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

Good day and thank you for standing by. Welcome to Banca Mediolanum H1 2026 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 Alessandra Lanzone, Head of Investor Relations. Please go ahead, madam.

Hello, everyone, and welcome to our first half '26 results conference call. It is a pleasure to have you with us today. Before we begin, I'd like to remind you that during the Q&A session, you're welcome to ask your questions in the language of the line you are calling from. We'll answer in Italian as usual, but with simultaneous English translation. With that, I'll turn the call over to our CEO, Massimo Doris, joined with our CFO, Angelo Lietti. Thank you.

Thank you, Alessandra. Good afternoon, everyone, and thank you for joining us. The first half of the year reminded us that the world will always find new reasons to create uncertainty. The year began with shifting expectations around interest rates. During the second quarter, renewed geopolitical tensions, higher energy prices and periods of market volatility added another layer of complexity. While the headlines changed, one thing did not, the importance of helping our customers, stay focused on their long-term financial goals. Indeed, our customers didn't stop investing, didn't freeze and didn't retreat. They continued to invest with confidence, relying on the professional guidance of our Family Bankers rather than reacting to short-term market movements in either direction. For us, periods like this reinforce the value of advice. Our customers don't expect us to remove uncertainty. They do expect us to help them navigate it. This philosophy has shaped Mediolanum for more than 40 years. Different market environments naturally favor different parts of our business. And this is precisely the strength of our integrated and diversified business model. The way we are built gives us the freedom to respond to changing conditions without changing our direction, while continuing to invest in our customers, our network and the long-term development of our bank. As a result, the conversation around Banca Mediolanum is evolving. It is no longer simply about the sustainability of earnings in a changing interest rate environment. Increasingly, it is about the quality of our growth, the breadth of our business and our ability to continue creating long-term value. I'm pleased to say that the first half of the year provides further evidence of that progress. I'll begin with the economic and financial highlights in Slide 4. The clearest takeaway from the first half is that our business continues to broaden with strong contributions across the various businesses. Let me show you what I mean as we turn to Slide 4, starting off with the bottom line. Net income in the first half came in at EUR 555.5 million, up 16% year-on-year. The strength of our core revenues was particularly evident. Contribution margin reached EUR 1.16 billion, up 14%; and operating margin, one of the concrete signals of the quality of our earnings, came in at EUR 683 million, advancing 20% versus the prior year. Results were supported by net commission income growth, up 10% to nearly EUR 706 million, helped by solid recurring fees with management fees and investment management fees together up 12%, as you can see detailed in Slide 8. Net commission income growth was further supported by banking service fees, which also had a meaningful impact, rising 29%. Net interest income was once again a very strong contributor despite a markedly different rate environment versus H1 last year, coming in at EUR 478.5 million, up 30%. The improvement reflected a combination of structural factors and more favorable repricing dynamics. We entered the year with a stronger funding base as the growing contribution of customer deposits provided a broader, more stable and cost-efficient source of funding. At the same time, higher interest rates at the beginning of the year supported performance from the second quarter onwards, while active balance sheet management including -- included the front-loading of part of the government bond portfolio in Q1. The year-on-year comparison in funding costs was particularly -- was also particularly favorable at both treasury and retail level. In H1 2025, the retail cost of funding reflected 2 large promotional campaigns in time deposits priced at 5% and 4% compared with 2 campaigns at 3%, impacting H1 this year, which resulted in a materially lower funding cost. Finally, the growth in the credit book achieved in the previous periods provided additional support. Now looking below the operating margin, non-recurring items came to EUR 76 million. In particular, performance fees crystallized to date amounted to EUR 74 million compared with the EUR 49 million in the same period last year. Now let me say a few words about ratios. The cost/income ratio dropped to 36.1% from 37.6% of the full year 2025. Maintaining cost discipline has gone hand-in-hand with continued investment in the areas that support our future growth, including technology, our commercial network and the customer experience. The ratio of acquisition cost to gross commissions inched up from 34.8% to 35.8%, reflecting a timing mismatch between the recognition of contest-related costs and the associated revenues. Before we wrap up, let me touch briefly on credit. The 12-month rolling cost of risk remained contained at 19 basis points at the end of June, consistent with our expectation. Slide 8 covers the remaining income statement lines, and I'd like to highlight a few key points. Banking service fees reached nearly EUR 158 million, up 29% year-on-year. This fees received an additional boost of EUR 78 million from certificate sales, which were particularly strong also in the second quarter, rising sharply in the first 6 months from EUR 700 million to EUR 1.2 billion, an increase of more than 70%. In fact, favorable market conditions led to the early redemption of a number of auto-callable products, allowing customers to lock in attractive coupons, and in many cases reinvest the proceeds in newly issued certificates. Impairment on loans were higher in the period, going from EUR 14 million to over EUR 20 million. The year-on-year comparison is also influenced by the exceptionally low level recorded in Q1 2025, following the introduction of a new expected credit loss model for