Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banco BPM 9 Months 2019 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.
At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR Manager. Please go ahead, sir.
Good evening, everybody, and thank you for attending the conference on the results of Q3 of Banco BPM. Let me, before leaving the floor to our Chief Executive Officer, Mr. Castagna, remind you that the question and answer section
It's a reserve only for
the financial analysts, and you can find the presentation on our Web
Good evening, everybody, also on my side. Thank you for being with us. For the Q3 presentation, I would say starting from Page 5, A quite solid performance in all 9 months and especially in this Q3 confirming good In business operation and in the reduction on the risk profile of the bank, operating profitability is going up 7%, thanks Especially to lowering cost operating cost and with a good performance in revenues Driven from commission rather than NII. Customer volumes are still growing, both in loans And in deposit, we are up 1.7% in deposit in the quarter and 7.3% since the beginning of the year And 1% in the quarter for core performance loans and 4% strong since Beginning of the year. The risk profile is still bettering.
Gross NPE and net NPE are going down to 9.4% And 5.6%, as you know, we are going down organically without doing any massive Transaction, the coverage is going basically up, especially in OTP coverage is growing 150 basis points To 37%. Meanwhile, taxes ratio is going down 60% to 58.1%. On Page 6, again, on the balance sheet side, The loan to deposit ratio is bettering. The share of deposit, as I mentioned before, is growing To 82% from 80%, the liquidity position is even better to up to 170% For LCR, higher than 100% for NSFR. A very good, I would So an excellent performance on the GOVI's portfolio, which makes Evidence, we already talked about that in the Q2.
The Q3 is even better with a reserve in fair value for more than 2 €50,000,000 unrealized gains in amortized cost up to €860,000,000 Which of course don't go neither into profit and loss nor in the common equity Tier 1, But would represent an equivalent of 140 basis points in terms of potential incremental common equity Tier 1. The capital position therefore is good. We are growing in terms of Com Hem Credit Tier 1 to 12.1% from 11.9% and stable at 13.8% in common equity Tier 1 phase in. This is notwithstanding a marginal conservatism, which I will talk later on when we will comment on common equity, which accounts for almost 40 basis points already included into this number. We would like also to What normally is already in the balance sheet under IAS scheme, the comprehensive profitability, which shows the creation of value not only in terms of profit and loss, But also including the different issue which are not directly Accounting the profit and loss, likewise, for instance, the fair value in the GOVIS.
If we consider the comprehensive profitability in 9 months, we are up to EUR 970,000,000 of results, Of which, again, 686,000,000 are the profit and loss results and 271,000,000 The difference on other income, all these, again, without considering The unrealized gains on the govies, which I mentioned, is more than 800,000,000 A quick look to the quarterly performance, both the stated one and the adjusted. Basically, There is no major difference between the two rather than the extraordinary gain of 336,000,000 In the Q2 related to the Agios transaction, the disposal of the NPL platform, As far as the other numbers are concerned, you can see that we went down 2.9% in NII 2% in commission, a much better net financial results due to the good performance in the especially from the finance and the total income, which amount exactly the same number, 0.2 more Then the Q2. Operating costs went down 3.6% on the stated figure and 1.1% on the adjusted With profit from operation up 2.4% in the PLL adjusted. LLP provision went up to 208,000,000 with a pretax profit of 168,000,000 And net income of EUR 96,200,000 which in the stated version is EUR 93,300,000. The total profitability for the entire 9 months is up to EUR 686,000,000 In the stated account and the 387,000,000 as far as the adjusted PLN is concerned.
Let's remember that in Q3, likewise in Q1, we have also the systemic charge with the extraordinary contribution to SSM and the Guarantee scheme. The results of this quarter can allow us to confirm the expected adjusted Let's go to the different items. Net interest income, as I was mentioning before, is Down 2.8%. As you can see, the difference comes basically all from the Euribor Reduction of the rebar, which accounts for €15,000,000 negative, Spread effect is €3,000,000 negative. Meanwhile, the calendar, one day more and volume effects Accounts for €7,000,000 positive.
Then we have €3,000,000 deconsolidation for the Pro Family Captive business, EUR 4,500,000 related to the derisking And EUR 4,000,000 positive from the financial activities. You can see the spread on the lower part of the slide, Which is down the asset spread from 1.87 to 1.85. The customer spread is down 9 basis points, mostly due to the reduction of 7 basis points Of the year, we were from 0.52 to 0.39. Of course, the global results, especially if you see the previous year figure 2018, It's very much impacted by the reduction, by the de risking that we had during last year. Like for like, we have EUR 210,000,000 less of NII contribution from PPA, IFRS 9 and UTP Deconsolidation.
