Banca Mediolanum S.p.A. (BMED) Earnings Call Transcript & Summary

Good afternoon or good morning, ladies and gentlemen, and now welcome to today's Banca Mediolanum Full Year 2019 Results Conference Call. [Operator Instructions] For your information, today's conference is being recorded. At this time, I would like to turn the call over to Ms. Alessandra Lanzone, Head of Investor Relations. Ms. Lanzone, please go ahead.

Good afternoon, ladies and gentlemen, and welcome to our presentation for the results of the full year 2019. As usual, the presentation today will be led by our CEO, Massimo Doris; while our President, Ennio Doris; and our CFO, Angelo Lietti; will join the Q&A session. So let's get started, and over to you, Massimo.

Thank you. Good afternoon, everyone. It comes in no surprise to any of you that 2019 was an exceptional year, actually our best year ever. As far as the bottom line is concerned, with the net income that came to EUR 565.4 million, a sizable increase of 121% over the previous year. It goes without saying that the extraordinary level of performance fees substantially helped out our bottom line, even in the presence of an equally extraordinary level of write-downs. However, I would like to drive your attention to our recurring business, which is best expressed by the contribution margin, but even more so by the operating margin. Both indicators had explosive growth, jumping 20% and 50%, respectively. Thanks to our focus on the sustainable aspect of our top line, which encompass strengthening our recurring revenues and diversifying our revenue streams. And of course, thanks to our continued commitment to keep a tight control on costs. As a matter of fact, we managed to increase our operating margin to EUR 431 million as a result of the strategic decisions we implemented in 2019. First, foremost and principally, I'm referring to the new pricing structure of the Ireland-based funds. But also our sustained commitment towards the lending business is having its impact on the P&L. And lastly, our general insurance business is beginning to gain traction, though its contribution would be more evident in the future. The key growth driver of our operating margin, namely net commission income, was up 29% for the year at EUR 833 million. In fact, apart from entry fees, all of the line items had generous increases. Management fees totaled almost EUR 1.03 billion, up 3% year-on-year, hitting another record high in Q4 at almost EUR 267 million. Here, the volume effect more than compensated for the lower price effect compared to 2018. This phenomenon was influenced by a greater percentage in the asset mix of money market funds as the entry point for the intelligent investment service. Remember, this gradually end up in the higher-margin equity funds. But there was also the influence of the increased sales of shorter-term, lower-margin unit-linked policies offering coupons. On the other hand, the investment management fees on those Ireland-based funds subject to the change in pricing structure contributed EUR 153 million in 2019. As you can see, Slide #7. The sum of management and investment management fees, namely commission income from recurring fees, reached EUR 1.18 billion for the year, corresponding to 210 basis points on average assets. Q4 confirms that we can reasonably expect a run rate of some EUR 300 million of recurring fees per quarter with sizable margins. Going back to total commission income. Banking service fees reached EUR 158 million and continued to benefit from the fees on certificates. On the other hand, net interest income totaled EUR 239 million, growing 24% year-on-year. However, I'd like to go a little deeper into net income on other investments. Almost half of the negative EUR 41 million difference year-on-year was due to EUR 60 million of write-downs we took mainly for a rental property in our assets that was vacated in 2019. Moreover, in 2018, we had capital gains on the sale of some bonds prior to their maturities in a better interest rate environment. And lastly, we registered EUR 8 million more in impairment on loans, largely due to the deterioration in the rating of a couple of significant loans, but also to the worsening of Italian GDP, which triggered the application of a higher-risk efficient for the industry. But at any rate -- any way you look at it, our NPL ratio remained very low. In fact, it has gone down to 0.67% net or 1.33% gross. Now moving down the P&L. G&A expenses totaled EUR 543.5 million for the year, up 2% versus 2018. As a matter of fact, we are able to achieve higher efficiency levels, even with an interrupted commitment and investment supporting growth and innovation. Provisions for risks and charges were solely impacted by the decrease in the discount rate, which, for the most part, is applied at year-end to the provisions for the network's retirement package as a function of the drop in interest rates. Therefore, before we move on, I would just like to emphasize, once again, the strength of our underlying business. We have brought our operating margin to a level that is not only much higher, but also sustainable. Focusing now on the market effects line items. Performance fees came to EUR 425 million. They were so high because the high watermark starting point at the beginning of 2019 was so low, following the introduction of the new calculation methodology. But then the markets recuperated and were very bullish over the course of the year. This combination of events won't be replicated this year. Keep in mind that we started 2020 with a very elevated high watermark. Finally, let's look at the significant one-off line items. First of all, the write-down of our shareholding in Mediobanca for a total of EUR 67 million. As you all know, the shareholding had been valued using the equity method. But starting this year, we would be valued as a financial shareholding, and as such, reclassified into the held to collect and sell portfolio. As a function of our reclassification, the write-down from EUR 13 to EUR 9 and EUR 0.83 per share was taken in 2019 to reflect the current market value. Furthermore, marking our exit from the business in Germany, we took a write-down on the book value of our investment in this subsidiary by EUR 30 million, practically zeroing out the carrying value. And lastly, the employee bonus amounted to EUR 70 million. The top management decided to give to all group employees and Family Bankers, acknowledging their contribution to the extraordinary year. And so in the end, we have a net income, which is well above our trend line. Okay. Shifting now from the P&L to the business results. Our primary indicator, assets under administration and management totaled EUR 84.7 billion at the end of 2019, increasing a good 14%, as you can see Slide #9. The strong market had to stay in this growth. But keep in mind that over 