Good afternoon. This is the Chorus Call Conference operator. Welcome, and thank you for joining the Banco BPM full year 2019 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR manager. Please go ahead, sir.
Thank you very much, everybody, to be here with the conference. Before leaving the field to our CEO, let me remind that you can find the presentation on the website, on the IR page, and that the Q&A section is reserved to financial analysts. Thank you very much.
Good evening, everybody. This is Giuseppe Castagna speaking. Thank you for being with us this evening for the presentation of full year results of 2019. As you know, this is a special year for us because it's also the final year of the first business plan we had when we started the merge between the two banks. Let me allow to introduce this presentation starting from some successful delivery my team was able to perform during this three-years plan.
Of course, as you know, we will have a much deeper presentation on the business plan of the next three years, in which we can also make some further comments on the first three years of the merger. Let me start with a very sound capital position. I will give you some number just to recap on what we have achieved. We started this transaction with a Common Equity Tier 1 fully loaded over 12.3%. The target was 12.9%, and I would say that we can announce that we basically achieved the target terminating this year with a 13% fully loaded Common Equity Tier 1, which after the payment of the proposed dividends, will go to 12.8%. Texas Ratio starting from 162% was due to lend to 114%, we are now to 52%. De-risking gross NPE down from EUR 31 billion to a target of EUR 23 billion.
Now we are at EUR 10.1 billion. Gross NPE ratio from almost 25% with a target to 17%, we are now at 9.1%. As much as in the net NPE ratio, we started at 15.7% with a target of 11.1% and the results of 5.2%. Also, the rationalization of our cost structure overcame the business plan. The branch were down to 1,700 starting from 2,400. The head count starting from 25,000, were due to land at 22.560, and we are now below 22,000. The cost efficiency. The total operating cost started at EUR 3.086 billion. The target for the plan was EUR 2.858 billion with a reduction of EUR 228 million, and now we achieved a very successful EUR 2.6 billion with a reduction of EUR 482 million from the starting point.
This was achieved in a very challenging environment in which, of course, we can see how all the macro were basically against the possibilities to reach good results, starting from the Euribor, which in our plan was due to be 10 basis points positive in 2019, and you know that now we are 38 basis points negative. The GDP didn't go as we expected. We did the business plan with a forecast of growth of 1% year by year, and we are now 0.2%. Also the spread, BTP Bund, even though has recovered during the last months for the majority of duration of the plan was well above what we forecast, which was 81 basis points.
These results allow us to deliver results which is above the recent guidance that I gave to you in the last quarter, give us the possibility to propose a dividend of EUR 0.08 per share, which means a dividend yield of 4.1%, of course, paved the way for presenting the new business plan date three of March next month. Let's go to some figure related to the 2019. We achieved a stated profitability of almost EUR 800 million, adjusted was EUR 649 million. The comprehensive profitability, the creation of capital was really strong, EUR 1.3 billion stated, EUR 926 million adjusted. I remember that this is without considering the strong contribution that we have in the reserve of HTC, which now accounts to around EUR 700 million. Also, the capital position and the buffer on P2R are very sound.
We have reached 14.6 on common equity Tier 1 phase-in, 12.8 again, fully loaded after the payment of the dividend, with an MDA buffer, which is 440 basis points phase-in, 230 basis points fully loaded. If we add on to this figure, the recent contribution of EUR 400 million of AT1 issued in January, we end up having a buffer of MDA higher than 500 basis points phase-in and almost 300 basis points in fully loaded. The risk profile has bettered a lot, even in a year in which there wasn't the massive disposal that we have experienced during the first two years of the merger. Nevertheless, the gross NPE went down EUR 1.7 billion year-on-year, net NPE down EUR 1.2 billion, with the ratio, which I already mentioned, 9.1 gross and 5.2 net.
The unrealized reserve and unrealized gains, I mentioned the HTC, HTM, which were at the end of the year EUR 520 million. Now they are back to almost EUR 700 million, as well as the reserve on to collect and sale, which were in December, EUR 71 million, and now are again almost EUR 100 million more. This is after, as you know, realizing sound contribution from disposal of a Govies for a total consideration of EUR 1 billion in last quarter of 2019. The commercial activities, eventually giving strong results as we frankly speaking, were expecting, looking at the volumes that we were generating. We have been growing year-on-year, almost 3% on loans, more than 8% on deposit, and 4.5% in asset under management. The liquidity and the funding position is very strong.
We have an LCR of 165% and NSFR of more exceeding 100% and an encumbered eligible asset for more than EUR 20 billion. Nowadays, we are up to EUR 22 billion. Sorry. Let's go to what I mentioned before, the comprehensive profitability. I think it's quite important to also drive you through this number. We start from the P&L stated, which of course include also series of devaluation from the activity that we had on our real estate asset, property and artworks. This ended up producing a negative impact on P&L of EUR 130 million, which we already find in the P&L. Meanwhile, the positive effect that you see in the box down in the slide eight, generate in terms of capital EUR 367 million of pre-tax, EUR 250 million post-tax.
