Good afternoon. This is the Chorus Call conference operator. Welcome. Thank you for joining the Banco BPM first half 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 for analysts and investors only. 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, Investor Relations Manager of Banco BPM. Please go ahead, sir.
Thank you very much. Good afternoon. Thanks for being here for this presentation. As usual, before leaving the field to Mr. Castagna for the presentation, I remind you that you can find the presentation on the website on the investor relations section. After the presentation, there will be a Q&A section reserved to financial analysts. Now, I leave the field to Mr. Castagna.
Thank you. Good evening, everybody. Thank you for being with us. Unfortunately, we are always very late, very close to the holidays. I hope that after the presentation you can enjoy some week of holidays as we will do. I will start immediately on page five. I will have a shorter presentation, rather than the previous one, in which we'll be concentrating especially on the quarter-on-quarter results, coming, as you very well know, our bank from restructuring and de-risking, which impacted very much on different figures of last year. Of course, the presentation is complete of all the details last year and this year, but I would rather prefer to be concentrated upon the pattern we are following now, which give also the sort of title to the presentation from de-risking to profitability. Let's talk about revenues.
We have a quite satisfactory 3.1% quarter-on-quarter of combined NII plus commission. Commission were up 4.4%, because we have re-qualified the certificates, which in the first quarter were in the next financial results. If we would have excluded these certificates, the increase of commission would have been 6.9%. Operating costs still continue to be under control. We have reduction of 1.2%, like-for-like, excluding extraordinary amortization depreciation, which I will give you some detail further on. More satisfactory is also the volumes growth, both in core performing loans, going up 3% year-to-date and 1.1% in this quarter, as well as current account and deposit, which grew 5.6% year-to-date and 2.7% in this quarter. I have to say that this pace of growth is still continuing in July.
Up to now we have close to another EUR 2 billion of increase in current account and EUR 500 million in performing loans. The risk profile, finally, as you know, with the first quarter 2019, we have basically terminated the extraordinary disposal. We are going on with ordinary work out, and still we are able to reduce the non-performing loan ratio. Both gross ratio going down from 10% to 9.7% and net NPE ratio going down from 6.1% to 5.9%. The Texas ratio was down also 61% vis-à-vis 70%, almost last quarter. Let's talk about liquidity of financial asset. Also in this respect, we think we are going to put the balance sheet of the bank in a very safe profile and picture. Italian gov represent 56% of the total debt securities. LCR is over 150%, as well above 100% in NSFR.
Also, the reserves on the portfolio are doing very well. We recovered almost EUR 100 million, EUR 96 million up to in the second quarter vis-à-vis the results of the first quarter, with unrealized gains on HTC growing to EUR 300 million positive. Frankly, as of today, we have registered even better increase in these two reserves. The HTCS up to now is almost EUR 140 million positive. Unrealized gains under HTC are almost EUR 550 million of positive reserves. The capital position bettering to almost 12%, if you consider also the pro forma, including LAs, the leasing transaction disposal we did in April with illimity, which of course is completely concluded as a contract, but will be deployed the effect during the year. Considering this, we are 12% without 11.9% stated. Also with a very satisfactory and safe, I would say, phase in at 13.8%.
This is, of course, without considering the increase in the reserve I was mentioning before. The outlook is now finally we can devote all our attention and commitment to commercial action, to continuing a strict cost control, and of course, normalizing the cost of risk through further reduction of NPE ratios. The results are on page seven. The second quarter has almost 2% increase in NII, 4.4% in commission, 3% as core revenues increase. Total income are down 4% for two different impact. In the first quarter, we had the results of EUR 6 million from the Nexi transaction, and on the other side, in the second quarter, we prefer not to realize a consistent gain from NFR, leaving the reserves in our book. Operating cost are EUR 5 million more than the first quarter, but with the extraordinary one-off in depreciation related to some devaluation in real estate.
