Good morning, and thank you for standing by. Welcome to Mediobanca's six-month results ending December 2023. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To enter the queue for questions, please press star one and one at any time. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Mr. Alberto Nagel, CEO. Please go ahead, sir.
Good morning, and thank you for joining the call. In this first half of the year, we have delivered strong and capital-efficient growth, and what is even more important is that we are implementing the new vision of the group. In fact, in this first half, we have increased TFA by EUR 5.5 billion, with EUR 4 billion of net new money, which is quite a good level compared to the standard of the industry. We have, in the meantime, reduced by 5% RWA to EUR 49 billion through the optimization of CIB. This led into an increase of 4% of revenues to EUR 1.7 billion, and a 10% increase in overall profitability. CET1 was at 15.3%, with 150 basis points of capital generation fronting the M&A and the share buyback.
There's been a visible value creation with the ROTE up to 13.3%, a double-digit increase, both in EPS and in tangible book value per share to 12%. So this strong growth, coupled with the strong capital generation, is allowing a good capital distribution, so we have introduced the first interim dividend, which will be paid in May 2024, and so that we stick to our 70% cash distribution, plus we are executing a share buyback. On top of organic growth, we have, you know, also some enabler that are M&A activity for the bank, which are improving the international presence and the digital platform. In this last quarter, in particular, we have done the closing of Arma Partners partnership.
We have done also the acquisition of HeidiPay Switzerland, which is a buy now, pay later operator in Switzerland. We have established a Mediobanca SpeedUp with the Founders Factory in London, and we saw Revalea, which was an NPL acquirer that we had held in the group since many years. Across the board, we have had the improvement in the positioning of all business. In particular, we note this month the relaunch of CheBanca! into Mediobanca Premier, and this will lead, and is leading us to stronger pipeline of senior recruitment, product enhancement within in-house guided solution, ability to grow in net new money at twice the system speeds.
This reverting into double-digit growth revenue, which is equal to 11% increase to EUR 460 million, and profit of the division up 22%. CIB saw an important reduction in RWA, down 15 points to 46% of intensity due to selective origination and also some risk mitigation measures, which we have introduced. We have an improved underlying IB trend, also driven by mid-market and private investment banking model.
Arma Partners, which is representing 40% of CIB revenue growth across during our plan, is now fully consolidated, and we are advanced also in the new initiatives which are forecasted to be done during the plan, which represents 35% of CIB revenue growth, energy transition team, mid international, and BTP specialist status. Very good results also from consumer finance. This has been achieved through multi-channel leadership and the new product and geographies. We have printed more personal loan throughout our distribution network with better margins, which more than offset the slight increase in cost of risk, and we are going at buy now, pay later, which is becoming a very strong client acquisition driver. So the profitability remained very, very high and is set to stay very high.
If we look at our journey through the plan, we see on page five that basically we are perfectly on track to deliver a 5% growth throughout three years to EUR 3.8 billion, which is supported by NII that is growing this year double-digit but continue to grow in 2025 and 2026. Fees that are rebounding and are having a very nice trajectory will be supported with the strategic initiative and refocus of the group into wealth management also in the next two years, and optimization on RWA, which is going to stay stable at EUR 51 billion throughout the plan.
EPS this year is supposed to grow at 20%, but also, and also outpacing the 14% forecasted in our plan, and the ROTE is going towards the 15%, which is the target of the, of the plan. I think one element which is even more important is, as well as important, is the capital generation. We have a very strong capital generation as a business model. We had put as a 220 basis points of average capital generation. We are now forecasting this year to go slightly above to 230. This, of course, leads us and leave us a lot of room to distribution, which this year are going to be improved, as you see in slide five, and are going to stay high and improve throughout the plan.
So as I said, this quarter, if we stick to the quarter, and we see the different business line, fees recovering is the name of the game of wealth management, with supported by higher TFA. And this is driven by a solid trend in advisory and banking fee and high-end resilient management fee. We have had a strong activity in structured product and bonds, which linked to the macro, where we are, where fixed income product are still very much in demand. As well as fee rebounding in CIB. This is on the back of a better tone in domestic M&A, notably midcaps, and a higher contribution from international operation, because we started to consolidate Arma.
