Intesa Sanpaolo (BIT:ISP)

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Intesa Sanpaolo (BIT:ISP BIT:ISPR NASDAQ:ISNPY) is a European financial institution with market access in 34 countries. Domestic operations in Italy are generally separate from those in other countries, with retail banking and insurance completely contained within its Banca dei Territori division (caters to over 11 million Italians, does no business outside of Italy). Outside of Italy most of its business comes from other European countries (90% of revenue in 2009).^[1]

The banking group as it presently exists is the end result of a couple large mergers, the first a 1997 Cariplo-Banco Ambrosiano $5 billion merger which formed Banca Intesa followed by the 1998 adjoining of Cassa di Risparmio delle Provincie Lombarde and Banco Ambrosiano which added Banca Commerciale Italiana a year later (the same year UniCredito Italiano SpA's hostile bid for BCI was rejected, BCI was fully incorporated into Intesa in 2001). Then in the first month of 2007 (announced in August 2006) Italy's 2nd largest bank (Banca Intesa) acquired the 3rd largest (Sanpaolo IMI) in a US$37.8 billion friendly takeover.^[2] The bank was the largest in Italy until Unicredit group bought Capitalia in May 2007.^[3][4] Banca Intesa divested itself of almost 2 billion euros worth of assets between 2002 and the last merger in 2007.

Contents 1 Company Overview 1.1 Branches and Subsidiaries 2 Business & Financials 3 Trends & Forces 3.1 Changes in Italian rules regarding Bonds 4 Competition 5 References

Domestically it is Italy's largest retail bank ranking first in loans, deposits and asset management with a market share in 7 key areas ranging from 16 to 26 percent (greater than 14% in 14 regions).^[5][6] Its regional market share in Italy is between 13 and 21.8 percent.^[7][8] Worldwide it has over 20 million clients (over half in Italy) and is a key player in Eastern European countries like Hungary (controls the 2nd largest bank) and Romania (96 branches).^[9][10] Internatioanlly there are 8.3 million customers (as of March 2011)^[8] in 13 countries served at 1,700 branches. In 2011 it ranked 76 on Forbes global 2000 list down 22 spots from 54 in 2010 (though revenue per Forbes was about the same and net income was actually up ($4B from $3.56B) while assets were up 1.29% ($889B from $877.66B) and market value was down 7.77% ($41.2B from $44.67B).

Company Overview

Business is segmented into 4 core divisions. In order of size they are

• Banca dei Territori Division (accounts for 50-60% of all revenue, customer deposits and customers) - 22 subsidiaries manage primary operations relating to retail, commercial banking as well as life insurance dealings in Italy
• Corporate and Investment Banking (20% of revenue) - 6 subsidiaries with a presense in over 30 countries
• International Subsidiary Banks (20-30% the size of Banca dei Territori) - 11 subsidiary banks (most are through subsidiary Banca Intesa) - Banca Intesa (Central Eastern Europe, offices on all major contitinents), BI Beograd (largest commercial bank in Serbia)^[11], Bank of Alexandria (ownership at 70.25% purchased in 2006), Banka Kober (present in Slovenia where it is a leader in electronic banking), CIB Bank (2nd largest bank in Hungary in terms of customer loans placements)^[10], Saopaolo Bank of Albania (originially American Bank of Albania acquired in 2008, serves 130,000 Albanians), Pravex Bank in the Ukraine (over 2 million customers), Vseobecna Uverova Banka in Slovakia (provides regular and corporate financial services), Privredna banka Zagreb (Ukranian Bank that was largely government owned until 1999 when Italian bank BCI (acquired by Intesa in 2006) purchased 66%) and divisions in Romania and Bosnia.
• Public Finance - 1 subsidiary called BIIS

In addition to these core segments there is also an asset managent division called Eurizon Capital (investment manager in the business of bonds, money markets, mixed assets among other activities) and private investment business Banca Fideuram (provides products and services relating to mutual funds, life insurance policies, pension funds and certificates of deposit to customers throughout Europe).

