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 2026 Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luigi Lovaglio, Chief Executive Officer. Please go ahead, sir. .

Thank you very much. Good morning, and thank you for joining us. The first half of 2026 confirms the quality of our transformational journey of growth. We are presenting today the evidence of the industrial scale that Monte past has achieved together with Mediobanca. And let me be clear, this is only the beginning of what that combination can do. In the first 6 months of the year, we generated more than EUR 1.1 billion in net profit. We expanded lending, we increased customer financial assets and with strengthening capital -- we continue to deliver strong, sustainable and increasingly diversified performance, thanks to a stronger franchise and more diversified business model and the greater ability to create value over time. Mulpark today is a strategic asset of the Italian economy. It is an important economic infrastructure of this country. It has systemic value that systemic value depends on the integrity of the bank itself. Let me put simple. If you split the power station in 2, each part may still stand but you risk losing power. You reduce the capacity to deliver energy where it is needed. Banking works the same way. Monte Past is not just a collection of branches. It is a network of relationship with knowledge and trust. Branches are not words. They are antennas. Every day, they collect seniors from the real economy and the turn local savings into credit credit into investment into economy growth. If the system loses power, business receives less synergy -- that is less credit, slower and more expensive decision, less support for the real economy. So the question is not only what Monte Paschi worth today, it is what value our bank can generate for this country tomorrow. But now let's focus on the results achieved -- what stands out in the second quarter is quality. -- growth in earnings, growing commercial activity, growing client assets and further strengthening of the capital Net profit exceeded EUR 600 million in the quarter and EUR 1.1 billion in the first half. Revenues increased costs remain under control, capital strengthening to 16.3%. Customer assets at EUR 300 billion and continue to grow across all major business lines. The most important message is that performance is becoming a broader and more diversified driven by strength of the franchise as a whole. Profitability continues to improve, quarter after quarter, year after year. Second quarter net profit exceeded EUR 600 million, more than 20% versus the first quarter. First half net profit exceeded EUR 1.1 billion. This level of profitability is creating value today, but is also creating strategic optionality for tomorrow. Moving to the next operating profit. Net operating profit exceeded EUR 1 billion in the quarter and EUR 2 billion in the first half. Growth reached 11.8% quarter-on-quarter and 8.2% year-on-year. This is one of the cleanest indicator of the quality of the business. It shows that growth is being generated by the core franchise. So stronger revenue, a better business mix, disciplined cost and controlled risks. Now let me show how this translates into operating leverage. Second quarter gross operating profit reached almost EUR 1.2 billion, up 8.7% quarter-on-quarter and 11.4% year-on-year. This reflects a strong combination of revenue acceleration and cost discipline. Revenues increased during the quarter, supported by excellent fee performance. At the same time, operating costs remain under control. As a result, the cost/income ratio improved further to 42%. This is a positive jaws, and positive jobs are 1 of the key indicators of execution quality. Let me now take you to the first half view of the gross operating profit. The first half picture confirms the same trend. Revenues increased 4.1% year-on-year. Operating costs declined 0.7% gross operating profit increased 8% to EUR 2.3 billion, and the cost income ratio improved by 2 percentage points to 43%. The message is straight forward. we are delivering profitable growth, we are maintaining cost discipline. Our capability in execution is the key driver of value creation. Let me now move to the 2 main revenue pillars, starting with the net interest income and then fees. Net interest income remains remarkably resilient and at approximately EUR 2.1 billion in the first half, an increase to EUR 1.06 billion in the second quarter. Growth in volume, affecting management of commercial spreads. These factors confirm that the bank is able to protect margins while supporting lending growth. At the same time, we're enjoying an increasing contribution from fees and capital-light businesses, and it is visible on the next slide. If there is 1 area that best illustrates the evolution of our business model, it is fees. The income is becoming an increasingly powerful growth engine. Quarterly fees reached EUR 617 million, an increase of 8.4% quarter-on-quarter and 9% year-on-year. Growth was driven by Wealth Management advisory activity and commercial banking fees. This is exactly the trajectory we outlined when presenting our strategic plan as a cushion continues to validate that strategy. Looking at the first half as a whole, fees increased to almost EUR 1.3 billion, growth reached 3.6% year-on-year. The direction is clear, more diversification, more recurring revenues and more resilience. It is the result of client relationship and advisory expertise and demonstrates the value of our group distribution platform, combining synergically