Banca Generali Spa

Good afternoon, this is the Chorus Call Conference Operator. Welcome and thank you for joining the Banca Generalis 2021 Interim Results Conference Call. As a reminder, our participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Gian Maria Mosta, CEO and General Manager of Banca Generali.

Good afternoon and welcome to our first half conference call results. Let me start by saying that the first six months of this year were the best ever in terms of commercial results and financials. And starting from the commercial results, Both total assets and total inflows exceeded the target that we set for our three-year business plan. In particular, total assets exceeded €80 billion, with a growing penetration of assets under advisory, €6.8 billion, and assets under management, above €41 billion. And this is thanks to the fact that the financial advisory network is really in good shape, and it continues to grow steadily, both in terms of size and portfolio average. And you know that for us, portfolio average is a key indicator of the sustainability of our numbers. In terms of financial results, we decided to post a prudent provision of €80 million to protect our clients. And I will give you more details in the next slide. Despite this one-off, the net profit goes above €100 million. That is the best half ever for the bank. And focusing on the second quarter of this year, the reported net profit were at €54.7 million, with the recurring component at €46 million. That again is the best every quarter for the bank in terms of recurring components. And this is thanks basically to the business expansion and the very efficient operating leverage. Finally, the capital position is very solid, even after incorporating half a billion euros for dividends. And I'm sure you agree that the recent decision by the ECB, not to extend the recommendation, is very, very welcome. So now let's move on to slide 4 where you can find the details of the one-off provision. First of all, the need for this provision comes from a potential losses in the portfolios of our clients that could result from the specific investment in securitization in the health care receivable. Specifically, Banca Generale will launch in the next weeks a purchase offer to buy all the senior nodes of its securitization, which, as of today, have an outstanding amount of 478 million euro. Note, please, that the purchase offer doesn't include the other branches. mainly junior notes of the securitizations, amounting to 64 million, and that these junior notes are not held either by our clients or by the bank. So we are talking about senior notes only. The amount paid to our clients will be no lower than the initial investment of our client, less the repayments already made and the coupon already distributed. Moving on, on the assumption for these provisions and our very prudent assumption, we have conservatively allocated the sum of 80 million that is estimated as a difference between the fair value that we have worked out with the support of specialists, external specialists, so the fair value of the senior nodes and the price offered to clients and assuming that 100% of our clients will accept this offer. Why we decided to launch this purchase offer? For basically two main reasons, two specific reasons. The first one is because there are some critical issues emerging in the procedure for the recovery of these healthcare receivables, also related to the long pandemic situation. As you probably know, the so-called Save Italy Decree limited the ability to start or continue an enforced execution against local healthcare units. and limited also the possibility of negotiating the recovery of these receivables according to the planned timetables, including possible settlement. The second reason is because we carried out an analysis of the underlying of these portfolios of health care receivables with, as I already said, the support of external specialists which identified that the quality and the fair value of these receivables were lower than the one expected for part of the underlying. This analysis was run in consideration of our diligence duties toward our clients, of course, to better assess the impact of the pandemic, and also followed a servicer's notice highlighting a breach in investment guidelines of one of these securitizations. For these two reasons, although we acted only as a placement agent and considered that the notes were proposed only to professional clients, we decided to undertake this commitment to fully protect our clients and strengthen our trust-based relationship with them. Clearly, and be sure that we are also carrying out an analysis to understand whether there has been any improper behavior by those who manage this securitization, and thereafter we will assess whether and to what extent to take any measure in respect of this. The purchase of these senior notes will have negligible impact on the risk weighted assets and on the capital ratio of the bank. And the impact will be limited also on the return of the banking book and it will be in the range of 2-3 million for this year. And this negative impact, small negative impact on the net interest income will be, of course, more than balanced by trading gains from selling financial and corporate bonds to mitigate the risk-weighted asset. Last, in order to manage the purchased notes, we have appointed a specialized asset manager among the best in the market with very strong competencies in this field. The expected return is in the range of 2-4%. And considered from an accounting point of view, the notes will be posted at fair value. And the return of these notes can be recognized in the financial statements under trading gains only after the repayment of the capital invested. So not pro rata temporis. So basically, we decided to do a very prudent provision for a specific event that for two main reasons implied a potential reputational risk with our client. And for this reason, we decided to launch this purchase offer. And from my point of view, this is the best way to manage this situation, and I do not see any further impact and spillover on the clients and on the numbers of the bank. Slide five. is our user representation of a simplified P&L. And for the sake of time, I will not comment it. While I would like to comment page, slide six, where we can see the breakdown of our net profit. So first of all, as you can see, the acceleration of the recurring components in the first half of this year is very solid. 