Good afternoon, and welcome to the BFF Banking Group Market Update call. Our participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Mr. Giuseppe Sica, Group CEO. Please go ahead.
Thank you for the introduction, and thanks for everyone who joined the call. First of all, let me reiterate that we have received the measure by Bank of Italy that we have announced last Saturday. We have announced promptly everything that was relevant to the market. The Bank of Italy is still working on these general on-site inspection. What is the measure? The measure is the appointment of two temporary commissioners, Raffaele Lener and Francesco Fioretto. Their role is to support the Board of Directors and the management on a temporary basis on the remediation process, which had already started and been initiated by the bank, as I announced in February. The remediation process covers also the operational and accounting framework.
The actions, let me stress, already initiated by the bank have been more relevant, clearly, by the misallocations of pre-2023 events, which have led to the equity statement of 2024. However, the measure is temporary, and the BFF Board of Directors and the Board of Statutory Auditors retained full powers and decision-making facilities. I will be, and the board will be cooperating fully with, the commissioners for as long as they stay with us. Now, there have been different things said in the press release, that we reported there, and the relevant one.
The key measure is the appointment of the commissioner, but there have been other information in the press release that we have disclosed because they were communicated to us, not as final, by the Bank of Italy, and they have to do mainly with the classification of past due. Bank of Italy has identified up to, and I stress up to, EUR 0.8 billion additional past due related to the potential inclusion of late payment interest within the so-called contagion exposure. These were not included in the previous inspection. Up to EUR 0.5 billion arising from potentially more stringent interpretation of the mechanism related to the suspension of the counting days of past due. Again, BFF is conducting a full assessment of these amounts and of these potentially more restrictive measures.
Also, to clarify, the impacts that I have just mentioned are not necessarily cumulative. Even in the absence of any overlap between these two amounts of past due, and taking the maximum, we would still respect the CET1 regulatory requirements. To be clear, this is the direct requirement. There will probably be questions, and I'll answer to the best of what I can today. There will be questions on what this means for the bank. As you know, we have received the information of this potential additional past due over the weekend, and we have already launched a full assessment of the impact, and we'll update the market as soon as possible.
Also with regards to the date of approval of the 2025 accounts, we remain fully focused on the business, on the de-risking, and on addressing the historical shortcomings. Today's announcement, as I've already said, largely relates to pre-2023 period. We continue to have three businesses, and we are leaders in all three of them. Two of the businesses are extremely profitable, perform to our expectations and have virtually no RWA and no risk. For the factoring, we said it in the press release very clearly, and we said it for a reason. The loss given default is extremely low, if not negligible. We will continue to focus on the success of the business in the current, also more complex environment, and to the benefit of all stakeholders. That was the introductory speech. I would now open to questions.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. The first question is from Tommaso Nieddu, Kepler Cheuvreux. Please go ahead.
Hello, and thank you a lot for taking my questions. I have just a couple. The first one is on capital. You have said in the press release that even in the adverse scenario, you remain compliant with the CET1 requirement. But you didn't explicitly say the same for the total capital ratio, which, I mean, in my estimates could risk to be breached. So can you confirm whether under your current based estimates you also remain above the 13.2% total capital ratio requirement? The second question is on the ancillary credit rights reviews.
The press release refers to around EUR 452 million of payments reviewed and a EUR 3.4 million pretax negative impact, statistically estimated from the EUR 102 million sample. Why was this specific 452 million subset selected? Is there any risk the review perimeter broadens farther? Thank you a lot.
On the total capital, we didn't write it for a reason, but it's not—t he considerations are, we received the communication on Saturday, we have to fine-tune the numbers. We are pretty sure about the Q1. We have to assess the numbers on total capital. If anything, it could be a few basis points. On the perimeter, that's been determined with our external advisor. I think we mentioned the name of the advisor in the press release. I don't see the risk that it expands further. The impact of EUR 3.4 million is by examining already effectively 25% of the portfolio on a statistical basis, and the impact is EUR 2 million post-tax, more or less. For us it will not even be material.
We have disclosed the key market. You will appreciate it in the spirit of the maximum transparency that we have wanted to give.
Okay. Thank you.
Thank you, Tommas.
The next question is from Giovanni Razzoli at Deutsche Bank. Please go ahead.
