Banca Generali Spa

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the Banca Generali first half 2022 results conference call. As a reminder, all 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. Gianmaria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.

Okay, thank you. So, good afternoon and welcome to our first half results conference call. First of all, let me start by saying that the overall results are very resilient despite an extremely complex situation. On one hand, the commercial results are solid, with high volumes, but of course a more conservative mix, and on the other, financial results are geared by rising interest rates, a flexible business model, and pretty stable managed solutions margins. Considering this new economic and financial markets environment, We are adapting our approach to be flexible, but the overall feature in terms of guidelines and targets for our three-year business plan are confirmed. So now let's start from page four. Financial results and net profit. Net profit for the second quarter of the year closed at 63 million euro. Two main components, very strong recurring net profit at 54.7 million or 3% higher on Q&Q. And for an overall result for the first six months at 107.9%. If we focus on the second component, variable net profit, let's say that the contribution was very small, 8.3 for the second quarter, due basically to the market turmoil. Moving on to page number 5, we start seeing good news. First of all, net financial income. Net financial income in second quarter jumped to 40.3 million euro also in this case two components an increase in the trading gains thanks to portfolio optimization and very solid net interest income we closed the second quarter at 29.3 Why? Basically, we benefit from the pricing of the investment yield on the financial assets and from a one-off in the inflation linked securities. This one-off accounts for 2 million in terms of increase quarter on quarter. Looking at the margins, net interest income yield stood at 0.75%. It is pretty impressive the acceleration if you consider that at the end of last year we were at 0.48. So we say that the overall result in terms of the overall six months is a significant acceleration. Net interest income jumped to 51.8 and we are confident for the second half to close with a contribution higher than the first half. Moving on to total gross fees, we are at page 6. In this case, the second quarter result was marginally lower than the first quarter, so it closed at 234 million euro. And in slide number 6 you can see the Neji Global contribution of performance fee at 1.9 million. More interesting is going through the different components because you will see that some initiatives are very resilient to the market meltdown. In particular, page 7 you see management fees. The second quarter closed at 203.4, so just marginally lower to the first quarter. This is basically thanks to very resilient margins. The overall management fees margins closed at 1.42. Here you will see that this 1.42 is well supported by three initiatives. The first one, the overall effect of the price optimization over the last year. Second, the strong numbers on wrappers, more resilient than other asset management solutions to the crisis. And third, a profitable mix in the inflows of funds. For the other components of the gross fees page, Page 8. Here you have two different behaviors. If you look at the second quarter, the overall result is above 30 million, down 12%, with very positive contribution coming from, let's say, the other banking fees and advisory fees. because these are defined sort of ongoing revenues independent by the client initiatives. And then you see a lower contribution of the revenues directly impacted by the activity of the clients. In particular, the front fees were definitely lower due to the market situation, while structured and certificated provided a good contribution to the overall results are in line with the previous period. In terms of brokerage, volumes are in line with the previous quarter. What really changed is the mix, more focus on bond components and less interest in equity. In terms of volumes, good news coming from structured products and certificates, resilient volumes in brokerage, but with a more conservative mix, so with a negative impact on the overall revenues. In particular, on advisory services, we are confident, thanks to the normalization of the interest rate, in the last six weeks, we start seeing a higher interest in such a kind of solution. Page 9 is about cost. First of all, if you look at the total fee expenses on the overall first six months, increased by 4%. comparing with a plus 6.5 of the recurring fees. So here it works very well. The business model is very flexible and adjusts to the situation. So the overall payout ratio to financial advisors closed at 46.6 with very solid numbers for the ordinary payout ratio. below our target of 36. It closed at 35.6. And you see a slight increase in the payout for growth. Here you have two different explanations. The first one is a seasonality effect. You see also the same pattern in the second quarter of the last year. And the second is a sort of base effect, because while the ordinary payout is strictly linked to the commission, the incentive scheme is about absolute numbers. So if the denominator decreases, you have a slight increase in the ratio. So part of this increase is definitely driven by this kind of effect. Payout to third parties, also these numbers stable and in line with our expectation to stay below 6%. Page 10, operating cost. Overall operating cost stands to that 120 million, more or less. Two different effects and increase in one-off items. for 1 million, and then an increase of the core operating cost, an increase of 6 million. If we focus on the core components, here, first of all, we restated the numbers