Good afternoon. This is the Carrefco conference operator. Welcome and thank you for joining the Banco BPM 9 Months 2020 Results Conference Call. As a reminder, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions.
Conference call. At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.
Thank you very much, everybody. Thank you for having us with us tonight for the presentation of and the Q3 results. As usual, before leaving the floor to Mr. Castagna for the presentation and then up to you for the Q and A, Let me remind that the presentation you can find on our website on Investor Relations page and the Q and A section is reserved for financial analysts. Thank you very much.
I'll leave the field to Mr. Castagna.
Good evening, everybody. Thank you for being with us this evening. I will try to be as much quick as possible in order to give you time to make your Q and A section. So starting on Page 5, we want to highlight the very resilient and the part of recovery, which is characterizing our 1st 9 months, particularly significant in a difficult environment like the one we are still involved with the COVID-nineteen trade.
As a matter of
fact, Q3 was very good in terms of core revenues, 9.5% Q on Q, further reduction in cost minus 5.2 percent Q on Q. Healthy buildup in pre provision income, which is not only is 44% better than Q2, But it's also better, 6% relating to 9 months 2019, which, as you know, was a very good year for us. On top of that, I would like to stress that we decided, as we anticipated in Q2, A FAD reduction of NPE through disposal. We have managed to close deal for 2 deals actually for $1,200,000,000 of total consideration of which $1,000,000 of UTP and €200,000,000 of leasing backed loans. The total derisking consideration since the start of our merger is now at 21,400,000,000 and I remind that all this is done without any capital increase, any request of capital from the market.
The cost of risk is confirmed at 100 basis points as a guidance for 2020, including the extraordinary transaction we are mentioning. On top of that, we have reserved some slides for giving you and hint about how we are dealing in order to strengthen the intangible credit management on the moratoria and also on the total loan portfolio in these difficult times. Last remarks on the capital position. As you can see, already considering the Q4 headwind that we expect in the next quarter, We have pro form a common equity Tier 1 fully loaded at 13.6%, which is 13.1% without the headwinds. On Page 6, a quick reminder about the technical operational solution we adopted in order to minimize the impact of This period and preserving the commercial effectiveness vis a vis customer, we enhanced all our digital effort in order to empower the omni channel approach.
I will give you some details later on. As much as we were very careful in terms of caring of our employees and clients in order to minimize the impact of the COVID, utilizing, of course, smart working up to 8,000 people with a shift of branch presence adopted during the COVID and the reduction of physical presence both in head office and in headquarter. On top of that, of course, we are now fully provided with masks, plexiglass, gloves and in order to allow our colleagues to perform at every day on their duties. Also in terms of cyber, we were very active in order to check carefully all the asset, also the device we allow to our customer, our colleagues to use by during smart working. And we have nowadays fully deployed all the tools needed in order to perform correctly also in smart working with our clients.
On Page 7, Some numbers about the commercial effort we have done, which we feel will help us also to face this 2nd wave of COVID. As you can see on all the digital banking figures, we are registering double figure increase year on year mobile transaction, which we mean only mobile and tablets, is up 62%. The user of app clients using app are up 35%. Online transaction are up 23%. And so almost the same also with digital sales and order executed via web.
All in all, considering households, we increased the utilization of direct banking came from 77% of last year to 84% of September 20. This allow us also in terms of commercial volumes to rebound in Q3 visavis all the main figure of our activity. Investment product placement went up again to $3,200,000,000 from $2,400,000,000 last quarter. The new lending is €7,900,000,000 visavis €6,900,000,000 in Q2 and especially with the moratoria measure guaranteed by the state, which went up $5,200,000,000 in Q3 visavis 1,900,000,000 in Q2. Let me give some further indication about these measures on Page 8.
As you can see, we had 9.5 €1,000,000,000 of request for lending assisted by public guarantees in June. This increased to €12,000,000,000 in September. Now we are up in October to €13,000,000,000 Of the €12,000,000,000 in September, €7,100,000,000 were already granted to our client, €4,900,000,000 are of course in our pipeline, €3,500,000,000 of this preapproved by the credits and €1,400,000,000 is under approval because of recent request from our clients. The distinction of this €12,000,000,000 between 100% guaranteed below €30,000 of loans Is a total consideration of €1,400,000,000 Meanwhile, the SMEs lending guaranteed from 70% to 90%, announced to a total of 10,600,000,000 of which EUR 6,000,000,000 already granted EUR 4,700,000,000 still to be provided. Also in terms of moratorium, we are basically of which EUR 12,000,000,000 from state moratoria and EUR 3,400,000 of Italian Banking association kind of moratoria.
