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 2026 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 welcome to our first half results conference call. First half results are the best ever with net profit at the highest level, EUR 279 million. Total assets at the highest level, EUR 121 billion, and net inflows for the first half at the highest level ever, EUR 4.4 billion. Focusing on the net inflows, the quality has been improving over the time, and we are very confident to keep going with this quality, thanks to the strengthening of our asset management hub and the new release of products. But let's start, as usual, from numbers. So Page 4. Net profit accelerated in Q2, as I said, in the first half, the overall result of EUR 279 million. In the first half, EUR 152 million. This number comes from an acceleration of both the components, recurring net profit at EUR 108 million and the variable net profit at EUR 43.6 million. If you see the variable net profit, you can see that there is a one-off of EUR 20 million tax charge. This is due to the application of the standard corporate taxation in Luxembourg for our asset management company following the current unavailability of tax benefit for the asset management company. We will see it later. Page 5. Now we will go through the revenues components, starting from net financial income. Overall, net financial income closed at EUR 97 million or EUR 189 million in the first half. Again, also in this case, the good results come from positive contribution by both components, net interest income, slightly higher, EUR 84.8 million, and a higher contribution of trading gains and others, thanks to the significant contribution from Intermonte. Overall, the total net interest margin closed at 1.96%, that is in line with our guidance. Page 6, the other component of revenues, so total gross fees. Second quarter, EUR 393 million. Overall first half, EUR 741 million. And while the variable fees, you see the acceleration in the second quarter, thanks to the positive market trends and the great quality of the investment strategies. Overall, margins for gross recurring fees is in line with the previous quarter at 107 bps. So focusing on the recurring components, you have 2 different parts. The first one is about investment fees. Here, you see a double-digit growth. In particular, the second quarter was very strong at EUR 258 million. And here, the result is the sum of an acceleration on advisory fees and an acceleration of management fees, both at double-digit growth. In terms of margins, here, you see a pickup of the margins at 1.44%. This is basically driven by the positive trend of the market, but we stick to our guidance of margins at 1.40% and 1.42% for the midterm. Page 8, the second component of the recurring fees that is about other fees. Other fees were very strong in the second quarter, EUR 46 million, and as an overall result for the first half above EUR 90 million. And again, here, we had very strong entry fees, thanks to the excellent work in private placement structured products. Strong results also in brokerage commission, thanks to solid activity of both retail and corporate clients. And the last but not least, you can start seeing a pickup also in the banking fees. Overall, margins on other fees, pretty stable over time at 0.16%. So all the revenues components grew at double-digit growth, while the cost is greatly in line with our guidance. Let's start Page 9 with the payout ratio. Overall payout ratio slightly lower than the targets announced. Payout to FAs, ordinary payout at 35.5%. I remember that the guidance here is 36%. Cost of growth below 12% at 10.5%, excluding a positive one-off. And the overall payout to third parties close to 6.2%, in this case, excluding a negative one-off, and the 6.2% is broadly stable and in line with the second quarter of the previous year for some seasonality. So again, very solid steering of the cost of the network, and we continue to share the revenues with the targets we announced. Page 10, you see the operating cost. Here, we are slightly higher compared to the guidance of 6% to 8%, and this is basically driven by the acceleration of all major projects. So we have, as you know, the Insurbanking, and I will give some numbers on Insurbanking later. Intermonte is going very well, as well as all the projects linked to artificial intelligence. In the non-recurring components, you see a spike at EUR 5 million, and this is basically all investments for future growth are about advisory to scout the market to think of the strategy for the next years. So as a typical one-off when you are close to the launch of a strategic plan. Page 11, operating leverage. In terms of operating cost on total assets, we achieved the best result at 0.27%, and also all cost/income ratio measures are in line or better than expected. So closing this