Mediobanca Banca di Credito Finanziario SpA

MIL:MB

Earnings Call Analysis

Mediobanca Achieves 9% Revenue Growth and 20% EPS Increase

Mediobanca announced strong third-quarter results, with revenue up by 9% and a significant 20% increase in earnings per share (EPS). The company reported impressive performance in Wealth Management and Consumer Finance, achieving a record net profit of EUR 53 million. Despite a slight dip in the return on assets (ROA) due to higher AUA than AUM, efforts to rebrand and recruit have shown positive traction. Mediobanca anticipates continued growth, driven by a strategic focus on high-margin loans, digital investments, and robust cost management, aiming for a steady increase in net interest income (NII) and fees in the upcoming quarters.

Introduction and Overall Performance

During the third quarter of 2024, Mediobanca delivered a robust performance, demonstrating significant progress aligned with its strategic plan, ONE BRAND - ONE CULTURE. The company reported a 9% increase in revenue and a remarkable 5% reduction in Risk-Weighted Assets (RWA). The performance was driven by strong results in Wealth Management and Insurance, which are capital lighter, along with a careful management of RWA in the Corporate & Investment Banking (CIB) segment and exceptional results in Consumer Finance.

Financial Highlights

The period saw an impressive net profit of approximately EUR 950 million, marking a significant increase. Earnings per share (EPS) grew by 20%, and the return on tangible equity (ROTE) improved to 13%. The company's capital ratio remained robust. Notably, earnings per share surged by 20%, book value per share by 16%, and tangible book value per share by 15%. Mediobanca declared its first interim dividend of EUR 0.51 per share to be paid in May.

Business Segment Performance

Each business segment contributed to the positive momentum. Wealth Management showed best-ever profitability with strong net new money inflow of EUR 1 billion into Assets Under Management (AUM) in the last three months. Total Financial Assets (TFA) increased by EUR 3 billion, reaching EUR 97 billion. CIB rebounded with solid domestic advisory performance and Consumer Finance achieved a new all-time high in quarterly new loans with enhanced profitability due to effective repricing.

Operational Efficiency and Cost Control

Operational risk (CoR) improved to an excellent 50 basis points, demonstrating the reduced risk within the group. Cost management continues to be a focus, with business-related growth and technological advancements contributing to the overall cost structure. Despite the added expense of new hires and the renewal of labor contracts, the cost-income ratio remained around 43%, with Wealth Management showing a particular improvement.

Capital Optimization and Risk Management

Mediobanca has made significant strides in optimizing its capital allocation. The last 12 months saw a substantial reallocation with RWA in CIB dropping from 40% to 33%, and an increased allocation to Consumer Finance and Wealth Management. The group's overall return on risk-weighted assets improved from 2.3% to 2.6%, reflecting a healthier risk profile. The capital ratio as of December was around 15.2%, with expectations of a better outlook post-dividend payment.

Wealth Management Expansion and Strategic Initiatives

Wealth Management saw considerable growth, supporting the company's strategic pivot to increase focus on this segment. The rebranding to Mediobanca Premier was well-received and is expected to drive better recruitment of professionals and business growth. The company successfully raised EUR 1.2 billion for its TEC2 private equity initiative, highlighting its ability to attract new clients and capital even in challenging markets.

Consumer Finance and Innovation

Consumer Finance performed exceptionally well, despite high-interest environments typically challenging for this segment. Quarterly new loans hit EUR 2.2 billion, with EUR 1 billion in personal loans mostly handled through the Mediobanca network. The Buy Now Pay Later (BNPL) product also contributed substantially to revenue, reflecting the company's innovative approach and successful digital investments.

Guidance and Future Outlook

Looking ahead, Mediobanca is optimistic about its revenue growth, projecting it to reach EUR 3.5 billion with material growth in both NII and fees, and expecting double-digit EPS growth. The company’s strategic direction towards Wealth Management along with consistent performance in Consumer Finance and Insurance instills confidence for continued growth. They anticipate further improvements in NII and fees in 2025 and 2026.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning and thank you for standing by. Welcome to the Mediobanca Third Quarter 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.

