Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sampo for the presentation of the First Half 'twenty one Results, hosted today by Mr. Carlo Mancina, Chief Executive Officer. My name is Simon, and I'll be your coordinator for today's conference. At the end of the presentation, there will be a Q and A session. Today's conference is being recorded.
And at this time, I would like to turn the call over to Mr. Carlo Messina. Sir, you may begin.
Good afternoon, ladies and gentlemen, and welcome to our first half twenty twenty one results conference call. This is Garo Messina, Chief Executive and I'm here with Stefano del Punta, CFO and Marco Del Fratt and Andrea Tamagini, Investor Relations Officers. I'm very proud that even under stress from the pandemic, we achieved excellent results. We've delivered a net income of €3,000,000,000 The best first semester since 2008 and this puts us firmly on track to deliver a full year net income of minimum €4,000,000,000 We strengthened our rock solid capital position and delivered even more NPL deleveraging leading to the lowest NPL stock and NPL ratio since 2,007. And we successfully completed the merger with Italy's number 4 bank and performed Italy's largest ever branch disposal While experiencing multiple lockdowns, our people were very busy, but ISP never stopped being a delivery machine.
So my appreciation goes to all those who made this possible. Our resilience and our Solid capital position underlined by the results of the EBA stress test make ISP 1 of the best Position European banks to pay high and sustainable dividends. In May, we paid $700,000,000 cash dividends. And in October, after the end of the ECB dividend bank, we will deliver an additional €1,900,000 cash distribution from reserves to reach the total 75% payout for 2020. We also confirm A 70% payout ratio for this year with an interim dividend of €1,400,000,000 to be paid in November.
We have already accrued €2,100,000,000 of dividends in the first half of the year. Now let's dive into the details of our results and turn to slide 1. We have an excellent first half. Net income was up 18% on a yearly basis. And looking at Q2, Net income was €1,500,000,000 making it the best second quarter ever.
First half operating income was the highest ever, thanks to best ever commissions. Net interest income view on a quarterly basis And the growth in customer financial assets ended an additional €44,000,000,000 to fuel our wealth management engine. Operating costs were down 2.3%. We further reduced our NPL stock by EUR 1,600,000,000 and add the lowest ever first half NPL inflow. NPL ratios are down to 3.1% gross and EUR 1,600,000,000 net according to EDA definition.
This performance puts us in a position to upgrade our outlook to a minimum net income of €4,000,000,000 for the full year. Slide number 4. While delivering excellent results overall in Q2, we set aside more than EUR 300,000,000 Red tax is an additional buffer to strengthen the future sustainability of our results With €200,000,000 for additional provisions on specific NPL portfolio to further accelerate the leveraging And EUR 125,000,000 to strengthen insurance taking reserves against current and expected gaps between claims and premiums. This is thanks to the one off benefit of €460,000,000 coming From the realignment to book values of the tax values of certain intangibles introduced by the Italian legislation issued last summer, which allows for the recovery against our upfront cash payment of the past amount provision in the P and L at the full tax rate. Slide number 3.
ISV is well prepared to succeed in the future, Thanks to our solid fundamentals built over time. The common equity ratio is well above the regulatory requirements even under the EBA stress of that scenario. And we allocated more than €6,000,000,000 pretax as a buffer to succeed in the coming years. We carried out impressive NPS deleveraging And we are an efficient wealth management and protection company with €1,200,000,000,000 in customer financial assets. The combination with UBI will deliver synergies of over €1,000,000,000 per year.
And we have successfully evolved towards a live distribution model and have a strong digital proposition an important enable for future gains as well as keeping us competitive for our customers and tactically for new talent. On top of that, we are proud of our role as the engine of sustainable and inclusive growth and we remain fully committed to supporting the transition towards social, cultural and environmental improvement. Slide number 4. Our solid fundamentals will allow us to continue delivering best in class sustainable profitability. Rewarding our shareholders remains a priority.
And as already said, for 2020, we paid €700,000,000 cash dividends in May And following the end of the ECB dividend ban, in October, we will deliver €1,900,000,000 additional cash from reserves. We confirmed a 70% payout ratio for this year with an interim dividend of €1,400,000,000 to be paid in November. We have already accrued €2,100,000 of dividends in the first half. We are the engine of Italian social economy. And in addition to our direct support to Italian society, EUR 1,500,000,000 out The total EUR 4,000,000,000 dividends we paid this year will go directly to families and individual investors as well as to charitable banking foundations that are our shareholders, sustaining Their inclusive action to support social and cultural projects and people in need.
To this, we can add the real economy benefit from the fact that the majority of our institutional investors receiving dividends Manage Families and Private Investors Month. Slide number 5. After 18 months strongly impacted by COVID, the Italian economy is recovering. The National Recovery Plan Strongly focused on investment reforms will provide additional support for the revolver. In this context, I speak will provide more than €400,000,000 to businesses and households to support the recovery plan.
Slide number 7. Despite the challenging environment, we delivered the best First half net income since 2008 and the best second quarter ever. Slide number 8, let's Take a look at the points of strength that will drive in Verso Power in the future. In recent year, we reduced the NPL stock by more than 2 thirds And we further increased our rock solid capital base, while also acquiring UBI and paying €15,000,000,000 in cash dividends. Slide number 9.
While reducing NPL stock and strengthening capital, we also increased the already high share of revenues for commissions and insurance income, which now stands at 52% and we further improved the cost income ratio. Overall, we have a unique Resilient and efficient business model. Slide number 10. We have far better equipped than our peers To take on the challenges ahead and we have a best in class risk profile, one of the highest capital buffers First and we are one of the custodian leaders in Europe. Slide number 11.
I'm very proud to highlight that while delivering the best first half since 2008, we rapidly and successfully completed the merger Like the integration of UPI Banca and the largest disposal of banking branches ever done in Italy. This is even more impressive if you consider that most of this was done working from Holmab. Slide number 13. On this slide, you can see the highlights of our strong performance, but let me give you some color on the following pages. So slide 14.
In the first half, we continue to improve across all key indicators. In particular, net income was 18% higher than last year and we deleveraged the NPL stock by more than €15,000,000,000 on a yearly basis. Our common equity Tier 1 ratio improved significantly. Slide number 15. Our excellent performance allows us to create sustainable benefits for all our stakeholders.
