Bper Banca Spa Unsp/Adr

Good afternoon. This is the Coastal Conference Operator. Welcome and thank you for joining the BIPER First Half 2020 Results Conference Pool. 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. Alessandro Vandelli, CEO of Viper. Please go ahead, sir.

Okay. Good evening, ladies and gentlemen. Thank you all for joining this conference call today. This is Alessandro Vandelli, Chief Executive Officer, and I'm here with Roberto Ferrari, CFO, and Gilberto Borg, Investor Relations Manager. First of all, let me say once again that I hope you and your families have been keeping safe and healthy, and I'm confident that if we all are patient and act with caution, we'll be able to overtake this emergency and turn back to normality. Today we will have a bit longer presentation than usual. as we'd like to share with you our view about three main topics. First of all, the key points of the first half 2020 results, then an update on the strategic deal with Intesa San Paolo, and finally, the revised outlook for 2021. Before starting the presentation, let me say that, as you all know, our strategy has always been driven by seeking new growth opportunities enhancing profitability with a strong focus on the risk and capital solidity. Our recent history clearly confirms this strategy. We acquired banks, last was Unipol Banka, simplified our banking group, last month we completed the streamlining process with a corporation of two seven banks based in Pindamon, raised a good level of profitability and improving at the same time our asset quality and capital position. Check-to-earn ratio reached 12.6% from 12.1% in March 2020. Overall, a good starting point to look at the future, another step forward following the same strategy, growth and profitability with the same attention to asset quality and capital. Looking at the past, I'm confident we will be able to deliver well also in the near future. Now, if you turn on page five of the presentation, which should be already available on our website, we can start with the overview of the first half results. And before going through details, I'd like to underline a couple of key points updating the current situation relating to the health emergency. As I mentioned to you during the last conference call, we reached very quickly during the lockdown. We reacted very quickly during the lockdown with in mind few key priorities, such as to protect the health of employees and customers, to implement support measures for households small businesses and companies, while ensuring operational continuity of corporate processes, also by introducing innovative working methods. Now the peak of the crisis seems to be over, at least in Italy. We confirm that currently all our branches and central services are fully operational. Our quick response to support families and businesses during the crisis has allowed us to accept to date over 100,000 requests for a moratorium and to provide funds for loans granted by the state for over one billion. We have been promoting at the same time many other initiatives and fundraising at the service of the territories and communities. We are convinced that the collective effort that the country's deployment can drive recovery, but we are aware that the context remains particularly fragile. Now we can go through our first half 2020 results. Please move on to the next page, 6. I think that the first half 2020 delivers three main messages. First, resilient profitability. second a remarkable step up in our already sound capital position third a further significant improvement of the asset quality profitability first half net profit came at 104.7 million euro showing a resilient profitability also thanks to the confirmed ability to generate revenues and contain operating costs in a contest characterized by the slowdown of the economy and by the effects of the health emergency. It must be said that the result includes some non-recurring items, such as the accounting of additional loan loss provisions for approximately $90.5 million related to the worsening of the macroeconomic context caused by the health emergency, and other externally charged for 36.1 million, partially offset by positive income taxes for the period for 68.9 million euro. The cost of credit annualized is at 71 basis points, excluding non-recurring items relating to the worsening of macroeconomic scenario and the sale of the mezzanine and junior tranches of the bad loan securitization spring. equivalent respectively to 35 bps and 6 basis points so the stated cost of risk is at 112 basis points the second quarter net profit was 98.6 million euro much higher than the 6.1 million in q1 capital the quarter we have been able to this quarter we have been able to further improve our radius solid capital and sound liquidity position. We have been able once more to manage capital in very effective way, increasing our check-to-earn ratio fully loaded by 50 basis points at 12.57% versus the level of 12.07% in March 2020. In addition, our liquidity position is very strong as shown by LCR index at 162% and the liquidity buffer reached 14 billion euro compared to 11 billion in March 2020. All this moving on page 7, introducing the asset quality. We must underline another very positive result. In fact, our strong focus on asset quality allowed us to get the lowest NP ratio in stocks since 2009. Thanks to the further reduction of the NP stocks, also thanks to the recent bear loan securitization called SPRING, gross and net were down respectively 18.2% and 12.2% since the end of 2019. The gross and the NPA ratio dropped to 9.1% and 5%. Also, the Texas ratio dropped to 70.8%, showing a significant reduction by 8 percentage points since December 19. Meanwhile, the analyzed default rate remained stable at 1.7% versus 2019. finally talking about business we experienced a very positive performance of loans also supported by the activity related to the measures promoted by the government for the half