Ladies and gentlemen, thank you for standing by, and welcome to Mediobanca third quarter 2022 results conference call. At this time, all participants are in listen only mode. After the speaker presentation, there will be a question and an answer session. To ask a question, you will need to press Star and One on your telephone. I would now like to hand the conference over to the CEO, Mr. Alberto Nagel. Please go ahead, sir.
Thank you. Good afternoon for joining the earnings call. I would say highlighting the solid trend of the third quarter, backed by strong commercial performance and high fee earnings contribution. This is based on quite a healthy new loan production in Consumer Finance, EUR 1.89 billion, up 18%, and large corporate as well, EUR 1.7 billion. Coupled with intense IB activity levels, in particular in M&A. I would say in particular with above expectation net new money trend of EUR 2.5 billion, with a total of roughly EUR 7 billion in nine months, which is 2.5 times last year. This led to TFA in the region of EUR 80 billion and EUR 700 million revenue and EUR 190 million of net profit.
On the back of this third quarter, we can add a nine month results with where revenue trajectory in terms of growth has been confirmed with high single digit in the region of 9% increase revenue. A further increase in return on risk-weighted assets with 30 basis points of uptick and roughly 200 basis points of profitability. EPS up 22% and Core Tier 1 at 15.3%. This is also you know preparing the ground for Mediobanca in a weaker macro environment, where I think we have some very positive tools and strength to you know to be put at work or to work against a negative environment. Like a valuable business position in terms of risk reward.
Basically I am deeply convinced that being exposed at the two extremes of the segment of the client base, so large and high mid corporate on one end and households, Italian households on the other, is protecting in terms of risk, and is the best risk reward. Also the fact that we have three businesses, which is basically wealth management, consumer finance, and insurance exposure, which are less exposed to cycle, is of course positioning Mediobanca in a good term. We don't have material exposure, not even material to Russia-Ukraine risk, and we enter in this situation with the strongest ever asset quality.
At the end, this coupled with very strong capital buffer and shareholder remuneration, which is confirmed even in this scenario, I think is putting ourselves on a relatively good terms compared to the sector. Last but not least, I think we did quite an important progress in our ESG environment and target, appointing a lead independent director and launching a very important diversity, equity and inclusion project, which I personally sponsored, which sets important financial numeric target in terms of reducing the gap for gender parity. Now, looking at slide four, I would like to draw your attention only to the projection in ALM, the projection of loans +7% year-on-year. The projection of TFA 16% year-on-year.
The core, which was stable, 52 basis points, and the cost income, which was down one point to 45%. Another, I think, important metric is gross NP on loans. We are at 2.7, while the net is less than 1%. Looking at slide seven and eight, we see better the commercial activity around the different quarters. TFA, it was EUR 64 billion in the first quarter of 2021, and it reached EUR 80 billion in the third quarter, the last quarter. Out of which, March 2022 was bringing EUR 1 billion.
This is an acceleration of our trend, and we will see it's backed by the different market position in particular, we are having in private banking and the ability to capture money motion events. In consumer finance, we have had an expansion of the loan book, and now we are steady producing EUR 1.9 billion. This is back to pre-COVID level. While during the COVID, you see we were having 1.5 of average production. Also the incidence of personal loan, which are the most important in terms of profit, product, is going up from 40%-49%. CIB, quite a good trend in terms of acquisition finance and advisory, with lending volume up to EUR 18.1 billion as opposed to EUR 16.5 billion in Q1 2021.
Capital light activities are increasing the weight and, then, of course, some fees are more volatile or are linked to deals. You know, we have now reached a stable above EUR 200 million of capital light revenues, up 12% compared to last year. If we go and see the trend compared to the average trend of single quarter in terms of revenue, pre-COVID, we were staying in the region of EUR 600 to EUR 640. You see that even in a quarter where we have had one half month of weak market, we were able to reach roughly EUR 700, so EUR 688, out of which clearly the difference is made by Wealth Management. We were producing EUR 144 revenue per quarter.
