Intesa Sanpaolo (OTC:ISNPY) (ISP.MI), Italy's leading bank, has reported a record performance for the full year 2023, with net income reaching €7.7 billion. The bank has announced plans to distribute €5.4 billion in dividends, reflecting a 12% dividend yield, and to initiate a new share buyback program in June. With a strong capital position and expectations of net income above €8 billion for the current and following year, Intesa Sanpaolo is well-positioned in its Wealth Management, Protection & Advisory business. The bank's commitment to ESG and climate actions includes a €300 million investment towards social needs and fighting inequalities, as part of a larger €1.5 billion program.
Key Takeaways
- Intesa Sanpaolo's net income for 2023 hit a record €7.7 billion.
- Shareholders to receive €5.4 billion in dividends, equating to a 12% yield.
- A new share buyback program is set to launch in June.
- The bank expects to deliver over €8 billion in net income in the current and following year.
- Intesa Sanpaolo remains strong in its Wealth Management, Protection & Advisory business.
- A €300 million investment has been made towards ESG and climate actions, part of a larger €1.5 billion commitment.
- The bank's capital position is robust, with a common equity tier one ratio of 13.7% (15.1% including DTAs).
Company Outlook
- Intesa Sanpaolo anticipates Italian GDP growth to align with 2023 and exceed 1% in 2025.
- The bank plans to maintain a solid capital position while rewarding shareholders generously.
- They expect revenue growth, particularly from net interest and insurance income, and a recovery in commissions.
Bearish Highlights
- The bank is reducing exposure to Russia amid geopolitical tensions.
- They are preparing for regulatory headwinds and have a manageable funding plan for 2024.
- A potential reduction in deposits or yields is anticipated in the first three months after an increase in asset under administration.
Bullish Highlights
- Intesa Sanpaolo boasts a best-in-class liquidity position.
- The bank is confident in its ability to succeed in any interest rate environment.
- They are focused on growing their asset under administration and expect positive capital gains.
- CEO Carlo Messina confirmed his intention to serve another term, signaling stability in leadership.
Misses
- There is an expectation of a stronger net interest income in 2024, with a reduction in 2025.
Q&A Highlights
- In response to UBS's inquiry, Carlo Messina emphasized the bank's focus on fee and commission growth starting from the second quarter, driven by the Euribor environment.
- Trading income is not a priority for 2024, as the bank aims to focus on higher quality revenue streams.
Intesa Sanpaolo's strategy remains centered on strengthening its wealth management and advisory services, bolstering its technological capabilities, and enhancing its social impact initiatives. With the CEO's reconfirmation and the bank's clear direction, Intesa Sanpaolo is poised to continue its trajectory of growth and shareholder value creation.
InvestingPro Insights
Intesa Sanpaolo (ISNPY) has demonstrated a robust financial performance, and insights from InvestingPro further underscore the bank's strategic positioning. With a market capitalization of $56.93 billion and a strong revenue growth of 31.2% over the last twelve months as of Q3 2023, Intesa Sanpaolo is capitalizing on market opportunities.
InvestingPro Tips highlight that the bank is trading at a low earnings multiple with an adjusted P/E ratio of 7.14, suggesting a potentially undervalued stock relative to its earnings. Moreover, the bank pays a significant dividend to shareholders, with a notable dividend yield of 9.35% as of the latest data, reinforcing its appeal to income-focused investors.
InvestingPro Data also reveals that Intesa Sanpaolo has enjoyed a strong return over the last three months, with a price total return of 18.41%, and is trading near its 52-week high, at 98.91% of the peak price. These metrics indicate a positive market sentiment and a potentially attractive entry point for long-term investors.
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Full transcript - Intesa Sanpaolo SpA PK (ISNPY) Q4 2023:
Operator: Good afternoon, ladies and gentlemen. And welcome to the Conference Call of Intesa Sanpaolo for the Presentation of the Full Year 2023 Results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Razia, and I will be your coordinator for today’s conference. At the end of the presentation, there will be a question-and-answer session. [Operator Instructions] I’ll remind you all that this conference is being recorded. At this time, I would like to turn the conference over to Mr. Carlo Messina, CEO. Sir, you may begin.
