Mediobanca Banca di Credito Finanziario SpA

MIL:MB

Earnings Call Analysis

Company Targets Improved Fee Margin and Growth

The company aims to enhance its fee margin from 82 basis points to a target of 85 this year, eventually reaching 90, driven by a new bank offer and recruitment efforts. They eye a total financial asset (TFA) growth target between EUR 2.5 and 3 billion, fueled by deposit campaigns and loan volume expansion. New loan production is expected to surpass EUR 8 billion, backed by strong distribution platforms. Risk-weighted assets (RWA) optimization could lead to a reduction of EUR 1.5 to 1.7 billion. Meanwhile, Wealth Management costs might increase due to a rise in the cost of funding from 30% to 40%. A senior hire from the last quarter added over EUR 1 billion to their net new money. Lastly, fee income is projected to grow by 5% on a peer-to-peer basis, with an additional contribution from the acquisition of Arma.

Quarterly Performance and Execution of Strategic Vision

The first quarter has exhibited both strong financial numbers and the execution of the strategic vision for the upcoming three years. Revenue increased significantly to EUR 860 million, which is a EUR 100 million improvement year-over-year. Net profit soared to EUR 350 million, equating to an EPS of EUR 0.41—an increase of one-third compared to the previous year. Efficiency and risk assessment remained impressive with a cost-income ratio around 40%, and a Cost of Risk (CoR) at 46 basis points. Return on Tangible Equity (ROTE) climbed to 14%, and return on Risk-Weighted Assets (RWA) rose by 60 basis points to approximately 2.8%. The capital ratio was strong at 15.5%, already accounting for a proposed buyback. A focus on wealth management has led to EUR 1.8 billion in net new money, with an impressive 50% qualified inflow. This attention has resulted in record revenue for Wealth Management at EUR 220 million and a net profit of EUR 50 million.

Capital Allocation and Risk-Weighted Assets (RWA) Optimization

The bank has strategically reduced RWAs in Corporate Investment Banking (CIB) by EUR 2 billion quarter-on-quarter, a reduction path initiated a year ago. Meanwhile, capital is reallocated to sectors with higher returns, such as Consumer Finance, and less to CIB, driving a more efficient use of capital. The bank has seen a high capital accretion of 35 basis points from earnings. However, this was partially offset by a buyback and the first-time application of a consumer finance model. The bank remains committed to a capital management agenda which includes, over the next two days, approval for dividend distributions, a buyback program, and the introduction of an interim dividend for the fiscal year.

Commitment to Sustainable Banking and Divisional Strategies

The bank has set ambitious emission reduction targets for 2030 in various sectors, emphasizing its role as a strong Debt Capital Market (DCM) operator in the Environmental, Social, and Governance (ESG) space. Wealth Management is a focal point, with new hires and the offer of a comprehensive global wealth management proposition. A notable addition is the hiring of Carlo Giausa, expected to strengthen recruitment and the wealth management offering. As part of the CIB strategy, the bank focuses on selective corporate lending and risk-adjusted returns, with partnerships and advancements in energy transition being strategic moves for future positioning.

Consumer Finance Opportunities and Digital Transformation

Consumer Finance has exhibited strong new business production with a shift to more profitable products. Personal loans are becoming increasingly digital, with 80% originated through direct distribution and a considerable portion being digitally enhanced. The 'Buy Now Pay Later' model has enjoyed substantial growth, doubling year-over-year, showing potential as a long-term growth driver, and is now prepared to expand into Switzerland.

Outlook, Guidance, and Shareholder Distribution

Based on its solid start, the bank plans to grow more revenue and profit in Wealth Management, allocate less capital to CIB, and enjoy stable, growing cash flows in Consumer Finance and insurance. The shareholders benefit from a robust distribution policy, with a plan to distribute nearly 100% of profits, reflecting an attractive 10% annual yield. The bank's guidance foresees higher Net Interest Income (NII) growth to high-single-digit percentages, with a significant fee contribution expected from the consolidation of Arma and Wealth Management. The bank anticipates maintaining a flat cost/income ratio and a steady CoR, with a buoyant CET1 ratio of around 15.5%.

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to Mediobanca First Quarter 2023/2024 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.I would now like to hand the conference over to Mr. Alberto Nagel, CEO. Please go ahead, sir.

