Good afternoon, ladies and gentlemen, and welcome to our First Salt Results Conference Call. This is Carlo Messina, Chief Executive and I'm here with Stefano del Punta, CFO Marco Del Frate and Andrea Tamanini, Investor Relations Officer. ERC. Before I get into our results, I want to express my sorrow for everyone suffering or who have lost someone because of the virus. Executive Officer.
As a group, we responded quickly to the COVID-nineteen emergency, immediately taking concrete actions to care for our people and our Customer, supporting families and companies and ensuring business continuity. We are successfully managing a very challenging environment, Officer, and we delivered an excellent first half. In fact, we achieved the best first half since 2008 for net income at €2,600,000,000 with the best ever Q2. And while increasing profitability and efficiency, We further strengthened our balance sheet, improving our rock solid capital position and deleveraging NPLs Xion, to continue delivering best in class profitability to maintain a rock solid capital position EK, to deliver a payout ratio of 75% for 2020 70% for 2021 and potentially distribute part of the reserves in light of the 2019 net income allocated to reserves Exec Subject to ECB approval. We are also starting a new chapter in the ISP story.
Excluding the company's financial results, we are now in the company's financial results. We are now in the company's financial results. We are now in the company's financial results. We are now in the company's financial results. We are now in the company's financial results.
We are now in the company's financial results. We are now in the company's financial results. We are now in the company's financial results. We are now in the company's Expellor and Acceptances. I want to give a warm welcome to our new Ekubic colleagues, and I already consider them an important part of the group.
Executive Officer. I hope that some of them are listening to this call, and it is a chance for them to see what drives us and better understand why I think ISP and UB together are such a good fit. E. Bringing our UB colleagues on board is now an absolute priority for our group and for me personally. Equity.
ISP results have always been the outcome of our people's motivation and the pride that they take in our group. So recognizing and developing talents, Exeter. Giving them the chance to contribute to our collective success is a winning formula, is my winning formula. Our UBI colleagues can expect to be part of these opportunities. Exeter.
Uvi is a very good bank. We recognize that. This is true for all the companies that make up of the group with no exceptions, and we know that comes down to the quality of its people. You are now a valuable part Executive Officer of Intesa Sanpaolo. I will personally lead the team dedicated to selecting EBIT Talent, and including them in our career development and management succession plans, Ecos, together with ISP people.
When I say that I'm happy to welcome all of our EuBi colleagues in 2 ISP, I mean all of them. Yes, some will eventually become part of the BPer family. To all those colleagues who will move outside of the ISP group perimeter, I want to say that E. We will work with Viper's management to do all that we can to ensure that they are treated Executive Officer. As a valuable addition to the Viper team, this is our commitment to you and my commitment to you.
Executive Officer. I believe that in the current scenario, the combination with UB Banka will create even more benefits for all stakeholders. Executive Officer. In fact, only banks that can leverage strong economies of scale, high efficiency, A solid capital position and high asset quality will successfully navigate the times ahead. E.
S. P. And UBI have similar business models and share similar corporate cultures and values. Executive Officer. Together, we are stronger, and together, we have greater potential for growth.
Let's now Executive. Go through the presentation, and at the end, I will be glad to take your questions. Slide number 1. E. Looking at the 1st semester, we delivered excellent performance, EUR 2,600,000,000 in reported net income.
This jumps to €3,200,000,000 when you exclude provisions for future COVID impacts. And we delivered the best ever Q2 net income at €1,400,000,000 Our revenues are stable, thanks Exto Resilient Net Interest Income and Significant Growth in Insurance Revenues and Financial Market Activities, Equity, which naturally hedged the impact of market volatility on our fee based businesses. Executive Officer. June has been the best month of the year for commissions, and we had an acceleration in Assets under Management inflows with EUR 2,200,000,000 in Q2. In the first half, we recorded a EUR 12.5 €1,000,000,000 increase in household site deposits, about EUR 20,000,000,000 in the past 12 months, which will fuel of our Wealth Management Engine in the coming quarters.
Operating costs were down almost 3%, Energia, taking cost income to 48.5%, one of the best in Europe, once again demonstrating our Strategic Flexibility in Reducing Costs. Operating margin increased by 2.8 Ascent, and cost of risk, excluding the €880,000,000 in provisions for future COVID impacts, Exeter is at 46 basis points. We further deleveraged €1,800,000,000 of nonperforming loans Executive Officer, with the lowest ever gross inflows. Overall, the excellent performance in the first half EcoXi, was fully in line with our 2020 pre COVID targets. More than ever, I want to thank of all of Intesa Sanpaolo people, for their hard work in achieving these excellent results.
Equity. In this very difficult environment, the test drive us physically, emotionally and professionally. So thanks to my people Ekaterina, for their hard work. Slide number 2. Thanks to our solid fundamentals built over time, E.
We are fully equipped for a very challenging environment. Our fully loaded common equity ratio is 14.9%, Executive Officer, equal to about €18,000,000,000 of excess capital. We have deleveraged around €36,000,000,000 of NPLs, Always at no cost to shareholders. We have distinctive internal capabilities for proactive credit management, Ecopo, with our strategic partnership with leading industrial players for the lay stage. We have already provisioned €880,000,000 for future COVID impacts, and we are an efficient wealth management and protection company EK, with around €1,000,000,000 in customer financial assets.
We successfully evolved towards a light distribution model Equipped 1,000 branches rationalized since 2018 and significant room for further branch reduction. Econo. Our clients appreciate our strong digital proposition, and we already have around 10,000,000 multichannel clients and 6,000,000 using our app, recognized as 1 of the best in Europe. Executive Officer. For all the reasons I have just mentioned, Inter Sao Paulo is also well equipped to succeed in the future.
E. We have solid fundamentals, and we are very well positioned to continue delivering best in class profitability Equipped minimum €3,000,000,000 net income for 2020, assuming a cost of risk of 90 basis points, E. A minimum EUR 3,500,000,000 net income for 2021, assuming a cost of risk of 70 basis Equine. And this is without considering the combination with UB. Maintain a solid capital position with a fully loaded common equity ratio at minimum 13%, that is 12% fully phased in.