While in corporate—in consumer finance, NII was better than expected, volumes were better than expected, in particular, margins were better than buy now, pay later is also supporting the fee level of consumer finance. So if we look at the balance sheet, we should say that basically our attention is to grow TFA, and in particular, we see on page nine that we have had an increase of 7% of AUM, AUA, while deposits were fairly stable, with an important progression in net new money of EUR 2.4 billion in this quarter, supported by 50% of qualified product.
In loans origination have been selective, so we put our effort in where there are margins, and in particular, in consumer and in wealth management, we had the more selective origination, and we had a subdued market in acquisition finance, and we reduce our CIB loan book. In the loan book, in particular in CIB, grew only because of factoring and not because of acquisition finance and CIB activity. This led also to RWA optimization. You see that, basically quarter-over-quarter, we went down 2%, but the decrease is more steep and important in six months or six months to six months, where we decrease our RWA by 5%.
So the fact that the bank has been more geared towards wealth management and consumer made that we could counterbalance the decrease in CIB, which is a common feature of the industry. So basically, the increase in wealth management, in consumer, in insurance outpaced the one in CIB and led to a 4% increase in revenue, with a spike in wealth management revenue, 10%, 4% in consumer finance. A good rebound, I would say, in CIB revenue, where we had one of the best quarter in terms of revenue, while for you know not a current item, we had a down in insurance contribution. NII is staying on a solid level of EUR 500 million per quarter.
This is led by, in particular, in this quarter, by consumer finance. We will comment on this, but consumer finance managed both to reprice and to maintain the stock and the new loan at the higher level. This is the main driver of this, this kind of growth, which will be more evident, in any decline interest rate or stable interest rate environment. We have had also wealth management, increase in NII, and this is led basically, in general, as NII, by the widening spread between loan and, loan yield and on loan funding costs. So basically, we are widening this difference, and as today is at 3.3%, it was 2.8% a year ago. Funding position stayed very comfortable. It was a very, you know, active quarter in terms of, new issuance.
We have issuance of EUR 2.8 billion in the first half, and this has been, you know, distributed to the different clients and networks. So basically, our networks, institutional investor, and third-party banks. And this kind of funding proved to be more efficient than not only the past one, because bond expiring at a higher cost compared to new bond issuance, but also compared to our budget. And this led to a better NII trend. Fees rebounding in Q2 across all business, you see EUR 2.42 million. I think the second best quarter ever in terms of fee, supported by better than expected CIB, thanks to consolidation, not equal to last quarter of last year, which was exceptionally high.
But, you know, we have now more source of fees, so more differentiated fee income with Arma in CIB, and this is supporting a better trend, as well as a very nice trend in wealth management, where the important capital market activity in structured product, and also the net new money supported a new high in terms of fees in the quarter. Costs are linked to the expansion. Our story is a story of development and growth, rollout of distribution network, in particular in wealth management, acquisition in the. So business-related growth, EUR 25 million, included all the account headcounts up to 140, FTE coming from acquisition net of disposal, and also technology and inflation add on.
Overall, cost income stayed at very low level, at 42, with different metrics across the different business, also take into consideration the maturity of the business, so the more mature and established one below 50 or in the region of 50, or well below this, like Consumer Finance, the newest one, which are growing and are needing more investment, like Wealth Management in the region of 60, 65. Core under control at 51 basis points, so basically here the news is that we have had a reassuring quarter in all the division, in particular in Consumer Finance, we have experienced an increase of cost to risk in the first quarter.
We have seen that this increase has been stabilizing in the recent months, in particular, starting 2024, we have seen also a declining. So basically, we think that this is a plateau also possibly going down, and hence, basically, the rest is, you know, not an issue at all, like CIB or wealth management. So overall, 51 basis points within the guidance of 50-55 basis points of cost of risk we have guided. The overlay stock remains quite important, so the use of overlay is very limited and, you know, this is going to be also the trajectory of the next six months. So prudent staging, NPL ratio, gross NPL stood at 2.4%, with coverage quite good.
Also on performing loan coverage, we stay on the high level of 1.4% with the consumer finance still at 3.74%. Capital optimization is one of the main driver of our plan and trajectory. Slide 18 is quite important, shows you how much we have done already in shifting capital and reducing RWA from CIB to the different business. So we had 42% contribution of overall RWA in CIB. Now, we are at 33% after just one year. So this is leading also to this different capital allocation, and the development of RWA is leading to much better divisional return on risk-weighted assets, which are going towards the trajectory or following the trajectory we have forecasted in the plan.
