MONTE DEI PASCHI DI SIENA (UP, TP EUR0.29): Press (Reuters, MF) reported that MPS is preparing a loan book clean-up and launch €5bn capital hike. A €5bn capital hike is more than 5x than the current market cap. Current shareholders would be wiped out. The feasibility of the plan depends on: (i) ECB approval; (ii) the NPL purchase capacity of the potential buyer (eg. Atlante); (iii) the post clean-up and recap profitability prospects. Without the bad loans burden, provisions could fall from 103bp to ~40bp boosting 2017 earnings from €230m to ~€800m, or ~6% RoTE post-capital hike, a profitability level which may raise investors’ interest. Once executed the capital hike, MPS could also be an easier take-out target.
UNICREDIT (N, TP EUR2.28): According to the press (Bloomberg), UCG is considering €5bn capital hike and the sale of the Bank Pekao entire stake (41%). Bloomberg also mentions that, among other actions: (i) the disposal of Fineco (55% stake); (ii) the public list of Pioneer (or a stake sale); and (iii) the sale of a bad loan portfolio in Italy. In our estimates, the execution of the anticipated actions potential actions could take up to 278bp potential CET1 uplift, 101bp RoTNAV negative impact and 59% earnings dilution. The stock is not attractive below 7% RoTE17E post the potential capital management options.