Banca Monte dei Paschi di Siena SpA
MIL:BMPS
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Banca Monte dei Paschi di Siena SpA
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Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the MPS Group's Second Quarter and First Half 2020 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luigi Lovaglio, Chief Executive Officer and General Manager. Please go ahead, sir.
Good morning, everybody. My warm welcome to all of you. Many thanks for joining us for Monte dei Paschi first half results. It's a pleasure to have also the opportunity to share with you different progresses in our plan execution. But let me start with some highlights on our results.
The net profit result at EUR 27 million, in the Q2 was EUR 18 million. Year-on-year comparison is not effective because there are some gains on securities and there was a lower level of provision in the last year.
The first half result has benefits -- we have also benefits of a strong contribution from gross operating profit that is showing at 12.6% year-on-year. With a slight higher growth also in net interest income that gave a big contribution to the results.
Operating costs are under control. And what is important, we already executed [indiscernible] of our business plan by selling EUR 900 million of NPEs portfolio. This was also done ahead of the scheduled plan. This was for the end of this year. We successfully implemented action in order to get it already done at the beginning of August.
First half cost of risk at 57 bps and is already incorporating the impact of the sales of portfolio. Fully loaded CET1 at 10.8%, stable versus in Q1. And the CET1 phased-in is at 11.7%.
Now just to give also some updates regarding the execution of the business plan. This isn't something that we would like to keep as a sort of regular [indiscernible] path while we are presenting. So very important information that is already available, but I think it was 1 of the key for us in order to go towards the increase of capital transaction was the DG Comp authorization that gained the extension of the restructuring period and completed the revision of the commitments related to the Bank.
And thus, we were already mentioning, when we were presenting our business plan, the commitments are consistent with our business plan. On the 4th of August, we successfully completed an agreement with Trade Unions for the 3,500 voluntary exits through the Solidarity Fund. And this is another important step, because through this transaction, we are going really to implement the key of all the actions of our plan.
Other important achievements. We extended the syndicate for our underwriting, increase of capital of EUR 2.5 billion, other 4 banks joined the team, and today we have 8 banks supporting Monte dei Paschi for the increase of capital.
The shareholders' meeting was called for the 15th of September and would be the shareholder meeting that will approve the rights issue and the related resolutions.
Now as I was mentioning, first half with a profit of EUR 27 million. As I said at the beginning, it is not comparable with the previous year because last year we had EUR 80 million higher capital gains, then the level of coverage of provision was EUR 60 million lower, and we had also additional benefit in terms of tax that this year are much lower.
Then gross operating profit. I think this is 1 of the first positive message. On a comparable basis, we have an increase of operating income. Operating costs are slightly down in combination with the 2, enabling us to have gross operating profit growing by 3.4% quarter-on-quarter.
Then we will move to the 6 months. You can see that we reported, in terms of operating income, an important blow of 2.8% year-on-year, then you will see this mainly was thanks to the performance of net interest income. Costs were kept flat. So thanks to that, we have a double-digit growth in operating profit on a comparable basis if we exclude the capital gain that we had last year and the one that we had at the beginning of this year.
Interest income, you know that we are one of the banks that will benefit the most of the increase of interest rates. We are already observing some [indiscernible]. We have, in the second quarter, net interest is up more than 10% year-on-year and 4.3% quarter-on-quarter. So we have an improvement of the spread, thanks particularly to the decrease of the funding rate.
If we look at the performance after 6 months, we have 12.8% growth year-on-year. And this is, again, thanks to the cost of funding, the decrease that will be kept as advantage for us for the remaining part of the year. In terms of volumes, we are keeping growing in retail, which is the strategic part of the loans where we want to grow the most. We are also enjoying some growing terms of the business at the second segment, which, again, is focused with business plan. As you can see, we have a growth year-on-year of 1.5%, while on retail, we have grown 0.8%.
Funding composition. We are slightly decreasing our retail, just because we have term deposits down, because they are the most expensive. This is part of the strategy of decreasing the cost of funding. We have a selective growing corporate. We disconnected also some additional business we can get by customers that are using the current account mix transaction.
Portfolio. We are keeping and we will go ahead in keeping with the low profile. We want to have a very risk -- risk under control. As you can see that the part of portfolio which is most sensitive has a very short duration, because 50% of the maturity of the portfolio is less than 9 months.