Mediobanca and Monte Paschi capabilities. Let's now look at what is sits behind these terms of commercial in terms of commercial momentum. Commercial performance remained exceptionally strong. Customer financial assets reached EUR 300 billion wealth management gross inflow exceeds EUR 6 billion. Mortgage production increased strongly. Consumer finance continued to expand. What these numbers really represent is trust, trust from our salts from business, from communities and trust remain 1 of the most valuable asset a bank can have. Multi is not a simply collection of asset. It is a network of a relationship, knowledge and trust built over generations. Customer loans continued to expand, reaching EUR 151 million, up 1.8% quarter-on-quarter and up 5.6% year-on-year. Growth was broad-based retail banking, consumer finance, corporate investment banking. We continue gaining market share in businesses where relationship met our most. These are important because loan growth remains 1 of the clearest indicators or relevance within the real economy. Commercial direct savings reached EUR 107 billion, up on year and up sequentially. The important point is that customer balances remain stable despite a highly competitive environment, the stabilities provides funding strength, funding strength support lending growth and lending growth supports economy and consequently earning generation. This is our franchise value is created over time. Now let's move to Android funding. And direct funding reached EUR 193 billion growth exceeded 9% year-on-year. Assets under management increased more than 10% asset under custody also continue to expand. This is 1 of the strongest indicator of our strategic evolution. The group is becoming increasingly diversified, increasing wealth management oriented and increasingly focused on recurring customer revenues. This trend improves earning quality, improved resilience and strengthening valuation fundamentals because high-quality assets generate long-term value creation. Let me now turn to costs. Second quarter operating cost at EUR 167 million, down by 2.2% compared with the same quarter last year. The dynamic quarter-on-quarter is up, almost absorbing inflation, labor contract renewal impact and higher variable remuneration accruals linked to performance. Let me look at now at the first half cost evolution. In the old first half, operating cost declined by 0.7% year-on-year to EUR 1.7 billion. This may appear straightforward. In reality, it is a significant achievement. We absorbed inflation, we absorbed labor contract renewals we continue to invest in strategic initiatives and yet total operating cost still declining. The key takeaway is execution. Revenue growth is important, but sustainable shareholder value is created when revenues grow is accompanied by cost discipline. That combination is visible throughout our results. Turning to asset quality. As you can see, asset quality remains very solid. Cost of risk remained fully under control and fully aligned with our business plan trajectory. NPE ratio, both gross and net remain at the best levels, and this reflects quality of our underwriting and quality of our risk management framework. Liquidity remains exceptionally strong. Counterbalancing capacity stands at almost EUR 50 billion the LCR increased to 169% and the NSFR remains at the level of 122%. During the quarter, we successfully completed additional wholesale funding transaction, including senior recovered bond issues. The group continues to retain significant flexibility. Now capital. Capital remains 1 of the strongest differentiators of the group. Our fully loaded core Tier 1 ratio increased to 16.3%, a an increase of 40 basis points during the quarter. Our capital buffer remains among the strongest in the sector, close to 680 basis points above regulatory requirements. Capital strength gives us 3 advantages, flexibility to support growth flexibility to reward shareholders and flexibility to evaluate strategic opportunities. In the current strategic context, our capital position is 1 of the reasons why Monte Paschi can assess every strategic development from a position of strength. Now Purchase price allocation on this slide provides an update on the purchase price allocation process related to Mediobanca. The process was substantially completed during the second quarter. The final allocation identified intangible assets, including brand value, customer relationship and core deposits. Following the completion of the process, goodwill stands at approximately EUR 2 billion. This milestone provides greater visibility and represent another important step in the integration journey, a journey that continues to progress according to plan. Let me briefly comment on Mediobanca first half performance. Mediobanca delivered a strong set of results, confirming that the quality and the resilience of the franchise. Revenues increased to almost EUR 2 billion. Net profit exceeded EUR 710 million and return on tangible equity reached approximately 15% and supported by record performances in corporate investment banking and consumer finance. The second quarter was particularly strong, with revenues above EUR 1 billion and net profit of almost EUR 390 million. Growth was supported by multiple business engines, including corporate investment banking, consumer and finance and insurance, while maintaining strong capital, excellent asset quality and cost income ratio below 40%. The Wealth Management franchise continued to stabilize during the quarter. Assets under management increased net outflows reduced significantly