Mediobanca Banca di Credito Finanziario SpA

MIL:MB

Earnings Call Transcript 2023-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Mediobanca First Quarter 2020 to 2023 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand over the conference to Mr. Alberto Nagel, CEO. Please go ahead, sir.

[Alberto Nagel, executive]

Good afternoon to everybody, and thank you for joining the call. In commenting this first quarter, I would say that this quarter has been featured by growth, profitability, innovation and sustainability. Growth and profitability because notwithstanding the tough scenario, we were able to have a robust growth in profitable assets. So loans up 7% year-on-year. And this led growth of the revenue at the all-time high with 760 up 7%, with an NII, which was surprisingly better than what we have thought at EUR 400 million, up 11% and fees up as well at 4% at 210.

We have kept absolute quality in the assets with a core stable and overlay untouched. This led at the end, the profitability of around 12% on strong capital ratio. Innovation, this quarter, we have done the acquisition of 2 Fintech, 100% SOEs and the second minority investment in IDP these are instrumental to enhance our buy-now-pay-later business, which is key to get new customers, so customer acquisition capability, strengthened direct distribution and start to internationalize the business.

Sustainability, because we have for the first time, issued our task force on climate-related financial disclosure, where we had given wide disclosure on ESG heatmap to incorporate transition risk. And we have started to quantify the mission generated by our lending and investment portfolio, and we have set target to stay within the targets of net zero banking alliance, seeing that we will have to do something in automotive and power generation, but we are very well positioned and those kind of adjustments are manageable without impacting our business model. So strong group KPI in particular, EPS was up 5%. Revenue 7%, as we said, loans 7%.

TSA plus 8%, cost/income remain in the region of 42% and leverage ratio was 8.4%. If we break this out into the different business units, we have registered some performance across the board. So basically, in Wealth Management, we have raised our ROAC, the rock of the division to 38% on the basis of a very good net new money, EUR 1.1 billion entirely managed assets. And this is, as we will see in industry leader performance type of performance, revenue above EUR 200 million in the region of EUR 200 million and net profit at EUR 45 million, showing double-digit growth.

In Consumer Finance, all-time high, bottom line, so EUR 100 million of profit, which is all-time high. This is despite concern about consumer lending demand and also cost of risk, EUR 1.9 billion of net new loan, repricing of the loan faster than expected, core at the same level of last year. And as I said, ongoing investment in direct distribution innovation. CIB produced very good revenue in terms of absolute level and also diversification. And in this, of course, lending advisory and solutions business did to the most part. Notwithstanding the macro and some market concerns, the bank was able to generate profitable assets. If we look at Slide 7, CIB trajectory of corporate book is quite interesting in the sense that we have had an increase of 8% year-on-year.

But if you see the trajectory, this is a stable trajectory of growth since already some years. The same we can say in consumer finance with the exception of the COVID where we were altered in the production, and hence, we had 15 months, so more than one year in terms of inability to grow the loan book because we need to cope with the maturity of the existing book this has changed. And since already one year, we keep on growing our book. It was EUR 13.1 billion a year ago. It is 13.9 million now with a 6% increase year-on-year.

In Wealth Management, EUR 1.1 billion of net new money, this is comparable to basically the number of the previous quarter. I would say that the quality of this quarter is better because, as I said, it's all managed assets. While in the past, we had a mix of deposits and managed assets. Also, wealth management loans are having a very good trajectory, and we have a 9% growth year-on-year, which is a mix between mortgage done out of Premier segment and lumber lending than out of private bank. The trend of revenue overall is on the rise, and you can see it on Page 8, where we had this year, 7% and 13% of last year, which also fill the gap at the ramp-up because of what happened during the COVID.

The breakdown of revenues is 52% NII, 30% fees, trading and insurance. And you see that after only a few years of our activity in Wealth Management, we are at EUR 200 million of run rate. This EUR 200 million compares very well with the rest of the bank because the most important revenue producer is still consumer finance with EUR 276 million and the CIB is in the region of EUR 200 million, EUR 180 million. So basically already wealth management became a substantial business for the bank in terms of revenue.

