Good day, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2019 full year results hosted today by Mr. Caldo Messina, Chief Executive Officer. My name is Gael 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 answer the queue for questions.
Today's conference call is being recorded. At this time, I would like to hand the call over to Mr. Carlo Messina. Sir, you may now begin.
Good afternoon, ladies and gentlemen, and welcome to our 2019 results conference call. This is Carlo Messina, Chief and I'm here with Stefano del Punta, CFO Marco del Frate and Andrea Tamaneni, Investor Relations Officers. Before diving into the detail, let me say that we are very proud that the bank continues to deliver strong results despite an external environment that Being less supportive than expected for revenues and we continue to invest for sustainable growth. Low interest rates, while penalizing net interest income are favorable for our Wealth Management business, as is the declining sovereign spread. Our Wealth Management and Protection business is working at full speed to convert into and the $70,000,000,000 of household site deposits collected in the past few years.
The first positive results were visible in Q3 and Q4 and the outlook is even more positive. In 2019, we fully delivered on all our commitments, in particular revenue growth with commissions in strong acceleration in the 2nd semester reaching a historical peak in Q4, one of the best quarters ever of the past few years for assets and under management net inflows. Continued cost reduction, We decreased cost of risk with loan loss provision at the lowest level since 2007, increase in net income that is up 24% when excluding the capital gains from NTV and Intrum booked in 2018. And so reaching €4,200,000,000 driven by core operating performance. We confirmed a payout ratio of 80%, resulting in cash dividends of €3,400,000,000 that likely means the highest dividend yield in the sector.
At the same time, we further strengthened our balance sheet. We reduced our NPL portfolio by EUR 6,000,000,000 leading to the lowest NPL stock and NPL ratio since 2008 at no cost to our shareholders. And our capital positions continue to be rock solid. Fully loaded common equity ratio increased to 14.1% and fully phased in to 13%. Therefore, we commit to delivering a net Come in 2020 above that in 2019, even when excluding the Nexi capital gain.
And of course, well above 2019 when including the capital gain. And they pay out ratio of 75% with a very high sustainable dividend once again. Furthermore, during 2019, Customer financial assets excluding repos increased by €70,000,000,000 and we have also made multiple strategic moves Like the acquisition of Airbn, a specialized health insurance company and the strategic partnership with Nexi that will boost the future sustainable growth, accelerate business plan execution and further enhance our very resilient and well Let's now look at the key highlights for 2019. The best net income since 2007, EUR 3,400,000,000 cash dividend equal to a dividend deal of 8.4% with common equity TRY ratio of 14.1%. 6% growth in operating margin and cost income down to 51.4%, among the best in Europe.
In Q4, we registered the best ever quarter for commissions and quarterly growth in net interest income and insurance income. Of the lowest ever gross NPL inflow coupled with a 13% decrease in loan loss provisions. We have deleveraged around €34,000,000,000 of NPLs since the peak of September 2015. That means more than 50% reduction at no cost to shareholders. We have already achieved of 83% of our 2021 business plan NPL deleveraging target.
As always, I want to thank all Intesa Sanpaolo people for their hard work in helping achieve these excellent results. Slide number 2. I'm even prouder of our results since they were achieved in a challenging operating environment. The Eurozone and Italy And even lower than in 2018. And then 10 year B2B bond spread remained at around 2 50 basis points in the 1st semester starting to decrease only in Q3.
Slide number 3. Despite the challenging context, we fully delivered on all our commitments, revenue growth, cost reduction, decreasing cost of risk and net income growth. We also further strengthened our already solid capital position with the common equity ratio up 50 basis points. Slide number 4. We have been able to achieve the best net income ever excluding 2,007, which was strongly affected by capital gains due to the merger.
So delivering 6 consecutive years of growth. Slide number 5, As you can see from this slide, in 2019, we continue to improve across all key indicators. Slide number 6. In 2019, we delivered for the 3rd consecutive Here a cash dividend of €3,500,000,000 while further strengthening capital and rewarding shareholders with high and sustainable dividends is and will remain a management priority and my personal priority. Slide number 7.
These excellent results are powered by a combination of that ISP management has built over time, a top performing delivery machine that focuses on business plan priorities and the business model that is both resilient and well diversified. We have proven our excellent, excellent derisking capability. Thanks to the partnership with the previous ISP is now focusing its internal capabilities on proactive credit management, while leveraging a best in class external platform for late stage. We have also strategic flexibility in managing costs. We will have 3,100 additionally voluntary exits by June 2021.
And we have received 1,000 further applications. We are a wealth management and protection company with Sound and strong financial market activities that we made stronger by focusing treasury of management of the liquidity portfolio at Bancaimi on the integrated management of the other securities portfolio. As a result, we are able to both take market opportunities and hedge the impact of volatility on our fee based business. This is one of the reasons for the strong growth in profits from financial assets in 2019 and for the positive outlook for 2020. Our wealth management machine is working at full speed to convert into assets Under management, part of the €176,000,000,000 of assets under administration and €70,000,000,000 of household €3,000,000,000 collected in 2019.
