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

Good afternoon, ladies and gentlemen, and welcome to today's Banca Mediolanum First Half 2020 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, everyone, and thank you for joining us today at the presentation of our first half results for 2020. Our CEO, Massimo Doris, will lead the presentation today, while our President, Ennio Doris; and our CFO, Angelo Lietti, will join the Q&A session. And since we're speaking about the Q&A session, please make sure that you ask your questions according to the language line you're connected to. All questions will be answered in Italian with a translation into English. Massimo, you now have the virtual floor. Thank you.

Thank you. Thank you, Alessandra. Good afternoon, everybody. It is truly a great pleasure to be connected with you today. I know that all your thoughts are on the dividends, and for sure, we'll talk about this during the Q&A session. Please indulge me and let me go through our first half results, which, despite the unprecedented situation and the many formidable challenges we are faced with are outstanding. No matter what trends you are considering. As you can see on Slide #5, our net income reached EUR 150.5 million for the first half, some 4% higher than consensus, with the result that is lower versus last year, solely due to market effects, namely fair value and performance fees. As a matter of fact, considering a year that has been so tumultuous thus far, we are proud that we managed to maintain such a strong operating margin, coming in at EUR 193.2 million, which is already extremely positive on its own merit. However, as we see in Slide #6, if we were to make a comparison of the operating margin versus last year on a like-for-like basis and also assuming constant level of inflows, we would have had an operating margin 8% higher than in 2019. Remember that in H1 last year, we had almost EUR 6 million of equity contribution coming from our shareholder in Mediobanca, which is now classified as HDSC. And of course, there were no costs related to Flowe, which accounted for over EUR 5 million in H1 this year. On top of this, we had 2.5x the inflows compared to the same period last year and of a much higher quality. This boost in inflows has an impact on acquisition costs before we ever see the benefits in commission income. In fact, we provisioned EUR 7.5 million more in the usual incentive and bonuses on individual net inflows. And this kind of cost, I don't mind at all, since there is no change in the payout criteria and because this is a clear KPI for future recurring revenues. Let me draw your attention to our recurring business, best expressed by contribution margin, up slightly 1% and to EUR 518.6 million. Although Q2 was obviously hit by -- the most by the drop in the market, heavily impacting average assets and, as a consequence, management fees, our increasing diversified revenue streams that are not correlated to volatile markets were able to help counter this impact. Now let's start from the top in our income statement. Gross commission income was up 4% for the first half at EUR 734 million, with entry fees and insurance revenues jumping significantly thanks to the super strong growth in mutual funds on one hand; and on the other, to the high volumes of sales into protection policies as a result of our concerted push directly at general insurance, banking service fees benefiting from higher sales in certificates and increased level of training connected to market volatility. Let's look at our greatest contributor to the top line. Over the 6-month period, management fees were up 2%, totaling almost EUR 510 million despite the enormous hit in assets in the first quarter, which gradually recuperated during Q2. As you can see in Slide #8, the sum of management and investment management fees, namely commission income for recurring fees, reached EUR 586 million for the first half, corresponding to 206 basis points on average assets. You might remember that in Q1, this number was at 207 basis points, already discounting the impact of the market drop that in Q2 was particularly felt, given our markedly high equity component. Although the strong equity content of flows in the quarter has partially mitigated this impact. So let's go on with the income statement and make a quick comment on the 8% increase in acquisition costs, which we addressed when analyzing the operating margin. As you can see in more detail in Slide #21, regular commissions paid to the network mirrored the 4% increase in gross commission income, while a much greater level of incentive and bonuses reflected the extraordinary net inflows generated in the first half. So then let's go back to Slide #5 and look at net interest income, which totaled EUR 113 million, up 1% over last year. Even though the retail cost of funding increased significantly in the first half and especially in Q2, as a result of our 2% promo on time deposit that was incredibly successful, we were able to compensate this with our strong level of lending. Looking ahead, as far as net interest income is concerned, we feel confident that we can close 2020 in line with last year based on the positive trend in the growth of the credit book. Net income on other investments registered a negative EUR 17 million, a better number than last year, essentially due to the absence of a write-down we took last year on a piece of rental property that had been vacated. On the other hand, impairments on loans, which already include 2 different recalibration of the loan loss provision model for the country outlook, also considering the COVID-19 scenario, remain in line despite an increased credit book. This justifies the value of our credit granting model and the creditworthiness of our