Banca Monte dei Paschi di Siena S.p.A. (BMPS) Earnings Call Transcript

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the MPS Third Quarter and 9 Months 2026 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luigi Lovaglio, Chief Executive Officer and General Manager. Please go ahead, sir.

Thank you very much. Good morning, and thank you for joining us for the presentation of our third quarter and first 9 months 2026 results. Today, we are presenting another strong set of results from Monte dei Paschi, which provides further evidence of the strength and the quality of our franchise and of our ability to execute consistently, including during a period marked by significant strategic developments. And I think this is very important. These results also reflect the deep understanding within our management team of this bank. This franchise, its distinctive dynamics together with the ability to turn that understanding into sustainable value. At the same time, last week, our shareholders expressed their decision on the strategic proposal submitted to the general meeting. We fully respect the decision that we move forward with the same discipline and sense of responsibility that have always guided us. So our focus remains clear: delivering results, supporting our clients and our people and continuing to create value for all our shareholders. With that, let me turn to the results. And let me start with what I believe is the most important message. Monte dei Paschi continues to deliver. Nine-month net profit reached almost EUR 1.7 billion, while the third quarter net profit reached EUR 543 million, increasing by almost 15% compared with the same quarter last year. But beyond the bottom line, what stands out once again is the quality of our performance. Operating income increased by almost 6% in the first 9 months, while operating costs remain broadly stable. As a result, gross operating profit reached almost EUR 3.5 billion, increasing by more than 10%, and our cost-income ratio improved to 43%. This is a profitable growth. And importantly, it is increasingly diversified growth. Net interest income exceeded EUR 3.2 billion, supported by higher lending volumes and effective management of commercial spreads. Fees reached almost EUR 1.9 billion, with growth in wealth management and advisory, demonstrating the increasing contribution of capital-light businesses to our revenue mix. Commercial momentum also remained strong. Customer loans reached EUR 133 billion, increasing almost 7% year-on-year, and direct funding reached EUR 194 billion, also increasing close to 7% year-on-year and total financial assets reached EUR 300 billion. At the same time, we maintain strict discipline on risk, costs and capital. Asset quality remains firmly under control with a gross NPE ratio of 2.4% and cost of risk of 38 basis points for the first 9 months. Our core Tier 1 ratio stands at 16.4%, confirming the strength and the financial flexibility of the group. So if I have to summarize the first 9 months in 3 words, there would be growth, quality and strength. And also on the back of this strong performance, we are further upgrading our 2026 profit before tax guidance to above EUR 3.7 billion. This reinforces the earnings trajectory of our group and provides greater visibility on the value that this franchise can generate over time. But now let's focus on the results achieved. In the first 9 months, net profit reached EUR 1.657 billion. Third quarter net profit amounted to EUR 543 million versus last year. We reported an important increase in double digit. Now let's look at the operating performance that underpins these earnings. Net operating profit exceeded EUR 3 billion in the first 9 months, up 11.5% year-on-year. This reflects the strength of our underlying business model, higher revenues, increasing diversification of income sources stable cost of risk despite a more challenging macroeconomic environment. In the third quarter, net operating profit reached EUR 1.024 billion, up by 18.6% year-on-year. While seasonal patterns in commission and lower trading activity affected quarter-on-quarter evolution performance, our performance overall remained significantly above the level recorded in the third quarter of 2025. Overall, these trends confirm the solid performance of the business. And this being start naturally to the gross operating profit. Third quarter gross operating profit reached EUR 1.161 billion, up 14.8% year-on-year. Operating income increased almost 9% compared with last year, supported by more diversified revenue mix, while operating costs remain under control despite inflationary pressures and the impact of the new labor contract. As a result, our cost-income ratio improved to 42%, 3 percentage points better than 1 year ago. Looking beyond the quarter, year-to-date picture is equally compelling. For the first 9 