Intesa Sanpaolo Spa Ord

Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa San Paolo for the presentation of the first half 2024 results hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Sandra and I will be your coordinator for today's conference. At the end of the presentation, there will be a Q&A session. To enter the queue for questions, please press star 1 1 at any time. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. You are kindly invited to ask no more than two questions so as to leave room for other participants. I remind you that today's conference is being recorded. At this time, I would like to hand the call over to Mr. Carlo Messina, CEO. Sir, you may begin.

Welcome to our first half results conference call. This is Carlo Messina, chief executive officer, and I'm here with Luca Bocca, our CFO, and Marco De Frate and Andrea Tamagnini, investor relations officers. We just delivered net income of $4.8 billion in the first half of the year, of which $2.5 billion in Q2. These were the best six months of the past 17 years and the best ever Q2. These are high-quality results. Reflecting a strong acceleration in commissions and insurance income and resilient net interest income, our top line growth was the highest in Europe among peers. Costs are down even as we invest heavily in technology, while asset quality remains excellent. Our strong results mean that we can increase fully our net income guidance to above 8.5 billion for both this year, even when taking into account possible managerial actions to strengthen future profitability, and next year. Earning per share grew 15% on a yearly basis, and in 2024, we will reward shareholders with a total distribution of more than 7.4 billion, including the buyback launched in June and the $3 billion interim dividend to be paid in November. We increased the common equity ratio to about 13.5% and further reduced MPL stock. We clearly have significant excess capital, and there is a lot of room for future buybacks. Additional distribution for this year will be determined at year end, and further future distributions will be evaluated year by year. Customer financial assets increased more than $100 billion on an yearly basis and $20 billion in Q2. 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 $3.2 billion already invested, and our significant profitability allows us to have a world-class position in social impact. 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. All our stakeholders, so not only shareholders, benefit from our excellent performance. I'm proud of our results and thank our people for their hard work. Now let's turn to slide one for the key achievements of our first half. In the first half, we delivered record net income, best-in-class cost-income ratio, NPR ratios and historical lows, rock-solid capital, strong and sustainable value creation, and we have a massive program to address social needs and promote inclusions with a contribution of 1.5 billion euros, of which 500 million already deployed. Slide number two. In this slide, you can see the impressive and continuous growth of net income up 13% on a yearly basis. Slide number three. We are delivering a significant increase in earnings per share, dividend per share, and tangible book value per share. Slide number four. These record six months mean that we can improve our net income guidance. As said, we expect net income to be above 8.5 billion this year and next. Slide number five. I'm very proud that our excellent sustainable performance allow us to strongly benefit all our stakeholders, our people, households, businesses, and the public sector gain 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 in the first six months, the public sector benefited from more than 3 billion euros in taxes, 500 million more than in the first half last year. On top of that, 40% of cash dividends go directly to households and to foundations, to support their charitable programs for local communities. In the first half, families and businesses received 31 billion euros in new medium-long-term lending. Furthermore, in the first half, we helped 1,500 Italian companies to recover. Let's now move to slide 7 and take a closer look at our results. In the six months, we delivered a $5 billion net income when excluding the final contribution to the deposit guarantee scheme. Commissions accelerated strongly and insurance income reached a record high. Asset quality improved further with NPL inflows and stocks at historical lows. In Q2, we had further growth in net interest income and commissions versus Q1. Slide number eight. More in detail, in the first six months, net interest income grew 16% yearly. Commissions grew 7% and insurance income reached the record high. Revenues increased 10%, best-in-class growth in Europe, and being an Italian bank, and operating margin 17%. Costs were down despite the impact of the national labor contract renewal and strong tech investments. As we did in the past, we have provisioned 90 million euro to offset the net income of our Russian subsidiary. So zero contribution from Russian subsidiary to our net income profitability. Net income grew 20% when excluding capital gains booked in the first half last year. Slide number nine. In Q2, net interest income grew 2% quarterly and 12% yearly. Commissions increased 5% quarterly. Revenues were up 8% yearly and operating margin 15%. Net income increased 70% yearly when excluding capital gains booked in Q2 last year and 7% quarterly. Slide number 10. In this slide, you can see the strong increase in net interest income, which we expect to total around $15.5 billion this year, also thanks to the contribution from core deposits edging. Slide number 11. Net interest income growth was driven by the spread component on an yearly and quarterly basis, also thanks to core deposits hedging. Slide number 12. Customers' financial assets were up more than €100 billion yearly and €20 billion in Q2, with significant growth both in asset management and asset under-administration. In Q2, we had a $1 billion positive net inflows in asset under management, reversing the previous trend. Gross