Intesa Sanpaolo (OTC:ISNPY) has reported a robust financial performance for the first half of 2024, with a record net income of €4.8 billion, marking the highest in the past 17 years and the best second quarter to date. The Italian banking giant has raised its net income guidance to above €8.5 billion for both 2024 and 2025. The bank has also announced plans for significant shareholder rewards, including a distribution of over €7.4 billion in 2024 through a buyback and an interim dividend. The earnings call highlighted Intesa Sanpaolo's strong position in the market, with a diversified business model, solid asset quality, and a robust tech transformation initiative.
Key Takeaways
- Intesa Sanpaolo's net income reached €4.8 billion in H1 2024, the highest in 17 years.
- The bank raised its net income guidance to above €8.5 billion for 2024 and 2025.
- Shareholders to receive over €7.4 billion in 2024 through buybacks and dividends.
- Customer financial assets grew by over €100 billion on a yearly basis.
- Significant tech investments with €3.2 billion already spent.
- Strong asset quality indicated by a low NPL ratio and reduced NPL stock.
- Common equity ratio increased to about 13.5%, with excess capital for future buybacks.
Company Outlook
- Intesa Sanpaolo expects the Italian GDP to grow between 0.7% and 1% in 2024.
- The bank projects sustainable profitability and positive performance in net interest income and commissions.
- Plans to convert assets under administration into asset management products for increased commissions.
- Anticipates double-digit growth in wealth management, protection, and other sectors.
- Trading income not a major focus, with acceleration expected in 2025 due to potential capital gains from bond portfolio.
Bearish Highlights
- Reduction in deposits in the insurance sector due to seasonality and preference for asset management products.
- Cautious stance on future capital return quantification.
- No specific guidance provided on the trading line's contribution.
Bullish Highlights
- Positive contribution expected from hedging facilities and loan growth of around 2%.
- Confidence in the Italian economy and the bank's conservative approach to asset quality.
- Strong liquidity position and best-in-class risk profile compared to European peers.
Misses
- The bank did not provide specific guidance on the trading income line for 2024.
Q&A Highlights
- CEO Carlo Messina discussed growth strategies and the conversion of capital gain positive assets into asset under management.
- Intesa Sanpaolo is not considering acquisitions due to its market share but expects consolidation among medium-sized banks in Italy.
- Emphasis on sustainability as a key focus for the bank's future.
- The potential for share buybacks will depend on the price-to-book ratio.
Intesa Sanpaolo (ISP.MI), during its earnings call, has clearly outlined its strategic direction and financial health. The bank's leadership expressed confidence in its diversified revenue streams and the Italian economy's prospects. With a commitment to sustainability and shareholder value, Intesa Sanpaolo appears poised to navigate the evolving economic landscape while focusing on growth and profitability.
InvestingPro Insights
Intesa Sanpaolo's recent financial results have painted a picture of a bank that is not only growing but also rewarding its shareholders. An InvestingPro Tip highlights that the company pays a significant dividend to shareholders, which aligns with the bank's announcement of distributing over €7.4 billion through a buyback and an interim dividend in 2024. This commitment to shareholder returns is further underpinned by a robust dividend yield of 5.75% as of mid-2024.
From a valuation standpoint, Intesa Sanpaolo is trading at a low P/E ratio of 8.24, which is attractive relative to near-term earnings growth. This indicates that the bank's earnings are potentially undervalued, providing an opportunity for investors seeking value in the financial sector.
InvestingPro Data metrics reveal additional insights into the bank's performance and market position:
- The company's market capitalization stands at $73.16 billion, reflecting its prominence as a major player in the banking industry.
- Intesa Sanpaolo has experienced a 15.77% revenue growth over the last twelve months as of Q2 2024, suggesting a strong upward trend in its earning capacity.
- With a price just shy of its 52-week high at 99.6% of the peak, the bank's stock performance has been strong, with a large price uptick of 37.25% over the last six months.
For readers interested in further analysis and additional InvestingPro Tips, Intesa Sanpaolo has 9 more tips available on InvestingPro, offering a comprehensive view of the bank's financial health and market potential.
