Banca Generali SpA

MIL:BGN

Earnings Call Transcript 2021-Q1

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca Generali First Quarter 2021 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Gian Maria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.

[Gian Mossa, executive]

Thank you, and good morning. Thank you for attending our first quarter results conference call. Let's start by saying that the first quarter was probably the best quarter ever for the bank, of course, for the numbers but even more for the quality of the underlying. We achieved more than EUR 77 billion of total assets. And what impressed me more apart for the impressive acceleration, 19%, the increase year-on-year, is about the quality because the greatest part of this acceleration comes from asset management products.

This increase is a consequence of, of course, positive market but also a very sound and of great quality activity of our financial advisers with net inflows up to EUR 1.7 billion in the first quarter. You've already seen capital very strong and also may start very well.

Of course, the quality of the underlying had a positive impact also on the financials. So net profit jumped at EUR 135 million, of course, driven by an acceleration of the market and certainly the most viable components of our P&L, but also very sound and solid recurring net profit. Recurring net profit closed the first quarter above EUR 37 million.

In terms of capital ratios, also once allocated all the net profit over the first quarter for the dividend policies of 2021, the capital ratio are well above the SREP requirement and almost in line with the numbers of last year with CET1 at 16.2% and TCR at 17.5%. Of course, these numbers include also the distribution of EUR 3.3 as approved by the AGM in April.

Moving on. Page 4 is, as usual, our short representation of our P&L. And you can see, net financial income was pretty stable year-on-year. The net recurring fees increased by 14.3%. And as we will see great results of the gross fees and the payout ratio under control, the overall total banking income jumped to EUR 239 million. And the total operating costs are in line with our guidance with an increase of 3.6%.

If we consider the items below operating profit, you can see an acceleration in the contribution to banking funds from EUR 3.1 million to EUR 4.6 million and the spike in the provision primarily linked to the great result of our financial advisers, so we increased the provision for the loyalty program that's really important, as you know, also in terms of retention. And as already said, net profit, EUR 135.4 million, also thanks to a temporary reduction in tax rate from the higher contribution of our LUX IM platform results.

Page 5, you can see the breakdown of net profit in the 2 major components, the variable net profit and the recurring net profit. The buildup on the right show you the great job in terms of net fees with an increase of EUR 13 million. And on the negative side, you see an increase of EUR 6.6 million of net adjustment and provisions. So the recurring net profit increased in terms of absolute numbers but also in terms of quality.

Now from Page #7, as usual, we go through line-by-line, starting from net financial income. As already said, net financial income closed at EUR 24.7 million with a net interest margin at EUR 21.7 million, almost in line with the fourth quarter and slightly above the first quarter of last year. Basically, here, you have, to effect, a slight reduction of the total net interest income yield at 0.71% and in asset [ expand ] from EUR 12.5 billion to EUR 14 billion.

The results of the total net interest income yield comes from 2 different trends. On one side, we have the reduction of the yield on interest-bearing assets at 0.66%. And the other side, a reduction of the cost of funding, also thanks to the TLTRO contribution. So the overall cost of funding declined at minus 0.05%.

I can confirm, as already said in the previous conference call, our guidance for the full year of the contribution of net financial -- of the net interest income of minus -- in the range minus 2%, minus 3% on year-on-year basis. And I can say that we continue to maintain a very conservative approach. The overall duration of the portfolio is around 1.4, maturity ending around 3.4 and being because we are ready to take advantage of any normalization of the rate.

Page 8, gross fees. Here, the results are pretty impressive. Overall, gross recurring fees exceeded EUR 221 million, with both management fees and other recurring fees with a significant increase on year-on-year basis. The result is an increase also of the profitability with margins at 1.17%. On the right, you can see also the contribution of the variable fees at EUR 111 million, a very strong quarter due to the fact that almost all the products are close or at the highest level ever.

Page 9, a deep dive on management fees. Again, a strong acceleration, EUR 187.4 million. Here, you can see 2 different representation of margins. The black bar is about the like-for-like numbers, so excluding Nextam and Valeur, and you can see the steady growth in the last 4 quarters. And the orange bar instead is once included the 2 legal entities. And from this quarter, we then include all the perimeter in this analysis. We are at 1.38%, and we are confident to confirm our guidance of margins in the range of 1.38%, 1.42%, also once included Nextam and Valeur. So very, very solid growth with an underlying of higher quality than in the past.