months, the gross operating profit was close to EUR 3.5 billion, increasing 10.2% year-on-year. Operating income grew 5.6%, while operating costs remained essentially stable despite inflation and ongoing investments in the franchise. This operating leverage translated into a cost income ratio of 43%, an improvement of 2 percentage points versus last year. The data confirms that our business model is becoming increasingly efficient while preserving growth momentum. Let me now discuss the evolution of our core revenues. Net interest income exceeded EUR 3.2 billion in the first 9 months, growing 3% year-on-year. The increase was supported by higher lending volumes as well as effective management of commercial spreads. Third quarter net interest income surpassed EUR 1.1 billion, up 8.4% year-on-year and 4.4% quarter-on-quarter. Lending rates and commercial spreads improved during the period, demonstrating our ability to capture value from disciplined commercial management while supporting client activity. This performance confirms once again the resilience of our core banking franchise. At the same time, diversification continues to strengthen through fee generation. Third quarter fees reached EUR 593 million remaining on a positive trajectory, up 3.5% year-on-year. As I mentioned, the quarterly comparison reflects the usual third quarter seasonality, particularly in Wealth Management and Advisory. While I would like to remind that the second quarter benefited from a particularly strong corporate investment bank contribution at Mediobanca linked to a major transaction. For the first 9 months, fees reached EUR 1.882 billion, up 3.5% year-on-year, delivering solid performance with positive contribution across our main businesses, confirming the strength and diversification of our revenue generation. Growth was driven primarily by wealth management and advisory activities, reflecting the effectiveness of our network and the increasing contribution of capital-light businesses. This trend is strategically important because it further improves the diversification and quality of our revenue profile. Let me now turn to Commercial Performance. Commercial momentum remained robust across the group. Total financial assets reached EUR 300 billion, growing 4% year-on-year. Wealth management gross inflows reached almost EUR 18 billion. New retail mortgages exceeded EUR 5 billion year-to-date, while consumer finance origination surpassed EUR 8 billion. This is a confirmation of our ability to grow market penetration even in a complex operating environment. Customer loan reached EUR 133 billion, up 1.4% versus June and 6.8% year-on-year. With that, reflecting our continued commitment to supporting households and businesses and contributing to their growth. Commercial direct savings stood at EUR 106 billion. This reflects the strength of our client relationship and the trust in our franchise, particularly in a highly competitive environment. Indeed funding reached EUR 194 billion, increasing 6.7% year-on-year and 0.4% quarter-on-quarter. Both assets under management and assets under custody contributed positively to the growth, supported by favorable net inflows. Operating costs. So the third quarter operating cost amounted to EUR 837 million, down 3.4% quarter-on-quarter and only 1.3% higher year-on-year. Both the HR and non-HR costs declined sequentially. Asset quality remains firmly under control. Gross NPE ratio remains at the level of 2.4%, NPE ratio net 1.2%, and the total stock remains stable around EUR 3.7 billion. Cost of risk was 36 basis points in the third quarter and 38 basis points year-to-date, fully in line with guidance. Overall, also these metrics confirm the quality of our loan book and the effectiveness of our risk management framework. Liquidity remains very strong. Counterbalancing capacity stood at EUR 47 billion at the end of September. The liquidity coverage ratio was close to 150%, while the net stable funding ratio reached 120%. Our core Tier 1 ratio reached 16.4%, further strengthening an already very solid capital position. The quarterly improvement was mainly supported by DTA dynamics despite higher risk-weighted assets reflecting the growth in lending. We, therefore, continue to operate from a position of significant capital strength. And now let me turn to Mediobanca. It's just more than 1 year since Mediobanca became part of the Monte dei Paschi Group. And I think we can look at the progress achieved with great satisfaction. Mediobanca was at the heart of the strategic project we presented in 2025. Based on our strong condition that its distinctive capabilities, particularly in investment banking and wealth management could make an important contribution to the strength diversification and value creation potential of our group. Almost 1 year later, the results provide strong evidence of the quality