As well as through the disposal that we had and the revaluation that we had in held to collect and sell, both in debt and in the equity side, we are having an increase in capital of EUR 267 million pre-tax and EUR 179 million post-tax for the debt side and EUR 151 million pre-tax and EUR 120 million post-tax in terms of equity revaluation. Just to mention the two main figure, of course, the debt revaluation comes almost all from Govies. The equity revaluation comes from two asset revaluation, which were Anima, which you know we have a stake of 15%, and Sogeaal. Basically under half and half the contribution that you see on the box.
This brought to increase for more than EUR 500 million the capital generation on top of the profit and loss, which bring us to EUR 1.3 billion, and this is of course without considering the massive reserves that we still have under held-to-maturity Govies, which as I remembered before, amount to almost EUR 700 million. Even if we consider net, this amount would be in the region of EUR 500 million, bringing the total creation of capital generation, let's say, a sort of NAV in the region EUR 1.8 billion.
This was generated during 2019. Let's have a look, even though we will go through the number to the P&L. I have to mention that we have registered some downside in NII. This was expected due to the sale of Govies and the massive bond issue that we did in the fourth quarter, as well as the effect of the Euribor.
We will go further into these details. I would say almost completely offset by the increase of fees and commission. The net financial results, as I mentioned before, was impacted by the massive sales of Govies, generating this very sound profitability, bringing total income in the quarter to more than EUR 1.183 million. Operating costs were in line with the previous quarter, amounting to EUR 654 million, generating profit from operation in the quarter for EUR 528 million.
Basically, the same number, both stated and adjusted. As well as also the provision are basically the same in the two profit and loss. The provision for this year, for the last quarter, amounted to EUR 220 million. After that, you have the more impacting change between the state and the adjusted. Basically, we had the already mentioned devaluation of the properties for EUR 130 million and provisioning for risk charge for EUR 62 million.
The pre-tax profit of the quarter were EUR 150 million in Q4 stated, EUR 300 million adjusted, which after tax and systemic charge, brought the profitability to EUR 95.8 million. Adjusted, of course, EUR 246 million. Let's go to the different items of the profit and loss. Just to go deeper into what I mentioned before, the different contribution between NII and commission, you can see that we started very low in commission to EUR 434 million. We ended up with EUR 462 million, almost EUR 28 million more, as well as we reduced almost EUR 27 million the NII. This brings to the effect that we have almost the same amount of contribution, considering core revenues, both NII and commission, but in a different composition with the commission, which passed from 46%-49%, and NII going down from 54%-51%.
On page 11, we can go deeper into these numbers, especially in NII, we have a reduction of almost EUR 20 million. This comes from EUR 8.7 million at the right side of the slide 11. EUR 8.7 million comes from commercial banking. EUR 5.7 is the effect of Euribor, the reduction. EUR 3 million is the effect of the growth in deposit. Meanwhile, we have EUR 3 million of difference, negative, in the reduction of UTP contribution. As I mentioned before, almost EUR 13 million down from what we call non-commercial banking, which basically are Govies disposal, bond issue, and other hedging activity. The good news that we have been, for the first quarter, resilient to the asset spread.
You remember that I mentioned that we are starting different action to stop the reduction of the asset spread. This is the first quarter in which we can say that the asset spread stayed at 185 basis points. The customer spread went down one basis point, this was the effect of the reduction of the two basis points in the Euribor figure. Let's have a look on page 12 on the volumes of the balance sheet. As I mentioned before, a growth in net performing customer loan of around 3%, mainly driven by a growth of almost 7% year-on-year on the medium-term loans. Meanwhile, we reduced our share of current accounts due to the negative impact that this source of asset gives to our NII. In terms of direct funding, we are increasing of almost EUR 7 billion the current account and deposit, 8% year-on-year.
In the last quarter, we were successful in limiting the increase in current account and deposit also due to the switch that we have in asset under management. Going to asset under management, you can see that we have experienced the growth year-on-year 4.7%, mainly driven by market effect. Meanwhile, the last quarter, there was also a good commercial performance. Let's have a look to the lending activity more in depth. We were able to replicate and being a bit better than last year, new loans generation, even though, as you know, the year was negative for the market. We were able to increase to EUR 21.4 billion the new medium-term loans production, increasing 26% on the mortgages, and with a slight decrease of 3.2% in corporates, where we had last year in 2018, two big-ticket, which we don't have anymore in 2019.
As I mentioned before, on the right side of page 13, you see the good work we are doing on the repricing. As you remember, we started this policy firstly with the corporate, which went up from 120- 135 basis points. With the SMEs, we started only in the third quarter 2019, but we are already registering a good increase from 214- 222 basis points all-in. This is even better if you consider that the yearly average of the Euribor went down three basis points. Let me also underline that there is another good piece of news, is the second bullet point. We are still experiencing new lending in residential mortgages, which have a spread which is lower than the one maturing, but in the corporate business is the opposite. We are finally having new lending with increasing spread vis-à-vis the one expiring.
