Italy's Intesa Sanpaolo in Greek bonds writedown

AP News
Posted: Nov 08, 2011 10:30 AM
Italy's Intesa Sanpaolo in Greek bonds writedown

The CEO of Italy's second-largest bank Intesa Sanpaolo SpA expressed confidence in Italy's ability to navigate the debt crisis as the bank reported a 3 percent increase in third-quarter net income.

The Milan-based bank reported third-quarter net income Tuesday of euro527 million ($724 million) against euro510 million a year earlier, as it recorded lower losses on loans and higher net interest.

CEO Corrado Passera told an analyst conference call that the bank will use euro593 million of a euro1.1 billion one-off gain in the quarter to write down the value of its Greek bonds, positions it holds with Greece's Hellenic Railways and related interest rate derivatives.

Banks are in the process of agreeing how to reduce the value of their Greek holdings by 50 percent as part of the country's second bailout, which has yet to be agreed following the political crisis in Greece.

Even then, the bank said its Core Tier 1 ratio, a key measure of financial strength, was 10.2 percent and that it does not need to raise capital to meet stricter guidelines set by the European Banking Authority.

Intesa's share price rose 6.8 percent to euro1.238 in afternoon trading. The bank's shares have been battered this year, shedding 45 percent of their value amid worries over its exposure to bad European government debt.

Italian banks have been at the forefront of investor concerns in recent months as Europe's debt crisis has shown alarming signs of spreading from the relatively small economies, like Greece and Portugal, to much-bigger Italy.

Passera conceded that the rise in the spread between Italian and German borrowing rates is "certainly a cause for concern." But he expressed optimism that Italy would meet its obligation in refinancing its debts of euro1.9 trillion, which is equal to around 120 percent of Italy's GDP. Only Greece of the 17 eurozone countries has a higher debt burden as a proportion of national income.

Intesa's exposure to Italian debt at the end of September was euro63.4 billion, in line with euro64.5 at the end of June. Exposure to other peripheral debt _ in Greece, Ireland, Portugal and Spain _ was euro78.62 billion.

Italian borrowing costs have been on the rise for months, with pressure focused on Premier Silvio Berlusconi for failing to come up with swift and convincing measures to revive the dormant economy. The ultimate fear is that Italy will default on its debts, bringing down the eurozone economy with it.

Passera emphasized Italy's primary surplus, low family and business indebtedness, strong manufacturing sector and high level of public and private assets.

"Italy will rebuild its credibility on the basis of a balanced combination of austerity and development that will reduce total debt and create sustainable development and jobs," he told an investment conference call.

Intesa will also take a charge of euro650 million to pay for the exit of 5,000 employees in the next three years, after the bank reached an agreement with unions to increase the number of reductions from 3,000.