Banco BPM S.p.A. (BAMI) Earnings Call Transcript & Summary

Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM Group 9 Months 2024 Results Conference Call. [Operator Instructions]. At this time, I would like to turn the conference over to Mr. Arne Riscassi, IR Manager of Banco BPM Group. Please go ahead, sir.

Good evening, everybody. I will apologize for the delay. Let me remind you that today, the conference call will be focused both on the 9-month group results of Banco BPM and of the just announced cash tender offer -- public tender offer that we launched to Anima. Now I leave the floor to Mr. Castagna. Thank you.

Good evening, everybody. Sorry also on my behalf, I will try to keep as less time as possible to give you the presentation, because you got the presentation early this afternoon. So I'm sure you have gone through the different aspect. But having such an outstanding figure to present, I will spend some of the time of this evening also to underline some of the more important aspect of our 9 months results, especially because some of them are very much linked to the second announce of the evening. Again, we're able to present only a few minutes ago the press release on our public offer on Anima which is very much consistent with our business plan, with our investor plan, which was clearly focusing the growth on the product factory and the opportunity to launch this offer on Anima will increase even more the results of the group over the plan horizon, and balance even more the total revenues between NII reduction and growth in core commission and stakeholding participation. Let's start from Page 6, where some outline on the main figure, the Q3 was very good, both in terms of normal activity, where we had a growth of 19% over the last quarter. On top of that, we also reduce as was very well known, almost EUR 500 million of capital gain on the Numia transaction related to the payment service. This allow us to be confident to over-perform the EUR 0.95 for full year 2024 EPS previous guidance, which we increased from EUR 0.90 last quarter. The dividend -- the Board today approved also the interim dividend for EUR 600 million, EUR 0.4 dividend per share on EUR 0.75 dividend per share already matured in 9 months '24. The total payment of dividends paid out in 2024, grew to EUR 1.45 billion, which is EUR 150 million more than original plan guidance. Also, the outlook is very good, thanks to the reduction of the sensitivity of NII of EUR 50 million from EUR 250 million to EUR 200 million. The progressive deployment, which we start already to register in '24 and will continue in '25 on top, of course, of the transaction that we anticipated, which will have full steam in 2026. Also on the derisking side, we are ahead of the plan and we have also matched the derisking with the disposal of -- for EUR 300 million consideration of non-instrumental real estate assets, all paid into the Q3 results. This results have been obtained through core revenues increase of 6.7% vis-a-vis 9 months '23. Let's consider that the business plan had a forecast of 1% per year. So we are also in this respect ahead of the plan. Gross NPE ratio, reduction of 18% year-on-year, anticipating EUR 620 million of NPE disposal in the first 9 months '24 vis-a-vis with respect to EUR 700 million of total NPE to be disposed that we will complete by year-end. Common Equity Tier 1 increased 132 basis points in 9 months '24, not considering -- considering also a negative effect on the Numia transaction related to the increase of our stakeholder participation for a consideration of EUR 300 million. The Common Equity Tier 1 ratio stands now at 15.50% -- 15.48%. 2 important transaction well on track. The first one we already talked about, Numia, which was closed in 20 -- in the 30th of September '24. We will discuss deeply about that in the next page. But I take this occasion to eventually present very good results also in the life insurance business where we increased our performance from EUR 50 million of each month '24 to EUR 71 million of revenues coming from this activity with an acceleration in Q3, including a reversal in loss component for EUR 18 million, which was negative in H1 is now been reversed. So the total increase was of another EUR 56 million. Some figure on Page 8 about the standing point vis-a-vis the last year and with respect to the target of the plan. Both total revenues are up 9% on the plan, 8% on last year's results with a contribution from the key product factories already in line with the big increase that we forecasted when we presented the business plan. Let's remember that we -- forecasted increase with this activity of EUR 260 million over the planned horizon, EUR 80 million of that have already reached in the first 9 months of the year. Pre-provision income stands at EUR 819 million, 12% above last year, 9 months and 19% above the average quarter of the business plan. We already talked about cost of risk, 40 basis points out of the 45 basis points of the plan as well as cost income is below with a target of below 47%with a target of below 50% from the strategic plan. Just 2 numbers about the Numia deal. I would not consider the left side of the slide, which is quite clear. I would stress some activity that we started only in September this year, so only 1 month of activity in Q3, we were able to switch in September, October this year, 46,000 POS from the previous partnership to Numia, out of the 140,000 POS -- total 40,000 POS. But this, of course, were the most interesting in terms of transaction so that means that we have switched already to Numia more than 65% of the total retail acquiring volumes, which in turn represent the retail volumes 80% of the total transacted by the bank. We will be very confident to complete by the first part of '25 also all the migration of the domain impulse. Let's go to Page 11, some figure. I would underline only some of these numbers, a very good Q3 result. Net interest income higher than Q2 with 9 months higher 7% on last year, very sound. Also the commission only 2% in the quarter, below the previous quarter, but above 4% above 9 months '23. Strong results, as I was mentioning before, from insurance where we passed from EUR 50 million in H1 to EUR 71 million in 9 months '24. This was mainly through the possibility to start offering to our clients, the new product on bank insurance life, ramo primo released by Generali only at the beginning in September. We have already placed in this first 2 months, almost EUR 500 million of product, which balanced the request of this investment on the old product, which together with the decrease of interest rate brought revaluation on CSM of the company of EUR 71 million in the first 9 months, which will lead to reach the guidance for EUR 95 million, which is between EUR 95 million and EUR 100 million. Very happy to confirm this number because in the first half the year, of course, we had to cope with the difficulties of not having product to propose to our clients. Core revenues up 7%. Total revenues with a good performance on NFR, thanks to the coverage of the portfolio of the bank -- of the deposit of the bank and on the govies of the bank, which grew to EUR 226million, EUR 100 million more the result of last year as well as also the figure of this quarter is almost EUR 100 million higher than last year. Operating costs in line with last year, considering the effect of the cost of personnel, which, as you know, increase for EUR 75 million during the first 9 months of this year vis-a-vis last year, which brings to a pre-provision income of 18% quarter-on-quarter and 12% on the year-on-year comparison. Loan loss provision in line with the previous quarter at slightly above EUR 100 million and EUR 300 million for the all '24. Profit -- pretax profit grew to 21% year-on-year and 18% on a quarterly basis. After tax, we have a net profit, which is 20% year-on-year and 15% higher quarter-on-quarter. Of course, we have also the one-off of EUR 456 million which is mainly due to the Numia transaction, which brings the final result to slightly below EUR 1.7 billion stated and without the Numia transaction, EUR 1,245 million adjusted. Let me just remember that this figure is equivalent to the net profit of the whole 2023. Let me go to Page 13, directly. In terms of NII because these are the actions we implemented in order to get the good results we've shown on the profit and loss we have increased to EUR 21 billion the replicating portfolio. We have already started forward another EUR 2 billion of cover in order to try to reach the target of EUR 25 billion, which we had in the business plan. Also very successful in respect was the switch that we did in the first 6 months of the year from non-index to index the current account. This has allowed us to reduce massively the rates quarterly, of more than 50 basis points as far as indexed rate and having switched also the more price non-indexed rate. Also this rate came down from 26 basis points to 10 basis points. Leading, of course, to the results that we showed in the presentation. These are the drivers on the sensitivity, then we have very strong driver source in terms of effect on forecasts of the future of NII. As you may know, we have a big upgrade in terms of credit rating confirmed also by Standard and Poor with 1 notch upgrade during October. And this is leading to a global savings on EUR 100 million through the plan in 2026 in terms of lower interest paid in our wholesale issuing. The same on the respect to the time deposit, we are still EUR 1 billion time deposit issued with a target for this year of EUR 4.5 billion, and the total target of EUR 9 billion, let me remind that every EUR 1 billion of lower issuing on time deposit, we save respect to the planned EUR 15 million in 2026. And this, of course, is to be added to the EUR 100 million of the wholesale funding. Financial asset, very strong, EUR 8 billion of increase during the year. We have to complete the plan basically another EUR 8 million to EUR 9 billion, but we have the next 2 years to do that. Core direct deposit looks like to be down EUR 1.5 billion. This is the effect from one side to the already announced reduction of EUR 2.7 billion of institutional customer deposits, which were priced Euribor plus, which are not anymore in the balance sheet since July. And also a strange calendar effect, which the day after the 30th of September, bring -- brought back to us EUR 1.4 billion due to the receivables let's say that end of October, we were already back to EUR 100 billion of core deposits. In terms of loans, we have as all the market, registering a reduction in terms of loans to clients, especially with financial counterparties. Meanwhile, nonfinancial corporates are standing more or less at the same level of beginning of the year. Let me remind that this slow pace on loans is allowing us to improve the quality of portfolio where we have 55% of nonfinancial corporates secured, 28% with state guarantee and 27% with mortgages. The recovery with the interest rate reduction in September, October, brought already in October some more activity, especially in mortgages, and we have a new lending for EUR 1.8 billion in October. Fees and commission, we already mentioned and maybe I can go through only remembering that as investment product fees, we did the same result of Q2 in which Q3 is very much affected by August, but nevertheless, we were able to obtain a very good result. The EUR 10 million -- EUR 12 million that are missing from Q2 to Q3 are related to lower commission from the almost terminated impact of [indiscernible] bonds and super bonds. Cost to income, below 47%, 46.7%, still impacted by staff cost. As you know, we have, from one side, the impact of the new labor contract, which amount to EUR 75 million and will account for almost EUR 100 million end of the year, with EUR 25 million each in '25 and '26. Unfortunately, we don't have yet reached an agreement with the union. So I cannot bring you the countermeasure that we have already determined in order to reduce, thanks to the early retirement scheme and early -- the possibility to have an early retirement also not authorized by the union, but through individual agreement with our colleague, which should bring in any case, to a reduction over the year over the announced 800 people. I think we already spoke about derisking. We are now at EUR 3.2 billion, EUR 1.9 billion UTP, EUR 1.3 billion of bad loans. More than EUR 800 million of this EUR 3 billion our loans guaranteed by the state. Of course, this reduce the collateralization of the NPEs -- of total NPEs, which without the state guarantee would be at 74% for bad loans, 44% of UTP and 54% as total NPEs. The recent transaction of further disposal reduced a bit the coverage but reduce also the vintage of our NPE portfolio, which went down from 3.5 years to 2.7 years and especially in bad loans from 5 years to 3.8 years. I will leave to Edoardo Ginevra for some comment from the financial.