I will explain later on what we are going to do, but most probably we are going to recover also this effect in the second part of the year. Profit from operation are up to EUR 345 million, with the cost of credit of below EUR 200 million, EUR 197 million, higher than the first quarter. As you know, in the first quarter, there is always a seasonality, and on top of that, we had also some positive effect from the ACE transaction. Pre-tax profit growing to EUR 478 million, thanks to the two extraordinary transaction that we already know, which of course are the ProFamily captive disposal to Agos and the disposal of the NPL platform to the new joint venture with the [Consta]. After tax, we have a very consistent EUR 442 million vis-à-vis EUR 150 million of the first quarter.
Excluding the extraordinary impact, we have EUR 135 million of profit, net adjusted income profit vis-à-vis EUR 155 million, including the Nexi transaction. Let's go to the net interest income. As I mentioned, there is an increase, which excluding extraordinary items, is 3% quarter-on-quarter. On the right side of the slides, you see the different addendum to this evolution. EUR 12 million of the increase are related to the commercial banking activity. A slight reduction, EUR 2.2 million, is to be assumed because of the reduction of the UTP volumes. Meanwhile, different items are for the remaining EUR 4 million. All in all, again, 3% increase coming from a good combination of loan growth and lower cost of wholesale funding, together with an asset spread, which is still reducing three basis point, in particular because of the loan growth we are having with very high-rated customer and on short-term lending.
We have already in place a maneuver on short-term lending, which should impact positively on the global asset spread. On page nine, the volumes. I already mentioned the increase year-to-date and quarter-over-quarter. We have year-to-date a 3% increase in the core customer loans and 5.6% of deposit. As I mentioned before, we are still registering increasing also in the first part of the third quarter. On the production of the new loan, on page nine, bottom left, you see that vis-à-vis last year, we have 21% of more new granting loan to almost EUR 11 billion vis-à-vis EUR 9 billion of first half of 2018.
In terms of wholesale bond issued, we basically have done 90% of the total wholesale funding maturing in 2019, but still we will have some further emission, both senior and lower Tier 2 in the second part of the year, most probably in the last quarter. Let's go to net fees and commission. In this respect, on page 10, we have an increase, which is 4.4% quarter-over-quarter, 8% on management and advisory fees, and 1.2% on commercial banking fees. We go through the management and advisory fee on the right side of the slide, you see that we grew 8% globally. We exclude the declassification of the certificates, the growth would have been 13.5% vis-à-vis the first quarter. You have all the detail on the bottom part of these slides.
On the light blue of the histogram on the upside of the slide, you see the upfront fees coming up from EUR 65 million to EUR 72 million, both better than the last two quarters of 2018. You can see very clear what I said on page 11. You see that the quarterly trend of asset under management placement in terms of volumes grew both in the first and second quarter 2019. Meanwhile, in 2018, there was an effect driven by the reorganization of the commercial model and from the spike of the BTP, which didn't allow us to grow in terms of volume of placement in asset under management. On the right side, you can see the blue line is the upfront profitability, which is consistent 2.2% on the new product.
Meanwhile, the impact, the percentage of the upfront fees on total net and commission is recovering in the last two quarters to the level of the first quarter 2018. On page 12, you have the stock of the asset under management and asset under custody. There is some indication about a slight increase in the volumes, in particular funds and SICAV, but I have to say that this is what really we want to better a lot in the next quarter. We have, of course, again, back to the good level of placement as I shown in the previous slides, but still the increase in asset under management, due to the big growth that we are experiencing in deposit, is a very consistent ammunition that we have all the intention to exploit since this quarter and for the future quarters.
We think we have a lot of road to do in this respect. Page 13, debt securities portfolio liquidity position. As I mentioned before, we went down from EUR 27 billion to EUR 19 billion of Italian govies out of a portfolio of around EUR 34 billion. The split of this EUR 19 billion is EUR 6.2 billion of HTCS, EUR 11 billion of HTC, and EUR 2.2 billion of trading, mainly into across trading activity. On the right side, you see the improvement that we have registered in July, both in terms of reserves on debt security on the upper side and reserves on HTC, so unrealized gains on the lower side, which is really quite consistent all in all, almost EUR 700 million vis-à-vis beginning of the year. SCR, I already mentioned before, eligible securities, we are plenty. We have EUR 22 billion of eligible securities in order to offset any liquidity needs.