Now we are in the region of 170-180. We can say the same also for corporate finance. Basically consumer finance, because we have generated 260 before COVID, and we are back to this level, no? In CIB, it's more linked to single quarter, so we need basically to make more the average of various quarter. If you see this year, we have had a +2% compared to last year, where we have had, as you remember, some very big transaction that was booked. This year we had internally a budget which was lower compared to last year, but we managed to beat. The positive news of this quarter is also NII. NII was up 3%. We guided about +2%, now we are +3%.
This is a trend that we are consolidating, and this is also you know the outcome of the new loan production of consumer. You see that NII in consumer is back exactly at the pre-COVID with EUR 237, and the rest, in particular the CIB, is on the high end on EUR 73. Fees are confirmed up 13%. Here you see the projection, the development of, in particular, wealth management, which is now by far the largest contributor and is up 28% year-on-year on higher management fee and AUM, Bybrook consolidation, BlackRock, upfront fees.
In the third quarter, we have had a confirmation, notwithstanding the NAV went down, we have had a positive trend in contribution in management fees, which are of course the most recurrent. CIB enjoyed a very strong advisory with a 23% increase year-on-year, and lending, which was up 11%. Core contribution of positive trend. Why? Because basically we have had low default rate and very good recovery in Consumer Finance. Consumer Finance managed to be below 150, as opposed to 133. But the last quarter we sold with some capital gain, you know, that every end of the year we sell NPLs of Consumer Finance, so there was a capital gain. Net of this would have been the same in the region of 140.
Very low cost of risk in CIB, notwithstanding what we have seen in terms of you know, Ukrainian war, because Mediobanca portfolio was not and is not exposed, has no direct exposure to those kind of counterparties. The overall cost of risk was 45 basis points this quarter, and in the nine months was aligned to our guidance of 50-52 basis points. This is without releasing materially any material release in overlay. The overlay they stay in the region of EUR 300 million. In consumer, they went up EUR 10 million. In CIB, they went down because we have had repayment. Basically, we had to release them because the loans have been repaid.
We mentioned already the gross NPE and, you know, the coverage is still further up with 68% of coverage. But I have to say that the coverage is up also in stage two and is stable in stage three. We have overall, in particular in Consumer Finance, brought the bonus coverage, performing loan coverage to 3.8%, which is the highest level for Compass. Capital ratio, we didn't have important swing, so it was earnings generated and cash payout, you know, deducted, then the increase in the loan book of Generali, which will be reversed the next few months with the payment of the dividend. This minimal RWA inflation, and we are at 14% fully loaded.
This is taking into consideration, of course, the buyback. As I said, a very important project today. I sponsored the project personally because I wanted that this goes down the different group companies and business line. We set targets about how to reduce the gender gap, in particular, knowing that the gender gap is an issue for banking and we need to solve it. We set targets in different time horizons, so handover the next business plan and handover the other one. Raising the female members of Mediobanca in the management team incidence, as well as executives in terms of hirings, in terms of advancement rate, and in terms of also the third-party rating.
As you know, we have already a fairly good rating in terms of Bloomberg GEI, but we want to increase it from 80 to 85. Then divisional results. You know, every single division is posting return above cost of equity. We have had swing in each of them, two positive, one negative. Very positive ROAC in Wealth Management, which was up from 22% to 29%. ROAC of Consumer Finance, which was from 28% went to 34%. In corporate banking, in corporate bank, Corporate Investment Banking, we had on the contrary, you know, a decrease of profitability, which is linked to expected lower write-backs, because last year, you remember, we had the one-off of Burgo, which we clearly factor as a one-off.