On page 14, you have an overview of our production issuing of wholesale bond. This was a year in which we were very active in all the different instrument. As you can see, if you consider also the EUR 400 million I mentioned before of AT1, basically in 13 months, we had EUR 2.8 billion of new issuing, split between EUR 1.75 billion of senior, EUR 700 million of AT1 and EUR 350 million of Tier 2.
This allow us to cope without any problem with the maturities that we have this year. In 2020, we will have EUR 2.4 billion of maturities as well as we can assume that the reduction in the average rate and average spread that we experienced in 2019, as you see, we had the maturities at 3.8%, renewed at 2.2%. We now have in 2020 to replace senior maturities, of course, at an average rate of 2.8%.
Let's pass to the good results of net fee and commission. As you can see, I already mentioned the growth starting from the first quarter. If we have a focus on the investment product fees on the right side of the slide, you see a 9% increase since the first quarter 2019. A very good performance of the upfront fees, testifying the good new level of production and a very comfortable production of running fees. If we compare last quarter 2019 to last quarter 2018, we have EUR 29 million more of revenues coming from the investment product fees. We didn't include, in order not to have a difficult comparison in the first quarter this year, EUR 5.7 million on performance fees due to the very good performance of our asset under management activity in the last quarter, but this amount to EUR 5.7 million.
On page 16, I think is very interesting to follow what I always told you in the last quarter that we were experiencing a very good growth and a very good trend in the investment product. As you can see, starting from EUR 2.9 billion the first quarter this year, we went up to EUR 3.4, EUR 3.5. Last quarter, we performed a very good results of EUR 3.7 billion. If you compare EUR 3.7 billion with the last quarter last year, EUR 2.5 billion, we have a growth of 48%. On the right side, there is also the contribution on the total net fees and commission, sound contribution, stable of the upfront fees. Also the new model that we have, as you know, after the merger we started in 2018 of the advisory by portfolio, is coming back to generate a good piece of upfront fees.
Page 17, I think doesn't need so many comments, is really, I would say, an extraordinary results coming from the consideration that, as you know, in the third quarter 2019, we communicate to the market the global reserves for more than EUR 1 billion. We consider only prudent to monetize some of them and realize some profit from them. I already mentioned that the results that are under reserve on that security, which as you know, are not included in P&L, but are included in capital position, grew since the end of the year from EUR 71 million to EUR 172 million, and unrealized gains on that security on HTM grew from EUR 520 million to almost EUR 700 million during the month of January this year. On page 18, you find that very well diversified, also this is a part of the de-risking, I would say, that we perform.
During the last three years, we went down in Italian GovBs, representing 84% of the total portfolio to 50%, reducing the Italian GovBs from EUR 26.7 billion- EUR 15.5 billion. On the lower part of this slide, you have also the duration of the total GovBs, both to collect and sale and hold to maturity. Let's pass on page 19 to the very good performance that we had on cost reduction, very much ahead of the expectation. As I mentioned before, we reduced EUR 480 million since the starting point of the business plan, only in 2019, we performed the reduction of almost EUR 190 million, almost 7%. This comes from again, the headcounts reduction we had in last year, the retail network, the organization, but the stable, and now I can say, normal level of operating cost that you are performing quarter on quarter.
As you can see, there is no such difference between the different quarters this year results. Let's say that in the staff cost, we have still some conservatism due to the new contract, so we didn't go directly on profit and loss in terms of having less provision for the new contract. Also because of the very good reduction in other administrative costs, which went down 10% since the first quarter, and on a different stage, the performance on depreciation amortization. Let me give some more hint about the change in accounting model for property and artworks. Of course, we will have all the different accounting principle in the attached. Let me say, this is something that we decide to do because, as you know, after the merger, we find us in a position unbalanced, I would say, in terms of real estate asset.
We had a lot of real estate asset coming from the previous bank, coming from the non-performing loans and so on. We decide to this anticipation, of course, of the new business plan. In the new business plan, we will have also the de-risking activity, I would say a massive de-risking activity in terms of properties, which will bring to a strong reduction of the balance sheet. In order to do that, we decided to change our accounting model to a fair value accounting model, which basically allow us to revaluate at fair value all our portfolio, but with different posting of the results that we have. Just to summarize, you have the P&L, which is affected by a decrease of the asset. We are below fair value, this is brought directly to profit and loss for EUR 130 million.
