Intesa Sanpaolo SpA

MIL:ISP

Earnings Call Analysis

Intesa Sanpaolo Achieves Record Earnings and Confirms Positive Outlook

Intesa Sanpaolo reported a net income of EUR 7.2 billion for the first nine months, driven by strong growth in commissions and record insurance income. They confirmed a net income guidance of over EUR 8.5 billion for this year and projected around EUR 9 billion for next year. The common equity tier 1 ratio improved to 13.9%, and administrative costs decreased by 2% year-on-year. With a robust dividend yield of 10%, the bank plans a total distribution of EUR 7.5 billion to shareholders, including a EUR 3 billion interim dividend. Investments in technology continue to expand as they transition to a more efficient, cloud-based infrastructure.

Overview of Financial Performance

Intesa Sanpaolo demonstrated a robust financial performance in the first nine months of the year, achieving a net income of EUR 7.2 billion, which includes EUR 2.4 billion in the third quarter (Q3). The bank's results highlight a strong growth trend, particularly in commissions and insurance income. Excluding capital gains from the previous year, net income grew by 22%. In Q3 alone, net income saw a remarkable 26% increase, supported by a 10% growth in commissions. The bank's earnings per share increased by 20% year-on-year, underscoring the overall effectiveness of its growth strategies.

Positive Outlook for Revenue Growth

Intesa Sanpaolo provided strong guidance for the future, confirming a net income expectation of over EUR 8.5 billion for this year and projecting around EUR 9 billion for next year. This optimistic outlook is attributed to the anticipated rise in net interest income (NII), now guided to exceed EUR 15.5 billion, and a continued focus on wealth management and insurance services. The bank's commitment to technology investments is also expected to enhance efficiency, supporting revenue growth even in a challenging rate environment.

Wealth Management and Insurance Segments

The Wealth Management & Protection segments were significant contributors to profitability, with commissions from these services increasing by 12% over the first nine months. The bank anticipates a further boost from planned hires, with 1,500 global advisers being added, hinting at greater market share and expanded advisory services. In addition, the insurance segment has shown resilience, with a positive shift reported in life insurance inflows, marking a reversal that should bolster future revenues.

Cost Management Initiatives

Cost control measures have proven effective, with administrative costs decreasing by 2% on a yearly basis. The bank has outlined a plan to reduce personnel costs significantly, with 9,000 exits planned over the next three years, resulting in savings of approximately EUR 500 million. This restructuring is expected to enhance the bank’s industry-leading cost-to-income ratio, positioning it strongly against European peers. Importantly, this includes an ongoing focus on technological upgrades to streamline operations.

Asset Quality and Risk Management

The asset quality of Intesa Sanpaolo remains commendable, with gross non-performing loans (NPLs) down EUR 900 million compared to last year. The bank’s NPL inflow remains historically low, with a net non-performing asset ratio below 1%. The annualized cost of risk is projected to be around 30 basis points going forward, reflecting the bank's prudent risk management approach. This strong asset quality underpins future profitability and supports the bank's overall stability.

Capital Distribution and Shareholder Returns

The bank announced a substantial shareholder return strategy, with a total distribution of EUR 7.5 billion planned for this year, including an interim dividend of EUR 3 billion. This corresponds to a remarkable dividend yield of 10%—one of the best in the sector. Furthermore, Intesa Sanpaolo retains significant excess capital, which opens the possibility for share buybacks in addition to its dividend payouts, affirming its commitment to enhancing shareholder value.

Investment in Technology and Future Growth

Intesa Sanpaolo is heavily investing in technology, having already deployed EUR 3.5 billion toward its digital transformation, with plans to further this by an additional EUR 1.5 billion in 2025. This investment is not only aimed at boosting operational efficiency but is also expected to support growth in asset management through improved service delivery. The transition to cloud-based applications is expected to simplify processes and reduce overall costs in the long run.

Conclusion

In summary, Intesa Sanpaolo is on a solid trajectory of growth, backed by strong financial results, an encouraging outlook, and strategic enhancements in its core businesses. The combination of robust revenue streams, prudent risk management, and a strong commitment to shareholder value positions the bank favorably within the competitive landscape. Investors can expect sustained performance as the bank continues to navigate the evolving market environment while leveraging its strengths in wealth management and technology advancements.

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the third quarter 2024 results. Hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Nadia, and I will be your coordinator for today's conference. At the end of the presentation there will be a question-and-answer session.

[Operator Instructions] In case of any additional questions, the IR team will be at your disposal after the conference call. I remind you that today's conference is being recorded. At this time, I would like to hand the call over to Mr. Carlo Messina, CEO. Sir, you may begin.

[Carlo Messina, executive]

Welcome to our 9-month results conference call. This is Carlo Messina, Chief Executive Officer; and I'm here with Luca Bocca, our CFO; Marco Delfrate and Andrea Tamagnini, Investor Relations officers.