Also in October, this figure is stable. Let me spend some words about how do we see this situation because of the many concern we hear about the potential disruptive effect of the hand of moratoria. Let's say that thanks to our geography, there is a first consideration, very important in our view, which is the difference between the market share of moratorium measures and the market share of public guaranteed issued visavisournaturalmarketshare. As you can see, due to our geography, we are very much involved in new lending with public guarantee, in which we have a market share of 11% of €105,000,000,000 of total loans granted by the Italian Banking System. We have again EUR 12,000,000,000 Meanwhile, Out of the €300,000,000,000 of monetoria, we have a stake of only 5%, which is the €15,000,000,000 15.5 billion I mentioned before.
This means, in my opinion, that the quality of our kind of client due to the very much developed and manufacturing in our region is much more addressed to state guarantee loan rather than to moratoria. I will say that, also the moratoria are quite safe in our opinion because of the distribution of loans under moratorium by rating class at September still amount at a very comfortable 77% in the low medium risk class of rating. Meanwhile, we have 13% of mid di risk and only 10% of high risk client. If we extrapolate the client in these two category, which also are in the more exposed selected sector potentially highly potentially impacted by COVID. We have at risk €400,000,000 in the mid di risk client and €300,000,000 in the high risk client.
I will explain what how we are dealing with this client in the next page. Another very consistent figure, which I think can give you an idea of the liquidity that our clients are getting from these measures is the increase in deposit from our non financial corporates. As you can see, this kind of clients in March stand at €25,600,000,000 of deposit. Meanwhile, in October, they increased over 28% up to almost $33,000,000,000 which is usually $7,500,000 more. This means that, Of course, the most of the loans we have granted are still there in the current account of our client and they are taking in full consideration all the installment of the moratoria that are going to expire in the next months in order to comply with this maturity.
Let's also say that almost EUR 2,000,000,000 of this increase in deposit come from the same client who apply for moratoria. Meanwhile, the other 5,000,000,000 comes from the other client, mostly the one who applied for the new loan guaranteed. Some few hint about what we are doing in order to monitor and check continuously declined to apply for moratoria. First of all, out of the €12,000,000,000 who applied for the government moratoria, We extrapolated more risky portfolio, the one we were mentioning before, which amount to EUR 2.7 €1,000,000,000. We are selecting and contacting the almost 9,000 clients pertaining to this category.
In order to ask each of them the current liquidity situation, The potential need for any further measure in order to comply with the moratorium and so on. Up to now, we have contacted, received answer by almost 20%, 22% of our client in this cluster, 70% of them, they don't need anything further in order to comply with the installment that are going to mature in the next months. So the perception is that only a few parts of this will be engaged. And this, of course, is what we are doing in order to find further measures, possibly also new government guaranteed loans in order to face potential liquidity needs. The same exercise we are doing also on the total performing portfolio, We have completely renewed our workflow driven monitoring platform with a new early warning system, which is allowing us now to have A consideration of EUR 6,000,000,000 in the watch list of credit, of course, which are running in different client.
And 70% of these kind of client comes out in our watch list without any overdue. So this is just to say that we don't wait for a client to enter into some difficulties to have some quick hint about potential difficulties. Up to now 94% of the client entering the watch list come out without any difficulty. Again, on the new lending, so we are now in 9 months at around €20,300,000,000 which is more or less the total of last of the full last year. 65% is ordinary business, 35% is COVID measures.
If you only consider the Q3, this amount switch completely in the opposite situation. If you consider Enterprise and Corporates, 74% of the new loan granted in Q3 come is assisted by guarantee state guarantee. You can see also the how we are proceeding continuously with the new loans lending. And also in October, we are still in November. We are still continuing at this pace.
On Page 12, some figures about Q3 9 months, As you can see, at all very positive figures, NII is up 8.4%, mostly thanks to the TLTRO, but also to the increase in loans. Fee and commission is up 11%. Total revenues is up 14 percent. Operating cost is down 5% and pre provision income, as I said before, is up 45%, but more important is up also vis a vis 9 months 2019. The net income of the quarter is 157,000,000 which lead us to a EUR 263,000,000 of net profit.
Of course, during this quarter, we also The SIA stake and the NEXI and SIA stake revaluation, as you know, we are both shareholders in SIA and NEXI. And I would say that we were rewarded to keep this strategic participation, which produced that these very comfortable results. Just a glance also to the common equity Tier 1 evolution. As you can see on the green side, the phase in went up from 14.6 to 15.4, the fully loaded from 12.8 percent to 14.1 percent. And even though we apply 50 basis points of headwind due in Q4 we end up with 13.6 percent which we feel very comfortable.