Good morning to everybody. Thank you for taking my questions. The first one is on the potential increase in the stock of past due that we have already discussed yesterday, so the EUR 0.8 billion and the EUR 0.5 billion. I was wonder—I mean, this is potentially a temporary impact. So I'm wondering whether in the context of the securitization that you have already announced, you are analyzing on the, let's say, older stock of contagion exposure of EUR 269 million. You could, in theory, extend this transaction to a broader scope of past due for the, you know, the preliminary indication of Bank of Italy. So that could be, let's say, a way out to free up more capital. Is this something that is, in theory, a possibility?
I already asked Giuseppe this yesterday, but I would like you to see if you have additional thoughts on it. My question relates on the potential impact on the accounting framework that the Bank of Italy is, you know, investigating, if I'm not mistaken. It's extremely premature to take any conclusions, but can we assume or can we think, can we anticipate a possible revision of the LPI accrual? Is this something that could have, you know, impacted by this analysis of the accounting framework? Thank you.
Thank you, Giovanni. First of all, thank you for saying that the impact of the 0.8% and 0.4% could be temporary. Because the reality is that if certain objections on the classification are discussed and agreed upon, then they are discussed and agreed upon. Okay. As you said, this is the maximum potential. I stress the word potential impact, and we need to assess. If we change the criteria, then we change the criteria. As you say, there are measures that we can take. For sure we could try and put LPI. Already we're putting part of the LPI in the securitization. We're planning to—w e could put more for sure. As always, I can't discuss financial impacts that I don't know.
I've discussed many times we do the capital creation, which could be underlying a good securitization. I don't have the impact, even high level in this case. It is possible. Clearly there is a question of what you want to do with the LPI. I have not discussed the change in accounting of the LPI, and it's not been raised to me. Frankly, if the points on the past due are confirmed, and I don't know, then there is a question of whether we do want to change that. Because if it's past due and it has to go in calendar, then probably I'd not necessarily want to do it. We have to assess the impacts. I don't have the numbers yet, but i t's not a request that I have received.
Thank you.
The next question is from Ebrahim Saeed, JP Morgan. Please go ahead.
Hi. Thanks for organizing the call. Just to understand, you said that I guess the review is ongoing. Can we think of the April 30th deadline for your restated accounts to be sort of a deadline for the completion of this review? Or when can we have some more clarity on the scope of the review and any subsequent adjustments? Is that the timeline we should attach to seeing some clarity on the final numbers, including your CET1 and total capital and so forth?
Thank you for the question. I say yes, but I don't want to go out with an annual report where there are still relevant factors of uncertainty. That is the goal for sure. Yeah. Thank you, Ebrahim.
The next question is from Vincenzo Mangiaracina, Athora Italy . Please go ahead. Mr. Mangiaracina, your line is open. Maybe you're on mute.
Yeah. You can hear?
Yes.
Hello.
Please go ahead.
The question is very simple. You are starting to lose the access to the credit market because you're on the credit or your first, let's say, maturity date, your credit is trading, let's say, above 7%. You're losing, let's say, 15% on AT1. The question is, could we exclude the needs of a capital raise? Thank you.
I don't agree with the assessment that we are losing access to the credit market. The AT1 is callable, and we are all rational people. The senior are also callable, but are not expiring. You are a fine reader of our numbers, obviously. You know, because you have it in the slides that if we were to be under pressure, we collected in 2025 halves of our past due. That's an easy solution. We have many ways to create capital. We have to assess the full impacts of the letter that we have received.
Thank you.
The next question is from Sharada Patel, Citigroup. Please go ahead.
Hi. I have two questions. I just wanted to understand, firstly, the scope for any further equity restatements, i.e., was that 2024 restatement the result of a fully exhaustive investigation alongside [AT1]? Or could there be more to come? My second question would be, obviously in your kind of February press release, you said you're expecting EUR 70 million of provisions for the negative court rulings. Now in the latest press release pointing to the fact that this could be updated, has there been any change in this assessment and why? Thank you.