We just delivered net income of EUR 7.2 billion in the first 9 months of the year, of which EUR 2.4 billion in Q3. These high-quality results are marked by strong growth in commissions and insurance income. Costs are stable. Asset quality remains top-notch, and we strongly increased the common equity ratio and customer financial assets.

Our excellent results mean that for this year, we can confirm our net income guidance of above EUR 8.5 billion despite significant Q4 managerial actions to strengthen future profitability. At the same time, for next year, we can increase our guidance for net income to around EUR 9 billion and our capital projection to 15% pre Basel 4.

Turning back to our results, earnings per share grew 20% on a yearly basis. And this year, we will reward shareholders with total distribution of EUR 7.5 billion, including the EUR 3 billion interim dividend to be paid in November. Our dividend yield is one of the best in the sector at 10%. We clearly have and will continue to have significant excess capital and there is a lot of room for significant buybacks. We continue to invest in technology with EUR 3.5 billion already deployed. 55% of applications are already cloud-based. And Isybank now has over 400,000 new clients with a strong acceleration from September.

Our tech investments also mean we can accelerate the generational change of our workforce. In 3 years, we will have 9,000 exits with a saving of around EUR 500 million. We are generating significant synergies, leveraging on internal potential with no need of acquisitions -- related execution risks, managerial time absorption and technology delays due to system integration of merging entities, especially large ones.

People are and will remain our most important asset. As part of our sustainable renewal, we will hire 3,500 young people, mainly for wealth management and protection activities that are core to our business model, and we will launch a large-scale reskilling and upskilling program.

People and technology are essential to deliver strong results in the short term and continue to be a leader in the future. We are ready to win against fintech challenges and this is not the case for most of our competitors. I'm proud of our results and thank our people for their work.

Now let's turn to Slide 1 for the key achievements of our 9 months. Slide 1. In the first 9 months, we delivered record net income, best-in-class cost income ratio, NPL ratios at historical lows, common equity ratio at 13.9% and strong and sustainable value creation and massive program to address social needs.

Slide #2. In this slide, you can see the continuous growth of net income.

Slide #3. Net interest income was resilient with Q3 in line with Q1 despite a 30 basis point drop in Euribor and weak loan volumes. This shows the quality of our hedging strategy that will continue to sustain net interest income in the coming years.

Slide #4. Commissions were up double digits in Q3, supported by positive assets under management net inflow.

Slide #5. Operating costs are down over 3% when excluding the impact of the national labor contract renewal and depreciation for tech investments.

Slide #6. The acceleration of our tech transformation is enabling generational change and significant efficiency gains. As already said, in 3 years, we will have 9,000 exits, of which almost 4,000 by next year at no social cost and with a saving of EUR 500 million.

Slide #7. We are delivering a significant increase in earnings per share, dividend per share and tangible book value per share. In a few weeks, we will pay an interim dividend of EUR 0.17 per share, up 18% compared to last year, and we also have higher flexibility for significant buybacks.

Slide #8, proud that our excellent and sustainable performance allow us to strongly benefit all our stakeholders.

Please turn to Slide 9 for the outlook. As I said, for this year, we confirm our net income guidance of above EUR 8.5 billion despite Q4 managerial actions to strengthen future profitability. For next year, we are increasing our capital projection and guidance for net income to around EUR 9 billion.

Let's now move to Slide 11 and take a closer look at our 9-month results. Slide 11. In the 9 months, we delivered EUR 7.4 billion net income when excluding the final contribution to the Deposit Guarantee Scheme. Commissions were up strongly on a yearly basis and insurance income reached a record high. Asset quality continued to improve and common equity Tier 1 ratio was up 70 basis points since the beginning of the year.

Slide #12. In this slide, you have the P&L of the 9 months. Let me highlight that we have provisioned EUR 160 million to offset the net income of our Russian subsidiary. Our net income grew 22% when excluding capital gains booked last year.

Slide #13. In Q3, on a yearly basis, net income increased over 26% with 10% growth in commissions.

Slide #14. As already said, net interest income was resilient in Q3, enabling an increase in the guidance for this year to more than EUR 15.5 billion.

Slide #15. Customer financial assets were up EUR 135 billion yearly. Just to give you an idea, that's more than all of Fineco and EUR 25 billion in Q3.

Let's move to Slide 16. The Wealth Management & Protection businesses are strong contributors to the group's profitability. And in the first 9 months, commissions from management, dealing and consultancy activities were up 12% with no significant performance fees.

Slide #17. Property & Casualty contribution is increasing up 10% quarter-on-quarter. We have significant upside potential in our 100% wholly owned product factory are a clear competitive advantage.

