Bper Banca Spa Unsp/Adr

Good morning, good afternoon. This is the course called Conference Operator. Now, welcome and thank you for joining the conference call on the People Group's First Act 2023 Consolidation Results. 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. Pierluigi Montani, CEO of the People Group. Please go ahead. Thank you. Good evening, everybody. It's been a long day today. So for sure it has been a long day for all of you, but it was for us in particular. Good evening and welcome, everybody. What I would like to start with is by saying that we're very happy and proud with this result, our best ever first half. Our six months results are extremely positive. Our core business profitability has grown. Further improvement is registered in credit quality combined with a sound capital and liquidity position. The second quarter closed successfully with a net profit of approximately $414 million, which is 42.4% on the first quarter of this year. Operating income totalled $1,334,000,000 in the quarter at 1.2% quarter on quarter. particularly driven by the strong increase in net interest income, which settled at $819 million with an increase quarter-on-quarter by 12.8%. Net commission income keeps very resilient and closes at $490 million with a slight decrease quarter-on-quarter. that we will talk about during the presentation. In terms of profit, So the net profit was $414 million, as we were saying, and the strong revenue growth in the second quarter was underpinned by net interest income that closed with $1.5 billion, a 96% increase on last year. It's true that the region was not included yet, but the increase is very strong, and the net commission is almost $996 million. with an increase by 9%. With reference to volume, total funding amounted to approximately $280 billion, up 0.6% since end 2022. Direct funding totaled $114 billion, minus 1%. since end 2022 and the entire responding totaled 166 million up 1.7 percent since end 2022 which means that the deposits that exited was intersected by aum and AUC, and so we have not lost anything. Cost income has stabilized, or actually is at 51.3%, and it's less than it was in June when it was 64.3%, and the entire year data for 2022, there was 65.2%. As I was saying at the very beginning, credit quality is improving further. Additional de-risking has made it possible to continue downsizing our stock of non-performing loans. The NPU ratio, the gross performer NPU ratio was in fact down to 3.7% and it was 3.2% at the end of 2022. And the net performer NPU ratio is now 1.1% from 1.4% at the end of 2022. Coverage levels are likewise positive with overall NPR coverage of approximately 60%. bad loans, 81.4%. It was 77% at the end of last year. UTPs were subject to two disposals in April and May, have a coverage at 47.2%, and performing loans are at 0.81%. They were 0.77% at the end of 2022. CETI-1 ratio, that was at 15%, which is much higher than the threat Minimum requirement of 8.5% and our liquidity position is likewise very strong with ratios broadly in excess of the regulatory thresholds. 157.1% for the LCR and NSFR closes at 126.1%. this is basically a year or a six-month period that is really uh very good and uh which can hardly be replicated in the second part of the year the numbers are outstanding and uh we must thank the entire bank for these results that the bank could in fact conceive of a growth activity at the same time bringing about a consolidation activity that we're carrying out very well. We should pay tribute to the network because against the backdrop of a challenging scenario, they could keep balance without missing their targets that they could achieve successfully and they were also capable of consolidating the bank and at the same time working on growth. And as I was saying before, it's a very good six-month period. We're going to this six-month period. And for sure, we will give more details about the entire year later, but I'm confident that the year will prove satisfactory for So I will give the floor to Gianluca Santinao that will comment all of the different milestones in the trajectory that we talked during the presentation. Good evening, everybody. I would say that we should take some sort of deep dive into the numbers that the CEO has hinted at. I would say that in relation to total funding, I would underline that since December 2022, we've had a growth of 0.6%, which means that direct funding lost 1%. Obviously, there was a movement in terms of current accounts that was quite significant, but I must say that the network was capable of intersecting and retaining the deposits. We can see that it has grown significantly by 2.8 billion, 1.7%, which means that inside these 2.8 billion, there was a slight of about 3.9 billion concerning the Amissima's deposit that Karija had at a price of zero, basically. So it was not generating any liquidity. So in terms of stock, the increase is much higher. And as compared to an incremental quality, we have been able to grow both in asset standard management and life insurance. So the positive funding of $445 million in the first half of 2023. This data is extremely important for us, and this is where we can take you to the network for the effort they made. It is $5.8 billion of underwriting and $5.4 billion repayment, which means that there's an effort by the network to maintain competitiveness. The composition of funding is about 73% retail and 27% corporate. And as you can see, There's a percentage of current accounts and site deposits that is of around 83%. As far as loans are concerned, once again, I would say that there has been good resilience in the court. We're facing a situation where, in terms of retail mortgage loans, we know the difficulties of the household. So, of course, we are originating less than last year, about $1.7 billion this year, as compared to $2.4 billion in the first quarter. in the first quarter of 2022. And I would say that as far as businesses are concerned, they are trying to use their liquidity. So those who are liquid are trying to use their liquidity. Having retained a constant stock to us is an extremely positive result. That gives comfort for us about the second part of the year. From a point of view of loan-deposit ratio, you can see that that is probably one of the best indicators in the Italian banking system. 78% is the value, which means that in terms of balance and liquidity, those are very important. As far as asset quality is concerned, I think that everything has been said already. I would just underline probably the fact that there is a performing loan coverage of 0.81%. We've got overlays for an amount of $310 million, and basically the dynamics that you can see in Stage 2, No, it's not giving any signs, any negative signs. So as of today, we do not have any signs for deterioration of credit. It wants itself... Pension, loans or salary loans are stable. Of course, the amount is a little bit lower, but impairment signs are not visible. But as usual, we have maintained prudence and cautiousness, and we will talk about that when we talk about the cost of credit. As far as the portfolio is concerned, I would say that the structure is always the same. So we are at 30% to 36% of share of Italian government bonds, certified 36%, and our duration is very low. And as you can see in the total portfolio, we've got 1.9 bonds and it's two durations, two years for Italian bonds. And the average ratio is 2.42 as against a reinvestment ratio today of around 4%.

