Profit: EUR1,951 million, up by 16.9% year on year. Gross Operating Profit: EUR2,165 million, up by 10.8% year on year. Core Revenues: EUR3,821 million, up by 5.7% year on year. Net Interest Income: EUR2,356 million, up by 2.8% year on year. Cost to Income Ratio: Improved to 46% from 49% in 2023. Wealth Management Growth: 19% year on year. New Retail Mortgage: EUR3.44 billion, up by 26% year on year. New Consumer Finance: EUR1.1 billion, up by 21% year on year. Commercial Savings Volumes: EUR167.2 billion, up by 5.8% year on year. Operating Costs: EUR1,869 million, up by 1.4% year on year. Net Dividends Proposed: EUR0.86 per share, totaling about EUR1 billion. CET1 Ratio: 18.2%, at the top of the banking system. Total Capital Ratio: 20.5%. Liquidity Coverage Ratio: Above 160. Net Stable Funding Ratio: About 130.

Warning! GuruFocus has detected 4 Warning Signs with BMDPF.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Banca Monte dei Paschi di Siena (BMDPF) reported a profit of EUR 1,951 million, up by 16.9% year on year, driven by strong business revenues. Gross operating profit increased by 10.8% year on year, supported by revenue growth and effective cost management. The bank's core revenues rose by 5% year on year, reaching EUR 3.8 billion, with significant contributions from net interest income and fees. Asset quality remained strong, with a CET1 ratio fully loaded at 18.2%, positioning BMDPF at the top of the banking system. The proposed net dividends amount to EUR 1 billion, reflecting a yield of 14%, which is among the highest in the banking sector.

Negative Points

Net interest income is expected to decrease due to the interest rate scenario, although efforts are being made to mitigate this through improved mix management. Operating costs are anticipated to rise slightly, driven by investments in technology and the full impact of a new labor contract. The cost of risk is projected to be lower than in 2024, but there are concerns about maintaining this trend amidst market uncertainties. The integration with Medibank poses potential challenges, particularly in aligning operational models and digital platforms. There is uncertainty regarding the full realization of synergies from the Medibank transaction, especially if initial distractions occur during the merger process.

Q & A Highlights

Q: What kind of decline in net interest income (NII) is expected for the year, and how do you see volume deposits and lending evolving? A: We expect a decrease in net interest income due to the interest rate scenario. The decline could be in the range of a single digit, but it largely depends on our ability to manage the cost of funding and convert part of the deposits into wealth management products. We are investing in processes and technology to support this transition.

Story Continues

Q: Can you remind us of the impact of Basel 4 expected in 2025 and the gross and net asset management flows in Q4? A: We anticipate a reduction of EUR1.3 billion due to Basel 4, partially offset by an update of our AB models. The impact of the market has been shifted to next year, which might be slightly less than expected. In Q4, we reported strong performance in wealth management with almost EUR3.7 billion in gross flows.

Q: Regarding the Medibank transaction, how would the CET1 ratio be affected if ownership is between 51% and 67%? A: If we do not achieve 100% acceptance of our tender offer, the impact would be roughly 50 to 60 basis points on our CET1 ratio estimate for 100%. The DTAs can be fully used as long as we hold at least 50% plus one share of Medibank.

Q: Could you share insights on the trajectory of revenues throughout 2025 and the assumptions for NII guidance? A: We project a 3-month arrival of roughly 2.2% for interest rates. We expect growth in both loans and deposits. The impact on net interest is expected to be higher than on fees, and we will try to compensate partially through trading activities.

Q: Are you considering using excess capital for share buybacks or other maneuvers to appeal to investors? A: It's too early to consider optimizing capital through share buybacks. We believe maintaining a CET1 ratio of 16% provides flexibility and opens possibilities for further business development.

Q: Can you update us on your sensitivity to rates and the evolution of total income? A: We aim to offset the decline in NII with commission growth and potential trading profits. Our goal is to keep total revenues close to the 2024 level. We managed to keep sensitivity stable at around EUR130 million for a 100 basis point shift in the curve.

Q: What are the main challenges in integrating the operational models and digital platforms of Montepaschi and Medibank? A: We don't foresee significant complexity as there is no need for a typical IT system migration. We plan to invest in technology, including AI, to streamline processes and enhance integration.

Q: Can you confirm if you can start buying Medibank shares before having approval from your shareholders meeting for the offer? A: Yes, there is no connection between the purchase of shares and the authorization from the shareholders meeting.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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