Ciao @Smudeo! Mr. Prompt here. Make room on the Vespa, we need to talk about your trade for a minute. 🛵
So you're selling BP (oil) and Verizon (telecoms) - the most boring but most crisis-resistant widow-and-orphan stocks in the world - to add a cyclical southern European bank to your portfolio now of all times? Courageous! Incidentally, the LIRA picture in your post fits perfectly: pure nostalgia, just like the hope that the European Central Bank will keep interest rates at this record level forever.
Let's take a quick look at your "overall assessment" through the cold AOK glasses:
* The rearview mirror error: you celebrate the "above-average profit and sales growth" and the dreamlike margins. The fact is: This was not organic genius growth by the management, but a gift of billions from Christine Lagarde (ECB). Every bank prints money when interest rates rise. You're buying yesterday's party here.
* The interest rate turnaround is not an "observation point": you succinctly refer to interest rate risk as a side note. My best man, that's the elephant in the room! Interest rates are starting to crumble. When key interest rates fall, Intesa's net interest margin (NII) melts faster than a gelato in the Roman midday sun.
* 6-7 % dividend? Yes, the yield looks juicy at the moment. But buying bank dividends at the absolute peak of the interest rate cycle is like buying a convertible in November: looks like fun on paper, but will be uncomfortable for a while. You noticed the "significant price increase" yourself. The market is already fully pricing in the best-case scenario.
My Mr. Prompt conclusion for you:
Intesa Sanpaolo is fundamentally one of the best and best-managed banks in Europe (much more crisis-proof than many of its competitors). As a long-term hold, it is perfectly fine. But to add another tranche now after the rally, while the interest rate turnaround is just around the corner, smells suspiciously of classic FOMO (Fear Of Missing Out).
Let's hope your money bin doesn't end up looking as old as the lira in your picture! 😉
So you're selling BP (oil) and Verizon (telecoms) - the most boring but most crisis-resistant widow-and-orphan stocks in the world - to add a cyclical southern European bank to your portfolio now of all times? Courageous! Incidentally, the LIRA picture in your post fits perfectly: pure nostalgia, just like the hope that the European Central Bank will keep interest rates at this record level forever.
Let's take a quick look at your "overall assessment" through the cold AOK glasses:
* The rearview mirror error: you celebrate the "above-average profit and sales growth" and the dreamlike margins. The fact is: This was not organic genius growth by the management, but a gift of billions from Christine Lagarde (ECB). Every bank prints money when interest rates rise. You're buying yesterday's party here.
* The interest rate turnaround is not an "observation point": you succinctly refer to interest rate risk as a side note. My best man, that's the elephant in the room! Interest rates are starting to crumble. When key interest rates fall, Intesa's net interest margin (NII) melts faster than a gelato in the Roman midday sun.
* 6-7 % dividend? Yes, the yield looks juicy at the moment. But buying bank dividends at the absolute peak of the interest rate cycle is like buying a convertible in November: looks like fun on paper, but will be uncomfortable for a while. You noticed the "significant price increase" yourself. The market is already fully pricing in the best-case scenario.
My Mr. Prompt conclusion for you:
Intesa Sanpaolo is fundamentally one of the best and best-managed banks in Europe (much more crisis-proof than many of its competitors). As a long-term hold, it is perfectly fine. But to add another tranche now after the rally, while the interest rate turnaround is just around the corner, smells suspiciously of classic FOMO (Fear Of Missing Out).
Let's hope your money bin doesn't end up looking as old as the lira in your picture! 😉
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@Raketentoni agree with that this is yesterdays party, but why do you think interest rates will further fall, specially since inflation outlook in EU is not looking bright either.
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•@Routine123 so what tend banks to today when inflation is high?…
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•@jkb92 @Routine123
There they are, the macro-economists from the forum! Wonderful. When it comes to interest rates and inflation, things always get philosophical straight away. Mr. Prompt has put down his espresso and polished his keyboard.
Here's your answer for them - crisp, with the necessary arrogance of facts and, of course, served in two languages.
🇩🇪 German version
@Routine123 & @jkb92: Mr. Prompt here. Buckle up, we're taking a quick trip into macroeconomic reality. 🎓
Wondering why the party is over at the banks even if interest rates were to stay up due to stubborn inflation? One word: stagflation.
If the ECB has to keep interest rates artificially high to fight inflation, it will inevitably strangle the European economy. And what will happen to your beloved banks?
* Credit growth dies: With these interest rates and bleak prospects, who is still taking out loans for construction projects or expansions? Nobody.
* Loan defaults (NPLs) are exploding: Companies and house builders can no longer afford their expensive follow-up financing. Banks have to make massive provisions for bad loans, which eats directly into profits.
* The cost trap: High inflation also means rising operating costs for banks (keyword: wage-price spiral for employees).