83.2 million, means 23% higher on a year-on-year basis. And, you know, this is a confirmation of the commitment of the bank that we decided during our investor day in 2018 to focus on sustainable growth of the core components of our P&L. If you look at the graph on the right of page 6, You can see the annual results and you know that in less than four years we doubled our recurring profits and we are positive for the full year results for this year and beyond. So I do really expect a very good year summing up first half and second half results. The business is really, really solid. Next page, and in the next two pages, so slide seven and slide eight, we focus on the build-up of both no recurring and recurring profits. So let's start from slide seven, where there is a focus on no recurring items. Just to sum up, I would say two positives, and one negative on the positive side we have of course the one-off record of performance fees driven by of course favorable market conditions plus a second positive comes from a positive tax contribution of 13 million basically linked to the realignment of the goodwill and other intangible assets in accordance with the 2021 budget law. On the negative side, you can see the one-off prudent provision that we already introduced that is now IMAP protecting our clients. The combined results of positives and negatives is an increase of more than 40 million year-on-year. So I do consider the provision a one-off and is more than offset and one-off of the performance that for the first half of this year were really, really impressive. Page, slide 8, you can see the breakdown of the recurring profits where in the Operating items, the quality of the operating leverage is pretty clear, with net fees up by 34.2 million and costs up only by 5 million. On the right, you see the non-operating items and the impact of these non-operating is around 14 million. mainly for higher provision linked to the FA loyalty plan. And you know that the loyalty plan is driven by the commercial results. So now, from page 10, we start with our usual representation of our P&L line by line. We start with the net financial income. Net financial income in the first half closed at 55.3 with an higher contribution of the trading income. In the second quarter was at 8.4 million euro. The net interest income yield is lower than in the first quarter. basically for the increasing liquidity in the portfolio. You can see it on the right of the page where you have the trend of the total assets and the trend of the interest-bearing assets with an increase from 14 to 15.7 billion and the negative impact on loans to banks with a yield of minus 0.22%. Moving on, page 11. This is the greatest result, in my opinion. So gross recurring fees up by 18%, with positive contribution of both asset management fees and other fees. And in terms of margins, let's say there are some round effects, but let's say that it's pretty stable in the quarter. and then on the right you have the variable fees. Moving on, page 12, we have the quarterly trend of management fees. On year-on-year basis, the half result is pretty significant, plus 17%, but also the quarterly trend is very solid, with the second quarter of this year at 193.1 million euros. This implies, considering the managed assets, a margin of 1.38, and just to remind that this 1.38 included also next-dump and valuation. and we confirm the target 1.38, 1.42 for the full year and consider these numbers don't include the new pricing structure for the lax team that we will see later. Page 1.3, there is the focus on gross fees. Numbers are pretty solid also in this case. you see that the margins is stable at 0.18, with a growing contribution on year-on-year terms of both banking fees and entry fees. On the right, you can see the breakdown between new revenue streams that continue to grow to double-digit, at a double-digit rate, And this is basically driven by all the components of the new revenue engine. But it's also impressive the acceleration in the more traditional fees. Part of this increase is linked to the market. Think of, for example, the front fees. Part is the consequence of a price optimization in the current accounts of our clients. Next page, page 1.4, there is the focus on fee expenses. Also here, positive numbers. Total payout ratio closed at 52.7%, so a further reduction on a year-on-year basis. This is basically driven by a lower cost of growth. And this is basically, they said the overall amortization costs are the same, but the assets are increasing, so in relative terms, it accounts less and less. While payout to third parties is stable. And as we already mentioned, here the target is to stay close or below to 6%. Page 15, there is the focus on operating costs, overall plus 2.7%, where on the right you see the focus on the core operating costs, up 4.6%, which is basically driven by increasing the potential cost of the variable components of the salaries for the good result of the bank. There is a linear increase in amortization as expected and some acceleration in the investments due to the fact that the results are very solid. Page 16, operating costs, the ratios. Here the numbers are very impressive and are of course linked to an exceptional half. first half, the operating cost on total assets is lower than 0.3. It was a sort of threshold. And cost income continues to go down, both in terms of reported cost income as well as adjusted cost income. Page 17, capital ratios. You know we have already allocated 1.25% euro per share for this year and if you sum this 1.25 to the previous 3.3 we have exceeded 500 million euro of dividend and we are ready to pay the greatest part as soon as October. So we confirm the intention to pay 2.7 in October and 0.6 in January and of course the part of dividend for this year and I'm sure it won't be on the floor of 1.25 after the formal approval of AGM. In terms of leverage ratio and liquidity ratio, Let's say that we continue to be well above all the limits required by regulators. So just to sum up, I think that the numbers are the result of a very sound performance of the commercial, of the financial advisory network. It's a very positive momentum for the industry. It's an impressive momentum, positive momentum for us. The brand matters. Our proposition in private banking is working very well. So I'm very confident that in particular core recurring net profit will increase even further in the second half of the