Mediobanca Spa

Thank you for joining the call. The first nine months of the bank show and confirm a steady growth trajectory in terms of revenue up 5%, profit as well, and ROTI on the level of 14%. We have had quite a strong commercial activity in all businesses. Starting from wealth management, we have recorded $7 billion of net new money, which is up 42% compared to last year. In CIB, we have had a rebound in new loan production of a billion, up 8% year-on-year. And we have had quite strong new loans in consumer finance. We reached the level of $6.7 billion, up 9% in nine months. This reverted into an increase in revenue, as I said, of 5%, where we had a stable, even slightly growing NII, double-digit fee jump with 24%, lower core, this is basically on a better trajectory at industrial level, and high capital generation, this is 55 basis points driven by CIB and consumer finance where we have had, starting from January, new LGD and hence we have released some capital. This reverted also in high remuneration with the interim dividend at 0.56 euro per share And this is, of course, 70% of net profit out here. And we have completed almost 70% of our share buyback. We have seen also a solid progression in the last three months. In particular, this compares to a very high Q2 in particular in CIB where we had the closing or some very important transaction. Notwithstanding this, we have recorded a quite high level of fees also in Q3. This was supported by a 6% increase in wealth management, 17% year-on-year, down 16% compared to last quarter in CIB. Consumer finance steady growing even compared to last quarter. and insurance had an increase compared to last year, and it was down compared to Q&Q. NII, as I said, was flattish, slightly improving. We will then investigate what's behind this. And we have had solid also results in fees where we had 273 as opposed to 316, so quite an high level in any case. Decreasing core in this quarter from 50 basis points to 39 basis points. There is a component of writebacks, which is 11 million for new PD model, which is not for the time being incorporated in capital. It will be having a capital impact in the next two quarters. In consumer finance, it was down to 169 with 10 million of overlay use. So resilient high profitability 334 as opposed to 330 of last coup. This was basically supported across the board by all different business. As I said, quite a solid net new money of 7.2 billion. Material TFA growth, both in terms of net new money and market effect, we have reached 108 billion. Strong new hires, in particular this quarter, we have had 54 new entrants out of 120 of the last nine months, so you will see quite an important progression. A touch more in terms of deposits and a solid revenue trend with 727 of revenue as opposed to 690, and hence also a steady increase in net profitability. In CIB, again, we are implementing our strategy of capital light. We are expanding heavily the component of advisory. In the meantime, we have had a rebound in corporate lending, and we are having also markets trend, which are supportive. This reverting to increase of 26% revenue. which is driven by fees, 52, but also NII plus 2%. And we enter in this phase, which is a bit more uncertain on the tariff trade war with best ever quality in terms of core, in terms of rating, and you see that investment grade now is totaling 83% of the whole portfolio. Consumer finance printed another record quarters with very sound, important, and I would say, again, record numbers of new loan production, 2.4 billion. I think we never reached this level of 2.4 in a quarter. This reverted into 6.7 billion on new loan, up 9%. which is basically the same trend of NII of Compass. So basically, this is what we have told you in the last few quarters. The bank is a strong producer of fees through wealth management and CIB and a strong producer of NII, thanks to Compass, whose NII is growing of 9% and can offset, I mean, pressure on the rest of the business. As I said, this new loan production was coupled with excellent risk-adjusted profitability. On page 7, you see, bottom of the slide, growing risk-adjusted profitability from 7% to 7.35%, and net also of core stays above 5%, which is a fantastic buffer even in case of Increase, of course, that for the time being we don't see. On the contrary, we see an improvement, of course, but this marginality, as always we repeat, is the best safety net in terms of possibility to absorb unprecedented or unwanted risk in this business. In terms of fees on page 11, Again, another strong quarter, 273. This is supported by growing wealth management, in particular, 14% increase year-on-year, with management fee having an important role, and this is very important. Upfront fee sustained by strong structured product flows, and also CIB printing more than 100 million euro in this quarter. NII, resilient. This is backed by, as I said, consumer finance and CIB rebound. We are more positive in the quarter to come on CIB with selective but growing volume. Not a big jump, but something that can support this trend of stable NII for the quarter to come. comfortable funding position. We have raised more than $7 billion in the last nine months at a cost of 65 basis points. So basically, we have a total cost of 90 basis points in the bond cost, while the component which is expiring is having 115. So we are having a steady decrease of this cost of funding it's fair to say that in wealth management deposit the decrease is steady again but it takes more time because of competition on deposits so you see this on slide 13 so we are a touchdown from 181 to 170 but as we know this is also a commercial tool to grow net new money and it's natural that this kind of the collage is more progressive. As I said, core is showing a positive sign. You see this in the consumer finance early deterioration index. We have seen an improvement in the last few months where a lower amount of