Fools' rally?

15 May 2003

Firstquarter earnings were better than expected. But strip out trading gains and the picture is less pretty. Even so, the sector continues to rise. Investors in some of the riskier banks may be riding a fools’ rally.

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Italian banks reported better than expected first quarter earnings, helped by trading gains and some signs that efforts to cut costs were bearing fruit.

In aggregate, revenues were flat, according to Merrill Lynch estaimtes. Costs dipped by 2% helped by a 10% drop in costs at Intesa. Provisons rose by 20%. And earnings dipped by 3.5%.

So far this year, the sector has outperformed other European banks by 10%. The biggest gains have been racked up by banks with the weakest balance sheets, such as Capitalia and BNL, which have outperformed by 20% and 40% each.

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