On page 14, we have operating cost under strict control. We have almost terminated the action that we performed during the merger, but now we are at a very better level than we expected when we started the merger, which consistently can drive our cost base lower than it is. If you see the bottom part of this slide, you can see almost 2% reduction in staff cost, almost 2% reduction in other administrative cost, and of course, as I mentioned before, this EUR 20 million increase in depreciation due to some depreciation on tangible asset, on real estate, mostly.
As I was mentioning before, we are changing and adopting our accounting principle, adopting the fair value evaluation for real estate portfolio, which by the year-end should bring to a recover also of what we have done up to now in terms of depreciation, having a better reflection of the quality and value of our real estate portfolio. On page 15, de-risking. As I was mentioning before, there is still a very important reduction, even though only with ongoing and workout. I already mentioned the figures before. I can only say that as far as bad loans, we are down to 3% gross and 1.4% net, and also UTP are going down. I have to mention that out of the figure of the UTP loans, almost 70% of the global amount of UTP is secured. On page 16, some figure related to the stock.
We have going down from EUR 11.8 billion beginning of the year to EUR 10.6 billion 30 June. The inflow are also good, 7% less of the first half 2018 for inflows in NPE, and 25% less of inflows in bad loans from UTP. The coverage is still consistent with the de-risking we have done so far, including write-off, we are above 62%, coverage on UTP is 35%, and so on. LLPs, already mentioned the increase in cost of credit, which is still in the guidance we have done to you, 65 basis points is the guidance that we also have for the full year. Finally, the capital position. I am very satisfied to show you a very strong capital position, both in terms of the phase-in. As you see, we are 13.8% of Common Equity Tier 1 phase-in, which is 444 basis points higher than our SREP requirement.
On the fully phased, we have a very satisfactory 12%, including 4 basis point from LAs RWA transaction, 11.9 stated. The different elements which allowed us to grow from 10.8, you already knew of the first one, were 105 basis point of capital action already announced, but finalized by the first part of 2019, Agos and NPL platform. 20 basis point is the negative effect of a negative TRIM impact of 26 basis point, plus some recovering we had with some related add-on. The global impact was 20 basis point negative. The performance impact on Q2, both of the profit and the unrealized gain on reserve, brought the Q2 performance to almost 30 basis point. All in all, 11.9 plus some basis point from LAs, we are to 12% of pro forma fully loaded CET1. Let's see page 18.
We are very confident now that we have left to our back all the problems, and all the activity which engaged us mostly during the first two years of the merger. Frankly speaking, I have to say that they were very hard times, maybe not really understood being outside the bank. We had to perform a massive de-risking, some unexpected problems for the bank, and the reconstruction of the capital through capital management action. This, of course, allows us now to be at the best level in terms of NPE ratio and the very good and safe level of common equity. Having already sent the new, as I mentioned many times before, we have also sent the pre-application for the IRB perimeter to ECB. Do you know that we have still the famous sort of waiver on the massive disposal we have done.
Now we are much more confident having the new EU rules about the Article 500, but we also send a new model change in order to include the de-risking and the specialized lending into the new number. I already mentioned about the TRIM effect. We still have to factor the SME supporting factor, which will come next year. Moreover, I think that we show we have a lot of significant room for further increase in Common Equity Tier 1, coming from other disposal of non-strategic but stakeholdings in financial companies. Luckily enough, we can show a stable and consistent profitability, which will grow quarter by quarter and also unleash the DTAs in the near future.
As I mentioned before, we can also exploit the potential buffers in real estate assets and that securities, which I mentioned before, which have a consistent buffer in order to offset any potential headwind from regulatory environment. The last page that I want to present to you, of course, leaving all the details on the 20 pages of the presentation, is related to the original business plan. As you know, we will present a new business plan, possibly by year-end. The old business plan was done, as you can remember, before the merger of the two banks, immediately after the announcement. We are very happy to now touch base on the many figures we have, of course, informed you time by time, but we thought was very important also to give you some final flavor of all the effort we have done.
