March 3, 2020 / 12:00 PM / a month ago

UPDATE 2-Banco BPM sets ambitious targets betting on limited coronavirus shock

* Plan’s targets valid in “V-shaped” scenario

* Targets 770 mln euros net profit in 2023 driven by fees

* Happy to join in M&A but no response to Intesa/UBI planned

* Shares down 8% (Adds comments from conference call, shares)

By Andrea Mandala

MILAN, March 3 (Reuters) - Banco BPM is counting on fees to drive profits higher and boost dividends under a new strategic plan which Italy’s third-largest bank said could weather a limited shock from the coronavirus outbreak.

The bank announced the plan as Italy faces one of the worst flare-ups of the virus outside China, which is expected to have tipped the country into a recession after infecting more than 2,500 people and killing 79 people in less than two weeks.

Banco BPM said that while the plan was based on macroeconomic forecasts pre-dating the virus emergency, its main targets remained valid also in a so-called “V-shaped” scenario, with a slight economic contraction only in 2020.

CEO Giuseppe Castagna said the bank had been running several different scenarios in the past few days to ensure the plan was credible.

“But also our fantasy has a limit,” he told analysts.

“We’ve decided to include what is now considered the most likely economic scenario, with an impact in 2020 and a rebound from 2021,” he added.

Banco BPM, created in 2017 by the merger of two smaller cooperative lenders, has its base in the Lombardy and Veneto regions, which are Italy’s industrial heartland and the epicentre of the virus outbreak.

The bank said it was setting up a crisis committee to deal with the emergency and ensure normal operations and ongoing support to its clients. Sources said on Monday the bank was also setting up new crisis facilities.

A clampdown enforced by the government to curb contagion is hitting companies which are facing disruptions in supply chains and distribution, staff shortages and a drop in demand.

Banco BPM said it was experiencing only a limited reduction in activity.

After announcing in February it would pay its first dividend since its creation on last year’s results, Banco BPM said it was raising its average dividend payout to more than 40% of profits and would pay at least 800 million euros ($892 million) in cash dividends to investors through 2023.

Like rivals grappling with negative interest rates, Banco BPM said it would bet on a 5% yearly rise in fees to more than offset an expected 0.9% annual drop in income from lending in the next four years.

Falling loan-loss charges after a restructuring will also help to drive profit to 770 million euros in 2023 from 649 million in 2019.

Banco BPM shares plunged 8% after the plan was published, underperforming a 2% drop in Italian banks.

Analysts said the fee growth target looked ambitious and the economic background was too uncertain.

Costs are seen little changed despite 1,100 staff cuts and the closure of 200 branches, with 600 million euro additional technology spending.

The bank forecast a core capital ratio of 12.5% in 2023 after a two percentage point hit from regulatory changes which it plans to offset with 1 billion euros in property disposals and sales of other non-core assets.

Castagna ruled out any countermoves after Intesa Sanpaolo’s unsolicited bid for smaller rival UBI, which if successful would create an even stronger competitor on Banco’s doorstep.

However, he said Banco BPM would be happy to join a consolidation process in the sector with a preference for tie-ups with rivals of similar size.

$1 = 0.8970 euros Reporting by Andrea Mandalà; editing by Valentina Za and Jane Merriman

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