Earnings Call: Q3 2015

Nov 11, 2015

Evening, everybody. The conference call for the presentation of Banco BPM Group as at September 30th, 2015, is about to start. I hand it over to Francesco Saviotti, CEO of Banco BPM. Mr. Saviotti, you have the floor. Thank you, good evening. Well, as usual, due to the lateness of the hour, I'll try and be brief. Nonetheless, I'll dive in on the most important items. Go to Page three, please, where I'd like to say something about our commercial performance. In fact, during the course of the presentation, I'll dive deeper into the details of other items. As far as medium to long-term lending is concerned, total new lending amounts to EUR 6.7 billion, i.e., roughly 68% higher compared to nine months of 2015. In October, we have achieved EUR 1.3 billion, 50% growth in the private sector, 47% growth in small business, 17% growth in mid-corporate medium to long-term lending. Indirect customer funding is increasing 7.1% higher since the year-end 2015, specifically thanks to the growth in assets under management, driven by the mutual funds and SICAV component, which have grown on average by 15%. Consumer credit. We have exceeded EUR 25 million fees, thanks to the 17% increase in our Ducato products. Cards issued is going very well. 168,000 cards issued in nine months. I would say that also banking accounts are doing fairly well. 41,000 new accounts were opened. Better, that's the total between new accounts opened and accounts closed at the end of October. We brushed 45,000, 38,000 being retail accounts. Within retail accounts, 10,000 are affluent retail accounts. That is really an interesting result. Talking about our P&L, we have closed the nine-month period with a positive result of EUR 350 million. This time, the fair value option was against us, was unfavorable by EUR 8 million. Net of the fair value option, we have a net result of EUR 342 million result, which is due to also the negative contribution by the leasing department by EUR 88 million. As usual, the income statement on Page seven shows a number of non-recurring items. The most significant one being Italy's tax assets being booked in the first quarter. EUR 85 million is a positive amount. Then in the second quarter, we had to charge our P&L for incentivized exits of EUR 2.4 million. Those were necessary to allow an additional 70 fellow colleagues to resort to the solidarity fund. All the suit of former Banca Popolare Italiana dating back to 2004 and 2005 was closed, and we had to debit our accounts by EUR 14.2 million. We have also sold the Luxembourg business. The closing will be done as soon as the ECB provides its authorization. The ECB has already reviewed the proposal, by the end of the year, they will give us the final approval. On Page seven, again, you may see under Provisions for Risk and Charges, EUR 23 million being represented by the cash provision for the full year 2015 for the Single Resolution Fund, which came into effect in 2015. The total would be EUR 32.9 million, but 70% is being treated as a commitment to pay and hence does not entail any charge to the P&L. On Page eight, we start talking about NII. Here you see an increase on a yearly basis of 1%, mainly due to a reduction in the cost of both wholesale and retail funding. Here you can see a reflection of our policy that has led us to focus on less costly forms of funding. The quarterly decline is instead due to the decline in the customer spread by seven basis points, which is attributable partly to the reduction in the Euribor rates, but more specifically to the fierce competition at the local area on the side of lending, which led to a further nine basis points decline in our asset spread. Most likely, you know that a particularly aggressive initiative was launched by the main bank in the country. Incidentally, I am not here to neither judge nor comment on the policy implemented by other banks, plus the CEO is a dear friend of mine. Nonetheless, we are bearing the brunt of this aggressive initiative, as well as the rest of the market that was literally invested by this landslide initiative that forced us to really react with our core, loyal customers to give them more favorable terms. The whole structure of our customer spread was pressurized downwards, and we had to reduce, like I said, the customer rate. We are reacting in a particularly aggressive way. We are very active in the market with initiatives that are based on indications I have already collected for the month of October and the first few days of November. Initiatives, like I said, that would generate an NII in the fourth quarter that will be closer to the second quarter NII compared to the NII we reported in the third quarter. The market down, notwithstanding the EUR 500 million issue of Tier 2 bonds that were placed in July, our liability spread improved by two basis points. On page 9, you see commissions where you see a 1.4% decline year-on-year. An extraordinary performance of our sales network in selling products, in asset management products, specifically to our customers. A great contribution was also given by other sources of fees and commissions. Specifically, consumer credit was extremely attractive, as well as guarantees relieved and custodian banks activities. During the quarter, we reported a decline of around 9% in fees and commissions. Let me say that this is a temporary decline. As you know, our program, our policy implies quarterly fees of EUR 350 million. We are lagging behind our schedule, if you wish, by about EUR 25 million. In the month, in the current quarter, we are already regaining some ground. We are selling more, and we are selling on a daily basis between EUR 40 million and EUR 50 million worth of products, which is going to bring us back to our usual levels. Please also remember that this quarter was