Good afternoon, ladies and gentlemen, and welcome to the Intesa Sanpaolo third quarter 2020 results call, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Keith, and I will be your coordinator for today's conference. At the end of the presentation, there will be a Q and A session. To enter the queue for a question, please dial star one at any time. 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, and welcome to our nine-month results conference call. This is Carlo Messina, Chief Executive, and I'm on this call together with Stefano Del Punta, CFO, Marco Delfrate, and Andrea Tamagnini, investor relations officers. Today, our team and all of you are joining this call from places that are affected by the second wave of COVID. Before I get into our results, I want to express my sorrow for everyone suffering or who has lost someone because of this virus. Please stay safe. As a group, we responded quickly to the emergency, and we are continuing to take concrete actions to care for our people and our customers, supporting families and companies, being an engine for sustainable and inclusive growth, and ensuring business continuity. ISP entered the pandemic in the best possible condition.
Our robust and profitable business model has out-delivered even under stress from pandemic. We delivered an excellent first nine months with resilient profitability and even greater efficiency. We further strengthen our balance sheet, improving our rock-solid capital position, and deleveraging NPLs to the lowest levels since 2008. NPL inflows were the lowest ever. In just nine months, we have already exceeded our full-year commitment to deliver a net income of at least EUR 3 billion in 2020. As you know, our rock-solid capital position is something that we are very proud of. In Q3, we delivered 100 basis points of internal capital generation, more than offsetting the impact of the integration of UBI. This means that we are definitely one of the most resilient and best-positioned European banks to return to paying dividends. Assuming, of course, that ECB allows it.
The integration with UBI is well underway. We have also used these first months to explore how we can deliver synergies in the most effective way, increasing and anticipating the EUR 700 million in 2024 that we originally assumed. Total synergies will definitely be higher. Leveraging on the higher-than-expected negative goodwill. These first months have also given us the opportunity to appreciate the high professional quality of UBI's people. I have also, and always called ISP a delivery machine. This remains true. We are ready to succeed in the future. Let's dive into our presentation for the details.
Slide number one. Looking at the first nine months, we delivered EUR 3.1 billion net income. If you include the estimate EUR 3.3 billion of negative goodwill from the combination with UBI Banca and EUR 39 million from the first two months of UBI contribution, stated net income jumps to EUR 6.4 billion.
Let me highlight that in Q4, we will decide how to allocate the negative goodwill to offset integration costs, improve future efficiency, and to accelerate NPL deleveraging, so that we enter 2021 as an even stronger bank, and with a tailwind. We do not consider UBI Banca's contribution affected by the annual contribution to the Deposit Guarantee Scheme to be indicative of UBI's future profitability. We already saw strong improvements in commercial performance in October. Our revenues benefited from strong growth in net interest income and commissions in Q3. Operating costs were down almost 4%, taking cost-to-income to 50.2%, one of the best ratios in Europe. Cost of risk, excluding the EUR 1.3 billion in provisions for future COVID impacts, is at 44 basis points. We further deleveraged EUR 1 billion of NPL in Q3.
The lowest-ever gross NPL inflows, coupled with increased coverage that will be further boosted in Q1 using part of the negative goodwill. Our fully common equity ratio is 15.2%. When excluding the impact from the combination with UBI Banca, common equity ratio improved by 100 basis points in Q3. More than ever, I want to thank our people for their hard work in achieving these excellent results in this very difficult environment. Slide number two. Thanks to our solid fundamentals built over time, we are fully equipped for a very challenging environment. The common equity ratio is well above regulatory requirements. We have leveraged more than EUR 36 billion of NPLs, always at no cost to shareholders. We have distinctive internal capabilities for proactive credit management, coupled with our strategic partnership with leading industrial players for the late stage.
We prudently set aside EUR 1.3 billion in provisions to face possible future COVID-19 impacts. We are an efficient wealth management and protection company with more than EUR 1 trillion in customer financial assets. We have successfully evolved towards a light distribution model. Our client appreciate our strong digital proposition. We already have around six million clients using our app, recognized as one of the best in Europe, and 12 million multi-channel clients, including UBI Banca. Slide number three. For all this reason I've just mentioned, Intesa Sanpaolo is well equipped to succeed in the future. We have solid fundamentals. We are very well-positioned to continue delivering best-in-class profitability, maintain a solid capital position, also taking into account the potential cash distribution from reserves in light of the 2019 net income allocated to reserves, subject to ECB approval, and deliver a high payout ratio.
UBI Banca is now an important part of this future. The combination is well underway, and we are confident we will achieve significant and higher-than-expected synergies with no social cost and very low execution risk. We will present the new business plan by the end of 2021 as soon as the macroeconomic scenario becomes clearer. Slide number four, Italy. The Italian economy remains resilient and can count on strong fundamentals backed by strong government intervention and significant EU financial support. In particular, the wealth of Italian households stands at EUR 10.7 trillion. The amount of debt held by Italian families remains very low. Italian companies have stronger financial structures than pre-2008 crisis levels. They are more profitable and better capitalized, as witnessed by the lowest NPL inflows ever.
The banking system is by far stronger than in the previous crisis, with higher capital, less NPL stock, higher efficiency, and more diversified revenues, and a lot of liquidity provided by the ECB at ultra-low interest rates. As a demonstration of the resilience of the Italian economy, GDP increased by more than 16% in the third quarter, while industrial production is expected to rebound by as much as 30% versus the previous quarter. Slide number six. Let's take a look at the points of strength that will sustain us in the challenging phase. In recent years, we have more than halved the NPL stock while increasing the coverage ratio that will grow significantly in Q4, thanks to additional provision to accelerate deleveraging using part of the higher-than-expected negative goodwill. Let me say that in the coming quarters, we will deliver an impressive additional deleveraging at no cost to shareholders.