customer base. Our NPL ratio remained very low and stable at 0.64%. And the cost of risk, shown here, stayed extremely low as well at around 20 basis points. Please take note that as at July 22, the banking industry association moratorium and the government Cura Italia Decree, which allowed customers to suspend mortgage and loan payments for up to 18 months as well as our own immediate initiative to suspend mortgage and loan payments for 2 months upon customer request, resulted in a total payment deferment of nearly EUR 2.5 billion of mortgages and loans. On top of this, we granted almost EUR 51 million in state-guaranteed loans for over 3,000 customers, and we also played our part in bringing forward redundancy fund payments by granting 1,400 customers the unemployment benefit advances for a total almost EUR 2 million. Now moving down the P&L. G&A expenses totaled EUR 278 million for the first half, up 1% versus last year. Keep in mind that this accounts for EUR 5 million of costs related to our newly launched Flowe app. And for the additional expenses related to Ad Hoc, IT employee and network support as well as to the safety protocol the company put in place in response to COVID-19. This shows a very good level of cost containment, resulting in significant operating efficiency. Of course, there were a few marketing events that had to be moved to the second half due to the lockdown situation. First and foremost, the Giro d'Italia sponsorship and related activities. And that's why we continue to confirm the 5% to 6% increase in G&A expenses we guided at the Flowe presentation in June. Before leaving the income statement, I would just like to underscore once again the health of our underlying business. The rigorous test we are all undergoing is not over yet. What is giving us a genuine opportunity to demonstrate in a complete manner, now more than ever, the real value of the Mediolanum business model and that our performance is less dependent upon a booming economic environment. Let's move on from the P&L. Looking at Slide #10, we see that assets under administration and management, which back in Q1, had been hit significantly by the strong drop in the market in March have now recuperated, making gains over the level at the beginning of the year, totaling EUR 85.4 billion. That's quite a recuperation, considering that at the end of March, we were down more than EUR 8 billion in managed assets. While we can all appreciate the market turnaround in the second quarter, I think it's glaringly obvious that our performance in net inflows was an important player of this regain. Let me point out in Slide #12 the remarkable flows of EUR 5 billion we had in the first half. And I'm not just referring to the EUR 2.9 billion in administered assets mostly coming from the 2% promo rate on time deposits which began to expire July 8, which means that the effort to convert this liquidity into managed assets is just at the starting point. But what I want to look at are the EUR 2.1 billion inflows into managed assets, of which, an incredibly high level were into equity mutual funds, namely EUR 1.8 billion, practically the entire mutual fund net inflows. This is particularly important to underline because at the very time our industry was strongly influenced by the tragic pandemic and the collapse of the market, our business results confirm the uniqueness of our model and of the investment strategy, we advise our customer once again. We are widely noted for our unrelenting capacity to consistently generate positive net inflows into equity mutual funds, particularly during severe market downturns. This is when the value of our advisory model comes out in high relief. Our family bankers prepare and educate our customers for crisis time, so that the investment behavior is more disconnected from emotions and they can take advantage of opportunities more rationally. And the automatic mechanism we offer our customers when investing into equity are largely accountable for our unparalleled qualified flows. As most of you know, one of these automatic mechanism is the double chance service, which was specifically designed back in 2008 to deal with deep market crisis and the unique chance they represent for investing. Please remember that this long-term service initially parks to investor lump sum into a remunerated deposit account and gradually shifts the entire amount into equity funds over a time frame of usually 12 months. As of today, there is around EUR 1 billion in the deposit account waiting to be shifted to equity over the few months -- the next few months. And then there is our one-of-a-kind intelligent investment strategy service that gradually shifts investment from money market to equity funds, automatically doubling the installment or even multiply it from -- up to 5x when market drops. As of today, there are nearly EUR 2 billion in money market funds waiting to be invested into equity. If you then look slide -- I don't know which is the next one. The light blue bar -- yes, the 43. The light blue bar shows just how much our customers' installments have automatically increased during those months of market declines, really taking advantage of dollar cost averaging, and by doing so, maximizing our customers' long-term returns. But advising our customers is a 360-degree effort for us and is not exclusively directed at investing. If we want to fully serve our customers as well as have the greatest share of wallet possible, we also need to consider credit, for instance. I'm happy to report that at the half year point, we surpassed EUR 11 billion in our credit book. As you can appreciate in Slide #13. As a matter of fact, as you can see, Slide #15, we managed to grant a record EUR 1.4 billion in mortgages and loans in the first half, an increase