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 Broken Growth Model Dependent on imports : ½ of UK exports go to the EU vs 15% EU exports to UK; ½ of 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 Source: Algebris (UK) Limited, OBR, IMF, ONS, OECD, UK Gov Algebris – 2017 Sohn Investment Conference Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority 2 This document is intended for Professional Investors only
High Asset Prices but Low Productivity Asset-rich, Wage-poor Anglo-American Bias? Average Earnings vs House prices World’s 50 largest asset managers and 15 largest SWFs 50 Help to Buy 70% % AUM introduced 45 60% % World GDP 40 Reserve requirement Big Bang 50% 35 abolished in the UK 30 40% (‘000) Right to buy introduced 25 30% under Thatcher 20 20% 15 UK entry into the 10% 10 EU 5 0% 0 US FR UK JP CN DE NL RoW 1926 1946 1966 1986 2006 Note: 1926 =100; Source: Algebris (UK) Limited, ONS, New Economics Foundation Source: Algebris (UK) Limited, IPE, SWIF, IMF Algebris – 2017 Sohn Investment Conference Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority 3 This document is intended for Professional Investors only
Are Italian Bad Loans Still An Issue? NPE* Outstanding vs Sales (€bn) Levels have stabilised 400 Sales are picking up: 300 2015: €19bn 200 2016: €33bn 2017E: €59bn or 100 2x2016 and 3x2015 0 Banks have raised ~€37bn** of capital 2011 2012 2013 2014 2015 2016 2017 Bad Loans Unlikely to pay Other past-due Sales *NPE: Non Performing Exposures. **Including capital provided by Atlante and by the Republic of Italy. Source: PWC Report – The Italian NPL market – June 2016, ABI Monthly Outlook, Algebris Investments (UK) LLP, March 2017 Algebris – 2017 Sohn Investment Conference Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority 4 This document is intended for Professional Investors only
UniCredit: A New Beginning Pillar 1: Improved Profitability: Pillar 2: CET1 CIR ROTE NPLs P/TBV 12.5% 2019 >9.0% 2015: 62% Capital Inc. + Sold: ? Asset €17.7bn Sales 2019: <52% Now: 2016: €19.5bn 2015: 0.6x 7.5% 4.0% New CEO Mustier: focused, achiever Note: 2019 data reflects company’s targets. Source: Algebris (UK) Limited, Unicredit. Algebris – 2017 Sohn Investment Conference Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority 5 This document is intended for Professional Investors only
AT1: Ample Headroom for Coupons Payments 5.2% 3.3% 2017 MDA 3.8% 3.4% = 4.1% = Headroom = = €41bn = €19bn €15bn €22bn €14bn 2017 MDA 9.3% 8.4% 8.4% 8.2% 7.8% Threshold HSBA LN GLE FP BBVA SM BNP FP SAN SM 2016 Pre- €8bn €8bn €12bn €14bn €23bn Prov. Profits Worst Reported €0bn €0bn €0bn €0bn €0bn Annual Loss 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 Algebris – 2017 Sohn Investment Conference Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority 6 This document is intended for Professional Investors only
Banks Safely Passing Stress Tests ECB 2016 Stress Test 2016 CCAR & DFAST House Real Dow Unempl. GDP Inflation Stocks CRE GDP Prices Jones Rate 7.1% 7.5% 5.8% 53% 23% to 51% 25% 10% CET1 CET1 3.4% 3.9% Drawdown 12.3% 12.6% 5.2% Drawdown 9.2% 8.4% 7.1% Fail Mark 5.5% Fail Mark 4.5% 2015 Pre- Post 2015 Pre- Post Post Stress Stress Stress DFAST CCAR Source: FED, ECB, Algebris (UK) Limited Algebris – 2017 Sohn Investment Conference Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority 7 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 Offices 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 London 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 Investments (UK) LLP Algebris. Algebris (UK) Limited 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 7 Clifford Street advice. Algebris is not hereby arranging or agreeing to arrange any transaction in any investment whatsoever or otherwise undertaking any activity requiring London W1S 2FT 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 Singapore therefore. No reliance may be placed for any purpose on the information and opinions contained in this document or their accuracy or completeness. No Algebris Investments (Asia) Pte representation, warranty or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document LTD 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 50 Raffles Place #38-07 the accuracy or completeness of any such information or opinions. Singapore Land Tower 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 Singapore 048623 (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 Boston partnerships, trustees of high value trusts and persons who qualify as certified sophisticated investors. Algebris Investments US (Inc) 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 699 Boylston Street 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 Suite #1001 jurisdictions. Boston MA 02116 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. Milan Algebris Srl 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. Via Fatebenefratelli 10 20121 Milano 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 Algebris – 2017 Sohn Investment Conference Algebris Investments (UK) LLP and Algebris (UK) Limited are authorised and regulated by the Financial Conduct Authority 8 This document is intended for Professional Investors only
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