We have increased our rock-solid capital base. We achieved this through internal capital management, which in just one quarter, more than offset the impact of the combination with UBI Banca, while also paying EUR 13.4 billion in cash dividends over the past six years. We are very well-positioned to pay high and sustainable dividends. Overall, we have a very resilient business model with 56% of our gross income coming from Wealth Management & P rotection activities. Slide number seven. We are far better equipped than our peers to tackle the new environment because we have a best-in-class risk profile, we have one of the highest capital buffers in Europe, and we are one of the cost-to-income leaders in Europe. Slide number eight. We delivered the second-best nine-month result of the past 11 years. Despite the challenging environment, we have already achieved our net income target for 2020.
Slide number nine. Leveraging our top-performing delivery machine, we immediately responded to the COVID emergency, and we are continuing 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 10. As a key priority, we ensure safe working conditions for our people and business continuity for our customers through a large and effective set of actions. I'm also proud to highlight that in the first nine months, we hired close to 600 people, and 840, including UBI Banca. Slide number 11. We double down on our longstanding commitment to support society and the real economy, helping families and organizations impacted by the COVID emergency. In particular, we were the first in Italy to allow the suspension of existing mortgage and loans installment.
So far, we have approved the suspension of payments for EUR 66 billion of credit, both for families and businesses, including UBI Banca. This increased to more than EUR 80 billion. As of mid-October, the stock of loans under moratoria is EUR 37 billion. Stock is EUR 37 billion, EUR 48 billion including UBI. At the same time, we were the first in Italy to sign the collaboration protocol with SACE, and we have already granted EUR 8 billion guaranteed by SACE and EUR 16 billion with a state guarantee, EUR 19 billion when including UBI. Slide 12. As you can see, our strong digital capabilities have been key to guaranteeing business continuity. Slide number 13. The COVID emergency is shaping new trends, and we are ready to leverage our competitive advantages.
We are set to benefit from the growing demand for health, wealth, and business protection by leveraging our leading position in insurance as well in wealth management. We will take full benefit from our strong internal capabilities for proactive credit management and from our strategic partnership with leading industrial players for the late stage. The COVID emergency is rapidly shifting customer behavior towards digital channels, and we are very well positioned to serve them thanks to our best-in-class IT infrastructure and digital channel value proposition. At the same time, we are fully equipped to accelerate the digitalization of our employees' activities. Furthermore, society will need significant support, and we will play our role confirming our commitment in ESG. Slide number 15. The macro context in the first nine months of the year was clearly defined by the COVID outbreak, despite a strong recovery in Q3.
In this difficult environment, we delivered excellent results. Slide number 16. On this slide, you can see the highlights of our strong performance in the first nine months, despite a three-month national lockdown. Let me give you some color on the following pages. Slide 17. In the first nine months, we continued to improve across all key indicators. In particular, net income was 20% higher than last year when excluding the COVID provisions. We leveraged almost EUR 3 billion of NPL on a yearly basis, and our common equity ratio improved by 170 basis points on a yearly basis after deducting EUR 2.3 billion for accrued dividends and by 100 basis points, considering the impact of the combination with UBI Banca. Slide number 18. Our excellent performance allows us to create sustainable benefits for all our stakeholders.
In particular, the first nine months, families and businesses received more than EUR 65 billion in medium long-term lending, of which almost EUR 6 billion in Italy. Slide number 19. ISP is strongly committed to its role as an engine for sustainable and inclusive growth. You can go through the details on the next page, but for the sake of time, let's now move to slide 21. As a result of our efforts, we are the only Italian bank rated at the top of the main sustainability rankings, and we are very proud of this achievement. Slide number 22. Despite a challenging environment in these nine months with high market volatility and the country in lockdown from March to June, we delivered excellent performance driven by high-quality earnings, achieving our EUR 3 billion net income target for this year one quarter in advance.
Net interest income grew more than 1% compared to last year. Insurance income up 9%, driven by solid growth in non-motor P&C revenues, up 66% when including the component booked in commissions. We have continued to be very effective at managing costs, with personal expenses down 3.2% and administrative expenses down 7.7%. Depreciation is up as we keep investing for growth. Cost of risk, excluding the EUR 1.3 billion provisions for future COVID impact, is down to 44 basis points. We use part of the Nexi capital gain as a buffer to offset provisions for future COVID impacts. Net income is at EUR 3.1 billion, EUR 4 billion when excluding the provision for future COVID impacts, reaches EUR 4.4 billion while also excluding costs concerning the banking industry. Slide number 23.
Q3 has been very strong for net interest income and commission, which increased about 4% and 7% respectively compared to the previous quarter. In comparison with the same quarter of last year, net interest income was up more than 4%, despite the decline in market interest rates. Operating costs were down 5.3%, with administrative expenses down double digit. Net income is EUR 800 million when excluding the provisions for future COVID impact, and reaches almost EUR 1 billion when also excluding costs concerning the banking industry. Slide 24. In this slide, you can see that on a quarterly basis, net interest income increased by 3.9%, mainly due to positive dynamics on spread that benefited from better condition of TLTRO III. On a yearly basis, net interest income would have increased by 3%, excluding the impact of accelerated NPL deleveraging.
