Banca Sistema S.p.A. (BST) Earnings Call Transcript

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banca Sistema 9 Months 2026 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Iacopo De Francisco, CEO of Banca Sistema. Please go ahead, sir.

Hello. Good evening, and thank you for joining to everybody. So first of all, on November 7, Banca CF+ will merge into Banca Sistema. And on November 9, the 2 systems and the 2 organization will become one. So from the day -- from that day, there is only one bank and it will be the combined group. So that is why today, we speak only about the consolidated numbers. So we are not going to comment anymore Banca Sistema results. So first of all, a word on perimeter, so nobody gets lost. So reported P&L is 9 months of CF+ and 6 months of Banca Sistema. The balance sheet is both banks without Kruso Kapital. We also are going to show in the documentation aggregated figures as if the 2 banks have been together since January. So reported numbers are for the accounts, aggregated numbers is for what we call the earning power. So let me just introduce you how I'm going to lead this call. So I will try to give you all the facts, what is good, what is not, what is still to be done. 3 messages, especially as far as the merge is concerned, we exactly did what we said in this month. Second, we have been cleaning the balance sheet at book value, not at discount. And third, the business underneath earned 57% more than last year. So these are important messages. So let's go to Page 2. So the key highlights. Let me comment them. So first of all, the merger. Bank of Italy authorized us on September 11. Shareholders approved on October 12, legal effect on November 7, systems and organization merger on November 9. So less than 8 months from change of control to one bank, every day met. That is a lot of discipline that we put in place. Second comment on back book derisking and on past due. In September and in October, we sold EUR 140 million of Public Administration past due receivables. Both times, the sale price was at net book value with no loss. So when a buyer, an investor pays book value, the question about your valuation is answered. The 2 sales are worth 46 basis points of CET1, 34 in this number, so in September results and 12 will be in the fourth quarter and these are related to the recent sale that we did of our portfolio of EUR 25 million of credits. What is important that these 2 together have removed the contagion effect. And so this helps us to start again running, growing into this business without the risk of generating new past due. Calendar provisioning as well is significantly reduced. Let's go on earnings, both views. Reported profit before tax is EUR 87.4 million, of which EUR 95 million is badwill. I will not call badwill as a performance. Excluding it and the one-offs, the profit before tax is EUR 23.2 million reported and EUR 28.8 million aggregated against EUR 18.4 million last year, which is up 57%. And with much less help from LPIs that last year were EUR 19 million and this year have been EUR 11 million. So take LPIs out of both years, and if we move from about 0 to about EUR 18 million, which is a strong proof of how the diversification is working. So capital is 11%, flat on the first half, and I will explain why. And one important communication, a change of date with the business plan comes in the first quarter 2027, not at year-end, as I said during the last call we had, the Bank of Italy has still to communicate to us capital requirements. So I would say it's not, let's say, it's not correct and it's not wise to come up with a business plan without having received the final communication from Bank of Italy on what the requirement will be. Let's go to Page 3 on volumes and stock. So new volumes are EUR 5.6 billion, up 24% from last year. Capital, I mentioned this point several times. Capital was the constraint, not demand. NHS and PA factor is up 48%. We got a new important pharma client, more share of wallet. We are gaining market share against competitor. And the reduction, the elimination of the contagion effect is a strong enabler of this path. Corporate is up 22%, entertainment is up 26%, distressed factor is up 24%, tax credit is up 7%. The only line where you see a negative profile compared to 2025 is financing. I remember mainly guaranteed financing. And the trend is an exception. In the early months of this year, the state guaranteed schemes were