BFF Bank S.p.A. (BFF) Earnings Call Transcript & Summary

Good day, and welcome to BFF Banking Group Conference Call about first half 2021 results. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Max Belingheri, Group CEO; and Giorgio Bicci, CFO. Please go ahead.

Thank you. Welcome, everybody, today for our first half results. So in Q1, we presented the effects of the deal. In Q2, we represent good progress on the integration, as we've seen in a moment. We have achieved already locked in the synergies we have promised to the market, and they will start to flow from the 1st of July, and a run rate basis, will be achieved already at the end of this calendar, for 2 years in advance compared to the plan. We have also been able to extract further value from the DEPO acquisition, roughly EUR 28 million, which have covered the EUR 48 million, the cost of the liability management exercise we conducted in June, and therefore, increased net asset value of the business by incremental EUR 20 million. From a business perspective, we've seen a stabilization of some of the trends in the factoring business. We have been supported by recent performance of some of our international markets, and we are quite hopeful of the trends in the second half of this year. We're also quite pleased of the performance of our security services and payment business, which contributed to the growth, growing the profits to the profits of the Group. Actually, we had a lot of moving parts, if you move to Page 2 of the presentation in these risks. And it is, I think, important to spend a bit of time to represent how the numbers have been presented. We had EUR 110 million of net income for the period, including badwill and the one-off effects we are having from the DEPO acquisition. We have stripped out the exceptional elements from these results. And so we report EUR 46.6 million of net income flat compared to the previous year. We flag 2 effects, which are relevant to that result. First of all, given the mark-to-market impact of the bond portfolio of DEPO. We have roughly EUR 12 million less of earnings given the shorter duration of the book. And secondly, since we started with a larger liquidity pool that we have been able to shrink entirely by June. We also had an additional EUR 6 million of funding costs, which have disappeared. So overall, a solid performance, taking into account those 2 effects. So there's been a lot of work then on the ALM of the Group, as we will see more details to reduce excess liquidity, refinance quickly our book and restore the size and the duration of the bond portfolio that the 2 businesses traditionally have had. Capital dividends remain strong. The capital position of the Group, excluding the adjusted net income of the period and excluding the accrued dividends for 2019 and 2020, asset at 23% total capital ratio and 18.6% call it in Tier 1, so well in excess of our target of 15% total capital. We have EUR 212 million available for dividend distribution, of which EUR 165 million pertains to the previous years, and we started discussions with Bank of Italy and all the other banks in order to distribute in early October 2021. We plan to call an AGM for early October for the approval of changes in our bylaws and depending on the discussion with the regulator to pay out the accrued dividends. In terms of synergies I mentioned, we have locked in the 2023 target synergies already on a rate basis, starting from the end of 2021. So we are quite pleased with that progress. And if you look at the trade businesses, olfactory and lending, we have a lower portfolio year-on-year, flattish compared to the previous quarter. That has been driven by high liquidity in Italy and Spain, with the same dynamics as seen in the last 3 or 4 quarters now, offset by a positive performance of other business, which is a good testimony of the importance of having diversified internationally in our business over time. Importantly, as a result we have seen a pickup in the collection of LPI, but not as strong as we would have liked. And so the back book of LPI income reserves actually increased year-over-year despite the decline of the loan book. And therefore, that represents another pool of income that you can rely upon for future profitability. Security Services has grown nicely year-over-year 15%. And it's been supported clearly by the market rebound, but also by the commercial development effort and the profit before tax of that business is up 11% year-on-year despite having excess liquidity, which has now coped, as I mentioned before. Payments have performed strongly, and that's despite the fact that we have yet to see the full rebound in the credit card transactions profit before tax is 72% above the first half of last year, significantly higher than the previous year given, which is relevant even in 2020, it was clearly impacted by COVID. So if you look at Page 3, what we liked and what we didn't like on the first quarter. Well, we liked a good performance of security services and payments. The fact that the customer loan growth starts to pick up quickly posters, and we have stabilized on the factoring business, the trend that we've seen. We have already achieved the synergies. We have reduced excess liquidity, which is a massive impact on our rent profitability. And we've had this positive one-off which is not included in the adjusted net income of EUR 20 million coming again from the DEPObank deal. And the cost of risk is 0, which in a COVID environment, clearly, is the testimony of the quality of our loan book. In terms of minus, we still see high liquidity in Italy and Spain with a lot of focus on public administration paying well, the new invoices and the higher assets on the deposits and the fact that there was a lot of liquidity at the beginning of the year is generated in the depositary bank at EUR 6.2 million additional cost above the tiering that has been closed, which we'll see later in our accounts starting from June. Page 4 represents our account the adjusted P&L compared to the reported P&L. And Page 5 is an update on the effects of the DEPObank acquisition. The numbers you see up to the first green bars are the ones you've seen already in the previous presentation. What we've seen in this quarter has been an increase in gross badwill because we settled the price adjustment with the vendor. We have had the step-up of the DEPObank, step-up of the DEPObank goodwill an increased net worth of the stake in Banca Depositaria, which is accounted at book value. We generated another EUR 4 million of incremental capital, and this has been offset by the liability management cost. So all in all, we have increased the core equity Tier 1 from basically effect by EUR 20 million. So there's been incremental capital that we haven't paid with the purchase price of DEPO. On Page 6, we've tried to explain the all the effects that moved from the reported net income to the adjusted net income. The adjusted net income, as you remember, is the profitability of the business, excluding all the extraordinary effects in particularly the M&A one. So we have, as represented on Page 4, we have added back the nonconsolidated adjusted event of paper for the months where our ownership. We have the cost of the store brands, which is just an equity component at the end of the day, where the will restructuring cost, the tax -- the good tax step-up and the liability management one-off costs and the extraordinary resolution fund contribution. And that brings the net result flat year-over-year. If you look at the business side, it's represented today on Page 7. As you remember, we have the 3 businesses, Factoring Lending & Credit Management, Security Services and Payments. And then we have the corporate center that compares with the staff function and the finance and administration, including the treasury fraction. So if you look at the segmental reporting, we can see on page on Page 8, the performance of the 3 businesses and the corporate center compared to last year. So Factoring lending clearly suffered for the dynamics I described before. So it's down year-on-year in terms of revenues and net profit with a good cost control. Security Services is up year-on-year in terms of revenues and profit and Payments in terms of revenues flat and therefore, a very positive impact on overall profitability. The Corporate Center, which sees the benefit and the lack of benefit of the management of the liquidity and of the bond portfolio shows a reduction in the result as year-over-year. But we need to take into account the 2 effects I mentioned before, the fact that we have the mark-to-market effect of the government bond portfolio which we stepped up in terms of value at closing is worth EUR 12 million for the first 6 months of the year in the exit liquidity, the EUR 6 million I mentioned before. So if you take that into account, what effect which will be absorbed with the repeat of the current bond portfolio in the land con duration. And the second one has already been reabsorbed by to with a reduction of ex liquidity, we're in good track of performing quite well, the adjustments or the one we have seen already before. So I leave it now to Giorgio to present the details of the performance of the quarter.

