Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2018 Third Quarter Results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Holly and I will be your coordinator for today's conference. At the end of the presentation, there will be a Q and A session. Today's conference call is being recorded.
At this time, I would like to hand the call over to Mr. Carlo Messina. Sir, you may begin.
Good afternoon, ladies and gentlemen, and welcome to our results conference call for the 1st 9 months of the year. This is Carlo Messina, Chief Executive and I'm here with Stefano del Punta, CFO Marco Del Frate and Andrea Tamaneni, Investor Relations Officers. The 1st 9 months have been solid and driven by ISP's top performing delivery machine. Net income is up 26%, including the capital gain from the interim agreement, it stands at €3,400,000,000 Corresponding to 90% of last year's net income and we are very confident that the net income for the full year Will be higher than the €3,800,000,000 booked in 2017. And then as communicated in our business This year the payout ratio will be 85% and we are well on track to deliver a very satisfactory cash dividend.
ISP and I personally are committed to remunerating our shareholders and we have demonstrated the ability to do that over the past years. Our capital position continues to be very solid and we are a clear winner of the EBA stress test. Our common equity Tier one ratio increased further and they are well above 13% despite the negative impact of 45 Basis points due to the sovereign bond spread widening. So before going through the results, I would like to take a couple of minutes to provide some thoughts on the recent developments in the Italian economy And on the implication for our group. We continue to see Italy as very strong country.
Italy's fundamentals continue to be very strong. Wealth of Italian households stands at €10,500,000,000,000 Of which 4.2 are financial assets, the highest level in Europe compared to GDP. The Italian government holds More than $1,000,000,000,000 of assets, out of which $300,000,000,000 in real estate. Italian companies are solid. They are export driven and both more profitable and better capitalized than before the 2008 crisis.
Consumer and business confidence are at the high level and this will support GDP growth. In this context, we confirm our 2018 targets for net income and payout, but we also confirm Our targets for the business plan, thanks to a very resilient and well diversified business model. Because we are an efficient wealth management and protection company driven by a client centric approach and our business model is naturally hedged because our Financial market activities offset any negative impact of market volatility on our fee based business. We have a very strong capital and liquidity position with an excess of almost €12,000,000,000 of capital €70,000,000,000 of medium, long term funding, so strong flexibility in accessing the debt market. So we don't want to pay Excess cost of funding just because there is a spread BTP bond in excess of 150 basis points That is the right level of the Italian real economy.
We have a proven flexibility in managing costs And the ability to de risk the balance sheet and we have already developed contingency plan mainly focused on Net interest margin and operating costs to face any unexpected deterioration of the macroeconomic scenario impacting revenues. Slide number 1. Let's now look at the key highlights for the 1st 9 months. $3,000,000,000 stated net income, the best first 9 months since 2008. Dollars 3,400,000,000 net income including the interim capital gain, The best 9 months ever for commissions and the best 9 months since 2008 for operating income.
Cost income down to 50.5 percent among the best in Europe with a decrease in operating costs of more than 3% While investing for growth, we deleveraged more than $26,000,000,000 of NPL since the peak of September 2015, Of which $1,100,000,000 in Q3 at no cost to our shareholders. Common equity ratio is up to a rock solid 13.7%. In a nutshell, we have already achieved 90% of the 2017 net income and more than half of our business plan NPL deleveraging target for 2021. On top of that, action to deliver on the 3 pillars of our business plan, Derisking, cost reduction and revenue growth are up and running and delivering results. So I'm very proud of these results.
And as always, I want to thank all of Intesa Sanpaolo people for their hard work. Let's now go through the presentation and at the end I will be glad to take your questions. Slide number 2, These excellent results are powered by a combination of factors that ISP management has built over time, a top delivering and performing that works on business plan priorities and the business model that is both resilient and well diversified Because we have a state of the art credit recovery capability that allow proper management of the credit originated. We enjoy strategic flexibility in managing costs just in case revenues do not match expectations. We are an efficient wealth management and protection company driven by a client centric approach.
In this challenging environment, We have confirmed once again our prudent approach in managing our clients' assets of around 1,000,000,000,000. In addition, our business model is naturally hedged because our financial market activities offset any negative impact of market volatility on our Fee based business. On top of that, we have a high sensitivity to an increase in market interest rate. Our sustainable profitability is also the result of a very strong capital and liquidity position. Slide number 3.
Overall, our performance in the 1st 9 months has been solid, in particular in operating costs, revenues, net income, NPL deleveraging and capital. We are well on track to deliver on our business plan commitment. Slide 4, The speed at which we are delivering our business plan is even more impressive if you compare our revenue growth performance to our European peers. [SPEAKER JOSE RAFAEL FERNANDEZ:] In a very difficult operating environment, ISP is the best player in the Eurozone. Slide 5.