Meanwhile, you have directly to capital, without passing from the profit and loss, the positive revaluation, mainly due to the instrumental asset. This brings to a positive effect in capital of EUR 350 million and a negative effect in profit and loss of EUR 130 million. All in all, we have EUR 223 million of capital impact, of which EUR 108 million properties and EUR 40 million in artworks. Let's pass on page 22 to the strong improvement that we are still experiencing in the asset quality. We have reduced from EUR 11.8 billion beginning of the year to EUR 10 billion December 2019, of which EUR 6.4 billion UTP and EUR 3.6 billion bad loans. The NPE stock net went down from EUR 6.7 billion- EUR 5.5 billion, a reduction in line of the gross book value, almost 15% for the gross and 17% year-on-year for the net.
This brought the ratio, I already mentioned before, to 9.1% of NPE, 5.2 net, and 3.2% of bad loan ratio, 1.5% net bad loan ratio. We took advantage to this very good balance sheet also to strengthen our UTP coverage, which went up from 37.1%- 39.1%, 200 basis points of increase. We also increased, of course, for a much limited amount, the past due coverage from 18%- 26%. Let me only remember also, coming back to the business plan, that the starting point for the business plan was 27%, so increased 12 full points in terms of increasing coverage of UTP, and also the target, strangely enough, was 27.5%. Meanwhile, we now reached 39%. On page 23, you find one of the means for which we were successfully delivering these results.
We registered a very good decrease in net flows of NPEs, year-on-year 15% reduction, very good and very sound fourth quarter. Even better, the flows from UTP to bad loans down 32%. I already mentioned the EUR 220 million of provision, which brought the cost of risk to 73 basis points. Let me say that we didn't consider the Sorgenia transaction, which impacted for more than EUR 110 million under these accounts. If we pro forma also Sorgenia as a recovery of a provision, we would have ended up to 62 basis points. The global NPE workout activity on page 24 is basically due to the LA's transaction beginning of the year, which was the only disposal that we performed this year.
Meanwhile, the main part of the reduction was brought by the cancellation, write-off, recovery, and cure rate, which amounted for something like EUR 2.3 billion vis-à-vis net inflows from EUR 1.2 billion. On page 25, we wanted to give up a recap because we always speak about the very good performance in reducing bad loans. Let me say that we did an extraordinary performance also in the reduction of UTP if you consider that this is basically all due to workout. As you can see in the different three years of the plan, we had a decrease of EUR 1.8 billion, EUR 1.7 billion, and EUR 1.2 billion, basically driven by the green block, which is squared under the red circle, which is the workout. Meanwhile, the inflow basically were compensated by the outflows to bad loans.
If you don't consider these two effects, the real reduction comes from a very effective and industrialized machine that we build up during these three years, which is delivering year by year, and in terms of percentage, even better the third year vis-à-vis the first year. As I mentioned before, this allowed us to increase also the coverage in one year 400 basis points, 410 basis points, in the last quarter, 200 basis points of UTP coverage. Let's comment the significant increase in the capital ratios. Let me remember that last year we had a stated common equity Tier 1 of 10%, which pro forma was 11.5%.
Last quarter was 12.1%. Due to the different step that you can see on page 26, we reached this very ambitious 13% of common equity Tier 1, for which we were enabled to propose a dividend distribution of EUR 0.08, which amounts to 20 basis points of a common equity Tier 1. As I mentioned before, the 12.8% match with the 14.6% of common equity Tier 1 phase in, which is some 500 basis points better than the P2R. We also calculated the MREL buffers, as I mentioned before, in order to give you some hint about the capability of the bank to deliver profitability and possibly maintaining dividends distribution in the future, even though we still have, of course, to offset some regulatory headwind.
All in all, let me say that thanks to the good profitability, which we reached through a positive trend and increase in investment product fees, a very strict control of cost, a sound and constant reduction in cost of risk, and a resilient growth in business volumes. We were also able to build up a capital position strongest ever in our bank, and also considering the previous banks, allowing us, again, to withstand potential future regulatory headwinds as much as distribution of dividends. Very good, also, again, the continuous reduction in the level of NPL in all the metrics, work out lower inflows and higher coverage. Finally, let me mention again the strong funding and liquidity position of the bank. All in all, this allowed us to finally arrive into year to the dividend distribution.
On page 28, I will terminate with this slide, leaving you the floor for some question. This is a sort of outlook for 2020. Let me say that, of course, most of the things that we have to say about the future will be included in the presentation of our strategic plan in March three, in less than one month's time. All in all, I would say that the core revenues will be driven by the growth in net fees and commission, able to offset the potential pressure on net interest income, which in our case, not only comes from what I already mentioned, Euribor, Borgovis, UTP, funding for the new bond, but also for a reduction of PPA year-on-year. We will continue strict cost control also during 2020.
We will start also to invest and to increase the cost for our IT system in order to allow a growth in the business activity. We will always control and reduce the cost of risk and the NPL ratio. We are sure that with this track record of internal capital generation, that we performed in a very difficult environment of these three years, we can support a sustainable shareholder remuneration, managing also every potential future regulatory headwind. Thank you very much. I am free for your question.
