Intesa Sanpaolo SpA

MIL:ISP

Q1-2025 Earnings Call

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the First Quarter 2025 Results hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Razia, and I will be your coordinator for today's conference.

[Operator Instructions] You are kindly invited to ask no more than two questions to leave room for the other participants. In case of additional questions, the IR team will be at your disposal after the conference call. I remind you all that today's conference is being recorded. At this time, I would like to hand the conference over to Mr. Carlo Messina, CEO. Sir, you may begin.

[Carlo Messina, executive]

Welcome to our first quarter 2025 results conference call. This is Carlo Messina, Chief Executive Officer. I'm here with Luca Bocca, our CFO; and Marco Delfrate; and Andrea Tamagnini, Investor Relations officers. We just delivered our best ever net income at more than EUR 2.6 billion, that means an annualized return on equity of 20%.

This is an outstanding start to the year, and we confirm our net income guidance for 2025 of well above EUR 9 billion. We are navigating the current market volatility from a position of strength, thanks to our resilient, efficient and well-balanced business model. I want to stress that the Italian economy continued to show strong resilience. Italian SMEs are much stronger than in the past, and public and EU-driven investments are supporting growth.

Intesa Sanpaolo offers one of the highest dividend yields in European banking. And this year, we will return at least EUR 8.2 billion taking into account the main dividend, the June buyback and the interim dividend in November. Additional capital distribution will be quantified at the end of the year. In Q1, we increased our Common Equity Tier 1 ratio by 45 basis points, confirming strong capital generation capabilities.

On the tech side, our digital bank right now has 1 million clients with a strong acceleration in Q1. Our tech investments are also enabling the generational change of our workforce and significant efficiency gains. We are delivering strong internal synergies without the need for acquisitions, avoiding related risks.

I'm proud of our results and thank our people for their excellent contribution. Let me underline that our strong profitability allowed us to continue holding a world-class position in Social Impact. Now let's turn to Slide 1 for the key achievements of the quarter. Slide 1. In Q1, we delivered record high net income with strong growth in commissions, the lowest ever cost income ratio.

NPL ratios at historical lows, significant increase in common equity ratio and high and sustainable value creation. Slide #2. In this slide, you can see the strong and consistent growth in net income. Slide #3. We delivered a 20% annualized return on equity and a significant increase in earnings per share, dividend per share and tangible book value per share.

Slide #4, as already said, we confirm our full year net income guidance of well above EUR 9 billion. Slide #5. Our excellent and sustainable performance allow us to benefit all our stakeholders and strongly support the fight against poverty and inequalities. Let's now move to Slide 7 for a closer look at Q1 results. Slide 7. In a nutshell, in Q1, net income was up 14% year-on-year.

We accrued [ EUR 1.8 billion ] in cash dividends. We delivered the best Q1 ever for revenues. Costs were down and asset quality remained excellent. Slide #8. In this slide, you have the detailed P&L for the quarter showing good results across nearly all items. Slide #9. In Q1, revenues were up both quarterly and yearly driven by commissions.

Slide #10. The quarter-on-quarter decline in net interest income was more than offset by higher profits from financial assets that act as a natural hedge against the impact of lower rates. As usual, we managed revenues in an integrated manner. Slide 11, the slide provides more detail on the net interest income evolution.

In Q1, decline was due to the reduction in Euribor, fewer days in the quarter and seasonality in NPL. We confirm our 2025 guidance at a level higher than 2023. Slide #12. Customer financial assets were up EUR 45 billion on a yearly basis. In Q1, we had EUR 33 billion in gross assets under management inflow, and we can count on our unmatched client and advisory network with 17,000 people dedicated to fueling assets under management growth, reaching 20,000 people in 3 years.