On slide 12, you've got the profits and loss.

that we may already start to deep dive into. We've got a second quarter that is 12.8% higher than the first quarter in net interest income. We have tried to break down the TLTRO effect or taking it away so that you can see the growth. We know this effect will go on in the second part of the year and will disappear later on. So we've got an average growth of 3%, which is driven by the commercial part. You have the institutional part growing, I think, and then there's an improvement in the yield of the securities portfolio. As you can see, the ECB net position, you can see, the profitability there. We've got multi-parties with the ECB then drawing or borrowing from the ECB. So the position is positive to us and gives a positive contribution to the net interest income. And we've also analyzed the commercial spread by giving evidence of the effect of the echo bonus, as we call it in Italy, that in the first part of the year was important to us and reached, during the six-month period, about 70 million euros. As far as net commission income is concerned, probably this is one of the nicest details that we are presenting, the slight decrease by 3.3% quarter-on-quarter. It's reflective on the one hand of the request by the Bank of Italy to, in fact, counterbalance, so to say, the maneuver that they did on the current accounts. They requested the Bank of Italy made and we have already expensed it in the second quarter of 2023. And as far as the trends in the other fees and commissions, we can say that last year and in the first quarter, we had illustrated the income coming from the bonus commission bonus or rappel as we call it and performance fees we have not recognized them this time and we will not until the end of the year because there has been a renewal of the agreement but if we had to evaluate that uh now it would be about 10 million so the pro forma data would show in fact a growth which makes us confident in confirming the guidance we gave. As for the operating costs, as you can see, there's a growth by 1.2%, and this reflects, on the one hand, $9 million worth of recalculation of the provisions to the termination fund based on the IAS because the new market rates are asking for different discounting rates. And so you see 9 million because of that here. And what is important also, what was important was the investments and so costs related to investments that we brought forward. in the business plan. So the business plan envisaged a number of actions and the profitability that we are obtaining is allowing us to bring forward a number of actions that we had scheduled for 2024-2025. The cost income, as was hinted at, is confirmed and what is important here is that we have reduced by 1,000 units our headcount since the beginning of the year and we've got a reduction of 228 branches. As for the cost of risk, 60 basis points. It may look high, but in fact, based on our models, the cost of risk is a little bit lower, like 25 or 30 basis points, but we're aiming at NPE zero. And so if we have NPEs, we want them to be covered. And I think that our coverage is evidence of this type of approach, which will enable us, should there be, a deterioration of the credit environment without having any effects on the profit and loss, we will be able to have a good effect. Or if there is no deterioration, then we will have a value reserve, so to say. And then 310 million overlays is the other point we mentioned in the slide. We have observed that during the six-month period, there was a default rate of 0.9. Now we come to liquidity. We have improved compared to December, also in terms of eligible assets. As you can see, we have unlocked about 5 billion worth of securities that we are guaranteeing the TLTRO, so to say, and then some other details were given by the CEO as far as the TLTRO is concerned. 5.4 billion need to be repaid 3.7% in September and 1.7% will be repaid by March 2024. You have a capital walk on slide 19 from 13.3% we get to 14% in June. So there's a contribution by 51 basis points that reflect the So the upside obtained during the quarter and the eight basis points of what we call deductions. There is basically some reversals on deductions that we were taking on DTAs and stakes. And then there's a good positive risk weighted assets dynamics due to a reduction or the non-growth in loans, but also a benefit of eight basis points deriving from the fact that we can use for former Unipol Banker loans our internal models, which makes us land at 15%. I will give the floor to the CEO again for the conclusions. Thank you. To conclude, we have decided to give you some details on the group's expectations for 2023 with an update of our guidance for 2023. so the better than expected improvement in the macroeconomic outlook and interest rates combined with our excellent business performance uh we do not have any perception that it could be otherwise allow us to upgrade our kpi guidance for 2023 and women expected Net recurring profits of approximately $1.1 billion. Unlike what we did in the past, we have