[Alberto Nagel, executive]

Good afternoon, and welcome to everybody to this first quarter earnings call. I would start saying that I'm very happy with the results of this quarter for 2 reason, both in terms of quantitative, so numbers, number-wise. But what is even more important for me is that we are executing our vision in terms of what the bank should do in the next 3 years.In terms of numbers, we have reached EUR 860 million of revenues, which is EUR 100 million plus compared to a year ago. And this reverted into new high level of net profit of EUR 350 million, with EPS at EUR 0.41, which is an increase of 1/3 compared to a year ago. Efficiency and risk assessment of the group has been kept quite a good level. So cost income was in the region of 40%, while CoR was at 46 basis point. ROTE went up to 14 and the return on RWA is in the region of 2.8%, which is up 60 basis points.Capital strong at 15.5% after having upfronted the buyback that we will put out in the agenda for the general meeting in today's time. So as I said, which is even more important is that the vision of the bank as we want to, I would say, reshape is getting traction.How? First of all, a bank more and more centered on wealth management. This is happening. So we are having a very good inflow in terms of basically new hire and senior hire. So this reverted into EUR 1.8 billion of net new money, 50% of which qualified. Liquidity events in a moment where a number of transactions in M&A or large M&A is reduced has been quite good. So this led to record revenue in terms of Wealth Management, EUR 220 million and net profit, EUR 50 million, with an increase in RWA, return on RWA.The second important pillar of our plan says that we need to operate a PIB model. So private and investment banking model, which is a bit holistic, I would say, offering of Mediobanca with less capital associated or absorbed by CIB, which is what we are doing. Basically, thanks to mitigation, risk mitigation we have put in place and more selective origination in lending, RWA are down by EUR 2 billion, which is 11% Q-on-Q.In the meantime, we have developed the side of the part of CIB, which we like the most, which is the advisory-driven. So we have concluded the partnership with Arma Partners. We have set up the energy transition team and we have basically started to put in place mid international platform of advisory. We have also advanced nicely on the BTP specialist authorization and this will give support to the P&L in 2024.The other important pillar of our plan is to have -- to continue to enjoy a sustainable, stable and high cash flow coming from consumer and from insurance, which is what is happening if you stick to the numbers of this first Q because we have enjoyed a very sound new business production in Consumer Finance, notwithstanding seasonality, EUR 1.9 billion. And which is even more important is that the repricing is going much better than expected and this supported the NII trend.Buy Now Pay Later has become a killer application and you will see the impact later on in the presentation of Buy Now Pay Later onto purpose loan. And the other name of the game of our plan is becoming, I would say, "more owner of our distribution." And this is happening because proprietary channels are originating up to 80% of personal loan, while asset quality is still kept at very good level.Insurance, again, a very good quarter. And this is the other evidence that having an exposure to insurance for a banking group like us is generating a net positive in terms of net income and return on allocated capital. Here, you see that given the efficiency of this exposure to insurance, we have increased our return on risk-weighted assets at 4.2%. Holding function contributing very well because of physically NII production and the cost of funding kept under control.Now in terms of our balance sheet, if we go to Slide 7, we see that basically we have increased in a year time by 10% our TFA to roughly EUR 90 billion. This has been mainly driven by AUA and AUM, less in deposits. We have, as I said, at EUR 1.8 billion of net new money and EUR 600 million of outflow, which was a sort of guided outflow because we wanted to postpone our promo in deposits given the fact that we were very, very liquid in terms of balance sheet. And as we see here on the left part of the slide, the new loan production has been focused more in Wealth Management and in Consumer Finance where we retain more profitability, more margins and is more strategic for our future.As we said, we are starting an important RWA optimization which is part driven by selective growth in assets, part in terms of putting more attention and more managerial -- using more managerial tool to reduce RWA. We have had also a bit of inflation because it was the first time application of the model to consumer. But nevertheless, we managed to decrease substantially as you see, EUR 50.3 billion of RWA compared to EUR 52 million of a year ago.The diversification is paying off is getting to the fact that we have increased by 14% our revenue quarter-on-quarter. And in this, we have had 3 net contributor and one declining trend. Wealth Management increased 10%, CIB going down 20% on the back of, I would say, the last few quarters. Consumer Finance plus 4% and noncomparable growth in insurance also because of nonrecurrent item last year. So -- but in any case, quite a good support.Again, having diversification, having pushed on Wealth Management, having pushed on consumer compared to the bank that Mediobanca used to be, so mainly, I would say, center on IB and equity stakes is a totally different life. In this moment, it would have recorded quite negative results without this kind of evolution and diversification.NII, this is going better than expected. Basically, we have had 25% increase year-on-year. We have had also an increase or a stability increase compared to last quarter, if we net of the last quarter from the inflation link coupon. And this is happening