Branches and Subsidiaries

Branches and locations in Italy there are 2476 direct branches and 3524 through subsidiaries; 1665 in the rest of Europe (mostly the East including Russia and the mediterranean) and 200 in Egypt (international subsidiary banks doubled net income on the year (to 364 million euro)).

Italy (where operations account for 77% of operating income and 86% of customer deposits in 2009) In terms of direct branches the North West region has 1817 (subsidiaries have 202 (135 between Intesa Sanpaolo Private Banking and Banca CR Firenze), Italy Centre has 435 (subsidiaries have 863 more than half by Banca CR Firenze), the Islands have 201 (6 subsidiaries have 110 85% of which are Banco di Credito Sardo branches). In the North East there are 17 (12 subsidiaries have 1378 half by Cassa di Risparmio del Veneto and CR in Bologna) and 6 in the South (subsidiaries have 971 80% of which are Banco di Napoli branches).

Rest of Europe (accounts for 90% of all income outside of Italy (20.7% of total) in the Ukraine through Pravex Banka it has 495, 247 in Slovakia where VUB Banka does business, 224 in Croatia (Privredna Banka Zagreb), 208 in Serbia (Banca Intesa Beograd), 151 CIB Bank's in Hungary, 116 Romanian branches (Intesa Sanpaolo Bank Romania 96 Firenze 20), 79 Banca Intesa locations in the Russian Federation, 54 in Bosnia and Herzegovina (Banca Bosna i Hercegovina), 54 Banka Koper's in Slovenia, market access in Albania and Greece is through Intesa Sanpaolo Banka Albania (32 in Albania and 5 in Greece).

Elsewhere (makes up 3.4% of income) there are 200 Bank of Alexandria branches in Egypt and representative offices with few direct branches in another 24 countries.

Business & Financials

	income data € million	2007[12]	2008[13]	2009[14]	1hfy09[15]	1hfy10[16]	change %	2010[17]	1q11[18]
Net Interest Income		9,886	11,630	10,486	5466	4863	(-)11%	9,768	2,396
Operating Income (Revenue)		18,008	18,157	17,480	8867	8235	(-)7.1%	16,625	4,206
Operating Margin		8740	8,306	8021	4212	3694	(-)12.3%	7271	1,963
Net Income		7250	2553	2805	1588	1690	6.4%	2705	661
Number of Employees		96,198	108,310	103,718	107,308	102,659	4.3%	102,000	101,978
Loans To Customers		335,273	395,189	374,033	386,324	374,801	(-)3%	379,235	375,513
Customer Deposits		1,031,672	1,008,041	838,742	1,021,448	858,577	15.9%	828,324	821,041
Total Equity		51,558	48,954	52,681	50,742	52,534	3.5%
Total Assets		572,902	636,133	624,844	638,442	655,041	2.6%	658,760
Total Sales USD million[19][20][21]		22,250	50,560	50,710	€16,630			$49,000[22]

*Revenue is the same as operating income. The difference between operating income and operating costs is called operating margin. Operating margin less risks, adjustments on loans, goodwill impairment and losses on other investments is ebitda. Ebitda less income from discontinued operations, merger costs, taxes produces net income.

1HFY10 proved to be a turning point for corporate and investment banking. The division surpassed Banca dei Territori in net income (47% higher than the year before) for the second time in history but for the first time convincingly (70% higher than Banca dei Territori in 2009 they were about the same). Net income by other were pulled into positive territory due to strong Corporate Centre performance (€1.23 billion in profits in 2008 with steady growth ever since).

2009 on the year; customer deposits were up overall due solely to growth in indirect deposits (2.4% higher direct deposits were down 0.2% though bonds were up 4.3% due to high rated securities being more attractive to investors). Although net income was similar in 2008 and 2009 they were influenced by completely different market situations. Income from interest margins was down because of rate cuts but more security dealing and higher management and commission fees helped to soften the impact. capital ratios were slightly higher (core tier 1 up to 7.1% from 6.3% the year before). The ratio of shareholder's equity to total assets grew slightly up to 5% which is significant since that was the highest for a major European bank. Customer deposits were about about 25 billion euro higher than loans to customers. Low risk is reflected in the small amount of investment banking activity (less than 6% of operating income). Interest margin was 9% on the year as a result of lower market rates but it could have been worse if it were not for price monitoring and hedging strategies. Fee and commission income which stabilized in the 2nd half of the year, was primarily affected by the lack of confidence customers had in risky activity.

