Earnings Release • May 9, 2018
Earnings Release
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| Informazione Regolamentata n. 1928-56-2018 |
Data/Ora Ricezione 09 Maggio 2018 18:37:28 |
MTA | |
|---|---|---|---|
| Societa' | : | Banco BPM S.p.A. | |
| Identificativo Informazione Regolamentata |
: | 103507 | |
| Nome utilizzatore | : | BANCOBPMN08 - Marconi | |
| Tipologia | : | 3.1 | |
| Data/Ora Ricezione | : | 09 Maggio 2018 18:37:28 | |
| Data/Ora Inizio Diffusione presunta |
: | 09 Maggio 2018 18:37:28 | |
| Oggetto | : | 2018 | PR_BancoBPM Results as at 31 March |
| Testo del comunicato |
Vedi allegato.
THE GROUP'S MATERIAL DERISKING ACTION IS PROCEEDING
NET NON-PERFORMING LOANS DOWN BY € 1.7 BILLION COMPARED TO YEAR-END, WITH AN NPL TO TOTAL LOAN RATIO DECLINING FROM 12.1% (END 2017) TO 10.7%
INCREASE IN GROSS NON-PERFORMING LOAN COVERAGE FROM 48.8% AT 31 DECEMBER 2017 TO 53,8%
NET BAD LOANS AT € 5.2 BILLION (- € 1.3 BILLION COMPARED TO YEAR-END) WITH AN BAD LOAN TO TOTAL LOAN RATIO DECLINING TO 4.9% (6.0% AT THE END OF 2017)
BAD LOAN COVERAGE WENT UP FROM 58.9% TO 66.4%
NEW DERISKING PLAN CONFIRMED, TARGETING THE FINALIZATION OF THE SALE OF APPROX. € 5 BILLION OF BAD LOANS BY JUNE 2018
THE RISK PROFILE STRENGTHENING ACTION WAS IMPLEMENTED WHILE MAINTAINING A SOLID CAPITAL POSITION
"IFRS9 PHASE-IN" CET 1 RATIO OF 13.48% AND PRO-FORMA2 "IFRS9 FULLY-PHASED" OF 12.10%
CUSTOMER LOANS AT € 106.2 BILLION (PERFORMING + 0.,1%, NON-PERFORMING AT – 12.8% COMPARED TO DECEMBER 2017)
1 Beginning on 1 January 2018, the new accounting standard IFRS 9 on the classification and measurement, impairment and hedge accounting of financial instruments has come into effect, replacing the accounting standard IAS 39. As specifically permitted by IFRS 9 (par. 7.2.15), Banco BPM elected not to restate the prior year's balances based on the new measurement criteria introduced by IFRS 9. Hence, certain data referred to 31 March 2018 are not comparable with the prior year's data, since they have been calculated based on different measurement criteria. For a more detailed explanation of the impacts from the adoption of the new accounting standard on shareholders' equity and on the accounting presentation of financial instruments
please refer to the Explanatory Notes (note 2) 2 Accounting also for the expected impacts from the capital management actions that have already been defined and communicated to the market and are expected to be finalized during the current year.
3 Figure updated at 7 May 2018.
4 Direct customer funds including certificates with unconditional capital protection (€ 3.8 billion at 31 March
2018 compared to € 4.0 billion at year-end 2017), but net of repurchase agreements. 5 Net of certificates with unconditional capital protection included in "direct customer funds". 6 "Adjusted operating costs" refer to operating costs net of the non-recurring items and system ordinary charges (contribution to the Single Resolution Fund and to the National Deposit Guarantee Interbank Fund (Fondo Interbancario di Tutela dei Depositi nazionale)
Coverage:
The first-time adoption of IFRS 9 on 1 January 2018 caused a total decline in the stated shareholders' equity of € 1.0 billion (net of tax effect) mainly driven by the adoption of the new loan impairment model. The outright impact on the Common Equity Tier 1 capital will be diluted over a 5-year period, as the bank elected to apply the transitional provisions8.
Milan, 9 May 2018 – In today's meeting, the Board of Directors of Gruppo Banco BPM, chaired by Mr. Carlo Fratta Pasini, has approved the quarterly balance sheet and operating report as at 31 March 2018 of Gruppo Banco BPM.
In Q1 2018, the management focus centered around the implementation of the capital management actions announced to the market and the continuation of the projects for the Group's business activities reorganization and de-risking set out in the business plan.
Notably, in Q1 the reorganization process of the Bancassurance business line has been progressing, that had been initiated the prior year and formalized through the agreements for the sale of a 65% stake in Popolare Vita and in Avipop Assicurazioni and the launch of a 15-year strategic partnership between Banco BPM and Cattolica. On 29 March last, having received the required authorizations by the competent authorities, Banco BPM finalized the purchase of 50% + 1 share of Avipop Assicurazioni S.p.A. and of Popolare Vita S.p.A. for a total amount of € 803.4 million, which brought
7 NSFR at February 2018, latest available data.
8 The transitional provisions on impacts from the first-time adoption of IFRS 9 is illustrated in the Explanatory notes (note 7)
its shareholding in the two companies to 100%. On the same date, Banco BPM finalized the sale of 65% of the share capital of Avipop Assicurazioni S.p.A. and Popolare Vita S.p.A. to Cattolica Assicurazioni.
Because of the above transaction, the Q1 2018 income statement presented a capital gain of € 176 million.
With regard to the reorganization of the Group operations, the new Branch Network model came on stream on 1 January 2018. This is an important project that involved more than 10,000 colleagues with more than 3,000 resources who took on new professional roles mainly in the branch network, in the NPL unit and in Wealth Management. This reorganization process is also underpinning the rationalization of the branch network, with the planned closure of 312 branches. Moreover, the demerger of Banca Akros's Private Banking business line in favor of Banca Aletti was finalized in April.
As to the de-risking process, the Group continued to develop the internal workout and to deploy the activities aiming at creating all the necessary conditions to finalize the sale on the market of a pool of about 5 billion of bad loans through a securitization. The deal requires that a guarantee by issued by the Italian Government on the senior bonds issued by the SPV, and it should be finalized by the end of the first half of the year. Following this transaction, the stock of net Bad Loans will decrease to about €3.4 billion, with a share of about 3.3% on total customer loans, as compared to the current ratio of 4.9%.
While being fully committed on the front of the above described projects, the Group generated a good commercial and operating performance, with a gross profit from operations of 398.2 million and a net income of 223.3 million.
Net interest income came in at € 595.1. This figure is not fully comparable with that of the prior year, as, following the adoption of IFRS 9, net interest income is affected by the positive reclassification of reversals further to the write-backs from discounting bad loans to present value, which were previously reported under write-downs on loan impairments) and by the negative reclassification from the calculation of interest on impaired exposures based on the value net of write-downs and not on the contractual value. Net of these reclassifications, which came in at + € 65.7 million, net interest income stands at € 529.4 million, compared to the adjusted9 net interest income in Q1 2017 of € 516.9 million (+2,4%). Even the like-for-like comparison with Q4 2017 shows a growth rate of 0.1%.
The gain on investments in associates carried under the equity method came in at € 42.6 million, in line with the € 41.6 million reported in the same period last year, yet slightly below the Q4 2017 contribution of € 45.2 million. The main contribution to this line-item was made by consumer credit through the shareholding held in Agos Ducato, amounting to € 33.6 million, followed by the insurance business line contribution totaling € 9.4 million.
Net fees and commissions added up to € 476.5 million, up by 0.9% compared with € 472.1 million reported in Q4 2017. Net fees and commissions went down by 7.6% from € 515.8 million in the same period last year; this dip was mainly driven by brokerage, management and advisory services, which in absolute terms declined by € 28.7 million (-10.5%) compared to the Q1 2017 figure (that had benefitted from a quite hectic sale of asset and portfolio management products following the
9 In Q1 2017, TLTRO-II loans related to FY 2016 had earned an interest of € 31.7 million
slowdown at the end of 2016 tied to the merger, posting however a 15.4 million increase over Q4 2017 (+6.7%).
Other net operating income totaled € 24.1 million, practically stable compared to Q4 2017.Compared to Q1 2017 (€ 30.3 million) this line-item showed a decline that was mainly driven by the reduction in fixed commission (commissioni di istruttoria veloce) (-15.3% compared to 31 March 2017).
Net financial income totaled € 29.3 million compared to € 36.9 million in the same period last year. Here again the comparison with last year's data is not fully straightforward following the introduction of IFRS 9; in particular, a negative component of € 5.5 million was charged to income, due to the measurement effect of certain instruments that had been previously carried exclusively through net equity. The decline in net financial income is also attributable to the hedging strategies of the "hold to collect and sell" portfolio (HTCS), which, following a negative impact through profit and loss on derivative contracts, reported an increase in positive reserves on this portfolio (up until the disposal, this impact is carried through net equity).