I would go very fast on the main items, which did not show significant change against the -- versus the previous quarter. So especially in Page 18. You will see that most of the aggregates -- indicators and aggregates that are shown on this page are similar to the level they had in June. One noteworthy point is that in terms of ESG bonds share in the corporate proprietary portfolio were already at 35.4%. It was 29.1% at the beginning of the year. So going directly to Page 19, some points here worth mentioning. First, the improvement in fair value through other income reserves which now net tax -- net DTAs are at EUR 427 million. They were at EUR 492 million in end of June. Most of all, the positive evolution of the net financial result that was already commented by Giuseppe in the page on the overall P&L. Here, the main driver of this positive evolution is the contribution to P&L of hedging strategies we have deployed in -- since the first months of the year, to counterbalance the impact of reducing rates. Those strategies basically based on options or options provided a negative contribution in the second quarter against an increasing trend in the mid part of the year curve, but a very positive contribution in this third quarter against a reduction of the negative cost of funding of certificates, leading us in the forthcoming in the future interest rate environment to forecast a neutral evolution over this overall basis of this component of the P&L, whereby the cost of certificate is expected to be, lightly speaking, offset by the positive components also going forward. On liquidity and funding position, which is Page 20, we want to highlight the improvement in ratings already mentioned in the first part of this presentation with S&P very recently upgrading to BBB 1 notch, and latest from Morningstar, this week improved to positive outlook or positive trend, as it's called by that agency. Liquidity level is at EUR 49 billion, LCR 153%, NSFR stable. MREL buffer, very important to note, is above 11 percentage points. Page 21, let me spend a few words on the evolution of capital. We started the year at 14.16%. We are now at a very important level and outstanding level, I would say, over 15.48%. This was the result of 300 basis points of organic capital generation from P&L. 2/3 of this is reduction due to dividends plus a small negative contribution from the coupons on AT1. Numia transaction, which was, of course, accounted for in net profit is also generating an impact as we have communicated to the market due to the reduction of the participation of 49 basis points. The evolution of reserves, I commented a couple of slide before here contributes possibly for 12 basis points. Synthetic securitization, which we have been using since 2021 regularly to improve our capital position -- gave a contribution of -- 28 basis points, then there is the impact of the other components, including those regulatory impacts, which we have communicated in the previous quarter, for a positive amount of 52 basis points. MDA buffer is at 641 basis points. Tier 1, at 17.7% to total 20.7%. Important to note that on top of the current very abundant level of capital, we have also additional tailwinds created by those items that are currently deducted and that in the future are expected to be progressively to be used for creating additional capital. I'm referring to DTAs and to fair value comprehensive income reserves. The order of magnitude is above 300 basis points, half of this 300 basis points will materialize into capital in -- by 2026. For the financial remarks, I'll give the floor to Giuseppe.

