Banco Bpm Societa Ord

Good afternoon. This is the Corsco Conference Operator. Welcome and thank you for joining the Banco BPM Group 9 Months 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 Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.

Thank you very much, and thank you, everybody, for being here for this conference of the nine-month result of a group of Banco BPM. Before leaving the floor to Mrs. Castagna for the presentation, let me remind that you can find the the slide on our website in the Investor Relations page and the Q&A section is reserved only for financial analysts. Now I leave the floor to Mr. Castagna. Thank you.

Good evening, everybody. Thank you for being with us this evening. This round we are, I think, the last bank to make a presentation. I hope you will be happy to give us your attention for the time of our results presentation. I am very pleased to present these nine months results 2022 with an eye, I would say, to the equity story based on the achievement of the past years and quarters, but also giving you a very positive outlook on the future. Let's start from the current results. Let's say that the nine months results are a record for our bank we have done a just net income of 652 million very solid and strong operating performance in terms of cost income at 54.2% well above the 57% of 2023 target of our business plan also in terms of commercial performance we are still having a very solid set of results with new lending up 20.6% year-on-year and commercial banking fees almost 5% year-on-year. At the same time, also the risky and the asset quality are overcoming the results of the target 23 and in this case also 24 with NPV ratio at 4.7%. and stock of gross MPE at 5.3 billion with 1.1 billion less than year-end 21. Net MPE ratio is down to 2.4% with capital at 12.4% as common equity tier 1 fully loaded and MDA buffer at 387 basis points. We will give you also some hint about the insurance business of BPM Vita consolidated for the first time line for line together with some information about our commercial activity integrating digitalization and ESG. Let me only remind that the Common Equity R1 without the contribution of the Danish compromise would be 12.05 and the MDA Buffer would be 353 basis points. As you know, we are in course of obtaining this kind of authorization with ECB. Let's go to the numbers on page 7. I would comment year-on-year results, but we have on the left also the quarter-on-quarter that is better of the last quarter, basically in any main performance. Let's start from NII, 1 billion 590 million vis-a-vis 1.536 of the nine months last year. Also, so better than last year as much as the net fees and commission that are better than last year at 1.44 vis-à-vis 1.42 of last year. Altogether, core revenues are at 3,167,000,000, 2% better of the results of last year. In terms of total revenues, we go to 3.5 billion, 3.471,000,000, vis-à-vis 3,424 of nine months 2021. so higher revenues of 1.4 year-on-year also taking in account the reduction of contribution coming from the TLTRO. Operating costs are down, slightly down, even that if you consider that for the first time we have consolidated also the cost coming from the BPM insurance Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord over 1 billion, 1 billion and 1 million, which is 27% better than the 9 months 21 at 788 million. After tax, the result is 679 million, still 19% better than last year, and the net income is 510 million after the systemic charges. which adjusted for the cost of risk and some other one-off item lead the results of the bank to 652 million confronting with 565 million of nine months last year. In terms of quarter, we ended with a net income of 127 million which adjusted is 172 million Let's pass to page 8. What we want to reflect in this slide is the very positive approach that we have looking at the number that we have reached and the guidance we are able to give you for 2022 confronted also with the business plan of 2023. So we are almost one year ahead in terms of results of performance of the main performance if we confront the results of these nine months and the full year 22 with the 23 strategic plan in terms of total revenues we have almost 300 million more than the strategic plan 4.6 billion is what we expect for full year 2022, of which almost 2.2 billion will come from NAI with a strategic plan which was higher than 1.9 million. Operating costs are a small higher than the 2023 business plan due to the Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord which lead to a pre-provision income higher than 2 billion vis-à-vis 1.9 billion of the 2023 business plan. If we assume the same amount of loan loss provision, this brings us to a stated return on tangible equity which is one and a half point better than 2021 and already in line with the 2023 business plan which stated a number of seven percent for the 2023. If we take the adjusted figure for 2022 guidance we are even better than 2023 and this is maybe the best way to confront the two years because of course in the strategic plan there are no one-offs and so it's more comfortable with the 2022 adjusted. So more than 8% respect to 7% of 2023. This is of course mainly due to the trajectory of the Euribor growth which give us a lot of opportunity also for increasing our project for 2023 let's go back to the asset quality for a minute we have already said on page 9 1.1 billion lower than the starting of the year 1.3 billion better than nine months 2021 the ratio is down to 4.7% compared with the final target in 2024, which was 4.8%. Also, in terms of net MPI ratio, we are at 2.4%, vis-à-vis 2.5% in 2024. If we consider the IBA definition, we are gross at 3.9% and net at 2%. We still have some expectation on the risking of single names by year end. Let's say that the total risking up to now, up to September, was 1.8 billion. We think that we will exceed 2 billion in 2022. Not considering, still keeping, a reserve of 500 million of potential disposal for which we have already front-loaded the cost of risk in the first two quarters of 2022. Page 10 is a very important slide, in my opinion, because it gives you what the bank has done during this year, what the consistency of the results we have done can bring the bank in the future, Based on real facts, we have again a very strong capital buffer, which is almost 390 basis points. Let's say that we started with the merger at 160 basis points, but we have to consider that at the starting point we had to face 30 billion of MPE stocks. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord which gave us the strength to the risk and the reach a very favorable situation in terms of capital especially compared to the net NP ratio which net mini exposure which is 2.7 billion compared to the 16 billion with which we started the merchant in 2017. This coupled with still a lot of opportunity coming from the strengthening of the business model both for the consolidation of the insurance business as you know we have started from this quarter to consolidate BPM Vita we have applied for the recognition of financial conglomerate status in order to obtain in the near future the Danish compromise status and as you know we are also undergoing on a beauty contest on non-life activity for which we expect to be able to take a decision by year end 2022. As far as the other branch of the insurance, which is the Vera branch, the joint venture with the Cattolica, we expect potentially to define the whole exercise by the first half of 2023 in order to have the opportunity to have a closing by year-end 2023. The integration process of the bank assurance business is underway. Of course, we still have to build up the profitability contribution because we have only one quarter in our profit and loss. Also, in terms of digitalization strategy, we are having a step ahead. We are overcoming the results that we had for 2022 in our business plan we have created a strong SME management model with the new 135 specialized centers activated especially in the north of Italy with the more than 440 relationship managers relocated from the normal branch to the activity dedicated to SMEs also in terms of NRRP project. We have trained more than 1,000 colleagues in order to take all the opportunity coming from this unique challenge that we have, activating also a digital platform available to all our employees and dedicated to more than 13,000 customers targeted for this activity. In terms of ESG, we have gone ahead with our program of issuing of green bonds. We have had new transaction green in terms of new lending for more than $7.5 billion. We are improving our sustainability rating by two rating agencies. let's go more in detail to some other detail that give you the consistency of our performances also having a look to the business plan in order to have some comparison with our projection core revenues are up quarter on quarter 1.3 3% year on year but as you can see we are Improving each month to the correct now we are at 1 billion and 70 million which is already more than the average of 2023 business