U.S. Markets open in 5 hrs 7 mins

Edited Transcript of BMED.MI earnings conference call or presentation 31-Jul-19 2:00pm GMT

Q2 2019 Banca Mediolanum SpA Earnings Call

Milano Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Banca Mediolanum SpA earnings conference call or presentation Wednesday, July 31, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alessandra Lanzone

Banca Mediolanum S.p.A. - Head of IR

* Ennio Doris

Banca Mediolanum S.p.A. - Chairman of the Board

* Massimo Antonio Doris

Banca Mediolanum S.p.A. - CEO & Director

================================================================================

Conference Call Participants

================================================================================

* Andrew John Crean

Autonomous Research LLP - Managing Partner, Insurance

* Elena Perini

Banca IMI SpA, Research Division - Research Analyst

* Federico Braga

UBS Investment Bank, Research Division - Equity Research Analyst

* Filippo Prini

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Gian Luca Ferrari

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Security Analyst

* Hubert Lam

BofA Merrill Lynch, Research Division - VP

* Luigi De Bellis

Equita SIM S.p.A., Research Division - Co-Head of Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Alessandra Lanzone, Banca Mediolanum S.p.A. - Head of IR [1]

--------------------------------------------------------------------------------

Good afternoon, everyone, and welcome to our first half results presentation. Our CEO, Massimo Doris, will lead the presentation today; and our President, Ennio Doris; and our CFO, Angelo Lietti will join the Q&A session.

So let's get started. And now over to you, Massimo.

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [2]

--------------------------------------------------------------------------------

Thank you, Alessandra. The results we are presenting today are what we would call outstanding in a challenging environment and are clear evidence that we are increasingly seeing benefits from the multitude of actions we've put into place over the past couple of years that impact both the top line as well as the bottom line. More importantly, we continue to deliver what we said we would deliver and are one step further on the virtual circle of growth we are pursuing to boost operating leverage.

Having said that, net income for the half year came in at a solid EUR 171.3 million, with a significant 41% gain in the operating margin. This turned out to be over EUR 196 million, some EUR 57 million over H1 last year, a clear testimony of our dedication to maximize operating efficiency and improve our earning mix.

The health of our operating margin continues to be driven by the growth of net commission income, which was up 24% for the half year, with much of the credit going to the stabilization of net revenues, thanks to the restructuring of our Irish funds. In fact, the investment management fees contributed almost EUR 75 million in the first half, with no impact on acquisition costs. For your convenience, in our income statement slide, we stripped these off from the other fees in a dedicated line item. On the other hand, management fees were largely in line year-on-year at nearly EUR 500 million. In Q2, management fees hit their highest level ever, reaching EUR 255 million, with average assets completely recuperating from their low in Q1.

And as you can see, Slide #7, commission income from recurring fees reached EUR 293 million in Q2, which turns out to be 212 basis points on average assets. Going back to total commission income, banking service fees continued to benefit from the fees on certificates, although certificates tapered off in Q2, as expected, going from some EUR 180 million in gross inflows in Q1 to some EUR 120 million.

Now let's look at net interest income, which benefited from the continued expansion of our credit book and reached EUR 112 million, increasing 28% year-on-year. Actually, as you can see, Slide #8, NII made the jump in Q2, and this is largely explained by the front loading of EUR 3 billion in govies in February and March, whose benefits were fully expressed in Q2. So we can confirm the guidance for 2019 NII that we've already adjusted upwards to some 20% over 2018.

Going back to Slide #5, I'd like to provide a bit more color to net income on other investments. I think a more detailed look will be helpful since we are comparing EUR 40 million in H1 last year with a negative EUR 21 million this year. First of all, H1 in 2018 benefited from EUR 18.7 million in capital gains, which we can no longer count on given the change in last October in the treasuries business model, reclassifying most of the HTCS portfolio into HTC.

On the flip side, we took a write-down this year to the tune of EUR 5.6 million for a high profitable rental property we own in Rome that has recently been vacated. And lastly, we registered higher impairments on loans to the tune of some EUR 6.5 million due to a couple of factors. A worsening of Italian GDP at the start of the year, with IFRS 9 accounting standards imposing a higher risk coefficient on a collective basis for the entire industry as well as an impairment of a couple of significant loans in Q2, however, with no change at all in NPL ratios.

