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SNS: Q3 profit, but crisis will constrain progress

SNS Q3 net profit came in at EUR42m, up 45% qoq. Property Finance loss continued as expected, at EUR69m (only marginally higher than the EUR61m loss in Q2) but the group increase qoq was driven by better core activities, notably in Insurance (Reaal) but this was driven by various gains in the Life business including the high net unrealised gain on its interest rate hedges of EUR72m. Non-life premium and investment income higher yoy. Banking income was EUR50m down fro EUR60m in Q2 on the GGB impairment, while core income held up but impairments on retail loans are increasing.

Total GIIPS exposure EUR1.4bn down from EUR1.7bn as at Q2. Greece is pretty negligible now while Italy makes up bulk of exposure at EUR895m. But sov exposure is not the concern for SNS. It also incidentally reduced exposure to France by EUR500m to EUR1.8bn.

Continuing the hard work of bringing that PF portfolio down, a reduction of EUR200m in Q3. Outstanding commitments stand a EUR5.8bn. NPL ratio an uncomfortable 30% (27% in Q2) but this was partly due to the decline in size of portfolio. Coverage stable CT1 ratio 8.6% (8.4% Q2). This should be managed up as more capital is released. But insurance solvency ratio lower at 185% (226% end Q2) due to widening credit and equity markets. In October this is back up to 195%. Importantly double leverage falling to 112.6% from 114.7% which is positive for ratings. They must keep this under 120% to protect ratings.

Analysts expect Q4 to be difficult. Cautious outlook, evidently recognizing that asset values could be impacted if this crisis continues. Having seen three quarters of relative stability is comforting that management are steering this business through the headwinds, as well as can be expected.