Thank you, Max. Going to the Slide #9, we have the presentation of the 3 business lines, Factoring & Lending, Security Services and Payments. Page 10, we have the first one is about Factoring & Lending KPIs. The trend of the first quarter has been confirmed also for the second quarter. So the Group volumes decreased by around 2%. The main impact has been the effect of the high liquidity, especially in Spain and in Italy. On the other side, there was a strong performance in Greece, Portugal and in Slovakia and in that countries during the last quarter, we grew in a very strong very strong way. One important thing is about the NPIs because the back book refer continued to grow despite the fact that also thanks to the liquidity that was injected in the system, especially in Spain, we were able to collect a higher amount of LPIs compared to the last year. We continue to maintain a good discipline on cost. And the cost of risk is we can say that is negligible and decreased compared also to the previous year. Going to the Slide 11, we have the representation of the volumes and the outstanding, as alluded before, the outstanding decrease compared to the last year, but is stable if you compare the trend from the first quarter and the second quarter. As I mentioned before, there was a growth in Portugal around 86% year-over-year, and in Greece, around 47%. And also there was a higher volume also in Central Eastern Europe 8% year-over year. As said before, Italy and Spain factored about a [indiscernible] today to the liquidity and -- but this effect is partially affected from the -- thanks to the diversification across our Europe. If you go to Slide 12, where the results of the business and the net interest income has been impacted by the lower portfolio. And on the other side, as I mentioned before, the net LPI over-recovery was positive compared to the previous year. But we have also -- we maintained also the fund. So the amount -- the total amount of LPI that we have the right to collect but are not accrued in our balance sheet and this is something like a guarantee for the future income of the Group. Going to the Page 13. Let's start with the Security Services business coming from the DEPO acquisition. The BFF Bank grew around 15% year-over-year, and there was a positive asset driven by the market, but also the performance has been strong also for the development of the business. The global custody increased around 20% year-over-year. And the thanks also to some M&A activity made by our existing client and also the market. It's important to realize that the cost income is down today 53% and the revenues are up and costs are stable. Going to the next slide, we have the results -- the final results of the Security Services business at Page 14. So net fee and commission income are up 9% year-over-year. And the net interest income has been impacted in the first half of the year by the higher deposits because of the cost the liquidity that we put in ECB and one but for the next 6 months, the management of the [indiscernible] that we have done can put around these excess cost. And so we are in a good position for the last math for the last month of the year. And finally, we have a significant increase of the port tax that we about 11% year-over-year. For the Payment business, also there was a rebound of transfer and collection, payments, so the positive in this business unit. So the transactions of transfer and collections are up 10% year-over-year and was stable the case transaction. There was a good result compared to the first half of 2020, but there is -- it's lower than the 2019 to the exposure to the long effect of the COVID about the retail and the travel expenses, and this is something that we hope that we can recover in the next few. From checks and receivables that we know that is declining, but is resilient about the commission that we earn for the corporate payments. There is also a very strong performance. So with 7% more transactions year-over-year. Going to Page 16, we have the results of the business unit. And the most important thing is that the profit before tax is higher, 72% year-over-year. About the Corporate Center that we have on Page 17, there is the first point, the first item that is important to highlight is the strength of the mark-to-market accounting because there is a negative impact on the P&L, about for the first 6 months of the year is negative EUR 11.6 million. and this is only an accounting effect. We have also to consider that before the acquisition in the SG&A agreement with DEPObank. There was a ban for them to buy more bonds, government bonds. And so the tactics that we are going to highlight in the next slide. We have, for the first 6 months of the month, also the cost of around EUR 6.2 million of cost of the excess liquidity in CV. And this is 1 point that we use because the ALM activity that we put in place in the first -- in the last month of the quarter, give us the possibility to add 0 cost for the next 6 months about the excess liquidity. One important point is about the initiatives, about the balance sheet we have already highlighted. We've locked in all the synergies, and we started between the end of the period of -- the end of June and beginning of July, we started the investment policy about the bond portfolio. Going forward to talk about the effect of the Corporate Center I leave the stage to our CEO, Max.

