Banco Bpm Societa Ord

Good afternoon, this is the Coral School conference operator. Welcome and thank you for joining the Banco BPM first half 2023 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 Peronario, IR manager of Banco Bpm. Please go ahead, sir.

Thank you for being here. Before leaving the room to Mr. Castagna for our presentation, let me remind that you can find on our website the presentation, the press release. and the Q&A is reserved to financial analyst and please ask to you to have only two questions for each to give room also the other analyst to do more questions. Thank you very much. I leave the field to Mr. Castagna.

Good evening, everybody. Thank you for being with us for the Q2 presentation. I have to say that we are very proud with my management team to present a very strong set of results. If we start from page six on the left-hand side, there is, let's say, what we have been harvesting during the last year in order to get very strong results in terms of profitability and strengthening balance sheet. On the right side, what we are seeding in order to generate future revenues in the next quarter to come. Starting from the left side, we have had the best performance in terms of P&L in the first part of the year with 624 million on net income, which is 78% more than last year. we have been able to generate 140 basis points in 6 months of common equity tier 1 going up from 12.8 to 14.2 stated and 14.8% in terms if we consider also the Danish compromise on the other side we were able to further reduce the MPI ratio we are now down to 3.8% in terms of gross and 1.9% in terms of net MP ratio, as well as we still have a very sound LCR around 180% and NSRFAR around above 130% after having reimbursed basically more than half of our TLTRO facility. On the right part of the slides, again, what we have been doing during the last months in terms of high value transformation initiatives. As you well know, we have announced a few weeks ago the creation of the second largest player in terms of payments business in Italy with the significant revenue growth potential. And we have been able to join this company with a very strong consideration for our side up to 600 million. On the other side, we are still in the process of reshaping the bank assurance deal. As you will know, in May, we have exercised the column 65% on Vera Vita and Vera Assicurazione, and we are in the process, in the second part of the year, to close also the Gem Venture with the Credit Agricole for the non-life part of this business. On page 7, some flavor about the results that we got Q on Q. You see that total income went up 6% Q2 on Q1 and 21% year on year. Cost income 10 full point lower than last year to 47.8 in Q2 23 versus Q2 22. and also cost of risk was down to 121 million, which is 12% lower than Q1 and 21% lower than Q2 last year. With a pre-tax income and a net income almost 100% better than the previous H1 2022 at $450 441 million as pre-tax and 624 million in H123, which is again our record level in the first semester of the year. These results bring us to increase again the net income guidance for the full year 23 which was 1 billion 140 million in Q1 when we had the Q1 presentation which was 75 cents per shares and we are able now to increase to more than 1.2 billion which means above 80 cents per share. Let's go back to what we have done during this period in terms of product factory we have from one side on the left increased our full ownership of our product factory let's say apart from Banca Leti and Banca Agros which are our private bank and our corporate and investment bank activity we have now 100% of Banco Bpm Evita and Veravita which will be merged together creating a wholly owned life bank insurance company On the right side, what we have done in order to strengthen with the key strategic partners, the other participation in the other JV, starting with Credit Agricole, which we have added to the stake in Agos, which is 39%. And we almost recently increased the long-term commercial agreement with Credit Agricole in consumer credit We have recently added the 35% of the joint venture in non-life bank assurance. And together with this, the new partnership in payment business with FSI and the Crea Bank, in which we will have almost 29% of the stake. During the last year, we have also increased from 14% to 21.7%. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord to try to exert a significant influence through direct involvement in governance and management in all the product factories, and also to obtain a long-term stream of revenue and dividends out of the stakes that we have in this participation. In the meantime, we were able to extract almost one billion in value from this last two transactions, more than 400 million from bank assurance, and almost 600 billion on consideration for the payment system. Just to recap on the payment system, as you know, is a 2 billion NPV deal based on three strategic pillars. One was the preservation of the current P&L contribution, which in 22 was 140 million. This is a business that in the first half of 23 is growing 10% year on year, so give us a lot of opportunity to increase the stake of revenues from payment system. The second pillar was to have an upfront value generation. As you know, we will get 500 million at