Now moving down the P&L. G&A expenses totaled about EUR 274 million for the half year, up 1% versus the same period last year. I will reiterate our guidance of a 4% increase by year-end, as we will make up the difference over the course of the second half. So I'd really like to stress, again, the strength of our underlying business. Our operating margin is on a convincingly sustainable trend, up 41%, thanks to a solid performance of our key growth drivers and our tight focus on cost control.

Focusing now on the market effects line items. Performance fees only account for fees generated by capital gains of those customers who took advantage of profit taking during the period. As far as fair value is concerned, please note that the line item is a mixture of a few positive and negative values. The drop in interest rates negatively impacted the derivatives in our portfolio, especially those hedging fixed-rate mortgages no longer in our book. While on the other hand, the value of our shareholding in SIA had to be adjusted upwards to be more in line with current market valuations.

Finally, the one-offs line item includes an extraordinary contribution to the SRF from 2017 of EUR 1.6 million, with the remainder attributable to the early closing of the deal with the former EuroCQs owner. As such, any outstanding charges are closed. So this brings us to a profit before tax, which is 1% over the results of H1 last year, despite the lack of performance fees.

Now moving to Slide #9. Assets under administration and management hit a new milestone at the end of June, surpassing EUR 80 billion, EUR 80.3 billion to be exact, more than recuperating the loss in assets at the end of 2018, actually increasing 8%. About 1/3 of this increase can be attributed to our continued positive flows. In fact, as you can see Slide #11, we generated over EUR 2 billion in total net inflows so far this year, 70% of which in managed assets.

Our ability to keep a high-quality inflows mix continues to be stronger, not only than the industry as a whole, but also more than the other networks. Bear in mind that compared to last year, the mix has deteriorated for everyone.

As you can see Slide #38, illustrating the Assoreti clarification of managed assets for the first 5 months. Most of our peers' inflows went into traditional life policies with practically nonexistent margins, while mutual funds overall had outflows.

In contrast to this trend, our mutual fund and unit-linked inflows range firmly at the top of the networks, as you can see in Slide #37, even without the support of the PIR funds. However, beyond the EUR 2 billion net inflows, our Family Bankers in Italy are also focusing their work on other areas that further broaden our revenue streams, and their efforts are paying off. In fact, they were also able to generate EUR 1.2 billion in the lending business, which is not an insignificant revenue stream.

As you can see Slide #22, mortgages and loans registered a strong increase to the tune of 21% year-on-year. Building up our credit book to EUR 9.1 billion, as shown in Slide 23, mortgages continued to represent the bulk of the book, reaching almost EUR 6.7 billion, with practically all of the book in floaters, while the market is predominantly driven by fixed rates.

Please note that even in this worsening macroeconomic scenario, our sensitivity to 100 basis points shift in interest rates would be around EUR 70 million of additional NII, while a negative shift would result in a much lower impact to the tune of some minus EUR 20 million. Moreover, the salary-backed loans are picking up speed, with EUR 504 million in the book, right in line with our plan.

And then, as you can see in Slide #27, taking a look at the high profitable general insurance business, the dedicated program, Programma Protezione, we launched in April to boost the sales of stand-alone policies, had a good start, registering a 78% increase in new business in the first half.

Just as a reminder, our objective is to fill the void in our customers' coverage in terms of P&C, have some visibility as well as term policies, so that our customers' assets are protected in case of serious unfortunate events.

We now have 90 Family Bankers called family protection specialists, who are experts in general insurance and work alongside our Family Bankers. We'll also be adding experts from the industry along the way. Although today numbers are still very small, keep in mind that our objective is to grow new business of stand-alone policies some tenfold in 5 years.

Switching gears in Slide #12, you can see our updated capital ratios. The common equity Tier 1 ratio at the end of June was 19%.

Let me make a quick comment now on the foreign markets. Our business in Spain continues to deliver. On Slide #31, you can see net income came in at EUR 9.2 million in the first half, an increase of 12% year-on-year and is impacted by the same factors as in Italy, namely, higher recurring fees and no material performance fees accounted for as yet.

Assets increased 13% since year-end, totaling EUR 5.5 billion, with managed assets at EUR 3.9 billion.

The sales network saw healthy growth year-on-year, with an additional 64 individuals, which allowed us to reach the milepost of 1,000 Family Bankers.

And now as far as Germany is concerned, what we can say is that we are down to 2 binding offers currently under review, and we anticipate that an agreement will be reached sometime this fall, with the actual closing expected next year.