Slide #18, The contribution of commissions and insurance income to revenues is the highest in Europe after UBS.

Please turn to Slide 19. Our top-notch advisory services are delivering with related additional commissions up 35% year-on-year and 12% quarter-on-quarter.

Slide #20. Let me highlight that in Banca dei Territori, we will hire 1,500 global advisers with hybrid contracts for wealth management and protection activities. This will increase the total number of global adviser to 2,500. This means that the Banca dei Territori alone is creating the fourth largest Italian financial advisory network with Fideuram remaining #1. By 2027, we will have a total of 20,000 people in Italy dedicated to fueling wealth management and protection growth.

Now turn to Slide 21 for an update on cost. Administrative costs decreased by 2% on a yearly basis. We have high flexibility to reduce costs in the coming years, also thanks to the 9,000 exits.

Slide 22. In this slide, you can see that Intesa Sanpaolo has a best-in-class cost/income ratio in Europe.

Slide 23. Gross NPL stock was down EUR 900 million yearly. NPL inflow remained at historical lows with a positive quarterly trend. Also, Stage 2 loans decreased 10% and net NPA ratio is below 1%.

Slide 24, NPL stock and ratios are among the best in Europe.

Slide 25, we are also very well positioned in terms of Stage 2 that represent just 8% of loans.

Slide 26. Our annualized cost of risk was 25 basis points with no overlays released. NPL coverage increased further even if we see no signs of asset quality deterioration.

Slide 27. Quarter after quarter, we keep reducing our Russia exposure.

Now let's move to Slide 28 for an update on capital that had a very positive evolution in Q3. The common equity ratio increased more than 30 basis points in Q3 to 13.9% after deducting the accrued dividends based on a 70% cash dividend payout ratio.

Slide 29. Capital ratio will increase [indiscernible] above previous projections. We clearly have significant excess capital, allowing high flexibility for additional distributions.

Slide 30, liquidity. We have best-in-class MREL ratios, and liquidity ratios are well above our targets. In the next 2 slides, you have the usual update on our ESG actions. And in the end of the presentation, you can find additional slides on our social and climate initiatives and our leading ESG position.

Let's move to Slide 34 for the macro scenario. The Italian economy is resilient, thanks to the strong fundamentals and Italian GDP is outperforming the Eurozone average and will grow this year and next.

Slide 35. As you can see in this slide, Intesa Sanpaolo is far better equipped than its European peers, also thanks to our best-in-class risk profile.

Slide 36. In this slide, you can appreciate the unique positioning, thanks to our commissions-driven and efficient business model supported by strong tank investments. In the appendix, you can find updated slide on isytech, Isybank and our artificial intelligence program, all delivering tangible results at an impressive speed.

This slide recaps how ISP is equipped to further succeed in the future. In fact, we are ready to outperform in any interest rate environment.

Slide 38. To finish, let me turn to the outlook. For next year, we expect net income to be around EUR 9 billion, considering increase in revenues, cost reduction, low cost of risk and lower charges concerning the banking industry. As said, we have strong internal potential for revenue growth and cost reduction thanks to the investments we made in these years and our well-diversified business model focused on wealth management and protection is ready to deliver in any interest rate scenario.

Our performance allow us to strongly reward our shareholders, always a priority for ISP and me personally, while maintaining rock-solid capital and a world-class position in social impact. We clearly have excess capital. This year, we are returning EUR 7.5 billion, and we have higher flexibility for additional capital distribution for this year and the coming years on top of our 70% cash dividend payout ratio. So thank you for your attention, and we are now happy to answer your questions.

[Operator]

[Operator Instructions] And now we're going to take our first question, and it comes from the line of Antonio Reale from Bank of America.

[Antonio Reale, analyst]

It's Antonio from Bank of America. I have 2 questions, please. One on cost and one on use of capital. If I remember right, I think you had something like EUR 5 billion of IT investments over the plan horizon, of which I think, on the slide, you show you deployed EUR 3.5 billion in the business. And this, I think, was with the view that these investments would yield a return also in the form of better efficiency gains. You've talked about the agreement with the unions, adding more headcount optimization. You're then taking further initiatives of internal rationalization within some of your legal entities.

My question for you is how much more internal synergies you think you can achieve on a stand-alone basis. And how should we think about your cost base going forward? That's my first question.

The second one is around use of capital. I think on Slide 21 -- sorry, 29, you showed the post Basel 4 in 2025, you're going to have a CET1 ratio of 14.5%, which would suggest quite a large chunk of eligible capital up for special distribution at the end of this year and next.

On my back of the envelope between EUR 2 billion and EUR 3 billion of buybacks a year for this and next could be on the cards. Now my question is, with the shares at basically EUR 4, is that still the best use of capital in your view?

