Bper Banca Spa Unsp/Adr

Good evening. This is the Porusco conference operator. Welcome and thank you for joining the conference call on the full year 2022 consolidated results of the PeopleBanker group. 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. Piero Luigi Montani, CEO of the Beeple Banker Group. Please go ahead, sir. Thank you. Thank you very much for joining. And I would like to give you a short overview of the results we achieved in 2022, which was a particularly significant year. for Bipa Banka marked by important accomplishments as we saw in the previous quarters that we illustrated. The last part of the year closed with extremely positive results with improving profitability, a very good improvement in credit quality, And as far as profitability is concerned, the year closed with a profit of $1,449,000,000, including $946.2 million worth of non-recurring items that are primarily accounted for by The bad were recognized following the acquisition of Karije, excluding these one-offs, net profit amounts to $500 million. In terms of volumes, of course, there was an uptrend in net interest income, and revenues are going up by 19%, with reference to volumes. Volumes are on a strong year to date. Uptrend on the back of... and many elements, both bunker carriers onboarding since the end of June 2022, and the positive and very effective commercial input that we announced in the previous quarters. Direct funding was up 13.3% year-on-year, and net loans to customers were up by 15.3%. Again, in lending, support to households and businesses continued as usual, with new loans in 2022 totaling 16.5 billion, 25.8% increase. Credit quality is improving further, and the additional de-risking has enabled us to further downsize our stock of non-performing loans. The gross NPU ratio is, in fact, down to 3.2%, And the net NPE ratio is now at 1.4% respectively compared to last year. They were 4.9% and 2.0% at the end of 2021. And the coverage levels have risen further at 57.1%. Bad loans, 77%. UTP, 49%. And performing loans are... I mean, their coverage is growing to 0.77%. It was 0.68% in the previous quarter. As far as capital is concerned, the bank's capital strength is confirmed with a pro forma fully-faced CET1 ratio that factors in the full benefit deriving from courageous DTAs, and it's now at 12.9% or 12.8%. And then on the basis of some other transactions that have already... being foreseen for next year, it will improve further. Our sound capital position is the basis for us to propose a dividend payout in the amount of 12 cents per share, which is twice the level of last year, so twice the level we resolved upon last year. The year that has just been closed was also marked by important accomplishments and one-offs that we have already mentioned. But first and foremost, I would like to emphasize the successful completion of the integration of Banca Carige that was closed successfully, I would say, at the end of November with the deed of murder of the two banks, and I'm referring to both Carige and Banca Montediluca, followed by the complete migration, full-scale migration of the information systems of the two networks, which in this further step in the process of banking consolidation has made it possible for us to increase lending and funding volumes and further strengthen our competitive position on a national scale. With regard to non-performing loans, I would like to mention the major sale of a bad loan portfolio, which we closed by the end of the year last year, which drove our growth NPE ratio to 3.2%. This transaction is part of the broader de-risking strategy that the PeopleBank Group has effectively pursued in recent years. And let me remind you that this indicator will decrease further during the next few months as a result of the disposal of two UTP portfolios and the MPE platform. And on the basis of these disposals, there will be an upside also in terms of CEQ1, such one that will get to 13.2%. Among the other transactions that were significant for us, I would mention the strategic partnership on payment cards, which we concluded and completed with Nexi in December, whereby Nexi was, in fact, transferred our merchant acquiring and management with POS management business, and this will enable us to leverage a degree of specialization they have. The branch network rationalization continues, combined with enhanced digitalization. and also our customer service model was improved in an omni-channel innovation logic. These one-off initiatives, and I'm sure you know because you've always followed us, but these one-off initiatives fit within the path that was charted in the 2022-25 business plan that we presented in June last year, whose implementation is already delivering significant upside in terms of streamlining the operational structure and increasing efficiency and profitability. Before I give the floor to Mr Gianluca Santi, I would like to remind you that we have 72 integration tracks in place that we are perfectly in line with the timing of, and I would like to say that in about a dozen of the key projects were even ahead of the time schedule and we have had the opportunity to start up and roll them off beforehand and this was done by the beginning of this year and of course this also brought about some expenses that we had to take before, but of course, taking them before, we will not pay them for them