Minor issues' relevance

Cristiana Corno – Strategist
Fabrizio Ligurgo – Strategist
Capital Markets – Trading – Banca IMI
Minor issues’ relevance

2
1 Cac securities: is there a trade?
2 QE monitor

3
Collective action clauses in Euro Cac Model
Available bonds to buy (IMI calculations)
Summary of quorum and approval threshold
requirements in Euro Cac Model (Linklaters)
Contractual provision which enables a qualified majority to modify the
relevant term of bond prospectus and make it binding for all bondholders
ECB position
Recent IMF proposal is to have a single limb voting procedure across
bond series at aggregate level, subject to a single supermajority
requirements (to avoid blocking investors)
ECB cannot restructure
voluntarily as it would constitute
monetary financing. With 33% of
cap, the Cac procedure is already
impaired

4
Collective action clauses in Euro Cac Model
Written consent 66.6% majority
With 33% of cap, the Cac procedure is already impaired
Meeting: 2 steps quorum 66.6% and 75%
majority
ecb percentage %
holdout % 0 10 25 33 40
0 100 90 75 67 60
10 90 80 65 57 50
20 80 70 55 47 40
30 70 60 45 37 30
40 60 50 35 27 20
ecb percentage %
holdout % 0 10 25 33 40
0 100 90 75 67 60
10 90 80 65 57 50
20 80 70 55 47 40
30 70 60 45 37 30
40 60 50 35 27 20
quorum 0 10 25 33 40 50
66 100 85 62 50 39 24
75 100 87 67 56 47 33
85 100 88 71 61 53 41
95 100 89 74 65 58 47
100 100 90 75 67 60 50

5
Collective action clauses in restructuring: no trade
Evolution of % Italian bonds containing CacsPattern on Cac-securities issuance
In a previous work, we calculated that we would need to wait until 2025 to have
a 85% debt with contractual Cac. In an debt swap implemented in the near
future, the probable mechanism* would be to use:
1. statutory clauses for non-Cac-ed securities (Greece) and
2. contractual clauses for Cac securities
Therefore, Cac and non-Cac securities are probably to be considered equal in
term of blocking percentage therefore it is impossible to raise cap
*«Euro cac and the existing rules on sovereing debt restructuring….», Martinelli, May16
Source: Bloomberg; IMI calculations

6
Collective action clauses pricing
To price the premium /discount of Cac-ed securities, we derive the Cac-ed
securities default probability curve and price the non-Cac-ed securities. This
approach does not distinguish investors’ preference for low coupon, high
convexity, liquidity.
-10.00
-5.00
0.00
5.00
10.00
1.00
8.00
15.00
22.00
29.00
36.00
43.00
Germany
-15.00
-10.00
-5.00
0.00
5.00
1.00
8.00
15.00
22.00
29.00
36.00
43.00
France
-20.00
-10.00
0.00
10.00
20.00
1.00
8.00
15.00
22.00
29.00
36.00
43.00
50.00
Italy
-25.00
-15.00
-5.00
5.00
15.00
25.00
1.00
8.00
15.00
22.00
29.00
36.00
43.00
50.00
Spain
Premium (-) or discount (+) on non Cac securities in main European markets

7
To evaluate the move of the non Cac-ed securities premium, we built an
historical, average index for France, Italy and Germany, finding that:
1. The non Cac premium/discount seems to move together across
markets, with Italy more volatile
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
france Germany Italy
Average non Cac-ed premium: similar behaviour across markets

8
2. The value of the convexity in the market explains a significant part of
the move of the non-Cac securities spread.
Average non Cac premium and convexity value in the market (Italy and Germany)
-4
-3
-2
-1
0
1
2
3
4
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
actual fit
-3
-2
-1
0
1
2
3
actual fit

