David Herro Comments on Intesa Sanpaolo

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Apr 09, 2015

Intesa Sanpaolo (MIL:ISP), an Italian retail and commercial bank, was the top contributor for the quarter, returning 16%. Intesa’s fiscal-year results showed core revenue growth of 7%. We found these results impressive for an Italian bank, given that Italian GDP hasn’t been growing, there is low banking penetration and the household savings rate is high. We believe Intesa’s performance reflects management’s focus on growing fee-based businesses. Asset quality continues to improve with non-performing loan formation at its lowest level since 2011, down 22% year-over-year, and management expects it to fall even further in 2015. Intesa’s balance sheet remains very strong with a leverage ratio around 7%, one of the best in Europe, and its liquidity far exceeds requirements. Management has also announced a dividend increase, which will return additional capital to shareholders in 2015. We believe Intesa has a strong position and will continue to provide value for our shareholders.

From David Herro (Trades, Portfolio)'s Oakmark International Fund 1Q 2015 Letter.