Banca Monte dei Paschi di Siena SpA
MIL:BMPS
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Banca Monte dei Paschi di Siena SpA
Earnings Call Analysis
Q3-2024 Analysis
Banca Monte dei Paschi di Siena SpA
In the first nine months of 2024, Monte Paschi reported a net profit of €1.566 billion, a significant increase of 68% compared to previous year. This result was buoyed by a substantial contribution of €407 million from the third quarter alone, up by 5.7% from the previous quarter. This reinforces the bank's consistent growth pattern quarter-over-quarter.
The bank's gross operating profit surpassed €1.6 billion, representing a year-on-year increase of 14%. Particularly noteworthy is the 20% growth in wealth management fees, affirming the effectiveness of their focus on this segment. Overall, total fees and commissions reached about €1.1 billion for the first nine months, marking a double-digit growth of 10.7% year-on-year.
Despite rising costs, particularly from a recent labor contract renewals, Monte Paschi has effectively managed its operating costs. Total costs for the first nine months were reported at €1.392 billion, a modest rise of 2.5% compared to the previous year, thanks to a continued optimization strategy that has reduced non-HR costs by 4.9%.
The net interest income for the third quarter stood at €596 million, up 1.8% from the previous quarter, with a cumulative increase of 4.7% over the first nine months. However, total net loans experienced a slight decline of about 2.1% compared to year-end levels, reflecting a cautious market environment amid high interest rates but enabling the bank to gain market share.
As for asset quality, the cost of risk was maintained at 52 basis points, lining up with bank guidance. The gross Non-Performing Exposures (NPE) ratio stood at 4.5%, while the net NPE ratio was at 2.4%. This includes recent successful disposal of a €300 million NPE portfolio, reinforcing the bank’s commitment to prudent risk management.
Moving forward, Monte Paschi has raised its pretax profit guidance for 2024 from €1.3 billion to a new target of €1.4 billion, indicating a strong confidence in continuing operational success. The bank expects to generate significant organic capital and has a solid Common Equity Tier 1 (CET1) ratio of 18.3%, positioning it well against regulatory benchmarks.
There has been a strategic shift towards asset management, as evidenced by a notable €5.8 billion rise in commercial savings since the start of the year. This aligns with the bank’s business plan to selectively manage pricing strategies favoring asset under management, which reflects a solid strategy in both capturing deposits and enhancing customer wealth.
In conclusion, Monte Paschi's financials show a well-managed institution with strong revenue growth, controlled costs, and robust asset quality. The proactive management of risks, enhanced fee generation from wealth management, and an optimistic outlook make it an attractive option for potential investors looking to capitalize on a solid growth trajectory.
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Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the MPS Group Third Quarter and 9 Months 2024 Results Presentation. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Luigi Lovaglio, CEO of MPS. Please go ahead, sir.
Thank you. Thank you very much. Good morning, everybody. Welcome to Monte Paschi Third Quarter and 9 Months Results Presentation. Today, we are pleased to present a very solid set of results confirming our capability to grow quarter-by-quarter with an excellent operational performance, generating organic capital and accruing dividend crossing already EUR 800 million after the first 9 months. Moreover, just yesterday, we finalized the sale of about EUR 300 million NPEs portfolio and its economic impact is already reflected in the results. Let's start with some key achievement. Almost EUR 1.6 billion net profit after 9 months, plus 68% compared with the previous year with a strong contribution of EUR 407 million of the third quarter. Crossing EUR 1.6 billion, the gross operating profit up 14% compared to the previous year driven by strong operating performance combined by the growing revenues and effective cost management.
Healthy quality of the revenues with fees and commission in the 9 months with double-digit growth at the level of almost EUR 1.1 billion boosted by almost 20% increase year-on-year in wealth management fees. Operating cost under control at EUR 1.4 billion, up by 2.5% with a continuous optimization of non-HR cost partially offsetting the impact of labor contract renewal on HR costs. EUR 5.8 billion of additional commercial savings volumes since the beginning of the year, growing in all components with positive shift towards assets under management in the third quarter, in line with our business plan targets. The volumes of net performing loans are reflecting the market trend, however, enabling us to increase market share. As regards asset quality, cost of risk at 52 bps after 9 months, in line with the guidance.