Gracias, Giorgio. We put 3 slides to actually highlight a number of moving parts, which are important to actually understand the numbers and how they develop over time. And Page 18 shows what we have done in the balance sheet in the last months, particularly towards June to counter the effect we have highlighted. So let me flag to you a number of drivers. First of all, you can see that the cash and cash balance what we deposit to the ECB, they shrank significantly from EUR 3.2 billion to EUR 900 million. Bear in mind, at the beginning of the year, there were EUR 5 billion of ECB deposits between the 2 banks. So by shrinking, by over EUR 4 billion the ECB deposits, we are saving 50 bps on an ongoing basis compared to where we were because of the effect has been done mostly at the end of the second quarter that has mostly benefit going forward. Secondly, we have reduced the bond outstanding through the liability management exercise that we have conducted. That means not only that we have bought the bond -- create -- locking in more value, but also we have accelerated the synergies and that cost has been covered by the positive one-offs we mentioned before. We have almost entirely rate wholesale funding activities, and we are seeing exists of retail deposits, which is we are managing quite aggressively in terms of repricing. What we're also doing is actually making sure that the deposits from transaction services are priced correctly. So we have reset some of those prices that has generated an outflow of over EUR 1 billion of excess liquidity and should have also an impact in terms of our funding cost going forward. So a lot of moving parts in the balance sheet that have then an impact on the P&L. The second point that Giorgio was mentioning is where we are on the synergies. As you remember, we gave a target of EUR 50 million, EUR 60 million of gross synergies to be achieved by 2023. We are pleased to report that those have been already locked in, so that by the end of this, on a run rate basis, they are already contracted. Mostly funding synergies, where we already have achieved the target that we have set ourselves for 2023 with the initiatives we have mentioned before. So from first of July, those benefits will flow through the P&L. And on the OpEx side, we have already locked in EUR 17.2 million out of the EUR 20 million we indicated to the market for the year end on a run rate basis. And we achieved that actually by having significantly less transaction integration costs so far than planned. And that gives us a good buffer of having less transaction costs or potentially pushing for higher synergies going forward. We mentioned the bond portfolio. I think that's an important component to spend a bit of time on because it has had an impact on the reported number, but something which we knew and we plan for but it's also an effect that we will be reabsorbed over the period of our plan, and that's why we gave certain targets also in 2023. So let me explain. First of all, what happened with the deal in terms of size of the portfolio and duration. As Giorgio mentioned before, one of the commitments that the seller before made throughout the deal, and frankly, from when we started to have the discussion back in August 2019 was not to inflate the bond portfolio to avoid risk in case of negative mark-to-market movement, there will be a capital shortfall at closing. And so it means that actually DEPO did not invest in government bonds from mid of 2019 to closing, which was in March of this year. And so the bond portfolio went down. At the same time, because there was no new investment, what was the usual duration, 3 years, which means you buy bonds the 5-year duration of purchase and then they get rolled over. So you have an average 3-year duration. Actually, the duration [indiscernible]. And when you have a bond portfolio with a short duration, in the mark-to-market of that bond portfolio, actually, you are clearly generating if interest rate remains flat, gain. Because you've bought a higher yield bond, which has now a short-term duration. And that's actually what has happened in the third column, which is given a short duration, stable interest rates. When we bought DEPO, we had a one-off capital gain pretax of EUR 53.2 million, which is nothing else than the positive NPV of the bond portfolio to expire. You see the effect on Page 17 in the first bullet point, year-by-year what that will mean in terms of, if you want, of the spread of that mark-to-market over time. So the negative income. As you can see in 2023, that would be marginal, which means that by reconstituting the size of the bond portfolio, the first column by having a normalized duration of the bond portfolio we should have a larger yield coming from this activity. On top of it, the interest rate environment on a current and forward basis for the duration that we have indicated, so 5 years in inflection, 3 year on average means that we should expect a high yield, and therefore, that's consistent with what we indicated after the business plan presentation. If anything, actually, from when we presented the business plan, the long-term interest rates have gone up. So there is positive [indiscernible]. So we want to be quite upfront on those things because with many moving parts of the deal. I think that's an area where people might have overlooked the impact of the mark-to-market the reported number. And so we want to spend a bit of time on it. But leave the floor again to Giorgio to talk about the balance sheet to the asset quality.

