Banca Monte dei Paschi di Siena S.p.A. (BMPS) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the MPS Group Fourth Quarter 2024 and Full Year 2024 Preliminary Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luigi Lovaglio, Chief Executive Officer and General Manager. Please go ahead, sir.

Thank you very much. Good morning, everybody. Thanks for joining us to Monte Paschi 2024 full year results presentation. I firmly believe that the solid set of results I'm about to present and the over EUR 1 billion dividends reaffirm that Monte Paschi is more than ready to drive an industrial development process aimed at sustainable growth and value creation through the innovative business combination with Mediobanca, and that's for the benefit of all stakeholders. Let's now move to some highlights. We reported net profit of EUR 1.951 billion, up by 16.9% year-on-year on a comparable basis, driven by our excellent performance in terms of core business revenues. Gross operating profit up 10.8% year-on-year thanks to revenue growth with high-quality mix and effective cost management. Quality is clearly visible in the core revenues dynamic, up by 5% year-on-year reaching EUR 3.8 billion, thanks to net interest income and the strong development in fees income growing by 10.8% year-on-year, with a significant contribution also in Q4. As you will see in the slide, wealth management and advisory performed extremely well with a 19% growth year-on-year. Stock economic and business trends confirmed the power of our franchise with the new retail mortgage and new consumer finance up year-on-year respectively, 26% and 21%, and wealth management influenced up by 40% year-on-year. Asset quality in line with guidance, solid liquidity position and CET1 fully loaded at 18.2% at the top of the banking system. Net dividend to be proposed to the upcoming Annual General Meeting equal to EUR 0.86 per share for a total amount about EUR 1 billion. Dividend yield of 14% at the top of the banking sector. Let's move on now to more details of our results. As I just mentioned, after 12 months, we reported a net profit of EUR 1.951 billion, up by 16.9% year-on-year on a comparable basis, driven by a sound operating performance with the fourth quarter contribution of EUR 385 million. Moving on to the next slide, where we are presenting gross operating profit in the fourth quarter, reaching EUR 520 million. The result is higher by 2.4% versus fourth quarter 2023, thanks to resilient operating income, close to almost EUR 1 billion, despite pressure on the planning interest rate and operating costs lower than reported last year in Q4. Quarterly dynamic of gross operating profit is impacted by the typical seasonality of cost in the last quarter of the year, with operating income only marginally lower quarter-on-quarter despite growing core revenues. Looking at the year evolution, as you can see after 12 months, gross operating profit reached EUR 2.165 billion, up by 10.8% year-on-year, supported by a 6.2 increase in revenues, largely fueled by a strong and predominant contribution from fees and effective cost management that allowed us to partially absorb the impact of labor contract renewal and inflation. The strict cost discipline, combined with rising revenues, led to an improvement in cost-to-income ratio to 46%, down from 49% in 2023. Now the focus on core revenues within net interest income plus fees income, which gives a better view on our performance. Core revenue amounted to EUR 3.821 billion in 2024 with an increase of 5.7% year-on-year, supported by a growth in both net interest income and fees. In the fourth quarter, core revenues were reported at EUR 961 million, up by 1% compared to the third quarter, and this growth was driven by a strong increase in fees. And I have to say also a resilient net interest income despite the decreasing rate environment. Let's see now to selected information commercial performance. All these financial results have been achieved thanks to the commercial activity of our network, very focused on key strategic areas and delivering results in a sustainable manner. It is another confirmation of the solidity of the Monte Paschi franchise; and here, we present just some selected indicators. Ongoing gross savings, additional EUR 9 billion of savings in 2024, a EUR 16.4 billion wealth management gross inflows, 40% more than 2023; EUR 3.4 billion new retail mortgage in 2024, up by 26% year-on-year; EUR 1.1 billion of new consumer finance, up by 21% versus 2023. I would like really to take this opportunity to thank our colleagues for this excellent results they have achieved. This is successful commercial banking. Now let's have a look to net interest income evolution. In 2024, we reached the level of EUR 2.356 billion with an increase of 2.8% year-on-year, mainly thanks to the optimization of the overall cost of funding. I remind in the respect -- in this respect that we believe we have further room to improve the overall cost of funding going forward. In the fourth quarter, net interest income amounted to EUR 588 million, lower just by 1.3% quarter-on-quarter, with a resilient commercial spread supported by effective management of the commercial cost of funding. Now looking at the volumes, let's start with loans. Positive net loans dynamic in the last quarter, growth in retail is met by 0.9% that contributed to the overall loans growth of almost EUR 1 billion in the quarter, with the yearly trend better than the market, enabling to increase market share since the beginning of the year. Still loan volumes, commercial savings volumes has reached the level of EUR 167.2 billion at the end of the year, growing by 5.8% year-on-year. In nominal terms, it translates to a growth of more than EUR 9 billion in 1 year. It is important to be noted that the growth is observed in each category. This performance was supported by a strong plus 2.1% quarter-on-quarter increase, also this increase reported in our component. Also on the side of deposit, we were gaining market