Banco Bpm Societa Ord

Good afternoon. This is the Coral School Conference operator. Welcome and thank you for joining the Banco Bpm Group third quarter 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 and Zero on the 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 welcome everybody. Before starting, as usual, let me remind that you find the presentation and also the press release on our website, the Investor Relations page. The second part will be a Q&A section reserved to the Financial Analyst and please limit to only two questions for analysts to leave room to each other for some other questions. Thank you. I leave the floor to Mr. Castagna.

Thank you, Roberto. Good evening, everybody. We will try to be very quick this evening, a very solid, strong set of results. I would say both in terms of profitability and the balance sheet. nine months in which we have reached 94% of net profit higher year on year. Q3 is 134% higher than Q3 22, leading to go over the guidance we gave of 80 cents per share and 1.2 billion of net profit. Of course, we'll be more precise about that in the upcoming presentation of the industrial plan early in December. Going down on page seven to the different results, let me stress the excellent results in core revenues, which is higher 26% year on year. Pre-provision income is up 31% with the cost income which is below 50 at 48%, with a Q3 cost income at 46.5%. A good reduction also in terms of loan loss provision, down 23%, leading to a profit before tax of plus 63%. Very good also the reduction, the continuous reduction in MPs. We are now below 4 billion, in volumes and at 3.5% of MPE ratio, which is 1.8% of net MPE ratio. With the EBAC, it's 3.2, the gross ratio. Good occasion also to stress two good news for us. One is the upgrade of standard reports to investment grade for our bank. joining Fitch and the BRS. We have been granted BBB- with the positive outlook, which for sure will help us also in the bond issuing in the next few months. Also in terms of capital, good news, we have eventually authorized by ECB to apply the Danish compromise to our bank assurance company, which of course will be will be already inserted in the day in this common equity at one ratio at 14.9 pro forma but of course will be officially included starting from the presentation of the date of December 23. This business model I would say is now very well integrated also with our digital and ESG strategy Speaking at digital on page eight, you can see how much the branch-based transaction have been reducing during the years and at which even accelerated pace are growing the app mobile-based transaction, basically three times the volume of 2019 before the COVID. Nowadays, as we already know, the transaction on the app are almost 10 million more and one-third more than the branch-based transaction. All in all, we have more than 85% of the transaction of the bank through remote and mobile. Also, the sales of our product are now 39% done through remote and omnichannel, Bpm Societa Ord Bpm Societa Ord Forecast is to overcome 40% by year-end. The same is also for the contact center, our commercial activity, remote commercial activity, starting from only 6% in 19 of commercial contacts. The other were inbound answer to question made by client. Now we have completely inverted. Now 55% of the commercial contacts are driven by commercial activity. Page 9, some highlights about our ESG integrated business model. We have, in terms of business, joined Net Zero Bank Alliance and identified the five priority sector. We have reached almost 60% of green new loans to corporate enterprises out of the target of reaching 65% by the end of 2024, 100 million new loans to non-profit sector, 1.5 billion of issuing of green bonds by the bank, which we have had more than 2 billion in 2022, which were the first bank in terms of new issuing of green bonds. In terms of people and community, we are on the right pace to reach 30% of women in managerial position. We started 21% in 2021 and now are above 27% with an increase of 31%. We have devoted more than 131,000 hours of ESG training to our employees as well as 4,000 hours to our clients. in terms of organization. We have now a sustainability committee at board level established in April of this year, 23, and we have today published the Green Social Sustainability Bonds Framework aligned with taxonomy. In terms of strategy, of course, also for DSG strategy, the DSG New Action Plan, Bpm Societa Ord ESG rating, as well as Sustainalytics separated from medium risk to low risk, our bank, and Standard Ethics confirmed AAE with positive outlook. Let's have a look on page 11 to the main figure. All in all, as I said, net income almost doubled year on year. with a considerable increase both in core revenues at the yearly level and also quarter-on-quarter. 26% year-on-year and 4% increase quarter-on-quarter, driven, of course, by net interest income, which grew 52% year-on-year and 7% on quarter-on-quarter. A very solid result also in... operating costs. We have an increase year on year only of 0.8% while below the guidance of 2-3% that we gave at the beginning of the year. Pre-provision income is up 30% and 6% on a quarterly basis and profit from continuing operation pre-tax profit are high to 63% year-on-year and almost 7% on the quarterly basis, leading again to a net income at 94% higher than last year. On the right side of the slide, you can see the net interest income, the core revenues, the pre-provision income, and the net income compared with the previous two Q3 in 21 and 22. As you can see, the net income is more than doubled in the Q3 23 and 22 and more than 3 times the Q3 21. On page 12 let's have a look to NII trend not only 52% increase year on year but also a very good increase also Q3 and Q2 is 7.3% which allow us to confirm a guidance which will be in the region 3.25 billion most probably we will be a bit over that lead led by the commercial spread which grew 30 basis point on Q3 driven especially by liability spread which grew 29 basis point only one basis point for us spread which is still having a good return As far as the sensitivity is concerned, we confirm and observe the possibility of around 33%, considering both commercial and derivatives, a sensitivity for 100 basis points, 12 months of 300 million and ready to comply with potential new