Now that we've covered all important numbers, I'd like to share a couple of comments on what's happening with the MiFID II customer report. All reports have been sent out with some going out at the end of June and the rest in the month of July, with 80% of our customers receiving a notification by e-mail that they can access their report in their Banca Mediolanum account and 20% receiving the report by regular mail.

We've received no pushback at all from our customers. Just a few dozen phone calls to our toll-free number to ask for basic assistance in opening the document as per usual. The most obvious explanation for this would be the strong and frequent relationship our Family Bankers have with their customers, but on a more practical level, our clear and transparent approach from the very beginning.

Remember that starting at the beginning of 2018, all our customers making new investments received the suitability report laid out in a very transparent way, displaying costs in both absolute terms and percentages, an effort that has decidedly paid off now that the 2018 report has been issued. Our productivity and our determination, 2 characteristics that always set us apart, have paid off even in this challenge.

I will close by saying once again that I am proud of our results so far this year. For the remainder of 2019, we will continue to focus on profitable volume growth, while delivering steady and sustainable improvement in underlying operating margin.

With that, I will now open the lines for questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) First question from the line of Gian Luca Ferrari, Mediobanca.

--------------------------------------------------------------------------------

Gian Luca Ferrari, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Security Analyst [2]

--------------------------------------------------------------------------------

[Interpreted] So as I was saying, net interest income, you confirmed your 2019 guidance of a 20% growth. Do you have any guidance you want to provide us as to 2020? Where do you expect the NII to go in 2020?

Second question, an update on performance fees as of today. So theoretical performance fees, if a certain level is reached on December 31, what kind of impact would this have on your dividend policy? Would you pay more than EUR 0.40? Should performance fees be so hefty?

Third question, EUR 13 million loan loss provision. Massimo said during his speech that there were 2 significant major events that impacted the quarter. I would like to know whether you could quantify these 2 different positions, so that we can understand what kind of normalized level we can expect for the full year, talking about loan loss provision.

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [3]

--------------------------------------------------------------------------------

[Interpreted] Well, as far as NII is concerned, 2020 NII is expected to grow even further, grow by 5% more than the 20% increase expected in 2019. And that is due to the fact that our loan book keeps growing, and that is also due to all of the securities that we have in our portfolio. Performance fees, as of June 30, we had EUR 292 million in July, they exceeded the EUR 300 million mark. So should we close the year at that level, we envisage a dividend policy with the regular dividends growing slightly, effective from this year and in the years to come.

Obviously, should we report EUR 300 million worth of performance fees, most likely we would pay out an extraordinary dividend for 2019. So the increment in the basis dividend represented by EUR 0.40, should we actually cash in that many performance fees or that much in performance fees, then we may distribute an extraordinary dividend. But I want to clarify, depending -- we know that these fees will be correctly computed only in -- on December 31. So up until then, we cannot say how much they will be. As far as the 2 write-downs, there were 2 significant positions that were impaired for a total of about EUR 5 million.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

The next question by Federico Braga, UBS.

--------------------------------------------------------------------------------

Federico Braga, UBS Investment Bank, Research Division - Equity Research Analyst [5]

--------------------------------------------------------------------------------

[Interpreted] I have a couple of questions. The first on NII, the guidance of 5% growth that you communicated. Does that include some front-loading on maturities next year or does it not? I think I understood that this year our front-loading will be around EUR 20 million or EUR 30 million. So excluding these figures, so this amount from 2019, what should you have to do to achieve the guidance that you're communicating 2020?

Then I have a question about salary-backed loans, and I have a question about the sensitivity of the loan books to the interest rates. Is that more sensitive or less sensitive as far as salary-backed loans? And then the flows for the rest of the year. In Q2, we witnessed an increase in deposits, which probably was due to repos being divested, around EUR 500 million that went into deposits. Can that be a source of deposit also for the second part of the year or inflows in managed flows for the remaining part of the year?

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [6]

--------------------------------------------------------------------------------

[Interpreted] Well, thank you for the questions. As to the growth of 5% of NII in 2020, this amount does not include any front-loading effect. While being able to repeat the so-called the front-loading effect is something that will be decided, if ever, at the beginning of the year. So plus 5% is related to 2019 with the securities we have, EUR 3 billion that are going to mature at the end of the year, and there's no new purchase envisaged.