year. Also because also July started very well. Moving on, on the net inflows, assets and recruiting. So page 1.9, we already said we exceeded 80.4 billion euro of total assets. What matters most is the percentage of managed solutions on total assets. We are at 51.3% thanks to the contribution of all product initiatives. in-house funds, third-party funds, financial wrappers and insurance wrappers. And as you can see, the stock of traditional life policies is decreasing over time as we announced, already announced during the previous conference call. We are going to use this product just practically in case of volatility in the market and in case of opportunity to accelerate inflows. Page 2.0 and 2.1, breakdown of total net inflows. Slide 20 is about the quality, and you see that the acceleration on year-on-year basis is basically driven by the acceleration in managed solution, almost doubled on year-on-year basis. Page 2.1, there is the contribution in terms of acquisition channel. You know we started, we resumed the recruitment activity. Pretty sound, it's working very well. 75 new colleagues in the first half. Despite this refocus on recruitment, the activity of the existing Salesforce is even stronger than in the past. You can see it on the left graph of the page, 21. where the contribution of the existing network is at 2.8 billion euro or 0.6 billion higher than the last year page 22 the the constant growth of our financial advisory network in terms of numbers so now we have 2139 colleagues new colleagues pretty impressive the breakdown on the right in terms of clusters where the wealth managers, so financial advisors with more than 50 million exceeded the 340 units with a portfolio average above 90 million euro. On the bottom of this page, you remember we launched the project, the team project during our investor day. This is a sort of recap of the numbers achieved as of today. 114 financial advisory teams is almost 10% of total assets and the portfolio average per team is about 80 million euro. This is just to remind you that the kind of team are both vertical teams, so senior with junior, and horizontal teams with complementarity of capabilities. Page 23, just to focus on the constant growth of the portfolio average, where the gap compared to the portfolio average of the market is continuing to grow. So here we can only say that the model is working very well, very solid, and also the recruitment activity is going very well. So for this reason, we decided to increase the target for net inflows in the range of 5.56 billion, probably closer to the upper band of the range. The last few slides are on our Luxembourg platform. We deliver on promises. The new offer is live and here you have some numbers and they say the main drivers of this new offer. Page 25, you see the evolution of assets. We exceeded 20 billion. On the right, you see concentration that were well spread across different strategies and different asset managers. To cover 80% of the assets, you need 40% of the strategies. So it's definitely less concentrated than the traditional Gini benchmark. And this is true also in terms of external asset managers. To achieve 80% of assets, you need 40% of the external asset managers. Page 26, just to say that we are performing also very well in terms of absolute performance for our clients. And page 27, just to say that the numbers on the retail distribution of these products is gaining momentum, is working pretty well. We are close to achieve 10 billion euros, but on the right you can see that it's working very well without any specific initiative to push. In terms of the ratio Total retail products, in total in-house retail products, on total assets, we are constant at 12% of the total assets. And on the graph on the right bottom of the page, you see the mix in the retail funds offered, where third-party funds account for 56%. So also here there is some room to be more and more efficient. So page 2.8 and 2.9 is a recap of the new features and new performance mechanism of our platform in Luxembourg. On page 2.8 you see that we are strengthening our equity offer and our thematic offer. We are strengthening the ESG proposition, not only in equity, but also in bonds, flexible and alternative solutions. And we introduced for the first time two new families of products, what we call trackers of flagship premium asset management funds. This is, of course, the goal is pretty clear to internalize some of the assets distributed directly to our clients. And second, some cash parking initiatives where the goal is to close zero to zero performance, but just zero plus, zero plus. And because there is a growing request also for this kind of solutions. Page 29, there is a sum up of the two new performance fees calculation mechanisms, starting from LUXIM. The only change in the LUXIM is about the reference period, that is no more on year-on-year basis, but is from inception, but we maintain the daily crystallization. And for the BG selection, we introduce a high on high mechanism. So at the end of the year, we work out the performance. The reference period is five years. And in this case, the crystallization is on yearly basis. So we differentiate the approach also to have some diversification inside our Luxembourg platform. As I mentioned in the previous conference call, the new mechanism will be applied as soon as new products are launched. And for the existing products, we will introduce the new mechanism starting from January the 1st and with the reset of the historical series. So for the first year, the impact will be zero. And with this introduction of new performance fee mechanism, I confirm we have also optimized the price in terms of ongoing charge of specific initiatives to offset 20, 30 million euro of potential reduction in the medium-long term of the performance fee. Page 3.0, which is just of the target of our three-year business plan. You know that we have been working for the new business plan for the last month, where, of course, the key drivers will be the same, asset growth, sustainable profitability, and shareholders remuneration. And I do see an opportunity to distribute a very impressive amount cash as I already said we already allocated half billion euro and I'm sure that there is room to increase even further this cash due to the results in the expectation for the second half of the year so thank you and now I will end over for the Q&A session excuse me this is the classical conference operator