of that franchise and of the value of the combination with Monte dei Paschi. Mediobanca is delivering earnings and profitability at record levels, while the interaction between the 2 businesses is progressing very well. And I think it's also worth noting that the strategic relevance we identified in Mediobanca is now being recognized more broadly. Even by Standard & Poor that has recently described, Mediobanca as a potential key pillar for Intesa Sanpaolo value proposition, particularly in investment banking wealth management. To me this is a further confirmed -- confirmation, the strategic value of the franchise and the industrial rationale that we identify from the offset was very strong. Let me now take through the key numbers of Mediobanca results. I think this number speaks for themselves. Mediobanca delivered more than EUR 1 billion net profit in the first 9 months, up 13% year-on-year. And its best level ever, with return on tangible at 15.3%. Revenues increased 9% with a diversified contribution across the businesses while gross operating profit grew 16%, and the cost-to-income ratio improved to 39%. Commercial momentum also remained strong with loans up 9% year-on-year, almost -- at almost EUR 58 billion. And total financial assets crossed EUR 110 billion, while net new money return to positive territory. And this performance comes with a very solid capital position with core Tier 1 at 15%. So after 1 year, into the combination, Mediobanca is performing at record levels and making a strong contribution to the quality and earning potential of our group. So I believe that this slide that is the revenue contribution by segment shows very clear what we wanted to build. The group generated around EUR 6 billion of revenues in the first 9 months with 30% coming from asset gathering and wealth management, a further 9% from private banking. This means that a significant part of our revenues now comes from capital light high multiple businesses. It's not simply a more diversified business mix. It is a higher value business mix, which, over time, should support the valuation potential of Mediobanca. Let me now turn briefly to our update 2026 guidance. On the back of the strong performance delivered in the first 9 months and taking into account the short terms, effects following the outcome of the extraordinary general meeting. We are further upgrading our 2026 pretax profit guidance from above EUR 3.6 billion to above EUR 3.7 billion. On capital, we expect core Tier 1 at around 15.5%, reflecting the absence of the merger benefit and assuming a dividend of EUR 0.86 per share. The potential impact of the 2027 Financial Law is still under assessment that is not included in our guidance. So before opening the Q&A section, let me conclude with a few final messages. First, these results confirm once again the strength of the Monte dei Paschi and our ability to deliver consistently, including in a complex and evolving environment. We have generated more than EUR 1.650 billion of net profit in the first 9 months supported by a strong operating performance. It is a confirmation that our journey of growing value creation remains firmly on track. Second, our business model continues to demonstrate its strength and efficiency. Gross operating profit is up more than 10% year-on-year. Revenues are growing, while costs remain broadly flat. The loans are expanding, and our funding base remains strong. This performance also demonstrates the strength of our management capabilities and our ability to translate the distinctive characteristics of this franchise into sustainable value. Third, we maintain a very solid capital position with a Core Tier 1 ratio of 16.4%, even assuming a 100% payout. And we now expect 2026 profit before tax to exceed EUR 3.7 billion. Fourth, the strategic context around the bank has clearly changed. Our responsibility now is to manage what comes next with the same discipline and focus that have brought us this far. Following the publication of Intesa Sanpaolo in software document, the Board of Director, Monte dei Paschi, will perform this assessment of the offer. The results we are presented today provide greater visibility on the underlying values of Monte dei Paschi, the potential of this franchise, the strength of this customer relationship and this earnings capacity. And this brings me to my final point. So in every long journey, there comes a moment where the road changes, but the change of road doesn't mean a loss of direction. Our direction remains clear. We will continue to deliver results. We will continue to protect value. And we will continue to manage the next phase with discipline and responsibility. That is what we owe to our clients, our people, our communities and all our shareholders. The road may have changed, our compass has not. Thank you. I'm now happy to take your questions.