because of important repricing in assets.You see this -- we went from 3.4% to 6.3% of return on assets year-on-year. And this is mainly happening in Consumer Finance. But also banking book is helping because basically, we have increased banking book. And what is even more important is that we will have maturity and replicating portfolio in the region of EUR 3 billion, EUR 3.5 billion in the quarters to come.Funding has been kept stable, take into consideration the fact that we were already liquid. We didn't have much need to finance new loans, additional loans. And we took the opportunity of placing bonds at better-than-expected costs. So basically, we have raised EUR 2 billion at roughly 100 basis points vis-a-vis Euribor 3 months and with an average 3 years of maturity. So basically, you see that the bond issued are having a spread which is lower compared to the spread of the bond expiring, we profit took the opportunity to repay of course, in advance TLTRO. And so basically, we have -- now we are facing [ very smooth ] at maturity. We have only EUR 3.7 billion of maturity between TLTRO and bonds outstanding in full year '24.Fees of the diversification has played well also in fees because basically, again, the fact that we grew substantially our level of fee in consumer in Wealth Management made that these are stable, net of some, I would say, also one-off that were more last year. So something related to deals or to some events. We are stable at -- compared to last quarter at more than EUR 100 million coming from Wealth Management as well as we have a stable contribution from consumer while CIB was contracting because of market.Also, I mean, the comparison of CIB with the previous 2 quarters of last year is a comparison with 2 of the best quarter every quarter. So there is also this element of comparison that is playing. CoR flat at 46 basis points. This is basically using practically 0 overlay EUR 5 million and it's a mix of, I would say, expected increase in Consumer Finance, which is now going as expected to 165 basis points and achieved that is better than expected. So basic -- and Wealth Management is still very good. So basically, we stick to basically to that same level of the last quarter in terms of CoR.Asset quality remains very, very, very good with no signs of deterioration. The only level is that as we are having a lower outstanding volume of credit for intentional reason, we are having a minimal uptick from 2.5% to 2.6%, but not because we have substantially higher deteriorated. You see them on Page 14. So we have only EUR 20 million of difference. So basically, of course, compared to the overall portfolio, it's a minimal amount.Capital optimization and reallocation is underway. So here, it's an interesting slide, Page 15, you see that in the last Q, we have had an important reduction of RWA allocated to CIB. It is EUR 17.3 billion as opposed to '19 of June and '22 of September. So it's a path of reduction we started already a year ago and is going through.On the rest, we are allocating more capital where we have better return in terms of capital-intensive business. So we have better return, of course, in Consumer Finance. And hence, we have basically increased slightly the allocation and the rest is pretty similar because basically they are not absorbing a lot of capital. So return on RWA is going up. And basically, it's driven by insurance and Wealth Management. Consumer Finance stays at a very high level, CIB is temporary at 1%, but this is a matter of this quarter.High capital accretion. So we have generated 35 basis points of net capital as a consequence of earnings, dividend payout, RWA and other. Then this 35 basis points have been eroded by buyback and the first-time application of Consumer Finance model. The generation of capital is such that we will go on with our capital management agenda. In 2 days, we will have the approval of the dividend, the buyback and the introduction of the interim dividend for this fiscal year.In terms of sustainable banking, we want to draw your attention on the fact that we have set new emission reduction targets for 2030 and we have identified also in aviation and cement sector. We have detailed new targets in automotive, power, aviation and cement. And I would say that Mediobanca has been affirming itself as a very strong DCM operator in ESG space. We have managed 18 in this quarter, in this quarter 18 sustainable transaction of a total amount of EUR 12 billion -- sorry, this is from January, not on the last quarter. So we have taken this, I would say, a special skill set and of course, this is paying.Going to the divisional results and looking at those results within our strategic path. So basically, Wealth Management is working heavily on reinforcing both Premier and private and also the offer of a global offer of wealth management. For this reason, we have concluded a very senior hire having Carlo Giausa joining us in September. And I think his background and what he did in previous houses where wealth management is more affirmed will give us a boost in further enhancing the recruitment and solidity of our offer.This is already happening in terms of pipeline of new hire, which will be more evident in the second half of the year because, of course, discussion takes place and times and will be converted more in senior hiring when we will effectively be doing the rebranding of [ Quebac ] into Mediobanca Premier, which will happen in January 2024. We have also developed a new strategy in liquid assets in private markets. And also we have managed the cooperation between private investment banking with a EUR 300 million of liquidity events.So basically, if we go and see the P&L of the division, we see that basically we are perfectly on track in terms of budget and we have reached more than EUR 200 million of revenue, which is plus 10% year-on-year and plus 5% year-on-year, but we have had, I would say, a much better net profitability with EUR 50 million. This is