As a result, total income added up to € 1,167.7 million. Accounting for the effects from the abovementioned reclassifications following the introduction of IFRS 9, total income came in at € 1,101.9 million, down compared the adjusted figure of Q1 2017 (-3.5%) mainly as a result of the abovedescribed commission stream dynamic. Compared to Q4 2017 total income has been slightly slipping (-1.0%) mainly due to the underperformance of financial activities affected also by the market performance. Core total income amounted to € 1,071.6 million; on a like-for-like basis it comes in at € 1,005.9 million, up by 0.5% compared to Q4 2017; compared to Q1 2017 it went down by 2.6%.
Personnel expenses, totaling € 442.1 million, went down by 3.2% compared to € 456.7 million in the same period last year. Compared to Q4 2017 – when personnel expenses stood at € 420.8 million – they went up by 5.1% exclusively as a result of the release at the end of last year of certain provisions pertaining to prior years; net of these releases and of variable components, the ordinary personnel cost has been further declining driven by the headcount reduction (-85 resources compared to 31 December 2017). The total headcount at 31 March 2018 added up to 23,178 employees, compared to 23.263 resources at the end of 2017 (24.680 at 31 December 2016).
Other administrative expenses amounted to € 279.5 million. This figure includes "systemic charges", represented by the ordinary contributions to the Single Resolution Fund SRF of € 68.0 million (€ 62.4 million in Q1 2017) and by the fee paid to maintain the deductibility of DTAs of € 6.0 million (€ 6.7 million at 31 March 2017), totaling € 74.0 million (€ 69.1 million in Q1 2017). Moreover, the Q1 2018 figure includes merger and integration charges of € 2.8 million, while Q1 2017 benefitted from an amount of € 27.2 million, tied to the recovery of the fee paid in 2016 to convert DTAs in 2015. Net of the above components in the comparison with Q1 2017, this line-item reported a 2.0% decline driven by efficiency gain actions.
Compared to the figure stated in Q1 2017 (€ 260.7 million), this line-item reported a 7.2% increase mainly due to the non-recurring component that had benefitted Q1 2017.
Net write-downs of tangible and intangible assets for the period stood at € 47.9 million, down by 9.4% compared to € 52.9 million at 31 March 2017, driven by the rationalization of the Group information system.
Total operating costs net of non-recurring items went down by 2.4%. The stated amount totals € 769.5 million, basically in line with the € 770.3 million reported in Q1 2017 (-0.1%).
Net write-downs on impairment of customer loans stood at € 326.2 million. Even this aggregate has been affected by the introduction of IFRS 9 both as a result of the new credit valuation method introduced by the new principle and because of the reclassifications impacting net interest income. Taking into account exclusively these reclassifications, the Q1 2018 figure comes in at € 260.5 million, compared to € 292.5 million in Q1 2017. The cost of credit, measured as the net loan loss provision, net of IFRS 9 reclassifications to net loan ratio, came in at 98 bps, down compared to last year's figure of 154 bps10 ; the loan loss provision level reflects a disciplined valuation approach to maintain high coverage levels aimed at taking advantage of any additional opportunities to speed up the de-risking process.
Net write-backs of securities and other financial assets of € 2.2 million were credited to income in Q1 (compared to net write-downs of € 8.4 million at 31 March 2017 mainly related to the impairment of the stake held in the Atlante Fund).
Net provisions for risks and charges reported a charge of € 25.0 million, compared to almost zero in the same period last year.
In Q1 2018, gains on disposal of equity and other investments of € 179.7 million were reported, exclusively tied to the impact of the bancassurance business reorganization.
Income tax on continuing operations at 31 March 2018 came in at - € 7.0 million (minus € 27.5 million at 31 March 2017).
Considering the net income attributable to non-controlling interest (+€ 1.4 million), Q1 2018 closed with a net income for the period of € 223.3 million, compared to a net income ex badwill of € 115,2 million in the same period last year. (The badwil, totaling € 3,076.1 million, came out once the PPA process was completed, and it drove the net income for Q1 2017 to € 3,191.3 million).
Direct funding11 at 31 March 2018 amounted to € 107.8 billion, up by 0.5% compared to € 107.3 billion at 31 December 2017. The comparison shows a € 0.9 billion increase in the checking accounts and demand deposits held with the branch network and a € 0.9 billion increase in certificates of deposits and other funding, while bonds issued keep following a declining trend (€ - 1.1 billion). The y/y comparison with Q1 2017 data make this trend even clearer, whereby while direct funding remained fairly stable (+ € 0.1 billion equal to + 0.1%), checking accounts and demand deposits reported a € 6.6 billion increase in (+ 8.7%) and bonds issued a € 5.9 billion decline (equal to – 24.9%), in line with the policy aiming at progressively reducing the cost of funding by cutting back on the more expensive funding sources. The funding guaranteed by the stock of certificates issued by the Group at 31 March 2018 came in at € 3.8 billion, compared to € 4.0 billion at December 2017 (-4,0%) and € 4.5 billion at March 2017 (-15,8%), thus confirming its downward trend.
Indirect funding, net of capital protected certificates, amounts to € 91.6 billion. During the quarter, the exit of an institutional customer, with assets under administration for a total of €4.8 billion, was registered, characterised by a very marginal profit contribution. Net of the mentioned effect, the Assets under Custody decline by 0.1% against 31 December 2017 and by 6.3% year on year. Assets under management amounted to € 59.6 billion, down by 1.5% compared to € 60.5 billion at 31 December 2017, mainly affecting portfolio management, down by 9.8%., while mutual funds and Sicav reported a positive performance, reporting a growth of € 0.4 billion over the quarter and of € 3.5 billion year on year.
Financial assets totaled € 36.3 billion, up by 5.1% compared to € 34.5 billion at 31 December 2017. The increase over the end of 2017 was driven by the increase in the securities held in the Hold to Collect" portfolio made up of government bonds expected to be held to maturity. At 31 March 2018 the portfolio composition was: € 32.0 billion of debt securities, € 2.0 billion of equity securities
10 The figure is not fully comparable as IFRS 9 introduced a new loan impairment model.
11 Includes checking accounts and demand and term deposits, issued bonds, certificates of deposit and other securities, facilities and other debts, capital protected certificates. Repos are not included.
and UCITS units. Exposures in sovereign debt securities amount to € 26.3 billion, of which € 19.0 billion related to Italian Government bonds. To this respect, diversification is still under way, and the Italian government bond exposure declined to 72.5% compared to 82.1% at December 2017. Following the introduction of IFRS9, financial assets include also customer loans and advances mandatorily measured at fair value (amounting to € 0.3 billion).
At 31 March 2018, net customer loans 12 came in at € 106.2 billion, down by € 1.6 billion compared to 31 December 2017 due to IFRS9 reclassifications and write-downs affecting mainly nonperforming loans. Taking the figure at 1 January 2018 reclassified on a like-for-like basis, the customer loan aggregate has remained fairly stable, reporting a slight increase in performing exposures (+ € 0.3 billion equal to + 0.3%) and a further reduction in non-performing loans (- € 0.2 billion, equal to -1.8%).
Net non-performing exposures (bad loans, unlikely-to-pay and past dues) at 31 March 2018 totaled € 11.4 billion, down by € 1.7 billion (-12.8%) compared to 31 December 2017. The decline was mainly driven by the adoption of IFRS 9, allowing additional write-downs of bad loan of € 1.2 billion and of performing loans of € 0.1 billion.
The analysis of the single loan classes shows the following dynamic:
The aggregate NPL coverage ratio stood at 53.8%, up compared with 48.8% at 31 December 2017. In greater detail, at 31 December 2017 the coverage ratios were:
The coverage ratio of performing loans came in at 0.41%, compared to 0.32% at 31 December 2017. Net of repo transactions, which are practically risk-free, the performing loans coverage ratio goes up to 0.44% (0.34% at 31 December 2017). The increase in the coverage ratio was mainly driven by the adoption of the new impairment model under IFRS 9.
At 31 March 2018, Group Own Funds, including the accruing net income at 31 March 2018, totaled 11,141 million, down compared to 11,544 million at 31 December 2017 due to the end of the transitional regime on 1 January 2018 allowing the phasing-in of certain rules introduced as at 1 January 2014 with the "Basel 3 Framework".
12 The aggregate does not include customer loans that, following the adoption of IFRS 9, must mandatorily be measured at fair value. These loans, amounting to € 325 million (of which € 181 million related to nonperforming exposures) are included in financial assets measured at fair value
13 Based on art. 26 paragraph 2 of EU Regulation no. 575/2013 of 26 June 2013 (CRR), the inclusion of interim net income in the Common Equity Tier 1 Capital (CET1) is subject to the prior authorization of the competent authority (ECB), for which it is required that they are audited by the auditing company.
The financial and operating situation of the Group at 31 March 2018 has not undergone a limited audit and Banco BPM will formally apply for the immediate inclusion of the accruing net income in the calculation of CET1 Capital only with respect to data as at 30 June 2018. The data and capital ratio illustrated in this news release include the interim accruing net income at 31 March 2018 as derived from the financial and operating situation of the Group that has been approved today by the Board of Directors.
