Yes bank

If this new piece of information holds true then we can see the much-needed cleanup on the balance sheet.

I hope this would attract some new fund houses or fresh positions/buys who would hold for a longer duration.
I am curious to know if anyone can answer this, what can lead to a reduction in free float for Yes bank. I am wondering how can we have reduced trades and lower the volume and move the holdings from Public to FII/DII/Institutions etc.

2 Likes

@Rax

Management has said that in the next quarter we would see the effect of arc transferer in financial statement. They have been saying this from last 5months but this time they ae just waiting for RBI approval. They said that they are ready to take an immediate 10% stake instead of 20% if that causes any delay in approval.

Same is the case with capital raising as well which is pending for approval.

On the deposit side(Private and government CA), borrowing side (equity or debt) and investment side (DII and FII) all of these category have basic screener for a company to become a probable investment. Till now yesbank was not qualifying that but after asset transfer lot of window dressing will happen. We will be surprised to see all the ratios and numbers suddenly going up like NIM,RWA,GNPA,NNPA etc. In short it will be included in more mutual fund schemes and qualify as an investment candidate.

Compared to last year I can see more number of brokerage house now covering this stock

A reverse split and two to three big FII investment can reduce the free float and retail participation. This is unlikely because even if big money comes in they are going to buy for the existing DII who are invested for last 3yrs.

I feel their inclusion in F&O can turn the tables and we can expect a good amount of reduction of float.

6 Likes

Finally, the JC Flowers ARC bid is confirmed and notification is sent to the exchange by Yesbank

2 Likes

Conditional approval from RBI received for stake sale. 9.99% each to both the PE firms.

This news is a shocker. Though I feel it is not possible now for yesbank to accept cerberus as their ARC but this only shows the urge to buy the stressed pool of yesbank.

This shows that the ARC sees that they can make money out of the stressed pool and if the ARC can make money out of this than the beneficiary will be yesbank.

To sum up yesbank situation as of today I would say that.
They have all the ingredients( money, PE firms, ARC sale etc), They have a good cook( prashanth kumar and team) the judges are lenient in their markings( industry tailwind) they only thing they need to do is cook and make a good dish.

Good time ahead for this bank.

2 Likes

Is it possible at this point for Yes bank to proceed with Cerberus instead of JC Flower? I know Cerberus did not respond on-time initially but not sure if there is an escape clause in the deal with JC Flower.

Hi,
It is not just about the money but also many other criteria which yesbank wants in an ARC. Like the ARC need to have certain experience, Certain turnover, if foreign company need to have an ARC in india and many more. I think cerberus did try from the beginning to get this ARC deal but somehow did not qualify to the standards yesbank was looking up to.

Moreover I don’t think there is any possibility for yesbank to back out. They would also not like to backout because this might further delay the process.

2 Likes

yesbank :ok_hand:

Will sell little here and good amount of holding max 10% above 21.

Expecting it to test 18 once

2 Likes

I am stuck at 21 for many years. Hope this rally will sustain so that I can at least get back my investment (anchoring bias). But the large amount of free float is a concern despite the good news of diverting bad loans to an ARC and additional investment from PMS funds

1 Like

Deepak Shenoy on comments wrt Yes Bank shares

https://twitter.com/deepakshenoy/status/1602225814161924096

2 Likes
2 Likes

Hi guys,
I have been trading in this stock from a long time and last time was the first time I shared my view on this forum which looks like it worked.

Recently came across the interview of Mr Prashanth kumar and I am now 100% convinced that all bald men are pretty calm :sweat_smile:

This month has been so interesting that I forgot that this quarter is almost ending.

Some important points:

  1. They have received close to 6000cr money and balance can be converted within 18 months post march. CET will improve by 250bps in this quarter.

2.Asset transfer completed and GNPA,NNPA will come down. One good thing is that now I came to know all the shares yesbank held with them of different companies. These were disclosed when they got transferred to ARC.