Excuse me. This is the Chorus Call conference operator. We will now begin the question-and-answer session, which is reserved to analysts only. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. We will pause for a moment as callers join the queue. The first question is from Giovanni Razzoli of Equita. Please go ahead.
Good afternoon to everybody. Two questions. I've seen that you have reduced quite significantly your stock of domestic govies. If I'm not mistaken, you mentioned something like EUR 4 billion on a quarter-on-quarter basis. I've noticed in the annexes that part of it relates to the fair value through the P&L category securities, which in the past, also in the Q3, have shown a significant volatility. This may inflate your actual stock of govies, so increasing the risk perception of your group without actually contributing significantly to the revenues. Can we assume that in the future, this reduction in the bonds held in the fair value to the P&L is reduced so that the actual holding is more limited than in the past, so that the peaks that we have seen, for example, in September 2019, and also last year, is reduced?
This is my first question, and whether the reduction in the domestic Govies is something that will be part of the strategy going forward. The second question is more confrontational, if I may. The beat in terms of CT1 is impressive. You have 12.8%. You also have made a much better job in terms of de-risking vis-à-vis the business plan. What is missing here, in my view, is the payout ratio. The business plan was 40%. Here you are in the region of 15% or 20%, depending on what you look at in terms of adjusted EPS. I was wondering whether, shall we take this prudence in terms of dividend payout in a context where banks, we have seen, for example, UniCredit today, raising the payout from 40%-50%, Intesa is 70%.
I was wondering whether we shall take this kind of prudence as something of the regulatory winds in the context of the plan will be significant, so we have to keep a larger buffer, compared with, for example, with your MDA, or how shall we read this relatively low payout ratio? Whether the 40%, 50% is an ambition in terms of payout that you may reach in a couple of years' time. Thank you.
Okay. Thank you, Mr. Razzoli. Good evening. I would say that finally, a reduction in trading activities is quite normal for our bank. Normally, we have EUR 1.5 billion- EUR 2 billion less in the end of the year. This, if you consider also the previous year, is something that you will see year on year.So I wouldn't consider this as a stable situation because, of course, we have also had a very good activity in trading, bringing profitability and so, we will of course cautiously, and try not to make absorb so much capital. Of course, this is something that we will exploit over the year. I wouldn't say that this will bring volatility in this respect because, of course, it's much more volatile LTO and sales. As you know, we have reduced the stake in this asset class, and we have mostly under the LTO maturity.
Thank you for the second question. Finally, I can be considered a bank like the others, so we are talking about having the same payout of the very good bank. It was not easy to convince everybody that we could become a normal bank during these three years. Nevertheless, don't forget that it's the first year after many years that we go back to dividends. I think nobody was expecting this kind of results. We have to be still to be prudent. Remember that what everybody underline, which is the fact that we are the only one went under a merger into the ECB era, is something that has forced us to assume a lot of prudent approach to the capital.
Let's say that even in this very happy situation and good situation, we are assuming some prudence and approach in order, again, to be able to offset anything which should come from the regulatory. You know that of course something will come. We are still confident that we can be easily above the target of common equity, that I mention always as my target, which is to be well above 12%.
Can I make a quick follow-up on capital, if I may? Hello?
I didn't get the question, sorry.
No, sorry. Follow-up on capital. In the Q3 or Q2 conference call, you had included a margin of conservatism in your CT1 that you were expecting to revert at year end. Is this taking place in this quarter?
No, it's still there. No reverse. We are still under the, I would say, the IRB revaluation model by ECB. I think this will terminate during this year. As you know, I cannot talk on behalf of ECB, this is something that will terminate when we will have the final answer relating to the famous LGD aspect on the de-risking that we mentioned many times during these three years.
Okay. Thank you.
The next question is from Christian Carrese of Intermonte. Please go ahead.
Hi, good afternoon. The first question is on, let's say, top line. You said that the net interest income should be under pressure. I mean, still a little bit weaker than in the past. Due also to the fact that you realized some capital gain on government bonds and also the evolution of Euribor and so on. I was wondering, should we look at revenues in a different way going forward, in the sense that we have to look at net interest income combined with trading income? Because if I look at slide 17, you still have some EUR 870 million unrealized capital gain on your financial portfolio. Should we expect some higher trading income compared to the past recurring trading income and maybe a little bit lower net interest income? On net interest income, do you see the tiering effect already in the fourth quarter?
Still on NII, there is any possibility to optimize liquidity and maybe your LCR seems to be quite high compared to the past. I don't know if you want to share with us some room to optimize that liquidity. The second question is on capital. Very good, indeed. I think that there is room to further improve the common equity Tier 1 due to the buffer of conservatism, but also some other maybe stakes that you can reduce as you did in this quarter, like Cariati. I was wondering what is your thought on how to use that capital? It's better to increase payout or maybe still to reduce the gross NPL ratio that is very good compared to the starting point, but still at 9%. Thank you.
