Banco BPM S p A : Results at 30 September 2019 (.pdf - 268.9 KB)

PRESS RELEASE

RESULTS AT 30 SEPTEMBER 2019

Banco BPM ended the first nine months of the year with a consolidated net profit of € 686 million, up by 30.9% compared to 30 September 2018. The result, which arrived at the end of a positive third quarter 2019 and in line with the targets, was achieved in parallel with the continuation of the derisking activity, shown by the drop in the net NPE ratio to 5.6% (it was 6.5% at the end of 2018), by the decrease in the cost of credit (69 bps compared to the 184 bps of December 2018) and against a strengthened capitalisation, with phased-in CET1 Ratio at 13.8% and fully-loaded CET1 rising to 12.1%.

The Group's good performance is confirmed by the development of the commercial business, as shown by the trend in lending and direct funding and by the pre-tax profit, up by 13.5% compared to 30 September 2018 coming in at € 884 million. This result, boosted by the bank's commercial efforts, was achieved in a negative macroeconomic and interest rate scenario which continues to be strongly penalising for banks, together with the constant decrease in operating expenses (-3.5% YOY) and the decline in write-downs on loans (-41.5% compared to 30 September 2018).

Net income € 686 million (+30.9% compared to € 525 million

at 30 September 2018)

The results of the third quarter of 2019 were positive:

• growth in operating profit (+ 7.6% compared to the 2nd quarter of 2019)
• • growth in operating revenues (+0.2% compared to the 2nd quarter of 2019)
• decrease in operating costs (-3.6% compared to the 2nd quarter of 2019)

Core1 performing loans to customers2 increased (+3.9%) as did core direct

funding3 (+7.3%) with respect to December 2018:

• loans to customers € 105.7 billion (+2.9% compared to December 2018)
• • performing loans € 97.1 billion (+2.7% compared to
    December 2018)

• Mortgages, loans, current accounts and personal loans.

• Figure calculated excluding from all the period in the comparison receivables related to ProFamily, classified as held for sale starting from 30 June 2019.
  3 Current accounts and deposits.

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• • NPE € 6.0 billion (- 11.3% compared to December 2018)
• direct funding4 from customers € 106.5 billion (+4.9% compared
• 
  to December 2018)

• "core" direct funding € 87.0 billion (+7.3% compared
  to December 2018)

The derisking actions are continuing: net NPE ratio down to 5.6% from 6.5%

at the end of 2018

The solid capital position is confirmed:

CET1 ratio5: phased in at 13.8%; IFRS9 fully phased at 12.1%

Texas Ratio6 significantly improved at 58.1% (95.0% in September 2018)

The cost of risk has fallen significantly (69 bps vs 184 bps in 2018)7

Excellent liquidity position with unencumbered eligible assets

exceeding € 21 billion8

Key balance sheet items

• Loans to customers € 105.7 billion, of which "core" performing loans up +3.9% on a homogeneous basis9 and impaired loans down by -11.3% compared to 31 December 2018;
• Direct customer funding of € 106.5 billion 10 (€ 101.5 billion at the end of December 2018): during the period, the growth trend in the core funding from current accounts and deposits was confirmed (+€ 5.9 billion compared to the end of 2018) along with a decrease in more expensive funding sources (- € 0.5 billion for bonds);
• Indirect customer funding 11 € 89.2 billion (compared to € 87.0 billion at 31 December 2018), up 2.6%, of which:
  assets under management € 57.6 billion; assets under administration € 31.5 billion.

• The aggregate includes deposits and current accounts and demand and term deposits, issued bonds, certificates of deposit and other securities, loans and other debts, and capital protected certificates. Repos are not included.
  5 Ratios calculated including also the profits of 3rd quarter 2019 being formed.
  6 The Texas Ratio measures the ratio between the net value of impaired loans and the Group's tangible equity.
  7 Cost of risk calculated as ratio between net adjustments on loans to customers and net receivables from customers including those classified in IFRS 5.
  8Data updated at 30 September 2019.
  9 Figure calculated taking into account the effects of the reclassification of ProFamily loans among assets held for sale.
  10 Direct Funding includes certificates with unconditional capital protection (€ 3.1 billion at 30 September 2019 compared to € 3.4 billion at the end of 2018), but excludes repurchase agreements.
  11 Operating figure net of certificates with unconditional capital protection included under "direct funding".