We strengthened the product offering, the commercial reach of our non motor insurance business with revenues up 65% on a yearly basis. Slide number 8. During the past year, we also started building our future growth through multiple strategic actions. We further strengthened our position as a wealth management and protection company by acquiring RBM, the independent leader in the Italian health insurance market and by completing the setup of our Chinese Fedoram to fully capture the opportunity of Chinese of fast growing wealthy household market. At the same time, we secured upside from scale intensive businesses by partnering with leading players, Nexi in Payment System and Cisalpay for Proximity Banking.
Let me give you some detail of these 4 important actions. Slide number 9. As announced in December, by July 2020, we will acquire 50% plus one share of Airbn Assicurazione Salute, Italy's independent leader in health insurance and we will progressively increase our stake to 100%. At the same time, we will sign an agreement with Prebi Medical and AirBN Sister Company to give our Customers access to the largest private medical network in Italy, counting on a network of over 100,000 medical facilities. This deal is fully in line with our strategy with clear benefits for ISP.
We will strengthen our domestic The high value added and fast growing health insurance sector becoming the 2nd largest player in the Italian market. So we are now the 2nd largest player in the Italian market. And we will announce our offering through the inclusion of assurance offering to our retail customers. Slide number 10. During 2019, we also took of concrete steps forward in Chinese fast growing wealthy household market, strengthening an already material presence.
For our Chinese Fedeagram, we completed the organizational setup, put in place around 40 people and received our first license to distribute funds. And at the same time, we received authorization from the ECB and Bank of Italy to apply for a license to set up of our securities business in China, which will provide our Chinese Fedebras with tailored products and services. Slide number 11. Also in December, we signed a strategic partnership with Nexi in payment systems involving The transfer to Nexi of the ISP acquiring activities for €1,000,000,000 cash consideration with ISP retaining the client facing resources. ISP purchase of 90.9 percent of Nexi Capital that we consider a strategic stake through which we can participate in the upside of fast growing market and then a long term distribution agreement for Nexi Products through ISP Channels.
As a result, the deal will generate a net capital gain for ISP of around €900,000,000 in 2020 and a clear stake of roughly 10% in Exi Capital. Slide number 12. In 2019, we established A strategic partnership with Cisalpay to create the 1st Italian proximity banking network, which is based on the creation of a new co controlled by Bancacciinque and Cisalpay. And thanks to this agreement, we expanded our product offering and increased our outreach to of $30,000,000 Cisalpay retail and small business customers and scaled up our network to over 50,000 points of sale, enabling us to accelerate our branch closure plan beyond our business plan targets. Slide 13.
Our sustainable performance allow us to create sustainable benefits for all our stakeholders In 2019, employees received €5,700,000,000 in salaries In total, our excess capacity of around 5,000 people is in the process of being reskilled. The public sector received $2,700,000,000 in taxes and household and businesses received more than €58,000,000,000 in new medium long term lending. Slide number 14. Our remarkable financial results allow us to contribute with impact to the society we belong to. ISP is strongly committed to its Preserve Art and Culture, Invest in Young People and Promote Employment, Promote and Develop a Circular Economy, Drive Innovation and Support Families.
Regarding Europe's Green Deal, Intesa Sanpaolo is ready to contribute with €50,000,000,000 Slide number 15. In this slide, you can see just a few examples of our work to support Italian society. Let me comment just on a couple of recent developments. In January 2020, we launched to new fund for impact projects, one for working mothers and women entrepreneurs and one for people over the age of 50 to our direct support to Italian society, the €700,000,000 in dividends that we paid out in 2019 to the banking foundations that make up part of ISP's shareholding also provides support to social and cultural project. In fact, these foundations alone contributed more than half of the total charitable funds donated by all Italian Banking Foundation.
Slide 16, as a result, we are the only Italian bank rated at the top of the main sustainability rankings and we are very proud of these achievements. Slide 17, in this slide you can see the key highlights of our Strong performance in 2019. Let me take you to page 18 and give you some color on the P and L. Despite a challenging environment in 2019, market by lower economic growth, lower interest rates In the 1st semester with the B2B boom spread at around 250 basis points, we delivered growth in profitability driven by an increase in revenues, Commissions were up slightly with strong acceleration in the 2nd semester and a good tailwind for 2020. Profits from financial assets were up 31%, confirming that our business model is naturally hedged because our financial market activities offset the impact of market volatility on our fee based businesses.
We have continued to be very effective at managing costs with personal expenses down by 1.2% and administrative expenses down by 5%. Depreciation is up slightly as we keep investing for growth. Our loan loss provision decreased by 13%, gross income and net income were up 17% 24% when excluding Interim and NTV. Net income comes to €4,500,000,000 when excluding costs concerning the banking industry. Slide number 19, our performance in Q4 was also very solid with the best ever quarter for commissions.
In comparison with the same quarter last year, net interest income is up around 1% and commission are up 8%. Profits on trading increased strongly. Operating income was up more than 9%. Operating margin was up 26%. Low loss provisions were down around 1% despite the €60,000,000 one off impact of the adoption of the new definition of default since November 2019.
And the net income was up more than 45% when excluding the interim capital gain. Slide number 20. In this slide, you can see that on a quarterly basis, net interest income increased slightly despite the further reduction in interest rates, Thanks to positive dynamics on commercial components. On a yearly basis, net interest income decreased mainly due to the impact of in 2018. Net interest income was also affected by €30,000,000,000 growth in direct deposits excluding repos debt in a low rate Environment impacts net interest income in the short term, but boosts our wealth management engine for the coming quarters.