EUR 900 billion in direct assets -- in direct deposits and assets under administration will fuel our Wealth Management Protection & Advisory businesses. Let's now move to Slide 13. In Q1, commissions were up 7% yearly with an 11% growth in Wealth Management & Protection. Our top-notch advisory services are a stabilizer for the impact of market volatility on fees with 38% growth year-on-year in related additional commissions and our fully owned product factories are a clear competitive advantage.

April was another good month for growth -- for gross asset under management inflow. Slide 14. Non-motor P&C contribution was the main driver for insurance income growth, and we still have significant upside potential. Slide #15. The contribution from commissions and insurance income through revenues is by far the highest in Europe after UBS.

Please turn to Slide 16. The cost/income ratio was the best ever at 38%, thanks to both revenue growth and decreasing costs. Please turn to Slide 17 for a closer look at costs. Slide 17. Operating costs were down 2.7% when excluding the impact of the national labor contract renewal and depreciation linked to tech investments. Administrative costs decreased by 1.1%.

Last but not least, we achieved almost 3,000 headcount reduction in Q1. Slide #18, we have high flexibility to reduce cost further, thanks to our tech transformation. In 3 years, we will have 9,000 exits at no social cost and with savings of EUR 500 million. Let me highlight that 9,000 exits are equal to the ones we saw with the UBI merger.

Slide #19. We already have a best-in-class cost-income ratio in Europe. Let's move to Slide 20 for a look at our asset quality. Slide 20. Gross NPL stock decreased EUR 200 million on a yearly basis, and the net NPL inflows remained at historical lows. Also, Stage 2 loans decreased 8%. Slide 21, our NPL stock ratios are among the best in Europe.

Slide 22. As you can see, we are also very well positioned in terms of Stage 2. Slide 23, our annualized cost of risk was only 21 basis points with increased coverage and no overlays released. We see no signs of asset quality deterioration. Slide 24. Quarter after quarter, we keep reducing our Russia exposure down to less than 0.1% of the group's total loan with local loans close to 0.

Let's move to Slide 25 for an update on capital. Slide 25. In Q1, the common equity ratio increased by 45 basis points to 13.3% and with further increase in the coming quarters. We clearly have significant excess capital, giving us great flexibility for additional distribution. In the next 3 slides, you have the usual update on our sound liquidity position and ESG actions with additional slides on our leading ESG position in the appendix.

Let's move to Slide 30 to see how ISP is fully equipped to succeed in any scenario. Slide 30. Our profitability and capital position remains strong even under adverse conditions. We have a very resilient business model with a low cost-income ratio, and we have already deployed EUR 4.4 billion in tech investments, a key enabler for further efficiency gains.

Our net NPL stock is just EUR 5 billion, and we can count on EUR 900 million in overlays. Last but not least, the management team has a strong track record in delivering results. Slide 31. Intesa Sanpaolo stands out across key metrics and is better positioned than peers to face any future challenge. Slide 32. In this slide, you can appreciate our unique positioning, thanks to our commissions-driven and efficient business model supported by strong tech investments.

Let's move to Slide 33 for a few words on the strength of the Italian economy. The Italian economy remains resilient, supported by export-oriented, resilient and highly diversified companies, a strong banking system, high household wealth and low private debt, unemployment at the lowest level in over 40 years and continued new public investments and also stability in the government.

We expect Italian GDP to grow this year and next. In this slide, you can see that Italian companies are in a stronger position and more resilient to external shocks today compared to the past. Their debt to equity ratio has decreased over time and their liquidity buffers are at all-time highs.

Please turn to Slide 36. This slide offers a recap of our best-ever quarter and the reason why we are fully equipped to succeed in the future. To finish, please turn to Slide 37 for the outlook. For 2025, we confirm our net income guidance of well above EUR 9 billion, a level we consider fully sustainable in the years ahead.

As always, we will continue to manage revenues in an integrated manner, maintaining a strong focus on cost efficiency and asset quality. We are delivering one of the highest dividend yields in European banking while maintaining rock-solid capital and continue to lead on social impact. Additional capital distribution will be determined at the year-end.