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Key income statement items

• Net interest income
• • 500.0 million in Q3 2019 (€ 514.8 million in Q2 2019; - 2.9%)
  • 1,511.9 million was the figure related to "core" components at 30 September 2019 (€ 1,552.5 million in the first nine months of 2018; - 2.6%)12
  • 1,520.0 million in the first nine months of 2019 (€ 1,737.9 million at 30 September 2018; -12.5%)
• Net fee and commission income
• • 444.1 million in Q3 2019 (€ 453.7 million in Q2 2019; - 2.1%)
  • 1,332.3 million at 30 September 2019 (€ 1,386.6 million in the corresponding period of 2018; -3.9%)
• Operating income
• • 1,021.7 million in Q3 2019 (€ 1,020.1 million in Q2 2019; + 0.2%)
  • 3,105.2 million at 30 September 2019 (€ 3.750,5 million in the corresponding period of 2018; -17.2%, which however included non- recurring elements of € 313.6 million)
• Operating costs
• • 650.4 million in Q3 2019 (€ 675.0 million in Q2 2019; - 3.6%)
  • 1,995.8 million in the first nine months of 2019 (€ 2,067.8 million at 30 September 2018; -3.5%)
• Net income
• • 93.3 million in Q3 2019 (€ 442.6 million in Q2 2019, -78.9%, which however included elements of an extraordinary nature of € 307.1 million)
  • 686.5 million at 30 September 2019 (€ 524.5 million in the first nine months of 2018; +30.9%)
• Adjusted net income13
• • 387.2 million at 30 September 2019 (€ 305.2 million in the first nine months of 2018; +26.9%)

Capital position14:

• CET 1 ratio "IFRS9 fully phased" 12.1%;
• CET 1 ratio "IFRS9 phased-in" 13.8%.

1. For more details, see the comment in the section "Economic performance of operations in the first nine months of 2019 compared to 30 September 2018".
2. "Adjusted" figures are shown net of components detailed in the Notes.
3. The ratios include also the profits being formed in the 3rd quarter of 2019.

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Credit quality

• Net non-performing exposures at € 6.0 billion with a decrease of € 0.8 billion compared to the end of 2018 (-11.3%) and of € 0.2 billion compared to 30 June 2019 (-3.7%)
  Coverage:
  Unlikely to pay: 37.0% (35.5% at 30 June 2019)
  Bad loans: 55.8% (56.8% at 30 June 2019); considering also write-offs the coverage was 62.1% (62.6% at 30 June 2019)
  Non-performing exposures: 42.8% (41.9% at 30 June 2019); considering also write-offs the coverage was 45.8% (44.6% at 30 June 2019)

Liquidity profile

• Unencumbered eligible assets of € 21.1 billion at 30 September 2019.
• LCR >170% and NSFR >100%15.

Milan, 6 November 2019 - The Board of Directors of Banco BPM met today chaired by Mr. Carlo Fratta Pasini. The Board approved the Banco BPM Group quarterly balance sheet and income statement at 30 September 2019.

Operations in the first nine months of 2019, while still involving continuation of derisking and reorganisation of Group assets in line with the business plan, as well as the execution of capital management transactions already announced to the market, saw a greater focus on developing commercial activity, as is shown both by the growth in performing loans, and in "core" funding, as well as the good operating performance of indirect funding, after the significant restructuring of the network and the closure of branches which occurred the previous year.

In this context, again characterised by significant efforts on reorganisation and derisking activities, the Group recorded gross profit before tax of € 883.9 million and net profit of € 686.5 million (+30.9% YOY). Also the "adjusted" net profit grew by € 82.0 million, compared to 30 September 2018, coming out at € 387.2 million.

