Banca Generali S.p.A. (BGN) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca Generali First Half 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Gian Maria Mossa, CEO and General Manager of Banca Generali. Please go ahead, sir.

Good afternoon, and thank you for attending our first half results conference call. The overall results were pretty solid, driven by recurring business with recurring net profit at EUR 176.3 million, reaching its best level ever. And this was driven also by asset expansion with client assets at new record highs at EUR 106.5 billion. The first half was also very important for us because we set up the insurebanking business, thanks to the partnership with Generali, and we will deep dive in the last section of the presentation. But let's start as usual by numbers, net profit, Page 4. The second quarter closed at almost EUR 90 million, basically driven by recurring net profit. The overall result of the first half, as already mentioned, closed at EUR 176 million and the contribution of variable net profit closed at EUR 23.9 million with negligible contribution in the second half. The net profit and the recurring component were very well supported by the net financial income, Page 5, number very strong, basically driven by net interest income and also trading gains. The net interest income closed at EUR 82.4 million, thanks to asset expansion. And then the trading gains and others closed at EUR 6.6 million, including also Intermonte. If we focus on the total net interest income yield bottom of the page, you see it was pretty stable in the quarter, 2.08% and we are confident to stay at or higher for the remaining part of the year. So we have a target of 200 basis points and stable assets. Page 6, the other component of recurring fees is about gross recurring fees. The gross recurring fees closed at EUR 271 million, slightly down. We will see that the slight reduction was temporary and basically driven by market effect. The overall result first half compared to the first half of last year closed higher by 6.9%. As you can see, variable fees contributed marginally in the second quarter, EUR 8 million, but the recent recovery of the financial markets allowed us to have 25%, 30% of the overall assets in BG Fund Management Luxembourg at or very close to the high watermark. And for July, the performance fees are already in line with the result of the second quarter. We were saying that the gross recurring fees suffered by the market crash at the beginning of April. This is pretty clear at Page 7, where we have the deep dive on investment fees. You see management fees closed at EUR 220 million. This is basically driven by 2 major effects. The first one is driven by lower average assets under management and the second, driven by lower margin due to market crash and a more conservative asset allocation. We are confident to confirm for the second half of this year a range between 140 and 142, driven by new initiatives that we're going to launch in September during our convention. Regarding advisory fees instead, you see the second quarter closed in line with the first quarter at EUR 13.5 million. Page 8, you see the other fees component. Overall, positive results with mix trend. First of all, you see lower entry fees, and this is basically driven by a reduction of the structural products at the beginning of the quarter, strictly connected with market turmoil, while we see higher banking fees and higher brokerage fees, and this is also thanks to the inclusion of Intermonte numbers, in particular, brokerage commission closed at EUR 19.5 million and banking fees at EUR 8.3 million. Page 9, let's move on to the cost part. Total payout ratio are in line with our projections. So the overall payout ratio closed at 47%, of which 35.9% on ordinary payout and 11.1% on the cost for growth. So this is pretty stable time, and we are confident to maintain this level. The second row, you can see how the fee expense on net interest income is declining in line with the reduction of the yield of the market. And last, the payout to third parties closed at 6.2%. This is a base effect due to the correction of the market, but in absolute terms, also in this case, we saw a reduction. Page 10, we have the detail of the operating cost. The noncore items are in line with the first quarter, while the core operating cost closed at 8.2%. This is basically driven by specific investment for the setup of the insurebanking business and for the implementation of a specific AI project. For this year, we do expect to stay around this level while in the next 2, 3 years, we have a projection to normalize this number in the range of 6%, 7%. Page 11, the usual presentation of the operating leverage with operating cost on total assets at the lowest level at 0.28% and cost-income ratio just slightly higher. So Page 12, to sum up, I'm confident on the income components for the second part of the year, thanks to stable margin on the net interest income and stable or just a little bit higher margin on assets under investment. The costs are well managed, so under control, but with specific investments to introduce a new distribution channel with insurebanking and to enhance productivity with AI projects. If we look at the, let's say, below the operating line, total nonoperating charges in the year-on-year comparison closed lower, benefiting from lower regulatory contribution to banking and insurance funds. Last but not least, tax rate is in line with our projection between '26 and '27 close to 26.3%. Balance sheet, Page 14. As we said, asset expansion. So overall total deposit closed higher, EUR 15 billion from EUR 14.5 billion and the cost of funding is slightly down in line with the evolution of market rates. If we look at Page 15, same trend for the total assets. Interest-bearing assets closed higher from 15.4% to 16%. And again, the yield on interest-bearing assets is in line with cost of funding slightly down. And the result is pretty stable