Let's have a look to the new portfolio, which is, I think quite encouraging. We were able to maintain the pace of the 1st quarter With €5,000,000,000 for quarter, we are up to €15,300,000 of new production, 3.1% more than last year. Let me remember that last year we had some giant Sachin, likewise, Atlantia during the Q3, which didn't happen this year. And let me also stress that this is Coming from our bank, both from household growth and corporate, almost 3% each. It's quite interesting to have a look to the right side of the slide in which we try to give you the The sense of the increase of the rates we are having on new production, so the production is done normally At 17 basis points higher for large and mid corporates related to last year and 4 basis points higher for small corporate.
This is not because more corporates pay less or accept less increase in spread, but because we started With the new pricing project, which started before 6 months ago for mid and large corporates, Only 2 months ago for small business. We are quite confident that we can reach better Figure quite soon, both for corporates and small corporate. Let We say that this increase in all in rates comes also considering notwithstanding the reduction or average reduction Again, the volume of the balance sheet up 4% for loans and almost 7% For deposit, you have the different distribution for different mortgages and current accounts and other loans. Everything is growing mostly at the same pace. I have to say that, of course, in terms of Total spread, what we are achieving is much better with the corporates rather than households.
As you know, in mortgage, residential mortgage, the competition is quite tight. Let's go to the funding Side of the balance sheet, we have experienced during these 9 months many issue On the wholesale market of every type of instrument from senior To 81 to Tier 2, which was the recent transaction we did beginning of the October. Likewise, we did another senior transaction at end of October. So we have completely replaced The EUR 1,700,000,000 already matured in 2019 with the global issuing of EUR 2,400,000,000 During these 1st 10 months, the average rates and spreads, You can see on the lower right side of the slide that we are succeeding in having Spreads much lower and rates much lower than the one who are maturing. As you can see, the average rates for the €1,700,000,000 average was €3,800,000,000 3.8 percent.
Meanwhile, the new senior issue Well, an average of 2.1 percent and likewise for the spread. The cake of the bond funding composition is quite, I would say, Evenly split between covered bonds, senior, with a good tranche also now of subordinated up To 18%. Subordinated are now up to EUR 3,100,000,000 EUR 1,500,000,000 Not included in all fund phase in, but represent MREL eligible funding. So they are still working in terms of MREL. And of course, these figures still exclude the €350,000,000 issued that we had of T2 in October.
Let's go to commission on Page 13. Net fees and commission Up visavis the Q1, down 2% visavis the second quarter. As you know, There is a seasonality in the Q3 for August, but notwithstanding that, you can see on the right side On the slide, a new presentation that we have done especially to show that the investment product fees It's growing quarter by quarter also in Q3 visavisQ1 and Q2, plus 7% versus Q1, Plus 1% versus Q2, and we are still growing also during the last quarter. The Between running and upfront shows that the margin, which is more increasing, comes from running fees. Another way of shows this increase in investment product is on Page 14.
You can see that Q3 'nineteen on Q3 'eighteen, we had $300,000,000 of higher production, Which is again the best quarter in the 1st Q1 of 2019 with solid recovery in upfront fees, up 17% of the total net fees and commission production with an average profitability of 2.1%. I have to say that as we announced also in Q1 after the new approach in 2018 Of the change in the advisory by portfolio rather than advisory by product, we finally eventually reached A good pace of performance, which from nowadays, I think, can only show better results from our network, Also because the increase in current account and deposit give us an enormous Reserve of potential conversion into asset under management from current accounts. You can see on Page 15 that up to now we have grown only EUR 2,000,000,000 from the beginning of the year, but I am sure that this Can be the real trend that is going up during the next Few quarters. Net financial results, again, a very satisfactory result of EUR 41,000,000 During the Q3, again, the $225,000,000 of contribution To the capital position from reserve on govies on fair value, on securities on fair value, Meanwhile, as I mentioned before, it's not included nor in P and L and either in the capital position, the €3,000,000 of equivalent unrealized gains of 140 basis points in common equity Tier 1.
Another slide on Page 17 about the composition of our Debt securities portfolio is Italian govies are down to 19,300,000,000 percent of the total debt securities, which amount to €34,000,000,000 As you can see on the left Down left side, fair value is €12,600,000,000 37 percent. Amortized cost is €18,000,000,000 representing 52% of the GOVIS of the securities. Very sound, again, liquidity position, EUR 21,000,000 of unencumbered eligible asset, 95% of which represented by high quality govies. I would skip Page 18. I can only mention that The duration of the dovies at fair value is very short, it's 2.4 years.
Meanwhile, we have a duration of 4 years as far as the amortizing costs are concerned. Let's go to the cost side. Total operating costs were down 3% compared to 1st quarter, 3.6% compared to 2nd quarter, 1.1% excluding one off. Basically, in all the 3 different components of operating costs, Staff cost is going down 2.4% since Q1, 0.6% since the 2nd quarter, Administrative costs down 5% and 2.10%, respectively, and depreciation and amortization Also down 2% 19% since the 1st and second quarter. Let's examine also this reduction in operating cost with a more long If you we go back if we go back to the 1st 9 months of 2017, Which was the 1st year of the business plan.
