Intesa Quarterly Profit Beats Estimates on Trading Income

Intesa Sanpaolo SpA, Italy’s second-biggest bank, said first-quarter profit fell less than expected after trading income exceeded analyst estimates.

Net income dropped to 306 million euros ($397 million) from 804 million euros a year earlier, the Milan-based bank said in a statement today. Earnings beat the 287 million-euro average estimate of nine analysts surveyed by Bloomberg. Intesa posted a gain of 180 million euros in the year-earlier quarter after buying back securities.

While Italy’s longest recession in two decades is depressing interest rates and hurting margins for lenders in the country, Intesa reported trading income of 455 million euros was 63 percent higher than analyst estimates. Chief Executive Officer Enrico Cucchiani is reducing costs and reorganizing the bank’s branch network to strengthen finances and boost capital.

Results are “better than expected thanks to higher trading income and lower costs,” Annamaria Benassi, an analyst at Kepler Cheuvreux, wrote in a note to clients. The bank’s focus remains on credit quality and its capital ratio, she said.

Intesa shares rose as much as 2.7 percent in Milan trading today, and were up 2.5 percent to 1.42 euros at 4:20 p.m. The stock has advanced 9 percent this year in line with the 40-company Bloomberg Banks and Financial Services Index.

Revenue fell 14 percent to 4.12 billion euros as interest income dropped 19 percent to 2.02 billion euros.

Capture Opportunities

“I am pleased with the first-quarter results, which are in line with our dividend commitments,” Cucchiani said in a separate statement. “In a more stable environment we now feel prepared to move on and we are ready to capture opportunities.”

Intesa reiterated that it expects the 2013 dividend to at least match the 5 cents a share paid on last year’s earnings.

Operating costs fell 5 percent to 2.21 billion euros in the quarter. Loan-loss provisions increased to 1.17 billion euros from 973 million euros a year ago with a coverage ratio of 43.3 percent, the lender said. Provisions decreased 20 percent quarter on quarter, as new inflows of bad loans decreased, Cucchiani said, adding that the trend is confirmed by figures in the first part of the second quarter.

The bank’s common equity ratio under Basel III rules, a key gauge of financial strength, rose to 10.7 percent as of March 31, from 10.6 percent three months earlier.

LTRO Repayment

Intesa “holds an extraordinary cash buffer of 20 billion euros,” Cucchiani said during a conference call. The bank may invest the liquidity to make an early reimbursement of part of the European Central Bank’s long-term refinancing operations and to increase its Italian sovereign debt holdings, Chief Financial Officer Carlo Messina said.

Intesa, which borrowed 36 billion euros during the LTRO and invested part of that amount in government bonds, kept Italian bond holdings at 90 billion euros as of March 31, in line with three months earlier. The average maturity of its portfolio is 1.8 years, the CFO said.

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