Banco Bpm Societa Ord

Good afternoon. This is the course called Conference Operator. Welcome and thank you for joining the Banco BPM Full Year 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 and thank you everybody to be here with us for our 2021 full year presentation results. Before starting with the presentation, let me remind you, you can find all the slides and the press release on our website in the IR section. and let me ask you to limit only two questions for each analyst to give room to everybody to make a question. So now I leave the floor to Mr. Castagna for the presentation. Thank you.

Thank you Roberto, thank you everybody for being here with us. I would start immediately on page 5. Let's say that we are very glad to announce maybe the best ever results since the merger for 2021 with an adjusted net profit of over 700 million and a ROTI of 6.9%, which allow us to propose a dividend to our shareholder meetings of 50% as a payout. This is, as you know, well above the strategic plan targets and part of the way to potential further increase of the remuneration under the strategic plan horizon. Of course, this is possible thanks to the very sound result in every aspect, both in profitability, as I mentioned before, as well as in the further reduction of gross MP, which are now down to 5.6%, to 6.4 billion, 4.3 under EBA definition would further the risking in place for the first quarter of 2022. Also the capital position, even considering the distribution is very comfortable at 13.4% of common equity fully phased, and with an MDA buffer of 470 basis points. That's the reason why, having overcome the guidance of Net Profit, we have decided to also distribute more than 70 million more than the guidance with a dividend per share which is up to 19 cents and represents 50% of the payout. On page 6, basically we have over-delivered in all the aspects we mentioned in our guidance starting from the third quarter last year. Let's say that the 2021 total revenues were more than 4.5 billion with a guidance of 5.4, PPI up to almost 2 billion with a guidance of 1.9 billion we already talked about sound capital ratio at 13.4 with a guidance of 13 as well as the cost both operating cost 2.5 billion as the guidance as well as the cost of risk stated which was 81 basis point with a guidance between 80 and 19 basis point lets me remind the core cost of risk without considering extraordinary provisioning for the risking was down to 55 basis points. We already spoke about net income, the guidance was 530 million and the stated net income was close to 570 million which adjusted is more than 700 million. On page 7 just quick reminder of many figures but just to show how we are well on track towards our target on 2024 as well as we are already better than 2019 results which were the best results before 2021 previous to the pandemic as you can see on the left side the investment product sales went up from 14 billion in 2019 to 18 billion in 2021 with a target in 2024 of 19.6 billion so the vast majority of the roadmap is already done as well as for asset under management net inflow which were negative in 2019 and are now up to 3.4 billion with a target of 4.4 billion in three years' time. Asset under management stock was up from 58 billion to 65 with a target of 78 billion in the next three years. New lending after the spike of 2020 thanks also to the loans guaranteed by the state which amounted to 27 billion we are now again on top of 2019 results up to 22.7 billion with a target of 26 billion in 2024. Gross MPE as I mentioned before 5.6% vis-a-vis of 9% in 2019 and 4.8% in 2024 as well as again cost of risk and common equity which I already mentioned before. Also in terms of The main operating figures, it's good to mention that in the roadmap from 19 to 24, we are more on the side of the target rather than the starting point, both considering total revenues where we are at 4.469%. million with a target of 4.3 billion in 23 and 4.6 billion in 24. The same is for core revenues and operating costs which are very close to the target we wanted to reach with the business plan. Net income again 569 million with adjusted 700 million and the target in 23 of 740 million and more above 1 billion in 2024. Also, in terms of asset quality, as we mentioned before, we have now reached 6.4 billion. Let's just remember that five years ago, when we had the merger, we were more than 30 billion of MP, and 2019, 10 billion, 2020, one year ago. 8.6 billion, so 2.2 billion further risking during 2021. The target is 6 billion, but as we will soon see, there is already a further billion of the risking which will be executed by the first half of 2022, which should bring the bank below the target of 2024. Also in terms of coverage, both bad loan, UTP and MPE coverage are above the figure of 2019. MPE ratios 5.6% down from 7.5% with a target of 4.8%. In terms of capital, starting from 11.4% in 2016, we are now with a stable above 13%. We had the target of 13% for this year. We are now 