later. Having said this, I would give the floor to Gianluca Santi that will go into the details of the, of course, of our results. Good evening, everybody. So we're going to go into the details of the numbers. As an introduction, I would like to say that the numbers for Banco Carice will be consolidated in terms of balance sheet starting from 30th June, whereas in terms of income statement, they started to be consolidated from the 1st of July. So economically speaking, we're starting to see them in the last two quarters of the year. In terms of volumes and in particular direct and indirect deposits, you can see that there has been the consolidation of Parija that had an impact. And what is important is the resilience that we are observing in terms of funding from retail and corporate customers. So also in the fourth quarter, we have been able to grow our volumes. And this is important in terms of the upside that is reflected in the net interest income we're observing. In terms of indirect funding, we are growing. We grew also in the last quarter, in a year that was marked by an important market effect. You know that the impact of the underperformance of the market was about $17 billion in the year, so the capacity of our branch network is coming out. significantly in terms of stock but also in terms of net funding. As you can see we've been able, we've been resilient so we've been able to gather positive net funding in all quarters of the year which bears witness to the resilience of our branch network, of our branch network that can in fact work and operate even in adverse market conditions. Moving on to loans, we can see that there's good resilience there and even a slight increase in the last quarter, which is the result once again of efficient work conducted in May during 2022 for us to achieve a growth in terms of stock. to that extent, we had to grant $16.5 billion worth of new loans. So this is an excellent result in terms of loans, in terms of consumer loans, and also in terms of corporate lending, because you can see that CBI, that we have just introduced, Corporate Investment Banking Unit, that has just been introduced, is starting to work very well and performing very well even in a customer segment that did not belong to people that much in the past. And as the CEO was saying before, asset quality has improved significantly. Obviously, the one-off transactions enabled us to go down to 13.2% – I'm sorry, 3.2% in terms of gross MPE ratio and 1.4% in net MPE ratios. among the best in class in Italy. Net non-performing coverage remains high, and you will see there's a little bit of a slowdown because we have disposed of a significant bad loan portfolio in December. So there's a couple of numbers that I would like to give you in addition to what you can see there. There's a cure rate of about 16%, which bears witness to a good performance of our non-performing loans going back to being performing, and a default rate of about 10% to 11%, which is in line, and also the danger rate. They are both in line with the system, so the good quality loans is confirmed. As far as the securities portfolio is concerned, what I would like to mention there is that you can see that following the consolidation after EJ, we have now got, we have some sort of imported, onboarded a large share of Italian government bonds, but our idea for the future is that of reducing that stock to about 32%, which we think is the share that we should have as an ideal share of our portfolio. The duration is quite short because you can see that we're reporting there 1.9 years to 2.1 years for the overall portfolio. We're going up to 2.1, in fact, for the Italian government bonds. Moving on to the income statement, for sure this year was, or 2022, was not an easy year for comparing ourselves with the previous year, including Corrigia and including what we had in terms of one-off transactions. So we had to work a lot also to make the results and data comparable somehow for you to make your estimation. So the 2022 recurring data, we reconciled it with 2021, even though 2021 recurring results do not include Karije, so that's not a one, you know, a like-for-like comparison that we can make. But still, in the following slide, you can see that there's a focus on the one-offs that we carried out during the year. That's important for you to have an overview of how you can get to 503 million from the other data that you had. $18.4 million is accounted for by the capital gain on the bad loans disposal that we call breach transaction. Then $300 million primarily comes from the disposal of the merchant acquiring business to Nexi. $200 million, you can see there, is mainly traceable to the $177. 