Banco Bpm Societa Ord

Good afternoon, this is the Coruscall Conference Operator. Welcome and thank you for joining the Banco BPM First Half 2021 Group 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 Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.

Thank you very much. I thank you everybody to be with us today for the presentation of the first half result of the Banco BPM Group. As usual, let me remind that you can find the presentation on our website in Investor Region page. And after the presentation of Mr. Castagna, there will be a session of Q&A reserved to financial analysts. Now I leave the field to Mr. Castagna.

Good evening everybody, thank you for being with us. I will be as quick as possible, I know that it's five of overs, everybody is ready to leave. Very good results for our first six months, especially in this quarter. Operating performance which allow us to reach a very strong but also consistent 361 million of net profit stated, which will be 382 adjusted. Let me remark that this is higher than the market consensus for full year 2021. Asset quality is still improving. You already knew that we were concluding in Q2 Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Very sound also the capital position with a good 12.9 common equity tier 1 fully phased and M&A buffer over 400 basis points. Also in this case I want to stress that we were 13.3 in December and we are 12.9 but after having absorbed 95 basis points as regulatory headwinds. These results give us good confidence in the future, also linked to the fact that, as you know, we have resolved in Q2 the two agreements in bank assurance, which will come back in the next couple of years fully in our hands with 100% of the joint venture funds. being part of our group. This will allow us to exploit with more flexibility and with full potential the strength of the bank assurance for the next business plan. On page 6, a set of different targets which show how consistent is our growth in revenues, in core revenues, in total revenues, in pre-provision income, and especially in a very consistent net profit from continuing operation, which I remember is only before systemic charts, and basically in the last four quarters adjusted is almost at a level of more than $200 million, apart from Q4 2020. On page seven, also the growth in volumes, both in customer loans, which are plus 0.6 in the quarter and 9.6 if we consider basically beginning of 2020, which we included in order to give you the roadmap since, I would say, the starting of the COVID situation. a.m. of course there is a an anonymous growth also in deposit 18.7 percent since beginning of 2020 which is still growing also in the last quarter 2.4 percent as we will see in details this is a growth driven especially by corporates because luckily enough for private individuals we have been able to transform almost all the increase in deposit into asset under management as you see asset under management grew 8% and 2.6% still growing in last queue more important the net inflow year to date which is 1.7 billion compared with minus 400 million in Q4 2019. Gross MP Ratio down to 6.2. Already we said that. Common equity tier 1, 12.9 after 95 basis point of Edwin's and the same MDA buffer to 402 basis point. On page 8, this was possible during... a period with the COVID impact very strong thanks to the intensive bettering of our digital banking experience which has been expanded almost to all our products and allow us now to have more than 85% of the transaction remote more than doubling 145% more over based up to base a transaction which were 4 million in the first half 19 and I'm now 10 more than 10 million the first half 2020 also the app which the newly successful rollout of the new group app mobile app grew to 24 percent the total app based transaction and versus 9% in 2019. There is also a big increase in customer using both digital and app. The digital customer grew from 42% to 53%. Active mobile user on digital active users grew to 67% from 42% and we have reached 1.5 million of customer utilizing our app. This of course is thanks to the digital transformation program that we started at the beginning of our merger that now allows us to have a new app rated at the best level in the market, a digital SME platform which allows us to increase our customers positive customer score an omni charlin advisory which allow us to increase of 15% the total new sales revenues the digital branch absorbing more than 50% of the total assistance request and of course a deploying Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord and then in 2022 hopefully completing the paperless model. Also in ESG on page 9 we have developed our engagement. As you know we have issued our first 500 million social bond senior preferred under 25 billion MTN program. the social bond will be utilized to finance or refinance Italian SME loans guaranteed by the state in response to COVID-19. The bond has been bought by banks for 43% funds, 40% and other institutions for the remaining 17%. We have also improved during