Fees and commission. I want just to draw your attention on the aspect of the fees and commission that are the one that we call are more connected with customer activity. So what we call banking fees, we are resilient. So we are keeping the level of last year, even having a slight growth quarter-on-quarter. Then on the wealth management fee, we are keeping the level of EUR 100 million per quarter. And this is something that is showing the quality of the revenues of this bank.
Clearly, we are suffering, I think, as all banks, in what we call upfront fees due to the volatility of the market, which is still present in the market. Then, after six months, this is just a confirmation of what we said before, resilience on banking fees, slightly growing what we call continued increase, and down in what is much more connected with the market volatility.
This is another important slide that is showing in the slide of our what we call indirect funding. We are slightly going down, but we are really following the market effect. So we are even slightly better if we see bancassurance and the market is going year-on-year minus 9%. We are just going slightly below, minus 8%. So we are trying to be focused on what is one of the key pillars of our strategy.
Costs. We are showing year-on-year total costs flat, slightly down quarter-on-quarter. This will be a sort of tendency that we won't like to keep for each quarter. And the decrease is mainly due to the non-HR costs in this quarter. But hopefully, we are going also to have some savings on HR costs. After 6 months, the trend is the same. Total costs are slightly down. HR costs slightly down. In this case, we have non-HR costs slightly up, but the trend of quarterly decrease will also influence these dynamics in the next presentation.
NPE stock. Particularly through the sales, we decreased by 25% the stock of our NPE. Today, it is EUR 3.2 billion. We improved significantly our gross NPE ratio down by 100 bps. And what is also important, we really reduced the amount of bad loans just above EUR 1 billion.
And I think this is an important achievement, and is giving us also comfort in our projection in terms of cost of risk and is also allowing us to be focused much more on [indiscernible] portfolio, where probably through a specific focus, we can have also some benefit in the future.
Then coverage and cost of risk, the coverage pro forma is 45.6%. It is clearly down after the sales, but we are almost at the same level of last year. We are sure that we are going to recover the coverage higher in the coming months, but it was important for us to really drop the stock of NPE by 25%.
Cost of risk is at 58 bps. It is already incorporating the cost of the sales that was already included in our results. And clearly, it is also influenced by the same. But current environment and what we did and what we are now observing in terms also of the [indiscernible] rate is keeping us comfortable on the projection of the coming months, and we are some way planning to keep the cost of risk under control.
Capital. Fully loaded CET1 is at 10.8%, plus 18 bps year-on-year, flat quarter-on-quarter. The phased-in is down mainly due to IFRS-9. Risk-weighted assets slightly down and stable year-on-year and stable quarter-on-quarter. Now let me elaborate a bit on this slide.
So we reported an increase of what we call extrajudicial claims. It's also something we can call institutional rights. These are simple letters that are sent to the bank with an amount of claiming that in most of the cases is characterized by lack of documentation, lack of legitimacy, and causal nexus.
Moreover, these extrajudicial are sent by the same consultant company on behalf of some institutional investors. So it's a sort of serial claims. As we are a serious institution, we are treating whatever is coming to the bank seriously, and we analyze deeply what is coming.
In this case, we ask also some external legal experts to give their opinion. And according to this bank legal expert, such kind of claims are generating strong doubts in terms even of accounting obligation for the bank to make provisioning. Despite that, the bank created provision. The fact that these are serial claims, i.e., just repeated, are coming from the same consultant company. And proof of that is that we got also the beginning of August another claim. So due to the nature of this kind of claims, the fact that we observe, in most of them, even a sort of undetermination on the amount that is written on this letter about the dimension of the claim, the timing when this claim is addressed, moreover, is -- all of them don't have documentation proving anything.
That's why this time we decided to give mandate to the lawyers to evaluate any legal action to protect the rights of the bank. Now just to add some additional consideration to the position of the bank, we were already saying that the bank has a very rigorous approach in managing all the claims and the track record that we are experiencing in the last month is confirming that we are on the right path.
So just from the beginning of 2022, we had Florence Court decision in favor of the bank, Milan Appeals Court in favor of the bank on the 6th of May. Moreover, in May 2022, there was a Milan Appeals Court judgment that fully discharged the former Chairman and General Manager in the criminal court case 2008 to 2011, this is an important portion of all the claims that we have.
And this may pave the way for favorable development in all serial cases. That's why the reason even if we have one particular extrajudicial claims on financial information, that is the one where Vigni and Mussari were practically discharged. One of this case is moving to the court case.