The second is that the activity and also the market RWA went up EUR 1 billion, so we have added a dilution, a temporary dilution we think of this ROAC. Insurance exposure went up in terms of ROAC from 12% to 13%. Looking at divisional results, Wealth Management was posting a 43% increase in profitability, and it was posting on the back of 17% increase in revenues. Which is even more important is the net new money and the ability of Mediobanca to raise in a complex situation EUR 2.5 billion in the last quarter, no?
As I said, this was driven by, in particular in this quarter, the ability to capture the money motion events and the effectiveness of our network in terms of PB combined with IB and having a very strong network of bankers on the ground is letting these results happen. Of course, it's linked also to M&A. The more M&A is, the more we have. We enjoy both sides. We enjoy doing more M&A on our own, and we enjoy also the market trend in terms of money motion event we are able to capture.
We have now reached 70% cost income, notwithstanding that, you know, we are quite young in this business, so we managed in the next year to go further down in cost income ratio. I would go to Compass now. Compass very good results. All-time high, this on the back of expansion of revenue, in particular NII. NII is better than expected, so is posting a 5% increase. This is basically driven by new personal loan and in general new loan, but new personal loan are going back to certain percentage of the total loan. While during the COVID, they were down, and we were more selling, say, purpose loan. They are at 47%.
They were at 43%, and before COVID, they were at 52%. We still have some margin to go to 52%. This will increase the marginality or defend the marginality in the new era of interest rate hikes. We are expanding our network, and we are expanding our distribution network in a different way. Basically opening agencies, you know, new points of sale in Compass Link. Again, there are agents, they are not employees, and they do basically the sort of outside branches, door-to-door selling. This is helping us to cover situations and territory we don't cover enough with our branches and our franchise of Compass. It's already becoming a material project.
Record profit because profit take into consideration the expansion of on one end, the top line and low cost of risk level, and cost down 1% due to lower recovery, that made basically we have increased our bottom line by 32%. If we go and see asset quality on page 26, we still have below COVID risk level. We start to see a bit of increase, a slight increase compared to the previous month. Just to give you an example, if three, four months ago, we were at 30% discount or lower CORE compared to pre-COVID, now we are at 20-15%. We thought that this normalization of cost of risk would have been faster.
It's slower and is still very positive and favorable compared to even to the pre-COVID. This led a further decrease in NPL stock, you see on page 26. This is driven by basically de-risking, so lower new NP production and de-risking through disposal of NPs. We have had an important decrease of the already small, so by 31%. The coverage is 80% of the NP and 3.8% of the performing. On top we have also the overlay, which are still untouched. In this quarter and you know, in April, we have had quite a positive trend in IB, where important transaction, as you know, have been announced.
This has helped advisory business and I would say lending business and CMS to stay on the high level. This led the group, beating the all-time high IB revenue of last year and kept the cost/income low at 44%. No material you know exposure to risky situation, so we also confirmed the excellent asset quality with gross NPE ratio at 1% in CIB. You see on page 28 and 29 that in our calendar year, Mediobanca has played an important role in each of the segment. We have recently announced the hiring of Giuseppe Baldelli as a co-head of CIB.
I think, Giuseppe is a great addition, which will further improve our franchise and boost also the future growth of earnings, so, and revenue of CIB. Insurance exposure is on page 30, with NPI. We have had the confirmation that, like other banks, if you think about all the most important banks in Europe, they have quite a large, insurance exposure, and this proved to be across the cycle quite, a positive addition. Why? Because it's a correlated risk, anti-cyclical compared to the banking risk, enjoying a good risk weighting. If it is true for the others, it's true also for Mediobanca.
In a normal period of time without, I would say, non-recurrent item like this year, you see the difference with revenue up 47% and a very good ROAC in the region of 13%. Holding function, nothing to say. Basically, we have done quite a good activity in terms of completing the funding and also starting to pre-fund, you know, next year. As you have already been told last earnings call, we are smoothing the end of the TLTRO and having a part of the effect this year and part of next year. Just to spend the last few minutes on the remaining slide. Why?
