2016-19 business plan: strategy confirmed, goals achieved

2016-19 business plan objectives now fully achieved on the back of our distinctive business model and financial solidity, factors which allow the Mediobanca Group to focus on growth and place us in the privileged position of being able to strengthen distribution, organically and via acquisitions.

The 2018-19 financial year brings the time horizon covered by the three-year 2016-19 strategic plan to a close. The Mediobanca Group has reached the plan objectives comfortably, on the back of our distinctive business model which is focused on three highly-specialized segments - Wealth Management, Consumer Banking and Corporate & Investment Banking – growth in which is underpinned by long-term growth trends, and our financial solidity. These factors have enabled the Mediobanca Group to focus on growth and have put us in a privileged position in terms of being able to enhance distribution, both organically and via acquisitions.

Over the three years of the plan, revenues have grown at an average annual compound rate (“3Y CAGR”) of 7% and have reached €2.5bn, as follows:

  • Fees have grown by 11% (3Y CAGR), in particular those generated by capital-light businesses such as wealth management and advisory. The WM division is now the leading contributor to fee income at Group level, with a share of over 40%;
  • Net interest income has confirmed its positive long-term growth trend, reflecting an increase of 5% (3Y CAGR), despite the ongoing negative interest rate scenario and the deterioration in the macroeconomic backdrop, due to the Consumer Banking segment which has generated higher volumes in sustainable margins.

GOP has significantly exceeded expections (3Y CAGR +16%, vs +10% in the plan) and stands at over €1.1bn (vs target of €1bn); crucial factors in this outperformance have been maintaining high asset quality, which has enabled a substantial reduction in the cost of risk (to 52 bps, vs 105 bps in the plan) and operating efficiency (cost/income ratio stable at 46%).

Profitability has increased by 3pp, reaching the plan target (10%) despite the absence of gains on disposals, and with a much higher capital base (CET1 ratio above 14%, approx. 230 bps higher than the plan target).

Helped by the high earnings generation capacity and capital absorption optimization, the CET1 ratio has increased from 12.1% to 14.1% over the three months, having basically financed organic growth, acquisitions and increased shareholder remuneration:

  • Earnings generated over the three years have been approx. €2.5bn;
  • Capital absorption optimization has led to a reduction of over €10bn (or 20%) in RWAs. This has been due to introduction of the AIRB models (large corporate loan book in CIB and residential mortgage portfolio for CheBanca!), and optimization of market risk and capital absorption in private banking (CRM). The Group’s risk density (RWAs/total assets) declined from 73% to 59% (below the 64% target).

The factors cited above have enabled us to:

  • Finance substantial organic growth in our business (our loan book has grown by €9bn over the three years) plus acquisitions (Banca Esperia, RAM, MMA);
  • Increase the payout ratio from 38% to 50% (vs plan target of 40%) and launch a buyback scheme (not included when the plan was originally approved) to involve a total of up to 4.3% of the share capital (including treasury shares used).

All the divisions reflect significant improvement in both positioning and profitability.

Wealth Management: significant increase in scale (AUM: 3Y CAGR +31%, revenues: 3Y CAGR +18%, GOP: 3Y CAGR +27%), brand perception and distribution (franchise almost trebled and now comprising 900 professionals) – ROAC up from 9% to 16%
Consumer Banking: record results (revenues now over €1bn with 3Y CAGR +6%, and GOP €0.5bn, 3Y CAGR +27%), achieved on the back of a value-driven approach and by enhancing the direct network – ROAC up from 17% to 30%
CIB: improved client coverage (new organization and responsibilities, greater focus on Mid Caps with dual IB-PB coverage), product mix (with increased contribution from capital-light products) and geographical distribution (France, now third core market alongside Italy and Spain); asset excellence maintained, capital absorption reduced – ROAC down from 10% to 15%
Principal Investing: portfolio stable, ROAC 15%
Holding Functions: liquidity and funding indicators maintained at comfortable levels; central costs gradually reducing in relative terms due to centralization/optimization of Group functions.

Last update: 31/07/2019