Banca IFIS S.p.A. (IF) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca IFIS 2019 Full Year Preliminary Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luciano Colombini, CEO of Banca IFIS. Please go ahead, sir.

Welcome to our call on the 2019 preliminary results. We have just approved the preliminary results, and the actual results are substantially in line with the preview presented in January in the context of the 2020-2022 industrial plan. And I will keep the call short, highlighting the key messages, and then we'll open to Q&A section. The CET1 is up about 70 bps versus 2018 driven by organic growth. In 2019, net income came in at EUR 123 million (sic) [ EUR 123.1 million ]. The contribution of PPA post tax was down from EUR 61 million in 2018 to EUR 47 million in 2019. In 2019, the cost of credit was impacted by EUR 28 million provisions on 4 large positions. One of the key priorities in the industrial plan is a reduction of the concentration risk with the setting up of the new credit environment, which is already completed and the ongoing disposal of the former Interbanca NPL portfolio. Tax rate benefited from positive one-offs due to the payment of the substitute tax for the goodwill of FBS and the reintroduction of ACE tax incentive. In 2019, we acquired about EUR 2.9 billion worth in NPLs in terms of GBV, in line with our target. We completed 21 acquisitions with 15 different counterparties for a total of over 230,000 net position in primary and secondary markets. In 2019, cash collection came in at EUR 258 million, substantially in line with the P&L contribution of EUR 248 million. This month, this is very important, cash recovery was higher than the projection of internal models. I would like to highlight that quarterly results tend to show more volatility than annual results due to seasonality, mainly in MPS and PPA. The contribution of MPS and PPA was limited in the third quarter and much stronger in the fourth quarter. The NPL business is impacted by courts shutting in August and the time frame of the capital gains on the disposal of portfolio tails. The contribution of the PPA is variable and depends on the prepayment disposal of the ex Interbanca loans. There is limited room for managing these effects over the quarters. The results, we'll be presenting according to the new segment reporting, consistent with the industrial plan. In the coming quarters, we will continue to present results according to the new segment reporting. Now please, Martino, describe the details of our 2019 results.

Good afternoon to everybody. So let's focus on Page 4 to see the details of our Q4 results. As you see, net income came in at EUR 39 million. The reversal of the PPA net of tax was EUR 15 million compared to EUR 6 million in Q3 2019 due to the disposal or the closing of some ex Interbanca performing and nonperforming positions. The net banking income came in at EUR 167 million, which is up from EUR 112 million of the previous quarter, and this is mainly driven to the pickup in nonperforming loans recovery and disposals. The capital gains on the disposal of a tail of the nonperforming portfolio came in to EUR 8 million. The operating costs are up at EUR 82 million compared to EUR 74 million in 3Q 2019, mainly due to higher nonperforming loans' variable recovery costs, matching with a pickup in cash collection and net banking income. The cost of risk was EUR 38 million, of which EUR 11 million provision on a few large Interbanca positions. We expect that going forward to reduce the concentration risk. Taxes benefit from the reintroduction of the ACE tax incentive, which is in -- a new law, which was introduced in December. Consumer loans were EUR 7.7 billion, up around EUR 500 million quarter-on-quarter, driven by the factoring growth. Let's move on Page 6, where you can see the CET1, which came in around 11%, well above the 8.12% SREP. At Banca IFIS, the CET1 level is 14.3%. There's a slight decrease compared to 3Q 2019 mainly due to the increase in risk-weighted assets and the seasonality at year-end in the factoring business. The dividend is slightly up to EUR 1.1 per share compared to EUR 1.05 per share of last year. Let's move to Page 7, where you can see the impact of the seasonality. And you can see also in -- compared to the previous quarter, usually, the Q4 is the strongest for the nonperforming loans business. Let's move to Page 8, where you can find new segment breakdown. And you can see that the nonperforming loans represents about 50% of net income, the factoring about 25% and leasing 13%. The corporate banking and the lending includes all what is structured finance, commercial, medium, long-term lending guaranteed by MCC or lending to pharmacies while the noncore regards to former Interbanca performing and nonperforming positions. I would like to highlight that in 2019, loan loss provision in noncore were impacted by 3 large position of former Interbanca with a total provision of EUR 19 million. G&S regards to central services, treasury and other costs not allocated to business unit. And I will pass to the CEO for the conclusion.

