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 Full Year 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.

So good afternoon, and thank you for attending our full year results conference call. Before we get into our results, I want to quickly comment the market reaction to the recent announcement of a U.S. initiative called the Altruist. That is basically a tool, an artificial intelligence tool for the automated tax planning that in Italy is largely relevant just because for any investment related taxation, the tax situation is handled directly by the withholding agents. So basically the banks or the financial intermediary and not by the client. So the volatility on our stock today comes from this U.S.-centric situation. That simply doesn't fit with the Italian wealth management context and even less with Banca Generali also because we are not a brokerage platform. So as you know, and we said it several times, Italy has a unique economic and social environment where the wealth is still mostly invested in liquid assets, think of real estate kind of companies, not listed equity. And it remains very much sort of, say, family affair. So in this context, our clients look for discretion, human guidance and not automatic answer or interaction with the machines. It never happened. So the confidentiality, privacy are crucial, are not negotiable in the long-lasting relationship with our financial advisers. So for this reason, the idea that an AI tool could, let's say, commoditize advisory in Italy just doesn't make any sense. If you think of Banca Generali, business is built on trust, personal relationship, long-lasting relationship between a senior professional and our client and several capabilities and expertise. So when we help our clients, basically, we must understand both the head, but also the stomach. And nobody wants that very personal information can be stored inside the machine. In Banca Generali, I think that AI is a great accelerator. It's not a replacement of business. That means -- it doesn't make any sense. AI will help our bankers work better and faster, while, of course, the human judgment, discretion, closeness to the client will be mainly of our financial advisers. That's the reason why we don't see any strategic risk in today's news. And again, AI will be disruptive in a positive sense. So dealing with clients is another business, especially if it is about alternates and [indiscernible] with very significant wealth and invested, as I said, also in illiquid assets. And again, liquid assets means not only private market, but it means real estate and in the own company, almost the time, not listed one. And again, different concept, something very confident, needs trust. So nothing that you can solve out with technology. So having said that, let's start as usual with the major achievements for last year, so Page 3. Let's say that we achieved new record high in terms of net profit, recurring net profit and total assets. Commercial activity was very solid with an acceleration in the last part of the year with the conclusion of the M&A headwinds. And thanks to solid commercial and financial results and the capital-light approach, we will propose an increase in the dividend per share in the next AGM. Now Page 4, net profit. Net profit closed, as we said, at a record high, EUR 445.8 million, driven by recurring net profit, about EUR 360 million, a lower contribution of variable net profit, basically for lower performance fee and then a one-off in terms of tax refund for a total amount of EUR 39 million. The reason behind the solid result in recurring fees is driven basically by solid net financial income and solid gross recurring fees. Starting from net financial income, Page 5. We closed the year to EUR 355.5 million, of which greatest part comes from the net interest income. As you can see, the quarter -- the last quarter closed at EUR 82 million, thanks to asset expansion and a pretty stable net interest margin yield at 1.95% that is in line with our guidance to stay above 1.9%. Next page, so Page 6, total gross fees. We closed the year at EUR 1.131 billion. If we focus on the fourth quarter of last year, you see that the growth compared to the same period of the previous year is at almost 11%, while the variable fees contribution was lower than the previous year with a positive contribution in the fourth quarter, EUR 43 million and almost all the assets at or close to the high watermark level. Next page, we will deep dive on the gross recurring fees starting from the investment fees. Investment fees closed at EUR 976 million, basically driven by asset expansion and stable margin. Fourth quarter number, EUR 255 million with an increasing contribution of both management fees and advisory fees. The overall management fees margin is stable at 1.41%. Next page, other fees. Here, you see an acceleration from EUR 130 million to EUR 154 million, almost EUR 55 million, basically thanks to the inclusion of Intermonte business and solid traditional business. Starting from banking fees. Here, we have the completion of the phase-in of the new pricing. So a lower contribution from the traditional business and an increasing contribution from Intermonte. Focusing on brokerage commission, overall result, EUR 75 million, fourth quarter almost EUR 20 million, very solid brokerage activity of