Unauthorized redistribution of this report is prohibited. This report is intended for [email protected] from [email protected]IMPORTANT DISCLOSURE FOR U.S. INVESTORS: This document is prepared by Mediobanca Securities, the equity research department of Mediobanca S.p.A. (parent company of Mediobanca Securities USA LLC (“MBUSA”)) and it is distributed in the United States by MBUSA which accepts responsibility for its content. The research analyst(s) named on this report are not registered / qualified as research analysts with Finra. Any US person receiving this document and wishing to effect transactions in any securities discussed herein should do so with MBUSA, not Mediobanca S.p.A.. Please refer to the last pages of this document for important disclaimers. Caixa Bank 02 March 2015 Banks Update Investor Day Cheat Sheet Andrea Filtri Equity Analyst New investment case: from „cash cow to be‟ to ‘Iberian restructuring story‟ CABK has been building up as a story of: domestic banking restructuring, capital free up from stakes and sound balance sheet from premium capital and coverage ratios. But the bid on BPI and the upcoming sale of Novo Banco (NB) could transform CABK’s story. Portugal could be a large swing factor for CABK and the BPI bid takes full control of it. The potential integration of BPI/NB into CABK could create ‘Bank of Iberia’. This compelling restructuring story in EU periphery - just as the economy recovers – would lose CABK the cashback and premium capital angles. We expect tomorrow’s Investor Day to provide further colour. Equity stakes: 196bp CET1 cushion vs c.40% of 2015E ROTE We estimate the capital consumption of each stake at CABK and identify on aggregate 188bp of CET1 ratio (87bp from REP and TEF, 101bp from FIG stakes). The full sale of the portfolio would boost CET1 by 196bp, 80% from FIG stakes, 20% from industrial ones. 70% of the CET1 benefit would come from RWA reduction and 30% from the reversal of goodwill deductions, while capital deductions offset net losses from MTM. So, stakes represent a thick capital buffer for CABK to fund growth and/or face regulatory hurdles. 2.7 p.p. ROTE erosion is the negative, with TEF as the largest contributor (70bp) and Bank of East Asia (BEA) minimizing RoTE hits while maximizing CET1 boost. 350bp CET1 gearing (M&A and regulation) vs 280bp CET1 cushions (stakes) CABK reported a high 12.3% FL CET1 ratio, yet excess capital is hard to pinpoint as we estimate 350bp potential erosion from regulation (140bp) and acquisitions (210bp). On the former: the lifting of the Danish Compromise (90bp), the introduction of 10% risk weight on govies (20bp) and their implications for DTAs (30bp). On the latter, we see the sale of equity stakes (200bp), 25% minorities in BPI (30bp) and the further re-levering of VidaCaixa (50bp). CABK/BPI/NB, the ‘Bank of Iberia‟: 6% EPS accretion post €5.5bn capital hike The BPI bid at 0.9x P/TE looks generous based on the low profitability (post African exit) and synergy visibility. But we believe this the stepping stone to get to creating Portugal’s and Iberia’s #1 banks through the CABK/BPI/NB merger. The Portuguese merger would provide for €291m visible after tax cost synergies, leading to 6% boost to CABK’s 3-yr EPS. Excluding stake disposals, CABK would need €5.5bn rights issue to defend 11% CET1 ratio (in line with co. targets). CABK is a recovery play through balance sheet growth; not a low cost model Spanish banks overhauled their business model during the crisis with over 1/3 branch closures and 25% loan deleverage. Instead, CABK maintained a large network (2x the peer avg.) of smaller branches requiring higher fixed costs in exchange of stronger and cheaper deposit gathering. We estimate realigning branch productivity to peer avg. would boost EPS by 12% vs 18% by cutting costs in line with competitors. This means CABK is positioned for superior balance sheet growth in a recovery while peers embody the operating leverage play. 30% valuation swing to our TP – Staying Neutral while awaiting developments We estimate 20% upside to our €4.4 TP jointly from the BPI/NB takeover funded by a cash call (+9%) and from the CABK realignment to peer profitability (+11% both for cost cutting and branch productivity). Instead, we see 9% downside from the BPI/NB takeover funded by stake disposals and CET1 gearing. This indicates that valuation is positively skewed to management action. +44 203 0369 571 [email protected]Andres Williams Equity Analyst +44 203 0369 577 [email protected]Source: Mediobanca Securities Price: € 4.11 Target price: € 4.40 Neutral 2014 2015E 2016E 2017E EPS Adj (€) 0.11 0.26 0.38 0.48 DPS (€) 0.09 0.15 0.23 0.29 TBVPS (€) 3.56 3.59 3.73 3.99 Avg. RoTE Adj (%) 3.0% 7.2% 10.3% 12.4% P/E Adj (x) 37.9 16.0 10.9 8.6 Div.Yield(%) 2.3% 3.7% 5.5% 7.0% P/TBV (x) 1.2 1.1 1.1 1.0 Market Data Market Cap (€m) 23,489 Shares Out (m) 5,715 Main Shareholder Name (%) 10% Free Float (%) 60% 52 week range (€) 4.92-3.83 Rel Perf vs STOXX EUROPE 600 BANKS E (%) -1m -0.7% -3m -12.9% -12m -11.6% 21dd Avg. Vol. 22,247,312 Reuters/Bloomberg CABK.MC / CABK SM
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IMPORTANT DISCLOSURE FOR U.S. INVESTORS: This document is prepared by Mediobanca Securities, the equity research department of Mediobanca S.p.A. (parent company of Mediobanca Securities USA LLC (“MBUSA”)) and it is distributed in the United States by MBUSA which accepts responsibility for its content. The research analyst(s) named on this report are not registered / qualified as research analysts with Finra. Any US person receiving this document and wishing to effect transactions in any securities discussed herein should do so with MBUSA, not Mediobanca S.p.A.. Please refer to the last pages of this document for important disclaimers.
Caixa Bank
02 March 2015 Banks Update
Investor Day Cheat Sheet Andrea Filtri
Equity Analyst
New investment case: from „cash cow to be‟ to ‘Iberian restructuring story‟
CABK has been building up as a story of: domestic banking restructuring, capital
free up from stakes and sound balance sheet from premium capital and coverage
ratios. But the bid on BPI and the upcoming sale of Novo Banco (NB) could
transform CABK’s story. Portugal could be a large swing factor for CABK and the
BPI bid takes full control of it. The potential integration of BPI/NB into CABK
could create ‘Bank of Iberia’. This compelling restructuring story in EU periphery
- just as the economy recovers – would lose CABK the cashback and premium
capital angles. We expect tomorrow’s Investor Day to provide further colour.
Equity stakes: 196bp CET1 cushion vs c.40% of 2015E ROTE
We estimate the capital consumption of each stake at CABK and identify on
aggregate 188bp of CET1 ratio (87bp from REP and TEF, 101bp from FIG stakes).
The full sale of the portfolio would boost CET1 by 196bp, 80% from FIG stakes,
20% from industrial ones. 70% of the CET1 benefit would come from RWA
reduction and 30% from the reversal of goodwill deductions, while capital
deductions offset net losses from MTM. So, stakes represent a thick capital
buffer for CABK to fund growth and/or face regulatory hurdles. 2.7 p.p. ROTE
erosion is the negative, with TEF as the largest contributor (70bp) and Bank of
East Asia (BEA) minimizing RoTE hits while maximizing CET1 boost.
350bp CET1 gearing (M&A and regulation) vs 280bp CET1 cushions (stakes)
CABK reported a high 12.3% FL CET1 ratio, yet excess capital is hard to pinpoint
as we estimate 350bp potential erosion from regulation (140bp) and acquisitions
(210bp). On the former: the lifting of the Danish Compromise (90bp), the
introduction of 10% risk weight on govies (20bp) and their implications for DTAs
(30bp). On the latter, we see the sale of equity stakes (200bp), 25% minorities in
BPI (30bp) and the further re-levering of VidaCaixa (50bp).
CABK/BPI/NB, the ‘Bank of Iberia‟: 6% EPS accretion post €5.5bn capital hike
The BPI bid at 0.9x P/TE looks generous based on the low profitability (post
African exit) and synergy visibility. But we believe this the stepping stone to get
to creating Portugal’s and Iberia’s #1 banks through the CABK/BPI/NB merger.
The Portuguese merger would provide for €291m visible after tax cost synergies,
leading to 6% boost to CABK’s 3-yr EPS. Excluding stake disposals, CABK would
need €5.5bn rights issue to defend 11% CET1 ratio (in line with co. targets).
