Objectives for 2019 and results achieved

The 2016-2019 plan marks the completion of our strategic reshaping towards specialist, high-margin banking activities, unlocking the full value potential of our group.

At the end of the three-year plan we will benefit from:

  • greater revenue-generating capability, with greater diversification by division and source (fees rising from 22% to 30% of total revenues, while net interest income will fall from 59% and 56%). Fee income in particular will be higher and more stable, with 40% to come from wealth management (currently 21%) and 44% from CIB (currently 49%). Consumer banking will remain the driving force of the growth in the group’s net interest income.
  • an increased ability to generate capital (€1 billion net equity in three years), making additional funds available to finance acquisitions and remunerate shareholders.
  • definitive transformation into a highly diversified banking group: the Principal Investing division’s contribution to gross operating profit will fall by half to 20% (currently 37%). Consumer banking (33%) and CIB (32%) will make an equal contribution, confirming effective corporate-retail diversification. The contribution of wealth management will double from 7% to 15%.

We have set the following goals for June 2019:

RATIONALE

 

GROUP

FY16

FY19E

Boost growth (GOP 3YCAGR +10%),

completing equity disposals,

preserving cost efficiency and superior asset quality
  GOP after LLPs € 0.7bn € 1,0bn
  Equity stake in AG 13% ≤10%
  CoR 115pbs 105pbs
Improve profitability and value

with banking activities development

enhancing solidity (€1bn BV created)
  Banking ROAC 5% 12%
  ROTE 7% 10%
  Total BV € 8bn € 9bn

Optimize capital use, allocation and distribution:

- RWA flat at STD, down 4$ including AIRB benefits

- CET1 well above regulatory requirement
(by 300pbs now & 500pbs in FY19 ) 
coupled with high leverage ratio


- Capital buffer: up to 200bps for M&A or distribution

  RWA € 55bn € 49bn
  CET1 FL 12% ~14%
  Capital buffer - 200pbs
  Payout 40% 40-50%
  Total Capital 15% ~18%
  Leverage ratio 10% 9%

 

RESULTS OF THE 2013-2016 PLAN

In the three years 2013-2016 we focused on simplifying our business, selling the majority of our equity interests, and developing capital-light banking segments that generate high fee income. We ended the period with the following results:

  • Significant growth in revenues (from €1.6 to €2 billion) and gross operating profit (from €370 to €736 million)
  • Cumulative net profit of €1.7 billion, of which €600 million distributed as dividends
  • Disposal of €1.5 billion of equity investments
  • Preservation of outstanding balance sheet, with CET1 rising to 12% (despite absorbing the impact of stricter regulations) and asset quality indicators that are unparalleled in the Italian banking sector (NPLs/loans ratio of 2.9%, versus 10.5% across Italian banks) and compare favourably with the average of major European banks (3.4%)

These results and the strategic reshaping process have enabled Mediobanca stock to outperform the European banking index in the three years 2013-2016.

 

 

DIVISIONAL OBJECTIVES

 

CORPORATE & INVESTMENT BANKING (CIB)

The CIB division stands out for its specialist, client-centric approach, which has allowed us to maintain our leadership in investment banking in Italy and to acquire growing visibility in Europe. Over the next three years the division will:

  • adopt a new organisational structure, enabling better management of Italian and international clients
  • strengthen the MidCap platform, to become the “go to” investment bank for medium-sized Italian companies
  • reduce capital outlay by focusing on the profitable use of capital in asset-driven activities (corporate loans and capital market solutions) and introducing internal models (AIRB)
  • transform the credit management company (MBCredit Solutions) from a niche operator to a leading player, including acquiring and servicing of NPL portfolios
  • develop the factoring platform (MB Facta), driven by the expansion of the customer base and distribution network, with specific focus on the mid-size corporate segment.

CONSUMER BANKING

For the past three years the Consumer Banking division has been the primary source of growth in the Group’s net interest income, offsetting other divisions that have been more affected by the adverse economic environment. Over the next three years, in order to continue to grow and further reduce the cost of risk, Compass will invest:

  • in improving distribution (direct, digital, variable cost)
  • in rebalancing the loans portfolio towards a more profitable product/channel mix. In particular, the share of personal loans sold through the direct channel – which is more profitable – will increase from 47% to 55%, while salary guaranteed loans and special purpose loans will increase from the current 32% to 36% of the total.

WEALTH MANAGEMENT

In the next three years we will prioritise the significant development of the Wealth Management platform. This will help to strengthen CheBanca! in the Affluent and Premier segment, provide a new product offering for the Private-HNWI segment, and create a new Mediobanca asset management product factory. Planned actions for the next three years include:

  • Affluent and Premium customers: we aim to unlock the existing value in CheBanca!, as the needs of its large customer base (over 800,000 customers) are only partly met, with a multichannel, digital-led distribution model. CheBanca! will enhance the value of the Italian assets acquired from Barclays and strengthen its proprietary distribution network, retaining its unique status on the market with its advisory-based approach combined with cutting-edge technological infrastructure for digital distribution. It will also establish a new network of financial advisers, who will have a major impact in the medium term. CheBanca! will finalise its transformation into a wealth manager over the coming three years.
  • Private & HNWI customers: the private banking market offers plenty of scope for development for a bank such as Mediobanca: it is a large market with strong growth rates, is still largely “unmanaged” (just 40% of assets are under administration), and it has also entered a phase of consolidation. There is significant competition, but this has recently decreased due to many international banks pulling out of Italy as part of restructuring processes. Having now achieved full control of Banca Esperia and in light of the extensive synergies between investment and private banking, our Group now has a new opportunity.
  • Mediobanca Asset Management: creation of MB Asset Management product factory leading to rationalisation of the existing structures and competencies and, over the three years of the plan to the expansion of our offering in specific asset classes. Cairn Capital, DuEmme SGR (formerly Banca Esperia) and Compagnie Monégasque de Gestion (formerly CMB) will all form part of the new product factory; a dedicated sales force will be created for the distribution of all product lines; the support functions of the individual companies will be centralised.

 

The financial targets of each division are set out in the presentation of the plan

Last update: 04/09/2018