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.

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

<ul>
<li>The elephant in the Italian bank M&amp;A room is government controlled <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>, which needs to find a merger partner in 2021; will that be <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a>, post-Mustier, and who could be its new CEO?</li>
<li>We believe that, in the event of a Unicredit acquisition of BMPS, it would require meaningful “government sponsorship”; in effect, for BMPS, pre-deal, to dispose of the bulk of its NPLs – which is underway – and for a capital infusion that renders the deal to be capital neutral for Unicredit</li>
<li>The other big M&amp;A unknowns relate to the listed mid-cap banks especially <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>; these banks need to cut costs and branch networks, which can be more readily incorporated into a merger restructuring plan</li>
<li>We believe that the risk of a BMPS acquisition is largely priced into Unicredit shares, and we expect its wide PBV discount to premium valued <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> to narrow;  our recommendation is to go long Unicredit, short Intesa</li>
<li>We think <a href="https://www.smartkarma.com/entities/credit-agricole-sa" target="_blank" data-smartkarma-citation="entities:21373:1" rel="noopener">Credit Agricole Sa (ACA FP)</a> is unlikely to sweeten the <a href="https://www.smartkarma.com/entities/credito-valtellinese-spa" target="_blank" data-smartkarma-citation="entities:21175:1" rel="noopener">Credito Valtellinese Sc (CVAL IM)</a> cash offer of €10.50 per share, and with CreVal shares trading at a 7% offer premium, there could be downside risk</li>
<li>We remain negative on Banco BPM shares, as, in the wake of the CredAg offer for CreVal, we believe that BPM’s options are limited, and that it may be the potential “back-stop” merger candidate with BMPS, in the event of no deal with Unicredit; the alternative could be a BPM-BPER merger, and we turn constructive on BPER, after its protracted underperformance</li>
<li>Risks to our view include Unicredit acquiring BMPS on worse than expected terms, with Intesa on the other hand delivering better than expected synergies and savings from the UBI integration; other risks also include a bidder emerging for BPM, as well as no merger or bid for BPER</li>
</ul>


The elephant in the Italian bank M&amp;A room is government controlled Banca Monte dei Paschi di Siena (BMPS IM), which needs to find a merger partner in 2021; will that be UniCredit SpA (UCG IM), post-Mustier, and who could be its new CEO?
We believe that, in the event of a Unicredit acquisition of BMPS, it would require meaningful “government sponsorship”; in effect, for BMPS, pre-deal, to dispose of the bulk of its NPLs – which is underway – and for a capital infusion that renders the deal to be capital neutral for Unicredit
The other big M&amp;A unknowns relate to the listed mid-cap banks especially Banco BPM SpA (BAMI IM) and BPER Banca S.p.A (BPE IM); these banks need to cut costs and branch networks, which can be more readily incorporated into a merger restructuring plan
We believe that the risk of a BMPS acquisition is largely priced into Unicredit shares, and we expect its wide PBV discount to premium valued Intesa Sanpaolo (ISP IM) to narrow;  our recommendation is to go long Unicredit, short Intesa
We think Credit Agricole Sa (ACA FP) is unlikely to sweeten the Credito Valtellinese Sc (CVAL IM) cash offer of €10.50 per share, and with CreVal shares trading at a 7% offer premium, there could be downside risk
We remain negative on Banco BPM shares, as, in the wake of the CredAg offer for CreVal, we believe that BPM’s options are limited, and that it may be the potential “back-stop” merger candidate with BMPS, in the event of no deal with Unicredit; the alternative could be a BPM-BPER merger, and we turn constructive on BPER, after its protracted underperformance
Risks to our view include Unicredit acquiring BMPS on worse than expected terms, with Intesa on the other hand delivering better than expected synergies and savings from the UBI integration; other risks also include a bidder emerging for BPM, as well as no merger or bid for BPER


Italian Banks M&A Scenarios: The Italian Job in 2021

<ul>
<li>The Italian Prime Minister Giuseppe Conte resigned on Tuesday resulting in the collapse of the anti-establishment coalition, between the right-wing League and left-wing Five Star Movement</li>
<li>There are on-going discussions between the opposition centre-left Democratic Party (PD) and the Five Star Movement (M5S), historically political rivals, which could potentially form a government. The other main political outcomes could be a caretaker government to see through the budget, or an Italian snap general election which could favour the far-right League</li>
<li>Markets have reacted mildly positively to the resignation news, with sovereign bond yields trending lower, as investors are hopeful of a PD-M5S alliance</li>
<li>A potential headwind to Italian banks would be a failure to structure a left-wing alliance, opening the door for a general election, which could usher in the far-right League and drive up sovereign bond yields</li>
<li>Despite the political uncertainty, we see deep value in the Italian banks, with <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> as the most attractive Italian bank on its "self-help" credentials along with its defensive qualities in the case of an-election-with-League-victory scenario</li>
<li>In the case of a more benign PD-M5S alliance scenario, which could imply lesser political headwinds, we would opt for higher "octane" banks <a href="https://www.smartkarma.com/entities/banca-popolare-dell-emilia-rom" target="_blank" data-smartkarma-citation="entities:21165:1" rel="noopener">Banca Popolare Dell'Emilia Rom (BPE IM) </a>and <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>
</li>
</ul>


