Mediobanca - REPORT

Italian Asset Gatherers 23 January 2017

Update

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Paradigm shift, part 2

Gian Luca Ferrari Equity Analyst

Assessing companies’ proposition in private banking: switch from BMED into BGN In June 2016, we published a sector note focused on the effects of aggressive recruitment in a declining-margins environment (please see “Paradigm shift”, 13 June 2016”). In this note, we elaborate on an area where we see the four listed asset gatherers particularly focused and vocal: private banking and, more generally, wealth management services. The majority of the four companies under our coverage are actively pushing into this segment, and we screened their offers in the field via a mystery shopping analysis to assess their positioning.

+39 02 8829 482 Gianluca.Ferrari@mediobanca.com

Global PB growing at a 7% pa, Europe at 6%. €225bn to be addressed in Italy Global private banking grew at a 6.6% 2010-2015A CAGR, with Asia leading the pack posting a 10% CAGR and surpassing North America for the first time as the region with the largest amount of High Net Worth Individuals’ wealth. Despite a prolonged period of subdued growth, HNWI wealth in Europe is growing at a 5.9% compound rate. As far as Italy is concerned, the number of HNWIs grew by 4% in 2015 to 229,000, with total wealth managed by 253 operators devoted to HNWI (i.e. private banks and family offices) reaching €865bn. Estimates point to a total potential market for private banking services of about €1.09bn, which implies some €225bn (or 21% of the total) not controlled yet by specialised operators.

Results of our mystery shopping: standardised products at a >200bps TER The result of our mystery shopping exercise is that, with the exception of BG Solution and Azimut Max, we were generally offered standardised products with pre-defined investment lines and funds selected by internal scoring algorithms. In very few cases did private bankers propose choosing together the underlying assets, and only in one case (BGN) were offered to meet the asset managers responsible for our managed account. In some cases, the minimum percentage to be invested in own funds is particularly high (BMED), so is the overall total expense ratio (TER) due to the incidence of performance fees (BMED and AZM managed accounts). Moreover, the only case in which we didn’t experience any conflict of interest between company margins, advisor’s remuneration and the product or service offered to the client, was the fee-only advisory contract proposed by Fineco. In all other cases, the inclusion of own funds made the overall equilibrium a bit asymmetric for the client. In three cases out of four we were offered products costing >200bps and with little personalisation.

Conclusion #1: this is not private banking, but it’s coherent with their strategy anyway

Company

Rating

Target price

OLD

NEW

OLD

NEW

AZIMUT

N

N

18.0

19.5

BANCA GENERALI

N

O/P

20.0

30.0

FINECO BANK

N

N

5.70

6.00

MEDIOLANUM

O/P

N

7.50

8.20

Source: Mediobanca Securities

To sum up, the expansion of wealth management is the key theme in the sector at present due to the rapid growth of this business, and the €225bn potential assets not yet served by specialised operators. All Italian asset gatherers are actively covering this segment (FBK is expected to launch shortly a specific project to set-up its own wealth management platform), but mostly with standardised solutions priced above 200bps (with exceptions made for BG Solution and Azimut Max). We believe asset gatherers chose this positioning of pricing and service not to dilute their current profitability too much and not to disrupt the existing asset gathering business unduly, thus serving a richer segment while being complementary with their existing operations. However, this is not really private banking, and the upcoming introduction of the Mifid 2 regulation will make it barely sustainable to charge total expenses above 200bps (and that will become visible in absolute terms — ie €/k) to clients with significant wealth being offered standardised solutions.

Conclusion #2: a nice opportunity for smaller niche players This leaves a nice opportunity for specialised, boutique-style, private banks to profitably serve wealthy clients in the €1-10m segment. Accordingly, we see an attractive opportunity for smaller niche players such as Banca Intermobiliare — BIM (not rated), Banca Profilo (not rated) and Banca Leonardo (not listed) — just to name a few. They have the opportunity to serve clients looking for highly tailor-made asset allocations at fair pricing and with no conflict of interest stemming from the remuneration of the network, or an obligation to offer products with a certain amount of own funds.

IMPORTANT DISCLOSURE FOR U.S. INVESTORS: This document is prepared by Mediobanca Securities, the equity research department of Mediobanca S.p.A. (parent company of Mediobanca Securities USA LLC (“MBUSA”)) and it is distributed in the United States by MBUSA which accepts responsibility for its content. The research analyst(s) named on this report are not registered / qualified as research analysts with Finra. Any US person receiving this document and wishing to effect transactions in any securities discussed herein should do so with MBUSA, not Mediobanca S.p.A.. Please refer to the last pages of this document for important disclaimers.

Italian Asset Gatherers

Contents

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Executive Summary .............................................................................................. 3

Rosy prospects for global private banking... ................................................................ 6

Italian asset gatherers want to be there as well .......................................................... 10

Mystery shopping: testing companies in the field ......................................................... 12

The key takeaways of our analysis ........................................................................... 15

Conclusion #1: this is not private banking ................................................................. 20

Conclusion #2: a nice opportunity for niche players ..................................................... 20

Rating changes: switch from BMED into BGN ............................................................... 21

Company Sectioon .............................................................................................. 23

Azimut Holding ........................................................................................ 24

Banca Generali ........................................................................................ 26

Banca Mediolanum.................................................................................... 28

Fineco Bank............................................................................................ 30

23 January 2017 â—† 2

Italian Asset Gatherers

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Executive Summary Paradigm shift, part 2: assessing companies’ proposition in private banking Last June 2016, we published a sector note focused on the effects on aggressive recruitment in a declining-margins environment (please see “Paradigm shift”, 13 June 2016”). In that note, we concluded that the old paradigm of the asset gathering industry based on aggressive hiring of advisors to drive growth has to change, and the way to attract the best talent will be more and more linked to the quality of the platform. In this note, we elaborate on an area where we see the four listed asset gatherers particularly focused and vocal: private banking and, more generally, wealth management services. Of the four companies in our coverage only Fineco is not yet actively pushing into this segment but a dedicated program is expected to be launched soon. We screened all their offers in the field via a mystery shopping analysis in order to assess their positioning.

Global private banking growing at 6.6% pa in 2010-15A, with Europe at +5.9% CAGR Asia-Pacific surpassed North America for the first time in 2015 and became the region with the largest amount of HNWI wealth. Such a notable performance was possible owing to the 10% pa growth reported over the past five years. This was remarkable considering that 2015 was a year in which global HNWI wealth grew by just 4%, due to faltering growth in the Americas and weak performance in the Middle East due to commodity prices and in Africa because of declining stock markets.

Interestingly, in 2015 Europe emerged as the second-fastest-growing region, with approximately 5% growth year-on-year in HNWI wealth, thanks to an advance of about 9% posted by Spain and an 8% yoy result for the Netherlands. France and Germany increased HNWI wealth by about 6%. In addition, despite a prolonged period of low growth, Europe managed to reported a 5.9% expansion in the wealth of total HNWI in 2010-15A, behind the 10% and the 7.4% growth rates reported by Asia and North America, but still encouraging in absolute terms, and aligned with overall global growth.

Younger HNWI want more passive funds and to pay for performance Analyzing the equity allocation of HNWI, the CapGemini WWR 2016 noted the propensity for younger HNWIs to invest in ETFs largely at the expense of mutual funds. As a matter of fact, under40 HNWIs invest twice the percentage of assets in ETFs compared to HNWIs over age 60 (20% vs 9.8%), while older HNWIs invest more in mutual funds (37.7%) as compared to under-40 HNWIs (27.5%). Over time, this tendency may have important implications for wealth management firms, forcing them to adapt their strategy and business mix. The fee model presents a significant challenge too. While most HNWIs currently pay a fee based on the percentage of assets under management, more are becoming attracted by the idea of paying according to investment performance (especially Ultra-HNWI defined as investors with financial wealth above USD 30m).

Such changes in HNWI preferences, along with regulatory pressure, such as the implementation of MiFID 2 in Europe at the beginning of 2018 requiring greater fee transparency, are likely to set off a wave of changes in fee structures.

Testing companies in field: what we have been offered with assets in the €500k-€1m range A recent paper published by Magstat and quoted by the Italian press, puts assets under management controlled by the 253 operators devoted to HNWI in Italy (i.e. private banks and family offices) at €865bn at the end of 2015. The sector reported an 11% CAGR in 2011-2015, showing an attractive double digit growth rate, despite the economic stagnation in the country.

Magstat also estimates a total potential market for private banking services of about €1.09bn, which implies some €225bn not controlled yet by specialised operators. The sector seems to have nice fundamentals then, and this is confirmed by the growing interest that the four listed Italian asset gatherers are showing in this business.

In order to better understand the effective positioning in this business, we tested the four companies in the field to directly assess products, services and pricing. We reported in the note what we have been offered, after contacting a private banker/relationship manager and presenting ourselves as prospective clients with financial assets in the €500k-€1m range, and open to investments with a high-risk profile.

23 January 2017 ◆ 3

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Italian Asset Gatherers Standardized products at a >200bps TER The result of our mystery shopping exercise is that, with the exception of BG Solution and Azimut Max, we were generally offered standardised products (either managed accounts, or asset management wrappers or insurance wrappers) with pre-defined investment lines and funds selected by internal scoring algorithms. In very few cases did private bankers proposed choosing together most of the underlying assets, and only in one case (BG PB) were we offered a chance to meet the asset manager/s responsible for our managed account. In some cases (BMED PB), the minimum threshold to invest in own funds is particularly high (e.g. 60% for My Life), so is the overall cost due to the inclusion of performance fees on own funds. Equally, even if the percentage to be invested in own funds is not explicit (as in the case of the managed accounts of AZM and — at a lower level — BG), the presence of own funds can substantially increase the overall TER of the product.

The only case in which we didn’t experience any conflict of interest between company margins, advisor’s remuneration and the product or services offered was the fee-only advisory contract proposed by Fineco (the advisor is remunerated with about 50% of the advisory fee charged, regardless of the composition of the underlying assets, and with no presence of own funds included thus aligning the interest of clients, advisors/bankers and the company). In all other cases, we didn’t experience a conflict of interest between the composition of our portfolio and the advisor’s remuneration, though the possible inclusion of own funds (with explicit or implicit targets of composition between own vs third-party) made the overall equilibrium a bit asymmetric for clients.

To be more explicit, BMED, AZM and BGN have a direct interest in including as many own funds as they can, and believe this is hardly compatible with a true independent advice.

Overall, in three cases out of four we were offered products costing 200bps or more, and with little adaption to our personal requirements. Some add-on services could have been added, but with additional costs on top. Only in the case of BG Solution of Banca Generali — and partially Azimut Max — did we find good balance between pricing (150bps all-in for a high-risk profile) and a personal approach.

Total expense ratio and estimated PBT margin of private banking solutions (hp. high-risk profile, c.€1m invested) Mediolanum P.B.

Fineco

Banca Generali P.B.

Azimut Wealth

Azimut Wealth Max

My Life

Advice

BG Solution

Managed Account

Commission (hp. high-risk, invest. c.€1m)

1.75%

1.35%

0.80%

1.50%

1.00%

Fees on underlying assets

0.83%

0.60%

0.60%

0.56%

0.59%

hp own funds

65%

0%

25%

60%

20%

Rebate

57%

0%

no rebate

70%

70%

2.20%

0%

0.60% (*)

1.80%

1.80%

35%

100%

75%

40%

80%

0.60%

0.60%

0.60%

0.60%

0.60%

hp cost on own funds hp third-party funds, ETFs, bonds hp cost of third-party products Performance fees

0.42%

0

0.13%

0.30%

0.10%

Total expense ratio to client

3.00%

1.95%

1.52%

2.36%

1.69%

Proposed remuneration on deposits

0.80%

0%

0%

0%

0%

Total expense ratio (incl. deposits)

2.20%

1.95%

1.52%

2.36%

1.69%

Payout to advisor/banker

25%

50%

30%

40%

40%

Remuneration to advisor/banker

0.44%

0.68%

0.24%

0.60%

0.40%

Net revenue margin

1.24%

0.68%

0.69%

1.20%

0.70%

50%

30%

40%

40%

40%

PBT margin on wealth management pdcts

0.62%

0.47%

0.41%

0.72%

0.42%

Group PBT margin 2017E

0.69%

0.53%

0.48%

0.68%

0.68%

hp. C/I ratio

(*) hp. Avg. management fee calculated on institutional classes of own funds and with a high-risk profile Source: Mediobanca Securities

23 January 2017 ◆ 4

Italian Asset Gatherers

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Conclusion #1: apart from few exceptions, this is not private banking To sum up, despite all Italian asset gatherers’ claims to offer a proper private banking business and/or wealth management service, we believe they don’t compete with traditional private banks – but we also believe they have no intention of doing so for the following reasons: a) Private banking is time consuming (highly tailor-made managed accounts require a substantial exchange of information between asset managers, private bankers and clients) and low margin (according to our estimates, the PBT margin of the private banking services of Italian asset gatherers is 2x the margin we calculate for Julius Baer, as an example). b)

The segment in which Italian asset gatherers can increase their share with the existing service is the €250k-€1m, as clients start to be sophisticated — but not enough to look for a highly tailor-made service or to require lower pricing. Therefore, adding services (e.g. corporate & business advisory, real estate, art advisory, legal & tax, fiduciary) via partnerships, and lowering the pricing of the already existing product offer is the most practical way to have a credible offer in this segment, without being too disruptive to existing core networks. Margins can also remain elevated enough not to dilute the current profitability of the entire business, and this a prerequisite for all four companies we cover.

c)

For clients with more than €1m, we see Azimut Max and BG Solution as the only services with an appealing proposition in terms of pricing, attention to personal requirements and the absence of conflicts of interest. To be more explicit, we struggle to see clients with a financial wealth equal or above €1m, available to pay +200bps for standard solutions.