In the 1st 9 months of 2018 compared to today, We have a reduction of more than €207,000,000 which annualized means Something in the region, EUR 270,000,000. If we compare the annualized results, For Egas results of 2019 with the starting point of the business plan, As you can see, the savings are account to $420,000,000 This comes through, of course, a Much bigger evolution of the reduction of the headcount, which were down 3,120 person. As you know, only 2,000 twothree of these out of the excess scheme, The retail network evolution also was down 700 branch. Let's As to asset quality, here we have the reduction both gross and net In the NPE stock, we have also the comparison with the Equivalent data of 2018, September 2018, of course, then we had the massive ACE transaction, But which, of course, is 43% down. But also, if you consider the reduction From the Q1 from December 2018, we have a reduction of 11.4% gross and the same amount net And 2% growth and 4% net Q3 on Q2.
So there is a progressive reduction, Which would bring us to a safe figure in this ratio without spending More than we are able to recover with our workout activity. NPE ratios were down to 9.4 gross and 5.6 net, down 0.3 from the previous quarter. As you know, the bad loan ratio are still at a very low level, 3% loss, 1.4 net. And all our effort, of course, are much more dedicated to the UTP reduction Rather than these remaining bad loans. And this also explain why we increased the coverage of UTP Up to 27% for 35.5%.
On Page 22, another very good news is consistent, good pace In reduction of net flows to NPE in the region, 9 months or 9 months of 13%, 5% quarter on quarter, but especially the transition from UTP to bad loans It's down both year on year and quarter on quarter more than 30%. Cost of credit again is $280,000,000 in line with our guidance of 69 basis points during these 1st 9 months, And especially due to the increase of the coverage of UTP. Another slide on Page 23 on UTP. This is mostly to see the pace that we had since the merger in OTP coverage, Even though our effort, as you know, we're much more dedicated to bad loans, we increased 10 full points Since the beginning of 2017, in terms of coverage of OTP, which is now up To 37%. The analysis of the UTP portfolio is 6,900,000,000 €1,000,000,000 are unsecured.
I have to say that the portion unsecured and not under restructuring, So not linked to ongoing position, which are currently on a restructuring plan, Normally paying installments and interest is only €400,000,000 The coverage for unsecured, 52 percent for secured, 28%. On the up side of this slide, you can also see We were able to offset the inflows since the beginning, since 2017, Which you see in the red box in the red histogram with the major volume Year by year our workout in UTP. In the 1st year, we had €1,400,000,000 of inflows and €1,700,000,000 of workout. In the second, CHF1.4 billion CHF1.6 billion of work out, this year in the 1st 9 months, we're having 700,000,000 of inflows, 800,000,000 of work out. The capital position, Rightly enough, we reached after the 11 quarters since the merger, finally, not anymore a pro form a Position but stated 1, as you know, we were quarter by quarter, recurring The transaction that we were closing during the quarter, but which would have had effect on capital in the next quarters.
Nowadays, we are on a normal situation, and we can see that the final figure are quite satisfying. We have 13.8% of phasing capital ratio and 12.1% fully loaded capital ratios. Let me spend some minutes to explain this quarter, 40 basis points of negative impact On the marginal conservatism, which is related to the time series updated, this is Something that, frankly speaking, we didn't expect comes after the request that we made to ECB For the update of the model for IRB, we were quite confident To that being under review of the model since our application that was done in August, as I mentioned during the Q2 conference call, we would have been asked to update the old historical series, Having done the work, of course, for the new model, as a matter of fact, ECB Ask us to update also the old historical series. We were not in the position to update the historical series by This quarter, as it was asked by ECB, so we decided to apply the very conservative margin of conservatives In order to give more room for the exercise that will be completed by this quarter And of course, will be an impact which will be offset at the end of the validation Most probably by the first half of twenty twenty.
So it's a real consistent margin of conservatism, which we hope Can increase the buffer for further potential headwind. Let me remember that This year, we passed from a stated Common Equity Tier 1 at 10% in December 2018 To 12.1 percent this year, this month, sorry, this quarter, notwithstanding 70 basis points of headwind that we added to beer due to the different TRIM, This margin of conservatism and IES 16. So this is also for showing the ability of the bank To face this potential regulatory request with capital generation And also with organic generation. Let's only mention that this year stated We performed up to now in 9 months an organic capital generation of 2.7 Percent, 1.2 percent out of the capital management action, 1.5% Through capital generation, Organical Capital Generation. So we are really happy of these results.