40% of the EUR 10.6 billion increase in assets was due to our solid net inflows. In fact, we generated EUR 4.06 billion in total net inflows in 2019 with nearly 73% in managed assets, meaning EUR 3 billion of high-quality inflows, as shown in Slide #11. But assets and inflows are not the only metrics we need to look at when evaluating our business overall. Since we are a fully-fledged bank, providing the complete range of solutions to our customers for their financial needs, it is equally essential to take care of their credit needs as well. And moving on to Slide #12, our commitment to the lending business over the past 10 years, and particularly, our more recent focus and expansion is now really paying off. In fact, our credit book has now reached almost EUR 10.4 billion, with an increase of 16% year-on-year and close to EUR 1.5 billion more in net loans than the previous year. And mortgages, as you can see Slide #13, continue to represent the bulk of the book, reaching almost EUR 7.6 billion, up 14%, while salary-backed loans are steadily on the rise, up 107% for the year with EUR 678 million in the book, right in line with our plan. Overall, in 2019, our credit business contributed over EUR 170 million in revenues to interest income. As a matter of fact, as you can see Slide #14, in 2019, we were able to generate EUR 2.67 billion in loans granted at group level, an increase of 21%. Loans are indeed becoming a significant additional source of revenue and must really be taken into consideration. But not just those, as you know, our Family Bankers are also spending a great deal of their efforts in the area of the general insurance business, namely P&C, health and visibility and term policies. All those policies that protect our customers' assets in case of serious unfortunate events. We have an entire customer base that we can develop since there is a void in our customers' coverage in this respect. As you may recall, at the beginning of 2019, we setup a dedicated project with a goal to increase new business, stand-alone policies tenfold in 5 years. Well, as you can see Slide #15, we already registered an increase in new business premiums of 122% for the year, though on very small numbers, but nonetheless, very encouraging. Overall, gross premiums written increased 25% to nearly EUR 106 million. We now have some 100 Family Bankers who are experts in general insurance and work alongside assisting their colleagues. And we continue to add general insurance professionals from the outside to help grow the business even faster. Switching gears in Slide #16. You can see our updated capital ratios. The common equity Tier 1 ratio at the end of 2019 was 19.5%. Finally, I'm pleased to announce that the Board of Directors have resolved to propose a dividend balance of EUR 0.34 per share at the General Shareholders' Meeting that will take place on April 8. As shown in Slide #17, this brings the total dividend for 2019 to EUR 0.55 per share, an increase of 38% with a total payout of EUR 403.5 million, which, at the closing price yesterday, corresponds to a dividend yield of 6.5%. The dividend consists of a base dividend of EUR 0.42, which is the planned 5% increase, plus a special dividend of EUR 0.13. Our decision to distribute this special dividend acknowledges the elevated net income, resulting from the extremely high level of performance fees, which gives us enough buffer to be generous with our shareholders today to be able to continue to invest in our business to maintain a very solid capital ratio as well as to keep to our plan of a gradually increasing dividend. Let me make a quick comment now on the foreign markets. Our business in Spain continues to deliver. On Slide #35, you can see net income came in at EUR 34.2 million, an increase of 129% year-on-year and is influenced by the same dynamics as in Italy, namely higher recurring fees and extremely high-performance fees. Assets increased 22% since year-end, totaling EUR 5.9 billion with managed assets at EUR 4.3 billion. The sales network saw healthy growth year-on-year, with an additional 33 individuals which allowed us to reach 1,029 Family Bankers. Now I would just like to make a more quick comment about Germany. We are finalizing the details of the negotiation with the counterparty, which could take some time. But please note that if the negotiations underway for the sale are concluded positively, there are no further material losses to be accounted for in the 2020 financial year. Before we close, I'd like to make a few comments about the year ahead of us. We are confident that the net interest income will have a slight increase in 2020, based on the very positive trend in the growth of the credit book and our treasury activities. In terms of G&A costs, all things being equal, we can forecast a 5% increase due to enhanced support for our sales and marketing activities as well as the reinforcement of our tech platform. Looking at inflows, I would be very disappointed and surprised if we didn't do better than 2019. I think it's reasonable to say we can achieve at least EUR 5 billion in total net inflows, with EUR 3.5 billion in managed assets, assuming no significant macro events. As a matter of fact, 2020 has started off on the right foot. As you can see Slide #40, January had a typically strong inflows to a tune of EUR 789 million, mainly thanks to the widely advertised 2% interest rates promo on the deposit for new money, which was launched a month ago in Italy. The 3-month promotion for both new and existing customers was more than timely and is being very well received. Net inflows into time deposits came to EUR 434 million in January. But also net inflows into managed assets were not bad at all for January with EUR 150 million directly into mutual funds. Moreover, I would like to add an important consideration. In January, there were EUR 253 million of gross inflows in the double chance investment plans. These are temporarily part in bank assets and will be automatically transferred into managed assets over the coming months. And all this without the contribution of our new updated PIR funds that were launched until the very end of the month. And speaking of PIR funds, you know that our ambitious goal of some EUR 700 million for the year is based on our 22% share of the industry estimates. We created this market. We have the know-how, and we have every intention of putting all of our energy into this effort because we truly believe in its value and appeal. Well, before moving on the Q&A session, I'd like to leave you with a consideration. 2019 had a lot of exaggerated elements. And nonetheless, when you isolate them out, what remains is an underlying business that was built to be and has turned out to be even more solid and sustainable. And 2020 has gotten off to a good start. Thank you for your attention, and let's open to the Q&A.