13.4% with the expected 14.4% in 2024 at the end of our strategic plan. Let's remember that in our outlook we didn't consider the Basel IV impact of around 80 basis points, but at the same time we consider this headwind to be progressively offset by the decrease in DTA impacting common equity TR1. The SREP requirement is unchanged for 2022 so that we have a comfortable common equity year one both in terms of versus minimum requirement 490 basis points and in terms of MDA buffer 470 basis points. Our liquidity position is really comfortable above 200% in terms of LCR and above 100%, well above 100% as in the NSFR. Let's also mention some of the key points of our business plan and where we stand with respect to this important issue, starting from the bank assurance that you know is one of our key point of the strategic plan we have already activated eight workstream supported by industrial advisor in order to potentially anticipate the integration of the insurance business especially with respect to the BPM vita in which as you know we have the possibility to anticipate from 2023 also in 2022 the integration of this company. We have also already in place a plan in order to align the product range, the commercial offer of Bpm Vita with Vera Vita in order to be ready to integrate both the insurance company by in terms of SME center you will remember that we announced that we should would have activated many points closer to our client especially where the presence of the branch of the bank is not that strong and we can announce that starting from the 1st of February we opened 135 Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord in digital identity this means that we can switch in a completely paperless offer with this client once of course they are enrolled with this feature 20% of total sales are already driven by advanced analytics digital transactional activity is well above average of the market and I think most important our app based transactions are due to overcome in 2022 the branch driven transaction when I say app I mean only app transactions of course as we know the total remote transaction is already 83% of the total transaction of the bank but is very much important in my view to underline that HAP has been developing at a very strong pace as much as the branch driven transactions have been reducing four times in the last two years. Also in terms of ESG we have joined the United Nations Global Compact We became a supporter of the TCFD. We have been included in the ESG index and the Bloomberg Gender Equality Index. We have now the landing policy completely integrated with ESG factor for all our sector as well as we have integrated the risk identification process and the climate risk materially assessment. On top of that, we have set up two new units in HR, one devoted to inclusion, diversity and social, the other one to the development of key people and talents. Let's have a look now to some of the main figures of our 2021 results. I would start on the left. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Operating costs have been increasing in respect to 2020, but like for like, if we exclude from 2020 exceptional items due to the COVID pandemic, we are minus 0.9%. Pre-provision income are up 14.7% and of course after much lower impact on the loan loss provision we end up to profit from continuing operation before tax at 1.2 billion vis-a-vis half these figures in 2020. Net profit is 870 million which lead us after systemic charge to 700 million of adjusted. The stated of course is 570 million. The main differences are below the pre-provision income, and I would say part of these are related to the derisking anticipation, up-front in the provision for derisking, up-front in the valuation on real estate asset, and on the other side taking advantage from the fiscal impact on some accounts in principle in real estate. On page 13 there is the quarter comparison. Let's just me stress how consistent are in the last four quarters the core revenues and the total revenues of the bank, which now are not any more volatile as maybe we used to have during the first year of the merger. Nowadays, I think there is a strong consistency, which gives us a lot of confidence in increasing this figure quarter by quarter. In terms of balance sheet, we are still continuing to grow in volume, starting from core customer loans, which are up in one year 1.1%. If we consider the growth since 2019, the category is 4.5%, which is higher of the 3.1% of our business plan 21-24. loans guaranteed by state also in this respect we grew of course since 2019 from 2.7 billion to more than 18 billion which 17.7 billion 16.7 billion are related to covid measure with an average guarantee of 85 percent from the state customer deposit continuing to go up until the last quarter of 2021 these first months we are having some reduction especially in relation to corporate and enterprise current account in which we are experiencing a reduction of around 2 billion during these first 40 days of 2022. As you know, our expectation is to further reduce these figures both for the reduction of the current account linked to corporates, but also with the conversion in further asset under management, which, as you can see on the bottom right, grew about... 