compared with the first quarter. I strongly believe that this is a strong signal, how important and strong and powerful is a combination between Mediobanca and Monte Paschi. And I strongly believe the trend that Mediobaca is presenting will further improve, providing even higher contribution to the total profitability of the group. Let me now show why the combined business mix is strategically important. This slide makes the valuation logic of the group more explicit. Today, our revenues base is supported by multiple high-quality business line with significant weight of asset catering and wealth management businesses. This diversification is increasingly valuable and strengthening its earning sustainability. We are building a business model that is more balanced, more scalable and better positioned for long-term value creation. This continued growth evolution supports a step-up in earnings quality and over time, a rerating of the group's valuation profile. This is precisely the direction outlined in our strategic plan. Let me spend a moment on integration. Execution remains exactly where this should be on track and on time. Over the last few months, we have moved from planning to implementation across all major work streams. We have completed the key corporate steps submitted the core regulatory filings and continue to work closely with the competent authorities as we target regulatory approvals during the third quarter. and the effectiveness of the reorganization in the fourth quarter. At the same time, business transformation initiatives are already being implemented, current coverage models have been defined. Commercial cooperation between networks and product factory is progressing and the future operating model is taking shape. The integration platform data and security infrastructure is progressing according to plan and remains fully aligned with our day 1 objectives. Equally important, we have secured all the legal, regulatory and compliance foundation required for a successful integration. The integration is really becoming an operational reality. It brings us closer to unlocking the full value of the combination. Let me conclude this section with what ultimately matters most value creation. Synergi is progressing ahead of schedule, giving comfort to deliver results even above the target of 2026. On the revenue side, we are already seeing tangible results mainly from increasing collaboration between corporate and investment banking by executing together with Monte Paschi joint leading lending and advisory transaction. Distribution of Mediobanca certificate and asset management products, launch of lending products factories distribution. On the cost side, -- the group is capturing benefits from optimizing procurement and shared supplier agreements, launching joint tenders and removing duplication like in provider or facility contracts. On the funding side, we continue to benefit from issuing execute at a higher spread, leveraging the scale and the strength of the combined group. Let me now address the offer announced by Intesa San Paulo. As already communicated by the Board, the preliminary observations published on 16, July remain fully valid. The Board's preliminary view is that Intesa Sanpaolo does not currently appear to fully compensate Monte Paschi shareholders for control, synergies and franchise value, while exposing them with a cushion and regulatory risks. While conversely, Monte Paschi Plus Mediobanca strategy has a strong industrial rationale and the clear execution profile which among other things, envisages significant value creation and cumulative shareholder distribution of EUR 16 billion over the planned period. I have consistently supported banking consolidation. Scale matters, investment capacity matters, technology matters. But scale should strengthen players, not reduce diversity. Consolidation should ultimately be evaluated through industrial logic and value creation, not fragmentation. Competition remains a fundamental source of innovation, customer service resilient. The competition survives because there is a variety of players. A national champion should strengthen the country's competitive fabric, not reduce it. Otherwise, the crown may become larger, but the kingdom becomes smaller. That's why the Board with the support of its adviser will continue to conduct this assessment independently and rigorously. The objective is clear, to identify the optimal path that maximize value for Monte paschi stakeholder while presenting the integrity of the franchise. Let me conclude with 3 final observations. The first half confirms the strength of our operating performance. Net profit exceeded EUR 1.1 billion, profit before tax approached EUR 2 billion, double-digit growth dynamic year-on-year. Commercial momentum remained strong. capital continued to grow, and asset quality remains excellent. The integration with Mediobanca continues to validate its industrial rationale. Execution is progressing according to the plan synergies materialize, making us comfortable to exceed our original target. Our confidence in the future continues to increase and the visibility provided by current performance allows us to raise our guidance for 2026, profit before tax to EUR 3.6 billion. Finally, I would like to say that like in the tea point, which now has become a massive movie, some routes close and others open. From our safe harbor, we will continue our own journey fully committed to exploring every strategic option that can create long-term value for our stakeholders. Thank you. I'm now happy to take your questions.

