Intesa prepares for new plan after reaching profit target ahead of schedule

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The logo of Intesa Sanpaolo can be seen in Milan, Italy, January 18, 2016. REUTERS / Stefano Rellandini / File Photo

  • Nine-month profit meets FY target
  • To use money on bad loans, clean up before the new plan
  • Target level of care for the Nordic peers in the future
  • Q3 results exceed f’cast thanks to low credit losses, trading profits

Milan, Nov. 3 (Reuters) – Italy’s Intesa Sanpaolo (ISP.MI) said it will get in tip top shape for a new business plan due in February by outsourcing problem loans after it hits its profit target for 2021 ahead of schedule Has.

Italy’s largest bank by asset was unable to raise its full-year target noticeably after lower loan defaults and higher trading income drove quarterly earnings above market expectations.

Intesa instead announced that it will use the money to write off loans in the final quarter of the year when it will focus on preparing a new business plan.

“I want to enter the new business plan with no (problems) related to … non-performing loans,” CEO Carlo Messina told analysts.

As part of its current four-year plan, Intesa reduced $ 34 billion ($ 39.37 billion) in bad loans, exceeding its target by $ 8 billion.

Engagement in the country’s countless small businesses and Italy’s chronically stagnant economy have made sour credit the Achilles’ heel of Italian banks.

In the third quarter, provisions at Intesa decreased more than expected 44% from 2020, when the bank set aside nearly $ 1 billion to prepare for future damage to its credit book from COVID-19.

NORDIC BANK

Messina noted that the outlook was now different thanks to the strong post-COVID-19 recovery that Italy was prepared for, aided by the rebound from the European Union’s recovery funds.

“We will continue to work to create a starting point for the new plan that can allow us to truly be a Nordic bank in terms of provisions,” he said, referring to banks that are known for their low problem loan ratios are known.

Net income for the January-September period was € 4 billion ($ 4.6 billion), in line with the minimum target Intesa had set for the year and which it is now expected to exceed.

“A solid set of results, but … may not be enough to keep the stock moving from here,” Jefferies said, noting that, unlike several of its peers, Intesa shares don’t discount the value of assets the bank offer.

The stock closed 0.4% versus a 0.6% rise in the banking index (.FTITLMS3010), a performance that Messina attributes to the relatively expensive valuation of the company’s shares.

“We are one of the best banks in Europe and investors expect a lot from us,” he said.

Intesa’s results confirmed the encouraging picture for the sector drawn by competitors such as French BNP Paribas (BNPP.PA), Spanish BBVA (BBVA.MC) and UK Lloyds (LLOY.L), whose results also either by decreasing provisions or releasing cash for COVID-related loan defaults.

The less severe than expected consequences of the pandemic so far have allowed European banks such as BBVA, BNP and HSBA (HSBA.L) to announce share buybacks, an option that Messina Intesa could consider under the new plan.

However, Intesa would first set a new distribution target and a minimum capital buffer in order to be able to exceed the regulatory thresholds.

Intesa, whose share price is backed by the bank’s high dividend yield, confirmed a payout ratio of 70% versus results for 2021, up from 75% this year.

The net profit in the third quarter of 983 million euros was well above the consensus created by Reuters of 850 million euros.

At EUR 5.09 billion, sales were above the expected EUR 4.93 billion, mainly thanks to a strong performance from trading activities, where income tripled compared to the previous year.

Lending revenues declined 6.1% annually due to negative interest rates exacerbated by fierce competition and slowing credit growth in Italy after a boom fueled by government guarantees.

However, Messina said that companies would resume investment and this would boost lending.

Net fees increased 8.3% year over year thanks to robust business activity in commercial banking and wealth management in the months following the lockdown.

Intesa said its board of directors approved the payment of an interim dividend of € 1.4 billion in cash on Nov. 24, bringing the dividend yield for the year to 8.3%.

($ 1 = 0.8636 euros)

Reporting by Valentina Za in Milan Editing by Agnieszka Flak, Steve Orlofsky and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.


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