NII benefited of a 11% increase year-on-year and 6% Q-on-Q. The reason of this increase, which was stronger than expected are related to sounder volume growth, coupled with beneficial interest rate increase on floating exposure. So basically, what happened is that the interest rate increase was steeper and bigger in a shorter period of time than expected. And we have actually an asset side of the bank, which is having a shorter maturity and is mainly variable.

So this is enjoying, of course, a higher level of interest. Of course, the volume, we say here, EUR 3.5 billion of additional loan with an increased yield. Banking book also grew because we were very liquid, and we use a bit of this liquidity to enter into good yield assets. And of course, the management of the funding has been important. We kept basically the funding at low cost and comparable to the previous year.

Fees are having another good trajectory more than 200. You see that this is a constant numbers in the last few quarters. Of course, we have always, in each quarter, some, I would say, more recurrent or less recurrent and also the definition of recurrent and nonrecurrent is variable because basically, this year, we have had a lot of upfront, which is coherent with the demand of clients of structured product. Overall, wealth management fee are on the rise. We have had EUR 112 million of fees. And we were coming from quite a high level between the first quarter and second quarter of last year because we had the BlackRock transaction, which we were able to offset with a new kind of source of fees.

The fees also in consumer and in CIB were pretty high. And hence, we were able to print above EUR 200 million. Industrial cost of risk, you remember that we gave a guidance of basically an unchanged cost of risk but using half of our this would have reverted into something like 70-75 bps. For the time being, this is not happening in the sense that we stick to the 45-50 but without overlay. And this is true across the board. So we see quite good asset quality and core in each of the business. So consumer banking well below still pre-COVID CIB and Wealth Management. So overlay is still untouched and possible use in the next few quarters, if needed.

Asset quality, we still are at 2.5% Stage 3 gross NPE on gross loan. Of course, negligible if it is considered net because it's 0.7%, we have increased the coverage of Stage 3 to EUR 72.4 million and we have increased also the coverage of Stage 2, and we have lowered the incidents to 6.3%. Overall, the performing loan coverage stays at the level of 1.33 with a very important level in consumer at 3.75. I would note that this decrease in NPEs is mainly driven by some bucket, I would say, consumer finance because you know that Compass regularly sells the NPE.

So we don't have at any point of time in the year, important warehouse of NPEs because we constantly evaluate them to 10% book value and then we sell it. So every year, we have this level of 200 million, 210 million,150 million. So now we are going down to $175 million. Another good news piece of news is coming from leasing because leasing as you know, is subject to trimming and adjusting since many years because we want to have a smaller bucket of leasing, and we have also managed to reduce substantially in one year time, the NPEs exposure, and we are now down to 55% gross and 11 net.

Capital ratio, we still enjoy very good capital ratio. This is on the back of generated earnings setting aside 70% cash payout. Small absorption of insurance this is temporary because when we received the dividend from Generali, we will trim this kind of RWA inflation. RWA organic growth and regulation. Here, we have been revalidated one book of lending, in particular corporate book, and we have had a manageable impact of 45 bps. We think that this is not going to last because we expect this to be reversed within the introduction of Basel IV in January '25.

As I said, the ESG pathway is basically making important step ahead in terms of scope 3, understanding how much we have, understanding how much we should trim, understanding how we can meet the deadlines and the targets we have signed up, and it's all manageable, and I think we are very well placed. We have also affirmed as a bank in terms of ESG DCM activity, and we have increased our green ESG credit product now at EUR 3.3 billion of stock.

Going to divisional results, I would, of course, highlight that this quarter was all but easy, in particular, in Wealth Management because with the volatility of the market, as you can see on slide19 the market was contracting in terms of net new money. And in general, the mood was not favorable because also negative market performance since the start of the year. I think our group outperformed a bit the players, and this is linked to the consolidation of our industrial footprint in private investment banking and in Premier segment. And this led to EUR 1.1 billion of net new money, basically equally divided between premier and private.

In private, we are sticking to a firm Mediobanca as a strong player in private markets, and we have completed some important transactions that give a connotation to the bank of this kind with some important real estate trophy assets, new investments within the Mediobanca, BlackRock initiative, all this kind of investment, you may understand will create stable management fee because they are going to last more than the liquid. So a very important element of the private market is that when you do this and you continue to offer this kind of opportunity, you have a lock-in clients for longer and with bigger visibility in terms of management fee.

