Banco Bpm Societa Ord

Good afternoon, this is the Coral School Conference Operator. Welcome and thank you for joining the Banco BPM first half 2022 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 Perronaio, IOR Manager of Banco BPM. Please go ahead, sir.

Thank you very much. Thank you, everybody, for being here with the presentation of the first half results. As usual, you can find the presentation on our website in the Investor Relations page. And let me remind you that the Q&A section is reserved only for the financial analysts. Now I leave the floor to Mr. Castagna.

Good afternoon everybody, thank you for being with us for the Q2 presentation of Banco Bpm. We are very happy to have the opportunity to present this very strong and good set of results for the bank in such difficult operating environment like the one we are experiencing during the last months. 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 Bpm Societa Ord All that still continuing to support the real economy with our activity. Core net performing customer loans grew quarter on quarter 1.5%, year to date more than 3%, which was the forecast for the whole year 2022. It is very remarkable to notice that loans to corporates and SMEs are guaranteed for 29% of the entire volume by state guarantees. So we are continuing to have a very safe loan production, mostly supported by state guarantees. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord is growing to $107.4 billion. Further improvement also in asset quality, we have been reducing year on year $1.6 billion gross MPE and in the last quarter $0.8 billion down to $5.5 billion with an MPE ratio gross at 4.8%, 3.6% with the EBITDA definition. The default rate in the first six months of the year is still very low, 0.9%, below 1%. The cost of risk, also considering the amount that we have front-loaded in order to execute forward disposal during the planned horizon, is 55 basis points. If we consider only the core cost of risk related to the first six months we are down to 35 basis points. Capital, even though impacted by the results of the reserves due to the Govis in Foci is still at a very sound 12.8%. I have to say that thanks to the recovery of the yield of the Govis during the last month of July we are back above 13% also MDA buffer is fully loaded is at a very comfortable 424 basis point with all the LCR and NSFR very well above the minimum we feel that we are well positioned to benefit from the NII boost that is already decided both by ECB but the Euribor movement are now reaching almost 70 basis points of increase I want to remember that we are very sensible in positive terms to the increase of Euribor for 100 basis points the sensitivity for us is 443 million and even if we consider the 50 basing point of increase official increase of ECB rates on one year time horizon is 220 million of increase in revenues as you can see on the right side of the page 7 the rates that we embedded in our strategic plan both for 22 was 0.49 negative and was still negative also for 23 and 24 to at 0.39 and 0.15 so if we have a look to the forward rates you can see that there is a massive potentiality to increase the profitability thanks to the further increase of Euribor coming during the next month, probably due to the inflation. On the left side of the slide, you can see how solid, how consistent has been during the year, starting from the pre-pandemic results in 2019 to have consistent core revenues, almost 2 billion in 2019, and now 2.1 billion in the first six months of the year. Likewise, the adjusted net income starting from 300 million last year was 382 and now we are almost at 500 million of net income. The asset quality went down from 9.7% to 4.8% as well as the risk connected to the domestic sovereign risk is going down from 65% to 41% of shares of Italian Govis on the total portfolio and if we consider only the all-to-collect-and-sale the Italian Govis are down from 58% to 28%. Let's go to page 8 also to see how this consistent set of results can help also by the NII, which are not embedded in our strategic plan assumption, how we can go forward with confidence in order to get the results of our plan. As you can see, in Q222 the core revenues were 1.56 million, already more than what we forecasted for 2023, which was 1 billion 20 million, and in 2024 we reached 1 billion 100 million, thanks also to the contribution of the bank assurance and the partial increase of NAI. The same is also for operating costs. We are down to $632 million. We still have to embed the further reduction of personnel which happened during 2022 and we think we can reach the planned trajectory which forecasts $610 million of operating costs per quarter both in 2023 and in 2024. cost of risk is basically already at the level of our business plan as well as net income is already above the 2023 target and with the further increase of both NII and bank assurance will most probably reach the target for 2024 in terms of asset quality we are on page 9 We are already ahead of the target for 2024 of our strategic plan which was 6 billion of MPE. Now we are already down to 5.5 billion which means again minus 22.3% in the last year and down to 4.8% in terms of MPE ratio. The default rate and the execution of the ARGO transaction allowed us to reach these results and we still expect without massive disposal to overcome 2 billion of reduction, total reduction in MP during 2022. Let's also say, as I mentioned before, that we have already targeted and embedded in our cost of risk more than 500 million of further disposal during the plan horizon. On page 10, some update about our Bank Assurance model evolution. As you may know, we have concluded after the authorization by IVAS the acquisition from Covea of the 81% of BPM Beta we have already applied for the status of financial conglomerate to the supervisor which is a prerequisite to obtain the Danish compromise and so from July this year we are consolidating line by line the result of BPM Vita in our H222. The next step will be in 2023 related to Vera Vita and Vera Assicurazioni. We will have the first window to exercise the call option to company in H123 starting from January and in the second half of the year we have the opportunity to have the closing for Vera Vita and Vera Assicurazioni. So with basically one year in advance vis-à-vis what we expected in our strategic plan. Let's say how we are doing our negotiation in terms of potential partnership. We have received during the last weeks several potential offers from different partners. The board today resolved, decided and authorized the management to continue to explore the potential to establish a new partnership in insurance, in particular to focus the next phase of the process exclusively on non-life activity. A final decision is expected by year-end 2022. Let's pass on page 12 to the financial results. As I mentioned before, there are very good results in all items. On the left side, you see quarter on quarter increase. On the right, year on year, you can see that we have 1.4, as I mentioned before, of core revenues. Let me make you notice that we are one of the few that up to now have an increase also in commission not only in interest rate both quarter-on-quarter and