Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banco BPM First Quarter 2018 Results Presentation. As a reminder, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask Questions.
On their telephone. At this time, I would like to turn the conference over to Mr. Roberto Veronaglio, IR Manager. Please go ahead, sir.
Thank you very much. Thank you everybody to attend this presentation, the Q1 results of the group Banco BPM. Before leaving the field to Mr. Castagna, our CEO for the presentation, let me remind that you can find the presentation on the website on Investor Relations section and the Q and A section that we follow the presentation is reserved for Financial Analyst. Now I leave the field to Mr.
Castagna. Thank you.
Good evening, everybody. Let me introduce this Q1 2018 result with some update about our capital and the risk in strategy. As you know, this is the Q1 of the 2nd year of the merger in which we have devoted a lot activity in order to strengthen the capital and to enable the bank to afford a very Increasing and Demanding Derisking Strategy. We start Therefore, with some number related to this capital management action, including the RB Allowing us to show a very sound common equity Tier 1, both in terms of the As far as fully loaded is concerned, we have reached a fully loaded state Commonwealth Tier 1 of 11.5 percent, including 180 basis points related to the first time adoption applied only and completely on bad loans, which are going to be disposed through our de risking strategy. The pro form a, which includes The 2 capital management action related to the insurance reserve management already concluded with ANIMA last year and which will be officially included in our balance sheet in the Q2, give us another 21 basis points of Common Equity Tier 1.
And in the 3rd quarter, we will also show Together with some dividends from other associates for some 5 basis points, this bring us to a common equity Tier 1 fully loaded pro form a at 12.10 basis points, slightly above the forecast we gave you last quarter. Of course, due to the different phase in of the rules related to IFRS 9, first time adoption. We have almost a complete effect on our common equity Tier 1 of this maneuver quarter showing 13.5 percent of common equity at 1 phased in and above 14% if we include the pro form a transaction we were mentioning before. This capital strengthen that as you know has been quarter only counting on our, I would say, optimization of our product factory call allow us allowed us and will allow us to proceed speedily in the risking plan, which we already announced last month last quarter and this is going to have some further effect during the next week. We have included in the derisking slide on Page 6, not only the effect of EUR 5,400,000,000 already reduction of gross amount of NPLs, we have added to that the further EUR 5,000,000,000 we are going to This post through the GAC transaction that in these slides is colored with this name, Exodus.
So in 18 months after the merger, we will reach results of plus EUR 10,000,000,000 of derisking in 18 months visavis EUR 8,000,000,000 forecasted when we announced the merger and the EUR 13,000,000,000 we are going to reach with the new NPL disposal plan. In terms of only bad loans, The reduction is proportionally even bigger because we are going to reach from EUR 18.6 EUR 8,000,000,000 as of December 2016, more than EUR 8,000,000,000 reduction post the GAC transaction in only 18 months. All debt having exploited Very strong provisioning during all this quarter and of course taking advantage also from the IFRS 9, again, only devoted to bad loans. This allow us to increase massively also our coverage, quarter which stand at almost 54% as total coverage of NPLs €55,000,000 68,000,000 if we include the write off. You already know that also quarter, the quality of our bad loans, we feel being a A bit more covered than the average of the Italian banking system.
We have shown here both bad loans and UTP composition, quarter which is 68% related to collateralized assets and only 32 versus a fifty-fifty more or less of the Italian banking system. Let's spend some word about what we have Remind for the future. Of course, we have included the number post exodus. As you can see, we are going to reduce the net bad loans to after exodus to only EUR 3,400,000,000 starting from the almost EUR 8,000,000,000 in December 2016 and 3.3% This aggressive policy, which is confirmed also by our provisioning, call leaves us a wide range of option to accelerate and potentially go beyond the derisking plan targets. This is a strategy that we want to pursue because we understood that, of course, we are announcing Time by time, every time, more aggressive plan, but we feel that starting from the GACs, So the Exodos transaction, we are really in the position to reduce further the net bad loans remaining In our portfolio, considering also the level of coverage that we have now reached That after Exos, we will be even more even higher than before Exos.
As you can see, the bad loan coverage is going to increase to 68%. Needless to say that in the last few months and weeks, especially after an important transaction performed by Banque Entesa Sanpaolo, We have been receiving many reverse inquiry on the potential opportunity to sell quarter, the NPL platform together with other NPL apart from the one that we have already forecasted and Business Plan. So we would like to still keep a very comfortable level of coverage in order to be able in any time to exploit any opportunity should arise to accelerate and again go beyond announced the risk in plan. Just few words about Exodus. We are going to conclude to respect the timing and to account the effects by the next By this quarter end of June, the gas will be in the region again of EUR 5,000,000,000.
This will allow us to reach since 2016 a total of EUR 9,500,000,000 of disposed asset, 70% of the total disposal plan of EUR 13,000,000,000. The composition of the portfolio will be 74% secured and 26% unsecured. And I would like to emphasize quarter. Another positive effect we are going to have through the disposal, which is The decrease of the RWA for EUR 1,300,000,000 due to the new model and model application. On Page 9, another very quick slide just to give you the idea of the quality of the entire portfolio of Banco BPM.