unclear, were not decided by both SACE and MCC. Since then -- so since April, so the date where the guaranteed scheme had been clarified, had been issued, we did -- just to give you the trend, EUR 26 million of origination in the first quarter, EUR 54 million in the second quarter and EUR 70 million in the third quarter. So that means that, that situation specifically explains why we are below 2025 results. Loans are EUR 4.2 billion, up 2% on last year. Funding is EUR 5.6 billion, of which EUR 4.2 billion is retail deposits. Loans are about EUR 120 million below June, but that is mainly explained by what we sold and we mentioned to you. Page 4. So reported profit includes EUR 95.1 million of badwill against EUR 96.6 million in June. It is provisional under IFRS 3 and we took the most prudent approach. So I will ask you not to model, let's say, to model the badwill impact and so on and so forth. The adjusted -- with the adjusted, we remove extraordinary items. So you see from the table, we removed the badwill, we removed one-off write-downs related mostly to assurance, we are removing one-off costs and others. So the result is that on a reported basis, the profit before tax adjusted is EUR 23.2 million, while on an aggregated basis is EUR 28.8 million. All these extraordinary items are behind us and this is very important to be considered looking forward in what can be considered sort of stabilized performance going forward. Let's comment on P&L results on Page 5. So net banking income is EUR 124.5 million. The headline here says minus 5%, but the underlying revenue engine is plus 23%. That is the item I would like you to take away. Let's explain what is happening, what is behind the numbers and why the headlines hide the quality of these numbers. So first of all, 2 items are distorting the comparison. First is the Superbonus. You well know that the Superbonus will be over. It is having a decreasing P&L impact on the results of the bank. Other income has been in this month, EUR 24 million against EUR 40 million that was last year. We told you this would happen. Second element, LPI, EUR 11 million this year against EUR 19 million last year, mainly related to the one-off accrual on the European Court for Human Rights position in Banca Sistema. If you strip out both the net interest income and the fees, excluding LPIs are EUR 89 million against EUR 72 million, which is up 23%. This is the revenue base we can build on. Funding costs fell 11%, fees rose 26% and the loan book is 2% larger. So net banking income fell because we lost income and that was always going to -- because of situation that we understand time by time will have a small impact on our P&L. What is remaining out of Superbonus out of LPI grew by almost 25% on an annualized basis. Costs are down 4% to EUR 79.2 million. It is the first visible action on cost, but I will give you more content on Page 7. Adjusted cost of risk is 46 basis points against 69. Adjusted profit before tax is up 57%. What is important is that the third quarter because I like to comment the third quarter because you will compute it in any case. So adjusted profit before tax was about EUR 6 million, in line with the first quarter and well below the second one, it was about EUR 16 million. 2 causes, all the elements of less trading income and also the impact of the sale of the portfolio of -- that we made a securitization, which had an impact on the accrual of LPIs. So I will comment that in the next pages. So business performance, which is on Page 6. So asset yield is 6.3% against 6.8%. Cost of funding is 2.7% against 2.8%. So unfortunately, I have to comment also several one-off effects impact on yield. Because of all the elements like extraordinary accrual figures that I commented. So the yield decline is last year's one-off. So NHS is 5.9% against 6.5% because in 2025, we had an accrual on European Court of Human Rights position. Corporate is 6.7% against 8.4% because in 2025, we had higher credit resolutions and tax credit improved to 7.9% on faster collections. What is relevant to me to comment is that I mean, taking out the extraordinary effect, we are keeping the same profitability and return on a much larger portfolio. So in order to gain market share, we are not reducing our return on those bonds. Page 7. Let me start giving you some element of what we have done. So these are facts. And we are talking here about headcount. So if you aggregate the 2 banks at the end of 2025, the total