Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Banco BPM First Half twenty seventeen Results Presentation. As a reminder, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions.
At this time, I would like to turn the conference over to Mr. Roberto Pernallo, IR Manager. Please go ahead, sir.
Thank you very much. Good evening, everybody, and 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. And then after the presentation of the result, there will be a Q and 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 in an 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 question, and 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 that taken in the business plan during these months. Even though the market and the situation with 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 2,151 million euros Operating costs went down the same amount, the same percentage, 5.5%. Cost income ratio went down three fifty basis points year on year.
The profitability, the core gross profitability was up 10%, 10.2% to €853,000,000 Net profit at €94,000,000 which adjusted arrived to €127,000,000 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 €72,000,000,000 10.5% year on year, 6,800,000,000.0. Assets under management, 11.1% growth year on year, 6,200,000,000.0. New loans growing €800,000,000 with new loan granted up 10% year on year. Net nonperforming loans, down EUR 2,900,000,000.0 year on year, going to down to EUR 14,200,000,000.0, minus 16.8 percent.
Capital position, also thanks to the just announced sales of our asset management company, Alethi JCL, and the merger with the other arm of our asset management, ANIMA, we have reached, on a pro form a basis, fully loaded EUR 11,300,000,000.0 of common equity Tier one. And this is having already included the negative impact of the add on from ECB and both the impact of the put related to the Bancassurance joint venture. Of course, 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 Bancassurance. Risk profile, Page six, keep improving. As we have said, 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 8,000,000,000 will be completed by the, I would say, the 2018. Net NPL ratio improved significantly, 200 basis points year on year, down from 15% to 13%. Also in this case, after 50% of the way of the regional plan, which has a target of 11.1%, is already done in the first six months. Net inflows to NPLs down 53%, almost 53%, minus EUR $596,000,000 as well as minus 33%, the inflow from UTP to bad loans.
Also, the cover level 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, plus 5.6% in core revenues, 10.2% in gross operating profit, supporting net profit, notwithstanding €76,000,000 coming from the Veneto Bank and transaction, both Atlante and a further subordinated bond, which is still got of Banco Popular de Viscenza. Considering these losses, net profit went up compared to last year to €94,000,000 and the adjusted net profit up to €127,000,000 If we compare the first two quarters of the year, which as 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% and net profit was exactly the same of the first quarter, EUR 63,000,000.
Nonconsidering, of course, in the adjusted results, the items nonrecurring items that you can see in the lower part of the slides, which amount at minus EUR 84,000,000, mainly due to the Atlante transaction in the second quarter, respect to plus €51,000,000 due to the TLTRO and the DTA fees in the 2016. As I was mentioning, this profile keeps improving. All the ratios are well on track. We reduced about €3,000,000,000 the net nonperforming loans down to 14,200,000,000.0 I already mentioned the other figures about NPL ratios and net inflows. Page 10, again, back to the commercial performance, but I feel that also in this respect, we gave some number, 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 they are the main are almost completed and the other are well on track. NPL unit is set up, and 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 proper campaigns sort of CRM approach. And regarding also to the loan debt date finalization in order to better and faster disposal of our plan. We as we were saying, we have also reached a definition of the bank assurance partnership in giving the information about the definition of the joint venture with UnePol and Aviva.
We already incorporated the two put into the balance sheet, although we still have to receive the put from AVEVA. Meanwhile, we have already completed the July 23, the integration of the IT system, which was another important milestone of our merger in only six months and half. And also, as I was saying before, we have reached an agreement in order to put together management. We are also on track on the internal models, RB 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 Agros and the private banking models into Banca Letti.
Then there is some information about the integration. As I was mentioning, I think it's the first migration completed in about six months, which involves the work of about 700 colleagues. The migration involves 600 branch, all the branch of the former BPM, more than 1,000,000 customer and 6,000 employees. About 5,000 people were involved over the last few days and in the weekend of the migration. And 1,000 people are still backing the BPM network in order to have all the function in place and the 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 twelve months and about 2% in the last six months. Even much better than our expectation As we announced in the first quarter, we expect deposits to go down in order also to finance the asset under management business.
