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

Good afternoon, and welcome to BFF Banking Group Market Update Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Caterina Della Mora, Investor Relator; and Giuseppe Sica, General Manager. Please go ahead.

Good afternoon, and thank you for joining this call, and good morning to our participants joining from the U.S. To start the call, our newly appointed General Manager, Giuseppe Sica, will deliver a short overview on today's press releases. We will then open the call for Q&A. As a reminder, we will publish our full financial results for 2025 on the 10th of February with the usual presentation and Q&A format. Giuseppe, the floor is yours.

Thank you, Caterina. And thank you, everybody, for joining. BFF made 2 significant announcements this morning. First, Max, who led BFF for 12 years through its transformation to listed International Financial Group is stepping down from his role as CEO. She will continue to support the company in her position on the Board of Directors as a nonexecutive member. Our Board of Directors has appointed me as General Manager of BFF and entrusted me with full powers previously held by Max. My working relationship with BFF started in 2013 as an adviser. I supported the group through its biggest transformational moments, including the IPO in 2017. I am proud to take this opportunity. Moving to our second announcement. BFF is taking decisive, proactive actions to de-risk the factoring portfolio and make sure that the future profitability is more predictable. Let me start by providing some context. As part of the 2026 budget process, the development of the new strategic plan we are starting to work on and ahead of a potential securitization, we made the decision to conduct an internal review of the factoring portfolio. Based on this in-depth review, we have taken actions resulting in the planned restatement of 2024 accounts and have an impact on 2025 year-end figures and on 2026 financial targets. As Caterina said, we will present our full financial results for 2025 on the 10th of February, but let me give you some context. The one-off negative impact of the actions is expected to be around EUR 95 million, accompanied by reduction of our nonperforming exposure. It is also important to note that we have EUR 53 million in off-balance sheet revenues not included in our P&L and to final positive court rulings on credit exposure to the public sector, and this will come through over time. Moving now to the detail of the actions. First, we have reviewed the entire portfolio of negative court rulings related to Italian public sector receivables. We have taken a conservative one-off provision of EUR 72.2 million. 98% of these provisions relate to court rulings still under appeal and BFF mandates the right to return the claims receivables to clients. Second, due to a slowdown in collections for the 2023-2025 period for cases that follow the procedure for ordinary legal actions, we have prudently increased the expected collection time of late payment interest from 2,100 to 2,400 days. While this is expected to result in one-off impact of EUR 22.4 million for 2025, the full enforcement of injunctions expect to reduce collection time going forward. Finally, the review identified operational errors on about EUR 54 million of cash allocation in factoring before -- from before 2023. This is equal to less than 0.2% of cash collections over this period. To correct this, we are restating the 2024 account and expect bank equity for the year to be around EUR 14 million lower than previously stated. Now let me summarize what these decisive de-risking actions mean for our results for 2025. The adjusted profit is estimated at around EUR 150 million, up 5% year-on-year and resulting in ROE of around 23%, demonstrating our continued profitability. The reported net income is expected to reach around EUR 70 million. Including the effect of the actions taken and before any dividend, the CET1 of the bank is estimated to be between 13.2% and 13.7% above the internal 13% target. Of course, the underlying capital generation is much stronger before the actions we decided to take. On the basis of loan growth and collection performance of 2025, BFF has also approved a more conservative budget and revised its 2026 financial targets, which are for the year adjusted net income of around EUR 160 million, earnings per share of around EUR 0.8, cost income lower than 50%. The return on tangible equity is expected to be around 24%. BFF remains a structurally solid and profitable business. We have taken certain decisions, and we expect to continue to deliver earnings growth and strong capital generation. The one-off actions announced today [ plus off ] historical issues and will improve the predictability of our future profitability. Thank you, everyone, for your attention, and let me open now the call for Q&A.

[Operator Instructions] The first question is from Giovanni Razzoli of Deutsche Bank.

