Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banco BPM Third Quarter 2018 Results Presentation. As a reminder, all participants are in 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. Tom Lukasem, Head of Shareholder Strategy, Investor Coverage and Rating Agencies of of Franco BPM. Please go ahead, sir.
Yes. Thank you. Unfortunately, Roberto is not available today. In any case, good afternoon, good evening to all of you, and thank you very much for attending our Q3 2018 Group Results Presentation. As usual, before leaving the word to our CEO, Giuseppe Castagna, let me remind you that our presentation is also available on our website under the Investor Relations section Presentations and that our Q and A session is reserved for financial analysts.
Thank you. And let me now hand you over to Giuseppe Castagna.
Good evening, everybody. Thank you for being with us for this Q3 presentation. Let's start on Page 5, a topic that you well know, but maybe Same argument seen with a different view. We would recall the step that we had up to now with the This is King also in view of the new ASEIS transaction. Let's say that the first histogram December The starting point when we the number we presented with the 3 year business plan.
Then the follow histogram 2016 is the starting point of our merger. As you can see, meanwhile, we were also always Focused on disposals, which we see very clearly that were more than 8 €500,000,000 during the last 22 months and up to €9,500,000,000 in the 3 year. A big contribution to the risk came also from recoveries, cancellation and workout. The global amount is almost EUR 6,000,000,000 only in the last 22 months, Which became something like €8,500,000,000 if you consider also 20 This is just to say that our strength to recover is not only related to the disposal activity or NPL, which Took of course the high in the last couple of year, but also in a very Efficient workout machine, both in OTP and in bad loans. The final step, September 18, we have nowadays EUR 18,500,000,000 gross GBV, €10,000,000,000 of which are bad loans, which are the bulk on which we will concentrate the Hays transaction.
€8,400,000,000 is the amount resulting from almost €30,000,000,000 when we started In 2016 of OTP, which only with the workout came down to 8,400,000,000 On Page 6, just to give a global amount to this exercise, the total derisking in these 21 months was up To €14,000,000,000 which of on which of course we have to restart the inflows over the last couple of years, which were €3,000,000,000 So global net GBV reduction is €11,500,000,000 Let's pass to some update on the ACE transaction. As you know, the project is related to the de risking of for the final part of our de risking plan With ECB, which would need only $3,500,000,000 we have in mind to integrate this with a much bigger amount and I will give you some information also on the BID beauty contest, which Apart from the portfolio, of course, you know that there is also the possibility to sell the NPL business Tune it the platform in order of course to give also to the buyer the opportunity to continue a very efficient and successful operation. On the due diligence, we are in the last, I would say, days, a couple of week remaining. 3 consortia, they have examined more than 40,000 documents.
They've employed more than 600 people on the The global amount, the potential global perimeter is up to 8,600,000,000 Which respect to the 9.2 or 3 that we announced in August Is a reduction only due to position excluded because of legal constraint, contractual status And which would have hinted the possibility to proceed with the Next step is to receive the bid to select the winning consortium To decide the final size and the perimeter of the portfolio to be disposed and examine the possible sale of the NPL unit. On top of that, you know that after the 3 August in the last weeks Was also signed by the government and approved by the Corte de Conti, the new gas extension. So we have also this opportunity to consider an alternative scheme with respect to the straight sale. Let me stress also that in September, we terminated our quarter with a quite sound capital position. We have Chris, both common equity Tier 1 phase in to 13.2% and fully loaded to 11.2%, notwithstanding, as you know, the impact of BTP portfolio performance, which of course eroded Some few basis points.
Some words on Page 9 also on the results of the stress test, Very satisfactory scenario under the baseline scenario, which proved the Generational value, which our bank is capable to effect with results, which are amongst the best in Europe And also the resilience that we provided to obtain in the stress test scenario. Of course, you know that due to the rules of the exercise being one of Few are maybe the only bank under a merger and you also to the fact that That was not allowed to consider the results of 2018. There is some peculiarity which Have had some impact on our common equity Tier 1 fully loaded especially. Let's say that the exercise did not allow to filter out some merger related extraordinary expenses, Non recurring expenses, especially out of personnel and IT integration, which on Cumulative horizon of 3 years amounted for something like €500,000,000 which were penalizing our final results. The same is of course for the Exodus transaction, which logically being affected in June Was not considered due to the exercise was considering the result at December 2017.