9
1 Cac securities: is there a trade?
2 QE monitor

10
Where we stand in QE
Source: Bloomberg; IMI calculations; ECB
Germany 1,414,444 19.4% 15,692 1,430,136 444,543 31.1%
France 1,950,440 11.2% 103,732 2,054,172 363,901 17.7%
Italy 1,884,254 9.7% 44,000 1,928,254 351,374 18.2%
Spain 938,742 13.7% 36,000 974,742 233,917 24.0%
Nederlands 339,441 18.1% -8,600 330,841 106,656 32.2%
Belgium 379,165 9.5% 18,000 397,165 63,801 16.1%
Portugal 143,127 11.2% 7,500 150,627 45,937 30.5%
Ireland 128,950 12.7% 7,300 136,250 24,491 18.0%
Austria 249,792 11.5% 24,300 274,092 55,318 20.2%
% of holdings
on
outstanding as
of today
*(forecast)
Outstanding
as of today
Net issuance
2017*
Outstanding
as of end
2017*
Holdings PSPP
as of end
2017*
% of holdings
on
outstanding as
of end 2017*
0
2
4
6
8
10
12
Duration
Purchased Outstanding

11
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
Deviation from capital key
Germany France Italy Spain Nederlands Belgium Portugal Ireland Austria
Percentage deviations from capital keys
Deviations from capital keys
The deviations we are seeing are a result of the QE structure, in fact «if the
substitute purchases comprise marketable debt instruments issued by
international or supranational institutions located in the euro area, such
purchases will be subsumed under the 10% allocation for these securities in
the PSPP»

PORTUGAL
12
Purchase Outstanding
Cac 53.6% 42.4%
Non Cac 46.4% 57.6%
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
Pool Govies Agencies Regional
7.38 7.39 4.23 -
Duration
Govies 99.7% 99.5%
Agencies 0.3% 0.5%
Regional 0.0% 0.0%
PURCHASE
Portugal CB has already started to buy supranationals
bonds as substitutes for Govies

GERMANY
13
0
0.03
0.06
0.09
0.12
0.15
0.18
0.21
0.24
0.27
0.3
0.33
Cac 50.5% 45.9%
Non Cac 49.5% 54.1%
Govies 70.6% 78.2%
Agencies 22.2% 15.9%
Regional 7.1% 5.9%
Linkers 4.7% 7.2%
Non Linkers 95.3% 92.8%
8.09 9.40 4.00 7.77
Duration
PURCHASE
The CB has bought mainly the 10y part of the curve,
leaving now room only below 5y and over 15y. The CB
could buy substitutes as Portugal has done: short 5y
ASW versus iTraxx senior

FRANCE
14
Cac 48.1% 39.6%
Non Cac 51.9% 60.4%
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
7.40 7.84 6.05 8.46
Duration
Govies 75.1% 89.3%
Regional 0.2% 0.1%
Linkers 6.4% 12.5%
PURCHASE
To play the richness in 30y Germany, we like to play a
3010y flattener in France versus a steepener in
Bund

15
ITALY
Cac 46.5% 49.8%
Non Cac 53.5% 50.2%
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
8.62 8.72 4.71 -
Duration
Govies 97.6% 99.1%
Agencies 2.4% 0.9%
Regional 0.0% 0.0%
Linkers 10.8% 10.9%
PURCHASE
The tendency of the CB to buy less the long end
explains the scarse flattening of the 3010y in the recent
bear move

SPAIN
16
Cac 51.9% 56.8%
Non Cac 48.1% 43.2%
0
0.03
0.06
0.09
0.12
0.15
0.18
0.21
0.24
0.27
0.3
0.33
9.04 9.50 - 7.11
Duration
Govies 91.5% 95.4%
Agencies 5.9% 3.3%
Regional 2.6% 1.3%
Linkers 5.6% 3.9%
PURCHASE
As for Italy, the CB will reduce the purchases duration,
constrasting flattening

IRELAND
17
Cac 54.6% 43.6%
Non Cac 45.4% 56.4%
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
8.82 8.49 - -
Duration
PURCHASE

NEDERLAND
18
Cac 41.8% 45.2%
Non Cac 58.2% 54.8%
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
7.87 8.80 5.35 -
Duration
Govies 73.4% 85.5%
Regional 0.0% 0.0%
PURCHASE

BELGIUM
19
Cac 46.1% 37.4%
Non Cac 53.9% 62.6%
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
9.97 9.94 - 13.13
Duration Purchase Outstanding
Govies 98.8% 99.5%
Agencies 0.0% 0.0%
Regional 1.2% 0.5%
PURCHASE

