Both optimistic buyers and more skeptical investors, gathered on the shores of Italy’s Lake Como for the annual Ambrosetti Forum. They agreed that momentum for Italian bank shares will depend mainly on an acceleration of economic growth and higher interest rates, while poor governance and business-model sustainability have become the main risks for the industry.
“The perception that systemic risk is over has supported shares in recent months and, looking forward, the ability of the country to exit from a sluggish path of recovery and expectations of higher interest rates will be a trigger to buy bank securities,” Davide Serra, chief executive officer of Algebris Investments, told Bloomberg on the sidelines of the event in Cernobbio. “We are very positive on Italian banks.”
London-based Algebris, which has €10bn of assets under management, has committed about 20% of its portfolio into Italian bank equity and credit, including holdings in lenders such as UniCredit SpA, Intesa Sanpaolo SpA and Banco BPM SpA.
In June, the government committed as much as €17bn to wind down Banca Popolare di Vicenza SpA and Veneto Banca SpA, and a month later got EU approval to give €5.4bn of aid to recapitalise Banca Monte dei Paschi di Siena SpA, thus addressing what were considered the main systemic risks for the banking industry. Since then, shares of Italian banks have jumped almost 8 percent compared with a 1 percent uptick in the Europe STOXX 600 Banks Index.
As reported by Bloomberg, Italy has very strong fundamentals and its healthy economic growth is pushed by exports, consumers and investments, so “the core banking activity in Italy is actually quite profitable,” said Jean Pierre Mustier, chief executive officer of UniCredit SpA, Italy’s biggest bank.
“Italy is showing concrete signals of an acceleration of economic growth which can spur banks’ profitability,” said Francesco Confuorti, chief executive officer of Advantage Financial SA, a Milan-based investment firm. “This may be a boost in the short term, but banks should use this positive environment to address their governance and improve their structure, cutting branches and costs.”
Giancarlo Aliberti, a partner at Paris-based private equity firm Apax Partners, however, is rather pessimistic. He told Bloomberg: “The traditional commercial banking sector is not yet attractive for private investors. Recent restructurings have solved the short-term problem of lack of capital and are very positive for the banking system, but banks still have an infrastructure and business model that generates profits below what a private equity investor needs, which means that only selected opportunities where short-term restructuring is feasible might be attractive.”
Italian banking Association data shows subdued loan growth for the private sector, with loans to Italian residents up 1% at the end of June at €1.5 trillion. Banks have only increased lending to households, which as a whole have a low level of indebtedness, and to firms with high credit ratings, according to Bank of Italy reports.