Banca Generali Spa

Good afternoon. This is the Corsco conference operator. Welcome and thank you for joining the Banca Generali first half 2025 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 Alpha Results Conference Call. The overall results were pretty solid, driven by recurring business. with recurring net profit at 176.3 million, reaching its best level ever. And this was driven also by asset expansion, with client assets at a new record high at 106.5 billion euros. The first start was also very important for us because we set up the initial banking business thanks to the partnership with Generali, and we will deep dive in the last section of the presentation. But let's start as usual by numbers. Net profit, page four. The second quarter closed at almost 90 million euros, basically driven by recurring net profit. The overall result of the first half, as already mentioned, closed at 176. and the contribution of variable net profit closed at 23.9 with negligible contribution in the second half. The net profit and the recurring component were very well supported by the net financial income, page five, number very strong, basically driven by net interest income and also trading gains. The net interest income closed at 82.4, thanks to asset aspersion. And then the trading gains and others close at 6.6 million, including also inter-month. If we focus on the total net interest income yield, bottom of the page, you see it was pretty stable in the quarter, 2.08%. and we are confident to stay at or higher for the remaining part of the year. So we have a target of 200 basis points and stable assets. Page six, the other component of recurring fees is about gross recurring fees. The gross recurring fees closed at 271, slightly down. We will see that the slight reduction was temporary and basically driven by market effect. The overall result, first half compared to the first half of last year, closed higher by 6.9%. As you can see, variable fees contribute Marginally, in the second quarter, €8 million, but the recent recovery with the financial markets allowed us to have 25-30% of the overall assets in BG Fund Management Luxembourg at or very close to the high water mark. And for July, the performances are already in line with the results of the second quarter. We were saying that the grocery currency suffered by the market crash at the beginning of April. This is pretty clear at page 7, where we have a deep dive on investment fees. You see management fees close at €120 million. This is basically driven by two major effects. The first one is driven by lower average assets under management. and the second driven by lower margin due to market crash and a more conservative asset allocation. We are confident to confirm for the second half of this year a range between 140 and 142, driven by new initiatives that we're going to launch in September during our convention. Regarding advisory fees, instead you see the second quarter close in line with the first quarter at 13.5 million euro. Page eight, you see the added fees component, overall positive results with mixed trend. First of all, you see lower entry fees, and this is basically driven by reduction of the structural products at the beginning of the quarter, strictly connected with market turmoil, while you see higher banking fees and higher brokerage fees, and this is also thanks to the inclusion of Intermonte members. In particular, brokerage commissions close at 19.5 million and banking fees at 8.3 million. Page 9, let's move on to the cost part. Total payout ratio are in line with our projections. So the overall payout USA is close at 47%, of which 35.9% on ordinary payout and 11.1% on the cost for growth. So this is pretty stable overall. and we are confident to maintain these levels. The second row, you can see how the CSPS or net interest income is declining, in line with the reduction of the yield in the market. And last, the payout to third parties, close at 6.2, which is a base effect due to the correction of the market, but in absolute terms, also in this case, we saw a reduction. Page 10, We have the detail of the operating costs. The non-core items are in line with the first quarter, while the core operating costs close at 8.2%. This is basically driven by specific investments for the setup of the initial banking business and for implementation of specific AI projects. For this year, we do expect to stay around this level, while in the next two, three years, we have a projection to normalize this number in the range 6%, 7%. Page 11, the usual representation of the operating leverage with operating costs on total assets at the lowest level of 0.28%. and cost-to-income ratio just slightly higher. So page 12, to sum up, I'm confident on the income components for the second part of the year, thanks to a stable margin on the net interest income and a stable, just a little bit higher, margin on asset under investment. The costs are well managed. So under control, but with specific investments to introduce a new distribution channel with insured banking and to enhance productivity with AI projects. If we look at the set below the operating line, total non-operating charges in the year-on-year comparison close lower, benefiting from lower regulatory contribution to banking and insurance funds. Last but not least, tax ratings in line with our projection, between 26 and 27, close to 26.3%. Balance sheet, page 1-4. As we said, asset expansion, so overall total deposit close higher, 15 billion from 14.5, and the cost of funding slightly down in line with the evolution of market rate. If we look at page 15, same trend for the total assets, interest-bearing assets close higher from 15.4 to 16. And again, the yield on interest-bearing assets is in line with the cost of funding slightly down. And the result is pretty stable, net interest margin yield at the confirmation of a target about 200 basis points for the second half of the