CABK is a recovery play through balance sheet growth; not a low cost model
Spanish banks overhauled their business model during the crisis with over 1/3
branch closures and 25% loan deleverage. Instead, CABK maintained a large
network (2x the peer avg.) of smaller branches requiring higher fixed costs in
exchange of stronger and cheaper deposit gathering. We estimate realigning
branch productivity to peer avg. would boost EPS by 12% vs 18% by cutting costs
in line with competitors. This means CABK is positioned for superior balance
sheet growth in a recovery while peers embody the operating leverage play.
30% valuation swing to our TP – Staying Neutral while awaiting developments
We estimate 20% upside to our €4.4 TP jointly from the BPI/NB takeover funded
by a cash call (+9%) and from the CABK realignment to peer profitability (+11%
both for cost cutting and branch productivity). Instead, we see 9% downside
from the BPI/NB takeover funded by stake disposals and CET1 gearing. This
indicates that valuation is positively skewed to management action.
Table 4 estimates the CET1 impact from the individual sale of the BEA stake. We calculate this
operation would relieve CABK from capital deductions as the BV of FIG stakes >10% would not
exceed 10% of the bank’s capital. As a result, we estimate the sale would generate 81bp CET1
boost.
Table 4: Bank of East Asia stake disposal to CABK CET1 FL ratio
Status quo BEA sale
10% CET1 threashold 1,687 1,687
TE of FIG stakes > 10% 2,408 1,051
RWA from FIG stakes >10% 4,218 2,628
Deductions from FIG stakes >10% 721 -
Gains/losses
(316)
Goodwill 568 568
CABK RWAs 145,019 143,429
CET1 16,871 17,844
CET1 ratio 11.63% 12.44%
Source: Mediobanca Securities, company data
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Caixa Bank
02 March 2015 ◆ 12
Price: € 4.11 Target price: € 4.40 Neutral
Stake sales + mitigation vs regulation threat and M&A In this chapter we weigh opportunities and threats for CABK’s capital ratio. After
dealing with asset quality in 2014 with the Comprehensive Assessment, we envisage
2015 will be for the ECB the year of regulatory harmonisation. We see little risk for
CABK on credit risk but the potential lifting of the Danish Compromise on insurance
holdings, risk weights on govies and the repercussions on DTA/DTC could erode CET1
by 350bp including acquisitions. Of these, stake sales, the listing of BPI minorities and
mitigation on insurance could offset 280bp, maintaining the adjusted 2014 FL CET1
ratio at 11.5%. This suggests when management is targeting 11% post BPI, they have
already taken into account a combination of capital management actions. We
conclude that CABK has room to manage the capital ratio but also that the potential
gearing factors are material and that capital excess considerations on CABK should be
put in this context.
2015 is the year of regulatory harmonisation for the Banking Union
We are convinced that 2015 is the year of regulatory harmonisation in the Banking Union. This
means that the Common Regulator will have to progressively harmonise capital arbitrage across
jurisdictions and banks. The main topics on the table regard:
Credit risk weights - A-IRB risk weights where internal models assess materially different
risks for the same product or counterpart, implying intrinsically asymmetric risk profiles of
banks which are hard to assess by the market (and by regulators);
Market risk, operational risk, litigation risk – the crisis taught us that banks
underestimated these risks and regulators will likely increase risk weights or demand
buffers to cushion risks coming from such factors;
Government bond risk weights – the crisis showed that government bonds are not risk
free. This is a very delicate topic particularly within the Eurozone where introducing risk
weights on govies could refuel the issue that there is no buyer of last resort;
DTA/DTC treatment into CET1 – peripheral EU countries provided a government guarantee
on a large portion of DTAs to allow their computation into CET1 ratio. If risk weights of
govies are introduced, it is likely that this could trigger a limitation or a discount of such
items into regulatory ratios.
Credit risk weight harmonization is not a threat...
Chart 6 shows the comparison of RWA/Assets and of RWA/Loans for EU banks. CABK stands at 41%
and 74%, respectively, compared with 35% and 84% at aggregate sector level and 39% and 74% for
retail banks. This suggests CABK’s RWA density is in-line with other retail banks and above the
sector, so that a potential harmonisation should not pose a serious threat to capital ratios.
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Caixa Bank
02 March 2015 ◆ 13
Price: € 4.11 Target price: € 4.40 Neutral
...but Danish Compromise could be waived...
