Intesa Awaits Clarity On Economic Outlook After Profit Tops Forecast

Italy's biggest bank Intesa Sanpaolo's on Friday reported forecast-beating second quarter profit thanks to higher interest rates, and said it would finalise capital return plans once it had a clearer idea of potential pitfalls.

Intesa is aiming to approve an interim dividend of at least 1.1 billion euros ($1.1 billion) in November when, according to CEO Carlo Messina, there will be a "clear understanding" of Europe's economic predicament and Intesa's chances of liquidating its Russian business.

The bank confirmed its full-year financial targets after net profit for April-June came in at 1.33 billion euros, down 12% from a year ago but well ahead of a Reuters analyst consensus of 1.03 billion euros.

Rival UniCredit also beat expectations this week, thanks to stronger revenues and plummeting loan writedowns, doubling its net profit from last year and raising its 2022 earnings outlook.

"We're not upgrading our outlook," Messina said. "But I'm confident we can deliver very good results and capital distribution in terms of cash and interim [dividends] and share buyback," he said.

Intesa, which has made a trademark of its generous payouts, deducted in full from capital in the quarter a proposed 3.4 billion euro share buyback, lowering its core capital ratio to 12.5%, though it is carrying out only half of it for now.

It will approve the rest at the latest with full-year results.

SOUND NUMBERS

Messina played down fears that Italy's early general election on Sept. 25 could be a source of concern, but analysts say political instability is weighing on Italian banks' shares.

"I'm not worried at all," he said, quashing media rumours he could consider becoming Italy's next economy minister.

Second-quarter revenues reached 5.35 billion euros, surpassing a 5.09 billion euro average estimate, with trading gains helping to offset weakening net fees in volatile markets.

Higher interest rates drove income from lending up 7% from the first quarter despite large disposals of impaired loans Intesa carried out in pursuit of its "near zero" problem loan strategy.

"Sound numbers from Intesa," UBS analysts said.

Profit was supported too by lower-than-expected loan-loss provisions, with Intesa booking 730 million euros in charges in the period, nearly half of which related to Russia and Ukraine.

Their presence in Russia has cost Intesa and UniCredit 1.1 billion euros each in provisions against potential losses in the first half.

Italy's top two banks have been struggling to extricate themselves from Russia after it invaded Ukraine, failing to find buyers for their local businesses after international sanctions curtailed the number of potential counterparties.

Messina said Intesa remained committed to exiting Russia and would probably know by November what the actual chances of doing so were. He ruled out any losses on Intesa's cross-border loans to Russian borrowers reiterating they were all "top names."

Intesa, whose strong social commitment reflects the Roman Catholic values of its banking foundation shareholders, said it would pay out 500 euros each to 82,000 employees - excluding executives - to help them cope with soaring inflation.

($1 = 0.9810 euros)