Good afternoon. This is the Chorus Call conference operator. Welcome, thank you for joining the Banco BPM first half 2017 results presentation. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing Star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR Manager. Please go ahead, sir.
Thank you very much. Good evening, everybody, thank you very much for attending the conference of the first half results of the bank. Before leaving the field, our CEO, Giuseppe Castagna, let me remind that you can find the presentation on the website on the IR section. After the presentation of the result, there will be a Q&A section reserved to the financial analysts. Now I leave the word to Giuseppe Castagna for the presentation. Thank you.
Hello. Good evening, everybody. Thank you for staying with us on a hot Friday of August. I hope it's one of the last engagements you have, like it is also for ourselves. I will try to be very quick in order to leave you time for your questions, have a good weekend. I can say we are very happy to say that after six months of our merger, we reached basically all the commitment taken in the business plan during these months. Even though the market and the situation with the Italian banking industry, as you know, has been much more difficult than we expected last year. Let's start with some profit and loss main data. Core revenues went up 5.6% to EUR 2 billion, 151 million. Operating costs went down the same percentage, 5.5%. Cost income ratio went down 350 basis points year-on-year.
The gross profitability was up 10.2% to EUR 853 million. Net profit at EUR 94 million, which adjusted arrived to EUR 127 million compared to negative results in 2016. On the balance sheet side, on page five, some quick data about the main growth. Current account and side deposit up to EUR 72 billion, 10.5% year-on-year, EUR 6.8 billion. Asset under management, 11.1% growth year-on-year, EUR 6.2 billion. New loans growing EUR 0.8 billion with the new loan granted up 10% year-on-year. Net non-performing loans down EUR 2.9 billion year-on-year, going down to EUR 14.2 billion, minus 16.8%. Capital position, also thanks to the just announced sales of our asset management company, Aletti Gestielle SGR, and the merger with the other arm of our asset management, Anima.
We have reached, on a pro forma basis, a fully loaded 11.3 of common equity tier one. This is having already included the negative impact of the add-on from ECB and both the impact of the put related to the bank assurance joint venture. They are not considered the positive impact coming from the release of the add-on together with the validation of the IRB model and the positive impact which will come once we will be able to resell the stake in the new joint venture in bank assurance. Risk profile, page six, keep improving. As we were saying, 31% of the disposal plan agreed with ECB is already completed. More than 50% will be completed by the first year, and all the business plan, the EUR 8 billion, will be completed by the, I would say, first half of 2018.
Net NPL ratio improved significantly, 200 basis points year-on-year, down from 15% to 13%. Also, in this case, 50% of the way of the original plan, which has a target of 11.1%, is already done in the first six months. Net inflows to NPLs down almost 53%, -EUR 596 million, as well as -32% the inflow from UTP to bad loans. Also, the coverage levels are all strengthened, both for NPL and bad loans and UTP. Let's go back to some details about the operating trends. As I was mentioning, +5.6% in core revenues, 10.2% in gross operating profit, supporting net profit, notwithstanding EUR 76 million coming from the Veneto Banca transaction, both Atlante and a further subordinated bond, which is still got of Banca Popolare di Firenze.
Considering these losses, net profit went up compared to last year to EUR 94 million. The adjusted net profit up to EUR 127 million. If we compare the first two quarters of the year, which for the stated result looks quite different, if you have a look to the adjusted results, you can see how the driver are confirmed both in the first and the second quarter. Gross operating profit in the second quarter adjusted was up 18%. Net profit was exactly the same of the first quarter, EUR 63 million. Not considering, of course, in the adjusted results, the non-recurring items that you can see in the lower part of the slides, which amount at -EUR 84 million, mainly due to the Atlante transaction in the second quarter, respect to +EUR 51 million due to the TLTRO and the DTA fees in the first quarter of 2016.
As I was mentioning, this profile keeps improving. All the ratios are well on track. We reduced about EUR 3 billion net non-performing loans, down to EUR 14.2 billion. I already mentioned the other figures about NPL ratios and net inflows. Page 10, again, back to the commercial performance. I feel that also in this respect, we gave some numbers which we will go back again during the presentation. This is a slide on page 11 about the main projects announced when we made the merger six months ago. I can say that the main are almost completed. The other are well on track.
NPL unit is set up. I will show in a dedicated section the results they are reaching, not only in the disposal but also in the workout and the new organization with the proper campaigns, sort of CRM approach, and regarding also to the loan data tape finalization in order to better and faster disposal of our plan. As we were saying, we have also reached a definition of the bancassurance partnership in giving the information about the definition of the joint venture with Unipol and Aviva. We already incorporated the two put into the balance sheet, although we still have to receive the put from Aviva. Meanwhile, we have already completed, the 23rd of July, the integration of the IT system, which was another important milestone of our merger in only six months and a half.
Also, as I was saying before, we have reached an agreement in order to put together Aletti Gestielle SGR, and Anima in the asset management. We are also on track on the internal models IRB validation. We have completed the first part of, I would say, the on-site work also from ECB, and we are confident that we can give some results by the end of the year. As well as we will have, by the year-end, also the integration of the corporate investment banking activity into Banca Akros and the private banking models into Banca Aletti. Then there is some information about the integration. As I was mentioning, I think it's the first integration migration completed in about six months, which involved the work of about 700 colleagues. The migration involved 600 branch, all the branch of the former BPM, more than one million customer and 6,000 employees.
