Banco BPM : results at 30 June 2019 (.pdf - 244.2 KB)

PRESS RELEASE

RESULTS AT 30 JUNE 2019

The first half of 2019 ends with net profits of € 593 million, with 68% growth

with respect to 30/6/18

The results for Q2 2019 are positive, showing a decided recovery in:

•core revenues1 (+3.1% over Q1 2019)

•net interest income (an increase of 1.9%) •fee and commission income (+ 4.4%)

Operating expenses continued to decrease, falling by 3.3% with respect to

the first half of the previous year

Core performing loans to2 customers increased (+3.0%) as did core direct

funding3 (+5.6%) with respect to December 2018

The derisking project continues (Net NPE ratio down to 5.9%)

The solid equity position is confirmed:

CET1 ratio pro-forma4: phased in of 13.8%; IFRS9 fully phased of 12% Texas Ratio5 significantly improved at 61.8% (99.5% in June 2018)

The cost of risk has fallen significantly (65 bps vs 184 in 2018)6

More specifically:

NET PROFIT FOR Q2 2019 OF € 443 MILLION (+ 194% COMPARED TO € 150 MILLION RECORDED

IN Q1)

1. Core operating revenues refer to the sum of net interest income and net fee and commission income.
2. Mortgages, loans, current accounts and personal loans.
3. Current accounts and deposits.
4. Also considering the expected impacts of disposal of the portfolio of bad leasing loans for a nominal amount of around € 600 million.
5. The Texas Ratio measures the ratio between the net value of impaired loans and the Group's tangible equity.
6. Cost of risk calculated as relation between net adjustments on loans to customers and net loans to customers including those classified under IFRS 5.

1

NET PROFIT FOR H1 2019 OF € 593 MILLION (+ 68% COMPARED TO € 353 MILLION RECORDED

AT 30 JUNE 2018)

"ADJUSTED" NET PROFIT7 FOR H1 2019 AT € 291 MILLION (+45% COMPARED TO € 200 MILLION

RECORDED AT 30 JUNE 2018)

"CORE" OPERATING INCOME FOR Q2 2019 AT € 969 MILLION (+3.1% COMPARED TO Q1 2019

WITH AN INCREASE OF +1.9% IN NET INTEREST INCOME AND OF 4.4% IN FEES AND

COMMISSION)

OPERATING EXPENSES FOR H1 2019 AT € 1,345 MILLION (€ 1,391 AND -3.3% COMPARED TO 30

JUNE 2018); IN Q2 2019 THE TOTAL IS € 675 MILLION (-1.2% ADJUSTED)

NET WRITEDOWNS ON LOANS IN H1 2019 € 350 MILLION (-49.1% COMPARED TO € 686 MILLION

AT 30 JUNE 2018); THE TOTAL IS € 198 MILLION FOR Q2 2019

COST OF RISK AT 65 BPS IN H1 2019 (184 BPS WAS THE FIGURE FOR FINANCIAL YEAR 2018)

LOANS TO CUSTOMERS € 105.1 BILLION (OF WHICH PERFORMING LOANS REPRESENTED € 98.9

BILLION + 3,0% COMPARED TO DECEMBER 20188, IMPAIRED LOANS REPRESENTED € 6.2

BILLION, -7.9% COMPARED TO DECEMBER 2018)

DIRECT CUSTOMER FUNDING9 € 105.2 BILLION OF WHICH CORE DIRECT FUNDING REPRESENTED

• 85.6 BILLION (+5.6% COMPARED TO DECEMBER 2018, +2.7% COMPARED TO MARCH 2019)

THE SIGNIFICANT DERISKING PROJECT AND REORGANISATION OF THE GROUP CONTINUE, WITH THE COMPLETION OF SEVERAL IMPORTANT CAPITAL MANAGEMENT TRANSACTIONS DURING THE HALF:

• COMPLETION OF ACE SALE, OBTAINING GACS GUARANTEE ON SENIOR SECURITIES
• 
  AND DERECOGNITION OF BAD LOANS
• AGREEMENT SIGNED FOR SALE OF LEASING BAD LOANS FOR AROUND € 600 MILLION NOMINAL VALUE, FOR A GROSS NPE RATIO OF 9.7% (10.9% AT THE END OF 2018)10 AND A NET NPE RATIO OF 5.9% (6.5% AT THE END OF 2018)11
• • AGREEMENT SIGNED TO CREATE A PARTNERSHIP WITH CREDITO FONDIARIO TO

MANAGE COLLECTION OF NPL WITH A € 141 MILLION NET POSITIVE EFFECT ON PROFITS

FOR THE HALF

• RESTRUCTURING OF THE CONSUMER LOAN SEGMENT COMPLETED THROUGH DISPOSAL

OF THE "CAPTIVE" PROFAMILY ASSETS WITH A NET POSITIVE EFFECT ON THE RESULTS FOR

THE HALF OF € 186 MILLION

THE ACTIONS COMPLETED DURING THE HALF MADE IT POSSIBLE TO ACHIEVE A SOLID EQUITY

POSITION:

• CET 1 RATIO "IFRS9 PHASED IN" PRO-FORMA OF 13.8% AND "IFRS9 FULLY PHASED"

PRO-FORMA OF 12.0%

• EXCELLENT LIQUIDITY POSITION WITH UNENCUMBERED ELIGIBLE ASSETS EXCEEDING € 22
• • 
    BILLION12
  • TEXAS RATIO AT 61.8%, SHOWING CONTINUOUS IMPROVEMENT WITH RESPECT TO

74.9% IN DECEMBER 2018 AND 99.5% IN JUNE 2018)

1. "Adjusted" figures are shown net of non-recurring components detailed in the Notes.
2. Recalculated data excluding loans to customers reclassified in June 2019 as discontinued operations under IFRS 5
3. 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.
4. Figure recalculated on a homogeneous basis with respect to information at 30 June 2019.
5. The loans involved in this disposal agreement were classified among "assets held for sale". The ratios indicated were calculated excluding receivables held for sale.
6. Data updated at 31 July 2019.

