Italy's top banks narrow share price discount to book value

Reuters

Published Apr 05, 2024 11:43

MILAN (Reuters) - Italian banks have seen their share prices soar to multi-year highs as rising interest rates turbocharge profits, driving up lending costs while deposit rates lag far behind.

When the European Central Bank embarked on its fastest-ever cycle of rate hikes in July 2022 Italian banks had completed a clean-up that rid them of some 290 billion euros ($314 billion) in impaired loans.

Loan losses remain at record low levels thanks to stricter lending policies and generous state guarantees that cushioned the blow on the economy from the COVID-19 pandemic, the energy crisis and the sudden spike in borrowing costs.

With ample capital reserves and a limited need to provision against credit losses, banks have been able to boost payouts for investors, making up for a dividend ban regulators imposed during the pandemic.

UniCredit (LON:0RLS), in particular, has bet strongly on buying back its own shares, which used to trade at a deep discount to the bank's book value.

UniCredit has destined 11.5 billion euros out of its profits between 2021 and 2023 to share buybacks, lifting a key valuation metric known as price-to-book ratio.