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

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 Giuseppe Sica, Group CEO. Please go ahead.

Good afternoon, everyone, and thank you for joining today's market update call following the publication of our press release regarding the approval of the draft annual report and the consolidated financial statements as of 31st of December 2025. As you will have seen in the press release, the figures released today include the changes compared to the consolidated financial accounts presented on the 10th of February 2026 and take into account the effects of the initiatives adopted by the bank following the Bank of Italy's regulatory measure. Let me remind you that we will publish our first quarter 2026 results and host a call on the 11th of May, and we will provide detail related to this period. I would like to take a moment to walk you through the key updates in today's announcement before we open the call to Q&A. There are four key elements that led to changes compared to the numbers presented on the 10th of February. First, the reclassification of factoring exposure in past due resulted in an increase of EUR 1.4 billion. The reclassification includes two components. The first is related to the inclusion of late payment interest accrued and not yet collected in past due exposures. This results in the classification as net past due of a total amount of EUR 770 million. The second component reflects the adoption of a more stringent interpretation in the use of mitigation tools to suspend the calculation of past due days. And this has led to a reclassification of further EUR 590 million. Please note that the potential calendar provisioning would be applied starting from the first quarter of 2028, consistently with the methodologies adopted in previous years. Second, we took further provisions of EUR 29 million related to negative court rulings. Following the regulatory measure and within the framework of the new internal policy adopted in February 2026, we've applied even stricter valuation criteria on negative court rulings. As a result, total provisions for negative court rulings as of 31st of December amount to EUR 104 million. Third, higher provisions on certain nonperforming exposure amounted to EUR 16.4 million. This covers both direct exposure and legal actions against debtors with assigners subject to insolvency proceedings. And finally, there was, as already anticipated in our previous press release, EUR 3.4 million from the updated restatement of 2024 financial statements arising from cash allocation within the factoring and lending business. Let me say that all these four elements were already present in our press release following Bank of Italy measure and this is a quantification of those impacts. Let me now explain the impact of these changes on the profit and loss and balance sheet items as well as the key metrics for our asset quality and capital position. The 2025 adjusted net profit stands at EUR 140 million and the reported net profit at EUR 37 million. The year-on-year development for the latter is primarily attributable to the impact of nonrecurring items. Let me also emphasize the underlying business trends presented in February haven't changed. Our deposits in transaction services have grown 15% year-on-year. And PBT for the division has risen to around EUR 50 million, which would be significantly higher if the liquidity were to be invested in BTPs compared to the current EURIBOR remuneration. So for instance, payments will generate a PBT of around EUR 70 million by investing in Italian government bonds and security services will generate EUR 50 million PBT by investing in Italian government bonds. Regarding the loan book, our focus, and I will comment on that in a moment, is on profitability rather than pure growth. Let me move to the balance sheet. As of 31st of December 2025, consolidated total assets were EUR 12.13 billion and Italian government bonds represent around 40% of our total assets. These are risk-free and the associated capital gain deriving from the mark-to-market is not included in any of our projections. Regarding BFF past due exposure following the reclassification, the net past due amount at the end of 2025 amounted to approximately EUR 3 billion, which is the vast majority of our loan book. It's important to stress, as somebody else has noted that despite the development in the past due ratio, the underlying risk remains small due to the exposure being entirely towards the public administration. When you talk about underlying risk is the underlying credit risk. Finally, let me talk -- let me walk you through the updated capital ratios as of December 2025. The CET1 stands at 9.94%, above the SREP requirement of 9.80%, while the total capital ratio stands at 12.3% compared to 13.3% SREP requirements. As a result of this minor miss on the total capital ratio, the Board of Directors has approved today a capital conservation plan to be sent to the regulator to ensure stronger oversight and greater effectiveness of the remedial actions we will take. And let me remind you that we take these actions with the commissioners present in our Board and the commissioners have also participated in the drafting of the -- in the sessions of the Board related to drafting of the annual reports. Based on our projections, there is no capital shortfall compared to SREP requirements neither in 2026 nor in 2027, assuming a slight deceleration of volumes in these 2 years. So we have 2 years to address any potential shortfall in 2028, which may derive from kind of provisioning. We have prepared and discussed specific recovery measures and alternative scenarios that allow us to mitigate the risk for 2028, and we are working on a number of initiatives with leading advisers. The actions aim at enhancing the value of specific assets and portfolios and the reference here is made to securitization. The focus remains on maximizing value creation -- and in this context, we have awarded mandates to Mediobanca and Morgan Stanley, while JPMorgan and PwC continue to work on the potential securitization. Let me now close with a few remarks on 2026. Our targets have been updated to take into account the more conservative development of volumes, which is part of the recovery plan. Despite the slowdown in volumes, we forecast an adjusted net income between EUR 115 million and EUR 140 million and a return on tangible equity between 15% and 20% -- of course, this does not affect -- does not take into account the effects, which we expect to be positive on capital of any possible securitization. Thank you for your attention. Let me now open the floor for Q&A.