plan and very close to the 2024 business plan. The cost income as well is better than the 2023 which was 57% and is very much close to the 53% which was the target for 2024. Pre-provision income are very high, better than 23 and 24 at 534 million and also cost of risk is under control even though we still have a prudent stance when we have to imagine potential situation of reduction of GDP in 2023. On page 14, NII, some details about, I already say that the year-on-year is plus 3.6%, quarter-on-quarter plus 4.5%. The evolution bridge of NII gives you the real growth from. As you can see, the positive outcome comes from the Euribor increase, both in the commercial activities. We grow 55 million on the quarter and 12 million on the portfolio contribution. Meanwhile, we had a negative of 46 million on the quarter coming from the TLTRO Special Interest Regime ending. This brings our NIA evolution from 522 to 551. Of course, as you can imagine, the vast majority of the increase of Euribor, which you can see on the bottom part of this slide on the left, is yet to come because on Q3 the Euribor was still 44% basis point now as you know is a multiple of this number and this is one of the main reasons why our commercial spread went up to 192 basis points consolidating the liability spread which grew from 43 negative to 33 positive. On page 15, still very important, we give you some guidance both for 2022 NII and 2023, starting of course from the new increase of ECB deep facility of the last 27 of October, which brought the rate from 0.75 to 1.50. following this pattern our first half was the NII was 1 billion 39 million from which you have to deduct for calculating the second part of the year almost 100 million more than 100 almost 110 million from the elimination of the special premium and the tearing On the opposite, we have a contribution higher than 200 million coming from the increase of Euribor. This should bring the second quarter to 1,140,000,000 of NII contribution which should bring in a total contribution of NII for 2022 of 2,180,000,000. With the trajectory, I will come back to the 2023, the trajectory of the Euribor, as I was mentioning before, should increase, has already increased from the average of 2022, which was almost 35 basis points. We have 140 basis points in October, but our projection for 2023 is is 200 basis points. Considering the sensitivity which considering the new regime of TLTRO after the decision of ECB to reduce the contribution of TLTRO reduced our NII sensitivity from 360 to 220 million for each 100 basis points We assume that in 2023 we can reach a total contribution from NII which will be higher than 2.5 billion, which is almost 15% higher year-on-year. Of course, the main drivers of this sensitivity come from the floating short-term and medium-term rates on the loans, which are 57% of our total loans, and the very conservative assumption on the deposit beta which is 41% vis-à-vis 11 basis points which is the current cost of our deposit. On page 16 we go back to our very good commercial performance. We were quite cautious in approaching the increase of lending We had a very good stance for the first six months. We already reached basically in six months the total target that we expected for 2022 and the pace that we expect for the entire business plan, which was 3.2%. So we stay at 102.9 billion in line with the plan, but without pushing on loans. Let's give you some examples. On the stock, we have extracted small business exposure from our total loans, which is around $19 billion. Of this $19 billion, before COVID, we had a position guaranteed or collateralized for almost 50%. now for this kind of for this cluster of clients we have increased the total guarantee to 73 percent increasing the state guarantee from 10 to 44 percent let me remind that in this category which of course is one of the more riskier in terms of opportunity to increase the revenues in an inflation Contest. We have only 2.9% of SME Portafoglio classified at high risk, of which 78% is also secured. Let's go to the inflow. The new lending is high, 20% vis-à-vis last year. It's 20.3 billion and was $16.8 billion. The entire growth is with corporate and enterprise. The household is still $3 billion like last year. But the portion, the composition by rating class of these new grants is 96% into the best asset class, low to medium risk, only 3% in mid-high risk and only 1% in client classified as high risk. If you extract the 3.1 billion granted to the small business in the first nine months of the year, this amounts to 3.1 million of which 74% is secured, of which 55.9% with state guarantee. So we are strengthening very much the quality of our portfolio with all the clusters of our clients, both in terms of rating and in terms of guarantee. Total Peace and Commission, this is another very good result considering the backfire coming from the reduction of Asset Tender Management investment pace. As you know, this has experienced a reduction due to the market situation. We are almost $2.5 billion lower than last year results in terms of investment product placement. And this brings to have a lower result of 2.8% year on year. and also in terms of quarter we had 4.2 billion Q3 2021 3.9 billion Q2 2022 3.3 billion Q3 2022 it's also a normal seasonability effect because in August as you know the investment sales product is reduced very much but all these negative effect has been recovered by the very strong performance of the commercial banking activities which increased the total fee contribution 5% year-on-year and 3.4% quarter-on-quarter. The vast majority of this contribution comes from the lending fees up 30%, payment service fees up 12%, trade finance related business up almost 11% also in terms of the management intermediation advisory fee the negative performance of assets and funds in SICAV was almost entirely covered by the positive performance of the sales of insurance products certificates intermediation of consumer credit with our AGOS and the strong increase in credit cards related products. So all in all a very comfortable 1% higher than last year. The same reduction of almost 1% comes from the global cost with major reduction in terms of cost of personnel and slight increase in terms of administrative costs. of course almost entirely due to the energy cost inflation. The good results of 1.1% lower vis-à-vis last year would be even better if you do not consider the cost of insurance which are of course included in this quarter and is not included neither in the previous quarter this year or in last year results. We can also say that we have almost completely terminated our early retirement scheme. We'll have a further 80 people leaving the bank by year end. So we will reach the final contribution to the reduction cost starting from 2023. On page 19, cost of risk. again also conserving a very conservative stance both in terms of increasing coverage and also in terms of provisioning we have a cost of risk at 47 basis point core which including the one-off for further redisking reached 61 basis point in nine months 22 of course very much lower respect to 21 as you can see the vast majority of increase in Q3 performance is due to the coverage increase that you can see on the bottom right of the slide which led us to increase the bed loans coverage of 120 basis points the UTP coverage of 140 basis points the total MPEs 160 basis point quarter on quarter. Very good also the default rate still 0.9% as much as the danger rate below the target of the plan and a very good workout rate higher than our expectation at 24%. Some further information about the prudent approach in our loan portfolio management. Again, almost 19 billion of loan guaranteed by the state, which is more than 17% of our total portfolio. The average guarantee for this amount are 84%. On the bottom part, you see the differentiation between stage 1 and 2. Also in this case we had a prudent approach, increasing, changing our model for Stage 2 consideration, increasing the global amount of Stage 2, rising from 11 billion, 0.2 to 13 billion. Some update about an early engagement campaign that we activated right in Q2 and we had another round in Q3. vis-à-vis the borrowers particularly exposed to energy, raw materials, intensive sectors. This engagement campaign, of course, is aimed at detecting at a very early stage any potential disruption or problem for our clients, anticipating also the early warning that we already use in our normal activity we had a one-to-one approach with clients which represent a total exposure of 9 billion I have the 9 billion as you may remember in June was 6 billion so we increase the perimeter of this campaign and up to now up to October so considering also October The add-on to the 55 million of classification done in Q2 has increased only of other 47 million in the last four months. And again, the conservative approach was also in staging because we increased 2.5 billion of this perimeter, the stage 2 portfolios. Let me give the floor to Edoardo Ginevra to have some consideration of funding, liquidity and capital.