CABK controls 100% of VidaCaixa, one of Spain’s largest insurance companies with c.€36bn technical
reserves. In 2013 the vehicle carried €3.5bn tangible equity, after €1bn goodwill deduction. This
provided for a 10% ratio between tangible equity and technical reserves. Under Basel III, the
treatment of the equity from controlling stakes in insurance companies is part of the 10% and 15%
buffers of FIG stakes and DTA. Any excess is a deduction from capital ratios. The introduction of the
Danish Compromise allowed to account for such exposures through a penalising 370% risk weight.
The ECB’s harmonisation of capital rules could potentially lift the adoption of the Danish
Compromise, for a potential large hit to CABK’s CET1 ratio. In 2014, CABK geared up VidaCaixa by
paying out over €2bn equity to the parent company, hence reducing the potential risk to group
CET1 ratio. On the Q414 call management disclosed the lifting of the Danish Compromise would
account for c.90bp CET1 erosion but could be reduced to less than 50bp from further mitigating
actions. Table 5 shows the estimated evolution of VidaCaixa’s equity and the 2014 adj. equity to
reduce capital deductions. We envisage up to €1bn further gearing at VidaCaixa through the payout
of further relevering of the balance sheet. This would take TE/technical reserves at 2.9%. This
move matches what Credit Agricole (CA) is doing on its huge insurance operations. The current
€11bn equity supporting the €220bn technical reserves could be reduced to €6bn according to the
company, taking the ratio between the two items to 2.7%, in line with CABK’s potential target.
Chart 6: comparison of RWA/assets and RWA/loans, 2014
Source: Mediobanca Securities
Table 5: VidaCaixa vs CredAg capital requirements 2013, 2014, adjusted for Basel III FL I l s e
2013 2014 adj. CA 2014 CA adj
Capital 1.3 1.3 1.3
Share premium, reserves and retained earnings 3.2 1.7 0.7
Goodwill 1.0 1.0 1.0
TE 3.5 2.0 1.0 11 6
Technical reserves 35 36 36 220 220
Equity/reserves 10.1% 5.6% 2.9% 5.0% 2.7%
Source: Mediobanca Securities, company data
41%35%
39%
74%84%
74%
0%
20%
40%
60%
80%
100%
120%
140%
ALPH
A
PM
I
PIR
BPE
RBI
BBVA
Euro
bank
SAB
NBG
EBS
STAN
PO
P
UBI
UCG
BKT
HSBC
DN
B
ISP
SAN
MPS
BP
CABK
CBK
KBC
RBS
SEB
BKIA
ND
A
BAR
CS
LLO
Y
ING
BN
P
GLE
KN
DAN
SKE
DBK
SW
ED
A
UBS
CASA
SH
B
Banks
Reta
il b
anks
WB b
anks
RWAs/ASSETS RWA/LOANS
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Caixa Bank
02 March 2015 ◆ 14
Price: € 4.11 Target price: € 4.40 Neutral
...risk weights on EU govies is likely to be introduced...
Table 6 shows the evolution of CABK’s ALCO portfolio. As of Q414 this was essentially constituted of
€37bn, 80% from Spanish govies, 20% from other securities. Despite the drop in sovereign spreads,
the yield of the portfolio has maintained stable at a staggering 3.4% through the increase in
duration from 2.1 to 3.1 years. Interestingly, the incidence of Spanish govies on total assets has
reverted to 8% in Q414, back to the Dec-13 level and down from a peak of 10% in Jun-14 and Sep-
14. We believe this is the consequence of the compression of sovereign yields. Yet, the likely action
on risk weights on govies from the ongoing ECB work on RWA harmonisation should imply a
continuation in the diversification of the portfolio, in our view. For the sake of our simulation of
sensitivity of capital ratios, we conservatively assume 10% risk weight.
...likely combined with DTA/DTC restrictions
CABK carries €4.6bn government guaranteed DTAs. This represents 27% of CABK’s FL CET1 capital
and 3.2 p.p. of CET1 ratio. We believe that the recognition of state-guaranteed DTAs into CET1 goes
hand in hand with the introduction of risk weights on govies as these types of DTAs represent
implicitly the same risk. For the sake of our simulation of sensitivity of capital ratios, we assume a
10% haircut to DTA recognition into CET1 capital.