[Carlo Messina, executive]

So thank you, Antonio. I will start from the cost side that is for sure one of the very important actions that we decided to anticipate because we think that in an environment of reduction of the net interest income we will be in the right position in comparison with all the other peers in terms of revenues because we will be the only one that will leverage on fee and commissions and we'll have a very strong hedging facilities in order to maintain growth in revenues.

But at the same time, cost reduction, a strategic area in which we usually invested in the past, and we will continue to invest in terms of reduction. We reached the agreement and through the investments of the EUR 3 billion, EUR 5 billion, and we will invest another EUR 1.5 billion during 2025, just to give you the figures of investments that we will continue to make this strategic for the bank. We will be in a possibility to make this significant reduction of 9,000 people with obviously, a number of young hiring in order to reinforce bank also in terms of human capital for the future.

But at the same time, reducing the bulk of the cost base of the group because reducing people means reducing also administrative costs related means reducing real estate cost means reducing branches and the number of actions that we are planning in order to accelerate reduction starting from 2025 and then increasing reduction in 2026 and 2027. So this will be part of a plan of cost reduction that has 9,000 people as the most important action.

But related to this, there are a number of actions that we will present also in the occasion of the final results for this year. But the trend of reduction of cost in our group will continue. And in my opinion, we will be in a unique position in comparison with other peers that will have to start in terms of reduction or we'll have to find synergies through acquisition and we are demonstrating that synergies you can create without entering in any kind of execution risk related to mergers.

And you know that we have already made this in the last -- in the past years and the ability to integrate the IT system is another part of the story in making an acquisition that is something that can reduce the ability to make investments in technology. And I'm convinced that the investments in technology are really the most important drivers in terms of reduction of cost base on -- for the future of the bank.

So these are the most important part of the story. The reduction in terms of cost base will be significant starting from 2025. As I told during the presentation of 4,000 people will leave in 2025. This will be added to the other 450 that were part of the original agreement in the UBI merger. And this means that we will have a significant part of the cost already embedded in 2025 figures then 2026 will be more running because we will have the full impact of this 4,000 leaving the organization and then the other one they will leave in 2026 and 2027.

But this will be very important for us because also in terms of administrative expenses, we will be in a position to reduce in a significant way the amount of the administrative costs. At the same time, the investments of another EUR 1.5 billion in terms of technology will increase the amortization. And so we will have 2 items that will be in reduction, personnel costs and administrative expenses, and the other one the amortization that will increase during 2025. Net-net, we will have a significant reduction in terms of cost base also in 2025.

In terms of usage of capital, it is clear that we are generating capital and not only in 2025 because if you look at the figures starting from 2025 and in a couple of years, we will have in 3 years' time recovery. Also of DTAs that will be equivalent to an increase of capital of close to 100 basis points. So we are in a unique position not only to have excess capital and potential distribution of share buyback that will remain the main part of the story in terms of distribution of excess capital. So not only for 2024, 2025, but also on a structural basis, also for the future in Intesa Sanpaolo.

So I think that we have a unique positioning in combination with sustainability of net income, sustainability of capital generation in comparison with all the other peers.

[Operator]

Now we're going to take our next question and the question comes from the line of Azzurra Guelfi from Citi.

[Azzurra Guelfi, analyst]

A couple of questions from me. One is on capital. Just following up from the previous one. it seems reading between the line that you feel almost comfortable that you can distribute more than 100% of profit. Is is correct in terms of proposition? And if that's not the case, you will have a stand still. You have looked for more opportunity for cost. You look at opportunities on how to defend the NII growth in fees. But -- and you've never been shy of doing like opportunistic acquisition. Can you think about capital deployment in Wealth Management to replicate like a current successful model already and with the growth?

And the second one , if I may, on the NII, you are indicating in the outlook resilient NII, this quarter NII has gone down roughly 2% quarter-on-quarter. And is that what you mean by resilient? Or is it like a bigger -- because consensus has, if you want an implied bigger drop versus what is done so far?

[Carlo Messina, executive]

Azzurra, so I will start from resilient. It is the smart way to say that net interest income will have a good trend in 2025. So I think that it is better to qualify this as a good trend because it is clear that in an environment with a significant reduction in terms of Euribor and our expectation is to have average 2% Euribor in the -- at the end of 2025, so the embedded Euribor in our figure, but also in this condition.

So -- and stressing this also until 1.75, we can be in a condition to deliver a very good result in terms of net income and EUR 9 billion net income. Turning back on net interest income. In this environment, with 2% Euribor, average, our expectation is that net interest income will go down for markdown. And so that would be the trend of reduction, it will increase for the hedging facilities, will increase for the loan book, will increase for markup, will increase from financial contribution.