[Operator Instructions] The first question comes from Sofie Peterzens of Goldman Sachs.

Sofie from Goldman Sachs. We can see that your PBT is upgraded, but I was just wondering how we should think about your net interest income outlook for fourth quarter and also 2027. We saw a very strong net interest income print in the quarter. And if you could just talk about how you think about the outlook for '27? And then my second question would be on the budget law. I recognize there is a lot of uncertainty and maybe difficult to tell, but how should we think about the tax rate for MPS for next year? And what tax rate do you think would be fair to assume?

Andrea speaking. I start with the second question, and I leave the first one to Luigi. I mean on the second question, there are some -- I mean stated that this year, our tax rate is proven to be around 32%, so a bit higher than we originally expected. The financial law sets us in some cases, some mathematical, let's say, increases. So your question, the surcharge on corporate income tax. So this is easy to calculate. The rest will have, let's say, an additional negative impact. So that we are currently finalizing to estimate. So I think you can easily do the math.

Okay. So as far as the net interest income, we believe that we continue a positive trend also in the fourth quarter. with expected growing contribution, and we expect also for the next year, an increase in net interest income, supported in particular by commercial loans volume growth and by the progressive development of capability in managing spreads.

The next question comes from Luis Pratas of Autonomous Research.

My first one is on loan growth. It's running materially ahead of peers. Could you please discuss the front book pricing and spread dynamics behind this growth and reassure us that volumes are not being pursued at the expense of spreads or risk-adjusted returns? Then my second question is on the Intesa offer. So following the EGM outcome, how do you assess the likelihood of a successful tendering periods at the current Intesa terms. And do you believe that this offer is sufficient to drive a strong acceptance, or do you still see scope for a further improvement in the terms? And then I just have a very quick clarification on the CET1. Could you please disclose the main components of the 20 basis points higher Q-on-Q from other impacts and also divide the DTA impact and the generalistic deduction?

Luis. So on the first question on the loan book pricing, let's say, so far in the third quarter, the net impact has been slightly positive as a, let's say, a combination of a slightly lower pricing on retail mortgages compared to book maturing and slightly higher on corporate loans loan book. And that's on the first question. On the third question, common equity Tier 1 ratio. Actually, yes, the trend of our common equity Tier 1 ratio is even better than expected. Let's say that what I can say is that we had better than expected minorities and intangible plus threshold effect impacts, and this is what you can see in the other bar in our capital work chart on the bottom right of the revenant slide. While we had a better, let's say, DTAs versus DTL offset that, let's say, helped us to mitigate the Generali impact and the finalization of the PPA and the relevant impact on the intangibles. On the last second in your order question, what we can say is that we -- the Board will make its consideration that will be published in the issuance statement according, let's say, to the timetable by law based on the time table that will be communicated by Intesa in the offer document.

The next question is from Hugo Cruz of KBW.

Just a few. That EUR 28 million of extraordinary charges taken in 3Q, is that just kind of paying for advisers? Is that it? Or is there anything else? So that's the first question. Second, on the capital, you guided for 15.5% for year-end with you losing 50 basis points benefit from not delisting Mediobanca. I mean that's a big decline Q-on-Q from 16.4% to 15.5%. So can you explain what drives that? I imagine there might be some up risk impact. But if you could give us a few of the moving parts would be very helpful. And then a question on the budget laws. So you talked about the P&L, but what could it mean for capital if rates -- just hypothetically, if the tax rate goes up, what does that do for -- would you have any DTA effect in the P&L on sort of the first quarter, but also what do you do for the DTA absorption that you have supporting your city ratio going forward? Would that change the guidance for the, I think, around EUR 0.5 billion a year with that change in any way? That's my question.

So Hugo, the answer to your first question is yes, advisers. Then on capital, let's say, the bulk of the impact that would lead to a reduction quarter-on-quarter as expected, by the way, is that we are assuming EUR 86 per share dividend. So we are assuming to distribute this year as already guided during the year more than our net income. So this is -- then we also expect growth in terms of our WA for business growth. But let's say the main impact is what I said. With regard to the budget law. The effect in terms of the DTA revaluation, et cetera, if any meaning conferences, et cetera, will be most likely booked in the fourth quarter of this year. So all in all, in terms of bottom line, we expect based on the current preliminary estimates a sort of neutral effect in 2026 as a net combination of different line impacts. Finally, on the capital guidance for the next year, so we do not envisage the moment material impact.

Sorry, just to clarify with paying the dividend because that's subject to approval from -- I imagine from the Board, right? So does it work? Because if you have the Intesa offer, does that constrain your dividend payment? Can you remind us of that?

Sorry, can you repeat the question?

So it was just the EUR 0.86 dividend, can you remind us, given that you are under the rule that do you need AGM approval for that? And the payment would come, I guess, in probably April or May, right? So does that actually happen if given the Intesa offer?

Yes. I mean, first of all, in terms of dividends, the Board will decide on the final distribution to be proposed to the EGM in February. So this will be a board decision, first of all. Secondly, in any event, the dividend is subject to the EGM approval. So -- so this -- the dividend shall anyway be approved by the EGM regardless of the then, of course, there is also.

The next question comes from Andrea Lisi of Equita.