BFF Bank S.p.A. ($BFF)

Good afternoon, and welcome to the BFF Banking Group Market Update Call. [Operator Instructions] Please note, this event is being recorded. I would like to turn the conference over to Mr. Giuseppe Sica, Group CEO. Please go ahead.

Thank you. Thank you for the introduction, and thanks for everyone who joined the call. First of all, let me reiterate that we have received the measure by Bank of Italy that we have announced last Saturday. And we have announced promptly everything that was relevant to the market. The Bank of Italy is still working on this general on-site inspection. What is the measure? The measure is the appointment of 2 temporary commissioners, Raffaele Lener and Francesco Fioretto. Their role is to support the Board of Directors and the management on a temporary basis on the remediation process, which had already started and being initiated by the bank as we announced -- as I announced in February. And the remediation process covers also the operational and accounting framework. The actions, let me stress already initiated by the bank have been more relevant clearly by the misallocations of pre-2023 events, which have led to the equity restatement of 2024. However, the measure is temporary and BFF Board of Directors and the Board of Statutory Auditors retained full powers and decision-making facilities. I will be -- and the Board will be cooperating fully with the commissioners for as long as they stay with us. Now there has been different things said in the press release that we reported there. And the relevant one in the key measure is the appointment of the commissioner, but there have been other information in the press release that we have disclosed because they were communicated to us, not a final by the Bank of Italy, and they have to do mainly with the classification of past due. Bank of Italy has identified up to and I stress up to EUR 0.8 billion additional past due related to the potential inclusion of late payment interest within the so-called contagion exposure. These were not included in the previous inspection and up to EUR 0.5 billion arising from potentially more stringent interpretation of the mechanism related to the suspension of the counting days of past due. Again, BFF is conducting a full assessment of this amount and of these potentially more restrictive measures. Also to clarify, the impacts that I have just mentioned are not necessarily cumulative. And even in the absence of any overlap between these 2 amount of past due and taking the maximum, we would still respect the CET1 regulatory requirement. To be clear, this is the SREP requirement. There will be probably questions, and I'll answer to the best of what I can today. There will be questions on what this means for the bank. As you know, we have received the information of this potential additional past due over the weekend, and we have already launched the full assessment of the impact. And we'll update the market as soon as possible. Also with regards to the date of approval of the 2025 accounts. We remain fully focused on the business, on the derisking and on addressing the historical shortcomings. Today's announcement, as I've already said, largely relate to 2023 period. We continue to have 3 businesses, and we are leaders in all 3 of them. Two of the businesses are extremely profitable, performed to our expectations and have virtually no RWA and no risk. And for the factoring, we said it in the press release very clearly, and we said it for a reason the loss given default is extremely low, if not negligible. We will continue to focus on the success of the business in the current also more complex environment and to the benefit of all stakeholders. So that was the introductory speech. I would now open to questions.

[Operator Instructions] The first question is from Tommaso Nieddu, Kepler Cheuvreux.

I have just a couple. The first one is on capital. You have said in the press release that even in the adverse scenario, you remain compliant with the CET1 requirement. But you didn't explicitly say the same for the total capital ratio, which is -- which -- I mean, which in my estimates could risk to be breached. So can you confirm whether under your current base estimates, you also remain above the 13.2% total capital requirement? And the second question is on the ancillary credit rights reviews. And the press release refers to around EUR 452 million of payments reviewed and a EUR 3.4 million pretax negative impact statistically estimated from the EUR 102 million Sampo. Why was the specific EUR 452 million subset selected? And is there any risk the review perimeter broadens further?

On the total capital, we didn't write it for a reason. So -- but it's not -- the considerations are -- we received the communication on Saturday, and so we have to fine-tune the numbers. So we are pretty sure about the CET1. We have to assess the numbers on total capital. If you anything, it could be a few basis points. On the perimeter, that's been determined with our external adviser. I think we mentioned the name of the adviser in the press release. So I don't see the risk that it expands further. The impact of EUR 3.4 million is by examining already effectively 25% of the portfolio on a statistical basis and the impact is EUR 2 million post tax more or less. So for us, it will not even be material. We have disclosed it to the market, and you will appreciate it in the spirit of the maximum transparency that we have wanted to give.

