Banca Monte dei Paschi di Siena

Good morning, everyone. Thank you for joining us today for the presentation of our second quarter and first half 2025 financial results. Today we present spectacular results with a quarterly profit of $479 million and nearly $900 million in the first half of the year. These numbers show our tangible capability to deliver growth, high profitability, and strategic clarity. The clarity of purpose is really paying off for customers, employees, and increasingly for shareholders. Our advantage lies in our deep client relationship developed by a unique and very powerful distribution network that delivers high quality revenues and rising fees contribution. Building on the strong results of the first half, we continue to lead with a strong quarter-one ratio on 18.6, a position that's further validated by recent stress tests. Even under adverse scenario, our bank ranks at the top of the sector in Italy and Europe. We build what they call a fortezza, a robust balance sheet capable of protecting Montepaschi and creating opportunity for decades to come. Our profitability is accelerating to strong commercial activity. With this solid foundation and on the back of excellent first-half performance, we have raised the bar for full year 2025 and now expect pre-tax profit to well exceed 1.5 billion. This is a clear sign that Monte Paschi is delivering a real and growing value. With this awareness, we confirm our determination to create a new leading competitive force in the Italian banking system through our offer for Mediobanca, which is now live in the market. Through this extraordinary combination with Mediobanca, we will generate a superior sustainable value over the long term, offering certain returns to both sets of shareholders. The know-how and distinctive skills of Mediobanca will perfectly complement those of Montepaschi. This commitment is supported by Montepaschi shareholders' endorsement. and the confidence we have that the tangible, immediate, and sustainable value of our offer will be appreciated by Mediobanca shareholders. Now let's dive into today's results that showcase our ability to deliver on our promises. First, some key highlights. Net profit for the second quarter hit $479 million, up by more than 15% on the previous quarter, bringing the results over six months nearly to $100 million, plus 21.4% on the previous year. The key driver was the strong operating performance visible in the net operating profit dynamics. Gross operating profit reached $576 million, up by 6.7% quarter-on-quarter, thanks to growing income and flat cost dynamics. After six months, total revenues reached over $2 billion, allowing us to more than offset an increase in operating costs and keep the overall level of gross operating profit higher than the previous year. We saw strong commercial performance in key strategic areas. What management gross inflow in the six months were close to 9 billion, up 20% year-on-year. We granted mortgage worth 3.5 billion in the first half, double last year volumes, helping Italian families achieve home ownership while building a high-quality loan portfolio. and the new consumer loans show a 20% increase compared to the same period last year. These are all tangible signs of a bank deeply connected to its client and the real economy. Further improvement in asset quality was achieved with the overall reduction of $500 million in non-performing loans stock, of which over $300 million was through the sale of a portfolio that was just finalized with economics already included in our results. Our cost of risk dropped to 43 basis points from 53 last year, and it is tracking in line with our guidance. Our liquidity position remains sound, and our core tier one ratio at record level on 18.6 provides a significant buffer above requirements. Montepaschi stands among the strongest bank in Italy and Europe, a position that creates strategic flexibility and competitive advantage. Now, let's move to more details of our results. As I have just mentioned, net profit of the first half of the year reached €892 million, up by 21.4% year-on-year, excluding the positive next tax in both periods. Results are sustained by a strong commercial activity which confirmed the solidity of our business model and Montepaschi strength. The results were supported by an excellent second quarter with net profit of 479 million euros with an almost plus 16% growth versus the first quarter 2024 if we exclude the net taxes. Now, moving on to the next slide. where we are presenting the net operating profit, which after six months amounted to €936 million, showing a positive trend, growing plus 4.3% year-on-year, thanks to higher revenues with increased net fee income contribution, thanks to the strong commercial effectiveness of our franchise. The net operating profit amounted to €488 million, in the second quarter, growing by 9.1% quarter-on-quarter thanks to increased revenues, effective cost management, and lower cost of risk. Now let's move to gross operating profit, which reached $576 million in this quarter, increasing by 7.6% quarter-on-quarter. It was driven by almost 4% revenues grow in a quarter and effective management operating costs. Cost-income ratio has improved to 45% compared to 47% in the first quarter. For the first half of 2025, gross operating profit crossed more than $1.1 billion up compared to the previous year, thanks to the growing revenues driven by net income growth. This growth allows us to more than offset the increased cost impacted by labor contract renewal and higher variable remuneration pool. This again demonstrates our disciplined approach to both cost and revenue generation, ensuring steady performance even in a competitive context. For the first half of 2025, we maintain the cost income ratio that underlines our focus on operational discipline. The solid metrics support our strategy to deliver sustainable profitability over the medium to long term. As I mentioned, all the financial results have been achieved thanks to the commercial activity of our network focused on key strategic areas and delivering the results in a very sustainable manner. Just to comment on some KPIs. Total commercial selling crossed 171 billion and were higher by approximately 4 billion euros since December, 2024. Wealth management cross inflow amounted to almost 9 billion in six months, up by 18% year-on-year. New retail mortgages granted in six months reached 3.5 billion euros, 2.5 times compared to the first half of 2024. New consumer finance flows amounted to almost 690 million, with a 20% year-on-year dynamic. These achievements are another confirmation of the solidity and validity of the Montepaschi network. I would like to say thank you to our colleagues for the excellent results achieved. Now, let's have a look to the net interest income evolution. The net interest income on the second quarter amounted to 551 million euros. and was up by 1.5% quarter-on-quarter thanks to lending volume expansion and further optimization of cost of funding, allowing to compensate negative impact on rates reduction on loans. In the first half of 2025, net interest income reached $1,094,000,000. with the yearly trend in line with the guidance given to the market at the beginning of the year.