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Domenico Santoro of HSBC. Please go ahead.

Hello. Hi. Good afternoon. Thanks for the presentation, the call, and all the details. Just a little bit on this extraordinary provision on the senior notes of the securitization. So if my understanding is correct, and maybe then we go on the business. First of all, on this securitization, my understanding is that you will repurchase the notes that are held by clients at the moment. So clients, they won't basically take any losses. I'm not sure whether you're going to recognize them, the time value, of course, for the investments or the money. And you will repurchase the notes. Can you tell us what is the residual value of these notes based on the appraisal that you've just done in order to understand whether there is any risk at this point on your balance sheet rather than the client's? I understand you mentioned during the call there was a violation of selling policies across the network or branch. Now, you don't expect any headwinds on your business, any reputational issues. Probably we touched already based on this a couple of calls ago when there was the famous article on DFT. But the offer is going to start in September, and probably you don't know yet how the clients will react to this. Can you tell us, if you have any numbers on hand, how much is the money invested, the total money in terms of the clients that are going to be involved in this offer? offer. And then a very small question on the business is that the repricing on the asset under management, if I remember correctly, was 25, 30 million sort of run rate in terms of additional fees. Given that it started already in July, if I'm not wrong, I just wonder how much we should include in the third quarter a quarter of this 25, 30 million or a smaller portion, just some guidance would be helpful. Thank you.

Thank you, Domenico. We start from the second question and then the first. The repricing started on the 20th of July, so it will account for two months in the third quarter and the full quarter for the last one. In terms of headwinds with clients I'm sure I don't see any risk but probably some strengthening in the relationship because we have some examples in the past that when the bank decides to edge any potential losses the reaction of clients and specifically of financial advisors is very positive and strong and consider that we already approach top managers to fully understand the potential reactions. And again, I'm positive that probably it's not about head wings but it's about tail wings because we are acting to protect our clients. And so the numbers of the clients are important clients for the bank. It's about between 4 and 5 billion euro of assets of our clients. And I'm sure being professional clients and being clients of our top financial advisor, they know that we are doing something exceptional. It's the first time ever for the bank and is linked to the fact that in the investment guidance, we saw the quality and fair value of the underline different from what we expected. So it's not about me selling our financial advisors, but it's driven by, in my opinion, a different underline compared to the one we should have invested, the clients should have invested. For the details in numbers, I will hand over to Tomas.

Thank you Gian Maria. Yes, I think that to answer to the question of Domenico, we have to say that we are going to buy the notes from clients at a price which will be enough because we don't want the clients to have a call in any losses. it will be something near to nominal, a little bit lower, but because we have already repaid the clients for part of the principal and also they have gained the yield during the last two or three years. At the same time we did a very deep due diligence on the underlying with also one of dedicated specific player which is very expert in terms of healthcare receivable. The due diligence was very analytical. It followed a bottom-up approach, covered almost the single invoices which are underlying the notes, which are more than 30,000, and so verifying the history and every single invoice. So we think that our fair value is very solid, the evaluation that we did. So that's why we think that the provision that we put in the P&L is very conservative. We don't expect to have significant variation of this value over time. So it's really a one-off, and we think that we have solved the problem today.

Yes, just to complete what Tommaso said, we asked an external specialist a liquidation value and this liquidation value confirms the quality of the file price and they say that the provident provision we decided to make. And second, the external asset manager that will manage these portfolios and develop a business plan. And I'm more confident to recover part of this provision than to have a further loss. So I consider this provision a very prudent one.

So just to understand... Please, please, go ahead. Yes, follow-up question, please. And we cannot hear you.

Hello? Yeah. Can you hear me now? Yeah, now we can. Yeah, sorry, just a follow-up on this. The $80 million includes both the reimbursement, let's put it this way, the record chase of the notes, and also some provision that you might have already taken on these notes, given that the fair value set, which you have done the due diligence. Can you just mention how much we talk about in terms of receipt of value for these notes?