As you can see, before and after the Exodus transaction, quarter The geographical quality, the vintage composition and the collateral split will remain more or less unchanged confirming that the average of our portfolio quarter is in any case very sound. Let's talk what we have done recently during the Q1 of 2018. As you know, we have started with the 2 bank put together the network, 2 bank put together Starting from the end of January this year, we had the opportunity of bring put in place the new organization quarter of the division split in corporate from retail, organized in the bank in different division and activity And moreover, putting together all the branch of the bank as if we were already only 1 bank also in terms of subject. As you know, BPM will be we have anticipated merger of BPM as a legal entity since starting from the 1st October this year. But in any case, the new organization allow us to work as a one bank since the February this year.
Of course, this new organization brought some reorganization We had more than 10,000 people, employees involved in this reorganization, Over 3,000 employees have been reconverted to new professional roles, especially commercial roles. Just to make some examples, 700 new managerial roles included many branch manager, Quarter. 1100 Commercial Rolls and a very big increase also in the people devoted to the 1st tier level of control in the ranking of Control Activity at the branch level. We have also decided to close the 5th 312 branches is by June this year. This brings the total of the closing to Sorry, 4.50 483 branch visavis335 branch quarter that we announced when we announced our merger plan.
So we will have 150 branch more than the entire 2016 2019 plan already after 18 months. This will bring our network to 1900 branch, which allow us easily to reach by 2018 quarter, the closing of the Farder 200 branch and so reaching what was just an aspirational target when we announced the plan of almost 700 branch closed in the 1st 2 years. On Page 12, you have also the effect on the quarter is working with our bank and personnel involvement in this activity. On the left Of the slide, you have the announcement of the plan, 2,600 personnel involved in the merger, quarter in the optimization of the merger, EUR 1100,000,000 to leave the bank, EUR 800,000,000 to be reconverted in new roles, Especially commercial roles, we have now updated the plan. We have already reached 2,200 of as you already know of exit from the early retirement scheme, 6.90 of which will go out during 2018 and more than 1100 people changing roles through the anticipation of the restructuring and rightsizing of our branch network.
I leave you with Page 13, just talking about the organization, which is still going on, Merger, I learned on our own experience, which is a never ending activity. And as you can see, still in the Q1 of 2018, we were organizing the new retail and corporate The private and well management activity closed in Q1 2018, the Consolidation of internal model and so on. You will see in yellow, the other activity we have involved almost first quarter terminated, which will take full place by 2018. This was just to give you the idea of the strategy that we are going to pursue this year, but let's go to the Q1 figures on Page 15. We have done the first slide with this comparison just to make for you easier to Understand the IFRS 9 new accounting policy on the left and the pre IFRS 9 quarter numbers on the right.
As you can see, the only difference is EUR 66,000,000, which are going to impact positively on NII and of course, negatively on loan loss provision. I would comment and then going ahead in order to make you have a A potential confrontation between the Q1 over last year, I just want to comment that the net income, which is EUR 223,000,000, including EUR 176,000,000 from the sale buy and sale of the Bancassurance business. In Page 16, we gave you the The possibility to have a look to the Q1 2018 and the pre IFRS 9 adjustment with the Q1 2017. As you can see, we had net interest income Pre IFRS 9 on plus 2.5 percent, which we consider very good results. On the other side, we got less Commission due to this reorganization, which took place during from 30 to It took from 30 to 45 days in which a lot of our colleagues were engaged in changing branch, In change in portfolio and so on, this affected a bit our activity in the Q1 in terms of commission.
This brought core revenues to a minus 2.6%, which was offset by a minus 3.4 in operating cost reduction. The profit from operation globally comes to EUR 403,000,000 vis a vis EUR 418,000,000 of 2017. Loan loss provision Before again, IFRS 9 were EUR 260,000,000 compared to EUR 292,000,000 over last year. Let's go to the details. Net interest income, I would comment only the like for like.
So the EUR 4.29 compared to EUR 4.17 of 2017, This is the 2.4% increase. This has been affected as for the previous and constantly effect of the present 4th quarter through a reduction of cost of funding, which offset a reduction of asset spread. In terms of the comparison with last quarter, we still registered a slight increase, but basically results which is comparable with last quarter 2017. As I was mentioning before, The spread is constant. We were able to maintain during the 5 quarter of our activity, basically the same spread from EUR 1.55 billion to EUR 1.54 billion, Again, leveraging on the bettering of asset of liability spread and the decrease of asset spread.
On Page 19, net fees and commission, Again, we registered a slowdown in the Q1 activity compared with the Q1 activity of 2018. This is the result of 2 effect, one of which I already mentioned is the reorganization. The secondly was the peak that we had, as you can see on the right part of the slide In the Q1 2017, which as you know was the Q1 of the merged bank and most possibly quarter gained an effort from some prudent approach before the merger, which allowed to start better 2017, as you see, 2017 was quarter by quarter decrease in the effect of the fee. Another important effect question is also the change in that, as you know, we are already having in our portfolio advisory strategy visavis asset under management. As you know, we are applying since January An advisory by portfolio rather than an advisory by product.
