European Event-Driven Analyst

Jesus Rodriguez Aguilar

Equity Bottom-Up

Banca Monte dei Paschi di Sien / Equity Bottom-Up

<ul>
<li>The Italian Treasury sold an additional 12.5% stake in <a href="https://www.smartkarma.com/entities/banca-monte-dei-paschi-di-sien" target="_blank" data-smartkarma-citation="entities:21162:1" rel="noopener">Banca Monte dei Paschi di Sien (BMPS IM)</a>, raising €650 million as part of re-privatization efforts following the 2021 failed attempt.</li>
<li>The Treasury's divestment makes BMPS more appealing for buyers. BMPS still trades at attractive valuation multiples. The bank announces approval from the ECB for a €0.25 cash dividend per share. </li>
<li>Economy Minister Giorgetti and PM Meloni aim to boost competition through privatization, favoring a merger with another mid-sized Italian bank, possibly BPER Banca or Banco BPM.</li>
</ul>


The Italian Treasury sold an additional 12.5% stake in Banca Monte dei Paschi di Sien (BMPS IM), raising €650 million as part of re-privatization efforts following the 2021 failed attempt.
The Treasury's divestment makes BMPS more appealing for buyers. BMPS still trades at attractive valuation multiples. The bank announces approval from the ECB for a €0.25 cash dividend per share. 
Economy Minister Giorgetti and PM Meloni aim to boost competition through privatization, favoring a merger with another mid-sized Italian bank, possibly BPER Banca or Banco BPM.


Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit (UCGIM)</a> shocked bond markets recently by announcing that it would not be paying the coupon on its CASHES legacy Tier 1 notes. Subsequently, adding confusion to this saga, Bloomberg reports that some investors received notification of a coupon payment. Operational risk anyone?Nonetheless, we believe value can be had in the firm’s Senior Non-Preferred (NPS) securities. Rated Baa2, BBB- and BB+ by Moody’s, S&amp;P and Fitch respectively, these securities are Bank of America Merrill Lynch index eligible, which aids in their liquidity.The real risk for UCGIM bondholders going forward is two-fold. One, the firm may engage in consolidation beyond absorbing a cleaner <a href="https://www.smartkarma.com/entities/banca-monte-dei-paschi-di-siena" target="_blank" data-smartkarma-citation="entities:21162:1" rel="noopener">Banca Monte dei Paschi di Siena (BMPS IM)</a>. The risk here is over-extending into another asset quality quagmire. Two, investor risk perceptions regarding Italy could deteriorate. We think the former, that is excessive M&amp;A activity, is more likely than the latter over the near term.Cancelling the CASHES coupon payment shortly after Mr. Orcel’s arrival is not a good omen. Possibly paying a coupon that was set to be cancelled is even worse. Nonetheless, we see UCGIM’s Senior Non-Preferred debt as offering an attractive risk/ reward opportunity.

Executive Summary: UniCredit (UCGIM) shocked bond markets recently by announcing that it would not be paying the coupon on its CASHES legacy Tier 1 notes. Subsequently, adding confusion to this saga, Bloomberg reports that some investors received notification of a coupon payment. Operational risk anyone?Nonetheless, we believe value can be had in the firm’s Senior Non-Preferred (NPS) securities. Rated Baa2, BBB- and BB+ by Moody’s, S&amp;P and Fitch respectively, these securities are Bank of America Merrill Lynch index eligible, which aids in their liquidity.The real risk for UCGIM bondholders going forward is two-fold. One, the firm may engage in consolidation beyond absorbing a cleaner Banca Monte dei Paschi di Siena (BMPS IM). The risk here is over-extending into another asset quality quagmire. Two, investor risk perceptions regarding Italy could deteriorate. We think the former, that is excessive M&amp;A activity, is more likely than the latter over the near term.Cancelling the CASHES coupon payment shortly after Mr. Orcel’s arrival is not a good omen. Possibly paying a coupon that was set to be cancelled is even worse. Nonetheless, we see UCGIM’s Senior Non-Preferred debt as offering an attractive risk/ reward opportunity.