So this means that if you want to consider just a trigger for the minimum level, it could be the level of 2023, our [indiscernible] we can be above this level. And we will fix the figures at the end of this year. But just to give you investors, the kind of expectation of Intesa Sanpaolo is to be in a position to have a very good performance in terms of net interest income also with a 2% Euribor average in 2025.

Looking at capital, it is clear that we will have a lot of optionalities in terms of distribution. The payout ratio in 2025 will remain 70%. This is the current dividend policy of Intesa Sanpaolo. Having said that, the room for realizing share buyback can bring us to a significant distribution that can also use theoretically a portion of retained earnings, and we can remain with further excess capital to be distributed.

On this point, you know that we have a process, a procedure in which we have to wait until the end of the year to propose to the Board of Directors the amount of the share buyback. But due to the results of the group, I'm really convinced that the proposal could be for a significant buybacks. So coming back to your report, never standing still.

[Operator]

Now we're going to take our next question, and the next question comes from the line of Andrea Filtri from Mediobanca.

[Andrea Filtri, analyst]

As a financial conglomerate, you have the option of expanding asset management, leaving the goodwill reduction at the Intesa SanPaolo Vita level something that a European peer has announced not too long ago and something that most other peers of yours cannot do. How do you look at this strategic optionality versus the alternatives of organic growth and share buybacks when you consider your capital management?

[Carlo Messina, executive]

So that's a good question, Andrea, because it is clear that the evidence of the BNP transaction is something that as a consequence is that in all the organization, there has been studies on potential opportunity. But let me start from the targets. Then I will elaborate on the real feasibility. So looking at targeting the market, I cannot tell you that for us, I don't see any kind of target. There could be something that can be completed in terms of potential transactions.

Having said that, theoretically, the opportunity is significant because using the Danish compromise and using the insurance subsidiary, there could be a lot of savings in terms of capital potential, but our position is that we have no target that can be completed. And at the end, I'm very sorry, but for us, it is something that we will not use. At the same time, I can confirm you that we think to have such a significant internal synergies through an acceleration in terms of work with the wealth management and protection subsidiaries and with insurance, especially during 2025 that we will be concentrated in accelerating the results of our subsidiaries.

Just to give you on the work that we are doing, you know that usually, our trend of gross inflow was in the range between EUR 25 billion and EUR 30 billion during 2024 and with an acceleration in this quarter, giving us net inflows of EUR 2.6 billion. Now we are in a position to accelerate this trend and our expectation due to the fact that there is correlation between the reduction of interest rate and the portion of asset under administration that can become a capital gain positive and also the area of deposits that can be switched that we can move from EUR 25 billion, EUR 30 billion, moving into EUR 35 billion per quarter in terms of gross inflows.

So this means that we can have an acceleration in terms of inflows during 2025 if interest rate will go down for an amount of EUR 20 billion. And it is already with the number of clients, the name of the client, the sensitivity of the different kind of instruments of the clients, and this will be part of actions that will be part of the budget process that we will complete at the end of this year.

[Operator]

And next question comes from the line of Delphine Lee from JPMorgan.

[Delphine Lee, analyst]

My first one is to come back on fees and commissions and the potential that is coming from -- and the boost that you can get from the lower rates. I mean, you've commented in the past that you could generate high single-digit growth when rates are below 3%. I mean you already had quite a strong performance already in 2024. Do you think that this is something that you can replicate in the next coming -- I mean, in the next year or so? Given the comment you've just talked about in terms of the initiatives? Or you think '24 would be somewhat of a high base?

Then my second question is just to clarify your comments on the cost because -- I mean -- so you -- I mean, your guidance is clear for '25 that the cost would decline on the back of the staff reduction that you've just announced. I'm just thinking about more longer-term by '26 sort of what kind of cost evolution could we get beyond '25? Can that cost base continue to go down? Do you feel that you still need to continue to invest and that's maybe a bit unreasonable to assume a constant decline of the year.

[Carlo Messina, executive]

So looking at the -- I will start from the cost, and then I'll elaborate on fee and commissions. So on the cost side, the reduction in 2026, '27 and '28 is really embedded with the reduction of people. And considering that -- at the end of 2025, we will have completed the majority of the IT investment. So EUR 5 billion investments in the IT transformation, technological transformation for the group is really a massive amount of investments.

At the same time, we increased a lot for 2,000 people, the number of people working in these areas. So we have already completed by the end of 2025 technological investments for the transformation of the group. It is obvious that we will continue to invest. And that's for sure. but the degree of investments can have a reduction during 2026, '27, '28. And so we'll bring the combination of continuous reduction of personnel cost and the combination of reduction in terms of technological investments in comparison to the peak of these 3 years will bring us to continue to have potential negative trend in terms of cost base.