And the same is in terms of MDA buffer. You remember that our guidance was to be up 250 basis points. We are in a comfortable We announced early we are performing. We have, of course, we are binding offer for $1,200,000,000 of GBV. Dollars 1,000,000,000 is related to the Project Django, which is a true UTP sale portfolio sale of midsized dimension.
These are all positioned between amongst 500 1025,000,000 of GBV each, more or less 50% real estate, 15% other industrial sector with quite an average vintage of almost 5 years for which we have received the formal binding offer from a couple of bidder. The same, we are of course expected to close this by year end, but we anticipated this quarter the effect of the IFRS nine impact on cost of risk. Project Titan instead is a securitization multi originator, GACS, for which we will contribute for a figure between EUR 150 and $200,000,000 Also this is due to be concluded during the year and also for this transaction we have anticipated IFRS 9 impact. On Page 15, let's see The results of this further reduction, we have been down from The numbers that you can see in September 2019, we are 10,500,000,000 down to 10,000,000,000 in December. We are now at 8,600,000,000 if we consider the effect of the Jango and Titan transaction, which means go down year on year 18% and 12% only in Q3.
As I remember before, this means €21,000,000,000 derisking in the since the merger. Also, the ratios were down before Jango and Titan, 8.6 growth 4.7 percent. Net, with the effect of the announced transaction, We are down to 7.7 percent of gross NPL ratio, which is further reduced to 6.7 if we include loans to bank as per EBA definition. This has been possible also for the very good migration rates. Of course, that were due to the also the current situation with the moratorium measures.
As you see, the default rate On Page 16, we're down to 1%. In Q3, only €150,000,000 of flow. NPE danger rate down from 11% to 7.7% And of course, all secure rate was down from 5.1% to 3.5%, and this was the reason why We decided to increase again our disposal plan. The figure we have after the IFRS 9 transact impact is a coverage of 48%, 51% including write off, bad loans 57%, 64% including write off and an increase from 39% to 42.7% of UTP. Of course, this will go back more or less at the same level of previous quarter once the two transaction I was mentioning will be executed.
The cost of risk including the IFRS 9 impact of this transaction is up to EUR324,000,000 which allow us to be still into the range of 100 basis points, which we gave you as a guidance for this 2020. On Page 17, some figure about our balance sheet core performing loans up 5% year on year, 1.6% quarter on quarter. Current account and deposit, 10.8% year on year, 3.7% on the quarter. Unfortunately, as you see, all these available amount are not yet fully utilized in terms of conversion into asset under management, mostly because of the current situation, the uncertainty of the forecast for the next months due to the COVID. Even considering, of course, that we have already a pace in new product sales of investment of Asset Management product in line with the 1st 3 months of this year.
Also in October, we are still registering some increase. Loans went up 0.6% October to September, core funding plus 3% only in 1 month, October versus September. Not to mention the very comfortable liquidity and funding position, We have an LCR of almost 200% and SFR most comfortably above 100 percent eligible securities unencumbered around 26,000,000,000 And as you know, we have a performance during this year, all the kind of issue bond of the bond issue both in AT1 senior non preferred and T2 lately in September, 500,000,000 The debt security portfolio performance is very good. We have increased our reserves on help to collect and sale from €32,000,000 of June to 1 160 6 €1,000,000 of September with a contribute to our common equity Tier 1 of 130 €4,000,000 or 23 basis points. And as much as the unrealized gains on Amortized cost went up of EUR 211,000,000 June on September on June.
Let's also mention that as of today, we have a further increase of another, let's say, dollars 170,000,000 $180,000,000 in total consideration between these two categories. Net interest income on Page 18. As you see, the 8.4% increase Q on Q was mostly due not only to a slight increase in commercial transaction operation, but mostly with TLTRO. Of course, what we included, €47,400,000 is not the total contribution on TL Pietro on the Q3, which is higher, but we have to consider the downside of the extra liquidity reinvestment for a portion of TLTRO, which we are not investing in loans because of the growth also of the deposit where we were mentioning before. The total results, as I mentioned, is almost EUR 520,000,000.
In terms of commercial spread, notwithstanding The shift from short term lending to medium term transaction guaranteed by the state, We are keeping an asset spread in the region of 182 basis points, one basis point better than last quarter and the reduction in commercial spread of 15 basis points is all a consequence of the reduction of Euribor in the quarter for 18 basis points. Of course, the quality of the portfolio is bettering because we are substituting basically short term loans with medium term guaranteed loans. On Page 19, a sound rebound also in terms of fees, commercial banking fees at the same level of Q1. Management advisory is still a bit below Q1, but 11% above Q2. This is also due, of course, the difference with Q1 also to August in Q3.
