Good afternoon, ladies and gentlemen, welcome to the Mediobanca third quarter results 2021. At this time, all participants are in listen-only mode until we conduct a question and answer session. Instructions will be given at that time. If anyone should require assistance during the call, you can press star then zero on your telephone keypad. Just to remind you all, this conference call is being recorded. I would now like to hand over to the CEO, Mr. Alberto Nagel. Please go ahead, sir.
Thank you for joining the call. In commenting the nine-month results, I think it's important to stress the solid operating trend, which reverted into revenue growth of 3%, which was driven by all-time high fees and the resilient NII. Fees is now representing a third of the revenue. The two drivers are wealth management, which was up 5%, and CIB, which was up 43%. The cost of risk stayed at low levels with 51 basis points, but we have managed to increase the NP coverage, which was up 10 points to 65%. Cost income in the region of 46%, despite important upgrade in distribution. All this reverted in 9% increase in net profit and in 9% ROT, with a quarter one up to 16.3%, discounting 70% dividend payout accrued and confirmed.
Even the three-month results showed an important commercial activity with net new money almost double year-on-year to 1.1 billion. PFA up 4% to 70 billion. Which is even more important that the new retail loan production was at the highest in the last 12 months, with 1.6 billion in consumer banking and an important mortgage new loan activity. Revenue were at high levels, above EUR 650 million. Even in this quarter, cost of risk stayed low at 53 basis points. We have had another quarter in the region of EUR 200 million of net profit, where I would say that, in wealth management, with 22% return on allocated capital, we have revamped the recruitment with 30 new salespeople at CheBanca! and selective hirings in private banking. We continue to upgrade our offer through new initiative. We continue to perform a different client segmentation.
In consumer banking, we have had an increase in the quarter of 11% Q-on-Q new loans. Core was down to a level of 174 basis points, coupled with the highest ever coverage ratio, NP at 74.4%. Direct distribution empowered with four new openings in the quarter, while in CIB, we had a continuation, a confirmation of robust trend in revenues across different products with the important asset quality improvement, and a new important hire in France where we are adding a new partner, Hubert Preschez in Messier & Associés. The trend in the nine months in the quarter were robust in asset gathering. In the asset gathering, we have recorded 3.6 billion of net new money, where the component of assets under management was higher than in the past, was 65%. The two main driver were CheBanca!
in the affluent with EUR 2.8 billion in nine months. With a component of liquidity, which was boosted by also promotion campaign, which is the usual campaign we do at the start of the year. In private banking with EUR 0.8 billion of net new money, and with a better trend in the quarter where we had less deposit or some deposit conversion and more AUM. There was a market effect of EUR 1.6 billion. At the end, compared to a year ago, we had +15%, and compared to December, we had a +4%. Apart from wealth management, the other big contributor has been CIB. Here again, a robust advisory fee income in the quarter with EUR 35 million coming mainly from, or importantly from mid-caps deal.
Market revenue sustained in the different quarters, a mix of ECM, DCM markets activity, and the resilient NII in CIB. In particular, if we strip out the non-recurrent component of Burgo, which was EUR 5 million in the previous quarter and EUR 3 million in the first one. The underlying volume are still on the high level. There is a seasonality, I think we're going to stay on the high level also throughout the next quarter. The recovery volume were also evident, as I said, in retail. Loan book in residential mortgage grew close to EUR 11 billion. For the first time in consumer, we have had sign of reversal.
Since the Q3 of last year, we have been going down because of lockdowns and the maturity of the portfolio, up until this quarter, where we stabilized to EUR 12.8 billion, the same of last quarter, because we have restarted a higher production. Those trends clearly reverted in sustained high revenues. You see the chart on page 10. We have the average of our revenue in the quarter, and you see that these two quarters, EUR 675 million, EUR 663 million, are among the highest if we strip out Q1 of 2020, which was boosted by non-ordinary contribution from Generali. In terms of genuine operating trend, these are among the two best quarter ever in the bank in terms of revenue. The driver are, of course, wealth management, which is going up steadily and now is EUR 160 million in terms of contribution.
