Intesa Sanpaolo Spa Ord

Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa São Paulo for the presentation of the full year 2023 results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Razia, and I will be your coordinator for today's conference. At the end of the presentation, there will be a question and answer session. To enter the queue for questions, please press star 1 and 1 at any time. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. If you could all kindly limit yourself to two questions so that all participants are given the opportunity to answer questions. I remind you all that this conference is being recorded. At this time, I would like to turn the conference over to Mr. Carlo Messina, CEO, so you may begin.

Thank you. Welcome to our fully 2023 results conference call. This is Carlo Messia, Executive Officer, and I'm here with Stefano Del Punta, CFO, Luca Bocca, Deputy CFO, and Marco Del Frate and Andrea Tamagnini, Investor Relations Officers. Today, I'm going to walk you through our best-ever results. We are over-delivering on our financial commitments as we execute our industrial plan. This excellent performance enables us to reward shareholders with confidence of 5.4 billion euros for 2023. Our dividend yield is the highest in Europe at 12%. Our fully earning per share and dividend per share are up 80% versus the previous year. Our strong profitability and rock-solid capital position mean that, subject to ECB and shareholders' approvals, in June, we intend to launch a new share-by-back representing around 55 basis points of common equity TR1 ratio. We clearly have excess capital. Any additional distribution for 2024 and 2025 will be evaluated year by year. We are highly capitalized, profitable and liquid. We further strengthen our zero MPL status. 2023 net income was 7.7 billion, the best ever. We also delivered the best ever year for operating income, operating margin and gross income. Q4 was the best four quarter ever. We leveraged Q4 profitability to strengthen buffers and sustain our future results. We expect to deliver a net income above $8 billion this year and next. As a wealth management protection and advisory leader, we have a well-defined business model that delivers in any rate environment and that will allow us to take advantage of a rebound in wealth management. customer financial assets increased more than €100 billion on a yearly basis. Later in the presentation, we will provide the usual update on our ESG and climate actions, confirming our position as a world-class leader in social impact. Our tech transformation is moving quickly, with €2.8 billion already invested in technology and innovation. These points of strength all reflect the quality of our relationship with our clients. They trust our solidity, rely on our capacity to advise and lend, and know that we will offer them market-leading innovation. This is all about building a sustainable and profitable bank that can continue to be a leader in the future, while delivering strong results in the short term. i'm proud of our results and thank our people for their hard work now let's turn to slide one for the highlights of our full year results in a nutshell we delivered the best 12 months for profitability with 7.9 billion net income when excluding the final contribution to the resolution fund that becomes 8.1 when also excluding The 300 million social impact contribution already deployed. The cost income ratio was the lowest ever. MPL inflow stock and ratio remained at the store. Capital remained rock solid despite absorbing the impact of all expected regulatory Edwin's 130 basis points. Slide number two. In this slide, you can see the impressive growth of net income up 76% on an yearly basis. Slide number three. All-time high net income coupled with a strong capital position are driving high and increasing value creation and distribution with significant growth in dividend per share and earning per shares and tangible book value per share. Slide number four. In this slide you can see that once again we are over delivering on our commitments with 2023 results already above 2025 targets. We are proceeding with our business plan at full speed with 90% of initiatives delivering ahead of schedule. You can go through the slide at the end of the presentation to see our business plan initiatives, including technology. I will not go through our tech update today, but let me remind you that we are moving ahead quickly in development of our group's cloud-based digital banking platform, EasyTech, and our new digital channels, EasyBank and Fideland Direct, as well as in investments in artificial intelligence. Slide number five. We are a wealth management, protection, and advisory leader that can succeed in any interest rate scenario, thanks to our well-diversified business model. And we are now ready to leverage on our fully-owned product factories, enabling quick time to market and product customization. and our top-notch 360-degree advisory service, so-called Valor Insieme and SEI, supported by state-of-the-art digital tools that are already delivering with double-digit growth in related commissions and that continue to have a strong potential. Slide number six. Our delivery machine is based on more than 16,000 private bankers, financial advisors, and relationship managers for private, affluent, and exclusive clients. We have strong internal potential with over $850 billion in direct deposits and asset and administration, and we have already identified $100 billion they can be converted into asset under management, also thanks to decline rates. When we see an opportunity or a problem emerging, we take action and deliver, and we have done it multiple times with wealth management some years ago, with MPI reduction, with UBI merger, with Russia de-risking, implementation of EasyTech, the launch of EasyBank, And we will do it again with wealth management growth, especially in this likely scenario of reduction in interest rate this year and next year. Slide number seven. Looking ahead, we can further improve our net income guidance for 2024 and 2025 to above 8 billion euros. Slide number eight. I'm very proud that our excellent performance allow us to reward all our stakeholders. An increase in net income and so in cash distribution is also favoring an increase in tax revenue for the state. And 40% of cash dividend over 2 billion euros go directly to households and to foundations to support the charitable programs for local communities. Slide number nine. as we said the last quarter we launched a massive program to address social needs fight inequalities and promote inclusion with a contribution of 1.5 billion euros of these we have already deployed more than 300 million in 2023 so 300 million euros already deployed in 200 2023 we remain committed to being the world's number one impact bank. In Q1, the renewal of the national banking sector labor contract was finalized. ISP and me personally were strong promoters of the renewal, with a significant increase in the monthly salary