Banca Generali Spa

Good afternoon. This is the Coral School Conference operator. Welcome and thank you for joining the Banca Generali first quarter 2024 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.

Good afternoon, and thank you for attending our first quarter result conference. First quarter results were very strong, both in terms of financial results as well as in terms of commercial results. Overall net profit closed at €122 million, while total assets achieved new highs at around €97 billion, thanks to favorable market conditions, but also a very consistent commercial activity. The result of April is in line with the first quarter, but with an acceleration of the quality of the mix, and also May started very, very well. So let's start commenting net profit. So page four, we already said a jump of almost 50 million euro, driven by two major components, the recurring net profit, supported by both net financial margin and gross recurring fees, plus performance fee. And as you can see, the contribution of the variable net profit amounted to 40 million euro. Page five, let's start with net financial income. The trading gains were in line with the previous quarter, and you know that here there is room to adjust the overall trading gain in line with the overall result of the net financial income. And concerning the net interest margin, there is a positive surprise. The result is probably the best quarter ever once you carve out the component of the inflation link. And this result is the consequence of higher net interest margin and a slower reduction compared to our expectation on overall total assets. If we move to total gross fees, you see at page 6 a very strong result, higher almost by 8% and the gross recurring fees and the variable fees closed at 54.4%. On both components, positive news. May is going pretty well in terms of overall gross fees. Moreover, variable fees, we have more than €10 billion very close or at the high watermark. We already posted other €5-6 million performance fee in these first days. For the gross recurring fees, you know there are two major components, the investment fees and other fees. Investment fees increase by 5%, and if you break down the two major components, you can see positive contributions from both management fees and advisory fees. If we focus on management fees, page 8, you see that we exceeded 207 million. This is all about asset expansion, while the margins are pretty stable and above our guidance for the three-year strategic plan. And there is a positive momentum in all the in-house funds. Page 9, you see the advisory fees. Here, the increase was more significant. The overall contribution jumped to almost €12 million. And again, also in this case, the result is driven by asset expansion with, say, constant margins. They were all margins on advisory fees. is confirmed at 0.49. Page 10, today we will focus a little bit more on the other fees, just to explain a little bit the exceptional result. Starting from other banking fees, other banking fees are in line with the same period of last year, so no news, good news. Brokerage commission jumped to almost 15 million euro. Most of this increase is structural and is driven by asset expansion and also better quality of the mix with a major focus on increasing focus on also forex and of course also equity due to the favorable market condition. If we focus on entry fees, Also, in this case, they say that there are some structural factors and some one-off. The one-off, the first one-off is the placement of the BTP valore. It accounted for 2 million euro in terms of fees. And they say that the rest is, for the greatest part, coming from structural problems, certificates. and a minor contribution from fee in asset management products. So let's say that the volume on certificate continue to be pretty strong also in April and May. If we move to page 11, we start now considering the part of the cost, starting with the payout ratio. Here everything is in line with expectation. you can see only a small increase in the payout to financial advisors for the ordinary component. This is due to some specific factor, temporary factor. The first one is the mix of the inflows of the first quarter, where you know structured products, brokerage, advisory fee has an higher payout. And the second is a specific initiative on the insurance, where we slightly reduce the commission for clients, and maintain almost unchanged the payout to financial advisors, so the result is a slight increase in the ordinary payout. But let's say these are all temporary initiatives, and I'm confident to confirm the target of 36%. As you can see, the payout to third parties is pretty stable. And also here in the medium term, I do expect to go at around 6 or lower. Page 12, operating costs. These numbers to me are probably the best news because overall you see an increase of 6.3% of the core operating costs. But once you carve out the setup of BG Swiss and the phase-in of the national banking contract, the increase is only by 2.4%. So let's say that we are managing very well the cost base despite the ongoing investments for innovation. And page 1.3, you can see the excellence of our operating leverage. with the operating cost on total assets at a new floor at 0.28, and the cost income also once covered out the most valuable components, you see volatile components, you see that the ratio stood at 33%. So to sum up, page one four, total banking income very strong, almost 33%, well supported by net financial income plus gross fees. Costs under control, once we exclude the one-off component. Operating profit very strong. Below operating lines, you see two increases. The first one is the contribution to banking funds from 6 to 10 and the net provisions. The