Bper Banca Spa Unsp/Adr

Good afternoon, this is the Coruscall Conference Operator. Welcome and thank you for joining the BIPER 3rd Quarter 2020 Consolidated 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. Alessandro Vandelli, CEO of Viper. Please go ahead, sir.

Thank you. Good evening, ladies and gentlemen. Thank you all for joining this conference call today. This is Alessandro Vandelli, CEO, and I'm here with Roberto Ferrari, CFO, Alessandro Simonazzi, of the Head of Planning and Control, and Gilberto Borghi, Investor Relations Manager. First of all, let me say once again that I hope you and your families have been keeping safe and healthy. This second wave of the pandemic is keeping everyone under pressure, but I'm confident that we'll be able to overtake this emergency soon and turn back to our ordinary life. At the beginning of this conference call, I'd like to greet all our staff. You have put your commitment, passion, and incredible dedication in supporting our clients in these tough times. This is the best way to face the emergency and invest in the future. Thank you all. The analysis of the nine-month results returns very positive messages in line with our strategy focused on enhancing profitability, improving further the asset quality, maintaining a very solid capital position, while seeking, when possible, new growth opportunities. In summary, net profit of over 200 million euro, a gross and net NP ratio respectively down to 8.8% and 4.7%, and the check-in ratio at 13.03% from 12.57% in June, are overall a concrete testimony of our strategy, and at the same time, a good starting point for our future planners' growth. 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 nine-month results. I think that nine-month results deliver three main messages. Resilient profitability, a remarkable step up in already sound capital and liquidity position, a further significant improvement of the asset quality. On the profitability, the net profit is at €200.6 million, showing a very positive increase of profitability, also thanks to the confirmed ability to generate revenues and contain operating costs, despite the difficult economic and financial environment. It must be highlighted that the result of the period includes, in addition to the contributions to systemic funds for 64.7 million euro, some other non-recurring items already accounted in the first half 2020, such as the accounting of additional loan loss provisions for over €19 million related to the worsening of the macro context caused by the health emergency and other extraordinary charge for approximately €36 million. The cost of credit analyzed is at 101 basis points, including the additional loan loss provisions and also the impact of the sale of the mezzanine and junior transits of the bed loan securitization spring, equivalent respectively to 35.6 basis points. Looking at results of the third quarter, I cannot hide the great satisfaction with results achieved, thanks to the extraordinary commitment of all the staff of the group. The net profit was 98.6 million euro, which benefits from the growth in core income by 5.8% quarter-on-quarter and the decline of operating costs by 7.4% quarter-on-quarter in the presence of a reduction of the cost of credit. Moreover, this result includes the ordinary contribution to the deposit guarantee fund estimated at 30.5 million euro. The second message is on capital and liquidity. Also in this quarter, we have been able to further improve, once again, our already solid capital and liquidity position. Set-to-end ratio preloading increased significantly at 13.03% in the third quarter, up by over 100 basis points versus December 19th. To complete the positive picture, our liquidity position is very strong as shown by LCR index at 175.8% and the liquidity buffer raised over 15.5 billion euro compared to 13.7 billion in June 20. All this moving on page six, introducing the third message about asset quality. We must underline another very positive step forward in improving asset quality. Our strong focus and commitment about it allowed us to get the lowest NPE ratios and stocks over the last 10 years. Thanks to the further reduction of the NPE stocks, also thanks to the bad loan securitization called Spring closed last July, gross and net were down respectively. 