discussion materials on recent italian rights issues...0 2 4 6 8 10 day 1 day 2 day 3 day 4 day 5...
TRANSCRIPT
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Marco Morelli – Chief Executive Officer – Banca Monte dei Paschi di Siena SpA - Italy October 17, 2017
Discussion Materials on Recent Italian Rights Issues
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What is a Rights Issue?
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1
Rights Issue Cheat Sheet
What? Offer of shares to existing shareholders pro-rata to their existing holding
On average used to raise 40-60% pre-money market cap
How?
New shares offered at a discount vs. market price
Existing shareholders receive pre-emptive rights, allowing them to subscribe pro-rata the new shares during
the subscription period
Rights trade in the market during the subscription period
Why?
Most common use of proceeds are:
Repay debt
Fund working capital
Restructure the balance sheet / enhance rating
Fund growth plans (M&A, capex etc.)
Who?
Rights Issues are very common among European companies, almost unknown in North America
In recent years, activity has been dominated by banks’ recapitalisations; M&A-related rights offering becoming
increasingly frequent
Jurisdictions around Europe have different rules/timetables for rights issues, but generally similar mechanics apply
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Well-known by investors, especially in Europe
2
Key Advantages of Rights Issues
Friendly structure to shareholders
Certainty of proceeds to issuer
Greatest size capacity even in difficult market conditions
Structure allowing for time dedicated to marketing (roadshow etc.)
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3
Mechanics of a Rights Issue
Underwriters and issuer agree on a subscription price at which the new shares will be sold to existing shareholders
Use of proceeds
Absolute & relative size of rights issue
Any new information included in prospectus
Market views on the stock/sector
Volatility of share price
General market conditions
Issuer’s shareholder register
Top shareholders’ commitments
Price / discount is irrelevant to the issuer and to existing shareholder, but relevant for the underwriters
Pricing of Rights Issues – Key Factors
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4
Shareholder Options
Exercise Rights Shareholders can exercise their rights and purchase the new shares they are entitled to
Disbursement proportional to the offer size, % interest in the company to remain unchanged
Sell Rights
Rights are listed and trade actively and independently in the market during the rights’ trading period
Shareholders can decide to sell their rights in the market at their prevailing price, suffering dilution of their %
interest
“Tail-Swallow”
Shareholders can sell the portion of their rights needed to exactly fund the subscription of the rest (cash neutral
strategy)
Strategy minimizing dilution, maintaining the “Euro” investment unchanged
Percentage of dilution not impacted by TERP discount
Do Nothing
Irrational economic behaviour, sometimes due to lack of information / slow decision making process
In absence of any indication, depositary brokers often sell unexercised rights towards the end of the offer on
behalf of the shareholders
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3
4
At the end of the offer, any new shares left unsubscribed are typically auctioned to the market or eventually taken-up by underwriters
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Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10
Use proceeds to buy rights and exercise them
Deliver the shares obtained, closing the short position
Retain the difference, i.e. a “free lunch”
Short-sell shares in the market
5
Rights and Shares Trading Pattern
Rights Issue Arbitrage
Example of Arbitrage Opportunity
€
Rights and shares typically trade at the same time for 1-2 weeks
Normally, rights representing a “levered” way to play the shares
If discrepancies in valuation materialise, arbitrage opportunities arise
If rights trade cheap vs. their theoretical value an opportunistic investor could:
Implied Value of Rights Share Price
1
2
3
4
In standard and liquid rights issues (with availability of stock borrow) arbitrage opportunities occur, but tend to be limited
+12%
+36%
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UniCredit €13bn Case Study
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Company UniCredit S.p.A.
Ticker / Listing
UCG IM / Milan Stock Exchange
Offer Type Fully Underwritten Rights Offering
Offer Size / Statistics
Gross proceeds of c.€13bn / c.$14bn
1,607m new ordinary shares issued
Ratio: 13 new shares for every 5 shares held
Subscription price: €8.09 per share
Discount to TERP: 38.9% (based on closing price on 1 February 2017)
c.79.0% of Market Capitalization / c.94.9% of free float pre setting of terms
42 days trading equivalent (based on 6M ADTV on the domestic line)
Use of
Proceeds Strengthening the UniCredit Group’s capital structure and increasing the capital ratios in line with best in class G-SIFIs
Key Dates
Rights Issue Intention Announced: 13 December 2016
EGM: 12 January 2017
Rights trading period: 6 February – 17 February 2017
Subscription period: 6 February – 23 February 2017
Initial take-up: 23 February 2017
Auction of unexercised rights: 27 February 2017
Take-up
99.8% before auction of unexercised rights
Remaining rights were all sold at the first auction on Monday 27 February and a full take-up achieved on Thursday 2 March
6
UniCredit €13bn Rights Issue - Transaction Summary
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“Documento di Registrazione”
7
AVVERTENZE PER L’INVESTITORE .............................................................................................................. 1
DEFINIZIONI .............................................................................................................................................. 21
GLOSSARIO ............................................................................................................................................... 29
1. PERSONE RESPONSABILI ....................................................................................................................... 45
2. REVISORI LEGALI DEI CONTI .................................................................................................................. 46
3. INFORMAZIONI FINANZIARIE SELEZIONATE ......................................................................................... 47