reason of an increase in the net provision, the reasons are mainly two. The first one is the different impact of the rate on the discount of the reserve for our financial advisors. So last year, same period, was a positive contribution, plus 3.8. This quarter, negative, minus 0.7. So the overall effect is minus 4.5. And then we have some conservative and prudent provision for, let's say, the financial advisory, and the pension, let's say the reserve for the pension, and some reserves also, some provisions also for the clients. So you know that when numbers are pretty good, we prefer a more conservative attitude on the provision side. And the tax rate closed at below 25, at 24.2. Also in this case, here you see some one-off components. Of course, the impact of performance fee reduced the tax rate. Here we continue to expect a guidance in the range of 26, 27, probably closer to 26%. As a result, net profit jumped at 122 and the recurring net profit closed at 82. Now, moving on to the banner sheet, the overall assets closed at 15.2. with the interest bearing assets accounted for 13.8 billion. In this case, you can see that the yield increased by 0.14 with the contribution of all the major invoices. Financial assets decreased by 100 million euro loans to clients decreased by €100 million. Focusing on the liability side, here you see more or less a stabilization of the clients of our deposits and a slight increase in the cost of funding for the retail clients from €0.72 to €0.84. Again, also from the balancing perspective, stabilization of client deposits and a slight increase on the total assets make me confident on achieving or overachieving the target we mentioned last time of €218 million. Page 18, capital ratio, a very positive surprise. Overall, capital ratio increased. increased thanks to the retained net earnings, but also thanks to risk-weighted asset optimization. This optimization accounted for 1.5% in terms of total capital ratio. So we close at 21.2%. Consider that we have the payout ratio, the dividend payout ratio implied in the home funds is at around 87%. It means 80% of the recurring net profit and 100% of the variable net profit. So we are also confident to deliver good dividend also for this year. Leverage ratio well above our targets and we continue to stay with a very liquid portfolio. with all the liquidity ratios well above the regulatory requirement. Now let's move on the commercial activity and total assets. The recruiting part will be part of the focus on the business update. So now we have four pages, two are about total assets and two are about total inflows and the scheme is almost the same. Let's start with total assets, so page 2.0. At the top, you see an increase of almost 11 billion euros on total assets, of which 3.5 in assets under management. Bottom left, you see an impressive acceleration of assets under advanced advisory, plus 2.3 billion, and now we exceeded 10 billion euros. And the top right, you can see the overall assets under investment, 65.3 is the highest level. It means 5.5 billion higher than the same period of the last year. The overall weight of assets under investments on total assets is at 67.5, and we consider this a level from which we do expect a normalization. So I'm pretty confident to close the year at this level or higher. It means that the mix of the infos will be positive. If you look at page 2.1, you have the total assets, the details of the assets under management. Plenty of good news. The first one, stabilization of traditional life policies. Second, the increase in the managed solutions. If you focus on the bottom left, you see that both wrappers and in-house funds account more on the total asset under management. In particular, the sum of wrappers and in-house funds now account for 55% from 52.3. It means that we have accelerated the overall exposure, the relative exposure in-house products by 2.7% in one year, and more will come. very confident, optimistic on numbers for the financial wrappers and also for the in-house funds. In-house funds are gaining momentum, but you will see again some slides on this topic in the business update. So now let's see the same pages for the net inflows for the first quarter and then the detail for April in the business update. The overall net inflows for the first quarter closed higher year-on-year and with better quality. You see the red bar is positive, 100 million euros, compared to last year, negative. And while we confirm positive net inflows in advanced advisory. On the right, you see the overall impact of the inflows on asset underinvestment, quality matter, 600 million euros of asset underinvestment. as I mentioned, of financial wrappers and in-house funds. Page 2-3, there is the detail of the inflows of the asset under management. And again, you see the normalization of the traditional life policies with positive inflows. On the right, you see increasing contribution of financial wrappers, pretty stable in-house fund, but in acceleration in April. and negative contribution of third-party funds. So the focus is on in-house solutions. Page 2.5, we would like to focus a little bit on the targets for Vizier in terms of net inflows and in terms of the quality of these net inflows. And we have an update of numbers including also April. The first graph at the top is about the traditional representation. You see that in the first four months, we had inflows for more than 2.3 billion compared to the 2 billion of last year. So it means almost 50% higher of better quality. The better quality, let's say, is pretty clear with the result of April. On the right, you see the result of April last year and the result of April this year. This year, we have positive inflows in house funds, positive inflows in financial