Mediobanca Banca di Credito Finanziario S.p.A. (MB) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to Mediobanca's Considerations on the Public Exchange Offer Promoted by MPS conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mr. Alberto Nagel, CEO. Please go ahead, sir.

Good afternoon to everybody, and thank you for joining the call. As you know, last Friday, our Board has published the issued statement regarding the offer -- exchange offer of Monte Paschi. This presentation summarizes the views of the Board and gives more color also with a Q&A session on what the Board has said last week. Mediobanca in the last decade has constantly delivered on its strategy and targets. The extension of our plan, which we have approved at the end of June to 2028 is coherent -- is the coherent continuation of a long-term value-driven journey, set to deliver further growth in revenue, profitability and shareholder remuneration. We have indicated up to EUR 5 billion of distribution in 3 years, cash distribution. Banca Generali transaction is the strongest accelerator able to deliver superior value to our shareholders. On the other hand, we have to look at the offer of Monte Paschi and when looking at Monte Paschi as the offer is all shares, we need also to address MPS key risk areas. We know that Monte Paschi has a long history, unfortunately, the last part of its history was a troubled one. With EUR 25 billion of capital increase in the last 20 years, a big erosion in market share and diluted business model. The recent performance has been driven by NII trend, which doubled in the last 3 years, driven by high interest rates and also benefiting of tax benefits. Significant risks remain including, asset quality, low RWA density and vulnerability to macro and legal risks. We think that the offer is marked by lack of strategic and financial rationale. The business model deriving from the combination is an undifferentiated one of a midsized commercial bank with low growth potential, which is diluting Mediobanca brand reputation and franchise, and we doesn't bring any improvement in offering to our customers. If we look at consensus based 2028 of the combined entity PBT is resulting into a combined growth of EUR 350 million. Well, out of this EUR 350 million, 85% is stemming from Mediobanca standalone growth. Combined entity is set to destroy value through dis-synergies. We can have EUR 460 million of negative PBT impact which can go up to EUR 675 million in case of lack of merger. And additionally, there is no DTA benefit if the acceptance is below 50%, and MREL deficit in case of no merger. We know that Monte Paschi has set a minimum threshold of 35%. There is also a team on governance as the governance deriving stemming from the combination is quite complex through a pyramid structure with the same shareholders having a significant presence in the three systemic financial institutions, which is even more important is that the consideration is totally inadequate from a financial standpoint. We have estimated that we will have a 10% recurring earnings dilution based on PBT contribution and expected dis-synergies, and we will have the same impact of minus 10% in EPS. The pro-forma business mix will be more skewed towards commercial banking, of course, trading at a lower multiple compared to our bank and in general, Wealth Management player. As the proposed exchange ratio 2.533x, Mediobanca shareholder will be exposed to more than 60% of the risk and the dis-synergies resulting from the combination, assuming, of course, 100% of acceptance. So the proposed exchange ratio represents a 32% discount vis-a-vis the average of ranges identified by our Board supported by the financial adviser which is 3.71x. So the offer is unattractive and the consideration is financially inadequate. So the story of Mediobanca, all of you know quite well, is a story of growth in Wealth Management set as a priority. Now is a player which is distinguishing Wealth Management in terms of above-market average growth due to synergic approach with CIB, which is then making that our process of attracting bankers and high net worth clients is faster than the market. And now with the perspective of combining with Banca Generali, we will double our size and Mediobanca, post-Banca Generali will be more and more seen as a wealth manager. CIB has delivered some of the best profitability in the European sector, thanks to a profound reshaping, which is acts on to different [indiscernible] RWA, more advisory and more international income. Compass is delivering very good and improving results quarter-on-quarter, and I think is the most profitable consumer finance company in the Italian market. And this has given us NII engine, which is going to be very important in the next few years where interest rates are set to become less supportive for the NII. The stake in Generali is on one end, a source of high income and dividends in the other is, as we said, always a capital reallocation opportunity, which recently materialized in the offer of Banca Generali. So if you look at Slide 6, this is a slide that we