Nine months in retail and corporate deposits, which impacts net interest income in the short term. Continue to work hard to improve the aim of delivering a positive EVA strategy. Slide 25. Customer financial assets increased by EUR 20 billion in Q3 to almost EUR 1 trillion, also thanks to a EUR 6 billion increase in assets under management and reached EUR 1.2 trillion when including UBI. Assets under management and net inflows were positive by more than EUR 11 billion to the past 12 months, with an acceleration in Q3. In these nine months, corporate and retail deposit increased by EUR 31 billion. The increase in corporate deposits shows once more the resilience of Italian companies. Slide number 26. We continue to be very effective at managing costs. The main sources of savings were headcount reduction, real estate optimization, legal entity reduction, and a decrease in other administrative costs.
We had the lowest ever administrative costs. We reduced head count by about 3,000 on a yearly basis, with room for further cost reduction. In fact, in September, three months ahead of schedule, we signed an agreement with labor union for at least 5,000 voluntary exits and up to 2,500 new hires by 2023. On top of what I have just said, the combination with UBI will create further significant cost synergies, also leveraging on the higher-than-expected negative goodwill. Slide number 27. We are proud to have a best-in-class cost-to-income ratio, and this chart illustrates our leading position in Europe. I also want to highlight that the only two players who perform better than us in this ranking have significant operations in geographical areas with high margins that reduce their cost-to-income ratio. Slide 28.
NPL stock has continued to decline sharply, with 20 quarters of continuous deleveraging. We deleveraged EUR 2.7 billion in the nine months, of which EUR 1 billion in Q3, and we have almost reached, one year in advance, 100% of the target deleveraging of the 2018-2021 business plan. 100% of the target deleveraging of our business plan. The gross NPL ratio is down by more than 10 percentage points since the peak of September 2015 to 6.9%, equivalent to less than 6% by EBA criteria, and the net NPL ratio decreased to 3.3%. We recorded the lowest ever nine-month and quarterly gross NPL inflow. ISP has been able to deliver this impressive result at no cost to shareholders. In Q4, we will use part of the higher than expected estimate negative goodwill for additional provision to increase coverage and accelerate deleveraging.
Adding EUR 1.8 billion of additional provisions to the September's figures, the coverage would have increased to more than 57%, and NPL net ratio would have decreased to 3%. We have a further buffer up to EUR 1.8 billion, thanks to the higher negative goodwill. In the coming quarters, you will see further impressive deleveraging at no cost to shareholders. Slide 29. As you can see in this slide, loan loss provisions declined by 3.9%, excluding provisions for future COVID impact. As a result, the annualized cost of risk, excluding provision for future COVID impact, is now down to 44 basis points. Slide number 30. Our fully loaded common equity ratio is 15.2%, equal to EUR 22 billion of excess capital. In the third quarter, we internally generated 100 basis points that more than offsets the impact from the combination of UBI Banca.
Our capital buffer versus regulatory requirement is 660 basis points, well above our peers, and this figure also includes a EUR 2.3 billion deduction for the 2020 dividends accrued in the nine months. Our fully phase-in common equity ratio is at 14%. Slide number 31. Our best-in-class capital buffer versus regulatory requirements increased by 30 basis points in Q3, despite the impact of the combination with UBI Banca. Slide number 32. When it comes to capital strength, ISP continues to be a European leader. We continue to apply a deliberate strategy of low leverage with a leverage ratio of 6.6%, the best in Europe. Slide 33. We have a best-in-class risk profile in terms of the ratio of capital to financially liquid assets. By this, I'm referring to net NPL Level 2 and Level 3 assets.
ISP also enjoys a strong liquidity position with both the liquidity coverage ratio and the net stable funding ratio well above 100%. More than EUR 100 billion in excess with EUR 280 billion liquid assets, including UB. Before moving to the next section, here you can see the reconciliation between the income statements, including and excluding the effects from the combination with UBI Banca.
As I've already said, the contribution of UBI to the ISP group over the past months is not considered to be representative of its profitability looking ahead, and it was impacted by the annual contribution to the Deposit Guarantee Scheme. In the following slides, we provide an update on the most positive events of our nine months, the combination with UBI Banca. Slide number 36. As you can see from this slide, the integration of UBI Banca is well underway, with some actions even ahead of schedule.
We have already completed a large number of governance and business activities to speed up the integration. Let me highlight that we appointed UBI Banca's new board of directors. We signed the labor union agreement three months in advance for at least 5,000 voluntary exit and up to 2,500 hires with no social costs. We have almost completed the alignment of UBI Banca pricing policies to ISP policies for the retail business, and we have almost completed the alignment of the credit policies, and we completed the UBI Banca life, non-life, and health product catalog analysis, including comparison with ISP products. Slide number 37. We now expect significant synergies from the combination with UBI Banca, much higher than we could foresee in June. Our outside-in analysis showed expected pre-tax synergies of about EUR 700 million per year, of which EUR 662 achievable in 2023.
After an initial joint analysis, we now consider these estimates as a floor, both on the revenue and cost side. Once we finalize the analysis, and after allocating the negative goodwill to offset integration costs, improve efficiency, and to accelerate deleveraging, we will be able to communicate updated figures on synergies. Slide number 38. As you can see from this slide, the integration is well underway. Missing from this timetable are the opportunities ISP and UBI's people will have for sharing ideas over the coming weeks and months. ISP is a delivery machine. Quarter- after- quarter, we meet our goals and our commitment. We will continue to update you on the timetable for the integration. Slide number 40. We are a leading bank in Europe when it comes to excess capital, low leverage, and strong liquidity.