And this is bringing, of course, from one side A decrease of the upfront fees, but on the other side, a constant increase In the government fee that we are sure that in the next quarter we'll give a lot of strength to our fee driven business. On Page 20, net financial results. We have a slightly reduction visavis the Q1 last year, mainly due to €5,000,000 related to IFRS 9 accounting principle, the valuation. But Let's say that mainly this result was affected by some prudent approach that the group decided quarter to have visavis, an hedging strategy approaching the electoral day, the 4th March this year, quarter which of course mark to market gave us some disadvantages, which we are already recovering And I can announce that the guidance for the Q2 is very much in line due to the recover of this performing in line with 2017. So all in all, we think we are quarter very much in line with the 2017 numbers.
Let's pass to the cost on Page 21. Basically, excluding the one off The like for like results is a reduction of 3.4% visavis1st quarter last year is not very much comparable Q1 this year with the last quarter last year Because of some recovery, both in the personnel cost and in other administrative cost That we gained in the Q4 last year. So we gave you some indication about the average of the cost because this is something that quarter is going to be applied quarter by quarter. And as you can see, the reduction is stable and consistent and is in the region of 2%, also with the average of the previous quarter. I wouldn't comment personnel and other administrative expenses because you can see exactly the same effect like for like reduction from 3% to 2.5% in the yearly comparison and the reduction of about 1% with the average of 20 17 quarters.
Let's go directly to Page 24. Again, we are we have this target So we will continue to have a cost of credit in line with the guidance we gave for this year. And of course, we have only split the difference between the pre IFRS 9 and after IFRS 9. Let's only say that apart from the willingness of maintaining solid NPL coverage, we have also to say that The major effect of this policy will be more in the first half of twenty eighteen rather quarter. That in the second part of the year, meanwhile, we are going to have the risk of the bank, the effective risk.
Let's go back to some figure on the volume. Basically, we have no Major change, both in terms of loans. As you can see, there is a slight increase. We put also the reference with the 1st January because it's already affected by the reduction as a result of the application. So the performing loans are growing 0.3%, having an account that the leasing in runoff quarter is decreasing 2.5% and the NPS for the Q1 were decreasing around 2%.
The same, I would say, unchanged the situation comes from the direct funding. Our policy to change less expensive source of funding like quarter is still continuing. There is almost EUR 1,000,000,000 more of free deposit in the Q1 with a corresponding reduction of bonds and The bond maturity the bond maturing this year are quarter is still very consistent. We gave you some guidance about the different maturity. As you can see at Page 28, We have still EUR 4,500,000,000 of bond maturing this year with an average Spread of around 2.93%.
As you know, we are not going to substitute completely this bond and in any case, the path that you are going to substitute is at a very different and lower Interest rate enabling us to continue the reduction of cost of funding. This is also thanks to the strong liquidity position we will examine in a minute, which is really largely is actually allowing us to leverage on this situation in order to make Funding Results. Here we are on Page 29. As you see, the Use of eligible asset, the unencumbered eligible asset, standard in 31st March At EUR 19,000,000,000 versus EUR 16,000,000,000 of December, the EUR 19,000,000,000 nowadays quarter are already EUR 24,000,000,000 showing you the large amount of liquidity we could exploit to refinance the asset The quality of an encumbered asset is also very good as you can see on the cake on the right low right side of the slide, which is 95% composed by GOVIS. In the net funding, here we have 2 different situation.
I would say A good increase of asset under management, especially as far as concern Funds and Zika, which are growing EUR 400,000,000 in the last quarter EUR 3,500,000,000 year on year. Meanwhile, we are having an offset in the growth of especially Bancassurance. As you know, we have now since the 1st April, the new joint venture with Catolica, which again started the 1st April. So of course, both for the reorganization and also for allowing a good start of the new bancassurance joint venture, we expect this amount to grow in the next quarter. There was also some, I would say, market effect, which About EUR 1,000,000,000.
As far as asset index custody, you see a decrease of around EUR 4,000,000,000. This is due to 1 only one consistent big ticket of an institutional client, which I would say anticipating the custodian bank quarter was to be switched to be in place before the effect of the disposal of the activity that we will finalize by the next quarter. To this portfolio, we are going to pursue our strategy to reduce the Italian govies weight on our portfolio. Italian govies from the 1st January decreased around EUR 2,000,000,000 EUR 1,800,000,000 compared with last year, Italian govies now represent 55% of the total govies. Last year, there were 76% of Total Govis.
The portfolio has been reshaped during the last months. We have now a modified duration of the Italian goal is, which is below 2 years. And as I was mentioning before, The maneuver on the profit and loss allowed us to increase at 31st March, The debt reserve held to collect and sell to EUR 2,207,000,000 quarter coupled with either EUR 200,000,000 coming from Help to Collect. As I was mentioning, talking about profit and loss, a good buy, consistent part of this reserve has been realized during April this year. Let's go back to the what we were talking since the beginning About the potential and ongoing reduction of NPLs, again, we have the net NPLs numbers.
