Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2020 Full Year Results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Marguerite, and I will 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.
At this time, I would like to hand the call over to Mr. Carlo Messina. Sir, you may begin.
Thank you. Good afternoon, ladies and gentlemen, Welcome to our full year 2020 results conference call. This is Carlo Messina, Chief Executive and Amir with Stefano del Punta, CFO and Marco Del Frata and Andrea Tamanini, Investor Relations Officer. Let me once again express my sorrow for all those affected by the pandemic. Looking at it, Sao Paulo, our robust and profitable business model has out delivered even under stress, Exceeding our 2020 net income target of €3,000,000,000 resilient profitability and best in class efficiency were matched by impressive deleveraging and the rock solid capital position that was further strengthened during the year.
In Q4, we completed the allocation of negative goodwill to fully offset the integration charges related to the combination This impressive deleveraging leads to the lowest NPL stock and NPL ratios since 2007. Synergies from the combination with UBI are 50% higher than our original estimate, reaching over €1,000,000,000 per year. This significant beat versus the $700,000,000 we expected during the tender offer is the result of an in-depth analysis involving more than 400 people from both ISP and UBI. In 2020, we allocated more than 6 €1,000,000,000 pretax as a buffer to succeed in the coming years and further strengthen the sustainability of our results, consolidating our position as a leading bank in Europe, so EUR 6,000,000,000 pretax as a buffer. We are one of the most resilient and best positioned European banks to pay high dividends as usual, over €3,500,000,000 I have always called ISP a delivery machine, and this remains true, and we are ready to succeed in the future.
Now let's dive into the details. Let's turn to Slide 1. On a stand alone basis, we delivered a net income of €3,100,000,000 €4,500,000,000 excluding COVID related provisions, Adding the 5 month contribution of UBI, net income is €3,500,000,000 We had the highest ever insurance income with non motor P and C revenues up at almost $500,000,000 Commissions had a strong recovery in Q4, the 3rd best quarter ever. Operating costs were down more than 3%. Cost of risk, excluding COVID related provision, on our full year business plan target by €6,000,000 and we did it 1 year ahead of plan.
NPL ratios went down significantly, 4.4 gross, 3.7 according to the EBA definition. So 3.7 according to the EBA definition and 2.3 net when including UBI. We ended the year with a common equity ratio of 15.4 percent that reached 15.9% taking into account the disposal of branches to Bitterbanc that will be finalized in the next 2 weeks. So in the next 2 weeks, we will be at 15.9%. More than ever, I want to thank all our people for their hard work in achieving these results in this very difficult environment.
Let's now turn to slide 2. Thanks to our solid fundamentals built over time, we are ready to succeed in the future. The common equity ratio is well above regulatory requirements. We allocated more than €6,000,000,000 pretax as a buffer to succeed in the coming years and further strengthen the sustainability of our results. We have deleveraged €44,000,000,000 of NPLs.
We have the same digital internal capabilities for proactive credit management coupled with our strategic partnership with leading industrial players for the legacy space. We are an efficient wealth management and production synergies for the future, and we have successfully devoted the right distribution model. And our clients appreciate our strong group in additional cash distribution from reserves, so cash distribution from reserves. Overall, we have a very resilient business model with 61% of our gross income coming from well management and protection activities.
Sorry, Carlo. We have some technical problems and we are trying to solve it and we will be back in few minutes.
Please bear with us. We're just adjusting the audio. Do not disconnect. Please stay connected. Thank you for your patience.
So thank you very much. Sorry for the inconvenience. And let's take a look now to Slide 6. I thought it was the slide that we missed. Let's take a look at the points of strength that will sustain Intesa Sanpaolo in the future.
In recent years, we have reduced their NPL stock by almost 70%, and gross NPL ratio is down by almost 12 percentage points in 5 years. In Q4, we reclassified as discounted operation €3,200,000,000 We have increased our rock solid capital base while also paying €15,000,000,000 in cash dividends over the past 6 years. Overall, we have a very resilient business model with 61% of our gross income coming from Wealth Management and Protection activities. Slide number 7. In 2020, we allocated more than $6,000,000,000 pretax on buffers to succeed in the coming years.
In particular, dollars 2,200,000,000 for provision for future COVID impacts, dollars 2,100,000,000 for additional provision allocating part of the negative goodwill. This allows us to further strengthen the sustainability of our results, consolidating our position as a leading bank in Europe. Slide number 8. We are far better equipped than our peers to take on the new environment. We have a best in class risk profile, And we have one of the highest capital buffers and we are one of the cost income leaders in Europe.
Slide number 9. Despite the challenging environment, we have delivered resilient profitability. Slide number 10. 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. Slide 11.
I'm also proud to highlight that in 2020, we hired 800 people, more than 1,000 including UBI Bank. Slide number 12. In this slide, we can see our long standing commitment to supporting society and the real economy, Helping Families and Organization Impacted by COVID Emergency. In particular, at the end of December, The stock of loans under Monetoria was €33,000,000,000 including UBI, and we have granted €9,000,000,000 guaranteed by €25,000,000,000 with a state guarantee when including UBI. Slide number 13.
As you can see, our strong digital capabilities have been key to guaranteeing business continuity. Slide number 14. The COVID emergency has shaped new trends, and we are ready to leverage our competitive advantage. For example, we are set to benefit from the growing demand for health, wealth and business protection by leveraging our leading positioning in insurance as well as in wealth management. Let's move to Slide 16.
And the macro context in 2020 was clearly defined by the COVID outbreak, but in this difficult environment, we delivered solid results. In Slide 17, you can see that we have a strong performance. And let me give you some color on the following pages. Slide 18. In 2020, we continue to improve across on key indicators.
In particular, net income was 9% higher than last year when excluding the COVID provisions and we deleveraged by more than 1 third the NPL stock and our common equity ratio improved significantly. Slide 19. The combination with UBI generated €3,200,000,000 in negative goodwill that in Q4 we use for $1,700,000,000 pretaxloanloss provisions to accelerate UBI NPL deleveraging $400,000,000 pretaxloanloss provisions on UBI performing loans, dollars 2,000,000,000 pretax to fully offset integration costs and improved future efficiency, accepting all 7,200 requests for voluntary exits received versus the 5,000 initially estimated. Euros 700,000,000 to partially offset accounting impact of goodwill related to the Banca de Teritore division. Slide number 20.
