Banco Bpm Societa Ord

Good afternoon. This is the Chorus Call Conference Operator. Welcome and thank you for joining the Banco BPM Q1 2020 Run 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. Roberto Fernaglio, Investor Relations Manager of Banco BPM. Please go ahead, sir.

Thank you, and thank you everybody to be here this evening with us for the presentation of our results after a long day of results presented by some other banks. So before leaving the field to Mr. Castagna, let me remind that you can find the presentation on our website in the page Investor Relations. and then the Q&A section is reserved to financial analysts. Now I leave the floor to Mr. Castagna. Thank you.

Thank you, Roberto. Thank you to all of you. I know it's been a long day for most of you being in the third conference call in the day, so I will try to be as quick as possible, even though, frankly speaking, we are very happy to discuss with you and to present to you the excellent performance we have done in Q1 this year. I would say that it was something that we were expecting, of course, considering a pandemic situation which is, luckily enough, going down in terms of economic effect. We think that the first Q this year shows a clear roadmap for our future in line with what we expected also last year in the presentation of the business plan. Let me go into some detail. On page 5 we have highlighted some strong operating performance both in terms of volumes with 5.6% of growth in net performing loans up to $99.2 billion Current account up 13% to 101.7 billion and eventually also asset under management increase of 13% up to 61.3 billion with 1 billion almost in net inflow. Core revenues are up to 968 million which is plus 6% year on year. and is the best ever result since three years to now. Driven of course by an excellent performance of the net commission up 7% year on year. Pre-tax profit to 259 million which represents 150% higher year on year. The net income stands at 100 million with an adjusted net income to 151 million. This comes from another action we have done under the risking strategy of the bank. We have increased the MPE disposal strategy from the 900 million expected end of 2020 to 1.65 billion which we have front-loaded in Q1 this year. This is the consequence of a new structure we are developing in order to deploy in Q2 a disposal of 1.5 billion of bad loans. We will discuss side of this new transaction. After that, the gross MPE ratio will go down to 6.3%. basically 5.3% if we consider the EBA transparency exercise. Also, the Common Equity Tier 1, which we know would have been impacted by headwind coming from the Herbie model updating, has been better than we expected, standing at 12.7%. well higher of what we expect and our guidance also MDA buffer fully loaded is 377 basis point all these not with a strong input coming from the digital evolution of our bank which allow us not only to close another 300 branch by Q2 this year which we confirm which brings the total disposal of branches since the merger to more than 1,000 branches out of 2,500 branches. We will also give you some insight about our ESG strategy fully integrated in our business model. Some figures on page 6, net interest income basically up almost 5% year-on-year minus 2% Q&Q but let's remember that most of these reduction is due to the two days left Q1 21 versus Q4 20 net commission up 7% year-on-year and almost 10% quarter-on-quarter total revenues 18% up year-on-year 7% up quarter-on-quarter Let me say that, again, 1.130 million of the total revenues performance is what we expected when we deployed last year our business plan for 2023. Pre-provision income stands at 484 million, up 51% year-on-year and 7% Q&Q. also on loan loss provisioning due to the new transaction we will deploy next quarter we have increased our provision up to 217 million with almost 75 million dedicated to increase the FRS9 projection due to the global disposal and the pre-tax profit again to 259 million up 150 percent year-on-year. Let me remind that also cost income went down to 57 percent versus 64 year-on-year and below 60 percent full year 2020. Some numbers on page 7 about the volume. Some of that already I mentioned before so I wouldn't expand on that. Let me say only about the gross MP ratio. We have been down in one year 250 basis points leading to 6.3 which is the adjusted after the MPL disposal in Q2. Also we already talked about the common equity tier 1 ratio being basically at the same level of one year ago and only 60 basis points below Q4, notwithstanding 85 basis points of regulatory headwinds. Some details about this new disposal. We have again front-loaded basically in Q1 the additional provision for almost 75 million in order to accelerate the execution in Q2 of a new project, which we call Project Rockets, of 1.5 billion of bed loans, which will include 3,500 positions, for which we have already completed due diligence. We are going to finalize in the next days the capital structure with the consequent sale of the portfolio to an SPB the issuance of senior mezzanine and junior notes and of course the disposal of mezzanine and junior to third