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

Welcome, everyone, to the last fireside chat of the day. I am delighted to be joined here on stage today by Mr. Giuseppe Castagna, CEO of Banco BPM BAMI. Thank you very much for joining us Mr. Castagna. Before we start our discussion, there are so many things that I want to ask you, and it's a very interesting time, but I want to hear first from the audience. So we're going to begin by asking you a polling question. If you guys see in the screen, what range of net income do you think BAMI can sustainably reach in 2027, assuming the full integration of Anima? And just so you have some context in mind, management's current target stands at EUR 2.15 billion, which translates into 24% RoTE.

Can also my colleagues vote?

Everyone who has a pointer can vote. The first answer is EUR 1.6 billion, EUR 1.8 billion. Second is EUR 1.8 billion to EUR 2 billion. Third is EUR 2 billion to EUR 2.1 billion. And fourth is more than EUR 2.1 billion. More than EUR 2.1 billion is 43% of the votes. So with that in mind, let's begin. And let's begin with the beginning. 2025, we recently started the year. We're going towards now the end of the first quarter.

So now that I have you here, it would be great if we could hear directly from you what are the current trends, commercial and financial trends that you've been seeing this quarter.

Thank you. Thank you also to the audience, which believes that our business plan is so credible. The consensus is not yet there, but we are happy because having a consensus more or less 1.75 and being worth 15 billion, we think there is a lot of room to go further when the consensus will arrive to the results of the audience. So thank you very much. Coming back to first quarter, very good results. Of course, we were expecting a good start for the bank. All the bank is very much committed. We are -- we have almost 20,000 people very committed, very happy to support the bank. Also the clients, the reaction for the clients was very good. So all in all, I would say, a very good start in terms of commission, especially, of course, in investment sales, but also on loans. We are growing after many quarters also the loan book. We have had in 2.5 months, more than EUR 5 billion on new lending -- grant lending. We are having 20%, 25% of increase in upfront commission on the investment sales, very well mixed between eventually assets under management and life insurance. Very good also cost of risk. I would say that beginning of the year is always a good quarter in terms of cost of risk, but we are exceeding our expectation. So another plus vis-a-vis the possibility to the road map towards the plan.

You said that consensus is below what you're targeting in the business plan. You presented the business plan recently with the full year results. As I was saying at the beginning with the polling question, one of the targets is 24% RoTE by 2027. I was wondering, are you -- do you think there are maybe specific risks or anything that you think could be a headwind towards achieving that? And maybe that's what's embedded in consensus expectations.

I would say on the opposite, it looks strange that such an increase doesn't bring many risk, but we had a very prudent approach to the business plan. As you know, we did the business plan December '23 and would have lasted until '26. But with the opportunity in the first year of the plan to have already overcome not only the '24 results, but also the final year results, we had the opportunity to reshape, let's say, restate the final number and from 1 year the maturity of the plan. But because of the OPS that in the meantime, we had from UniCredit, we wanted to be very consistent, very prudent, not being considered somebody who wanted to increase the number because of the OPS. So basically, we had -- the starting point was not anymore '23, but '24 results. Just to mention, '24 results were EUR 300 million higher than the forecast, so very good results. But the pace of growth we applied in the business plan for '25, '26 and '27 was the same pace of growth of the starting plan in '23. So we did not consider the very strong pace we had in '24. We went back to the original pace. So there is plenty of room to increase in such as we were mentioning before for the Q1, which, of course, is not so important, but give you an indication of the many possibilities that we have to improve also the final number of the plan. And speaking of risk, as the bulk of the plan is the demonstration that we are transforming the bank from a normal commercial bank into something that will be much more driven by commission and by the complete set of the product factory that we have put in place during the last couple of years, Bancassurance payment system, payment services and today, during this day, the Anima transaction. So the bank will be less risky, less needs of capital, more resilient in terms of results because less dependent from Euribor.

You now mentioned Anima. It is part of the strategic plan. Can you give us some color around where that transaction stands right now? What is the time line that we're looking at from now on? And with that in mind, your expectations around how much will you end up owning of Anima?

We just started -- yes, we started with a good boost because, as you know, we were given the confirmation of the delivery of the shares from the main 2 important in terms of volume shareholders, which are Poste Italiane and FSI, which is a fund. And the main, let's say, player of the game because it's the management of Anima. So these 3 already gave us the approval for the transaction before starting, and we were almost to 45%. That's why we said we are there, 45% would be for sure overcome. Let's wait these days, but we think it will be a good success as well as it was a good success the AGM in which we had 98% from our shareholder approval to increase the price to renounce to some of the requests we have done originally.