Now, looking at the volumes, let's start with loans.

We are reporting, again, very strong net loans dynamic in the quarter with the growing retail a small business component by 1.5 billion euro, which gives plus 2.4 dynamic quarter-on-quarter, with almost 5% growth since the beginning of the year. Such growth was possible thanks to the strong commercial activity in key strategic segments, and this part of our strategic approach to mitigate the impact of decreasing rates on net interest income trend. We were also able to increase market share since the beginning of the year. Now, moving on commercial savings, the total commercial savings in June exceeded the level of 171 million, up by more than 4 billion in the second quarter. supporting the performance year-on-year and the performance year-to-date. The growth is reported across all components, including also deposits, which is confirming the solid funding base and effective approach in managing the trade-off between volumes and prices.

Looking at our portfolio of Italian gobies,

I can say that practically we are consistent with our approach. The portfolio is almost flat, showing that we are using this portfolio as a support to our liquidity.

Now, let's move on to fees and commission income. Total fees after six months are quite impressive in terms of dynamic.

If we look at the quarter, we reported in the second quarter an amount of $405 million total fees, up by 1.7%, with a significant contribution that came on commercial banking fees. Wealth management fees, in some way, were affected by a significant component in the first quarter connected with the sale of some institutional bonds. If we look at the performance after six months, we see the total fee reached a level of 803 million, and we're higher by 9.1% in one year, thanks to the strong performance in wealth management and advisory fees, which increased by almost 14% year-on-year, with a positive dynamic cost in commercial banking fees, increasing by 4.4%, thanks to the excellence of commercial network and the strong focus on key areas of our business. Now let's move quickly on to costs, starting with the quarterly evolution. In the second quarter, operating costs amounted to €471 million and were marginally lower quarter-on-quarter with practically stable quarter-on-quarter HR and non-HR components. Overall level of cost is reflecting the continuous focus on non-HR cost management optimization, effects of which are even more visible when we turn to the early evolution Total operating cost in six months amounted to $943 million and were higher by 2% year-on-year, with the growth driven by the HR component, which is up by 5.3% year-on-year, reflecting the impact of the renewal of the labor contract and the variable remuneration pool increase. The increase is partially offset by the effects of efficient cost governance approach in non-HR costs that allowed to reduce this component by 4.4% compared with the first half of 2024.

Now, let's move on gross NP stock. The quality of our portfolio remains under control.