CIB, which is still on the high level with some normal seasonality of quarters, on the high level. Consumer banking, which is still lagging temporarily because of the new loan production. Growing fees with 7% increase. Resilient NII, in particular in fees, the contributor are, as we said, wealth management and CIB, with a better sustainability. Not only is important the size of the fee, but is also very important the source of the fee. Now wealth management is representing 41% of the total. NII was down -1% despite lower average volume in consumer banking due to the diversification effect. We had a positive contribution from the other NII of the group, so mortgages, CheBanca! and CIB, and effective cost of funds management. Q-on-Q trend -3% is in part detailed or answered by positive one-off.
There was EUR 5 million in CIB in Burgo, which I commented before, in lower average volume in consumer banking. That was partly replaced by wealth management trend. Better-than-expected trading results following positive market momentum. Very good news in terms of asset quality, where we have seen steady decrease of our moratoria loan. We were at 5% a year ago. We are now at 1.7%. We had a bulk of EUR 2.2 billion. Now we are at less than EUR 1 billion with EUR 300 million less than December, where consumer banking moratoria are expired. What we have is the normal moratoria that we do commercially every year. Mortgage is 62% expired. The remaining 85% has been classified to Stage 2 and Stage 3.
We have adopted a more prudent staging, putting 85% of the remaining part at Stage 2 and Stage 3, and the expiry date of period of these mortgages are within 2021. Leasing expired 34%, residual 38, classified Stage 2 and Stage 3, and 10 expiring by June end, and the rest July 2021. Prudent staging in the sense that we are still at 3.3%, 3.4% of gross NPE, but net they are going down because we have increased the coverage, they are at 1.2%. Performing loan Stage 2, these are having a coverage 9.5%, while performing Stage 1, 0.6%. Overall, performing loans coverage ratio was up in a year, less than a year, in nine months, from 125% to 134%. Cost of risk stayed low.
Of course, there's been an increase compared to the previous quarter because of the exceptionality, seasonality of Burgo. Write-backs. We had 53 basis points, which is in line with what we have said in terms of guidance. It is important to note that consumer cost of risk continued to go down because of great quality of new loan production and new deteriorated flow of loans. In CIB, we had negligible credit losses in terms of Q3, with three basis points of cost of risk. Coverage ratio increasing in all division. Mediobanca Group saw basically in net NPLs, a decrease of 34% from roughly EUR 900 million to roughly EUR 600 million. Part of this is also the reclassification in Burgo into Stage 1. The coverage went up to 65%, and this 65% is seen in every single bucket. In CIB, up 55% from 42%.
In consumer, from 68% to 74%. In wealth management, from 46% to 49%. In leasing, from 36% to 41%. CET1 evolution is of 16.3%, marginally better than December because of earnings, RWA, and dividend accrual. The positive momentum of the bank was reflected also in rating in ESG and credit, in particular S&P, following a bank-specific review, has upgraded Mediobanca from negative to stable outlook. This is based on the diversified business model of Mediobanca. On top, Mediobanca has been included in S&P Europe 350 ESG Index and as well in Sustainability Leaders Research issued by Il Sole 24 Ore. This is an evidence of our efforts in ESG policy, which is well embedded in our three-year plan. Going to divisional results. All divisions in the nine months recorded high double-digit ROAC, well above cost of equity. Wealth management from 21% to 22%.
Consumer banking stayed in the level of 29, 28. CIB had important rebound from 11 to 17. Principal investing stayed well above 10%. Going to wealth management, as I said, the two main drivers have been, I would say, on one end, CheBanca!, on the other end, so the affluent segment, on the other, private banking, which is now totally embedded in the IB activity. So it's a private and investment bank outfit. This was helped and will be helped even more in the future by strong investment in distribution. Thanks to the post-lockdown, we have resumed hiring and sales force are up by 60 professionals. Net new money EUR 3.6 in nine months, with the most important part done by affluent and private.
The divisional results saw 11% increase in profit, revenues up 5%, which is even more important, the fact that revenue, recurring fees, were up 9%, with very limited contribution on performance fee. This can be seen on slide 22, where we have broken down the two components contribution, affluent and private. You see that CheBanca! is not having any performance fee, and is registering 22% increase in fees and 6% in NII, with a very solid net new money trend and an overall increase of 5% in the quarter of TFA and then 20%, 19% in a year time. Private has had 7% increase in fees and as well as had an important net new money with the +4% in the quarters and +20% in a year time. Size is important, but is even more important, the quality.