to include in the core cost also the BG Swiss project, and you see that part of the increase is driven by the acceleration of our project. So 1.6 million are driven by these investments. Excluding this component, the increase in core operating costs would have been plus 4.4. Considering the other components, the acceleration of G&A is driven basically by ongoing investment to deliver our three-year business plan. Page 11, efficiency, our ratios, of course, operating costs out of total assets increased, slightly increased, and this is a base effect due to the reduction of total assets, but if we focus on cost income, The downtrend of this ratio is confirmed. You see that the two lines are almost the same due to the negligible contribution of performance fee and stand both below 40%. So to sum up, first of all, very happy with very solid operating result excluding performance fees. This is driven by, as we already said, higher interest rate, flexible business model, and resilient margins, especially in managed solutions. If we focus on non-operating charges, the overall non-operating charges decrease for two main components. The first one is thanks to lower pension requirements because we have revised the discount rate. and lower provision for contractual indemnities. Last, if you look at the tax rate, it is a little bit higher than our guidelines. The numbers stood at 23.8 compared to a guidance of below 22%, but this is just Temporary due to the very poor contribution of performance fee and so on Luxembourg on the overall result Moving on to balance sheet page 14 the balance sheet expanded by 1.5 billion euro From the beginning of the year basically this increase has been driven by a and acceleration of client deposits, plus 1.2 billion. If we focus on interest-bearing assets, also interest-bearing assets increased in the period, plus 1.4. It's very important to underline that 62% of interest-bearing assets is linked to floating variable rates. And we have also part of the portfolio expiring before the end of the year. So the overall, let's say, assets can be taken advantage of the normalization of yields amounts as almost two-thirds of the overall bearing assets. Looking at the loans portfolio, the cost of risk is zero for the first six months of the year. Just emphasizing the approach of lending that we provide to our clients as an auxiliary services. And the MPL ratio stands at four basis points or negligible impact. Next page, deep dive on our financial assets. Financial assets closed the first half at 11.8 billion. Three considerations. First, the overall contribution of the GOVI bonds in Italy is below 50%. Second, the duration continues to stay very low, very conservative approach, 1.4. And then focusing on financial assets, more than 50% is invested in floating rates. On the left bottom of the page, you see the breakdown of the yield. Starting from the left line, the cost of funding is stable at minus 0.05, including the TLTRO. In terms of yields, loans to banks at minus 0.21, so it's getting better. Loans to clients almost stable. And then financial assets at 0.66. And as I mentioned before, this is number on the first six months. We saw previously that for the second quarter, the number was 0.75. Moving on to capital and liquidity ratios. Also on this side, positive news. In particular, CET1 started closed the first half at 15.2. Total capitalization is 16.3. The reduction compared to the end of the last year is driven by two reasons. The first one, a very conservative projection of the forces of treasury shares linked to the remuneration policies. The overall impact is minus 0.7. and then having expanded the bearing assets, you have higher risk-weighted assets, and this contributes for minus 0.6. Of course, these capital ratios include also 84% of dividend payout ratio as of today. Leverage ratio above 4%, and very solid liquidity ratios. So it's pretty clear from these two slides, three slides, that we have a significant opportunity coming from the normalization of interest rates. Moving on the third section, let's start from total assets. Overall total assets stand to that 80.9 with banking assets As we already mentioned, higher, 12.6. The asset under custody almost stable, so the negative performance was balanced by positive inflows and asset under management penalized by performance of the market and a more conservative approach in net inflows. Focusing on asset under management, you see stable traditional life policies. the overall asset under management exposed to risk stood at almost 40 million. It means almost 49.3%. I think that also this number, this ratio, so managed solutions out of total assets, is positive because it's temporary. It's driven by market performance, market effect, not changes in behavioural of our clients. Clients are in the wait and see mood. We haven't seen any panic selling on any strange emotional behavior. So this is very important. It's pretty different from previous crisis. Page 19, where is the asset under management breakdown. We have the two main components focusing on the left on asset management products. You see how resilient the financial wrappers were in the first six months of the year with overall stock at 8.9 billion euro. The overall funds decreased. In absolute terms, the third party were the worst contributor at 11.5 and in-house funds decreased. to that 9.1. On the right you can see the insurance products, we already commented traditional life policies, so looking at insurance wrappers, also here you can see the resiliency of insurance wrappers at 10.3 billion euro. So these behaviors, these resiliences of developers is one of the reasons behind very resilient margins of asset under-measured products. You will see the same pattern in the inflows, page 20. You see the first half closed at 3 billion. That, of course, is a little bit lower than the