Thank you for your attention, and we are now happy to take your questions.

[Operator]

[Operator Instructions] You are kindly invited to ask no more than two questions to leave room for the other participants. In case of additional questions, the IR team will be at your disposal after the conference call. We are now going to proceed with our first question. The questions come from the line of Antonio Reale from Bank of America.

[Antonio Reale, analyst]

It's Antonio from Bank of America. Just a couple of questions for me, please, one on the outlook for loan growth and one on fees. Starting with the first one. Well, lack of growth in Italy remains a drag on banks' operating performance. So I'm wondering what will it take in your view for a bank like yours to be able to divert the current trend and start showing some loan growth going forward? That's my first question.

And secondly, you've had a strong start of the year in fees. We've seen strong inflows driving placements up quarter-on-quarter. Now markets are always difficult to predict, and we've seen the tide turn somewhat at the beginning of April. So I'm wondering to what extent you can share additional color versus how much of the Q1 performance in fees you think can be sustained going forward?

[Carlo Messina, executive]

So thank you, Antonio. For the loan growth, we have just to start talking about the financial conditions of the Italian companies because Italian companies, as we have in a slide in the presentation, a significant amount of deposits placed with the banking system. So in conditions of uncertainty, they prefer to reimburse loans using their deposits.

So there's no significant evidence that there could be a reduction for the future in terms of investments.

In my opinion, Italian companies are starting again to make investments. The medium long-term loans are growing and the acceleration could be part of a story for the next quarters and especially in the second part of the year in which we will have the acceleration of the usage of the next-generation EU funds. So my perception is that there will be a rebound in the second part of the year.

For this first quarter, there is also, in my opinion, for the short-term lending, some -- especially in Intesa Sanpaolo some point of attention that we decided to place on the pricing embedded in transaction in the markets because a lot of players that are involved in two M&A transactions decided to increase the size of their balance sheet, and it is obvious in conditions in which you are fighting for having positive results in an M&A transaction.

But in my way -- in my understanding and what we decided to do is not to follow mispricing in the market. So for Intesa Sanpaolo, there's also a technical reason that produced also some impact on the net interest income in our first quarter. We decided not to follow the market when the market is moving in a mispricing approach in the first quarter.

But looking at the trend, my expectation is that in the second part of the year, we can have a clear recovery in terms of loan growth, I'm talking about corporate. If you look families, mortgages are running in a good way and with the reduction of interest rate, there could be also an acceleration in the second part of the year. So net-net, our expectation is to have a recovery in term of loan in the second part of the year.

And you have also an evidence of this in a potential growth that we have considered in our risk-weighted assets in the last part of the year because in our outlook for the common equity for the end of the year, we decided to be very conservative in terms of risk-weighted assets because we expect to have a potential growth in the second part of the year in terms of the loan book.

Looking at fee and commission, fee and commissions, obviously, for us are a component that is strategic in the medium, long term. We started in this quarter with an action not to put so much emphasis on a portion of deposits that could be considered just placed in the deposits on a temporary basis. So we decided to accelerate conversion of this portion.

And that's the reason why we had an acceleration in terms of reduction of deposits and increase in terms of assets under management and assets under administration. We are accelerating in terms of gross inflows that are the inflows in which we generate a commission. So it's more important month of April, that has been obviously a month with a lot of uncertainty, we maintain the trend of the first 3 quarters.

That is the evidence that our delivery machine is absolutely able to perform in any kind of condition of scenarios. And our expectation is to continue to have this very good trend in terms of growth of fee and commission correlated with the Wealth Management & Protection business.

At the same time, in the second part of the year, we will have also an acceleration in terms of commercial commissions because with the reduction of the loan book, we received minor contribution this quarter, but this will accelerate in the second part of the year and also commission related with transaction banking and corporate investment banking will accelerate in -- starting from next quarter.