I have a number of questions. The first one is on the time line of these extraordinary de-risking actions. In my view, it's clear that the market struggles to understand why you have decided to take these provisions now and not 6 or 12 months ago because, I mean, most of them come from the fact that you had a negative court rulings, which I think you were aware of in the last few months. So first one, why decided to do so and not anticipate this decision a couple of months earlier? And then whether this decision has impact on the time line of the securitization on contaging exposures which is, in my view, important to avoid that the calendar provision kicks off in September. So I'm wondering why you continue to speak about a potential securitization and what are in case the contingency plan in case, for example, you were not able to perform this securitization to avoid this major impact of the calendar provisions? Second question, the EUR 72 million of provisions, can you tell us what is the perimeter of receivables that was impacted by this provision because you covered all the Italian business, but what is the amount of provisions that was referring to -- the amount of receivables that were impacted by these negative court rulings? Second -- another question is on the EUR 54 million of errors in cash collections or allocation of cash collection. This is also very surprising because cash is cash, and we struggle to understand how you can do an error in the cash collection. I understand it's a very limited percentage of your portfolio, but is a major surprise. So why this EUR 45 million of error resulted into an only EUR 14 million of restatement? And the last question, sorry, it's a number of questions, but this is the last one. Last year, this period, you announced the EUR 240 million of net income target for 2026. Now you are revising the guidance to EUR 160 million. Can you tell us what are -- in very, very simple and general terms, what are the different assumptions to this huge revision of the guidance? Because my perception is that with this press release, we learned that the business model of BFF is not as a free risk as we thought and the profitability is not as high as we anticipated. So you can elaborate also on this.

Thank you, Giovanni, the questions are hopefully clear and if I miss some points, of course, let me know. On the time line, could you announce this 2 months earlier? The answer is no. We have finished the analysis in the context of the preparation of the budget. And as I said, in the context of the work we are doing on the securitization. And obviously, I agree with you that the securitization is an important upside in our business. We discussed the numbers and it can free up a lot of capital. The securitization is not even embedded in our internal projections on capital generation. So we don't need the securitization. We are working on the securitization. And as you've seen, we have now announced also JPMorgan and PwC who have experience in similar transaction to move as quickly as possible. Do we have a better plan for the securitization? As I said, it's not in our numbers, in our internal numbers. We don't need that, but we can do other things, which are also not in our numbers. For instance, you know that there are insurance policies that can guarantee the loans and then extend the calendar provisioning. So we have very clear in our mind the issue. We don't need the securitization. We want to do better than what we have in our numbers. That's the underlying reason for taking -- moving to the EUR 72 million provisions, the provisions we are taking. We analyze the entire factoring loan portfolio. So this covers all of it. If you ask me what is the perimeter of the negative sentences, it's around EUR 400 million that we have analyzed. And it's a concept that is provisioned, which I in taking upon this role also wish to have high enough to be sure that I give positive surprises, not negative surprises to the market. So that's the reason and the perimeter for the number. Cash collection, I understand the question. Cash is cash. We do not provide mortgages. We negotiate and transact with customers. And we have some freedom according to the civil code to allocate differently between capital and that payment interest. There were a few isolated cases in which the allocation was done differently to internal procedures, still according to law. Let me stress that all of this, and we have reviewed all the years between 2015 and 2025, all of the cases that we have identified are pre-June 2023. And it's related to internal procedures, okay. So we are not receiving the payment for the mortgage interest rate. We are receiving cash for transactions we need to allocate, and we have, in many cases, freedom to allocate. So I share the fact that this is a surprise. It's limited result, and there is not much more to say about it, I do think. By the way, as you see, the impact is very limited compared to our numbers. And then with regards to the question about the 2026 number. And I think it's important to stress that even with that number, we have a very high ROE. Even with the actions that we have taken, we probably generated 4 percentage points of common equity tier 1 in the year in 2025 write-off. And I'm here to deliver on those numbers or better. This is a short-term target because we have to work on the new strategic plan to make more. Now we are focused on cleaning up the book to start the new for the years to come. So I hope, Giovanni, I've answered all of your questions. But if you have any follow-up, happy to take it now.