The NPE, the target plan was EUR 23 billion. We are down to EUR 10.7 billion. The reduction of staff was 1,900 people. We have above 3,000 people in reduction of staff. The branch were going to be down from 2,500 to 2,080. We are down to 1,700. This, of course, helped us to reduce almost EUR 200 million our forecast on costs, not talking about the massive reduction that we have performed in NPEs. There were also negative effect on what we forecasted three years ago in terms of revenues. We mentioned some objective adverse condition, which impacted on the reduction of revenues. Let's only mention the EURIBOR, which in the plan was 10 basis point positive in 2019, is now, as you know, 35 basis point below zero.
The GDP was expected to be 1% plus. Now it's zero. The spread was also perceived as a normalization of the spread vis-à-vis the bond, as you know what we have gone through during this period. Not to mention the action we perform in order to have a capital strengthening, in order to show a safe 12% of common equity at 1, which of course produces some recurrent lower revenues from the profit factory. All in all, we feel that now we have a much safer bank in term of balance sheet, in term of risks, in terms of also possibility to make profit in the future, having left in our shoulder the problems that we had to face. We want to give you this guidance of EUR 0.3 per share as expected EPS.
Of course, we think we can do better than 0.3, so we mention only major of 0.3, which, by the way, is coherent with the majority of the market consensus, and with the return on tangible equity of around 5%. This is all I wanted to mention. There is also, sorry, another aspect, when I was mentioning the tailwind of capital, we have also, and you will find it on the balance sheet. We have also started the final disposal of the non-captive ProFamily business, which in terms of RWA, could release something like EUR 1 billion of asset once the transaction is completed, which means around 20 basis points in terms of potential common equity Tier 1 increase. That's all. I leave you the floor for the Q&A.
Excuse me, this is of Chorus Call conference operator. We will now begin the question and answer session for analysts and investors only. Anyone who wishes to ask a question may press star one on their touchtone telephone. To remove yourself from the question queue, please press star two. Please pick up the receiver when asking questions. The first question comes from Azzurra Guelfi of Citi. Please go ahead, madam.
Hi. Good afternoon. A couple of questions on the NII and the UTP. On the NII, can you give us some outlook for the 2019 and 2020 NII, given the move expected in rate by the market, and also the fact that I've seen that your spread is still contracting, and probably there will be the need for some MREL compliant issuance? The last one is on the sovereign portfolio, because they still represent quite a big chunk of your NII, and with the rate environment, if there is any change in that we can expect in the future. The other one is on the UTP. Do you still maintain your stance that you want to do all of them organic, like mainly do it organically? If I can, one other very quick one on the DTA.
Can you share with us what you expect to use of DTA in this year, if possible? Thank you.
Hi, Ms. Guelfi. Good afternoon. NII outcome. We are quite, of course, encouraged by this result of this quarter. Having said that, we know that of course, due to the reduction of EURIBOR, and the increase also in the stock, both of deposit and loans, we will have some mixed effect going on. We also have, as I mentioned before, some more issuing in terms of senior and lower Tier II. We expect a slight reduction of the NII, all in all, in line with our guidance for the full year, but lower than this quarter. In terms, of course, of issuing, we think we can issue, if we can still give some good results also in the next quarter, to very favorable condition if the market is still doing as it's doing these days.
On the other side, we think we can also better our customer spread through short-term lending activity, for which we think we can recover two, three basis points on the stock. UTP. Let's say that having done almost EUR 20 billion of disposal and reduction, when we think about disposing EUR 300 million, EUR 400 million, we don't even mention that. For us, it's normal to be engaged in some small transaction related to real estate linked UTP. If I have to talk about all our UTP portfolio, I think the best guidance I can give is to go through internal workout. Of course, we are monitoring all the market. We are looking at what is happening on the market. We have many interaction with potential buyers interest to UTP. We have accumulated quite a long experience during this year.
We want to not continue to lose money just for the sake of selling in a hurry. We will do the best. We have a good plan, and we will be even more clear when we will release the new three-year plan, in which we think we can organically go down to the best performing NPE ratio. DTA. No, of course, we will use DTA this year. Sorry, I was asking for some better understanding of your question on DTA. Of course, we utilized a small portion of DTA. As you know, we have plenty of potential utilization of DTAs, and so we hope in the future to be much more effective than that.
The next question comes from Giovanni Razzoli of Equita. Please go ahead.