Capital is not an excess resource Table 8 shows the summary of our CABK capital sensitivity where we include impacts from acquisitions, foreseeable regulatory changes, equity stakes sale and mitigating actions. We include:
Acquisitions: Barclays Spain (100%) and BPI (assuming 100% takeout and 25% minority
listing);
Sales: the complete sale of industrial stakes;
Table 6: CABK breakdown of AFS bond portfolio
Govies ES govies Other Yield Duration
govies as %
of assets
Dec-13 27.1 13.5 3.30% 2.1 8%
Mar-14 29.0 12.8 3.40% 2.2 9%
Jun-14 32.8 11.2 3.40% 2.6 10%
Sep-14 31.8 10.5 3.40% 2.5 10%
Dec-14 28.7 7.8 3.40% 3.1 8%
Source: Mediobanca Securities, company data
Table 7: DTA/DTC incidence in CABK’s Basel III FL ratio, 2014
2014
DTA/DTC 4,600
CET1 capital 16,871
RWAs 145,019
DTC incidence on RWA 3.2%
Source: Mediobanca Securities, company data
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02 March 2015 ◆ 15
Price: € 4.11 Target price: € 4.40 Neutral
Regulatory issues and mitigations: waving of the Danish Compromise on the treatment of
the insurance business and management actions to mitigate this, the introduction of risk
weights on govies and the consequent haircut to DTAs into CET1 capital. We assume no
impact to RWA from credit risk harmonisation.
Overall we see potential for up to 3.5 p.p. gearing of CET1 ratio and 2.7 p.p. of capital free up:
Announced acquisitions potentially gear up CET1 ratio by 2.1 p.p. and could be offset by
30bp assuming 25% minority listing. Equity stakes disposal would offset this with 2 p.p.
accretion;
The change in the treatment of insurance operations could cost 90bp, half offset by
potential management actions;
Regulatory risks could account for 0.5 p.p. gearing.
Overall these factors would take CABK’s Q414 FL CET1 ratio pre-acquisitions to the adjusted level of
11.5%, essentially implying that - excluding the Barclays Spain acquisition - CABK could have enough
in-house means to fully offset balance sheet gearing items.
Yet, we conclude the recently announced acquisitions and the potential future regulatory changes
imply CABK is not an over capitalized bank.
Table 8: CET1 waterfall for acquisitions, disposals and regulatory risks
CET1 Assumptions
2014 FL CET1 (incl. BAR) 12.3%
BAR ES 0.70%
BPI 1.40% 100% takeout
Danish compromise 0.90% full deduction
RWA on govies 0.23% 10% risk weight
DTA 0.32% 10% discount
Stakes disposal 1.96%
BPI minority 0.30% 25% minority listing
VidaCaixa mitigation 0.45%
payout of share
premium
Source: Mediobanca Securities, company data
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02 March 2015 ◆ 16
Price: € 4.11 Target price: € 4.40 Neutral
Chart 7: comparison of RWA/assets and RWA/loans, 2014
Source: Mediobanca Securities, company data
12.3%11.5%
0.7%1.40%
0.9%0.2% 0.3%
2.0% 0.3%0.5%
0%
2%
4%
6%
8%
10%
12%
14%
2014 FL CET1
BARES
BPI Danish compromise
RWA on govies
DTA Stake disposals
BPI minority VidaCaixa mitigation
2014 FL CET1 adj
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02 March 2015 ◆ 17
Price: € 4.11 Target price: € 4.40 Neutral
Building the second home market CABK made a VTO for BPI to gain full control of the Portuguese bank. We attach low
visibility to the €130m synergy target as these imply 25% reduction of BPI’s cost vs a
benchmark of 16% for cross-border deals. Looking at profitability, BPI emerges as a
relative underperformer in Portugal. This is particularly evident if BPI has to sell its
African businesses. Hence, we conclude that on one hand, the valuation offered to BPI
is relatively rich, but reflects the premium required to change BPI’s governance and
could be justified in case of full delivery on synergy targets. The main positive in our
view is that through this deal CABK is regaining full control over its investment case
and particularly to manage directly the potential evolutions on the Portuguese side.
