Unicredito Spa Ord New

Good morning, ladies and gentlemen. Before I hand over to Ms. Magda Palczynska, Head of Investor Relations, a reminder that today's call is being recorded. Madam, you may begin.

Good morning, and welcome to Unicredit's third quarter and nine-month 2025 results conference call. Andrea Urchel, our CEO, will take you through the presentation. This will be by a Q&A session with Andrea and Stefano Porro, our CFO. As always, please limit yourself to two questions. With that, I hand over to Andrea.

Good morning and thank you for joining us. Today, I am proud to present our record third quarter that completes the best nine months in our history. These outstanding results have been delivered thanks to our people. Their professionalism, ownership, passion, determination, and search for excellence of a foundation of everything you will hear today. Our message is simple. Unicredit is about sustainable, best-in-class performance today while steadily building for tomorrow, all supporting best-in-class sustainable shareholder remuneration. We remain proud of what we have achieved and confident in our future trajectory because our strategy works and our execution is unparalleled. This is true across every region and business we operate in. These results mark our 19th consecutive quarter of quality profitable growth and a clear beat across net revenue and all its core components, cost, capital, net profit, and return on tangible equity. It is a quarter that defines great performance, great prospects, and greater returns for our shareholders today and over time. We have reinforced our double-digit growth trajectory in EPS, in DPS, in tangible book per share, while maintaining a return on tangible equity above 20%. We confirm our dividend and share-by-back guidance. We continue to grow in a quality way. Net revenues are up in the quarter and broadly stable over the nine months. This is remarkable macro environment in which we are operating. It shows that Unicredit is capable of growing through the cycle, supported by an increasingly diversified top line that remains highly resilient and will quickly pick up as soon as the impact of a rates decline is absorbed. Costs continue their downward trajectory, supporting a best-in-class cost-income ratio. Efficiency remains excellent with a top-tier net revenue to RWAs. Net profit is up 4.7% in the quarter and 12.9% in the nine months, all at a 22% average return on tangible equity. All our asset quality metrics remain solid and stable. Net NP decreasing. Cost of risk contained with no signs of credit deterioration. overlays intact at 1.7 billion of 40 basis points of yearly cost of risk. A further defense against any future deterioration of our strong asset quality. CT1 ratio remains well above our target range and among the strongest in Europe. Liquidity remains sound with LCR above 140%. Net profit guidance for 2025 remains at 10.5 billion, although we are now considering management actions to be extended to four to further propel our future results, mostly from 27 onward. These actions are focused on investment for growth rather than investment on efficiencies as they were in the past. The early deployment of 6.5 billion of our excess capital and absorption of related upfront costs will add 1 billion of net revenues and net profit by 2027, growing from there, at a fixed capital consumption and largely protected by put options. Residual 2024 share buyback of 1.8 billion will start by the end of October and as early as the end of this week. 9.5 billion in dividends and share buyback for 2025 are confirmed. with an intraday dividend of 2.2 billion paid on 26 of November. Ordinary distribution policy from 26 onward of 80% of net profit is confirmed. This is practically equivalent to a 90% of previous net profit that did not include the impact from investment. Such ordinary distribution may be complemented by excess capital return evaluated yearly as we did in the past. The Italian government has released a draft bank levy. It is premature to assess its impact as it is still under discussion. Unicredit will dilute any hit thanks to our geographic diversification. As always, we will do our best to minimize its impact on Unicredit, our shareholders, our people, and our clients. We will release more detail once this is finalized. Our performance this quarter further strengthens our unique equity story, one of the most compelling in European banking. We're delivering beyond what we promised. We have further strengthened our earnings and dividend and capital deployment trajectory as we accelerate the execution of our winning strategy, building even greater confidence in the sustainability of our performance. Our equity story is rooted in our DNA of excellence, something that sets us apart from our competitors. It enables us to deliver consistently in the short term while building long-term sustainable value for our shareholders. This performance gives us a foundation and the confidence to outperform in phase two of our strategy, accelerating growth, driving efficiency further, and innovating to meet the challenge of fintechs. Our capital