ISNPY - Intesa Sanpaolo: A Good Bank In A Bad Macro Picture

2024-04-18 06:12:52 ET

Summary

• Intesa Sanpaolo is a well-managed Italian bank with strong financial performance in 2023.
• Investing in the bank at this time may be risky due to the potential decrease in interest rates by the ECB and macroeconomic challenges in Italy and Europe.
• The bank's success is largely due to its position in the unique characteristics of the Italian market, but competition and changing market dynamics pose threats to its future performance.
• I recommend to hold if you have this bank in your portfolio, because of its 9% yield. Avoid this stock otherwise.

Thesis: Intesa is well managed, but the ECB is on the brink of Pivot

Intesa Sanpaolo ( OTCPK:ISNPY ) is a well-managed Italian bank. In 2023 , its management increased yearly net profit by 76% and earnings per share ((EPS)) by 80%. The bank also boasts a historically low amount of non-performing loans on its balance sheet. Thanks to its strong position in the Italian market, Intesa Sanpaolo has thrived in the recent high interest rate environment. Its "secret sauce" lies in earning a 4-5% risk-free return on customer deposits while passing minimal benefits back to the customers.

However, investing in Intesa Sanpaolo stock at this moment may mean buying at peak valuations. The ECB has recently signaled that they are likely to decrease interest rates at the next opportunity in June. Latest readings show that EU inflation is just above the 2% target , and countries such as Italy are already well below that target. Given the weak economic outlook in Europe, a return to low or near-zero interest rates seems likely in the short to mid term. This shift could undermine the "secret sauce" behind Intesa Sanpaolo's impressive returns in recent years....

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