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

Good day, and thank you for standing by. Welcome to the Banca Mediolanum Full Year 2022 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alessandra Lanzone, Head of Investor Relations.

Good afternoon, ladies and gentlemen, and thank you for joining us at the presentation of our results for the year 2022. Massimo Doris, our CEO, will be hosting the presentation today; and our CFO, Angelo Lietti, will join us during the Q&A. As usual, please make sure that you ask your questions in the language of the language line you're connected to. Either way, the answers will be in Italian with an English translation. So let's get started. Massimo, the floor is yours.

Thank you, Alessandra. And thank you, everyone for tuning in today. I hope you can all agree that Banca Mediolanum pulled off a very strong end to 2022 that was brutal to say the least. In fact, we are here to have a look at what we did and how we did it. I think that the set of numbers for the year expresses a lot about the solidity of our business and are even more striking on the back of the continuously elevated macroeconomic uncertainties. Let me begin with the economic performance that you can follow in Slide #4. Our net profit of EUR 522 million is exclusively generated by our recurring business. And from this perspective, we could say it's our best result ever. In fact, the mine sign in the bottom line is strictly driven by market effects, in particular by the total lack of performance fees and by a swing of our fair value components in the opposite direction. In contrast, our recurring business, underpinned by a reliable solidity, had a great deal of momentum, which rewards the strong work we've done. Our contribution margin keeps getting stronger and stronger, up 16% to over EUR 1.4 billion. A consequence of the well-diversified revenue stream, we put a lot of effort into developing. Whereas, our operating margin really took off, surpassing our 2021 record by 35% at EUR 680 million, thanks to the [indiscernible] NII expansion and despite a lower growth rate than usual in commission income in the wake of market drop. Indeed, our net commission income was up 7% to well over EUR 1 billion, supported by our strong managed asset flows and by an advisory model that drives our customers to invest in equity products on a regular basis. In particular, recurring fees increased 1% and an achievement that should be highlighted given the scenario. In fact, our robust positive net inflows enabled average assets to be at the same level as a year ago. Even though we closed 2022 with a significant gap in managed assets that we still have to make up for. Please note that the recurring fees margin improved year-on-year by 1 basis point, reaching 206 basis points. And this is mostly due to our unparalleled flows into high-margin equity funds as a consequence of our automatic investment services. Also consider that during market drops, there were more money market fund assets related to the intelligent investment strategy service that shifted into equity. And in terms of NII, as you know, our exposure to the banking business provides our net interest income, significant high-quality leverage to interest rates. It comes as no surprise that our net interest income up 51% year-on-year to EUR 407 million, took off in the fourth quarter, which repeated the full benefits of interest rate hikes impacting our EUR 25 billion of banking book at floating rates. Specifically, the 3-month Euribor impacted our EUR 12 billion variable rate mortgages and loans and the 6-month Euribor impacted the EUR 13 billion of floaters we have in our treasury. We feel confident confirming our guidance for NII in 2023 that points to over EUR 700 million, an increase of 75% more or less. This implies an average 3-month Euribor of 2.65% at least, and consider a cost of funding that goes from 15 to 50 basis points accounting for initiatives such as the 4% annual promo offer on 6 months' time deposit we launched in January. The rationale here is to attract new money from existing customers with the requirement that they invest an equal amount in most assets and also to attract new customers with the requirement that they sign up for the automatic deposit of their salary. In a nutshell, we don't want rate hoppers. We want real Banca Mediolanum customers. So now it may be helpful to examine a couple of key ratios. First and foremost, positive operating jaws drove the cost/income ratio down to 48.1%. As it turns out, our cost income ratio target to be consistently below 50% by 2024 has already