Starting from the numbers we showed 1.5 years ago, We end up in 15 months to reducing EUR 6,000,000,000 of net NPLs. In total, more than EUR 3,500,000,000 of NPL over OTP and almost EUR 3,000,000,000 of NPL. Starting from the EUR 11,300,000,000 of net NPLs, we are going to reduce below EUR 10,000,000,000 due in this quarter due to the Exodus transaction. The first time of course, as you know, this will not have any effect on the profit and loss due to the first time adoption, which again has been devoted all to bad loans disposal. Coverage level still very conservative.
We mentioned before, you can see at Page 34, The increase of 500 basis point in NPLs coverage of 7 50 basis points completely due to the IFRS 9 First Time Adoption for bad loans with a composition of bad loans split the coverage of the better loans split 84% for unsecured and 58% for secured. Another very important part of our strategy, as you know, is the performance of our NPL activity. This allow us to show the market the capability of our workout activity. As you can see, the Q1 vis a vis Q1 last year is running much better. It's EUR 484 million visavis394 in the Q1 last year is completed between recoveries and cancellation and again pointing on the low effect on profit and loss, quarter is no impact on the FADER provision when we are able to work out our NPL, only 2% of total quarter of total GBV reduction is the impact of on NPL, EUR 10,000,000 in Last, again, common equity Tier 1, you have the split with the different effect of the undergoing that capital management action and the first time adoption, both for quarter stated and pro form a numbers as of 31st March 2018, on the up in the up side of the slide, you have the fully loaded.
And on the low part of the slide, you see the phasing with the impact of the IFRS 9 First Time Adoption. I would say that I will leave the floor to your question in order to give you some more detail on what I presented to you.
The first question is from Christian Carreze with Intermonte. Please go ahead.
Hi, good evening. Chris and Caressa, Intermonte. The first question is on net interest income and and the loss provision, the IFRS 9 impact in the quarter was quite important on net interest income and provision. I was wondering if you can give us a guidance of the impact of the EUR 5,000,000,000 NPE disposals that will be carried out by the first half twenty eighteen. So what will be the impact on P and L of this item?
The second question is on the coverage ratio. You pointed out that After the disposal, with GACS, the coverage ratio of the remaining portfolio will go up. So if you can elaborate on this item. And finally, on the servicer, Inter Sao Paulo said that they could be interested in buying other Services through the joint venture with Intrum Justicia. If you can give us an update on the work in progress for your service business if you are planning to maybe sell or to make a partnership in the coming quarters.
Thank you.
Okay. Thank you, Mr. Cardeza. I would say that as far as the IFRS 9, of course, it's difficult to give you Some proper guidance for sure for a bank who makes at the center of their target the de risking is difficult to give you to tell you that this will be stable because of course, meanwhile, we are going to quarter. NPS, the effect on both NII and of course, cost of credit are going to be reduced.
It's difficult to give you how much also because as I was mentioning before, we don't know yet If it's only on the Q2 of this will continue also for the further quarter depending, I would say on the third part of your question. The coverage is going to go up because, quarter Again, we are going to consider very with some cautious The portfolio, we want to give the idea that we are going not to pick up the best that we have in our portfolio. We want to give a sort of indication about the quality of the total portfolio. Of course, the mix between secured and unsecured and the different coverage of secured and unsecured give A difference on the remaining part of NPLs. But in our opinion, also different From what we thought when we were at first time thinking about GACs, We thought that this was going to reduce our coverage.
Instead, we ended up with a good solid quarter consistency of our coverage. 3rd, NPL platform, I think that from my word and from the numbers that you have seen in our Q1 results, The willingness to pursue any potential opportunity and the very, I would say, favorable situation that quarter Bank like ours, we started one and a half years ago with EUR 30,000,000,000 of NPLs with a market which was not there with the difficulties in giving some indication about potential disposal because of lack of markets and with the consistent results with quarter by quarter, we are going to deliver in terms I think and I can affirm that is Very much appreciated by the market. And of course, we are going to have a lot of reverse inquiry from different is from competitors in this activity and we will see what to do. But for sure, If we take in mind the price of recent transaction, that's why we showed the net and the coverage after You can see that the effects on our capital are going to be really negligible If we take in mind further NPL reduction. So we want to be really very, very prudent in order to approach Any possible opportunity.
Not to mention that again, after the validation, we are going to quarter has a very sound effect also from the release and the reduction of
Thank you.
The next question is from Giovanni Razzoli with Equitasim. Please go ahead.
Good afternoon. Very quick question on my side. After the IFRS 9 first time adoption we have seen one of your nearest competitor, Bitter, guiding us in 2019 for a 60 basis points Cost of Risk for 2018. You have 63 basis points in 2019 Your business plan, I was wondering how and if these level will be impacted in terms of timing or amount Following the IFRS 9 first time adoption. And then a couple of clarifications, if you can elaborate on the fee income.
You've mentioned something about on the changing the commercial strategy in terms of fee income, but I apologize I missed your comments. And the third and the last question, what was the impact of the PPA on the P and L in this quarter? Thank you.
Okay. Thank you, Mr. Razzoli. Frankly speaking, I don't know exactly the strategy of my competitor and other banks, so I can talk only for my banks. Again, we feel that when you still have even though with a clear derisking strategy, but not yet quarter delivered like in our case, we have the duty of being very consistent in coverage and in provision because again, we want to take opportunity not to have problem in selling if there is any opportunity of disposing or accelerating our assets.
