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Intesa Sanpaolo: consolidated results at June 30th 2014

Turin - Milan, August 6st 2014 – At its meeting today, the Intesa Sanpaolo Management Board approved the consolidated half-yearly report as at June 30th 2014.

Net income for H1 2014 at nearly €1.2bn, excluding retroactive tax rate increase in relation to the stake in the bank of Italy.

Strong improvement in profitability, fully in line with 2014-2017 business plan targets.
in Q2 2014, the highest operating margin and pre-tax income of the past nine quarters.

Positive trend in net interest income, sustained growth in commissions (in H1 2014 the highest since 2007) with robust performance of assets under management.

Rigorous and conservative provisioning, with NPL inflow from performing loans in H1 2014 at its lowest level since H2 2011.

Thanks to its solid capital base, which continues to improve, Intesa Sanpaolo is very well positioned to emerge from the asset quality review and stress test exercise as a winner amongst European banks.

  • Robust net income:
    • nearly €1.2bn in H1 2014, excluding the retroactive tax rate increase in relation to the bank of italy stake
    • €720m in H1 2014 (up 70.6% vs H1 2013) with actual tax rate at 59%
    • €217m in Q2 2014 with actual tax rate at 75%
  • Strong growth in pre-tax income:
    • up 28% vs Q1 2014
    • up 70.3% vs H1 2013
  • Significant increase in operating margin:
    • up 19.3% vs Q1 2014
    • up 8.1% vs H1 2013
  • Positive trend in net interest income:
    • up 0.2% vs Q1 2014
    • up 3.8% vs H1 2013
  • Sustained growth in net fees and commissions:
    • up 9% vs Q1 2014
    • up 9.2% vs H1 2013
  • Continuous cost management:
    • down 2% vs Q1 2014
    • up 1.2% vs H1 2013
  • Rigorous and conservative provisioning, coupled with improving credit trend:
    • €1,179m in Q2 2014 vs 1,077m in Q1 2014
    • €2,256m in H1 2014 vs 2,548m in H1 2013 (down 11.5%)
    • NPL inflow from performing loans in H1 2014 at its lowest level since H2 2011, net down 9% and gross down 10% vs H1 2013
  • Strong capital base, which continues to improve and is well above regulatory requirements. Common equity ratio, net of €500m dividends accrued in the first half of 2014:
    • 12.9% on a fully loaded basis(1), approximately €10bn of excess capital(2), and capital buffer of approximately €13bn ahead of the AQR(3) and €20bn ahead of the stress test(4)
    • 13.2% on a transitional basis for 2014 (“phased in”)

HIGHLIGHTS:

OPERATING INCOME: Q2 2014: +8.5% AT €4,457M VS €4,108M IN Q1 2014;
H1 2014: +4.7% AT €8,565M VS €8,182M H1 2013
OPERATING COSTS: Q2 2014: -2% AT €2,045M VS €2,086M IN Q1 2014;
H1 2014: +1.2% AT €4,131M VS €4,081M IN H1 2013
OPERATING MARGIN: Q2 2014: +19.3% AT €2,412M VS €2,022M IN Q1 2014;
H1 2014: +8.1% AT €4,434M VS €4,101M IN H1 2013
INCOME BEFORE TAX FROM CONTINUING OPERATIONS: Q2 2014: +28% AT €1,220M VS €953M IN Q1 2014;
H1 2014: +70.3% AT €2,173M VS €1,276M IN H1 2013
NET INCOME: Q2 2014: €217M VS €503M IN Q1 2014;
H1 2014: €720M VS €422M IN H1 2013
CAPITAL RATIOS: Q2 2014: CAPITAL RATIOS COMMON EQUITY RATIO PRO-FORMA AFTER ACCRUED DIVIDENDS(5):
12.9% FULLY LOADED(6);
13.2% PHASED IN

The Group has achieved a strong improvement in profitability - fully in line with the 2014-2017 Business Plan targets - despite prolonged market difficulties, with several Business Plan initiatives which are well underway and on track, the strong involvement of the Group’s people, and continuous actions aimed at strengthening the Group’s balance sheet and maintaining a rigorous and conservative provisioning policy even amid improving credit trends. Intesa Sanpaolo is very well positioned to emerge from the Asset Quality Review and Stress Test exercise as a winner amongst European banks:

robust net income: nearly 1.2 billion euro in the first half of 2014, excluding the retroactive tax rate increase - from 12% to 26% - on the capital gain from the stake in the Bank of Italy recorded in 2013. The stated net income amounted to 720 million euro in the first half of 2014 (up 70.6% vs the first half of 2013) and 217 million euro in the second quarter of 2014, despite the high tax charge, with a total actual tax rate at 59% in the first half of 2014 and 75% in the second quarter of 2014;