But as you can see on the box on the right box, basically, July September were very consistent at around $143,000,000 We also Wanted to show you the commercial recovery in investment product placement, the monthly trend, As you see on the down right side, apart from the very massive impact in March, April May, in which we reduced very much the capability of placement. Since June, we have relaunched this activity And apart from the Q3, also October is very sound, is €1,200,000,000 in terms of value date corresponding to the commission in Q3. But in terms of sale, we are up to EUR 1,400,000,000, which means that we have already reserved a new commission for Q4. On Page 20, operating cost also for these very sound results. I have to spend some word in order to make you understand some one off saving in terms of personnel.
We were down on total cost from 8.4% visavisQ1 at 5.2 percent visavisQ2, as you see on the right box, there is a massive reduction visavis the 1st year of the merger. We have almost reached 500,000,000 of current reduction in cost. But a part of this comes from some benefit related to the COVID. As you can see, staff cost is down 15% from Q1 and 10% from Q2. Both Q2 and Q3 benefit from the reduction of variable remuneration due to the constraint of the economic situation and also from some one off COVID related savings from the government.
No much more to mention as for administrative cost, even though in this case, we had some negative one off due to cost of COVID measures. Last page, some final remarks. Very sound, we feel performance, considering also the de risking €263,000,000 of net income net profit, sorry, Strong pre provision income at €1,300,000,000 The de risking strategy would allow us to 0.7.7 of NPL ratio going down towards our final target. A very solid capital buffer in terms of common equity Tier 1 even considering the headwind of Q4 and quality of loan portfolio supported by the state guarantee and by the many measures we are activating in terms of monitoring and early warning. Some It's about the outlook of the last quarter.
We think in core revenues, if Nothing disruptive happened in terms of COVID. We can be in line both in terms with Q3, both in terms of NII and fees and commission. Let's say that we have already utilized all the one off for cost. So we think the guidance for Q4 will be more similar to Q1 rather than Q1 Q2 and Q3. Asset quality.
We are still exploring some opportunity for single names disposal during Q4. But also considering this, we think we can confirm the guidance of cost of credit around 100 basis points. Finally, the target of capital, of course, remains 250 basis points, but we are comfortably above 400 basis points. So we think we can reach easily this target. Thank you very much and I leave you the floor for the question.
Excuse me. This is the Chorusco conference operator. We will now begin the question and answer to remove yourself from the question 9. The first question is from Christian Carrese of Intermonte. Please go ahead.
Good evening. Thank you for taking my questions.
The first one is on the fees. I would like to understand what kind of products are you selling to your clientele and the upfront fees booked in the Q3 compared to the Q1. The second question is on costs. So the $160,000,000 one off is a one off. So back to Q1 level in the Q4.
I was wondering if you see any additional room to make efficiency. Take into account that you show in the slide that the digital Usage from 20, they came up from 77% to 84%. So in the past, You mentioned the possibility to reduce further branch networks. So if you can share with us your thoughts on that. First question on net interest income.
I was surprised From the side that asset spread went up in the quarter, what do you think could be the trend in the coming quarters? And finally, on August Tucato joint venture and your relationship with If you can give us an update on the put option expiring next year and also If you can, some update on what we read on the newspaper. Thank you.
Thank you, Mr. Carrezza. Good evening. Upfront amount for 15 Coming from running fees, 80% from increase in global sales. Which kind of product is split between funds?
We also have an increase in bank assurance. So basically all the normal product, very, very conservative because as you know, The feeling for our client now is to be very, very prudent. So we are having a very fair approach in order not to stress them, but try to make them understand that it's better to convert their current account holdings. Costs, basically, yes. As I mentioned before, we have exploited at the maximum level, We are beating probably the $100,000,000 reduction of cost that we had at the guidance we gave as a guidance in Q1 when we announced the results of Q1 due to the COVID.
Frankly speaking, we are doing better in revenues, but we are still exploiting at maximum level cost savings. Of course, this is for the current situation. Then, of course, we will Still be very proactive in terms of efficiency and cost efficiency. So As soon as we will announce the new plan for next year, so of course, we will give you also Some new number about branch, personnel and so on. But for the time being, of course, and especially during this period, we think it's better to wait and see for understanding how the situation will evolve.
I am happy one thing is if you allow me that when we presented our business plan, of course, was at the beginning of the COVID. And we said we think our bank after showing that is able to reduce cost massively year on year, would like to be more concentrate on revenue growth rather than on cost saving. But saying that, of course, if the revenue growth was not going to show up because of the situation, we would have been able in any case to reduce cost. And this is exactly what we have done. Spread, notwithstanding, we are Very, very good.