As regards the reorganisation and derisking operations, more specifically, in the first quarter the "ACE" sale was completed (launched during the previous financial year) obtaining "GACS" guarantee on Senior Notes and placing 95% of the Mezzanine and Junior Notes. This allowed accounting derecognition of loans sold that were booked under "assets held for sale" at the end of the year.

Again relative to the "ACE" project, Banco BPM transferred to First Servicing S.p.A., a company that operates as a servicer for non-performing loans, the business unit consisting of a combination of assets, legal relationships and employees organised to carry out loan collection activities relative to the said loans. In June, the partnership with Credito Fondiario was established to manage collections of impaired loans. Credito Fondiario became part of the shareholding structure of First Servicing (which changed its name to CF Liberty Servicing S.p.A.), with a stake equal to 70% of equity.

15 Monthly LCR at September 2019; NSFR related to the third quarter 2019.

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The Group's derisking activities continued with the signing of an agreement to dispose of a portfolio of bad leasing loans. After due diligence was completed, in April Banco BPM identified Illimity Bank as the counterparty for the sale of a portfolio of a nominal € 650 million on the cut-off date (the nominal value at 30 June 2019 was around € 600 million), mainly consisting of loans deriving from legal relationships receivable and payable associated with bad leasing contracts. The operation will involve various phases and is expected to be completed by mid-2020. At 30 September 2019, following the sales made in the third quarter, the receivables still recognised in the accounts among "assets held for sale" were € 388 million gross (€ 108 million net of value adjustments).

As part of the reorganisation of the Group's activities, in June the restructuring of the consumer loan segment was completed through the sale to Agos Ducato of the business unit regarding activities carried out through the network of branches for the former Banca Popolare di Milano, for € 310 million.

With reference to transactions on the wholesale market, in April Banco BPM completed the first issue of Additional Tier 1 instruments for a value of € 300 million, destined for institutional investors. This represented an important operation for increasing the efficiency of the Group's capital structure. The securities issued are perpetual and may be recalled by the issuer from 18 June 2024.

Additionally, during the period the placements of two senior preferred unsecured bond loans reserved for institutional investors were completed successfully. The first occurred at the beginning of March, with 3-year maturity and an amount of € 750 million with 2% fixed coupon, while the second was in June with 5-year maturity for a total of € 500 million and a 2.50% fixed coupon.

In addition, at the beginning of October, a new subordinated Tier 2 issue was completed for € 350 million, maturity ten years, also destined for institutional investors.

Considering also the placement, in October, of a senior preferred unsecured issue for € 500 million, the total amount of Banco BPM's public issues in 2019 reached € 2.4 billion (+141% compared to all the "wholesale" maturities of 2019).

The economic performance of operations in the first nine months in 2019 compared to 30 September 2018

Net interest income amounted to € 1,520.0 million and compares with the figure of € 1,737.9 million for the corresponding period of the previous year. This income performance is negatively impacted by recoveries on receivables deriving from the passing of time (including those connected with impacts deriving from PPA16), in large part from the transfer transactions of non-performing loans (€ -169.9 million yoy). Also at 30 September 2019, following the first time adoption of the recognition rules provided for by IFRS 16, interest expenses were recorded on leasing contract payables for € 7.4 million. Net of these effects, net interest income would be € 1,511.9 million, compared to a figure calculated on a homogeneous basis of € 1,552.5 million for the first nine months of 2018 (-2.6%). The contraction is due to the lower commercial spread for retail, partially compensated for by higher average volumes.

The Income from investments in associates carried at equity shows a profit of € 97.3 million, down with respect to the figure of € 108.8 million recorded in the same period of 2018. Within this aggregate, the main contribution was provided by consumer credit of € 77.0 million conveyed by the shareholding in Agos Ducato.

16 Reference here is made to the impacts of the "Purchase Price Allocation" which were recognised following the business combination between Banco Popolare and Banca Popolare di Milano.

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