Good afternoon to everybody. Two questions on my side. The first one is on your guidance of adjusted EPS for 2019. I'm puzzled with the comments you have made so far and the target that you are giving us, because above the EUR 0.30 of EPS to me means between 30 and 34, which leaves me with a net income of EUR 454 million for the full year, while the adjusted performance in the first half, you show the slide number four or five, is EUR 291 million. Your guidance would imply a significant slowdown in the second half of the year. During the call, you have mentioned that you do expect an acceleration of the profitability going forward. I would have expected, given this set of results, a slightly higher guidance in terms of EPS.
What is the missing part in my calculation for the second half? Also because you are guiding to a reduction in the cost of risk for the second half of the year from 75 to 65 basis points, if I'm not mistaken. Related to this question, in the plan, you had a target of dividend payout of 40%. Shall I apply the same percentage to this EUR 0.30 guidance? My question is, are you ready to pay dividend this year in light of the fact that your capital position has strengthened significantly and your NPE ratio is materially below the target of the business plan? That's my first question. The second one is a clarification, if you can share with us, what is the amount of the shareholdings that you can consider not strategic, deducted from the CET1 that you may put up for sale?
Thank you.
Okay. I thought it was a good guidance to say above EUR 0.30, of course, the more I say, the more you are keeping ask me. EUR 0.30, EUR 0.34, I think is a range between EUR 450-EUR 420, which I think is a good guidance. Having said that, of course, as I mentioned before, there will be some different results in the second half, I already mentioned to the first question that in terms of NII, we will have a slight reduction. Meanwhile, notwithstanding, we are very confident of our capability to generate commission. I have to mention that in the second half, there is August and December, which are more difficult months. Also in the first half, there was also the Nexi transaction. Notwithstanding, frankly speaking, we consider our NFR quite consistent because we didn't realize any gain from the securities portfolio.
We think we have maneuver to adjust and to increase also the guidance. Let's say that organic, we stay on the guidance we gave you. In terms of dividend, we never mentioned, apart from the beginning of the plan, that the dividend distribution would have been 40%. Of course, as I explained in the slide of the business plan, we have changed massively the approach to the plan. We have a much better bank now than the bank we would have had if we would have followed the plan. This, of course, had some effect on profitability. We will give much more guidance by the year-end, but I think that we can restart also to think about distributional dividends. In terms of stakeholdings, I would say that would be a figure in the range of EUR 200 million-EUR 240 million.
Thank you.
is Yeah.
The next question is from Andrea Vercellone of Exane. Please go ahead, sir.
Good evening. Three questions. The first one is on rewarding shareholders. You mentioned in an interview a few months ago that a dividend is not the only way to reward shareholders. I was thinking whether you were implying that a buyback is theoretically possible for Bank. Your quarter one is 12%, fully loaded. It's 12.2% if you sell ProFamily. If you meet your guidance, it's 12.75%. If you add the SME supporting factor, it's 13%, plus the long list of possible positives on slide 18. Of course, there may be some negatives in another list, which is not here, but you haven't given it to us. I was wondering whether solvency is strong enough to go and ask to the ECB for a one-off buyback, or you rather not do it because you think you'll be turned down.
In my opinion, doing a buyback rewards shareholders so much better than paying dividends, given where your price is. Second question is on the ProFamily business that is now in IFRS 5. Can you give us some guidance on the contribution that there was in H1 or in Q2, whatever you have, from this business on NII costs and net income? The third question is on provisions. I was just wondering whether in Q2 you have already updated your IFRS 9 parameters for the generic provisions, or you will do that at year-end. Thank you.
Okay. Hi, Mr. Vercellone. I was asked about dividends, that's why I was answering only about this possibility. As I mentioned many times, everybody keeps asking me, I cannot repeat every time. Of course, there are many way, I was not used in the first two years to think about this because I was trying to give some contribution in terms of better balance sheet. Of course, because now we can think about that, we will think to everything, also to the potential buyback. As you know, regulators are not that happy about buyback, we will examine the situation, we will try to explore all the opportunities.