Premier as well, raised EUR 700 million of net new money in managed assets, and this was done on the back of also new product offerings like the one done with our SGR and Nordea and/or some new life insurance product developer with Generali. Consumer Finance, as I said, best ever quarter in terms of net profit. So here, again, we had an important test of not only the resiliency of Compass, but the ability to print new loan at very good risk return level. The new loans were all-time high for the quarter, EUR 1.9 billion. And this is backed by a continuing effort in enhancing the distribution network.

So basically, between the additional agency that we have promoted the one of Compass Link, which is the door-to-door selling new kind of distribution network we have launched a year ago. The Fintech that we have acquired and the digital push we are doing in distributing our loan through a digital enhancement. The output of this is that we retain most of the marginality because we don't pay a fee to distribute our loans and hence, we internalize more margin. This was true, in particular, notwithstanding some inflation in cost because the digital push and the acquisition and the Buy Now Pay Later is generating, of course, extra cost. But the jaw of Compass is so well placed that basically with this increase of revenue, plus 7% in revenue, plus 9% in cost, we had with a similar cost of risk plus 11% in GOP in gross operating profit.

I spend only a few words on buying our pay later. Why we think that is very important for the future of our group, and particularly in Compass because we do see a bigger penetration of this product, in particular, for a younger generation. So we think that Italy is a laggard for the time being, in e-commerce and in Buy Now Pay Later, and there will be a bigger proportion of clients, which would go Buy Now Pay Later. Now Compass has already developed a very important offer on the physical Buy Now Pay Later.

So when you go into a shop and you do any purchase already 7,000 merchants are have signed an agreement to distribute Pago Lite, which is the product of Compass. These 2 acquisitions were aimed at, in particular, have a partner between us and the merchant e-commerce, so on the e-commerce. So what we are going to do is through the help of those 2 partners becoming a stronger player for the e-commerce in Buy Now Pay Later. The importance of Buy Now Pay Later in terms of customer acquisition can be seen on Slide 24.

Think about just a year ago, we were producing basically like today. Today, we produce a bit more between EUR 200 million and EUR 300 million every quarter of purpose loan. So what we say in Italy, [Foreign Language]. A year ago, the customer generated in purpose loan through Buy Now Pay Later was only 1%, now it's 11%. So this means that through Buy Now Pay Later as we say here, we are achieving in our data base, basically a number of customers that is quite sizable. So we say 15,000 a month with 66% of Nave before Compass.

As Compass is a very important company in Italy, many clients that do purpose loan, they may be already clients of Compass. So there, of course, the cross-selling is more limited. What we have seen is that Buy Now Pay Later the quality of clients and the category of clients is totally complementary to the one of the purpose loan. And hence, it's strategically very important. So we plan to be at 20,000 customers per month by June '23. If we go into asset quality, we see still that the early deterioration index, as we call it, on page 25 is still below the pre-Covid.

So we still enjoy a very positive moment where 146 basis points were more than enough to cover the deteriorated loan, and this reverted into EUR 51 million of provision with a further decrease, as we said, in deteriorated NPL stock and an increase in NPL coverage to 80%. CIB, very strong start of the year with plus 8% in total income, enjoying very good advisory, very good lending and strong start of markets, driven by high volume in solution business, equity and fixed income. Of course, the weak part was more in ECM and DCM. DCM is now basically slowly returning to normality.

ECM needs more quarter to go back to normality. So basically, I think that, again, here, the fact that we are not dependent from a single product or we are not reliant from in particular, DCM or ECM has not created a bad comparison with last year and that even without important write-backs, we are able to print a 15% return on allocated capital. Working well in many transactions you see, I would note, of course, as a matter of pride, the advisory for Porsche, which was an econic transaction.

On insurance contribution, again, it's important to note that the contribution of insurance for a bank is more and more important because in particular, in the moment and in conjunction where we are and where we can go basically because of many aspects. First of all, decorrelation with the typical macro that may affect the bank, different risk weightings and capital generation. So basically, even this quarter, this proved to be right with the ROC of 20%. All the function, nothing to comment in particular.

