Results approved for period ended 31 March 2008
At a meeting held today with Renato PAGLIARO in the chair, the Management Board of Mediobanca approved the Group’s quarterly report for the period ended 31 March 2008, as illustrated by Chief Executive Officer Alberto NAGEL.
The Mediobanca Group’s results for the nine months under review show a net profit of € 784.4m, up 10.4%, from the € 710.4m recorded last year. This bears out the trend reflected in the figures for the first six months of the financial year, albeit slowing, against a backdrop of critical conditions on financial markets and a gradual worsening of the economic scenario.
Total income grew by 12.6%, from € 1,147.7m to € 1,292.6m, boosted by healthy contributions from all the main revenue sources with the exception of net trading income, which declined from € 88.4m to € 72.2m (31/12/07: € 76.lm). As for the other main sources:
-net interest income rose by 11.4%, from € 493.6m to € 549.9m, driven by corporate banking, which was up 27% on the back of higher funding and lending volumes, up 23% and 33% respectively from March last year; net interest income from retail financial services posted a slight increase of 3%, reflecting the rise in the cost of funding;
-net fee and commission income grew by 15%, from € 268.9m to € 309.3m, due to positive contributions from corporate banking activities;
-income from equity-accounted companies rose by 17.8%, from € 293.6m to € 345.8m, reflecting the positive earnings performance by Assicurazioni Generali and RCS MediaGroup.
Costs rose by almost 30%, from € 289.lm to € 375.3m — in line with the trend for the first six months — as a result of expanding the Group’s operations in investment banking (with branch offices opened in Frankfurt, Madrid and London) and in retail banking (with 13 new branches opened and operations at CheBanca! commenced); net of these approx. € 35m costs the increase was just 18%.
Bad debt writeoffs increased from € 116.8m to € 138.4m, of which € 128.lm (31/3/07: € 115.2m) involved retail financial services (where the rise was in line with growth in the loan book), plus € l0m transferred to the collective provision for Mediobanca’s corporate portfolio (unchanged from end-December 2007) which continues to consist of entirely performing accounts.
Gains on disposals of securities were stable at € 173.8m, versus € 174.4m, due chiefly to the disposals carried out in the first half of the year.
Improvement at the net profit level was shown by the following of the Group’s main business areas: equity investment portfolio, up 28.8%, from € 261.4m to € 336.6m, wholesale banking, up 5.8%, from € 353.lm to € 373.7m, and private banking, up 8.2%, from € 39.lm to € 42.3m. Retail financial services declined from € 63m to € 36.7m, largely due to the development costs referred to above.
On the balance-sheet side, there was further growth in this quarter in loans, from € 29.7bn to € 30.2bn (31/3/07: € 24.2bn), in funding, from € 36.4bn to € 40.2bn (€ 33.5bn), and in treasury funds, from € 6.8bn to € 9.8bn (€ 8.4bn), while AFS securities fell from € 4.5bn to € 4.3bn (€ 5.6bn), with valuations hit by the reduction in stock market prices (adjustment of assets to fair value for the three months resulted in an approx. € 290m charge).
Significant events during the period under review, in addition to approval of the Group’s 2008-2011 three-year business plan (see press release dated 7/3/2008), involved:
- launch of CheBanca!. The new venture, which seeks to take advantage of the strategic opportunity offered by rapid changes to the regulatory environment and the traditional client-bank relationship, will give the Group access to new sources of funding and allow it to further diversify and stabilize total income. CheBanca! is already operative, with a multi- channel distribution format (based on the internet, call centres and branches) aimed at maximum efficiency, a highly competitive product offering, and a distinctive business model based on offering clients only what they need: savings, simplicity, efficiency, optimal standards of service and high professionalism;
- work starting on the project to integrate Compass and Linea, pending receipt of the requisite authorizations due upon completion of the transaction;
- completion of the share buyback programme approved by shareholders in general meeting on 27 October 2007, with 1.98% of the share capital of Mediobanca, or 16.2 million Mediobanca shares, repurchased for a total outlay of € 213.4m;
- amendment to the provisions for regulatory requirements for banks (Update no. 2 to Circular no. 263 issued on 17 March 2008), which on the one hand means that the Group’s shareholding in Assicurazioni Generali no longer has to be deducted from regulatory capital, but on the other rules out the possibility of including unrealized gains on this investment. As a result of these changes, the Group’s consolidated total capital as at 31 December 2007 rises from € 7.3bn to € 7.6bn.
- average corporate loans of€ 18.5bn (flat vs December 2007)
- treasury funds of € 8.3bn, up over 40% from € 5.8bn at end-December 2007
- total income up 12% to € 489m, driven by net interest income (up 27%) and net fee and commission income (up 14%), despite the 16% reduction in net trading income
- operating structure strengthened with 93 new staff on the books, mostly at the newly- opened non-Italian branches
- net profit up 6% to € 374m, on flat gains from disposals (€ 173m).
