|Bid||4.240 x 0|
|Ask||4.250 x 0|
|Day's range||4.230 - 4.300|
|52-week range||4.170 - 6.110|
|Beta (5Y monthly)||0.67|
|PE ratio (TTM)||4.42|
|Forward dividend & yield||0.29 (6.76%)|
|Ex-dividend date||22 Jun 2020|
|1y target est||7.53|
(Bloomberg) -- A massive push by China’s biggest banks to boost capital amid the worst downturn in at least a decade faltered out of the gate.Industrial & Commercial Bank of China Ltd. slashed a planned bond sale of the riskiest type of debt by more than a third, raising only $2.9 billion in dollar-denominated bonds out of a planned $4.4 billion.Some of China’s biggest lenders are trying to raise at least $29 billion in bonds this month to shore up capital as profits slide and bad debt balloons. Banks are being enlisted by the government to provide cheap loans to millions of businesses and consumers struggling with the fallout of the pandemic, triggering the worst earnings slump in a decade.The sale by ICBC, the world’s largest bank by assets, was likely hampered by the competition from a jump in Chinese dollar debt sales, which have contributed to a record amount of global issuance this year. The Additional Tier 1 bonds priced at a yield of 3.58%, which was just below what rival Bank of China issued debt at earlier this year, according to Pramod Shenoi, head of APAC research at Creditsights.“Achieving a tighter coupon may have been more important for the issuer,” Shenoi said. “We’ve seen that investors have had less cash to put to use more recently -- they have allocated their cash and cash levels are low -- so overall supply would have used up their cash.”ICBC declined to comment on the sale.Even at the reduced size, the Beijing-based bank’s offering is the biggest of its kind by a Chinese lender since Postal Savings Bank of China Co.’s $7.25 billion bond in 2017, according to data compiled by Bloomberg. It’s also the first offshore AT1 deal from ICBC in six years. The notes typically pay a higher yields than regular debt since they stand first in line for losses if the issuer goes bust.“There are also concerns that this may not be the best time to be in longer maturity assets if the treasury curve continues to steepen,” said Thu Ha Chow, a portfolio manager at Loomis Sayles Investments Asia Pte. “Chinese banks are supporting the real economy during this pandemic and are expected to take some credit losses, so capital buffers will need to be replenished.”While they meet minimum domestic capital requirements with a safe margin, China’s four biggest banks face a shortfall of $220 billion to meet global capital rules kicking in at the start of 2025, S&P Global Ratings said in a report last month. That gap may increase to more than $900 billion over the next few years as economic pressure weighs on earnings, S&P said.Harry Hu, a Hong Kong-based analyst at S&P Global, said the whole industry is in need of capital.“The reason is because of high credit growth and there’s slowing profitability,” he said. “Credit growth is high this year, higher than what we originally expected. We were looking at about 13% loan growth or maybe slightly more.”(Updates with fund manager comment in the eighth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Chinese banks are planning near record bond sales this month to replenish capital levels weakened by a surge in cheap loans to struggling businesses and sliding earnings.Industrial & Commercial Bank of China Ltd., the world’s largest lender, and three domestic competitors plan to sell a combined 195 billion yuan ($28.5 billion) of perpetual or tier-2 capital bonds in September, said people working on the plans who asked not to be named discussing internal matters. Their issuance alone would amount to the second highest monthly sales ever in China, according to data compiled by Bloomberg.Enlisted to ease the financial hardship of consumers and businesses hurt by the coronavirus pandemic, Chinese banks are under increasing stress. Authorities have called on them to forgo 1.5 trillion yuan in profit by providing cheap funding, deferring payments and increasing lending, eroding their capital buffers as they struggle with a record pile up of non-performing loans.“Banks need to make long-term preparations to stabilize their asset quality, hence comes the demand to replenish both tier-1 and tier-2 capital,” analysts led by Zhang Jiqiang at Huatai Securities Co. wrote in a report last month. “NPLs will probably continue to rise.”While they still currently meet minimum domestic requirements with a safe margin, China’s four biggest banks face a shortfall of $220 billion to meet global capital rules kicking in at the start of 2025, S&P Global Ratings said in a report last month. That gap may increase to more than $900 billion over the next few years as economic pressure weighs on earnings, S&P said.This month alone, ICBC and China Guangfa Bank Co. aim to issue 60 billion yuan and 45 billion yuan of tier-2 bonds, respectively, said the people. Bank of Communications Co. plans to raise 30 billion yuan from a perpetual bond sale, while Postal Savings Bank of China Co. is seeking to sell 60 billion yuan, they said.The planned sales are part of the broad fundraising plans proposed by the banks to their board and shareholders earlier. Some of the issuance is pending regulatory approval, said one of the people, which may delay the timing of the sale.ICBC declined to comment. Bank of Communications and Guangfa Bank didn’t immediately respond to requests seeking comments. Postal Savings Bank said in a text message it will choose an appropriate window for the offering.Investor enthusiasm for the debt deluge may be limited. Weakening demand, as reflected in sliding prices on subordinated notes, doesn’t bode well for new issues, according to the Huatai analysts.The price of Agricultural Bank of China Ltd.’s 4.28% perpetual bond declined to a one-year low this month and a similar 3.69% note issued by Postal Savings Bank at the end of last month slid to the lowest level since it was issued in March, trading at 96.84 of its 100 face value.Policy makers have acknowledged concerns over capital at the banks. Xiao Yuanqi, a spokesman of China’s banking regulator, told a press briefing last week that no matter how the pandemic and the economy develop, it will ensure a solid capital foundation. Liu Guoqiang, the deputy central bank governor, said at the same briefing that the People’s Bank of China is working with various departments to ensure banks have enough capital.