We cannot give comparable of our contribution on state guarantee measures, But it's very, very consistent, much higher than our midsized player. We were very good at keeping in terms of spread, as you say, you'll be seeing in our figures. We think that having already granted the vast majority of this lending guaranteed the spread is not going to go down more. The only reduction we are experiencing is because there is Not so much short term lending, which as you know, especially in the current account utilization normally is Much more convenient for the bank. Last, Agros, I think I already said some time that we were working on with Credit Agricole in order to consider the COVID impact of this period and basically to postpone the put option for a considerable amount of time.
We have an agreement already reached. We will inform you immediately as we sign everything, But this should postpone of at least 18 months the put maturity, which was due by June next year. You also asked about other things, about Credit Agricole? Yes. The rumors on newspaper regarding potential M and A consolidation
and so on. I don't know if you want to share with us your thoughts on that.
Yes. My usual consideration We are, I would say, the first mover, and we consider ourselves The one available for further consolidation, we are very confident of the results we are having standalone. But having said that, we are open to discuss with everybody as a strong project for build up A solid bank project in Italy, in region that we are stronger. We will be available to talk to everybody. And of course, I see also the rumor.
We are not commenting on rumor, but we have an interest in explore Any potential move in order to strengthen the bank even more to factorize potential cost synergies and so on. So we will see the COVID doesn't help. Of course, it's a period in which we are all into our, let's say, house, either realloused or in the office. It's difficult to have contact, and it's complicated. But we are here on the market, and we will see what happens.
Thank you very much, Felipe.
The next question is from Antonio Reale of Morgan Please go ahead.
Hi, good evening. Thank you for taking my questions. I've got a couple. Just the first one is a follow-up on on NII. I mean, looking at your vibrotrends, we've seen a further drop into Q4 and deposits have been growing, which in a negative The environment is clearly a headwind on margins.
I'm wondering how you see loan demand dynamics. So what's the outlook for loan growth into next year. I mean, obviously, there's still a pattern for government loans, but I wonder if you have any visibility beyond that you can share. That's my first question. Second question is on, moratorium loans.
And I would like to understand sort of what your cost of risk estimates for the full year assume in terms of potential defaults on these loans, both looking at this year and if you have any visibility on next. So what percentage of your €15,600,000,000 do you assume could Migrate potentially into nonperforming. You show good color on Slide 9. I wonder if that's a good proxy to use. We're now entering also into the final part of the year.
I wonder if you're in a position to comment a bit more on the outlook for cost of risk for next year. That's my second question. And lastly, you're back active on the NPL market after the lockdown. We've been negotiating a relatively large, unasked to pay tickets. And I would like to hear from you anecdotally what you're seeing in terms of NPL bids compared to before COVID.
I mean, without necessarily going into a lot of details given your negotiations, but just big picture pre and post COVID anecdotal color would be very useful. Thank you.
Thank you, Mr. Viale. Yes, of course, deposit growing is not Something that we are happy with together, of course, with the strong liquidity that we have also due to the TLTRO. You know that we are not drawing all the TLTRO just because we have so much deposit growing. Let's say that it's not black and white.
Of course, up to 1 month ago, we were thinking that The confidence of potential, more comfortable situation in terms of pandemia would have lead our client to convert more deposit into asset under management. Of course, we know that now This is not the case, but maybe then if these will go up for some months, maybe there will be some more measures from ECB. So it's difficult to make forecasts because there are also the intervention from ECB, which try to Compensate potential downside. Loan growth is a bit the same. Of course, up to now, they have been fostered by the state guarantee.
And I would Say again that we were one of the most active into this market by far, I would say. This is all ammunition that I think our clients can exploit if the situation will be clear or if they need to put into the market more liquidity. So if the situation is going to be better In the 2nd part of 2021, there is the possibility of recovery also for loans. Otherwise, of course, if the situation stay as it is, I don't think we can imagine a lot of loan growth for next year. Unfortunately, almost to say from cost of risk, but please keep also in mind what we have said quarter by quarter since the beginning of the pandemic.
We say that we wanted to be very prudent. We wanted to make provision also on performing loans in order to prepare a potential higher inflow into non performing. This is what we have done in the 1st 2 quarters. Q3 was much better also for the confidence in the economy, which which was going on. And so we thought it was the best moment in order to perform a disposal.
And let's say that I think our timing was very, very good because most probably, I don't know if going ahead, We will find the same availability we found during the last month in order to conclude the deal today. Of course, for us, the UTP market was completely new. I would say that probably also for the market, a trade sale was completely new. We are happy that we have showed that it's to have different players at the table dealing with each of them. OTP, I was one of A few say that already for bad loans, there is not only one price.