share year-on-year. Now our Italian Govies portfolio, the bank book portfolio of Govies at the level of EUR 9.5 billion with fair value to OCI duration reduced to 2.1 years, with the credit spread sensitivity of the fair value to OCI portfolio confirmed at a lower level of the previous quarter. Quarter-on-quarter dynamics. Fair value through P&L portfolio are related to market-making activity on Italian government bonds. Now moving on to fees and commission income. Total fees and commission income accelerated in the fourth quarter and amounted to EUR 374 million, growing by 4.9% quarter-on-quarter. And thanks to both commercial banking fees and wealth management and advisory fees. Looking now to the yearly performance. Total fees after 12 months reached the level of almost EUR 1.5 billion, and were higher by 10.8% year-on-year, thanks to the strong performance in wealth management and advisory fees, which increased by 19% year-on-year and with a positive dynamic also in commercial banking fees increased by 4.1%, confirming the strong focus on Monte Paschi network in the key areas of our business that we consider strategic. Our fee generation business is extremely dynamic. And as we were mentioning at the time of presentation of our business plan is the focus on which we are completely committed in order to replace the expected decrease on net interest income. Now costs. In the fourth quarter, operating costs amounted to EUR 477 million and were lower by 1.7% year-on-year despite the second tranche of salary increase that entered into force starting in September, according to the new labor contract approval last year. The quarterly trend is reflecting the typical last quarter seasonality in non-HR component with HR costs fairly stable quarter-on-quarter. If you look at the yearly evolution, full year 2024, level of cost amounted to EUR 1.869 billion, slightly up by 1.4% year-on-year. Thanks to the continuous process of optimization of non-HR costs, this component is down by 3.5% year-on-year, which allowed us to partially mitigate the negative impact of the new labor contract that is driving HR costs up by 4.2% year-on-year and also to keep under control the increase coming from the inflation. Now let's move to the asset quality side. Gross NPE ratio stock, EUR 3.7 billion with secured component representing more than 17% of the total. Gross NPE ratio at 4.5% and net NPE ratio at 2.4%, in line with our business plan objectives. Let's move now to coverage and cost of risk slide. The cost of risk for the whole year is at 53 bps, which is in line with the guidance for 2024 that we gave at the beginning of the year -- or last year. Total NPE coverage ratio is at 48.5%, reflecting the completion of EUR 300 million NPE disposal that has been completed in the quarter. Still no particular signs of portfolio deterioration has been observed up to now. Now funding and liquidity. Just a couple of comments on bank's funding liquidity. The soundness of our liquidity position is confirmed also in this quarter with the encumbered counterbalancing capacity above EUR 30 billion, liquidity coverage above 160% and net stable funding ratio at about 130%. Reliance of ECB funding reduced at 7% of total liabilities down 4 percentage points versus December 2023 and it is already substantially below the business plan target of 13%. Now let's move on to the capital. The Common Equity Tier 1 ratio stood at a solid level of 18.2%, already incorporating the net profit for the year and net over EUR 1 billion of dividend for which we are going to propose the upcoming general meeting shareholder distribution to our shareholders. The Tier 1 ratio buffer remain at very high level of around 750 bps. Additionally, the total capital ratio of 20.5% already reflects the recent call of EUR 400 million of Tier 2 finalized in January. Well, now I would like to share our thoughts on 2025 outlook. We expect net interest income to decrease due to the interest rate scenario. We will mitigate such effect, thanks to the improvement of the mix and continuing the effective management of the spread. Fees, a strategic driver of our business plan are expected to be higher than 2024, thanks to the strength of our franchise and the focus we want to reserve to wealth management products. Cost, we expect slight increase despite our continuous efforts aiming at further rationalization, and this increase is mainly in connection with investment in technology and the full impact of the new labor contract. Cost of risk is expected to be lower than 2024, leveraging on credit underwriting process, continuous improvement of ongoing portfolio management. The tax profit -- we will keep the profit before tax at least at the same level of 2024. As well for dividend, we have the ambition to ensure remuneration stability year-on-year. We will keep on generating organic capital setting the level of 2025 Core Tier 1 above 18.5% after dividend distribution. Now as I mentioned at the beginning, I firmly believe we are very well equipped to join forces with Mediobanca in a unique industrial project to enter a new phase of growth and value creation, leveraging on the strength of our respective platform and brands, while we strongly believe in the value creation generated by this business combination. Let's start by having a look on Mediobanca divisional contribution to net profit. That is one of the factors they made us even more convinced that this is really a very powerful combination. Looking at the figures of this contribution, it is obvious that our transaction will not affect the identity of the bank, which, already according to the last official figures, see corporate investment bank and wealth management contributing in aggregate to the net profit for 35%, almost as much as consumer finance with Compass that contributes for about 30%, 35% wealth management, 30% Compass. So the main contributor is the 13% stake of Generali, which accounts for about 40% of the total net profit. Looking also at the business performance