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What happened? Several press articles (source - link) report that the government is considering a one-off contribution from banks, in addition to cash that will be freed by postponing the use of deferred-tax assets for the 2026 budget. The contribution would be levied on the EUR6.2bn of non-distributable reserves that banks set aside in 2023 as part of the Windfall tax approved by the government in 2023. The government will tax these reserves at a rate of about 27.5 % (lower than the current 40%). The article highlights the measure would be mandatory: if banks do not unlock the reserves, future dividend payments could be taxed to ensure the cash is collected. Although this new levy is still a proposal and may be discussed within the collation and potentially amended, we have prepared a preliminary assessment of its impact on the Italian banks we cover. By modelling the PandL effect of the disclosed non-distributable reserves, we estimate a one-off hit of roughly 6% of Italian banks'' 2026 earnings - equivalent to about 1% of the sector''s market-cap. / Source: BNP Paribas Exane Estimates, * estimated pro-forma of BMPS + Mediobanca earnings. BPER also includes BPSO as per our report BPER: From regional roots to a leading domestic franchise BNPP Exane View: While there are many questions marks to be addressed, we think some of them include the fact that this tax is likely to be one-off linked to the original 23 windfall tax reserve and therefore could not be replicated going forward, unless the government creates a new tax. Waiting for the final outcome we argue the impact is limited, although we acknowledge that this is not supportive for the sentiment and Italian banks are currently underperforming the rest of the EU sector by c1%.
UCG UCG ISP ISP BPE BPE BMPS BMPS BAMI
Q2 was another beat, back to distribution Unicredit kicked off the Southern European banks'' reporting season, posting a c32% bottom-line beat driven not only by resilient operating trends but also by a cEUR675m positive one-off (thanks to the revaluation of the insurance JVs, CBK badwill partially offset by other risk charges). Revenues were impacted by weak trading income and fees, while NII was better. Costs and provisions were also lower than consensus. The loan book posted a decent acceleration QoQ, supported by CEE and a recovery in Italy, while customer deposits ended flattish in the quarter and down 1% YoY. CET-1 ratio remains quite solid at 16%, coming in 20bp ahead of consensus. Management confirmed that the SBB (EUR3.6bn) will start as soon as is practicable after 2Q25. 2025e and 27e guidance raised, while offer on BPM was withdrawn Unicredit has increased FY25 net profit guidance to cEUR10.5bn (from EUR9.3bn), driven by better NII, lower costs and the abovementioned positive one-off. Distributions have also been raised to above cEUR9.5bn (including EUR4.75bn of cash dividend). UCG increased 2027 net income ambitions to above EUR11bn (from EUR10bn), reflecting not only the contribution from Commerzbank and Alpha Bank stakes, which is expected to be cEUR800m from 2026 onwards, but also the improved operational performance and an acceleration of activity (see our note Europe needs to grow; Unicredit can fund it). Unicredit also announced the withdrawal of its offer for Banco BPM, as the condition relating to the golden power authorization was not satisfied. Raising estimates and target price, Outperform reiterated We upgrade our EPS estimates by c4.5% on average for 25-27e, incorporating the contribution from the stake in CBK and the operating trends. CBK stake should reduce CET-1 ratio by c100bp, which we have adjusted accordingly. Hence, we increase our TP to EUR75 (from EUR73). Maintain O/P. +5 topics to discuss with management included...
UniCredit UniCredit S.p.A.
In a nutshell Solid 2Q25 trends: 2Q25 results were a 32% beat to company compiled (CC) consensus net profit. The strong beat was driven by a cEUR675m positive one-off (cEUR653m from the revaluation of the JVs, cEUR230m from CBK badwill and cEUR207m from other provisions). The operating trends were impacted by a very weak trading income (cEUR192m vs. EUR290m expected) due to the mark-to-market of the hedge position at Commerzbank. NII came in at cEUR3.46bn (vs. EUR3.42bn for consensus) supported by Italy, Germany and Russia. Fees were a 3% miss to consensus although in line with our forecasts. Costs were better/lower than consensus and loan loss charges were also better. On the balance sheet, the loan book posted a decent acceleration QoQ supported by CEE and a recovery in Italy. Customer deposits were flattish in the quarter and down 1% YoY. Credit quality was quite resilient with an NPL ratio at 2.6% and coverage declining slightly to 77% (vs. 81% in 1Q25). CET-1 ratio came in 20bp ahead of consensus and 10bp beat our estimate at 16% which remains quite solid. Outlook: Unicredit has increased net profit guidance increased to c.EUR10.5bn (from EUR9.3bn), which implies a c.20%. We would note that the difference between distributions and net profit is largely explained by the positive one-off booked in the quarter, which would not be distributable. The increase in net profit is underpinned by three factors: Net revenue increased to EUR23.5bn (from c.EUR23.5bn), supported by NII which now is expected to decline ''mid-single digit'' (vs. moderate = somewhere between mid and high single digit). Unicredit has also improved the cost guidance to be below EUR9.6bn (vs. above EUR9.6bn before). They have kept fees income target at ''up mid-single digit'' vs FY24 and CoR at c.15bps unchanged. In terms of 27 ambitions, the bank has increased the profit target from EUR10bn to above EUR11bn. The target includes not only the positive operational performance but...
What happened? Banco BPM and Unicredit issued both a press release commenting the decision taken by the Lazio Regional Administrative Court (TAR) on the provisions contained in the DPCM of 18 April 2025 (ie ''golden power''). See link for the press releases - UCG press release and Banco BPM press release. As a reminder, the conditions set in the decree were the following: i) not to reduce the loan-to-deposit ratio applied by Banco BPM and UniCredit in Italy, with the aim of increasing lending to national families and SMEs, ii) not to reduce the level of Banco BPM and UniCredit''s current project finance portfolio in Italy, iii) not to reduce the current weight of Anima Holding''s investments in Italian issuers'' securities and to support the development of the Company, iv) to cease all activities in Russia (fundraising, lending, placement of funds, cross-border loans). We have not access to the full document of the ruling, hence we are relying on the press releases issued by both banks. Based on Banco BPM press release, ''the ruling addresses the time frame for the prescription on the loan-to-deposit ratio and requests that a time frame is set for the prescription on maintaining the project finance portfolio''. However, Unicredit considers that the ruling is quite supportive to their requests and actually requires the government to issue a new Golden Power rule. Moreover UCG''s press release highlights that ''Regarding the cease of activities or divestment of UniCredit''s assets in Russia (that do not include payments, as specified by the MEF) the TAR court stated it had no full jurisdiction on the matter. As quoted by the Court, ECB has competence to assess the matter and UniCredit is currently compliant with the ECB requests.'' BNPP Exane View: All in all, we find still quite uncertain the outcome after the Administrative Court ruling. We believe that the uncertainty regarding the transaction remains as we find that the most relevant discussion topic in...
