Banca Mediolanum SpA

MIL:BMED

Earnings Call Analysis

Record-breaking Q1 for Banca Mediolanum

Banca Mediolanum delivered an exceptional Q1 2024 with net income soaring 24% to €220.5 million. The bank saw a 40% rise in net interest income to €220 million, driven by higher interest rates. Recurring commission income grew 11% to €290 million, backed by higher average assets under management (AUM). Managed asset inflows remained resilient despite market challenges. The operating margin hit €283.1 million, a 24% increase from Q1 2023. Banca Mediolanum added 62,900 new bank customers, up 11% year-on-year, reaching a total of 1.84 million. The bank's CET1 ratio improved to 22.9%, ensuring strong financial health and flexibility for future dividends.

Strong Start to the Year

Banca Mediolanum kicked off the year with one of its best first quarters ever, achieving significant growth across all key metrics. The company's net income reached EUR 220.5 million, a substantial 24% increase compared to the same quarter last year. This remarkable performance was driven by a combination of strong recurring commission income, which grew 11% to EUR 290 million, and favorable market conditions that benefited managed asset inflows.

Robust Revenue Growth

The company saw its core revenues bolstered by recurring commission income, fueled by higher average assets under management (AUM) and positive market movements. Management and investment fees totaled EUR 363 million, marking a 13% increase from the previous year. Notably, net interest income (NII) also saw a 40% year-over-year increase to EUR 220 million. The company’s revised guidance for NII now forecasts an 11% growth for 2024 compared to 2023.

Operational Efficiency

Banca Mediolanum achieved an operating margin of EUR 283.1 million, up 24% from the previous year. The company maintained a cost-income ratio of 39.3%, better than last year’s figure, highlighting effective cost management despite some timing-related increases in general administrative expenses. Additionally, performance fees significantly contributed to the bottom line, generating nearly EUR 30 million compared to virtually none in Q1 last year.

Customer and Asset Growth

The first quarter saw an all-time record addition of 62,900 new customers, marking an 11% increase year-over-year. Bank customers now total 1,839,700, up 2% since year-end. The company’s network of Family Bankers also expanded to 6,233, supported by extensive recruitment and training. Furthermore, positive total net inflows of EUR 3.1 billion beat last year’s figures by 2%, and managed asset flows were EUR 1.2 billion, reaffirming Banca Mediolanum’s leading position in the asset gathering industry.

Strategic Initiatives

To drive future growth, the company launched several strategic initiatives, such as life planning, which aims to enhance Family Bankers' capabilities in addressing customer needs and goals. The company also emphasized its continued support for sports events, notably the Giro d'Italia, to strengthen customer relationships and brand loyalty. These efforts are expected to generate significant future inflows and foster long-term customer engagement.

Financial Strength

Banca Mediolanum’s balance sheet remains robust, with the CET1 ratio increasing to 22.9% and the leverage ratio rising to 7.3%. This strong capital position provides a solid foundation for future expansion and supports the company’s ability to continue increasing dividend distributions. The financial stability reassures both customers and investors of the bank’s resilience amidst economic uncertainties.

Spanish Market Performance

The company’s operations in Spain mirrored the overall positive results, with net commission income and net interest income showing significant gains. The operating margin grew by 17%, and net income increased by 18% year-over-year to EUR 18.9 million. Total assets in Spain also grew by 7% to EUR 11.3 billion, driven by strong inflows and consistent mortgage volumes, underscoring the effectiveness of the company’s strategy in foreign markets.

Looking Ahead

Banca Mediolanum remains optimistic about sustaining its growth trajectory. The company expects continued strong inflows into managed assets throughout the year, targeting EUR 5 billion in managed asset inflows for 2024. Despite the challenges posed by a competitive landscape and shifting market dynamics, the company is confident in its ability to adapt and capitalize on emerging opportunities, leveraging its diversified and resilient business model.

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Banca Mediolanum First Quarter 2024 Results Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to turn the conference over to Alessandra Lanzone, Head of Investor Relations. Please go ahead, madam.

[Alessandra Lanzone, executive]

Good afternoon, everyone. It's nice to be back with all of you today. Before we start, please remember that in the Q&A session, you should ask your questions according to the language line you're calling from. In any case, the answers will be given in Italian with an English translation.So I'll hand this over to our CEO, Massimo Doris, who will give us -- will guide us through the presentation today and along with him, Angelo Lietti, our CFO. The floor is yours.

