Banco Bpm Societa Ord

Good afternoon. This is the Coruscant Conference Operator. Welcome and thank you for joining the Banco BPM First Quarter 2022 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 Thank you very much. Thank you everybody for the attendance for this first call of 2022. Before leaving the floor to Mr. Castagna, let me remind as usual that you can find all the materials on our website on the Investor Relations page.

the session Q&A is reserved only for financial analysts and let me ask you to be so kind to limit only two questions for each analyst to leave room to the other analyst to make the question so now I leave the field to Mr. Castagna Thank you Roberto, good evening everybody happy to be with you

to present a very solid, strong set of results for Q1 2022. Very strong profitability at record level, basically in any phase of the profitability before tax, after tax, net profit. Coupled with some capital position, still improving our asset quality through a 700 million sales agro-transaction. Let's go through some main figures representing all these different targets we have been able to reach already in Q1-22. Revenues are up 9% Q1-Q, costs are flat, cost-income ratio at a very good level of 52.7%, PPI plus 21% and the profit before tax from continuing operation to almost 400 million with the net income of 178 million. This is going together with the solid growth in volumes both in core performing loans up almost 2%, 1.9%, Q&Q, new lending up to 15% 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 with a reduction of 12% Q&Q and more than 3 billion compared with the Q1 2021. Gross NP ratio is finally below 5% at 4.9% and 3.8% following EBA definition. A very good default rate in Q1 at 0.8% allowed us to have a cost to risk at 54 basis points. Common Acquisition R1 at 13.1%, MDA Buffer at 462 basis point with a very good SCR figure as well as NSFR. All in all, as I was mentioning before, a strong set of results which put us with a very sound position to follow the strategic plan target which are well on track. Let's go on page 7 looking at some figures compared with Q1 21 and Q4 21. Total revenues were up 9% on Q&Q and 5% on Q1 21. Operating costs flat with the last quarter 21 minus 3% year-on-year. Pre-provision income $561 million plus 21% Q&Q and 16% year-on-year. Cost of risk, as I mentioned before, 54 basis points compared with 78 and 79 in the two quarters we are comparing these results. With a final net income of $178 million almost 80% more both of Q4 and Q1 2021. Cost income already at the level of business plan 24 target as well as cost of risk following the direction towards the 24 target which is 48 basis point. On page 8 some figures representing the solid commercial performance which also in this case is very close to the target that we have for the 24 strategic plan. New lending is up to 6.7 billion, almost 1 billion more than the quarterly average of 2021. Asset under management, although slowed by the economic situation, which is for sure not so booming like last year, is still in the same average as 2021 quarterly result at 4.5 billion. Let's remind that the target for 2024 is 4.9 billion per quarter. Core performance, performing loans, customer loans up 2.1% year on year to 101 billion with 18% of that guaranteed by the state through a different measure we have had the opportunity to granting loans in the last couple of years. Direct customer funding still growing at 107 billion up 5% year on year which of course give us again the room, the ammunition in order to foster a further growth in asset under management. Some update about the progress we are pursuing in digital driven distribution model. We have been able to reach 84% of remote based transaction on total transaction and more important that we have now in Q1 22 more transaction app based rather than the transaction executed directly into the branch as you can see from the graphics in Q1 19 we had 9.6 million of transaction in the branch versus 2 million with adoption of the app and now we are 5.5 million in the branch 6.6 million with the app so this shows that our improvement both in the feature and the quality of our app is incentivating our client to adopt even more a digital and remote approach allowing us to pursuing the branch rationalization we have already done in a very strong way during the last year some few update we have launched a complete digital fully digital customer journey for SME smart lending the pilot targeted 3000 SME and we have already had 500 loans with 15 million volumes in the first weeks, as well as we received a prize of innovation for our SME app in the financial service arena in which we were able in a few months to enroll already 30,000 SMEs with 900,000 logins since November 2021 when we launched the SME app. also digital identity is developing very fast. We have now reached 500,000 clients enrolled on digital identity which basically represents the possibility to transform the bank in a completely paperless bank for all the activity. In asset quality, we already said for the full year presentation that we were targeting 1 billion of disposal. We have been able, thanks to the low cost risk, to foster even more our provisioning and increasing of a couple of hundred million. our total target of disposal for 2022 which we will confirm will be executed by H1-22 higher than the total 1 billion we announced. All in all we reduced from 8.7 billion the GBV of MPE to 5.6 billion of which 1.9 billion bed loans and 3.7 billion UTP. These of course are figures post Argo transaction. As you can see we have already reached the target of 6 billion which was the target of our strategic plan. Also in terms of MPE ratio we are down to 4.9, 3.8 we did by definition with only 0.8 net MP ratio for bed loans. Some quick notes on the project Argo. The disposal was almost 700 million for a total of 400 positions, half bed loans and half OTP. mainly corporate loans with a very high vintage much higher than the average of our vintage portfolio for 70% of which were secured with a vintage higher than 7 years and 30% unsecured with a vintage higher than 5 years. The binding offer