Financial results
9M 2021: These excellent results confirm the quality of our unique business model.
Highlights
Results at 30.09.2021
Risultati finanziari
Debt
Banca Generali has no financial debts, since the bank has never recurred to loans, bonds or subordinated loans
Market Outlook
In the third quarter of the year, financial markets went through a phase of consolidation of year- to-date earnings. In detail, developed countries outperformed emerging countries. This was mainly because of the regulatory policies introduced by the Chinese government in several key sectors of China’s economy, such as technology and real estate.
The macroeconomic framework is still healthy, with global GDP growth expected at about +6% this year and corporate profits projected to rise even in 2022 at a growth rate of nearly 10%. In the period, the higher inflation reported both in the U.S. and Europe was particularly important. In August, in the United States, the consumer price index was +5.3% year on year, showing the highest growth since the great financial crisis of 2008.
In September, in Germany the same index neared +4%, for the first time since the 1990s. In light of the above, the debate within the boards of the central banks and, more generally, within the investor community was thus centred on whether or not these inflationary pressures could be regarded as temporary. In particular, the Fed decided to accelerate the unwinding of the stimulus measures introduced during the pandemic.
In the August bulletin issued after the meeting of its Board of Governors, the Fed stated that it could start tapering its 120-billion-dollar-a-month quantitative easing programme by the end of the year, and that the following monetary tightening could start earlier than expected. Half the members of the Board expects a first rise in interest rates to take place as soon as next year. As for the Eurozone, the European Central Bank has announced a “moderately lower pace of net asset purchases under the pandemic emergency purchase programme (PEPP) than in the second and third quarters of this year.” However, the 1,850-billion-euro-budget of the programme remains confirmed, as is its expiry, which will not occur before the end of March 2022. The main stock prices stabilised after the sharp increases occurred since year-start. In the quarter, the Eurostoxx50 index performed close to 0% and the S&P 500 was at about 3% in euros.
Emerging markets were characterised by negative yields, with the benchmark index ending the quarter at -6.5%, penalized especially by the Chinese market at about -17%. China’s marked underperformance was primarily due to the real estate crisis that hit the country, with particular reference to the real estate giant Evergrande. Due to its liquidity crisis, the company has proved unable to repay the 300 billion debt accumulated so far. Fear of global systemic contagion and of a “new Lehman Brothers” has caused turbulence on the markets, which then subsided when China issued partially reassuring statements about possible extraordinary liquidity injections. With regard to sectors, there was a first phase in which technological stocks overperformed cyclical stocks.
Then, in September, there was a sector rotation in favour of the latter, especially thanks to the traditional banking industry and the energy sector, which were driven by higher medium-to-long-term yields on government bonds and lower supply, respectively. On the bond market, yields on ten-year German and American bonds repositioned to near their June highs of -0.20% and 1.53%, respectively, following an initial decline. The steepening of the main global bond curves was due to the upwards revision of growth and inflation estimates, as well as the monetary policy choices made by central banks. Credit spreads remained substantially unchanged over the period, and the expected rate of global defaults stood at an historic low of around 1%. Yield spreads within the Eurozone remained stable.
In particular, the BTP-Bund spread went from 106 to 105 bps. In foreign exchange, the dollar appreciated against the euro by more than two percentage points, due mainly to statements by the Federal Reserve, which was more “hawkish” than the other central banks. In the third quarter of 2021, the general commodities index (BCOMTR Index) rose further, driven by the gradual easing of the health emergency, the resulting signs of a solid global cyclical recovery and the continuing criticalities on the supply side.
The energy sector, which is traditionally very sensitive to the performance of the economic cycle, was particularly positive. Within this sector, the natural gas segment stood out, driven above all by the slowdown of Russian production.
Industrial metals also performed positively, whereas agricultural commodities did not show particular movements. Precious metals declined, slowed by concerns about the beginning of Fed tapering.
The current macroeconomic framework is healthy. Global GDP is expected to grow by about +6%. Corporate profits are expected to show double-digit growth both this year and the next one. In the coming months, attention should be paid particularly to inflation.
Clear signs of upward inflationary pressures have been recorded in recent weeks in both the United States and Europe. It will be necessary to see whether these upward pressures will prove to be persistent and not temporary. If they persist, the U.S. Central Bank will adopt a stricter than expected monetary policy, inevitably impacting stock prices.