The next question is from Giovanni Razzoli, Deutsche Bank.

The first one is on the potential increase in the stock of past due that we have already discussed yesterday, so the EUR 0.8 billion and the EUR 0.5 billion. I was wondering -- I mean, this is potentially a temporary impact. So I'm wondering whether in the context of the securitization that you have already announced, you are analyzing on the, let's say, old stock of contingent exposure of EUR 269 million, you could, in theory, extend this transaction to a broader scope of past due for the preliminary indication of Bank of Italy so that, that could be, let's say, a way out to free up more capital. Is this something that is in theory a possibility? And the second question, I already asked Giuseppe this yesterday, but I would like you to see if you have additional thoughts on it. And my question relates on the potential impact on the accounting framework that the Bank of Italy is investigating, if I'm not mistaken. It's extremely premature to take any conclusions, but can we assume or can we think -- can we anticipate a possible revision of the LPI accrual? Is this something that could have impacted by this analysis of the accounting framework?

Thank you. First of all, thank you for saying that the impact of the 0.8 and 0.4 could be temporary because the reality is that if certain objections on the classification are discussed and agreed upon, then they are discussed and agreed upon. So as we said, these are the maximum potential, I stress the word potential impact, and we need to assess. But if we change the criteria, then we change the criteria. As you say, -- as you say, there are measures that we can take. So for sure, we could try and put LPI. We already were putting part of the LPI in the securitization we're planning to. We could put more for sure. As always, I can't discuss financial impacts that I don't know. And I've discussed many times we do the capital creation, which could be underlying a good securitization. I don't have the impact even high level in this case. So it is possible. Clearly, there is a question of what you want to do with the LTI. I have not discussed the change in accounting of the LTI and that has not been raised to me. Currently, if the points on the past due are confirmed, and I don't know, then there is a question of whether we do want to change that. Because if it's past due and has to go in calendar, then probably not necessarily want to do it, but we have to assess the impact. I don't have the numbers yet, but it's not a request that I have received.

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

Just to understand, you said that the -- I guess, the review is ongoing. And could we think of the April 30 deadline for your restated accounts to be sort of a deadline for the completion of this review? Or when can we have some more clarity on the scope of the review and any subsequent adjustments? And is that the time line we should attach to seeing some clarity on the final numbers, including your CET1 and total capital and so forth?

Thank you for the question. But I forget that I don't want to go out with an annual report where there are still relevant factors of uncertainty. So that is the goal for sure.

The next question is from [ Vincent Mandoracina ] [indiscernible] Italy.

Yes. The question is very simple. You are starting to lose the access to the credit market because you -- on the credit or your first, let's say, maturity date, your credit is trading, let's say, above 7%. You're losing, let's say, 15% on AT1. So the question is, could you exclude the needs of a capital raise?

I don't agree with the assessment that we are losing access to the credit market. The AT1 is callable, and we are all rational people. And the senior are also callable, but are not expiring. You are a fine reader of our numbers, obviously. And you know because you have it in the slides that if we were to be under pressure, we collected in 2025 half of our past due. That's an easy solution. So we have many ways to create capital. We have to assess the full impact of the letter that we have received.

The next question is from Sharada Patel of Citigroup.

I have 2 questions. So I just wanted to understand, firstly, the scope for any further equity restatements, i.e., was that 2024 restatement the result of a fully exhaustive investigation alongside EY? Or could there be more to come? And then my second question would be, obviously, in your kind of February press release, you said you're expecting EUR 70 million of provisions for the negative court rulings. But now in the latest press release pointing to the fact that this could be updated. Has there been any change in this assessment and why?