  1. ROA of 1% by Q3 FY24 and 1.5% by FY25. Very much achievable as they are already doing ROA of 1% on active book.

  2. No Dilution till FY26. This makes EPS projection easy.

  3. They are planning to grow at 20% for next 2 to 3 yrs. This is the best news I came across and this is very much achievable. This means a balance sheet of 5lakh cr by FY25 end.

  4. They are confident that their large investors are not planning to exit post march.

My EXIT plan.

After seeing the recent move which was totally unexpected I am not keeping any specific price point where I would like to exit.

I want to exit this bank max by FY25 end or mid FY26. The simple reason is that by then I expect it to be like any other SCB and not have any other benefits. I don’t want to play this as a growth stock.

  1. By FY26 there might be capital raise and I don’t want to hold it till next dilution.
  2. ROA and ROE is going to MAX out and there after it is going to grow at industry rate or below that.
  3. Prashanth kumar might retire. He is the man behind the growth of yesbank.
  4. They receiving 125% valuation for their NPA so the extra 25% will be reflected by FY26 and all the recovery benefit might also be reflected.
    5, Investor sentiments is going to be highest in FY25 only because they will get the confidence that this bank can now deliver consistent profits and is continuing to give them as per industry standards.

I will not be surprised if they get a 3 to 4 P/B kind of peak valuation and that is the reason I don’t tend to keep a price target but a TIME TARGET

Just to conclude in the interview 2 songs were used to describe yesbank

  1. Abhi tau party shuru hui hai
  2. Aa dheke jara kis me kitna hai dum

This shows attitude of BANK, shareholders and all stakeholders.

6 Likes

Strong deposit growth. Extremely satisfied on the liability side. They need to improve on CASA side. When too many thing are happening in a bank then some thing can be improved in future.

I cannot understand the advance side(because of ARC transfer). I will need to go through the quarterly report thoroughly to understand it. Just to give my view on these numbers I would say neither good nor bad. Overall not satisfied on advances side.

Lot of news on they partnering with microsoft, Falcon, board view for inorganic growth are good add ons.

My expectation is 500cr++ NET PROFIT this quarter if it comes out to be less than this then I believe it can again test 18rs and I will be a buyer there.

From here on I would not be selling this share unless it is close to 30 and considering the market mood it is highly possible for it to touch those levels before lockin.

2 Likes

This is going to be bad for the bank but good for those AT1 bond holders.

Yes bank Q3 results:
Excerpts:
81% drop in Net Profit to INR 51.52 Cr (compared to Q2)
CASA ratio down by 1% (compared to Q2)
Net Interest Margin down by 10 bps compared to previous quarter
Sustained improvement in GNPA AND NNPA (May be due to transfer of NPAs to JC Flowers ARC
GNPA: 2% vs 14.7% in Q2
NNPA: 1% vs 5.3% in Q2

For details, refer here
https://www.yesbank.in/pdf?name=q3_fy23_press_release.pdf

Hi guys,
After banging my head for the last 2 days I now understand each and every number of yesbank.

Everything about the asset transfer.

  1. They have transferred 43715cr of assets to ARC out of this 15198 is from write off account which means 28517cr of gross asset transferred from books.

  2. This 28517cr of gross asset has a net book value of 4982cr(NBV means gross advances minus provision) against this NBV they got a valuation of 8046cr. This means a premium of 61.5%

  3. As per RBI each asset transferred(account) is treated individually. So for an account whose consideration is lower than NBV bank has to report loss(can be spread over 2 quarters) but for accounts where consideration is higher
    Eg if X account has a NBV of 500cr but got a valuation of 400cr then 100cr loss needs to be recorded but for Y account where NBV is 500cr but valuation is 600cr unless 500cr is recovered 100cr cannot be realized.

  4. Bank has realized 609cr of loss in equity and 300cr in P&L and rest will be recognized in Q4 through P&L this was for accounts whose valuation was less than NBV.

