In the last year, the macroeconomic context has changed rapidly and the recent inflationary pressure has forced the main central banks to raise interest rates, after several years of zero interest rates. This change of course of monetary policy it is also having an effect on the financial statements of credit institutions and in particular, the increase in the cost of money impacts on what is the bank’s interest margin. In other words, for players in this sector, the ability to generate profits depends primarily on the difference between what it costs them to collect the money and what they earn by reselling it through credit. From this point of view, the current increase in interest rates increases the price at which the bank can sell the money and consequently increases the revenues and profits of the banks.
Therefore, on the basis of these premises, bank stocks would be the ideal candidates to benefit from the current rate hike and this positive trend may also continue in the coming quarters. In this sense, despite the emergence of more and more signs that could indicate a slowdown in the cycle of tightening of rates, in the next meetings the central banks should in any case raise the reference rates by a further 50 basis points, while it is expected for the end of the first quarter of 2023 the end of the cycle of increases currently in progress.
Despite the critical issues of the last year, in the first nine months of 2022 the major Italian banking groups (primarily Intesa Sanpaolo e UniCredit) continued to report growing revenues. In this sense, according to the latest analyses, the operating income of Italian credit institutions increased by 1.2 billion euros, with a leap of more than 3% compared to what was achieved in the same period of 2021. But that’s not all. In the first nine months, the aggregate net profit of Italian banks reached 8.9 billion euro, up by more than 5% and this thanks to the increase in net interest which stood at 17.5 billion.
New Cash Collects with up to 60% discount protection
An alternative way of investing in the securities mentioned is to use investment certificates, such as i Low Barrier Cash Collect recently issued by BNP Paribas on the SeDeX of Borsa Italiana. These new instruments combine broad protection and potential returns from 9% up to 24.6% per annum. Not an easy goal considering that they come after a market moment characterized by increases and a sharp drop in volatility. The peculiarity of these tools is the very deep premium barrier and maturity barrier, equal to 40% of the initial value of the underlying shares. In fact, the certificates make it possible to receive potential monthly premiums with a memory effect and protect the capital at maturity even in the event of declines in the underlying shares up to -60% of their initial value.
As far as the underlyings are concerned, the baskets of the 15 certificates are constructed to allow the investor to take a position through a single instrument on some of the most important Italian financial and industrial companies or by following a thematic approach, making it possible to focus on securities of various economic sectors: from the hospitality sector to the energy and renewable energy sectors, from the clothing sector to the insurance and financial services sector.
Annual yield of 9.6% for the Italian bank certificate
To exploit the potential of the banking sector, within the new range of certificates we find the Low Barrier Cash Collect (ISIN NLBNPIT1JU31) on the basket formed by Intesa Sanpaolo and UniCredit, the two largest banks in Italy and both big names in Piazza Affari. The product offers a monthly premium with memory effect of 0.80 euro (equal to 9.60% per annum). To collect the coupon it is sufficient that all the shares in the basket are equal to or higher than the Premium Barrier level. In particular, this BNP Paribas issue is characterized by the coincidence between the value of the Premium Barrier and the value of the Maturity Barrier, and their particularly deep level, set for both up to 40% of the initial value of the underlyings.
Furthermore, starting from the second month, the memory effect comes into play which allows the investor to receive, on a valuation date, a cumulative premium including all previously unpaid coupons, if the conditions are met on that valuation date to receive the prize. Starting from the sixth month then, if on the monthly valuation dates all the shares in the basket quote at a value equal to or higher than their respective initial value, the certificates expire prematurely. In this case, the investor receives, in addition to the quarterly premium and the nominal value (100 euros), also any previously unpaid premiums.
If the certificates expire (November 14, 2025), they are offered instead two possible scenarios. In the first case, if the quotation of all the shares is equal to or higher than the Maturity Barrier level (40% of the initial value), the product repays the nominal value plus the premium with memory effect. Otherwise, if the quotation of at least one of the underlyings is lower than 40% of the initial value, the certificate pays an amount commensurate with the performance of the worst stock in the basket (with consequent partial or total loss of the invested capital).
Flurry of Buys from analysts
The consensus on the two stocks of the basket collected by Bloomberg, which we report in the table above, is substantially positive. Almost all analysts recommend the purchase (buy) with a small minority suggesting keeping the shares in the portfolio (hold) and the almost absence of selling (sell). In addition, the 12-month average target price indicates that these stocks currently appear underpriced and by which analysts are expecting potential upsides. This type of certificates are therefore suitable for those investors who want to focus on the growth or lateral nature of a security to obtain an attractive return at the time of early maturity.
WARNING
This publication has been prepared by T-Finance business unit of T-Mediahouse Srl (the Publisher), with registered office in Viale Sarca, 336 (building sixteen), 20126, Milan, in complete autonomy and therefore exclusively reflects the opinions and Editor’s ratings. The information and opinions contained in this publication have been obtained or extracted from sources believed by the Publisher to be reliable; however, the Publisher makes no representations or warranties as to their accuracy, adequacy or completeness. BNP Paribas and the companies of the BNP Paribas group assume no responsibility for its content. Scenarios, calculation assumptions, data and past performance, estimated prices, examples of potential revenues or evaluations are for illustrative/informative purposes only, with no guarantee that such scenarios or potential revenues will occur or be achieved. In any case, the Publisher is not responsible for any loss or damage, direct or indirect, which may arise from the use of the contents of this publication.
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