[Massimo Doris, executive]

Thank you, Alessandra. Good afternoon to everybody. I have the pleasure of sharing with you today the impressive results of the first quarter for Banca Mediolanum, and I know you agree, a very strong start of the year. We just wrapped up not merely a good quarter, but one of the best quarters ever in our company's history.So what made this quarter so special? Our figures not only underscore a period of solid achievements with substantial growth in all key metrics, but also reflect the strength and spirit of our business model, a model that continues to set us apart in the competitive landscape in Italy.We achieved record high results in our core revenues, namely recurring commission income, by far, the most important driver of our top line. As a matter of fact, average AUM in the period grew powered by both favorable market movements and positive net flows.Our strategic focus on asset management and particularly our equity gearing clearly pays off. Additionally, our net interest income still had some tailwind support from a higher-than-expected interest rate scenario. And the progress in NII, when looking at the previous quarter is proof of our flexible and strategic allocation and management of our bank assets.So what we managed to accomplish reflects not only friendly market conditions, but also our resilience and ability to leverage on our diversified business model.As you can see, Slide #4, we exceeded Q1 last year by 24% as net income reached EUR 220.5 million. As I've already alluded to, one of the most notable aspects of our performance has been the generation of a healthy net commission income, which grew by 11%, reaching EUR 290 million.Specifically, the growth in our recurring fees resulting from higher average AUM was backed by positive markets, but also by managed asset inflows, which, although lower year-on-year, were incredibly tenacious in an environment that is still punishing for inflows. In fact, management and investment management fees together totaled over EUR 363 million, surpassing last year's Q1 figure by 13%. They were also given a boost by the fees of the fixed income investment generated on higher AUM, thanks to the reduction in yields that occurred at the end of Q4.Our distinctive high-quality asset mix continued to support our strong margins. On a pre-IFRS 17 like-for-like basis, the recurring fees on average assets would actually be 215 basis points.Even though the fixed income funds represented a major percentage of our net flows in the past couple of quarters, the equity component of our customers' managed assets, nonetheless, reached an arrival 63%, as you can see in Slide #15. Of course, we cannot stress enough the contribution of the extremely resilient net interest income, which came to EUR 220 million, increasing 40% versus Q1 last year and making a 4% progress over Q4.Remember that we mentioned at the full year presentation that our NII wouldn't just hold firm in 2024, it would expand. And this is how it's playing out. Now in light of the latest market expectations, which are not so drastic as previously forecasted, given the scenario of a more gentle downward path for interest rates, we have revised our rate assumption for the average 3-month Euribor for 2024 from 3.4%, up to 3.6% again, while we maintained 2.5% for 2025. This brings our guidance of NII for 2024 back to what we guided for in November. In other words, an 11% increase compared to 2023. At this point, for 2025, we expect a relatively flat NII.We believe this goal is within reach, considering our demonstrated capacity to rapidly adjust to changing interest rates, managing all the moving parts to support profitability and control funding costs.Going back to the P&L, I want to point out our most outstanding result, our operating margin shares to an all-time quarterly high of EUR 283.1 million, making a substantial increase of 24% compared to Q1 last year. This clearly demonstrates that our core profitability continues to follow a solid and unwavering growth trajectory.Our net income also got some help from market-related revenues in Q1 with performance fees generating almost EUR 30 million versus practically 0 in Q1 last year. This mainly came from the 2 Italy-based funds that crystallize the overperformance anytime they beat their absolute high watermark and not just on December 31. Of course, in addition to any fees accrued on those unit shares of funds that customers sold in the quarter.Finally, I'd like to highlight our cost-income ratio, which came out better than last year at 39.3%, thanks to the income part of the equation with higher recurring fees coming from higher-than-anticipated average AUMs.As far as costs are concerned, the increase we saw in G&A in Slide #8, is largely explained by the different timing of a few expenses which ended up in Q1 and will be diluted over the course of the year, for example, the National Convention. The contributions to the banking industry also showed an unusual increase coming from a change in scope. In fact, as you may know, the Single Resolution Fund reached its planned funding capacity. So it was not allocated in Q1. At the same time, Italian banks were requested to advance the entire location for the deposit guarantee scheme fund to the first quarter.And on top of that, we've also allocated on a pro rata basis the new contribution requested by [ IVAS ] on the insurance reserves to the tune of some EUR 17 million for the entire year.And while we are on the subject of costs, I would like to point out that provisions for risk and charges were higher than last year when this line item benefited from the strong increase in interest rates, positively impacting the discount rate.Now moving on to Slide #5. I'd like to briefly comment on the business results for the quarter, which you are already familiar with. We registered positive total net inflows of EUR 3.1 billion, beating last year's figures by 2%. We managed asset flows ending up at EUR 1.2 billion, which easily places Banca Mediolanum in the top of the industry ranking for asset gatherers as is typical for us when challenges arise.These robust and resilient net inflows demonstrate the effectiveness of both our signature investment strategy and our productivity in anticipating customer needs