marked by an issue in the month of July of a Lower Tier 2 instrument. In August, as you know, there were a few employees working. Many customers were on holidays. This too, the summer recess too contributed to a depressed result. At the end of this quarter, we will report a result which nonetheless is in line with our expectations. On page 10, we see an increase in indirect customer funding that since the beginning of the year has been growing by 7.1%, the biggest contribution being given by assets under management, plus 10.3% on a like-for-like comparison, thanks to the mutual funds and SICAV component, which in the first few months of 2015 increased by 15%. The quarterly decline is not due to a more limited activity, but rather it's a decrease which is due to a temporary negative market performance, which, like I said, is temporary. On page 11, we see the net financial result, a 20.5% decline. That's to say, lower capital gains related to trading. This trading result was impacted negatively by financial market performance that deteriorated because of the Greek crisis and also because of China's slowdown. Plus, we structured fewer Banca Aletti investment products. Essentially, we sold plain vanilla instruments. Banca Aletti closed the quarter with a result, which is really marginal to say the least, slightly above EUR 5 million. In October and the first few days of November, Aletti will go back to normal, and we expect Aletti will close the quarter with a positive result of about EUR 18 million-EUR 20 million. On the following page, we start talking about personnel. Personnel expenses are declining by 4.1% due to fewer non-recurring charges have been posted, and that is due to the solidarity fund and incentives to pre-retire that we reported in the first few months of 2015 compared to last year. Last year, we posted charges equal to EUR 67.6 million. This year, the total charge was EUR 11.6 million. Net of these charges or costs, the 1.3% annual increase is due to some contractual wage increases that were defined under the previous national contract, plus changes in the variable compensation, which were compensated for by a decrease in the average headcount, which was reduced by 589 full-time equivalents. The end of period headcount number at the end of the quarter is steadily declining, and it's fully in line with our targets. Further people will leave the company, and these exits will take place during this quarter. In fact, the following page shows you a snapshot of the current headcount. In fact, here you see that 225 people have already left the company, 536 left, and 311 people were recruited. 205 additional people will leave the group in the next few days. It's important to stress that we have set a target for ourselves. As at December 31st, 2016, we budgeted 16,882 FTEs. Currently, as at December 31st, 2015, we will have reached this number one year ahead of time. To be more precise, we will have 165 people fewer than expected because we will close with 16,717 FTEs at the end of 2015. Total operating costs declined by 5.2% year-on-year. On a like-for-like comparison, i.e., excluding non-recurring items that were reported in the first nine months of 2014 and 2015, the decline is equal to 4%. Specifically, other administrative expenses decreased by 3.8% year-on-year. Once again, if we exclude the EUR 7 million write-off that we reported in 2014 because we had reached an agreement with a number of vendors and thus we could write off the loans by EUR 7 million, the total decline would be 5.1% year-on-year. Amortization and depreciation show a decline of 11.8%. If we exclude non-recurring loan loss provisions for real estate assets posted in 2014 and in 2015 for EUR 17 million and EUR 2 million respectively, it would increase by 3.1% year-on-year, due also to an increased capital investment in IT. Balance sheet. Talking about funding, total direct customer funds year-on-year went down 6.6% due both to the reduction in the bond component and also to the decline in core deposits, which has been offset by repos. If we include the liquidity generated by certificates in the direct funding, these stock issues by EUR 1.8 billion year-on-year, total direct customer funds increased by 1.5%. The year-on-year decline in bond-related funding, 14.7%, is mainly driven by the approach we took to curb the cost of funding and also the greater propensity or the greater appetite by customers towards asset management products. On a quarterly basis, total direct customer funds are substantially flat, down by 0.3%, due to the fact that the decline in core deposits has been offset by the increase in repos and in bond-related funding. The decline in core deposits year-on-year, 2.1%, and the quarterly decline, 1.9%, is exclusively due to the planned and ongoing reduction of the more expensive funding component. With respect to core deposits, that is checking accounts and certificates of deposit, it is worth mentioning that the EUR 38.3 billion level, if we exclude corporate deposits, EUR 5.8 billion, takes our total fund to EUR 32.5 billion. This is the retail Funding, which is the most stable, the less expensive, and it's the fund component that must really represent the foundation and the most important component for any bank. 16% of our funding is wholesale, 84% is captive. Out of the 84%, 55% is core deposits. On page 17, you have a snapshot of our liquidity. Let me say that our liquidity position is excellent. Practically, our exposure at the ECB is EUR 11.9 billion, exclusively made up of TLTROs. The EUR 1 billion reduction compared to June is due to the redemption of the short-term tranche. We have other unencumbered assets eligible with the ECB equal to EUR 13.3 billion. The haircut has already been carried out, and they are represented by a portfolio of unencumbered Italian