  5. Since bank received 1207cr of cash they realized 512cr. Accounts whose valuation is grater than NBV and since cash received they can root through P&L.

  6. The excess valuation (8046cr-4982cr) + (609cr-512cr)= 3161cr will be recorded as provision against SR and will only be realized as and when cash recovery happens.

  7. Bank has total security receipt of 8853cr this includes 2013cr of previous SR and 6839(85% of 8046) as new one. The provision against this is 5080cr includes 1808cr of previous and 3161cr(premium valuation) and balance as new provision.

  8. That means 3773cr of NET SR which needs to be provisioned as and when required. Now management has a view that the recover will offset this aging requirement going forward but due to unexpected delay in recovery there can be higher provisioning in some quarters.
    That means if this quarter management was expecting the 850cr of provisioning to be offset by recover which got delayed we can conclude that in future recovery can be higher and provision lower.

    In short we can say provision needs to be accounted now but recover can have timing lag.

  9. Provisioning for fresh slippage this quarter was only 250cr rest was aging and the are very confident that next quarter provision for fresh slippage will be less than 200cr but aging provision uncertain.

  10. Book value is at 14 and equity is 40154. This means below 14 it goes less than 1 PB(even PSU not getting this valuation)

  11. This quarter was inflated in terms of operational numbers as 137cr of unrealized gain was booked via bonds and 200 cr of benefit from ARC(512cr profit realized but only 300cr loss recognized refer point 4 and 5)

NEGATIVES AROUND YESBANK NOW

  1. AT1 bond(will go through judgment and articles to further increase understanding)
  2. 50cr NET profit
  3. Locking being released

Expecting next 3months to be bad and high volatility in this counter. I don’t expect closing below 17.5 as at this price PB is 1.25(very low).
Next quarter has the ability to be some what like this but FY24 is bright. Their TTM PPOP is 3000cr so we can see at what run rate they are.

Will try to sell and buy at lower levels from tomorrow onwards.

Just to add. They realize that 3161 premium valuation from P&L as and when recovery happens and 9000cr of TAX asset so profit might grow slow but book value has a big chance of improvement in future

EDIT TECHINICAL


17.5 should act as support but worst case 15.87 200SMA will hold in my view at 15.87 PB is 1.13

Thankyou

7 Likes

Hi guys quick update of AT1 bonds
https://twitter.com/CNBC_Awaaz/status/1617362542187417601?t=7kB2aEjhD5oT2qx8yJc4pw&s=08
https://twitter.com/CNBC_Awaaz/status/1617362542187417601
Though I am planning to read the report myself I don’t fell I am going to find anything different.

Some Important points.

  1. With my learnings of buying DISHTV and FUTURERETAIL(lost 50% here) I can say that court cases go too long ( 1 to 2yrs) so nothing immediately happening
  2. There is plea of partial settlement as well so assuming they paying entire amount is also wrong.
  3. RBI and central government will do whatever it takes to win this in favor of yesbank

Please go through the 4min video it is very beautifully explained.

EDIT
https://twitter.com/ETNOWlive/status/1617391390295756801
prashanth kumar interview where he is questioned on AT1
@keeyes if this would have been a fall because of result I would be the first one to buy but I fell it is a combination and uncertainty on AT1 which is causing 10% kind of fall.

Profitability will come if operations is good how long will they provision for legacy book. Operationally result was very good but yes disappointed with PAT. If AT1 uncertainty goes away it will take 1 day to go back to 20 is my view

1 Like

Regarding AT1 bonds,

  1. It will an interesting development with the involvement of Judiciary in a policy decision taken by the RBI. I sense a long battle ahead between the roles and responsibilities of the Executive and Judiciary.
  2. Secondly, the clauses are clearly mentioned when any AT1 bond is issues. While I empathize with the retail investors, definitely not with the investment agencies because they should have read the fine print about any loss of capital if any clause is initiated during adverse situations
  3. Thirdly, the market knows better and I believe the probable impact of future outcome of AT1 bond is already priced into the stock price. The current fall is more to do with the results rather AT1 bond.