We have instead having more than €1,000,000,000 of increase in current account, and we are respecting also the growth of about €4,000,000,000 in assets under management. Direct funding is, as you can see on Page 16, the current account and side deposit are better factoring their the size of their stake into the direct funding, growing from about 60% to 67.5%. As far as indirect funding, we have a growth in the last year of about €5,000,000,000 €2,500,000,000 in the last six months, mainly driven by assets under management, which grew €6,200,000,000 year on year and €3,800,000,000 on the first two quarters of this year, mainly driven by funds and CCAP, which grew 17%. Page 18, further potential significant further potential towards a reduction of the cost of funding due to retail bond maturities, institutional bond maturities in the next two quarters ended 2018. As you can see, we have we had already roughly EUR 3,600,000,000.0 of institutional and retail bonds, 2,000,000,000 of retail bonds, mainly in the second quarter of the expiring in the second quarter of the year.
And still, we have €2,200,000,000 of retail bonds maturing in the next two quarters. 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.
Unencumbered eligible asset went up 5% from EUR 19,000,000,000 to EUR 20,000,000,000. We still have an LCR of about 160% and an SSR above 100%. Most of the unencumbered eligible assets come from Gauvys, 96.6%, so first quality asset took place in case of needs. Let's have a look to the securities portfolio. We have Italian govies going down about €3,000,000,000 year on year.
We continue with diversification on the govies 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 €160,000,000 in the first quarter, grew up to plus €90,000,000 in June and nowadays is around is about €100,000,000 positive. The modified duration of Italian gov is approximately two point six 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. But if you look only to performing loans, they were up basically 1% in these first six months of the year.
The overall reduction comes from the decline of NPS, which went down about 17% year on year and 12% in the last six months. And also, I will remember that we have also in the performing loans something which is going in runoff, 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 €9,300,000,000 of new loans, 7,000,000,000 to corporates and €2,200,000,000 to household, which is about 10% growth vis a 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 minus 7.5%, mainly driven by lower financial income from the securities portfolio, euros 55,000,000 down with respect to the 2016, but in any case, better than we expected in our business plan. So this decline is better and is giving more results than we expect we forecast in our business plan. If you have a look to the quarterly comparison, we are down 6% because of TLTRO inclusion of 2016 in the 2017, which were EUR31 million. And 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 points. The spread is down 17 basis points. The cost of funding is better than five basis points. If we have a look to the Euribor comparison, basically, in these 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. Basically, since beginning of the year, our spread stay at the same level as it was. Points in time, we are financing a reduction in liabilities in asset spread of five, six basis points with a better liability spread, which was eight basis points better than last quarter. Pis and commission, we have the boost of the asset under management commission, which drew the comparison year on year to plus 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 basically 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 'seventeen.
The result is driven not only as it was last year basically for trading in Gauvys. This year is much more spread out between amongst dividends from equity investment like ANIMA and gains from the disposal not only of Gauvys but also of corporate securities. We also have registered in the quarter the buyback of around EUR 200,000,000 of subordinated bonds, which generate a negative impact of around €4,000,000 Operating costs down 5.53.2% in the quarter. Let's go to different items on Page 27. Personnel expenses down 5% and a quarterly comparison basically even to the first quarter, 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 June 30. So basically, we will see the results starting from the next quarter, but this was due to an unnatural turnaround of people leaving the bank, which, of course, were not replaced and from some optimization in the personnel cost. Let's say that quarter on quarter, we have the same results even though we included the cost of 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 by the early department 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 'eighteen.
On Page 28, we have the administrative expenses, minus 9% year on year. If you exclude the DTA fees in 'sixteen, we have basically a result which is substantially flat. And also in the quarterly comparison, in which we have minus 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 extraordinary reduction of high coverage of for the merger. If you compare quarter on quarter, you have €290,000,000 in the first quarter and €355,000,000 in the second quarter. This is driven by the extraordinary transaction we had with Rainbow and 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 in the vessel 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 3,000,000,000 year on year, EUR 2,000,000,000 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 and 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 net flows in NPLs.
The coverage was up dramatically, I would say, in twelve months. If you compare nominal and nominal value, we went up five twenty basis points in six months, two eighty basis basis points in the last three months, 80 basis points. The same was this for the total NPLs, which reached 4950% with the write off for bad loans, 6062% 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. So this is only a reminder and the evolution of the state of art.