Contributing broadly to society has always been a key part of our DNA. So you can see this In our robust support to the real economy and our strong ESG focus. Slide 16, As you know, we immediately responded to the COVID emergency and we continue to do so with a complete set of actions to care for our people and customers, Support the real economy and society and ensure business continuity. Sao Paulo has a duty to leave a positive mark on broader society and to support the transition to both social, cultural and environmental improvements. Slide 17.
In this very challenging moment, we remain committed to being the engine Around ESG climate topics, we are investing in ESG training for ISP people and corporate clients. You can go through the details on the next page, but for the sake of time, let's now move to slide 19. In this slide, you can see that we are the only Italian bank at the top of the main sustainability ranking. Slide number 20. In the first half, while merging UBI and despite COVID, we delivered performance driven by high quality earnings.
Commission grew over 13% more than compensating for the Line and net interest income. Profits on trading were solid and fully realized. Revenues were up 2%. We have continued to be very effective at managing costs with administrative expenses down 5.4%. Operating margin was up 6%, the best first half ever.
Gross income reached €4,300,000 up 30 8% when excluding the Nexi capital gain. We have been very conservative in provision as we maintain December 2020 macroeconomic scenario without taking into account the recent improved forecast. We use more than €300,000,000 from the Q2 one off positive impact from intangibles realignment as a buffer to further strengthen the sustainability of our results. Net income reached $3,000,000,000 which becomes $3,300,000,000 when excluding costs concerning the banking industry. Slide 21.
Q2 was the best ever second quarter for net income. In comparison with the same quarter last year, commissions were up Almost 18%, reaching the best ever Q2 results and operating margin was up double digit thanks to revenue growth and cost reduction. Gross income was up 80% when excluding the next SEK 5,000,000,000 On a quarterly basis, Net interest income trajectory became positive after 5 quarters of steady decline. Commissions increased more than 2%. Insurance Income increased by almost 50% and net income was stable at a record high level.
Slide 22. In this slide, you can see that on a quarterly basis, net interest income increased by 2.2%, mainly due to positive dynamics on spread. On a yearly basis, the decrease was due to financial components that were affected by the reduction in the size of the securities portfolio is a consequence of the integrated management of ISP and UBI portfolios and by end peer deleveraging. The commercial component is growing thanks to positive dynamics on both volumes and spreads. Net interest income was also affected by Strong increase in retail direct customer deposits, which impacts net interest income in the short term, but boosts Our wealth management engine in the coming quarters years.
We'll continue to manage our revenues in an integrated manner to create value. And in this respect, I can anticipate that due to the huge liquidity we have, we will be very selective in our new bond issue plans for the second half of the year. As you will see in the next slide, in the first half, we recorded strong Yearly growth in commissions, which more than compensated for the decline in net interest income. Slide 23. The first half was our best first half ever for commissions.
We did this while Successfully merging UBI and SPY COVID. Slide 24. Customer financial Assets increased by almost €100,000,000,000 on a yearly basis. Assets under management and net inflows were positive by more than €8,000,000,000 in the First half of the year. In the past 12 months, we recorded an extraordinary increase in corporate and household deposits, which will fuel our wealth management engine in the coming quarters and shows once again the resilience of Italian companies.
Slide 25. We continue to be very effective at managing costs, while we keep investing for growth. Slide 26. We are proud to have one of the best costincome ratios and this chart illustrates our leading position in Europe. Slide 27.
NPL stock has continued to decline sharply with 23 quarters of continuous deleveraging. Slide 28. As you can see in this slide, loan loss provision declined by over 50% And the annualized cost of risk is down to 43 basis points. And we recorded the lowest ever first half NPL inflow with Q2 being the lowest second quarter ever for gross inflow. As I said So we have been conservative in provisioning maintaining the December 22 macro 2020 macroeconomic scenario in our models Without considering the improving outlook, which would have implied a benefit of €200,000,000 Slide 29.
Our fully loaded common equity TRO ratio is 15.7% on a pro form a basis including DTA absorption, which will compensate for the future vessel for impact. Our capital buffer The regulatory requirement is well above our peers. And our full in phase income on equity turnover ratio is 14.4%. Slide 30. Our best in class capital buffer versus regulatory requirement increased by 80 basis Slide number 31.
And when it comes to capital strength and leverage, ISP continues to be a European leader. Slide 32. We have a best in class risk profile in terms of the ratio of capital to liquid assets. ISP also enjoys a strong liquidity position and almost €120,000,000 in excess 1,000,000 long term liquidity. Slide 33.
Last Friday, the EBA published the results of the stress test, which showed a good outcome For ISP despite the very severe stress applied for Italy. Even in the adverse scenario ISP's capital position is well above The requirements of the supervisory authorities and in all the 3 years of the scenario, we do not trigger any NDA restrictions. Slide 34. If we compare ISP to the other top listed European banks, We are clearly one of the winners in the EBA's first step of this scenario in terms of capital buffer. Slide 35.
As you can see from this slide, the adverse scenario that also stressed the risk weighted assets that we sold to beeper in 1st semester without considering the related benefit of capital as a manageable impact on ISP, thanks to A resilient business model, a solid capital position, high quality loan portfolio with a low risk profile, A well diversified trading portfolio with low exposure to volatility risk and strong contribution from stable income And limited operational losses driven by cautious sales model, unopposed to legal risk. And I want to highlight that we do not have any MDA restriction even in the adverse scenario. In the ABA exercise, We fully paid additional Tier one coupons in the incentive schemes as normal in each year And the impact on capital reflects this. Peers with NDA restriction cannot fully pay Additional Tier 1 coupons for incentive schemes in the adverse scenario. So without the restrictions, their capital position will be lower And the peer average capital impact will be 505 basis points with ISP gaining 2 positions in the range.
In summary, the EBA's first step confirm that ASP is a very low risk bank even in a very severe scenario for Italy. Slide 27. In closing, let me recap the key points that demonstrate The sustainable strength of Inter Sao Paulo. Our resilient and profitable business model outdelivered even under continued stress from the pandemic and while successfully completing the merger with UBI Backpack. First half net income was €3,000,000,000 This was the best first half ever for operating income and commissions.
