Net income rose 87 percent to 217 million euros ($291 million) from 116 million euros a year earlier, Italy’s second-largest bank said today. Earnings outstripped the 118.7 million-euro average estimate of nine analysts surveyed by Bloomberg.
“Overall good underlying profit,” Andrea Filtri a London-based analyst at Mediobanca SpA (MB), wrote in a note to clients. The bank’s capital “is very strong,” and fewer loans are turning sour.
Chief Executive Officer Carlo Messina is cutting costs, merging units and selling assets as part of a four-year plan targeting about 2 billion euros worth of disposals. Complicating his efforts, Italy’s economy contracted in the first three months of the year, threatening its recovery from its longest recession in two decades. Low interest rates and tougher regulations have also squeezed margins at Intesa in the 10 months since Messina, 52, took over as CEO.
“The bank’s profitability grew significantly in the first six months of the year, despite the strong impact of non-recurring tax,” Messina said in a conference call today. We “are happy with our results and perfectly in line with our business plan.”
Trading income almost doubled to 409 million euros, boosted by the dividend from its 30 percent stake in the Bank of Italy. Fee and commission income increased 10 percent to 1.73 billion euros, the highest since 2007, as Intesa shifts toward more lucrative activities like asset management, selling insurance and placing securities.
Results are “better than expected mainly because of higher net fees,” according to Fabrizio Bernardi, a Milan-based analyst at Fidentiis Equities.
Shares rose as much as 3.2 percent and were up 1.3 percent to 2.26 euros at the close of Milan trading, giving the bank a market value of 36.9 billion euros. The Bloomberg Banks and Financial Services Index, which was down 1.3 percent today, has dropped 1.7 percent this year, compared with Intesa’s 26 percent increase.
Intesa’s earnings were affected by several one-time charges. Its tax rate more than tripled after it revalued its stake in the Bank of Italy and revised the fiscal treatment of deferred assets. It posted 220 million euros in gains from the sale of stakes in hotel owners NH Italia SpA and SIA SpA and received 161 million euros of dividends from the central bank.
Intesa booked 65 million euros in provisions related to CIB Bank, its unit in Hungary where the government is forcing lenders to refund borrowers for losses, including on foreign-currency loans.
“We consider Hungary as a core market where we want to stay,” Messina said. “We have to wait until the end of evaluation of Hungary’s new law to see whether there will be an additional impact on bank’s accounts in the second half.”
Hungary’s Parliament approved a law on July 4 voiding exchange-rate margins on foreign-currency loans and declaring unfair unilateral changes to consumer credit going back as far as 2004, except where banks prove otherwise.
The bank said bad-loan provisions fell to 1.18 billion euros from 1.39 billion euros a year earlier. Banks across Europe are cleaning up balance sheets as the European Central Bank evaluates their assets in preparation for its future role as supervisor. The asset review will be followed by tests to determine banks’ ability to withstand financial shocks.
Intesa is “maintaining a rigorous and conservative provisioning policy even amid improving credit trends,” the lender said in the statement. “Intesa Sanpaolo is very well positioned to emerge from the Asset Quality Review and Stress Test exercise as a winner amongst European banks.”
Messina expects provisioning for bad loans will decline in the second-half from a year earlier, when the bank set aside 4.6 billion euros to shore up its balance sheet before the asset review.
The bank’s common equity ratio under phased-in rules, a measure of financial strength, rose to 13.2 percent as of June 30 from 12.2 percent at the end of March, confirming Intesa as one of the best-capitalized lenders in the country.
Intesa plans to apply for the ECB’s targeted longer-term refinancing operations, known as TLTRO, to offer loans on better terms. “Intesa’s use of TLTRO is driven by the good pricing conditions,” Messina said. The funds are part of a wider package of measures announced in June by the ECB, which offer as much as four years of low-cost funding tied to bank lending.
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