As to the other question about the salary-backed loans, well, it's a bit less sensitive in this case when we speak of CQS versus mortgages. So it's a bit less sensitive to interest rate trends. Although given -- although in this sector, competition is increasing when it comes to salary-backed loans and therefore, margins have kindly decreased versus a few years ago. However, margins are still quite good and the risk level is still quite low.

As to the other question about inflows in administered funds, so your observation is correct. We had an increase, which was due to maturities of repos that occurred at the end of last year and at the beginning of the year. A small part of this is already part of managed assets, let's say, slightly below 10%, but we expect this to grow going forward because we have now started to see maturities of repos and Family Bankers have to work in this direction, so as to make sure that customers invest their money in a different manner and in a more profitable way for us. But certainly, we expect the larger part of repos maturing in this year that will flow into managed flows.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

The next question by Elena Perini with Banca IMI.

--------------------------------------------------------------------------------

Elena Perini, Banca IMI SpA, Research Division - Research Analyst [8]

--------------------------------------------------------------------------------

[Interpreted] I've got a couple of questions. My first question refers to what you said earlier about Germany. I really did not get it. Did you receive 2 offers? And you are going to sign by the end of the year and close next year? Could you please clarify? And also, net inflows, again, this is my second question. In the second half of the year, do you expect to retain the same mix of inflows? Or based on what you said, responding or answering the previous question, do you expect an improvement? And since today, it's July 31, maybe you can also share with us an update as to July inflows?

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [9]

--------------------------------------------------------------------------------

[Interpreted] Okay. Let's take Germany first. What you said or your recap is correct. We expect to sign in the fall and close the deal. We expect to close the deal in the first half of next year.

Net inflows and their mix. Well, truth be told, I expect a better mix because the administered assets mix was heavily impacted by the repos we sold. So in the second half of the year, I expect the mix to be better. And in July, we have already seen a marked difference. So a single month cannot really be -- we cannot extrapolate from a single month to the rest of the year. But actually, I have to say that a significant portion of assets -- managed assets increased significantly. So it means that a good chunk of administered assets are shifted to managed assets.

--------------------------------------------------------------------------------

Operator [10]

--------------------------------------------------------------------------------

Next question is from the line of Luigi De Bellis from Equita SIM.

--------------------------------------------------------------------------------

Luigi De Bellis, Equita SIM S.p.A., Research Division - Co-Head of Research [11]

--------------------------------------------------------------------------------

[Interpreted] I have a more general question, if I may, about consolidation. In a recent interview, you said that you were a bit more open to consolidation in the field of asset management. And if you have the possibility to see or to acquire a network in Italy, you would take that into consideration. What are the actual possibilities so far?

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [12]

--------------------------------------------------------------------------------

[Interpreted] Well, in that interview that lasted an hour, we talked about different things, and the journalist asked the question about the consolidation of our industry and he asked about our position in this regard. And I gave the usual uncertainties. Meaning that if we're speaking of consolidation of traditional banks, we are not interested at all. So I will not even spend 10 seconds of reading a file of a traditional bank. As far as my traditional approach or my industrial approach, a merger of this kind doesn't make sense.

Whereas I said, if I see an idea of being merged with another network, now from an industrial point of view this on the consolidated mix sense. Well, I will take the situation or the file in consideration. As a matter of fact, over the past few months, a number of investment bankers have come to me, which I guess have -- and they visited our competitors as well, asking about possible merging our company with Fineco or Banca Generali or Azimut. They ask what our assumptions are.

Well, I take into account all of these possibilities and assumptions, but nothing has happened so far. There's nothing practical and concrete on the table so to speak, but only we have these proposals of these investment bankers. So far, nothing has happened, which doesn't mean that it will not happen in the future. I mean it hasn't happened so far. The likelihood of this happening in the future is not very high. But I will not deny the possibility to go in that direction. However, let me tell you, once again, there's nothing on the table which is practical in this direction.

--------------------------------------------------------------------------------

Ennio Doris, Banca Mediolanum S.p.A. - Chairman of the Board [13]

--------------------------------------------------------------------------------

[Interpreted] Well, let me add my comment here. Please consider that our sales and marketing policy, our culture is extremely different from all of our competitors, from all of the sales networks that compete with us. So integrating our sales network with another one would be problematic. That is why we have turned down all the offers every time. But let me also add one thing. I myself and my family are the majority shareholder of this company. So do you think I would ask the market and myself a significant new rights issue to accomplish this kind of deal? Forget it. I mean no way. Our policy will always be the same. We will pay out dividends. We will redistribute money to those who invested in us. In fact, Massimo talked about a possible merger not an acquisition, unless it's a very small network. So please forget any possibility that we may go for a capital increase for a new rights issue.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Next question is from Filippo Prini.

