Banca Generali Spa

Good afternoon, this is the Course Call Conference Operator. Welcome and thank you for joining the Banca Generali Full Year 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.

So, good afternoon and thank you for attending our full year's conference call. Before we get into our results, I want to quickly comment the market reaction to the recent announcement of a U.S. initiative called Altruist. Basically, it's a tool, an artificial intelligence tool for the automated tax planning. In Italy, it's largely irrelevant just because not for any investment-related taxation, the tax situation is handled directly by the revolving agents, so basically the banks or the financial intermediary, and not by the client. So the volatility on our stock today comes from this U.S.-centric situation that simply doesn't fit with the Italian wealth management context and even less with Banca Generale, also because we are not a brokerage platform. So as you know, and we say it several times, Italy has a unique economic and social environment where the wealth is still most invested in liquid assets, think of real estate or private companies, not listed equity. And it remains very much a sort of family affair. So in this context, our clients look for discretion, human guidance, and not automatic answer or interaction with the machine. It never happened. So the confidentiality, privacy are crucial, not negligible in the long lasting relationship with our financial advisors. So for this reason, the idea that an AI tool could say commoditize advisor in Italy just doesn't make any sense. If you think of Banca Generale business, it's built on trust, personal relationship, long-lasting relationship between a senior professional and our client, and several capabilities and expertise. So when we help our client, basically we must understand both their head, but also their stomach, and nobody wants that they're very personal information can be stored inside the machine. In Banco Generali, I think that AI is a great accelerator. It's not a replacement of business. IDP doesn't make any sense. AI will help our bankers work better and faster, while, of course, the human judgment, discretion, closeness to the client will be mainly of our financial advisors. That's the reason why we don't see any strategic risk in today's news. And again, AI will be disruptive in a positive sense. So dealing with clients is another business. especially if it is about ultra-network individuals with very significant wealth and invested, as I said, also in illiquid assets. And again, illiquid assets means not only private market, but it means real estate and in their own company, almost the time not listed one. And again, FEMI is a different concept. It's something very confident, needs trust. So nothing that you can solve out with technology. So having said that, let's start as usual with the major achievements for last year. So page three, let's say that we achieved new record high in terms of net profits, recurring net profits and total assets. Commercial activity was very solid with an acceleration in the last part of the year with the conclusion of the M&A headwinds. And thanks to solid commercial and financial results and the capital light approach, we will propose an increase in the dividend per share in the next AGL. Now, page four. Net profit closed, as we said, at a record high, 445.8 million euro, driven by recurring net profit, about 360 million euro, a lower contribution of variable net profit, basically for lower performance fee, and then a one-off in terms of tax refund, for total amount of 39 million euro. The reason behind the solid result in recurring fees is driven basically by solid net financial income and solid gross recurring fees. Starting from net financial income, page five, we close the year to 355.5 million euro, of which the greatest part comes from the net interest income. As you can see, the last quarter closed at 82 million euro, thanks to asset expansion and a pretty stable net interest margin yield. at 1.95 that is in line with our guidance to stay above 1.9. Next page, so page six, total gross fees. We close the year at 1,131,000,000. If we focus on the fourth quarter of last year, you see that the growth compared to the same period of the previous year is at almost 11%, while the variable fees contribution was lower than the previous year, with a positive contribution in the fourth quarter, 43 million, and almost all the assets at or close to the high watermark levels. Next page, we will deep dive on the gross recurring fees, starting from the investment fees. Investment fees close at 976 million, basically driven by asset expansion and stable margin. Fourth quarter number, 255 million euro, with an increasing contribution of both management fees and advisory fees. The overall management fees margin is stable at 1.41. Next page, other fees. Here you see an acceleration from 130 to 154, almost 55, basically thanks to the inclusion of Intermonte business and the solid traditional business. Starting from banking fees, here we have the completion of the phase-in of the new pricing, so a lower contribution from the traditional business and an increasing contribution from Intermonte. Focusing on brokerage commission, overall result 75 million euro, fourth quarter almost 20 million euro, very solid brokerage activity of our clients plus Intermonte contribution. Last, entry fees. You know we started the first half of last year with lower numbers. In the second half, we saw an acceleration. Part of this acceleration was driven by also the new capabilities thanks to Intermonte. So we have a greater penetration of structural products. So considering only the first quarter, the result was probably the best ever at €16.6 million. Moving on to page 9, so on the cost side, let's start with the total fee expenses. Overall total fee expenses close at €600 million with all the payout ratios at or below our guidance. In particular, the payout to OFAs for the ordinary part closed at 34.6, below the target of 36%. The incentive closed at 11.1, below the target of 12%. And also the payout to third parties closed below the target of 6%. The fourth quarter ended at 5.8. As a final result, the overall