UCG UCG BAMI
What happened? Unicredit converted c10% of its synthetic position in Commerzbank, taking physical share ownership and effective voting rights to c20%. The bank also intends to convert the remaining c9% (synthetic position) into physical shares in due course reaching around 29% of Commerzbank''s voting rights. With these steps, UniCredit becomes Commerzbank''s largest reference shareholder. BNPP Exane View: This move was largely expected. The impact of this optionality was clarified in a recent roadshow we did with the bank on February 2025 (link - UNICREDIT : Postcard from London). Unicredit''s management has been vocal regarding the conversion of the derivatives into physical shares once the FED approval was granted. We expect the bank to keep the hedging structure to reduce the potential price impact in case of divestment. Hence, our central case has been always to convert to physical shares which ultimately will reduce capital volatility and account as equity method the proportion of Commerzbank net profit. The management has flagged that Commerzbank contribution could be EUR150-200m in 25e while in 26e the number should be closer to EUR650-750m assuming the cost of hedging is constant. In terms of capital consumption, Unicredit flagged that if the bank decides to transform the derivatives position into physical shares, upon all-regulatory approvals, would be 30bp. As such, we estimate that the c10% exercised would consume circa 15bp of CET-1. Unicredit management has stated multiple times that the intention of the bank is to go ahead with a potential business combination with Commerzbank, but the negative political stance in Germany towards the deal alongside with the share price performance make it difficult to complete the transaction at this stage in our view. We think that meeting the 15% RoIC is difficult at this price level. We continue to believe that UCG investment case has material upside as the market does not reflect the optionality...
What happened? Bloomberg (link - click here) reports the EU may soon issue a formal finding to the Italian government saying it had no right to weigh in on UniCredit''s planned acquisition of Banco BPM. The EU is likely to state under the bloc''s merger rules only the EU authorities have the legal powers to impose conditions on the deal (which won EU approval last month). Press reports that the decision will request the Italian government to withdraw the terms it imposed on the completion of UniCredit''s takeover -known as the Golden Power- and failure to do so could lead to infringement proceedings being started against Italy for breaching EU law. We remind that the EU regulators approved UniCredit''s planned Banco BPM acquisition subject to the divestment of 209 UniCredit branches to address competition concerns. BNPP Exane View: UniCredit''s management has long stated that the conditions set by the Italian government in the Golden Power made the deal not viable and the bank requested a clarification for three conditions namely: (i) to the way in which the combined entity will run its future credit activities and liquidity, (ii) to the right to dispose shareholdings and appropriately manage Anima''s assets under management, and (iii) on UniCredit''s activities in Russia. -see press release for further details-. More recently, CEO Andrea Orcel, flagged that breaching these conditions would imply a fine of upto EUR20bn which made difficult to go ahead with the potential merger with Banco BPM. We think that the potential opening of infringement proceedings could allow the Italian government to modify the conditions set regarding the transaction which potentially could pave the way for the deal to happen. We think that the strategic rationale of the deal consolidating the positioning of the bank in Northern Italy allows Unicredit''s management to improve the conditions of the offer so that the transaction takes place - see our thoughts on the merger...
Unicredit is a top pick among European banks, with a bright outlook on profitability and ample room for growth. Its location puts it in a sweet spot to benefit from Germany''s massive EUR500bn infrastructure plan, which should boost lending and economic growth in the region. Since Andrea Orcel took the reins, the bank has seen a significant turnaround in profitability, thanks to smart capital allocation and an efficiency focus. With surplus capital on hand, Unicredit has exciting growth prospects ahead, beyond just acquisitions. We raise our target price to EUR73, reflecting that efficiency and faster loan growth, especially in Germany and Austria. If all that surplus capital was invested in organic growth, we see a path to a EUR85 blue-sky valuation. MEGA returns.
We hosted UniCredit CEO Andrea Orcel, CFO Stefano Porro and Head of IR Magda Palczynska for investor meetings in Paris earlier this week. Investors'' focus was mainly on the recent developments in inorganic growth, sustainability of profits and levers to defend profitability as well as capital distribution. We reiterate our OP on UCG which remains our preferred Italian bank. Alpha bank stake increased to 20% Yesterday, UniCredit announced it entered into financial instruments equalling a c.9.7% stake in Alpha Services (Alpha). This would add to the bank''s existing 9.6% stake after physical settlement. UniCredit will separately file for regulatory approvals to own 10% and up to 29.9% of Alpha as the Greek bank is expected to use buybacks as the primary tool for shareholder remuneration, which will take the c20% stake higher. The transaction is expected to add c.EUR180m of net profit to the bank which allows for a 16% RoIC and a reduction of c.40bp to the CET-1 ratio as the bank exceeds the 10% threshold. The deal is expected to close at the end of 2025. We would note that both Alpha Services management and the Greek government have welcomed UniCredit''s move. 2025-27 guidance on track NII should see a moderate decline in ''25 - a c7-8% drop - as the lower interest rates and the downsizing of Russia more than offset the growth from CEE. Fees and insurance should grow mid-single digits as the bank leverages the integration of the life JVs in Italy and the strategy to improve fees in corporate and payment solutions. Costs should be flat, accounting for the new perimeter, at cEUR9.6bn with further efforts to keep them under control into ''26-27. Overall, 1Q25 results provided a strong start to the year that allowed the bank to increase guidance to a net profit above cEUR9.3bn with possible upside. Going forward, UCG management maintained their initial ambitions to achieve EUR10bn of net profit in ''27. In our view, the key debate would be how much of the...
What happened? This morning, UniCredit announced it entered into financial instruments equalling a c.9.7% stake in Alpha Services (Alpha). This would add to the bank''s existing 9.6% stake after physical settlement. UniCredit will separately file for regulatory approvals to own 10% and up to 29.9% of Alpha. The transaction is expected to add c.EUR180m of net profit to the bank, for a cost of c.40bps, and is expected to close at the end of 2025. We remind UniCredit had 16.1% CET1 ratio at 1Q25 with still material excess capital over their target. The bank flagged a 16% ROIC on the transaction and that the price of this new 9.7% stake represents a discount to Alpha''s closing price. After physical settlement of this new stake, assuming regulatory approvals are granted, UniCredit would own close to 20% of Alpha''s capital allowing equity consolidation. BNPP Exane View: This is a step forward in UniCredit''s ambitions to grow in Greece and to deploy capital in accretive initiatives. The bank had flagged its interest in the country, that shows attractive features for banks: macro support, growth prospects and customer activity. UniCredit also flagged ''extremely positive'' engagement with Greece''s government and leading institutions, which seems to contrast with some political or regulatory hurdles the bank has faced in Germany and in Italy previously. We would flag UniCredit already has two board members in Alpha. They are supporting the management in taking initiatives that enhance Alpha''s profitability. Overall, we think that the move is sensible and allows UniCredit to increase its presence in a consolidated market with solid growth prospects such as Greece. We see this transaction as a good and accretive use of capital.