About 5,000 people were involved over the last few days and in the weekend of the migration. 1,000 people are still backing the BPM network in order to have all the function in place and less possible disruption for colleagues and clients. On page 13, there is also some data that you can get in order to understand how this migration works. Let's pass on page 15 on some balance sheet slides. Direct funding, we continue the growth in deposit and the decline in the more expensive sources of funding. As you can see, current account and deposits went up to 10.5% in 12 months and about two percent in the last six months.
Even much better than our expectation, as we announced in the first quarter, we expect deposit to go down in order also to finance the asset under management business, where we instead are having more than EUR 1 billion of increase in current account, and we are respecting also the growth of about EUR 4 billion in asset under management. Direct funding is, as you can see on page 16, the current account and time deposit are bettering the size of their stake into the direct funding, growing from about 60%-67.5%. As far as indirect funding, we have a growth in the last year of about EUR 5 billion, EUR 2.5 billion in the last six months, mainly driven by asset under management, which grew EUR 6.2 billion year-on-year and EUR 3.8 billion on the first two quarter of this year. Mainly driven by funds and SICAV, which grew 17%.
Page 18, significant further potential towards the reduction of the cost of funding due to retail bond maturity, institutional bond maturities in the next two quarter and into 2018. As you can see, we had already roughly EUR 3.6 billion of institutional and retail bonds, EUR 2 billion of retail bonds, mainly expiring in the second quarter of the year, and still we have EUR 2.2 billion of retail bonds maturing in the next two quarter. The average spread of this bond, both retail and institutional, is approximately 2.8%, and of course, we won't have the necessity to replace these bonds, which will go to boost the reduction of cost of funding and the increase of asset under management. Page 19, liquidity position is still very good. The unencumbered eligible asset went up 5%, from EUR 19 billion to EUR 20 billion. We still have an LCR of about 160% and NSFR above 100%.
Most of the unencumbered eligible asset come from GovBs, 96.6%, so first quality asset to place in case of needs. Let's have a look to the securities portfolio. We have Italian GovBs going down about EUR 3 billion year-on-year. We will continue with the diversification on the GovBs portfolio, which now includes about 10% of non-Italian securities, which we would like to bring to around 15% by year-end. The gross AFS reserve, which was negative EUR 160 million in the first quarter, grew up to plus EUR 90 million in June, and nowadays is about EUR 100 million positive. The modified duration of Italian GovBs is approximately 2.6 years. Customer loans, as I was mentioning in the beginning of the presentation, went down 3.9% year-on-year and 1% in the last six months. If you look only to performing loans, they were up basically 1% in this first six months of the year.
The overall reduction comes from the decline of MPS, which went down about 17% year-on-year and 12% in the last six months. Also, I would remember that we have also in the performing loans, something which is going in run-off, which is our leasing operation, which went down 18% year-on-year and 12% in the last six months. The new production is very good. We have EUR 9.3 billion of new loans, EUR 7 billion to corporates and EUR 2.2 billion to household, which is about 10% growth vis-à-vis the first six months of last year. Let's pass to profit and loss. Net interest income year-on-year went down 3.1%.
If you look at the number without the one-off and the PPA, the difference is -7.5%, mainly driven by lower financial income from the securities portfolio, EUR 55 million down with respect to the first half of 2016, but in any case, better than we expected in our business plan. This decline is better and is giving more results than we forecast in our business plan. You have a look to the quarterly comparison, we are down 6.8% because of TLTRO inclusion of 2016 in the first quarter of 2017, which were EUR 31 million. If you exclude this one-off contribution, the NII is growing 1.2% for the second consecutive quarter in a row. Page 23, let's have a look to the spread trend. The average asset spread is down year-on-year 22 basis point. The spread is down 17 basis point.
The cost of funding is bettering five basis points. If we have a look to the Euribor comparison, in this first six months, the spread was better than the decline of Euribor. The Euribor declined two basis points and our spread declined only one basis point. Since beginning of the year, our spread stayed at the same level as it was. At this point in time, we are financing a reduction in asset spread of five, six basis points with a better liability spread, which was eight basis points better than last quarter. Fees and commission, we have the boost of asset under management commission, which drove the comparison year-on-year to +15.7%, which is still 14% better than the same quarter of last year, and is exactly the same results of the first quarter of this year.
I feel that this is a very good result because somebody was thinking the first quarter of the year was a bit advantaged because of the slowdown in the last quarter of last year. We are showing that we are able to perform the same amount of commission and fees also in the second quarter, and I can confirm that also July was a very good quarter in terms of commission. Amongst the traditional banking commission, we have some also good performance in corporate finance and corporate service commission. Net financial results on page 25. We have, of course, a decrease of 51% compared to last year, but a recovery of 69% compared to the first quarter of 2017. The result is driven not only as it was last year, for trading in GovBs.