It's important to stress that the business where we are and the trend that they are having in terms of wealth management being, you know, a business which is growing, so can also face a moment of contraction or can face a moment of market adversity, because on the other hand, we are expanding. We are hiring bankers, we are hiring financial advisor. You see, in fact, that in the last five years, we have almost doubled the size, a mix of organic growth and small bolt-on acquisition. We have a very limited reliance on performance fee, only 3% of the fee. On consumer finance, our experience in 60 years is that the correlation between new loan stock and GDP is very limited.
There is a graph here, and basically we think that entering to, you know, a more modest GDP growth will make that family may ask for more credit rather than less credit. CIB, I want to draw your attention on the migration of our ratings in the portfolio. Five years ago, out of 100% of our loan book rating, 45% were investment grade. Today is 65%. This is on the back of activity that we have done throughout these five years, which led to an improved, even more solid rating of our portfolio. Also the loan book broken down by sectors is giving you the evidence that we have a limited exposure towards the sector most impacted by macro headwinds.
We will be impacted. We have sector which are impacted. We will be impacted. You know, what we see is that our clients may have a margin squeeze, may have a period of lower profitability, but they are on average very strong and basically leader in each sector. Capital generation and capital visibility even ahead is quite good because basically you see here in six years, we have generated important amount of capital. We maintain a very strong MDA buffer because we were at 12% only six years ago, and we are at 15.3%. This is basically coupled with low exposure to Italian govies and general govies.
Our sensitivity to spread is that with an increase of 100 basis points, we have less than 10%, 10 basis points of attrition of CT1, of CT1, as govies represents only 45% of CET1. RWA volatility is limited by prudent ALM approach. We think that even in the new world, we can deliver quite a sound shareholder remuneration. To come to visibility on the last quarter, we continue to see positive commercial trend in the business, and there are supporting factor for NII in consumer and for fees in Wealth Management. I would say a good chunk of our CIB pipeline is only partly dependent on market condition because it's more linked to announced M&A. We continue to hire, as I said. We did the hiring of Giuseppe Baldelli.
I want also to remember the hire of Marco Carreri. Marco is not only a great professional, but he's also a friend, which has done quite well in Anima. Before so, I think that he will bring for sure some value added in CheBanca in his growth trajectory, which is quite interesting and positioning onto the higher end of the market. We see also in the last quarter confirmation of capital generation. As we said in the last quarter, we are confident to be above 14.5% quarter one. Thank you very much. I leave you the floor for questions now.
Ladies and gentlemen, we now begin the question and answer session. To ask a question, you will need to press star and one on your telephone. The first question is from Antonio Reale from Morgan Stanley. Please go ahead. Your line is open.
Hi, good afternoon, everyone. It's Antonio from Morgan Stanley. Three questions for me, please. My first question is about your business plan targets. We're now one year away from completion. You had three targets, if I remember right, one on revenues, one on EPS, and one on capital distribution. I may have missed it, but I haven't seen any reference in the presentation, and we've seen a number of banks review their targets in light of the renewed outlook. I wonder, where do you stand on your business plan targets, if you can confirm them, and if so, where do you see risks, or where would you have flexibility? That's my first question. My second one is on consumer business.
Your consumer division is going to end up printing a record high year in 2022, at least judging by the performance in the 9 months. Loan origination is back to pre-COVID levels and product mixes continue to improve, while you haven't touched your large coverage. My question is how sustainable are these trends in terms of new origination and cost of risk in your consumer going forward? Lastly, one question on M&A. I mean, your stance on M&A has been very clear over the years. I wonder if anything has changed in light of recent events at Generali with the board renewal behind, and how you see conditions now for a transformational deal.
More generally, you know, if you look at your three businesses you operate in, CIB, consumer, and wealth, where, if any, do you see most opportunities to deploy excess capital? Thank you.