total payout ratio to the network, excluding the payout on net interest income, was at 51.5. That is definitely below our target of 53%. So, again, a great control of the payout and a very flexible model linked to the revenues. Next page. Operating costs, operating costs closer about €360 million which is basically due to some one-off and the change in perimeter. Starting from change in perimeter you see the inclusion of Intermonite, €38 million. The sales personal cost, so the part linked to the relationship manager, so employee banker, close slightly lower just because some bankers decide to move to the financial advisory network with the mandate. So this is positive news. And then in the core known items, you can see an overall contribution of $13.5 million with an acceleration in fourth quarter. This is basically linked to the cost of Mediabank and their offers. the setup of two major initiatives, insured banking and Intermonte, plus some projects to optimize, let's say, the organization of the bank. Overall, bottom of the page, you see co-operating costs. In the range, 68%, close at 288, almost 5 million euro invested in Intermonte. IT infrastructure modernization, AI and data-related projects. And as you can see, the fourth quarter looks higher than the other quarters, but is characterized by high seasonality. So if you compare fourth quarter with the same period of the previous year, you see that it increases around 6%. So also the core operating cost, so excluding investment, is well under control. Page 11, the last page on cost, operating cost on total assets flat at the minimum level, 0.8. The cost-income ratio adjusted for Intermonte with a slight increase due to this one-off cost. Page 12, to sum up, Very proud to have exceeded for the first time in the bank, one million in total banking income, cost characterized by one off. And then if we focus on the total non-operating charges, the overall total non-operating charges decreased to 105 million, thanks to lower regulatory contribution and the lower provision. and I'm confident to see lower numbers for this year and for the future. In the P&L, we included at the non-operating level also the $39 million of positive one-off as already commented to the tax refund. Overall, the tax rate closed close to 24%. This is basically linked to higher contribution of Luxembourg and we confirmed guidance for this year in the range of 26.7%. So now let's move to the section two, balance sheet and capital ratio. As already said in different conference calls, it is an asset business or asset expansion business. You can see that the overall total deposit increased to $15.8 billion with an important contribution in the acceleration in client deposits at $13.8 billion. And we say that the asset expansion, so the client's deposit expansion more than offset a small decrease in the net interest margin as we commented at the beginning. The net interest margin is driven by cost of funding and the yield on the bearing assets. Cost of funding slightly decreased to 0.77 and as you can see page 1.5 The same can be said for the yield on interest-bearing assets down to 2.81. A quick comment to the total assets, 18.5 billion. On the positive side, expansion in the banking book, financial assets at 12.8 billion, and also expansion of the loans to clients above 2.5 billion euros. Page 16, let's move on capital liquidity ratios. Also for last year, we confirmed solidity ratios. If we start from total capital ratio, close to 19%. Also once included several one-offs, consider the impact of CRR3, Intermonte first time consolidation, a higher breaking risk of sovereign for change of the model, And so forth, so it's a very solid total capital ratio, leverage ratio very high, 5.6, and liquidity ratios rising over time at liquidity coverage ratio 3.37 and stable funding ratio 2.45. So overall, very solid liquidity ratio, solid capital liquidity ratio. And the next page, page 17, we see the dividend proposal. So, first of all, we confer the total payout at 76%. In terms of DPS, it implies a dividend of 2.9 euro per share. And we will pay this 2.9 euro into tranches. The first one this year for a total amount of 2.2 and the second crash next year for a total amount of 0.7. So this will allow us to be consistent with our goal to help for a constant increase in absolute terms of dividend. And I take this opportunity also to remind you that We are close to pay the second crash of the DPS for the results of 2024 and we will pay in the 23rd of February 0.65 euros. Now let's move to the next session. So the total assets and net inflows, we close the year above 113 billion euros, two-thirds invested in assets under investment. An important slide is number 20. Page number 20 you can see the strong expansion of financial drafters and the overall drafters. Financial drafters increased by 1.8 billion euros in just one year and the overall drafters account for more than 50% of the managed solutions. And even more important and consistent with our target, the overall in-house funds overtook for the first time the third-party funds. You can see bottom the graph where in-house funds amounted to $13.2 billion or $1.3 billion higher year-on-year, while third-party funds grew slightly at $12.6 This is basically driven by inflows. Page 2.1, you can see the overall results, $6.8 billion, better mix, $4 billion invested in asset under investment. Focusing on asset under investment, you see an increasing contribution of both components, asset under management and advanced advisory. Under management, page 22, you can see that most of the increase is driven by financial rockers and in-house funds. And we confirm with structural shift from third party funds to in-house funds, at least in relative terms. Page 23. There is a detail of the net inflows by acquisition channel. They say that the existing network contributes at the same level as the previous year, despite the tender offer, so very positive reaction of the existing sales force. If we focus on net recruitment, 1.9 billion euro, the underlying is characterized by two different trends. a strong contribution of recruitment of three bankers in Switzerland, Equitum, for an amount of 800 million euros, and a very limited contribution of