The Italian Prime Minister Giuseppe Conte resigned on Tuesday resulting in the collapse of the anti-establishment coalition, between the right-wing League and left-wing Five Star Movement
There are on-going discussions between the opposition centre-left Democratic Party (PD) and the Five Star Movement (M5S), historically political rivals, which could potentially form a government. The other main political outcomes could be a caretaker government to see through the budget, or an Italian snap general election which could favour the far-right League
Markets have reacted mildly positively to the resignation news, with sovereign bond yields trending lower, as investors are hopeful of a PD-M5S alliance
A potential headwind to Italian banks would be a failure to structure a left-wing alliance, opening the door for a general election, which could usher in the far-right League and drive up sovereign bond yields
Despite the political uncertainty, we see deep value in the Italian banks, with UniCredit SpA (UCG IM) as the most attractive Italian bank on its "self-help" credentials along with its defensive qualities in the case of an-election-with-League-victory scenario
In the case of a more benign PD-M5S alliance scenario, which could imply lesser political headwinds, we would opt for higher "octane" banks Banca Popolare Dell'Emilia Rom (BPE IM) and Banco BPM SpA (BAMI IM)



Italian Banks: Value Opportunities, Despite Political Uncertainty

<ul>
<li>Italian, and other Southern Europe, sovereign bond spreads continue to narrow as the market expects further stimulus measures from the ECB to be announced on the 25th July</li>
<li>Italian banks have big exposures to domestic sovereign bonds, which should be supportive of capital ratios in the near term</li>
<li>We do not expect the rosy scenario on tightening sovereign bond spreads to continue over the medium term; we see a real risk of more political confrontations between Rome and Brussels and of increased conflict within the Italian coalition itself</li>
<li>Based on CET1 ratios, we see <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> and <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> as best positioned to absorb a widening of sovereign spreads over the medium term</li>
<li>Italian banks are out-of-favour, deep value stocks, and we recognise that Eurozone banks generally are challenged by the negative interest rate climate</li>
<li>Still, we believe that <a href="https://www.smartkarma.com/entities/unicredit-spa" target="_blank" data-smartkarma-citation="entities:21234:1" rel="noopener">UniCredit SpA (UCG IM)</a> stands out among the Italian and European banks</li>
</ul>


Italian, and other Southern Europe, sovereign bond spreads continue to narrow as the market expects further stimulus measures from the ECB to be announced on the 25th July
Italian banks have big exposures to domestic sovereign bonds, which should be supportive of capital ratios in the near term
We do not expect the rosy scenario on tightening sovereign bond spreads to continue over the medium term; we see a real risk of more political confrontations between Rome and Brussels and of increased conflict within the Italian coalition itself
Based on CET1 ratios, we see UniCredit SpA (UCG IM) and Intesa Sanpaolo (ISP IM) as best positioned to absorb a widening of sovereign spreads over the medium term
Italian banks are out-of-favour, deep value stocks, and we recognise that Eurozone banks generally are challenged by the negative interest rate climate
Still, we believe that UniCredit SpA (UCG IM) stands out among the Italian and European banks


Italian Banks - Sovereign Bond Risks at Bay for Now, Reveal a Good Value Equity Opportunity

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

* A Coalition Win Creates Numerous Problems: The German government likely will  drag out the timeline for new Italian elections in order to guide Italy into a recession, as such, the September election appears to be a de facto referendum on the European Union (EU) and EUR. * Financials Tax Looming: Questions arise over how coalition will cover the budget deficit. The financial sector is the proverbial fish in the barrel with over EUR 20 bn in profits. Investment SummaryOn Monday, June 4, 2018…

* A Coalition Win Creates Numerous Problems: The German government likely will  drag out the timeline for new Italian elections in order to guide Italy into a recession, as such, the September election appears to be a de facto referendum on the European Union (EU) and EUR. * Financials Tax Looming: Questions arise over how coalition will cover the budget deficit. The financial sector is the proverbial fish in the barrel with over EUR 20 bn in profits. Investment SummaryOn Monday, June 4, 2018…

Italian Election Likely to Severely Impact Financial Sector

Italy

Banca Monte dei Paschi di Siena S.p.A. is an Italian bank offering a comprehensive range of banking and financial services, including retail and corporate banking, wealth management, investment banking, and insurance products. It primarily serves individuals, families, small and medium-sized enterprises (SMEs), and corporations. The bank was founded in 1472 and is headquartered in Siena, Italy.

Banca Monte dei Paschi di Siena (BMPS IM)

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Banca Monte dei Paschi di Siena (BMPS IM)

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 Banks M&A Scenarios: The Italian Job in 2021

Italian banks M&A is gathering and we take a largely contrarian stance on stocks; pairs trade long Unicredit, short Intesa; positive on BPER,...

Victor Galliano

Italian Banks: Value Opportunities, Despite Political Uncertainty

The Italian Prime Minister Giuseppe Conte resigned on Tuesday resulting in the collapse of the anti-establishment coalition, between the...

Victor Galliano

Italian Banks - Sovereign Bond Risks at Bay for Now, Reveal a Good Value Equity Opportunity

Italian, and other Southern Europe, sovereign bond spreads continue to narrow as the market expects further stimulus measures from the ECB to be...

Victor Galliano

Italian Election Likely to Severely Impact Financial Sector

* A Coalition Win Creates Numerous Problems: The German government likely will drag out the timeline for new Italian elections in order to guide...

Thomas J. Monaco

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52-week Range

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