The Common Equity Tier 1 ratio (CET1 ratio) came in at 13.48% compared to12.36%% at 31 December 2017. The increase was driven by the decline in risk-weighted assets (-9,760 million) mainly following the authorization issued by the ECB effective on 31 March 2018 to roll out the credit risk measurement internal models to the subsidiary BPM S.p.A.. This ratio benefits from the election to fully apply the transitional provision introduced by the new article 473 bis of EU Regulation no. 575/2013, which phases in the impact on own funds generated by the adoption of the new impairment model introduced by IFRS9. Accounting for the expected impacts from the capital management actions that have already been defined and announced to the market, and that are expected to be finalized during the current year, the pro-forma fully-loaded CET 1 ratio comes in at 12.10%.
The Tier 1 ratio came in at 13.98% compared to 12.66% at 31 December 2017, while the Total Capital ratio came in at 16.85% compared to 15.21% at 31 December 2017.
Today the Boards of Directors of Banco BPM S.p.A., Società Gestione Servizi BP S.C.p.A. and BP Property Management S.C.a r.l. have approved the plan to merge SGS and BP Property into Banco BPM.
Business combinations fall within the scope of Gruppo Banco BPM's corporate and operational structure rationalization actions and meet the need to simplify and rationalize the structure, optimize and promote the value of human resources and to reduce costs.
The mergers will be carried out under the simplified regime provided for fully owned companies, with no need to calculate the swap ratio or to prepare an executive explanatory report.
The mergers are expected to come into effect, subject to the issuance of the required authorizations from the competent authorities, indicatively in January 2019, and the accounting and fiscal effects should start on 1 January 2019.
With regard to the applicability of the current regulations on related parties transactions, under Consob's Regulation no. 17221 of 12 March 2010 and following amendments ("Consob RPT Regulation") and the associated corporate rules adopted by the Bank (the "Banco BPM Procedure", available on the website www.bancobpm.it, Corporate Governance section, Corporate documents), the mergers and the intragroup share/unit transfers of the acquiring SGS and BP Property fall within the scope of "intragourp" transactions and can therefore benefit from the expemptions under the above-mentioned Regulation, since it was ascertained that there is no material interest by other related parties wherefore the transactions would not be completed or would have been completed along different terms and conditions.
The word macroeconomic outlook still remains positive, even if the risks of an increase in the level of protectionism and interest rates exist, which could result into tensions and volatilty on the financial markets.
In this context, the growth expectations for Italy for the year 2018 remain substantially unchanged at +1.5%, even if political instability could lead to a slowdown in economic growth over the next quarters.
The Group, having already completed a relevant number of projects of the Strategic Plan 2016- 2019, among which above all the set-up of the organizational unit dedicated to the management of nonperforming loans, the integration of IT systems, the definition of the partnership in asset management and bancassurance as well as the reorganization of the commercial network, will focus its attention on the rationalisation of the private and investment banking activities, on the project of digital transformation, on the simplification of the Group's perimeter as well as on the optimisation of its presence in the territory.
In addition, being able to leverage on the results achieved as well as on its solid capital position, the Group will forge ahead in its comprehensive derisking activities, in a way that is fully in coherence with the new ambitous targets already communicated.
The evolution of revenues, in spite of ongoing competitive pressures on margins, is set to benefit from an addtional containment in the average cost of funding, thanks to the remaining opportunities for an optimisation of its mix, the positive contribution from participations and the trend characterising Net fee and commission income, in particular those deriving from management, intermediation and advisory services.
The containment of operating costs, through an improvement in efficiency, the implementation of specific actions aimed at cost optimisation and the rationalisation of organisational functions, will represent one of the key factors of attention.
The NPL coverage levels will remain high, whereby the reduction in the stock levels will procede both through internal workout activities and, as indicated before, through the implementation of the actions envisaged in the derisking plan.
***
The financial reporting officer, Mr. Gianpietro Val, in compliance with art. 154, paragraph 2 of the Consolidated act for financial intermediation, hereby states that the accounting information illustrated in this press release is consistent with documental evidence, accounting books and bookkeeping entries.
The financial results at 31 March 2018 of Gruppo Banco BPM will be presented to the financial community during a conference call to be held today 9 May 2018 at 18.30 (C.E.T.). The documentation supporting the conference call is available on the website of the authorized central storage mechanism (), as well as on the Bank's website (www.bancobpm.it), where all the instructions to connect to the event are also available.
***
This News Release represents the document through which Banco BPM decided to disclose to the public and to the market, on a voluntary basis, supplementary periodic information in addition to the half-year and annual reports ("quarterly reports"), in compliance with the disclosure policy communicated to the market in the press release "2018 Corporate Calendar" released on 23 January 2018, pursuant to art. 82-ter of the Issuers Regulation effective on 2 January 2017. For the sake of completeness, please note that the quarterly reports include also the result presentation handout prepared as a support for the conference call with the financial community to be held after this News Release has been released. This quarterly report includes a comment on the quarterly operating performance that focuses on the dynamic of the key
P&L, balance sheet and financial items, and is based on the reclassified balance-sheet and income statements. Please find below some explanatory notes that are deemed useful to better understand the approach followed in preparing the above-mentioned accounting statements as at 31 March 2018 and those referring to the prior FY, as well as
the dynamic of the quarterly results commented in this news release.
The balance sheet and income statement layouts contained in this news release have been reclassified along management criteria in order to provide an indication on the Group's overall performance based on easily and rapidly calculable operating and financial data. The layouts have been prepared based on the financial statements layout indicated in the Bank of Italy's Circular no. 262/2005, update no. 5 of 22 December 2017.
It is noted that deposit balance sheet balances include the components pertaining to the custodian bank Business Unit, to be disposed during the year.
The accounting standards adopted to prepare the accounting situation at 31 March 2018, as pertains the classification, recognition, measurement and derecognition of assets and liabilities, as well as the recognition of costs and revenues, comply with the IAS/IFRS issued by the International Accounting Standard Board (IASB) and the related interpretations of the International Financial Reporting Interpretations Committee (IFRIC), as endorsed by the European Commission and effective on 31 March 2018, pursuant to EC Regulation no. 1606 of 19 July 2002. To this respect, please note that on 1 January 2018 the new accounting standards IFRS 9 "Financial instruments" and IFRS 15 "Revenue from contracts with customers" have come into effect. The impacts generated by the first-time adoption of IFRS 9 and the attendant changes introduced in the Group's reclassified statements as compared to those used up until 31 December 2017 are explained in note 2 below; as to IFRS 15, please note that no need for a different accounting treatment of revenues emerged, as it is basically consistent with the recognition procedures provided for by the prior accounting standard IAS 18.
The adoption of certain accounting standards necessarily calls for the use of estimates and assumptions that have an impact on the value of assets and liabilities recognized in the balance sheet. The assumptions used to calculate estimates take into account all available information upon preparing the quarterly report as at 31 March 2018.
Considering the uncertainty characterizing the reference environment, it cannot be ruled out that the estimates and assumptions, albeit reasonable, may fail to be confirmed in the future scenarios in which the Group may be operating. Therefore, future actual results may differ from the estimates generated to prepare the financial and operating situation as at 31 March 2018 and adjustments may be necessary that cannot be predicted or estimated today against the carrying amount of assets and liabilities recognized in the balance sheet. To illustrate the main uncertainties as to the use of estimates to prepare this interim quarterly report, please refer to the Consolidated annual report as at 31 December 2017.
Finally, please note that the information contained in this news release has not been prepared based on IAS 34 on Interim Financial Reporting and has not been audited.
The new international accounting standard IFRS 9 "Financial instruments", which includes requirements for recognition, measurement, impairment and hedge accounting of financial instruments, has been endorsed with Regulation no. 2067 of 22 November 2016 to replace the accounting standard IAS 39. The new accounting standard is mandatorily effective for periods beginning on or after 1 January 2018.
For Gruppo Banco BPM the adoption of the accounting standard IFRS 9 required an adjustment of the opening shareholders' equity balances as at 1 January 2018. The Group did not elect to early adopt the standard, except for the accounting treatment of the impact from changes in own credit risk on financial liabilities designated at fair value. The different treatment of the above changes (carried directly at equity and not through profit and loss) has been adopted since FY 2017, as permitted by the standard.
Please note that the first-time adoption of IFRS 9 (FTA) called for significant implementations in terms of new processes, procedures, methodologies, IT systems. Considering the significant changes that Banco BPM experienced in financial year 2017 following the merger between Banco Popolare and BPM (the unification of the information systems of the two banks, the rollout of the internal credit risk measurement models of the former Banco Popolare onto BPM and their prior modification, etc.) the new processes could be implemented and made operational only in the first quarter of 2018. The data and information generated by the new systems and processes have undergone a rigorous scrutiny. It should be pointed out that the new processes are still being checked by the internal control structures and by the audit firm and will continue also during the second quarter of the year. External control and validation activities are expected to be completed by the date of the first interim financial statements prepared in compliance with IAS 34, namely the half-yearly report as at 30 June 2018, when an IFRS 9 transition document will be prepared, with all the information requirements under IFRS 7. Hence, although the effects from the first-time adoption of IFRS 9 described in this news release both with respect to the effectiveness date and to 31 March 2018 are deemed reliable, it cannot be ruled out that once the control activities are completed, certain information may become available that is not known today that may require a partial revision to the disclosed impacts. Possible changes may also arise from the communication by associates tied to the final impacts generated by the first-time adoption of the accounting standard on their financial statements.
