Intesa Sanpaolo Spa Ord

Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa San Paolo for the presentation of first quarter 2024 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 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. I'll remind you that today's conference is being recorded. At this time, I would like to hand the conference over to Mr. Carlo Messina, CEO, so you may begin.

Welcome to our first quarter results conference call. This is Carlo Messina, Chief Executive Officer, and I'm here with Luca Bocca, our new CFO, Marco Del Frate, and Andrea Tamagnini, Investor Relations Officers. We delivered the best ever start to the year with high quality results, also thanks to a strong acceleration in commissions and insurance income. Costs are firmly under control, While we are heavily investing in technology and asset quality remains excellent. 2.3 billion net income was the best quarterly net income since 2007. Earning pressure grew 21% on a yearly basis. And in 2024, we will reward shareholders with a total distribution of at least 7.3 billion, including the 1.7 billion buyback in June. In the quarter, we increased the common equity ratio and we strengthened our zero MPL status. We clearly have an additional distribution for this year and next will be evaluated year by year. Customer financial assets increased 120 billion on a yearly basis and almost 30 billion in Q1 to more than 1.3 trillion. We are perfectly on track to the income above $8 billion this year and next, easily achieve an income above $8 billion this year and next. We have a well-diversified business model that delivers in any interest rate environment, allowing us to take advantage of a rebound in wealth management when rates decline. Our tech transformation is moving quickly with 3 billion already invested. Later in the presentation, we will provide the usual update on our strong ESG commitment. 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 first quarter. Slide number one. In a nutshell, we had the best error start of the year. We delivered 2.5 billion net income when excluding the final contribution to the deposit guarantee scheme. Q1 was the best quarter ever for revenues, operating margin, and gross income. The cost-income ratio was the lowest ever. NPL inflows and stock remained at historical lows, and common equity ratio increased to more than 13.3%. Slide number two. In this slide, you can see the impressive and continuous growth of net income, up 18% on a yearly basis. Slide number three, we are delivering a significant increase in value creation and distribution with strong growth in dividend per share, earnings per share, and tangible book value per share. Slide number four, we are a wealth management protection protection and advisory leader, and we are ready to leverage on our fully owned product factories now under the responsibility of a single oversight unit, enabling quick time to market synergies and product customization. Our top-notch 360 degree advisory services supported by state-of-the-art digital tools. These services provided by Bank of the Territory and private banking are already delivering related commissions up over 40% year on year. Slide number five. Our delivery machine is based on close to 17,000 private bankers, financial advisors, and relationship managers for private, affluent, and exclusive clients. We have strong internal potential with over $870 billion in direct deposits and assets under administration. And we have identified $100 billion that can be converted into assets under management, also thanks to declining rates. In April, we created an oversight unit consolidating the group's activities aimed at accelerating growth and increasing the integration of product factories. Furthermore, we created a fees and commissions steering committee that I chair myself, focused on increasing commissions across all the group divisions. And let me add that we are already at work. When we see an opportunity or a problem emerging, we take action and we deliver. We have done it multiple times, and we will do again with this wealth management growth. Slide number six. This record start to the year means that we are well on track to easily deliver net income above $8 billion this year and next year. Slide number seven. I'm very proud that our excellent and sustainable performance allow us to reward all our stakeholders. As you can see in the slide, our people, households, businesses, and the public sector benefit from our increasing profitability. An increase in net income and so in cash distribution is also favoring an increase in tax revenues for the state. and 40% of cash dividends go directly to households and to the foundation to support their charitable programs for local communities. Now let's move to slide nine and take a closer look at our results. Slide number nine. Net interest income was up over 20% quarterly, basically stable quarterly. when adjusting for the different number of days. Commissions accelerated and insurance income showed double-digit growth both yearly and quarterly. Revenues increased double-digit and operating margin 18% on a yearly basis. Net income reached $2.6 billion when excluding levy and other charges concerning the banking industry. This year we booked the final contribution to the deposit guarantee scheme in Q1, and since the final contribution to the European Resolution Fund was booked last year, we do not foresee any significant additional contribution going forward. Slide number 10. In this slide, you can see the strong yearly increase of net interest income, putting us well on track to deliver growth in 2024 versus 2023, also thanks to higher contribution from core deposit hedging. Slide number 11. Net interest income growth on a yearly basis was driven by the spread component. On a quarterly basis, the decline is due to the different number of days in the two quarters and to a lower contribution from the financial component. Deposit beta continues to remain very low. Slide number 12. Customer financial assets exceeded 1.3 trillion, up almost 120 billion yearly and 30 billion in Q1, with significant growth in assets under management and assets under administration. Let's move to slide 13. The wealth management and protection businesses are a strong contributor to the group's profitability. And in Q1, interest rates, the contribution was 45% of gross income. Commissions are up 8% on a quarterly basis. And the commissions related to management, dealing, and consultancy activities are up double digits with no significant performance fees. Slide number 14. Property and casualty contribution is increasing, driven by the non-motor business to our best ever Q1 for insurance income. Let me add that we have significant upside potential due to the still low client base penetration of property and casualties when compared to other products. 