Gross NPE ratio at 4.5%, net NPE ratio at 2.4%, both pro forma including the effect of just finalized disposal of about EUR 300 million NPEs portfolio. The NPE coverage pro forma at 48.1%. Sound liquidity position. And finally, fully loaded common equity 1 ratio at 18.3% at the top of the banking sector, including first 9 months net profit and net of dividends with 75% payout ratio on pretax profit. As you can see, our growth path is solid and sustainable because our commercial network is well set, strong and used to deliver high performance and is best-in-class with our customer. We remain the engine of our development. And now let's go through more details on our results. As I've just mentioned, after 9 months the net profit amounts to EUR 1.566 billion. The result is by almost 70% higher compared to the last year. It includes an amount of EUR 470 million of positive net tax.
On comparable basis, excluding the positive net tax effects in both periods, the year-on-year dynamics will be up by 19%. The third quarter contribution to the net profit amounts to EUR 407 million with 5.7% increase versus previous quarter on comparable basis confirming a positive quarterly trend. Moving on to the next slide where we are presenting net operating profit. After 9 months, it exceeded EUR 1.3 billion growing by 17.6% year-on-year. This growth was driven by increasing revenue and effective operating cost management while keeping cost of risk under control and in line with the guidance. We achieved in the quarter a net operating profit of EUR 442 million with quarterly dynamics reflecting typical third quarter seasonality while we are reporting an increase of 9% versus third quarter of last year.
Now looking at the gross operating profit. Also in the third quarter, we successfully crossed the level of EUR 1 billion operating income despite the typical seasonality. Costs were kept almost at the level of the previous quarter despite the impact of second tranche of wage increase. Gross operating profit reached EUR 539 million, just 2.8% lower than the second quarter and higher by 5.9% compared to the third quarter 2023. In comparison with the third quarter of 2023, gross operating profit increased by approximately 6% with a positive contribution of operating income. The cost/income ratio at 46% in the quarter. Looking at the yearly evolution. After 9 months, gross operating profit reached EUR 1.645 billion and was higher by 13.7% year-on-year. These results were driven by an 8.3% increase in revenues, which more than offset increasing cost affected by the impact of labor contract renewal last year.
After 9 months, the cost/income ratio was reduced to 46% from 48% last year. Let's have a look at the net interest income evolution. Net interest income in third quarter amounted to EUR 596 million, up by 1.8% quarter-on-quarter. The 9-month net interest income reached EUR 1.768 billion, higher by 4.7% compared to the same period last year mainly thanks to the optimization of the overall cost of funding. Total net loans have decreased by almost 2.1% compared with the year-end. Overall in line with the market trend facing weaker demand in relatively high interest rate environment, however, enabling us to increase market share since the beginning of the year. Still on volumes, let's move to commercial savings. Total commercial savings are up by EUR 5.8 billion since the beginning of the year growing in each category.
In line with the approach we anticipated during the second quarter presentation, we reported a shift from direct deposit to assets under management while adopting a selective approach in pricing at the benefit of interest expenses considering the high position of deposit volumes we reported at the end of the previous quarter. Total Govies portfolio almost at the same level of the previous quarter with fair value to OCI duration at 2.3 years and credit spread sensitivity unchanged. Now let's move on to net fees and commission income. In the third quarter, total fees despite the typical seasonality reached the level of EUR 356 million, which is higher by more than 12% compared with last year's third quarter mainly thanks to a strong performance in wealth management fees growing 19% year-on-year reflecting focused commercial initiative in wealth management, in line with strategic business plan assumption that we have anticipated in our yearly outlook.
Commercial banking fees are higher by 7% compared with Q3 of last year. Looking now at the yearly performance. Total fees after 9 months reached EUR 1.1 billion and were higher by 10.7% year-on-year thanks to the excellent performance of wealth management and advisory fees, which increased by almost 20% year-on-year reaching EUR 536 million and reaffirming the strength and potential of the network and its capability to deliver results in a sustainable way. Commercial banking fees increased by 3.2% mainly thanks to lending fees despite lower contribution from current account due to the reduction of account maintenance fees charged to customer implemented in the third quarter 2023. Our fee generation business is extremely dynamic and it's wealth management and asset management that are helping to build our future.
