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.