Intesa reassures on capital distribution after asset risk worries hit shares

Illustration shows Intesa Sanpaolo bank logo

By Valentina Za

MILAN (Reuters) - Intesa Sanpaolo sought to reassure investors over its ability to hit shareholder reward targets on Friday, after shares in Italy's top bank fell on concerns about large asset disposals to cut risks.

Shares in Intesa fell by 2% after Bloomberg reported Intesa was cutting as much as 20 billion euros ($22 billion) in risk-weighted assets to address supervisory remarks about its inadequate risk models.

Italian daily Il Sole 24 Ore reported on Thursday the European Central Bank had taken issue with the risk models of several Italian banks, prompting lenders to cut assets to preserve capital buffers.

Intesa said the risk weighted asset (RWA) reduction it had carried out in the fourth quarter related to regulatory changes kicking in from Jan. 1, 2023 and its core capital would land at around 13% at the end of 2022.

Intesa's best quality ratio will remain well above its target of more than 12% set under the bank's strategic plan through 2025, it said.

That takes into account a 1.7 billion euro share buyback cleared by the ECB which Intesa has decided to freeze until the approval of full year results in early February given economic recession risks.

Intesa's generous distribution policy is central to the bank's investment case.

"...we understand the market concerns on potential negative ECB report on the group RWA methodology (and potential earning loss linked to RWAs reduction)," Citi analysts said on Friday.

"We believe that the group is working on RWAs optimisation as well as rationalisation of capital usage in order to face regulatory headwinds (around 45 basis points already communicated) and continue the generous capital distribution that management had in the past."

Il Sole 24 Ore said the ECB's requests to increase risk weights on loans threatened to wipe from as little as 20-30 basis points to more than half a percentage point off banks' core capital ratios.

Il Sole said banks had taken action to avoid the capital hit by shifting to capital-light businesses, transferring risks to investors through so-called synthetic securitisation deals or shedding assets altogether.

Intesa said the fourth-quarter RWA reduction would actually contribute to shareholder value creation and distribution because upcoming regulatory changes meant the assets in question made no economic sense when comparing the operating income they produced with the cost of capital involved. ($1 = 0.9232 euros)

(Reporting by Valentina Za, editing by Gianluca Semeraro and Keith Weir)