Full Year 2005 Banca Popolare di Lodi Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: [Translated]. Good morning. This is the Chorus Call operator and I would like to introduce you to the presentation of Banca Popolare Italiana fiscal year '05 results. [OPERATOR INSTRUCTIONS]. Now I would like to give the floor to Nicoletta Zangrandi, IR, of BPI. Please?

NICOLETTA ZANGRANDI, IR, BANCA POPOLARE DI LODE: [Translated]. Ladies and gentlemen, good morning. Now, I'd like to welcome you all to the Banca Popolare Italiana full year '05 results presentation. I'm here with Mr. Gronchi, CEO, and our General Manager, Franco Baronio.

We will have, first of all, a session covering the results and then a Q&A. Please let's start. Now the floor is to Mr. Gronchi. Please, sir?

DIVO GRONCHI, CEO, BANCA POPOLARE DI LODE: [Translated]. Ladies and gentlemen, good morning. I'd like just to give you an overview of Banca Popolare Italiana. We are the 9th largest Italian bank. We are 3rd in terms of cooperative bank. And our total assets are E47b. We have 3m customers, 979 branches and over 1,100 financial advisors.

As for our branches, you can see on our position on page two. And you can see really a map showing you the location of our branches.

Now, let's get to the core of the presentation. I've been assigned to the current position starting October 17, '05. There have been quite a few milestones and I'd like to briefly walk you through them.

October 2, we appointed the Head of Finance, as well as the Head of the Audit Department on October 27. The Board of Directors of the Bank re-approved [inaudible] '05 results. And on that occasion, a decision was made in order to buy back minorities that were previously disposed of by the Bank.

On November 2, we passed a resolution in order just to file a suit against Mr. [Fiorani Boni] and any person who might have caused any damage to the Bank. And on December 12, the Board of Directors was dissolved by a member that resigned, and there was the convening of the AGM in January.

In December, we also passed a resolution to appoint Mr. Malerbi Deputy General Manager, and also in charge of the lending and finance areas. On December 22, we also took back the Antonveneta equity investments, and on December 17 our Board has approved, once again, fiscal year '04 accounts, or full-year '04 accounts.

On December 30, the Antonveneta ABN Amro shares were sold. And on the 28th of the same month, we had the AGM which really reappointed our new Board of Directors. And right after that, in its first meeting, the Board of Directors has appointed Professor Dino Giarda and myself to our current positions, Chairman and CEO respectively.

On February 17, so only 15 days thereafter, Franco Baronio was appointed General Manager of the Bank. And after that, Apicella Guerra were appointed Deputy General Manager for the areas of IT and organization. That was on February 22. On February 23, we made a decision to dispose of Bipielle Leasing, a deal which will be closed over the course of 2006.

Last but not least, on March 9 we passed another resolution, therefore deciding on the merger of the three savings banks in Lucca, Pisa and Livorna -- and Livorno, sorry, so have to have one single brand covering the region of Tuscany.

On March 23, the Board of Directors of the Bank has really given me full powers in order to execute or exercise the pledge made up by the Magiste shares. And on March 27, the Board of Directors really has approved an E800m capital increase. And, yesterday, the very same board of the Bank has also approved the full-year '05 set of accounts.

So this was just a snapshot of the milestones and of the turning points that were concentrated in the past few months. So I think that it was really something due for me to do to brief you over this. Now, next appointment is April 3, for the approval of the industrial plan.

Now, having said this, I'd like to move onto the next slide, which shows you the organizational chart of Banca Popolare Italiana. That's on page seven of the handout.

For the first time in the Bank's history, we have a General Manager and a CEO. So what I'd like to stress as an important feature is the separation of roles. For the CEO, he is in charge of strategy and control. So accounting and taxation are directly reporting to him, shareholdings and corporate management, auditing, as well as secretariat and legal affairs. And the latter part is really supervised jointly with the Chairman.

Then we have some areas of the Bank that are supervised jointly by the CEO and the General Manager, which are strategic planning and risk management. And given the nature of the activity of this department or area, we found it was appropriate just to -- not to separate the two types of activities. So we have one single core corporate function covering both strategic planning and risk management.

As for the General Manager, he is responsible for the mechanics, so to speak, or the daily operation of the Bank. So all areas involved in the daily operation of the Bank and the daily conduct of business report directly to the General Manager. So we're essentially talking about coordination of Group's retail banks, human resources, then the purchasing unit. So we have, as I've already listed, the coordination group's corporate area. Purchasing unit, I've already listed that.

And then we have three operating levels, namely the IT operating area. That is headed by Mr. Apicella Guerra. Then we have the market area, which is directly supervised by Mr. Baronio on an interim basis. And Mr. Malerbi, instead, is in charge of the finance and credit or lending area.

Now let's move onto the next page, page eight. Restructuring was not affecting -- did not affect only first line of the Bank's management because we have taken quite an ample spectrum of actions going deeper down to the other Bank levels. The team is almost fully in place. There are still a few positions vacant, so to speak, mainly in operating areas. So, at this point in time, we think we're really in a position to take prompt action, shaping the market and the Bank.

Having said this, let's go straight to our full-year '05 results.

Let's have a look -- first of all, let's have a look at the main targets which we set when drafting and stating the annual accounts. We wanted to preserve and safeguard assets as well as asset quality and we also want to improve our liability positions.

We have been very prudent and very stringent in our provisioning policy, as well as in the area of valuations. It is our intention to have this set of accounts as immediate turnaround and as a way just to cut ties with the past.

Now, let me now focus about some key items. In Q4 '05, we had to do massive write downs. It was necessary. And I'm talking about write downs of Hopa, and also Kamps and Magiste. As for Magiste, we had already provisioned against it over the course of fiscal year '05.

So we've been very conservative when making our valuations on the asset side, which has consequently improved our coverage ratio, which is now up from 62% in '04 to 78% in '05.

And likewise, always for the sake of prudence, we have provisioned against the capital gain coming from our investment in Bank Antonveneta. Some legal checks are currently underway. And we think that it is really our duty to be very conservative as a measure to safeguard our shareholders. And so that's why we decided to be extremely disciplined which, however, does not mean to give up before the magistrates. It simply means that we have to be very pragmatic and very cautious at the same time.

As you will hear later, we have also reduced or written down some goodwill. And I'm talking about goodwill of equity investments we had. We carried out an impairment test with the assistance of a prime consulting company.

Now, the outcome of the assessment gave us a tier one ratio to 5.14%, whilst our total capital ratio is 8.89% -- sorry, 8.98%

Now, let's move on to the P&L. It's on page 13. It's a very crowded slide. And therefore I'll try to go through it on a line-by-line basis, even if obviously I will try just to be very sketchy in my comments.

Now, interest income, E761m or so, is down 9.5% compared to fiscal year '04. The decrease is to be also attributed to the implementation of the new IAS, in particular IAS 39. As a consequence of this, we have shifted some amounts from interest income to net income or net income generated by hedging. We're talking about some E70m, even if our accounts reflected a lower coverage ratio because that was the difference between these two amounts.

Now, net fee incomes were undeniably affected by the overall asset trends and the overall asset performance. However, the 10% decrease also includes fees and commissions related to the Antonveneta deal, E75m, and E43m instead were costs we had to sustain or to bear for the buyback of minorities. Now, if we adjust our accounts for these one-offs, then we would have net fee income down, although on a more limited scale, E19m against '04.

Moving on to dividends. They stand at E62m. Now, dividends include E38m that are related to our equity …