20% and 17% since the end of 2019, the gross and the net MP ratios dropped to 8.8% and 4.7% from 9.1% and 5% in June and from 11.1% and 5.8% December 19. Nevertheless, the decline of MP stocks and ratios is also associated with an improvement in coverage in all administrative status, which is some details later. We have been recording improvement of asset quality quarter after quarter over the last four years, and believe me, we do not intend to stop this trend. The normalized default rate significantly improved by 40 billion at this point. at 1.3 percent from 1.7 in June, and at the same time, the Texas ratio dropped to 68 percent, showing a significant reduction by 11 percentage points since December 2019. Finally, talking about business, we experienced a growth in performing loans both versus June 20 and December 19, also supported by the activity related to the measures promoted by the government for the health emergency. Total funding reached €177.3 billion, up by 1% versus December, showing a direct funding increase by 3% since December 19. And indirect funding is now in line with the end of 2019 level after the strong contraction in the first part of the year, supported by a strong performance in Q3. Very positive numbers come from the Bank S1 segment, which continue to show a strong performance, reaching €7.2 bn with an increase by 2.9% versus June and 6.2% versus December. So overall, we can be very satisfied by this very good set of results, which are a positive base to address economic and financial uncertainties of the rest of the year, in particular related to the second wave of the health emergency. Now we can move on to page seven. Also this second part of the year, we have been committed to work on several fronts. First of all, our attention was focused on strengthening and promoting further initiatives in support of families and businesses in this moment of economic and social difficulty caused by the protracted health emergency. Also thanks to the support of our branches and central services which are fully operational in compliance with current regulations. To date, we have accepted over 100,000 applications for a moratorium and disbursed funds for state-guaranteed loans for over €2.7 billion, while promoting numerous charitable initiatives and fundraising at the service of the territories and communities served. In October, the capital increase of $802 million was successfully completed. As you all know, this is related to the acquisition of a growing concern from the Intesa-San Paolo Group, a very important strategic deal which will allow to deeper group to achieve a significant dimensional growth, both in terms of market shares and number of customers. It is a great satisfaction to have recorded the support of our shareholders and the market in such a difficult context marked by high uncertainty. This is coupled with very positive results achieved in the first nine months of the year for the extraordinary commitment of all the staff of the group which my fans go. Now we can go quickly through the to our nine month 2020 result. Please move on to the page number nine. We start with an overview of the funding. Total funding in September reached 177.3 billion euro, including contribution of asset management from ARCA holding of 16.7 billion euro. Direct funding in September is close to €60 billion, up by 3% compared to December, and substantially stable versus June 20, as a confirmation of a strong preference for liquidity of our customers. Direct deposit recorded a very strong performance in September versus June, plus 3.5%, and now in line with the same level of the beginning of the year. Asset management performed well in the quarter, up by 2.2% versus June, and almost fully recovered to the same pre-crisis levels. Bank insurance continued to show a very positive trend, reaching a stock of 7.2 billion euro, which means plus 2.9% versus June, and plus 6.2% since the end of 2018. Net inflows in assets and management and life insurance products in the nine months are at €818 million. Criticism regime is taking into account the current difficult financial environment. Moving on to page 10, net customer loans recorded a positive growth by 0.6% since June 20 and by 1.7% since December. This result is also supported by the measures of the government to support the economy, and this is even more positive if we take into consideration the bad loan securitization spring, which helped to lower significantly the gross and FPE stock, as we are going to see in a while in the next slide. The good quality of the performing loans book is still confirmed with a particularly low bucket of high-risk exposure, only 3.1% of the performing book. Let's turn to page 11. This is one of the pillars of this set of results. Once again, we record a further improvement of the answer quality. Grand Saint-Pierre stock at the end of September declined below €5 billion, with a ratio of 8 down from 9.1 in June and 11.1 in December 2019, also a result of €5 billion of bedrooms disposed in the past two years. The net NPE stock is below €2.5 billion with an improvement of the ratio at 4.7% from 5% in June and 5.8% in December 2019. Another good news, is that the decrease of DMP stocks came along with an increase of DMP coverage to 49.3 from 47.4 in June. Also, the coverage of Bell Loans and UTP improved versus June, respectively to 63.9 and 36.8. So we continue our job quarter after quarter to improve asset quality, delivering positive results. The expected micro scenario is uncertain, but we think we are well equipped to