Banca IFIS aims for a dividend yield of 7%

The Banca IFIS group expects to achieve a net profit of $163 million (€147 million) by 2022. The company plans to improve capital strength, support growth, and ensure the payment of a substantial dividend to shareholders. The company has also planned investments of $66 million (€60 million) to support business stability, and hire 190 young employees. The bank expects all business units to be profitable.

Net profit is set to grow from an estimated $136 million (€123 million) in 2019, to $163 million (€147 million) in 2022. This will give the bank the ability to further improve equity strength, support growth, and at the same time ensure payment of a substantial dividend to shareholders. Rote 2022 up to 8.9% from 8.5% estimated at the end of 2019, Cet 1 to 12% in 2022, from 11% estimated at the end of 2019, above the current Srep threshold of 8.12%.

The company has made investments of approximately $66 million (€60 million) to support organic growth and business stability. It has also managed to maintain stable operating costs and net interest and generate other ancillary income of $619 million (€557 million) by the end of 2019.

The 2020-2022 business plan which, on the shareholder remuneration front, aims at a payout ratio of 40%-45%, a range at which, at current stock exchange prices, corresponds to a return of over 7%.

These objectives were appreciated by the market as the share price rose by 0.94% to $16.66 (€14.97), in contrast to the trend of the Ftse Mib, which instead sold 0.16%. “We will continue to operate as a primary investor in the NPL sector, with one of the best servicers in Italy today,” said the bank’s CEO, Luciano Colombini.

Colombini recalled “To date, we have 1.2 million debtors”, with a stock of loans purchased “amounting to over $26 billion (€24 billion)” and a nominal value “between $1.33 and $1.44 billion (€1.2 and €1.3 billion)” in addition to “450 people working in the group. We have collected $1.1 billion (€1 billion) since we started managing non-performing loans,”.

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The cost ratio and planned outlay

On the cost side, the cost/income ratio is expected to fall from 56% in 2020, to 52% in 2022, this will be achieved by containing operating costs. The number of employees, estimated to be 1,688 at the end of 2022, reflects the dynamics of a turnover for which 67 exits are expected through the use of the solidarity fund and 190 new hires of young people. “The total cost of this exodus is estimated at around $17.4 million (€15.7 million),” explained Colombini.

The Venetian bank will sign a deal to sell a property in Corso Venezia, Milan, to Merope Asset Management in order to make up the shortfall. Thanks to this operation, the Venetian bank will in fact generate “a capital gain of over $27 million (€25 million) that will serve precisely to cover abundantly the costs associated with the exit plan,” added the banker.

The bank expects all business units to be profitable, with a greater competitive advantage in NPLs and factoring, and total revenue growth to $669 million (€602 million) over the three years driven by purchases of $9.4 billion (€8.5 billion) (nominal value) of non-performing loans for the NPL sector and an increase in volumes of $1.1 billion (€1 billion) in loans to customers in the commercial and corporate banking segment due to digital innovation, the new market coverage model and the renewed communication and marketing strategy.

“Today we present a business plan in continuity with the bank’s core businesses. A plan that expresses maximum transparency towards the market and will lead Banca IFIS to an even greater commitment in the coming years to seize all the opportunities in compliance with the stated objectives” added Colombini.

The business plan and a long-term strategy

The long-term strategy, from 2023 onwards, when it is estimated that non-performing credit purchases will be more impacted by calendar provisioning rules, is to act as a co-investor for NPLs while maintaining a primary player role for the asset classes and transforming the effects of the new regulations into opportunities.

This taking into account what the bank explains “you will find yourself operating for a long time in a context of low rates where NPLs can be a new and interesting asset for investors and Banca IFIS can play a leading role, strong in its brand and track record. In addition, faced with the opportunity to reduce capital absorption and funding for all new NPL portfolios that will be exposed to calendar provisioning, the group will be increasingly able to directly attract others who act as co-investors in the purchase of portfolios from the beginning or buy new NPL portfolios transformed into paying plans.”

In this scenario, Banca IFIS will be able to sell part of the junior or senior notes of these vehicles through the constitution of special investment vehicles and, on the basis of the capital and financial needs, will continue to act as servicer on those portfolios. The project in question is not aimed at the current proprietary NPL portfolios whose claims do not fall within the scope of calendar provisioning.

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(Featured image by Carlos Muza via Unsplash)

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First published in MF Milano Finanza, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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