of 8% versus last year, even though we were in lockdown for 2.5 months during this time frame, which put the brakes on mortgages, in particular. As regards to general insurance premium, we saw a strong growth of 31% versus the same period last year, totaling almost EUR 60 million, while new business of stand-alone policies reached nearly EUR 11 million, an increase of 110%. Our commitment to this business didn't falter even during these dramatic circumstances. And while we are on this subject, I would like to share a slide with you, Slide #40, that incorporates Assoreti data of Italian network business figures, January to May. I think it does a very good job highlighting just how different we are from our peers as far as our way of doing business is concerned. In terms of total net inflows, we are very well positioned with 23% market share. But focusing on mutual funds, we captured a substantial 29% share. However, we were -- where we really stand out is in mortgages and loans as well as in general insurance, where, in fact, we represent practically the entire sales network market. We created a model where our family banker can address the entire range of customer needs, and this is not at all readily copyable. Switching gears is Slide #17, you can see our updated capital ratios. The common equity Tier 1 ratio at the end of June was up to 19.3%. As you can appreciate, our capital position continues to be extremely strong. Please note that we didn't capitalize H1 net income in this number, nor did we include the 2019 dividends that haven't been distributed yet. If we had capitalized the dividend, our CET1 ratio would be 22.1%. Now before we move to Spain, I'd like to let you know that average assets in our family bankers portfolio is back up to the level it was at the beginning of the year at EUR 18.7 million. You can see it on Slide #32. Moving over to Spain. You can see on Slide #35 that our business continued to progress extremely well in the first half. Net income came in at EUR 9.8 million, an increase of 6% compared to the first half last year, with a very strong operating margin growing EUR 1.8 million, up 17%. All of the business indicators were around the increase despite the market contingencies and the relevant impact on assets. In fact, assets increased 4% since the beginning of the year, totaling EUR 6.2 billion, with managed assets at $4.4 billion. Net inflows had a record half year exactly as in Italy, registering EUR 505 million, EUR 377 million of which in managed assets up 104%. The lending was also very strong, bringing the credit book to EUR 627 million, an increase of 12% since the start of the year. The sales network saw a growth of 11% since the beginning of the year, reaching 1,142 family bankers. Before we close, I'd like to give you a couple of updates. I know a lot of you follow our venture into the future, joining us back in June, for the launch of our new major strategic endeavor, the Flowe app. This new project's objective is to accommodate a vast and rapidly changing new world. Acceleration or progress goes hand-in-hand with moment of crisis. And thanks to a very concerted effort on our team's part, Flowe is our timely trademark response to the future. As a reminder, Flowe is a better-being plat-firm, or rather, a company platform aimed at anticipating the needs of the youngest target of our population and of the increasing number of people who are sensitive to the demands of sustainability, individual well-being, and social evolution and who are looking for an innovative and competitive digital banking service. And among the many novelty and distinctive pluses of the service, I want to highlight the impact-free Mastercard payment card made in recycled wood. In just 1.5 months, our most recent figure shows nearly 24,000 users in some 3,800 different cities, with nearly 4,300 physical payment card issued and approximately 600 payments per day. About 15% of the total balance amount is in Drop, which are personalized saving wallet where you can set money aside for future-specific purchases. Please note that 2 weeks ago, the platform started to welcome minors as well, from ages 12 to 17, in line with our objective to start off teenagers early in their exposure to financial education. And to and to just give you a little color, the payments made by Flowe users were able to compensate for 130 tons of CO2, and around 4,500 trees have been planted overall. Although this is just the beginning, these numbers are very meaningful to us. Flowe is the first important step of a long and momentous journey that Banca Mediolanum intends to pursue in a distinctive way, that of innovability. And now before we move on to the Q&A, I'd like to give a brief update on our management of health crisis. Given its importance, I will repeat that even under the most severe emergency of the lockdown, we were able to guarantee all banking services to our customers without interruption, thanks to our digital readiness. Our family bankers, employees and customers have done a remarkable job working together and communicating remotely for the most part. And from the company's part, I'd like you to know that we asked an external-certified professional to carry out the assessment of the protocol that the company put into place following the check list adopted by the health care agency of Bergamo and Lombardia, which was the one that had to deal with the most serious effects of the pandemic. On each of the 16 points of the checklist, we received the highest score of excellent. Well, thanks for your kind attention today. I want to emphasize our continued diligence to going above and beyond business as usual in these extraordinary times, and with outstanding results, as is our culture. Okay, so now we can move to the Q&A session.