Operating costs in the third quarter were reported at a level of EUR 467 million, slightly up quarter-on-quarter entirely due to the second tranche of salary increase that entered into force starting in September according to the new labor contract that, as I mentioned, was approved last year. Also in this quarter, our continuous focus on effective management non-HR cost is clearly evident and the reduction of 1% in the quarter partially enable us to offset the labor contract impact. Looking at the yearly evolution. After 9 months, costs amounted to EUR 1.392 billion and are higher compared with last year by 2.5%. Thanks to the ongoing optimization of the non-HR costs that are lower by 4.9% year-on-year, we were able to partially offset the impact, as I mentioned, of the labor contract.
We keep focusing on absolute cost target and proactive cost management delivering excellent results, as I mentioned, leveraging on efficient cost governance approach and managerial expertise in this respect. Now let's move to NPE stock. As I have mentioned during our last presentation, we were in the process of preparation of the disposal of some nonperforming exposures and I'm pleased to inform that we have just finalized one of such transaction, a portfolio with a gross book value of almost EUR 300 million. On the slide, we are presenting the pro forma figures that consider the impact of this transaction. Gross NPE ratio stock net of disposal amounts to EUR 3.6 billion with gross NPE ratio at 4.5% and net NPE ratio of 2.4%. We are already in terms of gross NPE ratio at the business plan target for 2024.
Total coverage ratio pro forma at 48.1% with bad loans coverage at 67.6% above June after the EUR 300 million NPEs disposal. The cost of risk in the quarter at 50 bps and 52 bps in cumulative terms, in line with the guidance for 2024 with no impact resulting from NPE disposal. Just a couple of comments on bank's funding and liquidity. The soundness of our liquidity position is confirmed also in this quarter and unencumbered counterbalancing capacity is at EUR 32 billion. Liquidity coverage ratio stays at the level of 165% and net stable funding ratio amounts to 133%. ECB funding has been further reduced by EUR 3 billion in this quarter and the reliance ratio is now reduced to 7% of total liability, which is already substantially below the business plan target of 13%.
Now let's move on capital. Common equity Tier 1 ratio at a solid level of 18.3% at the end of September increasing by 20 bps in the quarter. The ratio is calculated including the net profit for the period and the accrual of dividend based on the assumption of dividend payout of 75% on pretax profit, which will allow us to remunerate shareholders at the top of European banks. As I was mentioning, we have already accrued more than EUR 800 million of dividend to be distributed next year. The buffer Tier 1 ratio compared to the requirement remain at a very high level of around 780 bps. The remarkable level of capital ratio is confirming the capability of our bank to organically generate capital providing significant strategic optionality to pursue value-accretive alternatives.
Now we come to conclusion. Almost EUR 1.6 billion net profit after 9 months confirming our sustainable profitability. Gross operating profit crossed EUR 1.6 billion, plus 14% year-on-year with a remarkable 20% growth in wealth management fees. Healthy growth in total commercial savings up by EUR 5.8 billion since the beginning of the year. Proactive management of cost of risk at 52 bps, in line with guidance. Disposal of about EUR 300 million on euro NPEs portfolio. Further organic growth capital generation with common equity Tier 1 fully loaded ratio at 18.3%, including the profit of the period net of 75% dividend payout on pretax profit achieving more than EUR 800 million of accrual. We are in the fast lane boosted by our new business plan with a conviction that we can grow even faster with our future-ready way to do banking. Already have sight our 2024 pretax profit goal of EUR 1.3 billion and we are confident that with the motivation and commitment of our people, we can go also beyond such goal.
Thank you very much. And we are ready to answer to your questions.
This is the Chorus Call conference operator. [Operator Instructions] The first question is from Luis Pratas, Autonomous Research.