Conclusion #2: a nice opportunity for smaller niche players in the €1-10m segment So, high pricing, standard products and a network of fee-based advisors is certainly a recipe for serving a wealthier segment compared to the existing one (average assets per client stands at (€52k for FBK, €76k for BMED, €174k for BGN, €222 for AZM), without radical and disruptive changes to the existing businesses. However, MiFid 2 will explicitly reveal to clients the overall costs in absolute terms, and this is likely to create some issues with the most expensive offers as their pricing might prove unsustainable. As such, we believe that some smaller niche players such as Banca Intermobiliare – BIM (not rated), Banca Profilo (not rated) and Banca Leonardo (not listed) – just to name a few – have the opportunity to serve clients looking for highly tailor-made asset allocations at a fair price and with no conflict of interest coming from the remuneration of the network, or obligation to offer products with a certain amount of own funds.

Rating changes: switch from BMED (downgraded to N) into BGN (upgraded to O/P, and new top pick in the space) In our initiation coverage on European Specialty Finance published 6 October 2016 (“Grasping opportunities in specialty finance”) we confirmed our preference for BMED in the asset gathering space and we put the stock in our selected list of European Specialty Finance names (together with Cerved, Banca Ifis and Beni Stabili). Admittedly, Banca Mediolanum robustly outperformed peers in 2016 (Azimut by 25%, Fineco by 24% and Banca Generali by 17%) and set off to a nice start this year with an 8% absolute performance to-date (as at 16 January 2017).

Banca Generali has become increasingly appealing to us as its 23% underperformance to BMED since the beginning of 2016 is now translating into an undeserved discount to BMED and the peer group.

As we outline in this note, we believe BGN is the company best equipped to serve HNWIs with a credible offer and likely to be a winner in a MiFid 2 environment.

For all the above-mentioned reasons, we upgrade the stock to OUTPERFORM and we include it among our top picks in our Italian Asset Gatherers and European Specialty Finance coverages. For the same reasons we downgrade Banca Mediolanum from OUTPERFORM to NEUTRAL simply as a profit taking call.

23 January 2017 ◆ 5

Italian Asset Gatherers

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Rosy prospects for global private banking...

Asia-Pacific surpassed North America for the first time in 2015 and became the region with the largest amount of HNWI wealth. Such a performance was possible thanks to the >9% pa growth reported over the past five years, which is remarkable, considering that 2015 was a year in which global HNWI wealth grew by just 4%, due to faltering growth in the Americas (+2% yoy in North America, due to declining equity markets in the final part of the year, and -2% in LatAm) and weak performances in the Middle East, due to commodity prices and in Africa owing to declining stock markets.

Interestingly, Europe emerged as the second-fastest-growing region, with approximately 5% growth yoy in HNWI wealth, thanks to a roughly 9% increase posted by Spain and an 8% yoy result for the Netherlands. France and Germany increased HNWI wealth by about 6%. Ultra-HNWI wealth grew by just 2.5%, dampened by LAtAm and ― in particular ― by a 6% decline in UHNWI wealth in Brazil reflecting political instability and equity market declines.

HNWI population, 2010-15 (by region, in millions) 16.0 12.0

10.9 12.0

11.0

10.0

0.1 0.5 0.4

0.1 0.5 0.5

8.0

3.1

3.2

0.1 0.5 0.5

0.2 0.5 0.6

0.1 0.5 0.6

3.4

3.4

3.3

3.4

4.2

4.0 3.8

3.4

4.8

4.7

4.3

6.0

15.4 0.2 0.5 0.6

14.6

13.7

14.0

HNWI wealth distribution, 2010-15 (by region, in USD tn)

3.7

4.0 2.0

3.7

5.1

4.7

4.3

0.0 2010 Asia-Pacific

2011 North America

2012 Europe

2013 Middle East

2014 Latin American

2015 Africa

Total

Source: Mediobanca Securities, Capagemini WWR 2016

Source: Mediobanca Securities, Capagemini WWR 2016

Excluding LatAm, Ultra-HNWI wealth growth would have more than doubled, to 5.3%, in 2015, the highest level of any segment. Asia-Pacific’s growth rate of 10.8% in this segment was the only one to reach double digits and was mostly driven by 17.6% and 13.2% increases of Ultra-HNWI wealth in China and Japan. These growth rates of Asia-Pacific Ultra-HNWI are more than double the rate of next-fastest Europe (4.8%), and significantly above that of North America, at 2.9%.

Composition of global HNWI population by wealth bands, 2015 Number of Individuals 2015 US$30m+Ultra-HNWI US$5-30m Mid-Tier Millionaires

HNWI Population

HNWI Wealth

% of HNWI

CAGR 2010-14 Growth 2014-15 CAGR 2010-14 Growth 2014-15 Wealth 2015

145K (0.9% of the tot)

7.9%

4.2%

6.1%

2.5%

34.1%

1,388K (9.0% of the tot)

7.8%

4.8%

7.8%

4.8%

22.5%

7.7%

4.9%

7.7%

4.9%

43.3%

US$1-5m Millionaires Next Door 13,831K (90.0% of the tot) Source: Mediobanca Securities, Capagemini Financial Analysis 2016

The outlook remains positive overall, with global HNWI wealth projected to exceed USD 100tn by 2025, nearly 3x the 2006 amount (vs USD 59tn in 2015).

23 January 2017 ◆ 6

Italian Asset Gatherers HNWI wealth results and projections, 2006, 2015, 2025E

CAGR 2006-2015 106.0

100

4.4 11.7

80

19.9 58.7

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60

1.4

2.3 7.4 37.2 1.4 5.1 10.1

40 20

11.2 8.4

0

2006 Asia-Pacific

0.9

2.3

25.7

2015-2025E

Global Africa Middle East Latin America

58% 55% 62% 44%

81% 66% 92% 57%

Europe

34%

46%

North America

48%

54%

Asia-Pacific

106%

13.6 16.6

42.1

17.4 2015

142%

2025E

North America Europe Latin America

Middle East

Africa

Global

Source: Mediobanca Securities, Capagemini Financial Analysis 2016

...but more can be done managing all clients’ wealth...

Wealth managers oversee less than one-third (32%) of global HNWI wealth, while primary wealth managers handle even less (21.8%). A large portion of the rest of HNWI is locked up in various illiquid assets, including real estate and businesses (either SMEs or corporate).

However, the greatest amount, one-third of the total, remains essentially liquid and thus potentially available to wealth managers. A significant amount (18.4%) is in retail bank accounts, while another sizeable amount (14.9%) is in physical cash.

Breakdown of HNWI investable wealth across entities 100% 90%

80% 70% 60% 50%

27.8% 10.8% 11.0%

24.4% 10.1% 10.3% 14.9%

40%

14.0%

30%

15.8%

18.4%

20.5%

21.8%

Euro pe

Glo bal

20% 10% 0% Primary wealth manager

Retail bank acco unt

Physical cash

Other wealth managers

Lo cked up in my business

Other wealth managers

Source: Mediobanca Securities, Capagemini Financial Analysis 2016

23 January 2017 â—† 7

Italian Asset Gatherers

...and younger HNWIs want to pay for performance Analysing the allocation of financial assets, equities and cash make up 48% of HNWI portfolios, with the allocation towards equities at approximately 25%.

Breakdown of HNWI financial assets 100% 13.5%

13.0%

15.7%

15.0%

16.4%

16.9%

10.0%

18.1%

18.7%

17.6%

17.9%

26.6%

25.6%

23.5%

24.8%

26.8%

24.8%

25.2%

Global 2014

Global 2015

Global 2016

Europe

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90% 80% 70% 60%

21.8%

50% 40%

19.9%

30% 20% 10% 0%

Equities

Cash and Cash Equivalents

Real Estate

Fixed Income

Alternative Investments

Source: Mediobanca Securities, Capagemini Financial Analysis 2016

Finally, an examination of investment allocations within the equity space shows that HNWIs are most likely to invest in individual stocks (38%), followed by mutual funds (31%) and ETFs (17%).

Direct investments in stocks are popular in Asia-Pacific (excluding Japan) (44%), and emerge second to mutual funds only in North America, the Middle East and Africa. ETFs are used most in Latin America, followed by Asia-Pacific (excluding Japan).

The most striking finding related to equity allocations is the propensity for younger HNWIs to invest in ETFs largely at the expense of mutual funds. Under-40 HNWIs invest twice the percentage of assets in ETFs compared to HNWIs over age 60 (20% vs 9.8%), while older HNWIs invest more in mutual funds (37.7%) as compared to under-40 HNWIs (27.5%). Over time, this tendency may have important implications for wealth management firms, forcing them to adapt their strategy and business mix.

Breakdown of HNWI equity allocation 100% 90% 80%

13.3%

13.8%

17.4%

14.9%

31.0%

32.8%

38.3%

38.4%

Global 2016

Europe

70% 60% 50% 40% 30% 20% 10% 0%

Individual Stocks

Mutual Funds

ETFs

Others

Source: Mediobanca Securities, Capagemini Financial Analysis 2016

23 January 2017 â—† 8

Italian Asset Gatherers

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Among factors mentioned in order to encourage HNWIs to allocate more of their total financial wealth to their primary wealth management provider, 27% consider investment returns to be the most important factor in their decision to consolidate assets with their primary wealth manager.

However, given the difficulty in guaranteeing returns, wealth management firms might focus on other aspects of the relationship, including lower overall fees (19%).

The fee model presents a significant challenge to firms and wealth managers, but also a potential opportunity for firms able to incorporate new models into their business. While most HNWIs (30%) currently pay a fee based on the percentage of assets under management, more are becoming attracted by the idea of paying according to investment performance. Paying for performance is considered ideal by 28% of respondents. According to the 2016 WWR, preference for the pay-forperformance model cut across almost all the wealth segments, and is especially popular among Ultra-HNWI. Such changes in HNWI preferences, along with regulatory pressures like the implementation of MiFID 2 in Europe at the beginning of 2018 which requires greater fee transparency, are likely to set off a wave of changes in fee structures.

Payment for wealth-related services, 1Q16 — current vs ideal Difference (p.p.)

-6.5

-1.4

-1.3

+10

-1.1

35.0% 30.0% 25.0%

30.1%

28.1% 23.6%

21.9%

20.5%

20.0%

18.0%

17.4%

16.1%

15.0%

12.7%

11.6%

10.0% 5.0%

0.0% Percentage of assets

Modular fee for service modules

Based on investment performance

Current

Fixed yearly fees

A combination of the above

Ideal

Source: WWR 2016

An example of what HNWI and UHNWI might look for comes from the hedge fund industry. As pointed out by the FT on 22 December 2016 “Hedge funds fees take a trim”, the sector is shifting from the traditional “2 and 20” fee structure (with the former representing the management fee as % of AuM and the latter being the percentage of performance retained by the fund manager as performance fee) to a “1 and 30” in order to lower the flat fee for investors but with incentives to generate better returns.

23 January 2017 ◆ 9

Italian Asset Gatherers Italian asset gatherers want to be there as well

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As previously stated, Europe emerged as the second-fastest-growing region, with approximately 5% growth yoy in HNWI wealth. Going forward, total assets in European private banking are seen growing by 46% over the next ten years, from the USD13.6tn at end-2015, to about USD 20tn at end of 2025.

Despite deep economic stagnation, the number of HNWIs grew by 4% in Italy in 2015 (from 219k to 229k, Source: 2016 World Wealth Report). According to MF based on Magstat research, the 253 operators devoted to HNWI in Italy (i.e. private banks and family offices) had total assets under management of €865bn at end of 2015 (906.6k clients equal to €955k/client), up 15% yoy from the €751bn reported in FY14. Equally, the sector reported an 11% CAGR in 2011-2015 considering the €578bn under management five years ago.

The sector remains quite concentrated as the top 5 players (Fideuram-Intesa Sanpaolo Private Banking with €139bn, Unicredit Private Banking - €134bn, UBI Private - €33bn, Banca Aletti - €33bn, BNL Bnp Paribas - €32bn) manage 43% of the total assets, up from 37% a year-ago. Adding the following five players (UBS Italy - €29bn, Deutsche Bank - €25bn, Banca Generali PB - €25bn, MPS Private Banking - €24bn, Fineco Wealth Management - €20bn), the overall share moves to 57%, or €494bn.

Italian private banking – private banks and family offices FY14

FY15

CHG yoy

Private banks (120) – assets (€ bn)

687.5

793.4

15.4%

% on total private wealth

91.5%

91.7%

of which domestic (96)

675.6

of which foreign (24)

117.8

# private bankers

14,491

# clients

889,930

Assets per banker (€mn)

54.8

Assets per client (€k)

892

# Clients/banker

61

# branches

2,395

Family offices (133) – assets (€ bn)

63.5

71.4

% on total private wealth

8.5%

8.3%

# family officers

582

# clients

16,700

Assets per family officer (€mn)

122.7

Assets per client (€k)

4,275

# Clients/family officer Total assets (€ bn)

12.5%

29 751.0

864.8

15.2%

Source: Mediobanca Securities, Milano Finanza on Magstat research

Magstat estimates a total potential market for private banking services of about €1.09bn, which implies some €225bn (or 21% of the total), not controlled yet by dedicated operators.