[Operator Instructions] So first question from the line of Gian Luca Ferrari, Mediobanca.

[Interpreted] Good afternoon, everybody. If I may kick off this Q&A. I'd like to give my best wishes to President Doris. Really, my best wishes, Mr. President. Four questions to Massimo. First one is on NII. You gave us a guidance for a stable NII in 2020. But if I look at the domestic business, a stable NII should be up to EUR 123 million for the second half, which means EUR 61 million, EUR 62 million for the quarter for -- if I consider the cost of your term deposits, I think that Q2 was about EUR 58 million. So are you going to confirm a stable NII for the second half? Or are you going to expect a decline year-on-year? Time deposits. The first time deposits are going to expire -- are expiring right now. What is the guidance you can give us in terms of reactions on the part of the customers? Are you retaining these customers? Are they converting money into managed assets? Also, my third question is this. Customers reported in the throws of the crisis back in March almost minus 20% in terms of weighted asset -- weighted average performance. Now I see there has been a significant rebound. And I'd like to know how you are actually performing right now. And finally, a question about protection, so combined ratio for your protection products.

[Interpreted] So okay, let me take your first question first. So NII, I confirm it's going to be flat for the rest of the year compared to last year because during the third quarter, 2% -- the time deposit remunerated at 2%. Our costs will decline in the fourth quarter. That cost will simply be no longer there because by the end of September, all of these time deposits will have expired. On the other side, we have retail lending that is really performing very well, so we are perfectly in line with the objectives we had set for ourselves. Plus there was TLTRO that really helped us offset or partly compensate, say, for this extra cost that was represented by the 2% promo on those time deposits. So I'd like to confirm that our interest income will be in line with last year. Now we are talking about our time deposits and their expiration. It's a bit too early now because the first few came due on July 8, but it was just the first week. We didn't really see much. So we have so far accumulated between 1 week and 10 days in terms of history, in terms of track record for these time deposits, so there isn't much I can extrapolate from this. But I can tap our past experience to provide you with an answer. So normally, when these forms of administered assets expire, after 7 or 8 months, about 70% of all funds would be into managed assets. So I expect more or less the same result. After 8 months, we have seen assets growing because, obviously, there are certain customers who would just take all their monies away because they were here just to enjoy the 2% promotion. Other customers, not only stay with us, but they add other additional capital flows, which more than compensate for those customers that have taken their capital away. So I really expect that about 70% of all capital of these flows, of these monies will remain here. So as far as the performance you asked about, yes, true, we have recuperated a lot. And also, the net flows we recorded from March onward, we have invested that money, and also equities were into equity funds. So our customers were really buying on market dips so -- at a very good price. So I'd like to confirm that currently, yes, we stand at about minus 5%. Then you asked about the combined ratio for our protection products, which is still around 70%.

Thank you, Gian Luca. Next question comes from Domenico Santoro, HSBC.

[Interpreted] So I wanted to understand what was the take-up with respect to the TLTRO. What is the utilization? Whether you've deposited at the ECB or whether you used it some other way, just to understand the interest income contribution. And then as far as management fees are concerned, apparently, you have very strong guidance with respect to the switch from deposits into equity. So I would like to understand how long it will take to bridge the gap in terms of management fees in absolute terms compared to the first. Then the insurance line item has grown in importance. Second quarter was very strong, so I would like to know whether this is just a starting point for you for the coming quarters. Can you give us any guidance with respect to this P&L line item, which is really growing stronger and becoming more and more important, thanks to the initiatives you're taking. And then guidance on banking fees. There has been a change between the first and the second quarter, so I would like to understand the reasons underlying this change. And then the acquisition costs. Can you give us a target for the end of the year with respect to these bonuses and incentives and acquisition costs?

