How many people will be hanging around to jump on the European Banking Authority stress test results at 10pm Central European time tonight?
There’s been so much chatter about them, so many simulations conducted, so many results front-run that I’d say the main event has become somewhat emasculated.
It’ll take time to filter through the data and overlay specific country flavours to properly interpret the results, which don’t deal directly with the weighty issue of NPLs. While bad loans are central to questions around banks’ health, they are being dealt with as a separate issue. Clearly, they will need to taken into account in any proper assessment.
Those spoilsports at the EBA have also cut the number of banks being tested, claiming to be looking at the world through the lens of Banking Union Big Banks. Secretly, I’m sure, they’ll be delighted that banks from Cyprus, Greece and Portugal were excluded.
Taking even more fun out of the process, there are no pass or fail marks: the tests are being conducted to inform Pillar 2 capital requirements in SREP (aka the TSCR), so the worst that banks can be confronted with is capital guidance. Just to make the tests even more boring, there are unlikely to be any AT1 trading shenanigans on the back of the results since EBA capital guidance is excluded from MDA calculations: Pillar 2 Guidance (the flip side of the Pillar 2 Requirement) sits above the distributions trigger. I’d say that’s AT1-positive.
HOW MANY TIMES do you need to hear that Banca Monte dei Paschi di Siena is going to fail, that UniCredit is sweating, that Deutsche Bank’s stress-test results will be more heavily scrutinised than most, or that BNP Paribas may need to bolster its ratios from a technical perspective?
On BMPS, Reuters reported that the alternative bailout proposal presented Friday by former Intesa Sanpaolo chief Corrado Passera and UBS looked likely to be rejected. The plan, supported by US financial sponsors, was reportedly to install Passera as CEO and have UBS backstop a €2.5bn–€3bn rights issue with additional capital created through partial AT1 conversion, LM and NPL sales. The alternative plan being worked on by advisers JP Morgan and Mediobanca is anchored on a €5bn rights issue and a €10bn NPL offload.
Intesa and UniCredit turned down the invitation to participate in the BMPS rescue consortium, I gather – as did Morgan Stanley. In the case of UniCredit, shares in which were trading up around 7% Friday, that’s no surprise. New chief J-P Mustier can’t afford be distracted, especially when he’s faced with his getting own €5bn capital increase over the line – on top of yet another top-to-bottom overhaul of the Italian bank.
You can’t fault the alacrity, vigour and decisiveness with which Mustier has set about his metier. Within days of taking the reins of the bank, he’d kicked off a strategy review that will focus on capital optimisation, cost reduction, risk discipline and cross-selling (though leading, bizarrely, to an investigation into possible market abuse following unusual price movements in UniCredit, Bank Pekao and FinecoBank shares).
Mustier also unveiled a new organisational structure to simplify the group, reducing the number of direct reports, and clarifying roles and responsibilities of senior management to instil better accountability.
On capital, the sale of that €749m block of Bank Pekao shares gave him a 12bp CET1 ratio uplift while the €328m FinecoBank block added a further 8bp. Mustier marked asset manager Pioneer as a potential IPO candidate, having been forced to ditch the deal with Santander AM. He’s far from finished: he’s got a full-scale exit from Pekao and FinecoBank up his sleeve, while former head of global markets TJ Lim – and newly crowned deputy CRO – will come up with a plan to offload non-core assets and NPLs.
To operationalise the new set-up, Mustier made a veritable coach-load of appointments. GianniFranco Papa, previously deputy group GM and head of CIB, was tapped to run all business-related activities as general manager with a brief to do all those things so beloved of consultants: develop the client offering, maximise cross-selling, enhance cross-divisional value creation, and drive the digital strategy.
Mirko Bianchi, former CFO of UniCredit Bank Austria, was promoted to group CFO while former head of internal audit Ranieri de Marchis, and HVB CFO Francesco Giordano were appointed as group co-COOs. Gianfranco Bisagni and Olivier Khayat were made up to co-heads of CIB; former deputy head of global markets Guy Laffineur took over from TJ Lim; global head of FIG Christian Steffens took over from Ted Platt as UK country head; Vincenzo Tortorici, former head of corporate finance advisory moved over to run FIG while Pietro Rey and Klaus Vukovich took over CFA.
Leveraged finance and high-yield specialist Tim Hoffmeister took over from Matthias Noack (who quit to join Mitsubishi UFJ) as co-head of global syndicate, alongside with Christian Reusch. Alexander Tumminelli took over from Hoffmeister as head of financial sponsor solutions. Phew!
● A word on TJ Lim. In his new role, the debt and derivatives veteran who’s held senior positions at JP Morgan, UBS, Dresdner Kleinwort Benson and Merrill Lynch, is going right back to his genesis at UniCredit. Lim left Merrill in 2002 to found New Smith Financial Solutions (plus related New Smith-branded businesses) to provide strategic advice to banks and corporates in risk management, structured products, credit, derivatives, capital markets and balance sheet restructuring.
UniCredit originally hired New Smith to assess its own balance sheet, as I recall to focus on its structured credit exposure, but ended up acquiring Lim’s debt advisory business in 2008. That’s when Lim joined as co-head of global markets. Glenn Barnes, Merrill’s former head of structured credit and now global head of UniCredit’s structured solutions group, and Kevin Krespi, Merrill’s former head of Asia-Pacific debt, jumped with Lim from the thundering herd to New Smith and to UniCredit in a team move of around 10. I’d say the application of Lim’s talents bodes well for a speedy solution.