And these are positively impacted by the sale we completed in the quarter of $300 million of portfolio that enabling us to decrease the total stock by $500 million in the quarter. Gross entry ratio performed at 3.7%. and the net NP ratio performer at 2%. Cost of risk was at 42 basis points in the second quarter, and then cumulative terms after six months amounts to 43 BIPs. 53 BIPs reported for the whole year 2024. As I mentioned at the beginning, we are completely in line with our and we are confident that we will keep this pace up to the end of the year. NP coverage performance stand at 46.7% after the 300 million disposal, with a bed-long coverage performer reduced to 61.6%, and with the coverage likely to pay in past due, above the level of December 2024. Now, funding and liquidity. You can see from the slide the solid liquidity position of the bank, even in the quarter. We have an encumbered counterbalance capacity at $31 billion. We are reducing ECB funding share at the level of 6%. And we have a significant improvement in the coverage ratio that reached 169% and net stable funding ratio at the level of 132%. Both indicators are reflecting the solidity of our funding structure. We successfully also completed in the first half the issuance of 1.70 billion bonds in line with our funding plan.

Now, a couple of words on capital.

Our consistent and strong capital position is reflected in the common equity tier one that is reported at the level of 18.6%.

It's important to mention that we kept this level of capital

despite an increase of respected assets connected with the strong lending activity of the second quarter. The buffer is really impressive at the level of 840 bps compared to the requirement. A few words on EBU-wide stress test results. We achieved the best ever results in 2025 EBU-wide stress test. with a fully loaded courtyard one at the ratio of 16.83 in the adverse scenario in 2027, significantly above both in the European average and in the Italian average. I think this is a further confirmation of the capability of the group to generate capital in a very sustainable way with our quality of revenues that give us the strength to look forward with a lot of confidence about the potential we have by using the capital that we have at our disposal.

Now let's move on to the Mediobanca exchange offer.

So our timeline remains on track. The consideration involves 2.533 newly issued ordinary shares for every Mediobanca share .

Our goal

is to acquire at least 66.67% of Mediobanca's share capital. This transaction represents a unique growth and value creation opportunity with a compelling financial proposition. We will generate approximately 700 million per annum in pre-tax synergies. We will accelerate the activation of DTAs of around $500 million per annum for six years. We expect double-digit accretion on adjusted earnings per share. And our organic capital generation enables 100% dividend payout with a creative dividend per share of around 20% compared to the Mediobank's standalone proposition. The dividend yield is definitely increasing. in the range of 11-12% among the highest in the European banking sector. The pro forma quarter one remains strong at the level of approximately 16% throughout the plan, even with full payout, providing significant excess capital for strategic flexibility to capture other inorganic opportunities or enhance shareholder remuneration. Mediobanca shareholders, by tendering their shares, would also benefit from a significant side potential on Montepaschi's stock re-rating. The industrial logic of combining Montepaschi plus Mediobanca is crystal clear. The deal will position us as Italy's landing player with a balance sheet ready to capture future opportunities. The combination will be a more resilient and diversified banking group with a fully fledged offering of products and capabilities for a full range of small business, corporate, families, and institutional clients, and with a strong capacity to invest in new technologies. The transaction will support the development of corporate investment bank and wealth management division, which are currently facing competitive pressure. It will open new horizons for consumer finance and provide a state-of-the-art digital platform through Banca Uidiba to fully exploit Mediobanca Premier's potential. It will deliver benefits to the Italian real economy as well. In conclusion, our second quarter and first half 2025 financial results highlight our strong performance, commercial strength, and efficient business model. With a quarterly profit of €179 million and nearly €900 million in the first half, we have demonstrated our ability to deliver sustainable growth and high profitability. on 18.6% reinforced our financial strength and our risk profile further significantly improved. For a full 2025 year, as I said, we raised the bar of the tax profit guidance of over 1.5 billion euros driven by our strategic initiatives and strong commercial performance.

Now, Let me address Mediobanca shareholders directly. Our model with Montepaschi plus Mediobanca is broader and more diversifying, which makes earnings more resilient.

We offer a stable growing platform with clear prospects.

And this from the day one.