To provide an understanding of the effects generated by the adoption of the new accounting standards, an overview is supplied below, covering the new financial instruments classification and measurement rules with the new impairment model introduced by IFRS 9, as well as the attendant changes to the reclassified balance-sheet and P&L layouts, the impact on the stated net equity and on own funds. To gain a better understanding of the intervening changes, we provide also the statements bridging former IAS 39 balances with IFRS 9 balances for financial assets and liabilities, by single category and by single type of financial instrument.
IFRS 9 requires that the classification of financial assets depend on the combination of the following two drivers:
Based on the various combinations between business model and cash-flow characteristics, the following accounting categories are determined:
In addition to the categories described above, there is the possibility of using the accounting category of financial assets designated at fair value through profit or loss; this option is irrevocable and is permitted only to eliminate or significantly reduce a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases (known as an "accounting mismatch").
With regard to the new classification rules based on the cash flow characteristics, IFRS 9 eliminates the rule to separate embedded derivatives from the financial assets not measured at fair value through profit or loss.
As to financial liabilities, IFRS 9 confirms the classification and measurement rules under IAS 39, based on which financial liabilities are measured at amortized cost, except for financial liabilities held for trading, including derivatives, and financial liabilities that have been designated at fair value through profit or loss. As to the latter category of liabilities, IFRS 9 requires that the amount of fair value change attributable to changes in own credit risk be presented in other comprehensive income and not through profit or loss as required by IAS 39, unless such a presentation would create or enlarge an accounting mismatch, in which case the entire fair value change must be presented in profit or loss.
Based on what described above, upon adopting IFRS 9, Gruppo Banco BPM defined the classification of financial instruments in accordance with the new accounting categories under IFRS 9 - taking into account the business model at 1 January 2018 and the characteristics of the contractual cash flows of the instrument upon its origination – and it remeasured them based on their measurement criteria.
Under IFRS 9, all financial assets that are not measured at fair value through profit or loss, represented by debt securities and loans, off-balance-sheet exposures (commitments and guarantees issued) must be assessed under the new impairment model based on Expected Credit Losses (ECL). The aim of the new approach is to guarantee an earlier recognition of losses compared to the previous model under IAS 39, where losses were to be recognized only in case of objective evidence after the initial recognition of the financial asset (known as "incurred losses").
According to the calculation model of Expected Credit Losses, losses must always be recognized not only based on the objective evidence of impairment losses already occurred at the date of reporting, but also based on future expected impairment losses that have not materialized yet. The impairment model introduced by IFRS 9 hinges also on a "forwardlooking" valuation concept.
More precisely, the ECL model requires that financial assets measured at amortized cost be classified in three separate stages, tied to different expected loss measurement criteria:
Future expected losses that have not materialized yet must therefore be calculated so as to reflect:
As a result, measuring expected losses is a complex exercise that requires significant judgmental and estimation elements, also with respect to macro-economic forward-looking data, that must be incorporated in the impairment model. For further details on the framework defined by the Group to measure the existence of a significant credit risk impairment
guiding the assignment of the relevant Stage, and on the models that were developed to calculate expected losses, please refer to the Annual Report as at 31 December 2017, Part A – Accounting policies in the consolidated explanatory notes.
The reclassified balance sheet at 31 March 2018 has undergone some adjustments in order to include the new financial instrument accounting categories introduced by update no. 5 of the Bank of Italy's Circular no. 262, mentioned above. More precisely, the prior aggregates called "Financial assets and hedging derivatives", "Due from banks" and "Loans to customers" have been replaced by the following new aggregates:
o "Loans and advances to customers": due from clients represented by loans and advances and presented in the Bank of Italy's template under the assets line-item "40. Financial assets measured at amortized cost b) Loans and advances to customers);
The Loans and advances aggregate therefore does not include debt securities issued by banks and customers posted in the aggregate "Other financial assets" as explained below;
No material changes are to be reported about the reclassified liabilities line-items; the previous aggregate "Due to customers, debt securities in issue and financial liabilities designated at fair value" has been renamed as "Direct funding", with breakdown between the line-item "Deposits from customers" (liabilities line-item 10 b) of the Bank of Italy's template) and "Debt securities and financial liabilities designated at fair value" (liabilities line-items 10 c and 30) of the Bank of Italy's template).
For the remaining line-items of the reclassified balance sheet, the aggregation criteria illustrated in the 2017 consolidated financial statements have remained unchanged.
As to the reclassified income statement, the adoption of IFRS 9 required the redefinition of aggregates relating to the net financial result and to impairment losses, based on the new financial instrument categories and the associated measurement criteria. Below a bridge is provided between the new line-items and the income statement prepared in accordance with the Bank of Italy's Circular no. 262:
For the remaining line-items of the reclassified income statement, the aggregation criteria illustrated in the 2017 consolidated financial statements have remained unchanged.
As expressly permitted by IFRS 9 (note 7.2.15), Banco BPM elected not to recalculate the balances of the prior year based on the new measurement criteria introduced by IFRS 9, Please note that in order to favor a more like-for-like comparison:
Moreover, with regard to the presentation of interest income, IFRS 9 requires that interest accrued on impaired financial assets (Stage 3) must be stated in the accounts based on the amortized cost methodology, i.e., based on the effective interest calculated taking expected collection flows into account. Moreover, the standard requires that loan write-backs tied to the time value must also be included in interest income. Following the adoption of these new presentation rules, net interest income in Q1 2018 reported a total increase of 65.8 million as a combined result of the inclusion in this aggregate of write-backs tied to the time value, which up to 31 December 2017 were posted under the line-item net write-downs on loans as well as the net presentation of interest accrued on UTP loans (up to 31 December 2017 the interest amount considered to be irrecoverable was presented under the line-item net write-downs on loans). Notwithstanding the interventions described above, the data presented in the reclassified income statements attached to this news release under the line-items indicated above have not been calculated in a similar manner and are therefore not readily comparable.
Under IFRS 9, the consolidated shareholders' equity of Gruppo Banco BPM reported a decrease of 1,037.8 million net of tax effect, from 11,963.5 million to 10,925.7 million. Notably, the decrease is attributable to the following effects:
In particular, the above-mentioned effects produced a decline in valuation reserves of 78.2 million, and of the other equity reserves of 959.6 million.
These effects are shown in greater detail in the table below, which provides a bridge between the shareholders' equity at 31 December 2017 in accordance with the retired IAS 39 and the shareholders' equity remeasured at 1 January 2018, following the adoption of the new accounting standard.
14 The Decree issued by the Ministry of Economy and Finance on 10 January 2018 established that the negative equity impact caused by the adoption of the new impairment model introduced by the accounting standard principio IFRS 9 is deductible from the IRES and IRAP taxable income in FY 2018. Therefore, at the date of the first-time adoption an accruing tax loss was generated. Based on current regulations, IRES tax losses can be carried forward and can be recovered through the generation of taxable income in the following financial years with no time limit. IRAP tax losses instead cannot be carried forward. In the light of this regulation, only the IRES tax loss caused by the adoption of the new accounting standard was deemed likely to be recovered, hence new deferred tax assets of 342.1 million were recognized.
| - o/w: FTA | - o/w: FTA | |||
|---|---|---|---|---|
| IFRS 9 on | IFRS 9 on | |||
| - in thousand euro - | "Valuation Reserves" |
"Reserves" | ||
| A | Consolidated shareholders' equity as at 31 December 2017 (ex IAS 39) | 11,963,540 | ||
| B | IFRS 9 ECL measurement impact on impaired financial assets (Stage 3) | -1,245,844 | - | -1,245,844 |
| Assets measured at amortized cost – Loans and advances to customers | -1,245,844 | -1,245,844 | ||
| C | IFRS 9 ECL measurement impact on performing financial assets (Stage 1 and Stage 2) |
-91,156 | 7,137 | -98,293 |
| Financial assets measured at amortized cost – Loans and advances to customers | -75,904 | -75,904 | ||
| Financial assets measured at amortized cost – Loans and advances to banks | -1,777 | -1,777 | ||
| Financial assets measured at amortized cost – Debt securities | -13,475 | -13,475 | ||
| Financial assets measured at fair value through OCI | - | 7,137 | -7,137 | |
| D | IFRS 9 ECL measurement exposure on off-balance-sheet exposures | 17 | - | 17 |
| Guarantees and commitments | 17 | 17 | ||
| E | IFRS 9 Classification&Measurement impact (excluding ECL measurement) | 42,317 | -80,210 | 122,527 |
| Financial assets measured at fair value through profit or loss - Debt securities | -12,237 | -6,823 | -5,414 | |
| Financial assets measured at fair value through profit or loss – Equity securities and UCITS units |
- | -128,042 | 128,042 | |
| Financial assets measured at fair value through profit or loss - Loans and advances to customers |
-3,124 | -3,124 | ||
| Financial assets measured at fair value through OCI - Debt securities | 51,600 | 51,859 | -259 | |
| Assets measured at amortized cost - Debt securities | 17,714 | 17,504 | 210 | |
| Financial liabilities designated at fair value | -15,254 | -14,708 | -546 | |
| Trading financial liabilities | 3,618 | 3,618 | ||
| F | IFRS 9 impact on investments in associates (equity method) | -87,351 | - | -87,351 |
| Investments in associates | -87,351 | -87,351 | ||
| G=B+C+D +E+F |
Total IFRS 9 impact on consolidated shareholders' equity as at 1 January 2018 (gross of tax effect) |
-1,382,017 | -73,073 | -1,308,944 |
| H | Tax effect on 1 January 2018 | 344,156 | -5,155 | 349,308 |
| I=G+H | Total IFRS 9 impact on consolidated shareholders' equity as at 1 January 2018 (net of tax effect) |
-1,037,861 | -78,228 | -959,636 |
| A+I | Consolidated shareholders' equity as at 01 January 2018 (IFRS 9) | 10,925,679 |
Legend FV: Fair Value PL: Profit or Loss OCI: Other Comprehensive Income
The impacts illustrated in the previous paragraph in terms of capital ratios bring about a reduction of 180bps in the fullyloaded CET 1 ratio, which goes from 11.92% on 1 January 2018, prior to the first-time adoption of the new accounting standard, to 10.12%. The impacts do not take into account the option that had already been elected to fully adopt the transitional provision introduced by the new article 473 bis of the EU Regulation no. 575/2013, which phases in the impact on own funds caused by the adoption of the new impairment model introduced by the new accounting standard.