And assuming that full integration of Anima with that conviction that you just talked about, can you give us an idea of what do you think the integration will look like? What are the specific revenue synergies that you're envisioning post integration, the next path for the combination of BAMI and Anima?

Let's say that Anima has always been part of the group, even though not consolidating because we were with 23% the major shareholder of the company. We made the least appointing the CEO and the Chairman. We know very well the company since the creation, the setup of Anima, which was built up through a branch of BPM. So it's a 20-year story, which is going on and for which we don't expect any surprise because we really know the company very well. What will bring to us? In terms of numbers, EUR 500 million of revenues, EUR 200 million of net profit on top of what we already have now. We have a contribution to Anima, which is in the region of 35%. The second contributor is Monte Paschi, which is 17% and then Poste and other tens of tens of different small distributors, which are small banks and financial adviser companies. What we want to do? We want to buy as much as we can, not because we want to own 100% of Anima, but because we want to make Anima bigger. We want to allow the current distributors, but also potential new distributors to enlarge the cake if they want to take a stake into the shareholding. And so together, bring Anima toward a business model is very simple. They build different kind of product driven by the needs of the distributors, and they are very good at that. So for each kind of cluster of client, they have solution to deliver. So I think that both for Italian banks or financial adviser company, also for international banks that don't have their own asset management company, this is a very good occasion to contribute and to be part also of the shareholder.

When you presented the deal, of course, you talked about all of the benefits from a revenue perspective, but you also talked about the possibility of using the Danish compromise. So it's a more favorable capital treatment for the acquisition. Have you thought about doing the transaction while you still haven't received the approval? You have committed to maintaining the payout target even if you don't receive yet the Danish compromise. How are you thinking then about protecting or shielding capital until you do?

We are very, very sure that -- a part that we are sure that Danish should arrive because there is a rule. It's not something that we ask a doubt of nothing. There is already the rule. We are already a financial conglomerate under the Danish compromise umbrella. So we are only adding on something that was already forecasted by EBA in order to be considered under the Danish. So this is the regulatory environment. Having said that, ECB asked us to explain to the market that the decision was there. So we had to wait for their decision. We were very happy to say both cases, so in case of Danish and in case of not Danish, does make any difference in terms of industrial project, profitability, shape of the new asset of the bank in terms of commission driven rather than interest rate driven as a whole. The only difference comes into capital. And of course, it's not -- the problem is not 14% with Danish or 13% of common equity Tier 1 without Danish because I think both of them are enough for our capital requirement. We have slightly above 9% for capital requirement. So we have plenty of buffer for distributing and so on. The only damage and it is very important damage for our shareholder is that we committed to distribute 7 billion during the plan horizon to our shareholders in case of Danish compromise, having more capital available and EUR 6 billion in case of non Danish compromise. So the only things that make a difference is this one, the potential to distribute EUR 1 billion more in terms of capital, which is very important for our shareholders, but it doesn't change at all the industrial meaning, the strategic meaning of our transaction or our acquisition.

That's very clear. Part of the -- in the business plan, you do mention that the capital path includes SRTs. Are you thinking maybe that could be brought forward in case there's a delay in receiving the Danish compromise?

Let's say, first of all, unfortunately, we are not in a position to decide when the answer from ECB will arrive. So we have only to wait. This doesn't stop our willingness to go straight to the target. And that's what we did going through the facility rule obligation. We had to call for an assembly. We had 98% of support from our shareholders, notwithstanding some attempt to make -- look this transaction dangerous for the bank. Our shareholders follow us very well. What will be in -- let's go back to the timing. We already started yesterday the offer period. This will last 3 weeks. So by the 4th of April, will be terminated. One week later, we will have the settlement. And then, of course, we can integrate Anima under our balance sheet. This means that by the second quarter, Q2, we will have the company consolidated. And of course, if we don't -- won't have any decision by ECB, we would consolidate Anima under the Danish compromise rules. So the base case is Danish compromise. Only a different decision could bring us to make some different situation in terms of weight on the capital. But if things go ahead as are doing for the last 4 months, we will consolidate Anima under the Danish. So no needs basically to do any other maneuver. Of course, again, 13% for us is a very stable number. Our 2 main competitors have a target that are also below 13%, even having a P2R requirement being a big bank, which is much higher than that. So we have plenty of room, we don't think that the capital potential constraint would be a problem for us.