to mitigate the impact from inflection. Just because our people are our most important asset, And their well-being is very important for us and especially for me. Now let's move to slide 10. In this slide, you can see our strong progress towards the business plan ESG targets. And also here, we are ahead of schedule across nearly all of the projects. Let's move to slide 11. In this slide, you can see other important ESG initiatives with impressive results achieved, such as $45 billion in new lending to support the green economy, circular economy, and ecological transition. At the end of this presentation, you can find additional slides on our social and climate initiatives and our leading ESG position in the main sustainability indexes and rankings. Let's now move to slide 13 and take a closer look at our results. Slide 13. Very briefly, in 2023, revenue increased more than 17% and operating margin by over 30%. Loan loss provisions declined significantly. Net income reached $8.2 billion when excluding charges concerning the banking industry while setting rates of more than 500 million, mostly in Q4, to strengthen our balance sheet even further and to favor the risking. Slide number 14. In Q4, we achieved record quarterly revenues. Personal costs were impacted by the national labor contract renewal and a recurring component as variable compensation. We leverage on Q4 profitability to take a series of conservative provisions and write downs of more than $420 million. Net income reached $1.6 billion, the highest Q4 ever. Slide number 15. Very important. In this slide, you can see the strong acceleration of net interest income. But further growth is expected in 2024, also thanks to a higher contribution from core deposit hedging. Slide number 16. Net interest income growth was driven by the spread component, which is benefiting from the increase in market rates. Deposit beta continued to remain very low, and totally under control. Slide number 17. Customer financial assets reached $1.3 trillion, up over $100 billion yearly and over $60 billion in Q4. Direct deposits are up $18 billion in Q4, reaching the highest level ever. Let's move to slide 18. Very important in a scenario of reduction of Euribor. So the wealth management and protection businesses are a strong contributor to the group's profitability, averaging 56% of gross income over the past six years. And in 2023, with high interest rates, the contribution was still almost 50%, not considering the contribution of markdown on deposits. Property and casualty contribution is increasing, driven by the non-motor business. Slide number 19. Cost-income ratio was 45%, the best ever, and operating costs are down when excluding the impact of energy prices, tech investments, and I want just to remember 2.8 billion euros of investments in two years' time, the national labor contract renewal and Q4 non-recurring personal costs. Slide number 20. In this slide, you have more detail on our costs, but we can move to slide 21 for the focus on asset quality. Slide 21. The stock of non-performing loans decreased further in Q4. NPL inflow in 2023 was the lowest ever. Furthermore, Stage 2 loans decreased 18% thanks to high quality of our loan portfolio and our strong capabilities in prevention activities. Now we are a bank with less than 10 billion gross NPL, less than 5 billion net NPL, and less than 1% net NPL ratio, so we are a Nordic bank but with the upside of the wealth management and protection business. Slide number 22. NPS stock and ratios are among the best in Europe after impressive de-risking. Slide number 23. We are also very well positioned in terms of stage two. It represents only 9% of loans. Slide number 24. Cost of risk was the lowest ever. NPL coverage increased even if we are not seeing any signs of asset quality deterioration. Let's move to slide 25 for the usual update on Russia. Quarter after quarter, we are reducing our Russia exposure, which is approaching zero. Now we can go to slide 26 for capital. The common equity ratio increased to 13.7%, 15.1% considering DTAs, thanks to strong organic capital generation, and despite absorbing all expected regulatory headwinds. The ratio is 13.2% when deducting around 55 basis points by BEC to be authorized the ecb and shareholders please turn to the next slide 27 capital ratio will increase and we clearly have significant excess capital allowing flexibility for additional distribution please turn to slide 28 for a quick look at the results of the last eba stress test because isp is one of the clear winners of the EBA stress test, but it is the evidence of our well-diversified model that reduced the impact of the adverse scenario. Please turn to slide 29 to see our best-in-class liquidity position. 29, we have best-in-class ratios, and our 2024 funding plan is more than manageable. thanks to pre-funding executed in 2023 slide 30 the liquidity coverage ratio and the net stable funding ratio are well above our business plan targets and we have a very diversified and sticky deposit base the liquidity coverage ratio is above the business plan target even considering details on the liquidity position. Liquidity reserve remain at the high level and cash with the ECB is significantly higher than the remaining TLTRO. Now move to slide 33 for a few words on the macro scenario. The economy is strong thanks to world leading household wealth. a solid banking system and very resilient SMEs and corporates that have significantly improved their deposit over the past years. Italian GDP growth for this year should be in line with 2023 and above 1% in 2025. Slide number 34. As you can see in this slide, Intel Sao Paolo is far better equipped than its European peers thanks to our rock solid capital base and well diversified and efficient business model based on fee and commissions. Slide number 35. This slide recaps how ISP is equipped to further succeed in the future. In fact, we are ready to succeed in any interest rate environment as shown by this set of all-time high results. Then slide 36, the most important for all of you. So the 2024 outlook. After delivering our best ever results, we expect revenues to grow even further this year with higher net interest and insurance income and the recovery in commission. So also growth in insurance and commission. Operating costs will be stable, mainly thanks to lower personal costs. This will be coupled with a very low cost of risk and with lower levies concerning the banking industry. All this means that profitability will increase even more. Net income will grow to above $8 billion this year and next year. Our strong and sustainable performance allow us to generously reward our shareholders and other stakeholders while maintaining a rock-solid capital position. Thank you for your attention and we are now happy to answer your questions.

Thank you, sir. As a reminder, to ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. If you could all kindly limit yourself to two questions so that everyone is given the opportunity to ask their questions.