The equity statement. Listen, we were, as you know, to approve the accounts today, and the equity statement was the equity statement before we received the communication from Bank of Italy. We have highlighted this EUR 3.4 million pretax. These also relate to things happened before 2024. We were not planning to include this EUR 2 million because it's not material for us. I don't know if we decided. Since we delayed by one month the approval of the annual report, we were going to include this amount in the equity statement. On the negative sentences, I don't have indication they are not sufficient. Again, we have one month to discuss with the regulator, because what we wrote here is in discussion with the regulator.
The policy was approved one month or two months ago. We have started to receive negative sentiments that we expected in 2026, which were in line with what we had budgeted. We have no indication, but we try to be conservative in what we write also based on what we receive.
The next question is from Simonetta Chiriotti, Mediobanca. Please go ahead.
Yes, good afternoon. Several questions from me. The first is, if you expect to pay the AT1 coupon. The second question, in the past, growth in past year has been stacked with the changes in the accrual assumptions. Do you still see the possibility of implementing a measure of this kind at this point? And third, on the securitization, can you comment on the feasibility of the securitization if things have changed after the last communication? Thank you.
Thank you, Simonetta Chiriotti. On the AT1, I think the level at which the coupon is not payable is much lower than I remember. Based on what I know now, no. On the securitization, we received this communication on Saturday. We have to understand what really will go to increase the past due, given that these are potential impacts. We may have to review the perimeter that frankly we were already very close to finalizing. We have to assess the impact. Is the second question, Simonetta , on the past due? If you could repeat it.
Yes. Basically, in the past, capital has been generated by changing the assumptions. Yeah.
No, I don't see room to increase the LPI accrual rate. As I said, we have other venues if we want to create capital that we have to assess as we are analyzing the impacts, and frankly, as we're finalizing the impacts on what we have received.
It's not yet possible to comment on these different ways to create capital?
No, no. I think I hinted to it. In 2025, we collected around 50%, if not 60% of our past due exposure. That per se would correspond by half to EUR 180 million, EUR 190 million of capital. That's page 14 of the full year results presentation. Clearly, these are extreme measures and I have the responsibility to assess the impacts on this for the stakeholders. These are extreme measures which are there, which we can undertake if we want.
Okay. Thank you.
The next question is from Domenico Maggio, Jefferies. Please go ahead.
Hello. I just have one clarification coming back to something you answered before. You clearly have written that the bank continues to comply with the common equity tier one regulatory requirement. It sounded from your previous answers that you do not wanna or you do not have full visibility to comment on whether you still comply with your total capital requirement. Did I understand that correctly? If so, why is that the case? Shouldn't it be pretty simple to comment also on that? The second question on the EUR 800 million LPI and the EUR 500 million additional exposure, what was approximately the risk weight on those two? Where should we expect the risk weight to go for those two portfolio?
Thank you.
No, thank you for the questions. On total capital, I tried to answer, which is a few basis points different. It really depends on the fine details, and I don't want to give misleading numbers to the market. That's the only reason, and it's a few basis points taking the worst case scenario where we take the full EUR 800 million, the full EUR 500 million, and there is no overlap. This is about the total capital.
Okay.
Now the risk weight, you know that past due is weighted 250. Our average risk weight is already extremely high at the moment. Let me remind you that we have also 40% of our assets invested in BTP, which are risk weighted at 0%, and we have EUR 6 billion loan book, which are risk weighted at, which we have EUR 4.7 billion of risk-weighted assets. It's quite punitive already. That's my answer to you.
Shall it be maybe from 30%-60% risk weight to 250%?
No. The risk weight on the past due is always been 150%.
Okay.
The differential compared to the status quo for me is difficult to give as we have reported the numbers that we have received with the net underlying portfolio.
On the total capital—
I can't give you a number, okay?
Okay. On the total capital, when you are referring to a few basis points of difference, on what exactly? I'm not sure I follow you there.
On the total capital. Yeah. It is really a final—
Versus the requirement?
Yes, yes, versus the requirement. Yes. Yeah.
Basically, you're a few basis points above the requirement on total capital.
On the total, above or below, that's why we didn't disclose the total capital, or we specified the common equity tier one in the press release.
Okay.
As I said, we have actions that we can take with regards to capital. Okay. We just have to manage the loan book generally.
Thank you.
The next question is from Michael Niedzielski, ROCE Capital. Please go ahead.
