Italian banks: no place like home

Home and away. Italy's two biggest lenders, UniCredit and Intesa Sanpaolo, are products of the country's last significant bank consolidation. But they have followed very different strategies. More than a decade ago Intesa reined in its foreign forays and focused on its home market in northern Italy. UniCredit, by contrast, went in the opposite direction, buying well-worn banks in Germany and Austria. The market gives it little credit for its geographic spread, preferring Intesa's retail banking and wealth management mix.

UniCredit on Tuesday reported that first-quarter net profit dropped 28 per cent on subdued revenue growth of 3 per cent, as expected. While net fee, commission and trading income offset its declining net interest line, UniCredit's high cost base meant that it forked out 59 cents to generate each euro of revenue. And, even after its mammoth balance sheet clean-up at the end of 2014, it still lifted bad loan provisions. Given a common equity tier one capital ratio of 10.1 per cent - at the low end of the European banking pack - UniCredit's deal last month to sell control of its asset manager, Pioneer Investments, and haul the ratio to 10.4 was a sensible short-term fix.

Yet this week's first-quarter results from Intesa, whose net profit more than doubled to a better than expected €1bn, suggest there is no time like the present to dive ever deeper into Italy's savings pool. Its burgeoning wealth management arm helped drive Intesa's fee and commission income 15 per cent higher (to account for two-fifths of overall revenue) as assets under management rose a fifth to €323bn. Trading profits also soared, equally split between client activity and the selldown of the bank's own Italian government bonds.

But it is with an ultra-low cost-to-income ratio of 44 per cent and falling bad loan provisions that Intesa drives home its advantage. Given its focus on retail banking and wealth management (with its lower capital requirements) Intesa's 13.2 per cent capital ratio is more than ample. And with an after-tax return on equity of about 12 per cent, it even covers its cost of capital.

But such discipline and solvency come at a price. Intesa, its shares up 35 per cent in the past year to UniCredit's 3 per cent gain, already trades at 1.4 times tangible book value. That is a 55 per cent premium to its globetrotting rival, and confirmation that there is no place quite like home.

Email the Lex team at [email protected]

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation