Banco Bpm Societa Ord

Good morning. This is the Coruscall Conference Operator. Welcome and thank you for joining the Banco Bpm presentation of 9 months 2021 group results and of the 2021-2024 strategic plan. 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. Good morning, ladies and gentlemen, and thanks a lot also for your attention to these conference calls. Today, we are going to present the BPM's group Q3 result and the new 2021-2024 strategy plan. We will start a short presentation of the result, and then we'll immediately pass to the strategic plan. As usual, you can find the two presentations on our website in the investor relations section. At the end of the two presentations, there will be a Q&A section, which is reserved to the financial analysts, as usual, with the aim to give to everyone the opportunity to ask questions, to make a maximum of two answers, and in any case, there will be, at the end, the opportunity to have a follow-up. Before leaving the floor to Mr. Castagna, let me introduce our colleague on the stage. Then starting to your left, we have Mr. Salvatore Poloni, our co-general manager and chief operation officer. Mr. Edoardo Ginevra, our CFO. Mr. Giuseppe Castagna, our CEO that you already know. Then we have Mr. Carlo Bianchi, chief landing officer. And last but not least, Mr. Domenico De Angelis, co-general manager and chief commercial officer. Someone of you told me that there is some problem with the streaming, the video streaming. We try to resolve this shortly, but you can listen to the conference on the conference call number. Now I leave the floor to Mr. Scarsagna. Thank you very much.

Hello, good morning everybody. Happy to be here with my top line in order to give first the presentation of our nine-month results and then a deep presentation of our new strategic plan 21-24. Of course, it's going to be quite a long journey through our past, but especially toward our future. We are very confident that the results we have been able to reach during these very complex five years of merger and restructuring and renovation of our bank will give everybody confidence to reach and the possibility to be very compliant also with the plan we are going to present today. Let's start with page five of the nine mind results. Just a moment because... Okay, we are so... Not as usually we are going to giving a presentation of nine months which would be condensate in very few slides due to the length of our morning. So there are many numbers in this first slide, but I think that these all together give you the impression of what extraordinary work has been done by my colleagues. Core revenues are growing up to 3.1 billion, plus 10% year on year, with the quarterly level consistently above 1 billion. A very robust NII plus 4.2%. strong growth in fees plus 15%, and a solid contribution from our product factory at 145 million plus 35% year-on-year. Also, total revenues are up to 3.4 billion, 10% more than last year, and pre-provision income are up to 1.5 billion plus 20%. Cost control is still ongoing. As you know, we have normalizing the cost of last year. We have a small reduction. We will see then afterwards how the cost reacted to the pandemic. Cost income is down to 55% from 59 in the nine months 2020. We have a very good situation also in our Asset quality, we are down to 5.9%, which means we have a definition being below the 5%, the famous threshold of 5%. We are down to 4.8%. MPE ratio net are 3.2, Texas ratio 29%, default rate below 1%. The cost of risk, I know, and I have been looking to the presentation of my colleagues, we are still very prudent provisioning, up-fronting what is needed to continue the risk in the bank, even though we have reached 5%. So we are with a core cost of risk of 48 basis points, but the cost of risk, which totally is 83 basis points, like our guidance three months ago. Capital position is very solid, 13.3%. Let me just remember that we were at 13.3% at the end of 2020, facing a very strong headwind for 95 basis points. In nine months, we have recovered all the 95 basis points and positioning our bank in this solid capital position with MDA buffer more than 450 basis points. The sound, as I mentioned before, we have been able to include in this position the headwinds for 2021. All in all, net income, 472 million in nine months, which again, give us a lot of confidence and boost to sustain not only the ambitious profitability for this year, but all the business plan for 2021. a quick look at the main figure of our bank I won't go again on what I already said but it's worth to notice net fees and commission very strong in Q3 basically at the same level of Q2 leading to 15% on 9 months core revenues consistently above 1 billion quarter by quarter and reaching 3.1 billion in nine months. Again, total revenues consistently above 1.1 billion, reaching 3.4 billion in nine months. Operating costs under control, a small reduction in Q&Q of 16 million, with an increase on the stated number of 2020 which, as you remember, had a lot of one-off thanks to the pandemic situation and stated we have an increase of 60 million. Pre-provision income is 485 million, vis-à-vis 560 million in last quarter, and the same result, 484 in the first quarter this year. All in all, 1.5 billion of pre-provision income, which is 20%, more than last year provision at the sound level that we already mentioned before 673 million let's just consider that the core provision for this year without up fronting and without the massive increase of stage two methodology amount to below 400 million for of course the risk for 2021. profit before tax are consistently at level 260 million quarter by quarter, leading to almost 800 million of profit before tax for this year, which is 75% more than last year. After taxes, we have 180 million of Q3 results and 571 million of nine months. After semi-charges and mainly other costs related to fair value option we are down to 111 million in Q3 which is a very solid result above the first quarter results and a total 472 million which adjust is 565 million going ahead we have some detail about net interest income as you see plus 4% on last year minus 1% this quarter still with a very solid performance from commercial banking plus 5 million a reduction due to the reduction of NPE so the contribution was down 2.6 million a temporary decrease of the TLTRO interest income which is due to a different phasing on the TLTRO and we will recover during the lifetime of TLTRO this figure and non-commercial banking which includes of course the negative effect of the reinvestment of the liquidity coming from TLTRO is down 4 million. So all in all 560 million versus 522 million. Good to say that Notwithstanding the strong increase of state-guaranteed lending, our asset spread is still consistent at 177 basis points, so quite the same for the entire 2021, and also the commercial spread is still at 116 basis points. fees and commission. We already commented the very strong result of this Q3, taking into account the seasonality, which normally has a downside for August. This time we were able to compensate, basically, increasing commercial fees versus advisory fees. As you see, $475 million was the result, basically the same of the second quarter. plus 13%, 13.8% versus last year. In nine months, it's 15% growth. The composition is changing a bit. We have an increase of 17 million in commercial banking fees, mainly due to the lending activity and to the payment services and the trade finance activity. Meanwhile, of course, we have a small reduction in advisory, especially driven by upfront. Meanwhile, the running fees were still very sound. On Q3, we have the three months, and you see that August was almost 12 million below July and September, which were at the level of 162, 163 million. As far as the investment product capability, placement to our clients, we are still maintaining a pace of 1.5 billion per month, apart from August in which we had 1.1 billion, which in any case was a record for our bank. But we are still confident that we can keep this 1.5 pace up to the end of the year. Operating cost, like for like plus 3% on a normalized figures, we are below 0.2. If we compare 2021 with 2019 before COVID, we are down almost 3% in overall cost. The Q3 is below Q2 for 15, 16 million. And the dead count is down to 20,565 people having left the bank almost 1,000 people out of the 1,600 due for the early retirement scheme. Also, the branch net was right-sized. We overcome the target of 200 branches given in our previous plan, and we have reached 300 more closures to the work already done during the first year. we have now 1430 branch almost 1000 branch below the starting point of the merger on page 10 we have some consideration about the volume growth as you see on the left side the core performing loans are stable quarter-on-quarter with a growth of 3% year-on-year, which is the normal growth we have always experienced, apart from 2020, in which we were able to grow more because of the state guarantee assistance. But this is the pace that we envisage also for our bank for the next years. on the center you see the growth of loans guaranteed by the state is plus 9% in the last quarter of course is an enormous increase in terms of year on year because in September 20 we were at the beginning of the state guarantee aid so basically from zero we have been growing to 16 billion now the total level of this 16 billion is and the average level, considering that some of this guarantee are 100%, some 70, 80, 90% is 86% of the total consideration. The moratoria is going still down. We have reduced it from 16.2 billion to 4.2 billion. Very good news is that the default rate of the moratoria is below 1% versus 1.25% in June, three months ago. And still we have more than 70% of the remaining outstanding moratoria in our best rating classes. And we are monitoring very attentive all the evolution. As you see on the slide 16, you have all the details about moratoria as well as on page 15 you will have the details about the evolution of the state guarantee loans. Customer deposit, another good signal due to the effort of our people in the branch network. We were able to reduce 1.6% the growth we were experiencing in deposit from client. As you remember, we have been growing almost 15 billion during the pandemic. Now the effort to transform most of this deposit into asset under management is giving a good result. As you see from the next box, the asset under management are growing quarter on quarter 1.2% and on a yearly base almost 10%. a very good figure also to look to the net inflows we have reached 2.5 billion net inflows from customer deposit to asset under management and this is a figure which will be very important also as a reference for our business plan liquidity and funding very solid of course thanks also to TLTRO which is at the maximum 37 billion Italian Go is still down, 2.3 billion in Q3, leveraging also on NFR, which of course has a good boost from this situation. And bond outstanding is only 18 billion. We will see on the plan how small relative is the reduction year by year. On page 11, a quick look to a very important step that we have reached. You will remember that we started with 24% of MP ratio. With this quarter, we have reached 5.9%, which will be 4.8% considering the EBA definition. If we consider that we have front-loaded the amount needed to complete further disposal for an amount which goes from 650 million up to 1 billion. Even if we consider only 650 million, the pro