closing and 100 million as a deferred payment obtained in a few years. which will mean 32 basis points for the upfront and 50 basis points for the total consideration of increasing common equity tier one, which of course is not yet included in the figure I showed of the current common equity tier one. The third pillar is the upside that will come from the streaming of dividends and from the valorization of this company, which will be the second payment system company in Italy, and possibly we will extract also some value from the increasing value that we will have from this participation. Some figure this new company will represent 10%, will have 10% of market share, almost 9 million on payment cards, 400,000 point of sales, and almost 110 billion on transacted business volumes all in all. On the right side, you see also the different composition as shareholders. The two banks will have 28.6%. FSC will have 42.9% on the shareholding in Paycock. In Bank Assurance, I already said, we have exercised the call on Veravita. Now, in the second part of Q4, we will have Credit Agricole to purchase 65% of the stake in BPM, Maxi, Danni, PNL, and Verassicurazioni for a consideration of 260 million for the 65%, for a total value of 400 million. This will come together with the signing of a 20-year distribution agreement for this joint venture. The rationale is to have an insurance group with a leading player on the P&C market, to have the possibility to have a single commercial offer to our customer, unifying the product catalog, which until now was split into two different companies, and of course to extract the most favorable value and synergies from the product factory together with the favorable treatment that we expect to get from the approval of the Danish compromise. Let's go on page 12. Before going through the figure of Q2, let me say that on the right side, we wanted to show the clear pattern of the new profitability trajectory that you can follow through the last three years. I would say H120 was still a year of restructuring with the NIN at 1.7 billion. going up to 2 billion in 21 and 23, and now reaching 2.5 billion. The same you see in the cost income, 64% H120, then down to 55%, now down to a further 49%. To finish with net income, which was 100 million in H120, 350 million in H121 and H22, and now reaching 624 million in H123. This comes, of course, from the strengthening of net interest income, which grew 50% year on year, but also to the very good tenure of the other income revenues and cost control. I would say that Q&Q, we have... a small reduction in operating costs from 640 to 635 million, a reduction in low-loss provision from 137 to 121, will together with the increase in income lead us to a profit from operation pre-tax of 540 million versus 470 million of Q1. After taxes and systemic charges, this brings to almost 360 million in Q2 versus 265 million in Q1. Going to the year-on-year results, let me just stress that the net profit from continuing operation is up 65% and the net income is up 78%. Let's say that this comes also from a net financial results which is completely different from H122 in which we had an over performance of 177 million this year we have a loss that then we will explain further on of 42 million notwithstanding the net income of H1 was for almost 50% coming from something that is not anymore a profit in H123 we still have realized an increase of 78% in net income in the first part of the year. And I wrote on page 13, we have the 49% already mentioned, which means 9% in Q2 versus Q1 with a commercial spread which increased to 402 basis points versus 357 in Q1 coming from an asset spread which we still are able to maintain at the same level of the last two quarters 152 basis points and an increasing liability spread going from 141 of Q4 22 to 2.04 of Q1 23 to 250 basis points of Q2 of course this is thanks to the Euribor trajectory which is growing in the last two Q from 264 to 339 the depot cost for us grew from 0.45% in Q1 to 0.71% in Q2 which means that our beta is is still at a level of 33%. These numbers allow us to increase our guidance of NII for 2023 from 3 billion to 3.250 million, based on the same level of deeper rate from ECB, no further hikes in the last part of the years, and of course with the same level of beta and which means a sensitivity of 300 million for 100 basis point of increase of rates. Let's talk about the balance sheet. We are keeping our performance not really aggressive on customer loan. We are happy to stay more or less 1 billion lower than the first two quarter. But the quality of our asset is bettering even more. As you see on the right part of the slides, the secured loans to household and non-financial companies grow to 68.8%. of which 23% with state guarantee. If we consider only the SME Portafoglio, this securities part is up to 73.6% and the state guaranteed loan, if we consider only the non-financial companies without the household, is up to 30.6%. vis-à-vis slightly more than 6% in 2019. On the left bottom part of the slide, you see the new lending which shows a performance which is lower than last year. There is, of course, lower demand, but also what we don't see is the refinancing that we saw until H1-22 due to the interest rate that were stable and we had a lot of companies refinancing