The global effect That would have brought our results between 7.5% 8% also under stress scenario and fully loaded. Let's pass to the 9 months results. On Page 10, you have the stated performance, Which is affected by some extraordinary transaction and some effect related to IFRS 9, But you see that we have reached some consistent results, both in terms of total income and especially also in the reduction operating cost. The net income amounted to $525,000,000 which, Of course, it's not comfortable with the 9 months of 2017, which was a much lower result. On Page 11, we wanted to give you an adjusted performance excluding the one off items, which were related to the capital management transaction we performed during these last three quarters And also excluding the IFRS 9 effect, especially from NII and low LLP.
In this respect, we are still experiencing a slightly better net interest income visavislastyear. Total income, slightly below last year due to the reduction of commission that we experienced, Especially in the Q2 and you will see that we are also recovering this part of the FICOMISH Operating cost very consistent down to 2.0 56,000,000 more than 120,000,000 below last year results is still in reduction. Plus 4% profit from moderation, a reduction in NLP due to the IFRS 9 adjustment, Consistent reduction that we will see, especially in Q3 and profit before tax and net income almost doubling last year Again, on Page 15, NII, I would examine first the normalized results, which exclude the effects of IFRS 9 And PPA, you can see both on a year by year comparison and also on a Q on Q comparison That the results is positive, 1.7%, 1.4%. Meanwhile, the stated results This affected for the year on year comparison by the effect of IFRS 9 and on the quarter by the effect of the reduction Nonperforming loans due to the Exodus transaction with basically half The contribution of IFRS 9. But on a like for like, you can we have experienced a growth of 1.5%.
Net interest spread is on a progressive spread 1 point 52% in the quarter is down to 1.47%, especially for the reduction of both Funding spread down to 49 basis points, but also reduction of 8 basis points on asset Fred, this is consistent with our policy head in the 1st part of the year, Which of course brought to new transaction in the Q3 of the year For the record amount for our bank of $5,500,000,000 of medium term new transaction, Let's just consider that the global budget for this year was around $17,000,000,000 So in just 1 quarter, We realized 1 third of the total budget, especially this was reached with the transaction with Mid cap and large corporates in which we increased in the quarter by 6% to 7% the loan the total loan. Net fees and commission, which we experienced a reduction Last quarter of around 9% on a year to year comparison is recovering. We are now still in a Low figure in respect to last year, but down to 6.7% with the results in the Q3, which is equal to the Q2 results, which we consider quite satisfactory Taking in account both the August, including into the Q3, which you know There is always a slowing down of the activity in the branch.
And also, of course, The hike of the spread and the peculiar situation in the market in Italy, which of course made very difficult to Increase the sale for our the investment for our client. Very good, the results, especially in commercial banking And in credit fees, which offset the slight reduction in management and advisory fees. Also quite sound, the net financial results, plus $43,000,000 on The 1st 9 months comparison, dollars 47,000,000 in the 3rd quarter, Both results are very good for us taking into account the reduction of capital sensitivity To government bonds that we adopted during the last quarter. We reduced By $3,200,000,000 government bonds held in HDCS And reduced from $3,500,000 to $2,000,000 per basis point the sensitivity of our Italian govies. Let's pass on Page 17 to operating cost.
Again, Also for this aspect, I want to show also the road map over the last couple of years. The results Very good, less 6% year on year and almost 2% on the quarter. Let's say that the results of the Q3 'eighteen was the best results for us, but We still are embedding some ammunition in order to reduce further these costs. Just to make you understand the road that we had in cost reduction, again, we want To show the strategic plan figures, we started with end of 2015 cost up to 3,080,000,000 with an objective to go down in 2019 To €2,858,000,000 nowadays on an annualized comparison, we are down to $2,623,000,000 and still again we have next year that we think we can still encompass and embed Some further consistent reduction vis a vis our objective. Personnel and operating costs are reflecting exactly what I was saying before.
So 4% reduction in personnel, 1.3 percent on a quarterly basis. We went down from 25,000 people at the beginning of the merger To 22,640 in September, we think we can terminate this year Below 20,300 people due to the last final step of exudes of anticipated solidarity scheme. Also administrative expenses are down 8% year on year and almost 5% on Quarter by quarter, the main significant cost savings are applied to advisory services, Maintenance, rentals, advertisement, transport and insurance. On Page 21, we have The loan loss provision, we are going down both on a total figure and Especially if we consider the IFRS 9 impact, which of course is going down to the derisking that we are affecting, The figure that we register in the 9 months 2018 have allowed us To go down to 100 basis points to 99 basis points and in Q3 we had 267,000,000 Of provisioning compared to the $360,000,000 of the second quarter, of course, affected by The Exodus transaction also without considering the Exodus, we are experiencing a reduction of 13% of LLP. Let's go to the balance sheet.