Thank you, Mr. Carrese. Very articulated. I will try to do my best to give the best answer to your question. We wanted to show, of course, NFR has something to do with the reduction of NII. We can consider when you have such a reserve, you can opportunistically decide what to do. Having said that, we're happy to have the reserve, but we will fight to sustain the NII as much as we can. Of course, in the strategy of managing the balance sheet, there are opportunities. When you have such reserves, the opportunities comes easier. As you mentioned, this can be used, if we need to further reduce NPE to whatever we decide into the strategic plan to foster some costs. We don't think that we will perform every year a sort of capitalization of the reserves.
We did the EUR 1 billion sales last quarter also because there was a sort of inversion of the trend in the Govies. You can remember that after the reduction of the spread in the third quarter, then the sort of fear on the regional election was bringing up again the interest rate. We decided to take advantage from a very huge amount of reserves. I would just say that we say that more than with NFR, we will try to compensate any reduction of NII with an intensive activity in commission. For this, I hope that now we can have some credibility.
As much as I was telling all of you that I was not worried of the results in the last part of last year and beginning of this year, driven by problems that we are having through the reorganization, and for many other problem, now we are increasing. I have to say that January was even better than the average of the last quarter. February is still very good. I would say that in terms of commission and asset under management, bank assurance, we still have to start. We are now finally in a good situation with the new joint venture. We are finally with the network very well focused on that, and all the bank, as I mentioned also last quarter, will be very much focused on that. Capital. Happy that you consider is very good. I do the same.
Nevertheless, I had the problem in the last year to be every quarter in the need of produce capital in order to offset headwinds or problems. During the business plan, I will give you the figure of capital that we have produced during these three years in order to offset the problem that we had, and is a figure which almost double the current common equity Tier 1. We have no worry about possibility and capability of capital production. Having said that, we consider safe, being still under, I would say, the final part of our merger to conserve a buffer above the target, which is again 12%.
Sorry, just on NPE. You are planning some tactical disposal or just mainly internal workout to reduce the stock of NPE?
I think I showed on the slide where we were showing the constant reduction, I think it was page 25 of the workout, is EUR 1.3 billion also this year, with a very lower amount of volumes. We think we can reduce year by year at least EUR 1 billion, and so to basically touch the end of next plan with the famous 5%. Of course, as I was mentioning before, if we see opportunity, in UTP is a bit more different from straight to disposal. You have to find the right combination. For some of this combination, there is also some change in ECB view. For instance, in the contribution of UTP portfolio into new asset under management company. We will decide if there are opportunity.
We are studying everything, but we don't want, and I repeat, we don't want anymore to pay the price we paid the first two years in order to reduce the stock. We paid more than EUR 5 billion in order to reduce the bad loans. Now we want transaction which are basically with no capital input or very minimal capital input. If we found this, we will go ahead. Otherwise, we go with our plan slowly but effectively towards 5%.
Very clear. Thank you.
The next question is from Domenico Santoro of HSBC. Please go ahead.
Hi. Good evening. Can you please give us a bit of sense, quantitative, of course, of all the regulatory headwinds that you expect from now on, just to understand a little bit the evolution of the capital from here, please.
Okay. Good evening, Mr. Santoro. I think we will have more detail on that in the strategic plan. I think I gave you already some hint if I say that I want to be safely above 12% as my target. Still, apart from what every bank is expecting, we still have to conclude this LGD application of the model. Let's wait some months in order to have the result of this. As you know, we have already applied a lot of conservatism, but still we are not in our end, but in ECB's end. I want to be comfortably in this situation. On top of that, the usual things that you already know, I think there is something in the market risk, something in the AMA, I would say for a total consideration of 30, 40 basis points. On top, again, the credit.
All right. Sorry, can I just ask a follow-up question? The capital is, of course, important. I know that you don't want to tell anything now, and of course, we will know more in the March presentation. Just to understand a little bit more. As the colleague was mentioning before, there's a big chunk of equity, which are at the moment deducted from capital. There is, of course, other probability lever. Apart from all the points that you mentioned before about the plan, is there any action specifically here that we should expect in order to change or improve even more the quality of the balance sheet? My understanding is that you don't want to change the size of the sovereign portfolio, which is of course something that is under observation from the market because it's NII productive.
In the NPE area, you want to be cautious because UTP is different from non-performing. Qualitatively, what are the action that we should expect in order to improve even more the quality of the balance sheet at this point?
Again, I'm sure that I will give much more detail on the business plan. We are now commenting only the Q4 results. Basically, I don't know how much more I can say respect I already said. We have a plan, which in terms of NPE, is a workout plan. Again, there has been also recently interesting transaction in the field of UTP, which is under our scrutiny. We are considering everything as we did during the first three years. We won't lose any opportunity to have some more reduction. I don't think that this has something to do with the capital buffer, because basically I don't want to spend capital buffer for that. For me, this is a very important year, maybe is still a bit difference between our bank and others.