The equity restatement, listen, we were, as you know, to approve the accounts today and the equity restatement was the equity restatement before we received the communication from Bank of Italy. We have highlighted this EUR 3.4 million pretax. This also relate to things happened before 2024. And so we were not planning to include this EUR 2 million because it's not material for us. I don't know if we did this -- since we delayed by 1 month, the approval of the annual report, we want to include this amount in the equity restatement. On the negative sentences, I don't have indication. They are not sufficient. We have 1 month to discuss with the regulator because what we wrote here is in discussion with the regulator. The policy was approved 2 months ago. We have started to receive negative sentences that we expected in 2026, which were in line with what we have budgeted. So we have no indication, but we try to be conservative in what we write also based on what we receive.

The next question is from Simonetta Chiriotti, Mediobanca.

A couple of questions from me. The first is if you expect to pay the AT1 coupon. And the second question, in the past growth in past due has been offset with changes in the accrual assumptions. Do you still see the possibility of implementing a measure of this kind at this point? And third, on the securitization, can you comment on the feasibility of the securitization, if things have changed after the last communication.

Thank you, Simonetta. On the AT1, I think the level at which the coupon is not stable is much lower than the direct by memory. And so based on what I know now, no. On the securitization, where we received this communication on Saturday. We have to understand what really will go to increase the past due given that these are potential impacts and then we may have to review the perimeter that frankly, we were already very close to finalizing. So -- but we have to assess the impact. I missed the second question, Simonetta, on the past due, if you could repeat it?

Yes. Basically, in the past, capital has been generated by changing the assumptions.

No, I don't see room to increase the LPI accrual rate. As I said, we have other venues if we want to create capital that we have to assess as we are analyzing the impact and frankly, as we're finalizing the impact on what we have received.

And it's not yet possible to comment on these different ways to create capital.

I think I hinted to it in 2025, we collected around 50%, if not 60% of our past due exposure. And that per se would correspond by half to EUR 180 million, EUR 190 million of capital that's Page 14 of the full year results presentation. Clearly, these are extreme measures. And I have the responsibility to assess the impact on this for all the stakeholders. These are extreme measures which are there, which we can undertake if we want.

The next question is from Domenico Maggio, Jefferies.

Just one clarification coming back to something you answered before. So you clearly written that the bank continues to comply with the common equity Tier 1 regulatory requirement. But it sounded from your previous answers that you do not want to fully -- or you do not have full visibility to comment on whether you still comply with your total capital requirement? Did I understand that correctly? And if so, why is that the case? Shouldn't be pretty simple to comment also on that? And the second question on the EUR 800 million LPI and the EUR 500 million additional exposure. What was approximately the risk weight on those 2? And where should we expect the risk weight to go for those 2 portfolio?

No. Thank you for the questions. On total capital, I tried to answer which is a few basis points different and really depends on the fine details, and I don't want to give misleading numbers to the market. So that's the only reason and it's a few basis points taking the worst case scenario where we take the full 800, the full 500 and there is overlap. So this is about the total capital, the risk weight that past due are risk weighted at 150. Our average risk weight is already extremely high at the moment. Let me remind you that we have half of 40% of our assets invested in BTP, which are risk weighted at 0%. And we have EUR 6 billion loan book, which are risk weighted -- on which we have EUR 4.7 billion of risk-weighted assets. So it's quite punitive already. So that's my answer to you.

So shall it be maybe from 30% to 60% risk weight, 250?

No, no. The risk weight is on the past due has always been 150% -- the differential compared to the status quo for me is difficult to give as we have reported the numbers that we have received with the underlying portfolio...

And on the total...

I can't give you a number, okay?

Okay. On the total capital, when you are referring to a few bps, a few basis points of difference on what exactly? I'm not sure I follow you there.

On the total capital -- it is really a requirement. Yes, yes, requirement yes.

So basically, you're a few basis points above the requirement on total capital.

On the total above or below, that's why we didn't disclose the total capital we specified the common equity Tier 1 in the press release. But as I said, we have actions that we can take with regards to capital. We just have to manage the loan book generally.