If you see on page 23, we have broken down the different components of fees by source, it is clear the path we are following, a path of quality and sustainability, where management fees are steadily growing and the contribution of performance fee is negligible, even in this quarter, where we have reached the all-time high fees, recurring fee component. Because if you compare this to Q2 of 2020, there was EUR 11 million of performance fee, while this quarter, only EUR 4 million. The new segmentation and product offering is driving also up the asset marginality trend. Compared to one year ago, we are 4 bips higher and compared to 2 years before, we have 7 bips of higher marginality. It's still a work in progress because we still have a very conservative asset allocation in the portfolio.
Important efforts have been deployed into product evolution in the last nine months, where Mediobanca Private Markets initiative were fostered by the third multi-strategy fund in cooperation with Russell Investments. We have done the first exit of The Equity Club, we have done two funds in trophy assets in real estate. Three new thematic investment lines, new advisory mandates introduced in CMB, and two Mediobanca SGR diversified credit portfolios. New CLO by Cairn and two new funds launched by RAM. A very important product innovation, which is key to foster, of course, the growth in terms of net new money. Going to consumer lending, we have empowered the distribution with 4 new openings in Q3, we have continued to invest into digital upgrade. Today, not only we manage almost 25% of direct personal loans sold through web, of which 80% is executed in one day.
The good news is that the new loans are up 11% Q-on-Q, and the loan book is now stabilized, but is still down 7% compared to a year ago. The mix is skewing back towards profitable products. Personal loan now are up 30% Q-on-Q and now represents 50% of total new loans. Notwithstanding the decrease of the loan book, which was the function of the restriction of lockdown two and three, we managed to keep the profitability on the high level, because net profit was down only 13% year-on-year, but it can be seen as a 10% down because we had to post EUR 15 million of one-off related to Lexitor ruling.
Revenue down 5% and cost control sticking to 30% cost income with the loan loss provision down 3% meant in our ROAC of 28% and which is even more important, the strong asset quality trend, where the net NPEs are at the lowest since the adoption of new definition of default, so 2.1% of net new loan, and the coverage are at the highest level. Lockdown impact progressively smoothed, and we are seeing now a better recovery. Every lockdown, we managed to have a lower impact, but of course, compared to a no lockdown situation, we are still 80%-90% compared to the pre-COVID. There's still room to be done. Asset quality indicators further enhanced. You see that net NPEs on page 26 are all-time low, both in terms of percentage, 2.1%, but also in terms of absolute level.
We had, a year ago, we were among the first to adopt the new definition of default, which had a seasonal spike in deteriorated loan, which reached EUR 291 million. Then we grew through the COVID, and then you see that in terms of disposal of NPEs and funds that we have provisioned, the level went down to EUR 264 million. With an important increase because we are at 74.4% of coverage as opposed to 68.3%, so we had 6% increase in coverage in NPEs and 0.6%, which is even more important in performing. We have done a very important job to set aside both on NPEs and on performing. Early deterioration asset quality index below FC one year ago level.
If you see this graph on page 26, you see that our sign of early deterioration are still well below March 2018, where, of course, no signs of COVID or deterioration was evident. CIB. Robust revenue and asset quality progression. This year has been quite a good year in terms of all the product contributions. NII volume were up because we started to print new loan a year ago, and we continued to do events and acquisition finance related, so this led the NII. Fees were supported and are supported by strong activity in advisory, where we have clearly a leading position, not only in Italy now, and not only in large corporate. The two component are today more balanced between large and mid, and between Italy and France. France is now 40% overall advisory fee.
Lending, as I said, solidarity and capital market has been, this year, a very good trend in ECM, in DCM, and more recently, even if it's not a trend which is valid every quarter, a better trend tone of capital market solution. Core was down at 30 basis points due to write-backs. There's been a negligible core in the quarter backed by strong credit quality and positive change in portfolio mix. In M&A, you see that we are dealing with a lot of important transaction or announced transaction in this nine months, both in terms of domestic market, financial sponsor, and mid-corporate, and also, as I said, in Europe, notably in France, but not only France, because we have an important market position also in Iberia. Capital market, we're having a good IPO equity issuance trend and also a good DCM trend.