retail exposures. Apart from that, the level of provisioning remains consistent with recent periods. Turning to Slide 5. Let me walk you through the business results for the half year. Commercial performance continued at a strong pace with total net inflows at EUR 6.37 billion, up 4%. The quality of those inflows was particularly resilient with net inflows into managed assets at EUR 4.2 billion, only mid-single digit below last year's record level, which we see as a very strong outcome, picking up pace in the second quarter. And with July's excellent results, we expect to further narrow the gap versus last year. Total assets at the end of June amounted to EUR 168.23 billion, up 8% since the start of the year and up 16% versus H1 last year. Loans granted increased 12% year-on-year to nearly EUR 2.1 billion, supporting further growth in the credit book. In fact, the credit book at the half year point were 4% higher than at the beginning of the year, coming in at EUR 19.69 billion, up 9% year-on-year. General insurance also did well in the first 6 months, with gross premiums up 13% at EUR 129 million. You know, we see general insurance as a core component of our customer proposition, helping safeguard both customers' wealth and their financial security. New business of stand-alone policies continued to lead growth, up 17%. Slide 6 highlights another excellent performance in the first 6 months for our growth drivers. We acquired almost 110,000 new customers, bringing our total customer base to nearly 2.1 million, an increase of 3% since year-end. Our Family Banker network at the group level grew even faster, increasing by 5%. More importantly, the number of top-tier bankers, those managing portfolios of more than EUR 50 million, rose by 19% over the period, reaching a total of 826. Their assets expanded by 20%, bringing the average portfolio of these top-tier bankers to EUR 81 million at the end of June. On top of this, our automatic investment services remain an important structural growth driver, generating a steadily increasing stream of recurring inflows. Our intelligent investment strategy continues to gain momentum. We now have almost EUR 6 billion invested in money market funds, which are expected to transition gradually into equities over an average period of around 3.5 years. And this number grew 18% from the beginning of the year. Additionally, we have more than EUR 4 billion of liquidity contractually committed to move into mutual funds over the next 12 months, as shown in the last 2 lines of Slide 6. This includes more than EUR 1.26 billion in Double Chance deposits, 50% higher than at the start of the year and over EUR 2.82 billion from installment plans. Yearly flows into installment plans have grown significantly since the beginning of the year, rising 13%, supported by the strong commercial focus we have placed on encouraging customers to factor longevity into their retirement planning. A key driver has been the increasing use of TFR, the Italian employee end-of-service allowance, as a regular contribution to pension plans. This helps customers build retirement savings in a more efficient way. Turning to Slide 7. Our balance sheet metrics continue to confirm the strength of the Group's financial position. Our CET1 ratio remained very strong at 22.7% without including first half net income in regulatory capital. The MREL TREA ratio increased compared with year-end, reflecting the replacement of the EUR 300 million senior preferred bond outstanding at the end of 2025 with a new EUR 500 million issuance in January. This leaves us comfortably above the 22% requirement. The leverage ratio is likely from 9.5% at year-end to 8.6%, mainly due to the temporary expansion of the banking book following the front-loading of government bond investments during the first quarter. Let's move to our network in Italy, which stands at 5,473 Family Bankers at the end of June. Recruitment gained significant momentum in the first half with 394 professionals joining Banca Mediolanum, 69% more than in the same period last year. The new entrants included 208 experienced professionals and 186 banker consultants recruited through our NEXT program. Among the senior hires, almost 1 in 2 came from the banking or insurance industry, bringing experience as private bankers, relationship managers or branch managers. This is an important endorsement of our model. Professionals who have already built successful careers elsewhere increasingly see Banca Mediolanum as the right environment in which to develop their businesses and establish deeper, longer-lasting relationships with customers. The reason lies in the way our organization is designed. Family Bankers are not just simply a distribution channel. They are at the heart of our customer proposition. Our training, technology, product offering and operating structure are all built to support their work and strengthen their relationship they have with customers. In parallel, our Banker Consultants program remains one of the most strategic investments in the future of our network, creating a strong pipeline of new talent. High-caliber graduates receive structured training at our corporate university, together with hands-on experience alongside senior bankers, allowing them to develop well-rounded skills faster. But the impact goes beyond training. The program supports productivity, organic growth and generational renewal, both among our advisers and our customers. It also creates a valuable exchange of skills between generations. Senior bankers pass on their experience and knowledge of customer relationships, while younger banking consultants help them make greater use of new technologies and more digital ways of working. This also prepares us for the transfer of wealth from one generation to the next and helps us build stronger relationships with younger customers. The fact that the remuneration of the banker consultants is covered by the senior banker also creates a strong sense of shared commitment and alignment from the outset. Slide 35 gives us a clear sense of how far the project has come. At the end of July, 783 banking consultants were already active in the network, up from 590 at the end of December '25, with a further 164 currently in training. By the end of 2026, we expect the banking consultant population to exceed 1,000, including both those already active in the network and