Now let me just conclude by recapping. So we reported a net profit after the disposal of EUR 900 million of NPEs, dropping by 1/4 the total stock. The operational activity of the bank is showing resilience. We are moving at a pace of double-digit year-on-year, and net interest income is giving strong comfort with the assumption of our plan even more conservative.
NPE ratio went down to 3.9%, and the coverage ratio is 45.6%, slightly below the previous year, but is also leaving signs that the sales portfolio will allow us also to restore a better coverage in the coming months. We have a stable position in terms of CET1, 10.8%. And what is quite important is we are progressing in execution of our business plan.
I think it is really important to underline that we presented the plan 40 days ago. And in 40 days, we achieved it. We signed agreement with Trade Unions for 3,500 voluntary exits. We sold the portfolio. DG Comp authorization came. We already filed ECB application for the General Meeting of Shareholders that was called for the mid of September. These are all signals that the bank is progressing not only on the commercial activity, but full steam in order to implement the plan. And we are confident that we will be successful and it would be difficult to stop our determination. Thank you very much. We are available for questions.
[Operator Instructions] The first question from the conference call in English is from Alexei Lougovtsov with Bank of America.
It's very good to see that you remain profitable quarter after quarter. And my question is about the capital increase. The government committed to participate at least proportional to the size of the government's stake. But now is not the best time for maybe bank equity raises in the case private sector doesn't contribute enough. Do you think there can be a greater support from the government in excess of this proportional participation?
As you know, the condition for the increase of capital should be a market base increase of capital. So we don't foresee any situation where the government should increase its portion. And despite the environment is quite difficult, we are confident and we are progressing and making everything, the processes in place in order to be there and to start our [indiscernible] fund.
The next question is from Giovanni Razzoli with Deutsche Bank.
Three questions. The first one is on the [indiscernible] generation in the second quarter. You have commented that the quarter-on-quarter decrease was mainly due to a slowdown in upfront fees. I was wondering whether in the second half you plan to revise a bit your commercial strategy or whether you will follow the market evolution to remain more defensive in terms of commercial approach, so to have an idea of the second half trend for the fees?
The second question, clearly, we asked this question to all the banks. If you can please provide us with guidance of the NII for '22 or '23 as we are entering into a significantly different context in terms of NII compared with the last 10 years, and you mentioned you may benefit significantly from the reduction in the cost of funding? So if you can share this with us?
And the last question, I apologize for this, but I'm absolutely not familiar with the legal risk, legal environment, so on and so forth. So if I take your Slide #21, and I see 3 bullets, I will try to put it as simple as possible. So shall I read this that the first 2 bullets or the court decision in May and the previous 1 are favorable of the overall position of the bank, while the August 2022 is not? Is my understanding correct?
Giovanni, I'll answer the first one the last. So in terms of strategy, I already represented in the plan the idea that we want to be focused on [indiscernible] management. So that's why we are also changing the business model by increasing the number of, what we call, premium adviser; revising the portfolio, the composition of portfolio; also optimizing the platform that we have, it's called [indiscernible] for better understanding the needs of customers and then in the value proposition would better fit the customer profile.
So all things that we believe that will give additional boost to the growth of this kind of business where new capacity is really genuine. No, it's not because of me, it's because of them, because I just joined the bank and I can enjoy a strong position that this bank has in terms of capability in asset management, bancassurance activity.
Now about this slide, probably we were not enough clear. So the 2 sentences are in our favor, the third 1 in May '22 is in our favor. What we are just connecting the last 2 bullet points is that we had [indiscernible] positive judgment discharging fully the former Chairman and General Manager for we call this criminal court case, 2008 to 2011.
And we are just seeing that one of these extra judicial claims on financial information was transformed in the court case, but covering the same topic for which there was the total discharge. We wanted just to connect out these kind of deals that are unfortunately consuming a lot of time in the bank. [indiscernible] is necessary for these kind, I want to say, of matters.
Really, to be clear and to expose in a very strong way how we are determined to solve a decision at least to address in a proper way and to make our reason valid to defend in front of everybody, right? Now on technical things regarding net interest income, I'll ask Andrea.
Thank you, Giovanni. So on net interest income, there is, let's say, a mix of FX that we can expect in the next few quarters starting from, let's say, the CQ1 forecast on the TLTRO. On the one hand, as planned, we will not have any more bps contribution coming despite of the special [indiscernible] on 28th of June.