parties to be completed again by Q2 this year. Of course we are working with the understanding that the GAX would be extended but of course this transaction will go ahead even though there would not be an extension of the GAX which we I think in any case will come very soon. After this transaction, the stock of bad loans will go down to 2.1 billion gross and the gross bad loan ratio down to 1.8%. Best ever, of course, for our bank. I would say even better that Bpm alone before the merger of the two banks. Some details about the digital banking on page 9 because we can confirm that basically we are going to entail in our business model all the digital banking opportunities which allow us again to sharpen and to make more efficient our branch network without suffering in terms of revenues as you have seen with the figure we showed to you. We have done this through new digital customer experience with the new app and new internet banking both for individuals and corporate customers with completion of digital identity which will be completed by H2 this year which will allow us to be completely paperless pushing on remote advisory offering thanks also to the COVID experience which allow us to have to be more confident also vis-a-vis our client in being more able to sell in products and to propose products investment products to our client and of course utilizing even more advanced analytics in order to implement new digital and omni challenge sales solution The results for this year was the increase of the share of active digital users from 44% to 49%. Our target will be to reach 65%, which is even better of the European average. The same for the share of remote transactions, which increased from 80% to 85%, which they aim to reach 90%. and the share of active mobile users which grew 10% from 53% to 63% and which will lead us to more than 75% in line with the average EU. Some detail on page 10 about our ESG strategic approach. we are developing a fully integrated sustainability in our business model we have a full deployed action plan with more than 32 projects with 15 units of the bank involved more than 50 people working full day on that we are working on different aspects of course on governance where we are strengthening the internal control and risk committee which has been renamed in ISR and Sustainability Committee with a board member as ESG referent with incentive scheme strengthened with ESG KPIs and of course also pushing on integrating climate related and environmental topics within the risk and the landing processes. We are also offering to our clients both in the lending side and in the investment side more and more ESG complying products I will give you some example immediately and of course we are committed to further reduce the environmental impact starting from this we are already 100% energy users from renewable sources and we aim to be carbon neutral by 2023. Let me also share with you some other main initiatives we are developing. Five billion plus funds for our corporate clients for ESG investment, for our retail clients products for energy efficiencies like Superbonus, completely digital, green mortgages started during this period which allow private individuals to get better rates if they can prove to have an energy efficiency mortgage label let's go to some figures on page 12 you will see the KPML highlights Net interest income again basically in line with Q4 2020. Let me remember that still we don't have the effect of the drawing of the last 10 billion of TLTRO which we did the final week of March and so that will come to be effective by Q2. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord and very good revenues also coming from our shareholdings, stakeholders in Agos, Bank Assurance and Anima Investments. All in all, again, total revenues up to 1.128 million, very much higher both of Q420 and Q120. Operating cost slightly higher than Q1 2020, which is really the only reference we can have. You know that Q4 was very much impacted by different measures we had due to the COVID. We will go further to give you some other details. Leading to pre-provision income of almost $485 million. which is 51% more year on year. We already discussed about prudent approach to loan loss provision, uploading some consistent upfront, leading to a pre-tax profit of 259 million, which is 150% more than Q1 2020. Meanwhile, we had a loss in Q4 2020. After tax, systemic charges and fair value liabilities, which Q1 2021 is negative. Meanwhile, Q1 2020, you can remember, was positive due to the worst bank cost for consideration for fair value. We have a final result of 100 million. again with adjusted lead to 551 million. Page 13, we gave some figure in order to see how strong is the impact of this quarter also vis-a-vis the pre-COVID results of the bank. Basically in line as far as the net interest income is concerned, but we know that more will come thanks to the TLTRO in the next queue. Meanwhile, there is a strong increase in net fees and commission. You see 471 million vis-à-vis 448 million before COVID. This comes from a strong performance of our network in investment product placement, which