best result ever of the bank of last year, but it's higher comparing with 2020 when the saving rates were at the highest level. So I consider this result pretty solid. If we focus on the 900 million of asset under management, you see that the highest contribution comes from Wrapper solution, 600 million euro, 500 million euro of funds and minus 200 traditional life policies. Page 1 with the deep dive of funds, you see a contribution of our Laxim at 200 million euro, third party funds 400 million euro because we launched specific initiatives on loans, and then negligible outflows on other in-house funds. On the right, you see the mix of the net inflows of Luxembourg platform, our Laxim, and this is again another reason to say the resiliency of the margins, positive net inflows in equity and flexible total returns and negative inflows in monetary and bond funds and the same can be said for third party funds. Last page of this chapter, page 22, here you can see the resiliency of the contribution of net inflows of existing network 2.4 and you see on the right the deceleration of recruitment trend 59 new colleagues compared to 75 the previous year and this is driven 100% by more difficulties in transferring bankers and clients due to negative performance of the portfolios so again a very healthy commercial activity and a good mindset of clients. The last chapter is about our three year business initiatives linked to our three year business plan. As I mentioned, targets, pillars and guidelines are all confirmed. What has changed a little bit is the priorities for this year. Basically, we are more focused on staying closer to the financial advisors and to think also initiatives, new product initiatives for the new environment. But all the projects we launched during our three-year business plan investor day are confirmed. From page 25, we have the deep dive of the three main pillars of the main initiatives. Targeted offer, page 25, for high net worth individuals. We are working to launch private market solutions in partnership with Generali. We should be ready at the end of the third quarter slash at the beginning of the fourth quarter and we will open up our Luxembourg Generali private insurance platform also to real assets. We have just launched for private clients a new financial wrappers It's called BG Smart Target with an implicit concept of protection and maturity. We manage in a very innovative way the zero coupon bonds component and with a flexible approach also the equity just to mitigate the time to market of the investment. Last but not less important, we launched our first dedicated initiative to affluent clients. It was launched at the end of June. BG All Trade is an insurance wrapper. The proposition is focused on sustainability, ESG, living a better world and a better planet with dynamic and flexible management of the equity components to reduce volatility. Page 26 you see also the ongoing activity on our Luxembourg platform. We launched two weeks ago the seven new funds. Two about cash parking solutions, three about focus on growth and one for specific needs, in particular the last one in partnership with Banor, we launched with Luxin Banor Catholic value, very innovative solution as well. And this is, we should give some support also for the performance fee in the last part of the year. For the second pillar, and I move on to page 27, that is innovation, we continue to work. An important result has been, for example, having transferred all the data lake in cloud in partnership with Amazon. We are accelerating in the automatization of the processes for the financial advisors to free time. And last, we are very focused on training and communication for cybersecurity for the new environment. So, you know, there is on one hand the focus on the projects announced during the three years and business plan, so data, automatization of the processes, but also on top of that, awareness of some risks. For example, the cyber security is one. Page 2.8 is about sustainability. Assets are pretty impressive. very, very resilient also to the crisis. The overall assets in ESG products stood at 6 billion at the end of June, and the percentage of the overall ESG assets on total assets, on managed assets, increased over time. Now it stands at 15%. For our goal to stay closer to environment future generations, We already are working on carbon footprint. We had an overall reduction of 46% of carbon footprint by working on the corporate investments of Luxembourg platform, discretionary accounts, or financial wrappers, and banking book. And we start the initiative to increase awareness on the carbon footprint also for our partner in the asset management. So just before open the floor to a Q&A session, let me highlight why I'm so happy with these numbers. First of all, we are very exposed to any increase of interest rate. And interest rate also in 2023 will, in our opinion, will compensate any potential reduction of the, let's say, the recurring commission in such a kind of environment of the market. The model is very flexible. So remember that the most volatile components of our P&L, the example is the front fees. are the ones with the higher payout ratio. So the payout ratio will adapt to the situation. And last but not least, all the optimization of the prices and with the price mechanism done last year the resiliency of the wrapper solution plus, let's say, the mix, so the attitude of clients to continue with systematic investments in equity and flexible products instead of bond and monetary solution, confirm resilient margins in the managed solution overall results. So for all these reasons, and in particular for a very healthy financial advisory network, we are confident to continue to deliver the targets we announced during our three-year business plan. And now I will leave the floor to a Q&A session. Thank you.