This also takes into account the potential cash distribution from reserves in light of the 2019 Excluding the impact of the company's net income allocated to reserve, obviously subject to ECB approval, deliver a payout ratio of at 75% in 2020 and a payout ratio of 70% in 2021. We have already deducted Executive, 75% of the first half net income from our capital ratios, so EUR 1,900,000,000. UBibanca will be now an important part of this future, and we believe that the combination adds significant value by improving asset quality and delivering synergies with no social cost and very low execution risk Ecosia, due to ISP's proven track record in managing integrations in Italy. We have always demonstrated our ability to Slide number 4. The Italian economy remains resilient and can count on strong fundamentals EBITDA, backed by strong government intervention and significant EU financial support.
In particular, the wealth of Italian households Exteriors at €10,700,000,000 and the amount of debt held by Italian families remains very low. Italian companies have stronger financial structures than pre-two 1000 and 8 crisis levels. They are more profitable and better capitalized, and the export oriented firms have become powerhouses over the past few years. Ecosia. The banking system is by far stronger than in the previous crisis with higher capital, less NPL stock, higher Efficiency and More Diversified Revenues.
The Italian government and the EU are providing of game changing support. And as a sign of optimism, industrial production in May rebounded by as much as 42% Ecosa compared to April and also the last informations on dynamics in Italy are positive. Excluding the impact of the market. Let's take a look at the points of strength that will sustain us in the challenging phase. Equity.
In recent years, we have more than halved the NPL stock while increasing the coverage ratio. We have increased our rock A solid capital base with common equity ratio up 1.8 percentage points since 2015, and we achieved this through internal capital management, while also paying €13,400,000,000 in cash dividends Ecos, over the past 6 years, and we are very well positioned to pay high and sustainable dividends. E. We continue to reduce our cost income ratio, and overall, we have a very resilient business model Ecosco with 55% of our gross income for the first half coming from Wealth Management and Protection activity. July 7, Executive Officer.
We are far better equipped than our peers to tackle the new environment. We have a best in class Risk Profile, NPL Level 2, Level 3 assets. We have one of the highest capital buffers in Europe, and we are one of the cost income leaders in Europe. We are also entering this extraordinary environment at full strength Equity, with the best first half net income since 2008, already delivering 86% Executive Officer of the minimum EUR 3,000,000,000 target for the year and the best ever Q2 net income. Slide number 9, Executive Officer, leveraging on our top performing delivery machine, and we immediately responded to the COVID emergency with a complete Executive Officer of Action to care for our people and customer, supporting the real economy and society and ensuring business continuity.
Executive Officer. Slide 10. We ensure safe working condition for our people and business continuity for our customers through a large and effective set of actions. Slide number 11. We doubled down of the COVID Emergency, and I'm very proud that our bank, our employees, our management and Board donated more than EUR 10,000,000 to help fight the COVID health emergency.
Slide number 12. Our strong digital capabilities Ed, being key to guaranteeing business continuity. Specifically, we more than tripled digital sales versus the same period Eptia, and we have strong cybersecurity capability as demonstrated by the fact that we ranked 1st among Italian corporate Executive Officer, in Cyber Resilience. Slide number 13. We are fully aware that this emergency is shaping new trends, and we are ready to leverage our competitive advantages.
Executive Officer. 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 and the acquisition of AirBMSB, one of these key factors from a strategic point of view. There are other items related to digital channels and payment system, and I want just to focus Executive Officer, the strategic partnership with Nexi in payment system with ISP purchase of 9.9 percent of Nexi Capital, that we consider a strategic stake through which we can participate in the upside of a fast E. Coli. Slide 14.
Italian GDP E. C. Will be hit significantly by the COVID emergency and is forecast to decrease around 9% to 10.5% this year, like all the European countries and the significant parts of all the other countries. In 2021, we expect a rebound of 6% to 7%, thanks to the solid fundamentals of the country and support Packages from the government in EU to help businesses and households. This means a GDP loss of around 3 Equatorial, 3.5 percent over 2 years.
Slide 16. So just to give you the evidence of the macro context in the first half, Executive Officer. And this was clearly defined by the COVID outbreak. So Italy experienced a strong drop in GDP, Executive. Market volatility reached all time highs and the 10 year BTP boomed spread widening.
In this difficult environment, We deliver excellent results, and we are fully equipped to successfully navigate the challenges ahead. On Slide 17, you can see the highlights of our strong performance in the first half, and let me give you some color on the following pages. Executive Officer. In the first half, we continue to improve across all key indicators. In particular, net income was 39% higher than last year when excluding the COVID provisions, and we deleveraged €5,000,000,000 of NPL on a yearly basis, and our common equity ratio improved by 1 percentage points on a yearly basis Executive Officer, after deducting €1,900,000,000 for accrued dividends and by 40 basis points in Q2 despite the impact of the Acquisition of Airbn, Asecuracionesalute and the 9% NexSys Day.
Slide 19. Our excellent performance allows us to create sustainable benefits for all our Stakeholders, and you can look in this slide. Slide number 20. The COVID Focus Initiatives are also part of our commitment to our stakeholders, and the ISB is strongly committed to its role as an engine for Sustainable and Inclusive Growth. Slide 21.
In this slide, when you know well, you can see a few examples of our work to support Italian society and in particular, the acceleration of our support during the COVID emergency. And I want to highlight that since 2018, we have delivered 11,000,000 meals to people in need. Executive Officer. Slide 22. As a result of our efforts, we are the only Italian bank rated at the top of all the main Sustainability Rankings, and we are very proud of these achievements.
Slide 23. Despite a challenging environment in the first half with high market volatility in the country in lockdown From March to June, we increased profitability driven by a reduction in cost and steady revenues Executive Officer, that would have increased more than 1% when adding the €310,000,000 Executive Officer, related to the day 1 profit due to the increase in value of the 9.9% stake in Nexi held by ISP
EBITDA,
and Chief Executive Officer, despite lower interest rate and COVID impact. Profits on trading grew more than 15% compared to last year. Insurance income grew more than 17%, driven by solid growth in non motor P and C revenues, Executive Officer, up 85% when including the component booked in commissions. We have continued to be very Executive at Managing Costs with personal expenses down 2.5% and administrative expenses down more than 6%. Equation is up as we keep investing for growth.
