Caixabank Sa Unsp/Adr

Good morning and welcome to Cashabank results presentation for the second quarter of 2024. As usual, we are joined today by our CEO, Gonzalo Gortazar, and our CFO, Javier Pano. A reminder in terms of logistics, we plan to spend about 30 minutes with the presentation and about 50 minutes to one hour with the Q&A. The Q&A is live, and you should have received instructions by email on how to participate. Let me end by saying that my team and I will be at your full disposal after the call. And without further ado, Gonzalo, the floor is yours.

Thank you, Marta, and good morning, everybody. I would start with the highlights. I was going to say have a good holiday, but you probably still have a few days at least before that. But in any case, I said it in advance. For us, we close this first half of the year with, as you've seen, this is a very strong operating momentum. I would say this is the thing that I would like to highlight the most. Activity levels are very good to the extent that they suggest that we've reached an inflection point in terms of activity. Obviously, we need to see how things go in the next quarters to confirm that, but The good news we had on the economy yesterday, the figures that were seen, particularly this quarter, the reasons why we're seeing them in terms of activity are suggesting and certainly creating a good sense of what is in store for us in terms of business volumes in the next quarters and years. You can see here loan growth, and there's both the new lending up 10.7 percent if you compare this year with the first half of last year, and the loan book up 2.2 percent. There is some impact there of seasonal growth. aspects that we'll discuss, but it is, in any case, a very robust relative to the past performance, including the fact that mortgages are now, the stock mortgages have grown in the second quarter, and obviously in terms of new mortgage production, as you can see, there is up 43%. It's even, I would say, more remarkable when you look at the customer fund side. And here you have 5.9% growth in this first half of the year. Most of it, as you can see, is in the quarter. And obviously, again, some seasonality, but still very robust figures for just half of a year. Net inflows into wealth products up 25 percent. Protection insurance in terms of premia up close to 11 percent. These are figures that we haven't seen for very, very long, I have to say. And I would say this is certainly the most remarkable part of the second quarter. There's obviously profitability that has worked very well, associated to both better management of all NII-related matters, but also fees generally associated to activity. And you have there... NII and wealth and protection revenues, NII 20% up, wealth and protection revenues 12% up, cost of risk in line and hence net income up 25%. That is leading us to upgrade our expectation for return on tangible equity this year to be above 17%. At the end of the second quarter, I'm looking at the last 12 months, as you know, we are always looking at the last 12 months rather than the quarter annualized because it would be much higher. But look at the last 12 months, which then includes the tax on banks, et cetera, is 17 or 16.9%. And obviously, the upgrading guidance for NII with that high single-digit growth from the mid-single-digit that we had after the first quarter. Capital is still very robust, and hence, we can be confident that we will complete our commitment to deliver that 12 billion in this three-year period. So a very good quarter financially, and I want to take the opportunity to remind you that beyond our good financial results, we continue to have a position as a different bank. That's what we want to think of as being different in terms of our commitments to financial inclusion, which continues, and basically our ability to bank in over 3,000 towns in Spain microcredit activity through microbank, various social housing solutions that we offer into our clients and our volunteering activities, long list of social commitment, which makes us different, and obviously the relationship with the Kaiser Foundation. This particular quarter, I'm proud to see that we have actually exceeded our three-year target for sustainable finance. We had a three-year target published Of reaching 64 billion, that would be the target by December this year. Actually, in January, sorry, in June this year already, we're at 67, so we have exceeded that three-year target, which makes us obviously very happy and proud of what we're doing in this part of the business. I just want to remind you these things are still very much a unique characteristic of what we are and will continue to position the bank from a sustainability perspective on the social, on the environmental, obviously also on governance as a reference in ESG in Europe. Talking about the economy, I mentioned before the robust economy. We had these numbers of 0.8% growth just in the second quarter for Spanish GDP yesterday. Actually, the embedded estimate in these numbers, the 2.4% for the whole year, had a 0.5% growth in the second quarter. That 0.5% is now 0.8%, so obviously I am convinced