The next question is from [ Michael Nzki, ROS ] Capital.

Yes. A couple of questions for me. First of all, I'm not sure I understand when you say that the 2 loan books, EUR 0.8 billion and EUR 0.5 billion are not necessarily cumulative. Meaning that you do not know whether there is any overlap in these 2? And if you do not know, I don't quite understand why because you know where these books are coming from. So why can't you give us a more precise answer on the potential overlap between the 0.8 and the 0.5. The second question is on the -- no, go ahead, maybe ask one by one.

I can answer this one. I said we -- the numbers we have in the press release regarding these 2 measures come from the letter that we as a Board have received from Bank of Italy. So the details of the single loan, which there can be challenges that will need to be addressed. Of course, we communicated immediately as I think it is our duty to do to the market. We have not had the chance and it's mandate to go loan by loan. So if there is no overlap, the impact is 1.3. If there is full overlap, is 0.8 and these are potential impacts that the Board will need to assess. That's the maximum I can tell you at the moment.

Okay. And second question is, it has been touched before, but I just want to have perhaps some more color is on the potential increase in risk-weighted assets. I'm just trying to quantify this as much as possible because when I do the math, I mean, it looks to me that you were at 14% CET1 ratio. Now we have this potential additional 1.3% at worse. But of course, the impact in terms of RWA is not going to be 1.3. It's going to be a fraction of that. Even if I make fairly aggressive assumptions on the risk weight that you put on those additional loans, you have still remained comfortably above 10% CET1 ratio, so above your 9.7% threshold. So why not give just a more precise number, whether it's 11%, 12% or 13% minimum as opposed to say that you're just going to stay above the 9.7% threshold?

I don't know what RWA assumption you are taking. We are taking the worst which is 150%, which is the level of past due. That's the level that we are taking. Yes, like I said, we are comfortably above. I have tried and I am in a difficult spot at the moment because I have always said to you, to the equity analysts that I wanted to be more conservative. And I am on a call where many of the things that I've said over the last 2 months have proven partially wrong or not conservative. That doesn't change my approach. I still want to be conservative. So we write what -- based on information we have, we believe is true. So again, we received the information on Saturday. We have to do the full impact, which would require some days.

Yes. Okay. I understand. And my last question is, can you just clarify a question that has been asked previously, but I'm not sure I fully understood the answer is on the potential capital raise rights issue, I mean, are you willing to completely exclude them as an option? Obviously, with the share price being down 82% year-to-date, your equity value is not worth much today, and that would be catastrophic for existing shareholders, if there were to be a capital raise at this stage of the story. So can you just confirm that this is not an option that you're considering that you're comfortable and have other options to come out of this without diluting permanently the existing shareholders?

I have much easier options. That's what I said. And also that we have to assess the impact of what we have received. We have to understand what are the implications for the various business of what we have received. But I certainly have much easier options. The catastrophe, unfortunately, in a way, given where the share price has probably already played out to almost the full extent. But I take the point, and this is what I can tell you. I have easier options, and I have the duty to study these options. So if a business is -- all of our business is risk weighted at 150%, maybe the easier option is to do a rolling securitization or to find a partner to buy the loan book or other things. These are all actions that we need to study that we were studying regardless of the letter that we have received.

And last time we spoke, I asked you about your shareholding and you became CEO. You hadn't been given shares in the company. Obviously, with this happening, this is a little bit worrying because if you don't own shares today, I mean, you're less sensitive to a potential drastic solution like your capital raise. Can you give us an update on where -- what's the update on your share incentive in the company as of today?

I do have share incentives. But already as the CFO, I had options. It's much higher strike. So they are not relevant. I do have in my contract, a share-based incentive. So I do not have shares, but I have the same alignment that shareholders do have.

The next question is from [ Olivier Ducan ], BNP Paribas.

I like to understand your answer about the potential payment on your AT1 coupon. Did you suggest that the coupon payment restrictions are kicking much lower than your assumed level of total capital based on your current assessment? Or did I hear -- like could you clarify this because you didn't provide a precise view on your total capital position?