2

Key balance sheet items

• Loans to customers € 105.1 billion, of which "core" performing loans up +3.0% on a homogeneous basis13 and impaired loans down by -8.0% with respect to 31 December 2018;
• Direct customer funding of € 105.2 billion 14 (€ 101.5 billion at the end of December 2018): during the first six months of the year, the growth trend in the core funding from current accounts and deposits was confirmed (+€ 4.5 billion compared to the end of the previous year) along with a decrease in more expensive funding sources (- € 0.5 billion for bonds);
• Indirect customer funding 15 € 89.1 billion (compared to € 86.6 billion at 31 December 2018), up 2.8%, of which:
• • asset management € 56.7 billion;
  • asset administration € 32.4 billion.

Key income statement items

• Interest margin
• • € 514.8 million in Q2 2019 (€ 505.2 million in Q1 2019; + 1.9%)
  • € 1,020.0 million in H1 2019 (€ 1,180.1 million in H1 2018; -13.6%)
  • € 1,012.7 million is the figure for "core" components in H1 2019 (€ 1,026.8 million in H1 2018; -1.4%)16
• Net fee and commission income
• • €453.7 million in Q2 2019 (€ 434.5 million in Q1 2019; + 4.4%)
  • € 888.2 million in H1 2019 (€ 935.2 million in H1 2018; -5.0%)
• Operating expenses
• • € 675.0 million in Q2 2019 (€ 670.5 million in Q1 2019; + 0.7%)
  • € 1,345.5 million in H1 2019 (€ 1,390.7 million in H1 2018; -3.3%)
• Net profit
• • € 442.6 million in Q2 2019 (€ 150.5 million in Q1 2019; + 194.1%)
  • € 593.1 million in H1 2019 (€ 352.6 million in H1 2018; +68.2%)

Capital position:

• CET 1 ratio "IFRS9 fully phased" pro-forma17 12.0%;

1. Figure calculated taking into account the effects of the reclassification of ProFamily loans among assets held for sale.
2. Direct funding includes certificates with unconditional capital protection (€ 3.3 billion at 30 June 2019 compared at € 3.4 billion at the end of 2018), but excludes repurchase agreements.
3. Net of certificates with unconditional capital protection included under "direct funding".
4. For more details, see the comment in the section "Economic performance of operations in H1 2019 compared to H1 2018".
5. The "pro-forma" ratio also includes expected effects with regards to reduction of risk weighted assets due to the completion of the disposal of the portfolio of bad leasing loans for a nominal amount of around € 600 million.

3

• CET 1 ratio "IFRS9 phased-in"pro-forma 13.8%.

Credit quality

• Net non-performing loan stock of € 6.2 billion with decrease of € 537 million compared to the end of 2018 (-8.0%) and € 3.3 billion compared to 30 June 2018 (-34.8%)
  Coverage:
• • Non-performingloans: 41.9% (43.1% at the end of 2018);
  • Bad loans: 56.8% (59.6% at the end of 2018);
  • Taking into account the loans involved in the disposal agreement for leasing contracts, coverage is in any case up with respect to March 2019 (which was equal to 41.6% on a homogeneous basis for total impaired loans and 56.4% for bad loans).

Liquidity profile

• Unencumbered eligible assets of € 20.8 billion at 30 June 2019 rising to over € 22 billion at 31 July 2019.
• LCR >150% and NSFR >100%18.

Milan, 6 August 2019 - In today's meeting, the Board of Directors of Gruppo Banco BPM, chaired by Mr. Carlo Fratta Pasini, has approved the Consolidated half-yearly financial report at 30 June 2019 of Gruppo Banco BPM.

Operations in the first half 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, saw a greater focus on developing commercial activity after the significant restructuring of the network and the closure of branches which occurred the previous year.

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

18 Figure for Q2 2019.

4

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.

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 complete, 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.

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 half 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 this context, characterised by significant efforts to achieve the objective presented, the Group has provided goof operational and economic performance, recording gross profit before tax of € 719.6 million and net profit of € 593.1 million.

Economic performance of operations in H1 2019 compared to H1 2018

Net interest income amounted to € 1,020.0 million and compares with the figure of € 1,180.1 million for the corresponding period of the previous year. This income performance is negatively impacted by both the lower "reversals" due to write-backs from discounting bad loans and the lower impact of the resulting PPA, in large part from the transfer transactions of non-performing loans (€ -140.9 million yoy). Also in the first half of 2019, following the introduction of IFRS 16, interest expenses were recorded on leasing contract payables for € 5.0 million. Net of these effects, net interest income would be € 1,012.7 million, compared to a figure calculated on a homogeneous basis of € 1,026.8 million for H1 2018 (-1.4%). The reduction is due to the lower commercial spread for retail, partially compensated for by higher average volumes.

The result for investees measured with the equity method shows a profit of € 69.4 million, down with respect to the figure of € 76.0 million recorded in H1 2018. Within this aggregate, the main contribution was provided by consumer credit of € 56.9 million conveyed by the shareholding in Agos Ducato.

5