forma MPE ratio will go down to 5.3% and 4.3% if we consider the EBA definition. So I think it's very important statement for our bank, which has been considered for many years as a big MP ratio bank, and now we are finally eventually into the low MP ratio bank. Cost of risk, again, some evidence. I understand, again, that some of my competitors are Bpm Societa Ord last page of number capital position another very strong and satisfactory results 13.3 end of 2020 we had to face the reduction due to the headwind 95 basis point but as you see in 9 months we have completely recovered the capital position of end of 2020 which fully loaded is 13.3% again thanks to the Q3 performance of course already considering the dividend and the AT coupon and to the FWA and other asset change on our balance sheet. The phase-in figure is 14.5% These lead to a capital buffer, MDA buffer, which is above 450 million fully phased and almost 600 basis points, sorry, not million basis points, if you consider the phase-in. All in all, we confirm our target for 2021. Basically, we're a bit above the figure that we gave you last quarter, but again, which doesn't change the global look of our results which will still be very consistent with being above 4.4 billion as total revenues almost 2.5 billion of operating costs and pre-provision 1.9 billion. Cost of risk we confirm to be in line with the guidance we gave you possibly exploiting this prudence in the coming year with an APS and a payout that we confirmed 35 cents and 40% with a solid capital buffer which is already above our target of 13 and 350 basis points. Okay, I think this is of course in the following page I'm sure you have all the details the normal page that we slides that we present every quarter but again maybe it's better to go straight to the strategic plan and to examine how these track record very consistent can bring to even better results in the coming year so starting on page three you see the the agenda for the business plan we have a small examination of the current macro situation in which we consider that at least from an economic point of view we can consider not only our country but the eurozone i would say out of the crisis mean meanwhile we know that the pandemic is still to be overcome and Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Then we will examine in deep the track record of the bank and then we will go to the number of our strategic plan. In this presentation today I will have the help of my CFO which will go through after the number that I will present the different business line in order to give you more detail about the means that we will use, the tools that we will use to reach our target so out of the crisis this is a scenario that almost all everybody convey with different level of course of optimism we knew that in the last week and day that for instance the GDP for Italy is going up in any case we have utilized the the GDP of some weeks ago that had a provision of 6% for 2021, 4.2% of 2022, 2.5% in 2023, and 1.5% in 2024. This is a scenario that happen also if there is a zero growth during the fourth quarter. So it is, of course, a prudent scenario. And we think that most probably the the outlook will be better. For Euribor, we have used a scenario which will still be more or less at the level we have today for 2022, then a small reduction in 2023 and a more consistent reduction, always below zero with negative interest rate in 2024. If you look at the forward rates, they show today that they are already positive starting from 2023. The global situation, we know that there is a fiscal recovery boosted both by the decision made by the US and the Euro politician. we have bottlenecks in the transportation and in the commodity cost. This brings to an acceleration, we have seen during last weekend, the focus on climate change and the new rules. And also at the Eurozone economy, Eurozone level, we have an expansion of EU macro thanks to next gen plan which has been developed developed by each country and also again by the climate change action that are going on in Italy again the recoveries is very good up to now and we still have to see the effect of the PNRR implementation coupled with the almost the same level importance of the structural reform agenda that the government has started to implement. On page six, some words about the Italian PNRR, the once-in-a-lifetime occasion not only for Italy but also, of course, for the banking system to support this growth inside the next-gen EU plan. on the left you see some figure that you already know I think about the mission and the investment that will be devoted by the public to this initiative basically on digitalization innovation almost 50 billion the green transition is almost 70 billion infrastructure for mobility is more than 30 billion healthcare 20 billion inclusion cohesion is 30 billion education research 33 billion the total funding is more than 235 billion on the time horizon 21 26 and we expect a boost in bank lending to support and to enhance this investment which will be in the region between 150 to 100 billion. As I was mentioning before, this will be in conflict with the comprehensive reform program, which will be focused on public administration, justice, competitive environment, labor law, labor cost, and fiscal. The cumulative GDP impact starting from 21, 0.5% from this plan will reach 3.6% of increasing growth of our GDP. Let's have a look at what we have done before talking about the future during these years. First of all, our position. You know that we have a very strong franchise in Italy. Basically, our loans are concentrated 40%, more than 40% in Lombardy and 70% in the four regions which together represent more than 50% of the Italian GDP and are, as you know, amongst