So today, we are at group level at 2.5%, improving the last few quarters, where we were at 2.4% and 2.3%. Capital shift is also functioning of capital generation, so we not only allocate capital in a different way, but we generate a lot of capital, no? This is, you know, simplified in slide 19, where we have had this capital generation of 150 basis points, and basically, so, you know, higher than what we have expected, thanks to strong earnings generation, RWA optimization, and some business growth.
Then, we have had some, you know, negative component, like, buyback, the accrued dividend, the first time application, however, being Compass, and, M&A, which is going to be, basically, over time released, should we pay as we plan the rest of Arma with the Mediobanca shares. So governance-wise and environment-wise, we made some, important progress with the renewal of our board, which had a much better, composition in terms of independence, diversity, and minorities. We have improved the shareholder remuneration with interim dividend, and we have approved a long-term incentive plan, with, you know, better, I would say, key metrics with 50% of total variable compensation to the CEO, general manager, all in equity.
We have launched the first employee share ownership plan with a very important participation of the staff group, with 25%, I would say, attending to this plan. We have also improved the environment part of our ESG, where we have received an improved score on CDP, from C to B, and we have offset our CO2 emission. We have been also improving our product development, which are ESG or green. So basically, we are going along our plan and even better compared to the last quarter. Going to the divisional results, in wealth management, of course, we are rolling out our plan, which is one brand, one culture.
So the most important initiative being Mediobanca Premier, launched on 15 January. In general, this new plan with this emphasis on wealth management and the use of our brand is becoming a distinguishing and effective model, which we call private investment banking model, has supported EUR 500 million of liquidity events throughout the 15 mid-cap deals, co-originated 50% with CIB. This is leading to much senior recruitment, and in the meantime, of course, we are investing on the IT system.
So at the end, basically, looking at the number, we have had quite an important increase in net new money and, quite good level of, increase in, total income between, net interest income, 24% increase, and, fee income supported by, you know, the activity on, on, management fee, on advisory fee, and on banking fee. So you see on page 26, we are growing at, twice, the rate growth of the system. So compare, so the net new money, as a percentage of existing stock is for Mediobanca in the region of 4%. The market is in the region of 1.6%.
This gives the sense that is a growing stock, a growing story, and we have all the possibility to continue to grow at this level, in particular as we are more focusing on this activity. Net new money, EUR 3.7 billion in six months. Today, we have reached the region of EUR 94-EUR 95 billion. I told you about the fact that already in this quarter, we had 50% of qualified product out of 2.4%, so basically, our product that are generating fees and revenue for the group on top of the fact that they are not simply administer assets. I would say that basically, the most important element this quarter has been Mediobanca Premier.
Why we are so excited about this project? You see this on page 29. As we know, is the size of the market, which is very big. It's over EUR 1 trillion, and is for 55% unmanaged. There will be important generation changes coming. The market share of banks is likely to move because basically, because of this generation changes, because of need to address new needs and stay close to entrepreneurial activities. We think that all this kind of trend can be very well captured by our new offer. Why? Because our brand, culture, and product expertise of the Mediobanca ecosystem is quite attractive for clients, but more for, I would say, financial advisor and bankers.
We have a genuine multi-channel offering, so we have both branches, so we are a bank, but also we are financial advisor. We have been investing since our birth in CheBanca! on a strong digital footprint, and hence, basically, we think that, as we see already very good signs of senior recruitment coming, and so basically, very important growth driver, Mediobanca Premier for the whole, wealth management division. In CIB, we continue to increase the number of transaction and to be less dependent from single big ticket. You see on page 31, in the first half, we have announced or completed 60 transaction. We have increased the part that is coming from, non-Italian market, so 57 are international transaction, 32 are involved mid corporates, 58 are involving a private capital provider.
We have improved also the franchise hiring in corporate financing markets, and we have enhanced industry coverage and client base. So with Arma, basically, we are reaching a very important position in tech space. In energy transition, we have done already important deals in Italy and Spain, and we are also pushing the cooperation, more cooperation with private banking. The market initiative are on track. We think that we will become BTP specialist starting from July, from second half of this year. So basically, there's been a rebound, as you see, on revenue on Q2. This is led mainly by fee and it's coming, as I said, from mid-market Italian M&A and Arma.