I would say that it's important to draw the attention on the refinancing and on the funding cost on page 31. Basically, bond stock stable at EUR 19 billion. with EUR 2 billion of issuance at 115 bps, which is even more competitive than the maturity because this year, we will have a maturity of EUR 3.2 million. We have already raised EUR 2 billion at a better cost. And basically, as you see, we have TLTRO smooth trajectory on page 31. And as you see, we are not having any support of TLTRO this year. On the contrary, we have factored even before the latest news of ECB that TLTRO would have impacted in a negative way as it's doing.

The last part is on updating you on how we see, I mean, the trends and the macro and address some market concerns. So basically, when we did the budget, it was May because we approved the budget in June, and then we have the full year approval in July. As you know, basically, the GDP growth, inflation, BTP spread were different, were more favorable, I would say, for us and for banks. On the contrary, EURIBOR was totally different. So basically it was 0.1% estimation in 2023, it is basically now 1.8%. So basically, we had some negative and some positives. To address the market concern, Mediobanca is seen having less sensitivity compared to commercial bank to rates.

This is true, but it's only part of the story because on the other hand, we are having a more favorable MREL position. We tend to privilege a prudent time approach where swing in negative and positive of NII is going to be more contained, and this proved to be supportive of NII in the past, but it will be also supportive of NII as we have seen in the future. We have a clear NII growth driver ahead, loan volume growth, sensitivity gradually materializing. You know that, basically, what we did is to start to alter [indiscernible] on the deposits of our wealth management. This started in February, March and is going to be more material in the future. And of course, maintaining an effective funding and effective cost of funding as well as important.

The second possible concern was on consumer. Mediobanca exposed to consumers will mean basically lower NII because of difficulty to transfer to clients, increase of rates and higher core. Here, again, Compass proved to be very able and faster to reverse higher cost of funding to clients. We think that basically our guidance in terms of core of Compass was prudent compared to what we see for different reasons. Basically, part of the so-called energy bill for family is going to be at least in public supported or subsidized and basically, the ability of Italian household to repay the personal debt over our long experience has been always and is going to be still very strong.

Also for one specific reason that, of course, no one wants to lose the good payer status and hence not having access to further credit. And of course, the strong Compass risk management, NPL collection capability. So again, Compass even in this period will be a great producer of revenue and a great producer of net profit.

Last part of, I would say, concern would be on CIB, less fee and the deteriorated macro will make a bigger core in CIB. Now this is only partly true because you have basically some products that are still very much pushed. M&A, in particular, mid sized M&A is the one where we are more focused is still very much pushed. Markets revenue and the so-called activity that normally tends to be evergreen in any downturn. So restructuring activity is clearly picking up. We have a marginal exposure to leverage finance, and this is not impacting revenue because we never lied and is not impacting as well core.

And I think that we are entering this downturn with a model of private investment banking within in the past. So we are, I think, more solid from an industrial footprint. So if we go to a final remark, what we think is that when you look at an investment case for a bank in this moment, revenue are important NII is important we will have an important increase in NII. But for us, what matters more is having a stronger gross operating profit risk adjusted because this is the only way to understand the real profitability after all costs and after all risk. Having entered in this phase or navigate this phase, starting with very strong asset quality and very strong capital position, so to be in a position to offer quite a sound shareholder remuneration.

Now what we forecast for the next few quarters, we think that our model will play positively even in the next few quarters, delivering industrial growth, not only driven by rates increase. So for this reason, we expect that maintaining our focus on growth, innovation, sustainability and profitability with cost discipline and risk control, we are able to deliver on the most more important part of our business plan, which was frankly unthinkable because in the meantime, we have had basically COVID, we have had energy crisis, Ukrainian war, but we stick to our EPS 23 at EUR 1.1, and we stick to our shareholder remuneration of 70% cash out. Thank you for your patience, and it's now time for your questions.

[Operator]

[Operator Instructions] The questions come from Azzurra Guelfi from Citi.