the wealthiest and more manufactured regions of the entire EU zone. We have been investing on increasing productivity and complementarity over our specialized bank into our business. We have bought in our wealth management bank, Bank Aletti, and in our investment bank, Bank Agros, now two of the primary name in the relevant field, which are starting to give good results and have in this new plan the opportunity and the occasion to be even more fully integrated in our strategy, as well as we are pushing on the digital capability of WeBank, which, as you know, is not anymore an independent bank, but is a brand that still represents the digital innovation of our bank and started not a few years ago but more than 20 years ago. Together with this very comfortable situation, we have now a very solid track record in terms not only of the risking and restructuring and network reorganization, but eventually also in terms of revenues, cost-cutting, MP, so asset quality, and capital strengthen. So the best possible situation to start for a new ambitious plan. Not forgetting the opportunity that we also will consider for our improvement, leveraging on our three important product factory, Agos, which as you know, is a leading national player in which we have a stake of 39% together with Credit Agricole Anima which is the top independent Italian asset management player in which we are the major stakeholder with a stake of 20% and the two bank assurance joint venture which you know nowadays represent 19% for BPM in BPM Vita and BPM Medandi and 35% in Vera, together with Covea and Cattolica. But as we will explain, and you already know, during the planned horizon, we'll be completely incorporated by ourselves and we'll become 100% part of our bank. And this is a strong opportunity to leverage on this product factory. On page 9, we have some small reminder of what we have done already in terms of business plan compliance. In our first, the merger plan, notwithstanding, of course, we didn't know the bank well as we know now. We started from a very consistent 31 billion of MPE stock. The target was to reach 23 billion deluxe number that Bpm Societa Ord Bpm Societa Ord beating the budget, the target number, the planned target number. The branches were due to be reduced to 2,100 and we were down to 1,700 branches. The staff was considered a reduction of 2,500 people and we went over 3,000 people. The operating costs, which were 3.1 billion, were considered to go down to 2.9 billion, we managed to reduce in 2019 the cost to 2.6 billion, almost 500 billion, which overcome 600 billion in 2020, thanks to the peculiar situation of the pandemic. The same was with the capital position. We were able to be at 13% above the target plan in 2019, as well as we overcome doubling the results we expected for the Texas ratio. The sole missing target were related to the total revenues. This was a big missing. The target, due to the different forecasts that we had on the plan, we imagined an Euribor going up to 10 basis points positive. Meanwhile, the Euribor went down to minus 40. Also, the GDP, we imagine a GDP basically stable at 1%. The GDP went down from 1.7 to 0.3. Notwithstanding that, the net income were very solid. we had a target of 1.1 billion we reached almost 800 million so we already had also for the first plan the possibility to beat mostly of the target as well as we were able last year after a very difficult situation created by the pandemic crisis but we react very promptly once we were ready as you remember to launch the new plan we reacted very promptly to the new situation we were able to change basically to start to change our interaction with client from physical to digital we had the possibility to stress the cost efficiency with a reduction of further 170 million in one year compared to the almost 500 million made in the previous three years with a stronger focus also on the agile work ensuring of course safety and anyway not avoiding a commercial relationship between our client and our network last but not least we reacted very promptly to the moratorium and the state guarantee maneuver allowed by our government. And we were one of the best banks to react with a share on gross customer loans, which passed from 3% state guarantee to 15%. So not only we had the opportunity to sustain the strength and the liquidity of our client, But we have also bettered a lot our portfolio, increasing the share of state guarantee loans to 15% of our global portfolio. Also, the market share in this share of guarantee loans is above our normal market share, 9% versus 7%. But also in terms of numbers, not only in 2020, but as I mentioned, as I showed to you with the Q3 presentation, we have a strong increase, both in terms of balance sheet and the profitability. We already mentioned the increase in loans, basically from 91 before the crisis to 100 billion as of September. the strong increase of the positive from $88 billion to $102 billion. The asset under manager will grow $5 billion since 2019, but again, a very consistent growth in profitability, both at total revenues level, consistently above $1.1 billion, with still a very prudent approach on cost and risk notwithstanding the fast reduction of our MP ratio. Also, the net profit from operation is now very, very consistent in the region of 180 million. If we consider this number adjusted, so without the different situation that quarter by quarter can impact one-off on our results, we have, as you can see, in the last three quarters, results which is always above 220, 240, 250 million. The asset quality already we explained that we are below 5% with the EBA definition, 5.9% with the normal definition, and again a very strong capital situation. Why we are confident for the future?