Wednesday , November 25 2020

Ubi Banca, industrial plans weigh on the quarter

The Unione Board of Directors at Banche Italiane Spa (UBI Banca) approved the consolidation results for the first nine months of 2018. Profits for the first nine months of 2018, net of non-recurring items, amounted to 260.6 million, the best results for the last 10 years (167.3 in the first nine months of 20172) net accounting profit of 210.5 million (86.2 million in the first nine months of 2017, net of 616.2 million capital gains resulting from the acquisition of 3 banks)

UBI Group's consolidated results include, starting from April 1, 2017, 3 banks that were recently acquired. Due to differences in the scope of consolidation, the comparison of the first nine months of 2018 with the same period in 2017 is not significant, in contrast, quarterly economic comparisons on the basis of such-to-like and on IFRS9 are more significant (3Q 2015 compared to 2Q08)). Group economic results

The third quarter of 2018 closed with non-recurring net income of items of 38.5 million (101.1 million in 2Q 2015 and 37.3 in 3Q 2015).

Net income including non-recurring items of € 1.6 million, affected by extraordinary costs related to the Business Plan (costs associated with union agreements signed in September 2018 for € 36.9 million in quarter net) and losses (€ 43 , 8 million) relating to the sale of mezzanine lotteries and juniors from problem loans securitization, which allows for deconsolidation. This profit was compared to net income of 91.2 million in 2Q08 and 6.4 million in 3Q08. In 3Q08, operating margin was € 200.5 million, down from € 310.1 million recorded in 2Q 2015 mainly due to a decrease in operating income to € 808 million (-11.3% vs. 2Q08) – due basically to recorded losses in sales the stage of bad debt securitization, which caused financial results to be -59.3 million (from +18.5 from 2Q14), and to reduce upfront performance and costs on the placement of SICAVs and insurance products.

As of September 30, 2018, the Group's direct savings amounted to € 94 billion, down from 95 in June 2018, resulting from the following trends:
– Direct deposits from ordinary customers dropped to € 76.7 billion from € 78.9 billion as of June 30, 2018 mainly due to:. the reduction in liquidity invested in "demand deposits and deposits" aggregated to around 66 billion (-0.8 billion), some shifting to managed savings, which grew quarter to quarter; . reduction of "deposits at maturity" and "repurchase agreements" for a total of € 0.7 billion; . a reduction of around € 400 million in aggregate relating to bonds placed on captive customers, even though there are new problems in the period that override the maturity of more than € 1 billion.
– institutional funding increased to 17.2 billion17 (16.1 billion in June 2018), which included, in addition to the usual funding instruments, the first edition of Senior Non-Preferred was conducted on April 5 2018 to 500 million, under the EMTN program.

As reported above, indirect deposits continue to grow up to € 98.8 billion from € 98.5 million in June 2018 (and from € 96.5 at 1,1.2018). In particular, in this quarter:
– Assets under management in the strict sense of € 44.5 billion, up around € 76 million compared to June 2018;
– Insurance premium income rose to 24.7 billion (+ 2% compared to 24.2 in June 2018);
– Assets under administration amounted to € 29.5 billion (€ 29.8 billion in June 2018), influenced by performance effects (- € 0.3 billion) stemming from market volatility.

Below this interview with Chief Executive Officer Ubi Banca Victor Massiah for the results mentioned earlier.

Massiah, in recent weeks, news about markets in Italy, but also abroad, seems to indicate a new phase of turbulence for the economy that could hit companies and families. He still recently warned and stated that the year to be closed would be better than the previous year. What drives you to consider cautious optimism?

It is very objective that the international context is more difficult. We are faced with a crossroads. Is the presumption or potential of a trade tariff war a real war or is it just a negotiating position that will turn out to be just a tactic and not a strategy? Surely we hope for the second hypothesis, but we will go and see what the actual results are. However, what is being made is a more negative context of hope. On the other hand, also the latest statistics on international growth tell us about still positive but lower growth, in terms of size and intensity, to those that have until now, with the very important exception of the United States.