allocation decisions are a core element of our equity story. and remain measured, disciplined, and entirely aligned with the objective of long-term value creation. This year, we have deployed 6.5 billion of excess capital, well ahead of our plan, in a way that enhances our standalone trajectory and grants strategic optionality. The equity consolidation of our stakes in Commerzbank and Alfa, following the internalization of life insurance in Italy, the combination with Alfa Bank in Romania, and the acquisition of Vodeno Ion delivers significant immediate value and improves our geographic and client mix. This capital has been deployed at an approximate 20% return on investment, roughly twice the current return on our share buyback, and around two and a half times the implied return of purchasing Commerce Bank or Alpha shares at current market prices. We're securing structurally higher net profit through the cycle, propelling sustainable higher dividends and share by backs with per share and return on tangible trajectory at the top of the peer group. We confirm 2027 guidance for net profit to well above 11 billion. We have combined preparation with opportunity and seized the right moment to maximize shareholder value. Distribution can reach shareholders in two ways. directly through dividends and indirectly through capital deployment that in turn enhances future earnings and dividend per share. Dividends remain sacrosanct. Real cash returned directly to our shareholders generate an attractive dividend yield. Capital deployment, putting aside business growth and M&A, can take two complementary forms, share-by-backs and share-by-outs. Strategic. Both credits create value. increasing earnings and dividend per share. The difference lies in how they do it. Share by backs reduce the denominator. Share by outs enhance the numerator. If we compare the position before and after our $6.5 billion share by out, we have significantly increased the total value created for shareholders above and beyond what was expected and would have been possible with share by backs. Above and beyond the significant improvement in the underlying performance, the equity consolidation of our stakes has further strengthened our outlook for 26, 27 and beyond. Based on Commerce Bank and Alpha earnings consensus and net of hedging cost, we expect around one billion contribution of fully distributable net profit by 27, thereby significantly improving our net profit return on tangible equity, EPS, DPS, tangible book value per share, vis-à-vis what was previously expected. Our change in distribution policy is a natural evolution in our journey. Previously, we guided on total distributions, including excess capital, at equal or above 90%. From 26 onward, With excess capital now aligned to our best, strongest peers, we're guiding to ordinary distribution at 80% of net profit with excess capital return to be evaluated yearly. This change enhances value for shareholder. The 80% ordinary payout applied to a circa 10% higher earnings and organic capital generation. practically equivalent to the 90% before. Any excess capital return or deployment is on top. Shareholders now gain greater quality clarity and predictability and greater dividend versus share-by-backs, with future distribution more underpinned by sustainable profitability rather than extraordinary return of excess capital through share-by-backs. Our DNA truly sets us apart. It defines who we are, how we perform, and the attraction of our differentiated model. It is built on three essential elements that together make Unicredit unique in Europe. We are the pan-European leader, uniting 13 banks plus one, leading in their markets. Institution that in most of our markets are not only leaders, but often synonymous of banking itself. More than 20 million clients to whom we offer best-in-class solution and a single getaway to Europe. We have harnessed this unique pan-European model, maximizing local empowerment while leveraging our combined scale in strategic partnership, in talent, in technology, in data, in AI, in product factories, in procurement, thereby making the group much more valuable than the sum of . In doing so, we have achieved our ambition for Unicredit's model to become the benchmark for banking in Europe, redefining what best-in-class across profitable growth, operational and capital efficiency, distribution, and strengths look like. And we innovate, striving to anticipate market trends continuously investing in people, in technology, data and AI, products and distribution channels, aiming to lead in the future while delivering short-term results. These three elements, pan-European leadership, benchmark for banking, and innovation form our DNA. They are the foundation on which we deliver today and build for tomorrow. Together, they are what makes our outstanding performance sustainable. and what provides us unmatched ability to create value to other banks that wish to join our group. The first trend of our DNA, the one that makes us truly unique, is our pan-European nature. Our strength lies in our ability to bring together more than 20 million high-quality, loyal