This year is much more spread out amongst dividends from equity investment like Anima, and gains from the disposal not only of GovBs but also of corporate securities. We also have registered in the quarter the buyback of around 200 million of subordinated bonds, which generated a negative impact of around EUR 4 million. Operating costs down 5.5% and 3.2% in the quarter. Let's go to the different items on page 27. Personnel expenses down 5% and quarterly comparison, equal to the first quarter. The reduction is driven by headcount reduction, not yet the early retirement scheme, because I remember that the first 200 people left the bank on the 30th of June, so we will see the results starting from the next quarter.
This was due to a natural turnaround of people leaving the bank, which of course, were not replaced, and from some optimization in the personal cost. Let's say that quarter-on-quarter, we have the same results, even though we included the cost of a further 70 people, which applied only in the second quarter to the early retirement scheme, driving the total consideration to 2,170 people leaving the bank into the early retirement plan. Also in this case, we are well in advance to what we forecasted. We think that we can have almost the entire figure, which was presented in May, 1,800 people. Almost all 1,700 will have left the bank by the end of this year, almost 1,000 people in the second part of the year, and we will reach the total of 2,170 by the end of 2018.
On page 28, we have the administrative expenses, -9% year-on-year. If you exclude the DTA fees in 2016, we have basically the result, which is substantially flat. Also in the quarterly comparison, in which we have -10% due to the fact that in the first quarter was eaten by the DTA and by the Single Resolution Fund provision. If you don't consider these two items, basically, we are at the same level of last quarter. Let's go on page 29 to the loan loss provision. Of course, the comparison with last year doesn't mean more because as you know, last year, we were involved in an extraordinary reduction of high coverage for the merger. If you compare quarter-on-quarter, you have EUR 290 million the first quarter and EUR 355 million the second quarter.
This is driven by the extraordinary transaction we had with Rainbow, also because of the commitment we have in preserving high level of coverage, basically, the level that we decide into the business plan and authorized by ECB for the merger. For this reason, we are also utilizing all the PPA reversal in order to keep sound coverage levels and be able to accelerate the disposal plan. Let's go back to the NPL stock reduction and the improvement in the new NPL flows. Here we have again EUR 3 billion year-on-year, EUR 2 billion in the first six months of the year. This is due to the decrease in net flows of NPLs, which went down 53% year-on-year. The internal workout and the disposal over the period, we will go back soon to the internal workout.
Meanwhile, you know very well the disposal transaction of Rainbow, also the continuous increase of coverage, which we showed before, when we were talking about provision on the loans. Also quarter-on-quarter, we have a decline of a further 15% in the net flows in NPLs. The coverage was up dramatically, I would say, in 12 months. If you compare nominal and nominal value, we went up 520 basis points. In six months, 280 basis points. In the last three months, 80 basis points. The same was this for the total NPLs, which reached 49% and 50% with the write-off. For bad loans, 60% and 62%, if we consider the write-offs. On page 32, we have a focus on bad loans and unlikely-to-pay loans, which we presented in the last two quarters. This is only a remind and the evolution of the state of art.
For bad loans, net book value went down to EUR 6.9 billion, of which EUR 1.2 unsecured and EUR 5.7 secured, respectively covered 84% and 47%. For UTP, we were down to EUR 7.2 billion, with EUR 1.4 billion of unsecured and EUR 5.8 of secured, 47% covered for unsecured, 26% for secured. The phase-in capital ratios. We will have a more detailed slide about the fully loaded common equity tier one on the next page. Here we want just to show how also including the negative effects of RWA defaulted asset and retail EAD, which amount to 54 basis points registered already in the first quarter, and the two puts option of Unipol and Aviva, which amount to 52 basis points phase-in.
If we consider the 90 basis points coming from the transaction on the asset management, we reach a pro forma of 11.92%, including already the basis points which we will utilize in order to adhere to the share issue of Anima in order to conclude the Aletti Gestielle acquisition. Let's go to page 34. In here, you can see the evolution of our common equity Tier 1 fully loaded. Unfortunately, there are a lot of up and down, which now we don't expect any more down. We only expect ups. As you see, we start at 11.42% end of the year, 52 basis points down for the add-on, 24 basis points up for business development, which drew to 11.14%, down 74 basis points for the put option, which results in 10.4% at the 30th of June as stated percentage.
Nowadays, we can say that there is an impact of 91 basis points net from the sale of our Aletti Gestielle, which comes from 97 basis points gross minus 6 basis points utilized for the future outcap of Anima. Of course, for our stake. This will grow to 11.31% our fully loaded common equity Tier 1. Again, let me remind, not yet factorizing the positive impact from IRB model, the elimination of RWA defaulted assets and the retail, and the positive impact from the reselling of the stakes within the new bank assurance joint venture. Let's have a short section about NPL unit. We think can be useful also for you. Find some new argument about how considering the difficult matter of NPL valuation, which in some case is applied in a very simplistic way.
Meanwhile, we found working on them that there are many ways to consider and to reach results analyzing our data. Let's start from the global evolution. Nominal value went down from EUR 19.6 billion to EUR 18.3 billion, gross, of course. Unsecured EUR 7.4 billion, secured EUR 10.9 billion. This is the gross nominal value. We put also the percentage of secured and unsecured, which is 60% for secured and 40% for unsecured. This is why we wanted to compare these numbers, if you look at the small box on the left part of the slide, with the recent report PwC on the Italian NPL market, the place to be issued last July. This report shows that the average of industry is 48% secured and 52% unsecured. If you would have applied the 62% coverage to the different number of the Italian industry average, our coverage would increase of around four full points.