Yes. Very quickly, basically, this performance is also in a situation where interest rates are going down much quicker than we expected -- allow us to be very positive on confirming the EUR 6 billion target of the plan, also with an average Euribor at 2% in 26. So meanwhile, the plan was more or less 3% of Euribor in '26, we are able to confirm that we will be able to reach the same result with a real faster reduction, quick reduction at 2% in 2026. This comes, of course, from the speed, and good experience of this first 9 months. As you can see on the left side, we were expecting 90 basis -- EUR 0.90 of EPS as a guidance in the business plan for '24 with an Euribor environment at 4%, we have been able to improve to higher than EUR 0.99 with an Euribor that we expect end of the year over an average 3.5%, 3.6%. This gives us together with our reduced sensitivity and with work progressing on the product factory to be really consistent in confirming our overall result. On the right side, again, this strong increase in capital, of course, give us room for the distribution of dividends we already anticipated EUR 150 million -- overdelivery EUR 150 million over the plan. And with a total dividend yield for 2024 overall of 15%. And if we are now annualized the interim dividend distributed with the approval of today, we will have a 12% dividend yield annualized. So we are confident to be still ahead of the trajectory towards the EUR 4 billion cumulative remuneration target for our shareholders. This, of course, is on a stand-alone situation. Let me spend, of course, another 10 minutes about the announcement we have just brought forward the public offer -- voluntary public offer on Anima stake. This, for us, is a transformational deal, which will strengthen our business model and delivering value for our shareholders. We are creating a true Banco BPM Vita an integrated life insurance and asset management champion in Italy, which we rank at the second place amongst the bank with a total asset under management and EUR 217 billion, combining our first-class distribution, especially in the north of Italy, where we have a market share of almost 10% with the more than 100 agreement that Anima had in place with distribution partner. And with a very attractive value proposition for our shareholders, for which we will increase our RTE performance in 2026 from 13% to 17%, with an offer to Anima shareholders, which is 25% higher on the average over the last 6 months. Why there is a very solid industrial rationale for this transaction. First of all, we will strengthen Banco BPM Vita as a life insurance and asset manager product factory of the group, coordinating the offer of life insurance and asset management product, which we know are so close, so complementary each other and offer to our client will increase the efficiency in managing also Banco BPM Vita and Vera Vita reserves and assets and exploit the potential economy of scale and scope to integrate product development and a more efficient risk and investment strategy. Let's only consider that the asset under management, insurance activity in Banco BPM Vita we grew from the current EUR 60 billion to the EUR 90 million -- from EUR 16 million to EUR 90 billion after the Anima transaction. This is, of course, as I mentioned before, in full continuity with our strategic plan this business -- the business model allows to have an integrated and complete product offering, addressing client financial needs throughout the overall life cycle, allowing also BPM to benefit from an increase in profit and loss contribution, thanks to the additional commission and full consolidation of Anima earnings. We will grow the revenues coming from the key product factories of the group from the EUR 800 million of 2023 through EUR 1.2 billion forecast in '26 up to EUR 1.6 billion, thanks to the potential success of this offer. This will also reinforce our business model because we'll give more resilience and more visible delivering in terms of revenue growth, thanks to the report of a more-- we'll give more resilience and more visible delivering in terms of revenue growth, thanks to the report of a more consistent activity in life insurance and asset management with a more diversified revenue source which will compare more the contribute from fees on the total core revenues growing from the 37% of '23 to more than 45% by 2026. With Anima, you know very well, is the largest independent asset manager in Italy, almost EUR 200 billion of assets under management as of 30th of June, I think with the results of today is well above EUR 200 billion, more than 100 partners distributing product and 1 million clients distributing Anima product, of which half of them are already our clients, 300 investment professionals, balance and retail and institutional asset management mix with the recent acquisition, also of alternative products through Castello SGR and Wealth Management with the acquisition of Kairos. Stronger contribution of life insurance activity, which accounts 84% of institutional assets under management and 45% of the total asset under management. Stable long-term commercial agreements with primary Italian financial institution. Let me remember that the shareholders of Anima apart from us with 22.4% are Poste Italiane with almost 12%, FSI with almost 10%, Caltagirone Group, 3.5%. On the right of the slide, you'll see the assets under management mix basically 50-50 retail and institutional, which, again, the insurance contribution is almost 50%. Let me just give you the reason why we think this is -- we can be considered the perfect players for having such a combination. We have been together, with Anima since 2007, when firstly, Banco Popolare Milan acquired a stake in Anima and the following year, BPM launched a public tender offer on Anima, subsequently delisted in 2009. Then in 2009, an Anima merger with BPM [indiscernible] SGR, which was the asset manager of Banco BPM. In 2010 and '11, we completed the merger with Prima SGR , which was the asset manager of Monte Paschi, and Anima SGR was put under the control of Anima Holding which had as shareholders with 38%, BPM at 36% and Monte Paske 23%. Anima Holding since 2014 has been listed in Milan Stock Exchange. And after the merger between Banco and BPM acquired also Aletti Gestielle pvt., which was the previous asset manager of Banco, resulting with a stake below 15%, which over this year, we grew up to 22.4%. The relation with Anima is a relation with the contract between us and Anima, which stands for strategic partnership of 20 years. This was due to expire in 2037. Anima is already managing 75% of BPM total asset under management and which contributed -- BPM contribute 35% of Anima's retail and asset management and 40% of retail net fees of Anima. Anima and Banco has already many activity in common. We have a preferential access on exclusive basis to the BPM network for the distribution of the end product. We have an exclusive partnership for the delegated management of assets underlying insurance product. And let me remind that we have a commercial agreement, which is subject to the change of control of Anima. That's why we feel that we can be consider a natural partner for Anima, ensuring full continuity to Anima trajectory while offering a strategic benefit of financial conglomerates. And also, we think that this reason could make -- considered this offer friendly from Anima Board. Let's also give you what will be -- what will become the activity in financial assets of the group with the Anima transaction. We will pass from EUR 235 billion to EUR 387 billion of financial assets, of which EUR 217 billion will be asset under management, giving to our group the second place in the ranking of Italian banks in terms of assets under management. Some few words about the positive impact that this transaction can bring for all the stakeholders. Let's say that shareholders would have an attractive consideration full in cash. Of course, this is related to Anima shareholders with a significant premium equal to 25% higher than the average of the last 6 months. For the distribution partner that will leverage on a strong stable partner with a complete range of products, including life insurance and part of a large diversified group with strong presence in all segments. For our customer because they will benefit from the improvement and expansion of the product offering to our integrated coordination between life insurance product and asset under management leveraging on the expertise in the creation of ramo primo and ramo terzo products for the employees, of course, which will have a much more opportunity of professional growth and from the community being Anima very much engaged as well as we have in strengthening the ESG investment and the approach to the financial education under ESG engagement. I will leave the floor to Edoardo for some financial about the transaction.