[Operator Instructions] Federico Braga from UBS.

[Interpreted] I have 3 questions. Insurance revenues were extremely stronger during the year. Was there any particular product or a specific driver that actually boost the business? The EUR 14.6 million that you reported in the last quarter of the year, could that be considered as a starting point for the quarterly revenues over the next few years? Banking fees here, too, I see a very high level. What was the contribution given by certificates in the last quarter to this revenues item? And final question is about inflows. In 2019, if we deduct the amount that was targeted to certificates, we see a decline. If we just look at inflows into mutual funds. I like to know, whether there was some -- something that drove the decline of inflows into -- of inflows between 2018 and 2019? And also PIR, do you think they could cannibalize other products instead of generating additional inflows?

[Interpreted] Okay. Let me take your question about the banking fees first. In the last quarter, certificates did actually have an impact on fees because -- on banking service fees because they attracted a lot of funds, but also we have to consider the fact that banking accounts expenses were debited at the end of the year and that too tends to bolster this -- the inflows into banking fees. As far as mutual funds inflows, in 2019 compared to 2018, I would say that the total inflows is in line, but there is a difference in terms of mutual funds. But in 2018, we did sell PIRs, and instead, we didn't sell any PIR in 2019. So the inflows mix changed and monies actually were attracted by certificates as well. So if you look at the difference between mutual funds and unit links, it's EUR 550 million less, and the difference is represented by PIR. PIR generated EUR 800 million net inflows in 2018, and they generated the 0 inflows in 2019 because of the new regulation that kicked in. As far as insurance is concerned, the TCM policy reported a significant increase in the fourth quarter. By TCM, I mean the term-life policy. And also general insurance policies actually gathered a significant amount of premiums. So both the products actually took off.