[Alberto Nagel, executive]

Good morning to everybody and thank you for joining the call. The results of the last 9 months give us a picture of the group, which is changing quarter-on-quarter and which is coherent with our vision of the 3 year industrial plan, the one that we have called ONE BRAND - ONE CULTURE.In particular, we have had increase of 9% in revenue associated with a steep decrease in RWA, down 5%. This is led by an increase of results and trend in Wealth Management and Insurance, which are capital lighter, a different management and attention in RWA, in CIB and very strong performance from Consumer Finance.This was coupled with a reduced risk within the group and an excellent CoR, which is in the region of 50 basis points. And these 2 elements led -- so strong growth with less important capital allocation led to an important increase in profit, roughly EUR 950 million and an important EPS accretion of 20%, ROTE of 13% and very robust capital ratio.These 2 elements led to a 5% yield by June, basically having our first interim dividend set at EUR0.51 per share to be paid in May, plus the already completed buybacks with -- of EUR 200 million with 17 million shares acquired to be deleted by the end of June.If we stick to the industrial trend of the last 3 months, we can say that they clearly see an increasing and in a stronger trend. In particular, we have reached EUR 900 million which is one of the highest, if not the highest level of revenue, associated with lower CoR led to a steep increase in profit compared to a year ago and to a quarter -- to the last quarter.If we look at the single business, we have had a quarter where Mediobanca Premier was very well received by clients and bankers with very important new intake of professional. TFA up EUR 3 billion and with important net new money in different mix with EUR 1 billion of inflow in AUM in the last 3 months and an increase in asset management offer.CIB, a rebound in activity and fees with solid performance in domestic Advisory, while Consumer Finance growing volume, new all-time high quarter in terms of new loans with effective reprice, which led to a steep increase in NII. And this is on loan margin -- on high loan margins and very important profitability with stable CoR.We were also registering quite positive metrics in terms of per share of Mediobanca. So plus 20% of EPS is coupled with plus 16% in book value per shares and plus 15% in tangible book value per shares.Looking at the last Q, as I said, basically we have had strong AUM/AUA inflow with the rebalancing mix in Wealth Management, coupled with much stronger recruiting in after the rebranding. So TFA up to EUR 97 billion and basically a record net profit EUR 53 million and high revenues more than EUR 230 million.So basically at the end this quarter was seeing best profitability in Wealth Management, best profitability in Consumer Finance, as I said, with strong new loan and very good cost of risk and a rebound in CIB fee with a positive pipeline ahead.So basically this quarter show EUR 90 million fee, up 7% quarter-on-quarter. But if you see the comparison of the similar period of last year, we have had plus 72%. So this means that we are bottoming out -- the industry is bottoming out in terms of trend of new transaction and hence basically we see already an improvement in fees. And I think more to come if this scenario is confirmed as it is recently of much more activity in the sector.So the growth came from TFA first. Page 7. Basically we have put emphasis on AUM/AUA. Why we pushed down a bit in terms of new deposits? Because as we will see after -- say after, we have had a very positive funding activity in bonds. So basically, we have prefunded in bonds.So basically, we put our attention on AUM/AUA. And I would say that the very positive message is that we have recorded EUR 2.6 billion of AUM/AUA in this Q. And out of which EUR 1 billion was coming from AUM, which is an important element of ability to grow -- ability to grow much faster than the average of the market. If you see that Mediobanca is at mid-10% of net inflow in the quarter as opposed to 1.5% of average of the network in Italy.We have had quite positive news in terms of new loan in Compass, which were -- was more than able to offset the other -- the opposite trend that we see in the market and we see also for ourselves in corporate loan in mortgage. And we have continued to manage RWA in order to have a more efficient bank. So this year already in the last 2 -- 12 months we have had minus 5% year-on-year, but we have had also another minus 1% in the last Q.So we like this kind of group, where as you see on Page 8, we are harvesting growth well diversified from different sources. Wealth Management, Consumer Finance, Insurance, holding and waiting for CIB, which is going to come. We have then recorded 9% in revenue.This 9% broken down in different business. You see on the right side of the slide, we have had a trend of revenue in the last few quarters that's clearly higher than the average of the last year. So in Consumer, the average revenue trend was closer to EUR 200 million. Now we are closer to EUR 230 million or between EUR 230 million and EUR 240 million, there is always some seasonality.Then in Consumer Finance, we have had EUR 280 million and we are now running at EUR 300 million. In CIB, we are back to a level of EUR 200 million. And in Insurance, we constantly have quarters that are closer or higher than EUR 100 million as opposed to EUR 120 million as opposed to EUR 200 million of the previous year.This is driven, if we see the sources by, of course, 3 main or 4 main source of revenue. The most important is still NII. NII is enjoining a very positive spread between loan yield and loan fund spread. So basically, this spread is stable growing and so the ability to reprice of Compass was so strong that we could counter the weakness of other sources that, I think, in the -- particularly in the next year can come back, while Compass will continue to have this kind of trend.And this was able to maintain a very high level of NII notwithstanding the fact that, as we said, that in funding given the very positive capital market trend that we prefer to prefund with the DCM part of our funding and hence incorporating a higher cost of funding in absolute, but lower than what we have budgeted and forecasted.In fact, you see on Slide 10 that this quarter we have privilege taking the opportunity of very positive credit spread, DCM activity, prefunding, most of our budget in funding also in terms of capital issuance plan. So 80% of the capital issuance of our plan are already completed with the prefunding maturities done at tighter than budgeted spread. You see the breakdown here on Page 10.Fees, we had a positive -- very positive quarter, I would say. Why? Because basically net of some seasonality, you see in particularly in Wealth Management, if you see the corresponding quarter of last year it was EUR 111 million this year is EUR 123 million. In the middle there are some seasonality effects like in December you have always banking fees and performance fee.And net of this, it's a very healthy trend where all the components are working in the right direction. CIB is going back to level of between EUR 85 million and EUR 100 million supported also by Arma, and as well as the Consumer Finance and joining Buy Now Pay Later fee contribution is getting closer to EUR 14 million per quarter.Costs