As far as our country is concerned, it is clear that the threat of this international context is more closed to international trade itself is something negative for our industry, which – as we all know – is more influenced by the export component than the domestic consumption component. It is also true that, to date domestic consumption has proven to be quite positive and, even with the last slowdown in the last quarter, we are still in an annual consolidation of almost 1% growth and therefore we are still in positive territory. So my first call to "not exaggerate": compared to the previous crisis, where we were in the presence of negative GDP even in the most important intensity, we are still positive GDP. Even more true that on the business side and on the bank side we find ourselves with an organizational structure far stronger than before, and still stronger than during the previous crisis. Both on the corporate side, who have been able to reconfigure themselves and who have experienced true Darwin selection, both on the bank side, which emerged, as we have seen also from the last stress test, are more solid from the point of view of capitalization and resistance to impact any. As far as we know, I say that I expect a better overall annual output than the previous year, and I confirm it. Also this year's results, specifically this quarter, told us that we tolerate this volatility in the market. It is true that the inevitable increase in spread leads us to have a negative impact on equity, but other items, other components have allowed us to fully absorb this negative impact, so much so that the capital ratio CET1, the most relevant for the measurement of solidity is at the same level as June, so this means our bank has been able to absorb widening spreads without having consequences on the capital ratio. It remains true that if there is nothing there we will have a higher capital ratio, but in the meantime we "bring home" typical solidity and resilience even during the previous crisis and that we confirmed in this quarter.

Stress test results recently promoted by EBA and confirmation coming from major rating agencies such as the S & P seem to confirm UBI Banca's resilience even in this turbulent phase., both as a company, and from the point of view of its financial structure. What are the main points of your attention for the coming months?

It is clear that, on the one hand, stress tests show that we are one of the least affected banks in the context of stress – this is indicated by the fact that the overall impact of the impact is below in terms of the impact of the European average – and this is a fact which clearly makes us very happy, on the other hand it is objective that the size of the capital ratio in Europe is becoming increasingly high and that the focus on further enrichment of our capital ratios must – and always – be part of our strategy. We have all reserves of DTA (deferred tax assets), which amount to around eight hundred million, all of which must be exploited, and which will substantially be part of our strategy for the next period.

Coming to the results of this quarterly report, what are the most relevant facts?

I would say that we must first emphasize two extraordinary components. The first is the conclusion of the union agreement, the umpteenth union agreement, in perfect lines and coherence with all the previous ones, so that accompanying our older resources towards retiring exodus. The fee is a one-off gross of 55 million posted in this quarter. The second is the GACS event. GACS is completed, which in turn has costs that are consistent with what is expected. The sum of these two costs, net of their tax impact, represents around 90 million net euros lost for stated net income, and this tells us that objectively, despite market volatility, despite the effects of the spread, however, we find ourselves producing an interesting economic component also this quarter, shows also on the economic side and not only on the asset side of resilience that I talked about before. With regard to the most important things in the income statement, the interest margin is affected in the third quarter in terms of the positive component of further reduction in funding costs from the bottom, almost unforeseeable if we consider the facts about what has increased in the market. the cost of funding itself. We managed to do this thanks to the ability to replace some institutional emissions with internal emissions that were clearly made in accordance with the new logic of the guarantee, in accordance with Mifid 2 rules, but which we succeeded in doing thanks to the trust confirmed by our customers, in the bank's risk profile. What still needs to be "grounded" to the end is a component of repricing of jobs. This is work in progress, work that we have started since July, this is a difficult job because in the context of competition it is still very high but it is unavoidable because it is rational: if the "raw material" component increases the cost, and this happens on the market internationally, if the risk profile is emphasized again a little because inevitably volatility carries a slightly higher risk profile, we must be able to bring the loan price component back to this new context, and this is the ongoing work that our commercial is doing and which I noticed during the quarter last one. As for the cost component, as always, as "from tradition", everything is perfectly under control. We witnessed a further reduction of the same thing, "year to year" which was important, the integration of the three banks was finally completed and the benefits began to emerge in an increasingly significant way. With regard to credit costs, the fundamental variable once again shows the situation under control; New non-performing loans have returned, in terms of flow and percentage of inflows, to pre-crisis levels, we have a stock situation that has significantly reduced, thanks to the finalization of the GACS mentioned above, and further contributions to the reduction will come from finalizing non-components -GACS from the FTA (IFRS9 first adoption, red) that we announced, which we hope will end between the end of this year and the beginning of next year. Overall, banks manage to navigate in a very good way despite many ocean storms, and that shows for the umpteenth time to know the port and to find out how to get there.

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