As expected, 1Q was better than expected As the last Italian bank to report this earnings season, UniCredit''s 1Q25 numbers largely followed its peers'' key trends: solid and in-line NII, 6% better fees than anticipated, strong trading profits, lower costs and resilient asset quality, with high capital generation. All this drove a 17% bottom-line beat, and all group items were satisfactory this quarter. We highlight the CET1 ratio, coming in at 16.1% - a large beat to consensus at 15.3%, driven by RWA efficiencies and a lower Basel IV impact than targeted. For a bank that is committed to deploying excess capital, this is positive. Guidance taken an inch higher, we still see upside UniCredit''s strong 1Q numbers led it to upgrade its FY25 guidance: net profit target now at EUR9.3bn (vs flat YoY), and the bank highlights there is potential upside. Revenues (net of CoR) are now expected at c.EUR23.5bn from EUR23bn, whilst the bank posted c.EUR6.5bn in 1Q25 alone. Finally, on the back of the capital beat, UniCredit''s excess capital now stands at EUR8.5-10bn (EUR7.5bn excl. volatile items). Overall, as we wait for the bank to assess whether a Banco BPM takeover still makes sense after considering the Italian government restrictions, UniCredit''s investment case remains one of very high structural profitability, protected by provisioning overlays, flat costs and a high level of excess capital committed to deployment. A European top pick - maintain O/P with EUR68 TP (from EUR65) We upgrade our EPS by low single digits on the back of stronger fees and trading plus slightly lower provisions, supported by the good performance of the loan book. We note that our new target price (EUR68) also reflects the strong capital build in the quarter, which further increases the excess capital that the bank could deploy to further improve EPS growth through inorganic growth or incremental shareholder returns. +5 topics to discuss with management included in the note
In a nutshell Unicredit has posted another quarter of strong results. Net profit came in at cEUR2.77bn exceeding consensus expectations at EUR2.36bn and BNPPEe at EUR2.33bn by 18% and 19% respectively. The strong results in the quarter were underpinned by an 8% beat in revenues supported by strong fees and trading while NII was in line. Costs were as well a beat at EUR2.32bn 1% better than consensus and our estimates. Below operating profit, provisions came in below our expectations with a CoR at 8bp and other charges were also lower, allowing for a 17% beat at PBT level. Tax rate was in line at 28.7% in the quarter, leading to the strong bottom line beat. On the balance sheet, capital was the nicest surprise. The CET-1 ratio came in at 16.1%, a very supportive beat to 15.3% at consensus and our estimates. The beat was driven by a lower Basel IV impact than expected (60bps hit vs 80bps guided) and a positive contribution from PD scenarios/other items of +67 bps. NPL ratio improved slightly in the quarter to 2.6% and coverage marginally lower at 81%. In terms of guidance: FY25 net profit guidance increased to EUR9.3bn (from broadly in line with FY24); RoTE 17%, with possible upside. Net revenues are expected at c.EUR23.5bn (vs. EUR6.47bn in 1Q25) vs. above EUR23bn before, thanks to stronger 1Q25 results. In terms of distributions, FY25 distributions are now expected to be above FY24 on stronger net profit. FY27 ambitions are confirmed: i) c.EUR10bn net profit; ii) RoTE above 17%; and iii) FY25-27 yearly distributions larger than in FY24. Overall, results are quite solid even removing lower quality items like trading the beat would have been quite solid (+6% assuming same tax rate). The strong fees and cost discipline should be seen more recurrent despite the macro uncertainty which should allow mid-single digit upgrades to consensus earnings and support the share price today. The solid capital beat should add to the strength of today''s PandL. We...
That is the question... and most major Italian banks have decided to buy. With valid strategic rationales, these deals potentially represent the next leg of our coverage''s investment cases. UniCredit (+) remains our preference in Italy, becoming a top pick, while sector consolidation also presents a unique opportunity for Intesa Sanpaolo (upgrade to Outperform from Neutral). Our take: mid-single-digit accretion and valid strategic rationales This report covers the three banking deals proposed by UniCredit, BPER and BMPS. We dissect synergy targets, overlaps within the c.107 Italian provinces, funding optimisation and revenue attrition and improvement. We see higher cost savings than the banks suggest while our revenue synergies are lower, still resulting in mid-single-digit accretive deals, but with some execution risk. What''s the play? UniCredit replaces CaixaBank in our Top Picks list, with an undervalued and highly profitable business model, the 2nd best yield in the sector and a potentially 6% EPS accretive deal to acquire BAMI (vs buyback alternative). BPER also remains undervalued and its acquisition of BPSO is the most straightforward in our view. BMPS''s potential deal with Mediobanca may be unconventional but the bank is cheap, with excess capital and DTA benefits. We stay Neutral on Banco BPM, even after reflecting different outcomes from the Anima deal in our new valuation methodology. And there is another play... With peers focused on integration, we see a unique opportunity for Intesa Sanpaolo to take market share and add incremental revenue growth to an already strong cost and capital distribution story. We are bullish on Italian banks We update estimates and valuation, embedding lower costs of equity. High capital ratios and RoTE resilience make Italian banks look undervalued and we prefer them in a pan-European context.
What happened? This morning, Andrea Orcel (CEO) presented at a financials conference in London (fireside chat was made publicly available). The messaging was largely upbeat, including resilience on profitability and improving the economic outlook especially in Germany, where Unicredit is well positioned to benefit from macro trends. On operating trends, UCG mentioned the support from generic overlays and the end of restructuring charges which should allow the bank to comfortably meet the cEUR10bn net profit target for ''27e. Regarding inorganic growth, Mr Orcel reiterated the 15% RoI target as well as the requirement to improve EPS beyond the effect of buybacks. Overall, a supportive message from Unicredit management. Key topics discussed Unicredit guidance reiterated. The bank has reiterated the net profit target provided for ''25e at cEUR9.3bn in line with ''24 and that trending to cEUR10bn in 2027e. Mr Orcel remains confident on the support from the cEUR1.3bn of restructuring charges as well as cEUR1.7bn of generic overlays taken over the past few years to allow the bank to meet their profitability targets. Operating profit in ''25 would be under pressure as the decline in rates will add pressure which would not be offset by fee income growth while for ''26 the outlook for operating profit is better as the incremental fee income growth and the first stabilization in NII should allow for operating profit growth in that year. Focus on SMEs and consumer lending. Unicredit does not see enough profitability in mortgages and therefore turning the focus on to consumer lending within the retail segment. Regarding SMEs, the bank is quite focused on growing their core franchise. On a geographical basis, the growth engine of the bank remains CEE. The message for Germany and Austria is now more constructive. MandA is an accelerator of the standalone thesis. Mr Orcel flagged that if they do follow an inorganic growth strategy it has to add strategic value by...