with just the right offer. Here, significantly -- here, I'm talking specifically about our current promo offer at 5% annualized on 6-months' time deposit on new money, which expired on March 31, and as of today, has generated over EUR 2 billion.And additionally, I'm referring to our strong backing of fixed income mutual funds as a high-value alternative to BTPs, which are finally providing our customers with the opportunity to rebalance their portfolio effectively. This approach is also a reason why our net flows have been less impacted than our peers by the competition presented by Govies. In fact, we had fewer net flows into BTPs year-on-year despite a large Govies issuance in 2024 as well.Our customer-centric approach, combined with our innovative financial solutions continue to resonate strongly with our customers. What it comes down to is that we are able to generate positive and high-quality managed asset inflows in a competitive landscape that remains challenging, where high yields on short-term bonds pose a significant barrier to industry inflows.So we are confident about our prospects for strong inflows into managed assets for the entire year. Also thanks to reinvestments of expiring time deposit. Therefore, our guidance for 2024 is for some EUR 5 billion in managed asset inflows. As a result, solid net flows, coupled with stable deposits played a crucial role in leveraging favorable markets to push our total assets to a record EUR 125.9 billion at the end of March, marking an impressive 7% growth since the start of the year.Conversely, our credit book has remained fairly stable versus year-end at EUR 16.9 billion, mainly due to the ongoing decrease in lending, given the penalizing interest rate environment and the soft real estate market. In fact, loans granted were down 33% year-on-year. However, our loan portfolio remains of the highest quality with a net NPE ratio of 0.79% and a 12-month rolling cost of risk of 19 basis points, in line with our expectations.And lastly, general insurance gross premiums were weaker compared to last year, coming in at over EUR 42 million, mainly due to lower volumes of the policies connected to the mortgages, although new business of stand-alone protection policies was up 10%, in line with our longer-term objectives.Lastly, as shown on Slide 6, we can see that our growth drivers are demonstrating a positive trend. With an overall bright picture, the most outstanding item in the acquisition of bank customers, which marked an all-time record, adding 62,900 new customers by the end of March, 11% higher than the previous year, driven by our focused marketing initiatives designed to attract primary customers, and with specific reference to customers acquired digitally through Selfy, 8,300 were added on, up 16% year-on-year. As a consequence, bank customers totaled 1,839,700, up 2% since year-end.The expansion of the network stayed on course, supported by the recruitment and training of professionals from other sectors, in addition to the incremental introduction of new banking consultants into the franchise. The number of Family Bankers in the group at the group level reached a total of 6,233.As you have come to understand the program we call NEXT, plays a significant role in reinforcing the Italian network.As illustrated in Slide #36, by the end of April this year, 274 banking consultants were actively working as licensed financial advisers alongside their senior private banker or wealth advisors. Additionally, there are 152 banker consultants in training, currently progressing through their executive master program at our MCU Corporate University. Our objective for 2024 to reach a total of 400 banker consultants is well underway.To give you some color on the benefits achieved so far, the approximately 80 senior bankers who have been working with the banker consultant for at least 15 months, have improved their performance significantly. In terms of managed asset net inflows, they have gone from outperforming their peers -- their peer group by 23% to 32%. Additionally, the rate of acquiring new customers has more than doubled compared to their peer group.Lastly, I want to point out in Slide #6, our automatic investment services, which are crucial in driving our growth. Indeed, at the end of March, there were more than EUR 3 billion parked in the money market funds of the Intelligent Investment Strategy service and in the deposit account of Double Chance.These assets are poised to be systematically transferred primarily into equity funds on a monthly basis over the next few years. This strategy ensures a reliable baseline of future inflows and margins that we can count on, regardless of any other factors. Additionally, regarding our installment plans, please consider that nearly EUR 1.6 billion are automatically invested into mutual funds on a yearly basis.Now I'd like to shift your attention to the balance sheet ratios in Slide #7. Our bank capital position is exceptionally strong, offering a solid base for future expansion and unfailing resilience against economic uncertainties. This financial strength establishes us as a trusted and solid financial partner for both our customers and investors.Our CET1 ratio moved up even further to 22.9%, while our leverage ratio rose to 7.3%, leaving plenty of room for organic growth and allowing the Board full flexibility to continue to increase our general dividend distributions going forward.Let's move quickly now on to reviewing our business in Spain, as shown in Slide #31. The Q1 results for Spain are in line with the overall performance of the group, showing considerable gains in both net commission income and net interest income. In fact, the operating margin saw a notable growth of 17%, and net income showed a gratified increase of 18% compared to Q1 last year, reaching EUR 18.9 million.Total assets increased 7% since the start of the year, reaching EUR 11.3 billion with nearly EUR 8 billion in managed assets, up 10%. Net inflows ran to a total of EUR 306 million with a strong prevalence of managed assets in the mix, which were up to a positive EUR 261 million, 51% higher than a year ago.The credit book kept pace with year-end, up 1% to EUR 1.36 billion, mainly thanks to consistent volumes of mortgages granted. The number of Family