So thank you, Max. Now we are at Page 21 with the balance sheet. The funding structure has been rationalized exited the floor by me and by Max also. And so I'm not going to spend more words about the funding base. But one important thing is the level of our liquidity ratio, the LCR is around -- over the 300%. The leverage ratio is about 34%. And the SFR is 236%. We have started to increase the government bond portfolio that now is about EUR 5.1 billion and is still lower than the previous year. And also, we have spoken a lot about the mark-to-market effect on the held-to-collect portfolio. Said that, we can go to the Slide #22. We have the asset quality. The asset quality has been the same that we historically have. So very good means a negligible cost of risk that is close to the of the first half of the year. This is due to come from to effect the portfolio of construction and also on IFRS 9 methodology release. The most impaired loans towards the public sector. We have an increase in NPL for the municipalities that have been put in conservatorship. And also we had first half of the year, a reclassification of an exposure from unlikely to pay to on performing. And this is the fact that we have in the slide in the box in the right, about the level of NPLs, excluding the multiple. So the cost of risk is negligible. The NPL ratio is negligible. And also we are maintaining our quality of assets right also considering the profit situation is something that is very, very good result also in our credit scores. Going to the next slide, the effect on the other side of the coin is the capital position. We have EUR 212 million of dividend capacity that are not booked in our capital ratios. So the total capital ratio is 23%. The ratio is 18.6%, considering the effect of the EUR 212 million of dividend capacity. The total capital ratio should be 32.6%. We have to also consider that we didn't apply your given and possibility even built to help banks for the emergency. And so this is a very, very plain situation in our capital ratio. We have Slide 24 because, it's important because we started the dialogue with Bank of Italy because the ban for the payment of has been stopped. So starting from October, there will be the possibility to pay the dividend, and we started a dialogue with the regulator in order to define the amount of dividend that we can go -- that we can pay in early October, as mentioned by our CEO before.