been met and sets a new standard that we will continue to push towards. The payout ratio to the network was 2 percentage points lower at 37.6% due to lower gross inflows into managed assets than in 2021 and to a materially higher threshold to qualify for the individual net influence incentives that we implemented at the beginning of the year from EUR 1 million to EUR 1.5 million. Let's go on to business results, whose highlights are shown in Slide #5. As you can appreciate, we continue to defy gravity, generating net inflows that are unequivocally resilient against a challenging backdrop with total net inflows that are well over EUR 8 billion. Managed assets are nearly EUR 6 billion, only 11% behind our all-time record in 2021 and an outstanding number of loans granted, which surpassed EUR 4 billion. We never failed to deliver commercial performance more consistently than other banks or networks in Italy. As a matter of fact, as you can see in Slide #41, using a surety criteria demand asset flows of our peers fell significantly in 2022, down 63% compared to a 25% decline for Banca Mediolanum. Our unmatched performance of managed asset flows was able to mitigate the damage of market shocks on our assets to some extent. As you can see Slide #5, total assets recuperated ground in the fourth quarter, ending up at EUR 103.7 billion. However, with a decline of 4% since the beginning of the year. To the contrary, thanks to our record loans granted, our credit book grew 14% to over EUR 16.4 billion. The quality of our loan portfolio remains extremely high with a net NPE ratio of 0.68% and a 12-month rolling cost of risk of only 13 basis points. And lastly, we managed to sustain double-digit growth in our general insurance premiums, which totaled EUR 184 million. Now let's talk about the balance sheet ratios in Slide #6. Our CET1 ratio at 20.6% remains strong and more than adequate with respect to the requirements. And this is despite a very general distribution of dividends, totaling EUR 369 million for 2022, corresponding to EUR 0.50 per share, which includes the $0.24 interim dividend paid in November. Finally, on Slide 7, I would like to give you an update on our main growth and resilience drivers. At the top of the list, bank customers totaled 1,686,200, up 6%, a relatable increase given the times, with a particularly high retention rate of 96%. In fact, our ongoing market efforts focused on customer acquisitions delivered over 169,000 new customers, thanks as well to the success of the selfie account with some 20,000 new customers. And now let's switch over to the network numbers. The growth momentum has slowed down. In fact, the number of family bankers at the group level has reached a total of 6,054 at the end of the year, an increase in the headcount of 5%. A significant contribution came from our new banker consultants of the project next who totaled 74 at the end of 2022, and we expect to reach 200 by year-end. All in all, we envision a total of around 6,500 family bankers by the end of 2023. Finally, I'd like to spend a minute on our automatic investment services. At the end of the year, there were slightly over EUR 3 billion, parked in the money market funds of the Intelligent Investment Strategy service, 44% lower than a year ago. As we've already touched on, the market drops produced a rapid emptying of the money market fund assets that went to fuel the destination equity funds faster than planned. Added to this, there are EUR 1.28 billion in the deposit accounts of double chance. And so between the 2, there are EUR 4.3 billion ready to be transferred to equity funds on a monthly basis over the next few years. On top of that, flows into installment plans reached a total of an additional EUR 1.62 billion annualized. All right. Now I'd like to do a quick review about what's happening in Spain in Slide #37. Our business in Spain is building up some really strong dynamics and is now getting close to a double-digit contribution to the group's bottom line. In fact, net income came in at EUR 45.5 million, firmly in line with the previous year, but with a P&L that looks completely different. In fact, just as in Italy, in 2021, the P&L benefited from a high level of performance fees that we're totally lacking in 2022. However, the comparison of the recurring business level is impressive. The contribution margin and the operating margin grew by 34% and 49%, respectively. Total assets were down slightly at EUR 8.87 billion with net inflows into managed assets remaining strongly positive at EUR 690 million. In addition to that, we have made impressive progress