In our article “European banks and French elections: what next?” published on the 27th April 2017 we said:
“Italian banks are operating in even harsher macroeconomic conditions than those based in France, but again, the eurozone recovery could give some steam to the Transalpine Republic and its major lenders Unicredit and Intesa.
Always being aware of the serious risks assumed, a bold banks investor could buy short-term call options in main Italian lenders currently quoted at distressed prices – Unicredit 0.49 times price book value – hoping to take advantage of the temporary recovery of the Italian economy.”
We are in this situation now. The Italian economy is still fragile, but taking advantage of the European recovery, is showing progressively better numbers. This dynamic should help Italian banks to improve their solvency and profitability over the next 3 – 5 years.
Since the article was published in April Unicredit’s (OTCPK:OTCPK:UNCFY) (OTCPK:OTCPK:UNCFF) stock price increased from €14.95 to €16.39 (+9.66%) and Intesa’s (OTCPK:OTCPK:IITOF) stock price went up from €2.67 to €2.77 (+3.7%). It seems there is still a major scope for this strategy to be played out.
Italian economy macro evolution
We still believe the Italian economy lacks competitiveness in terms of the mix of costs / technology when compared with other key Eurozone trade partners. Nevertheless, the area-wide recovery should help Italian GDP to stabilized and increase moderately over the next 3 to 5 years. What will happen in the next crisis when structural imbalances come to the surface again is a matter of speculation.
Consistent with this view, annualized GDP growth rate increased to 1.5% in July, from 0.4% in January 2015. Gross fixed capital formation has been increasing its rate of growth since January 2015, around 6% between then and today.
Unemployment is low, around 11% and the employment rate is around 58%, two percent points less than that of the United…