As the PRC lowered down-payments for 1st and 2nd homes in China, the big 4 banks got different investor reactions based on their exchange. Agricultural Bank of China, ABC, Bank of China, BOC, China Construction Bank, CCB and Industrial and Commercial Bank, ICBC, all rose moderately in Shanghai on Tuesday, maintaining their over 20% premiums to their Hong Kong listings. Hong Kong declines in all four reflected a disbelief in the positive impact of this change, with drops from 1% fo 2.25%. Despite the Shanghai rise, the volumes were generally half the recent average. Hong Kong volume was just as thin with the exception of world banking behemoth, ICBC, with volume higher than the average. Volume for all four on both exchanges has trickled compared to the peak in 2015 when volumes were in the billions.
There have been no earnings updates for these four state-owned enterprises, with annual results generally coming around mid-April. Last quarter reports, albeit with limited disclosure, were lackluster. Increases in revenues were wiped out by increasing reported non-performing loans, npls, which were still reported at less than 2% with the exception of ABC which showed about 2.02%. Skeptics abound as to the truth in these percentages.
Trailing p/e’s in Hong Kong, significantly below Shanghai, would point to bargains if it weren’t for:
- flat to slightly negative earnings after profit in the 9 months ending in September
- Reported NPLs continuing to shoot upwards
- Domestic economic contraction as shown by the sequential PMI data.
To name just a few reasons, assuming you accept the bank npl’s and the government data.
Currently, in terms of asset size, ICBC, CCB and ABC are the largest banks in the world, in descending order. Including BOC, these four banks combined employ 1.6 billion, about equal to the 2013 population of Idaho. While US banks are infamous for layoffs in lean times, these SOE’s have made no layoff announcements in their filings or to the public.