Full transcript - Intesa Sanpaolo SpA PK (ISNPY) Q2 2024:
Operator: Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the first half 2024 results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Sandra, and I will be your coordinator for today's conference. [Operator Instructions] I remind you that today's conference is being recorded. At this time, I would like to hand the call over to Mr. Carlo Messina, CEO. Sir, you may begin.
Carlo Messina: Welcome to our first half results conference call. This is Carlo Messina, Chief Executive Officer; and I'm here with Luca Bocca, our CFO; and Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. We just delivered net income of €4.8 billion in the first half of the year, of which €2.5 billion in Q2. These were the best 6 months of the past 17 years and the best ever Q2. These are high quality results. Reflecting a strong acceleration in commissions and insurance income and resilient net interest income, our top-line growth was the highest in Europe among peers. Costs are down even as we invest heavily in technology, while asset quality remains excellent. Our strong results mean that we can increase fully our net income guidance to above €8.5 billion for both this year, even when taking into account possible managerial actions to strengthen future profitability, and next year. Earning per share grew 15% on a yearly basis, and in 2024, we will reward shareholders with a total distribution of more than €7.4 billion, including the buyback launched in June and the €3 billion interim dividend to be paid in November. We increased the common equity ratio to about 13.5% and further reduced NPL stock. We clearly have significant excess capital, and there is a lot of room for future buybacks. Additional distribution for this year will be determined at year end, and further future distributions will be evaluated year-by-year. Customer financial assets increased more than €100 billion on an yearly basis and €20 billion in Q2. We have a well-diversified business model that delivers in any interest rate environment, allowing us to take advantage of a rebound in Wealth Management when rates decline. Our tech transformation is moving quickly with €3.2 billion already invested, and our significant profitability allow us to have a world-class position in social impact. This is all about building a sustainable and profitable bank that can continue to be a leader in the future while delivering strong results in the short-term. All our stakeholders, so not only shareholders, benefit from our excellent performance. I'm proud of our results and thank our people for their hard work. Now let's turn to Slide 1 for the key achievements of our first half. In the first half, we delivered record net income, best-in-class cost-income ratio, NPL ratio is at historical lows, rock-solid capital, strong and sustainable value creation, and we have a massive program to address social needs and promote inclusions with a contribution of €1.5 billion, of which €500 million already deployed. Slide number 2. In this slide, you can see the impressive and continuous growth of net income up 13% on a yearly basis. Slide number 3. We are delivering a significant increase in earning per share, dividend per share, and tangible book value per share. Slide number 4. This record 6 months mean that we can improve our net income guidance. As said, we expect net income to be above €8.5 billion this year and next. Slide number 5. I'm very proud that our excellent sustainable performance allow us to strongly benefit all our stakeholders, our people, households, businesses, and the public sector gain from our increasing profitability. An increase in net income, and so in cash distribution, is also favoring an increase in tax revenues for the state. And in first 6 months, the public sector benefited from more than €3 billion in taxes, €500 million more than in the first half last year. On top of that, 40% of cash dividends go directly to households and to foundation, to support their charitable programs for local communities. In the first half, families and businesses received €31 billion in new medium-long-term lending. Furthermore, in the first half, we helped 1,500 Italian companies to recover. Let's now move to Slide 7 and take a closer look at our results. In the 6 months, we delivered a €5 billion net income when excluding the final contribution to the Deposit Guarantee Scheme. Commissions accelerated strongly and insurance income reached a record high. Asset quality improved further with NPL inflows and stocks at historical lows. In Q2, we had further growth in net interest income and commissions versus Q1. Slide number 8. More in detail, in the first 6 months, net interest income grew 16% yearly. Commissions grew 7% and insurance income reached the record high. Revenue increased 10%, best-in-class growth in Europe and being an Italian bank. And operating margin 17%. Costs were down despite the impact of the national labor contract renewal and strong tech investments. As we did in the past, we have provisioned €90 million to offset the net income of our Russian subsidiary. So 0 contribution from Russian subsidiary to our net income profitability. Net income grew 20% when excluding capital gains booked in the first half last year. Slide number 9. In Q2, net interest income grew 2% quarterly and 12% yearly. Commissions increased 5% quarterly. Revenues were up 8% yearly and operating margin 15%. Net income increased 70% yearly when excluding capital gains