Intesa Posts Quarterly Loss on Writedowns, Interest Income

Intesa Sanpaolo SpA (ISP), Italy’s second-biggest bank, reported a smaller-than-expected fourth- quarter loss after writing down its stake in Telecom Italia SpA. (TIT)

The net loss of 83 million euros ($108 million) narrowed from a year earlier, when goodwill impairments produced a record loss of 10.1 billion euros, the Milan-based lender said today. That was smaller than the 121.6 million-euro loss estimated by 10 analysts surveyed by Bloomberg.

Chief Executive Officer Enrico Tommaso Cucchiani is seeking to reduce costs and reorganize Intesa’s branch network to strengthen finances and boost capital after Italy’s longest recession in 20 years hurt profitability and worsened the bank’s credit quality.

The results were “reassuring” with earnings boosted by trading gains, analysts at broker Equita Sim SpA in Milan said in an e-mailed report to clients after the earnings were published. “The good news is better evolution of stock of impaired loans.”

Intesa shares rose as much as 1.8 percent to 1.278 euros and climbed 0.4 percent to 1.26 euros at the close of trading in Milan, valuing the company at 20.5 billion euros. The Bloomberg Banks and Financial Services Index fell 0.5 percent.

Loan-loss provisions declined an annual 27 percent to 1.46 billion euros in the fourth quarter. Intesa didn’t make significant adjustments to provisions for bad loans after the Bank of Italy’s review conducted last year, Cucchiani said on a conference call with analysts.

Loan Provisions

Italy’s central bank has increased inspections and urged banks to set aside more money for bad loans and increase the coverage ratio for non-performing loans. The recommendations followed a review of provisioning levels at about 20 lenders.

“Our provisioning level is quite conservative and in most cases higher than requested by the central bank,” Cucchiani said. “We have received a green light from the central bank, and we came out with a clean bill of health. I would not be surprised if the situation was different for other players.”

Intesa left its dividend unchanged at 5 cents a share and expects the 2013 payout to at least match that level, the bank said in a presentation to analysts.

Credit Costs

Intesa reported 107 million euros of writedowns on its stake in Telco, the holding company that controls Telecom Italia.

In 2013, the bank will focus on “re-pricing actions” and cost-cutting to counter the negative market environment and limit the impact of pay increases, Cucchiani said. “The cost of credit will remain at a high level,” he said.

Revenue in the quarter rose 5 percent to 4.49 billion euros, as lower net interest income was offset by higher income from fees and trading, which included a gain of 110 million euros from a securities’ swap.

The bank’s core Tier 1 capital ratio, a key measure of financial strength, rose to 11.2 percent at the end of December from 11.1 percent three months earlier.

Intesa, which borrowed 36 billion euros during the European Central Bank’s long-term refinancing operations and invested part of that amount in government bonds, increased Italian bond holdings to 90 billion euros on Dec. 30 from 80 billion euros three months earlier. Sovereign debt rose 16 percent to 57 billion euros in the period, it said.

Cucchiani said the bank has already refinanced its 9 billion-euro wholesale bond expiring this year.

Hungary ‘Nightmare’

Cucchiani said Intesa will restructure operations in Hungary “quite aggressively.”

“Hungary, which used to be very good for financial services, has now turned into a sort of nightmare,” he said.

Intesa’s Hungarian unit CIB Bank, the fifth-largest lender in the country, posted a loss of 279 million euros in the fourth quarter, hurt by 269 million euros of bad loans, the company said.

“We made a very significant acknowledgment of the situation in the fourth quarter and it continues to be a challenging environment,” Cucchiani said.

Hungarian Prime Minister Viktor Orban plans to reduce foreign ownership of the nation’s banks, risking a deepening clash with the European Union. Hungary will boost local ownership of the banking industry to at least 50 percent, Orban said in Budapest today.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net; Francesca Cinelli in Milan at fcinelli@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net