MILAN, Feb 3 (Reuters) - Italy's biggest bank Intesa Sanpaolo (ISP.MI) slashed its assets at the end of last year to boost its capital, raising doubts over future profits despite beating forecasts for the quarter.
Shares in Intesa fell by as much as 4% after the results, despite it saying a 29 billion euro ($32 billion) quarterly drop in risk-weighted assets would not harm future profitability.
The bank also set a 2023 net profit target of more than 5.5 billion euros, up sharply from 4.4 billion euros in 2022 when it bore costs to cut its Russia exposure close to zero.
By ridding itself of assets that absorbed too much capital in relation to their returns, Intesa said it had boosted its core capital ratio to 13.5%, from 12.4% at the end of September.
That takes into account 3 billion euros of cash dividends from 2022 results and a second 1.7 billion euro share buyback Intesa had put on hold due to economic uncertainty.
Intesa has rushed to cut risks on its balance sheet to offset a regulatory tightening. It now expects its core capital at around 13% at the end of this year and higher afterwards, in line with its target of keeping it above 12%, before any further buybacks which it will evaluate on a yearly basis.
"The outlook for fully-loaded CET1 (Common Equity Tier 1) has also been upgraded ... which may support market expectations that future buybacks will be forthcoming," Jefferies analysts said in a note to investors.
Rival Italian banking heavyweight UniCredit (CRDI.MI) sent its shares soaring 12% when it reported earnings this week, promising to buy back 3.34 billion euros worth of its own shares, in addition to 1.9 billion euro cash dividends.
Like its competitors, Intesa's earnings were boosted by rising interest rates and it posted a fourth quarter profit of 1.07 billion euros , well above an 873 million euro estimate in an analysts' poll compiled by Reuters.
But there were questions about sustaining this.
"However ... there will still be questions about any potential Profit&Loss consequences and clarity on expected regulatory headwinds going forward," Jefferies added.
Intesa's revenue was 5.67 billion euros, versus a 5.46 billion euro analyst forecast, thanks to a 28% quarterly jump in net interest margin (NIM), which measures profits from the gap in interest rates banks charge and those they pay on deposits.
With deposit rates slower to rise than the cost of loans, European banks are currently enjoying a NIM sweet spot.
Intesa said its interest margin rose 57% year-on-year and that it would add 12 billion euros to its 2023 earnings, after the European Central Bank lifted its key rate to a 15-year high.
