Within financials, both our SP and SNP recovered part of the previous week weakness at -0.8bp and -4bp respectively supported by a recovery in French assets (-3bp in SP and -8bp in SNP) and a slight outperformance of 7y+ tenors (across geographies). Subordinated instruments underperformed at -1.6bp (MONTE being the worst performance in our universe at +23bp) with the periphery continuing to decompress from core assets. AT1 was the best performing asset class at -8.2bp driven again by a recovery in French assets.
Main events from last week:
- On Monday, ING held its capital markets day, where it disclosed its medium-term strategy and targets which we welcomed due to the increased focus on non-lending income. The longer term nature of the targets prevents us to see this as a trigger for a material tightening of the credit, but it is supportive of our top-pick recommendation for the SNP/Holco instruments within the Benelux region.
- On Wednesday, the European Council agreed its position on the Bank crisis management and deposit insurance (CMDI) framework which opens the way to negotiations between the Council and the European parliament on the final form of the legislation.
Overall, the Council has agreed to the depositor preference principle but removed the Commission’s proposal of equal ranking amongst depositors to introduce a “super-preference status” for DGS-protected depositors (4-tier approach). - On Thursday, Natwest agreed to buy the retail banking assets and liabilities of Sainsbury’s Bank for an undisclosed sum. The acquisition is small in relative terms accounting for 0.7% of NatWest’s total loans and 0.6% of total deposits. The impact on the issuer’s capital position is broadly neutral in our view but the deal represents a small positive for NatWest’s profitability given that it expands the portion of higher yielding products on which the issuer seems to be focused at present.
- Throughout last week we also had several declarations from the two largest Portuguese bank CEOs and the Bank of Portugal’s Governor fueling rumors of a potential soon to come M&A action in Portugal. Our base expectation is for the Fosun group to potentially exit the BCP ownership (currently 20%), as well as Novobanco’s IPO, with its main shareholder Lone Star (75% of shares) exiting the group. Should the latter fail, we could see Caixa Geral acquiring Novobanco, thus preventing a potential further expansion of Spanish banks in the country that could otherwise take Caixa Geral’s market leading position.
Despite the potential large scale of the operation (1st and 4th largest banks), we see little potential pricing impact for CXGD’s bonds, seeing (naturally in the absence of any merger details), the reinforcement of the bank’s leading position in the country balanced with Novobanco’s slightly worse credit quality.