Page 10. Other significant positive news come from the banking and entry fees. You can see on the left the representation in the 2 block, banking fees and entry fees. And banking fees jumped to EUR 24.5 million, while entry fees were in line with the last quarter of last year.

In terms of margins, you can see also in this case an increased contribution of total margin with the profitability at 0.18%. On the right -- on the graph on the right, you can see the representation of the 2 major contributors of other recurring fees, the new revenue streams and the transactional banking and front fees. On the side of the new revenue streams, the contribution is pretty significant, EUR 18.1 million and is definitely above if you project this number for the full year to the target and new target that we gave of EUR 17 million. And you can see also an acceleration in transactional banking front fees. This is basically driven by, to effect, a sound primary market activity and increasing activity also in brokerage under the wrapper solutions and funds.

Page 11, the deep dive on the 3 new revenue streams: advanced advisory; retail brokerage, so Saxo platform; and structured products. Starting from advanced advisory, here, it's pretty impressive with the steady growth of the assets under advisory. We achieved EUR 6.5 billion in March. And you can see the revenue contribution at EUR 7.4 billion, in line with the new target of achieving at least EUR 30 million.

Retail brokerage, total volumes almost in line with the spike of the first quarter of last year but with a higher profitability. Total contribution of revenues of BG Saxo amount to EUR 7.1 million. This is basically driven by the diversification of the asset traded and the contribution of currency and derivatives.

While structured products, of course, on a year-on-year basis, the comparison is negative, but just because, as you remember, the first quarter last year was the best ever. But in absolute terms, EUR 175 million is well above our forecast and projection for the year. Also, April and May are very solid. And just considering the revenues of the first quarter, EUR 3.6 million, multiplying by 4, you can see that we should exceed the target of EUR 13 million. So overall, on the side -- on the revenue side, I do see only positive news with a solid contribution from all the different line of the P&L.

On the cost side, also from here, you can see positive trends. First of all, total fee expenses. The total payout ratio is at 52.9%, so below our projection, thanks to a slight reduction of the payout to the network. In particular, if you look at the ordinary payout is below our target of 37%, now is around 36.6%. And also, the cost of growth is lower than our target, is at 10.3%. And this is basically due to the fact that in the last 3 years, the recruitment activity decelerated. Payout to third parties instead is almost stable.

On Page 13, you can see the operating costs. As we already said, total operating costs increased by 3.6%. And also, in this case, you see the 2 different representations: the first one, the like-for-like, so excluding Nextam and Valeur; and the second one, instead restating it with the inclusion of the 2 legal entities.

So let's focus on the restated one. As you can see, the perimeter inclusion/one-offs are slightly lower. The cost of sales, personnel cost is flat. And there is an increase of the core operating costs by 4.6%. Due to the positive scenario, we have been accelerating the investment for new projects and IT transformation. And going through the breakdown of the core operating costs, you see that the increase is well spread among all the different components with, in particular, G&A up EUR 1 million. Again, also in this case, we are confident to confirm our guidance 3%, 5% of the core components.

Page 1-4, 14, you can see how is working the operating leverage, very proud to see the operating cost on total assets below 0.3%. It was considered a sort of floor. And cost/income ratio declined over time with the adjusted cost/income of 36.6%.

On the capital ratio side, Page 15, as we already said, really important. We destinate all the net profit with the first quarter to pay dividend also in 2021, consider that this allocation implies already a dividend payout around 3.6%, a yield of 3.6% on the current pricing of the title. And it included already, as we already mentioned, the distribution of EUR 3.3 for 2019 and 2020. And in terms of liquidity ratio and leverage, we are well above our requirements. So also on this side, I do see positive confirmation of the sound capital ratios. The slight reduction of these indicators is due to an increase in diversification in the banking book and a higher lending activity.

So just to sum up the financial results, I'm, let's say, more bullish than ever in terms of the sustainability of our margins. And on the revenue diversification and contribution, at current market condition, I do see this trend continuing also in the second quarter. And I do see a strong contribution from all the financial advisers. So the quality matters, and as you can see at Page 17, in this case, probably this quarter, we achieved the best results.

