Italian banks are experiencing a surge in their stock prices, reaching multi-year highs, driven by escalating interest rates that have propelled profits upward.
This surge is attributed to the European Central Bank‘s swift series of rate hikes, initiated in July 2022.
Notably, Italian banks had already undertaken a significant cleanup, shedding around 290 billion euros ($314 billion) in impaired loans.
Despite challenges posed by the COVID-19 pandemic, the energy crisis, and sudden spikes in borrowing costs, Italian banks have managed to keep loan losses at historically low levels.
This achievement can be attributed to stricter lending policies and generous state guarantees. These measures have also cushioned the economy from the impacts of these crises.
Bolstered by substantial capital reserves and reduced needs for provisioning against credit losses, banks have been able to enhance returns for investors.
This has helped compensate for dividend bans imposed by regulators during the pandemic.
UniCredit, in particular, has made significant investments in buying back its own shares, which previously traded at a substantial discount to the bank’s book value.
Between 2021 and 2023, UniCredit allocated 11.5 billion euros from its profits to share buybacks, consequently elevating its price-to-book ratio, a key valuation metric.
Intesa’s shares have nearly reached parity in terms of price-to-book ratio for the first time since 2018.
Similarly, UniCredit achieved this milestone before the global financial crisis of 2008, as indicated by LSEG data.
In conclusion, Italian banks’ remarkable performance in navigating through economic challenges and enhancing shareholder value reflects their resilience and strategic financial management.
Despite the volatility in the broader economic landscape, these banks have demonstrated their ability to adapt and thrive, generating optimism among investors and stakeholders alike.