[Interpreted] But the true reason here was -- underpinning the change was the commercial initiative. We made videos, films, actually documentaries, video documentaries concerning the need for general insurance policies. These short films were actually viewed in movie theaters by hundreds of thousands of Family Bankers, who were trained to fill the void in our customers' portfolios in terms of general insurance products. Also, we created a very close tie between Family Bankers and the headquarters because Family Bankers were reporting to headquarters. So the customers who would like to receive a kind of an insurance checkup. Those clients that are willing to talk to insurance experts can actually have an appointment made for them by the headquarter. And this really generated huge results and was very well received. So we really expect a significant increase this year as well because this is something we have just started. This is an activity that is really necessary to protect our customers from risks that are not covered by financial services. If well done and if focused on the real risk customers incurred, this is a business that can be extremely rewarding. So our insurance business will grow in volumes and in profitability as well due to the combination of all these factors.

[Interpreted] Last year, in 2019, we issued new premiums for stand-alone policies. So those policies that are not tied to alone and the total amount was EUR 15 million. In 2020, if we make plus 122% compared to 2018, well, I expect another plus 122%.

[Interpreted] As you can see, we are very aggressive, and we believe the outlook for this business is going to be extremely positive. And this business is going to be a great diversifier in terms of revenue generation for our company.

Alberto Villa, Intermonte.

[Interpreted] Considering how January performed, the 2% offer is really leading to a stronger inflows. And in February and March, I expect a lot of inflows as well. Out of the EUR 5 billion of net inflows you expect, EUR 3 billion in terms of managed assets. Do you expect it to turn part of the money you are mastering in these first months of the year in managed assets in the second half of the year? What are the solutions you are thinking at with respect to how successful this offer is in terms of volume? And how much do you think you're going to retain and then invest over time?

[Interpreted] Out of the EUR 3.5 billion of managed assets, clearly, we did not include only what is going to be switched from administered to managed assets. In the meantime, in January, we have EUR 150 million worth of net inflows in managed assets, and I expect that in April, when the 2% offering is not -- is going to expire. The sales network is going to focus on net -- managed assets inflows, which means direct investment in -- with respect to managed assets, not the switching. This is going to be new inflows or administered assets that were already existing. In July, we will see the first term deposits expiring until the end of September when the last deposits are going to expire. So from summer time to the end of the year, I expect to see this switching into managed assets of all these existing assets. In the past, we've seen that more or less 30% is going to divest. So somebody that really took advantage of the 2% offer and then they quit, but 70% stay. And out of the 70% -- 50% out of 70% will switch into managed assets, of course, not in the last 3 months of the year, but they will be switched into managed assets. Here, we're talking about the switching cases, but then we -- you have to take into consideration all the inflows that we collect over the year in managed assets directly.

[Interpreted] What about net interest income and commission and fees -- management fees, rather? Should we expect major changes in 2020 because of the different mix or because of products that you may introduce? Or do you think that the trends we've seen in the past quarters will be confirmed also in future quarters?

[Interpreted] If what you are referring to is 210 basis points worth of recurring fees, they are declining, recurring fees are declining this year as well. You cannot derive this from the charts because we added the investment management fees, but we had some 4% decline in management fees due to a number of factors. As I was clarifying, we'll probably see this trend continuing also in 2020. As I was saying, these factors are: one is a very positive factor, which is the investment -- intelligent investment strategy. What is invested in the intelligent investment strategy is invested in a money market fund, which has a 50 basis points of management fees. The more successful it is, the more will be the decline on the average fees. But I'm happy if this works well and is successful because basically these investments -- these inflows, at the end, will turn 100% into equity funds, which lead to high margins. The other factor is tied to unit-linked products that pay a coupon. And the management fee is 120, 125 basis points more or less. So we are talking about a much lower fee. But we should take into consideration that we also have PIRs, the 2 funds we have. And then we have the unit-linked basket that is richer. But in any case, still we have the equity 175 basis points, and the balance, 150 basis points. So again, lower than the 210 basis points. But again, we're talking about gross fees, part of these fees are then recognized to sales networks. And when the sales network is selling at lower fees, also the rebate is lower. The net effect is slightly better because it's offset by lower payouts in absolute terms and lower rebates to the sales network. So in summary, the 210 basis points, it should go down to 206, more or less by the end of the year. This is what I expect by the end of 2020. In any case, what is important is not so much the fact that it declines because we need to work on margins, we need to cut back on product fees and commissions, that's not the case. It's the fact that we are distributing a different mix. [ IAS ] is going to equity funds at the end. And then when we have coupons being paid out, products cannot be as rich as the others, whenever you have a bond fund with coupons being paid out.

[Operator Instructions] Luigi De Bellis, Equita SIM has the next question.