100% fully owned product factories is a clear competitive advantage. Slide number 15. The contribution of commissions and insurance income to revenues is over 40%, the highest in Europe after UBS. This thanks to our well-diversified business model. Please turn to slide 16 for a focus on costs. In Q1, the cost-income ratio was 38%, the lowest ever, thanks to effective cost management. Operating costs were down 3% when excluding depreciation for tech investments and the impact of national contract renewal. Slide 17. In this slide, you have more detail on our costs. Administrative costs decreased by over 3% on a yearly basis. Slide number 18. In this slide, you can see that InterSanPaolo has the best cost-income ratio in Europe, well below the peer average. Let's move to slide 19 for a focus on asset quality. NPL inflows and stock remain at historical lows. Also, Stage 2 loans decreased 16% year-on-year, down more than a billion in Q1, thanks to the high quality of our loan portfolio and our strong capabilities in prevention activities. We are a bank with just 5 billion net NPL and a 1% NPL ratio. Slide number 20. MPL stock and ratios are among the best in Europe after impressive de-risking. Slide number 21. We are also very well positioned in Europe in terms of stage 2 that represents only 8% of loans. Slide number 22. Our analyzed cost of risk was 22 basis points with no overlays released. MPL coverage increased further, even if we see no signs of asset quality deterioration. Let's move to slide 23 for the usual update on Russia. Quarter after quarter, we keep reducing our Russia exposure, both cross-border and locally. So let's move to slide 24 for an update on capital. Slide 24. The common equity ratio increased by almost 20 basis points to over 13.3%, 14.7% considering DTAs, thanks to organic capital generation and after deducting the $1.7 billion buyback and the $1.6 accrued dividends. Now, please turn to slide 25. Capital ratio will increase this year and next, and we clearly have significant excess capital, allowing flexibility for additional distribution. Please turn to slide 26 to see our sound liquidity position. Slide 26. We have best-in-class MREL ratios well above requirement. The 2024 funding plan is very manageable and ALF has already been executed. Slide 27. The liquidity coverage ratio and 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 at the end of March was over 140%. above the business plan target, even when considering the full reimbursement of the remaining TLTRO. Let's move to slide 8 for more details on the liquidity position. Liquidity reserves remain very high despite TLTRO repayment, and cash with the ECB is much higher than the remaining TLTRO. Let's now move to slide 29 for the usual update on our ESG actions. In this slide, you can see our strong progress toward the business plan ESG targets. And also here, we are ahead of schedule across nearly all of the projects. In April, we appointed the chief sustainability officer consolidating ESG activities. We have a massive program to address social needs and promote inclusion. with a contribution of 1.5 billion euros. Of these, we have already deployed 400 million. We remain committed to being the world's number one impact bank. Let's move to slide 30. In this slide, you can see other important ESG initiatives with impressive results achieved. such as 47 billion in new lending to support the circular economy and green transition and the further reduction in financed emissions. In 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. Please move to slide 32 for the macro scenario. Slide 32. The Italian economy is strong, and I want to highlight that Italian corporates have significantly improved their deposit to loans position over the past years, and that Italian GDP will continue to grow this year and next. For this year, I personally expect a growth between 0.7 and 1%. Slide number 33. As you can see in this slide, InterSanPaolo is far better equipped than its European peers, thanks to our rock-solid capital base and well-diversified business model supported by significant tech investments. Slide 34. Very important, in my opinion. In this slide, you can appreciate the unique positioning of InterSanPaolo thanks to our commission-driven and efficient business model supported by strong tech investments. I think this slide tells a really important story that deserves more attention. 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. Slide number 36. So to finish, let me turn to the outlook. In the second part of this year, our leadership in wealth management, protection, and advisory will start to kick in. After delivering our best-ever start to the year, we are well on track to deliver easily a net income above $8 billion this year and next year. Our strong and sustainable performance allow us to strongly reward our shareholders, always a priority for ISP and me personally, while maintaining a rock-solid capital position. This year, we will return at least $7.3 billion, taking into account the early June buyback and the interim dividend in November. Additional will be evaluated at the end of the year. I want to highlight that all our stakeholders will benefit from our performance. So thank you for your attention, and now we are happy to answer to your questions.

Thank you. As a reminder, to ask a question, you will need to 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. If you could all kindly limit yourself to two questions so that everyone is given the opportunity to answer questions. Thank you. We are now going to proceed with our first question. And the questions come from the line of Azura Guelphi from Citi. Please ask a question.