The sector seems to have nice fundamentals then, and this is confirmed by the increasing interest that the four listed Italian asset gatherers have shown in this business. As a matter of fact, all listed asset gatherers claim to have exposure to private banking alongside their mass/affluent positioning.

Banca Generali has private banking in its DNA, and the acquisitions of BSI Italy (2006), Banca del Gottardo (2008) and Credit Suisse Italy (2014) had the effect of reinforcing this footprint even more.

23 January 2017 ◆ 10

Italian Asset Gatherers Azimut and Mediolanum set-up their private banking divisions about 7-10 years ago, and now have a relevant presence in this space.

Azimut set-up its division Azimut Wealth Management in 2009 with 40 professionals in its start-up phase and aiming at reaching 200 bankers in its first three years since inception.

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Mediolanum built-up its private banking division in 2005, and it has today reached 450 bankers with approximately €32m average assets/each and managing more than €14bn in total assets.

Mediolanum organised more than 500 events dedicated to clients and prospects since inception.

Fineco doesn’t have a specific private banking division (we expect the company to announce more on this in the coming months) but advertises a service called “Fineco Wealth Advisors” with some specific services devoted to HNWI such as real estate advisory and generational change. It is worth mentioning that, for high-end clients, Fineco proposes managed accounts (GPM) under a fee-only service called Fineco Advice as a way to have a tailor-made service.

23 January 2017 ◆ 11

Italian Asset Gatherers Mystery shopping: testing companies in the field

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We tested the four companies in the field to directly assess products, services and pricing. Below we report what we have been offered, after presenting ourselves as prospective clients with assets in the €500k-€1m range. No mention was made of the purpose of the visit, and companies were not aware of our visit to their bankers/advisors.

Mediolanum Private Banking: insurance wrapper with remuneration on sight deposits During our visit to the head office of Mediolanum Private Banking in downtown Milan, via San Paolo, we were advised to invest in “My Life”, an insurance wrapper that combines the advantages of a Life insurance product with the flexibility of a wrapper (e.g. compensation of unrealised gains and losses). For amounts equal or higher than €1m, Mediolanum suggested investing in My Life Wealth, either with a single premium or via periodic premiums through Double Chance.

As far as the underlying assets are concerned, a minimum of 60% needs to be invested in Mediolanum’s OICR (Best Brands, Challenge Funds, Sistema Mediolanum Fondi Italia). A threshold of 50% is required for My Life Wealth.

Mediolanum also offered a positive remuneration on sight deposits depending on the customer segment. In more detail: -

Smart: 0.50% (gross), on a yearly basis for private clients (threshold is €200k for each individual, or €650k per household);

-

Privilege: 0.60% (gross, annual), for clients with overall assets below €2m and asset management between €100k-€499.9k);

-

Elite: 0.80% (gross, annual), for clients with more than €500k in asset management.

-

Black: 0.80% (gross, annual), for clients with total assets above €2m.

In terms of costs, My Life charges an entry fee which depends on the investment made (0.5% from €250k to €500k, 0.25% from €500k to €1m, 0% above €1m). It’s fair to say that bankers have some flexibility on the entry fees and, in our case, the 0.25% was moved to 0%.

As far as management fees are concerned, the product charges a recurring fee called “Commissione di salvaguardia e monitoraggio”. The base cost is 1.75% but, as in the case of entry fees, the fee can be lowered depending on the assets invested in the product. My Life Wealth foresees a lower fee of 1.25%, negotiable.

As mentioned previously, at least 60% of the investment has to be made in Mediolanum’s own funds (or funds of funds), with this level declining to 50% in the case of My Life Wealth (ie for amounts above €1m). The management fee charged on own products depends on the product chosen and its category, but we can assume it ranges between 0.5% for low-risk products to some 2.5% for riskier investments. The remaining 40% (or 50% in the case of My Life Wealth) can be invested in third party products.

Finally, the product charges performance fees on the portion represented by Mediolanum’s own products (about 60-65bps on average own AuM, as per historical trend).

Though difficult to estimate the overall TER of My Life and My Life Wealth, we guesstimate an overall cost to clients in the 300bps range per year for My Life (assuming no reduction in the 1.75% represented by the “Commissione di salvaguardia e monitoraggio”, a 60% exposure to high-risk equity products of BMED with crediting of the rebates, 40% in third-party risky products with institutional classes fees, and average performance fees of about 65bps for own funds), and in the 230bps range for My Life Wealth (assuming halving the 1.25% represented by the “Commissione di salvaguardia e monitoraggio”, a 50% exposure to mid-risk in-house products and 50% into mid-risk third party products, and average performance fees of about 50bps).

It must be borne in mind that clients receive a positive remuneration on deposits, and this might be considered as a reduction in the overall TER paid by clients on My Life. As a matter of fact, assuming a client falls in the “Black” category to invest €1m in deposits and €1m in My Life Wealth, his overall TER would reduce to about 150bps.

23 January 2017 ◆ 12

Italian Asset Gatherers

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Finally, My Life offers additional value-added services such as a term Life insurance (free) or a more structured insurance contract (to be paid on top). Also, there is an option to substitute (or to combine) the investment via a single premium with an accumulation plan (“Double Chance”), and/or a further option of adding a program called “Big Chance” (entailing the automatic switch from monetary/bond funds into equity/multi-assets on a predefined time horizon.)

Further services that may be added are the automatic “profit taking” (“Consolida i rendimenti”), that take profits on equity/multi-asset funds after a +5%/+10% performance, investing in monetary or bond funds. Also, that program might be bought in addition to “Reinvesti sui cali”, a service that reinvest sums previously switched into monetary and bond funds into equity/multi-asset funds after market corrections.

We also highlight the fiscal advantages of an insurance wrapper, including the taxation of the unrealized gains only when the insurance contract is liquidated, and the tax exemption for beneficiaries in the case of the death of the policyholder. Furthermore, beneficiaries other than the legal heirs can be named.

Fineco: Advice, the fee-only service for wealthy clients with no conflict of interest We visited a recently opened Fineco shop in downtown Milan, via Broletto, showing interest in investing some €500k-€1m in asset management products.

The financial advisor we spoke to suggested we sign an advisory-fee contract called Fineco Advice.

The service also allows the subscription of an additional service for the health-check of the investments held with Fineco and with other intermediaries (diagnostic check), and to define targets in terms of risk/reward and risk tolerance. Given primary (and secondary) targets, and the time horizon of the client, Advice allows the creation of one or more portfolios on the basis of the customer’s needs.

The fee-only service includes a periodic check on the portfolio with the chosen level of risk/reward, automatic alerts in case of deviation from objectives and immediate actions and corrections made together with the FA. The advisor properly described the absence of conflict of interest, as his remuneration is a function of the pre-defined advisory fee and not correlated to the products or the asset allocation of the portfolio.

To avoid the cumulating effect of the advisory fee and the management fees on the underlying products, Fineco credits clients with a rebate on the management fees from third parties to reduce the overall TER paid by clients. What is more, the company allows the construction of portfolios from more than 5.000 à la carte funds belonging to about 60 fund managers, in addition to about 1.000 ETFs and highly-rated bonds.

Advice offers a proprietary ranking algorithm that offers a classification on a 1-10 scale, alongside traditional Morningstar ratings. The combination of the two rating systems allows the advisor and the client to pick the best funds in terms of cost, standard deviation, Sharp Index, etc.

Fineco Advice offers 8 different profiles depending on the risk appetite of clients. The cost of Advice can range between about 0.35% up to a maximum of about 1.75% depending on the risk profile of the client. In our case, proposing an investment in the €500k to €1m range, and choosing one of the most aggressive investment strategies, we were quoted an advisory fee of 135bps. On top, Fineco charges the cost of the underlying assets, but discounts back 100% of the rebates obtained from third-party fund managers.

Overall, a simulation made on our investment in a high-risk profile of Fineco Advice led to an overall cost of 1.95%. We also asked for the option to include – instead of à la carte funds - Core Series, the funds of funds selected by Fineco. We asked for the inclusion of Core Series in our asset allocation to be able to benefit from the advantages offered by a wrapper product (e.g. compensation of gains/losses). In this case, the combination of Fineco Advice with Core Series would have led to an overall cost to us ranging between 200-210bps.

23 January 2017 ◆ 13

Italian Asset Gatherers

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Banca Generali: a tailor-made managed account, at a fair pricing We met a relationship manager of Banca Generali Private Banking in the Milan head office of Piazza Sant’Alessandro. It is worth mentioning that we met one of the 54 relationship managers that are employees of the company, therefore with no conflict of interest and having a fixed remuneration not linked to the fees charged to us. Equally, recall that there are about 366 private bankers with a fully commission-based remuneration scheme among the 420 professionals working at Banca Generali Private Banking.

The relationship manager suggested investing our financial assets (with an investment in a range of €500k-€1m) into BG Solution (a version called “BG Solution Top Client” is available for clients with assets exceeding €1m). He also mentioned “BG Stile Libero”, a solution similar to “BG Solution” and with insurance features. However, the relationship manager focused on the former product given our needs and the chance of limiting the overall costs for us using the asset management wrapper.

As far as costs are concerned, we have been quoted a cost of about 0.80-0.90%, depending on the amount effectively invested (0.90% for amounts closer to €0.5m, 0.80% for €1m). Within the managed account, the relationship manager proposed a personalised line of investment, reflecting our risk appetite. The “Allocation” component can be highly personalised, as the client can combine a “core” part (17 lines), with some tactical investments more focused on strategic themes (6 lines defined as “Satellite”). Five additional lines managed by third parties such as Anima and Tosetti are available too. The Allocation portion can add one or more lines of the “Picking” component (3 lines, Smart, Extra and Market) in order to increase even more the level of personalisation offered by the product (capped at a maximum 40% of total invested assets). Some additional services such as periodic divestment or pledge for Lombard lending can be added.

A portion of the managed account could have been kept free for trading purposes while still enjoying the fiscal advantages of having the entire position within the “wrapper”.

For an aggressive asset allocation reaching a 30% exposure to equities, and with some 20-30% invested in own funds (BG Selection and BG SICAV), the overall cost reached about 150bps (including the impact of performance fees on own mutual funds). It’s interesting to note that all funds included in our managed account were institutional classes.

Last but not least, the definition of the client’s risk appetite helps in defining the optimal asset allocation and volatility. The asset managers of BG PB propose an allocation that includes Government, Corporate bonds and funds. Any adjustment/fine-tuning to the proposed portfolio is possible in due course. Also, the RM was available to set-up a meeting with the asset manager responsible to explain our portfolio.

Technology is important for BG too, as a monthly monitoring is made, with corrections depending on deviation from the risk appetite and volatility targets. As mentioned, a portion devoted to tactical trading was possible too.

Azimut: combining a standard managed account with a more tailor-made portfolio We had the chance to meet two private bankers of Azimut Wealth in the headquarters at Via Cusani. For our profile, bankers suggested allocating some €500k in a managed account to be considered as the core part of our portfolio. For amounts of about €500k, Azimut proposes three management teams (14 different lines) with an increasing risk-profile (Stability, Equilibrium, Dynamic), and pricing ranging between 1.0% to 1.5%. Clients can chose a custodian bank from among Edmond de Rothschild, UBS, BNP Paribas and others. Within the mandate, the asset manager acts independently, and no interaction with clients is expected for investments remaining within the defined risk-profile.

For what concerns the remaining liquidity, a further €500k in our case, we were offered an advisory service called Azimut Max, in which the composition of the underlying assets could have been tailor-made using funds, bonds, ETFs, etc. The cost of Azimut Max was competitive and set at 100bps. According to what private bankers told us, no minimum of own mutual funds is required.

23 January 2017 ◆ 14

Italian Asset Gatherers The key takeaways of our analysis

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Our visit to the four companies left us with the following issues and open topics: 1) Private banking should target clients’ needs, not adviser’s portfolios We find it quite odd to see asset gatherers segmenting their networks into “private bankers” and “financial advisors” depending on the AuM/FA, rather than segmenting the service offered to clients on the basis of clients’ wealth and needs. In some cases, some high-end services available only to “private bankers” are not accessible to HNWI served by FAs, and this is a contradiction we see in the sector, probably due to the necessity of giving a priority to the roll-out of dedicated products/services.

Mediolanum defines private bankers as those advisors with portfolios above €25m/each (overall assets under management referred to Mediolanum Private at about €14bn). We understand the practical advantages of defining a specific threshold to cut-off the network, identifying the strongest contributors to the overall results of the company (private bankers at BMED are about 10% of the network but manage some 40% of total AuM). And, given the effort made in terms of training, such segmentation might help prioritise the resources of the Group. Admittedly, we recognise that the company is also providing a segmentation by client (Smart, Privilege, Elite, Black), depending on the assets (asset management and total assets) effectively held with the company.

A different approach is adopted by Fineco, which claims to have total financial assets pertaining to private clients of about €22.2bn. In this case, Fineco clusters clients on the basis of their wealth (private clients are those above €500k), and not on the size of the portfolio of an advisor. Fineco does not segment its network (FAs vs PBs), and all advisors sell the same products to any customer segment. In our experience, they tend to push Advice for HNWIs (a service that wouldn’t make much sense for retail clients), and pricing is inversely correlated to the wealth carried by the client. Because of its simplicity, we believe this is a coherent and consistent approach.

