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 Second Quarter and First Half 2025 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, everyone. Thank you for joining us today for the presentation of our second quarter and first half 2025 financial results. Today, we present spectacular results with a quarterly profit of EUR 479 million and nearly EUR 900 million in the first half of the year. These numbers show our tangible capability to deliver growth, high profitability and strategic clarity. This clarity of purpose is really paying off for customers, employees and increasingly for shareholders. Our advantage lies in our deep client relationship developed by a unique and very powerful distribution network that delivers high-quality revenues and rising fees contribution. Building on the strong results of the first half, we continue to lead with a strong core Tier 1 ratio of 19.6%, a position that's further validated by recent stress tests. Even under adverse scenario, our bank ranks at the top of the sector in Italy and Europe. We have built what I call [ Fortress ], a robust balance sheet capable of protecting Monte Paschi and creating opportunity for decades to come. Our profitability is accelerating to strong commercial activity. With this solid foundation and on the back of excellent first half performance, we have raised the bar for full year 2025 and now expect pre-tax profit to well exceed EUR 1.5 billion. This is a clear sign that Monte Paschi is delivering a real and growing value. With this awareness, we confirm our determination to create a new leading competitive force in the Italian banking system through our offer for Mediobanca, which is now live in the market. Through this extraordinary combination with Mediobanca, we will generate a superior sustainable value over the long term, offering certain returns to both sets of shareholders. The know-how and distinctive skills of Mediobanca will perfectly complement those of Monte Paschi. This committed -- commitment is supported by Monte Paschi shareholders' endorsement and the confidence we have that the tangible, immediate and sustainable value of our offer will be appreciated by Mediobanca shareholders. Now let's dive into today's results that showcase our ability to deliver on our promises. First, some key highlights. Net profit for the second quarter hit EUR 479 million, up by more than 15% on the previous quarter, bringing the results over 6 months nearly to EUR 900 million, plus 21.4% on the previous year. The key driver was the strong operating performance visible in the net operating profit dynamic. Gross operating profit reached EUR 576 million, up by 6.7% quarter-on-quarter (sic) [ 7.6% quarter-on-quarter ], thanks to growing income and flat cost dynamics. After 6 months, total revenues reached over EUR 2 billion, allowing us to more than offset an increase in operating costs and keep the overall level of gross operating profit higher than the previous year. We saw strong commercial performance in key strategic areas. Wealth Management gross inflow in the 6 months were close to EUR 9 billion, up 20% year-on-year. We granted mortgage worth EUR 3.5 billion in the first half, double last year volumes, helping Italian families achieve homeownership while building a high-quality loan portfolio. And the new consumer loans show a 20% increase compared to the same period last year. These are all tangible signs of a bank deeply connected to its client and the real economy. Further improvement in asset quality was achieved with the overall reduction of EUR 500 million in nonperforming loans stock, of which over EUR 300 million was through the sale of a portfolio that was just finalized with economics already included in our results. Our cost of risk dropped to 43 basis points from 53 last year, and it is tracking in line with our guidance. Our liquidity position remains sound and our core Tier 1 ratio at record level of 19.6% provides a significant buffer above requirements. Monte Paschi stands among the strongest bank in Italy and Europe, a position that creates strategic flexibility and competitive advantage. Now let's move to more details of our results. As I have just mentioned, net profit of the first half of the year reached EUR 892 million, up by 21.4% year-on-year, excluding the positive net tax in both periods. Results are sustained by a strong commercial activity, which confirm the solidity of our business model and Monte Paschi's strength. The results were supported by an excellent second quarter with net profit of EUR 479 million with an almost plus 16% growth versus the first quarter 2024 if we exclude net taxes. Now moving on to the next slide, where we are presenting the net operating profit, which after 6 months amounted to EUR 956 million (sic) [ EUR 936 million ], showing a positive trend, growing plus 4.3% year-on-year, thanks to higher revenues with increased net fee income contribution, thanks to the strong commercial effectiveness of our franchise. The net operating profit amounted to EUR 488 million in the second quarter, growing by 9.1% quarter-on-quarter, thanks to increased revenues, effective cost management and lower cost of risk. Now let's move to gross operating profit, which reached EUR 576 million in this quarter, increasing by 7.6% quarter-on-quarter. It was driven by almost 4% revenues growth in the quarter and effective management of operating costs. Cost/income ratio has improved to 45% compared to 47% in the first quarter. For the first half of 2025, gross operating profit crossed more than EUR 1.1 billion, up compared to the previous years, thanks to the growing revenues driven by net income. This growth allow us to more than offsetting the increased cost impacted by labor contract renewal and higher variable remuneration pool. This again demonstrates our disciplined approach to both costs