those still completing their Executive Master's program. We are now seeing a clear and accelerating improvement in the productivity of senior bankers working with a banker consultant. These bankers were already outperforming their peers from the start, and their outperformance has widened significantly over time. The impact is particularly evident in 2 areas: managed asset inflows where the productivity gap widened from 4% to 28%, and customer acquisition where it rose from 40% to 78%. The message is clear. The model is working, productivity is rising, and there is still meaningful room for further improvement. Now let's turn to Spain on Slide 30, looking at the main highlights. Operating margin reached EUR 31.3 million, a 12% increase compared to H1 2025, while net income stood at EUR 30.8 million, 26% higher. Total assets appreciated notably with a solid increase of 11% versus year-end to nearly EUR 17.2 billion with managed assets also moving up to EUR 13.5 billion with an increase of 13% since the start of the year. Total net inflows in the period were positive at EUR 1.1 billion, while managed asset flows came to EUR 845 million. And taking a look at lending, the credit book has now reached EUR 1.9 billion, up 10% versus year-end. Meanwhile, the Family Banker network grew to 1,691, up 2% since the start of the year and 4% year-on-year. The key point here is the step-up in productivity over the past 5 years, mirroring what we've delivered in Italy. Average assets rose from EUR 5.5 million in 2020 to EUR 10.1 million today. Finally, our customer base in Spain expanded to over 296,000, marking a 4% increase versus the end of the year and 9% versus H1 last year. Let me also give you a brief update on our Grandi Patrimoni program illustrated on Slide 73. This is definitely one of our most important long-term strategic initiatives. It addresses a structurally attractive market where we believe we are well positioned to grow faster than the market, both in terms of customers and assets. As you probably know, this program is designed to provide a highly personalized advisory service capable of addressing our customers' more complex wealth management needs through a strategic and long-term approach. At the end of June, we served more than 4,500 customers with assets exceeding EUR 2 million, representing approximately EUR 21 billion of total assets. Our ambition is to grow assets in this segment to around EUR 30 billion by 2030. What is particularly encouraging is that we are not simply increasing the size of this business. We are also improving its quality. Growth continues to be driven by managed assets, supporting the long-term sustainability of our recurring revenues while strengthening our relationships with these customers. For us, Grandi Patrimoni is much more than a private banking proposition. It is a strategic platform that allows us to increase our share of wallet, leverage the full scope of our advisory capabilities and create long-term value in one of the fastest-growing segments of the Italian market. Finally, let me briefly touch on AI. We see AI as a powerful enabler of our business model. It helps us deliver an even better experience for our customers, provide our Family Bankers with smarter tools and insight and improve efficiency across the head office. In fact, these are the key areas our AI strategy is focused on: customer, network and the head office. We currently have more than 100 AI initiatives underway with 19 already deployed, delivering tangible benefits in terms of service quality, productivity and cost efficiency. These initiatives span the entire customer interaction framework from conversational banking and personalized customer experience to AI-powered advisory tools, training and coaching for our Family Bankers as well as solutions supporting operations, lending, insurance, asset management and software development. Across the industry, AI is rapidly becoming a standard capability rather than a differentiator. What will differentiate institutions is not whether they use AI, but how effectively they integrate it into their business model and customer proposition. Technology evolves quickly, but trust does not. We believe AI will strengthen, but never replace the trusted relationship between our customers and our Family Bankers. That relationship is also at the heart of another strategic theme we are particularly committed to, longevity. We believe it represents one of the defining demographic trends of our time and one where we have chosen to invest significantly in our offering, our expertise and our communication. Building on this conviction, we have developed a dedicated longevity program aimed at helping customers prepare financially for longer lives. It brings together retirement planning, TFR transfers, voluntary pension contributions, regular saving plans and protection solutions into a single advisory framework. Through dedicated tools, our Family Bankers can identify customers who are likely to benefit most from this approach and provide personalized guidance. We will share more details on this strategic program later this year at our 9-month results presentation. The objective is twofold: helping customers build greater financial resilience over time while creating a meaningful and sustainable driver of future growth for our group. Against this backdrop, we remain confident about the outlook for 2026. In particular, we expect net inflows into managed assets to be around EUR 9 billion, assuming normal market conditions. We see net interest income up between 15% and 18% versus 2025. We are targeting a cost/income ratio of around 38%. We expect cost of risk to be around 20 bps. We intend to increase dividend per share versus the EUR 0.80 base dividend. To wrap up, I believe the first half reinforces a simple but important message. Our sources of growth are becoming broader with our strategic initiatives beginning to contribute across the business. This gives us confidence not because the external environment is becoming easier, we know it isn't, but because our integrated and diversified model allows us to adapt to changing conditions while continuing to move forward whatever the environment. At the end of the day, markets will change, technology will evolve, trust remains our most valuable asset. Thank you for your time, and as always, for your continued trust and support.