We will continue to work hard to improve the commercial component, while continuing to manage Our revenues in an integrated manner and with the aim of delivering positive EVA strategy. Despite the challenging environment, slide 21, customer financial assets increased by €69,000,000,000 in 2019, Excluding repos, we are near the $1,000,000,000,000 mark. Assets under management increased by $27,000,000,000 in 2019 and in the same period family site deposit increased by €15,300,000,000 out of which €4,500,000,000 in Q4. The so called sleepy money collected so far together with the $176,000,000,000 in assets under administration will become the fuel of our wealth management engine. And we continue to see a shift in Slide 22.
Once again in Q4 all our division made a positive contribution to group results. Around half of our gross income comes from the Wealth Management and Protection business making ISP a clear European leader in Wealth Management. This slides alongside the continued excellent performance of our Corporate and Investment Banking division. Slide 23. Operating costs declined by 2%, while we continue to invest for growth in all key areas.
Our cost base is already below €9,300,000,000 against the business plan target of €9,500,000,000 in 2021. And includes significant incentives for the results achieved in 2019 and to trigger growth and does not yet include the full benefit from people who left the bank in the past few months. The main sources of savings were headcount reduction, real estate optimization, legal entities reduction and the decrease in other administrative costs. We reduced headcount by more than 3,100 on a yearly basis with room for further cost reduction. And we have already agreed and fully provisioned 3,100 additional voluntary exit by June 2021 of which 850 at January 2020.
On top of this, we have received 1,000 additional application to be reviewed. Further branch reduction In the range of 1,000 branches on top of the 1100 abandoned in business plan are expected in light of the bancassinequen network Thanks to the strategic partnership with Cisalpay. ISP maintains high strategic flexibility in managing costs and remains a cost income leader in Europe with a 51% ratio. Slide number 24. As you can see in this slide, loan loss provisions declined to the lowest level since 2007.
As a result, cost of risk is now down to 53 basis points, well on track to achieve our business plan target of 41 basis points by 2021. The NPL coverage ratio increased well above 55% when excluding the effect of the new definition of default. Slide 25, our masterpiece. Our NPL stock is declining sharply, reaching the lowest level since 2018. We deleveraged around EUR 6,000,000,000 in the last year and EUR 1,000,000,000 in Q4.
So EUR 1,000,000,000 in Q4, when excluding the impact from the adoption of the new definition of default. The gross NPL ratio has decreased by around 10 percentage points since the peak of September 2015 to 7.6 percent and the net NPL ratio decreased by more than 6 Percentage points down to 3.6%, the lowest level since 2008. As you know, ISP has been able to deliver this impressive deleveraging at no cost to shareholders. Slide number 26. In order to reach our targets for 2021, we need to deleverage around $600,000,000 gross NPL and around $300,000,000 net per quarter over the next of the 8th quarter.
This is more than manageable given that in the past 17 quarters we organically deleveraged $1,200,000,000 gross NPL and EUR 900,000,000 net per quarter with a coverage that was much lower. That is why we confirm our business plan targets even considering the new definition of default. Slide 27, Our proactive credit management contributed to the reduction in gross NPL inflows down 76% versus 7 years ago. The increase of net NPL inflows depends on fewer exits from the NPL status and is concentrated in Unlikely to Pay where in the last 6 months 200 of our best UTP specialists We're focused on delivering the Prelios deal by supporting the portfolio selection and due diligence activities. Let me also underline that this run rate will easily achieve Our NPL plant targets and that Q4 inflows were significantly lower than dues in Q3 when excluding the impact of the new definition of default.
Slide 28. In 2019, we strengthened our already solid capital base and we increased the buffer to paying out €3,400,000,000 in dividends. We have one of the highest Capital buffers in Europe equivalent to €13,000,000,000 that has been built entirely through internal capital generation and while having paid of $17,000,000,000 in cash dividends over the past 3 years. Our fully phasing common equity ratio is at 13%. The decrease in Q4 common equity ratio is due to the change in regulatory treatment of Tier 2 instrument issued by our insurance And that should be also for other European players benefiting from Danish Compromise.
Slide 29. When it comes to capital strength, ISP continues to be a sector leader in Europe and this clearly supports of our generous dividend policy. In addition, we continue to apply a deliberate strategy of low leverage with a leverage ratio of 6.7% amongst the best in Europe. Slide 30. We have a best in class risk profile in terms of the ratio of capital to financial liquid assets.
So by this, I'm referring to net NPL level 2 and level 3. In the interest of time, I will spend just a few minutes to give you an update only on the projects related to our P and C insurance business And I will leave to for you the main business plan actions that are all up and running, thanks to the contribution of my people. So if we can move to slide 33, just to give you some focus on property and casualty assurance. We recorded strong performance in 2019 with combined ratio at 76%, twelve 15 percentage points lower than the Italian market average and the 65% increase in non motor business revenues, which is the focus of our growth strategy with a strong acceleration in Q4, 43% increase versus Q3, 85% on a yearly basis. These results have been achieved through a strong focus on the non motor offering with penetration of our client base above 10% and gross written premiums up 40 Send to more than €550,000,000 The introduction of around 220 property and casualty specialists in our branches and dedicated training with 30,000 employees obtaining a license to sell property and casualty products from the Italian Insurance Authority and 12,000 web completed advanced training since 2018.