written it down, and we expect that the net interest income will land at around $2.8 billion. Net commissions will be at around $2.0 billion. Operating costs will amount to approximately $2.7 billion. We expect the cost of risk of around 60 basis points due to the same cautious policy that we have adopted so far. And for the reasons that Gianluca mentioned, because our objective is that of having the utmost coverage so that we can make choices of selling products uh whenever this happens in the most serene way possible and we expect the ct1 ratio to get close to 15 including on the back of the organic generation of capital this is everything this is all and uh if you have any questions we're here uh we continue to make questions uh Of course, the operating income is increasing. The quality of credit has further improved. The capital and liquidity position is solid, and there are projects that are being delivered ahead of the business plan schedule. I'm saying this with confidence because even though we were helped and supported by a supportive interest rate fund, It's also true that going beyond this aspect, the business plan has unlocked and released all its effects in a very concrete way and ahead of time. So we are confident that we can face the challenging market scenario from a position of strength. I'd like to thank you for the patience you had in waiting for our presentation this late in the evening, and this is now the time for questions and answers. This is the course call operator. We will now start the question and answer session that is only reserved for analysts. Whoever wants to make a question, they 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 the front. The first question is from Noemi Peruk from Medibank. Please, madam, go ahead. Good evening. I have three questions. My first question is about the cost of risk. If I remember correctly, last time you gave us the guidance for the year that is now lower. So I would like to understand what has changed. It was 40, 50 basis points. Why is it 60 now? So net interest income in the first half of 2023, What will it be? Should we consider your guidance as conservative or do we have a campaign to increase the market share you have in loans for the second part of the year? And then my last question is about the payout. I would like to ask you whether you can share with us some ideas you may have on the plan for 2023, for the rest of 2023, and if in the second quarter the payout is in the second half, it will be down by 16% for the guidance in the net interest income, sorry. Well, about the first question, I would like to correct something. We had not said 40 to 60 basis points. We had said 50, 60 basis points. We had never said 40. Now we have communicated 60, but Gianluca said that based on our models, the cost of credit is lower. It's not that the cost of credit, I'm sorry, the credit quality has decreased. We just wanted to be prudential to, because, and this evidence of this is that coverage has increased. So we're not changing anything. We're keeping, adopting, this prudential approach. As far as the guidance on net interest income for the second part of the year, obviously we consider that as fair, probably a little bit conservative if you want, but from what I could interpret from the other banks, I think that the other banks also did not, you know, we're not far from this. And as far as the payout ratio for 2023, we may not have said it, but we have 15 years since I have been accrued So far, we think the payout will be between 35% and 40%. That is the objective we have. It will also depend on the trend. But what we want to retain and maintain is a CET1 ratio of around 14%. But the payout we gave is guaranteed. Next question is by Giovanni Razzoli from Deutsche Bank. Good evening. I've got three questions. The first one is about cost. Because I was looking at the target for 2024, 2.6 billion is the target and consensus is of around 2.8, so it's about that. And your guidance, if I'm not wrong, for 2023 was 2.7. So in light of the new contract and the inflation and inflationary pressures and costs, is there going to be a change? And what expectations should we have for 2024? LCR will post TLTRO. Can you give us a call on that and what exposure, what residual exposure do you have with the UCB? And then how much did you collect with the promotion of your deposit current accounts, I think, at 5% that you launched at the end of March? Well, I will try to answer your question. Well, as far as the renewal of the labor agreement, we cannot give expectations now because we do not have them yet. The labor agreement has expired a long time ago and has been extended until July with the objective of reaching an agreement by the end of the year now the labor agreement has been extended until 31st december so i do not know there will be room for provisions for next year because the agreement is valid until the end of this year, so we cannot do much, then it depends on how negotiations will go on. I don't know if there will be a way to conclude that beforehand. We'll have to