ENRIA (ECB): BANKS CAN RETURN DIVIDENDS AND BUY BACKS
TAX DISCOUNTS FOR MPS-UNICREDIT AND CREVAL COMING SOON
"Unless there is a real indication of a significant deterioration in the situation before September, we will repeal the recommendation (on dividends and buybacks) in September and let the banks return to the old normal." Andrea Enria, the "cerberus" at the helm of Banking Supervision who already caused bankers more than a nightmare at the time of the EBA, this time he has decided that, for once, the credit institutions have done their homework diligently. Of course, he confesses, "It hasn't been easy and there have been some difficult conversations with the banks but eventually they aligned." And so, "although our recommendation was not a legally binding requirement, the banks under our supervision fully complied with it." And, we may add, the boom in non-performing loans and utp credits to which the Eurozone seemed doomed seems to have been avoided. Indeed, the possible rebound in lending rates in the face of the recovery of the economies could archive, once and for all, the "horrible season" of the system.
The quarterly reports released during the week have given comfort to a positive vision already embraced by the markets: the Stoxx index of the European banking sector rises by 0,5% and reaches new highs in the last 14 months, expanding the YTD performance up 25,50%, the best result at sector level, versus the +10,90% recorded by the global Stoxx index.
ALSO READ: Intesa Sanpaolo: profit continues to rise, record commissions
The rally is justified by the positive accounts that have affected all the banks in the Eurozone to a certain extent: the big three of French credit shine (Socgen, Paribas and Crédit Agricole) as well as the British Barclays. Even the great sick woman wakes up, Deutsche Bank. And Italian banks, if possible, do even better. Following Intesa Sanpaolo, which tore up the already optimistic estimates on profits for the quarter (1,5 billion against a forecast of 1), Unicredit denied the rumors on the effects in the quarter of the slow farewell of Jean-Paul Mustier, presenting himself in excellent shape at the appointment with the analysts: profit of 887 million driven by the increase in revenues due to the excellent performance of commissions and trading activities and from cost control. The result is a price increase of more than 8% since February.
Finally, Bpm Bank, which has already proposed itself as the protagonist of the next M&A season, perhaps with Unicredit, perhaps with Bper. The institute led by Giuseppe Castagna closed the first quarter of 2021 with a net profit of 100 million euros (expected 86 million) from the net profit of 152 million euros in the first quarter of 2020 and the loss of 242 million in the fourth quarter, both, however, impacted by extraordinary voices. Overall Banco Bpm showed operating revenues higher than expected thanks to a resilient interest margin and solid commissions with a very positive contribution also came from trading.
In short, we are faced with a scenario that seems propitious for the start of a new M&A season of banks, the last stage of domestic consolidation before the cross-border marriages that should finally accompany the Banking Union and the launch of Capital Markets within the Eurozone. This is the frame that is inspiring the news on the Dta front (deferred taxes assets), i.e. the tax losses that can be transformed into tax credits in the event of a merger. A rule in the draft of the Sostegni bis decree - which should arrive in the CDM next week as said by the Minister of Economic Development, Giancarlo Giorgetti - could favor Unicredit in particular which, with the newly arrived CEO Andrea Orcel, could take the road that leads to Monte Paschi, a stake that the Treasury must dispose of within the year. According to the financial statements at the end of 2020, Deutsche Bank has calculated that the tax losses involved would be equal to 11,6 billion for Italian institutions. But it is possible that the new text will be even more generous also because Draghi is more than aware of the role that strong banks can play for the definitive take-off of a season of GDP growth of 4% and more, a situation that our managers under the 55 years have never lived.
In case of a merger between UniCredit and Mps, the most urgent and talked about, the benefit will amount to approximately 3,4 billion, 1,1 billion more than the current standard. A similar operation between Unicredit and Banco Bpm it could lead to an even higher benefit (4,1 billion), but the main component would come from the Dta of UniCredit (about 4,35) and not from those of Piazza Meda, equal to about 1 billion. Instead, the benefits of a merger between Banco-Bper, equal to around 1 billion, have no impact.
According to Mediobanca Securities, in most combinations involving MPS, the M&A incentive "will not cover all the previous tax losses, with the consequence that greater post-M&A profitability will allow further revaluations of the DTAs in the coming years". Certainly, however, mergers and acquisitions, he underlines, "will remain fundamental for medium-sized banks", starting fromacquisition of Creval by Crédit Agricole: “against an estimated cost of 66 million – wrote il Sole 24 Ore – overall the group will benefit from a tax asset of 331 millionprovided that the merger takes place within 12 months of the payment of the shares delivered in the offer: a nice 'gift' considering that at 12,50 euros (the price of the recent takeover bid) Creval was valued at 875 million”. That is, the tax discount is worth half of the operation which allows the transalpine bank to present itself as the sixth Italian bank with about three million customers distributed throughout most of the Italian territory, including in the south.