Bankers remained largely flat, down 1% to 1,617. Remember, our focus has recently shifted towards enhancing the quality and productivity of the Family Bankers rather than merely increasing headcount with the objective of growing average assets per advisor.And we are particularly concentrating on the individual development of those who have joined us in recent years. Lastly, the customer count in Spain has exceeded 237,800 marking a good increase of 3% since the start of the year.Shifting focus and wrapping up with a glance of recent flows in Slide #33, April did not fail to impress even though the 5% promo offer had already ended at the end of March. Total net inflows at the group level registered over EUR 1 billion, bringing the total for the year so far to EUR 4.1 billion.Inflows into managed assets gained momentum along the way, reaching EUR 621 million in April, more than half of the entire first quarter, bringing the year-to-date figure to EUR 1.8 billion.It's worth bringing up that the process of converting the EUR 1.9 billion from matured time deposits linked to last year promo offer into managed assets is advancing steadily and is on track. In fact, 55% of the new money that customers participate in the offer brought into the system is now in managed assets.While we are on the subject of commercial activities, I would like to mention a new strategic initiative we've just presented. I'm talking about life planning, a new advanced platform, which is fully integrated with Banca Mediolanum CRM to support our Family Bankers in the analysis of need and goals of their customers.In fact, life planning is a digital ecosystem that engineers our original and proprietary investment advisory strategy, creating an operating environment, which is accessible directly on the Family Banker's laptop. It measures together and integrates all the various tools we provided our advisors over the years into a question led digital process.In a nutshell, life planning is an integrated experience designed to optimize and enhance the interaction with our customers and build solutions tailored to each household. Our Family Bankers are currently going through intensive training and will be ready to go in the second half of the year.And talking about enhancing the interaction with our customers, let's not forget about the hard work that we've always dedicated to the area of marketing events, utilizing a distinctive approach that distinguishes us in the industry.Our events, and to give you an idea, there were more than 2,000 last year, represent a one-of-a-kind opportunity to concretize the value of the relationship with our customers and prospects, and to get up close and perseverance in sharing of our proposition.In fact, one of the events I'm most proud of is the movie about my father and his values called Ennio Doris - C'e anche domani. Many of you are aware that the film premiered on April 10, with 21,000 customers invited and was subsequently released for 3 days in more than 100 theaters all over the country. In those 3 days, the movie was the #1 box office hit with a total audience of over 38,000 viewers.Needless to say, our Family Bankers took this as an opportunity to engage with their customers at the local level. And there are another more than 100 showing slated with 14,000 customers and prospects invited over the next several weeks. We are around 120 events at the moment, and it's not closed yet.I'm pleased to report that the feedback we received on the movie indicated that it was greatly appreciated and not just from an entertainment or emotional point of view. We are also seeing that we can expect positive reaction in terms of business as well, particularly increasing share of wallet.And while we are on the subject of engagement with customers, we can't leave out the Giro d'Italia. The race start was last Saturday. And this year as well, for the 22nd consecutive year, Banca Mediolanum is the official sponsor of the Mountain Grand Prix, climbing the highest peaks of the Giro with the blue jersey. We are honored to support this celebration of sport, which brings people together and showcases the Italian spirit.The tradition of the Giro d'Italia with its itinerary route that changes every year, represents a unique opportunity to meet our customers and all the enthusiasts by involving them in numerous events and activities dedicated to them. To give you an idea of the numbers involved, we'll organize 84 events with 1,400 attendees expected, while another 1,800 will participate in our 11 Mediolanum parties. And all this with the active involvement of our Family Bankers.On top of this, every year, we organize Un Giro nel Giro, an amateur cycling circuit dedicated to customers and cycling lovers. This year, there will be 25 events from touring, where Giro started to Rome where it will arrive, during which 6 legendary cycling champions and Banca Mediolanum ambassadors will ride in the blue jersey alongside with the customers. This initiative will give the 1,500 registered guests the opportunity to test themselves on the route of one of the most prestigious cycling races in the world alongside the Italian formal champions, a few hours before each race. Just imagine the level of coordination, effort, and passion it takes to pull all this off, and the level of loyalty this creates with our customers.To wrap things up, I'd like to say, we are really proud of this quarter results. They provide a solid foundation for optimism about the future of our business. As you've seen, our business model continues to be pivotal in making a difference. Of course, we are fully aware of the ongoing challenges, and we recognize the uncertain nature of the financial backdrop. Nonetheless, we are confident in our ability to manage future complexities and capitalize on emerging opportunities to sustain our growth trajectory.Before moving on to the Q&A, I'd like to sincerely thank you for your ongoing support and confidence in our company. We've seen that the market is more and more appreciating our potential, although our valuation continues to like peers. Even though to quote one of our analysts, Banca Mediolanum is the sweet spot in Italian asset gathering, and I agree. I truly believe we are leading the way.Thank you very much. So now we open the Q&A.