face it, and we reiterate our strong commitment to focus on further asset quality improvement going forward. Also, the transition with Intesa San Paolo addresses, as you all know, also this angle, among others. Moving on to page 12, we show a strong improvement of the default rate at 1.3 percent in September, much lower than 1.7 percent in June 20. This is likely helped by the measures taken by the government to help the economy after the crisis related to the health emergency. But it's not only this, in my opinion. I think that this positive outcome comes also as a result of our long-term approach based on effective credit policies able to foster a better quality of the loan portfolio. Moreover, the average recovery rate on bad loans remained high at 6.4% from 6.3% in 2019. It was 3.7% in 2016, showing a very positive long-term trend demonstrating that our servicing platform, deeper credit management, is a very efficient machine. It is doing an excellent job and playing an important role within our overall MPE strategy. On page 13, the securities portfolio reported an increase close to 1 billion euro versus June, and by 4.3 billion since December 19. mainly led by our large buffer of liquidity to be invested in the positive market expectations, in particular in the first income bond market. Following our conservative strategy in the financial investments, we further diversified our portfolio. Italian government bonds stock is substantially stable at 7.5 billion euro, weighing 32.4% of the financial assets portfolio. and 11% of the total assets. Now we can move on to the profit and loss figures on page 15. As usual, note that the comparison between nine month 20 and nine month 19 is not possible because of the change in perimeter of the group. The third quarter of 2020 instead is comparable to the third quarter of 2019. Having said this, we are very proud of the net profit reporting in the nine months of 200.6 million, thanks in particular to a positive ability to generate revenues and effective control of management costs realized in a not easy microeconomic environment. It's worth highlighting that this result includes the impact deriving from the accounting of additional credit adjustment for over 90 million euro letting to the worsening of the microeconomic tautness, and other extraordinary expenses for 36.1 million euros already accounted in the first half of the year. Moreover, the result includes also the contributions to systemic funds for 64.7 million. You can see details in the call-outs of the slide. We can move on very quickly to page 16. The net profit for the third quarter is at 95.9 million euro, mainly thanks to the growth in core income by 5.8 percent quarter on quarter, the reduction of operating costs by 7.4 percent quarter on quarter, the decline of the cost of credit to 20 basis points, and a low tax rate, about 6%. Moreover, in this quarter, we have accounted that the contribution to DGS amounted to 30.5 million euro. So overall, also here, I have to say that this represents a very positive set of results. We can move on to page 17 for some details of the profit and loss. We can show a very positive NAI growth at €325.5 million, up by 4.9% quarter-on-quarter and by 3% year-on-year. If you look at the ordinary NAI that is net of IFRS 9 and IFRS 16 effects, the performance is even better, with an increase by 5.9% quarter-on-quarter and by 5.3% year-on-year. The positive performance of the NII versus the second quarter is mainly related to the TLTRO take-up of June, 14 billion euros. At the end of September, we took up another 2.7 billion euros of TLTRO 3. The TLTRO 3 additional contribution in the quarter was about 35 million euros, with an excess from the second quarter of about 24 million euros. On the other hand, we recorded a reduction of the yield of the bond portfolio along with a reduction of the yield of mortgages and credit facilities due to the new issuance at lower yield related to measure approved by the government to support the economy. Let's turn to page 18. Net commission amounted to €262.1 million in the Q3 2020. up by 6.9% quarter-on-quarter, reflecting a significant recovery after the decline in Q2 due to the effects of the health emergency and the prolonged period of the lockdown. In detail, the performance of the Amsterdam minimum was particularly positive, up by 11.5% quarter-on-quarter, commissions of credit cards collections and payments rebounded by 13.2% quarter-on-quarter, while the component referring to loans and guarantees also increased by 2.6% quarter-on-quarter. So we have had a confirmation of what we expected looking at the positive trend of commissions in the last part of the second quarter, 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 page 19, in the third quarter, trading income was very positive, even if a bit lower than in the second one, equal to $43.1 million, mainly supported by fifth-income bond trading and favorable