Thanks very much, Giuseppe. So let me start with the description of the transaction. So we will -- technically, the offer is being launched by Banco BPM Vita, our insurance controlled entity on -- by Banco BPM at 100%. Banco BPM Vita is launching the offer, which is on all the ordinary shares of Anima, including treasury shares and including also the shares that might be issued in the future by Anima between now and the end of the offer period to service the long-term incentive program that is currently -- that has been approved in the previous months by the general assembly. The price of the offer. The price is EUR 60.2 per share which represents for us a very interesting premium on the 6 months average, which in our view, considering the overall evolution of the market and relative performance of the share price is the most qualified indicator to assess the attractiveness of the offer. Let me also mention that the premium is 5.8% above 12 months average. At the end of the offer, we will also make sure that Banco BPM sells 22.4% stake that currently turns on Anima so that all the shares in our, of course, ideal scenario, 100% of the capital of Anima Holding will be held through Banco BPM Vita. On our side, Banco BPM will make sure that Banco BPM Vita is provided with the needed level of cash with an equity injection so that cash will be available to pay for the shares included in the offer. Financial impacts. The deal is -- offers very attractive terms also for our shareholders. Given that will not only originate an EPS accretion of 10%, but more importantly, as mentioned in the initial page of this document, this presentation, will lead to an increase in return on tangible equity around 4 percentage points from the running point in 2026 of 13.5% to a level which will be significantly above 17%. At the same time, this will happen with very limited capital consumption because the overall impact of the yield is as limited as 30 basis points calculated at the expected closing date of 30th of June of next year. Main indicators at P&L level provide the -- also the quality of revenue composition offering indications that this deal will improve and make more solid the overall business model of the group. Net fees are expected to be raised around 20% versus the level -- the stand-alone level embedding our plan and net income around 10%. And finally, the composition -- net fees indicator will grow for an additional 4% down to a level which will exceed 45%. These numbers are not including synergies and not including any additional contribution from the combination of the 2 entities. There are on top of these numbers to be considered some very interesting, several very interesting optionalities. First of all, Anima internal market share, EUR 15 billion of the total assets under management of our clients are not currently attracted by Anima. So this could be an opportunity to expand the volumes of business of the asset manager. Similarly, we have now EUR 49 billion of assets under custody under administration that may be used to be converted into Anima assets under management. The second point of synergy is the distribution capacity. We will be able to develop and offer Banco BPM Vita products to Anima's distribution partners and we will use the combined force of Anima and Banco BPM Vita for promoting additional commercial agreements or attracting potentially financial advisor network. So financial adviser groups or financial advisers. Synergies may be created also in the upper affluent and private banking segment where we're active with Aletti, and of course, with Kairos. And also in the area of alternative where we have recently established Banco BPM investor that can be synergetic with Anima Alternative. Finally, product development capabilities to serve our own network will -- we expect them to be enhanced and enforced by the combination within the financial conglomerate. Worth noticing in this context, that Anima is already currently outperforming our business plan, especially thinking that the consensus in terms of net profit is EUR 180 million. And by the way, this year is going much higher than this consensus. And whilst in our plan, we added EUR 160 million with the share we contributing for our share of 22%. In terms of the offer, as I said, the entire share capital as a target, number of shares is the total number of shares, including those treasury shares, including those that might be issued by Anima in the context of the offer for the long-term incentive plan. Offer price already commented EUR 60.2 per share from dividend to be considered dividend, financing also all in cash, as already mentioned. Important to highlight that there are some conditions in the offer. A minimum acceptance level of total 66.67%. Conditions that are customary related to regulatory approvals. And the fact that we need to obtain our premium authorizations, including those concerning the Danish Compromise. Time line of the deal. Today, we have sent the notice according to the law, Article 102 by end of this month in 20 days, we needed to file tender offer documents. We expect to receive the regulatory authorizations in February or March -- between February and March and then to receive the authorization by Counsel in March as well. So that we'll be able to complete the overall transaction by half of this year by mid-2025 and ending the tender period and settlement -- the settlement of the offer. So this concludes our presentations.