4. FATTORI DI RISCHIO .............................................................................................................................. 96
5. INFORMAZIONI SULLA SOCIETÀ ......................................................................................................... 225
6. PANORAMICA DELLE ATTIVITÀ ........................................................................................................... 245
7. STRUTTURA ORGANIZZATIVA ............................................................................................................. 361
8. IMMOBILI, IMPIANTI E MACCHINARI ................................................................................................. 372
9. RESOCONTO DELLA SITUAZIONE GESTIONALE E FINANZIARIA .......................................................... 378
10. RISORSE FINANZIARIE ....................................................................................................................... 446
11. RICERCA E SVILUPPO, BREVETTI E LICENZE ...................................................................................... 463
12. INFORMAZIONI SULLE TENDENZE PREVISTE .................................................................................... 464
13. PREVISIONI O STIME DEGLI UTILI ..................................................................................................... 468
14. ORGANI DI AMMINISTRAZIONE, DI DIREZIONE O DI VIGILANZA E ALTI DIRIGENTI.......................... 503
15. REMUNERAZIONI E BENEFICI ........................................................................................................... 533
16. PRASSI DEL CONSIGLIO DI AMMINISTRAZIONE ............................................................................... 540
17. DIPENDENTI ...................................................................................................................................... 553
18. PRINCIPALI AZIONISTI ....................................................................................................................... 563
19. OPERAZIONI CON PARTI CORRELATE ............................................................................................... 564
20. INFORMAZIONI FINANZIARIE RIGUARDANTI LE ATTIVITÀ E LE PASSIVITÀ, LA SITUAZIONE FINANZIARIA E I PROFITTI E LE PERDITE DELLA SOCIETÀ ....................................................................... 574
21. INFORMAZIONI SUPPLEMENTARI ..................................................................................................... 702
22. CONTRATTI IMPORTANTI ................................................................................................................. 722
23. INFORMAZIONI PROVENIENTI DA TERZI, PARERI DI ESPERTI E DICHIARAZIONI DI INTERESSI …...... 746
24. DOCUMENTI ACCESSIBILI AL PUBBLICO ........................................................................................... 747
25. INFORMAZIONI SULLE PARTECIPAZIONI .......................................................................................... 748
Table of Contents “Documento di Registrazione”
UniCredit €13bn Rights Issue - Transaction Summary (Cont’d)
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9M2016 2019
Strengthen and Optimise Capital
M&A actions: Pioneer, Pekao and 30% of Fineco €13bn rights-issue Conservative plan delivering organic capital generation
>10.8% CET1 ratio >12.5% CET1 ratio
Improve Asset Quality
Addressed Italian legacy issues, through de-risking of €17.7bn portfolio and proactive bad loans management
Detailed review of portfolio resulting in strengthened coverage ratio
Tightened risk discipline to further improve credit portfolio risk profile
€8.1bn one-off LLPs
254 bps (1) CoR 49bps CoR
Transform Operating Model
Operating model transformation to a sustainable lower cost structure
Further improve customer focus, service and products
IT investments lo support business transformation
Digitalisation as enabler
€1.7bn net annual recurring cost savings as of 2019
944 branches reduction in Western Europe by 2019
€1.6bn IT investment cash out over plan period
Maximise Commercial Bank
Value
Capitalise on Retail client relationships potential
Leverage on "go to" bank status for Corporate clients in Western Europe
Further strengthen leadership position in CEE
Enhance cross-selling across business lines and countries
€80bn increase to reach €856bn TFA in 2019
Additional €363m joint CIB-Commercial Banking revenues (2)
Adopt Lean but Steering Center
Strong steering Group Corporate Center; KPls to drive performance and ensure accountability
Leaner support functions and transparent cost allocation
Weight of Group Corporate Center on total costs from 5.1% to 2.9% by 2019
8
5 Pillars Underlying the Business Plan UniCredit Business Plan Overview
____________________ Source: UniCredit investor presentation. Note : All 2015 and 9M2016 figure restated assuming new Group perimeter. (1) Including one off LLPs, if excluding one off LLPs cost of risk equals to 77bps. (2) Includes revenues on GTB, ECM, DCM, M&A Markets products from Commercial Banking clients and structured financing products from Corporate clients.
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9 ____________________ Source: UniCredit investor presentation. (1) Pekao, Pioneer, Ukraine, 20% Fineco (10% Fineco disposal already factored in the baseline).
Credit Portfolios Adjustment
€8.1bn one-off LLPs
224bps
Additional Network
Transformation and Restructuring
€1.7bn integration costs post-tax to achieve recurring cost savings
46bps
Other Charges
Includes write down on Group participations, other provisions and net gain on card processing activities
30bps
Capital Dynamics 2017–2019
Other capital dynamics
41bps
Strengthen capital position >12.5%
CET1 ratio
c. 168bps
Announced Disposals (1)
Capital Generation
164bps
Includes:
Closed in Q4 2016: Fineco 20% ABB (12bps), Ukraine (6bps)
Closing expected in H1 2017: Pekao (61bps), Pioneer (84bps)
Rights Issue
€13bn capital increase
345bps
Sources and Uses of Capital over the Business Plan Period
Uses of Capital (-) Sources of Capital (+)
UniCredit Business Plan Overview (Cont’d)
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10
Cash dividend policy of between 20-50% pay out ratio ____________________ Source: UniCredit investor presentation. (1) All 2015 and 9M2016 figures restated assuming new Group perimeter, adjusted figures include expected €8.1bn one-off LLP unless otherwise stated; plan assumes a cash dividend with 20% payout. (2) Including one-off LLP; if excluding LLP in 9M2016 cost of risk equal to 77bps. (3) Stated figure in 2015 and 9M2016.