--------------------------------------------------------------------------------

Filippo Prini, Kepler Cheuvreux, Research Division - Equity Research Analyst [15]

--------------------------------------------------------------------------------

[Interpreted] I have a question about performance fees on the Irish funds. So can you tell us the maximum level of performance fees that you can charge this year and the possibility of performance fees growing with respect to other funds?

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [16]

--------------------------------------------------------------------------------

[Interpreted] Well, the Irish funds have a maximum level of 1% -- have a cap of 1%. Well, please remember -- and we're speaking of EUR 292 million of performance fee as at the 30th of June, EUR 250 million come from -- sorry, EUR 240 million MiF and the remaining of MGF. So we also have the Italian parts, EUR 240 million Mediolanum International Funds. So EUR 292 million are not all coming from the Irish funds.

Now I don't remember the mix now, EUR 270 million. So out of EUR 325 million, EUR 270 million are Mediolanum International Funds and the remaining Mediolanum Gestione Fondi, MGF.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

There are no other questions for the moment. (Operator Instructions) There are no other questions from the conference call -- from the Italian conference call. At this point, we'll move to questions coming from the English conference call. (Operator Instructions)

Your first question comes from the line of Hubert Lam from Bank of America.

--------------------------------------------------------------------------------

Hubert Lam, BofA Merrill Lynch, Research Division - VP [18]

--------------------------------------------------------------------------------

I've got 2 questions. Firstly, on loan impairments. For the first 2 quarters, you've averaged about EUR 6 million to EUR 7 million of impairments. This is much higher than what it was last year when you averaged about EUR 1 million to EUR 2 million. Should we expect the run rate going forward to be closer to what it is at the first couple of quarters of this year just because your loan books [have] expanded? That's the first question. The second question is on the sale of the German business. If you can either give us the -- what do you think should be -- what do you think could be the absolute amount that you should be -- you could be receiving for this business or maybe the benefit in terms of the CET1 ratio that you expect from the sale?

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [19]

--------------------------------------------------------------------------------

[Interpreted] Now let me take your first question about loan impairments. Now this -- beyond the 2 loans that we had to write-down, EUR 5 million, they tend to be rated to the negative outlook of Italy. So all of the book, including govies have witnessed an increase of the provisions basically. So as far as the outlook, it remains the same? Well, that's going to be more or less what we are going to have. Otherwise, if the outlook improves on a country, lending payments will go down.

Let me now take your question about Germany and the related impact. Now as to Germany, we haven't -- we don't have an amount at the moment. We are having discussions with the 2 counterparties at the moment. And as far as CET1, there is no impact at the moment which is envisaged.

--------------------------------------------------------------------------------

Operator [20]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from the line of Andrew Crean from Autonomous.

--------------------------------------------------------------------------------

Andrew John Crean, Autonomous Research LLP - Managing Partner, Insurance [21]

--------------------------------------------------------------------------------

There's actually 2 points for clarification and a question. The point of clarification I wanted to understand was on the dividend policy. Did you say that the dividend would be increasing gradually from 2019, regardless of the performance fees? And also, could you give me some guidance as to why lower interest rates would have less of an impact on the NII than rising interest rates? Then the question is on net flows into mutual funds and unit linked within Italy, where I think the net flows were EUR 974 million into June versus EUR 1.5 billion June of the previous year. Do you expect to make up the gap and have roughly level net flows into unit linked to mutual funds in Italy by the end of the year?

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [22]

--------------------------------------------------------------------------------

[Interpreted] Now as to your question about dividends, well, let me tell you that what we said is that regardless of performance fees, we expect to pay out a regular and ordinary dividend, so which is going to increase going forward. Moreover, this year but also in the future, should we record a very good level of performance fees, we might resort or we might distribute an extraordinary dividend.

As to the other question that you asked about the positive or negative impact on the NII of interest rates. Now if -- I mean, interest rates, we'd not expect interest rates to go below 0. Whereas, when it comes to interest rates going up, since we have mostly floaters, we will have an increase or we will have a greater positive impact on the NII.