Operating margin was up 2.8%. Ecke, cost of risk, excluding the €88,000,000 provision for future COVID impact, down to 46 basis points. As mentioned during the Q1 results call, we used part of the Nexi capital gain as a buffer to offset provisions for of Future COVID Impact. Net income is at €2,600,000,000 and reaches €3,400,000,000 when also excluding costs concerning the banking industry and the impact of provision for future COVID impacts. We have already achieved 86%
Executive Officer of
the €3,000,000,000 minimum net income target for 2020. That means Executive Officer, delivering just EUR 200,000,000 per quarter to meet our full year target. Slide 24. Executive Officer. Q2 has been very strong with the best ever second quarter for net income.
And in comparison with the same quarter of last year, net interest income was stable despite E. Profits on financial assets would have reached EUR 570,000,000 Equinor including the €310,000,000 day one off profit of the Nexi stake. Excluding the impact of the company's earnings, we expect to be in the range of $1,000,000,000 in the range of $1,000,000,000 in the range of $1,000,000,000 in the range of $1,000,000,000 in Ecosco, the best month of the first half of the year. Insurance income increased by more than 20%, and operating costs were down 2.9%. Exane.
Gross income was up 4% versus last year with part of the NEXC capital gain offset by provision for future COVID impact. E. Net income was up 16% to more than €1,400,000,000 Slide 25. E. Coli.
In this slide, you can see that on a quarterly basis, net interest income increased by 0.2%, mainly due to positive dynamics on volumes. And on a yearly basis, net interest income would have increased when excluding the impact of accelerated NPL, De Leveraging and Financial Components. Slide 26. Customer financial asset increased by EUR 43,000,000,000 in Q2 to almost EUR 1,000,000,000,000 also thanks to a EUR 17 €1,000,000,000 increase in assets under management. And assets under management, the net inflows were positive by more than EUR 10,000,000,000 in the past 12 months.
And in the same period, family Exide deposit increased by EUR 20,000,000,000. Slide 27. We continue to be very effective at managing cost and the main sources of SavingWare headcount reduction, real estate optimization, legal entity reduction and a decrease in other administrative costs. E. We reduced headcount by more than 2,900 on a yearly basis with room for further cost Equatorial, and we had the lowest ever administrative costs.
On top of that, I have just said Action with UBibanca will create significant cost synergies with 0 social costs. Slide 28. We are proud to have a best in class costincome ratio, and this chart illustrates our leading position in Europe. Slide 29. ECL.
NPL stock has continued to decline sharply with 19 quarters of continuous deleveraging, and we deleveraged Ek €1,800,000,000 in the 1st half, out of which €500,000,000 in Q2. Slide 13. As you can see in this slide, loan loss provision declined by 4%, excluding provision for future COVID impacts. Executive Officer. As a result, the annualized cost of risk, excluding provision for future COVID impact, is now down to 46 basis points.
Slide Equity, number 31. Our capital buffer versus regulatory requirement is 630 basis points, Executive Officer, well above our peers, and these figures also includes a EUR 1,900,000,000 deduction for the 2020 dividends Accrued in the 1st semester. Our fully facing common equity ratio is at 13.8%. Slide 32, E. Our best in class capital buffer versus regulatory requirement was further strengthening in this quarter with an increase of 40 basis points Equi, the impact of the acquisition of RBM and the NexSys Day.
Slide 33, When it comes to capital strength, we continue to be a European leader. And in addition, we continue to apply a deliberate Strategy of Low Leverage with a leverage ratio of 6.6%, the best in Europe. Slide 34, best in class in terms of risk profile considering nonperforming loans, level 2 and level 3 assets. Executive Officer. Slide number 36, Ubi transaction.
Ubi will now become part of our group, further strengthening one of the strongest players in Europe. Excluding the results of the change offer confirm the complete success of the deal. ISP has Executive by huge margin the threshold of 2 thirds of UB's total share capital, allowing us to hold control of Ubi's Bank EGM, launched the merger process to incorporate Ubi into ISP, Executive Officer, unlocking maximum value creation through the generation of pretax annual synergies of around €700,000,000 once fully completed.
Executive Officer,
who initiated the transfer of the branches to BP to comply with the antitrust authority agreement and used the €2,800,000,000 negative goodwill to fully cover integration charges and accelerate NPL reduction. Slide 37. Here, you can see the key financial metrics of the combined entity, Executive. Let me highlight some of them. NPL coverage at 57.2%, including €1,800,000,000 of Additional Provisions, thanks to the negative goodwill generated.
This will bring Eubice coverage from being below average to best in class, another benefit for the new ISP shareholders Eku, joining us from UBI. Let me also draw your attention to the more than €1,000,000,000,000 in customer financial Exers. We will have after the disposal of branches as part of the agreement with the antitrust authority. Executive Officer. Slide 38.
Following the combination with UBI, ISP footprint will expand and be stronger, especially in the wealthiest region of Italy. And as you can see from the map, our market share of branches in Italy will increase from 15% to 90%. Eta. And this deal makes so much sense because it fully supports and feeds into our business model as wealth management and protection leader. Slide 39.
The combination strengths our leading position across product segments in Italy. And I also want to underline then as the agreement will be pronounced back in February clearly shows, E. We designed the operation with grid care for the competitive dynamic of the market and the impact on customers. Executive Officer, and one of the benefits will have a much stronger beeper, which can help shape the competitive landscape. Slide number 40.
Many have said that this combination made strong industrial sense, but wasn't transformational. But I think a quick look at the jumps we make in these rankings show the strategic value of this move. E. We are establishing a national champion that can successfully compete at European level. Now we can be considered close to the number one bank in Europe, BNP Paribas.
ECAEP. As ISP, this makes us very proud, but I expect that our new EuBi colleagues will also find a lot of satisfaction in building 1 of Europe's major banking groups Exeter, headquartered in Italy and leaded by an Italian. Slide 41. E. The new group will offer an attractive value proposition to all its stakeholders.
In particular, we will generate significant synergies with no social cost. Executive goodwill from the transaction equal to €2,800,000,000 will fully cover integration costs Executive Officer, and additional low loss provisions, meaning we can accelerate the NPL deleveraging. As always, we will do this only at no cost to shareholders. We will pay high dividends with a payout ratio of at 75% in 2020 70% in 2021. Our solid capital position We remain with a common equity Tier one ratio of minimum 13%, and net income will be above EK5 billion starting in 2022.
