Mediobanca Banca di Credito Finanziario SpA

MIL:MB

Good morning, and thank you for standing by. Welcome to the Mediobanca Third Quarter 2024-2025 Results Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded.

I would now like to hand the conference over to Mr. Alberto Nagel, CEO. Please go ahead.

Good morning to everybody, and thank you for joining the call. The first 9 months of the bank showed and confirmed a steady growth trajectory in terms of revenue up 5%, profit as well and ROTE on the level of 14%. We have had quite a strong commercial activity in all businesses, starting from Wealth Management, we have recorded EUR 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 EUR 1 billion, up 8% year-on-year. And we have had quite a strong new loans in Consumer Finance, reached the level of EUR 6.7 billion, up 9% in 9 months.

This reverted into an increase in revenues, as I said, of 5% where we had even a slight growth NII, double-digit fee jump with 24%. Lower CoR, this is basically on a better trajectory at industry level and high capital generation. This is 55 basis points driven by CIB and Consumer Finance, where we have had the -- starting from January new LGD and hence, we have released some capital. This reverted also in high remuneration with the interim dividend at 0.60% -- EUR 0.66 (sic) [ EUR 0.56 ] per share. And this is, of course, 70% of net profit at half year, and we have completed almost 70% of our share buyback. We have seen also a solid progression in the last 3 months, in particular, this very high Q2 in particular, in CIB, where we had the closing or some very important transaction.

Notwithstanding this, we have a quite high level of fees also in Q3. This was supported by 6% increase in Wealth Management year-on-year, 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-on-Q. NII, as I said, was flattish, slightly improving. We will then investigate what's behind this. And we have had a solid also results in fees where we had EUR 273 million as opposed to EUR 316 million. So quite a high level in the case.

Decreasing CoR in this quarter from 50 basis points to 39 basis points. There is a component of write-backs which is EUR 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 2 quarters. In Consumer Finance, it was down to EUR 169 million with EUR 10 million of overlay used. So resilient high profitability, EUR 334 million as opposed to EUR 330 million of last -- this was basically supported across the board by all different business. As I said, quite a solid net new money of EUR 7.2 billion, material TFA growth, both in terms of net new money and market effect, we have reached EUR 108 billion. Strong new hires, in particular, this quarter, we have had 54 new entrants out of 120 of the last 9 months.

So you will see quite important progression. A touch more in terms of deposits and a solid revenue trend with EUR 727 million of revenue as opposed to EUR 690 million 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 market trends which are supportive. This reverting into 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 tariff trade war with better quality in terms of CoR, in terms of rating, you see that investment grade now is totaling 83% of the whole portfolio.

Consumer Finance printed another record quarters with a very sound important and I would say, again, record numbers of new loan production, EUR 2.4 billion. I think we never reached this level of EUR 2.4 billion in the quarter. This reverting to EUR 6.7 billion net 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 in 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 CoR, it stays above 5%, which is a fantastic buffer even in case of increase of CoR that, for the time being, we don't see on the contrary, we see an improvement of CoR, but this marginality as always we repeat, is the best safety net in terms of possibility to absorb unprecedented or and unwanted risk in this business.

In terms of fees on Page 11, again, another strong quarter, EUR 273 million. 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 fees sustained by strong structured product flows and also CIB printing more than EUR 100 million 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 EUR 7 billion in the last 9 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 touch down from 1.81% to 1.70%. But as we know, this is also a commercial tool to grow net new money, and it's natural that this kind of decalage is more progressive.

As I said, CoR 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 CoR of Compass. We have had then some write-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 EUR 201 million, and we are EUR 189 million, so we used EUR 11 million.

We have done some write-off of a component of fully covered NPL in Compass. So we brought down the gross NPL ratio from 2.5% to 2% and net remain well below 1%. And hence, we will see that 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 bank, 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 reduce by roughly EUR 2 billion the capital allocation into CIB. We have now same amount to CIB and to consumer and the rest is the other 2 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% in all the business -- industrial business have shown important increase in profitability. We continue to enjoy a strong capital position, 15.2% as a starting point landing into 15.6% this is driven by both earnings and Basel IV impact and of course, some transitional component of Generali. Then -- when you know when they pay the dividend, this is going to be reabsorbed. And then, of course, there is a 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.