Thanks Giuseppe and good evening to everyone. So page 21 shows the intense activity that we still have in confirming capital. similar issuances in the first part of the year. In July, Green Senior preferred 300 million private placement. In September, Green Senior non-preferred over 500 million. In general, contributing to a very solid level of funding, 84% of total direct funding being represented by a deposit for 103 billion. and with 36.4 billion of cash plus unencumbered liquid assets. Liquid and funding ratios are well above the minimum required by the rules with LCR at 179 and NSFR above 100%. subject to some potential reconsiderations for future projections, given that in the new rate environment the cost of the liquidity buffer has been increased, taking into account the new level of rates. Rating agency assessments are maintained at a very comparable level. has increased our rating in October by one notch. Now we are triple B full. Fitch is assigned to the bank and confirmed the triple B minus, so investment grade as well. Moody's upgraded one notch in May as we communicated in the previous presentation to BA1. In general, these positive assessments are supported by the evolution of asset quality, profitability, operating efficiency and capital position together with the strength, the recognized strength in the franchise and in a liquidity and funding position. The following page shows the evolution of our bond portfolio which has been reduced to 31 billion as of the 30th of September and of which 68% at amortized cost and with a progressive reduction of the share of Italian goldies now declined to 36% contributing to the level of diversification at a much higher phase than was originally included in our strategy plan. The target that we have announced in the plan was lower than 50%. was also reminded that most of Italian GOVIs are classified at amortized cost, the share of fair value-added comprehensive income being as low as 22%. Just to remember where we were in 2016, Italian GOVIs were 99%, 64% of them at fair value-added comprehensive income. This also introduces in the following page to Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord and second has to be considered as a transitional temporary phenomenon given that the figure of the net negative reserves is subject to pull to part which is worth well above 100 million per year in the years to come. Net financial result is positive for 75 million and significant part of it is attributable to the contribution of fair value other comprehensive income related components more than around 40 million which are mostly attributable to option hedging finally capital sensitivity remained at similar levels as it was three months ago so government bonds having a DPV total contribution of 2.6 million and with 300,000 only attributable to Italian Govis, so negligible in fact. Turning to page 24, the evolution of our capital is shown in this page, providing a number of very important drivers that need to be commented. First of all, the performance, which gives a positive contribution of 21 Bps, net profit of the quarter, minus 14 basis points from dividends and 81 coupons. Three basis points is the combination of the various residual elements, including RWA, DTH, and so on and so forth, leading to a first subtotal of 12.9. Then 28 basis points is the negative contribution of net reserves. 19 basis points is the contribution coming from the acquisition of of 81% of Bpm Vita, which took place in July, and which has been here reported and estimated using a prudent approach, assuming the Danish compromise, leading the total to 12.4%. Without the compromise, the stated level of CT1 is fully phased at 12.05%, phasing is at 13.5%. fully loaded capital position is also positive and well above minimum requirements if we look at tier 1 and total capital at 14.6 respectively and 17.5% RWA declining to 61.7 billion buffer, MDA buffer and also the buffer versus the total minimum capital common equity tier 1 requirements is slightly below 390 Bps, fully efficiently utilized given that we have filled in total both the additional tier 1 and tier 2 buffer. Final conclusion on the highlights of this performance before giving back the floor to the CEO. confirmed in the quarter the delivery track record that we have shown consistently in the last few years, and especially since the announcement on the plan, leveraging on the strengths of this bank. So the operating performance shown the highest level of net income in nine months at $652 million, the growth in core revenues 2% year on year, pre-tax profit above 1 billion plus 27.1% year-on-year, cost income at 54.4, cost of risk 61, but most important, core cost of risk at 47 bps. Asset quality is ahead of the strategic plan target. This bank is now at 4.7 gross MPE ratio and 2.4 net MPE ratio with the default rate fully under control. The solid capital position is