deteriorated loan coming in. This led to a decrease compared to what we expected in terms of industrial core of Compass. We have had then some right backs in CIB reflecting portfolio quality and new model calibration. And we have used a very minor level of overlay. You see that We were at 201 and we are at 189, so we use 11 million. We have done some write-off of a component of fully covered MP in COMPAS, so we brought down the gross MP ratio. from 2.5 to 2 and net remain well below 1% and hence we see that the touch down in coverage because we have written down this fully provision amount. I think it's very interesting to look through what is happening to the bank in terms of not only strategy but capital allocation. You know that capital allocation for us it's quite an important strategic goal to have a different capital allocation for the market, better capital allocation, this is happening. You see that a year ago, we were having the majority of our RWA allocated to CIB. You see that now this is not anymore happening. So we have now basically reduced by roughly 2 billion the capital allocation into CIB. We have now same amount to CIB and to consumer, and the rest is the other two business. This is clearly also with improved profitability and more advisory driven CIB trajectory showing a steady and important increase in return on risk-weighted assets. You see that at group level, we went up from 2.6 to 2.9. and all the business industrial business have shown important increase in profitability we continue to enjoy strong capital position 15.2 as a starting point landing into 15.6 this is uh this is uh driven by both earnings and basel for impact and of course um some transitional uh component of generali then when they pay the dividend this is going to be reassured and then of course there is the 70% cash out. In terms of sustainable banking we have done further upgrade on our ESG profile in terms of rating of different entity, in terms of green activity and in terms also gender and I would say Education provided to not only our staff but also external people Quick a quick look to the division results in in Wealth management we have added the three component very much contributing each of them I would say the most important part this quarter or the last Three quarters was done by Mediobanca Premier. This is natural as we put a lot of emphasis in repositioning this segment. This segment is giving a very, very important contribution and more to come because this is much bigger in terms of size as a market compared to the private banking, which is enjoying a very good trend of liquidity events and also private market initiatives. We have had also very good contribution from asset management where our two entity, in particular Polus Capital, continue to raise a substantial amount of money from third party. So we reach more than 100 million, 110, and with basically a totally different component. You see that the The component of page 24 is different compared to a year ago. This is normal. It's the industry trend. A year ago, it was more asset under custody. With the BTP, I would say, boom. Now, this is more contained. We have much more managed assets. So the vast majority of net new money is managed assets. What does it mean? It means that management fees are going up. You see we call them also franchise TFA's and you see on page 25 that is having a growth of 15% from a year ago, so from 29 to 34.3 and this is reverting also into management fee. A year ago they were at 72 million, this year are 83, so a steady increase. In CIB, as I said, we continue to increase the part of the activity which is advisory-driven. Here, we have had a very good performance of some of our industry team. The tech one, represented by ARMA, delivered a very important number of transactions in the last nine months. They advised for a total of more than $50 billion. In energy transition in private capital, we have announced a number of deals. This year in total, we have announced 72 deals, which is 29% up year on year. And we have announced also 20 deals in the last quarter. Here again, what we want to do is to grow the fee pool to make it more diversified already now. The majority is coming from non-Italian counterparty. We assume that in next year's Germany, which is a startup, we started the business in mid-corporate this year, we'll contribute more. And also we are seeing important contribution from markets activity, BTP specialist, CO2 trading, and other activity related to markets. So again, here, combining revenue trend of fees plus supportive NII, we are on page 31, and also treasury income, which was positive, we arrived to a plus 33% net profit year on year, so which is important, as it is important, as I said, RWA. minus 14 percent this reverted into a very important increase in return on risk with assets i would say well above what we had in mind and so we are going in terms of return on risk with us better than our forecast last but not least compass compass as i said is having a fantastic trajectory Fantastic because not only they are printing higher new loans, but the more important new loans, so 2.4 billion on page 33, but they are doing this also with the more restrictive criteria. So would say that it's also in terms of cost of risk more contained as we've seen. And in terms of profitability, you see on loan book net profitability, it's growing with a growing volume and stock. Of course, this reverts into what you see on page 35, 9% increase in NII. This is happening. We had this trend even in the past when interest rates were down. Our NII in consumer was going up a single digit. It is happening again, and this will be a trend for the next few quarter. Insurance, so contribution from general is stable and positive. Holding function, of course, having less contribution because of interest rate decrease. This is for the quarter that shows, I mean, a bank that is already very much axed onto capital