Yes. So if you like, we are ready for a Q&A session.

[Operator Instructions] The first question is from Noemi Peruch of Mediobanca.

I have some on the application of the Danish Compromise squared on the Anima deal. First of all, I would like to ask you what is the final size of the equity book of BPM Vita post capital increase that you assumed in the 30 bps impact? And if you could please comment on the treatment that you assumed for the goodwill currently on the balance sheet of Anima? And also, if I may, a third on cost synergies and potential dis-synergies and whether operationally, you are planning to merge some of your businesses into Anima?

Thank you very much, Noemi. So for the equity book of Banco BPM Vita, if I understood correctly the question, so the capital increase in Banco BPM Vita is we will find, of course, the overall, both the increase in the participation for the 77%, 78% that we don't own, and the amount that will be -- that is currently held by Banco BPM. The total amount of capital increase is expected to be slightly higher than EUR 2 billion. The current level of Tier 1, to give you an idea of Banco BPM Vita is around EUR 800 million. So this will -- the increase in capital in Banco BPM Vita will be on top of these own funds. But of course, we will deduct from the capital over Banco BPM Vita, the amount of the goodwill that will be created by the deal for an amount of EUR 1.9 billion. This amount of the goodwill is deducted only for Solvency II treatment, not for the Common Equity Tier 1 treatment which will remain attracted by the Danish Compromise regime. So this means that the whole of the additional participation in Banco BPM Vita, be it represented by goodwill or by fair value of the assets of Anima after PPA is conducted following the acquisition will be treated as RWA and risk weighted at the Basel II, Basel III plus risk-weighted 250% following the completion of the deal on a fully phased basis, whilst on phasing and the first year that will be treated at 100%. So I think I reply as on the goodwill on balance sheet of Anima, because at the end of the day, we will simply sell the participation to the insurance company, and we will mark this participation to the fair value originated by the new share price that is the share price implied in the offer. Cost synergies, we expect them to be limited and given that we want to be as effective as possible in integration of the skills and capabilities of Anima, we are not here to extract enormous value from this deal on cost synergies. Of course, there could be a reasonable amount, but we prefer not to include them. The synergies, maybe you want be more specific in saying what you have in mind so that we can elaborate.

My question was more about assumption of the current perimeter of Anima, if you assume that it will remain intact or not?

No, I didn't hear you.

I was wondering if you assume that the perimeter of Anima will remain the same as it is now?

The perimeter?

The perimeter of Anima distribution...

So you refer to potential distribution -- sorry, the synergies in the commercial agreement of Anima with the distributors?

Yes.

Okay. Sorry. Now I understood, i don't know why but the audio is bit disturbed. So we expect to start working as soon as possible with the current distributors of Anima. We believe that there are all the right preconditions to continue and even expand the current relationships that have been so productively maintained over time by the company as we ourselves experienced. So we are definitely very confident to preserve the P&L and to even improve over time.

Let me add only that as far as we know, there are no change of control apart ours and the contracts are all long time contract, I would say, from 2030 ahead. So we'll have all the time to try to negotiate new opportunity of expanding the duration of the contract.

The next question is from Pamela Zuluaga of Morgan Stanley.

I have one on results and the other one on the Anima transaction. The first one, we've seen insurance relatively muted until Q2. You were flagging last quarter that you expected a delay in the contribution until the full generalization of the joint venture. So I was wondering if you could give us some color on the drivers behind the steep jump that we saw in Q3? And how are we expecting this line to evolve into Q4 and into 2025? And the second question on Anima. I imagine that you have already discussed with the regulator, the application of the Danish Compromise, of course, for this specific transaction. But I was wondering if there is any limit on how much you can -- on how much Anima could potentially continue growing? Could it jeopardize then the application of the Danish Compromise?

I will go ahead with the first question, the driver result in Q3. As we mentioned in the presentation, comes also from the reversal of loss component which out of EUR 56 million accounted for EUR 18 million. So we cannot count for the next quarter, this amount. But I would say, an average of EUR 30 million to EUR 35 million is what we expect for sure for this year, bringing in the total consideration of insurance life contribution to almost EUR 100 million. And I can say that we have a target for 2026 for EUR 160 million.

