Mediobanca net profit down 73% on Telco, loan losses

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Telecom Italia parent reported €1 billion loss on nine months ended 31 January. Italian merchant bank Mediobanca SpA Wednesday reported a 73% drop in net profit for the fiscal third quarter, hit by a big increase in impairments, including a write-down on its Telco stake, but it said the worst of the losses are behind it.

Mediobanca said net profit stood at EUR41.5 million for the quarter ended March 31. The result is above the EUR20 million forecast in a poll compiled by FactSet and Dow Jones Newswires. The bank reported a net profit of EUR156 million for the corresponding period of 2011.
Provisions were sharply higher due to an impairment of the bank’s Telco stake, which recently posted a EUR1 billion loss for the nine-month period ended Jan. 31. The provision linked to Telco’s impairment was slightly more than EUR113 million.
Telco is the holding company that owns 22.4% of Telecom Italia SpA. Mediobanca also wrote down its Greek sovereign debt holdings by EUR18.3 million. 
“Most of write-downs are behind us. The bank can start to consolidate profits from next quarter onward,” Chief Executive Alberto Nagel said. 
The deteriorating macroeconomic environment took its toll on loan-loss provisions, which stood at EUR114.5 million for the fiscal third quarter, up from EUR102 million a year earlier. Net trading income rose to EUR133.1 million from EUR74.3 million. The bank benefited from the rally in sovereign debt, pushed by the European Central Bank Longer-Term Refinancing Operations, which gave more than EUR1 trillion in cheap loans to euro-zone banks.
“A large part of the LTRO money was spent on Italian government bonds, especially two-year ones,” CEO Nagel said. He added that the bank didn’t buy Italian government bonds when yields were at their peak last year. Therefore, he said he didn’t expect those purchases to support net interest income.
Nagel also said he was more concerned about future quarters’ results than for the most recent ones, as he sees a possible increases in the cost of risk and cost of funding in the near term.”We are being selective in lending. It’s better to stay liquid,” he said.
Net interest income totaled EUR258.7 million, compared with EUR268.3 million a year earlier. Fees and commissions income rose to EUR151.2 million from EUR139.4 million. Based in Milan, Mediobanca’s fiscal year ends June 30.
Meanwhile, the bank also said Wednesday that its head offices were searched by the Italian tax police, as part of the investigation on Banca Monte dei Paschi into possible market manipulation stemming from loans linked to the lender’s 2007 acquisition of a smaller rival.
The bank said its offices were searched due to its position as “an informed actor on operations carried out by BMPS where Mediobanca had a technical role.”