Daily Insight
Group Economics Macro & Financial Markets Research
27 May 2016
Demanding days for European banking Tomas Kinmonth Fixed Income Strategist
•
Banco Popular shares crash, while its debt performs well
Tel: +31 20 628 1405
•
European banks focus on capitalisation, periphery also looks at NPL problem
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UniCredit issued €750mn Tier 2 paper, while planning to sell €750mn of NPLs
•
Spanish GDP strong, Italy NPLs remain at large
tomas.kinmonth@nl.abnamro.com
Banco Popular – Equity crashes, debt performs The Spanish bank Banco Popular (POPSM) caught markets by surprise, as it announced that it was to sell EUR 2.5bn of new shares. The offered share price was EUR 1.25, a discount of 47% to Wednesday 25th closing price of EUR 2.36. On the news, shares of Banco Popular crashed to their the lowest level in 26 years. However this did assist the debt of the company, with the bank’s senior 5Y CDS spreads tightening. Banco Popular – equity punished, debt benefits Yesterday 25th
26th at 5pm
•
Equity
2.36
1.77
-25%
CDS 5Y Senior
220
195
-25bps
CDS 5Y Sub
425
370
-55bps
Date
Source: ABN AMRO Group Economics, Bloomberg One driver behind the call was the purchase of Barclaycard Spain and Portugal by Bancopopular-e on 28th April 2016. Bancopopular-e is 49% owned by Banco Popular. RWAs of Banco Popular would increase by approximately EUR 540mn from the deal. In doing so, this has put pressure on the CET1 fully loaded ratio. In previous quarters, Banco Poplar increased its CET1 ratio in a positive manner, but this year the ratio has plummeted from 13.1% in December 2015 to 10.8% after the inclusion of Barclaycard in the portfolio. Banco Popular has a CET1 requirement of 10.3% this year. After all of this action in the Spanish market, it almost went unnoticed that Spanish GDP grew 3.4% y-o-y in Q1 2016, and expanded 0.8% in Q1 2016 from Q4 2015. These are strong positive figures for the nation, beating many expectations and showing growth is still continuing even without a government. We expect Spanish GDP to grow at 2.7% for the year 2016, and be one of the top performers in the eurozone, underlying growth will benefit both debt and equity in the Spanish sector this year.
Insights.abnamro.nl/en
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Daily Insight – The US data that matters for Fed officials– 25 May 2016
Italy – Paying close attention to Spain, and issues debt The Italian banks will pay close attention to investor appetite for the Spanish equity call. As Italian banks still have a chronic NPL problem that must be addressed (see page 4 for NPL statistics) and they are undercapitalized as a sector. We see the Atlante rescue fund being drastically underfunded, if it wishes to address the NPL problem in Italy. Consequently, we witnessed UniCredit come forward with two ways to address their capitalisation and NPL issues. Firstly, it issued a EUR 750mn 10.5Y Tier 2 callable bond with a coupon of 4.375%. Whilst it also announced an intention to sell EUR 750mn of their NPLs. The Tier 2 bond issued drew strong demand, as the order book closed at EUR 1.7bn. This was the first Tier 2 UniCredit deal for 15 months, and occurred just after its chief executive officer, Federico Ghizzoni departed the company. The big question for UniCredit is, how does it continue with its capitalisation? If cash calls are seen as a way to address Italian banks we could expect strong debt performance, especially for Tier 2 debt. However there are no confirmed cash calls, and cash calls done by Italian banks would seriously hurt equity holders of Italian banks (possibly more so than the 26% fall of Banco Popular today). We remain exceptionally cautious trading any debt based on any unconfirmed cash calls from the Italian sector. Regarding the intended NPL sale of EUR 750mn, the other Italian banks will pay extremely close attention to this sale. If buyers can be found for the NPLs on Italian balance sheets, this will be a monumental step forward for Italian banks. This has the potential to tighten Italian senior and subordinated spreads, especially Tier 2. However, appetite for purchases of Italian NPLs has not materialised this year. It is noted both European investors and US private equity firms have so far been very reluctant to buy significant amounts of NPLs from Italian banks. This is while BRRD regulation restricts the Italian government from taking NPLs and creating a bad bank, something which we saw in Ireland and Spain. We see the performance of the Italian debt directly relating to the Italian domestic NPL issue, a failure to find buyers for NPLs or a suitable method to deal with NPLs will result in underperformance of Italian debt.