clients through our 13 plus 1 leading commercial bank, with commanding market share in the most profitable and value-accretive segments in each market. We do this through a common vision and strategy supported by shared product factories, increasing the shared technology and data platform, shared procurement, and the strengths of a combined balance sheet. We have created a scale advantage for all our banks, enabling them to leverage the group. At the same time, they use our pan-European network to offer unique products and services, from trade finance to cross-border flows, on a level that few can match. This combination of scale, connectivity, and client quality makes Unicredit the partner of choice across Europe, a competitive edge that is difficult to replicate. And that advantage translates directly into irreplicable and resilient revenues quality NII and fees, and a strong foundation for future growth. Because of our success in truly leveraging our European network, the second interconnected strand of our DNA is that we are and strive to continue to be a benchmark for banking. Over the past few years, we have identified and executed a transformation blueprint that many thought impossible and now many are trying to replicate. we have shown that a large multi-country complex institution can be simplified, can be empowered, can be brought together, and made more efficient and more profitable than others. In the first phase of our transformation, we unified the group on the one purpose, one vision, and one set of values. We empowered our banks and our people, simplified our structure, and strengthened our ownership. And we rebuilt the trust and passion critical to making the impossible possible. We increasingly leveraged our scale by integrating partnership, digital and data capabilities, procurement and product factories on the one common model. We invested in our people, in our technology, data and AI, product factories and distribution channels, building the capabilities and infrastructure needed for long-term success. This transformation worked and is still ongoing. We delivered sector-leading efficiency, both in how we operate and reward capital, while securing top-tier net revenue growth and moving our return on tangible equity from the bottom of the pack to the top. Our shareholder returns have been among the best in Europe. Such was the success of phase one that we were now able to seamlessly move to phase two, continuing to execute our multi-year transformation blueprint. Phase two further emphasizes the focus on the frontline, on the top line, accelerating our profitable commercial growth in a targeted fashion while continuing to improve our operating model. We're moving forward with a clear set of initiatives, all designed to drive quality scale and long-term value. Our focus is sharper, our execution is faster, and our ambition is higher. We're directing capital and resources towards the most attractive opportunities, the right geographies, the right client segment, and the right product areas, ensuring every euro we invest delivers the highest possible return. We're expanding our product factories, deepening integration between them and our commercial banks, and capturing more of the value chain. We're accelerating in SMEs and private and affluent, where our franchise is strongest, and our potential greatest. At the same time, we are transforming how we serve clients, moving decisively towards an omnichannel model that seamlessly combines physical and digital, giving every client the best experience Unicredit can offer. And as always, our people remain at the heart of everything we do. We continue to increase the level of empowerment of our talent, the building of new skills, and the creation of an environment where innovation, ownership, and collaboration drives result. Phase two is about turning a proven blueprint into a compounding engine of growth, maintaining the efficiency, discipline, and strengths that defines Unicredit today. The third strand of our DNA, the one that defines our future, is innovation. We're not only building the future of Unicredit, We're helping to shape the future of banking in Europe through our 13 markets. Innovation for us is not an add-on. It is a mindset, part of how we work every day, seeking to extract value from it. We have invested in a proprietary cloud-native core banking platform through our acquisition of Vodeno. Bringing together best-in-class technology and AI, we scaled to create a modern, agile foundation for the bank of tomorrow. We have brought in more than 200 outstanding engineers acting as an internal sandbox to support the modernization of our entire group. We are investing in data and AI at scale, using them to transform how we serve clients, how we manage risk, and how we operate. We have over 140 use cases currently alive and many more in development. We continue to innovate in the way we serve clients, letting them choose among our omni-channel. As an example, Badi, our digital branch in Italy, onboarded 300,000 new clients in the nine months, reaching almost 800,000 clients. We're also carefully but actively shaping the