for the period '22, '24 still Generali appears to be the main contributor to the growth with 28%, followed by wealth management with 24%, while consumer finance reported a growth of 2% and corporate investment bank has a negative dynamic. Now in these days, we heard a lot about size when it comes to Monte Paschi Mediobanca. But if we look at customer loans, direct and indirect funding, the relative contribution is 60-40 in favor of Monte Paschi. And if we won't really look at market capitalization, we should consider that Mediobanca market cap is supported by growing weight of Generali stake that is worth about EUR 6 billion. It means that Mediobanca market cap, excluding Generali stake, would be equal to less than EUR 7 billion. And moreover, the weight in the last year, of this stake was growing. In fact, as of January 23, the day before we launched the voluntary public exchange offer, Generali stake accounted for 47% of the market cap of Mediobanca compared to 41% 1 year ago. The industrial rationale of the business combination is strong. As you can see from this slide, with diversifying and complementary products and service platform. We will set up a powerful group combination, thanks to this complementarity. So let's think the 2 excellent platform, the one of Mediobanca and the one the Monte Paschi. In Corporate Investment Bank, we would combine Mediobanca pure IB advisory capabilities with our solid balance sheet to create a fully-fledged corporate investment banking model that is practically in line with leading players. In asset gathering, Mediobanca Premier and Banca Widiba together we create a player at scale with 1,200 personal financial adviser, 500 relationship manager with more than EUR 50 billion total financial assets. Such a player will have a distinctive digital platform which could further evolve through AI investments that are already planned according to the business plan of the 2 companies. In Private Banking, the combination would result in a larger player with around 400 private bankers in the large product offering. A new leader in consumer finance with Compass being fueled by the capillary Monte Paschi retail network, with 1,300 branches and 3.4 million retail customers. Lastly, with regard to the insurance business, there will be a higher optionality on Bancassurance. With Mediobanca bringing the 13% in Assicurazioni Generali. The combination of Monte Paschi and Mediobanca will enhance the business mix of both banks, given, as I mentioned, the strong complementarity of the 2 business. Mediobanca profit is currently split in 40% from Consumer Finance, 13% from corporate investment banking, 15% from wealth management and 26% from insurance. On combined basis, the operating profit distribution will be much more diversified, benefiting from a more balanced P&L contribution, thus providing resilience to the profitability profile of the group. The combined entity operating profit is split, respectively, between corporate banking 30%, retail banking 20%; consumer finance 18%; wealth management 8%; investment banking 5% in the insurance to wealth bank. This is a perfect diversification that is ensuring stream of revenues that can be fueled by network power of Monte Paschi and the strong competencies that are inside the management and the team of Mediobanca. Now let me just a bit elaborate on the concept of value creation and synergies. Now let's really look at the trigger of this transformational transaction. What we have in mind means to move from the pure concept of revenue synergies to the point of value creation via growth by enriching the value proposition that 2 groups can offer to their client base, and we are speaking about 6 million customers. Lastly, most market players have came to add product factories to their perimeters to enhance their profitability. In this case, we go even beyond by a full integration of the value chain across different businesses. By combining the 2 groups, we'll be able to offer to our overall client base a comprehensive high-quality product and service range so that we will be able to enrich the quality of our relationship, their loyalty by fulfilling additional client needs that today likely are provided by third parties. It means that each single client will be offered a full set of service often with high value-added, creating value for our customer and then for all our stakeholders. This is the model that other top universe players have successfully adopted both in Italy and in the rest of Europe. To the contrary differently from a merger between 2 commercial banks, we are not going to have, for instance, revenues dis-synergies deriving from concentration of risk exposure and networks overlap. So by reaching the offer, we can for sure generate additional revenue that is the plus we can immediately add to the mere 1 plus 1 before dipping diving into the combined business model and identify additional value creation drivers. Now just for some illustrative purpose. If we look, for instance, to retail, just by offering Monte Paschi daily products, I'm speaking about payments to Compass and Mediobanca premier clients and delivering to them the service that Monte Paschi branch network at scale can offer we believe that this will bring additional revenues to the combined entity. In the business area of investment banking and corporate we will enhance the product offering, combining the advisory capability with a solid balance sheet, so the customer will have the full-fledged service that an investment bank, together with the balance sheet of the commercial bank can provide to this customer, and this is the winning model that today is showing also in our Italian market, big players increasing market share in the area of investment banking. Cross-selling of investment bank product and service like ECM, DCM will be provided to Monte Paschi corporate and small business customer, offering an extension of these revenues that can be generated by this kind of product. Then, we will leverage on respective