and getting longer maturity during that period. Of course, this is not happening anymore. The total of general lending is now 10.2 billion vis-à-vis more than 13 billion in the first semester of 2022. Let's say that in July we saw a recover of lending. We have granted 2.2 billion in July, but our policy will still be very prudent, addressing the best rating classes of clients, and of course in our territory, which are mostly in northern Italy. Let's also stress that new land into corporate enterprise is almost 56% green related. In terms of the customer funding, we have increased 2% Q and Q and 3.3% here to date. The customer funding, total customer funding up almost 7 billion since the beginning of the year, more than 4 billion in last Q2, with, let's say, Q&Q, the same level of deposit, but a strong increase in assets under custody, driven, of course, by Govi's placement during the last quarter. All in all, the customer funding is up year-to-date 7 billion in assets under custody, 1 billion in asset under management and since the beginning of the year a couple of billion lower of deposit transformed into asset under custody. Also the deposit base is very resilient. We have a huge retail base. 57 billion are guaranteed deposit. The average retail which means household and SME Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord year on year with a growth of 9 million 1.8% in the commercial banking fee and a reduction of 5.8% into the management and advisory fees. These results is very good in our opinion because it comes after cancellation of the fees of excess liquidity on current accounts which we gave back to our client in Q2 and is a lower contribution of 14 million as well as higher cost for synthetic securitization for 11 million. So all in all we have a very strong performance from many fee-driven activity, one for all the payment services, which is 26 million year-on-year, and also the fees on lending year-on-year are still very consistent, 5 million more than last year. On the management intermediation advisory fee, we have a reduction of 5.8% year-on-year, mainly due to lower fees from FANS and SICAV due to the increased interest rate environment which accounted for 51 million but was partially compensated by higher fees bought from certificates which we issued with fees for 16 million and the GOVIS placement which gave us almost 12 million of fee contribution. Cost control is still very strict. As I mentioned before, we have a small increase of 1% year on year, but Q1-Q, in Q2, we are lower both than Q1-23 and Q2-22, 1.4% on Q1 and 0.5% on last year. this allowed us to have a very good 47.8% of cost income in the quarter and in the first part of the year this goes down to 49.5% as a cost income. For the first time we are below 50%. The headcount evolution since the merger we have reduced more than 5,000 people. We are now below 20,000 people thanks to the last early retirement scheme signed in January. We will have another 250 persons leaving the bank. 100 of them have already left and this allowed us to go below 20,000 people. Also in terms of branches, we have almost reached our target of 1,300 branches, closing almost 17 branches in May Let's talk on page 18 of asset quality. We are very proud of the reduction we had starting from the merger. We were at 24% and now we are to 3.8% in terms of gross MP and again down to 1.9% in terms of net MP ratio. So we are with the same figure of the best in class asset. in net MP ratios in the country. Consequently also our cost of risk is declining even though we continue to have a very prudent approach in provisioning the new income, the new inflow of non-performing and still managing and increasing cost in the stock of MP that we have and in fact we see that now we have a may be the highest coverage vis-à-vis our competitor. We will continue to decrease NPE, to dispose NPE. We have done 200 million of disposal in Q2 2023 as a part of the 700 million we have already provisioned for, and out of this, 300 million will be disposed in the second part of 2023. The overlays go up from 160 million to 200 million. The program provision policy is very well shown on page 19. As you can see, we still have a coverage of below 50 basis points. That's still at a very consistent level. The gross MPE went down from 5.5 billion to 4.2 billion with a reduction in the first part of the year of under 600 million of MPE. The bed loan coverage was down because of the disposal of the, we were mentioning before, but as you can see, the UTP coverage is still increasing to 42.1% versus 40% of the last two quarters. The share of secured MPD is increasing to 66%, as well as the total MP coverage is still at 50.6%. This is thanks to a very good default rate. We are still experiencing also up to July. We have a default rate, let's say a gross default rate of 93%. 0.93%, which if we decount the Q rate, go down to 0.78% at a level even below 22, which was a very record year. The stage two are mostly at the same level, but let's say that this comes from an inflow top-down of 1.8 billion coming from the client that benefited from the measure coming after the flooding in Emilia-Romagna and exclusion of 1.5 billion coming from bettering their rating plus. Let me pass the floor to Edoardo Ginevra for the financial aspect of the presentation.