future of digital assets in Europe, combining prudence and responsibility with innovation as we explore new frontiers in tokenization payments, and secure digital value. And our innovation is not limited to technology. In an environment of accelerated change, we're innovating in how we develop and reposition our people, our talent, in how we work and lead, empowering our people, promoting collaboration across border, and creating an environment where ideas thrive and execution accelerates. Innovation is how we build the future for our clients, for our people, and for our bank. And crucially, this innovation is self-financed, made possible by the efficiencies and the profitability we have already achieved. The success of our strategy and our unique DNA are clearly reflected in today's results. We mark the 19th consecutive quarter of profitable growth, underpinning the best nine months in our history. It is proof that Unicredit has fundamentally transformed into a stronger, more resilient bank. We have outperformed across all key metrics, demonstrating consistent execution and the power of our model. Net revenues remain resilient. driven by better than expected NII net of loan loss provision. We look at it that way as NII cannot be separated from loan loss provisions. Robust fees now including the internalization of life insurance in Italy, stronger contribution from investments that become a further core engine of our future net revenue growth, trading but while temporarily affected by negative one-offs, still shows good underlying client-driven dynamic. These results underline the quality and increasing diversification of our top line. Operational excellence remains one of Unicredit's key differentiators. Costs fell again in the quarter and were broadly flat over the nine months. a remarkable achievement given the integration of new perimeters and continued investment in technology, people, and growth. Our cost-to-income ratio remains among the very best in Europe. Capital strength is confirmed not only as an absolute number, but also given our superior organic capital generation now in line with net profit. Net revenues on RWAs remain strong. As a result, Unicredit's profitable growth remains best in class. Our top line remains resilient, with each one of its drivers performing better than expected. For the first nine months, net revenue stood at $18.5 billion, broadly stable despite headwind from lower rates. In the third quarter alone, net revenue reached $6.1 billion, up 1.2%. NII net of LLPs declined 4% in the nine months and 4.2% in the quarter, with cost of risk remaining benign at 10 basis points and NII, gross NII, performing better than anticipated at the beginning of the year. Margins were stable and loans grew circa 2% versus Q3 2024, end of period, partly offsetting the rates decline. Net NPE and default rate both improved to 1.4 and 1.1 respectively, confirming sound asset quality and coverage. We kept overlays unchanged at around 1.7 billion. NIROC at 19.2% remains best in class. Fees and insurance income, which benefited from the internalization of light insurance and strong investment product performance, continues to grow. reaching 6.6 billion for the nine months, up 4.9%, and 2.1 billion in the quarter, up 7.6%. Investment contributed 693 million for the nine months, up 84%, and 248 million in the quarter, up 64%, mainly from the equity consolidation of Commerce Bank. While 25, the contribution of investment is offset by negative trading costs hitting the trading line, from 2026 onward, they will significantly propel our top line. Together, all this reinforces the sustainability of our earnings mix with fees and insurance, income representing a top-tier share of revenues, trading performance, of 1.3 billion for the nine months, down 10%, was negatively affected by one-offs from the mentioned equity consolidation. Trading was up 4% in the quarter. Underlying trading remained solid and client-driven. This diversified revenue base across products, geographies, and client segments ensure that Unicredit remains well-positioned to deliver quality growth, even in a challenging environment. Our operational efficiency continues to set the benchmark. Costs were broadly flat over the nine months and in the quarter, fully absorbing the integration of Vodeno Ion, life insurance in Italy, and Alfa Romena, as well as inflationary headwinds. Our cost-to-income ratio remains among the lowest in Europe at 36.8% in the nine months and 37.1% in the quarter. This reflects our ability to simplify, streamline, and automate while supporting rather than hindering our top-line growth. Our continued efficiency also allow us to invest wisely in people, in technology, in products and channel to make us ready for the future. This is a tested blueprint, streamlining where it matters, investing where it counts, and delivering operational excellence while laying the foundation for long-term growth without hindering present results. Our capital and capital efficiency remain best in class. Net revenue to RWA was broadly flat at 8.6% in the nine months and 8.4% in the quarter, notwithstanding the