In the first one we are having a stronger market position. In the second, we have improved our market position and we generate, every year, between EUR 20 million and EUR 25 million fees. ROA, keeping principal investing at 12%. This is marginally down compared to a year ago, which the two years were impacted, last year by extraordinary gain, this year by a negative charge related to BSI sale. Holding function improved as well results on the back of positive treasury and trading activity. We managed to maintain low the cost of funding. We are a bit, if I can say, too liquid, and this has an impact on NII. I think it's a temporary position we will try to improve in the next few quarters, because as you see, all the key indicators are at very comfortable level.
As a closing remark, I would say that the COVID period proved that Mediobanca equity story is an equity story of growth, which is not evident as we know in the industry, because we managed to have an uptick of revenue of 30%, a net profit of up 9%. This is, of course, take into consideration Q1 to Q3. We were able to deliver above industry average profitability in terms of ROTE and shareholder return. I think this is due to our market positioning and business mix, which is exposed to the two different segment of customer base, the household on one end, and the large and high mid-corporate on the other end, which are having the best in terms of risk-reward profile.
I think that we can envisage, for the next few quarters, and in particular for the next one, a continuation of the positive trends in all business. A new earnings pre-distribution upgrade, which will boost organic growth in the quarters to come. The new business to benefit from the end of lockdowns restriction, in particular for consumer, and a still conservative provisioning, because we don't plan to release overlays earlier on, and we want to enter in 2022 with all the buffer, which are there to absorb any shock. We will continue a very positive year, and this will be reverted, as you may imagine, also in a very interesting dividend distribution, if and when we are going to be allowed by ECB. Thank you very much. Maybe it's been a bit long. Now it's time for your question.
Thank you, sir. Our first question comes from the line of Antonio Reale from Morgan Stanley. Please go ahead with your question.
Hi. Good afternoon, everyone. It's Antonio from Morgan Stanley. I've got three questions, please. One on NII, one on fees, and lastly on cost of risk. My first question on NII consumer finance, new loan origination has been resilient. You talked about sort of the 85% pre-COVID level this quarter. Slide nine is actually very useful. It shows, if I understand correctly, average loan book, which had been cutting down, of course, but seems like we may have reached an inflection point. How do you see consumer origination and group NII going forward? Can you also remind us of the mitigating factors you talked about TLTRO and higher bond portfolio? That's my first question. Secondly, we look at globally announced M&A volumes and these are running up post-crisis highs, and we definitely see good momentum in Italy and Europe.
Do you think we are at the start of a new M&A cycle? Related to that, how much of the fees that you booked in CIB this quarter you think can be sustained going forward, also in light of your pipeline? My last question is on cost of risk, which I think was at 53 basis points in the quarter, 51 basis points in the nine months. Clearly trending better than your full year guidance, which if I look back, was 80, 85 basis points to begin with. You moved it to 60, 65. How should we think about this going forward? I know you want to be conservative. There is already a good degree of conservatism in your approach. I understand you have about EUR 187 million of management overlay, moratoria two-thirds have expired, 80% resuming to regular payments. Coverage has gone up.
Is 50, 55, could it be the new level? Thank you.
Thank you, Antonio. Let me elaborate on NII. NII, to be direct, was much better than expected in most of the business. CIB NII, CheBanca! NII, wealth management NII, holding function NII. Which was not so good as expected was consumer. Why? There is a reason for that, is the fact that the first quarter went better than expected, and the last two, in terms of volume and in terms of mix, went in a different trajectory. Why? Because there were these two subsequent lockdowns. With the lockdowns, what happens is that finalized consumer finance goes very well. Auto sector and purpose loan are all-time high or very good. But the negative is that when people, they cannot move, they do less personal loan. What we have had is two quarters delay in NII.
