May 5, 2020 / 10:48 AM / a month ago

Italy's Intesa signals resilience after surprisingly solid first quarter

MILAN (Reuters) - Intesa Sanpaolo (ISP.MI) said on Tuesday that it expected to make a net profit of at least 3 billion euros this year after writing down loans for half that figure to take into account a steep recession in Italy caused by COVID-19.

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

While annual profit is set to fall sharply from 4.2 billion euros last year, Italy’s biggest retail bank said it planned to pay out 75% of 2020 profit as dividends if regulators - which have urged lenders to preserve cash - allow it.

Intesa presented its outlook as it reported a surprise 10% rise in first-quarter net profit thanks to strong trading gains, which helped offset the impact of the pandemic in the period.

“We’re fully equipped to face the current challenges ... the 3 billion euro profit estimate is conservative, my expectation is that we can do better,” CEO Carlo Messina told analysts.

Intesa’s shares rose 5% by 1450 GMT, outperforming a 1.7 climb in Italy’s banking index .FTIT8300.

In a further boost to earnings, the bank booked only 403 million euros in net loan writedowns in the first quarter, less than half the amount announced by rival heavyweight UniCredit (CRDI.MI), which reports results on Wednesday.

However, Intesa also said it was setting aside another 300 million euros against risks related to COVID-19, which has killed more than 29,000 people in Italy and led to a near two-month lockdown that has ravaged the economy.

Those provisions and the capital gain from the recent sale of its merchant acquiring business will allow it to write down loans for 1.5 billion euros during the year, when the bank expects Italy’s economy could shrink by between 8-10.5%.

“Intesa bucked the trend by painting a somewhat more sanguine impact from COVID-19,” analysts at Santander said in a note.

“There could be question marks on whether Intesa’s assumptions are sufficiently cautious, but the company is certainly sending a signal of strength.”

Jefferies analysts said Intesa’s 2020 profit forecast was in line with market consensus while the 2021 forecast, which Intesa put at no less than 3.5 billion euros, was above it.

Messina ruled out Intesa making any revisions to its bid to take over rival UBI Banca (UBI.MI), despite resistance from some of UBI’s shareholders, and said the merger was their best option “in the current storm.”

Just before coronavirus emerged in Italy in late February, Intesa unveiled an exchange offer for UBI to create the euro zone’s seventh-largest player with a focus on insurance and wealth management.

Intesa is awaiting regulatory clearance to launch the offer at the end of June.

If successful, the deal would result in a combined profit of at least 5 billion euros in 2022, down from an initial forecast of more than 6 billion euros, Intesa said.

Its first-quarter net profit came in at 1.15 billion euros compared with an 805 million euro average forecast in a Reuters survey of six analysts.

Revenues stood at 4.88 billion euros, above a Reuters analyst forecast of 4.25 billion euros. Trading income doubled from a year ago to near 1 billion euros, while fees and interest income head steady.

Reporting by Valentina Za; Editing by Jane Merriman and Susan Fenton

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