Yes. So just a clarification, you said that EUR 72 million of provision applied to EUR 400 million of receivables, right?

Yes. We have analyzed to be clear, all the entire perimeter, okay, but they refer to the -- around EUR 400 medium -- I am sorry, let --if you don't mind I'll integrate. As you can see, it is a high number given the perimeter, given that these are not final sentences, okay. So my approach, the Board's approach has been one to be conservative on this.

The next question is from Simonetta Chiriotti of Mediobanca.

My first question is on the governance changes announced today, which include the appointment of a General Manager. So could you clarify whether the appointment of a new CEO is planned? And alternatively, is this governance structure intended to remain in place over the long term? Or should we expect further strengthening in the management team? Second question, back to the EUR 72 million provisions. Please, could you clarify a bit more? So EUR 72 million provision means that all the assets where you had a negative court ruling in the first instance have been provisioned 100%? And what is the EUR 400 million that you were mentioning before? And second, is this a change in the provisioning policy? So should we expect more volatility in the cost of risk going forward because you apply these provisions every time there is a negative court ruling, how often this happens? Could you please help us understand better this matter? And finally, could you also elaborate on the funding side of the business, especially on short-term funding, do you see any risk on this side?

Thank you for the question. I'll start with the numbers one. They are easier for me. So the provision of EUR 72 million referred as I said to around EUR 400 million of the portfolio. And so we are not provisioning 100%. We are taking a very conservative provision because as you remember from many meetings in the past, we always can put back the receivables to the original client. And so what this provision covers for is the difference in the interest rate between LPI and the retrocession interest rate and in the risk, which we believe is very low given that we work largely with multinational company that when we retrocede the multinational company does not pay us. So this is what the EUR 72 million covers. Yes, we will take provisions in the years to come because we have decided to apply more conservative provisioning policy, this negative sentence. And the EUR 160 million for 2026 already includes our best estimate of the provisions. I don't think, however, that this creates more volatility. And the reason is that we have good visibility on the timing of these negative sentences. So I don't think there is volatility. We expect the phenomenon of the negative sentences to die over the next year to 1.5 years. These are mainly related to ordinary legal actions. So as we are moving back, and it always takes a bit of time, and I appreciate the patience to injunctions -- to well done injunctions, then we should see this phenomenon to die out. So I don't think it creates more volatility. We are taking a conservative approach here because we -- as it is written in the press release and as I think we have mentioned, we have taken the negative impact of nonfinal sentences, but we are not taking the impact of final positive sentences. We have EUR 53 million of P&L impact from final positive sentences that are just there to be collected. Now it may take 1 year, 2 years, 3 years, whatever the time for receiving the money from the public administrationist but these sentences continue to generate LPI. So the later we collect, more we collect. So this is the policy, which I think is conservative enough at the moment. On the funding side, I joked in the past that compared to a normal commercial bank, we are one of the few where the duration of the liabilities is probably longer than the duration of the assets. So we don't see any particular phenomenon there. We have fixed-term deposits, which cannot be withdrawn. We have deposits from the transaction services, which cannot be moved unless you change depository bank, which doesn't take 6 months, it takes much longer. And in case of any need, we can always stop buying, not that we have any need at the moment. On the governance, what I can tell you that I have the full power and the full confidence of the Board. We have started to work on the new strategic plan as a management team, and we as a management team will present it going forward. Will you see changes in management? I hope, yes. I hope in the very short term because we need a new CFO.

The next question is from Tommaso Nieddu of Kepler Cheuvreux.

I have a few ones. The first one is on the EUR 22.4 million one-off in which you extended the LPI collection time. So my question is, is the slowdown broad-based or still concentrated in certain debtor types or region course or it's part of this EUR 400 million portfolio you were talking about before? The second question is on the CET1 ratio that you are guiding between 13.2% and 13.7% before dividends. And so if you can help us understand a bit or how do you think about payout for 2025? And last one on the revised 2026 guidance. So I'm trying to understand this deceleration on volumes growth. And I'm trying to understand if that is linked with what we see from market data like average payment time from public administration, which seems to be faster. And then -- but from what you say, the collection of LPI is lower. So can you help us understand a bit also the trends there? And you talked already about the revised 2026 guidance, but trying to understand a bit more about the weaker outlook on volume growth.

