INTESA SANPAOLO: CONSOLIDATED RESULTS AS AT 31 MARCH 2019

Q1 2019 RESULTS REFLECT THE GROUP’S SUSTAINABLE PROFITABILITY WHICH DERIVES FROM A SOLID CAPITAL BASE AND STRONG LIQUIDITY POSITION, AND FROM THE BUSINESS MODEL. THE GROUP’S BUSINESS MODEL IS BOTH RESILIENT AND WELL DIVERSIFIED, WITH WEALTH MANAGEMENT & PROTECTION BEING THE FOCUS, FINANCIAL ACTIVITIES PROVIDING NATURAL HEDGING AGAINST THE IMPACT OF MARKET VOLATILITY ON FEE-BASED REVENUES, STRATEGIC FLEXIBILITY IN MANAGING OPERATING COSTS, AND EFFECTIVE PROACTIVE CREDIT MANAGEMENT.

Q1 2019 RESULTS SHOW THAT THE GROUP IS FIRMLY ON TRACK TO DELIVER ON ITS TARGETS. THEY ALSO HIGHLIGHT THE CONTINUED SUPPORT PROVIDED BY THE GROUP TO THE ECONOMY IN THE COUNTRIES IN WHICH IT OPERATES, AND SPECIFICALLY IN ITALY WHERE, MOREOVER, IT IS COMMITTED TO BECOMING A REFERENCE MODEL IN TERMS OF SOCIAL AND CULTURAL RESPONSIBILITY.

Q1 2019 NET INCOME WAS €1,050 MILLION.

THE CAPITAL POSITION WAS SOLID AND WELL ABOVE REGULATORY REQUIREMENTS, EVEN UNDER THE ADVERSE SCENARIO OF THE 2018 EBA/ECB STRESS TEST. PRO-FORMA FULLY LOADED COMMON EQUITY TIER 1 RATIO WAS 13.5%, TAKING INTO ACCOUNT THE DIVIDENDS ACCRUED IN Q1 2019.

PROFITABILITY INCREASED ON Q4 2018: GROSS INCOME UP 30.8%, OPERATING MARGIN UP 33.5%, OPERATING INCOME UP 4.6%. OPERATING COSTS DECREASED: DOWN 13.9% ON Q4 2018 AND 4.5% ON Q1 2018.

CREDIT QUALITY IMPROVED. GROSS NPLS WERE REDUCED AT NO EXTRAORDINARY COST TO SHAREHOLDERS, WITH NPL STOCK DOWN 2.6% ON YEAR-END 2018 AND DOWN AROUND €17 BILLION SINCE THE END OF 2017. IN THE FIRST 15 MONTHS OF THE 2018-2021 BUSINESS PLAN, THE NPL REDUCTION ACHIEVED WAS AS MUCH AS 64% OF THE TARGET SET FOR THE ENTIRE FOUR-YEAR PERIOD. GROSS NPL RATIO STOOD AT 8.5% AND NET NPL RATIO AT 4.1%. NET ADJUSTMENTS TO LOANS WERE DOWN 47.1% ON Q4 2018 AND 23.6% ON Q1 2018. ANNUALISED COST OF RISK IN Q1 2019 DECREASED TO 37 BASIS POINTS.

INTESA SANPAOLO CONTINUES TO OPERATE AS A GROWTH ACCELERATOR IN THE REAL ECONOMY IN ITALY. IN Q1 2019, MEDIUM/LONG-TERM NEW LENDING GRANTED BY THE GROUP TO ITALIAN HOUSEHOLDS AND BUSINESSES AMOUNTED TO AROUND €10.5 BILLION. IN Q1 2019, THE GROUP FACILITATED THE RETURN TO PERFORMING STATUS OF AROUND 5,000 COMPANIES, THUS SAFEGUARDING AROUND 25,000 JOBS. THIS BROUGHT THE TOTAL TO AROUND 98,000 COMPANIES SINCE 2014, WITH AROUND 500,000 JOBS SAFEGUARDED OVER THE SAME PERIOD.

INTESA SANPAOLO IS THE ENGINE OF THE ITALIAN SOCIAL ECONOMY. DIVIDENDS DISTRIBUTED BY THE BANK HAVE ENABLED THE  FOUNDATIONS THAT ARE AMONG ITS SHAREHOLDERS TO GRANT MORE THAN HALF OF THE TOTAL FUNDS GRANTED BY ALL ITALIAN BANKING FOUNDATIONS.