During the 1st 9 months, we continued to improve across all key indicators. In particular, net income is up 26% higher than 1 year ago. Gross NPL stock reached the lowest level since 2011 And the net NPL ratio declined to 4.5%. Our already strong capital position further improved Around 440 basis points above regulatory requirements and our capital buffer is 180 basis points above the average of our peers. This capital buffer already includes around 45 basis points Negative impact deriving from the sovereign bond spread widening since the end of March.
Our capital position remains very strong even under stress conditions. Indeed in the other scenario of the EBA stress test, We have a capital buffer of around 200 basis points on a pro form a basis. Slide number 6. These are the best 9 months since 2008 for net income. As already mentioned, we have now achieved around 90% of the 2017 net income.
Slide number 7. Shareholders are not the only ones benefiting from our strong performance. During the first Employees received €4,300,000,000 in salaries and all our excess capacity of around 5,000 people are in the process of being reskilled and redeployed on priority initiatives, of which 600 are already in new roles. The public sector received $2,100,000,000 in taxes. Households and businesses received over $44,000,000,000 in medium long term lending of which over In addition, over the same period, we helped 13,000 company to get back on track It preserved over 60,000 jobs.
If we consider our social impact since 2014, the total number of companies helped It has been above 86,000 and more than 400,000 jobs have been preserved. This means that we helped around 1,000,000 people avoid the distress of economic uncertainty. We are not only a leader in supporting real economy, but also the social economy. And in the next slide, I will give you a sense of what Intesa Sanpaolo does to support Italian society and promote culture. Slide number 8.
We are committed to becoming a global reference This model for social and cultural responsibility. So in this slide, you can see just a few example of our impact on Italian society During the 1st 9 months, we have created new partnerships to support Italian people in need and reduce child poverty And we will soon be able to deliver our business plan commitments providing food, shelter and medicines. We continue to support Italian families who were Victims of earthquakes and other natural disasters, together with those affected by the Genoa Bridge collapse. We are committed to supporting innovation and startup as well as the circular economy. We are promoting culture in Italy and internationally through the activities of our Galleria D'Italia Through the activities of our Galleria D'Italia Museum.
And we have designed our fund for impact That will enable lending of more than $1,200,000,000 to categories with difficulties accessing credit. This is set for launch in the coming weeks. In a nutshell, we are the engine of the Italian social economy. In addition to our direct support to Italian society, mainly thanks to our dividends, the foundations that our ISP's shareholders donated more than half of the total donated by all Italian banking foundations. Slide 9.
On this slide, you can see the key highlights of our strong performance in the 1st 9 months. Since I already covered the main topics, let me take you to Slide 10 and give you some color on the P and L. Slide 10. The 1st 9 months of the year were very strong. Revenues were up 4% and operating margin was up 13% on an annual basis.
Within our revenues, insurance income benefited from Casualty business growth of around 13% on year and net interest income is stable when excluding the impact of the Interim agreement. We have continued to be very effective at managing costs, with personal expenses down 2.6% Administrative expense is down 5.3%. Depreciation is slightly up and we continue to make investments for growth. Our loan loss provisions went down by 18% on an annual basis, while coverage increased. Gross income was up 19%.
Net income is around €3,400,000,000 when including the capital gain from the interim agreement. Slide 11, Q3 has been challenging with several factors contributing to negative market performance And increased volatility in a prolonged low interest rate environment. In spite of this, we have performed solidly With net income for the quarter above $800,000,000 up 28% versus Q3 2017, demonstrating ISP capability to deliver even in a challenging environment. On a yearly basis, revenues are growing with net interest income up around 1%, 2.7% excluding the impact of the Interim agreement. Operating costs are down 3% and gross income is up double digits also thanks to the strong decline of loan loss provisions.
Slide 12. In the Q3, net interest income increased when compared to the Q2, thanks to good performance in the commercial component. On a yearly basis, the 9 month net interest income decreased marginally due to the impact of the NPL disposal, Despite a strong increase in the commercial component, we are in the process of reprising our loan book And we will see the benefits from this in the coming quarters. Let me highlight that ISP's net interest income is highly sensitive to an interest rate rise. Indeed, an interest rate increase of 100 basis points will generate a benefit of over €1,600,000,000 In net interest income, commissions despite a challenging environment with negative market performance in the main stock Changes in high volatility, the 1st 9 months of the year have been our best ever for commissions.
Also, this is our 2nd best Q3 ever for commissions. Slide 14. In spite of this Challenging environment, family site deposits by €11,500,000,000 Together with the relevant under administration currently at €171,000,000,000 these assets will be The fuel of our wealth management engine in the coming quarters. We managed to fully offset the negative impact of market performance on our Under administration by gathering 9,000,000,000 of net new money of which 2,700,000,000 came in Q3. Overall customer financial assets are close to the $1,000,000,000,000 mark.
Slide 15, In the 9 months, all our divisions made a positive contribution to group results and half of our gross income comes from the Wealth Management and Protection Business making Intesa Sanpaolo a clear European leader in Wealth Management, but with a natural edge from financial market activities in case of market volatility. Slide 16. We continue to be very effective at managing costs And we are extremely proud of the strong reduction achieved in the 9 months. Operating costs went down by more than 3% on a yearly basis While strongly investing for growth in key areas such as training, IT, digital, property and casualty and wealth management. ISP maintains high strategic flexibility in managing costs and remain a costincome leader at European level, As you can see in Slide 17.