We have already provisioned EUR 1.3 billion in the first nine months to tackle future COVID impacts. We have continued deleveraging NPL to a low stock with robust coverage. We have a well-diversified and resilient business model, and we have one of the best cost-to-income ratios in Europe. We delivered excellent nine-month performance, with second-best nine months net income since 2008, already achieving the EUR 3 billion minimum net income target for 2020. Strong recovery in net interest income and commissions in Q3, strong cost reduction, lowest ever nine-month and quarterly gross NPL inflow, and significant strengthening of the capital position.
For these reasons, we are very well-positioned to continue delivering best-in-class profitability with minimum EUR 3 billion net income for this year, minimum EUR 3.5 billion net income for next year without considering the combination with UBI Banca, minimum EUR 5 billion net income starting in 2022, including the benefits from the combination with UBI Banca, maintain a solid capital position, deliver a payout ratio of 75% in 2020, and 70% in 2021. On top of a cash dividend from 2020 net income, we will seek ECB approval for a cash distribution to shareholders from reserves in light of the 2019 net income allocated to reserves. Today, we reviewed an outstanding set of results, all the more impressive considering the COVID backdrop. I can never thank our people enough for making all this possible. Thank you very much to my people.
In Q4, we will use the higher-than-forecasted negative goodwill to make the bank even stronger for 2021 and the following years. By the end of 2021, we will provide the market with a detailed plan for the new combined group as soon as the macroeconomic scenario becomes clearer. Thank you for your time and attention, and I am now happy to answer your questions.
Once again, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one to ask a question. We'll now take our first question from Alberto Cordara from Bank of America. Please go ahead.
Thank you very much. My first question is on the bad will. I see that you booked some EUR 3.2 billion, which is much higher than what I remember. I think your original guidance that you gave to the market was around EUR 1.2 billion of additional coverage, plus EUR 0.9 billion of restructuring costs. This number is EUR 1.2 billion, EUR 1.3 billion higher post-tax. Pre-tax, it should be EUR 1.8 billion. This is a lot more. The question is, how do you plan to use this? Are you planning to increase coverage even more or take additional restructuring charges so that you can boost even more your synergy guidance? My second question is on the Common Equity Tier 1. Standalone, we saw a very strong jump in your capital. Can you lead us through how did you achieve this result? We saw this particularly strong boost.
Again, with respect to my previous question, the badwill have yet to be allocated, which will have presumably a negative capital impact, but then you're getting rid of 15 billion of risk-weighted asset when you sell the branches to BPER. Net-net, what we should expect is a further impact from the UBI deal on top of the - 70 basis points that we saw in the quarter, and which were fully absorbed by your big jump in capital standalone. My final question is, core revenues is very strong showing in the quarter. However, trading gains as well as insurance income were relatively small if you compare Q3 to Q1 or Q2. I guess that you have in mind the delivery of the target of EUR 3 billion that you promised to the market, and therefore you didn't need to book any realized capital gain.
I just wanted to know if what I'm saying is correct, if my interpretation is the right one. In case it is, if you can roughly give us an idea of the amount of realized capital gains that you can carry forward into next year. Thank you.
Thank you, Alberto. A number of questions are really related to badwill and excess capital position, because it is true that we are in a unique position. We have this something we can call magic shield in order to be sure to avoid any kind of negative deriving from macroeconomic condition due to second wave of pandemic. We are in a unique position to reinforce profitability for 2021. We are the unique bank in Europe that has the opportunities to have another equivalent First-time Adoption in order to reinforce the profitability for the future.
Having said that, the extra negative goodwill, in my expectation, then obviously we will have to check and the final figures at the end year, but in my expectation should be used, first of all, to accelerate the leveraging on non-performing loans, to realize extra coverage, and to allow to accelerate NPL deleveraging in 2021 of this negative badwill. At the same time, if there are possibility to increase also integration charges related to cost side and in order to improve efficiency for the group, I will do all my best to realize that through the usage of the negative badwill. To tell you at the end of the story, the increase in profitability in 2021 could be massive through the usage of a significant portion of this EUR 1.2 billion net and EUR 1.8 billion gross of excess negative goodwill.
We can use this just because the possibility to manage also from one side, the reduction of spread has created condition to have 25 basis points improvement in our common equity ratio. At the same time, we decided to manage in the right way the management of the collateral, the accuracy process, and also the guarantee scheme deriving from the public. There are a lot of companies in Italy that are benefiting from a lot of investment grade A good companies that are benefiting from the guarantee from the state, and at the same time also high-risk company that are benefiting from this guarantee. Their attitude is due to the fact that this kind of funding is really not expensive. They are also reimbursing some portion of their exposure, and these are bringing to a structural shift in terms of risk-weighted assets in our portfolio.
This is a part of this improvement in the common equity ratio, the combination of reduction spread, public guarantee, accretion process, increasing collateral, a portion for 10 basis points of some models that we received in terms of approval, and the improvement in risk-weighted asset related to market risk through optimization of exposure in the different countries can put us in the unique condition to have such an excess capital that we can manage to use the excess net bad will coming from the acquisition of UBI in order to reinforce the profitability for the future. Looking at your third question on the dynamics of the impact deriving from the acquisition of UBI, we have now in this quarter, bad will and net bad will is also net of the negative impact coming from the devaluation of net equity related to branch disposal.
At the same time, we have in the risk-weighted assets, the risk-weighted assets of the branches that will be sold to BPER Banca. We have only the negative and not the positive in these figures. At the same time, we have not the usage for the integration charges. At the end, net-net, we can have another 20 basis points of impacts coming from the UBI acquisition. A portion is a positive impact coming from the disposal of branches, and the other one is negative, coming from the usage of the bad will for the integration charges. Timing could be different because at the end of the year, we will have the usage of the integration charges, so will be negative on the common equity.
