Italian banks: from a potential risk to a win-win situation?

Intesa willing to rescue BPVI and Veneto Banca

ISP has said that it is willing to buy certain assets and liabilities and legal relationships of BPVicenza and Veneto Banca at a symbolic price (€1), provided that the related terms and conditions ensure, also on the legal and regulatory level, that the transaction is: (i) fully neutral in terms of CET1 ratio and (ii) the dividend policy of ISP.

A segregated scope of good assets: The potential transaction rules out any capital increase for ISP, which is available to acquire a segregated scope excluding NPLs (bad loans, unlikely-to-pay loans and past due exposures), high-risk performing loans and subordinated bonds issued, as well as shareholdings and other legal relationships that ISP does not consider functional to the acquisition.

A “legislative framework” conditional to the deal: ISP said that a legislative framework, approved and definitive, is needed for the finalization of the transaction. This shall also ensure the measures that are necessary to achieve the targets of: (i) full neutrality of the transaction in terms of CET1 ratio, (ii) dividend policy, (iii) coverage of integration and rationalization charges, and (iv) the protection against risks, obligations and claims against ISP due to events occurred prior to the sale or relating to assets/liabilities or relationships not included among those transferred.

A potential win-win situation: Compared to the initial scenario of €1.25bn private contribution (required by the EU authorities on top of the public recapitalization) shared by the Italian banking system (€250m for ISP, or -4% stated 2017 earnings and -6bp CET1) this seems to be a win-win situation for ISP and other Italian banks (systemic risk wise). As opposed to Banco Popular, the books of the two troubled banks have been properly screened in view of the precautionary recapitalization and should not hide further losses. If the conditions are confirmed (public money to support the bad bank and no charges for ISP) the deal should also grant an accelerated EPS accretion.

Equity Research – Credit Suisse