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

Good day, and welcome to BFF Banking Group Conference Call about 2021 Full Year Results. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Massimiliano Belingheri, Group CEO; and Piergiorgio Bicci, Vice President and CFO. Please go ahead, sir.

Thank you. Thank you for joining us today in our first full annual reports of numbers of the combined BFF and the DEPO business, it's a year since -- almost a year since we merged the 2 banks. And so we are pleased to report a strong set of earnings and particularly to do so into an environment, which we expect to have a very positive impact in the business going forward, both in terms of higher interest rates but also in a more positive environment for our core factoring and lending business. But let's look first at the results on Page 2. We report a record profit, both on a reported basis with over EUR 197 million, but also on an adjusted net profit basis with EUR 125 million. That's a strong result and that's despite the fact that we have still the impact of the maximize bond portfolio, as you may remember, was booked at the level of interest rates of March 2021, which has a negative impact on 2021 in terms of running yield of EUR 27 million, but clearly with the rollover in a higher interest rate environment should deliver strong growth in our earnings going forward. Capital remains plentiful. We report a CET1 ratio of over 17%, total capital ratio of 22%, but that's not even taking into account the fact that we have issued a EUR 150 million in AT1 bonds at the beginning of the year, which will increase the ratios significantly. Importantly, given the capital position, we have the full adjusted net profit earmarked for dividends this year. That means that by the time we pay the full year dividend, we would have distributed roughly EUR 300 million to shareholders since October, which is a significant amount given our market cap. Also, we have listened to the feedback of shareholders and moved to a half year distribution for dividends starting from 2022 and so we should have the first payment after the first half results and therefore, another coupon to be collected by shareholders in August 2022. One year after April, we are pleased to communicate that we have locked in already the full amount of target synergies that we had. And clearly, we have plenty of opportunities to continue to do well on this front as we go into the second and third year of the integration of the business. If you look at the 3 businesses that we run on factoring and lending. We've stabilized the volumes at year-end year-on-year. The year-on-year gap has been reduced again for the third quarter in a row. And importantly, we are seeing a very strong start of the year, as Piergiorgio will comment later. The loan book is still down year-on-year given the lower starting point of the year, the high liquidity. But importantly, given the environment you'll see, we are confident we can resume growth on that front as well. And the business has been reinforced by some senior hiring both in Italy and France, which should further support the growth of the business going forward. The Security Services business has seen growth of 10% year-over-year and supported by market rebound, but also from commercial development. Profit before tax is up double digits despite the fact in the first half, as you may remember, the business had excess liquidity and therefore, was punished, if you want from our transfer pricing for holding too much liquidity before we bought DEPO right after we integrated it. The payment business has grown strongly, particularly given the rebound in economic activity and the activity of the government guaranteed funding program, which we support operationally and the payment business provided a strong growth to the overall earnings of the group. After the year-end, we have issued, as communicated to the market, EUR 150 million of AT1, which importantly has been issued at lower interest rate than our existing Tier 2. That means that actually, we have a better capital structure, a stronger capital structure, but with a lower cost than we had before and also cost that doesn't go through the P&L, so will allow to accelerate further the payment of dividend to the shareholders and the excess capital that we hold. We've also announced that we have purchased the site for a greenfield development of our new corporate headquarter, close to our existing headquarter and the consolidation of the 3 locations in Milan will result in EUR 2 million of incremental synergies from the first half of 2024 adding to the pilot synergies we have already identified. So if you look at what went on Page 3, what went well and what didn't go as well last year, we've seen rebound particularly in the last quarter of the factoring lending volumes. We had a stronger Q1 pipeline. Security services and payments continued in their growth trajectory. The synergies were locked in and as I mentioned before, a higher interest rate environment is quite positive for us, and with simulated benefit on the rollover of the held to collect portfolio yield and also the positive spread that we are now seeing in customer deposits in Poland. The issuance of the AT1 gives us incremental capital flexibility and greenfield development is important for our operational synergies and also the cost synergies. With this effort in the last quarter from high liquidity, particularly in Spain, which has not allowed us to recover fully the drop in our loan book. And as was hinted already in the last earnings call, Arca Fondi, one of our major clients in the Security Services business has announced it will move to another alternative bank by year-end 2022. As we mentioned there, we have plenty of other pockets of synergies and growth in value to counter fully led effect and therefore, confirm our target earnings. On Page 4, a representation of how we report our numbers that we've seen in the previous quarter, so we'll not dwell into that. And on Page 5, you can see the results, summary of our business units in the corporate center compared to last year. Apologies. On Page 6, you can see the adjustments for net profit, and I leave actually to Piergiorgio to present this slide.