So basically this is also because In this year, as you know, starting from the Q1, but I already announced the other one off effect on the profit and loss This year, due to the insurance, the reserve and the custodian bank, we have also room to be very consistent in provisioning. So basically, we feel that the more we can reduce our backlog In our NPLs, the lower can be the cost of risk going forward. I would say that If we said EUR 63,000,000 when we forecasted to reduce only EUR 8,000,000,000 of NPL in our original plan, quarter, the possibility the opportunity to reduce furthermore as we announced EUR 70,000,000 with already presented NPL plan and the possible opportunity also to accelerate and potentially increase this target, of course, should bring to some cost of risk lower than the one we forecasted in 2019. As far as the income, I was just mentioning 2 effect. One was again that the Q1 last year is a bit Uncomparable with the Q1 this year for two reasons.
1 is that Q1 last year was the peak of our quarters. I have not explained that the bank were going to merge since January. Basically, most probably in December, there was not such In December 2016, there was not such an activity and a focus on fee income, which in turn gave us a lot of boost in the Q1 2017, Which of course is the opposite this year. This year we had the branch network organization, A lot of people changing activity. So we feel that this year is going the other way around.
We start more quarter, prudent due to this situation that we will increase quarter by quarter the fee income production. Also because this is the 3rd part of my talking, also because we are switching from one off fees to recurrent fees due to our advisory strategy, which took the pace of former BPM giving an advice in by portfolio and not an advice in by product, which was in place for former Banco Popular. This of course We gave a lot of opportunity in term of one off, but of course, a need for selling every month in order to have a stable and possibly increasing result. We are switching this to fee generation. So we will see much more recurring fee in the next quarter.
And already in the Q1, there is an effect of this which will allow us to be, First of all, giving a service of our a better service to our client, being more MiFID compliant and also having For our network, the possibility to deal with fee income commission without any stress, with some consistent recurrent fee, which allow to performance stable results. As far as the PPA is concerned, we have given, I think on Page 21 quarter of our press release, the total effect of the PPA, Which is in the region of EUR 30,000,000. We are not going to give for the 2nd year any other Details just because otherwise we have BPA, IFRS 9, the disposal and the risking which is going to affect This number, we should do 2 or 3 comparison for each quarter.
Thank you.
The next question is from Jean Noyes with Goldman Sachs. Please go ahead.
Hi, good evening. So questions question is from my side. On the targets of NPE ratio by 2020, I guess the transaction Exodus today is more detailed than it was, but Just wanted to know whether the EUR 13,000,000,000 gross NPE ratio was still the number to look at for 2020 or does that come quarter further down with this quarterly release. My second question is, so related to the cost of risk question of 1 of my friendly competitor quarter before, when you will finish your plan in 2020, the ratio is still low, but low double digit, but still double digit when larger peers are going to be essentially half of your level. And I wonder to what extent quarter You wouldn't be incentivized to continue to provision highly in order to decrease that ratio beyond the target that you've already published maybe faster quarter as you get to that number and whether really the cost of risk target for next year is a relevant number in your opinion or whether derisking faster is more relevant in your opinion.
So I would like to see your opinion on that. And lastly, on performing loan growth, obviously, part of the ratio is driven by the performing loan growth. And this hasn't taken place maybe as much as you might have wanted in the first place. And I just wondered whether you felt constrained to grow loans right now by the derisking efforts Or whether you just don't see enough demand
to see
to execute on the plans that you had already disclosed in the past? Thanks a
lot. Thank you, Mr. Nue. I will say, I think I gave you with our presentation some idea what We can forecast for the future. We really are convinced that we performed a very aggressive plan When we talked about EUR 30,000,000 of reduction and non disposal, We still feel that it's very ambitious.
But again, the market and the evidence that we can Czech, thanks to some the many reversal inquiry make us I think that it's possible also to go beyond. Of course, it's not something that we can state right now. Quarter is an opportunity that we want to exploit and once we have reached the solid Capital base. Now we are in the better position to exploit any potential opportunity to increase this target. I would say maybe after the GACs, in the next quarter, we could be also a bit more explicit on what will be the scenario that we have in front of us.
We Of course, we are not in a hurry because we are still performing the EUR 15,000,000,000. But as we were doing for the first EUR 8,000,000,000 plan, We were already thinking to what possibly we could have done better than that. Still double digit. This is exactly the point, Mr. Nue.
We feel that maybe It's better to try to understand if there are good opportunity on the market to try not to be still at double digit, Because of course, otherwise, you still have the carry provisioning to do and this wouldn't allow to decrease with the pace we expect the cost of risk. Having said that, I can also say that It's complicated nowadays to make a strong opinion on that because we can see that Other banks are already reducing loan provision, also having double digit NPL ratio. So this is my opinion, is better to be focused on reducing in order to make the market sure quarter. Performing loan could be a constraint, the growth of performing loans by the derisking, not at all. Unfortunately, the evidence of the market is that the market is not growing.