Historical Figures (Pro-forma (1)) Business Plan Targets (1)
2015 9M2016 2017E 2019E
Revenue 2015–2019 CAGR
+0.6%
Cost/Income 61.6% <52%
Cost Base €12.2bn €11.7bn €10.6bn
Cost of Risk (2) 89bps 254bps 65bps 49bps
Net Income €1.5bn €4.7bn
RoTE 4% >9%
CET1 Ratio (3) 10.4% 10.8% 12.0% >12.5%
RWA €361bn €362bn €389bn €404bn
Group NPE Coverage
50.8% 63.0% >54% >54%
Group UTP Coverage
34.2% 40.8% >38% >38%
Group Bad loan Coverage 60.6% 74.5% >65% >63%
Non-Core Net NPE €24.8bn €15.8bn €11.4bn €8.1bn
Non-Core NPE Coverage 52.4% 68.2% >56% > 57%
Key Financial Targets UniCredit Business Plan Overview (Cont’d)
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PowerPoint Table
Embed ____
11
UCG Rights Issue in Context
____________________ Source: Dealogic, as of September 2016. EMEA Rights Issues greater than $8bn or greater than $1.3bn but representing more than 50% of market cap. Italian Rights Issues greater than $1bn since 2008.
Announcement
Date
Launch
Date Company Country
Deal Size
($bn)
% Of
Market Cap Ratio
Discount to
TERP (%) Take up (%)
22-Apr-08 22-Apr-08 RBS UK $24.3 32.8 11 / 18 34.9 95.1
05-Nov-09 5-Nov-09 Lloyds UK $22.0 54.2 1 / 1 38.6 95.3
02-Mar-09 2-Mar-09 HSBC UK $17.9 22.0 5 / 12 38.7 96.6
13-Sep-10 20-Sep-10 Deutsche Bank Germany $14.0 35.2 1 / 2 21.9 99.3
13-Dec-16 6-Feb-17 UniCredit Italy $13.9 79.1 13 / 5 38.9 99.8
30-Jul-13 13-Sep-13 Barclays UK $9.3 15.0 1 / 4 34.9 94.6
19-May-14 5-Jun-14 Deutsche Bank Germany $9.2 21.0 5 / 18 20.1 99.1
10-Nov-08 10-Nov-08 Santander Spain $9.2 13.5 1 / 4 40.6 99.5
15-May-08 4-Jun-08 Credit Agricole France $9.1 20.9 1 / 3 30.7 100.0
24-Jan-08 11-Feb-08 Societe Generale France $8.5 15.5 1 / 4 33.1 99.1
06-Apr-11 22-May-11 Commerzbank Germany $7.7 50.2 10 / 11 29.8 99.9
16-Jul-08 4-Sep-08 Natixis France $5.4 50.1 13 / 10 40.6 96.7
13-Mar-13 14-May-13 Commerzbank Germany $3.2 54.9 20 / 21 27.3 99.7
08-Oct-12 12-Nov-12 Banco Popular Spain $3.2 102.9 3 / 1 31.6 99.9
24-Jun-14 24-Jun-14 BES Portugal $3.1 71.8 7 / 4 34.3 98.8
05-Feb-09 4-Mar-09 SEB Sweden $1.8 71.0 11 / 5 39.6 98.5
09-Jan-17 9-Jan-17 Millennium BCP Portugal $1.3 135.4 15 / 1 38.6 98.4
12-Apr-12 12-Apr-12 BES Portugal $1.3 59.2 7 / 4 41.5 99.3
Average $ 8.9 50.3 - 34.2 98.3
Announcement
Date
Launch
Date Company Country
Deal Size
($bn)
% Of
Market Cap Ratio
Discount to
TERP (%) Take up (%)
13-Dec-16 6-Feb-16 UniCredit Italy $13.9 79.1 13 / 5 38.9 99.8
14-Nov-11 4-Jan-12 UniCredit Italy $10.2 60.7 2 / 1 43.3 99.8
06-Apr-11 19-May-11 Intesa Sanpaolo Italy $7.2 19.4 2 / 7 24.3 99.8
21-Jan-08 24-Apr-08 Banca Monte dei Paschi di Siena Italy $7.2 58.5 1 / 1 26.2 99.5
26-Nov-13 5-Jun-14 Banca Monte dei Paschi di Siena Italy $7.0 170.3 214 / 5 35.5 99.9
28-Sep-09 7-Jan-10 UniCredit Italy $5.8 10.2 3 / 20 29.0 98.2
05-Nov-14 21-May-15 Banca Monte dei Paschi di Siena Italy $3.8 124.7 10 / 1 38.9 99.6
11-Apr-11 16-Jun-11 Banca Monte dei Paschi di Siena Italy $3.1 43.6 18 / 25 27.9 99.9
24-Oct-10 12-Jan-11 Banco Popolare Italy $3.0 70.7 7 / 5 29.0 99.8
24-Jan-14 27-Mar-14 Banco Popolare Italy $2.0 50.7 17 / 18 31.7 99.1
23-Mar-16 2-Jun-16 Banco Popolare Italy $1.0 65.6 9 / 7 29.6 99.4
Average ITA above $3bn $ 5.9 68.5 - 32.2 99.5
Average ITA all deals $ 5.0 67.4 - 31.5 99.5 Ital
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The €13bn UniCredit capital increase implied raising 79.1% of its market cap at terms announcement and c. 100% on pre-announcement prices
Although very significant in absolute and relative terms, such metrics are not be unprecedented in the European context
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Timetable – Execution Milestones
Deal was launched on a tight timetable, with only seven weeks between announcement and launch
This compares with a median of 11 weeks for Italian banks rights issues above €1bn
Long pre-underwriting period common in Italian rights issues due to EGM approval (requiring 30 days notice) and Consob approval process
UniCredit was the first Italian bank to launch its rights issue on the back of 3Q16 results included in the documentation then integrated with preliminary FY2016 included in a supplement
Only previously done by Saipem (€3.5bn rights issue) in 2016
Overview of Main Deal Timetable Milestones Date Event
13 December UniCredit Capital Markets Day
Rights Issue Intention announced