Yeah. Hi, hi. A couple questions for me. First of all, I'm not sure I understand when you say that, you know, the two loan books, EUR 0.8 billion and EUR 0.5 billion are not necessarily cumulative. Meaning that you do not know whether there is any overlap in these two. If you do not know, I don't quite understand why, 'cause you know where these books are coming from. Why can't you give us a more precise answer on the potential overlap between the EUR 0.8 billion and the EUR 0.5 billion? The second question on the-
As I said—
Yeah.
Sorry, go ahead. Sorry.
No, go ahead. Maybe I'll have one by one so that.
No, I can answer this one. The numbers we have in the press release regarding these two measures come from the letter that we as a board have received from Bank of Italy. The details of the single loan on which there can be challenges we need to address. Of course, we communicated immediately, as I think is our duty to do. To the market, we have not had the chance, it's Monday, to go loan by loan. If there is no overlap, the impact is 1.3%. If there is full overlap, is 0.8%. These are potential impacts that the board will need to assess. That's the maximum I can tell you at the moment.
Okay. Second question is, you know, it has been touched before, but I just wanna have perhaps some more color on the potential increase in, you know, risk-weighted assets. I just trying to quantify this as much as possible because, you know, when I do the math, I mean, it looks to me that, you know, you are at 14% CET1 ratio. Now we have this potential additional 1.3% at worst. But of course, you know, the impact in terms of RWA is not gonna be 1.3%, it's gonna be a fraction of that.
Even if I make fairly aggressive assumptions on the risk weight that you put on those additional loans, you know, I still remain comfortably above 10% CET1 ratio, so above your 9.3%, 9.7% comfort threshold. Why not give just a more precise number, whether it's 11%, 12%—
Yeah.
13% minimum, as opposed to say that you're just gonna stay above the 9.7% —
Yeah.
— threshold?
I don't know what RWA assumption you are taking. We are taking the worst, which is 150%, which is the level of past due. That's the level that we are taking. Yes, like I said, we are comfortably above. I've tried, and I am in a difficult spot at the moment, because I have always said to you, to the equity analysts, that I want to be more conservative, and I am on a call where many of the things that I've said over the last two months has proven partially wrong or not conservative. That doesn't change my approach. I still want to be conservative. We write what, based on information we have, we believe is true. Again, we received the information on Saturday.
We have to do the full impact, which would require some days.
Yeah. Okay. I understand. My last question is, can you just clarify a question that has been asked previously, but I'm not sure I fully understood the answer, you know, on a potential capital raise rights issue. I mean, are you willing to completely exclude that as an option? You know, obviously, you know, with the share price being down 82% year to date, your equity value.
Yeah.
It is not worth much today, you know. That would be catastrophic for existing shareholders, if there were to be a capital raise at this stage of the story. Can you just confirm that, you know, this is not an option that you're considering, that you're comfortable and have other options to, you know, come out of this, without diluting permanently the existing shareholders?
I have much easier options. That's what I said. Also that we have to assess the impact, of what we have received, or we have to understand, what are the implications for various business of what we have received.
Okay.
I certainly have much easier options. The catastrophe, unfortunately, in a way, given what the share price is, has probably already played out to almost the full extent. I take the point. This is what I can tell you. I have easier options, and I have the duty to study these options.
Okay.
All of our business is risk weighted at 150%, maybe the easier option is to do a rolling securitization or to find a partner to buy the loan book or other things. These are all actions that we need to study, that we're studying regardless of the letter that we have received.
You know, last time we spoke, you know, I asked you about your shareholding and, you know, you became CEO. You hadn't been given shares in the company. Obviously, you know, with this happening, this is a little bit worrying because, you know, if you don't own shares today, I mean, you're less sensitive to a potential drastic solution like a capital raise. Can you give us an update on, you know, where. What's the update on your share incentive in the company as of today?
No. I do have share incentives. Already as a CFO, I had options at much higher strike, so they are not relevant. I do have in my contract a share-based incentive. I do not have shares, but I have the same alignment that shareholders will have.
Okay. Thank you.
Thank you.
The next question is from Olivier Doukhan of BNP Paribas. Please go ahead.
Good afternoon. I fail to understand your answer about the potential payment on your AT1 coupon. Did you suggest that the coupon payment restrictions are kicking much lower than your assumed level of total capital based on your current assessment? Or did I hear, you know. Like, could you clarify this because you didn't provide a precise view on your total capital position. Thank you.