first part of the presentation, Page 12, very solid results in the core components, very solid operating lines and results. Below operating lines, you see an improvement for the normalization of some one-offs. And about the tax charges, the EUR 20 million, thanks to the positive discussion with the Luxembourg authorities and the initiatives in our asset management hub that we will explain in the business update part, we are confident that we will absorb this spike, and we have a medium-term guidance by the end of 2028, around 27% to 28%. Last bullet, you see the contribution of Intermonte, strong acceleration of the overall results, EUR 6.2 million of net profit, impressive with the revenue synergies already close to EUR 8 million on target for the first half in the range of EUR 10 million to EUR 15 million. And this is a great part, thanks to the structured product, some advisory mandates in asset management, and we will see further improvement both in this part of the business as well as in the M&A activity. So now moving on to the next section. So balance sheet, Page 13, starting from the total liabilities, everything is pretty stable due to the strong activity in asset management in the second quarter. You see the client deposits slightly higher from EUR 13.9 billion to EUR 14 billion in the second half. Cost of funding slightly higher, 0.77%, in line with the trend of the interest rates. Page 15 on the total asset side, also here, pretty stable numbers. Overall interest-bearing assets at EUR 17.1 billion, with the yield on these assets slightly higher at 2.73%. Last page of this chart, Page 16, we have capital and liquidity ratios. Also here, very stable numbers. Total capital ratio at 19%, leverage ratio at 5.7%, and all liquidity coverage ratio, net stable funding ratio well above the SREP requirement. So now let's move on, on the assets recruiting and net inflows part, Page 18, the usual presentation we introduced in the first conference call of this year about total assets in which we give also the trend of Insurbanking business. You see the histogram. First of all, the EUR 121 billion, as I mentioned, the highest level ever of BG total assets, while the EUR 7.9 billion is about Insurbanking. So the assets that we advise or manage directly in the insurance products for Generali clients. Referring to Alleanza, I mentioned before, we are very confident with numbers and with this project. We have just completed the rollout of the banking offer to the private advisory network. We completed it in June of this year. If you look at the numbers of current accounts, we exceeded 5,000 current accounts in the first half, and we confirm the target of at least 15,000 current accounts. And for the Insurbanking business, we closed the first half with more or less EUR 200 million of net inflows on the insurance wrapper for a total of EUR 260 million since the beginning of the partnership. And also in this case, we confirm to exceed EUR 0.5 billion for the end of this year. Our feeling for this project is very positive also, as on the territory, we see great collaboration between the Alleanza network and the managerial structure of Banca Generali network. And we are just at the beginning of the journey with exciting feedback from Alleanza network. Page 19, we focus on the total assets of BG clients. First time, as I mentioned, we exceeded EUR 120 billion. If we focus on the left, you see that the overall advanced advisory fees business exceeded EUR 13 billion, and you see a constant increase of the weight of advanced advisory fees on total assets. Now they account for 11%. At the right of the page, you see the presentation of total assets by fee categories. More than EUR 80 billion generate recurring fees. And the major increase is about the managed solutions. So EUR 56.9 billion. Let's focus on this EUR 56.9 billion, Page 20. Here, you see the impressive acceleration of in-house products. Now in-house products account for more than EUR 30 billion or 53.2% of the total managed solutions, and you see an increase of 2.5 percentage in only 1 year. And this is thanks to the excellent work of the portfolio managers for the financial wrappers and the introduction of protection in the fund offer. Now moving on from total assets to total net inflows. As I mentioned at the beginning, a record level of net inflows, EUR 4.4 billion. I'm at Page 21. And you can see that assets under investment account for EUR 2.1 billion, and the greatest part comes from the managed solutions, EUR 1.9 billion. And again, the major contributor of this EUR 1.9 billion is about in-house products with more than EUR 1 billion in in-house funds and EUR 400 million in financial wrappers. It's not just about the quality of these inflows, but also the contribution of the different distribution channels, in particular, Page 22, the existing ones, so our existing