The second question, if I understand correctly, Pamela, was on the growth of Anima and the risk to jeopardize the Danish Compromise, is it correct?

Yes. I was wondering if there is any limit in terms of the size of Anima for you to apply the Danish Compromise?

I mean, the rules are very clear. After also the Q&A from EBA that was issued in, I think, December last year. So the rules say is that you have a participation in insurance, and this participation is subject to Danish Compromise. Of course, we believe you need to prove that there is an industrial rationale. But after observing recent developments in the market, we believe that this has been already the case for very similar deals. And we are not probably the first one, creating and starting synergies in the integration of life insurance and asset management. We obtained already the Danish Compromise for our financial conglomerate. This means that we've been verified in all the prerequisites, and we are only in -- the only additional point that is related to this deal is that we want this to be confirmed by ECB before the end of the offer period, so that everything is clear and there are no uncertainties on the regulatory treatment.

The next question is from Antonio Reale of Bank of America.

First of all, well done to everyone to the management team. I think this is a great move and I think, especially at this point of the rate cycle even more so, using a regulatory framework, which is, of course, attractive. I have 3 questions, please. The first one is, a large chunk of Anima's AUMs are mandated by Poste Italiane and that constitutes the bulk of the insurance-related assets under management, which I guess are a key part of you being able to make an industrial case for this to be acquired by your life business Banco BPM Vita. So my question is what gives you the confidence that those AUMs from Poste will continue to stick around? The second question, which I guess is related to my first one is, have you reached an agreement with the main shareholders of Anima? You've mentioned a key shareholders such as Poste, FSI and Caltagirone. And lastly, you're clearly aiming at creating a new national champion in Italy, that's, I think, what you put on the slides. And I think that comes with a clear industrial vision. Now does this transaction prevents you in any way from participating in bank consolidation in Italy?

Okay. About the first question, of course, we have a very good relationship with all the other shareholders of Anima, but we didn't mention for the transaction to anybody up to the 6 and some minutes passed this evening. We will be in touch with everybody. We will -- the first thing for us is to having the possibility to consolidate in order to have a unique industrial proposition for this activity, life insurance and asset under management. We will be very happy also if some of the current shareholders will remain into the shareholder team. But of course, the offer is valid for everybody. And afterwards, I think we will have when this will succeed, we will have all the opportunity not only to remain and to get the current contract, but possibly due to the strengtheness of the new entity also to increase the activity with our partners. This transaction may push consolidation. This transaction is part of the consolidation because, of course, for we already always claim that we are on a stand-alone path but with a big commitment to increase our product factory activity and component to the production of revenues in terms of commission. So we think this is a first step, very important. We already announced that we will be looking for opportunity in Bancassurance, in asset management, as we did in the last quarters. And for sure, we will continue this way. Once we will be a consolidated asset per factory, this in the future can bring also to a higher capability and distribution because, of course, now we are more distributor at least we were only distributor until last year. Now building up the different product factory we are more becoming an integrated bank and product factory. And of course, the distribution will be one of the potential activity we will exploit in the future. Edoardo already mentioned financial adviser and opportunity with maybe banks who want to reach some more agreement on a complete range of product.

The next question is from Fabrizio Bernardi of Intermonte.

Most of my questions have been already answered. I just want to focus on the commercial bias of the deal because, let's say, I understood the Anima is -- or was a technically independent asset manager which was it's, let's say, the DNA of the company. Now you are bidding for, let's say, at least 67% of the capital and the stock is trading slightly below EUR 6. You are offering EUR 6.2 on dividend. But my question is different is on the commercial bias of the company. What I'm asking is if you had something -- something like sorry -- commercial commitment by the other, let's say, franchises that are, let's say, using Anima in terms of asset under management company in order to, let's say, preserve the NAV of the company.

Of course, again, I repeat what I answered before, we couldn't have contact on this transaction with other distributors. We know the main distributors of Anima. We know that the contract -- long-lasting contract, we feel that we have all the opportunity to increase and to improve the capability already shown by Anima to improve number and volume of such distributors. We never say that we want to be the only shareholders of Anima. We will also be open to give opportunity to whoever want to join this activity enlarging the distribution of the new life insurance and asset management factory, which, in our view, has to go together. So we are adding a very important asset to the Anima current activity.

Yes, Mr. Castagna, I understand that there is a clear industrial rationale in the deal apart from the fact that you have more or less 20% of the company, but 40% of the NAV of Anima is, let's say, made by Banco BPM. So there is, let's say, a trade off between what you gain and what you are giving to Anima. So the deal is very clear, even the Kairos deal is probably goes in the same direction. My fear, if I can, is that the other franchises of -- that are distributing products of Anima are doing this not on an exclusive basis, so they technically can sell whatever they want. Anima is just a more, let's say, direct specified access to the franchises. But this does not mean that they can't sell like, for example, Poste other products. So this is my only fear, but the industrial rationale is pretty fairly clear.

Thank you. Of course, we have to examine all the opportunities, all the risk on the balance of these 2 things. So we think there are more opportunity than risk. Anima franchise is very good in terms of relationship with distributors, is the only one who has experienced years of activity. In this respect, we don't feel its so easy and for any distributors to switch because there is no more an independent, but it's inside a very strong new franchise, which, of course, add more product to Anima offer. So in my opinion, they are more up rather than down. But of course, there is a risk that we have to face. Luckily enough, as I said before, we have many years ahead of us in order to have the opportunity to bring on board the other activity -- the other commercial partner.