competencies in special financing. Consumer finance is obvious. We will increase penetration of consumer finance products building on Compass. Then, we are going to increase the revenue stream by cross-selling on ancillary products like insurance, CPI, thanks to the Monte Paschi best practice. On asset gathering, we can really accelerate the growth that will be just facilitated by the immediate achievement of financial advisers critical size. And this is a step that without the combination will require time. And in our project, we will have immediately the scale. Then, we will have the enhancement of product offering through Mediobanca asset management product; for instance, alternative investment. On Private Banking, as I said, 400 private bankers, we will have a sort of alignment of Monte Paschi private banking to Mediobanca best practice. As well in this field, we can have enhancement of product offering through the product of the asset management factoring Mediobanca. So while for revenues, we are speaking about the extension of the business, so a concept that is different from a traditional merger amount 2 commercial bank where normally you don't have a growth of revenues and you increase your profitability just by reducing costs, mainly reducing the staff, in this case, to the concept of value creation and the expansion of the business through the combination of scope that we are proposing on the side of cost, and clearly, here, we are using a traditional approach of a merger between commercial banks. So we are going to -- especially on the side of corporate optimization of the product factory. We are factoring in Monte Paschi and there is factoring in Mediobanca, for instance. Then we are going to optimize the respective NPE workout unit. We are going to optimize the overlapping footprint coverage. On consumer finance, we have our platform that can be rationalized thanks to the one of Compass. We are going to have economies of scale on digital investment that both according to the business plan that has been officially communicated both banks have planned to perform. On asset gathering, we are going to have synergies on operational platform, and we are going to have optimization of the holding function. On operation, we are going to have the streamlining of IT that will support the reduction of cost to serve. Also thanks to the investment in digitalization, we are going to have significant economies of scale on procurement activity with immediate focus on large service providers. And thanks to the centralization of the cost governance and best practice that can be shared, we are going to have, for sure, optimization also of the cost level. Then central function. Savings will come from the optimization of overlapping of the holding function. Treasury and funding. I think this is the area where it's obvious that we are going to have benefits from the combined entity as we are going to optimize the wholesale funding structure also leveraging on Monte Paschi commercial funding base. Now just recapping, we are speaking about EUR 700 million overall synergies, gross synergies. Honestly, according to what is my experience and I think I can -- it's something that it happens in my professional life and I think I can easily confirm that this level of synergies is the minimum level that we can achieve based on this outside-in analysis that we can clearly perform. And as well, according to what is my experience, and I was lucky to take part to the merger between Credito Italiano and Unicredito and they merged the second and the third bank in Poland. This is a seamless integration because it's a plug-in process. From the day 1, we will keep generating revenues; and altogether, we are going to optimize the level of coverage towards customers that will bring expansion of the scope of business, reaching more customers covering with a full-fledged value proposition existing customers. So we strongly believe that the transaction is going to create significant value for our stakeholders. For our customers, we are going to enlarge the product and the service that we are going to offer with scale and ability to support new investment. Significant opportunities for our people for very professional growth in an environment with a strong ability to retrain, attract and develop talent the combination aimed to grow, to expand market to reach new area of business and to leverage as much we can in the talent people we have in both institutions. The catalyst for development of projects and initiatives in the territories for the benefit of communities, continue to represent a benchmark model in terms of sustainability, better combined fundamentals, enhanced diversification and resilient business mix. So significant value creation and synergies and acceleration cashing the use of Monte Paschi DTAs. So in other words, the transaction has unparalled financial position, transaction is at double-digit accretion on adjusted earnings per share for all shareholders, organic capital generation above net income leading to accretive dividend per share, up to 100% payout ratio and the capital CET -- Tier 1 ratio will remain the level of 16%, significantly above our management target of 14%. So let's just finalizing presentation with this project. We create a new national champion with 2 excellent brands that we want to protect and enhancing their value. Renewing our organization in #3 position in Italian banking sector across financial products will represent a growth platform ideally position it to seize future market opportunities. We will benefit of the 2 strong businesses complementarity leveraging on the respective strengths, distinctive capabilities and excellent human capital. The industrial rationale is strong, and we see clear how we can bring out all the value for the business combination. We are very committed to build up a future of growth and innovation together with the respective partners such as Mediobanca. Thank you. And we are ready to answer to your question.