At the end of March, we will have positive the recovery in terms of reduction of risk-weighted assets related to the disposal of UBI branches to BPER. This means that today we are in a range of 60 basis points, 70 basis points, the impact of the UBI acquisition. We can increase by another 20 basis points net that could lead at the end at an impact roughly in the range of 80 basis points. That's for the UBI acquisition. Looking at our core revenues, we have already reached the EUR 3 billion.
It is clear that there was no need to accelerate disposal of portfolio in positive position during September, and also in the insurance business, they made such a good job during the first semester with such an incredible growth in terms of insurance business that there was no need to accelerate also in this quarter. The amount of unrealized capital gain is really significant on our portfolio, and our expectation is in case of need to use in 2021. We will see what can happen, believe me, we have an amount of reserves that is really significant.
This is brilliant. Many thanks. Thank you very much.
Thank you. Bye.
We'll now take our next question from Britta Schmidt of Autonomous Research.
Yeah. Hi there. Can you hear me?
Yes.
Hello? I just assume that you can. Yeah. Okay, great.
Yes, I can hear you. Yes.
Two questions, please, if I may. Okay, perfect. The first one is on the evaluation reserves in equity. Maybe you can walk us through the positive moves that we've seen there, and perhaps also explain to us whether there's been any significant changes in capital deductions in this quarter to address the capital bid. On the net interest income, could you tell us what the benefit from TLTRO III was that you booked this quarter compared to Q2, and how much you accrue? Thirdly, maybe you can just give us an idea as to what regulatory headwinds, if any, we should expect for the combined entities or UBI entity over the next couple of quarters.
Looking at the reserve, we have no significant change in the evaluation reserves apart from the revaluation in terms of reduction of BTP and also a reclassification of the Nexi participation in our book that now is in this portfolio. There are no significant movement in this area. Looking at TLTRO, the benefit could be in the range of EUR 80 million in this quarter. Looking at the regulatory headwinds, I have to tell you that I do not see significant movements. There could be some benefit probably in the last quarter, some minor benefit in the last quarter, and some negative, the remaining portion of the EBA absorption. We still have 35 basis points within the end of 2021, but no significant other input in our best knowledge today.
We will now take our next question from Andrea Vercellone from Exane.
Good afternoon. I've got three questions. The first one is on the dividend/payout policy for 2020 earnings. I'm aware it's all up in the air, it depends on the ECB. You do have a management guidance, which is a 75% payout ratio. I just wanted to clarify the base for it. It used to be 75% of Intesa Sanpaolo standalone net income, or at least that's how I understood the guidance. In the call, you mentioned several times that you plan, if at all possible, to post additional, let's call them one-off charges in Q4 to boost profitability in future years, primarily on the NPL coverage side. This cannot all be on the UBI standalone book. It would just be too big, or at least that's my opinion.
If a portion of these additional cleanup charges is assigned to the Intesa book, from a dividend point of view, will you strip those out in terms of how you calculate the 75% or not? The second question is on the guidance for 2021 net profit, sorry, 2022 net profit of around EUR 5 billion. Should we assume that in there's no material impact from positive one-offs or implicitly you have factored in something? The final question is on the early retirement scheme that has already started. Can you share with us, I don't know if you can, if enough people have already signed up to be very close or above the 5,000 target? If there is a cap above which you would not go, even if more people sign up to it. Thank you.
I will start from the last one. We have already exceeded by far the 5,000 people. We have to enter into a process of evaluation of real requirements, because at the end, you need absolutely to check what are the declared conditions of the people working within the organization. We are well ahead our 5,000 indication to the market. We have time until 9th November to have the final applications. We have to check if all of them have the real requirements, and then also we have to check what is the real implication of a different number that can leave the organization. I want to maintain an approach of a real better understanding of the situation. Also considering the very positive approach that we had with trade unions.
I thank you again, trade unions, for the very positive approach that they demonstrated during this agreement, but also during all the life of my being CEO of Intesa Sanpaolo. We have to look at it absolutely sure to reach minimum 5,000 people that want to leave the organization with no social impact, because it is all voluntary, and that's also positive news from this side. The reason why I can tell you that I'm really positive on the implication of the situation of the possible agreement on these people. Looking at the dividends and the 75% and the usage of badwill, not badwill, and so on. I think that there is a possibility to use. Do not forget that we have a very good coverage at Intesa Sanpaolo, because 54% is a very good coverage.
We can improve the total coverage at group level through the usage of net badwill, also on the remaining portion of non-performing loans of UBI. We can also use for generic provision. There are a lot of room of usage of badwill without affecting the profitability of Intesa Sanpaolo. My expectation is that we will be in a position at the end of reinforcing the profitability for the future and also accelerating the NPL deleveraging process, because I'm really bullish on this point. I think that we can do a lot of work in terms of reduction, both of Intesa Sanpaolo and UBI non-performing loans.
I'm not worried at all at the possibility of giving very good net income usable for the payment of dividend, and so to maintain my shareholders happy as usual, apart from the limitation that I received from all the other European banks from the ECB. Believe me, I have clear view on the perspective of shareholders and what could be the real interest of shareholders if ECB will change the attitude on dividend. Looking at the EUR 5 billion, EUR 5 billion has no significant one-off component, it is profitability deriving from Intesa Sanpaolo, UBI, and synergies. That's the majority of the component of this EUR 5 billion.