This is just to show how the analysis should be more in-depth in order to understand the right coverage and compare different banks. I don't comment the right part of the slide, which I know you already know. Let's have a look to some figure about workout and recoveries and disposal. Workout up 39% to EUR 341 million, compared to EUR 245 million last year. Disposal, you already know, EUR 2.5 billion already done, EUR 2 billion in this second part of the year, the remaining EUR 3.5 billion in next year. I want also to give you some number about default rate, danger rate, cure rate. In 2016, we had a default rate of 3.6%, a danger rate of 22%, and a cure rate of 5.5%. The industrial plan had default rate 2.1%, and we nowadays are, after six months, 2.3%. For danger rate, we reached 13%, and the industrial plan is 11.5%.
The cure rate was up to 8% vis-à-vis the industrial plan, which had a forecast of 6.8%. I find it's very effective to see how the new organization deployment on the new NPLs are working. Let's have a look to the Rainbow deal. We already have the presentation of the Rainbow, but we want to give you some further analysis on the quality of the transaction and comparison with the remaining part of the secured portfolio of Banco BPM. If we have a look to the green part of the slides, you see that the pricing valuation of the gross book value of the transaction, and this is considering the first four final bidder, an average of this bidder, 54% of the asset of Rainbow were valued below 30%, 46% were valued above 30%.
If we apply to our remaining portfolio above EUR one million, just to have the more consistent asset, the same measures applying the IRR comparable to those investor, and the discount in recovery cost to net present value applied from the same investor, we end up having the remaining portfolio of BAMI being valued with the same, their valuation, not our valuation, 35% of our remaining asset below 30%, 65% above 30%, which give us some confidence in saying that we will be well able to respect the 30% business plan figure. Let's pass to the news of the day, the asset management transaction. On Page 40, you have, but I am sure you know very well, the trend of asset under management, the ranking of the top Italian asset manager. You see that Anima plus Aletti Gestielle is already in the fourth place.
If Anima will be able to conclude the Poste Italiane transaction, of course, the new company could lead to a real national champion, which maybe can be a consolidator also of further activity in this industry. That was one of the reason why we accepted to make this transaction, which was very difficult to conclude. You see on Page 41, you remember very well the timeframe of this transaction, which was in the first time, in a difficult situation because of the Pioneer project pursued by Anima and Poste. Then we started discussion with Poste, but Poste Italiane change of governance stopped this transaction, and just in the last weeks, I would say, we decided to go in deep negotiation with Anima, and just in these last few hours, we finalized the MoU with Anima and Aletti.
The rationale on Page 42 is to create a national champion in this sector, which you know is mainly driven by numbers, you have to be big in order to perform. We have very good and very strong potential partners. We have already Monte Paschi Siena as a commercial partner, and we have the agreement with Poste, which is, in any case, the second most important shareholders in Anima already. We are confident that developing this further alliance, the Anima combination can reach very good results. On our side, we will maintain the 15% share into Anima in order to still have a significant exposure to the asset management sector and to take advantage both from the high profitability and the growth of the company, and in order also to have a strong presence, in order to drive the company toward the needs of our clients.
The customized service always assured to former BPM clients will be another asset for our 4 million clients once the capability of Anima and Aletti Gestielle will be able to be integrated and exploit the best capabilities. Finally, synergies. Of course, as I was saying, both in terms of marketing and sales, product development, and cost synergies, there are very many opportunity to make this new company more profitable. Let's talk on page 43 about the transaction structure. The scope of the transaction is the acquisition of 100% of Aletti Gestielle, and also another potential transaction, which is related to the insurance reserves of Banco BPM Insurance joint venture. The tenor is 20 years. The rebates for Banco BPM will be in line with the previous agreement with former BPM.
Banco BPM decided to lock up on a significant stake of its current participation in Anima, coupled with a commitment to subscribe pro quota the Anima capital increase to be completed in order to define the Aletti Gestielle transaction. The closing is expected by 31st of December, and in the meantime, we will have the possibility to conclude the new insurance joint venture agreement in order to see if this will be possible to complete the part of the deal related to the insurance reserves. Let's talk about numbers. On page 44, we have the EUR 700 million, which is the transaction value only for Aletti Gestielle, which does not include the net profit of this year for Aletti Gestielle, which in turn will go into the EUR 250 million of reserve and excess capital and profit, which will be distributed before the sale to Banco BPM.
The capital gain and the valuation is EUR 700 million. Together with the excess capital, the total consideration is EUR 950 million. On top of that, the MoU contains also the possibility of the transfer of insurance reserve managed by Aletti into Anima, and this will have a total consideration of a further EUR 150 million. This means that the total consideration of the transaction can go up to EUR 1.1 billion with a potential gross capital gain of EUR 840 million. In terms of common equity tier one fully loaded impact, 90 basis point comes from the EUR 700 million, 15 basis point from EUR 150 million, bringing up to 105 basis points the total contribution of this transaction to the common equity. I would say that basically we have concluded, and I will leave the room to your question, also to give you some more information. Thank you.