14 Dec – 21 Dec Investor meetings round I (on the back of ‘Transform 2019”)
9 - 10 January Investor meetings round II
12 January UniCredit EGM
16 – 29 January Investor meetings round III
23 January 10 to 1 share regrouping effective
1 February UniCredit BoD to set rights issue terms / Syndicate Banks sign UWA
Rights Issue Terms set and announced to market
2 February Consob approves Prospectus and published over the weekend
6 February Start of the subscription period Stock goes ex-rights
6 – 10 February Deal roadshow
6 – 17 February Rights trading period
9 February Preliminary FY 2016 Results and supplement to the Prospectus
6 – 23 February Subscription period
23 February Preliminary take-up announced (99.8%)
27 February Auction of unexercised rights start (up to potentially 3 March)
All rights sold on the first auction
2 March Last day to exercise the unexercised rights sold in auction
Final take up announced (100%)
Underwriting dates Offering Dates
12
We
eks
7 W
ee
ks 4
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# Banks Role Underwriters Pre U/W U/W
6 Joint Global Coordinators
€1,146m U/W each
5 Co-Global Coordinators
€557m U/W each
10 Joint Bookrunners
€388m U/W each
11
Junior Members Co-Bookrunners, Co-Lead Managers
and Co-Managers
From
€200m to €40m U/W
32
€13bn €13bn
13
Overview of Syndicate Structure
UCG CIB not underwriting
ABN Amro, Banca Akros, Caixa, Danske, Equita,
Haitong, Jefferies, KBW, Macquarie, RBC, SMBC
Underwriting Syndicate
Banca IMI, BBVA, BNP, Barclays, Commerzbank,
Crédit Agricole, Natixis, Santander, Société Générale
majority of €13bn Pre-UW
@ Dec. 13th
minority of €13bn Pre-UW
@ Dec. 13th
Important signaling effect with a core group of banks providing pre-undewriting for full €13bn at announcement, then syndicate to a further group of more junior banks for the full undewriting
Further Pre-UW
@ End Dec
____________________ Source: Offering Circular, press releases.
UniCredit’s €13bn rights issue was the largest ever done in Italy and required a wide underwriting syndicate with a total of 32 banks included
Similarly in 2012, the €7.5bn UniCredit rights issue included 27 banks with a similar syndicate structure
Only the most senior banks provided pre-underwriting at announcement of the transaction up for the full €13bn amount with the Joint Bookrunners added later ahead year end
Junior bookrunners added only at the underwriting stage of terms setting
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20
40
60
80
100
120
140
9
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07-nov-16 22-nov-16 07-dic-16 22-dic-16 09-gen-17 24-gen-17 08-feb-17 23-feb-17
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Share Price Performance Overview
Post Referendum and into the Capital Markets Day (‘CMD’), UCG’s strongly outperformed Italian market and European Banks
Strong underweight positioning by investors in Italian financials supported performance once Referendum overhang removed
UCG’s strategic plan and Rights Issue intention announced at CMD were very well received and stock had the largest 1 day gain since May 2010
€13bn RI perceived as a “once and for all” clean-up supporting share price action
Post terms setting, stock traded within tight range as usual for rights issues
Post some initial weakness, share price recovered to above ex-rights date by the middle of the subscription period, touched a low around delivery of new shares (post preliminary take-up) and rallied into the final take up
Volume (m) EuroStoxx Banks
09-Mar-17
€ per share Volumes (m) Underwriting Period Pre-Underwriting Period
+1%↑
13 Dec 2 Mar Key Events Impacting Performance:
4 Dec: Italian Referendum
13 Dec: UCG CMD / RI Announ.
26 Dec: BMPS recap fails
1 Feb: Terms setting for UCG RI
6 Feb: UCG goes ex-rights
6-17 Feb: Rights trading period
6-23 Feb: Subscription period
23 Feb: Preliminary take-up
3 Mar: Final take-up
4th Dec Italian Referendum
+16%↑
+10%↑
26th December BMPS Recap Fails
1 Feb
8th Nov US
Elections
-6%↓
Date Closing Price Performance
08/11/2016 11.0949
02/12/2016 10.4435 -5.9%
12/12/2016 12.1473 16.3%
01/02/2017 13.33 9.7%
23/02/2017 12.44 -6.7%
02/03/2017 13.50 1.3%
UCG lagged the broader sector recovery which followed US elections’ result
Market was pricing in highly expected and sizeable capital increase, as well as a negative, although uncertain, outcome of the Italian Referendum