Let me remind you once again that the announced acquisition of Airbn Assicuracionesalute will further strengthen our positioning in the fast growing health insurance market. So let's now turn to slide 37. At this point, I would like to share a few consideration regarding the resilience and solidity of of the Italian economy. Despite the flattening trend in Italian GDP growth over the past years, Some key indicators are strong and will trigger a recovery. In particular, unemployment fell below 10% for the first time since 2012.
And in November, the number of employed people reached the highest level since 1977. Also thanks to the strong increase in employment of women. The growth of gross disposable income of household is Exceeding GDP growth and therefore accelerating the recovery. This reflects the solid fundamentals of the country. In fact, Italian companies are more profitable and better capitalized than before 2008 crisis and well positioned to benefit from the expected economic improvement.
In addition, let me say that The mix of persistent low interest rate, a stable Italian sovereign spread below 200 basis points, GDP recovery The more than €10,000,000,000,000 of household wealth is a positive scenario for a wealth management and protection company like ISP. Slide 38, just to give you my view on Italian real economy And especially in if you make a comparison with the other European countries, Italian macroeconomic fundamental are solid, especially when compared to other European countries. Still the Italian spread is double that of Spain and Portugal. So we expect the Italian spread to decrease farther from the current level and to reduce the cap versus those countries. The major reason of this gap is the political situation in our country.
So I think the stability can only improve this and with stability Italian spread can easily go close to the Spain level. Slide number 39. We have a positive outlook for 2020. We expect growth in operating income versus the past year. Also thanks to loan growth and security portfolio contribution growth, while preserving adequate diversification and risk control.
Switch from assets under administration is making sleeping money to assets under management. In Q1, Q4 was one of the best quarters for asset under management net inflows of the past few years. Strong growth in property and casualty insurance business at full speed and a further boost in the 2nd semester from the acquisition of LBM. Further growth in corporate banking commissions, robust performance in profits from financial assets And thanks also to the strengthening of financial market activities implemented in 2019, where we also enjoyed a good that will benefit from the 2019 staff reduction and the additional reduction of branches will drive operating margin growth. In addition, we expect a further decrease in cost of risk, thanks also to the lower NPL stock in the previous agreement that we work at full speed.
As a result, we expect a substantial growth in net income with the 2020 net income above 2019 even when excluding the Nexi capital gain. Finally, the payout ratio for 2020 will be 75% is set up in our business plan with another year of high and sustainable cash dividend distribution while preserving a rock of the company. Obviously, with the Nexi capital gain, the net income 2020 will be well above 2019. Slide number 14. To sum up, we have a very satisfied performance in 2019.
And our delivery against the business plan targets are de risking. We have already achieved 83% of the 4 year NPL business plan deleveraging target. Operating costs are down 2% while still investing for growth. And revenue growth, operating income is growing despite a challenging environment. We strengthened our financial market activities to both capture market opportunities and to hedge the impact of volatility on our fee based business.
And we are working at full speed to convert into assets under management both assets currently under administration and the so called sleepy money collected in the past few years. We also made new strategic moves that will support our future growth. We are a sector leader in Europe when it comes to capital strength, which further improved in 2019. Last but not least, we have remunerated our shareholders with cash dividends of €3,400,000,000 All in all, we delivered strong performance in 2019, while investing for sustainable growth. We maintain a positive outlook for 2020.
Thanks to the contribution all of our people. So thank you for your time and attention, and I'm now happy to answer your questions.
Please make sure that the mute function on your telephone is switched off to allow your signal to reach our equipment. When you're asking your question, Our first question is coming from Azura Gulfi from Citi. Please go ahead. Your line is open.
Hi, good afternoon. A couple of questions on cost and dividend. I am not focusing on revenue because they were to surprise this time. If I look at cost, the outlook for 2020 is still a reduction. And would it Still would it be mostly on the staff costs given that you have headcount reductions still coming or would have some impact also on the other And if you can give some color on investment that are needed on compliance cost or IT.
When you will look at the additional 1,000 people that have expressed interest. Are they previously provision or would they need additional provision for please and on dividend. Can you update us on the potential of an interim dividend for 2020? Thank you. So
on cost, staff cost by definition are the main sources of reduction due to the embedded reduction that we have already with the full impact of the exit in 2019. So more or less 50% of the exit has been in the 2nd part of the year, so we'll have full benefit in 2020. Then there is a portion of the new exit that will be in which we have already had exit at the beginning of January. So this will have full impact during 2020. And then we will have other exit during 2020.
So net net Staff costs, initially due to the reduction of people will have a reduction during 2020. Looking at administrative expenses, our expectation is to manage in the right way in order also to have a reduction in these areas continuing to invest for growth. There are significant investing capital Capital budget due to IT digital compliance, but also due to the Acceleration in the property and casualty business and also our growth in Chinese in order to reinforce our In terms of efficiency, net net our expectation is that we can have another year of good performance in terms of cost. Due to dividend, so interim dividend is an item in which we need to change the bylaws. So that's The only point of attention that I have, because I'm fully positive on this item, I need to prepare The right process within the governance of the bank.
So working with the committee, with the Board of Directors, then asking for the authorization of the ECB, but I have a very positive view on the interim dividend. So we are just waited for the closure of the figures on 2019 and then we will start for a formal process in terms of working for Internet dividend.
And on the extra people, would they have a cost? Sorry.