I just commented with the 12.4 over CT1 assuming the needs compromise and 387 bits for the MDA master some final conclusion about the outlook of 22 and 23 we already anticipated something during the presentation on the previous slide but I think it's very important to update the previous guidance that we gave you taking consideration the new arrival boost and also the new regime under the TLTRO so really considering the negative effect of the recent decision from ECB in any case the total revenues previous guidance was 4.4 billion now is 4.6 billion operating cost was 2.5 now is above 2.5 which lead to a pre-permission income which was 1.9 billion now is higher than 2 billion. More important, profitability, earning per share up to 45 cents from higher than 40 cents and adjusted higher than 50 cents with a payout which still remains at 50% and a forecast on common equity tier 1 always in the region of 13%. Of course, the contribution and the boost of NAI, as I mentioned before, with the sensitivity which helps our bank in a double figure growth, should lead with a flat GDP at zero and an average REB at 2% to an expected APS forecast for 2022 of higher than $0.60 for shares. I remember that in the business plan was 50 cents targeted for 2023. We are very happy of the results, but we are even more happy about the forecast that we can give to you. The management team is very cohesive, very experimented, I would say, in changing the situation that happened in the market in the best positive opportunity for the bank and I think the equity story of this bank shows quarter by quarter and year by year this capability from our management team. Thank you very much.