in other areas since the start of the year. The credit book rose 14% to EUR 1.2 billion. The number of customers approached 209,000, up 12%. And Family Bankers jumped 8% to 1,620 today, representing 20% of total number of financial advisers in Spain. So let's move over to the New Year, and delve into how our business results turned out in January. This tends to be a seasonally weak month, yet this time around, we've really outdone ourselves with the January that was in line with the monthly average of a very strong 2022. As you can see Slide #39, net inflows registered strong volumes for a total of EUR 685 million, up 21% year-on-year with outstanding inflows into managed assets reaching EUR 485 million, 18% higher than January last year. We are still able to boost 100% equity component in our net flows, so you can clearly imagine the impact of these high-quality numbers on the average margin. And as far as the other components of our diversified businesses are concerned, general insurance premium totaled over EUR 12 million in January, 14% higher than the same month last year, while total loans granted registered EUR 232 million, in line with last year. The recent rally across equity and fixed income markets gives us a bit of a tailwind, not only supporting our strong inflows, but also improving general overall sentiment for higher-margin products. The general expectation are that global growth will deteriorate for some of 2023 and that markets will then increasingly focus on the recovery that lies beyond. Having said that, as far as 2023 is concerned, even factoring in a macro slowdown, we feel confident that our total and managed asset net inflows will beat what we achieved in 2022. However, the environment will present a greater challenge for the lending business, especially for mortgages, where we expect to grant lower volumes in line with the expectation of the real estate market. And now since apparently, Alessandra and the team received questions from just about every analyst asking for our view regarding the ban on inducements. I'd like to address this topic of the day directly and quickly. Well, it is hard to make any meaningful comments on a possible regulatory change that hasn't even been discussed yet at the level of the European Commission. But my personal opinion is that all remuneration model should be allowed as long as they are -- there is transparency and value-added service to the customer, which is what matters the most to me. There is nothing certain at this point and nothing is going to happen anytime soon. However, although the general opinion seems to be that it will be difficult to totally block inducements and I tend to agree with this, we will not be caught unprepared. Banca Mediolanum has a clear competitive advantage linked to its business model, which vertically integrates the product companies and the distribution companies and which guarantees us a lot of flexibility. I can assure you that we are already thinking about how to manage any form of a ban, if it were to come about. So there will be no negative impact on the bank's P&L nor on the quality of service provided to our customers. We have a good track record of successfully navigating any regulatory change we've been confronted with, creating solutions to offset something at first sight threatened to be disruptive. Let me give you a few examples that may sound familiar. The ESMA guidelines on calculation methodology of performance fees and the consequent repricing of the fund fee structure in 2019, which improved the stability of our P&L. MiFID II and the introduction of cost representation in 2018, which had no impact on customer acquisition nor on customer satisfaction. In fact, we produced record after record ever since. Three, the change in index linking requirements that effectively took them off the table in 2015 with a switch towards other products that are equally profitable, such as the certificates. The pension plan reform requiring a totally different rebate scheme for our family bankers in 2007, which didn't affect our inflows or P&L at all. I have zero doubt that we would be able to effectively manage what happens with inducements regardless. Here is the message I want to get across to you guys. Regulations have always and will always change and evolve. And we will always be compliant giving excellent service to our customers and a fair return to us. Our business will continue on just like the business of those who know how to do their job. And for the record, our business will continue on exceptionally. So I think we are ready now for the Q&A session.

