Finecobank Banca Fine Spa

Good afternoon. This is the Coral School conference operator. Welcome and thank you for joining the FinEco Bank first quarter 2020 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 Foti, CEO and General Manager of FinEco Bank. Please go ahead, sir.

Good afternoon, everyone. Thank you for joining our first quarter 2020 results conference call. Today, we will also present our UK business right after the Q&A session of the first quarter results. Before we start going through the details of the presentation, let me please underline the key messages of the quarter. Once again, this set of results confirms the soundness of our business model, able to deliver sustainable and industrial growth in every market condition. With brokerage strongly performing and acting as a perfect counter-cyclical business. Adjusted net profit stood at 92 million in the first quarter of the year, plus 45% year-on-year, thanks to the growth of our very well-diversified stream of revenues. Operating costs were under control with the cost income ratio declining by 82 percentage points year on year to 33% and confirming operating leverage as a key strength of the bank. Net sales in the first four months of the year were strong and robust reaching 3.1 billion with April being close to 1 billion plus 89% year-on-year and with an improved mix, which highlights a strong recovery of asset under management as volatility calmed down from its recent peak. This is also thanks to the strong success of the new generation of products launched by Finneco Asset Management, which is increasingly becoming the cornerstone of our inflows in asset under management. Also, let me please remind you that our net sales are generated organically, and in the first quarter of the year, only 9% came from recruits made in the last 24 months. Finally, total financial assets in April stood at $79.1 billion, which gathered products reaching 72% of the asset under management. Let's now move to slide five and start commenting our quarterly results. As announced, we recorded very strong results. We've adjusted net profit in the first quarter of the year, reaching 92.2 million plus 45.4% year-on-year, despite the complex scenario. We generated 201.3 million of adjusted revenues in the quarter, 27.2% year-on-year, supported by whole business areas. Operating costs stood at 66.5 million, plus 1.9% year-on-year. Cost income decreased to 33%, despite the continuous expansion in assets and clients, thanks to our strong operating leverage and to the scalability of our platform. Please go through the following slides to analyze more in details all the dynamics of our results. Let's start with the net interest income dynamics on slide six. Despite the lower interest rate environment, net interest income remained resilient at 6.8.1 million, decreasing by only 1.6 million in the quarter, of which 0.8 million related to the day's effect, thanks to the continuation enlargement of our quality lending book and sticky side deposits, even more valuable given the current remuneration on liquidity offered by the system. The yearly decrease was minus 3.2%, mainly due to the lower interest rate environment, which led to a reduction in average gross margins on interest earnings assets from 1.26% in the first quarter of 2019 to 1.08% in the first quarter of 2020. As an example, five-year euros moved from plus 13 basis points a year ago to minus 26 basis points in the first quarter of 2020. Finally, cost of funding remained very low at three basis points due to deposits in foreign currencies please let me remind you that our cost of funding related to deposits in euro which represents 96 of our total deposits is zero let's now move on slide seven to deep diving in on our bond portfolio Our strategy to run off the Unicredit bond portfolio and move into a more diversified and low-risk investment portfolio through a blend of European government bonds and covered bonds is progressing very well. Our bonds portfolio now includes also France, Spain, Ireland, US, Poland, Austria, Germany, Belgium, Portugal, UK, sovereign national agencies, and covered bonds in addition to Italy. Finally, let me please remind you that almost 100% of our financial investments are accounted in Help to Collect. This has to have no impact on our P&L by the widening of the spread. Let's now move to slide eight. Fees and commissions grew by 35.8% year-on-year, driven by all business areas. We will deep dive on brokerage and investing later on during the presentation. Banking fees benefited for the first time by the contribution of the smart repricing in place starting from February 2020. Trading income, net of non-recurring items, increased by almost 169% year-on-year, driven by the strong market volatility in the quarter. Let's now move on to slide 9 for a focus on brokerage. Brokerage acted as the perfect counter-cyclical business, allowing us to deliver consistent results also in a complex market environment. In the quarter, overall brokerage revenues stood at 63.4 million, reaching its best results ever, and increasing by 110% year-on-year and 76.5% quarter-on-quarter, recording