For bad loans, net book value went down to EUR 6,900,000,000.0, of which EUR 1,200,000,000.0 unsecured and EUR 5,700,000,000.0 secured, respectively, covered 8447%. For UTP, we were down to €7,200,000,000 with €1,400,000,000 of unsecured and 5,800,000,000.0 of secured, 47% covered for unsecured, 26% for secured. The capital fees in capital ratios, then we will have a more detailed slide about the fully phased common equity fully loaded common equity Tier one On the next page, here, we want just to show how the also including the negative effects of RWA defaulted asset and retail AAD, which amount to 54 basis points registered already in the first quarter and the two port option of Unipol and Aviva, which amount to 52 basis points phase in, if we consider the pro form a, the 90 basis point, sorry, coming from the transaction, the asset management, we reached a pro form a of 11.92%, including already the the basis point, which we will utilize in order to adhere to the share issue of Animat in order to conclude the Alexis Justehler acquisition. Let's go to Page 34. And here, you can see the evolution of our common equity Tier one 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 started 11.42% end of the year, 52 basis point 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 June 30 as a stated percentage. Nowadays, we can say that there is an impact of 91 basis points net from the sale of Olette de Stilele, which comes from 97 basis point gross, minus six basis point utilized for the future outcome of ANIMA, of course, for our stake. This will grow to 11.31 our fully loaded common equity Tier one. Again, let me remind, not yet factorizing the positive impact from LV model, the elimination of RWA, defaulted asset and the average retail and the positive impact from the reselling of the stakes within the new Bancassurance joint venture.
Let's have a short section about NPL unit. We think it 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 €19,600,000,000 to €18,300,000,000 Gross, of course.
Secured and unsecured, euros 7,400,000,000.0, secured €10,900,000,000 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 of 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 slides, which I know you already know. Let's have a look to some figure about workout and recoveries and disposal. Workout, up 39% to €341,000,000 compared to $245,000,000 last year.
Disposal, you already know, 2,500,000,000.0 already done, euros 2,000,000,000 in this second part of the year, the remaining €3,500,000,000 in next year. I want also to give you some number about default rate, danger rate, the cure rate. In 2016, we had default rate of three point six percent, a danger rate of twenty two percent and the cure rate of five point five percent. The Piano Industrial Plan had the full rate two point one percent, and we nowadays are, after six months, two point three percent. For dungeon rate, we reached thirteen percent, and the industrial plan is eleven point five percent.
The cure rate was up to eight percent vis a vis the industrial plan, which had forecast of six point eight percent. So I found it's very effective to see how the new organization and deployment on the new NPL are working. Let's have a look to the Rainbow deal. We already had the presentation of the Rainbow, but we want to give you some further analysis on 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 assets of Rainbow were valued below 30%, 46% were valued above 30%.
If we apply to our remaining portfolio above EUR 1,000,000, just to have the more consistent asset, the same measures applying the IRR comparable to those investor and the discounting 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 assets 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 assets under management, the ranking of the top Italian asset manager. You see that Anima plus Alethi Gestiale is already in the fourth place. If Anima will be able to conclude the post Italian 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 reasons why we accepted to make this transaction, which was very difficult to conclude. You see on Page 41, you remember very well the time frame of this transaction, which was in the first time in a difficult situation because of the Pioneer project pursued by Anima and Post. Then we started discussion on composte, but Post 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 Alethe.