wrappers, positive inflows in insurance, and also positive inflows in banking assets. And if we focus on the second graph, bottom of the page, you see that we say now the contribution of the investment solution account for 39%. But again, we are very positive to achieve the target 40-60 thanks to several initiatives and the normalization of the market condition. On the right of the page, you can read some optimism on the overall net inflows. because we see two potential upside, recruitment and Switzerland. While the optimism on the quality of the net inflows come from some consideration on our asset under custody and optimization of our offering in Luxembourg. So let's go through these potential upside. So page 26, the focus is on recruitment. Recruitment started very well. You see an acceleration of senior recruitment from 29 to 39, an acceleration of the new junior recruitment from 12 to 25, and also an acceleration of the assets managed by the team, so the combination of senior and junior. It's about an increase of 20%. So market conditions are normalizing. We have plenty of people and professionals willing to understand our business model. And the growing demand comes from traditional banking system, but also from direct competitors. So I'm very confident on achieving the target in terms of recruitment. And then there is Switzerland. celebrate the opening of our Swiss branch on Monday. There is a significant interest for our project and we are close to receive the final authorization to offer the banking solution of our Swiss bank to Italian clients. And you will remember that we have two different models of business. The first one is is more on medium-long term to develop the onshore business in Switzerland, and the second of short-term, medium-term to start managing the money of the Italian residents in Switzerland, thanks to Italian services, Italian investment services, Italian professionals, and deposits in Switzerland. For months, the contribution of the total inflows of Switzerland accounted for 100 million euros. Most of that is booked in Italy. So, if on one hand we are optimistic on the overall net inflows, so let's say that the 6 billion euro target is could be probably low compared to what we can realize, we can achieve. Also in terms of mix and quality, we start to be more confident of the final result. Let's start from page 28, where there is a focus on the total assets under custody. Total under custody account for almost 27 billion euro and for us in terms of percentage for our clients is a peak. If we break down these numbers, first of all, you start seeing that more than five billion euros of bonds will expire within one year, five billion euros. Two-thirds of the bonds have a positive performance, so you know it's much easier to sell a bond with positive performance than a negative one. Also in terms of liquidity of this portfolio, only the 5% of total assets under custody is invested in structural products, so on one end we can continue to provide good performance in terms of structural products. And on the other one, let's say that the portfolio is pretty liquid. And last but not least, even for the remaining part of assets under custody, you see that the penetration of advanced advisory services is still 22%. So there is room also to implement advanced advisory services farther on asset under custody. So I'm sure that we will see a normalization of asset under custody and I'm sure that we will continue to deliver higher profitability thanks to structural products and asset under advisory. Next page, page 29. you see other positive news, and it's about our Luxembourg platform. We achieved the previous record high, 21.4 billion euros, of which 10.7 of retail funds, and you have already seen in the previous conference call that the for the retail distribution is more and more focused on in-house funds compared to third-party funds. And the second graph shows you the percentage of this distribution. So we had a floor at 43.8% of, say, in-house funds compared to third-party funds. Now, at the end of the first quarter, we were 46, about 46%. April was very positive for in-house funds because we launched a new offer and in the second half of the month, we collected more than 100 million euros with negative inflows in third-party funds. And the sale optimization was about the new product in existing asset classes, but also the coverage of two new asset classes, the bond one And the alternatives one, that now with the existing scenario, with the actual scenario of interest yield, we think that we can also gain more traction on more traditional bond funds. And we believe that alternative funds can work better with higher yield scenarios. So for all these reasons, we do expect that the rebalancing between third-party funds and house funds will continue for the future. Page 30, that is the last one, just a recap of our major targets of the three-year strategy plan, consistent growth, higher than $6 billion, very optimistic, very confident to beat this target. The quality, 40-60% in asset under investment. There is a normalization of the market and there is positive feedback from the network and the clients for the new offering. So we are positive also on the NICs. Profitable growth. Let's say that we confirm the targets of the previous conference call. We've very conservative assumption net interest income. And we see a very solid gross recurring fees, cost under control. And moreover, you see that there is plenty of capital. We are more than confident to achieve and deliver the remunerative growth. And I remind all of us that the 20th of May, we're going to pay 1.55 euro per share. So it's the first rush over the dividend for the last year. And now I will end over for the Q&A session.

