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16 | ifr special report | September 2009 ITALY

demand for fixed income products predomi- nantly driving the high levels of issuance. It increased the volumes of trades distributed across its asset management, insurance, retail and third-party networks, increasing market share in Germany, Austria and Italy. The structured capital markets division has also had a stellar year providing advisory services on the management of risk-weighted assets and capital generation, while capital market solutions has provided assistance on regulatory, tax and accounting issues. Hammond said he expects significant demand for advisory work to continue given the restructuring of the market in general.

The bank has strong fundamentals to support the capital markets division with a strong equities research franchise, he added – in particular a leading position in emerging markets coverage.

The credit research team is also gaining industry recognition and improving its rankings in polls among institutional investors. While many competitors have either exited the market or drastically reduced operations, UniCredit has continued to provide a full service research function. “We focus on our core competen- cies and provide intelligence in areas where clients value our opinion,” said Philip Gisdakis, head of credit strategy and structured credit research.

What you see is what you get The main strength of Banca IMI’s capital markets division during the previous two very challenging years has been its clean and efficient balance sheet. The process of restructuring it began immediately after its combination with Banca Caboto, formerly the investment banking arm of Banca Intesa before Intesa merged with Sanpaolo IMI in 2007.

The final step of the re-organisation of the

investment banking business line takes place in mid-September, when Banca IMI will acquire all the structured finance assets of Intesa Sanpaolo. Banca IMI will then concentrate all its activity in the capital markets and become the investment banking arm of Intesa Sanpaolo. “Starting from the last quarter of the year, the bank will focus a lot more on structured finance, where we see many opportunities after the major restructurings of the last 12-15 months,” said Andrea Munari, general manager at Banca IMI. He predicted the wave of balance sheet restructurings in the banking and corporate sector will continue for the next couple of quarters. Larger corporates will be likely candidates to undertake a capital

call or debt restructuring. The bank feels it is well positioned to help clients solve their financing and liquidity issues. Being less involved in very sophisticated capital structure transactions has helped the bank’s standing among its client base, said Munari. Having a strong balance sheet that is well capitalised with a lot of liquidity and free from any toxic assets has been an important advantage in increasing market share and the bank’s reputation. An increasing number of Italian corporates are recognising Banca IMI as a solid counterpar- ty to deal with and that a more open rela- tionship is being fostered in dealings with other investment banks, Munari added. Net profit for the first half of 2009 amounts to €292.7m, an increase of 109.5% on the €139.7m posted in the first six months of last year. Banca IMI has taken advantage of favourable market conditions to boost its plain vanilla business with strong trading in government bonds, inflation-linked bonds, structuring investment products and interest rates. The bank has lead managed a number of significant deals during the year. For instance, the €8bn capital raising for Enel, and debt financings for Edsion, Wind, Fiat, and foreign local authorities issues for Ile de France and Ville de Paris. “We have been able to really strengthen the franchise across the bank quite effectively this year,” said Munari. The bank has achieved a good level of penetration in terms of market share and positioning, he said – though the majority of business activity remains confined to Italy. “This is both IMI’s strength and Achilles’ heel,” said Munari. “We need to expand across Europe and the challenge now is going abroad.”

The bank is aiming to develop its capital markets franchise in countries where even a small market share in percentage terms could be significant to the bank’s bottom line. Munari proposed the US as one possible target, albeit on a small scale, as well as the UK – particularly among institu- tional investors, where the bank has his- torically been less focused.

The bank is also eying cross-border deals with some of its Italian clients, and is optimistic about seeing increased M&A activity among medium sized corporates, in the first instance, followed by financial institutions.

Though Banca IMI’s interest in commodities trading is not yet robust enough to allocate huge investment, it is still an area the bank sees as valuable for the Italian corporate sector. “Firms need to closely look at their commodities exposure as many have suffered major losses or been

under severe risk. We want to help Italian corporates learn how to handle and manage the volatility risk they have in commodities, said Munari.

Banca IMI has worked successfully with Italian corporates, particularly on oil, and it could support more firms by providing solutions for CO2, electricity and soft commodities, Munari said.

He predicted a greater number of oppor- tunities will appear in equity derivatives and structured equity, which have witnessed massive deterioration in values the last 15-18 months. There are also good prospects on offer in the credit markets, particularly after the favourable re-pricing in non-performing loans and leveraged finance. “A common theme across the market is that clients are going back to basics and simple solutions that are very easy to understand but most importantly liquid and easy to unwind, to protect themselves from declining values,” he said.

A product of its environment Mediobanca witnessed an upturn in banking activities in its fiscal third quarter of the year driven by its corporate and investment banking unit, which reported highest quarterly income for the past eighteen months. A 14% growth in net interest income to €276m was driven by wholesale banking, which increased by 17%. There was a strong recovery in net fee and commission income to €227m which, though down 4% for the previous nine months, increased 56% in the last quarter. Net trading income also showed significant improvement of about €90m, on the back of five consecutive slightly profitable quarters. Mediobanca’s overall net profit sank to €39m, down from €783m in the same period last year, with trading losses and the economic downturn weighing heavily on earnings. Write-downs to securities amounted to €355m, €78m in Q3, while income from equity investments dropped €367m, including a €330m fall from Mediobanca’s 15.7% stake in Assicurazioni Generali, Italy’s biggest insurer. Dietmar Tzschentke, financials analyst at UniCredit, believes that Mediobanca’s poor operating performance reflects the weak and volatile stock markets for much of last year and the start of 2009. The general improvement and recovery of the European equity markets during the course of this year could result in the bank’s equity holdings regaining fair value and thus reducing further impairments. Mediobanca has stated it holds no toxic assets, such as securities related to US subprime mortgages.

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