If this was true, exposed for bad loans. It's even more different from UTP. UTP is not an asset that you have to dispose. It's a company working, producing, sporting. And so the feeling that each of these players can have on the single asset is completely This is the reason why we split the amount of $1,000,000,000 between 2 different players.
Thank you.
The next question is from Azur Raguelski of Citi. Please go ahead.
Hi, good evening. A couple of questions. One is coming back to M and A, not on a specific deal, but just to understand what would be your priority in case of a consolidation. I understand the strategic fit and creating a stronger bank, but would it be about a minimum capital impact or like high EPS generation or definitely not asset quality compromise to be made. And so that will be one.
The second question would be on the regulatory impact for 2021, because you gave us kindly the details for the Q4. But if you can tell us what is the capital headwinds and positive development for 2021. And the last thing, if you have any update on the potential impact of the new definition of default on NPLs. Thank you.
Thank you, Azurra. Priority in consolidation. Let's say, of course, I cannot be so specific because as I As mentioned before, we are really trying to understand what could be the best situation. Of course, I I think the industrial project has to lead any possible idea of consolidation. So I don't know, during this period, we are talking about to merge with somebody who can give you contribution by shareholders or so on.
We have always been of the same idea that the first industrial project, we think our Equity story is of a strong bank created in the Wealth Region of Northern Italy, amongst the best region in Europe. We would like to pursue this project and this is the first priority. Of course, this has to be done as we did in the last merger, taking in consideration value creation for shareholders, which is not that difficult in our situation due to our stock price and try to emphasize what is our one of our best characteristics. I was mentioning the reduction in cost of almost €500,000,000 running in 4 years that we performed during the merger. I think that this can be a good suggestion in order to understand which players could be the one who can allow us to make cost savings and Synergy cost, David.
That's all basically the thing I'd say right now because I don't have Anything to discuss because I don't have any concrete project to discuss. Regulatory headwinds, We were anticipating again the impact of Q4. I have to say that we stay with the consideration we gave On the Q2, I think last year could be in the region of around 100 basis points all in all And then reduce dramatically in 2022 and again increase in 2023 due to the Basel IV. The total is still the region that we mentioned that time, I think, is in the region 200, 230 basis report. Last question, sorry.
You're speaking of the question. The question is from the We are already running, of course, all our numbers ready for January 21. We think the stock the increase of stock for the new definition of default could be in the range of €200,000,000 of new nonperforming. In terms of capital consideration, would be something lower than 10 basis points. Thank you.
The next question is from Jean Neuez of Goldman Sachs. Please go ahead.
Hi, good evening. I just wanted to ask on the accounting of the TLTRO benefit this quarter and going forward. I just wanted to understand how you have accounted for, I mean, Essentially for which rate of TLTRO funding you've essentially accounted for and Whether in a year's time, part of it will reverse and the NII will fall back in case you depending on the way you accrue the extra bonus rate for the TLTRO. And I just wanted also to ask about The costs, which there is a one off you say of $60,000,000 because of extra savings on viable compensation and so on and COVID related expenses. I just wanted to understand whether these are heart triggers, so to speak, which have been linked to the forthcoming of revenues earlier in the year and will come back in the future if your fees for example are better or whether this is more, let's say, a softer allocation and whether you think that some of the savings will stay into next year's cost base essentially.
On this particular item of this quarter rather than Various initiatives that you have mentioned in your previous answers to the questions. Thank you very much.
I think I was quite clear. The contribution in Q3 was €47,000,000 which, of course, is a net €7,000,000 which, of course, is a net between what is going to be the contribution from the premium from ECB, the 100 basis points and the part of for this amount that we are not able to invest in yield assets. So of course, As you know, if we have to go back into ECB with a part of it, we pay 50 basis points. So the net on net, We think the contribution could be in the region of €50,000,000 and the same should be also in Q4. Going to costs sorry, maybe you asked also for next year.
If you ask also for next year, in any case, I will anticipate there should be €30,000,000 €35,000,000 more in the 1st 2Q next year vis a vis last 2Q this year. Of course, part of this at level of NII will be compensated by lower revenues on the GOVES portfolio. Last question about cost. I I think also in this, we were very transparent. We had one off of around EUR 60,000,000, which is not really one off.
Part is one off due to contribution of state measures from the COVID period. Another part is a reduction of the variable remuneration due to the size of the total revenues, which was already done also in Q2. So the total amount between Q2 and Q3 is almost €90,000,000 Of course, for next year, this amount, we hope, will not be there because this means that we are going back to make total revenues more comfortable and also to no COVID contribution because COVID will have no effect. If this will not be the case, of course, we will have the same kind of contribution next year. On top of that, of course, as you know, And as I anticipated to Mr.
