Milano, 08 September 2003

 

 

• Consolidated net income at 710 million euro (1^st semester 2002: 114 million)
• Ordinary income up to 1,148 million euro, four times as much as the corresponding period of 2002
• Operating margin up by 16%
• Cost/income ratio decreased significantly to 61.7% from 66.5%
• 2003-2005 Business Plan’s first-year achievements in line with targets

 

Banca Intesa’s Board of Directors, which met today under the chairmanship of Giovanni Bazoli, approved the half-yearly consolidated report as at 30^th June 2003 and examined the results achieved throughout the 12 months since the launch of the Group’s 2003-2005 Business Plan.

 

2003 half-yearly results

 

The 2003 first-half consolidated income statement recorded interest margin equalling 2,705 million euro, down 5.5% compared to 2,861 million of the first half of 2002. This decrease is mainly due to three factors: i) structural reduction in securities portfolio linked with the strategic repositioning of capital markets activities from interest to non-interest based business, ii) reduction in exposure to Large Corporates, iii) narrowing in the spread between market rates and cost of funding. These factors were only partially offset by growth in lending to individuals and SMEs and widening in the spread on loans to Corporates.

 

Net commissions showed a 2.2% decline to 1,623 from 1,659 million euro, due to the contraction in mutual funds and segregated managed accounts (-20%), only partially offset by the positive trend of bancassurance (+33%) and commercial banking activities (+1%). Profits on financial transactions went up to 504 million euro compared to 202 million of last year’s corresponding period, thanks above all to the sale of structured bonds and corporate derivatives and to the structural improvement of the Group’s operativeness in capital markets. On the whole, net interest and other banking income totalled 4,975 million euro, up 1.5% compared to 4,900 million in the first half of 2002.

 

Total operating costs amounted to 3,069 million euro with a 5.8% decrease compared to 3,257 million in the 2002 first half. As part of it, personnel costs decreased 7.9% and other administrative costs went down 4.8%, depreciations and amortisations rose 3.1%.

 

As a result, operating margin rose to 1,906 million euro, increasing 16% compared to 1,643 million of last year’s first half with a marked improvement of the cost/income ratio, down to 61.7% from 66.5% of the 2002 corresponding period.

 

Total provisions and net value adjustments (excluding goodwill amortisation) amounted to 694 million with respect to 1,335 million euro for the first half of 2002: 120 million euro were due to Latin America and 30 million euro to the write-down of the stake in Bayerische Hypo-Vereinsbank.

 

Therefore, ordinary income rose more than four times to 1,148 from 261 million euro registered in the first half of 2002.

 

Extraordinary items showed a net positive result of 114 million euro, compared to 50 million of the first half of 2002. Extraordinaries included 229 million euro income from the mark to market of the treasury shares held by Banca Intesa and 130 million euro charges from Latin America disengagement.

 

The first half of 2003 closed with a consolidated net income of 710 million euro, compared to 114 million of the first half of 2002, with the Parent Company’s net income at 674 million euro with respect to 174 million of the corresponding period of 2002.

 

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As regards the consolidated balance sheet figures as at 30^th June 2003, loans to customers amounted to 162 billion euro, down 2% with respect to 31^st December 2002 and down 6.2% to 30^th June 2002. This decline is mainly due to the decision to reduce exposure to Large Corporates - mainly international ones with no business links with Italy - and, when comparison is drawn with the 2002 first half, also to the securitisation transaction for about 2 billion euro of residential mortgage loans. Customer deposits under administration amounted to 477 billion euro, with a 0.3% increase with respect to 31^st December 2002 and a 2.6% drop with respect to 30^th June 2002. As part of it, direct customer deposits reached 181 billion euro increasing by 1.6% compared to 31^st December 2002 and by 0.9% compared to 30^th June 2002, and assets under management amounted to 127 billion euro, up 3.7% compared to 31^st December 2002 and down 1.1% to 30^th June 2002.

 

At the end of the first half of 2003, Gruppo Intesa’s operating structure was made up of 3,897 branches - of which 3,206 in Italy and 691 abroad - and 62,492 employees, 2,820 lower than at 31^st December 2002.

 

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2003-2005 Business Plan: first year’s achievements

 

Just one year ago, on 9^th September, the 2003-2005 business plan set out clear objectives targeted for the restructuring and re-launching of Gruppo Intesa. The first-year achievements were right on target.