[Operator Instructions] First question from Giovanni Razzoli, Deutsche Bank.

[Interpreted] Good afternoon, and thank you for the presentation and clarifications you provided. A question about NII. You provided a guidance for 2023, over EUR 700 million with a Euribor at 265%. I'd like to know what kind of sensitivity or target should you rather move higher towards 3% in line with the hike in the policy rate? And what kind of hypothesis or assumptions you are making in terms of deposits. So everyone is asking questions about it. So I'm asking you to. And also, I'd like to know how far your funds or the biggest funds are from the high -- from high watermarks. Should markets continue perform this way. Should we continue to assume 0 performance fees for 2023? Or how far are we from a 0 performance fee assumption for 2023.

[Interpreted] As far as NII is concerned, with an average Euribor at 2.65%, we expected NII at EUR 700 million. Since Euribor is at 2.65% right now. It is rather logical to assume we'll exceed BRL 700 million NII because most likely Euribor as a rate would be higher than the EUR 265 million basis points that we had calculated. The sensitivity to the rate curve is this. Every 100 basis point of a hike, we would make EUR 130 million more in terms of additional NII. Of course, things would happen gradually. So we would not have EUR 130 million impact in one go, but this is the kind of calculation. As far as the impact on deposits for 2023, we have already included in those EUR 700 million, an increase in retail cost of fundings from 15 to 50 basis points. What we're doing right now by offering a promo rate of 4% for a 6-month type deposit has already been calculated and included in that amount. That initiative, together with other initiatives that we will launch during the year and we have also included an increase in the deposit rates will pay out during the year to our most significant clients. So we have already taken a prudential view and taken into account increases on the side of the deposit rates. Plus the promo offering isn't just a 4% given deposit rate given for 6 months. This 4% promo rate is granted to a new customer who is asked to open a bank account with us, and we must be their first bank, which means they have to credit their deposit their wages on a monthly basis on Banca Mediolanum's account or we'll have to have an equal and corresponding amount in managed assets. Once their wages are paid into the account on a monthly basis, they will be given the 4% promo rate because, as I said in the presentation, we don't want rate helpers. We don't want somebody who would just chase the high rate enjoy it for 6 months and then take the money and go and open up an account somewhere else. So once you have your wages deposited with a bank, you become a tight client, so to speak.

[Interpreted] And also, how do we build the loyalty with customers for existing customers?

[Interpreted] They may have, for instance, an account with other banks, they may move assets out of those banks, other banks account and move them to Banca Mediolanum. And in that case, they will be given a better promo rate.

[Interpreted] How can an existing customer enjoy a 4% rate?

[Interpreted] Well, they may, if they already have all their money deposited with Banca Mediolanum, they may increase the assets they have in Banca Mediolanum's managed assets account. So as you can see, every Banca Mediolanum's customer can enjoy this 4% promo rate, but they have to prove they are loyal customers, and they bring to us more and more assets over time if they are existing customers or they just open up a new bank account with us depositing either wages or assets under management. As far as performance fees and funds that you mentioned, considering equity, multi-asset and bond funds. We have already reported a minus 16, including also other rates. So we are 16 -- we are below the high water marks by '16. Equities are at minus 12%, and so they could -- they should report plus 5%. They should overcome a hurdle rate of 5% to be able to get to 17. Thank you, Giovanni. Let's take now the next question.

[Operator Instructions] Next question Elena Perini Intesa Sanpaolo.

[Interpreted] I have a couple of questions. The first regards your deposit guidance, EUR 6 billion -- I'm sorry, funding inflow guidance, EUR 6 billion in terms of assets under management. And then with respect to management fees, can you give us your view? You were very -- you performed very well from this point of view in 2022. So I would like to know what your projections are. With respect to net interest income, I did not understand whether the guidance for 2023 is BRL 700 million or whether this could grow even further, considering that with respect to volumes, you are sort of conservative.

[Interpreted] With respect to inflows, I believe that this year, we could add EUR 1 billion more to 2022, both in terms of total and asset under managed assets. Of course, this is not a simple achievement, but we were able to achieve those results, EUR 8.3 billion and EUR 6 billion against the backdrop during which we had a Ukraine war, inflation sort, energy costs went up, so a really challenging environment. As to 2023, the outlook is that the economy is going to report a strong slowdown. But then interest rate hikes should peak during the first half of the year. And in any case, the market has already priced it in. So in theory, we should be confronted with a more stable situation. But then we have to see how things are going to evolve with the war and what is going to happen in practice. However, I believe that we can actually perform much better than 2022, a year in which we had already reported extraordinary results. But again, as you saw, our network is growing, it's widening and therefore, I believe that we should have a similar increase in inflows. With respect to management fees, I said we went up 1 basis point to 206 basis points. There has been a forced outflow from IAS to the money market fund to the from the money market to equity funds. So you see that since we go -- the 250 result is a 10x greater. So the system works if the drop in the fund, I'm investing is greater than 5% between minus 5% and minus 10%, then the investment is going to double. If it's between minus 10% and minus 15%, it's going to be threefold. And there has been a very accelerated outflow. And therefore, the assets in the equity fund really reported a very strong decline. The average recurring fee for the last quarter was 211 basis points and 206 is the average for the year. Having said so, what do I expect for 2023? Well, I expect it to go up a little bit more considering how successful IAS is going to be because if our inflows are going to be very strong on IIS, then this average is going to probably dip a little bit. But I expect that for 2023, it might go up by 1 or 2 points. As to net interest income I said we expected EUR 700 million with another 3-month Euribor for the year of 265 basis points. Since as I said, Euribor is already at that level, and a 72% increase was expected compared to the net interest income for 2022, which was at EUR 400 million, we can actually go from a 72% increase to an 80% increase for the 2023 net interest income. If Euribor is going to go this way, then this is one thing. But of course, we have to see what is going to actually happen with the Euribor. Of course, the increase in the Euribor in 2023 is certainly going to be extremely important. Then whether it's going to be 78%, 80% or 82%, well, it's very difficult to predict it today. But in any case, it's going to be extremely impactful. The EUR 700 million projection for NII is extremely conservative. Should any change be reported it's certainly going to be an increase on upward increase rather than a downward increase.