The rationale on Page 42 is to create a national champion in this sector, which you know is mainly driven by numbers. So you have to be big in order to perform. We have very good and very strong potential partners. We have already Monte Basquicena as a commercial partner, and we have the agreement with Post, which is, in any case, an important, the second most important shareholders in ANIMA already. So we are confident that developing this further alliance, the Anima combination can reach very, 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 to 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 4,000,000 clients once the capability of Anima and Valeti GSDL 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 Aleti Gestiale and also another potential transaction, which is related to the insurance reserves of Banco BPM insurance joint venture. The tenure is twenty years. The rebates for Banco BPM will be in line with the previous agreement with the former BPM. Banco BPM decided to lock up on a significant stake of its current participation in ANIMA, coupled with a commitment to subscribe proporta the ANIMA capital increase to be completed in order to define Aretejacielle The closing is expected by December 31. And in the meantime, we will have the possibility to conclude the insurance, 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 €700,000,000 which is transaction value only for Aleti Jestiale, which does not include the net profit of this year for Aleti Gestiel, which in turn will go into the EUR $250,000,000 of reserve and excess capital and profit, which will be distributed before the sale to Banco BPM. So the capital gain and the valuation is €700,000,000 Together with the excess capital, the total consideration is $950,000,000 On top of that, the MoU has also contains also the possibility of the transfer of insurance reserve managed by Alethi into ANIMA, and this will have a total consideration of a further EUR 150,000,000. This means that the total the potential the total consideration of transaction will can go up to €1,100,000,000 with a potential gross capital gain of €840,000,000 In terms of common equity Tier one fully loaded impact, 90 basis points comes from the EUR 700,000,000, 15 basis points from EUR 150,000,000, 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
The first question is from Cristian 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 NPS workout and reduction in terms of NPEs 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 Alethi and doesn't include the €150,000,000 potential additional transfer of issuance reserves management to Anima. This is just the first clarification I would like to have. Secondly, if I make a calculation of the pipeline or capital management action for the second half twenty seventeen, assuming that you're going 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.
Then another 50 basis points, you stressed even in the 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. Then the IRB model rollout maybe 100 basis points, plus the 15 basis points of the transaction of Alethi maybe not included in the pro form a data. I would end up with a common equity ratio well above 13%. So I was wondering what I'm missing because it seems that you had a capital deficit. So maybe if you can elaborate on the IFRS nine impact, what could be the final number?
And 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 BIPER style? So an additional because 100 basis points is equivalent to some EUR 1,000,000,000 gross additional loan loss provision. So 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 in July, there's been the immigration of the IT. So maybe there's been some disruption. So if you can give us an idea of recurrent commission.
Mr. Jerezia. Yes, I confirm that the common equity does not include the €150,000,000 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 the ECB ends. So 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. And then I will leave to the people of ECB to make the right decision for ARB, which, of course, we can give us a further boost. But I never gave any indication about the number from ECB. I always say that I would have been end of the year well above 12%. And of course, I can nowadays rightly confirm all of that.
If this appears and if we will go even further up, I wouldn't say that we will do the same thing of BPEL, but 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. So we will see what is the best solution. For sure, this will give us some more opportunities, some flexibility.
And 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. So 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 management transaction, but it has a very strong industrial side. So we are very happy to stay in Anima. And because we had to sign a contract, I, of course, decide not to be strict to the and diluted to from the 15%.
So we will adhere to the capital issue, and then we will decide my obligation vis a vis ANEMA is to stay at least 9.9%. As far as commission 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 has 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 commission.
Now 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 related to upfront.
The next question is from Jean Moyes with Goldman Sachs. I
just wanted to ask you on the Alethi transaction. I just wanted to ask what is the current profitability run rate, the contribution of Alletti 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. So 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. Now right now, you're obviously running at much higher level. And I just wanted to have a sense of what is the trajectory that we should expect for the cost of risk also in 2018. So 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 buildup to quite a large extent. And that was my question.
Thank you, Mr. Henness. I would say the contribution of Valletti, JCL in the last years was in the last three, four years was around €35,000,000 and €50,000,000 Last year was €44,000,000 This year, we are performing better mainly due to some performing fees increased. We utilized a normalized net profit of around €45,000,000 €47,000,000
And that is, for example, in your 2019 target, that would have been pretty much what you have for Alethi?
I don't understand. You mean if in 2019 In
your normalized net income of €1,100,000,000 Alletti would be roughly €50,000,000
Yes, exactly. Let's say that we have considered that without considering the utilization of the €1,000,000,000 which we will get globally from the transaction, the real net profit decrease if we consider the stake that we keep maintaining in Alethi in Anima, sorry, would be of around would have an impact of around €20,000,000
Okay. Thank you very much.
As 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 rates, 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, but a normalized cost of risk, I feel that can be below the figure we showed in the business plan.
The next question is from Andrea Vercellone with Exane.
Just a few questions of detail. Same question has just been asked on Aretegastiel. I'd like to know the profit contribution of the bank assurance reserves that you may lose if you sell the business. Then I'd like to know the carrying value for that you have at the moment for 100% of Popular EBITDA and 100% of AVPOP.