government bonds. Let me highlight with respect to this aspect that the decline from 14.2 to 13.3 is not a structural decline. The month of September has been characterized by important tax movements that have already been retransferred back on the 31st of October. The amount of these tax movements has already gone up to EUR 14.5 billion, talking about assets eligible with ECB. Talking about liquidity ratios, the liquidity coverage ratio is well above 100%, whereas the net stable funding ratio hits the 95% level, calculating according to the most recent rules of the quantitative impact study. Page 18. Here we have the maturity profile. With respect to 2015, there is nothing left. No word comment. In 2016, we have EUR 7 billion coming to maturity, EUR 3.7 billion on the wholesale, EUR 3.3 billion on retail. With respect to 2017, we have EUR 8.1 billion, of which EUR 3.8 billion for wholesale and EUR 4.1 billion for I'm sorry, EUR 7.9 billion in total, EUR 3.8 billion wholesale and EUR 4.1 billion on retail bond maturities. During the year, we carried out three bank bond issuances, EUR 1 billion worth of public bonds, which was really successful, EUR 1 billion worth of senior bond issuance that in July has been oversubscribed four times, and a EUR 500 million issuance that was closed recently, and we could close it right at that level. We ended up with EUR 2.5 billion worth of issuances. What shall we do in the coming months? We planned additional bond issuances, and we're going to have a mix between wholesale and retail. This mix will depend upon the market conditions. On page 19, we see our treasury securities portfolio. Let me remind you that the board of directors have set a cap of EUR 19 billion. We reached already EUR 18 billion right now. It is EUR 18 billion with an average maturity of 3.7 years, three years and seven months. This portfolio, the makeup is 54% available for sale, 13% held for trading, and 23% held to maturity. This portfolio, as of June 30th, had a reserve for IFRS government bonds equal to EUR 151 million. On November 9th, it is yesterday, the total reserve was EUR 210 million, of which EUR 168 million government bonds, EUR 42 million corporate bonds. The unrealized capital gain on government bonds in the held to maturity portfolio in June was EUR 259 million. As I said, June, EUR 259 million. In September, I'm sorry, I just got lost. EUR 259 million compared to the present situation. On page 29, we see customer loans. The gross customer loans went down by 3.7% year-on-year, and declined by 1.3% in the nine-month period, 1.5% quarter-on-quarter. If we exclude the non-recurring items from loans, that is the runoff of the leasing division and the decline in repo transactions, the year-on-year decline goes down to 2.2%. The quarterly decline goes down to 1.1%, whereas with respect to the nine-month period, we report a growth of EUR 524 million, that is 0.7%. In the nine-month period, we Granted a lot of medium to long-term loans, EUR 7.6 billion total, up by 68% compared to the same period last year. Let me talk about the trend of EUR 4.1 billion in 2013 full year, EUR 5.6 billion full year 2014, EUR 6.7 billion first nine months of this year. In October, we've already reached EUR 7,252,000,000. The nine months growth breaks down as follows: EUR 1.3 billion retail, plus 54%, EUR 1.6 billion small businesses, EUR 3.1 billion in mid corporate. The nine months closed with a cost of credit of EUR 574 million against the EUR 1.6 billion in the first nine months of 2014. The decline is primarily due to the significant reduction in the new NPL inflows compared to 2014. We've had this slowdown in NPL inflows by maintaining the higher coverage levels that had already been set in 2014. The cost of risk is 89 basis points. Page 23. NPL stock increased over the year by 4.5%, mean year-to-year. It went down 0.8% year-to-date and increased by 0.7% quarter-on-quarter. Including the sale of unsecured loans, EUR 732 million worth of gross accounting value, excluding write-offs, that we finalized on the 1st of October, the year-on-year growth of gross NPL decreased to 0.9%, while we report a 4.1 decline year-to-date and 2.7% compared to June of 2015. Net NPLs confirmed their downward trend compared to year start, -EUR 700 million, -4.7%. They are stable since year start with a slight increase in the quarter, which is +EUR 136 million. Let me highlight that the growth in gross bad loans continues to be lower than the ones reported by the Italian banking industry at large. +13.5% year-on-year, against 10.3% and +9.1% in the first nine months of the year for the banking industry against ours, which is 4.3%. On the left, what benefited us in setting up our low loss provisions, net NPL inflows. In the first nine months of 2014, we were talking about EUR 3.423 billion. In the first nine months of 2015, EUR 1.731 billion. You see that exits are practically the same, EUR 745 million and EUR 729 million. Should this situation keep on going this way, we are going to benefit from it, and October has already given important signals and important confirmations to this trend. Coverage of Group NPLs. Coverage is growing 45.1% at the end of September. Over the quarter, the reclassifications from unlikely to pay to bad loans of two highly covered exposures determined a decrease in the cash coverage of unlikely to pay loans from 26.8% to 26.1%. However, at the same time, it resulted in an increase in bad loan coverage from 58.1% to 58.3%. If we consider coverage including collateral guarantees, we get up to a coverage of 96.4% for bad loans and 86.8% coverage ratio for unlikely to pay loans. Thanks to the high number of loans secured by collateral, which is 76.1% for bad loans and 75.4% for unlikely to pay loans. On the right, again on page 24, you can see that the share