recruitment in Italy, penalized by the uncertainty, so 1.1. Overall, the numbers are close to the numbers of the previous year, so 166, And this is also thanks to an acceleration of the numbers in the fourth quarter after the termination of the headwinds linked to the M&A issue. Page 24, we have also a quick update of how we start the year. Consider that January is always a volatile month. but they say that if you compare in absolute terms interest, better than the previous year, so 0.5 billion, and of course there is a conservative asset allocation, but it's always the same story in general, and the signs from recruitment confirm the positive mood of the last quarter of last year, where it's not only a question of numbers of recruitment, but it's more about the quality. So we expected a significant contribution for recruitment for this year. Last, now we will give you an update on the two major projects, Intermonte and Asia Banking, and then some guidance and targets for the full year. So let's start from Intermonte, page 26. You already know this page. Basically, we confirm that we will double before the 2030, the net banking income from 40 to 89 million euro. And of this increase, 25, 30% will be already achieved this year. And as you can see, the cost income will decline, so it means that the increase, the synergies will present the same payout cost income ratio as the bank. Why we confirm these numbers but with an even more positive mood? Because as all the initiatives that we are rolling out are working much better than expected. The first one is about the synergies in terms of structured product internalization of derivatives. And you see at the left of the page, You see the acceleration in the fourth quarter of last year of the structural products. We already mentioned it. And we can confirm that the beginning of the year is higher than the same period as last year. We started also to internalize part of the margin in structural products, thanks to Intermonte. So Intermonte edging accounted for 14 percentage points. Let's say that you're going to see an increasing contribution once we're going to complete the full integration and optimization of the IT platform, and it should happen in the second half of this year. Manage products. We already launched two dedicated funds, Luxembourg Fund. We focus on Italian large cap and small cap. and we already collected more than 100 million euros, and we have just launched a new financial rafters with the proposition of protection, and where the hedging strategy is covered 100% by Intermont. Last but not least, probably the most important part of the synergy and the partnership, investment and banking, 150 meetings. Finally, the first two mandates signed, other 810 close to be signed. This is amazing. It's amazing just because the feedback from Intermonte is amazing, the feedback from the financial advisors is amazing, and the client really appreciates the synergies between private banking and investment banking, starting from the long-lasting relationship of the private banker to develop and to leverage on the capabilities and competencies of Intermonte. And as we can see, the kind of advice is well diversified. It's about, of course, M&A. It's about APT capital market, debt advisor, and so forth. Page 2A, moving on to issue banking. There is an update of a generally hybrid product. Overall assets close at 7.4 billion euros, or stable, year-on-year. with a higher contribution of in-house funds from 4.1 to 4.5 billion. Overall margins are stable over time at 0.64. Page 29, an update on Alleanza partnership. Of course, we confirm the target. But again, also in this case, the mood is more optimistic. Why? Just because we started. We started piloting the distribution banking products. We selected 100 private advisors at the end of last year, and we tested all the procedures, processes, platform, and we opened up. 270 new current accounts. So the machine works very well, with great enthusiasm, and for this reason, during the convention of Alleanza, the 5th of February, Alleanza announced the starting of the rail-out of Conto Unico, so the current account dedicated to Alleanza, to all 2,700 TAGAT advisors within this year. Quick comment on Stile Unico. Stile Unico is a unit link, so we are talking about insurance wrappers. We roll out, we completed the rollout to the 2,700 private advisors last year and the first numbers are encouraging with more or less €100 million of net inflows. solid evidences from Intermonte and Alleanza, very positive on the short, medium, and long term of this partnership. And now from page 30, a quick update on targets for this year. First of all, the inflows, so volumes, we increased the guidance. compared to the guidance of the last year from $6 billion to inflows at least at $6.5 billion with the assumption of stable financial markets. We see confirmation of the structural rebalancing between different distribution channels and we are very interested on recruitment activity. We are also confident to increase the product mix the quality of the inflows so we set an initial target of assets under investment from the previous 3.5 to the current 4 billion euro and this is again with the assumption of stable stable financial market and starting from the large share of copy bonds and corporate aspiring this year and the perception that the overall asset under investment exposure is reverting to long-term averages. Last page, free one, some financial targets. First of all, net interest income. We increased the range of the net interest income for this year. in the range of 330, 340 million euro, driven basically by asset expansion, so more client deposits and stable yield. We confirm both the management fee margin range and the co-operating cost range, waiting for the new three-year strategic plan that we will communicate and we will announce probably in the second half of this year. Just to close, I'm very optimistic on the bank, on the financial advising network and on the results. I perceive as we start a new season and I see further synergies under the winged line. So general is important for us and will be even more important in terms of synergies for the future. And now I will end the work for the Q&A session.