Thank you, Giorgio. To conclude, we have special farewell the announcer we recall AGM to propose some changes in the association to be combined with the new regulation governance code, and then based on the data Bank of Italy proposed the dividend distribution. So if we sum and on Page 26, what we present today. So then today, as lending business, which shows some positive performance in some of the minor countries, Italy and Spain, still impacted by liquidity injections. We have, though still quite a lot of value hidden and growing from the recognized of balance sheet LPI. The Security Services and Payments business have performed quite well in the first half of the year, and they are actually in a position to do quite well going forward. We are very pleased by the fact that we've already locked in the synergies with 2 years in advance compared to the target. And we have started to restyle the bond portfolio as we explained we should counterbalance the accounting effect we mentioned before. We have shrank dramatically the ex liquidity that has -- will have a very positive effect going forward. As discussed in the previous slide, and we keep good credit quality, strong capital position, the ability to remunerate shareholders strongly with a growing business. So that is the summary, as I said, of our first half results, which are really discussing the effects of the integration and a good start for the new businesses we purchased. And we leave the floor for any questions you guys may have.

[Operator Instructions] The first question is from Antonio Reale with Morgan Stanley.

I've got a few questions. And the first one is if you can please share with how the volume pipeline looks going forward across your key geographies? You've launched a marketing campaign, as I understand, you aim to negotiate some of the existing business in exchange for new volumes targeting particularly the large corporates at the European headquarters, something that your competitors cannot emulate. And so if you could provide a bit of color on how the pattern looks like going forward? Also related to that, if I look at your Assifact data in Italy, it seems to be pointed to a recovery in factoring capital volumes. Can you share with us what you're seeing from your clients? That's my first question. Secondly, I look at Slide 20, DEPObank synergies, you reiterated the funding cost and cost synergies -- And I wonder, given the improved visibility you may have now, if you can be, to some extent, more precise on your expectations for how much of each funding and cost synergies you would expect to see in 2021, 2022 and 2023? My third question is on the securities business, which has done well in the first half, we see growing above 9%. I wonder how this can affect your revenue mix going forward. currently, if I remember right, about 30% of your revenues come from fees, how much would you expect this to change as a percentage of revenues say, 2 or 3 years down the line? And my last question is on dividends. You have a significant excess capital position. I think nobody can question that the pandemic and the dividend are, of course, contributed to your capital. The Covid situation where because of your profitability, you sit on a very large buffer despite the accrued dividends. And I think it's clear from your remarks that you'd like to pay the annual dividends related to at least 2019 and 2020 fiscal year as special dividends as early as October. So can you confirm that my understanding is correct? And secondly, it's kind of a separate topic. I wonder if going forward, you would consider in order also to smoothen the ex-dividend effects to pay an interim business?

