Intesa Sanpaolo Spa Ord

Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sao Paulo for the presentation of the third quarter 2024 results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Nadia, and I will be your coordinator for today's conference. At the end of the presentation, there will be the question and answer session. To enter the queue for questions, please press star 11 at any time. You will hear an automated message advising your hand is raised. To withdraw a question, please press star 11 again. You are kindly invited to ask no more than two questions so as to leave room for other participants. In case of any additional questions, the IR team will be at your disposal after the conference call. I remind you that today's conference has been recorded. At this time, I would like to hand the call over to Mr. Carlo Messina, CEO. Sir, you may begin.

Welcome to our nine-month conference. This is Carlo Messina, Chief Executive Officer, and I'm here with Luca Bocca, our CFO, and Marco Del Frate and Andrea Tamagnini, Investor Relations Officers. We just delivered net income of $7.2 billion in the first nine months of the year, of which 2.4 in Q3. These high-quality results are marked by strong growth in commissions and insurance income. Costs are stable, asset quality remains top notch, and we strongly increased the common equity ratio and customer financial assets. Our excellent results mean that for this year, we can confirm our net income guidance of about 85 billion, despite significant Q4 managerial actions to strengthen future profitability. At the same time, for next year, we can increase our guidance for net income to around $9 billion and our capital projection to 15% pre-Basel IV. Turning back to our results, turning pressure grew 20% on an early basis, and this year we will reward shareholders with a total distribution of $7.5 billion, including the $3 billion interim dividend to be paid in November. Our dividend yield is one of the best in the sector at 10%. We clearly have and will continue to have significant excess capital and there is a lot of room for significant buybacks. We continue to invest in technology with 3.5 billion already deployed. 55% of applications are already cloud-based. And EasyBank now has over 400,000 new clients with a strong acceleration from September. Our tech investments also mean we can accelerate the generational change of our workforce. In three years, we will have 9,000 exits with a saving of around 500 million euro. We are generating significant synergies leveraging on internal potential with no need of acquisitions, avoid related execution risks, managerial time absorption, and technology delays due to system integration of merchant entities, especially large ones. People are and will remain our most important asset. As part of our sustainable renewal, we will hire 3,500 young people, mainly for wealth management and protection activities that are core to our business model, and we will launch a large-scale reskilling and upskilling program. People and technology are essential to deliver strong results in the short term and continue to be a leader in the future. We are ready to win against fintech challengers, and this is not the case for most of our competitors. 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 nine months. Slide one. In the first nine months, we delivered record net income Best-in-class cost income ratio, MPL ratios at historical lows, common equity ratio at 13.9%, strong and sustainable value creation, and massive program to address social needs. Slide number two. In this slide, you can see the continuous growth of net income. Slide number three. Net interest income was resilient. with Q3 in line with Q1, despite a 30 basis point drop in Euribor and weak loan volumes. This shows the quality of our hedging strategy that will continue to sustain net interest income in the coming years. Slide number four. Commissions were up double digits in Q3, supported by positive assets under management net inflow. Slide number five. Operating costs are down over 3% when excluding the impact of the national labor contract renewal and depreciation for tech investments. Slide number six. The acceleration of our tech transformation is enabling generational change and significant efficiency gains. As already said, in three years, we will have 9,000 exits of which almost 4,000 by next year at no social cost and with a saving of 500 million euro. Slide number seven. We are delivering a significant increase in earning per share, dividend per share, and tangible book value per share. In a few weeks, we will pay an interim dividend of 17 cents per share, up 18% compared to last year and we also have higher flexibility for significant buybacks. Slide number eight, how does our excellent and sustainable performance allow us to strongly benefit all our stakeholders? Please turn to slide nine for the outlook. As said, for this year, we confirm our net income guidance of above $8.5 billion despite Q4 managerial actions to strengthen future profitability. For next year, we are increasing our capital projection and guidance for net income to around $9 billion. Let's now move to slide 11 and take a closer look at our nine-month results. Slide 11. In the nine months we delivered $7.4 billion net income when excluding the final contribution to the deposit guarantee scheme. Commissions were up strongly on a yearly basis, and insurance income reached a record high. Asset quality continued to improve, and common equity tier 1 