Yes, it's a lower number and it is based not on consolidated accounts, but on individual accounts on top. And the perspective is...

The next question is from Simon Tornmalm, Tour Invest Partners AB.

It was in relation to the statement on the CET1 ratio for the consolidated basis because that's what I assume that the press release is referring to. Have you done any preliminary calc on the CET1 ratio for the issuer position, if that's meeting the requirements as well if in a worst-case scenario?

I have to look at -- I don't think we did, but I'm not worried at all about the individual because we always have the ability to upscale dividends from branches that we have across Europe that is [indiscernible].

The next question is a follow-up from Giovanni Razzoli, Deutsche Bank.

It can be -- or it can sound as a completely out-of- topic question, but in my view, it isn't. And this is actually on the Security Services business. Can you remind us, if you do have any beauty contest for new contracts in pipeline? Or do you have clients in the Security Services on which you have already signed a new contract, which you still need to onboard in the next few months? And in case, if you can provide us the potential magnitude of these contracts in your Security Service business? And the second question on the Security Services business. Can you remind the audience what are the areas of business where you historically have a leading position? And what is the market share, if you have a data on those businesses?

Giovanni. I don't know if it's probably the last question, but we are getting to a close. On the Security Services business, we -- I said it publicly that we thought the current situation was not helping in getting new clients. We had a good January, and I said it on the call of the full year results that we had a good January that we onboarded a couple of relevant clients. I was not expecting to onboard new clients in the first quarter or in the second quarter given the overall situation. In fact, I think we do have something in the pipeline. Frankly, I didn't have time this morning to verify whether these are actually going to happen or not. But I was positively surprised by the team that they onboarded -- that they were close to onboarding new clients. So that was for me a positive surprise. On the market share, I look at my team, but really the areas are 2. We are the Italian payment service provider. So around 150 banks are intermediating payments with us. So the market share is effectively -- I don't have a number, it's extremely high. I think the top 5 banks in Italy Banks [ don't ] use us to intermediate payments. And then on the depository bank, we are really focused on the pension fund business where we do have a leading market position. probably 40%, 50% market share in that specific subsegment. But we're also extremely strong, and that's why the concept of market share is less relevant. We are extremely strong in dealing with small funds, alternative funds where probably larger players have less focus or less flexibility. So we have seen many of the clients and never -- actually received compliments about the level of services that we provide on that part of the business.

And a clarification on your first answer. So you added 2 new clients in January, right?

Yes. I think we -- we added some clients in January. I remember the numbers -- I gave a number to...

The next question is from Michele Baldelli, BNP Paribas.

I have a question about this, let's say, new classification of past due. Is the Bank of Italy requiring you to apply those from 2024 or they will start the classification into past due just now, just to understand the calendar provisioning impact coming from this action. And the second point is still on this, can we share what the Bank of Italy thinks about the late payment interest in terms of classification? Are they going to be, let's say, seen as assets that will always fall if they are in past due into the calendar provisioning rule given that they are paid after many, many years, more than the 3, 4 years of the regulation?

If we -- it's a hypothesis at the moment. If we were to reclassify the past due, this would happen the first available date. So as I said, I will try to have everything on the 2025 accounts. I would see no reason to do it for previous years, given there would be a change driven by other considerations. And we have to see, as I said, what is the actual impact, what -- where is the overlap. Let me remind you also that the inspection is not finished. So it's not -- we did not want to be in a position where we announced the number and caught everybody by is the maximum numbers if the bank and the Board fully agrees with the findings of the preliminary findings. And we have not discussed the calendar. In 2024, the calendar was starting 2 years after the reclassification as you know. I cannot answer whether when this will start, I can give you -- I can tell you what happened in 2024, but you know very well. That's the maximum I can tell you at the moment. But we have not discussed this with the regulator. I think that was probably it for today. Thank you again for spending time with us, and we look forward to reconnecting you in the future.