light, wealth management, CIB player in terms of fees and strong NIR engine in consumer. But there is a big new, as you know, the big news is our announced transaction on Banca Generale of last week. Here we want to reiterate the validity of this proposed transaction. We will be the second largest wealth management player in Italy, but with a unique focus on high-end clients and entrepreneurs. So this is linked to our DNA of an investment bank. So CIB has said we'll enjoy this trend, we'll be stronger after this transaction because the combination and cooperation, the synergies between the two in a country which is having the Italian backbone, industry backbone as we have, is going to be a differentiating factor even more than today because it will rely on a bigger and stronger platform. This will be complemented by an NII engine with great profitability and strong growth opportunity like Compass. Our mantra, which we have always maintained, is, okay, Generali is a very good investment. It's supporting heavily the results of Medibank. It could be swapped into a wealth management opportunity. Now it's happening. So we plan to change our relationship with Generali from a financial partner to a strong industrial partner, creating... more than 200 billion TFA wealth management with more than 140 billion in private banking and especially and supposedly the operator which has the best opportunity and the fastest opportunity of growth with the net new money combined of 15 billion top of the market. This is particularly positive for us because if you go on page 41 you see that this is I shouldn't say the last the last, I would say, episode of our reshaping, but I think an important one. Only 10 years ago, we were a bank of 2 billion revenue and 7% ROTI with the breakdown of revenue of the vast majority, the relative majority of consumer finance. Already now, or 25 at the end of June, we are 3.7 billion and 14% ROTI. with 26% in wealth management, the picture will be totally changed after the combination with Banca Generali because we will have 20% ROTI, 4.4 billion of revenue, and the vast majority in wealth management. This is coupled with a strong capital creation, plus 20%, with a capital generation of 270 basis points, and in the CHET-1, at closing, which will be very, very healthy at 14%. We will have distributed 5 billion to shareholders in these years from 16 to 24. And what is even more important, we plan to have a total yield ahead of 22% cumulative in the next 18 months between what we said about the last year of plan, so the guidance of distributing 4 billion plus the buyback we are planning to do. This will create, I think, quite a unique and interesting story at European level. We here on page 22, we put together all the players listed above certain market cap, which are having basically more 170 billion of AUM, AUC, which are having at least 50%. of revenue in wealth management so within these two parameters we have three stocks ubs media bank and jews bear but when you go down and you see who is giving to shareholder more than seven percent dividend yield then there is only media bank the new media bank with the bg so for this reason we are very motivated to go through this transaction because we create a leader which is going to represent a bit of a unique equity story or a very interesting equity story in Europe, not only in Italy. Now, if we look at this transaction, we compare to the other transaction that is into the market and we let our shareholder decide which is our take on this. In terms of positioning, we will create a leading wealth management player and with a model which is axed to growth thanks to PIB. On the other side, we will be part of a group which is a mid-sized commercial bank which has not a clear strength point because basically putting together Mediobank and Montepaschi will not show significant position improvement in any business, will not generate for our shareholders a de-risking from Montepaschi exposure in terms of capital intensive model as opposed to capitalized model in terms of sensitivity to credit risk and interest rates in terms of mix as we said we will be 50 percent with management and the rest between cib and commercial and consumer finance on the other side we will be at majority commercial banking the synergies are easier in our case because There is a cultural fit. There is a platform to be, you know, right-sized in terms of IT, in terms of operating platform in wealth management. While in the other case, we don't have branches that are really in overlap with the one of Montepaschi. There is in our deal a material capital reallocation. So what we will have we will have on one end, hopefully, a re-rating of the multiple of the biggest business resulting in wealth management. On the other end, we will have, I would say, less holding, if any, holding discount, which today is associated to our stock, to our stake in general. So in terms of value creation, it's clear that we see some eps accretion in our deal we have big doubt of any accretion in the other deal why because sustainable roti chat one and payout is very difficult to verify thanks to or due to uh nii core edwin's ahead in the current macro and so basically we see potential multiple rating in our combination and potential multiple rating in the other situation. With a very important, I would say, consideration or I would say element of attention, which is already very complex to do one integration, integration which was defined innovative. We have defined it natural. So if you try to combine two innovative or a natural target, I think there is a much more risk in terms of execution, which means that basically asset value revenue trend of two business whose market value is above 20 billion is at risk. there is a very important execution risk and hence value destruction possibility in the second scenario. This is what I wanted to tell you. I'm now ready for your Q&A. Thank you.

