SHOT VIEW: Italian banking sector, a BUY opportunity?

September 28, 2020

Reasons why the Italian banking sector is a BUY.

The following analysis, based on a long-term perspective, takes its cue from the news spread on the creation of the so-called "bad banks" to support European banks. Looking at the Italian case, there are several reasons that lead us to consider the banking sector interesting.

  • The ECB is drawing up guidelines for European governments that are considering "bad banks" to house lenders' toxic assets. It therefore seems not far off an agreement, which we believe to be no longer a possibility, but a certainty. It would satisfy not only the interest of Italy, but also of other countries such as Germany, which is getting close to accepting legislation that would help its banks to create individual bad banks. This evolution would certainly relieve Italian banks.
  • Italian banks have always been considered risky due to the heavy weight of Italian debt on their balance sheets and the risk associated with the country. The purchases of government bonds that the ECB is carrying out in the face of the pandemic represent further support for Italian financial institutions.
  • With the recent news of the merger between Intesa Sanpaolo and UBI, a phase of concentration of banking institutions has begun in Italy. Larger banks should be able to better support the financing needed for the country's economic recovery and growth.
  • Based on a fundamental analysis, we believe that the prices of Italian banks to date are at a discount compared to those of European and American competitors.

These factors lead us to positively view the banking sector as a whole and therefore consider it a BUY. More specific analyzes will follow on the individual stocks that are most interesting to us.