[Interpreted] Two quick questions. PIRs, do you expect a significant net inflows in February already? And if this is the case, could you tell us how much you expect? Second question is 2020 strategic priorities. Will you remain focused on organic growth? Or will you consider acquisitions as well?

[Interpreted] As far as PIRs are concerned, I expect a good month of February. I don't expect a strong month of February because the whole machinery has got to be cranked up again, so to speak. This product -- these products were selling well, then they were brought to an abrupt hold, and so markets and the company got concentrated on other things, EUR 800 million net inflows in 2018. And they disappeared in 2019. Still, we managed to have inflows of EUR 3 billion, nonetheless during the year. So it will take a while for these products to be cranked up again. And so a little by little, I believe that in February, we'll go back into positive territory. In January, we were not in positive territory. They were a negative territory by a few millions. So I do expect a positive February but not a strong month. I think that in March, April and May, inflows into PIRs will be more significant. As far as the network growth is concerned, we'll continue growing it organically. That's to say, should we acquire people? Should we hire in people from other banks? We expect people coming from other banks are coming from industries that are completely different. I mean this is the mix that we have experienced in the last period, but we'll continue recruiting and train and scouting for top-quality people, but we will make no external acquisitions.

[Interpreted] Just a follow-up question. Do you think recruitment costs will increase? Will you be -- do you think competitors will be more aggressive? Or is the scenario just stable?

[Interpreted] No. The scenario is really stable. You know it's expensive. When you want to recruit personnel, when you want to recruit a salesperson that has a good customer portfolio. So it was expensive. It will be expensive. When we hire in from other industries, you have the problem of high cost, but there is an additional and more important problem, that's to say, people who come from different industries haven't created their own experience and background on how you work in this sector. We work in a different way. We have the 5D Strategy, the long-term horizon. We don't just chase markets on a daily basis. So we have our own approach and our own way of working. If somebody has been working in this industry for many years, they have created their own approach to the market, their own strategies, et cetera. And it's difficult for them to change their mindset. That is why we prefer to hire in people from other industries because they don't have a bias on how to approach the market and how to work. So our wealth advisers, for instance, most of them don't have a background in banking industry. They have worked with us for many years because you don't get to manage EUR 100 million in assets in 2 or 3 years. It takes a longer experience. But this goes to prove that when you hire talented people, it doesn't matter where they used to work, in which industry. The important thing is that they are willing to work and be successful.

[Interpreted] The big difference you see in our balance sheet when you compare it to our competitors is the different culture our Family Bankers have. If you just take a look at the asset management industry and the -- in general, the industry where you see there are a huge professionals that have so many customers in their portfolio. But how come when a crisis strikes, when a problem hits, when the market declines, they make 0 inflows. So I mean when the going gets tough, you see that the tough get going. And in fact, we have steady inflows over time, no matter what the market is doing. And we are indeed generating inflows in the banking sector, in the insurance sector. And our Family Bankers have a portfolio that isn't just made up of as managed assets, but loans as well, insurance policies as well because the principal underlying our businesses, the Family Bankers have to cater to customer needs 360 degrees. They are -- and they are just to help customers invest well their money. This is a huge difference. They will become more and more evident year after year, and this makes our business a lot healthier and stronger than competitors.

Domenico Santoro, HSBC.

[Interpreted] I have a couple of follow-up questions. The first regards the certificates. Can you tell us the contribution to banking service fees over the year volumes? And what is your estimate with respect to this line item this year? You gave us a guidance very kindly on management fees in terms of margins for this year. And as far as I could understand, the payout is going to be lower, considering the different mix. So I would like to understand or to know, whether you can share also a guidance on acquisition cost in percentage terms? Then I would like to know what is the percentage of nonorganic growth in your sales force? And then if you can give us the absolute amount of performance fees in the first quarter this year, of course, year-to-date?

[Interpreted] With respect to certificates, we have fees for EUR 60 million. As to acquisition costs, the payout doesn't change. The sales network receives the same percentage. Of course, if I get 30% of a fund whose management fee is 200 basis points, I'm going to get 60. If I sell 1, which has a 200 basis points, I'm going to receive 30. So the payout hasn't changed. Simply, we have always the same percentage applied to the management fee of that specific product. Clearly, this going -- this is going to change the payout slightly. Of course, it's impossible to say what it's going to be based on the expected product mix. I don't have the number available right now. But we'll certainly let you know as soon as I have it. As far as recruitment is concerned, I did not get your question probably. Did you want to know the number of Family Bankers that have been recruited recently, coming from other net banking networks? Or how much was their inflow contribution?