a 14% increase compared to a year ago and 50% compared to the last quarter.Going to CIB. Again, here, in a quarter where you have seen deal volume going down very much, the fact that Mediobanca developed quite an important mid-corporate franchise made that we have announced 30 transactions in the quarter, 50% of which are international. And on the 2nd of October, we have done the closing of the partnership with Arma. And Arma will be a key factor in both supporting fees in the quarters to come, but also, more importantly, is a strategic move to position Mediobanca in the tax space or sector at European level.The other step we have been doing is basically reinforce and announce the first important transaction in setting up the energy transition team. We have also advanced in 2 other strategic initiative of our plan. So starting with mid-international implementation, mid-corporate advisory implementation at international level. And we are quite advanced now to become a BTP specialist in 2024.As we said, one of the main, I would say, target goals of our CIB plan is to be using corporate lending more selectively, more driven by ROAC and more driven by the overall client relationship. And hence, basically, RWA are down EUR 2 billion Q-on-Q and this is also driven by some more, I would say, careful managerial effort that we are playing to reduce the capital allocated to CIB.So Q-on-Q, we have had an improvement in terms of 22% improvement in terms of net results, but this is needless to say that this is driven by diversification where you have businesses that are doing well, like adviser in particularly mid-corporate and DCM and you have businesses that are more suffering the conjuncture like ECM and bit lending when it comes to acquisition finance.In Consumer Finance, I said already at the start, we have had a quite a good new business production, which is even more interesting is the repricing and the shift towards more profitable products. So the mix is more action to personal loan. The asset quality is in the region -- asset quality is going as expected in the sense that as we have guided, CoR was unexpectedly low after COVID and there would be a normalization during this year.This is happening according to what we have basically forecasted and we still have the big bulk of overlay still untapped. Resilient profitability in the sense we -- every single quarter, we are between EUR 90 million and EUR 100 million of net profit with a very important return on risk-weighted assets. Here, I would say, in terms of industrial trajectory, it's important to note that basically now 80% of total personal loans are done through our direct distribution. 33% are having a digital enhancement, either are distributed digitally or are digitally enhanced in terms of distribution.And the second important message is that Buy Now Pay Later is becoming a very long-term growth driver because it's basically sold with all the, I would say, attention in the criteria and process of a typical purpose loan. And now we have already 15,000 dealers and the production is double compared to a year ago. And with HeidiPay, we are ready to expand into Switzerland. So basically we see Consumer Finance, as I said a strong generator of NII, a strong generator of net profit with important tools to cope with the evolution of this business, which is basically digital distribution and is Buy Now Pay Later, which is, of course, linked to digital distribution.On Page 34, you can see that in the last quarter, not only Buy Now Pay Later went up significantly, but also it represents 23% of the new production of total purpose loan of the group. As I said, asset quality as confirmed as healthy as we expected, basically here the slight increase in cost of risk, which is expected, as I said, is driven by also the different mix in the sense that having more personal loan, it's normal that we have a higher cost of risk, but also we have more profit because net of profit personal loan, as you know, are the best returning product in terms of profit and in terms also of stability of revenue.Insurance, a strong contribution also because of comparison of the quarter of last year, holding function quite a positive contributor because of this effective management of cost of funding on one hand and selective, I would say, placement on to the bond market at better-than-expected cost.So as a closing remark and as a guidance, as I said, it's very important that the start of the plan is coherent with the vision of the bank a term, but a term during -- should be implemented well before the end of the plan, which is -- a bank which is producing more and more revenue and profit in Wealth Management is allocating less capital to CIB is enjoying 2 businesses that have stable and growing cash flow in Consumer Finance and insurance.And as a result of this, it's able to distribute more to shareholders. So we will be able, as we are already able to distribute not only 70% of cash payout, which is growing in terms of percentage of an expected increase of net earnings, but also with the EUR 200 million of buybacks, we are basically distributing something just shy, just less of 100%. And this is reverting to 10% annual yield. So basically it's, I think, an interesting remuneration.This is also supported by our guidance, which is based on reinforcing, first of all, Wealth Management through repositioning of the Premier segment and investing on franchise and offer. We see and we stick to our guidance of growth in revenue. So basically, we see a higher NII growth to high-single-digit and we see a important contribution of fee coming from Arma consolidation and Wealth Management in the quarters to come. Flat cost/income ratio and flat CoR. So basically, cost income in the region of 40%, 40%, 43% max and flat CoR at 50, 55 basis points, as guided already in the last call with a solid CET1 in the region of 15.5%, which is quite a healthy ratio.Thank you very much, and I'm now available for your questions.