[Operator Instructions] The first question comes from Sofie Peterzens of Goldman Sachs. .

My first question would be on the strategic options that you're evaluating. Could you maybe elaborate a little bit more here also what the timetable is how long it would take to get the EGM approval or do you call the story if you can kind of discuss the strategic options, we also really also consider setting the Generali stake. And yes, what are you kind of thinking about? And then my second question would be on dividends. How should we think about potential interim dividend be in like or announced with the third quarter, do you still consider interim dividends? Or is this kind of off the table?

Okay. So I just take the question regarding the strategic option. So I believe the real question is which strategic path best unlocks the value, and I believe the best outcome is the 1 that delivers full value and carries forward what we have built rather than fragmented it. So as you know, building the best strategic option is much like assembling Mosaic. For 1 time, the pieces kept moving. Then 1 by one, the picture comes due to focus. So we are fully committed to explore any opportunity with a clear direction to optimize the value for our shareholders. .

Good morning. On the timetable, it takes 30 days to call an EGM. So we are -- we will be on time anyway. As regarding the interim question on interim dividend, the assessment will be done in the context of the analysis of the strategic options that, as the CEO said, we will carry out following a rigorous approach and aimed at maximizing long-term value for our stakeholders. .

Okay. And GM, just on the -- according to GM, you haven't done it yet, right?

We haven't called any GM yet. As said, there will be any way an EGM that will be called for the integration for the merger with Mediobanca that is expected based on the current table to be convened in the first half of September. So the notice will be issued in the first half of September.

The next question is from Luis Pratas of Autonomous.

My first 1 is on the Generali stake. There has been plenty of speculation about a sale of this stake I wanted to ask you how strategic is the generalistic for you. How much capital do you think you could release if there was a sale? And instead of a sale, could you consider distributing the stake in kind to your own shareholders? And then my second question is again on defensive actions. -- this is related with Banco BPM. So the last Friday, we have Banco BPM Board of Directors terminating the measure of discussions with I wanted to ask you whether you could provide extra color on what went wrong for no agreement to be reached and whether investors should now put this chapter with Banco BPM -- or could you become a bit more aggressive and still pursue Banco BPM in a takeover offer as speculated in the press.

Okay. Thank you. Thank you for raising this topic about Generali. So I described the stake in Generali is a nice to have. because it represents an important source of value and strategic optionality for Monte Paschi Mediobanca Group. I have to say that it also seems to be regarded as a particularly relevant nice to have by a number of other market participants. . Any future decision will be assessed in the interest of Montepaschi shareholders. Taking into account the value of the stake, the capital and the regulatory implication market condition and the group's industrial strategy. As far as Bami, so I would separate the 2 points. The decision to discontinue the consultation was taken and communicated by Banco BPM Board of Directors. It is not for Monte Paschi to comment on the counterpart is internal decision-making process. What I can say that we didn't approach this opportunity factors. We analyze with convention because we saw the potential to create a leading Italian banking and financial group capable to delivering significant value for the shareholders of both banks. . As Banco BPM itself acknowledge, the industrial rationale was significant. However, the discussion didn't progress to a stage where structural evaluation terms could be fully discussed and assessed. Banco BPM solesocontinue the consultation before that point. So we respect the decision and we move forward accordingly. . On the second question, I don't honestly think investor should think in terms of chapter being closed or open. Today, there is no transaction under discussion with Banco. -- right, because our focus is not on posing transaction, our focus in creating value for multiparty shareholders. So as I said, the strategic opportunities arise, we will assess them with the same discipline. We always have industrial atonal value creation, capital efficiency as a cut uncertainty and regulatory feasibility -- and perhaps there is where -- this is practically where a maritime analogy is usable. Now as I mentioned before, like the disappoint, some routes close and others open. And I have to say that heavy experience Navigators knows that winds can change. Sometimes they carry you towards new destination. Sometimes they bring you back to ports from which you had previously sailed away. So our responsibility is not to predict the wind because it's quite difficult, but to be ready to capture it, whenever it serves the interest of our shareholders.

