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Intesa Sanpaolo S.p.A. (ISP.MI)

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  • Italy's Bank Troubles Are Back to Haunt It
    Bloomberg

    Italy's Bank Troubles Are Back to Haunt It

    (Bloomberg Opinion) -- The public outcry against bank bailouts during the financial crisis prompted European governments to constrain the use of public money to help lenders in crisis. New trouble at the region’s oldest bank will test whether these rules can outlast the pandemic.The Italian government faces an impossible decision over Banca Monte dei Paschi di Siena SpA. Italy nationalized the bank in 2017 but had to commit to returning it to the market promptly to abide by European Union state-aid rules. The deadline for a sale —  set for the end of 2021 — is approaching fast, but the bank faces a fresh capital shortfall and a dearth of possible investors. UniCredit SpA, Italy’s second-largest bank by assets, is the only plausible buyer, but it would demand significant sweeteners. It’s not clear whether these are compatible with EU law.Rome is a victim of its own mistakes here, as my colleague Elisa Martinuzzi has written. Paschi’s troubles began before the financial crisis with a string of poor supervisory decisions that let the bank make expensive acquisitions at the price of future stability. Successive governments poured public money into Paschi as they tried to stop it from destabilizing the country’s banking system.These bailouts failed to turn the lender around. It is struggling with bad loans, mounting legal risks and poor profitability. The bank recently approved a plan to offload nonperforming loans worth 8.1 billion euros ($9.6 billion), but it needs a capital injection of about 2 billion euros. The recent conviction of its former chairman and chief executive officer has increased the danger that the bank will have to cover at least some of the legal claims, estimated at about 10 billion euros.To make things worse, Italy’s coalition government of the left-wing Democratic Party and the populist Five Star Movement is split over Paschi’s future. Roberto Gualtieri, the Democratic finance minister, is in favor of a market deal, which could prevent a fight with Brussels. Five Star wants to turn the lender into a national development bank.The populist party, and a few Democrats, believe the bank would benefit from extended state ownership. They claim the pandemic has hammered valuations and that the government would need to accept significant losses by selling now. They also fear job cuts in the event of privatization and believe the lender could contribute to Italy’s recovery by supporting state investment.These arguments show no understanding of Paschi’s recent history. The bank had strong ties with Italy’s political parties, especially from the left. Those connections were part of the problem, as shown by all the state money that’s been wasted on trying to prop up the lender. Prolonged nationalization would merely repeat the mistakes of the past.The government has to accept that it needs to sell Paschi, but a privatization will be difficult. The size of the bank — and its problems — means a large Italian acquirer such as UniCredit is the most viable option. However, UniCredit will know it’s the stronger party in this negotiation. There’s also an unhappy precedent for Italy: In 2017, it liquidated two regional lenders from Veneto, in northeastern Italy, while selling their assets to Intesa Sanpaolo SpA. The government had to pay Intesa 3.5 billion euros to let it preserve its capital position while also providing it with extensive guarantees on future losses and legal risks. UniCredit will no doubt demand similar.Brussels will need to monitor the details of any deal. The pandemic prompted the European Commission to suspend its state-aid rules, but this isn’t meant to apply to preexisting troubles. The deal between Intesa and Rome over the Veneto banks made a mockery of the single European rulebook for failing lenders, dealing a blow to Europe’s “banking union.” Covid-19 requires flexibility on the part of regulators. But it cannot be a free pass. The failure to face reality has always postponed a lasting Paschi solution. There’s no point in endlessly repeating the same mistakes.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Ferdinando Giugliano writes columns on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Bloomberg

    Banking Industry Gets a Needed Reality Check

    (Bloomberg Opinion) -- European bank bosses are on the front foot again. During the brutal first half of 2020, some lenders posted losses amid soaring provisions for bad loans. Now they’ve been emboldened by a third-quarter profit rebound. Most of the region’s bankers are sounding confident that the worst of the pandemic pain is behind them, despite the new wave of lockdowns. A dose of caution is warranted.Keen as they are to persuade regulators that they’re fit enough to resume dividends and boost trader rewards, Europe’s banks might be underplaying the potential impact of the economic contraction and an ongoing squeeze on profit margins. For a more sobering assessment of the industry, look at Germany’s Commerzbank AG, which has less exposure to the booming trading business than its rivals and expects to lose money this year. The German lender’s gloom is in marked contrast to its peers, including Italy’s Intesa Sanpaolo SpA and UniCredit SpA. Intesa is sticking with its profit target for 2021, and sees net income of at least 5 billion euros ($5.9 billion) in 2022, about a quarter more than analysts are forecasting. Similarly, UniCredit reiterated its objective for a profit of at least 3 billion euros next year after reporting third-quarter income that beat estimates. The bank is on course to earn closer to 800 million euros this year.Such certainty on how 2021 may play out is questionable. Banks have benefited from a surge in trading revenue this year — even France’s Societe Generale SA, which is scaling back its securities unit, improved both debt trading and equities revenue in the third quarter. But who knows whether market conditions will remain as favorably volatile? If the bumper trading profits ease off next year, banks will be more exposed to a decline in lending income. UniCredit saw revenue drop 7.8% in the first nine months of the year, even with the trading bonanza. It’s betting that it can repeat 9.5 billion euros of net interest income next year, driven largely by loan growth as economies recover.But no one knows how deep a scar the new lockdowns will leave. The euro area is headed for a double-dip recession in the fourth quarter, according to Bloomberg Economics.Key to European bankers’ optimism is that — after they set aside more than $69 billion in the first half of the year — the bulk of the bad-loan provisions are behind them. In this crisis, under new accounting rules, banks have had to take this action sooner for loans that may sour. But there are still valid doubts about the pandemic-ravaged economy overt the next few months.UniCredit’s chief executive officer, Jean Pierre Mustier, says things are looking better on non-performing loans, but he acknowledges that government-backed payment moratoria are only just expiring. That makes it difficult to draw conclusions about which customers will resume payments.Commerzbank is blunter still: “The rapidly evolving nature of the coronavirus pandemic means that the form and impact of the response measures” will need “to be monitored very closely over the coming days and weeks.” It suggests loan provisions might be higher than the 1.5 billion euros it’s targeting for 2020.Maybe Commerzbank, in the midst of a messy management change, has been lending to the wrong customers, making it more of a unique case. But the European Central Bank’s “severe but plausible scenario” estimates that non-performing loans at euro zone banks could reach 1.4 trillion euros this time around, far outstripping the region’s previous crises.The ECB will have this in mind as lenders try to convince it to allow the restart of shareholder payouts next month. Banker optimism only gets you so far.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Italy's Intesa hits 2020 profit goal early, before UBI boost
    Reuters

    Italy's Intesa hits 2020 profit goal early, before UBI boost

    Italy's Intesa Sanpaolo <ISP.MI> said on Wednesday it had already met its 2020 profit goal, even before taking into account its acquisition of rival UBI, helped by a post-lockdown rebound in third-quarter core revenue. In the first nine months, net profit totalled 3.1 billion euros (2.7 billion pounds), just ahead of the target set for the whole year, without including the UBI deal. The bank won a tough takeover battle for UBI in August, snapping up Italy's healthiest second-tier lender in a paper-and-cash deal that cemented its domestic dominance, especially in the wealthy north.