Thank you. This is the photo school conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on the touchtone telephone. To remove yourself from the question queue, please press star N2. Please pick up the receiver when asking questions. Anyone who has a question may press star N1 at this time. First question is from Luigi Tramontana .

Yes. Good afternoon. Many thanks for the presentation. A clarification on the provisions for risk and charges. Those are 49 million that you booked in the fourth quarter. Can you please give us some insight on that? What is due? And the second question is on the inflows. In 2025, you clearly outperformed your guidance with 6.8 billion. I'm a little bit surprised that you expect your net inflows for 26 to be lower than last year. given that we do not expect Mediobank to launch another offer. So this is a joke, but I would like to understand why do you expect the other assets inflow to be lower than last year? Thank you.

Thank you Luigi. Let's start from the inflows. As you know very well, we prefer to start with a conservative approach and then over deliver. 6.5 billion euro, I mean, is the highest guidance never communicated from the banking perspective and with a better quality. So we will be more focused on the quality than on the quantity, but as usual, that the target has been set to be overachieved. So let's see, some conservative assumptions from the beginning of the year, also to see the dynamics and the context. In terms of provision charges, and then I will end over for now, but let me review the flavor of this line. They say that in good time, I think that the best things to do is to be very conservative in the provision, especially for potential litigation on the performance of specific products. So we decided to clean up the overall position in terms of provision for some illiquid initiatives and then happy to release in case of different behaviors. So there is some problem with behavior behind that. But for more disclosure on that, I will end over to Max. Thank you Gian Maria. Let's say that in provision we have mainly three categories. Basically we have the provision for the FA for the FA for the retirement basically, which is an actuarial provision that is performed every year. And then the other two components are linked more to commercial initiative. We have been very, very conservative this year because also we have the benefit on the other side of the fiscal refund on dividends. So we decided to be very conservative. Although if we compare the overall they are lower compared with the previous year. Going forward, we expect that, of course, this provision will go down because we have been very conservative in 2025.

Very clear. Thank you.

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Next question is from Marco Nicolai Jeffries.

Hello, thanks for taking my question. It would be, again, if you can come back a little bit on the sell-off that we are seeing today. Yeah, I agree with your initial words. Like, it seems unwarranted, especially for a business like Banca Generale, very much skewed towards private and high net worth customers. But can you please repeat, you know, the main reasons why for you this is overdone, especially for Banca Generale? And also, maybe can you spend a few words on what could be the upside of artificial intelligence for your business? And the second question on the costs, I've seen the guidance on the OPEX. You refer to the core OPEX in your guidance. Can you give us an idea of, in general, what do you expect in terms Are there no recurring items that you could see also next year in the cost base? Thank you.