Also,
the Anima stake that you are going to keep, is it going to stay classified as available for sale? Or you're going to put it back to equity consolidation? And 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.
First question, evening, Mr. Vercellona. First answer, the contribution from the bank assurance business is something between eight and ten basis points. So I would say it could be net 7,000,008 million euros 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 in the with the sale of Epelcova's share, which can reach more or less the same amount. So 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 percent is in IFS, we can do the same also for that. But frankly speaking, we don't have yet a clear idea about that. As far
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, it's EUR216 million for Popular Evita and EUR26 million for AVIPOP.
Okay.
Hello?
Sorry, can I have the RWA? Just a minute, Mr. Richeloni. Sorry,
what do you want to?
Just to clarify, waiting for the RWA. This is Mr. Folon speaking. The values that has been indicated regarding the carry value of the joint ventures, the bank insurance business have not. The numbers refer to the impact of the put option, the capital requirements, where, of course, we embedded higher valuations.
Yes. And once you give me the RWAs, can calculate it myself.
The total RWA in June was EUR77.6
billion.
The next question is from Fabrizio Bernardi with Fidentis.
I have a question on the Gestielle dealer. Just want to understand if I understood correctly. Anima is paying €950,000,000 of which in order to get net interest of which €250,000,000 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.
So I just want to understand which is the timetable that you have in mind. And the third question is about the NPLs deals that you would be willing to finalize by your end. So if you have, let's say, a pipeline of deals in terms of amount or whatever you can share with us. Thank you.
So for the cost so the value of the transaction, again, the value the valuation of Aleti Gestielle is €700,000,000 without considering the excess capital, which we envisage in the amount of €250,000,000 So we will sell the company without the reserve and excess capital and profit for this year. So of course, everything is cash, but once we'll go also to common equity Tier one, the other one is also is only liquidity coming into Banco BPM. Then afterwards, we will have possibly this €150,000,000 transaction based on the insurance reserve currently managed by Alecti. In terms of this if we go back to the pipeline of disposal, we have €2,000,000,000 to be disposed of unsecured loans, gross loans, nonperforming loans by year end. Most probably, this will be split into two transaction of EUR 1,000,000,000 each, one more retail and the other one more with big amount, unsecured.
And then the last €3,400,000,000 left in order to reach the €8,000,000,000 will be done in 2018, most probably with the GACS transaction. And the Of course, this is only the disposal pipeline. Of course, then we have, as I was mentioning before, the workout business going very well. I can anticipate that already in only in July, we had a big transaction closed of around $30,000,000,350,000,000 euros which will decrease the bad loans exposure.
And for the time frame of the announcement, let's say, the partnership in Bacacerat, what can we expect?
Again, we have a plan in order to reach the new agreement by September. Let's say that in saying that, I mean that I will announce that by the third quarter results presentation. But of course, again, I cannot take an engagement in that because I cannot sell if I am not able to buy. And 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, so I cannot be sure that I can deliver by September.
The next question is from Giovanni Razzoli with Equita.
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. Saroni, this reflects the put price of Unipol and Daviva, which is can we consider a worst case, right? So if you enter into negotiation, we may also assume that this 70 basis 74 basis points of impact is lower.
I was wondering whether this is my understanding is correct. The second clarification, now we have closed the asset management rationalization of the asset management factories. You've just said that if everything goes well, you may close the bank assurance 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.
And the other two questions is a clarification on your derisking process. It seems to me that you are telling us that you will complete the €8,000,000,000 of targeted NPE disposal by 2018 and not 2019. So 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 NPE reduction by disposals?
And the final question relates to the cost of risk for the second half, if you can please help us pencil in cost of risk for the second half of the year. 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 of what we consider and, of course, an external adviser 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. So this is already something we give away, which I would have never done in a normal negotiation. But of course, we are obliged to show the fair value, which we embed to these two joint ventures.
So of course, these 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 bank insurance 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 €8,000,000,000 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. So still, we don't have any project on AGOS rather than having normal talks with our partner of Credit Agricole.
Cost of risk, again, 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 it was a very good transaction, was for sure not done at the price that we had in our book.