that they have already said so. Our research team will be upgrading this GDP estimate for 2024 at least in the coming weeks. But in any case, these are very good levels in Spain, also in Portugal, and certainly better than the Eurozone, which is obviously in any case doing better than what it did last year. PMIs are a clear example of the status of the economy. You see the data there, but also looking to more current data, actual labor market evolution and tourism are increasing. are two pretty good examples. I'd like to highlight on the right-hand side the household saving rate, which is close to 14% at this moment, is actually obviously very high compared to historical levels. And obviously if we have that kind of savings rate, that's going to have good implications for us, particularly in the evolution of customer funds, which we have seen, as I mentioned in this quarter, as pretty significant. Impressive. Investment is something that is relevant to highlight. In the figures from yesterday, we saw capex or fixed capital formation above the 0.8% for the economy and clearly much higher than we had seen it recently. It's actually happened at the same time that we have seen inflation. better appetite for lending from our clients. So it doesn't seem to me that it is a coincidence, and hopefully that means that we can see also not just the liability side of the balance sheet and the up balance sheet because savings rate is high, but also the asset side of our balance sheet also growing as loan demand picks up over the next quarters and years. Numbers for new lending production, you see them per half is 10.7%, as I mentioned before, and this quarter is obviously even higher. Margins are good. The front book yield is growing, still growing, 11 basis points. And you can see, if you go segment by segment, very strong growth in mortgages, but pretty good levels in consumer lending and also in business lending. So it's across the board something that we haven't seen with this visibility for quite some time. In terms of stock of loans, Performing loan book, and Javier will mention, we have obviously managed NPLs downwards during the quarter. If we just look at the performing loan book, it's up 2.2% year-to-date, and as you can see, it's basically all this quarter with business lending up 2.3%, year-consumer at 4.4%, and residential mortgages, although declining year-to-date, already showing an increase in the quarter-on-quarter, and on the right side, the bottom of this page, you see that evolution of residential mortgages, how is the stock of residential mortgage loans doing, and it clearly is showing the right trends. So pretty good performance on the asset side. And on customer fund side, I said it was very... Very good performance with that increase, 4.9% just in the quarter. We do have some seasonal impact here, somewhere around, I would say, $10 billion, $12 billion, possibly that are more seasonal. But even if you just do that, you see a very strong increase. growth rate across the board, certainly in wealth management, but also on balance sheet deposits. And as you can see, year to date, we're gaining 30%, basically, in round numbers in both off-balance sheet wealth management and on-balance sheet deposits. So this is one of our key strengths. We don't like to say it is the most important strength that we have, but certainly it's one of the most. Our ability to gather customer funds, it's our history, and it seems that we're doing at our best certainly year to date. And my expectation is that we can continue to do reasonably well Wealth management, very quickly you see the figure for net inflows up 26%. One-third is savings insurance. Two-thirds is pension and mutual funds, actually mostly mutual funds. And, again, market share gains in each of these segments, mutual pension and savings insurance. This is, I think, I'd say we're back to where we were before. the large integration that we did three years ago, recovering our cruise speed and nicely gaining market share as we go. Protection insurance. MyBox continues to be a superstar for us, balanced production between life risk and non-life, and within non-life, health, home, and auto. Total premium up 10.9%. Gaining market share, you see in the Bottom left, particularly on life risk, is almost one percentage point year on year. And as you know, we still have good potential clients that former Bankia clients have increased the penetration of these products in a big way from 10.8 to 15. behind the 20% for our other clients, so a good penetration potential, and certainly for the entire country as we're well below the Eurozone. When we look at BPI, Obviously, BPI will be presenting results or is presenting results today, and you have all the full detail, but just a few highlights. Net income with a 44% increase, return on tangible equity above 20%, and cost income below 39%, the same figures as we have for the group, and again, excellent asset quality indicators. And most important, BPI continues to grow and gain market share. You see there some of the numbers. This needs to be a gradual process. In retail banking, you don't gain market share at much faster