Yes, thank you, Marco. Let's start by saying that if you look at the initiative, the U.S. initiative, Altruist is basically a tool, an AI tool, to work out tax planning. And as you know, in the US, it's something that is on the shoulder of the client. So finding a way to offer a cheap solution to a sort of automation with tax planning, it's significant in the US. In Italy, it cannot be applied just because we already take care of this tax planning when it's about the investment-related taxation instead of the client. Let's say that we handle it directly through the withholding agent. So it's the bank, the financial intermediary. So this is the first consideration, but let's say that basically what Altrist is Supposing the U.S. is not applicable in Italy. Okay? So, a different context. Then you have to consider, in the case of Banca Generali, our business model, we are the most exposed player to the high-net-worth individuals in the range of 1 million, 50 million, more or less. And in that segment of clients, the priority is to manage the overall wealth, bringing it closer to the family needs. So it's about family protection needs, it's about succession planning, it's about, of course, tax efficiency, but it's something different from what we define tax efficiency in the U.S. And basically, the tax efficiency in Italy means leverage some specific vehicles, for example, the insurance one. And when you deal with the total wealth of the client and the needs of the family, it's all about, of course, with some rational behaviors, but a great part of the conversation is driven by the stomach of the client. And they ask for confidentiality. It's almost impossible to store all the information they provide in a machine. just because it's so personal that it's the first question and the first need of the client to be assured about the use of this information. And again, and we start discussing these kinds of topics thanks to a long-lasting relationship with the client, with the banker. So it's about the human touch, the closeness of the client, the closeness of the banker, So, of course, we provide an open-ended platform with the best of IT, the best of products, the best of financial advisors, and so forth. But the essence of our business is that one client is different from the other one. And it's different not for the product or asset allocation, but for how they build their wealth and how they connect this wealth with their families. So it's a very complicated business, very personalized business. And it's basically made up by human touch and physical presence. So I spend most of my week meeting top clients. So it's a different story. If you consider brokerage platforms, I mean, it's about technology, and there can be some threats from technology itself, from innovation. But if the model is based on the competencies, the professionals, and the long-lasting relationship on non-standardized needs, it's much more complicated. So, and I say that it doesn't make any sense to consider any digital disruptions as a threat to this model. So AI instead can be an accelerator. It can be an accelerator, of course, standard approach for the bank, more efficiency to the bank. And this is a standard for any bank. We are managing a very important process to change the culture. We launched a project with ambassadors across all the functions of the bank, and I'm sure that we are approaching AI in the best way. But the real game changer is for the financial advisors, just because our bank compared to any other bank is more complex, more complicated, just because we want to give the possibility to have plenty of services, of products, and all opportunities. So for the financial advisor, it's much more complicated to be updated on everything we provide. So simplifying the operating process to the financial advisor, providing them the next offering for the client with all the information, make the relationship much easier. So as a way to simplify the selling proposition and to optimize the operating machine for the financial advisors. So in this sense, I think that you can be more efficient in the bank and more productive for the financial advisor. So we should see an expansion of multiple, not a correction of the market. Then the second question is about the non-core cost. Short introduction by myself and when I am over to Tommaso. Let's say that Intermonte, I do expect stable costs. Sales personnel, I do expect stable or declining costs, except for any particular recruitment. And one-off costs in terms of, let's say, consultancies or stuff like that, I do not expect an impact as last year. So overall, we should see a reduction of this component. Yes, I confirm that, of course, core cost excludes sales personnel, if we have changing perimeters, so we will include in 2026 inter-month in the core cost. and we expect the reduction of the non-core component into one-off because we don't expect to have another tender offer by anyone. And of course also the project of integration intermonte have been approved in the major part in 2025 and we don't expect the same amount So, on average, if you look at the long term, the pure non-core items have been around 4-5 million and we expect in 2030, the next year, we will have the same amount. the guidance is applied on non-core costs, but also on the total operating costs. I think it's the same increase that we expect.

Thank you. Can I follow up?

Please, please follow up. Like, you know, basically benefit from these AI benefit revenue synergies, essentially. So do you need any investments beforehand? Do you foresee any major expense you need to put through before enjoying these revenue synergies? And if you think about a timeframe, would you think about, I don't know, these benefits coming over the medium term, over the long term, I don't know, any callers on this part.

I do expect a positive impact already next year. So we're going to launch some specific initiatives in the second half of this year, and I'm sure that it will imply a higher productivity. So no, no, I'm positive on the contribution starting from next year. In terms of lean processes in the banks, This culture shift is already happening, so I do expect an overall increase of quality and efficiency in the bank. We have plenty of projects, so we can finance this project with the savings in, let's say, ordinary business. The reason why we do not see or we do not expect an acceleration of cost despite the insured banking, despite Intermont, and despite other very important projects, is due to the fact that we consider some savings from the existing business thanks to AI.

Thank you.

And sorry, just to complete the first question, we are considering different partnership with AI provider. We spent almost 18 months discussing with the major initiative in the AI trial banking company fully digital platform. So, again, I do see opportunities of collaboration, not of competition, considering our business.

Okay, thank you very much.

For any further questions, please press star N1 on your telephone. Mr. Mossa, there are no more questions registered at this time.

Okay. Thank you so much for participating to our conference call, and happy to answer and support conference call to any further questions. Thank you. Bye.