this quarter our ratings both standard ethics which were upgraded us from double E minus to double E. We have a top ranked in ISS ESG governance quality score where we are considered the best with level one and also the sustainability ratings of sustain analytics ranks us amongst the top three banks in Italy. On page 10, we want to show how our results we are going to present today are fully in line with the business plan we presented last year before the outspread of COVID and allow us to be very confident in potentially presenting the new business plan by the presentation of Q3 results. we have shown some macro target which was presented in our 2020-2023 business plan which of course will be updated but as you see the current status of first half result show how also in terms of revenues which were maybe not fully credible when we presented the plan are instead the fully line with the results we had for 2023. As you can see, total revenues in the first half is $2.3 billion, and in the full year 2023, there was a forecast of $4.4 billion. Costs are already down, operating costs envisaged in 2023. Cost income is 55% versus 59%. Core cost of risk is in line, even though we were... Very prudent in, again, foster financing, new de-risking, and be very prudent in the Stage 2 increase, which brought our full cost of risk to 86 basis points. Also, in terms of return on equity and net income, the annualized first six months results bring us mostly to the level of the 2023 business plan. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Also in terms of cost, we still haven't yet utilized the savings coming from the retirement scheme which we financed in 2020 and we'll start in the third and fourth quarter 2021 because the first 990 exit happened end of June 2021. essentially the impact will be partial in 2021 then almost fully in 2022 and the remaining 20 or 30 million 2023 and is not yet incorporated in the first half results first MP ratio is already at the level of our 23 target which was 5.9 under the EBA definition and and is now 5.2. Let's go to some figures. I would say on page 20 there is the stated results. Let me only stress that this amount of 361 net profit for the first half 261 million for the second quarter after 79 million of extraordinary revenues coming from fiscal realignment on real estate which we almost completely fully utilized to increase depreciation on other real estate and increase low loss provision. On page 13 there is adjusted Highlights, let me underline, quarter on quarter, 5.1% higher on net interest income, 1.5% of net fee and commission. You can remember that there was a Q1 record result for us in commission. We have been able to beat Q1 and, of course, being 16% higher than first half 2020. also NFR was able to repeat very good results 100 million Q1, 117 Q2 in this case thanks to trading activity but also to the revaluation of next CNC stakeholders in our balance sheet also the result of other revenues is very good coming from the strong results and strong profitability of our product factory All in all, total revenues is almost 1.2 billion in Q2 and 2.3 billion a year. Operating costs are almost at the same level of Q1, Q2 and also vis-à-vis 2020, which lead to pre-provision income of 450 million for Q2, confronted with 486 for Q1. loan loss provision still very consistent 235 million adjusted and in the half year 379 million which again state amount increased to 473 million net profit from continuing operation is 246 million as I mentioned at the beginning of the presentation almost 8% more of 227 million of Q1 and H1 is at 473 million confronted with 176 of first half 2020. After the systemic charge we have 230 million of net profit versus 150 of Q1 and 382 million for the semester vis-à-vis 128 of last year. Let's go to some details about the different items starting from NII on page 14. The trend is consistent 6.9 driven by the TLTRO increased drawing by 10 million at the end of March 2021, where 24 million coming from the last 10 billion, but also the commercial banking activity and the non-commercial banking activity, which include the negative impact from reinvestment of TLTRO extra liquidity, is still positive. The commercial spreads are doing well. The asset spread is is still at the same level basically of Q2 2020 was 178 basis point then 180 now again 178 but the customer spread is at 116 due to the reduction of liability spread which of course is driven by the EU REBOR that was 25 basis points lower than Q2 2020. The new lending is still very consistent. We were at 6.3 billion in Q2, 5.2 from enterprises and corporates and 1.1 in terms of household. If we compare H121 to H120, the result is even, 12.1 billion, but we are an increased percentage of share of COVID-19 measures. which is as high as 39% of the total loan granted versus 15% in 2020. Of course, in the second half of the year, we think that this percentage will be opposite to the one we are presenting. Also in July, the lending was very sound. We have closed July with 2.4 additional new lending. which 600 