This is, of course, happening in an environment that was not supportive, because you see on page 33, the level of M&A, the Italian volume M&A completed deal was very much down. But thanks to diversification geography, product, and, you know, new addition, we managed to have an improved situation and limit the decrease of revenue compared to a very good quarter of last year. So you see on page 35, 36, and 37, different kind of activity in M&A and in capital market. When we go to consumer finance, there are very positive, you know, confirmation of the trend, a very solid trend of Compass, sound new business with EUR 4 billion in six months, repricing faster and bigger than what expected.
More focus on personal loan originated by the distribution network of Compass, asset quality under control, so the limited increase in cost of risk is more than offset by the increase in NII. So basically, we are working on making Compass even stronger through an upgrade in first direct branches, and also, you know, buy now, pay later, no? Which is becoming, as you see here, a very important element of new customer acquisition and, hence, repeat business in personal loan. So basically, Compass six months on six months increased its bottom line by 10%, and it was basically the same level of December of the previous year.
This, as I said, is on the back of revenue growth that are outpacing of inflation in cost and in risk loan provision, and hence, the GOP risk-adjusted stayed on a very high level and is supported, supposed to stay at this level even in the next few quarters. The trend here, as I said, is on page 39, where we see that compare only to one or two years ago, the component of direct distribution, new personal loan is going up a lot, is going from 65%-80%.
And the second trend to be buy now, pay later new business, is—this is a shift of behavior, of, consumer behavior, where now more and more purpose loan buy now, pay later, you know, facility, and hence, being there means catching up a new trend, and Compass is very well positioned to do this. You see that, today, in the last quarter, we have had as much as 29% of new business in purpose buy now, pay later. So becoming very important way of acquiring clients and, of course, doing repeat business in terms of personal loan.
As I said, asset quality stabilizing and, more recently going to, you know, a decrease, even a decrease, trend. Let's see if it is stabilized, this decrease trend, but overall, it's, as expected. So basically, we are, you know, managing this, little increase in cost of risk with higher NII. Insurance, very, very solid contribution, even if in this quarter we had some volatility driven by, you know, catastrophic events, which impacted insurance in the previous quarter. And holding function, improving results, you know, that, we have, ALM, managed at group level, so holding function is reaping, a large chunk of the benefit of NII, and hence, you have to see, these numbers in conjunction with the numbers of the different business.
Overall, here, as I said, revenue up and, very important improvement of the holding function numbers. So as a closing remark, as I said, it's important to progress in terms of numbers and profitability and the metrics, but it's even more important the way we do it. So affirming our vision of Mediobanca, which is becoming and will become more and more a wealth management player, and will be perceived as a wealth management player. In particular, if we put emphasis on this and we reduce capital allocation to CIB, which is becoming more a play of M&A capital market, also supporting acquisition finance, but doing it with more attention in terms of capital allocation.
These two business will be supported, and the group will be supported by strong and high level of contribution from Consumer Finance, Insurance, and these four element are leading to strong capital generation, and hence, strong capital distribution, no? With a 10% targeted annual yield, you know, as the resulting element of all these, of these pieces. So if we look at what is going to happen in the next few quarters, we see Mediobanca well-positioned if this interest rates environment is going to be confirmed in the sense of decrease, progressive decrease of rate environment. Why? Because Wealth Management, basically all our activity can be positively affected.
Wealth Management, because basically we'll see more and more, clients going to manage the assets and equity. Corporate activity, because lower debt and stability of decreasing interest rates will make, more M&A activity, and in general, IPOs. Consumer Finance for two big element. One is NII. In a falling interest rate, Compass, we reap the benefit of a bigger NII. Second, because there will be lower cost of risk because of, you know, you know, good trend in terms of, unemployment. So in this environment, NII will keep growing, helped by Consumer Finance, whose margin, as I said, will benefit from lower cost of funding. Fees also will keep growing because of Wealth Management, upsizing and recovering in CIB activity. So our operating ratio will be confirmed.
Cost/income below 45%, CoR in the region of 55 basis points, maybe also a touch lower, solid CET1 at 15.5%. So basically, we think that, you know, this new environment will make our plan even more doable compared to the previous one. Thank you very much, and it's now time for your question.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced. Thank you. We are now going to proceed with our first question. The questions come from the line of Antonio Reale from Bank of America. Please ask your question. Your line is open.