And from day one, we always reaffirmed our value proposition because we firmly believe it will generate superior growth and value on diversity. On Mediobank's side instead, moving back and forth, what we observe is an increasingly erratic strategic approach, positions that shift without clear rationale, conditions that change suddenly, and defensive posture that prioritize protection over value creation. This stands in stark contrast to our consistent, transparent, and value-focused approach throughout this entire process. Our offer is not about replacing Mediobanca's strength with respect to what its talented people have built over the past eight years. This is about unlocking their potential by combining them with Montepaschi's scale, balance sheet strength, and retail reach to create something neither institution can achieve independently. We have a track record to deliver on our promises that I believe is the basis of the trust and why endorsement we gain from our shareholder. And thanks to them, we are moving forward. But the real reward is the future. Following this business combination, we will multiple value creation levers at our disposal. accelerated on organic growth, strategic opportunities from additional growth, from a position of strength, and we will have the flexibility for additional shareholder distribution as we optimize our combined platform. Looking ahead in the changing banking scenario, to tender Mediobank's share to Montepaschi means becoming part of a future where we build a stronger, resilient, more competitive and prosperous banking institution together. Thank you for your attention and I look forward to your question.

Thank you, sir. Excuse me, this is the chorus call 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. The first question comes from Ignacio Urlargui of BNP Bariba, Exxon.

Thanks very much for the presentation. I have three questions, if I may. I mean, the first one is on the operational performance, which was quite strong in the quarter. Just wanted to get a bit of a sense of the strategy on deposits. I have seen current accounts growing 3% quarter-on-quarter. That has been very solid. performance on that side, whether that is kind of the driver to go in terms of improving funding costs and trying to reduce or to balance out a bit the decline in rates. And how should we think about NII? We have seen the bottom in this first half. Should we expect NII stabilizing here or growing from here? The second question is on Mediabank and Banco Generali and Just wanted to get a bit of a sense of how do you see that deal and what could be the implications for you. And finally, one very quick comment on capital. I mean, why you are not upgrading further the payout ratio of the bank given the 18.6% CTO ratio. Thank you.

So let's start from deposits, right? So as I mentioned during the previous quarter, it's clear that we have a tactical and strategic approach on the side of deposits, having in mind that for us it's quite important to grow and to have a positive trend in retail deposits because they're strategic for our future growth, and particularly on the side of potential conversion on asset management products. But clearly, we want to leverage on that in order also to further improve our net interest income dynamic. So we pay a lot of attention to price, particularly on the side of proper deposit where the trade-off has been managed quite actively in the second half of the year. So going forward, we think that we can keep growing in market share as we are doing from the beginning of the year. But again, particularly focused on retail. Despite this intention, we feel comfortable to confirm the guidance regarding the net interest income for the end of the year. So we were mentioning high single digit decrease and this is something that we confirm, hopefully You can do also slightly better. It's clear that for the next quarters, we expect a further growth in average lending volume with the substantial stabilization commercial spread in the fourth quarter. Thanks to that, and based on what we are observing on the market, we believe that this trend will further find a stabilization. in 2026, so that we are pulling in line of what we were mentioning at the beginning of the year and also the first quarter. So the situation is really progressing according to what were our expectations. So regarding the deal Mediobanca and Banca Generali, honestly, I would like not to comment on that now, considering that today a Securitina Generali board has probably just started and the company expected to issue a press release later. And as MediBanca mentioned, the outcome is crucial for eventual next steps on the transaction on Banca Generale.

So about the payout ratio,

It's clear that in the plan, in the combination with Mediobanca, we were already committing ourselves to get increased both payout ratio, that originally was 75-70, then Mediobanca changed. But anyway, we said, as I mentioned, we committed to increase payout ratio to the level of 100%. It's clear that... Looking at the results we are reporting in the strong capital position, we are considering to anticipate this increase of payout ratio also for the current year.

Thank you very much.

The next question is from Louis Pratas of Autonomous Research.

Good morning, everyone. Thank you for taking my questions. My first one is on the 2025 guidance, please. So you essentially raised the pre-tax profit guidance to higher than 1.5 billion. However, if I look at the first half 2025 run rate, the pre-tax profit is already at 1.7 billion, so annualized. So I wanted to understand a bit better the trajectory in the second half of this year? In which areas do you expect a decrease in the P&L? And maybe if you could provide a more specific 2025 guidance across the main P&L lines, I'm thinking about fees, costs, cost of risk, it would be very helpful for us. And then, yeah, my second question is on M&A as well. I just heard your comments that you prefer to wait for the general communication. But given that this combination with Mediabank is involved with so much hostility, and if we look at the Italian banking market right now with Banco BPM now free, I just wanted to be direct and ask you if you could consider refocusing on your M&A ambitions and maybe, you know, walk away from this Mediabanker deal and actually, you know, target Banco BPM. Thank you.