significant impact on NII from rates. Organic capital generation continues to be a key strength. We generated 7.9 billion, 283 basis points, allowing us to accrue 100% of distributable net profit as dividend and share buyback, most importantly, without denting our overall capital position. Our CT1 ratio stands at 14.8%, down 120 basis points due to the equity consolidation of Commerzbank. The regulatory impact of 14 basis points was almost entirely upset by other drivers. On a pro forma basis, our CT1 is down to 14.6% due to the equity consolidation of the 26% of alpha stake, partly offset by the Danish compromise impact related to the life insurance internalization in Italy. We continue to deliver quality, profitable growth underpinned by strong operating performance complemented by one-offs, with net revenue, cost and capital all better than our expectations. We are not just growing, we are growing with discipline. Our model continues to prove its strengths, delivering growth, profitability, efficiency and capital strengths and outsized distributions all at once. Italy continues to be our quality earnings powerhouse. accounting for 44% of group net profit. Net revenues are down 1.7% to $8.1 billion. NII net of LLPs declined 5.1%, primarily reflecting rate normalization, only partially mitigated by disciplined pass-through management and benign cost of risk at 22 basis points. Asset quality remains robust. with stable coverage and decreasing default rate. Gross and net NPE ratios were broadly stable at 2.7% and 1.5% respectively, adjusting for state guarantees and considering Italian overlays, the net NPE ratio of Italy drops to zero. NII ROAC remains strong at 23.2%, thanks to our focus on margin over volume and targeted origination. Fees and insurance income grew 4.7%, reaching a top-tier 42% of revenues, driven by investment products up 7%, the contribution of life insurance internalization and benefiting from one-off incentive scheme effect on payments. Costs were down 1.7% to 2.9 billion in Italy, bringing our cost-income ratio to 34.1%, the best in the country. Net revenue on RWAs remained broadly flat at 10.4%, also the best in Italy. Profit before tax, excluding one-off, rose 2.4% to 5.1 billion, with ROAC stable at above 32%, reinforcing our market leadership. Italy exemplifies our strategy in action, focusing on quality, efficiency, and discipline growth. Its performance underlines the strengths of our model and its ability to deliver across cycles. Germany continues to be a resilient anchor, accounting for 22% of group net profit. Net revenues are up 2.4% to 4 billion. NII net of LLPs grew 1% thanks to discipline pass-through, the anticipated effect of trading normalization, and a declining cost of risk at 14 basis points. Asset quality remains solid, with overlays broadly intact. Net NP ratio is down to 1.4%, with stable coverage and default rate decreased. We keep strong attention to single file, given the corporate nature of our bank. NII ROAC remains strong at 21%, reflecting our focus on margin over volume and selective origination. Fees and insurance income grew 0.9%, reaching 31% of revenue, driven by investment products up 11%, partly offset by weaker financing activity. Costs were down 2.8%, bringing our cost income ratio to 37.6%, the best in Germany. Net revenue on RWAs at 8% confirmed strong capital efficiency. Profit before tax at 2.4 billion is up 7.2%, with ROAC at 23.4%, reinforcing our market leadership. Germany is a clear example of our ability to consistently deliver through disciplined execution. Its performance highlights the strengths of our diversified model, with resilience, efficiency, and capital discipline driving record profitability and reinforcing our quality leadership in the market. Austria continues to be a resilient anchor, accounting for 12% of group net profit. Net revenues are down 1.4% to $2 billion. NII net of LLPs declined 5.7%, only partially mitigated by loan growth at 1.3% at stable margin. Asset quality remains solid with overlays intact. Net NPI ratio is down to 2%, with stable coverage and default rate further decreased. NII ROAC at 14% confirms discipline origination. Fees and insurance income grew 5.2%, 8.2% excluding card-complete disposal, reaching 31% of revenue, supported by advisory and financing and strong investment products up 10%. Costs were broadly flat, bringing our cost-income ratio to 38.9%. Net revenue on RWAs at 6.7% confirms strong capital efficiency. Profit before tax at 1.2 billion, down 3.8%, broadly flat, excluding the new bank levy, with ROAC at 22.8%, reinforcing our profitability leadership in Austria. Austria showcases the power of our focus strategy, combining profitability efficiency, and prudent risk management. Its performance confirms our ability to lead in corporate lending while maintaining exceptional asset quality and strong return. Central and Eastern Europe continues to be our growth engine, accounting for 22% of group net profits. Its role as a key profitable growth driver will fully emerge once its cost of risk fully normalizes. Net revenues are up 1.7% to 3.5 billion. NII net of LLPs declined 