First of all, in terms of total assets, total assets, as we said, jumped to EUR 77.5 billion. But what impressed me more is the greatest part of the increase comes from managed solutions, EUR 9 billion of growth on a year-on-year basis. You can see how we are managing very well the stabilization with light reduction of the traditional life policies in favor of an acceleration of insurance wrappers. And the total banking product increased by EUR 3.5 billion, again, driven by advanced advisory services.

Focusing on the right, you can see the confirmation of these trends. Starting from managed solutions, all the components of our managed solutions, so in-house funds, third-party funds, financial wrappers and insurance wrappers, increased significantly. In particular, if you focus on insurance wrappers, you can see an acceleration of EUR 2 billion. And this explains the go-to rebalance in the medium term, the overall allocation in insurance products.

If you look at the banking products, you see that the growth of the current accounts is just EUR 0.5 billion, so EUR 0.5 billion out of EUR 12 billion. It means less than 5% of the acceleration of assets is invested in cash. And this, again, is about quality. So we are advising our clients to invest in asset management products. We are increasing the role of the wrapper solutions, and this is well diversified.

Page 18. There is a deep dive of net inflows. And just focusing on the red bar, you see the great results in the last 2 quarters. And again, the greatest contribution of funds and insurance wrappers.

Page 19, important to emphasize the normalization of recruitment activity. As already announced in the first quarter, we achieved the same results in the first quarter of 2018. So we resumed activity of recruitment, is more balanced because 50% comes from F&A portion, 50% from, say, traditional retail and private banks. And in terms of acquisition channels, in absolute terms, the contribution of the existing sales force is in line with last year. The percentage, as you see, a slight reduction for the acceleration also of recruitment activity.

Page 20, you can see the focus on April numbers, and again, is a confirmation of the positive trend in the first quarter. And as I said, also May is confirming this positive trend with almost all the managed solutions contributing positively to the net inflows. So the commercial activity is very sound and the acceleration of managed solutions is pretty impressive.

Now the last section is about numbers of our 3-year business plan. We want to share numbers achieved but also consideration on the priorities over the last years and what we are planning for the future. So Page 2-2, 22, first of all, you can see a broader picture of the asset expansion during the current 3-year business plan and also considering the previous 3 years, so starting from the end of 2015 where the acceleration of the total assets was very, very impressive from EUR 41 billion to EUR 77 billion. And EUR 77 billion is already in the range of the target we announced for our 3-year business plan. And just to remind you, it was in the range of EUR 76 billion, EUR 80 billion. So considering the current condition in the markets, at the current level, we have the opportunity also to exceed the upper range of the target.

This growth of total assets has been driven by an increasing number of clients where the percentage of the increase is lower than the percentage of the total assets because the focus was on quality. And the way to see the quality of our clients is at Page 23 where, as you can remember, the main driver of the business plan -- of the 3-year business plan has been to accelerate our competitive positioning in the private banking sector. And the acceleration of clients with more than EUR 500,000 with the bank has been really impressive with an increase of 86% and a total contribution on total assets of almost 2/3, 67%. While at the same time, you can see that the acceleration in the clients in the -- say, in the affluent segment of our clients has been definitely lower.

So for the next 3-year business plan, we're going to confirm the strong positioning on the private clients, but at the same time, thanks to the great investment in our digital platform. You will see we're going to launch several initiatives also to expand in the affluent segment.

Page 24. It's not just about, as we said, asset expansion, so absolute numbers, but first about quality. And if you focus on the managed solution on total assets, bottom left of the page, you can see that managed solutions now exceeded 51 percentage. At the end of 2015, it was at around 45%. And what impressed me more, it's well diversified among in-house funds, third-party funds, financial wrappers and insurance wrappers.

And another important target achieved is the overall equity exposure, now above 25% at 26.4%. And all the initiatives of automatic switch and saving plans will increase even further this percentage, I do estimate at least 1, 1.5 percentage of an increase and, again, considering the current market level. So the overall equity exposure on total managed solution is still below 50% and below the average of the market. I don't want to close the gap with other players, but I do see some room to optimization.