So our expectation from fee and commissions income remain very positive. And for the area of Wealth Management & Protection, we expect to have at minimum a double-digit growth in terms of fee and commissions.

[Operator]

The next question comes from the line of Delphine Lee from JPMorgan.

[Delphine Lee, analyst]

My first one is just to go back to net interest income. So I just wanted to double check in terms of assumptions for this year. What kind of expectations you have for deposit cost in terms of decline and also the contribution from the replicating portfolio or your core deposit hedging portfolio because it seemed to me that the acceleration for now that you're expecting for NII in the next few quarters seem to be mostly loan-volume driven.

Just wanted to confirm these different moving parts. And my second question is on fees and commissions. Is your assumption for '25 when you talk about net profit above 9%, still mid-single-digit growth for fees?

[Carlo Messina, executive]

Thank you, Delphine. So looking at the first question on net interest income, I will give you not only a trend for the next quarters but also I want to make some explanation of what happened in the first quarter. Just to give you the full picture on what we are managing, what -- how we are managing the net interest income in this quarter and what we expect for the next quarter because we decided looking at the very good performance that we had at the starting point of the quarter on the trading income, we decided not to push on areas of net interest income that, as I told in the previous answer, are in mispricing conditions looking at the market in Italy.

So I'm referring on the incremental loan book that is affected by this condition of fighting between different banks in the country. So we decided to wait and see and wait for the next quarters in order to accelerate also in the short-term lending. At the same time, the kind of attitude of some banks trying to pay deposits in a much higher way because again, being under M&A deal, they want to increase the size.

We decided to accelerate some conversion of retail deposits offering asset under management and asset under administration product. It was something that was planned for the second quarter of the year, but we decided to accelerate in the first quarter. So this created some condition of having a lower level of net interest income in comparison with our original expectation for the first quarter.

At the same time, [ the trading ] profit, so the ability of our people to realize trading profit means that we reduced for some months an amount of government bonds that were producing good net interest income. So in the first quarter, we had some like -- a transitory quarter in terms of preparation for the next quarters. Now at the end of the quarter, we increased the amount of the security portfolio, so reaching an increase of EUR 15 billion in comparison to the end of the year.

So we start the second quarter of the year in a very good condition, looking at the financial portfolio. At the same time, the area of retail deposits that could be under some threats to be part of acquisition from other banks are now placed in assets under management and assets under administration. So we can manage in the usual way the deposit part of our portfolio, that will have a reduction.

At the same time, just let me add, during this quarter, we had some expiring wholesale funding that will be not replaced. So during 2025, we will have some -- more than EUR 10 billion of wholesale funding that will be not replaced. So just to give you the idea that in terms of trend from the next quarters, we will have a clear negative that will be marked down because for the reduction of Euribor, but at the same time, we will have all positive coming from the wholesale funding cost, medium term.

This will be positive in the expectation for the next quarters. We will have a clear recovery in terms of loan book. We will have a positive contribution from the security portfolios. We will not have the negative impact coming from NPL, and at the same time, the replicated portfolio, so the hedged facility will gain momentum and will bring an increase on an annual basis of more than EUR 600 million contribution to our net interest income.

So our forecast is to have net interest income that can exceed the 2023 levels. The final point, obviously, will depend also on the security portfolio and the linkage that we have with the trading income, but our expectation is that now all the moving parts apart markdown could be positive in the trend for the net interest income.

This is -- that's the reason why we decided to put emphasis on the confirmation that we will be above 2023 level of net interest income. And our expectation is that if we can accelerate in some areas, we can give very good performance also quarter-by-quarter. Also, if we have Euribor trending on an average of 2% for 2025. And also in case this net -- this Euribor can trend also below 2%.

So that's our expectation. At the same time, on fee and commissions, our expectation is to have a clear double-digit growth in all wealth management and insurance commissions, the other commission will be low mid-single-digit growth. Net-net, our expectation is to be in the middle between the trend of wealth management and all the other commissions.