Well, I mean, the provision is the difference between the price that we pay to the clients and the fair value that we estimated of the notes. So let's say that the fair value of the notes is around 80% of the senior notes, of the principal amount of the senior notes outstanding today. which are in absolute terms around 380 million. And this is the difference. And overall, the assets which are in the notes, so they are amounts to almost 600 million. But of course, there is also the other tranches, Mezzanine and Junior, that takes the first part of the losses.

Thank you very much.

The next question is from Gianluca Ferrari of Mediobanca. Please go ahead.

Yes, good afternoon, everyone. I'm sorry to come back to this situation for a second. I was wondering if this book is partially related to what the Financial Times mentioned last year. So if we are talking about, in part, the same kind of securitization, And second, if the structure of that book is the same of that related to the FT article. Also because I understood you mentioned during the call that you might evaluate some actions against who worked to set up these books. Point number two. is I see on page three that you are calculating capital ratios assuming the allocation to dividends of 80% of first-half profits. Given that this is going to be probably a record year for you, should we take the 80% payout as a kind of guidance? And if so, will it be possible to make this dividend sustainable in the future? And the third and final question is a clarification on the cost of growth that was a bit lower in absolute terms when the inflows into managed assets were $2 billion compared to 1.4 last year. So advisors sold a lot of managed assets in these first half years. So I was expecting also higher bonuses to be paid or accrual for bonuses to be paid to advisors. So if you can explain to me what is the math behind this slight decline in the cost of growth. Thank you.

Thank you, Gianluca. Let's say that the Financial Times article was about a potential anti-money laundering issue. related to two vehicles that had already rembursed the client. Here is in terms, the issue is other securitization, always linked to healthcare receivables, and it's about the fair value and the quality of the underlying. And we know that, for example, the servicer, that is in charge of the control has strengthened the anti-money laundering control. In terms of payout, let's say that the guidance is always the same, the range 70-80%, and as you know, we are very focused on smoothing the dividend in absolute terms, and we introduced the two tranches tranches to use, performance fee also to be impactful also on the absolute dividend of the next year. And the mechanism will be almost the same. So we are not absorbing excess capital. We do want to remunerate our shareholders, but the decision to stay closer to 70 or 80 will be taken when we will be close to the AGM. On the payout ratio, this is really interesting because on one hand, of course, in percentage, the assets are growing very well. So in terms of relatives, the incidence, the percentage, the weight is lower. On the other one, consider that year after year, we are raising the bar for our financial advisors. So we are increasing their targets. So if five years ago to achieve the bonus you had to collect one million, now the target is two million. So raising the bar and the targets of the financial advisor network provide a support in limiting and reducing the overall impact of the cost of growth. So the bank is growing, the targets are more and more challenged and must be the same for the financial advisors.

Very clear, thank you.

The next question is from Elena Perini of Intesa San Paolo.

Yes, good afternoon. I've got three questions actually. The first one is about your good cost control in the quarter. Can we expect an increase in costs lower than your initial guidance or what can be the delivers to keep costs under control in the coming quarters? The second question is about the performance fees in July. If you can provide us with an approximate guidance or amount that you would expect as only a few days are lacking. And then the final question is about your CHAT-1 ratio at the end of June. As you mentioned that there was this seasonality effect that we know about the purchase of Treasury shares to serve the remuneration policies, but there was some higher capital absorption linked to temporary higher DPA for the one-off provision that you made. So I was wondering if you can give us an outlook for this final part of the year. Thank you very much.

Thank you. On the cost side, you know, the range in the core cost, 3-5%, is a good guidance, and we will be closer to five when numbers are strong, and we will be closer to three when the numbers will be less strong. So we want to accelerate the innovation, and so I feel to confirm the range three-five will be closer to five if numbers continue to be very solid. It's an acceleration of all the projects, and I do believe that it's really important to continue to invest. Performance fees in July, we are close to 10 million. Consider that the performance fee for the second part of the year won't be linear because we apply a sort of cap of 2% on single solutions. So if the performance fee related to a single fund exceeds 2%, we stop it. Just to be clear, I do not expect to have the same performance of the first half, and as a prudent approach, we set no more than other 10-15 million for the full year. For the CET1 ratio, I will hand over to Tommaso. Thank you.