Carlo Messina: Thank you. Welcome to our full year 2023 results conference call. This is Carlo Messina, Chief Executive Officer; and I’m here with Stefan Del Punta, CFO; Luca Bocca, Deputy CFO; and Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. Today, I’m going to walk you through our best ever results. We are over delivering on our financial commitments as we execute our industrial plan. This excellent performance enables us to reward shareholders with dividends of €5.4 billion for 2023. Our dividend yield is the highest in Europe at 12%. Our fully earning per share and dividend per share are up 80% versus the previous year. Our strong profitability and rock solid capital position means that subject to ECB and shareholders approvals, in June, we intend to launch a new share buyback representing around 55 basis points of common equity tier one ratio. We clearly have excess capital. Any additional distribution for 2024 and 2025 will be evaluated year-by-year. We are highly capitalized, profitable and liquid. We further strengthen our zero NPL status. 2023 net income was €7.7 billion, the best ever. We also delivered the best ever year for operating income, operating margin and gross income. Q4 was the best four quarter ever. We leveraged Q4 profitability to strengthen buffers and sustain our future results. We expect to deliver a net income above €8 billion this year and next. As a Wealth Management, Protection & Advisory leader, we have a well-defined business model that delivers in any rate environment and that will allow us to take advantage of a rebound in Wealth Management. Customer financial assets increased more than €100 billion on a yearly basis. Later in the presentation, we will provide the usual update on our ESG and climate actions, confirming our position as a world class leader in social impact. Our tech transformation is moving quickly, with €2.8 billion already invested in technology and innovation. These points of strength all reflect the quality of our relationship with our clients, they trust our solidity, rely on our capacity to advance and land, and know that we will offer them market-leading innovation. 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. I am proud of our results and thank our people for their hard work. Now let’s turn to slide one for the highlights of our full year results. In a nutshell, we delivered the best 12 months for profitability with €7.9 billion net income when excluding the final contribution to the resolution fund, that becomes €8.1 million when also excluding the €300 million social impact contributions already deployed. The cost income ratio was the lowest ever. NPL inflow, stock and ratio remained at historical lows. Capital remained rock solid despite absorbing the impact of all expected regulatory headwinds, 130 basis points. Slide number two, in this slide, you can see the impressive growth of net income up 76% on a yearly basis. Slide number three, all time high net income coupled with a strong capital position are driving high and increasing value creation and distribution, with significant growth in dividend per share and earnings per share and tangible book value per share. Slide number four. In this slide, you can see that once again we are over-delivering on our commitments, with 2023 results already above 2025 targets. We are proceeding with our business plan at full speed, with 90% of initiatives delivering ahead of schedule. You can go through the slide at the end of the presentation to see our business plan initiatives, including technology. I will not go through our tech update today, but let me remind you that we are moving ahead quickly in development of our group’s cloud-based digital banking platform, isytech, and our new digital channels, Isybank and Fideuram Direct, as well as in investments in Artificial Intelligence. Slide number five, we are a Wealth Management, Protection & Advisory leader that can succeed in any interest rate scenario, thanks to our well-diversified business model. And we are now ready to leverage on our fully-owned product factories, enabling quick time to market and product customization. And our top-notch 360-degree Advisory service, so-called Valore Insieme and Sei, supported by state-of-the-art digital tools that are already delivering with double-digit growth in related Commissions and that continue to have a strong potential. Slide number six, our delivery machine is based on more than 16,000 private bankers, financial advisors and relationship managers for private, affluent and exclusive clients. We have strong internal potential, with over €850 billion in direct deposits and assets under administration and we have already identified €100 billion that can be converted into assets under management, also thanks to declining rates. When we see an opportunity or a problem emerging, we take action and deliver, and we have done it multiple times with Wealth Management some years ago, with NPR reduction, with UBI merger, with Russia de-risking, implementation of isytech, the launch of Isybank. And we will do it again with Wealth Management growth, especially in this likely scenario of reduction in interest rate this year and next year. Slide number seven. Looking ahead, we can further improve our net income guidance for 2024 and 2025 to above €8 billion. Slide number eight. I’m very proud that our excellent performance allows us to reward all our stakeholders. An increase in net income and so in cash distribution is also favoring an increase in tax revenue for the state. And 40% of cash dividends over €2 billion go directly to households and to foundations to support their charitable programs for local communities. Slide number nine. As we said last quarter, we launched a massive program to address social needs, fight inequalities and promote inclusion with a contribution of €1.5 billion. Of these, we have already deployed more than €300 million in 2023. So €300 million already deployed in 2023. We remain committed to being the world’s number one impact bank. In Q1, the renewal of the National Banking Sector Labor Contract was finalized. ISP and me personally were strong promoters of the renewal, with a significant increase in the monthly salary to mitigate the impact from inflection. Just because our people are our most important asset and their well-being is very important for us and especially for me. Now let’s move to slide 10. In this slide, you can see our strong progress towards the business plan ESG targets, and also here, we are ahead of schedule across nearly all of the projects. Let’s