As I told at the beginning of this conference, during 2021, we will work on the business plan. I hope to be in a condition to have a clear view on scenario that can allow me also to give the indication for the future trends of profitability of the group. The structural condition of Intesa Sanpaolo, the business model, the fact that we have increasing wealth management each day in our figures. We have such a very good position in terms of coverage, and also these unique conditions of badwill can allow me to tell that I'm pretty confident on the profitability perspectives of the group. At the end also to the possibility to give significant dividends to my shareholders, maintaining a strong excess capital in our organization.
Yeah. Thank you very much.
Thank you.
Our next question comes from Domenico Santoro of HSBC. Please go ahead.
Hi. Thanks for the presentation. Good afternoon. Actually, many question has been already answered. I have more curiosity. First of all, on the capital, I'm just wondering whether there is any intention to write up DTAs related to UBI, which probably, in a group context now are much smaller. I just wonder whether you can get that capital benefit. Second, on the synergies, the realignment of the pricing in retail and also the ATM withdrawal fees, I'm just wondering, probably this could emerge already as an impact on revenues in Q4. I was wondering whether they are relevant and whether they are positive or negative. Second, on cost synergies instead. I see that you will integrate the IT system relatively quicker in 2021.
I just wonder whether you can give us an idea of the phasing of cost synergies and whether, at group level, we should expect cost significantly down already in 2021. A question on the dividend. I know that 2020, 2021 is still uncertain, but given now that you have much more capital, I was just wondering if any preliminary talks have been already had with the regulator regarding to 2019, on which you seemed quite confident. Thank you.
I will start from the last one, because dividend, as you know, is my favorite topic. The point of ECB and SSM is clear. They want to wait for the new scenario of ECB that should be released, from the better of my understanding, at the beginning of December. Until the mid-December, it is difficult to have some inside information different from the facts that they need to have more time to understand the situation. At the end, on the other side, it is true that we have a unique excess capital position. We have, in my view, a very good risk profile in the combination of all different risk asset class. I hope that they can enter into a positive view on our perspective of paying dividends not only for 2020, but also 2019.
For the time being, their position is absolutely to remain on their point on the dividend ban. There's no opening in any case from their side. They want to wait for mid-December. At the time, we will have more clarity. Then we will have all the possibility to make decision, having in mind the constraints coming from the ECB. I cannot continue to tell that Intesa Sanpaolo is in a unique position and excess capital, especially if we decide to use a farther portion of the bad will in order to reduce non-performing loans, is absolutely useless for a bank like Intesa Sanpaolo. That's my position on dividends.
On cost synergies and IT cost synergies, we need to have some more months, so the end of December to have the real split and the impact of synergies, the real synergies, not the theoretical that we made in the plan for 2021. Probably in the next conference call, I will be in a position to give you all detail on different cost. Cost in 2021 should absolutely be in the trend of reduction. I'm not ready to approve a budget that can include an increase in cost for 2021. It is unbelievable from my side. That's for sure a clear indication to all the top management of the combined group. No possibility to have an increase in the cost base apart from extraordinary items that for the time being, I'm not in a position to understand. Trend should be in reduction starting from 2021.
Synergies in revenues. The October months in which there has been the first point of coordination between Intesa Sanpaolo and UBI has been a very positive month. The team is working both in Intesa Sanpaolo and UBI in a very good way. From my perspective, I'm very satisfied. Also looking at the retail network, there is a clear acceleration in terms of performance from the UBI performance. As I told in different occasion, the management team and the people within UBI are best in class. The combination with Intesa Sanpaolo would also lead to very positive results, especially in a sector like the part of the t erritory, that is the area in which it is possible to exploit the real synergies through the combination of the two groups.
If we look at capital on DTA of UBI, we will have to better understand the position also related to the extra provisions that we can create through the usage of the badwill. We will then have the final view on the total amount of DTA that we will create, both already in the figures of UBI and the other one coming from the badwill . Also from this point of view, we have to wait.
We'll now take our next question from Antonio Reale from Morgan Stanley. Please go ahead.
Hi. Good afternoon. Thank you for taking my questions. I just have one follow-up on dividend and two more questions. The first one on the dividend, I think you spelled out your intentions quite clearly. What do you expect you'll be able to pay realistically? In other words, you said Intesa is best positioned to resume dividend payment. What criteria do you think the ECB will use to assess the bank's distribution capacity? How do you think Intesa will stack up against those criteria? That's the first question. Secondly, on the NII outlook for next year, please. We've seen your rival dropped further in Q4, and I would like to hear from you the outlook for 2021.
Maybe also a good opportunity to update us on how you see the sector coping up in terms of lending spreads, and if you've seen any changes in the competitive landscape since you've announced UBI. Lastly, a question on moratoria loans. I understand, obviously, you're making assumptions when it comes to cost of risk. What do you assume, what % of the EUR 48 billion moratoria you seem could default, or any early evidence you can share on payment behaviors from customers so far? Thank you.
Okay. On dividend, it is clear that the second wave of the pandemic situation probably created more point of attention from the supervisor side. It is clear. It's a job of the supervisor to look at the very conservative scenario and to be sure to have all the banking sector in good shape in order to face possible threats coming from real economy, deriving from the pandemic situation. It is needed. It is also a clear understanding on the situation of companies in the different countries. I can talk for the Italian situation. In Italy, the situation of the real economy, and especially of the companies operating in sectors different from tourism, sectors that can be affected in a significant way from the pandemic situation. The shape of the companies is not so negative.
