Financial results
1Q 2022 Results: recurring revenues and net profit grew driven by solidity and operating efficiency.
Highlights
Results at 31.03.2022
Risultati finanziari
Debt
Banca Generali has no financial debts, since the bank has never recurred to loans, bonds or subordinated loans
Market Outlook
The first quarter of 2022 was marked by a period of volatility on the main global stock exchanges and a general increase in bond curves. The event that had the greatest impact on financial markets was the conflict unleashed by Putin against Ukraine, which led to severe repercussions at the level of economic and international relations. The outbreak of the war contributed to raising the prices of commodities and energy, particularly in Europe. Russia accounts for approximately 11% of global oil production, approximately 20% of natural gas production and nearly one-tenth of wheat supplies, acting as the number-one energy supplier to many European countries. The conflict drove Brent to reach a peak of 139 dollars a barrel, whereas European natural gas prices rose by approximately +51% during the quarter.
In response to the Russian invasion, on the economic and political level the European Union levied a series of sanctions to strike at Putin financially, thereby encouraging him to end the conflict. The measures imposed on Russia concerned, among others, a ban on the exportation and importation of certain goods and the removal of certain Russian banks from the SWIFT international payment system.
In the first quarter of the year, investors’ attention was focused on containing inflation, particularly in the United States, where the year-on-year inflation figure reached 7.9% in March — a level that had not been seen since the mid-Eighties. Such rapid price growth was primarily caused by persistent supply chain bottlenecks, a resumption of demand for consumer goods and the impact of the war in Ukraine on the global economy.
An inflation figure of 5.9% was also recorded in Europe. This is a level that, in this case as well, had not been reached for several decades. In late 2021, Europe had already seen a generalised increase in food and energy prices that was then exacerbated by the war in Ukraine.
This was the backdrop to a monetary policy paradigm shift implemented by the main central banks. After spending years injecting liquidity into the economy and engaging in expansionary policies, in March the Federal Reserve raised interest rates by 25 bps. The increase in rates in the United States will last for the rest of the year and market operators predict seven more hikes from now until December.
In Europe, in response to the high level of inflation, the ECB’s Governing Council modified the scope and timing of its Asset Purchase Programme (APP). In particular, the European Central Bank will reduce its securities purchases by 40 billion euros in April, by 30 billion euros in May and by 20 billion euros in June.
In response to these changes in the implementation of monetary policy, there was a general increase in the main government bond curves. Ten-year Treasuries rose from 1.50% to around 2.33%, whereas ten-year German bonds increased from near-zero yields at the beginning of the year to as high as +0.55%, in the wake of expectations of a possible Eurozone rate increase already during the year.
The volatility of interest rates and the conflict in Ukraine also impacted credit spreads. In particular, the spread on high-yield and financial bonds widened, reaching 430 bps and 500 bps, respectively, to then narrow by around 120 bps for financial bonds and 50 bps for HY bonds in March.
During the period, the main stock exchanges generated negative returns after starting 2022 at all-time highs. In particular, the Eurostoxx 50 and S&P 500 recorded negative performances of approximately -9% and -3% in euros. Market volatility since the beginning of the year has primarily been caused by the geopolitical risk relating to the Russian invasion of Ukraine, which culminated in the escalation that occurred on 24 February, as well as by the high level of inflation reached in developed countries. At the sector level, the outbreak of the conflict penalised the banking sector, which in February saw a phase of panic-selling on the equity markets. This trend was reversed in March, when banks returned to the levels prior to the Russian invasion.
On currency markets, the dollar appreciated against the euro by approximately 2% during the period. The US currency benefited from the swifter change of monetary policy by the Federal Reserve than by the ECB, falling from 1.13 to 1.11 to the euro. In the first quarter of 2022, the general commodities index continued to rise sharply, driven by the outbreak of the military conflict in Ukraine.
Business Outlook and Mega-trends
In 2022, the macroeconomic scenario will probably be characterised by generalised and robust growth both in the United States and in the European Union, fuelled by the expected positive evolution of the pandemic, although the recent war between Russia and Ukraine could lead to a negative impact on the economic recovery. According to most recent estimates, next year’s global gross domestic product is expected to grow by 5%, although the main central banks have announced (or are about to announce) the end of the monetary stimuli that governments and central banks had implemented over the past years to support the whole economic system. This change of monetary policy, combined with inflation, which currently seems destined to persist in the coming months, may be a source of volatility on equity markets. However, uncertainty about the evolution of the pandemic situation at global level and on the Ukraine war loom over these positive growth prospects.
In particular, the so-called Recovery Fund, a 750 billion euro plan to save the countries most affected by the economic crisis caused by the coronavirus, will start to generate its positive effects on Europe’s growth. Among these countries, the largest beneficiary will be Italy, where 2022 is expected to have good GDP growth with inflation set to increase due to the effects of rising energy bills, accompanied by the risks posed by 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);
- the volatility and gradual elimination of negative rates as inflation increases;
- regulatory discontinuity (including the entry into force of the MiFID 2 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 such a context — which is certainly complex and marked by uncertainties, with customers focused on advisory and wealth protection, 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 2022-2024 Industrial Plan, in 2022, the Banking Group will focus its attention on increasing the value of service bringing the Bank even closer to its Financial Advisor network and its clients and increasing its commitment towards sustainability themes, while constantly ensuring greater dedication to developing innovative model solutions.
In line with the pillars of the new 2022-2024 Industrial Plan, the main measures to be taken in 2022 will concern:
- developing a range of targeted solutions that, building on the ecosystem of products, services and platforms already in place in the private segment, enables to better meet the needs of a wider client base — from Affluent clients to High-Net-Worth (HNW) individuals;
- introducing new service models that, in a context marked by financial advisor-centric models, allow to enhance Financial Advisors’ actions through a greater support by the Bank in managing their clients;
- implementing a new data-driven network management approach that, based on an estimate of the growth potential of clients, Financial Advisors and local area, and on the identification of the main gaps, drives the coordinated action of the Bank, its Network Managers and Financial Advisors;
- innovating the Bank’s model by creating a data-driven, digital and open bank through the development of digital platforms to enhance customer experience, and building new partnerships in specific fields that allow the Bank to consolidate its position with respect to industry trends;
- Consolidating its position in terms of sustainability, becoming a point of reference on ESG themes for all stakeholders. In particular, the Bank will be mainly committed to enhancing its value proposition based on SDGs through ongoing expansion of its ESG offering and Financial Advisors’ training, creating a work environment that promotes diversity and inclusion and work-life balance, actively contributing to climate protection and acting responsibly towards communities.
Also through the strategic decisions to strike new partnerships in areas with a strong technological component, improve process efficiency, develop the activities with the greatest added value for the network and customers and consolidate its position in terms of sustainability, in 2022 the Banca Generali 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.