[Operator]

[Operator Instructions] We are now going to proceed with our first question. And the questions come 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 fees and one on asset quality in Consumer Finance. So the first one is, if you can maybe talk a bit about the outlook for fees into next year across your key units, particularly Wealth Management and CIB and the moving parts, leaving Arma side for a second because I think that contribution is not quite clear. Do you have any mitigating factors to defend fee margins should market still be challenged next year? That's my first question.And secondly, cost of risk in Consumer Finance has gone above 160 basis points in the quarter for the first time, I think, in 2 years, which is not [ drama ] given the overlays. But I'd like to hear from you what you're seeing on the ground from your clients, any signs of deterioration. You've talked about, I think, earlier risk indicators you've called in the presentation. So I'd like to hear more about that and what do you think cost of risk will go next year in your consumer unit.

[Alberto Nagel, executive]

So in fees, we do expect to get at the end of the year an increase in the region of between -- in the region of 9%, which is, of course, based on the contribution of Wealth Management and the contribution of Arma. Arma is likely to contribute EUR 20 million, EUR 25 million per quarter. So starting the consolidation in Q2 will be something like EUR 60 million, EUR 75 million.The fees in Wealth Management will come from basically the increase in AUA/AUM and in basically associated events, so certificates placement and other fixed income product. In Consumer Finance, we also have a supporting element in Buy Now Pay Later because part of the remuneration of Buy Now Pay Later is reverting to fees.So overall, I think given the environment, which is not a positive one, I think we will have a sizable increase. In CIB, what we note is that basically M&A is going better than expected in terms of dialogue also for launch transaction. So we have mid-corporate transaction. But already since some months, there are discussions of larger transactions in terms of M&A. DCM is going well.What we still miss is and I think it will be more difficult this year is ECM for the time being. And there is still the hope that going better, the M&A, there will be also acquisition finance, which is the other part that in the last 2, 3 quarters was missing for the industry. But starting again, M&A, there will be also acquisition finance.In terms of CoR, we did expect increase in CoR because the level of CoR was too low. For this reason, we have basically guided the market to this 50, 55 basis points of CoR for the group, which we confirm. In consumer, we are basically thinking that the level we have seen in this quarter in terms of basically 165, 170 is going to be the level after the partial use of overlay, which will be a limited use. No, we won't use much of what we have, very limited use. And we don't see today -- we see more normalization rather than a deterioration. So we don't have signs of consistent deterioration of the counterparty, which we, in any case, is expected. It's more a normalization.

[Operator]

We are now going to take our next question. And the questions come from Azzurra Guelfi from Citi.

