Intesa Sanpaolo CEO Messina Targets ROE Higher Than 10%

Intesa Sanpaolo SpA Chief Executive Officer Carlo Messina targets a return on equity higher than 10 percent in the new business plan he’s preparing for Italy’s second-biggest bank.

“My main priority is to prepare a bottom-up business plan,” Messina said in an interview with Francine Lacqua on Bloomberg Television at the World Economic Forum in Davos, Switzerland. “The target is a ROE in excess of the cost of equity, so higher than 10 percent.” Intesa had a 3.3 percent ROE in 2012.

Messina, who replaced Enrico Cucchiani in September, expects to reach the ROE target at the end of a three or five-year business plan that will be released by spring. The CEO faces the challenge of bolstering profit after Italy’s longest recession in two decades and low interest rates squeezed profit margins.

“The business plan will be a key stock catalyst as management will provide its view on timing for normalization” of credit quality and revenue, Annamaria Benassi, an analyst at Kepler Cheuvreux wrote in a note to clients today. The ROE target “looks quite aggressive,” she said.

Intesa rose 0.7 percent to 1.99 euros at 2:30 p.m. in Milan, giving the Milan-based bank a market value of 32.4 billion euros ($44 billion).

Cost Control

“We will work again on cost control as the main target is to increase revenue through the potential in our retail network,” Messina said. “There is also a lot of potential in private banking, wealth management, corporate and investment banking as well as in the foreign network.”

The bank already meets fully applied Basel III capital rules, Messina said. The bank’s core Tier 1 capital ratio, a key measure of financial strength, rose to 11.5 percent at the end of September, with an estimated common equity Tier 1 ratio of 11.2 percent, Intesa said Nov. 13.

Intesa, which is one of the 15 Italian banks that will be reviewed by the European Central Bank this year, will emerge strongly from the assets review, according to Messina. The ECB has began a three-stage probe into the balance sheets of lenders across the 17-nation euro area, as a precursor to its assumption of financial supervision duties in November.

“The exercise has to be rigorous and carried out without mercy,” Messina said. “In Italy, there will be banks that will pass easily and others with difficulty.”

Asset Sale

Intesa agreed to sell its Ukrainian unit Pravex Bank JSC to CentraGas Holding Gmbh for 74 million euros, it said in a statement today. The transaction will have a negative impact on its income statement of about 100 million euros.

The lender also agreed to sell its 19.9 percent stake in Chinese insurer Union Life for 146 million euros, with an expected capital gain of 30 million euros.

“The disposal of the loss-making bank in Ukraine is positive,” Carlo Tommaselli, a Milan-based analyst at Societe Generale SA, said in a note to clients.

Intesa’s third-quarter profit fell 47 percent to 218 million euros after an economic slump hit lending and it set aside more provisions for soured loans.

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