you can remember was... the base of our strong increase of our business plan, which in fact led us to more than 5.4 billion of product placement, 2 billion more than pre-COVID experience. Some detail on page 14 about NII. We already said that there is a slight reduction vis-à-vis Q4. Meanwhile, there is a 5% increase vis-à-vis Q1. You have the detail of the day effect, which is negative. Meanwhile, the commercial banking performance is better. It is in line, but it's better 1 million. And, of course, there is a small contribution for the last days in which we utilized the 10 million more of TLTRO. Another good news is the capability to keep to 180 basis point the commercial spread. You see it's basically in line with Q4 and Q3 last year, even better than Q2. This is thanks to a very good effort in having a good margin also on the Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord On page 15, there is the new lending activity in line with Q1 2020. Basically, it's exactly the same results for corporate and enterprises. Meanwhile, we have almost 80% of increase in terms of residential mortgages, which grew to $1 billion versus $600 million in Q1 2020. The total results is shared basically half and half between COVID-19 measures and ordinary business. But let me stress that the opportunity of the COVID measures allow us to devote the ordinary business to the best class client. 93% of this business has been granted to the best rated client. In terms of spread, again on the right side of the slide, you see how both in second half of 2020 and also in Q1 2021, we have an increase between the inflow spread of new loans and the outflow of the reimbursed one and the same attitude is going to continue also in Q2 on the left bottom side you see the evolution of the state guarantee lending in December we stand at 10 billion we had almost 3 billion up to 13 billion in Q1 we still have almost 3 billion to be granted for which we have already requested in place and for most of them already approved by our credit department. Let also me add that as far as the TLTRO net lending targets, we have already overcome by 7 billion the first period observation which ended exactly March 21, up 7 billion what was expected and we have for the second observation period which will end in December we have 2 billion more than what is expected on page 16 some figures about the moratoria we started with 16 billion in March we were down to 11 billion outstanding so down 30% out of this reduction which amount to 4.2 billion only 0.9 is the default rate and during April we had another billion expired so the total moratoria now is down to 10.3 billion let me say that out of the moratoria 82% of debt are for low and medium risk clients, 11% for mid-high risk and only 7% for high risk clients. We are continuing our campaigning to understand the situation of our clients with a strong early engagement campaign detecting not only the mid-high risk and the high risk clients but also the sector more impacted and also the early warning indicator for all the performing portfolio. At this stage, of course, it's not yet fully completed, but we can confirm that 84% of our moratoria clients do not envisage any problem to restart payment Only 16% asked us some support in terms of new moratoria or new state guarantee loan, and only 0.5% we deem will suffer difficulties to restart payments. So very much in line with the experience we have had up to now. On page 17, net fees and commission, we already gave you the total number. You can see that the increase is both year on year on the management and advisory side and also on the commercial banking fees, split in 239 for investment management and 232 for the commercial banking. You see that there is also an increase in trend on the right side of the page. Monthly trend is 151 in January, 147 in February, 172 up in March. On the bottom, on the right bottom of the page, you see also the quarterly pace of our investment placement product up to 5.4 billion vis-à-vis the previous quarter, all in the region of 3.7 billion, apart from Q2, which was very much impacted by the COVID, at 2.4 billion. I have to say that also April, as I was mentioning before, performed basically in line with the previous months. If we consider two days less due to the April calendar, and also the extraordinary effort for the placement of 300 million which are going to be added to the 1.5 billion for the BTP Futura for which also Banca Agros was a global coordinator. Operating Cost the main aspect I already mentioned in terms of personnel basically we are in line with the Q120 the difference is due to the collective labor agreement increase this year versus last year of course you cannot compare to Q4 because of the main reduction we experienced in during all 2020, we already gave you some guidance that the total cost, of course, will go up vis-à-vis 2020. But, of course, this number does not take into account the impact that we will start to experience from the second part of this year, which is the consequence of the early retirement scheme that we have already announced for 1,500 people in Q4 and we can now say that this amount