Speculation on early Italian
elections
FTSEMIB UCG Share Price
____________________ (1) Bloomberg, as of 9 March 2017.
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-5
20
45
70
95
120
145
170
195
no
v-0
7
apr-
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ott
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mar
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set-
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ago
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lug-
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mag
-14
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mar
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15
Main Terms in Setting Discount to TERP
Attractive Valuation
Size vs. Percentage of Pre-Money Market Cap % of Pre-Money
Market Cap
Avg. Size: $7.5bn Avg. Mkt Cap: 17%
Avg. % of Mkt Cap: 147% Avg. % Take-up: 99.7%
MPS
MPS
CBK DB
LLOY MPS
ISP DB CS
Italy Germany France, Switzerland and Netherlands Spain UK & Ireland Size of Deal ($bn)
BARC SC DB
Supportive Investor Feedback
“Likely subscribe as they think UniCredit is very investible and the restructuring will have great benefits for their competitiveness” Asian Long Only
“Impressive management team, think they will deliver so will subscribe”
European Long Only
“Looking to subscribe to their rights in full so effectively doubling their position”
European Long Only
Normalising Volatility Equity markets volatility normalised and compressed, UniCredit’s implied volatility also stabilizing
0
50
100
150
200
250
5
10
15
20
25
30
35
40
45
Jan-16 Mar-16 Jun-16 Aug-16 Nov-16 Feb-17
VIX Index V2X Index
US Elections
15.1%
11.0
Italian Referendum
Brexit Referendum
%
86.6%
Important parameters when setting discount to TERP:
Absolute and relative size of capital raise
Pro-forma valuation on a stand-alone basis and versus sector
Market and stock volatility
Supportive investor feedback
0.59x
0.99x
UCG Peers
P/TBV Prior to Launch (1 Feb)
1
2 3 4
0.53x
0.97x
UCG Peers
P/TBV Prior to Announcement (12-Dec)
UCG valuation pro-forma for announced disposals and €13bn rights issue
1
2
3
4
62.8%
%
UCG 30D Implied Volatility
____________________ Source: FactSet, company data. UCG Pro forma for €13bn capital increase and disposals of Pekao and Pioneer. Peers set includes: SAN, BNP, UBS, ING, BBVA, ISP, SocGen, CASA, DBK, CS, StaCha, KBC, ABN, Erste, CBK.
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Native Excel
Link _ _ _
16
Rights Trading Period - Trading in Rights & Shares
Market Share in Ord. Market Share in Rights
Overall, c. 45% of total rights offered were traded, with the trading peak reached during the last day of subscription, as customary
Relatively lower trading of rights signal of support from shareholders in the deal
Average rights traded in Italian banks rights issues is approx. 70%
In the 2012 UniCredit’s rights issue c.82% of rights outstanding were traded over the two weeks
Overview of Rights Trading
30
23
18
22 22
22
27 26
34
50
31
39
28
35 36 35
41
46
38
58
4,8%
8,6%
11,5%
15,0%
18,6%
22,1%
26,5%
30,8%
36,4%
44,4%
0
10
20
30
40
50
60
70
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
06 Feb 07 Feb 08 Feb 09 Feb 10 Feb 13 Feb 14 Feb 15 Feb 16 Feb 17 Feb
Rights Volumes Ordinary Shares Volumes % Traded of Total Rights Oustanding
____________________ (1) Bloomberg, as of 17 February 2017.
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-3,0%
-2,5%
-2,0%
-1,5%
-1,0%
-0,5%
0,0%
Cost of Subscription Spread Average
-7,0%
-6,0%
-5,0%
-4,0%
-3,0%
-2,0%
-1,0%
0,0%
Theoretical Rights vs. Rights Price Spread Average
17
Rights Trading Period – Arbitrage in Rights
Rights Value Spread Cost of Subscription Spread
Rights Price = Trading Price
Theoretical Rights Price = (Last Price – Subscription Price) * Ratio
Spread = (Cost of Subscription via Rights / Cost of Subscription via Shares) – 1
Cost of Subscription via Rights = (Last Price of Rights*# of Rights) + (Subscription Price*# of New Shares)
Cost of Subscription via Shares = (# of New Shares*Share Price)
Note: 1 right for every 1 existing share
For every 5 rights a shareholder is entitled to subscribe to 13 new shares
Spread = (Theoretical Rights price / Rights Price ) – 1
UniCredit’s rights issue was characterized by a narrow arbitrage gap on both the rights value and the cost of subscription, implying a healthy trading dynamic throughout the rights issue
(1.3%)
(2.8%)
(0.5%)
(1.0%)
% %
____________________ (1) Bloomberg, as of 17 February 2017.
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11.0
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
01-Feb 04-Feb 07-Feb 10-Feb 13-Feb 16-Feb 19-Feb 22-Feb 25-Feb 28-Feb 03-Mar 06-Mar 09-Mar
18 ____________________ Source: FactSet, company data. UCG Pro forma for €13bn capital increase and disposals of Pekao and Pioneer. DB pro forma for the announced €8.0bn capital increase. Peers set includes: SAN, BNP, UBS, ING, BBVA, ISP, SocGen, CASA, DBK, CS, StaCha, KBC, ABN, Erste, CBK. (1) Prices as at 1 February 2017. (2) Prices as at 6 February 2017. (3) Prices as at 10 March 2017.