We feel confident that we can confirm that 12% is now the result that we wanted to reach, And we succeeded basically some months ago the expected results. Final slide, I would say that with this quarter, we have really reached and confirmed the positive Trend in investment product fees, we have cost still under strict control. We are continuing our organic de risking process. We are quite to a normalized cost of risk. We have had an excellent performance in reserves and unrealized gains in debt securities, and we are We were able to strengthen even more our capital position, creating some potential buffer also for 2020.
Let me confirm, as I already mentioned in Q2, that we confirm our adjusted EPS estimation Of $0.30 for full year 2019 and I can also say that we are on track for a possible dividend
Yes.
Thank you. The first question is from Giovanni Razzoli with Equita. Please go ahead.
Good afternoon to everybody. Three four questions on my side. The first one is a question related to the Your thoughts about the business plan presentation. In the context of the plan and it would be nice to know What is the time frame for the plan presentation if it's year end or first half or when When you are about to present the plan, but in the context of the plan, do you think that is the reduction of the sovereign Exposure, a priority for the bank also in the context of the recent statement that we have seen just Also today about the banking union, the reduction of the exposure to the BTP. So what are your thoughts there?
And related to this, you are sitting on about you disclosed 140 basis points of extra capital related to the Gains on the BTP. I was wondering how can you leverage on this amount that you intend to leverage on this amount To fund an acceleration of the restructuring, for example, in the cost cutting. And again, related to this, I would like you to share with us what are your thoughts about the shareholder remuneration. Do you have a preference to Dividend distribution or buyback, I ask you this because in my view, it is, there is a material difference in terms of the method that you give to the market because buyback Gives you flexibility on the capital, but flexibility in my view does not give you a straightforward method that you are really confident about your Capital position and risk profile, you have a 12.1 percent Tier 1 ratio. Now you're ranked number 3rd in terms of asset Quality with a 9.4% NPE ratio.
So I was wondering whether What are your preference between dividend and buyback and why you are still relatively shy in terms of saying possible dividend distribution, while Most of your peers are already committing to a much larger payout ratio. And finally, sorry for the long questions. You mentioned you have added a marginal conservatism to your CET1. And you say that the regulatory headwind amount to 70 basis points including TRIM by IFRS 16 and this margin of conservatism, I have reconciled the Different moving parts and to my understanding this margin of conservatism amounts to 40 basis points of CET1. I was wondering whether my calculation is correct.
Thank you. I'm sorry for the long list of questions.
Okay. Thank you. I'm just seeing more question for the business plan rather than for Q3, but I will try to do my best to give some answer. Business plant presentation, as I mentioned Also in Q2, we were working on it. We are still working on it.
Frankly speaking, this scenario changed a lot during the last months, both in terms of liquidity, in terms of Political and economic situation in terms of interest rates, so we are still trying to Do our best to present something that is reasonable and is feasible with the current situation. This would bring, in my opinion, to deliver the business plan during Q1 next year. Second question, the goal is, of course, this is very much linked To the business plan strategy, of course, whatever will be done in terms of Potential major reduction of cost or reduction or further reduction, accelerated Reduction of NPE rather than other measures that we have To adopt, have a good reserve fostered by this quite solid Gove's position. So we know that we have ammunition in order to We have a very good and satisfactory, I hope, business plan. Of course, we don't have to forget That the liquidity position, the NII situation is under threat.
We have negative interest rates, Which up to now are giving some thought for the near future to the banking system. And of course, whatever the share of NII, we would envisage will be done both By interest from customer and also from investment in securities. So the trade off is always is not That evidence that in doing one thing, you are doing to adjust forever The contribution for the bank and the potentiality to have a sustainable profitability for next year. So let us finish our homework and we will be we will try to be the clear When we will present the business plan. Given the distribution, I thought that I had A sort of soft approach to this issue, during the Q2, I only mentioned the possibility Of the dividend distribution, this time, we wanted to write down the possibility of a dividend distribution.
I mean, the consequence of this would be that we want to pay a dividend this year. Of course, We are the only bank which comes from the merger. We wanted before announcing officially something that has to be, Of course, decided also by the Board and by the EGS, of course, wanted to have all the A possible situation which does not endanger our bank. Nowadays, we are confident that we have reached The right capital structure, we are also reinforcing our structure, as you know, with the emission of 81. And so I think that is quite evident the willingness of the bank in terms of the dividend.
Last one, the mock. Yes, you were right. If you want, I can give you the difference. The split of the 17 basis points was 12 basis points IFRS 16, 20 basis points add on on TRIM And for the best point on this mark.
Thank you.
The next question is from Adzura Guelfi with Citi. Please go ahead.