AUSTRIA
20
Cac 37.9% 36.0%
Non Cac 62.1% 64.0%
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
9.09 9.19 8.71 -
Duration
Govies 78.2% 90.9%
Agencies 21.8% 9.1%
Regional 0.0% 0.0%
PURCHASE

SUPRANATIONALS
21
PURCHASE
Pool EFSF EIB EU ESM COE
7.11 6.15 6.61 9.59 7.22 5.38
Duration
0%
3%
6%
9%
12%
15%
18%
21%
24%
27%
30%
33%
Purchase
EFSF 33.8%
EIB 31.8%
EU 20.3%
ESM 12.3%
COE 1.8%

22
Germany 321,658 26.9% 26.3% 0.6%
France 255,107 21.3% 20.7% 0.6%
Italy 221,907 18.6% 18.0% 0.6%
Spain 159,122 13.3% 12.9% 0.4%
Nederlands 71,846 6.0% 5.9% 0.1%
Belgium 44,325 3.7% 3.6% 0.1%
Portugal 25,298 2.1% 2.6% -0.5%
Ireland 19,109 1.6% 1.7% -0.1%
Austria 35,168 2.9% 2.9% 0.0%
Rest 42,240 3.5% 5.4% -1.9%
Total 1,195,781
Pct. of holdings
Deviation from
Capital Key
Country
Holdings at
January 2017,
value in EUR mln
Capital Key
2017 2018 2019 2020 2021
Germany 11,638 23,455 21,315 22,422 30,812
France 7,297 13,063 24,131 23,250 21,789
Italy 12,263 15,172 13,989 12,857 11,737
Spain 9,416 11,056 12,185 10,302 4,287
Nederlands 2,784 5,958 4,518 4,340 7,089
Belgium 2,589 2,242 1,723 2,825 975
Portugal 1,156 633 596 628 755
Ireland 899 1,093 2,014 2,375 0
Austria 654 1,506 2,580 1,155 2,606
Total 48,696 74,177 83,052 80,154 80,051
Outstanding to be reimbursed (mln of Euros)
Appendix

23
Disclaimer
This marketing communication has been prepared by the Trading Strategist department and is distributed by Banca IMI, a bank belonging to the
Intesa Sanpaolo Banking Group which is authorized to carry out investment services in Italy and is regulated by the Bank of Italy and Consob.
The information contained in this document:
constitutes a marketing communication and, as such, it has not been prepared in accordance with the legal requirements designed to promote the
independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research;
may differ from the recommendations prepared by financial analysts of the Direzione Studi e Ricerche of Intesa Sanpaolo and distributed by Banca
IMI. The information contained herein does not constitute investment research within in the meaning of applicable regulatory rules in EU, or a
solicitation or invitation, or investment advice, and does not purport to offer legal, tax or any other advice. Neither the Intesa Sanpaolo Banking
Group, nor any officer, representative or employee thereof accepts any liability (for negligence or otherwise) for any direct or consequential losses
arising from any use of information including, without limitation, the reliance on any such information contained in this communication.
The information and views contained in this communication are based on sources believed to be reliable and in good faith. No representation or
warranty is made as to their accuracy or correctness. The views, forecasts and estimates contained in this communication reflect the personal view
of the author as of the date of its publication. The views may differ from those of others within the Intesa Sanpaolo Banking Group.
All prices and rates included herein are shown for indication only and should not be relied upon to re-evaluate any positions held by any recipient of
this document. For specific quotations, please contact your Banca IMI usual contact. There is no guarantee that the future results or any other future
events will be consistent with the views, forecasts and estimates contained in this communication. Furthermore, any information included herein is
subject to change by the author after the date of its publication without any notice by Banca IMI to the person to whom this communication has been
distributed. Information about the basic elements and the methodology used for the purposes of evaluation are available on the website at
https://www.bancaimi.com/bancaimi/Banca-IMI-Global-Strategy-reports.html#GlobalCreditOverview
This document is intended for distribution in Italy and in the Member States of the European Union only to professional clients and eligible
counterparties, as defined in the MiFID Directive 2004/39/EC, either as a printed document and/or electronic form.
Trading Strategist Certification
The Trading Strategist who prepared this report, and whose names and roles appear on the first page, certify that:
The views expressed on companies mentioned herein accurately reflect independent, fair and balanced personal views;
No direct or indirect compensation has been or will be received in exchange for any views expressed.
Other information
Neither the Trading Strategist nor any member of the Trading Strategist’s household has a financial interest in the securities.
Conflicts of interest
Banca IMI S.p.A. and the other companies belonging to Intesa Sanpaolo Banking Group (jointly, the "Intesa Sanpaolo Group") provide all services in
the lending and securities industry, carrying out in particular – through its companies in possession of the necessary authorizations, where required –
investment banking, corporate finance and finance and investment activities – through merchant banking activities and proprietary trading - financial
advisory, investment research and financial analysis or other forms of general recommendation regarding transactions on financial instruments,
securities issuance, placement activities, reception and transmission of orders, execution of orders for clients and dealing for own account in
financial instruments, portfolio management, including the management of collective investment schemes and the management of multilateral
trading facilities.