have already commented in the last call, we have had a coherent and stable strategy consistently over delivering on targets. Whether we operated with low interest rates, 0 interest rates, negative interest rates or higher interest rates, we managed to increase every single plan, substantially revenue, EPS, ROTE and CET1 has been always very high, letting important distribution and growing distribution to be done. As I said in the last plan, we plan to distribute EUR 5 billion. I think more and more convinced in the year to come already now will be important to be on a business model, which is differentiating bank versus the sector in the sense that the sector of Commercial Banking will be more and more attacked by newcomer the Revolut, the Klarna. So it will be more and more important to be on value-added service on credit, which is going to be less obvious to be given to customer like what we do in Compass, in advising clients in corporate investment banking or in giving protection and a good advice in managing money in Wealth Management. So today, we have a good set of different business that are being correlated, and we have an important engine in NII in Compass, as I said, but we have a growing engine in fee which is driven by Wealth Management and CIB. Thanks to private investment banking model. This is very important to be safeguarded to be further foster with the Banca Generali offer because, as I said, I do believe that margins in commercial banking, in general, in banking, but more and more in commoditized simple service with low value added will be under big pressure. So if we look at our long-term value journey, it's a journey which is built on a reshape and growth of the bank. Since 2016, we have doubled our revenue, which is even more important, it's the composition of this revenue. We were having in 2016, only 15% of the revenue stemming from Wealth Management. Today, we have roughly 30%. And we plan to increase our revenue by 20%, so it has 6% per year CAGR up until 2028. This is also bringing a different distribution to shareholders. Up until '25, we have had a mix of buybacks and dividend, 100% payout, but with 70% cash. We moved this percentage to 100% with an expected increase in DPS which is going to go from EUR 1.12 per share to EUR 2.1 per share in 2028. So doubling the cash dividend to our shareholders and going to have a cash ordinary payout at 100%. We will have still the last part of buyback, which is the last part of the plan, EUR 400 million, which will be resolved upon in July. So this kind of remuneration set Mediobanca among the best standard of the industry. So if we look at cash dividend or cash distribution on market cap, we will have a 30% market cap in terms of distribution in the next few years. Will have 100% cash out and will be among the best bank in terms of capital generation. When we look at the perspective of combining with Monte Paschi, we need to look at their strength and their weakness. As I said, the last few years of Monte Paschi has been marked by a number of accidents, which basically brought the need of over EUR 25 billion of capital increase in the last 20 years, most of them in various state aids. Market share has dropped because the bank has shrunk because of the need of restructuring and had to sell all the product factory because of capital strength -- capital constraint. So then becoming a majority, a distribution network. The recent MPS performance, positive performance are mostly driven by higher interest rates, which doubled in the last 3 years. But as we know, in the next few years, NII will be under more pressure, while the fee component has been always modest, sustained by large upfront part. P&L is impacted by significant tax benefit with positive income taxes increasing NPS net earnings. Asset quality remain a concern -- as a concern because NPE ratio and the average PD is almost double versus peer, lower RWA density relative to peers despite poor historical asset quality. We observed a higher CDS spread in NII sensitivity versus peer, and we still have some important legal risk, which equates to 35% of CET1, which is something that, of course, our shareholder never experienced with Mediobanca history. Lately or lastly, but not less important is that because of this element, there is a limited visibility on future profitability and the distribution capacity. Why? Because there is a high earnings dispersion among the different broker estimates, driven by lack of visibility on tax benefit impact on P&L and most of equity brokers, they forecast a declining royalty based on consensus, as I said, potentially impacting future dividend capacity. If we go on Page 15, we see that basically 10 years ago, market shares of Monte Paschi loan to deposit was 7% and 6%. Today, it's 5% and 4%. So a material decrease in market share. They had to sell all the product factory. So asset management was sold to Anima. The life, the bancassurance was given to AXA Consum.it, which was an internal company operating for the group is now also in part substituted by the distribution agreement with Compass and also