But I can assure you that we are deploying a lot of building up opportunities to grow into the loan market. We with the new reorganization, we have in place the new corporate division, which has already granted a massive increase for the 1st year client of potential opportunity. Of course, nothing happened in few months. So we have only to be patient in order to see the fruits of this effort quarter is to be concrete on our number. But there is absolutely no constraint and the strategy is to grow and the ammunition that we have also in term of liquidity and an encumbered us that's eligible show you that we are providing for having enough ammunition to foster loan growth.
Okay. And I just wanted to ask about the ex orders. So the securitization means you this The equity stake of that will be sold by more than 50%, yes, to a 3rd party investor to achieve full day consolidation.
Yes, of course, it's a prerequisite in order to deconsolidate. Excellent.
Thanks a lot.
Okay. Thank you.
The next question is from Alberto Cordara with Merrill Lynch. Please go ahead.
Good afternoon. The first question is related to a question that you received before about the PPA. I'm reading from your press release that the quarter impact has been positive for EUR 30,600,000. If you can give us the details line by line as you have always been doing. The second question is on the government bonds.
I like the modified duration is 1.85 years. If you can let us have an idea of the average maturities of the Italian Treasury bonds. And then finally, on quarter. If you can give us an idea at which stage you are in the process, how many counterparties Have you already started talking with, generally speaking, a bit more background about this transaction? Thank you.
Okay. Let me start from the potential buyer of our junior manzanine. The data room will open sorry, is already open. So we will be able, of course, to give some more information as soon as we have the rating agency to give us The final rating and numbers and trancheng of our Let me say about the securities, the average maturity. Okay.
Is A bit below 6 year for Help to Collect and a bit below 4 year Help to Collect and Sell. For PPA, frankly speaking, we didn't give details, but we, of course, have all the details. It's EUR 30,000,000. All in all, I'm sure Mr. Perallo will be able to give you all the details going on.
The next question is from Andrea Vercellone with Exane. Please go ahead.
Good evening. Couple of questions of detail. But first, I'd like to reemphasize quarter again, how important is to give the details on the PPA. You may not understand it, but it's is very important for us because it moves up and down every quarter, and we can't analyze the results. So we do need to know At least what's in NII, if any, and what's on provision, if any.
So the questions are, I didn't understand your comment about monetizing bonds in April. Then the second question is on the capital. Can you let us know if there is any deduction for expected loss question is from the
Okay. Of course, We won't allow to give you all the details about BPA. The only problem is that frankly speaking, if you were in our shoes with IFRS 9 with PPA, again, with a very volatile aspect of these numbers coming from the derisking, Would be impossible to prepare slides for any possible confrontation. But of course, again, Our colleagues of IR are available for give you line by line quarter all the details. BPM for the Q1 was not that volatile.
So it's volatile by definition, But not so material in terms of numbers and was more or less in line the Q1 last year. The bond, I was mentioning 2 things. We had an hedging strategy, which penalized mark to mark the 31st March the profit and loss for the Q1, But the same effect to when finalizing gave us a reverse positive effect in the second quarter. Quarter Most on top of that, because the positive effect was also in the EUR 227,000,000 quarter of all the collection sales, we monetize a part of this whole collection sale for around EUR 40,000,000, EUR 50,000,000. It's a bit more technical, the last one.
Okay. I have the number. On common equity Tier 1 Capital, we have a shortfall only on performing loans quarter in the region of EUR 190,000,000.
Okay. Thank you.
The next question is from Victor Galliano with Barclays. Yes,
Two questions from me. Just on UTP coverage, Clearly, I think if you think in terms of ahead beyond Exodus and potentially increasing your NPL disposal plan. I would imagine you will increase or include in there perhaps the UTP coverage, The UTP portfolio, do you feel the level of coverage that you're at there? It looks like about 32% Would be sufficient for you not to need significant top ups on disposals? Or is that an area where perhaps you may need to top up coverage going forward If you're looking to dispose of some of those, that's point number 1.
Question number 2, just on Exodas, Is there any update you can give us on a potential LGD waiver for that disposal? And that's pretty much it. My question on fees has been answered. Thank you.
Thank you, Mr. Galliano. Of course, we know that once we will be freed by bad loans, The attention will go to UTP.
As you
know, we are giving lots of details also in this occasion. You can find the Slide 48 in the annexes of our presentation in which we give you all the details of the de risking. As I was mentioning before, we are going to recover a lot also from unlikely to pay more than EUR 2.5 quarter. Since the start of the our activity, a big part of the EUR 6,000,000,000 of the net book value remaining is what we call restructured loans, which means agreement mostly with other banks in order to help financial difficulties, Which more which very often are already in due course to be solved for this restructuring, We have not only in place the normal repayment of the installment included interest and capital. So frankly speaking, we are not that concerned about this activity.
The remaining part Of net unlikely to pay is EUR 3,500,000,000 of which EUR 3,000,000,000 are secured and only EUR 500,000,000 unsecured. And the coverage for this unsecured of this EUR 500,000,000,000 is 47%. So of course, we will have All the possible attention, we'll dedicate all the possible attention to Tippi. But for the time being, we have the task of reducing the badly the bad loans in order to be to also devote more people quarter and more activity to OTP. We don't have in any case any currently we don't have any idea And this is reflected in our first time adoption, which was not devoted to OTP.