inflows remain strong at more than $30 billion. Let's move to slide 13. The wealth management and protection businesses are strong contributors to the group profitability, and in the first six months, the contribution was 44% of gross income, even with interest rates remaining high. Commission from management, dealing and consulting activities were up double digits with no significant performance fees. And also the other fees, commercial fees, corporate, structural finance, investment banking increased in a significant way this quarter. And it is the clear evidence of the functioning of our push on the commission side, not only in wealth management and protection. Slide number 14. Property and casualty contribution is driven by the non-motor business. Let me add that we have significant upside potential due to the still low property and casualty penetration of the client base when compared to other products. And our 100% fully owned product companies are a clear competitive advantage. Number 15. The contribution of commissions and insurance income to revenues is over 40%, the highest in Europe after . And it is the clear winning factor of Intel Sao Paolo in case of a likely reduction in Euribor in the next month and year. Please turn to slide 16 for a focus on our product factories. Slide 16. We are a wealth management, 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. Our top-notch 360 degree, 360 degrees of advisory services supported by state-of-the-art digital tools. These services are already delivering with related additional commissions up over 40% year-on-year. The contribution to commissions from these advisory services mitigates the possible volatility of wealth management commissions. Slide 17. 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 almost $900 billion in direct deposits, and asset under administration. And we have identified 100 billion that can be converted into asset under management when interest rate decline. Slide number 18. The cost income ratio was at 38%, the lowest ever. Operating costs will be down 4% when excluding depreciation for tech investments and the impact of the national labor contract renewal. Slide number 19. In this slide, you have more detail on our costs. Administrative costs decreased by 2.5% on a yearly basis. Slide 20. In this slide, you can see that InterSanPaolo has a best-in-class post-income ratio in Europe. Now let's move to slide 21 for a focus on asset quality. Gross MPL stock was down 800 million yearly and 400 million in Q2. MPL inflows remain at historical lows. Also, Stage 2 loans decreased 8% year-on-year. We have less than 5 billion MPL and a 1% NPR ratio. Slide number 22, MPL stock and ratio are among the best in Europe. Slide 23, and we are also very well positioned in Europe in terms of Stage 2 that represent just 8% of loans. Slide 24, our analyzed cost of risk was 26 basis points with no overlays released. NPL coverage increased further on an yearly basis, even if we see no signs of asset quality deterioration. Let's move to slide 25. Quarter after quarter, we keep reducing our Russia exposure, both cross-border and locally. Now slide 26 for an update on capital. The common equity ratio increased by more than 30 basis points in the first six months, of which 20 basis points in due to, to above 13.5% after deducting the buyback launched in June and the accrued dividends. Slide 27. Capital ratio will increase this year and next. And we clearly have significant excess capital allowing flexibility for additional distribution. Over the business plan period, we do not expect further regulatory headwinds, excluding a 40 basis points Basel IV impact in 2025. Slide 28, liquidity position. We have a best-in-class MREL ratios. The liquidity cover ratio and net stable funding ratio are well above our targets, and we have basically reimbursed all the TLTRO. In slide 29 and 30, you have the usual update on our ESG actions, and at the end of the presentation, you can find additional slides on our social and climate initiatives. and our leading ESG position in the main sustainability indexes and ranking. Now let's move to slide 32 for the macro scenario. The Italian economy is strong, and the liquidity position of Italian corporates has improved further in 2024. Italian GDP will continue to grow this year and next. For this year, I expect growth between 0.7 and 1%, and I'm really positive on Italian economy. Slide 33. As you can see in this slide, InterSanPaolo is far better equipped than its European peers, also thanks to our best-in-class risk profile. Slide 34. In this slide, you can appreciate the unique positioning of InterSanPaolo, thanks to our commissions-driven and efficient business model. supported by strong tech investments. Slide 35. In this slide, you have the recap and saw 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. To finish, let me turn to the outlook. After delivering our best six months, we are increasing our net income guidance to above 8.5 billion, even when taking into account possible managerial actions to strengthen future profitability. Our strong and sustainable performance allow us to strongly reward our shareholders, always a priority for ISP and me personally, while maintaining rock-solid capital and a world-class position in social impact. This year, we are returning more than $7.4 billion, equal to 11% of our current market cap. Additional capital distribution for 2024 will be determined, so we have to define the amount at full year results approval. And further future distribution will be evaluated year by year on top of a 70% cash dividend payout ratio. We clearly have excess capital and strong internal capital generation. Thank you for your attention. And now we are happy to answer your questions.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 1 again. You are kindly invited to ask no more than two questions so as to leave room for other participants. In case of additional questions, the IR team will be at disposal after the conference call. We will now take the first question. From the line of Antonio Reale from Bank of America, please go ahead.