14.3
13.3
0.59x
0.99x
UCG Peers
0.63x
1.03x
UCG Peers
0.54x
0.98x
UCG Peers
P/TBV Prior to Launch (1)
P/TBV Post Technical Discounting (2)
P/TBV Post Rights Issue (3)
UCG Share Price (€)
UCG Market Valuation Since Setting of Rights Issue Terms Share Price and P/TBV Multiple Evolution
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Banco Popolare €1bn Case Study
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19
Banco Popolare €1bn Rights Issue – Transaction Summary
Issuer Banco Popolare Società Cooperativa
Listing / Ticker
Milan Stock Exchange
BP IM Equity
c. Offer Type Fully underwritten rights offering
Offer Size / Statistics
Gross proceeds of €996m / $1,134m
166.5m new ordinary shares issued
Ratio: 9 new shares for every 7 existing
Subscription price: €2.14
Discount to TERP: 29.3% (vs. previous day closing price)
Use of Proceeds
Primarily to strengthen BP’s capital structure as requested by the ECB in evaluating the merger between BP and BPM and, in the medium term, in the event that the merger will not be consummated, to improve BP’s regulatory capital (specifically, the Common Equity Tier 1 Ratio with a view to enhancing the coverage ratio for total non-performing loans) to enable the Bank to strategically position itself in the market and take those opportunities that might arise from future economic growth
Take-up
99.4% before auction of unexercised rights
All unexercised rights sold by second day of auction
Key Dates
Announcement: 23 March 2016
BoD Approval and Announcement of Terms: 2 June 2016
Rights Trading Period: 6 June – 16 June
Subscription Period: 6 June – 22 June
First Take-Up Announcement: 22 June
Final Take-Up Announcement: 30 June
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Banco Popolare €1bn Rights Issue – Transaction Summary (Cont’d) “Documento di Registrazione”
AVVERTENZE PER L’INVESTITORE ............................................................................................................... 1
DEFINIZIONI .............................................................................................................................................. 13
GLOSSARIO ............................................................................................................................................... 19
1. PERSONE RESPONSABILI ....................................................................................................................... 27
2. REVISORI LEGALI DEI CONTI .................................................................................................................. 28
3. INFORMAZIONI FINANZIARIE SELEZIONATE ......................................................................................... 29
4. FATTORI DI RISCHIO .............................................................................................................................. 58
5. INFORMAZIONI SULLA SOCIETÀ ......................................................................................................... 136
6. PANORAMICA DELLE ATTIVITÀ ........................................................................................................... 153
7. STRUTTURA ORGANIZZATIVA ............................................................................................................. 189
8. IMMOBILI, IMPIANTI E MACCHINARI ................................................................................................. 193
9. RESOCONTO DELLA SITUAZIONE GESTIONALE E FINANZIARIA .......................................................... 194
10. RISORSE FINANZIARIE ....................................................................................................................... 225
11. RICERCA E SVILUPPO, BREVETTI E LICENZE ...................................................................................... 232
12. INFORMAZIONI SULLE TENDENZE PREVISTE .................................................................................... 233
13. PREVISIONI O STIME DEGLI UTILI ..................................................................................................... 239
14. ORGANI DI AMMINISTRAZIONE, DI DIREZIONE E DI VIGILANZA ...................................................... 256
15. REMUNERAZIONI E BENEFICI ........................................................................................................... 295
16. PRASSI DEL CONSIGLIO DI AMMINISTRAZIONE ............................................................................... 310
17. DIPENDENTI ...................................................................................................................................... 321
18. PRINCIPALI AZIONISTI ....................................................................................................................... 325
19. OPERAZIONI CON PARTI CORRELATE ............................................................................................... 326
20. INFORMAZIONI FINANZIARIE RIGUARDANTI LE ATTIVITÀ E LE PASSIVITÀ, LA SITUAZIONE FINANZIARIA E I PROFITTI E LE PERDITE DELLA SOCIETÀ ....................................................................... 331
21. INFORMAZIONI SUPPLEMENTARI ..................................................................................................... 377
22. CONTRATTI IMPORTANTI ................................................................................................................. 397
23. INFORMAZIONI PROVENIENTI DA TERZI, PARERI DI ESPERTI E DICHIARAZIONI DI INTERESSI …...... 406
24. DOCUMENTI ACCESSIBILI AL PUBBLICO ........................................................................................... 407
25. INFORMAZIONI SULLE PARTECIPAZIONI .......................................................................................... 408
Table of Contents “Documento di Registrazione”
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21
Transaction Structure
Exchange Ratio
Capital Increase
Merger between Banco Popolare and BPM through the incorporation of a new banking holding in the form of joint stock company (the
“NewCo”)
The NewCo, established in the form of joint stock company, to operate as both a bank and a holding company with operating functions as
well as responsibilities of coordination and management of all the companies being part of the New Group
Through the Merger, Banco Popolare and BPM to transform from cooperative banks into joint stock companies in line with the provisions
envisaged in the Italian Government’s reform of the cooperative banks
Capital increase carried out by Banco Popolare for a total amount of €1bn ahead of the approval of the Merger by the Extraordinary
General Meetings
Exchange ratio set according to the following equity shareholdings in the New Combined Entity:
54.6% of the share capital to the shareholders of BP
45.4% of the share capital to the shareholders of BPM
Above-mentioned exchange ratios already accounting for Banco Popolare €1bn capital increase
Capital strengthening process by Banco Popolare in order to provide the New Group with an adequate capital base in light of its
prospective role and relevance within the Italian and European banking sector
Capital increase for €1.0bn to be executed ahead of the merger
Pre-underwriting commitments of Bank of America Merrill Lynch and Mediobanca – Banca di Credito Finanziario S.p.A.
____________________ Source: Company data.
Merger Between Banco Popolare and BPM Transaction Overview
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22
Clear Mission
Critical Mass
Strong Competitive Positioning
A Banking Group with national size, leader in the wealthiest areas of Italy
Solid capital base and excellent liquidity profile, coupled with a growing and sustainable profitability
Value creation through improved efficiency, significant synergies, rationalization of product offering and development of a multi-channel network
4 million customers and c.2,500 branches
Total assets of €171bn
Direct funding of €120bn and customer loans of €113bn
Indirect funding of €105bn, of which c.€56bn of assets under management
3rd banking group in Italy, with a market share above 8% by number of branches
Focus on Northern Italy: 3rd player with 11% market share
Leadership in the wealthiest regions of the country: Lombardy (1st – 15.5% m.s.), Piedmont (3rd – 12.5% m.s.), Veneto (3rd – 9.5% m.s.), Tuscany (3rd – 9.7% m.s.), Emilia Romagna (4th – 7.6% m.s.), Liguria (2nd – 14.7% m.s.)