[Operator Instructions] The first question comes from the line of Ignacio Ulargui Lopez of BNP Paribas.

I have 3 questions, if I may, 2 on the guidance and 1 on Mediobanca transaction. I mean if I just look to the NII, what kind of decline you are expecting into the year and with what level of rates and volumes you are factoring? I mean I'm just asking this because I have seen the strong performance of the deposit base in the quarter, I think, is a very supportive to the NII. I just wanted to get a bit of a sense how do you see volume deposits and lending evolving in the year? The second topic is on cost of risk and whether -- and does the plan includes incremental asset disposals and would you consider accelerating that reduction of NPEs, taking a bit of a higher cost of risk throughout the year? And final question on the synergies. I mean you have -- thanks for giving the color on the evolution of the synergies. But in case that you have a bit of a headwind on revenue dis-synergies because of potential kind of initial distractions in the merger, would you feel more comfortable to offset that within all the funding or core savings that you have announced?

Okay. So let's start from net interest income, right? So clearly, we expect a decrease in net interest income because as we were mentioning of interest rate, clearly, we have been trying to partially offset this decrease, thanks to the change of the mix as we aim at having further development in terms of consumer lending and small business. We think that overall we can have a decrease that can be in the range of 1 digit. But a lot will depend on our capability, especially starting in this quarter to manage the cost of funding and our also capability in some way to convert part of the deposit in wealth management product. Fees and commission, we are investing in processes, in people, also in remote using technology, remote way to sell. We are starting to build up this digital branch that will have this kind of sale, but we expect to grow in fees and commission. And as the plan is one of the crucial driver of our profitability, the growth should be important. Then cost of risk. As you remember, in the last year we already had a sort of inversion of the trend connected with the mortgage of retail that practically are in this forborne stage and according to the last information we have regularly assessing payments on these mortgages. So it's just a matter of time this portfolio will come back to bonus and this will also in some way help the dynamic of nonperforming. We are investing as well in early warning system. All this kind of initiative will support the cost of risk control, that's why we believe that overall it can be lower than what has been reported in 2024. About strategy, as I was mentioning early, clearly, in some way, I believe we underestimated the synergy on funding. We are very conservative and that is better to say. So we can have, for sure, some shift, we have some buffer on that. But differently from the synergies that are coming when you merge 2 similar business, in our case, as I said, we are adding products and services. So it's just a matter of commercial attitude and the capability to share and to present to colleague of corporate any initiative that the advisory banker, the banker that is making advisory activity, can bring to the institution. And normally, it's quite difficult to have this kind of cross-selling. That's why we strongly believe that by combining and joining the efforts, we can really provide a full-fledged services that will help in keeping the level of additional revenues, we believe can be reached through the combined entity at least at the level of synergies we are planning. In any case, we have as well, I believe, additional buffer that we can have, especially on the IT platform, on administrative expenses, on the large provider services contract that can be immediately be rediscussed and due to the scale, clearly, we can also count on different tariffs. So overall, I believe that these synergies are grounded, and we have enough flexibility for moving from one side to the other.