I am very happy also that frankly speaking, finally, we talk now only about tailwinds, not anymore about headwinds, which in any case will come because there will be also some headwinds in the future, not close. We are confident with all the ammunition we have, we can overcome any potential headwind without particular problem, both in terms of profit generation and in terms of furthest transaction we can do in order to emphasize our common equity. Let's also remember that we have a phase-in, which is 13.8%, which allow us to reduce also consistently this number in order to be also compliant with the SREP. ProFamily, basically, the contribution to the consolidated is very low, close to zero because of the PPA.
Of course, when we merged the two banks, we included the PPA effect on the ProFamily assets. Nowadays, of course, releasing the asset and the company, this will come with a neutral or even negative effect. No problem in terms of a reduction of profitability. The only positive effect would be the reduction of almost 1 billion in RWA. Finally, the IFRS 9 is already included in the number we showed you, both the historical series and the new scenario. Of course, gloomier than the previous one.
Okay. Thank you.
The next question comes from Christian Carrese of Intermonte. Please go ahead, sir.
Hi, good evening. The first question is on net interest income. I understand your guidance of net interest income slightly down in the coming quarters. I was wondering what will be the component. It will be the non-commercial banking that the contribution will be lower or commercial banking? In terms of deposits, you did a good job. The increase in deposits in the first half, still also quarter to date. You said an additional EUR 500 million of additional current account. This is currently a negative, and I would like to understand also your position going into the TLTRO III action starting in September. What are your indication? If I'm not mistaken, in the past you said that maybe you're going to reduce the take-up in the new TLTRO. On capital, common equity now for sure more solid than in the past. Back to more than 12%.
You are going to present a new business plan by year-end. I understand that you are not giving any indication maybe, but what kind of capital do you think is the right capital to finance future growth and maybe also to do a further de-risking? Again, just a clarification on commission, the level that you show in the second quarter, do you think that is sustainable also for the coming quarters? Thank you.
Good evening, Mr. Carrese. I think I gave you some guidance about NII. Unfortunately, the growth in deposit, until we don't switch into asset under management is very important because it shows the confidence of our clients, but of course is a cost if we are not able to switch into asset under management, which we started to do, as I mentioned, a figure of the upfront we showed you in the first 2 quarters, but we have to do much, much better than that. Frankly speaking, I hope deposit can give us more opportunity not to lose money because of the negative EURIBOR, but to switch into asset under management. The same, I think, comes from loans. We are, frankly speaking, very happy to the loan increase we have registered.
We are basically now at the level of the best bank in Italy in terms of growth and transaction. Maybe we are better than the best competitor. This give us the opportunity to be much more attentive once we have a new market share, which is very consistent in terms of asset spread. We already started something on short-term deposit, which should bring us some comfort in terms of global commercial spread. We still think that growing in volumes, we can have good results in terms of commercial banking contribution. In terms of TLTRO, as you know, we still are waiting because as I mentioned before, we don't have any needs. Also when I give some guidance about the global approach to the new TLTRO, for sure we will not do the same amount we have done in the past.
We are thinking of reducing quite consistently the TLTRO approach. Having said that, I frankly speaking, don't know, but I don't think that we immediately in September will start utilizing TLTRO also because if we start the new one, we have to reimburse the old one, which maybe is not a good arbitrage. We will decide. In terms of CET1, I think your question was more on the guidance of the business plan, which of course I cannot give you yet. I don't want, frankly speaking, be worried about Common Equity Tier 1 for the plan. The name of the game for the new plan is profitability.
Fortunately enough, we don't have any more problem in terms of capital, any more problem in terms of NPL stock, I mean relevant problems, so we can go ahead with the figure and the stable reduction of NPL, stable keeping our Common Equity Tier 1 the level it is. We will be devoted to make the most of our profitability.
Just a clarification on capital. The numbers you show in the first half, there is any dividend accrual? Maybe I missed.
Not in the first half, but we gave the guidance for the profitability also on the second half.
Okay. Thank you very much.
The next question is from Jean Neuez of Goldman Sachs. Please go ahead, sir.