rates than these. And if you do it, sometimes it's because you're not thinking through all of the consequences of that growth. But this steady growth and gains in market share have characterized BPI since we took over, and I think we are going to see much more in the future. Good growth, good profitability, sound asset quality, and sort of all the characteristics to continue giving us good news. So net income, not a surprise, mostly is a result of increasing revenues with costs and impairments reducing the extent of the improvement, but still a 25% improvement and a major gain in efficiencies. And to finish up with my part, capital, again, shareholder remuneration is critical for us. You have here the numbers of our $12 billion target. Remember, it used to be nine, but we upgraded that. some time ago, as the conditions and our performance was much better than what we were initially expecting. Here we have 7.4 billion that have been executed. Another 1.3 have been announced, and that includes the 500 million share buyback, which we are starting today. And the interim dividend, which at a minimum, if we were to choose the bottom of the range that we gave of 30% to 40% of the profits up to June, at the minimum would be $800 million. So that's the 1.3% announced. The interim dividend will be confirmed at what level it is when we present the third quarter results. And then there's another $3.3 billion pending, which obviously will be a combination of the ordinary dividend payout and some extraordinary or special distribution to be announced in due course. So higher profitability, good activity levels, growth is... but it is coming back, and obviously a very capital-rich P&L and evolution, which makes us, I think, quite satisfied with what we have delivered so far this year. And I will let, obviously, now Javier to get into the review of P&L and balance sheet. Thank you.

Okay, thank you, I do. As usual from my side, additional details on the P&L and the balance sheet. Well, here you may see something you already know very well. Net income at 1.67 billion for the second quarter. This is up by slightly over 30% compared to the second quarter last year. I would say that our key revenue P&L lines are doing really well. I would remark on NII that it's up quarter on quarter with support basically from deposit volumes and that this is resulting into higher average liquidity this quarter. We come to the details in the following slide. Also on revenues from services, we have had a strong quarter, as you may see, up by 7.5% year-on-year, 4.7% quarter-on-quarter. Wealth management with sustained growth, protection insurance with really strong commercial dynamism. And finally, banking fees showing signs of recovery in the quarter, both in recurrent and in non-recurrent banking fees that are up on a quarter-on-quarter basis. On other revenues, I would basically mention that this year, this quarter, we no longer have the contribution to the single resolution fund. Hence, we have on other revenues clearly an improvement compared to last year. On costs, not much to comment. Everything is in line with our expectations and planning to meet our guidance. Loan loss charges in a quarter compared to the recent quarters with lower loan loss charges, but also on track to meet our guidance. Everything evolving in line. And finally, other provisions. that are mainly reflecting higher provisioning levels for legal contingencies, something that we already highlighted in the previous quarter. With that, let me go into the details for NII. Upper left, you may see the evolution year-to-date, up by slightly over 20%. And in the usual quarterly bridge in the center, we are highlighting here precisely the contribution of higher liquidity from a widening of the commercial gap, which is contributing specifically by 39 million in this second quarter. Below, bottom left, you may see the evolution of the customer spread, 358 basis points. It's the same level we had at the beginning of the year. And then in the center, yields, the bad book yield of the long book, 459 basis points, down by three basis points, already somehow impacted by lower market rates. Also, you may see the evolution of the cost of our client funds, considering ex-hedges and foreign exchange. at 81 basis points. This is up by 6 basis points, but this is less than the 10 basis points on the previous quarter. And precisely on that front, you have on the right additional information. Here we are disclosing the weight of interest-bearing deposits over total deposit balances. This is end of period, so this is by the month of June. This is standing at 22.9%. This is an increase of 1.5 percentage points, but basically on the back of the very strong inflows we have had during the quarter. At the same time, we are disclosing the yield of those same interest-bearing deposits, and you may see that it's already trending down, now at 291%, and the peak being, by the end of last year, at 306%. With all that, but basically on the back of those strong inflows, basically on deposits and a better tone in volumes in general, we are upgrading our fiscal year 24 NII guidance to high single-digit