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.

Thank you. We are now going to proceed with our first question.

And the first questions come from the line of Antonio Reale from Bank of America. Please ask your question. Your line is opened.

Hi, good afternoon, everyone. It's Antonio from Bank of America. I actually have a couple of questions and one clarification, if possible, please. One on NII, one on costs, and lastly on capital distribution. So if I look at your net profit guidance for 2024, you've got it to be above 8 billion net profit net. Can you maybe walk us through the key P&L drivers here, particularly on NII? I think your deposit base seems to have stabilized. Current accounts are up for the second quarter in a row. And I think liquidity, your strength in liquidity was clearly visible in Q4. So I think it's easy to see significant growth in NII this year, given the replicating portfolio and deposit franchise. So I would like to hear from you. if you could help us quantify the size of the increase you would expect in an AI for this year. My second question is a clarification, really, and relates to the 300 million of non-recurring costs that you've booked in Q4. My question is, when you guide for stable costs in 2024, is that guidance excluding the 300 million? So adjusting for what you define non-recurring? And lastly, on capital distribution, I mean, capital was strong again, and you've taken all the regulatory headwinds upfront, you're generating a lot of capital organically. So as it stands, you're paying 70% cash dividends, which is your ordinary part. And you said you're assessing special at your end. Don't get me wrong, 70% is a high level. It's one of the highest, actually the highest for Eurozone banks when it comes to cash dividends. But I wonder if it could make sense for you to consider making the special part of the distribution sort of included in your ordinary distribution so or increase the frequency of the special as you're going to end up accumulating all capital quite quickly thank you so thank you Antonio so let's start from from the the outlook because I think that also looking at some other peers in in the last

uh weak in making their their communication on outlook i think that it is important to to stress a particular condition of intel sao paulo in which we are maintaining totally under control the the the cost based on on the liability side so the the increase in so-called beta is really marginal in this last quarter, and our expectation is that with a reduction of Euribor during 2024, an assumption like us to have a further increase in the cost base not so significant, but in any another 10 basis points, 20 basis points, could be really conservative. And having said that, also in a condition of Euribor equivalent to the forward rate one month today, we will remain with an increase in terms of net interest income due to the fact that we will have a significant contribution from the aging facilities so that will bring us not only the the contribution from from our down they will continue to give us positive in during 2024 but we will have a a significant contribution from from the aging facilities we will remain net interest income positive in terms of growth or net interest income Also, if interest rate on average will go to 3.1 during 2024. So we remain in a condition of very significant strength in terms of dynamics of net interest income. But at the same time, due to the fact that to realize the forward, this means that you will have a significant reduction in your IBOR rate. you will start to have a rebound and a visible rebound in terms of commissions because we have already identified the portion of our asset under administration, so the asset under administration of our clients that has already embedded capital gain and another portion will increase this volume through the reduction of Euribor All this area is under scrutiny from my people in the different divisions, Banca dei Territori and private banking. They have the list of clients. And so as soon as this will happen, we will have the possibility to restart with our engine delivery machine for wealth management. And this can accelerate also the growth of commissions and insurance. So we are in a unique position in European landscape. That's my personal view on the other competitors in different countries. I think that we are in the unique position to have a benefit from net interest income coming from a total control of the cost base of the liability side, a significant contribution from the edging facilities, but at the same time an acceleration in terms of commissions and insurance business. So in any kind of scenario, our revenues, if interest rate also can remain on average in the range of 3%, we'll have a growth in terms of revenue. So that's our view on 2024. This is our budget. So all the people within the organization are already working with this kind of assumption. So the target is growth in terms of revenues and also with this level of Euribor. At the same time, we are working on the cost base because you are right, the cost base will remain stable, not considering the recurring items. So in terms of absolute terms, In personal cost, you will have a reduction of personal cost during 2024, not sending the increase in the labor contract of 2024. In any case, personal cost will decline because we have a number of people, 2,000 that already exited the group during 2023 and more than 1,000 that will leave during 2024. At the same time, we will have also a stronger control on administrative expenses. The only areas in which we expect to have growth during 2024 is the technological investments, the digital, and all the area of the strong investments in our cloud-based digital banking sector. So this will be the main part of a potential growth in terms of the cost base, but then net our expectation is personal cost down, administrative expenses flat or slight growth depending on the degree of ability to invest in technology that we will have during 2024 and the amortization that will increase for the for the accrual of the different investments in the last two years. So that's more or less. Then I can also add, and so all of you have the complete view on all the figures on the cost of risk. Our expectation is that we'll be below 40 basis points. That will be the level of our cost of risk embedded in our budget. So conservative assumption in our view. In coming on capital, we want to maintain this approach of being a significant cash dividend payer. So we will remain with 70% cash dividend payout ratio. And we are considering also to maintain this approach of deciding on the share buyback on year by year. So we think that the kind of business model of Intesa-San Paolo is a kind of business model that can create conditions, especially after having all the impact of the regulatory headwinds and 130 basis points. It is something that is unbelievable if you consider that we already have the possibility to increase the common equity TR1 ratio after... 130 basis points impact, you have the evidence of what could be the growth of our capital position during the next years. But we prefer to maintain an approach. This will be defined year by year. That's our view, and we think there's no need to change for the time being.