UniCredit: CASHES Paid or Not, Senior Non-Preferred Offers Value

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Event-Driven

<ul>
<li>CASA’s enhanced offer for <a href="https://www.smartkarma.com/entities/credito-valtellinese-spa" target="_blank" data-smartkarma-citation="entities:21175:1" rel="noopener">Credito Valtellinese SpA (CVAL IM)</a> confirms the appetite for M&amp;A in Southern Europe, and Italy in particular</li>
<li>We expect Italian M&amp;A to be largely intra-country, as the key factors driving consolidation is the need for greater domestic scale given the lower for longer interest rates, especially in Europe, as well as the march of digital banking globally</li>
<li>After <a href="https://www.smartkarma.com/entities/intesa-sanpaolo-spa" target="_blank" data-smartkarma-citation="entities:21200:1" rel="noopener">Intesa Sanpaolo (ISP IM)</a>-UBI, and now potentially the conclusion of CASA Italia-CreVal, the focus is on the future of <a href="https://www.smartkarma.com/entities/banca-monte-dei-paschi-di-siena" target="_blank" data-smartkarma-citation="entities:21162:1" rel="noopener">Banca Monte dei Paschi di Siena (BMPS IM)</a> </li>
<li>A combination between <a href="https://www.smartkarma.com/entities/banco-bpm-spa" target="_blank" data-smartkarma-citation="entities:28121:1" rel="noopener">Banco BPM SpA (BAMI IM)</a> and <a href="https://www.smartkarma.com/entities/bper-banca-s-p-a" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">BPER Banca S.p.A (BPE IM)</a> now seems less likely; this implies that Banco BPM is a potential contender, once again, to combine with BMPS; the latter has largely de-risked its balance sheet, even if its core capital ratio is low</li>
<li>We would see a BPM-BMPS union as a major positive catalyst for a <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>  re-rating; even if Unicredit were to acquire BMPS, we believe that, at current valuations, a lot of the risks are discounted</li>
<li>Risks to our positive Unicredit view include Unicredit’s acquisition of BMPS on unfavourable terms, as well as worse than expected organic performance of revenue growth, given the challenging interest rate environment</li>
</ul>


CASA’s enhanced offer for Credito Valtellinese SpA (CVAL IM) confirms the appetite for M&amp;A in Southern Europe, and Italy in particular
We expect Italian M&amp;A to be largely intra-country, as the key factors driving consolidation is the need for greater domestic scale given the lower for longer interest rates, especially in Europe, as well as the march of digital banking globally
After Intesa Sanpaolo (ISP IM)-UBI, and now potentially the conclusion of CASA Italia-CreVal, the focus is on the future of Banca Monte dei Paschi di Siena (BMPS IM) 
A combination between Banco BPM SpA (BAMI IM) and BPER Banca S.p.A (BPE IM) now seems less likely; this implies that Banco BPM is a potential contender, once again, to combine with BMPS; the latter has largely de-risked its balance sheet, even if its core capital ratio is low
We would see a BPM-BMPS union as a major positive catalyst for a UniCredit SpA (UCG IM)  re-rating; even if Unicredit were to acquire BMPS, we believe that, at current valuations, a lot of the risks are discounted
Risks to our positive Unicredit view include Unicredit’s acquisition of BMPS on unfavourable terms, as well as worse than expected organic performance of revenue growth, given the challenging interest rate environment


Southern Europe Banks: Focus on Italian Banks M&A

Equity markets applauded <a href="https://www.smartkarma.com/entities/societe-generale-sa" target="_blank" data-smartkarma-citation="entities:21478:1" rel="noopener">Société Générale's (SocGen)</a> Q4 results while credit markets were less impressed. The dichotomy resulted in additional, possibly unwarranted, spread widening between SocGen’s 10-year Additional Tier 1 (AT1) and <a href="https://www.smartkarma.com/entities/bnp-paribas" target="_blank" data-smartkarma-citation="entities:525:1" rel="noopener">BNP Paribas' (BNP)</a> similar security. BNP is clearly perceived to be a better credit. We question whether this is entirely appropriate.We find that fundamental differences between SocGen and BNP may be less than perceived in the credit markets with respect to core recurrent earnings, trading risks and asset quality. Nonetheless, SocGen’s AT1 trades at a discount of 17 to 75bps to BNP. At the same time, SocGen reports a materially higher buffer of capital to potential earnings distribution restrictions. Juxtaposed with the current interest rate environment, this is meaningful. Concurrently, upcoming, potentially positive, event risk could restrict SocGen’s spread widening relative to BNP over the near term.  Investors may be better served in SocGen’s AT1 curve over the near term. We identify our preferred entry point within.

Equity markets applauded Société Générale's (SocGen) Q4 results while credit markets were less impressed. The dichotomy resulted in additional, possibly unwarranted, spread widening between SocGen’s 10-year Additional Tier 1 (AT1) and BNP Paribas' (BNP) similar security. BNP is clearly perceived to be a better credit. We question whether this is entirely appropriate.We find that fundamental differences between SocGen and BNP may be less than perceived in the credit markets with respect to core recurrent earnings, trading risks and asset quality. Nonetheless, SocGen’s AT1 trades at a discount of 17 to 75bps to BNP. At the same time, SocGen reports a materially higher buffer of capital to potential earnings distribution restrictions. Juxtaposed with the current interest rate environment, this is meaningful. Concurrently, upcoming, potentially positive, event risk could restrict SocGen’s spread widening relative to BNP over the near term.  Investors may be better served in SocGen’s AT1 curve over the near term. We identify our preferred entry point within.

