UPDATE 2-Mediobanca may cut equity holdings to calm volatility
* Mediobanca Q1 net 109 mln euros, beats forecasts
* CEO says aims to reduce earnings volatility
* Not the right moment to sell stake in RCS-CEO (Recasts with comments from CEO, outlook, details)
By Lisa Jucca and Gianluca Semeraro
MILAN, Oct 27 (Reuters) - Italy's leading investment bank Mediobanca is considering further cutting its equity holdings to reduce earnings volatility.
Absence of large impairments on its financial and equity portfolio coupled with lower costs and big trading gains allowed the bank to report a near doubling of first-quarter net profit on Saturday, earnings the bank would like to see stabilise.
By contrast, the annual results it presented in July were hit by 570 million euros ($737.09 million) of writedowns.
"We are rethinking our exposure to equity holdings," Chief Executive Alberto Nagel told shareholders at an annual general meeting, which took place after results were published.
Its equity holdings mainly consist of large stakes in top domestic insurer Assicurazioni Generali, publisher RCS Mediagoup and the holding company of telecoms group Telecom Italia.
"We must reduce volatility in our earnings. Without the writedowns, we would have had solid annual results," Nagel said.
The bank, which began its financial year on July 1, reported net profit of 109 million euros for the first quarter, above expectations of 85 million euros, an analyst consensus compiled by Mediobanca showed.
It posted a loss in the previous quarter, hit by losses on its equity portfolio.
Net trading income at Mediobanca's key investment banking division increased more than tenfold to 59 million euros from a year ago, when Italy faced one of the most difficult phases so far of the euro zone crisis.
The gains partially offset much lower profits from Mediobanca's equity holdings, which the bank has cut by 2 billion euros in the past fiscal year.
Investors and management are due to start discussions next month over a new strategic plan likely to be unveiled in the spring, insiders have told Reuters.
Key to deciding on a timetable for some of the equity divestments will be clarification on new Basel III rules on capital adequacy that may make Mediobanca's 13 percent stake in Generali very onerous from a capital point of view.
Mediobanca's Core Tier 1 ratio, a measure of financial strength, was stable at 11.5 percent, one of the highest among Italian banks. Funding was stable at 55 billion euros.
Provisions against possible losses on loans dropped by a sharp 21 percent from the previous quarter, even though the top executive said he expected market conditions for banks in weaker euro zone members - which had shown some improvement - to turn choppy once more.
Nagel said Mediobanca had no immediate plans to sell its 14 percent stake in struggling RCS, which may require a capital hike and is the subject of intense bid speculation.
"I do not see offers that could offer added value considering the book value of our (RCS) stake. I do not believe this is the moment to disinvest," Nagel said. ($1 = 0.7733 euros) (Writing by Lisa Jucca; Additional reporting by Paola Arosio; Editing by Helen Massy-Beresford)
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