Thank you. As a reminder, to ask a question, you will need to press star 1, 1 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 1, 1 again. We will now take our first question. Please stand by. And the first question comes from the line of Giovanni Razzoli from Deutsche Bank. Please go ahead, Giovanni.

Good morning to everybody. Thank you for taking my questions. My questions are on the evolution of the CT1 ratio for Mediobanca standalone and for also after the business combination with Banca Generale. On a standalone basis, clearly you have reported a very strong CT1 this quarter. I was wondering whether on a standalone level. So for the next couple of quarters, what could be the evolution of your CT1? You've mentioned that, for example, Generali has resulted into a 25 basis points, a negative impact because of the growing the book value and the deductions. So is it possible to assume that in the next couple of quarters you will approach 16%? And regarding the Banca Generali transactions, you mentioned that There is an 80 basis points impact from the acquisition in day one. I was wondering whether you have a fine tune this impact, which seems a bit conservative. And also the CT1 ratio at inception of the deal was assumed at 14%. I was wondering whether after the strong print of this quarter, what is now the CT1 at inception after Banca Generale. And lastly, you mentioned that you are sticking to a 100% payout ratio target for the next couple of years, if I'm not mistaken, post the acquisition of Banca Generali. Again, where would you see the CQR ratio evolution going forward? Thank you.

Thank you, Giovanni. What we have given last week when we presented the Banca Generali transaction is already giving you the lending CT1 at June. So it was in the regional 15. You know that in the last queue we have also the buyback. So on one end we have the production of new capital. On the other end we will have the distribution, the set aside of 70% of the profitability plus the last buyback. So the lending CT1 The landing point in June is in the region of 15. As we generate 250 basis points of capital standalone and 270 with Banca Generali, you understand what can be the impact or the evolution of capital ratio in the year to come, assuming the same dividend policy. In terms of Banca Generali scenario, we have reviewed that the impact is 80 basis points. It's not more than 80 basis points. And we have basically, if I remember well, 50 basis points, between 40 and 50 basis points increase of CT1 every year net of dividend policy. is a bank that will create more capital. So, as I said, 20% in the region of 270 basis points, which is going to be in the region of 50 basis points increase every single year.

Thank you.

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Luigi Libelli from Equitasim. Please go ahead, John, it's now open.

Good morning to everybody. I have four questions. The first one on the numbers. In light of nine months' results, pretty solid, do you expect to reach the mid to upper end of your EPS guidance? And how do you see the outlook for CIB and well management over the coming quarters? The second question on the wealth management, what should we expect in terms of management fees margins evolution for the coming quarters? The third question regarding the offer of Montepaschi, you mentioned high execution risk as well as significant client revenue synergies and retention costs. Could you elaborate on these points and possibly provide some quantification for both? And the last question regarding the Banca Generali transaction, how have your key shareholders feedback to the Banca Generali deal and what have been the main areas of focus in their feedback? Thank you.