Excuse me. This is the Chorus Call operator. We will now begin the question and answer session, which is reserved to analysts only. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Christian Carrese with Intermonte. Please go ahead.
Hi. Good afternoon, everybody. First of all, congratulations for the deal. You are delivering quarter by quarter what you have embedded in the business plan. I think that this move is very positive because restore capitalization gives visibility to NPLs workout and reduction in terms of NPLs as agreed with ECB. Back to numbers. Looking at the capital ratio evolution, first of all, I would like to understand the positive 91 basis points impact in the quarter that brings the common equity fully loaded at 11.3%, includes the disposal of Aletti, and doesn't include the EUR 150 million potential additional transfer of insurance reserves managed to Anima. This is just the first clarification I would like to have.
If I make a calculation of the pipeline of capital management action for the second half of 2017, assuming that you're going to gain part of the loss done with the exercise of the put option on the bank assurance, so minus 70 basis points. Let's say that you're going to gain reselling the stakes 50 basis points. Another 50 basis points you stressed even last quarter that you are expecting some positive impact again from the reversal of the risk-weighted assets effect registered in the first quarter, so another 50 basis points. The IRB model rollout, maybe 100 basis points, plus the 15 basis points of the transaction of Aletti may be not included in the pro forma data. I would end up with a common equity ratio well above 13%.
I was wondering what I'm missing, because it seems that you had a capital deficit. Maybe if you can elaborate on the IFRS 9 impact, what could be the final number? At that stage, by the end of the year, could you consider, let's say, if you are more near to 13% rather than 12.5%, could you consider a move like BPER style? In additional, because 100 basis points is equivalent to some EUR 1 billion gross additional non-loss provision. Could you consider to increase the coverage to speed up the process to sell NPLs? The second question is on commission. Very good results again in the quarter. If you can give us just an idea of the remaining part of the year. I know that in July there's been the migration of the IT, so maybe there's been some disruption.
If you can give us an idea of the current commission. Thank you.
Okay. Good evening, Mr. Carrese. Yes, I confirm that the common equity does not include EUR 150 million of the second part of the transaction. As far as the detailed number you gave in order to go over 13%, I can only talk about what is related to my decision and my possibilities, which of course, as you know, and as I stated many times, does not include what is in ECB hands. Let's say that we are instead quite sure that we can offset even totally the 70 basis point from bank insurance. We will see if we can reach and conclude the agreement for the further 15 basis point from Anima, I will leave to the people of ECB to make the right decision for ARB, which of course can give us a further boost. I never gave any indication about the number from ECB.
I've always say that I would have been end of the year well above 12%, of course, I can nowadays rightly confirm all of that. If this appears and if we will go even farther up, I wouldn't say that we will do the same thing of BPER, I can say that we are already doing many things which I described in the NPL section. Of course, this give us a lot of flexibility in order to explore further opportunities in the NPL market. We think we have shown up to now, only in six months, the capability to deliver very good results also in this area of business of the bank. We will see what is the best solution.
For sure, this will give us some more opportunities, some flexibility, because you started saying that we are respecting what we say, I don't want to anticipate what we don't have already decided.
Sorry, just to complete the picture. On Anima, you said that there will be the lockup on 10% stake, the remaining part could be put up for sale and release additional capital?
No. Again, I always say that I have some ammunition. I was very happy because this is not only a capital management transaction, but it has a very strong industrial side. We are very happy to stay in Anima, and because we had to sign a contract, I of course decide not to be strict and diluted from the 15%. We will adhere to the capital issue, and then we will decide. My obligation vis-à-vis Anima is to stay at least at 9.9%. As far as commissions are related, we are very happy already to show you that the second quarter was the same on the first quarter. I hope there was some mixed feeling about that because the first quarter was so bigger than the last four quarters of last year that maybe not everybody could think that this was a pace that we could keep.
I am very happy to show that the second quarter's been the same. July, notwithstanding the migration, which really was very complicated, with more than 5,000 people involved, still has been a very good month in terms of commissions. We will have a month of more quiet in August, and we will be able to be very strong starting again in September, also for this new agreement on the asset management.
How many upfront fees were booked in the quarter, if I may?
I will check, and I will come to you in a few seconds.
Okay. Thank you very much.
We go with the second question. Otherwise, I have the number. 20% of the total commission, not only the one related to the asset management, the total commission are related to upfront.
Thank you.
The next question is from Jean Neuez with Goldman Sachs. Please go ahead.
Hey, good evening. Just wanted to ask you on the Aletti transaction. I just wanted to ask, what is the current profitability run rate, so the contribution of Aletti to Banco BPM, for example, in the quarter or in general, what did you expect that this would have as a contribution in your business plan? I might have missed it, but I didn't see it in the slide yet. That's the first thing. The second thing I wanted to ask is, you've got a guidance of 63 bps in 2019 in your business plan, if I remember well. Right now, you're obviously running at much higher level, I just wanted to have a sense of what is the trajectory that we should expect
For the cost of risk also in 2018, is it going to plateau here because you build up reserves in order to sell, or is it going to decrease in a straight line? I guess it makes a difference for capital build up to quite a large extent. That was my questions.