growth. Let's move now to the other key revenue line, which is revenues from services. As I said before, it's gaining traction, the second quarter. On the left, you may see the evolution year-to-date by 4.4%. This is a combination, remember, of wealth management revenues, protection insurance, plus banking fees. You may see that protection insurance and savings Wealth management are growing at double digits year-to-date. On wealth management, we have already said, strong inflows, also positive market tailwinds. The market-to-market effects are clearly positive this year. And on protection insurance, strong organic trends, but I would like to mention also that we have had a positive one-off this second quarter out of Portugal. On banking fees, although negative year-to-date, We are seeing that on a quarterly basis, banking fees are resuming growth on higher CIB and transactional activity, as you may see, up by 1.5% year-on-year and 6% quarter-on-quarter. We are reiterating our guidance for revenues from services. Remember, low single-digit growth for this year. I move to costs. First, I would like to remark that we are reiterating our guidance, remember, for costs to grow by less than 5%, although we are going to be very probably at the upper bound of this guidance for this year. And on this slide, I would basically remark the very good evolution of our cost-to-income ratio. breaching the 40% mark, already at 39%. And as you may see on the bridge on the right, basically with a strong contribution from revenues. Cost of risk, I already said, is a quarter with slightly lower long-loss charges compared to recent quarters. Actually, it's an annualized cost of risk of 23 basis points. We are reiterating our guidance for cost of risk for the year, circa 30%. We are keeping a very comfortable NPL coverage ratio at 70%. We have assigned this quarter 273 million of the unassigned collective provisions, but we still have 550 million left. I'm moving now to the P&L and continuing with MPLs. Here are a few comments on the stock that is down by 300 million to 10.5 billion. And this is despite the full alignment this second quarter to the new definition of default. Remember that this was something that we had pending with some impact during the first quarter, but the final impact already fully in this second quarter. But this is more than offset by active management. We have been basically with some NPL portfolio disposals this second quarter, but but basically very underlying, very supportive underlying organic trends in terms of new NPR formation. As a consequence of all that, we are ending the quarter with an NPR ratio at 267%. which is basically the low we have been in recent times. You have also the breakdown by segments, and as you may see, there is not any single segment that is far from the average, so no issues in any particular segment. We are improving our views on MPLs for the year, and now we are expecting to remain around current levels throughout the rest of the year. And liquidity, here an even more ample liquidity position, on the back of precisely that good performance in terms of deposit volumes, a liquidity cover ratio at 218%. Also the rest of the liquidity metrics, really comfortable ones, more than 200 billion of liquidity sources, specifically 214%. We keep our deposit funding basically at very comfortable levels, close to that 80-20 between retail and wholesale, although with some increase in wholesale precisely on the back of the strong inflows, many of those being seasonal, impacting our wholesale deposits. And capital, it's a quarter of really strong organic capital generation. But before that, let me highlight that we are already fully deducting the fourth 500 million share buyback. This is minus 22 basis points on our CET1 ratio. From there, we have 66 positive from organic capital generation, minus 46 basis points from dividend accrual and coupons. And then finally, it's a quarter with no material impacts from markets or other. So with that, we are ending the quarter with a CT1 ratio of 12-22%. and an NDA buffer at very comfortable levels, 343 basis points. On the right, you may see the evolution of the increased shareholder value. We are delivering on tangible book value basis up by more than 10%, once including, obviously, the dividends paid. A tangible value per share that is ending the quarter at €4.15. And that reminder, this interim dividend expected to be paid in November of at least €800 million, the final and formal decision to be taken by the Board in the month of October. And here you have a summary of our guidance on financial targets. We are highlighting what has changed. It is basically all improvements. NII upgraded to high single-digit growth for the year. MPLs expected to remain around second quarter levels for the rest of the year. And as a consequence of these better views and upgrades on guidance, we are also improving our view for ROT to deliver better than 17%. And finally, just a reminder, we are planning to hold our Investor Day in Madrid, November 19th. So please save the date and we will be very happy to see you there. So thank you very much and ready for questions.