net interest margin yield and the confirmation of target about 200 basis points for the second half of the year. Multiplying this margin for the current level of the interest-bearing assets, you can work out a target for this year at around EUR 310 million or higher. Page 16, you see the capital and liquidity ratios. Total capital ratio solid, close to 20% consider that the TCR include the impact from CRR3, includes the first-time integration of Intermonte and even most important, it includes a dividend provision in line with the current dividend policy 82% of the overall results. So EUR 164 million already constitutes a provision for the dividend policy. Leverage ratio and liquidity ratio well above the requirement. Next section, net inflows, assets and recruiting. We already said that total assets achieved new record high, EUR 106.5 billion with more than EUR 71 billion in assets under investment. Very promising trend underlying the assets under investment. If you move on to Page 19, you see the managed products recovering year-on-year from EUR 45.8 billion to EUR 49.1 billion. And you see also recovery in the traditional life policies, positive contribution for future profitability. First of all, an increasing weight of wrappers on the total management solution, driven basically by financial wrappers expansion. Financial wrappers closed at EUR 12.9 billion or EUR 1.4 billion of increase year-on-year. And in the fund industry, we continue to see the ongoing rebalancing between third-party funds in-house funds. Now in-house funds account for EUR 12 billion compared to EUR 11.1 billion same period last year. Page 20, we start looking at net inflows. You see the improving quality. So out of the EUR 3 billion of overall total net inflows, EUR 1.6 billion has been invested in assets under investment. On the right, you see the details of this EUR 1.6 billion. Most of these numbers have been invested in assets under management, EUR 1.5 billion or 50% of the total net inflows. This EUR 1.5 billion if you move Page 21, you can see that has been invested proportionately 50% or more or less 50% traditional life policies and EUR 800 million in managed solutions with a particular focus on financial wrappers, EUR 600 million and in-house funds, EUR 300 million. Last page regarding inflows, Page 22. You see the net inflows by acquisition channel. The current uncertainty over the exchange public offer create a stop in the recruitment activity. So with some cues, -- some positive cues, but let's say that it's clear that we have a temporary slowdown. But I can say that it's impressive the number of interviews that we are having and the feedback. So I'm pretty convinced that as soon as we will know that the result of the exchange public offer, you will see an acceleration on recruitment numbers. July in terms of total net inflows is pretty strong, higher than last year. Now I think that the most important part of this presentation is the business update part because I will explain why I'm so excited to the idea to start with the mutual banking business, thanks to the partnership with Generali. And to understand the potential of this partnership, you have to go through numbers at Page 24. What you can see in Page 24, we start with a size of the Italian targetable financial household wealth. What we mean by targetable financial household wealth is the total financial household wealth, the less liquid assets, for example, not listed equity and less the assets that we do not allocate to a specific distribution channel. If you look at on the left, you see the breakdown of the Italian targetable financial assets in 2 major clusters. The first one, 24.5% is about insurance products. The remaining 75% is about current account deposits and asset management. It means that with this representation, the overall contribution of insurance products account for EUR 920 billion. And it means that for each euro invested in insurance, you have other EUR 3 invested in other products. At the center of the page, you see the breakdown of the targetable financial household wealth in 3 major distribution channels. The first one refers to insurance agents. Insurance agents manage only a part of the client assets and is fully invested in insurance products. So the EUR 192 billion of the insurance agent refers to only insurance products. The remaining part of the insurance products are distributed by the other distribution channels. And you can see in the second column and the third column that the penetration of insurance products in the private banking and the penetration of insurance products in retail is pretty constant and it is at around 20% of the total assets. So now starting from the consideration that the insurance agent manage only a part, okay? If we adopt the same percentage, so 20%, 25% allocation to these assets, you would have a potential wealth of EUR 750 billion, EUR 950 billion. So it means that the clients reached by the agent, each one has EUR 1 insurance policy with the paid agent and EUR 3, EUR 4 with another player -- in another distribution channel. And the good news in this case is that if you focus on the insurance agents and the market is well known that the most performance and let's say, qualified player is Generali and the Generali agents account for more or less 50% of the entire business. So if you divide it by 2 the range, you would have the potential of the clients reached through the Generali agents. And we are talking about a multiple of Banca General. My target is to reach at least 10%, 15% of this target in a 10-year time. And if you work out the numbers, you will see that for us it's a tremendous opportunity. For this reason, we signed an important contract with Generali, the 17th of April, Page 25. We already presented this agreement in the previous conference call. Here, there are some details. The first 3 bullet points are about the different models to reach the clients of Generali. And the fourth bullet point is about