(1.11)
(1.01)
(0.92)
1.58
1.22
1.34
1.43
1.44
1.40
1.04
1.17
0.98
0.90
0.80
(0.18)
(0.20)
(0.16)
(0.05)
(0.03)
(0.07)
(0.05)
(0.05)
(0.06)
(0.08)
(0.07)
1.39
1.02
1.18
1.38
1.41
1.33
1.00
1.12
0.92
0.82
0.73
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(0.01)
Pretax ROA
1.39
1.02
1.18
1.38
1.41
1.33
1.00
1.12
0.92
0.82
0.72
1.39
1.02
1.18
1.38
1.41
1.33
1.00
1.12
0.92
0.82
0.73
140
derek.ovington@clsa.com
5 June 2015
Asian banks
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
287
330
428
631
736
919
1,116
985
1,049
1,114
966
111
151
204
353
450
546
464
423
304
269
225
67
72
101
145
298
259
267
275
157
165
173
40
84
179
210
89
181
122
75
148
88
466
593
817
1,308
1,694
1,813
2,028
1,805
1,585
1,696
1,452
(252)
(306)
(375)
(528)
(646)
(571)
(749)
(829)
(753)
(699)
(647)
Preprovision profit
214
287
442
780
1,048
1,242
1,279
976
832
997
805
Credit charge
(22)
(50)
(39)
(90)
(157)
(182)
(82)
(172)
(156)
(300)
(244)
Operating profit
192
237
403
690
891
1,060
1,197
804
676
697
561
Associates
Net exceptionals
Pretax profit
194
238
403
690
891
1,060
1,197
804
676
697
561
194
238
403
690
891
1,060
1,197
804
676
697
561
4,692
5,050
6,275
7,712
7,929
8,954
11,347
10,930
12,017
11,853
19,718
51.1
7.6
24.3
22.9
2.8
12.9
26.7
(3.7)
9.9
(1.4)
66.4
5,639
6,392
7,852
9,486
9,839
11,222
14,026
12,932
13,931
13,185
12,164
11.6
13.4
22.8
20.8
3.7
14.1
25.0
(7.8)
7.7
(5.4)
(7.7)
Gross loans
- growth (%)
Deposits
- growth (%)
LDR
83.2
79.0
79.9
81.3
80.6
79.8
80.9
84.5
86.3
89.9
162.1
Assets
8,611
10,943
14,382
23,210
32,269
31,719
39,631
42,300
36,935
34,962
30,083
Avg assets
8,101
9,777
12,663
18,796
27,740
31,994
35,675
40,966
39,618
35,949
32,523
Risk-weighted assets
6,413
6,369
8,450
12,377
15,578
17,381
19,247
21,266
23,145
22,556
22,556
Home loans
25
29
24
21
18
19
19
16
19
18
na
Other personal
26
19
15
16
11
na
Real estate
15
16
16
na
Other commercial
35
38
47
48
55
59
57
58
55
55
na
12
10
na
100
100
100
100
100
100
100
100
100
100
na
3.54
3.38
3.38
3.36
2.65
2.87
3.13
2.40
2.65
3.10
2.97
Net fees
1.37
1.54
1.61
1.88
1.62
1.71
1.30
1.03
0.77
0.75
0.69
Net trading
0.83
0.74
0.80
0.77
1.07
0.81
0.75
0.67
0.40
0.46
0.53
Other
0.01
0.41
0.66
0.95
0.76
0.28
0.51
0.30
0.19
0.41
0.27
Revenue
5.75
6.07
6.45
6.96
6.11
5.67
5.68
4.41
4.00
4.72
4.46
(3.11)
(3.13)
(2.96)
(2.81)
(2.33)
(1.78)
(2.10)
(2.02)
(1.90)
(1.94)
(1.99)
2.64
2.94
3.49
4.15
3.78
3.88
3.59
2.38
2.10
2.77
2.48
Opex
PPP%
Credit charge
(0.27)
(0.51)
(0.31)
(0.48)
(0.57)
(0.57)
(0.23)
(0.42)
(0.39)
(0.83)
(0.75)
Operating profit %
2.37
2.42
3.18
3.67
3.21
3.31
3.36
1.96
1.71
1.94
1.72
Associates
0.02
0.01
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
2.39
2.43
3.18
3.67
3.21
3.31
3.36
1.96
1.71
1.94
1.72
2.39
2.43
3.18
3.67
3.21
3.31
3.36
1.96
1.71
1.94
1.72
5 June 2015
derek.ovington@clsa.com
141
Asian banks
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
28
825
1,147
1,231
1,125
846
1,109
1,364
1,336
1,198
1,109
45
152
227
183
187
233
197
210
237
219
33
63
64
(72)
162
322
293
77
147
73
(1)
24
159
178
77
199
63
80
159
56
52
70
957
1,522
1,564
1,547
1,554
1,698
1,718
1,852
1,564
1,379
(41)
(632)
(972)
(1,146)
(955)
(953)
(1,080)
(1,335)
(1,081)
(1,120)
(1,121)
29
325
550
418
592
601
618
383
771
444
258
(61)
(96)
(94)
(263)
(279)
(230)
(211)
(257)
(456)
(403)
32
264
454
324
329
322
388
172
514
(12)
(145)
(1,000)
(725)
Pretax profit
32
264
454
324
329
322
388
172
514 (1,012)
(870)
32
264
454
324
329
322
388
172
514
(12)
(145)
794
36,105
40,115
40,309
31,852
36,916
40,185
38,192
36,297
29,866
28,600
na
4447.2
11.1
0.5
(21.0)
15.9
8.9
(5.0)
(5.0)
(17.7)
(4.2)
1,801
29,646
33,875
26,773
28,424
31,042
37,803
39,532
39,001
31,844
31,486
na
1546.1
14.3
(21.0)
6.2
9.2
21.8
4.6
(1.3)
(18.4)
(1.1)
Gross loans
- growth (%)
Deposits
- growth (%)
LDR
44.1
121.8
118.4
150.6
112.1
118.9
106.3
96.6
93.1
93.8
90.8
Assets
5,093
59,929
64,159
67,244
64,350
63,222
63,936
63,134
62,903
55,921
54,437
Avg assets
5,093
32,511
62,044
65,702
65,797
63,786
63,579
63,535
63,019
59,412
59,412
Risk-weighted assets
1,639
31,850
35,330
37,167
27,020
26,093
25,707
25,447
26,667
24,883
24,883
62
60
56
54
55
57
55
46
42
na
24
11
11
12
14
13
14
16
19
19
na
na
70
19
22
26
27
25
23
24
29
31
na
na
100
100
100
100
100
100
100
100
100
100
na
Other commercial
0.55
2.54
1.85
1.87
1.71
1.33
1.74
2.15
2.12
2.02
1.87
Net fees
0.14
0.14
0.24
0.35
0.28
0.29
0.37
0.31
0.33
0.40
0.37
Net trading
0.65
0.19
0.10
(0.11)
0.25
0.50
0.46
0.12
0.23
0.12
0.00
Other
0.04
0.07
0.26
0.27
0.12
0.31
0.10
0.13
0.25
0.09
0.09
Revenue
1.37
2.94
2.45
2.38
2.35
2.44
2.67
2.70
2.94
2.63
2.32
Opex
(0.81)
(1.94)
(1.57)
(1.74)
(1.45)
(1.49)
(1.70)
(2.10)
(1.72)
(1.89)
(1.89)
PPP%
0.57
1.00
0.89
0.64
0.90
0.94
0.97
0.60
1.22
0.75
0.43
Credit charge
0.06
(0.19)
(0.15)
(0.14)
(0.40)
(0.44)
(0.36)
(0.33)
(0.41)
(0.77)
(0.68)
Operating profit %
0.63
0.81
0.73
0.49
0.50
0.50
0.61
0.27
0.82
(0.02)
(0.24)
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(1.68)
(1.22)
Pretax ROA
0.63
0.81
0.73
0.49
0.50
0.50
0.61
0.27
0.82
(1.70)
(1.46)
0.63
0.81
0.73
0.49
0.50
0.50
0.61
0.27
0.82
(0.02)
(0.24)
142
derek.ovington@clsa.com
5 June 2015
Asian banks
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
673
859
1,045
1,370
1,600
1,548
1,897
2,348
2,490
2,376
2,512
247
285
352
549
501
502
737
766
719
632
768
151
209
226
393
701
502
340
289
584
373
229
24
39
132
248
158
336
191
150
167
92
151
1,095
1,392
1,755
2,560
2,960
2,888
3,165
3,553
3,960
3,473
3,660
(663)
(760)
(949)
(1,398)
(1,721)
(1,778)
(1,970)
(2,076)
(2,432)
(2,118)
(2,308)
Other income
Revenue
Operating expenses
Preprovision profit
432
632
806
1,162
1,239
1,110
1,195
1,477
1,528
1,355
1,352
Credit charge
(42)
(79)
(416)
(356)
(538)
(369)
(154)
(103)
(401)
(418)
(1,057)
Operating profit
390
553
390
806
701
741
1,041
1,374
1,127
937
295
(4)
29
42
73
115
224
240
Associates
Net exceptionals
(29)
Pretax profit
390
553
386
808
705
770
1,083
1,447
1,242
1,161
506
390
553
386
808
705
770
1,083
1,447
1,242
1,161
535
16,129
18,960
32,322
36,283
38,594
42,195
48,166
52,023
53,497
49,397
42,623
32.9
17.6
70.5
12.3
6.4
9.3
14.2
8.0
2.8
(7.7)
(13.7)
19,291
23,471
40,866
50,873
58,781
57,776
68,730
76,538
78,336
71,344
72,482
34.2
21.7
74.1
24.5
15.5
(1.7)
19.0
11.4
2.3
(8.9)
1.6
73.0
70.1
68.0
68.3
69.2
58.8
Gross loans
-growth (%)
Deposits
- growth (%)
LDR
83.6
80.8
79.1
71.3
65.7
Assets
29,589
34,550
58,744
70,503
82,193
Avg assets
26,513
32,070
46,647
64,624
76,348
82,692
Risk-weighted assets
17,755
20,364
30,191
31,348
37,053
41,276
46,896
54,349
52,313
59,898
66,465
Home loans
20
19
26
24
23
26
30
29
29
29
na
Other personal
22
20
16
14
14
12
13
12
13
11
na
Real estate
na
Other commercial
45
49
45
50
50
48
46
46
45
46
na
11
11
na
100
100
100
100
100
100
100
100
100
100
na
2.54
2.68
2.24
2.12
2.10
1.87
2.05
2.16
2.13
2.01
2.28
Net fees
0.93
0.89
0.75
0.85
0.66
0.61
0.80
0.70
0.62
0.54
0.70
Net trading
0.57
0.65
0.48
0.61
0.92
0.61
0.37
0.27
0.50
0.32
0.21
Other
0.09
0.12
0.28
0.38
0.21
0.41
0.21
0.14
0.14
0.08
0.14
Revenue
4.13
4.34
3.76
3.96
3.88
3.49
3.42
3.27
3.39
2.94
3.32
(2.50)
(2.37)
(2.03)
(2.16)
(2.25)
(2.15)
(2.13)
(1.91)
(2.08)
(1.79)
(2.09)
1.63
1.97
1.73
1.80
1.62
1.34
1.29
1.36
1.31
1.15
1.23
Opex
PPP%
Credit charge
(0.16)
(0.25)
(0.89)
(0.55)
(0.70)
(0.45)
(0.17)
(0.09)
(0.34)
(0.35)
(0.96)
Operating profit %
1.47
1.72
0.84
1.25
0.92
0.90
1.12
1.26
0.97
0.79
0.27
Associates
0.00
0.00
(0.01)
0.00
0.01
0.04
0.05
0.07
0.10
0.19
0.22
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(0.03)
Pretax ROA
1.47
1.72
0.83
1.25
0.92
0.93
1.17
1.33
1.06
0.98
0.46
1.47
1.72
0.83
1.25
0.92
0.93
1.17
1.33
1.06
0.98
0.48
5 June 2015
derek.ovington@clsa.com
143
Asian banks
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
351
366
386
464
505
530
599
685
977
1,121
1,081
153
151
160
194
227
320
359
340
416
417
413
74
31
91
121
167
221
263
287
157
184
199
16
11
18
25
28
43
29
136
584
553
640
795
910
1,089
1,246
1,340
1,593
1,751
1,829
(360)
(399)
(413)
(468)
(564)
(553)
(653)
(703)
(784)
(862)
(990)
Preprovision profit
224
154
227
327
346
536
593
637
809
889
839
Credit charge
(12)
(90)
(35)
(29)
(33)
(54)
(34)
(41)
(38)
(270)
(176)
Operating profit
212
64
192
298
313
482
559
596
771
619
663
10
Associates
Net exceptionals
Pretax profit
212
64
192
298
313
482
559
596
771
619
673
212
64
192
298
313
482
559
596
771
619
673
2,013
2,261
2,546
3,348
3,673
4,084
4,915
6,113
8,037
8,160
8,408
15.8
12.3
12.6
31.5
9.7
11.2
20.3
24.4
31.5
1.5
3.0
4,022
3,960
4,949
6,384
6,073
7,500
8,681
9,367
10,253
12,086
11,704
22.7
(1.5)
25.0
29.0
(4.9)
23.5
15.7
7.9
9.5
17.9
(3.2)
Gross loans
- growth (%)
Deposits
- growth (%)
LDR
50.0
57.1
51.4
52.4
60.5
54.5
56.6
65.3
78.4
67.5
71.8
Assets
6,419
5,606
7,792
11,133
12,104
13,633
15,944
17,276
20,890
24,892
26,456
Avg assets
5,489
6,013
6,699
9,463
11,619
12,869
14,789
16,610
19,083
22,891
25,674
Risk-weighted assets
2,749
2,732
3,287
3,927
7,247
10,228
11,220
12,047
19,856
19,357
20,289
na
21
23
19
18
15
17
16
16
14
17
na
na
68
61
60
65
65
70
74
65
72
70
na
14
11
na
100
100
100
100
100
100
100
100
100
100
na
Other commercial
6.40
6.09
5.76
4.90
4.35
4.12
4.05
4.12
5.12
4.90
4.21
Net fees
2.79
2.51
2.39
2.05
1.95
2.49
2.43
2.05
2.18
1.82
1.61
Net trading
1.35
0.52
1.36
1.28
1.44
1.72
1.78
1.73
0.82
0.80
0.78
Other
0.11
0.08
0.04
0.17
0.09
0.14
0.17
0.17
0.23
0.13
0.53
Revenue
10.64
9.20
9.55
8.40
7.83
8.46
8.43
8.07
8.35
7.65
7.12
Opex
(6.56)
(6.64)
(6.17)
(4.95)
(4.85)
(4.30)
(4.42)
(4.23)
(4.11)
(3.77)
(3.86)
4.08
2.56
3.39
3.46
2.98
4.17
4.01
3.84
4.24
3.88
3.27
PPP%
Credit charge
(0.22)
(1.50)
(0.52)
(0.31)
(0.28)
(0.42)
(0.23)
(0.25)
(0.20)
(1.18)
(0.69)
Operating profit %
3.86
1.06
2.87
3.15
2.69
3.75
3.78
3.59
4.04
2.70
2.58
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.04
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
3.86
1.06
2.87
3.15
2.69
3.75
3.78
3.59
4.04
2.70
2.62
3.86
1.06
2.87
3.15
2.69
3.75
3.78
3.59
4.04
2.70
2.62
144
derek.ovington@clsa.com
5 June 2015
Asian banks
StanChart Middle-East & South Asia (MESA) financial summary (MENAP from 2014)
Mesa/Menap
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
366
483
653
858
1,007
1,092
1,147
1,197
1,227
1,254
1,033
203
234
296
436
452
494
589
443
471
476
418
75
89
115
100
182
356
343
488
448
397
244
34
17
136
88
91
88
82
148
648
812
1,070
1,428
1,658
2,078
2,167
2,219
2,234
2,209
1,843
(270)
(339)
(514)
(694)
(821)
(891)
(995)
(1,085)
(1,100)
(1,084)
(984)
378
473
556
734
837
1,187
1,172
1,134
1,134
1,125
859
(2)
(53)
(143)
(185)
(821)
(331)
(300)
(348)
(67)
(90)
376
482
503
591
652
366
841
834
786
1,058
769
Pretax profit
376
482
503
591
652
366
841
834
786
1,058
769
376
482
503
591
652
366
841
834
786
1,058
769
6,972
7,377
10,574
12,727
17,560
18,777
18,156
18,572
20,090
20,727
18,385
24.6
5.8
43.3
20.4
38.0
6.9
(3.3)
2.3
8.2
3.2
(11.3)
9,537
10,945
14,108
16,037
19,095
21,158
22,414
24,003
26,204
27,864
24,854
20.5
14.8
28.9
13.7
19.1
10.8
5.9
7.1
9.2
6.3
(10.8)
Gross loans
- growth (%)
Deposits
- growth (%)
LDR (%)
73.1
67.4
75.0
79.4
92.0
88.7
81.0
77.4
76.7
74.4
74.0
Assets
12,867
12,902
18,109
28,616
34,364
44,275
48,028
56,223
46,219
47,166
44,225
Avg assets
11,648
12,885
15,506
23,363
31,490
39,320
46,152
52,126
51,221
46,693
43,328
8,761
9,304
13,572
16,104
22,070
28,727
32,952
33,477
33,119
32,815
29,775
Risk-weighted assets
Loan mix (%)
Home loans
Other personal
Real estate
na
14
27
25
22
16
13
14
13
14
16
na
11
12
na
Other commercial
58
48
53
51
51
51
51
52
54
54
na
23
20
15
18
21
23
19
19
12
na
100
100
100
100
100
100
100
100
100
100
na
3.14
3.75
4.21
3.67
3.20
2.78
2.49
2.30
2.40
2.69
2.38
Net fees
1.74
1.82
1.91
1.87
1.44
1.26
1.28
0.85
0.92
1.02
0.96
Net trading
0.64
0.69
0.74
0.43