Okay. After adjustment nothing changed compared to the last quarter. The main impacts are related to the bank and actual restructuring cost. The liability management, one-off cost lead to the exercise of our bonds, the goodwill tax step up and the extraordinary resolution plan contribution for the last year. These are the main impacts on the adjusted and we have to consider that for the results not adjusted that we don't consider the first 2 months of DEPO before the merger. So in this slide nothing changed compared to the last quarter. Going forward, we have the final effect of the DEPObank acquisition at the end of the price purchase allocation, the capital generated from the acquisition is EUR 82 million and this is the sum of the effect of the net of tangible -- of the badwill, net of tangible with tangible post purchase price allocation and the positive effect due to the DEPObank goodwill tax step-up. Going to the next slide, which has the different business lines, starting from the factoring and lending as highlighted by Max. The volumes are stable year-on-year. And we continue the positive close of the gap that started in the last 3 quarters. And it is very important for us that we started also the new year 2022 with strong volumes in January that are higher around 45% compared to last year and 62% compared to 2020. And this is mainly driven to our strategy toward our clients in order to sign long-term agreements that can be a boost in order to stabilize the volumes going forward. About Italy and Spain, volumes are almost stable. It's important also to highlight that markets like Portugal, Slovakia and Greece are up year-on-year. And in Poland, we reduced the gap compared to the beginning of the year, and we closed at minus 7% year-on-year. But at the end of the year, we were at minus 30%. The loan book is still under the effect of lower payment times. And so we had a decrease around 8%. By the end of the year the international business is 44% of the total loans. Going to the next slide, Page 9, we have important KPIs for the factoring and lending. So we have the LPI stock that continued to grow, is plus 5% year-on-year. And we have a net LPI for recovery that is stable despite the fact that the LPI collection suffered in the last year. We maintained a good discipline on cost and the cost of risk is close to 0. Going to Page 10, the net interest income for the factoring and lending in 2021 is EUR 148.9 million and it's lower than the previous year due to the lower stable portfolio that we suffered in the last year. I've said already, explained the net LPI is stable compared to the last year. It's important to highlight that interest expenses decreased compared to the last year, and we grew around 22% year-on-year for net fee and commission and this is driven by the good performance of the credit management. And we confirm our high asset quality with an excellent risk profile, LLPs are at EUR 0.7 million of dues. Jumping to the Security Services business, the KPIs of the tailwind for the asset management market, the depository bank asset under deposit grew around 10% year-on-year, thanks to new business, especially the alternative investment funds segment and also the market performance. For the new services, we launched new value-added services, in particular, one service related to the ESG rating services for the funds and also we started as we closed a deal about the security lending. For the global custody, the asset under custody increased 19% year-on-year, benefiting from existing clients acquisition and additional branch market performance, the commissions grew as net effect year-on-year, this has been driven mainly to the growth of Depository Bank and Global custody services. And also, we improved the operating efficiency and now the cost income is down to 50% compared to the 55% of the previous year. So the P&L of the Security Services at Page 12, we have net interest income that is plus 9% year-on-year, driven by the KPIs that we have seen before, and the net interest income is at EUR 10.8 million at the end of 2021. So at the end, the total net revenues went up by 7% year-on-year with stable OpEx and with a significant growth on the profit before tax. About the payment, Page 13 we have seen a growth driven by transfer and collection and corporate payments. Transaction of transfer and collection grew around 11% year-on-year. The card settlement transactions slightly grew compared to the last year. And this is related to the 2 different assets, negative assets about the pandemic aspect. And we have seen higher competition in this sector, driven by the contactless card and other card issuers. But the corporate payment transaction are higher 8% year-on-year with a positive performance of the pension payment services and strong commission growth that is close to 10% at the end of the year, thanks to the other performance coming from the fee for the Fondo Nazionale di Garanzia in the business line, card and other settlements. So for the profit and the loss of the payments, deposits before tax is plus 58% year-on-year that reflects the higher economic activities and after the COVID. So our hope is that we can continue also in this year with good display in growth. The fee commission are higher, as I said before, and also the net interest income is higher compared to the previous year, and we have a strong performance of other operative income related to the revenues of other transfer and clearing services. Going to the corporate center. It is a business unit that is very important and we put a lot of effort in terms of increased efficiency and to speed up the merger and to be only 1 bank at the end of the first year after the merger, it's not a complete year, but we can say that we hit the target because the profit before tax is minus EUR 25.1 million. But if you consider also the mark-to-market effect that was highlighted by our CEO before we can say that the final result of the corporate center is positive and this is something that can be considered very, very good result. We also worked about on the optimization of liability management, and we have also discussed in the quarter about what we have done. And also, we put in place a lower operating cost, and that is lower EUR 10 million year-on-year. Going to the next page, we have Page 15, the synergies. We reached the target. And so we put in place all the synergies that we expected in advance compared to the expectation. And we can say that we made a good job in the integration, and we can work to do something better for the next -- for the next future, if we think, for example, about the new headquarter, this has more synergies going forward and there can be enough opportunities to work together and not in different buildings as of today. In the Page 17, we have the balance sheet that has been reshaped during this year. We increased our liquidity in ECB, but we are still below ECB tiering and so after the first 6 months, we have suffered a bit about the amount of liquidity, we've put in place a very good strategy, and we continue with the cost for our liquidity in ECB. We increased our government bonds, and we started again to increase the amount of the government bonds, increase also the deposits from transaction services, as seen before. And we continue the run-off of the retail deposit, and we increased also the passive repos at EUR 1.1 billion. So the total asset of the bank now is stable compared to the last quarter. About the Govies, we have a slide on Page 18. It's important to say that we started to have the same amount that we have in the past after the merger, and those regulation is coming back to on average of about 3 years. And so we are working, we stabilized the normal situation that we had before the merger. And so we are continuing in this. On Page 19, we have a slide dedicated to Casa BFF, new group headquarter that has been announced a few days ago. We expect a total investment about EUR 40 million. And going forward, the savings that we forecasted is about EUR 2 million of cost going forward per annum. It is a good opportunity as emphasized by our CEO because we need to stay together and not in 3 buildings, as implied today at least for the group, a good point for us. About the -- our balance sheet, we have Page 20 and we completed the rationalization of the structure of our balance sheet. The LCR is 274.1% and NSFR higher than 200%, and the leverage ratio is 3.5%. But in this case, we are not considering the issuance of the AT1. With the AT1 the leverage ratio is at 4.8%. And so it's a very good result for us. And as said before about the Govies portfolio that at the end of the year EUR 5.8 billion. Going forward, on Page 21, we continue to have a very solid asset quality, considering the portfolio compression and also the related IFRS 9 release, we don't have any cost of risk, and we don't have any significant impact on CET1 resulting from the calendar provisioning. We had, as in the past, our NPL's are mainly due to municipalities in conservatorship, and they are almost stable compared to the last year. And this is thanks to the fact that it is only a matter of time because municipalities are in conservatorship for a certain amount of year and after they come back to being performing and this is the reason why it is stable year-on-year. Going to the Page 22, we speak a bit about our dividends. We have EUR 125 million of dividends. But we have a total capital ratio that is significantly higher than our target. Total capital ratio is at 22.2% with the CET1 ratio at 17.6%. So we are EUR 155 million in excess of our 15% total capital ratio target. We didn't need to apply any of the ECB/EBA emergency measures. And so we are in a very good position in terms of cash flow and this is something that we can confirm year after year. Going to Page 23, this is a slide in order to explain a bit better about the AT1 issuance made in the first days of the year. We successfully completed the placement of perpetual EUR 150 million bond with 5.875% fixed coupon and the rating B2 given by Moody's. If we consider the capital ratio at the end of the year, including the AT1, we can see the total capital ratio increase around more than 2.2% compared to the one that we had before because the size of the AT1 is higher compared to the size of the Tier 2. About the Tier 2, we filed the request to Bank of Italy in order to exercise the call. It is important also to highlight that the coupon of the additional Tier 1 go through the equity and not to the profit and loss. And this is a step-up also in order to give a bit more of dividends to our stakeholders. And now I give the stage to our CEO in order to explain the new strategy for the dividend and the payment.