million from state guarantee transaction. The total of state guarantee transaction as of 30 of June was 15 billion, 1.6 billion 100% guaranteed, 13.3 billion from 70 to 90, driving the average level of guarantees to 86% on the 15 billion drawing. we still have 2 billion in pipeline as of June of course 600 million were utilized in July so we have still 1.4 billion to be utilized during this quarter in terms of spread the outflows is still lower than the inflows so possibly we will not lose further as a spread because this should continue also in the Q3 apart from early repayment which we of course are not able to envisage right now. Let me stress the robust performance of new lending to households which was plus 62% year on year. Also in terms of targets of TLTRO after reaching with an excess of 7 billion the first observation B period which ended in Q1, we are for the period ending end of 2021, we have almost 3 billion in excess. On page 16, we can see some interesting view of the moratoria COVID measures. We are remaining with 4.8 billion of outstanding moratoria right now. As you remember, we started with more than $16 billion, so we are down 70%. The moratoria expired pre-June 2021 with $6 billion, and the default rate was 1.25%. over the remaining moratoria 10.2 billion 5.4 billion were not postponed by client so as you know by June we had the answer or the request from our client to postpone or not the current moratoria the majority decided not to postpone and so we have been left with 4.8 billion of requested moratoria ending by the end of this year. Out of the 5.4 billion, we already have been checking the first 3 billion of installment, of course, expiring in July, and 3 billion basically reduced, added to the 6 billion already expired reduce the default rate of the expired moratoria from 1.25 to 1.10%. Of this 4.8 billion of remaining moratoria, outstanding moratoria, 74% is in the low, medium risk asset class, rating class and only 16 percent in mid-high risk, 10 percent in high risk. Let me underline that this is a number which has been reducing from time to time from 3.9 billion, which were the mid-high risk and high risk when we started with 16 billion of moratoria, then they were reduced in December to 2.4 billion in these two a category over me there is been there is good and now they are reduced to 1.3 billion this means that also clients that are classified from ourself in these two categories are repaying normally installments when they renounced to the moratorium we have also conducted a we're still conducting a continuous strict control on all these 4.8 billion. We have now reached 79% of clients. We are postponing the moratoria and out of these 79%, less than 1% declared to possibly have some problem to restart payment in January 2022. I think a very confortant outlook respect to the dramatic view that we had at the beginning of the pandemic. On page 17 we have the results of the net fees and commission due to outperforming the already strong Q1 and of course being 140 million more than last year. We basically had the same result of Q1 in terms of commercial banking fees, $251 million, and we beat for $8 million the management and advisory fee, coming mostly from the investment product placement, but also from... advisory fee and corporate finance and M&A in advisory the trend is still increasing as you see June was much higher both of April and May and in terms of sales the results was so good notwithstanding the investment products placement was in Q2 a bit lower than the 5.4% record results of Q1 2021. We reached 4.9 billion including 300 billion of BTP Futura. The average of 1.5 billion per month has been maintained also in July. Very good also operating costs. We are keeping operating costs under strict control. we decided to give you also the number of first half 19 because as you know not really the first half to 20 but when we will go ahead for the full year 20 this is incomparable with full year 21 so we prefer to make also comparison with 2019 in 2020 as you know we had some savings thanks to the cost attention and the opportunity to exploit the COVID measure which made savings for more than 140 million. Right now we are 2.1% higher in respect to first half 2020 and the Q2 2021 is even lower than the Q1 2021 thanks to 14 million of COVID-related savings, which we think hopefully will be the last one which we will incorporate for 2021. As I mentioned at the beginning, we still are not considering the savings which will come from our retirement scheme. Only 3 million are already considered in the first semester. the remaining 41 million for 2021 will be in the second half, another 120 million in 2022 and we will go to 140 million in 2023. In terms of headcount, we are now down to 20,550 people Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord between May and June of this year, leading for a total of 1,000 branches if we consider the starting point of 2,400 branches in 2017. Just a few words on the strong liquidity and funding position. Of course, this is something that doesn't