Here are the ends and doubts of analysts on the Unicredit-Mps merger
What analysts say about the merger between Unicredit and Mps, which is becoming increasingly topical after the release of Unicredit. Facts, names, numbers and scenarios
Banca Mps and Unicredit closed the session on Monday with the opposite sign: the first gained 3.01% to 1.162 euros, while the second lost 4.96% to 8.643 euros.
The departure of Unicredit's CEO, Jean Pierre Mustier, increasingly feeds the hypothesis of a merger between the Institute in Piazza Gae Aulenti and Monte dei Paschi di Siena.
Experts reason on a scenario characterized by the aggregation between Unicredit and Mps , a hypothesis that seems to become increasingly probable after the weekend rumors about Mustier. The analysts' reports focus on the three crucial factors to achieve the deal between the two banks: a capital increase for Banca Monte dei Paschi di Siena, a 'parachute' for Mps legal risks and the transformation of off-balance sheet DTAs into loans tax. Three fronts on which the Ministry of Economy and Finance which holds 68% of the Sienese credit institute and the Government would be working. Among the reports stands out that of Keefe, Bruyette & Woods, according to which for an aggregation between Unicredit and Banca Monte dei Paschi di Siena approximately 4.5 billion euros of additional capital would be needed for Mps (net of further disposals of Npls) which they should not be collected or paid for by Unicredit.
WHAT MEDIOBANCA SAYS ABOUT UNICREDIT AND MPS
Mediobanca Securities (rating neutral, target price of 10 euros on Unicredit) explained that the market feared the farewell of the current CEO of Unicredit considering "the success of the reorganization process of the last four years" of the bank and the fact that there could be be a suboptimal change in strategy. In fact, while Mustier has declared his opposition to M&A on several occasions, Unicredit is currently seen by the market as the main candidate for the acquisition of Mps. In any case, Mediobanca analysts think that a merger between Unicredit and Banca Monte dei Paschi di Siena with a neutral impact on Cet1 would allow the bank in Piazza Gae Aulenti to continue to focus on return on capital.
UNICREDIT TOWARDS MPS?
For Banca Akros (recommendation neutral, target price of € 8.3 on Unicredit) "the eventual exit of Mustier could increase the probability of a take over by Unicredit on Mps" but it could also reduce the possibility that the institute will Gae Aulenti "continue to pursue its strategy of increasing the dividend and repurchasing own shares once the ECB permits it". However, it is still early to jump to conclusions: the details on the possible aggregation operation will be of fundamental importance to assess whether Unicredit's capital position will be safe from risks.
EQUITA SIM NEEDS INCREASE AND FULL DTA RECOGNITION
According to Equita Sim (hold recommendation, target price of € 8.8 on Unicredit) an aggregation between Unicredit and Mps "could turn out to be neutral in terms of risk and capital only with full recognition of the DTAs of both banks (about 3, 6 billion euros for each) and with a capital increase of 2.5 billion euros in Banca Monte dei Paschi di Siena, a scenario that seems difficult to achieve from a political point of view ".
THE THEME OF DTA
Indeed, Equita Sim reports that "according to what was reported by various press sources, there would be no unanimity between the various government forces regarding the possibility of transforming the Dta (Deferred tax assets ) into tax credits in the event of aggregation, as required by the draft to the Budget Law. Among the various proposals, the possibility of introducing a ceiling of 500 million on the maximum amount of convertible DTAs also emerged. If this proposal were approved it would clearly be negative for the sector as it would significantly limit the tax benefit deriving from the mergers, especially in relation to those subjects with higher convertible DTAs ”.
FOR FIDENTIIS YOU NEED A PARACHUTE ON LEGAL RISKS AND ACTIVE QUALITY
Fidentiis thinks that for the aggregation of three Unicredit and Mps there is a need for a "very large parachute in terms of legal risks and the quality of assets by the Government to make the deal neutral from a capital point of view for Unicredit and for its shareholders ", the only case in which there could be M&A.
THE KEEFE, BRUYETTE & WOODS REPORT
Keefe, Bruyette & Woods assesses the scenario of a merger between Unicredit and Mps assuming an all-share agreement with cost synergies equivalent to 30% of the cost base expected in 2020 for Mps and restructuring charges equivalent to twice the synergies of cost on an annual basis. Kbw also assumes a Cet1 of 9% for Mps.
FOR KBW 4.5 BILLION ADDITIONAL CAPITAL IS NEEDED
The merger operation would satisfy the analysts' criteria only if approximately 4.5 billion euros of additional capital were found for Banca Mps (net of further Npl sales) which should not be collected or paid by Unicredit. According to experts, in fact, "any solution that requires the bank in Piazza Gae Aulenti to raise capital" is not consistent "with the current strategy, which presupposes the return of excess capital to shareholders". Still, the experts think that Unicredit (or another bank) should consider the deal with MPS "acceptable only if, at the very least, the credit institution was not required to take on the legal risks, considering the difficulty that exists in price them ".
KBW'S ESTIMATES ON EPS IN THE EVENT OF A MERGER
Kbw's statements are accompanied by tables showing the calculations in detail. According to analysts' estimates, if the acquisition of Mps were neutral on Unicredit's Cet1 (with the capital increase carried out by Mps), in 2023 there would be: an 11% EPS increase for Unicredit shareholders without acquisition premium for Mps shareholders, 10% with a 10% premium, 9% with a 20% premium and 8% with a 30% premium for the shareholders of the Sienese bank. If, on the other hand, Unicredit were to take on a capital increase of 3 billion euros, the EPS at 2023 would be negative by 4% for Unicredit without a premium for the shareholders of Monte dei Paschi di Siena, by -5% with a premium of 10% and 20%, -6% with a 30% premium for Mps shareholders.
ROI FORECASTS
The return on investment in 2023 in the case of neutrality on Unicredit's Cet1 would instead be 27% for Unicredit shareholders against a 0% bonus for Mps shareholders, 25% with a 10% bonus, 24% with a 20% premium and 23% with a 30% premium for Monte dei Paschi shareholders. In the case of a 3 billion increase for the bank in Piazza Gae Aulenti, the return on investment would instead be 12% for Unicredit against an acquisition premium of 0% for Mps, and 11% against a premium of 10%, 20% and 30% for members of Monte dei Paschi di Siena.
KBW LOWER MPS RATING
Pending the next developments, Keefe, Bruyette & Woods has lowered the recommendation of Banca Monte dei Paschi di Siena to underperform from market perform with a target price set at 1 euro since after the transaction with Amco Mps it will have a low Cet1 ratio compared to current requirements.
THE REASONS WHY THE GOVERNMENT WANTS TO RESOLVE THE MPS DOSSIER
Keefe, Bruyette & Woods in its report highlights three reasons why the Italian government would be willing to find a solution for Mps as soon as possible: first, the possible violation of capital requirements following the transaction with Amco. Second, the next EBA stress tests that will begin at the end of January 2021, with the results that should be communicated by the end of July 2021. The test, analysts recall, will be carried out on the basis of the financial statements as at 31 December 2020 and therefore will also reflect the impact of the deal with Amco. The third reason, concludes Kbw, is the legal risks of MPS.
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TORPEDO OR SCRAP: THE ARNESE POINT ON MUSTIER AND UNICREDIT
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ecco-fini-e-dubbi-degli-analisti-sulla-fusione-unicredit-mps/ on Tue, 01 Dec 2020 08:05:10 +0000.