The next question is from Giovanni Razzoli of Deutsche Bank.

Good morning to everybody. 2 questions on the results and 1 on the offer on Mediobanca. Can you remind us on Basel IV, what is the impact that you expect in 2025? If I'm not mistaken, you are one of the few banks in Europe, which have anticipated a positive impact from Basel IV. If you can remind us what was the positive benefit that you have announced in August and whether you have a fine-tuned those calculations today? The second question. If you can share with us what is the gross and net asset management inflows in the Q4? The performance was pretty strong in the third quarter. If I'm not mistaken, you booked more than EUR 3 billion of inflows. If you can share what is the data for Q4? And the third set of questions is on Mediobanca acquisition and specifically on the CET1 ratio target. You have a CET1 ratio target for the combined entity of above 16%, which can be up to 16.5%, assuming the approval of the Danish compromised on the combined, how would the CET1 of the combined entity be in case of, for example, the ownership of Mediobanca post the bid would be between 51% and 67%? Because I assume that your 16%-plus CET1 target assumes a pro forma 100% combination with Mediobanca. And another question on the similar topic on the DTA. You said that you will have something like EUR 300 million of incremental DTA benefit per year. I guess that this level will not be impacted by the percentage of ownership you will end up with Mediobanca because you are likely to adopt the consolidate fiscal. So is my understanding correct that the amount of incremental DTA will not be a function on the participation that you will end up with Mediobanca?

Okay. So I will take the answer regarding wealth management. So we reported a very good performance in the fourth quarter with almost EUR 3.7 billion. And I have to say, we are now adding the network that is keeping a pace very strong, thanks to the initiative we put in place. The net flow, if I remember well, according to the last figure was about -- I'm speaking about the overall indirect inflow around EUR 200 million.

On the other question, good morning to everybody. So on Basel IV, let's say, in our plan, we gave a guidance for a reduction of RWA, say, 31st of March, of EUR 1.3 billion for Basel IV and partially offset by the update of our RWA models waiting for EUR 0.8 billion that's expected at end of the year. Compared to this guidance, as you know, the impact of market RWA has been shifted to next year, that was a negative of EUR 0.7 billion that will be accounted next year and probably will be also slightly less. This means that EUR 1.3 billion becomes EUR 2 billion. And this might be slightly conservative, but let's see. Then on your second question, what happens if we do not have 100% acceptance of our tender offer? I will not make the case of 50% because our threshold is 66.67%. So I can give you that case and then you can run your simulations. In that case, basically, you have lower contribution from minorities and lower negative impact on goodwill because you take a pro rata. So the impact is roughly 50 to 60 basis points on our, let's say, estimate for 100%. Finally, your question on DTAs. You can fully use the DTAs as long as you can include Mediobanca, in this case, in your consolidated tax financial statements. And this can happen if you -- if we hold at least 50%-plus 1 share of Mediobanca.

The next question is from Luis Pratas of Autonomous.

The first one is on the 2025 outlook. I was wondering if you could share any on the trajectory of revenues throughout 2025 divided in NII, fees and other income? And on your NII guidance, could you please share the embedded assumptions such as volumes, margin development and rates? And then my final question is on the Mediobanca offer. Thanks for the extra slide. On the revenue synergies, could you please share any color on how you quantify the revenue synergies? For instance, the amount of synergies per business area. And does your synergy numbers include any staff retention incentive costs for Mediobanca staff?

Thank you for your questions. I will start with the guidance on NII. First of all, as you know, the interest rate scenario is a bit less supportive than some months ago. So at the moment, we are projecting a 3-month Euribor of roughly, on average, 2.2%. So this -- in terms of Euribor. Then, with regard to commercial volumes, we expect growth, both in terms of loans and deposits. As regards to loans, I think you can refer to our business plan that provided the CAGR for '24-'26, by and large, this is the expectation. Then you ask about revenues. On revenues, I mean, the impact on net interest income is expected to be higher than the one-off fees, we will try as much as possible to compensate this partially on the trading line, thanks also to the activity that we run with our clients. So anyway, deriving from commercial activity. Then on the synergy areas of the transaction, I will let Luigi comment.