[Azzurra Guelfi, analyst]

2 questions from me. One is on your NII and in terms of if you can share with us some color on your outlook for 2023. Given the movement in volume that remains still very strong. Your commercial momentum is there in the wages division. If you can share with us some color on the NII outlook. The second one is for opportunity to grow in wealth management. We have seen headlines and news flow about potential deal to materialize. And I wanted to picture brain on what could be some criteria that you will need to fulfill to see a deal happening potential on the financing. In the past, you talked about divestment for reinvestment and if you have any color that you can share on this.

[Alberto Nagel, executive]

Thank you, Azzurra. On NII outlook, I think we need to revise our guidance and bring it a line or closer to what we have shown in this quarter. So basically, our NII will grow at 9% to 11%. So let's put 10% as a target. This is on the back of what we said, basically, faster repricing, faster increase of interest rates, bigger volume and shorter maturity of asset side. We have less than 3 years of maturity on the asset side, so we have a repricing. Of course, we need to look at also the cost of funding. So one point of attention would be to maintain and increase our funding at competitive costs.

For the time being, we were able. And so for this reason, I say that the new guidance is similar to what we have delivered this quarter. In terms of Wealth Management, I want to stick to the numbers of this quarter. Now you've seen that you follow us since many years, I was not a believer on the fact that after only a few years, wealth management would have produced comparable revenue to the other 2 business. So a much faster growth, which is linked to the effectiveness of these 2 platforms, private and investment banking on one side and Premier segment on the other. So in a downturn moment or in a moment of difficulty, like this one, I think we need to stick primarily on consolidating those 2 platforms. Now everybody knows that we have interest in looking at also acquisition. And then we have financial being and flexibility to cope also with a large transaction. But given the fact that the assets are well known, they are having clear ownership. It's not up to us to act rather than be available if called to look at those opportunities. But right now, we are very much focused on consolidating our organic growth.

[Operator]

The next question comes from Britta Schmidt from Autonomous. Britta is not speaking at the moment. So we are just going to proceed with the next question from Giovanni Razzoli from Deutsche Bank.

[Giovanni Razzoli, analyst]

A couple of questions. The first one is just a real-time question. We've seen right now the ECB change in the terms of the TLTRO whereby they are now applying a cost that is based on a forward evolution of the DFR other than the backward average. So I was wondering what are your plans in terms of repayment schedule of the TLTRO on life of this real-time change? The second question is on the evolution of the business generation in the Wealth Management. You reported very, very strong growth in the retail mortgages in the wealth management that are up by 2x on a year-on-year basis. I was wondering how shall we enter this in the context of rising rates and potentially downward demand of mortgages going forward? And related to this, how do you see the consumer credit business volumes in the next couple of months?

I'm not concerned with the cost of risk of the consumer position during the COVID crisis, is demonstrated to be able to even improve the risk profile of the consumer credit book by while we've seen the volumes suffering because the slowdown in the demand. My question is more on the evolution of the volumes there rather than the cost. And the very last question, more broadly, it's 6 months down the road that we are in the crisis in terms of conflict, cost of inflation, so on and so forth. And we are still seeing a very, very good asset quality, not just for you. I mean, you have a very strong asset quality. But if I look at the numbers of the bank, the default rates are really, really stable, still below 1%, even that a little bit counterintuitive in your opinion, given also the negative outlook that we have on the press on the closure activities, risk and small business. So what's your thinking there?

[Alberto Nagel, executive]

Thank you, Giovanni. In terms of TLTRO, First of all, I want to say that we have done first sensitivity, taking into consideration that the news is out since one hour, and we came to the conclusion that this kind of trend of NII is including the additional cost of TLTRO. This is something that I think is important for you. The second is that compared to the repayment profile we have outlined at on the Slide 31, we may accelerate a bit but not dramatically changed. So we want to have an early repayment of 50% or 75%. Then raising rates in mortgage for the time being, we are not seeing this level of rates in order that can prevent a new loan production.

Of course, if those rates goes very much higher, this can change. But the actual level of rates, which is higher than in the past, but we are not having interest rates apply to mortgage of 7%, 8%. Now we are in a different category. For the time being, it is not basically preventing new mortgage generation. Basically mortgages also demand is also driven by the general context. So if we have a further deterioration, you may have a decision to buy a house in Italy postponed because of other teams not because of interest rates. And we go to credit consumer volume, which is partly related to this. Well, for the time being, as you know, as we all know, we don't see crisis on the contrary. We see household in Italy, not only in Italy, which are spending and keen to spend what was not put on the table during the COVID. So we see still people making plan about house, about personal life and asking for volume. Even in October, we are seeing quite a good volume.