Hi, good afternoon. Thanks for the presentation. Because you've been so kind as to have a specific slide as to what capital headwinds and tailwinds can be in the future, I just wanted to understand whether you'd be willing to share your view as to what your risk-weighted asset inflation from the total implementation of EBA guideline, as well as the finalization of Basel III, often referred as Basel IV, would be, and also the calendar provisioning full effect, so that we can have a sense of how much headwinds you have versus how much tailwind you can generate as you've done in the past. That would be really good for clarification. My second question is, it was really nice to give the EPS guidance of EUR 0.3 a share, and I understand that this represents a floor to develop going forward.
This being said, it's consistent with a return on tangible equity of anywhere between 4% and 5%. I guess from there to meet cost of capital in this current rate environment where you've described yourselves as extremely challenging, obviously spreads are still high, GDP growth is low, et cetera. As you go into your next business plan, you need the doubling of your profitability to meet your cost of capital. What is the thinking behind trying to meet cost of capital going forward? What actions can be taken? Thanks a lot.
Thank you. Most of the questions are on the new plan. Of course, I cannot answer more than I already said. We know very clearly that the current level of profitability is not satisfactory, not for the market, not even for us. We are satisfied just because together with this level of profitability, we did also a massive restructuring and a positive reshaping of the banks. Now that we are free to be devoted only to the better profitability, better exploiting all the levers that we have in terms of increasing revenues, keep under control costs, FAB reduction, exploiting all the digital opportunity. Of course, this is the core of the new plan, and we will give you all the details when we will present to the market. The same, more or less, is in terms of the different headwind you were mentioning.
As you know, the vast majority are now postponed to 2022. We, of course, have a lot of different phase-in related to all the aspect that we faced during the year. We are crystal clear in saying that due to our forecast, we can offset all the negative potential impact, at least until everything will be more clear, starting from 2022. As you know, there are a lot of things still under discussion, not only I think for our bank or for the Italian bank, but for all the European banks, in short time, we will have a new ECB. Let's see which kind of approach we can have from now to 2022. In any case, we are building the ammunition to offset without any pressure all the potential headwind. The same, of course, is for the negligible impact we expect in 2020, 2021.
Can I just follow up on this? Just very simply, do you think there is any scenario where you can make your cost of capital without doing further external growth at this stage?
We think we can do much better than we do right now. We proved also that we are very good in managing a very difficult merger, which I think could not have been much difficult of what we experienced due to the market, due to the regulator, due to different aspect we find out in merging the two banks. Of course, we think that being devoted only to the profitability, we can do much better than we did up to now. A potential merger in the future, when there will be the condition, when our stock will rise, when there will be no negative dilution for our shareholders, we will be attentive to any potentiality because we think we can be able also in that.
Now we are concentrated on bettering our share price, reduce our cost of equity, and doing a sustainable profitability on a standalone basis.
Thank you very much.
The next question comes from Domenico Santoro of HSBC. Please go ahead, sir.
Hello. Hi, good afternoon. Hi, it's Domenico from HSBC. A couple of questions on my side. Can we focus a bit on the UTP portfolio first? Can you give us, first of all, some data or information about the vintage? That's not anymore in your financial report, starting from 2018. That would be very useful. The second, if you can give us also the impact on the NPE portfolio from the new definition of defaulted loans from the EBA. Third, on your participation portfolio. My understanding from the question from the colleague, you are mentioning that only EUR 240 million might be sold or they might be sellable, disposable in the short term, but you have more than EUR 1 billion deduction to capital at this moment.
I'm just wondering whether in a sort of a worst-case scenario, the reduction can be more significant, also because ex Agos, the contribution to P&L might be material. On UTP portfolio, again, I would rather prefer you to be much cleaner sooner rather than start to think about the buyback of shares, to be very honest. Since we have seen a monster operation in the market, I thought that you might probably go with the same, especially now that your capital position is much more robust. My question is, given that there is a calendar provisioning on the stock coming, probably it might be quite painful for you in 2021, 2022. I'm just wondering whether that's not possible because already you did a deal in the non-performing loans area, and potentially there might be some legal constraint. Any thoughts on that side will be helpful.
Thank you.