Hi, good morning, everyone. It's Antonio from Bank of America. Two questions for me, please. One on fees and one on credit quality and consumer finance. So the first one, with the CMD, you presented a quite ambitious guidance when it comes to new money growth in your total financial assets of EUR 9 billion-EUR 10 billion growth, and so far, in the first half, you've delivered around EUR 4 billion, which puts you broadly on track, and this is despite sort of markets being challenged, though I presume you've also taken advantage of the events unfolding at Credit Suisse. So my question here is is really where is this growth coming from? Which asset classes, products are driving it, for us to get a sense of the fee margin outlook ahead.
My second question is on cost of risk, and particularly in the consumer finance business, this is trending up. It's normalizing faster than we expected. Last time around, you talked about early risk indicators. Now, if I exclude overlays in the first half, your cost of risk is running at around 190 basis points. So I'd like to hear more about what you're seeing, how much of this is a mix effect from product and distribution changes, and how much of this is really underlying credit quality picking up? And also, what do you see cost of risk will go this year in your consumer unit, both including and excluding overlays, please, as that will give a sense of the expected utilization of the overlays. Thank you.
Thank you, Antonio. Good morning. So basically, we have, I would say two different driver of net new money. The private, banking one is basically very much linked to money motion event. So more and more, we are becoming a leader in intercepting those, money motion event, both for cooperation with our mid-corporate, platform, but also, third-party money motion event. So Mediobanca is now, Mediobanca Private, is considered one of the main house where to go with some other, I would say, international player, when there is a money motion event. So this is a big driver of growth, and it's not linked to, I would say, hiring, new people. That can help, and we continue to hire also in private banking, but the growth is, money motion event-driven. In Mediobanca Premier, is more linked to, new hire, and basically,
Of course, this first half, they made quite well, but they had tailwind, because basically the first half of this year for everybody with the BTP at 4%, has been more tough. We think that thanks to Mediobanca Premier, the pipeline of recruitment we are seeing, which will, you know, materialize in the next three to six months, will support a higher level of net new money, also fueled by a more benign interest rates environment. So going down interest rates, I think also the competition with BTP will be less strong. In consumer finance, you are right, so in the sense that core is factor or function of mix.
The more we go on personal loan distributed by us, the more we make money, net, but the higher the CoR is, because basically is a function of the mix. The second part is that, we have seen, in summer, increasing, indicator of deterioration, which stabilized after and are going down in, starting in 2024. So I see that this level is going to be, the level we will have at the end of the year. We'll see whether this improve, further improvement in 2024 will be confirmed in the quarters to come. But, within 55 basis points, we have included, you know, the forecast of, this 190-200 basis points of cost of risk in consumer.
So we don't expect a further deteriorating. Maybe we expect a slight improvement.
Thank you.
Thank you. We are now going to proceed with our next question. The question comes from the line of Azzurra Guelfi from Citi. Please ask your question. Your line is open.
Hi, good morning. Couple of questions for me. One of them, the NII, clearly from since when you updated the market last time, the forward curve has changed and is lower, and if anything, your NII guidance has been to the have been clarified to the high end of the previous guidance. So I just wanted to know if you can give us a little bit of color on how you managed to have it so resilient and such big growth. The second one is a little bit more strategic. You've always had a very strong focus on growth, and you have been able, ahead of many peers, to spot opportunity in new trends that were coming. Arma, the growth in wealth management, and many other examples.
Is there anything that you are now seeing emerging, that you are looking at and thinking about, like, as the next leg of growth, like you buy now, pay later or other? I don't know. I'm thinking about ESG advisory to mid-cap to leverage on your your franchise or other thing. And the last one is a curiosity. Now, Mediobanca Premier is clearly positioning themselves in the industry, and your stock of TFAs is becoming bigger, and regularly growing. Are you thinking about giving us monthly update about the flow, just to position yourself compared to peers and show your constant growth? Thank you.
Thank you, Azzurra. First of all, welcome back.
Thank you.
We miss, we miss you. In terms of NII, so where are the driver that made this number possible, that are going to support also the next few quarters? First of all, better CoF. We thought about a higher CoF, cost of funding. We managed to have lower CoF in terms of a new emission, but what we see is that if this rate environment stabilizes, we can further go down in terms of CoF, in particular on deposits. The second is basically Compass. Compass volume and margins are better than expected, in the sense that they were able to reprice faster and also having better volume in terms of size, but also in terms of I would say marginality, because more personal loan, no?