was received and accepted at the end of April The closing is expected by H1-22 results presentation. The positive impacts of course are the reduction of gross MP ratio to 4.9% and also the reduction of the average vintage of the remaining portfolio to counterbalance the impact of calendar provisioning to the end of the year. Page 11, the liquidity and funding position. We have already said of very sound LCR and NSFR ratio. Let me also add that we have now liquidity higher than 44 billion and that we have done in the first quarter the transaction that we needed in order to fill the remaining buffer needed for tier 2 and 81 to cover the whole amount of common equity in this respect we have now reached the transaction where the 400 million in January 22 300 million in April 481 and we don't have to perform any other by 2024. Let me add also that we also were able to issue the first green bond of 750 million is a covered bond under the new ESG bond framework. You will find other ESG upgrade that we were able to receive at page 41. We are also very proud to announce that in the last weeks we were we had received from Fitch an investment grade rating BBB- which has been for us very good if you consider that we were last time that we were rated from Fitch we were BBB- we still have an investment grade from DBRS and we are having the new rating also from Moody's but still we haven't yet received on page 12 you have some upgrade about the bank assurance situation as you know bank assurance has been described in our strategic plan as one of the pillar for our growth and the base was the internalization and the acquisition 100% of the existing Bank Assurance JV. The plan was to be executed by 2023 with the full effect in 2024. We anticipate the decision to internalize one of the two joint ventures in 2022. We have already exercised the call option and we will be able to execute by July the 100% deal in order to start with this part of our bank assurance the process of internalization. You can also be aware that we have in the meantime received some reverse inquiry, some expression of interest from many strong insurance companies in order to propose a new joint venture with us. We have decided to evaluate this proposal just to be more flexible and to have a major understanding of the effect of this potential transaction which of course will be compared with our internalization under the financial point of view, a strategic point of view, and an operational point of view. And we will be able, of course, in due time to update you about the potential progress. Let's go to the figures of this Q1. On page 14, as you can see, we have good results, both increasing results, both in net interest income at $512 million against $506 in Q4 and $497 in Q1 2021. Net fees and commission $480 million higher than Q1 2021 and lower to $486 million of Q4 2021. All in all, considering that in Q4 we had a one-off from one of our product factory, Agos, of 42 million, as you can remember, basically we had Q&Q, Q0.4 results, and year-on-year, plus 3.1%. Also, the net financial results was very sound at 128 million, which brings total revenues to $1,186 million which is 9% higher Q&Q and 5% compared with Q1 2021. Pre-provision income after operating costs which were the same level of Q4 2021 and almost $20 million better than Q1 2021 set pre-provision income at 561 million, which is 100 million better than Q4 21 and 80 million better than Q1 21. Long-lost provision better than both the previous quarter brought us to the profit from continuing operation pre-tax of almost 400 million which is an increase of 54% compared to Q1 2021 and 200% compared to the last quarter 2021. After taxes and systemic charges and others, we reached 178 million compared to 100 million both for Q1 and Q4 2021. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord characterizing the Q1 versus Q4 21. This is boosted by a solid commercial banking activity and also from a bond portfolio contribution which could benefit from an increase of our Govis portfolio. There is also a slight increase from TLT, a slight increase from TLTRO interest of 1.7 million and a negative MPE contribution vis-à-vis Q&Q of 2.3 million. On the commercial spread, we have a customer spread increasing two basis points thanks to the liability spread following the bettering of the Euribor and the asset spread only paying two basis points due of course to the fixed rate part of our loans which were lower than Q421. All in all a bettering of two basis points. Let's only say that the Euribor average at the end of March was 54 negative basis points nowadays is 44 negative basis points. So there is still a further improvement to be benefiting our commercial spread in the next quarter. Our sensitivity is still very strong. It's about 450 million with a 100 basis point parallel shift and 150 million on 40 basis points parallel shift. on page 16 fees and commission a very sound progression despite a worsening macro of course the impact on our management and advisory activity has been impacted by the geopolitical situation as I mentioned before we were able to sale investment product for 4.5 billion versus 5.4 billion of Q1 2021 notwithstanding that the fees and commission coming from the management and advisory business is the same of Q1 2021 and 6% higher of Q4 2021. This is thanks to higher running fees and only small decrease of course in upfront fees. As you know, the higher percentage of our fees income comes from the running fees. Very good results also from commercial banking fees with an increase of almost 4% vis-à-vis first quarter 21 and there is a minus 7% of Q4 due to seasonality impact especially on leverage finance transactions. Let me remind that the contribution again of running fees is increasing quarter by quarter and we also have better results vis-à-vis the second part of the year 21 also for upfront fees of course not related to the Q1 21 in which we had the record results in upfront fees. All in all we have the same results of last year. Operating costs remain at the level of Q4 21 3% better than Q1 2021 mainly due to the same figure for ASA for general expenses