Thank you very much. Thank you. We are now going to proceed with our next question.

And the questions come from the line of Azura Guelphi from Citi. Please ask your question. Your line is opened. Hi, good afternoon.

Two questions for me. One is on your balance sheet strengthening action that you've taken this quarter, both in the provisioning line, the cost and the trading. If you can give us some color of what could be the benefit coming and why you have decided to take them now. The other one is on capital again. When I look at slide 27, post the capital generation that you expect and the four regulatory headings, you still expect 2024 to finish with a significant buffer versus your management target. And by 2025, possibly the regulatory impact will be all taken and the environment would have seen the decrease of the rate and also the macro slowdown. How happy are you to run better? How happy would you be to be as close as possible to your management target, even in light of the fact that your threat is one of the lowest among the large banks in Europe? Thank you.

So, I think that, Azula, on the portion of the... First of all, I'm happy to hear you. So, that's first of all. Thank you. Second point is on the line of defence. So, line of defence is something that we decided to increase because there were some in some areas especially related with sectors in which we think it is much better to be more covert than to face during 2024 some problematic situation. And so we decided to accelerate some devaluation of instruments that we had on commercial real estate areas in some areas items related with the risking or reduction of non-performing loans at the same time we had the possibility to to accelerate and enforce some coverage in some area that could become problematic during 2024 and so we decided to use this in 2024 then at the same time also the one-off that we had in personal cost is something that we decided to accelerate this item because we had significant room in terms of net income generation. So the main areas in which we will have benefit will be the area of cost of risk and the area of personal cost. These are the main areas that will benefit from this. from these actions that we have taken during 2024. So on capital position, the capital position is really embedded with the risk profile of the bank. So the starting point of any kind of analysis is that the capital is there in order to face for the unexpected losses. in a company that, as I told at the beginning of the conference, we are a Nordic bank. So it is true that we are operating in Italy, but Italy probably today, if you look at the corporate sector, is the best place to be in Europe. So in looking at these conditions, we think to have all the different dynamics that can allow us on the credit risk to be in a very comfortable situation. At the same time, we are a wealth management company because we have 1.3 trillion of wealth from the Italian families with very low absorption of capital and with sustainability of revenues in any kind of scenario. So we are not depending on Euribor because you know that our best performance has been in period of also negative Euribor. So I think that we are a unique case in Europe. Then at the same time, we have the DTAs. Do not forget that in 2026, 7 and 8, we will have a recovery of 90 basis points of DTAs that is equivalent to a capital increase. So I'm totally comfortable with this position. Also, our... SREP requirements is very low, is comparable with other banks, with the same and probably lower capital position than in San Paolo, if you look at the Spanish banks. The comparison for us is with the comparable peers, not with the non-comparable peers. At the end, I think that we are in a position also to consider The 12% can be also excess capital for us. So that's my personal view. Then we will remain with significant capital position, but I'm not worried at all.