Our proven track record in managing integration shows that execution risk is very low. Let me now turn to the next slide, where I would like to take a moment to review how we will provide strong support to Ubi Banca's reference territories and how UbiPeople will benefit from being part of the Strongest Group. ISP has always dedicated great attention to local communities and Ubi Banca people, customers, shareholders and community can count on us to bring the same or even greater attention Equity. As you can see from this slide, We fully respected the timing to complete the exchange offer, and we have already planned the next steps for UBIS Integration. ISP is a delivery machine.
Quarter after quarter, we meet Our goals and our commitments. Our people make this look easy, Executive Officer, but it isn't. 5 months ago, we set out to combine UB into our group. Equity. Some asked if we could succeed because it wasn't easy, and yet we did, right on schedule.
And I want to thank the team that made this vision a success. We will continue to update you Executive Officer. On the timetable for the integration, by the end of 2020 Executive Officer. In 2021, we will provide the market with a detailed plan for the new combined group Executive Officer, as soon as the macroeconomic scenario becomes clear. In the meantime, we will execute all the managerial actions to manage the integration and extract the forecast synergies and even more.
Executive Officer. Missing from this timetable are the opportunities ISP and UBS people will have to begin sharing ideas over the next weeks months. Slide 45. To sum up, we are very well equipped to succeed Executive Officer. In this challenging environment, we are a leading bank in Europe when it comes to excess capital, Executive Officer, we have already provisioned almost EUR 900,000,000 in the first half to tackle future COVID impact.
We have continued deleveraging NPL to a low stock with robust of Coverage. We have a well diversified and resilient business model, and we have one of the best cost income ratios in Europe. Executive Officer. We delivered an excellent first half with highest first half net income since 2008, already delivering 86% of the EUR 3,000,000,000 minimum net income target for 2020. Best ever Q2 net income, Significant strengthening of the capital position.
We have Exane, trying to call us to make the compliment for the results. Congratulations for the results. We delivered an excellent first half EBITDA with IAS First Half Net Income since 2008, already delivering 86% of the €3,000,000,000 minimum net income target for 2020. Best ever Q2 net income, growth in operating margin, lowest ever first half and Q2 gross NPL inflow, significant strengthening of the capital position. For this reason, In the future, we are very well positioned to continue delivering best in class profitability Equity, with minimum €3,000,000,000 net income for this year, minimum €3,500,000,000 net income for next year, both E.
Without considering the combination with UBI, maintain a solid capital position with a minimum common equity ratio of 13%, even taking into account the potential cash distribution from reserves in light of the 2019 net income Executive Officer, delivered a payout ratio of 75% in 2020, with 75% of the first half net income already deducted from capital ratios and 70% in 2021. On top of a cash dividend from 2020 net income, as I just said, Equity 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 Executive Officer, and outstanding sets of results, all the more impressive considering the COVID backdrop. I can never thank our people enough for making all this possible. It really is impressive.
In closing, let me say a word to our new UBI colleagues. Together, we are building a new banking reality Executive Officer, that will draw his strength from the solid relationship that we have with the communities in which we operate. E. Together, we are creating something that I believe we can be proud of, and I look forward to this. And I'm now happy to answer your questions.
Thank you. Chief Executive Officer. We will now take our first question from Antonio Reeb from Morgan Stanley. Please go ahead.
Hi, good afternoon, everyone. It's Antonio Nadal from Morgan Stanley. Thanks for the presentation and congrats I have three questions, please. The first two on guidance and the third on M and A. The first one is on the 3 at least EUR 3,000,000,000 of net profit guidance for the year, which is clearly within easy reach.
CHF 2,600,000,000 so far, and you've put aside CHF 100,000,000 for COVID related losses. Executive Officer. How much more of the EUR 3,000,000 you think the bank can do? I'm thinking especially in the context of the commitments to pay dividends. Could you decide to set aside more provisions than the 90 basis points cost of risk guidance?
Or could you do More restructuring charges, I think given that you expect also to reach a trade agreement, trade union agreement with the exit by December. I would just like to understand your thinking on these two points, please. The second one is on dividends. I've read your intentions to ask ECB to pay the 2019 Excluding the full year dividend. I think it was EUR 3,400,000,000 as a special in 2021.
Now if I do the math correctly, that's A significant amount as you'd be paying at least $5,600,000,000 $5,700,000,000 if I put the 2 together. That's between ordinary and special. Do I understand that correctly, first of all? And secondly, I remember you were going to move to a semi annual dividend from next Exsteer. Is that still the case despite UB?
And related to that, scrip dividends, is this something you would consider until the ECB Van is lifted. And the last one is on M and A. I believe you've clearly consolidated your position in Italy. I look at Slide 40, and I think I hear you loud and clear, perhaps also on the back of recent press reports. I think you've not been shying away from your growth ambitions outside of Italy.
How should we think about European M and A? Is it fair to say that management capacity is now
So starting from net income guidance. So I want to be clear on this point. I think that we can easily achieve EUR 3,000,000,000. That's the evidence of figures. I'm not so I have to tell you that in my perception, There could be some positive evolution in the next quarter, so I'm not in the pessimistic mood of Executive Officer, a significant number of player in the markets.
I'm telling this, I think that E. We can talk about not such a negative GDP evolution for the next quarters. My expectation is that we can start to have positive signs Chief Executive Officer. So the €3,000,000,000 could be conservative in our view. The point is that the uncertainty on provision is what I consider one of the point Ecosco remain with the guidance of minimum €3,000,000,000 For the evidence that we have today, I think that We can remain below 90 basis points.
That's my expectation. And I think that Ecosco. 90 basis points is conservative in our view. So expectation for Executive Officer. The 2020 is that we can remain absolutely and easily within this guidance.
Executive Officer. For extra integration charges, we will see. It is likely that we will use and we can use Executive Officer. The bad will deriving from the Ubi transaction. So for the real Outlook on integration charges and the extra provision, it is likely that There will be a usage of Bedwheel embedded in the Ubi transaction.
