Intesa Gets Lift from Provisions to Beat Profit Estimates

(Bloomberg) -- Intesa Sanpaolo SpA posted higher-than-expected third quarter profit aided by lower provisions for bad loans, as Chief Executive Officer Carlo Messina joins regional peers in taking a more optimistic view of the economy.

Net income of 983 million euros ($1.14 billion) beat the 811 million-euro estimate of analysts surveyed by Bloomberg. The result was also supported by rising earnings from fees and trading. 

Shares declined 0.2% to 2.51 euros as of 1:35 p.m. in Milan trading, giving the lender a market value of 48.7 billion euros. The bank almost halved provisions for bad loans from a year earlier, and the non-performing loan ratio fell to 3.8% at the end of September from 4.1% at end of June.

Intesa also joins its main Italian rival, UniCredit SpA, in boosting results by putting aside less cash for doubtful loans as pandemic restrictions ease. European lenders including Erste Group Bank AG, Banco Bilbao Vizcaya Argentaria SA, and Banco Santander SA are also allocating less for souring credit or even releasing such provisions, bolstering their profits. 

The bank said it expects net income in 2021 to exceed 4 billion euros, a target already reached in the first 9 months of the year, and reiterated its dividend policy of a payout ratio of 70%, to be partially distributed as interim dividend this year.

“We consider this third quarter earnings a positive set of results,” even if they’re based on trading and lower provisions,” said Fabrizio Bernardi, an analyst at Bestinver. 

In the quarter, an 8% increase in fees and more-than-tripled income from trading boosted revenue 7% to 5.1 billion euros. 

Lower Provisions

Messina’s pivot to focusing on wealth management, private banking and insurance has granted Italy’s biggest bank alternative sources of growth while interest rates remain low. The chief executive, who led a takeover of smaller rival Unione di Banche Italiane SpA last year to cement the bank’s leading position, plans to present a new 4-year strategy in February.

The results are not comparable with the 3.8 billion euros profit in the third quarter last year, which was boosted by 3.3 billion euros of badwill linked to the acquisition of UBI Banca, an accounting quirk used to reflect the purchase of businesses that trade at a discount.

Andrea Enria, the European Central Bank’s head of supervision said on Tuesday that banks shouldn’t “jump the gun” and “create profitability now that they could regret later” by reducing provisions excessively.

Intesa, which is among the most generous among European banks in rewarding investors, distributed last month a dividend on 2020 results that has led to a decline of the CET1 ratio to 15.1% at the end of September from 15.7% three months earlier.

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