Banks, unions alarm: "Too many cuts, stop the sale of Utp"

"The six-monthly data of the top five Italian banks ((Intesa Sanpaolo, Unicredit, Banco Bpm, Mps and Ubi) show that the race to get rid of UTPs (unlikely to pay) is an adventure of no return". This was stated by the secretary general of First Cisl Riccardo Colombani illustrating the results of a study conducted on the financial statements of the major Italian credit institutions. 

The distribution network of the banks examined is collapsing: in one year, from 30 June 2018 to 30 June 2019, 9.849 jobs were lost (-3,8%) and 1306 branches (-3,8%). The strong increase in the banking product per employee (426.000 euros, +3,2%) attests to the extremely high labor productivity but also highlights that we are close to the point of no return: the big names in the sector risk losing their territorial roots. A very serious damage to the country, which in this way is deprived of assistance to families and small and medium-sized enterprises which are the driving force of its economy.  

The striking increase in the aggregate net result (a good 1,16 billion euro, +22,4%) is due to extraordinary corporate transactions which resulted in substantial capital gains but eliminated recurring revenue sources. With the very low level of interest rates and the very high flow of commissions on services, it is essential to guarantee income balance through profitable management of the credit portfolio. It is absurd, therefore, to lose money with crazy sales of UTPs (probable defaults). Castagna, CEO of Banco Bpm, is right when he claims that "the best strategy is to treat them internally, at an organic level".  

“If the banks' strategy is finally reversed – says Colombani – we will be able to record a widespread return to performing status of probable defaults at a systemic level, with immediate and significant positive effects on the income statements. At the same time, the productive fabric of our country will be safeguarded: in short, a win-win situation of exceptional importance". On the other hand, adds the leader of the CISL banks, "the improvement of the NPL ratio (net) - from 5,3% in June 2018 to 4,2% in June 2019 - and the very low incidence of new flows of non-performing loans as at 30 June 2019 (impairment rate: Banco Bpm 0,9%, Intesa Sanpaolo 1%, Ubi 1%, Unicredit 1,2%, Mps 1,3%), however a clear improvement compared to those relating to the same date of the previous year, show growing economic prospects for banks. All the more reason – concludes Colombani – the frenzy of the sale of UTPs at any cost must be stopped”. 

Big 5 (Intesa Sanpaolo, UniCredit, Banco Bpm, Mps and Ubi) 

Data comparison aggregates I semester 2019 – I semester 2018 

Reclassifications Research Office First Cisl 

Credit deterioration rates (annualized flow of new non-performing loans compared to performing loans) 

Footnotes on the methods of processing and estimation 

The data used, relating to the first half of 2019 compared to the first half of 2018, refer to what was published in the press releases and from the forms for the presentation of the half-year results available on the websites of these banking groups. 

• The primary margin shown by us in the tables includes interest margin and net commissions, ie the set of various revenues associated with the provision of services to customers and therefore these are processes where the involvement of personnel is maximum. 
• Other revenues: includes other revenue items included in operating income according to the published reclassified income statement schedules. For the first half of 2018 of Banco BPM we spun off 113,6 million as non-recurring income deriving from the transfer to Anima SGR of the delegated management mandates of insurance assets. 
• Cost/Income: operating costs / operating income. The following adjustments were made to homogenize the operating costs data: - UBI systemic charges (SRF contributions) were separated from operating costs, however explained in the press release (page 4 other administrative costs). - MPS were added to operating costs the charges for the DTA fee entered in a specific item of the reclassified income statement.  
• Operating result = Operating income – Operating costs 
• Net operating result = Operating result net of net value adjustments on loans 
• Banking product: sum of the volumes of net loans to customers, direct deposits and indirect deposits. For Unicredit, indirect funding is assumed as the sum of the "managed funding - AuM" and "administered funding - AuC" values ​​shown on page 9 of the press release dated August 7th. Again with reference to Unicredit for indirect deposits in June 2018, we had to refer to what was published in the press release of August 7, 2018 which however also included the volumes relating to the subsidiary Fineco which is no longer part of the Unicredit group for the 2019 half-year report (page .23 Press release 7/8/2019). To estimate the share of indirect deposits relating to this company to be separated from the overall group data, the same ratio was used as between Fineco's deposits, which can be seen in the consolidated half-year financial report as at 30/6/2018, and the total deposits of Unicredit group. 
• Employees: reference was made to the precise figure as at 30/6; for UniCredit that publishes a figure full-time equivalent the exact data was obtained on the basis of the correspondence ratio between the number of employees as at 31/12 and the number of FTE units as at 31/12 taken from the 2018 and 2017 consolidated financial statements (respectively for the June 2019 half-yearly and June 2018 half-yearly reports).  
• Net Npl ratio: the data are calculated as the ratio between net impaired loans and net loans vs. clientele 
• Annualized rate of impairment – Default rate: for Unicredit, MPS and UBI we have reported the data published in the presentation sheets. For Intesa, the figure is calculated as the ratio between the gross flow of changes from performing to non-performing loans and the difference between loans to customers and net non-performing loans as the denominator. For Banco BPM, the data available in the presentation refers to the net flow of changes from performing loans to non-performing loans (it is interpreted net of returns to performing loans from non-performing ones). The specific table therefore has an indicative value of the current trend given the non-homogeneity of the data referring to the various groups.