Our solid performance allows us to create sustainable benefits for all our stakeholders. And in Slide 21, we can see that Itea Sanpaolo has a duty to leave a positive mark on broader society and to support the transition towards social, cultural and environmental growth. In this very challenging moment, We remain committed to being the engine of the real and social economies. You can go through the details on the next page, but for the sake of time, let's now move to Slide 23. In this slide, you can see that we are the only Italian bank at the top of the main sustainability rankings.
Slide 24. In 2020, despite high market volatility and several lockdowns, we delivered solid performance driven by high quality earnings. Net interest income grew about 1% compared to last year after declining for 5 years in a row. Best ever insurance income up almost 6%, driven by non motor P and C revenues. We have continued to be very effective at managing costs down 3.4%.
Depreciation is up as we keep investing for growth. Cost of risk, excluding the provision for future COVID impact is down to 50 basis points. ISP standalone net income excluding the accounting effect of the impairment of goodwill related Slide 25. Q4 has been strong for commissions and insurance income, which increased almost 15% percent respectively compared to the previous quarter. Operating costs were down 3% compared to the same quarter last year.
And since Q3, we had already exceeded the net income target for the full year. In Q4, we were very conservative across the board and in particular with respect to loan loss provision to strengthen buffers for the future. Net income per goodwill impairment is almost 600,000,000 when excluding provision for future COVID impacts. Slide number 26. In this slide, You can see that on a quarterly basis, net interest income decreased due to the financial component, while the commercial component is growing.
The financial component in Q4 was affected by the reduction in size of the securities portfolio due to the integrated management of ISP and UBI portfolio and by NPL deleveraging. On a yearly basis, net interest income would have increased by 2.5%, excluding the impact of NPL deleveraging. Net interest income was also affected by a $44,000,000,000 increase in retail and corporate deposits, €12,000,000,000 in Q4, which impacts net interest income in the short term. We have integrated the management of ISP and UBI Securities portfolio, and we will continue to work hard to improve the commercial component, while continuing to manage our revenues in an integrated manner and with the aim of delivering a positive EVA strategy. Slide number 27.
Customer financial assets increased by €28,000,000,000 in Q4 and reached $1,200,000,000,000 when including UBI. Assets under management and net inflows were positive by more than $8,000,000,000 in the past 12 months, with an acceleration in the second half. The increase in corporate deposits shows once more the embedded resilience of Italian companies. Slide 28. We continue to be very effective at managing costs.
Administrative costs were the lowest ever. We reduced the count by about 3,000, and we have already agreed and fully provision more than 7,200 voluntary exits related to the combination with UBI with up to 3,500 hires. Slide number 29. We are proud to have one of the best cost income ratio, and this chart illustrates our leading position in Europe. Slide 30.
NPL stock has continued to decline sharply with 21 quarters of continued deleveraging. We recorded the lowest ever NPL inflow. This slide, in my view, is really our masterpiece. And the 3.7 percent EBA non performing loans ratio is now Bringing Intesa Sanpaolo in a cluster of very good banks. Slide 31.
As you can see in this slide, loan loss provisions declined by 4%, excluding provision for future COVID impacts. Slide 32. Our fully loaded common equity ratio is 15.9%, taking into account Our fully resin common equity ratio is at 14.6%, taking into account sale of branches. Slide 33. Our best in class capital buffer versus Regulatory requirements increased by 50 basis points in Q4 despite the impact of the combination with UBI.
In the second half of the year, internal capital generation more than offset the impact from the combination with UBI. Slide 34. When it comes to capital strength and leverage, ISP continues to be a European leader. Slide 35. In this slide, you can see the impact of the massive NPL deleveraging because we have best in class risk profile in terms of ratio of capital to financial illiquid assets, so non performing loans level 2 and level 3 And ISP also enjoys a strong liquidity position with more than €100,000,000,000 in excess of medium long term liquidity.
Slide number 36. Before moving to the next section in this slide, you can see the from the combination with Ubi Banca and goodwill impairment. Slide 38. Now we provide you with an update on the combination with UBI. Slide 39.
As I said, we updated the estimates of pretax synergies, which now stand above €1,000,000,000 Let me highlight that the extra synergies versus our original estimates are mainly due on revenues, move from ISP and UBI. But on cost, further room to improve efficiency also thanks to a higher number of voluntary exits already agreed with labor unions and fully provisioned. €2,000,000,000 pretax integration charges were fully booked in Q4 and fully covered by the negative goodwill from the transaction. As you can see from this slide, we have already completed a large number of governance and business activity to speed up the integration, disposal of branches to Bitterbanca and within the end of April, the merger of UBI into ISP at the complexion of the IT integration. Slide 43.
In conclusion, let me remind you the key points that demonstrate the sustainable strength of Intesa Sanpaolo. We are one of the most resilient banks in Europe. Net income exceeded the €3,000,000,000 target for 20. Insurance income was the highest ever and commissions accelerated in Q4. We boosted NPL deleveraging, meaning we beat our full year business plan target 1 year early.
That is on top of NPL stock that was at the lowest level ever. Our rock solid capital got even stronger, And we allocated more than €6,000,000,000 as a buffer to succeed in the coming years in making the bank even stronger for 2021 and beyond. In May, we will pay the maximum allowable dividend The UBI combination is well on track and synergies are above our original estimate. So Intesa Sanpaolo is fully equipped to succeed in the future and deliver over EUR 3,500,000,000 net income in 2021. Now I'm ready for your question and I'm ready to answer it probably all the details on these figures that are really very important for our group.
Thank We can now take our first question from Antonio Real from Morgan Stanley. Please go ahead.
Hi, good afternoon. Thank you for the presentation. It's Anton here. I've got 3 questions, please. The first one is on dividend.