year. Multiplying this margin for the current level of the interest-bearing assets, you can work out a target for this year at around €310 million or higher. Page 16, you see the capital and liquidity ratios. Total capital ratio is solid. close to 20%. Consider that the TCR include the impact from CRR3, include the first-time integration of Intermonte, and even most important, it includes dividend provision in line with the current dividend policy, or 82% of the overall result. So, 164 million euros already constitute a provision for the dividend policy. Leverage ratio and liquidity ratio well above the requirement. Next section, net inflows assets and recruiting. We already said that total assets achieved new record high, 106.5 billion euro. with more than $71 billion in assets under investment. Very promising trend underlying the assets under investment. If you move on to page 19, you see the managed products recovering year-on-year from 45.8 to 49.1, and you see also recovery in the traditional life policies, positive contribution for future profitability. First of all, an increasing weight of wrappers on the total management solution, driven basically by financial wrappers expansion. Financial wrappers close at 12.9 billion euro or 1.4 billion of increase year-on-year. And in the fund industry, we continue to see the ongoing rebalancing between third-party funds and in-house funds. now funds account for 12 billion euros compared to 11.1, same year as last year. Page 20, we start looking at net inflows. You see the improving quality. So out of the 3 billion euros of overall total net inflows, 1.6 has been invested in asset under investment. On the right, you see the details of this 1.6. Most of these numbers have been invested in asset under management, 1.5 billion euro, or 50% of the total net inflows. This 1.5 billion euro, and if you move page to one, you can see that it's been invested proportionally, 50% or more or less 50% in traditional life policies and 800 million euro in managed solutions with a particular focus in financial wrappers, 600 million, and in house funds, 300 million. Last page regarding inflows, page 22. You see the net inflows by acquisition channel. The current uncertainty over the exchange public offer created a stop in the recruitment activity. So there's some cues, some positive cues, but let's say that it's clear that we have a temporary slowdown. but I can say that it's impressive the numbers of interviews that we are having and the feedback. So I'm pretty convinced that as soon as we will know the result of the exchange public offer, you will see an acceleration on the equipment numbers. July, in terms of the total net inflows, is pretty strong, higher than last year. Now, I think that the most important part of this presentation is the business update part, because I will explain why I'm so excited to the idea to start with the initial banking business, thanks to the partnership with Generali. And to understand the potential of this partnership, you have to go through numbers at page 24. What you can see on page 24, we start with a size of the Italian targetable financial household wealth. What we mean by targetable financial household wealth is the total financial household wealth less the less liquid assets, for example, not listed equity, and less the assets that we do not allocate to a specific distribution channel. If you look at on the left, you see the breakdown of the Italian target of targetable financial assets in two major clusters. The first one, 24.5%, is about insurance products. The remaining 75% is about current accounts, deposits, and asset management. It means that with this representation, the overall contribution of insurance products accounts for €920 billion. And it means that for Each euro invested in insurance, you have other three euros invested in other products. At the center of the page, you see the breakdown of this targetable financial household wealth in three major distribution channels. The first one refers to insurance agents. You know insurance agents manage only a part of their client assets and is fully invested in insurance products. So the 192 billion euros of the insurance agent refers to only insurance products. The remaining part of the insurance products are distributed by the other distribution channels. And you can see in the second column and the third column, that the penetration of insurance products in the private banking and the penetration of insurance products in retail is pretty constant, and it is at around 20% of the total assets. So now, starting from the consideration that the insurance agent manages only a part, okay, if we adopt the same percentage, so 20-25% allocation to these assets, you would have a potential wealth of 750-950 billion euros. So it means that the clients reached by the agents Each one has one euro in insurance policy with the agent and three, four euros with another player in another distribution channel. The good news in this case is that if you focus on the insurance agent, the market is well known that the most performant and qualified player is Generali. and the Generali agents account for more or less 50% of the entire business. So if you divide it by two, the range, you would have the potential of the client reached through the Generali agents. And we are talking about a multiple of Banca Generali. My target is to reach at least 10, 15% of this target in a 10-year time. And if you work out the numbers, you will see that for us is a tremendous opportunity. For this reason, we signed an important contract with Generali, the 17th of April, page 25. We already presented this agreement in the previous conference call. Here there are some details. The first three bullet points are about the different models to reach the clients of Generali. And the fourth bullet point is about the capabilities of Banca Generali in managing insurance products for the financial