Page 25 is just to focus also on our BG Fund Management platform because, as we already said, managed solutions increased. And with the managed solutions, also our in-house platform expanded and expanded in a very sustainable way with a growing contribution of BG, SICAV and LUX IM. And now it accounts for EUR 14.1 billion out of EUR 19.4 billion. And there is also a representation of the performance of our in-house product. As you can see, with a low volatility, we delivered on promises. So -- and overall, performance above 17% in the last, let's say, 4 years and 1 quarter. So also, in this case, we can say that quality matters. In the context of a controlled volatility portfolios, the performance was relevant.

Why we have been experiencing such an acceleration in asset management products, I do see a positive contribution to the introduction also of a new methodology, a new commercial approach for our time. In this case, sustainability matters. And in this case, I do see a significant competitive advantage compared to other players in the market because we were first mover introducing a proprietary digital platform in which we can bring our clients closer to the ESG concept to give also a different reason to invest in our plan.

We targeted 10% of total assets in ESG products by the end of this year, and we have already exceeded our optimistic approach and target because now total assets in ESG products account for more than 13%. Great part of this comes from new net inflows, with the LUX IM accounting for more than 50% of the overall net inflows.

So just to sum up. The next 6 months will be focused on delivering and completing the journey of the initiatives launched in the last 3 years. And as we've already seen together, all the initiatives are going in the right direction and there is still room to improve. And we started thinking also to the next 3-year business plan, where on one side, we will continue the great job on private clients and on the diversification of assets. On the other side, we will expand and accelerate our business also on new targets of clients.

So very confident, very confident to exceed the expectation of the target announced during our Investor Day in 2018, very confident of the quality of our financial advisers and the results we have been delivering over time. And I do see also the opportunity to expand our client base in the next 3 years, thanks to several initiatives we have been working in the last few months and in which we can leverage our partnership with Saxo, our partnership with Conio, our expansion in Switzerland and the opportunity to develop dedicated products and digital platforms and tools for affluent clients.

Thank you, and I'm more than glad to take any questions.

[Operator]

[Operator Instructions] The first question is from Luigi De Bellis with Equita SIM.

[Luigi De Bellis, analyst]

I have 4 questions. The first one is on BG Saxo. Could you provide an update on the trading platform, potential impact, new products expected to be launched, the feeling of your clients on the platform, if you think you can gain market share and if this is the driver to expand business with the new target of clients, namely affluent?

The second question is on the dividend. Could you provide an update on the dividend policy and if you have had any interaction with the regulator on the possibility to return to pay dividends after the end of the ban?

The third question is on the recruiting. How do you see the market for recruitment now compared to the pre-pandemic? Do you think the market is more or less competitive than before the COVID, I mean it's easier or more difficult to recruit any financial advisers?

And the last question, on the alternative PIR. Do you have a target in terms of net inflows for alternative PIR? And generally speaking, can you share with us your point of view on this product?

[Gian Mossa, executive]

Thank you, Luigi. So starting from the first question, the platform is almost fully integrated for the full range of products. We have an important release in -- at the end of the first half, so between June and July, of the derivatives, so future and option, and say we complete the journey with the extension also to current account in different currencies. Already now you can trade, of course, in different markets, but as I said, this is also that function. And we open up the platform to the clients. So we are in the rollout phase. You have, let's say, some clients very happy with this technology, and it's impressive to see the acceleration in the turnover of the clients who decided to join the platform.

So the evidence is pretty strong. We do not want to accelerate and to prove. I do see the opportunity to accelerate in the BG Saxo platform in the next 3-year business plan. You are right. The technology is cutting edge, and the feedback of clients are pretty positive. So I do expect a significant contribution to the new business plan from these initiatives. Yes, it's a cultural change, so we want to continue to maintain a great focus on asset management products. So it will take time to expand this business, but it's very solid and on the right direction.

Dividend policy, my feeling is that we're going to pay because I don't see any reason not to pay. Depending on your view on the pandemic, but let's say that in the interaction, there is the strong conviction to normalize the role of the regulators. So -- and to reduce any discussion in the market. So my strong feeling is that in October, we're going to pay the first tranche of the dividend. In January 2022, we're going to pay the second tranche. And I'm very, very focused also on a significant dividend for the last year of our 3-year business plan.