Thank you, Piergiorgio. We haven't changed the policy. The policy remains the same. So we paid to shareholders all the excess capital generated when we are above a 15% total capital level and given the levels that Giorgio described clearly, it would take a while between paying out the dividend, the earnings and growing the business before we reach down to that level. So with the issuance of the AT1, we have more -- even more flexibility to continue to pay 100% of our earnings for a longer period of time. In light of that, the Board has decided to proceed with the introduction of accelerate dividend, which will work exactly in the same way as our full year dividend, but calculated on our capital position in June. So we will pay out all the earnings of the first half of the year, we should not require to maintain 15% to the capital ratio, at least subject to all rules and regulations apply to such distributions. But what it means for the shareholders, clearly, as I mentioned before, we have already distributed almost EUR 300 million of dividends and capital repatriation in the last 6 months, if included the EUR 125.3 million, we will pay in April and with the August distribution, we will substantially go beyond the EUR 300 million, so plenty of capital distributed to the shareholders. Now that doesn't mean we're not seeing opportunities to grow, quite the opposite. We're actually seeing, if you move to Page 25, plenty of opportunity to restart the engine of our factoring and lending business, January was a very strong month, as Giorgio pointed out, the February and March look equally strong. And so we are quite hopeful on a strong rebound, that business suffered quite a bit in the last couple of years. Securities Services and payments, we expect a good trajectory of growth, and therefore provide us with plenty of opportunity. As Giorgio pointed out, the rising interest rate means that the EUR 1.8 billion, the currency on a mark-to-market basis has a negative yield and will be reinvested this year, simply with the rollover will generate incremental yield from that portfolio in 2022 and more importantly in 2023, and that will be reinforced by the rollover then into 2023. We'll continue to apply a strong and disciplined credit policy. That's why the cost of risk is close to 0. And we have a marginal level of moratoria, we have marginal level of calendar provisioning. Therefore, we really feel we continue to have in our business strong credit quality. When I say marginal calendar provisioning, I'm talking about EUR 400,000, roughly. Capital position remains strong, and that gives us plenty of opportunities set to continue to give that capital to the shareholders, and at the same time, self-fund our growth and strategic development. We have EUR 200 million of excess capital. And so we look actually to 2022, we've got a positive outlook. And so not only we are happy to report our record earnings, the successful integration of DEPObank, but also an outlook which we haven't seen in the last few quarters. And with that, I leave the floor to any questions you may have. Thank you.