Market leader in the wealthy provinces including: Verona, Milan, Novara, Bergamo, Lodi and Lucca
Merger Between Banco Popolare and BPM (Cont’d)
Diversified Revenue Drivers
Strong potential to expand customer base
Excellent positioning in:
Asset Management
Private Banking
Corporate & Investment Banking
Bancassurance
Consumer Finance
Significant Value Creation Potential
Fully phased pre-tax synergies preliminarily estimated in euro ~460 million per year
Cost synergies = c.€320m (equal to ca. 10% of the 2015 combined cost base of the two Groups)
Revenue synergies = c.€138m (equal to almost 3% of the 2015 revenue base of the two Groups)
One-off integration costs estimated at approximately 150% of cost synergies, in line with previous comparable transactions
____________________ Source: Company data, investor presentation.
Merger Rationale
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23
Among other things, the ECB as a pre-requisite for the Merger requested that the New Group immediately has coverage ratios for
bad loans and NPEs at least equal to 62% and 49% respectively (i.e. the average coverage ratios of the three largest banks in Italy)
In this respect, as of December 31, 2015, and as of March 31, 2016, Banco Popolare’s coverage ratios for bad loans and NPEs were
lower than the average coverage ratio of the three largest banks in Italy
The targeted coverage ratios for bad loans and NPEs of the New Group, Banco BPM, were planned to be progressively achieved
during 2016 and in any case before the date of the merger (1st January 2017) (1)
Merger Between Banco Popolare and BPM (Cont’d)
____________________ Source: Company data, Banco Popolare’s Documento di Registrazione disclosure. (1) Targets achieved as at year end 2016 foreseeing the application of IFRS 3, i.e. fair value valuation due with the opening of the FY 2017 financial statements (1st January 2017) of ex BPM loans acquired in the merger. (2) Figures including write-offs.
ECB Request for the Coverage Ratios for Non-Performing Loans of the New Group
ISP MPS UCG Average BP (2) Banco BPM (2)
Average coverage ratio for bad loans 61.8% 63.4% 60.5% 61.9% 56.3% 57.2%
Average coverage ratio for non-performing loans
47.6% 48.5% 50.9% 49.0% 43.7% 43.8%
Figures as of December 31, 2015
ECB Request
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24
Merger Between Banco Popolare and BPM (Cont’d)
____________________ Source: Company data, Banco BPM investor presentation. (1) Data as of June 2015. (2) For BNL customer loans as of December 2015 as reported by the parent company BNPP; direct funding as of December 2014.
4.144 3.873
2.467
2.133 1.813
1.554
1.216
834 812 654 636
ISP UCI NewGroup
BMPS BP UBI BPER CARPR BNL BPM CRED
298
215
113 111 85 78 77
44 37 34 25
ISP UCI NewGroup
BMPS UBI BP BNL BPER CARPR BPM BPVi
311
278
120 119
92 82
47 45 38 37 30
ISP UCG NewGroup
BMPS UBI BP BPER BNL BPM CARPR BPSo
(1)
#3 #9 #4 #1 #2 #3 #5 #6 #7 #8 #10 #3 #9 #4 #1 #2 #3 #5 #6 #7 #8 #10
#3 #9 #4 #1 #2 #3 #5 #6 #7 #8 #10
Distribution Network (# of Branches in Italy, 2015YE) Net Customer Loans in Italy (€bn, 2015YE)
Direct Funding in Italy (€bn, 2015YE) Total Indirect Funding (€bn, 2015YE)
(1)
(1)
(2)
(2)
Creation of a New Top Player in the Italian Banking Landscape
144
289
56 56 49 35 25 30 21 18 28
525 494
106 105 80 71 59 49
34 34 33
UCG ISP BMPS NewGroup
UBI BP CARPR BNL BPM BPER CRED
#3 #9 #4 #1 #2 #4 #5 #6 #7 #8 #10
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Early June
Mid June
Banco Popolare EGM
Signing of Pre-Underwriting Agreement and announcement of Capital Increase by Banco Popolare BoD
Announcement of Q1 2016 Results
Company BoD set the terms of the rights issue Consob approved the Prospectus
Start of the offer period Stock went ex-rights
Rights trading (6-16 June) and subscription period (6-22 June)
Preliminary take-up announcement
Final Take-Up Announcement (99.4%)
Brexit referendum
End of June Early July
Half May
25
M&A and Rights Issue Timelines
M&A Process Rights Issue
23 March Banco Popolare BoD and BPM Management and Supervisory Board approved and signed MoU
ECB and BankIT released the relevant authorisations
Banco Popolare BoD and BPM Management and Supervisory Board approved the Merger Plan
Merger was effective / Set-up of the New Group
10 May
23 May
8-9 Sep
7 May
1 Jan 17
2-3 June
6 June
6-22 June
22 June
30 June
Presentation to the investor community of the joint BP-BPM business plan for 2016-2019
EGMs of BP and BPM approved: (i) the Merger and conversion into Joint Stock Company