booked in Q2 last year and 7% quarterly. Slide number 10. In this slide, you can see the strong increase in net interest income, which we expect to total around €15.5 billion this year, also thanks to the contribution from core deposits hedging. Slide number 11. Net interest income growth was driven by the spread component on a yearly and quarterly basis, also thanks to core deposits hedging. Slide number 12. Customers' financial assets were up more than €100 billion yearly and €20 billion in Q2, with significant growth both in asset under management and asset under administration. In Q2, we had a €1 billion positive net inflows in asset under management, reversing the previous trend. Gross inflows remain strong at more than €30 billion. Let's move to Slide 13. The Wealth Management and Protection businesses are strong contributors to the group profitability, and in the first 6 months, the contribution was 44% of gross income, even with interest rates remaining high. Commission from management dealing and consulting activities were up double digits with no significant performance fees. And also, the other fees, commercial fees, corporate, structural finance, investment banking increased in a significant way this quarter. And it is the clear evidence of the functioning of our push on the commission side, not only in Wealth Management and Protection. Slide number 14. Property and casualty contribution is driven by the nonmotor business. Let me add that we have significant upside potential due to the still low property and casualty penetration of the client base when compared to other products. And our 100% fully owned product companies are a clear competitive advantage. Slide number 15. The contribution of commissions and insurance income to revenues is over 40%, the highest in Europe after [ UBS ]. And it is the clear winning factor of Intesa Sanpaolo in case of a likely reduction in Euribor in the next months and year. Please turn to Slide 16 for a focus on our product factories. Slide 16. We are a Wealth Management, Protection & Advisory leader, and we are ready to leverage on our fully-owned product factories now under the responsibility of a single oversight unit. Our top-notch 360-degrees of advisory services supported by state-of-the-art digital tools. These services are already delivering with related additional commissions up over 40% year-on-year. The contribution to commissions from these advisory services mitigates the possible volatility of Wealth Management commissions. Slide 17. Our delivery machine is based on close to 17,000 private bankers, financial advisors, and relationship managers for private, affluent, and exclusive clients. We have strong internal potential with almost €900 billion in direct deposits and asset under administration. And we have identified €100 billion that can be converted into asset under management when interest rate decline. Slide number 18. The cost/income ratio was at 38%, the lowest ever. Operating costs will be down 4% when excluding depreciation for tech investments and the impact of the national labor contract renewal. Slide number 19. In this slide, you have more detail on our costs. Administrative costs decreased by 2.5% on a yearly basis. Slide 20. In this slide, you can see that Intesa Sanpaolo has a best-in-class cost-income ratio in Europe. Now let's move to Slide 21 for a focus on asset quality. Gross NPL stock was down €800 million yearly and €400 million in Q2. NPL inflows remain at historical lows. Also, Stage 2 loans decreased 8% year-on-year. We have less than €5 billion NPL and a 1% NPL ratio. Slide number 22, NPL stock and ratio are among the best in Europe. Slide 23. And we are also very well positioned in Europe in terms of Stage 2 that represent just 8% of loans. Slide 24. Our analyzed cost of risk was 26 basis points with no overlays released. NPL coverage increased further on a yearly basis, even if we see no signs of asset quality deterioration. Let's move to Slide 25. Quarter-after-quarter, we keep reducing our Russia exposure, both cross-border and locally. Now, [Technical Difficulty] Slide 26 for an update on capital. The common equity ratio increased by more than 30 basis points in the first 6 months, of which 20 basis points in Q2, to above 13.5% after deducting the buyback launched in June and the accrued dividends. Slide 27. Capital ratio will increase this year and next, and we clearly have significant excess capital allowing flexibility for additional distribution. Over the business plan period, we do not expect further regulatory headwinds, excluding a 40 basis points Basel IV impact in 2025. Slide 28, liquidity position. We have a best-in-class MREL ratios. The Liquidity Coverage Ratio and Net Stable Funding Ratio are well above our targets and we have basically reimbursed all the TLTRO. Slide 29 and 30, you have the usual update on our ESG actions. And at the end of the presentation, you can find additional slides on our social and climate initiatives, and our leading ESG position in the main sustainability indexes and ranking. Now let's move to Slide 32 for the macro scenario. The Italian economy is strong, and the liquidity position of Italian corporates has improved further in 2024. Italian GDP will continue to grow this year and next. For this year, I expect growth between 0.7% and 1%, and I'm really positive on Italian economy. Slide 33. As you can see in this slide, Intesa Sanpaolo is far better equipped than its European peers, also thanks to our best-in-class