move to slide 11. In this slide, you can see other important ESG initiatives with impressive results achieved, such as €45 billion in new lending to support the green economy, circular economy and ecological transition. At the end of this presentation, you can find additional slides on our social and climate initiatives and our leading ESG position in the main sustainability indexes and rankings. Let’s now move to slide 13 and take a closer look at our results. Slide 13, very briefly in 2023 revenue increased more than 17% and operating margin by over 30%. Loan loss provisions declined significantly. Net income reached €8.2 billion when excluding charges concerning the banking industry, while set prices of more than €500 million, mostly in Q4, to strengthen our balance sheet even further and to favor the risking. Slide 14. In Q4, we achieved record quarterly revenues. Personal costs were impacted by the National Labor Contract renewal and a recurring component as variable compensation. We leveraged on Q4 profitability to take a series of conservative provisions and write-downs of more than €420 million. Net income reached €1.6 billion, the highest Q4 ever. Slide number 15, very important. In this slide, you can see the strong acceleration of net interest income, but further growth is expected in 2024, also thanks to a higher contribution from core deposit hedging. Slide number 16. Net interest income growth was driven by the spread component, which is benefiting from the increase in market rates. Deposit beta continues to remain very low and totally under control. Slide number 17. Customer financial assets reached €1.3 trillion, up over €100 billion yearly and over €60 billion in Q4. Direct deposits are up €18 billion in Q4, reaching the highest level ever. Let’s move to slide 18. Very important in a scenario of reduction of Euribor. So the Wealth Management and Protection businesses are a strong contributor to the Group’s profitability, averaging 56% of gross income over the past six years. And in 2023, with high interest rates, the contribution was still almost 50%, not considering the contribution of markdown on deposits. Property & Casualty contribution is increasing, driven by the non-motor business. Slide 19. Cost income ratio was 45%, the best ever and operating costs are down when excluding the impact of energy prices, tech investments, and I want just to remember €2.8 billion of investments in two years’ time, the National Labor Contract renewal and Q4 non-recurring personal costs. Slide number 20. In this slide, you have more detail on our costs, but we can move to slide 21 for a focus on asset quality. Slide 21. The stock of non-performing loans decreased further in Q4. NPL inflow in 2023 was the lowest ever. Furthermore, Stage 2 loans decreased 18%, thanks to high quality of our loan portfolio and our strong capabilities in prevention activities. Now we are a bank with less than €10 billion gross NPL, less than €5 billion net NPL and less than 1% net NPL ratio, so we are a Nordic bank, but with the upside of the Wealth Management and Protection business. Slide number 22. NPL stock and ratios are among the best in Europe after impressive de-risking. Slide number 23. We are also very well positioned in terms of Stage 2, which represents only 9% of loans. Slide number 24. Cost of risk was the lowest ever. NPL coverage increased even if we are not seeing any signs of asset quality deterioration. Let’s move to slide 25 for the usual update on Russia. Quarter-after-quarter, we are reducing our Russia exposure, which is approaching zero. Now we can go to slide 26 for capital. The common equity ratio increased to 13.7%, 15.1% considering DTAs, thanks to strong organic capital generation, and despite absorbing all expected regulatory headwinds. The ratio is 13.2% when deducting around 55 basis points buyback to be authorized by the ECB and shareholders. Please turn to the next slide, 27. Capital ratio will increase and we clearly have significant excess capital allowing flexibility for additional distribution. Please turn to slide 28 for a quick look at the results of the last EBA stress test, because ISP is one of the clear winners of the EBA stress test, but it is testament -- it is the evidence of our well-diversified model that reduced the impact of the adverse scenario. Please turn to slide 29 to see our best-in-class liquidity position. 29, we have best-in-class ratio, and our 2024 funding plan is more than manageable, thanks to pre-funding executed in 2023. Slide 30, the liquidity coverage ratio and the net stable funding ratio are well above our business plan targets and we have a very diversified and sticky deposit base. The liquidity coverage ratio is above the business plan target, even considering [Audio Gap] the details on the liquidity position. Liquidity reserve remains at the high level and cash with the ECB is significantly higher than the remaining TLTRO. Now move to slide 33 for a few words on the macro scenario. The economy is strong, thanks to world-leading household wealth, a solid banking system and very resilient SMEs and corporates that have significantly improved their deposit over the past years. Italian GDP growth for this year should be in line with 2023 and above 1% in 2025. Slide 34, as you can see in this slide, Intesa Sanpaolo is far better equipped than its European peers, thanks to our rock solid capital base and well-diversified and efficient business model based on fee and Commissions. Slide 35, this slide recaps 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. Then slide 36, the most important for all of you, so the 2024 outlook. After delivering our best-ever results, we expect revenues to grow even further this year, with higher net interest and Insurance income and the recovery in Commissions. So also growth in insurance and commissions. Operating costs will be stable, mainly thanks to lower personal costs. These will be coupled with a very low cost of risk and with lower levies concerning the banking industry. All this means that profitability will increase even more. Net income will grow to above €8 billion this year and next year. Our strong and sustainable performance allows us to generously reward our shareholders and other stakeholders while maintaining a rock solid capital position. Thank you for your attention and we are now happy to answer your questions.
Operator: Thank you, sir. [Operator Instructions] And the first question comes from the line of Antonio Reale from Bank of America (NYSE:BAC). Please ask your question. Your line is opened.