Now we leave the floor to you for the Q&A, if you want to start.

This is the Corsco Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask to use handsets when asking questions. Anyone who has a question may press Good evening and thank you for taking my questions and all the details you provided on NII. On the latter I just have one follow-up question which is

what emerald issuances you have included in your guidance for 2023 and then I have other two questions one if you could just update us on your decision to whether or not to sell your merchant acquiring business and the last one is on common equity if you could share with us the main drivers that will lead you to reach above 13% by year-end. Thank you very much.

Okay, thank you, Ms. Peruc. Let's say that we are having many request inquiries on the merchant acquired business, but nothing is decided. As you know, we are very much involved now and committed to try to get the best possible results decision related to the bank insurance and so we have had a very few time to consider also the mentioned acquired but could be for sure one of the opportunity that we could decide to exploit in 2023. Maybe for NII and capital I give to Edoardo.

Yes, thank you Giuseppe. MRL issuances for capital first of all let me say that we are on one hand of course continuing in our actions on optimization on the level of Assets and on the RWA efficiency for the absorption of such assets. On the other hand, the key assumptions that we have made explicit are that this 13% accounts for the niche compromise or is adjusted for the niche compromise and secondly, that we assume the level of bond yields to remain unchanged versus the previous year. concerning the level of issuances that you specifically refer to MRL. Here we're talking about around 2 billion of new issuances during 2023. On capital, yes, we need also to complete the PPA process for BPM Vita which has been acquired in the second half of this year and is expected also this to contribute to total capital at the end of the quarter.

Thank you. Thank you.

The next question is from Giovanni Razzoli of Deutsche Bank. Please go ahead.

