Financial results

Banca Generali has no financial debts, since the bank has never recurred to loans, bonds or subordinated loans

The first half of 2020 was characterised by the spread of Covid-19 at global level. The first news in this regard began to emerge in January, when the Chinese government decided to quarantine the city of Wuhan. The epidemic was not stopped in the East, and the first cases began to occur in the West as well. As the disease spread, European governments and the United States were forced to place their populations on lockdown, resulting in the closure of their economies. After being severely affected by the period of forced quarantine, the economies in question were then gradually reopened starting in May. In this scenario, the main equity indices traversed two distinct market phases. Initially, they declined sharply until mid-March, driven by the evolving health emergency and economic shutdown. Then, at the beginning of the second quarter, the markets rallied significantly.

As a result of the Covid-19 emergency, economic growth estimates have slowed sharply, both in terms of growth and inflation. In 2020, the ECB forecasts that the Eurozone’s economy will contract by 8.7%, which is expected to be followed by a recovery of 5.2% in 2021. Inflation remains well below the target level of 2%. According to OECD estimates, global economic activity will fall 6% this year. If infection rates spike again, the contraction could reach 7.6%. Corporate earnings estimates for this year are currently expected to decline by approximately 20% in both Europe and the United States.

Faced with such weak macro and microeconomic data, the main global central banks intervened by applying massive expansionary monetary policy measures. In particular, the European Central Bank set up a programme known as PEPP (Pandemic Emergency Purchase Programme), which initially was planned to amount to 750 billion euros, but was then increased to 1,350 billion euros to provide additional support to the economic recovery in the European Union. This is a temporary securities purchasing programme, the conclusion of which has been postponed until the ECB deems the crisis phase to have ended, and in any event until at least the end of June 2021. The main objective of the PEPP is to prevent spreads from widening too much, with adverse impacts on the Member States in greatest difficulty. Purchases under the Asset Purchase Programme will continue at a monthly rate of 20 billion euros. In March, the US central bank reacted with unprecedented measures. The Federal Reserve cut interest rates by 150 basis points over the half-year to provide maximum support to the economy. Expansionary monetary measures were also applied by other central banks worldwide, including those of China and Japan. In addition to monetary policy, enormous measures were also required in the area of fiscal policy. In late March, the US Congress approved a tax stimulus totalling approximately three trillion dollars. This measure represents the largest fiscal stimulus plan in US history. In Europe, it was decided to suspend budget rules in response to the effects of the virus on the real economy, thus enabling national governments to pursue discretionary fiscal measures.

The European Commission then intervened in support of the Member States by creating a common fund known as the “Recovery Fund”. Through the Fund, the Commission will issue debt on the markets guaranteed by the European Union’s common budget to increase the resources available to individual countries. Aid will be directed to the sectors of the economy and geographical areas most affected by the crisis, and the EU’s long-term budget will be restructured accordingly. During the European Council session of 17-20 July, the leaders of EU Member States, after heated debate, reached an agreement on the scope and duration of the various measures adopted and the methods for distributing the resources.

The agreed plan, which will now need to be approved by the national parliaments, amounts to 750 billion euros, broken down into 390 billion euros of grants and 360 billion euros of loans to be repaid. The foremost beneficiary of the plan will be Italy, the country most severely affected by the economic crisis, with total resources of 209 billion euros in the form of grants and loans. To access the fund, the governments will be required to submit a spending plan to the European Commission, indicating how they intended to use the aid, and this plan will then need to be approved by a qualified majority of the European Council. An “emergency brake” mechanism has also been created to allow individual countries to report situations of severe deviation from the agreed plans in order to evaluate whether to suspend the planned disbursements. On the basis of this procedure, the resources will be disbursed from the second half of 2021 until the end of 2023.

In the first quarter of 2020, the Eurostoxx 50 index declined by approximately 40%, whereas the S&P500 and the emerging markets index recorded losses in euro on the order of 30%. Starting in April, the markets were able to benefit from combined monetary and fiscal policy measures, culminating in the gradual reopening of the main economies in the following weeks. The S&P500 and Eurostoxx 50 indices closed the first half of 2020 at -3.73% and -12.67%, respectively. The country where it all began, China, ended the first six months of the year in positive territory, with returns on the order of 2% in euro. The best performers in the bear market were sectors such as pharmaceuticals, utilities and consumer staples, whereas the weakest were those of a cyclical nature such as financial, industrial and consumer discretionary sectors. In particular, the performance of the energy and banking sectors was below the average, with the former affected in particular by the oil price war. The latter was particularly impacted by the decline in interest rates.

As a consequence of monetary policy decisions and the period of strong risk-aversion on international markets, in March Bund and U.S. Treasury yields reached historical lows of -0.85% and 0.54%, respectively. Spreads between European Monetary Union countries widened. In particular, the BTP-Bund spread reached approximately 280 bps in March, after which it narrowed to about 200 bps as a result of the more accommodating policies adopted by the European Central Bank and the agreement on the Recovery Fund. Corporate bond spreads widened considerably, and then recovered partially in the second quarter.

In the first half of 2020, the euro-dollar exchange rate was essentially unchanged. The exchange rate was nonetheless extremely volatile due to the series of decisions by governments and central banks. In the first quarter, the euro had weakened in response to a dollar serving as a safe haven currency, but then in the final part of the half-year it benefited from a massive, unified response by the European Union, returning to near the values from the beginning of the year (1.12).

In the first half of the year, the general commodities index (BCOMTR Index) declined sharply, with the contraction concentrated in the first quarter, after which it remained essentially unchanged in the second quarter. The energy segment was particularly affected, with the price of WTI oil reaching negative levels, an event that had never before occurred. In addition to the COVID-19 emergency, this segment suffered from initial difficulty in implementing the necessary production cuts within OPEC-PLUS, which was then resolved by the May agreements. Main agricultural commodities and metals were also weak, albeit to a lesser degree, whereas gold benefited, despite violent fluctuations, from its traditional status as a safe haven asset.