European Morning Credit: Today in European Credit

Research evidence excerpt

European Morning Credit: Today in European Credit

Financials

BAWAG (BAWAG): Decent 2Q26, but loan quality weakens

We thought this was a decent 2Q26 (22% RoE), with a €255mn net income ~11% ahead

of Visible Alpha consensus. Pre-tax profit increased to €332mn (+6% qoq, +17% yoy).

The beat was supported by fees (6% ahead of consensus), NII (2% ahead) and costs (4%

lower). However, higher-than-expected loan impairments of €75mn (or 59bps of loans,

VA consensus: €63mn) were driven by growth in unsecured consumer lending. As BAWAG

continues to focus on its latest acquisition (Permanent TSB, to close in 4Q26 or 1Q27

pending approvals), we remain mindful of non-zero execution risks associated with the

scale of this transaction (at e.g. PTSB total assets ~42% of BAWAG, Barclays Consumer

Bank: 9%, Knab: 31%). We’d also focus on increasing risks costs in the Consumer book

and slim capital buffer target.

(Katharine Lennon)

Luminor (LUMINO): OTP’s acquisition of Luminor

Yesterday Baltic bank Luminor and Hungarian bank OTP announced that OTP will acquire

100% of the shares of Luminor. Luminor is currently 80% owned by Blackstone (through

a consortium of private equity funds), with a further 20% owned by DNB. Luminor

(A2/NR/NR) is already 4 notches higher-rated than OTP (Baa3/BBB/NR), and OTP is a

much larger bank with a €123bn balance sheet (Luminor: €16bn, at end-1Q26). We

therefore see this combination as likely negative for Luminor’s ratings given OTP’s much

larger size and weaker ratings. Equally, Luminor Sr Pref spreads already trade 20-25bps

wide of OTP Sr Pref at the short-end of the curve and Luminor SNP bonds trade ~20bps

wide of OTP Sr Pref in the belly of the curve, which we think should provide some

spread cushion against this potential negative impact.