Thank you, Antonio. Just taking note of all the questions. Look, on the volume pipeline, we are seeing some signs of positive momentum. Remember, also at the beginning of the year, we it's difficult for companies to make different decisions for they've seen in the past. We have made an effort to reach out to, as you pointed out correctly, to the multinationals and also our trade management clients to convert them to factoring. Those are decisions that are not taken in a matter of days or weeks, again, because we're dealing with large customers with their own -- have complexity. We were pleased that, for instance, today, we are signing a 3-year contract with one of our credit management clients, which is worth hundreds of millions per year of volumes in Italy. So it's a business which has suffered because of liquidity. It has happened not because we lost customers, mostly because the we got paid earlier than the usual. And so the portfolio got deflated. And we think that with the expansion of the public sector expenditure, we decide that we have these cross-border activities. We can actually reignite the growth. We're tent very pleased by the performance, but we actually take comfort from the fact that we are seeing a decent pipeline. On the comparison with Assifact, I think one point to highlight which we will see actually in our 6 months report which I think were published will be published today, next week, in Italian, is that actually Assifact has reported double-digit growth compared to 2020 in the first half of the year. But in 2020, there was a high double-digit contraction. So the volume of factors still below the 2019 numbers. Whereas in our case, we are still above the 2019 numbers. The reason is the factoring business in general is more exposed to the overall economic activity not public sector expenditure, which has been more stable. So last year, we did suffer that contraction mostly. We suffered the liquidity but we didn't have the rebound this year because there was no contraction last year for the public cycle expenditure. So that's to explain the like-for-like. In terms of Page 20 and the synergies. Thanks for pointing it out, and I'll give you a bit more color. So on finding synergies, what we are saying is that the annualized EUR 40 million of synergies, kicking entirely, at least from the first of July of this year, okay? So from now on, those are locked in. The OpEx synergies, we have already contracted those. Some of those contracted synergies means contracts have been renegotiated at expiry. Some means people that are leaving. And therefore, a number of people are leaving in the next 6 months. So what we are saying of those EUR 20 million of target for 2023, on a run rate basis at the end of this year, EUR 17.2 million are already locked in, which means that at worst, in 2022, we have the EUR 17.2 million. So to make the long story short, you should have more than EUR 50 million we indicate here in 2022 already. And then we still have 6 months in front of us, a year in front of us to do better to close and to deliver the further synergies and probably there is potential to do more to spend less in the integration cost. So that's basically how you should look at 2021, 2023 -- '22 and then 2023 as a continuation of that. In terms of the security services business and the payment business, they are an important contribution to our profitability. Good thing is actually they don't absorb capital. So the growth of the profitability, the growth of our ROE as well. We don't target a mix between commissions and income. We see those 3 businesses totally independent, aimed at therefore, we want to grow them as much as we can. What we think we are going to see is an economic recovery. Clearly, the payment business should perform quite well. We still have to see the recovery of the [indiscernible] business, and that should have some benefit and the security services business is driven mostly by how the markets are performing, but also our ability, particularly on the tenanted asset management markets will add new customers, and there we have the largest deposit in Italy. So we don't target a mix. Any sense actually given the underperformance of the factory and lending business, ones that we rebound, both in terms of recovery of LPI, but more importantly, on volumes, at will also rebalance the mix more towards interest income. But those 3 businesses should really be seen separately. In terms of excess capital, Look, we have, as you pointed out, capital that is plentiful. If you take into account the dividends we have -- So the nonpaid profit of the previous year and the profit of this year will end up, on Page 23, at 28% of correct Tier 1. We clearly don't need as much capital to run low-risk business like ours. Already the level we have 18.6% is well in excess of what we need. Our target, in terms of total capital, not even Tier 1 is 15%. And we think that's a good target to have. So our objective in the discussion with the regulator, bearing in mind the strength of our balance sheet compared to any other bank who have made announcement of their intention the discussion with regulators to pay out the entire EUR 165 million of 2019 and 2020 dividend, accrued dividend. On your point, we continue given the capital position to generate dividend capacity. The point around the interim dividend is something we talked about. And we might come to market with a decision in the next few months. It was difficult to discuss that once we didn't even know what was the regulator approach to dividend payment. But that's a valid point to actual the concentration of payments in one-offs. It's actually true that the Italian banks didn't have interim dividend a number of them of actions reduced then exactly because we generate some of that other than otherwise we generate actually interest capital, they tend to do that.

The next question is from Simonetta Chiriotti from Mediobanca.

