Coincidence? Perhaps. But within a three-week period – and just as hopes about Italy’s chances of economic recovery blossom – the country’s two largest banks have revealed plans for the next few years. Both Intesa Sanpaolo and UniCredit are expecting a big jump in profits based on a small amount of economic growth. Investors favour the former. Shares in Intesa – the smaller of the two by assets – are up 106 per cent in the past year and trade on 1.1 times tangible book value. UniCredit shares are merely up 93 per cent, putting it on 0.9 times tangible book value.
They offer similar strategies. Both plan to find growth in fee-earning (and hence capital-light) areas, such as asset management. Both are promising lower costs. And both have put some of their assets into non-core divisions that will be shrunk. But on some important metrics Intesa looks to have the edge. For example, it plans to shrink its cost to income ratio from 51 per cent to 46 per cent by 2017. UniCredit can only promise 51 per cent by 2018. It is a similar story on capital, where Intesa is one of Europe’s stronger banks. Its tier one ratio under the Basel III rules is more than 12 per cent. That gives it plenty of breathing room to fund growth and even to make very specific dividend promises (a total of €10bn is estimated over four years).
Intesa does not have the edge everywhere. UniCredit, with its businesses in central and eastern Europe, has a broader geographic balance so is less dependent on Italy. And its 13 per cent promised return on tangible equity by 2018 is tastier than the 11.8 per cent Intesa is promising a year earlier. Intesa also has to make good on promises to sell its equity stakes in Alitalia and Telecom Italia. But if Intesa can sell these and hit its targets, there is still scope for it to reward believers in the great Italian recovery story.
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