MILAN Nov 12 Italy's biggest retail bank Intesa Sanpaolo said on Tuesday its third-quarter net profit stood at 414 million euros, down 21 percent from a year ago as a combination of rising bad loans, lower loan volumes and low interest rates hit earnings.
Intesa's profit was boosted by a one-off gain of 327 million euros ($415.65 million) stemming from a bond buyback. The mean forecast for net profit in a Thomson Reuters poll of five analysts was 431.4 million euros. A year ago, net profit stood at 527 million euros, helped by a 1.1 billion euros tax benefit.
The lender said it had set aside 3.3 billion euros in the first nine months of the year for loan loss provisions. This was 48 percent higher than in the first nine months of 2011.
That figure reflects the difficult macroeconomic backdrop in Italy - where Intesa earns 80 percent of its revenues - due to a deep recession.
The bank said its Core Tier 1 ratio stood at 11.1 percent while its stricter EBA-compliant Core Tier 1 ratio, a key measure of financial strength, stood at 10.3 percent from 10.1 percent at the end of June.
In a statement, the bank said it expected operating results in 2012 to be broadly stable from last year and would continue to focus on strengthening its capital base and improving its liquidity and risk profile. It said the cost of credit would remain high.
Intesa, which has announced 5,000 job cuts and is closing or merging a fifth of its Italian branches, has been recently at the centre of press speculation that it may merge with domestic rival UniCredit in a defensive move against the possibility of a foreign takeover.
Executives at both banks have denied the speculation, but sources close to the matter have told Reuters the banks' foundation shareholders are worried about the lenders' low market valuation. Intesa and UniCredit have a market capitalisation of around 19 billion euros each.
Italian banks have been hit hard by the euro zone debt crisis because of their vast holdings of domestic government bonds. Sovereign pressures have eased since the summer, but analysts say a grim macroeconomic picture in Italy continues to weigh on lenders' profitability.