In Slide 17, we are proud to have a top tier Cost income ratio in this chart illustrates our position among the best in Europe. Slide 18, Significant action in loan loss provision. As you can see in this slide, loan loss provisions declined While we also further increased our coverage level. As a result, cost of risk is now down to 57 basis points from 70.1% in the same period of 2017. We're on track to deliver on our business plan target of 41 basis points by 2021.
Our NPL coverage ratio increased by 20 basis points in Q3, close to 54%, A level that will facilitate future additional deleveraging. Slide 19, Gross NPL decreased by €1,100,000,000 in Q3, reaching the lowest level since 2,009. This represents the 12th consecutive quarter of NPL reduction. The gross NPL ratio has decreased by 8 percentage points Since the peak of September 2015 to around 9% and the net NPL ratio is more than half to 4.5%. In the 1st 9 months of the year, we have already achieved 53% of the deleveraging target of the 20,008, '21 Business Plan.
As already mentioned, ISP has been able to deliver this impressive deleveraging at no cost to shareholders. Slide number 20, as you can see in this slide, in order to reach our business plan NPL deleveraging target, We need to reduce the NPL stock by around $12,000,000,000 over the next 13 quarters, which is $4,000,000,000 less Then the $16,000,000,000 we already deleveraged in the past 12 quarters when the coverage was far lower. Slide 21, NPL inflows are close to a historical low. And thanks to our Credit Management in Q3 gross NPL inflows decreased by 10% and net inflow by 23% compared to the previous quarter. Slide 21, our strong capital base improved further in the 9 months, and we maintain a buffer of 440 basis points versus regulatory requirements well above our peers.
This capital buffer already includes the negative impact of around 45 basis points from the sovereign bond spread widening since the end of March. Slide 23, as you certainly know, last Friday, the EBA published The results of the stress test, which resulted in a very good outcome for ISP, even in the adverse scenario, ISP's capital position is well above the requirements of the supervisory authorities. Slide 24, if we compare ISP to the other top Ian Banks, we ranked 2nd in the EBA stress test adverse scenario in terms of capital buffer. And let me highlight that we would have ranked 1st considering the possible benefits From the Danish Compromise that for us would have counted for around 50 basis points, So another 50 basis points of possible excess capital. Slide 25, As you can see in these slides, the adverse scenario has a limited impact on ISP.
Our excellent results come from a resilient business model, a best in class capital position, High quality loan portfolio with a low risk profile, good coverage and valuable real guarantees. A well diversified trading portfolio with low exposure to volatility risk and strong contribution from stable income. Limited operational losses driven by cautious sales model and exposed to legal risk also relevant in stress scenarios. On top of that, we are one of the few banks with no restriction on dividends in the 3 year stress test period. In summary, we have a sound capital position, which becomes rock solid when needed.
In other words, under stress test. The ABA stress test confirmed that ISP is a very low risk bank and in a rational market, We should have the benefit of a lower cost of capital compared to our peers. Slide number 26, we continue to be a market leader in Europe and this clearly help us To give very generous dividend, Slide 27. We also have a best in class risk profile in In terms of capital on illiquid assets, net NPL level 2, level 3 and net repossessed assets. And recently even the IMF warned about the vulnerabilities that some banks have to face Because of their holdings of Opau and less liquid assets, according to the IMF, Many GC fee level 2 and level 3 assets still represent high multiples of capital, so big that Even a modest valuation shock on these assets would have a significant impact on their capital buffer.
IMF analysis shows that there are some European GCE for which a lower than 5% decline in the value of these assets We would reduce their leverage ratio by as much as 100 basis points. Intesa Sanpaolo has a very low exposure to these kinds of financial assets. So we also continue to maintain a very comfortable liquidity position, which means we do not have to access The debt market if conditions are not favorable for the bank. So we don't want any Kind of increase in our cost of funding. Slide 28, we confirm The 2018 outlook for ISP, we expect growth in operating income versus the past year in this Revenue increased coupled with continued cost management will drive operating margin growth.
In addition, we continue to expect a decline in the cost of risk compared to 2017 that will trigger further growth in gross income. Our expectation of growth in net income this year is confirmed by the excellent results for the 1st 9 months with 90% of 2017 net income already achieved. Before I conclude, I would like to recap on my thoughts regarding the Italian economy. The Italian economy relies on solid fundamentals and the trend is also positive. Unemployment is at 10% in September, one of the lowest levels of the past 10 years, with employment and Activity rates close to a 15 year high.