We will see this in the next months. And in September so November, when we make a presentation of Q3 results. We can give some more clear evidence to the market on this point. But I'm really confident that we can continue to deliver very good profitability, and we are talking about Executive Officer, delivering €200,000,000 to €150,000,000 per quarter that is, in my view, a real worst case scenario. For the dividend, so just give you my view on this point.
We respect absolutely the decision of the ECB. So it is clear that Executive Officer. Today, there is a priority from the regulator and the supervisor. I'm not in the position of other CEO, that consider that investors, medium, long term investor, can be happy not to receive dividends this year. I think that E.
C. To pay dividends is a priority for a bank, especially for retail, Executive Officer, for foundations, but also for mutual funds because at the end, retail clients are investing in mutual funds. So it's a way in which you can give support to real economy. So that's my view on dividends. So Executive Officer.
Great and complete respect for the regulator, but I think that there will be a timing in which Echever. At the timing, we will be in a position to have the 75% accrued for 2020 and to ask for a distribution of reserve relating to 2019. Then obviously, Executive. It will be subject to ECB approval. We will respect, in any case, the decision of the ECB.
And but this is my personal view. Executive Officer. And my personal commitment is to try to work in order to give a significant amount of cash dividend to my shareholders, also because we have such has strong excess capital position that it will be fair to give this to investors. Script dividend is not a priority for me. Semi annual dividends, we can start again Eptu, to work on this point.
As you know, we had other priorities in these months. On M and A, I think that in the next couple of years Executive Officer. In Italy, there will be an acceleration in M and A. Not easy to say what can happen. Executive Officer.
But also in Europe, I think that there could be some cross border consolidation. With this move, we can be sure not to be a weak part of this consolidation. I don't think that it could be easy for Inter Sao Paulo to create value in combination with other European Counterparty. So European consolidation is not a priority for Intera Sao Paulo, because I'm used to make transaction that can create value for my shareholders Exane Transaction, in which I'm able to deliver results like an Italian integration.
Very clear. Thank you very much.
We will now take our next question from Delphine Lee from JPMorgan. Executive Officer.
So I just want to come back on the dividend. Executive. Just wanted to clarify that your the full year 2019 dividends that you intend to pay if you get the approval, Executive. That's €3,400,000,000 or is it €0.197 just to clarify. And also related to that, where do you get the confidence that you can get the approval from DCB Early 2021.
It does seem like that other CEOs in Europe You seem to think the contrary. So if you could maybe elaborate a little bit on this step, that would be very helpful. Executive Officer. And also on the question of dividend, do you think there will be Some scrutiny from the SSM on the payout ratio. And do you expect any issues in your 5% or 70% payout ratios ratio targets or not at all?
And then just on to go back on provisions. So your guidance for this year, the 90 basis points is quite clear. But would you rule out any additional provisioning by year end if you include also Obi, even beyond the €1,800,000,000 that you had already planned as part of the usage of bad will, Just to understand a little bit the outlook on what we should expect on in terms of acceleration of the NPL
Stock.
And lastly, on net interest income, which was maybe a little bit sort of We've seen some weak trends this quarter. If you could provide maybe some guidance on what we Could expect for the rest of the year, including also the benefits from Telstra, that would be great. Thank you.
So Let me talk again about dividends. What I consider Executive Officer. As a possible point of reference is the absolute term and not the percentage terms. Excluding the impact of the company's earnings release. On this point, I have to tell you that we will try all the best in order to have of the ECB approval.
For the time being, the position of ECB is clear. There is no Executive Officer, opening point on the possibility of making distribution on 2019. But I think that By the end of the year, also ECB will reconsider this Equatorial, looking at the fundamental of real economy. So we will see because it is clear that If the GDP will be negative in all the European countries, there will be 0 probability to have distribution of dividends. If Excluding the impact of the tariffs, the impact of the tariffs, the impact of the tariffs.
And the impact of the tariffs, the Executive Officer. We will continue to enter into some discussion to work with banks that have E Clear Excess Capital in order to allow them to make the right remuneration to the investors Officer in the market. And again, it is not a matter of paying dividends just because it is Executive Officer. The financial activities in the market that we benefit, it will be real economy benefiting Executive Officer, from Payment of Dividends. So it is also, in my view, instruments in order to give money of families that can use in terms of consumption to give money to foundation that can Invest into social for social purposes to give money to mutual funds that can give performance to Retail Investors to Families.
So it is also something that it is good for the real economy if the GDP Equity will turn positive as in our expectation. In any case, we are talking about into absolute terms. On the payout ratio, again, I think that The real point on dividend, it is not a payout ratio, So is the excess capital. So in any case, the attitude is not to have 90% payout ratio. I think that 75%, 7%, if you have Executive Officer.
The right excess capital is absolutely acceptable, and we are deducting 75% Ecopcos. We think that we will be in a position to pay this amount of dividend to our shareholders. So Exane. My view is that there is too much emphasis on the level of payout ratio. What is important is Executive Officer, looking at provisions, I'm pretty confident on the estimates on cost of risk.
But it is also true that If we will be in a position at the end of the year to allocate extra provision Excluding the bed will on the nonperforming loans, I will try to do. So obviously, we have Equatorial Analyze. We have to enter into the figures of the of UB Bank. We have to consider Equitability in 2021. So the indication that we gave on goodwill on badwills or negative goodwill is clear.
But I have to tell you that if I have I will have the possibility to make Executive. Some extra provision using the bed will, I will consider this, but it is a matter of Executive Officer, the end of this year. So let's give me the time to better understand the situation. On net interest income, I have to tell you again that my expectation on net interest income Executive Officer. Just 2 months ago, 3 months ago, was more or less in line with what we realized in this quarter.
It is, in any case, true that we can accelerate through benefits Officer in TLTRO Funding. So there could be 2 levers, significant levers, Executive Officer, one volume and the other one, the TLTRO funding. We will see in the next quarters What kind of sites could be the increase in net interest income, but the expectation for Eco Net interest income is for sure positive for the next quarters.
Thank you very much.
We will now take our next question from Giovanni Vasoli from Exeter. Please go ahead.
