UPDATE 2-Intesa sees bigger payback from UBI deal after solid 2020

(Recasts, adds details)

MILAN, Feb 5 (Reuters) - Intesa Sanpaolo, Italy’s largest bank, on Thursday forecast that net profit would be above 3.5 billion euros ($4 billion) in 2021 following the acquisition of rival UBI Banca and said benefits from the deal would be bigger than expected.

Intesa last year snatched up the healthiest of the country’s second-tier banks after a long takeover battle, setting in motion a wave of consolidation in Italian banking which is seen accelerating further this year.

Intesa said the benefits in terms of savings and extra revenues from the UBI merger would top 1 billion euros from 2024, more than previously anticipated, after it decided to accept all 7,200 requests for early exits from staff, above the initial 5,000 unit target.

The bank was able to reap a multi-billion paper profit on the deal thanks to discounted market valuations for banks.

Intesa used this accounting benefit to write down loans to the tune of 1.5 billion euros in the fourth quarter and to expense integration costs, leading to a loss of 3 billion euros in the three months through December, in line with forecasts.

Full-year net profit stood at 3.3 billion euros, after 2.2 billion euros in loan writedowns to prepare for future hits from the COVID-19 crisis.

Intesa also booked a 912 million euro goodwill impairment on its Banca dei Territori retail business in the fourth quarter.

Fee income performed well in the last part of the year, despite partial lockdowns across Italy to fight a second coronavirus wave, rising 15% quarter-on-quarter without taking into account the contribution from UBI.

Net interest income was stable in comparison with a year earlier, Intesa said.

Intesa, which has traditionally targeted high shareholder payouts, said it would distribute 694 million euros as dividends this year, the maximum amount allowed by the European Central Bank under curbs aimed at preserving bank capital during the pandemic.

Intesa said it targeted a 70% payout ratio for 2021 and would seek ECB and shareholder approval to pay an interim dividend.

The bank confirmed its strong capital position, reporting a fully-phased, pro-forma core capital equivalent to 15.4% of risk-weighted assets at the end of December, up from 15.2% three months earlier and above market expectations.

The ratio is due to rise further this year as Intesa sheds assets by selling branches to BPER Banca under an accord struck to clear antitrust objections to the UBI acquisition. ($1 = 0.8345 euros) (Additional reportin by Gianluca Semeraro; editing by Agnieszka Flak and Jane Merriman)