Hi, good evening. A couple of questions. 1 on the coverage of UTP, this has been continued to increase over
the last quarter. It has a result also probably in better work out for the banks, but I just wanted to know There has been any
change in the way of merging
the UTP from your side. The other one is on the NII. And the effect of the disposal should have been like now crystallized on the NII. So what would be your expectation? Is this the bottom of the NII going forward assuming the rate doesn't move forward.
And if possible, can you give us the average yield on your government portfolio? Thank you.
I'm not sure I understood the coverage on NTP question. Again, it's increasing 150 basis points. This comes before, as you know, we have already done basically All the homework, we are still, of course, opportunistic also on bad loans, which basically is almost all Composed by leasing activities, which we'll be trying in any case to dispose. But on UTP, we are very much concentrated on increase this level because also with workout, we have to try to reach some Potential opportunity for reducing At the same pace we are doing right now, I remember we have reduced in less than 3 years, we have reduced more than €4,400,000,000 basically without losing money. And this is our goal, to still increase The coverage in order to reach potential opportunity as when they happen on the market.
On NII, this comes together with the question of Mr. Vazoli. Of course, if we think about the same GOVI's portfolio, It will be very much the same apart from the reduction of the Euribor. You consider that the average Euribor for the Q3 It was 34 basis points. Nowadays, we are already at 39, if I am not wrong.
So there is anyway an effect Still on the portfolio, but of course, the vast majority for a forecast on Next year will be depending on the portion of GOVIS that will decide to keep or sell on the market.
And can you give us the average yield of the government portfolio?
No, I am not in the position right now to give
The next question The question is from Christian Carrese with Intermonte. Please go ahead.
Hi, good afternoon. I have three questions. The first one is on net interest income. I would like to understand your approach on TLTRO 3 And Tiering, have you done already some calculation on what you want to take up and the Impact in Slide 20 from Tiering. And still on net interest income also, I would like understand the commercial policy, because I see a slight slowdown in terms of loans growth.
Are you trying to increase the customer spread rather than volumes? Or You still think that you can grow higher than the sector average? Second question is on Commission, a good quarter, no big seasonality. We saw 6,000,000,000 almost €6,000,000,000 inflows in terms of debt deposits year to date. What are your thoughts there?
So what do you think will be The possibility to switch into assets under management in 2020, if you can elaborate a little bit more On clientele risk appetite, if it's improving the current low interest rate environment. The first question is on capital. Just a clarification on Slide 24. The JADON impact imposed by ECB, What kind of impact when they will be removed? What could be the impact?
Maybe I missed During the conference call, the positive impact on capital and There are other actions, I think some participation that could be non core participation that could be sold In the next couple of years and also there is the pro family non captive business that should be finalized by year end. So I would like to understand what is the capital ratio that you want to have, I mean, Just 12% or maybe more between 12.5% 13% going forward? Thank you.
Thank you, Mr. Carese. So TLTRO and Tiering, this is another basically new Decision because we have we had our funding strategy done without TLTRO, as you know, Because we mentioned that many times in the previous meeting. Now what is we are reconsidering everything. I read that those other bankers Are considering due to the more interest in rates, but moreover on the 3 years due rate maturity Over the PLTRO, which of course account very much in terms of NSFR to reconsider also our potential strategy On borrowing money, of course, it's not yet decided.
It will be done through the business plan. Consider that if I'm not wrong, the contribution TLTRO is about €5,000,000 per €1,000,000,000 So it's quite easy to understand how much it accounts for our numbers having €21,000,000,000 right now. The tiering is quite new and interesting also for us because we were not depositing In ECB, just because it was too expensive, nowadays that we have almost €5,000,000,000 of room To deposit at 0, we will exploit this opportunity, which should give us Something in the region of €20,000,000 of contribution in NII. Of course, also this will depend on How we will be able to manage this enormous amount of liquidity that is still coming Into the banking system and also in our bank, because of course, if we are able to stay with the $5,000,000,000 position, Of course, the €20,000,000 will be all in our NII. If we still will increase this number, This will erode step by step the €20,000,000 So all our Activity will be devoted to have the right growth or reduction, especially from corporates and Institutional investor in liquidity in order to try to offset their disadvantages and to keep Full advantage from the tiering.
Commercial spread, yes, I mentioned before, I made this slide just to show you That the new loans are luckily enough already experiencing quite a good increase In the total rates, why we have reduction in the average spread Because, of course, the loans maturing comes from 3, 4, 5 years ago and are still at higher spread, But the new loans production is much higher and will be still higher in the future vis a vis last year. Commission is, I would say, the name of the game for us. We I think everybody, starting from us, but also the market, I think undervalued the Restructuring process in which we were involved during these 3 years with, as I mentioned before, this new portfolio advisory approach. Nowadays, our people understood what to do. Luckily enough, the performance of the bank are quite good in terms of return of this investment.