Very clear. Now let's continue talking about M&A, but a slightly different type of M&A. UniCredit currently has an offer on Banco BPM. Can we hear your thoughts on that?

Of course. First of all, we are not on a defensive mood. We are a public company. After the offer from UniCredit, our first shareholder, which was slightly below 10% decided to increase their stake. They are very consistent. They have been with us for years. They have a long story in Italy. So we have now an important shareholder to which as well as to the other shareholders, we have to ensure that the offer from the bidder is consistent with our real value. And because of all these things that are going to happen during -- have been happening during the last months, are making even more evident the value of the bank. The answer of our meeting today prove that everybody is starting to understand that the consensus that before was EUR 1.5 billion. Now it is EUR 1.7 billion. With Anima will be EUR 1.9 billion, is became much closer to EUR 2.15 billion. And this is the base of value for the bank without synergies. So that means that the current offer, which, frankly speaking, I don't consider an offer because it never was an offer with a premium was always since the beginning, an offer -- a discounted offer, offer with discount. So none of our shareholders can think about this possibility. But our target is to make during this period of time, clearer and clear that the real value of the bank is much higher and in line with the consensus of this evening. This is without considering the synergies. Of course, if we have to be included into another bank, there will be synergies. I think that my shareholders would deserve to have a strong part of this synergy. And because as far as I understand, the synergy indicated by the bidder are EUR 1.2 billion, which net is EUR 800 million. Even if we split into this EUR 800 million would be another EUR 400 million. This means that with a multiple of 8.5, 9, this are another EUR 3.5 billion to EUR 4 billion. So we still need EUR 3.5 billion in order to adequate the current consensus to the target revenue profit that we have in our plan. On top of that, we have the share of synergy that we want. So provided that the offer will be comprehensive of this value that is already embedded in the bank, we will be very happy to understand what is that and we will be very happy to as a Board to suggest to our shareholders what we think is feasible to do. Up to now, we don't have any possibility to comment what is a non-offer.

So all eyes on the price, I would say. That's very clear. Now if it was not that option, do you think there are other opportunities in Italy for consolidation?

I think this massive consolidation going on in Italy will be beneficial for the banks who will remain afterwards because there will be 2, 3, 4 banks less than now in a situation in which in the previous 10 years already disappeared, I don't know, 15 banks, 20 banks. So now it's very much concentrated for who can remain and have the full equipment as we have of all the product factory, we will be, I think, at the center of whatever has a potential consolidation in Italy. So again, thanks for the question. The figure that I was mentioning before are on our stand-alone case. But if we imagine one or 2 potential consolidation, which will make our bank together with other, I would say, on a friendly basis, I think we will have even more value to extract.

Very clear. I have so many things that I would want to ask you, but I want to see if we have questions from the audience. I know we do. So please. Let me start until people maybe take some time. You were talking about the strategy, the business plan for a stand-alone story. And you were mentioning your push for fee growth and the protection business. Insurance was -- maybe it took a little bit longer than expected to start growing, particularly 2024. Can you explain maybe what were the reasons behind that perceived delay and how you're expecting the insurance business to move forward?

I would say we had the complete split between first half '24 and second half '24. The accounting system of insurance is completely different from the banking system. You have a lot of fair value made on the forecast on interest rate and the relationship between request for reimbursement of underwriting and the new underwriting. In 2024, first part of the year, interest rates were not going down as expected. So there was a sort of situation in which we had the portfolio which was losing money because of that. And we had a lot of request of reimbursement, not having the new product provided by our ex former partner, which is Generali. Generali was able to deliver only in September a new product in terms of life insurance. And so from September, we started delivering the new production. The balance between request of reimbursement, old product and the possibility to place new product rebalanced completely the balance sheet and the profit and loss. And the second part of the year was very, very good. I think we did EUR 50 million in the first half and EUR 90 million in the whole year. Now we understood better all this. We are not yet in the possibility to produce ourselves the product because until mid-June, still Generali will be on the driving seat, but then will be delivered IT migration and the possibility to do it by ourselves. As you know, during this year, we have built up and leveraged on the whole BPM Vita, which was the joint venture we had with Covéa a very strong platform. So we are in the position to build our product and to manage our accountancy, not waiting every time in the last month of the quarter to get the results from our partner. So I think this year will be a very good year. Of course, the complete full power will be in '26 because still in '25, we would be working together with the former partner, which, as you can expect, is not so pushed in giving us all we ask for our client.