We've seen other banks state their intentions. And I mean, you had made your intentions very clear, I would say, well before today. But I want to make sure I understand correctly what you intend to pay. So I think you've said you want to pay 3 dividends this year, 2 based on Your 2020 fiscal year net profit and one being the first half twenty twenty one as an interim. Now if I do the math Correctly, you may end up paying a large €0.18 and up to €0.20 EPS this year depending on some of the split over the interim dividend.
First, is that roughly correct assumption? And secondly, if so, what makes you confident you'll be able to pay this? Have you discussed this with ECB? I'm trying to understand how much of this is sort of strategy starting high, inflating the proposal to converge to a lower level with ECB? Or you've actually Already had a conversation with the regulator and you're confident you'll be allowed to pay.
So that's my first point. The second question is on your synergy guidance. I mean, you've increased it from €700,000,000 to €1,000,000,000 I understand The bulk of which you said is mostly coming from revenues. Can you give us the breakdown of the revenues versus cost? And can you maybe give us a bit more color on the bridge over 2021 2022, please?
That's my second question. And lastly, just on the NII outlook for next year. I will see new revenue drop in Q4. Inevitably, this affected your NII in the quarter. I would like to hear what you expect to see Into 2021, also conscious of your sort of changes to the bond portfolio you were mentioning earlier.
Thank you.
So thank you very much. And on dividends. So you know that the attitude of Intesa Sanpaolo and my personal attitude is To pay dividends and cash dividends, that's our priority. The point of giving 3 different series of dividends is The purpose is we have, so we have the intention to pay on May the compulsory amount of dividend, the amount that we can be authorized today from the ECB that is roughly €700,000,000 Then in the last part of the year after the approval of ECB, so the removal of the ban On the dividends, we are ready to pay another more or less €1,900,000,000 for dividends. And then In the last part of the year, we are ready also to pay an interim dividend on the net income of 2021, in this case, subject to the approval of ECB and EGM because we are going to change the bylaws in the next EGM.
So that's The intention of the bank. From the side of the supervisor, our The formal positive view is on the payment in May of 700 I think that if there will be a removal of the ban on dividends, It could be easy to be authorized on paying such dividend, but we have not The formal authorization of the ECB today and in a sense could be impossible to have an authorization In a phase in which there is a ban on dividend, I'm really confident that The promises that I'm and the commitment that I'm now taking towards the market can be Really respected in the first in the final part of 2021. I think that the strong capital position of the group, but especially the massive deleverage that we realized because The very important part of the story of this figure, as I anticipated in November, is The complete cleanup of the only point of weakness of Intuita Sanpaolo in comparison with other peers that was it used to be The next deleveraging that as I told some few minutes ago, It could be another net €1,000,000,000 or something absolutely negligible in terms of execution task. Now we are at 3.7 percent EBA gross nonperforming loans.
So we are in a cluster of banks that if you make comparison in Sao Paulo with the other banks and if you look the excess capital It was based on an analysis that considered an NPL ratio of 7% because the starting point of the balancing between common equity and non performing loans until 3 months ago was 7% non performing loans and 14%, 13% of common equity. Today, we are in a completely different situation. So it would be unbelievable not to be authorized to pay dividends if there would be a removal of a ban. So I'm really confident that Subject to the approval of ECB for the removal of the ban and for the inter dividends also EGM of the group, we will be in a position to pay significant amount of dividends during 2021. And preparing also the new business plan in which the future possibility to give back a significant amount of dividends to our shareholders would be in any case another priority Because with this €6,000,000,000 of gross income that we decided to allocate for future profitability, We are talking about something that has an immediate impact on economic and net income because if you make integration charge because people are leaving the organization, we will have for sure a reduction in cost.
We like production in branches. If you have the massive deleveraging on performing loans, we will not have more An impact on provision on the stock. If you make a provision on performing loans and especially on the loans That can be in difficult situation in the future because we made an analysis Case by case, you will prevent to have increase in provision in the next year than the future. So I'm preparing also the condition to continue to give really significant dividends for the future, maintaining strong capital base because it's a prerequisite to have a strong common equity and a very low level of risk. Looking at synergies, the increase in synergies, and believe me, again, we are conservative Considering the synergies, especially on the cost base, because the increase that we can have in amount of synergy can exceed the one that we are considered in these figures because the reduction of people and there is also an amount of reduction obviously further reduction of cost base as we demonstrated in the past years in which we were really able to match The reduction of people, the reduction of branches and so the possibility to have an extra impact on the cost base.
Our expectation on synergies for 2021 can be more or less 20 percent of the total amount of synergies and in 2022 will be between 50% 55% of the total amount of synergies. But we are working hard in order to create room for further cost reduction for the future. Having in mind that looking at provision, we made all the job in the majority of the job in these figures. On NNI, we made we decided to make not only the complete reassessment of the credit portfolio in this with these figures, but also the reassessment of the concentration between Enteo Saopaolo and UBI of the portfolio looking at the concentration of sovereign government bonds. So we decided to make a massive reduction of the portfolio in order to be sure that we can manage 22 with the right concentration risk.
So this does not means that for the future, we would not have an increase in the dimension portfolio. But this means that we reallocated the concentration of the portfolio, and now we can move with The combined at the level of concentration risk that we consider the right one that was more or less The one that we had in the 1st 6 months of 2020. So looking at These figures, 2021, I can tell you to 2020, in order to prepare for 2021, I can tell you that we made really a hard job, but I'm completely satisfied of what we realized and what we possibility of paying really significant dividends for the future.
Thank you, Tiu.
We can now take our next question from Pamela Zlulakka from Credit Suisse.
Hello, good afternoon. Thank you very much for the presentation and for taking my questions. I have two questions. The first one is, Last quarter, you were guiding for a minimum of $3,500,000,000 net income excluding UBI. And this quarter, you're guiding for $3,500,000,000 next year including UBI.
Can you maybe walk us through the bridge of what has happened with this changing guidance? And then the second question is on capital. There are a few pro form a ratios to go through, but just picking the fully full loaded of 15.5% in Q4. Can you maybe walk us through the developments of what you expect over the course of 2021, including any potential estimates on regulatory headwinds that you anticipate for this year? Thank you.