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

Thanks for the presentation. I have a few questions on my side. The first 1 on volumes. Volumes seem to have turned the corner or at least we see a stabilization for the first time, as you've mentioned in the last few quarters. Stabilizing in Q4 also in Italy, if I understood correctly, which is obviously a very important indicator. Do you think we have reached a trough point? And if so, what type of growth can we expect to see in 2022 across your key regions, Italy, Spain and Poland, in particular? And also, it would be interesting to understand what do you think is driving the change? Liquidity is still high. So I'm wondering if you've noticed any changes in customers' behavior? That's my first question. Secondly, an update on synergies, please? And if I can, a clarification on -- I think it was your Slide 15, your corporate center, which is where I understand you're booking some of your synergies, possibly the funding synergies. I see other income versus operating income and you flagged EUR 11 million of synergies, which I suspect it's all of the funding benefit. And then I see EUR 1.6 million on the NII, if I add back the EUR 27.3 million. Now this seems to be consistent, but correct me if I'm wrong, with your guidance of 20 -- actually higher your guidance of EUR 20 million full year funding synergies. Could you please explain if that's correct? And my third question on Arca. Just obviously, we've seen Arca move on after the integration of DEPObank, which is helpful. Can you just quantify how much if any, this will affect your P&L and mitigating factors you may have? And how should we think about possible future migrations going forward. And then lastly on rates. If you could help us quantify what a 50 basis points or 100 basis point short-term change in rates means for a business like yours? And how are you preparing the bank to a hike in rate environment?