Let me ask the impact, what it's going to be -- now the mortgages that our customers have, have a flow, which is at 0. And so the decrease in interest rates will not bring margins down -- further down because we'd stop at 0. Whereas, when it comes to interest rates going up, there's no cap to that, okay?

--------------------------------------------------------------------------------

Andrew John Crean, Autonomous Research LLP - Managing Partner, Insurance [23]

--------------------------------------------------------------------------------

Okay.

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [24]

--------------------------------------------------------------------------------

[Interpreted] Now about your question on net inflows. So about your question on inflows in mutual funds, it's going to be difficult to recover the gap that we had this year. Well, if you look at the market, well, the market is at negative when it comes to funds. We actually have performed the best when it comes to inflows in unit linked. Achieving the same results we had last year will not be very easy. However, we are always competing. And if we look at our competitors, we are overperforming them, and we will continue to perform better if you look at the managed funds as a mix.

--------------------------------------------------------------------------------

Ennio Doris, Banca Mediolanum S.p.A. - Chairman of the Board [25]

--------------------------------------------------------------------------------

[Interpreted] And we are outperforming in terms of the quality mix of our inflows. If you remember what happened at the beginning of the year, bond funds were reporting mainly outflows in Italy. They're turning to positive only in June when -- in addition to a significant rates decline -- a significant rates decline in Italy generated the capital gains. So in June, customers have certain capital gains, but the amount in general is smaller because rates have declined. So as usual, retail customers are misbehaving, meaning that since rates were going up at the beginning of the year, they divested.

Now rates are going down and they bought. As far as equity funds are concerned, in June, they registered outflows in the market because in the previous few months, equity markets had declined. And so once again, they were in negative territory, but then the market went up again. So that is what the market is doing. But if you take a look at our inflows, you can see that in general terms, it's lower than last year. But the average quality is much better because we can really drive the choices our customers make and help them stay invested instead of going in and out and thus missing out on the good opportunities. You can see that it's not only a matter of higher volumes, but also the quality mix is much better. Ours is much better.

--------------------------------------------------------------------------------

Massimo Antonio Doris, Banca Mediolanum S.p.A. - CEO & Director [26]

--------------------------------------------------------------------------------

[Interpreted] Let me also get back to the question you asked about the impact of interest rates on our NII. So I talked about a floor. The floor is equal to the Euribor. So if a mortgage has got a 2% floor, should the Euribor go down to minus 1 or 2. Since according to us, Euribor's floor is 0, the margin would be 2%, not on the entire mortgage book because older mortgages did not have this floor, but we have a few billions of new mortgages, so a significant chunk of the loan book does have this floor.

When interest rates go up, instead, we can capture the full upside. We are not capturing this increasing rate at present because Euribor stands at minus 300 -- at minus 30 basis points approximately. So a 100 basis points increase in Euribor would mean 70 for us because the first 30 points would be from minus 30 to 0, i.e., 0 impact on NII. But from 0 onward or upward, we would have with the capture the impact. If from minus 30 it goes down, rates go down, the effect would be 0 because we have the floor. So once again, we would have 200 basis points that would -- sorry, 300 that would remain unchanged.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

There are no further questions on the English call. I'll hand back to the Italian. We didn't have other questions from the Italian line either. So I hand it over to Ms. Alessandra Lanzone.

--------------------------------------------------------------------------------

Alessandra Lanzone, Banca Mediolanum S.p.A. - Head of IR [28]

--------------------------------------------------------------------------------

[Interpreted] Before closing, Mr. Ennio Doris would like to share some comments on -- and remark on our results.

--------------------------------------------------------------------------------

Ennio Doris, Banca Mediolanum S.p.A. - Chairman of the Board [29]

--------------------------------------------------------------------------------

[Interpreted] Exactly. I would like to draw your attention to some changes that are taking place in our company. When Massimo Doris became CEO, so when I handed it over to Massimo Doris, he received very flexible company. I hand him over a very flexible company, innovation-prone company, a company that had a commercial organization that was really sticking to the marketing and sales policies promoted by the company, which isn't quite frequent.

But what is going on right now is that the machine is being completely changed. So it's both HQ and the sales network that are being reshuffled. Why are we doing this? Why are we changing? Because we want Family Bankers. We want the sales network to focus on certain sectors that are extremely significant, but are not really typically in their radar. They are not part of their culture.