Recruitment. Recruitment, let's say I am pretty impressed by the interest. I did see room to consolidate the banking system or further consolidation, you can -- you read every day some potential merge. And this is positive for the whole industry. So there is greater interest coming from traditional banks and private banks. And in case of financial advisers, there is a better interest in more diversification in products and services. So I do perceive the bank is the right place to be. So we haven't accelerated in terms of focus or incentives, but it's just back to normal activity so we could accelerate.

I confirm the target of almost 100 new colleagues because the focus must be well balanced to provide all the support of existing sales force and continue to increase the sales force network. We are also very focused on new and younger financial advisers. So there is a dedicated project also to recruit younger colleagues. And the number of the younger colleagues is not included in the target of 100. In terms of costs, we are slightly below the historical costs for recruitment.

In terms of PIR, we don't give specific target to the financial network. We say that in the alternative space of PIR, like AIF, like funds, we are around EUR 70 million. And I don't think to see significant numbers for the full year. So I do expect something in the range of EUR 150 million, EUR 200 million.

So it's a positive trend, but it takes time. And I think that it's so important to sell in the right way these kind of initiatives. Here, the real initiative is the new selling proposition, so we price these products in line with the traditional asset management products. We haven't launched a specific incentive for this product. And we see this as another way to diversify more the portfolio of our clients and a new source of revenues.

Just to be sure I was clear in the dividend policy, I will say that I'm very confident to pay the EUR 3.3. And I'm very focused to pay an important dividend for 2022.

[Operator]

The next question is from Gian Luca Ferrari with Mediobanca.

[Gian Ferrari, analyst]

First question is on Page 12, the cost of growth. I think in that specific line, you're looking both the recruitment costs but also the accrual of the bonuses, if I'm not mistaken. So I was wondering, how is it possible that cost of growth went down when you made EUR 1 billion more inflows into asset management products and you doubled the number of the phase? So probably I'm missing something on the mechanic of how you account for that.

The second question is on Page 24, I think you gave for the first time a striking number that you have 47% of your AUM in equities. And I think in AUM, you are also including insurance wrappers. So my question is how insurance wrappers, also including multi-class insurance, i.e., also a component of ramo primo in there , so the 47% net of the ramo primo could be even higher than that? Or again, I'm mistaken in reading this.

The last question is on the repricing. What is the state of the [ adds ] here? And I was curious to hear if you are also thinking about repricing something outside management fees. So any different pricing on current accounts or banking services or stuff like that.

[Gian Mossa, executive]

Thank you, Luca. So starting from the cost of growth. Here, you have 2 different effects, and then I will hand over to Tommaso for specific details. The first one is that you amortize the cost of growth over the last 5 years. So you have a spike in recruitment activity 2016 -- until 2016. So you have a sort of positive effect because you are discussing the strongest years. The second more important is that, of course, the total commission increased significantly. So in the ratio, this accelerates significantly. But for other details, I hand over to Tommaso.

[Tommaso Russo, executive]

Yes. I think that Gian Maria gave us the answer. The main point is that in absolute terms, if you compare the cost of growth, they are comparable. March '21 is a little bit higher, although there is a smoothing effect by -- for the recruitment of 2015 and '16. But if you compare this amount to the growing commission, of course, the commission, I would say, has a lower weight. This is the mathematic explanation.

[Gian Ferrari, analyst]

Can we also have the stock costs to be amortized relative to past recruitment?

[Tommaso Russo, executive]

I have to check the numbers, so we...

[Gian Mossa, executive]

Yes. While we check the numbers, I answer to the second and third questions. The second question is about the net exposure, equity exposure, excluding, let's say, traditional life insurance. You are right. In the insurance wrappers, you have almost 30% of traditional life insurance. So normalizing for this 30%, you would obtain higher numbers. So you're right. It is about EUR 3 billion out of EUR 10 billion, so you can work out the right percentage. It was excluded, say, the traditional components of the insurance wrappers.

And in terms of repricing, we are in line with our projection. In July, we are confident to launch the new wave of LUX IM repricing. The authorization should arrive at the beginning of June for the institutional share classes, and then you have 30 days for the retail authorization.