strong growth in pre-tax income at 1,220 million euro in the second quarter of 2014, the highest of the past nine quarters, up 28% on the previous quarter, and at 2,173 million euro in the first half of 2014, up 70.3% on the first half of 2013;

significant increase in operating margin at 2,412 million euro in the second quarter of 2014, the highest of the past nine quarters, up 19.3% on the previous quarter, and at 4,434 million euro in the first half of 2014, up 8.1% on the first half of 2013;

positive pre-tax result for all business units, with a contribution, in the first half of  2014, of 712 million euro from Retail Italia(8) (up 85% vs H1 2013), 1,045 million euro overall (up 25%) from Fideuram and Private Banking(9) (up 32% and 20% respectively) and Wealth Management(10) (up 24%), 1,121 million euro from Corporate and Investment Banking (down 6%, up 31% vs the 2013 half-year average), and 218 million euro from International Subsidiary Banks (up 80%);

strong growth in assets under management: an increase of approximately 22 billion euro in the first half of 2014, with approximately 13 billion euro switched from assets under administration and in custody;

support to the real economy: approximately 17 billion euro of medium/long-term new lending to families and businesses;

positive trend in net interest income: 2,104 million euro in the second quarter of 2014, up 0.2% on the previous quarter, and 4,204 million euro in the first half of 2014, up 3.8% on the first half of 2013;

sustained growth in net fees and commissions: 1,727 million euro in the second quarter of 2014, up 9% on the previous quarter, and 3,311 million euro in the first half of 2014 - the highest net fees and commissions since 2007 - up 9.2% on the first half of 2013;

high efficiency, highlighted by a cost/income ratio of 45.9% in the second quarter of 2014 and 48.2% in the first half of 2014, top level amongst European peers;

continuous cost management: down 2% in the second quarter of 2014, compared with the previous quarter, and up 1.2% in the first half of 2014, compared with the first half of 2013;

improving credit trend, with NPL inflow from performing loans in the first half of 2014 at its lowest level since H2 2011: net inflow of 4.1 billion euro in the first half of 2014 from 4.5 billion euro in the same period of 2013 (down 9%) and 6.5 billion euro in the second half of 2013 (down 36%); gross inflow of 6.3 billion euro from 7 billion euro in the same period of 2013 (down 10%) and 8.5 billion euro in the second half of 2013 (down 26%);
 
rigorous and conservative provisioning policy maintained:
- loan loss provisions of 1,179 million euro in the second quarter of 2014, compared with 1,077 million euro in the previous quarter, and 2,256 million euro in the first half of 2014, compared with 2,548 million euro in the first half of 2013 (down 11.5%),
- a NPL cash coverage ratio of 46.6% at the end of June 2014 from 46% at year-end 2013 (Italian peers average: 37% in Q1 2014), with a cash coverage ratio of the doubtful loan component up to 63.1% at the end of June 2014 from 62.5% at year-end 2013,
- a total NPL coverage ratio of 135% including collateral, at the end of June 2014 (157% adding also personal guarantees), with a total coverage of the doubtful loan component of 137% (157% adding also personal guarantees),
- a robust reserve buffer on performing loans, amounting to 84bps at the end of June 2014 from 80bps at year-end 2013 (Italian peers average: 55bps in Q1 2014);

additional improvement on top of an already solid capital base: further strengthening of capital ratios (already well above regulatory requirements) at June 30th 2014, net of dividends accrued in the first six months for year 2014(11). The pro-forma Basel 3 Common Equity ratio on a fully loaded basis increased to 12.9%(12) from 12.3% at year-end 2013, one of the highest levels amongst major European banks, equivalent to an excess capital(13)  of approximately 10 billion euro and a capital buffer of approximately 13 billion euro ahead of the AQR(14) and 20 billion euro ahead of the Stress Test(15). The phased-in Common Equity ratio was at 13.2%, compared with a pro-forma ratio of 11.9% at year-end 2013;

strong liquidity position and funding capability: liquid assets of 107 billion euro and large availability of unencumbered eligible assets with Central Banks, corresponding to liquidity of 82 billion euro at the end of June 2014; already compliant with Basel 3 Liquidity Coverage Ratio and Net Stable Funding Ratio requirements, well ahead of deadlines for their full implementation (2019 and 2018 respectively). Intesa Sanpaolo is “not addicted” to the ECB: in the second quarter of 2014, the Group’s refinancing with the ECB to optimise the cost of funding amounted, on average, to five billion euro and consisted of standard open-market operations with maturities from one week to three months (9.8 billion, on average, in the first quarter);
 