Thank you, Antonio, for your questions. In terms of business plan target, I think that EPS and capital distribution, we are quite aligned, so we are on track, on trajectory. I would say that we expect to meet broadly the targets of our business plan. As of today, we don't have any reason to say that the targets are not in sight, I would say, in sight. Consumer, you say how sustainable this record level of Compass. I think in terms of new loan production, it's sustainable.
We are fostering our new loan production with quite a number of new initiatives from a very important push in digital sales and digital platform, a very important push on new type of channel, distribution channel, so Compass Link and agents, and Buy Now, Pay Later. You will see that we will become a leader in Buy Now, Pay Later, and we have quite bold projects already ongoing, but we may be more precise, I think, in the quarters to come. New loan origination is gonna be there. I don't think that we're gonna have, you know, a decrease in new loan origination. Cost of risk, we expect to go up progressively.
The question? How slow or how fast you can see in two different directions. We expected it to go up to the pre-COVID. pre-COVID, we were in the region of 180, 200. Now we are below 150. This trend is slower than we expected. I think we may go towards a higher level in the last quarters or last quarter of next year, but we don't see an important increase in cost of risk anytime soon. M&A and we still have overlays. Of course, we can also you know, in the last years of the plan, see if those overlays are still sustainable to keep, to be kept as they are today.
For matter of prudence, we have delayed any upgrade update of our you know forecast because of the uncertainty of the macro, and we have left this for the last year of the plan. As M&A, you know, you are right, if I got it well, the sense of your question, our main or preferred route is to do bolt-on acquisition. The acquisition that we can manage they have a limited risk. Where we see them, we see them in the three business. We see them in wealth management. We see them as well in CIB. We see them also in consumer. In consumer may be more on Buy Now, Pay Later.
CIB may be more on advisory boutique, while in wealth management can be both on alternative asset management, so another Bybrook or another Barclays type of transaction. This is basically what we are working on. The rest we see in the newspaper, I commented before in the press conference, it's more a press article. One day we are supposed to buy Anima, another day we are supposed to do transaction with other wealth management operator. The reality is that we don't have discussion open or project open and running on large item and on a large target.
On the other way, we are quite happy with our insurance exposure, the results and counter-cyclical contribution it's given to our P&L. We are, I would say, always vigilant to put capital at work, always active, but this cannot and should not derail our organic growth trajectory and should not generate or encompass risk we cannot manage.
Thank you very much. Bye for now.
Thank you for your question. I would like to remind the participant, if they wish to ask a question, they have to press star then one on their telephone. The next question from Britta Schmidt from Autonomous. Please go ahead.
Yeah. Hi there. Thanks for taking my questions. One clarification on Generali, please. What is the expected capital uplift that you expect from the dividend payments still to be accounted for? Another clarification on the net interest income sensitivity. I think I saw a comment on Bloomberg that you guided to 4% of NII for 50 basis points, which seems a little bit more than you indicated last quarter. Can you just confirm that and tell us whether anything has changed there? Lastly, can you comment a little bit on the relations with your largest shareholders? What sort of discussions have you had with them, if any, recently around the strategy? Comment a bit on to what extent the debate around Generali impacts management. Thank you.
Thank you, Britta, for your question. The first one, the answer is that the dividend payment of Generali will generate roughly 40 BPs of increase of our CET1. NII, I take the opportunity to elaborate a bit more on our NII trend, no? You remember that in the last call I said, okay, we are confident to be in the region of 2% increase. Now our confidence is bigger, and we think that we can do at least 3%, but maybe we can do even more at the end of this year. Our NII is already growing. On top of a different scenario. I confirm that we are slightly progressively increasing our exposure to interest rates.