[Alessandra Lanzone, executive]

We can open Q&A session. Thank you.

[Operator]

[Operator Instructions] The first question comes from the line of Elena Perini, Intesa Sanpaolo.

[Elena Perini, analyst]

[Interpreted] I have 2 questions. The first one is this. Aside from what you have already recorded in the first quarter, I'd like to know how performance fees are faring for the whole group. We know that you account for performance fees in the fourth quarter, but could you give us any guidance on how fees are trending, performance fees are trending?Second question, could you please provide a guidance concerning inflows into managed assets? March and April data seem to show a nice acceleration. So we've seen that with this type -- we see the BTP Valore is doing fine, but not as fine as previous issue. So I was wondering whether the acceleration of inflows into managed asset would continue or not.Third question, do you have any exposure to the super bonus loans? And if this is the case, those are loans that the government backed for the renovation of buildings. And if this is the case, if you are exposed to this, would you be exposed to the reduction of the backing by the government to 4 years from previously 10 years subsidies?

[Massimo Doris, executive]

Let me start from the beginning with the question about inflows into managed assets. At the very start of the year, I said that I expected greater inflows into managed assets, but with a different trend. Last year, we started off real fast and then inflows slowed down a bit. This year, we had a slower start, but then we accelerated. In January and February, we were 30% below the inflows of the first 2 months of 2023 -- 40%, sorry, I stand corrected. In March, we closed the gap, started to close the gap. And in April, we closed the gap completely, and we are slightly above the watermark of last year. And I think we continue to perform well in terms of inflows into managed assets.BTPs last year were extremely attractive. They're still very attractive, but it was something brand-new, a 3.5% or 4% interest on BTPs. And still we pulled off the #1 inflow into managed assets in the market. And if we did that back then, I think that today, we can do even better. So I think that the robust inflows into managed assets are to continue. As far as BTP Valore is concerned, as of yesterday, our customers have bought only EUR 108 million worth of BTPs, which is well below the amount the participation into past issues. So BTP Valore is being successful. It's being bought, but not as much as it used to in previously.As far as super bonus and the performance fees, I hand it over to our CFO, Mr. Lietti.

[Angelo Lietti, executive]

[Interpreted] As far as performance fee, we have already accounted for the first quarter. We have 29 funds that are having a 4% advantage over the run rate and 191 funds that are lagging behind. Currently, our projection is EUR 100 million, including those we have already posted in March. As far as exposure to super bonus loans or not, it all depends on whether the regulation is going to be retroactive or not. In absolute terms, nothing changes. But if we go from 5 to 10 years, income will be spread over a longer period of time, but the absolute return will be the same. So instead of cashing in those, that income earlier, we will cash it in over a longer period of time. We still are still waiting for the final word by the government, but the exposure is not high.