wait. As far as the LCR is concerned, Gianluca, you may add further to what you said before. Yes. Our objective without the TRO is to be in an area of 140, 150. That is going to be a very solid area in terms of liquidity. As for the promotion of the deposit account at 5%, I think we collected $300 million. Yes, we must also say that it's a little bit too early for us to calculate that because this has just started. Other banks have also launched important campaigns and our time schedule is longer, so you will have to take these numbers for what they are. It's not yet the time for having a final analysis. If I can add something, Gianluca, you talked about Amissima's agreements that were in fact terminated, and what was the impact? $3.9 billion. That was in a deposit under custody with Carrije at price zero. And we have terminated the agreement with Amissima, and Amissima moved their securities with another bank. So we are losing 3.9% in terms of stock, but nothing in terms of profit and loss. The microphone is not on. We have terminated all of the agreements with Carice, Amissima and other counterparties. Next question is from Andrea Ligi of Equita. Yes, thank you. My first question is about the trajectory that you are hypothesizing with a forward curve that we are now observing in terms of net interest income for 2024, and also the capacity you think you have, the ability you may have in dealing with the commercial aspects and the commercial spread. So how do you imagine the net interest income for 2023 as if it was a peak that will then go down later on? Or do you expect it will be stable? So this is a little bit what my question is about. Then the second question is more related to the italian banking system other banks are uh indicating a fee if you wonder is lower than yours 14 than yours 14 so i would like to uh ask you uh under what circumstances could you consider cc1 of lower than 14 percent is there room for you to consider um some different aspects would you be interested in in going beyond also in terms of mnas well First question, we cannot give our forecast and expectations for 2024. We want to wait until the end of the next quarter. After the end of the next quarter, we will be able to give you some more guidance. As far as the peak in maintenance income is concerned, well, of course, peaks keep changing. But objectively speaking, I would say that 2023, or actually this year, six-month period has reached its peak, and then we will see what will happen in the future. But as for the C21 level, we're looking at our own data and not at the other banks, and we think that 15%, considering everything, is a good level of capital for the development of this bank to be based upon. And so this is what I would say. Thank you. Next question is from UBS. Yes. I have a few questions on the NII and I apologize if I'm making this question again, but I may have missed your answer before. So I have not understood very well what the assumptions are that you take for the guidance for 2023 in terms of departure data and interest rates and average rates for the second part of the year. Because as my colleague was saying before, there's a reduction, material reduction, also excluding and by excluding the TLGRO. And then in the first quote, if I remember correctly, I think there was also a positive contribution of the TLGRO in the quarterly results in terms of NII of I think this would change the underlying growth in net interest income. And then overlays, I couldn't see them in the presentation. Can you confirm the amount of the overlays, please? What we expect, and probably I would start from the overlays, that is going to be the easiest part, 310 million is confirmed. Then as for the assumptions that we took for the second part of the year, baseline assumptions, so to say. In terms of beta, we have talked about it quite on many occasions, and I would say that it's very good beta. We have the real beta of about 10%, so very low. For the second part of the year, we think we will retain the same level in lending, and the trend of the first part of the year in terms of funding will also be maintained. So we expect there will be some exit in terms of deposits that will be intersected by the AUM or AUC, so the only thing that will change is going to be a cost, because of course the cost of funding will increase, also the cost of lending will increase more moderately, so the overall return is going to be for sure lower. These are the assumptions we took, all in all. But the departed pizza for the end of the year, what is it going to be? 40%? Departed pizza, well, based on our models, we've got 27% retail and 69% corporate. As the CEO was saying before, now we are observing a 10%. Of course, models work either on time series or on static situations. So the fact that we had a movement in site deposits during the first quarter by about $7 billion, of course, has an effect, and so the models cannot intersect that. But I wouldn't say what we are observing today. In terms of expectations of forecasts, just for you to have some more details, we think that there