number of headcount was 578. If you take out Kruso Kapital, that you remember will have been deconsolidated, you will have 578 minus 143 people. Now we will land at the end of 2026 at 378 people. And this is because we already had 57 redundancy managed in this period. What I'm talking about, part of this has already been achieved at the end of September. So you will see some headcount numbers in the other tables that this presentation has been showing to you. Then part of this 57 has been already achieved in October. And the remaining part is related to agreements that are certain and irrevocable on the base of which these colleagues will leave Banca Sistema mostly C class by the end of 2026. So in terms of impact, in terms of savings, you can think that 2027 will start with EUR 7.2 million of lower HR cost. Is it the end of this synergy path on headcount? No, it is not the end. There is still room, there is still potential, and this will be achieved during the first 6 months of 2027. Next page, Page 8. One important point is to comment on the past due exposure reduction and especially the 2 actions that we did, the first one on the securitization and the second one on loan disposal. In August, when we met for our half year results, I promised the detail when the Bank of Italy recognized the SRT on the securitization, it has and here it is. So public -- sorry, past due on Public Administration is low payment, not credit risk. Beyond 180 days, it cannot take on a bank balance sheet, as I said several times. And under our model, it does not. So we sold with these 2 action an important chunk of our past due exposure. So the stock compared to first half results goes from EUR 223 million to EUR 116 million, about half. We sold EUR 123 million gross, 55% of the June stock. So new past due still came in, so EUR 60 million this quarter. The sale does not stop the float. It removes the stock and the contagion. So look at the chart. After October, the exposure, the triggers contagion goes from EUR 21 million to 0. That is why we can serve those clients. That is why we are gaining market share. We are -- let me use this word, stealing important clients from competitors. And this is why NHS and PA volumes are going up 48%. Risk-weighted assets [ pooled ] by EUR 88 million, EUR 141 million out and EUR 53 million of senior notes in. CET1 gains is 34 basis points in the third quarter related to the SRT securitization and additional 12 more basis points in the fourth quarter related to this EUR 25 million loans disposal. Let me give you a bit more of content on this on the next page. Just to comment how it worked on the SRT securitization. The sale was at book value, no gain, no loss. So that means, which is very important that in this securitization and the same happened with the loan sales in October, the one of EUR 25 million, the market agreed with our valuations. On the day, the capital effects net out. So CET1 capital moves from EUR 282 million to EUR 281 million, EUR 3 million of relief of future provisioning less EUR 4 million from a one-off LPI effect. Sorry, this is what we call the back testing effect. We expect to recover it in the coming years as collection arrives. So LPI back testing negative impact reflects a timing shift in revenue recognition driven by the update of the accrual methodology resulting from the disposal. So this does not represent a permanent loss. And such amount will be recovered progressively, no lifetime loss. The real benefit is what we avoid and what we can do. What we avoid is that with through this type of initiative, EUR 50 million provisioning deduction has been completely removed. Second, with EUR 88 million risk-weighted assets freed up, factoring stock is up 16%-plus here. So we are freeing up capital to be used in our most profitable asset classes. So it's capital working not sitting idle. Asset quality, next page. Let me comment net NPE ratio. It is 9.3% against 11% at the first half. After October sale, it will be 8.8%. Now within this 9.3%, what I would like to highlight is that if I consider state guarantees like the one that are present under the SACE or MCC scheme, the net NPE ratios goes down to 7.7%. In August, I told you that 11% sort of numbers that would have been influenced by the securitization. And so this is the impact of the securitization. Past due is down from EUR 284 million to EUR 196 million. This is an important point. This is the impact of our actions. And I will