Consumer confidence was not affected By the recent turmoil in financial markets, as shown by the rise in September and business confidence remain close to a 10 year record. Italian real estate transaction are experiencing a significant recovery in terms of volumes. The Italian economy is benefiting from this positive evolution and Italian GDP is projected to grow by about 1% In 2018 and in 2019, Slide 13. To sum up, we are very satisfied with our 1st 9 months of 2018 and our excellent delivery against the business plan targets. The derisking, cost reduction and revenue growth.
We have reinforced even further our already solid capital Position and successfully passed the stress test. So we are firmly on track to deliver net income higher than 2017 and a very generous cash dividend. All in all, solid performance and strong upside going forward. Thanks to the contribution of all our people. Thank you for your time and attention.
And now I'm happy to answer your questions.
We will take our first question from Delphine Lee from JPMorgan. Please go ahead.
Yes, good afternoon. Thank you for taking my questions. I got 3, if you don't mind. First of all, if you could just could you just please remind us In terms of the Taltra, the EUR 60,000,000,000 how much is actually in terms of proceeds deposited at DCB? And in terms of strategy for replacing that amount.
What if you could remind us what your funding strategy is? And related to that, are you in Do you have any concerns about the higher bond maturities that you have in 2019 and the current market conditions? The second question is related to your revenue target of 4%. Given the environment and For the 1st 9 months, the core revenue seems to be flat to slightly down. How much cost offset is there really?
You talked about cost flexibility. Just to get a little bit of an idea of What offsetting factors we could have is revenues are a little bit weaker. And the last question is, do you mind sharing just some thoughts about the new fiscal measures for banks that were drafted in the Italian budget? Thank you very much.
So we have €40,000,000,000 deposited with the ECB. So A lot of money that are minus 40 basis points giving us negative contribution to our Net interest margin, that's the reason why we are able not to issue medium term bonds For the next period, so we are really free to do what we do for the next year Minimum. Revenue target 4%, revenue target is something that is Also depending on actions and we are not just waiting for situation and for impact they're having from the market. My job is also to manage the bank according to The different situation of the environment and trying to have opportunity in the different environment. So Considering the situation in Italy, I can tell you that we can continue to give good performance in Wealth Management, but But we can accelerate in a significant way our net interest income revenues.
And on the other side, on the cost base, we are working on a number of Contingency plan in order to accelerate cost reduction also in the next years. So I'm not worried at all on the possibility to reach the targets of the business plan. I'm now concentrated on 2019, I have to tell you that we are working on the budget with the people within the organization, But I'm really in a safe position considering the possibility To deliver very good results in 2019 and also for the rest of the business plan. Considering what the budget law we'll have on banking sector, I'm not worried at all. All is manageable.
All is absolutely manageable. So I'm not worried at all.
Great. Thank you very much.
We will now take our next question from Adrian Cighi from RBC. Please go ahead.
Hi, there. This is Adrian Gee from RBC. I have a number of questions, if I may, just going back to some of the remarks you made on net interest income acceleration. Can you maybe elaborate a bit more in which component you can accelerate? Is this sort of volume growth or is this spread?
And talking about spread, have you been able to pass on the increase in the sort of cost of funding to your So, do you see some margin pressure? And then on fee income, you're showing a very good development in Both increasing AUM and the mix towards equity funds. How do you see that mix development given the volatility of the markets? And do you see any pricing pressure on the retail product side, not that the inflows might be slowing down at the industry level? And then lastly on capital, if I may.
Your risk weighted assets declined quite meaningfully this quarter and more than offset Pressure from spread widening. Can you give us some more color as to what the moving parts on this are? Thank you.
So net interest margin in 2019, our expectation is to have Very positive results coming from repricing that will be the main driver Of growth in the asset side. In terms of volume, we will grow and that's for sure. Cost of funding, we will have a significant benefit from The expiring of €90,000,000,000 €19,000,000,000 of Bonds that used to have a cost in the range of 1.7%. So We will use and we are ready to use if market conditions will not change, we are ready to use our extra liquidity buffer, so what we have placed with ECB and this will bring us significant benefit on net Interest income. And on the other side, our expectation is that in the last part of 2019, There could be a movement in Euribor from minus 40 to minus 20 or 0 and this will bring us Significant benefits also on markdown.
So that's on net interest margin, we are also ready to There's some possible improvement in the Volume side, but the main action is on spread deriving from repricing and Lower cost of funding compared to the expiring bonds in 2019. Looking at Fee income, our expectation is to continue to have a positive net inflow, But it is likely that they will be concentrated mainly in insurance product Then in mutual funds, we will see what will be the conditions in 2019, But we are working hard on selecting the expiring amount On our wealth management clients, we are setting volumes, giving targets to our Sales force and so we are ready, we will be ready for the starting of 2019 To have a clear proposal for each clients that will have deposits, that will have Asset under management that we will have asset under administration that will expire during 2019. So our delivery is in place in order to deliver good results also in 2019. Looking at capital, capital or risk weighted asset we had reduction Related to the reimbursement of the transaction with Qatar and Glencore and then we have also Benefit coming from internal model and recovery of guarantees And collateral, so optimization of risk weighted assets.
