Italy's Banco BPM vows to sustain record profits as rates peak

By Andrea Mandala

MILAN (Reuters) - Italy's Banco BPM pledged on Tuesday a five-fold increase in payouts to investors through 2026 by using fee income to sustain record profits even as the boost from higher interest rates wanes.

Presenting a new three-year strategy, CEO Giuseppe Castagna said his bank's performance showed it had no need to merge with a mid-sized peer such as state-owned Monte dei Paschi.

With its roots in Italy's wealthy Lombardy region, Banco BPM has been seen as a potential merger partner for Monte dei Paschi or BPER Banca, as well as a takeover target for heavyweight UniCredit.

At the helm since 2017, when a merger of two regional mutual lenders created Italy's No.3 bank, Castagna has presided over a balance sheet clean-up and struck several commercial partnerships.

Banco's main partner is France's Credit Agricole, which in 2022 also became the top investor with a 9.2% stake.

Shares in Banco have doubled in value over the past two years and Castagna said they could rise further if the market factored in its profit goals.

"The management's job is to keep the share price high to prove to our shareholders how much the bank is worth standalone or could be worth in a takeover," he said.

Banco plans to return 4 billion euros ($4.3 billion) to investors by 2026, equal to more than 50% of its market capitalisation.

That will start with 1.3 billion euros in dividends next year and after that it will decide each year the split between dividends and share buybacks.

Despite the payouts, Banco aims to end the plan with a stable core capital ratio of 14%.

Its shares were up 1% at 1350 GMT, within a flat Italian banking sector.

Broker Equita had forecast a payout of 3.4 billion euros over the next three years.

Castagna said official interest rates could start declining next year, leaving lenders looking for alternative sources of revenue growth.

Banco aims to make net fees its main profit driver, growing them 5% annually on average in 2023-2026 and adding some 200 million euros in income from wealth management and insurance operations.

Committing also to increase by a fifth managerial positions held by women by 2026 and hire hundreds of cyber and data specialists, Banco forecast a 2026 net profit above 1.5 billion euros versus above 1.2 billion expected in 2023.

It plans to shed 1,600 workers through a redundancy incentive plan starting in 2024, while hiring 800 young people.

A year ago, Banco expanded its partnership with Credit Agricole from consumer credit to non-life insurance. In July it struck a partnership in payments with domestic private equity fund FSI and rival banking group ICCREA.

In asset management, Banco is the biggest investor in Anima with a 21.7% stake.

Castagna said Banco would be happy to support Anima's growth, including abroad, as a shareholder.

($1 = 0.9277 euros)

(Reporting by Andrea Mandalà; Editing by Valentina Za and Mark Potter)