A net profit of € 373.7m was recorded for the nine months, up from the € 353.lm posted one year previously despite a reduced contribution from net trading income, which fell from € 79.6m to € 66.7m, and transfers to the collective provision for performing loans, which was unchanged from end-December 2007 at € 10m. Profit from ordinary activities showed a slight improvement, from € 314.7m to € 322.8m, reflecting healthy performances by the Group’s lending, advisory and capital market activities which led to a 26.8% rise in net interest income, from € 145.4m to € 184.4m, and a 14.1% increase in net fee and commission income, from € 204m to € 232.7m; dividends on AFS securities totalling € 15.4m more than offset the € 10.4m loss by equity-accounted companies, largely attributable to the Group’s shareholding in Burgo. The 34.8% increase in costs, from € 123.lm to € 166m, reflects the strengthening of the headcount, with 93 more staff on the books than at this stage last year, as well as strengthening the Group’s operations outside Italy. Gains on disposals of securities of € 173.2m (31/3/07: € 165.9m) and writedowns for impairment to unlisted securities totalling € 4.2m were virtually unchanged from the first six months.
On the balance-sheet side there was growth in the three months of 1.2% in loans and advances to customers, from € 18,268.3m to € 18,479.2m, of 12.1% in funding, from € 28,784.lm to € 32,280.4m, and of over 40% in treasury accounts, from € 5,797m to € 8,327.3m. The AFS securities portfolio declined in value, from € 3,911.lm to € 3,639rn, reflecting the general reduction in stock market prices.
Equity investment portfolio (Assicurazioni Generali and RCS Media Group)
- NAV: € 5.9bn, down 8% vs end-Dec. 2007
- Total income: up 25%, to € 341.5m
The share in profits attributable to Mediobanca for the period rose by 25%, from € 280m to € 350m, € 322m of which was due to Assicurazioni Generali, up 26%, and € 28rn to RCS MediaGroup, up 12%.
Retail linancial services
- operations launched at CheBanca!
- coverage strengthened, with 13 new branches and 74 new staff
- new loans up 8%, to € 3.7bn, with consumer credit up 5% to € 1.8bn and mortgage lending up 34% to € 0.6bn
- total income up 6% to € 394m, driven by sizeable growth in net fee and commission income
- net profit down 42% to € 37m, due to costs linked to new initiatives
- bad loans/total loans ratio stable for more than a year now
The Compass group’s consolidated highlights for the nine months reflect 6.3% growth in total income, from € 370.5rn to € 393.8m, partly due to a rise in net fee and commission income, from € 31.lm to € 45.4m, including € l0m earned by Compass itself from the sale of new fee- based insurance products. This offset the modest increase in net interest income, hit by the higher cost of funding. Profit before adjustments fell year-on-year, from € 242.2m to € 223.3m, due to the € 42.2rn rise in operating costs, from € 128.3m to € 170.5m, half of which (over € 23m) was attributable to the CheBanca! project. Net profit for the nine months fell from € 63m to € 36.7m, due to a rise in bad debt writeoffs, from € 115.2m to € 128.lm, in line with growth in the loan book, and a one-off effect equal to approximately € 7m on deferred tax linked to the change in tax rates introduced by the Budget Law for 2008 (no. 244/07).
At 31 March 2008 loans and advances to customers, including securitized receivables, amounted to € 11,056.2m (31/12/07: € 10,885.5m; 31/3/07: € 9,698.1m), with new loans for the nine months up 8.1% year-on-year, from € 3,457m to € 3,738.5m.
- total income up 9%, to 103m
- net profit up 8%, to € 42m
- AUM: € 13.6bn, down 2% vs end-Dec. 2007
In the nine months under review net profit attributable to the Group rose by 8.2%, from € 39.lm to € 42.3m, reflecting 7% growth in profit from ordinary activities, from € 43.lm to € 46.lm. Total income increased by 8.8%, from € 94.4m to € 102.7m, on increased income from Compagnie Monégasque de Banque. Assets under management on a discretionary and non- discretionary basis fell by 2.2% during the quarter, from € 13.9bn to € 13.6bn, € 8.lbn of which was attributable to CMB, virtually stable versus end-December 2007 with the former Unicredit assets offsetting the reduction in market value, and € 5.Sbn (pro-rata) to Banca Esperia (down 5.8%). This chiefly reflects the reduction in the value of assets linked to stock market trends.
In the nine months ended 31 March 2008, Mediobanca earned a net profit of € 357.4m, up 6.6% year-on-year (€ 335.4m), on 12.5% growth in total income, from € 425m to € 478.3m, boosted by healthy contributions from all the main items with the exception of net trading income, which fell from € 78.6m to € 68m. Net interest income rose by 18.8%, from € 143.7m to € 170.7m, driven by higher business volumes; net fee and commission income grew by 12.4%, from € 199.5m to € 224.2m; and dividends on AFS securities increased from € 3.2m to € 15.4m. The 32.6% rise in operating costs, from € 133.8m to € 177.4m, reflects growth in the Bank’s employee headcount, with 519 staff on the books as opposed to 431 one year previously, and Mediobanca’s non-Italian initiatives; this held the increase in profit from ordinary activities to 3.3%, up from € 291.2m to € 300.9m. The other items were virtually unchanged from the first six months.