We hosted UniCredit CEO Andrea Orcel, CFO Stefano Porro and Head of IR Magda Palczynska for investor meetings in London last week. Investors'' focus was mainly on the recent developments in inorganic growth, sustainability of profits and levers to defend profitability as well as capital distribution. We reiterate our OP on UCG which remains our Italian top pick, as flagged in our note SOUTHERN EUROPEAN BANKS: A sea of opportunities: Mediterranean banking in 2025. Guidance for 2025-27 remains supportive NII is expected to see a moderate decline in ''25 - a c6% drop - as the lower interest rates and the downsizing of Russia will more than offset the growth from CEE. Fees and insurance should grow mid-single digit as the bank leverages the integration of the life JVs in Italy and the strategy to improve fees in corporate and payment solutions. Costs should be flat, accounting for the new perimeter, at cEUR9.6bn with further efforts to keep them under control into ''26-27. With a cost of risk that should be at 15bp in ''25 after using some of the EUR1.7bn overlays that the bank has, the bank targets a broadly in-line net profit in ''25. Going forward, UCG management aims to achieve EUR10bn of net profit in ''27. In our view, the key debate would be how much of the existing buffers that the bank has from overlays and restructuring charges would be used by then - which, given the prudent nature of the guidance from this management team, should still provide some upside. Inorganic growth only if it enhances the standalone case During the meetings, management reiterated the priority is to execute the standalone plan and MandA activity should only be done if it enhances the standalone case. The bank provided a comprehensive message on what to expect from the CBK investment and reiterated the message that the c5.1% stake in Generali is just a financial investment. It also reiterated that the bid for Banco BPM has a strong strategic fit in Italy with 12m customers...
And they beat again UniCredit ended the year strong, with NII and fees growing QoQ and YoY, at the expense of trading income. Below the line, UniCredit provisioned enough to reach its cost of risk guidance for the year, had restructuring charges (expected) to keep costs flat in the plan''s outer years and used a positive EUR405m DTA that brought net income to a 20% beat. Balance sheet trends were better this quarter although still too focused on short-term profitability in our view. Loans were flat QoQ because of Italy''s low economic growth, some declines in Austria and significant downsizing in Russia, but deposits were a bright spot in most geographies. NPL ratio declined to 2.6% and UniCredit still sits on EUR1.7bn of overlays, underpinning its 15bps 2025 cost of risk guidance. On capital, distributions, regulatory items and various investments drove the CET1 ratio down to 15.9%, still with material excess (c.EUR6.5bn) over the 12.5-13% target. Exciting guidance, but what will UCG look like by then? In terms of guidance, the bank provided both 2025 numbers and 2027 ambitions, offering some upside to consensus. Net revenues are targeted at EUR23bn in 2025 with NII declining mid-single digit and fees and insurance growing mid-single digit, with costs slightly down and a 15bps CoR. Overall, 2025 net profit should be in line with 2024 levels while the bank has an ambition to reach EUR10bn in 2027. Unicredit aims to deploy all excess capital by 2027 and distribute more in 2025-27 than the c.EUR9bn of 2024. On Commerzbank, any decision would be made by 4Q25/1Q26 after discussing with the new German government. Still cheap, generous and profitable w/ upside scenarios. O/P with EUR57 TP (from EUR54) We integrate UniCredit''s new guidance and upgrade our EPS by c.8%. We believe the bank''s levers, high RoTE, high yield and the upside scenarios from potential deals are still very attractive. +5 topics to discuss with management included in the note.
What happened? Yesterday, Unicredit CEO hosted a sell-side meeting in London. Key focus on the meeting was on underlying business dynamics, the outcome of the potential bid for Banco BPM, the stake in Commerzbank and the dividend policy. BNPP Exane View: Overall, we remain bullish on Unicredit as we believe that the profitability of the bank is quite resilient thanks to the geographical diversification of the bank while the excess capital should continue giving optionality to the bank. While valuation remains attractive trading at c6.5xP/E25-26e. The key highlights from the meeting include: NII outlook for 25 challenged by rates but constructive. Unicredit expects some pressure for NII at group level in 2025. As regards to the Italian NII, it should be under pressure as the effect from lower rates (c130bp lower average Euribor) is unlikely to be offset by better volume growth. The performance of the Austrian and German NII is likely to be neutral as the strong deposit pass through in these markets should be supportive as rates go down. Finally the performance of CEE should be quite supportive. Russia should be the biggest headwind to NII in 25 as the bank continues downsizing the loan book and reducing the activity in payments should impact in deposits, which ultimately should impact the NII. Unicredit management is more optimistic regarding 2026, when they see an acceleration in loan growth. Banco BPM an opportunity. The offer for Banco BPM allows Unicredit to improve the geographical footprint in terms of access to the Lombardi region and improving the mix towards SME business. Unicredit does not see any major problem in terms of competition given that the market share is c15% on average. Banco BPM offer can be improved until the AGM in April. While Unicredit management thinks that the current offer is attractive to Banco BPM''s shareholders, they have some flexibility to improve the terms before the AGM. We believe that under the current...
What happened? Today, Banco BPM''s board met and discussed the tender offer from UniCredit (BANCO BPM, UNICREDIT : Unicredit makes an offer for Banco BPM), rejecting it on a preliminary basis. This was entirely expected given Banco BPM''s ambition to remain independent and given the offer price was already projecting BAMI at a 7-8% discount to today''s valuation. Among reasons put forward by the bank to justify the refusal: . The price does not reflect the value creation BAMI can offer to its shareholder on a standalone basis. BAMI remains focused on its 2023-26 plan and corporate transactions (Anima, BMPS stake). . The cost synergies (EUR900m), totalling a third of BAMI costs base could have negative social impacts. . Merging with UniCredit would threaten the overall competition within the Italian banking space, specifically in the SMEs segment where BAMI has most of its exposures. . BAMI prefers to keep its stakeholders away from the still uncertain UniCredit-Commerzbank tie-up and its outcomes. In our view, the main reason remains the price. Given the offer was already underwater yesterday, it was very much expected that Banco BPM would reject the approach today. BNPP Exane View: We remain surprised by UniCredit''s approach to BAMI. While the deal makes strategic sense and was rumoured for a while, both the price and the timing of the offer have brought uncertainty around UniCredit''s strategy. This has been reflected in the bank''s share price since yesterday. Our current considerations: . BAMI''s refusal, while totally expected, does not mean that negotiations between the two banks will stop now. It is unlikely in our view that UniCredit drops the case so soon. The bank has material excess capital, which could be used as a sweetener in this originally all-shares deal. If UniCredit wants to pursue the deal, we think it has the tools for it. However, we still think BAMI''s ambition is to remain standalone. . It is also unlikely in our view that...