of secured loans out of total net NPLs. By the way, this is not updated because they refer back to December 2014. We are going to find the updated data with the year-end report. In any case, we are leaders with 87% coverage against an average of our peers. We are talking about UBI, Intesa Sanpaolo, UCG, BPER, BPM, and Carige. That goes from 85% to 80%. The average is 80%. Page 26, you see the leasing division. We keep on saying that it is in run-off and it is downsizing. In the first nine months of 2015, this loan portfolio has been reducing by EUR 432 million more after the EUR 6 billion decline reported between 2009 and 2014. You see that the EUR 6.1 billion-EUR 6.2 billion break down as follows: EUR 3.2 billion-EUR 3.3 billion are ex-Italease, and the rest pertains to Release. What I would really like to highlight is that as of December 31st, 2010, we have reduced by EUR 5 billion, approximately, the outstanding amount, and NPLs have remained the same. EUR 3.9 billion at end of 2010, but then there have been slight changes, but they remained at EUR 3.9 billion at September 30th, 2015. The coverage, which includes collateral guarantees, is above 100%. The accounting, the booked coverage is 34%, one percentage point more compared to the end of 2014, and 11 percentage points with respect to the end of 2009. On page 28, we see a snapshot of capital ratios for our group. They have been growing compared to June 30th, 2015. Common Equity Tier 1, phase-in, goes up to 12.7%, whereas the fully loaded Common Equity Tier 1 ratio is 12.2. The increase is due to the profits that have been posted in the quarter and a decline in risk-weighted assets, mainly due to the counterparty credit risk and market risk. EUR 1.7 billion, including credit risk and counterparty risk, EUR 505 million market risk. With respect to the fully loaded ratio, the increase is also related to the increase in AFS reserves. If we include the effect from selling EUR 950 million unsecured bad loans and the effect from the sale of the stakes held in Istituto Centrale delle Banche Popolari Italiane, ICBPI, and in Arca Fondi SGR, the fully loaded Common Equity Tier 1 ratios increases up to 12.8%. In addition, this ratio does not include the positive effect from the earn-out coming from the sale of Visa Europe, in that the amount has not been defined yet. We believe that it's going to range between EUR 30 million to EUR 50 million. Total capital ratio is 15.8 phase-in and 15.6 fully loaded. If we consider the pro forma, it's going to be 16.3%. In this chart, we wanted to include the fact that between March and May 2015, we've sent the application for a model change on our PD and LGD for both corporate and retail, and we are still waiting to receive the validation from European Central Bank's Joint Supervisory Team. We expect to be able to put the new parameters in place and to implement them either from December 2015, which is unlikely, or starting from March 2016, which is more likely. This chart brings me to the end of my presentation, and I am more than willing to answer to your questions and curiosities. Very well. Ladies and gentlemen, if you want to ask a question, you can press star one on your telephone keypad and wait for your name to be announced. Ladies and gentlemen, if you have a question, please press star one on your telephone keypad. The first question is from Mr. Alberto Cordara. Good evening. My first question concerns the NPLs evolution. Even though we exclude pro forma data for new issues of EUR 950 million, I think that the trend that you are reporting is better than the industry, with a year-on-year growth of 4.5% other banks are reporting 15% growth. I'd like to know why you are performing better than other banks. In terms of NPLs growth or lack thereof compared to other banks, well, I believe that new NPLs are fewer than other banks because we have been digging so much into the portfolio and cleansing it so much that the residual portfolio is definitely better. Plus, the loans we have been granting as of January 2009 is really paying off in terms of cost of credit. We are really reaping remarkable results, thanks to our new lending policy. If you in fact consider loans granted from the first few months of 2009, up until September 30th, well, we have a cost of credit which does not reach 30 basis points. It is lower than 30 basis points. I'm not just talking about the new customers. When we renew a loan to a customer that was already part of our client base, we consider that as a loyal customer that started working with us back in 2009. We revise certain rates, and that way, no habit toll is being taken on new business. The new business we grant is not skim, just so to speak, and we will continue going down this road. If the inflows will continue to reflect what you've seen on page 23, I believe that the cost of credit as well will continue being reasonably limited. Thank you. Giovanni Razzoli. First question is on capital ratios. On the slide, you show a 34 basis points as a negative impact on the disposal of the portfolio. In the news release, you said that these were unsecured bad loans and had no bad impact or negative impact. Did I miss something in between? Second question. Now, you are starting to post a positive contribution by your equity shareholdings and from Agos Ducato as well. How are your relationships with your partner in Agos Ducato? In the last conference, we left understanding that everybody is talking with everybody else. Has there been any progress with respect to the denaturalization? Are there any significant events that took place in the meantime? First answer, 34 basis points refer to the sale of unsecured bad loans, which have a given LGD attached. If the provision that was outstanding is greater than the LGD, then it's going to erode the capital