[Operator Instructions] The first question comes from [ Ibrahim Saeed ], JPMorgan.

Just a couple for me, please. First, could you share some color on the deposit activity, in particular, on the transactions business in the last few weeks and certainly in Q1. Also, if you can give any guidance on your spot capital position today. Obviously, you had the benefit of four months of operating performance in Q1 and in April. Obviously, everyone will want to know what you can say about the AT1 coupon and if you can pay it? And if not, what remedial measures are available to you? And if I understood correctly, the securitization plan is still ongoing in parallel with what we're seeing now on potential M&A kind of headlines? And then just a final one, if you could say anything about the solo capital position as well, please?

Thank you. It's a lot of questions. Some of these are not easy to answer because I -- as I said, we report the first quarter results, and I'm very happy to invite you to the first quarter results on the 11th of May, but I cannot make explicit reference to that. However, there were some costs affect me on -- at the end of March, since the liquidity was fully under control. Also cannot make reference on the current capital ratios, but -- as we said in the press release, we don't expect any bridge of capital requirements in 2026. So the trajectory is a positive one. On the AT1, I understand the question. The AT1 is based because the coupon is paid in July is based on numbers of the first quarter. So we will disclose them then. But as I said, the trajectory is a positive one on capital generally. We respect all the regulatory requirements at a level at the moment. On the security -- on the securitization, we keep working. Of course, the perimeter is under review given the changes that we've applied to our past due classification at the end of March.

And sorry, just one follow-up question. With respect to the investigation that was ongoing at the time of your last -- when it was last reported, is that now concluded, i.e., is what we're seeing now the full extent of the measures suggested by the Bank of Italy? Or is there investigation still ongoing?

Are you referring to the investigation on the investigation, we are on the receiving end of any finding that the court may have. At the moment, we have received no communication. And so it's still a preliminary investigation.

The next question comes from Luigi Tramontana with Kepler Cheuvreux.

My questions relate to the capital plan that you approved today and sent to the supervisors. We have been reading in the press that you may consider selling some of your activities, in particular, in the payment services and in security services. Can you please confirm these rumors or not? And alternatively, which measures will you consider?

I have not -- I've read these rumors and I've never said anything to that extent. And that is certainly not part of our recovery plan any disposal of the payments or of the depository bank activity. I think there was an article today on the press saying that these two activities continue to operate normally and have given you some indication of the underlying level of profitability of these two divisions. As there has been no deliberation from the Board on specific actions, I'm not able to comment on other assets that we may consider disposing. Let me be clear that normally, the consideration going concerned are based on a 12-month horizon. On a 12-month horizon, we don't have any bridge on 24-month horizon, we don't have any bridge. We may have, if we don't do anything, a small bridge in 2028. So we have 3 years to take any action that may be needed.

The next question comes from Domenico Maggio with Jefferies.

Are your deposits from the securities business conditional on having an [ IG ] rating? And are this demand deposits, what I'm after is basically how quickly can the deposit go? And you mentioned it seems like you don't not want to clearly answer on the -- whether the AT1 coupon will be paid or not, something to wait for Q1. But in your capital conservation plan, do you include the eventuality of coupon skip? I would think that you would be making a pretty low savings on the interest, just around EUR 1 million. So I was wondering whether that was included on the capital conservation plan. Yes. That's all my two questions.

On the AT1, I don't have much to add. I told you the trajectory is positive, but we have to see when the first quarter results.

Is it on the conservation capital plan, the eventuality of not paying or...

We don't give all the details. fortunately you have to wait 10 days.

Okay. Fine. I understand. And on the deposits from the securities business?

Deposits from the securities business, only a small portion of the deposits from the securities business is depending on having an IG rating. However, any clients can leave at any moment or better. They can decide to leave, which means they could decide to change depository bank, which is not an easy or quick process. So unfortunately, even if I still have an investment grade, some clients have may leave. But as I was quoted on the press at the end of February, I said that liquidity is absolutely under control. So I hope I have answered this question.

And the portion that you mentioned, you mentioned a small portion is demand deposits. Could you quantify or give a rough number on the percentage of EUR 4.5 billion?