So at the end, we had, like, 20 basis points of lower cost of funding and 20 basis points of better yield on asset, no? On top, we have done some new investment in banking book. The only negative part of this is the volume in CIB, which is going to stay as it is, because basically some is intended, some is unintended, now, to be honest. The intended part is the fact that new lending today is not profitable for most of the bank in terms of spread, and there is little demand, no? Apart from this, it's all positive. Growth, yeah.
I think, you know, I was commenting in the last few days with my colleagues and board member, that we have a strategy which is on one end right, on the other, I would say, pushed. Why? Because if you see, you know, what is happening in terms of rules, in terms of supervision, in terms of trend, at the end, basically, if you are becoming, and you are seeing more and more a wealth management, think about what Morgan Stanley has done. He was considered 15 years ago, a pure investment bank. Today, he's considered primarily a wealth management.
So basically, if we are able to more and more to convince the market and also the operator that we are becoming more and more a wealth management, this is a self-propelling prophecy and a self-implementing plan. Because people of certain quality will come, and they're already coming, and we accelerate this, no? So we have to basically insist on this narrative, and this narrative is done also with the supporting element, like mid-corporate activity, as you said, not only in Italy.
So we will, you know, put the emphasis on those two, basically, fee pool for the next future. In terms of data, you know, part of my colleagues are pushing to have this kind of, you know, communication on monthly net new money. I wanted to see first Mediobanca Premier to have the launch of Mediobanca Premier, to have Mediobanca Premier established, and then, we will likely follow the communication of others. Thank you.
Thank you. We are now going to proceed with our next question. The question comes from the line of Giovanni Razzoli from Deutsche Bank. Please ask your question. Your line is opened.
Good morning. I have two questions. The first one, you mentioned, and it's clearly evident, an improvement in the commercial spread in the consumer. I was wondering, and you've mentioned that there's been also a repricing on it. I was wondering whether you can elaborate on the, if there is also an effect in changing the, in the product mix with a still increase in the weight of, you know, origination generated by captive channels or direct channels. If you can elaborate this, and what is the impact on the spread, if any? And the second question, more broadly, if you can spend a few words on the DDL Capitali, what could be, clearly the representation of the list of the board, becomes extremely difficult, based on my reading of the document.
I was wondering what could be the impact, in your view, on the governance of Generali? What could be the impacts also on Mediobanca? Thank you.
Good morning, Giovanni. So you spotted an important element. Core is function of different mix. No. Now, going up in personal loan distributed by our own network, we have the positivity, the positive effect of this. Why? Because basically, the NII, the marginality we get out of this is, of course, much higher than increasing costs. So you see this, if you strip out basically the cost of Compass, which are related to basically acquisition, new project, digitalization, and you see the difference between the increase in NII and the increase in core, you end up with a higher contribution this year compared to last year.
So the increase in NII is, I would say, part related. I would say 40%, 30% related to the mix, and the rest related by increase of natural increase in core, because the core was so low, which we guided was unusual and unsustainable, no? For this reason, we have also set aside overlays, which we are partly using, no? So I would say one chunk is mix, and it's more than repaid by the NII. One chunk is something that you can manage, and we are managing this with you know, more intensive and efficient collection. And we have also revisited our scoring grid already more than a year ago. So the new production is done with the more stringent scoring grid, and the collection is more efficient.
Hence, we are seeing already the benefit of this managerial action in a more contained core. The CET1 capital is too soon to say. Let's, let's see the evolution of this law and the possibility to apply it, because still is not clear how to apply it or not.
Thank you.
Thank you. We're now going to proceed with our next question. The question comes from the line of Britta Schmidt from Autonomous Research. Please ask your question. Your line is opened.
Yeah. Hi there. Morning, thank you for taking my questions. On the wealth management part, it looked like the margin was slightly up Q on Q, even without the advisory or upfront element. Can you comment a little bit on what you see the drivers here, and how sustainable that is? Because there might be an element of seasonality as well. The second one buy now, pay later. You've now operated this business for a little while. Can you comment a little bit on the risk experience in this and maybe the back testing of your models? And then the last question is just, looking at, in, on the capital development, can you just remind us what inorganic, headwinds or tailwinds are going to come?
There's the 30 basis points from Arma in case you buy out the business, but can you also remind us of the gross impact for day one and fully loaded impacts? Thank you.