may be a deterioration in the commercial spread by about 30 basis points with an average cost of 30 basis points higher in institutional funding compared to what we had in our forecast. And so the combination of these factors together with the lack of the TLTRO, we had 4 million of TLTROs in the first quarter as a contribution to the maintenance income. And then in the last quarter, we will have the compulsory reserve that will pay zero instead of paying four, which means that that's another $10 million. So there's a number of effects that lead us to think that the net interest income will be slightly lower than in the other quarters. That's why we've got the guidance at 2.8. Excuse me, if I can make a follow-up question. Are there any effects that you expect in the TLTRO for the next quarters, or is this 45 million positive, the last positive effect? No, it may not be the last positive effect. Comprehensively, we may have about 20 million in the last two quarters. Thank you very much. Next question is by Michael Nicolai from Jefferies. good evening um in a context where the net interest income uh may go down in the future as your guidance is also reflecting and um in a context where uh interest rates in 2024 and 25 may go down what operational levers may you activate for You know, to retain the return on equity level, will you operate costs or net sales and commissions? What will you do? Your question is, in fact, included in your – I mean, the answer is in your question. So you've already said it, basically. Looking at 2024, 2025 now is difficult. It is difficult to predict. I do not know who can predict. We may try and give some indications for 2024, but of course we need to see what happens in the next quarter. So it's clear that the levers you mentioned are the ones who will operate. So the lever of costs, for instance, we're looking at that, and it's true, we are operating this lever. uh but unlike what happens with the other banks when you look at us you should also consider that we cannot compare ourselves with the entire universe because i would exclude from the comparison uh only credit and uh in san paulo they play in the same league but they've got a different scale then there's banco popular that is comparable so their um extent of cost is more limited but you should also consider that in terms of combinations. They did that seven years ago, whereas we have, in fact, absorbed the branches of UBI and the Carrije just two days ago, basically, so very recently. And that's why we're still working in this direction. That's why I pay tribute to the network, because they could bring in parallel two operations and so the mergers and also keeping balance and pursuing their objectives of course cost discipline is something we're very much interested in and we're very much focused upon and we will focus upon in the future we'll continue this trajectory the network is performing very well and i'm saying this and i did say that before with proud because the results are positive. They were expecting the results, but they were not to be taken for granted. And instead, all of the branches that have been onboarded from UBI and also from Carice with a situation that was not very optimal, you know, because of their legacy in terms of cost income, where they are yielding very good results. So we think we will have a good development and growth of customers and net fees and commissions. On the other hand, as Gianluca was saying, fees and commissions have gone down by 3% because of some very specifically since the performance was good. We cannot yet anticipate anything for the next quarter, but we must say that everything is going in the right direction, and that's why we're confident. I would just add one thing. I would say that we are happy because of the conditions, because of what the underlying factor is. We've got, you know, product factories in terms of AUM. We've got a product factory that makes us proactive in proposing good products. We've got a relationship with ARCA that makes it possible for us to be prompt and rapid in the proposition to customers. And then we've got agreements with Unisalute, that is the partner in terms of health and Medicare insurance in Italy. And so the development of these combined activities is triggering good dynamics in terms of fees and commissions that are very positive for the future. in terms of um sorry for the follow-up but uh we've got these partnerships with uh your and uh are there anything any aspects in your contracts that can be improved or is this going to be stable no there's nothing in terms of there's no deadline in the agreement the unipol agreement was renewed uh recently and then um Behind ARCA, there's Unipol, and the contract has recently been renewed, and there are no other contracts that are coming to maturity or expiring. And the other partnership in terms of the asset management, we are the majority shareholder. We are consolidating it, and so there's nothing that is expiring or to be reviewed. Thank you very much. Next question is from the English conference, from Hugo Cruz.