[Interpreted] So first question, TLTRO. The TLTRO was EUR 950 million. We've replaced the funding from the market with the TLTRO. Investments had already been carried out. So since we have not increased our leverage, we have recovered some 50 basis points in terms of coverage, thanks to this changeover -- to this switch. This is what we did.

[Interpreted] As far as management fees are concerned, when shall we reach a starting point?

[Interpreted] Well, we are very close to that. There are just EUR 15 million lacking. Not until -- I don't know whether you have the data, whether in Q3, we're already going to reach the same levels as Q4 last year in terms of recurring fees, but in the meantime, this is what you can see. As far as the insurance business is concerned, our aim is to see it growing quite a lot. In 2018 -- talking about the new business of stand-alone policies, it's the first row of Slide 16. In 2018, we reached EUR 6.7 million total. In 5 years, the target is to multiply it by 10, so reaching EUR 67 million worth of new business on a yearly basis. We went from 6% to 7% to 15% in 2019. We're already at 10%. Right now, we should reach 30, so we are basically doubling the amount this year. So as you see, we are firmly in line. We are certainly in line with the objective we had set for ourselves. So this is the growth we've planned. Then as far as banking service fees are concerned, I believe the second half should be comparable to the first half. Consider that in the first half, we had an important contribution to this line item by trading commissions because, again, we as well reported a hefty increase of this line item compared to last year. Let me be precise. Almost EUR 4 million more in terms of trading income even this is not a core business for us. But in any case, what is going to happen in the second half of the year is still to be seen. Then as to the sales network payout, the acquisition costs we were talking about goes hand-in-hand with what we are going to do in terms of net inflows. The incentives we pay to the sales network are based on managed assets, of course. So of course, it depends on the managed assets performance. Take the single-family banker. In order to be paid this bonus, they have to have a total inflow of EUR 1 million. And then as far as this EUR 1 million inflows is concerned, they are going to receive a bonus on the managed assets. Last year, less than 500 family bankers in 6 months had already reached the EUR 1 million level. Now they are 1,500, so 3x the number compared to last year. Since inflows are still reporting a very positive performance, I am sure that these payouts are going to increase over time. But again, let me repeat, we have not changed anything in the sales network payout. The increase you see is simply due to the fact that we've increased the volumes. So it's a cost increase that we see with great pleasure. As far as recurring fees are concerned, we think that we are going to have the same levels as the third and fourth quarter of 2019 or the first quarter of 2020.

[Interpreted] If I may comment on dividends. Can you give us some color?

[Interpreted] Unfortunately, as you are all aware of, we've heard what the ECB and the Bank of Italy have required. So as far as I know, no bank is going to distribute dividends in 2020, so we'll just fall in line with this request. Well, let me say that since I have a stake in this, we'll do all that is possible to pay hefty dividends, especially in the first part of last -- of next year. What we haven't distributed this year is going to be deposited in a reserve, but they are not going to stay there forever, of course. We can pay an interim dividend on the dividends for this year. And then where we're going to pay, we're going to pay the full amount. I don't think they are going to keep this limit in 2021 as well. So we count on paying in 2021 also what we have not distributed in 2020.

Next question from Elena Perini, Intesa Sanpaolo, please.

[Interpreted] I wanted to ask a clarification about dividend. So if I got you right, are confident you will pay both the balance dividend for 2019 as well as the 2020 dividend during 2021. So the balance -- dividend balance of 2019, would it be paid as an extraordinary dividend, thus, requiring the convening of a shareholders' meeting -- extraordinary shareholders' meeting? Also, I'd like know what kind of performance you reported in terms of net inflows during this month. I'd like to know whether the mix was more or less the same as previous months. I also have a question about your network. On Page 32 and 33, I see there is an increase in the number of your family banker's network. So you are recruiting more people than those who actually leave. But on Page 33, I see a decline in the number of private bankers. Could you please elaborate on these 2 Slides, namely #32 and 33?