The conclusion is very simple. I have to highlight that we self-financed our business growth while increasing CET1 and dividend. And CET1 increased at 10.97% and plus 0.66% versus 2018. And dividend increased EUR 1.1 per share versus 1.05% (sic) [ EUR 1.05 ] in 2018. We are obviously working on the management actions in the industrial plan. We have already started to work on it. And we will update you in the coming quarters. And if you like, in the coming months, Martino and I will be taking part in roadshow meetings with you, so we are keen to meet you in person if you should desire. And now we are at your disposal for the Q&A session.

[Operator Instructions] The first question is from Andrea Lisi of Equita.

Several questions from my side. The first one is on the commercial banking, if you see margin pressure. We have seen that all banks are a bit suffering on that. In particular, I want to see -- I want to ask you, how is competition in the market? Then another question, if I understood well, about your segment reporting. Have I understood well that you will report according to the business plan reporting in the next presentations? And a point on the PPA, I see that in your full year results report on PPA, that is -- for 2019 that is EUR 10 million higher than the -- what were your preliminary data, mostly allocated to the noncore and G&S. But [ on the contrary ], net banking income was at the same level. So I want to ask you, where is the miss on the net interest income that was compensated by higher PPA? And if you can tell us, what is the net PPA net of taxes? And the last point on the cash collection in NPL. We have seen another good quarter in terms of cash collection. I want to understand if there is a similar trend also for the next quarter.

Thank you. We don't see an increase on margin pressure in the last few months. Albeit there is a margin pressure for medium, large core operator, but on micro, small companies, the margin pressure is very, very limited. And our competitive advantage is based on service and time to cash, the personalization of the services, the client coverage. In our view, price is not the only driver. And yes, sure. Your second question, all quarter results in 2020 will be according to new segment reporting. We started on the industrial plan and will go on in this way.

Regarding the other two questions, regarding the PPA, there is actual -- a different, just a different classification, okay, in the business with the closing of 1 position, which in the business plan -- which in this case has been -- in the business plan was put as a trading and asset disposal while, here, it's included in EBITDA. So it's just an accounting reclassification. As you see, there is no difference. And this is just due to 1 single large position that was closed. This is consistent with our strategy to try to close or dispose -- in this case, closing the large position regarding former Interbanca. And in terms of cash collection of the nonperforming, yes, we expect, let's say, the cash collection to remain quite strongly in the coming year in 2020. However, please keep in mind the seasonality of this business. So adjusted PPA is just to a different reclassification. And you can see this different reclassification as the net income is stable.

The next question is from Manuela Meroni, Banca IMI.

Again, on the PPA, I'm wondering if you can confirm your expectation in terms of PPA reversal in the next few years, considering that there is a different reclassification in 2019. And then also on operating costs compared with what you presented on 14th of January, there is a difference. I think that also in this case, it concerns a different classification of extraordinary items that are reported into operating cost in today's results. Just if you can confirm that. And second question is on the NPL business. I'm wondering if you can share with us what you are seeing on the market in terms of pricing of the NPL business. If you are perhaps seeing some, let's say, difference compared to what you have seen in the last quarter of last year.

I'll tell you something about the NPL business. In first half of 2020, we expect the pipeline of something about EUR 1.5 billion or EUR 2 billion NPLs driven by the disposal of the primary market in consumer credit and also banking will be driven by NPL reduction. The transaction in secondary market will be driven by the disposal of some players of the non -- unsecured portfolio, and the price competition, like always, depend on the auction likewise in 2019. So we see a market that's still really aligned. And we are very confident to reach the target, the target of our business plan.

Okay. For the other two -- two previous questions. Yes, I confirm this is just a different reclassification with the items remaining exactly the same with our expectation. Just to be clear for the PPA, if you dispose 1 credit, as we expected, you have, let's say, a trading gain -- a gain on disposal. If this is closed, you have the write-back of the PPA, depending on how this position will be. It's just a matter of accounting classification. But the actual -- we cannot foresee at the current moment how this position will be closed. What we can say is that the -- let's say, what we can say is simple, that we want to decrease these assets, and we confirm, for sure, the target we have disclosed in the business plan. And regarding the cost, yes, it's simply a different reclassification. In the business plan, we want to highlight some items that are not recurrent.

