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Ubi Banca, new 3-pillar plan with more dividends and 2 redundancies

Before the surprise offer from Intesa, the CEO of Ubi Banca, Victor Massiah, had presented the new business plan which aims at greater capital solidity, more digital and more private banking - the payout will rise to 40% - 175 branches closed

Ubi Banca, new 3-pillar plan with more dividends and 2 redundancies

An ambitious plan that rests on three pillars and already looks beyond 2022, identifying the 7 pillars of the bank to come. UBI Banca presented its business plan for the next three years in Milan, which looks first of all at capital strength, with a CET ratio1 of 12,5%, a net profit expected in 2022 of €665m (compared to €251m in 2019) and an average payout of 40% over the period of the plan, with the dividend that could increase in 2022 in the event of a CET ratio1 higher than the forecast 12,5%. The so will be cut, also through the closure of 175 branches, 10% of the total, which means the outgoing balance of 2.030 resources over the period of the plan (therefore including hiring). As a result, the cost/income ratio will drop from 62,1% to 58,1%.

The rationalization of the retail business is precisely one of the three pillars of the plan, thanks to digitization and reskilling. The other two are the rigorous selection of credit to improve its quality and the strengthening of the service for high-end customers, especially private banking. In the light of this, UBI Banca is expected to achieve moderate growth in operating income to €3,7 billion (CAGR +0,3%) with a composition that retraces what was already started in 2019, i.e. a component of the interest margin in slight decrease (CAGR -0,9%) more than offset by the growth in the net commission component (CAGR +1,7%). Operating expenses are expected to amount to €2,2 billion in 2022, with a CAGR of -1,9% from 2019 to 2022.

The 7 foundations for after 2022 are instead:

• customer-focused omnichannel service model

• integration of advanced analytics and big data in processes

• enhancement of human capital, highly trained workforce and widespread "agile" teams

• highly efficient risk management and credit management processes

• Scalable IT platform with Cloud migration

• confirmation of structural soundness

• sustainability as a transversal element of the Group's activity.

Greater profitability is in turn based on three pillars of development: a) rigorous attention to credit selection and asset quality: The Group starts at the end of 2019 with one of the most virtuous gross non-performing loans in the system, thanks to the attention paid to the disbursement of performing loans, the consolidated organization and efficiency of credit recovery and the careful selection of non-performing loans in the mass assignments carried out. At the end of 2019, the gross non-performing loan ratio was 7,8% and a massive sale of SME bad loans for a gross amount of €800 million is also under examination, which should be completed in 2020 and which has already been partially reflected in the 2019 accounts.

Subsequently, massive assignments are not necessary over the period of the plan, considering that once the massive assignment has been completed, the internal debt collection activity, based on a platform of absolute excellence with high performance (2 billion internal work-outs in 2019, compared to €930 million of gross new inflows), could bring the ratio of gross impaired loans to the expected level of 2022% in 5,2 (from 7,8% in 2019) and gross stocks to €4,5 billion from 6,8 in 2019. Rigorous attention to credit selection and asset quality remain one of the central elements of the 2022 Business Plan. UBI Banca will continue to focus on low-risk customers, in line with current strategies.

“The 2022 Business Plan – commented Victor Massiah, chief executive producer of UBI Banca – starts from solid foundations, built with the participation and commitment of all UBI People. In fact, the results of 2019 were decidedly positive. The measures taken during the year made it possible to achieve a gross non-performing loan ratio of 7,8% (6,9% pro-forma), close to the best in the system. At the end of 2019, the Bank presents a balanced balance sheet structure, strong liquidity, and growing capital levels. The Plan that we have drawn up is based on the transformation of the Bank from the point of view of a Group that knows how to ride the new digital technologies thanks to a significant investment component without however renouncing the human factor, but rather enhancing it with a strong commitment to training. Customer service models in an omnichannel environment will improve, and in some cases will be transformed, allowing the customer a totally flexible use of all available physical and remote channels. We will continue to maintain cost control, despite the significant investments planned, to monitor risk, with the further reduction of non-performing loans thanks to the strength of our internal recovery platform, and to strengthen controls”.

“The Bank – continued Massiah – will be able to count on the maintenance of equity and structural ratios capable of guaranteeing its usual solidity but at the same time will be able to leverage on significant elements of flexibility. A first-level structure will be dedicated to sustainability issues, already widely present in the bank's over 1-year-old DNA, which will act across the board, organically involving all areas of the Group. Finally, thanks to the increase in overall profitability, the Plan envisages a constantly growing dividend, consistent with maintaining a CETXNUMX at absolutely solid levels. The three-year period of the Plan symbolically represents leaving behind a decade of crisis which the Bank has faced with resilience. Based on a conservative approach for future scenarios, the Bank is convinced that it has all the capabilities to evolve its business model at the service of shareholders, customers, staff and the environmental context in which it operates."

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