This is Luis Pratas from Autonomous. My first question is on the 2024 P&L guidance. Your 9 months '24 results seem to indicate you are running ahead of your own full year guidance for this year. Could you please comment if there was any reason to leave the guidance unchanged at this stage and if you could comment on the expected dynamics in Q4 for the different P&L items? My second question is related with the intention of BAMI launching an offer for Anima. It is your main asset manager partner in retail. How important is it for Monte Paschi to work with an independent asset manager and under what circumstances would you consider reviewing your asset management partnership?
All right. As usual, we try to be clear in our presentation and that's why we were saying that being already at the level of EUR 1.1 billion pretax profit, we see and it is visible the possibility to cross our original target of EUR 1.3 billion and as we expect to have the last quarter not very different from the average of the previous 3 quarters. Now as far as Anima, we believe that it is an interesting deal, but now it's early date. So we will follow how the situation will evolve and then we can comment on that once that we can see how the situation will evolve.
The next question is from Ignacio Ulargui Lopez, BNP Paribas Exane.
I have 2 questions on the operating trends on the NII and 1 on credit quality. I mean if I just look to your NII in the quarter, there has been a 10 basis points decline in the cost of funding. I mean how should we think that will move forward? Has been there any one-off that has helped the decline of the cost of funding? How do you expect the net interest margin to perform from here? And linked to that, if you could explain a bit the movement on deposits in the quarter and how do you see that going forward? You have been very active looking to gain market share on deposits, which we think is very interesting, and I just wanted to see how do you see that going forward? And then on NPE stock, I mean I know that you have just completed 1; but I mean do you think there is appetite for trying to go faster in the reduction of NPEs going forward?
Okay. So let's start from the cost of deposit. I think it's important on our side to continue the action that we were mentioning during the presentation of second quarter to improve as much as possible our interest expenses level working on the tradeoff between volumes and cost. I was already anticipating that this will be the focus on the second part of the year and I think we are successfully managing while keeping a good level of deposit, shifting part of deposits in asset management towards the base of the strategy and is already one of the key driver of our business plan. At the same time, preserving a good level of deposits because we believe that the level of deposit is crucial for our activity. So dynamic that you see in total deposit in some way is driven and managing by our strategy.
So this approach in keeping costs under control will continue and, as I mentioned, we will be very careful anyway to keep what we believe is important level of deposit for the bank. Now on NPE, just to recall what was mentioning at the presentation of the second quarter and at the time we announced our business plan. We believe that we have to reduce our NPE ratio even if it's important to consider the stock of NPE in a rational way in the sense that looking at our portfolio, we believe that there is value in being effective and active and set up proper action for sort of recovering of the nonperforming position considering also the capability of the bank that has been showed from the beginning of the year in terms of cure rate and removing and rebringing the position to bonus category.
If this action will not be effective, clearly we are going to put in place additional action of sales. And I think the message that is important to address the market is that this transaction practically was finalized with no impact on P&L and so this is also giving the flavor of the proper coverage of our NP portfolio. As we were mentioning also in the past, our conservative approach in terms of provision is just functional and will help in keeping both strategy internal action to cure the portfolio nonperforming and the option to sell knowing that the portfolio is well covered and we will not have impact on P&L.
The next question is from Giovanni Razzoli, Deutsche Bank.
I have a couple of questions. The first one, if you can share with us how many deposits have you been able to switch into asset management product this quarter? And the second question is on the overall stock of NPLs, which has been slightly up quarter-on-quarter both in terms of [ sofferenza and OTP ]. If you can share with us what is the trend behind this evolution. Other 2 very quick questions. During the conference call, UniCredit mentioned that the revised DTA framework from the budget law would have a positive impact on the CET1 as nonconvertible DTA on balance sheet will be used to compensate the convertible DTA. Is this something that also applies to you and what is the impact on the CET1? And the last question, I was wondering whether -- I mean there has been a great acceleration about the insurance operations, then its compliance, so on and so forth. I was wondering whether you have already started negotiation with AXA on a possible repurchase on your JVs or is it something that you are targeting in the near future as we already discussed this in the past conference calls?