THE GROUP’S SOCIAL AND CULTURAL RESPONSIBILITY HAS TRANSLATED, IN ITALY, INTO: INITIATIVES TO REDUCE CHILD POVERTY AND TO SUPPORT PEOPLE IN NEED DELIVERING, SINCE 2018, AROUND 3.9 MILLION MEALS, 116,000 DORMITORY BEDS, 57,000 MEDICINE PRESCRIPTIONS AND 36,000 ITEMS OF CLOTHING; SUPPORT PROVIDED TO FAMILIES WHO HAVE BEEN VICTIMS OF NATURAL DISASTERS, WITH OVER €28 MILLION SUBSIDISED LOANS GRANTED IN Q1 2019 (OVER €225 MILLION SINCE 2018); SUPPORT PROVIDED TO FAMILIES AND BUSINESSES AFFECTED BY THE GENOA BRIDGE COLLAPSE, WITH A €4.5 MILLION PLAFOND FOR MORTGAGE FORGIVENESS (€0.5 MILLION ALREADY FORGIVEN) AND A €50 MILLION PLAFOND FOR RECONSTRUCTION (€1.4 MILLION GRANTED); THE FUND FOR IMPACT, WITH €130,000 ALREADY GRANTED IN THE FIRST MONTH BY “PER MERITO” (THE FIRST LINE OF CREDIT WITHOUT COLLATERAL FOR ALL ITALIAN UNIVERSITY STUDENTS); A €5 BILLION CIRCULAR ECONOMY CREDIT PLAFOND TO SUPPORT SUSTAINABLE DEVELOPMENT WITH 102 PROJECTS EVALUATED, OF WHICH 13 HAVE ALREADY BEEN FINANCED FOR AROUND €300 MILLION; THE CIRCULAR ECONOMY LAB WHICH IS RUNNING OPEN INNOVATION PROGRAMS; IN Q1 2019, AROUND 400 START-UPS ANALYSED (AROUND 950 SINCE 2018) AND ACCELERATION PROGRAMS LAUNCHED IN RESPECT OF 36 COACHED START-UPS (147 SINCE 2018); “GIOVANI E LAVORO” PROJECT UNDERWAY, IN PARTNERSHIP WITH GENERATION, AIMED AT INTRODUCING 5,000 YOUNG PEOPLE TO THE ITALIAN LABOUR MARKET; IN Q1 2019, AROUND 175,000 VISITORS TO THE GROUP’S MUSEUMS (500,000 IN 2018), OVER 33,000 STUDENTS PARTICIPATING IN FREE EDUCATIONAL ACTIVITIES (73,000 IN 2018) AND 30 ARTWORKS FROM THE CORPORATE COLLECTION ON LOAN (140 IN 2018), WITH OVER 100 ART HISTORIANS WORKING FULL TIME AT GALLERIE D’ITALIA, WHICH ARE AMONG THE TOP MUSEUMS IN ITALY BY NUMBER OF VISITORS, SPECIFICALLY WITH AROUND 180,000 VISITORS WHO ADMIRED THE “ROMANTICISMO” EXHIBITION HELD FROM OCTOBER 2018 TO MARCH 2019 (14 MAJOR EXHIBITIONS HELD IN 2018).

• ROBUST NET INCOME:
  • €1,050M IN Q1 2019 VS €1,038M IN Q4 2018 AND €1,252M IN Q1 2018
  

• GROWTH IN PROFITABILITY ON Q4 2018:
  • GROSS INCOME UP 30.8%
  • OPERATING MARGIN UP 33.5%
  • OPERATING INCOME UP 4.6%

• REDUCTION IN OPERATING COSTS:
  • DOWN 13.9% ON Q4 2018
  • DOWN 4.5% ON Q1 2018
  

• IMPROVEMENT IN CREDIT QUALITY TREND:
  • DECREASE IN NPLs, ACHIEVED AT NO EXTRAORDINARY COST TO SHAREHOLDERS
  

  • GROSS NPL REDUCTION: AROUND €17BN SINCE DECEMBER 2017 AND AROUND €30BN SINCE SEPTEMBER 2015 (RESPECTIVELY €6BN AND €19BN, IN APPROXIMATE FIGURES, EXCLUDING THE SALE TO INTRUM FINALISED IN Q4 2018)

  • NPL STOCK DOWN 2.6% GROSS AND 1.8% NET ON YEAR-END 2018; NPL TO TOTAL LOAN RATIO OF 8.5% GROSS AND 4.1% NET 

  • NET ADJUSTMENTS TO LOANS DOWN 47.1% ON Q4 2018 AND 23.6% ON Q1 2018
  • ANNUALISED COST OF RISK IN Q1 2019 DOWN TO 37 BASIS POINTS
  
• SOLID CAPITAL POSITION, WELL ABOVE REGULATORY REQUIREMENTS:  
  • COMMON EQUITY TIER 1 RATIO AS AT 31 MARCH 2019, AFTER THE DEDUCTION OF €840M OF DIVIDENDS ACCRUED IN Q1 2019, OF
  

  • 13.5% PRO-FORMA FULLY LOADED ^{(1) (2)}
  • 13.1% PHASED-IN ^{(2) (**)}

  • COMMON EQUITY TIER 1 RATIO IN THE 2018 EBA/ECB STRESS TEST
  

  • 9.7% FULLY LOADED UNDER THE ADVERSE SCENARIO FOR 2020, 10.3% TAKING INTO ACCOUNT THE CAPITAL INCREASE TO SERVE THE INCENTIVE PLAN AND THE CONVERSION OF THE SAVINGS SHARES, BOTH FINALISED IN Q3 2018, AND 11.4% CALCULATED ON A PRO-FORMA BASIS ^(***)

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(1) Estimated by applying the fully loaded parameters to the financial statements as at 31 March 2019, taking into account the total absorption of deferred tax assets (DTAs) related to goodwill realignment, loan adjustments, the first time adoption of IFRS 9 and the non-taxable public cash contribution of €1,285m covering the integration and rationalisation charges relating to the acquisition of the Aggregate Set of Banca Popolare di Vicenza and Veneto Banca, as well as the expected absorption of DTAs on losses carried forward and the expected distribution of the  Q1 2019 net income of insurance companies that exceeds the amount of reserves already distributed in the quarter.
(2) After the deduction of accrued dividends, equal to 80% of net income for the quarter, and the coupons accrued on the Additional Tier 1 issues.
(**) Equal to 11.9% excluding the mitigation of the impact of the first time adoption of IFRS 9. This would be 12.4% when taking into account the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital), in respect of which the process of recognition has been launched. 
(***) Also taking into account the total absorption of deferred tax assets (DTAs) related to goodwill realignment, loan adjustments, the non-taxable public cash contribution of €1,285m covering the integration and rationalisation charges relating to the acquisition of the Aggregate Set of Banca Popolare di Vicenza and Veneto Banca, as well as the expected absorption of DTAs on losses carried forward.