We have on Page 23, We are still experiencing a stable growth in current account and site deposit, Up 5% in the 9 months, 1.2% in last quarter is almost $4,000,000,000 of increase in current account, which now amount for 63% of total deposit. Of course, we are also experiencing a comparative reduction in more expense in source of funding like the bonds and CDs and time deposits. Bond maturities, Luckily enough, very manageable amounts. We have almost completed our reduction of retail bond maturities. As you See, there is still a $1,300,000,000 expiring by the year end and then only $400,000,000 for the next 2 year and for institutional bonds, we have only in the next two and a half years $4,000,000,000 global $4,000,000,000 2 for each year, 'nineteen and 'twenty of institutional maturities.
This, of course, is we consider a very manageable amount and put us no pressure vis a vis the replacement The liquidity position is still very sound. Of course, since September, we have experienced some reduction due also to the needs of refinancing The depot achieved the Estonian bank activity, which was giving us something like €4,000,000,000 of liquidity. So we went down from $52,000,000,000 to $50,000,000,000 Nowadays, we are already up from $40,000,000,000 of unencumbered asset To $17,000,000,000 And in any case, together with other liquid and encumbered securities, we are up to almost $20,000,000,000 of Available Assets. We started also utilizing this asset in order to Refinance the debt with bilateral transaction and we still have The majority of these eligible assets made out of GOVIS. SCF at 133 percent and NSFR above 100%.
Let's talk on Page 26 about our restructuring of our securities portfolio. There was a reduction in the last quarter of almost $2,000,000,000 The most Important deduction was out of our Italian govies in HETCS Down to $6,500,000,000 more than $3,500,000,000 from the beginning of the year. Meanwhile, we grew $1,000,000,000 in Italian govies under HTC. Non Italian govies grew to $10,100,000,000 36% of total govies, especially France, U. S, German and some Spain govies.
The gross HTCS reserves is negative for $330,000,000 compared to $200,000,000 end of June. A focus on the Italian govies and on HTS and on the sensitivity reduction To the spread evolution on Page 27, you can see on the underscore that every basis point we have reduced our sensitivity From $3,500,000 to $2,000,000 in September vis a vis Q2, there is less Global exposure in HTCS down from $15,000,000,000 in Q2 $11,900,000,000 in Q3, dollars 2,000,000,000 down in Italian govies, dollars 1.3 1,000,000,000 down in non Italian govies. The duration went down from 3.4 to 2.9. The Global Italian Novice, which stood to 18,200,000,000 35% of which are under HTCS and 55% under HTC. On the bottom of the slide, there is also the phasing of this 6,500,000,000 Reduction in Italian Novi's portfolio, of which €6,100,000,000 out of HTCS.
As you can notice, the majority of the reduction was done before the spread increase. We went down to 20 $5,000,000,000 to $90,000,000,000 in March 'eighteen. And then in the last couple of quarters, we just adjusted The percentage of Italian gold is between HTCS and On Page 28, indirect funding, good performance of funds and CCAB. Still in the 3rd quarter, we registered some Need to reorganize our bancassurance joint venture, which as you know started in the 2nd Q 'eighteen. The results are already good in the 4Q also for Bancassurance.
The total amount, of course, are affected by the market by the market valuation of the stock. But as you can see on Page 29, The global effect excluding the market price is an increase between current account, Under management and asset under custody of around $4,200,000,000 globally. On Page 31, net customer loan, I would bring you on the top right of the slide. We are increasing especially our core Consumer loans activity in the last quarter up 1.7% as I was telling you Already commenting this asset spread 3.4% by beginning of the year 2.1% If we do not consider the senior notes of Exodus. Again, up To September this year, we experienced we granted new loans To private to household for $2,700,000,000 and almost $12,000,000,000 to corporates, of which €5,500,000,000 only in Q3.
Let's pass to the NPL stock reduction. Here we mentioned the net NPLs reduction, Which almost half by the beginning of the plan to $5,500,000,000 UTP and $3,500,000,000 of bad loans. The reduction in Q3 was, of course, More in UTP, we ended up the Exodus transaction in the 2nd quarter And nowadays, we have reached 3.3% of net bad loan ratio vis a vis An original 2019 plan, which would have brought us to 4%. Conservative levels of coverage are maintained. Let's say that we had some Write off this quarter, so the bad loans appear to reduce the coverage from 66 To 65%, but if we include the write off this come up to 69% As well as the global NPLs coverage comes from 50.6% to almost 54%, thanks to the write off.