On the EUR 22.4 million, I'd say it's generally broad-based. And the reason for that is the ordinary legal actions, which just means it takes longer to collect. As you know, in 2024, we started to go back to injunctions. It's a gradual process. So that's why I said we see this phenomenon of the negative sentences to go down in '27 or beginning of '28, okay. But it's broad-based and I think it's temporary. On the guidance for 2026, we still see a good volume growth in many geographies, and this includes Italy. We see France as a market where we will grow significantly. I won't anticipate the numbers for 2025, but we see a lot of potential there. I think we have included in the new numbers some provisions for negative legal sentences. We have a bit of buffer for other phenomenon. As I said, we want to do better, not worse than this number. Just one second. On the common equity tier 1 ratio, we will see what is the exact numbers after we have fully closed the account. The dividend policy remains unchanged. The Board needs to decide what to propose in the context of the full year results.

The next question is from Davide Giuliano of Equita.

I have 3. The first one, if you can provide us some -- let's say, some light on the reasons why the PA is contesting these impaired credits? And do you see the risk of happening it again in the future? Referring to the negative judgments that you faced in the past months? The second one is regarding the consolidation of the contaging portfolio. How much NII do you expect to lose when the consolidation is fully implemented, so the run rate impact? And what impact on the income statement can we expect in the event of either disposal or securitization? Because I think the further time passes, the more there is a risk that the calendar provisioning will come in September. And of course, then you have to leave on the table in case of sales or greater fees are charged by the intermediary for the securitization and therefore, the impact will be more, more impactful. So can you give us some expected impact on the security -- on the consolidation of the contaging portfolio, either if it's a disposal or securitization? And the third one, regarding the new definition of default and in general to the business model, also looking at the choices your competitors have made in the past. Do you think that in the long run, BFF business model may gradually converge towards a traditional factoring business model with dilution of profitability compared to the LPI-related business?

Thank you. Thank you for the question. Very, very clear. I'd say the phenomenon of negatively legal sentences is really related to this ordinary process that we have undertaken in previous years. It means that the level of detail that we had to provide to court was much higher than we used to do in the past, and we probably were not ready to do that. And so if you don't provide the full documentation, sometimes you get no as an answer, even if you bought invoices, even if the service was rendered, I think you always can put back the receivables. And in terms of contaging portfolio securitization, I cannot give you a number. But the message is that once we do it, we think there will be a positive -- potentially significantly positive capital impact given the contagion effect. And so what we are doing is we are trying to select and I apologize then if the term is not clear to all the list and to more contagion invoices so that if we remove the contaging portfolio, we have a significantly high reduction in the past due. On the new go, let's see what comes out. I don't think that the underlying business model of the bank changes as a result. I see the question about are we going to become a more normal bank. We have very public M&A criteria, which see the value in the long term of diversification. It's not something that we are doing tomorrow, but we continue to monitor the market if there are opportunities to do that. By the way, it's important for me to stress in this call that, yes, the factoring and lending is a very profitable business, but so is our Transaction Services business, where the numbers that you see on our presentation are impacted by the drops of price, the PBT would be much higher than what you see there.

The next question is from Manuela Meroni of Intesa Sanpaolo.

I have some questions. The first one is a clarification on the common equity tier 1. You provide a range of 50 basis point difference between the 2 levels. So I'm wondering what can change by 50 basis points to your common equity tier 1 when you have already announced your stated and adjusted net income? The second question is on your 2026 targets. In terms of bottom line, you are guiding to a 6%, 7% increase, but 2025 has been penalized by still a fewer injunction compared with the ordinary legal action. There were a lot of rescheduling, probably some cost and so I would like to understand what are the moving parts between 2025 and 2026 in terms of volumes and revenues and cost? And the last question was on the provision that you have done on the LPI collection time. I was surprised that it has been extended, considering that you are moving from ordinary legal action to injunction that should provide a faster recovery. So should we expect, this -- let's say, this extension in the collection time to be limited to 2025 and will be recovered afterwards? Or we should expect this to remain stable for a while?