So volumes from our side and the other side is A continuing work on optimization on collateral and guarantees that is a never ending work for my
We will now take our next question from Azura Gelfi from Citi. Please go ahead.
Hi, good afternoon. Two quick question 1 on deposit and one on the cost of risk. When I look at deposit, I'm a bit surprised of the trend because I would have expected, especially in the retail division, An increase in the deposit due to a flight to quality of Italian savings to Intesa. And if I look at the volume and the AUM, So deposit and AUM together, I don't see these fly to quality. Maybe I'm missing something if you can just elaborate a little bit on that.
The second one, if we assume for a second that the political turmoil in Italy continue for a while and there is an impact on the real economy, With the new accounting rule of IFRS 9, what are the major area of risk on the cost of risk? Because it's a new accounting and we are all a bit Confused about what could be the scenario in a worsening of the economic environment? Thank you.
So looking at the deposits in we had an increase in retail side deposits in this quarter and a reduction in deposits due to the switch from Retail into asset under management, the reduction is mainly concentrated in Large corporate clients and corporate clients, mainly 3 or 4 clients, we are starting with a clear Approach based on EVA and reduction of cost of funding, so we are not Ready to pay euros to corporate clients and that's the reason why We have been a decline in the corporate clients deposits. Looking at Real economy impact. So, Azur, I have to tell you that I'm really In a difficult situation looking at what is the perception of the investors and analysts towards my country, because It is true that there is some situation in which probably Communication is not the best communication that government can do, but also from the European Commission, we are probably not the best communication. But on the other side, the fundamental of the country are solid. And if we get back to fundamental, I don't see any kind of possibilities for our country To have a GDP that can grow in 2019 below 1%.
So our expectation is that GDP can continue to be 1% in 2019. That is our Expectation looking at real economy and you know that in the accounts of Intesa Sanpaolo, you have the movements Of real economy or Italian real economy. So GDP growth between 0.5 1% will have no impact on cost of risk. So that's the real situation Of Italy, the real situation of Intesa Sanpaolo. Then if other analysts would like to make stress test scenario in Success of the EBA stress test scenario is an exercise, but transforming this into reality, In my view is really something that it is not correct.
It is not correct also because the fundamental in the country are really So I have to tell you that my perception is that fundamental of Italy is much more related to a spread of 100
Yes, it's not a situation of concern. But unfortunately, the current market valuation reflects a bit of an Armageddon scenario. And just to see if this Armageddon scenario is more than priced in, it will be very helpful to have some guidance on what could be the different development. I'm not saying that, that will happen. I hope we don't have any time of password.
Azura, I'm the CEO of a bank. My duty is to create value, 1st for my people, for people within the organization, 2nd for my clients And 3rd, for my shareholders and then for the community, my duty is to give reality And not to give perception or Armageddon scenario. We are not in any kind of Armageddon scenario. If you want to have Armageddon, You can go to go a TV movie and have Armageddon. Italy is in a completely different situation.
Then you cannot I have a positive view on populist on a party or the other party, but reality in Italy is this. So you can have A country that can grow at 1% GDP, Italy is probably a place that is really comparable with Japan, we have already discussed on this point a lot of times. Italy is not China. It is comparable with Japan. So you can have 1% GDP growth, inertially.
Then on the other side, you can question on the upside Deriving from this budget law could be 1.5%, could be 1%. My expectation is that in Italy, we will have minimum 1% GDP, I don't want to enter into valuation of budget law, but for sure Italy is not We will not have an end of Italy in the next month just because embedded in investors and analysts that you can have an Armageddon
Thank you. We will now take our next question from Jean Francois Noel from Goldman Sachs. Please go ahead.
Hi there. Good afternoon. So a lot of my questions have been answered, but I had one remaining, which was when you talked initially about Some of the offsets that you might be activating, there was the NII one, which you have obviously explained already. And the second one was on cost. And I just wondered whether You could elaborate or quantify on some of the cost measures that you might be taking if need were to arise.
Thank you very much.
So we will give a clear disclosure on the points if needed in at the beginning of
the In which we will
have a clear point of what can happen in the spread and Real economy for 2019, but it is clear that you can work on all different nature of the administrative costs. We can work on branch optimization because we can do a lot of work also in terms of extra reduction In our branch network, we can accelerate a lot of efficiency program that we have considered in our business plan. We are able to do this because we have an analytic monitoring of our And remember, we have a capital budget of €1,000,000,000 per year. And in this €1,000,000,000 per year, you can find a lot of room In terms of possible cost reduction, so my expectation is that we can have increase in net interest income. We can have cost Reduction in provision and commissions giving us good satisfaction.
That's my view for 2019 and also for The next year of the business plan.
We will now take our next question from Antonio Real from Morgan Stanley. Please go ahead.
Hi, thank you. All of my questions have been already been taken. I've got 2 and one clarification, please. 1, we are now 11 months into your business plan. And I was wondering if Could you give us an update on where you stand versus your targets in the Non Life Insurance segment and what you're seeing from competition on that front?