Antonio Reale: Hi. Good afternoon, everyone. It’s Antonio from Bank of America. I actually have a couple of questions and one clarification if possible, please. One on NII, one on costs and lastly on capital distribution. So, if I look at your net profit guidance for 2024, you’ve got it to be above €8 billion net profit. Can you maybe walk us through the key P&L drivers here, particularly on NII? I think your deposit base seems to have stabilized. Current accounts are up for the second quarter in a row and I think, liquidity -- your strength in liquidity was clearly visible in Q4. So I think it’s easy to see significant growth in NII this year, given the replicating portfolio and deposit franchise. So I would like to hear from you if you could help us quantify the size of the increase you would expect in NII for this year. My second question is a clarification really and relates to the €300 million of non-recurring costs that you’ve booked in Q4. My question is when you guide for stable costs in 2024, is that guidance excluding the €300 million? So adjusting for what you define non-recurring. And lastly, on capital distribution, I mean, capital was strong again and you’ve taken all the regulatory headwinds up front. You’re generating a lot of capital organically. So as it stands, you’re paying 70% cash dividends, which is your ordinary part and you said you’re assessing special year-end. Don’t get me wrong, 70% is a high level. It’s one of the highest, actually the highest for Eurozone banks when it comes to cash dividends. But I wonder if it could make sense for you to consider making the special part of the distribution sort of included in your ordinary distribution or increase the frequency of the special. You’re going to end up accumulating a lot of capital quite quickly? Thank you.
Carlo Messina: So, thank you, Antonio. So, let’s start from the outlook, because I think that, also looking at some other peers in the last week in making their communication on outlook. I think that it is important to stress a particular condition of Intesa Sanpaolo in which we are maintaining totally under control the cost based on the liability side. So the increasing so-called beta is really marginal in this last quarter. And our expectation is that with a reduction of Euribor during 2024, an assumption like us to have a further increase in the cost base, not so significant. But in any case, another 10 basis points, 20 basis points could be really conservative. And having said that, also in a condition of Euribor equivalent to the forward rate one month today, we will remain with an increase in terms of net interest income due to the fact that we will have significant contribution from the aging facilities. So that will bring us not only the contribution from markdown that will continue to give us positive during 2024, but we will have a significant contribution from the aging facilities. We will remain net interest income positive in terms of growth, our net interest income also if interest rate on average will go to 3.1 during 2024. So, we remain in a condition of very significant strength in terms of dynamics of net interest income. But at the same time, due to the fact that to realize the forward, this means that you will have a significant reduction in Euribor, you will start to have a rebound and visible rebound in terms of Commissions, because we have already identified the portion of our asset under administration, so the asset under administration of our clients that has already embedded capital gain and another portion will increase this volume through the reduction of Euribor. All these areas are under scrutiny from my people in the different divisions, the Banca dei Territori and Private Banking. They have the list of clients and so as soon as this will happen, we will have the possibility to restart with our engine delivery machine for Wealth Management and this can accelerate also the growth of Commissions and Insurance. So, we are in a unique position in European landscape. That’s my personal view on the other competitors in different countries. I think that we are in the unique position to have a benefit from net interest income coming from a total control of the cost base of the liability side, a significant contribution from the aging facilities, but at the same time an acceleration in terms of Commissions and Insurance business. So, in any kind of scenario, our revenues, if interest rate also can remain on average in the range of 3%, we live a growth in terms of revenue. So that’s our view on 2024. This is our budget. So all the people within the organization are already working with this kind of assumption. So, the target is growth in terms of revenues and also with this level of Euribor. At the same time, we are working on the cost base, because you are right, the cost base will remain stable not considering the recurring items. So in terms of absolute terms, in personal cost, you will have a reduction of personal cost during 2024, not sending the increase in the labor contract of 2024. So, in any case, personal cost will decline because we have a number of people, 2000 that already exited the group during 2023 and more than 1000 that will leave during 2024. At the same time, we will have also a stronger control on administrative expenses. The only areas in which we expect to have growth during 2024 is the technological investments, the digital and all the area of the strong investments in our cloud-based digital banking sector. So, this will be the main part of a potential growth in terms of the cost base. But then our expectation is personal cost down, administrative expenses flat or slight growth depending on the degree of ability to invest in technology that we will have during 2024 and the amortization that will increase for the accrual of the different investments in the last two years. So that’s more or less. Then I can also add and so all of you have the complete view on all the figures on the cost of risk. Our expectation is that we’ll be below 40 basis points. That will be the level of our cost of risk embedded in our budget. So conservative assumption in our view and coming on capital, on capital we want to maintain this approach of being a significant cash dividend payer. So we will remain with 70% cash dividend payout ratio and we are considering also to maintain this approach of deciding on the share buyback on year-by-year. So, we think that the kind of business model of Intesa Sanpaolo is a kind of business model that can create conditions, especially after having all the impact of the regulatory headwinds and 130 basis points. It is unbelievable if you consider we already have possibility to increase the common equity Tier 1 ratio. After 130 basis points impact, you have the evidence of what could be the growth of our capital position during the next years. But we prefer to maintain an appropriate [Technical Difficulty]. This will be defined year-by-year. That’s our view and we think there’s no need to change for the time being.
Antonio Reale: Thank you very much.
Carlo Messina: Thank you.
Operator: Thank you. We are now going to proceed with our next question. And the questions come from the line of Azzurra Guelfi from Citi. Please ask your question. Your line is opened.