risk profile. Slide 34. In this slide, you can appreciate the unique positioning of Intesa Sanpaolo, thanks to our commissions-driven and efficient business model supported by strong tech investments. Slide 35. In this slide, you have the recaps and saw how ISP is equipped to further succeed in the future. In fact, we are ready to succeed in any interest rate environment, as shown by this set of all-time high results. Slide number 36. To finish, let me turn to the outlook. After delivering our best 6 months, we are increasing our net income guidance to above €8.5 billion, even when taking into account possible managerial actions to strengthen future profitability. Our strong and sustainable performance allow us to strongly reward our shareholders, always a priority for ISP and me personally while maintaining rock-solid capital and a world-class position in social impact. This year we are returning more than €7.4 billion, equal to 11% of our current market cap. Additional capital distribution for 2024 will be determined, so we have to define the amount at full year results approval. And further future distribution will be evaluated year-by-year [Technical Difficulty] of a 70% cash dividend payout ratio. We clearly have excess capital and strong internal capital generation. Thank you for your attention, and now we are happy to answer your questions.
Operator: [Operator Instructions] We will now take the first question from the line of Antonio Reale from Bank of America (NYSE:BAC).
Antonio Reale: I have just one question, please. On your net profit guidance for this year, you guided to be above €8.5 billion net profit. Can you walk us through the key P&L drivers, please? Because you're running quite a bit above the €9 billion, it'd be good to understand how much is you retaining buffers to support future profitability and how much of what we've seen in the first half is less sustainable.
Carlo Messina: So thank you, Antonio. It is clear that our net income profitability trend is in a significant acceleration and we can also exceed the outlook that we gave to the market. The real point is that we prefer to move quarter-by-quarter, analyzing the future profitability and the indication to the markets. What we can consider at the end of the year is some actions in order to improve profitability for the future. So I'm referring to acceleration in terms of integration charges eventually increase in terms of coverage in order to make further disposal on nonperforming loans, and all the different items that usually we consider at the end of the year. But what it is clear is that the acceleration, first of all in terms of net interest income. So net interest income is the real driver that is in increase. Also, if we had the first reduction in terms of Euribor, and it is the evidence of the very good way of acting of our hedging facilities. So we had the possibility to increase the net interest income also with the first spike of reduction in terms of Euribor. The future trend in terms of Euribor also, if you consider that the forward embedded in the market is for sure that we will be in a position to achieve easily €15.5 billion in terms of net interest income. This will depend by the trend in terms of Euribor. But our expectation is to continue [Technical Difficulty] a good performance in terms of net interest income. Probably this quarter could be the peak of net interest income, but at the end, we will have good satisfaction also from net interest income in 2024. This will remain also very positive in 2025, because the clear trend of increasing in terms of contribution from the hedging facility allow us to have a very good performance in 2025 also. That could be not only above 2023, but could be in a range between 2023 and 2024 dynamics. So we are pretty positive also on net interest income in 2025 in case of Euribor moving into the forward guidance, so 2.6% at the end of 2025. In terms of [Technical Difficulty] we are in the position to say that our way of having this committee that [Technical Difficulty] to push for the growth in terms of commission, is giving good results, not only in Wealth Management and Protection & Advisory, but also in all the other lines of commissions. So our expectation is to continue to grow. Obviously, in the third quarter, we will have the -- the month of August, that could be in terms of distribution due to holidays, could have a lower contribution. But the fact that we have net inflows in terms of asset under management and asset under administration, and a significant gross inflows can allow us to maintain a real very good performance in terms of dynamics of commissions. But all the divisions are accelerating also in different lines of commissions. Also, insurance will continue to give us very good performance. So this -- the trend will continue to be in such a way to have comparing with last year, a very good performance. The cost will remain flattish. This could be the final dynamics of our cost base. And the cost of risk, it is expected to be between 30 basis points and 40 basis points depending on the acceleration in terms of further derisking and so net-net, the view on our profitability is, in my expectation, very good for 2025 -- 2024, sorry, and also for 2025. These are more or less the items on the guidance. We maintain reserves enough also to be in a position to have room for integration charges for future profitability. We will decide at the end of the year. But the trend for me is absolutely very positive.