Thank you. This is the Coral School Conference operator. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one under touchtone telephone. To remove your staff from the question queue, please press star and two. Please pick up the receiver asking questions. Anyone who has a question may press star and one at this time. The first question is from Elena Perini in Tiso San Paolo. Please go ahead.

Yes, thank you. Good afternoon and congratulations for your results and also for the net inflows of April. I have four questions actually. The first one is on the trend of performance fees in April when the market conditions seem to be more challenging. Then if you can provide an outlook for entry fees because yes, you talked about some one-offs but I think that the that the pace is stronger than in the past. Then on your guidance, as regards the NII and costs, which were, you know, overall, while the NII was better than expected in the first quarter, and then the costs were up, more or less in line with the guidance path with the top costs of BG Suite. So I don't know if you have any updates on them. And then a final question on the tax credits related to the super bonus, if you have any exposure and if you could have any impacts then from the new ruling that is under discussion at the moment. Thank you very much.

Thank you, Elena. So starting from performance fee, April closed at 4 million euros performance fee. But with the recovery of the markets in May, now, as I mentioned, we have an important part of the total assets very close or at the high quarter mark. So from the level reached in these days, achieving these days, there could be an upside also in the performance fee. So entry fees, you are right, there is some seasonality in the numbers. The first one is the BTP. But again, you know, this week there is another placement. I do expect slightly lower numbers. So if I have to give an estimate of the BTP for us for this quarter, it should be in the range of $250 million, $300 million. in the first quarter was about $400 million. So it's not about $2 million, but it could be $1.15. Entry fees for the asset management products mostly depend by market, but we say that the contribution is pretty marginal. For the structured products, you have some seasonality. So this period is the first quarter and the last quarter of the year, the fourth quarter. So you will see normalization in the second and the third. but the demand is pretty robust. In terms of guidance for the net interest income, let's say that we maintain our target to stay at or above 280 million. There are basically three major assumptions. The first one is that we project Euribor at 3.1, so definitely lower the level as of today. We continue to project to estimate a reduction of overall client deposits in the range of 500 million, 1 billion. And honestly speaking, the trend in these last few weeks is the opposite. And the overall weight of current account for private clients is at 8.5%. That is a very low level. but let's say we prefer to continue to project 0.51 billion, also because the yields have surprised us at the beginning of this year, so let's wait for a reduction, then we will update eventually the projection. And third, we continue to assume a slight increase of the cost of funding for retail deposits. So, with this assumption, we are confident to achieve 280 or more. In terms of cost, let's say that the operating leverage is pretty impressive, but we have to consider that we want to continue to invest for Switzerland, but also for other projects. So, you know, our target for the three-year plan is in the range of five, six. We could stay a little bit above six, but we are talking about zero point, not percentage point, because, as I said, as I mentioned, we are continuing to optimize the operating machine, so we have some savings. in terms of tax credit, super bonus, nothing is negligible for us. No impact.

Okay. Thank you very much.

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

Hi. Good afternoon. Thanks for the guidance on the NII, and I wonder if... Given the expectation of rates, you can also look beyond 2024 and give us an indication of NII for 2025. Regarding your management fees, I was just comparing the performance of your management fees with all the competitors that so far they have disclosed numbers. So now we can basically make a sort of a comparison. You sort of underperformed in terms of growth on gross management fees over the last quarter, but also over the last quarter, I mean, management fees have floated around 200 million. Is it also true that you are intercepting revenues under different lines? So we should probably look at your business in a different way, including also advisory. But just looking at Q1, other competitors also reported losses. slight uptick in terms of margins why your margins are stable and probably also because your sales have been a little bit weak so is it this an inflection point so from now on you expect management fees to accelerate and margins to improve from here even though so happy was very strong or i mean we should look at your business overall and you aren't accepting revenues also by a different kind of business like the advisory and That's the reason for this sort of underperformance. So is it going to be reverted in a way, or is it going to continue this way? I know that you mentioned the in-house funds, and probably this is the answer. Thanks.

Thank you, Domenico. Starting from net interest income, considering the projection of 280 million, I do not see a significant negative impact for the next year. say we are 10, 15 million less, lower, but with a significant reduction of the interest rate. So you should see the sensitivity. In terms of management fees, you are right that some competitors provided higher margins. Here you have to consider two effects, three effects with different signs. The first one is about insurance, the traditional life insurance. We decided to reduce, temporarily reduce, the management commission to clients. This accounted for 1.5 basis points, and then there is a normalization of the commission after a couple of years. So you have, as a detractor, they say some reduction in the insurance business, but it is temporary. And these offset positive contribution of in-house funds and, of course, positive market effect. So, overall, I do not expect an increase in margins. It's more about the stabilization. I do expect an increase in volumes. And the increase in volumes is expected for financial wrappers as well as in-house funds, then you are right. We do see also a repositioning of the industry and of the market on advanced advisory services. So being market leader in advanced advisory services and financial wrappers position the bank in my opinion with a competitive advantage in more challenging times. So I'm pretty satisfied with what's going on from a commercial perspective. Just to mention the first two weeks of May is just two weeks, but the percentage of the asset underinvestment is above the upper band of our range. So we are close to 70%, 80%. So I'm positive. The markets stay at this level. I'm positive on the quality, on the mix, and so as a consequence also on the management fee.