0.58
0.91
0.74
0.94
0.87
0.85
0.56
Other
0.03
0.05
0.04
0.15
0.05
0.35
0.19
0.17
0.17
0.18
0.34
Revenue
5.56
6.30
6.90
6.11
5.27
5.28
4.70
4.26
4.36
4.73
4.25
(2.32)
(2.63)
(3.31)
(2.97)
(2.61)
(2.27)
(2.16)
(2.08)
(2.15)
(2.32)
(2.27)
3.25
3.67
3.59
3.14
2.66
3.02
2.54
2.18
2.21
2.41
1.98
Opex
PPP%
Credit charge
(0.02)
0.07
(0.34)
(0.61)
(0.59)
(2.09)
(0.72)
(0.58)
(0.68)
(0.14)
(0.21)
3.23
3.74
3.24
2.53
2.07
0.93
1.82
1.60
1.53
2.27
1.77
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Pretax ROA
3.23
3.74
3.24
2.53
2.07
0.93
1.82
1.60
1.53
2.27
1.77
3.23
3.74
3.24
2.53
2.07
0.93
1.82
1.60
1.53
2.27
1.77
MENAP = Middle-East, North Africa and Pakistan from 2014. Source: CLSA, company data
5 June 2015
derek.ovington@clsa.com
145
Asian banks
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
266
239
220
203
648
602
508
995
1,112
1,223
1,232
181
138
152
130
375
488
756
616
620
579
514
104
120
193
314
179
417
183
99
225
289
172
Other income
119
59
14
(195)
425
293
73
57
339
136
168
Revenue
670
556
579
452
1,627
1,800
1,520
1,767
2,296
2,227
2,086
(416)
(480)
(559)
(726)
(1,210)
(1,237)
(1,235)
(1,389)
(1,338)
(1,515)
(1,444)
Preprovision profit
254
76
20
(274)
417
563
285
378
958
712
642
Credit charge
(48)
62
41
(40)
(334)
(185)
(52)
(10)
(31)
(18)
(222)
Operating profit
206
138
61
(314)
83
378
233
368
927
694
420
(1)
(2)
(3)
(1)
Operating expenses
Associates
Net exceptionals
233
(667)
(291)
Pretax profit
206
138
63
(315)
314
375
233
369
261
696
128
206
138
63
(315)
81
375
233
369
928
696
419
9,179
8,583
12,464
16,515
31,094
30,268
41,438
45,576
50,942
55,236
54,088
31.7
(6.5)
45.2
32.5
88.3
(2.7)
36.9
10.0
11.8
8.4
(2.1)
15,906
16,308
20,257
31,769
54,907
51,571
64,832
71,205
83,292
91,963
122,780
28.0
2.5
24.2
56.8
72.8
(6.1)
25.7
9.8
17.0
10.4
33.5
Gross loans
- growth (%)
Deposits
- growth (%)
LDR (%)
57.7
52.6
61.5
52.0
56.6
58.7
63.9
64.0
61.2
60.1
44.1
Assets
56,792
37,083
65,904
85,891
130,723
91,149
117,934
157,473
179,516
193,499
264,273
Avg assets
47,545
46,938
51,494
75,898
108,307
110,936
104,542
137,704
168,495
186,508
234,951
Risk-weighted assets
24,895
24,256
28,282
37,524
51,744
52,921
55,505
63,976
73,527
89,818
103,284
Home loans
na
Other personal
na
Real estate
na
Other commercial
70
74
67
70
54
73
73
71
70
69
na
26
22
27
28
39
18
18
20
20
18
na
100
100
100
100
100
100
100
100
100
100
na
0.56
0.51
0.43
0.27
0.60
0.54
0.49
0.72
0.66
0.66
0.52
Net fees
0.38
0.29
0.30
0.17
0.35
0.44
0.72
0.45
0.37
0.31
0.22
Net trading
0.22
0.26
0.37
0.41
0.17
0.38
0.18
0.07
0.13
0.15
0.07
Other
0.25
0.13
0.03
(0.26)
0.39
0.26
0.07
0.04
0.20
0.07
0.07
Revenue
1.41
1.18
1.12
0.60
1.50
1.62
1.45
1.28
1.36
1.19
0.89
Opex
(0.87)
(1.02)
(1.09)
(0.96)
(1.12)
(1.12)
(1.18)
(1.01)
(0.79)
(0.81)
(0.61)
PPP%
0.53
0.16
0.04
(0.36)
0.39
0.51
0.27
0.27
0.57
0.38
0.27
Credit charge
(0.10)
0.13
0.08
(0.05)
(0.31)
(0.17)
(0.05)
(0.01)
(0.02)
(0.01)
(0.09)
0.43
0.29
0.12
(0.41)
0.08
0.34
0.22
0.27
0.55
0.37
0.18
Associates
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Net exceptionals
0.00
0.00
0.00
0.00
0.22
0.00
0.00
0.00
(0.40)
0.00
(0.12)
Pretax ROA
0.43
0.29
0.12
(0.42)
0.29
0.34
0.22
0.27
0.15
0.37
0.05
0.43
0.29
0.12
(0.42)
0.07
0.34
0.22
0.27
0.55
0.37
0.18
146
derek.ovington@clsa.com
5 June 2015
Bank of China
HK$5.18 - BUY
Bank on China
Patricia Cheng
Head of China
Financial Research
patricia.cheng@clsa.com
+852 2600 8683
The big Chinese banks are massive in their home market, but only
gradually emerging onto the global stage. The exception is BOC, which
has a multi-decade headstart over peers and is the most internationallyfocused Chinese bank. BOC already has a strong presence in Hong Kong
and Taiwan, and is growing quickly in Asia and the rest of the world.
However, outside of Greater China it needs more time and development
to grow its funding base to facilitate profitable organic growth. BUY.
Marco Yau
5 June 2015
China
Financial services
Reuters
Bloomberg
3988.HK
3988 HK
HK$5.55/3.38
HK$6.30
+22%
Shares in issue
Free float (est.)
288,731.1m
100.0%
Mcap (total)*
Mcap (A-shares)
Mcap (H-shares)
US$208,245m
US$152,684m
US$55,855m
1M
3M
12M
(2.8)
(10.3)
(2.9)
18.0
(19.5)
18.0
39.2
(41.8)
39.2
(HK$)
(%)
Bank of China
Rel to 300 (RHS)
120
115
110
105
4.5
100
4.0
95
3.5
90
85
3.0
80
2.5
2.0
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
75
Oct 13
70
Jun 15
13A
211,685
156,911
56.2
12.3
7.3
56.2
7.3
4.8
1.2
17.9
14A
230,159
169,595
60.6
7.8
6.8
60.6
6.8
4.6
1.1
17.0
15CL
234,811
168,234
59.2
99
(2.2)
6.9
59.2
6.9
4.8
1.0
14.9
16CL
241,577
173,471
62.1
96
4.9
6.6
62.1
6.6
5.0
0.9
14.0
17CL
258,530
186,065
66.7
95
7.3
6.2
66.7
6.2
5.2
0.8
13.6
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
200
3
81
91
183
186
21
50
141
100
304
270
38
31
222
73
73
72
19
17
15
14
14
15
79
80
82
83
82
81
50
43
51
109
150
38
17
60
48
40
369
51
337
250
26
2013
25
70
51
300
24
Other
2012
80
58
20
2011
90
67
12
Mainland China
(%)
2010
14
400
350
100
2007
450
21
2006
Mainland China
HK, Macau & Taiwan
Other
(Rmbbn)
500
2005
78
81
30
20
10
Mainland China
Other
(%)
60
2014
2009
2004
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2008
50
Other
11%
40
30
HK, Macau
& Taiwan
16%
20
10
0
Mainland
China
73%
(10)
(20)
2014
2013
2012
2011
2010
2009
(Rmbbn)
Other
18
80%
70%
1.5
Other
90%
Group
2.0
Mainland China
100%
17
22
24
25
29
27
32
114
133
152
172
2013
2012
2.5
(%)
2011
2010
2008
2007
2006
2005
(30)
38
25
60%
50%
1.0
61
40%
64
30%
0.5
20%
16
30
43
178
36
10%
2014
2009
2008
2007
2006
2005
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2004
0%
0.0
148
patricia.cheng@clsa.com
5 June 2015
Most exposure to US
interest-rate changes
Asian banks
Valuation details
We value Chinese banks at PB with a discount factor applied in the end. The
PB multiple, derived from Gordon Growth Model, reflects our long-term
expectations of ROE (driven by leverage and ROA) and COE. The discount
factor captures the near-term risks, driven largely by asset quality and
regulatory changes. The PB of 1.08x is based on sustainable ROE of 11.4%,
COE of 10.9% and 4% growth. The forecast is on 16CL estimates.
Investment risks
Company outline
But strong overseas
network provides relief
from domestic pressures
The business
Source: CLSA
5 June 2015
patricia.cheng@clsa.com
149
Asian banks
Summary financials
Year to 31 December
13A
14A
Summary P&L forecast (Rmbm)
Interest income
518,995
602,680
Interest expense
(235,410)
(281,578)
Net interest income
283,585
321,102
Trading income
7,777
12,894
Fee income
82,092
91,240
Other operating income
34,055
31,092
Non-interest income
123,924
135,226
Total op income
407,509
456,328
Staff & related costs
Other operating expenses
(172,314)
(177,788)
Total operating expenses
(172,314) (177,788)
Preprovision OP
235,195
278,540
Loan-loss provisions
(23,510)
(48,381)
Other income/expenses
1,092
1,319
Profit before tax
212,777
231,478
Taxation
(49,036)
(54,280)
Profit for period
163,741
177,198
Minority interest
(6,830)
(7,603)
Preference dividends
0
Net profit
156,911
169,595
Summary balance sheet forecast (Rmbm)
Net loans & advances
7,439,742
8,294,744
Placements to other banks
1,297,541
1,291,851
Cash & equivalents
2,132,001
2,306,088
Other int-earning assets
2,571,680
2,898,906
Total int-earning assets
13,440,964 14,791,589
Fixed assets
179,239
190,850
Intangible assets
Other assets
254,096
268,943
Total assets
13,874,299 15,251,382
Customer deposits
10,097,786 10,885,223
Deposits from banks
1,973,101
2,082,184
Other int-bearing liabs
455,213
656,763
Total int-bearing liabs
12,526,100 13,624,170
Other non-int-bearing liabs
386,722
443,784
Total liabilities
12,912,822 14,067,954
Shareholder funds
923,916
1,069,114
Minorities/other equity
37,561
114,314
Total liabs & equity
13,874,299 15,251,382
Ratio analysis
Loan growth (%)
10.9
11.5
Loans/deposits (%)
63.0
65.4
Reported Loans/deposits (%)
73.7
76.2
Net interest margin (%)
2.2
2.2
Net int inc growth (%)
10.4
13.2
Fee income growth (%)
17.4
11.1
Fees & comms/op inc (x)
20.1
20.0
Operating exp growth (%)
7.9
3.2
Op expenses/assets (%)
1.3
1.2
Cost/income (%)
42.3
39.0
Loan provisions/loans (%)
2.3
2.3
Gross NPLs/total loans (%)
1.0
1.2
Loan loss reserve/NPLs (%)
229.4
187.6
Effective tax rate (%)
23.0
23.4
Net profit growth (% YoY)
12.4
8.1
Tier 1 CAR (%)
9.7
11.3
CAR (%)
12.5
13.9
ROA (%)
1.2
1.2
ROE (%)
17.9
17.0
15CL
16CL
17CL
655,086
(328,246)
326,840
8,780
102,848
31,714
143,342
470,182
(181,304)
(181,304)
288,879
(54,068)
234,811
(53,318)
175,493
(7,260)
(6,000)
168,234
695,768
(355,601)
340,168
8,780
115,278
32,348
156,406
496,574
(191,773)
(191,773)
304,801
(63,224)
0
241,577
(54,628)
180,949
(7,478)
(6,000)
173,471
742,986
(386,156)
356,830
8,780
126,423
32,995
168,199
525,029
(202,462)
(202,462)
322,566
(64,037)
258,530
(58,462)
194,068
(8,003)
(6,000)
186,065
9,222,676
1,552,863
2,388,073
2,554,200
15,717,813
190,850
245,734
16,154,397
11,601,075
2,040,749
736,763
14,378,586
450,870
14,829,457
1,182,489
142,451
16,154,397
10,132,452
1,552,863
2,528,296
2,541,174
16,754,785
190,850
204,525
17,150,160
12,429,241
2,040,749
776,763
15,246,753
458,099
15,704,852
1,300,442
144,865
17,150,160
11,044,215
1,552,863
2,673,272
2,568,279
17,838,629
190,850
155,756
18,185,235
13,286,536
2,040,749
816,763
16,144,048
465,474
16,609,521
1,429,262
146,451
18,185,235
11.2
69.2
79.5
2.1
1.8
12.7
21.9
2.0
1.2
38.6
2.4
1.5
163.4
22.7
(0.8)
11.9
14.5
1.2
14.9
9.9
71.9
81.5
2.1
4.1
12.1
23.2
5.8
1.2
38.6
2.7
1.7
158.9
22.6
3.1
12.1
14.7
1.1
14.0
9.0
74.2
83.1
2.1
4.9
9.7
24.1
5.6
1.1
38.6
3.0
1.8
162.2
22.6
7.3
12.4
15.0
1.1
13.6
Source: CLSA
150
patricia.cheng@clsa.com
5 June 2015
MUFG
914 - OUTPERFORM
J. Brian Waterhouse
brian.waterhouse@clsa.com
+81 3 4578 8031
Japan
Financial services
8306.T
8306 JP
935/551
990
+8%
Shares in issue
Free float (est.)
14,168.9m
80.6%
Market cap
US$104,337m
74,682.4m
(US$620.6m)
Major shareholders
1M
3M
12M
8.6
3.1
5.1
20.3
10.0
16.4
53.6
13.0
26.7
()
(%)
MUFG (LHS)
Rel to Topix
850
750
90
650
600
85
550
www.clsa.com
105
95
700
500
Jun 13
Feb 14
Source: Bloomberg
110
100
800
Oct 14
5 June 2015
Reuters
Bloomberg
Rising sun
80
Jun 15
14A
4,683,978
984,845
69.5
15.5
13.1
76.4
12.0
1.8
1.0
7.9
15A
5,013,657
1,033,759
73.0
4.9
12.5
77.4
11.8
2.0
0.8
7.3
16CL
5,552,600
1,130,500
79.8
105
9.3
11.5
84.1
10.9
2.0
0.8
7.1
17CL
5,989,400
1,230,700
86.9
110
8.9
10.5
91.0
10.0
2.2
0.7
7.2
18CL
6,505,200
1,383,000
97.6
112
12.4
9.4
101.5
9.0
2.4
0.7
7.6
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
MUFG - O-PF
7,000
Japan
Americas
Asia x-JP
(%)
Other
Japan
Americas
Europe
Asia ex-Japan
Other
100
6,000
90
80
5,000
70
4,000
60
50
3,000
40
2,000
30
20
1,000
10
(bn)
Japan
Americas
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY04
FY05
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
Asia ex-Japan
Other
1,500
(%)
Japan
Europe
Other
Americas
Asia ex-Japan
Total
1,000
2
500
0
(500)
(1,000)
(1)
(1,500)
(2)
(2,000)
60
(US$bn)
Thailand
10%
India
China
Taiwan
40
Hong Kong
India
8%
Australia
15%
Malaysia
Korea
10
China
14%
Indonesia
Thailand
Japanese clients
FY14
FY13
Malaysia
5%
Philippines
20
Indonesia
8%
Korea
4%
Singapore
30
FY12
FY11
Australia
50
FY10
FY09
FY08
FY07
FY06
FY14
FY13
FY12
FY11
FY10
FY09
FY08
FY07
FY06
FY05
FY04
FY05
(3)
(2,500)
Non-Japanese clients
Taiwan
3%
Singapore
13%
Hong Kong
18%
Philippines
2%
152
brian.waterhouse@clsa.com
5 June 2015
MUFG - O-PF
Asian banks
Valuation details
We calculate revised fair value for the stock as 990.82 (which we round
down to 990 for our target price), using a blended FY3/16-17 EPS forecast
of 84.22 to which we apply our required rate of return for the megabanks of
8.5%, but no discount to NAV [84.22EPS / 0.085RoE * 1.00NAV = Y990.82].