Thank you, Britta. Margins in wealth management. So basically, as you know, always December is, so basically, the second quarter for us, is a month where we have banking fees, we have elements that are recurrent in one part of the year. We had already important advisories or we call it upfront fee, already in the previous year. Why? Because basically, this is linked to the fact that, we have a kind of client base on one end, and a product factory of certificates within the group that is supporting a very good level of this kind of fee.
Which we see, you know, stable, stable in the sense we see, present also in the next, future, because of the kind of client and, you know, the demand for credit, credit product, the structure credit product that will stay at least for one year. Mm-hmm. We have had this also when the interest rates were lower. So we think that good chunk of this is going to stay. Then, of course the driver would be net new money and managed asset that we are having. We are seeing, quite a good return now already to managed asset compared to a year ago. So we do expect, the next few quarter to be supported by management fee, coming out from managed asset.
buy now, pay later, basically, you know, now we are in this business since four years. So it's very important in consumer finance to have a trial period where you test the product, you test the risk, you test the buy now, pay later, the way we do it like a consumer finance product. So we have credit bureau investigation before we do all the checks on clients, on credit merit, unlike the buy now, pay later, which is not done this in the same metrics.
So we learned buy now, pay later, if you are careful about avoiding certain product or channel, and so you manage not the credit risk really, but the fraud risk. At the end, it's a very profitable product, which is having basically, you know, comparable if not lower, cost-adjusted return, in the sense that basically the cost of risk can be in the same level, but buy now, pay later, net net, it's higher. So basically, today, we are very comfortable with the risk since already four years we are in the business, and even more by the net profitability, so margins minus cost of risk. Capital headwinds. We don't see capital headwinds coming from, you know, regulation or M&A, no, now.
So basically, we don't have elements that are now making us to change the guidance on capital generation, which is going to be basically the one that you know. We will have some improvement by Basel IV, with you know the starting from 2025. So we don't see basically important headwinds in terms of capital, I would say extra, driven by extra organic move, unless we do some M&A that today basically is not on the table. So Arma, compared to Arma, the it's a team of accounting. So when you do an acquisition, and you have the option to buy, also to pay with the own shares, accounting-wise, you have to upfront everything.
Then, when you exercise the option to pay with your own shares, then there is a capital relief. So, technically, we had to upfront, but we think that at least part of this will be paid in Mediobanca shares, so we will have a release of capital.
Thank you.
Thank you. We are now going to proceed with our next question. It comes from the line of Luigi De Bellis from Equita SIM. Please ask a question.
Good morning. I have one question on the CIB. So, what do you expect for the, for the coming quarter? So can you give us an update on the pipeline by segments, and, what trend do you see in fees over the coming quarters? If you can elaborate organically and Arma contribution expected, and if you do, you expect to maintain the EUR 200 million of total income, even in the coming quarter. Thank you.
Thank you, Luigi. What we see is that there is more activity or, you know, considerably more activity in M&A compared to a year ago. This is true in mid-corporate, in M&A, in Italy, and of course, we will also benefit from Arma. Now, the issue we see, the only issue we see is the time of closing of this transaction, because while there is more activity, we see also that today, closing a transaction takes more time compared to pre-COVID or after COVID, no? When the markets were different. So the only point of attention is when this fees is gonna be booked, if it is in Q2, Q3, Q4, but the level of activity we're seeing is higher than a year ago.
So definitely we think that in this second half, but also in the next year, we'll have more pool of revenues coming. So from Arma, mid-corporate will be bigger. We'll have BTP specialists, so and there will be more acquisition finance. What is still missing, and I think in the next few months will materialize, is reasonably sizable acquisition finance, no? This is still missing, as it is still missing IPOs. While we are taking new mandate as global coordinator of IPOs, as you know, the market is still, shouldn't say, shut completely, but you know, not so supportive of new IPOs.
Thank you.
Thank you. We are now going to proceed with our next question. The question comes from the line of Hugo Cruz from KBW. Please ask your question.
Hi, thank you for the time. I just want to clarify the NII guidance. I think in the last quarter, you're guiding for high single-digit growth year-on-year, which I think was around eight to 10. I think you removed that wording from the presentation now. So I wonder if anything changed. And you know, it sounded like margin is getting better, funding cheaper than expected. So are you raising... You expect to do better than the guidance? And then on buy now, pay later, you know, it's growing very rapidly. So how should I think about the impact of that in your P&L? You know, is it more driven by fees, by NII? You know, I thought the accounting was a bit different from normal consumer finance products.