A focus on the bad loans details on Page 34. We, of We'll start from the beginning of the year. The net book value again down to 3,500,000,000 Of which only €600,000,000 unsecured, which represent 18% of our global net In terms of coverage, we have the net exposure covered 81% and the Secured portion cover 57%. Let me remind that GBV is represented by 68% of the secured Asset and only 32% of unsecured vis a vis an industry average fifty-fifty. On Page 35, notwithstanding a material lower starting point In GBV under management, due to the disposal that we have experienced in these last 2 years, The global amount of workout is still very, very good and is increasing not only in percentage, but also in global amount.
As you can see vis a vis last year, we are having 51% of more workout activity With an annualized recovery rate up to 5% and the GBV reduction from internal workout Up to almost 11%. Also with a very negligible impact on the Profit and loss of only $42,000,000 related to the $2,100,000,000 of reduction in GBP. Again, on Page 36, this is just To show the consistency of our NPL bad loans recovery unit, We passed from 2.5% and 2.8% of 2015, 2016 to 4.3% in 2017 5% in 2018 annualized in the 1st 9 months. A focus also on the UTP loans. Total consideration, GBV, EUR 9,500,000,000 Beginning of the year, nowadays, we are down to 8,300,000,000 With considering the provision are down to $1,500,000,000 of unsecured covered 47% And $4,000,000,000 of secured with a coverage of 26.5%.
Almost half of this amount is under restructured loans, which as you know are normally performing and paying interest in installments and are under procedure checked Also on the evolution of UTP ratios is very consistent on the Low right part of the slide, well below the original strategic plan and with Good results on the last quarter 2018. The last slide is Related again to the evolution of common equity Tier 1, we were able to pass from 10.8% Due to the capital management action already forecasted to 11 point 32% and then down again to 11.2% due to the Q3 Variation of HTC reserves partially offset by the results, net profit result Of the quarter. Also in terms of Phase 1, we are up to 12.9% In June, which became 13.2% in the 3rd quarter.
Thank you, sir. Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question comes The first question comes from Jean Louis of Goldman Sachs.
Hi there. Good evening and thanks for the presentation. I just wanted to ask you 2 things. The first one relates to your outlook statement At the end of the press release, I find it to read slightly more cautious than what was the one in Q2. And I just wanted to know whether you would be able to kind of give us some measures or some of The quantitative things that you have in mind backing the change in tone from the outlook statement, for example, in terms of loan volumes or Fees on these type of things into next year.
And the second one I wanted to ask was on the NPL de risking. So you've nicely I just wanted to understand Where you would I mean, at which level of gross book value sale you would find that maybe You'd consider strengthening the capital with, for example, asset disposals or this type of thing. So what are The protection mechanism that you envisaged for core Tier 1 ratio.
Okay. Thank you. The outlook is not that easy during this time to have a clear idea of what could happen in the macro. Of course, what I say that we are experiencing a stable growth, I would say both in terms of loan volume and also of deposit. So the only effect nowadays is the reduction by due to the market value of asset under management and asset under custody.
We still see a willingness by client Entrepreneurs to invest, but of course, there is a sort Reflection in this moment due to the macro situation to the negotiation from the Italian government and the UAE And of course, everybody's a bit waiting wait and see for what's happening. We have done a lot of work With our client during the 1st 6 months of the year, of course, this is coming good And has been very good in the Q3, notwithstanding a difficult situation. The pace is good. Of course, there will be some repricing also for us, especially starting from 2019. But of course, high quality financing is still very welcome and we I want to increase also our market share.
In terms of contribution of capital in order to In fact, the derisking, of course, I think everybody knows that we were able in the past And are considering for this quarter to have a restructuring and reshape of our We are working very hard on many sites In order to find the best possible and most valuable solution, we are confident that we can get some results together with the announcement of the de risking in order to give you the full picture of sources and asset disposal. I cannot say Much more just because we are under negotiation during these weeks. So let me give Some couple of weeks in order to be more precise. Okay. Can I ask what's the expected contribution in your business plan from Agros Len?
Let's say that we have almost €80,000,000 to €90,000,000 of net profit per year. Thank you very much. Okay.
The next question is from Christian Carrese of Intermonte. Please go ahead, sir.
Yes, good evening. Just a clarification on the disposal of NPEs. Look at the spread, the CDS spread went up in the last few weeks. We know that you're To make the GACs for the Agi transaction, do you expect in terms of GACs to see a much higher cost Due to the CDS increase or it's something that is manageable? The second question is on the risk provisions.