The next question is from Hugo Cruz of KBW.

Another question about Anima. I mean the deal looks very attractive if you have 30 basis points capital hit for 10% EPS accretion. And so the premium is not that high. And so you raised the question -- can you pay more? If -- can you raise your offer if you don't get enough bids? And also, I'd like to understand more your comment about we'll be happy to have other shareholders in Anima? It sounds -- I see the offer is conditioned on getting 66.67% acceptance. But so this mean you're actually not necessarily looking to derisk Anima you take control? What are your thoughts on that?

Let me answer to the first part of your question. Now frankly speaking, we don't think it's low because as you maybe have seen during the last months, of course there was -- Anima was considered the potential target from -- especially after the BMP transaction. This, of course, helped Anima to increase share price. We feel, as we mentioned before, to be the most probable potential buyer, especially on a potential friendly transaction with Anima. The volumes dealt by Anima on the market are very low every day. So whoever want to capitalize a good offer all in one with a strong opportunity, I think, has a very good opportunity to make a capital gain out of this transaction. With different situation with a different behavior on the market, I think the price -- the potential attraction of Anima could be not the same. So I think it's an opportunity for everybody. Of course, we try to get 100% of the company, but again, if an institutional shareholders who is also linked to the commercial activity want to stay into the shareholder structure, we will be very happy to accommodate.

The next question is from Andrea Lisi of Equita.

Just another question on Anima related to the previous point. What is the possibility of other shareholders to be in Anima under Banco BPM. Is the threshold of the 66.7% viable or not? So is there a condition necessary for the offer to go on? This is the first question. Another question is instead on the results of the quarter that is on SG&A that were, well, down quarter-on-quarter. And I want to ask you if there is something different or something -- some one-off? And what should we expect on the evolution of SG&A going on? And lastly, if you can repeat regarding the net financial result. Is it correct that the assumption overall should be broadly close to 0 for the next years?

Yes. I start to answer. So I described the evolution of net financial results. And given the mitigation in the interest rates that is expected in next year with a level which is in between 200% to 250% for the Euribor, this will help reducing the cost of funding from certificates. In such a scenario, we expect to compensate, lightly speaking, at large, so to speak, the negative contribution from certificates with the positive trend of the other NFR components. This, of course, without taking into account valuation effects from hedging strategies that will depend swings, ups and downs of the other rates. So the indication is that whilst in the previous strategic plan, we had a higher interest rate scenario. And this led to an increase -- a negative contribution of net financial result in the order of EUR 90 million to EUR 100 million. Now this contribution is very close to EUR 0. Is expected to be more or less neutral for the reasons I mentioned. On SG&A -- on general cost, we had a very good quarter. I wouldn't say we had some one-offs. We -- it was the outcome of a number of cost mitigations that we have implemented. I expect this to be slightly different, but not to a significant size in the final quarter. We may have a limited increase single digits, something like EUR 5 million or like that. On the deal, if I understood correctly, your question was what is exactly the condition in terms of share of the capital of Anima. The condition is the following. We want to obtain 2/3 of the capital, the share capital. And this is the condition, which, if not reached, allows us to withdraw from the offer. This is an option for us. This means that we can also consider lower level of adherence. But of course, we are here to buy all the share capital of Anima, the purpose of the offer, if you read the document is the listing. So this is -- the transaction is aimed to obtain full control of the company. Conditions are a different story. They say that -- the conditions say that even we accept -- we would accept the result even to a lower level. If the level is too low, we reserve the right to withdraw from the transaction.

The next question is from Luis Pratas of Autonomous Research.

This is Luis from Autonomous. The first one is on Anima. Could you please explain the royalty improvement walk from the 13.5% to 17% from this deal? Basically the moving parts on the numerator, but also on the denominator? And my second question is on capital. You indicated in the past that you could think about releasing excess capital only after you book the large puzzle for impact. Could you please confirm if this rationale still holds true at this stage, especially considering this life offer for Anima? And if you could also update on the current expected Basel IV headwind and any potential mitigation action?

So on the moving parts, basically, there is a numerator and denominator component. On the numerator, we took a consensus level of net profit from Anima, we deducted the contribution to our own stand-alone P&L, which is including our pro forma -- our business plan, so in the numbers of the business plan. After we added the number, this is the expectation of net profit before any type of synergy and considering also, of course, the cost of funding for the cash included in the transaction. On the denominator, we recalculate the tangible book value of the bank rolling forward, the numbers of the plan which is what we did already 1 year ago when we presented the objective, the targets and including the impact on goodwill of the acquisition of Anima. So deducting from the overall level of the tangible book value. On Basel IV impact mitigating actions. So before going to -- and the other question on excess capital. We are developing a plan that has multiple areas of intervention that range from the management or relationships, which became to capital consuming that generate an excessive consumption of capital in the new environment. So for example, large corporates, the transition to a foundation approach for LGDs and/or those relationships where we are too exposed into -- of balance sheet transactions that are penalized from Basel IV. On top, we're implementing a number of actions that exploited maximum level, the opportunity to receive external ratings for our clients so that we are not subject to any risk to enter into the output floor, which is not currently included in the impact. We are studying the -- planning implementation of additional securitizations that may help also reducing capital absorption. We may -- we're planning to introduce some rationalization actions in the participation portfolio. Some of them are deducted from capital, other ones are deducted from --sorry, are risk-weighted with a higher risk weight on progressive through the implementation of Basel III. And on top, we periodically deploy the usual actions on data quality that allow for significant optimizations in the level of collateral in accounting for credits mitigation and collateral. So this is, how to say, the menu of the actions that we are continuing to plan and will be deployed starting from next year. Bearing in mind that this impact of Basel IV is a long story during its development from phased-in to fully phased. We will, of course, adopt an attitude linked to the fully phase impact. But at the same time, we know that over time, the progressive transition from phase-in, will give us the advantage also to exploit the unexpressed capital I mentioned, while commenting on capital coming from both DTAs and fair value comprehensive income negative reserves.

