Intesa Sanpaolo's net profits rise on improved trading

Intesa Sanpaolo, Italy's second-largest bank by assets, significantly beat analysts' forecasts by doubling its profit in the first quarter, and provided the latest sign the eurozone's third-largest economy is set to grow this year.

The Milan-based bank said net income rose to €1.06bn from €503m a year ago on better revenues from trading and fees and lower provisions for bad loans. Analysts polled by Bloomberg had expected €659m.

Carlo Messina, chief executive, said 2015 was "a year of change for the Italian economy. Following years of decline we finally see prospects for growth". Italy's government forecasts that the country will return to growth this year and record a rate of 0.7 per cent.

Mr Messina said the results also took Intesa "more than halfway to our cash dividend target of €2bn for the year".

Shares in Intesa, which emerged as Italy's strongest bank from a European Central Bank assessment last year, rose 2.5 per cent to €3.23, having gained more than a third so far this year. It said its common equity tier one ratio, a measure of financial strength, was 13.2 per cent.

The stronger-than-expected numbers underline growing confidence among investors that Italy will return to growth this year after a crippling three-year recession that weakened the banking system with a surge in the stock of non-performing loans.

"We are buying more Italian exposure," said Gary Paulin, co-founder of brokerage Aviate Global, noting that the latest data, released on Monday, showed Italian industrial production rose 1.5 per cent on the year in March an indicator which "clearly has implications for the economy, the credit cycle and NPL cycle," he said.

Even Italy's Monte dei Paschi di Siena, which scored the biggest failure in the ECB's health check, reflected the improving mood. The bank returned to profit in the first quarter for the first time in 11, although it pushed back its €880m profitability target by a year to 2018.

Fabrizio Viola, chief executive, commented on Monday that following a €3bn capital increase slated for the coming weeks, Monte dei Paschi would be able to fully pay back its state aid for the first time since 2008.

Sentiment has improved towards Italy's banks also because of steps taken by the country's prime minister Matteo Renzi, who came to power in a party coup a year ago with a strong reformist agenda.

Mr Renzi has said he plans to set up measures to help Italy's banks lighten their load of bad loans which topped €300bn last year, according to the International Monetary Fund. Meanwhile, a law forcing Italy's 10 largest popolari mutual banks to become joint stock companies is set to trigger consolidation among the mutual banks and listed lenders Monte Paschi and Carige, according to bankers.

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