old topic, banking in china, I had mentioned agricultural bank of china before
I wonder if Kyle Bass had shorted it
if he had, am wondering why he thought the CCP which also desires dividend payment and indirectly through the state is the majority shareholder, and by systematic design is the largest stakeholder, would let the bank suffer
it would be like shorting JPM, w/ largest shareholder the Republican Party, and w/ the three branches of the government along w/ the regulators all republican, and waiting to serve the continuing good of JPM
Come to think of it, Team China may be more transparent w/ Ag Bank than the two parties are w/ JPM
Warning, there is always a danger that dividends would be cut, and certainly has happened before, but always righted, because China banks are systemically designed to be a conduit between left and right pockets, and an explicit part of the gear works. Over the years, since 1999, I have had too many discussions w/ SI folks w/r to China banking
By my calculation, Team China has US$ 250 trillion (US dollar Trillion) of printing capacity backed by money-good agricultural land collateral based on continuing land reform
Ag Bank of China should be okay relative to other banks. The key work is 'relative'
Mr Pettis (see last paragraph) has been singing from the same hymn book for awhile.
In below article it is mentioned "But issuing hefty dividends will reduce capital in the already under-capitalized firms. If they pay out the fully estimated $42 billion in dividends, they will be handing over nearly a third of their 2019 earnings."
my pondering is, how much dividend should a utility pay if the utility is so large and its infrastructure really does not require re-build and only printing re-patch, that which is 'free', called for
Having noted above, the dividend might be reduced if world dividend / interest rate drops, by management decision
It is not that I believe Ag Bank shares would not drop in price due to this that or anything else. I do know the bank shall not fail. Its shareholders may get diluted, but if so, perhaps at a rate less than the dividend rate. The CCP wants it dividends, and not so likely to chisel minority shareholders by nickel and diming to endanger reform vector. The CCP, arose from the rural hinterland from get-go, is not going to stiff the depositors as largest ag bank in rural china.
barrons.com
China’s Big Banks Are Weathering the Coronavirus Crisis—and May Even Keep Their Dividends
May 5, 2020 5:00 am ET
People walk past a China Construction Bank during a coronavirus outbreak on March 26, 2020 in Hong Kong, China.Photograph by Billy H.C. Kwok/Getty Images
With the historic first-quarter collapse of China’s economy, and the long-running debt problems that are being exacerbated by it, one point is lost amid the dour news: the country’s big banks did just fine throughout the crisis.
Its top commercial lenders reported solid first-quarter profits, given the conditions, and their stocks have climbed back as the economy resumes activity and government spending stimulates borrowing.
Net profits for the Industrial and Commercial Bank of China (1398.HK) —the world’s largest commercial lender—rose 3.04%. Those for the next two largest banks by assets— China Construction Bank (0939.HK), and Agricultural Bank of China (1288.HK)—climbed even more, at 5% and 4.8%, respectively.
Slightly smaller Bank of China’s (3988.HK) profits rose 3.2%, while Bank of Communications (3328.HK) saw an 1.8% increase.
No one expected catastrophic results. “Because of their extremely strong business franchise and very close ties with the central government, the state-owned mega banks typically have the strongest stand-alone credit quality and issuer credit quality among Chinese banks,” said S&P Global (China) Ratings in a report last week.
But it’s exactly this extensive government backing that muddies what their performance tells us about China’s financial health, argues Michael Pettis, a professor at Peking University and a senior fellow at the Carnegie-Tsinghua Center for Global Policy.
For instance, the big lenders’ non-performing loan (NPL) ratios remained stable through the crisis, even as the broader banking industry’s ratio leapt to levels not seen since the global financial crisis. The big banks don’t necessarily have to recognize all bad-debt transactions, because they are fully insured by the state.
“They are more policy instruments than anything else,” he said.
That doesn’t mean they don’t face tough times at the moment. Their profit margins shrank during the crisis and they are currently set to dole out tens of billions of dollars in dividends, even while numerous banks in the west have reduced or cancelled their pay-outs during the crisis. Though China has slashed big-bank dividend payments before, there is no sign that they will do so this time. Unconfirmed Chinese media reports said finance officials are in the process of deciding.
“We see a rising chance that they reduce the 2020 dividend payout considering the potential profit decline,” analysts at Jefferies said. But scrapping them completely is highly unlikely.
The average 6% yield for the big banks’ dividends is a substantial draw for investors, as their actual shares are trading low—nearly half of their book value. That’s a big change from 15 years ago, when they traded at four times book value.
But issuing hefty dividends will reduce capital in the already under-capitalized firms. If they pay out the fully estimated $42 billion in dividends, they will be handing over nearly a third of their 2019 earnings. Meanwhile, they can’t raise money through share sales, because China requires shares to trade at least at book price for firms to sell.
China’s smaller banks are more clearly in distress. Though they have the implied backing of local governments, many localities themselves are in debt. This and the size of the smaller lenders make them less protected from failing, which some have already done.
In the end, Pettis advises thinking of the myriads different size and types of lenders in China “as really a single system—one that has a lot of bad loans that aren’t being recognized.”
And in this system, “COVID-19 hasn’t really changed anything,” he said. “What it has done is accelerated stuff that was happening. So in China, debt is going up and it’s going to go up much more this year” than usual.
Tanner Brown reports on China for Barron’s and MarketWatch. |