Good afternoon and thank you for the presentation. I have a question which regard your Excluding the cost of risk, you have been very clear for 2020 2021. I was wondering if you can share with us what are your thoughts Executive Officer. On the moratoria at sector level and the possible impact of the expiration of the moratoria, is this something that we should see as an issue For the sector as a whole as they may imply a deviation visavis the trajectory that you have
So the evolution is already considering Equity Impact of the Moratoria. In any case, this is a factor that all the system E. We'll have to monitor with attention. And also, in my view, the authorities in Italy, So the governments and the other authorities will have to consider with attention because Executive. It is absolutely true that there could be a component that can be reversed Equity into past due and can have some impact in the nonperforming loans and also in provision.
Our Forecast is already embedding the portion of Moratoria. But I hope that there could be Executive Officer. A view a strategic view also from the government side in terms of what really
We will now take our next question from Andrea Barcelio from Exane. Please go ahead.
Good afternoon. Two questions from me. 1 on provisions, The other one is on the TLTRO. On provisions, the you've talked a little bit already in answering In the official communication, you allocate the entire €1,800,000,000 of Executive Officer, for the Q1 of 2019. This I read PPA.
You plan to sell €4,000,000,000 you will do your valuation And you write them down for the PPA process. I think it's a bit excessive on Ubi standalone. So I was wondering whether we should see this €1,800,000,000 of extra provision just on UBI Or it's for the group as a whole. And the same with the NPL disposal, since now It's part of Intesa Sanpaolo that may be even some positions, some NPL positions, which are shared by the 2 banks. The same with the €4,000,000,000 NPL disposals, is it UBI only or is for the group as a whole?
And the second question, the TLTRO, you have taken about €71,000,000,000 You can take more than €90,000,000,000 Do you rule out taking some more in the next auctions? Or you're kind of done? Thank you.
So The allocation of Bedwheel can be only on Ubi portfolio, but it is true that Exeter. There are a number of clients that I think will be in common that can be Ecosia, shared that the reason why we need to enter more into and the figures of UB to better understand what it is possible to do Executive Officer with the Bedouin. In any case, the disposal will be on Executive Officer on nonperforming loans, and it is also clear that a portion of these nonperforming loans will be in common Executive Officer of Sao Paulo. So that's the reason why we need to better understand the position from inside. So having the full control of the figures of UB, and then we will decide ECSEL that having bed will, having areas in which it is possible to reinforce the coverage and Accelerate Nonperforming Dose Program.
This will generate benefit at group level. On TLTRO, our intention is to have other participation and so to increase The total amount roughly for another €10,000,000,000 we will see in the next futures, but
We will now take our next question from Benjie Koulan Sanford from Jefferies. Please go ahead.
Executive Officer.
Yes, good afternoon. Two questions for me, please. The first one was on asset quality. If I look at stage Two loans, they looked to have increased quite a bit quarter on quarter from €43,000,000,000 to €63,000,000,000 I'm just wondering if you could give us any more details on the driver and And the nature of those loans and do they include loans under moratorium already in Italy? The second question is on fee income.
Asset management and insurance fees continued to drop this quarter, but assets under management Obviously, rebounded quite strongly. So is your expectation that we should see much stronger momentum in terms of fee income in Executive Officer for 3Q in the second half of this year or does more cautious kind of product mix and approach from clients keep a lid on that fee performance?
Equity. For sure, in fee income, we expect to have a rebound because June has been A good month. And as I told you, Chief. The increase in assets under management has been massive in this respect. So EUR 2,200,000,000 Exeter.
The increase in net inflows is really significant. Also, July has been a very good month Executive Officer. In this trend, we expect and what we are seeing Equity. With Private Banking and Bancari Territory is an increase Excluding the volumes coming from both mutual funds and insurance Exo Business. Insurance is an area in which we are increasing in a significant way Accelerating.
So net net, my perception is that in the next quarters, we can Executive Officer. You can see other significant step into the commissions area, provided that Equity. The market can remain with a positive trend, and this will bring also of the Italian Family's Towards Wealth Management and also my people Executive Officer, more in favor of suggesting to the client the investments Executive Officer, into the product of Wealth Management. For what is related with the Stage 2 is also an impact related to the moratoria Executive Officer, and that is a portion related to this new Growth in terms of this portion of portfolio. All this combination is what we have Ecosiderate, in order to have the maximum cost of risk of 90 basis points during the next Ector, 2 quarters.
Okay. We will now take our next question from Patrick Lee from Santander. Please go ahead.
Hi, good afternoon. Thanks for taking my question and Thanks for the interesting observation that Entesa is now bigger than Santander market cap. I thought that was quite interesting. I just want to touch on Executive Officer. A topic on M and A and a question on branch reduction and cost synergies.
I think you mentioned that you are now obviously a national champion now, but How important is it for you and for Intesa to be more than just a national champion? And given the valuation of European banks in general, Would you consider taking a bigger step for like cross border M and A in order to gain the extra geographical diversification, for example? And the second one is just a bit of a medium term in terms of what you think about cost synergies with UBI and in the context that you mentioned under COVID-nineteen, The increased use of digitalization has been forced onto the customers. And I just wonder if in the long term, do
you think there Can be
even more branch closure than you envisage at the beginning of the year and whether you could bring more cost synergies to the picture. That's it. Thank you.
So looking at the Geographical Diversification. So this is a point in which you have to consider of Geographical Diversification in connection with possibility of creating value for your shareholders. So It is there is a clear evidence that investors can create portfolio making geographical diversification, Investing in an Italian company and in a French company. So from our side, Excluding the geographical diversification, we have to be sure to create value for our shareholders. And believe me, I think that Executive Officer.
I'm really able to create value to my shareholders through integration in Italy or through Possible growth in terms of areas of Wealth Management, But I don't think that there could be significant value in making a combination just for the sake of Geographical Diversification. So today, I do not see any kind of Equity. We have a very strong position to create value for our shareholders in making some kind of geographical Ecosification. For digitalization and cost synergies, I think that We can continue to have a strong trend in terms of cost reduction, Investment, at the same time, in digitization. This will bring benefits Suez, also looking at the branch coverage, so the possibility to work in further Executive Officer.
Reduction of branches, especially in the segment of mass market because What I will do is to invest in reinforcement of Executive Officer of the First Altria and to try to work in order to have further reduction of branches. Digitalization will be a key driver and enabler in order to reduce other branches. So net net, I think that we have other significant potential in terms of reduction of cost.
