Still-strong NII, higher fees set to drive Q1 earnings at UniCredit, Intesa

Italy's biggest banks are expected to report a robust set of first-quarter earnings, underpinned by still-strong net interest income and a slightly improved fees and commissions trend.

High levels of net interest income (NII), driven by higher central bank interest rates, drove strong profits at Italy's banks in 2023, and although lending revenues are starting to wane, they are still set to remain high by historical standards. NII is the difference between interest revenue and interest expenses.

Analysts at JPMorgan see a quarterly NII decrease at UniCredit SpA of 2% and at Intesa Sanpaolo SpA of 3%, but they expect both banks to raise their NII guidance for the full year to more than €13.5 billion for UniCredit and above €15 billion for Intesa. The projections are broadly in line with current S&P Capital IQ consensus estimates.

JPMorgan analysts also expect fees and commissions income to improve slightly year over year — by 2% for Intesa and by 0.6% for UniCredit. Fee trends are expected to be more encouraging despite the year-ago comparison base that still included fees on current accounts for negative rates until April. Financing fee trends are projected to be challenged by sluggish volumes, but investment fees and transactional fees are seen by JPMorgan as a bit stronger year over year.

First-quarter non-interest/fee income is estimated to reach €1.9 billion at UniCredit and €2.2 billion at Intesa, according to S&P Capital IQ consensus estimates.

Banks' cost of risk — a key credit risk metric — is seasonally low in the first quarter and is projected to be at 27 basis points for Intesa and 11 bps for UniCredit. This is still higher than the extremely low levels in the same period in 2023, JPMorgan analysts said.

Italian banks have enjoyed stock price increases lately, with UniCredit emerging as the biggest gainer among big European banks in the first quarter with a share price growth of 40.5%.

Like for most other banks, investors need to brace for UniCredit entering a more tempered stage of the earnings cycle as NII peaks, analysts at UBS said. UniCredit's excess capital of €10 billion is seen as a key upside earnings risk, and it is likely to use this through a combination of incremental buybacks over a multiyear time frame and/or inorganic growth, they added.

As for Intesa, while it is not sitting on excess capital like UniCredit, its organic capital generation should remain sound at more than 250 bps per annum, which will allow it to distribute the lion's share of its annual profits and absorb 50 bps to 55 bps of Basel IV impact, making it one of the most reliable "capital returners," the UBS analysts wrote. They also expect the bank to meet its full-year guidance of profit exceeding €8 billion, which is in line with S&P Capital IQ consensus estimates.

Intesa is due to report its first-quarter earnings on May 3, and UniCredit on May 7.

– Access aggregate financial highlights for Italian banks on S&P Capital IQ Pro. – Compare banks using the Peer Analysis template on S&P Capital IQ Pro.