How we do it, we are not covering when we have maturity of our exposure, we are not covering anymore, and we take a directional exposure to interest rates. This brought our sensitivity from 3%-4% every 50 basis points. I confirm this. In terms of relationship with our shareholder, we continue to promote engagement with all of them, and we continue to have relationship with all of them. As I said in the press conference on the Generali topic, after the outcome of the general meeting, which was, I think, an outcome we welcome, both in terms of quality, independence, and ultimately confirmation of the contribution to the P&L of Mediobanca.
We think that a new period of appeasement in terms of setting aside the confrontational period and favor a period where all the actors can work better for the interest of Generali is welcome, and we will sponsor it.
Great. Thank you very much.
Thank you for your question. We have the next question from Domenico Santoro from HSBC. Please go ahead.
Hi there. Thanks for the presentation. It's Domenico, HSBC. Just a couple of questions, looking behind, you know, this year, given that the year is almost finished. Whether you can give us a little bit of a trajectory for the NII next year, in particular, specifying what's your assumption in terms of rates now that you have a little bit of more sensitivity to raising rates? How should we see actually the TLTRO benefit, whether we should, you know, exclude the EUR 20 million, or you are, you know, implementing any maneuver to offset that.
Given, you know, the outlook on the economy, thanks for giving us the, you know, the guidance on the loan loss provision, but my understanding is that we should expect a little bit of increase for next year, even if dramatic. I'm just wondering whether this might have a little bit of impact on the pipeline in the investment banking, and whether you can give us a bit of visibility of what the way that you see fees, you know, evolving in the divisions. Thank you.
We are working... Domenico, thank you for your question. We are working now with our budget, so we can be, we will be more precise on the next call, which is the ending call of the year, and also you know, giving a bit more guidance of the new year. We are working to have an NII increase also next year. The pace of this increase will depend on also how fast we can be in you know, transmitting the higher cost of funding to clients in particular in Consumer, while the rest of the asset side is more variable in terms of you know, the. They reprice more rapidly.
The asset side of Compass reprice as well, but it takes a bit more time. There may be a lag time in this, but it is gonna happen. For core, the outlook, you know, as I said, for the time being, we are envisaging and experiencing very good core. We don't see deterioration. It is difficult to see a big deterioration in one quarter. I would expect that the core is not going to be materially different next year. Also take into consideration the buffer we have in overlays, which can stay for a period of time. Technically, as we know, overlays are overlays. If they are there for a period, then overlay needs to be used one way or the other.
We think that the next year will be the right moment to assess them. Pipeline of IB. We have announced a series of transactions in the last quarter, sorry, that will be materialized next year. The pipeline in advisory is quite good, and in acquisition finance is very good. Then there is a team of execution in ECM. In ECM, we have secured a number of mandates of IPO. We were able to price a very good one, Technoprobe, in February. We need to see if equity markets are there to let pricing of other big one, Plenitude, etc.
We have secured 4-5 mandates of this kind, but we need to see whether there is a market for that. There are all very good companies, so I think, and also the sector in which they are, there should be a market to do this transaction. Basically, as I said, the pipeline continue to be good, and the more recent hire will support the pipeline. Part of this is more dependent from equity markets and part not.
Can I just ask a follow-up question, sorry, on your activity? I understood that it's now 4% because your, you know, balance sheet is more rate sensitive in the way that you're changing the mix. How should we look at this 4%? Is it on a one-year basis? Based on the comments that you just made, you know, on the repricing of the different parts of the balance sheet, is there any risk that repricing of liability, the way indeed your asset is, you know, is composed, your asset mix is composed. Repricing liability might proceed in a way repricing of assets. This 4% is more to see like a sort of look-through benefit on the NII.
4% takes into consideration everything. Is taking also into consideration the possible effect on Compass, but at the group level is confirmed this 4%.
All right. Thank you.
Thank you for your question. There are no further question. I will hand back the conference over to Mr. Nagel. Thank you.
Thank you very much for the attendance, and we hope to have you all in the next call, which will be, I think, the first of August. Thank you again. Bye.
That concludes the conference for today. Thank you for participating. You may all disconnect.