Previously we had applied a 10% discount to NAV in an attempt to take into
account the inherently higher credit risk at some of the operating subsidiaries
(such as consumer finance major Acom and credit-card company Jaccs), as
well as the potential for a change in the credit cycle for Japanese banks within
the next 2-3 years as a consequence of rising interest rates if Abenomics
succeeds in its ambitions. Given the clear determination of both the LDP
government and the Bank of Japan to keep interest rates low - despite all
rhetoric to the contrary - and to provide further stimulus measures for small
businesses until there are clear signs of an economic recovery, we feel a 10%
discount to NAV is no longer appropriate as domestic credit quality is unlikely
to deteriorate significantly in the short-term while interest rates continue at
ultra-low levels. Moreover, MUFG's policy of overseas acquisition has helped
to offset the absence of robust growth domestically. Overseas expansion,
however, raises the thorny question of Japanese banks' chequered history
when it comes to foreign bank acquisitions, suggesting investors might be
unwilling to pay full book value to own a Japanese megabank. We believe that
the success of Union Bank - MUFG's US West Coast commercial banking
franchise - speaks for itself, while its latest S.E. Asian acquisition, Bank of
Ayudhya of Thailand, is already a high-profile contributor to group earnings.
Investment risks
5 June 2015
brian.waterhouse@clsa.com
153
Asian banks
MUFG - O-PF
Summary financials
Year to 31 March
We forecast modest
top-line growth
14A
15A
16CL
17CL
18CL
5,176,100
5,638,400
6,243,000
6,758,400
7,394,700
Fund-based income
2,370,649
2,806,238
3,123,000
3,408,400
3,814,700
Funding costs
(492,122)
(624,743)
(690,400)
(769,000)
(889,500)
Fee income
1,452,176
1,620,614
1,770,000
1,920,000
2,050,000
829,509
760,618
800,000
830,000
850,000
523,766
450,930
550,000
600,000
680,000
(3,481,281)
(3,925,399)
(4,350,600)
(4,712,400)
(5,112,500)
(183,904)
(200,094)
(215,000)
(230,000)
(255,000)
(2,323,918)
(2,619,867)
(2,716,700)
(2,846,300)
(2,988,000)
(481,337)
(480,695)
(728,500)
(867,100)
(980,000)
(11,881)
161,624
283,000
363,400
454,700
1,694,819
1,713,001
1,892,400
2,046,000
2,282,200
Recurring profit
Net extraordinary income
Profit before tax
Net profit
Adjusted profit
MUFG is increasingly
growing outside of Japan
(98,244)
(98,000)
(92,500)
(87,000)
1,614,757
1,794,400
1,953,500
2,195,200
984,845
1,033,759
1,130,500
1,230,700
1,383,000
1,081,725
1,096,654
1,192,242
1,288,975
1,437,811
91,000,000
59,243,018
78,450,151
80,000,000
85,000,000
Investment securities
75,099,265
74,238,409
80,000,000
85,000,000
90,000,000
101,000,424
108,372,556
116,034,000
124,256,000
133,677,000
11,310,528
12,307,247
13,400,000
14,500,000
15,500,000
1,540,031
1,352,727
1,400,000
1,480,000
1,550,000
Other assets
9,938,680
11,428,678
12,500,000
13,500,000
15,100,000
Total assets
Deposits & negotiable CDs
Other int-bearing liabs
Total funds:
Other misc. liabs
Total liabilities
Paid-in capital
Other equity capital
Total equity
Weak returns in
Japan still constrain
group profitability
(151,789)
1,543,030
169,431,260
179,597,000
190,373,000
202,747,000
66,440,376
77,387,227
85,000,000
94,300,000
105,600,000
22,043,748
20,259,477
19,382,114
17,571,184
2,141,513
2,141,513
2,141,513
2,141,513
12,972,407
15,146,020
16,336,010
17,539,373
18,767,303
15,112,895
17,287,533
18,477,523
19,680,886
20,908,816
Ratio analysis
Gross NPLs/total loans (%)
Loan provisions/NPLs (%)
1.4
1.1
1.0
1.0
1.0
(0.8)
13.2
23.9
29.4
34.3
0.0
0.0
0.0
0.0
0.0
11.0
11.6
9.2
8.5
6.8
10.4
7.0
10.7
7.9
8.6
12.6
12.9
10.0
10.0
10.0
15.5
5.0
9.4
8.9
12.4
Cost/income (%)
63.8
65.8
65.9
65.8
64.9
77.7
79.4
74.2
72.2
70.8
36.2
36.0
37.0
37.0
37.0
38.4
39.1
40.6
41.8
42.9
5.9
6.0
6.1
6.1
6.0
12.5
12.6
12.0
11.5
11.0
3.1
3.1
3.0
3.1
3.1
CAR (%)
15.5
15.7
15.0
14.5
14.0
Loans/deposits (%)
63.6
64.6
65.2
65.8
66.4
63.0
64.0
64.6
65.3
65.9
Source: CLSA
154
brian.waterhouse@clsa.com
5 June 2015
ANZ Bank
A$31.92 - UNDERPERFORM
Brian Johnson
brian.johnson@clsa.com
+61 2 8571 4252
ANZ is by far Australias leading challenger bank in Asia, with the most
exposure to the region and the strongest network. However, its regional
platform is fragmented across strategic investments that are not
integrated into the group and these attract increasingly punitive capitaladequacy treatment. ANZ needs to thoroughly restructure these to
position itself as a stronger competitor in Asia. Meanwhile, it is
deemphasising Asia in favour of ROE and capital discipline. Underperform.
Ed Henning
5 June 2015
Australia
Financial services
Reuters
Bloomberg
ANZ.AX
ANZ AU
12M hi/lo
A$33.50
+5%
Shares in issue
Free float (est.)
2,766.0m
100.0%
Market cap
US$68,584m
An unwieldy melange
ANZs exposure to Asia has increased materially in the past decade, primarily
through it taking strategic stakes in partner banks, eg Panin Bank (Indonesia,
1999-2010), Shanghai Rural Commercial Bank (China, 2005), Bank of Tianjin
(China, 2006) and AMMB (Malaysia, 2006). Alongside these, ANZ also has a
small 100%-owned Asian network, concentrated in Hong Kong and Singapore,
and boosted by the 2010 acquisition of selected RBS operations.
A$243.4m
(US$189.2m)
NA 5.0%
1M
3M
12M
(6.5)
(2.7)
(7.5)
(10.5)
(4.9)
(10.5)
(5.3)
(7.1)
(20.4)
(A$)
(%)
ANZ Bank (LHS)
Rel to ASX200
130
125
120
115
30
110
25
105
100
20
15
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
95
Oct 13
90
Jun 15
13A
8,455
6,492
238.3
5.8
13.4
216.1
14.8
5.1
2.0
15.3
14A
9,312
7,117
260.3
9.2
12.3
253.2
12.6
5.6
1.8
15.3
15CL
9,527
7,357
268.3
101
3.1
11.9
256.9
12.4
5.8
1.7
14.4
16CL
9,817
7,566
273.1
99
1.8
11.7
267.8
11.9
5.9
1.6
13.6
17CL
10,356
7,929
283.1
99
3.7
11.3
281.8
11.3
6.1
1.4
13.1
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
100
Australia
(%)
90
FY04
FY05
Asia
NZ
FY06
FY07
EU & Am
FY10
FY11
10
80
Pacific
10
10
12
FY12
FY13
FY14
70
60
50
40
30
20
10
0
FY08
FY09
ANZ Asia cash profit breakdown between associates and 100%-owned business
900
(US$m)
800
700
AMMB (Malaysia)
Metrocard (Philippines)
Asia retail
Asia w/sale
600
Its directly-owned
operations are relatively
small and, in the
case of wholesale
operations, volatile
500
400
300
200
100
0
(100)
FY04
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
(US$bn)
60
Loans
Deposits
Loans/deposits ratio (RHS)
(%)
120
Pacific
1%
EU & Am
1%
100
50
Asia
13%
80
40
60
30
40
20
Australia
67%
20
10
0
New
Zealand
18%
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
156
brian.johnson@clsa.com
5 June 2015
Target PE of 12x
Asian banks
Valuation details
Investment risks
Company outline
The smallest of the big
four Australian banks
The business
Source: CLSA
5 June 2015
brian.johnson@clsa.com
157
Asian banks
Summary financials
Year to 30 September
13A
Summary P&L forecast (A$m)
Interest income
28,641
Interest expense
(15,869)
Net interest income
12,772
Trading income
1,147
Fee income
2,459
Other operating income
1,531
Non-interest income
5,137
Total op income
17,909
Staff & related costs
(4,764)
Other operating expenses
(3,493)
Total operating expenses
(8,257)
Preprovision OP
9,652
Loan-loss provisions
(1,197)
Other income/expenses
0
Profit before tax
8,455
Taxation
(2,435)
Profit for period
6,020
Minority interest
472
Preference dividends
Net profit
6,492
Summary balance sheet forecast (A$m)
Net loans & advances
483,264
Placements to other banks
25,755
Cash & equivalents
25,270
Other int-earning assets
123,940
Total int-earning assets
658,229
Fixed assets
2,164
Intangible assets
7,690
Other assets
34,912
Total assets
702,995
Customer deposits
466,915
Deposits from banks
Other int-bearing liabs
83,180
Total int-bearing liabs
550,095
Other non-int-bearing liabs
107,297
Total liabilities
657,392
Shareholder funds
44,670
Minorities/other equity
933
Total liabs & equity
702,995
Ratio analysis
Loan growth (%)
13.0
Loans/deposits (%)
104.4
Reported Loans/deposits (%)
103.5
Net interest margin (%)
2.2
Net int inc growth (%)
5.5
Fee income growth (%)
2.0
Fees & comms/op inc (x)
13.7
Operating exp growth (%)
2.9
Op expenses/assets (%)
1.2
Cost/income (%)
46.1
Loan provisions/loans (%)
0.9
Gross NPLs/total loans (%)
0.8
Loan loss reserve/NPLs (%)
116.1
Effective tax rate (%)
28.8
Net profit growth (% YoY)
8.0
Tier 1 CAR (%)
10.4
CAR (%)
12.2
ROA (%)
0.9
ROE (%)
15.3
14A
15CL
16CL
17CL
29,511
(15,714)
13,797
1,225
2,505
1,534
5,264
19,061
(5,088)
(3,672)
(8,760)
10,301
(989)
0
9,312
(2,700)
6,612
505
7,117
30,268
(15,821)
14,447
1,176
2,655
1,621
5,452
19,899
(5,482)
(3,794)
(9,275)
10,624
(1,097)
9,527
(2,778)
6,749
608
7,357
31,011
(15,911)
15,100
1,146
2,817
1,693
5,657
20,757
(5,706)
(3,918)
(9,624)
11,133
(1,315)
9,817
(2,847)
6,970
596
7,566
32,774
(16,973)
15,801
1,216
2,989
1,797
6,002
21,803
(5,949)
(4,036)
(9,985)
11,818
(1,463)
10,356
(3,003)
7,353
576
7,929
521,752
25,700
32,559
145,531
725,542
2,181
7,950
36,419
772,092
510,079
93,703
603,782
119,026
722,808
48,336
948
772,092
575,026
34,275
47,384
177,785
834,471
2,269
8,384
40,805
885,929
584,231
105,050
689,282
142,819
832,100
53,734
95
885,929
610,139
36,363
50,270
188,517
885,288
2,407
8,384
43,923
940,002
619,811
111,440
731,251
151,504
882,755
57,152
95
940,002
647,306
38,577
53,331
199,985
939,200
2,554
8,384
47,128
997,265
657,558
117,839
775,396
158,026
933,422
63,748
95
997,265
8.0
103.1
102.3
2.1
8.0
1.9
13.1
6.1
1.2
46.0
0.8
0.5
146.6
29.0
9.6
10.7
12.7
0.9
15.3
10.2
99.1
98.4
2.0
4.7
6.0
13.3
5.9
1.1
46.6
0.7
0.4
170.1
29.2
3.4
10.7
12.6
0.8
14.4
6.1
99.1
98.4
2.0
4.5
6.1
13.6
3.8
1.1
46.4
0.7
0.4
173.6
29.0
2.8
10.8
12.7
0.8
13.6
6.1
99.1
98.4
2.0
4.6
6.1
13.7
3.7
1.0
45.8
0.7
0.4
174.7
29.0
4.8
10.9
12.9
0.8
13.1
Source: CLSA
158
brian.johnson@clsa.com
5 June 2015
DBS
S$20.11 - OUTPERFORM
Sleepless in Singapore
Asheefa Sarangi
asheefa.sarangi@clsa.com
+65 6416 7847
Fourteen years after overpaying for Dao Heng, DBSs broader regional
ambitions remain largely unfulfilled. The groups ex-Singapore operations
remain concentrated in a second-tier Hong Kong brand with little
meaningful scale in its target countries of mainland China, India and
Indonesia. Although we see a lot more work ahead in building a leading
regional franchise, we are encouraged by the banks progress in its
wholesale and wealth businesses. We maintain our Outperform rating.
More appetite than achievement
Since the late 1990s DBS has attempted to create a leading Asian network,
primarily via acquisitions. For the most part, these acquisitions have been
expensive failures, leaving DBS with meaningful scale in only two banking
systems: Singapore and Hong Kong. DBS presence in its target markets of
China, India and Indonesia remain subscale due to regulatory constraints.
5 June 2015
Singapore
Financial services
Reuters
Bloomberg
DBSM.SI
DBS SP
S$21.19/16.75
S$22.70
+13%
Shares in issue
Free float (est.)
2,485.0m
72.1%
Market cap
US$37,402m
S$69.3m
(US$51.2m)
Temasek 29.2%
1M
3M
12M
(4.6)
(0.7)
(5.9)
4.4
6.7
5.7
18.4
16.6
10.4
(S$)
(%)
130
DBS (LHS)
125
Rel to STI
120
18
115
110
16
105
14
100
95
12
10
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
90
Oct 13
85
Jun 15
13A
4,239
3,663
1.42
2.0
14.1
1.42
14.1
2.9
1.5
11.3
14A
4,621
4,037
1.56
9.4
12.9
1.56
12.9
2.9
1.4
11.5
15CL
5,108
4,404
1.70
99
9.6
11.8
1.70
11.8
3.0
1.3
11.4
16CL
5,566
4,680
1.85
96
8.6
10.9
1.85
10.9
3.2
1.2
11.2
17CL
5,942
5,004
1.97
92
6.4
10.2
1.97
10.2
3.4
1.1
11.0
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
DBS - O-PF
Other China
S&SE Asia
100
Rest of World
1.9
1.9
26
23
21
21
19
19
21
20
62
63
63
64
61
60
63
62
62
61
62
2011
2012
2013
2014
30
2010
5.4
2009
4.0
3.7
5.0
2008
3.9
4.7
4.4
6.0
20
10
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
28
50
29
40
3.4
2.7
31
70
2007
2.8
80
60
1.3
Other China
2006
1.4
1.5
1.4
1.4
1.5
1.5
1.5
1.6
Hong Kong
Rest of World
90
Singapore
S&SE Asia
(%)
2005
Singapore
2004
(S$bn)
10
(%)
Singapore
Hong Kong
Other China
S&SE Asia
Rest of World
Group
Rest of
World
3%
S&SE Asia
4%
80
Other China
10%
60
40
20
Hong Kong
17%
Singapore
66%
(20)
2014
2013
2012
2011
2010
2009
S&SE Asia
Rest of World
Group
(S$bn)
100%
4.0
90%
3.5
80%
0.7
0.6
Singapore
Hong Kong
S&SE Asia
Rest of World
0.8
0.8
70%
3.0
0.7
0.5
Other China
1.0
1.1
0.7
0.8
2.2
2.3
2.6
2.8
3.2
2014
Hong Kong
Other China
2013
4.5
Singapore
2012
(%)
5.0
2011
2010
2008
2007
2006
2005
(40)
0.6
60%
2.5
50%
2.0
1.9
2.2
1.8
2007
2008
1.5
2009
1.5
2006
2014
2013
2012
2011
2010
2009
2008
2007
0%
2006
10%
0.0
2005
20%
0.5
2004
1.0
1.7
2005
30%
2004
40%
1.5
160
asheefa.sarangi@clsa.com
5 June 2015
DBS - O-PF
Asian banks
Valuation details
Our preferred valuation approach for the Singapore banks is the adapted
Gordon growth model. Our S$22.70 target price is based on target CY16CL
PB of 1.3x. Our GGM assumes sustainable ROE of 11.1%, cost of equity of
9.4% and long-term growth of 4%. Our target p/BV valuation is broadly inline with the company's five year trading average. For comparability
purposes, our target prices are based on calendar, rather than fiscal book
value estimates, given the varying fiscal years of companies under coverage.