This is the Coral School 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 touch-tone 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 Gianluca Ferrari of Mediobanca. Please go ahead.

Yes, hi, good afternoon. Ciao, Gian Maria. Three questions from me. The first one is on the NII. I think you gave us last time a guidance for 100 million NII in 22. I was wondering if you are raising this guidance today, and I was even more curious to hear your thoughts about 2023, where NII should go in 23. Also linked to that, I think there is not a common view in the sector about what could happen on the cost of deposits. And we heard this morning some Spanish banks already talking about raising their remuneration of deposits. So what are your thoughts on this? Do you think at some point you will have to offer some returns on your clients or that is something that we will not see anytime soon? Second question is on recruitment, I think. there is basically difficulty to hire or to recruit advisors from competition. Given your model, so you are not that much into young graduates or former banks, employees, and these kind of things, what are you studying or thinking to make it more doable? any, let's say, review of the portfolios 12 months down the road or things like that to convince clients to leave another network to join you. The third and last one is on certificates. Can you give us the notion of the certificates you issued in Q2 versus Q1? What is the guidance for Q22? And if those certificates were with the protected capital, capital protection or not. Thank you.

Thank you Gianluca. First of all, projection for field year results 2022 net interest income. I'm even more positive than the previous conference call. So now I consider 100 million a floor and we are closer to 110 than 100. And for the 2023, we do expect an increase in the range 15-20%. closer to 20 than 15. In terms of cost of funding, first of all, we haven't any kind of automatic repricing. This is really important. And I think we will evaluate time by time according to market condition and market behaviors. It depends by what, for example, Intesa is thinking about. But the projections are based on very conservative assumptions. So my personal opinion is that we must see Euribor at least at 1%, 1.5% to start thinking of any significant increase of cost of funding. So I think that we are still in the free lunch phase. Recruitment, honestly speaking, I don't see the case to change the approach. We have great interest by different players and financial advisors, both financial advisors and private bankers. We are only more conservative in recruiting because it's getting more difficult to transferring clients so for example we are giving more time to transfer assets than in the past but increasing being more selective in the first phase process just to select the right professionals but let's say that I'm pretty confident to resume the activity once markets normalize In terms of certificates, they say that the overall contribution of the second quarter of the first half of this year is pretty in line with the first half of last year. I start seeing an acceleration in protected solutions. So, for example, structured bonds, an important part of our certificate historically where with a protection linked to barriers, but most of them are above the barriers, so I don't see a critical situation. And we are very, very well diversified, so no concentration in terms of issuers or in terms of single stock name. Also in this case, we approach in a very diversified way the structured products. Part, of course, is protected 100%. and in particular in the last six weeks we accelerated on this kind of certificate and structured products than the historical behaviors.

Thank you. Do you have the notion of what you issued in the first half and what you expect for full year 22?