Okay. So it's clear that we are at the current stage, making our calculation, but still, we believe that this better not to enter in particular details. Anyway, I can just give some direction. It's clear that if we think about the daily banking products that we can cross-sell to some with the Compass clients and premier clients. If we think about some best practice in terms of mortgage penetration and if we think about some combination of lending together with advisory Investment Bank transaction, we believe that this area will generate a significant portion of the revenue synergies we plan. On cost, I think I gave already quite a detailed drivers on which we count in order to get to the synergies. And in funding, I believe, it's quite easy to see that this EUR 100 million is really conservative.

The next question is from Domenico Santoro of HSBC.

It's Domenico, HSBC. Thanks for giving us more details about the synergies, this is an area on which probably investors need to be educated a little bit about the merger, and so thanks for doing that. A couple of follow-ups to the question of the colleague. First of all, on the NII decline, you said single digits. Can you be a little bit more specific? We're talking about low mid-single digit that will help, also to benchmark with other banks. The second question is on the deal. You've been very clear on the moving parts around the capital, and now we get a better idea how the capital can behave depending on the different scenario. My question is more about the excess of capital because it's true, you're starting probably from 16 or less then there is a Danish compromise, then there is the DTA that will be realized regardless a little bit of the synergies. So it's true that you mentioned the double-digit accretion, but we know that synergies, they take a little bit, a while to get realized. So my question is more to appeal also investors. Are you thinking about the plus 1 using this excess capital also to accelerate a little bit the accretion of the deal? So the question is whether you are thinking about using this excess capital for any share buyback or whatever, any maneuver that can be of appeal for investors? And then the other question is about, for sure, you have started to have conversation with institutional investors. We read on the press, there was some headline. So I just want to understand what's the initial feedback that you get -- you've got from the Mediobanca investors?

Okay. Just to be a bit more precise, I believe, in positioning in upper digit, right, upper single digit, right? Then on the deal on Mediobanca. So we met investors and obvious for the transaction itself that was, in some ways, surprising the market is clear then was not probably immediately clear the business rationale. So we have to say that once we start discussing and explaining at the end, we end the meeting with a positive feeling that the rationale has been understood and in several cases also shared with us. Clearly, we have to provide more information about synergies and we try today to give some additional details on that. But I have to say that from the meeting, we got the feeling that just continuing meeting investors will be much easier to share our view and to have a better understanding how powerful is this deal innovative combination of scope. First time we want to extend business we are not keeping the same level of revenues that normally you have in a merger because you know better than me that nobody is believing in synergies coming from the combination of 2 commercial bank, synergies of revenues, much more important synergy on cost, in our case, we are saying, we are growing. We want to have a combination of scope. We will enlarge the product on our pallets and we will shelves and we will be capable to conserve the 2 full-fledged customer and also fulfill customer needs. Now I think it's too early to think how we can further optimize our capital. At this stage, it's better to count on the 16% that I think is a very good level. This gives us a lot of flexibility and also open possibility for further development of the business.

The next question is from Hugo Cruz of KBW.

I have quite a few questions on NII and then one question on the potential deal with Monte Paschi -- with Mediobanca. So on the NII. Can you repeat what you said around the single-digit decline? I couldn't understand, and I think it would be very helpful. Are you talking about low single digit or high single-digit decline in 2025? And second. The size of your Italian Govies portfolio, is there any room to grow the portfolio further? Third question around the -- your Central Bank deposits in your liabilities, they have been coming down. I think that was an expensive form of funding. So can you disclose what's the cost and how much of those deposits you can replace with cheaper funding? And then a question on the Mediobanca offer. Can you confirm if you can start buying Mediobanca shares before having approval from your shareholders' meeting for the offer?

Okay. So I'm repeating high single digit for the decrease of interest income. We have no limits regarding the purchase of shares. There is no connection with the ECB authorization. And then Andrea, I think will take the other question.

Yes. So on the Govies, I mean, in theory, yes, we could increase, but let's say, due to our, let's say, conservative approach, as we said several times, we plan to keep a stable size of our Italian Govies portfolio, in particular with a focus of, let's say, increase in the amortizing cost component. On the ECB funding, it's simple. This is the MRO rate, so that's a rate that is paid on MRO and LTRO and this is an important point, so thank you for the question because by optimizing our funding sources, we can reduce the overall cost of funding that will help us to weather the interest rates scenario.