Costs were down significantly and our cost income remains one of the best in Europe. We strongly reduced our NPL stock. Our capital base is well above regulatory requirements even under the DEA stress test adverse scenario. The UBI combination was completed quickly with great success and synergies will reach €1,000,000,000 per year. If ISP is fully equipped to succeed in the future and on track to deliver a minimum full year net income of €4,000,000 Our resilience makes ISP 1 of the best positioned European banks to pay high sustainable dividends.
We distribute €1,900,000 in additional cash from reserves in October following the end of the ECB dividend ban, meeting the 75% payout ratio for 2020 envisaged in the business plan. For 2021, we have already accrued euros 2,100,000 towards our 70% cash dividend payout ratio for this year's net income. We expect to distribute €1,400,000,000 of this as an interim dividend in November. Intelsan Power is And now I'm happy to take your questions. Thank you.
Thank you very much, sir. And we'll now move to our First question over the phone, which comes from Delphine Lee from JPMorgan. Please go ahead. Your line is now open.
Yes. Good afternoon. Thanks for the presentation. So I'd like to ask first on net interest income.
At the start of
the year, you mentioned that NII this year could Still be slight potentially flattish. With the 3% decline so far in the first half, do you think this Still achievable. And could you maybe point us to what tailwinds could we have in the second half? Or How are you thinking about the second half outlook for NII? My second question is on the interim dividend.
Can you maybe just explain a little bit the rationale for maybe not paying A little bit more than €1,400,000,000 which is just below 50 46 percent payout ratio. Is it just out of prudence? Is there a call from DCB for prudence? Just trying to think about the rationale For that. Thank you very much.
Thank you. So on net interest income, what we think can happen in the second half is an increase in comparison to The first half. So that's our expectation. If we look year over year, It is a challenge to be flattish. My target is to work In order to have good dynamics from the commercial components of the net interest income on the spread components and on the government bonds yields components.
On the other side, the real question mark is the dynamic of deposits, Because you see that quarter by quarter we are increasing the deposit base. And this It means that we are we have to put extra efforts in order to try To manage the increase in net interest income. So I consider this positive On the structural basis, what I think is the point of strength for Intesa Sanpaolo, so Wealth Management. So in the future deposits It can be moved into Wealth Management. But in the short term, this point remains the most important question mark For the dynamic of the net interest income.
At the same time, the leveraging sort of Production on performing loans will continue to bring some negative on net interest income. So the net net expectation is to continue to have growth in the 2nd half in comparison with the first half. On the total dynamic year by year, we have to look For the dynamic of deposits and also the other points of the managing of total revenues and not Line by line by the Corporate Investment Banking. So if they decide to make some capital gain On the portfolio, there could be some reduction in net interest income. We have to check, But at the same time, what I consider really positive is the trend of commissions That by definition will more than compensate any possible Negative dynamic driving by increasing deposits or by disposal of Governance by Corporate Investment Banking Division.
But net net, I hope to be in a position to deliver Flattish dynamic year on year. Looking at interim dividend, when you work On for the first time on the item of interim dividend because this is the first time that we decide to The interim dividend, I have to give you in full transparency my view. My view is that In a year like this, we it is much better to work on the forecast Our net income and on that base to derive the dividends that can be paid as an interim dividend. On this point, let me tell that we think that the very conservative The approach that we can have on net income is to realize that minimum €4,000,000,000 So I didn't consider fair To pay more than the 70% on The expected net income for the year is interim dividend. So it's my decision.
It is not something related to the ECB. But I think that on this point, it is much better to be linked to the year full year pace. Also because as I told in the first quarter Conference call, Q4 results conference call. I'm preparing the new business plan. So I'm working this year in order to create condition for the new business plan.
And in the next 6 months, I will evaluate All the levers that it is possible to use in order to reinforce the sustainable Profitability for the future. So I'm not managing IntelsOn Power in a short term view. I'm managing IntelsOn Power in a view of medium term results. So that's the reason why I think that it is safe to remain in a position to look at The forecast for the year and not the short term and also adding in the short term Meaning that the 6 months results spike due to the one off that we use partially. But in any case, it's something that I consider more fair to work In on a yearly basis and not only do it in the 6 months.
Great. Thank you very much.
Thank you.
Thank you. And we'll now move to our next question over the phone, which comes from Antonio Real from Morgan Stanley. Please go ahead. Your line is open.
Hi, good afternoon and thanks for the presentation. I just have a follow-up on net interest income and then two questions that are kind of related. The first one is, I remember part of the optimism behind the Previous NII guidance was really reliant on a recovery of loan demand in the second half of the year. Now volumes in the quarter were flat. Can you share with us what you're seeing in terms of loan demand across different products?
And where do you see most opportunities to grow the loan book in the second half of the year? That's my first question. The second question is kind of connected. You've mentioned you've divisced Your balance sheet significantly. And I wonder if that allows you now to go after this curve and in particular I'm thinking about consumer finance for example which is simply the product One of the few where for a number of reasons you've had a relatively low product penetration.
To what extent the integration of Presque Italia for Ruby can give you a platform for you to reach your natural market share? And can you just help us quantify the potential impact from this if that makes sense? Lastly, looking at slide 11, you've reiterated your pre tax synergy guidance of above €1,000,000,000 You've talked about 80% trade in in 2023, about 50% if I remember correctly in 2022. And I wonder if you can be more precise now on your expectations for 2021. You've acquired the Manojis of UBI and you've defined the final perimeter.
So that's my question. Also, I mean, if you can talk about upside risk of on to the synergies from product factories that will be
Thank you. So the line was not perfect. And so I hope to be in a position to answer to your question In the right way. So on net interest income, the dynamics and the possibility to have a second half In increasing comparison to first half was considered Probably optimistic, if I understood correctly. I think that we will have contribution Spread because we increased the TRTRO III in June.