of people has been increased to 1,600 people not needing of course any further provision so taking place in what we have already provisioned in Q4 but that will give us some more Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord the potentiality of the plan, which is extended to 2023. Just to give you some detail about the economic impact of this retirement scheme, we will benefit from the cost of personnel in 2021 for 42 million, in 2022 for 109 million, and in 2023 for 135 million due of course to the different phase in of the exit of the personnel on page 19 we have some figures about liquidity and funding of course as you can imagine we had never such a strong situation in liquidity and funding, LCR more than 200%, NSFR well above 100%, unencumbered eligible securities for 16 billion, now again to almost 19 billion, after utilizing 10 billion more of TLTRO, up to 37.5 billion. As I mentioned, the effect of these 10 billion will be seen in the next three quarters as far as 2021 is related and will amount to almost 75 million. Bond outstanding stand at 18 billion. In Q1, we only had the 81, 400 million issue. We don't see, of course, any need to rush in other issuing. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord trading on our Govis portfolio. Of course, we have also experienced some reduction in the reserve amounting to almost 90 million in HTCS and almost 140 million as far as L2 maturity. On page 20, some further details on that. Basically, we have increased after the drawing of TLTRO some HTCS investment, both 2 billion in Italian Govis, 2 billion in non-Italian Govis, increasing only of 2.5 year Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord basically 2 billion of bad loans and almost 5 billion of UTP, down 27% year-on-year and 16% in Q1. Let me remember that we started the merger with more than 30 billion of MPE stock. Migration rates, quite good rates. In default rates, 1.3%, down to 1%. if we excluded one-off first-time application of the DOD. Danger rate also very much below what was our forecast, 8.2%. Of course, also the cure rate is experiencing some performance lower than the previous year due to the difficulties in having agreement under the moratorium period. About coverage, we are at the highest level ever, 62% of bed loans, which is 68% if we consider write-offs, 43% UTP, and almost 51% total NPE. Of course, these figures include FRS9, which again will be utilized for the disposal so if you consider FRS9 the percentage I mentioned will go down to 57% for bed loans and to 48% for total MPE some detail again about the MPE ratio we already mentioned which is going down to 6.3% 5.3% we have by definition we have also some detail on the cost of risk drivers. We have split basically half and half, 40 basis points each. The core drivers, so the normal cost of risk, we would have experienced and increased provision we have done for basically two reasons. One was already explained for the rocket project of 1.5 billion disposal and the other one is the change in methodology for stage 2 so we decided to increase the stage 2 bucket which grew from 7.2 billion to 9.7 billion including in stage 2 basically the measure under moratoria mid high risk and high risk as well as for tourism and Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord last year to which we have to deduct 85 basis points with an impact both in FWA and MPE shortfall due to the regulatory headwinds we will come immediately back to that on the other side we have a benefit of 28 basis points coming from the performance including also some benefit from the shortfall in the performance. We have then the reserves of Govis down 19 basis points, offset by the ordinary FWA gaining for the same 19 basis points, mostly coming from the guarantee scheme. All in all, we ended up with 12.7% and 13.7% phase-in. Let me spend just some words about the 85 basis points. This was a figure which was very uncertain and frankly speaking we would have expected something better due to the massive derisking we have done during these three years. Unfortunately we had add-ons related both to the PD and to the LGD which of course we deem could be revised as soon as we can have a final approval of the remedial action, but up to now, unfortunately, I'm giving us some backward on the Common Equity Tier 1. In any case, very well offset by the good news we have brought to you. on page 25 just to conclude very solid strong operating performance which we deem is consistent with the next quarter in particular within the next quarter will benefit of a better NII we hope that we can be able to perform a consistent commission fee and commission in line with our expectation and of course this will bring to a very good profitability in terms of course of asset quality we don't envisage any other massive disposal by this year we will of course work on single asset especially UTP single asset the capital position is well above our guidance and and again we will continue to strengthen the capability of the bank to develop digital banking fully compliant with ESG guidance. Thank you. I have terminated. I will leave the floor to your questions.