If you could clarify, that would be very helpful. Thank you.
Good morning, Hugo. So we confirm the guidance of 10% of NII for the current year. We will give a new guidance for the next year in June, July. July, when we have the call. But we can anticipate that we see still an environment and you know a business mix, which is supporting a growth also in 2025. As buy now pay later is concerned, we can say that today is 50/50. Basically, it's NII 50% and fee 50% out of basically the revenue generated, which is a different mix compared to the normal personal loan, which is, I would say, I shouldn't say 95%, but most of it is NII.
Thank you very much.
Once again, as a reminder, to ask a question, please press star one and one on your telephone and wait for your name to be announced. Once again, it's star one and one on your telephone to ask a question. We are now going to proceed with our next question. The questions come from the line of Marco Nicolai from Jefferies. Please ask your question. Your line is open.
Hi, thanks for taking my question. I had one on the management fees, because if you look at... If I look at the disclosure you have on page 13, like, these were 84 this quarter and, like, 83, you know, in 1Q 2023. But back then, AUMs were, you know, lower than where they are now. Just was wondering, what's going on here on these margins and what do you expect from the margin going forward?
Yeah. Ciao. Good morning, Marco. The reason is that, basically, as you know, the kind of AUM or AUA we have generated is more linked to structured product or different kind of fees. And basically, we are today more positive on management fee progression because we see that managed assets are back in demand. So basically, the production we have had was, you know, supporting the level of management fee. They were not going down, but they are not going to be up because of AUA and kind of new production that was linked to basically structured products. From now on, we see progressively more contribution from management fees.
Okay, thank you.
Once again, ladies and gentlemen, to ask a question, please press star one and one on your telephone and wait for your name to be announced. Thank you. We are now going to proceed with our next question. The questions come from the line, the line of Adele Palama from UBS. Please ask your question. Your line is opened.
Morning. Thank you for the presentation. Hi, I just want to understand better the cost of funding, because the one that you show in slide 11, so the 2.3%, including basically everything, so bonds and deposits. So I want to understand, in your guidance for 2024 and the directional guidance for 2025, your cost of funding, I mean, your cost of funding related just to the deposits, what is the beta that you have at the moment? What is level of cost of funding of deposit that you have at the moment, and how do you see that evolving? I mean, excluding the rest of cost, like impact of cost of funding related to bonds, et cetera, just the deposit funding. Thanks.
Sorry, if I can add also, how do you see the volume of the deposits in 2024, 2025?
Good morning, Adele. So if you want the number of the cost of funding or of the cost of the asset yield? I understood the cost of funding, no?
The cost of deposits. The deposits, yeah. The retail deposits.
So the deposits, the deposit costs are in the region of 1.6%. This is the cost, and is stable, it seems stable, no? And it's lower than what we have guided, because we thought that our beta could be, you know, in the region of 40%. We are well below this. We are more in the region of 30%, and so we prudently have guided also internally to have this level of 1.6% stable, while it was supposed to be higher. Let's see if there is a more, you know, sudden decrease of interest rates. At that point, we can also decrease faster our cost of deposits.
Okay, thanks. In terms of volume of deposits that you're expecting for next quarters?
Volume of deposit, I would say broadly stable, because basically we don't need, we don't need, extra deposits today in terms of, new lending. We have already a banking book, which is in the region of EUR 10 billion. So we, we don't see big, big movement, in deposits in the two quarter, in this quarter and the next quarter.
Okay, thanks. Sorry, I will add another question. In term of sensitivity, I know it's a little bit complicated for you, the sensitivity on NII, but do you have a sensitivity for, I don't know, 100 basis point rate cut, which will be the impact on your NII?
We have reduced our sensitivity. It was in the region of EUR 50 million of increase every 50 basis points of increase in interest rates. Now, we are bringing this to 30 basis points, so basically we will have in a decrease, if there is a decrease of 50 basis points of interest rates, we will have an impact of EUR -30 million.
Okay. Thanks a lot.
Thank you. We have no further questions at this time. I will now hand back to the CEO, Mr. Alberto Nagel, for closing remarks. Thank you.
Thank you to everybody, to have follow us with attention and passion, and see you in the next quarterly call. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your line. Thank you.