Thank you, Mr. I would say the contribution of Aletti Gestielle in the last three, four years was around EUR 35 million and EUR 50 million. Last year was EUR 44 million. This year, we are performing better, mainly due to some performing fees increased. We utilize a normalized net profit of around EUR 45 million, EUR 47 million. That is, for example, in your 2019 target, that would have been pretty much what you have for Aletti. I don't understand. You mean if in 2019, we can- In your normalized net income of EUR 1.1 billion, Aletti would be roughly EUR 50 million.
Yes, exactly. Let's say that we have considered that without considering the utilization of the EUR 1 billion which we will get globally from the transaction, the real net profit decrease, if we consider the stake that we keep maintaining in Anima, would have an impact of around EUR 20 million. Okay. Thank you very much. As a cost of risk, very difficult question because things are really changing a lot. That's why I wanted to give you all the details, not only of the net inflows down 59%, but also the default rate, danger rate, cure rate. Things are going very well.
Let's cross finger, because of course, we don't know if this is possible to keep and maintain, but this is something that show us that we have been working not only in these six months, but also before with a lot of attention on our loans and on our classification. Let's say that now we are having some good results. If we can confirm this kind of pace, I feel we can end up excluding all the extraordinary maneuver if we want to accelerate and if we want to increase further the disposal plan. A normalized cost of risk, I feel that can be below the figure we showed in the business plan. Okay. All right. Thank you very much. Thank you.
The next question is from Andrea Vercellone with Exane. Please go ahead.
Good evening. Just a few questions of detail. Same question has just been asked on Aletti Gestielle. I'd like to know the profit contribution of the bank assurance reserves that you may lose if you sell the business. I'd like to know the carrying value that you have at the moment for 100% of Popolare Vita and 100% of Avipop. On the Anima stake that you're going to keep, is it going to stay classified as available for sale, or you're going to put it back to equity consolidation? Finally, if you can just give us the risk-weighted assets as of June. I may have missed it, but I can't find them.
Good evening, Mr. Vercellone. First answer, the contribution from the bank assurance business is something between eight and 10 basis points. I would say it could be net EUR seven, eight million per year. As far as the joint venture, if I understood well your question, of course, we don't know yet where we will put the new joint venture. As I know, my intention is to basically cover all the decrease coming from the buying the joint venture with the sale of a share, which can reach more or less the same amount. Of course, if we will have a good deal, both in terms of buying and sell, I hope that we can still have this into the participation.
Otherwise, if we decide to reduce our participation, as we did, for instance, for Anima, that in 15% is in AFS, we can do the same also for that. Frankly speaking, we don't have yet a clear idea about that.
Okay. Can I ask a question a different way? For the 50% stakes that you do own, what is the carrying value as of June for both of these participations?
For the joint venture, the assurance-
Yes
is EUR 216 million for Popolare Vita and EUR 26 million for Avipop Assicurazioni.
Okay. Hello?
Sorry, can I have the RWA?
Just a minute, Mr. Vercellone. Sorry, what do you want to?
Just to clarify, waiting for the RWA. This is Mr. Faroni speaking. The values that has been indicated regarding the carry value of the joint ventures, the Banco BPM Insurance business, are not the numbers referred to the impact of the put option, the capital requirements, where, of course, we embedded higher valuations. Yes. Once you give me the RWAs, I can calculate it myself.
The total RWA in June was EUR 77.6 billion.
Thank you.
The next question is from Fabrizio Bernardi with Fidentiis. Please go ahead.
Hi, everybody. I have a question on the Gestielle SGR deal. I just want to understand if I understood correctly. Anima is paying EUR 950 million in order to get Aletti Gestielle SGR, of which EUR 250 million is basically cash. This is my first question. The second question is about the partnership in bancassurance, because there is an insurance company in Italy saying that by September you may have completed the screening of the partnership. I just want to understand which is the timetable that you have in mind. The third question is about the NPL deals that you would be willing to finalize by year-end. If you have, let's say, a pipeline of deals in terms of amount or whatever you can share with us. Thank you.
For the cost, the value of the transaction, again, the valuation of Aletti Gestielle SGR is EUR 700 million, without considering the excess capital, which we envisage in the amount of EUR 250 million. We will sell the company without the reserve and excess capital and profit for this year. Of course, everything is cash, but once we go also to common equity tier one, the otherwise is only liquidity coming into Banco BPM. Afterwards, we will have possibly this EUR 150 million transaction based on the insurance reserve currently managed by Aletti. In terms of this
Pipeline.
Scusa?
The pipeline.
Si. If we go back to the pipeline of disposal, we have EUR 2 billion to be disposed of unsecured loans, gross loans, non-performing loans by year-end. Most probably, this will be split into two transaction of EUR 1 billion each, one more retail and the other one more with big amount, all unsecured. The last EUR 3.4 billion left in order to reach the EUR 8 billion will be done in 2018, most probably with a GACS transaction.
And the-
Of course, this is only the disposal pipeline. Of course, we have, as I was mentioning before, the workout business going very well. I can anticipate that already only in July, we had a big transaction closed of around EUR 300 million-EUR 350 million, which will decrease the bad loans exposure.
For the timeframe of the announcement, let's say, of the partnership in bancassurance, what can we expect?
