The two largest Italian banks, despite various efforts by their management teams to sanitise their balance sheets, seem to be suffering from the “Italian risk” by association. In opinion of experts at Banco Santander, this specific risk is exaggerated, and the current depressed valuation is an opportunity to buy.
Italy’s budget deficit of – 2.4% of GDP for the period 2019/2021 presented by the government increased the debt premium of 50bp to 280 bp and a 4% fall in the FTSE-MIB.This rise in the risk premium impacts negatively on the Italian banks in fundamentally three ways.
Bankinter | Unicredit´s ordinary BNA has fallen to 1.024 billion euros in the second quarter of 2018 (Q2 2018) (-13.3%) but has beaten expectations. The principle figures compared with expectations for Q218 (Reuters): Gross Margin: 4.947 M€ (-4.3%; -3.3% t/t); provisions: -504 M€ (-23%; 1.5% t/t); BNA: 1.024 B€ (-13.3%; -7.9% t/t vs 975 M€ expected).
The Spanish banking sector’s stock market rally has been suddenly cut short. The listed banks’ index had risen over 45% since the minimum levels of June 2016 until the first week of January. But since then, it is seeing a correction. Two matters of concern for investors are the impact of the floor clauses ruling on the banks profit and loss account, as well as the problems of the Italian banks.
The German authorities have come out en masse to criticise the public bailout the Italian government is planning for Monte dei Paschi. For many observers, this decision implies “direct public aid” which goes against the European directive on banking solutions and restructurings.
The Italian banks are struggling for survival. And the prospects for some of the biggest German banks are also gloomy. But the authorities in both countries are reluctant to act quickly on the assumption that time may solve the problems.
Silvia Merler | The year 2016 has not been good to Italian banks. While resilient to the first wave of financial crisis in 2008, due to their low exposure to US sub-prime products and to the fact that Italy did not have a pre-crisis housing bubble, they have been suffering much from the euro sovereign crisis and the ensuing deteriorating economic conditions.
via Macropolis | You are the outgoing British prime minister, responsible for calling a needless referendum whose result will – at best – lead to a painful realignment in your country’s relations with the rest of Europe and the wider world. What is your last action in Parliament? A moment of reflection about the decades of carefully constructed ties with EU member states and institutions that will now be overturned?
After the lack of success of private initiatives to help restructure Italy’s banking system, the government is now looking at how it can directly step in and help out the banks. Monte dei Paschi di Siena (MPS) is one of Italy’s biggest banks and the one which has the largest amount of toxic assets on its balance sheet by a long shot. At the end of the first quarter, MPS’ exposure to toxic assets was over 47 billion euros.
UBS | After a few weeks spent focusing on systemic concerns, earnings should offer a chance to go back to fundamentals. We are cautious into results as the recent rally left both banks trading on richer multiples and thus with limited protection against a quarter where underwhelming earnings could lead to consensus downgrades.