Investment risks
Company outline
Among Singapore banks,
DBS has been the most
active in expanding
outside the Lion City
The business
Source: CLSA
5 June 2015
asheefa.sarangi@clsa.com
161
Asian banks
DBS - O-PF
Summary financials
More moderate loan
growth, offset by some
recovery in NIM
Year to 31 December
13A
Summary P&L forecast (S$m)
Interest income
7,986
Interest expense
(2,417)
Net interest income
5,569
Trading income
1,095
Fee income
1,473
Other operating income
790
Non-interest income
3,358
Total op income
8,927
Staff & related costs
(2,065)
Other operating expenses
(1,853)
Total operating expenses
(3,918)
Preprovision OP
5,009
Loan-loss provisions
(770)
Other income/expenses
250
Profit before tax
4,489
Taxation
(615)
Profit for period
3,865
Minority interest
(202)
Preference dividends
(9)
Net profit
3,663
Summary balance sheet forecast (S$m)
Net loans & advances
248,654
Placements to other banks
39,817
Cash & equivalents
18,726
Other int-earning assets
65,736
Total int-earning assets
372,933
Fixed assets
0
Intangible assets
4,802
Other assets
24,273
Total assets
402,008
Customer deposits
292,365
Deposits from banks
13,572
Other int-bearing liabs
28,659
Total int-bearing liabs
334,596
Other non-int-bearing liabs
29,726
Total liabilities
364,322
Shareholder funds
33,430
Minorities/other equity
4,256
Total liabs & equity
402,008
Ratio analysis
Loan growth (%)
18.1
Loans/deposits (%)
82.4
Reported Loans/deposits (%)
85.0
Net interest margin (%)
1.6
Net int inc growth (%)
5.4
Fee income growth (%)
15.2
Fees & comms/op inc (x)
16.5
Operating exp growth (%)
8.4
Op expenses/assets (%)
1.0
Cost/income (%)
43.9
Loan provisions/loans (%)
1.4
Gross NPLs/total loans (%)
1.2
Loan loss reserve/NPLs (%)
117.7
Effective tax rate (%)
13.7
Net profit growth (% YoY)
(13.8)
Tier 1 CAR (%)
13.7
CAR (%)
16.3
ROA (%)
1.0
ROE (%)
11.3
14A
15CL
16CL
17CL
8,948
(2,627)
6,321
901
1,520
876
3,297
9,618
(2,294)
(2,036)
(4,330)
5,288
(667)
277
4,898
(713)
4,176
(139)
(9)
4,037
9,929
(2,821)
7,108
946
1,637
929
3,511
10,619
(2,478)
(2,237)
(4,715)
5,904
(796)
186
5,294
(741)
4,544
(140)
(9)
4,404
11,153
(3,183)
7,971
993
1,900
934
3,827
11,798
(2,676)
(2,539)
(5,215)
6,583
(1,018)
50
5,616
(786)
4,820
(140)
(9)
4,680
12,237
(3,515)
8,722
1,013
2,103
979
4,095
12,817
(2,890)
(2,750)
(5,639)
7,177
(1,236)
50
5,992
(839)
5,144
(140)
(9)
5,004
275,588
42,263
20,527
72,018
410,396
0
5,117
25,153
440,666
317,173
16,176
28,659
362,008
38,452
400,460
36,905
3,301
440,666
298,354
46,154
21,861
77,429
443,799
0
5,117
20,394
469,309
341,437
16,985
28,659
387,081
38,737
425,817
40,157
3,335
469,309
318,186
49,864
23,282
83,538
474,870
0
5,117
19,827
499,814
362,947
17,834
28,659
409,440
43,517
452,957
43,522
3,335
499,814
339,834
53,900
24,679
89,234
507,647
0
5,117
17,039
529,803
385,813
18,726
28,659
433,198
46,189
479,387
47,082
3,335
529,803
10.8
83.7
86.9
1.7
13.5
3.2
15.8
10.5
1.0
45.0
1.3
0.9
141.9
14.6
10.2
13.1
15.3
0.9
11.5
8.3
84.5
87.4
1.7
12.4
7.7
15.4
8.9
1.0
44.4
1.5
1.1
132.2
14.0
9.1
13.4
15.4
1.0
11.4
6.6
85.1
87.7
1.8
12.1
16.1
16.1
10.6
1.1
44.2
1.9
1.7
111.7
14.0
6.3
13.7
15.5
1.0
11.2
6.8
85.7
88.1
1.9
9.4
10.7
16.4
8.1
1.1
44.0
2.0
2.1
98.7
14.0
6.9
14.1
15.8
1.0
11.0
Source: CLSA
162
asheefa.sarangi@clsa.com
5 June 2015
UOB
S$22.72 - OUTPERFORM
Asean aspiration
Asheefa Sarangi
asheefa.sarangi@clsa.com
+65 6416 7847
5 June 2015
Singapore
Financial services
Reuters
Bloomberg
UOBH.SI
UOB SP
S$25.00/21.58
S$26.05
+15%
Shares in issue
Free float (est.)
1,602.7m
76.0%
Market cap
US$27,002m
S$58.1m
(US$42.9m)
1M
3M
12M
(7.2)
(3.4)
(8.5)
(1.9)
0.2
(0.7)
0.6
(1.0)
(6.2)
(S$)
(%)
UOB (LHS)
Rel to STI
110
105
22
100
20
95
18
90
16
85
14
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
Oct 13
80
Jun 15
13A
3,393
2,905
184.4
7.5
12.3
184.4
12.3
3.1
1.5
12.3
14A
3,676
3,157
197.4
7.0
11.5
197.4
11.5
3.1
1.3
12.2
15CL
3,830
3,222
201.0
98
1.8
11.3
201.0
11.3
3.5
1.2
11.3
16CL
3,958
3,341
208.5
94
3.7
10.9
208.5
10.9
3.6
1.2
11.0
17CL
4,157
3,519
219.6
89
5.3
10.3
219.6
10.3
3.8
1.1
10.8
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
UOB - O-PF
8
7
Singapore
Malaysia
Thailand
Indonesia
Greater China
Other
(%)
100
Singapore
Malaysia
Thailand
Indonesia
Greater China
Other
70
1.0
0.9
0.7
0.6
1.0
0.8
40
2.5
2.3
3.2
2.9
3.5
3.5
11
13
14
14
59
58
14
14
56
58
50
0.6
3.4
10
12
60
0.4
0.4
0.5
10
3.8
3.3
3.8
72
30
4.3
68
66
60
64
65
2009
0.5
11
2008
11
2012
80
2011
90
63
20
10
2014
2013
2010
2007
2006
2005
Singapore
Thailand
Greater China
Group
(%)
2004
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
Malaysia
Indonesia
Other
Other
7%
60
Greater
China
11%
Indonesia
3%
40
Thailand
5%
20
Singapore
62%
Malaysia
12%
0
(20)
2014
2013
2012
2011
2010
2009
4.0
Malaysia
Indonesia
Other
(S$bn)
100%
Singapore
Indonesia
Malaysia
Greater China
Thailand
Other
90%
3.5
80%
3.0
70%
0.2
0.2
0.3
0.2
0.3
0.3
0.4
0.5
0.6
0.6
0.6
2.2
2.3
2014
(%)
4.5
Singapore
Thailand
Greater China
Group
2013
2008
2007
2006
2005
(40)
60%
2.5
20%
0.5
10%
1.8
2.4
1.9
1.9
1.6
2.1
1.8
2.3
2012
1.0
1.7
2011
30%
2010
40%
1.5
2009
50%
2.0
2008
2007
2006
2005
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2004
0%
0.0
164
asheefa.sarangi@clsa.com
5 June 2015
UOB - O-PF
Asian banks
Valuation details
Our preferred valuation approach for the Singapore banks is the adapted
Gordon growth model. Our S$26.05 target price is based on target CY16CL
PB of 1.3x. Our GGM assumes sustainable ROE of 11.1%, cost of equity of
9.3% and long-term growth of 4%. Our target p/BV valuation is broadly inline with the company's five year trading average. For comparability
purposes, our target prices are based on calendar, rather than fiscal book
value estimates, given the varying fiscal years of companies under coverage.
Investment risks
Company outline
It has a strong franchise
among SME customer In
Singapore and is also a
key mortgage lender.
The business
Source: CLSA
5 June 2015
asheefa.sarangi@clsa.com
165
Asian banks
UOB - O-PF
Summary financials
Year to 31 December
13A
Summary P&L forecast (S$m)
Interest income
6,508
Interest expense
(2,388)
Net interest income
4,120
Trading income
47
Fee income
1,559
Other operating income
994
Non-interest income
2,600
Total op income
6,720
Staff & related costs
(1,712)
Other operating expenses
(1,186)
Total operating expenses
(2,898)
Preprovision OP
3,822
Loan-loss provisions
(429)
Other income/expenses
191
Profit before tax
3,584
Taxation
(559)
Profit for period
2,922
Minority interest
(17)
Preference dividends
(103)
Net profit
2,905
Summary balance sheet forecast (S$m)
Net loans & advances
178,857
Placements to other banks
31,412
Cash & equivalents
26,881
Other int-earning assets
34,484
Total int-earning assets
271,634
Fixed assets
0
Intangible assets
4,144
Other assets
8,451
Total assets
284,229
Customer deposits
214,548
Deposits from banks
13,706
Other int-bearing liabs
20,016
Total int-bearing liabs
248,270
Other non-int-bearing liabs
9,382
Total liabilities
257,652
Shareholder funds
24,208
Minorities/other equity
2,369
Total liabs & equity
284,229
Ratio analysis
Loan growth (%)
17.0
Loans/deposits (%)
79.7
Reported Loans/deposits (%)
83.4
Net interest margin (%)
1.7
Net int inc growth (%)
5.2
Fee income growth (%)
13.1
Fees & comms/op inc (x)
23.2
Operating exp growth (%)
5.2
Op expenses/assets (%)
1.1
Cost/income (%)
43.1
Loan provisions/loans (%)
1.7
Gross NPLs/total loans (%)
1.3
Loan loss reserve/NPLs (%)
134.9
Effective tax rate (%)
15.6
Net profit growth (% YoY)
7.6
Tier 1 CAR (%)
13.2
CAR (%)
16.6
ROA (%)
1.1
ROE (%)
12.3
14A
15CL
16CL
17CL
7,189
(2,632)
4,557
599
1,593
708
2,900
7,457
(1,825)
(1,321)
(3,146)
4,311
(635)
149
3,825
(561)
3,172
(15)
(92)
3,157
7,870
(2,912)
4,958
599
1,871
517
2,987
7,945
(1,825)
(1,568)
(3,393)
4,553
(723)
93
3,923
(588)
3,242
(20)
(92)
3,222
8,464
(3,143)
5,321
649
2,021
466
3,136
8,457
(1,825)
(1,811)
(3,636)
4,820
(863)
105
4,063
(609)
3,361
(20)
(92)
3,341
9,147
(3,390)
5,757
699
2,183
443
3,325
9,081
(1,825)
(2,080)
(3,905)
5,176
(1,020)
115
4,272
(641)
3,539
(20)
(92)
3,519
195,903
28,692
35,083
34,405
294,083
0
4,149
8,504
306,736
233,750
11,226
21,904
266,880
10,084
276,964
27,389
2,383
306,736
206,085
0
36,837
36,735
279,657
0
4,149
38,267
322,073
247,775
11,787
22,584
282,147
8,132
290,278
29,411
2,383
322,073
218,601
0
39,047
39,839
297,488
0
4,149
39,760
341,397
262,270
12,612
24,379
299,261
8,315
307,576
31,439
2,383
341,397
232,393
0
41,390
42,674
316,457
0
4,149
41,275
361,881
277,613
13,874
26,353
317,839
8,016
325,855
33,643
2,383
361,881
9.5
81.4
83.8
1.7
10.6
2.2
21.4
8.6
1.1
42.2
1.8
1.3
132.9
14.7
8.7
13.9
16.9
1.1
12.2
5.2
81.0
83.2
1.8
8.8
17.5
23.6
7.8
1.1
42.7
2.0
1.6
128.7
15.0
2.1
14.2
17.0
1.0
11.3
6.1
81.5
83.3
1.8
7.3
8.0
23.9
7.2
1.1
43.0
2.5
2.2
114.1
15.0
3.7
14.3
17.0
1.0
11.0
6.3
81.8
83.7
1.8
8.2
8.0
24.0
7.4
1.1
43.0
2.6
2.7
99.2
15.0
5.3
14.5
17.0
1.0
10.8
Source: CLSA
166
asheefa.sarangi@clsa.com
5 June 2015
OCBC
S$10.04 - UNDERPERFORM
China dreams
Asheefa Sarangi
asheefa.sarangi@clsa.com
+65 6416 7847
5 June 2015
Singapore
Financial services
Reuters
Bloomberg
OCBC.SI
OCBC SP
Modest acquisitions . . .
Since the Asian Financial Crisis OCBC has been relatively selective in its
overseas acquisitions. Its largest purchases consist of NISP in Indonesia, a
strategic stake in Bank of Ningbo in China, domestic consolidation (Keppel)
and majority ownership of Great Eastern.
S$10.90/9.12
S$11.10
+11%
Shares in issue
Free float (est.)
3,983.9m
67.3%
Market cap
US$29,674m
S$43.2m
(US$32.0m)
(S$)
1M
3M
12M
(6.0)
(2.1)
(7.3)
(3.9)
(1.9)
(2.7)
6.6
5.0
(0.6)
OCBC (LHS)
Rel to STI
10.0
(%)
115
110
105
9.5
9.0
100
8.5
8.0
95
7.5
7.0
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
Oct 13
90
Jun 15
Repent at leisure
Leaving aside the strategic merits and acquisition price of Wing Hang, OCBC
will face medium-term headwinds from the capital strain of the acquisition
and the material increase in its exposure to China, both directly and
indirectly. On the first, OCBC will need to hoard capital in coming years to
rebuild its CET1 ratio. On the second, time will tell how the mainland
economy fares, but slowing growth and rising NPLs do not bode well. We
expect these factors to drag on OCBCs relative growth profile.