Insurance income grew 9.3% while operating costs fell 4% on lower amortization, depreciation, personal and administrative expenses. Provisions and value adjustments were down 15.6% (660 million euro).

International subsidiary banks doubled net income on the year (to 364 million euro) negatively affected by performances at Pravex Bank positively affected by Eurizon Capital and Banca Fideuram. Loans to customers were down 5.2% because of the financial crisis and its impact on many aspects of the economy (including consumer confidence).

Net Interest Income in 2009 was down 19.5% for the bank's largest segment (Banca dei Territori) but up 50% for Corporate and Investment Banking (which now accounts for 19.2% of all net interest income up from 11.5% in 2008).

Trends & Forces

Changes in Italian rules regarding Bonds

In 2008 in Italy covered bond rules were made simpler and safer with better guarantees aimed at improving trust between the debtor (owes money) and debtee (owed money).^[23] This helps Intesa Sanpaolo because it helps boost consumer confidence which has been waning since the start of Italy's recession in 2009.^[24]

Competition

In Italy the main competitor would be Unicredit Group a banking entity that runs just as diverse a business.

The graph to the right compares the largest European banks based in the Eurozone.

Financial Data 1hfy10 unless ow stated	Societe Generale[25]	Unicredit Group[26][27]	ICBC[28][29]	Intesa Sanpaolo[30][31]	Credit Agricole[32]
Net Interest Income (€ mil)	30,545('09)	17,568('09)	15,896	10,486('09)	na
RevenueNBI	13,260	13,299	30,267('09)	$50,710('09)[33]	10,293
Operating Income	2745	5482	16,171('09)	8235	1672
Customer Deposits	300,054('09)	235,896('09)	1,059,961	858,577	634.4

References

1. ↑ Intesa Sanpaolo 2009 Annual Report
2. ↑ Italy's Creation of a Banking Giant Is Seen as a Precursor
3. ↑ Italy's UniCredit to buy Capitalia for $29 billion
4. ↑ San Paolo IMI Forbes
5. ↑ Asset Sale Lifts Intesa Sanpaolo Results
6. ↑ GBC Intesa Sanpaolo
7. ↑ IBOS Intesa Sanpaolo
8. ↑ ^{8.0 8.1} Intesa Brochure (March 2011
9. ↑ Lender Intesa Sanpaolo Romania ups net operating profit by 84% y/y in Q1, on higher assets
10. ↑ ^{10.0 10.1} EBRD and CIB Bank Boost Financing to Business
11. ↑ EBRD and Banca Intesa Beograd boost financing to businesses in Serbia
12. ↑ 2007 Annual Report
13. ↑ 2008 Annual Report
14. ↑ 2009 Annual Report
15. ↑ 2009 Interim Report
16. ↑ 2010 Interim Report
17. ↑ Intesa Sanpaolo 2010 4th Quarter Results (201103-15).
18. ↑ Intesa Sanpaolo 2011 1st Quarter Results (2011-05-13).
19. ↑ The Global 2000 2008
20. ↑ The Global 2000 2009
21. ↑ The Global 2000 2010
22. ↑ Forbes 2011 List (April 2011).
23. ↑ New Rules For Italian Covered Bonds
24. ↑ Italian Stocks (2010-09-13).
25. ↑ Societe Generale 2009 Annual Report
26. ↑ Unicredit Group Consolidated Results for the First Half of 2010
27. ↑ Unicredit Group 2009 Annual Results
28. ↑ ICBC 2009 Annual Results
29. ↑ Industrial and Commercial bank of China 2010 Interim Report
30. ↑ Intesa Sanpaolo 2009 Annual Report
31. ↑ Intesa Sanpaolo 2010 Interim Report
32. ↑ Credit Agricole 2010 Half Year Review
33. ↑ 2010 Global 2000