Under said arrangements, part of the increase reported by loan loss provisions may be included in the CET1 capital in the first five financial years (staggering from 95%, to 85%, 70%, 50% and 25% starting from 2018 to 2022). Then as of 1 January 2023
the impact from the first-time adoption of IFRS 9 must be fully reflected in the calculation of own funds.15 Taking into account said transitional provision, the impact from the first-time adoption of IFRS 9 on CET1 for full-year 2018 is limited to 4 bps.
The reclassified balance sheet as at 31 December 2017 pursuant to ex IAS 39 values reconciled with balances as at 1 January 2018, restated in compliance with IFRS 9 and used to compare balance sheet balances as at 31 March 2018, is attached to this News Release.
To better understand the transition from the old IAS 39 portfolios to the new IFRS 9 portfolios, the table below provides the reconciliation between balances as at 31 December 2017 (IAS 39 values) and balances as at 1 January 2018 (IFRS 9 values) for each reclassified balance sheet line-item tied to financial assets and liabilities, with a separate presentation of changes due to new classification criteria (Classification impacts), of impacts arising from the new measurement criteria (Measurement impacts) and from the new impairment model (ECL impact – Expected Credit Losses). To this end, balances as at 31 December 2017 (ex IAS 39) have been conventionally attributed to the new accounting categories (column 31/12/2017 (IAS 39)); IAS 39 balances are presented under the "Classification Impact" column, reallocated based on the new decisions made with regard to the classification of financial assets based on the new accounting standard, while impacts from new measurement criteria and impairment are presented respectively under the columns "Measurement impacts" and "ECL Impacts".
15 The transitional provision is illustrated in note 7 of these explanatory notes.
Table 2: reconciliation statement of financial assets/liabilities between balances at 31.12.2017 (IAS 39) and balances at 01.01.2018 (IFRS 9)
| (thousand €) | 31/12/2017 (IAS 39) |
Classification impacts |
31/12/2017 (IAS 39) reclassified |
Measurement impacts |
ECL impacts | 01/01/2018 (IFRS 9) |
|
|---|---|---|---|---|---|---|---|
| Loans and advances measured at AC | 112,681,902 | -346,576 | 112,335,326 | -1,323,525 | 111,011,801 | ||
| - Loans and advances to banks | 4,939,223 | (1) | 0 | 4,939,223 | -1,777 | 4,937,446 | |
| - Loans and advances to customers | 107,742,679 | (2) | -346,576 | 107,396,103 | -1,321,748 | 106,074,355 | |
| Other financial assets | 34,533,172 | 346,576 | 34,879,748 | 53,953 | -13,475 | 34,920,226 | |
| - Assets measured at FV through PL | 5,184,586 | 1,283,285 | 6,467,871 | -15,361 | 6,452,510 | ||
| - Trading assets | 4,911,824 | -17,390 | 4,894,434 | 4,894,434 | |||
| - Assets designated at FV | 28,952 | -28,952 | 0 | 0 | |||
| - Assets mandatorily measured at FV | 1,329,627 | 1,329,627 | -15,361 | 1,314,266 | |||
| - Hedging derivatives | 243,810 | 243,810 | 243,810 | ||||
| - Assets measured at FV through OCI | 17,128,622 | (3) | -430,149 | 16,698,473 | 51,600 | 16,750,073 | |
| - Assets measured at AC | 12,219,964 | (4) | -506,560 | 11,713,404 | 17,714 | -13,475 | 11,717,643 |
| Total financial assets | 147,215,074 | - | 147,215,074 | 53,953 | -1,337,000 | 145,932,027 | |
| Due to banks | 27,199,304 | 27,199,304 | 27,199,304 | ||||
| Direct funding | 107,509,849 | 107,509,849 | 15,254 | 107,525,103 | |||
| - Deposits from customers | 87,848,146 | 87,848,146 | 87,848,146 | ||||
| - Debt securities and financial liabilities desig. at FV |
19,661,703 | - | 19,661,703 | 15,254 | 19,676,957 | ||
| - Debt securities in issue | 16,248,143 | 160,370 | 16,408,513 | 15,254 | 16,423,767 | ||
| - Financial liabilities designated at fair value |
3,413,560 | -160,370 | 3,253,190 | 3,253,190 | |||
| Trading financial liabilities and hedging derivatives |
8,707,966 | 8,707,966 | -3,618 | 8,704,348 | |||
| Total financial liabilities | 143,417,119 | 0 | 143,417,119 | 11,636 | - | 143,428,755 | |
| Total impact on shareholders' equity | 42,317 | -1,337,000 |
(1) Corresponding to the retired balance sheet item "due from banks" (5,164,715 thousand), net of assets represented by debt securities (225,492 thousand)
(2) Corresponding to the retired balance sheet item "loans to customers" (108,176,382 thousand), net of assets represented by debt securities (433,703 thousand)
(3) The ex IAS 39 portfolio of "Financial assets available for sale" has been fully assigned to the line-item "Assets measured at FV through OCI"
(4) The balance of the ex IAS 39 portfolio of "Financial assets held to maturity" (11,560,769 thousand) and loans to customers and banks represented by debt securities, as described in the above notes 1) and 2) (totaling 659,195 thousand), has been assigned to the line-item "Financial activities measured at amortized cost)
The tables below provide detailed information on the reconciliation between the ex IAS 39 portfolios and the IFRS 9 portfolios, based on the balance sheet items indicated in the Bank of Italy's Circular no. 262 (before ad after IFRS 9), presenting the reclassified amounts and the related FTA impacts. In detail, the tables show the reclassification of ex IAS 39 balances into the new IFRS 9 portfolios by accounting category (table 3) and by type of financial strategy (table 4); moreover, the total impact on the shareholders' equity as at 1 January 2018 is presented, specifying the impact on the "Valuation reserve" and on "Retained earnings". The tables do not include hedging derivatives as they are not affected by the adoption of the new accounting standard IFRS 9.
For the sake of a smoother comparison between the financial assets portfolios of tables 3 and 4 and the reclassified balance sheet items (table 9), please note that financial assets measured at amortized cost (loans and advances to banks and loans and advances to customers) are presented in the reclassified face under the line-item "Loans and advances measured at amortized cost" with regard to loans and advances, and under the line-item "Other financial assets – financial assets measured at AC" with regard to securities.