We don't have any disposal plan on OTP. Declining. Yes, it was mentioned the decline of EUR 2,000,000,000. As far as Exodus related to LGD waiver, I would say that as I was mentioning very clearly, We are applying for a waiver on LGD. This was due also to the quarter and the risk in plan of EUR 13,000,000,000, basically we are waiting For the decision from ECB, what we feel is that a bank which has showed up to now is to be so aggressive and capable to reduce without With enough capital self generated the our non performing loan quarter portfolio, of course, has to reflect in the new portfolio remaining after the sale, The real quality of the portfolio and I can assure that the quality of our portfolio is Very, very good.
And we really are waiting for an answer on that.
Thank you very much.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi, thank you. A few questions. So first, I mean, you've talked a lot about beating your kind of plans for cost quarter. I mean, do you have a new target for your operating costs for 2019 or for 2020? I'm looking at consensus not that far from your original target, which is to be below EUR 3,000,000,000, I think.
Then on capital, quarter So you think I don't think you gave an RWA for the 12.1% core Tier 1 pro form a. Can you give that RWA number? And what would be the RWA pro form a for the exit as well? Is it just removing the EUR 1,300,000,000 that you mentioned on the exit slide or is there something else? And how do you think about your it's a very busy question.
I mean, what do you think is your quarter one target is going to be the 12%, 12.5%. If you could be a bit detailed there, it would be helpful. I think that's it. Thank you.
I am not sure I got the last question, but maybe I answer and then you can reply if I didn't get What would you like to ask? As far as for cost cutting, of course, We are already running better than the forecast in cost cutting. You know that we quarter already announced the increase from EUR 320,000,000 of cost optimization to EUR 400,000,000 for 2019. So we are well on track on this new achievement. Possibly, there could be further optimization because we are running faster than we expected.
But we want to also, of course, not try to push very hard farther than that on cost because we have also to invest. Of course, we never talk about digitalization and so on, but there are a lot of investment That we have in mind to do in order to offset a bit of saving with some new investment. But the number That I can confirm is the switch from EUR 320,000,000 to EUR 400,000,000 of cost saving. Again, for the this means that end of the plan, We are confident to terminate in 2019 Instead of the EUR 3,000,000,000 which we forecasted in 2016 at around EUR 2,800,000,000, So a consistent reduction year by year compared with the previous plan. The capital, if I quarter is written on Page 37, the reduction of FWA, which was going down from EUR 75,000,000,000 to EUR 65,000,000,000, so almost EUR 10,000,000,000 of reduction.
Sorry, maybe and then maybe you asked about a further reduction in NPL ratio.
No, I just so the pro form a so €65,000,000,000 would be the RWAs for the 12.1 percent core Tier 1 pro form a, is that correct? And then will it decline by another EUR 1,300,000,000 Once exit is completed.
Okay. 1.3, exactly. That was the guidance we gave. More or less, we expect a reduction of EUR 1,300,000,000 due to the EUR 5,000,000,000 Exodos transaction. Okay.
And so what kind of when you're talking about, for example, Potentially cleaning up your NPLs further. I mean, what kind of NPL Core Tier 1 targets do you have in mind? Is it a 12? Is it 12? Is it more 12.0 or 12.5?
Of course, we didn't change our target in common equity Tier 1. We are in the region 12.10%. This was what we aimed to achieve With the capital management and the IRB validation, we are confirming that this is a good and solid deployed the opportunity of further derisking, especially with the coverage and the freezing of WA quarter that is embedded in the risk in furtherly. So we still expect a number in this region.
Okay. Thank you very much.
The next question is from Ignacio Cerezo with UBS. Please go ahead.
Yes. Hi, good evening and thank you for the presentation. Quarter Two quick things from me. First one on NPL inflow rate, if you can give us that number actually for Q1. And the second one is the net quarter.
Income impact of those bond disposals you have hinted basically you have done in the Q2 of the year? Thank you.
Sorry, I'm taking the data because we didn't mention the data. It's Just a minute. So the inflows is EUR 284,000,000 and basically we don't have Material impact from the bond disposal on NII. Welcome. Thank you.
Okay.
The next question is from Anna Benassi with Kepler Cheuvreux. Please go ahead.
Yes, good evening. My question relates to your comments about having filed for the waiver on LGD and where it is announced from ECB. That means that 12.1 percent pro form a common equity Tier 1 you are giving with also the current Transactions does not include any restricted asset inflation because of So can you eventually give us an idea quarter in case the waiver will not be obtained, what the pro form a level of the capital could be? My second question relates to the consumer credit business. We know that the commercial agreement and the shareholders agreement on Agrosovi and We also understand that in the contract, we've said that in case of merger, quarter, the existing platform, other existing platform of consumer credit like you have quarter was profanely had to be offered to Argos as a first set.
Can you let us know what are your thoughts on that? What are your targets, if you prefer to have profanely with Argos, give us an idea what you expect to happen
We are of course managing, of course, you know that there is a trade off between LGD and disposal. Of course, up to now, we have been able to manage disposal without impacting as much quarter, the LGD effect, but of course, in order to enable the acceleration of the plan, further potential disposal and so on. Of course, we have to know clearly and exactly what is the position what will be our position in terms of potential waivers. So that's why I cannot give you The exact number of what we'll do in disposing before having a better, a clear idea on LGD. As far as consumer credit, basically, as I mentioned many times, This is not strategic basically in order to make capital.
