Why Banca Generali, Mediolanum and Fineco snort against the ECB on dividends
The stricter limits of expectations that the ECB has imposed on institutions to distribute dividends also penalize asset management companies such as Banca Generali, Banca Mediolanum and FinecoBank. Here is the coupon that the three groups can potentially pay out and what will happen when it returns to normal.
The European Central Bank has established that until September 2021, banks will be able to distribute dividends with the limit equal to the lower between 15% of the cumulative profits 2019-2020 and 0.2% of Rwa (risk-weighted assets). The ECB's recommendation was also accepted by the Bank of Italy and thus the managed savings companies with a banking license such as Banca Generali, Banca Mediolanum and FinecoBank will have to respect the limits imposed by Frankfurt on the dividend. The issue that arises in asset management is that companies have very low Rwa as their business is much less risky than that of banks. Thus, managed savings companies will find themselves having to submit to the 0.2% limit on risk-weighted assets and be able to distribute extremely low dividends. The solution for analysts seems to be unique: to accumulate and pay dividends (including arrears) after September 2021. For Intesa Sanpaolo the asset management sector, heavily capitalized and with limited exposure to credit risk, could be authorized to pay dividends higher after September 2021. Shareholders of asset management companies may therefore be dry-mouthed this year on the dividend front, but receive an extra coupon in 2021-2022.
Let's analyze in detail the problem that Banca Mediolanum, Banca Generali and FinecoBank will have to face, the dividends that they will be able to distribute according to the new limit imposed by the ECB and the future scenario.
THE LIMITS OF THE ECB TO DISTRIBUTE DIVIDENDS
The European Central Bank has established that until September 2021 the banks will be able to distribute the dividend with the limit equal to the lower between 15% of the cumulative profit 2019-2020 and 0.2% of the Rwa. The ECB intends to repeal its recommendation and resume assessing the capital and distribution plans of banks based on the outcomes of the normal supervisory cycle after 30 September next year, provided that there are no significant adverse developments.
BANKITALIA LINKS WITH THE ECB
Bank of Italy, the national regulatory authority that supervises asset management companies, confirmed the ECB's guidelines with a statement issued on the evening of 16 December. Thus, also Banca Generali, Banca Mediolanum and FinecoBank will have to respect the limits imposed by the European Central Bank for the distribution of the dividend.
THE TECHNICAL PROBLEM THAT ARISES FOR MANAGED SAVINGS
Asset management companies have a very different business than traditional banks. Asset management companies collect savings on the market and then reinvest them mainly in managed savings and only partially in loans to businesses and households. Precisely for this reason, the Asset gatherers sector has very low Rwa and therefore to distribute the dividend it will always have to respect the limit of 0.2% of risk-weighted assets. The result is that managed savings companies will be able to pay dividends for truly negligible amounts.
THE COMMENT OF EQUITA SIM
Equita Sim explains that the ECB's recommendation is “negative” for the asset management sector since asset gatherers have historically been reliable dividend payers. For analysts, the decision of the European Central Bank will have a greater impact for Banca Generali and Banca Mediolanum and less for FinecoBank, a company for which the growth profile is more important than the dividend.
THE ESTIMATES OF THE ANALYSTS ON DIVIDENDS
Equita Sim estimates for Banca Mediolanum a maximum 2020 dividend of 19 million euros (0.03 euros per share which corresponds to a yield of less than 1%), i.e. 0.2% of the Rwa (as it is lower than 15% of the cumulative earnings forecast 2019-2020 of 138 million euros). If there had not been a limit on the distribution of dividends, Equita Sim thinks that Banca Mediolanum could have paid out a total dividend of 0.74 euros per share, equal to a yield of approximately 10% (0.34 euros the balance of the dividend 2019 plus € 0.4 per share for 2020). As regards Banca Generali, the analysts expect a maximum 2020 dividend of 7 million euros (0.06 euros per share, or a yield of less than 1%), also in this case equal to 0.2% of the Rwa (lower compared to 15% of the cumulative profits 2019-2020 of 77 million euros). Without the ECB limit, Banca Generali could have distributed a dividend of at least 3.1 euro per share (1.85 euro the balance of the 2019 dividend plus at least 1.25 euro per share in the 2020 financial statements), equal to a dividend yield 11%.
INTERMONTE FORECASTS ON COUPONS
Intermonte states that the constraints imposed by the ECB are very penalizing for the asset management sector and in fact entail very minimal potential payouts: around 18 million euros for Banca Mediolanum and around 7 million euros for Banca Generali and FinecoBank. For Intermonte, therefore, the most likely hypothesis is that no dividends will be paid. In this context, it will have to be verified whether the excess capital that the companies will accumulate will be used in an alternative way, such as in M&A. However, analysts believe a scenario of mergers and acquisitions for Banca Mediolanum and FinecoBank is unlikely.
AKROS MAY REVIEW ITS EXPECTATIONS FOR 2021
After the new limits imposed by the ECB, Banca Akros could significantly lower its dividend and yield estimates for 2021. Analysts could revise the yield of Banca Mediolanum to 2.8% from 10.5%, that of Banca Generali to 2.4 % from 11% and that of FinecoBank to 1.1% from 5%.
THE ONLY SOLUTION TO THE PROBLEM
For analysts, the solution to the problem seems unique and clear. Equita Sim believes that for managed savings companies the combination of negligible credit risk (due to the different nature of business compared to banks) and solid capital position (Banca Mediolanum Cet1 at 21.8%, Banca Generali at 20.4% and FinecoBank at 23.3%) thanks to a significant capital buffer compared to the Srep makes all companies in the sector eligible to restore the payment of dividends and excess capital as soon as the regulator grants it (September 2021).
For Banca Akros Banca Mediolanum, Banca Generali and FinecoBank could distribute all the amount they are obliged to set aside in 2022.
According to Intesa Sanpaolo, the asset management sector, heavily capitalized and with a limited exposure to credit risk, could be authorized to pay higher dividends after September 2021.
COMMENTS BY DORIS AND MOSSA
“We are deeply disappointed – Massimo Doris, CEO of Banca Mediolanum, told Sole24Ore . It is clear that attention has been concentrated only on traditional banks and no other business models have been considered, which are much less risky, and which paradoxically today are punished more than traditional banks ”. Banca Mediolanum's intention is to call a meeting as early as October 2021, as soon as possible, to distribute all missed dividends.
"The most distant banks from the traditional banking sector and operating in the household savings management sector are penalized", added to Sole24Ore Gian Maria Mossa, CEO of Banca Generali, highlighting that "paradoxically it will be the latter to undergo the greatest restrictions, despite the strong generation of profits, the high solidity of capital, the high Roe and the high quality of assets ".
Angelo De Mattia, former director of the Bankitalia study center, as stated in Milano Finanza , commenting on the decision of the ECB on bank dividends, highlighted that "the Supervisory's policy obviously affects the shareholders, who probably hoped for a greater opening".
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-banca-generali-mediolanum-e-fineco-sbuffano-contro-il-diktat-della-bce-sui-dividendi/ on Mon, 21 Dec 2020 08:14:11 +0000.