say that one important point. Half of this past due, you have to look at that the one related to the PA factoring as a sort of stable constant portfolio that stays there because we run the business and we have some debtors that are paying, but they are paying at, for instance, 200 days. So it does not have to be considered as a risky situation. Unfortunately, we have to comply the rules in this case. And so as those specific debtors are paying in 200 days, we will always have a part of this NPE exposure related to situation where debtors are paying but are paying in 200 days and therefore, will always represent a sort of stabilized chunk of this net -- sorry, nonperforming exposure related to performing business. Let me go to Page 11, CET1 is 11% against a 9% requirement, 2 points of headroom, about EUR 50 million in terms of capital. Tier 1 is 13.7% against 10.9%. Total capital ratio is 15.1% against 13.4%. So risk-weighted assets are EUR 2.5 billion from more or less similar, let's say, numbers that we had in June. In here, you have to consider the fact that we sold portfolio, so we reduced risk-weighted asset. But on the other side, and it is why we are freeing up our portfolio from a past due exposure, NPE and so on and so forth because on the other side, we want to free up capital in order to sustain the growth. In August, I said to you that the ratio would improve. Actually, we are flat. The securitization get 34 basis points, growth in the core business consumed about the same. So let me say, I accept this rate. Capital used to grow factoring 50% not -- so it's a good message for us. It's a good proof of our investment thesis and you should see it as it is. What comes next is concrete, other 12 basis points in the fourth quarter from October related to the sale. So what is very important, I would repeat that the SRT sale, the loan portfolio sale are reducing our potential calendar provisioning. We have estimated that in EUR 50 million of reduced calendar provisioning through 2029. And what will happen in the fourth quarter is that with the integration with the merger that will happen in -- now, so next week on the -- sorry, this week on the 7th, the elimination of minorities with the merger in the fourth quarter will additionally free up a little bit more of capital. So the requirement for the combined group is Bank of Italy decision. We wait for it and the plan will follow it. Just some conclusion, let me step back. Let me be very open that the specialty finance, the specialist lending sector is being reexamined due to specific situation in the market, and therefore, it should be reexamined. We are not answering to this situation with a table. So are we a specialty finance, we are not a specialty finance, whatever. We are answering with 3 tests. First, the assets that we have worth what we carry them at? We sold EUR 140 million at book value. We are freeing up capital. We are cracking this topic of PA factoring. We are making that sustainable. Second, is the model compliant? We completed the assurance. We think that we have done a very careful and deep effort. Third, can we say that every euro of capital earn its keep. Capital is being allocated by return with 2 points of headroom over the requirement. You well know that we have an asset class, which is salary-backed loan, which is not at the pace of the other businesses that we have and we are trying to take care of this business line. What are we building? We are building a specialist bank for business funded with EUR 4 billion of retail deposits, diversified across factoring, tax credit, guaranteed lending. NHS and PA is now about 12% of loans. And what is very important, we have sold the contagion effect and our past due exposure has dramatically been reduced in the last 6 months. And what is still there is something which is somehow natural as soon as we decide to run this business. So you will judge us on execution. I mean we have completed a merger in less than 8 months. The plan will arrive first quarter. I would have loved to keep with my words of presenting that by the end of the year. But if I don't have capital requirements from Bank of Italy, I mean, it is difficult to me to be serious and present a plan without having the capital -- the final capital requirement. So we believe that we have taken the hard times, the hard items. What is left is to grow a cleaner balance sheet. So thank you for your attention. Operator, we are ready now for Q&A.