our clients plus Intermonte contribution. Last entry fees. You know we started at the first half of last year with lower numbers. In the second half, we saw an acceleration. Part of this acceleration was driven by also the new capabilities, thanks to Intermonte. So with greater penetration of structured products. So considering only the first quarter, the result was probably the best ever at EUR 16.6 million. Moving on Page 9 (sic) [ Page 10 ]. So on the cost side, let's start with the total fee expenses. Overall total fee expenses closed at EUR 600 million with all the payout ratios at or below our guidance. In particular, the payout to FA for the ordinary part closed at 34.6%, below the target of 36%. The incentive closed at 11.1%, below the target of 12% and also the payout to third parties closed below the target of 6%. The fourth quarter ended at 5.8%. As a final result, the overall total payout ratio to the network, excluding the payout on net interest income closed at 51.5% that is definitely below our target of 53%, again a great control of the payout and very flexible model linked to the revenues. Next page, operating cost. Operating costs closed about EUR 360 million. This is basically due to some one-off and the change in perimeter. Starting from change in perimeter, you see the inclusion of Intermonte, EUR 38 million. The sales personnel cost of the part linked to the relationship manager, so employee banker closed slightly lower just because some bankers decided to move to, say, to the financial advisory network with the mandate. So these are -- this is a positive news. And then in the core non- items, you can see an overall contribution of EUR 13.5 million with an acceleration in fourth quarter. This is basically linked to the cost of Mediobanca tender offers, the setup of 2 major initiatives, Insurbanking Intermonte plus some projects to optimize, let's say, the organization of the bank. Overall, bottom of the page, you see core operating cost in the range of 6%, 8%, closed at EUR 288 million, almost EUR 5 million invested in IT infrastructure modernization, AI and data-related projects. So -- as you can see, the fourth quarter looks higher than the other quarters, but is characterized by high seasonality. So if you compare fourth quarter with the same period of the previous year, you see that the increase is around 6%. So also the core operating cost, so excluding investment is well under control. Page 11, the last page on cost. Operating cost on total assets flat at the minimum level, 0.28%. The cost-income ratio adjusted for Intermonte with a slight increase due to this one-off cost. Page 12, to sum up, very proud to have exceeded for the first time in the bank EUR 1 billion in total banking income. Cost characterized by one-off. And then if we focus on the total nonoperating charges, the overall total nonoperating charges decreased to EUR 105 million, thanks to lower regulatory contribution and lower provision. And I'm confident to see lower numbers for this year and for the future. In the P&L, we included at the nonoperating level also the EUR 39 million of positive one-off as already commented to the tax refund. Overall, tax rate close to 24%. This is basically linked to a higher contribution of Luxembourg, and we confirm the guidance for this year in the range of 26%, 27%. So now let's move to the Section 2, balance sheet and capital ratio. Here, as already said in different conference calls, it is an asset business or asset expansion business. You can see that the overall total deposits increased to EUR 15.8 billion with an important contribution in the acceleration in client deposits at EUR 13.8 billion. And we said that the asset expansion, the client deposit expansion more than offset a small decrease in the net interest margin as we commented at the beginning. The net interest margin is driven by cost of funding and the yield on onbearing assets. Cost of funding slightly decreased to 0.77%. And as you can see Page 15, the same can be said for the yield on interest-bearing assets down to 2.81%. A quick comment to the total assets. EUR 18.5 billion. On the positive side, expansion in the banking book, financial assets at EUR 12.8 billion and also expansion of the loans to clients above EUR 2.5 billion. Page 16. Let's move on capital and liquidity ratios. Also for last year, we confirm solid ratios. If we start from total capital ratio close to 19%, also once included several one-offs, consider the impact of CRR3, Intermonte first-time consolidation, higher operating risk absorption from change of the model and so forth. So let's say, a very solid total capital ratio, leverage ratio very high, 5.6% and the liquidity ratios rising over time and liquidity coverage ratio of 337% and a stable funding ratio of 245%. So overall, very solid liquidity ratio, solid capital liquidity ratio. And the next page, Page 17, we see the dividend proposal. So first of all, we confirm the total payout at 76%. In terms of EPS, it implies a dividend of EUR 2.9 per share, and we will pay this EUR 2.9 in 2 tranches, the first one this year for a total amount of EUR 2.2 and the second tranche next year for a total amount of EUR 0.7. So this will allow us to be consistent with our goal to help for a constant increase of -- in absolute terms of dividend. And I take this opportunity also to remind you