Good afternoon to everybody. A couple of clarifications on my side. It seems like you have incorporated a relatively prudent assumption for NII in 2023 as you are factoring a 2% arrival at 2.5 billion euros for next year. So if I look at slide number 15, am I reading correct that assuming another 50 basis points, we should add something like 100 million euros of higher NII to the state of the target. And then on the deposit beta also there seems like you've been very prudent because your peers are incorporated that level only for I was wondering whether you can share with us what was the sensitivity of the deposits in the past if you have a kind of historical series to share with us. Second question, is it correct to assume that the underlying cost of risk in the third quarter is stable at around 55% and you said that you increased the coverage of bad loans and the UTP is that increase only related to the future disposal to the 500 million euros or is it something you know to build additional buffers for the macro downturn and related to that can you share with us what is the amount of provisions overlays that you have are on balance today final question can you remind me what is the impact of the call option on VeraVita for 2023 thank you um

Thank you. Here we are. So, of course, I understand that it's not that easy to make square the sensitivity with the forecast of increase of Euribor. I'm not sure that the more you go ahead, the more you receive the same amount of money. I heard about also my colleagues who were in some difficulties. But I would say that 100 million people is a prudent approach for considering another 50 basis points. In terms of deposit, what can I say? We were, of course, at 2-3 basis points when the interest rate, the URIBOR was negative. We have almost 8-9 billion which are sort of floating, so linked to the URIBOR. The rest is still at the level in which we were before. so the total is now the average as I mentioned before 11 basis points nowadays we are in the region of 14-15 basis points so very much below the 41 of the sensitivity analysis the cost of risk yes 55 is including 60 basically is including what we already have provisioned in order to have furthered the risking. We still are having, we think it's only fair to have a very good FPS projection considering a prudent approach on cost of risk. Then we will see if our approach is more prudent or not vis-à-vis other competitors but we feel comfortable in giving you this kind of guidance and that may be a trying to be back to the for the situation will be like did he ever tell one percent of the for three the overlay right now I think I that the 125 busy 125 million not a so slightly below 140 which where in june thank you for the call option of that

Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord measured by January 25 when Basel IV comes into play which is minus 17 basis points to be fair this minus 17 basis points includes already the new weighting of Basel IV of the Danish compromise even in BPM Vita so there is part of this impact is due to BPM Vita so the net to Vera is around 10 basis points

Thank you.

The next question is from Cristian Carrese of Intermonte. Please go ahead.

Hi, good evening. Thank you for the presentation. I have three questions. The first one on the guidance you provided on 2023, the EPS above 60 cents. I was wondering what kind of assumption have you got in terms of cost of risk if I'm not mistaken, you are assuming a GDP flattish for 2023. So what are the assumptions according to this scenario and if you have also an adverse scenario with a severe recession. The second question is on capital. If you can clarify the bridge to reach the 13% common equity tier 1 fully loaded buyer end. In particular, I assume some benefit from the P&C business disposal and maybe also there was some excess capital on BPM Editor that we can release or if there is any capital tailwind Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord to understand what kind of upside you have on that number.

Thank you.

Thank you, Carrese. Good evening. In the first question, you are even more demanding than the CB, I would say, because you want to know in advance all the details. But let's say that what I was mentioning before, that our bank has been normally very much more prudent is also reflected in the cost of risk of 2023. So the assumption of 60 cents is not with a massive reduction of cost of risk, I would say, which is with a cost of risk which is implied in a zero growth. Common equity tier one, I think we've already responded with Eduardo, is there are no other disposal there is no other potential component we think that we can reach the team with the full impact of the Danish compromise plus some plus of course profitability of the quarter and some further optimization in terms of NII we think that we are based on again on 200 basis points so it's a bit lower than the curve the forward curve and only few basis points more than the current Euribor situation the target 2023 is assuming what kind of Euribor by year end 2023? an average of 200 basis points okay thank you

The next question is from Andrea Vercellone of BNP Exan. Please go ahead.