in payments, they made an agreement with Nexi. So the bank had to do this for capital constraint, but this clearly had an important impact on the fee generation capacity, which was and is quite limited. As we said, the recent performance like many commercial bank were driven by NII sudden increase. In Southern Europe, as we all know, in particular, for Commercial Banking, we have seen a boost in NII because of the difference of cost of funding vis-a-vis the yield on assets. Here, we see the evolution of revenue. So revenue basically compare while in Mediobanca, you see a constant increase in revenue over the different plan. Here, we had in 2015, EUR 5.2 billion of revenue, which went down to roughly less than EUR 3 billion and then came up to EUR 4 billion because of NII. If you look at net fees and commission, this part never played the biggest role in the P&L. In the P&L of Monte Paschi, we should also consider as we said income tax. Income tax is contrarian to every bank, a positive item in the P&L and is supporting heavily the profitability. But of course, in the years to come, this is going to fade away, and we need to look at the recurrent profitability when an ordinary tax rate is going to be applied. The asset quality of Monte Paschi as of today, it's worse than the peers. So if we look at the probability of default based on public company public information, we see that on average, as a material higher probability of default in every single categories, SMEs, mortgage, large corporate and retail mortgages as well as basically the NPE ratio. Gross NPE ratio stood at 4.4%. The average of Italian banks is 2.5% and also the coverage of bad loan, it's different, 66% in Monte Paschi compared to 73% of average Italian banks. Another area of concern of attention is the RWA intensity or density. We see that Monte Paschi is enjoying a very low density, 47% compared to average Italian banks. This is not explained by superior asset quality. On the contrary, we have seen that historically, there's been a poor asset quality track record. They may still enjoy some waiver of the past. But if we look at a simple assumption that would lead them to be at the same level of other banks, so adding the same density, 54%, this will lead to 200 basis points of incremental need of capital. So material increase of capital need in case of alignment of RWA density to the other. We have observed also lower credit rating and high sensitivity to rates, and this is adding further vulnerability to macro because the CDS of Monte Paschi is in the region of 120 basis points. This compares to 55 basis points of average Italian banks and also the sensitivity of -- to NII to interest rate volatility is higher with 11% volatility or sensitivity compared to 9% of average Italian banks. Legal risk are still sizable, 35% of CET1. As you may know, in Italy, legal proceedings are always very difficult to be assessed and are very long -- having a very long tail. So recently, we have seen new legal initiative going to some different stage of maturity. And so it's very difficult to understand if this amount set aside, which is EUR 500 million as opposed to EUR 3.5 billion is enough or not. It's very difficult because of the complexity of the cases. What is not difficult to understand is the profitability in the sense that the consensus is showing higher dispersion of Monte Paschi earnings versus peer. So we have 18% and 19% dispersion on '26 and '27, while for the average Italian banks, this is only 13%. It's difficult to understand the future profitability because of what I said before, in the sense that Monte Paschi is enjoying still some nonrecurrent items like DTA. And hence, it's difficult to understand the current profitability. If we look at the consensus, we see that reported ROTE forecast is going to go from 18% of this year to 11%. But if we fully tax ROTE and we assume a fully tax ROTE, which is basically having an average tax rate like all the other banks, this level of ROTE is going to go below -- in the region of 9%, so basically well below cost of equity. This means that the bank is not generating value at this level of ROTE. We think that the transaction, the Board thinks that the transaction weakens Mediobanca and the combined franchise. Why? In terms of business model, as we said, putting together Monte Paschi and Mediobanca is not going to improve neither Monte Paschi nor Mediobanca. Why? Because Monte Paschi weakness or Mediobanca weakness will not be helped combining the two. Monte Paschi weakness can be helped in merging Monte Paschi -- combining Monte Paschi with another commercial bank with a complementary distribution network and also presence of useful product company. On the other hand, what we need is becoming stronger in Wealth Management is not something that Monte Paschi can bring to the table. So there will be an impact on the brand, on the reputation, on the franchise. It is a capital-intensive model in the sense that basically, it's not fee -- mainly fee-generating business, is more NII-generating business and which is more geared to macro, which is reversing