Citywire AA-rated Sebastiano Pirro has praised the performance of Italian banks in 2017, despite well-documented challenges caused by non-performing loans (NPLs).
Pirro, who manages the €4.6 billion Algebris Financial Credit fund, likened Italian banking giant Intesa Sanpaolo to UK group Lloyds Bank, as he believes both banks have earned the title of ‘national champions’.
‘In Italy (17%), we have two very good trades: one is Intesa Sanpaolo (8%) and the other is UniCredit (9%),’ he told Citywire Selector.
‘In the past 10 years, Italy has witnessed its worst economic environment since the Second World War, so it is reasonable for the banking sector to have a non-performing assets issue.
‘On average most Italian banks have 20% of assets in NPLs. Intesa has just 10% and they have done that in the exact same environment as everyone else. It has adopted better choices, better diversification and that is what has made them winners.’
Pirro said Intesa was one of the best-capitalised banks in Europe during the 2014 stress tests and classed the group as ‘Champions League player’.
However, Pirro said his position in UniCredit was a completely different story. ‘It’s a global bank so it ticks all of the boxes in that respect.
‘Everything changed in the middle of last year when it changed CEO. When Jean Pierre Mustier came on board there was a big shift. Usually, these guys cannot make much of a difference, but he did. He did a proper turnaround and raised €20 billion in new equity, €7 billion of which came from asset disposals.’
The bank also raised €13 billion in a rights issue back in December 2016 – a deal Pirro said had been well publicised and underwritten.
‘Hence why the bonds were so good. We built our biggest position in the fund with UniCredit because it’s even better than Intesa. It’s delivering on its plan, the core bank is a very good bank and they have totally de-risked it, with an asset quality clean-up and good visibility.
‘These are two positions in a country that I would consider at higher risk than the other countries we can access with the fund. I am still very comfortable with the risk/reward.’
Over the three years to the end of November 2017, the Algebris Financial Credit fund returned 24.55% in euro terms. This compares with a 15.90% rise by its Citywire-assigned benchmark, the ICE BofAML Euro Subordinated Financial TR, over the same period.