So to have a good performance in terms of fee and commission. And at the same time, sorry to add those at this point. On trading profit, our expectation is to continue to have a very good performance. That's the reason why we think that revenue increase could be absolutely achievable in 2025 in comparison with 2024.

[Operator]

Our next questions come from the line of Andrea Filtri from Mediobanca.

[Andrea Filtri, analyst]

Could you please update us on the NII sensitivity through this quarter onwards? And if you could please give us some color on the NII trends in the divisions. I noticed, for instance, a very strong quarterly NII in the Banca dei Territori versus a very weak number in the corporate center. I don't know if there has been some sort of reclassification or if you can explain the drivers behind these performances.

[Carlo Messina, executive]

Yes, Andrea. I will start from divisions because it is something that it is correlated with the planning and control system because we use the Euribor in -- just to evaluate the different business unit and Banca dei Territori has a positive contribution because they have an advantage coming from the internal transfer pricing.

The reality is that in both divisions, so in Banca dei Territori and in Corporate & Investment banking divisions, you have a reduction. So the reduction is not in a substantial part in the corporate center. The Banca dei Territori is obviously linked with the markdown situation, the Corporate & Investment Banking is linked with the loan book because the majority of this mispricing is happening as I mentioned at the beginning of the call.

So the fact that we decided to stay away from some [ financing ] in the first part of the year is mainly concentrated in the Corporate and Investment Banking division. Looking at the sensitivity, the sensitivity today is obviously, we are talking about the mathematical so the risk management sensitivity, we are talking about for each 50 basis points, a reduction of EUR 12 million. So it is really negligible, in reality. This figure are, in my opinion, probably optimistic because the real conditions considering not only the theoretical movement could be much higher than this. But from the figures is

[Audio Gap]

[Operator]

The next questions come from the line of Pamela Zuluaga from Morgan Stanley.

[Pamela Zuluaga, analyst]

You've shown a recovery in insurance income driven mostly by P&C growth. Could you also share with us, please, how the life business is performing and how you expect it to evolve? I was thinking that most of the policies in terms of rights are related to the life business. So I was wondering if you've seen persisting headwinds maybe on the life segment that have encouraged you to prioritize P&C.

And then the second question is, could you give us some color on the specific trends you're observing in the asset management business? More specifically, last quarter, you mentioned that you were implementing commercial actions to boost inflows. What have you been able to implement so far? And how is it impacting margins?

[Carlo Messina, executive]

So looking at the property and casualty business in this quarter, we had positive trend, both on property and casualty and on life insurance. Life insurance is recovering from a portion of 2024 in which they had not such a very good performance. Our expectation, property and casualty obviously, is mainly linked with the acceleration in terms of penetration of clients.

And this is creating condition to have a very positive trend also for the next quarters. Life insurance is also mainly related with the other mutual funds products. So there's also a decision to push on mutual funds or insurance business depending on market conditions. What is very important is that in life insurance, only 20% of the results are coming from financial activities, and on property and casualty, is only 15%.

So we are talking about commissions and profit that are running and obviously not coming from financial conditions. So it's really something that I consider positive and strategic for the future. The engine for growth, in my opinion, will remain, in any case, the non-motor life -- the non-motor property and casualties business.

Looking at the inflows in asset under management business, the acceleration that we had is mainly concentrated in our retail network and also in the private banking divisions. I will -- just to give you some colors in terms of not only of quantity of what we are moving between the different components of our current level of deposit, asset management, industrial administration.

But just to give you some figures on what we are creating in terms of work with other players, we hired 151 private bankers from other competitors during this first quarter with an increase of EUR 1.5 billion in terms of net worth coming from other banks.

This is the evidence of our strategy that is not only to work on our significant and unique current base volumes, but also to move in this situation in which, obviously, there are a lot of uncertainty in a number of players to accelerate also hiring of private bank with the portfolios that can create condition to have an increase in our volumes coming from our reputation and the ability to hire people from other players.