and revenue generation, ensuring steady performance even in a competitive context. For the first half of 2025, we maintained the cost/income ratio that underlines our focus on operational discipline. These solid metrics support our strategy to deliver sustainable profitability over the medium to long term. As I mentioned, all the financial results have been achieved, thanks to the commercial activity of our network, focused on key strategic areas and delivering results in a very sustainable manner. Just to comment on some KPIs. Total commercial savings crossed EUR 171 billion and were higher by approximately EUR 4 billion since December 2024. Wealth management gross inflow amounted to almost EUR 9 billion in 6 months, up by 18% year-on-year. New retail mortgages granted in 6 months reached EUR 3.5 billion, 2.5x compared to the first half of 2024. New consumer finance flows amounted to almost EUR 690 million with a 20% year-on-year dynamic. These achievements are another confirmation of the solidity and validity of the Monte Paschi network. I would like to say thank you to our colleagues for the excellent results achieved. Now let's have a look to the net interest income evolution. The net interest income on the second quarter amounted to EUR 551 million and was up by 1.5% quarter-on-quarter, thanks to lending volume expansion and further optimization of cost of funding, allowing to compensate negative impact on rates reduction on loans. In the first half of 2025, net interest income reached EUR 1.094 million, with a yearly trend of -- in line with the guidance given to the market at the beginning of the year. Now looking at the volumes. Let's start with loans. We are reporting again very strong net loans dynamic in the quarter with the growing retail and small business component by EUR 1.5 billion, which gives plus 2.4% dynamic quarter-on-quarter with almost 5% growth since the beginning of the year. Such growth was possible, thanks to the strong commercial activity in key strategic segments and is part of our strategic approach to mitigate the impact of decreasing rates on net interest income trend. We were also able to increase market share since the beginning of the year. Now moving on commercial savings. The total commercial savings in June exceeded the level of EUR 171 million are up by more than EUR 4 billion in the second quarter, supporting the performance year-on-year and the performance year-to-date. The growth is reported across all components, including also deposits, which is confirming the solid funding base and effective approach in managing the trade-off between volumes and prices. Looking at our portfolio of Italian Govies, I can say that practically, we are consistent with our approach. The portfolio is almost flat, showing that we are using this portfolio as a support to our liquidity. Now let's move on to fees and commission income. Total fees after 6 months are quite impressive in terms of dynamic. If we look at the quarter, we reported in the second quarter an amount of EUR 405 million total fees, up by 1.7% with a significant contribution that came on commercial banking fees. Wealth management fees in some way were affected by a significant component in the first quarter connected with the sale of some institutional bonds. If we look at the performance after 6 months, we see the total fee reached a level of EUR 803 million and were higher by 9.1% year-on-year, thanks to the strong performance in wealth management and advisory fees, which increased by almost 14% year-on-year with a positive dynamic also in commercial banking fees, increasing by 4.4%, thanks to the excellence of commercial network and the strong focus on key areas of our business. Now let's move quickly on to costs, starting with the quarterly evolution. Regarding in the second quarter, operating costs amounted to EUR 471 million and were marginally lower quarter-on-quarter with practically stable quarter-on-quarter HR and non-HR components. Overall level of cost is reflecting the continuous focus on non-HR cost management optimization, effect of which are even more visible when we turn to the yearly evolution. Total operating costs in 6 months amounted to EUR 943 million and were higher by 2% year-on-year with the growth driven by the HR component, which is up by 5.3% year-on-year, reflecting the impact of the renewal of the labor contract and the variable remuneration pool increase. The increase is partially offset by the effects of efficient cost governance approach in non-HR costs that allowed to reduce this component by 4.4% compared with the first half of 2024. Now let's move on gross NPE stock. The quality of our portfolio remained under control. And this positively impacted by the sale we completed in the quarter of EUR 300 million of portfolio that enabling us to decrease the total stock by EUR 500 million in the quarter. Gross NPE ratio pro forma at 3.7% and net NPE ratio pro forma at 2% Cost of risk was at 42 basis points in the second quarter and in cumulative terms after 6 months amounts to 43 bps, [indiscernible] 53 bps reported for the whole year 2024. As I mentioned at the beginning, we are completely in line with our guideline, and we are confident that we will keep this pace up to the end of the year. NPE coverage pro forma stands at 46.7% after the EUR 300 million disposal with a bad loan coverage pro forma reduced to 61.6% and with the coverage likely to pay and past due above the level of December 2024. Now funding and liquidity. You can see from the slide that the solid liquidity position of the bank. [ Even ] in the quarter, we have an unencumbered counterbalancing capacity at EUR 31 billion. We are reducing ECB funding share at the level of 6%. And we have a significant improvement in the coverage ratio that reached 169% and net stable funding ratio at the level of 132%. Both indicators are