emergency the total funding which includes the bank assurance sector is at 173.4 billion euro recovering by plus 4.7% for the low-level REITs in Q1, which was affected mainly by the market effect relating to indirect deposits. Now let's go very quickly into the analogy of the four-step results starting from the balance sheet. We can move on to page nine. We start with an overview. of the funding, total funding in Q2 is 173.4 billion euro, including a contribution of asset under management from ARCA holding over 16.5 billion euro. I remind you the total asset under management of ARCA are about 31 billion euro in June 20. Direct funding recovered in Q2 after a slight decrease in Q1. plus 4.7% compared to March 20. Indirect deposit and bank insurance recovered as well in Q2 versus the end of March 2020 at the same pace, plus 4.7%, showing a resilient trend in bank insurance and sustained net inflows in Q2 more than doubled compared to Q1. Moving on to page 10, net customer loans up by 3% since March 20 and by 1.1% since December 19, also supported by the measures of the government to sustain the economy. This result is also even more positive if we take into consideration the bad loan securitization called SPRING, which helped to lower significantly the gross net MP stock as we are going to see in a while in the next slide. In the fourth half of 2020, loan origination has shown a very positive trend, up by 18.6% versus the fourth half of 2019. The good quality of the performing loans book is still confirmed by a particularly low bucket of high risk exposure, only 3.5% of the performing book. Let's turn to page 11. This is a very important slide because it is the confirmation of how we were committed and focused on improving asset quality, and here you have the results. we were very successful in driving the improvement of asset quality, just few numbers. In mid-16, we had a gross and net MPI ratios respectively at 23.5% and 14.5%. The same numbers are now at 9.1% and 5.0%, almost 1 third. Gross and net stocks are back to 2009 levels. Net bed loans are well below €1 billion, also as a result of €5 billion of bed loan disposals in the past two years, along with the very positive work out made by our servicing company and internal structures. We know that our job is not over, especially because the expected macro scenario seems not to be as favorable as it was some months ago, but we reiterate our commitment to focus on further quality improvement going forward. The translation within TESA Sao Paulo addresses also this angle among others. Moving on to page 12, we show an annualized default rate at 1.7% at the same level of 2019, and a very positive number of the recovery rate at 7% from 6.3% in 2019. It was 3.7% in 2016, the first year of our specialized company, Bipro Credit Management. On page 13, the securities portfolio reported an increase by 3.3 billion euro compared to December 19, and by 2.4 billion since March 20, mainly led by our large buffer of liquidity and positive market expectations. We invested mainly in Italian and core Europe government bonds and agencies. Italian government bonds stock increased to 7.5 billion euro, weighing 33.9% of the financial assets portfolio and 11.5% of the total asset. Now we can move on to profit and loss figures on page 15. A few comments here. net profit for the first half of the year of 104.7 million, thanks in particular to high capacity to generate revenues and effective control over management costs. It was highlighting that this result includes the impact deriving from the accounting of additional credit adjustments for approximately 90.5 million euro, relating to the worsening of the macroeconomic context caused by the health emergency. The result includes also other sterling expenses for €36.1 million, and you can see details in the call-outs of the slide. The previous non-recurring charts were partially offset by positive income taxes for the period mainly due to the tax credit relating to the conversion of DTA person to legislative decree called Italia and the release of intangible assets goodwill for the tax purposes. We can move on very quickly to page 16. As for the Q1, I'd like to remind you that the comparison between the first half and the first half of 2019 detailed profit and loss data is not on a like-for-like basis due to the acquisition of the control of ARCA and UniforBanca since July 2019. So my comments will be focused, when necessary, on the quarter-on-quarter trends because the first two quarters of the year are not comparable are comparable only with the last two quarters of 2019. About the distilling income, we show a comfortable NII growth, plus 0.7% quarter-on-quarter at 310.3 million euro, and also at ordinary NII that is net of IFRS 9 and IFRS 16 effects, we have an increase by 1.3% quarter-on-quarter. NII resiliency is mainly due to the improvement of the spread plus eight basis points led by the decrease of the cost of funding and a slight increase of the asset yield. Given the current difficult microeconomic scenario and the low negative interest rate environment, this can be considered overall a positive result looking at the outlook for the year. On page 17, the net commissions amounted to 245 million euros in Q2, down by 8.4% quarter-on-quarter due to the effects of the health emergency and the prolonged period of the lockdown. Even in the presence of a slowdown, we recorded resilient performance in the banking sector substantially unchanged quarter-on-quarter, while the lockdown impacted on the other segments, such as asset management commissions, with a decrease by 10.6% quarter-on-quarter, cards, collections, and payment sector, minus 8.2%, and the company referring loans and guarantees commissions dropped by 5.6%. It's worth highlighting that the analysis on the monthly trend of net fees in Q2 leads to be cautiously optimistic about the possible recovery of net fees in the coming quarters. In fact, the data shows that in