Lots of question, Mr. Santoro. Let's say many of them about, again, non-performing exposure, which I understand is still a concern, but luckily enough for us, is much lower than before. Having said that, UTP, the vintage is more or less, I don't have the right figure now, but we can provide you, but more or less it's one-third below two years, one-third between two and four years, one-third more than five years. As far as the EUR 240 million, we are referring only to low-fluid contributors. Of course, we don't want to make massive sacrifice in terms of contribution to profitability as we did, frankly speaking, even though at a very good price for the sale of some share of our asset product factory during the first two years. We are talking about sacrificing basically a level of ProFamily non-captive with very, very small profitability contribution.
That's why I mentioned EUR 240 million. The sale of UTP. I don't see yet massive sale of UTP. I know there is one competitor that announced the massive sale. Let's see what will be the output. Let's see what will be the final word from everybody about the transaction. As we did for the massive disposal of bad loans, we will be very attentive. Having said that, you have to remember also that we made a lot of sacrifice in terms of economics in order to go down 15 full point of NPE ratio. We want to be a bit more cautious, looking at the future, being now at a very comfortable 9%. All the other question about definition of default, calendar provision.
I think I already mentioned to some of you that we have completely reorganized our chief lending officer structure, which will take into account the new change in the definition and the requests from ECB coming from the calendar provisioning. Basically, we have moved people from the NPE unit, especially for data quality, for understanding all the potential effect of the calendar provisioning in anticipation to anticipate all the management of the UTP. In terms of restructuring, we have people from the commercial activity coming to manage the UTP restructuring in order to give some more focus on the possibility to put back in bonis this company, which by the way, is the same project that I read on the paper by other competitor.
We don't have exactly the effect, but we are ready with the new organization to face also this potential effect, which for us, frankly speaking, up to now, is quite minimal.
Thank you.
The last question is from Riccardo Rovere of Mediobanca. Please go ahead, sir.
Yes, thanks for taking my question. It is just a quick clarification, actually. Just to understand 100%, so I understand it correctly. The amount of NPLs in this quarter, which are down from EUR 4 billion to roughly EUR 3.2 billion-EUR 3.3 billion. That includes the reclassification of the NPL sold to illimity EUR 600 million to discontinued operation assets held for sale. Is that correct?
Yes, it is correct. We took already out of the NPE, the ACE, the LAs transaction. The only thing that we performed is the positive effect of this moving out the EUR 600 million we sold to illimity.
Another classification, if I may. You have reclassified also a little bit of a few million EUR of fees related to certificates. Is this going to be the new way you will present the income from now on, so all the quarters from now on will be affected by that?
Yes, we thought it was better. We weren't issuing certificates for the last two years, so basically we were really to understand what was better for the understanding of the market. Having perceived that our competitors have this reclassification into commission, from now on, we will do the same.
Perfect. Very clear. Thanks.
Mr. Castagna, gentlemen, there are no questions registered at this time. Excuse me, sir, there is a question registered by Mr. Ignacio Cerezo of UBS. Please go ahead, sir.
Yeah. Hi, good afternoon. Just a very quick one from me. If you can help us reconcile the fact that the assets under management, including custody, hasn't really grown in the quarter stock with the fact that fees seem to have been boosted by increased placement of products. What can we expect basically in the second half of the year if this is just a question basically of market performance eroding most of the placement? Thank you.
I'm not sure I understood the question. You were mentioning assets under custody, so I think you're referring to page
Page 12, you have AUM plus AUC almost flat quarter-on-quarter. On page 11, you mentioned a very significant increase of the placement of products, which has been materialized or translating into the fee number. Helping us reconcile actually why the stock hasn't grown.
Okay. I understand your question now. As you know, one thing is the net increase in asset under management. The other thing is to switch product already in asset under custody to asset under management. What we lack is this kind of conversion of a new increase in asset under management. We are switching a lot of products, but not increasing the net income of asset under management. In terms of profitability, you see the commission, you see the increase of profitability and upfront. In terms of volumes, you see the new placement, but this is not coming neither from current account or massively from asset under custody. Is this more clear?
Yeah. Thank you.
Okay.
Mr. Castagna, there are no questions registered at this time, sir.
Okay. If everybody's okay, again, I wish you a good summer holiday and hopefully to see you back again in the next few weeks. Good evening.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.