are function of our development. So we have broken down the increasing cost in 3 main drivers. Business-related growth, so basically EUR 55 million of additional cost it's -- are related to platform growth. Our headcount went up by 200. So we are adding people in most of our business, but in all 3 business are growing in terms of headcounts and some also add-on from acquisition, net of disposal.And that part is more related to technology and projects, in particular digital. And then we have had what was partly forecasted is the inflation and labor costs related to the new contract. In our budget, we have anticipated a part of this, another part, of course, had to be put to the P&L, but it's also true that this is coming in a context of very positive trend in revenue. So it's well deserved.Cost income in the region of 43% and in all division is broadly stable with an improvement in Wealth Management that the more growth and the more the operative leverage will work and will make that we're going to go closer to 60% rather than to 70%.Positive news also on CoR. Basically CoR in this quarter was 48 -- for the group was 48 and basically this in the 9 months is reverting to 50 basis points of cost of risk, where in Consumer Finance, we are being seeing this increase in cost of risk being stabilized. So compared to our initial budget, we had something like 15, 16 basis points on top of the increase we have had in mind.But this is much more than offset by higher and higher, I would say, loan and in particularly more healthy loan in terms of personal loan, which have much better margins. So net-net, it's something that we will see after is making Compass more profitable compared to the previous year.CIB. Very good CIB and Wealth Management, very good cost of risk. Hence, I would say now we are running better than anticipated in group CoR. And this is coming, another positive, with much lower usage of overlays. So the more we go on, the more we see room to use less of this overlay, thanks to much better trend compared to our budget.Staging and NPS are -- NPS ratio are broadly unchanged and this is also part of effect of the derisking -- overall derisking that we have already started some quarter ago.In terms of capital optimization, we -- our reallocation is underway. It is important to note in the last 12 months the improvement that are massive that we made. So basically, a year ago, 40% of our RWA were in CIB. Now we are at 33%. In Consumer, we went from 26% to 30%, Wealth Management and Insurance are broadly unchanged. This, of course, is also leading to an overall important increase in return on risk weighted assets that went from 3.2% to 3.6% in Wealth Management and as a group went from 2.3% to 2.6%, so ahead of also our plan.Capital generation has been strong. Basically, we are back to -- we are broadly at the level of December, so 15.2%. This was basically on the -- as a result of earning generation, payout, business growth and other 20 basis points including Generali, which in part will be reversed as you know with -- after the payment of the dividend. So we have a temporary absorption of RWA and capital, but then this is going to be reversed in the coming quarter.So we have made also progression our ESG plan and target both on governance with the outcome of the General Meeting. We have already commented in our social target where we are at the second year of our program in today, diversity inclusion initiative. And we have renewed our commitment in some partnership, which are important and I would say dedicated program to support female refugees with the United Nation.And we have been more precise in environment setting our second interim emission reduction target. In particular, we have identified aviation and cement sector and we have had also some acknowledgment of our effort, in particular CDP has increased the scoring of our group.Going to divisional results, I would start from our priority Wealth Management. This is a very important quarter I have to say, because this is a quarter where acknowledgment -- I shouldn't say final acknowledgment, but full acknowledgment of our potential is clearly there.And I have to summarize this with 3 main events. One is the rebranding. We were already very confident about the outcome of this rebranding. The reality is better than what we have imagined. Why? Because it was so welcome that we think that in terms of recruitment, not merely in terms of number, but quality of people that can join Mediobanca in the next few months is going to be much better. So you see here numbers of 42 new professional, the reality goes beyond the number in terms of quality. So this is the first element.The second element is what we have done in Private Markets. Private Markets, now collecting capital for private equity initiative overall is very difficult because of what happened in the world, higher interest rates, lower allocation from institution. So Mediobanca was able to raise EUR 1.2 billion and having 650 investors, out of which 30 are new customer, into TEC2 program, which is a club deal type of investment into minority of very interesting growing mid-cap in Italy.This gives you the sense that Mediobanca, when is there to promote product that are tailor made in Asset Management also within its Wealth Management network, it's marking the difference. It's something that you see, you feel it, you feel it into the market.So this is something that together with the net new money gives the sense of the potential we have still embedded in our franchise, which is a great, I shouldn't say, confirmation that the strategic path is the right one and more growth is coming in the next foreseeable future.Then if we stick to numbers, TFA up to EUR 8 billion since June to EUR 97 billion and basically EUR 7 billion of AUM/AUA in 9 months. This turning to EUR 12 billion -- 12% increase in revenue and net profit up to of 18% to more than EUR 150 billion. This is coming, I have to say, notwithstanding growth because the more you grow, the more it cost you.So we have recorded these numbers notwithstanding 2 elements, basically, cost of growth in terms of legal cost. So as we have recruited better and more people, we are paying more cost. Second, the renewal of our labor contract. So net of this extraordinary cost, the recurring profitability is even higher than the one we have recorded.So another element of seeing Mediobanca performance -- Mediobanca Group performance is on Slide 24. Again, here we are growing at least 2x the system speed, where Mediobanca has had an increase of 4% of net new money in percentage of AUM/AUA stock, while the market has had 1.7%. But if we focus more on AUM purely, this is even more important because it's 2.4% as opposed to 0.4%.As I said, we have privilege in this quarter funding in bonds rather in deposits, and we are moving more the campaign for deposits in this quarter. So in this quarter, we'll see more inflow in deposits as well. Key initiatives have been already mentioned. So basically, I would -- a very positive quarter, which I said is giving even more confidence about what we have to do in this segment.In CIB, you go on Page 28, again, it's coherent with what we have planned to do. So we want to have a CIB operator, which is more skewed on fees, so M&A, capital market and less in, I would say, balance sheet driven activity. So the first 9 months saw a steep increase in announcement in transaction plus 57%.It's more