Next question, Luigi De Bellis, Equita has the next question.

[Interpreted] 2 quick questions. First one is about the dividend. You expect a significant organic generation of capital in 2023. Could you please provide an update in terms of dividend distribution and what kind of dividend level can we expect? Also, the banking book. Could you please update us on your strategies and on the use of Italian government bonds.

[Interpreted] Well, EUR 0.50 per share, which we proposed to the shareholders' meeting account for the new base dividend. Based on 2021 account, our base dividend was expected to be EUR 0.46 then, EUR 400 million -- additional million were generated by market effect, and we granted a sort of a special dividend. And considering that in 2022, we wanted to go from 46% to 48%, but considering how things are faring, considering that nobody is expecting rates cut next month, just the opposite. So NII is growing significantly, about 80%. Considering that inflows are still massive. We really are confident we can take the base dividend from to EUR 0.46to EUR 0.50, which means that in 2023, we expect base dividend in excess of EUR 0.50. As far as the other question about the banking book is concerned, we continue -- we are still very conservative. So we stick to a short duration. And we upon the ECB request are diversifying investments, and we are now buying Spanish government bonds. And over the year -- during the course of the year, we'll buy also French government bonds. Once certain fixed rate Italian bonds mature, and those will be replaced by government bonds from other European governments. As far as floaters are concerned, we only have Italian CCTs and will continue reinvesting in CCTs once they mature. Thank you, Luigi De. Are there other questions?

Next question, Filippo Prini.

[Interpreted] I have 2 questions for you. The first regards managed assets. In the previous call, you talked about the possible decline in margin in the coming years due to the fact that possibly customers were going to shift from equities to bonds. However, based on what you said today, as far as I could understand, you don't think that this margin is going to be eroded by this occurrence. Then you talked about EUR 1 billion and one more additional billion that should have a significant contribution. Is this coming from Spain.

[Interpreted] You're talking about management fees. So as a long-term trend, the -- I don't -- I expect average basis points to sort of crawl downwards due to the fact that clients started to invest already as of July last year. Net inflows in fixed income funds started to be positive once again. Then if among fixed income fund, we take into consideration the money market fund that is tied to IIS, since that is strongly negative, then the result was that it seemed that net inflows were 100% equities. But if we take into consideration the IAS effect then bond funds have been positive for the last 7 months. This, of course, erodes a little bit the profitability of the entire portfolio. But since this transfer towards the equity fund is higher there has been an increase in basis points. So for 2023, we expect to see an increase in total basis points and then we are going to see, once again, a slight decline unless markets collapse unless the stock market plummets, which I am not envisaging or expecting, and this, of course, would have an impact. But again, 2023, we should have an increase and then it should go down again. Talking about Spain, we had total net inflows of EUR 1 billion in 2022. And as to 2023, I expect Spain to do -- to repeat what they were able to do in 2021, EUR 1,259 billion, of which EUR 1 billion in managed assets. I expect it to go back to this performance. Now of course, out of the EUR 1 billion, the growth that is expected for this EUR 1 billion comes EUR 800 million (sic) [ 80 million] from Italy and EUR 20 million from Spain. So the ratio for the EUR 1 billion would be 80 to 20. Thank you, Filippo. Are there any other questions?

Yes. Next question, Alberto Villa, Intermonte.