Thank you, Manuela. The questions are clear. On the range, I'd say we have not announced the full results. So we prefer at this stage to keep the range. Have we been too wide in the range? Probably yes, but in fact we prefer to be that way than the other way around. We don't like to get this wrong. On the LPI collection, I start from this one. Our collection times are based on long-term historical averages. So the effect of the ordinary legal actions and frankly, of the negative sentences effect now. And we do not feel yet in these long-term averages the benefit of the injunctions. That's why we write that we expect a decrease of the LPI collection time going forward, of course, it's going to be a gradual process. You remember that the bank already revised its collection times a few years ago from 1,800 to 2,100. Now it's the time to reverse the trend. On 2026 numbers, the 2025 has been a difficult year and the fourth quarter, as you can now understand, has seen some in-depth reviews and attention from the management, which has slowed down some areas. In 2026, there is the impact of negative sentences, which we would take as a provision. We have an estimate. We don't make it public. So that's a tailwind to 2026 results. We expect lower scheduling also because we have increased the expected collection times. As I said, we try to be conservative in this estimate.

The next question is from [ Ibrahim Saeed ] of JPMorgan.

Apologies if this was asked already. But just to understand, obviously, management changes and the provision. But to what extent this has all been, let's say, discussed and approved by the regulator? And when I say approved by the regulator, like is there a level of comfort in the quantum of provisions you have taken? And was there any intervention on their part or additional intervention, let's say, leading up to these events?

Thank you, [ Ibrahim ]. I think we know that the regulator needs to approve management changes. The Board approved it, and I have my fit and proper assessment when I became CFO 12 months ago. On the level of provisioning, this has been a decision of the bank. As I took upon this role, I -- it was important for me and for the bank to be sure that we are taking the right level of provisions. We have a few things to do in the next few months, and this hopefully will give us the right cushion to take these actions.

Okay. And just on your ROE targets, would you say that in the projections you've given yourself some, let's say, some space to maneuver if you kind of slide on some of those targets or time lines as in how confident are you on those ROE targets?

As I said, I think we have taken a more conservative approach, which includes what we have seen in terms of collection times and volume in the last couple of quarters. So we have tried to give a very fair representation of where we see the business going forward that can do better. We have many things to do, which -- to do better on -- from the commercial side.

Understood. And just one final point. Obviously, you have an AT1 that was not immediate, but coming up to refinancing in January '27. And also on the senior side, can you say anything with respect to your funding and capital needs there?

I think for the year, we don't have any funding needs in terms of access to the institutional market, unless we want to prefinance some of the bonds that mature or expire in 2027. As you know, the AT1 is a discussion that we need to have with the regulator because it always -- basically always needs to approve the call of an AT1. Frankly, I didn't even see where our AT1 bond is trading today. It's a bit early, but we do have time to think about those instruments. But nothing is maturing in 2026.

The next question is a follow-up from Simonetta Chiriotti, Mediobanca.

Back to the EUR 72 million provision, does a part of this regard the contaging portfolio? So how much of this basically regards the contaging portfolio? And on the securitization, I think that you have mentioned before the possibility of using credit insurance. Can you elaborate on this?

Thank you, Simonetta. I think we are finalizing the allocation. So I don't want to give a number on the contaging portfolio. But obviously, there is overlap between the 2. I don't want to give a number on that, which I then needs to get back to. In terms of the credit insurance, it's something that we have started to work on that our projections don't assume anything. We know that we can do better with the securitization, and we know that if we want to do more and we don't do the securitization, we can do the credit insurance this -- and we have to work with the term sheet and the insurers and so on and so forth. This would have the effect to extend the timing for the calendar provisioning as it would be -- that part of the loans could be under guarantees. That's the principle.