Société Générale’s AT1: Better Fundamental and Relative Value than BNP

Thematic (Sector/Industry)

<ul>
<li>BPCE, the co-operative banking group and majority shareholder of <a href="https://www.smartkarma.com/entities/natixis-sa" target="_blank" data-smartkarma-citation="entities:21493:1" rel="noopener">Natixis SA (KN FP)</a> , is offering €4 per share to 29.3% owned by Natixis minority shareholders</li>
<li>Since the replacement of Francois Riahi as CEO by Nicolas Namais last August, Natixis has been brought under closer control by BPCE</li>
<li>We believe that this move will tighten BPCE control and accelerate the restructuring in the asset management and investment banking arenas</li>
<li>Even though this deal is a specific case, in broader terms, it reflects there is appetite for banking deals at current valuations, and that European bank M&amp;A is largely focused on intra-country deals, as has recently been seen in Spain and Italy</li>
<li>A successful offer would result in Natixis being delisting and it implies a “take out” PBV ratio of 0.7x and PE multiple of 15.8x for 2021, based on consensus estimates, which should be appealing to minorities</li>
<li>Risks to our constructive views on European banks M&amp;A prospects include regulatory hurdles, at the national and supra-national levels, as well as capital constraints and credit quality challenges</li>
</ul>


BPCE, the co-operative banking group and majority shareholder of Natixis SA (KN FP) , is offering €4 per share to 29.3% owned by Natixis minority shareholders
Since the replacement of Francois Riahi as CEO by Nicolas Namais last August, Natixis has been brought under closer control by BPCE
We believe that this move will tighten BPCE control and accelerate the restructuring in the asset management and investment banking arenas
Even though this deal is a specific case, in broader terms, it reflects there is appetite for banking deals at current valuations, and that European bank M&amp;A is largely focused on intra-country deals, as has recently been seen in Spain and Italy
A successful offer would result in Natixis being delisting and it implies a “take out” PBV ratio of 0.7x and PE multiple of 15.8x for 2021, based on consensus estimates, which should be appealing to minorities
Risks to our constructive views on European banks M&amp;A prospects include regulatory hurdles, at the national and supra-national levels, as well as capital constraints and credit quality challenges


Natixis (KN FP) - BPCE: European Bank Consolidation Rolls On

Italy

Banca Monte dei Paschi di Siena S.p.A. provides retail and commercial banking services. The Bank offers leasing and factoring, corporate finance, asset management, insurance, mutual funds, and investment banking services.

Banca Monte dei Paschi di Sien (BMPS IM)

Reborn from Ashes and Possible Target

Italian Treasury sells 12.5% stake in BMPS, raising €650 million for re-privatization efforts. BMPS trades at attractive multiples and could be...

Jesus Rodriguez Aguilar

UniCredit: CASHES Paid or Not, Senior Non-Preferred Offers Value

Cancelling the CASHES coupon payment was not a good omen. Possibly paying the coupon is even worse. Nonetheless, UCGIM’s Non-Preferred Senior...

Hank Calenti, CFA

Southern Europe Banks: Focus on Italian Banks M&A

The prospect of Italian bank sector M&A in Italy is overly penalizing Unicredit shares for the risk of a BMPS deal. With the BPM-BPER union called...

Victor Galliano

Société Générale’s AT1: Better Fundamental and Relative Value than BNP

SocGen’s AT1 curve offer better value than BNP’s. SocGen reports a materially higher capital buffer and other fundamental differences are less than...

Hank Calenti, CFA

Natixis (KN FP) - BPCE: European Bank Consolidation Rolls On

Even if this case is specific , BPCE's offer for Natixis shows that European bank consolidation continues, mainly on an intra-national level; we...

Victor Galliano

Reborn from Ashes and Possible Target

​Italian Treasury sells 12.5% stake in BMPS, raising €650 million for re-privatization efforts. BMPS trades at attractive multiples and could be...

Jesus Rodriguez Aguilar

UniCredit: CASHES Paid or Not, Senior Non-Preferred Offers Value

Cancelling the CASHES coupon payment was not a good omen. Possibly paying the coupon is even worse. Nonetheless, UCGIM’s Non-Preferred Senior...

Hank Calenti, CFA

Southern Europe Banks: Focus on Italian Banks M&A

The prospect of Italian bank sector M&A in Italy is overly penalizing Unicredit shares for the risk of a BMPS deal. With the BPM-BPER union called...

Victor Galliano

Société Générale’s AT1: Better Fundamental and Relative Value than BNP

SocGen’s AT1 curve offer better value than BNP’s. SocGen reports a materially higher capital buffer and other fundamental differences are less than...

Hank Calenti, CFA

Natixis (KN FP) - BPCE: European Bank Consolidation Rolls On

Even if this case is specific , BPCE's offer for Natixis shows that European bank consolidation continues, mainly on an intra-national level; we...

Victor Galliano

Italian Treasury sells 12.5% stake in BMPS, raising €650 million for re-privatization efforts. BMPS trades at attractive multiples and could be...