CBIRC’s CEO approval: key positive signal
? We see CBIRC’s approval of CMB’s new president, Mr. Wang Liang, as a key
positive, as we think it signals CMB as not being targeted by CCDINSC.
? This is relevant as we think offshore shareholders have been particularly
concerned following the corruption investigations on CMB’s ex-president.
? Another positive signal is the short 28-day gap between its board of directors’
and CBIRC’s approvals for its new president.
? This compares to a 58-day average for other joint stock banks during their
top management changes (Fig 1). Remains top bank pick. Add, TP: HK$84.1.
Key positive signal that helps assuage investor concerns
? We see China Banking and Insurance Regulatory Commission’s (CBIRC) approval of
China Merchants Bank’s (CMB) new CEO/ president, Mr. Wang Liang, as a key
positive, as we think it signals CMB is not being targeted by the Central Commission
for Discipline Inspection and the National Supervisory Commission (CCDINSC).
? As pointed out in New president officially appointed (almost), dated 20 May 2022,
offshore investors were concerned that CMB could also be the target of corruption
investigations, following the sudden resignation of its ex-president (Mr. Tian Huiyu)
due to a corruption investigation (see Unexpected change of president, dated 19 Apr
2022), which could negatively affect CMB’s future earnings stream.
Quick regulatory approval also sends a positive signal
? The time between CMB’s board of directors’ approval of Mr. Wang Liang as its new
president and CBIRC’s approval is 28 days. This is much faster than the 58-day
average since 2015 for other joint banks following top management changes and even
faster than the state-owned enterprise (SOE) banks’ average of 29 days (Fig 1).
? We believe this also sends a positive signal that CMB is not likely to be targeted for
corruption investigations.
Different from other past bank corruption investigations
? As noted in When reaction become overreaction, dated 21 Apr 2022, CMB’s situation
looks quite different from Minsheng Bank’s in 2015, which we think was the last major
listed China bank that experienced a CEO change due to corruption investigations.
? Back then, there was a 346-day gap between CBIRC’s approval of Minsheng Bank’s
new president, an externally appointed Mr. Zheng Wangchun and the resignation date
of its ex-president, Mr. Mao Xiaofeng — much longer than CMB’s 58-day gap from the
resignation date of its ex-president to the internal promotion of Mr. Wang Liang (Fig 1).
? The internal promotion also gives comfort that there is less likely to be major changes
to strategy at CMB, in our view.
Remains our high conviction top pick; Add; TP of HK$84.1
? We value CMB using a stress-test adjusted GGM, with an unchanged TP of HK$84.1,
and 72% potential upside. Potential re-rating catalysts: improving asset quality and a
better economy. Key downside risks: worse-than-expected NIM and policy risks.