Thank you.

We are now going to proceed with our next question.

And the questions come from the line of Delphine Lee from JP Morgan. Please ask your question. Your line is opened.

Good afternoon. Thank you for taking my questions. So my first question is just to follow up, sorry, on net interest income. So you used to guide to increasing NII in 25. I guess this is no longer the case with low rates. Just wondering if you could give us a bit of color, what do you think NI will lend? And maybe just remind us of what the sensitivity to rates is. My second question is on fees and commission. So just thinking about the $100 billion that you have already identified, I've just wondering how quickly can we see that coming through already in 24? I mean, how much upfront fees upside and pickups do you expect for 24 in your current guidance? Thank you.

So looking at net interest income, you have not to forget that when we're talking about edging contribution, we are talking about numbers that are really significant, because if you consider the level of the forward Euribor in 2024, we will have an increase in contribution from the aging facilities that is in the range of 800-900 million euros increase. And if you go to the forward in 2025, you will have another 700 million euros, so 1.5 billion euros increase in terms of net interest income coming from the edging facilities. So just to give you about 50 million, 100 million euros, we are talking about something that could be really massive. It is already embedded in what we have in the edging facilities. So that is why we are so relaxed in giving our guidance and our outlook related to net interest income. And at the same time, We are the clear market leader in the country. So if interest rate will remain at this level, in any case, we will have the maximum benefit from being the market leader and benefiting from the growth of the average Euribor. If interest rate will remain at this level, Euribor will increase by 50, 60 basis points. So we will have a billion... of of of markdown increase during 2024 so that does for sure this level then the mathematical sensitivity for 50 basis points is in the range of 300 million euros reduction so this this could be the the mathematical but in reality the evidence in in our group is that we can also reduce this level through specific action because we will not wait the impact coming from from the sensitivity so i'm i'm totally confident that on net interest income we can have very different trends in competitor in comparison with other european competitors looking at fee and commissions again this is an area in which we are we have already in in our figures especially administration a portion of 10 billion euros of asset under management in the hands of Italian families that are capital gain positive and this is already with this level of interest rate as soon as interest rate can move in in in direction of reduction there could be another €10 billion, €20 billion of assets under administration that can become positive capital gains. At the same time, there will be expiring certificates and term deposits, so we will have other areas in which it will be possible to propose assets under management. And we are talking about something that can happen in terms of expiring during 2024. Then the ability to convert these in terms of fee and commissions will depend also on the level of Euribor, because at the level of Euribor, at 3%, in my view, there could be a portion of this that can be converted at the level of 3%. And it is much better to invest on markdown than to invest into conversion of asset under management and insurance product. So we will remain and wait and see, looking at the dynamic of Euribor. What we are doing is reinforcing our database on our clients and we are giving to all our 60,000 clients relationship managers hold the list of clients they can be the target for the potential conversion of asset administration aspiring certificates and term deposits in any case we think that with a scenario of that can be in the range of 3, 3.2, 3.3, we can stay at high single-digit growth in terms of commissions. But we will see what can happen, because in any case, this is something like a perfect edge in terms of net interest income. So we are in a unique position. Again, I want to stress the point to guarantee for revenue growth in the year into 2024.

Thank you very much. Thank you. We are now going to proceed with our next question.

And the questions come from the line of Britta Schmidt from Autonomous Research. Please answer your question. Your line is opened.

Yeah, hi there. Thank you for taking my questions. I've got two questions. The first one on asset quality regarded to less than 40 basis points of cost of risk. Do you include any usage of overlays in there? And if not, what is your plan for using the overlays or releasing them? The second question would be on the fees. Just again, it looks like the portfolio management margin was down a little bit queue on queue, but it depends on the timing of the AUM growth. Can you talk a little bit about the margin outlook that you expect for next year and maybe also about the potential competition or change in competition from the BTPs?

