Stock markets up and euro down waiting for the intervention of the ECB in June. The surprise more-than-expected drop in the May Ifo index in Germany, to 110,4 points from 111,2 in April, boosted expectations for Mario Draghi to intervene at the next rate meeting. Indeed, the ECB has sent clear signals in recent weeks that a rate cut could be on the table accompanied by some other unconventional measures.
But what will be the impact of the possible ECB easing on Italian banks? Morgan Stanley analysts asked in a report published today entitled "why we think further easing by the ECB would be good".
If the recent "underperformance" of the banks may for some suggest that the impact could be negative, especially for the net interest margin, Morgan Stanley on the contrary believes that it will be positive for all Italian banks.
“We believe – reads the report – that the entire liability structure of Italian banks would benefit from an easing by the ECB, since a further compression of BTPs would have beneficial impacts on the cost of equity of banks and on their cost for the funding, still expensive”. For analysts, 100 basis points more or less on the Btp-bund spread would impact bank valuations by 10/15% less or more. The link between banks and supranational bonds is in fact still intense in Italy, contrary to what happened in Spain after the stress tests.
The benefits on funding costs should thus outweigh the losses on returns on BTP portfolios. “We estimate there could be a positive 4% impact on the NII (net interest income, ed) from the repricing of bond issues, which more than offsets the 2% loss from the 2014-2015 BTP portfolio yield. Fifty basis points of decline on the BTP spread would have a positive impact on the NII by an average of 2% in 2014-2015”. For analysts, a cut in interest rates by the ECB would then have a negative impact on the net interest margin but only marginally and in any case it would be offset by the positive effects of the broader Qe actions.
If all banks benefit from the possible easing of the ECB, for Morgan Stanley this bet should be played on Intesa Sanpaolo and Unicredit. As for Ca' de Sass, analysts highlight the bank's liquidity and funding structure which is over 90% in Italy and which makes it "an ideal play for this issue", together with a solid balance sheet. Piazza Cordusio instead remains a strong history of restructuring, which benefits from its turnaround of the Italian business.