We have seen, as you said, the reversal and maybe an inflection point already at the end of the previous quarter, the Q3. If you see, we have, I think, a slide here that shows the production in the month of February. This was a very evident sign that there is a positive correlation between production without lockdowns as opposed with the lockdown. The month of February generated, if I remember well, EUR 600 million of loans. This is something we do expect for the month of May, because the month of May can be another month of very good production, where it's not important only the volume, it's important the mix. If it is skewed more on personal loan, the marginalities are definitely better. I think that this quarter will be key to see the inflection point and the reversal.
If we enter in 2021, 2022, next year, with, I would say, an increased stock of consumer loan compared to Q3, then our hope to have a better NII trend going ahead are fostered by an important factor. The other mitigant are lowering TLTRO, we have drawn, and hence is there. What we can do, and we are doing, and you will see in TFA in the next quarter, is that we will look at mainly AUM and not deposits. Deposits, we try to reduce a bit the deposit base where they are more expensive in order to have another supporting factor of NII. We will give a more precise guidance of the NII at the end of Q4. If those trends are confirmed, we are at the inflection point now. M&A cycle.
I was surprised is the fact that this M&A trend is there to stay, because it has very broad supporting elements, which are low cost of debt, sector disruption, private equity, sector consolidation. It's very important to participate to this, I would say, party. To have the possibility to be there. You are there if you have teams that can intercept this trend. The teams are not only large corporate, are also mid corporate, and are also even more working with financial sponsors. What the bank has been doing has been creating a stronger team, and we will continue to do this, because we think that the M&A cycle is there to stay for at least 12-18 months. We'll continue to hire people in order to support important target in terms of fees and volume of transaction. Cost of risk.
When we started the year, we have guided the market at being in the region of 60, 62. In February, we confirmed this guidance. We see that this guidance maybe is a bit higher compared to what we are having. I think staying in the region of 53, 55, it's more the guidance for the full year. This is backed by very positive evolution of not only moratoria, but also new defaulted loan trend.
Very clear. Thank you very much.
Our next question comes from the line of Azzurra Guelfi from Citi. Please go ahead with your question.
Hi. Good afternoon. A couple of questions from me. One is on wealth management, the other one on capital, and one on M&A, but that will be a strategic more question. When I look at the wealth management, the progress on revenue is visible, but what has been more visible as well has been the growth in the profitability. I've seen that you are planning new hiring, higher distribution. Given the change in the mix, is it fair to expect that even next quarter and in the coming quarter, the profitability gearing to revenue and asset will remain higher and more efficient? The second one is on capital. You are accruing 70% payout, your dividend distribution actually will be after the ECB decision.
If I look at for the next couple of years, could you see an upside risk on dividend distribution given your business mix and the evolution of the macro, given also how the things are going, so a higher potential payout? The last one is on M&A. There has been several press article about potential combination with the banking group, and possibly on the math, it doesn't really square. I just wanted to think about if, when we think about Mediobanca and its business mix, it's more about external growth for some businesses like the wealth management and others, more than just being a potential target for a banking group consolidation. Thank you.
Yeah. Thank you, Azzurra. ROAC in wealth management, we are progressing along the line of our business plan. We are totally in line, even better, I would say. The plan, you remember, was very demanding, and it was done before COVID. Last year we said, "Okay, forget about this." In reality, when we rerun the number, we said we are still there. This year, it seems that we are ahead, in particular in wealth management. I have to say that these improvements are still something that we have to improve. We have to do more. Why? Because to give you the sense, we have still an asset allocation, in particular in the affluent, which is way too conservative because of the origin of CheBanca!. It takes time, and it has to be done with the, I would say, the full compliance.
I think ROAC, the more we go into a more balanced asset allocation in the portfolio and less insurance product, the more we should increase the ROAC. We are in line with the plan, but I think we should aim to do more. This is always what I want, in general. On capital, to me, on one end, all the banks are asking, and it's right, to distribute and to go back to normal distribution. On the other end, we know that this is subject to ECB, and ECB will look at the stress test, but will look also at the provisioning of the bank, the prudence, and the overlay. It will be important to enter in the new year with a very solid asset quality to, I would say, and a very solid result on stress test in order then to resume important distribution.