international, thanks to Arma and our friends in -- outside Italy. So 53% of transaction are non-Italian, 3% are involving mid corporates and 50% have as a counterparty provider of private capital. So basically a private equity.So we think that Advisory is going to go better in the first few quarters because it takes time to build the pipeline and then to sign deal and close -- do the closing of deals. So we have done some announcements, so we think that in the next few quarters we can enjoy this trend.And we will continue to work in 3 main initiative. One is having a stronger Tech/Digital presence with Arma. Arma is already growing very nicely, has already done some nice hire, more to come. As well this we can see in energy transition, which started very, very strongly and as well as private capital coverage. Private capital and private equity is making 40% of the fee pool in the industry. So having put the attention and the special coverage on this is proving to be a right choice.On top, we have started other country mid corporate activities. So basically mid-market activity is already very robust and Italy, but in the future we'll enjoy of at least a couple of more countries to support this trend.Lately -- lastly, the new initiatives in market that we are on track as a BTP specialist, we should start to harvest revenue in the next financial year. So basically, we are creating different pool of revenue to support the rebound of CIB in the next few quarters.The revenue trend you see it on page 30, it's a revenue trend that is going in the direction we like. So basically in the 200-ish level. So then this quarter, like previous quarter, as I said, we had some positive, which are basically Advisory, I would say also DCM. Also markets activity, in particularly, certificates and activity with clients was very robust. Still missing part of which the industry has to have a rebound are ECM IPO, where the tech market is reopening, but is more selective in acquisition finance.Going to Consumer, consumer is having a very, very positive trend. I would say that this environment, you can see from competitors numbers, it's not the ideal for Consumer Finance. Why? Because Consumer Finance normally has like Compass fixed rate asset side and more variable rate and faster repricing in terms of liability.So basically, in a moment where interest rates are going up, normally you see Consumer Finance company incorporating lower results and this is coupled with an overall higher -- slightly higher cost of risk could have brought to lower, lower and much lower results for a Consumer Finance company.In Compass, we are seeing the opposite. Why? Because the ability of Compass to invest in its leadership in distribution, in its leadership in digital, in its leadership in new product, like Buy Now Pay Later led to the fact that the repricing, the amount of new loan were so good that they can more than balance the increase in cost of funding, in cost of risk and in cost of development.So basically, what I have to say is that we were touched by the high level of productivity of new loan. If you see Page, in particularly, 37, we have had recorded the new all-time high quarter in terms of new loan, EUR 2.2 billion with EUR 1 billion in particularly in personal loan. Most of them are done through our network. So this is giving much more marginality to the group.And so this and the ability to guide the price was such, you see on the right part of the slide, we keep on growing in terms of basically NII on average loans. So third quarter was 7.2%. And we have still some improvement to be done because it takes time to reprice. So now you see in the slide that part of this has been repriced and part is still to come because it depends on maturity.On top, having invested in digital in a new product is leading to new avenue of growth. The new important avenue of growth is the way Compass is doing Buy Now Pay Later, which is not the typical of the market, because we don't operate as a fintech, we operate Buy Now Pay Later as a proper Consumer Finance product.So basically, the activity done in physical and online with a very important level of merchants which are part of our -- in partnership with us, led to a steep increase in new loans. So basically you see the last quarter loan book went up to EUR 230 million and basically new loan EUR 150 million. So the more we roll out our agreement and new digital outfit with merchants, the more we will grow.And this is bringing both fee income, and NII, if I can summarize 50-50. And what we can say is that the profitability, net of risk now -- it's more than 3 years we are operating in this segment is very good and is comparable to finalize the loans, so basically the purpose loan that we have been doing for many years.Here, the beauty is the number of customer we are acquiring every single day and the redemption in terms of repeat business both are above our expectation and are clearly laying out the path, an avenue of growth that only few years ago was not there and was not deemed to be so big.Cost of risk has been stabilizing on the level we have told in the last few quarters, so basically, this higher cost of risk but contained compared to the start of the year is driven by 2 elements. I would say the vast majority is the mix. So doing more personal loan, we have higher gross yield and higher CoR. Net-net, as we see -- we have seen from the numbers, it's highly positive. And the second is back to normality, back to pre-COVID kind of level of CoR.Insurance, generally trend continue to be very positive and above also our internal guidance, which is the guidance that are consistence of the market. So basically we are enjoying a higher component of insurance that now as you know is treated in such an efficient capital way that makes this investment and this business quite interesting.Holding Function improved results, thanks to the fact that as we have central ALM management, part of the benefit of NII is going to the Holding Function. So as a closing remark, we are very happy with the industrial trend. I mean, results, quarters are important, but what is more important is the trajectory of the group.The trajectory of the group tells us that we are now planning a future of the bank more on Wealth Management and this is having every day positive feedback and confirmation from our initiative that the capital lighter activity in CIB is possible and it's going to be what we are fishing for in the next few quarters and that we continue to have improving results in 2 business that are having excellent metrics like Consumer Finance and Insurance.Of course, this 3 level -- 3 element is then pushing to have a very interesting capital distribution or capital return, which is more acts on, in our case, dividends -- cash dividends, so at 70% and -- but we always put a piece of buyback and this is basically giving an overall very interesting remuneration.So in terms of number, if we see our revenue should be in the region of EUR 3.5 billion, material growth both in NII and fees. The dividend we have already mentioned and this will likely bring double-digit growth in EPS and EPS compared to last year.We see this trend also going well in next year. Qualitative, we can say that we see increase in NII and in fee also in 2025 and 2026. And hence, I think we have a good industrial trend in the next few quarters.Thank you very much for your attention and it's now time for your questions.