Thank you, Massimo. We can now open the Q&A session.

[Operator Instructions] First question comes from Gianluca Ferrari, Mediobanca, please.

I would like to talk about this EUR 1.2 billion in certificates, quite a robust figure in this first half. What's the outlook for the second part of the year? And where do you post it in terms of revenues? And then I'm referring to also the actively managed certificates by the network. My second question focuses on Spain. I know you are not really keen on extraordinary transactions or deals, especially in Italy. But what about Spain, considering the extremely good positioning of Mediolanum in that country? Are you maybe looking at some boutiques or other companies? Or would you continue on betting on just organic growth as you did in Italy? Grandi Patrimoni, you mentioned 4,000 clients. I'd like to know what the breakup is between gross margin and the other type of segment.

Well, when you were asking the first question about certificates, we lost you halfway through the sentence. Could you repeat?

Yes, the EUR 1.2 billion that were sold in the first half of the year is a high amount. I was wondering whether we can expect the same in the second half of the year. And also, I'd like to know whether you are just working on plain vanilla certificates or actively managed certificates.

Those are plain vanilla certificates. We expect a slight drop in the second half, but it also depends on how many auto-callable certificates there will be because we take a look at due dates and certain or almost certain auto-callable certificates, but the auto callability does make the difference. In the first half, there were very many auto-callable certificates. So it's unlikely that in the second half, the same identical phenomenon happens. So we expect a slight decline. I'm just referring to certificates. I'm not referring to inflows into managed assets. As far as M&A in Spain, not really, hardly possible. We are growing. Spain is evolving a lot. In the last 5 years, the average assets per Family Banker has practically doubled, and that was one of our goals. In terms of net inflows, we have hit all-time highs even though the network has grown only by a few units. So we don't plan to go in and break this equilibrium, doesn't sound right. It doesn't sound like the right thing to do. As far as Grandi Patrimoni, Gianluca, if you don't mind, we can cover this later on. Maybe we can call you up later after the call.

Next question comes from Davide Giuliano, Equita.

July net inflows, as far as I could understand, it was very good. And I would like to have more color what are the products clients are asking for? And have you identified any change of approach by your clients considering the dynamic of rates in July? Then performance fees. How many of the performance fees have not been recognized through profit and loss yet? And then considering the recent evolution, are you identifying maybe the possibility of having a step-up in the recruitment of new professionals.

As far as the July net inflow is concerned, I won't give numbers, but I can confirm it's running very well, and it's all managed assets. As far as performance fees that have not been recognized yet through profit and loss, we are talking about some EUR 220 million and if everything remains the same by the end of this year. As far as new recruits, you see that we are really faring very well, much better than last year. However, you might have seen that some 50% come from banks or insurance companies, the remaining 50% come from other sectors. As to other networks, we are really talking about negligible numbers, a few units. As usual, for us, we really get very little from other networks, but our recruitment really focuses on banks and insurance companies as of lately and then from completely different sectors where these people are salespeople, for example, they come from other sectors. We train them and we turn them into Family Bankers. I expect these new entries or new recruits to keep on growing because our recruitment and selection machine has a very slow start. There is a lot of inertia because one thing is winning over a client, completely different thing is to ask a person to quit, their job to change their lives, their job, then getting enrolled in the certified logs and then start all the training. But I think this is going to keep up.

[Operator Instructions] Next question Alberto Villa, Intermonte.