Net income slid to 218 million euros ($293 million) from 414 million euros in the same period last year, the Milan-based bank said in a statement today. The earnings compared with the 208 million-euro average estimate of 10 analysts surveyed by Bloomberg.
Chief Executive Officer Carlo Messina, who replaced Enrico Cucchiani in September, faces the challenge of bolstering profit while Italy’s longest recession in two decades and low interest rates squeeze margins. Intesa is reducing costs and tackling non-performing loans as a European Central Bank review of banks’ assets begins.
“The asset-quality trend is still the key focus ahead of the ECB assessment,” Wolfram Mrowetz, the chairman of Alisei Sim, a Milan brokerage, said by telephone. “These are the first earnings for Messina as CEO. Investors are waiting to see his imprint on recovering profitability and cleaning up the balance-sheet.”
Intesa’s shares fell as much as 4.1 percent in Milan trading, the biggest decline since September. They dropped 3.8 percent to 1.70 euros at 2:38 p.m., valuing the bank at 27.7 billion euros. The Bloomberg Banks and Financial Services Index, which lost 1.6 percent, has risen 15 percent this year, compared with Intesa’s 32 percent increase.
Provisions for non-performing loans increased to 1.47 billion euros in the third quarter from 1.2 billion euros a year ago, Intesa said.
Third-quarter revenue declined 7 percent to 4.15 billion euros even as the bank posted 193 million euros of gains from a buyback and exchange of its securities. Net interest income, the difference between revenue from loans and the cost of paying interest on deposits, dropped to 2.03 billion euros in the quarter from 2.32 billion euros a year earlier. The bank paid taxes of 264 million euros in the quarter, 42 percent less than a year earlier.
“The bottom line looks better on the lower tax rate,” Fabrizio Bernardi, an analyst at Fidentiis Equities in Milan, said in an e-mailed report to clients. “Loan-loss provisions are higher than expected.”
Italy’s economy is due to begin recovering from its longest recession since World War II this quarter after a “moderate” contraction in the previous three months, the European Commission said last week.
The ECB began a three-stage probe this month into the balance sheets of lenders across the 17-nation euro area, as a precursor to its assumption of financial supervision duties in November next year.
UniCredit SpA (UCG) CEO Federico Ghizzoni, who may join a group of bankers meeting ECB officials in Frankfurt on Nov. 25, said yesterday his institution is cutting expenses and setting aside more provisions as it prepares for the review.
Italy’s central bank is conducting a review of the balance sheets of the country’s top lenders before the ECB’s completes its assessment. Higher capital requirements are forcing Italian banks to reduce risk, pare lending and set aside more capital to cover risky loans.
Intesa will complete a new business plan by the spring, Messina said in a separate statement. Paying dividends to shareholders remains a priority, he said.
The bank will “focus on profitability targets as well as on continued actions aimed at strengthening the capital base and further improving the profile of risk and liquidity,” it said. “The cost of credit will remain at a high level.”
Intesa said it increased its bad-loan coverage ratio by 30 basis points to 44.5 percent in the third quarter from the previous three months. Loans to customers shrunk 7.2 percent from beginning of the year through September.
“We remain one of the most solid and best capitalized banks in the world,” Messina said. “Ahead of the ECB comprehensive assessment we have strengthened provisions to a best in class coverage ratio. We continue to de-risk the bank.”
The core Tier 1 capital ratio, a key measure of financial strength, rose to 11.5 percent at the end of September from 11.1 percent on June 30, it said. The bank already meets fully applied Basel III capital rules, with an estimated common equity Tier 1 ratio of 11.2 percent, it said.
Intesa, which has borrowed 36 billion euros in the ECB’s long-term refinancing operations, paid back 3 billion euros in the third quarter. Total reimbursements amount to 15 billion euros, it said.
The bank, which invests part of its capital in government bonds, decreased holdings of Italian sovereign debt to 97 billion euros on Sept. 30 from 100 billion euros three months earlier. The average maturity of the portfolio is 2 years, according to a slide presentation on its website.
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