So we have a lot of room for switching into further assets under management, and this will be the key driver also for the business plan. Last, first of all, let me precise, which is not an add on. It's not been imposed by anybody. It's just a request that we were not able to perform just because we didn't expect That the request would have been done having already the new model request in place. Of course, we will we are running the calculation for the old model In parallel, I hope by next quarter to give with some hopefully gaining on this 40 basis point The right number, but still will be a number related to the past, not to the future.
So I think that the overall situation will come out clearly by the final SB validation from ECB, which should come in the first half of twenty twenty. Let's say that is a good margin that we have taken apart in order to offset Any potential downside? Again, Common Equity Tier 1, we are not worried at all About Common Equity Tier 1 growth, we know that we can grow organically in order to increase From 12 to 13, even without any capital management action, But as you know and will be indicated in the business plan, we have plenty of financial participation, Which we want to dispose also for the threshold. As you know, we have still a threshold which is higher Then what we want to be in terms of financial stake holdings, DTA and so on. So the more we can free up, the more capital we can free up.
And we again, I think we have something in the region of €200,000,000 to optimize in order to bring further capital.
We have limited impact on profits, I presume.
Without impact on profitability, I am talking about the remaining pro family activity, The Cariasti factory Selma, so things that frankly speaking don't give so much contribution to our profit and loss.
Thank you very much.
The next question is from Andrea Vercellone with Exane. Please go ahead.
Good evening. Apologies, I had to leave the call for 5 minutes. So apologies if some of the questions have already been asked. The first question is on capital, on the €2,000,000,000 Voluntary add on. And specifically, your calculations in order to Addis Addon are based on taking into account PD and LGD Series up to what year?
Is it 2018? Is it H1 2019? Is it 2017?
Is everything captured
until now or you will have to reupdate it again? And also related to this, in the model you put in to the ECB for validation, Have you already taken into account of the ABA guidelines requirements Or that is still to be done in future years. Also on capital, can you make Some comments on operational risk in Q4. You have stated in the past That there could be a negative impact. So that's it on capital.
Then fee income, Last year in Q4, it was a very strong quarter. However, it benefited from Very strong contribution from Structured Finance or that's what you had said at the time. Shall we expect Something in line or it would be prudent to say it will be lower because it was really an extraordinary quarter on that front. On bonds sorry, senior bonds maturing on the funding side in 2020, 2021, 21, can you give us the average cost, Something that compares to what you put on Page 12. And finally, on the unrealized gains of 8 €60,000,000 on bonds at amortized costs.
Are these gross or net or taxes. And you said before that they are a good buffer for potential restructuring and so on. But is it quite simple to unlock them or if you want to or not? Thank
you.
Okay. Let me remind again just to stress that it's not an add on, That is something, I would say, self inflicted. It's taking account, Generally speaking, because again, we didn't have the possibility to run the figure with, I would say current IRB model because we were already on the new one and we made a conservative estimation Of this €2,000,000,000 considering both 20172018, of course, including whatever we I have included, but this is already in the application for the new model. So the EBA guidelines, as I mentioned also before, In part, we're already included in the previous validation that we obtained in 2018. And of course, for the one that we knew afterwards are included in the new request for validation.
Excuse me for interrupting. So basically, that's it on this front in terms of regulatory headwinds. Everything we know, it's either in this buffer or any way In the model that you put in for validation, is that correct?
I would say that if you remind, we had also some buffer From the previous validation, because there were some add on imposed. So I would say that for the new one, now we have 2 BaF, one was the previous add on. The second one is the current that we put on the balance sheet this quarter. Is that clear?
Not really, in the sense that what we all want to know Is should we factor in certain additional negative components for the future or not?
Sorry, Mr. Bertolone, I am not, of course, the regulator. Otherwise, I would have out self imposed the validation, not the mock. So for the time being, I can only self impose the mock. Of course, hopefully, as you can have experienced during these 3 years, We were always delivering and performing also in the different step with the procedure that we had with ECB.
So at the best of our capability, there shouldn't be any other things. But of course, I have to wait for the validation Because I am not the one that has to decide the numbers. Of course, we have done, we think, A good job, which is still better if we consider this further Buffel, let's say.
And on operational risk, is there still something coming in Q4?
I don't think so. Again, we are running Mont by Mont, if you are mentioning I don't know if you are mentioning to some Particular situation or the famous diamond case, if it's for diamonds, we still are running. We are now up to more than 9,000 transactions with client Fully in line with our provisions, so we don't forecast any other things. I don't think we will have any other potential backfire from that. Commission for Q4 will be, I would say, of the different nature from last year, but not very different probably From the results, because last year we had, as you rightly remember, the cannibalization Of a big tranche of such a finance transaction all in Q4, This year maybe will be a bit less, but we are recovering a lot in terms of asset under management.