Banca Generali has a more fluid approach to the separation between advisors and private bankers.

In general, private bankers have portfolios that are 2x those of financial advisors (€40m per capita vs €20m for the FA network), and clients served by the private banking network have assets in excess of €500k. The company recently unveiled some data on the network and clients, saying that 83% of total assets (ie about €38bn) pertains to FAs with more than €15m/each (average portfolio of this sample is €36m/FA). For what concerns clients, 61% of total assets (ie €28bn) pertains to clients with more than €500k/each, leading to an overall average portfolio of €1.6m/client. To sum-up, either advisors or clients have a good chance of falling into the private banking category. But for attitude, personal preference or habit, they might prefer to remain in the advisors’ category.

Azimut hasn’t a formal cut-off between the two categories, though advisors belonging to the Azimut Wealth division are generally those with portfolios above €50m.

2) High quality add-on services are a commodity, there to create a liquidity event Three out of four companies (Fineco is joining the pack soon, in our view), are presenting their wealth management proposition leveraging on five different layers: a. Wealth planning: optimising the asset allocation and management of the personal relationship (e.g. family); b. Asset protection: generational succession, succession planning, assets’ protection; c. Corporate & Business Advisory: corporate finance, M&A, business development, ECM/DCM; d. Wealth advisory: tailor-made, highly specialised advice. Solutions for Art Advisory and Real Estate; e. Fiduciary services.

For all non-core activities such as real estate, corporate & business advisory, Art advisory, tax & legal advisory, companies signed partnership agreements with leading players in their related areas.

We believe those services have now become a prerequisite for any asset gatherer claiming to have a 23 January 2017 ◆ 15

Italian Asset Gatherers

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wealth management business. These services are therefore a commodity, necessary to create an advantage with prospective clients and - hopefully – able to generate income. To mention some of the few available data in this respect, since 1Q15 Banca Generali received 760 requests for highlevel real estate advisory, 70% from existing clients and 30% from prospective customers, for a theoretical counter value of about €2bn. As far as corporate finance is concerned, Banca Generali and its partners valued 150 companies for an overall theoretical valuation of €900m.

As previously stated, the theoretical counter value doesn’t have to generate a similar flow into own asset management products, but it helped to create an advantage with potential customers and to build a comprehensive suite of services that puts the advisor/banker in a position to assist clients for all the different needs they might have.

3) Where does asset gathering end and private banking start?

We see many different ways to define private banking. Fineco does not even have a private bank division (maybe also due to the presence of Unicredit Private Banking within Unicredit Group), but offers a service called “Wealth Advisor” for high-end clients. Wealth Advisor includes real estate advisory (estimate, historical yield, optimisation of the fiscal profile) and generational transition. In general, Fineco offers the same products distributed to the entire customer base, with “Fineco Advice” being the service specifically devoted to HNWI. In this respect we see consistency in the sense that the company does not segment the network but just clients, with an inverse correlation between assets under management and fees applied.

The same applies to Fineco’s peers, as demonstrated by the fact that BGN and BMED focus on Life insurance and asset management wrappers already offered to their FA networks though with different prices and different features. Azimut proposed a managed account that might equally have own funds or third-party products. Generally, the only discriminating factor in the offer to a client with €250k or a client with wealth up to one million euros (or more) is the pricing applied.

In the table below, we recap the four offers received, simulating the overall total expense ratio we would have been charged (commission on the product, plus fees on the underlying assets, plus performance fees on own funds). In the case of Mediolanum Private Banking, we gave full recognition to the possibility of receiving a positive remuneration on deposits and we assumed the investment of an equal amount of money in a current account.

We then deducted the remuneration of the advisor/banker in order to define a net revenue margin, and a proxy of the various cost/income ratios to reconcile the pre-tax profit margin generated by wealth management products. As summarized below, in all cases we see little deviation from the profitability generated by the wealth management solutions we were offered and the overall profitability of the Groups.

What should be noted though, is that the pre-tax profit margin simulated below and ranging between 40ps-60bps, is almost double the 26bps we estimate for Julius Baer in 2017E. To cut it short, asset gatherers’ offer in wealth management is hardly competitive with that of specialised players in private banking. However, they have little room for adopting a real proposition in private banking without diluting their margins. And, in this respect, we understand why they offer little difference between the service available for their FAs network on mass market/affluent clients, and that devoted to HNWIs.

23 January 2017 ◆ 16

Italian Asset Gatherers

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Total expense ratio and estimated PBT margin of private banking solutions (hp. high-risk profile, c.€1m invested) Mediolanum P.B.

Fineco

Banca Generali P.B.

Azimut Wealth

BG Solution

Azimut Wealth Managed Account

My Life

Advice

Commission (hp. high risk-profile, invest. c.€1m)

1.75%

1.35%

0.80%

1.50%

1.00%

Fees on underlying assets

0.83%

0.60%

0.60%

0.56%

0.59%

hp own fun

65%

0%

25%

60%

20%

Rebate

57%

0%

no rebate

70%

70%

2.20%

0%

0.60% (*)

1.80%

1.80%

hp cost on own funds hp third-party funds, ETFs, bonds

Max

35%

100%

75%

40%

80%

hp cost of third-party products

0.60%

0.60%

0.60%

0.60%

0.60%

Performance fees

0.42%

0

0.13%

0.30%

0.10%

Total expense ratio to client

3.00%

1.95%

1.52%

2.36%

1.69%

Proposed remuneration on deposits

0.80%

0%

0%

0%

0%

Total expense ratio (incl. deposits)

2.20%

1.95%

1.52%

2.36%

1.69%

25%

50%

30%

40%

40%

Remuneration to advisor/banker

0.44%

0.68%

0.24%

0.60%

0.40%

Net revenue margin

Payout to advisor/banker

1.24%

0.68%

0.69%

1.20%

0.70%

hp. C/I ratio

50%

30%

40%

40%

40%

PBT margin

0.62%

0.47%

0.41%

0.72%

0.42%

PBT margin 2017E

0.69%

0.53%

0.48%

0.68%

0.68%

(*) hp. Avg. management fee calculated on institutional classes of own funds and with a high-risk profile Source: Mediobanca Securities

4) Employees or fully commission based?

Another area where it’s difficult to find a common approach is on the remuneration scheme adopted by private banks. A recent analysis summarized by MF (please see “Cade il muro del wealth” from 24 December 2016), showed that out of 120 operators specialised in private banking, 70% are exclusively working with a full-time employee contract. Some 23% of the total is using either commissions-based advisors or employees (the biggest one being Fideuram Intesa Sanpaolo Private Banking). Finally, the remaining 7.5% of the total is represented by 9 operators using only private bankers fully remunerated via commissions.

Breakdown of private banks by type of contract of their network (based on 120 players) 90

84

80 70

60 50 40 27

30 20 9

10 0

Only commissions-based

Employees + Commissions based

Only employees

Source: MF on Magstat analysis

23 January 2017 ◆ 17

Italian Asset Gatherers

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The analysis shows that private bankers paid via a fully variable compensation scheme are the most dynamic. At end 2015, this category was represented by 8,104 bankers, managing more than €167bn, 21% of the total private market (excluding family offices). A fully variable compensation scheme pays-off as shown by the €5.8bn gathered by Fideuram-Intesa Sanpaolo Private Banking, €1.9bn by Azimut Wealth Management, €1.8bn by Banca Generali Private Banking and Finanza & Futuro with €1.6bn.

We think it’s misleading to say if it’s better to have a network fully made up of commission-based bankers or full-time employees, as this pretty much depends on the average size of bankers and clients. We believe the average size of clients (€892k/each) and bankers (€54.8m) suggest it is better to opt for a full variable compensation scheme to maximize the incentive to increase the share of wallet and to reward a more profitable asset allocation. Put another way, the remuneration of the banker is inversely correlated to the cash position of the client, something not necessarily true for employed bankers.

Equally, we believe employed bankers are eventually fit for structures more similar to family offices where the assets per banker are more than double (€122.7m/banker) and assets per clients are about 5x (€4.8m/client). In cases such as these, the request for different products with a more tailor-made approach (such as managed accounts) might be equally fit for an employed-kind of contract.

In the chart below we clustered into four different categories the different kind of service we see when it comes to wealth management. The first segment is that represented by Italian asset gatherers, and refers to advisors with portfolios in the €10m-€20m range and clients with assets per capita in the €50k-€250k range. This is certainly the segment in which asset management products and fully commission-based networks successfully cohabit.

We identified the area of interest of the private banking divisions of Italian asset gatherers in the segment in which advisors have portfolios in the €25m-€50m region, and clients have assets between €250k and €5m. Some exception could obviously occur in both dimensions, but we believe this remains a good proxy for identifying this segment. As in the case of asset gatherers, we believe the average asset per client is fit for an offer biased towards asset management, enriched via additional value added services. We see either a limited need here for tailor-made managed accounts (GPM) based on single stocks or bonds for the low-end of the range (ie clients with assets of about €250k), but also more sophisticated needs approaching the high-end of the range. For the two clusters identified in the chart below with the blue area, we believe a fully commission-based remuneration scheme makes sense, though the presence of relationship managers with a full-time employee contract (as in the case of Banca Generali) would be perfectly consistent (alongside the option of attracting more professionals used to dealing with a full-employee contract from the competition.)

As mentioned previously, family offices are typically controlling €100m/banker and €5m/client. In this specific range, managed accounts (GPM) are the preferred product, and bankers are typically employees. Given the dimension of operators, the service offered typically encompasses fiduciary mandates, corporate finance solutions, protection and real estate advisory.

When assets per banker exceed €200m and clients have financial assets in excess of +€10m, we identify “high-end” private banking. This is the natural playground of Swiss private banks.

Discretionary mandates, securities, FX and precious metal trading & advisory are relevant components in the customers’ offer. Also, the global franchise such banks offer allow clients to have access to different booking centres. In the latest two cases, identified in the yellow box below, we believe a network made up of employees is more appropriate, as it significantly reduces the conflict of interest between the client’s interest and the remuneration of the banker.

23 January 2017 ◆ 18

Italian Asset Gatherers Segmentation of service by assets per client and assets per banker/FA

€200m

High-end PB Family offices

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€100m

Avg. assets per banker

€ 60m PB divisions of ITA asset gath.

€ 20m

Asset gath.

€ 10m

<€1m

€5m

>€10m

Avg. assets per client Source: Mediobanca Securities

Therefore, the positioning of the “private banking” divisions of Italian asset gatherers has little in common with the service offered by family offices and top-end private banks. In this respect, leveraging on fully commissions-based networks is a solution that makes sense in order to maximise the returns of both the advisors and the companies without entering into a potential argument with wealthy clients over the alignment of their interests.

5)

Fee-only or commissions as percentage of NAV?

Another key (and long lasting) topic in the sector is certainly the opportunity to switch from a fee structure where clients pay fees calculated on the basis of a percentage applied to their assets, to a new scheme in which clients explicitly pay for advice (advisory fee).

The only company specifically offering an advisory fee contract is Fineco with Fineco Advice. All other companies offered an asset management or an insurance wrapper (e.g. BG Solution or My Life), or a managed account. In general, paying a management fee for a managed account in which the asset allocation is decided jointly with the banker is somewhat similar to paying an advisory fee, as the remuneration of the banker is a function of the predefined fee (call it advisory fee or management fee of the managed account), regardless of the underlying assets included in the product.

Therefore, the real conflict of interest doesn’t lie in the remuneration of the banker per sé. Rather, it lies in the percentage of own funds that the company is putting into a given managed account.

The higher the amount, the higher the TER and the fees for the company. The remuneration of the banker is neutral to this, as he is paid as a percentage of the management fee of the product (excluding the composition of the underlying assets).

To summarise: Fineco is already there and it’s currently the only company with an offer that eliminates any conflict of interest in the definition of the underlying assets. Azimut Max is an advisory service where the joint decision of the underlying assets to be put in the management account can help neutralise conflicts of interest. On the other hand, the wrappers of Banca Generali and Mediolanum, and the managed account of Azimut, do not cancel conflicts of interest, whenever the company has the discretion to include own products.

23 January 2017 ◆ 19

Italian Asset Gatherers

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Conclusion #1: this is not private banking To sum-up, despite all Italian asset gatherers’ claims to have proper private banking businesses and/or wealth management services, we believe they don’t compete with traditional private banks - and they have no intention of doing so — for the following reasons: a) Private banking is time consuming (highly tailor-made managed accounts require a substantial exchange of information between asset managers, private bankers and clients, while standardised investment lines offered in most cases by asset gatherers are not time consuming) and low margin (as mentioned, pre-tax profit margins of the private banking services of Italian asset gatherers are 2x the margin we calculate for Julius Baer, for example). b) The segment in which they can increase their share with the existing proposition is the €250k-€1m range, as clients start to be sophisticated, but not enough to look for a highly tailor-made service or to require much lower pricing. Therefore, adding services (corporate & business advisory, real estate, art advisory, legal & tax, fiduciary) and lowering the pricing is the most practical way to be credible in this segment (and try to capture part of that €225bn related to wealthy clients and not managed yet by specialized operators), without being too disruptive to existing core networks (for example, moving to flat private banking structures might help to cut override fees that might be passed through to clients in the form of lower fees). Though we believe this could make sense, we do not see this happening as it would reduce the fee income to the higher level of the hierarchy). Also, margins can remain elevated enough not to dilute the current profitability of the entire business. c) For clients with more than €1m, we see Azimut Max and to some extent BG Solution as the only services with an appealing offer in terms of pricing, degree of personalisation and the absence of conflicts of interest. To be more explicit, we struggle to see why clients with financial wealth above €1m, would pay +200bps for — in some cases — highly standard solutions.