That is more or less what I think can happen in our group. So the significant amount of investments that we realized during this year. So as soon as for the end of 2025, we will have the isytech, cloud-based platform completed starting from the timing, all the migration from the mainframe to cloud will bring cost reduction. So we will have acceleration in terms of the simplification of all the procedures of the group that will be migrated on the cloud. Today, we are at 55%.

And for the timing, the majority of our procedures will be on cloud. So this will continue to give us potential for cost reduction also in the next years. That's the real strength of our technological investments and that is also the way in which you have to look at these 9,000 people leaving the organization within 2028 because it is symbolic of the potential of the group to be in a unique position, looking at the technological transformation and the benefits that you can have also from this cloud-based technological upgrading that we made to our system.

And this will be something that we will give a more detailed figure at the end of this year in terms of cost embedded -- cost reduction embedded in this transformation, but it is something that will allow us to have, in combination reduction of people, cost reduction also for 2026, '27 and '28. Looking at fee commissions, I'm pretty confident that at the end of the budget process, so we are negotiating with the different business unit and the kind of indication in terms of outlook, in my view, is absolutely conservative.

So it is something that we will achieve easily. At the end of this process, we'll be in a position of give all the indication related also on dynamic on fee and commission. My personal feeling is that if interest rate will go on an average to 2%. So this means that the final Euribor could be 1.75. I think that there is room for double-digit growth also in terms of fee and commissions, obviously, mainly driven by the wealth management and protection, but it is not mission impossible. We will see also at the end of this process.

But the dynamic is absolutely in favor of realizing this. For reaching EUR 9 billion, we do not need to have a double-digit growth in terms of commission. That's important. So that's -- it is made on a conservative basis in terms of growth of fee commissions. But I will be more precise at the end of the year.

[Operator]

And the next question comes from the line of Giovanni Razzoli from Deutsche Bank.

[Giovanni Razzoli, analyst]

2 questions. Intesa Sanpaolo, it looks to me at least a large asset management group, which controls the bank and not other way around for the kind of assets that you are continuing to reach. I was wondering whether you feel that your scale is now fair in terms of possibility to gather the economies of scale that this kind of business is requiring. Given your -- the answer that you've made before, it seems to me that you don't have that much appetite for external growth in this business.

So if you can please confirm this. And one of the main positive elements of the quarter, in my view, was the increase in the net inflows of asset management product in the third quarter despite the negative seasonality, EUR 2.6 billion, if I'm not mistaken. Do you see this trend increasing also in the next couple of quarters, especially if rates were -- to continue to go do down.

[Carlo Messina, executive]

So we see -- so thank you for your question. So we see a significant potential in terms of further growth in the asset under management and insurance business. I think that the kind of acquisition of private bankers, financial advisers, the hiring of global advisers, people working into the Banca dei Territori and the Private Banking division is mainly focused on continuing to increase our market share.

And we are happy to see that this is proving to be of significant success. So our expectation is through the increase of people devoted to make this job, we will increase our -- we'll continue to increase our share in this area. Net inflow, as you mentioned, this quarter has been very positive. And if you look also the net inflow of assets under administration because we focused on net inflow of assets under management. But remember that for a significant portion of what we can then transform into wealth management product.

Also the asset under administration dynamic is very important. So it is increasing the potential of conversion and then also a portion of the third-party product in asset under management areas placed by the Private Banking division are in the asset under administration net inflows. So the net inflows that we are generating is really significant. And in our expectation, it will accelerate also in the next quarters.

And during 2025, it will be part of the story of success in terms of evolution of wealth management fee and commissions. Do not forget that we have EUR 100 billion of amount of wealth of the Italian families that we have already identified and an amount of EUR 20 billion can be converted in 2025. So we are working with a number of optionality that can increase our fee and commission because the evidence also with this [ 2, 3 ] reductions of Euribor that happened in this month, the evidence is that this is enough to accelerate the proposal to clients of Wealth Management products and my people both in the Fideuram and Private Banking divisions and in Banca dei Territori are really strong in accelerating in this kind of proposal. So I'm pretty confident that we will have a significant increase in terms of net inflows, gross inflows and fee and commissions related.

[Operator]

Now we're going to take our next question and it comes from the line of Ignacio Ulargui Lopez from BNP Paribas Exane.

[Ignacio Ulargui, analyst]

I have 2, if I may. The first one is on lending. Just wanted to see how do you see loan growth evolving in the context of the relatively solid economic backdrop that you have in Italy? How do you think that, that could support NII into 2025? And the second one also linked to the capacity of your moving assets from -- moving to assets under custody and assets under management. How do you see deposit covering in a context of improved economic outlook. Do you think that we should expect kind of that part as feeding into the AUC and AUM?