HIGHLIGHTS:
OPERATING INCOME:	Q1 2019	+4.6% -8.8%	€4,389M FROM €4,196M IN Q4 2018 FROM €4,813M IN Q1 2018
OPERATING COSTS:	Q1 2019	-13.9%   -4.5%	€2,204M FROM €2,559M IN Q4 2018 FROM €2,309M IN Q1 2018
OPERATING MARGIN:	Q1 2019	+33.5%  -12.7%	€2,185M FROM €1,637M IN Q4 2018 FROM €2,504M IN Q1 2018
GROSS INCOME:	Q1 2019	€1,792M	FROM €1,370M IN Q4 2018 FROM €1,969M IN Q1 2018
NET INCOME:	Q1 2019	€1,050M	FROM €1,038M IN Q4 2018 FROM €1,252M IN Q1 2018
CAPITAL RATIOS:	COMMON EQUITY TIER 1 RATIO AFTER DIVIDENDS ACCRUED IN Q1 2019: 13.5% PRO-FORMA FULLY LOADED (3) (4); 13.1% PRO-FORMA PHASED IN (4) (**)

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(3) Estimated by applying the fully loaded parameters to the financial statements as at 31 March 2019, taking into account the total absorption of deferred tax assets (DTAs) related to goodwill realignment, loan adjustments, the first time adoption of IFRS 9 and the non-taxable public cash contribution of €1,285m covering the integration and rationalisation charges relating to the acquisition of the Aggregate Set of Banca Popolare di Vicenza and Veneto Banca, as well as the expected absorption of DTAs on losses carried forward and the expected distribution of the Q1 2019 net income of insurance companies that exceeds the amount of reserves already distributed in the quarter.
(4) After the deduction of accrued dividends, equal to 80% of the net income for the quarter, and the coupons accrued on the Additional Tier 1 issues.
(**) Equal to 11.9% excluding the mitigation of the impact of the first time adoption of IFRS 9. This would be 12.4% when taking into account the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital), in respect of which the process of recognition has been launched. 

 

Turin - Milan, 7 May 2019 –  At its meeting today, the Board of Directors of Intesa Sanpaolo approved the consolidated interim statement as at 31 March 2019 ^{(5) (6)}.

Results for Q1 2019 reflect the Group’s sustainable profitability which derives from a solid capital base and strong liquidity position, and from a resilient and well-diversified business model characterised by:
-  a focus on the Wealth Management & Protection business driven by a client-centric approach, and financial activities providing natural hedging against the impact of market volatility on fee-based revenues;
-  strategic flexibility in managing operating costs; 
-  effective proactive credit management at no extraordinary cost to shareholders.

Results for Q1 2019 show that the Group is firmly on track to deliver on its targets. They also highlight the continued support provided by the Group to the country, which includes its commitment to becoming a reference model in terms of social and cultural responsibility:

●    net income at €1,050m versus €1,038m in Q4 2018 and €1,252m in Q1 2018;

●    growing profitability on Q4 2018:
-    gross income up 30.8%;
-    operating margin up 33.5%;
-    operating income up 4.6%;

●    operating costs reduced by 13.9% on Q4 2018 and 4.5% on Q1 2018;

●    high efficiency, highlighted by a cost/income of 50.2% – a figure that places Intesa Sanpaolo in the top tier of its European peers;

●    net adjustments to loans down 47.1% on Q4 2018 and 23.6% on Q1 2018;

●    Q1 2019 annualised cost of risk down to 37bps versus the 61bps of full-year 2018;

●    improving credit quality mainly due to an effective proactive credit management approach, at no extraordinary cost to shareholders:
-    gross NPLs were reduced by around €1bn in Q1 2019, by around €30bn since September 2015 (the reduction was around €19bn excluding the bad-loan sale to Intrum finalised in Q4 2018) and by around €17bn since December 2017 (the reduction was around €6bn excluding the Intrum transaction). In the first 15 months of the 2018-2021 Business Plan, the NPL reduction achieved was as much as 64% of the target set for the entire four-year period.
-    NPL stock in March 2019 was down 2.6% gross and 1.8% net on December 2018;
-    NPL to total loan ratio in March 2019 was 8.5% gross and 4.1% net;

________

(5)  In accordance with Article 65-bis and Article 82-ter of the Issuers’ Regulation, effective as of 2 January 2017, Intesa Sanpaolo opted for periodical disclosure, on a voluntary basis, of financial information as at 31 March and 30 September of each financial year, in addition to the annual report and the half-yearly report. This information consists of interim statements approved by the Board of Directors, basically providing continuity with the interim statements published in the past.
(6)  Methodological note on the scope of consolidation on page 17.
 


●    sizeable NPL coverage:
-    NPL cash coverage ratio of 54.1% at the end of March 2019, with a cash coverage ratio of 66.2% for the bad loan component;
-    robust reserve buffer on performing loans amounting to around 0.5% at the end of March 2019;

●    very solid capital position, with capital ratios well above regulatory requirements. As at 31 March 2019, the pro-forma fully loaded Common Equity Tier 1 ratio came in at 13.5% ^{(7) (8)} – one of the highest levels amongst major European banks – and the phased-in Common Equity Tier 1 ratio at 13.1% ^{(8) (9)} after the deduction of €840m of dividends accrued in the quarter. The aforementioned ratios compare with the SREP requirement for 2019, comprising Capital Conservation Buffer, O-SII Buffer and Countercyclical Capital Buffer ⁽¹⁰⁾, which set the fully loaded Common Equity Tier 1 ratio at 9.34% and the phased-in Common Equity Tier 1 ratio at 8.96%. Under the adverse scenario of the 2018 EBA/ECB stress test for 2020, the Common Equity Tier 1 ratio stands at 9.7%, calculated on the basis of the balance sheet date as at 31 December 2017, taking the impact of the first time adoption of IFRS 9 into account. It would stand at 10.3% taking into account the capital increase executed on 11 July 2018 to serve the 2018-2021 LECOIP 2.0 Long-term Incentive Plan and the conversion of savings shares into ordinary shares finalised on 7 August 2018, other things being equal, and at 11.4% calculated on a pro-forma basis ^(***).
 