Okay. So I will address the first 2 questions and then will ask Andrea to answer to the last one. So as I was mentioning, we are quite accelerating in terms of asset management gross flow and this quarter despite the seasonality, we reported an important result with almost EUR 3.5 billion gross flow. And what's also important, we enjoy also an important level of net flow crossing the EUR 400 million. So if we look at the performance after 9 months of the gross flow, we reached really an important level of almost 40%. So practically it's clear that this is the action that is a combination of shifting some new customers that are coming, customers that are just converting part of the investment that they have in other fixed income and is an evidence of the successful action we have put in place in terms of wealth management activity. So as far as [indiscernible] if I understand well the question, Giovanni, we are not observing a different trend compared to the previous quarter. Clearly we have to be careful and that's why we are also reinforcing our action in terms of monitoring early warnings because for us, it's crucial in 2025 to count on keeping a good asset quality as the action we put in place in 2024 in some way will also support 2025 despite the expected scenario. Now I will ask Andrea to answer to DTAs.
Yes. On DTAs, I can confirm what I have already said during the second quarter call. So we expect that until '28, we will use basically almost EUR 1 billion of DTAs on tax loss carryforward, which actually corresponds to the value creation. I also remind that after '28, we will still have another EUR 2 billion of DTAs on tax loss carryforward to be used, which means additional capital cash.
The next question is from Andrea Lisi, Equita.
The first one is on the NII trend. We saw NII that was still up quarter-on-quarter despite loans slightly down and obviously the rate in the market starting to decrease. I would like if you can comment on the expectation for the last quarter of the year and especially for 2025 also given where the forward curve is positioned now. So if you can comment on the trajectory of the NII? The second question is on fees. We are seeing really strong trajectory in terms of fee growth also thanks to the excellent job you have made on investment and banking fees. And so if you think that the trajectory could be even higher than what envisaged in the plan? And the last is related to the capital position that is strong and is consistent with the plan, but if you can provide us if you have any update regarding possible actions with partners where you can do something? If there is any update will be useful?
So net interest income, as I was mentioning, hopefully we are keeping the trend and we will be effective in managing overall the cost even if there is the caveat of tradeoff with the volumes. But we should succeed in having a further decrease of the cost of interest expenses. In the new fiscal year, we are going to have also a decrease of interest income. So the commercial net interest income is expected to be lower in the fourth quarter. But overall, we believe that keeping a good trend on revenues, on fees and commission, we will try to be as much as possible close in terms of total revenues to the level we reported in the third quarter. Now fees and commission are the base of our business plan and it's clear that we are putting in place all the actions that are necessary to keep this trend up and confirming the positive acceleration we are in some way reporting in the last quarters.
Clearly this will help also in 2025 where we expect to have a decrease of commercial net interest income due to the interest rate trend. And as we were mentioning during the plan, we have to work in changing as much as possible the asset mix considering that the scenario in terms of interest rate is even lower than what we plan. And so as we want to keep our level of revenue as much as possible close to the plan, we are putting in place action in terms of loans particularly on the 2 verticals we were mentioning; energy, agri food; that together with consumer lending, we hope will help in limiting the decrease of interest rate year-on-year.
The positive of that is also is the volumes that were expected in a negative trend in terms of market. The new scenario will show some positive trajectory and we want to leverage also on that in order to keep as much as possible and to limit as much as possible the expected decrease that we already anticipated in the plan on net interest income. Now we are focused -- as far as capital concerns, we are focused on our organic growth. It's nice to have a significant excess of capital that give us the opportunity to look around and to see and to capture potential opportunities that can appear on the market. But for the time being, we are focused to implement our business plan particularly on fees.
The next question is from Hugo Cruz, KBW.
On NII again not so much about guidance, but I just wanted to understand the moving parts in 3Q better because when I look at your slides, you have spread going down, volumes going down as well, both loans and deposits. And the [indiscernible], we can calculate the impact of that. So if you could just give a little bit more detail on what drove the NII in the quarter would be really helpful, just a few more moving parts. And then second, if you could tell us what are the latest decisions you're putting on your replicating portfolio to prevent the impact of lower rates in the future?
