Financial statements for three months to 30 September 2008 approved
At a meeting held today with Renato PAGLIARO in the chair, the Management Board of Mediobanca approved the Group’s financial statements for the three months ended 30 September 2008, as illustrated by Chief Executive Officer Alberto NAGEL.
The Mediobanca Group’s results for the three months ended 30 September 2008 reflect the worsening of the financial crisis in the final weeks of the quarter, which saw several major banks collapse and a liquidity crisis without precedent. The volatility in this phase has led to extraordinary shifts in stock market prices, a further rise in interest rates and a subsequent slowdown in corporate activities.
- net interest income rose by 7%, from € 208.1m to € 222.7m, driven by growth in average volumes, which offset the rise in the cost of funding;
- net trading income, despite falling 12.2% from € 186.6m to € 163.8m, reflects break even on trading operations (with dealing profits of € 0.9m, compared to € 72.8m last year), plus gains on disposals for the quarter amounting to € 162.9m (€ 113.8m);
- net fee and commission income declined by 7.1%, from € 119.5m to € 111m, reflecting the slowdown in corporate and investment banking referred to above;
- income from principal investing also showed a reduction, from € 171m to € 96.2m, following the slowdown in profitability by Assicurazioni Generali (down 47%) and RCS MediaGroup in the second quarter;
- costs grew by 25.4%, from € 127m to € 159.3m, reflecting the Group’s domestic and international expansion programmes plus the costs incurred in connection with CheBanca! (€ 19m for the quarter), net of which the increase would be 10.5%.
- further trimming of the AFS equity portfolio, with net divestments of approx. € 150m generating gains on disposal of € 158.2m;
- reallocation of holdings in debt securities from the trading book and AFS portfolio to loans and receivables, owing the lack of a reliable fair value for these investments at the reporting date due to the illiquid market. This reallocation, which was made possible by the recent amendment to IAS 39, also reflects the changed time horizon of the investments.
The transfer was made at book/fair value as at 1 July 2008, and involved bonds carried at € 542.5m, € 209.6m which from the trading book and € 332.9m from the AFS portfolio; these are chiefly ABS securities or bonds subscribed for via private placements. Without this reallocation, based on market prices at the reporting date which are meaningless, a writedown of € 23.8m would have been charged, € 7m of which would have been taken to profit and loss account;
- the closure of all outstanding positions versus Lehman Brothers, largely derivative contracts hedging bonds issued by the Bank, and their renegotiation with other counterparties. All these positions involved Mediobanca as debitor; one of these was backed by collateral worth approx. € 11m more than the contract at the closing date, in part as the result of the extraordinary volatility. This generated a creditor position for Mediobanca which was covered in full by gains realized on the other closures. However, full closure of our operations with the US banking group will obviously depend on procedural timescales;
- approval of the internal capital adequacy assessment process (ICAAP) required under Basel II regulations.
Corporate and Investment Banking (CIB)
- Loans and advances to customers up 4% since June 08, at € 23.6bn2
- Positive trend in funding during the quarter, up from € 36.2bn to € 37.9bn, with a subsequent increase in treasury funds, from € 9bn to € 9.4bn
- Total income down 7%, to € 320m: growth in net interest income (up 13%, to € 94m) and in gains on disposals (up from € 104m to € 158m) offset net trading income being virtually wiped out and a 29% decrease in net fee and commission income from investment banking
- Costs up 27%, to € 72m, due to international development initiatives
- Net profit stable at € 200m (versus € 201m)
The net profit earned by the corporate and investment banking division division was virtually unchanged at € 200.2m (30/9/07: € 200.5m), boosted by € 162.7m in gains on disposals of AFS securities. Total income was down from € 343.2m to € 319.7m: the 13.4% rise in net interest income, from € 82.8m to € 93.9m, and the increase in the share of profits earned by equity-accounted companies, from € 0.2m to € 7.6m - reflecting the good results posted by Burgo (due to non-recurring items) - were offset by dealing profits being virtually wiped out (compared with € 68.4m last year), and net fee and commission declining from € 78.2m to € 55.5m due to the widespread slowdown in investment banking activity. Operating costs were impacted by the Group’s international ventures coming fully onstream, with a 26.5% increase, from € 56.5m to € 71.5m, compared with the same quarter last year which was only impacted in part by this development; indeed, compared to the quarter-by-quarter average for the last financial year, the increase in costs was just 5%. Bad debt writeoffs totalled € 6m, € 3.8m of which in connection with leasing and € 2.2m in respect of the corporate loan book (due to the increase in volumes and the associated risk profile).
Balance-sheet aggregates in the three months reflect growth in loans and advances to customers, from € 26.9bn to € 28.2bn, funding, from € 36.2bn to € 37.9bn, and treasury funds, from € 9bn to € 9.4bn, while the AFS securities portfolio continued to decline, from € 2.8bn to € 2.2bn.
- Income halved, to € 88m
- NAV: € 4.8bn, down 4% since end-June 2008
The share in earnings attributable to Mediobanca for the period declined by 47.9%, from € 169m to € 88m, € 80.6m (€ 151.3m) of which was attributable to Assicurazioni Generali and € 8m (€ 17.8m) to RCS MediaGroup.
- Segment has self-financed strengthening of distribution platform, with net profit of € 25m (30/9/07: € 29m) more than paying for the € 19m in costs due to the start-up of CheBanca!
- Total income up 7%, to € 198m, with all product segments contributing positively: revenues from consumer credit up 5% to € 149m, from retail banking up 23% to € 14m, and from private banking up 9% to € 36m
• Merger of Linea into Compass completed
• Loan book worth € 8,413.1m (up 1% vs end-June 2008)
• Cost of risk under control (adjustments/loans: 3.1%), despite households’ financial profile deteriorating
- Private banking:
• AUM stable at € 13.4bn (vs € 13.5bn three months previously)
• Profitability preserved, with net profit up from € 14m to € 18m, due to CMB’s traditional banking activity