The second question is on Asset Management market share, because if I look at the new flows from Assagistioni, there seems to be a reversal of a long term trend versus your market positioning. Since Q4 of 2017, you seem no longer to be gaining market share in Can you help me understand what's been driving that trend? And more broadly, what are you seeing different From competition, please. And lastly, a clarification on the full loaded capital level, please, which are obviously very solid despite the tough environment. But if I look at the CET1 fully loaded number disclosed in the 2017 stress test last Friday, you were at 11.85% in 2017.
That's obviously after the IFRS nine adjustment. And I know you had the LTIP and saving shares as well as other measures, so I can follow-up with IR for the details. But it will be great if you could just help me understand the key moving parts versus the 13.7% pro form a you reported today? Thank you.
So looking at non life insurance business, we are delivering very good results, but we will make the full presentation at The end year presentation, so we want to use our end year results in order to make clear disclosure, but we are Delivering results completely in line with our business plan. On asset under management, you have to consider that The Private Banking divisions is mainly on open architecture. So if you look at the results On asset under management, you have only the results related to the bank and the territory and not on Private Banking Division. So if we have an acceleration in our private banking division, you will not see in the figures of Intesa Sanpaolo. Then there is A contribution on insurance products and this part is only partially in asset under management product.
Looking at capital, you have all the detail between the fully phased in, fully loaded the phase in in a specific slide Number 79 of our presentation. So you can do by yourself your work.
Thank you.
We will now take our next question from Andrea Fulte from Mediobanca. Please go ahead.
Yes, good afternoon. First of all, liquidity. There continue to be articles in the press talking about pensions on liquidity of some Italian banks and deposits going abroad. Are you seeing any of this? And if the ECB will offer a new TLTRO window, will you roll maturities Or do you fear the market could attach a stigma to it?
And secondly on GOVIZ, you have been buying bonds Oasis and bonus this quarter with flat BTP. Do you consider yourself already maxed out on the BTPs that the supervisor is happy for you to have? Thank you.
So on deposit abroad, absolutely no. No inflows, no outflows sorry in our figures, in our client base abroad of Italy. So another big fake news on the Italian situation. TLTRO, what can happen? We will see in 2019, For sure, we will not increase the exposure to the TRO, that's for sure.
So That's our view. But if the cost of funding is above The funding with ECB we will consider also to have this funding in a smart way. What we have In our situation is a significant excess liquidity position And we have not a problem also in considering other Possibility starting from 2019 or 2020 in terms of TFTRO funding, we will see. On government bonds, I have to tell you that we made a clear position to the market. So concentration 50%.
We are below this concentration. I have no appetite for investments That are above the 2 years and so no appetite in investing above 2 years, but below 2 years It's a decision that I leave to the CFO and the Chief Risk Officer of the bank. So we will see, Not a point that can be considered as the right level, the level that we have today, but in any case, [SPEAKER MARTIN PEREZ DE SOLAY:] With a clear point on non concentration.
Thank you very much.
Thank you.
We will now take our next question from Alberto Cordura from Merrill Lynch. Please go ahead.
Hi, good afternoon. My first Question, you might have gone through it. I'm not sure, but if it is realistic to see at least the same dividend as last year. And the second question is related to the fee environment, not so much asset management fees, But I would like to have a comment from you on what we can see next year on investment banking fees. And the reason I'm asking this question is that to me there is a clear regulatory pressure for Seeing mergers between banks or transitional mergers.
And then on the equity side, I think the stress test has been Quite wrongly under looked by the market. You did very well as you told us. And under the other scenario, 11% transitional put you in a very small group of banks. But also I read that there are some comments from Luis de Guindoz, the Vice President of ECB, Saying that banks with core capital that in the adverse scenario is below 9% should enhance their capital position. And these banks include 40% of total asset in Europe and include names like Airste, Deutsche Bank, BNP, Societe, in Italy, UBM Bami.
So I think that to me, I don't know, if I read these comments, it seems to We're going to see a lot of issuance next year, not from you, but maybe from other banks. And in that respect, what would be
So I will start from fees. And I have to tell you that working on our budget, we are concentrating not only in wealth management, But also in Investment Banking, Investment Banking can be really an area in which we can have a Significant growth in terms of commissions, but also in commercial commissions, we can have a rebound due to Some kind of re pricing. So we are working on all the different lines of fees, not only on web management and investment banking It's an area in which we think we can have very good satisfactory results during 2019.
[SPEAKER MARTIN
PEREZ DE SOLAY:] For dividend, you know that I'm a lover of dividend, so we will see at the end of the year, but [SPEAKER MARTIN PEREZ DE SOLAY:] I think that my shareholders will be very happy.
Thank you very much. Thank you.
We will now take our next question from Christian Kares from Intermont. Please go ahead.