its best results ever. On the back of the skyrocketing volatility in March, of the deep reshape in our hoofer and of the strong growth of new customers. mainly driven by the enlargement of the market, as more Italians are now interested in financial markets. The accelerating trend of brokerage was also confirmed in the month of April, with revenues estimated at around 22 million, plus 1.07% year-on-year, bringing brokerage revenues in the first four months of the year to around 85 million, more than doubled year-on-year. Let's now move on slide 10 for a focus on investing. Investing revenues amounted to $60.9 million, increasing by 12.4% year-on-year, thanks to the high contribution of gathered products and services and to Finneco Asset Management. Investing revenues increased by 3.7% quarter-on-quarter, mainly explained by the higher incentives to PFAs paid in the fourth quarter of 2019 related to the quality of inflows in the asset under management realized in the last part of the year. This more than offset the quarterly decrease in management fees driven by negative market effect in particular in the month of March. Pre-tax net management fees margins to that 63 basis points in the quarter, decreasing by one basis point quarter on quarter. Margins were affected by a lower equity component on asset under management due to the negative market effect recorded in the quarter and by the increased penetration of the accumulation products among our offer of gathered products. After-tax management fees margins remained flat at 46 basis points, thanks to the positive contribution from Fineco Asset Management. As you probably know, starting from last year, Fineco started to offer the accumulation products to its customers. These products tend to build increasing profitability for the bank over the years as they automatically and progressively invest from conservative asset class towards equity. We therefore agreed to change the contracts related to our financial planners incentives starting from 2020 to incentivize them to maintain their assets for at least three years to obtain the bonus. With the new contract, the cost of incentives will be split over three years' horizon, currently with the longer persistence of the assets. Slide 11, as you can see from this slide 11, our results once again confirm efficiency to be part of our DNA and core in our bank, representing a clear and unique competitive advantage. In the quarter, staff expenses stood at 24 million plus 10.9% on a yearly basis, mainly due to the increase in the workforce related to the business development and to the internalization of some services after the exit from Unicredit Group. Non-HR costs stood at 42.5 million, decreasing by 2.6% year-on-year, mainly due to a different scheduling of the marketing campaign. Moving to slide 12, as you can see on the left-hand side of the slide, commercial loans grew by 26.6% year-on-year, with the usual strict control on credit quality. Let me remind you that our lending is offered exclusively to our loyal customer base and our deep internal IT culture allows us to fully leverage on big data analytics. This translates into a commercial cost of risk very well under control at 14 basis points as of March 2020, in line with our guidance of the cost of risk between 10 and 15 basis points, which is confirmed also in considering the present context of COVID outbreak and the government decrees to support the moratorium. Expected losses decrease for all our lending products, thanks to the quality of our lending portfolio. As a confirmation of the quality of our lending book, we only received less than 200 requests for moratorium. We will deep dive more in depth in analyzing our lending offer on the next slide. Moving to slide 13, in the wake of recent events, our cautious approach has become even more conservative. Therefore, we slightly reviewed our 2020 guidance on mortgages. We further increase our guidance on new production in the range between 400 and 500 million As we are observing, clients prefer mortgages in a period characterized by very low fixed rates. Following the decrease of the EUR interest rates connected to the worsening of market conditions, we now decrease our expected yield to a range between 55 and 70 basis points. Let me remind you that our expected loss in this product is very low. And in the quarter, it has moved from around the 23 basis points to 17 basis points, thanks to the strength of our big data analytics. On personal loans, we slightly decrease our expectations of new production to a range between 150 and 200 million per year, and the net growth in range between 20 and 40 million with average yield confirmed at between 380 and 410 basis points. On Credit Lombard, we confirmed an hour growth in a range between 300 and 350 million. We've expected a yield between 75 and 85 basis points. Let me remind you that Credit Lombard can be impacted by our brokerage platform, as it was the case in the third quarter of 2019. Please keep in mind that for the expected yields, In the case of the market environment changes, we would have to move accordingly.

Slide 14, capital ratio.