Financials
Year to 31 December
Operating profit (S$m)
Net profit (S$m)
EPS (S)
CL/consensus (25) (EPS%)
EPS growth (% YoY)
PE (x)
Adjusted EPS (S)
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
13A
3,513
2,686
78.2
(30.3)
12.8
78.2
12.8
3.4
1.5
11.5
14A
4,651
3,785
102.5
31.1
9.8
102.5
9.8
3.6
1.3
14.2
15CL
4,607
3,993
94.5
100
(7.9)
10.6
92.8
10.8
3.8
1.2
12.7
16CL
4,910
4,165
96.0
95
1.6
10.5
96.5
10.4
4.0
1.1
11.8
17CL
5,074
4,355
97.7
88
1.7
10.3
97.7
10.3
4.4
1.1
11.1
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
OCBC - U-PF
9
8
Singapore
Malaysia
Other Asean
Greater China
Other Asia
Rest of world
Malaysia
Other Asia
Other Asean
Rest of world
90
19
80
6
1.4
1.3
1.2
0.5
0.7
1.9
1.9
1.4
40
0.9
4.2
2.7
2.7
3.4
2.9
3.4
4.1
4.8
23
22
73
68
30
65
65
63
23
60
63
Singapore
Greater China
Group
Malaysia
Other Asia
61
62
60
Greater
China
19%
Singapore
55%
Malaysia
16%
(50)
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2.5
63
18
Rest of
world
5%
Other Asia
2%
Other Asean
Rest of world
Other Asean
3%
3.0
21
3.5
20
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
50
(100)
22
20
(%)
100
26
10
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
150
23
70
50
1.2
0.7
2.1
23
60
1.2
1.0
100
Singapore
Greater China
(%)
(%)
Singapore
Other Asean
Other Asia
Group
100%
Singapore
Greater China
(S$bn)
Malaysia
Other Asia
Other Asean
Rest of world
90%
80%
2.0
70%
1.5
60%
0.3
0.5
0.5
0.6
0.5
0.8
0.8
0.8
0.8
0.9
0.8
50%
1.0
40%
0.5
30%
0.0
20%
(0.5)
10%
(1.0)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0%
1.0
1.1
1.2
1.7
1.2
1.6
2.0
1.7
2.3
2.1
2.6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
168
asheefa.sarangi@clsa.com
5 June 2015
OCBC - U-PF
Target PB is 1.3x
Asian banks
Valuation details
Our preferred valuation approach for the Singapore banks is the adapted
Gordon growth model. Our S$11.10 target price is based on target CY16CL
PB of 1.3x. Our GGM assumes sustainable ROE of 11%, cost of equity of
9.6% and long-term growth of 4%. Our target p/BV valuation is broadly inline with the company's five year trading average. For comparability
purposes, our target prices are based on calendar, rather than fiscal book
value estimates, given the varying fiscal years of companies under coverage.
Investment risks
Company outline
A leading Asean bank and
life insurer
The business
Source: CLSA
5 June 2015
asheefa.sarangi@clsa.com
169
Asian banks
OCBC - U-PF
Summary financials
Year to 31 December
13A
Summary P&L forecast (S$m)
Interest income
6,174
Interest expense
(2,291)
Net interest income
3,883
Trading income
262
Fee income
843
Other operating income
1,633
Non-interest income
2,738
Total op income
6,621
Staff & related costs
(1,715)
Other operating expenses
(1,127)
Total operating expenses
(2,842)
Preprovision OP
3,779
Loan-loss provisions
(266)
Other income/expenses
54
Profit before tax
3,567
Taxation
(597)
Profit for period
2,888
Minority interest
(202)
Preference dividends
(82)
Net profit
2,686
Summary balance sheet forecast (S$m)
Net loans & advances
167,879
Placements to other banks
39,573
Cash & equivalents
19,341
Other int-earning assets
42,333
Total int-earning assets
269,126
Fixed assets
0
Intangible assets
3,741
Other assets
65,581
Total assets
338,448
Customer deposits
195,974
Deposits from banks
21,549
Other int-bearing liabs
26,870
Total int-bearing liabs
244,393
Other non-int-bearing liabs
65,976
Total liabilities
310,369
Shareholder funds
23,720
Minorities/other equity
4,359
Total liabs & equity
338,448
Ratio analysis
Loan growth (%)
17.9
Loans/deposits (%)
78.0
Reported Loans/deposits (%)
85.7
Net interest margin (%)
1.6
Net int inc growth (%)
3.6
Fee income growth (%)
6.7
Fees & comms/op inc (x)
12.7
Operating exp growth (%)
3.2
Op expenses/assets (%)
0.9
Cost/income (%)
42.9
Loan provisions/loans (%)
1.0
Gross NPLs/total loans (%)
0.8
Loan loss reserve/NPLs (%)
133.5
Effective tax rate (%)
16.7
Net profit growth (% YoY)
(30.4)
Tier 1 CAR (%)
14.6
CAR (%)
16.3
ROA (%)
0.9
ROE (%)
11.5
14A
15CL
16CL
17CL
7,607
(2,871)
4,736
364
920
2,320
3,604
8,340
(2,003)
(1,329)
(3,332)
5,008
(357)
112
4,763
(687)
4,019
(234)
(57)
3,785
8,972
(3,527)
5,445
375
1,645
1,386
3,406
8,851
(2,203)
(1,629)
(3,833)
5,018
(411)
409
5,016
(732)
4,227
(234)
(57)
3,993
10,072
(3,837)
6,234
380
1,825
1,439
3,644
9,878
(2,424)
(1,894)
(4,318)
5,561
(650)
332
5,242
(786)
4,399
(234)
(57)
4,165
10,970
(4,192)
6,779
405
2,026
1,508
3,939
10,718
(2,666)
(2,012)
(4,678)
6,040
(966)
392
5,466
(820)
4,589
(234)
(57)
4,355
207,593
41,220
25,314
50,040
324,167
0
5,157
71,902
401,226
245,519
20,503
29,153
295,175
71,866
367,041
29,701
4,484
401,226
221,956
0
26,580
52,755
301,291
0
5,157
114,840
421,287
260,250
20,503
30,111
310,864
72,528
383,393
33,411
4,484
421,287
237,451
0
28,121
56,448
322,020
0
5,157
118,545
445,722
278,468
20,503
31,487
330,458
73,536
403,994
37,244
4,484
445,722
256,032
0
29,949
60,887
346,868
0
5,157
122,668
474,694
300,745
20,503
32,928
354,176
74,802
428,978
41,232
4,484
474,694
23.7
78.9
84.6
1.7
22.0
9.1
11.0
17.2
0.9
40.0
1.1
0.6
169.2
14.4
40.9
13.8
15.9
1.1
14.2
6.9
80.0
85.3
1.7
15.0
78.8
18.6
15.0
0.9
43.3
1.2
0.8
148.3
14.6
5.5
14.6
16.5
1.0
12.7
7.0
80.5
85.3
1.8
14.5
11.0
18.5
12.7
1.0
43.7
1.4
1.0
143.4
15.0
4.3
15.5
17.4
1.0
11.8
7.8
81.0
85.1
1.8
8.7
11.0
18.9
8.3
1.0
43.6
1.7
1.4
117.3
15.0
4.6
16.4
18.2
0.9
11.1
Source: CLSA
170
asheefa.sarangi@clsa.com
5 June 2015
SMFG
5,574 - SELL
J. Brian Waterhouse
brian.waterhouse@clsa.com
+81 3 4578 8031
Japan
Financial services
8316.T
8316 JP
More vanilla
SMFGs business strategy focuses on the core commercial-banking operations
of its key bank operating entity, Sumitomo Mitsui Banking Corporation, with
less diversification into broader financial services, though it does maintain
subsidiaries in securities/investment banking, leasing and consumer finance.
5,747/3,835
4,800
-14%
Shares in issue
Free float (est.)
1,414.1m
78.2%
Market cap
US$63,523m
44,953.9m
(US$373.5m)
Major shareholders
1M
3M
12M
7.9
2.5
4.5
17.7
7.6
13.9
31.3
(3.4)
8.3
()
5,500
115
110
105
100
5,000
95
90
4,500
85
80
4,000
75
3,500
Jun 13
Feb 14
Source: Bloomberg
www.clsa.com
Oct 14
5 June 2015
Reuters
Bloomberg
Accumulating associates
70
Jun 15
Patchwork of associates
Much like its peers, SMFGs Asian business is primarily a corporate loan book
spread thinly across Asia, which provides little depth in its regional
operations. This is changing, however. Like its peers, SMFG has ventured
more aggressively into selected markets. Its approach has been to acquire
strategic stakes: BTPN (40%) in Indonesia, Bank of East Asia (17.4%) in
Hong Kong, Kotak Mahindra (4.5%) in India and Exim Bank (15%) in
Vietnam. Accumulating associates in this way increases exposure, but these
are awkward, capital-intensive accretions to a regional network.
Financials
Year to 31 March
Operating income (m)
Net profit (m)
EPS ()
CL/consensus (18) (EPS%)
EPS growth (% YoY)
PE (x)
Adjusted EPS ()
Adjusted PE (x)
Dividend yield (%)
PB (x)
ROE (%)
14A
4,321,030
835,354
590.8
5.2
9.4
594.8
9.4
2.2
1.1
12.3
15A
4,307,597
596,762
422.0
(28.6)
13.2
426.3
13.1
2.5
0.9
7.3
16CL
4,577,100
765,700
541.5
100
28.3
10.3
545.5
10.2
2.7
0.8
8.2
17CL
4,828,000
817,700
578.3
101
6.8
9.6
582.3
9.6
2.2
0.8
8.3
18CL
5,112,600
837,600
592.3
100
2.4
9.4
596.4
9.3
2.2
0.7
8.1
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
SMFG - SELL
3,500
Japan
Americas
Asia x-JP
Other
Japan
Americas
Europe
FY11
FY12
Asia x-JP
Other
90
3,000
80
2,500
70
60
2,000
50
1,500
40
30
1,000
20
500
10
0
FY09
FY10
FY11
FY12
FY13
FY10
FY13
FY14
Loans by geography
Japan
Europe
Total
(%)
FY09
FY14
(%)
100
Americas
Asia x-JP
90
(tn)
Japan
Americas
Europe
Asia x-JP
Other
80
200
70
60
150
50
40
100
30
20
50
10
0
FY09
FY10
FY11
FY12
FY13
FY14
(%)
30
Japan
Asia x-JP
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Europe
Total
Korea
5%
Taiwan
4%
India
6%
25
20
Hong Kong
20%
15
Indonesia
9%
10
5
Thailand
10%
0
(5)
Singapore
15%
(10)
(15)
(20)
Australia
16%
FY09
FY10
FY11
FY12
FY13
China
15%
FY14
172
brian.waterhouse@clsa.com
5 June 2015
SMFG - SELL
Asian banks
Valuation details
Blended valuation of
capitalised EPS and a
discount to NAV
Investment risks
Key risk of abrupt and
substantial shift in
interest rates
5 June 2015
The overriding upside risk to our negative stance is momentum driving bank
stocks higher, supported by sustained inflows of new funds from domestic
pension funds on the one hand and from global fund managers looking for
beta on the other; to an extent, fundamentals don't matter much in those
circumstances. That said, banking remains a risk business. Because it is
essentially about the handling and distribution of money as well as the
provision of credit, banks are subject to a variety of inherent risks quite
unlike manufacturing companies, including (but not limited to) credit risk,
currency risk, fraud and defalcation (both internal and external), as well as
risks surrounding liquidity, funding, operational, sovereign, settlement,
delivery and reputation. Key short/medium-term investment risks specifically
in the case of SMFG and not modelled for in our earnings estimates are: 1)
the potential inability of the group to properly match non-yen-denominated
long-term assets with appropriate funding in times of future global financial
crisis when a severe credit crunch might be expected; 2) potential losses on
the group's substantial Japanese government bond holdings in the event of a
sudden rise in domestic Japanese interest rates; and 3) potentially severe
credit costs triggered by a wave of commercial bankruptcies in the wake of
rising interest rates (as might reasonably be expected to occur as the
domestic economy recovers). At the present time, given the current state of
the global economy, and taking into account recent initiatives by the Bank of
Japan under its Governor, Haruhiko Kuroda, we consider that the potential for
short-term and long-term interest rates in Japan to simultaneously rise
abruptly remains very remote.
brian.waterhouse@clsa.com
173
Asian banks
SMFG - SELL
Summary financials
Year to 31 March
We forecast modest
top-line growth
14A
15A
16CL
17CL
18CL
4,641,876
4,694,350
4,996,900
5,273,700
5,625,500
Fund-based income
1,805,015
1,891,932
2,021,900
2,168,700
2,425,500
Funding costs
(320,846)
(386,753)
(419,800)
(445,700)
(512,900)
Fee income
1,114,901
1,129,175
1,145,000
1,160,000
1,180,000
1,415,381
1,612,085
1,650,000
1,750,000
1,820,000
306,579
61,158
180,000
195,000
200,000
(3,209,547)
(3,530,043)
(3,711,200)
(3,901,400)
(4,220,000)
(127,840)
(129,609)
(132,000)
(135,000)
(139,000)
(1,569,945)
(1,659,341)
(1,739,400)
(1,820,700)
(1,948,100)
(1,190,916)
(1,354,340)
(1,420,000)
(1,500,000)
(1,620,000)
(49,073)
7,847
75,600
121,400
259,800
1,432,329
1,164,307
1,285,700
1,372,300
1,405,500
Balance sheet
increasingly from offshore
(11,778)
(9,500)
(9,500)
(9,500)
1,152,529
1,276,200
1,362,800
1,396,000
835,354
596,762
765,700
817,700
837,600
841,013
602,860
771,400
823,400
843,300
49,052,545
60,069,711
63,000,000
60,000,000
62,000,000
Investment securities
27,175,901
29,640,754
30,000,000
36,000,000
40,000,000
67,480,152
72,396,992
77,533,000
83,056,000
88,812,000
7,919,101
9,972,901
10,200,000
10,600,000
11,200,000
2,346,788
2,770,853
2,800,000
2,820,000
2,900,000
Other assets
7,559,900
8,591,374
9,200,000
9,900,000
10,915,000
Total assets
Deposits & negotiable CDs
Other int-bearing liabs
Total funds:
Other misc. liabs
Total liabilities
114,873,816
121,766,000
129,072,000
136,816,000
32,263,787
41,804,295
44,500,000
47,500,000
53,000,000
16,068,203
15,168,677
14,086,043
13,753,509
Paid-in capital
2,337,895
2,337,895
2,337,895
2,337,895
6,667,124
8,358,376
8,960,428
9,380,062
9,919,596
9,005,019
10,696,271
11,298,323
11,717,957
12,257,491
Total equity
Total liabs & equity
ROE to remain
stable at 7-8%
(9,638)
1,422,691
2,337,895
Ratio analysis
Gross NPLs/total loans (%)
2.0
1.6
1.5
1.4
1.4
(3.6)
0.7
6.7
10.5
20.2
0.0
0.0
0.0
0.0
0.0
7.0
1.3
1.4
1.3
1.7
7.7
(0.3)
6.3
5.5
5.9
(1.3)
7.3
7.4
7.0
7.9
5.2
(28.6)
28.3
6.8
2.4
Cost/income (%)
66.9
73.0
71.9
71.6
72.5
54.3
52.8
52.8
52.7
52.6
41.3
48.2
40.0
40.0
40.0
38.1
36.1
36.8
37.6
38.0
5.6
5.8
5.9
5.8
5.7
12.2
12.9
13.4
13.7
13.7
3.3
5.0
4.5
4.2
4.0
CAR (%)
15.5
17.9
17.9
17.9
17.7
Loans/deposits (%)
63.1
63.6
64.2
64.8
65.4
62.5
63.0
63.7
64.3
64.9
Source: CLSA
174
brian.waterhouse@clsa.com
5 June 2015
Mizuho Financial
267 - UNDER REVIEW
J. Brian Waterhouse
brian.waterhouse@clsa.com
+81 3 4578 8031
Legacy megabank
Mizuho is Japans second-largest lender and, like its megabank peers, is the
culmination of multiple mergers of big city players, notably the 2000 merger
of Dai-ichi Kangyo Bank, Fuji Bank and Industrial Bank of Japan. In Japan,
Mizuho operates as a universal bank, competing across retail, corporate and
securities.
Japan
Financial services
8411.T
8411 JP
280/178
235
-12%
Shares in issue
Free float (est.)