Again, we have a plan in order to reach the new agreement by end of September. Let's say that, in saying that, I mean that I will announce that by the third quarter results presentation. Of course, again, I cannot take an engagement in that because I cannot sell if I am not able to buy. Because in order to buy, either we reach an agreement with the two companies or we go to a procedure which is a bit longer than only having an agreement. I cannot be sure that I can deliver by end of September.
Thank you.
The next question is from Giovanni Razzoli with Equita. Please go ahead.
Good afternoon. A couple of clarifications on my side. As you've mentioned, 74 basis points negative impact from the put option on the bancassurance JVs. Back to the comment of Mr. Faroni, this reflects the put price of Unipol and Aviva, which can we consider a worst case. If you enter into negotiation, we may also assume that this 74 basis points of impact is lower. I was wondering whether my understanding is correct. The second clarification, now we have closed the rationalization of the asset management product factories. You've just said that if everything goes well, you may close the bancassurance dossier by September. There is someone else left in the agenda, that is consumer credit, where you do have still a situation to be clarified. I was wondering whether this is going to be the next dossier in the pipeline for the year-end.
The other two questions is a clarification on the de-risking process. It seems to me that you are telling us that you will complete the EUR 8 billion of targeted NPL disposal by 2018 and not 2019. You are basically one year in advance compared with your business plan. I was wondering whether my understanding is correct, and if so, whether you may revise upward your target of NPL reduction by disposal. The final question relates to the cost of risk for the second half, if you can please help us pencil in a cost of risk for the second half of the year. Thank you.
The joint venture valorization of 74 basis points is, of course, our own estimation in order to put on balance sheet, of course, the fair value, what we consider, and of course an external advisor consider the value of the two companies. You will allow me, Mr. Razzoli, not to disclose the distinction about the two being engaged in two kind of negotiation, in buying and selling. This is already something we give away, which I would have never done in a normal negotiation. Of course, we are obliged to show the fair value which we embed to these two joint venture. Of course, this is neither our balance sheet allocation accounting, and is just a fair value considering the status of the two joint venture right now. Agos, now you're running a bit too fast.
We feel that we have done a lot of things in these months. Now we have, for the second part of the year, the bancassurance deal. We will further strengthen our NPL and disposal program. In this respect, maybe we can have, as you were mentioning, further reduction once we will reach the EUR 8 billion target. We are already working on many other opportunities. I consider that we are very lucky that we started so early to consider this business as an opportunity, and the kind of approach we are having on this activity, I think, can bring a lot of surprise and satisfaction in the next few months. Still, we don't have any project on Agos rather than having normal talks with our partner of Crédit Agricole. Cost of risk.
Basically the second quarter, I would assume, is the same on the first quarter if you consider that we had to consider the Rainbow transaction, which of course, even though was a very good transaction, was for sure not done at the price that we had in our book.
Thank you.
The next question is from Domenico Santoro with Macquarie. Please go ahead.
Hello. Hi, good afternoon. Thanks for the presentation and thanks for doing the call in English so everybody can listen. A couple of questions on my side. First of all, on the asset spread that held up very well in the second quarter, I was just wondering what's the evolution in the third quarter and whether you can also anticipate us how is basically going on. Second, an update on the old portfolio of Italease, where there is now more appetite for this, that Mr. Saviotti tried basically to sell for quite a while. And then the same question on this de-risk, which is going very well, and if my understanding is correct, it can be completed already in the first part of the next year. How you see the trade-off between profitability and quality of the balance sheet without sacrificing your capital?
Can we think maybe that you might want basically to keep provision? Since your profitability is improving as well, you might want basically to keep provision in a way artificially high going forward in order to run down the stock of NPE, but at the same time, preserving the capital at the level that will be after all the disposal. Thank you.
Good evening, Mr. Santoro. Asset spread, as I mentioned before, our strategy is, of course, to grow in the loan book, but really we are not so aggressive as the market is right now. This also is playing the growth a bit slower than we expected, even though we are beating the market and we are slightly increasing our market share. I think we, again, we will utilize some of the reduction of cost of funding, which we expect coming since the third quarter and the fourth quarter of this year in order to finance a bit of market share we want to acquire into 2017 and 2018. We will not be aggressive. We think that we will keep this spread more or less the way it is or bettering it a bit.
Sorry, my mistake. I apologize. I was meant more for the customer spread, because you are right. There was a compression of asset spread. Was just wondering whether this is holding up well also in the summer, basically?
Yes. Again, customer spread, of course, is the difference between cost of funding and asset spread. As I was mentioning, we will have a reduction in cost of funding, and we will utilize some basis point in order to reduce the asset spread, but maintaining or increasing a bit the customer spread. As far as Italease is not anymore, is already incorporated into the bank. We still have the leasing activity, which is in run-off. As I was mentioning, is reduced 18% the asset in the last year and 12% in these first six months. Of course, I think the way we are dealing NPL is attracting a lot of investors. Also in this respect, we are having some reverse inquiry, but we are very prudent about leasing, which was many time discussed on the market.