[Interpreted] Well, let me take your question about dividend first. So our objective is paying out the dividends we had promised. We were more than willing to pay out dividends right now, but the Bank of Italy and the ECB will tell us what we can do. But our objective is unchanged. And Angelo, maybe you want to add a comment?

[Interpreted] Yes. We have issued press releases saying that in the last quarter, both the Bank of Italy and the ECB will tell us whether we'll be able to distribute dividends in 2021. So as soon as the regulators give us their green light, we will call the shareholders' meeting and we will distribute the extraordinary dividend, ex the 2019 dividend. So this is the path ahead. As far as July, net inflows, very good inflows in July as well. On August 7, we'll publish data. But both the total net inflows, both into managed assets is going well. Lending is going well, and general insurance is going well. Then you asked me questions about the network and a decline in the number of private bankers. That's just a technical factor, if you will. I mean to be a private banker, in the past, you have this -- to meet this requirement. You have to have had at least have at least EUR 15 million of managed assets in your portfolio. So for a banker to be considered by us, a private banker, they have to have at least EUR 15 million in their portfolio. Then we said, effective from January 1, 2020, to be a private banker, you have to have at least EUR 25 million managed assets in your portfolio. So this is really a remarkable jump in quantity. Many bankers that were between EUR 15 million and EUR 25 million managed to overcome this threshold and they still qualify, thus, as private bankers. Others instead just managed to rack up EUR 20 million, EUR 21 million, EUR 22 million, and so they did not meet the requirement, even though they are working hard to meet that requirement and be a private banker again. So the decline you see, it's not because private bankers left us. Just the opposite. It's actually an improvement, an achievement by those who are proud to be in this limited pool of people. If you had retained the old parameter, we would have recorded a further increase. So for the next quarter, we will provide you both data, i.e., the old parameter, based on which you are capable of appreciating, you can see the increase in the number of private bankers. So those who have overcome the EUR 15 million threshold in our private bankers in their own -- entitled to be private bankers and the new threshold of EUR 25 million, okay? And as far as wealth advisers, we have -- still have EUR 60 million. But as you can see, we went for -- from EUR 45 million to EUR 55 million, which you can appreciate in the slide. So the whole network is really moving up, and we have simply raised the bar.

Okay. This is very clear. I can clearly see the trend. So the increase in private bankers -- in the number of family bankers, sorry, is maybe due to the fact that some private bankers are no longer classified as such, and they have increased the ranks of family bankers.

But no, it is not so because they are 2 separate pools. So you can just appreciate that the family bankers are increasing in number, as you can see on Page 32, because we have 56 new bankers and the number exceeds 35 exits plus those that retired. So these are just new recruits that were added to the network, and it's not private bankers that replaced or just fell back into the previous pool.

Next question, Federico Branga, UBS.

[Interpreted] I have 4 questions. First question, Spain inflows. Since December 2019, they reached a high level, EUR 100 million, of which, EUR 70 million -- stable managed assets. I would like to understand how you explain this sudden improvement starting in December. Is this sustainable? And do you think there is room for further improvement of these volumes? Second question, cost/income ratio target in 2021, 48% was the guidance you mentioned some time ago. Do we still have to keep to that level? Is this target confirmed? Or considering the environment and the other growth initiatives that were taken, whether this target can be changed somewhat? Third question, 2021 net interest income. Considering 2021, there are a number of positive elements. For example, retail expenses have gone down. And then there is the TLTRO impact, but once again, government rates are going down. So considering the overall picture, do you think that net interest income could further improve by 2021? And then cost, you talked about Flowe's cost. You talked about EUR 5 million cost. Is this confirmed in terms of costs?