Sorry, yes. On the extra Exit, we will have a cost if we decide to accept this request that is in the order of €50,000,000 €50,000,000 €60,000,000 not more than this.
Thank you.
Our next question is coming from Del Finley from JPMorgan. Please go ahead. Your line is open.
Good afternoon. Thank you for taking my questions. Just a few small quick questions and then one on net interest income. Maybe just on my quick questions. Just So wondering the 10 basis points CET1 decrease, if you just can explain it just very briefly.
Secondly, on the P and L impact of the is there any P and L impact actually from the RBM acquisition? I assume it's all goodwill and goes directly through equity, but I just wanted to check. So just on the tax rate, which for 2019 has been maybe slightly lower than expected. If you could just provide an update of what you consider the normal run rate for 2020 and 2021. And just on net interest income, would you mind just giving us for 2020, the amount of expiring bonds and issuances that you intend to make.
And if
If you don't mind on the
expiring bonds, just an average sort of rate of how much they cost. Just trying to get a better feel of the outlook for NII and particularly on the spread component. Thank you very much.
So moving from the starting from the reduction In common equity, as I told the major reason with an impact of 15 basis points is the Change in the treatment of the Tier 2 instruments issued by insurance company. Net of these, We had an improvement of common equity and not a reduction of common equity. In any case, we remain in such A very good capital position that also with this change in regulatory condition, There's no point of attention from our side. In P and L, we will not have any impact coming from Airbn. We had no impact.
And for the 1st semester, we will have not an impact coming from the acquisition. And on the other side, we will have just Goodwill implication, but not so significant. Tax rate, our run The next question comes from the line of the line of the 28%. So we think that this could be more or less a likely view on our future tax rate. On net interest income, if you allow me so I will avoid the 100 questions On net interest income, I will give you colors on all the items on net interest income that we expect for 2020, So we can just give all of you our view on what we have in our budget for the net interest income.
So if you look at bond expiring, they are not so significant during The 2020, these are EUR 11,000,000,000 out of which EUR 2,000,000,000 from retail. We expect contribution in terms of reduction of cost of funding on a medium term, But the main benefit that we think to have during 2020 is a volume effect. So a growth in loan book and also a growth in portfolio, so in government portfolio with a well diversified proposition. On the other side on hedging, we do not expect significant reduction during 2020 and growth in revenues coming from portfolio is enough to compensate for further reduction on NPL. So on derisking that can have an impact on net interest income impact that will be by definition much lower than the one that we had in 20 in 2019.
So net net, our expectation for net interest income is a growth of net interest income in 2020. I want just to remember you that looking at the spread impact, we will have also A benefit from tiring that could be in range of €70,000,000 during 2020, more or less could be this the impact for this special item. So net net, the combination of all these items bring us to have Confidence that net interest income can grow on a yearly basis, so not looking on a quarterly basis, But on a yearly basis, our expectation is a growth in net interest income.
Great. Thank you very much. Our next question is coming from Antonio Reale from Morgan Stanley. Please go ahead. I'm afraid the participant just have a way.
We'll now take our next question from Andrea Ungietta from Credit Suisse. Please go ahead.
Hi. Thank you for taking my questions. If you Go to Slide 11. You mentioned that the capital gains from Nexi might be partly allocated in a scenario in which you identify that, that can strengthen sustainable profitability. Could you walk us through what you are planning to do with the gains?
Is that increasing provisions. I don't know if you can give us more color on what that could be. And also It'd be really helpful if you could walk us through the regulatory impacts that we should expect both on capital, but also on the P and L. Is this reclassification of $700,000,000 of NPLs that we saw in the quarter it or which should we expect more provisions or more balance sheet changes? Thank you.
So no more provisions. So the impact is one off in 2019. So we do not expect any Please in provisions. On capital future evolution, we still remain with 35 basis points on on EBA guidelines in the next 2 years. Then this is all what we expect to have looking at these items on our capital position in the next 2 years.
So I don't see any kind of threats on capital and absolutely not on P and L for new definitions on non performing loans. Looking at exit capital gain, we want to work during 2020 with a very relaxed approach. So I'm fully relaxed on 2020. I made a clear outlook to the market that we can generate and we will generate a net income in 2020 well above in a position to increase dividend in 2020 in comparison to 2019. So that's all My indication then I will maintain my freedom to work during 2020 and to I'll locate what I consider strategic in terms of sustainability of growth for my company.
Thank you.
Our next question is coming from Christian Carrese from Intermonte. Please go ahead. Your line is open.
Yes, good afternoon. The first question is on you clarified on net interest income. Just a clarification on GOVI's portfolio, you increased the GOVI's portfolio year on year, but the weight of Italian GOVI's was much lower in the area of 45% at the end of this year. So I was wondering if you are planning to go back to around 50% in terms of weight of Italian govies on total portfolio. And on still on revenues, one on fees, I saw the mutual fund mix a little bit down.
The equity component in 2019, Do you see room to increase the weight of equity? And on real estate portfolio, Do you see any room to see some write backs in 2020? We saw, for example, in Milan, investments were higher in real estate were higher than 2015 at the time of expo. So if you can give some color on that. Thank you.