Now we need to see if this is going to be a trim a bit in 2023, you have to think that when the situation gets worse, it is not always true that consumer demand goes down. Certain consumer demand, and particularly on car loan or a purpose loan may go down, but personal loan may go up. Why? Because people tend to maintain the standard of life also through the course of personal loan. So for the time being, we are not seeing any decline in volume on the contrary. In terms of asset quality, there may be one element of I'd say, a time lag.

So Normally, when you have a crisis, it takes 1 year, 1.5 years before you see some impact in your asset quality. So we need to be conscious that asset quality for banks can deteriorate further down in 2023, maybe also if there is no inversion of GDP trend and on the macro can be even further down in 2023 second half. So I would not be surprised to see still very good asset quality up until December, March and then see a deterioration. And for this reason, it's very important to enter in this situation with very good asset quality and very good coverage and very good rating of the portfolio. In our case, we have also overlays.

[Operator]

The next questions come from the line of Domenico Santoro from HSBC.

[Domenico Santoro, analyst]

Just a couple of questions from this to understand whether I got it correctly. So looking at page 31, the slide on the TLTRO contribution. Basically, now you're accruing 0 and even it flips the contribution from November, so you're still basically confident on the 10% average NII increase. This is what you just told us. The second question is whether there was any change in the NII sensitivity, given also the change in the asset liability. And again, on this matter, I just wonder whether at the point we could see an increase in the cost of funding at CheBanca.

So if you have basically to give back a little bit in terms of repricing to deposit of customers given the rate increase that we have seen recently that could probably underline a little bit your NII sensitivity? And then a question on the M&A, if I can. I'm not asking you to comment any rumors, but I just want to understand what is the trade-off between EPS accretion and capital in case of an M&A deal? I mean in order to protect EPS, would you be willing to go below the 14% that you have at the moment or M&A, if that happens, needs to be at CPS neutral or created, but at the same point, capital neutral? Just to understand a little bit the metrics that you have in mind.

[Alberto Nagel, executive]

Thank you, Domenico. So the first question was on NII impact of TLTRO additional cost, so the answer is yes. So this 9% to 11% guidance is taking into consideration also, of course, we need to see the details. But even the today measure on TLTRO issued by ECB. So the first answer is yes. The second answer is no in the sense that we haven't changed the NII sensitivity; it can be better and bigger sensitivity over the next few quarters going on with not hedging the deposits.

But for the time being, we are still having the same sensitivity. What we did is that we have seen that we have repriced sooner. We have had a better volume. We have had a bigger banking book. All this included made the 11% increase. Cost of funding in the NII, we have a trajectory, we have factored a small increase in cost of funding of CheBanca. If it goes beyond this, we need to be ready to pass it to customers in order to maintain the 10% increase.

Fourth question on M&A. For us, M&A has to be having first strong industrial rationale. So if we do an M&A, in particular, if it is big, because I understand what you mean. So if we do a transaction 100, 200, 300, we don't expect this to be, of course, a game changer in terms of industrial profile. If we do something bigger, we need to be very well convinced that industrially, the bank is going to be stronger, not only in the single business, but as a profile, industrial profile. If we are convinced about this, and in particular, if it is a transaction that is related or touching wealth management, we are ready to have lower capital ratio, provided that we stick to 70% dividend policy. And also, we know that we can have a distinction between cash earnings and non-cash earnings. So basically, cash earnings have to go up, earnings that are even non cash with synergies should go up.

But I think we have even there sort of flexibility. So basically, when we think about this is, "Hey, how strong are we with or without this, what is our capital level lower than 14%, but always in a territory that will allow us to pay 70% or a very nice dividend policy?" An EPS that should have a trajectory of growth over the period of basically the synergies delivery. But I mean, these are all basically theoretical exercise because, as you know, today, we are fully focused on our internal growth.