[Operator]

The next question come from the line of Marco Nicolai from Jefferies.

[Marco Nicolai, analyst]

First one on asset quality. So the net inflows of NPLs improved in this quarter after a bit of a spike we saw in the previous quarter. So during your commentary, you mentioned that it's -- on the asset quality front is still -- everything is still on track.

So could you expand a little bit on that and also confirm that the trends in April didn't change with respect of what you disclosed for the first quarter? And then a question on your cost of risk sensitivity. So can you give us some sensitivities towards lower GDP growth levels? I don't know, for example, if GDP growth in Italy is 0 in '25. What will be your cost of risk?

And then a quick one on NII. Do you still expect '26 NII above '25, despite the fact that Euribor curve came down a little bit compared to where we were at the beginning of the year?

[Carlo Messina, executive]

So starting from the last one, yes, we think that in 2026 provided that the loan book can move in a positive trend, the combination of loan book and hedging facility can create condition to have a positive trend and increase in 2026 in comparison with 2025.

Looking at the asset quality and the NPL trend, our expectation is that we can continue to have a very good performance. The quality of our portfolio today is absolutely very good. So there's no significant threats embedded in our figures. The level of net inflow is obviously at the minimum, but we think that we can continue to have a very good performance.

And with the correlation with the second question. So looking at the cost of risk, our cost of risk for the time being is, the expectation for 2025 is really close to 30 basis points and not 35 basis points or 40 basis points that was what we have considered.

If we remain talking about 35 is because we think that if needed, we can be in a condition to extra cover in order to make disposal of -- further disposal of nonperforming loans. But the run rate for the time being of the net inflows is positioned between 20 and 30 basis points. So that's the level, the run rate.

Then obviously, it is much better to be conservative and to maintain a buffer in order to make extra provisioning. Obviously, all this without using the overlays. To go to 0 -- if GDP go to 0, our expectation is that due to the fact that the run rate in reality is between 20 and 30, we think that we can remain between 30 basis points and 40 basis points in terms of cost of risk for 2025.

[Operator]

The questions come from the line of Giovanni Razzoli from Deutsche Bank.

[Giovanni Razzoli, analyst]

I've seen that on the cost of risk that there has been some write-backs in the CIB. If you can share with us whether this is related to some big tickets or to -- more spread over the portfolio? And the second question is about the consolidation in Italy. In the last conference call when we asked about this and in particular about the possibility that you could be interested into a theoretical acquiring in minority stakes, you were pretty clear in saying that this is not consistent with your strategy. I was wondering whether this approach still applies also today given the several moving parts that we have seen since the beginning of the year.

[Carlo Messina, executive]

So I will start from cost of risk, and then I will elaborate on consolidation. So cost of risk, there are some positive impact coming from the reduction of net loans. So this will bring positive on the generic reserve. And at the same time, some improvements in terms of rating from counterparties, especially in the Corporate and Investment Banking divisions.

So coming back on consolidation. So if you remember, I decided to talk about confusion. I agreed to [indiscernible], I told that I know that it is not the super fair approach. But I can just tell you that what we are seeing is an increasing confusion in the market.

So I'm really confirmed in my opinion that it is absolutely much better to remain focused and deliver result for shareholders because I think that there is a lot of potential that I can give to my shareholders working hard on the optimization of net interest income, the acceleration on fee and commissions, the balancing between net interest income and trading profit, the acceleration in insurance income and something that we have not talked about during this call, but it is the cost side.

Because in cost, we are creating a new plan for strong reduction in terms of cost and the evidence is also in this quarter, but with the reduction of 2,900 people in this quarter already agreed that probably these are part of the 9,000, we are in a unique position to be able to overdeliver if needed, in terms of cost reduction.

So this means that the CEO must be concentrated in managing the organization and not in considering theoretical participation to something that in my view is already crowded, and there is no need that another player can contribute to create confusion in the market.