[Interpreted] Talking about Spain, Spain achieved these results because they have been performing and working very well for some time, and they went through a stable constant growth. They are accruing more and more experience, talking about family bankers, managers and supervisors we have in Spain. The model is really getting more and more established is -- therefore, fully sustainable in Spain. Then you asked about the cost/income ratio. When we talked about that cost/income ratio, we had not included Flowe because it was not envisaged yet within that scope. So of course, we will have to adjust it. And not even the EUR 8 billion decline in assets had been foreseen, but they are recovering quite quickly. So they've already topped it up rather quickly. So we believe that we will be able to maintain that. Then NII for 2021, we expect it to be comparable to that of this year to plus 5%. This is the margin we are considering. We expect a plus 5%. Whether it's going to be more or less than 5%, it depends on the push we are willing to give. Whether we are going to be even more successful with the 2% promo, whether we will want to launch another similar promotion next year or not, depending on how willing we are to be forceful or not. Here and then, as many of our peers, we, of course, carry out promotions to win over additional customers. And this is part of the plus 5% we have projected. The promotion we made at the beginning of this year is not included within that scope. But within this 5% we have targeted, there is room for carrying out a similar promotion. But we'll decide whether to do this or not, depending on the market situation. So we'll see how things are faring, and we'll see what to do. But in any case, it's growing. As far as Flowe is concerned, I confirm the cost range we had planned at the beginning of the year when we announced this initiative.

[Interpreted] Our next question from Luigi De Bellis, Equita, please.

[Interpreted] I have 3 questions. First one is the market share-based on Slide 40. Have you recorded an increase in managed assets market share? Are you witnessing difficulties on the part of your competitors due to COVID? Lending book, what is the quality expected in terms of mortgages? What's the quality of collaterals and guarantees? PIR, what is the expected trend for the second half of the year, both for ordinary PIRs as well as alternative PIRS? Specifically, what are you doing as far as alternative PIRs are concerned? Anything new or more that you are doing there?

[Interpreted] Well, as far as the managed assets market share, when we talk about mutual funds, well, that share is definitely increasing. If you talk about managed assets in general, well, I noticed -- everybody noticed that the networks had really a tough time in March. But then, the other months, they started selling again managed asset products. So I really do not know whether now we are gaining market share or not. It's an analysis that we will definitely conduct. If you dig deeper and look at the quality of managed assets, I am 100% sure that there are only a few others that actually reported such a significant net inflows into equity funds as we did. So credit book -- or loan book will actually -- cost of risks, we think will remain unchanged. Cost of risk should be between 19 and 20 basis points. So we do not really expect an increase in the cost of risk. I'd like to go to the -- to show you the slide -- Alessandra, if you could help me with the slide of mortgages and loan-to-value. See if I can find it. I'm sorry. I'm afraid I don't have it -- so oh, here it is. Great. So here, you see that LTV for new mortgages, it's the last line, is 64%. And that is perfectly in year -- in line with 2019 full year. The loan-to-value of the mortgage book is equal to 49%. Let me remind you that we'd never grant mortgages with an LTV in excess of 80%. Speaking of loans, 95% of our loans are secured by the investment customers have with us. So there, too, the risk is really minimal. And as far as the other question about PIRs is concerned, I have to say that as far as the traditional PIR product is concerned, I expect an increase there. We have reported net -- positive net inflows. Limited, still, positive net inflows. So during the year, we expect, say, EUR 200 million of total inflows. Net inflows. There could be -- maybe the target, more or less, EUR 150 million, EUR 200 million because with the COVID situation, gathering inflows has becoming -- has become a lot more complicated for the entire market. As far as alternative PIRs are concerned, the product will be ready in Q4 for us. So inflows for the year will be limited. Also, because normally, there is a limited period during which you sell those products. And it's just 2 or 3 months for this year, and so the impact for the year will be very limited. Plus, these are illiquid products. So I don't personally expect major volumes on this type of products, while I expect an increase in volume for traditional PIRs.

Thank you very much, and best wishes again to President Doris.

There are no other questions on the Italian line. So now we open up for the English channel. [Operator Instructions] Our first question is from Andrew Crean from Autonomous Research.

Two questions, if I can. Firstly, what is the level of accrued performance fees with markets at current levels? And secondly, what is your target for net flows into mutual funds this year, given double chance, intelligent investor and the reinvestment of some of those time deposits? Are you getting more bullish?

[Interpreted] The accrued performance fees today, we just have one fund. It's a tech equity fund, which has a potential in terms of performance fees. And we're talking about some EUR 15 million. Now of course, since we changed our performance fee calculation method, they can be cashed in only at the end of the year, so on December 31. These EUR 15 million, therefore, it all depends on where the fund is going to be at the end of the year. But to date, this is more or less the level of performance fees we are seeing. As far as net inflows to managed assets, the target sees a range between EUR 3.5 billion to EUR 4 billion. This is the range of net inflows into managed assets for 2020.