●    strong liquidity position and funding capability, with liquid assets of €194bn and available unencumbered liquid assets of €99bn at the end of March 2019. The Basel 3 Liquidity Coverage Ratio and Net Stable Funding Ratio requirements have been complied with. The Group’s refinancing operations with the ECB to optimise the cost of funding and to support businesses in their investment amounted to an average of €60.5bn in Q1 2019 (an average of €61.9bn in 2018) and consisted entirely of the TLTRO with a four-year maturity.


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(7) Estimated by applying the fully loaded parameters to the financial statements as at 31 March 2019, taking into account the total absorption of deferred tax assets (DTAs) related to goodwill realignment, loan adjustments, the first time adoption of IFRS 9 and the non-taxable public cash contribution of €1,285m covering the integration and rationalisation charges relating to the acquisition of the Aggregate Set of Banca Popolare di Vicenza and Veneto Banca, as well as the expected absorption of DTAs on losses carried forward and the expected distribution of the  Q1 2019 net income of insurance companies that exceeds the amount of reserves already distributed in the quarter.
(8) After the deduction of accrued dividends, equal to 80% of net income for the quarter, and the coupons accrued on the Additional Tier 1 issues.
(9) Equal to 11.9% excluding the mitigation of the impact of the first time adoption of IFRS 9. This would be 12.4% when taking into account the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital), in respect of which the process of recognition has been launched. 
(10) Countercyclical Capital Buffer calculated taking into account the exposures as at 31 March 2019 in the various countries where the Group has a presence, as well as the respective requirements set by the competent national authorities and relating to the 2019-2020 period, where available, or the most recent update of the reference period (requirement was set at zero per cent in Italy for H1 2019).
(***) Also taking into account the total absorption of deferred tax assets (DTAs) related to goodwill realignment, loan adjustments, the non-taxable public cash contribution of €1,285m covering the integration and rationalisation charges relating to the acquisition of the Aggregate Set of Banca Popolare di Vicenza and Veneto Banca, as well as the expected absorption of DTAs on losses carried forward.

 

●    support provided to the real economy, with around €12.5bn of medium/long-term new lending in Q1 2019. Loans amounting to around €10.5bn were granted in Italy, of which around €9bn was granted to households and SMEs. In Q1 2019, the Group facilitated the return from non-performing to performing status of around 5,000 Italian companies, thus safeguarding around 25,000 jobs. This brought the total to around 98,000 companies since 2014, with around 500,000 jobs safeguarded over the same period.
 
●    support provided to the social economy: Intesa Sanpaolo is the engine of the Italian social economy. Dividends distributed by the Bank have enabled the foundations that are among its shareholders to grant more than half of the total funds granted by all Italian banking foundations.

●    social and cultural responsibility which, in the presence of solid financials, translated into the actions shown below, carried out by the Group in Italy in Q1 2019:
-    initiatives to reduce child poverty and to support people in need delivering, since 2018, around 3.9 million meals, around 116,000 dormitory beds, around 57,000 medicine prescriptions and around 36,000 items of clothing;
-    support provided to families affected by earthquakes and natural disasters, by forgiving or allowing moratoria in respect of mortgages on damaged properties and granting over €28m subsidised loans in Q1 2019 (over €225m granted since 2018);
-    support provided to families and businesses affected by the Genoa bridge collapse, with a €4.5m plafond for mortgage forgiveness (€0.5m already forgiven) and a €50m plafond for reconstruction (€1.4m granted);
-    activation of the Fund for Impact in Q4 2018, enabling lending of around €1.2bn to categories that otherwise would have difficulties in accessing credit, despite their potential; launch of the first line of credit without collateral for all Italian university students studying in Italy or abroad (Per Merito), with €130,000 already granted in the first month;
-    a €5bn Circular Economy credit Plafond for the 2018-2021 period, to support sustainable development: 102 projects have been evaluated, of which 13 already financed for around €300m;
-    the Circular Economy Lab for corporate clients which is running Open Innovation Programs;
-    around 400 start-ups have been analysed (around 950 since 2018) and acceleration programs have been launched with 36 coached start-ups in Q1 2019 (147 since 2018), introducing them to selected investors and ecosystem players (around 1,200 to date);
-    the Intesa Sanpaolo “Giovani e Lavoro” project is underway, in partnership with Generation, aimed at training and introducing 5,000 young people to the Italian labour market over the next three years;
-    in the quarter, around 175,000 visitors to the Group’s museums Gallerie d’Italia (500,000 in 2018) and over 33,000 students participating in the free educational activities (73,000 in 2018); the “Romanticismo” exhibition (held from October 2018 to March 2019) was one of the most visited exhibitions in Italy with around 180,000 visitors  (14 major exhibitions were held in 2018); 30 artworks from the corporate collection on loan to Italian and international museums (140 in 2018) and more than 100 art historians working full time at Gallerie d’Italia;


 
The income statement for the first quarter of 2019

The consolidated income statement for Q1 2019 recorded net interest income of €1,756m, up 1.2% from €1,736m in Q4 2018 and down 5.2% from €1,853m in Q1 2018.

Net fee and commission income amounted to €1,886m, down 7% from €2,029m in Q4 2018. Specifically, commissions on commercial banking activities were down 8.7% and commissions on management, dealing and consultancy activities were down 2.6%. The latter, which include portfolio management, distribution of insurance products, dealing and placement of securities, etc., recorded a 10.4% increase in dealing and placement of securities and a 4.7% decrease in both distribution of insurance products and portfolio management (performance fees contributed €1m in Q1 2019 and €12m in Q4 2018). Net fee and commission income for Q1 2019 was down 7% from the €2,027m of Q1 2018. Specifically, commissions on commercial banking activities were up 3% and those on management, dealing and consultancy activities were down 11.7%. The latter recorded decreases of 18.6% in dealing and placement of securities, 13.8% in distribution of insurance products and 9.1% in portfolio management (performance fees contributed €5m in Q1 2018).