Operator: We will now take the next question from the line of Azzurra Guelfi from Citi.
Azzurra Guelfi: One question from me as well. When I look at these results and I think about the second part of the year and 2025, the NII is resilient and can benefit from the hedging if rates going down. The fees are benefiting an insurance from your advisory model. The cost will continue to have a focus on efficiency because of your IT investment and the asset quality seems under control. So all of these points to a very sustainable profitability. Your capital is better, you have improved your capital outlook. So why don't you quantify a little bit more in detail your capital return? I know you have a positive attitude to capital return. I know you always do it at the full year, but here all seems to trend better than what we expected. Why remain so cautious?
Carlo Messina: See. Yes, Azzurra, this is another good question because we have 2 elements that are really positive also in comparison with the number of peers. The first one is the sustainable profitability. So it is not a short-term drivers to profitability, but it is a business model, so it is for sure profitability and so significant cash flow generating and significant cash dividends that we will pay for sure to our shareholders. Now, remember that our dividend deals on the current market cap is above 10%. So we are a unique opportunity in terms of cash dividends. But also looking at our capital position all -- we can have all the positives in the future because having 0 impact from further regulatory impact apart from Basel IV, we will have all the positive coming from the recovery of the DTAs in future and also the retained earnings and our ability to reduce the risk-weighted assets. In 2024, I can tell you that on the basis of this figure, it is clear that we will be in a position to submit to our Board of Directors at the end of the year also a further tranche of share buyback. We will wait for the final end of the year because this is our policy, but due to the fact that in the last 3 year, we had €1.7 billion share buyback, we are pretty confident that also this year we can move into a further share buyback proposition. For the next years, we will have to wait the end of each years to define, but also looking at better for all the capital embedded negative position, in my view is absolutely manageable, so 40 basis points are really negligible and the recovery of DTA is 120 basis points is equivalent to a significant capital increase. So it is true we are in a unique position, but we prefer to wait the usual and the common way of working of our procedures and then submit to the Board of Directors at the end of the year, the proposal of the number of the quantity of the share buyback and also having the formal process with the ECB.
Operator: We will now take the next question from the line of Delphine Lee from JPMorgan (NYSE:JPM).
Delphine Lee: Just one on my side. Can I maybe just come back on net interest income? If you don't mind giving us a little bit of the sort of the moving parts of '25, which is really important for the market, and how much decline can we expect? I think you talked very positively about the outlook, but just wondering if you could give us your assumptions that you're using for deposit costs and rates and the replicating portfolio. So anything that we should think about to kind of make our forecast?
Carlo Messina: So thank you. I can tell you that making the analysis of the different parts of the net interest income for the future and making the assumption of the 3.6%, 3.7% Euribor -- average Euribor at the end of this year, we can consider to have on a yearly basis an increase in terms of €900 million in terms of contribution from the hedging facilities in comparison with last year. And we will have a clear reduction in terms of markdown, but these will be absolutely manageable in line of the acceleration of the hedging facilities. Markup will remain in a positive trend. We are being conservative in maintaining flat, but my expectation is that markup can increase due to the reduction of Euribor in -- during the next 6 months. In terms of volume, we have considered to have a slight recovery. In terms of loans by the end, a flattish on the dynamic, and more or less the same on the deposit trend. Looking at the financial components or the component from the bonds, we continue to have -- we will continue to have some minor positive contribution from this area of the portfolio. So net-net, our expectation is that on a quarterly basis, we will continue to have a positive dynamic. In 2025, this trend will continue to have a positive contribution from the hedging facility, so we will add to our €900 million another €700 million due to the forward Euribor at 2.6% so reaching a significant contribution in terms of benefit coming from the hedging facilities. And in terms of markup, we will have a positive contribution. We will have a positive contribution from volumes in terms of loan growth in the range of 2%. We will continue to have a contribution positive from the portfolio that we increased in this quarter and we will remain with contribution during 2025. And this will bring us to have a number of net interest income that in our expectation now can be increased in comparison with the guidance that we gave in the last presentation in which we talked about net interest income above 2023, we can have a net interest income that can be positioned between 2023 and 2025 -- 2024, so this will bring us to have further contribution in comparison with the original expectation that we had some months ago. So this will bring some further positive contribution. And at the same time, we will maintain our very positive view on commissions that will benefit from the reduction in terms of Euribor, because the majority of the investments of our client base will become capital gain positive. And so our people in the field will continue to do what we are doing together today -- always today. So the conversion in asset under management product, and this will allow us to have further significant increase in terms of commissions also in 2025.