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- China is attempting to create its own JPMorgan Chase & Co. The ambitions could prove hard to satisfy.Regulatory authorities may allow some of the largest commercial lenders into the brokerage industry to perform services that include investment banking, underwriting initial public offerings, retail brokering, and proprietary trading, local media outlet Caixin reported. With capital markets flailing and direct financing struggling to take hold as debt rises across the economy, what better way than to bring in its trillion-dollar whales to boost the financial sector?There is logic to this. Size matters, and the volumes could lead to success. China’s banks have more than $40 trillion in assets; the securities industry’s amount to around 3% of that. The largest lender, Industrial & Commercial Bank of China Ltd., had 32.1 trillion yuan ($4.5 trillion) in assets and 650 million retail customers as of March, according to Goldman Sachs Group Inc. The biggest broker, CITIC Securities Co., had 922 billion yuan and 8.7 million retail clients. Banks have thousands of branches with deeper distribution channels.But banks are the load-bearing pillars of China’s financial system. Regulators have asked lenders to show leniency with hard-up borrowers and to forego profits in the name of national service, in both tough and normal times. Granting brokerage licenses could help them create another channel of (small) profits.Banks stepping in where brokers have failed could help the broader capital markets. In theory, commercial lenders know how to deal with different types of risk, like with the ups and downs in the value of a security and market movements. They’re already big participants in bond markets and have access. Bringing banks into mainstream brokering could help reduce the intensity of risk associated with the trillions of dollars of credit being created in China every month. It may also help solve a persistent problem: the inefficient allocation of credit that has led to mispriced assets.All of this is contingent upon the banks pulling their weight. Going by past experiments, they haven’t brought the heft that Beijing had hoped. Consider China’s life insurance industry. It took bank-backed players in this sector a decade to build a foothold. Their market share grew to 9.2% last year from 2.5% in 2010. The brokerage arms of Chinese banks in Hong Kong have fared little better. Bank of China International Securities, set up in 2002 by Bank of China Ltd., remains a mid-size broker by assets and revenue, Goldman Sachs says. Top executives come from the bank; related-party transactions with the parent account for just about 14% for underwriting business and around 39% for income from asset management fees.Catapulting ICBC to the same stature as JPMorgan — a full service bank with a 200-year history — may take a while. The American financial giant has hired big, and opportunistically built out businesses. It bought and merged with firms like Banc One Corp. and Bear Stearns Cos. and is in consumer banking, prime brokerage and cash clearing. The services it offers run the gamut of credit cards, retail branches, investment banking, and asset management. Shareholders have mostly rewarded the efforts.For China’s biggest lenders, conflicting and competing priorities will make this challenging. They’re already being required to take on more balance sheet risk, lend to weak companies and roll over loans while maintaining capital buffers, keeping depositors happy and essentially martyring themselves. Now, they’ll be adding brokering at a time when traditional revenue sources are shrinking in that business. And it won’t happen overnight, or even in the next two years. As for brokers? Their stock prices dropped on the news that banks would be wading into their territory.Beijing’s efforts to shore up its capital markets may look OK on paper, but they’re increasingly muddled and interests aren’t aligned. As China attempts to make its financial sector more institutional and less fragmented while it’s also letting in foreign banks and brokers, allowing the big homegrown institutions to do more, with additional leeway, doesn’t necessarily make for a stronger system. As I’ve written, experiments like these can have unexpected results.Over time, it won’t be surprising to see China’s large brokers and banks start looking very similar; for instance, big securities firms becoming bank holding-type companies, as one investor suggested. That may be a laudable goal for Beijing, but is it realistic? And does it take into account the problems on the financing side, such as misallocation and transmission? Ultimately, none of this really gets at one big problem: unproductive credit.All the while, regulators are inviting in the likes of the actual JPMorgan Chase and Nomura Holdings Inc. and giving them bigger roles. China won’t be ready. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.