Okay. I'll leave to Giorgio the comment on the synergies. At the end, let me take others. On volumes, look, we have seen a stronger performance across the many businesses. I think we are quite positive on the pipeline. The reason why we gave the numbers for January because we are seeing some growth, not only in January, but as I said in the pipeline for the rest of the quarter. That's also driven by the fact that in December, we've locked in a number of longer-term contracts with clients, which provides a solid base going forward. So clearly, we are -- we have been suffering in the last year from acceleration of payment time. Now we're stable, although lower payment times. We have the benefit of the commercial development add up to the base, and we don't suffer the erosion of our customer base, clearly in the markets which were bigger for us. We have strengthened the commercial team. We had a change in leadership in September by combining the 2 businesses. We have a new Director of Sales in Italy, new Director of Commercial Development. We hired a senior person for France. So we have -- and those people have actually joined only between January and beginning of February. So we are actually quite hopeful that will drive even further the performance of the business. So it's down at the end of the day to stability in the payment times, which is the first helpful step because it means no erosion on the existing book that you want and then better execution, which with the new leadership in the team and with new people entering the business at a senior level, we're confident we can drive the business with volume going forward. On Arca, I restate what I said in the last call, it's an important client, it is sad to see them leave. It will take a while for them to make the transition, so we don't expect the impact on the 2022 earnings at all. And in 2023, we believe that the higher synergies and the rest of the performance of the business allow us to confirm the overall target for profitability of the business as a whole. So no surprises there. In terms of rates, look, it's a good question. As we mentioned, probably many times in the past, we are highly geared towards a positive interest rate environment. We were already highly geared when we were without DEPO and more so now. Why? Because first of all, our asset side on the factory and lending is to a large extent, double year we have a 50% shift. I tend to be able to replace my customer by the same amount. And there's an automatic repricing after 6 months on the ECB rate and therefore, on the LPI rate is able to charge by customer. And in Poland, my book is mostly on variable rates. On the liability side, where I still have some retail deposits, which are fixed rate and my bonds, which are also fixed rate. But importantly, I still have plenty of deposits in the depository bank, which has a floor at 0. So the first 50 bps of rebar has 0 impact on my funding cost instead I have a positive impact on my asset cost. And that's, if you want, it's a parallel shift. What we have been seeing in the last few months has been a steepening of the curve in the euro area, which is instead more interesting because clearly allows us to transform the duration of our bond portfolio and have a high running yield once we redeploy net bond portfolio. Even we are taking a long duration risk, simply the fact that we are moving from the mark-to-market that we had in March of last year when the interest rate environment was significantly different than today to where the rates are today. It has a strong positive impact on the roll forward of our loan book. You can see actually the order of magnitude on Page 18, probably we win the award of our most complicated chart. But just aside on the right-hand side, you can see how much we have to collect on bond portfolio that we inherited from the DEPOs yielding now at the moment, minus 21 basis points and where 3, 5 years government bonds are expected to yield at different points in time. June 2022, December 2022, December 2023, when the portfolio will be rolled over. As you can see, it's massively higher than the minus 0.21. So that will flow through the P&L, while we roll over that book and also our own book to that extent. As you can see on the graph in the middle, the duration is 2.7 years. So if you look forward, this clearly has a positive, so in general, rates are positive. And one thing which I close on my comments and leave it to Giorgio to comment on the synergies. I mentioned before the deposit market in Poland. We are restarting the engine of deposit gathering in Poland because actually, the increase -- the strong increase in rates that we've experienced in that market has led to the deposits offered on the retail side at a relatively low level. So it's one of the few markets in Europe where we see finally a positive spread from the base rate on retail deposits, which means actually the products are actually cheaper than the deposits we get from the security services and payment business. And that's for us is quite positive. And Giorgio, please comment on the synergy pledge.

About the synergies for the Corporate Center, if you go to Page 15, as mentioned by you, we have the first of all the net interest income of the end of 2021 is plus EUR 2.3 million, but we have to consider that in this result, we don't have the effect of the mark-to-market of the bond portfolio of DEPO at the merger, and you have to sum this result EUR 27 million if we want to have a complete comparison with the previous year. We have also to take into consideration that after the liability management on a yearly basis, we have synergies for around EUR 40 million and you can easily make the calculation quarter-by-quarter starting from about 1 year. For the rest of the synergies that we put in place, a good discipline on costs. And also, we made some cleaning also in our balance sheet and also in the balance sheet coming from DEPO in order to receive some cost that has been booked, but while we don't have any kind of risk going forward. And so according also to our auditors, we can make this review. So this is some of the main important point about the synergies. And we don't have only on the cost side. We don't have only some ordinary effect that is seen in the last year, but we also have put in place a very different discipline on cost, and this has been reflected also in the results of the business units coming from the stake.

In summary, Antonio, your back of the envelope calculation of how you get to the EUR 20 million of synergies on the funding side for the last half of last year is correct.

The next question is from Giovanni Razzoli with Deutsche Bank.

My questions, the first one is on the dividend policy. I think it's a major change. And if I do my back of the envelope calculations, you have declared EUR 125 million of dividend payment for May. And if I look at longer consensus for 2022, the market is expecting EUR 140 million. So if I square it, you should be in the condition to pay over the next 6 months around EUR 200 million that is more than EUR 1 per share. So I was wondering whether I got your updated dividend policy correctly or not? And -- if so, I was wondering how this fits with the evolution of the leverage ratio going forward because clearly, this is going to significantly impact the cash flow generation. So I was wondering whether you can mitigate a little bit the impact on the leverage ratio going forward of the new dividend policy. The second question is on the interest rate sensitivity. Looking at another perspective. So if I take your Slide #20, you basically have EUR 8.4 billion of deposits, thanks to the DEPObank activity with a fixed cost, and you have EUR 5.8 billion of floating -- of security, EUR 2.8 billion are floating. So I would assume that this EUR 2.8 billion, but correct me if I'm wrong, would adjust immediately or over time very quickly to increase in the interest rates, if forward rates are correct. So that would impact quite fastly your P&L. And then you have also the possibility to change the allocation of the EUR 3 billion of fixed securities without waiting for the rollover of those securities. That's the first impact that should be almost automatic. Then you have the benchmark rate of the ECB so if the reference rate changes, you have an automatic impact. And third, I was also wondering whether the -- in a rising rate environment, the late payment interest may also increase as DSO will go up as the -- there could be a slowdown of the payments by the public administration. So you've seen that you are very, very well positioned in terms of spreads and volumes also to a rising rate environment. So thank you to clarify this as well.