Sorry, can you repeat Gianluca?

Yeah, if we can have the EXOD data on the issuance of certificates in the first half.

Okay, let's say that I will hand over to Tommaso to give you the numbers. My impression is that they say that this half was a little bit lower than the previous one on year-on-year basis. And I do not expect, say, acceleration in the second half. But as I said, they are almost in line. No significant impact in the first half. And I do expect the second half just slightly lower than the first one. But I will hand over to Tommaso details. Thank you.

Yeah, in terms of new issues, the first half has been... More or less in line with the first half of last year, but it was lower than the second half of 2021. We are in terms of new issues in the range of 400-450 million per the first six months of 2022. And a similar amount was in the first half of 2021. While in the second part of 2021, we had around 700 million of new issuance in the second part of 2021. Okay.

Thank you very much. Thanks.

Just to complete, what is happening is that, especially in July, we are seeing an acceleration in advanced advisory services. providing very well diversified bond portfolios. For example, so far in the first, say, three weeks, we are closer to 150 million of new advisory contracts. There is a great increasing interest in structured products with just a little bit lower commissions and the certificates are a little bit lower than the weekly average of the last 12 months. So we will foster accelerating advanced advisory services on bond portfolios We will accelerate in the structure bond with protection, of course, and we will maintain, let's say, numbers in the certificate, but lower than the average of last year.

Grazie, thank you.

The next question is from Alberto Villa of Intermonte. Please go ahead.

Hi, good afternoon and thanks for taking my questions. A couple of questions. Apologies if I ask something you already mentioned during the call. I couldn't follow entirely the speech. But the first question is on inflows. You mentioned in the press release that July flows were positive. I was wondering if these are still concentrated into administered assets or you're starting to see some, let's say, movement from cash and liquidity into managed assets. And in general, if you are expecting this to happen in the second part of the year or if this will be, very much depending on the market conditions. The second question is on operating cost trends. If you can remind us if the guidance is confirmed and what you see in terms of growth of operating expenses also for 2023. And the last one is an update on the securitization issues. You won the ruling with the I was wondering if you can provide us an update on how the situation is unfolding and if you had the chance already to have more information about the exposure and eventually the risk underlying these products. Thank you.

Thank you, Alberto. Let's start by commenting July inflows as of today. Very solid net inflows. We are close to half a billion also this month as of today. The mix is changing. As I mentioned before, advanced advisory service is accelerating. I would say 30%, 40% or less of the overall net inflows. Current accounts are negligible or negative. And the managed solution continues to stay lower to the historical average, but positive, around 20% of the overall net inflows, with positive performance in particular of wrappers, insurance wrappers and financial wrappers. So I do believe that to see a re-acceleration of asset management we must see some stabilization of the financial market, but the mix is turning positive. So less interest in current account, more interest in, let's say, advanced advisory services and wrappers. This is just to sum up what we are seeing, what we have been seeing for the last six weeks. In terms of securitization, you are right, we won the dispute yesterday. in the court, in the UK court with CFE to receive a complete disclosure of the document from CFE. We have been receiving plenty of documents in different branches. We must receive additional documents to have the set of information to work out the price of these instruments. So, at the moment, we have all the elements to confirm the price of the securitization. At the same time, the reimbursement is continuing. Of the three, securitization matured. The initial amount, nominal amount, was around 330 million, the reimbursement. has been more or less 50%. So they say that things are going in the right direction, but we haven't completed the analysis because we have to receive still some information. Thank you. But sorry, and I confirm what I said last time. I don't see at the moment reason for any provision and there is no intention to purchase such a kind of asset. And also because market conditions changed significantly in the last six months. Thank you.

Okay, thank you. On the operating cost side, any comment on the trends there?

Sorry, Alberto. Core cost, we confirmed the guidelines in the range 5-6 of core operating cost, including BG Swiss project. So excluding BG project, it will be definitely lower. Of course, we are confirming all the three-year business planning initiatives. So you know there is some flexibility and some margins, but at the moment we are confident to continue to invest thanks to solid results, particularly in the recurring components of our P&L. Okay, thank you very much.