We will now take our next question from Andrea Pulte from Mediobanca. Please go ahead.
Yes. Good afternoon. Questions on cost and on cost of risk. On costs, could you quantify for us how many additional branches could you close at Regime From the implementation of the Cisalpay agreement in the digital channels and what time frame you have in mind for this? COVID-nineteen clearly accelerates digital awareness among clients.
How long do you think it will take for Italy to converge Executive Officer. And on asset quality, what sort of default rate within the moratorium loans
So looking at the Extra branches, we have already disclosed to the market that with the Cisal agreement with the Cisalpay agreement, there could be theoretically 1,000 branches in excess that can be closed. Then it is clear that you need absolutely Excluding the impact of the agreement, and now we have another point Executive Officer, we have to add to this analysis that is the Ubi acquisition. So I cannot give you Executive Officer. Any kind of time frame, I'm working in acceleration of possible Analysis of Branch Closure, but this work will be part of the budget Exeter, 2021, in and we will start to work default rate for moratoria depending on the mix of clients because Executive. You have different kind of clients involved in this scenario.
Our expectation is that E. The default rate will not be significant because a significant number of Executive Officer. This player that at the same time have the current account with us have E. Significant liquidity in their current accounts. So our expectation is that there could be an impact, but And again, I have to add you that I will start also A request with the government to make a postponement on this point.
This is in the interest FEM. So we will see what can happen in the future.
Sorry, you mean the extension of Monetoria?
We will now take our next question from Ignacio Suruzzo from UBS. Please go ahead.
Yes. Hello. This is Ignacio from UBS. Several questions from me. The first one is on the loan yield evolution in the quarter, Especially in the context of guaranteed loans.
So if you can kind of tell us how many how much of the volume in the quarter has been given with the government guarantee And how does the markup compare with the Q1 number? The second one is on the business plan in the 2022 net profit. If you can share with us Executive Officer. What kind of cost of risk might you be assuming? I remember actually pre COVID, you were guiding for cost of risk in the medium term heading towards 40, 21.
Thank you.
So the majority of the growth Exactis guaranteed by government. So I can tell you that it is probably the majority Executive Officer of the government. So the short term for sure is guaranteed. And then we have medium term loans EBITDA in the normal activity of the group. So for the short term, it is the majority.
If you include also the medium, long term, it will be more or less 50% of the total amount of the loans granted. Then we have also a portion of international activities deriving from the Corporate Investment Banking division. Executive Officer. If you look at cost of risk, I can confirm that for 2021, 70 basis points can be Exane. Cost of risk reasonable.
On a normal trend, Executive Officer. I can confirm you that 40 basis points is the trend in normal condition for a bank Like Intero Sao Paulo, with the right coverage of nonperforming zones. So again, We are back on the point of being sure to make the right allocation of provisions Exane, in 2020 and the right allocation of Bedouille during The process of consolidation of UPI. If these two factors will be positive, I think that the medium, long term cost of risk of the group will be easily under control.
And on the RWA migration coming from migration of internal ratings?
What we expect is the majority Executive. Between the past due and the unlikely to pay, Executive Officer. That's our expectation during 2021. The portion of bad loans In our expectation, we'd be not so significant. Probably, we need to have some more of Cortez, so the 3rd Q4 in order to be sure to have the figures for 2021.
Executive Officer. We will now take our next question from Bri From Autumn Auto Research. Please go ahead.
Yes. Hi there. It's Greta from Autonomous. Executive Officer. I've got 2 questions on capital and then one on the deal.
Can you comment a little bit on the regulatory impacts We've seen in the CET1 ratio in the Q2 and whether there are there any other benefits to come. So do you intend to use the prudential filter? Do You have any benefits from software intangibles that could still arise? The second one would be, could you clarify what The ET1 impact you now expect from the Ubi deal given the update of the figures regarding the negative goodwill and also the final Acceptance ratio. And then thirdly, could you clarify the synergies for the Ubi deal with regards to 5,000 headcount reductions.
Am I right in assuming that that includes the 1,000 voluntary exit at Enteba? Thank you.
Sorry, I didn't understand the second question. Sorry, could you repeat, please?
Executive. The second question was on the CET1 ratio impact that you expect from the Ubi deal. I mean, you give the range that you don't expect the fully loaded ratio To fall below 13% or to remain above 13%, but could you be a little bit more precise in terms of the basis points impact that you expect?
Okay.
So looking at the benefits for the future from regulation, Equity. My expectation is that we will not have significant further benefits On the common equity, we will continue to have a strong work IT related to this item, but not significant related to regulation. Looking at the Ubi transaction, Our expectation is that through this increase in cash that we made or the offer, and Chief Executive Officer. The impact in a transaction could be between 50 basis points 80 basis points depending On the final points, looking at the results, it will be just announced yesterday. Of the Ubi Group.
But again, we will have to see in September making the first consolidation of the 2 groups.
We will now take our next Question from Alberto Cordaro from Bank of America. Please go ahead.
In the answer The first question, you mentioned also the possibility of some extra integration charges. I think it is possible you take this This year because it seems that you're running well ahead of your target for the year of €3,000,000,000 of earnings. But my question is, how would you change The outlook for next year. And specifically, if when you said the extra integration of tariffs, You mean that maybe the synergies that you think to extract from the UB deal of €700,000,000 Executive Officer, could be made even bigger. And I think this is an ambitious target, but not you and Luca, what you've done in all your operation.
Executive Officer. In my personal opinion, you can find personal opinion, you can find personal opinion, you can find personal opinion, you can find personal opinion, you can find personal opinion, you can find personal opinion, you can Executive. And then the other question is Executive Officer. To give us an idea of how many of these monetary loans are in Stage 2.
Sorry, we lost you, Alberto.
Yes, sorry. X. The monetary loans, they moved from €38,000,000,000 to €47,000,000,000 in Q2. How these are evolving? I think this is the final number.
And how many of these are classed as Stage 2 loans? And then my other question for asset quality is yes, can you hear me? Can you hear me?
EBITDA.
Hello.
We will now take our next question from Domenico Sant' Eduardo from HSBC. Please go ahead.