assets, so the risky assets. So let's focus on the different way we can reach the Generali client. So move on page 26. And here basically you see three different models. The first one is well known. We provide with numbers every quarter and it's about financial planning of agency. So an agent of Generali receives a mandate by Banca Generali to distribute banking and finance products. So you have one professional with two mandates, one for the insurance products by Generali and one for banking and finance products by Banca Generali. This is well established as a business and in the agreement here the goal is to accelerate the penetration of this model. The second one, in the middle of the page, direct insured banking, is probably the newest one, and it's about providing banking products and services to Generali clients directly through the distribution channel of Generali with the support of remote banking and digital tools provided by Banca Generali. and we will deep dive later. The third one, for us, is at the moment just a pilot. We launched a couple of pilots just to test it, because it is something that has been adopted by other competitors, because the initial banking has been launched in all major competitors of Generali, so in Italy, Zurich, Allianz, and Uniport. I said that there is a mix of these models. In one case, the third one is the most important. For us, it's just a pilot. Page 2.7, we start with the FPA model, so the one you already know, and we show the numbers so far achieved. And you see that in 2022, there is an acceleration. 2022 was a sort of watershed and it was driven by the increase of interest rate. With an increase in interest rate, the outflows from insurance products accelerated and the agents started asking for other products to retain part of these outflows. So the reason behind this acceleration is a spontaneous Request for this kind of mandate from agents of generality. And now this business accounts for 2.3 billion euros. Of course, you see a slowdown in the last period, which is driven by the uncertainty of the exchange public offer. In terms of professional, you see that from 1974, we exceeded 100 in just a couple of years. And here, the scope is to accelerate this trend. Page 28 is a new agreement. On June the 30th, we signed a new contract, a new agreement with Alleanza. Alleanza is, to me, one of the best and performing distribution channels in Generali and in Italy, well led by Davide Passero, and we agree that the time is ready to raise the bar and increase the penetration of their clients. Actually, the distribution channel of Alleanza counts on more than 10,000 professional and they provide insurance products for almost 2 million clients. And here the strong conviction shared by myself and Davide is that thanks to this very performing distribution channel, we will increase the cross-selling and the up-selling by opening up the distribution of the banking products and services through their channels. So the priorities of this partnership is, first of all, to open up the distribution of banking products and banking services through Alleanza. And the second priority is to enlarge the insurance portfolio, providing a hybrid solution similar to the ones we provide to our clients, specifically for the different targets of clients, called Stile, that you know as Stile Libero, and a different version, Stile Exclusive and Stile Unico. So we're going to provide the same insurance wrappers to Alleanza clients with Banca Generali with the responsibility to manage the underlying. So why we are so confident? The distribution channel is very performing, is well diversified, and they know how to offer very complicated products like protection. Now we will start with cross-selling by providing to the clients with banking products and deposits, and then up-selling by moving from standard insurance products to very sophisticated and personalized solutions, well-known in Banca Generale, this kind of product, as you know, represents probably the most successful platform we ever launched in Italy, and now we will extend the distribution from private banking to affluent markets. So, coming to the conclusion, page 29, as Board of Directors on the 26th of July, we launched a new strategic plan, 2026-2028, and this strategic plan has been developed on a standalone basis. One of the most important pillars of this new strategy is based on the partnership with Generali, so the insured banking in particular. We started. We started means that we already announced it to the professional of Alleanza the 17th of July. We have already organized a convention, a network kickoff convention for October the 9th. And the really good news is that the national rollout will start as soon as November of this year. And I'm very confident to start seeing numbers as soon as the first half of next year. So insured banking is an engine of future growth for the bank. As you well understand, we are very committed in delivering our new strategic plan. We have several initiatives. Intermonte is going much better than expected. AI is a game changer for the portfolio of financial advisors. And then insured banking. And more to come. We are organizing a convention for September in which we're going to launch a new product to increase profitability in the asset management business. So we are definitely not distracted by the pending voluntary exchange of public offer. And despite this short-term uncertainty, we are very confident to deliver all targets, at least 6 billion euros of net inflows, at least 3.5 billion assets under investment. We confirm profitability in the net interest income. We confirm a range between 140 and 140 to a basis point in the asset management products. And we do expect to expand assets. So we are confident to close very well this year and to start in better shape thanks to the insured banking also next year. And now I will hand over to the Q&A session. Thank you.