[Operator Instructions] First question is from Irene Rossetto, Banca Akros.

A few questions from my side. First of all, could you elaborate on the commercial momentum across the different businesses and how you see these trends evolving into 2027? Then from a managerial standpoint, what would you consider an optimal capital level to run the business? And finally, once the new perimeter is fully integrated, what should we consider as a normalized recurring earnings level?

Sorry, can you repeat the last one? Normalized what?

Normalized recurring earnings level. Yes.

Okay. So let me -- maybe, Christian, if you can go back on Page 3 on the commercial momentum. So we have in front of us all these elements. So actually, what we are seeing here are strong results in terms of growth. On all the business lines that we consider the most relevant, the most viable, the ones where we expect more from them. So NHS and PA. What I told you is that this is not a business that can run at a 30% ROE as maybe some numbers showed in the past from some competitors, but it is a business that can run with a solid, I would say, 12% to 15% ROE. It is clear that you need to eliminate contagion. Otherwise, you cannot run this business because every new receivables you get, it becomes a past due and we did it. And once you do this, you can grow this business. Capital absorption is limited and we are gaining market share. Definitely, we are leveraging on a specific sector situation with competitors that are facing some difficulties and we are gaining market share from them. This can be also a business line that can be grown at European level, starting from Spain, where I told you several times, we are somehow settling this JV that we have in place in the direction of having the 50% lease partner, which is EBN Banco owns sold to us in a way that we can run this business by ourselves in Spain. Corporate is threefold. It is entertainment, it is corporate, pure corporate and it is distressed. Let me say, entertainment and distressed have a lot of potential growth, not -- sorry, in Italy and also at European level. So we are, let's say, we got an important step -- sorry, we decided to do something very important, which I mentioned in the think we did is that Banca Sistema had securitization in place wherever other investors were, let's say, enjoying these origination capabilities from Banca Sistema and therefore, Banca Sistema were originating, selling to securitization vehicle, putting a bit of a senior and the junior and therefore, the meat taken by other investors. So we closed the securitizations. So all the origination capabilities, the profit and the return remains within the bank. Distressed factoring this comes from Banca CF+ is, let me say, getting a lot of momentum also mainly because the situation in the market is today presenting several companies which are entering into a sort of distressed situation with restructuring and so on and so forth. So the growth has been important and will remain important. This year, we are showing growth in new volumes about 24%. If I have to say a number for 2027, I would say that you could put in your model something in the range of 10%, sorry, just to give you a sense of something which is achievable. Capital level. My point of view is that -- so first of all, let me be very open on this. The growth that we are experiencing now in the business in all the different segments that we just commented is a growth that I would say, is exceeding the expectation that we had at the beginning. So the real point is that how much this origination engine, how much this commercial network, how much this franchise can grow, let me say, for a second, in Italy. I told you 10% for the next year. In terms of capital level in order to sustain this growth, I would say that remaining in terms of CET1 at 11.5% is a number that for us is achievable and it also can sustain a strong growth also for 2027 and 2028. Let me comment on recurring. Maybe let's take -- sorry, the next page, Christian, please. Okay. Let's start from the aggregated number. So a profit before tax adjusted of EUR 28 million. Here, you don't have all the extraordinary items. You don't have the badwill, you don't have one-off cost. You don't have the one-off write-downs that we did as a consequence of the assurance. So I mean, you can think that more or less in the fourth quarter, we might do the same. Now you go from before tax to after tax and you might consider that as a sort of starting situation for 2027. But for instance, in this number, you will not have, for instance, the initial cost synergies that we have already achieved. So you will not have those EUR 7.2 million that I commented on Page 7, which have already been achieved and which definitely are not represented in this sort of inertial earnings that we just commented together. So that will be a good direction that I think you should use to see this combined entity. Definitely, all the top line growth, all the additional synergies will be something that will be clarified with the plan. But as a starting point, I would say that this type of exercise, I told you is something that you can run and that should be definitely it is not wrong.

Next question is from Davide Rimini, Intesa Sanpaolo.

I have a few questions, if I may. The first one is on the contagion effect and on the slide that you presented Slide #8. I was wondering whether you could clarify whether the initiatives that you took on the first half and secondly, a few days ago announced the EUR 25 million back book sale are sort of the last one that we should expect on that front or there are further initiatives since the process has been described in the first half is completed. And I was wondering whether there are ongoing measures to be reviewed.

Okay. You mentioned 2, right? 2 questions or is it one, sorry?

Yes. No, no, sorry. I go one by one or I can go sort of all.

No, if you shoot all of them, so we take note and then I reply one by one.

Okay. The second question is sort of on Slide 7, you announced sort of the earlier synergies from people reductions, but you also highlighted about more to come in the next year. I was wondering how we should bearing in mind that you will provide more details in the new business presentation, but the message that I collected is that commercial business momentum is strengthening. And I was wondering whether you can expand a little bit more on how you see sort of the company profile versus further enlarging the business perimeter. So the message is there are synergies to come and it will be clarified. At the same time, commercial momentum is going ahead. I was wondering whether you could spend a few words on combining the 2 messages.

Okay.