Banca Popolare di Milano : Bipiemme Group results as at 31 December 2015 approved

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BIPIEMME GROUP RESULTS AS AT 31 DECEMBER 2015 APPROVED1 DIVIDEND PROPOSAL: €0.027

NET PROFIT: €288.9 MILLION, +24.4% Y/Y

NORMALISED NET PROFIT2: €259.9 MILLION, +83.4% Y/Y

GOOD TREND IN CORE REVENUES3: +4.1% Y/Y:

• NET INTEREST INCOME: +0.8% Y/Y
• NET FEES AND COMMISSION: +8.9% Y/Y

  
  

  OPERATING COSTS DOWN ON A LIKE-FOR-LIKE BASIS4: -0.7% AND +1.3% Y/Y NORMALISED2

  
  

  SIGNIFICANT REDUCTION IN COST OF RISK: 100 BPS (-32 BPS Y/Y)

  
  

  GOOD TREND IN VOLUMES:

• CUSTOMER LOANS: +6.6% Y/Y, WHICH PUTS BPM AMONG THE BEST PERFORMERS (BANKING SYSTEM: +0.5%5)
• NEW RETAIL MORTGAGES +72% Y/Y
• DIRECT FUNDING: +2.1% Y/Y (BANKING SYSTEM: -0.6%5) EXCELLENT AUM PERFORMANCE: +16.9% Y/Y

  NET NPES ON TOTAL LOANS 10.6% DOWN FROM 11,2% AS AT DECEMBER 2014

• NET BAD LOANS ON TOTAL LOANS 4.4% (BANKING SYSTEM: 4.89%5)
• DECREASE IN NPE INFLOWS -33%

  
  

  SOUND CAPITAL RATIOS, THOUGH THEY DO NOT YET BENEFIT FROM THE POSITIVE EFFECTS FROM THE ADOPTION OF AIRB MODELS:

• COMMON EQUITY TIER1 RATIO6 11.53%
• COMMON EQUITY TIER1 RATIO FULLY PHASED 12.21%

  
  

  1 The balance sheets and consolidated balance sheets will be approved by the Management Board on 23 February 2016.

  2 Net of non-recurring items.

  3 Net Interest Income + Net Fees and Commission.

  4 In order to obtain a like-for-like comparison, the ordinary and extraordinary contribution to the "Single Resolution Fund" (SRF) and the ordinary contribution to the "Deposit Guarantee Scheme" (DGS), which have been applied for the first time starting in 2015, have been deducted.

  5 Source: ABI monthly outlook.

  6 The figure includes the part of the profit as at 31 December 2015, according to current laws.

  LOW RISK PROFILE:

• NPE COVERAGE: 39.6% (+110 BPS Y/Y)
• TEXAS RATIO7 86.24%
• LEVERAGE RATIO 7.67%

• Main P&L results:

  • Net Interest Income: €806.7 million, +0.8% y/y;

  • Net fees and commission: €606.0 million, +8.9% y/y;

  • Operating income: €1,667.2 million, +2.8% y/y;

  • Operating costs: +4.7% y/y, down on a like-for-like basis8 -0.7% y/y (normalised operating costs +1.3% y/y);

  • Net profit for the period: €288.9 million vs. €232.3 million as at December 2014;

  • Normalised net profit 9: €259.9 vs. 141.7 million as at December 2014.

    
    

• Main balance-sheet results:

  • Direct customer funding: €37.6 billion, +2.1% y/y;

     Core funding10: €24.5 billion, +9.0% vs. 31/12/2014;

     Customer loans: €34.2 billion, +6.6% vs. 31/12/2014;

  • Sound short-term and mid-term liquidity positions;

  • 2015 cost of risk: 100 bps, -32 bps vs. December 2014.

Milan, 8 February 2016 - In today's meeting, the Management Board of Banca Popolare di Milano examined and approved BPM Group's results as at 31 December 2015.

During 2015 the Italian economy started to grow again: 2015 GDP is expected to have been +0.7% (Source: Prometeia) and there were some clear signs of a recovery in the main macroeconomic indexes. Interest rates - due also to the effects of the ECB's Quantitative Easing programme - were negative throughout the year; the average 3- month Euribor rate in December 2015 was -0.13%.

In this context, Bipiemme Group's core operating trends during 2015 were good. In particular we point out:

• P&L Results: the positive trend in operating revenues (+2.8% y/y), thanks to the good performance in net interest income (+0.8%) and the excellent trend in net fees and commission (+8.9%). We also highlight the lower cost of risk (-32 bps);
• Balance-sheet results:

  • the positive trend in customer loans (+€ 2.1 billion vs. December 2014, +€785.3 million q/q);

  • excellent trend in AuM (+€3.0 billion vs. December 2014 and +€792.9 million q/q);

  • the increase in core funding10 and, in particular, sight deposits (which recorded

    +€2.9 billion vs. December 2014; +€624.9 million q/q);

    
    

    7 Texas ratio: net NPE / (capital + reserves - intangible assets)

    8 See note No. 4.

    9 Net of the non-recurring items

    10 Current accounts + savings deposits + other technical forms.

• the group's robust liquidity position, as highlighted by the significant amount of unencumbered eligible securities, above €5 billion, and the net spot liquidity balance,

  ~€5.7 billion11;

• excellent capital ratios: at the end of 2015, the bank's "Own Funds" totalled €5.0 billion and the Common Equity Tier 1 ratio was 11.53%.