[Carlo Messina, executive]

So in terms of loan growth, we had in Italy, a period of usage from the companies of their own resources in order not to pay significant costs related to Euribor increase during this period. You know that Italian companies are in a very positive cash flow positions, so they use their own funds. At the same time, also, the kind of fiscal advantages related to investments that now are -- should be in place with the new budget law, was something that was -- the companies were in a wait-and-see position in the fiscal advantages.

And now my expectation is that they will accelerate investments. At the same time, the government will have to redeploy into the real economy, the amount of next-generation EU funds that is more than EUR 100 billion not used until now. So that would be part of a story of acceleration of investments between the end of this year and 2025 that will bring our loan book in a positive trend.

So our expectation is that we can be in a range of a low single-digit growth in terms of the loan book, both on residential mortgages due to the reduction of interest rate, but also on the corporate side, mainly for companies export-related and companies that are related with the next-generation projects. So having said that, we think that from the end of this quarter and the beginning of 2025, we will have a different trend in terms of loan growth.

Looking at the assets under management administration and the potentials which -- the kind -- the condition of the savings of the Italian family is very positive. So the -- it is clear that saving today can be considered really probably the most important point of strength of the country in combination with the ability of the company to be a leader in terms of [ export ] related. And this will continue to be part of the story in which the better allocation -- the best allocation of the saving will be part of what the family will find during 2025.

And we think that we are in a unique position to use our strong ability, the 100% factories that are part of our Wealth Management and protection story to allow a significant portion of assets under administration to be converted into asset under management. There is also a portion of the BTP that has been placed last year that now are capital gain positive. And this part could be part of an action that we started in order to make a conversion to propose a conversion of this BTP into asset under management products.

So my expectation is that the switch will be part of a significant portion of the growth of assets under management. And at the same time, deposits will be part of a potential switch in particular, all the term deposit expiring during the end of 2025 -- 2024 and 2025. And so this will be part of an amount of potential conversion into asset under management product.

[Operator]

Now we're going to take our next question, and it comes from the line of Pamela Zuluaga from Morgan Stanley.

[Pamela Zuluaga, analyst]

The first one is around insurance income. I was wondering if you could give us some color around the quarterly declines in this line. What are the drivers behind this evolution? And how are you thinking about it moving forward, particularly since you're expecting more resilience on the diversified revenue lines protecting the NII declines. Then I also wanted to ask you on the trading gains that surprised this quarter and helped maintain broadly...

[Carlo Messina, executive]

Sorry, Pamela. Could you repeat the first question? Because I lost some point in the question. It's my fault...

[Pamela Zuluaga, analyst]

Just wondering if you could give us some color around the quarterly declines in insurance income that we saw. What are the drivers behind this evolution? And then the second one is on the trading gains that surprised this quarter and helped overall maintain stable revenues. If I look at your guidance on the net income for 2025, you're targeting, among other things, precisely better trading. Can you please explain your expectations for this trading line? And are you targeting these gains could offset the NII decline?

[Carlo Messina, executive]

So starting from declining insurance. The insurance trend in the last -- the final part of 2023 and also 2024 was affected by 2 trends: 1 negative that was related to the life insurance and one positive that was related to the property and casualties business. These 2 trends are close to be now both of them positive because for the first time in the last quarters, we had positive inflows also in terms of life insurance product. And this will be part of further acceleration that we expect not only for the Property & casualty, but also for the life insurance business during 2025.

So the majority of the point was related with life insurance that had negative inflows during the first 6 months of 2024 and also during the end of 2023. Now there has been a change of trend in terms of life insurance. Obviously, the negative inflows was placed in assets under administration, deposits, so not obviously leaving the organization. But also in terms of favorite product from the clients that was considered as the best product.

Now they are coming back with the reduction of Euribor, reduction of interest rate. And our expectation is that for the future, we can also add this further engine for growth in terms of the insurance business increase. Looking at trading gains, I mentioned in different occasions that for us trading cannot be considered strategic as soon as we have a significant number of revenues, especially coming from the increase in terms of Euribor.

In 2025, in which we will have a different story, with the reduction of Euribor, there could be also a portion of our government bond products that can become in a potentiality for our both Banca IMI and Treasury department to have a disposal generating capital gains. So my expectation is that the combination of the hedging facilities and the trading income can absolutely compensate the reduction of net interest income.

So this could be 2 moving parts. And during 2025, we will have to take attention on this portion because you know that also the targets that our business unit have are based on total revenues and not on net interest income and trading income, especially for the Corporate Investment Banking division and for the Treasury department. But it is true that in case of reduction of Euribor, we will not have the commissions area that will be something related to significant core revenues because this will be part of our business model, but also the possibility to have the financial components of our portfolio that can generate trading income.

[Operator]

Now we're going to our next question. And it comes from line of Hugo Cruz from KBW.

