Axiom Equity Lux
December saw a strong rebound of the banking sector. The Italian referendum led to a negative result that was widely expected. The announcements by the Fed (25bp rate hike) and the ECB (reduction of its asset purchase programme) took bank valuations higher as the prospect of higher rates boosts the sector’s future profitability.
Regulations produced another tailwind as the ECB confirmed the capital add-ons for 2017 at a level 200bp lower than those for 2016, and foreign regulators continue their work towards a pragmatic compromise around Basel 4.
Financial institutions progressed in their transformation. UniCredit announced its 2019 strategic plan with a EUR 13bn rights issue. Deutsche Bank and Credit Suisse finally settled their litigation with the US authorities over RMBS on favourable terms and Delta Lloyd and NN Group agreed to merge. Even Popular in Spain got mentioned as a potential takeover target of banks like BBVA. A negative development came from Monte dei Paschi: the market solution combining a non performing loans securitisation and liability management exercise together with a capital raise ultimately failed, leaving the State negotiating a precautionary recapitalisation with the European authorities.
In primary activity, three new AT1s were issued by Swedbank, BNP Paribas and UniCredit. Crédit Agricole and Société Générale launched the new format of Tier 3 with “non-preferred senior” instruments eligible to MREL and TLAC.
During the rebound, the Fund reduced positions in AT1s to participate in new issues, adjusted its exposure on Italy and short date callables, and redeployed risk from cash positions into CDS.
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