Disc: Stuck from very higher levels and may be biased

2 Likes

Hi folks, I’ve written about the Yes Bank AT1 bonds saga here from start to now. Hopefully a good summary for those interested in learning about it:

Banks usually fund themselves by borrowing. They can “borrow” from a customer (that is, by taking in deposits) or they can issue bonds (that is, take loans from investors and pay an interest). But both of these have to be paid back! A customer can withdraw their money at any point. And bonds usually come with a “maturity date” when the bank has to return the principal back to the investor.

A nicer way for banks to fund themselves is by raising “capital” or money that it won’t have to return. A straightforward way to do this is by selling shares to investors. By law, banks need to always have some capital. If things go wrong, it’s this capital that comes to the rescue. All those borrowings have to be paid back somehow!

But selling shares to raise capital is expensive. Investors that buy shares expect double-digit returns, start owning a part of the company, and might get annoying and demanding. An alternative, a jugaad, for banks is to issue something called “Additional Tier-1 bonds” or “AT1 bonds” which are a cross of bonds with some useful features of equity (stock):

  1. Like bonds, AT1 bonds have a fixed face value (principal amount) and interest rate. If you buy an AT1 bond worth ₹100 with 10% interest, you’d get ₹10 every year
  2. Like equity, AT1 bonds don’t have a maturity date so you might never get back the principal. If you buy bank stock, the bank is under no obligation to pay you back for your stock, ever. Exactly the same with AT1 bonds
  3. Like equity, if the bank gets in extreme trouble, it can just say “sorry about this :(” and delete its AT1 bonds. Their value can go down to zero
  4. Oh and the initial interest? Banks can choose to skip interest payments if they’re having a rough day (they can’t do that with regular bonds)

Banks like AT1 bonds because they behave like equity and are a part of their capital because they don’t need to be paid back. Investors like AT1 bonds because, in their mind, they’re bonds with a higher-than-usual interest rate and a fixed principal. Unless things go really bad!

Of course things went really bad! In March 2020, Yes Bank was on the brink of death and was essentially taken over by the Reserve Bank of India (RBI), the banking regulator. The RBI did a bunch of things and turned Yes Bank into “Yes Bank 2.0” with new owners and a new management. The new management took the call to, well, delete all its AT1 bonds. Whoever held those bonds got nothing.

Bond investors obviously didn’t like it. The bonds were worth ₹8,400 crores ($1 billion) and they became zero. Tough luck, right? Someone who buys an AT1 takes the risk of losing their money for a bit more interest if the bank goes through trouble. Just like they do with equity! [1]

How it goes in finance is that an asset is sliced and diced into small pieces and those pieces then sold off to investors based on who wants to take how much risk. An investor buying a fixed deposit, for instance, wants 0 risk and is okay with less return. A bond investor takes a bit more risk and gets a bit more return. An equity investor takes the most risk for potentially even more return. On this spectrum, an AT1 bond lies somewhere between bond and equity, maybe closer to equity than to bonds.

When Yes Bank got into trouble and the RBI got involved, the first thing that it did was to ensure that customers with deposits were safe. Next came the bondholders. Standard stuff. But then Yes Bank 2.0 saved its equity investors [2] while asking its AT1 bond investors to go away with nothing. Of course they went to court. [3]

The Court’s cop-out

Last Friday evening, the Bombay High Court decided that maybe the AT1 bonds were not erased fairly and revoked Yes Bank’s decision to write them down:

The Court also observed that the final reconstruction scheme for the bank did not contain the clause for writing down of AT-1 bonds. “Upon consideration of the objections the Reserve Bank made modification in the draft scheme. It deleted the clause of writing down of AT-1 bonds. The final scheme sanctioned by the Central Government did not contain the clause or provision for writing down AT-1 bonds,” the Court observed.…The Court clarified that the matter being fiscal in nature, it would not dwell on whether writing off the AT-1 bonds was necessary but only deal with the decision making process.“We would not enter into a debate as to whether the AT-1 bonds could have been converted into the shares and or whether they could have been proportionately written down. The Court would not possess the necessary expertise of the same” the Court said.