[Hugo Moniz Marques Da Cruz, analyst]

So 2 questions. One, on the cost of risk. I remember a few quarters ago, you're saying that you started off 30 basis points as a sort of a floor to be conservative. This year, you've been doing a little bit lower in the 20s. You haven't used any overlay. So should we think rates going down will help as your asset quality. So should we think that floor is actually going down, perhaps, going to 20 basis points, and we could see cost of risk structurally lower going forward? So that's the first question.

Second, on the NII, you raised the estimate for this year. But if I assume 15.6 which is above your target. That still implies a decline of almost 6% in Q4 Q-on-Q. So I was wondering, if you could give a little bit more color on the NII for the fourth quarter.

[Carlo Messina, executive]

Yes. We start from the cost of risk, then I will elaborate on the net interest income. So cost of risk, the run rate for an organization like us, the average run rate, sorry, because there could be some quarter in which you can have some 25 basis points, other quarter in which you can have 35 basis points. The average is a trend of 30 basis points for us. Then I do not exclude that [indiscernible] we have opportunity to reinforce sustainability for results in the future. we can also exceed the 30 basis points remaining in any case, below 40 basis points and this if it is part of deleveraging process. So -- but the run rate could be 30 basis points. That's my view on the cost of risk.

In terms of net interest income in 2024, the last quarter will have a reduction in terms of net interest income, obviously, because there will be also part -- the full effect -- the full impact of the further reduction in terms of Euribor. My expectation is that we have been very conservative in our indication in terms of the final level of net interest income for the end of this year. And so the reduction could be more manageable, let's say, in this way.

But we will see at the end of the year. So the real point that I don't need to stress some figures for 2024 because at the end, the last quarter that will be used in order to increase sustainability for the future. So I will be obviously more precise on all the kind of outlook at the end of this year. But your point is right.

[Operator]

Now we're going take our next question, and it comes from line of Andrea Lisi from Equita.

[Andrea Lisi, analyst]

The first one is, again, coming back on what you said, previously, as regards to the last quarter that you will be used also to sustain the future profitability. Can we imagine further actions on top of the one you said -- you announced on cost and the possibility to further maybe reduce loan loss provision in order to sustain the performance for next year? [Should we] something else? And the second is just an update, if you can provide us an indication of the amount of performance fees and upfront fees that we saw in this quarter that was characterized by significant inflows.

[Carlo Messina, executive]

In this quarter, we have EUR 19 million of performance fees. And the total amount, I think it is in the range of EUR 30 million, EUR 40 million, more or less should be this -- the total 9-month performance fees, so a very limited amount. Looking at your first question, that is obviously very important. Yes, I can confirm you that we will have other actions during this quarter. we will decide, obviously, according to the final figures where we will allocate further action for the sustainability of results. But the integration charges for exit will be not the only one.

[Operator]

And now we're going to take our last question for today, and it comes from the line of Fabrizio Bernardi from Intermonte.

[Fabrizio Bernardi, analyst]

2 very simple questions. First is on M&A in Italy. If you can give us your mood about this. I know you have a very wide corporate, let's say, coverage of Italy, but maybe you can let us understand how the mood is going or improving? And the second is, if we assume that you have some basis points of free capital, would you do buyback, like the one that you approved, let's say, the last year, the EUR 1.7 billion or given your shareholder base, it's better to consider cash dividend.

[Carlo Messina, executive]

No, we will propose, obviously, subject to [ BCA ] process, Board of Directors but buyback not increase in cash dividends. In terms of M&A in Italy I think that, obviously, there is, for us, a point of antitrust. So in terms of market share for us, this will be something really difficult to perform. I want also to stress another point, and let me say this that it is not only my position for Italy, but also outside of Italy because I think that today, to buy a bank that is relying on net interest income, it is indicating a value that can be reduced for the future.

So in terms of potential evaluation, I think that could be better to wait for the beginning of 2025, in which you can have more clarity on the impact of net interest income because there are no player in Europe apart Intesa Sanpaolo and UBS that are relying on Wealth Management & Protection business. And these figures can be really -- really can really change the kind of dynamic of profitability for the majority of the banking sector, both in Italy and outside of Italy. But for us, we are absolutely limited by the antitrust. At the same time, as we demonstrated we are able to make EUR 500 million synergies through actions that are internal without need to enter into acquisition.

[Operator]

There are no further questions for today. I would now like to hand the conference over to Mr. Carlo Messina for any closing remarks.

[Carlo Messina, executive]

So thank you very much. I think that we demonstrated that our business model is absolutely ready to have all the potential benefit coming from the reduction of Euribor in the future through Wealth Management & Protection, commission but also significant technological investments and advantages that we have in comparison with all the other peers in the market. So we will see at the next presentation for the final figures in February, and I will have also meeting in London with a number of international investors. So thank you very much for your attention.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.