We believe that BPI is only half the story and that the real deal is gaining top spot in
Portugal through BPI’s acquisition of Novo Banco. The latter is up for sale, is twice the
size of BPI, and a merger would deliver Portugal’s #1 bank with c.20-25% market
share. The deal would be transformational for CABK as well. We estimate €291m
visible after-tax synergies coming from the in-market merger and excluding cross-
border synergies announced, leading to 6% 3-yr EPS accretion at CABK following the
sale of Africa and €5.5bn rights issue - and assuming no stake disposal – to defend 11%
CET1 ratio. The deal would transform CABK’s investment case, converting the
potential „cashback‟ story from high capital ratios, cost cutting and stake disposals
into the bank of the Iberian peninsula, i.e. a large cross-border restructuring story to
play the recovery of peripheral Europe. This would position CABK for the forthcoming
cross-border M&A we believe the Banking Union will trigger in coming years.
BPI’s tender offer is only half of the story...
Voluntary tender offer on BPI at 27% premium
On 17 February 2015, CABK launched a voluntary tender offer (VTO) on the 56% of Portugal’s BPI
CABK does not already own. The offer price of €1.329 for 814.5m shares implies a total potential
cash outflow of €1.1bn and a premium of 27% on the previous closing price. The VTO is subject to
the regulatory approvals and to two conditions imposed by CABK:
3. Branch productivity realignment: we analyze the impact to valuation of CABK increasing
its branch network productivity in-line with peers and increase loans by €24bn (€18bn
RWAs) and profits by €0.2bn. On the positives, we value extra earnings at 10x PE for €2bn
additional valuation. On the negatives, the higher RWAs imply higher allocated capital and
lower excess capital (€2.2bn). These lead to a CABK fair value of €4.9, 11% above MB's TP
and 20% above the current price.
4. Cost cutting realignment: we analyze the impact of CABK adopting competitors’
distribution model and cutting costs. On the positives, we value extra earnings at 10x PE
for €2.7bn additional valuation. There is no other change to valuation, leading to a CABK
fair value of €4.9, 11% above MB's TP and 20% above the current price.
Interestingly, scenario 3 and 4 result in the same fair value as the higher allocated capital of the
former triggered by the additional RWAs drives a valuation re-rating given the 1.5x valuation
multiple which compensates for the lower excess capital and the lower valuation boost from
additional earnings compared to scenario 4.
Chart 16: sensitivity of CABK Target Price to M&A and restructuring scenarios, 2015E
Source: Mediobanca Securities
Our analysis highlights that CABK could be before a binary call on valuation; on one hand, stake
sales without a rights issue would leave 9% downside from our current TP, while a positive evolution
of cost controls and the acquisitions of BPI/NB would lead to a 20% upside, implying a net positive
skew of CABK valuation to management actions.
Staying Neutral while awaiting news on M&A, stake disposals and organic growth from
the Investor Day
Before the BPI deal, CABK could have been considered a safe play on Spain with upside potential
from the capital redeployment angle. But after the balance sheet gearing, we see the disposal plan
as a necessity and CABK increasing its beta gearing on Iberian macro. We stay Neutral while
awaiting to receive inputs from management at tomorrow’s Investor Day on the key swing factors
analyzed in this note and on management’s intentions to drive profitability up.
4.4
4.8
4.0
4.9 4.9
3.5
4
4.5
5
Inital TP BPI+NB takeover and capital raise
BPI+NB takeover and stake sales
Realign profitability
Cut costs
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GENERAL DISCLOSURES
This research report is prepared by Mediobanca - Banca di credito finanziario S.p.A. ("Mediobanca S.p.A."), authorized and supervised by Bank of Italy and Consob to provide financial services, and is compliant with the relevant European Directive provisions on investment and ancillary services (MiFID Directive) and with the implementing law.