Hi, thank you for the time. I just wanted to ask two questions, well, three. So two questions on NAI. First, could you explain how the echo bonus works on NAI? What's the impact, you know, will there be a conversion of the margin between what you report and the the margin performer for the equivalents. Second on NII, I don't understand why you're guiding for peak NII already, which is a very different message from all the other talent banks that we've posted so far, which still expects some growth. So if you could explain why are you different from the events? And third, on the C21 ratio, if there are any headwinds or paywinds that you want to point out besides the usual .

Thank you.

Well, in terms of the echo bonus, maybe, Gianluca, you want to add something. You've hinted at that before, but you may want to give the audience about that. So, separately, you will receive more indications. And making to think and the peak. The peak, it's been witnessed now, and the others are seeing an upward trend to We are not. Each one has got his own assumptions. Based on our assumptions, we do not think there's going to be an upward trend in net interest income. As we were saying before, we expect there could be a touch-up on interest rates and lending may go up a little bit, and so the contribution we're seeing is lower. That's why you have those... So we will see what the evolution will be. Then in terms of CET1, I do not think there's anything more that we should add to what we have already said. Well, probably just in terms of ecobonus. We buy credits or loans at a certain, receivables actually, at a certain price, and the delta is contributed to the net interest income.

Sorry, can you ask to follow up?

Follow up.

Yeah. If rates go up, so if the city raises rates again in September, do you expect that to have a positive impact on your NIR and what would be the impact of that change?

One may be instinctively tempted to think that there may be a recovery, but I don't think this recovery will be retained until the end of the year. Probably immediately there will be, but these 25 basis points will be probably absorbed in the second part of the year.

Okay. Thank you very much.

The next question is from the Italian conference call, Mr. Terese Christian from Inter Monte. Yes, good evening. I would like to make a question about The guidance on capital, so the minimum threshold that you want to maintain is 15%. And so this guidance is going beyond the growth that you expect in assets. Is it associated also to guidance on B2B in light of the stress test? that were particularly penalizing because they did not consider the actions that you have in fact put in place in 2023 or um secondly do you want to keep a buffer to look to 2024 possibly for other um M&As, basically, and you were saying that you want to maintain the focus on the consolidation of UBI, and then you said that in 2024 you would have considered the options and in terms of interest rate levels and the good trend in net interest income, I was wondering, is it an obstacle to M&As or not? Well, first, there's no guidance from the ECD in terms of... uh you know the latest inspections uh that were very successful they were very good and then uh probably if you look at everything then the data could be a little bit uh less positive because of the uh 415 basis points but we were starting from uh uh teachers attacked 31st december and based on a strange rule that we were penalized what i mean is in december we all voted the btas and all they were only capitalized on the first of january but on the 31st of december they could not be considered as capital and so uh that's why 14.7 percent was our starting i'm sorry 12.7 percent was our starting point And so starting from there, the benefit was only partial, but there's nothing about it, and the ECB has given out no instructions or indications in this, as far as this is concerned. I have said it quite often, consolidation, mergers are not a priority to us. What we want to do is to focus on the true benefits entities that we have absorbed and so we want them to be at steady state as soon as possible. So 14% is the good level of capital we want to have for going on with the growth and development. Then if ever an M&A comes up, it's something we do not know about now and it's not being hypothesized and we have nothing to say about that. So it's not the level of interest rates or nothing is an obstacle, but capital is important to us. I have looked at the results of the other banks, and I've seen that in terms of CET1, all banks have gone up, which means that maintaining a CET1 of this type is absolutely fair and correct. We do not want to go down. Then the future is the future. We'll see that when it comes. Thank you very much for your results. Thank you for your answer. For any further questions, please press star and one on your telephone. Mr. Montani, there are no questions registered at this time. Thank you for joining the conference call. Should you need any clarification, please get in touch with us. I would thank you twice because it has been a long day today and you will have to work the whole night to write your analysis. And so thank you for being with us. Have a good evening.