Conclusion #2: a nice opportunity for niche players So, high pricing, standardised products and a network of fee-based advisors is certainly a recipe for serving a wealthier segment compared to the existing one - recall that average assets per client stands at €52k for FBK, €76k for BMED, €174k for BGN, €222k for AZM — without radical and disruptive changes to the existing businesses.

However, MiFid 2 will explicitly reveal to clients the overall costs in absolute terms, and this is likely to create some issues for the most expensive offers as their pricing might prove to be unsustainable. As such, we believe that some smaller niche players such as Banca Intermobiliare — BIM (not rated), Banca Profilo (not rated) and Banca Leonardo (not listed) — just to name a few — have an opportunity to serve clients with assets in the €1m-€10m range, clients that will be looking for highly tailor-made asset allocations at a fair pricing (managed accounts priced below 100bps) and with no conflict of interest coming from the remuneration of the network (relationship managers only), or obligation to subscribe a certain amount of own funds.

23 January 2017 ◆ 20

Italian Asset Gatherers Rating changes: switch from BMED (downgraded to N) into BGN (upgraded to O/P and new top pick)

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In our initiation coverage on European Specialty Finance published on 6 October 2016 (“Grasping opportunities in specialty finance”), we confirmed our preference for BMED in the asset gathering space and we put the stock in our selected list of European Specialty Finance names (together with Cerved, Banca Ifis and Beni Stabili). Admittedly, Banca Mediolanum robustly outperformed peers in 2016 (Azimut by 25%, Fineco by 24% and Banca Generali by 17%) and is off to a nice start this year with an 8% absolute performance to-date (as at 16 January 2017).

Italian asset gatherers – Share price performance in FY 2016 and ytd 15% 10%

10%

8%

5%

2%

2%

0% -5% -6% -10% -15% -20%

-25%

-23%

-30%

-35%

-30%

-31% Azimut Holding

Banca Generali

Absolute performance in 2016

Fineco

Mediolanum

Performance YTD

Note: Year-to-date data as at 16 January 2017 Source: Mediobanca Securities

As far as Azimut is concerned, we extensively flagged in previous notes our concerns related to scarce operating leverage due to extensive recruitment, and the need to rethink the entire exposure to performance fees that represent >90% of the estimated group profits in 2017E. The recent promising start to the year is mainly due, in our opinion, to expectations of an imminent announcement of a robust buyback program.

As far as Fineco is concerned, we remain convinced it has the best business models in the banking/asset gathering space, though we believe the attempted sale of the company has been a mistake as it had the effect of increasing investors’ focus on the valuation to be given to the UCG bonds present in the banking book. And this has now been translated into a discount that the market is applying to NII (or to the capital) unlikely to be eliminated anytime soon.

Banca Generali, by contrast, is becoming increasingly appealing to us as its 23% underperformance to BMED since the beginning of 2016 is now translating into an undeserved discount to BMED and to peers in general. As we explain in this note, we believe BGN is the company best equipped to serve HNWIs with a credible offer and likely to be a winner in a MiFid 2 environment.

For all the above mentioned reasons, we upgrade the stock to OUTPERFORM and we include it among our top picks in our Italian asset gatherers and European Specialty Finance coverages. We downgrade Banca Mediolanum from OUTPERFORM to NEUTRAL as a straightforward profit taking call.

As per the table below, the sector looks attractive trading at 12x 2018E headline profits.

23 January 2017 ◆ 21

Italian Asset Gatherers

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Italian asset gatherers/managers - Headline P/Es (on consolidated earnings) 2016E

2017E

2018E

2019E

Azimut

15.1

11.4

10.6

10.0

Banca Generali

18.0

14.2

12.0

10.3

Mediolanum

13.8

13.6

12.1

10.0

Fineco

16.6

15.6

14.1

11.9

Anima

12.6

12.1

12.0

11.9

AVG

15.2

13.4

12.1

10.8

Note: prices as at 20 January 2017 Source: Mediobanca Securities

In the following table, we made our usual adjustment of applying an 8x PE multiple to performance fees in order to assess the valuation applied by the market to recurring earnings.

The conclusion of our exercise is that the sector trades at an undemanding (median) valuation of 14x on recurring earnings, with Banca Generali and Fineco being the cheapest (if we exclude Anima that deserves a discount to asset gatherers owning their distribution network).

Italian asset gatherers/managers - P/Es on recurring earnings (assuming 8x to perf.fees) 2016E

2017E

2018E

2019E

Azimut

44.6

38.2

30.8

27.9

Banca Generali

24.7

18.3

14.4

11.5

Mediolanum

24.7

19.9

16.2

11.6

Fineco

16.6

15.6

14.1

11.9

Anima

12.7

12.4

12.3

12.3

AVG

26.0

20.9

17.6

15.0

Median

24.7

18.3

14.4

11.9

Note: prices as at 16 January 2017 Source: Mediobanca Securities

23 January 2017 â&#x2014;&#x2020; 22

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Italian Asset Gatherers

Company Sectioon

*Prices as of 22nd January 2017

23 January 2017 â&#x2014;&#x2020; 23

Azimut Holding 23 January 2017

Price: € 17.58

Asset Gatherers

Update Neutral

Target price: € 19.40

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€200m buyback expected shortly

Gian Luca Ferrari Equity Analyst +39 02 8829 482

Healthy performance to-date: expectations for a sizeable buyback mounting After a largely weak performance in FY 2016, the year started well with a 10% absolute performance to-date. We put this down to expectations of a robust buyback program to be announced soon (we guestimate the announcement during the presentation of FY 2016 results at the beginning of March, or even before that). According to the NFP at 9M16, the company had €496m gross cash and €246m debt, leading to an overall NFP of €249m. This excluded the cash out of €133m dividends paid on 23 November, and it does not take into account the earnings generated in the period. As such, we expect the overall gross cash to be comfortably above €400m at year-end, which leaves us confident that a €200m buyback is doable (vs our previous forecast of €150m). A €200m buyback would correspond to 8% of the current market cap and to the purchase of 11m shares at current prices. Also, the upcoming buyback of the outstanding convertible bond and its replacement with a senior note will unlock further treasury shares worth 7.3% of the share capital. All-in-all, Azimut might be in a position to cancel 15% of its share count in the medium term.

Next event: FY 2016 results to be released on March, 9 We expect management fees of €528m in 2016, up 9% compared with the previous year. Annualised average management fees should come in at 155bps, on our estimates, down from the 166bps reported in FY15, owing to a higher volatility in 2016 and the rapid development of the wealth management business that might have marginally diluted margins.

We estimate performance fees of €123m (down from the €158m reported in 2015), corresponding to 36bps on an annualised basis (vs. an historical average of 48bps).

We forecast total operating costs to be up 17% yoy, as a result of a 14% increase in distribution expenses (we forecast a 58% pay-out/pay-in, calculated excluding performance fees) and a 23% increase in personnel and G&A costs.

We estimate operating profit of €208m in 2016, 26% down from the €280m reported the previous year (implied EBIT margin estimated at 29%, vs. 40% in 2015), and we estimate profit before tax of €192m. We forecast a bottom line of €179m before participation capital, and €152m thereafter. We expect the distribution of a €1.0 DPS.

Gianluca.Ferrari@mediobanca.com

2015 2016E 2017E 2018E EPS Adj (€)

1.58

1.14

1.52

1.52

DPS (€)

1.50

1.00

1.30

1.50

BVPS (€)

5.39

5.04

5.56

5.89

EV/Ebitda(x)

11.4

11.5

8.5

7.9

P/E adj (x)

15.8

16.6

12.5

11.6

Div.Yield(%)

6.5

5.7

7.4

8.5

OpFCF Yield (%)

Market Data Market Cap (€m)

2,518

Shares Out (m)

143

Timone Fiduciaria (%)

13%

Free Float (%)

12% upside despite buyback and treasury shares in our numbers: NEUTRAL We are increasing the size of the buyback in our model from €150m to €200m. As far as the 7.3% treasury shares are concerned, we were already deducting them for the total share count (for EPS and for valuation purposes) given the deeply out of the money option, thus making the possibility of converting the bond into shares fairly remote. Also, we marginally updated our estimates following the disclosure of total assets at 2016 year-end. The overall result is a 5% increase in our 2017E EPS, while 2018E has been left unchanged. Following our revised estimates and the increased size of the buyback, we are increasing our target price from €18.0 to €19.5. Given the limited upside potential (12% at the current price), we retain our NEUTRAL rating on the stock.

52 week range (€)

75% 22.10-12.83

Rel Perf vs STOXX EUROPE 600 BANKS E (%) -1m

9.4%

-3m

-0.5%

-12m 21dd Avg. Vol. Reuters/Bloomberg

-16.9% 1,491,013 AZMT.MI / AZM IM

Source: Mediobanca Securities

IMPORTANT DISCLOSURE FOR U.S. INVESTORS: This document is prepared by Mediobanca Securities, the equity research department of Mediobanca S.p.A. (parent company of Mediobanca Securities USA LLC (“MBUSA”)) and it is distributed in the United States by MBUSA which accepts responsibility for its content. The research analyst(s) named on this report are not registered / qualified as research analysts with Finra. Any US person receiving this document and wishing to effect transactions in any securities discussed herein should do so with MBUSA, not Mediobanca S.p.A.. Please refer to the last pages of this document for important disclaimers.

Azimut Holding Price: € 17.58

Neutral

Target price: € 19.40

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Valuation Matrix Profit & Loss account (€ m) 2015 Net Interest Income 0.0 Net fee and commission income 416.8 Net trading income 0.0 Other income 13.6 Total Income 283.2 Growth (%) 48.2% Total Costs -136.9 Growth (%) 48.2% of which Personnel Costs -125.8 Net Operating Income 279.9 Growth (%) 48.2% Provisions & Write-downs na EBITDA 291.0 EBITDA margin (%) 102.7% EBITDA growth (%) 42.7% Depreciation & Amortization 0.0 EBIT 279.9 Exceptional Items -5.1 Tax -28.2 Tax rate(%) 10.3% Minorities -2.6 Discontinued businesses na Net profit 210.3 Growth (%) 170.3% Adjusted net profit 210.3 Growth (%) 170.3%

2016E 0.0 374.4 0.0 -1.9 197.5 -30.3% -166.8 -30.3% -154.8 207.6 -30.3% na 219.6 111.2% -24.5% 0.0 207.6 -5.5 -9.6 4.7% -3.3 na 152.2 -27.6% 152.2 -27.6%

2017E 0.0 467.3 0.0 -2.2 274.7 39.1% -182.2 39.1% -170.2 285.0 39.1% na 297.0 108.1% 35.3% 0.0 285.0 -5.5 -26.9 9.6% -4.3 na 202.2 32.9% 202.2 32.9%

2018E 0.0 505.4 0.0 -2.0 295.9 7.7% -199.3 7.7% -187.3 306.2 7.7% na 318.2 107.5% 7.1% 0.0 306.2 -5.5 -29.0 9.7% -5.6 na 217.4 7.5% 217.4 7.5%

Balance Sheet (€ m) Customer Loans net Growth(%) Customer Deposits Growth(%) Shareholders' Funds Intangibles Minorities Total Assets

2015 0.0 na na na 676.5 422.0 8.8 5,523.8

2016E 0.0 na na na 693.2 449.5 12.0 6,370.5

2017E 0.0 na na na 704.3 449.5 15.9 6,384.2

2018E 0.0 na na na 761.2 449.5 20.8 6,393.3

2015 31,201 16.9% 6,667 1,574 19.8 36,681

2016E 36,669 17.5% 6,530 1,624 22.6 44,473

2017E 40,466 10.4% 6,000 1,674 24.2 50,824

2018E 44,293 9.5% 6,000 1,724 25.7 57,221

Customer Funds (€ m) Assets Under Management Growth(%) Total Net New Money CRMs AuM/CRMs Total Assets Under Custody

Multiples P/E Adj. P/E P/CEPS P/TBV P/FCF P/Total Deposits (%) P/AUM (%) EV/Revenues EV/EBITDA EV/EBIT EV/Cap. Employed Yield (%)

2015 11.1 10.9 12.0 9.4 11.2 na 8.1% 11.7 11.4 11.9 0.5 8.5%

2016E 15.4 14.8 16.6 11.5 15.0 na 6.9% 12.8 11.5 12.1 0.4 5.7%

2017E 11.6 11.3 12.5 8.7 11.4 na 6.2% 9.2 8.5 8.8 0.4 7.4%

2018E 11.6 10.5 11.6 7.5 10.1 na 5.7% 8.5 7.9 8.2 0.4 8.5%

Per Share Data (€) EPS Adj. EPS Adj. growth (%) EPS EPS growth (%) TBVPS DPS Ord

2015 1.58 nm 1.62 nm 1.86 1.50

2016E 1.14 -27.6% 1.19 -26.8% 1.54 1.00

2017E 1.52 32.9% 1.56 31.7% 2.02 1.30

2018E 1.52 -0.3% 1.68 7.3% 2.33 1.50

Key Figures & Ratios Avg. N° of Shares (m) EoP N° of Shares (m) Avg. Market Cap. (m)