the capabilities of Banca Generali in managing insurance products for the financial assets, so the risky assets. So let's focus on the different way we can reach the Generali clients. So move on Page 26. And here, basically, you see 3 different models. The first one is well known. We provide with numbers every quarter, and it's about financial planning of agency. So an agent of Generali received a mandate by Banca Generali to distribute banking and finance products. So you have 1 professional with 2 mandates, one for the insurance products by Generali and one for banking finance products by Banca Generali. This is well established as a business. And in the agreement here, the goal is to accelerate this -- the penetration of this model. The second one in the middle of the page, direct insurebanking is probably the newest one, and it's about providing banking products and services to Generali clients directly through the distribution channel of Generali with the support of remote banking and digital tools provided by Banca Generali, and we will deep dive later. The third one for us is at the moment, just a pilot. We launched a couple of pilots just to test it because it is something that has been adopted by other competitors because the insurebanking has been launched in all major competitors of Generali in Italy, Zurich, Allianz and Unipol. So -- and I said that there is a mix of this model in case -- in one case, the third one is the most important. For us, it's just a pilot. Page 27, we start with the FPA model, so the one you already know, and we show the numbers so far achieved. And you see that in 2022, there is an acceleration. 2022 was a sort of watershed and was driven by the increase of interest rate. With an increase in interest rate, the outflows from insurance products accelerated and the agents started asking for other products to retain part of these outflows. So the reason behind this acceleration is a spontaneous request for this kind of mandate from agent of Generali. And now this business accounts for EUR 2.3 billion. Of course, you see a slowdown in the last period that is driven by the uncertainty of the exchange public offer. In terms of professional, you see that from 74, we exceeded 100 in just a couple of years. And here, the scope is to accelerate this trend. Page 28 is a new agreement. On June 30, we signed a new contract, a new agreement with Alleanza. Alleanza is, to me, one of the best in performing distribution channel in Generali and in Italy, well led by Davide Passero. And we agree that the time is ready to raise the bar and increase the penetration of their clients. Actually, the distribution channel of Alleanza counts on more than 10,000 professionals and they provide insurance products for almost 2 million clients. And here, the strong conviction shared by myself and David is that thanks to this very performing distribution channel, we will increase the cross-selling and the upselling by opening up the distribution of banking products and services through their channel. So the priorities of this partnership is, first of all, to open up the distribution of banking products and banking services through Alleanza and the second priority is to enlarge the insurance portfolio, providing hybrid solution similar to the ones we provide to our clients, specifically for the different targets of clients called Stile Libero and a different version Stile Esclusivo and Stile Unico. So we're going to provide the same insurance wrappers to Alleanza clients with Banca Generali with the responsibility to manage the underlying. So why we are so confident the distribution channel is very performing, is well diversified, and they know how to offer very complicated products like protection. Now we will start with cross-selling by providing to the clients also with banking products and deposits and then upselling by moving from standard insurance products to very sophisticated and personalized solutions, well known in Banca Generali and the kind of products, as you know, represent probably the most successful platform we ever launched in Italy. And now we will extend the distribution from private banking to affluent market. So coming to the conclusion, Page 29, as Board of Directors on the 26th of July (sic) [ June ], we launched a new strategic plan 2026-2028. And this strategic plan has been developed on a stand-alone basis. One of the most important pillar of this new strategy is based on the partnership with Generali, so the insurebanking in particular. And we started. We started it means that we already announced it to the professional of Alleanza the 17th of July. We have already organized a convention, a network kickoff convention for October 9. And the really good news and that the national rollout will start as soon as November of this year. And I'm very confident to start seeing numbers as soon as the first half of next year. So insurebanking is an engine of future growth for the bank. As you well understand, we are very committed in delivering our new strategic plan. We have several initiatives. Intermonte is going much better than expected. AI is a game changer for the productivity of our financial advisers and then insurebanking. And more to come. We are organizing a convention for September in which we're going to launch new products to increase profitability in the asset management business. So we are definitely not distracted by the pending voluntary exchange public offer. And despite this short-term uncertainty, we are very confident to deliver all targets at least EUR 6 billion of net inflows, at least EUR 3.5 billion assets under investment. We confirm profitability in the net interest income. We confirm a range between 140 and 142 basis points in the asset management products, and we do expect to expand assets. So we are confident to close very well this year and to start in a better shape, thanks to the insurebanking also next year. And now I will hand over to the Q&A session. Thank you.