Table 3: reconciliation between financial assets accounting categories at 31.12.2017 (IAS 39 values) and financial assets accounting categories at 01.01.2018 (IFRS 9 "compliant" IAS values) with reclassified amounts and C&M and ECL impacts
| FINANCIAL ASSETS AT 31.12.2017 - IAS 39 Values |
FINANCIAL ASSETS AT 1.1.2018 - IFRS 9 "compliant" values | IFRS 9 FTA IMPACT ON CONSOLIDATED SHAREHOLDERS' EQUITY AS AT 1.1.2018 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (A) | (B) | (C=B-A) | ||||||||||
| 20. Fin. assets measured at FV through PL: a) trading |
20. Fin. Assets measured at FV through PL: b) designated at FV |
20. Fin. assets measured at FV through PL: c) mandatorily measured at FV |
30. Fin. assets measured at FV through OCI |
40. Fin. assets measured at AC: a) loans and advances to banks |
40. Fin. assets measured at AC: b) loans and advances to customers |
FTA Impact on shareholders' equity |
- o/w: FTA IFRS 9 on "Valuation Reserves" |
- o/w: FTA IFRS 9 on "Reserves" |
||||
| 20. Financial assets HFT | 4,911,824 | 4,894,434 | 15,991 | -1,399 | -1,399 | |||||||
| - reclassified IAS 39 values | -4,911,824 | 4,894,434 | 17,390 | |||||||||
| - Imp. Measurement | 210 | 210 | 210 | |||||||||
| - ECL impact | -1,609 | -1,609 | -1,609 | |||||||||
| 30. Fin. assets measured at FV | 28,952 | 20,960 | 7,992 | 0 | 275 | -275 | ||||||
| - reclassified IAS 39 values | -28,952 | 20,960 | 7,992 | |||||||||
| - Imp. Measurement | 0 | 0 | 259 | -259 | ||||||||
| - ECL impact | 0 | 0 | 16 | -16 | ||||||||
| 40. Financial assets AFS | 17,128,622 | 832,072 | 14,290,446 | 2,023,402 | 17,298 | -110,404 | 127,702 | |||||
| - reclassified IAS 39 values | -17,128,622 | 832,072 | 14,290,446 | 2,006,104 | ||||||||
| - Imp. Measurement | 0 | 17,504 | 17,504 | -117,361 | 134,865 | |||||||
| - ECL impact | -206 | -206 | 6,957 | -7,163 | ||||||||
| 50. Financial assets HTM | 11,560,769 | 2,451,635 | 9,159,087 | 49,953 | 51,764 | -1,811 | ||||||
| - reclassified IAS 39 values | -11,560,769 | 2,400,035 | 9,160,734 | |||||||||
| - Imp. Measurement | 51,600 | 51,600 | 51,600 | |||||||||
| - ECL impact | 0 | -1,647 | -1,647 | 164 | -1,811 | |||||||
| 60. Loans and advances to banks |
5,164,715 | 5,162,667 | -2,048 | -2,048 | ||||||||
| - reclassified IAS 39 values | -5,164,715 | 5,164,715 | ||||||||||
| - ECL impact | -2,048 | -2,048 | -2,048 | |||||||||
| 70. Loans and advances to customers |
108,176,382 | 461,234 | 106,368,297 | -1,346,851 | -1,346,851 | |||||||
| - reclassified IAS 39 values | -108,176,382 | 476,595 | 107,699,787 | |||||||||
| - Imp. Measurement | -15,361 | -15,361 | -15,361 | |||||||||
| - ECL impact | -1,331,490 | -1,331,490 | -1,331,490 | |||||||||
| Total financial assets | 146,971,264 | 4,894,434 | 0 | 1,314,266 | 16,750,073 | 5,162,667 | 117,566,777 | -1,283,047 | -58,365 | -1,224,682 | ||
| - reclassified IAS 39 values - securities |
-34,289,362 | 4,894,434 | 983,051 | 16,698,473 | 225,492 | 11,487,912 | ||||||
| - reclassified IAS values – loans and advances |
-112,681,902 | 346,576 | 4,939,223 | 107,396,103 | ||||||||
| - Imp. measurement | -15,361 | 51,600 | 17,714 | 53,953 | -65,502 | 119,455 | ||||||
| - ECL impact | -2,048 | -1,334,952 | -1,337,000 | 7,137 | -1,344,137 |
Table 4: reconciliation between financial assets accounting categories at 31.12.2017 (IAS 39 values) and financial assets accounting categories at 01.01.2018 (IFRS 9 "compliant" IAS values) by type of financial instrument
| FINANCIAL ASSETS AT 31.12.2017 - IAS 39 Values |
FINANCIAL ASSETS AT 1.1.2018 - IFRS 9 "compliant" values | IFRS 9 FTA IMPACT ON CONSOLIDATED SHAREHOLDERS' EQUITY AS AT 1.1.2018 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (A) | (B) | (C=B-A) | ||||||||
| 20. Fin. assets measured at FV through PL: a) trading |
20. Fin. Assets measured at FV through PL: b) designated at FV |
20. Fin. assets measured at FV through PL: c) mandatorily measured at FV |
30. Fin. assets measured at FV through OCI |
40. Fin. assets measured at AC: a) loans and advances to banks |
40. Fin. assets measured at AC: b) loans and advances to customers |
FTA Impact on shareholders' equity |
- o/w: FTA IFRS 9 on "Valuation Reserves" |
- o/w: FTA IFRS 9 on "Reserves" |
||
| 20. Financial assets HFT | 4,911,824 | 4,894,434 | 15,991 | -1,399 | -1,399 | |||||
| - debt securities | 2,283,911 | 2,266,521 | 15,991 | -1,399 | -1,399 | |||||
| - equity securities | 693,004 | 693,004 | ||||||||
| - UCITS units | 29,661 | 29,661 | ||||||||
| - derivatives | 1,905,248 | 1,905,248 | ||||||||
| 30. Financial assets measured at FV |
28,952 | 20,960 | 7,992 | 0 | 275 | -275 | ||||
| - debt securities | 9,412 | 1,420 | 7,992 | 0 | 275 | -275 | ||||
| - equity securities | 579 | 579 | ||||||||
| - UCITS units | 18,961 | 18,961 | ||||||||
| 40. Financial assets AFS | 17,128,622 | 832,072 | 14,290,446 | 2,023,402 | 17,298 | -110,404 | 127,702 | |||
| - debt securities | 15,716,663 | 179,445 | 13,531,114 | 2,023,402 | 17,298 | 17,638 | -340 | |||
| - equity securities | 993,472 | 234,140 | 759,332 | -112,391 | 112,391 | |||||
| - UCITS units | 418,487 | 418,487 | -15,651 | 15,651 | ||||||
| 50. Financial assets HTM | 11,560,769 | 2,451,635 | 9,159,087 | 49,953 | 51,764 | -1,811 | ||||
| - debt securities | 11,560,769 | 2,451,635 | 9,159,087 | 49,953 | 51,764 | -1,811 | ||||
| 60. Loans and advances to banks |
5,164,715 | 5,162,667 | -2,048 | -2,048 | ||||||
| - loans and advances | 4,939,223 | 4,937,446 | -1,777 | -1,777 | ||||||
| - debt securities | 225,492 | 225,221 | -271 | -271 | ||||||
| 70. Loans and advances to customers |
108,176,382 | 461,234 | 106,368,297 | -1,346,851 | -1,346,851 | |||||
| - loans and advances | 107,742,679 | 343,452 | 106,074,355 | -1,324,872 | -1,324,872 | |||||
| - debt securities | 433,703 | 117,782 | 293,942 | -21,979 | -21,979 | |||||
| Total financial assets | 146,971,264 | 4,894,434 | 1,314,266 | 16,750,073 | 5,162,667 | 117,566,777 | -1,283,047 | -58,365 | -1,224,682 |
Based on what shown in the above tables, the measurement criteria of the new IFRS9 accounting categories under which the instruments outstanding on the transition date have been classified are basically in line with those of the retired IAS 39 categories, except for limited cases attributable to changes in the business model, to the inherent characteristics of the financial instruments, and to the adoption of accounting options permitted by the standard. To this regard, it should be pointed out that the portfolio represented by UCITS units has been fully assigned to "Financial assets measure at fair value through profit or loss – c) financial assets mandatorily measured at fair value, since the associated cash flows do not represent solely payments of principal and interest. For these instruments, also further to the clarifications provided by IFRIC (IFRS Interpretation Committee) in May 2017, the possibility of resorting to the category of financial assets designated at fair value through OCI for these instruments has been ruled out, since as a rule, these UCITS units are not comparable to equity securities, as they feature a contractual obligation to deliver certain financial assets or a net asset in case of liquidation or redemption application by the investor.
In more detail, on first-time adoption, the classification of the financial assets portfolio, based on the business model as at 1 January 2018, has been carried out in accordance with the following guidelines:
Given that the impact from the FTA classification and measurement of financial assets, not associated with the new impairment measurement method, is not meaningful, please note that the increase in securities measured at fair value through profit or loss, specifically related to equity securities and UCITS units that were previously classified in the portfolio of "Financial assets available for sale", will cause, ceteris paribus, a higher volatility of the operating results as of 1 January 2018.
With regard to financial liabilities, Gruppo Banco BPM elected to early adopt the changes in the accounting treatment of own credit rating changes when measuring financial liabilities designated at fair value, right from the 2017 annual report. No FTA impact is attributable to the different presentation of the effects tied to the different own credit rating recognition method. Considering that IFRS 9 practically reflects the classification and measurement criteria of IAS 39, the transition to the new standard caused no impact on net equity, except for two bonds classified in the IAS 39 portfolio "Financial liabilities measured at fair value" where, in accordance with the standard's transitional provisions, it was necessary to reclassify them under "Financial liabilities measured at amortized cost", since it was impossible to justify the prior measurement with the need to eliminate an accounting mismatch existing at the date of transition to the new accounting standard16. the financial liability was recognized at amortized cost, amounting to 176 million, as compared to the prior recognition (at fair value) amounting to 160.4 million. The resulting recognition under liabilities of a higher value caused a negative net equity impact of 15.2 million.
Finally, the 3.6 million decline in the aggregate represented by "Financial liabilities held for trading and hedging derivatives", was due to the reversal of the embedded derivative of certain finance contracts, taking into account the new IFRS 9 rules governing the separation of derivatives from financial assets and the fact that these assets have been reclassified under the line-item "Financial assets measured at fair value through profit or loss – c) financial assets mandatorily measured at fair value" due to the failed SPPI test.