Hi. Well, yes, there are two main effects on the seasonality. One is linked to the commitment to purchase our share to finance the incentives to the network, mainly. And the other point is linked to the DTA, which is linked to the provision that we put in the P&L. Let's say that the second point, both the first one and the second one, by the end of will be reabsorbed because, of course, when we buy the share, this effect is going to be reabsorbed in the TCR. At the same time, also the DTA is just because in the first half it's a provisional bond. But when we are going... When we have performed all the purchase by the clients, the difference will become a realized loss in terms of fiscal impact, so we won't have DTAs anymore. So our internal forecast is to stay in the range between 16.5% and 17% in terms of TCR by the end of the year.

Okay. Thank you very much.

Very clear. Thank you. The next question is from Giovanni Razzoli of Deutsche Bank.

Please go ahead.

Good afternoon to everybody. A couple of clarifications, again, on the 18 million euros of provision. I was wondering whether you can share with us also the number of clients that will be impacted by the buyback of those securities. And then a clarification on a comment that you made on a question before. You said that the fair value of the notes is clearly more or less 80% of the notional, but in the press release you mentioned that the notional is 480 million euros or so, which means that the market is 400 million euros and not 320 that you have mentioned. So if you can please reconcile This is my first question. The second question, I don't know if it applies or not, but can you share with us what would have been in the first half or in the second quarter the performance fees if the new pricing scheme were already in place since the end? I don't know whether you performed the back testing or not. And the very final question, which is not actually company-specific, but is more sector-specific, On the press, a few weeks ago, there was mentioned a possibility for the change in the fiscal regulation of investment income and other income. I was wondering whether this change in the treatment, fiscal treatment, were introduced, if this can have an impact on the appeal of insurance and financial wrappers at the industry level.

Thank you. Thank you. I start with the details of the security session. The senior notes account for 478 million euro. You have other tranches, mainly junior, for 64 million euro. and you have also accrued interest for other more or less 60 million euros. So the overall vehicle, the total asset of the SPV, of the sum of the securitization, is around 600 million euros. We decided to pay to the client a value no lower than their investment less than repayments and coupons. So the average price of the purchase will be around 95 point something. And with this number, no clients will have any losses. And the clients, on average, will be with an annual return in the range of 1-3%.

If I can just point out, I said that the provision is the difference between the value paid to the client, which is the 95-something percent, and the value that we gave the

the to the notes so the 80 million are the difference of these two numbers it is how it works okay and a number of clients number of clients consider you have two different kind of clients you have the clients who go directly with securitization is about 400 clients so we can manage one by one And then you have some clients involved indirectly because this securitization is inside some financial wrappers where the impact is very, very limited because the portfolio is very diversified. So if you focus on the 400, again, and you have more or less 300 financial advisors involved, we are talking about one two three four maximum clients per financial advisor so it's something that you can manage very well through the financial advisory network in terms of performance fee for the look sim and for the selection and tomaso has the details yes i think that for the look sim which is the major part of our

Our performance fee won't be any change with the new method, basically. With the selection, of course, we should wait the end of the year to crystallize the performance, but the accrued should be in the range of $37 million. So the impact should be very low.

On the performance fee, just to be even more clear, if you think of the new strategy, we haven't the historical series, so we start from zero for the new products. For the existing products, we will reset the historical series in January the 1st. So the first year will be even better than the current mechanism. In the second year, it will be almost the same. From the third year, you will start to have a sixth inception historical series and you will be the impact. So we do expect the impact in the medium term. We decided to optimize the prices to have an immediate impact, positive impact on the profitability of the bank. And so you have a sort of period in which you have the positives of the new prices and you don't have the negative of the new mechanism. But we are fully committed to work on recurring profits, also because we have a conservative view on the markets in the next quarters.

For the last question, I will hand over to Tommaso.

Of course, the fiscal reform, which is a study at the moment, could be possible to compensate capital gains and other and other income. Today it is possible to make this compensation only in the wrappers, both financial and insurance. So if this hypothesis goes on, it could be possible to do also in a simple dossier of administrative assets. Of course, this is not the only feature that likes to our clients which invest in insurance wrappers and financial wrappers. It's just one of the features. For example, for insurance wrappers, there are many other features which are very important. very important for them. And so we don't think that this change could have an impact in terms of volume or our capacity to collect, our client to invest in those products. So I think it also could be an opportunity for the administrative asset to find other ways to serve clients, to give them an opportunity to compensate plus and minus inside the also an administrative dossier.

Yeah, and on general terms, I do expect some incentive to investments in the long-term horizon. So the consideration is that probably there will be some special treatment on specific vehicles or specific solutions for pension goals, long-term investments. So I do see the same interest. On one hand, the interest of distributors and asset managers to invest the assets of our clients in the long term and from the regulators and institutions to invest part of the excess of liquidity in equity and more in general in the economy. So move this enormous cash amount into the economy. So I'm pretty sure that if there is a surprise, it will be a positive one.

