Fear, Not Fundamentals Hurting Italy Stocks, UniCredit CEO Says

(Bloomberg) -- UniCredit SpA Chief Executive Officer Jean Pierre Mustier said the selloff of Italian bank stocks is driven by fears that aren’t justified by the performance of the Italian economy or the lenders themselves.

“Fundamentals of Italy are very good, the economy is good, corporates are positive and consumers are positive,” Mustier, 57, said in a Bloomberg Television interview with Francine Lacqua on Tuesday. “We have absolutely no emergency plan or contingency plan for the current situation. We have an extremely high level of liquidity, like every other Italian bank.”

Italian markets have been rocked by political turmoil over the past two weeks as the country heads toward another election that may strengthen the anti-establishment parties. The nation’s banks, down 23 percent over the period, have been in the spotlight because of their holdings of country’s sovereign debt and populists’ proposals that may reverse years of efforts to strengthen the banking system.

“Of course there is political uncertainty, but I think the fear of Italy leaving the euro or leaving the euro zone is overdone,” Mustier said. “We should go back to reality. Italy will not leave the euro zone and we need to look at good fundamentals of the country.”

UniCredit’s deposits, and corporate activity haven’t been affected by the current turmoil, Mustier said.

Mustier rejected the assertion that the current selloff evokes memories 2011 and 2012 when Italy and Spain were hit hard in the euro zone’s sovereign-debt crisis. Yields on Italian bonds breached 7 percent in November 2011, raising concern the state wouldn’t be able to roll over its debt, mostly held by Italian lenders.

“The situation for banks is nothing like it was during the debt crisis of 2011: balance sheets are improving, non-performing loans are falling and won’t go up again with a large number of buyers in the market for the bad debt,” he said. “Every corporate client I talk to says they’ve had the best quarter in 11 years.”

UniCredit holds about 42 billion euros ($49 billion) of Italian government bonds with a duration of less than three years, the CEO said, adding that “it’s a short-term exposure basically and we are very comfortable with it.” UniCredit adjusted the size of its government debt portfolio and its duration “to give us an opportunity to buy Italian debt at a good level. The risk reward seems very favorable. ”

Mustier, who is ramping up cost cuts and improving asset quality to keep his promise of building a leading pan-European bank, said he will keep cutting bad loans. The CEO, who took the helm in 2016, has raised an additional 13 billion euros of fresh funds from investors, slashed costs and cleaned up the balance sheet, with a goal of achieving annual net income of 4.7 billion euros in 2019.

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