The EUR IG credit market was broadly stable last week in OAS terms despite some rates driven volatility which quieted down towards the end of the week. In this context, Financials widened by +1bp WoW versus a flat performance for NFCs across Industrials and Utilities.
Within financials, SP bonds widened +7.9bps (z-spread) with core assets underperforming peripheral (FR and NO leading the widening at +10bps respectively). SNP bonds were +10.2bps, with UK assets being penalized on the back of the UK motor finance news (+12bps overall), and UBS leading the CH widening (+11bps) despite solid 3Q24 results. T2 bonds were +7.1bps with weaknesses in core assets being only partly offset by the sustained momentum in Greek and Portuguese assets (HE -9bps and PT -10bps on the week). Finally, AT1 were +6.8bps in spread terms with again UK assets leading the widening and the DB 4.5% giving back some of the recent strong performance.
Main events from last week:
- On Wednesday, the Spanish Government announced it will try to pass a 3-year extension of the Banking Tax this month (first imposed in 2022), while also redesigning the figure, from a flat 4.8% tax on NII+F&C income generated in Spain to a flexible rate (1% for <€750mn, 3.5% for <€1.5bn, 4.8% for <€3bn and 6% for figures above according to the Objective), while contributions that would lead banks’ ROA to fall <0.7% will be deductible on an extraordinary basis.
- On Thursday Fitch revised the outlooks of Credem, Intesa, and UniCredit to Positive from Stable following the earlier revision of the outlook on the Italian sovereign to Positive. This reflected the better outlook for Italian banks over the longer term as a result of a better medium-term economic growth outlook. At the same time, the agency upgraded by 1 notch UniCredit’s ratings across the capital structure.
- On Friday, both Moody’s and Fitch put Close Brothers (not covered) on review for downgrade citing the increased risk related to redress costs which the issuer is likely to incur following the recent Court of Appeal ruling. Within our coverage, the bank most exposed to motor finance risks remains Lloyds which according to some estimates could incur redress costs as high as GBP6bn in a worst-case scenario. However, we expect agencies to wait for further updates from the Supreme Court proceeding (which could take 3 to 9 months if expedited) before acting on larger banks in order to gather additional information on the potential impact on profitability.
The week ahead we get US elections on Tuesday, Eurozone PPI figures on Wednesday and Eurozone retail sales, BoE and Fed monetary policy decisions on Thursday.
Results-wise, several new banks in our coverage will report their 3Q figures this week: UniCredit, Credito Emiliano and National bank of Greece (Tuesday), Credit Agricole, Commerzbank, Banco BPM, BPER, Cajamar and BPCE (Wednesday), KBC, Nykredit and Eurobank (Thursday), and Alpha Bank and Monte Paschi (Friday).
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