What is the true value of the Italian banking system?
We have heard a lot of different opinions concerning the European and, in particular, the Italian banking system, both positive and negative, depending upon the source: let’s try to make things clear.
The Italian premier, Matteo Renzi, told the American Cnbc that the stress tests, led by the EBA (European Banking Authority), showed Italian banks are not the main problem of the European banking system: definitely true since 8 credit institutions failed and only Monte dei Paschi di Siena and Unicredit are Italian.
The list includes the German Commerzbank, the Irish AIB, the British Barclays, the Austrian Raiffeisen Landesbanken and the Spanish Banco Popular; those banks recorded a capital level below the 7.5% limit in case of a negative scenario.
We cannot avoid mentioning the embarrassing -2.4% of Monte dei Paschi di Siena: the only one with a bankruptcy risk in case of adverse situations.
7% is usually considered to be the level triggering the devaluation of bonds and the Italian banking system, with an average of 7.6% of the capital, Italy has been among the weakest in the European area, after Ireland and Austria.
On the other hand, Italy also has the best bank with Intesa San Paolo which scored an outstanding result.
Now we need to look deeper inside Mps and Unicredit to understand the real situation and what the Italian government and the bank’s management are planning to do in order to safeguard customers’ savings.
Mps presents a critical situation due to financial debts which are five times higher than its equity in 2015 and strong losses from 2011 to 2014 as you can see in the picture below which shows the main data and the related growth.
Click on the image below to enlarge it
Unicredit is in a different situation since they have less net losses at the end of the last 5 years than Mps with some positive results, yet the same situation when we compare financial debts with total equity. This is even one of the largest credit institutions in Europe and the biggest in Italy with one of the highest capitalizations: too big to fail? no, it isn’t. We have already heard these words but we can say the situation is still under control.
The market’s reaction after the stress tests results has been strong with peaks of -16% for Mps and -7% for Unicredit.
Other Italian banking titles have maintained the same trend for years and we strongly believe that this is the right moment to buy them after an accurate technical and fundamental analysis.
Basically it is true that there is a problem of uncollectible receivables inside the banking system, but not as serious as described by the mass media all around the world. The international speculation has done much to lower stock prices so that foreign investors are able to purchase Italian companies at discounted prices
We analyze balances every day and their Fair Values are all higher than current prices. For example, we take a look at the Banca Popolare di Milano’s Fair value and, as displayed in the picture below, the current price is strongly inside the buy range.
We analyze balances every day and their Fair Values are all higher than current prices. For example, we take a look at the Banca Popolare di Milano’s Fair value and, as displayed in the picture below, the current price is strongly inside the buy range.
Brought to you by