the trajectory we have pursued in the last few years. So financially, this combination will generate a substantial value destruction. We have estimated EUR 460 million of negative PBT impact. And so this equates in zeroing PBT growth, which we have forecasted in our plan. In other words, our plan to 2028 foresees important growth in revenue and in profitability. As I said, 6% growth in revenue and mainly the -- broadly the same 6% to 7% in net earnings. In doing this transaction, it's like if we 0 this growth, and we are back to square one. Another element of concern is this less than 50% acceptance ratio because the bank has not set a customary level of minimum threshold. The customary level is 50%, where you have basically control of a company. In this event, no DTA benefit will materialize, very difficult implementation of synergies and additional MREL deficit. We think that the other element is that we don't understand because it was not clear the governance post deal. There were no details on the governance post deal. So we do see some complex governance through a pyramid structure and minority shareholder holding may have significant influence position on three systemic financial institutions. So in other words, high level of execution and integration risk. So as we said, the combination introduced complexity to a path that Monte Paschi is having of fixing its weakness. So the weakness are poor asset quality, ongoing litigation, business model are exposed to interest rates and reputation, which was marked by the previous problem. To this outstanding issue that the management is trying to cure over time with some success, we will add or this transaction will add additional issues which are deposit outflow in private banking, client attrition in investment banking. This is also materializing into loss of top talent in private and investment banking and dis-synergies. The element of concern is that this transaction, because of the size of Monte Paschi, is making that it's a sort of reverse takeover. So Mediobanca shareholder will have to bear 60% of the combined entity, and hence, 60%. So at the majority, the value restructure results from the combination. The combination, as we say, on Page 25, is not showing a great player after because as we said, it's not going to be a strong commercial bank. It's not going to be a strong Wealth Management. It's a bit of a mix of the two, which is not basically showing great appeal. On one end, we continue to look at our standalone plan. And on Page 26, we see that, as we said in the past, we never had some big issue that limit our growth. We were having EUR 2 billion of revenue in 2015. Now we are closer to EUR 4 billion and we want to exceed EUR 4 billion in 2028. This is -- so 7% CAGR of revenue and the 9% CAGR of net profit. If we look at the same period, Monte Paschi, negative CAGR in terms of revenue and basically flattish or 0 CAGR in revenue even for the future. And in terms of net profit, it's difficult to understand because there have been a lot of, as I said, write-off and cleanup of the banks. So basically, only a few years, they reported a net profit. We have a totally different view on synergies. In our case, we think that [indiscernible] takeover of two very different entity, one, which is basically acts on talent pool is going to generate the synergies. Is going to generate roughly EUR 500 million of less revenue, only EUR 80 million of cost and funding, which is going to be net cost, a net incremental cost because of the different customer base. Our customer base is asking to be paid while the customer base of Monte Paschi maybe less rate sensitive. So we arrived to a total negative EUR 460 million with EUR 275 million integration cost, while Monte Paschi projection shows EUR 700 million of synergies and EUR 600 million of integration cost. It is going to generate double-digit PBT dilution and double-digit EPS dilution. How can we explain the dis-synergies business by business. First of all, we need to take into consideration that we have updated our plan recently. As we said, the update shows an important growth, in particular in Wealth Management and CIB. So it's like if we say that basically this kind of dis-synergies, which equates into EUR 275 million in Wealth Management and EUR 220 million in CIB are for Wealth Management, 2/3 stemming from less growth. So basically, we will grow less than what we have forecasted in the plan and 1/3 or 30% because of exit of assets and talent. This is for Wealth Management, while in CIB is more balanced, so 50% is less growth compared to our plan and 50% is exit of bankers and exit of clients. We see the phasing in 3 years in case of merger, so basically 50% in '26, 75% in '27 and 100% in '28. If we look at how dis-synergies are reversing into the combined entity, we'll see that, as we said, if we take into consideration the consensus out of EUR 350 million of additional PBT in '28 of the two entity combined, 85% will stem from Mediobanca standalone PBT. And this kind of growth will be totally erased by the run rate dis-synergies. We see, as you can