2015 143 143 3,318

2016E 143 143 2,520

2017E 143 143 2,520

2018E 143 143 2,520

0.0% 100.0% 0.0%

0.0% 100.0% 0.0%

0.0% 100.0% 0.0%

0.0% 100.0% 0.0%

48.3% 44.4%

84.5% 78.4%

66.4% 62.0%

67.3% 63.3%

na na

na na

na na

na na

99.8% 31.1% 82.6% 3.81% na

90.9% 22.0% 62.4% 2.39% na

89.7% 28.7% 79.4% 3.17% na

96.5% 28.6% 69.8% 3.40% na

na

na

na

na

NII/Total Income (%) Fees/Total Income (%) Trading/Total Income (%) Cost Income ratio Compensation ratio NPLs ratio Provisions/Loans Dividend Payout (%) ROE (%) ROTE (%) ROA (%) Basel III Core Tier 1 ratio Tier I ratio (%)

Source: Mediobanca Securities

19/01/17

23.0 22.0 21.0 20.0

19.0 18.0 17.0 16.0 15.0 14.0 13.0 12.0

J

F

M

A

M

Azimut Holding

J

J

A

S

O

N

D

STOXX EUROPE 600 BANKS E

Source: Mediobanca Securities

23 January 2017 ◆ 25

Banca Generali 23 January 2017

Price: € 23.57

Asset Gatherers

Change in Recommendation

Target price: € 30.00

Outperform (from Neutral)

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The best value proposition in private banking

Gian Luca Ferrari Equity Analyst +39 02 8829 482

FoF and Life traditional replaced by tailor made managed accounts The reason why we had a NEUTRAL rating on Banca Generali until now was mainly for the excessive use of expensive funds of funds or low margin (but easy to sell, especially in a zero yield environment) Life traditional policies. The reason why we are getting more constructive now is because we see a clear U-turn in the quality of inflows, with asset management taking the lion’s share over the past two quarters (71% of total inflows in 3Q16 and 61% in 4Q, vs 35% in 2Q). Equally, within asset management, 90% and 94% of the flows went in wrappers such as BG Solution and BG Stile Libero in 3Q and 4Q, with the complement being represented by the straight sale of own funds and funds of funds (BG Selection and BG Sicav). As far as traditional Life policies are concerned, these products channeled 40% of total flows 1Q16. They now represent about half of that percentage on quarterly flows (23% in 3Q, 13% in 4Q). As we show in this report, wrappers are certainly less rich than a fund of funds, but also more profitable than Life traditional. All in all, we expect margins to be little affected by this change in the mix, but the overall perceived quality of the entire offer has certainly received a boost (and the customer experience we had during our mystery shopping exercise is tangible proof of this).

Next event: FY 2016 results to be released on February, 10 We estimate NII at €59m in 2016, down 11% yoy, and net commissions to be down 16% yoy, at €312m, owing mainly to the weak contribution in performance fees last year (€68m compared with €127m reported in 2015). Management fees should register a 7% increase yoy, at €493m, on our estimates.

We estimate total income at €405m and operating profit at €216m, down 13% and 26%, respectively. We forecast a cost/income ratio of 54%, vs. 50% in 2015.

Below the operating line, we forecast €2m of impairment loans and €33m of net provisions for risks and charges. Finally, we estimate a bottom line of €152m, down 25% compared with the €203m reported in 2015. We expect the company to announce the distribution of a €1.0 DPS. Top quality deserves a premium: upgrade to O/P and inclusion in selected list Our conclusion is that Banca Generali currently offers the most appealing profile in terms of sustainability (especially in a MiFid 2 environment), exposure to regulatory risk and relative valuation. As largely elaborated in this note, the company offers a true customer experience for affluent/private clients, and it’s able to properly cover clients in the €250k-€5m with a service competitive with the best competition (including the Swiss). We believe the company might consider opening a Swiss branch in view of the fact that Switzerland is currently putting in place the automatic exchange of fiscal information (SAI) in preparation for the exchange of information with other countries that will start January 2018 due to the inclusion of the country in the White list. From a valuation perspective, we made little change to our above-consensus estimates, while we largely lowered the CoE applied to the company (from 9.60% to 7.60%) to reflect the removal of our concerns and, instead, to reflect a well-deserved premium we believe the stock needs. Our target price has been increased from €20 to €30/share and, given the 26% upside potential, the rating has been moved to OUTPERFORM. Banca Generali is currently the only asset gatherer we rate with an OUTPERFORM and replaces Banca Mediolanum in our European Specialty Finance selected list.

Gianluca.Ferrari@mediobanca.com

2015 2016E 2017E 2018E EPS Adj (€)

1.77

1.31

1.65

1.95

DPS (€)

1.20

1.00

1.20

1.37

BVPS (€)

5.53

5.60

6.26

7.02

EV/Ebitda(x)

12.6

9.3

12.4

10.2

P/E adj (x)

15.9

18.0

14.3

12.1

Div.Yield(%)

4.3

4.2

5.1

5.8

OpFCF Yield (%)

Market Data Market Cap (€m)

2,624

Shares Out (m)

111

Generali (%)

51%

Free Float (%) 52 week range (€)

49% 26.46-16.02

Rel Perf vs STOXX EUROPE 600 BANKS E (%) -1m -3m -12m 21dd Avg. Vol. Reuters/Bloomberg

1.9% 7.2% -17.6% 309,034 BGN.MI / BGN IM

Source: Mediobanca Securities

IMPORTANT DISCLOSURE FOR U.S. INVESTORS: This document is prepared by Mediobanca Securities, the equity research department of Mediobanca S.p.A. (parent company of Mediobanca Securities USA LLC (“MBUSA”)) and it is distributed in the United States by MBUSA which accepts responsibility for its content. The research analyst(s) named on this report are not registered / qualified as research analysts with Finra. Any US person receiving this document and wishing to effect transactions in any securities discussed herein should do so with MBUSA, not Mediobanca S.p.A.. Please refer to the last pages of this document for important disclaimers.

Banca Generali Price: € 23.57

Target price: € 30.00

Outperform (from Neutral)

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Valuation Matrix Profit & Loss account (€ m) Net Interest Income Net fee and commission income Net trading income Other income Total Income Growth (%) Total Costs Growth (%) of which Personnel Costs Net Operating Income Growth (%) Provisions & Write-downs EBITDA EBITDA margin (%) EBITDA growth (%) Depreciation & Amortization EBIT Exceptional Items Tax Tax rate(%) Minorities Discontinued businesses Net profit Growth (%) Adjusted net profit Growth (%)

Balance Sheet (€ m) Customer Loans net Growth(%) Customer Deposits Growth(%) Shareholders' Funds Intangibles Minorities Total Assets

Customer Funds (€ m) Assets Under Management Growth(%) Total Net New Money CRMs AuM/CRMs Total Assets Under Custody Source: Mediobanca Securities

2015 66.2 370.8 28.9 44.7 510.6 10.9% -220.3 10.9% -80.9 290.4 10.9% -6.5 257.8 50.5% 15.3% 0.0 202.2 na -34.7 14.6% 0.0 na 203.6 26.5% 203.6 26.5%

2016E 59.1 311.6 34.0 42.0 446.7 -12.5% -230.6 -12.5% -86.2 216.1 -12.5% -2.0 295.7 66.2% 14.7% 0.0 238.3 na -29.0 16.0% 0.0 na 152.1 -25.3% 152.1 -25.3%

2017E 61.0 374.9 25.0 43.0 503.9 12.8% -240.5 12.8% -90.5 263.4 12.8% -2.0 221.4 43.9% -25.1% 0.0 181.1 na -39.3 17.0% 0.0 na 192.1 26.3% 192.1 26.3%

2018E 63.9 424.0 25.0 43.0 555.9 10.3% -250.8 10.3% -95.0 305.1 10.3% -2.0 268.7 48.3% 21.4% 0.0 231.4 na -46.4 17.0% 0.0 na 227.7 18.5% 226.7 18.0%

2015 1,858.5 14.2% 4,839.6 12.9% 586.6 93.5 0.0 6,129.0

2016E 2,072.0 11.5% 6,549.6 35.3% 643.7 91.0 0.0 7,118.2

2017E 2,372.0 14.5% 7,549.6 15.3% 688.6 86.7 0.0 8,767.6

2018E 2,672.0 12.6% 8,549.6 13.2% 770.8 82.4 0.0 10,062.1

2015 31,700 13.5% 4,640 1,603 19.8 41,600

2016E 35,857 13.1% 5,677 1,653 21.7 47,426

2017E 41,005 14.4% 5,000 1,703 24.1 54,036

2018E 46,317 13.0% 5,000 1,753 26.4 60,870

Multiples P/E Adj. P/E P/CEPS P/TBV P/FCF P/Total Deposits (%) P/AUM (%) EV/Revenues EV/EBITDA EV/EBIT EV/Cap. Employed Yield (%)

2015 13.3 13.3 13.3 5.0 10.8 59.5% 8.6% 6.3 12.6 16.0 3.5 5.1%

2016E 17.9 17.9 18.0 4.9 13.9 47.0% 7.6% 6.1 9.3 11.5 2.8 4.2%

2017E 14.3 14.3 14.3 4.3 12.3 36.9% 6.7% 5.4 12.4 15.1 2.6 5.1%

2018E 12.1 12.0 12.0 3.7 11.4 31.8% 5.9% 4.9 10.2 11.8 2.4 5.8%

Per Share Data (€) EPS Adj. EPS Adj. growth (%) EPS EPS growth (%) TBVPS DPS Ord

2015 1.77 24.4% 1.77 24.4% 4.72 1.20

2016E 1.31 -25.6% 1.31 -25.6% 4.84 1.00

2017E 1.65 25.8% 1.65 25.8% 5.53 1.20

2018E 1.95 18.0% 1.96 18.5% 6.33 1.37

Key Figures & Ratios Avg. N° of Shares (m) EoP N° of Shares (m) Avg. Market Cap. (m)

2015 115 115 3,238

2016E 116 116 2,737

2017E 116 116 2,737

2018E 116 116 2,737

NII/Total Income (%) Fees/Total Income (%) Trading/Total Income (%)

13.0% 72.6% 5.7%

13.2% 69.8% 7.6%

12.1% 74.4% 5.0%

11.5% 76.3% 4.5%

Cost Income ratio Compensation ratio

43.1% 15.9%

51.6% 19.3%

47.7% 18.0%

45.1% 17.1%

na na

na na

na na

na na

Dividend Payout (%) ROE (%) ROTE (%) ROA (%) Basel III Core Tier 1 ratio

67.9% 34.7% 41.3% 3.32% 14.3%

76.0% 23.6% 27.5% 2.14% 14.1%

72.6% 27.9% 31.9% 2.19% 16.0%

70.0% 29.5% 33.1% 2.26% 18.0%

Tier I ratio (%)

15.9%

15.6%

17.4%

19.4%

NPLs ratio Provisions/Loans

19/01/17

28.0

26.0 24.0 22.0 20.0 18.0 16.0

J

F

M

A

M

Banca Generali

J

J

A

S

O

N

D

STOXX EUROPE 600 BANKS E

Source: Mediobanca Securities

23 January 2017 ◆ 27

Banca Mediolanum 23 January 2017 Price: € 6.65

Asset Gatherers

Change in Recommendation

Target price: € 8.20

Neutral (from Outperform)

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Raising profile in wealth management

Gian Luca Ferrari Equity Analyst +39 02 8829 482

Recent event focused on reinforcing wealth management solutions A few days ago we attended the Northern Italian stop of the Mediolanum Tour, an event organised by the management of the company with its network of advisors and private bankers. A half-day was specifically dedicated to Mediolanum Private Banking, with the launch of a new asset management wrapper named “My Style”. The reason why Mediolanum keeps pushing on the affluent segment is straightforward: wealthy clients accounted for just €0.73bn in 2008, but now have €6bn with the company. And even though numbers are still low to have relevance from a statistical standpoint, clients with more than €10m increased by 130% in 2016 vs 13, while clients in the €2m-€10m range increased by 82%. As a reference, mass market clients in the €15k-€100k range increased by 9% over the same period. In parallel, family bankers are raising the bar as 58% of them have portfolios above €10m (vs 40% in 2013). Rich clients are, therefore, the category growing the most and now contribute significantly to the overall flows (clients above €1m made 36% of total flows and 33% of inflows into asset management last year) despite being marginal in terms of units.

Next event: FY 2016 results to be released on 18 February On revenues, we estimate €802m in management fees (domestic), up 4% yoy. We forecast €221m in performance fees (vs €306m reported in 2015). Bank margin is expected to be down 9% compared to 2015 and mainly attributable to a portfolio of Italian Government bonds worth €3bn that expired in 4Q last year. On costs, we project personnel and G&A to be up 4% yoy, while we forecast a reduction in acquisition costs (-6% yoy, at €474m), owing mainly to lower entry fees (€63m, vs. €88m in 2015). We forecast operating profit of €390m, down 23% on the previous year. We estimate net income from the domestic business at €367m, down 14% yoy, and group net income of €394m (down 10% yoy). As far as dividends are concerned, we estimate a balance dividend of €16c on 2016A results, to which we add €4c as part of the capital gain (and capital relief) from the sale of Banca Esperia. We expect another part of the capital relief to be distributed in due course during the year, and very likely with the payment of the interim dividend on 2017E results (i.e. in November).

Amazing outperformance to peers: time for a break. Downgrade to Neutral As shown in the note, Banca Mediolanum robustly outperformed peers in 2016 (Azimut by 25%, Fineco by 24% and Banca Generali by 17%) and set off to a nice start this year with an 8% absolute performance to-date (as at 16 January 2017).