And in terms of price optimization, I don't see room to optimize further many solutions. We have already introduced some optimization in the current accounts, and the effect will be visible in January '22.

And then Tommaso is checking the numbers. We can keep going with the Q&A session then. When we find the number, we will give you the disclosure.

[Operator]

The next question is from Elena Perini with Intesa Sanpaolo.

[Elena Perini, analyst]

Yes. I've got 2 questions. The first one is about your performance fees in the month of April, if you can update us about them. And then the second question is about your banking fees. You were very, very good in this third quarter with approximately EUR 24 million, EUR 25 million. Could you -- could we consider it as a quarterly run rate for the year? Or do you see, I don't know, some potential slowdown in the coming quarters?

[Gian Mossa, executive]

Thank you, Elena. So performance fee in April were pretty solid, in the range of EUR 15 million, EUR 20 million, while the projection for the current quarter is negligible. So we already have other, let's say, between EUR 15 million and EUR 20 million.

In terms of banking fees, you have 2 different components. One is about the primary market activity, and it depends also on the opportunity in the market. So it's a variable component. While the second one is about the trending, the brokerage activity of the wrappers and of the funds. And in this case, of course, the asset expansion led to increasing volumes and some increasing revenues. So half and half, but I'm pretty confident that the overall contribution will be significantly positive. I don't know whether you can just multiply by 4 the first quarter, probably would be a little bit too high.

[Operator]

The next question is from Angeliki Bairaktari with Autonomous Research.

[Angeliki Bairaktari, analyst]

Just 3 questions on my side, please. First of all, could you give us some color on what drove the margin improvement quarter-on-quarter? You have now sort of repeated your target of 1.38% to 1.42% but including Nextam and Valeur. Can you give us some color on why you are more confident to achieve this target now, including the new businesses that you have acquired? And would it be feasible to expect you to reach the upper end of that guidance, i.e., around 142 basis points?

Second question, we have seen significant inflows into managed assets across the industry year-to-date, including for Banca Generali. What is driving this in your view? And is it sustainable?

And third question, if I may. Can you give us a little bit more color on your plans with regards to the affluent segment?

[Gian Mossa, executive]

Thank you. Let me start from margins and margin improvements. I confirm the range, 1.38%, 1.42% once included Nextam and Valeur basically for 3 main reasons. The first one is the asset allocation. The second is the product allocation and the third one is about the repricing. Equity -- let's say, asset allocation and equity exposure depends also on the markets. Product allocation, it's a long-lasting trend, in particular, in the insurance space. So this rebalancing process will last at least next 3, 5 years, and this is a positive contributor to the overall margins. The equity exposure is, of course, influenced by market and then there is a positive, say, contribution coming from new initiatives, for example, say, in plans or automatic switch.

In terms of repricing, as you already know, it should imply 5 basis points of an increase -- an overall increase in the BG Fund Management platform. So let's say that if you think of stable markets for the next 12, 18 months, probably we could be closer to the upper band than we're to the lower band so -- because there are several initiatives are working very well. I'm more conservative because I'm more conservative on the market trend for the next 6 to 9 months. So the overall effect is that I'm confident to go from the guidance. I cannot confirm 100% of the upper band.

And in terms of managed assets, let's say, you have several factors contributing to this great interest in managed solutions. The first one, of course, is poor yields. It's difficult to invest in the bond market. So you invest in the asset management solutions, trying to increase the densification and try to invest also in alternative asset class. So it's a sort of substitute effect from traditional bonds market to asset management or cash. And I think that now the weight of assets under custody, in particular to bonds, is pretty low. So I don't see a significant room to increase -- to decrease, sorry, this percentage, while I do see still some optimization in the cash exposure.

And the second reason is about, as we already said, the traditional life insurance solutions because as Banca Generali already communicated that the focus is more and more on asset management and hybrid solution than traditional life insurance. And this is a positive element to think of an acceleration of managed solution as a whole.

So my view is that we're going to see a deceleration, in my view, more in the, say, bond sector because you still see a significant concentration of asset management products in the bond market, less in alternative flexible solution and equity because it's a way to try to achieve performance to the clients in such a low-yield environment.

[Operator]

Next question is from Domenico Santoro with HSBC.