see here on Page -- on Slide 29, Wealth Management EUR 275 million, CIB EUR 220 million and then the net of the other cost, EUR 80 million plus negative EUR 45 million in funding, [ EUR 35 million ] net, we arrived to this EUR 460 million, which is basically completely offsetting the combined PBT growth. There is a matter of concern also on the governance of the entity post Tier 1 because basically, if we put together the available information, and we have two scenario merger, so basically, Monte Paschi at 2/3 of Mediobanca and then basically doing a merger, basically, we arrive to the two main shareholders having 1/3 of the combined entity and them plus this entity having basically 30% of Generali. If we look at a scenario which was also a scenario that Monte Paschi set as a minimum threshold, this number changes because basically, the two main shareholders together may have more than 40%. And with the Monte Paschi not merging with Mediobanca, not combining with Mediobanca, they -- we still have 30% of Generali. So having different interest and different position, clearly, it's a matter of attention and possible concern. As we said, which is even more important is that the implied offer value implied in exchange ratio is highly unattractive. Why? Because at current price is 4% discount. When was announced, was having a 5% premium, which is not a premium of any kind of similar deals. And if we look back at pre-announcement price, so we look at the 3 months, 6 months and 12 months, this equates into a severe discount 3%, 13% and 22%. As we said, pro forma contribution 2028, Mediobanca shareholder will lose 10% of earnings because our standalone is going to deliver EUR 2.3 billion of PBT, while the ratio of offer we'll have 62% of the combined entity, so only EUR 2 billion of PBT, so with a loss of more than 10%. Clearly, combining two business or putting together two business or two entity of this kind will not improve the multiple. At least will not improve the multiple for Mediobanca shareholder. Why? Because Mediobanca shareholder today enjoy a multiple of 10.4. This is also on the back of the efforts to invest more and more in fee and more and more in Wealth Management. As we know, NII or more asset-based commercial bank, they trade more in the category of 7% to 8%. So basically, doing this, we will reverse our trajectory going back to a lower multiple. The Board has set minimum value of the implied exchange ratio and a maximum value of the implied exchange ratio. The first one is 3.51x, and the second is 3.91x. So an average of 3.71x, this equates or represents a 32% discount vis-a-vis the average of ranges identified. And hence, this is an evidence that the consideration is totally inadequate. So in a summary, we have -- we said this already in previous calls, we see a very weak strategic rationale due to the absence of business model enhancement for both entities. The combined entity risk profile will be weighted down not only by Mediobanca -- by Monte Paschi risk profile, but also from the execution risk of the transaction and from unclear governance. Financial rationale is evanescent as Monte Paschi has enjoyed for the time being, a bonanza by interest rates and DTA, while we see in the future substantial synergies in the EUR 500 million PBT -- negative PBT impact. As the consideration is entirely Mediobanca in the Monte Paschi shares, we think that there is a steep discount vis-a-vis what is going to be a fair treatment of our shareholder. And also because of the deal mechanics, the deal mechanics and the size of the two entity. As we said, this is a sort of reverse takeover where basically our shareholders will have 62% of the combined entity. So in theory, should express the control of the new entity, while the control of the new entity is supposed to go to Monte Paschi shareholder, which they have also set a minimum acceptance of 35%. So we think that our strategy standalone is going to deliver much better perspective to our shareholders. This is not because we are under an offer, but because this is coherent with what we have been consistently delivering in the last 10 years or 15 years. So we are not now setting unreasonable or unachievable targets. We are setting targets that are coherent with our -- delivering our story, so 6% revenue CAGR and an EPS recurring plus 9%, ROTE recurring at 17% with still an important CET1 of 14%. On top, we are very much focused on Banca Generali transaction, which represents a significant capital reallocation from Insurance to Wealth Management, a stronger focus on fast-growing capital-light Wealth Management business, which can create a clear leader in terms of quality, visibility and revenue and represents a unique equity story, an accretive transaction, which can unlock important synergies. So we are looking to go ahead with this transaction as we are looking to go ahead with our industrial plan because we firmly believe that there is no match in terms of value creation and cash distribution to our shareholders compared to the offer that today is on the table. Thank you very much for your attention.