The next question is from Simonetta Chiriotti of Mediobanca.

Still on the NPL. So you said that you see a lively market. If you -- could you give us a bit more color on the pipeline of deals that you have in terms of mix? So if you continue to focus on your traditional segment or you are already looking at more different activities. And also in the performance of the last quarter of the year, which have been the main drivers of growth, there was a contribution also of -- if particularly there was a contribution from disposals. And finally, well, more in general, it is clearly very early to speak about the planned target. But from these first weeks of activity in 2020, which is your view on the ongoing activity of the bank?

Starting from your last question, it's a little bit too early to have a view of the ongoing 2020. Anyway, the first month seems to be very, very good, in line with our expectations. And you asked me about the NPL performance in the last quarter of last year, and the driver of NPL results has been the strong performance of judicial and extrajudicial recovery. It's necessary to highlight that in this quarter, the cash recovery is above the expectation of internal model as you can see in the slide in our report. And referring to the NPL market, I have to repeat what I said before. There is -- our focus is surely on the unsecured consumer credit NPL. But we are moving also to banking NPLs, and we have the ambition which is also the segment of secured. But from the moment, we are not able to manage this segment of the market. So the other focus here is still unsecured coming from consumer credit and unsecured coming from banks.

So these new categories will be addressed later during the year, not in the first quarter?

Absolutely, absolutely. We are looking for some team or some company that can help us to manage this segment of the market, and I think that we'll succeed this in a few months.

The next question is from Luigi Tramontana of Banca Akros.

Just two quick questions. One is on funding. You increased your TLTRO exposure by approximately EUR 100 million last year. How are you going to operate on that front in the coming quarters? And the second question is on the DTAs. You gave us a clear tax rate guidance for the -- with the business plan. Just to know what are your expectations in terms of DTA usage for 2020.

Okay. Let's -- in terms of funding, of course, we monitor the market. And we understand that there is a positive market momentum now. Then regarding the DTAs are in -- we have included, let's say, in the plan, it's not the -- current use of DTA will be much, much slower going forward due to the particular allocation of the DTA. And with the split, just to give you an idea, over about 5 to 10 years. So it would be -- the use of the DTA will be much -- the DTA that are deducted from the CET1, I mean.

Yes. Okay. Sorry, just to be clear, on funding, you are rather thinking to accelerate on [ bond difference ] rather than looking to TLTRO?

Let's see.

[Operator Instructions] The next question is from Christian Carrese of Intermonte.

Yes, just two quick questions. So the first one is on ERC. I see an improvement versus the third quarter by EUR 100 million. So if you can just elaborate a little bit your expectation why this kind of improvement. And on dividends, you said EUR 1 point -- EUR 1.05 was floor. You already improved the initial guidance this year. So we have to look at even higher dividends in the coming years. So if you can just give us an idea. And sorry, on the capital, if you see any additional regulatory headwinds in 2020 compared to what you expected just a few weeks ago. And I don't know if you can give us an update for 2020.

No, no, no. I'm talking about CET1. We didn't receive any new rate. So it's confirmed, the actual rate is definitive for this year. And about dividend, I confirm what we said on the industrial plan. Obviously, if the performance of the bank would be higher than expected, we'll consider higher dividends.

Okay. Christian, regarding the ERC, the delta, it's mainly due to the new acquisitions that we carry on in Q4 2019. As a reminder, there is also bullet -- let's say, some seasonality in the NPL transaction, which tend to be higher in the second and especially in the fourth quarter of the year. We -- so of course, our ERC is higher when we buy new portfolios and then we deduct the cash that we have, let's say, cash being recovered in the quarter.

[Operator Instructions] Mr. Colombini, there are no more questions ready, sir, at this time.

Okay. So thank you, everybody, and see you soon on our meetings with Martino and the other colleagues. Thank you very much. [Foreign Language]

Thank you.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.