[Interpreted] 3 questions. Maybe you have already answered, but I'd like to know whether you have a guidance to share as to your costs and tax rate? Second question, sales network has been growing well in 2022. Do we expect the same dynamic for both Italy and Spain in 2023? Any program, any new initiatives you're going to launch or will you just continue with this next project, which apparently is actually paying off is giving good results. Third question, we have a very favorable background in terms of rate hikes and interest rates, et cetera. But maybe clients may decide to invest less in managed assets, maybe more directly in bonds, and that may kind of dry, may kind of siphon money out of deposits that are generating good results.

[Interpreted] Well, as far as costs are concerned, we think we'll keep growing more or less in line with this year trend, let's say, 9% to 10%. But please bear in mind that our cost income, which I'd like to draw your attention to more than compared to a cost general trend of cost increase. Tax rate, 20%, 20.5% in 2022. NII is growing so we generate a lot of interest margin in Italy and a bit in Spain. And of course, interest margin is taxed in Italy, while say, performance fees are taxed in Ireland. So the tax rate in 2023 is destined to go up. As to the sales network, it's expanding. We expect to keep expanding at the fast clip we have displayed this year, both in Italy and in Spain. This expansion is accompanied by an increase by an extension of the next project. We are, in fact, recruiting more and more juniors. These are bankers consultants. We have -- we expect to have 200 by the end of 2023. So others are joining the ranks of the current bankers consultants. So in total, we expect to have about 200 of them by the end of the year. So both the network and the younger next network are growing. As far as rates are concerned we expect to grow the inflows into BTPs as written at a pace of EUR 150 million to EUR 200 million per month. So in spite of this, we see the net managed, net inflows into managed assets has been extremely robust. And we believe that the significant interest paid out by BTPs is propping up actually our managed products. If we use the whole thing, if we leverage the whole thing in a smart way, what do I mean? I could go to a customer and say, "Listen, BTPs are paying 4%, 4% interest right now. I think it's attractive, what do you think? And I think the client would concur. So it's true that it pays half the inflation, the current inflation rate, but 4% will be paid out by BTPs over a 10-year period. Inflation rate, which currently stands at 8%, people are working to tame it to bring it down. So year after year, inflation will go down. So after a while, you'll have a positive return generated by BTPs. This said, there are stocks. There are equities that can pay off a lot more than BTPs. They can generate a much more attractive returns, but they do entail higher risks. And it takes professional skills to be able to select and pick the right stocks. We don't want to do it ourselves. There are professionals. There are fund managers who are appointed precisely to do that job to be our trusted stock pickers. So this is another attractive investment for clients for the medium term. They may also invest in dividend stocks that way. They will also cash in their dividends periodically, and they may also cash in bond coupons, thus protecting them from inflation. So I really don't think that BTPs that are paying out an attractive interest are a challenge or a problem or a diversion. I think that our family bankers who are excellent professional they know how to take advantage, how to leverage the good return, the good yield generated by BTP, so as to increase the inflow into our managed assets because BTPs can be propped up and accompanied by inflows into managed assets inflows.

[Interpreted] But let me ask you one more question about the cost of funding. You mentioned it's going to be about 50 basis points. Should you either keep climbing. Do you think that the cost finding would increase proportionately or in keeping with this increase in 50 basis points? Should you rather go up to 3.5% or 4%?

[Interpreted] I can say that the cost of funding will easily exceed 50 basis points.

[Interpreted] But what's the point here?

[Interpreted] The cost of funding will always increase in a less than proportional way compared to income from loans. So the higher the Euribor the bigger the margin for us. Every 10 points more in Euribor do not correspond to 10 points increase in our margin because there is also the cost of funding to be taken into account. It's now proportional and the cost of retail funding is inelastic. But when the delta when the difference is too much, you have to create some kind of step by step or step-wise change. But I think that the increment will be less than proportional compared to the income generated by loans. So Euribor at 3.5%, we will not have 50 basis points, but not even 150 basis points in terms of cost of funding. So going from 2.5 to 3.5 would not translate into a proportionally increased cost of funding. The increase will be less than proportional and that would prop up our net interest income.

Next question, Marco Nicolai, Jefferies.