reflecting the solidity of our funding structure. We successfully also completed in the first half the issuance of EUR 1.70 billion bonds in line with our funding plan. Now a couple of words on capital. Our consistently strong capital position is reflected in the common equity Tier 1 that is reported at the level of 19.6%. It's important to mention that we kept this level of capital despite an increase of risk-weighted assets connected with the strong lending activity of the second quarter. The buffer is really impressive at the level of 840 bps compared to the requirement. A few words on EBA EU-wide stress test results. We achieved the best ever results in 2025 EU-wide stress test with a fully loaded core Tier 1 at the ratio of 16.83% in the adverse scenario in 2027, significantly above both in the European average and in the Italian average. I think this is a further confirmation on the capability of the group to generate capital in a very sustainable way with our quality of revenues that give us the strength to look forward with a lot of confidence about the potential we have by using the capital that we have at our disposal. Now let's move on to the Mediobanca exchange offer. So our time line remains on track. The consideration involves 2.533 newly issued ordinary shares for every Mediobanca share tendered. Our goal is to acquire at least 66.67% of Mediobanca's share capital. This transaction represents a unique growth and value creation opportunity with a compelling financial proposition. We will generate approximately EUR 700 million per annum in pre-tax synergies. We will accelerate the activation of DTAs of around EUR 500 million per annum for 6 years. We expect double-digit accretion on adjusted earnings per share, and our organic capital generation enables 100% dividend payout with accretive dividend per share of around 20% compared to the Mediobanca stand-alone proposition. The dividend yield is definitely in the range of 11%, 12% among the highest in the European banking sector. The pro forma core Tier 1 remains strong at the level of approximately 16% throughout the plan, even with full payout, providing significant excess capital for strategic flexibility to capture other inorganic opportunities or enhance shareholder remuneration. Mediobanca shareholders by tendering their shares would also benefit from a significant side potential of Monte Paschi stock rerating. The industrial logic of combining Monte Paschi plus Mediobanca is crystal clear. The deal will position us as Italy's lending player with a balance sheet ready to capture future opportunities. The combination will be a more resilient and diversified banking group with a fully fledged offering of products and capabilities for a full range of small business, corporate, families and institutional clients and with a strong capacity to invest in new technologies. The transaction will support the development of Corporate Investment Bank and Wealth Management division, which are currently facing competitive pressure. It will open new horizons for consumer finance and provide a state-of-the-art digital platform through Banca Widiba to fully exploit Mediobanca Premier's potential. It will deliver benefits to the Italian real economy as well. In conclusion, our second quarter and first half 2025 financial results highlight our strong performance, commercial strength and efficient business model. With a quarterly profit of EUR 479 million and nearly EUR 900 million in the first half, we have demonstrated our ability to deliver a sustainable growth and high profitability. So on 18.6% reinforce, our financial strength and our risk profile further significantly improved. For full 2025 year, as I said, we raised the bar of pre-tax profit guidance of over EUR 1.5 billion driven by our strategic initiatives and strong commercial performance. Now let me address Mediobanca shareholders directly. I would like to take the opportunity to be [indiscernible] clear on the advantages of our [indiscernible] combination. Our model with Monte Paschi plus Mediobanca is broader and more diversified which makes earnings more resilient. We offer a stable growing platform with clear prospects. And this from the day 1 and from day 1, we always reaffirmed our value proposition because we firmly believe it will generate superior growth and value on diversity. On Mediobanca side, instead, moving bank at fourth, what we observe is an increasingly erratic strategic approach, position that shift without clear rationale, conditions that change suddenly and defensive posture that prioritize protection over value creation. This stands in stark contrast to our consistent, transparent and value-focused approach throughout this entire process. Our offer is not about replacing Mediobanca's strength, we respect what the talented people have built over the past 8 years. This is about unlocking their potential by combining them with Monte Paschi's scale, balance sheet strength and retail reach to create something neither institution can achieve independently. We have a track record to deliver on our promises that I believe is the basis of the trust and why endorsement we gained from our shareholders. And thanks to them, we are moving forward. But the real reward is the future. Following this business combination, we will have multiple value creation levers at our disposal, accelerated on organic growth, strategic opportunities from additional growth, from a position of strength, and we will have the flexibility for additional shareholder distribution as we optimize our combined platform. Looking ahead in the changing banking scenario, to tender Mediobanca share to Monte Paschi means becoming part of a future where we build a stronger, resilient, more competitive and prosperous banking institution together. Thank you for your attention, and I look forward to your questions.