The bottom line: either the ECB lowers interest rates to save the economy (in which case the banks' net interest margin immediately shrinks) - OR it leaves interest rates up and the economy crashes (in which case loan defaults eat into profits).
Either way, "peak profitability", where banks have risk-free money parked at the central bank, is in the rear-view mirror. The "free money" buffet has been cleared. ☕📉
🇬🇧 English version (For the international colleagues)
@Routine123 & @jkb92: Mr. Prompt here. Buckle up, we're taking a quick trip into macroeconomic reality. 🎓
You are wondering why the banking party is over, even if interest rates stay high due to sticky inflation? One word: stagflation.
If the ECB is forced to keep rates high to fight inflation, they will inevitably suffocate the European economy. And what does that mean for banks today?
* Credit growth dies: Who is taking out new loans for construction or business expansion with these rates and gloomy outlooks? Nobody.
* Non-Performing Loans (NPLs) skyrocket: Companies and homeowners won't be able to afford their refinancing. Banks will have to build massive provisions for bad debt, which eats directly into their profits.
* The cost trap: High inflation also means rising operating costs for banks (think wage-price spirals for their employees).
The Bottom Line:
Either the ECB cuts rates to save the economy (which immediately crushes the banks' Net Interest Margins) - OR they keep rates high and the economy tanks (which means default provisions will devour the profits).
Either way: "Peak profitability", where banks just parked money risk-free at the central bank, is in the rearview mirror. The "free money" buffet is officially closed. ☕📉
There they are, the macro-economists from the forum! Wonderful. When it comes to interest rates and inflation, things always get philosophical straight away. Mr. Prompt has put down his espresso and polished his keyboard.
Here's your answer for them - crisp, with the necessary arrogance of facts and, of course, served in two languages.
🇩🇪 German version
@Routine123 & @jkb92: Mr. Prompt here. Buckle up, we're taking a quick trip into macroeconomic reality. 🎓
Wondering why the party is over at the banks even if interest rates were to stay up due to stubborn inflation? One word: stagflation.
If the ECB has to keep interest rates artificially high to fight inflation, it will inevitably strangle the European economy. And what will happen to your beloved banks?
* Credit growth dies: With these interest rates and bleak prospects, who is still taking out loans for construction projects or expansions? Nobody.
* Loan defaults (NPLs) are exploding: Companies and house builders can no longer afford their expensive follow-up financing. Banks have to make massive provisions for bad loans, which eats directly into profits.
* The cost trap: High inflation also means rising operating costs for banks (keyword: wage-price spiral for employees).
The bottom line: either the ECB lowers interest rates to save the economy (in which case the banks' net interest margin immediately shrinks) - OR it leaves interest rates up and the economy crashes (in which case loan defaults eat into profits).
Either way, "peak profitability", where banks have risk-free money parked at the central bank, is in the rear-view mirror. The "free money" buffet has been cleared. ☕📉
🇬🇧 English version (For the international colleagues)
@Routine123 & @jkb92: Mr. Prompt here. Buckle up, we're taking a quick trip into macroeconomic reality. 🎓
You are wondering why the banking party is over, even if interest rates stay high due to sticky inflation? One word: stagflation.
If the ECB is forced to keep rates high to fight inflation, they will inevitably suffocate the European economy. And what does that mean for banks today?
* Credit growth dies: Who is taking out new loans for construction or business expansion with these rates and gloomy outlooks? Nobody.
* Non-Performing Loans (NPLs) skyrocket: Companies and homeowners won't be able to afford their refinancing. Banks will have to build massive provisions for bad debt, which eats directly into their profits.
* The cost trap: High inflation also means rising operating costs for banks (think wage-price spirals for their employees).
The Bottom Line:
Either the ECB cuts rates to save the economy (which immediately crushes the banks' Net Interest Margins) - OR they keep rates high and the economy tanks (which means default provisions will devour the profits).
Either way: "Peak profitability", where banks just parked money risk-free at the central bank, is in the rearview mirror. The "free money" buffet is officially closed. ☕📉
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@Raketentoni I am not quite so skeptical about banks. See the latest figures at $INGA. Of course, the hot phase of money printing for banks is over. But on the one hand, interest rates are likely to fall further in the long term (without the Iran war, we would probably have already taken another step in this direction) and on the other, there is pressure to consolidate in Europe. Finding the right ones would be a dream at the present time
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•@Raketentoni this aligns with my comment. It seems like I alsomissread that you expect further cut of interest rates, therefore was my question about it. NLP rate is already going upward in some EU markets and there is many iniciatives in goverments that banking high profit is extra taxed. If inflation continues and increases, which was already expected due to heavy military spending inside EU even before Iran conflict, and now with this crisis it is at best case that rates will remain the same. Due to its nature EU banks will be always profitable, but in any case I cannot see how banks profits will significantly increase in the upcoming periods, specially since they alread laid off much personel already, so on cost side there is no much more to cut to compensate :/
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