The evidence is that the amount of guaranteed loans and moratoria has been used as a backup facilities, often reimbursing other source of funding, and the other portion deposited in the deposits with banks. We had, in a quarter, an increase of more than EUR 10 billion, giving at the same time, a number of guaranteed loans in six months of EUR 24 billion. It is a clear evidence of a situation of companies that are only worried about uncertainty, not about what could be the negative situation deriving from the is a short-term situation, not a medium, long-term situation. The real point of attention should be in different sectors. I'm referring now to your moratoria question, so I can give you the point of view of Intesa Sanpaolo.
We had an amount of expiring moratoria in the last month for an amount of EUR 6 billion. Out of these EUR 6 billion, we had only EUR 200 million in past due, so classified in past due. We are talking about numbers that in all analysis that we are doing, also in high risk sector that are more or less 10% of the EUR 37 billion of stock of moratoria that we have. Concentrated in the sector that can be more affected. In any case, in any worst case of the expiring moratoria, we are talking about figures that are not in such a dimension to say that we can enter into really a dangerous situation for the banking sector, especially in our view, in Italian situation.
Looking at what can happen if the lockdowns will be, for what we understood from the next decision from the government, I do not see such a dramatic situation that can happen on the banking sector. For sure, there will be non-performing loans. We have coverage, we have reserves, we have excess capital, we have ability to manage. We are not a sector in which we will remain just to wait the negative coming from the market. My perception is that in the right way, they want to better understand what would be the dynamic of the pandemic situation, what would be the impact of light or stronger lockdown. In any case, it seems to be that production and construction will remain open in all the different countries. Also the significant impact on real economy, it will not be there.
At the end, if you look the situation in Italy, just the rebound that we had in the third quarter is a clear evidence that if you have a sector coming from companies in which you have a lot of point of strength, rebound is there. You can have a negative, but you will have also rebound. On average, you will lose, but it is not in such a position to say that you cannot pay dividends forever. Probably, they will adjust their position. On 2020, 2021, it could be easier. On 2019, it could be difficult. In any case, we think that maintaining a very safe and sound capital position, we can try to ask also for solution related to dividend 20 19.
If ECB will make a clear statement, no possibility to pay dividends during 2019 and on 2020, we will see in the next months. Okay, we will remain one of the strongest bank, and we will remain, in any case, in the possibility to be one of the strongest bank to pay dividend in the future. Looking at net interest income, our perspective is that on the volume side, we can increase contribution in 2021. On spread, believe me, there is no such competition today, not so strong to say that you can have some limit in profitability. The real point in the last part of this year are the benefit coming from TLTRO III compensating the markdown reduction that we had in increasing deposits. On the other side, my view on 2021 is positive.
We need to have the budget completed because we will have this information at the end of December. Also we will have to discuss on a bottom-up basis with the management team of the group. On this point, I will give you more precise information in the next call for the results of December.
Very useful color. Thank you.
Thank you.
We will now take our next question from Adrian Cighi from Credit Suisse.
Hi there. Thank you for taking my question. Lot of questions have been answered but maybe one remaining question on your coming business plan, which you expect to present in late 2021. The current business plan was targeting more than 14% ROTE. In the current low interest rate environment, do you see an aspirational ROTE for the Intesa as a group, given the business mix that's more geared towards wealth management and insurance? Is the previous 14% still realistic or is that sort of out of bounds? Thank you.
I don't want to enter into specific numbers in terms of ROTE. I prefer to talk about what could be the different drivers in the different areas in which we can operate, so you can have a view, and that you can extrapolate your position. My perception is that we can deliver extraordinary growth in terms of return on tangible equity. That's my clear perception. Starting point is this. On Wealth Management & P rotection, making a switch between Wealth Management and Protection. For protection, I'm pretty sure, especially after the acquisition of RBM, the trend is clear, and the acceleration is there. All the branches are ready to work on these new products. Just looking at figures, we reached EUR 300 million of contribution from commission and protection, moving from EUR 170 million in 2019.
The acceleration in this area, not exploiting all the potential of the group, is massive. The delta growth coming from this sector is really impressive. On wealth management, there is a clear and strong correlation in terms of timing. On the medium term, for sure, there will be a massive growth. In terms of timing, is also depending on the psychological situation of the client. If we are in the second wave of the pandemic, you can probably have some slowdown in terms of conversion of deposits and asset under administration. If you are in a positive mood, like in the third quarter, you have such a massive and incredible move into wealth management product that it is easily to increase the ROTE target.
The point on 2021 is really something that we have to check also considering the impact of the psychological situation of the Italian families. If the decision will remain the one that should be released this evening from the government, my perception is that there could be some limited slowdown in the last part of 2020. 2021 could be a year in which we can have another acceleration. It could be easy to over-perform the targets in different area related to wealth management.
Thank you very much.
Thank you.
We'll now take our next question from Andrea Filtri from Mediobanca. Please go ahead.
Yes, thank you for taking my questions. I've got three. The first is on moratoria, to understand better. In Q3, I think that there was EUR 11.5 billion moratoria due to expire. We see a reduction by EUR 9 billion quarter-on-quarter, mostly from households. Can we assume then that 80% of clients are repaying? Why do you think there has been such a low usage of government-guaranteed loans in Italy versus other countries? On capital, if you could just please walk us through the different components of quarter-on-quarter swings into CET1 ratio. There has been EUR 10 billion risk-weighted asset reduction in the quarter, and fairly sizable moving parts. If you could split it out for us, please. Finally, on macro, you have revised down your GDP forecasts. Are these already embedding the impact of a second lockdown?
Is the reiteration of the 2021 cost of risk guidance of 70 basis points already a reflection of the higher cleanup that you have indicated you will do on the extra bad will generated by UBI in Q4? Thank you.
