Mediobanca BoD - Financial statements for twelve months ended 30 June 2020 approved
The MB Group continues on its BP23 strategic path, leveraging on the distinctive features of its business model, which has proved effective during the Covid-19 crisis, being focused on more resilient client segments (households and mid/large corporates), with an increasing contribution from fee driven capital-light activities (Advisory and WM).
The Group delivered 4Q results above expectations, including:
- Gradual but significant recovery all business segments, in a more favourable market environment
- Broadly positive operating results, on a robust performance in revenues (up 4% QoQ to €606m), with costs under control (down 1% QoQ to €298m), substantial capital generation (CET1 ratio 16.1%, up 220 bps QoQ, phase-in), including 50bps positive impact from the cancellation, in line with the ECB guidance, of the dividend set aside for FY20 (DPS €0.27) and 80bps relating to regulatory provisions
- Strict asset quality management, extended to include moratoria and adaptation of IFRS 9 models to new macro-economic scenario: the cost of risk increased during 4Q to 141 bps, with total gross NPLs remaining stable at 4% of the loan book, allowing the coverage ratios to be increased for all asset classes, performing and non-performing
- Net profit €48m, but adjusted net profit €217m excluding non-recurring charges. A single quarter’s result was sufficient to cover the one-off charges for the full twelve months (€285m), 80% of which due to Covid-19, and 80% taken in 4Q (including €65m in impairment charges to RAM).
The Group delivered solid results in FY 2019-20:
- Revenues were stable at €2.5bn (up 3% net of one-off Covid-19 charges), with NII and fees both up 3% YoY
- Cost/income ratio 47% (up 1pp); cost of risk 82 bps (up 30 bps YoY)
- Net profit €600m, with EPS down 27% YoY at €0.68 (€0.93)
- Adj. net profit €887m, with EPS adj.2 up 3% at €1.0 (€0.97)
- Adj. ROTE2 10%
- DPS 2020 proposal now zero, in accordance with ECB guidance
- Sustainability strategy continues to be implemented, with continuous support provided by the Group to its staff, clients and communities during Covid-19 crisis.
2019-23 Business Plan: strategic guidelines, targets, capital optimization and shareholder remuneration policy all confirmed
- CET1 ratio now to be progressively optimized at 13.5% by end-June 2023 to cope with prudential management of Covid-19 crisis. Return to a best-in-class distribution policy starting from 2021, featuring payment of cash dividends plus share buybacks to optimize capital ratios, in size and mix to be decided year by year, depending on the speed of recovery, the Mediobanca stock market price (P/BV multiple) and ECB authorizations.
At the divisional level, significant progress was made in WM with consolidation in Consumer Banking; the contributions made by both CIB and PI were positive and high.
- WM: ROAC 19%, leading contributor to Group fee income (47% of the total); revenues up 8% YoY (to €584m), fees and commissions up 9% YoY (to €306m), net profit up 13% YoY (to €80m). The WM division’s gathering capability remains high, with no outflows in the Affluent/Private segments even during lockdown. The distribution networks contributed NNM of €4.9bn in 12M, €2.1bn in 4Q, with TFAs growing to €64bn (up 4% YoY). Enhancement of the distribution structure continued during the period, and the network now comprises more than 1,000 professionals (up 10% YoY, with 868 added in the Affluent segment);
- Consumer Banking: ROAC 31%, leading contributor to Group net interest income; revenues up 4% YoY (to €1,071m), NII up 5% YoY (to €948m), net profit down 12% YoY (to €297m), due to the cost of risk increasing to 247 bps (361 bps in 4Q). Record business levels were reported in Consumer Banking until February 2020. The lockdown impacted strongly on new loans which, however, by end-June had grown to around 60% of their pre-Covid levels. Compass has adopted a prudent provisioning policy, despite some very favourable results from the moratoria granted to date, with approx. 55% paid off or restructured with short-term expiries and (based on preliminary analysis of clients who have already begun their revised repayment schedules, so far 85% have returned to normality
- CIB: ROAC 13%, net profit €181m. MB has strengthened its leadership positions in core segments and markets during the twelve months, participating in the most important M&A deals that have taken place in the period. Covid-19 caused a slowdown in investment banking activity, but the deal pipeline is normalizing quickly, with healthy recoveries posted in Advisory, ECM and DCM business. Lending has seen an increase in volumes since March 2020, due to drawdowns on RCF lines. The high quality of the loan book is also confirmed by the manageable amount of additional adjustments (approx. €40m vs a loan book worth approx. €18bn) due to adaptation of the IFRS 9 models to the new macro scenario
- PI: ROAC 18%, net profit €295m. As at 30 June 2020, the Group’s investment in Assicurazioni Generali benefited from more favourable prudential treatment, meaning a saving for the MB Group in terms of CET1 of around 50 bps (lower deductions due to the concentration limit )
- HF: treasury management reflects a comfortable funding and liquidity position, while Group central cost discipline continues, as does the deleveraging process in leasing. There was growth in funding (to €55bn), the deposit and TLTRO components in particular, with the cost of funding stable at 80 bps. The Counterbalance Capacity (CBC) stood at €13bn, with conservative banking book asset allocation.