[Operator]

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

[Marco Nicolai, analyst]

The first one is on net new money. So this quarter, the inflows into AUM and AUA were pretty solid, also considering market volatility and also seasonality, I guess. Can you share some color on the drivers here? And also I've seen that there was actually an outflow in terms of deposits. Should we read anything into this Q-on-Q move? And then I've got another question on the risk-weighted assets. So this quarter, you booked the effect of this LGD add-on on the corporate lending. But I've seen also there is another internal model investigation on CheBanca mortgage loans. Obviously, it's much smaller, but do you think that something could come up also from these. Yes, these are my 2 questions.

[Alberto Nagel, executive]

So thank you. In terms of net new money, I think we have to break it up into the different components. They have an equal weight, but basically, the org is totally different. In private banking, the main driver of net new money is money motion events. So the ability of our model of private investment banking to capture this money motion event. Basically, as long as we have -- I shouldn't say big M&A, but mid-sized M&A in Italy, I think we will enjoy this kind of trend because we are now, I think, a clear market leader in this respect. The second driver is the premier segment. This is more linked to the ability to increase portfolio to gain new customer and gain, I would say, new relationship manager and IFA. So then, of course, there are quarters where this is easier and quarter where in terms of arrival of new professionalities and/or ability to campaign on certain products, we are less effective. But these are the 2 drivers.

Outflows in deposits are a function of part is the fact that we are placing a fixed income product. And hence, part of the deposit is going to this. I think for the time being, we don't have outflow related to cost. So customer wants to be remunerated more and they go elsewhere. So it's more linked to the fact that in the meantime, we have placed some managed product and there has been a switch between deposits and them. RWA, yes, you are right. There are other buckets of possible revalidation. But I think what we have to expect is a few bps, if any, in this bucket. So it's still something that is always very difficult to predict the final ECB revalidation decision, but we do expect to be, I should say, a non-event, but very, very marginal. What I suspect is that this is not for us, but for a system is that this revalidation is something that will be a bit of a system kind of, I shouldn't say issue, but news of '22- '23.

[Operator]

The next questions comes from the line of Luigi De Bellis from Equita.

[Luigi De Bellis, analyst]

I have 3 questions. The first one is on the investment banking, so very resilient performance. Can you give us any color into pipelines, how they stood as of today? And as you are going to the next quarter, what you are seeing in terms of different segments of CIB? And how do you see the evolution of the revenues in the next quarter? The second question is on the Pago Lite, Buy Now Pay Later. So looking at the early data that you have on this business, what kind of profitability and cost of risk do you expect for this type of business compared to the average of Compass? And the last question on the funding. So can you elaborate on your expectation for the evolution of cost of funding for the next 12 months? And generally speaking, do you expect more competition on deposits going forward? And how do you feel comfortable on the possibility going forward to reprice the spread in order to offset a higher cost of funding.

[Alberto Nagel, executive]

Thank you, Luigi. In Investment Banking, what we see is a bit of a shift in terms of pipeline in the sense that we see quite a good trend in mid-corporate M&A, mid sized M&A. We see a very good trend in acquisition finance related to this kind of size. So large deals are more difficult as long as banks are still loaded with old facility and syndication that is still hammering in terms of P&L. So we do expect this to take one or 2 quarters. I think from the start of maybe after the first quarter of 2023, we'll see banks more active in doing a large acquisition finance and so this can restart. In the meantime, I think mid sized M&A, acquisition finance linked to this restart of DCM, market product, so structured products are going to sustain basically the fee level of investment banking.

Pago Lite quite a new kind of product. So basically, it's too soon to say basically the ordinary cost of risk because you do a lot of would say, experience and you build your scoring coringrids over time. So you change channel, you change products, you put some products, you avoid some product, depending on not the real cost of risk because in Buy Now Pay later cost of risk is not that important. It's important for the risk of fraud because it's something that depending on the channel, depending on the product, you are in a position to avoid and to minimize. Now the kind of normal maturity of these loans means that I cannot be more precise with you because it's still something we are detecting is that basically, the profitability is very high. And often, it is more in terms of fees rather than in terms of NII. But today, we have basically some million of production. So let's update when we have more experience on this, but as we said, margining can be very high.