The next question is from Lorenzo Giacometti of Intermonte.

Just one on the EUR 72 million provision you posted. And I was wondering if this provision [indiscernible] the potential impact of the EUR 40 per invoice and yes, how much is it on the total? That's it.

Sorry, the line was really bad. If the question was when you take the provision, do we include also the impact of EUR 40 as we do consider the impact of LPI capital and EUR 40 that we -- approx. But I'm not sure if I got the question right.

Yes, yes, the question was right. And if I may follow up is just -- I mean how much is the impact of the EUR 40 per invoice on the total [indiscernible].

Sorry, I'm not sure I got the question. How much is the impact of the EUR 40 per invoice? I don't think there is a change at the moment in the policy around EUR 40 if this is what you are implying. I'm not aware of any change in that direction.

[Operator Instructions] The next question is from Satish Pulle of Seaport Global.

Can you hear me, please?

Yes.

Quick question, please. If I look at your 9-month '25 results presentation, the RWA density is 66%. Given your changes in past provisions and so on, could we expect this RWA density to increase? Could the ECB ask you to retain more CET1 or increase the SREP ratio, for instance?

As you know -- thank you for the question. As you know, we have given a range for the common equity tier 1. I don't expect any material increase in the RWA density, probably it's going to go down, but it will depend on where we end up in the range. The ECB cannot ask us, I think, anything. We are regulated by Bank of Italy. We are not having discussions in this sense. We have just received the updated target, and we have revised the dividend policy. So not from the ECB, and we are not having discussions with Bank of Italy on the top.

[Operator Instructions] The next question is from [indiscernible].

Regarding the management changement, this changement has been made in agreement with the previous CEO in terms of fixed and variable remuneration or this argument is still ongoing?

I think I can probably refer to the press release. I mean the bank is just sticking to the existing contracts on the matter. I'm not aware of any other discussion in that respect.

The next question is from [indiscernible].

I wanted to ask outside the factoring activity, does the new Board think about reviewing the other businesses where BFF is active, client services, depository bank, in particular, in Italy?

I'm not sure I understand the question. Is it they want to grow? Or do they want to sell? What is the question?

The question is if the new management intends to, in the new strategic plan, change the business mix of BFF outside...

No, I think it's -- we are very happy of the performance of the Transaction Services business, both in the depository bank perimeter and in the payment perimeter. They are an important part of our business. And again, this does not come out of the numbers necessarily, but they provide 60% to 70% of our funding and therefore, form a significant part of our profitability. So I'd say that we already have 3 legs today, the payment, depository bank, and we have the factoring and lending in the various jurisdictions. We have an M&A strategy, which is public because it was part of our business plan and it is confirmed in its criteria. I'm sure, and I expect [indiscernible] something about this criteria in the context of the new business plan.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Giuseppe Sica for any closing remarks. Excuse me, at the moment, we have 2 more questions. If you want, I can proceed with the following question. The next question is from [indiscernible] the next question is from Lorenzo Giacometti of Intermonte.

Yes, I'm sorry, just a follow-up. Maybe I missed it. I am sure, obviously, it was asked before. And it's about the 50 basis points of CET1 -- regarding the CET1 range you guided within the full year '25 results. Maybe, I missed the answer and the second one is on the securitization, maybe I missed that too [indiscernible] when you will provide update on this process of the ongoing securitization that you appointed as the advisers that -- when can we -- when will you update the market on [indiscernible].

On the securitization, there are many constituencies to be aligned, as soon as we have news that we can communicate, we will communicate them. It is important that you know that we -- they are working on it and we are not counting on it in our numbers. Two, on the range, it's a wide range, and we will announce the full year results on the 10th of February. I think it was appropriate to keep a bit of freedom as we finalize a few items in our balance sheet. And we've been too conservative, if that's okay.

Mr. Sica, I'll turn the call back to you for any closing remarks.

Thank you, and I thank everybody for being with us and for asking very interesting questions. And I look forward to speaking to you again in the context of our full year results. Thank you. And have a good day.