5.6 billion during the last year, with a net inflow of 3.4 billion, leading to the growth which should bring us to the target of 78 billion in 2024. Net interest income on page 15, year on year is up 3%. If we consider the quarter, there is a reduction of 2%. if we exclude a reclassification of a 1-1-0 for 5.8 million, the reduction is only 0.9%. Let's also consider the Q&Q. We had 10 million of lower contribution from Italian Govis. This was due to important sales that we performed between Q3 and Q4 of 6.2 billion. to which we have to add further disposal for more than 2 billion forward disposal which will take place during 2022. Let me also stress that also in this respect we think we have done a very good manoeuvre because basically we have sold at very high level when the yield were lower Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord as far as the asset spread is related, 1.13 in terms of commercial spread, driven especially by the further reduction to minus 57 basis points of the EUR. Let me anticipate that the sensitivity to a rate increase in Q4 2021 of 100 basis points was about $430 million of increase in NII. Page 16, net fees and commission, very strong, not only in respect to 2020, but also with a combined growth of 3.2% starting from 2019. Year on year is almost 15% of growth. 19% related to asset under management and 11% to commercial banking fees. Also, the quarter was very sound with a total amount of 485 million, 2.2% higher than Q3, especially driven by commercial banking commission, notably related to new lending Transaction traditional banking activities such payments trade finance and other related services the investment product placement started at 1.5 billion in January 2022 we are confident that we can reach our target for 2022 which are slightly higher of the total sales of 2021. Let me also remind that in the full year 2021 a very important part of the management of advisory fee growth was due to the running components which are also the key item for growing to the pace of the strategic plan and in 2021 we grew of 52 million year-on-year and running fees which is higher of the pays embedded in our plans. At operating cost level on page 17 as you can see we have a combined growth since 2019 sorry, combined reduction of 1.7% of course there is a growth vis-a-vis 2020 in which we had a lot of extraordinary components normalizing these components we still have a reduction of almost 1% year on year in terms of quarterly or quarter expenses we have no major change I would say just a slight increase especially in general cost also for the increase of oil and electricity bills. The headcount, we are down to 20,400 people. The vast majority of the people involved in the early retirement scheme left the bank by the end of the year. of course the positive effect of the savings related to this reduction will be due during 2022 in which we will have only due to these people leaving the bank a further reduction of 80 million partially compensated by increase in salary some one-off that also in 21 we got for the pandemic. Also the network is leading toward 1,300 branch. We are now to 1,427 and we expect with the growing digital that I showed before that we will be ready also for this target. On page 18, we have some focus about loan loss provision. lots of numbers I would say on stated basis we passed from 122 basis points to 81 basis points of cost of risk 33% of reduction on an adjusted we will be down to 63 basis points starting from 99 basis points an adjusted basis is only related excluding the provision upfront for the risk. We also would like to communicate the core cost of risk which is farther down to 55 basis points if we do not consider also some non-core elements due to the tightening of stage 2 criteria and model change related to the increase of stage 2. which passed from $6.8 billion to $11.7 billion. The migration rates are good, slightly below 1% default rate, 9% danger rate and a record 20% workout rate which include cure, cancellation, write-off and recoveries. Some words also on moratoria on the bottom right side of the slide. As you know, since the 1st of January, moratoria completely expired. As a matter of fact, we had 2.2 billion still expiring end of January, in the sense that the installments were due by end of January. and we have very positive results basically almost completely paid also for this respect we still have further 1.3 billion due by March and June but with a very low default rate up to now which is 1.5% let me also say that the total position still outstanding which had the advantage to exploit the moratoria are concentrated in the best rating classes for 83% of the total. On page 19 some figures related to the announced further