Azzurra Guelfi: Hi. Good afternoon. Two questions for me. One is on your balance sheet strengthening action that you have taken this quarter, both in the provisioning line, the cost and the trading. If you can give us some color of what could be the benefit coming and why you have decided to take them now? The other one is on capital again, when I look at slide 27, post the capital generation that you expect and the foreign regulatory headings, you still expect 2024 to finish with a significant buffer versus your management target, and by 2025, possibly the regulatory impact will be all taken and the environment would have seen the decrease of the rate and also the macro slowdown. How happy are you to run? But how happy would you be to be as close as possible to your management target, even in light of the fact that your threat is one of the lowest among the large banks in Europe? Thank you.
Carlo Messina: So I think that, Azzurra, the -- on the portion of the -- first of all, I’m happy to hear you. So that’s first of all.
Azzurra Guelfi: Thank you.
Carlo Messina: Second point is on the line of defense. So a line of defense is something that we decided to increase, because there were some -- in some areas, especially related with sectors in which we think it is much better to be more covered than to face during 2024 some problematic situation and so we decided to accelerate some devaluation of instruments that we have on -- that we had on commercial real estate areas. So in some items related with derisking or reduction of non-performing loans. At the same time, we had the possibility to accelerate and enforce some coverage in some area that could become problematic during 2024 and so we decided to use these in 2024. Then at the same time, also the one off that we had in personal cost is something that we decided to accelerate these items because we had significant room in terms of net income generation. So the main areas in which we will have benefit will be the area of the cost of risk and the area of personal cost. These are the main areas that will benefit from these actions that we have taken during 2024. So on capital position, the capital position is really embedded with the risk profile of the bank. So that’s the starting point of any kind of analysis is that, the capital is there in order to face for the unexpected, sorry, the unexpected losses in a company that, as I told you at the beginning of the conference, we are a Nordic bank. So it is true that we are operating in Italy, but Italy probably today, if you look at the corporate sector, is the best place to be in Europe. So in looking at these conditions, we think we have all the different dynamics that can allow us on the credit risk to be in a very comfortable situation. At the same time, we are a Wealth Management company, because we have €1.3 trillions of wealth from the Italian families with very low absorption of capital and with sustainability of revenues in any kind of scenario. So we are not depending on Euribor, because you know that our best performance has been in period of also negative Euribor. So I think that we are a unique case in Europe. Then, at the same time, we have the DTAs. Do not forget that in 2026, 2027 and 2028, we will have a recovery of 90 basis points of DTAs that is equivalent to a capital increase. So I’m totally comfortable with this position. Also, our direct requirements is very low, is comparable with other banks with the same and probably lower capital position than Intesa Sanpaolo, if you look at the Spanish banks. So the comparison for us is with the comparable peers, not with the non-comparable peers. And at the end, I think that we are in a position also to consider that 12% can be also excess capital for us. So that’s my personal view. Then we will remain with significant capital position, but I’m not worried at all.
Operator: Thank you. We are now going to proceed with our next question. And the questions come from the land of Delphine Lee from JPMorgan (NYSE:JPM). Please ask your question. Your line is opened.
Delphine Lee: Good afternoon. Thank you for taking my questions. So my first question is just to follow up, sorry, on the net interest income. So you used to guide to increasing NII in 2025. I guess this is no longer the case with low rates. Just wondering if you could give us a bit of color, where do you think NII will land and maybe on -- just remind us of what the sensitivity to rates is. My second question is on fees and commission. So just thinking about the €100 billion that you have already identified, I’m just wondering how quickly can we see that coming through already in 2024? I mean, how much upfront fees, upside and pickup do you expect for 2024 in your current guidance? Thank you.
Carlo Messina: So looking at net interest income, we -- you have not to forget that, when we are talking about hedging contribution, we are talking about numbers that are really significant. Because if you consider the level of the forward Euribor in 2024, we will have an increase in contribution from the hedging facilities that is in the range of €800 million, €900 million increase, and if you go to the forward in 2025, you will have another €700 million. So €1.5 billion increase in terms of net interest income coming from the hedging facilities. So just to give you about €50 million, €100 million. We are talking about something that could be really massive. It is already embedded in what we have in the hedging facilities. So that is why we are so relaxed in giving our guidance and our outlook related to net interest income And at the same time, we are the clear market leader in the country. So if interest rate will remain at this level, in any case, we will have the maximum benefit from being the market leader and benefiting from the growth of the average Euribor. If interest rate will remain at this level, Euribor will increase by 50 basis points, 60 basis points. So we will have a billion of markdown increase during 2024. So that is for sure this level. Then the mathematical sensitivity for 50 basis points is in the range of €300 million reduction. So this could be the mathematical. But in reality, the evidence in our Group is that we can also reduce this level through specific action, because we will not wait the impact coming from the sensitivity. So I am totally confident that on net interest income, we can have very different trends in comparison with other European competitors. Looking at fee and commissions, again, this is an area in which we are -- we have already in our figures, especially in the administration, a portion of €10 billion of asset under management in the hands of Italian families that are capital gain positive and this is already with this level of interest rate. As soon as interest rate can move in direction of reduction, there could be another €10 billion, €20 billion of asset under administration that can become capital gain positive. At the same time, there will be expiring certificates and term deposits. So we will have other areas in which it will be possible to propose asset under management administration [ph] and we are talking about something that can happen in terms of expiring during 2024. Then the ability to convert these in terms of fee and commissions will depend also on the level of Euribor. Because at the level of Euribor, at 3%, in my view, there could be a period [Technical Difficulty] of this that can be converted at the level of 3% and there -- it is much better to invest on markdown than to invest into conversion of asset under management and insurance product. So we will remain and wait and see looking at the dynamic of Euribor. What we are doing is reinforcing our database on our clients and we are giving to all our 60,000 relationship managers all the list of clients that can be the target for the potential conversion of asset under administration expiring certificates and term deposits. In any case, we think that with a scenario of Euribor that can be in the range of 3%, 3.2%, 3.3%, we can stay at high single-digit growth in terms of commissions. But we will see what can happen, because in any case, it is something like a perfect edge in terms of net interest income. So we are in a unique position. Again, I want to stress the point to guarantee for revenue growth during 2024.