[Interpreted] Yes. Maybe, I was not clear. Out of the net flows you had this year, how much comes from existing Family Bankers? And which is coming from new Family Bankers?

[Interpreted] New hired accounted for EUR 200 million in 2019. So the EUR 3.7 billion came from existing Family Bankers, but again, we'll let you know. Performance fees, we are talking about EUR 2 million or EUR 3 million. That piled up, but that's all.

[Interpreted] If I may, another follow-up question. Net interest income. Can you break it down for next year lending, securities? Most likely, there will be an additional cost on the marketing you made on deposits. Can you give us some more color on net interest income and how it breaks down?

[Interpreted] We'll follow through later. We'll let you know. We're going to talk with our Investor Relations department, and we'll let you know with all the details. In any case, the expect -- we expect the net interest income to be slightly higher compared to this year, either the same or slightly higher.

Next question. Elena Perini, Banca IMI.

[Interpreted] I have 2 questions. If you have already replied, I apologize. But I got connected a little later. So tax rate is my first question. What is the tax rate level we may incorporate for this year and the expected tax rate looking forward? Second question, since there will be the merger, the carve-out of Germany, and also, we have heard of a new classification for the Mediobanca shareholding. So as far as Mediobanca is concerned, from now on, you will just recognize dividends, and so there will be a more limited contribution to your income. Can we think that these 2 components offset each other, meaning there are no longer losses generated by Germany? So even if you make a little less money from Mediobanca, the 2 things would cancel out each other?

[Interpreted] Well, as far as Mediobanca is concerned, it will depend on the Mediobanca payout level. In the equity method, you have to include the entire income for the financial year. And instead, and payout should be 60%. So 60% compared to the past years should more than offset the Germany effect. So the 2 items should generate a positive level. As far as the tax rate is concerned, we should go back to the 2018 level. This year, we have a number of impairments that cannot be deducted and thus push up the tax rate. Also, we had to account on an accrual basis, the taxes of the dividends that will be distributed in March. So the number in this year is slightly higher, but the tax rate will go down to about 20% later on.

Next question, Gian Luca Ferrari.

[Interpreted] I'm Gian Luca Ferrari. Two questions. One out of curiosity, management fees alone, without considering investment management fees in 2019 have declined compared to 2018. EUR 532 million compared to EUR 536 million in 2018, despite a 16% increase. I understand all the facts about dilution and the margin with respect to the intelligent investment strategy, but I don't get why they have declined in absolute terms pre-pricing -- pre-repricing? Second question, let me see if I got it right. The P&C combined ratio in the fourth quarter was about 60%. Is that right?

[Interpreted] Talking about management fees, they have ended being lower than what we expected would be the effect of new inflows. Because in -- at the end of 2018, the market went down. And then, in 2019, it recovered. But in the first quarter 2019, we had lower average assets under management compared to the first quarter of 2018. And this had an important effect on management fees in absolute terms. This was a major impact. On average, if we consider basis points, what we are talking about is really 4 basis points less compared to the previous year. Then you asked about the combined ratio. Let me hand it over to my colleague.

[Interpreted] What did you say, Mr. Ferrari. 60%?

[Interpreted] I said -- yes, 60% more or less, is -- would that be a fair calculation?

[Interpreted] I'd say so the combined ratio would hover around 60%, 65%.

Ladies and gentlemen, there are no more questions from the Italian line. So we switch over to the English line. [Operator Instructions] Your first question comes from the line of Hubert Lam from BOA.

I've got 3 questions. Firstly, a follow-up on the banking services fees. Can you -- sorry, you may have answered it, but I just want to clarify. How much of the EUR 52 million that you incurred in Q4 comes from certificate sales? How much of it comes from seasonality? And how much it comes from the normal course of business? So I just wanted the breakdown of the Q4 banking services fees. And also linked to that, what is the outlook for certificates for 2020? The second question is on Germany. When should we expect losses to go away for your German business? Or when this year should we expect the losses there to go as you wind down the business or sell it? And third question is on the net interest income. You've given us some guidance for 2020, NII being slightly up year-on-year. I was just wondering what's the multiyear outlook on NII. Where would you expect it to go from here? Obviously, it depends on interest rates, but just wondering what your thoughts are on NII going forward.