Thank you. So just to clarify a bit of follow up on the margins, these are, you know, measures commission that you mentioned in insurance. Is it a temporary effect in 2024 or is it going to weigh the margins, you know, for longer?

are initiatives on a two-year time horizon. So it's not just for this year, but it's also for next year, so 24 months.

I understand. Thank you very much. Thank you.

The next question is from Alberto Villa in Termontesim.

Please go ahead. Thank you for taking my questions. Three, if I may. The first one is again on the traditional life flows. Are you still seeing any kind of or are you expecting for the future any kind of outflows or the commercial activity are actually working well? And in the future, how do you see in general the contribution from this kind of products to the business? The second one is on recruitment. It started well this year. Maybe you can give us an idea of what is your expectation of the contribution of recruitment for the inflows in 2024. And effectively, this is the last year of the business plan, so maybe there will be then time to update us for the future, I guess, in the coming quarters. And finally, on BG Swiss, you mentioned possibility also for M&A there and international expansion. I don't know if it's possible to elaborate a little bit more on what are your ambitions. We know the targets for Switzerland, but also in terms of eventually looking at opportunities outside of Italy and Switzerland. Thank you.

Thank you, Alberto. On the traditional life flows, I have a slightly different view from short-term versus medium-long-term. In the medium-long-term, to me, this is a great competitive advantage. Of course, in this phase of positive markets, your clients focus on the yield, but when there is some volatility, it's the place to be. So the normalization of the yield, to me, will be a positive contribution for this asset class. We continue to see some outflows, but let's say that the inflows, the gross inflows, is pretty strong. So the overall result is zero or positive. So again, we have a delay in our analysis. In our brand, I think that in normal condition is a great advantage compared to competitors, and now there is a gradual normalization of the outflows. In terms of recruitment, let's say so far it's working very well, and as I said, there is increasing interest. We do expected 1.5 billion euro for this year. So around 25% of the target that we announced. Could be a little bit higher. Could be. It depends on, let's say, when we successfully accelerate in the recruitment because it takes time to transfer money. So the potential positive impact could be at the end of the last part of this year or in the first quarter next. But let's say that BG is a positive contributor. For BG Swiss, M&A, of course, since we announced the loan to our BG Swiss bank, several external asset managers approached us because they consider us a potential harbour because no legacy, no risk, and a very efficient machine, operating machine. So we are considering some potential acquisition of external asset managers where the costs are very small and you can consider person by person. So no big deals, it's just an acquisition of assets, basically, also with assets. and we are just dialoguing with a couple of players, but it's something similar to BG Valor, something that we can finance with our equity and it wouldn't change numbers of the bank overall. For the international expansion, let's say that now we are very focused on Switzerland, so at least for This year and probably also next year, our main focus will be in Switzerland. There is an appetite in the insurance business to consider also how to bank clients. So we are start considering this project in Italy. I do not exclude that in the future, medium-long term, we can consider how to bank clients also abroad.

Thank you.

As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Luigi Tabelli's Equitasim. Please go ahead.

Good morning. Two questions for me. The first one is on the managed solution. So you mentioned the strong momentum for in-house funds vis-à-vis third-party funds. So do you expect this trend to continue? And if so, are there a significant difference in terms of profitability for you? And the second question, more general. So we are seeing lower numbers for the last BTP valore. So where we are in your view in terms of normalization of market condition for flows? So how do you see the appetite of your clients for BTP compared to some months ago? So you mentioned it was a good trend in May. Can you elaborate also on this trend? Thank you.

Yes, thank you, Luigi. Let's say that If you ask me where the inflows will go in the next six, 12 months, I'm more positive on financial wrappers and advanced advisory services, probably first choice financial wrappers. Then in the retail distribution of funds, I do see an advantage in house versus towards third parties, and I don't see reason to change this trend. But let's say that if I have to choose one kind of product, it's all about financial wrappers and it's good for us also because the underlying part is invested in our Luximo platform. So first of all, advanced investment services. Second, retail funds. In the retail funds, I see positive inflows for our in-house. For the BTP Valore, just to give you my my feeling um the the current one should be 20 30 percent lower or compared to the previous one this is just internal projection and i do see room for another one or two placement for the retail distribution also because the penetration of govi bonds italian govi bonds is now starting to be a little bit less distant from the peak of the previous years. So I do expect another couple of initiatives, but less successful than the previous one. In terms of appetite, as I mentioned, the volumes are a little bit lower than the previous one, and we start seeing more interest on asset management solutions also in the bond space. So again, the normalization is almost there, and from this moment, I think that our industry will take an advantage.

Thank you.

Gentlemen, Mr. Mossa, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.

Okay, thank you, and waiting for meeting you in person. Bye.