Thank you.

The next question is from Angelici of Autonomous Research.

Good afternoon. Thanks for taking my questions. Just three questions on my side as well, please. First of all, on the securitization that you're buying back from clients, could you give us an idea of the amount of fees that you have generated on the sale of those healthcare receivables? over time just to get sort of a rough idea of what was the revenue that you have booked in previous quarters linked to that. Secondly, there has been some press speculation with regards to a sale of the Deutsche Bank financial advisor network in Italy, Finanza e Futuro. Do you have any appetite to look at it? Have you considered M&A in terms of sort of buying smaller financial advisor networks? And third question, you mentioned that you're introducing some track events on flagship strategies of some of your biggest partner asset manager providers. Could you give us a bit more details on how this works and are you paying a fee to replicate those strategies to those third-party asset managers? Thank you very much.

Thank you. First of all, in terms of securitization, we have offered this kind of solution in order to increase inflows, not to increase revenues. the overall profitability of this securitization is almost zero. It's just sold under advanced advisory and the average price applied to security, let's say illiquid products in general terms is around 0.3. So let's say that the impact on the overall revenues is negligible. And in terms of M&A, of course, we are always interested in considering any acceleration of the strategy to grow even farther, also through acquisition. But as I always say, if the price is right and if the business is, let's say, easy to integrate. And so at the moment... We are looking at different targets, but there isn't anything hot on the table, let's say. And again, the goal is to autofinance the acquisition. So I don't see any disruptive decision in M&A activity in the next months. Flagship strategy. Thank you for the question. Let's say that If you look at the assets of our asset managers distributed directly on the retail, you have some specific products very successful. In this case, we asked to the asset manager to have a sort of proxy or debt strategy, so to track debt strategy in an in-house fund, and we're going to pay between 20 and 30 basis points for the advice of this tracker strategy. In terms of overall profitability, of course, moving from direct distribution of third party to these trackers will be pretty significant on the revenues of that specific product. I do not expect to reduce significantly the assets of third parties, I do expect a sort of rebalancing.

The next question is from Alberto Villa of Intermonte.

Please go ahead.

Good afternoon. Three questions, if I may. The first one is back on the provision, but to ask you a more general question related to the illiquid assets. I was wondering if your appetite to distribute illiquid assets and your client's appetite will eventually have any impact from this kind of events, or if you think that in the future the penetration of illiquid assets out of the total of the clients' assets under management is going to grow as it has been the case in the last few quarters in general for the industry. And the second one is on the tax rate, if you can give us an idea of the normalized tax rate in the second quarter or in the first half, and if you envisage any change in the tax rate given the changes in the performance fees calculation and so on for the future. And also, again, on the tax rate, if there is any expectation that the discussions about the minimum global tax rate and so on could affect your business, I understand at this point it doesn't seem the case, but in general, if you expect tax rate in the future to be higher for your company, given the changing structure of the revenues generation and the potential changes in regulation as well. And finally, you mentioned strong July inflows. I don't know if you can give us a more precise target for the entire 2021 in terms of net inflows, specifically on managed assets. Thank you.

Thank you. So, starting from the appetite for illiquid assets or the strategy for illiquid assets. I don't see any significant changes. You know, first of all, we provide this solution in order to increase the diversification of the portfolio of our clients and specifically for professional or private clients. So, since it's just about diversification, it's not linked to higher profitability, I don't see the case. Of course, we will assess all the procedures and the responsibilities internally and externally, but I consider this event a sort of blip. In the last 20 years, we have already seen several problems with several products. This is the first time we decided to protect our clients just because a sum of situations. So you have the liquidity of the underlying, you have the pandemic, you have the quality of the underlying and the fair value missing the expectation and so forth. But let's say I do not see that the bank will change the approach to the portfolio. So this is basically driven by diversification. Since these products are not generating extra revenues. But in the case of a securitization, probably the remuneration and the revenues are at the minimum level. I do not see specific impact on the P&L, neither on the P&L nor on the ability to provide diversified solution to our clients. And on July inflows, July is very strong. I do see these inflows and the contribution also asset management products as a consequence of a very strong performance of the market. You know, there is some correlation effect, positive correlation effect. Due to the seasonality of August and September, due to a very conservative trend, let's say, view on the markets for the next, let's say, two, three quarters, we prefer to have an achievable target that is in the range 5.5, 6 billion euro. If things continue like today, as of today, we are, of course, closer to 6 than 5.5, and the mix should be in line with the previous six months. Also, July has a mix confirming the positive trend of asset management products for this year. In terms of tax, I hand over to Thomas.