I saw €72,000,000 booked in the quarter. If you can clarify what is The nature of this provision, it's related to the overdraft. And this could have an impact in the
Okay. Thank you, Mr. Cabeza. I would say, of course, you know that we have a dual track, so we can decide depending on the cost What is more feasible for us and more valuable for us, still we believe there is A convenience in utilizing the gas opportunity. Of course, we can know that the real cost also At the end of the road, not nowadays.
Nowadays, it's still manageable and still convenient. In terms of other provision, Also, thanks to the good extraordinary contribution we had during also this quarter, there is some amount that we Accounted due to the compliance with the tighter regulation In terms of current account overdraft and so on to be applied to customers. So this is a one off? Sorry, yes. So this is the one off, of course.
Just a follow-up on the disposal. My last question is on Capital managerial buffer, what kind of common equity Tier 1 ratio fully loaded you have in mind after The capital management action on NPEs and consumer credit?
No. Ideally, we would Stay as we are doing a very consistent transaction on the risking. So we are considering a consistent
The next question comes from Mr. Andrea Vercellone of Exane. Please go ahead, sir.
Hi. Four questions. The first one is a follow-up on NPL sales. I don't quite understand how the GACS option comes into play. Is it just a standalone option, I.
E. If you do not reach a satisfactory agreement With the interested counterparts on pricing, then you would proceed on your own with the GACs? Or can the fact that gas transactions usually are done at higher prices Somehow be factored in the price you may be offered because they can do the GACs So if you can elaborate a little bit on this. The second one is on funding. You have a lot of liquidity at the moment.
However, there are regulatory ratios Kicking in, in terms of MREL, at some point, you probably don't have the final requirement yet. So at some point, you do need to issue something, I believe. So can you just give us a qualitative idea as to in more normal market conditions, What type of instruments are you planning to issue over the next 12 to 18 months? And whether you would consider restarting, reissuing retail bonds as At least one of your competitor is doing. The third question is on costs.
Historically, particularly on the Banco Popular side, there's always been positive cost seasonality in Q4. This was also the case last year for Banco BPM combined. Shall we expect Costs dropping again in Q4 due to positive seasonality. And the 4th one is just a clarification. Is there anything strange in provisions for risk and charges of $71,000,000 seems a very high amount.
It's quite unusual. Thank you.
Okay. I answered the first three then maybe I didn't catch very well the 4th one. Let's say, no, GACS As I mentioned before, the Soft and WellTrack, all the 3 bidders are very much engaged on this option. So I expect that everybody will provide different quotation for both the opportunity, Straight sales versus gas. And we will try to pick up the best potential opportunity, of course.
So it's not something that they will do on our own, but something that we will do with the partner that we are going to selection through this building contest.
Just one clarification. If you go for the options on GACs, obviously, you don't know the price. So you stated before that in an ideal world, you plan to announce The derisking the conclusion of the derisking process together with capital management transactions, But if you don't know the price of the derisking process, how are you planning to square that?
Yes. Don't let me open all our options, but We are confident that with the kind of proposal we will receive, we will be able to have a Fair idea of the gas valuation due also to the experience that we have done with our Exodus transaction And also to the fact that I would say, for instance, we mentioned it on the slide, rating agencies are already working on these portfolios. So we are pretty sure to have a fair idea, end of time, of course.
Okay.
Regulation ratios, of course, is something applying in the next months. We are very much focused right now In the main target that we have upfront, but we are, of course, considering also that. As I mentioned, we have already done some bilateral transaction just to taste the market for almost 1,000,000,000. We are trying to employ all our asset, not only of course covered bond, but also more sophisticated transaction. We don't expect for the time being to go back to retail markets, to the retail bond markets.
And meanwhile, we are Looking for opportunities, we are already offering a lot of reversal in acquired transaction. And meanwhile, time by time we will decide which would be the best option. But of course, I am sure that also due to the Liquidity attention that the next year will be brought also by the regulator. We will be We will have the right time to analyze in details the needs for 2020 and give you In the next quarter, some more detailed and precise coverage as for source of families. Cost?
No, I don't expect neither last year. As far as I remember, we had just a small increase, but for instance, it was A small decrease last year. This year we have of course tried to account on a quarterly basis in order Not to have surprised in the last quarter. As far as I know, we should go to the level that I Very clear, as we stated also in my presentation. And then unfortunately, I didn't get your 4th question.