Yes. let me take the interest rate one first and then the dividend policy on the second. On the interest rate, if we stay to Page 20 -- let me go first to the DSO and volumes. You have 2 effects that the higher interest rate environment have. First of all, on the customer. The customer does not have -- say, you move to a positive interest rate environment. The customer actually has an opportunity cost in holding the receivables. Because if you have a negative interest rate the paradox is that you're better off leaving the voice and page and not having the cash in the bank, which gets a charge of minus 50, if you are a corporate. So in a positive rate environment instead you have more of an opportunity cost. And interestingly, what we have seen is increasing interest from NAV-based corporate last year already as soon as the interest rates will move to a positive rate environment to do more stuff. And so that's what changes on the customer side and more interest because more opportunity cost, which means, by the way, usually also we price at a different level. Then you point out correctly, if interest rates go up, then there is more pressure on government finances because the cost of funding the government debt is higher. And so usually, the treasury becomes more stringent in transferring cash from the center to the periphery. Now we're still living in a -- if you want large very lax environment for fiscal policy, and there's a lot of support from the ECB on buying government bonds, but still if fiscal conditions change, in a high interest rate environment, then we should see more discipline from the treasury in disbursing cash, which usually translates into longer payment times, which then translate into more volumes but also translating assets that stay with us for longer. So if you think about it by EUR 100 million and payment times lengthened by a month then my portfolio grows by 6% without me doing anything. So there's a lot of compounding effect. And so -- which, by the way, since we've been living for a long time in the planning interest rate environment that hit the business exactly in the opposite way over that period. So that's on the business side, factoring and lending. On how the balance sheet moves. Looking at Page 20, is the bond portfolio is float and fixed. It's all held to collect. So we're not planning to sell that because that will change the way we account for the portfolio as highlighted at the bottom left, EUR 1.8 billion expiring in 2022 of the EUR 5.8 billion. So there's already a rollover effect and floaters. So they get adjusted directly. The deposit from transaction services are on a floater basis. But as I said, a portion of that has actually flowed to 0. So we get a benefit on that side and the repos on the liability side are clearly floaters. The bonds are fixed. The equity while it does not have a charge so a rising interest rate environment translates to the asset side, if it grows in terms of yield, that doesn't need to be financed by the equity and the online deposits are a fixed rate. And as I said, we are planning to grow those in Poland at least going forward. And on the asset side, whether repos in the banks are floaters, the customer loans in Poland are floaters and to large extent, and the receivables are fixed rate for what we charge the customer are floaters for what we get from the LPIs and they are with a relatively short duration in terms of repricing, so we can change the pricing there as well. So we are in, as I said, a very positive year from a business perspective and also from a balance sheet perspective to the rising interest rate environment. In terms of dividend policy, we don't comment on targets for the year, clearly, but if you use your assumption, you are exactly right. And you should expect not only the EUR 125.3 million, which is roughly EUR 0.60 on the dollar per share of dividends, but also the -- also the earnings of the first 2 quarters being paid out. So if you should correctly assume that we are not going to manage with the EUR 1 per share of payment. We paid the first dividend in April, actually not in May, and then we pay the half year dividend in August or September. In terms of leverage ratio. You see on Page 20, the leverage ratio of 3.5. However, that's the leverage ratio without the AT1, and the AT1 is different from the Tier 2, actually account for the leverage ratio. So probably AT1, as mentioned, the first bullet point on the left on Page 20, the leverage ratio goes to 4.8% because we never count our earnings in our capital, this rear effect on our leverage ratio. So actually, we pay out the 125 and no effect on the leverage ratio because it's not included in the equity. And because we have the capital position that we have, we will not have the effect on the leverage ratio for the earnings we generate unless we increase the balance sheet. But because we are deploying extra liquidity in bonds instead of in the portfolio, we can also have that the flexibility of in case reducing our bond portfolio, but with a 4.8% post AT1 leverage ratio, we can comfortably grow our balance sheet significantly more if we have the opportunity to do so.

The next question is Simonetta Chiriotti with Mediobanca.

A couple of questions from my side. The first is on the tax rate. If I look at the last quarter particularly for the full year, its taxes are particularly low. So if you can explain if there is any particular items we should consider to explain this. And again, on volumes, I've seen that looking at just the last quarter of the year, the Public Administration segment in Italy. So if there is also on that segment, an improvement in a market condition and market appetite. While Portugal was a bit weak, maybe a matter of comparison or if things are happening there. Last question on earnings target, you have a target of EUR 170 million, EUR 180 million for 2023. If I remember well, we are at EUR 125 million how to say, a linear trajection for 2022, the thing that we have to bear in mind, something particular or we are just traveling quietly towards the 2023 target?

