Italian bank Intesa's net profit tops forecasts, helped by trading gains

MILAN (Reuters) - Italy's top retail bank Intesa Sanpaolo ISP.MI posted on Tuesday a 25% rise in third-quarter net profit helped by trading gains and steady fees, offsetting a drop in interest income.

FILE PHOTO: The Intesa Sanpaolo logo is seen in Milan, Italy, in this January 18, 2016 file photo. REUTERS/Stefano Rellandini

The bank strengthened its core capital to 14.2% of assets in September, thanks to a rally in Italian government bonds after the appointment of a pro-European government in Rome and fresh stimulus measures by the European Central Bank.

Higher prices for government bonds held by banks lift the value of reserves that count towards a lender’s capital.

Intesa also received supervisory clearance in September to set aside less capital against its insurance holdings.

The bank reported a third-quarter net profit of 1.04 billion euros (£898 million), topping an average forecast of 949 million euros in a Reuters survey of seven analysts.

Revenues also came in above expectations at 4.52 billion euros boosted by the bank’s treasury and trading activities.

“The trading-led beat offers support to consensus year-end profit and dividend expectations ... fee income also performed well, but net interest income is coming under renewed pressure, which may raise questions on the mid-term outlook,” Jefferies said in a note.

Shares in Intesa extended gains after the results and were up by 1.5% at 1300 GMT, marginally ahead of the sector .FTIT8300.

Italian banks are benefitting from renewed investor confidence under the new government after the anti-European stance of the previous coalition rattled markets and pushed up borrowing costs.

Intesa said asset management inflows had improved in the quarter posting a 2.5 billion euro net increase.

“Low interest rates together with a lower spread (on Italian bonds) are an opportunity for our wealth management business,” Chief Executive Carlo Messina said, adding Intesa aimed to encourage customers to shift more deposits into assets under management.

“The first positive results are evident in the third quarter and the outlook is even better,” Messina said.

The bank said it had further cut its soured loan burden to 7.6% of total lending at the end of September, after it shed 2.7 billion euros in so-called ‘unlikely-to-pay’ loans as part of a broader accord with Italian bad loan manager Prelios.

Intesa said lower loan losses and cost cuts would help it meet its forecast of a higher net profit this year compared with 2018.

Reporting by Valentina Za; Editing by Silvia Aloisi and Edmund Blair