Operator: We will now take the next question from the line of Andrea Filtri from Mediobanca (OTC:MDIBY).
Andrea Filtri: A question on NII and one on fees. On NII, CIB NII is up quarter-on-quarter with loans down and deposits up, while corporate center represents a large increase on the quarter-on-quarter improvement in net interest income. Could you please elaborate on the causes behind these dynamics? And if you could also give us on the fees, the contribution from upfront fees in Q2 and Q1. So not performance fees, but upfront fees.
Carlo Messina: So in terms of upfront fees, the contribution is in line, the second quarter is in line with the first quarter. We are talking about more or less between 1.5% and 2% of total revenues. And this is related mainly to gross inflows. So these are related to the placement, to increase in terms of placement that we had in the first and second quarter in comparison with last year. So it is all an acceleration in terms of volumes. And this is a good performance and it is what we are absolutely, so we do not call upfront fees, we call fees coming from the placement of gross inflows that is accelerating in a significant way in comparison with 2023. This will further accelerate in our expectation with the reduction of Euribor and also, we will have a positive trend in terms of net inflows. But these are the figures on our fee. Performance fees is negligible today in our figures. Net [Technical Difficulty] income in the corporate center, we have all the hedging facilities, so we have the increase in terms of contribution is due to the hedging facility. And in terms of deposits in corporate center, we have all the activity, all the placement on the wholesale market. And on the other side, in terms of all the deposits coming from our Banca dei Territori, we started the conversion of deposit into Wealth Management products. SO this is a trend that, in our expectation, also adding the conversion of asset under administration, because this is a phase in which asset under administration is still competitive with the asset under management, but as soon as we will have a reduction in Euribor, also the conversion of asset under administration will accelerate. This will bring us in our unique position in comparison with all the other European peers apart from UBS that can allow us to increase in significant way all the volumes related to Wealth Management.
Operator: We will now take the next question from the line of Giovanni Razzoli from Deutsche Bank (ETR:DBKGn).
Giovanni Razzoli: Given the economy in Italy, you mentioned that you do expect 0.7%, 1% grow for 2024. I was wondering if you can share with us what your thoughts about the sustainability of the cost of risk of the banks in general, because my perception is that we've seen a very different approach by competitors in Italy. You are guiding, for example, 30, 40 basis points for 2024. Some other of your closest peers are guiding less than 20 basis points. Someone is expecting to release provision overlays next year, you still have a significant amount of data. So if you can please share your thoughts also based on your historical experience.
Carlo Messina: So first of all, let me say that we remain in this sector forever. So that's the difference between us and all the others. That's the first point. And it is also related to our very conservative approach on asset quality, level 2, level 3, and all the investments and the provisions on areas of the world in which you can have problems. So that's the way which Intesa Sanpaolo, in these years has created a unique business model, but also a unique reputation. So a cost of risk that is below a certain level, in my view, it is not sustainable. So if you look at what we have as a bank that is moving in a way of a sustainability attitude, I can tell you that in the Italian environment you have very good conditions of a significant number of corporates in Italy. So Italy today is in a unique position in comparison with all the other country in Europe. If you -- so if you look at the corporate sector also the households so apart from poverty and in the area of inequalities, but if you look the households and the corporate sector, Italy probably is a unique place in Europe, and especially in the corporate sector in which you have a significant level of diversification of export-related companies, the acceleration of the investments on the Piano Nazionale di Ripresa e Resilienza will add attitude to investments. So the way in which we look at the company in Italy is positive, but in any case, historically, we are at the minimum level of inflows. So it is, in my view, very -- the right approach not to reduce the coverage on the nonperforming loans, to maintain an approach that is to try to make the risking disposal, increasing the coverage, and to maintain also a very conservative approach in terms of valuation. And the kind of cost of risk, in my view, is the sustainable one, so between 30 and 40 basis points. Below this level, in my view, is something that it will be difficult to remain sustainable for the future. If you have a very low number of volumes of nonperforming loans and very low level of inflows, in my view, it is safe to maintain a cost of risk that could be in the range of 30, 40 basis points. That's my personal view on the banking sector.