shortfall. Our capital shortfall was positive. This was eroded, and so we went back to a negative capital shortfall. This is the type of charge we had because we've increased our capital shortfall with respect to the sale, but only because, in this case, the coverage was peculiar with respect to these loans that were vintage loans that were very old. This is the main reason. With respect to our P&L, there has been no impact. Even though, to be honest, we've had a negligible or modest positive effect. With respect to our shareholdings, equity shareholders, Agos is performing very well. You know that in the past, we've gone through very difficult times with this shareholding. In the last year or more, we've improved our relationships and our dialogue with the other partner. The CEO is a banker. We're working well. We have increased the sale of consumer credit products. Our commission stream is increasing, and we're also getting dividends. We are renewing the various agreements expiring at the end of this year. We are happy. I believe they are happy as well, and we hope that this type of result, which is quite significant, I may say, because if you take a look at Agos results, EUR 200 million minimum, we have 39% of it, so we are pleased with this. Next year's budget is as positive. With respect to possible M&As and business combinations, they are progressing. We haven't changed our idea. Now, you know this better than I do. You have to talk a lot and discuss and go back talking, we are really working on it and in a rather aggressive way. We are talking with a lot of people. We do have a number of specific instances we are focusing on. We believe that we have to do the right things, and we are sure that we are going to be successful. I forgot one thing. Do you think you might have a threesome transaction? Threesomes were quite fashionable some time ago, now they are not as fashionable. Technically speaking, of course, we can have that, they might become a bit more tricky and difficult. Riccardo Rovere. Mr. Riccardo Rovere has the next question. Good evening, everybody. Just one question about capital. Looking forward, you talked about 12.2, and then you listed a number of disposals on page 28, and we get to 12.8. In some previous calls, Mrs. Sabatini, and correct me if I'm wrong, I think you have updated your models, and you have indicated a negative impact. I remember something between 50 and 100 basis points. Could you please correct me if I'm wrong? Also, could you please tell me, even though that's not extremely significant, the likely impact during 2016 of the sale of the ICBPI stake. I think I've never talked about 100 basis points. That would worry me extremely. I think that based on our estimates, we may be closing in a range comprised between 50 and 70 basis points. To the best of our knowledge, the Visa sale earn-out, which is expected to happen in the first months of 2016, should generate between EUR 30 million and EUR 50 million, as I said earlier, which in basis points is equal to 10 to 12 basis points. Okay. Operational risks. Operational risks. The AMA approach with the recalculation of the new criteria, have you already assumed any likely impact of the new AMA approach? Well, we think there would be a modest difference of about 20, 25 basis points. Next question, Domenico Santoro. Good evening, Mrs. Sabatini. Let's talk about NII. You talked about the adjustments in the fourth quarter that would have led net interest income in line with the second quarter. Can you expand on that? The NII message for 2016 in the last call was not positive. In another conference call, your colleague was saying that the net interest income would be stable considering the carry trade contribution. You have a number of important maturities on sovereign bonds next year. I would like to understand what you can say on this aspect. The net interest income is always rather volatile quarter-on-quarter. If you take into consideration the last eight quarters, we see that there are changes in the volumes. What is the cause of this net interest income volatility? There is an interesting slide you showed that I would like to see again for next quarter. Then on slide nine, you were talking about, not so much on stage 1, because you don't have a capital deduction, but stage 2, the second one, which should be a bit more painful with respect to bad loans. As far as IFRS 9, this is something that we have not even taken into consideration to date because this is going to come into effect on January 1st, 2018. Of course, we have to get ready for that. There's no doubt about this. Of course, we can understand the position for that point in time when the time is right. It's too early now. In January 2018, the IFRS 9 will come into effect, we will talk about this later on. As to Net Interest Income That's true. Over the quarter, we had a decline, and I explained why. This was not caused by the decline in Europe or two basis points on a quarterly basis and four basis points on a monthly basis. It has carried up. This was mainly driven by the aggressive approach or aggressive stance taken by the leading Italian bank, which has really strongly impacted the market and actually obliged us to take a defensive stance. Many customers, not only ours, but also customers of other banks, have been contacted with personalized letters with loans with a discount of 45 basis points were offered. We're talking about unsecured loans, floating rate, with up to seven-year maturity, with a discount of 45 basis points. When you have a lot of customers coming and showing you these letters and asking for their rate to be adjusted, even though they are loyal customers and they are core customers, which are not going to leave the bank, in any case, they are asking to have more favorable terms. In order to defend