Delphine Lee: Thank you very much.
Operator: Thank you. We are now going to proceed with our next question. And the questions come from the line of Britta Schmidt from Autonomous Research. Please answer your question. Your line is open.
Britta Schmidt: Yeah. Hi there. Thank you for taking my questions. I’ve got two questions. The first one on asset quality, you got it to less than 40 basis points of cost of risk. Do you include any usage of overlays in there, and if not, what is your plan for using the overlays or releasing them? The second question would be on the fees just again. It looks like the portfolio management margin was down a little bit Q-on-Q, but it depends on the timing of the AUM growth. Can you talk a little bit about the margin outlook that you expect for next year and maybe also about the potential competition or change in competition from the BTPs that are being issued to retail? Thank you.
Carlo Messina: So on cost of risk, zero usage of overlays. So we will be below 40 basis points, maintaining €900 million of overlays. This is our forecast for 2024. And we have no evidence of the need that they can be used during 2024 according to a GDP that can be above zero during 2024. Then we will monitor the situation. We will see, but in our budget, it has not made any usage of overlays. So overlays, according to budget, will remain €900 million euros. Looking at fees. Okay, the point of BTPs is for me an opportunity, not a threat. Sorry to put emphasis on this point. But we are looking at the BTP investments of our clients as the real opportunity that we have, because these kind of investments are investments that clients are using in order to have good yields. But at the same time, with the reduction of the interest rate, this will become part of a very positive capital gain situation. And the story of Intesa Sanpaolo, because if you look at some years ago, the way in which we created the starting point of our story has been the conversion of asset under administration. Asset under administration means government [Technical Difficulty] And sorry -- and if you look at the slide in which we have all the dynamics of asset under administration and asset under management, I’m referring to slide number 17. This is a slide that is very important for me, because all the increase that we have in asset under administration is made through net inflows. So the majority is net inflows. All these net inflows is selected by us name-by-name and all this portion now is capital gain positive. So if we remain in a situation in which our client will continue to invest into capital gain positive in case of reduction of Euribor for us is all fuel for the future. So I’m not worried at all by these attitudes of the clients. It could be in three months, in the first three months after the increase of asset under administration, you could have probably a reduction in terms of deposits or lower yields coming from asset under administration. So 20 basis points only. But if this can become capital gain positive, this will be transformed into 1% or 2% yield investments in asset under management product or insurance products.
Operator: Thank you. We are now going to move to the next question. And the questions come from the line of Giovanni Razzoli from Deutsche Bank (ETR:DBKGn). Please answer your question.
Giovanni Razzoli: Good afternoon to everybody. One question on NII, if I look beyond the 2024, specifically in 2025, you mentioned that you still expect a quite strong contribution from your replicating portfolio. And if you’re not mistaken, the last conference call you mentioned that you would have expected still growing NII in 2025. Clearly, since then, the rates environment has changed a bit. My perception is that 2025, we may still be in the same level that you had in mind before, but with a different trajectory. So a stronger 2024 and the same 2025. I was trying to understand whether this understanding is correct? And another question about the sector in general, I mean, you are, seems to me, the only one bank that is increasing the investments into the transformation of the bank in Private Banking, while all the other banks seem to lag behind. Don’t you see that on the market that there is an excessive distribution and underinvesting by your peers for the medium- and long-term? And sorry, allow me to ask a question on the governance, if I’m not mistaken, this is the last year of your or there’s one year to that you’re still to serve as a CEO. Can I ask you if you are still available to serve as a CEO also for another term? Thank you.
Carlo Messina: Yes. I will serve for another term. So I will finish this business plan and I will also finish also the next business plan. So that’s for sure. So thank you.
Giovanni Razzoli: Okay. Actually -- that’s what I meant for a new term.
Carlo Messina: No. No.
Giovanni Razzoli: Yeah. Thanks.
