2017 Sohn Investment Conference May 2017 Algebris Investments (UK) - - PowerPoint PPT Presentation

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2017 Sohn Investment Conference May 2017 Algebris Investments (UK) - - PowerPoint PPT Presentation

2017 Sohn Investment Conference May 2017 Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only The Divided Kingdom: A


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Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only

2017 Sohn Investment Conference

May 2017

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Algebris – 2017 Sohn Investment Conference

Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only

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The Divided Kingdom: A Broken Growth Model

Source: Algebris (UK) Limited, OBR, IMF, ONS, OECD, UK Gov

  • Dependent on imports: ½ of UK exports go to the EU vs 15% EU exports to UK; ½
  • f energy and food are imported
  • Weak public finances: Fiscal deficit: -2.8% of GDP; Public debt: 89% of GDP
  • High household leverage: to be 146% of income in 2017
  • Stagnant productivity: UK productivity level is 17pp below the G7 average
  • Growing social imbalances: top 1% pay 27% of tax
  • You are over-invested UK: 4.5% of global FX reserves in £ vs 3.5% of world GDP

=> We estimate Brexit will cost £140bn or 7.5% GDP

Key Take Away - Short Gilts

10-year Gilt yield is > 200bp below 10-year inflation expectations

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Algebris – 2017 Sohn Investment Conference

Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only

0% 10% 20% 30% 40% 50% 60% 70%

US FR UK JP CN DE NL RoW

% AUM % World GDP

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Note: 1926 =100; Source: Algebris (UK) Limited, ONS, New Economics Foundation

Asset-rich, Wage-poor

Average Earnings vs House prices

Source: Algebris (UK) Limited, IPE, SWIF, IMF

Anglo-American Bias?

World’s 50 largest asset managers and 15 largest SWFs

5 10 15 20 25 30 35 40 45 50 1926 1946 1966 1986 2006

(‘000)

UK entry into the EU Right to buy introduced under Thatcher Reserve requirement abolished in the UK Big Bang Help to Buy introduced

High Asset Prices but Low Productivity

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Algebris – 2017 Sohn Investment Conference

Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only

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Are Italian Bad Loans Still An Issue?

NPE* Outstanding vs Sales (€bn)

Levels have stabilised Sales are picking up:

  • 2015: €19bn
  • 2016: €33bn
  • 2017E: €59bn or

2x2016 and 3x2015

Source: PWC Report – The Italian NPL market – June 2016, ABI Monthly Outlook, Algebris Investments (UK) LLP, March 2017

Banks have raised ~€37bn** of capital

*NPE: Non Performing Exposures. **Including capital provided by Atlante and by the Republic of Italy.

100 200 300 400 2011 2012 2013 2014 2015 2016 2017 Bad Loans Unlikely to pay Other past-due Sales

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Algebris – 2017 Sohn Investment Conference

Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only

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UniCredit: A New Beginning

Note: 2019 data reflects company’s targets. Source: Algebris (UK) Limited, Unicredit.

 New CEO Mustier: focused, achiever

Pillar 2: NPLs Pillar 1: CET1 Improved Profitability: CIR ROTE

P/TBV 2019: <52% 2015: 62% 2015: 4.0% 2019 >9.0% €19.5bn Sold: €17.7bn 2016: 7.5% 12.5% Capital

  • Inc. +

Asset Sales Now: 0.6x ?

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Algebris – 2017 Sohn Investment Conference

Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only

8.4% 7.8% 8.4% 8.2% 9.3% 5.2% = €41bn 4.1% = €14bn 3.8% = €15bn 3.4% = €22bn 3.3% = €19bn HSBA LN GLE FP BBVA SM BNP FP SAN SM

€8bn €8bn €23bn 2016 Pre-

  • Prov. Profits

2017 MDA Headroom 2017 MDA Threshold

€12bn €0bn €0bn €0bn

Worst Reported Annual Loss

€0bn €14bn €0bn

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AT1: Ample Headroom for Coupons Payments

Notes: MDA = Maximum Distributable Amount (as per 2017 SREP framework), expressed as % of Risk Weighted Assets. MDA threshold/headroom are estimates Source: Algebris (UK) Limited, Companies’ Reporting, April 2017

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Algebris – 2017 Sohn Investment Conference

Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only

12.3% 8.4% 7.1% 3.9% 5.2% 2015 Pre- Stress Post DFAST Post CCAR

Banks Safely Passing Stress Tests

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ECB 2016 Stress Test

Fail Mark 5.5%

GDP Inflation Stocks CRE 7.1% 5.8% 53% 23%

Drawdown

2016 CCAR & DFAST

Real GDP Unempl. Rate Dow Jones House Prices 7.5% to 10% 51% 25%

Fail Mark 4.5%

Source: FED, ECB, Algebris (UK) Limited

CET1 CET1

12.6% 9.2% 3.4%

2015 Pre- Stress Post Stress

Drawdown

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Algebris – 2017 Sohn Investment Conference

Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority This document is intended for Professional Investors only

Disclaimer

This document is issued by Algebris Investments (UK) LLP and Algebris (UK) Limited. Algebris Investments (UK) LLP and Algebris (UK) Limited are collectively referred to as “Algebris”. Both Algebris entities are authorised and regulated by the Financial Conduct Authority. This document is for private circulation only. The information contained in this document is strictly confidential and is only for the use of the person to whom it is

  • sent. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of

Algebris. The information and opinions contained in this document are for background purposes only, do not purport to be full or complete and do not constitute investment

  • advice. Algebris is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring

authorisation under the Financial Services and Markets Act 2000. This document does not constitute or form part of any offer to issue or sell, or any solicitation of an offer to subscribe or purchase, any investment nor shall it or the fact of its distribution form the basis of, or be relied on in connection with, any contract

  • therefore. No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No

representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document by any of Algebris Investments (UK) LLP or Algebris (UK) Limited, their members, directors, employees or affiliates and no liability is accepted by such persons for the accuracy or completeness of any such information or opinions. This document is being communicated by Algebris only to persons to whom it may lawfully be issued under The Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 including persons who are authorised under the Financial Services and Markets Act 2000 of the United Kingdom (the “Act”), certain persons having professional experience in matters relating to investments, high net worth companies, high net worth unincorporated associations and partnerships, trustees of high value trusts and persons who qualify as certified sophisticated investors. This document is exempt from the prohibition in Section 21 of the Act on the communication by persons not authorised under the Act of invitations or inducements to engage in investment activity on the ground that it is being issued only to such types of person. The distribution of this document may be restricted in certain jurisdictions. The above information is for general guidance only, and it is the responsibility of any person or persons in possession of this document to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. Past performance is not necessarily a guide to future performance. The strategy employed may result in the NAV exhibiting a high level of volatility and so is suitable for professional investors only. Registered office: Algebris Investments (UK) LLP & Algebris (UK) Limited, 7 Clifford Street, London, W1S 2FT, UK. Company registration number: Algebris Investments (UK) LLP ‐ OC319392 & Algebris (UK) Limited ‐ 10308570

Offices

London Algebris Investments (UK) LLP Algebris (UK) Limited 7 Clifford Street London W1S 2FT Singapore Algebris Investments (Asia) Pte LTD 50 Raffles Place #38-07 Singapore Land Tower Singapore 048623 Boston Algebris Investments US (Inc) 699 Boylston Street Suite #1001 Boston MA 02116 Milan Algebris Srl Via Fatebenefratelli 10 20121 Milano

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