[Operator]

[Operator Instructions] And the first question comes from the line of Britta Schmidt from Autonomous Research.

[Britta Schmidt, analyst]

The first one will be on the outlook for the year. It looks like a really good quarter. The revenue trends are very solid. Cost of risk is also looking a little bit better. But the full year has been largely reiterated. Maybe you can comment a little bit on the outlook for next quarter for costs, for example, and also for the cost of risk? And whether we should expect visibly higher costs based on the better revenue performance so far?And then secondly, on the capital ratio, which came in a little bit lower than expected, do you still guide to your capital ratio by year end to around 15.5% please?

[Alberto Nagel, executive]

Thank you, Britta. So in cost, we can say that -- I mean, this trend is going to be confirmed. You know that the last Q is normally bond season. So normally, we have the last Q of the year a bit higher compared to Q3. As revenue are going well, I don't see a different trend this year compared to previous year. While in cost of risk, we have to say we are seeing better trend. So we gave a range of 50%, 55%. Today, clearly, we are on the lower part of this range. Let's see, but I mean, as far as we see cost of risk looks better.Capital ratio, to explain, this -- the trend of the quarter, what you saw is relative to an initiative in asset management with some seed capital for new interesting initiative. But we can say that capital will look -- capital ratio will look very nicely at the end of the year.