[Interpreted] As far as certificates are concerned, in Q4, we reported EUR 27 million banking service fees, EUR 27 million of them were generated by certificates. Then you wanted to know what kind of outlook we have on certificates in 2020? And I'll tell you in a minute. Let me first answer your question about Germany. We think 2020 is going to be the last year in which we report losses generated by Germany. We think we will close -- we'll sign and close the sale this year. Well, considering the impairment made in 2019, we don't expect any economic impact in 2020 because the net equity that our German company still has should compensate for any liquidation costs or sales cost for the company. So we don't expect any P&L impact by the loss. And if the reason it impacted that would take place in 2020. And there should be no impact whatsoever in 2021. NII, as of 2021, if rates don't go up again, there might be a decline. But in 2020, we expect NII to be either flat or slightly higher. Our expectation, as far as loan stocks are concerned, compensate for the decline in interest rates. So in 2020, NII will be higher than in 2019. And we trust then in 2021, we will continue like that. The increase in volumes will compensate for a reduction and likely a possible reduction in rates. This is after all what we experienced in 2019. We have budgeted 50% compared to what we said in 2019, but it really -- I would talk about EUR 500 million. It really depends on what markets -- how markets actually behave. Well, also the number of certificates will depend on markets behavior on how they perform. And also, if equity markets are performing well, you may be selling more there than certificates. But I have to say that market effects and interest rates do have an impact on certificates. So if the current situation of rates and volatility allowed us to propose attractive certificates, we can easily sell them. Once certificates are no longer attractive as a product, we would start selling and distributing different products so as to respond or to fill that specific customers need. So things change depending on markets, on how markets are faring.

Your next question comes from the line of Andrew Crean from Autonomous.

Two questions, if I can. Firstly, on the general insurance. If you hit your targets of increasing premiums tenfold in 5 years, what kind of profit contribution would that suggest for the business? Then the second question, if I look at your -- the increased -- 50% increase in your operating margin from EUR 288 million to EUR 431 million. If I take out the investment management fee charge, which was new in 2019, actually there was no growth in operating margin. And I want to understand whether that is the likely track for 2020?

[Interpreted] There would have been no growth due to a number of spot effects. In the net income and other investments line item, we went from EUR 7.2 million to minus EUR 33.8 million in 2019. So we are talking about a difference of EUR 40 million. Then we should add EUR 26 million more, which leads us to EUR 66 million in the provision for risks and charges line item. In this latter line item, most is due to the discount rate. So if interest rates should raise a little bit, this effect would be canceled. Back out to the net income from other investments, there was a loan loss provision that was higher, and this is really a normal business. But there were 2 extraordinary events. One was a positive effect in 2018, namely we generated a capital gain on sold securities. And then in 2019, instead, we had depreciation of a property that was -- or a write-down, rather in a property that was owned by Mediolanum Vita and this would make some EUR 20 million or EUR 30 million difference. Without these 2 nonrecurring effects, the contribution margin and also the operating margin would, in any case, have increased even without the increase in investment management fees. Of course, the increase would have been lower. But in any case, it won't -- not have stayed flat. The increase would have been there anyway. As far as general insurance products are concerned, if we can maintain the 35% combined ratio as we have planned -- 65% is the combined ratio, 35% is the profit contribution. The contribution to gross margin should be that times the written -- the premiums written.

And the premiums written you're planning in 5 years' time?

[Interpreted] Some was EUR 400 million, including the portfolio -- in 5 years? Yes, 5 years. Portfolio plus new business, we should get to some EUR 400 million. 3 times 4 is 12. So I'm talking about some EUR 120 million gross margin.

There are no further questions on the English line. We will now move back to the Italian call. Next question. Alberto Villa, Intermonte.

[Interpreted] Apologies. Just a clarification, please. Did you give any guidance concerning G&A in 2020? What kind of expectations shall we have? And also, could you specify what kind of impact these additional EUR 2,000 that were paid in 2019 will be?

[Interpreted] Well, that EUR 2,000 amounted to EUR 17 million in 2019. And G&A in 2020 is -- as a guidance is plus 5%.

There are no further questions. So we hand it over to Ms. Alessandra Lanzone for -- to wrap up the conference.

[Interpreted] Well, there are no further comments on our part. So we'll talk to you again on May 7 for the first quarter 2020 results. Thank you, everybody.

We can conclude now the conference, and you may disconnect. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]