In compliance with IFRS3, the income statement of Gruppo Banco BPM includes the P&L effects from the allocation of the prices paid for the combination with Gruppo Banca Popolare di Milano finalized in financial year 2017 and for the acquisition of the Groups Banca Popolare Italiana and Banca Italease finalized in FY 2007 and 2009, respetively.
The overall effect on the consolidated net income in Q1 2018, as a result of the reversal of the value adjustment of net assets acquired came in at plus € 30.6 million(mainly related to the former group Banca Popolare di Milano)
In April 2018, the Bank of Italy communicated to the banks of the Group the contribution amount to be paid to the Single Resolution Fund for FY 2018, totaling € 68.0 million (€ 62.4 million being the ordinary contribution for FY 2017). The contribution has been fully charged to income in Q1 under the line-item "other administrative expenses". The contribution has been fully charged to income in Q1 under the line-item "other administrative expenses". Please note that in 2018, as in the prior year, the Group did not exercise the option of paying up to 15% of the total contributions due with irrevocable payment commitments (IPC).
In Q1 2018 the only change in consolidation scope was the exit of the subsidiary Pami Finance S.r.l. (in liquidation) following the cancellation from the Company Register.
The reorganization of the Bancassuance business, following the non-renewal of the distribution agreements with Gruppo Unipol for the life-insurance business and with Gruppo Aviva for the P&C insurance business, and the subsequent agreement signed with Cattolica Assicurazioni, did not entail any change in the consolidation scope as at 31 March 2018 for the shareholdings held in Popolare Vita (now Vera Vita S.p.A.) and Avipop Assicurazioni (now Vera Assicurazioni S.p.A.), over which at 31 March 2018 the Group is still exercising a significant influence. The only change regarded the stake held in the two associates, which in both cases went from 50% to 35%.
In compliance with Consob Communication no. DEM/6064293 of 28 July 2006, the effects of the main non-recurring items are illustrated in the operating report, as summarized below:
16 The derivative contract hedging the risks associated with the above-mentioned liabilities that had justified the original designation to fair value had been subsequently terminated.
Overall, non-recurring items in the first quarter made a positive contribution of € 184,6 million.
Overall, net of tax effect (equal to - €12.5millioni) non-recurring items in the first quarter of FY 2017 made a positive contribution of € 42.7 million.
On 1 January 2014, the new harmonized prudential rules for banks and investment firms contained in the Capital Requirements Regulation (EU) no. 575/2013 ("CRR") and in the Capital Requirements Directive 2013/36/EU (CRD IV") of 26 June 2013 have come into effect, transposing the banking supervisory standards defined by the Basel Committee (Basel 3 framework) in the European Union. The Regulation and its technical rules are directly applicable in national legislations and represent the so called "Single Rulebook".
The minimum capital requirements for 2018 are:
Please note that on 4 October 2016, the Bank of Italy, with Update no. 18 of Circular no. 285, brought the CCB down to 1.875% for 2018.
With communication of 23 September 2017, the Bank of Italy confirmed the Countercyclical Capital Buffer ratio at zero per cent.
With communication of 30 November 2017, the Bank of Italy identified the banking group Banco BPM as an Other Systemically Important Institution (O-SII). The 2018 O-SII reserve is equal to zero, while Banco BPM is required to gradually build up a reserve equal to 0.25% with linear increments beginning on 1 January 2019 up until 1 January 2022.
On 27 December 2017, the European Central Bank (ECB) notified Banco BPM its final decision on the minimum capital ratios that Banco BPM is required to comply with on an ongoing basis.
The decision is based on the supervisory review and evaluation (SREP) conducted in accordance with art. 4(1)(f) of EU Regulation no. 1024/2013.
Hence, in compliance with art. 16(2)(a) of the same Regulation no. 1024/2013, which gives the ECB the power to require that supervised bank hold an amount of own funds greater than the minimum capital requirements provided for under the current regulations, a 2.50% requirement was added to the above requirements.
Taking into account the SREB CCB requirements, at consolidated level Gruppo Banco BPM must comply with the following capital ratios:
By the deadline of 1 February 2018, Banco BPM informed the European Central Bank that it elected to fully apply the transitional provision under the new article 473 bis of EU Regulation no. 575/2013, which phases in the impact on own funds generated by the adoption of the new impairment model introduced by IFRS9. Under the transitional provision, it is possible to include a transitional positive component to the Tier 1 capital by a percentage of the increase in expected loan loss provisions further to the adoption of IFRS 9. The percentage decreases over time over a 5-year period, as described below:
Beginning on 1 January 2023 the impact from the first-time adoption of IFRS 9 will be fully recognized in the calculation of own funds.
In addition to the possibility of phasing in the impact from the first-time adoption of the accounting standard on 1 January 2018, the transitional provision gives the possibility to phase in any impacts that the implementation of the new impairment model may cause also in the following few years after the first-time adoption of the new accounting standard, albeit limited to impacts from the measurement of performing financial assets.
The estimates of the Group's capital ratios, all other things being equal, had it not elected to exercise the above option, are defined in brief "IFRS9 fully-phased". The capital ratios called "IFRS9 phase-in" instead are calculated based on the abovementioned transitional rules.
The reclassified balance sheet and income statement reflect on a consolidated basis the financial accounts of Banco BPM and its subsidiaries with respect to 31 March 2018, or, when not available, to the most recently approved financial reports. Similarly, the equity method-based treatment of associates was carried out based on the accounting information submitted to Banco BPM as at 31 March 2018, or, if not available, on the most recent financial reports prepared by the associates.
Contacts:
Investor Relations Roberto Peronaglio +39 02.77.00.2057 [email protected] Communications Matteo Cidda +39 02.77.00.7438 [email protected] Press Office +39 02.77.00.3784 [email protected]
| (euro thousand) | 31/03/2018 01/01/2018 31/12/2017 | Changes vs. 01/01/2018 |
Changes % vs 01/01/2018 |
||
|---|---|---|---|---|---|
| Cash and cash equivalents Financial assets at amortised cost - Due from banks - Customer loans Financial assets and hedging derivatives - Financial assets designated at FV through P&L - Financial assets designated at FV through OCI - Financial assets at amortised cost Equity investments Property and equipment Intangible assets Tax assets Non-current assets held for sale and discontinued operations |
829,760 5,670,265 36,280,323 6,251,206 16,711,989 13,317,128 1,369,107 2,755,583 1,303,925 4,852,396 4,678 |
976,686 111,838,513 111,011,801 112,681,902 4,937,446 106,168,248 106,074,355 107,742,679 34,920,226 6,452,510 16,750,073 11,717,643 1,261,840 2,735,182 1,297,160 4,886,588 106,121 |
976,686 4,939,223 34,533,172 5,184,586 17,128,622 12,219,964 1,349,191 2,735,182 1,297,160 4,520,189 106,121 |
-146,926 826,712 732,819 93,893 1,360,097 -201,304 -38,084 1,599,485 107,267 20,401 6,765 -34,192 -101,443 |
-15.0% 0.7% 14.8% 0.1% 3.9% -3.1% -0.2% 13.7% 8.5% 0.7% 0.5% -0.7% -95.6% |
| Other assets | 3,018,459 | 3,007,162 | 3,007,162 | 11,297 | 0.4% |
| Total ASSETS | 162,252,744 160,202,766 161,206,765 | 2,049,978 | 1.3% | ||
| Due to banks Direct funding - Due to customers (*) - Debt securities issued and fin. liabilities designated at FV Other financial liabilities designated at FV Liability provisions Tax liabilities Liabilities associated with assets held for sale Other liabilities |
29,555,476 88,683,413 18,372,629 8,414,115 1,562,694 663,282 53 3,871,914 |
27,199,304 107,056,042 107,525,103 107,509,849 87,848,146 19,676,957 8,704,348 1,580,444 691,737 35 3,576,116 |
27,199,304 87,848,146 19,661,703 8,707,966 1,580,461 669,494 35 3,576,116 |
2,356,172 -469,061 835,267 -1,304,328 -290,233 -17,750 -28,455 18 295,798 |
8.7% -0.4% 1.0% -6.6% -3.3% -1.1% -4.1% 51.4% 8.3% |
| Total LIABILITIES | 151,123,576 149,277,087 149,243,225 | 1,846,489 | 1.2% | ||
| Minority interests Shareholders' equity |
54,857 11,074,311 |
57,567 10,868,112 |
63,310 11,900,230 |
-2,710 206,199 |
-4.7% 1.9% |
| CONSOLIDATED SHAREHOLDERS 'EQUITY | 11,129,168 | 10,925,679 | 11,963,540 | 203,489 | 1.9% |
(*) "Deposits from customers" include also Custodian Bank, which is going to be disposed.