If you have a look to the slide on Page 14, last year in Q4, We had €2,500,000,000 of placement of investment product. I really hope that we can be Almost 1,000,000,000 better debt free year end of Q4. What else? Senior bond maturing, we have 2 kind of bond. The tranche subordinated would be 5.5% and the senior 2.5% but are both covered All swapped, of course.
So most probably, we can have better price. Last unrealized gains are considering gross. As you can remember, in terms of capital, the gross for us is equal to the net Because of the DPA, so that make a lot of difference.
Okay. Thank you.
The next question is from Domenico Santoro with HSBC.
Please go ahead.
Hi, good evening. Thanks for the presentation. Also So a couple of follow ups from my side. Again, on the capital, I understand that you have a lot of Positive reserve here and you might decide in the plan whether to action at some of them Also of course calibrating the impact on the P and L when it comes to OTP and the sovereign. A bit beyond next year, I was wondering whether you have any message on Basel IV instead and the operational risk Okay.
That kicks in first. The second is on the new definition of defaulted loans. I was just wondering whether you have any idea on how the NPE perimeter might Change and whether this is going to kick in the Q4, please. And then I had a very similar question to the one of Colleague on the buyback of shares, but actually it was answered before. I mean EO Stock is of course trading at a very low valuation.
And from what I have understood from the Chorus, for example, the Spanish banks, There is the regulator is more open to consider buyback of shares. And we had also There is more Austrian bank that have been approved a buyback of shares recently. So I'm just wondering whether there is Any discussion with the regulator on this, you might be inclined to do that because of course you are Far away to be considered a stock I mean for income funds. So the buyback of shares it might help significantly the valuation at this point. Thank you.
Thank you, Mr. Santoro. No, frankly speaking, we don't have big Material rather than big, foreseen amount of headwind For both 2020 2021, 2022, of course, there will be The EBA guidelines, most of them, we think we have already applied In the exercise we tried to explain before, there will be, of course, something on the AMA, but starting from 2022, I think we can we will be More precise also in the presentation on the business plan, let's just consider, please, That I don't know if, frankly speaking, this exercise of announcing the headwind is quite consistent. For instance, if you go back to the past, The potential impact or whatever came Basel III and so on was considered much higher That has been, as a matter of fact, I would say, especially with us, we were running the bank With massive derisking, with a lot of headwind that came from different validation, And frankly speaking, we are still here growing in the common equity Tier 1. Just to make an example, The impact of IFRS 9 was calculated to be What basis points?
42 basis points in 2016 Ended up to be 20 basis points. So everything is just an estimation, which do not consider that the bank is a moving company In which, of course, we try to better our capital absorption to make Move in order to offset potentially the wind. And again, I think our story of these 3 years And shows that we were very much able to offset all of this. But frankly speaking, for the next 2 years, I think we will be Much better than in the past because, again, since this quarter, finally, we don't have any pro form a. We know that we are running With our capital generation and producing enough capital also considering, of course, especially also Especially for the future, the possibility of paying dividends.
What was the last one? Buyback, sorry. I mean, we are working on everything. This year is a lot of years that we don't give satisfaction in terms of payment Back to our shareholders. So let's, first of all, give us the possibility to understand the amount, And then we will consider what is better to do also considering the amount that will be available for paying back shareholders.
I'm not yet in a position to tell
you. All right. Thank you. About the new definition of defaulted loans please?
Yes. Also, this comes basically starting from January 2022. We will make the application, I think, Q1 2021, we have really preliminary estimation, which range in a range of 10ths of basis points. But still, of course, we are not working on that. We don't think right now, we don't think it's It was possible to give you some number, but it's yet to come in the next 2 years And we will do the application by
time. The 10 basis points is applicable on the loan loss provision, correct?
I mean, so it could be some capital requirement, of course.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi, thank you. So let me see. I have a few questions. Some of them Might have been answered, so apologies for that. But have you accrued any dividend so far for 2019 in the CET1 ratios.
Also on CET1 ratio, there was 40 basis points of margin of conservatism. That's on a phased in Approach, is the number different on a fully loaded basis? And then do you have an approximate
No. The first question is no, because as you know, we don't have to ask for the capitalization of the Q3 Profitability, because it's not audited, fully audited. So we have basically all the contribution that we can have in the second part of the year is available for potential distribution. Yes, the mark is calculated basically spacing, but the fully loaded is not Much different, few basis points. And again, the business plan presentation, we have not yet the data, But we think the Q1 would be the right time.
Okay. Thank you.
The next question is from Adele Palama with UBS. Please go ahead.
Yes, hi, good evening. I have few questions. So can you give us a bit of Caller on the decline trend of the contribution from the equity accounting investment. And then the second question is on the asset I was wondering if you are planning to do faster sale of NPLs. And if you are planning to do it, What is the price that you expect?