I will take these questions. So on the first question, actually the slide shows the commercial spread and the total net interest income. So let's say the explanation is that the total spread, so including all interest yielding assets and all interest-bearing liabilities, improves quarter-on-quarter by 6 bps thanks also to remix of liabilities, which is anyway supported by the commercial activity eventually. Then on the second question, I confirm that the possibility to put in place replicating portfolio remains an option that we are assessing. In any event, this if it is implemented will be implemented when the curve normalize.
The next question is from Ignacio Ulargui Lopez, BNP Paribas Exane.
I have a follow-up question on the guidance for 2024 PBT and then you gave us a guidance of EUR 1.3 billion. If I just look to the 9 months and the trajectory that you have told us during the call, it's a very likely outcome that you exceed that number. Can you give us a bit of a sense on how much and what should we expect going forward?
Okay. Let's be more precise on this guidance. We believe that we can move from EUR 1.3 billion to EUR 1.4 billion and this is the level that we believe we are confident can be the pretax profit for 2024.
The next question is from Fabrizio Bernardi, Intermonte.
I just wanted to ask a question about the strategy. You are very long on capital and you upgraded your dividend policy very recently and now it's in line with the ones of your competitors, your peers, and you have a strong focus on fees generation. So my question is regarding what is happening on the market after the tender offer on Anima, which is made at a price that is a little bit counterintuitive? So given the focus you have on fees and given the joint venture you have with AXA, what I'm asking is that if sooner or later you would like to expand your fee contribution including some product companies as many other banks like for example UniCredit and for sure Banco BPM are doing right now. So I'm not asking you a precise question. But clearly that if you have your capital base, which is very, very, very high and the payout policy is extremely high and in line with peers, maybe you would be willing to bring in some fees that you are paying out right now?
I agree with you that it's nice to have also product factory in the group and so that's why we are saying it's nice to have capital because if we are going to have -- or the market will present an opportunity on that, we will try to capture it. But clearly it depends not only on our willingness, but also on the opportunity that are on the market. For the current situation what we see is that we have to monitor and then to be ready once that there is the opportunity.
If I can ask another question. I know you are not the [ mess ], you are not the government. But if I were in the position of the government, I would take care about a bank that has been restructured and has common equity, the one you have right now. So my feeling is that the government should try to getting the most for Monte Paschi in terms of especially dividend. So my question is that is there any threshold about the stake of the mess they may have after 2024 in Monte Paschi or this is a situation that is not public and so we cannot discuss on it? Because as far as we have been told, the government should grow slightly below 20%. But in this case; it would be weird because you are paying dividends, you are making money and you have a very strong capital position. And I mean as Andrea said before, there are billions of DTAs that should come back sooner or later. So if they need money, it would be nice to just wait and see.
I think you are right. We are not the mess. What I can just say that they gave evidence that they know what to do and they do everything properly I believe up to now. So let's leave them doing what they think is the best for the company and for the shareholder.
[Operator Instructions] The next question is from Noemi Peruch, Mediobanca.
I have just 3 follow-ups. One is if you could share your thoughts about the Danish compromise and so internalizing the insurance business, if you have pondered this option? And second one is on tax loss carryforward absorption in Q4 and 2025 because I see that in Q3 there was a pickup in absorption if I'm not mistaken? And then finally, on your expectation for NII in 2025?
Okay. So on the first question, the impact of Danish compromise on AXA. Actually we tend not to give numbers on this for the simple reason that it is a function of the price that we might need to pay in case there is a deal. So then this is a number that cannot be disclosed. I can just reiterate that in case we acquired the stake currently not held in the life insurance JV, the impact would be fully manageable. So this is what I can say from a capital perspective and it would bring a flow of earnings that on a yearly basis can range from EUR 60 million to EUR 80 million per year additionally. As regards the usage of tax loss carryforward, in the first 9 months of '24 was EUR 110 million roughly. And on the third question on NII, I think that Luigi has already answered.
So that was the last question. Mr. Lovaglio, I turn the conference back to you for any closing remarks.
Thank you. I think I would like just to thank you, everybody, that took part to our presentation. And I just say see you for the full year results in February. Thank you very much.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.