Okay, so I think normally, as I was mentioning last time, the third quarter, we have August and fees and commission have some seasonality, as usually we are seeing. As well, we were mentioning that net interest income will have a single high digit. So it's clear that as I mentioned, stabilization in the fourth quarter, but still in the second half of the year, net interest income is expected slightly to decrease.

And then when we mentioned the overall landscape,

It's clear that it's not proper to double the result of the first alpha historically, and normally not when you make this kind of forecast. And anyway, we were clearly stating well above 1.5 billion. I'm not sure I understood well your question regarding the intention for us to give up the transaction on Mediobanca. I'm not sure because there was a bad hearing, right?

So we are a serious institution.

And... particularly focused in building up the third competitive force in the Italian landscape. And as I was mentioning, we are quite determined. And from the beginning of the year, all the organization, all the management team, all the board of directors is completely focused in getting this result.

And we are fully convinced, motivated, and committed to achieve it.

But probably I didn't understand well your question. Anyway, this is the answer according to what I heard.

The next question, sir, is from Hugo Cruz of KBW.

Hi. Thank you for the time. Hope you can hear me. I have four questions. First question on NII. Can you remind us what are you doing in terms of hedging and what is the yield of the bond portfolio? Second question on fees, a very strong beat into Q. Although it looks to me like it might have been from repricing of commercial banking fees. So I was just wondering if this fee growth was kind of a step up from the repricing and we shouldn't expect such growth going forward or is there something else that I need? Third question on, you know, you mentioned that you could anticipate the 100% payout already this year from dividends. I was wondering, is that dependent on the outcome of the Mediobanco offer or will happen regardless? And when can you actually confirm any increase in the payout? And finally, on the Mediobanco offer, if you could remind me, what synergies do you expect if you end up controlling less than 50% of Medibank. Thank you.

Hello. Hi, good morning to everybody. As regards the first question on hedging, actually what we're doing, we are, let's say, putting in place hedging strategies to manage both NIH sensitivity in... the short-term and EV sensitivity in the longer-term, managing the trade-off between the two. In particular, as you know, our strategy is mainly based on natural edges, and so we are supporting this respect by the strong flows of mortgages. the vast majority, or almost all, like 99% of the new flows of retail mortgages is at fixed rate, and this helps us to manage NII sensitivity in the short term.

Okay, so I will answer about the fees and commission trend. It's clear that we were saying from the very beginning that fees and commission are part of our focus and strategic driver. Also in the business plan we presented last year, we strongly believe that we have to keep this pace and we have the possibility to do it because it is a result Some investments we put in place in terms of way, how we deal with customers also on remote way. That's why we are quite confident we can keep the pace, having in mind only that, as we mentioned, there are some seasonality connected with the fees and commission. Anyway, we expect to keep the pace achieved in the first half. As I said, with this one or two weeks where necessarily in August we are going to have this seasonal approach. But I believe that by maintaining the focus on lending activity, both in consumer lending and corporate, as well as concentrating on the growth, on wealth management products, we are confident we can keep a very good level of fishing commission in the second part of the year. I think it's worth to mention that the results are not connected with any reprising action. I think in the last two years, we didn't do any even massive change of time. It's just because we have a very strong commercial activity. We have a team that is particularly focused in improving and further developing the relation with our valuable customers. So fees and commission is our focus and we will keep the pace going forward. So regarding the payout, we were just mentioning that is something which we are clearly thinking is normal to see how we'll evolve the second part of the year in terms of performance, but we are confident that we can anticipate the payout ratio up to 100% in 2025 already. Then regarding the threshold, right, we were saying that our goal is to achieve at least 66.67%. And clearly, we are going in this direction because we believe that the outcome of our offer will be very positive. But just as information, if even below 50%, we will get synergies despite it will take a bit longer period of time. But as a we were very conservative in fixing 700 million of amount of synergies. I believe that by entering and having a better view from the inside of Mediobanca, we can review also this amount of synergies and practically even getting the same amount in the first three years with a level that is even below 50%. What the only thing is changing is the DTAs, because in order to get the acceleration, we need to be about 50 in order to have the consolidated balance sheet. But even below 50, the synergies will accelerate compared to Montepaschi's standalone situation. So only positive message on the side of the deal.

