Description
Recommend a short in EWBC, a medium-sized regional bank.
This is a fairly simple thesis, but happy to address questions in the messages.
EWBC focuses largely on the Chinese/Asian expat community in a few key states, principally CA, NY, TX, etc.
EWBC currently trades at roughly ~1.5x price / TBV, roughly in line with many regional bank peers.
NIM has compressed by ~50bps since 4Q22:
Meanwhile deposit costs are up ~150bps and appear to be under continuing pressure, up almost 20bps QoQ.
EWBC has a very large amount of CRE exposure especially in states like NY and CA under the most pressure.
EWBC also has substantial uninsured deposits:
EWBC also has at least $2bn of investments of unknown quality in China/HK - given what's going on with some of the Chinese debt it's a cause for concern.
I would also note an additional cause for concern is EWBC has a uniquely correlated customer base - this could make it more exposed to any potential concerns about its creditworthiness and has some similarities to SIVB's customer correlation.
EWBC reported recently and gave what analysts viewed as a soft guide - this could be conservative or signs NIM is going to be under continued pressure especially if and when rates start to come down.
One of the reaosons I like the short is I view the downside as 10-15% vs. upside is 30-40% if the valuation comes under pressure. Also, given premium to TBV and asset size, takeout scenario is less likely.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
EPS continues to disappoint
Bank fears begin to spread to other banks with large CRE exposure
US/China continued decoupling