[Interpreted] Good evening. Thank you so much for your presentation. I still have one question. You've reported good results with respect to banking and insurance fees and commissions this year. I would like to understand whether there are specific reasons underlying these good results and what might we expect for the future.

[Interpreted] As to banking -- insurance commissions, I'm sorry, are really tied to technical and mathematical reserves using the discount rate for these reserves. This had a positive impact on reserves. This is a tech and one-off extraordinary technical effect due to the rates. I don't know whether you want to add something. We see growth compared to the 2022 quarter average, but it's not that significant because in Q4, we had this one-off effect and it had an impact on this quarter.

[Interpreted] You talked about insurance fees, but you talked also about banking fees. Talk about certificates.

[Interpreted] This was due to the disposal or the sale of certificates that in the last quarter, increased quite a lot. And of course, this led to an increase in banking service fees. Thank you, Marco. Any other questions not from the Italian channel. Now let's go to the English channel.

We will now take the next question, it comes from the line of Hubert Lam from Bank of America.

I've got a couple of questions. Firstly, on the dividend, I just wanted to clarify. So you raised the dividend to $0.50 this year. But if you deliver on your NII increase and the flows, can we expect another $0.04 increase next year or how do we -- should I think about dividend growth going forward? That's the first question. The second question is on the EU ban on inducements. I know you said you can deal with any scenario. But if it does go through, how will it impact your business model? How will it impact the way you have to compensate your advisers, also possibly the product you sell entrees. Just wondering what you're thinking around that is.

[Interpreted] So next year's dividends it's a bit too early to say right now whether we are going to submit EUR 0.54 per share or EUR 0.53 per share to the shareholders at the shareholder meeting. For sure, there is going to be a significant increase in the dividends paid out if things are going to follow the direction we project. Our CFO is rightly saying that this is also going to depend on the capital absorption, there are all the climate change impact and so on and so forth. So we are talking about provisions, whether we have to set aside more provisions if there are no changes, we believe that EUR 0.54 is possible, is feasible. It's not a very difficult objective, not necessarily out of reach. But of course, we have to take into consideration capital absorption. Then the inducement ban. We're already working so as to assume all the possible changes we might have to introduce should an inducement ban be introduced. We already have some ideas, but should the inducement ban come true, this is not going to be triggered next month or on January 2024, I think. Having said so, already 50% of our managed assets are already, so to speak, compliant with the envisaged methodology. In fact, most unit-linked funds and managed accounts have a management fee, which is fixed irrespective of the underlying assets. All rebates have been given back to the client irrespective of the kind of fund. There is a fixed fee for my life, it's 175 basis points. So the distributor, which is the bank, the family banker who is the customer's adviser irrespective of the funds which are going to be put in the clients' portfolio. He's going to the family banker is going to receive a percentage of these -- out of these 175 basis points. So there is no conflict of interest whatsoever. Now of course, since the bank is going to be rebated part of the 175 basis points of the insurance company it will be just a matter of bringing the monitoring and safeguard commission from the insurance company by 75 basis points out of the 100%. And those million would be advisory fees. The client -- for the client, nothing would change. It would still be 175 basis points. And at group level, it won't change anything because putting the 2 things together, the revenues will be -- would be the same. Most of our assets pending just a few changes and tweaks will be compliant and adjust. And we can follow the same approach with all our products. When people say that the small customers are not served and therefore, they leave it really depends on the remuneration system used in that given country. What I'm referring to is that in the United Kingdom, the most financial advisers are independent financial advisers. In many countries, their remuneration rather since they are independent financial advisers, they are going to pick one product rather than the other whereas in our type of approach with a vertical model, this is rarely so. If then you have products like MyLife, which really have the lion's share and there is no conflict of interest, it is much, much simpler to adopt this type of approach. So on the one side, we have independent financial advisers and then we have to see whether there is a larger majority of upfront fees, which is not our case. Today, for a client who has EUR 50,000 in managed assets on average he would get EUR 200 per year. He should get rid of them today already, but he doesn't do that because in addition to this, we have installment plans. An installment plan has significant rebates when you sell it. And the problem might be there, but it's still easily to overcome because we might just have a fee from the distributor, where there is no rebate, there would be a fixed or a stepwise or a staggered fee so that the service would be recognized to the network when the service is provided and then there is the just ordinary management fee. I believe that if we make a greater use of wrappers, we can still develop our business. We can maintain our margins, and we can provide an excellent service to our clients. This is why I'm not overly worried. But what really -- what I really don't like is that I don't like bands, especially when there is no true reason for these bands. The fact that a system where there are no rebates may lead to less conflict of interest is, of course, true. However, I believe that the most important value is transparency and market freedom whereby I can say to my client my approach is based on rebates. My remuneration model is this, and this is what you're going to pay, which is already what happens with MiFID II because every year, the client receives and seize transparently, all the fees and commissions that they're paying. So having entities on the market saying this is the model I've adopted, and these are the costs I have and another entity saying, no, I'm using this other approach, this other model, and these are the costs. And it's up to the client in full freedom to decide which they prefer. The other thing I don't like is that you advertise only the advantages of a given model and not the disadvantages. And then on the other side, you just talked about the cons of the other product and not the Pros. [indiscernible] were saying that where there is a ban on rebates or on inducements product cost 35% less compared to where inducements or rebates are provided. However, they do not say that, that is not the total cost paid by the client that is the product cost. But you have to add the advisory cost. In the rebate system, it's already priced in. It's already included in the product. So you're not really comparing things fairly and honestly, sure, 35% lower in terms of cost, but then if you add the advisory cost, then you see that more or less, you get up to the same level or so of the rebate approach. So there are no significant differences in terms of cost between the 2 approaches. So we'll have to wait and see what is going to happen. And again, should we have a full ban on inducements we'll just make do, we'll comply, but I am convinced that when you offer the best services to your clients you'll keep on growing, and you'll keep on generating good margins. Suffice to take a look at the history of this company, this is what has always happened. And then, of course, if the client target changes, which is actually happening over time because our average client is growing quite a lot. Of course, we have a percentage decline in margins because the client who brings a EUR 5 million to EUR 10 million is going to pay percentagewise a little bit less than the client with EUR 100 million or EUR 200 million. In absolute terms, of course, the revenues they're going to obtain are much higher. This is the main difference. So you may see a slight decline because the average assets that the client gives for management are going to change. Are there any other questions.