ourselves, we had to change the interest rate structure for many customers. We are reacting by, again, being aggressive on the market. We set up three developer teams that are already operating on three different areas. We are setting up additional task forces. We increased the calls and visits to a given type of customers. These are not customers under the rating 1 to 3, but rather from 4 to 6 with respect to the rating. We are already posting results. In October, we are already talking about an increase in terms of millions compared to September. We believe that by the end of the year, the EUR 387 million that are in line with the first quarter results are going to improve, and that we are going to close the year with more than acceptable results. This is my visibility today. This is what I see today. Of course, we are getting organized to set up a budget. On Friday, we'll start with our budget meetings. These will not be top-down, but we are going really to talk directly with territorial divisions and departments that have a direct contact with the territory and with customers and understand what type of activities and approaches are implemented by competitors, and we will have a better visibility on the future. With respect to the end of the year, talking about this year, I'm reasonably confident. You might remember that at the beginning of the year, I said that we would close the year with 1% or 2% increase on net interest income. To date, we have reached 1% increase. Should we fail with the activities I just mentioned, probably we are going to report a slight decline. However, I'm confident that by the end of the year, we are going to reach a satisfactory result. In any case, improved compared to the third quarter. You are moving on on the risk curve. As you said, we've talked with some customers. In order to have advance on receivables, I cannot grant a 0.7 or a 0.12 rate. I need to maintain a given margin, and we're talking with customers. We are bringing this home. We are successful in doing this, and I'm keeping my fingers crossed. New contacts gave favorable results. We have new customers that have been won over in these three areas where we have the three task forces or teams of business developers. We have to keep going. Consider that we are not over with our cost of funding containment. We still have some room for maneuver, and we are going to be active on that. On the one side, we have this new lending approach. We act on the cost of funding. By the end of the fourth quarter, we should close with a better net interest income compared to the third quarter. In 2016, considering what you said, considering carry trade that is going to go down because you have very important expunged maturities. As you said, what is the cost of funding guidance you can give us for next year? It's too early. Depending on whether what I just said is going to come true, there will be one guidance. However, if by the end of the year the targets we've set for ourselves are not going to be delivered, the guidance is going to be different. If the tax rate is going to be reduced for fourth quarter, are you going to have a DTA impairment and as far as IRES is concerned, what will be the consequences? This is something we have to take into consideration, because we believe that what you are saying is an assumption that should not come true. There are a number of actions that are being taken. We have to wait and see. Undoubtedly, should the entire tax mechanism be confirmed as proposed, we would have to charge our income of a big amount and mitigate it by the benefit that we would have year-on-year, since the tax rate would be reduced from 27% to 24.5%. Thank you. Mr. Christian Carrese has the next question. I have a question about commissions. Is there any room for you to increase commissions in view of permanently low interest rates? Do you have room for increasing asset management products and what about the banking fees in 2016? Can you give us some guidance as far as your expectations? Also, bad bank and asset management company, these two projects, did you receive any indications the new co could buy up to EUR 200 billion of gross bad loans with a value of 30%-40% on face value? Should this be the case, would you be forced to increase provisions, maybe using some of the capital gains that you hinted at during your presentation? Do you expect further provisioning before the end of the year, so that having this coverage, you can sell bad loans? Mr. Carrese, good evening. bad bank, nothing new there. We all take into account the fact that the asset management company can actually be established. So far, to the best of my knowledge, at least as far as I myself am concerned and Banco is concerned, I do not know whether other people have different pieces of information. To the best of my knowledge, I have nothing to say about this supposed bad bank and asset management company. Should the asset management company be established and to set it up, should we be forced to sell impaired loans or bad loans below market value, then I would not be interested. What's the point in doing that? If an asset management company would allow me to reduce the level of NPLs at acceptable conditions, I would go for it. If this is not the case, why would I do it? I am not selling at the current market conditions because that would hurt my regular shareholders, ordinary shareholders, and registered shareholders, because we have loans that are backed by collaterals and properties that are exceptionally valuable, and thus, I want to preserve that value. I believe in due course, we'll go back to normal. That will not happen in the very near future. Important thing is that the new economic cycle is on the upside. The real estate market will be on the upside too, and these properties will thus be revalued