June, net commissions return to the pre-crisis level in line with the first month of the year. after a negative trend in april and may in conjunction with the lockdown period on phase 18 in 20 in the second queue trading income where was very positive showing a strong increase at the 46.8 million versus 5.6 million in q1 influenced by the rebound in financial markets after the turmoil following the health and medicine crisis. The quarter sees also dividend for 12 million euro. Moving forward on page 19, operating costs amounted to 410.1 million euro, down by 0.2% compared to the Q1, showing in particular a positive performance in staff cost. down by 2.5 percent quarter on quarter, benefiting from the first positive effects of the redundancy plan and able to absorb some inflation effect relating to the renewal of the national labor agreement signed in last part of 2019. Other administrative expenses amounted to 116.9 million euro with an increase by 2.1% quarter on quarter mainly due to higher costs related to the extraordinary projects we have been working on. On page 20, we are counting loan loss provision for 157.8 million euro in Q2. including additional provisions of approximately €40.5 million due to the worsening of the macroeconomic contest, €50 million had already been recognized during the fall skew, and then €16.4 million referring to the sale of the Madeline and Junior tranches of the securitization of Spring Bed Loans portfolio. The cost of credit analyzed is at €71 basis points, excluding no recurring items. It is at 112 basis points, including additional loan loss provision related to Delta Medigee, which count for 35 BIPs, and the sale of Medellin Junior branches of the bandwidth securitization spring for 6 basis points. Net provisions for risk and charge amounted to 17.2 million euros. About liquidity on page 22, we consider our liquidity position as very solid. Our total eligible assets increased at 27.1 billion euro, along with a bucket of an encamber eligible asset of 11 billion euro. And that's the liquidity of 3.2 billion euro made by deposits with the ECB. ECBO exposure of 15 billion in June 20, mainly composed by 14 billion of TL-303. I remind you that we entirely reimbursed the 9.7 billion euro of TL-302 in June. LCR index is at 161.8%. as well as the NSFR ratio stands well above the regulatory floor. Page 23 on capital, another very important slide. This is the third pillar of our management action after the other two represented by the resilient profitability and the strongest equality improvement. Our capital position is confirmed to be very solid As we were able to increase significantly the CHET-1 fully loaded by 50 basis points in the quarter, bringing the ratio to 12.57% from 12.07% in March. The CHET-1 ratio phased in stands at 14.11%. with a very large buffer of 600 basis points over €2 billion versus the minimum capital requirements set by the ECB at 8.125%. The main positive effects on the CHET-1 ratio in the quarter have been retained earnings, 31 basis points, the SME supporting factor, 22 basis points, the positive contribution of the fair value other comprehensive income reserves for 21 basis points and lower goodwill on intangible assets for only 3 BIPs. On the other hand, we have an increase in RWA for a total negative impact on CHAT1 over 27 BIPs due to the increase of loans and the securities portfolio. We have also some extra buffer to exploit by the end of the year. As you all know, the IB model extension to the ex-Unipol bank credit portfolio and the CR Saluzzo. On the next page, 25, my brief final remarks. So in conclusion, the main takeaways from the first half result are resilient profitability, despite a very difficult economic scenario and a conservative approach to credit risk with significant additional provision of $90 million in the half year. Again, a step forward in improving asset quality, and obviously this will continue to be a focus for our group. All this combined with a very solid capital ratios and large liquidity buffers. Here again our commitment is to preserve and even improve this comfortable situation in the future. So we are going to face new challenges but confident that we are well equipped to do a good job in the interest of all our shareholders. Now let's go to page 27 to share with you an update about the Intesa San Paolo transaction and then finally an overview of the revised 2021 economic and financial outlook. We now move on to a brief update on the acquisition of the going concern from Intesa San Paolo, which we announced back in February 2020. On slide 27, you can see a summary timeline of the key events of the transaction. Following the initial announcement in February, today we announced the agreement on revised transaction terms within Tesa San Paolo for the acquisition of the going concern. In particular, this agreement envisages the definitive methodology for the calculation of the consideration for the going concern, which we'll describe in detail in our next slide. Given the successful conclusion of the public tender offer of Intesa-San Paolo and UBI, the acquisition of going concern is now subject to BIPER obtaining regulatory approvals. And this is a cushion of BIPER's right issue, which we expect to launch as soon as practicable in the second half 2020. On slide 28, you can find a recap overview of the perimeter being acquired and the key transaction terms. Based on yesterday's agreement, the price of the going concern is now determined in a definitive manner as equal to a multiple of 0.38, the checkpoint capital of the going concern. bearing in mind that the capital allocated to the going concern will be in line with the one of UBI which recorded the CHET-1 ratio of 13.4% as of June 2020. All other terms remain as previously communicated to the market and include items conceptually defined such as 532 branches up from the originally agreed 400-500 in February agreement, mainly located in the northwest regions of