6.6 million booked in Q4 for the workforce optimization costs or the redundancy fund that obviously will not start I mean it will start in 2023 with 560 people net being involved in this maneuver and then we have the costs for the career acquisition process 55 million then there's 7 million in software impairment costs so of course some procedures, IT procedures that are no longer used and that came from Corrigia have been discontinued and then $60 million comes from the Corrigia's collective LLPs so by onboarding their net loans we had to take $60 million in collective loan loss provisions then there's $833 million in badwill $1.5 was the original badwill then the net of the items is $833 million. And in the annexes, you've got a breakdown of all of these items so that you can, in fact, understand better what the breakdown is about. But I would move on to the income statement and the net interest income. So as you can see, we have a very good performance in terms of net interest income in the last quarter, 19%. Plus 19% reflects both the improvement in the commercial spread and the yield on the securities portfolio and then we also issued institutional bonds, I would remind you of the $400 million in Tier 2 at 8%, and then there's a senior at 6% for $800 million in the last quarter, which of course brings the cost for institutional net interest income that is higher. But then as far as TROs are concerned, We did not recognize in the fourth quarter all of the interest income that comes from the TLTROs because we preferred to go for a different option that is following the deadlines that we will have in 2023. And so by doing that, we have a penalization in the last quarter, but we will have a benefit or an upside in 2023. Other things that are important to follow in the following slides, and if we go to – actually, it's in the same slide. We've got the commercial spread in the fourth quarter benefited from the spike we had – we have observed in the interest rates. And, of course, this was reflected in the interest income, and we have reached 2.90 there. We are starting to see in interest expense there's an increase from four basis points to 23%. And I would like to say that as far as our models are concerned, we have a beta of 30% that is embedded in the models. As far as retail customers are concerned, we are at about 3%. And we do not get to 20% for corporate customers. So we do not expect we will reach the... data that are embedded or implied in our assessment models because there's some sort of a viscosity, as he calls it, in our funding that is higher. As far as net fees and commissions are concerned, there's one thing that we are confident about for 2023 because in spite of the adverse market conditions, we have been able to grow In assets under management, again, we have grown also in bank assurance and in traditional banking services. So in the fourth quarter, all of the fee-based assets went up, which is an important message that I wanted to convey. As far as operating costs are concerned, well, 985 is the figure, including the one-offs that we have listed in details. So 166 million from the workforce optimization effort. Then we have 31.3 million from the Corrigi acquisition process in the last quarter of 2022. As a whole, the costs for that item amount to 55 million, but then there's a 10 million for a one-time allowance that we paid to the employees. Looking at the recurring costs, the figure is higher. So you can see that we're higher there, but as the CEO was saying, what we expect for 2023. In terms of guidance, we're giving you 2.6, 2.7 billion in operating costs. We're very close to Q3, to the Q3. Where's the delta? Well, on many projects, we are in line with the time schedule, but on some projects, we could be ahead of the time schedule and so of course we took the expenses before even though they were supposed to start in 2023 we um started those projects before this uh implied some costs were taken in 2022 but we would benefit from that in 2023. among some among the other relevant items i was saying 55 million in karija's acquisition process costs but there are some other costs that we could not allocate. For instance, some unused holiday leaves by some employees that had to support courageous workers. And so those costs were not allocated yet, but they amount to about 20 million euros. And then in the last quarter, there's also an inflation-related, energy-related cost that in 2023 will, of course, be capped because we've been able to renew the contracts with our providers and suppliers, and so the prices were stabilized and we will not see these spikes in costs in 2023. As far as loan loss provisions are concerned and the cost of risk, As you can see in the last quarter, we have $274 million in LLPs. But let's go into the details of that amount. So $60 million comes from the collective loan loss provisions from the region that was restored. Then in the last quarter, there were $50 million in overlays that amount to $150 million. million for the year and then 130 so that's for the overlays and then 130 is in fact attributable to the de-risking process because of course there will be NPE flows in 2023 but we want to be ready with our stock also to dispose of some additional NPE portfolios at a price that is compatible with the market trend so 59 basis points is the recurring cost of risk excluding the overlays. So excluding the overlays for the year, that would come to 43 basis points. If we also remove the coverage for future de-risking, then we go down to less than 40 basis points for 2022 in terms of cost of risk. I would conclude the part by talking about capital. The slide is quite self-evident, so we've got an illustration of the fully-fledged CEC1. Of course, the market generated some capital losses in the OCI reserves, the Carrije reserves, impact is in terms of deferred tax assets and you saw the benefits in terms of the 63 basis points and the bad wall is represented there but then there are also 45 basis points in deductions concerning first and foremost DTAs and shareholdings there are