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Daily Insight – The US data that matters for Fed officials - 25 May 2016
Day
Date
Time
Country
Key Economic Indicators and Events
Monday Monday Monday Monday Monday Monday Monday Monday
23/05/2016 23/05/2016 23/05/2016 23/05/2016 23/05/2016 23/05/2016 23/05/2016 23/05/2016
01:50 06:30 10:00 10:00 12:15 14:00 15:45
JP NL EC EC EC US US US
Merchandise trade exports - % yoy Consumer confidence - index Composite PMI output PMI services - index PMI manufacturing - index Fed's Bullard speaks in Beijing (v) Fed's Williams speaks in New York Markit - Flash PMI
Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday Tuesday
24/05/2016 24/05/2016 24/05/2016 24/05/2016 24/05/2016 24/05/2016 24/05/2016
00:30 08:00 09:00 11:00 13:00 14:00 16:00
US DE EC DE TR HU US
Gfed's Harkker Speaks on Economic Outlook GDP - % qoq, final and details ECB's Praet speaks ZEW index (expectation economic growth) Repo rate - % Base rate -% New homes sold - % mom
Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday Wednesday
25/05/2016 25/05/2016 25/05/2016 25/05/2016 25/05/2016 25/05/2016 25/05/2016
10:00 15:00 15:00 16:00 17:40 20:00
DE US US CA US US EC
Ifo - business climate - index FHFA house price index - % mom Fed's Harker speaks Policy rate - % Fed's Kashkari speaks on energy and Monetary Policy (nv) Fed's Kaplan speaks ECB's Praet and Knot speak in Madrid
Thursday Thursday Thursday Thursday Thursday
26/05/2016 26/05/2016 26/05/2016 26/05/2016 26/05/2016
10:30 11:15 14:30 16:00 18:00
GB US US US US
GDP - % qoq Fed's Bullard speaks (v) New durable goods orders - % mom Pending home sales - % mom Fed's Powell speaks about Economy (v)
Friday Friday Friday Friday
27/05/2016 27/05/2016 27/05/2016 27/05/2016
01:30 14:30 16:00 19:15
JP US US US
CPI - % yoy GDP - % qoq annualised Univ. of Michigan cons. confidence - index Yellen speaks at Harvard University at Radcliffe Day
Period
Latest outcome
Consensus
Apr May May P May P May P
-6.8 1 53.0 53.1 51.7
-10.4
May P
50.8
3 53.1 53.2 51.8
1Q F
0.7
0.7
May May 24 May 24 Apr
11.2 7.5 1.1 -1.5
12.2 7.5 0.9 1.6
13.0
May Mar
106.6 0.4
106.7 0.5
106.7 0.5
May 25
0.5
0.5
1Q P
0.4
Apr P Apr
1.3 1.4
0.2 0.7
0.8
Apr 1Q S May F
-0.1 0.5 95.8
-0.3 0.8 95.8
0.9 96.0
Source: Bloomberg, Reuters, ABN AMRO Group Economics (we provide own forecasts only for selected k ey variables and events) FOMC (v) voting; (nv) non voting
53.2 53.3 51.9
ABN AMRO
1.3
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Daily Insight – The US data that matters for Fed officials - 25 May 2016
Italian NPLs December 2015
Gross NPL Values â‚Źmn
Dec '14
Mar '15
Jun '15
Sep '15
Dec '15
RWA Dec'15
Unicredit
87,165
83,212
81,738
80,712
82,859
390,598
Intesa Sanpaolo
62,867
63,484
63,756
64,477
63,114
284,319
Banca Monte dei Paschi di Siena
45,329
46,584
46,246
47,470
46,862
70,828
Banco Popolare
19,248
21,500
21,354
21,501
18,334
44,744
4,822
5,998
6,062
5,790
5,970
34,899
11,615
13,227
12,052
13,651
13,168
61,345
Banco Popolare di Milano UBI Banca
Gross NPL / Net Loans
- MPS and Banco Populare exceptionally high levels on a gross basis Dec '14
Mar '15
Jun '15
Sep '15
Dec '15
RWA Dec'15
Unicredit
20%
17%
18%
17%
19%
390,598
Intesa Sanpaolo
20%
19%
20%
20%
19%
284,319
Banca Monte dei Paschi di Siena
38%
38%
39%
42%
44%
70,828
Banco Popolare
27%
29%
29%
29%
25%
44,744
Banco Popolare di Milano
15%
18%
18%
18%
17%
34,899
UBI Banca
14%
16%
14%
16%
16%
61,345
Net NPL / Net Loans Net NPL = NPL - Provisions
- Even on a net basis, MPS still looking weak, followed by Banco Populare Dec '14
Mar '15
Jun '15
Sep '15
Dec '15
RWA Dec'15
Unicredit
9%
8%
8%
8%
9%
390,598
Intesa Sanpaolo
9%
9%
9%
9%
9%
284,319
Banca Monte dei Paschi di Siena
14%
18%
19%
21%
21%
70,828
Banco Popolare
12%
18%
18%
19%
16%
44,744
Banco Popolare di Milano
7%
11%
10%
10%
5%
34,899
UBI Banca
9%
11%
9%
11%
10%
61,345
Provisions / Gross NPLs Provisions = Reserves set aside
- UBI Banca and Banco Popolare has the least set aside to cover the NPLs Dec '14
Mar '15
Jun '15
Sep '15
Dec '15
RWA Dec'15
Unicredit
53%
54%
54%
54%
52%
390,598
Intesa Sanpaolo
51%
51%
51%
51%
51%
284,319
Banca Monte dei Paschi di Siena
51%
51%
50%
49%
50%
70,828
Banco Popolare
41%
36%
36%
35%
38%
44,744
Banco Popolare di Milano
51%
42%
43%
44%
58%
34,899
UBI Banca
35%
31%
34%
31%
32%
61,345
Source: ABN AMRO Group Economics, Financial Statements, Bloomberg
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Daily Insight – The US data that matters for Fed officials - 25 May 2016
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