Scarves, we have also announced the reduction in personnel in our business plan. And of course, we are now again in talks with unions in order to decide which kind of reduction in personnel could be applied possibly starting from next year.
Okay. Thank you very much.
Thank you.
The next question is from Noemi Peruk of Mediobanca. Please go ahead.
Good evening and thank you for taking my questions. I have a few. The first one is a clarification on cost. You mentioned indeed a €60,000,000 of positive one off in Q3 and lower variable compensation. Can you specify the size of the one off?
Is that EUR 40,000,000 with variable compensation of 20 in line with Q2. And the second one is on asset quality. On the EUR 1,200,000,000 UTP disposal. What is the average yield attached to these portfolios? And the last one is on common equity.
What drives the quarterly reduction in RWA? Is it the switch from drone lines to state guaranteed launch. And do the 50 bps regulatory headwinds include the positive from lower software deduction?
Okay. Let's be take one question for a time. Reduction in cost. Again, of course, apart from the one off, there has been also normal reduction of the activity during the 3 months of COVID beginning in the first half of the year. Now transfer, I don't know, extraordinary compensation and so on.
So a part is a reduction due to the COVID. Apart is because of the reduction of the global amount of the remuneration due to the lowering of the revenues, El Ebert is the one off coming from the state. I cannot really be more precise than that, But we mentioned some figure into the comments. Sorry, can you remind me the Second one
was? Asset quality.
Okay. The interest margin attached, the NII attached to the disposal, Is this the question?
Yes.
Okay. For next year, it would be in the region of 15,000,000. The last was on headwinds. First of all, let me give you some more detail about the FWA reduction because as I am right. We also asked about that.
This, of course, is already into the Q3 performance. When you see 56 basis point of Q3 Performance and Other, 25 basis points comes from the profitability and 30 basis points comes from the reduction in FWA due to the state guarantee. Going further, Q4, for the time being, we only consider the headwind. We are not yet considering some potential tailwind, which in any case, it maybe could be compensated by some further reduction. So we think the guidance for year end would be the same we have today.
Thank you. And just to make sure I understand, the NII contribution is 1.5 or 50?
15, 15. Okay.
Thank you very much.
The next question is from Domenico Santoro of HSBC. Please go ahead.
Hello. Hi. Good evening. Thanks for the presentation. A couple of questions also on my side very quickly.
First of all, on this UTP portfolio that My understanding has been already sold. I see it's mainly real estate, so I assume it's highly collateralized. So just wonder whether you can give us an idea of the coverage on this. I see that you have done a top up of course ahead of the sale and to understand whether we should expect a drop in the coverage or not. The other question is on the regulatory headwinds.
This 50 bps that you're mentioning coming in Q4, Is this was it already included in the 200 basis points guidance that you gave back in March or is something that we should consider on top of that. And then given that I mean, there were other questions about the M and A. I'm just wondering whether I can use your brain on this. We have seen recently In all the M and A been announced so far in 2020, in Italy, in Spain, there was a big chunk of provisioning auto PAP to coverage from very solid banks and and the filtering of course into the capital. So, I mean, you said that you are quite open to discuss with other partners.
So you're open to M and A. Is it something that the regulator, regardless of COVID is asking in a way. And I don't know whether you want answer to this question. But alternatively, what would be the minimum level of capital that you would accept in M and A transaction. Thank you.
Thank you, Mr. Santoro. OTP portfolio. As I mentioned I think I mentioned 55% sort of real estate asset, which doesn't mean normally that you have a collateral. That means that you are also a land is some company who is involved in the real estate business, which could mean also Some, I don't know, construction and so on.
But this is the reclassification, 55% in the large family of the real estate and 45% in other industry. I cannot give you Many details about the provision. Let's say that the coverage was Consistent with the figure we showed today that you can have some idea of the IFRS nine. If you compare Q1 and Q2 with Q3 and if you wish, I can also tell that we are considering an impact of 10, 12 basis points in terms of common equity Tier 1. Regulatory headwind, yes, it's 50% and non 35% for two reasons.
One is that 35% was Considering headwind and tailwind, frankly speaking, we were prudent in giving 50 because one of these headwinds is related to market risk and depends on the market exposure you have month by month. And up today, we have an exposure which is higher than what we declared before. But the difference, I don't think is meaningful. Of course, this is included in the global consideration. I think all the provisioning you were mentioning related to previous two transaction was coming from the bad wheel utilization and from the ECB willingness to give the bank the possibility to use the buffer of common equity Tier 1.