And so we increased by another More than €10,000,000,000 the user drop of the TLTRO III, so we can have a benefit in the Q3 And in the coming quarters, deriving from the second terms of volume, there is a recovery in Italian real economy, we are not talking about something that can be 10% increase in volume. But I think that starting From this quarter, we can have some increase in the volume of loads. At the same time, we are accelerating in the conversion of deposits From deposits to Wealth Management Products, the real point of attention is that we are converting €4,000,000,000 and then we have a release of €5,000,000,000 coming as new March. So That's the kind of acceleration. If we continue to make conversion and we will not have an increase in deposit, it is possible also We have another increase in net interest income coming from the reduction of deposits And this can be positive in this environment.
Then on the government portfolio, There could be some increase in the portfolio, not we are not talking about €20,000,000,000 But in any case, there could be Some increase also in the portfolio. So I think that we can try to play the game of 2nd month increase by definition. We try to compete for a flattish dynamic. We will see At the end of Q3, it is not easy, but we want to try this and try We will see during this quarter if this is something that we can achieve. As I told you deposits remain the most important areas in which we can try to have some positive.
On the risking and consumer finance, I want just to elaborate on the risking. We are continuing to reduce non performing loans because we think that non performing loans is an area which Today, we are for sure best practice. But if you want to look For the cost of risk in the future of the new business plan, my intention is to maintain Provisions that are linked mainly to net inflows, not on Extra coverage during the different years for the vintage of non performing loans that can Increased the amount of provision to economic figure. So that's the reason why I'm really concentrating on making A clear analysis on the non performing loss portfolio that can have some Impact on provision for the future. If we are in a position to identify other No, but for me not, can create for the future impacts on economics During the business plan, we will try to work in order to realize further deleveraging.
On the other side, this will allow us to move into a more dynamic It can allow an increase in loans. Consumer finance is really an area in which we have an under penetration In comparison with other peers, Prajnitalia can be a player that can accelerate Our growth in this sector. And we will give the figures during the presentation of the new business plan. But for sure, it is a platform that we can use in order to accelerate The growth in consumer finance. Looking at synergies with UBI, in 2021, we seem to have In the order of €100,000,000 €150,000,000 synergies coming from UBI, The first year is probably the one we are accelerating and we will have on cost synergies.
In the first semester, we add €30,000,000 of synergies related to personnel costs and €30,000,000 related to our mid Yes, thanks. We think that at the end of the year, we can be between €100,000,000 €150,000,000 Then the acceleration Will be in 2022 and in the next year as you correctly told.
Perfect. Thank you very much.
Thank you.
Thank you. We'll now move to our next question over the phone, which comes from Christian Karis from Intermountain. Please go ahead. Your line is open.
Hi. Thank you for taking my question. The first one is on, again, net interest income. I Some improvement in terms of spread, the commercial spread in the quarter. I was wondering what is the reason maybe No estate guarantee loss.
So if you can elaborate a little bit on that. And what do you for the second half of the year, let's say, also in 2022, given some consolidation in In Italy taking place. The second question is on cost of risk. The fault rate was quite stable in the first half. What do you expect in the second half?
And usually, You use part of the positive one off to offset or to free up some resources for following years. Yes, in the process of presenting new business plan in February. So I was wondering the €460,000,000 positive tax one off, If you would like to do some extra provisioning, for example,
this year. Thank you.
Thank you. On net interest income, the dynamic It's mainly due to the positive of this quarter. It's mainly due to the spread and it's mainly TLTRO 3. So that's The component on the other side, we started with inversion in financial portfolio and volumes Maintain a flat contribution considering the days that we had in this quarter. The dynamics of competition in Italy From this point of view, Ken can bring some impact on markdown, but the most important part The pressure on the spread side on the asset side was due to the guaranteed loan and the conversion into the guaranteed loan with the repayment of For term debt, yes, from the companies, I think that at the end, we are close to the end of this So I think that looking at this point of view there should not be significant threats during the second semester.
Looking at cost of risk, the run rate of our cost of risk is today between 20 30 basis points, probably close to 20 basis points. Then we are adding Some extra provision in order to accelerate NPL disposal. And as I told NPL disposal means Lower provisions in the future, lower provision in during the business plan. So my expectation is that The run rate should more or less remain in the range Of the one that we had in this semester, it is possible that we can add something in order to Accelerate the deleveraging during the second part of the year. We will monitor the situation.
In any case, also considering the reinforcement of the risking for the group, My expectation is that we will not exceed in any case the 60 basis points that we gave to the market in last quarter. Today, the run rate is not absolutely 60 basis That is 30 basis points. So that's the real trend of the group. But in any case, It's what I would consider important is the trend of provision in the next 4 years and not in this So that's what I will remain concentrated in the next semester.
Thank you.
We We'll now move on to our next question over the phone, which comes from Andrea Filthri from Mediobanca. Please go ahead. Your line is open.
Yes. Thank you for taking my questions. I'll just follow-up from what you just elaborated on. So cost of risk, If you could you've already told us that you have refrained from releasing macro overlays, which would have benefited for around €200,000,000 Can you explain us the dynamic and the mechanics And the timing that kind of restricts your ability to shift the usage and the allocation of overlay provisions across accounting years. So what will you have to do by the end of this year and what will you have to do by the end of next year regarding the overlay provisions made in 2020, so that we can better understand when these could hit P and L in the form either of allocation or of releases.
Secondly, on risk weighted assets, There is a €6,000,000,000 reduction in market risk quarter on quarter that's taking us close to the bottom on this front. Can you explain us The dynamic there, what's happening. On capital return, the ECB itself Was expecting banks to start paying out dividends referring to 2020 2019 profits. Will you update the market on dividends regarding 2019 profits later on? And finally, just wanted to understand if you're charging Negative interest rate via fees and if you can quantify this for us in Q2 And on how many deposits you're charging these fees?
Thank you.
Negative interest rates, not significant. So it is not significant for us. So it is something that we do not consider strategic. On capital return 2019, I was clear and transparent in the Q1 presentation. And I told To the market that 2019 will enter into the capital plan of the new business plan.
So We decided to consider this in the capital plan for the new business plan. So that was clear to the market starting from last quarter. So it is not a surprise. Looking at market risk, We the way in which the risk weighted assets are related to market risk are calculated is based on Something that is the historical series of volatility in the market and also the national And so in this quarter, we had a reduction of this impact deriving from the fact That this quarter was the one in which we had the entering of some Positive phase and reduction of volume that we made 6 months ago. So it's a mechanical Impact coming from the reduction of volatility and reduction of volume of portfolio.