Very clear. In 2024, again, talking about the insurance business, BTP Valore was the buzzword. Now in 2025, we've been hearing talks around the issuance of BTP Più or BTP II. Do you think that will be a main competitor for insurance again this year, maybe even for traditional asset management products?

We are in the best possible position because having now asset manager 100%, life insurance 100%, what we really care is to get more money from our client and the new client. So if they want to do BTP, we are more than happy. We -- of course, normally, we rely on new money to get this kind of investment. But even if, for instance, when interest rate in a scenario like the one we are experiencing with interest rate will go down, for us, it is a very strong reserve to have tens of billion in BTP, which now are a capital gain -- so you can switch because they were done at interest rates that were higher. So you can switch, making money from our client for our client and switch a new asset management product on life insurance. So for us, it's important to keep the more funding and deposit as we can. And then if they want to stay in the current account, if they want to invest in BTP, that will be good for the future. Whatever we can switch immediately is good, but we have also to think to the future. So it's very important to have such a reserve like current account and BTP.

Of course. I'm going to ask again if anyone has a question because I'm thrilled asking so many questions. But just in case -- yes, we have a question in the middle, please.

Two questions on my side. Can you remind us the mitigating action on NII and your thinking about the current rate environment? And my second question is the reaction of your clients about the UniCredit offer.

Sorry, can you repeat? I didn't hear... Yes, but the first question. So the mitigating actions for NII?

On the thinking about the current rate environment.

The current rate environment. So mitigating actions.

We have been very successful, I would say, mitigating the impact of reduction in interest rate last year. We had a sensitivity, which went down from EUR 300 million to EUR 250 million, 400 basis points. But at the end of the day, having more than 100 basis points of reduction from January to December, we managed to be more successful, so to reduce to EUR 60 million only the effect of the reduction. This was done through 2 main aspects, maneuver. One is the replicating portfolio, which, of course, we increased from EUR 15 billion to EUR 23 billion and was very effective in mitigating the reduction of interest rate. And the second one was maneuver started in '23, which was the -- to put a lot of our consistent deposit of our client linked to Euribor. So in this case, of course, in '23 and beginning of '24, we paid a lot because Euribor was still very consistent vis-a-vis deposit made of normal interest rate. But when interest rates started going down, we immediately had the effect of this reduction as soon as it happened. So now we have 34% of our deposits, which are linked to Euribor. And so this is a natural arbitrage between reduction of Euribor reduction of cost of funds. All in all, we have 55% of, let's say, indexed deposit through replicating portfolio and variable rates, which allow us to manage very comfortably also the reduction of interest rate. The second question was?

The second question was on UniCredit offer.

Client reaction. Very good question because nobody cares about client normally because, of course, we tend to be more reactive to the shareholder reaction, to the government reaction, but client is our strength, basically. We -- as you know, we are present in the richest region in Italy, but we have the vast majority of our activity with SMEs and mid-cap apart from the family, of course, business. So they are very worried about this potential bid because, of course, the business model of the bidder is very much different from ours. We are rooted in the region where we had the original bank working for hundred of years. We have banks that are 160 years, and they still keep the name in the branch of the old bank. So people are very familiar to that bank. I was very happy yesterday to see that Ferrari, which now is partner of our bidder in the manufacturing of Ferrari that is only Banco BPM branch because it was the first bank to lend the money to hands of Ferrari. So this is the strength of our bank. We are close to the family entrepreneurs for generation. And normally, they are very happy, both if they grow like Ferrari, but also if we stay in the value -- in the supply chain as one of the important supplier of big company. And of course, all of these make a strong effect also on GDP. So this ecosystem is very important. We have to take care also of the small SMEs or mid-cap companies, which need a different kind of offer vis-a-vis the normal offer from the big bank.

Do we have more questions? Yes, right here.

So Germany is embarking on a big fiscal expansion. Italy probably doesn't have the room for a fiscal expansion, but it trades a lot with Germany. So I was wondering whether in your conversations with clients, you're perceiving that something is changing in terms of the Italian corporate confidence indirectly because of the fiscal expansion in Germany.

No. Unfortunately, we were really hoping that after a very difficult '24 in terms of lending demand with the reduction, consistent view on the reduction of interest rate, the demand would have had strong imports. Unfortunately, the recent geopolitical implication, the fear of tariffs, the concern about some European country, but on top of the U.S.A. made reduce the speed of the industrial production. We are not working full speed in all the cluster of clients. Everybody has the opportunity and the possibility to increase, but they want to understand better how will be the possibility to supply all the company around the world that normally were their clients. This is something that will relent a bit the normal granting of loans because new investments are a bit stopped from this concern.