And this will bring it back to question number 2. Of course, we are almost 60 basis points ahead of the plan in terms of capital. So if you consider the Anima transaction will impact 30 basis points, we think there is still a big rationale opportunity to have more capital that we need, considering that the impact of Basel was already in our figure to the target point of 2026. So I think this transaction doesn't change our capability to distribute eventual excess of capital. Of course, as I mentioned before, the fact that we are strengthening our product factory activity could bring to further activity into the market in terms of distributors, in terms of financial adviser or so whatever is not fostered and dedicated to the growth of the bank will be devoted to our shareholders.

The next question is from Domenico Santoro of HSBC.

A few questions. I need to agree with the colleagues this is a great deal. And probably you are even underestimating what was the EPS secretion from Anima. First of all, I want to understand well the new sensitivity that you gave for the NII given that there are the 2 moving parts. So basically, probably NII will be a little bit lower and the trading a bit higher because of the component that you explained before. Is it fair to say that the EUR 100 million loss that you had in the plan in terms of trading profit will probably trend to a breakeven, if I understood correctly? Second, you are also selling if I'm not wrong real estate at the loss in order to reduce the P&L volatility. So this line of adjustments real estate that was quite large in the past. I'm just wondering what kind of number will trend during 2025 and 2026 maybe closer to 0? And the curiosity on the EUR 15 billion that you -- at the moment, you're distributing as probably third-party products. I'm just wondering what the percentage the level that you are paying back to the -- whatever is the product company at this moment?

So Domenico, on the EUR 15 billion you refer to the AUMs that are not within Anima, correct?

Yes.

No it is similar, the management fees and distribution fees that we receive are comparable. So I wouldn't expect these synergies from, how to say, the marginal contribution those volumes is converted into Anima.

Sorry, on the opposite, you are going to save money because you move to Anima i suppose -- So the question is how much you pay back now to the -- whatever is the product company or the different basically providers?

So I would say you can apply our running fee and more or less across the board the products by category. So what is the average level of the management fee that we get, I'll tell you in a second, and this is more or less the exact answer to your question. At the end of the day, whatever we do in these synergies on the EUR 15 billion, we will continue to receive exactly the same management fee. And on top, we will get at factory level, the additional revenues that currently are not recognized to Banco BPM, but are retained by the -- it's something like 90 basis points the average level. It varies by product and so category for example, mutual funds as opposed to managed accounts. For the real estate, yes, we sold some EUR 300 million at a loss and yes, in the past, we had a negative impact on this asset category. I would distinguish between 2 areas. One is that in non-instrumental items, we have experienced losses due to the -- how to call it -- to the need to stay in the market, in a real estate market sometimes has some volatility. This part of our balance sheet has been significantly reduced with this EUR 300 million loss. So now we have a very limited level of remaining non-instrumental asset, real estate assets. I may give you the number in a second. The rest on instrumental assets, most of the volatility has been generated by interest rate environment. And here, I would say that in the future, this could be another source of diversification or at least of risk mitigation because with a mitigated level of interest rate scenario, we don't expect this to become -- to be maintained at the negative levels of the past.

So the question is this line in your plan, how much it was on average across '25, '26 was trending up to 0?

Yes, it was -- yes, close to 0.

All right. And about the trading profit, is that?

Trading profit?

Yes. I mean the question was, yes, now that basically, you changed the sensitivity, right, of NII. But I guess -- I mean, probably NII will be a little bit lower and trading profit a bit higher. So what could be the guidance for next year in 2026? I remember it was EUR 100 million loss in the plan.

Yes, exactly. So the guidance is -- the new guidance is still negative, but I would say in the area of single digit per quarter. So something like, let's say, EUR 20 million could be a good indication, depending, of course, on the rates.

The next question is from Marco Nicolai of Jefferies.

Sorry, Marco -- the data for Domenico. We have now the -- what we have in terms of investment, so non-instrumental assets are in of around EUR 400 million, EUR 450 million.

Okay. So a very quick one at this point on EPS accretion of the deal. You say 10%, if I got it right, you don't embed any further synergies that you listed on Page 9. So my question is what's kind of a bull case EPS accretion you can get from this deal if you bake in some of these further optionality for value creation you have in Slide 9? I don't know, for example, if you can assume some revenue synergies or maybe cost synergies on this deal?

Now very difficult to say. That's the reason why we didn't put it in write. Because it can be anything. We have also EUR 50 billion of assets under custody, that can be switched possibly. We are very much focused on our product factory, as we have shown also in payment service in the first results that are eventually coming in insurance life. So once we have the possibility to, let's say, multiply revenues through not only commission, but also the revenues for the product factory, we can address our network in order to maximize possibility. On top of that, we can adouble-digit to the Anima ammunition, the life insurance, which is a quite interesting opportunity in a scenario in which everybody for a quick reduction of interest rate and strong reduction of interest rates. So I think it's the best countermeasure we can have the combination of the insurance life and the CSM valuation under IFRS 17, which bring us value meanwhile, the interest rates go down and the opportunity to give us more strength to asset under management deal, which, of course, is the strong when interest rates go down. This is something that should counterbalance even more easily than before the potential NII reduction and under, of course, interest rate contribution.

Mr Riscassi, gentlemen, there are no more questions registered at this time.

Okay. Thank you very much, everybody. And sorry, again, for giving you the press release so close to the meeting. Thank you.

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