MILAN, Feb 3 (Reuters) - Italy's biggest bank, Intesa Sanpaolo (ISP.MI), slashed its assets by more than expected at the end of last year to fend off regulatory hits to its capital reserves and gave a conservative profit estimate for 2023, despite a strong fourth quarter.
Shares in Intesa closed down 3%, with analysts saying its 2023 net profit target of more than 5.5 billion euros fell short of market expectations, despite being sharply higher than 4.4 billion euros in 2022 when Intesa bore costs to cut its Russia exposure close to zero.
"I don't like this approach of giving a fantastic outlook and creating expectations just for the sake of a short-term increase to the share price," Chief Executive Officer Carlo Messina told analysts.
"We look at the medium-to-long term as usual. I'm here to stay."
Intesa will see how much more the European Central Bank raises rates before fine-tuning its profit guidance, he said.
Intesa cut its risk-weighted assets by 29 billion euros in the fourth quarter via disposals and so-called synthetic securitisation deals to offset an expected drop in its core capital ratio in early 2023.
The ratio was set to fall because the bank revised the models it uses to weight risks on large corporate loans to anticipate future regulatory changes.
Intesa in November gave guidance for a 45-basis-point hit to its core capital ratio from the new risk models, but the ECB's feedback led it to raise the anticipated hit to 70 basis points.
To replace part of the shed assets, Intesa bought some 10 billion euros in government bonds - which have zero risk weights - in early 2023.
By ridding itself of assets that absorbed too much capital in relation to their returns, Intesa boosted its core capital ratio to 13.5%, from 12.4% at the end of September.
Those levels take into account 3 billion euros of cash dividends from 2022 results and a second 1.7 billion euro share buyback Intesa put on hold due to economic uncertainty.
Intesa said it expected its core capital ratio 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 (the core capital ratio) has also been upgraded ... which may support market expectations that future buybacks will be forthcoming," Jefferies said in a note.
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 stock, in addition to paying 1.9 billion euro in 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 a Reuters analyst poll.
Revenue totalled 5.67 billion euros, versus a 5.46 billion euro analyst forecast, thanks to a 28% quarterly jump in its 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 NIM rose 57% year-on-year and that it would add 12 billion euros to its 2023 earnings, after the ECB this week lifted its key rate to a 15-year high.