Reconciliation statement between balances at 31.12.2017 (IAS 39) and balances at 01.01.2018 (IFRS 9)
| (euro thousand) | 31/12/2017 | Classification (a) |
Measurement impacts (b) |
ECL impacts (c) |
01/01/2018 | IFRS 9 impacts (b+c) |
|---|---|---|---|---|---|---|
| Cash and cash equivalents | 976,686 | - | - | - | 976,686 | - |
| Financial assets at amortised cost | 112,681,902 | -346,576 | - -1,323,525 111,011,801 | -1,323,525 | ||
| - Due from banks | 4,939,223 | - | - | -1,777 | 4,937,446 | -1,777 |
| - Customer loans | 107,742,679 | -346,576 | - -1,321,748 106,074,355 | -1,321,748 | ||
| Financial assets and hedging derivatives | 34,533,172 | 346,576 | 53,953 | -13,475 | 34,920,226 | 40,478 |
| - Financial assets designated at FV through P&L |
5,184,586 | 1,283,285 | -15,361 | - | 6,452,510 | -15,361 |
| - Financial assets designated at FV through OCI |
17,128,622 | -430,149 | 51,600 | - | 16,750,073 | 51,600 |
| - Financial assets at amortised cost | 12,219,964 | -506,560 | 17,714 | -13,475 | 11,717,643 | 4,239 |
| Equity investments (*) | 1,349,191 | - | -87,351 | - | 1,261,840 | -87,351 |
| Property and equipment | 2,735,182 | - | - | - | 2,735,182 | - |
| Intangible assets | 1,297,160 | - | - | - | 1,297,160 | - |
| Tax assets | 4,520,189 | - | - | 366,399 | 4,886,588 | 366,399 |
| Non-current assets held for sale and discontinued operations |
106,121 | - | - | - | 106,121 | - |
| Other assets | 3,007,162 | - | - | - | 3,007,162 | - |
| Total ASSETS | 161,206,765 | - | -33,398 | -970,601 160,202,766 | -1,003,999 | |
| Due to banks | 27,199,304 | - | - | - | 27,199,304 | - |
| Direct funding | 107,509,849 | - | 15,254 | - 107,525,103 | 15,254 | |
| - Due to customers | 87,848,146 | - | - | - | 87,848,146 | - |
| - Debt securities issued and fin. liabilities designated at FV |
19,661,703 | - | 15,254 | - | 19,676,957 | 15,254 |
| Other financial liabilities designated at FV | 8,707,966 | - | -3,618 | - | 8,704,348 | -3,618 |
| Liability provisions | 1,580,461 | - | - | -17 | 1,580,444 | -17 |
| Tax liabilities | 669,494 | - | 21,092 | 1,151 | 691,737 | 22,243 |
| Liabilities associated with assets held for sale | 35 | - | - | - | 35 | - |
| Other liabilities | 3,576,116 | - | - | - | 3,576,116 | - |
| Total LIABILITIES | 149,243,225 | - | 32,728 | 1,134 149,277,087 | 33,862 | |
| Minority interests | 63,310 | - | - | -5,743 | 57,567 | -5,743 |
| Shareholders' equity | 11,900,230 | - | -66,126 | -965,992 | 10,868,112 | -1,032,118 |
| CONSOLIDATED SHAREHOLDERS 'EQUITY | 11,963,540 | - | -66,126 | -971,735 | 10,925,679 | -1,037,861 |
a) Reclassification of the IAS 39 balances according the new items of the financial assets and liabilities
b) IFRS 9 FTA impacts from the new measurement criteria of the financial assets and liabilities (excluding ECL)
c) IFRS 9 FTA impacts from the new Expected Credit Loss (ECL) model
(*) Estimated impact on Equity investments following the new calculation of the net equity of the investments according to the IFRS 9 rules
| (in euro thousand) | Q1 2018 | Q1 2017 | Changes | Changes % |
|---|---|---|---|---|
| Net interest income | 595,111 | 548,607 | 46,504 | 8.5% |
| Income (loss) from investments in associates carried at equity | 42,585 | 41,585 | 1,000 | 2.4% |
| Net interest, dividend and similar income | 637,696 | 590,192 | 47,504 | 8.0% |
| Net fee and commission income | 476,520 | 515,774 | -39,254 | -7.6% |
| Other net operating income | 24,150 | 30,316 | -6,166 | -20.3% |
| Net financial result | 29,308 | 36,857 | -7,549 | -20.5% |
| Other operating income | 529,978 | 582,947 | -52,969 | -9.1% |
| Total income | 1,167,674 | 1,173,139 | -5,465 | -0.5% |
| Personnel expenses | -442,089 | -456,719 | 14,630 | -3.2% |
| Other administrative expenses | -279,485 | -260,699 | -18,786 | 7.2% |
| Amortization and depreciation | -47,926 | -52,883 | 4,957 | -9.4% |
| Operating costs | -769,500 | -770,301 | 801 | -0.1% |
| Profit (loss) from operations | 398,174 | 402,838 | -4,664 | -1.2% |
| Net adjustments on loans to customers | -326,239 | -292,490 | -33,749 | 11.5% |
| Net adjustments on securities and other financial assets | 2,228 | -8,357 | 10,585 | |
| Net provisions for risks and charges | -24,964 | 504 | -25,468 | |
| Profit (loss) on the disposal of equity and other investments | 179,654 | 17,066 | 162,588 | N.S. |
| Income (loss) before tax from continuing operations | 228,853 | 119,561 | 109,292 | 91.4% |
| Tax on income from continuing operations | -6,976 | -27,500 | 20,524 | -74.6% |
| Income (loss) after tax from discontinued operations | -14 | 20,003 | -20,017 | |
| Income (loss) attributable to minority interests | 1,430 | 3,138 | -1,708 | -54.4% |
| Net income (loss) for the period excluding Badwill | 223,293 | 115,202 | 108,091 | 93.8% |
| Badwill | - | 3,076,137 | -3,076,137 | |
| Net income (loss) for the period | 223,293 | 3,191,339 | -2,968,046 | -93.0% |
| (in euro thousand) | Q1 2018 | Recl. | Q1 2018 without reclassification |
Q1 2017 | Q2 2017 Q3 2017 | Q4 2017 | |
|---|---|---|---|---|---|---|---|
| Net interest income | 595,111 -65,750 | 529,361 | 548,607 | 511,149 | 524,923 | 528,768 | |
| Income (loss) from investments in associates carried at equity |
42,585 | 42,585 | 41,585 | 40,354 | 38,931 | 45,166 | |
| Net interest, dividend and similar income | 637,696 -65,750 | 571,946 | 590,192 | 551,503 | 563,854 | 573,934 | |
| Net fee and commission income | 476,520 | 476,520 | 515,774 | 503,605 | 458,935 | 472,096 | |
| Other net operating income | 24,150 | 24,150 | 30,316 | 14,362 | 29,401 | 24,738 | |
| Net financial result | 29,308 | 29,308 | 36,857 | 63,320 | 12,957 | 41,915 | |
| Other operating income | 529,978 | 529,978 | 582,947 | 581,287 | 501,293 | 538,749 | |
| Total income | 1,167,674 -65,750 | 1,101,924 | 1,173,139 1,132,79 | 0 | 1,065,14 7 |
1,112,683 | |
| Personnel expenses | -442,089 | -442,089 | -456,719 -456,711 -450,628 | -420,796 | |||
| Other administrative expenses | -279,485 | -279,485 | -260,699 -233,055 -273,178 | -212,334 | |||
| Amortization and depreciation | -47,926 | -47,926 | -52,883 | -56,406 | -62,160 | -95,466 | |
| Operating costs | -769,500 | -769,500 | -770,301 -746,172 -785,966 | -728,596 | |||
| Profit (loss) from operations | 398,174 -65,750 | 332,424 | 402,838 | 386,618 | 279,181 | 384,087 | |
| Net adjustments on loans to customers | -326,239 | 65,750 | -260,489 | -292,490 -354,530 -340,816 | -673,127 | ||
| Net adjustments on securities and other financial assets |
2,228 | 2,228 | -8,357 | -70,820 | -48,322 | -12,718 | |
| Net provisions for risks and charges | -24,964 | -24,964 | 504 | -9,641 | 4,615 | -9,235 | |
| Profit (loss) on the disposal of equity and other investments |
179,654 | 179,654 | 17,066 | -3,765 | 333 | 12,064 | |
| Income (loss) before tax from continuing operations |
228,853 | 228,853 | 119,561 | -52,138 -105,009 | -298,929 | ||
| Tax on income from continuing operations | -6,976 | -6,976 | -27,500 | 1,122 | 45,612 | 103,202 | |
| Income (loss) after tax from discontinued operations |
-14 | -14 | 20,003 | 25,790 | 16,498 | 699,971 | |
| Income (loss) attributable to minority interests | 1,430 | 1,430 | 3,138 | 4,256 | 1,397 | 867 | |
| Net income (loss) for the period excluding Badwill |
223,293 | - | 223,293 | 115,202 | -20,970 | -41,502 | 505,111 |
| Impairment of goodwill and client relationship net of tax |
-1,017,616 | ||||||
| Badwill | 3,076,137 | ||||||
| Net income (loss) for the period | 223,293 | 223,293 | 3,191,339 | -20,970 | -41,502 | -512,505 |
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