that are being issued to retail thank you so on on cost of risk zero usage of overlays so we will be below 40 basis points maintaining 900 million of overlays this is our our forecast for 2024 and we have no evidence of the need that they can be used during 2024 according to a a GDP that can be above zero during 2024. Then we will monitor the situation, we will see, but in our budget it is not embedded in any usage of overlays. So overlays, according to budget, will remain 900 million euros. Looking at fees, okay. The point of BTP is for me an opportunity, not a threat. Sorry to put emphasis on this point. But we are looking at the BTP investments of our clients as the real opportunity that we have. Because these kind of investments are investments that clients are using in order to have good yields. But at the same time, with the reduction of interest rate, this will become part of a very positive capital gain situation. And the story of InterSan Paolo, because if you look some years ago, the way in which we created the starting point of our story has been the conversion of asset under administration. Asset under administration means government money. If you look at the slide in which we have all the dynamic of asset under administration and asset under management, I'm referring to slide number 17. This slide is very important for me because all the increase that we have in asset under administration is made through net inflows. So the majority is net inflows. All these net inflows is selected by us name by name and all this portion now is capital gain positive. So if we will remain in a situation in which our client will continue to invest into capital gain positive in case of reduction of Euribor, for us is all fuel for the future. So I'm not worried at all by these attitudes of the clients. It could be in three months, in the first three months after the increase of asset under administration, you could have probably a reduction in terms of deposits or lower yields coming from asset under administration, so 20 basis points only. But if this can become capital gain positive, this will be transformed into 1% or 2% yield investments in asset under management product or insurance products.

Thank you. We are now going to move to the next question.

And the questions come from the line of Giovanni Rassoli from Deutsche Bank. Please ask your question.

Good afternoon to everybody. One question on NII. If I look beyond 2024, specifically in 2025, you mentioned that you still expect a quite strong contribution from your replicating portfolio. And if you're not mistaken, the last conference call you mentioned that you would have expected still growing an AI in 25. Clearly, since then, the race environment has changed a bit. My perception is that 25, you may still see in the same, you know, level that you had in mind before, but with a different trajectory. So a stronger 24 and the same 25. So I was trying to understand whether this Understanding is correct. And another question about the sector in general. I mean, you are seems to me the only one bank that is increasing the investments into the transformation of the bank in private banking while all the other banks seems to lag behind. Don't you see that on the market that there is an excess of distribution and under investing by your peers? for the medium and long term. And sorry, allow me to ask a question on the governance. If I'm not mistaken, this is the last year of your, there is one year that you are still to serve as a CEO. Can I ask you if you are still available to serve as a CEO also for another term? Thank you.

Yes, I will serve for another term. So I will finish this business plan and I will also finish also the next business plan. So that's for sure. So thank you.

That's what I meant for a new term.

Obviously, I will work in order to have... young managers that can reinforce the quality of and sustainability of results of our banks. But it is my task and I'm still working on this point. But as far as my personal position, I will remain in this position for the next years, obviously subject to the will of shareholders. But that's my firm intention. Looking at the other two questions, on the first question, it is true that probably due to the acceleration in terms of potential reduction of Euribor, we will have a stronger 2024 in comparison with what we have considered in November. and probably a reduction in terms of contribution of net interest income in comparison with our estimates of November. In any case, in 2025, our expectation is that net interest income can remain very strong, so having only a reduction in comparison to 2024, but if you compare with 2023, probably there could be only a slight reduction. At the same time, we will have a significant acceleration in terms of commissions, because there will be the timing in which a significant portion of these 100 billion euros of wealth management assets workable can be transformed into wealth management products so net net we see a further growth in revenues also in 2025 in comparison with 2024 so i can confirm that looking at total revenues, we will have a trend of growth, mainly driven by commissions than interest rate. So in interest rate, the growth will come from the edging facilities, but the real driver will be fee and commissions for 2025. Looking at the Italian situation, I think that in Italy, there is a significant potential to growth in area related with wealth management and protection. Probably there is a number of branches that is over due to the new trend of the digital, probably branches are in excess in our countries, but at the same time, there is a massive potential to increase the wealth management opportunities. And if you see figures of our private banking divisions each year, there is a significant increase also coming from clients of other banks and from the hiring of financial advisor and private bankers from other banks. So I think that there is significant space especially for for a bank like us that are targeting growth also to acquisition of of clients from other banks thank you thank you we are now going to proceed in our next question

And the questions come from the line of Pamela Zuluaga from Morgan Stanley. Please ask a question. Your line is opened.