24,621.9m
79.5%
Market cap
US$52,954m
48,817.3m
(US$405.6m)
Major shareholders
()
1M
3M
12M
18.1
12.2
14.4
22.5
12.0
18.6
30.2
(4.2)
7.4
230
110
210
190
100
170
90
150
130
80
110
90
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
130
120
250
Oct 13
5 June 2015
Reuters
Bloomberg
Mizzling
70
Jun 15
14A
2,618,492
688,418
28.4
22.3
9.4
28.5
9.4
2.4
1.0
11.1
15A
2,840,679
611,935
25.0
(11.9)
10.7
25.5
10.5
2.8
0.8
8.4
16CL
2,977,100
600,400
24.4
101
(2.6)
10.9
24.7
10.8
2.8
0.8
7.2
17CL
3,163,600
620,400
25.2
102
3.3
10.6
25.5
10.5
2.8
0.7
7.2
18CL
3,339,100
640,250
26.0
102
3.2
10.3
26.3
10.1
2.8
0.7
7.1
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
4,500
Japan
Americas
Asia ex-Japan
4,000
80
3,000
70
2,500
60
Asia ex-Japan
Other
40
1,500
30
1,000
20
500
10
0
FY06
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Assets by geography
(bn)
Japan
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
Europe
Asia ex-Japan
(bn)
1,600
Japan
Americas
Europe
Asia ex-Japan
1,400
160
1,200
140
1,000
120
800
100
600
400
80
200
60
40
(200)
20
(400)
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Europe
50
2,000
Americas
90
3,500
180
Japan
(%)
100
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Japan
Europe
Total
(%)
(600)
Americas
Asia ex-Japan
Australia
10%
Others
5%
China
10%
Indonesia
4%
1
0
Taiwan
8%
(1)
(2)
India
6%
(3)
(4)
FY05
Hong Kong
23%
Thailand
10%
S. Korea
12%
Singapore
12%
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
176
brian.waterhouse@clsa.com
5 June 2015
Asian banks
Valuation details
We derive our revised target price of 235 from a fair value for the stock that
we calculate as 233. We calculate fair value using a required rate of return
for the megabanks of 8.5% to which we apply a 20% discount to NAV against
a revised blended FY3/16-17 EPS forecast of 24.80 [0.80 / 8.5% x 24.80 =
233.41]. The discount to NAV attempts to take into account the inherently
higher credit risk apparent at some of the operating subsidiaries (such as
credit card affiliates Orico and Credit Saison), as well as the potential for a
change in the credit cycle for Japanese banks as a consequence of rising
interest rates under a scenario of an improving economy. There is clear
publicly-expressed determination by both the LDP government and the Bank
of Japan to beat deflation; yet their current actions only serve to keep
interest rates low. We expect policy to lean towards continuing to provide
further stimulus measures for small businesses until there are clear signs of
an economic recovery. We also note the absence of robust growth
domestically at Mizuho, with declines being offset by strong overseas lending
growth, yet credit costs have started to rise. We feel a 20% discount to NAV
is appropriate to reflect the potential impact on revenues as the Mizuho
Financial Group continues to adjust not only to the changed realities created
by the July 2013 merger of Mizuho Corporate Bank with Mizuho Bank, but
also to the continuing general anaemic demand for credit at home.
'Normalisation' of interest rates is likely to lead to 'normalisation' of credit
costs; FY3/14 may well have been a peak for reported earnings.
Investment risks
Risks include potential
losses on the group's
substantial Japanese
government bond
holdings
5 June 2015
brian.waterhouse@clsa.com
177
Asian banks
Summary financials
Year to 31 March
We forecast modest
top-line growth
14A
15A
16CL
17CL
18CL
2,927,758
3,180,222
3,316,600
3,520,800
3,773,800
Fund-based income
1,417,569
1,468,976
1,491,600
1,595,800
1,733,800
Funding costs
(309,266)
(339,543)
(339,500)
(357,200)
(434,700)
Fee income
734,414
781,982
835,000
885,000
940,000
444,442
628,227
650,000
680,000
710,000
331,333
301,037
340,000
360,000
390,000
(1,940,169)
(2,169,355)
(2,302,000)
(2,472,700)
(2,692,600)
(142,000)
(155,000)
(165,000)
(1,395,500)
(1,440,500)
(1,502,900)
(590,000)
(251,045)
(342,220)
(425,000)
(520,000)
(112,879)
4,699
75,400
159,200
209,900
987,589
1,010,867
1,014,600
1,048,100
1,081,200
(2,220)
(20,235)
(14,000)
(14,100)
(14,150)
985,369
990,632
1,000,600
1,034,000
1,067,050
Net profit
688,418
611,935
600,400
620,400
640,250
689,969
624,435
608,801
628,860
648,740
49,171,170
56,203,426
58,000,000
60,000,000
63,000,000
Investment securities
44,165,859
43,436,463
45,000,000
47,000,000
50,000,000
68,685,098
72,889,684
76,908,000
81,163,000
85,627,000
7,650,428
9,234,403
9,500,000
9,800,000
10,200,000
1,078,051
1,150,000
1,120,000
1,100,000
5,225,064
6,842,722
7,200,000
7,400,000
7,780,000
113,452,451
119,125,000
125,081,000
131,335,000
53,907,385
52,037,737
54,900,000
58,100,000
63,500,000
14,394,023
13,615,159
12,848,248
12,162,438
Paid-in capital
2,254,972
2,255,404
2,255,404
2,255,404
6,049,577
7,545,134
7,862,438
8,198,348
8,454,159
8,304,549
9,800,538
10,117,842
10,453,752
10,709,563
Total equity
Total liabs & equity
Weak profitability in
its home market means
we forecast little
improvement in ROA
or ROE
(135,981)
(1,351,611)
(121,631)
(1,258,227)
2,255,404
Ratio analysis
Gross NPLs/total loans (%)
1.6
1.5
1.4
1.5
1.5
(10.5)
0.4
6.8
13.3
16.1
0.0
0.0
0.0
0.0
0.0
10.2
6.5
6.8
6.0
6.2
2.0
8.5
4.8
6.3
5.5
2.5
8.1
5.8
5.8
6.8
22.8
(11.1)
(1.9)
3.3
3.2
Cost/income (%)
62.3
64.4
65.9
66.9
67.6
77.1
73.9
71.1
68.1
66.6
30.1
38.2
40.0
40.0
40.0
34.3
34.4
34.9
35.4
35.8
4.7
5.2
5.1
5.1
4.9
11.4
11.5
11.5
11.5
11.3
3.0
3.1
2.9
2.7
2.6
CAR (%)
14.4
14.6
14.4
14.2
13.9
Loans/deposits (%)
68.1
64.7
65.0
65.3
65.6
67.5
64.2
64.6
64.9
65.2
Source: CLSA
178
brian.waterhouse@clsa.com
5 June 2015
CIMB
RM5.32 - SELL
Anand Pathmakanthan
Head of Malaysia Research
anand.pathmakanthan@clsa.com
+60 3 2056 7873
Malaysia
Financial services
CIMB.KL
CIMB MK
RM4.70
-12%
Shares in issue
Free float (est.)
8,423.7m
46.1%
Market cap
US$12,217m
(US$12.2m)
1M
3M
12M
(9.8)
(6.3)
(13.2)
(10.4)
(6.7)
(12.1)
(26.5)
(21.3)
(35.9)
(RM)
9.0
8.5
120
110
100
8.0
7.5
90
7.0
80
6.5
70
6.0
60
5.5
5.0
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
Oct 13
CIMB is the product of many mergers and acquisitions over the past two
decades. Like its Malaysian peer and rival, Maybank, CIMBs foreign
operations are concentrated in Asean. The largest geographies are
Indonesia, Thailand and Singapore, around which CIMB targets the
creation of a regional network, notably in investment banking.
Unfortunately, profitability has declined recently, particularly in Indonesia
and Malaysia, and we expect a delayed recovery. We reiterate our SELL.
Asean aspirations
CIMBs foreign operations are material proportionately: around 36% of assets
are outside Malaysia. The largest foreign operation is Indonesia, via 97.9%owned CIMB Niaga. CIMBs antecedent, Bumiputra-Commerce Bank, acquired
a controlling stake in Niaga in 2002. CIMB subsequently increased its stake
and merged Bank Lippo into CIMB Niaga in 2008. Also in 2008, CIMB added
operations in Thailand with the acquisition of Bank Thai Public, now CIMB
Thailand. CIMB also has a small Singapore operation, grown organically.
RM7.40/5.18
RM44.3m
Patchwork of acquisitions
CIMB is the second-largest Malaysian bank by assets, but third-largest by
domestic banking assets. It is the product of post-Asia crisis consolidation in
Malaysian banking, primarily the 2006 merger of CIMB with Bumiputra
Commerce Bank and Southern Bank to form a universal bank with a strong
presence in Malaysian investment banking. Like its peer, Maybank, CIMB is
government-controlled, but by investment institutions Khazanah and EPF.
5 June 2015
Reuters
Bloomberg
Growing pains
50
Jun 15
13A
5,163
4,540
59.9
3.5
8.9
56.5
9.4
4.5
1.4
15.5
14A
4,183
3,107
37.5
(37.5)
14.2
37.7
14.1
2.8
1.2
9.2
15CL
5,064
3,758
44.7
96
19.2
11.9
47.6
11.2
3.4
1.1
9.6
16CL
5,514
4,361
50.7
97
13.5
10.5
50.7
10.5
3.9
1.0
10.2
17CL
6,504
5,133
58.2
101
14.8
9.1
58.2
9.1
4.3
1.0
10.9
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
CIMB - SELL
Malaysia
Indonesia
Thailand
Singapore
Others
(%)
120
100
Malaysia
4
0.8
0.9
3.6
3.4
3.3
2.9
2.4
32
30
59
62
2012
2013
60
89
40
0.3
3.1
2.4
Others
21
28
35
1.6
Singapore
20
1.8
1.8
1.5
Thailand
11
80
Indonesia
76
64
52
20
72
0
(1)
2008
2009
2011
2010
2012
2013
2014
(20)
08CL
2009
2010
2011
2014
Assets by geography
450
(RMbn)
Malaysia
Indonesia
Thailand
Other
400
300
66.3
63.4
250
58.7
200
52.3
49.4
39.1
33.6
150
Indonesia
16%
18.2
100
Malaysia
64%
264.7
172.2
176.0
186.1
08CL
2009
2010
204.2
224.8
223.6
2012
2013
137.1
50
0
Other
13%
Thailand
7%
350
07CL
2011
2014
4.0
(%)
Malaysia
Indonesia
Others
Group
Thailand
(RMbn)
Malaysia
Indonesia
Thailand
Singapore
Other
100%
3.5
90%
3.0
80%
31.8
37.4
70%
2.5
46.0
48.3
44.7
53.8
60%
2.0
50%
1.5
40%
30%
1.0
111.1
118.9
125.7
140.9
152.3
2011
2012
2013
2014
20%
0.5
0.0
2008
103.0
10%
2009
2010
2011
2012
2013
2014
0%
2009
2010
180
anand.pathmakanthan@clsa.com
5 June 2015
CIMB - SELL
Target PB of 1x
Asian banks
Valuation details
Our preferred valuation approach for the Malaysian banks is the adapted
Gordon growth model. We base our RM4.70 target price on 1x 15CL PB, using
a Gordon growth model that assumes an 11.3% sustainable ROE, 11.4% cost
of equity and 5.4% long-term growth. (Note that for comparability purposes,
we base our target prices on calendar, rather than fiscal book-value,
estimates, given the varying fiscal years of companies under coverage.)
Investment risks
Company outline
Malaysias third largest
bank, but regionally
diversified in Asean
The business
Of
the
banks
with
the
pan-Asean
aspirations, CIMB has the largest branch
network in the bloc, comprising 1,150
branches and is focusing on integrating its
regional platform to support cross-border
transactions. The reinvigorated bank is
pushing hard in the Islamic banking space
and
aims
to
maximise
cross-selling
opportunities to its existing customer base.
CIMB's strategy to grow its regional
universal-banking operations will pitch the
group head-to-head with the likes of HSBC,
Standard Chartered, Maybank, DBS, OCBC
and UOB. CIMB's advantage is its extensive
branch network in Asean countries and its
strong investment-banking expertise.
Source: CLSA
5 June 2015
anand.pathmakanthan@clsa.com
181
Asian banks
CIMB - SELL
Summary financials
We forecast loan
growth of 7.5-8.2%, with
NIM to remain under
incremental pressure
Rising capital-adequacy
intensity will also pose
a headwind to
ROE recovery
We forecast ROE
will not recover to
11% before 2017
Year to 31 December
13A
Summary P&L forecast (RMm)
Interest income
16,270
Interest expense
(6,723)
Net interest income
9,547
Trading income
879
Fee income
1,852
Other operating income
1,869
Non-interest income
4,600
Total op income
14,147
Staff & related costs
(4,876)
Other operating expenses
(3,382)
Total operating expenses
(8,258)
Preprovision OP
5,889
Loan-loss provisions
(726)
Other income/expenses
687
Profit before tax
5,849
Taxation
(1,240)
Profit for period
4,609
Minority interest
(68)
Preference dividends
Net profit
4,540
Summary balance sheet forecast (RMm)
Net loans & advances
228,432
Placements to other banks
3,789
Cash & equivalents
10,821
Other int-earning assets
108,186
Total int-earning assets
351,228
Fixed assets
0
Intangible assets
9,638
Other assets
10,047
Total assets
370,913
Customer deposits
263,004
Deposits from banks
20,728
Other int-bearing liabs
34,100
Total int-bearing liabs
317,832
Other non-int-bearing liabs
21,852
Total liabilities
339,684
Shareholder funds
30,271
Minorities/other equity
957
Total liabs & equity
370,913
Ratio analysis
Loan growth (%)
13.0
Loans/deposits (%)
82.7
Reported Loans/deposits (%)
86.9
Net interest margin (%)
2.9
Net int inc growth (%)
5.1
Fee income growth (%)
7.1
Fees & comms/op inc (x)
13.1
Operating exp growth (%)
8.5
Op expenses/assets (%)
2.3
Cost/income (%)
58.4
Loan provisions/loans (%)
2.7
Gross NPLs/total loans (%)
3.2
Loan loss reserve/NPLs (%)
84.8
Effective tax rate (%)
21.2
Net profit growth (% YoY)
5.5
Tier 1 CAR (%)
9.1
CAR (%)
13.1
ROA (%)
1.1
ROE (%)
15.5
14A
15CL
16CL
17CL
17,520
(7,403)
10,117
930
1,903
1,098
3,931
14,048
(4,610)
(3,682)
(8,292)
5,756
(1,573)
93
4,276
(1,102)
3,175
(68)
3,107
18,975
(8,552)
10,422
657
1,979
1,381
4,017
14,439
(4,748)
(3,338)
(8,086)
6,353
(1,289)
(167)
4,897
(1,077)
3,820
(62)
3,758
20,403
(9,234)
11,170
657
2,098
1,503
4,258
15,427
(4,985)
(3,500)
(8,485)
6,942
(1,428)
160
5,674
(1,248)
4,426
(65)
4,361
22,318
(10,055)
12,263
657
2,245
1,654
4,556
16,818
(5,284)
(3,797)
(9,082)
7,736
(1,233)
160
6,664
(1,466)
5,198
(65)
5,133
258,015
4,239
18,262
111,661
392,177
0
9,762
12,218
414,156
282,069
32,150
36,045
350,264
25,501
375,765
37,360
1,031
414,156
274,552
4,239
18,627
124,172
421,590
0
9,762
13,867
445,218
301,814
35,365
37,232
374,411
28,940
403,351
40,837
1,031
445,218
295,028
4,239
18,999
132,834
451,101
0
9,762
15,521
476,383
325,959
38,901
38,502
403,362
27,271
430,634
44,719
1,031
476,383
319,210
4,239
19,379
139,850
482,678
0
9,762
17,290
509,730
352,035
42,791
39,861
434,688
24,699
459,388
49,312
1,031
509,730
13.0
84.3
91.5
2.8
6.0
2.8
13.5
0.4
2.1
59.0
2.6
3.2
82.7
25.8
(31.6)
11.0
14.6
0.8
9.2
6.4
84.4
91.0
2.7
3.0
4.0
13.7
(2.5)
1.9
56.0
3.7
4.3
85.3
22.0
21.0
11.7
15.1
0.9
9.6
7.5
84.4
90.5
2.7
7.2
6.0
13.6
4.9
1.8
55.0
4.4
5.3
82.4
22.0
16.0
12.3
15.5
0.9
10.2
8.2
84.4
90.7
2.7
9.8
7.0
13.3
7.0
1.8
54.0
4.4
5.3
82.4
22.0
17.7
13.1
16.1
1.0
10.9
Source: CLSA
182
anand.pathmakanthan@clsa.com
5 June 2015
Maybank
RM9.16 - OUTPERFORM
Anand Pathmakanthan
Head of Malaysia Research
asheefa.sarangi@clsa.com
+60 3 2056 7873
Malaysia
Financial services
MBBM.KL
MAY MK
RM10.16/8.29
RM10.00
+9%
Shares in issue
Free float (est.)