Thank you. This is the Coruscant 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 touchtone 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 1 at this time. The first question is from Marco Nicolai of Jefferies. Please go ahead.

Good afternoon. Take questions for me. Asset under investment flows improved considerably in May and June compared to April, despite the volatility around the M&A scenarios. So what do you expect for the second half? I see you reiterated the annual guidance. but if you could give us some clarity on the trends you expect, maybe in the various product lines, it would be very interesting. Another question on the brokerage fees. So it's been two quarters, you're at or above 19 million. Is this the new run rate with Intermonte? Another question on the cost of risk. That increased this quarter. Can you give us some color on the drivers? And sorry, last question on the FBA agents. Now you're on 107 of these agents. So where do you expect to be in, say, one or two years' time, also thanks to the Allianz partnership? Thank you.

Thank you. Let's start from the detail of asset underinvestment flows. For the second half of the year, I do expect that say, a contribution, say, close to 50%. But the mix will change. I'm more optimistic on the asset management, so funds, for the new offer we're going to launch at the beginning of October, and we're going to announce at our convention in September. And in the insurance space, We do expect, again, a remix for a new release of the insurance wrappers. So overall, I do expect better quality in terms of profitability, constant share of the overall total net inflows. Brokerage fees, short transfer, yes. Confirm to stay at or above $19 million. We are expanding the offer, onboarding new clients, launching new strategies. So brokerage is working very well. So we said that this should be a flow. FBA agents. Let's say that you have to consider FBA and Alleanza two different projects. Alleanza is about distributing products through their distribution channel. And I do expect to at least involve 2,000 of their professionals next year. It will take time, but I'm sure that at least two times we'll be on board before the end of next year. So it means 2,000 professionals offering banking products banking services, and a new insurance solution, not to a new client, but to their existing client, and the target is an affluent client, so something absolutely new for us. FTA is a different story. FTA means a paid agent working in an agency asking for a mandate to be, say, able to provide banking and finance products of Banca Generali. So it takes more time and it's about different kinds of clients, more upper affluent and private clients. And we're going to disclose the targets on this specific project when we will release our three-year strategic project as soon as we're going to know the result of the pending public offer. And for the cost of risk, I will ask Tommaso to answer. Thank you, Gian Maria. I say that the quality of the credit portfolio is not changing, so our policy continues to be very safe from this point of view. So we have just a spike, which is a contingent moment in the first half, which is linked to basically also to some specific position, which is where we had a write-off, which is linked more to the credit activity, to the lending activity, so linked to some specific guarantees, linked to some specific clients, so it's something that is not going to be let's say, a recurring rate of that you will have in the future. So it's just a spike that we have in this quarter, and the quality of the portfolio is unchanged. Thank you.