What happened? Unicredit is making a voluntary public exchange offer for Banco BPM for a total consideration of c.EUR10.1bn in shares implying a 0.5% premium on last''s Friday close and c15% premium over 6th November prices prior to Anima deal. Unicredit will offer 0.175 UCG shares for every Banco BPM. The offer aims to strengthen the position as #2 bank in Italy with a decent complementarity which should allow for cEUR900m of cost savings - representing c14% of the combined Italian group-. The bank will book cEUR2bn of restructuring charges to complete the synergies and cEUR800m of provisions to accelerate the NPE clean-up. The bank also foresees EUR300m revenue synergies. The bank estimates that FV adjustments from the transaction as of today stands at cEUR1.5-2bn, which are likely to decline in a lower interest rates environment. Overall, Unicredit expects high single digit accretion when adding both revenue and cost synergies. Unicredit also acknowledges the offer for Banco BPM on Anima. CET-1 ratio impact is 70bp after incorporating, cEUR2bn of restructuring charges, cEUR1.5-2bn fair value adjustments as well as cEUR2.6bn badwill. CET-1 ratio pro-forma would be 15.3%, we would note on a temporary basis and before the Danish Compromise is fully granted the impact of the transaction would be 140bp. Unicredit maintain the distributions targets for 24 unaltered and the remaining buyback would be completed after regulatory approvals expected for June-25. Unicredit expects to maintain the ambitions to deliver annual distributions in 25-26 higher than in 24. The voluntary public exchange offer is autonomous and independent from the investment made by UCG in Commerzbank which for now is just an investment and therefore that is why Unicredit has downside protection. BNPP Exane View: Overall, we are surprised by UCG move on Banco BPM. We favour the standalone business case of UCG or a potential tie-up with Commerzbank. Based on our preliminary...
Deal, no deal? Anyway, UniCredit delivers Despite moving on Commerzbank, internalising its Insurance JV and being in the spotlight for the whole third quarter, UniCredit posted strong results, beat expectations and raised guidance. NII was flat driven by resilience in key geographies while fees grew 10% YoY on a persistently buoyant trend. Costs were entirely flat QoQ and even down YoY, evidence of the bank''s containment efforts. With low provisions driven by some releases, net income was a 10% beat. Volumes were again weak, although perhaps more stable than expected in an arguably difficult quarter. We think CET1 ratio at 16.1% was a key strength, only down 8 bps QoQ despite strategic investments. UniCredit managed RWAs notably through securitisations, displaying once again the bank''s sensible use of available tools to continue to outperform. Higher guidance and protected distributions. The rest is for later As part of today''s results, UniCredit increased its 2024 revenues guidance to EUR24bn (from EUR23.5bn) and net profit to EUR9bn post any action. Management also flagged a resilient NII outlook despite lower rates expectations - namely a small decline despite an average Euribor 3M of c.2.25% next year. Fees growth was placed as a solid offset to keep revenues stable, while costs and provisions will remain contained. Regarding distributions, UniCredit advocated they would be protected in case of an acquisition - post any stabilization period (c.1 year). On the use of the 21% stake in Commerzbank, UniCredit will likely take a decision within a year - a longer horizon than widely envisioned previously, highlighting the bank''s confidence in the attractiveness of a tie-up with the German bank for all stakeholders. Upside in most scenarios, maintain O/P and Top pick with new EUR57 TP (from EUR54) The stronger capital generation in the quarter and the better capital dynamics expected alongside the fine tuning of estimates lead to our new target price at...
We have adjusted our estimates ahead of 3Q24 results which are due on 6th November before the open. We do not consider the changes to be material; our rating is unchanged.
Beat, raise and distribute... ''For a change'', UniCredit posted strong results across the board with net income 14% ahead expectations. NII was stable, fees were up 11% YoY, costs down 2% YoY. More impressive were provisions, a EUR15m charge or a 1bp cost of risk, much lower than consensus. CET1 ratio was flat at 16.2%, after accruing distributions (o/w interim EUR1.4bn dividends and EUR1.7bn is share buy-back). By units, Italy was in line, while Eastern Europe and Germany were solid. Russia net income came in better than expectations despite provisioning for the trade-finance case. Propelling profitability UniCredit upgraded selected items of its 2024 guidance and still sees upside risk to its targets. Revenues are expected higher than EUR23bn (c.EUR22.5bn previous guidance), with more than 350bps of organic capital generation in 2024, following 1H24 run rate. While these are the only upgraded items in the guidance, messaging was particularly bullish on NII, where the bank sees upside given the wide room for deposit repricing in Germany/Central Europe, but also on cost of risk where the 20bps guidance should be comfortably beaten. Because net income guidance did not change despite higher revenues, and other things being left equal, we believe UniCredit could use its ''outperformance cushion'' to book restructuring charges that will allow costs to be broadly stable over the next three years. The bank was assertive on the guidance''s large upside risk and stated that any new initiative (organic or not, if any) would be widely profitable and not threaten FY targets. We like the winning recipe - Outperform maintained with EUR54TP - European Top Pick Following 2Q24 results, we are adjusting our earnings to reflect the solid trends delivered by the bank in the quarter across most geographies. We upgrade 2024 EPS by 4% and leave our estimates in the outer years basically unchanged after further adjusting the share-count for the buybacks. Hence, our new target...
Here we go again... UniCredit has posted another strong set of results, beating consensus expectations on NII (2% beat, flat QoQ) and fees (9% beat, +17% QoQ). The bottom line came in 20% ahead of estimates at EUR2.56bn. Consensus beats are mostly high-quality, with AM fees driving total fee income growth, while loan loss provisions were contained thanks to recoveries in Austria and Eastern Europe. The NII beat was helped by a good performance in Russia, where the bank is reducing its exposures. Balance sheet was stable, with Italian deposits down 1% QoQ impacted by BTP Valore issuance - this was offset by 2% growth QoQ in CE and EE. Moreover, UniCredit built c.35bps of capital despite booking FY23 distributions, ending with a buoyant 16.2% CET1 ratio. With an even brighter outlook These strong results left room for the bank to increase guidance on some lines. Net income is now guided to exceed EUR8.5bn, which implies low/mid-single digit consensus upgrades. Regulatory charges are targeted at c.EUR400m, which is somewhat lower vs FY23 guidance. Importantly, we have more visibility on distributions, with FY24 guided to be in line with FY23 level (EUR8.6bn). Also, FY25-26 distributions are guided to be higher than FY24, excluding any inorganic transactions and with the intent to deploy capital no later than 2027. We believe this provides clarity on how capital will be utilised, with a 90% payout and additional returns combined with high-yielding inorganic initiatives. A European top pick that delivers. We keep our OP rating with a EUR52 TP (from EUR47) We have slightly upgraded our net profit estimates to incorporate better revenues and lower costs in 2024-26e. We have also adjusted our extraordinary buybacks from 24-25 to 25-26 and adjust the number of shares bought to our new TP. Overall we raise our TP to EUR52 (from EUR47). +5 topics to discuss with management
1Q24 Italian banks results season will kick off with Intesa Sanpaolo on May 3rd and finish with BPER on May 8th. We do not expect many shocks from the upcoming sets of results and believe that most key trends are well understood by the market. We reiterate our preference for UniCredit (+), one of our European top picks, BMPS (+) an impressive cleanup story, BPER (+) a value case with solid fundamentals, while remaining cautious on BAMI (-) and Neutral on Intesa Sanpaolo (=). You don''t change a winning team... 2023 was a great year for Italian banks. Good news: not much has changed since the end of the year as we (already!) reach the end of the first quarter of 2024. The main drivers? Still supportive rates, limited loan growth, a BTP ''Valore'' issuance improving fees at the expense of NII, and the last DGS charge which will be booked in 1Q. The takeaways? Italian banks should perform well with solid profitability and capital build-up. We remain convinced that Italian banks will prove quarter after quarter that 2023 was far from a one-hit wonder, but represented structural change. UniCredit, BMPS and BPER still our preferred theses While 1Q performance should be strong at all banks, we maintain our preference for UniCredit, BMPS and BPER. UniCredit has a 90% payout ratio with over EUR6bn of excess capital. Better profitability than anticipated could lead to even greater distributions. BMPS should provide further colour regarding a long-term plan after the 12.5% Italian government divestment in March. BPER''s fundamentals should remain resilient, and after last week''s changes in the board, we think that additional clarity on the long-term strategic vision should be closer. We expect a new strategic plan by the end of this year - including potentially higher capital distributions. Differentiation matters: We''re Neutral on Intesa Sanpaolo, still a bit more cautious on BAMI Both should also perform well this quarter and do have strengths, but we find more...