Our next question is from Hubert Lam from Bank of America.

I just got one question left. On G&A cost growth, you mentioned that you're -- it's going to be about 5% to 6% growth this year. How should we think about 2021? I assume some of the costs will probably slow as you don't have as much investment costs around fully, I assume. Just wondering how should we think about 2021 G&A cost growth.

[Interpreted] Well, for 2021, we expect a slight increase in costs simply because we are acquiring very many customers. We continue investing. Flowe, too, will receive a significant investment. And of course, we have already kicked it off. And getting it started implied a significant increase in the costs because we wanted to start it up. It was a new venture that we were launching. So presumably, we'll go back to a 3% to 4% percent growth in G&A. Anyway, in the second half of the year, we'll be more precise in terms of our 2021 cost target. Anyway, I expect an increase, though lower than the one reported this year.

[Operator Instructions] There are no questions that are coming through for the English line. I will now hand back to the Italian line. [Operator Instructions] There are no further questions also on the Italian line, so let me hand it over to Ms. Lanzone for the closing remarks.

Thank you. Let me ask Massimo Doris and Ennio Doris whether there are any additional remarks. Any closing remarks?

[Interpreted] Nothing I wish to add.

[Interpreted] In the second half, considering the strong market volatility and the drop that was reported by the equity market and then the strong recovery, with this pandemic and the lockdown, and I was talking about the first half of the year, companies and businesses have been put under extreme pressure, so what we saw were 2 things. First of all, a confirmation that when the market drops, we are able to increase our inflows, especially as far as the equity market is concerned. Someone asked before whether we were increasing our market share in funds, and we are increasing our market share. But if we see where the margin is higher, that is on the equity market with the equity funds, let me say that we are almost the only asset manager who increased inflows in the equity component. Very important for future margins, but even -- very important also for our clients and their earnings. The second aspect, again tied to our strategy, is the market share outside of managed assets and funds. I'm talking about loans and insurance. As far as loans are concerned, we accounted for 79%. So the remaining is 21% of our peers. In insurance, we are the only one there. Our peers are at 0, which is telltale of the fact that our sales network is really capable of coping with and facing our clients' problems 360 degrees. And it is also telltale of the fact that loyalty on the part of our clients is really very strong because we are really giving them an all-round service. And this is shown also by research study, a survey, where we were at #1 in terms of customer satisfaction compared to any other competitor, being traditional banks or online banks. And we are the #1 bank to which clients refer their friends. As far as the pandemic is concerned, the sudden lockdown obliged our employees to stay home. And it took us very little to have 86.4% of our employees working remotely with no impact on customer service quality. And almost 100% of the sales network worked from home, worked remotely. And they were able to turn this problem into an advantage, because as Massimo rightly said, they were able to increase their contacts and their meetings with clients, and thus, improved also their inflow performance. I believe that this is the proof and demonstration of the great strength of this company and our resilience. And then we have this new initiative, Flowe. And of course, this is a big question mark. We're at the beginning of this initiative. We are keeping an eye on what is happening around the world. We saw what N26 and Revolut did. Revolut has a market capitalization of EUR 5.5 billion, and they have -- of course, we are still young. We've just entered this sector. We have just 24,000 clients, very small. But if we compare these very small numbers with the numbers of these initiatives in Italy, where we have hype with Banca Sella, if we compare with our Italian peers, we see that our acquisition is much, much quicker. Not only this, even though Flowe is part of this market, still, it has something different. It's distinctive because it's really trying to take up all the very aspects that are key in the minds of the youth, for example, environment. Now of course, it's a new initiative. It's a bet. It's a question mark. We may not expect Flowe to have an impact on Banca Mediolanum's value right now. But as I said, it's a bet. And it will make a great difference in the future, I believe. We'll have to wait and see. Thank you, everybody, for your attention.

[Interpreted] Thank you, Mr. Doris. Thank all of you for participating. The Q3 results are going to be presented on November 10. So let me wish you good holidays, and we'll be back in a few months. Thank you. Thank you, everybody. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]