Good evening. One question and one clarification. The question is on your EPS target, both 22 and 23. I just wanted to make sure that these are clean EPS, so you have not included anything related to the possible disposal of the PNC or part of the PNC business merchant acquiring and so on in either here and the clarification is on the sensitivity the 220 million for 100 basis points and Did you do you provide that? Guidance with a starting point you Rebo rate at 075 as it was in September and

or the current one at 1.5 thank you and good evening Mr. Vercellone I will give you now the APS is compared with the business plan of 2023 so we don't have any action one-off any particular contribution from capital management transaction but just you know line by line the projection of this new environment of Euribor projected to the figure that we have reached up to now. So we feel that basically there is no one-off at all. So it's a normal situation. The current situation projected to Euribor with the new interest rate environment. Edoardo, for sensitivity?

Yes, sensitivity is being calculated using the models as they were in September, so they are not updated with an evolution in interest rate. Just about the key sensitivity of the sensitivity. If I think to the deposit beta, the increase in the deposit beta from June to September was three basis points, which is worth 30 million of sensitivity, just to give a ballpark.

Okay, thank you.

The next question is from Adele Palama of UBS. Please go ahead.

Yes, hi, good evening. I have one question on the asset quality detail slide. I see there's a decrease in performing loans. Can you explain what is driving that decrease on the gross performing loans? Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord And then last on LLPs for the quarter. What's the amount of one-off in the total LPs that you reported this quarter? Thanks.

I hope I understood all the questions. Please clarify if I am wrong in answering. No, the ratio maybe is because there is a decreasing bonus related to the repost activity, of course not to the client because you have seen that we are increasing the line for the client activity, so this should be the underlying factor. TLTRO, we didn't, of course, as you know, it's very recent, the decision, so of course we are changing the all our plan but it's very much possible that we wouldn't have any need for postponing the duration of the TLTRO so by year end we think that we can reimburse a consistent slice I would say above 10 billion possibly of TLTRO Beta behind 23 is what I mentioned 41 basis points and LLP is a one-off no in Q3 there is also only the yes some of course we have also always some maneuver on you know calendar provision impact and also on increasing the coverage of our MP stock is that all right?

And the Euromillion amount of that one-off LLP's?

I wouldn't say that it's a one-off, but it's around 30 million. Sorry, Adele, you mean the previous, the one in the first and second quarter?

No, no, no, the third quarter.

In this quarter, again, it's not a one-off, but it's some more provision due to the calendar provisioning and the increasing of coverage.

Okay. And if I can add another question, and apologies if you have already mentioned it, but are you planning to increase the Govis portfolio? I mean, not specifically on Italian Govis, but European Govis, given the fact that it's been down even this quarter.

We are currently analyzing the various alternatives in the new rate environment and in the new TELTRO funding, so we may proceed to very tactical investments, especially concentrated in amortized costs, to exploit opportunities for carry.

Okay, thank you.

At low duration, low BPV.

The next question is from Marco Nicolai of Jefferies. Please go ahead.

Good evening. A couple of questions from me. First is on insurance. So given that the process of buying back the insurance is now well underway, how do you feel about the targets that you gave during the strategic plan in terms of insurance business contribution to the P&L? And do you have at this point any idea of the potential synergies you could extract from the integration of this to JVs and also you had 14 million contribution to P&L from BPM Evita this quarter so what shall we expect from this line going forward and so is this kind of you know a target level or we could expect even something more and then another question on the M&A strategy so also in light of the recent capital increase of Monte dei Paschi I picked up obviously a few comments on the press on this but if you could just give us an update on your view on M&A strategy going forward and also if you could give us an update on AGOS and how you see behaving the consumer lending in this inflation environment on one side inflation could be a positive let's say in terms of consumer lending because volumes are kind of inflated as well but at the same time this is true only if consumer spending holds up so how do you see this trade-off and what do you see for Agos contribution going forward thank you thank you insurance of course not we have only one quarter in our in our balance sheet so of course we have to consider the full year