Let me take the earnings targets, we agree we didn't give you the earnings targets for 2022. If you see where we are today, at 125 we have the bond portfolio effect, as we mentioned a number of times, we have the synergies that actually were only partially in the P&L last year. For instance, we have only EUR 20 million out of the EUR 40 million of synergies. So it gets quite quickly, I think we have too many right assumptions at the EUR 170 million, EUR 180 million taking account the effect of the exit of Arca. And this year will be a year where the effect of the synergies will play out, we start from a weaker base from the factoring and lending business, but with the volumes we see in the first quarter, we have to close that gap quite quickly. It should reflect well in the second half of the other quarters of the year and volumes have been -- yes, public administration is growing in the last quarter in Italy. In Portugal we had a slightly weaker quarter. There are a lot of moving parts in how we are talking about 9 markets is something also move to something in this quarter. So for instance, Portugal, we are up 74% in January year-over-year, 400% versus 2020. Now it clearly depends particularly in the smaller markets, larger ones are mostly for portfolios. In terms of tax rate, we have effect of the patent box.

So we have a few positive effects. The first one is related to the market effect that we did in the last quarter. And we utilized some fiscal losses coming from the DEPObank and we are entitled to do that. And also, there is a lower tax ratio in Poland, so some of these positive effects is a result of the low tax ratio that is found in the year.

Also bear in mind that we have the highest tax ratio in Italy, it really shifts the profitability, the effects of lending has been stronger profits abroad, less profits in Italy and so that is also a factor.

The next question is from Luigi Tramontana with Banca Akros.

First one is again on the factoring activity, which is suffering from the very ample liquidity in public administrations across Europe. So the gross yield on your average loans went down 20 bps last year with collections falling 15% year-on-year. How long do you expect this situation in the public administration in the different markets to go on? Do you think that for the first half of this year, we still have to expect this type of performances and a reversal in the second half or do you have a different view on that? The second question is on -- again, on Page 20, not on the sensitivity to short-term rates, but rather on how -- the mark-to-market of HTC portfolio has evolved from year-end when the year yield on Italian government bonds were 1.2%, we are now at 2.8%. So maybe was EUR 30 million positive after taxes has vanished. Can you give us an updated figure, please? Third question is on the badwill unrelated PPA. I think that the badwill was EUR 160 million before the PPA it is now at EUR 77 million at the end of the year after the PPA. What's the impact we are going to see on the P&L starting from 2022 from this PPA. And lastly is on your new group headquarter, congratulations for the location and the project, which is really a very high quality. I'm wondering if on those EUR 40 million investment, you're going to do any D&A in the future? By the way, you are saying that you expect a positive impact of EUR 2 million. So how does it work at P&L level basically?

Thank you. Well, on the factoring activity, I think I've answered already before maybe you have even joined the call in time. But the -- we mentioned, we've actually seen a pretty strong rebound in the first -- at the beginning of this year. So when I mentioned as written in the presentation that in January, we have seen a 45% growth compared to last year and 62% compared to 2020 in new volumes that's I think a pretty strong signal, February looks good. March pipeline is strong. And on the Primavera, but I think we are in a very different environment than we were before. And the reason is not the payment times have gone up it is that payment times stabilized. As I mentioned many times in this call once payment times stabilize, we don't have the erosion of the existing book of customers because we keep buying the same amount of invoices, and we have the commercial effort effect drives the growth in volumes. So we are quite positive on that front. In the yield on average loan. So remember that if we collect less LPI, we have less yield because a portion of the yield we show is actually the overcollection and that explains a large part of that item. And because that free capital gets generated, it impacts also the net income of RWA. Importantly, although the loan portfolio has gone down by 7%, the unrecognized LPI fund has actually gone up, which is counterintuitive is not that because we are actually quite disciplined. So our earnings potential instead of going down has gone up because we have actually higher unrecognized LPI funds. As you can see on Page 9, on the seventh line on the table on the right. If you look at Page 20, the question on the positive mark-to-market or negative mark-to-market of the held to collect bond portfolio. It's a bit of a muted question, to be honest, because in any case, doesn't go through the P&L. It doesn't impact our capital and given the duration of our portfolio as shown on Page 17 -- sorry, 18, which is EUR 2.7 million, we don't have 10-year government bond. So the effect is, again, not here or there from a P&L perspective. And so we seem to have the running yield of the existing book, but with the benefit of rolling over into a positive rate environment of the EUR 5.8 billion, as I said, EUR 1.8 billion shown also in bottom left graph that expires in 2022. Thank you for the comment on the location. We become neighbors, which is going to be positive. The investment is EUR 40 million. We have the option to depreciate or to hold at fair market value of the assets. We haven't decided yet what we will do. We think given the location, the size and the ongoing cap rates in Milan, that's probably a pretty good deal. So we think that we need to see how we account for it. The EUR 40 million includes also the value of the land, which we haven't disclosed. And that's not depreciated. So that's to be bode in mind as well. Also on PPA, I'll leave this on to Giorgio. But one overall comment, there's been some netting of goodwill and badwill, and so that explains most of the difference between what we reported and what is the effect and the amortizing part, which goes to amortizing intangibles is fairly limited. In any case, we will make it out from the earnings in terms of adjusted earnings because in any case when we are amortized, we release capital, and so it's a bit of a loss as we already do today.