Thank you very much. So Looking at the guidance, let me tell you that the 2021, looking at the UBI figures, is an year in which we will have In a couple of weeks, a reduction of the dimension of volumes And net income because we will give branches and assets and liabilities and so net income to Could be 20%. We decided to make to put a minimum level because the guidance Is that we will deliver more than €3,500,000,000 not entering into a specific contribution coming I have to tell you that I consider these estimate really conservative so that the floor is Really conservative because we did the massive deleveraging that we realized Also the guidance of below 70 basis points of cost of risk is something that we can easily achieve and overperform. So we decided to use The over €3,500,000,000 to leave possibility to have some room of adjustments during 2021, but our commitment is to absolutely over deliver on this amount. But I'm really confident of this.
So the kind of effort that we made using the economic figures of Intesa Sanpaolo, so putting more than €2,000,000,000 for COVID provisions and using the bed wheel of UBI putting another gross €4,400,000,000 in provision and integration charges lead us in a condition to say that we Absolutely, easily over deliver €3,500,000,000 net income for 2021. Looking at the ratio, so the Fully loaded starting from 15.4%. We will have for sure an increase To be fair that as I told you, we bring also a reduction of net income obviously, but at the same time with A significant benefit in terms of the common equity because embedded in the 14.4%, you have already The usage of the portion of the negative goodwill. So the bad will is related to the disposal of the branch. So the negative was already embedded in these figures, but we have not the positive that is the reduction of risk weighted assets.
So this will bring us another 50 basis points of benefits on the fully loaded. And so Today, we are at 15.9%. Then looking at the evolution, we will have during 2021 The remaining parts of the EBA guidelines negative impact, there should be 35 basis points. That's our estimates. And this will be negative on the common equity.
And then the activity that there is weighted assets improvement in case of growth Not related to government guarantees. So that will be a part of a possible increase. Then we have reduction of risk weighted asset deriving from the activity that we are used that we are making each quarter in terms of increasing collateralization, improvement and cleaning So my expectation is that the trend on this ratio could be initially this. Then paying the remaining portion of the dividends Of 2020, at the end of 2021, we will have another 50 basis points reduction in the Fully loaded. So looking at the just to give you three numbers, 60 basis points improvement could be between 50 60 basis points that the disposal of branches to be per.
There could be a reduction deriving from the payment of dividend in After October, if we will be authorized by the ECB to reduce from the EBA guidelines. And at the same time, there could be some positive deriving from a collateral increase and the usage of guarantees that can more than compensate some increase in risk weighted assets.
Thank you.
Our next question comes from Andrea Filtri from Mediobanca. Please go ahead.
Yes. Thank you for taking my questions. The first is on the Moratoria. You had a very large expiry this quarter. If you can elaborate a little bit more about what is left and what should we expect from this?
And then second question relating the deposits and the evolution of GOV is, if the very large increase in deposits And the drop in government bonds you elaborated on. Two questions here. The first is, if we are then to expect an increase In the deposit guarantee fund contributions and if so, how much? And secondly, If you have a kind of corridor of minimum and maximum tolerance of exposure of your government bonds portfolio along the course of your normal activity now that you have normalized the ratio for the UBI acquisition. Thank you.
Thank you, Dio. So looking at Monatoria, we at group level, so considering ISP and UBI have Today, €33,000,000,000 of stock of Boratoria. The default rate by clients that are operating in sector with some form of vulnerabilities and only 1% of this client is can be considered high risk. So net net, I have to tell you that I do not consider this area as an area in which we can have Some massive negative surprise not already considered with the increase in provisions that we made on performing loans in this economic account. Looking at deposits, the massive increase of deposits is something that we are trying to manage through actions that can bring positive on asset under management.
You know that our target is To work on this area in order to move into wealth management, the amount of The deposit that are workable now reached €90,000,000,000 so with a massive increase during 2020. We think that we can accelerate for 2021 in conversion of a portion, a Significant portion of these into wealth management product, both mutual funds and insurance products. So through these actions To reduce deposits, we do not see significant risk of increase in contribution from the for the deposit guarantee scheme. We would see in the next months if our actions can be positive. And There could be also a reduction of uncertainty in the country as in the world because the situation When I'm talking about the €90,000,000,000 is a portion that we think is in our figures But we do not see significant risk of any increase in contribution.
Looking at government bonds, The reassessment of the portfolio that we made in the last part of 20 'twenty was to reach a concentration that could be close to 40% of the Italian government bonds. Then The maximum amount that we can reach according to our risk appetite framework is with 50%. I have to tell you that the expectation is that during 20 'twenty, we can have an increase in the total volume of sovereign bond. Then in the Corporate and Investment Banking Division and the Treasury Department will decide how to allocate this portion. In January, And we started to increase the dimension of the portfolio, the combined portfolio in Terre Sanpaolo and UBI, but more or less maintaining this level of concentration.
And I think that for 2021, There could be possibility to remain within this range of 40%, 50%.
We can now take our next question from Domenico Santoro from HSBC. Please go ahead.
Yes. Hi, good afternoon. Thanks for the presentation. Just a couple of follow-up on my side. First of all, I mean, the leverage, the derisk in the quarter is quite impressive.
It's almost €15,000,000,000 of NPE of €15,000,000 if I exclude The disposal branches. Can you walk us through these numbers quarter on quarter? I mean, apart from the €5,000,000,000 GACs that you just finalized at the end of the year, how much You intend to do to dispose in a way how much is already done. I read the press release of UBI, and I guess there was also GACS involving the NPE of Udi. I know that you are charged already over the losses related But just to give us a bit an idea, again, that the deadline for everything is end of 2021.
Then related to this, How much of NII will be lost because of the disposal? And how much you have already considered in the Q4? Thank you very much.
So that's a very, very good and smart question, especially related to the reduction net interest income because there is in any case a price reduction of non performing loans. But I want to start from the what we have to do in 2021. So just to give you 2021, we have to realize a reduction of €5,400,000,000 gross and a reduction of €2,100,000,000 net of combination ISP and UBI, Out of which, in 2 weeks' time, we will have a reduction of 1.4 gross And one net, that is the portion that will be moved with the beeper branches, volumes and so on. So the remaining part, so the part that we will have to deliver starting from the next 2 weeks Is €4,000,000,000 gross, ISP and UBI and net €1,000,000,000 So that's the parts that we are still to deliver during 2021. We are in advanced conversation for finalizing the disposal of these remaining net €1,000,000,000 and we are really confident that we will easily make this in the next month.