So real estate market in Milano is clearly booming. So it's area in which we have the probably The most important concentration of investors in Europe. So the Greater Milan, It is defined by the majority of investor is an area in which we have a clear boom. I don't think that we will work to have some benefits looking at our figures, but at the end in any case the improvement of the condition in the market is only positive for the condition of the quality of our exposure and for the sustainability of our coverage in this sector. If we look at fees, the mix is for sure also affected by insurance products, but in my view we have room to increase also equity component.
Looking at the government portfolio, we as you know want to maintain a well diversified portfolio. The mix until the 50% is in the availability of our Managers in the Banca EME department, the Treasury department, so I have to tell you that I have no clear point on this. So until 50%, they can move what I want is to have an optimization in terms of revenue. So this is only what I want from this sector, Especially before especially because we decided to avoid to have the usual Extra, extra liquidity that we used to have in the past and to reallocate a portion of this liquidity into the government like all the international banks. So that's what we want our people, Mainly Corporate Investment Banking Division do, but I have no kind of target in terms of of government Italian government portfolio and they can reach also 50%.
The reduction in this quarter is due to the increase in German bonds. So we increased the AAA contribution of our portfolio, but it is something that can change according to the view of our people in the business.
Thank you.
Our next question is coming from Andrea Filtri from Mediobanca. Please go ahead. Your line is open.
Yes. Good afternoon and thank you for taking my questions. The first is on fees. Are you planning on the repricing of fees for 2020? And if so, how much do you think this action could bring to the line?
On regulation and following up from Andrea's questions, do you intend, if any, to adopt Article 104A of CRD 5, which has been recently confirmed by President Eria. And finally, still on the government bonds angle, There is continued press around the Eurogroup working on a limitation for banks on government bond ownership with a multitude of different proposals admittedly. How do you approach this topic? And could this be the stick of a package with Not yet clear. And on the side, could you guide us on the contribution from the securities portfolio going forward?
Thank you.
So, on government bond limitation, I have to tell you that I'm in favor of concentration limit. So that's in my view the right way to approach this problem from a risk reward point of view. So looking also to effect on that is the concentration risk. That's the reason why we think that we will not exceed in any case 50%, but we are ready also to reduce this concentration if needed. So the evidence of the management of the total portfolio in 2019 is that My people is in the condition to increase revenues, so both net interest income and Trading income through an increase of portfolio also in asset class different from the Italian one.
[SPEAKER JAIME SAENZ DE TEJADA:] So the majority of
the revenue
in 2019 derived from the international portfolio and not from the Italian portfolio. Regulation Article 1 CFRD 4, we don't have Significant point on this. So I have to tell you that this is not a strong point from our side. On fees, reprising fees, our expectation is not to enter into a massive process of repricing. It is clear that during the year, you have a usual on working on the right combination between the costs and the revenues that you received from your client.
But There is no massive repricing process in course during the year. The speed of growth that we will have in terms of commission will arrive mainly from commissions in Wealth Management. The 2nd contributor will be commissions in property and casualty insurance business. 3rd contributor will be global corporate business. These are the main areas in which we expect to have very good growth of revenues during 2020.
We will now take our next question coming from Domenico Santoro from HSBC. Please go ahead.
Yes. Hi, good afternoon. Thanks for the presentation and for taking my question. Just a clarification on the dividend side. You already kind of answered to my question.
But if I mean, it's difficult to envisage any Particular transformation of top up on provision this year. So the risk the upside risk, of course, is that the dividend for 2020 will be way above the level of 2019. So I'm just wondering whether we should apply this 75% payout to a sort of an adjusted net profit or you confirm this is supply to stated net profit? On the Tier Reserve System. I was just wondering whether the pro rata for this Quarter was already accrued in the NII.
And again, on provision, I was just wondering whether you will confirm the EUR 1,800,000,000 provisioning level for 2021. This is probably the number on which the consensus is a bit more cautious or There is any impact from calendar provisioning of the new definition of defaulted by the EBA?
Excuse me. I didn't understand the last question, sorry, because I lost you at the beginning of the phase, so I lost the last part of your question. So if you can repeat the third question, please.
Sure, sure. I beg your pardon. It was just on provision. I was just wondering whether you will confirm at the level for 2021, which was €1,800,000,000 This is probably the number on which a consensus is a bit more cautious or there is any change, which is calendar provisioning or EDA guideline that might change this number. And then just a follow-up on the capital.
I mean, you're very close to the level that you set as a target for 2021. You don't expect any negative apart from the EBA guideline, If I understood correctly, which is 35 basis points, there might be some positive from DTA next year that you might want to Comment on just wondering with this level of capital, which you, of course, you're very confident, if there is any initial talk about buyback of shares going into the end of the plan. Thank you very much.
So dividends, you know that is my favorite item. We are talking about Stated net income, so 75% and you apply on the stated net income. So that's and the result will be the dividend that we will pay in 2020. So that's the reason why I'm Fully confidence that my shareholders can be happy during 2020 also. Tiring a portion has been accrued in figures of last quarter.
So it's close to €50,000,000 Provisions for 2020, 20 21, I can confirm you that our expectation is absolutely to easily reach 41 basis points in 20 in 2021. And looking capital, the evolution of capital from my side is another EP problem in the sense that we will have some negative impact from the EBA guidelines, But in the range that I described to the market, so we are well above What we have considered in the business plan is a running rate In terms of our capital position, so I don't see any kind of issue on this point. And so we will manage easily
We'll now take our next question from Hugo Cruz from KBW. Please go ahead. Your line is open.
