Week in Review (3 May)

Italy returns to growth

After two consecutive quarters of negative growth at the end of 2018, Italy’s economy recorded a 0.2% rise in GDP for Q1 2019, following strong industrial production data in February and service sector PMIs in March. Although both populist parties taking to the airwaves to proclaim the success of their fiscal strategy, it is worth noting that exports provided the primary positive contribution to growth while domestic demand, which the government is trying to stimulate through its measures, acted as a drag on growth.

Carige rescue plan to entail further contributions from Italian banks

We noted in our 4 January report, that it may well be the case that Carige will have to reach the point of resolution before a buyer is found, similar to the Intesa acquisition of Banca Popolare di Vicenza and Veneto Banca.

We are now in a situation where all potential purchasers have fallen out of the bidding process bar Blackrock. Even at that, Blackrock’s interest is far from emphatic and it is possible that rather than buying the bank, Blackrock will act as underwriter for a rights issue of €630 million.

Blackrock’s latest plan reportedly entails having the Italian deposit guarantee fund (DGF), financed by Italian lenders, to take part in a cash call. The plan is to significantly exceed the €630 million required. Should Blackrock fail, this would in any case see the DGF take an ownership stake in Carige as it would require the bank to convert a €318 million bond held by Italy’s deposit guarantee fund into equity. Speculation surrounding the futures of the employees of Carige is such that the SSM special administrators felt it necessary this week to write to all 4,000 employees stating that the rumours circulating of a halving of the workforce are unfounded.

Danske Q1 results show strain of money laundering scandal

Danske Bank’s Q1 results, published on 30 April, showed that the bank had had – in its own words – ‘a slow start to the year’.

Danske’s report pins the slowdown on higher impairments, higher expenses, and lower net interest income. Expenses were 9% higher year-on-year ‘due primarily to investments in regulatory requirements and compliance and further anti-money laundering efforts.’ Compliance has been at the centre of all coverage of Danske since the emergence, in September 2018, of the full scale of its entanglement in money laundering allegations in Eastern Europe.

Danske reiterated that it is cooperating with all authorities, but that ‘it is not yet possible to reliably estimate the timing or amount of potential settlement or fines, if any, which could be material.’ Danske acknowledged that – on orders from the Danish FSA has increased its solvency need with a Pillar II add on of 10 billion kroner ‘to ensure adequate capital coverage of the increased compliance and reputational risks in relation to the Estonian AML matter.’