I will start from your point on the scenario for 2021, because this is an important point in order to understand the correlation and the need for the usage of extra badwill. The expectation related to a rebound of 5% in 2021 is considering a limited impact deriving from the lockdown, as we understood is the preparation that should be released this evening. Our expectation is that also in the light, let me call it this way, lockdown, in the sense that a lockdown in which production and construction can continue to be the driver of possible engine for growth. There could be room to have a reduction in GDP in the last quarter, but the extra generation of GDP in the third quarter is a mitigant of the negative impact of the GDP reduction.
At the end, the rebound in the first quarter could be in such a dimension to allow to have a roughly 5% growth in GDP in 2021. In this situation, the usage of badwill, in order to guarantee the 70 basis points could be really limited in excess of what we have considered already in our plan communicated to the market. If the kind of lockdown could be probably much stronger than what we understood from the first indication from the government, there could be an impact in the second part of the year that could be much higher. In any case, the rebound at the beginning of the year could be such to leave the GDP growth to be between 3.5% and 5% on a yearly basis.
This means that we will need a limited usage of bad will in order to reach our target in 2021. This is just to tell you that what we are considering in terms of usage of bad will, it is not only to stabilize the amount of the cost of risk in a so-called negative scenario in 2021. We want to create condition to accelerate structural deleveraging for the group. Not only looking at the figures of dynamics of GDP in 2021. Our view is that we have a unique opportunity to further transform the quality of credit position of the group. Through a massive reduction of non-performing loans, we can create condition also to have a sustainable reduction in terms of cost of risk. Coming back on the point of moratoria and why some Italian companies are not so willing to take guaranteed loans.
My perception is that the situation, apart from the sectors that are really impacted in a very negative and tough way, Tourism sectors in which, for the better of my understanding, now government want to make a quick intervention, not only through debt, but also through so-called interventi a fondo perduto. Something that can allow them to have cash immediately. Apart from this sector, the majority of the Italian companies are just postponing investment, maintaining liquidity on the account of bank. The majority of this company is going to take money only if they think to have better condition in comparison with the short-term financing that they have with the banking sector. On the other side, if they are worried about the future, they are depositing money with the banks. There is also a limit to deposit money.
As I told you, we are in a unique position to be in such an increase of deposits. The majority is coming from this money granted from the public through moratoria or through guaranteeing. Probably this is an evidence of the very good shape of the sector of companies, mainly export related, but also related to internal demand in the country. Looking at the Common Equity Tier 1 ratio, the benefit that we have in this quarter is for a portion related to the reduction of the spread to BTP-Bund .
There is 45 basis points that are related with reduction in credit risk, a significant portion of this is deriving from the switch from short-term financing without guarantee, in which companies are used to pay very high interest rate into a financing that is cheap, companies are deciding to have access to funding with better condition. In this 45 basis point, there is also a process of accuracy, recover of collateral. There are a lot of job that we are doing from a strategic point of view because our target is to exit from this situation of crisis with a clean up of the risk-weighting assets that are not well managed by looking at collateral guarantee. A significant portion is also related to this switch from short-term, not guaranteed into a guaranteed one.
It's a structural move within the combination of risk-weighted assets of the group. In my view, is also very positive looking at the sustainability of the Common Equity Tier 1 ratio improvement for the future.
Thank you.
Thank you, Andrea.
Our last question comes from Benjie Creelan-Sandford of Jefferies. Please go ahead.
Yes, good afternoon. Most of my questions have been answered, perhaps just one follow-up on the bad will creation in the quarter and why it was stronger than expected. Should we assume that that was mainly due to write off of unrealized gains on the held-to-collect portfolio in the UBI balance sheet? Is there anything else that caused that bad will generation to be larger than expected? Thank you.
Sorry. I lost you just two minutes. If you can repeat your question. Sorry, my friend.
No problem. It was just on the badwill creation in the quarter.
Okay.
The reasons why it was larger than expected. I'm just wondering, is that basically writing up unrealized gains on the held-to-collect portfolio in the UBI balance sheet, or is there any other moving parts there that drove that larger badwill generation?
Okay. Sorry. The bad will situation that is much better than our expectation is deriving mainly from a net equity that is much higher than the one that we have considered at the beginning of analysis on the net bad will on the transaction. Also the reduction in terms of impact coming from the disposal of branches to BPER Banca, that also realizes that the pricing related to the beginning of the starting point of the acquisition is much lower than what we have considered a lot of months ago. This bring us to a much better position in comparison with the starting point. I have to tell you that this bad will be phased also in the process of better understanding the PPA. The valuation of all the different assets of UBI at the end of the year.
We didn't make any kind of positive valuation of asset to be included into this P&FP news from this acquisition, mainly deriving from the net equity excess in comparison with the starting point and the possibility of making a disposal to the branches to BPER that use the fact that the price- to- book is going down, we have possibility to have a better goodwill position. Do not forget that in our figure, we have all the negative coming from the BPER disposal because we have the devaluation of net equity. On the other side, we have all the risk-weighted assets within our figures in these figures. The net-net, I think that this badwill, as I told at the beginning of my presentation, is really a magic shield that we have in order to face an environment that could be really tough.
We are really confident that we can deliver extra performance, in comparison to our original expectation.
Thank you.
Thank you very much.
Our question and answer session has now concluded. I would now like to hand the call back to Mr. Messina for any final remarks.
I want just to thank you very much again for being with us today. My expectation is to be in a position to deliver very good performance also in the last quarter of the year. The usage of bad will could be really an engine for accelerate performance of the group in 2021 and the 2022 or 2023. I hope that you and your family stay well and hope to have conversation with you in the next presentation for the year-end results. Thank you very much.