meanwhile we have a 4% reduction year on year on cost of personnel due to the early retirement scheme that we fostered a couple of years ago which is going to benefit the profit and loss especially in 2022. The number of people which are now in the bank is 20,360. Still, we have almost 300 people leaving the bank. In the meantime, we have hired 500 people and by 2023, we will have other 300 people coming on board. Going back to the cost of risk reduction, almost 30% vis-à-vis last year, we already said that 54 basis points were the results of also a small increase in disposal forecast for Q2, but we feel that we are now at a level in which we can easily reach Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord expiring in Q1 2022 which at the opposite didn't have any material effect in terms of increasing materially the global default rate of the bank which is set at 0.8%. The same we can say for the danger rate which is 10%. Both these figures Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord in terms of early engagement campaign toward clients exposed to energy cost increase and raw material cost increase. We are targeting thousands of clients for which we are already having a strict staging classification and to which we will of course propose the remedial action which will be allowed by the intervention of the government which during this day allowed the bank to make support measures both in terms of offsetting partially the cost of energy and to sustain counterparty which are materially affected by the geopolitical situation. Just on a final note, let me say that we confirm to have a very negligible exposure to the geopolitical situation in Russia and Ukraine. We have already classified stage two all the direct exposure and as I was saying before, basically also a part of the indirect exposure through the early stage classification for company exposed to energy and raw material increase. We don't have any bond or other financial instrument linked to that geographical area. Let me also remind that out of 16 billion of moratoria conceded and espied nowadays by the bank, we have had on the two years of the moratoria a default rate of only 1.8%, which is of course higher than the normal default rate, but very much lower than whatever forecast we had done in the past. Going back to the stock of MPE, again we have a reduction of 36% year-on-year, 12% quarter-on-quarter after Argo, with the share of bad loads which is going to decrease from 41% to 34%. And as far as coverage ratios are concerned, we are still increasing Our coverage in order to foster the ARGO transaction up to 62% before write-off, 70% with write-off as far as bed loans are concerned, with the UTP at 44% and past due at 26%. We have still a share of secured bed loans at two-thirds of our stock of bed loans. on page 20 some update about our debt securities portfolio we have completely switched since the merger the composition of our Govis portfolio from 99% of Italian Govis when we started the merger we are now at 49% of Italian Govis 78.6% of which are concentrated in the portfolio classified to amortizing cost. So that means that the impact that we had on the Fuboshi portfolio, on the reserves of Fuboshi portfolio, which we have of course embedded into our capital walk to this quarter, are 99% represented by non-Italian GOBIs. This means that, of course, the bank is still exposed to interest rates but not to the Italian spread. Let me also say that the 236 negative performance of the Voci non-Italian GOBIs is very well counterbalanced by an edging strategy which allowed us to bring almost 100 million in our profit and loss under net financial results. Going to the capital position on page 21, we passed from 12.7% one year ago to 13.4% of end of 2021 through the performance of this year the provisioning of dividends and 81 coupons let me remind that we are calculating dividends and with 50% of payout the RWA dynamics linked to the increase of our loans portfolio and the effect of the Fibonacci reserves we are now down to 13.1% of common equity tier 1 with a 14% phased-in. None of these effects affected the Tier 1 ratio and total capital ratio because, as explained before, of the filling the buckets of Tier 1 and Tier 2 with the 400 million Tier 2 issue in January and the 300 million Tier 1 issue in April 2022, which brought the MDA buffer to a very slight reduction vis-à-vis December 21 for 470 basis points to 462 basis points compared to 377 in March 21. So, all in all, let me say that we think that we can be confident of the results we have reached We are confident that we can pursue the road towards the full accomplishment of the 2024 target, as well as we are sure that with these results in a normal environment like the one we are experiencing right now, so with the complex situation we are living in, we can still say that we can beat 2021 net results and having a solid strong growth toward the results of the strategic plan that you already know for 2023 and 2024. The main potential positive impact to the next quarters will come from the potential increase of NII due to the interest rate increase as I mentioned before we have plenty of potential increase due to our situation but also to the possibility to have opportunity from the TLTRO which we announced would have been reimbursed for 19 billion in June this year due to the lower price to the lowering from the extra price of 50 basis points we are examining the opportunity coming from the different level of pricing of TLTRO and the opportunity to still draw the full amount thanks to potential investment with no risk but better yield. So we feel that there is room also to improve the good results we have done under NII results. As far as the asset quality, as I mentioned before, we have still some opportunity to increase in the second quarter the reduction of MPE ratio and total MPE. We are pursuing other transactions in order to set our target even below what we have already reached and of course we are very confident also of our workout activity which is above 20%. I would stop here. Thank you for your attention. Of course we are ready to answer to your questions.