The next question is from Domenico Santoro of HSBC. Please go ahead.

Hello. Hello. Hi. Good afternoon. Thanks for the presentation. I just want to come back a bit on the NII because I just want to reconcile the guidance that you gave on 2023 with the sensitivity to rates that you gave a couple of calls ago because my impression is that the number for next year it might be instead significantly higher than what you're guiding. And since, I mean, this line is getting bigger and bigger for you as well, I just want to get a sense of how we should work it out, you know, expectation for next quarter, given the yield curve, where it is. So my understanding is that you have $12 billion, 50% of floating assets, But you have also a duration adjusted for the edge lower than the actually maturity of the book. So that means that you are swapping also part of the portfolio into variable rates. So what shall we look at in order to gauge the way NII will move going forward? The BTP only or the rates? You're able to amount six months. So what's your NII is linked to? And having considered that, given the yield curve, what it is at the moment, whatever is the rate reference that works for you, shall we instead expect 2023, given you're able six and three months, it's more than 100 basis points, shall we expect this to be significantly higher instead in 2023? And then also, what's your expectation for margins going forward? If we should expect some more deterioration or the mixed way, basically, at which you are selling products, I suggest that have, in a way, plateau. Thank you.

Thank you, Domenico. I will start with some consideration net interest income and when I will hand over to Tommaso to complete the answer. But basically, if you consider third and fourth quarter for Vizia, I do expect a pretty strong fourth quarter and a stable slash a little bit lower third quarter compared to the second one. the overall effect will be higher compared to the first half. And I mentioned that we will be closer to 110 than 100. This is for this year. So the fourth quarter will be stronger and no reason to expect something different for the next year. So we said that 15%, 20%, closer to 20% than 15% because the sensitivity we provided was about mark-up, so excluding mark-down. And as I said, there is some conservative approach in estimating the mark-down. So you are right, there is some room to have positive surprise, but as usual, we want to be consistent with projection and be conservative on this. also because there is some variability and volatility on the path of Euribor and ECB rates for the next year. And on margins, and then I will hand over to Tommaso, let's say that if you have in mind a second wave of correction for financial markets, of course, margin could be hurt. but some structural trends will definitely mitigate the impact. Wrappers are here to stay, and wrappers offer higher margins than the average asset management solutions. And the mix will continue to be in favor of equity, in my opinion, thanks to systematic investment, so saving plans, basically. And probably you will see lower inflows in monetary and bonds products, the traditional ones. But of course, it depends on your expectation of the performance of the market in the next 12 months. As I said, clients are in the wait-and-see mode, are pretty calm, and I haven't seen any sort of panic behaviors. That depends on your projection of markets. But we are more resilient than others, and I'm pretty sure of that. On net interest income, for some more info for next year, I will hand over to Tomas.

Let's say that, coming back to what Gianmaria was saying before, first of all, we don't have any automatic repricing on the liabilities. That's why the sensitivity is not included. So in our forecast for 2023, we are also including some repricing on the liabilities, which will be, I mean, not compulsory, but we need to observe what will be the movement of the market. So if you want... In the computation, we have been very conservative from this point of view. Where we see the rates, our internal forecast is based on what we see in the market now. So we expect Euribor to stay in the range between 130-150%. And let's say that the rates that you need to have in mind is mainly EUR 6 months to reprice our portfolio, which is 80% of the 50% which is floating rates, and for the 20% on Easter, always in the variable rates. So this is how we have forecasted our new guidance for 2023. Of course, we could have positive also surprise because as we were saying before, we don't know how the market will react on the increase of rates and how much will be given back to the to the client. We were saying before, we don't have any automatic repricing, so it's something that we can decide that we will do according to our clients and what will be the practice in the market.

Can I ask you just a follow-up on this? In case I understand your expectation in terms of your EBO six months, which is the one implied in the curve. Just talking extreme, in case you run your model with a deposit beta of zero, what would be the outcome in terms of an AI for 2023? I mean, that you have used very conservative assumptions in terms of beta.