Over the past month we have met with almost 100 investors, discussing our positive stance on Italian banks after our re-initiation of coverage last month: ITALIAN BANKS: When in Rome. Key debates have been around capital distribution and use of excess capital, and the sustainability of profits. We maintain our preference for UniCredit as our sector top pick and reiterate our positive stance on BMPS and BPER. Italian banks'' profits are more sustainable despite lower rates One of the key debates we had about the sector was about profitability going forward. Our estimates assume rates at 2.5% from June-25 onwards, which should add some modest pressure to NII which is largely offset by fees. Overall, we think Italian banks'' earnings are likely to be quite resilient, led by ISP which should grow PBT in 2026e vs 2023. We see a marginal decline for UCG, BAMI and BPER while we have more conservative estimates for BMPS. Excess capital distribution and MandA Italian banks are among the European banks with the strongest capital position after the build-up of the past few years. The excess capital that most of the banks hold triggers questions about MandA and potential extraordinary distributions. We expect UCG to be disciplined; our preferred option remains bolt-on acquisitions and excess capital distribution. On MandA, we find BMPS management more receptive than BAMI or BPER. We see distributions as core to the UCG investment case and we find meaningful scope to surprise at BPER and BMPS. UCG vs ISP - We prefer UCG A big debate during the marketing has been the strong relative preference in Continental Europe for ISP over UCG, underpinned by the more diversified business model and lower dependence on NII. We think that UCG offers enough levers in the PandL to further reduce the profitability gap with ISP, and still has a material amount of excess capital available for distribution.
We hosted UniCredit CFO Stefano Porro and Head of IR Magda Palczynska for investor meetings in Paris earlier in the week. Investors'' focus was mainly on the sustainability of profitability in the context of lower interest rates, capital distribution from organic generation and the use of excess capital. We believe management commentary supported our OP for UCG, which remains one of our top picks in European banks, as we flagged in our recent relaunch: ITALIAN BANKS: When in Rome. Sustained profitability for the foreseeable future NII is expected to trend lower in 2024, largely due to the headwinds from Russia and the impact of higher deposit pass-through, but this should be partially offset by a higher contribution from the replicating portfolio (cEUR400m). Fees should trend higher in 2024, supported by non-life business and a better contribution from AM business, for which we forecast modest growth in 2024. Costs are expected to remain stable as the bank implements cost cutting measures after the cEUR1.1bn restructuring charges taken in 2024. Cost of risk should remain resilient, supported by a very conservative origination in the past few years and the bank''s cEUR1.8bn in generic overlays. Overall, we think that profitability is likely to remain above c15% over the next three years. Distribution capacity remains strong; we favour extraordinary distributions over MandA Solid profitability should allow the bank to distribute at least 90% of its profits before AT-1 and cashes in 2024. A key debate was on the usage of the current excess capital, as headwinds from organic growth or regulatory headwinds are limited. The bank expects Basel 4 to hit c80-90bp, which should leave UCG at or above 15% CET-1 on pro-forma Basel 4 ratio. MandA came to the forefront of the debate, and the bank has not changed its financial targets associated with MandA - namely EPS, DPS growth, RoTE improvement - and strategic considerations linked to key markets in which it operates....
Since Mr Andrea Orcel took over as CEO of UniCredit, the share price of the bank has gone up by 260%, and that could make people tempted to see this call as late to the party. But we strongly believe there is material upside from here for investors (over 50%). Outperform and TP EUR47 Unicredit rejoins our banks top picks list as part of our Italian banks relaunch. Profitability still resilient, supported by overlays, fees and costs Even considering the headwinds in NII from lower rates, we think that UniCredit still has material levers in the PandL that should allow the bank''s RoTE to remain comfortably above 15% over the next three years. The biggest levers we see for the bank include: i) EUR1.8bn of generic overlays which are slightly over 3 years of underlying provisions; ii) an aim to have a flat cost base thanks to the restructuring charges taken in 2023 and those we expect for 2024; and iii) fee income growth which should be back-end loaded on our estimates. Distributions will continue for the foreseeable future UniCredit has committed to distribute 90% of net profit before AT-1 and cashes coupons as ordinary distributions. We expect this trend to continue over the next three years, leading to an ''ordinary distribution'' of EUR25bn. On top of this, we expect the bank to distribute cEUR6bn of the current existing excess capital. Hence, we think that UCG can distribute over 60% of the existing market cap over the next three years. Not only distributions, but also EPS growth In a world where we debate the sustainability of earnings for European banks in a lower rates environment, we think UCG''s return strategy is supportive not only for the share price during execution, but also in terms of EPS and DPS growth.
A fresh - but experienced - pair of eyes brings Italian banks back into our coverage after enjoying la dolce vita in 2023. Five Italian banks enter our Colosseum to see whose NII, margins, fee growth and credit quality triumph. UniCredit makes a top picks list comeback, and we find striking upside in BPER and BMPS (60%+). We see less upside in Intesa Sanpaolo despite its solid business model and initiate at Neutral. On a relative basis, we find Banco BPM''s attractions insufficient and initiate Underperform. We also serve up our fresh convictions on NII sustainability (solid), capital returns (very large) and the Italian savings cycle (profitable) - now that''s amore.