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

Yes, good afternoon, and thank you for taking my questions. I've got actually three questions. The first one is on the insured banking project. What makes you so confident about the possibility of involving banks at least 2,000 professionals at generally Italia and Alleanza, and about the fact of being this project successful. Is it the fact that you have already experienced it in a different way through the SPAs, or... Are there also other elements that we have to take into consideration? The second question is on the absolute NII guidance. Have I understood correctly? Because I have some problems in connection that you mentioned 310 million for this year, just a quick confirmation. And then I would like to go in depth the line of provisions, which is down compared to last year, but I would like to have a breakdown of this item if possible. Thank you.

Thank you. So the InfoRubain project, I can answer in two different ways. The first one, three different ways. The first one is the first time ever that we launched a strategic plan with Alleanza for direct distribution. Alleanza is a very well-performing network and is the natural evolution of a professional. So they have to fully understand the opportunity and to penetrate and increase cross-selling and up-selling to existing clients. We have 10,000 and my assumption, very conservative, is that we're going to involve only 20% of the professionals. So it's something absolutely new. We are very committed and there is a great enthusiasm around this project. The second reason is because As you know, it's a project already launched by other competitors, as I mentioned before, and the banking industry is entering the insurance business. So it's also not only a move to increase profitability, increase penetration, but it's also a defensive move. So to have a different proposition, a realistic proposition for the clients And third one, what happened in 2022 was very disruptive because for the first time you start seeing significant outflows. And to avoid the repetition of such a kind of extreme scenario, if I were a professional, I would like to have also some alternatives in order to at least capture part of the outflows in case of raising interest rates. So for all these reasons, I'm very confident. And second, on the guidance, you are right. We do expect to stay at or above 200 basis points in terms of yield. If you multiply these 200 basis points for the current level of the interest-bearing asset, 15.5, you have a level of a number around 310 million. For the provision, I will hand over to Marcello. Thank you. Let's say that the provisions are quite stable in the first half compared with the same period of last year. Then the decrease that you see is mainly linked to the provision to the resolution fund, the banking resolution fund, which is down basically to zero. So this is why we have a benefit in DTNL, which is mainly linked to this. The provision, let's say the classical provision are very stable, and in this provision we have the severance for SA and the normal provision to, let's say, risk and charges that we have on a quarterly basis. So, very stable, and we look also forward, we don't see a great change in these numbers, while we see that the provision for the Resolution Fund will be much lower than last year, starting from this year.

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

Hi, good afternoon. I have some questions. The first one is on the recruitment. You mentioned a more complex environment on the recruitment front. Could you elaborate on the main challenges you are facing today? To what extent is this complexity temporary and tied to the recent offer from Mediobanca? And if this challenge has impacted also the net inflows trend? The second question is on performance fees. You mentioned $5.5 billion of asset under management close to high watermark. Could you quantify the potential upside to performance fees in second half if markets will remain supportive? The third question on the NII, $310 million for this year. Considering the current interest rate curve, your respected commercial policy, can we assume at least a stable NII for next year? And last question on the Intermonte integration. So could you elaborate on the revenue synergies already materializing? You mentioned the growing interest from entrepreneurs, clients in exploring the opportunity. So can you elaborate on this and from which banks or channel you are gaining Infrazone market share from thanks to the Intermonte integration? Thank you.

