Intesa Sanpaolo SpA (ISP), Italy’s second-biggest bank, said second-quarter profit slumped after non-performing loans rose amid an economic recession. The shares plunged the most in six weeks.
Net income dropped to 116 million euros ($153 million) from 470 million euros in the second quarter of last year, when Intesa benefited from a 173 million-euro credit that helped cut taxes 67 percent. Earnings missed the 180 million-euro average estimate of six analysts surveyed by Bloomberg.
“The results were weaker than expected,” Luigi Tramontana, an analyst at Banca Akros in Milan, said in e-mailed comments to clients. “The negative surprise was fully due to much higher loan impairments” which more than offset a stronger operating performance, he said.
Chief Executive Officer Enrico Cucchiani is reducing costs and reorganizing Intesa’s branch network as the longest recession in two decades squeezes profit at banks across Italy. The economy may contract 1.8 percent this year after shrinking 2.4 percent in 2012, according to the average of 39 economists’ estimates on Bloomberg.
Intesa’s shares declined as much as 4.5 percent, the biggest drop in six weeks, and fell 2.3 percent to 1.43 euros at 4:17 p.m., valuing the company at 23.1 billion euros. The Bloomberg Banks and Financial Services Index, which fell 0.1 percent today, has risen 5 percent in the past six months compared with Intesa’s 3 percent increase.
Loan-loss provisions increased to 1.4 billion euros in the second quarter from 1.08 billion euros a year ago. The bank wrote down “other assets” by 147 million euros, including its stake in Assicurazioni Generali SpA (G) by 58 million euros.
“This conservative provisioning puts us ahead of the curve,” Cucchiani said during a conference call with analysts today. “This will become of paramount importance in the light of the asset quality review and stress test exercise that will take place soon,” he said.
Higher capital requirements are forcing banks in Italy, including Intesa, to reduce risk, pare lending and set aside more money to cover risky loans. The European Central Bank, taking over supervision of the banking industry next year from national regulators, will conduct an “asset quality review” that may lead to further writedowns.
Intesa increased its bad-loan coverage ratio by 90 basis points to 44.2 percent in the second quarter from the previous three months. Loans to customers shrunk 4.8 percent at the end of June from six months earlier, while loans as a proportion of deposits fell to 96 percent from 99 percent.
The stress test and review are “likely to put European banks’ balance sheets under further pressure,” Cucchiani said. “In this environment Intesa is focusing on balance sheet strength, de-risking, efficiency, and fees and commission growth in order to stay away from capital increases.”
Intesa, which borrowed 36 billion euros in the ECB’s long-term refinancing operations, paid back 12 billion euros in June, using part of its cash buffer.
The bank, which invests part of its capital in government bonds, increased holdings of Italian sovereign debt to 100 billion euros on June 30 from 90 billion euros three months earlier. The average maturity of the portfolio is 1.7 years, according to a slide presentation on its website.
The common equity ratio under Basel III rules, a key gauge of financial strength, rose to 11 percent on June 30 from 10.7 percent in March. Second-quarter revenue fell 1 percent from a year ago to 4.09 billion euros as interest income dropped an annual 16 percent to 2.04 billion euros.
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