equity market performance. The quote to see is also dividends for 4.6 million euro. Moving forward on page 20, operating costs amounted to 379.8 million euro, down by 7.4% quarter on quarter and by 2.5% year on year, showing a very positive performance. Staff costs declined by 13% quarter on quarter benefiting from the positive effects of the redundancy plan, including the business plan 2019-2021, and the usual seasonality of the third quarter of the year. Other administrative expenses amounted to €120.1 million, showing an increase of 2.8% quarter-on-quarter, mainly due to higher costs related to the extraordinary projects we have been working on. We recorded also a decrease in DNA by 2.4%, quarter on quarter. On page 21, provision and other items, we account in loan loan provision for €106.5 million in the third quarter, down by 30% from the second quarter. Just as a reminder, we account to the additional provision of approximately over €90 million in the first half of the year for the expected worsening of the economic contest. Moreover, the cost of credit of the second quarter included €16.4 million referring to the sale of the Mezzanine Junior tranches of the Securitization of Spring bail-on portfolio closed in July. The cost of credit analyzed is at 101 basis points. Net provision for risk and charge amounted to 15.1 million. This quarter includes the ordinary contribution to DGS estimated at 13.5 million euros. Now we can move on to page 23 on liquidity. We consider our liquidity position as very sound. Our total eligible assets increased at €27.5 billion, along with a bucket of unencumbered eligible assets of €9.9 billion, and extra liquidity of €5.8 billion made by deposits with the ECB. ECB exposure of €16.7 billion in September 2020, entirely composed by TLT3, The 9.7 billion euro of TL302 were entirely reimbursed in June. LCR index is at 175.8%, so well above the 100% threshold, as well as the NSFR ratio stands well above the regulatory floor. Page 24 on capital, another important slide. This is the third pillar of our management action after the other two, represented by the resilience, profitability, and the strong asset quality improvement. Just a technical clarification when reading this slide, the capital and ratio are on a pro forma basis because, as reported in the food notes, the inclusion of the result of the period into CHET-1 is subject to ECB approval, which will be carried out with reference to the regulatory reporting date of December 2020. Our capital position recorded a significant increase of the common equity to when fully loaded at 13.3%, up by 46 bps versus June, and over 100 bps versus December 2019. The CHAT-1 ratio phase instance at 14.61% with a very large buffer, 650 basis point over and over, €2 billion versus the minimum capital requirements set by the ECB at 8.125%. The main effects on the CHAT-1 ratio preload in the port have been retained earnings, of the third quarter, plus 28 bps, lower deduction on DTA and intangibles worth 9 basis points, and the decrease of RWA for a positive impact of CH1 fully loaded of 7 basis points. We have also some extra buffer to exploit by the end of the year, as you all know. In particular, the IRB model extension to ex-Unipol Bank credit portfolio. So now we are at the end of the presentation. So in conclusion, page 26, the main takeaways from this set of results of the first nine months of the year are we continue to record a very resilient profitability despite the very difficult macroeconomic scenario. We are confirming the ability in revenue generation and the first benefits from the redundancy plan included in our 2019-2021 business plan. Moreover, the cost of credit at 101 basis points shows that our approach to asset quality is still conservative, justified by the expected worsening of the macroeconomic context caused by the pandemic crisis. Deposit profitability results come along with a very solid capital ratios and a large liquidity buffer. Our commitment is to preserve and even improve this comfortable situation in the future. Again, a step forward in improving asset quality, and obviously this will continue to be a focus for our group. Last but not least, as you all know, we completed successfully the right issue of 802 million in October to support the acquisition of a going concern from the Intesa San Paolo group. We confirm once more the high strategic and industrial value of the deal. We are cautious that it was only the first step of the whole process, and even though very important, but we are also confident to be well equipped to successfully finalize this deal. So thank you all for your time and attention. Now we are ready to start the Q&A session and to take your questions. So thank you very much.

Excuse me, this is the Coruscall 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 touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Domenico Santoro with HSBC. Please go ahead, sir.