If you put a zero, of course, the repricing is very important because, of course, it's similar to what happens in the sensitivity. But, of course, we think that in this case, we should have also to include some costs on the liability side. So that's why I think that overall we can manage to stay in the guidance that we did. To be more precise, we need to wait to see how will be effectively the rise of interest rates in the market because you saw that there is a lot of volatility on that. and of course what also the other players will do on the liability side.

Let's say, even if it's just a theoretical exercise, you would double the net interest income, basically. All right.

So that basically makes more sense. Thank you. Thanks.

The next question is from Giovanni Razzoli of Deutsche Bank. Please go ahead.

Good afternoon to everybody. A couple of follow-up. The first one is on your updating the product mix with the launch of private market solutions. I was wondering whether you can share with us what is a million-term target in terms of penetration on client financial assets. The second question is a clarification on asset under custody because you reported 600 million of inflows in the quarter with the stock market. of asset under custody were down by 900 million euros, which implies that there was a quite negative market effect in the quarter, which is quite significant also relative to the performance of the asset under management under the same metrics. I was wondering whether there is an explanation for this trend. How shall we look at this going forward in the context of the recurring fee generation? You mentioned that You do expect a relatively stable AUM margin on financial assets going forward, but if you can share with us what could be, you know, the impact of these trends going forward. And the last question, sorry, clarification, I've seen that there is something like 7 million euros of other income contribution in the quarter, if I'm not mistaken. Can you share with us what is this line item? Thank you.

Okay, thank you. In terms of private markets, we have a very structured program by launching a new platform in Luxembourg in the first phase powered by Generali through a partnership with Lionel River for private equity and Generali Real Estate for real estate and Generali Global Infrastructure for infrastructure. And then we are already selected some external asset managers. So the project is very structured and pretty innovative, but we don't have specific targets in terms of inflows. And then we will continue to work also on alternative PIR in Italy as well, but we prefer to not give any specific target in terms of volumes. On the asset under custody, consider that you have at least two negative effects on the stock. The first one, of course, is about the market impact. We have almost 40% of equity, of which the greatest part is on Italy, and the performance has been pretty bad. The second one is about the coupon and dividend payments because in our numbers these outflows account as negative in terms of overall assets. So if you work out a coupon of 2%, just to give you a number, you will see that at least 200, 300 million comes from the payments of dividends and coupons. For other incomes and some more information on asset under custody, I will hand over to Tommaso.

On asset under custody, we think that the performance is in line with the equity performance. the 40% of asset under custody are invested in equity and of this 70% is in the Italian equity. So the performance in the second quarter in the Italian equity, for example, has been very negative. and that's the explanation basically of a negative performance which in the quarter is in line with 10-11%. And the main part is linked to the equity exposure and partially also to some structured products, but they have an impact in terms of performance. In addition, in the second quarter there are 300 million more or less coupons and dividends paid That, of course, they are paid back to the current account, so when you make up the calculation, you don't see it. Other income? Can you repeat the question on other income, please?

Yes, if I'm not mistaken, below the operating margin, there is something like 7 million euros, if I'm not mistaken, of other operating income. I was wondering if you can tell us what this is about.

I mean, we come back on that, checking the details, I give you the answer.

Okay, thank you.

And this time we can take other questions. So the other incomes is above the operating line that you are meaning, correct? Yes. Okay, we are just checking the numbers and we will be back with the answer. In the meantime, we can take other questions.

Thank you.

The next question is from Angeliki Bayraktari of Autonomous Research. Please go ahead.

Good afternoon. Thanks for taking my questions. First of all, with regards to the fee margin, which has been pretty resilient in the second quarter, Shall we expect the 142 basis points to effectively be a floor or so for the third quarter? Or could we see a bit more erosion in Q3 because of the carryover of the lower June AUM marks? And July hasn't really done that great either. So I guess I'm looking for some more short-term guidance on the management fee margin for the next quarter. Then in terms of the higher rates environment, for the past few years, we've obviously seen a shift out of traditional policies, insurance policies, and into unit-linked. Do you expect that this could reverse at some point, assuming interest rates keep increasing? And have you had any discussions with regards to sort of the strategy on insurance with your parents generally? And third question, in August, the MIFI II regime is going to change to include a questionnaire on the sustainability preferences of investors. How are your financial advisors preparing for this change? Thank you very much.