[Azzurra Guelfi, analyst]

Couple of questions from me. One is on the NII. You have now a guidance that is a bit higher than the previous one. I hear you on the banking book. And also, I've seen that there is already improvement in the Consumer Finance margin. I just wanted to see if you can give us some color on the moving parts for the year in the different division. And linked to that also on the lending side, can you give an idea of how much is maturing this year? Because it seems that corporates are still quite liquid and you are driving a reduction of the CIB book. So just to understand what this could land.The other question, if I may, is on governance. Saturday, you have an AGM for the renewal of the Board. Should the majority -- should the largest shareholder list get 5 seats into the Board, how do you think this could impact the governance of the bank and the future strategy?

[Alberto Nagel, executive]

In terms of NII, I think we have a number of positive, which are basically on the assets and on the liability side. Let's stick with the assets. What we are seeing is a faster and better repricing of the consumer book. Today, we are at basically 75%, 80% of pass-through. We will conclude this from year to March. Then as you know, in case of future trend of interest rates stable or even going -- better going down, I think Compass will print even better NII to come. So this is the first element.The second element is the banking book. What we are seeing is that we have a maturity of our banking book in the region of EUR 800 million per quarter. So we will basically improve our NII, thanks to the fact that we renew another between EUR 3.5 billion to EUR 3.6 billion, EUR 3.7 billion in the quarters to come. This, as I said, will lead NII to have a trend which will be between 9% and 10% increase this year. We were expecting 5% increase. Now it's more between 9% and 10%.In terms of corporate loan book, we have done a prudent assumption where we can have a further decrease because of lower profitability and lower ROAC roughly of EUR 1 billion, another EUR 1 billion from here to the end of the year. But this is something that is hard to predict because, Azzura, if you have -- if we have important transaction like an M&A where we do also acquisition finance, this can easily be changed because you have an event that is not today predictable.The answer of the second question is that as we have been working at the 3-years plan and we are very excited on the delivery, we don't think that the outcome of the general meeting will alter neither our determination nor our industrial trajectory, which will be the same.

[Operator]

We are now going to proceed with our next question. And the questions come from the line of Britta Schmidt from Autonomous Research.

[Britta Schmidt, analyst]

Yes. I wonder whether you can comment a little bit more on the fee margin outlook and also on the prior net new money target of EUR 9 billion to EUR 10 billion, where do you see this now in the current environment? And then on the NII, could you provide us with the back book yield on the maturing banking book? And then just some thoughts on the banking tax.There's some commentary that banks not paying will lead to a confrontation with the government. But I mean the government should have been aware of creating an opt-out that will not lead to any revenues. Any thoughts that you can share on your views on this would be great.

[Alberto Nagel, executive]

Thank you, Britta. In terms of fee margin, we have had this quarter 82 basis points. This is driven by the mix of net new money. Our target for the year is 85 basis points, while we think that during the plan, we will reach 90 basis points because as we said we are working on a new offer of the bank, thanks to the new hire. So we will increase from 82 to 85 to 90 basis points during the year.In terms of net new money, net new money, which, in part, depends -- the 3 main drivers of net new money are money in motion events for private banking, new hire for Premier Banking and I would say also demand, the demand, the target of deposits, which in itself depends on the volume expansion on loans. So we have basically a target for the next few quarters between EUR 2.5 billion and EUR 3 billion of TFA, which is basically containing part of the promo campaign for deposits.So this quarter, we will do a promo campaign and we would do maybe another campaign. This will support also the TFA. In terms of maturing banking book, basically what we are having in terms of book yield at maturity is 3% and is short duration. So basically -- so we will reinvest this without enlarging or expanding the maturity, but with a better yield, of course, because as you know, basically, today, only investing at a 1-year time duration you get already a higher yield.The average maturity of the portfolio which is going to maturities at 3 years. So basically, if you replicate this in 3 years, you get extra spread immediately of what we can have in terms of NII.In terms of banking tax -- bank's tax, basically, we have applied the law and we have also taken into consideration ECB and supervisory recommendation in terms of basically set aside. But I don't think that is the fact that most of the bank may opt for this provision is a surprise for the government because the government has clearly set out the rules giving this kind of alternative. So -- and we have been talking exactly to understand with the government how we worked and we have, like other banks applied. So basically, if then the change they would change the rule, we will adapt. But for the time being, I think it's not something unearthed or unexpected from them.

[Operator]

We are now going to take our next question. And the questions come from the line of Hugo Cruz from KBW.