[Operator]

And the next question comes from the line of Luigi De Bellis from Equita SIM.

[Luigi De Bellis, analyst]

I have some questions. The first one is on the NII. So we have seen a resilient trend in Q3. So can you elaborate also on the trend for the next year? So what are the tailwinds that can offset lower interest rate carve, elaborating also on the loan yield and funding cost expected going forward in particular in Consumer considering the lag effect of repricing? When do you expect the peak of loan yield considering the current interest rate curve?The second question is on the Wealth Management. So deposits has been softer sequentially. So can you give us more color on these or some of the trend expecting the coming months? And the recruitment, you mentioned it the stronger quality recruitment after the rebranding. So how do you expect this trend to evolve? And can you elaborate also on competition to acquire a new bankers?And in terms of inflows, if you can give us an update on the net interest trend also in April and the first days of May?

[Alberto Nagel, executive]

Thank you, Luigi, for your question. So NII trend, let's break it down in different components. Start from funding cost. Funding cost, we see after June a progressive decrease in funding cost. Why? Because we have put our effort on, as I said, prefunding in the capital market, so more bonds than deposits. Bonds are more expensive than deposits. And starting from June, we should see a decrease in interest rates.So this element should bring a more competitive should -- we always say should, because basically we know that interest rates forecast are always difficult. But our main scenario leads to an overall 2.7 average EURIBOR in 2024-2025. So we see more interesting cost of funding on one hand.And on the other, we have 2 elements that are having different trend. Compass, which is going to print and is printing even in April, we have had another very positive month. So as long as Compass continue to print this level of, I would say, new loan and price the way they are able, we have a strong we have 2 strong supporting factors. So lower cost of funding and higher loan stock in Compass price at the right level.Where are -- where is the weak part of the story? As we know, it's the volume on corporate and mortgage. Why? Because corporates on one hand, they tend to basically finance on capital market and they are not willing to pay spreads on top of higher interest rates. And this is a bit similar in mortgage. So we expect that the 2 main positive will be bigger than the 2 main negative. Hence, this will bring an increase in NII also in '24, '25. Of course, it's going to be lower -- we are talking about low-single digit, but the trend is that we haven't seen a peak in NII today.Deposits in Wealth Management and recruitment, so for the reason I told just few seconds ago -- few minutes ago, we will -- we are sticking more to deposits in the coming quarters because we have prefunded our bond issuance. So we're going to put a bit more emphasis on deposits.Now deposits, it's a matter of also pricing. We have to find -- that we will find the straight balance -- the right balance between promo price and amount of deposits we need. Normally, even if we don't have a huge increase in loans, it's better to do more deposits because then you convert into AUM/AUA rather than bonds because commercially are much less effective in Wealth Management.Recruitment is going very well. We have to look more quality and quantity, not -- we can do more bigger number with lower amount of intake because of average size of portfolio. We see that -- I mean, professional that have in their customer base entrepreneur, they are more and more taken by our proposition, because, of course, we can serve them with a number of product and expertise that in some cases, they don't have where they are.So this pitch is working. It's not only positive, because I said that this recruitment is not coming without cost. There are some legal costs, there are higher labor contracts. But I think overall, it's something that is bringing more AUM, generate a bigger leverage -- operative leverage in Wealth Management. So what we'll see is basically a trend of continuing growth in revenue in Wealth Management associated with lower cost income.Competition is there. Like always, many banks are putting focus on Wealth Management. So we knew this and this is happening. But I think we have some features and some skill sets that are not easy to be replicated.

[Operator]

The next question comes from the line of Azzurra Guelfi from Citi.

[Azzurra Guelfi, analyst]

2 questions from me. Listening to the presentation, you have said many times the word, growth and progress. But all of those seems just to relate to your initiative, so not related. If anything, your business is more, kind of cyclical versus rate. So with rate coming down, this growth will not slow.When I think of the major initiative that you mentioned, it's Arma, it's the financial advisor growth. Do you think that those are going better than what you were initially expecting? And if anything, are they positively surprising, like the ability to attract, say, it's higher than what you thought Arma is integrating better and easier with your CIB. So if you can give us some color on what do you think could be a conservative or original assumption on these growth initiatives?And the second question, a quick one on the CIB. The environment seems to be more supportive than in previous quarter. Can you give us a little bit of expectation of the pipeline going forward?