So the 3.7 EBA non performing loans ratio, I have Cannot reach the disposal of this reduction EUR 3,100,000,000 ISP €900,000,000 of UBI gross. In terms of net, it's more or less 50% of the €1,000,000,000 that I told you. So Something that I have to tell you in my view is easily reachable. Looking at net interest income, It is clear that we made such a transformation of our non performing loss base. So if you consider Just 3 months ago, some months ago, we were at 7% Gross non performing loans that more or less would have been 6%, 6.5% EBA.
Now we are at 3.7%. So the reduction is all deriving from reduction of loans. The estimates of reduction of net interest income could be above €100,000,000 in 20 21, so between $100,000,000 $150,000,000 then we will have more precise figures During the Q1 of 2021, but in any case, reduction is So a part of the dynamics of revenues in 2021. Then from the other side, We will have a significant number of positive net interest income that compensate will compensate this negative See that as really strategic for the future of Vint Cerda Saopaolo.
Can I ask you also Whether the purchase of Lombarda Vida, the minorities related to Lombarda Vida and the Primerica, they are Already accruing the capital this year, please?
Yes, already, already accrued, yes.
Thank you
very much. Thank you.
We can now take our next caller from Britta Schmidt from Autonomous Research.
Yes, hi there. Thank you very much for taking my questions. They've almost all been answered actually. Just Picking up again on the last question on the insurance joint ventures that are in capital. There is a comment on your slides to say that there could be further earnings improvement to come from buying in minorities.
Are there is there anything else that we should bear in mind? And is there anything that you would flag therefore for the 2021 CET1 ratio to move as as well. And then just a question on NII. What was the TLTR was the impact that you've included in your net interest income. Do you intend to increase the TLTR drawings to increase the benefit in NII?
Thank you.
So thank you for your question. Looking at the insurance Management, we didn't we have not considered into the estimates of synergies the 100% acquisition of these factories that we made in the last part of December. So we have room to improve. So the synergies with no significant impact on capital deriving from this acquisition. And missing there are only minor impact.
So I don't see significant further impact on our capital ratio due to this cleaning of the participation of the UBI Group. Looking at the sorry, could you repeat the second question? Sorry.
The second question was just on the TLTR-three, what was included in the net interest income in the quarter and whether you to increase the drawings in March in the auction?
Yes, yes, yes. Okay. So we had an increase in contribution from From TLTRO in terms of positive in this quarter, that was in the range of €25,000,000 €30,000,000 improvement in contribution. And we think that During 2021, we can increase the usage of TLTRO. We have the total amount today It's above €80,000,000,000 considering the UBI Group.
We can reach more than €100,000,000,000 during 2021 and we will see in 2021 if this amount can be further exceeded. So we can have further contribution during 2021 coming from this increase in usage of the TLTRO3.
Thank you.
We'll now take our next question from Nicolas Spenga from Intermonte. We have lost that caller. We will now go to our next questioner from Alberto Cordara from Bank of America.
Hi, good afternoon. So my first question is about capital. You reported a very strong figure. I was expecting it to be Down circa 50 bps quarter on quarter because on the one side, you have the use of the belt wheel, which is only partly compensated by the write back of a portion of the dividend. So Can you explain to us, I mean, it's the 2nd quarter in a row where your capital number is incredibly strong.
And I'm just wondering what is the your ability to generate the capital on a large basis. It seems to be Particularly high. Maybe there was an issue of software intangible that have this number, but I just wanted to Understand a bit better why you have such a strong print. And then in general, I mean, congratulations. I mean, The NPE ratio now is at very low levels, is a sea change, is completely transformational.
You have a lot of capital, so this is going to completely change, I guess, the way you conduct your business. In that respect, does it make sense for Entis to look at additional acquisitions, maybe European acquisitions? I mean, now you have, For all accounting purposes, you are already one of the best bank in Europe, but now it's difficult to find the comparables. In terms of I think a question that it was asked to you, sorry, just another point. What default rate should we expect when the moratorium expires from this pool of loans under the moratorium?
And which part of the 70 bps cost of risk is covering that? And then finally, I think this is From my perspective, the most important question. Do you think that what will be your advice to Draghi? What are the priorities for Italy? And do you think that we'll succeed?
Thank you, Alberto, especially for asking me an advice to Draghi. So it's really a question of a real friend.
There are not too many people that can give him advice. I think you're one of them. So that's why I'm asking you.
So starting from my favorite job, but it is to make the CEO of Intesa Sanpaolo. I start from capital and The full trade and then I can elaborate on what Italy can need Because Intesa Sanpaolo can benefit from an improvement of the situation of real and social economy in Italy. So asking And answering to your last question. So looking at capital, it is true, we have inability and the potential to generate improvement of capital quarter by quarter. In this quarter, we have been helped by 30 basis points benefit coming from the software.
So that's the impact of the benefit of the software. At the same time, We continued in the action of continue to make some cleanup of Then moving from loans without state guarantee into loans with state guarantee that improve the risk weighted assets of the portfolio and also improving the quality of our portfolio through an increase of the area that are more related to the investment grade portfolio. At the same time, we benefited from a reduction of the spread BTP Bund. So net net from a strategic point of view, What I can tell you is that this action of working on risk weighted assets can continue also in the next quarters. And so we think that we can improve our work on optimization of risk weighted assets.
Looking at our job on nonperforming exposure and This is transformational, but this is also something that can improve our ability The cost of risk in the past of Intesa Sanpaolo was absorbed by the stock on nonperforming loans. So the inflows Used to be not significant in the last 2 years, but the stock was for sure impacting Of the stock that was the one with the lowest vintage With the amount of collateral that is really significant, I can tell you that The most important part of the future dynamic of cost of risk will depend on inflows, so on of new inflows. And moving into the 3rd part of the question, then I will talk about acquisition. Looking at the default rate, I can tell you that the majority of the Future cost of risk of the group will be related to new inflow. Our expectation is not to have such a massive impact coming From the Moratoria, as I told to Andrea in my answer to his question, Today, we have below 1% default rate.