It's not a focus for us to have a deal on leasing, but it's a part of the potential negotiation we will have in order to further reduce the billion business target. Finally, you are very right. I think we didn't decide to have neither, let's say, the UniCredit decision just to sell everything, rather that let me call the bigger decision to have a big increase in provision in order maybe not to sell immediately and to take time. We are doing both things. Unfortunately, we have enough ammunition to be able to do both things. We think we are doing both quite well. Of course, we understand that it's a trade-off of what the market expects, so we will monitoring constantly what the market will understand from our move.
I hope that also the common equity tier one increase due to the events which I mentioned, both for capital management and for what we expect in the second part of the year, will give a bit of relief, and everybody maybe can appreciate that there is not only one way to deal with NPL. It is not only sale or manage, but is a combination of the two. Of course, we are very sure that managing NPL rather than selling give you much more value. Also, if the market continue to give a price in terms of stock price to a good decrease of global NPL, of course, we will consider also further disposal.
Thank you.
The next question is from Riccardo Rovere with Mediobanca. Please go ahead.
Yes. Good evening to everybody. One question, if I may, again, on Aletti, especially on Anima. This is the maximum stake you will have in Anima after the full completion of the transaction, after subscribing pro quota Anima's possible capital increase, so that the Anima stake would be eliminated from the list of stakes that will on the significant financial institutions. If this is the case, is this somehow accounted in all the graphs showing how the common equity tier one should move? Because if that is the case, you would have a theoretical another EUR couple of hundred million, if I remember correctly, this is the current value of Anima in your balance sheet for the 15% stake you own. Thank you.
This, of course, is a very right consideration. In any case, this is not the maximum 9.9%, but is the minimum. We will still keep the opportunity to, as again, for us it's not only a capital management transaction, but as an industrial value. We believe very much in the possibilities to make profit from being a big shareholders into the new Anima. Let's also see what happens in terms of further participant to the stake, further stakeholder participating to Anima, then we will make our decision. Of course, knowing very well that there is the possibility to decrease the weight of our participation if we go down 10%.
Clearly this is not part of the 90 basis points or the 105 basis points.
Of course, it is not. It is not a decision. We just put what is stated. We signed an MoU, which say we have sold Aletti Gestielle. We will sell, if it's possible, the further insurance delegated management, and not even this second part is in the 90 basis points. The 90 basis points, which were 96 basis points, we have also already deducted the EUR 45 million, which we will put into the capital increase. Of course, only the sure things are in our common equity tier one, the possible things are not.
If I may, on the EUR 250 million capital that you will not confer to Anima, is there going to be a kind of extra dividend distribution from Aletti to Banco?
No. The agreement, of course, is related to the fact that we will sell Aletti Gestielle without.
Okay
The capital excess, if it is possible. Depends from many things, authorization, fiscal issue and so on. If we can give them the company already without the excess, of course, this is the transaction. Otherwise, they will be obliged to pay the excess capital that we will transfer to them.
All right. Okay. Thank you. Very clear. Thanks.
Okay.
The next question is from Victor Galliano with Barclays. Please go ahead.
Thank you. Yes, thank you for the call. Just a couple of questions from me. On recoveries, do you have a level of recovery rate that you're targeting throughout the plan? By my calculations, I think you're hitting about 2.2% in the first half. Would you be looking to get that up to 3%, 4%, 5%? That would be helpful to know. Anima, just a couple of follow-ups here. Is it difficult at this point, it may be, to give us some sort of color on what might be the distribution agreement with them on product? The other point, the last thing I wanted to, and you may have already answered this, but with regard to the accounting for Anima, if you keep your stake at the current level, therefore subscribing to the capital increase, is the income equity accounted on Anima?
Would you expect that if you maintain your current shareholding to remain, or is it just you just collect the dividend flow on Anima? Thank you.
Recovery rate, you're right. The plan is, I think 4%. We are around 3%, a bit below 3%, I would say for 2017. I can give you more detail, but I don't have the details right now here. If I can get some more precise figure, I can give you immediately.
Thanks. That 4% is very helpful.
The commission for the new agreement, of course, are not disclosed, but I would say are exactly in line with the previous agreements between Anima and Banco BPM, which, of course, are better than the commission that Aletti Gestielle gave to the network of Banco BPM. All in all, there should be an increase in the average of commission.
Great. Thank you.
Again, I got the target for the plan were 3% 2017, 4% 2018, 4.5% 2019. We are well on track to reach hopefully 3% early in 2017.
Great. Thank you very much.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi. Thanks very much for a very good presentation and very good Q&A. I really appreciate the extra disclosure. Just one question on the PPA. Your previous guidance was EUR 40 million to EUR 45 million a quarter, positive number, but it can be volatile. We've been below that level in the last two quarters. Do you have guidance for the second half? Thank you. Hello, did you hear me?
No. Yes, sorry. I'm checking if I can get the net PPA effect. I feel that are a bit lower than what we said, because there has been some difference. I would say that is EUR 20 million lower in the second half.
Sorry, that's EUR 20 million lower compared to, say, an EUR 80 million, that would be the run rate. You're talking about EUR 60 million in the second half. Is that it?
Exactly.
Okay. Thank you.
Gentlemen, there are no more questions registered at this time. Do you perhaps have any closing comments?
Okay. Thank you very much, everybody. I think it's eight o'clock. It's time to go, at least for the weekend, I hope everybody to have a good holidays, if you are going to holidays. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.