give problems to the banking system right now. We have LCR over 200%. very very sound NSFR TLCRO fully exploited very few global amount of bond outstanding notwithstanding this year we have been in the last 18 months we have been issuing both 81 PS2 senior preferred and senior non-preferred very good results coming for from our securities portfolio. We had a total consideration of almost below 40 billion between end to maturity and sales, amortized costs and trading, which had in June 90 million of reserves on HTC s which now grew to more than 200 million so notwithstanding what we have realized in the first two queue which leaded to the very sound and a fair results we still have more than 200 million of potential reserves under this govis and also some 70 million under security set amortizer cost I won't go through page 20 just give you the glance of the Italian Govis vis-a-vis the non-Italian Govis and the relative duration which basically didn't change a lot since last quarter just a few words about page 21 where you will find MP evolution we are down to 7.1 billion frankly speaking nowadays we are below 7 billion and net MP is 3.7 billion we just wanted to remember that we started from more than 30 billion of gross MP and more than 16 billion of net MP the share of bad loans is again after the rocket transaction down to 30% of the total MPEs, so bad loans are accounting for 30%, EUTP for 70%. This, of course, has an impact on the coverage, where we go down from 62% to 55.4% in bad loans and 50.7% to 47.4% in total MPE. Of course, if we consider the rockets including in the first quarter the amount of the second quarter see an increase both in terms of bad loans from 54.9 to 55.4 and also in terms of total MP from 45.9 to 47.4 almost at the same level we have also the UTP which are 44.6 up from 43.1% also in terms of bad loans thanks to rockets we increased which of course had a lot of unsecured bad loans sold we have now increased our secured bad loans from 62% to 69% as you can see the fault rate is very comfortable to 1.1% it would be a bit lower than 1% excluding DOD 8.8% of danger rate Q rate of course is been reduced during this COVID period due to the strict timing and increase in time that we now have to respect to bring back to performing our OTP in any case the workout rate that you will find out on page 43 is still very sound it is around 14% last year and this year and allows us to compensate the inflow of new non-performing laws on page 22 we have on the top part of the slide the quarter reduction of gross MPE and net MPE In the lower part, you will see our very, very prudent approach that we are still having to our cost of risk evolution. We have an increase on Q2 vis-à-vis Q1, which brings the amount of the first half in line with the first half 2020. If we talk about Ordinary Cost of Risk will be down to 52 basis points after having included some round provision on single names and the non-core impact which will still be driven by the Project Rocket's impact and the tightening of Stage 2 criteria to which we added also our leverage finds portfolio in this quarter has been accounting for 34 basis points last page of numbers we have a very sound capital position we started we ended March in 12.7% fully loaded 13.7% phased in we are now up to 12.9% fully loaded and 14.1% phased in. The increase is due to 37% of Q2 performance, 17% already accounted for the payment of 81 coupon and dividend stake, 10% out of regulatory headwinds coming this time from look through approach on alternative funds and opposite 10 basis point plus coming from reduction RWA the total amount is 12.9 which brings also our MDA buffer to a very solid 402 basis point just the last part of the slide is dedicated to the a bus test test but I think you already know exactly what what was going on and it's very very good also for us so final remarks on page 24 very good year very good quarter and very consistent with our forecast and with the business model we have in mind to develop solid growth in core revenues and with led to a very sound net state and that adjusted net profit still reduction of MP ratio and further disposal of bad loans and a robust capital position leveraging on digital banking and on the changing profitability coming from the outlook of our business model on page 25 we give you some outlook about fully at 2021 of course the total revenues will be slightly impacted by the very strong result of Q1 in NFR so we think we can bring we will reach 4.4 billion total cost 2.5 billion leading to pre-provision profit of 1.9 billion cost of risk in order to have the opportunity to give you a forecast on APS we consider the same cost of risk of H1 but again it's a very prudent approach and this will bring to an APS of 35 cents and a dividend payout partly already accounted in common equity of 40% this already having 13% as a target for common equity and MDA buffer again in the region of 400 but in in any case higher than 350 basis power I have completed my presentation I leave to you the floor for your Q&A session