[Alberto Nagel, executive]

Thank you, Azzurra. So I would say that Arma is going according to expectation and basically is having opportunity to grow in terms of new partners and is already happening.Now from the higher revenue partners, to see impact in numbers it takes some quarters. But we are going according to our plan that was a plan where Arma within Mediobanca can grow, because we can provide capital to grow in terms of new partner and also some selected acquisitions. So we are now in execution phase. Of course, as I said, execution in -- to be seen in terms of numbers normally require some quarters. So I think what we are doing now we will see more of the benefit in 2025.Financial adviser, we knew the trend. We knew when we do -- we did interview in the past, people said, "We want to go and come and work for Mediobanca brand. We want to be close to Mediobanca. We want to be close to the expertise of Mediobanca to the soft skill in CIB." So this is why we have rebranded CheBanca! into Mediobanca Premier, and why we have put the new Mediobanca Premier closer to the ecosystem of Mediobanca, because this is a strong selling point, I would say, a bit abused, unique selling point.Now we are seeing this now happening. To the point that why we were starting a financial Advisory chain 6, 7 years ago, 10 years ago, and the possibility to hire was more limited to some cluster -- in some cluster of financial advisers. Now we are more -- it's more Mediobanca that is in the position to choose who is going to come who is better not to come.So again, Arma said is going according to plan. I would say financial adviser intake quality, in particular, is better than forecasted. Now of course, it's a long trajectory. It's not something that we should see only this quarter, so -- but it's going in the right direction.CIB, as I said, we have -- we are seeing a greater number of transaction announced. This transaction are coming from, I would say, private capital, so a lot of private equity business-related activity, and also some, I would say, M&A between corporates.The second positive is DCM. And the second element -- a third element, which has been very robust and will stay is certificates. Again, here, we see a very positive situation in Mediobanca, because Mediobanca is harvesting, I would say, to benefit in certificates. We are manufacturing certificates. So in CIB, we retain margins, and we sell certificates to our Wealth Management customer base. So again, having CIB and Wealth Management combined is reaping the benefit of the 2.There are also some weakness in CIB market still. As I said, ECM is, for the time being, not as robust as we have anticipated and acquisition finance and loans to corporate than at a decent spread within M&A are still behind what should be in the normal market.

[Operator]

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

[Marco Nicolai, analyst]

In the Consumer unit, if I look on a year-on-year basis, loan growth is improving. I mean, it was always well into positive territory, also in the past quarters. However, I can see a little bit of an acceleration. Can you tell us a little bit more on this trend? And how do you expect it to develop going forward? And also still in the Consumer unit this quarter, including the release of overlays, you booked less than the last quarter in terms of total provisions, let's say. Are you still expecting a normalization of the cost of risk? Or is that -- I mean, since you already had an improvement compared to the previous quarter, how should we still expect kind of a normalization -- or I guess, the normalization is it over?And last question, can you tell us a little bit more on the move from CheBanca! to Mediobanca. Obviously, you rebranded. However, can you tell us a little bit more about what you did beyond the rebranding? You said that you moved the structure of CheBanca! -- the former structure of CheBanca! closer to Mediobanca, but can you be a little bit more specific and tell us a little bit more around this.

[Alberto Nagel, executive]

