doBank, The Largest Italian NPL Servicer, Surges After Its IPO
Jul. 18, 2017 1:39 PM ET|
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About: Fortress Investment Group LLC (FIG), Includes: BMDPY, ISNPY, UNCFY, VENBF
Paolo Gorgo
Special situations, long-term horizon, long only
(590 followers)
Summary
doBank, the largest Italian non-performing loan servicer, made its debut in the Milan stock market last week on Friday. Shares surged 14%, making doBank Italy’s largest IPO in 2017.
doBank’s IPO is a striking success for Fortress, which remains doBank’s largest shareholders, now basically for free. A clever result achieved in less than 2 years.
While doBank is expected to remain a “hot stock” for the future, we believe investing in Fortress-related Eurocastle may be a better way to play the Italian NPL game.
doBank S.p.A., formerly known as UniCredit Credit Management Bank, made its debut on the Italian stock exchange last week. Fortress (NYSE:FIG) associated entities, that acquired the company in 2015, will retain roughly a 55.6% interest in doBank, or 51.2% should the greenshoe option be exercised in full.
doBank's IPO represents a great financial success for Fortress (and its existing shareholders), as the company has been able, in less than 20 months, to maximize its investment in doBank, while retaining its majority and also preserving the ownership of a € 2.4 billion GBV NPL portfolio that was part of the original doBank acquisition, as we will explain in a moment.
However, investors who have the possibility to buy stocks on the Amsterdam exchange might consider a Fortress-managed entity, Eurocastle, as a way to profit from doBank's very successful IPO.
Some background to the Italian NPL market
The Italian banking system has accumulated a large amount of gross non-performing exposures. These NPEs more than doubled from approximately €133 billion at the end of 2009 to €329 billion in September 2016, as resumed in this chart by Ernst & Young, based on Bank of Italy's Statistical Bulletin IV, published in December 2016:
Italian banks have been put under pressure by the ECB to manage more efficiently this large amount of deteriorated loans that weighs on their balance sheets.
To give you just a quick visual idea of the size of this problem for the Italian banking system, here is another chart taken from the same Ernst & Young report that highlights both the NPE coverage ratio and the gross NPE ratio, in percentage, for some of Italy's largest banks.
On the right side of this chart, you will find some very well known names, like Banca Monte Dei Paschi (OTCPK:BMDPY), Banca Popolare di Vicenza and Veneto Banca (OTC:VENBF), that have been recently in the news for their rescues, as reported also here on SA (I, II).
A percentage of NPEs exceeding 30% of total lending brought these banks on their knees.
Italy's lack of progress in tackling its bad loan problem has had a negative impact on its overall economic climate.
External, 3rd party NPL servicing groups have emerged as essential tools, for most Italian banks, to address their NPE problem.
doBank: Italy's largest IPO in 2017, four times oversubscribed, makes its debut with a 14% price increase
doBank is Italy's largest 3rd party NPL servicing group, with roughly €81 billion GBV of loans under management.
UniCredit (OTCPK:UNCFY) and Intesa Sanpaolo (OTCPK:ISNPY), together with some Fortress-associated funds, represent doBank's largest customers, amounting to roughly 84% of revenues. All these customers have multi-annual servicing agreement with doBank.
doBank claims a 62% market share of today's 3rd party NPL servicing market in Italy, as stated in its IPO filing (link, in Italian). doBank's share represents nearly one-third of the total gross NPLs present on the Italian market.