some thresholds as far as individual DTAs and shareholdings that you cannot overcome. Or actually, you have to deduct from capital that surplus, and so we've got some deductions there. And then there are some deferred tax assets that were generated in the fourth quarter. Then in terms of upside, as the CEO was saying before, we basically have already got some binding offers for the platform and the UTP portfolio, so the NPE recovery platform and UTPs, and so we have highlighted the pro forma of the effects of these transactions. And I will give the floor again to the CEO for the conclusions. After Luca was saying correctly, we have brought forward much of the work that was embedded in our business plan, and we are ahead of the time schedule with some projects. The year was very committing, challenging, and replete with actions. We have completed most of the actions. With the only one... that we wanted to complete by the end of the year, the UTP disposal. And I would like to say that the two transactions that were just mentioned account for more than $2 billion. And with the disposal of the UTPs between the first and the second quarter, we should get to 2.5% growth MPE ratio. So we think that this result... should not be taken for granted because of course until the closing is done that should not be taken for granted but it is in fact there within reach and we have had the opportunity to bring forward some of the activities in the business plan which will be an advantage to us for the next year both in terms of implementation and also in terms of cost that we have already incurred and paid for so we are ahead of the business plan both in terms of project delivery and economic financial targets. I think that we are in some cases ahead of the time schedule by one year, so we're ready to face the challenging macro scenario from a position of strength for the next year. As far as the guidelines or the guidance actually for next year, the net interest income that we foresee is of about $2.2 million. Then net fees and commissions as well and net operating income $4.3 billion. operating charges 2.6, 2.7 as Gianluca was saying before, and then the recurring net profit 770, 780 million is our guidance. Then in terms of LLPs, we expect a cost of credit of 40 to 50 basis points with no release of overlays in a scenario, in a basic scenario, baseline scenario. This is all. We're very satisfied with the achievements we have attained and also we are in line with the business plan and even ahead of the time schedule. We're very confident about the results that we will deliver next year. Thank you.

This is the course called Operator.

We'll now start 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. This first question is from Noemi Peruk from Mediobanca. Please go ahead. Thank you for the opportunity you have given me to make questions. I'm seeing the breakdown of the badwill allocation after EJ with respect to June. And I was wondering, what has changed compared to June? What has changed to such an extent that you had to post $300 million in losses, in additional losses? And then my second question is about the cost of risk. I would like you to give me some color about the cost of risk for the Q4. I've seen that your coverage level has been increased in the performing loans, particularly for Karije. And I would like to understand whether your models have been updated for the IFRS 9 and what assumptions you have included in that. And my last question is about costs. Your guidance ranges between 2.6 and 2.7 billion, which is a 4% difference. What's the difference that can account for the delta between 2.6 and 2.7? Well, let's start from the easier part. The badwill of Karije, apart from the interest rates curve, well, the difference there is accounted for by the resolution of the distribution agreements that were very much of an unknown factor, so to say. or at least the source of concern when we're dealing with that, not in terms of resolution but in terms of timing. well-performing because we concluded them, but still we terminated them. But of course, this has an impact on the bad will. However, we now have the opportunity to go on without having this open issue, let's say. Then in terms of the cost of the costs, so I've given guidance about it. That's where we think we will land, but there's no reason why it should be 2.6 or 2.7. This is a very high level guidance that I'm providing you with. And then there's inflation, of course. that may have an impact, and the range is quite justifiable. We're making some forecasts. The forecasts and the guidance we gave you, of course, are quite clear, but there's caution involved, and so that's why... there's a range in the guidance I provided. Then I do not remember your next question was about the cost of risk. So you have increased the cost of risk for the performing loans. So my question was whether you have changed the IFRS 9 model or the assumptions for the GDP or inflation. The CFO, Mr. Ferrari, is answering. So the I4S9 models, Noemi, are quite, you know, progressively updated. We have a total overlays of 100 I'm sorry, 180 million of overlays were done and taken in 2022. So we also took account of an adverse macroeconomic scenario and possible effects coming from the, you know, viability of our borrowers. And also we took account of some effects associated with an increase in energy costs.