Italy and Lombardy. Approximately 26 billion loans to customers, RWAs capped at 15.5 billion. Asset quality is aligned to that of UBI for a portfolio of 21.5 billion, plus 4.7 billion in performing loans. Gross NP ratio for the going concern of 6.5% based on UBI's figures as of June 2020. I would also like to remind you that the going concern will be composed of assets and liabilities strictly related to the branches acquired with no head office no central structures, and no future obligations with reference to current distribution agreements. On slide 29, we want to stress once again the strong strategic rationale of this transaction for Beeper. This acquisition will enable Beeper to enhance its scale and positioning and increase its client base by more than 50%, with new clients mostly located in the northwest regions of Italy, one of the most dynamic areas in Europe. From this, we expect significant returns in terms of greater efficiency as well as revenue generation as further illustrated in the following pages. On slide 30, you can see more clearly what we have just mentioned in terms of enhanced scale and positioning of BIPER. vis-à-vis other Italian listed commercial banks following the acquisition of the coin concern. Let me repeat once again, this transition is about client growth, revenue growth, greater efficiency rather than simply expanding our branch network. Moving on slide 31, we provide you with a detailed overview of the contribution of the going concern in term of distribution network, which again you can see is mostly represented by branches in the northwest region of Italy, more than 57%, and in particular Lombardy. The highly complementary footprint of the going concern with significantly enlarged beer pair multi-regional presence in the wealthiest northern Italy, Italian regions, bringing in total approximately 1.4 million additional clients. In particular, the contribution of the going concern will increase per market share in Italy by 2.2%, bringing it to 7.6% based on number of branches. Lombardy will see a market share increase for BIPER from 1.3% on a standalone basis to more than 6% pro forma for the going concern. Following the acquisition, BIPER will count on a market share of more 5% in 11 regions in Italy from 7 on a standalone basis. On slide 32, we illustrate with additional details how this branch network is expected to contribute to BIPER's franchise, not only in terms of branches, but also in terms of business volumes. As you can see, based on the data available to BIPER at the present date, we estimate that more than 70% of contributed assets and liabilities are located in the Northwest regions, This contribution is expected to leading to a threefold increase in loans market share for both the Northwest and Lombardy, as well as a six times increase and nine times increase in Lombardy and in Northwest regions. Now moving on to phase 34. we'd like to give a quick overview about the economic and financial outlook for 2021. In light of the outbreak of COVID-19 pandemic, which is expected to result in an iteration of the macroeconomic scenario on one side and the acquisition of the growing concern on the other, the outlook and the economic financial expectations related to B per group vis-a-vis what previously outlined in the industrial plan 2019-2021 have changed. In this regard, we have revised the economic and financial targets as presented in the 2019-2021 industrial plan while maintaining continuity with the strategic guideline previously defined. The economic outlook at the base of the rise projections reflects a significant decline in the GDP for 2020, equal to minus 9.4%, with only a partial expected recovery in 2021, plus 5.4%. Despite revised macro estimates, we believe Viper is strongly positioned to face proactively the change environment with improving asset quality ratios, solid capital position, and strong liquidity ratios, as well as a more diversified business mix where commission-based volumes over total revenues have grown by four percentage points versus the same period of the last year. In this context, the acquisition of the going concern is even more relevant for both industrial and strategic point of view. Lastly, the right issue will allow BIPER to maintain a strong capital position to support a broader RWA base. Moving on to the last slide, number 35, we provide you with a summary overview of the revised estimates for BIPER on a standalone and pro forma basis for 2021. Taking into consideration the scenario outlined before, as well as the key strength of BIPER coupled with the composition of the going concern, we estimate that the group is well positioned to achieve a net income of more than €375 million in 2021, driven by revenues in excess of €3.4 billion, operating costs of €2.1 billion circa, corresponding to a cost-to-income ratio of 60%, with 90 basis points of cost of risk. In terms of asset quality, the ad hoc actions currently being assessed, coupled with the better asset quality profile of the going consort, lead us to expect the gross NP ratio of the combined entity BIPER group, including the going consort, in the 9% area. We expect the group to maintain a very solid capital position, with the CHET-1 ratio fully loaded in the region of 13% in 2021. on a combined basis, incorporating of course the impact of the right issue while delivering a return of tangible equity in the 6.5 region. Let me conclude by confirming our commitment as management team to deliver the completion and subsequent integration, the growing concern with maximum rigor and continued focus on profitability, asset quality, and capital strength in the interest of all our stakeholders. Thank you all for your time and attention. Now we are ready to start the Q&A session and to take your questions. Thank you.

Excuse me, this is the close call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. This first question is from Andrea Vercellone with exams. Please go ahead, sir.