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Chinese firms to acquire Singapore reinsurer; Switzerland asks Malaysia for legal help on 1MDB probe

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


Chinese firms to acquire Singapore reinsurer; Switzerland asks Malaysia for legal help on 1MDB probe

* Shenzhen Qianhai Financial Holdings Co. and willacquire Singapore's ACR Capital Holdings Pte. Ltd., The Wall Street Journal reported,citing a statement from the reinsurer. The two Chinese firms will purchase ACRCapital for US$1 billion, according to a person familiar with the situation.

* Thailand-based GroupLease Public Co. Ltd. is acquiring a 29.99% stake in Sri Lanka-based CommercialCredit & Finance Plc, as well as the remaining 28.1% stake in CCF'smicrofinance subsidiary in Myanmar.

* The Office of the Swiss Attorney General asked Malaysianauthorities to provide mutual legal assistance relating to an investigationinto a political scandal involving 1Malaysia Development Bhd., The Edge reported.Swiss authorities earlier asked for such assistance in January, which wentunanswered, the publication noted.

GREATER CHINA

* The World Bank maintained its forecast of China's economicgrowth at 6.7% and 6.5% for 2016 and 2017, respectively, and downgraded itsprojection of China's GDP growth for 2018 to 6.3% from 6.5%, Sina Finance reported.

* Nearly 25% of enterprises in China had such low earningsin the first half that their profits were not enough to pay back the interestincurred by their debts, Reuters reported.Chinese enterprises had a total debt pile of US$18 trillion, or about 169% ofthe country's GDP. China may sink into long-term economic stagnation instead ofgoing through a Lehman-style crisis, the news wire noted.

* Chinese internet insurer Zhong An Online Property andCasualty Insurance is looking to raise about US$2 billion in a Hong Kong IPO in 2017,Reuters reported, citing IFR.

* Overseas branches of Taiwanese banks in August reported anet loss of NT$3.74 billion, dragged down by a massive fine levied againstMega International CommercialBank Co. Ltd.'s New York branch for breaches of U.S. anti-moneylaundering rules, the Taipei Times reported.Overall, domestic banks saw their earnings dip 20.7% month over month and 13%year over year to NT$21.66 billion in August.

* Bank of EastAsia Ltd. and NSW Holdings Ltd. agreed to sellTricor Holdings Ltd. to private equity firm Permira for HK$6.47 billion. Bankof East Asia and NSW Holdings hold 75.61% and 24.39% stakes, respectively, inthe share registry business through East Asia Secretaries (BVI) Ltd.

JAPAN AND KOREA

* Convenience store chain operator Lawson Inc. will set up abank in 2018 through a joint venture with Bank of Tokyo-Mitsubishi UFJ Ltd. in November, The Asahi Shimbun reported.Lawson will hold a 95% stake in the venture.

* Japan PostInsurance Co. Ltd. marked its centennial anniversary withchallenges facing its plan to diversify into new services, The Mainichi Shimbun reported.

* The Japanese Bankers Association and the General InsuranceAssociation of Japan urged early ratification of the Trans-Pacific Partnershipfree trade agreement, The MainichiShimbun reported.

* Bank ofYokohama Ltd. will introduce a new smartphone banking applicationin March 2017 to allow users to pay for things they buy without the need for acredit card, The Nikkei reported.   

* According to South Korea's Financial Supervisory Service,South Korean banks earned a combined net income of US$310 million from overseasbranches in the first half, down 17.5% from a year ago, the Maeil Business Newspaper reported.

* MeritzSecurities Co. Ltd. and other South Korean institutional investorsbought Deutsche Telekom AG's global headquarters building in Bonn, Germany, for264 billion won, Yonhap News Agency reported.

ASEAN

* Thailand's Ministry of Finance said the government wouldbe able to help resolve about 100 billion baht of informal loans, Thailand's Krungthep Turakij reported. Peoplewith informal loans can register themselves with Thai authorities as well aswith Bank for Agriculture &Agricultural Co-operatives and Government Savings Bank to start a negotiation processand turn their informal loans into formal ones. Meanwhile, informal loanproviders will soon be able to register themselves as pico-finance loanproviders.

* The World Bank expects the Thai economy to grow by 3.1% in2016, up from its previous estimate of 2.5%, Krungthep Turakij reported. Factorsdriving the economy include fiscal measures, while challenges include politicalrisks. The world body also expects Indonesia's GDP growth to stay at 5.1% in2016, The Jakarta Globe reported.

* KASIKORNBANKPCL finds that Thai people are frequently using credit cards to paymedical bills, Thailand's Daily News reported. In 2015,medical spending made through credit cards stood at more than 100 billion baht,or 10% of total credit card spending. Medical spending through the bank'scredit cards in the same year stood at about 33 billion baht, with the figureexpected to increase to more than 60 billion baht in the next five years.

* Thanachart Insurance expects its premium collection at theend of 2016 to grow by 5%, higher than the industry's average of 3.5% as theauto market starts to recover, KrungthepTurakij reported.

* CIMB GroupHoldings Bhd. Chairman Nazir Razak praised the success ofIndonesia's tax amnesty program, calling it "phenomenal," Kompas reported.

* Vietnam has enjoyed Asia’s fastest reduction in bond riskas foreign direct investments and exports move upward, Bloomberg News reported.

SOUTH ASIA

* The Indian government will set up an independent agency aspart of efforts toward establishing a debt management authority, The Hindu Business Line reported.The role of managing debt is performed by the Reserve Bank of India.

* The property-backed loan portfolios of financialinstitutions in India may see an increase in bad loans, Mint reported,citing a study by India Ratings & Research Ltd. Bad loans in the segmentmay rise by 5% within six months to a year.

* Peer-to-peer lender Faircent is looking to venture intothe secured loans market, BusinessStandard reported.The company has already started offering auto loans.

* SilkbankLtd. refuted market speculation that the lender was granted approvalfrom Pakistan's central bank to sell about 75% of its shares to Gourmet Group, Pakistan Today reported. The managementof both companies told the publication that the rumor was false speculationaimed at drawing interest around Silkbank stock so that investors could bookintraday profits.

AUSTRALIA AND NEWZEALAND

* Australia& New Zealand Banking Group Ltd. CEO Shayne Elliott said thebank reinstated five out of seven traders accused of rate rigging in 2014 as aninternal inquiry found them to have done nothing wrong, The Australian Financial Review reported.The reinstatements were made while the Australian Securities and InvestmentsCommission was investigating the matter.

* ANZ may cut its credit card rates, which currently standas high as 20%, The Australian reported,citing a statement by Elliott.

IN OTHER PARTS OF THEWORLD

Middle East & Africa: Attijariwafa to buy Barclays Egypt; South Africa's FSB backs newexchange

Europe: Bradford & Bingley loan sale resumed; Bankia-BMN merger likelyin 2017

Latin America: Itaú, Citi said to near deal; name change for Banco Nacional deMéxico

North America: Regulators release updated versions of living wills by 8 largebanks; CFPB issues new prepaid card rules

North America Insurance: Japan's Sompo to buy Endurance; Markel/Allied World deal talksfail

Sally Wang, JonathanCheah, Jaekwon Lim and Santibhap Ussavasodhi contributed to this report.

The Daily Dose has aneditorial deadline of 6:30 a.m. Hong Kong time. Some external links may requirea subscription.


Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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