[Operator Instructions] The first question comes from Ignacio Ulargui of BNP Paribas Exane.

I have 3 questions, if I may. I mean the first one is on the operational performance, which was quite strong in the quarter. Just wanted to get a bit of a sense of the strategy on deposits. We have seen current accounts growing 3% quarter-on-quarter. That has been a very solid performance on that side, whether that is kind of the driver to go in terms of improving funding cost and trying to reduce or to balance out a bit the decline in rates? And how should we think about NII? We have seen the bottom in this first half. Should we expect NII stabilizing here or growing from here? The second question is on Mediobanca and Banca Generali. I just wanted to get a bit of a sense of how do you see that deal and what would be the implications for you? And finally, one very quick comment on capital. I mean, why you are not upgrading further the payout ratio of the bank given the [ 18.6% ] CET1 ratio?

So let's start from deposits, right? So as I mentioned during the previous quarter, it's clear that we have a tactical and strategic approach on the side of deposits. Having in mind that for us, it's quite important to grow and to have a positive trend in retail deposits because they are strategic for our future growth and particularly on the side of potential conversion on asset management products. But clearly, we want to leverage on that in order also to further improve our net interest income dynamic. So we pay a lot of attention to price, particularly on the side of corporate deposit where the trade-off has been managed quite actively in the second half of the year. So going forward, we think that we can keep growing in market share as we are doing from the beginning of the year, but again, particularly focused on retail. Despite this intention, we feel comfortable to confirm the guidance regarding the net interest income for the end of the year. So we were mentioning high single-digit decrease, and this is something that we confirm. Hopefully, we can do also slightly better. It's clear that for the next quarters, we expect a further growth in average lending volume with a substantial stabilization of commercial spread in the fourth quarter. Thanks to that and based on what we are observing on the market, we believe that this trend will further find a stabilization in 2026, so that we are fully in line with what we were mentioning at the beginning of the year and also in the first quarter. So the situation is really progressing according to what were our expectations. So regarding the deal of Mediobanca and Banca Generali, honestly, I would like not to comment on that now, considering that today, [indiscernible] Generali Board has probably just started and the company expected to issue a press release later. And as Mediobanca mentioned, the outcome is crucial for eventual next steps on the transaction on Banca Generali. So about the payout ratio, it's clear that in the plan, in the combination with Mediobanca, we were already committed -- committing ourselves to get -- to increase both payout ratio that originally was 75%, 70%, then Mediobanca changed. But anyway, we said, as I mentioned, we committed to increase payout ratio to the level of 100%. It's clear that looking at the results we are reporting in the strong capital position, we are considering to anticipate this increase of payout ratio also for the current year.

The next question is from Luis Pratas of Autonomous Research.

My first one is on the 2025 guidance, please. So you essentially raised the pre-tax profit guidance to higher than EUR 1.5 billion. However, if I look at the first half 2025 run rate, the pretax profit is already at EUR 1.7 billion, so annualized. So I wanted to understand a bit better the trajectory in the second half of this year, in which areas do you expect a decrease in the P&L? And maybe if you could provide a more specific 2025 guidance across the main P&L lines. I'm thinking about fees, costs, cost of risk, it would be very helpful for us. And then yes, my second question is on M&A as well. I just heard your comments that you prefer to wait for the Generali communication. But given that this combination with Mediobanca is involved with so much hostility and if we look at the Italian banking market right now with Banco BPM now free, I just wanted to be direct and ask you if you could consider refocusing on your M&A ambitions and maybe walk away from this Mediobanca deal and actually target Banco BPM.

