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Intesa’s Banks Rescue Can’t Knock Profit Growth Off Track

Intesa’s Banks Rescue Can’t Knock Profit Growth Off Track

(Bloomberg) -- Absorbing two of Italy’s failing banks wasn’t enough to keep Intesa Sanpaolo SpA from posting a higher profit in the third quarter as provisions for bad loans dropped.

Net income rose to 650 million euros ($751 million) in the three months through September from 628 million euros a year earlier, Milan-based Intesa said in a statement on Tuesday. Excluding Banca Popolare di Vicenza Spa and Veneto Banca SpA, Intesa recorded a 16 percent increase in profit to 731 million euros.

Intesa received 3.5 billion euros from the Italian public purse to take on the performing assets of the two debt-laden Venetian banks after the European Central Bank declared them a lost cause. Chief Executive Officer Carlo Messina, who said in August that he expects the acquisitions to benefit earnings starting next year, warned that there are still issues to overcome.

“The P&Ls of these two banks still show strong imbalances, even after the disposal of the impaired loans,” with operating costs twice as high as revenue, Messina said in a separate statement.

Intesa rose to 0.8 percent in Milan trading to 2.86 euros as of 3:01 p.m., giving the bank a market value of 47.9 billion euros. The lender has gained 22 percent this year, compared with a 8 percent increase in the 46-member STOXX 600 Banks Index.

Loan-loss provisions declined to 643 million euros in the quarter from 917 million euros a year earlier. The gross inflow of new non-performing loans further declined in the third quarter to 990 million euros, the lowest since Intesa Sanpaolo was created, it said.

The bank’s common equity Tier 1 ratio, a measure of financial strength, stood at 13.4 percent at the end of September.

Asset Quality

“Bottom line better on lower loan-loss provisions and taxes,” while earnings quality “was a bit light,” said Fabrizio Bernardi an analyst at Fidentiis Equities. The Bank showed good asset quality, he said. 

Benjie Creelan-Sandford, an analyst at Jefferies International, said “weak” net interest income was partly offset by “decent” earnings from fees.

Messina is working on a new business plan to be announced early next year that is expected to feature expansion in insurance and wealth management. Meanwhile, the bank is targeting 3.4 billion euros of dividends for 2017 and a wider operating margin from revenue growth and cost savings.

“Intesa Sanpaolo reinforced its position as a successful wealth-management company, with over 50 percent of gross income generated by this area of activity,” Messina said. “The first nine months of the year were the best ever in terms of commissions.”

Revenue rose 0.6 percent to 4.17 billion euros as higher income from fees and commissions more than compensated for lower revenue from trading. While wealth management was the biggest contributor to the bank’s gross income, the corporate and investment banking division was second largest, accounting for a quarter of the bank’s gross income.

Intesa said it will post a 800 million-euro capital gain in the fourth quarter related to the sale of its stake in Allfunds Bank SA.

--With assistance from Francesca Cinelli Sofia Horta e Costa and Chiara Remondini

To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net.

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen

©2017 Bloomberg L.P.