For us, we have plenty of options, as you know, Azzurra. For the time being, if you do the simple math of the dividend outcome of simply the consensus on net earnings, you arrive to the conclusion that our dividend can be much higher than the plan, the one of the plan. Simply we have raised from 50 to 70 the payout, and the profitability is very good. Now, on top, what we can do, we will value all the options, even included buybacks. I think better visibility can be given at the end of the full year results because stress test will be over, we will be closer to the dividend ban expiry. We can be in a better position to tell if and when we can put also restart buyback program this year or next year.
This year, in general, we need to go to a general meeting in October, and we will have, I would say, few months to do something. It's important to have an authorization to do it also in 2022. We are always in agreement in the sense that I don't think that industrially makes sense to do a combination between a specialized bank like Mediobanca and a commercial bank. There can be exception, but I hardly see them because the goodwill element, the positioning to the market, and the revenue potential and growth that we can do on a standalone basis are not to be the same if we are combined into a universal bank model. It is right what you say. We are thinking more to grow in wealth management and in distribution, and also in production.
I think this consolidation trend, and the decision of groups, not only in Italy, about their presence here and there may change in the near future, so there will be opportunity. This opportunity, coupled with the solid organic growth trend in wealth management, will make that, I think with some even mid-size transaction during the plan, we can be in a position to have an existing market presence in wealth management at the end of the plan, much bigger than what we have expected at the start of the plan.
Our next question comes from the line of Christian Carrese from Intermonte. Please go ahead with your question.
Hi, good afternoon. The first question is on cost evolution. I see you said in consumer banking, also corporate investment banking, you are hiring, you are trying to increase the distribution. I was wondering if we should expect some pickup in costs already in the fourth quarter and in the coming quarters. If you can share with us operating profit trend that you expect for consumer credit. The second question is, again, on M&A and on a specific deal. I saw the highlights, the headline on statement on a potential tie-up with UniCredit. If you can tell us why this kind of deal should not be good for Mediobanca. I refer to bankers, I refer to bank assurance agreement, and so on. If you can elaborate a little bit. Thank you.
Thank you, Christian. On cost, part of the cost increase is due to the fact that we adjust every quarter the variable cost, the personnel variable cost, the bonus pool, to the trend of revenues, not to have it only in the last quarter. As revenue in CIB are going very well, of course, we need to adjust also in terms of cost. I don't think there would be a particular spike in Q4 for this, because we have done the job in the first nine months. Depends also on the final quarter trend in terms of CIB revenue. In Q4, we normally, as a seasonality of projects, because in particular, the projects related to the IT upgrade, or all the projects that are related to compliance with regulation, normally every single year are in part charged in Q4.
M&A, you said, why do you think this? I think that there are very few synergies in terms of any cost synergies, and there are dyssynergies in terms of revenues, because I used to say a simple sentence, or to pose a simple question, which is the following. What do you think in terms of revenue trend should a commercial bank, like BNP or Crédit Agricole, just to make an example, should buy Rothschild? Do you think Rothschild, after this transaction, would generate the same revenue as before, or higher or lower? I arrived to the conclusion that the likelihood is that they are going to generate lower revenue, because there are clients that go to Rothschild today that would not go if Rothschild is not anymore independent.
I think we will generate, whatever is the group, very low level of synergies in cost and a good level of revenue attrition. For this reason, I don't think that it may be interesting either for us or for a counterparty to look at such transaction. This is my personal opinion. I don't want to convince anybody. It's simply my feeling on knowing a bit the industry.
Thank you.
Our next question comes from the line of Giovanni Razzoli from Deutsche Bank. Please go ahead with your question.
Good afternoon. Three questions on my side, back on the consumer credit. I was wondering whether you do expect some increase in the competition, because banks, which are desperate for increasing the margins, most of them in Italy are increasingly targeting the consumer credit as a way to support the NII. We've seen these as comments also in the recent conference call. The second question is on the quarterly results. I've seen that there were something like 19 million EUR of write-ups of financial stakes. If you can please clarify what was this contribution. The very last question, you are targeting 55 basis point cost of risk for the full year, which is a reasonable, or prudent assumption given your business mix. I would like to know what's your view instead on the guidance that commercial banks are giving in terms of cost of risk for the full year.
