DBRS: Intesa SanPaolo 1H14 Results Highlight Improved Revenue

Summary:
• Improved core revenues
• Asset quality deterioration is slowing down
• Liquidity and capital position remain solid
• DBRS rates Intesa San Paolo Senior Long-Term Debt & Deposit at A (low) with a Negative trend

From DBRS Rating Limited (DBRS)’ perspective, Intesa San Paolo’s (ISP or the Bank) results for 2Q14 confirm the positive trend already observed in 1Q14, especially with regards to improved revenue generation, despite the still challenging economic environment for banks in Italy.

ISP reported 1H14 net income of EUR 720 million, up from EUR 422 million in 1H13. The improvement was achieved despite the EUR 439 million tax charge in 2Q14 linked to the revaluation of ISP’s stake in the Bank of Italy. Overall, the improved results were supported by revenue growth, particularly in fees and commission. For DBRS, this demonstrates the strength of Intesa SanPaolo’s large domestic franchise, the broad business mix and diverse product offerings, as well as the more recent success of several commercial initiatives undertaken by ISP as part of its new 2014-2017 business plan.

1H14 fee & commission income increased to EUR 3.3 billion, up by 9% YoY, and benefitted from solid growth in assets under management and commercial banking related activities. Concurrently, net interest income (NII) continued to improve in the 2Q14 mainly due to lower funding costs, which helped to offset the otherwise negative impact of deleveraging and the low interest rate environment.

Increases in total revenues, coupled with continued success in ISP cost discipline, allowed the Bank to further improve its already low cost to income ratio (CIR) to 48% from 51% in the 1Q14, as calculated by ISP. Asset quality continued to deteriorate during the quarter, but at a slowing pace. Total cash coverage ratio for impaired loans remained stable at 46.6% for 2Q14 (46.7% for 1Q14) while coverage ratio for performing loans further improved to 84 bps (81 bps in 1Q14).

The Bank’s capital and liquidity position remain solid. At June 2014, ISP reported a Common Equity Tier 1 (Basel III fully loaded) and a leverage ratio of 12.9% and 16.4x, respectively, which compare favorably to those of most domestic and international peers. Concurrently, ISP maintains a solid liquidity buffer at 2Q14 with EUR 82 billion in total unencumbered assets corresponding to 13% of the Bank’s total asset base. Moreover, the Bank reports that ISP has already prefunded all remaining wholesale bond maturities due through year end 2014. And that liquidity and funding ratios under Basel III (LCR and NSFR) have been maintained well above 100% as per future regulatory requirements.

DBRS rates Intesa San Paolo’s Senior Long-Term Debt & Deposit at A (low) with a Negative trend.

Notes:
All figures are in Euros (EUR) unless otherwise noted.