Income from insurance business amounted to €291m from €238m in Q4 2018 and €294m in Q1 2018.

Profits on financial assets and liabilities at fair value amounted to €457m from €204m in Q4 2018. Contributions from customers increased from €82m to €142m, those from capital markets  increased from €16m to €82m, those from trading and treasury increased from €100m to €217m and those from structured credit products increased from €6m to €16m. Profits on financial assets and liabilities at fair value of €457m for Q1 2019 compare with profits of €609m in Q1 2018 (which included the positive effect of €264m deriving from the fair value measurement and subsequent sale of the NTV investment). In Q1 2018, contributions from customers amounted to €139m, those from capital markets to €285m (including the aforementioned positive effect due to NTV), those from trading and treasury to €183m and those from structured credit products to €2m.

Operating income amounted to €4,389m, up 4.6% from €4,196m in Q4 2018 and down 8.8% from €4,813m in Q1 2018.

Operating costs amounted to €2,204m, a reduction of 13.9% from the €2,559m of Q4 2018 which was affected by the seasonal year-end effect. Personnel expenses were down 8.7%, administrative expenses down 26% and adjustments down 9.4%. Operating costs for Q1 2019 were down 4.5% from the €2,309m of Q1 2018, with decreases of 3.1% in personnel expenses and 10.2% in administrative expenses and an increase of 1.2% in adjustments.

As a result, operating margin amounted to €2,185m, up 33.5% from the €1,637m of
Q4 2018 and down 12.7% from the €2,504m of Q1 2018. The cost/income ratio for Q1 2019 was 50.2% versus 61% in Q4 2018 and 48% in Q1 2018.
 
Net adjustments to loans amounted to €369m from €698m in Q4 2018 and €483m in Q1 2018.

Net provisions and net impairment losses on other assets amounted to €30m from €76m in Q4 2018 and €51m in Q1 2018.

Other income amounted to €6m versus €507m in Q4 2018 (which included the capital gain of €443m deriving from the partnership with Intrum) and a negative balance of €2m in Q1 2018.

Income (Loss) from discontinued operations recorded a zero balance, the same as in Q4 2018, versus a €1m income in Q1 2018.

Gross income amounted to €1,792m from €1,370m in Q4 2018 and €1,969m in Q1 2018.

Consolidated net income for the quarter amounted to €1,050m, after accounting:
-    taxes on income of €536m;
-    charges (net of tax) for integration and exit incentives of €22m;
-    effect of purchase price allocation (net of tax) of €40m;
-    levies and other charges concerning the banking industry (net of tax) of €146m. This derives from the following pre-tax figures: charges of €199m in relation to the ordinary contribution to the resolution fund estimated for full year 2019, €5m in relation to contributions to the deposit guarantee scheme concerning the international network and €12m in relation to levies incurred by international subsidiaries, and positive fair value differences of €8m regarding the Atlante fund. In Q4 2018, this caption amounted to €69m, deriving from the following pre-tax charges: €2m in relation to contributions to the Italian deposit guarantee scheme, €4m in relation to contributions to the deposit guarantee scheme concerning the international network, €13m in relation to levies incurred by international subsidiaries and €80m in relation to the National Interbank Deposit Guarantee Fund Voluntary Scheme. In Q1 2018, this caption amounted to €126m, deriving from the following pre-tax figures: charges of €166m in relation to the ordinary contribution to the resolution fund estimated for full year 2018, €4m in relation to contributions to the deposit guarantee scheme concerning the international network and €11m in relation to levies incurred by international subsidiaries, and positive fair value differences of €1m regarding the Atlante fund.
-    losses pertaining to minority interests of €2m.
Net income of €1,050m in Q1 2019 compares with the €1,038m of Q4 2018 and €1,252m in Q1 2018.
 

Balance sheet as at 31 March 2019

As regards the consolidated balance sheet figures, as at 31 March 2019 loans to customers amounted to €396bn, up 0.5% on year-end 2018 and down 1.3% on 31 March 2018 (down 0.6% on Q4 2018 and 2.1% on Q1 2018 when taking into account quarterly average volumes (11)). Total non-performing loans (bad, unlikely-to-pay, and past due) amounted - net of adjustments - to €16,299m, down 1.8% from the €16,591m of year-end 2018. In detail, bad loans decreased to €7,082m from €7,138m as at year-end 2018, with a bad loan to total loan ratio of 1.8% (1.8% as at year-end 2018), and a cash coverage ratio of 66.2% (67.2% as at year-end 2018). Unlikely-to-pay loans decreased to €8,841m from €9,101m as at year-end 2018. Past due loans amounted to €376m from €352m as at year-end 2018.

Customer financial assets amounted to €942bn, up 3.3% on year-end 2018 and down 0.3% on 31 March 2018. Under customer financial assets, direct deposits from banking business amounted to €427bn, up 2.9% on year-end 2018 and 0.6% on 31 March 2018. Direct deposits from insurance business and technical reserves amounted to €154bn, up 3.3% on year-end 2018 and 0.8% on 31 March 2018. Indirect customer deposits amounted to €514bn, up 3.6% on year-end 2018 and down 1% on 31 March 2018. Assets under management amounted to €341bn, up 3.2% on year-end 2018 and 0.4% on 31 March 2018. As for bancassurance, in Q1 2019 the new business for life policies amounted to €3.6bn. Assets held under administration and in custody amounted to €172bn, up 4.3% on year-end 2018 and down 3.6% on 31 March 2018.