So if we consider 2%, 3% default rate, In my view, it is already conservative. But in any case, the majority of the cost of risk will be related portion of what we think can be a deterioration in terms of some forms Of the forward looking probability of defaults. So we made a massive work client by client. So we have action plan client by clients for all the clients that are in the moratoria and also for the other clients that we think can have some kind of vulnerability In 2021. So the portion of our performing loans that we decided to increase in terms of provision is related to the possibility not to have significant impact in 2021.
So I consider conservative our guidance In terms of below 70% of cost of risk for 2021, but what I consider really strategic is for 2022 because we will not have stock. And at the same time, we will have benefit from a clear exit from this pandemic situation. So we create a condition to have really a massive increase in profitability starting from 2022. Looking at the additional acquisition, acquisition are positive issue can create synergies. And our deal with UBI, in my view, has been really A fantastic transaction from any kind of perspective, really Good transaction because people in UB are very strong.
So the quality of the people About €1,000,000,000 of gross income coming from a transaction at 0 cost in terms of common equity because we increased also common equity. So improving the risk profile of the group profitability at 0 cost for shareholders. Sorry, just to make it easy then, in any case, there was a capital But from a common equity perspective, it was really self financed. If you are able to find some deal that can create synergies, It makes sense to make acquisition for your shareholder. Otherwise, it is really difficult to say that you can enter into a deal just because you can become bank that can have a much higher dimension.
So I think that Today, there are no option that can create synergies for Intesa Sanpaolo that can create values for our shareholders. That's my view on this point. Looking at the Italian situation, I have to tell you that I think that President Mattarella made The choice of a real wise and The most important figures that we have in Italy in terms of reputation that is Mario Draghi. So the Mattarella choice and Reputation of Draghi is absolutely top in the world, not only in Italy. What I think we need In Italy is to work in terms of sustainability of growth and inclusive growth and working with a significant attention to inclusion, poverty and key to the employment.
So we have to pay a lot of attention like in all the other countries to what Is the situation of the poor people in the country. I think that The working poor, as all the other countries in the world are the absolute priority strong Europe because Europe is absolutely to compete with USA and China. So The most important part of the story is that Europe need to be at the level of USA China and only with Italy strong, Europe can be strong enough to compete with USA and China. That's my view.
Thank you very much. Thanks a million and congratulations again.
We can now take our next question from Jean Francois Neuez from Goldman Sachs.
Hello, sorry, I was on I'm still not used to unmute on time, sorry, apologies. Just wanted to ask as a follow-up to the previous question on merger. So I understand from your questions that You think that from here it's going to be difficult to find attractive opportunities to redeploy capital inorganically? At the same time, as was highlighted several times before in the call, you have obviously improved your capital buffers way beyond what Was originally planned, in particular, in the course of the last two quarters. So your distance to SREP is extremely, extremely high.
In the past, there were years, in particular earlier in the 2014 business plan, especially where you paid more than 70% or 75% payout ratio. I just wanted to understand that from here, even Starting from what is already one of the most generous dividend policy in the sector, what you intend to do with the capital buffer that you have currently available at the bank, whether there is any intention to redeploy this further, either organically or inorganically or how the capital return policy can evolve?
So thank you for this question because it is really part of The new business plan that we are working on because in reality all the work that we made At the end of the year, it has been part of the substantial business plan. Then we will present a formal business plan as soon as we will have a clear exit from the pandemic situation and also the exit from the ban from the ECB on dividends because it is not easy to talk about capital redeployment when you have a situation in which You are in strong attention from the supervisor looking at a dividend with a limit in terms of payment or dividends. But it is clear that the area of growth internal or external, so through growth trend. So growth in terms of opportunity of increasing Your current portfolio of business unit or growth looking at acquisition or The other part, redeployment of capital are a key part of the job in terms of strategic decisions. So looking at the portion of working on our current business unit, we will increase penetration, profitability from our current business unit.
From the portion of acquisition, as I told, It is difficult to create synergies. So I do not see significant opportunity of working on acquisition. On the other side, the exercise of Making the right level of excess capital because again, I want to point out that Today, we have a substantial excess capital that is of much higher quality In comparison to 3 months ago, because 3 months ago, we had an incredible excess capital with significant stock, Significance in terms of comparison with the best in class of nonperforming loans. Today, we have And within the end of 2021, we will, for sure, making the disposal of the missing €1,000,000,000 net non performing loans that we have in our IFRS 5. Looking at the substantial excess capital, we have much higher excess capital because the capital is there in order to face unexpected losses.
And if you reduce the amount of non performing loans, it is clear that also The possibility to have unexpected losses could be reduced. So Just to give you evidence that the part of the story related to what is the real level of excess capital And the kind of usage in order to redeploy capital because for 2021, we consider The cash dividends as the real priority for Inter Sao Paulo and for the shareholders of Inter Sao Paulo, especially because We had this limit not to pay dividend in the last So 2 years. And I think that international investors, foundation and retail investors want to have cash, Not buybacks. That's my personal view on the situation. There is for sure a preference if you are able to pay cash to pay cash.
Starting from 2022, that is the job of the new business plan in which we enter with An incredible very low risk profile and a massive potential increase in terms of net income deriving massive reduction or provision deriving from massive reduction of stock on non performing loans, we will consider all the different opportunity to make our shareholders happy. I'm not a fan of The buybacks for the reason that I told you because I think that in this phase, the majority of our Shareholders could prefer cash and if you are in a position you can give cash. For the future, when we will have assessed The excess capital position looking at our business plan and we have negotiated with the ECB The right level of capital because in any case, it is clear that we will have Of excess capital, we will consider all the instruments that can be that can
We can now take our next question from Benjie Creelan Sandfort from Jefferies. Please go ahead.