[Operator Instructions] We will now take the first question from the line of Luigi De Bellis from Equita SIM.

Two for me. The first one, so regarding the Monte Paschi transaction involved in Mediobanca. Could you share your view on how this offer compared to what is usually seen in the market standards or similar deals which are the main parts that seem significant different or unusual if you could kindly share with you on those? The second question, a huge amount of potential dis-synergies. Could you please elaborate further on the revenue dis-synergies by division, also in light of previous transactions in the market and considering your foreign boutique in CIB. And also, if you can elaborate on the MREL deficit in case of no merger, a different RWA density of Monte Paschi compared to the banking system average?

Thank you, Luigi. Yes, I share the view that -- and I'm not alone that this transaction is not customary. It's not a standard transaction for many elements of anomalies, maybe too many. Let's go through them. The first is the way the last tranche of Monte Paschi share have been sold and the presence of our two main shareholders, which entered in Monte Paschi simultaneously in November. Let us understand or think that there should be a plan on Mediobanca when they enter because otherwise, there won't be any reasonable motivation to invest hundreds of millions of euro in a bank when at the time where they were already very much exposed to Italian financials. So in order to invest additional money when you have already a big exposure, you should have a plan. So the first element is this one. And this is also basically confirmed by the fact that this shareholder increased their stake immediately after they were [indiscernible] in the board of Monte Paschi and Monte Paschi immediately after they announced the takeover of Mediobanca. So in this perspective, it is not credible what the CEO of Monte Paschi is saying that it did this transaction on its own because basically, what we have seen is that this transaction was prepared and voted and backed by all the major shareholders even included the government. The third element of, I would say, anomaly is this structure of the transaction. The fact that it's not amicable or hostile is not one of a kind because we have seen a lot of hostile takeover. This is something that in the market is seen frequently. But having the same shareholder on one side and on the other, offer without a premium and the fact that the offer is much smaller than the target, clearly generates a number of question mark. First of all, on the economic interest of these two main shareholders to pursue this transaction compared to the perspective of Mediobanca standalone and Mediobanca plus Banca Generali. The third element of anomaly is the run up of the Monte Paschi AGM. We have seen that in the run up of this AGM, roughly 10%, 12% of the capital was bought. So the share price rallied, the acquirer were the second largest shareholder of Mediobanca and a number of pension fund, Italian pension fund. The same acquirer materializing Mediobanca run up to the AGM of the 16th of June. So we had the second shareholder of Mediobanca plus the same Italian pension fund, plus the second largest Italian bank, and they bought altogether 12%. And as we said, a transaction that was judged by all the brokers or most of the brokers and all proxy were judge -- was judged very positively, didn't have strong support. And for reasons that were not clear. So you were to postpone this to give more comfort to the shareholder. But I mean, these were the same shareholder that bought the shares in Monte Paschi and then bought the shares in Mediobanca. The last element of anomalies is the role of the government. Here, the government is playing different roles, is selling the block to this shareholder, is keeping the de facto control of the board of Monte Paschi because if I'm not right, today, the appointees of the government are at least 50% -- roughly 50% of the board of Monte Paschi even included the Chairman and the CEO. In the same time, government is having golden power in general and on the banking consolidation and has had, as we read in the last few months, very strict recommendation or condition imposed to some of the consolidator. This situation where the government is having multiple roles, so a major shareholder of Monte Paschi, de facto controlling the Board using the golden power has made that a number of actors in Italy, directly or indirectly decided to back this transaction. And we saw it because we saw it in the behavior of BAMI and Anima on the General Meeting of Mediobanca. We saw it in Amundi, in General Meeting of Mediobanca. We saw it in the second largest bank in the shareholder of Generali Mediobanca. And there are also other shareholder of Mediobanca, which are having other interest in Italy that