Some questions from my side. The first one is on guidance. You at the time of the presentation of this plan, you targeted a certain level of growth. then we have had this change in the contribution of the bond portfolio. So I'm wondering if that guidance is still valid in the medium term, considering how the contribution of the bond portfolio is evolving and also volume growth is showing up? The second point is on 2021 profitability. In the second half, you have mentioned more than one time that there are several moving parts. So it's clear that there are some positive trends in terms of a lower cost of the liquidity. I'm wondering if there is also something that can be later on the bond -- on the yield the bond portfolio or at least on the volume of the portfolio. So if we can expect something better for the second half, so basically, annualizing the first half could be in state not only for the only of your business, but also for these moving parts. So if you can help us to go through this? And the last question is on costs. are not wrong on a pro forma basis, there are EUR 10 million of higher operating administrative expenses in the second quarter with respect to the first quarter. So I'm wondering why this change?

Okay. Let me start first and be very straightforward. We gave guidance to 2023, and we don't see any reason why that guidance should change. If anything, we've accelerated the synergies compared to that guidance. The mark-to-market effect was in our plan. And actually, you see from Page 20 -- sorry, 17, that the negative effect of that mark-to-market is actually marginal in 2023 in terms of like-for-like comparison. So the fact of actually having, as we show on Page 20, resize in the portfolio with the collaboration for 3 years with the bank of [indiscernible] and, therefore, with a yield, which is 40 bps higher than the yield of the current portfolio on the current forward curve, just looking at 2021, you see on the table on Page 20 gives us full comfort that actually the contribution of the caring bond portfolio to the results will be reset compared to the effect of the mark-to-market. So in that respect, we are actually quite secular. In terms of 2021 profitability, the reason why we highlight a lot what has changed in terms of balance sheet synergies as of June is that those things will show in the second half of the year. And so in the second half of the year, we should have some OpEx synergies clear, as we said, only at year-end will be at 17.2%. The funding synergies are all in there. The bond portfolio has increased a little bit if you look at Page 20 compared to March, we are roughly EUR 300 million more and that will increase gradually over time as well and will push for the longer average duration. So that will have also a positive contribution. But importantly, the way we have reduced by EUR 1 billion ex liquidity, the fact that we have reset some of the cost of those liabilities, reducing further the negative rate of some of those poles should support further the P&L of the business going forward. And then we are going into the hunting season of the LPI. And that's why it's important, the fact that we finished the semester with a level of betbook, which is actually in line with what we expected despite the lower volumes of factoring and lending volumes. And so actually, we can protect the profitability of the business that way. So if we look at where we are, we are where we expect it to be with the advantages we've actually front-loaded more to the activity on the funding synergies, particularly to counterbalance the weakness that we have started in the first half in the factoring businesses. Sorry, on the OpEx side, what -- let me just check here. Okay. You have to -- yes, we had the resolution fund in Q2, whereas last year was in Q1. And that is the major effect on the P&L you see.

The next question is from Andrea Lisi with Equita.

Just coming back to synergies, just to understand if I correct -- if I understood correctly. Is it correct to say that everything is the same in the second quarter -- in the second half of the year, we should observe, kind of, EUR 20 million of positive impact on the NII because of funding synergies? This is the first question. And the second question is on business and the factoring. You have said how you are trying to manage the situation in Italy and Spain. Just wondering to understand which is the reaction of your clients when talking about factoring products in the current environment. And so also what makes you confident that the business environment can be better in the second half in respect to the first half with the liquid in the market that is expected to persist and in particular, how long the spec situation will continue?

First of all, let me point out one thing, which is important, which is if you look at the markets where we operate, actually really Italy and Spain suffering, particularly now doesn't have some of our largest markets, but all the markets operate in a high liquidity environment. So the ability to grow in the market we were present from last time is reenacts actually still appetite from customers to do it faster. What we suffer in Italy and Spain is that because you've already a stable base, and we buy those receivables usually when they are already due is the public centers those invoices before the duo, we don't buy them. so it will appear from our volume. And in Spain, we also have the injection of cash. So we are not seeing customers say, look, [indiscernible] liquidity [indiscernible]. We are having instead a lot of discussion with customers, we look at a high liquid environment, prices staying quite well. So how can I lock in the current level of payment performance and transfer it to somebody else, which is that in our, frankly, we can take the timing risk because we know that actually the yield we get on those loans improve the LPI is quite attractive anyway, no matter when is the time. So we always buy those. So in terms of intertain we're not using care adding customers, particularly in Spain. We are seeing more conversations going on. As I mentioned, today, we signed an important deal with a customer in Italy. It's a matter of getting the customer conversion. But we're not seeing the market disappearing or people not interested in the product. And I think it will be interesting to see what happens also with the implementation and new definition of the [indiscernible] with the competitive situation that will play out a thing more towards the year-end being of next year. So that's, I would say, where we are. Are we happy about the market and the performance? No. Do we think there is something broken? No. Do we think there's actually more we can do to get more volumes? Yes. And I think the demonstration is the growth we have in some of the markets. So we remain optimistic about the future in that business.