Yes. Good afternoon, everyone. And just a couple of clarifications from my side, please. To go back to the €15,000,000,000 reduction in NPLs this quarter, You called out the $5,400,000,000 that's been moved to held for sale. I was just wondering if you could clarify the rest of the move down this quarter.
How much That was driven by crystallized disposals in the quarter versus write offs versus recoveries. And the second was on costs. Just to clarify your earlier comment, I think you said 20% of cost synergies could be achieved in 2021. I just want to check if I heard that correctly. And in relation to costs, if we look at the costs We're down about 3% year over year in 2020.
Do you think that trend in the standalone business, as it were, Continues or is there any portion of the cost reduction that we saw this year temporary in nature given COVID etcetera
So I will start from The second question and then I will elaborate more on non performing loans because I want all of you to be sure of what we have done on this point because I consider the real transformational deal that we created on nonperforming loans as The final move in order to position Intesa Sanpaolo as really one of the best players in Europe. So looking at cost synergies, When I talk 20% is related to the total amount of synergies, but I have to tell you that the majority is cost synergies Because the revenue synergies can be accelerating started from 2022. So 2020 is majority related to synergies. But let me tell you what is My view on the real situation of the cost side of the bank. 2021 is a year in which we will have a significant number of actions that we will put in place, especially in terms of acceleration of reduction of branches.
So my experience in the last two years has been that if you are able to create condition In order to reduce people and reduce branches, so if you create the right match between the reduction of branch Or reduction of buildings, sorry, also reduction of real estate. So if you close buildings, you close branches, You remove the total amount of cost related to inactivity and you Use people that you can move or people directly in order to reduce The cost base. The embedded reduction of cost that we will have in 2021 deriving From cost, personnel cost, we'll have to be considerate also Having in mind that in 2020, 3,000 people we had a 3,000 people reduction In 2020. So this will bring a total impact, full impact during 2021. Then You will have the other portion of reduction that we will start according to the 7,200 people that will start to leave the organization.
But in 2021, we will have the impact also what we created in 2020. So the 2021 could be probably the year in which we will have Not such a significant reduction in comparison with 2022, 3 and 4. Looking at the standalone UBI, I have to tell you that I think that looking at the combination of the cost of Intesa Sao Paulo and UBI, we have such room in terms of reduction of any kind of cost, especially negotiating with suppliers because the majority of them we are now the most important clients by definition. And in the synergy, we have already considered an action of negotiation or pricing with suppliers. My experience, especially in the case of The other acquisition that we made in Italy is that the impact can be much higher than the synergies that we can declare to the market.
So Looking at synergies, I cannot tell you that we were reduced by minus 3% cost in 2021 because this year It could be an year of in which we will have also to consider some reinforcement of cost. But in any case, the trend would be negative in terms of cost reduction. There will be significant cost reduction starting from 2020 And then moving 34. In looking at the non performing loans disposal Some write offs, some collection, but if I have to tell you that the real majority more than 80%, ninety
Thank
you. Thank you, Drew.
And our next question comes from Andrea Barcelone from Exane. Please go ahead.
Good afternoon. Two questions on my side. One is on the outlook and the other one is detail on capital headwinds. On the outlook. I know it will be subject to the new business plan, but you used to have a €5,000,000,000 net income target for 2022, which it's no longer mentioned in the press release.
I just wanted to know if it's still what you had in mind, if it's not yet a formal target Or we should not base any thoughts on that anymore. And also For 2021, the target of €3,500,000,000 minimum net income. I just wanted to confirm that, that excludes any possible capital gain On the Ubi side, for example, since they mentioned up to €350,000,000 in the business plan Or DTA Bright Up, if you were going to do some. And in case there were To be some capital gains and or some DTA write up, would you treat them as distributable For dividend purpose, are they part of your 70% payout ratio or not? And then just a detail on capital.
You mentioned before the 35 basis regulatory headwinds that we knew about linked to EBA guidelines in 2021 UB, in their prior guidance, had also indicated regulatory headwinds, which I believe were 90, 100 basis points cumulative over the next 3 years. I just want to know if you have done any analysis on that And if we should also expect a little bit of a headwind coming from that. I know it's not very material, Even if there is one, but I just wanted to know if it's something that you have looked into already. Thank you.
Okay. So thank you very much. We I can start from the first point. On the €5,000,000,000 I can confirm you that €5,000,000,000 is what we consider the starting point for 2022 in the next business plan. But due to the fact that I want to work as soon as I have a clear view on the exit from the pandemic and especially from the ban from the dividends from the ECB, it is likely that we will Prepare the business plan at the end of 2021, so to be presented on the figures 21 at the beginning of 2022.
So the formal indication of the target that we start with the year end 2021. But if you look at the kind of actions that we made with these actions In 2020 figures, it is difficult to adapt that the acceleration of profitability in case of exit from the pandemic situation. It is clear that it was also the assumption of the The €5,000,000,000 that we gave to the market when we make the acquisition of UBI. And in a positive GDP environment, the massive reduction of cost and we will have 50% of synergies placed In 2022 to end the massive impact on the reduction of cost of risk Deriving from reduction on nonperforming loans and the recovery of the positive GDP coming in 2022 will bring us in a position to have a significant rebound in terms of net income. We decided not to Continue to talk about 2022 because this will be part of the business plan.
But My absolute view is that the €5,000,000,000 are absolutely achievable and more than achievable through this action that we put in place at working on this balance sheet 2020. Looking at the payout ratio, payout ratio will be on the stated net income. So in 3.5, There are no significant capital gain, but if we will realize capital gain, we will pay dividends also on capital gain. Looking at the regulatory headwinds, I can confirm you that The analysis that we made is at the group level. So we think that we can have 35 basis points.
And if there are 38, we would see. But in any case, this is the amount of negative that we can consider at the group level coming from regulatory
Thank you, Jim.
Next question comes from Ignacio Cirrizo from UBS. Please go
ahead. Hi, good afternoon. Thank you for the presentation. Two questions from me as well. Sorry to go back to the NII, I think you made clear that there are some headwinds coming from the NPL income reduction and ALCO portfolio, treasury portfolio disposals.