Funding, yes, of course, we do expect to have a higher cost of funding. So we have thought about basically 10, 15 bps of extra cost. The positive of our funding mix is this one. Basically, today, we are very much in demand of Mediobanca bond through retail third-party network. You see that on Slide 31, basically, we have refinanced EUR 2 billion out of EUR 3.2 billion of maturity of bonds. And this is done at a lower spread. Then, of course, absolute cost is higher because the interest rates are higher, but so that to say, in deposits, we can have different data between private and Premier higher in private lower in Premier. So we need to factor a bit of increase in cost of funding. But what we have seen in terms of mortgages and consumer also in CIB is that we will be able, with maybe one quarter, one month, 2 months of delay to reverse it on to customers.

So Britta couldn't speak, we got a question. So basically, the question of Britta were on fees, how sustainable are the upfront fees in wealth management to make up for potential management fee weakness as sustainably is advisory making up for weaker capital market fees in CIB. So overall, how sustainable is the fee line overall with the current market outlook. So basically, I think that in fees, we need to take into consideration that there are products that are complementary in general, to the normal trend. In Wealth Management, we do think that there will be other quarters where structured product will be highly demanded because the macro is still there, and we have not basically done all the job in one quarter. In capital in CIB, we think that restructuring and capital market for restructuring can be a driver to support at least the next quarter, then of course, we need to see also the visibility on the full year.

Consumer finance fees are stable. So this is another element of stability. So basically, the fee, as you have already seen are on the rise, of course, maybe we will not have the same trajectory as anticipated in the guidance of last July. So we said plus 5%. Today, even if we are doing well, prudently, we say, while on NII, we think we're going to be 10% higher in fee, maybe a downturn scenario can be same fees of last year. Cost income, we have a cost income guidance of 45% to 46% full year. So I think that these were the question of Britta Schmidt, but I don't know if there is maybe a delay a still.

[Operator]

The next questions come from the line of Adele Palama from UBS.

[Adele Palama, analyst]

2 quick questions from me. I don't know if you accelerate given the guidance on the cost of risk for 2023 and [indiscernible] the group and in particular for consumer finance. And then a clarification on the cost overall I think that you said that the guidance for administrative costs or the inflation impact for administrative cost is around the 3% to 4%. But you had a 6% year-on-year increase in administrative costs this quarter. So which is the year-on-year guidance of growth for administrative costs.

[Alberto Nagel, executive]

In terms of core, we stick to the guidance of last July. So we said we're going to stay in the region of 45 to 50 basis points, but this is, I would say, not the industrial cost of risk because we said, given the macro, we do expect to be at 75%, but to use EUR 150 million of overlays, basically 100 in consumer and 15 in CIB. Now we don't have visibility today to use them. But I think we better be prudent and stick to this. Then, of course, if we don't have to use them, would be better because basically, we will keep them if there is a delay in this deterioration, and we will be ready. But we stick to the guidance of July. As we stick in terms of cost inflation cost, basically, we have several elements of inflation of cost.

One is, first of all, that we continue to recruit people in every business. So we are not in any trimming exercise on the contrary. Then we have basically digitalization. So all these projects of becoming more digital in wealth management becoming a stronger player in Buy Now Pay Later is basically generating extra cost. And then we have a cost which is even less under our control, which is the fact that info providers and dollar-denominated costs have a natural inflation component.

So all these elements put together makes that if I do remember well, we have a guidance of 5% to 6% increase in cost, and we stick to this. So in consumer, just to elaborate a bit more on consumer cost of risk. We were and we are at 140, now 145. Now the basis the EUR 100 million used in terms of overlay would have meant basically pre-overlay going to 2020. But we are still at 145. Maybe it's only a delay in this, and so we need to be cautious and keep this kind of guidance.

[Operator]

We have no further questions at this time. I will now hand the conference back to the CEO, Mr. Nagel for closing remarks. Please go ahead.

[Alberto Nagel, executive]

Thank you very much for attending this call and asking questions and following us and asking questions and -- thank you very much. Bye.

[Operator]

Please [indiscernible] conclude to this conference call. Thank you for participating. You may now disconnect your lines. Thank you.