The group posted another impressive set of results driven by the impact of the streamlining performed by the new management boosted by interest rate tailwinds. The management’s cautious stance on 2024 relates to the 2023 high basis of comparison, not to deteriorated perspectives.
A levy on balance sheet size The original version of the Italian windfall tax which on our calculations would have raised c.EUR7bn for the Italian treasury has been superseded by recent announcement. A cap of 0.1% of the (Italian perimeter''s) balance sheet was announced last night which on our calculations will be the binding parameter for all banks. The new version of the tax will in on our estimates raise c.EUR3bn of which EUR1.6bn from the 5 banks under our coverage. The levy is equivalent to 1%-4% of (undisturbed) market cap, and will reduce banks'' CT1 ratio by 0.1% (Unicredit) to 0.7% (Fineco) and the 2023e EPS by 5% (Unicredit) to 17% (BAMI). You can find our estimates for all banks as well as a comparison with the original version of the levy in the body of the note. A draft version of proposal is not yet available. Furthermore, parliament could make additional changes to it during the approval process in September/early October. The impact is now very manageable and should not have major implications for dividends The new levy will slightly reduce banks'' excess capital which will nonetheless remain substantial. Therefore, we do not believe banks'' will materially alter their dividend policies nor their commercial practices with regards to deposit pricing. At the margin, there''s a possibility of a delay/reduction in the distribution of a portion of excess capital that we had included in our estimates for ISP (EUR750m per year through special dividends) and for BAMI (EUR400m buy-back in 2024 and 2025). The distribution of at least EUR6.5bn for Unicredit in 2023 is in our view not at risk. The levy is in the price. Unicredit is still the stock to go for Italian banks'' share prices have declined by 6% (Unicredit) to 11% yesterday (BPER). In light of the new developments, we believe this is overdone and we expect a rebound. Although we can''t rule it out, an extension of the levy beyond 2023 is in our view not the most likely...
UCG UCG ISP ISP BPE BPE CE CE FBK FBK BAMI
Net income guidance will be raised again Unicredit''s net income guidance for 2023 was set at cEUR5,25bn in January, increased to EUR6.5bn in May and to EUR7.25bn in July (+38%). We now estimate EUR7.9bn net income 2023 and c.EUR7.6bn in 2024/25. Although NII might have peaked in Q2, we expect a gentle decline from here with higher contribution from the roll-over of the replicating portfolio and some volume growth mitigating the headwinds from deposit repricing and, eventually, ECB rate cuts. With management overlays equal to c.40bps of loans, we are confident that cost of risk will remain at around c.30bps despite the likely increase in NPL inflows in the coming years. With even larger capital distributions Distribution guidance for 2023 was set at EUR5,25bn in January, increased to EUR5,75bn in May and to EUR6.5bn in July. We now model EUR7bn throughout the forecast period with an increase in the cash component of 5ppt per year (to 50% in 2025e). These are equal to over 50% of current market cap. In addition, we still forecast EUR6.6bn of capital above management''s 13% CT1 ratio target in 2025 (pro-forma for B4). This is available to absorb losses associated with a possible deconsolidation of Russia (EUR1.2bn capital equivalent), for bolt-on MandA, and/or to enhance distributions even further. On the way to 1.0x TBV Unrivalled capital return, a 12.8% average ROTE in 2023-25 (14.5% stripping out capital in excess of a CET1 ratio of 13%) and conservative provisioning policies in our view underpin a P/TBV multiple above 1.0x (vs 0.7x currently). Unicredit remains one of our top picks among European banks.
The group posted a strong set of quarterly results, 30% above consensus expectations, driven by stronger net interest income and lower loan impairments. This led the management to upgrade its full-year guidance further, which will make 2024 even more challenging.
This is the captain speaking. With tailwinds still on our side we continue to make good progress on our journey. The weather at your destination looks good. I''ll talk to you again before we land. Keep your seatbelt fastened as we approach peak NII On our estimates, most Italian banks will reach peak NII in Q2/Q3 2023. We see positive y/y progression in 2024 for some (ISP, BAMI) and only minor declines for others. Our NII estimates remain above consensus throughout the forecast period across the board. We expect management guidance to be upgraded, with Q2 results leading to positive revisions by consensus. We will be cruising at high altitude for many years Despite taking a more conservative stance on the evolution of funding costs (we model a decline in sight deposits to the 2018/19 level), we yet again increase our adj. EPS estimates. We remain above consensus for all stocks, most notably for BPER (+35/23% above in 2024/25e). We estimate broadly stable earnings beyond 2023 for most banks. Falling NII, higher costs and (in most cases) higher LLP are offset by higher fee income and by lower systemic charges. Abundant dividends and buy-backs will be served for the duration of the flight Healthy capital ratios and high profitability should allow for elevated distributions. Ordinary dividends could be complemented by the distribution of a portion of excess capital via special dividends or buybacks (BAMI?). We see Unicredit returning c.45% of its market cap to shareholders over the next three years (EUR17.4bn) with plenty of excess capital still available in 2025 (EUR5.1bn). Big discounts over recommended prices are still available Despite most stocks outperforming the sector in both 2022 and 2023 YTD, P/E multiples are languishing at large discounts vs historical averages. We are confident that valuation multiples will eventually expand as investors should, sooner or later, realise that the 2023e profitability levels are broadly sustainable for...
UCG UCG ISP ISP BPE BPE CE CE BAMI
Unrivalled capital return, very strong earnings momentum, conservative provisioning policy and material excess capital. At 0.6x, TBV upside is still very significant. Top pick status reiterated. Unicredit raised the bar... The guidance on net income and distributions was materially increased following an outstanding set of results (NII +10% q/q net of a positive one-off booked in Q4; costs -0.6% y/y, 8bps cost of risk, 111bps capital generation with a FL CT1 ratio of c.16.1%). Management now targets Net profit EUR6.5bn (pre-coupons on AT1/CASHES for c.EUR400m, but including a c.EUR300m restructuring charge) with distributions EUR5.750m in 2023 and broadly stable thereafter. ...and we raise it further We increase our adj. EPS estimates for 2023-25e by an average of 17%, primarily on higher revenues and lower LLP. We now estimate a (stated) net income of c.EUR7,150m in 2023/24/25e, c.10% above guidance. Our NII estimate of EUR13bn in 2023 is EUR400m above guidance, whilst we are broadly in line elsewhere (small decline in fees, costs EUR9.6bn, cost of risk 30/35bps). We deem the assumption of an increase in the deposit beta from 22% currently (of which 10% in Italy) to 40% in Q4 23 and to 45% in Q4 24 too conservative. We expect only a fractional decline in NII in 2024/25e with higher contribution from the replicating portfolio, higher volumes and gradual repricing of fixed rate loans offsetting most of the headwind stemming from a reduction of the average Euribor rate from 3.25% in 2023 to 2.5% in 2025. We estimate an average ROTE of 11.8% in 2023-25 and 14.7% if excess capital is stripped out. The avalanche of money and excess capital continue to grow We assume annual distributions of EUR5,750m in 2023-25e (16% of market cap each year). We also forecast EUR6.5bn of capital above management''s 13% CT1 ratio target in 2025 (pro-forma for B4). This is available to absorb losses associated with a possible deconsolidation of Russia (EUR1.1-1.2bn...