Hi, Alberto. I think that we gave a medium-term guidance on the tax rate. We expect to stay above 20 percent in the range of 21 22 of course the first half has been affected by many extraordinary effects like uh from one end the provisions on the other end the the contribution of performance fees so and so in this in this quarter and this first half has been very low But I think that our guidance will be confirmed and we don't see also any impact in terms of taxation in our lax and for example profits linked to the new regulation that could be worldwide. So from this point of view, we can confirm our guidance. There is some volatility which is linked to the contribution of performance fees or other one-offs, but the guidance is confirmed.

Thank you.

The next question is from Filippo Prini of Kepler. Please go ahead.

Yes, good afternoon. One clarification on performance fee, new mechanism, and sorry for a couple of follow-up again on provision. On the new mechanism of performance fee, for Laxim, I see the point that the reference base for next year will be the price at the end of December this year. But given that the crystallization is on the daily basis, if the first day of trading is 2022, it will be above the price of December 31st, 2021. It will become the new reference base, so no more December 31st, but January 2nd, 3rd, and so on. On the provision, very briefly, the fund that the client received can be used whatever they want or must be, should be invested into Banca Generali product. And on the New assets, basically new lending portfolio to get on your balance sheet. Do you plan for the future CR some returns, given that they are commercial receivables versus Italian assets? So at the end, there will be the Italian state that will pay and should pay basically the principal. Thank you.

Thank you. I start from provision. Let's say that we have a business plan with a yield in the range of 2-4% starting from the fair value for the next five years. It won't be posted in the net interest margin, but in the trading gain. And it can be let's say, posted only once we have already repaid all the capital. So you have a sort of, let's say, J curve, let's say, limited J curve. So you have the fair value, you start to repay the investment, and then you can release the performance. In terms of performance fees, And we are finding the answer. I know that there is some restriction in the first weeks, I think one month, but I'm not sure. So I hope to give you the answer as soon as I receive the right one. If not, we will provide the answer after the call. And I don't remember if there was another question on the provision. Sorry, I lost it.

Yes, yes. If the money that the client will receive by the client also outside of the bank or they'll be asked to reinvest into other products of Banco Generali.

Let's say that I do expect the limited, very, very limited outflows. And I do expect reinvestments of the greatest part of these in other solutions. I don't see the case of outflows for these reasons. So they will be reinvested. So clients will reinvest hopefully in products with higher profitability, as I say. We will see. Okay. Thank you. You're welcome.

The next question is from Luigi Debelli.

Yes, good afternoon. Just some quick question on recurring business. On the NII and payout cost of the network, can you provide an indication for the next couple of quarters? On BG Saxo, could you give us an update on the platform, performance, trends, and new products expected to be launched? And on the other fees, new revenue stream, entry banking fees, what do you expect for the second half compared to the first half? Thank you.

Thank you. I start from BG Saxo and other revenue streams. What I'm seeing in the market is that due to low yield and low volatility, there is an impressive interest in structured products. and a lower interest in trading activity. So I do see for July, starting from June, so June, July, and probably August, higher results coming from structured products, and let's say not exciting numbers in terms of trading due to this low volatility, while I do see a sort of linear growth in advanced advisory. This is for the new revenue engines. For the more traditional, say, other fees, so for banking fees, I do see a sort of smooth linear behavior, while for the front fee, it depends from the volatility of the market and the performance of the clients. So it's difficult to project or to have a forecast of this contribution, of this revenue. But at the end of the day, the overall contribution of other fees will grow over time. And the last question was about...

We had a guidance which is basically confirmed that probably the impact of the purchase of the notes will be limited. Of course, as we said before, the yield that we expect is not going to be recognized per rata temporis. But the impact of the net interest income of 2021 will be very limited. So our guidance is between 2% and 4% below last year, and I think it will remain in the same range. In any case, they are a really negligible number in terms of total profitability compared with the total profitability of the bank.

Thank you very much.

As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Mr. Moss, there are no more questions registered at this time.

Okay, thank you. I have the answer for Filippo. Let's say that in the mechanism there is no limitation in working out the performance fee since the first day. Of course, this is an independent decision of the asset manager in Luxembourg. to apply a sort of smooth mechanism in the first days. It must be something sustainable. So I do believe that in case of volatility in the first days, the impact will be smooth to, of course, to provide the right performance fee to clients.

At the moment, we don't have other questions.

Okay. Thank you very much. Thank you very much for participating to our conference call. Have a nice day.