Intesa's Q4 Legacy Nonperforming Loan Disposal Depresses Earnings but Reduces Risk

No-moat Intesa Sanpaolo reported a pretax profit of EUR 434 million for the fourth quarter of 2021, compared with EUR 822 million a year earlier and sharply lower than the EUR 1.9 billion it reported for the third quarter of 2021. However, the results include EUR 1.3 billion of additional provisions that Intesa took to dispose of EUR 8 billion of legacy nonperforming loans. After Intesa's second-quarter results, we highlighted the risk that the bank might need to take further provisions against its legacy NPL book. However, we believe it is the correct decision to reduce the sizable NPL book, which has been one of the critical risks we have highlighted to investors. The legacy NPLs have weighed on Intesa's rating by the market. As a percentage of gross customer loans, NPLs are now down to 2% from 17% in 2015 and 4.4% a year before. Intesa's NPL ratio is now in line with that of the rest of the eurozone banks we cover.