Do we have more questions? I have one question, one follow-up on the RoTE target that we were talking about. We expanded a lot on the revenues, the revenue trajectory and where you want to be. But I was just wondering, does the 24% target include as well the distribution of excess capital to get there?

The RoTE, you mean? Yes. No, they include, of course, the distribution of capital include the currency that, of course, Anima with Danish will have no impact on capital. So this helps a lot, of course, to the creation of a higher RoTE without, of course, will be a bit lower because you should include -- increase the capital stake. But even in this case, we are above 18%, 19% on RoTE with the current capital distribution.

Okay. I'm going to give you another chance in case anyone wants to ask another question. Okay. Well, I will. Cost of risk because some of the peers across European banks that we've heard have maybe touched upon the possibility of cost of risk increasing because it's been quite low for some years. You're guiding for a cost of risk of lower than 40 basis points. That's lower than what we've seen Banco BPM doing in the past. Is it a reflection of just currently where we are in the cycle? Or is it a reflection of the strength of the balance sheet?

No, I would say that it reflects 2 things. One is the very low default rate that we have experienced during the last 3 years. in a row. Every year, we thought that could have been increased default rate. We have always some prudent approach to the budget of cost of risk because normally, we were not in this situation. But after the pandemia with the maneuver and the many -- the big liquidity that was cured through the guarantee scheme into the companies, small, medium and big, there was a possibility to have a buffer, which is very consistent in terms of capital -- in the liquidity needs. So this brought to a very safe environment in terms of companies, which we still there. As I was mentioning before, cost of risk this quarter is at the minimum level ever. So a good situation. Of course, we see that as we were mentioning before, there are potential risk. So we stay normally with this prudent stand, which is if we stay with 1% of default rate, normally, we consider that the first provision when you go into default is 30%. So 30% or 1% or EUR 100 billion, which is more or less our loans portfolio is the first 30 basis points, EUR 300 million basically. Then before we had a very consistent stake of provisioning related to managing the portfolio because we had starting from 25% of NPE going down to 18%, 10%, 5%. Now we are below 3%. This accumulation of the stock of NPE portfolio is always lower and lower. Normally, we have another 3% of the 3% of the stock of NPE. So it's another 9 basis points. This is why we consider 40 basis points to be natural in such environment. Of course, up to now, we have been able with the same amount of provisioning to derisk further because also last year, we derisked EUR 700 million more. Now I don't think we have much more to derisk because we are at EUR 2.8 billion, EUR 2.7 billion of NPE, of which almost the vast majority -- this is gross. The vast majority is UTP, net bad loans, if you don't consider the loans guaranteed by the state, we have, I think, EUR 200 million remaining. So no need for further provision on this stock. This means that between 30 and 40 with this level of default rate is enough. What we are curious is to understand how some bank, which is mainly in a region which are more risky than ours can be able to have 15, 20 basis points of provisioning and how this could be constant over the year.

We have 3 more minutes in case anyone has any questions. If not, could you maybe finish with your views on the broader macro picture in Italy?

Of course. Thank you. Again, I think Italy is experiencing quite a good situation, both in terms of economics, in terms of government stability because we were normally considered black sheep in this situation. Now we have a government which is quite solid that could finish terminate the mandate. So there are still 2.5 years in Europe in which the stability is not really the name of the game. Many other countries have more problem in Germany, France. In Spain, we have the situation in which also there is the external support from some of the regional entities. So Italy is a sort of positive one-off. Of course, being an exporter and having a positive commercial balance sheet, of course, we need to be -- to have more clarity on the commercial situation tariff. This could be an offset for Italy if things continue as we are seeing during this week, even though there are a lot of up and down. So they leave some room for being less pessimistic, let's say. So on top of that, of course, we know that there are a lot of further investment to be developed in Europe. Both for the defense, but also I think to all that is concerned to create a stronger Europe with all the control on the raw material process, and this would need other investment, which we started already in Italy, thanks to the next generation fund, but now can foster even more the growth of GDP. So all in all, a good situation. Of course, the risk are the geopolitical risks.

Indeed. And with that, thank you very much, Mr. Castagna for joining us, and thank you all. Have a good rest of the evening.