The stock is not expensive trading at 12x 2018E consolidated earnings, but it comes out as more expensive than Banca Generali once applying a 8x PE multiple to performance fees (16x on 2018E recurring earnings vs 14x at BGN).

We have marginally fine-tuned estimates, rolling over valuation to 2018E. As a consequence, we have increased our valuation on the stock from €7.5 to €8.2 per share. Given the limited 11% upside potential from here, and the robust outperformance to peers marked in 2016 and in 2017-to-date, we downgrade the stock to NEUTRAL and we suggest switching into BGN.

Gianluca.Ferrari@mediobanca.com

2015 2016E 2017E 2018E EPS Adj (€)

0.60

0.54

0.54

0.61

DPS (€)

0.30

0.32

0.34

0.36

BVPS (€)

2.54

2.74

2.93

3.17

EV/Ebitda(x)

8.6

9.8

9.5

8.5

P/E adj (x)

12.0

12.4

12.2

10.8

Div.Yield(%)

4.2

4.8

5.1

5.4

OpFCF Yield (%)

Market Data Market Cap (€m)

4,880

Shares Out (m)

734

Fam.Doris (%)

41%

Free Float (%) 52 week range (€)

30% 7.00-5.32

Rel Perf vs STOXX EUROPE 600 BANKS E (%) -1m

1.2%

-3m

-15.2%

-12m

0.3%

21dd Avg. Vol. Reuters/Bloomberg

BMED.MI / BMED IM

Source: Mediobanca Securities

IMPORTANT DISCLOSURE FOR U.S. INVESTORS: This document is prepared by Mediobanca Securities, the equity research department of Mediobanca S.p.A. (parent company of Mediobanca Securities USA LLC (“MBUSA”)) and it is distributed in the United States by MBUSA which accepts responsibility for its content. The research analyst(s) named on this report are not registered / qualified as research analysts with Finra. Any US person receiving this document and wishing to effect transactions in any securities discussed herein should do so with MBUSA, not Mediobanca S.p.A.. Please refer to the last pages of this document for important disclaimers.

Banca Mediolanum Price: € 6.65

Target price: € 8.20

Neutral (from Outperform)

Unauthorized redistribution of this report is prohibited. This report is intended for Gianluca Ferrari

Valuation Matrix Profit & Loss account (€ m) 2015 Net Interest Income 299.5 Net fee and commission income 701.0 Net trading income 0.0 Other income na Total Income 1,000.5 Growth (%) 30.4% Total Costs -519.3 Growth (%) 30.4% of which Personnel Costs na Net Operating Income 509.5 Growth (%) 30.4% Provisions & Write-downs na EBITDA 614.3 EBITDA margin (%) 61.4% EBITDA growth (%) 25.9% Depreciation & Amortization na EBIT 546.1 Exceptional Items na Tax -120.5 Tax rate(%) 22.1% Minorities 0.0 Discontinued businesses na Net profit 438.6 Growth (%) 36.7% Adjusted net profit 438.6 Growth (%) 36.7%

Balance Sheet (€ m) Customer Loans net Growth(%) Customer Deposits Growth(%) Shareholders' Funds Intangibles Minorities Total Assets

2016E 271.2 644.6 0.0 na 915.7 -8.5% -540.8 -8.5% na 390.4 -8.5% na 498.3 54.4% -18.9% na 426.1 na -59.7 14.0% 0.0 na 394.3 -10.1% 394.3 -10.1%

2017E 252.8 682.9 0.0 na 935.7 2.2% -554.9 2.2% na 397.9 2.2% na 515.4 55.1% 3.4% na 443.2 na -70.9 16.0% 0.0 na 398.9 1.2% 398.9 1.2%

2018E 244.5 764.3 0.0 na 1,008.8 7.8% -569.4 7.8% na 458.3 7.8% na 575.5 57.0% 11.7% na 503.4 na -80.5 16.0% 0.0 na 450.1 12.9% 450.1 12.9%

2015 4,386.9 -0.1% 12,854.8 13.0% 1,866.2 193.8 0.0 44,710.2

2016E 4,388.6 0.0% 14,783.0 15.0% 2,012.5 193.8 0.0 50,020.9

2017E 4,387.8 0.0% 16,704.8 13.0% 2,150.0 193.8 0.0 49,746.7

2018E 4,388.2 0.0% 18,876.4 13.0% 2,323.4 193.8 0.0 49,523.2

2015 54,702 9.7% 4,663 4,675 11.7 70,682

2016E 55,730 1.9% 5,610 4,816 11.6 74,528

2017E 60,697 8.9% 5,428 4,960 12.2 81,485

2018E 66,169 9.0% 6,073 5,109 13.0 89,200

Customer Funds (€ m) Assets Under Management Growth(%) Total Net New Money CRMs AuM/CRMs Total Assets Under Custody Source: Mediobanca Securities

Multiples P/E Adj. P/E P/CEPS P/TBV P/FCF P/Total Deposits (%) P/AUM (%) EV/Revenues EV/EBITDA EV/EBIT EV/Cap. Employed Yield (%)

2015 11.1 11.1 11.1 2.9 na 38.0% 8.9% 5.3 8.6 9.7 7.9 4.5%

2016E 12.4 12.4 12.4 2.7 na 33.0% 8.8% 5.3 9.8 11.5 10.9 4.8%

2017E 12.2 12.2 12.2 2.5 na 29.2% 8.0% 5.2 9.5 11.0 10.8 5.1%

2018E 10.8 10.8 10.8 2.3 na 25.8% 7.4% 4.8 8.5 9.7 10.7 5.4%

Per Share Data (€) EPS Adj. EPS Adj. growth (%) EPS EPS growth (%) TBVPS DPS Ord

2015 0.60 36.9% 0.60 36.9% 2.28 0.30

2016E 0.54 -10.1% 0.54 -10.1% 2.48 0.32

2017E 0.54 1.2% 0.54 1.2% 2.67 0.34

2018E 0.61 12.9% 0.61 12.9% 2.90 0.36

Key Figures & Ratios Avg. N° of Shares (m) EoP N° of Shares (m) Avg. Market Cap. (m)

2015 734 734 5,276

2016E 734 734 4,880

2017E 734 734 4,880

2018E 734 734 4,880

100.0% 234.1% 0.0%

100.0% 237.7% 0.0%

100.0% 270.1% 0.0%

100.0% 312.6% 0.0%

51.9% na

59.1% na

59.3% na

56.4% na

na na

na na

na na

na na

Dividend Payout (%) ROE (%) ROTE (%) ROA (%) Basel III Core Tier 1 ratio

50.2% 23.5% 26.2% 0.98% 19.7%

59.6% 19.6% 21.7% 0.79% 20.6%

62.5% 18.6% 20.4% 0.80% 21.1%

58.7% 19.4% 21.1% 0.91% 21.9%

Tier I ratio (%)

19.7%

20.6%

21.1%

21.9%

NII/Total Income (%) Fees/Total Income (%) Trading/Total Income (%) Cost Income ratio Compensation ratio NPLs ratio Provisions/Loans

18/01/17

7.20 7.00

6.80 6.60 6.40 6.20 6.00 5.80 5.60

5.40 5.20

J

F Banca Mediolanum

M STOXX EUROPE 600 BANKS E

Source: Mediobanca Securities

23 January 2017 ◆ 29

Fineco Bank 23 January 2017

Price: € 5.57

Asset Gatherers

Update Neutral

Target price: € 6.00

Unauthorized redistribution of this report is prohibited. This report is intended for Gianluca Ferrari

Ready to launch its WM proposition

Gian Luca Ferrari Equity Analyst +39 02 8829 482

A new project on wealth management due to be presented shortly As extensively elaborated in this note, Fineco is the only company not separating financial advisors from private bankers, and not having a proper private banking (or wealth management) division. We believe this makes perfect sense, as good products offered for affluent clients are perfectly fit also for clients in the €250k-€1m range (at a lower pricing of course). And our exercise demonstrated that competitors – with some exceptions – don’t really have a private banking proposition to address the €1-10m segment. However, Fineco keeps flagging the importance of clients with financial wealth >500k (that reached €22.2bn out of total financial assets of €60.2bn), and we guess it’s probably the fastest growing segment for the company. As per recent statements from the management, we expect the company to come up with a more comprehensive proposition to serve private clients in the next few weeks.

Next event: FY 2016 results to be released on February, 7 We estimate total income of €560m for 2016, up 3% vs 2015. In more detail, we expect the net interest margin to come in at €284m, up 1% yoy. We estimate net commissions of €246m, down 1% yoy, and trading income of €66m, up 30% versus the same period last year.

At the operating profit level, we estimate €330m (up 6% yoy). Below the operating profit line, we forecast a €16m negative impact from net provisions for risks and charges and €5.5m for loan-loss provisions.

The above-mentioned items should lead to net income of €205m in the 2016, 7% above 2015.

Assuming the company confirms its 80% dividend payout, we expect management to announce the distribution of a €27c DPS, equivalent to 4.9% yield at current price.

No need to issue an AT1 (so far) is the good news. NEUTRAL confirmed Investors’ focus in the fourth quarter last year has entirely been on potential regulatory changes that might have led to the inclusion of UCG bonds in the calculation of the leverage ratio (currently excluded) thus pushing the ratio below the 3% Basel 3 requirement. That event would have triggered the need to issue an AT1 with a double digit dilution to EPS (despite the coupon, it would have been accounted for directly in the balance sheet). Luckily enough, no regulatory changes occurred. However, we still see a big focus on valuation, and on the real earnings’ power of the company in a scenario in which the company exits from UCG’s perimeter. Along these lines, we updated estimates and rolled over valuation to 2018E, but still normalising NII in a “outside UCG perimeter” context. The overall result is a valuation increasing from €5.7 to €6.0. Given the limited 7% upside ahead, we keep our NEUTRAL rating unchanged.

Gianluca.Ferrari@mediobanca.com

2015 2016E 2017E 2018E EPS Adj (€)

0.32

0.35

0.36

0.40

DPS (€)

0.26

0.27

0.29

0.32

BVPS (€)

1.04

1.12

1.21

1.32

EV/Ebitda(x)

12.3

10.0

9.5

8.7

P/E adj (x)

20.5

16.1

15.5

14.1

Div.Yield(%)

3.9

4.8

5.2

5.7

OpFCF Yield (%)

Market Data Market Cap (€m)

3,377

Shares Out (m)

606

Unicredit (%)

35%

Free Float (%) 52 week range (€)

45% 7.40-4.62

Rel Perf vs STOXX EUROPE 600 BANKS E (%) -1m

3.2%

-3m

-8.8%

-12m 21dd Avg. Vol. Reuters/Bloomberg

-28.2% 2,584,161 FBK.MI / FBK IM

Source: Mediobanca Securities

IMPORTANT DISCLOSURE FOR U.S. INVESTORS: This document is prepared by Mediobanca Securities, the equity research department of Mediobanca S.p.A. (parent company of Mediobanca Securities USA LLC (“MBUSA”)) and it is distributed in the United States by MBUSA which accepts responsibility for its content. The research analyst(s) named on this report are not registered / qualified as research analysts with Finra. Any US person receiving this document and wishing to effect transactions in any securities discussed herein should do so with MBUSA, not Mediobanca S.p.A.. Please refer to the last pages of this document for important disclaimers.

Fineco Bank Price: € 5.57

Neutral

Target price: € 6.00

Unauthorized redistribution of this report is prohibited. This report is intended for Gianluca Ferrari

Valuation Matrix Profit & Loss account (€ m) Net Interest Income Net fee and commission income Net trading income Other income Total Income Growth (%) Total Costs Growth (%) of which Personnel Costs Net Operating Income Growth (%) Provisions & Write-downs EBITDA EBITDA margin (%) EBITDA growth (%) Depreciation & Amortization EBIT Exceptional Items Tax Tax rate(%) Minorities Discontinued businesses Net profit Growth (%) Adjusted net profit Growth (%)

Balance Sheet (€ m) Customer Loans net Growth(%) Customer Deposits Growth(%) Shareholders' Funds Intangibles Minorities Total Assets

Customer Funds (€ m) Assets Under Management Growth(%) Total Net New Money CRMs AuM/CRMs Total Assets Under Custody Source: Mediobanca Securities

2015 245.2 248.2 50.9 na 544.3 21.5% -232.5 21.5% -75.0 311.7 21.5% -6.7 320.7 58.9% 29.4% 0.0 229.7 na -97.0 33.5% 0.0 na 191.1 27.4% 192.3 28.3%

2016E 248.4 245.7 66.0 na 560.1 2.9% -230.6 2.9% -75.0 329.5 2.9% -5.5 339.5 60.6% 5.9% 0.0 288.1 na -98.5 32.0% 0.0 na 204.6 7.1% 209.6 9.0%

2017E 261.5 276.9 47.0 na 585.4 4.5% -238.8 4.5% -78.1 346.6 4.5% -7.0 356.6 60.9% 5.0% 0.0 303.0 na -102.6 32.0% 0.0 na 218.0 6.6% 218.0 4.0%

2018E 267.7 312.5 47.0 na 627.1 7.1% -247.3 7.1% -81.2 379.8 7.1% -7.0 389.8 62.2% 9.3% 0.0 320.6 na -113.2 32.0% 0.0 na 240.6 10.4% 240.6 10.4%