[Hugo Moniz Marques Da Cruz, analyst]

I have a few questions. First one, can you talk a bit about what trends you're seeing on Consumer Finance volumes with a bit of an economic slowdown? Could that be negative for volumes or actually positive? Second, you've done a lot of RWA optimization. What do you expect to do in the rest of the year there? And third, there's been some press speculation that there's some critics around the like of succession planning in general in your bank in Mediobanca. I wonder if you could comment on that, what kind of plan you have in place?

[Alberto Nagel, executive]

Sorry, but the line was not so clear. Let me try to recall well the numbers -- your question. So the first question was on new loans in consumer. So basically, we will have a production this year which is higher than last year. So basically, we will go above EUR 8 billion of new loans. This is basically our budget and we are on track because we are having, I would say, a very good support coming from our own distribution platform. So basically our physical distribution and digital distribution with Buy Now Pay Later.Then in terms of RWA optimization, I think we have in mind to have a reduction in the region of EUR 1.5 billion, EUR 1.7 billion, which is spread in terms of RWA, which is spread between a number of different smaller, of course, part of this is in factoring parties in market risk, part is basically a different managerial approach into margin loans. So we have several items we are targeting in order to get to EUR 1.5 billion, EUR 1.7 billion of reduction.If I got it right, the last question was on succession plan?

[Hugo Moniz Marques Da Cruz, analyst]

Yes.

[Alberto Nagel, executive]

Yes. Of course, the bank has [indiscernible] plan as all the bank listed and which is performing succession plan and reviewing them every year. It's not only for me -- sorry, it's not only for me. It's a succession plan for all the so-called key function holders. So every single position, which is having an importance, if I don't remember -- if I do remember what it's called a key function holder. So all key function holders have to have a succession plan, which is discussed in the bodies of the Board. So in nomination committee and then in the Board.

[Operator]

[Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Giovanni Razzoli from Deutsche Bank.

[Giovanni Razzoli, analyst]

I have 2 questions on the Wealth Management and one clarification on the fee target for 2024. So there has been a temporary change in the commercial policy of the Wealth Management. If I'm not mistaken, this had a positive impact on the NII. So can we assume that a rate of NII in the Wealth Management will decelerate going forward, our deposit cost will rise given the postponement of this offer, is my understanding correct?And the second question on the Wealth Management. Can you provide us what will the contribution from the new senior hires in the division that you add in spring? And the clarification on the fee growth, if I'm not mistaken, you've mentioned a 9% growth on the fees for 2024. But if I look at the -- maybe I misunderstood this number because if I look at the contribution of Arma for the 2024, this should give already a similar increase. So can you please clarify this?

[Alberto Nagel, executive]

So Wealth Management is -- thank you, Giovanni, for your question. Wealth Management is true what you said. As we expect beta, which is now beta, which is now 30% to go to 40%, we do expect that basically there will be a higher cost of funding for the Wealth Management.In terms of net new money from hires, the one that we have already done as maybe I don't know if I got it right, but you were referring to the senior hire we did in the last Q of last year, as already -- they have already brought from that time to today, more than EUR 1 billion. So it was a highly profitable hire. We do expect -- we have done other hires in private banking since then, of course, not of the same dimension of team.But what we do expect is more in Premier Banking coming in Q3 and Q4 because in Q3, also for practical reason, adviser and banker would like to join us when we have rebranded in Premier, Mediobanca Premier, not to do this 2 times, first in [ KBank ] and then Mediobanca Premier. So we are having this kind of dynamic where we will have more concentration in Q3 and Q4.Then in terms of fees, basically we will stay flat without Arma and basically this may be a prudent assumption. But if we adjust from nonrecurrent element that were not there, we have a plus 5%. So it's flat if you look at simply ex-Arma, but is 5% net of nonrecurrent element or noncomparable because we don't have -- this year, we'll sell Revalea. Revalea was contributing to the few of the group, as we will do the closing next week. Revalea for, I would say, 8 months after -- out of 12 were not contributing any more to our fee. So the reality is that we are having a 5% peer-to-peer growth plus the contribution of Arma.

[Operator]

We have no further questions at this time. I will now hand back to Mr. Nagel for closing remarks.

[Alberto Nagel, executive]

Thank you very much for your patience and attention and hope to have you all in the next earnings call. Thank you very much. Bye.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.