[Operator]

The questions come from the line of Britta Schmidt from Autonomous Research.

[Britta Schmidt, analyst]

Yes, two for me, please. Coming back to the trading income. It looks like the driver this quarter was capital markets where we're seeing good performance also for other banks. Could you give a bit more color on this? And also where you think future trading profits will be sourced from? Is there also an opportunity for you, for example, to lower the funding cost on certificates? And maybe also give us a little bit of a glimpse into 2026 with regards to trading income.

And the second question will be, would you be able to tell us what your current lending yield and deposit costs are on the front book and also what they were on the back book in the first quarter?

[Carlo Messina, executive]

So looking at the trading income, just a point on this, sorry, because the extraordinary year was the 2024 in which we were in such a good shape in terms of net interest income that we absolutely decided not to push on trading income, but the level of EUR 250 million, EUR 200 million per quarter was the usual trend of Intesa Sanpaolo in the years before 2024.

So it is clear that there is a strategy because we decided to make -- to allow the Corporate Investment Banking division and the treasury to accelerate in some disposal of government bonds. But in my view, the trend is clear and that's the reason why we decided to change from growth in trading and strong growth in terms of trading income in comparison to 2024, the evidence is clear.

The volatility, the uncertainty that's something that is creating conditions for my people to create trading income. And at the same time, also the reduction of interest rates is creating condition to have a capital gain on a portion of portfolio. This will bring trading income for the future. So my expectation, if condition will remain more or less at this level that we can continue to have a very good trend.

Then we talked about doubling the 2024 level. Probably, we could move in 3x. At this level, we will see next quarter, but for sure, this could be positive in terms of contribution to the income. In terms of interest rate, if I understood correctly, we have an interest rate on the asset side that is above 4% and the level on the liability side, so on deposit that the total -- the liability that is below 1%.

[Operator]

[Operator Instructions] The questions come from the line of Ignacio Ulargui from BNP Paribas.

[Ignacio Ulargui, analyst]

I have two questions, if I may. The first one, coming back a bit on costs. I mean I just wanted to get a bit of a sense how do you think cost will evolve over the coming quarters, especially looking to the seasonality that you have in the fourth quarter, whether that should come down a bit this year.

And the second one is on capital. I just look to your expectation of accelerating growth in lending in the second half. How should we think about the buildup of capital in the second half after the very good performance that we have seen in 1Q?

[Carlo Messina, executive]

So on cost, we will have seasonality on cost, but not so significant like last year. Last year, we had a significant extra cost deriving from the incentive scheme because we really overdelivered on our plan. I have to tell you that with the plan, with a budget that is well above EUR 9 billion, it will be not so easy, I hope so, but I think that it will be not so easy to overdeliver in a significant way.

So my expectation is that just in comparison, then I elaborate on trend in the different line, but this area will not be part of a seasonality -- significant seasonality in the last quarter. There will be seasonality but not so significant. Looking on the cost side, we start with a very positive position because the reduction of 2,900 people in the first quarter will give benefit starting from the second quarter and moving in the other quarters of the year.

At the same time, the reduction of branches, the IT system that we had voted on using the artificial intelligence, the tech investments will bring positive during 2025. At the same time, we will make investments to complete the EUR 5 billion plan on IT investments. But net-net, this will bring the cost down in comparison to 2024 with some reserves, some contingency plan that we can use in case of need.

So we are absolutely relaxed on the cost side, and we will work in order to reduce in some ways, some part of the seasonality for the last quarter. Looking at capital. Capital is, in my view, in a very positive trend, also remembering that for the next years, we will have all the recovery of the DTA. So we are talking about 100 basis points that is a capital increase.

So the level that we can count on for the next years will benefit also. And if you look at the slide in which we talk about also having this positive impact embedded in figures could be much higher than 14.5%. So we are talking that a trend that can move in including the DTA between 14.5% and 15% for the future. Looking at a fully loaded without DTA, our expectation is that without the strong increase in risk-weighted assets that we choose to have in the second part of the year, we can be really more in an area that could be between 13.8% and 14%.