Operator: We will now take the next question from the line of Andrea Lisi from Equita.
Andrea Lisi: Just one, is on capital. If you can provide us indication if you have further room to optimize the risk-weighted asset and thus boosted CET1 further, even considering the Basel IV impact.
Carlo Messina: So thank you. On capital, we continue to maintain room in terms of potential risk-weighted asset optimization, so that's for sure an area in which we can continue to have positive impact, and this kind of optimization can allow us also to have some increase in terms of loan book without having an increase in terms of risk-weighted assets. The trend of growth, as you told correctly, is the Basel IV impact. They will be mainly concentrated, in our case, on the operational risk. So that's because moving into standard, we will have an impact from this kind of [Technical Difficulty] asset, Basel IV impact, but at the end, my expectation is to have a significant room in terms of optimization. We are not talking about collateral guarantees, but also synthetic transactions and other areas in which we are among the leaders in Europe. So I'm pretty positive on this trend. At the same time, DTAs are our significant reserves in terms of increasing capital and for sure DTAs is an area that we can consider as the future potential capital distribution in terms of excess capital also exceeding 2025.
Operator: We will now take the next question from the line of Ignacio Ulargui from BNP Paribas (OTC:BNPQY) Exane.
Ignacio Ulargui: I have one, if I may. I just wanted to understand how much scope to improve the cost-to-income ratio do you see going forward in the light of what you have given us in terms of revenues and costs?
Carlo Messina: So cost/income ratio is an area obviously very important an area in which we are for sure delivering in a very positive way on both sides on revenues. And as I told, we are today that the bank in Europe has that the highest growth in terms of revenues, so mainly core revenues and coming from net interest income commissions and insurance. But at the same time, we were able to manage the cost side on the different levers of the cost base. Our target is to continue to finance the significant investments in technology with the reduction of other areas of cost base. We had a number of people that will leave the organization within the first quarter of 2025. We have further branch reduction. And as soon as we will have IsyTech ready that could be between the end of '25 beginning of '26 will accelerate also in the reduction of the IT system cost because with the movement of the system to cloud, we will have significant room in terms of cost reduction also on the IT system. So the physiological run rate in terms of cost/income, in my view, is between 40% and 45%. That's more or less 40% and 45% should be the level of cost/income ratio that a bank like us could have for the future.
Operator: We will now take the next question from the line of Pamela Zuluaga from Morgan Stanley (NYSE:MS).
Pamela Zuluaga: The first one is on the insurance income. It came in relatively weaker versus Q1. And if we look at the deposits from insurance as well, somewhat weaker. Could you give us some color on the trends that you're observing here? How do you see the evolution for this line for the rest of the year? And then the other one is you flagged in Q1 that you were going to share with us some additional information from the discussions with the new committee that is pushing for the growth of the Wealth Asset Management and Protection businesses. Could you give us any details on these discussions and the strategy that you're pursuing? Did you come up with any additional targets? Or should the 2022 to '25 targets are still standing?