colleagues, exceeded the results of last year by almost 50% or EUR 1 billion, moving from EUR 2.2 billion to EUR 3.2 billion. And you see also the recovery of recruitment with a total contribution of EUR 1.2 billion or 50% higher compared to the last year and also higher compared to 2 years ago. And I'm sure that more will come in the second half. Why? As we are accelerating the recruitment activity, we have already onboarded 106 new colleagues. What impressed me more is the part coming from private banks. You see the number, 33, that is the highest one. And this is also thanks to the proposition with Intermonte. So now we are able to attract also private bankers with specific competencies in the corporate advisory business. So the business activity is very sound, well distributed on the field. And as I mentioned, the quality is pretty impressive, and I'm pretty confident to see this quality also for the second half of the year, as we are investing a lot on our asset management hub and on product innovation. So moving on to Page 24, you see the structure of our Banca Generali Asset Management hub. We have 3 major components: Luxembourg platform. In the Luxembourg platform, you know we basically provide funds, curate markets and multi-asset solutions, but it's all about SICAV funds. In the middle of the page of the presentation, you see our Italian capabilities or our investment hub. Here, we are probably the best player or among the best players in managing personalized financial wrappers. And now we can leverage also the Intermonte capabilities. And then Investlinx. Investlinx is an Irish platform. You know we closed this deal to enter the active ETF industry, but Investlinx has also a license for fund business. So we have greater flexibility in deciding where launching new initiatives also for the single fund and fund business. Page 25, you see the major achievements for these 3 blocks of the first half of this year, starting from the left, so our Luxembourg platform. These numbers are as of the 25th of July. So there is some numbers also realized of July. You see that the overall net inflows for funds industry in Luxembourg retail business is around EUR 1.4 billion, of which EUR 1.1 billion in the new family of protected funds, and these initiatives were launched with top investment banker players, U.S. investment players as JPMorgan, Morgan Stanley, or Bank of America. So the proposition investing in equity or protecting the downside is working very well as offering a predefined coupon. Regarding the Italian offer, the financial wrappers, here, you have 2 different businesses, the personalized financial wrappers, so for top clients where we are performing very well. And then also in this space, we launched protected solutions in partnership with Intermonte for the hedging strategy. And here, we exceeded EUR 200 million. So part of the synergies with Intermonte comes from this business. Last but not least, we have just signed a contract with Investlinx, and we already launched the first active ETF. It is an ETF focused on small, medium enterprises in Italy. So we are very quick and flexible in launching niche initiatives, niche ETFs, and we show how flexible and dynamic and fast is this kind of platform to be in the market with new initiatives. So thanks to these 3 different blocks, we are confident to maintain great flexibility for the second half. We have a pipeline of very strong product offering. And you will see during our strategic plan, how we are sure to leverage all the 3 platforms to excel in the asset management industry. Last but not least, Page 25, some guidance. For this year, you see on the net inflows, in particular, we increased the target of total net inflows from a target of higher than EUR 6.5 billion to an average of EUR 7.5 billion. So we confirm positive trend also for July, where we are confident to exceed EUR 0.5 billion. And in terms of target of product mix, we confirm to exceed EUR 4.0 billion of assets under investment. Second block, you see targets in terms of margins, cost and tax rate. First column, you see how we closed the first half, and then you see the guidance for the medium and long term. We are confident to stay in the range of 1.4% to 1.42% for the management fee margin. As I explained, now we have some positive effect from the positive markets. Core operating cost, we confirm long-term guidance to stay in the range of 6% to 8% with this spike in the first half of this year and probably also the second one as we want to accelerate all the projects for future growth. And then the tax rate, as I mentioned, you see the spike at 30.5% for this first half, but we are confident to absorb a great part of this spike, and we give a new guidance in the range of 27% to 28% for the midterm. So now the presentation is concluded, and I will hand over for the Q&A session. Thank you.