upward. So far, we can do nothing at the current properties value, with the only exception of a few clusters of properties here and there. When you have EUR 20.5 billion worth of non-performing loans, to really enjoy significant benefit, you have to sell from EUR 3 billion-EUR 5 billion NPLs, which you would be doing only if the prices which you can dispose them is reasonable. If it is necessary to make additional provisions, no problem. We can engage in additional provision, we will not do anything for free, or we will not just give away NPLs at fire sale price. These NPLs are backed by valuable properties, should we be selling them at the current conditions or at the proposed offered conditions, would be destroying value. As far as commissions, you have always attended our calls, so I'm sure you remember that our organization allows to generate EUR 350 million per quarter. This year, most likely we will exceed EUR 1.4 billion because the EUR 350 million multiplied by four equals EUR 1.4 billion. Things boomed in the first quarter, EUR 350 million were recorded in the second quarter. The third quarter, because of the fact that July was dedicated to the Lower Tier 2 bond issuances, August a month of holidays, and September, we went back to business, but we were kind of less active, and we shed EUR 25 million worth of commissions. In due course, like I said, we will regain ground because we have already started selling both in September and in October, and sales have increased in terms of ticket, in terms of amount, and in terms of number. We are growing by EUR 45 million to EUR 50 million per day in terms of daily sales of products. This would put us back on track with our targets. What are we going to do? Looking forward, we'll prepare a budget next Friday, that budget will be rooted in the real conditions. That's to say, we believe that in spite of permanently low interest rates, we'll be able to stick to the good level of fees and commissions that we have reported so far. My question was essentially aiming at understanding whether you are going to implement a policy as aggressive as your competitor, as you said. You were talking about assets under management and limited room for maneuver there in terms of margins. During the conference call, you talked about the margin of maneuver you have in terms of customer spread. I was wondering whether you would act on it. Based on the old business plan, we have planned a growth in the wealth management business, which accounts for a limited capital charge and generates a healthy flow of commissions. We engaged in this kind of business, which is being taken care of by our general manager, together with Aletti's general manager. It's reasonable to think that this will result in a positive outcome, not in the very near term, but 2016 will probably mark the year of additional commissions generated by these sources. Thank you. Next question, Marta Mazzocchi. Good evening. I would like to talk about fees, but the other side of fees. I saw that you've had an increase in guarantees, a rather high increase. What is the customer profile that has been so active, and do you believe that the level you reached is sustainable also next year? Second question, what do you think about outsourcing to sort of manage the NPL problem? New loans and new lending. You've talked about the risk curve and that you are moving along the risk curve. Do you think that you will maintain the same levels as this quarter? Last question first. We've made this decision because we believe. By the way, let me clarify, we're not just leaving the other rating classes aside, but we're not focusing on them, and we are going to work less on them and on the short term. We are rather going to focus on the rating classes 4, 5, and 6, which are regular borrowers or regular counterparties with our group. Again, we are going to pay much attention to creditworthiness. We've been doing so for many years, and as you may have heard before, the initiatives we've implemented as of 2009, drove the cost of credit down quite a lot for these types of loans. The very fact of focusing and paying more attention to the rating classes 4, 5, and 6. Of course, it goes without saying that our relationship managers know how to assess their customers' creditworthiness, and therefore, I am quite confident. As to non-performing loan outsourcing, I don't see what kind of benefit we could get from it. We have no problems managing non-performing loans. Within our group, we have an ad hoc function that manages these NPLs. I'd give my NPLs to someone if he'd pay for them or take part of them over. Talking about outsourcing is certainly not part of our Or assessments. What we're doing is we are clustering our non-performing loans, and this might help us to bring the NPL stock further down. We have no certainties, but a couple of EUR 100 million can already be considered. As to guarantees issued, you know that with strengthening our foreign offices, we have commitments that have been developed, and then we have a number of activities with respect to guarantees issued, and these activities may probably improve and develop further in the coming years. Let me remind you that if you wish to ask a question, you have to press star one on your keypad and wait for your name to be announced. The next question, Andrea Barcellona. Good evening. I have three questions concerning numbers and data. One question about M&A. Tax. It's very low amount of tax things you're paying. Do you have any non-recurring item to report? Personnel expenses, extremely good level. Do you think you can retain this very good level of personnel expenses in the months to come, in the quarters to come, or are we to expect a personnel expense increase? A question about capital. You increased the valuation of the stake in BCCP from