Unless specified to the contrary, within EU Member States, the report is made available by Mediobanca S.p.A. The distribution of this document by Mediobanca S.p.A. in other jurisdictions may be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. All reports are disseminated and available to all clients simultaneously through electronic distribution and publication to our internal client websites. The recipient acknowledges that, to the extent permitted by applicable securities laws and regulations, Mediobanca S.p.A. disclaims all liability for providing this research, and accepts no liability whatsoever for any direct, indirect or consequential loss arising from the use of this document or its contents. This research report is provided for information purposes only and does not constitute or should not be construed as a provision of investment advice, an offer to buy or sell, or a solicitation of an offer to buy or sell, any financial instruments. It is not intended to represent the conclusive terms and conditions of any security or transaction, nor to notify you of any possible risks, direct or indirect, in undertaking such a transaction. Not all investment strategies are appropriate at all times, and past performance is not necessarily a guide to future performance. Mediobanca S.p.A. recommends that independent advice should be sought, and that investors should make their own independent decisions as to whether an investment or instrument is proper or appropriate based on their own individual judgment, their risk-tolerance, and after consulting their own investment advisers. Unless you notify Mediobanca S.p.A. otherwise, Mediobanca S.p.A. assumes that you have sufficient knowledge, experience and/or professional advice to undertake your own assessment. This research is intended for use only by those professional clients to whom it is made available by Mediobanca S.p.A. The information contained herein, including any expression of opinion, has been obtained from or is based upon sources believed to be reliable but is not guaranteed as to accuracy or completeness although Mediobanca S.p.A. considers it to be fair and not misleading. Any opinions or estimates expressed herein reflect the judgment of the author(s) as of the date the research was prepared and are subject to change at any time without notice. Unless otherwise stated, the information or opinions presented, or the research or analysis upon which they are based, are updated as necessary and at least annually. Mediobanca S.p.A. may provide hyperlinks to websites of entities mentioned in this document, however the inclusion of a link does not imply that Mediobanca S.p.A. endorses, recommends or approves any material on the linked page or accessible from it. Mediobanca S.p.A. does not accept responsibility whatsoever for any such material, nor for any consequences of its use. Neither Mediobanca S.p.A. nor any of its directors, officers, employees or agents shall have any liability, howsoever arising, for any error, inaccuracy or incompleteness of fact or opinion in this report or lack of care in its preparation or publication.
Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. The analysts named in this report may have from time to time discussed with our clients, including Mediobanca S.p.A. salespersons and traders, or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's return potential relative to its coverage group as described herein.
ADDITIONAL DISCLAIMERS TO U.K. INVESTORS: Mediobanca S.p.A. provides investment services in the UK through a branch established in the UK (as well as directly from its establishment(s) in Italy) pursuant to its passporting rights under applicable EEA Banking and Financial Services Directives and in accordance with applicable Financial Services Authority requirements.
ADDITIONAL DISCLAIMERS TO U.S. INVESTORS: This research report is prepared by Mediobanca S.p.A. and distributed in the United States by Mediobanca Securities USA LLC, which is a wholly owned subsidiary of Mediobanca S.p.A., is a member of Finra and is registered with the US Securities and Exchange Commission. 565 Fifth Avenue - New York NY 10017. Mediobanca Securities USA LLC accepts responsibility for the content of this report. Any US person receiving this report and wishing to effect any transaction in any security discussed in this report should contact Mediobanca Securities USA LLC at 001(212) 991-4745. Please refer to the contact page for additional contact information. All transactions by a US person in the securities mentioned in this report must be effected through Mediobanca Securities USA LLC and not through a non-US affiliate. The research analyst(s) named on this report are not registered / qualified as research analysts with Finra. The research analyst(s) are not associated persons of Mediobanca Securities USA LLC and therefore are not subject to NASD rule 2711 and incorporated NYSE rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst.
ADDITIONAL DISCLAIMERS TO U.A.E. INVESTORS: This research report has not been approved or licensed by the UAE Central Bank, the UAE Securities and Commodities Authority (SCA), the Dubai Financial Services Authority (DFSA) or any other relevant licensing authorities in the UAE, and does not constitute a public offer of securities in the UAE in accordance with the commercial companies law, Federal Law No. 8 of 1984 (as amended), SCA Resolution No.(37) of 2012 or otherwise. This research report is strictly private and confidential and is being issued to sophisticated investors.
REGULATORY DISCLOSURES
Mediobanca S.p.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Mediobanca S.p.A. or its affiliates or its employees may effect transactions in the securities described herein for their own account or for the account of others, may have long or short positions with the issuer thereof, or any of its affiliates, or may perform or seek to perform securities, investment banking or other services for such issuer or its affiliates. The organisational and administrative arrangements established by Mediobanca S.p.A. for the management of conflicts of interest with respect to investment research are consistent with rules, regulations or codes applicable to the securities industry. The compensation of the analyst who prepared this report is determined exclusively by research management and senior
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management (not including investment banking). Analyst compensation is not based on investment banking revenues, however, compensation may relate to the revenues of Mediobanca S.p.A. as a whole, of which investment banking, sales and trading are a part.