24
Disclaimer
The Intesa Sanpaolo Banking Group is involved in a wide range of commercial and investment banking and other activities (including investment
management, sales and trading of securities related activities) out of which may from time to time arise an interest in the issuers and in the financial
instruments, including related financial instruments, or transactions referred to in this communication. Such interests may include i) having, at any
time, significant directional positions, long or short, trading activity which could be also contrary to the views expressed herein; ii) holding financial
instruments under pledge; iii) trading, on behalf of themselves or of their clients, the financial instruments, including related financial instruments, or
financial instruments whose value is dependent upon, or is linked to, the financial instruments, issuers, parameters or indices referred to herein; iv)
granting loans to companies whose securities are discussed herein; v) holding significant shareholdings and possibly appointing board members
and/or other corporate bodies member, and participating in shareholders’ agreements; vi) providing banking, credit or other financial services to the
issuers of the financial instruments referred to herein, including their controlling companies or other companies belonging to the issuer’s group.
Banca IMI may act in the capacity of sponsor, specialist, listing partner, market maker, corporate broking and/or liquidity provider or in any other
similar capacity with regard to the financial instruments, including related financial instruments, referred to herein.
In consideration of the above, Banca IMI S.p.A. states that has adopted written guidelines “Modello di Organizzazione, Gestione e Controllo”
pursuant to Legislative Decree June 8, 2001 n. 231 (available at the Intesa Sanpaolo website, webpage
http://www.group.intesasanpaolo.com/scriptIsir0/si09/governance/ita_wp_governance.jsp, along with a summary sheet, webpage
https://www.bancaimi.com/en/bancaimi/chisiamo/documentazione/mifid.) setting forth practices and procedures, in accordance with applicable
regulations by the competent Italian authorities and best international practice, including those known as Chinese Walls, to restrict the flow of
information, namely inside and/or confidential information, to prevent misuse of such information and to prevent any conflicts of interest may
adversely affect the interests of the customer in accordance with current regulations.
Furthermore, in relation to the government securities potentially mentioned within this marketing communication, we disclose that Banca IMI S.p.A.
acts as market maker in the wholesale markets for the government securities of the main European countries and also acts as Government Bond
Specialist, or comparable assignment, for the government securities issued by the Republic of Italy, by the Federal Republic of Germany, by the
Hellenic Republic, by the European Stability Mechanism and by the European Financial Stability Facility.
This communication is for exclusive use by the person to whom has been distributed by Banca IMI and may not be reproduced or redistributed,
directly or indirectly, to any other person or published, fully or partially, for any reason whatsoever, without the prior written consent of Banca IMI.
The copyright and any other intellectual rights on data, information, opinions and estimates referred to herein belong to the Intesa Sanpaolo Banking
Group, unless otherwise stated. Such data, information, opinions and estimates may not be fully or partially distributed or reproduced in any form,
and by any means, without the prior written consent of Banca IMI.
Any recipient of this communication is required to comply with the above requirements.

Minor issues' relevance

Recommended

Recommended

More Related Content

Similar to Minor issues' relevance

Similar to Minor issues' relevance (20)

More from Cristiana Corno

More from Cristiana Corno (10)

Recently uploaded

Recently uploaded (20)

Minor issues' relevance