The first question is on capital and NPEs. Yes. You're ahead of the plan in terms of capital and NPE reduction. I was wondering What is your best option for the future? We saw, for example, the EBIT confirmed that the 5% threshold is an important level for NPE, the gross NPE ratio.
So do you prefer to use the excess capital to speed up the process Reduction of NPEs or to fund the loans growth? The second question is on the commission. It seems to me that you are a little bit more bullish on net interest income for 2018 rather than fees. Maybe clients will look at the final statement in 2018 and maybe there could be some impact from MiFID II Regulation, so I was wondering if you think that the fees could see a slower growth in 2019? Thank you.
So in terms of NPL plan, I have To tell you that we can easily exceed our target without using any kind of our Excess capital position. So the trend is clear. We are continuing to reduce non performing loans. And I think that with the agreement with Interim, we can have also an acceleration in term of recovery. So my expectation is for bad loans, we can have for sure an acceleration, but also we are working hard With a lot of project in terms of acceleration of recovery of unlikely to pay.
So we will see what could be The possible implication of this acceleration in 20 And 9, but my expectation is that we do not need to use excess capital to have a Best performance in our plan of reduction. In any case, the 5% of DBA due to the kind of classification of clients is more or less 6%. So it's perfectly in line With our targets, but in any case, I want to accelerate and I think that we can deliver much better than the plan. On commissions, I'm bullish on net interest income because we are accelerating and We are in different environment, you have to consider what could be the best levers that you can use. So in a scenario in which you have An acceleration in terms of increase in possible increase in your LIBOR.
You have an increase, a possible increase in the spread BTP bond. You have expiring bonds And you do not need to roll these bonds. In an environment in which you can have volumes, I have to tell you that now is the timing in which we can deliver a good performance So in net interest income during 2019. In terms of commissions, the real Trend is that on net inflows, we can deliver very good performance. To be bullish, I will wait for the beginning of 2019.
But in any case, this remain A key driver of our sustainable profitability. The real point is that if we can deliver Commissions that can grow 5%, 3%, 2%, but in any case this is a key driver of success [SPEAKER RAMON ALVAREZ PEDROSA:] For Intesa Sanpaolo, the extra engine would be in my expectation the net interest income and the acceleration in reduction of cost.
Thank you. Thank you.
We will now take our next question from Domenico Santoro from HSBC. Please go ahead.
I I have a number of questions. First of all, on your risk weighted assets, we have seen again Optimization in your risk weighted assets, is this going to continue and where DBA guidelines will start to kick in In the calculation of your core Tier 1, then all fees, I agree with your colleague that you're more positive on NII than fees. I was wondering whether this might also include some sort of worry given the government plan to redirect Much of the savings of the Italian seems to be BTP. And if that happens, what could be the impact on the distribution of your asset margin products? Then on the net debt of funding ratio, I was wondering whether you might share with us the number, the precise number with And without TRTRO, any impact from the sovereign rating downgrade on your risk weighted assets?
And then on the Pietro number 3, let's call it this way. My understanding is that there might be a discussion on this by the ECB Sooner rather than later. I was just wondering what could be the terms, just to understand your minds on these TLTRO, if this is extended considering that the second has caused massive asset compression in the sector? Thank you.
Sorry, I lost the last part of your question because you made some like due diligence. So If you I will answer to the first three questions, then you can start with the other, please. So risk weighted assets, I think that we will continue to have positive from collateral guarantees and work that we are doing With the model on EBA, the concentration, the main concentration of impact will be in 2019. There could be a portion in at the end of 2018, but we will see. But the majority will be in 2019.
Savings of the Italian families, our attitudes towards the net interest income and commissions. Again, net interest income in my view is a source of potential Extra delivery in comparison with the business plan. I'm not worried at all With the possibility of the Italian savings moving into the Italian government bonds So because at the end, the volatility impacting on Italian government bond It's been demonstrated that could be high. So our clients are not pushing in order To increase their holding of Italian government bond, this can be marginal and not significant And what is our expectation. Looking at net stable funding ratio, our level is above €70,000,000,000 It remain very significant also not considering the TLTRO.
Then if you can give me the other question because I lost The other point.
Yes, sorry about that. Risk with the assets in the 4th quarter, if you expect any inflation from the downgrade of the sovereign? And if TLTRO number 3, let's call it this way, it happens, what do you think will be the terms attached?
I don't know. So on risk weighted assets, I don't see any kind of inflection deriving from the situation of the government bonds. On TLTRO, I think that will be more or less in line with the conditions that are related In correlation with Euripo, then I cannot tell what could be the level. My expectation is That for the end of the year, we will have not minus 40, but 0 in terms of Euribor, but we will see what can happen.
Okay. Thank you.
We will now take our next question from Giovanni Rosoli from Equita. Please go ahead.
Good afternoon to everybody. Two questions. The first one is on the comment on the stress test. You are clearly one of the best performers in Italy and in Europe As a result of the stress test. My reading is that your strength is related not only to The asset quality of the revenues, but were much higher efficiency when compared with at least with your domestic peers.
