By Valentina Za
MILAN (Reuters) -Italy's top bank Intesa Sanpaolo has convinced investors of its ability to reward them, lifting its shares on Monday after they were hit by concerns about regulatory pressure to preserve capital.
Euro zone banks are caught between the need to support their market valuations with generous payouts, and supervisory calls for prudence given economic uncertainty.
Shares were up 2.7% by 1635 GMT, after shedding 1.9% on Friday following a Bloomberg report that Intesa was cutting as much as 20 billion euros ($22 billion) in assets to preserve its capital ratios after supervisory remarks on internal models to weigh asset risks.
Investors fretted about the impact on earnings and the bank's ability to stick to generous capital distribution plans, starting with a pending 1.7 billion euro share buyback.
Intesa has put the buyback on hold, despite receiving European Central Bank clearance, until approval of 2022 results on Feb. 3.
The bank late on Friday said its core capital would land at 13% at the end of 2022, from 12.4% three months earlier, after it reduced risk weighted assets (RWA) in the fourth quarter.
"We now consider feasible the execution of the residual share buyback," Kepler Cheuvreux said, raising its target price on the stock by 10%.
Intesa had said in November it was moving to offset an expected 45 basis point capital hit from upcoming regulatory changes kicking in from January.
In the fourth quarter, Intesa shed risks on 10.3 billion euros in loans through two so-called synthetic securitisation deals, including a jumbo 8 billion euro transaction.
Synthetic securitisations allow banks to pay investors to bear loan loss risks, while holding onto the assets. Market calculations put the cost of similar transaction at around 25 million-30 million euros a year for 2 billion euros in assets.
Intesa also sold 4 billion euros in leasing contracts. It disposed in November of a stake in payments firm Nexi, a move which analysts said at the time could help counter the capital headwinds in early 2023.
JPMorgan analysts said Intesa shares had over-reacted on Friday, with investors fearing the 20 billion euro figure could be on top of what the bank had already guided for, which the broker said did not seem to be the case.
"Intesa seems to be accelerating the RWA reduction," JPMorgan said.
"The regulatory impact could be 10-20 bps higher than the around 45 bps guidance, but we would be very surprised if it was significantly higher. Overall, we have no doubt that the capital trajectory for Intesa is largely unchanged by 2025."
Intea confirmed on Friday its best-quality capital would stay well above a minimum level of more than 12% through 2025, after taking into account the buyback.
($1 = 0.9206 euros)
(Reporting by Valentina Za; Editing by Federico Maccioni, Louise Heavens and Jan Harvey)