I forgot to answer to the question on the yield of the banking book securities. Our portfolio of banking book of around 9 billion euros has a yield, an average yield of 3%.

The next question is from Andrea Lisi of Equita.

Hi, thank you. Just a couple of questions from my side. The first one, if you can update, if you can provide us the amount of inflows that you reported in the quarter and if you can update on the upfront fee component on the investment fee side. The second is if you can provide any update, if any, regarding the the bank assurance agreement with Axis. There are news on this side. Thank you.

Okay, so the upfront fees are practically at the same level of the previous quarter, more or less. We are discussing about a level of 40%. On AXA, we can just confirm what we were saying in the previous quarter. We have a very good partnership with them. We are keeping growing in the inflow of bank assurance product. It was quite positive in this quarter. The contract is going to expire in 2027, and then we will have... constructive approach in order to understand what we are going to do for the time. So, I mean, it's early now. Clearly, we have a lot of flexibility that is coming from the strong position of capital, our strong network and capability and historical skills in order to place this kind of project. Moreover, if we are going to have also this deal up and running with Mediobank, we can have also a further opportunity that is coming from Generali, provided that Generali will have the intention to set up a partnership also with us. So, I think I mentioned already the total inflow of what managed our product in the first half was $9 billion almost. It's a very I think I don't like to say record, but it's an impressive achievement. And as we want to keep growing, we are not using this expression because the potential of this network is really unlimited. And so we don't want to set even to us any bar in terms of results.

Thank you.

For any further questions, please press star and one on your touch-tone telephone. Mr. Lavaglio, there are no more questions at this time, sir. Back to you for any closing remarks. Excuse me, sir, there is a question from Manuela Meroni of Intesa San Paolo.

Yes, sorry, just to clarify, could you please repeat the amount of upfront fees in this quarter and compare with last year, please?

So as I mentioned, the percentage is the same as 40%. If you remember well, last year was around, in the second quarter, was around $50 million on $130 million of total fee. And this time, I think, is around $70 million on the total of $148, $149. So the percentage is the same.

Thank you. We have another question from Fabrizio Bernardi of Intermonte.

Hi, everybody. Just a couple of very small questions. The first one is that you close your balance sheet in December, while Mediobank and Junsoi would try to ask whether Mediobank could change its accounting policy strategy in order to check the one of Monte dei Paschi. And then the second part is that you said that the payout policy is going to be 100% in the very short future. But I'm also saying that Mediobanca is paying an interim dividend. So I would like to understand if you want to couple also with this kind of situation.

No, it's clear from accounting point of view, we have to define the two dates of the balance sheet, so it's something on which we are analyzing and preparing work for doing it. And, okay, so as I was mentioning, it's clear The payout is one of the aspects on which we are now considering. And clearly, we wouldn't like to be in a position less positive for shareholders compared to what the shareholders of Medibank are today. So I believe that also We can think to looking forward 2026 also to the approach adopted by Medivanka of dividend policy as well.

Okay, thank you. One more question about the cost of risk. We have seen in this quarter that the cost of risk is better than before or than ever for Monterey Paschi di Siena. I was wondering whether, maybe I missed previous questions, but I was wondering whether you can drive us through the cost of risk in the next coming quarters. I think that the asset quality profile is extremely good at Monterey Paschi. But maybe you can try to guide us, giving us some colors about the cost of risk.

No, I think I was mentioning that the profile of the bank is continuously improving. The risk profile of the bank is continuously improving. Then we sold, we reduced 500 billion MP portfolio. We have intention to further decrease the stock portfolio. The signs are coming from the current stock portfolio performing quite positive, encouraging, and the new lending, especially on mortgages, is extremely positive. So we want to keep the trend of continuing decreasing the cost of risk, but as I mentioned, we believe that below a certain level is not prudent to go, and it's better to put some additional buffer, the balance sheet, having in mind that we want to keep a strong position looking forward in the coming years. But the quality is really improving, and the current cost and risk and what we plan has a significant buffer for facing a more difficult period of time.

Okay, thank you very much.

Mr. Lavaglio, at this time there are no questions registered, sir.

Okay, so thank you very much. Looking forward to see you as soon as we can. And thank you and have a good period of holiday. Thank you.