It's -- what I can tell you without giving numbers because I cannot give you numbers is that it's less than the volumes of factoring that they buy in amount. So even if I lose suddenly and you don't lose suddenly because this means that somebody may have to decide to initiate a process to change the depository bank and then select the depository bank and then transfer its funds and assets to the other depository bank. So it's not an overnight process. What I'm telling you is that the liquidity that I may lose as a result of non investment grade is lower than the volumes of factoring that I buy in a month. So in other words, if I lose liquidity, I can just not buy for a couple of weeks. I don't see that scenario, frankly. The reduction of volumes that I have -- that we have in our recovery plan is a slowdown in volumes rather than anything else. So that's why I made a comment that I prefer to focus on profitable volumes just rather than on volumes grow.

Just one follow-up. You were asked before on the solo capital figure and said you're going to wait for Q1. But don't you typically disclose the solo capital figure with the annual report? So shouldn't that be... Today.

No. Sorry, I never said we will wait for the Q1.

Sorry, maybe I misunderstood.

No, I never said to wait. Of course, the solo figures will be included in the annual report. We will expect all the binding measures and we have [more] bridge of the total [indiscernible], [SREP] trajectory, I expect it to be positive over time certainly in our projections with no bridge at the end of 2026.

How was small, if I may ask on the -- only on the total capital and was bridge...

Just one second, I think it's less than 1%.

Less than 1%. Okay. Just last one, a follow-up, sorry, then will be honestly the last one. On your capital projection.

Sorry, significantly less than 1%.

Significantly less than 1%. Okay. Is there a need to do a securitization before the end of 2026 to get that capital projection being positive and the bridge to disappear? And one last question, like linked to that, would you need to basically underwrite less business, I guess, to maintain that capital position or that positive capital projection. I think I got that from some of the comments you previously made on lower business volume and so on.

Yes. So we don't need the securitization, either in 2026 nor in 2027 to respect all capital ratios in our projections. Yes, as I said, it's a slight slowdown in volumes, which is fine. You still see the level of profitability that we have there is not what it used to be, but it's still a very decent level of [indiscernible].

The next question comes from Sharada Patel with Citi.

Just off the back of Ibrahim's question. So the Bank of Italy investigation is still ongoing as per the press release today. So does the 2026 guidance include any expectation of one-off charges or further restatements? Or can we assume that all remediation actions have been fully completed? That's my first one.

No, I think -- sorry, maybe there was a misunderstanding. When I responded to Ibrahim's question, I was referring to the preliminary investigation by the Court of Milan. I was not referring to Bank of Italy inspection, but then I take the opportunity to respond about Bank of Italy. So as we read in the press release, the inspection is still ongoing. we have received this temporary or preliminary report, which is reflected in our report. Of course, I cannot may ask for some small adjustments, I hope. The range that we give is a relatively wide range in terms of profitability. Now at the moment, I think my past due ratio at the level of Italy is around 80%, 90%. So little room for major changes in our RWA. So I feel that the range that we have given may take into account what may come, which we don't know at the moment.

Okay. And given the timing, obviously, we're coming up just 10 days before the first quarter. Can we assume that then if in the kind of past couple of weeks, you've had to take kind of more restatements and so on that, that was kind of backdated on to the 2025 accounts, i.e., in 1Q, we shouldn't expect to see any one-off charges or restatements?

I don't want to talk about 1Q. I think we have taken -- the Board believes we have taken what needed to be taken for year-end 2025. I don't think we can backdate things. We have taken a more conservative approach on things generally.

Okay. And then my second question would be, obviously, also since February, you've done another EUR 60 million top-up of NPE provisions. But relative to the potential calendar provisioning impact coming in September, it's still obviously quite small. And as I understand it, the guidance doesn't assume any securitization. So can I get your expectations for assuming no external actions or securitization, what the timing of those calendar provision impacts for 2026 will be? Is it kind of lump just in the third quarter or the second quarter?

The projections are based on third quarter, which is our interpretation. So the impact of this classified portfolio of the portfolio that was reclassified in 2024 is starting to come through.

Yes. And so given that, in September, you'll have some calendar provisioning needs up to 35% from 2024. Can we assume then that provisions for NPEs absent any securitization will continue to increase up till September this year?

Listen, the provisions that we took are not related to calendar provisioning at all. They're not related to calendar provisioning.

So why haven't calendar provisioning -- provisions been topped up then?

But calendar provisioning is not even an accounting measure. This is reflected directly into capital. So you will not even see it in our P&L. The calendar provisioning is a purely prudential measure, which exists in the does not exist in the U.S., but it's not an accounting measure. We couldn't possibly do that.

Have you taken any further than on the capital impact? As I understand in February, there were EUR 50 million of calendar provisioning.