Carlo Messina: So thank you. I will start from commissions. The -- what we are doing in -- within the organization is to find all the areas in terms of commissions in which we can have a clear acceleration. Obviously, Wealth Management and Protection is the most important part of the story because the potential is really massive and the reduction of Euribor. And I have to tell you also that the marginal position of a significant number of our clients that are now capital gain positive in their investment, especially in asset under administration, is bringing our people to accelerate the potential conversion of these capital gain positive assets into asset under management. Then we have also a significant number of certificates and term deposits that will expire during 2025. And those -- this will be part of an acceleration in terms of conversion into asset under management or insurance product. All the other areas, especially the corporate sector, the commercial area, the structural finance, the transaction payments, commissions are under acceleration, so we made a number of action plans in order to accelerate these figures, and not only to have the main part of the contribution in terms of acceleration from Wealth Management and Protection. We remain with the stance of maintaining an approach to growth, we decided not to change the outlook that is that in the Wealth Management, Protection we will have a double-digit growth. And in the other area we can have a growth that for some part of this sector can be also double digits, but on average this can remain a single digit. But the potential is to accelerate on a double-digit mood also in this part of the story. This part in this quarter, in the second quarter a portion of these have experimented a double-digit growth. So we think that the potentially massive not only for Wealth Management and Protection. In insurance, we add a reduction in terms of deposits and this is a trend that is mainly related to seasonality. And to the fact that there is -- today in a preference to enter into asset under management product, but our view is that we can also recover in terms of insurance product as soon as there will be the aspiring part of the term deposits and the certificates because this [Technical Difficulty] can prefer to have an approach that could be more related with the insurance product than on asset under management product. On property and casualty also, we had good performance and there is a minimum of seasonality in this second quarter, but the trend is really positive.
Operator: We will now take the last question from the line of Fabrizio Bernardi from Intermonte.
Fabrizio Bernardi: I have a very quick questions. The first is on the trading line that is now very low, so maybe you can give a guidance even if I know it's not easy. The second is given your shareholder base, and considering that you are trading above 1x the tangible, what we should think about the payout policy? And the third is, given your market shares in Italy, what do you think about consolidation of the banking system in the country?
Carlo Messina: On trading lines, we -- as I told in a different occasion, in our business model, in terms of sustainability of results, we decide to use trading incomes in order to compensate other lines of revenues in case of some negative environment for net interest income or for commissions. We are in a unique position to have [Technical Difficulty] positive, so net interest income and commission. So we do not need to accelerate on the trading income side. At the same time, the portfolio of bonds that can give us some capital gain, today are giving positive results in terms of net interest income. So in terms of trading lines, we will not -- we are not considering in our outlook a significant contribution from the trading line. So we will continue to have a low contribution in terms of trading lines during 2024. We will accelerate further in 2025 as the trend of reduction of interest will be significant, and so there will be a number of capital gain embedded on our portfolio of bonds. In terms of payout, in terms of dividend and price book, we are probably in terms of cash dividend [Technical Difficulty] we did the best option in Europe. So if you want to maintain a cash dividend with a very low risk, Intesa Sanpaolo, in my view, is the perfect investment. Above 10% dividend yield with low risk. And if you compare us with assets, with investments that can have the same risk profile, probably we can give you 2x or 3x the yield of other investments. In terms of redeployment of capital, it is clear that the price to book above 1%, it could be considered a threshold for choosing between share buyback and cash dividend, but we gave -- and we give a significant portion of dividend in terms of cash dividend, so we remain with an attitude to give share buyback in the future. So today, this is the position of the bank. In terms of future consolidation for the banking sector, obviously in Italy, not for Intesa Sanpaolo because of the market share, and Europe not because targets are not in a position to create value for our shareholders. In terms of consolidation in Italy, my expectation is there should be some form of consolidation. This will depend by the attitude of the bank with an excess capital to make acquisition instead of redeploying capital in terms of share buyback. And probably today, I'm not so sure that there is room to create value in the best position through an acquisition than in comparison with share buyback. In terms of merging between medium-sized banks, this will depend on the attitude on who will be the CEO, the Chairman and so on that is typical in this kind of transaction, so not easy to have a consolidation. I'm really sorry that Intesa Sanpaolo has this market share because we can be the perfect buyer of Italian banks, but for us it is mission impossible.
Operator: There are no further questions at this time. I would now like to turn the conference back to Carlo Messina for closing remarks.
Carlo Messina: So thank you very much. I think that sustainability is the real way of looking at this -- at our bank. And sustainability of results will be the future for our bank is -- the current situation will be the future for our bank. So good holidays to all of you and I hope that you can have holidays in Italy, so you can improve our GDP and improve also the Italian revenues coming to Intesa Sanpaolo. So thank you very much.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
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