February 9, 2018 / 1:27 PM / 10 months ago

Intesa plans ramp up in DCM and loans

LONDON, Feb 9 (IFR) - Intesa Sanpaolo plans a “significant expansion” in its debt capital markets and syndicated loans business in Europe, Middle East and Africa under a new four-year strategic plan to increase revenues.

The Italian bank pledged to halve its non-performing loans under the plan. It is targeting €6bn (US$7.4bn) in net profit in 2021, up from an adjusted €3.8bn in 2017, with 4% annual growth in operating income. That would lift its return on equity to 12.4% in 2021 from 7.9% last year.

Its corporate and investment bank will play a modest part in the growth. The bank aims to increase CIB’s operating income to €3.8bn in 2021 from €3.4bn in 2017.

Intesa said CIB will increase focus on global corporate customers and international investors, and by expanding in DCM and syndicated loans it wants to be a top 10 bank for corporate debt in EMEA.

Intesa ranks 29th for investment-grade corporate debt so far this year after working on deals with proceeds of €9.2bn, and that would need to a four-fold increase to break into the top 10. It currently ranks 19th for high-yield corporate debt, and is 23rd in the EMEA loans league table, according to Thomson Reuters and LPC data.

It also wants to expand in project finance and structured export finance businesses in EMEA and other selected countries, and cited Turkey, the UAE and Brazil as countries to enter or expand in. It said it will strengthen its international coverage teams by about 150 people.

Intesa said it will develop an originate-to-distribute model aimed at becoming the market leader in distributing Italian corporate and SME risk to international investors. That will include strengthening its platform and seeking strategic partnerships with investors.

HALVING BAD DEBTS

A core part of Intesa’s plan is to slash its gross non-performing loans to €26.4bn in 2021, from €52.1bn at the end of 2017.

That will result in gross impaired debts falling to 6% of total loans in 2021 from 11.9% now, bringing it close to a European average of 5.5%. Italian banks on average hold soured debts equivalent to 16% of total lending, and rival UniCredit is targeting a 7.8% impaired debt ratio in 2019.

Regulators want banks to cut their bad loans quicker, and Intesa has started discussing the sale of a portfolio of them together with a stake in its debt collection unit.

TURNAROUND ON TRACK

UniCredit last week reported its highest fourth-quarter profit in a decade, including a decent performance by its corporate and investment bank.

Group pre-tax profit in the three months to December 31 was €830m from a loss of €10.2bn a year earlier, when it booked €12.2bn in writedowns on loans and provisions for bad debts.

Its revenues in CIB were €995m in the fourth quarter, up 2.8% from a year ago. It made €169m from fees in the quarter, up 35% on the year, due to strong client activity in structured finance and debt and equity capital markets. It made €632m in fees for the year, up 2% from 2016.

It brought in €255m in trading revenues in the fourth quarter, down 7% on the year. For the year, trading revenues nudged 0.7% higher to €1.24bn.

UniCredit said the first year of its three-year turnaround plan, which included raising €13bn, had gone well and was on track. It said it had reduced its exposure to a portfolio of €17.7bn of non-performing loans, dubbed Project Fino, to less than 20% as planned. Domestic investors drove demand for the securitisation vehicles (see Structured Finance). (This story will appear in the February 10 issue of IFR Magazine; Reporting by Steve Slater)

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