Finally, it will be necessary to monitor the Chinese situation, with the government and central bank called on to intervene in support of an economy that, due to the recent real estate bubble and other restrictive policies, will see its growth rate fall next year.
Business Outlook and Mega-trends
In 2021, the macroeconomic scenario will probably be characterised by generalised and synchronised growth, fuelled by the expected positive evolution of the pandemic. According to OECD estimates, next year’s global gross domestic product is expected to grow by 4.2%, supported by maintenance of the expansionary measures implemented by governments and central banks to support the entire economic system, even though particular attention will have to be paid to the level of public debt of the countries representing the main international economies. However, uncertainty about the results of the vaccination campaign and, consequently, of the evolution of the pandemic situation looms over these positive prospects.
In particular, in Europe, in order to support the recovery from the economic crisis triggered by the pandemic (estimated at + 3.6%), alongside the ultra-expansionary monetary policies, the so-called Recovery Fund, a 750 billion euro plan was approved, to save the countries most affected by the economic crisis caused by the Coronavirus. Among these, the largest beneficiary will be Italy where 2021 is expected to have good GDP growth and low inflation, accompanied by the risks of political instability and downgrade of public debt.
This macroeconomic scenario is overlaid with certain dynamics in the financial intermediation sector that increase its complexity and related risks, potentially impacting results. In particular, several potential impact dynamics persist:
- the complexity of a market characterised by low returns (with the resulting drive to take more risks);
- volatility and persistent negative rates;
- regulatory discontinuity (including the entry into force of the MiFID II Directive);
- the increasing relevance of technology as a factor for success in the business;
- the evolution of customers in terms of digital and financial literacy, as well as awareness of ESG issues.
In this context — which is certainly complex but not devoid of excellent growth opportunities — choices focusing on service and product innovation, implementation of stronger financial planning and advisory skills, the higher quality of the Bank’s network and the emphasis on internationalisation will continue to prove the winning elements for ensuring that Banca Generali enjoys sustainable growth and works to gain further market shares in the investment sector.
In light of the above, and consistently with the Industrial Plan, in 2021, which was the final year of the above-mentioned plan, the Banking Group will continue to focus its attention on households, strengthening its position as a private bank and increasing its commitment towards sustainability themes, while constantly ensuring greater dedication to developing bespoke solutions (in both investment products and advisory services).
Furthermore, in this context of economic growth prospects, the wide diversification of the aforementioned solutions, with tools ranging from private markets in support of the real economy and Italian SMEs to innovative thematic management, complete the spectrum of a unique offer in the advisory landscape in terms of depth, versatility and customisation possibilities.
In continuity with the projects launched at the beginning of the Industrial Plan, the main measures to be taken in 2021 will concern:
- improvement of the quality of the Financial Advisor network through both professional training for the existing network and the recruitment of high-profile, experienced professionals on the market;
- product innovation, with the goal of implementing a range of flexible financial services that may be tailored to each customer. Thanks to the development of wrappers and solutions with a high risk-yield correlation and consistent with the context defined by MiFID II. The commercial offer will also be increasingly based on the theme of sustainability and the possibility of offering concrete support to the real economy;
- development of new lines of business through the growth of AUC solutions, leveraging on the partnership with Saxo Bank in online trading and the expansion of lending, primarily in the form of the Lombard loan;
- the international expansion in Switzerland through the development of BG Valeur according to Banca Generali’s business model;
- enhancement of the comprehensive advisory service covering all of the customer’s wealth-related needs, in addition to advice concerning securities. Thanks to several exclusive partnerships, the Bank can provide advice concerning Real Estate, Wealth Planning and Generational Transfer, Corporate Finance and Family Office issues;
- digital innovation, with the aim of improving and expediting the Bank-Customer-Financial Advisor relationship, already implemented further during the pandemic;
- enhancement of the communication of a solid, innovative brand, including through the new social channels.
Also through the strategic decisions to strike new partnerships in areas with a strong technological component, improve process efficiency and develop the activities with the greatest added value for the network and customers, in 2021 the Bank will focus on containing the increase in costs to levels far below revenue growth. Moreover, the modest increase in costs will be primarily oriented to digital innovation and the development of useful products and services that help further improve the quality of advice provided to customers and the network’s productivity.