Yes, you can see this effect also in Slide 6, the last row is related to the customer contract amortization starting from 2021. This is more or less effect that you can have on the P&L also in the next -- in the next years. And as mentioned by Max, about the difference on the badwill -- before closing the PPA, we had EUR 153 million, now is set, the only difference is related to the customer lease and payments that come from DEPO and now we have only the net asset of these components of the DEPO acquisition because we have written off debt intangibles.

The next question is from Andrea Lisi with Equita.

The first one is still on the factoring business, in particular in the fourth quarter despite new business volumes that are probably in line with last year levels. We still see a net taking income that is down year-on-year. And the other recoveries that are below. What also in terms -- also looking at January and you start your -- what are you observing now? And what do you expect for 2022 also considering the current environment? The second question is on the LPI over-recovery. I want to ask you how much of the flat year-on-year recovery gives, expect that your stock is due to the high liquidity available to the public administration or if there is also something different that acts on that. And coming back to the sensitivity in interest rates, my question is, do you feel that in a high interest rate environment you are in the condition to ask really higher maturity for your clients, even if there is a scenario of high liquidity to the public -- available to the public administration.

Let me -- in a high interest rate environment where everybody is suffering from higher rates then the opportunity cost for customers to sell the receivable or not goes up. So we have more volumes, as I said, but also importantly, the alternative source of funding for the Cassa can go up as well. So we have seen a repricing from the customer and that what we experienced historically. We shouldn't forget that we have also a second component of interest rate, which is the late payment interest, which is automatically floater. And so that has a direct impact in our P&L. So the paradox is that if even you don't -- if we're not able to charge our customers more, the public sector will pay more anyway. And so we are hedged already on that front, for the portion that we over-recovered 47% is booked, but as you know, we'll recover more. On the LPI over-recovery, I mean let me maybe reexplain how the mechanism works because otherwise, we get lost a little bit. So we accumulate the LPI on the size of the book with a decline in loan book compared to last year, if we had kept the same level of collection and the same level of recovery, the LPI stock would have gone down as simple as that because the accumulation is lower than the collection and the write-offs of what we do in collect. While we are saying that actually, we are on the profitability because we actually have a certain level of profitability. And despite the drop in the loan stock, the LPI book has not gone down, which helps us in a year of transition like this one where we expect growth in volumes, which will rebuild the loan book. In the meantime, that we generate more LPI more accumulation, but at the same time, we start from a higher LPI book, which allow us to actually get more earnings throughout the period, although the portfolio is smaller. What drives collection of LPI, well, it's a position on the legal actions, which we started a lot 2020 and '21 -- sorry, 2019 and '20. And the willingness and the ability of the public sector to transact on the legal action has gone further down the line. With the public sector being fully operational public sector way, then we should expect better performance offering. I find it a bit interesting that someone commented that you haven't said something of particular relevance, a funny comment. In terms of the ability to collect from the public sector it goes down also to our ability to execute and again we changed the leadership of the factoring and lending team last year because we want to have more discipline about execution, and we are very focused on the structure of the team by separating top debtors team with a team that actually looks after the smaller debtors to make sure that we actually have better discipline there. So we are hopeful we can get better results on that front. Let's not forget also in Spain, where we had the positive restart of the year last year that the delay also in restarting the court system after COVID.

There are no questions at the moment. This concludes our question-and-answer session. I would like to turn the conference back over to Massimiliano Belingheri and Piergiorgio Bicci for any closing remarks. Thank you.

Thank you. Thank you for joining us today. I think we started the year with more bright sunshine ahead of us with strong results, complete integration with DEPO and good early sign of a positive performance in the factor and lending business. I think we should be pleased that we're able to change our dividend policy to remunerate the shareholder faster for the excess capital that we continue to generate. Thank you very much.

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