Capital ratios as at 31 March 2019, calculated by applying the transitional arrangements for 2019 and taking into account €840m of dividends accrued in Q1 2019, were as follows:
-    Common Equity Tier 1 ratio ⁽¹²⁾ at 13.1% (13.5% at year-end 2018 ⁽¹³⁾),
-    Tier 1 ratio ⁽¹²⁾ at 14.8% (15.2% at year-end 2018 ⁽¹³⁾),
-    total capital ratio ⁽¹²⁾ at 17.2% (17.7% at year-end 2018 ⁽¹³⁾).


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(11) Excluding the loan to the banks in compulsory administrative liquidation (former Banca Popolare di Vicenza and Veneto Banca).
(12) After the deduction of dividends accrued in Q1 2019, equal to 80% of net income for the quarter, and the coupons accrued on the Additional Tier 1 issues. Excluding the mitigation of the impact of the first time adoption of IFRS 9, capital ratios are 11.9% for the Common Equity Tier 1 ratio, 13.5% for the Tier 1 ratio and 16.2% for the total capital ratio. These would be 12.4%, 13.9% and 16.7%, respectively, when taking into account the Danish compromise (under which insurance investments are risk weighted instead of being deducted from capital), in respect of which the process of recognition has been launched.
(13) In accordance with the transitional arrangements for 2018. Excluding the mitigation of the impact of the first time adoption of IFRS 9, capital ratios are 12% for the Common Equity Tier 1 ratio, 13.8% for the Tier 1 ratio and 16.5% for the total capital ratio. These would be 12.5%, 14.2% and 17.1%, respectively, when taking into account the Danish compromise.



The estimated pro-forma Common Equity Tier 1 ratio for the Group on a fully loaded basis was 13.5% (13.6% at year-end 2018). It was calculated by applying the fully loaded parameters to the financial statements as at 31 March 2019, taking into account the total absorption of deferred tax assets (DTAs) related to goodwill realignment, loan adjustments, the first time adoption of IFRS 9 and the non-taxable public cash contribution of €1,285m covering the integration and rationalisation charges relating to the acquisition of the Aggregate Set of Banca Popolare di Vicenza and Veneto Banca, as well as the expected absorption of DTAs on losses carried forward and the expected distribution of the Q1 2019 net income of insurance companies that exceeds the amount of reserves already distributed in the quarter.

* * *

As a result of the strategic decisions taken, Intesa Sanpaolo has maintained its position as one of the most solid international banking Groups. In addition to the asset quality and level of capital ratios commented on above, the Group has continued to build on its key strengths: robust liquidity and low leverage.

Specifically, with regard to the components of the Group’s liquidity:
-    the high level of available unencumbered liquid assets (including eligible assets with Central Banks received as collateral and excluding eligible assets currently used as collateral) amounted to €99bn at the end of March 2019;
-    the high level of liquid assets (comprising available unencumbered liquid assets, excluding eligible assets received as collateral, and eligible assets currently used as collateral) amounted to €194bn at the end of March 2019;
-    refinancing operations with the ECB to optimise the cost of funding and to support businesses in their investment amounted to an average of €60.5bn in Q1 2019 (an average of €61.9bn in 2018). These refinancing operations consisted entirely of the TLTRO with a four-year maturity.
-    the sources of funding were stable and well diversified, with retail funding representing 75% of direct deposits from banking business (including securities issued);
-    medium/long-term wholesale funding was €1.4bn in Q1 2019 and included benchmark transactions of €1bn covered bonds and JPY13.2bn senior (around 91% were placed with foreign investors).

The Group’s leverage ratio as at 31 March 2019 was 6% applying the transitional arrangements for 2019 and 5.4% fully loaded, both best in class among major European banking groups.

* * *

As at 31 March 2019, the Intesa Sanpaolo Group’s operating structure had a total network of 5,155 branches, consisting of 4,083 branches in Italy and 1,072 abroad, and employed 90,955 people.

 

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Breakdown of results by business area

The Banca dei Territori Division comprises:
-    Retail customers (individual customers with financial assets up to €100,000 and businesses/companies with low-complexity needs)
-    Personal customers (individual customers with financial assets between €100,000 and €1m)
-    SME customers, including companies whose group turnover is below €350m.
The division includes Banca 5, a “proximity bank” linked with a non-captive network of points of sale, focused on instant banking and targeting categories of customers who rarely use banking products and services. Moreover, the division includes Banca Prossima operating at the service of non-profit entities through the Group’s branches with regional centres and a team of specialists, and Mediocredito Italiano which is the SME Finance Hub.

In the first quarter of 2019, the Banca dei Territori Division recorded:
-    operating income of €2,202m, -2.8% versus €2,264m in Q4 2018, -7.9% versus €2,391m in Q1 2018, contributing approximately 50% of the consolidated operating income (50% in Q1 2018 as well);
-    operating costs of €1,233m, -9.4% versus €1,361m in Q4 2018, -8.2% versus €1,343m in Q1 2018;
-    operating margin of  €969m, +7.3% versus €903m in Q4 2018, -7.5% versus €1,048m in Q1 2018;
-    a cost/income ratio of  56% versus 60.1% in Q4 2018 and    56.2%    in Q1 2018;
-    net provisions and adjustments of  €240m, versus €312m in Q4 2018 and €385m in Q1 2018;
-    gross income of €729m, +23.4% versus €591m in Q4 2018, +10% versus €663m in Q1 2018;
-    net income of €459m, +23.1%    versus    €373m in Q4 2018,    +9.5%    versus    €419m in Q1 2018.     