and we still feel that apart from the situation driven also by the performance of the bonds and the reserves of the insurance company which are not performing very well likewise I would say the bond in our portfolio in terms of valuation but the level of contribution is still the one that we mentioned in the plan that is around for Bpm Vita is a is around 29 million, I think, per year. And we can confirm that the level is this one. Of course, it's completely going to change the total contribution that we gave in 2024, which, when we did the plan, was done including 100% of both the company incorporated into our bank. Of course, if we will decide to sell the Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord with very competitive and professional in the bank insurance business is because we want to accelerate the results that we were forecasting when we did the plan and so possibly what we lose in terms of contribution from the 100% will be compensated as much as possible by the speed of the pace of the joint venture driven by a professional insurer. Then M&A, frankly speaking, I don't have anything to add to what I have said for many times, many years. I am very happy that MPS did its capital increase successfully. I am sure that now they have to work on their business plan and of course I cannot say anything rather than we were not interested before we are not interested now and we go ahead in our roadmap that as I mentioned in the figure that I expressed to you we feel is very successful also in a stand-alone situation Agos this was a year record for Agos so up to now things are doing very well of course there is a bit of slowdown vis-a-vis the first half of the year due to the increase of Euribor but at the same time of course as you were mentioning this also the inflation gives some opportunity to you know to invest in consumer goods so I think we will have we don't have yet of course figures for 2023 but we expect any year which is at least like the one we had up to now The next question is from Luis Garrido of Bank of America please go ahead Yes good afternoon thank you for taking my questions I have two on capital if I may please

Just on the Danish compromise, do you have any visibility for when you might be getting the approval? You booked a benefit of about 30 basis points now. Before the approval, you hinted there might be a greater benefit in the fourth quarter. Is that right? How much benefit and by when exactly? That's the first question. And then the second question I had is... on your capital target and how you communicate around them. In the second quarter, you mentioned the 13% fully loaded guidance by year end, including the Danish compromise. You also mentioned this MDA buffer target above 420 basis points by the end of the year. This is no longer in the slides now. Should I take it that that guidance is gone? And if it is, what is the MDA buffer level that you feel comfortable with going into a recession? Thank you.

Just on a general point, then I will leave to Eduardo the precise number, but we feel very comfortable, of course, both with 13% and 420 business points. But this is not something that we would like to have as a target in the future. It's very... much I would say abundant especially if you consider the 420 basis points so we think this is our guidance for the full year but you know going ahead it's possible that we can use this capital this is what we feel we can get by year end so on the level buffer the 13% target we gave is fully consistent

with the buffer that was provided in the last quarter. We thought the market was interested only to the capital, but we can confirm also the other guidance. For the Danish compromise, what we have put now is a conservative estimate of the benefit of the Danish compromise. The technicality behind the fact that we needed to have an estimate is that we haven't completed yet the PPA process for the stake in BPM Vita. Once this will be concluded, which is end of next quarter, we will be more precise in including a more accurate estimate of the benefit from the Danish compromise. On timing, this is not under our control. What we can say is that we submitted in July the application for the financial conglomerate, which is the prerequisite for the Danish compromise, we feel that the conditions for the financial conglomerate can be easily verified, so it's just a matter of process management from the viewpoint of the various supervisors involved, which is not only ECB but also IVAS, the insurance authority. After the financial conglomerate status is granted, then the organizational requirements on the Danish compliance, which are related to the Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord this can be proved very easily from our perspective at least because actually since the day one of the acquisition of Bpm Vita the company entered seamlessly into an integrated approach with the group adopting homogeneous policies committees and risk appetite framework so really we are not in a position to provide commitments for the supervisors, we are only in a position to provide confidence that the requirements are met.

Understood. Thank you.

The next question is a follow-up from Andrea Vercellone of BNP Exam. Please go ahead.

Good evening. Sorry, one more. I'm referring to the slide 23, Maybe this one helps answering all of the questions on 13% at the end of the year. Can you give us an update on your reserves on debt security at fair value, the number that is now relative to the minus 628 million as of the end of September?

Yes, thanks Mr. Vercellona. Actually, let me first clarify that the 13% is based on an assumption that reserves are not changed, that the bond deals are not changed. So in general, we don't have control on the evolution of the financial market. We can commit the 13% if there are no negative trends in the future level of reserves. What's happening in October is that we are very close to the level that you're showing here, the 628, and the number that we have today is, I think, slightly below, but...

Nothing material, so it's not coming from that.

Thank you.

Gentlemen, there are no more questions registered at this time.

So thank you everybody. I'm glad that you would have all the information we were providing. Of course, Mr. Peronaggio and I, our team is available for any other clarification. Thank you and good evening.