I think were affected by this situation. So this transaction is non-customary for several reasons that I mentioned. In terms of ID synergies, let's elaborate a bit more on that because basically, as I said, the reason of [ these synergies ] is partly explained by the lack of growth that we have or we will have compared to the status quo, the standalone plan. We think that in particular, in Wealth Management, 2/3 is lack of growth. We plan to grow by EUR 11 billion -- EUR 10 billion, EUR 11 billion of net new money. Here, we are saying that we are going to grow by EUR 5 billion per year. We think that in particular, we will have the most impact in the high-end part of private banking. Why? Because our private banking stuff, it's of great quality and every single private banker of Mediobanca Private has very important average portfolio. So this is a concentration of AUM in the first, I would say, 20 bankers. And hence, it's easy to see how this can be impacted. We think that also the product company that are less basically related to private banking and more institutionally driven like [indiscernible] can be basically more driven to find new shareholders. This explains, as I said, a bit on 2/3 is lack of growth and 30% is more exit of staff. In CIB, it's more equal, 50-50. How? We see basically -- we need first to understand that we are starting from a record year. This year will be a record year for IB. So also defending this number and improving like what we have done in our plan requires 100% focus, 100% basically sticking to our model of private investment banking, which is fostering each other. If we have an integration period, it's likely that basically some of the best stuff can go of basically the historical CIB and PIB model. But of course, also, the boutique we have outside Italy, we don't think that in the long run can really be attracted by a model of commercial banking. So we don't forecast for them to go right away, but in 3 years' time, there is a big risk that this may materialize. So this is in a nutshell. Then in case of no merger, Monte Paschi will not benefit from the deposit synergies, and it would need to make up for EUR 6.2 billion of MREL deficit by issuing senior preferred bonds as this cannot accounted for Mediobanca bonds in case of no merger. So they will have to issue additional EUR 6 billion of bonds at a cost which is estimated in the region of 140 basis points. So this is another material dis-synergies in case they don't achieve the merger.

We will now take the next question from the line of Hugo Cruz from KBW.

Just a few -- 3 questions, if I may. So first of all, can you remind us what percentage of the Compass loan book is originated outside of the Mediobanca and Monte Paschi channels? The second question, your slide talked about a central cost base of EUR 120 million. How much of that is just from being a listed entity in the case of Mediobanca? And then third question, what feedback have you been receiving from your average institutional investors so far about the offer and your current business plan?

So let's start from the third question. We have different shareholders, different category kind of shareholders. We have institutional long shareholder long only or long. We have a number of stable shareholder. Their feedback is exactly what we have been saying is they don't like this transaction. They don't see a rationale. They don't see how this transaction can work and be improved. So some of them are worried. Some of them have diminished their exposure to Mediobanca. We keep on saying that if we stick to our business model, if we stick to our standalone plus Banca Generali, they will have a great satisfaction. Then of course, there are other shareholders that have different view or interest, in particular, if you think about some arbitrage, they look at the transaction in a different way. They are not sticking to the bank after the deal. So if they are, for instance, long of Mediobanca and short of Monte Paschi, for them, it's enough that a certain condition that deal takes place. But of course, this is another view. The stable shareholder, the long-term shareholder, institutional shareholders, the feedback is not positive. If we look at the first question is how much of Compass loan book is outside basically Monte Paschi or it's -- I mean the new loans of Monte Paschi business is roughly EUR 500 million in -- out of basically the new loan production that is EUR 8 billion. Then we have other 2 or 3 agreements that are, one is important with Poste Italiane, other with [indiscernible] bank. But I mean, as you know, Hugo, our strategy has been more and more to generate directly from our network, and this part is becoming in terms of revenue, in terms of profitability, quite small. Then can you repeat the second question because the line was not clear, and we couldn't really understand.