[Operator]

[Operator Instructions] Next question comes from Luigi De Bellis, Equita SIM.

[Luigi De Bellis, analyst]

[Interpreted] My first question is whether we can get an update with respect to the most significant promos and your strategy considering that there is a greater space for promos, considering that you have a higher margin on net interest income?Second question, I would like to ask something about the life planning program. Do you have any targets that you might share with us? What type of productivity improvement or additional flows would you believe you can get through this initiative?

[Unknown Executive]

[Interpreted] With respect to initiatives where we can transfer deposits into managed assets with Double Chance, we just have the 3% and there are nothing new there. There is another initiative whereby the Family Banker -- by the way, this is what we call a welcome bonus for new clients. So the Family Bankers can recognize a 1% advanced to the client on the assets that are being provided by the client. And if the Family Bankers offers this 1%, the bank is going to add 2%. So basically, there is a 3% advanced on assets to be managed, where 1/3 is by the Family Banker and 2/3 by the bank itself.Of course, this initiative has just started because, of course, the network had to sort of crunch numbers to see whether this 1% they would have to invest had any logic or any reason to be. And it's just being used now. It starts to be used now, and they are doing that only for those customers that really have to be attracted and have to be convinced because of their clients that are already well established, they would not use this 1%.I would like to remind you that in any case a Family Banker has all the reasons to push clients to transfer their money parts and deposits into assets under management because, of course, there would be no return. There are government bonds, where the Family Banker gains nothing. And so they really feel the pressure of pushing clients to transfer their money from deposits and government bonds to managed assets.As to life planning, as I said during the presentation, they are being trained right now. Of course, we started with the Wealth Advisors and private bankers and little by little, we get down the network. And in July, some will complete their training, but not only will training -- I mean, apart from ending their training in mid-July, then there is all the experience they have to build up and using this type of tool.There are a handful of people who -- a handful of Family Bankers that actually actively took part in the building up of this platform, and they are really enthusiastic. They are using this with their clients and they are really reaping very good results because on the one side, by using this program, they are able to gather information that they would otherwise not get hold of.And second thing is that a client sort of open up more, they speak more, they think more about their life objectives and targets, and therefore Family Bankers can really work better. In some cases, some Family Bankers said, I have been working with clients that have been my clients for years, and I've been using this life planning program. And really, on the one side the client gave me a very good feedback because they perceive a very strong professionalism. And on the other side, they would transfer money that they would have with other financial institutions. I knew nothing about even though I have been known them for years and years, and they would invest them with me.So there is a very good experience with the actual use of this platform, not only because we get more information, but also because our Family Bankers can work better, which means that our clients will be more satisfied, will be more loyal. And certainly, if they are going to talk about us with friends and other people, and new clients will come on board. And it's a very valuable circle.

[Operator]

The next question comes from the line of Marco Nicolai, Jefferies.

[Marco Nicolai, analyst]

[Interpreted] In April, inflows into managed assets were very robust, which were the best products? And what kind of dynamics you reported? You made a reference to fixed income funds. And I guess those actually drove inflows into managed assets. Can you also provide guidance as to the margin is concerned? Because I think that the margin on these products probably are lower compared to equity funds. And considering that interest rates are declining and are anyway may cause a reallocation towards fixed income, I'd be interested in the guidance. Also, could you provide a guidance on operating costs? These are my 3 questions.

[Unknown Executive]