Hi. Just a quick question on ATO-one. Do you have any can you Quantify your plans to issue in the next 2 years? Thank you.
On this point, I will leave the floor to Stefano del Punta, so He can give you all the details on this point.
Yes, definitely, we have plans to issue. By the way, we are now fully appreciating or better appreciating the new guidelines from SRB on the subordination requirements. So we will issue additional Tier 1. We have a call coming in January of 2021, which is EUR 1,250,000,000 and probably we also have something to fill up the 1.5 bucket. Most probably we'll also Already in 2020, the San Sriniono preferred, so that we can optimize our of subordination layers and also decreased significantly the amount of senior preferred bonds that we will issue in the next couple of years.
So we expect more or less in the next 2 years to be between €5,000,000,000 €7,000,000,000 of senior nonpreferred in addition to these additional paywanda that I was saying before. So this is more or less the framework for subordinated issuances in the next 2 years. Okay. Thank you very much.
Our next question is coming from Benjie Creeland Sanford from Jefferies. Please go ahead. Your line is open.
Yes, good afternoon everyone. Just looking at Slide 73, going back to the trading side of the business, the average value at risk doubled year on year. And if we look, I mean, the Investment Banking profits are actually now over 30% of the group profit relative to less than 20% in 2018.
Sorry, excuse me, I lost you at the beginning of your question. Could you repeat and speak slowly because I need absolutely to be in a position to understand well what you are Certainly, miss. Thank
you. Sure. No problem. So looking at Slide 73 on Banca EMI, The average value at risk was €136,000,000 in 2019. It was €62,000,000 in 20 18.
And the Investment Bank and profits were obviously up very strongly year over year and represented 30% over 30% of the group profit. So I was just wondering from a strategic point of view, do we or should we expect greater capital allocation to the investment bank going forward? And from a risk management point of view, is there a limit to how high you would like that value at risk number to remain going forward? My second question, which was partly related to that as well, was that if we look at the balance sheet, I mean, the total Balance sheet grew over €60,000,000,000 in the 1st 9 months of the year and then shrank by over €30,000,000,000 in the 4th quarter. Could you just give us a little bit more detail behind the drivers of that?
And should we expect the rebound in the size of the balance sheet in 2020? Thank you.
So in the dynamics of the balance sheet, you have a dynamic related to the repos. So the repos had a massive reduction during this year and especially this quarter. This is something related to the MREL position. So that's the reason why you have this reduction. Now we are close The minimum of the repo, so you should have also stability from this point of view and also Finance interbank financing to world banks, positive interbank financing was reduced especially with the ECB.
So that's the reason why You have such a reduction in the figures of the balance sheet. Coming back on Corporate Investment Banking Division, That is for sure an area in which we had a positive performance during 2019. I can confirm you that with a level of value at risk that is absolutely the one that we consider The right one for a company like us. I can confirm you that in this area, We will have significant, very good contribution also in the next year. So we had a structural change in the dynamic of the Bancaimi performance due to the increase of government portfolio, of well diversified government portfolio because we decided to concentrate all the treasury activity into Banca EME.
And this has allowed us to have a much more engine, a much more ability for the Bancaimi people to work with the government portfolio. Our expectation is that from a structural point of view, We can count on an increase in revenues in comparison with the past between €300,000,000 €400,000,000 on a yearly basis. So this means that probably in 2020, the total figures from profit of tradings can be reduced. So this is our expectation, but we remain in any case good contributors to our results. The main driver of growth in 2020 in our expectation can be net interest income as I described before, The commissions that will be a clear engine for growth at this level of spread.
We have more than €50,000,000,000 that In 2019, we had a net inflow of between €7,000,000,000 €8,000,000,000 just working in 6 months. So just Considering the spread, the level that it is, we can easily double the number of net inflows coming from our of assets under management areas. And at the same time, property and casualties will increase acceleration. So corporate investment banking is an important area for our group, but as it is in all the international group. So Intesa Sanpaolo was underestimated because we used to have of a EUR 60,000,000,000 and an extra liquidity placed to ECB of EUR 60,000,000,000, the unique case in Europe.
Now we have EUR 20,000,000,000 placed with ECB as it is normal and the ability to increase portfolio for until We increased by €20,000,000,000 and it is usual that when you have an increase of such a dimension in portfolio, you have the ability to work and increase revenues coming from these areas, but not working like a Goldman Sachs So with the risk of Goldman Sachs Company, we are a normal commercial banks working In terms of this activity, we have a very good team, but in a normal way, in a normal range. So That's reality, Intesa Sanpaolo.
Okay. Thanks very much.
Our next question is coming from Alberto Cordara from Bank of America. Please go ahead.
Yes, good afternoon. Well, a lot of my questions have been answered. But basically so I just wanted to ask your opinion, because if I hear what you've been saying, essentially things are moving in the right directions everywhere In every single P and L line. Now it's difficult to believe that you're going to achieve the business that you have of €6,000,000,000 because this was predicated on a very different interest rate environment. When I look at Bloomberg consensus, the Street is thinking that you're going to reach an average of 3.9%, which is 35% below.