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 has 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 as how is basically going on? And then second, an update on the old portfolio of Italy's release, where there is now more appetite for this that Mr. Savioltino tried basically to sell for quite a while? And then same question on this derisk, 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 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 explained the growth a bit slower than we expected, even though we are beating the market, and we are slightly increasing our market share.
So 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 'eighteen. But we will not be aggressive. So we think that we will keep this spread more or less the way it is or bettering is EBIT.
Sorry, my mistake, I apologize. It was meant more for the customer spread because you're right. I mean there was a compression of asset spread. Was just wondering whether this is holding up well also in the summer basically.
Yes. Again, spread, of course, is the difference between cost of funding and asset spread. And as I was mentioning, we will have a reduction in cost of funding, and we will utilize some basis points in order to reduce the asset spread, but maintaining or increasing a bit the corporate the customer spread. As far as Italy is not anymore is already incorporated into the bank. We still have the release activity, which is in runoff.
As I was mentioning, it's reduced 18% of 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. So also in this respect, we are having some reverse inquiry, but we are very prudent about release, which was many times discussed on the market. So it's not a focus for us to have a deal on release, but it's a part of the potential negotiation we will have in order to further reduce the 8,000,000,000 business target. Finally, you are very right.
I think we didn't decide to have neither, let's say, the unit credit 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 be 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 is not only sale or manage, but it's a combination of the two. Of course, we are very sure that managing NPL rather than selling give you much more value. But 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.
The
next question is from Riccardo Rovre with Mediobanca.
One question, if I may, again, on Alethi, especially on Anima. You are saying that you will retain a lockup on 9.99% stake on Anima. I just wonder whether this includes so this is the maximum stake you will have in Anima after the full completion
of the transaction, so after subscribing per quarter Anima's possible capital increase, so that the
Anima Anima stake would be eliminated from the list of stakes that will on the significant financial institutions? And 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 couple of 100,000,000, if I remember correctly, this is the current value of ANIMA in your balance sheet for the 15% stake you own? This,
of course, is a very right consideration. In any case, this is not the maximum 9.9%, but is the minimum. So we will still keep the opportunity to, again, for us, not only a capital management transaction, but as an industrial value. We believe very much in the possibilities to make profit from being good, big shareholders into the new Anima. Let's also see what happens in terms of further participant to the stake, further stakeholder participant into Anima, and 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%.
But clearly, this is not part of the 90 basis points? Points or the 105
Of course, it is not. It is not We a just put what is stated. So we signed an MOU, which say we have sold Anima Justielle. We will be sell, if it's possible, the farther insurance delegate management and not even the second part is in the 90 basis points. The 90 basis points, which were 96 basis points, we have also already deducted the €45,000,000 which we will put into the capital increase.
So of course, only the sure things are in our common equity Tier one, the possible things are not.
And if I may, on the €250,000,000 capital that you will not confer to Anima, is there going to be a kind of extra dividend distribution from Alethi to Banco?
No. The agreement, of course, is related to the fact that we will sell Alethi Gestial without the capital excess if it is possible. It depends from many things, authorization, fiscal issue and so on. So 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 Gagliano 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 sort of level of recovery rate that you're targeting throughout the plan? I mean by my calculations, think you're sort of hitting about two point two percent 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. Could you 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? And 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 that is the income equity accounted on Anima?
And would you expect that if you maintain your current shareholding to remain? Or is it just you just collect the dividend flow on ANNAMA? Recovery
rate, you are 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 detail right now here. If I can get some more precise figure, I can give you immediately.
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 agreement between ANIMA and Banco BPM, which, of course, are better than the commission that Alethejestial gave to the network of Banco. So all in all, there should be an increase in the average of commission. And again, I got the target for the plan where 3%, 2017%, 4%, 18%, 4.5, 19. And we are well on track to reach hopefully 3% early in 'seventeen.
The
next question is from Hugo Cruz with Please go ahead.
Hi, thanks very much for a very good presentation and very good Q and A. I really appreciate the extra disclosure. Just one question on the PPI, your previous guidance was 40,000,000 to $45,000,000 a quarter, a 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 €20,000,000 lower in the second half.
Sorry, that's twenty minute lower compared to, say, an €80,000,000 that would be the run rate. So you're talking about €60,000,000 in the second half, is that it?
Exactly.
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 08:00 is time to go to at least for the weekend, and 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.