On the capital treatment of Generali currently in our regulatory capital around EUR 4 billion is goodwill, which is currently deducted pro rata then following the merger with Minto Bank will be reduced around EUR 2.5 billion is deducted. So on top and the rest to get to our carrying value, which is currently EUR 6.9 billion is risk-weighted assets at 250%.

The next question is from Lauren Jacome of Intermonte.

Yes, 3. So the first 1 is on fees. Basically, the fees rose 8.4% quarter-on-quarter with the release that was flagging a few larger CIB transactions. So I was wondering how much of this quarter's level is a one-off deal driven versus a sustainable run rate? And what's the underlying current trajectory for the remaining part of the year? And the second 1 is on trading, which was pretty strong for the first half. I was wondering if you can give us some color about the -- again, the trajectory of the second half '26. And the third one is again on the strategic options. So can you be a little bit more specific on what these options actually are on the perimeter you're looking at and on the potential time frame of the potential decisions. And if a credible combination, I mean, were to present itself what are the 2 or 3 nonnegotiable conditions the Board would require before engaging.

Okay. So I will take the 2 questions regarding fees and then the other 2 strategic question rate on option and what is not negotiable on, as you said, right? Okay? Let's start from the fees. I think . As I mentioned during my presentation, this is a key pillar of our strategic plan. We strongly believe that we have a huge potential in terms of network franchise of both institutions. In this quarter, there was a particular high performance from Mediobanca from some transactions connected with -- performed by corporate investment banking. I really believe that despite this was an important transaction, so we can consider as exceptional one. My view on the potential of Mediobanca is that there we can really aim at getting significant higher contribution going forward. . So what we can consider as an exceptional one according to me can be considered like recurrent in a very short period of time. The combination of Mediobanca with Monte Paschi is a very successful, strong industrial, powerful combination. So -- having said that, in terms of guidelines, as we were already mentioned in the previous presentation, we believe the fees and commission will keep having a positive trend as usual in the third quarter. We're going to have our old period. But I believe that also quarter-on-quarter -- year-on-year, we will show a positive dynamic. And we are fully focused on getting this trend in a growing mode considering that the synergies that we plan to realize when Mediobanca are really reaching a level that make us thinking that can be even above the target we set in our business plan. So positive trend, thanks to the strength of the 2 franchises. Now I think on strategic option, I already mentioned, it's quite difficult to now to go deeper in what was the key message we passed during the presentation. As we were discussing during the Board in July and also recently, and I think it's quite well described. What is considered by the Board. Important in our press release, I want just additionally to mention that we are looking for a strategic option that will generate significant value for our shareholder for all stakeholders, aiming at preserving the integrity of our institution. And I think this is 1 of the most important aspect in the direction that the Board expressed with the communication on the 16th of July, but not because we believe and there is a sense of tradition on that just because I strongly and personally believe that breaking up a network, we are not increasing value. not only for stakeholders, but also for the economy of the country. And that's why we are fully committed in looking for solutions that will generate additional value for all stakeholders. And the integrity of the network for us is an important driver of this target.

On trading, yes, on trading is slightly more difficult to forecast compared to NII fees. First and second quarter were particularly good. Having said that, we still expect a relevant contribution also for the next quarters, thanks to our activity, which is mainly client-driven and also to the expertise of our markets people, both at Mediobanca and Montepaschi in structuring solutions for our clients .

On synergies, as you said, I mean, synergies may prove even higher than your EUR 700 million target, but do you have like any color about how much higher or -- yes, maybe approval or not .

This is a moving target, I have to say, because every day, we are enjoying a strong cooperation between the teams. And so I can say just based on what we are observing in terms of trend, at least we can have a growth compared to the original target of other EUR 100 million. But that's, as I said, is something that we are going to explore, and I believe it can be a target that will make a thinking more and more about powerful is our combination. .