that we are close to pay the second tranche of the DPS for the results of 2024, and we will pay on the 23rd of February, EUR 0.65. Now let's move to the next session. So the total assets and net inflows. We closed the year above EUR 113 billion, 2/3 invested in assets under investment. An important slide is #20. Page #20, you can see the strong expansion of financial wrappers and the overall wrappers. Financial wrappers increased by EUR 1.8 billion in just 1 year. And the overall wrappers account for more than 50% of the managed solutions and even more important and consistent with our target, the overall in-house fund overtook for the first time the third-party funds. You can see bottom of the graph where in-house funds amounted to EUR 13.2 billion or EUR 1.3 billion higher year-on-year, while third-party funds grew slightly at EUR 12.6 billion. This is basically driven by inflows. Page 21, you can see the overall results, EUR 6.8 billion, better mix, EUR 4 billion invested in assets under investment. Focusing on assets under investment, you see an increase in contribution of both components, assets under management and advanced advisory. Concerning assets under management, Page 22, you can see that most of the increase is driven by financial wrappers and in-house funds. And we confirm with structural shift from third-party funds to in-house funds, at least in relative terms. Page 23, there is a detail of the net inflows by acquisition channel. Let's say that the existing network contribute at the same level as the previous year despite the tender offer. So very positive reaction of the existing sales force. If we focus on net recruitment, EUR 1.9 billion, the underlying is characterized by 2 different trends, a strong contribution of recruitment of 3 bankers in Switzerland, Aequitum for an amount of EUR 800 million and a very -- a limited contribution of recruitment in Italy penalized by the uncertainty, so EUR 1.1 billion. Overall, the numbers are close to the numbers of the previous year, so EUR 166 million. And this is also thanks to an acceleration of the numbers in the fourth quarter after the close -- after the termination of the headwinds linked to the M&A issue. Page 24, we have also a quick update of how we started the year, consider that January is always a volatile month. But let's say that if you compare in absolute terms inflows better than the previous 2 years, so EUR 0.5 billion and of course, there is a conservative asset allocation, but it's always the same story in January. And the signs from recruitment confirm the positive mood of the last quarter of last year, where it's not only a question of numbers of recruitment, but it's more about the quality. So we expected a significant contribution for recruitment for this year. Last, now we will give you an update on the 2 major projects, Intermonte and Insurbanking and then some guidance and targets for the full year. So let's start from Intermonte, Page 26. You already know this page. Basically, we confirm that we will double before the 2030, the net banking income from EUR 42 million to EUR 80, EUR 90 million. And of this increase, 25%, 30% will be already achieved this year. And as you can see, the cost income will decline. So it means that the increase -- the synergies will present the same payout cost/income ratio as the bank. Why we confirm these numbers, but with an even more positive mood because as all the initiatives that we are rolling out are working much better than expected. The first one is about the synergies in terms of structured product internalization of derivatives. And you see at the left of the page, you see the acceleration in the fourth quarter of last year of the structured products. We already mentioned it. And I can confirm that the beginning of the year is higher than the same period last year. We started also to internalize part of the margin in structuring products, thanks to Intermonte. So Intermonte hedging accounted for 14 percentage point. Let's say that you're going to see an increasing contribution once we are going to complete the full integration optimization of the IT platform, and it should happen in the second half of this year. Managed products. We already launched 2 dedicated funds, Luxembourg fund. We focus on Italian large cap and small cap and we already collected more than EUR 100 million. And we have just launched a new financial wrapper with the proposition of protection and where the hedging strategy is covered 100% by Intermonte. Last but not least, probably the most important part of the synergy and the partnership, investment banking, 150 meetings. Finally, the first 2 mandates signed it, other 8 to 10 close to be signed. This is amazing. It's amazing just because the feedback from Intermonte is amazing, the feedback from the financial advisers is amazing, and the client really appreciate the synergies between private banking and investment banking, starting from the long-lasting relationship of the private banker to develop, to leverage on the capabilities and competencies of Intermonte. And as you can see, the kind of advice is well diversified. It's about, of course, M&A, it's about equity capital market debt adviser and so forth. Page 28, moving on to Insurbanking. There is an update of Generali hybrid products. Overall assets closed at EUR 7.4 billion, so stable