Now in light of these numbers, to me doesn't make any particular sense. It didn't make sense before, even more today. So I don't know If you feel to give us some idea, I mean, we've been talking about you've been confirming your cost of credit guidance. Actually, you may do better than the 41 bps. But to some level of approximation, what is the kind of earnings that we can hope to achieve in 2021?
And then on a separate point, I mean, I ask you a question that I haven't heard, so it's a rather minor. But if you you said that you've been issuing more Tier 2 on the in the insurance business. So if you can give us an update of the solvency ratio for your insurance division and also the unrealized capital gains that you have in the insurance business. Thank you.
So, Alberto, you're talking about 2021. So let me leave 2020 As the last part of our conversation. So first point is that On the insurance business, we have a solvency ratio above 230%. So at the end, this Tier 2 instrument that are intra group are not strategic fundamental to maintain a solvency ratio above 200%. That's reality.
But due to our significant capital position, we do not need to make any kind of optimization within of the insurance business activity. So they have solid solvency ratio. Also the plan of increasing The property and casualty business will not affect this extra capital position of our insurance company. So I'm totally confident that this is and will remain a significant ratio for the company. They have more than €7,000,000,000 of capital gain in the portfolio.
So it's So looking at the insurance business, this is a clear point of strength for Intesa Sanpaolo. So Coming back on the point of 2021, because 2020 is clear, we will deliver good performance in terms of Operating income in terms of net income due to core business. And Again, in our view, net interest income will increase commission, will increase insurance, will increase in a significant way. Profit from tradings can be reduced, net net revenues will increase, cost will go down, cost of risk down and so net income will increase. That's our expectation for 2020.
Then we have the next capital gain that is something that we can use in a portion in order to accelerate sustainability for the future and we will see what could be the best way of accelerating sustainability for the future. So looking at 2021, it is we have 2 years before reaching the end of 2021. So it's in this environment It's medium long term due to the conditions in the market. If you look at cost side, We are in such a good position that this will be something that we'll deliver with a significant amount of extra performance. All the actions in this area are there and that also with a number of contingency plan that we can use in case of need.
Looking at cost of risk, we are in a position that is absolutely comfortable in reaching the 41 basis points due to the massive production that we had In non performing loans or revenues, there are areas in which we can accelerate. There are areas that are depending on on market conditions. But at the end, if the implication or the consensus is the one that you told me, we have significant possibility to give very good performance and at the end in terms of net income and in terms of dividends in which I can tell you that looking at 2021 Also dividend in 2021 can be in excess of the dividends of 2019. So that's expectation. We will work during 2020.
We will take condition of The interest rate, spread BTPO bond, macro condition and the real points could be the wealth management that's in our bank And in Italy is the real transformational lever that we can consider for the future. And If stability can remain in terms of spread and my expectation is the spread Can be below 100 basis points that my expectation as I told the only point is The stability in from a political point of view, we can try to work hard in order to give very good satisfaction to our shareholders. Looking at the actions, so the plan is also made by number of action. We are well above the all the timing that we have considered in our original business plan.
Many thanks. Thank you very much.
Our next question is coming from Ignacio Tereza from UBS. Please go ahead. Your line is open.
Yes. Hi, good afternoon. It's just a couple of quick clarifications for me. The 41 basis points cost of risk in 2021, if that And the second one, if you can summarize the regulatory headwinds you're expecting in capital over the next 2 years, putting together EBA guidance calendar provision in TRIM anything before Basel IV? Thank you.
41 basis points without NPL sales, but we do not need to have any kind of NPL sales in 2021. So I can confirm you that I don't see Any kind of threats on this level of provisions for the future. Looking at the regulatory headwinds, our Our expectation is that we can have these 35 basis points of EBA guidelines in 2 year times, [SPEAKER IGNACIO CUENCA ARAMBARRI:] But no more than this. That's our expectation. Thank you.
[SPEAKER IGNACIO CUENCA ARAMBARRI:] Thank you.
Our next question is coming from Christian Carreze from Intermonte. Please go ahead.
Yes. Thank you for taking my A question just a follow-up on interim dividend. You said that you are going to work on potential change in by law with maybe the AGM in April. So I was wondering in that case if it would Be possible to pay an interim dividend already in November 2020? And the second question is on loans.
You said that You're expecting net interest income to go up in 2020. If you can just clarify because we saw launched quite flattish in the last few quarters also at the system level. And I don't know if you can share with us also your thoughts on the coronavirus impact in the first in terms of launch demand. Thank you.
So Q1, I don't know. I'm talking about on a yearly basis. Sorry about that. But I would like to stress that I'm talking on a yearly basis because quarter by quarter, it's really difficult to give any kind of guidance on an amount of loans that is reaching a level close to €400,000,000,000 So believe me, On a quarterly basis, not easy. In any case, in this quarter, we had an increase, a small increase in loan book, Commercial loan book, but the expectation is that during 2020, we can have an improvement in terms of the loan book that can give us an increase in terms of net interest income.
Looking at interim dividend, it will be mission impossible to go to this AGM. So for 2020, there is no possibility to have interim dividend.
Thank you very
much. It appears that there
are no further questions at this time. Mr. Messina, I would like to turn the conference back to you for any additional or closing remarks.
Thank you very much for your question. And I can confirm you that we see in 2020, there could be in with very good positive results for Intesa Sanpaolo. Thank you very much.
Ladies and gentlemen, that will conclude today's conference call. Thank you very much for your participation. You may now disconnect.