The next question is from Andrea Lisi of Equita.

I have 1 on the NII and the others on the deal. Regarding the NII, during the conference call said that you expect 2026 NII above 2025 level. What's your expected trajectory given your current update -- the current level of interest rates and your current estimates about volume growth, both on loans and deposits? As regards the deal, I want to ask you if in relation to the offer you promoted on Mediobanca, may you consider lowering the acceptance rate below the threshold of 66.7%? And if so, what could be the impact on your ability to deliver your plan and synergies? And another question is more from a technical standpoint. What do you think would be the main challenges in integrating the operational models and digital platforms of Monte Paschi and Mediobanca?

So it's clear that the situation on the market regarding net interest income is, in some way, continue changing, right? But at the current stage, according to what are the preliminary estimation and also referring to our business plan, we don't think now that we can say that will increase '26 from '25. So best scenario would be flat, but depends on our capability to change in the mix during the year. That's why it's a sort of progressing exercise, and we will keep posted the market according to the change of the mix that which quarter we are going to present. Now as far as the transaction, we set 67.7%, and honestly, at the current stage, we stick to this position. So we don't expect and we don't consider another scenario. The most difficult thing honestly, when I use the expression plug-in, it's really because I think that from the day 1, we can start having, for sure, 1 plus 1, so 2. And gradually, we will increase these 2 according to the level of synergies that can be much faster than what we expect because it's enough, you can imagine that we put in place a sort of coordination when make example, investment banking is the easiest. The adviser is going to get the transaction. And while it happens sometimes that the customer is asking also for financial support and you have to go to another institution, it will be easy -- quite easy to say that I can provide it immediately. And so from day 1, we are making a cross-selling on the customers of Mediobanca. At the same time, we can bring with our relationship manager to a small business customer or mid-corporate customer that needs to issue bonds, the professional skills of Mediobanca and immediately from the day 1 provides services. This is something very common. We have quite often request for mid-corporate customers. And if we can immediately give an answer by having this joint activity that is easiest, I was mentioning, we will immediately have revenues in addition to the current level of the 1 plus 1. So I have to say don't, I identify particularly complexity, having also in mind that we don't have like a normal merger migration from one IT system to another IT system, right? So it will be a simplified process from the operational point of view that we want to do as quick as possible because I think we need really to have the same platform, IT platform. But having in mind that we plan to have EUR 100 million per year investment in technological changes, including AI and Mediobanca EUR 75 million, this important level of investment will speed up any process also from an operational point of view and the IT platform.

The next question is from Manuela Meroni of Intesa Sanpaolo.

The first one is on the NII. I'm wondering if you can update us on your sensitivity to rates? The second question is on fees. In 2024, your gross inflow in wealth management was almost EUR 15 billion. So I'm wondering if you can tell us how much are the upfront fees that you cash in, in 2024? And in your guidance of increasing fees for 2025, what are your assumptions in terms of upfront fees, so they are up or down or stable compared with 2024? The other question is on your guideline on total income. If I understood correctly, you expect the decline of NII not to be offset by an increase in fees but you have some rooms in trading profit. So I'm wondering if you can guide us on the evolution of the total income. So if you are expecting anyway the total income to decline compared with 2024? And last question on Mediobanca. I'm wondering if you can accept your Common Equity Tier 1 to go below 14% on a temporary basis?

Okay. I will answer now on total income. So yes, we believe that partly the decline will be offset by fees and commission. And the goal is really to compensate what we were not able to offset with fees and commission with some potential trading that we have in our portfolio. So overall, we expect to have a total -- the goal is to have total revenues very close to the level of 2024.

On other questions?

As far as I understand the capital of -- potentially -- at the current stage, so we are quite flexible. But according to our estimation, we will be able to keep the 16%, so there is no reason to think that if we can go below, right, at the current stage.

Okay. On the other 2 questions, NII sensitivity, we managed to keep it stable at around minus EUR 130 million on average for 3 years for minus 100 bps balance sheet of the curve. On upfront fees in this year, there were around EUR 250 million. For next year, we expect a slight increase, but let's say, the bulk of increase is expected on other components.

[Operator Instructions]. Gentlemen, Mr. Lovaglio, there are no more questions registered at this time.

So thank you very much, and we will really have the next call, if I remember well, in May. Thank you.

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