9,319.4m
36.2%
Market cap
US$23,622m
RM84.1m
(US$23.1m)
1M
3M
12M
(0.5)
3.4
(4.2)
(2.0)
2.0
(3.8)
(7.2)
(0.6)
(19.0)
(RM)
(%)
10.5
100
9.5
9.0
95
8.5
90
8.0
7.5
7.0
Jun 10
Feb 12
Source: Bloomberg
www.clsa.com
110
105
10.0
Maybank (LHS)
Rel to Comp
Oct 13
5 June 2015
Reuters
Bloomberg
Malaysian champion
85
80
Jun 15
13A
8,730
6,552
75.8
4.2
12.1
75.8
12.1
5.8
1.8
14A
8,948
6,716
74.2
(2.2)
12.4
74.2
12.4
6.2
1.6
15CL
8,832
6,742
(2.5)
70.2
96
(5.4)
13.1
70.2
13.1
6.1
1.5
16CL
9,681
7,369
(1.1)
73.8
95
5.2
12.4
73.8
12.4
6.4
1.5
17CL
10,548
8,016
(0.3)
77.5
94
5.1
11.8
77.5
11.8
6.8
1.4
Source: CLSA
Find CLSA research on Bloomberg, Thomson Reuters, Factset and CapitalIQ - and profit from our evalu@tor proprietary database at clsa.com
Asian banks
Maybank - O-PF
(RMbn)
10
8
1.1
Malaysia
Singapore
Indonesia
Others
1.2
2.7
3.1
1.4
10.9
12.2
11.8
9.0
11
80
13
Singapore
Others
15
16
15
14
12
12
15
15
17
70
67
65
66
64
2010
2011
2012
2013
2014
11
70
Indonesia
73
30
20
2
0
90
40
8.6
Malaysia
(%)
50
1.4
7.7
100
60
1.6
6
4
2.2
2.5
2.1
1.9
2.5
2.5
0.5
0.3
1.4
0.9
0.6
14
12
10
2009
2010
2011
2012
2013
2014
2009
(%)
60
Malaysia
Singapore
Others
Group
Others
8%
Indonesia
6%
50
40
30
20
Singapore
21%
10
Malaysia
65%
0
(10)
(20)
2010
2011
2012
2013
2014
3.0
(%)
Malaysia
Singapore
Indonesia
Others
Group
2.5
(RMbn)
100%
0.2
0.3
0.4
Singapore
0.5
Indonesia
0.8
80%
2.0
Others
0.9
1.1
1.3
1.3
5.5
6.2
6.5
0.6
60%
1.5
3.1
1.0
40%
0.5
3.2
3.4
3.7
3.4
4.2
4.8
1.3
20%
0.0
0%
(0.5)
(1.0)
2004
0.1
Malaysia
2006
2008
2010
2012
2014
(20%)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
184
asheefa.sarangi@clsa.com
5 June 2015
Maybank - O-PF
Target PB is 1.6x
Asian banks
Valuation details
Investment risks
Key macro risks in
Malaysia and, to a lesser
extent, Indonesia
and Singapore
Company outline
Malaysias largest bank,
diversified across a broad
range of financial services
The business
Source: CLSA
5 June 2015
asheefa.sarangi@clsa.com
185
Asian banks
Maybank - O-PF
Summary financials
A material increase in
credit costs is the key
earnings headwind
Year to 31 December
13A
Summary P&L forecast (RMm)
Interest income
19,117
Interest expense
(6,721)
Net interest income
12,395
Trading income
1,731
Fee income
3,544
Other operating income
868
Non-interest income
6,143
Total op income
18,538
Staff & related costs
(4,944)
Other operating expenses
(3,984)
Total operating expenses
(8,928)
Preprovision OP
9,610
Loan-loss provisions
(880)
Other income/expenses
139
Profit before tax
8,870
Taxation
(2,098)
Profit for period
6,771
Minority interest
(219)
Preference dividends
Net profit
6,552
Summary balance sheet forecast (RMm)
Net loans & advances
355,518
Placements to other banks
7,157
Cash & equivalents
5,668
Other int-earning assets
164,391
Total int-earning assets
532,734
Fixed assets
0
Intangible assets
6,041
Other assets
21,668
Total assets
560,443
Customer deposits
395,611
Deposits from banks
42,139
Other int-bearing liabs
37,465
Total int-bearing liabs
475,214
Other non-int-bearing liabs
37,486
Total liabilities
512,701
Shareholder funds
45,997
Minorities/other equity
1,745
Total liabs & equity
560,443
Ratio analysis
Loan growth (%)
14.0
Loans/deposits (%)
82.5
Reported Loans/deposits (%)
89.9
Net interest margin (%)
2.5
Net int inc growth (%)
7.9
Fee income growth (%)
11.7
Fees & comms/op inc (x)
19.1
Operating exp growth (%)
8.4
Op expenses/assets (%)
1.7
Cost/income (%)
48.2
Loan provisions/loans (%)
1.6
Gross NPLs/total loans (%)
1.5
Loan loss reserve/NPLs (%)
107.5
Effective tax rate (%)
23.7
Net profit growth (% YoY)
14.0
Tier 1 CAR (%)
13.1
CAR (%)
15.7
ROA (%)
1.3
ROE (%)
14.9
14A
15CL
16CL
17CL
21,123
(8,148)
12,975
588
3,711
1,258
5,556
18,531
(5,019)
(4,092)
(9,111)
9,419
(471)
163
9,112
(2,201)
6,911
(195)
6,716
23,235
(9,262)
13,973
600
3,970
1,319
5,890
19,863
(5,371)
(4,461)
(9,832)
10,031
(1,199)
171
9,003
(2,161)
6,842
(100)
6,742
25,366
(10,062)
15,304
600
4,288
1,415
6,302
21,606
(5,800)
(4,679)
(10,479)
11,127
(1,447)
180
9,860
(2,366)
7,494
(125)
7,369
27,945
(10,995)
16,950
600
4,717
1,490
6,807
23,757
(6,264)
(5,139)
(11,404)
12,354
(1,806)
189
10,737
(2,577)
8,160
(144)
8,016
403,513
16,106
9,575
179,448
608,642
0
6,261
25,396
640,300
439,569
42,139
44,290
525,998
59,561
585,559
52,975
1,767
640,300
437,621
16,106
9,766
194,449
657,942
0
6,261
27,961
692,164
474,735
44,246
45,216
564,197
68,345
632,541
57,856
1,767
692,164
479,763
16,106
9,961
211,327
717,157
0
6,261
31,041
754,459
512,714
46,458
46,188
605,360
84,014
689,375
63,318
1,767
754,459
521,550
16,106
10,161
227,430
775,247
0
6,261
34,062
815,570
553,731
48,781
47,209
649,721
94,902
744,623
69,180
1,767
815,570
13.5
85.0
91.8
2.3
4.7
4.7
20.0
2.1
1.5
49.2
1.5
1.5
95.6
24.2
2.5
13.5
16.2
1.1
13.6
8.5
86.0
92.2
2.3
7.7
7.0
20.0
7.9
1.5
49.5
2.0
2.0
97.5
24.0
0.4
13.8
16.3
1.0
12.2
9.6
87.8
93.6
2.3
9.5
8.0
19.8
6.6
1.4
48.5
2.3
2.5
93.1
24.0
9.3
14.0
16.3
1.0
12.2
8.7
88.8
94.2
2.4
10.8
10.0
19.9
8.8
1.5
48.0
2.6
2.9
89.1
24.0
8.8
14.3
16.5
1.0
12.1
Source: CLSA
186
asheefa.sarangi@clsa.com
5 June 2015
5 June 2015
Price
(lcl)
Mkt cap
ADTV
(US$m) (US$m)
CLSA
PE (x)
ROAE (%)
ROAA (%)
FY1
FY2
FY2
FY1
PB (x)
FY2
FY2
FY1
FY2
FY1
FY2
1m
12m
74.15
125.30
186,651
41,146
532
159
O-PF
BUY
76.00
180.00
2.5
43.7
11.8
9.0
10.7
7.5
18.3
76.6
10.1
19.7
1.0
0.9
1.0
0.8
5.3
5.3
6.0
5.4
8.7
9.8
9.3
11.2
0.6
0.6
0.7
0.7
(3.6)
(2.1)
ANZ AU
BOQ AU
BEN AU
CBA AU
NAB AU
WBC AU
33.19
13.25
12.29
85.09
34.32
33.56
70,137
3,753
4,287
105,808
68,562
80,001
187
19
16
216
169
203
U-PF
U-PF
U-PF
SELL
BUY
O-PF
33.50
13.45
12.30
78.50
38.50
34.50
0.9
1.5
0.1
(7.7)
12.2
2.8
12.4
14.2
12.7
15.2
12.4
13.4
12.2
13.3
12.5
15.0
12.0
12.9
3.1
7.2
5.4
4.7
27.4
1.8
1.8
6.6
2.4
1.3
3.7
4.4
1.7
1.5
1.1
2.8
1.7
2.0
1.6
1.4
1.1
2.7
1.6
1.9
5.5
5.6
5.5
4.9
5.8
5.6
5.7
5.8
5.9
5.0
6.0
5.7
14.4
11.2
9.0
18.4
14.2
15.4
13.6
11.3
9.0
17.7
13.8
15.3
0.8
0.7
0.6
1.1
0.8
1.0
0.8
0.8
0.6
1.0
0.8
1.0
(2.8) (6.1)
(1.7) (5.1)
(0.7) (4.1)
(4.3) (7.4)
(5.6) (8.3)
(8.6) (11.7)
1288 HK
601169 CH
3988 HK
3328 HK
601009 CH
002142 CH
998 HK
939 HK
601818 CH
3968 HK
1988 HK
3618 HK
600015 CH
1398 HK
601166 CH
000001 CH
600000 CH
4.21
12.73
5.15
7.38
18.98
18.89
6.56
7.79
5.17
23.60
10.68
6.30
15.02
6.75
17.99
15.32
17.04
188,931
21,632
202,402
76,403
9,068
9,879
50,533
251,399
37,479
73,959
53,565
7,557
21,522
295,528
55,154
35,274
51,148
113
525
263
43
287
301
73
358
596
81
68
12
366
289
1,326
561
924
U-PF
N-R
BUY
U-PF
N-R
N-R
N-R
BUY
N-R
SELL
SELL
N-R
N-R
BUY
N-R
N-R
N-R
4.70
na
6.30
8.30
na
na
na
10.00
na
22.30
10.10
na
na
8.70
na
na
na
11.6
na
22.3
12.5
na
na
na
28.4
na
(5.5)
(5.4)
na
na
28.9
na
na
na
6.1
8.1
6.9
6.6
9.5
9.4
5.9
6.8
7.9
8.4
6.5
6.3
6.9
6.9
6.6
8.8
6.4
5.8
7.3
6.6
6.8
8.1
8.4
5.5
6.4
7.4
7.9
6.2
5.6
6.5
6.4
5.9
8.1
5.8
(0.6)
3.0
(2.2)
(0.7)
(0.4)
3.7
2.1
(0.3)
5.3
(0.2)
(1.0)
9.1
4.9
(1.0)
7.0
17.1
3.9
5.3
11.9
4.9
(2.3)
16.6
12.8
7.4
6.3
6.4
7.3
5.7
11.8
6.2
7.6
10.8
9.4
10.4
1.0
1.3
1.0
0.8
1.5
1.6
0.8
1.1
1.2
1.3
1.0
1.0
1.1
1.1
1.2
1.3
1.1
0.9
1.1
0.9
0.8
1.3
1.4
0.7
1.0
1.1
1.2
0.9
0.9
1.0
1.0
1.0
1.1
1.0
5.4
2.9
4.9
4.5
3.0
2.5
4.8
4.9
3.7
3.6
1.5
4.3
3.4
4.8
3.2
1.3
4.6
5.7
3.2
5.0
4.4
3.4
2.9
5.3
5.2
3.9
3.8
1.6
4.8
3.7
5.2
3.5
1.3
5.2
17.0
16.0
14.9
13.2
17.8
17.6
14.8
17.2
15.7
16.7
17.1
16.8
17.8
17.3
18.9
16.0
18.6
16.0
16.4
14.0
11.9
18.5
17.3
14.1
16.3
15.1
16.0
15.6
16.7
17.2
16.6
17.8
15.3
17.8
1.1
1.1
1.2
1.0
1.0
1.1
1.0
1.3
1.1
1.1
1.1
1.1
1.0
1.3
1.1
1.0
1.1
1.1
1.1
1.1
1.0
1.0
1.0
0.9
1.3
1.0
1.1
1.1
1.1
1.0
1.3
1.1
1.0
1.1
(3.9)
(2.0)
(3.4)
(7.4)
8.1
(2.7)
(7.0)
3.2
(6.8)
0.6
(6.2)
(9.2)
(7.3)
0.1
(7.3)
(8.3)
(5.7)
35.00
31.90
18.36
155.60
11,806
43,502
3,319
38,370
13
52
5
26
U-PF
BUY
N-R
SELL
33.00
34.00
na
131.00
(5.7)
6.6
na
(15.8)
13.6
12.3
12.0
14.9
14.5
11.3
11.0
15.7
(5.4)
11.4
2.4
32.0
(6.2)
9.5
9.2
(4.9)
1.1
1.8
1.2
2.1
1.1
1.6
1.1
2.0
3.2
3.9
2.1
3.7
3.2
4.3
2.3
3.7
8.5
14.9
10.3
14.6
7.6
15.1
10.7
13.1
0.8
1.2
1.1
1.3
0.7
1.3
1.1
1.3
3.9
5.8
8.6
2.8
9.7
16.6
39.9
10.0
10.9
36.6
41.9
21.6
585
163
197
343
57
1,051
317
874
108
1,400
215
153
278
173
883
21,788
5,636
2,054
2,772
747
41,348
28,868
7,259
822
20,026
1,008
4,460
32,997
1,729
5,785
69
18
11
13
0
33
70
16
2
2
8
16
78
11
51
BUY
BUY
O-PF
SELL
SELL
BUY
BUY
BUY
O-PF
N-R
SELL
O-PF
BUY
SELL
O-PF
640
200
212
310
62
1,250
440
1,080
115
na
200
165
360
140
910
9.4
23.0
7.6
(9.7)
9.1
18.9
38.7
23.6
6.4
na
(6.8)
7.6
29.4
(19.3)
3.1
15.6
7.9
5.3
5.3
4.5
20.4
14.1
20.3
7.4
28.3
5.0
7.6
10.2
5.1
15.0
12.8
6.3
3.9
4.6
3.9
16.4
12.0
15.9
5.8
22.4
4.1
6.1
8.1
4.3
12.1
20.7
33.5
39.8
11.3
80.4
26.1
17.0
26.7
39.0
25.2
160.2
21.0
20.1
19.8
14.1
22.3
25.4
34.5
15.4
15.8
24.7
17.7
27.2
28.1
26.1
20.8
24.0
26.2
20.4
23.2
2.7
0.8
0.4
0.5
0.4
3.7
2.0
3.7
0.8
4.0
0.4
0.7
1.2
0.5
2.7
2.3
0.8
0.4
0.5
0.4
3.1
1.8
3.1
0.7
3.5
0.4
0.6
1.0
0.5
2.3
1.0
2.5
2.8
3.4
2.4
1.0
1.7
0.7
2.7
0.1
4.0
3.0
1.4
3.9
1.5
1.2
3.2
3.1
3.7
2.4
1.2
1.9
0.9
3.5
0.2
4.9
3.8
1.7
4.7
1.8
18.4
10.9
7.6
9.4
9.7
19.2
15.3
19.6
11.1
15.4
9.1
9.3
12.1
10.5
19.5
19.2
12.5
9.6
10.3
10.3
20.6
16.1
20.9
12.9
16.5
10.2
10.7
13.6
11.7
20.5
1.7
0.6
0.4
0.5
0.4
2.0
1.9
1.9
0.9
2.2
0.5
0.6
0.8
0.5
1.6
1.8
0.7
0.5
0.6
0.4
2.1
1.9
1.9
1.0
2.3
0.6
0.6
0.9
0.6
1.6
3.1
(3.8)
(9.1)
(9.3)
0.2
6.3
(4.2)
6.1
12.2
5.0
5.2
(3.9)
3.0
20.6
5.1
(4.6)
(12.2)
(15.9)
(17.4)
(9.4)
(1.6)
(8.2)
(4.6)
(4.8)
0.2
(10.5)
(7.3)
(7.8)
1.3
2.3
59.4
(3.6)
(36.2)
(17.3)
(19.9)
32.4
11.9
63.7
(28.0)
61.4
(36.7)
(18.8)
9.4
(15.8)
55.0
14,125
4,420
10,775
6,875
11,775
1,205
3,860
26,351