(ii) the articles of association of the NewCo 15 Oct
23 June
16 May
____________________ Source: Company data.
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26
Announcement of the capital raise well expected on the back of the ECB letter highlighting need of strong capital position
Actual structure of capital raise left open for both a pre-emptive offer and in combination with an equity linked instrument
Although a 99.4% take-up was achieved, the stock failed to fully recover in the wake of Brexit driven uncertainty
Potential for merger not going through Shareholders’ vote also held stock back until vote on 15 October 2016
BP announced the merger with Popolare Milano on 23 March
Since the start of 2016 the stock heavily suffered the European macro uncertainty as well as the deteriorating sentiment towards Italian banks and the NPL situation
0,0
10,0
20,0
30,0
40,0
50,0
60,0
1,5
2,5
3,5
4,5
5,5
6,5
feb-16 mar-16 apr-16 mag-16 giu-16 lug-16
Banco Popolare Share Price Performance Overview
€ per share Volumes (m)
(40%)↓ YTD 23 Mar 2 Jun 1 Jul
23rd June Brexit Referendum
Key Events Impacting Performance:
23 Mar: RI Announcement
02 Jun Announcement of terms
6-16 Jun: Rights trading period
6-22 Jun: Subscription period
22 Jun: Final take-up
23 Jun Brexit Referendum
(41%)↓
Volume Traded Banco BPM Share Price
Underwriting Period Pre-Underwriting Period
(30%)↓
Notwithstanding the good feedback and shareholder’s support in the deal, BP’s shares suffered on a performance basis due to upcoming Brexit uncertainty
During subscription period, share price always remained above subscription, although with a thin buffer post the Brexit vote
____________________ (1) Bloomberg, as of July 2016.
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Appendix A – Additional Materials on Rights Issues
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Rationale for a
Discount
Discount used to mitigate the risk of an excessive
stock price fall during the offer period
As long as rights have a positive value (i.e. that the
stock doesn’t trade below subscription price), the
market has an economic incentive to subscribe
Discount
Neutrality
From a portfolio point of view, the level of discount
is theoretically irrelevant, as this is a ‘zero-sum
game’ to existing shareholders
Discount impacts value of shares vs. value of rights;
but the sum is not affected
27
The TERP
The TERP Discount The Theoretical Ex Rights Price (“TERP”)
Theoretical price at which the shares should trade, once the rights are detached
TERP =
(Current Shares Outstanding * Current Share Price) + (Newly Issued Shares * Subscription Price)
(Current Shares Outstanding + Newly Issued Shares)
Current Share Price
TERP Subscription Price
Theoretical Value of Detached Rights
Discount to TERP
The discount to TERP represents the difference in % between the subscription price and the TERP
Share Price Pre - Rights Issue = Rights Value + TERP
A weighted average of the old share price and the subscription price for the new shares
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28
A Numerical Example
Shareholder Options ─ Illustrative Examples
Rights issue discount does not create or destroy any value for the issuer or its shareholders
Options Available to Shareholder
Investor X Subscribes Status Quo
Investor X Initial Shareholding
Investor X Sell Rights
Investor X Tail-Swallows
Share Subscribed (m) 25
Rights Sold (m) -
Cost of Subscription (€m) (125)
Cash In from Rights Sold (€m) -
Final No. Of Shares Held (m) 50
Value of Final No. Of Shares Held (€m) 375
Final % of Capital 1.25%
Cash Investment (€m) (125)
Total Value of Portfolio Net of Cash Investment (€m) 250
-
25
-
63
25
188
0.63%
63
250
8
17
(42)
42
33
250
0.83%
-
250
1 2 3
Initial Share Price (€) 10.00
Shares O/S (m) 2,000
Market Cap (€m) 20,000
New Shares Issued (m) 2,000
Issue Price (€) 5.00
Capital Increase Amount (€m) 10,000
TERP (€) 7.50
Value of Right (€m) 2.50
Discount to TERP (%) 33.3%
Position in Shares (m) 25
Value of Position (€m) 250
% of Capital (%) 1.25%
Value of Ex-Right Shares (€m) 188
Value of Rights (€m) 63
New Shares X is Entitled to (m) 25
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29
The Underwriting Process
Role of Investment Banks in Rights Issues
Underwriting
Rights issues are typically underwritten at subscription price when terms are set
Banks guarantee to buy any shares offered to shareholders but declined by them and not sold into the market
Economics of underwriting arrangements involve the assumption of risk and transaction management by the
underwriter(s) against payment of fees by the issuer
Stand-by
Underwriting
When issuers announce capital increases a few months ahead of the start of the offer, banks usually provide
stand-by underwriting agreements to ensure the issuer will be able to raise the announced proceeds
These agreements are normally not based on a firm price, but only on volume
Sub-Underwriting
Banks might decide to decrease their underwriting exposure shifting part of their risk to other banks or
institutional investors
Syndicate members typically profiting from different fee levels
Joint Global Coordinators
Joint Bookrunners
Co-Lead Managers
Sub-Underwriters
Manage execution process and lead pricing discussions Typically take 50-60% of the economics
Involved in process and pricing discussions Take c. 20-30% of the economics
Junior layers considered for relationships purposes Lower underwriting quota and fees
Often hedge funds Not officially part of the banking syndicate (do not face the issuer)
Take the bulk of risk / fees
Deal Syndicate
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Appendix B – Table of Contents of UniCredit’s “Documento di Registrazione”
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30
____________________ Source: company data.
UniCredit’s “Documento di Registrazione” Detailed ToC
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31
____________________ Source: company data.
UniCredit’s “Documento di Registrazione” (Cont’d) Detailed ToC
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32
____________________ Source: company data.
UniCredit’s “Documento di Registrazione” (Cont’d) Detailed ToC
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33
____________________ Source: company data.
UniCredit’s “Documento di Registrazione” (Cont’d) Detailed ToC
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34
____________________ Source: company data.
UniCredit’s “Documento di Registrazione” (Cont’d) Detailed ToC
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35
____________________ Source: company data.
UniCredit’s “Documento di Registrazione” (Cont’d) Detailed ToC