And with the acceleration in risk-weighted assets, that is likely that we can have due to the trend of the loan book, we remain above 13%, and we will inform the market on the evolution of risk-weighted assets that we can think can be realized during the second part of the year, this will be part of the next presentation in July or beginning of August. And we will give the clear trend for the risk-weighted assets for the year.

But it is absolutely there that we have a significant ability to generate because do not forget that in the figure that you have for this quarter, we have already considered EUR 1.8 billion of dividend. So the real dynamic is that you have the difference between net income and dividend, but the amount of ability to generate new capital quarter by quarter is really significant.

And at the same time, we will have actions to mitigate the growth of risk-weighted assets and the recovery of a portion of DTA during 2025 in the second part of the year. So I'm pretty optimistic on the dynamic of capital for 2025 and much more optimistic moving from 2026.

[Operator]

The questions come from the line of Hugo Cruz from KBW.

[Hugo Moniz Marques Da Cruz, analyst]

A couple of questions. First on the replicating portfolio, can you remind us what is the latest back book yield on that portfolio and the duration of the portfolio, and if that is expected to change the duration in the future?

And second question on the OpEx and the tech investments. Can you remind us how much of those EUR 4.4 billion of tech investments, how much of that is flowing through the P&L? And can we see when the investments stop or materially -- go down materially, can we see a step change in the OpEx due to the -- to that stop?

[Carlo Messina, executive]

So in terms of replicating portfolio, you have all the information in Slide 11. So it's EUR 160 billion, duration of 4 year and 1.6%, the yield of the facility. Looking at the EUR 4.4 billion on average, because obviously, it depends year-by-year on the amount of consulting, on other items that can be capitalized.

But on average, could be EUR 1 billion per year. So that's more or less the level that you can consider as an impact this year and in the next years for -- coming from these investments. Then obviously, you have to consider that we will not stop investment with the EUR 5 billion. So the more or less EUR 1 billion per year could be considered a normal level for a bank that wants to be a leader also in technological approach.

[Operator]

We have no further questions at this time. I will now hand back to you, Mr. Messina, for any closing remarks.

[Carlo Messina, executive]

So I want just to stress the sustainability of our results because I think that the different components of our revenues are managed in a real, very sustainable way. So with an approach that is not only to optimize revenues for the quarter, but to create conditions to have an increase in contribution quarter-by-quarter.

And as I told in the different answer, I'm really convinced that our net interest income will start recovering from the second quarter notwithstanding the reduction of Euribor. That is something that I think can happen absolutely.

Our fee and commissions will continue to give us very good results because this is an area in which we have decided to create specific plan, giving to our people a list of clients and areas in which they can reaccelerate revenues for the group and giving positive satisfaction also for our clients that are benefiting from a reduction of interest rate, and so this can create capital gain position in a significant portion of their portfolio.

At the same time, the insurance business is absolutely a clear priority for us, and it is an engine for growth in terms of sustainability for the future. Trading income will continue to give positive contribution. Cost will give us much better satisfaction than our expectation because we are accelerating with new plans of reduction.

And the cost of risk is totally under control. So the quality is due to the bank, but it is due also on the very good job that the company has made in this year because a segment of SMEs made a fantastic job. And this, in combination with the family wealth, so the real Tripoli part of Italy that is the savings.

So the Italian family can give us a very positive trend for the future, especially for a company like us that is a wealth management and protection companies. Capital is giving very good condition. But also let me add again, that in Italy, we are also in a unique condition looking at stability and the ability in which the government, so the Giorgetti and Meloni are managing the public debt and the reputation of the country.

So I think that Intesa Sanpaolo is really in a very good condition to give satisfaction to shareholders. So thank you very much. And see you in London.

[Operator]

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.