ratio was up 70 basis points since the beginning of the year. Slide number 12. In this slide, you have the P&L of the nine months. Let me highlight that we have provisioned 160 million euro to offset the net income of our Russian subsidiary. Our net income grew 22% when excluding capital gains booked last year. Slide number 13. In Q3, on an early basis, net income increased over 26% with 10% growth in commission. Slide number 14. As already said, net interest income was resilient in Q3, enabling an increase in the guidance for this year to more than $15.5 billion. Slide number 15. Customer financial assets were up $135 billion yearly. Just to give you an idea, that's more than all of Fineco. And $25 billion in Q3. Let's move to slide 16. The wealth management and protection businesses are strong contributors to the group's profitability, and in the first nine months, commissions from management, dealing, and consultancy activities were up 12% with no significant performance fees. Slide number 17. Property and casualty contribution is increasing up 10% quarter on quarter. We have significant upside potential and our 100% wholly owned product faculty are a clear competitive advantage. Slide number 18. The contribution of commissions and insurance income to revenues is the highest in Europe after UBS. Please turn to slide 19. Our top-notch advisory services are delivering with related additional commissions up 35% year-on-year and 12% quarter-on-quarter. Slide number 20. Let me highlight that in Banca del Territory, we will hire 1,500 global advisors with hybrid contracts for wealth management and protection activities. This will increase the total number of global advisors to 2,500. This means that the Banca dei Territori alone is creating the fourth largest Italian financial advisory network, with Viteurum remaining number one. By 2027, we will have a total of 20,000 people in Italy dedicated to fueling wealth management and protection growth. Now turn to slide 21 for an update on costs. Administrative costs decreased by 2% on an yearly basis. We have high flexibility to reduce costs in the coming years, also thanks to the 9,000 exits. Slide 22. In this slide, you can see that India-San Paolo has a best-in-class cost-income ratio in Europe. Slide 23. Gross NPL stock was down 900 million yearly. NPL inflow remained at historical lows with a positive quarterly trend. Also, Stage 2 loans decreased 10%, and net NPL ratio is below 1%. Slide 24. NPL stock and ratios are among the best in Europe. Slide 25. We are also very well positioned in terms of stage two that represent just 8% of loss. Slide 26. Our analyzed cost of risk was 25 basis points with no overlays released. MPL coverage increased further even if we see no signs of asset quality deterioration. Slide 27. Quarter after quarter, we keep reducing our Russia exposure. Now let's move to slide 28 for an update on capital that had a very positive evolution in Q3. The common equity ratio increased more than 30 basis points in Q3 to 13.9% after deducting the Q dividends based on a 70% cash dividend payout ratio. Slide 29, capital ratio will increase above previous projections. We clearly have significant excess capital allowing high flexibility for additional distributions. Slide 30, liquidity. We have best in class ratios and liquidity ratios are well above our targets. In the next two slides, you have the usual update on our ESG actions. At the end of the presentation, you can find additional slides on our social and climate initiatives and our leading ESG position. Let's move to slide 34 for the macro scenario. The Italian economy is resilient thanks to strong fundamentals. And Italian GDP is outperforming the Eurozone average and will grow this year and next. Slide 35. 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 36, in this our unique positioning thanks to our commission driven and efficient business model supported by strong tech investments. In the appendix you can find updated slide on EasyTech, EasyBank and our artificial intelligence program all delivering tangible results at an impressive speed. This slide recaps how ISP is equipped to further succeed in the future. In fact, we are ready to outperform in any interest rate environment. Slide 38. To finish, let me turn to the outlook. For next year, we expect net income to be around $9 billion, considering increasing revenues cost reduction, low cost of risk, and lower charges concerning the banking industry. As said, we have strong internal potential for revenue growth and cost reduction thanks to the investments we made in these years. And our well-diversified business model focused on wealth management and protection is ready to deliver in any interest rate scenario. Our 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. We clearly have excess capital. This year, we are returning $7.5 billion, and we have an even higher flexibility for additional capital distribution for this year and the coming years on top of our 70% cash dividend payout ratio. So thank you for your attention, and we are now happy to answer your question.

Thank you so much, dear participants. As a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. You can be invited to ask no more than two questions so as to leave room for other participants. Please stand by while we compile the Q&A roster. This will take a few moments. And now we're going to take our first question, and it comes from the line of Antonio Reale from Bank of America. Your line is open. Please ask your question.