Thank you. So, first question on margins. Let's say that I don't expect significant changes just for the equity effect of the recent weeks. So 1.42 should be maintained. It's about decimals, but let's say that we are there. We are in 1.42, so it should be sort of floor as of today market effect. For the traditional life insurance, of course, we are considering the opportunity in the future to relaunch these kind of initiatives because I believe that it could be an opportunity, competitive advantage in the future. So let's see the market and wait for the right window opportunity to relaunch these kind of solutions. but always in the idea to be part of a more complex solution to provide advisories. So I think that at the end of the day, you can increase the percentage of traditional life insurance, but in a sort of wrappers idea of product. In terms of ESG preferences, you know, Here, I think that we do have a competitive advantage. We are incorporating ESG preferences in Know Your Client's questionnaire. And since we already trained our financial advisors in providing, say, an alternative approach starting by ESG and SDGs, uh i don't see disruptive impact in our business model i see probably another further opportunities to accelerate we have a competitive advantage we are we have very well prepared financial advisors training on this topic and we already provide a very powerful digital experience starting from ESG, SDGs preferences. So at the end of the day, if I have to give you my flavor in terms of impact, it should be positive. And in the meantime, we have the information on other incomes.

It's a miscellaneous of various items. The most important is that we have the an adjustment in the in the acquisition of the next time we close the on the on the earn out so it's a positive impact on that and and then there are some other other minor items that are we recover from clients or other let's say so non-recurring items that are accounted in that item. The other point is that a transaction between, which is called Indenità di Portafoglio, is a transaction where a financial advisor can buy the asset from another, so we have the cost in the payout and the revenues in the item Altri Proventi. They are exposed in two different lines but then the cost for the bank is almost zero.

So basically you have the same item with different sign in the payout and in other income. If you are interested, we can send you an email with the details. Next question, please.

The next question is from Luigi Debellis of Equita. Please go ahead.

Good afternoon to everybody. I have three questions. The first one is on the CHAT-1 risk-quoted asset leverage ratio. Very clear the explanation on the variation in first half compared to the end of 2021. But can you give us an indication on the trend to expect at the end of 2022? Also considering your investment portfolio strategy, do you expect an improvement going through year-end? The second question on the Swiss initiative is, Can you give us more color and an update on the BG Swiss project, where we are as of today? And the last question on the asset allocation of your total financial assets, can you provide us an update on this? How much is invested in equity, Govis, and government bonds? Thank you.

Okay, so CT1 and risk-weighted assets, they say that considering some seasonality on the numbers of the second quarter and the cumulative effect of the net profit, we do expect an improvement in 2021 and I do not expect an increase in the risk-weighted assets. Second, Swiss initiatives I would say so far so good. I mean, we are in the middle of the process, authorization process. We expect to receive the license, say, at the end of this year slash at the beginning of next year. We took the first board of directors in the new bank. So to say that we already built and hired most of the top managers, the board members, and we already selected the IT provider. So let's say that all the initiatives, HR, IT organization, are well ahead of our projection, but we depend mostly on the formal authorization process of the Swiss regulators. I don't see reason to expect a delay and I will give you more color on this on the next conference call. But I think that it's even more important to continue to focus on this project also for some more challenges of our country and some clients' expectations on that. And the last is... About asset allocation, I would say that overall equity exposure is around 25%, and liquidity stands at 20%, just to give you the two main aggregates. So, of course, we have plenty of liquidity ready to be reinvested, and equity has basically been penalized by a market effect. Thank you.

thank you very much as a reminder if you wish to register for a question please press star and one on your telephone Mr. Mosser there are no more questions registered at this time okay thank you for having attended our conference call and I hope you will enjoy the summer thank you