Again, I want to solve all the pending situation, which in my opinion, are very sound, are very comfortable, but I didn't see, frankly speaking, the need to increase dividend this year, when I know that I have to perform sound profitability also in the next year of the plan. With the plan, we will understand, I think, better what will be our path in capital generation, revenue generation, and so on. Of course, we won't lose the opportunity to use at best our capital, either in reducing and bettering our balance sheet or in giving back money to our shareholders.
Can I ask also about the increase in the gross non-performing in the quarter, please? The reason behind that.
Sorry. You mean bad loans?
Yes, correct.
Okay. Sorry, because I was a bit shocked. When we talk about increasing, I'm worried. It's of course the switch. As you can see also on page 25, there is a natural switch from UTP to bad loans, which is 32% lower than last year, but nevertheless, some of the UTP come to bad loans naturally. This is the normal outflows from UTP to bad loans.
All right. Thank you very much for your answer.
Thank you.
The next question is from Fabrizio Bernardi of Fidentiis. Please go ahead.
Hi, everybody. I was wondering what's inside the EUR 63 million of provision for risk and charges of the fourth quarter. I think I read it is something one-off related to customer relationship. Is it related anyhow with the Diamond issue, please?
Yes, mostly I would say is also related to the Diamond. Is not that we have a problem in dealing with the provision we already have done last year, that you remember were EUR 320 million. Now, because also of the possibility that we have the balance sheet and the situation that we are still a bit far from concluding the transaction with the clients, we have overcome 55% of transaction, but we still have 45% of transaction to deliver. Having a so good situation into the balance sheet, we consider a prudent approach to foster the provision. Again, I don't think that this can be utilized, but was, in my opinion, a good move in order to offset potential risk and overall accelerate the final definition of this problem.
Sorry, one more thing, if I can. Have you changed your overall idea about the role that the regulator may play during an M&A deal? I remember you had very tough words about the SSM or the EBA about what they did during the Pop Milano, Banco Popolare merger deal.
No, not tough. I think I am the only one, I would say, entitled to talk about this, because everybody speaks, but we are the only one to do it. It's not tough, it's concrete, it's real. It's been an enormous amount of work to perform a merger so big, and I would say, in such a also macroeconomic environment. On top of that, we had also to face a lot of requests from ECB. This is only normal. We expect this to come also for whatever happens in the market. Of course, we are very attentively considering all the opportunities, but having done a very strong experience on this field.
Thank you.
The next question is from Andrea Vercellone of Exane. Please go ahead.
Good evening. Two questions on costs. The first one is on personnel costs. You mentioned that some of the jump quarter-on-quarter in personnel costs was linked to up-fronting certain elements of the banking contract. Can you please quantify the amount, given that EUR 21 million up quarter-on-quarter, it's pretty big. Just to have a better idea of what the run rate without this would have been. We all know what the banking contract does next year, and we don't want to risk double counting the salary increase. Second point is on the depreciation. You have changed the accounting treatment. It's more a curiosity. I see that you have restated the previous quarters. The line depreciation is lower by EUR 5 million every quarter, but you also have volatility every quarter through fair value.
Do you expect this volatility to continue, or for the next few years, you've done the exercise now, and there shouldn't really be any movement up and down? Thanks.
Okay. Thank you, Mr. Vercellone. Let's start from depreciation. We don't expect volatility just because we now have the fair value situation in which we can deliver any kind of disposal without looking at potential volatility on the transaction. The depreciation was one-off because, of course, we had to cut off all the depreciation we had already performed in the first three quarters when we didn't know yet that we would even go to this accounting model. It is for sure normalized and is continuing this way also for 2020.
Sorry. I meant on the new line that you have added, which is -7 , - 19, basically nothing,- 131. Every quarter, there is something.
No.
It could be, or that's it?
No. Thank you for clarifying. No, I understood that you were mentioning the amortization, the depreciation, but even more on the profit and loss, devaluation is completely one-off. The accounting rules are that you have to immediately post on P&L any depreciation to the fair value. Meanwhile, you have to post a capital, any revaluation of the fair value. This is one-off. Now is everything at fair value. Whatever we will do will be, of course, directly impacting our profit and loss, but not because of exceptional items, but because of potential disposal or potential new depreciation or evaluation of asset.
Okay.
Is that clear?
Yeah.
Cost personnel. Maybe that I was not completely clear. We had some provision for 2019. We left this provision, even though the contract is on four years, of course, so 2019 is already a part of the contract, but we have some room also to accommodate the potential increase in 2020. The increase is one-off vis-à-vis the potential cost in next year.
We know the potential cost. The contract has been signed. Can you tell us?
What do you mean?
I mean you have up-fronted a cost that has not come because the salaries go up on first of January 2020, not 2019.
Yes. As I mentioned, we have already provisioned what we have to pay starting from January 2020.
I'll follow up with investor relations. I just don't want to multiply something that I shouldn't be multiplying.
You don't have to add the contract also to 2020, of course. At least most of them. Better if you talk with the IR for the details.