  
  

  BALANCE SHEET RESULTS AS AT 31 DECEMBER 2015

  
  

  Direct customer funding and securities issued

  Direct customer funding (amounts due to customers, debt securities issued and financial liabilities at fair value) totalled €37,602 million, up both y/y (+2.1%) and q/q (+ 1.7%).

  Specifically, "amounts due to customers" (€28,623 million) increased by 3.3% y/y, mainly due to the increase in "current accounts and savings deposit accounts" (+9.1%).

  "Debt securities issued" totalled €8,849 million, -1.5% y/y, mainly due to the following actions:

  • the issue of two covered bonds for €1 billion in September 2015 and €0.7 billion Covered Bond in December 2015 against the redemption of a covered bond in November 2015 for €0.9 billion;

  • the redemption of some retail bonds for a total of € 0.6 billion;

  • the buy-back of bonds for a nominal value of €458 million (o/w €358 million for the buy-back of retail bonds);

  • the decrease in subordinated liabilities for a total of €633 million, due basically to a subordinated bond that matured (Lower Tier 2) and the early reimbursement of the Preferred Securities issued by BPM Capital I.

  BPM's market share of the funding market at the end of November 2015 was 1.62%, vs 1.61% as at December 2014.

  
  

  Indirect customer funding

  Indirect customer funding as at 31 December 2015 totalled €34,060 million, up +4.4% vs December 2014 and +0.9% q/q. The increase was basically due to the brilliant performance recorded by AuM, €20,901 million (+16.9% y/y) due to both the positive market trend and the positive net funding in the year of €2.6 billion.

  Specifically, "funds" increased by €2,314 million (+22.5%) y/y, as did "insurance reserves", which posted +€767 million (+14.6%).

  "Assets under custody" as at 31 December 2015 totalled €13,159 million, down y/y (- 10.7%), mainly due to customers' ongoing preference for AuM products.

  
  

  Customer loans

  Customer loans as at 31 December 2015 totalled €34,187 million, up y/y (+6.6%) and vs. September 2015 (+2.4%). The result puts the Bank among the best performers with above-the-average values (average banking system+0.5% y/y12).

  The increase in customer loans was due to:

• the positive trend in the household sector13. Indeed, we point out that in 2015 new mortgages issued increased by +72.0%;

  
  

  11 Weekly liquidity position as published on 3 February 2016.

  12 Source: ABI monthly outlook.

  13 Management data by customer segment calculated using figures at the end of the period

• the positive trend in the corporate sector (+6.2%) driven particularly by the wholesale commercial sector (+10.7%) and manufacturing (+9.2%) against a decrease in the real estate sector.

The group's market share of the loans market at the end of November 2015 was 1.94%, up vs December 2014 (1.83%).




Credit quality: the group's credit quality showed some signs of improvement which was reflected in the q/q decrease in gross NPEs, after the growth in gross NPEs had already slowed down in the previous three quarters of 2015. The improvement was due to the group's prudent approach in its loans policies and to the gradual, albeit slight, improvement in the Italian economy, which was helped by the low oil price, the still favourable exchange rate and the ECB's liquidity injection. We point out the decrease in inflows to NPE (-33% y/y).




The group's gross NPEs totalled €5,997 million, up y/y (+2.5%), but down q/q (-2.3%). Specifically, a q/q analysis shows:

• bad loans decreased (-1.9%) thanks to the disposal of some positions and to a general slowdown in the growth in bad loans in the previous three quarters of 2015;

• a slight decrease in the item "unlikely to pay" (-0.3%), in line with the trend seen during the year (-1.4% y/y);

• a strong decrease in "past-due" q/q (-41.1%), which confirmed the yearly trend (-33% vs December 14).




Furthermore, gross NPEs on total loans decreased to 16.3% in December 2015 (from 16.9% in December 2014) while net NPEs on total loans was 10.6% (from 11.2%). The decreases were caused by the slowdown in the growth of NPEs, on the one hand, and by the increase in performing loans, on the other hand.

The domestic data on the banking sector (source ABI - data as at November 2015) highlight that the weight of net bad loans on total loans was 4.89%, up from 4.64% as at December 2014. The figure for Bipiemme Group improved compared with the average for the whole banking sector (4.4% in December 2015).

The total coverage rate on NPEs is now 39.6%, up by 10 bps vs September 2015 and by 110 bps y/y. When we take the cancellations into consideration, the coverage rate of NPEs is 44.5%.

The coverage rate for single items in December 2015 is still at a significant level:

• bad loans: 54.5% vs 55.9% in December 2014; the slight decrease was due to both the disposal of bad loans, with a significant coverage rate, and to the entrance of some positions backed by real guarantees;

• unlikely to pay: 22.1%, +172 bps y/y;

• past-due: 9.3%, +90 bps y/y;

When we take into consideration the cancellations on single positions, the coverage rate on bad loans is 60.8%.

The coverage rate on performing loans is 0,60% (vs 0.64% as at September 2015), slightly down due to the improvement in the quality of the performing loans portfolio and to the increase in customer loans.

The group's net equity as at 31 December 2015 was €4,627 million, up vs September 2015 (+0.4%) and y/y (+2.0%).