The Ant died because of sugar

    Nap time at the SEC?


    In Rembau there is a saying, “Mati semut kerana gula“, which translated to English means sugar caused the Ant’s death. This post is less to do with our humble tiny arthropod but rather about the gigantic, humongous financial institution called Ant Group, a 33% owned equity investee of AliBaba group. (#RememberOpenSesame).

    Ant Group is a giant, with a business spawning electronic payments, cash management, credit and insurance. According to the magic of investor’s gullibility (#RememberWeWork), this entity is currently valued upwards of $200 billion, or about 2/3 of JP Morgan.

    Based on AliBaba’s financials released yesterday, the critical stats of this unit are as follows. For Financial Year Ended 2020, share of profit recognized by AliBaba under the Equity method was US$ 752m. As this amounts to a 33% share, the total net income by Ant Financial was $2.25 billion. For comparison, net income of JP Morgan for the last financial year ended 2019 was $36.4 billion.

    Worth $200 billion. Worth $200 billion. Worth $200 billion. Drill it in!

    Only in an Excel sheet can a company which has net income of $2.25 billion be worth $200 billion when another company which is significantly larger and more sophisticated, and in the same business, with 15x the net income is worth only 33% more . Investors who choose to live in an Excel sheet should accept the occasional crash.

    Wealth management. Ant Group partners with financial institutions, such as fund
    management and insurance companies, to offer comprehensive wealth management products, including money market funds, fixed income products and equity investment products through Ant Fortune, its wealth management platform. As of March 31, 2020, Ant Fortune facilitated RMB4.0 trillion of assets under management for its partners.

    Comment: RM 4.0 trillion is about USD $579 billion assets under management. To give you an idea, Goldman Sachs Wealth Management channel has about $558 billion assets under supervision.

    *Total GS Assets Under Supervision is $2 trillion. This just refers to the Wealth Management segment.

    From AliBaba’s latest filing:

    • Micro Financing. Ant Group partners with banks and other lenders to provide small-amount, flexible-term credit services to consumers and SMBs. Through extensive technology and risk management capabilities, Ant Group enables its partners to deliver greater credit access to the un-served and under-served populations.

    • Insurance. Ant Group partners with insurance companies to provide a full suite of insurance product offerings, including innovative insurance products to meet users’ unserved insurance needs for e-commerce and other daily life use cases, as well as healthcare and life insurance products jointly developed with insurance company partners. For the twelve months ended March 31, 2020, total insurance premiums facilitated by Ant Group more than doubled compared to the same period in the prior year.

    There is no disclosure on Ant Financial’s balance sheet, its loan size, its funding profile, its insurance profile, how much risks are it is exposed to, how much risks are re-insured, and to whom. Nothing is available currently. Investors are basically told to accept the number $200 billion because the last investment manager decided that was the price Ant Financial was worth.

    The issue now is 3 fold:

    • Number one , liquidity crisis triggered by China’s flood.
    • Number two, credit crisis triggered by China’s flood
    • Number three, massive insurance payout losses triggered by China’s flood.

    How are these issues managed? What is the actual exposure in geographic regions? Can Ant Financial access China’s discount window? Is it actually solvent right now based on Solvency Regime capital calculations? What is the provisions taken by Ant Financial against bad loans? (Do they even exist).

    We do not have the answer, expect to say, “no matter how valid your questions may be, Ant Financial is worth $200 billion because the last investor said so.”

    Update: 3 Gorges Dam level as of Friday 21st August 10 PM Rembau Standard Time is 167.21 m, an increase of 3.7m compared to the same time yesterday. Based on Rembau Times simulation, based on the latest trend, the dam will exceed its design limit of 175m on Wednesday 25th August at 10 pm. [Note: This is continuously refreshed ]

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