A quick look to the division results. In Wealth Management, we have had the 3 components very much contributing each of them. I would say the most important part this quarter or the last 3 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 initiative. We have had also a very good contribution from asset management, where our to entity, in particular, Polus Capital continue to raise a substantial amount of money from third party.

So we reached more than EUR 100 million, EUR 110 million and with basically a totally different component. You see that the component of Page 24 is different compared to a year ago. This is normal. It's the industry trend a year ago was more asset under custody with the BTP, I would say, boom. Now it's more -- this is more contained. We have more much more managed assets. So the vast majority of net new money, it's managed assets. What does it mean? It means that management fees are going up. You see, we call them also franchise TFAs.

And you see on Page 25 that is having a growth of 15% from a year ago, so from EUR 29 billion to EUR 34 billion. And this is reverting also into management fee. A year ago, they were at EUR 72 million, this year are EUR 83 million. 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 9 months, they advise for a total of more than EUR 50 billion. In energy transition and 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 will contribute more. And also, we are seeing important contribution from market 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%. This reverted into a very important increase in return on risk-weighted assets. I would say, well above what we had in mind. And so we are going in terms of return on risk-weighted asset 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 higher more important new loans. So EUR 2.4 billion on Page 33, but they are doing this also with the more restrictive criteria. So I would say that it's also in terms of cost of risk more contained as we have 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 revert into what you see on Page 35 increase, 9% increase in NII. This is happening. We had this trend even in the past when the interest rates were down, our NII in consumer was going up high single digit. It is happening again, and this will be a trend for the next few quarters.

Insurance, so contribution from Generali 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 as on to capital-light wealth management CIB player in terms of fees and strong NII engine in consumer. But there is a big news. As you know, the big news is our announced transaction on Banca Generali 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 entrepreneur. So this is linked to our DNA of an investment bank. So CIB has said, will enjoy this trend will be stronger after this transaction because the combination and cooperation, the synergies between the 2 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.

So our mantra, which we have always maintained is okay, Generali is a very good investment, is supporting heavily the results of Mediobanca could be swapped into a wealth management opportunity, now is happening. So we plan to change our relationship with Generali from a financial partner to a strong industrial partner, creating more than EUR 200 billion TFA wealth management with more than EUR 140 billion in private banking, especially -- and supposedly, the operator, which has the best opportunity and the fastest opportunity of growth with a net new money combined of EUR 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 , I would say, episode of our reshaping, but I think an important one. Only 10 years ago, we were a bank of EUR 2 billion revenue and 7% ROTE with the breakdown of revenue of the vast majority -- a relative majority of consumer finance. Already now or '25 at the end of June, we are EUR 3.7 billion and 14% ROTE with 26% in Wealth Management. The picture will be totally changed after the combination with Banca Generali because we will have 20% ROTE, EUR 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 CET1 at closing, which will be very, very healthy at 14%. We will have distributed EUR 5 billion to shareholders between these years from '16 to '24. And what is even more important, we plan to have a total yield ahead of 22% cumulative of them in the next 18 months between what we said about the last year of plan. So the guidance of distributing EUR 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 EUR 170 billion of AUM, AUC, which are having at least 50% of revenue in Wealth Management. So within these 2 parameters, we have 3 stocks: UBS, Mediobanca and Julius Baer. When you go down and you see who's giving to shareholders more than 7% dividend yield, then there is only Mediobanca, the new Mediobanca with 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 recent to the market and we let our shareholders 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 as to growth, thanks to PIB. On the other side, we will be part of a group, which is a midsized commercial bank, which has not a clear strength point because basically putting together Mediobanca and Monte Paschi will not show significant position improvement in any business, will not generate for our shareholders a derisking from Monte Paschi exposure in terms of capital-intensive model as opposed to capital-light model, in terms of sensitivity to credit risk and interest rates.

In terms of mix, as we said, we will be 50% Wealth Management and the rest between CIB and Commercial -- and Consumer Finance. On the other side, we will be a majority commercial banking. The synergies are easier in our case because there is a cultural fit. There is a platform to be rightsized 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 Monte Paschi. There is, in our deal and material capital allocation. So what we will have, we will have, on one end, hopefully a rerating of the multiple of the biggest business resulting in Wealth Management. On the other hand, we will have, I would say, less holding, if any, holding discount, which today is associated to our stock -- in our stake in Generali.