Hello. Good afternoon. Thank you very much for taking my questions. The first one is a quick follow-up. At what levels of rates do you expect you won't be able to grow NII? Is this a 3% you mentioned before? And then can you give us some color on your rate sensitivity to a first 100 basis points rate cut and then 200 basis points rate cut, because I'm trying to understand if there is an asymmetrical effect, if it would be easier to cut deposit remuneration on the first 100 basis points versus any incremental amounts. And then the second question is, you continued a very encouraging NPL deleveraging, which you have flagged in the presentation as Nordic bank equivalent. But you're still getting for a 40 basis points cost of risk, as you were saying. Do you see this guidance changing at some point, being more reflective of the leveraging efforts, or what could be Intesa's new structural through the cycle cost-to-risk? Thank you.

So, thank you. I will start from the second and then I will elaborate on the first. So, looking at the trend of our MPL and the portfolio, the performing portfolio, It is clear that the cost of risk embedded could be lower than 40 basis points, but I think that it is a rule of the game that I used to be the CFO, then I had the responsibility on risk management, on bank territory. It's a long time that I'm working with organizations. And I think that there is a rule of the game for sustainability of our results then in years in which you have significant net income, you have to continue to make provisions. So that's the fundamental rule of the game for a bank like Intel Sao Paolo. And having said that, I think that a level of cost of risk that could be below 30 basis points in phases in which there is a massive net income generation is not conservative for a bank like InterSan Paolo. So in any case, our bank will not reduce the cost of risk below 30 basis points. We will find some areas like we did this year in order to post some degree of conservativeness on the the statistical analysis or other areas in order to make provisions. But believe me, it is really the right rule of the game not to use provisions as the lever in order to increase profitability. And our view is that if we have enough, we will put in reserves. So that's the reason why 30 basis points could be the minimum cost of risk acceptable from our governance point of view. So not from our risk profile, but from our governance point of view. and adding 10 basis points that we will use to increase the risking if needed, because we want to maintain this Nordic proposition. Then this does not mean that other banks that have corporate investment banking model of very low level of provision are doing not the right job, but are completely different business model from what we consider is the fair approach for sustainability in terms of cost of risk. The second point on Euribor, we will maintain a positive net interest income during 2024, also at the level of Euribor between three and 3.1 Euribor one month average during 2024. That's our estimates. In terms of sensitivity, I have to tell you that I'm not a fan of sensitivity. So I consider sensitivity really something really boring because it is not reality. It is only a way of creating model and model and simulation. I'm giving you the real trend of our net interest income during If you move from 4% until 2% in 2025, we will continue to have a trend of net interest income that due to the aging facility can remain more or less in line with 2023. This is deriving from actions. Otherwise, the sensitivity is too theoretical and we will not enter apart from the 50 basis points, 300 million euros, but this is not something that we will give in any information.

Thank you. We are now going to proceed with our next question.

And the questions come from the line of Hugo Cruz from KBW. Please ask your question. Your line is opened.

Hi. Many thanks for the time. I just want to clarify a few things. First on the NAI, you know, your comments on the replicating portfolio, I wanted to understand what kind of maturities and rates you're assuming. I remember, I think, Tric, you were talking about rolling over into rates of, you know, three and a half. I imagine now it's lower rates, unless you've rolled over a lot already in Q4, so they're already locked in at a higher rate. The second question was around, and apologies if I missed it, but You know, the 300 million one-off in staff costs in Q4, what was that about? And when you talk about flattish OPEX year on year, is that net of these one-off or not? And then a final comment on a question on the regulatory headwinds. You know, it looks like there was something in Q4 because the IWA density went up quite a lot. So was there anything or not? And then do you expect anything into 2024? Do you expect a front load Basel IV in 2024 as well or not? Thank you.