[Operator Instructions] So the first question is from Marco Nicolai of Jefferies.

Three questions for me. Asset under investment flows improved considerably in May and June compared to April despite the volatility around the M&A scenarios. So what do you expect for the second half? I see you reiterated the annual guidance. But if you could give us some clarity on the trends you expect maybe in the various product lines, that would be very interesting. Another question on the brokerage fees. So it's been 2 quarters, you are at or above EUR 19 million. Is this the new run rate with Intermonte? Another question on the cost of risk that increased this quarter. Can you give us some color on the drivers? And sorry, last question on the FPA agents. Now you are on 107 of these agents. So where do you expect to be in, say, 1 or 2 years' time, also thanks to the Alleanza partnership?

Thank you. Let's start from the detail of assets under investment flows. For the second half of the year, I do expect, let's say, a contribution, let's say, close to 50%, but the mix will change. I'm more optimistic on the asset management, so funds for the new offer we're going to launch at the beginning of October and we announced at our convention in September. And in the insurance space, we do expect, again a remix for a new release of the insurance wrappers. So overall, I do expect a better quality in terms of profitability, constant share of the overall total net inflows. Brokerage fees, short answer, yes, confident to stay at or above EUR 19 million. We are expanding the offer, onboarding new clients, launching new strategies. So brokerage is working very well. So we said that this should be a floor. FPA agents, let's say that you have to consider FPA and Alleanza 2 different projects. Alleanza is about distributing products through their distribution channel. And I do expect to at least involve 2,000 of their professional next year. It will take time, but I'm sure that at least 2,000 will be onboarded before the end of next year. So it means 2,000 professionals offering banking products, banking services and the new insurance solution, not to a new client, but to the existing clients and the target is affluent clients. So something absolutely new for us. FPA is a different story. FPA means an agent working in an agency, asking for a mandate to be, let's say, able to provide banking and finance products of Banca Generali. So it takes more time, and it's about different kind of clients, more upper affluent and private clients. And we're going to disclose the targets on this specific project when we will release our 3-year strategic project as soon as we're going to know, let's say, the result of the pending public offer. And for the cost of risk, I will ask Tommaso to...

I say that the quality of the credit portfolio has not changed. So our policy continues to be very safe from this point of view. So we have just a spike, which is a contingent moment in the first half, which is linked to -- basically also to some specific position, which is where we had a write-off, which is linked more to -- more than to the credit activity, to the lending activities. It's all linked to some specific guarantees from some specific clients. So it's something that is not going to be, let's say, recurring, let's say, write-off that we will have in the future. So it's just a spike that we have in this quarter and the quality of the portfolio is unchanged.

The next question is from Elena Perini of Intesa Sanpaolo.

I've got actually 3 questions. The first one is on the insurebanking project. What makes you so confident about the possibility of involving at least 2,000 professionals at Generali Italia and Alleanza and about the effect of being this project successful. Is it the fact that you have already experienced it in a different way through the FPAs? Or are there also other elements that we have to take into consideration? The second question is on the absolute NII guidance. Have I understood correctly because I had some problems in connection that you mentioned EUR 310 million for this year, just a quick confirmation. And then I would like to go in depth the line of provisions, which is down compared to last year, but I would like to have a breakdown of this item, if possible?

Thank you. So the insurebank project, I can answer in 2 different ways. The first one, -- 3 different ways. The first one is the first time ever that we launched a strategic plan with Alleanza for direct distribution. Alleanza is a very well-performing network and is the natural evolution of a professional. So they have to fully understand the opportunity and to penetrate and increase cross-selling, upselling to existing clients. They are 10,000. And my assumption, very conservative is that we're going to involve only 20% of the professional. So it's something absolutely new. We are very committed and there is a great enthusiasm around this process. The second reason is because, as you know, it is a project already launched by other competitors, as I mentioned before. And the banking industry is entering the insurance business. So it's also not only a move to increase profitability, increase penetration, but it's also a defensive move. So to have a different proposition, a holistic proposition for the clients. And third one, what happened in 2022 was very disruptive because for the first time, we start seeing significant outflows. And to avoid the repetition of such a kind of extreme scenario, if I were a professional, I would like to have also some alternatives in order to at least to capture part of the outflows in case of raising interest rates. So for all these reasons, I'm very confident. And second, on the guidance, you are right. We do expect to stay at or above 200 basis points in terms of yield. If you multiply this 200 basis points for the current level of the interest-bearing assets, 15.5%, you have a level of a number around EUR 310 million. For the provision, I will hand over to Tommaso.

Let's say that the provision are quite stable in the first half compared with the same period of last year. Then the decrease that you see is mainly linked to the provision to the resolution fund, the banking resolution fund, which is down basically 0 but -- so this is why we have a benefit in P&L, which is mainly linked to this. The provision, let's say, the classical provision are very stable. And in this provision, we have the severance for FA and the normal provision to, let's say, risk and charges that we have on a quarterly basis. So very stable. And we look also forward. We don't see a great -- I mean, a change in these numbers. While we see that the provision for the resolution fund will be much lower than last year starting from this year.