For a detailed explanation of the policies and principles implemented by Mediobanca S.p.A. to guarantee the integrity and independence of researches prepared by Mediobanca's analysts, please refer to the research policy which can be found at the following link: http://www.mediobanca.it/static/upload/b5d/b5d01c423f1f84fffea37bd41ccf7d74.pdf
Unless otherwise stated in the text of the research report, target prices are based on either a discounted cash flow valuation and/or comparison of valuation ratios with companies seen by the analyst as comparable or a combination of the two methods. The result of this fundamental valuation is adjusted to reflect the analyst's views on the likely course of investor sentiment. Whichever valuation method is used there is a significant risk that the target price will not be achieved within the expected timeframe. Risk factors include unforeseen changes in competitive pressures or in the level of demand for the company's products. Such demand variations may result from changes in technology, in the overall level of economic activity or, in some cases, from changes in social values. Valuations may also be affected by changes in taxation, in exchange rates and, in certain industries, in regulations. All prices are market close prices unless differently specified.
Since 1 July 2013, Mediobanca uses a relative rating system, based on the following judgements: Outperform, Neutral, Underperform and Not Rated.
Outperform (O). The stock's total return is expected to exceed the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 6-12 months.
Neutral (N). The stock's total return is expected to be in line with the average total return of the analyst's industry (or industry team's) coverage universe, on a risk-adjusted basis, over the next 6-12 months.
Underperform (U). The stock's total return is expected to be below the average total return of the analyst's industry (or industry (team's) coverage universe, on a risk-adjusted basis, over the next 6-12 months.
Not Rated (NR). Currently the analyst does not have adequate confidence about the stock's total return relative to the average total return of the analyst's industry (or industry team's) coverage, on a risk-adjusted basis, over the next 6-12 months. Alternatively, it is applicable pursuant to Mediobanca policy in circumstances when Mediobanca is acting in any advisory capacity in a strategic transaction involving this company or when the company is the target of a tender offer.
Our recommendation relies upon the expected relative performance of the stock considered versus its benchmark. Such an expected relative performance relies upon a valuation process that is based on the analysis of the company's business model / competitive positioning / financial forecasts. The company's valuation could change in the future as a consequence of a modification of the mentioned items.
Please consider that the above rating system also drives the portfolio selections of the Mediobanca's analysts as follows: long positions can only apply to stocks rated Outperform and Neutral; short positions can only apply to stocks rated Underperform and Neutral; portfolios selection cannot refer to Not Rated stocks; Mediobanca portfolios might follow different time horizons.
Proportion of all recommendations relating to the last quarter:
Outperform Neutral Underperform Not Rated
51.72% 43.94% 3.43% 0.92%
Proportion of issuers to which Mediobanca S.p.A. has supplied material investment banking services relating to the last quarter:
Outperform Neutral Underperform Not Rated
12.50% 12.86% 14.29% 33.33%
The current stock ratings system has been used since 1 July 2013. Before then, Mediobanca S.p.A. used a different system, based on the following ratings: outperform, neutral, underperform, under review, not rated. For additional details about the old ratings system, please access research reports dated before 1 July 2013 from the restricted part of the "MB Securities" section of the Mediobanca S.p.A. website at www.mediobanca.com.
COMPANY SPECIFIC REGULATORY DISCLOSURES
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MARKET MAKER Mediobanca S.p.A. is currently acting as market maker on equity instruments, or derivatives whose underlying financial instruments are materially represented by equity instruments, issued by CAIXABANK.
RATING In the past 12 months, the rating on CAIXABANK has been changed. The previous rating, issued on 10/10/2012, was UNDERPERFORM. The present rating in regard to CAIXABANK has not been changed since 23/10/2014.
INITIAL COVERAGE CAIXABANK initial coverage as of 10/10/2012.
COPYRIGHT NOTICE
No part of the content of any research material may be copied, forwarded or duplicated in any form or by any means without the prior consent of Mediobanca S.p.A., and Mediobanca S.p.A. accepts no liability whatsoever for the actions of third parties in this respect.
END NOTES
The disclosures contained in research reports produced by Mediobanca S.p.A. shall be governed by and construed in accordance with Italian law.
Additional information is available upon request.
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MEDIOBANCA – Banca di Credito Finanziario S.p.A. Piazzetta Enrico Cuccia, 1 - 20121 Milano - T. +39 02 8829.1 33 Grosvenor Place – London SW1X 7HY – T. +44 (0) 203 0369 530