Looking at cost of risk, we are in cost of risk you have To move in analysis on the scenario and Impact coming from on a yearly basis. But if you are in a position to have something extraordinary like Last year in with the COVID, you have to change the scenario and you have To increase in the case of negative or in case of positive, you have to change the impact on In this case, so related to this semester, we decided to postpone in the 2nd part of the year The inclusion of the recovery of GDP in the future that We will have according to the last trend of dynamic of GDP in Italy. We have some flexibility on this point, some orders of flexibility. And we will see at the end of the year, It is likely that this will be changed at the end of the year, but we will see what
So is it fair to understand that the overlay provisions related to the macro scenario Tend to come first or to be more automatic or mechanical than the ones That you have made more of it with the more accurate analysis of each sector and so on.
Sorry, I didn't understand that because Ryanair is not good. Could you repeat that?
Yes. No, no. I just wanted to make sure I understood correctly. Is it fair to Say that therefore the component of overlay provisions related to the macro scenario is more kind of automatic And mechanical, whereas the component of overlay provisions related to the more specific analysis made On the sectors etcetera allows you more flexibility to kind of postpone the performance? Yes.
We'll now move on to our next question over the phone, which comes from Azura Galfi from Citi. Please go ahead. Your line is open.
Hi, good afternoon. A couple of questions for me. One is on the fees. When I look at The breakdown of the fees, the improvement has come mostly from the asset management and the credit cards. Can you Explain a little bit this increase in the credit cards and what's the outlook for fees for the 2nd part of the year because net inflows were quite strong In the first half.
The second one is on the moratoria. The moratoria continue to expire, But there has been a bit of a deterioration in the default rate, which probably was expected. It's just to see if there is anything that you want to flag on that. And how do you expect the residual of the moratoria to develop in the second part of the year? And the last one is just a clarification on the dividend, If I can, you are accruing, if I understand well, €2,100,000,000 of dividend in your capital and not just the interim dividend, right?
Thank you.
Yes, Zurer. We made the deduction from the capital for an amount of €2,100,000,000 dividend. So we made the approval of the dividend Using the net income of the semester, but looking at the interim dividend, we will pay It's 50% of the forecast €4,000,000,000 net income and we apply 70% to €2,000,000,000 More or less as a proxy of 50% of net income for Orica. So the real money that is in our Common equity ratio that is in the future availability of our shareholders is 2.1. It is not 1.4.
Looking at the moratorium, the default rate is 1.9 today. So We did a slight deterioration in comparison to the Q1. It is likely that in the next quarter there can be some Some limited part of the deterioration. So our expectation is not to exceed in any case between 2% 3% during the 2021. We are checking the situation, but I consider this as a very positive dynamic From the moratorium and not consider significant threats to our results.
Only 3% Of these amounts of moratorium is related to high risk clients in high risk sector. So I have to tell you that my expectation is that we can have a deterioration, but not so significant. That's the reason why we think that The expectation on the cost of risk that we made in the Q1 is really conservative, We want to maintain the flexibility to have an approach On 2021, in order to create condition for increasing profitability starting from 2022, It is our expectation and we will work on the different loan book and nonperforming loans portfolio in order To identify what would be the areas in which we can have an impact in the future and try to assess This is problematic within the end of 2021. So that's good transparency from my side at this point. Looking at fees, we had a rebound in all the commercial activities on On the Wealth Management and that's linked to the reduction of lockdowns and Starting some form of investments from companies and families and our expectation is that this can continue to be positive.
Looking at the asset management mission is remain and will be of net income generation.
Nikko Santoro from HSBC. Please go ahead. Your line is open.
Hello. Hi. Good afternoon. Thanks for the presentation. A question on fees.
I wonder given the message that we got from the other Italian Wealth Manager, This is going to probably be another record year in terms of performance fees. So can you give us the update of performance fees of your asset management company as of today or any indication whether they're going to be higher than last year that would be useful to factor the seasonality in Q4. Given also that these performance fees are paid 100% back to PMs, I just wonder whether We should include also the same seasonality on cost and whether your 2% minus 2% is something that we can model also for the end of the year in terms of cost given that my understanding is that synergies from UBLESTA are quite minimal. Going forward, I start beyond 2021, Can you give us an idea? We know how much the synergies are related to Hubil, but it would be nice also to understand the in terms of cost because I see much variance in terms of consensus mid single digit, high single digit.
It will be very useful for us to model profitability. And then a question on capital. From last call, I remember that there were mentioned something like 30 bps of regulatory headwinds for 2021. I just wonder whether there is an accrual of this already in this quarter and how much is left for the 2nd part of the year? Thank you very much.
So starting from the impact On capital, we think that we can probably confirm This dynamic and probably could be better in 2021 If something can be moved in 2022, we will see at the end of the year. But in any case, With a range absolutely manageable from our side. Looking at The fee performance then I would elaborate on cost because it's something that is probably more strategic. And I understand That will be from your side something to better understand the position for the future for the group. On performance fee, we had in the 1st semester EUR 120 €1,000,000 of performance fees with an increase in comparison to last year that was more or less €40,000,000 of performance fee in the 1st semester.
2nd semester could be A good semester also looking at performance depending obviously on market conditions. So if market conditions continue to be Positive, we can exceed the performance fee of last year. It will depend on The real dynamics of the market, but also from this side our expectation is to have some positive. But if you allow me, I have to tell you that What I consider really very important is the positive answer that we are receiving from our clients In conversion of retail deposits. So that's a real Positive in the dynamics in our commissions.
And you know that In our business plan, our expectation is to work on the €100,000,000,000 of Extra deposits that we received by the clients in the last 2 years. And that's something that I think can be in a significant part, it converted into management in the next year. So we are testing these attitudes of the clients Indeed, the results are positive. So that's in my view is really positive for the future. Looking at the cost base and the dynamic of the cost base, for sure There will be seasonality in the trend of course that's something that is physiological in the trend of The cost base, we think that the dynamic of cost could be something that We'll move into a negative trend.