It's just a detail on the quarterly results. You booked a $71,000,000 provision for risk and charge in the I'd like to know a bit more about it given that it's quite big.
Yes, my answer to Mr. Carrezza is mostly related to CIB, so to the overdraft of clients. As you know, we all the Many system had some request to reconsider the exact cost to be applied to clients Most of them were driven by prudential approach for these new rules, but is mainly one off. Okay. Thank you.
The next question comes from Riccardo Robere of Mediobanca.
A couple of questions, if I may. The first one is on risk weighted assets. If I get it corrected, they are down significantly in this quarter. I was wondering what is driving that aside from the And still on this topic, I remember To get an LGD waiver on by ECB, is that Still is that still the case or you think this should be this is not the case anymore? And still related to that, Before selling the consumer finance unit, which contributes Not a negligible part of the group.
Do you think there is some room maybe in your credit exposure to reduce risk weighted assets that maybe do consume capital, but do not
Okay. Yes, the Because it's written on Page 39, because we kept the senior notes, the GAC senior notes on the Transaction, so globally, we had an impact of reduction of the On the HDD waiver, I'm sorry, every quarter I have to answer to this question. Unfortunately, I don't have any answer up to now. As you know, we have done an application beginning of the year When the plan was much lower than the effect of our derisking strategy, Let's wait another few weeks in order to complete and understand the magnitude of our derisking. But I am pretty sure that with this opportunity in some way we will reach the target that we announced.
On the consumer finance, let me be quite clear, even though of course again we are in the middle of some discussion. So I don't want to embarrass anybody. I don't want to be embarrassed. But I am not saying that we are selling Our consumer finance activity, I'm just saying that we are optimizing our consumer finance activity. We have 2 Product Factory, which basically do the same business.
We are trying to understand the best way to make out some capital trying to keep the maximum of the profitability that we still have from our consumer finance activity. So I am not going to sell the activity of course. Okay. Okay. Thanks, Stefaan.
The next question is from Giovanni Vazoli of Equitasium. Please go ahead, sir.
Good afternoon. Good evening to everybody. I have a couple of questions. The first one is important to me to understand the timeline of this much awaiting much awaited de risking plan. So by the end of November, by the mid of November, if you receive The binding offers on the NPL disposals, would you be in the condition to also define the overall plan Involving also the consumer credit or shall we wait also for shall we wait another couple of weeks or by year end you will have A clearer picture of all the moving parts.
So this is my first question. And would you commit to us that if By mid November, the overall picture will be defined. You can share with us all your thoughts into a conference call or presentation so that everything will be One is for all defined, so we will have all the moving parts clear in mind. And my second question is on again on capital. You have mentioned that you have several elements to shore up your capital I was wondering if you can share with us what could be instead the headwinds that at sector level may You may face, I'm referring to the TRIM process.
So are you is the process Ongoing, if you expect something in the next couple of quarters. And what about the update of the risk The parameters of the internal models, shall we wait shall we expect something by year end? And shall we expect some
Okay. Again, it's quite embarrassing to talk to you during some very hard negotiation. As you know, time is a part of negotiation normally. So if I say to you, by this date, I will have something this already give My counterpart to some advantage or disadvantage. So please don't ask me to be more precise that I already did And I already read write down on my presentation.
So I say that there is an official Expiry date for the presentation of the offer, which is mid November. Of course, we are very much interest to receive the best possible offer and to analyze this offer In order to give in a couple of weeks' time since we will receive a comparable offer, Which I already said is a sort of dual track, the gas straight. So we need some time to understand what is the best way. But as soon as we do, as we receive the offer and we make up our mind in what is the best potential solution, Of course, I will have a conference call with all of you and announce the global sides of I never told anybody in the market that I am doing something without having The capital to do what I say, so for sure, if you will have the presentation, you will know exactly We will finance our derisking. So the two things should come together.
For 3, maybe, frankly speaking, again, maybe it's because we are very much concentrated On this aspect, which for us are very crucial, very important, no, we don't have Any worries, but not even any information which anticipate any of the future Impact. So our model, as you know, were validated, maybe the last one, but to be validated With the new rules, so we do not expect any major change, but we are talking Frequently, and we will see together with the other banks, the effect also of these new rules when they will come. Thank you.
The next question is from Anna Adamal of Autonomous Research. Please go ahead.
Hi. Thanks for taking my questions. On the NPE disposal, you mentioned €8,600,000,000 of gross book value. I would like to understand whether this number include also partial write offs exposures, which are currently off balance sheet? And on Argos, can you remind us what is the book value of the stake and whether this is fully deducted from CET
Okay. Thank you, Ms. Adamo. Yes, in the 8.6 There is the global consideration. So there is also some 100 of write offs.