Carlo Messina: So, obviously, I will work in order to have young managers that can reinforce the quality of and sustainability of results of our banks. But it is my task and I’m still working on this point. But as far as my personal position, I will remain in this position for the next few years, obviously, subject to the will of shareholders. But that’s my firm intention. Looking at the other two questions, on the first question, it is true that probably due to the acceleration in terms of potential reduction of Euribor, we will have a stronger 2024 in comparison with what we have considered in November. And probably a reduction in terms of contribution of net interest income in comparison with our estimates of November. In any case, in 2025, our expectation is that net interest income can remain very strong. So having only a reduction in comparison to 2024. But if you compare with 2023, probably there could be only a slight reduction. At the same time, we will have a significant acceleration in terms of commissions because there will be the timing in which a significant portion of these €100 billion of Wealth Management assets workable can be transformed into Wealth Management products. So, net-net, we see a further growth in revenues also in 2025 in comparison with 2024. So I can confirm that looking at total revenues, we will have a trend of growth mainly driven by commissions than interest rate. So in interest rate, the growth will come from the aging facilities, but the real driver will be fee and commissions for 2025. Looking at the Italian situation, I think, that in Italy, there is a significant potential to growth in an area related with Wealth Management and Protection. Probably there is a number of branches that is over due to the new trend of the digital, probably, branches are in excess in our countries. But at the same time, there is a massive potential to increase the Wealth Management opportunities. And if you see figures of our Private Banking divisions each year, there is a significant increase also coming from clients of other banks and from the hiring of financial advisor and private bankers from other banks. So I think that there is a significant space, especially for a bank like us that are targeting growth also through acquisition of clients from other banks.
Giovanni Razzoli: Thank you.
Operator: Thank you. We are now going to proceed with our next question. And the questions come from the line of Pamela Zuluaga from Morgan Stanley (NYSE:MS). Please ask your question. Your line is opened.
Pamela Zuluaga: Hello. Good afternoon. Thank you very much for taking my questions. The first one is a quick follow-up. At what levels of rates do you expect you won’t be able to grow NII? Is this a 3% you mentioned before? And then can you give us some color on your rate sensitivity to a first 100 basis points rate cut and then 200 basis points rate cut, because I’m trying to understand if there is an asymmetrical effect, if it would be easier to cut deposit remuneration on the first 100 basis points versus any incremental amounts? And then the second question is you continue to vary encouraging NPL deleveraging, which you have flagged in the presentation as Nordic Bank equivalent. But you’re still getting for a 40 basis points cost of risk as you were saying. Do you see this guidance changing at some point, more -- being more reflective of the deleveraging efforts or what could be in this new structure through the cycle cost of risk? Thank you.
Carlo Messina: So thank you. I will start from the second and then I will elaborate on the first. So looking at the trend of our NPL and the portfolio, the performing portfolio, it is clear that the cost of risk embedded could be lower than 40 basis points. But I think that’s a -- it is a rule of the game that I used to be the CFO, then I had responsibility on risk management, on Banca dei Territori. It’s a long time that I’m working with the organization. And I think that there is a rule of the game for sustainability of our results, then in years in which we have significant net income, you have to continue to make provisions. So that’s the fundamental rule of the game for a bank like Intesa Sanpaolo. And having said that, I think that a level of cost of risk that could be below 30 basis points in phases in which there is a massive net income generation is not conservative for a bank like Intesa Sanpaolo. So in any case, our bank will not reduce the cost of risk below 30 basis points. We will find some areas like we did this year in order to post some degree of conservativeness on the statistical analysis or other areas in order to make provisions. But believe me, it is really the right rule of the game not to use provisions as the lever in order to increase profitability. And our view is that if we have enough, we will put in reserve. So that’s the reason why 30 basis points could be the minimum cost of risk acceptable from our governance point of view. So not from our risk profile, but from our governance point of view. And adding 10 basis points that we will use to increase the risking if needed, because we want to maintain this Nordic proposition. Then this does not mean that other banks that have corporate investment banking model of very low level of provision are doing not the right job, but are completely different business model from what we consider is the fair approach for sustainability in terms of cost of risk. The second point on Euribor, we will maintain a positive net interest income during 2024, also at the level of Euribor between 3 and 3.1 Euribor one-month average during 2024. That’s our estimates. In terms of sensitivity, I have to tell you that I’m not a fan of sensitivity. So I consider sensitivity really something really boring, because it is not reality. It is only a way of creating model and model and simulation. I’m giving you the real trend of our net interest income during, if you move from 4% until 2% in 2025, we will continue to have a trend of net interest income that due to the ageing facility can remain more or less in line with 2023. This is deriving from actions. Otherwise, the sensitivity is too theoretical and we will not enter apart from the 50 basis points, €300 million. But this is not something that we will give in any information.
Operator: Thank you. We are now going to proceed with our next question. And the questions come from the line of Hugo Cruz from KBW. Please ask a question. Your line is opened.