Yeah. It's low. It's a lower number, and it's based not on consolidated accounts, but on individual accounts on top. I think the perspective is public. Yes.
Yeah. Thank you.
The next question is from Simon Törnmalm, Ture Invest Partners AB. Please go ahead.
Hi. Thank you for taking my question. It was in relation to the statement on the CET1 ratio for the consolidated basis, because that's what I assume that the press release is referring to. Have you done any preliminary calc on the CET1 ratio for the issuer position, if that's meeting the requirements as well, if in a worst case scenario?
I don't think we did, but I'm not worried at all about the individual, because we always have the ability to access team dividends from branches that we have across Europe that has paid for it.
Understood. Thank you.
The next question is a follow-up from Giovanni Razzoli, Deutsche Bank. Please go ahead.
Good afternoon. Thank you for taking this question. It can be or it can sound as a completely off-topic question, but in my view, it isn't. This is actually on the Securities Services business. Can you remind us if you do have any outlook for new contracts in pipeline or do you have clients in the Securities Services on which you have already signed a new contract which you still need to onboard in the next few months? In case if you can provide us the potential magnitude of these contracts in your Securities Services business. The second question on the Securities Services business, can you remind the audience what are the areas of business where you historically have a leading position?
What is the market share if you have a data on those businesses? Thank you.
Thank you, Giovanni. I don't know if it's probably the last question, but we are done. We are getting to a close. On the Securities Services business, I said it probably that we thought the current situation was not helping in getting new clients. We had a good January, and I said it on the call of the full year results that we had a good January that we onboarded a couple of relevant clients. I was not expecting to onboard new clients in the first quarter or in the second quarter, given the overall situation. In fact, I think we do have something in the pipeline. Frankly, I didn't have time this morning to verify whether these are actually gonna happen or not.
I was positively surprised by the team that they onboarded. They were close to onboarding new clients. That was for me a positive surprise. On the market share, I look at my team, but really the areas are two. We are the Italian payment service provider, so around 150 banks are intermediating payments with us. The market share is effectively. I don't have a number. It's extremely high. You know, I think the top five banks in Italy don't use us to intermediate payments. On the depository bank, we are really focused on the pension fund business where we do have a leading market position, probably 40%-50% market share in that specific sub-segment.
We're also extremely strong, and that's why probably the concept of market share is less relevant. We are extremely strong in dealing with small funds, alternative funds, where probably larger players have less focus or less flexibility. We have seen many of the clients and actually receive only compliments about the level of services that we provide on that part of the business.
Thank you. A clarification on your first answer. You added the two new clients in January, right?
No. Yeah, I think we added some clients in January. Yeah. I don't remember the numbers. I gave the numbers in the presentation.
Okay.
The next question is from Michele Baldelli at BNP Paribas. Please go ahead.
Hi. Good afternoon to everybody. I have a question about this, let's say, new classification of past due. Is the Bank of Italy requiring you to apply those from 2024, or they will start the classification into past due just now? Just to understand the calendar provisioning impact coming from this action. The second point is still on this, can we share what the Bank of Italy thinks about the late payment interest in terms of classification? Are they gonna be, let's say, seen as assets that will always fall if they are in past due into the calendar provisioning rule, given that they are paid after many years, more than the three, four years of the regulation? Thank you.
Thank you, Michele. Now, if it's an hypothesis at the moment. If we were to declassify the past due, this would happen the first available date. As I said, you know, I would try to have everything on the 2025 accounts. I would see no reason to do it for previous years, given there to be a change driven by other considerations, and we have to see, as I said, what is the actual impact, what, where is the overlap. Let me remind you also that the inspection is not finished, so it's not.
We do not want to be in a position where we announce a number and caught everybody by surprise with the maximum numbers if the bank and the board fully agrees with the findings or the preliminary findings. We have not discussed the calendar. In 2024, the calendar was starting two years after the reclassification, as you know. I cannot answer when this will start. I can tell you what happened in 2024, but you know very well. That's the maximum I can tell you at the moment. Really we have not discussed this with the regulator.
Thank you.
I think that was probably it for today. Thank you again for spending time with us, and we look forward to reconnecting in the future. Thank you.
Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.