We don't have many because as you know, We have reinstated the vast majority of them. For Argos, Yes, they are fully deductible because as you know, we have above the threshold and in our Our stake holdings on our book is 685,000,000
The next question is from Delphine Lee of JPMorgan. Please go ahead, madam.
Yes. Thank you for taking my questions. I just have 2. On funding, just wanted to clarify On TLT, how much is actually deposited in the ECB? And I can see that some of it is in your Investment portfolio, but just want to have a little bit of the split.
And should we understand that You have basically the flexibility and you're thinking about not refinancing the €1,700,000,000 of institutional bonds next year Using the Telstra amount? And then secondly on NII, just wondering what The what the impact could be from sort of the repricing that you mentioned, which mainly occurs in 2019. Just wanted to understand a little bit of the magnitude, if you have any color to give? Thank you very much.
Good evening, it's Lee. On the Yes, TRO, I have on Page 25 of our presentation, there are all the Employed with facing the TLTRO financing, most Very few of them are govies. The majority are retained and covered bonds, ABACO and self Most of them are quality marketable securities and they of course are on top Of the $20,000,000,000 of unencumbered liquid asset that are available for refinancing right now apart from the TLTRO. Re pricing, again, I see that is an opportunity and an obligation Because, of course, we have also a very strong sensitivity to the increase Of interest contribution, our sensitivity for every 40 basis point Of increasing on price is €170,000,000 So of course, we have we will try to exploit, of course, any
Just as a Follow-up, if I may. On the repricing, so this is mainly related to sort of market rates, short term rates in your LIBOR. But Do you see also the Italian banks in general repricing The loan book to adjust for the higher funding cost?
Yes. As I was mentioning, most of the increase in loans of this quarter came from negotiation Started few months ago. So normally you have a time for granting new loans, which take Some months, especially in the big transaction. So, of course, there is different timing to market for increasing pricing. We have started already, of course, for the mass market activity, but we are foreseeing Also to be compliant with regulation and most proper activity starting by beginning of the year.
The spread sensitivity is not only to your Euribor, but to any increase of price that we are applying.
Great. Thank you very much. The
next question is from Hugo Cruz of KBW. Please go ahead, sir.
Hi. Thanks for the time. Couple of questions. One on some of your other banks that have reported so far have been talking about the need to reprice the loans. Could you give us your comments on that?
And then on the LCR and SFR, Well, how do the ratios look like if you remove the TLTRO? Thank you.
Sorry, what I can tell you what I could tell you more on pricing? I don't understand very clearly.
I was just wondering, I mean, apologies if you answered this already, but some of the other banks that have reported so far have started to talk about the need to reprice Loan rates, the net starting of loans.
Yes, of course. Yes, yes.
So do you think that could have any impact on cost of risk, Loan growth, how much do you think you can reprice over the next few quarters? Any comments on that would be appreciated.
No, I don't think so. Repricing means that you're going to reprice also good client, not only to Shift your lending propension versus lower PD rates. So Of course, we are going to try to especially if the market is going in the same direction, I think that is very feasible repricing also with good rating names. So I don't think this will bring to a lowering of the quality of our assets. Again, on LCR, we are right now 133%.
We have, of course, projection End of the year to be higher than that and SFR is still above well above 100%. So we don't foresee also in terms of TLTRO nowadays any problem due to this Maturity in 2020.
The next question is from Ignacio Charezo of UBS. Please go ahead, sir.
Yes. Good evening. 3 Hopefully, quick questions from me. The first one is whether the gas pricing, judging by your conversations with prospective buyers, has deteriorated much From the levels we saw before the summer. The second one is, if you can sort of share with us your best approximation to cost of risk Next year in the maximum NPL disposal scenario, I.
E. The 8,000,000,000, dollars 8,500,000,000, if you think you can normalize the cost of risk Closer to the 60, 70 basis points you have mentioned in the past. And the third question is on whether Animant could be part of the funding sources basically for the derisking.
Thank you. Again, we don't have Nowadays, the possibility to calculate the exact cost of the guarantee for GACs because this will be determined at the end of the Road, so in basically almost in March if we go for the gas. Nowadays with our projection Is that also with an increase with the foreseeable increase due to the current level Of CDS, EDGX could still be convenient vis a vis a straight sale. But of course, this depends on which kind of offer we will receive. And on that, we will apply all the Threshold of the gas cost and sensitivity in order to understand which kind of transaction would be better for us.