The Corporate and Investment Banking Division includes:
-    Global Corporate, which manages the relationship with corporate clients with a turnover higher than €350m and national public entities, grouped, in accordance with a sector-based model, in the following nine industries: Automotive & Industrials; Basic Materials & Healthcare; Food & Beverage and Distribution; Retail & Luxury; Infrastructure & Real Estate Partners; Public Finance; Energy; Telecom, Media & Technology; Business Solutions
-    International Department, which ensures the development of the division and is responsible for foreign branches, representative offices and foreign subsidiaries carrying out corporate banking (Intesa Sanpaolo Bank Luxembourg, Intesa Sanpaolo Bank Ireland, Intesa Sanpaolo Brasil and Banca Intesa in the Russian Federation)
-    Financial Institutions, which is responsible for relationships with financial institutions
-    Global Transaction Banking, which is responsible for management of transaction banking services
-    Banca IMI, which operates in investment banking (M&A and advisory), structured finance, capital markets and primary markets (equity and debt capital market).
The division also comprises the management of the Group’s proprietary trading.
   
In the first quarter of 2019, the Corporate and Investment Banking Division recorded:
-    operating income of €840m, +3.5% versus €812m in Q4 2018, -27.6% versus €1,161m in Q1 2018, contributing approximately 19% of the consolidated operating income (24% in Q1 2018);
-    operating costs of €253m, -16.1% versus €302m in Q4 2018, -0.4% versus €254m in Q1 2018;
-    operating margin of €587m, +15% versus €510m in Q4 2018, -35.3% versus €907m in Q1 2018;
-    a cost/income ratio of 30.1% versus 37.1% in Q4 2018 and 21.9% in Q1 2018;   
-    net provisions and adjustments of €51m, versus €96m in Q4 2018 and €34m in Q1 2018;
-    gross income of €536m, +29.5% versus €414m in Q4 2018, -38.6% versus €873m in Q1 2018;
-    net income of €363m, +27.7%    versus    €284m in Q4 2018,    -45.7% versus €669m in Q1 2018.     


The International Subsidiary Banks Division is responsible for operations on international markets through commercial banking subsidiaries and associates, and provides guidelines, coordination and support for the Group’s subsidiaries. It is responsible for defining the Group’s development strategy related to its direct presence abroad, including exploring and analysing new growth opportunities in markets where the Group already has a presence, as well as in new ones. This division also coordinates operations of international subsidiary banks and their relations with the Parent Company’s head office departments and the Corporate and Investment Banking Division’s branches and offices abroad. The division is in charge of the Group’s operations in the following geographical areas: i) South-Eastern Europe, through Privredna Banka Zagreb in Croatia, Banca Intesa Beograd in Serbia, Intesa Sanpaolo Banka Bosna i Hercegovina in Bosnia and Herzegovina, Intesa Sanpaolo Bank Albania and Intesa Sanpaolo Bank Romania; ii) Central-Eastern Europe, through Intesa Sanpaolo Bank in Slovenia, VUB Banka in Slovakia and CIB Bank in Hungary; iii) CIS and South Mediterranean, through Pravex Bank in Ukraine, Eximbank in Moldova and Bank of Alexandria in Egypt.

In the first quarter of 2019, the International Subsidiary Banks Division recorded:
-    operating income of €482m, -4.2% versus €503m in Q4 2018, -0.6% versus €485m in Q1 2018, contributing approximately 11% of the consolidated operating income (10% in Q1 2018);   
-    operating costs of €238m, -5.7% versus €253m in Q4 2018, +0.4% versus €237m in Q1 2018;   
-    operating margin of €244m, -2.7% versus €251m in Q4 2018, -1.6% versus €248m in Q1 2018;
-    a cost/income ratio of 49.4% versus 50.2% in Q4 2018 and 48.9% in Q1 2018;   
-    net provisions and adjustments of €2m, versus €97m in Q4 2018    and €6m in Q1 2018;
-    gross income of €242m, +53.2% versus €158m in Q4 2018, -0,4% versus €243m in Q1 2018;
-    net income of  €181m, +36.7% versus     €132m in Q4 2018,    -0.5%    versus    €182m in Q1 2018.
 

The Private Banking Division serves the top customer segment (Private and High Net Worth Individuals) through Fideuram and its subsidiaries Fideuram Investimenti, Intesa Sanpaolo Private Banking, SIREF Fiduciaria, Intesa Sanpaolo Private Bank (Suisse) Morval and Fideuram Asset Management Ireland. 

In the first quarter of 2019, the Private Banking Division recorded:
-    operating income of €488m, +5.2% versus €464m in Q4 2018, +0.6% versus €485m in Q1 2018, contributing approximately 11% of the consolidated operating income (10% in Q1 2018);
-    operating costs of €148m, -11.8% versus €168m in Q4 2018, +3.5% versus €143m in Q1 2018;
-    operating margin of €340m, +14.8% versus €296m in Q4 2018, -0.6% versus €342m in Q1 2018;
-    a cost/income ratio of 30.3% versus 36.2% in Q4 2018 and 29.5% in Q1 2018;   
-    net provisions and adjustments of €19m, versus net recoveries of €5m in Q4 2018 and net provisions and adjustments of €1m in Q1 2018;
-    gross income of €330m, +9.4% versus €302m in Q4 2018, -5.4% versus €349m in Q1 2018;
-    net income of €232m, +29.8%    versus    €179m in Q4 2018, -4.1%    versus    €242m in Q1 2018.     


The Asset Management Division develops asset management solutions targeted at the Group’s customers, commercial networks outside the Group and the institutional clientele through Eurizon Capital. Eurizon Capital controls Eurizon Capital SA (Luxembourg), a company specialising in managing Luxembourg mutual funds with low tracking error, and VUB Asset Management (Slovakia), which heads up the Hungarian company CIB IFM and the Croatian company PBZ Invest (the asset management hub in Eastern Europe). Eurizon Capital also controls Epsilon Associati SGR - a company specialising in active management and, specifically, in quantitative and multi-strategy management with total-return investment aims - which is owned 51% by Eurizon Capital and 49% by Banca IMI. Eurizon Capital owns 49% of the Chinese asset management company Penghua Fund Management.