Interest rate tailwinds and unjustified Covid-related provisions are now expected to propel the RoTE to an unexpected 15% or above. As of next year, maintaining this level without these tailwinds will be stretch but the management is ready to rise to the challenge.
Unicredit has been one of our top picks in European banks since June 22 (No Half Measures) - every so often referred to as a doubler (A high conviction ''doubler'' and Still a high conviction ''doubler''). Unicredit''s share price is indeed on the way to doubling, but our conviction level on the stock is stronger than ever. The rerating potential from current levels is still very significant. With 40% upside to our new target price of EUR 26 (from EUR 22.7), we reiterate our Outperform rating. The avalanche of money is even bigger (60% of market cap to shareholders by 2025) Unicredit''s business plan targeted the distribution of EUR16bn to shareholders over 2021-24. On our estimates the bank will end up distributing EUR19.5bn over the period and a further EUR5,250m in 2025. Additionally, EUR3bn of excess capital above management''s 13% CT1 ratio target (pro-forma for B4) is available to absorb losses associated with a possible deconsolidation of Russia (EUR1.8bn capital equivalent), for bolt-on MandA, and/or to enhance distributions even further. After 100% in 2022, we model an average pay-out of 95% (dividends+buybacks) in 2023-25e. Comfortably a double-digit ROTE bank in a ''normal'' rates environment We increase our 2023-25e EPS estimates by an average of 15%. Our 2023e net income estimate of EUR5,370m is consistent with management guidance, pointing to a net income in-line with 2022 (EUR5,227m net of DTA write-ups and coupons on AT1/Cashes). We estimate a 10% average ROTE over the forecast period or 11% under the company''s definition (13% if excess capital is stripped out). Our 2023/24e net income estimates are c.10% above consensus, primarily on higher NII. It''s far too early to take profit, buy more instead Unicredit''s distribution potential is unrivalled, earnings momentum is strong, asset quality is good (2.7% gross NPE ratio) and provisioning policies are conservative (48% NPE coverage; bad loans are only 20% of NPEs; overlays on performing...
Like its peers, UCG has opportunistically taken profit from the unexpected sharp interest rate hikes to pass the cost of the heightened regulatory burden on to its customers. The guidance of stable underlying profitability points to a rapid closing of this opportunity window for the group. As a result, the group intends to carry on its repositioning efforts to improve its structural profitability further. The future usage of the group’s €9bn excess capital remains a key variable for the group’s valuation.
The ''rates trade'' has further to go. As risks subside valuation multiples should expand Italian banks are often labelled as ''low quality'' by investors. Since in a ''normal'' interest rate environment profitability and distributions will settle at visibly higher levels, this attitude is likely to change. We increase our 2023/24 EPS by a further c.5% primarily on higher NII and remain above consensus for all stocks. We calculate theoretical deposit betas of c.35% for SMC banks and of c.40-45% for ISP and UCG. Yet the November print stood at just 7% (vs 15% for the Eurozone). We demonstrate how the elevated cost of risk seen in the past was to a large extent driven by losses on NPE sales and by increases in coverage levels. As banks'' derisking is now complete these should no longer occur. Additionally, a sizable amount of SME loans are state guaranteed (most relevant for BAMI) and the reversal of overlays will smooth future provisions (most relevant for UCG). Unicredit is still the most attractive capital return story among European banks In line with its business plan target, we expect Unicredit to distribute c.45% of its market cap to shareholders by 2024 with a further c.15% in 2025. After writing off its Russian subsidiary (-60bps) and absorbing the full impact of B4 (-70bps) we estimate a FL CT1 ratio of 13.1% in 2025. We retain an OP rating on ISP as well but prefer UCG, which is also one of our European top picks. BPER has the highest upside in the sector (83%) Our 2023/24 EPS estimates are 34% and 19% above consensus, asset quality is now among the best-in-class (gross NPE ratio of 2.8% in 2022e), capital is plentiful (FL CT1 ratio 14% from 2023) and prospective profitability is decent (average ROTE in 2023-25e of c.9%). Yet BPER trades on a 2023/24e P/E of c.4x. Visibility on PandL/capital trends should improve as the year progresses and a notable rerating will in our view follow. We retain an OP rating also on BAMI but with lower...
Unrivalled distribution potential We are confident that UCG will deliver on target distributions for 2022 ( EUR3,750m) as well as over the plan horizon. 2022-24e distributions (EUR12,250) are nearly 50% of the market cap. Despite writing off the local Russian subsidiary in Q4 22 and topping up coverage on cross-border exposures from 21% to 25% for modelling purposes (-70bps), we estimate a 2022e FL CT1 ratio of 14.1% (net of buy-backs), consistent with guidance of 14.8%. Our 2024e FL CT1 ratio stands at 13.8% with c.EUR2.5bn of excess capital above the upper-end of the 12.5-13% target. Net income targets for 2022 and 2024 can be beaten Unicredit targets a net income of EUR4.3bn in 2024 (ex-Russia and net of coupon on AT1/cashes). At c.EUR4.9bn we are c.15% above despite embedding a higher cost of risk (39bps vs a 30-35bps guidance). Our cost of risk estimates assume an increase of NPE inflows in 2023-24 of 50% vs the 2021 level, with the impact mitigated by the reversal of the management overlays on stage 1/2 loans (c.EUR1.3bn, c.30bps of loans). Management guides for a net income EUR4.8bn in 2022 ex-Russia and net of coupons on AT1/cashes. On a like-for-like basis we estimate EUR5.3bn. NII guidance for 2023 is far too low in our view Unicredit guides for EUR10.1bn of NII in 2023 (ex-Russia) with a 1.5% terminal ECB rate. On our calculations the guidance of EUR9.7bn of NII in 2022 implies a Q422 annualised NII of c.EUR10.5bn. We estimate a 2023e NII of EUR10.9bn with a 2% ECB terminal and zero contribution from the TLTRO (100bps rate hike = EUR500m of NII). Still a sector top pick Unicredit trades on a 2023-24e P/E of just 5.2x and 4.4x respectively. We reiterate our Outperform rating and increase our TP from EUR20.8 to EUR23 (higher solvency and a roll-forward of our valuation model by 6 months). Our adj. EPS estimates for 2023-24e are broadly unchanged.
Management’s upgraded guidance for 2022 does not come as a surprise as operating conditions have remained particularly supportive for banks. However, the signs of a new euro crisis are accumulating with potentially devastating consequences for Italy, whereas the ECB and Germany are in a weaker position to come to the rescue this time.