year-on-year with a higher contribution of in-house funds from EUR 4.1 billion to EUR 4.5 billion. Overall, margin are stable over time at 0.64%. Page 29, an update on Alleanza partnership. Of course, we confirm the target. But again, also in this case, the mood is more optimistic. Why? Just because we started, we started piloting the distribution banking products, we selected 100 private adviser at the end of last year, and we tested all the procedures, processes, platform, and we opened up 270 new current accounts. So the machine works very well. There is great enthusiasm. And for this reason, during the convention of Alleanza, the 5th of February, Alleanza announced the starting of the rollout of Conto Unico so the current account dedicated to Alleanza to all 2,700 private advisers within this year. A quick comment on Stile Unico. Stile Unico is a unit link. So we are talking about insurance wrappers. We roll out -- we completed the rollout to the 2,700 private advisers last year. And the first numbers are encouraging with more or less EUR 100 million of net inflows. So solid evidences from Intermonte and Alleanza, very positive on the short, medium and long term of this partnership. And now from Page 30, a quick update on targets for this year. First of all, net inflows, so volumes, we increased the guidance compared to the guidance of last year from EUR 6 billion to inflows at least at EUR 6.5 billion with the assumption of stable financial market. We see a confirmation of the structural rebalancing between different distribution channels, and we are very optimistic on recruitment activity. We are also confident to increase the product mix and the quality of these inflows. So we set an initial target of assets under investment from the previous EUR 3.5 billion to the current EUR 4 billion. And this is, again, with the assumption of stable financial market and starting from the large share of govt bonds and corporate expiring this year and the perception that the overall asset under investment exposure is reverting to long-term averages. Last page, 31, some financial targets. First of all, net interest income. We increased the range of the net interest income for this year in the range of EUR 330 million, EUR 340 million, driven basically by asset expansion, so more client deposits and stable yield. We confirm both the management fee margin range and the core operating cost range, waiting for the new 3-year strategic plan that we will communicate -- we will announce probably in the second half of this year. Just to close, I'm very optimistic on the bank, on the financial adviser network and on the results. I perceive as we start the new season, and I see further synergies under the winged line. So Generali is important for us and will be even more important in terms of synergies for the future. And now I will hand over for the Q&A session.

[Operator Instructions] first question is from Luigi Tramontana, Kepler Cheuvreux.

A clarification on the provisions for risk and charges was EUR 49 million that you booked in the fourth quarter. Can you please give us some insight on that? What is due? And the second question is on the inflows. In 2025, you clearly outperformed your guidance with EUR 6.8 billion. I'm a little bit surprised that you expect your net inflows for '26 to be lower than last year given that we do not expect Mediobanca to launch another offer. So this is a joke, but I would like to understand why do you expect the other assets inflow to be lower than last year?

Thank you, Luigi. Let's start from the inflows. As you know very well, we prefer to start with a conservative approach and then overdeliver. EUR 6.5 billion, I mean, is the highest guidance never communicated from the banking perspective and with a better quality. So we will be more focused on the quality than on the quantity. But as usual, the targets have been set to be overachieved. So let's see, some conservative assumption from the beginning of the year also to see the dynamics and the context. In terms of provision charges, then I will hand over to Tommaso, but let me give you the flavor of this line. Let's say that in good time, I think that the best thing to do is to be very conservative in the provision, especially for potential litigation on the performance of specific products. So we decided to clean up, let's say, the overall position in terms of provision for some illiquidity initiatives and then happy to release in case of different behavior. So there is some prominent, let's say, behavior behind that. But for more disclosure on that, I will hand over to Tommaso.

Thank you, Gian Maria. Let's say that in provision, we have mainly 3 categories. Basically, we have the provision for the sales for the retirement basically, which is an actuarial provision that is performed every year. And then the other 2 components are linked more to commercial initiative. We have been very, very conservative this year because also we have the benefit on the other side of the fiscal refund on dividends. So we decided to be very conservative. Although if we compare the overall provisional, they are lower compared with the previous year. Going forward, we expect that, of course, this provisional will go down because we have been very conservative starting in '25.

[Operator Instructions] Next question is from Marco Nicolai, Jefferies.