[Interpreted] Let me take the second question first. The guidance is plus 10% over the year. We reported a plus 12% due to the timing of certain expenses and costs compared with last year, specifically the National Convention that if it's held in a given quarter would obviously push costs up. So plus 10%, but the cost/income ratio, which is the thing we have to focus on is below 40%.I keep repeating that if I double cost, I can also triple revenues. I would double costs. I would subscribe to it immediately, but this is not what happens. That is why I say that focusing on cost/income ratio is crucial.First question of yours was about the inflows into managed assets. Well, 100% of net inflows into AUM was made, thanks to fixed income funds. Equity funds were negative, in negative territory. But equity assets actually went up, were pushed up by rising markets. But it is obvious that fixed income funds have a lower management fee compared to equity funds. But this is no concern. Just the opposite. I'm really happy that new inflows are being channeled to bond funds -- to fixed income funds because this is going to stabilize more client portfolios at times of high volatility.And above all, inflows into fixed income funds had fallen to practically 0 because of negative interest rates, and our portfolios are being rebalanced, thanks to higher rates. So true on average, I think that the management fee is about 40 basis points lower than equity funds. But if this helps clients stay invested and have a very long holding period because their portfolios are more stable, less volatile, then this is more than welcome.But at the same time, what is happening is, the IIS, the Intelligent Investment Strategy, has been widely used by us. And the money market fund level, which had reached EUR 3.5 billion, went down to EUR 1.5 billion, EUR 1.7 billion, which means that a lot of money that used to be parked in the money market fund was -- a lot of money left the money market fund to be switched into other types of funds.As I was saying, fixed income funds are being sold to customers, and these funds are competing head-to-head with BTP. BTPs have an interest income of 3.5% for customer. We have certain fixed income funds so that net of fees can generate 4.5% or 5%. So do you think clients would invest just in fixed income assets in BTPs generating a 3.5% interest income or you think that they want to invest in assets in fixed income assets that have a higher interest? And also, of course, they want to invest in fixed income to rebalance their risk profile.But at the same time, I have to say, we have restarted in a very robust way, the Intelligent Investment Strategy allocation because we are looking forward towards the future of the equity market. We have identified the reversal in trend at the very beginning when the money market funds collecting the money for the later switch into managed assets. So as I was saying, we identified that reversal in trend early. And this shift, this reversal of trend is absolutely positive because it's laying the groundwork for good inflows into equity funds as well. Should I look at fees only? I would have to advise customers to invest in emerging market funds only, but that would not be appropriate. I know that they have to go for a very diversified exposure instead.So as far as margins are concerned, as I was saying, we have a mix of margins because we allocated a lot of equity funds in the past. And so at present, we have something like 215 basis points worth of margin. This margin is going to go down for sure. It will decline a bit, but I can certainly say, we will still be market leaders from this point of view, not because our funds are the most expensive of all but because the product mix will always be different and distinctive.So even though today, we have a slightly negative inflows into equity funds. Nonetheless, we have 63% of equity exposure among our -- among our clients. And I know that we are really unique from this point of view. The point in time when we had the lowest equity exposure was 49%, a level which was hardly ever reached by other asset gatherers and that was our minimum. So if it goes down from 63% to 60% or 58%, I think this is not a worry for us.

[Operator]

Filip Prini, Kepler.

[Filippo Prini, analyst]

[Interpreted] Just one question, if possible. Can you provide an outlook on banking fees? I saw that they ran very strong over the quarter. There has been a sort of change in classification. So maybe we want to have a like-for-like comparison with respect to how they were classified in the past. But I would like to have a comment on the outlook for the year with respect to these requirements?

[Unknown Executive]

[Interpreted] Yes, there has been a reclassification for banking fees. By the way, we have been reporting a plus 1%. So compared to last year, they remain flat. But if we take a look at 2023 data, you will find this difference because of this reclassification, in fact. Up to last year this line item included the net result, gain or loss of credit and debit cards. Whereas now, we brought them down. Under banking service fees we post revenues. Under other commission expenses, we post expenses or costs.What we see here, EUR 50.6 million, actually, last year were EUR 44 million, more or less. As a consequence, also the EUR 31.5 million was lower and by EUR 31.5 million, I mean other commission expenses because, of course, they were netted in the line item above. Having said so, we believe that they are going to follow a rather stable performance and a rather stable trend. And this line item is affected by the number of certificates and by their maturity, how many certificates we sell and their maturities.Say that net inflows is 100, net inflows into asset managed assets, and 1 year we do it half in funds and half in certificates. And the year after, we have 120 in terms of inflows into managed assets, but we have 20 certificates and 800 in funds. We will see banking fees going down because this is where we have certificates of fees. But this is not bad because in the meantime, inflows into managed assets has increased, but it was transferred to other products. Since the certificates are products that are highly exposed to the payout characteristics, so that is the proposal we make to clients with respect to market volatility and interest rates. At times, certificates that are designed can be extremely interesting, and therefore, they sell a lot. In other cases, the certificates that are structured are less interesting, you can really not distribute that much. And therefore, customers will invest in funds. We are not missing on the investment, but we just change where they are investing. And therefore, this line item may change a little, depending on circumstances, but either they are posted here or they are posted in the fees, but in many cases, in management and fees.

[Operator]

Adele Palama has the next question, UBS.