And then if you can give us The default ratio for the quarter. Thanks.
Sorry, could you repeat the last question please?
Yes. If you can give us the default ratio for this quarter.
Sorry, I didn't get the first one. It was on the amount. No.
No, no. The first one is On the contribution from the equity accounting investment, the second line of the P and L, There is a decline in trend, if you can give us a bit of color on that.
Global amount for equity participation up to 30 September It's 97,000,000, of which in the 3rd quarter, 28,000,000. Okay.
Yes, but there is a decline in trend quarter on quarter, if you can give us Like from BRL33 1,000,000 goes to BRL28 1,000,000?
Yes, in the Q4, it should be a bit up. I have to say that the major difference comes only from One of our stakeholdings, which is in the consumer finance, where Agos decided to have a different accounting policy On some aspect, so basically, they are making the same money over last year, But deciding to account in a different way and giving us a slowly lower distribution Rather than last
year.
The next question is from Noemi No,
no, sorry, I will still answer. I am collecting data, sorry. Just a minute. Okay. The default rate, I have the data for the full 9 months is 1.2%, Going down from 1.4 as at June, so of course, the quarter is much lower.
For Acute disposal, if I understood the question, we don't have any specific project yet. We are, as I mentioned before, working more on UTP. We are also looking around To understand if some of the transaction made by some competitor is replicable or not. And of course, we will be able to decide better what to do once the will be much clearer The situation for transaction in UTP, which I don't believe can be done the same ways as bad loans in the terms of
I'm sorry, as a follow-up, the default rate that you give us is a Gross or a net basis?
It's gross.
Thank you.
Thank you.
The next question
I have three questions from my side. The first one is on asset quality. Could you disclose the size of the NPE write offs in the quarter? And the second one is a follow-up on capital. Can you please clarify whether the TRIM impact you took in Q2 included already the review of the loan default portfolio and also the retail portfolio.
And finally, what is the contribution to NII from the non captive business of Pro Family? And in which line shall we find the
What do you intend exactly for MP write off? Again, there was no Material position write off, but of course we have a continuous write off Procedure, which of course where we don't see possibility to either recovery Or we prefer to amount to close the provision on some of our dossier. We prefer to do that. But I am trying to give you the number the increase of number, so you can make your calculation. Just a minute.
Thanks.
The low default portfolio yes, the low default portfolio is included Into the TRIM, because it's still the large portfolio, which was all under the TRIM review. And sorry, the third one?
The third one is the contribution to NII From the non captive business of Pro Family and also in which line can we find the PPA contribution? And as a follow-up on capital, was also the retail portfolio included in the 3 main factors you took in Q2? Thanks.
So the retail portfolio is also included into the TRIM. As far as your last question is concerned, I thought we mentioned the lower contribution from from ProFeminis on Page 9 is $3,200,000 in the quarter. So it's part of the negative difference in NII is the first figure we mentioned on Page 9.
Sorry, again, I was talking about the non captive business of Pro Family. Thank you.
Captive, The loan captive? This is the captive, what we lost already. Then we have the captive. So can you check it? If there is some other question, I will come back with this.
I think it's something like
The next question is from Thomas Deswazne with Goldman Sachs. Please go ahead.
Hi. Thank you for the details on the bond maturing in the next Would you mind giving us what you plan to issue and if possible by type of instruments? Thanks very much.
We have a forecast of basically issuing the same amount which are maturing. Of course, we are considering potentially to also fill some Backed in the different tiers, but the vast majority will be senior And of course, only MREL
issuing. Thank you.
The next question is from Mediobanca. Please go ahead, sir.
Sorry, can I go back one minute to the question on Mediobanca? We found the contribution from non captive is 9 months, €2,700,000
The next question is from Giovanni Razzoli with Equita. Please go ahead.
Sorry, I don't want to open a discussion on whether it's better Pay dividend or a buyback, but as far as I'm concerned, Slide number 25, you have mentioned a possible dividend distribution, which It's quite straightforward vis a vis the buyback. And then in my view, if you deem that your stock is undervalued, you can pay back Money to shareholders via buyback and is up to shareholders to decide whether the stock is undervalued or not. And More importantly, the buyback is a flexible measure, which in my view implies that you are not fully confident about the capital structure, right? The dividend is more straightforward. So I strongly believe that if it's a possible dividend distribution In light also of the progress that you have made on capital profitability and NPE ratio, it should be a dividend distribution, not a buyback.
Thank you.
Basically, I think is what I answered also to some other question. Of course, we have the obligation to do the best we can for shareholders. So we are considering the best option. Again, it's the 1st year. I'm already very happy to give you this Announcement and of course leave me still the remaining time
Gentlemen, there are no more questions registered at this
Okay. Thank you very much for your attention. Good night.
Ladies