Intesa Sanpaolo (MIL:ISP), an Italian retail and commercial bank, was the top contributor to performance over the past 12 months. Intesa’s share price has rebounded as fears over Italy’s banking system and government have subsided. During the period of concern a few years ago, the share price of Intesa plummeted and it was a major detractor from performance. However, we were patient and added to our position, and our shareholders have benefited from the turnaround. This example illustrates why we often increase our holdings in quality companies whose stock prices suffer as a result of short-term fears. During the past 12 months, investors reacted positively to Intesa’s impressive revenue growth numbers in spite of challenging headwinds: Italian GDP has been static and banking penetration remains low, while the household savings rate remains high. Management has announced additional returns of capital to shareholders in 2015 via an increased dividend, resulting in a payout ratio in excess of 70%. Even with this return of capital to shareholders, Intesa should be over-capitalized compared with Basel III requirements, leaving the door open for additional capital returns and merger and acquisition opportunities. Additionally, management plans to increase investments in fee-based businesses, including asset management and insurance, and to exit non-core businesses and investments.
From David Herro (Trades, Portfolio)'s Q3 Oakmark International Fund commentary.