Ladies and gentlemen, there are no further questions on the English line. I will now hand back over to the Italian call.

We have another question coming from the Italian line, specifically from Adele Palama, UBS.

[Interpreted] Just a clarification, please. In terms of banking fees, could you provide a guidance for 2023 for the banking service fee, please?

[Interpreted] It's difficult to provide a guidance for 2023 because those fees are heavily influenced by the sales of certificates. Certificates tend to display a rather volatile performance in terms of sales because it depends on the combination of interest rates and volatility. And these 2 elements combined generate a certificate that can be extremely attractive or not attractive. So it really depends on how these 2 variables work together. We already know how -- where rates stand where interest rates stand, but we do not know about volatility. So if we -- if the 2 variables combined result in good certificates, in attractive certificates, we would sell more if the rate is less attractive, I will sell fewer certificates, but that will not have an impact because I will sell fewer certificates, but I sell more of other products like more unit-linked products. So probably the banking service fee as a line will not grow a lot, but for instance, asset management fees will or investment management fees in general will grow significantly. And then we also have to consider the line item concerning the cost of maintaining current accounts, banking account over time. Every time we acquire a new customer, that line item goes up. And I have to say that certificates contribute to significant volatility to that line item. So it is really difficult to give you guidance. I think it will not be much different from this year. But due to this condition to this factor, it is difficult to make a forecast.

If I'm not wrong, there are no other questions. Would you like to share some closing remarks. Massimo?

[Interpreted] Well, I just want to say this. I am really happy with 2022, 2022 really was a good year, and I'm even happier with the start to 2023, considering how we fared in January. Well, thank you again. We'll meet again for the first quarter results in -- on May 10, 2023. Thank you so much, ladies and gentlemen, for taking part in this call, you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]