Cost of risk, yes, this is exactly the reason why we are focusing so much on derisking. We are willing to reach the level of our peers having also a very good Level of disposal in as a project. So for sure, we think in the next We will be able to have a consistent cost of risk vis a vis our competitor. Anima right now is not in our perimeter for disposal. Let's say that we are very fond of our asset under management activity.
Nowadays, we don't see the need. But in any case, it's very easy for us to change our mind because as you know, it's a one side decision. So Even though I decide to sell the stake the day after this is liquid on the market. Meanwhile, if you have to reach an agreement With somebody else, we have to work a lot in order to align the interest and to try to keep the most of the possible value. So that's why I don't I'm not talking about Panama.
It's really not nowadays in our Plan, because still we need to have some good reserve for the future.
Excellent. Thank you.
The next question is a follow-up from Mr. Riccardo Rovari of Mediobanca. Please go ahead, sir.
Yes, I'll be quick. I've noticed that the gross amount of total bad loans came down by €1,000,000,000 in the quarter, which is no doubt a remarkable achievement. Is this entirely due to internal
Or was it affected also by write offs,
like, can Chile, Toni or something like that?
No, it's mostly out of workout. That's why I had this Page 5 Just to give the idea of how big is our workout activity. Of course, there could be also some few Cancellation, but the vast majority of it comes from internal workout, both From UTP and the bad loans of course. Perfect. Thanks.
One moment for the next question. The next question is from Mr. Alberto Cordara of Merrill Lynch. Please go ahead, sir.
Hi, good evening. My question is more of a system question. Yesterday, we heard from There is a mentality that Italy is getting into some kind of Armageddon, But I mean the reality is very different. And I just would like to have your view on what we should expect In the economic cycle next year and if there is any risk in your view that Italy may slide into the recession Again, this risk is very remote. And also in terms of primary formation Of NPLs in terms of flows, if we should expect the trend to continue being positive or maybe there is going to be an inflection
No, frankly speaking, unfortunately, I didn't follow Mr. Messina conference call, so I don't know exactly what he was Referring to, but let's say that of course we have experienced some uncertainty on The market and we know very well. I think both of us know the situation in Italy. There is I think more pressure By this confrontational attitude rather than our real economic environment. So frankly speaking, I don't see Any recession at the Daul neither we have some clue about recovering of inflows of Deteriorating loans.
So for the time being, let's cross finger. Things are, of course, mostly Facted by the staff negotiation and this different view on growth by the Italian government Vis a vis the European Parliament Commission, but frankly speaking, I don't think we can see and say right now that there is some Sort of a conversation at the door.
So the view of the market, particularly the fixed The market on BTP is a view of this is not really based on what you can experience on the ground. The reality seems to be very different Don't know where the market is indicating us to be.
I think most of the spread is due to these very hard Negotiation to the risk that Italy could take some extreme decision, but not related to the real economy.
The next question is from Domenico Santoro of HSBC.
Hi, good evening. Just a quick follow-up to the answer you gave to the colleague before on the question regarding loan loss provision. Am I correct have I understood correctly that you in case of a disposal of the non performing loans Book, you expect a cost of risk, which is more in line with your competitor. And if I look Your direct competitor, the cost of risk nowadays is around 50 or 60 basis points. Is this a level that you consider realistic After the disposal or in a couple of years or the risk profile of your business, It doesn't allow this sort of provisioning run rate.
And then just a detail, the negative one off in Q2 because of the disposal of the equity tranche discount, we know that there was I'm mistaken the way the cash flow has been calculated by the rating agency. I was just wondering whether
I would say yes and yes to be very sharp. I would say 50%, I feel that we are in the same territory, maybe a better one vis a vis many of our competitors. We have we are only granting very good quality loans. So once we have solved our Problem with our heritage, I am sure that cost of risk should go down in line with our competitor. And also the calculation we are doing, of course, if you are able to derisk the bank, the sites that you were mentioning should go to this level.
Also, we are working, of course, on that, let's say, misinterpretation of mistakes Related to the Exodo's valuation, of course, again, we are not the only part in coal, so we have to deal with many Different counterparty, but of course our target is to recover in the majority of the lower value that we experienced.
Great. Thank you.
Mr. Castagna, at this moment there are no questions registered, sir.
Okay. Thank you very much Everybody and see you next not next quarter, but next time. So you have the possibility to hear about our transaction. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over and you may disconnect your telephones.