year-on-year. We have also a reduction of 1.5% of cost. Pre-provision income is the same of last year, year-on-year, but thanks to the reduction of cost of risk, notwithstanding the up-fronting of more than 80 billion, we have a pre-tax profit of 680-80 million, which is 30% more than last year. After taxes, this became 457 million, 16% more than last year, and a net income of 384 million, which adjusted became 497 million. The adjustments are related almost entirely to the pre-provision on the de-risking and on some adjustment for the value adjustment on our real estate. Let's pass on page 13 to some detail about our profit and loss. We have net interest income on pager 13 the of yearly trend and the quarterly trend are both positive two percent year-on-year 3.1 percent on the quarter the increase in the quarter is due 50 percent to the commercial activity a 50 percent to the contribution from the govis of course this is go is coming starting to benefit from a better commercial spread, which thanks to the liability spread increase and the arrival increases, giving 10 basis points of advantage vis-à-vis the last quarter. This is what happened until now. On the right side of the slides, we hope to have the opportunity to give you some clear understanding of what can happen in terms of sensitivity both due to the 50 basis points already decided by the ECB rating of the facility rate and also to a possible further increase of a further 50 basis points. Let's say that on the first 50 basis points on an annualized NII will have a an advantage we will have an advantage of 220 million for the second part of the year will be a bit less of this amount because of course the advantage does not start immediately on the first of July should be something more than 100 million if the increase will happen in the second part of the year for another 50 basis points, so the total increase of Euribor will be 100 basis points, the total sensitivity for us, the total increase of NII for us will amount to 443 million, which is 21.6% of our current NII. If we projected this NII in the next the two years 23 and 24 we will have a slightly lower impact of the NII contribution and precisely 360 million equal to 18 percent of our NII in 23 and 260 million in 24 this comes from the positive influence of the TLTRO calculation rates but of course still we have a strong contribution also independent from the TLTRO because you see that also in 2024 when the TLTRO will expire completely we still will have a strong contribution 13% increase on our NAI On page 14, I mentioned before the very good result on fee and commission. We have 1.8% plus year-on-year and 1.4% of improvement on Q&Q. Of course, this comes from a different movement of management, intermediation and advisory fee, which are 2% and 0.3% lower respectively last year and last quarter but completely balanced by the commercial banking fees where we have an increase of 5.7% year on year and 3.1% on a quarterly basis leading to a total increase of the commercial activity of the bank. This came particularly for the good performances coming from the lending activity, we make reference to the 13.7 billion new loans, the payment related services, the positive performance of consumer credit and credit cards products, the investment banking and structure banking advisory fees, which counterbalanced positively the lower contribution coming from asset management fee in particular funds and CGAV placement which in turn were counterbalanced also by higher fees from life insurance and certificates so all in all what we have a reduction of the investment product placement that you can see on the Instagram of the low left side of the slide 14. We reduced it to 3.9 billion in Q2 vis-a-vis 4.5 billion in the first quarter, but this reduction does not affect so much the total commission, which were very well counterbalanced by the other commercial banking fees. Operating cost, as I mentioned before, 1.5% reduction year-on-year, 2.6% always year-on-year, if we consider that 2021 was benefiting of some COVID-related savings for more or less 15 million of contribution. the cost income is still very good at 54.5% slight reduction since 2021 on Q&Q we have a slight increase of 1.2% the increase of 10 million in other administrative costs come I would say half from the energy cost and half from the new contract that we are dealing with in order to substitute at the expiry date the old contract on the other side the staff cost is reducing both year on year from almost 30 million year on year and still is reducing in Q2 even though the major increase in reduction will happen in the second half of the year when we experience another 10 million of cost reduction due to the almost 240 exit that we had in June, always following the early retirement scheme that we started in 2021. The total headcount is still a bit above 20,000 people. On the next page, 16, we see again some figures related to the credit profile and the cost of risk. Year on year, the stated cost of risk is 35% lower than last year. If we see the quarter reduction, you see that the two quarters in 2022 were very much below the two quarters of 2021. even if we consider in both cases some extraordinary provisionings that were done in 2021 for 94 million and in 2022 for 113 million. I would say that the real cost of risk of the core cost of risk for the first half of the year is down to 35 basis point and Q2 is down to 26 basis point. On the left side, on the bottom left side, you see that the migration rates are still good. The default rate we mentioned before, below 1%, 0.9. A danger rate, a bit higher, but it's just a spike that we had because a single position already considering bad loans that we passed during Q2 and also due to the Argo disposal in which we, in order to complete the Argo disposal, we had some movement from UTP to bad loans. all in all we also can say that we are proceeding with some early engagement campaign like likewise we did during the moratoria in order to forecast with some kind of objectivity the possible default of our clients which were due to repay we have done the same exercise this year on almost $6 billion of credit related to clients exposed to energy, raw material intensive sector and out of this $6 billion we have classified as NP only $55 million. At the same time we are prudentially increased of $1.5 billion Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord giving us also we have such a prevention approach on the category I mentioned before we are getting some strong output let me remember again that we are quite satisfied of the increase that we are registering quarter by quarter on the percentage of total gross performing loans to ESMI and corporates which now guaranteed by the state that now amounts to 29% and last year were below 27% again on page 17 on the coverage on the right side of the slide you see that the bad loads are now covered even after the ARGO transaction to 61.5% if we include write-off we are above 70% UTP still very comfortable 40.3% pass due at almost 30% and total MPs 47.8% which is almost 53% if we consider the write-off. The share of secured MP is still almost two-thirds of the total MPs. Let me pass the floor to Mr. Ginevra which will go through