EUR 2 billion to EUR 2.15 billion. Is that due to the fact that you're going to close that deal at a higher price, and you are already certain of that, or am I losing something? Am I missing something? A question about the M&A activity. Mr. Saviotti, to close a good M&A deal that is solid, that is strong from the point of view of the business model and the business plan. If to close such a deal, a new rights issue would be required, would you go for it, or would you reject this option? I'll take your last question first. At present, it's unthinkable. I think that if it is necessary, I would go talk to the board of directors, and they would say, "Yeah, of course." They would pass the resolution. Every time I needed them, the board of directors has always responded and has always given their approval. So far, I don't think a capital increase, a new rights issue is necessary. As far as the cooperative institute stake is concerned, we have reported EUR 2.25 billion because this is what we reported to the ECB. My tax man is sitting by my side. He is saying that the tax amount is low because the contribution given by companies posted with the equity method is extremely low in the last quarter, so there is no tax charge. If you eliminate that contribution, you would be perfectly in line with the regular tax level. Personnel expenses. Let me anticipate a piece of information to you. Considering we did better than our budget because based on our budget targets, we should have reported EUR 1.4 billion, while our expenses will be well below that amount. We will charge our accounts by closing within the level of EUR 1.4 billion. That will allow us to lay off an additional 200 or 220 FTEs by resorting to the solidarity fund. Thank you. Next question, Alberto Cordara. Sorry for this follow-up. This last update is very interesting. Product factories are back to profitable compared to last year's trend. Can you give us yearly or quarterly guidance with respect to product factories and with respect to cost? Again, this was a surprise. What can we expect for next year based on the current trend? With respect to cost evolution, we expect to have fewer personnel expenses. Since in front of me I have the head of operations, maybe a few EUR million less with respect to administrative expenses and G&A expenses. They've gone a long road, so we are not expecting any miracle with respect to cost. What about the other questions? What was it? Associate, EUR 39 million. They're really faring very well. We're going to be very strong there because we are performing very well with Agos, Popolare Etica, and BPM Vita. Next year, we're going to have a good outcome, a good result. Agos is going to even over-perform compared to this year. We hope that all our projections are going to come true. In any case, also with respect to dividends, in the past, we've gone through such a distressful period, and it was so painful. Let us believe and stick to our conviction that in the coming year, we're going to receive and to reap dividends. The next question, Jean Nguyen. Hey. Hi. Many of the questions have already been answered. Thank you for that. I just wanted to ask you about the 34 basis points impact of the NPL disposal in October. I'm sorry, but I would like to get a little bit of a more detailed answer. Essentially, what I'm trying to get to is to gain certainty that of the 20-odd billion gross impaired loan that you have on your balance sheet, if you ever dispose of anything else, there wouldn't be any similar hits, because that's actually a big hit for a 1 billion portfolio out of about 20 or so. I just try to understand the mechanics and whether we are safe going forward, if that's okay. The translators were asking that if you have a follow-up for your questions, please don't stand so close to the microphone because it was rather difficult to understand. You were asking about the 34 basis points, in any case. The 34 basis points are due to the following. We sold 950 million worth of unsecured bad loans. These were loans of EUR 15,000 to EUR 70,000 that have been fully provided for. They were extra covered. The provisioning was higher than necessary had we applied the LGD for that specific segment. Since provisions are higher, when you sell them, what happens? It's going to lead to a capital shortfall. As I was saying before, in the past, we had a sponsored capital shortfall in excess of 14 billion. By selling these bad loans, the capital shortfalls were negative by 180 million. Okay. Today, we have a negative capital shortfall of EUR 114 billion, this is not what happens every time. Otherwise, if our provisions were so high, we would not even be talking about Non-Performing Loans. We would be better off. This was just a pool of unsecured loans, very old loans that we decided to dispose of. At the end of 2014, we had decided to set them in a separate cluster, and we did that. EUR 250 million were sold in June, and EUR 950 million nominal value have been sold now in October. Okay. Just to make it simple, do you have many other portfolios where you have an excess of provisions versus your model, and whereby selling them could result in the same impact going forward? Are we done with these type of impacts now? No, we don't have other similar portfolios. We have other clusters, EUR 152 million that we could sell, and that are the remaining part of a portfolio that is similar to the one we sold. The provisioning is rather high, even though it's lower than the one we already sold. Excellent. Only at the high provisioning. Excellent. That's very clear. If we find an interested purchaser, we will sell these EUR 152 million. Many thanks. That's very clear now. Thank you so much. Very diplomatic. I know. I didn't want to be diplomatic. I am sincere. I just say what things are. There are no other questions.