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Intesa Lifts Profit Goal as Fee, Hedging Strategy Pays Off

An Intesa Sanpaolo bank branch in Brescia, Italy. (Francesca Volpi/Bloomberg)

(Bloomberg) -- Intesa Sanpaolo SpA lifted its profit guidance for next year, as higher revenue and lower provisions for bad loans helped Italy’s biggest bank beat analyst profit estimates in the third quarter. 

Net income in the three months through September jumped 26% to €2.40 billion ($2.6 billion), according to a statement on Thursday. Analysts had expected a profit of €2.26 billion.

The Milan-based lender said it now expects profit next year to rise to about €9 billion, compared with a previous goal of more than €8.5 billion. 

Chief Executive Officer Carlo Messina is counting on higher fees and commissions from insurance, asset and wealth management to boost the bank’s revenue as the tailwind from higher interest rate fades. To supplement that push, he’s also put in place hedges to protect against declining rates.

The net income target for 2025 has been raised “reflecting the substantial organic growth potential of our bank,” Messina said in a separate statement.

Intesa shares rose 0.8% at 1:28 p.m. in Milan, giving the bank a market value of almost €71 billion.

Total revenue in the quarter rose 6.4% to €6.8 billion, boosted by higher income from fees, lending and trading. Intesa also raised its guidance for full year net interest income. 

Intesa is also investing in digital transformation and artificial intelligence to reduce costs. Earlier this month, it announced plans for 9,000 employees to leave by 2027 — almost 10% of its workforce — while also hiring 3,500 younger staff, a step that could save it €500 million annually. 

Despite a charge of €350 million in the fourth quarter linked to that plan, it has kept its full-year forecast for net income intact. 

Costs amounted to 39.1% of income this year through September. The bank said it expects operating costs to decline next year, despite investment in technology. New provisions for souring loans fell to €238 million, while so-called overlays against potential losses stood at about €900 million.

Intesa has also indicated it plans to pay out more of this year’s profit to shareholders than its 70% distribution policy would dictate. The additional amount will be quantified when annual results are approved, the CEO said in July, adding he is confident the bank can also propose an additional share buyback tranche.

 

 

--With assistance from Antonio Vanuzzo.

(Updates with shares in sixth paragraph.)

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