Intesa sets $25 billion payout goal and grasps digital challenge

© Reuters. FILE PHOTO: Intesa Sanpaolo skyscraper, designed by Italian architect Renzo Piano, is seen in Turin April 10, 2015. REUTERS/Giorgio Perrottino

By Valentina Za

MILAN (Reuters) -Italy's biggest bank Intesa Sanpaolo (MI:ISP) dashed market hopes it could match rival UniCredit and return all additional profits to investors in coming years, saying it had to first to tackle challenges for its business.

Under a new plan to 2025 unveiled on Friday, Europe's eighth-largest bank by assets said it would spend to whittle down its soured loans and keep them close to zero.

It also plans to invest 4.8 billion euros ($5.5 billion) in IT to create a digital bank to serve four million younger customers at risk of being wooed by fintech firms.

"This is a plan that sets up the bank for the next decade," said Chief Executive Carlo Messina, at the helm since 2013.

He said he was "a lover of dividends" and would assess on a yearly basis whether there was room to lift payouts above the targeted 70% of earnings, which was already "a best in class."

Intesa expects to return more than 22 billion euros ($25 billion) to investors under the plan by 2025, including a 3.4 billion euro share buyback for 2022 announced on Friday.

That brings the total payout to 6.6 billion euros this year - roughly 1.6 times last year's net income of 4.2 billion.

"We're ready to take the same approach every year and evaluate ... without taking a commitment. The most important part of the plan is industrial not financial," Messina said.

Shares in Intesa were down 1.8% by early afternoon, against the Italian sector's 1.3% drop, a reaction which analysts put down to the stock's already expensive valuation.

"We expect focus on assessing how much upside risk there is to the 70% payout base case assumption," UBS said, contrasting the plan's scenario of no interest rate hikes with the European Central Bank's hawkish shift on Thursday.

PROFIT BOOST

Intesa aims to drive its net profit above 5 billion euros this year to reach 6.5 billion euros in 2025, thanks to 4% annual growth in net fees which it wants to account for 57% of revenues in 2025, versus 54% last year.

To achieve that, Intesa plans to add around 100 billion euros in assets under management in the period and reach a return on equity of 11.6% from 7.6% in 2021.

Messina ruled out any major M&A as a route to growth, saying wealth management targets were too expensive, while he saw no value in buying a rival bank with its network of branches.

Intesa plans to close 1,050 of its own branches over the period, adding to 450 closures in the fourth quarter when it reached an accord with unions to cut a net 900 jobs by 2025.

The measures will help to further lower costs to 46.4% of income in 2025.

To serve clients under 40, whose basic financial needs cost the bank more than they yield in revenues, Intesa will set up a digital bank dubbed ISY Bank.

With 13.5 million customers, or more than a fifth of Italy's population, Intesa is the country's largest retail bank as well as the biggest asset manager and life insurer.

Intesa, whose second-biggest shareholder is decarbonisation backer BlackRock (NYSE:BLK), said it would cut net emissions to zero by 2050 on its entire loan book as well as the investment portfolio of its asset management and insurance.

It targets 88 billion euros in new green loans by 2025. ($1 = 0.8713 euros)