For instance, let's take lending. Family Bankers specialize in gathering assets, in inflows, but they don't specialize in lending or in selling general insurance products, protection products. So if you take a look at lending, you can see that in the first 6 months, new loans, namely mortgages, loans, credit lines and salary-backed loans, all in all accounted for EUR 200 million new loans every month, that are being gathered by the sales network. So the sales network not only did it -- report an average of EUR 300 million -- sorry, EUR 200 million monthly inflows, but that same sales network managed also to generate EUR 200 million worth of new loans. So a total of EUR 400 million inflows. And this is very important because this is going to bolster NII, and NII can grow only by increasing lending and inflows.

So as you can see, our sales network is extremely flexible. And also, the sales network itself was reorganized. We created certain family protection specialists. We reorganized HQ. Thus, promoting interactive -- an interaction between HQ and the sales network. So HQ can really provide technical support to the sales network and can also provide commercial support to the sales network, focusing on specific themes, et cetera. So the sales machine, the company itself is really changing. It's not the same company I handed over to the CEO -- to the current CEO. Plus, there is another significant change underway. That's to say, general insurance, new business generated by protection products increased by 78%, from EUR 2.9 million to EUR 5.1 million. I know these are small numbers, but still the increase was 71%. And it is only in the second half that these actions that we put in place in the second quarter, actually, that these actions that we put in place have gained traction. And in certain areas, we have actually reported a 100% growth of this line item. Effective from the fall, these initiatives will be rolled out to the whole sales network. So from now on, you will see general insurance and protection products really increasing steadily, together with mortgages and lending in general.

So currently, the relative weight of these line items can be rather modest, but it's really destined to go up significantly. And above all, it will help increase recurring income. So recurring income generated by lending as well as by general insurance plus the changes we made at the beginning of the year in calculating commissions by separating recurring from one-off commissions. And by one-off, I mean, performance fees. This change was well received by the sales network. They fully subscribed to the change and customers too received the change positively, which accounts for a 41% increase in the operating margin of the company.

So if you put it all together, if you bundle it all up, you can see that Mediolanum is really morphing because Mediolanum is a machine that is really crunching out an increasing operating margin year-after-year in managed assets, despite market effect that have an impact on both the inflows and commissions.

But as you know, we have really equipped ourselves well. But also, NII will be positively impacted by an increase in lending. And we are doing all this while retaining exceptional capital ratios and indices in general. And also, I'm referring also to NPLs, where we still have a very good ratio.

Next year, we will have -- we continue having high margins, precisely because, in general insurance, we are pursuing a policy, which is completely different from all other insurers. We just concentrate on large risks, on those risks that we negotiate individually with our customers. And there, too, we enjoy handsome margins because we are once again different from traditional companies -- traditional insurance companies that just rely on their agents networks and are a lot less personalized in selling insurance products.

So in the past, the operating margin was less significant compared to one-off commissions, such as the performance fees. And that is why we were more affected by volatility. Our income was more affected by volatility.

Looking forward, income will be volatile too, but less so to a lesser extent because we have sort of a bad rock on which we are building a solid business. And year-after-year, margins will be heftier and heftier. So the machine is different. The company has morphed. And this morning, I really gave my personal congratulations to all of the management team, to the top managers of the company because they really have a lot of trust in the rosy future of this company.

The monthly inflows, Mr. Doris is correcting himself, is EUR 300 million a month and EUR 200 million monthly lending. By monthly inflows, I mean, both administered and managed assets, while EUR 200 million is all administered.

So -- and in fact, percentage-wise, if I take a look at retail customer inflows and retail customer loans, we went up to 53%, when we had, in the past, hit an all-time low of 45%. So we have still plenty of room to go up in terms of lending. And also, I have to say that even when we achieve 70%, 75% increase in lending compared to deposits, we'll be able to modify our loan prices because please consider we are lending money to retail customers. So we can really leverage deposits to price loans differently. So I'm very, very happy with the changes this company is implementing. Thank you.

--------------------------------------------------------------------------------

Alessandra Lanzone, Banca Mediolanum S.p.A. - Head of IR [30]

--------------------------------------------------------------------------------

Thank you all. And if you haven't gone on holidays yet, I wish you happy holidays. See you on November 10 for the first 9 months results.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]