[Operator Instructions] The first question comes from Marco Nicolai with Jefferies.

A few questions on my end. So you guide for margins at 1.4% to 1.42% over the medium term. So can you just remember (sic) [ remind ] us what gives you confidence that this will remain solid in the future and that you won't have -- you won't face further pressure on these margins, perhaps driven by competition or so on and so forth? On the NII, first question, can you remember (sic) [ remind ] us the average balance in the current accounts opened under the Alleanza partnership? Another question on NII is around the deposit costs that saw a pickup in the second quarter. Is the repricing now done? And what do you expect from here on this front? And last question on the guidance. You didn't upgrade assets under -- AUI inflows. So obviously, you have an open-ended type of guidance here. But it seems that even annualizing the first half, which is anyway weaker seasonally, you're already at EUR 4.2 billion. So do you think EUR 4.5 billion is too far as a target?

Thank you, Marco. So let's say that if you think of margins in Asset Management, we have different levers to compensate any downward pressure. For example, we have the highest exposure in traditional life insurance products, where margins are definitely lower. We are among the most exposed to third-party funds. And also in this case, there is room to internalize part of margins. And then there is a partnership with investment banking and Intermonte where we can increase margins of the underlying. So for all these reasons, we are confident to confirm the target 1.4% to 1.42%, considering also that now the level is a little bit higher. And consider that in this 1.4% to 1.42%, there is also the Insurbanking business activity. Second, net interest income. At the moment, the contribution of Insurbanking on the deposits is pretty low. It is in the range of EUR 20 million to EUR 30 million. We've just started with opening the current accounts. So we are just at the beginning. So at the moment, it's all about Banca Generali clients. And for the pickup in cost, I will hand over to Tommaso.

Let's say that pickup in operating costs are more linked to the investments that we are going to make in the IT platform, especially investing in AI. And then we have also some specific investments for the AI projects that have been, in any case, accounted in the first half. We expect also that in the second half, we are going to, let's say, continue on investing. That's why we see that for this year, we will have a spike in operating cost with a guidance which is a little bit updated between 8% and 9%. So we expect to have the second half in line with the first one. At the same time, we expect that going forward, we can meet the guidance, which is the medium term that we give to the market. This is where we are. That's all.

And last, just to answer your question about net inflows, why we have risen the target for net inflows, not for the product mix. Let's say that here, there is a conservative view on the trends of the market for the second half. So we are not confident to see the same market as the first half. So to be more conservative, we prefer to confirm the guidance in terms of mix that depends also in part from the market dynamics. While on the net inflows, we see very strong trends, both for the existing sales force as well as for recruitment. So even in, let's say, more volatile markets, we are confident to over-deliver compared to the targets at the beginning of the year.

Just if you can follow up on the deposit cost because in terms of costs, I meant like what happened in the deposit cost Q-on-Q? And what do you expect from here?

Deposit cost, let's say, that the evolution is linked to the beta of our deposits. Let's say that we have -- the 35% of our deposits which are in line with -- are linked to the evolution, the market evolution. And so that's the part which is going to follow the evolution of the market. We expect in the next quarter to have increase in terms of interest rates. We expect that the 6 months will increase around 30 basis points in the last quarter, especially we expect in the last quarter, in the fourth quarter of this year, the spike in interest rates. So this is going to give, let's say, an increase in terms of cost of funding of some basis points that we expect to have in the second quarter, but something which is already, of course, implied in our guidance, which we have confirmed between EUR 335 million and EUR 345 million. We don't expect -- yes, let's say that we are more sensitive in terms of net interest margin evolution more to volumes than to interest rate change, because we have, let's say, also for our purposes now, let's say, sensitivity to interest rate lower. And so we are more sensitive to what is the balance sheet dimension. And you can see that in the last month, we had lower growth, let's say, in the liabilities, in the deposit, because we have increased the net inflow in managed assets. So we have also to understand what will be the part of the investing of our clients in the next months to understand what will be the full impact in net interest margin. We have based our guidance of stable volume or slightly increasing.

So to cut long story short, we haven't changed our way to pay back to the clients. And we have the asset that has a lag to update the value in line with the new scenario of the interest. We have a duration of 2 years. So it takes a little bit more to adjust the assets and the liabilities, but nothing has changed.