de-risking we think we can complete by the presentation of the first quarter These transactions, of course, we don't know if the closing will be done by then, but for sure we'll have some final figure. Let's anticipate that the total amount would be around 1 billion, leading the MPE from 6.4 to 5.4 billion and with an MPE ratio from 5.6% to 4.8%. which occasionally is also the target that we have for 2024. Under EBA definition, with this transaction, we should go down to 3.7%. These also, the further disposal, of course, are also considering the possibility to reduce further the impact of calendar provisioning in 2022. On page 20, some consideration about liquidity, Govis and funding. As you see, of course, the bank is in a very comfortable liquidity position. As I mentioned before, we have sold more than 6.6 billion before the Q4 2021. and 2.5 forward sales for 2022. Of course, this allowed us to capitalize some NFR in 2021 and some consistent NFR rolls in 2022, but most of them was a very good timing due to the high spike in yield that we are experiencing during this week. which will allow us to reinvest a large amount of about 12 billion of Govis during 2022. Of course part of it has already been completed during these days. Nowadays we have 81% of the Italian Govis Portafoglio concentrated under HTC and we are below 50% of Italian Govis in respect to the total Govis Portafoglio. Let's also stress that also the sensitivity of the basis point value of HTCS Italian Govis is 600,000 euro per basis point. In terms of funding of course due to the situation of currently going on about the rates we have not yet decided what we'll do with our TLTRO. Of course initially we had the intention to rembourse a good part of it by June this year. We will carefully consider What to do taking, of course, trying to exploit all the opportunities to have also without the premium of 50 basis points, which will expire in June this year, the opportunity to a potentially good funding spread in relation to the investment opportunities that we will see in the market. In any case, we don't think that we have a major issue in terms of bonds issuing. We have already done, as you know, a Tier 2 emission of 400 million. We are left with more or less 1.2 billion of senior unsecured bonds. and if we have the opportunity and if we see a good market opportunity also for an 81 emission of 300 million. On page 21 again what we have done in terms of key achievement of ESG during the Q4 and this first month of 2022 I think I already mentioned all these items before I leave these slides for you and finally on page 22 there is the capital generation the capital work starting from 2020 as you can see also in 2021 we had to consider 95 basis points of regulatory headwinds which brought basically Our starting point to 12.3 and thanks to the organic capital generation both in terms of net profit and RWA reduction and also considering the dividend distribution and 81 coupons payment lead after some management to a comfortable 13.4 fully phased which is 14.7 faced in. As you remember the target is 14.4 for 2024 and again we don't think there will be any impact material impact from Basel IV thanks to the transformation of the DTA. On page 23 some some consideration about shareholder remuneration we know that is always an important issue for the market we were we have presented our business plan in beginning of November we were the first bank to present our strategic plan and of course we had ahead of us Bpm Societa Ord of the strategic of the results which are leading to the target that we have for our plan we think that all of that together with the consideration that we saw also from our competitors can give us further significant increase in shareholder remuneration we made just as a scenario Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Again, this is for the time being just a scenario consideration, but we think that what we have already decided for this year can leave us the opportunity to reconsider in the future if we can still perform as well as we have done this year and continuing exploiting the opportunity leading to the 2024 results. On page 24, just a quick recap, so a very good news, the possibility to have a better remuneration for our shareholder, higher than the guidance, thanks to the strengthening of core operating profitability, thanks to the further improvement in MPE and the possibility to further the risk in the bank in 2022. the good and sound capital position but strengthened by the capital generation we were able to build up year by year during these last five years and over delivering of course the guidance also in terms of net profit and EPS at 38 cents versus 35 cents that we announced last year. Again, all the management team and our network has full confidence in achieving the results of our plan and we feel these results can give us the opportunity to further increase shareholder remuneration over the planned horizon. Thank you and I leave to your questions.