So for the future, there could be a negative So reduction of cost in absolute terms. We have the Cost synergies on UBI, but we have also significant areas of further reduction in terms of cost base Related to reduction of branches, reduction of real estate, reduction of IT costs And reconversion of IT costs. That's what we are working on in the business plan. Business plan will be For sure, based on some continuity on the real point of strength of the group And the managing of Wealth Management and very good results that we had In the cost reduction, we'll be 2 component strategic in the plan. The other part of the story is The trend in terms of reduction of cost and risk that is linked To reduction of non performing loans.
That should be the other part of the story strategic and that's the reason why we are working hard in order
Thank you very
much. Thank you.
Thank you. We'll now move on to our next Question over the phone, which comes from Hugo Cruz from KBW. Please go ahead. Your line is open.
Hi. Thank you. Just three quick questions. First on the P and L, if you could give guidance for the tax rate in the second half? And then with the new plan, can you confirm that €5,000,000,000 net income is still the starting point for 2022.
And you're talking about cost cutting. Is there a risk that we could see or should we be assuming material restructured charges and one offs From the new plan? That's it. Thank you.
So the tax rate in the second part of the year will be the usual one. So we will not have Nothing extraordinary. So we will move between 28% 30% tax rate. So our expectation is not To have other positive or one off in the tax rate. Looking at the profitability for For 2022, for sure €5,000,000,000 is the minimum level.
So we are working on the preparation Of the plan in the sense of creating condition for accelerating Net income growth for the future. And I have to tell you that The point of profitability is linked with the cost of risk That's in revenues. On the cost base, we are in a position to benefit from a significant portion of synergies coming from UBI. And the possibility to have Significant integration charges is limited during the second half of the year. We will have probably something but not So significant.
There could be something if we find some smart managing nonperforming loans there could be something on the cost of risk. But integration charges should not be something that will increase in a significant way. That could be something but not €1,000,000,000 So That's for sure. Okay. Thank you.
Thank you.
Thank you. We'll now move on to our next question over the phone, which comes from Britta Schmidt from Autonomous Research.
I think you kind of just answered one of my questions. Just to confirm, You expect cost of risk to be in the region of 60 basis points unless there are additional charges for additional NPL disposals. Whether you can just confirm that. My second question will be what sort of volumes are we talking about and how do you think this will impact net interest income going forward? And the third question I have is 1 on IFRS 17.
When do you expect To apply this and have you given any consideration to what sort of P and L or potentially CET1 impact that might have? Thanks.
Sorry, I didn't understand the third question. If you can repeat because I didn't understand the third question,
The first question was on IFRS 17 on the insurance business, where the accounting is going to be changed under IFRS, where a compensation margin is currently accounted for, which could impact. There's a bit of management discretion as to how much you want to Sure. There's a change in P and L versus change in equity of the insurance business.
Yes. Okay.
So looking at the first question, it is very important from my side because as you understood correctly, we are working In order to reinforce the profitability for the future to possible Further deleveraging on the non performing loss portfolio and the 60 basis points is the cost of risk including Further deleveraging. So that's the level of cost of risk including further deleveraging Of the balance sheet so far the reduction of non performing loans. That's more or less the level that we think we can achieve. If we're not in a position Of making further disposal cost of risk can be probably lower than this. That's our expectation.
We are working in Europe, but not for the sake of reaching 2% of the nonperforming loss ratio, but because we are selective of the non performing loans portfolio that can have a negative impact on during the business plan period. On looking at the net interest income, the volume effects could be positive. That's our The ratio from both sides. The loan side and we think that we can have a recovery of the loan book during the 2nd part of the year is linked to the acceleration of the GDP in the country, the fact that companies are coming back to investments, Looking at the fund coming from next generation U. S.
A positive levers For growth in Italy, there are a lot of companies that are starting to enter into The investment node, they will use a portion of deposits and they will use credit granted by banks. So We think that this can be positive for the volume. At the same time, if there will be a reduction of deposits Both from the corporate side, but mainly from the retail side, we can have a positive net interest We will see we'll make the monitor and we will tell you quarter by quarter the evolution. On IFRS 17 on the insurance business, we don't look to have a significant impact. We are still working on what would be the allocation on equity on profit.
Could be probably something that it is not significant in terms of impact for our group. That's our expectation. In the next 6 months, we will make the final analysis. But first results of analysis are not Significant and this will be part of the new business plan in the So obviously ratio and the capital allocation of the insurance business in the new business plan.
Thank you. Can I just follow-up on one point regarding further NPL deleveraging? Do you leverage this to have a meaningful impact on net interest income?
Sorry, I don't think that this can Have significant impact. It will depend on the size. But in any case, We can consider not significant an amount that could be €50,000,000 or so. That's something It is absolutely manageable. Then we will see what is reality because we are still checking in the different portion of NPL And what will be the best solution for the further reduction of non performing loans?
Consider that we will have to work probably also on unlikely to pay portfolio and so this will This means that we will have to enter into a more in-depth analysis. But my expectation is not to have A significant impact on net interest income. At the same time, we will have a significant benefit on Future provisions and on shortfall for the futures.
Great. Thanks a lot.
Thank you.
Thank you. We'll now move on to our next question over the phone, which comes from Patrick Lee from Santander. Please go ahead. Your line is open.
Hi. Good I have one on dividend and one on your asset management fee income outlook. Firstly, on the dividend, you commented earlier on Interim dividend of 1.4 is kind of a conservative assumption based on full year net income with it being roughly half your expected full year income. But hypothetically, if your actual outcome is, let's say, much more positive, would you consider a much bigger final dividend than the €1,400,000,000 Or would you stick Some sort of a fifty-fifty split between interim and final dividend as a matter of principle. And in that context, and I think Given that many banks are now considering share buyback as an extra tool for capital return, would you And with your capital obviously quite comfortable compared to your own target, would you consider buyback as a medium term supplementary way to return capital over and above The second one on fee income, I think you kind of partially answered that.