Okay. And about the question on synergies for the...

For synergies, yes. The answer was, yes. So if I say, from the first of July have locked in more than EUR 40 million of synergies in the second half of FY'20. On the finance side, and it is also the OpEx on the OpEx side. On top of it, we have the incremental yield coming from the incremental bond portfolio also for the P&L as well.

The next question is from Filippo Prini with Castle.

Two brief questions, if I may. The first one is, If it's possible your look on the trend of factoring in our lending to be in main countries in July at least if you see different trend compared to what you have disclosed on the second quarter and first half results. And the last one is, again, sorry, just a follow-up on operating cost. Before talking about the addition of the synergies that you quantified, if we can take the cost base of the second quarter and taking out the EUR 9.5 million of restructuring costs and the cost of the resolution fund just of the underlying trend of the new business DEPObank included.

On July, we've done very well. In July, we were on budget. So we were back on a growth trend. I think also most of it was good. And it was a relatively weak month. So we need to see actually September, but we have, I think, a good pipeline. And we are investing a lot together patent for the year-end, which will drive the profitability of 2022. On the operating cost, yes, it were reasoning works. One thing to bear in mind on the resolution fund and also on the on the internal, the contribution to the deposit guarantee scheme is that there, we actually have a benefit going forward. Remember, we have we have had -- those contribution look 2 years backwards. What we have is a contracting balance sheet. So we move from EUR 17 billion of the combined business, which is what we -- which is basically the base on which those contribution has been calculated, and now we are at the level. So in time, again, that's another synergy. We're going to pay 2/3 of those amounts without doing anything. On the deposit side, you pay on the basis of the insured deposits. Again, the insured deposits came mostly from BSF because they are deposits below EUR 100,000. Those deposits are in outflows because actually, we are keeping only the DEPO ones. And so again, the contribution to the funding to [indiscernible] should drop as well over time. And that's not in the OpEx synergies, but that's an effect we should have on the pen if you want to be an upside compared to this. It's not immaterial, because the amount of cost between the 2 funds, roughly EUR 10 million. And so that can move the P&L quite a bit.

Okay. So basically, in 2023, you should have, let's say, EUR 6 million, EUR 7 million of lower cost for system fund due to the leverage of the balance sheet of then.

Yes. All things equal, because...

All things equal. Exactly.

Various components. But in a sense, we are shrank the balance sheet. So one of the 2 banks that these are cleared. And the deposit of BFF will have disappeared in the short term and then the overall size of the balance sheet has also gone down. So if you I think if you take a after-action would probably take out of the BFF cost as a good process. But again, then is the extraordinary contribution. We know the creativity of our regulator to put the mine in our pocket, just a joke. But that's something to consider. That's why also we didn't put it in the hard synergies, but we know that there's certainly a profit of value there.

[Operator Instructions] There is no question booked at the moment. This concludes our question and answer session. I would like to turn the conference back over to Max Belingheri for any closing remarks.

Thank you. Well, I would like, first of all, to thank everybody for joining us today. I know it's a period of the year where you're thinking more about holidays and necessary numbers, and we had a lot of complements to present today. Overall, as I said we are pleased where we are in terms of the synergies. I think we are way ahead of where we thought we would be. I think it's important that we convey the message of some of the effects of the accounting part around the bond portfolio, which we felt has not been very well comprised by the market. The good thing is that, that will be worked out by 2023. [indiscernible] we've given to the market. Thank you very much. Have a nice day.

Thank you. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.