 

As far as the restructuring phaseis concerned, as at 30^th June 2003 management delivered on the following issues:

 

1. operating costs of around 550 million euro compared to 2001, almost equal to 70% of the 800 million euro reduction objective expected by the end of 2005;
2. reduction in Large Corporate exposure of 22.3 billion euro with respect to that of 31^st December 2001 (down 42% from 53.4 to 31.1 billion euro) mainly due to international corporate business, thus exceeding the business plan target of a 17 billion euro reduction expected by the end of 2003;
3. growth in retail sector (Retail Division, Italian Banks Division, Product Companies and Central-Eastern European Banks) with respect to the corporate sector, from 53% of total assets (at 31^st December 2001) to 64% - on target for the final 71% goal set out for 2005;
4. increase in domestic business in comparison with foreign activities from 71% of total assets (at 31^st December 2001) to 82% - well on track to the 87% target set for 2005;
5. reduction of 52% of the credit derivatives open positions with respect to 30^th June 2002, down from 11.7 to 5.6 billion euro;
6. improvement in asset quality with a decrease in net loan provisions/operating margin ratio, down to 27% from the 76% of 2001 heading for the 18% business plan target set out for 2005 and an increase in the NPL coverage ratio to 63% from 59% in 2001 - well on track to the 67% target expected by the end of 2005;
7. reduction in net interbank borrowing, down 76% compared to that of 31^st December 2001 (from 37 to 9 billion euro);
8. disengagement from Latin America, through disposing of Gruppo Sudameris operations,with exits from Argentina, Brazil and Chile followed by Columbia in the third quarter of 2003. Further disposals, expected by year-end 2003, will leave the Group present only in Peru (which is back to breakeven already in the first half of 2003);
9. adequacy of capital ratios resulting in: Core Tier 1 ratio at 6% (5.3% at 31^st December 2001, targeted at 7.7% within 2005); Tier 1 ratio at 6.9% (6% at 31^st December 2001, targeted at 8.6% within 2005); total capital ratio at 10.9% (9.3% at 31^st December 2001, targeted at 11% within 2005).

 

As far as the re-launching of the whole Group is concerned, management also delivered on the following issues:

 

1. structure;
2. strengthening of themanagement team;
3. integrating the IT system of the three banks merged in the Parent Company, Banca Intesa, with 82% of the Bank’s network already using the new Group single IT system. The completion of the integration process, expected within October, will make it possible to accelerate the launching of new products;
4. strengthening of the credit evaluation and control process with the adoption of a scoring system and an internal rating model, both expected to be in place by year-end, in the framework of a credit policy increasingly focused on industrial districts;
5. implementing more than one-hundred projects aimed at developing the three crucial “assets” for the growth of the Group’s business:

• human capital, with an extensive training programme (over 800,000 working days planned), updating of evaluation processes, refinement of the incentives systems, thus ensuring a workforce with the highest level of professional skills;
• technology, with projects (approximately 2 billion euro of IT-related investments and costs planned) aimed at innovative solutions to significantly improve service quality;
• customer relationship with tailor-made initiatives (offers, service models, …) for each customer segment, embedded also in the new branch lay-out model under development and stemming from a service culture orientation.

 

* * *

 

As regards the 2003 outlook, positive results are expected for the entire year, based on the results for the first six months, in line with the Group’s business plan targets.

 

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The Board of Directors approved the sale of Banca Intesa’s entire stake in Carinord 1 (50%) at a price of 140 million euro cash. Carinord 1 is the holding company which controls Cassa di Risparmio di Alessandria. The buyer’s Board of Directors will meet soon to resolve upon the transaction.

 

With this sale, implying a capital loss of approximately 30 million euro, Banca Intesa is no longer bound to the engagements originally taken with Fondazione Cassa di Risparmio di Alessandria, which would have led to further investment for over 300 million euro.

 

The transaction is consistent with the planned sale of non-strategic assets and the policy of streamlining the branch network, seconding - wherever possible - the direct presence. The finalization of the transaction is subject to the approval of the competent authorities.

 

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In order to present more complete information regarding the half-yearly results, the consolidated statement of income and balance sheet are attached (reclassified and in a summarised format). The latter are included in the report on operations approved by the Board of Directors. Furthermore, please note that the Auditing company in charge of performing the limited review of the half-yearly report has not as yet completed its analysis.

 

The Half-Yearly Report as of 30th June 2003 is disclosed according to the terms provided for by Art.82, par. 2, of Consob Regulation 11971 of 14th May 1999 (as subsequently modified) instead of the Quarterly Report as of 30th June 2003


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