4%. The strong loan growth of 13.5%, including the contribution from Alfa Romania, 8.5% without, was able to only partially mitigate the expected rates decline and Central and Eastern Europe cost of risk increase at five basis points from minus 25 basis points as it gradually normalizes. Asset quality remains solid with net NP ratio stable at 0.9%, growing coverage ratio at above 64% and default rate stable. NII ROAC remains strong at 24%, confirming discipline margin management. fees and insurance income grew 13.3%, reaching around 29% of revenues, supported by broad-based contribution across countries with particularly strong performance in advisory and investment products up 24%. Cost increase, 12.4%, 2.7% on a constant perimeter, so excluding Alfa Romania, bringing our cost income ratio to 33.8%. Net revenue on RWAs at 8.5% confirms strong capital efficiency. Profit before tax at 2.1 billion, down 1.8%, with ROARC at almost 30%. CEE continues to demonstrate the success of our growth strategy with broad-based momentum across countries and products. Its performance underlines our ability to scale profitably diversify earnings, and deliver sustainable value across the region. Our Russian bank is now a highly focused franchise. Local loans and deposit account both less than 0.5% of groups. Cross-border payments, focused on now Euro and US dollar, account for less than 2% of group. No cross-border lending exposure remains, and a positive liquidity contribution from Russia to the rest of the group still exists. We have achieved this significant reduction at minimum cost, both in the interest of our shareholders and in adherence to the spirit and law of sanctions. Our Russian bank is reinforced and operates strictly within all legal and regulatory requirements. This franchise is managed in a controlled and disciplined way, ensuring stability and compliance while minimizing risk. The exposure on CD1 from extreme loss scenario has declined from circa 130 basis points to circa 80 basis points, mainly connected to retained earnings. Client solution remains a cornerstone of leveraging group scale. Product factories that support our banks and our partners in delivering capital-light, fee-driven growth while also accelerating their NII from specialty areas. Net revenues reached $9 billion, up 7%, and fees $6 billion, up 4%, confirming the strengths and diversification of our product portfolio. Investment products delivered record performance with fees up 9% to 1.9 billion and AUM and AUA up 14% to 186 billion. Our one market funds reached 28 billion up 68% year over year, supporting the internalization of almost 80% of our value chain still going. Insurance has become a major growth pillar, with fees and insurance result up 12% to 700 million. Following the internalization of life insurance, we are now the fourth largest player in Italy, with 46 billion in reserves. Payment fees were up 2%, also benefiting from timing of yearly incentive paid in Q3. In a segment affected by headwind, such as new regulation on instant payment, this is a great result. We are top three in four European markets in issuing and acquiring, and we're awarded the best cash management bank in seven countries by Euromoney. Advisory and financing maintains a top three position in bonds and loans by fees in Italy and in Germany. Client risk management was up 13%. and reached a return on allocated capital of 43% driven by high quality client-centric activities. Trade and correspondent banking remains a leader with top three position in every country in which we operate and a cross-border market share five times higher than any domestic one. These factories are client-centric and scalable. a key driver of our unlocking acceleration strategy, enabling us to retain more of the value chain. In conclusion, we have delivered another record quarter, completing the best nine months in Unicredit history. These marks are 19th consecutive quarter of quality, profitable growth, and a clear beat across all our KPIs. Our strategy is working. We're leveraging our unique DNA as a pan-European leader, serving a high-quality client base through 13 leading banks and one partner, demonstrating the validity and the strength of our unique model, as we also stand as a benchmark for banking. We're sustainably accelerating growth well ahead to what we expected at the beginning of the year, relentlessly executing while continuing to invest and innovate for the future. We have reinforced our double-digit growth trajectory in EPS, in DPS, in tangible book per share, maintaining a return on tangible equity greater than 20%. This places us in a leading position now and in the future. We have reinforced our expected distribution with higher dividend and ordinary share by backs, placing us again at the top of the peer group for the 2025-2027 period and beyond. Unicredit continues to create superior value for all stakeholders, delivering this quarter a great performance with great prospects and great present and future shareholders' returns. and is today stronger, more resilient, and better positioned than ever. Thank you, and we will now open to questions.