Thank you.
The next question is from Noemi Peruch of Mediobanca. Please go ahead.
Good evening. Thank you for taking my questions. I have a couple. Can you, please disclose the yield attached to the real estate assets subject to the reclassification in Q4? Have you repriced fees on current accounts for 2020? If so, what impact do you expect from it next year? Have you already discussed with the supervisor the potential application of calendar provisioning on the NPE stock for 2020? Just a minor clarification on capital. With market risk, AMA risk, and credit risk, are you referring to Basel IV or something else? Thank you very much.
I start from what I got more precisely. I think one question was on calendar provisioning. We do not consider impact in 2020. I think in our business plan, we will be again more clear, but we will start from 2021 to have some effect. Of course, in a static situation, but we are moving in order to avoid static situation. There is no other credit problem that we foresee. If this was the question. For the yield on real estate, frankly speaking, I will revert to some of my colleagues because there are many calculations, quite difficult depending on the different town and the different situation, instrumental, non-instrumental assets, rented assets or not, assets utilized by ourselves.
I don't have a precise number to give you, but of course we have all the job done by our evaluator and by the external auditor that I think can clarify better the answers to your question. Maybe I lost a bit of your many questions. Can you repeat some of them if I didn't answer?
Sure. Have you repriced fees on current accounts for 2020? If so, what do you expect the impact will be in 2020? Also the risk you mentioned related to market risk, credit risk, and operational, is it Basel IV or something else?
Okay. We have just approved a reprise maneuver for negative interest rate. I think that in 2020 will affect only for two quarter because, as you know, we have to wait the calendar day bylaws. Would be in the region, I think of EUR 20 million, EUR 25 million for half year, then the double, of course. Maybe the last question was related to the headwind. I mentioned that there is one question related to the definition of the IRB model, which is still to be approved. I don't have practically any potential hint that I can give you. Meanwhile, for the other potential impact that we expect, which are market risk, specific risk, operational risk, and I don't know the.
Update.
Update of time series. Of course, this will be the impact which I was mentioning in around 40 basis points.
Thank you.
The next question is from Hugo Cruz of KBW. Please go ahead.
Hi. Thanks. I just wanted to ask, and sorry if it was asked before, about the tiering benefit. What will be the incremental benefit in 2020 compared to the level of Q4 2019? Thank you.
As you know, we have an opportunity to utilize a bit more than EUR 6 billion. Would be something in the region of EUR 20 million-EUR 25 million.
Is that incremental to someone who's already booked in Q4, so is that incremental to the level Q4?
Q4, I don't know if utilized for all the Q4, the EUR 6 billion. I think it's two months or no, almost. Okay. Starting from the beginning of October. The Q4 already included the piece of increasing that I was mentioning before.
Okay, thank you.
The next question is from Alberto Cordara of Bank of America. Please go ahead.
Hi, good afternoon. My first question is on the NPE inflows. I'm looking at slide number 23. There was a big drop this quarter from an average of over EUR 200 million in the previous quarter to EUR 88 million. You can give us some comments on why there has been such an improvement, maybe by splitting these numbers between gross flows and exit. My other question is similarly related, if you feel you can give us an idea of what could be the impact of the extension of the Definition of Default in terms of growth of additional one-off non-performing exposures. We saw some banks that have already adopted this new definition. Finally, my third question is, you had a very fat, very big trading line in Q4. What we should expect is a normal, inverted comma, trading line for future years.
In Q4, obviously you have Sorgenia, but you also have a very big capital gain from the placing of sovereign bonds. Thank you.
Okay. The first question is on NPE inflows. I would say, even though we consider a very good year in terms of normal inflows, considering normal, not big ticket, we were very affected by big ticket during the year. Luckily enough, in the first quarter, there were no big tickets. Let's hope that this could be at least more a range rather than the previous quarter. Of course, as you know, we have a dedicated activity on that, and we immediately switch monitoring any situation as soon as we understand that it's not anymore performing. Let's say that was a good quarter, not affected by big ticket. Impact of DoD, I am not that sure that this will come for us this year because as you know, we have applied for the one-step transition, but nevertheless, I think it's a minimal impact on our activity.
Let's say that the cost could be, in terms of provision, around EUR 30 million or more provision with three, four basis points increase, since when we will be applying the new Definition of Default. Sorry, you were talking about NFR. I think you follow us for many years. We have already had something in line with EUR 100 million, EUR 120 million. My head of finance is staring at me because he always says that is almost difficult to reach these results every year, but it's very good, and as you see, we have good reserves in our book. Let's say that the normal impact is in the region of what I mentioned to you, but we are almost every year over-performing the normal impact.
Okay. Thank you very much. Thank you.
Mr. Castagna, there are no more questions registered at this time.
Let me thank you, all the participants, and of course, we will be a bit around, but mainly in Milan, and we are willing to have everybody on board for the third of March. Thank you. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.