In the first quarter of 2019, the Asset Management Division recorded:
-    operating income of €180m, +4.9% versus €172m in Q4 2018, -5.8% versus €191m in Q1 2018, contributing approximately 4%    of the consolidated operating income (4% in Q1 2018 as well);
-    operating costs of €36m, -2.9% versus €37m in Q4 2018, -5.3% versus    €38m in Q1 2018;
-    operating margin of €144m, +7.1% versus €134m in Q4 2018, -5.9% versus €153m in Q1 2018;
-    a cost/income ratio of 20% versus 21.6% in Q4 2018 and 19.9%    in Q1 2018;   
-    no net provisions and adjustments, versus net recoveries of €2m in Q4 2018 and no net provisions and adjustments in Q1 2018;
-    gross income of €144m, +5.8% versus €136m in Q4 2018,     -5.9%    versus €153m in Q1 2018;
-    net income of €117m, +4% versus €112m in Q4 2018, -3.3% versus €121m in Q1 2018.
 

The Insurance Division develops insurance products tailored for the Group’s clients and coordinates the operations of Intesa Sanpaolo Vita (which controls Intesa Sanpaolo Assicura) and Fideuram Vita.

In the first quarter of 2019, the Insurance Division recorded:
-    operating income of €264m, +19.4% versus    €221m in Q4 2018, -18.8% versus €325m in Q1 2018, contributing approximately 6% of the consolidated operating income (7% in Q1 2018);
-    operating costs of €45m, -19.8% versus €56m in Q4 2018,     +7.1% versus €42m in Q1 2018;
-    operating margin of €219m, +32.7% versus €165m in Q4 2018, -22.6% versus €283m in Q1 2018;
-    a cost/income ratio of 17% versus 25.4% in Q4 2018 and 12.9%    in Q1 2018;
-    no net provisions and adjustments, versus provisions and adjustments of €2m in Q4 2018 and no net provisions and adjustments in Q1 2018;
-    gross income of €219m, +34.6% versus €163m in Q4 2018, -22.6% versus €283m in Q1 2018;
-    net income of €157m, +45.4%    versus    €108m in Q4 2018, -21.1% versus €199m in Q1 2018.


The outlook for 2019

In 2019, the Group’s net income is expected to grow compared with 2018 as a result of growth in revenues, continuous reduction in operating costs and decrease in the cost of risk. The dividend policy for 2019 envisages the distribution of cash dividends corresponding to a payout ratio of 80% of net income.

* * *

For consistency purpose, the income statement figures for the four quarters of 2018 were restated following:
-    the adoption of IFRS 16;
-    the inclusion of the investment in Autostrade Lombarde into the full scope of consolidation, with the related items consolidated line by line and operating income fully recognised in “other operating income (expenses)” due to the company not being part of the Banking Group (given that Intesa Sanpaolo does not exercise management and control on it), and the corresponding net income included under minority interests;
-    the reclassification of operating income of Risanamento, which was fully recognised in “other operating income (expenses)”, similarly to Autostrade Lombarde, due to Risanamento, too, not being part of the Banking Group (given that Intesa Sanpaolo does not exercise management and control on it);
-    the reclassification of commissions from placement of certificates from “profits (losses) on financial assets and liabilities designated at fair value” to “net fee and commission income”;
-    the reclassification of expenses relating to personnel transferred to Intrum from “personnel expenses” to “administrative expenses”;
-    the reclassification of charges concerning the banking industry borne by international subsidiaries from “other operating income (expenses)" to “levies and other charges concerning the banking industry (net of tax)” and “taxes on income”.

* * *

In order to present more complete information on the results generated as at 31 March 2019, the reclassified consolidated income statement and the reclassified consolidated balance sheet included in the interim statement approved by the Board of Directors are attached. Please note that the auditing firm is completing the activities for the issue of a statement in accordance with Article 26 (2) of Regulation EU no. 575/2013 and ECB Decision no. 2015/656.

* * *

The manager responsible for preparing the company’s financial reports, Fabrizio Dabbene, declares, pursuant to paragraph 2 of Article 154-bis of the Consolidated Law on Finance, that the accounting information contained in this press release corresponds to the document results, books and accounting records.

* * *

The content of this document has a merely informative and provisional nature and is not to be construed as providing investment advice. The statements contained herein have not been independently verified. No representation or warranty, either express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness, correctness or reliability of the information contained herein. Neither the Company nor any of its representatives shall accept any liability whatsoever (whether in negligence or otherwise) arising in any way in relation to such information or in relation to any loss arising from its use or otherwise arising in connection with this document. By accessing these materials, you agree to be bound by the foregoing limitations.

This press release contains certain forward-looking statements, projections, objectives, estimates and forecasts reflecting the Intesa Sanpaolo management’s current views with respect to certain future events. Forward-looking statements, projections, objectives, estimates and forecasts are generally identifiable by the use of the words “may,” “will,” “should,” “plan,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “goal” or “target” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements include, but are not limited to, all statements other than statements of historical facts, including, without limitation, those regarding Intesa Sanpaolo’s future financial position and results of operations, strategy, plans, objectives, goals and targets and future developments in the markets where Intesa Sanpaolo participates or is seeking to participate.

Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements as a prediction of actual results. The Intesa Sanpaolo Group’s ability to achieve its projected objectives or results is dependent on many factors which are outside management’s control. Actual results may differ materially from (and be more negative than) those projected or implied in the forward-looking statements. Such forward-looking information involves risks and uncertainties that could significantly affect expected results and is based on certain key assumptions.

All forward-looking statements included herein are based on information available to Intesa Sanpaolo as of the date hereof. Intesa Sanpaolo undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law. All subsequent written and oral forward-looking statements attributable to Intesa Sanpaolo or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.

 

 

 

 

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