[Adele Palama, analyst]

[Interpreted] Two questions. What's your guidance on NII? You said that you expect an 11% increase in 2024 versus 2023. And you expect a flattish level in 2025. But I guess, compared to 2024, because if I got it right, you said that you assume a 2.5% yield in 2025 compared to 3.6% that you expect in 2024. So I'd like to know whether you expect NII to be flat in 2025 compared to 2024? And what are the tailwinds that can offset the decline in rates?And also, the second question is about banking levies and contributions. Looking forward, what's your guidance as far as that line item is concerned?

[Unknown Executive]

[Interpreted] A flat level in 2025 is, of course, compared to 2024. So that 11% would be crystallized in 2025. Why do we have a flat NII trend if we expect Euribor at 3.6% in 2024 and 2.5% in 2025? Well, it's easily explained. There's a significant drop in rates that will be compensated for by 2 elements. On the one hand, the fixed rate securities that were bought by treasuries and are not sensitive to the decline in rates.Actually, there are 3 elements. Second thing is volumes. We expect in the second half of the year when interest rates will start falling. Also, mortgages and loans will restart again with a positive income impact on volumes. And also the cost of inflows -- the cost of funding, I'm sorry, will be reduced if rates go down. So proportionately, the cost of funding will decline hand in hand with the decline in rates. So all of these 3 elements together make us expect an NII flat in 2025 compared to 2024.Then you had the question about the contributions to the banking industry. So EUR 17 million that have already been forecasted, but we have provisioned for 1/4 only, and that is the contribution to the insurance reserve to the guarantee fund for the life insurance. A residual portion of provisions for the insurance contribution has already been set aside. And then the deposit guarantee scheme has reached full capacity, so -- hasn't reached full capacity and that had already been accounted for.

[Operator]

[Operator Instructions] The questions come from the line of Hubert Lam from Bank of America.

[Hubert Lam, analyst]

I just got one. For your deposits, they grew by about 5% in the quarter, and yet your cost of funding on these have not really moved. Can you explain why is that the case?

[Unknown Executive]

[Interpreted] Bear with me, I was looking for the slide. So if we take a look at this slide, the retail cost of funding grew slightly from 0.85 in Q4 2023 to 0.91, thanks to the supply. But why did it grew so little? I'm sorry, thanks to the offer we made, the promo. We made a 5% promo offer, but the last plan entered in December. So the effect we get from this is just a couple of weeks at most.So although they may be opened their deposit in February or March, the 5% will be triggered once the wage is deposited or their salary is deposited on the Banca Mediolanum account, which doesn't happen immediately. And most importantly, this lasts very little and has a very little impact on the quarter. If we take a look at the overall cost of funding, there is treasury there that kicks in as well. This went down, and therefore, the cost of funding was flat.The retail cost of funding, in any case is going to rise in the second quarter, driven by the EUR 2 billion that we were able to gather in the first quarter, whose cost, however, is going to be recognized in the second part of the year. And they're telling me that the average retail cost of funding, we expect, will be 0.96, so 96 basis points across the year, which means that it's going to be slightly higher than 1%. But if we average it out, then the average is going to be 0.96.

[Operator]

The questions come from the line of Isobel Hettrick from Autonomous Research.

[Isobel Hettrick, analyst]

I have 2, please, and again, very related to NII. So the first one on volumes. So at full year results, you guided to around EUR 3 billion of lending and mortgage activity in 2024. Do you still stand by that guidance? Or do you want to update it at all?And then secondly, on the cost of funding into 2025 as we get rate cuts, how fast do you think you'll be able to pass rate cuts through to retail customers? And do you think it will be one for one? So if the ECB cut rates by 50 basis points, will you be able to pass on the full 50 basis points? Or do you think it would be something like 25?

[Unknown Executive]

[Interpreted] Well, as far as lending volume is concerned, we expect a 5% increase in volume. While as far -- and so in 2025, the cost of funding should decline by 15 basis points. This is just the beginning of 2024. So a lot remains to be seen. But the expected decline is fully in line with the expected interest rate decline. Should interest rates decline less, the cost of funding will cost less. And if the rates decline more, the cost of funding will decline more because these 2 parts move in parallel.Isabel, are there other questions?

[Operator]

We have no further questions on the English call. I will now hand back to the Italian call. Thank you.Thank you. I hand it over to Ms. Lanzone.

[Alessandra Lanzone, executive]

[Interpreted] We thank you all for your time and attention. See you on August 1 for the presentation of the first half of the year results. Thank you.

[Operator]

The conference is over. We thank you for participating, and you can now disconnect. Thank you.