Okay. So I think normally, as I was mentioning last time, the third quarter, we have August and fees and commission have some seasonality as usually we are seeing. As well, we were mentioning that net interest income will have a single high digit. So it's clear that, as I mentioned, stabilization in the fourth quarter, but still in the second half of the year, net interest income is expected slightly to decrease. And then when we mentioned the overall landscape, it's clear that it's not proper to double the results of the first half historically and normally when you make this kind of forecast. And anyway, we were clearly stating well above EUR 1.5 billion. I'm not sure I understood well your question regarding the intention for us to give up the transaction of Mediobanca. I'm not sure because there was a bad hearing, right? So we are a serious institution and particularly focused in building up the third competitive force in the Italian landscape. And as I was mentioning, we are quite determined. And from the beginning of the year, all the organization, all the management team, all the Board of Directors is completely focused in getting this result. And we are fully convinced, motivated and committed to achieve it. But probably I didn't understand well your question. Anyway, this is the answer according to what I heard.

The next question is from Hugo Cruz of KBW.

Hope you can hear me. I have 4 questions. First question on NII. Can you remind us what are you doing in terms of hedging? And what is the yield of the bond portfolio? Second question on fees, a very strong bit in 2Q. Although it looks to me like it might have been from repricing of commercial banking fees. So I was just wondering if this fee growth was kind of a step-up from the repricing and we shouldn't expect such growth going forward? Or is there something else that I missed? Third question on -- you mentioned that you could anticipate the 100% payout already this year from dividends. I was wondering, is that dependent on the outcome of the Mediobanca offer or will happen regardless? And when can you actually confirm any increase in the payout? And finally, on the Mediobanca offer, if you could remind me what synergies do you expect if you end up controlling less than 50% of Mediobanca?

Hello. Hi, good morning to everybody. As regards the first question on hedging, actually, what we are doing, we are, let's say, putting in place hedging strategies to manage both NII sensitivity in the short term and EV sensitivity in the longer term, managing the trade-off between the 2. In particular, as you know, our hedging strategy is mainly based on natural hedges. And so we are supporting in this respect by the strong flows of mortgages since the vast majority or almost all like 99% of the new flows of retail mortgages is at fixed rate, and this helps us to manage NII sensitivity in the short term.

Okay. So I will answer about the fees and commission trend. It's clear that we were saying from the very beginning that the fees and commission are part of our focus and strategic driver also in the business plan we presented last year. We strongly believe that we have to keep this pace, and we have the possibility to do it because it is a result of some investments we put in place in terms of way, how we deal with customers also on a remote way. That's why we are quite confident we can keep the pace, having in mind only that, as we mentioned, there are some seasonality connected with the fees and commission. Anyway, we expect to keep the pace achieved in the first half. As I said, with this 1 or 2 weeks where necessarily in August, we are going to have this seasonal approach. But I believe that by maintaining the focus on lending activity, both in consumer lending and corporate as well as concentrating on the growth on wealth management products, we are confident we can keep a very good level of fees and commission in the second part of the year. I think it's worth to mention that the results are not connected with any repricing action. I think in the last 2 years, we didn't do any even massive change of tariff. It's just because we have a very strong commercial activity. We have a team that is particularly focused in improving further developing relation with our valuable customers. So fees and commission is our focus, and we will keep the pace going forward. So regarding the payout, we were just mentioning that it's something which we are clearly thinking. It's normal to see how we will evolve the second part of the year in terms of performance, but we are confident that we can anticipate the payout ratio up to 100% in 2025 already. Then regarding the threshold, right, we were saying that our goal is to achieve at least 66.67%. And clearly, we are going in this direction because we believe that this -- the outcome of our offer will be very positive. But just as information, if even below 50%, we will get synergies despite -- will take a bit longer period of time. But as we were very conservative in fixing EUR 700 million of amount of synergies, I believe that by entering and having a better view from the inside of Mediobanca, we can review also this amount of synergies and practically even getting the same amount in the first 3 years with a level that is even below 50%. What -- the only thing is changing is the DTAs because in order to get the acceleration, we need to be above 50% in order to have the consolidated balance sheet. But even below 50%, the synergies will accelerate compared to Monte Paschi stand-alone situation. So only positive message on the side of the deal.

I forgot to answer to the question on the yield of the banking securities, our value and [ cost ] portfolio of banking group of around EUR 9 billion as an yield -- an average yield of 3%.

The next question is from Andrea Lisi of Equita.