Very nice question. So Consumer, yes, we saw acceleration and this is very much confirmed also in April. Why? I would say that the general mood is positive. So -- and this is in particular also related to CoR. So you have seen that we have an all-time high employment data. So there is quite good consumer confidence. So we are working in a positive environment.But I would say this is 30% of the answer, 70% is the ability of Compass, because Compass has worked a lot on its distribution platform. Massive work in the last 7, 9 years, where basically, we have invested in many kind of distribution, fixed, variable costs, the sort of the linkers, door-to-door to the Buy Now Pay Later.So this is creating 2 elements, more activity than through our network, which is then giving much better margins, because we don't pay fees to third-party distributors. So this, coupled with the Buy Now Pay Later, which is becoming a trend of paying staff in the world. And given the position of clear leadership of Compass, which is doing this, as I said, we repeat because the business will be regulated by EU directive in 2025-2026. So if you operate already like a proper consumer finance product, you have done all most of what the new law will require -- and this is also important for our partners because we are there to stay as a stable institutional partner rather than a fintech.This is the reason why we see this acceleration. And this acceleration is, for the time being, there to stay, and it's a great supporting factor to our NII. EBITDA related to this is the CoR. Now part of this improvement is also, and will be related to the fact that our ECL model is based on better, I would say, scenario where interest rates are a bit lower, and unemployment rate is lower as well.So basically, in the ECL, you project a better scenario. To the point that basically, as this increase of bps related to the mix is there to stay, but is not growing. We see, for the time being, Marco, little use of overlays even for the quarters to come, for the next quarter.So what we have done in Mediobanca Premier? We said, basically, we made a similar approach. We had a similar approach towards Mediobanca Private Banking. I give you -- by analysis this is not exactly the same because the segments are different. When we bought Mediobanca, when we bought Esperia 7 years ago and we are branded into to Mediobanca Premier. We said, okay, Mediobanca private has to be something close to us, very close to us, operating with the same approach, having the same quality of people, using our product, making Mediobanca Asset Management, Mediobanca investment banking product for them. Mediobanca, tech, so TEC1, TEC2, all the other projects on private market.So the same is going to happen in Mediobanca Premier. Of course, it's a different segment. So not all the initiatives we do for private are good for Premier. For instance, our research, our M&A, our certificates, all our products are there embedded now in Mediobanca Premier. The cooperation with Advisory is coming because basically the quality of the bankers and advisers are such that they need, and they get response and feedback from the center.So it's not a rebranding -- a repositioning in the higher level and in proximity in our ecosystem, product, philosophy initiative, so we do a lot of initiative on the territory using our institutional research. This is a very important.You know that Marco we issue, apart from our Mediobanca research, we have also a lot of sector research, a lot of industry research, which are very interesting when you present. So we do a lot of events now branded Mediobanca -- branded Mediobanca with Mediobanca Premier to the customer of Medibank Premier -- this is something that is creating a different compare to others that they don't have. So this is a set of elements I wanted to give you to give the sense of this activity.

[Marco Nicolai, analyst]

A quick follow-up for -- on the Consumer. Here, NPL ratio moved up a little bit Q-on-Q. How shall we read this? And thanks a lot for your answers before.

[Alberto Nagel, executive]

Yes. The NPL ratio is going up slightly. Why? Because basically, we have had a decrease in stock loan because we grew where we see margin in consumer. And we don't want to grow in mortgage, in corporate, because it's a negative EVA. But the trend in NPL is very, very healthy. And in the last Q, we will sell some -- so we have already sold, you know that Compass does 2 kind of disposal, or one big every year in order to have a warehouse of nonperforming, which is basically nothing because we sell all the consumer.So it's a matter also of timing of this. This is going to happen in this quarter. And in the meantime, we see also the loan stock where it ends up. But this is going to be either 2.4%, 2.5%. So we don't see any major changes in this.

[Operator]

[Operator Instructions] The next question comes from the line of Adele Palama from Mediobanca.

[Adele Palama, analyst]

I have a question on the management fee margin, which seems to have declined year-on-year. So I was wondering if it's a question of our asset mix. And then if you can give a guidance on the evolution of the management fee margin for the next quarters? And then the same question for the fees expenses, so as a percentage of management fees has slightly increased in the last fourth quarter. So if you can tell us a guidance there as well.

[Alberto Nagel, executive]

So as you may have seen in many other situations there's been a slight decrease in the ROA of the division. Why? Because basically, we have had 9 months, now is improving, where the component of AUA was bigger than AUM. And hence, there's been a bit of dilution in terms of marginality. The more we are able to revert this in the last quarter, we have had EUR 1 billion of AUM, and we think this trend can be somehow confirmed in the current quarter, we should catch up a bit of this marginality. But it's a function of basically higher interest rates and fixed income products. We see an improvement in the quarters to come.Sorry, because the line was a bit not so clear, maybe you ask other questions that I didn't really...

[Adele Palama, analyst]

Yes. So I asked a question for the fees expenses as well as fees expenses seems to have grown over net management fees a little bit. So I was wondering if you can give a guidance on that trend as well for the next quarters. And then if I can, other question, sorry, what's the percentage of that are coming from the financial adviser that were as a percentage of total AUM flows.

[Alberto Nagel, executive]

So there's been also, I would say, a seasonal temporary impact. In the sense that the AUM of this quarter we’re concentrating the last part of the quarter. So the marginality was affected by the fact that maybe it was in the last month or the last 20 days, and hence on average during the quarter, it went down. We should see a reverse in the quarter, in the current quarter.

[Operator]

As there are no further questions, I would now like to hand back to Mr. Nagel for closing remarks.

[Alberto Nagel, executive]

Thank you very much for your attendance, and I hope you have a nice continuation of the day. You can join us in the last quarter and the full year results in July. Thank you very much. Bye-bye.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.