This could be a good efficient path In order to terminate the rationalization of our product factory, so of course, everybody knows that does not make So much sense to have 2 different consumer finance activity, especially in the light of the Inca up Basically, we don't have yet any either agenda Sooner or later to decide in which of the 2 part we want to invest in order to enhance
Thank you.
The next question is from Domenico Santoro with HSBC. Please go ahead.
Yes, hi. Good evening. Thank you for the presentation. Just a few questions on my side. First of all, if I can sum up what you said before, you said basically that cost of risk might be better in the future quarter compares to the industrial plant target because the risk, of course, is doing better.
But you are a bit reluctant To give some positive outlook for loan loss provision over the next couple of quarters. I was just wondering whether this might include The losses from this disposal because you were hinted some limited impact on capital from disposal. This might probably not be quarter is considered by competitors that have been probably more positive or more optimistic compared to you and give us the outlook on provision and also some comments on Exodus, whether you expect some losses from the disposal. The second regards trading, I was just wondering whether the outlook quarter trading was related to the Q2 when you said compared to last year or was for the full year? And then my understanding is that You reported the IFRS first adoption impact on capital gross of taxes.
I was just Wondering whether there are any DTAs that you might write up because of this and any tax benefits in the future. And then on this €3,500,000,000 remaining. I was just wondering whether those might be bundled with the proposal of the servicing company and we might see in one shot Basically, all the target for 2020 to be realized hypothetically, Thank
you.
Okay. Many questions. I was Thank you, Mr. Santoro. No, we do not expect the cost of credit to grow because of the disposal.
We already announced that As far as the EUR 13,000,000,000 de risking plan, we have already provisioned through FTA first time adoption. All we think is due in order to realize the complete derisking plan for the EUR 13,000,000,000 and of course, this is worth as much for the first transaction, which will be Exodus. 2nd, the trading no, my guidance was only on the 2nd Q. As I was mentioning before, It's not because I want to give you some news about the Q2, but because it's a related effect to the Q1 results. The materialization of lower profit gave us an increase in unrealized gains, which we in part realized and cashing in April.
So that's why I was going to give you the guidance for the Q2 related to Q2 last year. Disposal further disposal of NPL, this is the question if I can give you Yes, of course, this is, as I was mentioning to Ms. Benassi, the timing quarter of further disposal in the plan, within the plan or on top of the plan, We need to understand exactly how it works also with the waiver on the LGD. So I cannot give you any guidance because we are In turn, trying to understand the potential impact of accelerating or increasing and the disposal plan. For the FTA impact on taxes, I would quarter All the tax effects related to the IFRS nine impact is not accounted in our common equity Tier 1 because it's related to DTA that are referred to tax losses to be carried forward.
The next question is from Anna Adamo with Autonomous Research. Please go ahead.
Hi. Thank you for taking my question. I have only one follow-up question on the GAC securitization. You mentioned earlier that you are planning to sell the mezzanine and junior tranches of the securitization in order to deconsolidate the NPEs. What is your plan with regards to the senior tranche of the GACs?
Is this going to be retained by the bank? And also, when what do I if this is the case, where do you expect to reclassify is going to be reclassified into performing loans, which basically means that there will be positive loan growth as a result. Thank you very much.
Very precise question. Thank you, Mr. Adamo. At this stage, frankly speaking, but this is before having a clear idea on the tranching, we forecast to keep the senior tranche because of course is comparable with a goviz investment. So we think we can keep it.
And at this stage, again, because there are not much transaction is done in this field. We feel that we can keep it in the loans activity, yes.
The next question is a follow-up from Victor Galliano with Barclays. Please go ahead.
Yes. Just a very quick follow-up from me, if I may. That NPL inflow rate, the EUR 284,000,000 for Q1, Is that gross or net? Sorry,
Mr. Galliano, could you repeat your question, please?
I'm sorry. It's just a very quick follow-up on the NPL inflow rate of EUR 284,000,000. Is that number gross
This is net sorry, Mr. Galien, this is net. I have to be more precise because my colleagues tell me that is in the region of so It's a bit in that region is the net inflows. Perfect. Thank you.
Gentlemen, there are no more questions registered at this time.
So for the maker you conclude This meeting, I would ask Mr. Peronaglio to give you some details about the PPA. Please, Mr. Perronaglia, go ahead.
Thank you very much. As Mr. Castagna said before, More or less at the bottom level, we had around €30,000,000 at the bottom level. You find that Page 21 quarter of our press release, which is more or less in line with the contribution we had in the quarter of 2017. In terms of single line compared with the Q3 of last year, we have around EUR 6,000,000 more on interest margin compared with the same level around EUR 6,000,000 less in terms of cost of credit.
So at the end of the day, The weight on the net result is €30,000,000 with EUR 6,000,000 more on inter margin, interest margin and EUR 6,000,000 less on cost of credit.
Thank you very much everybody and I hope to see you
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.