Thank you. Let's start from recruitment. Let's say that the partnership, the M&A with Intermonte was a game changer for us, great interest from several professionals to explore the potentiality of this deal. So I see on top of the traditional interest for Banca Generale as the top private bank in Italy, at least in our space or the financial advisors, Now there is also the possibility to provide corporate investment banking services starting from the long-lasting relationship banker and client. And so it works very well also for recruitment. So we have plenty of conversation and interview. But, of course, temporarily they are asking about the result of the pending interview. exchange public offers. So it's a difficult thing to change. We have also some candidates willing to join despite the situation, but it's just a small number. So it's pretty understandable as behavior. And we have some delays also with some clients having the same need to understand exactly the sort of bankers they are. But Despite this uncertainty, I'm impressed by the number of financial advisors we are meeting and private bankers. And I'm impressed by the interest around Intermonte. And this is why during the conference what I said, the integration is working even better. Why even better? Because we have, let's say, at least three activities in place. The first one is we have entrepreneurs. The feedback from Intermonte is absolutely positive. We have already organized almost 100 meetings. And so meeting the clients, the entrepreneur, with a financial advisor who knows this client for years is much easier. And we start seeing plenty of opportunities. And this will translate in new inflows as soon as the deal will be closed. So it takes time, of course. It's like a child, six, nine months at least, and we're going to see next year. And the second opportunity is a game changer in the use of derivatives to protect and to internalize margins. So we're going to launch a new set of strategies, both in the asset management and in the asset undercut study, with the proposition of protection. And this is really powerful. Our internal team... supporting significant new innovative solutions, and we will present these at the next conference, at the next convention with the financial advisors. The third one is internalization of margins, and we are working to internalize part of the margins, structural products and brokerage, and this will take place before the end of the year, at least the first part. of these synergies, integration, vertical integration of the value chain. And for net interest income, you know, it's too early to give guidance for the next year. The idea is to announce our view when we meet for the strategy plan. I can tell you that I do not expect any reduction in the interest-bearing asset. So in a positive scenario of asset expansion, I think that the yield will reduce slightly, but I do not expect a significant negative impact on the overall contribution net interest income.

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

Yes, hi. Good afternoon. A couple on the insured banking project. The first one is on the FA agent collaboration. I was wondering if you can share with us some ideas on the referral fee or the fee sharing in case a sale is done jointly among the two professionals. And also linked to Alleanza, it seems to me that Alleanza moved away from G&A Savings Products since ages now, so they are offering multi-class wrapper. I think they're also selling the Valore Futuro of Generali. In case, so what is the incentive for them to switch to the steel-exclusivo, so selling your multi-class product vis-a-vis that provided by Generali? I think you are reaching Alleanza via digital channels, so there is not a fee sharing probably with a financial advisor, but it is more with Banca Generali as an institution. So here my question is, Is it going to be neutral for an Alleanza professional to sell a generally multi-class insurance product vis-a-vis your product? Or there is something I'm missing in terms of how they will steer the decision on this point? Thank you.

So, this is a question We have at least a couple of examples in the market. When you have the full control of both the agent and financial advisor, you can sign a contract in which you decide to work on both the customer base with respect to the recurring fees. So on one end, the financial advisor works on the customer base of the agent, across from that second... On the other side, the trade agent works on the customer base or the financial advisor for protection needs. So we launched a couple of pilots to see if this kind of model can work, even if there isn't the full control of the bank in general. But we have a very good example in the Italian market working very well. On Allianza's side, you have to consider Allianza as a very well-diversified population, both in terms of professionals and in terms of clients. And when I mention the standardized, but in a positive way, products, the standard offer, it means that it's a specific offer for protection. As you know, was a great success because it was able to capture the assets invested in single funds for fiscal optimization, operational optimization, much higher diversification, and so forth. So the target for this kind of product is slightly different from target of standard solution in the saving space. And you know, as I said, a well-diversified population, so I do expect in the portfolio of Alianto offering that platform clients also with other assets with other distributors. So capturing the asset management components with this proposition for me is different than the traditional proposition of standardized unit link. Even if the standardized unit link offer protection thanks to the ancillary insurance providers. So different propositions, different target of clients and much higher focus on the best professional just to have the possibility to provide a very high personalized solution to the final client. So I'm sure that this will increase the share of work also in the insurance space Moreover, we allow the clients with more sophisticated needs to see an answer to these needs. And the last but not least, consider that these distribution networks successfully move from traditional unit needs to protection with excellent numbers. they know how to expand the offer and the proposition to clients. It's well-steered, this network, and there is a strategic interest in broadening the offer. So I'm pretty confident that it will be a success.

So very complementary with what they already have in the product range. Exactly, exactly. Thank you, Gian Maria.

Thank you. For any further questions, please press star and one on your telephone. Mr. Mossa, there are no more questions registered at this time.

Thank you for attending our conference call.