I guess, you saw a very big increase in financial Over last year, the strong corporate and retail deposits and in turn that helped strong inflows into asset management. If economic recovery is as strong as you're expecting, corporate starts to draw the positive invest, consumers start to spend, would you expect what sort of The first one would you expect to see in this? And I guess in the context that you saw SEK 8,000,000,000 of inflow in the first half, which is around 4% of AUM. In a more normal world, what would you consider as a more normalized level of inflow in your Asset Management business? Thanks.
Thank you. So looking at the dividend, this year we want to maintain this approach because this is a year Of transition between the old business plan and the new business plan and the year also Affected by COVID and by UDI integration. Then it is something and I'm very happy that all the community consider normal That ITER Sanpaolo can deliver such a strong net income generation on such results, Believe me, we made a lot of work in order to be sure to have a contingency plan To manage this organization to be a leader in Europe. And this year It's been a very tough year due to the COVID and integration of UBI. I think that It is safe for the shareholders to have a busy 50% And 50% 1st semester, 2nd semester.
Starting from next year, we will elaborate in the business plan and we will declare The policy and the rule of the game for the interim dividend for the future. So This is probably this will not be the rule of the game for the future for the interim dividend. We will decide in the new business plan. I'll share my back. I prefer to pay cash dividend.
That's my personal view. You know that I consider a priority to pay dividends. That's a clear Point of myself and also in terms of Paolo. But I think that there is also a social responsibility in paying cash dividends if you are an organization like Inter Sao Paulo. We have a lot of shareholders information on shareholders that are at the end The retail investors that are investing in mutual funds.
But at the same time, we have also Foundation and without our dividends, Foundation cannot give money to the community, cannot give money to poverty, Cannot be managed to hospital, cannot be managed to social activities. So there's something fundamental In the way in which we manage the social responsibility of Intelsan Power in paying the cash dividends, There are a significant number of retail investors, retail shareholders that Need this money also to make consumption. So I think that cash dividend is something that for a company like Jorge Paulo is The best way to reamort an organization to have a clear understanding of the kind of shareholders that you have. At the same time, share buyback can be something that we can consider for the future because That's absolutely something that can make part of the analysis of the new business plan. So I cannot exclude that in the new business plan, we will use also share buyback.
But my first Reaction is that cash dividends could be the preferred one, but share buyback will be part of the analysis. On fee income, the line was not so good. So I hope to have understood correctly Your answer and the fee income generation of this quarter is based on A significant amount of inflows coming from mainly deriving from retail deposit conversion. And there is also a component related to commercial activity as I told in It's a previous answer question and answer. But the main driver that I see for the future is The inflows, not only the net inflows that are the €8,000,000,000 but the gross inflows.
So the possibility to work With the money of our clients also in converting from a kind of investments in Bonds, mutual funds converting into a balance sheet, mutual funds are moving from an investment into insurance To another, provided that clients want to move the portfolio. So that's The main areas in which I see the possibility to give the right product to the right clients, so without entering into something that can create some operational risk or reputational risk for the bank. But the delivery machine that we have in terms of conversion of retail deposits and moving this money to Wealth Management and Protection Products is and will be the point of strength from Inteos and Para.
Great. Thank you.
Thank you.
Thank you. We'll now move to our next question over the phone, which comes from Ignacio Cerezo from UBS. Please go ahead. Your line is open.
Yes. Hi, good afternoon. Thank you for the presentation. Two questions for me, please. The first one is on payouts Capital in general.
I mean your capital position is obviously very strong. You seem to be able to maintain it through quarters basically without suffering any erosion basically on it. Your Earnings generation is improving. I know you have high payout actually, but do you see some merit in increasing the payout to even higher levels? I mean, we're seeing some peers in Europe Paying up actually up to 100% or even above 100% payout, not just for 2021, but also in coming years?
And the second question, A bit more detail on the wholesale funding savings you mentioned before. So I can see that you have around EUR 4,000,000,000 maturities of debt In the second half actually maybe Stefano can quantify how much can you save from that in terms of net interest income for the next 12 months, 24 months? Thank you.
So on the wholesale funding, I'll leave the floor to Stefan. I want just to point out on On the capital position of the group and the capital plan, so payoff ratio in different amounts, For sure, we will have a minimum capital level. So it will not be a target, but will be a minimum capital a capital level. So this means that we define the payer ratio and the dividend policy according to the fact that we will have Minimum level of capital. So today, I cannot tell what would be the level of the yard because In reality, we have to finish the work on the plan.
But what I can tell you is that we will have a minimum level of capital and that will be something also part of our risk capitalized framework. So We will move into something that is more based on minimum capital and then we'll elaborate on excess capital. The capital position is strong. And believe me, I think that for the majority of you, It is clear and this point is completely with you. But the inclusion of DTA in our Common equity TRY ratio for the next years is really something that It's a point of strength for us to have possibility to have the recovery of the EBITDA because we will enter for sure in the new business plan In the Basel IV environment, so that will be a plan, a Basel IV plan.
That is it will be by definition for all the competitors A better for plan and we have already an instrument in order To mitigate or to compensate the Basel IV impact through the DPA. And right now, Stefan, if you want to answer the Also a funding question.
Yes. Thank you, Carlo. Well, of course, you see the liquidity Position of the bank, I think your point is very well taken. Clearly, we will be Very, very selective in excess in the market in the next months. Let's say, our original business plan at some EUR 3,000,000,000, EUR 4,000,000,000 of issuance In the second half of the year, again, certainly, unless there is an explosion Of new loans, I would say that we were well below that.
So very, very selective. For the following years, of course, we will have to see the business plan. Everything would be Revised in the context of the business plan. So I cannot give you guidance now. In any case, We will remain very selective in general.
So the saving can be significant.
Thank you.
Thank you. We'll now move on to our next question over the phone, which comes from Andres Barcelona from Exane. Please go ahead. Your line is open.
Good afternoon. Two questions from me. The first one is on income from insurance. Can you explain why it dropped relative to last year both in Q1 and in Q2? Was there anything special last year?
Or was there less commercial activity this year given that It's a nice product to sell. So just a bit of color on that. And the second question, it's on Associated impacts of NPL disposals. In the past, There's been never any impact on the contracts you have with your services in TRU Contreras, should we assume that that is the case also going forward I. E.
