July should be an eventful month for European banks, markets are expecting the authorities to finally give the green light to detachment of dividends and buybacks, at least for institutions that have shown that they have solid balance sheets, capable of remunerating the shareholders. The BoE will move first on the 13th of the month, while the ECB will speak on the 23rd. Distributions to shareholders should take place in the third and fourth quarters, respectively.
Add to this that the EBA will publish the stress results on July 30, without indicating a hurdle rate (a minimum rate of return), but the result will flow into the banks’ Srep 2021, as Citi analysts recall. Who expect a total yield from coupons and share repurchases for European banks in 2021-22 of 6% and 8% per year respectively. The highest returns should be registered with Nordea, Bbva, Ing and Intesa Sanpaolo among the large caps of the Old Continent. According to Citi, the payout ratio of European banks is expected to reach 55-60% in 2021-22, which is equivalent to a distribution of 64 billion euros in 2021 and 52 billion euros in 2022.
Today Equita Sim calculates that, in the event of the removal of the dividend ban, there are several groups that should have an interesting dividend yield: Intesa over 6%, Unicredit of 6.2%, Banca Farmafactoring of 11.3%, Banca Mediolanum by 9.1%, Banca Generali by 7.5%. According to other analysts, Mediobanca should pay a 6% dividend yield in November, Banca Ifis 1.10 euros equal to an 8% return and Banca Sistema 0.173 euros per share, equivalent to current prices at 8%.
Citi then returns to the subject of the EBA stress test, wondering if in the end it will be “a storm in a tea cup”. The results are to be disclosed on 30 July and cover a sample of 50 banks. “The macro assumptions seem more pessimistic than the previous stress test, but perhaps they appear milder than expected”, explain the American analysts. The test does not have a hurdle rate, but the result will flow into the Srep 2021 and therefore into the return on the banks’ capital.
The institutions with the largest expected decline in capital strength, Cet1, in the latest adverse scenario of the stress test, were Deutsche Bank and Danske Bank. This time around, Citi expects Spanish and Italian mid-cap commercial banks to experience the biggest drops.
The brokers speculate that if they applied the 2018 stress test to the Cet1 indicated by the banks, then Intesa Sanpaolo, Unicredit and Abn would have the highest coefficients in Europe. Citi warns that “in the 2021 test the macro assumptions in the adverse scenario seem tougher for Spain and Italy than in 2018”.
Another scenario hypothesized by Citi is that of using M&A as an alternative to the remuneration of shareholders thanks to the excess capital of the banks (other analysts instead think of a mixed use, partly coupon, partly extraordinary transactions). And this is because regulators are increasingly supporting M&A. After July 30, then, there will be a clearer perspective on asset quality and “banks could become more open to mergers and acquisitions”. Citi believes that one of the hottest dossiers in Europe is that of Mps, in addition to the expected sale of some selected assets such as Hsbc France, Ing France, Bbva Usa, Hsbc Us and the diversification of revenues through the acquisition of asset managers who ensure higher margins to banks. (All rights reserved)