3,206
19,024
9,701
21,979
964
1,706
18
1
20
12
24
3
0
SELL
U-PF
U-PF
U-PF
BUY
BUY
O-PF
12,000
4,625
11,000
7,100
15,000
1,500
4,450
(15.0)
4.6
2.1
3.3
27.4
24.5
15.3
19.4
13.5
12.1
11.2
11.0
7.5
9.6
17.6
11.6
10.4
10.0
9.5
6.4
7.9
8.7
20.2
4.7
5.9
9.2
52.9
24.7
10.2
16.3
16.1
11.9
15.9
15.9
21.1
3.8
1.2
2.1
1.9
2.4
0.9
1.6
3.3
1.1
1.8
1.7
2.0
0.8
1.3
1.3
2.1
1.6
2.1
1.7
1.8
0.0
1.4
2.5
1.7
2.2
2.7
2.7
0.0
21.2
9.2
18.7
18.0
24.4
13.2
18.0
20.0
10.0
18.7
17.7
23.5
13.6
18.2
3.1
1.8
2.4
2.6
3.0
1.1
2.9
3.1
1.9
2.5
2.7
3.1
1.1
3.1
4.8
0.2
11.3 (7.9)
0.2 (10.2)
7.0
0.0
1.3 (8.5)
8.1
12.6
(2.3) (8.2)
31.1
6.3
5.9
44.0
15.4
10.6
(5.6)
23 HK
2388 HK
2356 HK
11 HK
AXSB IB
BOB IB
BOI IB
CBK IB
CRPBK IB
HDFCB IB
ICICIBC IB
IIB IS
JKBK IB
KMB IB
OBC IB
PNB IB
SBIN IB
UNBK IB
YES IB
BBCA IJ
BDMN IJ
BMRI IJ
BBNI IJ
BBRI IJ
BBTN IJ
BTPN IJ
6.2 (9.3)
8.0 (28.2)
(0.9)
10.4
4.8
4.3
3.7
(2.5)
9.4
21.7
21.9
94.6
15.5
39.6
10.3
42.2
45.6 139.6
28.5 108.5
11.6
45.5
20.8
36.9
25.8 109.3
33.3
65.3
14.0
61.0
30.4
76.0
25.0
81.8
19.3
33.9
26.3
83.0
31.4
91.8
17.3
78.1
Asian banks
187
5 HK
2888 HK
Appendix
derek.ovington@clsa.com
Global
HSBC
StanChart
Australia Banks
ANZ
BOQ
BEN
CBA
NAB
Westpac
China Banks
ABC
Bank of Beijing
BOC
Bocom
Bank Of Nanjing
Bank of Ningbo
CNCB
CCB
Everbright Bank
CMB
Minsheng
Chongqing Rural
Huaxia Bank
ICBC
Industrial Bank
Ping An Bank
SPDB
HK Banks
BEA
BOC (HK)
Dah Sing
Hang Seng
India Banks
Axis Bank
Bank of Baroda
Bank of India
Canara Bank
Corp Bank
HDFC Bank
ICICI Bank
IndusInd
J&K Bank
Kotak Mahindra
OBC
PNB
SBI
Union Bank
Yes Bank
Indonesia Banks
BCA
Bank Danamon
Bank Mandiri
BNI
BRI
BTN
BTPN
Code
188
Code
Mkt cap
ADTV
(US$m) (US$m)
696
479
519
981
669
733
921
275
448
713
5,670
2,649
2,148
6,366
1,393
6,917
4,632
3,691
105,117
54,463
1,275
13,342
64,570
5,507
6
39
3
25
23
8
616
373
2
76
370
18
U-PF
N-R
U-PF
BUY
BUY
O-PF
O-PF
U-PF
O-PF
N-R
SELL
BUY
675
na
500
1,210
810
790
990
235
480
na
4,800
3,300
15,700
13,150
29,700
14,550
40,250
41,900
10,500
3,299
1,993
7,881
7,257
13,940
17,811
6,365
10
6
32
24
36
48
31
O-PF
O-PF
BUY
O-PF
O-PF
BUY
SELL
4.51
6.30
5.67
13.66
15.46
9.03
18.50
7.70
1,911
5,197
13,174
6,725
4,454
23,560
19,551
5,455
2
6
12
3
1
23
25
2
98.00
108.00
89.50
62.00
41.00
156.00
8,644
8,682
6,390
1,739
1,288
2,111
20.30
10.20
23.14
CLSA
PE (x)
ROAA (%)
FY2
FY1
FY2
FY1
FY2
FY1
FY2
FY1
FY2
FY1
FY2
1m
3m
12m
(3.0)
na
(3.7)
23.3
21.1
7.8
7.5
(14.4)
7.1
na
(15.3)
24.6
17.5
13.3
10.2
15.7
15.4
17.0
11.5
11.3
15.9
9.3
10.5
18.9
17.0
13.0
9.7
15.3
14.6
15.5
10.6
10.9
14.9
9.2
9.8
17.9
(10.6)
(0.7)
2.0
(4.0)
2.2
1.5
9.3
(2.6)
(12.5)
(16.3)
28.3
10.2
3.1
2.5
5.5
2.6
5.3
9.6
8.9
3.3
6.5
1.1
6.8
5.6
0.6
1.4
0.7
0.9
0.7
1.0
0.8
0.8
0.6
1.0
0.8
2.2
0.5
1.3
0.6
0.9
0.7
0.9
0.7
0.8
0.5
0.9
0.8
1.9
1.3
3.4
1.7
1.4
1.8
1.2
2.0
2.7
1.6
2.4
2.6
0.8
1.3
3.5
1.7
1.4
1.8
1.4
2.2
2.7
1.6
2.6
2.1
0.8
3.2
9.1
6.7
6.1
4.8
6.0
7.1
7.2
3.6
10.1
8.2
12.0
3.2
9.6
6.6
5.9
4.8
6.2
7.2
7.2
3.7
9.6
8.3
11.2
0.2
0.9
0.3
0.4
0.2
0.3
0.4
0.3
0.2
0.4
0.4
0.8
0.2
0.9
0.3
0.4
0.2
0.4
0.4
0.3
0.2
0.4
0.4
0.8
1.3
7.9
4.0
(0.5)
(3.0)
5.2
9.4
21.3
12.8
11.4
9.8
(0.3)
(4.4)
11.1
2.2
8.9
4.4
11.6
18.5
24.5
7.4
6.1
19.1
5.4
42.6
53.5
34.5
48.4
51.7
60.4
60.8
38.7
64.1
34.0
38.1
51.3
17,200
12,500
37,500
15,000
48,000
53,000
9,000
9.6
(4.9)
26.3
3.1
19.3
26.5
(14.3)
8.2
7.7
9.8
9.3
9.1
9.7
11.5
8.6
8.9
10.2
8.7
11.8
10.0
18.7
(48.9)
(0.0)
(6.5)
3.3
21.9
1.3
(54.0)
(4.8)
(14.1)
(3.6)
6.6
(22.8)
(3.3)
(38.6)
0.8
0.6
0.4
0.6
0.5
0.7
0.4
0.7
0.6
0.4
0.6
0.5
0.7
0.4
1.6
2.6
1.7
3.5
2.1
2.5
2.4
1.6
2.7
1.9
4.1
2.5
2.9
2.4
9.5
8.7
4.2
6.7
6.1
7.2
3.9
8.7
6.9
3.9
6.9
4.5
6.6
2.4
0.6
0.7
0.3
0.5
0.5
0.6
0.2
0.5
0.5
0.2
0.5
0.4
0.6
0.1
(2.2)
8.2
(6.3)
(1.7)
(1.7)
(5.2)
(2.3)
5.4
1.0
13.4 (12.6)
(1.3) (19.8)
7.8
3.9
3.2
15.8
(4.1) (5.5)
10.8
na
U-PF
U-PF
SELL
U-PF
N-R
O-PF
U-PF
SELL
4.50
6.42
4.70
14.40
na
9.50
19.90
7.50
(0.2)
1.9
(17.2)
5.4
na
5.2
7.6
(2.6)
12.4
11.4
12.7
11.3
9.6
12.5
15.6
10.2
11.5
10.8
11.2
10.8
9.0
12.0
15.1
9.6
4.5
(13.7)
19.2
1.1
3.3
(3.0)
(4.4)
(4.9)
8.3
6.1
13.5
4.8
7.2
4.2
3.7
6.8
1.4
1.2
1.2
1.5
1.3
1.5
2.3
1.0
1.3
1.2
1.1
1.4
1.2
1.4
2.1
0.9
3.5
3.8
3.2
3.0
2.1
6.4
2.9
2.4
4.0
4.1
3.7
3.2
2.3
6.5
3.0
2.6
11.9
11.1
9.6
14.0
14.1
12.5
15.5
10.0
12.1
11.1
10.2
13.4
13.5
12.4
14.8
10.0
1.0
1.3
0.9
1.0
1.0
1.0
1.3
0.9
1.0
1.3
0.9
1.0
1.0
1.0
1.2
0.9
(4.9)
(2.9)
(3.9)
(3.0)
(4.6)
(2.0)
(5.0)
(2.5)
(6.4) (5.7)
(1.4) (14.2)
(4.7) (22.8)
(4.9) (1.6)
(8.1)
0.4
(1.8) (8.6)
1.0 (11.6)
(3.3) (8.3)
5
9
10
0
0
3
O-PF
BUY
BUY
O-PF
O-PF
O-PF
108.00
121.00
119.00
82.40
52.50
194.36
10.2
12.0
33.0
32.9
28.0
24.6
19.6
14.7
13.3
11.6
12.3
14.9
16.6
12.2
11.4
10.3
10.7
12.5
3.8
17.3
(8.0)
11.5
6.7
(11.9)
17.7
20.4
16.0
12.7
14.8
19.5
2.5
2.0
1.4
0.7
1.0
1.8
2.2
1.8
1.3
0.6
0.9
1.6
1.8
1.9
1.1
0.0
2.4
1.3
1.8
1.9
1.1
0.0
2.4
1.3
13.1
14.4
11.9
6.0
8.3
12.8
14.1
15.5
12.3
6.4
8.5
13.7
1.3
1.3
1.3
0.9
1.0
1.5
1.3 (3.3)
1.6
16.0
1.3 (0.9) (2.7)
23.4
1.4 (3.8) (0.3)
10.5
0.9 (19.9) (25.7) (32.2)
1.0 (10.3) (11.1) (26.0)
1.6 (6.8) (2.2)
26.9
37,765
30,145
27,499
49
30
41
O-PF
U-PF
O-PF
22.70
11.10
26.05
11.8
8.8
12.6
11.9
10.8
11.5
11.0
10.6
11.1
9.6
(7.9)
1.8
8.6
1.6
3.7
1.3
1.3
1.3
1.2
1.2
1.2
3.0
3.7
3.5
3.2
3.9
3.5
11.4
12.7
11.3
11.2
11.8
11.0
1.0
1.0
1.0
1.0
1.0
1.0
(3.7)
(4.5)
(5.5)
3.7
(2.7)
0.5
20.1
7.6
2.7
17.95
23.30
20.90
18.90
18.45
27.50
14.15
13.30
16.35
4,602
11,530
4,781
5,676
5,582
11,104
4,347
4,133
5,592
6
32
14
9
5
21
10
10
8
N-R
BUY
BUY
U-PF
N-R
O-PF
O-PF
N-R
N-R
na
24.11
24.14
18.51
na
28.05
15.51
na
na
na
3.5
15.5
(2.1)
na
2.0
9.6
na
na
13.0
12.0
10.3
12.4
12.5
11.9
9.9
8.1
14.3
12.5
10.4
3.0
(33.2)
18.3
6.1
0.5
8.5
9.5
3163.6
(0.4)
3.7
16.1
1.1
1.3
9.1
10.1
11.4
10.0
12.1
0.6
1.1
0.8
0.6
0.6
0.8
0.8
0.9
0.7
1.2
2.8
3.5
5.1
0.0
3.3
8.2
11.7
12.7
8.7
9.6
10.9
9.8
13.2
8.3
12.6
1.0
1.1
1.2
0.9
0.9
3.2
3.7
2.6
2.8
3.1
4.6
2.5
2.9
3.6
3.9
10.2
7.5
9.6
9.6
3.8
1.1
1.4
1.2
1.0
1.1
1.3
0.9
1.0
(4.3)
(2.5)
(0.5)
(2.1)
(2.1)
0.7
1.8
(5.3)
(1.2)
(2.7)
11.5
6.6
1.9
2.5
10.2
10.1
(1.1)
1.2
0.6
26.5
15.0
8.7
3.6
9.8
16.0
(1.9)
5.6
182.00
36.00
195.00
36.00
18.10
158.50
34.25
45.00
2.54
10,297
7,848
13,832
902
7,498
15,946
1,187
1,068
3,294
31
5
44
1
40
31
3
2
13
BUY
SELL
U-PF
O-PF
BUY
BUY
U-PF
BUY
SELL
230.00
29.00
250.00
48.00
25.00
220.00
36.00
57.00
2.60
26.4
(19.4)
28.2
33.3
38.1
38.8
5.1
26.7
2.4
9.1
13.2
9.3
7.6
7.8
9.4
8.3
7.2
11.3
8.2
10.9
8.3
6.5
6.5
8.7
7.1
6.5
10.5
5.4
17.1
8.3
21.1
(2.8)
7.1
10.6
17.5
3.0
10.2
20.6
12.0
16.8
19.2
8.6
17.2
11.0
7.6
1.0
1.6
1.6
0.8
1.0
1.7
0.8
1.2
1.4
0.9
1.4
1.4
0.7
0.9
1.5
0.8
1.1
1.3
3.8
3.1
2.3
6.9
5.0
4.1
4.4
5.0
3.0
4.1
3.6
3.1
7.5
5.5
4.4
5.0
6.1
3.3
11.4
12.4
18.0
10.7
13.5
18.8
10.1
18.3
13.4
11.6
13.7
17.5
11.8
14.6
18.2
11.0
18.1
13.1
1.4
1.3
2.2
1.5
1.2
2.1
0.9
1.6
1.2
11.2
11.6
10.8
9.1
7.8
PB (x)
0.6
0.7
0.9
0.9
0.8
Asian banks
5 June 2015
ROAE (%)
FY1
Rec
Appendix
derek.ovington@clsa.com
Japan Banks
77 Bank
8341 JP
Aozora
8304 JP
Ashikaga HD
7167 JP
Chiba Bank
8331 JP
Fukuoka Fin
8354 JP
Hiroshima Bank
8379 JP
MUFG
8306 JP
Mizuho Fin
8411 JP
Ogaki Kyoritsu
8361 JP
Resona
8308 JP
SMFG
8316 JP
Suruga Bank
8358 JP
Korea Banks
BS Financial
138930 KS
DGB Fin
139130 KS
Hana Fin
086790 KS
IBK
024110 KS
KB Financial
105560 KS
Shinhan
055550 KS
Woori Fin
000030 KS
Malaysia Banks
Alliance Fin
AFG MK
AMMB
AMM MK
CIMB
CIMB MK
Hong Leong
HLBK MK
HLFG
HLFG MK
Maybank
MAY MK
Public Bank
PBK MK
RHB Capital
RHBC MK
Philippines Banks
BPI
BPI PM
BDO
BDO PM
Metrobank
MBT PM
Philippine NB
PNB PM
Rizal CB
RCB PM
Security Bank
SECB PM
Singapore Banks
DBS
DBS SP
OCBC
OCBC SP
UOB
UOB SP
Taiwan Banks
Chang Hwa
2801 TT
Chinatrust
2891 TT
E.Sun
2884 TT
First Fin
2892 TT
Hua Nan
2880 TT
Mega Fin
2886 TT
SinoPac
2890 TT
Taishin Fin
2887 TT
Taiwan Coop
5880 TT
Thailand Banks
Bangkok Bank
BBL TB
Bank of Ayudhya
BAY TB
Kasikornbank
KBANK TB
Kiatnakin
KKP TB
Krung Thai
KTB TB
SCB
SCB TB
Thanachart
TCAP TB
Tisco
TISCO TB
TMB Bank
TMB TB
Price
(lcl)
Asian banks
Notes
5 June 2015
derek.ovington@clsa.com
189
Asian banks
Notes
190
derek.ovington@clsa.com
5 June 2015
Asian banks
Important disclosures
Companies mentioned
derek.ovington@clsa.com
191
Asian banks
Important disclosures
Analyst certification
The analyst(s) of this report hereby certify that the views expressed in this research report accurately reflect
my/our own personal views about the securities and/or the issuers and that no part of my/our compensation
was, is, or will be directly or indirectly related to the specific recommendation or views contained in this
research report.
Important disclosures
derek.ovington@clsa.com
5 June 2015
Asian banks
Important disclosures
5 June 2015
derek.ovington@clsa.com
193
Asian banks
Important disclosures
194
derek.ovington@clsa.com
5 June 2015
Asian banks
Important disclosures
5 June 2015
derek.ovington@clsa.com
195
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Key to CLSA/CLSA Americas/CA Taiwan investment rankings: BUY: Total stock return (including dividends) expected to exceed 20%; O-PF:
Total expected return below 20% but exceeding market return; U-PF: Total expected return positive but below market return; SELL: Total expected
return to be negative. For relative performance, we benchmark the 12-month total forecast return (including dividends) for the stock against the 12month forecast return (including dividends) for the market on which the stock trades. For example, in the case of US stock, the recommendation is
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16/04/2015