Think I understood that you see tailwinds compensating that. So I was wondering if basically those tailwinds will compensate the headwinds completely or we need Assume some slippage basically of the run rate in 2021 versus the Q4. And then the second question is on the trading. We have had a couple of quarters Well, the number is lower than in the first half of last year. Obviously, with the yield curve as it is, it might be more difficult basically to generate those trading gains without losing NII.
So just best approximation if you want in terms of the trading income sustainability into the next couple of years? Thank you.
So thank you for this question because so I will elaborate again on Net interest income, I think that the that's for sure, as I told, and that it is In a clear evidence of all of you, reduction on non performing loans will bring negative on net interest income. Looking at the Edge facility, so I can give you all my view on the different components. On the Edge facility, My expectation is that we would not have negative contribution or significant negative contribution, so negligible the variation of the hedging contribution. Moving into the financial contribution, so coming From portfolio, as I told, we are starting in increasing the dimension of portfolio. But the real impact on net interest income will be correlated with the trading income as you rightly I've told in your question and then I will elaborate on this point in connection with trading income.
On the commercial portion of the net interest income, our expectation is to have an increase in this area They can more than compensate the impact of The negative coming from deleveraging of non performing loans, it is clear that we will have to check quarter by quarter because To be sure of the real impact of the leveraging, we'll have to monitor quarter by quarter. But In the synthesis, I think that commercial activity, especially driven by volume growth, especially the volume related to state guarantees and international activities of the group can bring a positive contribution to the net interest income. Then The actions that we want to put in place to reduce deposits switching into our standard management can have Also a positive impact on Mardown because there could be a movement of deposit that are bringing negative carry on net interest income and we can convert into asset under management or insurance product. PLTRO will bring other positive contribution to our figures in net interest income. And so more or less, I think that there could be a compensation between commercial and deleveraging net interest income situation.
Then as usual, quarter by quarter, I will give you what could be The possible evolution in the future. What I want to focus is trading income. So that the reason why Thank you for your question because trading income are an area in which through The very good job that in our Corporate Investment Banking division that they made during nineteen-twenty 20 and also in the treasury department, we had the positive months. In this quarter, the sorry, in the last quarter, the reduction of portfolio was concentrated in order to work on the concentration risk. So not working in order to making a maximization of the trading income on ISP economic account, we decided to have trading portfolio trading income on the UBI portfolio.
So through the reduction of a portion of portfolio in UBI. So we still remain with a significant amount Capital gain and the Q1 in my view could be a very good Q1 looking at dynamics For the Corporate and Investment Banking division, but this also has a correlation with the volume of portfolio that you will see during 2021 and the impact on net interest income. So Net net, I think that there could be a positive contribution from portfolio to net interest income and also trading portfolio. But if In the division, they decide to accelerate positive on trading, there could be also some lower contribution in net interest income. We will see during this quarter and then we will make analysis and then we make a clear disclosure of this point to you in the presentation of the Q1 results.
Thank you very much.
Thank you.
And our next question comes from Delphine Lee from JPMorgan.
Hi, good afternoon.
Thanks for taking my questions. I just have 2 very quick ones. The first one is just on moratoria. So I just wanted to check The maturity of the €33,000,000,000 is it still around June? Or I mean, if you could give us a bit of split between kind of what we should expect in the next few quarters, that would be quite helpful.
And then the second question is On the guidance in terms of 2021, in previous years, I think you did make comments around what you expected on revenues in general. And Thanks for the comments on net interest income and trading. That's very helpful. But should we still expect some positive momentum in revenues in 2021 or has that become more difficult? Thank you.
Okay. So I was just waiting for your questions, so I can elaborate on all the different items of revenues. And then I will focus on Moratoria. So, and it is I think useful for all of you to have My view on the trend of the different component of revenues and also Cost and provisions in 2021. So you can have the clear view on what I'm working in terms So delivery to be completed in 2021.
So that's interesting, I have already elaborated. So that's, I think, Important also trading income. On commissions, our view is that we can have a good rebound in terms of commissions We are working in order to accelerate the movement from deposits into asset under management and insurance products working on assets under administration, but especially With a portion of €90,000,000,000 of retail deposit that we can consider manageable and workable in terms of conversion during 2021, both in the Private Banking Division and Banca de territorial division. So this is a priority. My people started again with the opportunity to make conversion and to work in order to move these funds into products of Wealth Management and Protection.
But in any case, Wealth Management, in my view, will be the main driver of increasing revenues in 20 21 in combination with insurance income because we delivered very good performance in insurance, Especially in property and casualty and especially in retail, no motor property and casualty products, we will continue to deliver Very good performance in this area. So this is another area in which we think to have positive trend for revenues. And so this is the combination of revenues in our expectation is something that can bring contribution to our net income in 2021 cost. We expect a reduction for exit of people, but you will have also some increase for incentive schemes because there will be an increase of profitability. We'll ask to our people, net net reduction of cost, reduction of administrative expenses with an increase in the trend reduction in 2022, 2023 and other years.
Looking at provision, we will have a massive reduction of provision, and this will bring to a net Income that in my view easily will exceed €3,500,000,000 of net income.
Great. And on the
moratorium? On the moratorium, sorry, okay. On the moratorium, our expectation is that the Spiring will be June because it is something that was according to law. And our expectation is, as I told In the previous answer that I gave to the question on Bratoria, we are working client by client. So we made analysis in the last months on the total amount of portfolio of clients that are under moratorium.
So for each clients, we are working in terms of actions that can bring to a reduction of risk profile At the aspiring time of the moratorium, so for June, we will have completed all the action plans for our clients. But also Today, I can tell you that we are not worried at all. The default rate is really minimum and we have absolutely under control The situation of the moratorium in the expiring in June of this €33,000,000,000
Great. Thank you so much.
There are no further questions at this time. I would now like Turn the call back to Mr. Messina for any closing remarks.
So Thank you very much. And really thank you again for being with us today and may you and your family Stay well and we will keep in touch during this month to update on our performance and then quarter. Thank you very much.
Thank you. That concludes today's conference. Thank you for your participation, ladies and gentlemen. You may now disconnect.