So regulatory headwinds 0 2024-2025, apart from the Basel IV impact, there could be 60 basis points. Stop. Regulatory headwinds, we have closed the game of the regulatory headwinds. In the cost base, 300 million euros are an increase in terms of variable compensation, and this will be obviously one-off. The budget of 2024 is really ambitious, and so it will be difficult that this will be something that we will repeat during 2024. Net interest income, the maturity is four years of the aging facilities, and that's all.

Thank you.

We are now going to move to the next question.

And the questions come from the line of Chris Alam from Goldman Sachs International. Please ask your question.

Yeah, good afternoon, everyone. Just one question left, which is on EasyBank. I wondered if you could give an update on client migration. At Q3, you gave the target for 5 million customers to be migrated over by the end of next year, 2025, and a cost-to-income ratio below 30%. So I can see that 30% ratio is still there, but I just wanted to check on the overall client migration ambitions.

Yes, this is something that for us is very important, mainly for the easy tech area. So let me start from easy tech. That is the real driver in order to reach all the targets that we have in terms of efficiency, in terms of improvement of the technological journey of Intel Sao Paolo. EasyTech is running in the right trend, in the right way, and we think that we can accelerate also the usage of EasyTech, so the cloud-based, in all Intel Sao Paolo and not only in EasyBank. So having said that, EasyBank is under a different process in terms of acquisition of internal clients. We need to have the positive answer from the clients, so we are waiting for these answers from a component of clients. Today we have 300,000 clients already there. This will be something that we will have within... a couple of months and we will define the right number. In any case, we are accelerating the clients coming from other banks because we launched the product also for younger clients and we are receiving very positive responses. So net-net our expectation is to continue to have significant number of clients in EasyBank. The final figures will be available in the next presentation, but in any case, looking at the cost positive coming from these initiatives, EasyTech is already in a condition to guarantee to reach the target that we have considered in our plan.

Thanks.

Thank you. We are now going to take our last question.

And the questions come from the line of Ignacio Cherezo from UBS. Please ask your question. Your line is opened.

Yeah, hi. Good afternoon. Thank you for taking my questions. Can I ask you first on trading? Even without the write-down or the one-off, basically, this quarter, we've been hovering around almost break-even for a few quarters already. If I have a look at consensus, there's a 7, 800 million figure next year. So how do you think basically this figure is going to evolve? I mean typically you have directed us to thinking that there's some degree of reclassification between AI and trading, but is there any risk actually that that number looks too high? And then second on the fee discussion basically, from a behavioral point of view, what do you think is needed for clients to start migrating back? into higher margin type of products? Is it just rates going down or do you think anything else actually has to happen before you have basically inflows back into, again, higher margin type of instruments? Thank you.

So starting from fees, I think that it is a clear function of the environment, so the Euribor environment and then the medium-term interest rate. We are close. to a situation in which this can happen. So our expectation is that there could be a positive, not in the first quarter, but starting from the second quarter of the year, we can have some positive coming also in the area of fee and commissions. Looking at trading, we are affected in the different quarters by 50 million euros of dynamic related with the certificates that have positive impact on interest income and negative on the trading. Then in this quarter, we had a specific write-down of an instrument that was related to a commercial real estate area that is more close to a credit deterioration than a trading deterioration. Looking at 2024, we remain with no need to push for trading income because at the end this is very low quality results. We don't think that we have the need to accelerate on this area. Then if in Banca EMI they will want to accelerate, we will be happy. But I will not push in order to have results from this area because the trend of net interest income, fee and commission, and insurance... will bring us such a significant amount of revenues that there's no need to push in some other risky assets investments.

Thank you. We have no further questions at this time.

I will now hand back to Mr. Carlo Messina for closing remarks. Thank you.

So thank you very much. I think that we delivered very good results during 2023, but I hope that 2024 can be a year in which, with the reduction of Euribor, we can start again the leading role in terms of wealth management and protection that we used to add in the past years and our focus will be all in working for wealth management protection and advisory and at the same time improving the technological transformation of the group, having a clear view also on social impact and our role in the community. So thank you very much and see you next presentation.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.