So in terms of value creation, it's clear that we see some EPS accretion in our deal. We have baked out of any accretion in the other deal. Why? Because sustainable ROTE, CET1 and payout is very difficult to verify, thanks to or due to NII CoR headwinds 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 1 integration, integration, which was defined innovative. We have defined it in natural. So if you try to combine 2 innovative or in natural target, I think there is a manageable risk in terms of execution, which means that basically asset value, revenue trend of business, whose market value is above EUR 20 billion is at risk. So there is a very important execution risk enhance 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.

[Operator Instructions] The first question comes from the line of Giovanni Razzoli from Deutsche Bank.

My questions are on the evolution of the CET1 ratio for Mediobanca stand-alone and for also after the business combination with Banca Generali. On a stand-alone basis, clearly, you have reported a very strong CET1 this quarter. I was wondering whether on a standalone level. So for the next couple of quarters, what could be the evolution of your CET1? You've mentioned that, for example, Generali has resulted into a 25 basis point 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 Banca Generali transaction, you mentioned that there is an 80 basis point impact from the acquisition in day 1. I was wondering whether you have to fine-tune this impact, which seems a bit conservative. And also the CET1 ratio at inception of the deal was assume that 14%. I was wondering whether after the strong print of this quarter, what is now the CET1 at inception after Banca Generali? 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 CET1 ratio evolution going forward?

So thank you, Giovanni. What we have given last week when we presented the Banca Generali transaction is already giving you the lending CET1 at June. So it was in the region of 15%. You know that in the last Q, we have also the buyback. So on one hand, we have the production of new capital. On the other hand, we will have the distribution set aside of 70% of the profitability plus the last buyback. So the landing point in June is in the region of 15%. And as we generate 250 basis points of capital stand-alone and 270 with Banca Generali, you understand what can be the impact or the evolution of capital ratio in the years 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 CET1 every year, net of dividend policy. So it's 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 point increase every single year.

And the next question comes from the line of Luigi De Bellis from Equita SIM.

I have 4 questions. The first one on the numbers. In light of 9 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 Wealth 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 Monte Paschi, you mentioned high execution risk as well as significant client revenue dis-synergies and retention cost. 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?

So thank you, Luigi, for your question. So guidance is confirmed. Wealth 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 situation where a combination -- innovative combination and non-agreed deal is happening.

Of course, this is going to be much bigger in case of Banca Generali because today, as I was saying before, Mediobanca has 2 business 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 party. With the Banca Generali deal, we will have basically a vast majority, so 70% of the business between Wealth Management and CIB. So 2 business 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 CoR strategy in terms of new bank strategy, new resulting bank strategy. So we haven't yet factored the dis-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 in natural, as we say, is very complex, managing 2, 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 3 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 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 3 companies involved, us, Generali and Banca Generali.

[Operator Instructions] And the next question comes from the line of Britta Schmidt from Autonomous Research.

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 CIB 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 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 they are getting Generali shares as compensation and participate in the upside of the deal. And then finally, I think you've added quite a lot of financial advisers 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 advisers you're hiring and where you're hiring from?

Thank you, Britta. In terms of net new money, we confirm the guidance of staying between EUR 9 billion and EUR 10 billion. So we are having a very good sign in this -- 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 experienced -- still experiencing a bit of a slowdown because of uncertainty related to what is happening at the macro level, in particularly 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 transactions. The pipeline remains quite healthy.

In terms of CoR, yes, we continue to see a better CoR. So we do expect better than expected, better than forecasted CoR 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 wait for them to do their internal step. We'll, of course, try to understand the different needs that they have at Generali and Banca Generali level.

In terms of financial adviser, the type -- I mean, the numbers are important, but it's even more important the quality because we are now recruiting IFA, which are between EUR 20 million and EUR 30 million. When we started, you remember, they were more in the region of EUR 10 million to EUR 15 million. So we have 2 layers on which we work. First, continuing in hiring that kind of IFA in this trajectory, BG transaction announcement helps. MPS announcement doesn't help. So we have now at least 2 forces, which are basically making it neutral, and also, we have secondly, which is also important to grow net new money, which is working on existing one, which has to go from EUR 10 million to EUR 20 million each. And so we are also putting down a stronger program of increase of their AUM.

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.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.