Thank you, Luigi, for your question. Guidance is confirmed. With management, we see Flattish margin in the quarter to come, same margin. In terms of the synergies, so we think that the area of the synergies are concentrated in the high end of wealth management and in the investment banking side. We are talking of hundreds of millions. and we think that this is coherent with what we have seen in other situations where a combination, innovative combination and non-agreed deal is happening. Of course, this is going to be much bigger in the case of Banca Generali because today, as I was saying before, Mediobanca has two businesses that are one compass, which is rather isolated compared to this dynamic, and the second is the stake in Banca Generali, which is, of course, managed by third parties. With the Banca Generali deal, we will have basically a vast majority, so 70% of the business, between wealth management and CRE, so two businesses that are made by people and made by retention of people, made by hiring of people, which are going to be very much basically affected by branding, by positioning, by core strategy in terms of new bank strategy, new resulting bank strategy. So we haven't yet factor the synergies associated to Banca Generali consolidation, but you may easily understand that, I mean, having such a big shift or reshape of our profile, it's also bringing additional execution risk into a transaction that is already complex, so managing one integration which is innovative or natural, as we say, is very complex managing tool. I think it's a risk we haven't ever seen in our experience. I think it's a starting point of our engagement with shareholders. We just started, we will continue in the next weeks we see and we hear very positive feedback both in terms of industrial logic and financial profile you have seen that all the three stock went up steadily after the announcement this means that in terms of equilibrium of what we have offered and logic behind this there has been a buy-in as i said before we want to explain in detail this transaction to all stakeholders and gain the maximum support that is possible because we are convinced that this transaction is making a step further, a positive step further, or creating the possibility for a positive step further for all the three companies involved, us, Generali, and Banca Generali.

Thank you very much. Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. We will now take our next question. Please stand by. And the next question comes from the line of Britta Schmidt from Autonomous Research. Please go ahead. Your line is now open.

Yeah, hi there. Good morning. Thank you for taking my questions. I've got a couple related to the outlook for this year. Could you perhaps give us a bit of an idea of the net new money and also CRB revenue trends that you're seeing this quarter, given the volatility in the market? And then the second question, your cost of risk is running significantly better than expected for this year. Is it possible that we're going to see another strong quarter in Q4? You haven't changed your indicated profit outlook for this year despite that. Do you think there's a chance that you could actually do better in Q4 than what is implied in the guidance? And then just on M&A and related factors, there's now been some time since the announcement of the Banca Generali deal. Have you had any sort of discussions or feedback from the Banca Generali minority investors outside of Generali, considering that they are getting Generali shares as compensation and do not participate in the upside of the deal? And then finally, I think you've added quite a lot of financial advisors again this quarter. What are you seeing in terms of trends in the market? And maybe you can give us a flavor as to what type of advisors you're hiring and where you're hiring from. Thank you.

Thank you, Britta. In terms of net-to-money, we confirmed the guidance of staying between $9 billion and $10 billion. We are having a very good sign in the month of April, both in terms of private banking and premier banking. CIB revenues will be dependent from closing of some transaction. As you know, the market is experiencing, or was experiencing, still experiencing a bit of a slowdown. because of uncertainty related to what is happening at the macro level, in particular the trade war. But lately we saw an improvement. And so maybe that we have a bit of a slowdown in terms of closing some transaction. The pipeline remained quite healthy. In terms of core, yes, we continue to see a better core. So we do expect better than expected, better than forecasted core even in Q4. Still have to see whether it is similar to Q3, but better than our budget and target. No, we haven't yet. I mean, both with Generali and Banca Generali, we haven't had interaction as we expected. wait for them to do their internal step. We will, of course, try to understand the different needs that they have at Generali and Banca Generali level. In terms of financial advisor, the numbers are important, but is even more important the quality. We are now recruiting IFA, which are between 20 and 30 million. When we started, you remember, there were more in the region of 10 to 15. So we have two layers on which we work. First, continuing in hiring that kind of IFA. In this trajectory, BG transaction announcement helps. NPS announcement doesn't help. So we have now at least two forces which are basically, you know, making it neutral. And also we have a second layer which is also important to grow net new money, which is working on existing one, which has to go from 10 to 20 million each. And so we are also putting down a stronger program of increase of their AUM.

Thank you. As there are no further questions, I would now like to hand back to Mr. Alberto Nagel for any closing remarks.

Thank you very much for your attention, and we hope you can be there at the Q4 conference call. Thank you very much. Bye.