Because if I look at the cost of risk or revenue reduction in the adverse scenario, your performance is average with the others, But you are much better in terms of profitability. So my point is, shall we expect that the next focus of the regulators will be on Pushing the banks to further increase the efficiency, so to reduce the cost income in order to compensate any Further external shocks. And the second question, you have mentioned that the benefit potential benefits of the application from the Danish Compromise, which is 50 basis points, which is somehow higher than the previous guidance. I was wondering if you may consider in the future what are the pros and cons Considering the application for this treatment? Thank you.
I think that the focus will be on efficiency for sure in order to have profitability From the different banks, I think also that a strong focus will be for the European banks On Maven 3 level 2 assets, because a lot of performance of other big players, European big players has Been affected also from the starting point of some impact on level 2 and level 3 in terms of stress test. But efficiency will be a clear focus and it will not be easy for other banks to reduce cost because You need to have a clear attitudes and a machine that can allow you to reduce cost. When we talk about the Danish Compromise benefit, we are talking about the possibility in terms of So if you stress the capital position, you free possibility to have benefit from Danish Compromise for an amount that is 50 basis points. In normal condition, we have not significant benefits from Danish
We will now take our next question from Hugo Cruz from KBW. Please go ahead.
Hi, thank you. Just one question. On a slide where you show gross inflow from performing loans, Inflows are increasing year on year both on a gross and a net basis. What's driving this? If you look at the trend on a quarterly basis, we are improving.
If If you look on 9 months, you have to consider that there is a different parameters because in 2019, you had not The inclusion of the Venetian's banks. So on in 2017, you had not Inclusion of Divinations Bank. So you had not the pro form a. In terms of real Trend, there is an improvement also year on year.
We will now take our next question from Benjie Creeland Sanford from Jefferies. Please go ahead.
Yes, good afternoon. Just two quick questions from my side, please. Just on the interim deal, I wondered if there was any update on the closing date or there's any reason to believe that the capital gain associated could be either delayed or rather held back to 2019 profits Rather than 2018. And the second question is just going back to the Italian budget measures on banks and the potential for We're just tax deductibility on provisions and IFRS 9 adoption. Can you give us any guidance on what the potential impact you would expect on your [SPEAKER JOSE RAFAEL FERNANDEZ:] Capital either upfront or on an ongoing basis, please?
Thank you.
[SPEAKER JOSE RAFAEL
FERNANDEZ:] On the Intrum deal, we will close End of November, beginning of December, these are the possible optionality on the different dates. We are just Defining what would be the date of the closing, but for sure will be beginning within beginning of December. On budget law, we will see what will be the final position of the government, but So we do not think to have significant impact in any kind of different scenario. But for this point, we have to wait Until the end of this year.
We will now take our next question from Andrea Vercellone from Exane. Please go ahead.
Just one question in relation to long term funding. You stated in the call that If you had to, I. E. If you're not satisfied with the level of spread and consequently funding cost, You could decide not to roll over any of the €18,000,000,000 of media long term funding maturing next year. If you chose to do this for whatever reason, can you just confirm to us that you would still be above Your MREL requirement, whatever the requirement might be, because I don't think it's finalized yet.
Thank you.
Yes.
Okay. Thank you.
We will now Take our final question from Ana Adamo from Autonomous Research. Please go ahead.
Good afternoon. Three questions On NII, can you tell us what was the contribution to net interest income coming from the bond portfolio this quarter? And how much do you expect this contribution to increase on the back of higher reinvestment yield on Natalia and Sovereign? The second question is on fees. If I look on Slide 74, fees from portfolio management were relatively resilient during the quarter, while you saw a large decline from the distribution of insurance products.
And this was despite growth in technical reserves over
the period. Could you please provide guidance for me? [SPEAKER PIERRE YVES
LESAICHERRE:] Excuse me. Can I ask you to please repeat Your question, because I lost you in the different questions? So if you can start again from your first question And sorry.
On NII, I would like to know the contribution from the bond portfolio And how much do you expect this contribution to increase on the back of higher investment yields? The second question is on fees. And if I look on Slide 74, there was a decline in the fees coming from the distribution of insurance products. Could you give some color around the margin dynamics of this business to help us understanding the future evolution of this revenue item? Thank you.
On fees relating on distribution products, in this quarter, we decided to work On products that are more traditional and so giving us more running than entry fees And that's the reason why we had a slowdown in terms of cognition. We decided it is also What the client prefer to have. In terms of net interest income, we do not See any kinds of increase in terms of reinvestments. So probably I didn't understand Well, your question, we are talking about some €1,000,000 so not significant for us.
So what was the contribution from the bond portfolio to NII?
Are you talking in delta or in absolute terms? In absolute terms, that would be €250,000,000 per quarter. That should be the contribution. Okay.
Thank you.
Okay. Thank you.
As there are no further questions at this time, Mr. Messina, I'd like Turn the conference back to you for any additional or closing remarks.
No. Thank you very much. And see you, Landon. Bye.
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.