You can pretty much Tell whatever you want and it doesn't trigger any penalty that you have to Pay to your partners? Thank you.
Yes. So we think that it is a smart approach to We try to involve the partners. So that's an area in which we rely a lot On income and per annals also in terms of possible disposals. So that's a way in order to mitigate any kind of discussion. In any case, we do not see significant impact in case of Transaction that will not involve our partners.
But as I told you, I think that they are able To work with us and I think that we can rely on the support of both interim and pallios also In the direction of reduction of non performing loans. Looking at the insurance business, The insurance business had a dynamic that was from one side affected by the change of perimeter. So the UBI Insurance Companies that we consolidated in this quarter had a dynamic Very positive during last year and probably Some negative dynamics in the Q1 of 2021 and now positive in the second quarter. So that's A mix of dynamics that is affected by this factor. The second point is that the first half of last year benefited sorry, If I use this word for something, it was really dramatic.
But from the lockdowns, during lockdowns, you cannot have claims. It is difficult to say that you can have a negative impact coming from the insurance means that now we are back to normality or Similarity. And so there could be some lower contribution from the insurance business. But in any case, This remains a significant point of strength in the ending of the insurance business Of the ex UBI will increase the scale of the group and also the amount of net income of the insurance company. Thank you.
Thank you. We'll now move to our next question over the phone, which comes from Alberto Cordada from Bank of America. Please go ahead. Your line is open.
Hi, good afternoon. I have two questions. So the first one related to a conference That you had in Italy where you have been talking about €400,000,000,000 of loans that you can make available to the Italian economy in the context of the recovery that we are going to see. I would like to ask you a bit more about this. I know that maybe this is Predating a bit the business plan, but this was in my view a very interesting comment.
So how we should see loan growth Moving forecast and in connection also with the recovery plan. And the second question related to the fact that I I saw that you changed your guidance for this year. So from over EUR 3,500,000,000 earnings to over €4,000,000,000 Previously, you also gave a guidance for over €5,000,000,000 of net income in 2022. I just wanted to know if this guidance is rolled. Thank you.
Yes. Alberto, beautiful your title on the research by the original. I like very much. So, it's Jusser. You made the first When I was appointed to CEO on a different planet and so you are very good Also in title of research.
Looking at the €400,000,000 The notes that we can give to the real economy in Italy for sure that there's A linkage with the acceleration of the next generation plan in the country. You consider that out of this money, euros 150,000,000 Ken devoted for families and for small business And another €76,000,000 for Green Circular Economy and another €60,000,000 for infrastructure, Transportation, urban regeneration and then €20,000,000 for hospital research. And so This means that the linkage with the next generation EU will bring us to have an acceleration This money started from the 2nd part of the year and moving into the 2022. So that It will be probably the area in which we can have an acceleration and the main portion could be between 2022 2024. I mean these are The timing in which I think we can be in a position.
We are starting with companies in Italy to support them selection of projects in which they can participate in Italy. So we are setting A machine and organization within different divisions that can support companies in order to be ready to enter into investments driving from next generation EU. Looking at the net income, I have to tell you that I'm really preparing The over performance considering the €5,000,000,000 in 2022. So that's for sure. My purpose is to create a condition in order to over deliver on our promises as usual.
But looking at the plan, all the work that we are doing during 20 2021 will create benefits during the plan, but especially in 2022. So I hope to be in a position to present the plan with an amount of net income in 2022 that could be Higher than €5,000,000,000
Fantastic. Thank you very much. Thank you, Carlo. Thank you.
Thank you.
We'll now move on to our next question over the phone, which comes from Andre Lisi from Equita. Please go ahead. Your line is open.
Hi, good afternoon. Just a quick clarification on the guidance. I was Just wondering to understand if in defining your previous guidance that was well above €3,500,000,000 Did you already Factor in the benefit from the intangibles realignment or not? Thank you.
The guidance is including the one offs. So the net income is absolutely including the one offs. The real point of analysis as I explained during this call is The current of ability that we have to reinforce profitability in 2022 and that will be the main target of The next 6 months in my organization, I want a complete full due diligence So on the non performing loans portfolio and on the loan book portfolio because I want to be sure that The provisions in the next business plan will be really based on new inflows Of non performing loans and not on the stock of non performing loans.
Thank you.
Thank you.
Thank you. We will now move on to our next question over the phone, which comes from Fabricio Bernardi from Vistenberg. Please go ahead. Your line is open.
Hi, all. A very quick one. Sorry to bother you with this. I lost part of the call, so you may have already answered this. I was wondering whether you may have any very residual interest in domestic M and A especially looking at the banking assets that may become shortly available including let's say seaside and or mountains areas or maybe you are now definitely out of this game after the UVI deal?
Thank you.
We made the right move because we had the possibility to make The acquisition of the best company in Italy apart from in Peasant Paolo with the best quality of people Because the UBI people, I have to tell you, are really strong. And I think that in Jocopavlov, we will have a lot of value to the action of First, coming from UBI. Having said that, we made the right move The right timing first moved to Europe, but now for us the game is completely Closed and so we do not see any kind of possibility in domestic M and A.
Thank you. It was a small move. Thank you very much.
Thank you. Thank you very much.
We will now move on to our next question over the phone, which comes from Giovanni Razzoli from Deutsche Bank. Please go ahead. Your line is open.
Thank you. Good afternoon. A question On the dividend very quickly, if I'm not mistaken, in 2021, you are going to pay about €0.21 of dividend per share In ordinary interim results, if I look at the guidance of net profit for next year and also I add the Top up of the dividends of the interim dividend that you're going to pay next year, this $0.20, dollars 0.21 seems we didn't reach also So for 2,002, which would leave Intesa Sanpaolo with a 9% dividend yield also for next year that is one of the highest in Europe. I was wondering whether I'm missing something or whether my calculations are correct. Thank you.
You made the right calculation and I'm completely with you. And as I told In previous call paying dividends is also a social responsibility for a company like IntelsOn Power. Thank you. Thank you very much.
Ladies and gentlemen, this concludes today's question and answer session. Mr. Messina, I'd like to hand the call back over to yourself, sir, for any additional closing remarks.
So Jeff, thank you again for being with us today. And may you and your family stay well.