The Court is saying that after the RBI swooped in to save Yes Bank and appointed a new management for Yes Bank 2.0, the RBI didn’t mention in their transition document that the AT1 bonds must be written off, so apparently Yes Bank 2.0 overstepped its authority by doing so. This is a major cop-out because it doesn’t answer the main point of contention: can AT1 bonds be erased before equity? Instead, the judge asks to bring back the AT1 bonds because of some minor lapse in documentation.

This obviously doesn’t end here. Yes Bank has already decided to appeal this decision in the Supreme Court and it’s likely going to be some more years before this ends.

Imaginary bonds

I like to think about what happens if the erased AT1 bonds from the original Yes Bank come back into Yes Bank 2.0. Here’s Prashant Kumar, CEO of Yes Bank v2, indulging the same thought experiment:

The Bombay High Court’s order on Yes Bank Ltd.'s additional tier-1 bonds issue will not have any impact on the lender’s capital structure, said the lender’s Managing Director and Chief Executive Officer Prashant Kumar.“There is no inflow or outflow of any money or liquidity. It will be on the change in CET (common equity tier-1) and AT-1. There would not be any impact on the tier-1 capital,” Kumar told reporters in a conference call after announcing Yes Bank’s December quarter results.

Also,

When asked whether the interest component on the AT1 bonds could impact the balance sheet, Kumar said that interest payments would be within the bank’s discretion.“On the perpetual bond, it is the discretion of the bank to pay interest or not,” Kumar said. “At this point in time, I would not like to add anything further.”

What Kumar is saying here is that even if the Bombay HC decision stands—it doesn’t matter. Yes Bank 2.0 is a bank that has decided it does not want to pay the old AT1 bondholders. If the bank’s forced to bring them back, it will bring them back on paper and that’s about it. The bank will point to a small component [4] of its capital and say “this is now AT1 bonds instead of equity,” and continue paying no interest. No money changes hands, nothing changes for anybody. The bonds would both exist and not exist at the same time, it would be a bit funny. [5]

If there were a lesson to be learnt it’s probably that you can’t force a bank to pay you if it really doesn’t want to.

Footnotes

[1] A problem here that’s probably very India-specific is that a non-insignificant number of individuals were mis-sold AT1 bonds by Yes Bank v1 with the promise that they were as safe as fixed deposits. Here’s a piece from December 2021 about a 61 year old widow who got duped out of her life’s savings by the bank’s relationship manager. I don’t even know how to deal with this problem.

[2] By “saved” I just mean that the equity wasn’t written down to zero like with the AT1 bonds. The RBI invited a few other banks to buy stock for cheap and in effect diluted the holdings of existing investors. So they did lose—a lot—but not everything.

[3] The fundamental issue here isn’t that the AT1 bonds were erased. The issue was that the bonds were erased even though the equity wasn’t. If both equity and the AT1 bonds were written off this whole saga wouldn’t have happened.

[4] What this small component could be would likely again be a big point of contention. It certainly wouldn’t be the original ₹8,400 crores but a much smaller chunk of the capital.

[5] In the future, if Yes Bank 2.0 recovers fully and comes back into good times, the bank might very well choose to start paying interest again. But until then, the bonds are imaginary.

15 Likes

Thanks @smanek for very well articulating about A to Z of AT1 bonds and more particularly what next in the case of Yes bank. I just want to mention one point which the CEO mentioned in ET Now interview today. The bank need not pay any interest on the AT1 bonds and it does not get accumulated. However, if the bank decides to pay dividend to its shareholders, the bank will have to pay interest on the AT1 bonds for that year.

2 Likes

Thanks for reading, Srinivasa! I’m sure it’s a long time before Yes Bank can start paying dividends to shareholders.

2 Likes