2015 809.2 21.1% 15,822.5 13.7% 592.5 89.6 0.0 17,546.3

2016E 1,015.1 25.4% 18,730.5 18.4% 657.6 89.6 0.0 19,784.1

2017E 1,550.3 52.7% 20,230.5 8.0% 709.7 89.6 0.0 22,383.2

2018E 2,491.5 60.7% 21,730.5 7.4% 770.0 89.6 0.0 24,655.1

2015 26,277 11.2% 5,490 2,622 10.0 55,327

2016E 28,611 8.9% 5,037 2,722 10.5 60,211

2017E 31,253 9.2% 4,500 2,822 11.1 65,136

2018E 35,315 13.0% 4,500 2,922 12.1 71,170

Multiples P/E Adj. P/E P/CEPS P/TBV P/FCF P/Total Deposits (%) P/AUM (%) EV/Revenues EV/EBITDA EV/EBIT EV/Cap. Employed Yield (%)

2015 17.6 17.7 17.7 6.2 21.5 22.7% 12.9% 7.2 12.3 17.1 3.8 4.6%

2016E 16.1 16.5 16.5 5.7 17.2 19.6% 11.8% 6.0 10.0 11.7 3.2 4.8%

2017E 15.5 15.5 15.5 5.2 27.6 17.4% 10.8% 5.8 9.5 11.2 1.8 5.2%

2018E 14.1 14.1 14.1 4.7 21.6 16.1% 9.6% 5.4 8.7 10.6 1.3 5.7%

Per Share Data (€) EPS Adj. EPS Adj. growth (%) EPS EPS growth (%) TBVPS DPS Ord

2015 0.32 28.2% 0.31 27.3% 0.89 0.26

2016E 0.35 8.9% 0.34 7.0% 0.98 0.27

2017E 0.36 4.0% 0.36 6.6% 1.07 0.29

2018E 0.40 10.4% 0.40 10.4% 1.17 0.32

Key Figures & Ratios Avg. N° of Shares (m) EoP N° of Shares (m) Avg. Market Cap. (m)

2015 607 607 3,934

2016E 607 607 3,383

2017E 607 607 3,383

2018E 607 607 3,383

NII/Total Income (%) Fees/Total Income (%) Trading/Total Income (%)

45.0% 45.6% 9.4%

44.3% 43.9% 11.8%

44.7% 47.3% 8.0%

42.7% 49.8% 7.5%

Cost Income ratio Compensation ratio

42.7% 13.8%

41.2% 13.4%

40.8% 13.3%

39.4% 12.9%

na na

na na

na na

na na

Dividend Payout (%) ROE (%) ROTE (%) ROA (%) Basel III Core Tier 1 ratio

81.0% 32.2% 38.0% 1.09% 21.4%

80.0% 31.1% 36.0% 1.03% 22.5%

80.0% 30.7% 35.2% 0.97% 23.6%

80.0% 31.2% 35.4% 0.98% 24.7%

Tier I ratio (%)

21.4%

22.5%

23.6%

24.7%

NPLs ratio Provisions/Loans

19/01/17

8.00 7.50 7.00 6.50 6.00

5.50 5.00 4.50 4.00

J

F

M

A

M

Fineco Bank

J

J

A

S

O

N

D

STOXX EUROPE 600 BANKS E

Source: Mediobanca Securities

23 January 2017 ◆ 31

Fineco Bank Disclaimer Price: € 5.57

Target price: € 6.00

Neutral

GENERAL DISCLOSURES

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23 January 2017 ◆ 32

Fineco Bank Disclaimer Price: € 5.57

Neutral

Target price: € 6.00

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Unauthorized redistribution of this report is prohibited. This report is intended for Gianluca Ferrari

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Not Rated (NR). Currently the analyst does not have adequate confidence about the stock’s total return relative to the average total return of the analyst’s industry (or industry team’s) coverage, on a risk-adjusted basis, over the next 6-12 months. Alternatively, it is applicable pursuant to Mediobanca policy in circumstances when Mediobanca is acting in any advisory capacity in a strategic transaction involving this company or when the company is the target of a tender offer.

Our recommendation relies upon the expected relative performance of the stock considered versus its benchmark. Such an expected relative performance relies upon a valuation process that is based on the analysis of the company's business model / competitive positioning / financial forecasts. The company's valuation could change in the future as a consequence of a modification of the mentioned items.

Please consider that the above rating system also drives the portfolio selections of the Mediobanca's analysts as follows: long positions can only apply to stocks rated Outperform and Neutral; short positions can only apply to stocks rated Underperform and Neutral; portfolios selection cannot refer to Not Rated stocks; Mediobanca portfolios might follow different time horizons.

Proportion of all recommendations relating to the last quarter Outperform

Neutral

Underperform

Not Rated

46.59%

38.35%

14.12%

0.94%

Proportion of issuers to which Mediobanca S.p.A. has supplied material investment banking services relating to the last quarter: Outperform

Neutral

Underperform

Not Rated

64.29%

56.06%

43.48%

75.00%

The current stock ratings system has been used since 1 July 2013. Before then, Mediobanca S.p.A. used a different system, based on the following ratings: outperform, neutral, underperform, under review, not rated. For additional details about the old ratings system, please access research reports dated before 1 July 2013 from the restricted part of the “MB Securities” section of the Mediobanca S.p.A. website at www.mediobanca.com.

23 January 2017 ◆ 33

Fineco Bank Disclaimer Disclaimer Price: € 5.57

Target price: € 6.00

Neutral

COMPANY SPECIFIC REGULATORY DISCLOSURES

Unauthorized redistribution of this report is prohibited. This report is intended for Gianluca Ferrari

MARKET MAKER Mediobanca S.p.A. is currently acting as market maker on equity instruments, or derivatives whose underlying financial instruments are materially represented by equity instruments, issued by the following companies: Azimut Holding, Banca Mediolanum, Fineco Bank.

ISSUER SIGNIFICANT FINANCIAL INTERESTS ON MEDIOBANCA S.P.A. The following companies own 3% or more of common equity securities of the securities in Mediobanca S.p.A.: Banca Mediolanum. Please consult the Consob website for details.

INVESTMENT AND ANCILLARY SERVICES In the last 12 months, Mediobanca S.p.A. or one or more of the companies belonging to its group has entered into agreements to deliver investment and ancillary services to the following companies Azimut Holding, Banca Generali, Fineco Bank or one or more of the companies belonging to their group.

RATING The present rating in regard to Azimut Holding has not been changed since 06/05/2016. In the past 12 months, the rating on Azimut Holding has been changed. The previous rating, issued on 02/02/2015, was Outperform. The present rating in regard to Banca Generali has not been changed since 23/01/2017. In the past 12 months, the rating on Banca Generali has been changed. The previous rating, issued on 25/03/2013, was Neutral. The present rating in regard to Banca Mediolanum has not been changed since 23/01/2017. In the past 12 months, the rating on Banca Mediolanum has been changed. The previous rating, issued on 02/02/2015, was Outperform. The present rating in regard to Fineco Bank has not been changed since 06/10/2016. In the past 12 months, the rating on Fineco Bank has been changed. The previous rating, issued on 06/08/2014, was Outperform.

INITIAL COVERAGE Azimut Holding initial coverage as of 01/08/2005.Banca Generali initial coverage as of 17/01/2007.Banca Mediolanum initial coverage as of 19/03/2003.Fineco Bank initial coverage as of 06/08/2014.

COPYRIGHT NOTICE No part of the content of any research material may be copied, forwarded or duplicated in any form or by any means without the prior consent of Mediobanca S.p.A., and Mediobanca S.p.A. accepts no liability whatsoever for the actions of third parties in this respect.

END NOTES The disclosures contained in research reports produced by Mediobanca S.p.A. shall be governed by and construed in accordance with Italian law.

Additional information is available upon request.

The list of all recommendations disseminated in the last 12 months by Mediobanca's analysts is available here Date of report production: 19 January 2017 - 16:20

23 January 2017 ◆ 34

Fineco Bank Price: € 5.57

Neutral

Target price: € 6.00

Mediobanca S.p.A. Antonio Guglielmi - Head of European Equity Research +44 203 0369 570 antonio.guglielmi@mediobanca.com

ANALYSTS European Banks Adam Terelak

France/IBK

+44 203 0369 574

adam.terelak@mediobanca.com

Andrea Filtri

Spain/Italy

+44 203 0369 571

andrea.filtri@mediobanca.com

Riccardo Rovere

Italy/Scandinavia/CEE/Germany

+39 02 8829 604

riccardo.rovere@mediobanca.com

Robin van den Broek

Benelux

+44 203 0369 672

robin.vandenbroek@mediobanca.com

Gian Luca Ferrari

Global multi-liners/Italy/Asset Gatherers

+39 02 8829 482

gianluca.ferrari@mediobanca.com

Robin van den Broek

Benelux

+44 203 0369 672

robin.vandenbroek@mediobanca.com

Vinit Malhotra

Global multi-liners/Reinsurers

+44 203 0369 585

vinit.malhotra@mediobanca.com

Javier Suárez

Italy/Spain

+39 028829 036

javier.suarez@mediobanca.com

Jean Farah

France/Germany

+44 203 0369 665

jean.farah @mediobanca.com

Sara Piccinini

Italy/Spain/Portugal

+39 02 8829 295

sara.piccinini@mediobanca.com

Alessandro Pozzi

Oil & Oil Related

+44 203 0369 617

alessandro.pozzi@mediobanca.com

Alessandro Tortora

Building Materials/Industrials/Capital Goods

+39 02 8829 673

alessandro.tortora@mediobanca.com

Andrea Filtri

Banks

+44 203 0369 571

andrea.filtri@mediobanca.com

Chiara Rotelli

Branded Goods/Consumers Goods

+39 02 8829 931

chiara.rotelli@mediobanca.com

Fabio Pavan

Media/Telecommunications/Consumer Goods

+39 02 8829 633

fabio.pavan@mediobanca.com

Gian Luca Ferrari

Global multi-liners/Italy/Asset Gatherers

+39 02 8829 482

gianluca.ferrari@mediobanca.com

Javier Suárez

Utilities

+39 028829 036

javier.suarez@mediobanca.com

Massimo Vecchio

Auto & Auto Components/Industrials/Holdings

+39 02 8829 541

massimo.vecchio@mediobanca.com

Niccolò Storer

Auto & Auto Components/Industrials/Holdings

+39 02 8829 444

niccolo.storer@mediobanca.com

Nicolò Pessina

Consumer Goods/Infrastructure

+39 02 8829 796

nicolo.pessina@mediobanca.com

Riccardo Rovere

Banks

+39 02 8829 604

riccardo.rovere@mediobanca.com

Sara Piccinini

Utilities

+39 02 8829 295

sara.piccinini@mediobanca.com

Simonetta Chiriotti

Real Estate/ Financial Services/Banks

+39 02 8829 933

simonetta.chiriotti@mediobanca.com

Unauthorized redistribution of this report is prohibited. This report is intended for Gianluca Ferrari

European Insurance

European Utilities & Infrastructures

Italian Research

FOR NON US PERSON receiving this document and wishing to effect transactions in any securities discussed herein, please contact:

Mediobanca S.p.A. Carlo Pirri - Head of Equity Sales +44 203 0369 531 carlo.pirri@mediobanca.com

SALES Angelo Vietri

+39 02 8829 989

angelo.vietri@mediobanca.com

Christopher Seidenfaden

+44 203 0369 610

christopher.seidenfaden@mediobanca.com

Lorenzo Angeloni

+39 02 8829 507

lorenzo.angeloni@mediobanca.com

Matteo Agrati

+44 203 0369 629

matteo.agrati@mediobanca.com

Nahid Iqbal

+44 203 0369 597

nahid.iqbal@mediobanca.com

Pierandrea Perrone

+39 02 8829 572

pierandrea.perrone@mediobanca.com

Timothy Pedroni

+44 203 0369 635

timothy.pedroni@mediobanca.com

Stephane Langlois

+44 203 0369 582

stephane.langlois@mediobanca.com

European Spec Sales Carlo Pirri

Banks/Insurance

+44 203 0369 531

carlo.pirri@mediobanca.com

Alan Davies

Banks/Insurance

+44 203 0369 510

alan.davies@mediobanca.com

Colin Hector

Banks/Insurance

+44 203 0369 687

colin.hector@mediobanca.com

SALES/TRADERS

Mediobanca S.p.A. Cedric Hanisch - Head of Equity Trading and Sales Trading +44 203 0369 584 cedric.hanisch@mediobanca.com

Andrew Westoby

+44 203 0369 513

andrew.westoby@mediobanca.com

Michael Sherry

+44 203 0369 605

michael.sherry@mediobanca.com

Roberto Riboldi

+39 02 8829 639

roberto.riboldi@mediobanca.com

FOR US PERSON receiving this document and wishing to effect transactions in any securities discussed herein, please contact:

Mediobanca Securities USA LLC Pierluigi Gastone - Head of Mediobanca Securities USA LLC +1 212 991 4745 pierluigi.gastone@mediobanca.com Massimiliano Pula

+1 646 839 4911

massimiliano.pula@mediobanca.com

Robert Perez

+1 646 839 4910

robert.perez@mediobanca.com

MEDIOBANCA – Banca di Credito Finanziario S.p.A. Piazzetta Enrico Cuccia, 1 - 20121 Milano - T. +39 02 8829.1 62 Buckingham Gate, London SW1E 6AJ – T. +44 (0) 203 0369 530

23 January 2017 ◆ 35