That's the number. The number has not changed.

Okay. And then my third question was on the negative court rulings. There's another obviously provision top-up. Does that reflect the success in your court appeals currently, like what you've seen so far year-to-date?

I think what I have said in previous calls is that we were assuming just to go a bit more, we're assuming in second degree order, we would overturn a very small minority of judgments. Now we are saying that for specific case, we are never overturning a judgment in second degree.

You mind repeating that?

We are -- if we look for specific cases, we are assuming that if we lose in first order in court, we 100% lose also in second order. That's what our assumptions have at the moment, which means if we are a bit better than that, then we should recover something.

Okay. And then my final question is just to clarify off the back of what you were saying with Domenico. So you expect to bridge the total capital SREP is that in 2026 by significantly less than 1%?

No, no, no. I said I was talking about the 2025 individual capital ratios. That's what I was talking about. We don't have any bridge in 2026 based on our projections.

Okay. And then off the back of that, just to confirm, the AT1 coupon depends on the group and all the solo requirements, i.e., even if the solo requirements are met, that the group is bridgeed, that has an impact on the AT1.

From the group.

The next question comes from Giovanni Razzoli with Deutsche Bank.

I have first question. The line of the answer so far was very bad. So if you can also please try to improve it because I struggle to understand most of your answers. So first question is on the EUR 28 million of additional provisions on the amount of receivables that were already part of the EUR 72 million and the EUR 16 million of incremental provision on NPLs. You mentioned strict classification policies, but can you please be more precise or as precise as possible to give the market the possibility to understand why just a couple of months after this EUR 72 million provision, you had to take another EUR 28 million on top another [EUR 60 million] on NPLs. And specifically on this EUR 16 million of provision, what is the amount of loans which drove these provisions? The second question is on the securitization plan. You are still working on it. But while you are working, your numbers continue to be revised downwards, the provisions increase and the market has no concrete backstop plan. Can you provide us with a reasonable time frame to fix your capital provision from here? I understand that there are many external factors which can impact the answer, but in my view, the market needs to know at least a reasonable time frame to fix this position because it seems to me that to be fair, a capital increase now becomes a very, very concrete options because the securitization is part of the plan that is ongoing for quite a long time and your seems to be still far from there. Third question on the bridge temporary bridge of the total capital requirement. I was wondering if the guidance for net profit for 2026 is included in your guidance that you will instead be compliant with the SREP in 2026. And the final question is a very top-down one. Given the amount and the scope of the reclassification of the past due loans, it seems to me that you are applying a scenario where from the [181st] day since the purchase of receivable that is not paid, that amount is in past due. If I look at the magnitude of the amount of the past due that you have [delinquency] the Italian stock of loans. Is my understanding correct? And this seems to be now the approach of the regulator. Is my understanding correct?

Thank you, Giovanni. I try to shout if the line is not good, we will try to fit it. On the provisions, I have given -- the key change on the negative sentences. As I said, we are now assuming that we do not overturn judgment in second degree. We had a small percentage before. This is the impact. It's more conservative. And as you have seen on the last press release, following the [provedinento] by Bank of Italy, there was in their [provedinento] an analysis on these provisions. So we have done our work and taken a more conservative stance. We have also taken some provisions on what are nonperforming clients. These nonperforming clients are clients to which we may not even have a direct exposure, actually largely our clients towards which we do not have a direct exposure, but where we have the risk that even if we have a positive sentence and we face to collect and we have to put back the receivables, we may have problems in collecting them. So I think it's a very conservative approach to what is not even often a direct exposure.

So -- so I mean, I don't understand why if you have to put back the loan to your clients, you had to take a provision on it. Is it because...

If the client -- there are clients that are nonperforming, okay, over time. Although we largely work with multinationals, there may be clients that are nonperforming. And in these cases, we conservatively take the provision often even without having a direct exposure to those clients, okay? On the securitization, listen, I share your frustration, but I never said that I would do the securitization in the first quarter I never said that I would do the securitization in the second quarter. So I don't give you the time line. But while I've done many securitizations in my career, this takes a bit longer. I never said first quarter and I never said second quarter. I obviously don't comment on your view of the capital increase, which is your view, the capital increase is definitely not a part of our recovery plan. We don't have any bridge of capital requirements based on our estimates in 2026, and that includes, of course, the total capital ratios. On the past due, the situation is frankly even worse than the one that you depict because basically, whatever we buy, we buy directly in past due given that there is this 1% PPA rule. But generally, you're right that's a European rule on the 180 days towards PA.

And sorry, can you share with us on the EUR 16 million of provisions on those debtors which went bankrupt on those large organizations, which went bankrupt. What is the amount of the scope of the portfolio which drove this EUR 16 million...