Hugo Cruz: Hi. Many thanks for the time. I just want to clarify a few things. First on the NII, your comments on the replicating portfolio. I wanted to understand what kind of maturities and rates you are assuming. I remember I think 3Q you were talking about rolling over into rates of 3.5%. I imagine now it’s lower rates, unless you’ve rolled over a lot already in Q4. So they are already locked in at a higher rate? And the second question was around, and apologies if I missed it, but the €300 million one-off in staff costs in Q4. What was that about? And when you talk about flat-ish OpEx year-on-year, is that net of this one-off or not? And then a final comment on -- question on the regulatory headwinds, it looks like there was something in Q4 because the RWA density went up quite a lot. So, was there anything or not and then do you expect anything in 2024, do you expect a front-load Basel IV in 2024 as well or not? Thank you.
Carlo Messina: So, regulatory headwinds zero, 2024, 2025, apart from the Basel IV impact, there could be 60 basis points. Stop, regulatory headwinds, we have closed the game of the regulatory headwinds. In the cost base, €300 million are an increase in terms of variable compensation and this will be obviously one-off. The budget of 2024 is really ambitious and so it will be difficult that this will be something that we will repeat during 2024. And net interest income, the maturity is four years of the aging facilities and that’s all.
Hugo Cruz: Many thanks.
Operator: Thank you. We are now going to move to the next question. And the questions come from the line of Chris Hallam from Goldman Sachs (NYSE:GS) International. Please ask your question.
Chris Hallam: Yeah. Good afternoon, everyone. Just one question left, which is on Isybank. I wondered if you could give an update on client migration. At Q3, you gave the target for 5 million customers to be migrated over by the end of next year 2025 and a cost-to-income ratio below 30%. So I can see that 30% ratio is still there, but I just wanted to check on the overall client migration ambitions?
Carlo Messina: Yes. This is something that for us is very important mainly for the isytech area. So let me start from isytech, that is the real driver in order to reach all the targets that we have in terms of efficiency, in terms of improvement of the technological journey of Intesa Sanpaolo. isytech is running in the right trend, in the right way and we think that we can accelerate also the usage of isytech, so the cloud-based, in all Intesa Sanpaolo and not only in Isybank. So having said that, Isybank is under a different process in terms of acquisition of internal clients. We need to have the positive answer from the clients, so we are waiting for these answers from a component of clients. Today we have 300,000 clients already there. This will be something that we will have within a couple of months and we will define the right number. In any case, the -- we are accelerating the clients coming from other banks, because we launched the product also for younger clients and we are receiving very positive responses. So, net-net, our expectation is to continue to have a significant number of clients in Isybank. The final figures will be available in the next presentation, but in any case, looking at the cost positive coming from these initiatives, isytech is already in a condition to guarantee to reach the target that we have considered in our plan.
Chris Hallam: Thanks.
Operator: Thank you. We are now going to take our last question and the questions come from the line of Ignacio Cerezo from UBS. Please ask your question. Your line is open.
Ignacio Cerezo: Yeah. Hi. Good afternoon and thank you for taking my questions. Can I ask you first on trading? Even without the write-down of one-off basically this quarter, we’ve been hovering around almost break-even for a few quarters already. If I have a look at consensus, there’s a €700 million, €800 million figure next year. So how do you think basically this figure is going to evolve? I mean, typically you have directed us to thinking that there’s some degree of reclassification between NII and trading, but is there any risk actually that number looks too high? And then second on the fee discussion basically, from a behavioral point of view, what do you think is needed for clients to start migrating back into higher margin type of products? Is it just rates going down or do you think anything else actually has to happen before you have basically inflows back into again higher margin type of instruments? Thank you.
Carlo Messina: So starting from fees, I think that, it is a clear function of the environment, so the Euribor environment and then the medium-term interest rate. We are close to a situation in which this can happen. So our expectation is that there could be a positive not in the first quarter, but starting from the second quarter of the year, we can have some positive coming also in the area of fee and commissions. Looking at trading, we are affected in the different quarters by €50 million of dynamic related with the certificates that have positive impact on interest income and negative on the trading. Then in this quarter, we had a specific write-down of an instrument that was related to a commercial real estate area that is more close to a credit deterioration than a trading deterioration. Looking at 2024, we remain with no need to push for trading income, because at the end, this is very low quality results and we don’t think that we have the need to accelerate on this area. Then if in, I mean, Banca IMI (LON:IMI), they will want to accelerate, we will be happy. But I will not push in order to have results from this area, because the trend of net interest income, fee and commission, and insurance will bring us such a significant amount of revenues that there is no need to push in some other risky assets investments.
Ignacio Cerezo: Thank you.
Operator: We have no further questions at this time. I will hand back to Mr. Carlo Messina for closing remarks. Thank you.
Carlo Messina: So, thank you very much. I think that we delivered very good results during 2023, but I hope that 2024 can be a year in which with the reduction of Euribor, we can start again the leading role in terms of Wealth Management and Protection that we used to have in the past years. And our focus will be all in working for Wealth Management, Protection & Advisory, and at the same time improving the technological transformation of the Group, having a clear view also on social impact and our role in the community. So thank you very much and see you next presentation.
Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect your lines. Thank you.
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