I think that as I mentioned before, we have a very comfortable buffer to utilize. So we are reducing in any case our exposure with NPE. So we think that if the case may be, We won't have many difficulties in going down to the potential request from ECB, which of course I think is supporting as Mr. Envria is continuously declaring any opportunity for consolidation. So frankly speaking, I don't think we will have some problem visavis ECB willingness in terms of this kind of a transaction.
Sorry, the 10.15, if my understanding is correct, impact from the sale, what is it? Is it the additional provision that you have done in Q3 or is something that should come in Q4? And if it is negative or positive? You are talking about the UTP? Yes, correct.
Now I was mentioned because you asked how much you are provisioning, I was saying that All in all, the impact of this transaction in our calculation, of course, the transaction is not yet Terminated. We have a binding offer in these terms. But considering the DTA opportunity to utilize DPA up to €2,000,000,000 of disposal and considering the net impact, the fiscal advantage of this opportunity, we think the final impact will be in the region of 10 basis points. Positive. Thank you.
The next question is from Adele Parama of UBS. Please go ahead.
Yes, hi. Good evening. I have one question. If you can give us some color on the incoming maturities of the treasury portfolio And I mean, what is the percentage of the government portfolio that is coming to maturity in 2020 and in 2021. And what is the yield of the bonds expiring?
Thank you.
Thank you, Ms. Parana. Let's try to And if I got all your question, the yield of the state guarantee loans is around we wrote on the presentation is 1.6%.
No, no, I'm referring to the treasury portfolio like the government bond.
Sorry, I understood the
loan guarantee. Just a minute, I have to recover this.
Yes, as I mentioned before, we are expecting a decrease in contribution for the GOVISC portfolio for next year in the region of €30,000,000 €35,000,000 which will be compensated by higher contribution from TLTRO. This is the guidance for 2021.
Okay. Thanks.
Okay. Okay. Sorry, I can give you The state guarantee loans We have on Page 33 the duration of the govies, split between Italian govies and non Italian govies, amortized cost and At ECM, the duration of Italia and GOVIS is 2.9 for amortized cost, 1.9 for Flochi and for non Italian, all this, 2.3 amortized cost of 2.6 all to collect and sales. On Page 33, you will find all the figures.
Okay. Thanks.
Thank you.
The next question is from Andrea Vercellone of Exane. Please go ahead.
Good evening. Two questions. The first one is just a clarification on your TLTRO comment, the contribution to NII that you have just repeated. You said the next year you expect 35,000,000 more. Does it mean you're going to draw down more at the December or at the March auction?
For some other aspects, which I can't think of, that would lead to higher contribution. And the second question is on your JV with Covia. When is the deadline to either renew, cancel or restructure the joint venture? Thank you, Mr. Bertolone.
No, we are, of course, considering to increase Of course, as I mentioned before, the situation is so liquid that, of course, we are also going to change Some of our assumption of the funding plan assumption. But now As you know, we have drawn now EUR 26,000,000,000 out of EUR 35,000,000,000, which is the total possibility for our bank. Maybe we will draw another couple of 1,000,000,000 in order to then reimburse possibly in Q3 'twenty one old extra drawing we have done, thanks to the premium. So I think this will come from a better placing or managing of our TLTRO activity, but we are not going to draw a considerable amount on top of what we have already done. As far as the next question, the maturity is September 2021.
And we have to decide what to do together with our partner by 6 months ahead of this maturity.
Thank you.
The next question is from Hugo Cruz of KBW. Please go ahead.
Hi, thank you. Just sorry to insist on the headwinds. I just want to clarify what you said about headwinds in 2021. Is it going to be 50 basis points because you are front loading something this year? Or is it going to be 100 basis points?
And then I understand that was before any potential benefits from the waiver for large NPL sales. Do you have any visibility now on whether you can
Thank you, Mr. Cruz. Yes, I mentioned the same amount we gave you on the next quarter presentation, which was due to the COVID, of course, we switched ahead the impact of the headwind we gave in the 3 year plan presentation. So for 2021 should be in the region of 100 basis points. This, of course, is our best consideration.
We still are waiting from ECB to give the results of the inspection on the model, on the credit model. Of course, we are still confident that They can take in good consideration the one off situation generated by The massive disposal we have done during these years. Again, it's more than €21,000,000,000 But of course, I don't have a hint about what will be the output of the inspection we have got.
Okay. Thank you very much.
Thank you.
Mr. Castagna, there are no more questions registered at this time.
So thank you everybody for being with us this meeting and I'm sure we will be in touch during the next week. Thank you very much and good evening.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.