Ripreso da altro forum, che non cita la fonte:
A tough environment, not a crisis RBI’s management held a call yesterday morning designed to calm market concerns about the seriousness of the group’s financial condition.
The CFO confirmed that the group would report a CET1 ratio of 10% for Q4 14 and announced a new 20% risk-weighted asset reduction plan. This helped bond and equity prices to recover some ground, which we view as justified. In this note we argue that RBI profits will reach quite a low level (details p.14) in 2015 but that this will be manageable, and solvency will remain comfortable.
Stressing for worst case As a stress test we assume that current negative events in Russia and Ukraine lead RBI to withdraw from both countries, losing all book value of equity invested and loan exposure. We estimate RBI’s CET1 ratio would drop to 6.2% from 11.0%. All else being equal, RBI would need to raise equity and/or sell other assets to rebuild its capital ratios.
Equity view: With TSR of 79.8% we are buyers of RBI equity. Management is providing reassurance that RBI has the financial strength to resist the downturn, and the decision to become less complex and more focused is overdue. RBI has unique exposure to CEE growth markets, both in developing domestic retail networks and servicing the growing international needs of the region’s corporations. We value RBI using a DCF model (details p.10). Main downside risks to TP the possibility of extreme capital raising (details p10).
Recovery will take time but the shares are at a distressed valuation, which we view as excessive. Buy, TP €16.2, TSR 79.8%.
Credit View We are Negative on RBI’s fundamentals given the current circumstances (Q3 Credit). However we see significant upside for bond valuations. We rate the 4.5% ’25 and 6% ’23 T2s as Buys. The debt market’s response - with RBI Tier 2 sub dropping to as low as 50 – has been way overdone in our view. We believe RBI should trade better than Monte & Milano which – at the time of writing - implies some 30-40 points of upside in
Tier 2 and some 50bp in senior.
Bonds are just too cheap
RBI spreads have underperformed wildly in recent weeks in what we can only see as an illiquid panic. We see RBI spreads as moving significantly tighter over the next few weeks on the back of today’s messages, a refocused group strategy, and (over time) a more careful approach by RBI. We see up to 40 points of upside in Tier 2 (e.g. €4.5% 25) and 50bp in senior cash. In CDS we see 200bp of relative outperformance. More colour below.
RBI sub debt spreads have run up substantially
Credit – how much upside for the bonds?
We believe spreads for RBIAV should be discounted to reflect the risks associated with its CEE activities and its current predicament in Russia and Ukraine. However, this is a very different proposition to pricing in the strong near-term possibility of bail-in, which is what we believe the credit market has been doing.
In our outlook earlier this month, we ranked all the major banks under our coverage by fundamentals (see Bank outlook). In it, we put RBI at number 30 out of 40 banks, i.e. in the bottom quartile of our coverage, but not at the bottom. We rank RBI ahead of Monte, Milano and BCP, all of which we rank at or near the bottom. However, this is clearly not where the market is. We believe the market will – slowly – re-assess the risks in RBI positively.
We think yesterday morning’s management call will have helped. Confirmation of profitability in Russia and the CET1 ratio of 10% at the group will be important in our view. Slowly, we believe, the market will come back. In the table below, we show where we believe RBI should
rightfully trade considering the current risks but also assuming that RBI manages to navigate its way through the current difficult period with moderate deterioration and controlled riskweighted asset reductions, as expected by the equity community.
RBI spreads have clearly moved beyond ‘going-concern’ levels. We discuss below why we believe this is unwarranted fundamentally. As a result, we believe RBI should trade among the weaker names in Europe, but not as wide as those banks that are currently in need of capital and in a very weak position – Monte and Milano, or even BCP. These are banks that failed the
EBA stress test. RBI re-paid over €2bn in state aid only a few months ago.
Senior – 50bp upside
We believe the fair value for RBI senior spreads is inside of Z+120. We get there by looking at Monte and PMI – the widest in our coverage – as well as Erste. Given the Russian/Ukrainian concerns, we think RBI should trade below Erste. However, we do not think RBI should trade as wide as Monte or PMI senior, since these bonds have very high coupons, which exaggerates their spread by (probably) some 20bp plus. As such, we think a normalised PMI
bond would trade better than the current Z+140 for the 4.25%. Since we believe RBI is a better credit than PMI, this is where we believe RBI spreads will gravitate. Monte is far wider than PMI, but this reflects the immediate fundamental risks.
Tier 2 – 30 to 40 points of upside
Similarly, in Tier 2 we look at Erste – which has the high coupon 2022s at Z+455 – and the Italians – also high coupons (see table above). Were these bonds to be current coupon, we believe the spread would also be tighter. Erste has weakened against the rest of the market, partly due to RBI (Erste also looks cheap). However, based on Monte at Z+457 and Milano at
Z+330, we believe RBI should trade inside of 400 – below Bank of Ireland (which we like) but better than Monte.
CDS – 200bp upside in senior
We use similar reasoning to that used in cash bonds to establish what we see as fair value for RBI CDS. CDS will probably stay wider than cash, as there will be enough buyers of the hedge to prop up the price. That said, right now RBI is way out of line compared with where we think it should rightfully end up (inside 200bp, i.e. better than Monte at 260, but possibly weaker than PMI, which looks tight). Sub CDS also has upside but is fairly illiquid.