It's -- listen, this is the top. So this is not the full provisions. We don't disclose the full provision, but it's a very significant provision for clients to which we don't have direct exposure.

The next question comes from Davide Giuliano with Equita.

First one is on the SREP requirements. Can you provide some details on the reasons why you do not expect a bridge of the SREP requirements in 2026 and 2027, considering the calendar provisioning that is expected in September 2026? Is it all related to volume downsizing? And can you confirm that calendar provisioning will kick in, in and not in June relative to the position that were reclassified in 2024? The second one on the business, how do you expect your long-term profitability to be affected given that you are now required to classify LPIs as well within past due? Do you see this business still profitable? And can you disclose LPI booked in P&L in NII, specifically in full year 2025? And the last one, in the press release, you said that you will consider new, let's say, operating modalities in factoring for the future. Can you explain a little bit better what do you mean by the new operating modalities in factoring?

Is, on the capital generation, we are now in -- we are discussing year-end results 2025. So 18 months have passed since the reclassification and we have reduced the 2026 calendar provisioning by over 60%. And we have other three quarters ahead of us. So we have a very focused machine on the reduction of calendar provisioning. And our estimates embed the forecast that we have on calendar provisioning. They also embed the profitability of the business. And -- while previously, we had a significant growth in volumes, we now are trying to be more disciplined also from a pricing perspective on new volumes. So this is the way we see the business evolving in 2026 and generally also in 2027 with the calendar from the reclassified portfolio in Q3 2026 starting to kick off. On the business model, I think we talk about the securitization. And of course, the securitization will have to include a higher proportion of [LPI] than previously thought because we collect capital very, very quickly. I think we have collected by now all -- almost all, if not all, the portfolio that we bought in 2025. So that is never going to go in calendar. LPIs are a different story, and we have to manage those more efficiently. And then what that means we have to see in the context of the new strategic plan. I don't -- I will get back to you on the LPI because I'm not sure we disclosed that to the to the market. But yes, listen, I know what I can tell you is that there is a legend which I heard many times from investors that there is a huge difference between the -- what we collect and what we accrue. I can tell you that it's not a huge difference...

Yes. Sorry, just a follow-up on the new operating modalities in factoring and sorry, again on LPIs in the sense that now that you are essentially obliged by the Bank of Italy to reclassify immediately LPIs into NPEs, of course, they will get 150% risk weight compared to the, I don't know, 20% in the past, the weight it was. So it's a completely different return on risk-weighted assets and thus on allocated capital. So I was wondering if in the coming future, you could consider essentially not to ask for LPIs or just to change business model, let's say, to a more traditional factoring.

Your calculations are mathematically correct, okay? Now let me stress. We have three businesses in which we are market leaders, that have no RWA, no risk absorption and create liquidity. One, which has, at the moment, a higher risk absorption, but it responds to client needs and in which we are market leaders. And I think as we say, we have -- in the press release, we have to find new ways to make this business more profitable from a capital absorption perspective. And I think this will be part of the strategic plan that we will have to present.

The next question comes from [indiscernible] with [indiscernible] .

Well, I read that you basically were in bridge to MREL requirement too. So I'm wondering if you are well in a position to think about issuing new senior or well, how do you see your access to debt capital markets today and about the well, same question, your thinking about your thoughts about what is going to happen to these securities.

We don't -- first of all, we do not reach the regulatory binding requirement we bridgeed the CBR as you know...

You need to be compliant to the -- well...

Slightly different. We said that based on our estimates, we will have no bridge by year-end without external measures. To be clear, and obviously, then the press release was not very clear, external measures involve anything that implies going on the market. So our estimates don't include the issuance of any debt securities, neither senior or AT1 or nothing.

Okay. So basically, you expect well to pay the coupon of the AT1 are you thinking about that? Is it included in your guidance or in your recovery plan?

As I said, the coupon of the AT1 will be determined on the date as of first quarter, which we released on the 11th of May.

Okay. So no color today about that.

Unfortunately, we need to wait 10 days...

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

Yes. Very quick follow-up on the SREP at year-end and your total capital ratio at year-end. In the press release, you mentioned that you won't be in bridge of the SREP at year-end without the external measures. So I interpret this that you don't expect -- you have not factoring any securitization, the effect of any securitization in that target, right? So just the capital generation, organic generation.

Yes, that's correct.

This concludes our question-and-answer session. I would like to turn the conference back over to Giuseppe Sica for any closing remarks.

I thank everyone for taking part in today's call and for the interesting questions and look forward to speaking again on the 11th of May. Thank you again.