(Updates with sovereign debt holdings in 10th paragraph.)
May 15 (Bloomberg) -- Intesa Sanpaolo SpA, Italy’s second- biggest bank, said first-quarter profit rose 64 percent, beating analysts’ estimates, on lower provisions and gains from the sale of its stake in Pirelli & C. SpA.
Net income rose to 503 million euros ($687 million) from 306 million euros a year earlier, and includes a 59 million-euro gain from the Pirelli sale, the Milan-based bank said in a statement today. Earnings exceeded the 281.5 million-euro average estimate of six analysts surveyed by Bloomberg.
Chief Executive Officer Carlo Messina, who replaced Enrico Cucchiani in September, is reducing costs, merging units and moving resources into commercial activities to boost profit. The 51-year-old CEO doubled loan-loss provisions in the fourth quarter to improve Intesa’s balance sheet before the European Central Bank’s asset quality review, posting a 5.2 billion-euro loss.
Earnings surpassed estimates on lower provisions, higher net interest income and better insurance profits, Fabrizio Bernardi, an analyst at Fidentiis Equities, wrote in a note to clients. Intesa shows a “strong capital base, which continues to improve and is well above regulatory requirements,” he said.
Intesa’s stock fell as much as 6.2 percent and was down 5 percent to 2.23 euros at 4:47 p.m. in Milan trading. The shares are up 25 percent this year.
Italian stocks tumbled today after the country’s economy unexpectedly contracted last quarter, signaling Italy’s failure to sustain a pullout from its longest recession on record.
“I wasn’t surprised by the GDP contraction, I expect that the recovery will strengthen in the second part of the year,” Messina said during a conference call in Milan.
Intesa, which serves more than 11 million customers in Italy through 4,700 branches, said bad-loan provisions fell to 1.08 billion euros from 1.16 billion euros a year earlier, increasing its bad-loan coverage ratio to 46.7 percent. Net interest income rose 4.1 percent to 2.1 billion euros, while fee and commission income rose 8.3 percent to 1.58 billion euros.
“We are firmly on track to deliver our business plan commitments,” Messina said. “First-quarter net income was the highest in eight quarters, thanks to a strong performance in net interest income and in fees and commissions.”
The lender’s pro-forma common equity Tier 1 ratio under fully-applied Basel 3 rules, a key measure of financial strength, rose to 12.6 percent by March 31 from 12.3 percent at the end of December.
Holdings of Italian sovereign debt fell to 102 billion euros at the end of March from 103 billion euros three months earlier. The average maturity of the portfolio at its banking division rose to 2.8 years from 2.1 years at the end of December.
The ECB is conducting a three-stage review of the balance sheets of lenders across the 17-nation euro area, as a precursor to its assumption of financial supervision duties in November.
Intesa, one of the 15 Italian lenders under review, “has a strong liquidity position and funding capability,” Messina said. “We will emerge as a clear winner and best in class in the AQR exercise.”
Intesa is close to completing a transaction with KKR & Co. and UniCredit SpA to improve the performance and boost the value of a selected corporate loan portfolio, Messina said.
Intesa, which agreed to sell its Ukrainian unit Pravex Bank JSC to CentraGas Holding Gmbh for 74 million euros in January, is waiting for regulatory approval to complete the transaction, the CEO said. “There was no deal breaker in the sale of the unit.” Last month Messina expressed concerns that the regulator could block the sale because of legal issues.
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