●  several Business Plan initiatives already well underway and on track, with the strong involvement of the Group’s people:

- New Growth Bank: the Banca 5®specialisedbusiness model has been introduced in more than 1,300 branches, with approximately 1,800 dedicated relationship managers and revenues per client already increased from 70 to 80 euro; the new multichannel processes have been successfully tested and the number of multichannel clients has increased by more than 300,000 in the first half of 2014 up to 4.7 million (the first multichannel bank in Italy); new commercial model and product offering have been developed for the SME Finance Hub (new Mediocredito Italiano); the new Transaction Banking Strategy is being implemented at Group level; a dedicated initiative has been launched for High Net Worth clients in the Private Banking Hub;

- Core Growth Bank: the Asset Light model has been launched in Corporate and Investment Banking; cost management initiatives are continuing (additional 131 branches closed in Q2 2014, for a total of 205 in H1 2014); as regards the simplification of legal entities, seven product factories, performing leasing, factoring, specialised finance and advisory activities, have already converged into one company (new Mediocredito Italiano) and two mergers of local banks have already been started (out of 11 planned by 2015);

- Capital Light Bank: performance metrics and operational model have been defined, and two billion euro deleverage already delivered with approximately 300 million euro capital gains; Re.o.Co. (Real Estate Owned Company), the legal entity to manage repossessed assets, is fully operational with two auctions attended;

- people and investments: the “Big Financial Data” programme has been launched to create an integral management of customer and financial data; the “Innovation Center” for training and the development of new products, processes and “the ideal branch” has been set up at the new Intesa Sanpaolo Tower in Turin.


(1) Estimated applying the parameters set out under fully loaded Basel 3 to the financial statements as at June 30th 2014, considering the total absorption of deferred tax assets (DTAs) related to the goodwill realignment, the expected absorption by 2019 of DTAs on losses carried forward, and the effect of the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital, with a benefit of seven basis points).
(2) Compared with Basel 3 maximum compliance level for Global SIFIs of 9.5% (4.5% Common Equity + 2.5% conservation buffer + 2.5% current maximum Global SIFI buffer).
(3) Calculated versus the 8% capital adequacy threshold of the AQR (the ongoing review on the asset quality of European banks, carried out by regulatory authorities); the calculation of the capital buffer does not take into account the benefit from the stake in the Bank of Italy.
(4) Calculated versus the 5.5% threshold under the adverse scenario of the Stress Test (the ongoing exercise on the impact of an adverse macroeconomic scenario on the capital position of European banks, carried out by regulatory authorities); the calculation of the capital buffer takes into account the benefit from the stake in the Bank of Italy.
(5) Equal to 500 million, assuming the half-yearly quota of €1bn dividends envisaged in the 2014-2017 Business Plan for 2014.
(6) Estimated by applying the parameters set out under fully loaded Basel 3 to the financial statements as at June 30th 2014, considering the total absorption of deferred tax assets (DTAs) related to the goodwill realignment, the expected absorption by 2019 of DTAs on losses carried forward, and the effect of the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital, with a benefit of seven basis points).
(8) Banca dei Territori excluding Intesa Sanpaolo Private Banking and Insurance.
(9) Banca Fideuram Group and Intesa Sanpaolo Private Banking.
(10) Eurizon Capital and Intesa Sanpaolo Vita.
(11) Equal to 500 million euro, assuming the half-yearly quota of €1bn dividends envisaged in the 2014-2017 Business Plan for 2014.
(12) Estimated applying the parameters set out under fully loaded Basel 3 to the financial statements as at June 30th 2014, considering the total absorption of deferred tax assets (DTAs) related to the goodwill realignment, the expected absorption by 2019 of DTAs on losses carried forward, and the effect of the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital, with a benefit of seven basis points).
(13) Compared with Basel 3 maximum compliance level for Global SIFIs of 9.5% (4.5% Common Equity + 2.5% conservation buffer + 2.5% current maximum Global SIFI buffer).
(14) Calculated versus the 8% capital adequacy threshold of the AQR (the ongoing review on the asset quality of European banks, carried out by regulatory authorities); the calculation of the capital buffer does not take into account the benefit from the stake in the Bank of Italy.
(15) Calculated versus the 5.5% threshold under the adverse scenario of the Stress Test (the ongoing exercise on the impact of an adverse macroeconomic scenario on the capital position of European Banks, carried out by regulatory authorities); the calculation of the capital buffer takes into account the benefit from the stake in the Bank of Italy.

 

 

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