On the other hand, the increase of the ECB depo rate by 50 bps, we reduce the cost of our deposit with ECB, and so this will be a positive. And this is about our position with ECB. All in all, given these conditions, the expectations are better than we initially [indiscernible].
Then coming back to the commercial dynamics, they look positive. First of all, the 6-month Euribor, to which the bulk of our variable loans are indexed, is almost at the level that we were envisaging in the plan for '24, so now it is 0.6%-plus roughly. And of course, this will have a positive impact already in July. The average rate on loss is 30 bps higher than previously, because the base rates have started increasing in June, and also on the new business, we see spreads that are above the threshold.
So the combination of all the effects makes us optimistic as we were expecting the NII might be a good surprise compared to the expectations that were embedded in our business.
The next question is from Jakub Lichwa with Goldman Sachs.
A few questions from me. The first one is about the agreement that you -- rather the business plan you agreed, I think, a little over 4,000 exits. And that's on a gross basis, I believe. And then you -- extraordinary basis. And then you have agreed with [indiscernible] 3,000 on a gross and under 2,000 on a net basis. Could we please reconcile these numbers? That will be question number 1.
The second question is about the nature of the pre-underwriting agreement. If I'm honest, I'm a little surprised that you have -- well, positive for you, obviously, but a little surprised that you've got quite a lot of banks joining the exercise in the context of the operating environment.
So I was wondering how committed, I suppose, the banks are at this stage? And what are some major conditions attached to it? And then a third question is on the legal claims. I mean, you seem to be adding them right now. It's not a very convenient time, I suppose. What would you say are the chances of resolving some of those claims ahead of the capital raise, please?
And maybe a final question just on that Slide 20, 21, with regards to the claims, you are saying that one claim has evolved into a judicial one in the court case. And then you also added EUR 0.8 billion of extrajudicial ones in August. I suspect these are separate settings? So that's it for me.
So thank you. I will answer to the first question. So the agreement with [indiscernible] is covering this voluntary scheme. So we have planned 3,500 people to leave the bank according to these special conditions that are connected with this. The number of people eligible for this fund are 4,084.
So in our plan, we assumed sort of accept rate, situation rate around 80%. And according to our estimation, this 80% will bring a benefit of EUR 270 million per year in terms of lower cost. In order to fund this exit, we plan to have extraordinary expenses of EUR 800 million.
Now the agreement with Trade Union is an agreement where we like also the idea of injecting the bank with new energy. But the conditions are set in a way that there is a commitment to meet during the planned period in order to define a plan of providing once the condition to do it are in place.
So we will monitor it. We will be closely [indiscernible] with unions, but for the current period, we have just planned to have this action consistently connected with the development of the plan in a positive way. Now about the last point...
Okay. So just -- sorry, apologies for jumping in. So just to agree, so you're essentially partially addressing the 4,000 exits for the time being to have some sort of breathing room, if you will, and you will address the rest over the course of the plan with the unions? Is that correct?
No, no, just to be clear, this voluntary scheme expires at the end of November. So we agreed to have 3,500, let's put it this way, out according to the scheme and this will happen within this year, because the time expires at the end of November. Then in our plan, we have additional turnover, that is natural turnover of the bank, and so at the end of the plan, we plan to have more than 4,000 people out, right. I don't know if it's clear now. Okay, so about the underwriting that you asked, Andrea will...
Okay. On the underwriting syndicate. So as you mentioned, the extension of the syndicate to other 4 primary financial institutions is a testament that [indiscernible] in the market towards our bank. The terms and conditions of this underwriting agreement that were extended to these 4 banks, I mean these are the same that were announced on the 23rd of June, when we presented our business plans. So these are standard conditions with [indiscernible] information rights that are in line with the ones of precedent comparable transactions. Of course, a signing of the underwriting agreement is expected at the time of the launch of the rights issue.
On the last question...
So on the last question, just to clarify, the last point is a transformation from extrajudicial. It is not a court case, but will not change the number of cases, just 1, changing the position, that as it happened in August is not in our table in the right place, but will not change any sooner.
Okay. So there is just that extra EUR 0.8 billion on top.
Right.
[Operator Instructions] Mr. Lovaglio, there are no more questions registered at this time.
Okay. Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.