[Domenico Santoro, analyst]

I don't have specific questions on the numbers. You guys, you're doing pretty well. I mean there is so much liquidity in the market. Rates are low. And this is, of course, a pretty much favorable context for you. I just like you to expand a little bit more on what you were just saying. That was my question. I mean the market is clearly worried about inflation risk because of the steepening of the curve. You mentioned before that you changed a little bit the maturity, probably reducing of the bond portfolio because you're preparing for higher rates.

So that's my question. How this new context -- you already touched base on this, might change the activity? Some investors are getting more worried that the clients might be hurt on the bond positions. Is there any sensitivity of the -- in terms of long-term rates that you can give us that may affect more significantly your business? I mean any comment, qualitative, quantitative, is very useful at this point.

And also, coming back on the matter of the flows, again, I mean, really amazing in this sector. But I just wonder how much there is also a little bit of a tailwind given the usual sort of correlation between the peak of the markets and inflows in equity. And whether we -- how shall we look at the second part of the year when you actually specifically said that you are a bit more worried about the market performance? It's a bit of a question forward-looking rather than your business, which is great.

[Gian Mossa, executive]

Thank you, Domenico. I understand the question. I mean you are right, there is an excess of liquidity. There is some risk in -- between inflation to normalization of rates. And I think that all these factors are really positive for our industry because at the end of the day, as you know very well, the -- let's say, the quality of the professionals matters. And in this case, we have the products and the competence to expand alternative investments. Alternative is a broad concept in which you have to sell also dynamic strategies with hedging strategies and so forth. So I think that this market condition, the inflation risk, the excess liquidity with the risk of any strong -- of significant correction implies a better diversified portfolio. And in this case, I do see a competitive advantage.

The second even stronger, competitive advantage, and this is just more about Banca Generali than others, is that if you work out the net inflows and the relative net inflows of Banca Generali compared to the market, we have performed better when you have higher volatility, first of all, because we are less exposed overall to equity; second, because we are definitely less exposed to duration risk; and third, because, and this is probably the most important, we have, on average, the best professionals.

So I'm not worried of significant deceleration of inflows. I don't think we can grow every quarter 10% because it would be a little bit too much. But I do see a structural rebalancing between the traditional distribution channels and the financial advisory business. I think MiFID now -- so the introduction and the recognition of the financial advisers is important, and it was important for the acceleration of this rebalancing. It's a positive -- it's a sort of vicious circle in which the tractor for the financial adviser is getting lower and lower and the word of mouth is working even better. So the momentum counts and counts a lot and the financial advisers are working very well.

And I think that in this case, it's important to be sure to check nonselling approach. So this explain why I'm so conservative on alternative asset class and so conservative in any acceleration in the risk profile of the clients and so forth.

In terms of bond exposure, we built our banking book to be ready to catch any opportunities coming from steepening of the curve and the normalization release. So in the banking book, I do not see significant risk. On the clients' portfolio, the risk is even lower because, as you know, we have more or less EUR 18 billion, EUR 20 billion invested in traditional life insurance policies. It's no volatility. And so we covered the bond duration portfolio through this sort of established or the traditional life insurance. So we are less exposed to any volatility or increase of the bonds. And we normally deliver better results during turmoil compared to the [indiscernible]. So I'm pretty positive, optimistic for these reasons.

The last reason of, let's say, using such a bullish view is that I do see an acceleration in consolidation process in the banking system. It is necessary. Now the banking system has been frozen. You know what I mean. And sooner or later, we must normalize the situation. And normalization implies consolidation. And during consolidation, financial adviser accelerates. So there are several positive factors for the industry. And less downside for Banca Generali because, in my opinion, we are a little bit more conservative than others and the core position is a little bit higher than others.

And now -- sorry, I will hand over to Tommaso for the previous question of Gian Luca.

[Tommaso Russo, executive]

Yes. So the amount that we had to amortize is in the range of EUR 150 million, which is including both recruitment and ordinary incentive scheme. As a reminder that we amortize the incentive scheme through 5 years. So we are seeing it in there.

[Operator]

[Operator Instructions] Mr. Mossa, there are no more questions registered at this time.

[Gian Mossa, executive]

Okay. Thank you. Thank you all for the participation, and see you soon. Thanks. Bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.