Hi. I think I'll pass to probably deserve some answer. Should I go ahead with my question in the meanwhile? Hello? Hello?
Can you hear me? Hello. Shall I go ahead with my questions? Can you hear me? Okay, guys.
I'm waiting for a go ahead from you. Executive Officer.
Please stand by for experiencing momentary interruption in today's conference. Please continue to hold. Please go ahead.
Maybe, I don't know if Alberto Cordara, we didn't hear the Questions that Alberto made because the line was progressively deteriorating. I don't know if Alberto maybe can
Excellesos Sartoro, your line is open. Please state your question. Just one moment. We'll actually take the question first from Alberto Calderos. Just one moment.
Alberto, your line is now open. Please state your question.
Can you hear me
now? Hello?
Can you hear me?
Yes. Go on. Yes, go on. I'm sorry for this.
I do apologize. I can
hear you well.
Okay. Good, good. So my first question is, I know that it may be premature, but you mentioned some extra integration charges. So my question is, Do we need to keep this €100,000,000 synergies as the only possible number? Or can we start thinking of The possibility to go even higher.
And looking at your previous experience in making deals and integrating company, my impression is I think it's going to be even better than what you originally evaluated for. Then the second question relates to Executive Officer, I don't know if you can give us an indication of how much of these monetary loans are in Stage 2 or if anything, Stage 2. And the third point relates again to asset quality. I was looking at the presentation. You lent the EUR 7,000,000,000 through SACE, another EUR 10,000,000,000 through the PMI fund.
Executive Officer. Shall we expect something more in the ensuing quarters, how this is evolving?
Eduardo Alberto. I didn't understand the 3rd question. Sorry, could you repeat, please?
Yes. The third question is with respect to state Exact Guarantee Loans. If you can give us a bit of an update on how the situation is evolving, both in terms of such a scheme
Okay. So starting from the first point, We need absolutely to enter into the figures of UBSO. ECA. I need to have some months or probably in the next quarter, I will be in a position to give you a view on the extra synergies that we can create Executive Officer in the future and that you can find in the next business plan. So it is typical that when you Create a scheme, Humanitarian Some Reserves.
I think that Executive Officer. The integration charges can be increased. My expectation is that Executive Officer. We will have this position for the beginning of November, so ready to make some kind of disclosure Executive Officer. Ed, the presentation of the 3rd quarter results.
But you know me very well, and you know that I'm used to maintain, E. Especially on cost side and on possibility to use the balance sheet Executive Officer. In case of a merger with a significant number of reserves, so my expectation is that The situation could be really, really positive for the generation of Synergies related to the cost side and the quality of credit side And also the possible disposal of nonperforming loans. This means that the combination of Estinca, net income starting from 2021. But if we remain On the stand alone basis, net income of Intesa Sanpaolo, I can guarantee for a minimum of €3,500,000,000 again in my expectation with some degree of conservatories.
Equity. So that's reality. We need absolutely to enter into the figures. It is premature to make Looking at the moratoria stage, the real point on stage 2 is Executive Officer. If we want to make easy, there could be this impact related to Moradoria.
Reality is that And I didn't want to elaborate on this point, but if you want me to do it, I will do is a clear correlation between Excluding the amount that you have on Moratoria, you amount the guarantee, the scenario and the implication or model of The scenario, so this migration in Stage 2 is mainly driven by Executive Officer. A combination of monetary guarantee scenario, so at the end, the impact deriving from model. We have to check quarter by quarter the implication of the COVID assessment in our figure Executive Officer. Of the scenario that we used, the average could be 11% negative GDP because we use Looking at the evolution
Executive Officer. In terms of
what are what is happening on the state guarantee such and fund, There is an acceleration in this month. So I think that we can also have Some further increase arriving from this area in this quarter, and then We will comment in November also this figure related, this acceleration. In any case, My expectation is that net interest income will have a boost coming from this and from the TLTRO proposition.
Parisian, many thanks. Thank you very much.
We will now take our next question from Domenzo
Exane. 3 very quick questions Executive Officer from my side. First of all, thanks for appreciate that you gave us the direction of the NII over the next quarters that is going to be positive. Can you help us to work out how much is going to be the incremental contribution from the TLTRO? Should we just Exane.
Applied 1% on the total, so we get incremental contribution or like other banks are pointing out Equity Europe, a lower percentage given that most of this liquidity is given back to the ECB. So an absolute number would help. Executive Member, would help. 2nd, on fees, I was wondering whether there is any pot of unrealized Executive Officer, the U. S.
And that might emerge in the Q4 as usual, assuming that the market doesn't collapse, of course. Executive. And third, I see that you are going to integrate the IT system. The IT integration will be relatively quick At the beginning of 2021, so for the benefit of our model, I was just wondering whether you can help us to understand what could be the phasing of the cost synergies and whether I mean, a chunk of cost synergies might be already front loaded in 2021. Thank you very much.
So it is clear that the component Ecopetin 2021. I think that it could be the right thing to give this information Executive Officer. In the next presentation, in which I will be sure to have the full evidence of the characteristic Executive Officer of the Ubi situation, because you know we made a top down exercise. So in these 2 or 3 months, we will work Executive Officer, with the UB people and with the real UB situation, and then I will be in a position to give all the evidence. Executive Officer.
My expectation is that we will have an acceleration in integration at the beginning of 2021. So a portion of these Benefit will be for sure in 2021. In terms of fees, we have Executive Officer. A very limited number of performance fees this quarter, just €11,000,000 There is some reserves in Horizon, But we have to check what can happen in the next months. For the time being, the evolution is really positive.
Ed. In terms of net interest income, the incremental contribution could be significant because we are talking about Equity benefit coming from minus 50 basis points to minus 100 basis points. So the amount of Equity LTRO is significant. So we are talking about number that could be, Executive Officer. In absolute terms, €100,000,000 €150,000,000 Again, Executive Officer.
Let me check quarter by quarter the evolution of this figure.
Thank you.
That concludes today's question and answer session, Mr. Messina. At this time, I would like to turn the conference back to you for any additional or closing remarks.
Okay. So thank you very much, and we will have the occasion to have at the other meeting at the presentation of the results in beginning of November. At the timing, We will give you more disclosure on this presentation. Thank you very much, and see you in November.