scenario, let's say more probably in the second part of 2024, in case of inversion of the rate trend, we have a wide room to limit the NII sensitivity by expanding the size of the replicating portfolio, which is now edged only for 15 billion. Let's have a look to our franchise in terms of loans. What we want to stress is the quality of our loan portfolio, which is in turn, of course, shown by the cost of risk and the reduction of MP. We have almost 100 billion of customer loans is a bit less than 3% since the beginning of the year. Most of them comes from non-financial corporates. Meanwhile, households are only down 300 million year to date. financials public administration and others instead are growing 0.5 in Q3 leading to positive results but what is important to stress is the very low risk profile out of these 100 billion 69% are secured 41% collateralized 21% with state guaranteed which if we go to the household, of course, is much higher to 95% collateralized. If we go to small businesses, 74% secured, 45% of which with the state guarantee. Also in terms of total non-financial corporates, 57% is secured, 31% with the state guarantee. Also in terms of real estate collateral, we have three quarters of our real estate collateral located in north of Italy with a loan to value at 60%. In terms of deposit, total customer funding is 205 million.4, slightly below 206 million of last quarter, but almost 6 billion, or more than 6 billion higher than year to date. Especially we had some 9 billion of increase in asset under management and asset under custody. Meanwhile, the deposit base decreased over 3 billion, only 3 billion fostered the growth of asset under management and custody. On the quarter, I would say that in Q3 we have this reduction of 600 million, but let me say that the volume effect is up 1.1 billion. Meanwhile, the market effect is down 1.7 billion. The retail base is huge. We have a deposit guarantee for more than 57 billion. 81% of the household deposits are guaranteed by the Guarantee Scheme and out of 100 billion of side deposits, more than 80% are retail and SME deposits. On page 15, let's have a look to the net fees, very good results. when we were down to 1.148 million, down from 1.44, growing at 0.5% in terms of commercial banking fees, with a reduction of 5% in terms of management, intermediation, and advisory fees. The results in terms of commercial banking fees have taken account the reduction of 25 million more costs for 25 million in terms of new synthetic securitization costs. The cancellation of fees on excess liquidity on current account, which happened since the second quarter and will account for 30 million year on year. And these two negative figures were more than offset by strong contribution for basically all the remaining components of the commercial banking activity, in particular from cash management and payment service, which grew year on year 30%. In terms of court results, you see that in terms of commercial banking fees, we have results which is higher than Q2, notwithstanding 8 million of higher costs on synthetic securitization, Meanwhile, we still have a reduction in terms of management advisory fees, led especially by lower production in terms of funders almost offset by higher fees on certificates and asset under custody products, basically BTP. In terms of total investment product sales, We are up 500 million to 9 month 23 to 9 month 22. Let me stress that we had bought Q3 23 with a solid performance of 4.1 billion of investment product sales. But especially in October, we had 1.4 billion of placement to which we have to add 1.2 billion of BTP Valore placement. I would consider very good also the performance of the cost control of course the cost income which went down to 48% from almost 55% year on year we went up only 0.8% and quarter on quarter we are reducing Q3 and Q2 both staff cost and also let's say we had a result which is equal in terms of other administrative expenses and depreciation and amortization. This shows us the strict cost control is embedded, I would say, in the bank. We are, of course, preparing all the potential of setting of increasing cost of personnel and administrative costs also for the new business plan for which, of course, we will be more precise in December to the presentation of the plan. Let's pass on page 17 to the asset quality. We already say that we can say that the turnaround is now complete. We have been reducing during these six and a half years more than 34 billion of MPE passing from 30 billion plus 8 billion matured of new inflow to MP from 17 to now. Now we are below 4 billion. 3.9 is the level in September 23. We have so reached 3.2% as per EBA definition and 3.5% of MP ratio go down to 1.8% of net MP ratio with bed loan ratio down to 0.6%. Also, the cost of risk, of course, has been reducing over 2023 with a constant cost, which is now around 47, 48 basis point. Let's say in terms of comparison with our target of the current business plan, that the 3.9 billion of volume of MPE has to be compared with the phoregas of 6 billion that we had for 2024 and the gross MPE ratio, which was 4.8. Meanwhile, now, as I said, it's 3.5. We have also increased the charging already, the gross risk, to 900 million, the target of disposal of MPE which from 700 million 500 which have been already executed by the third quarter 23 the remaining 400 million will be done for a part in the fourth queue and a more significant part in 2024 on page 18 the prudent policy that we are applying for our provision. The quarterly LPEs, as you can see, are on a basis of around 45 basis points. The migration rates are still very well under control. We're below 0.9% annualized in the nine months of 2023. Q rate around 5%. Net default rate 0.75%. the disposal of small ticket unsecured brought the bed loan coverage a bit below the previous numbers. We are now 59%, which is 68%, including the write-offs. Meanwhile, the UTP coverage grew from 42% to 43.1%. Of course, the disposal of unsecured smooth tickets led us to have now a share of secured MPE, which grew from 66% to 69%. In terms of stage 2, we have an increase to 12.8 billion, coming by a different methodology following the application of the threefold effect, and new automatic trigger in the watch list of our trade portfolio. More severe, of course, trigger. Edoardo, would you want to continue?