Also in light of what the ECB is saying about the provisioning policies of the bank at the European level, which does not seem to be consistent with the expectation of the regulators. What's your view on that? Thank you.
Thank you, Giovanni. In consumer, I would say that on one end, it's likely that competition will go up. This anyhow will be reverted normally in a better core, and what we can say is that Compass, as you know, Giovanni, is in particular strong in a segment of clients which are not the bread and butter of banks. To serve the clients of Compass, or at least part of the clients of Compass, you need to have a very specialized pricing and risk management and scoring. It's not an exercise which is open to everybody. Because it can be painful if you don't price the loan and the risk in the right way. The second question, if I got it well, was on seed capital write-up.
We can say that there is a good momentum for all asset class, and there are some small direction exposure into the funds, which are having, anyhow, as I said, a good momentum. I think maybe not at the same level of the previous quarter, but it is foreseeable that we can have some more sustain from that kind of asset class. Your question, the third one is very, I would say, clever. We are today in a situation which is unheard, in the sense that the trend of customer, and in particular certain customer. If you think about large corporates or exporting company, or if you stick with household, you see that their repayment profile is very good. Very, very good. To a level that you maybe, in particular for the household, you never seen in the past.
This is in part due to the fact that the saving is higher and the spending is lower, it is what it is. As I said, we never had such low defaulted loan trend. On the other hand, we never had, we have to be honest, such a low new loan production. Those two are linked. From this situation, it's evident that there is a sort of let's see what happens approach from the supervisor, because basically on one end you have such a good trend, in particular of certain counterparties. On the other end, you have still to understand the exit from the full lockdown impact, which is not so easy to understand. Whatever you do, up until we don't have the full exit, so it is 2022 or 2023, there can be a doubt that the provisioning is not enough.
What is important is basically to adapt your provisioning every quarters to sell the non-performings. The warehouse of Compass NPE is so low because we sell every year the warehouse on NPE. If you sell with average profit like what we have done, it means that your provisioning is correct. It is very important to have, I would say, balance sheet flexibility in order to absorb this potential shock. That can be that you may have a quarter which is going up in terms of cost of risk. If you have done well your activity, at the end, you deal with this, no? It's not easy Even for regulators to understand this trend, because it's not easy for all the operators to understand what can happen.
For this reason, we need to have buffer and overlays to protect us from the worst, which is not something that we see coming, it may happen.
Thank you.
Ladies and gentlemen, a quick reminder. To ask a question, you will need to press star one on your telephone keypads. Our next question comes from line of Luigi De Bellis from Equita. Please go ahead with your question.
Yes, good afternoon. Just one question on the strategy M&A in the wealth management. Do you feel that the current prices could be good prices to make a deal, or valuations are too high in the sector? Generally speaking, your point of view on M&A in the wealth management sector, and do you feel that at this stage there could be any cross-border deal in Italy to help consolidation, or is it too early for that? Thank you.
Thank you, Luigi. I think that you are right in saying that, I would say, the large group that are listed, they are incorporating quite high valuation because of their operating trends. I think that for large deals, this may represent an obstacle. Maybe for a smaller deal, which maybe are more opportunistic, not having the same trend in terms of expansion of revenue and profitability, the multiple can be different and more affordable. In terms of cross-border, I am doubtful that we will see a string of cross-border transaction, because the ecosystem is not yet there to favor this.
Much more activity has to be done to favor this kind of merger to have real synergies from many standpoints, capital, liquidity, true synergies in terms of common platform in retail, which are on one end linked also to local fiscal regulation. At the end, it's difficult to imagine a very, I would say, synergic or synergetic transaction at European level. You can play it a bit on the factory standpoint. If you want to become bigger in CIB, you have a consolidator in CIB in Europe, or if you want to have someone which is bigger in asset management, you can try to play the game of consolidating smaller asset manager. But of course, it requires that the transaction meets the requirement of the two counterparties. Nobody wants to sell asset management.
Everybody wants to buy, even those that are maybe under scale. Few synergies and lack of, I would say, interest, combining interest, are such that I don't see it coming soon. As you know, Europe is still Euro area is not considered a single area from the banking standpoint. It's considered like a 19, or I don't remember how many members do we have. Not a united Europe, every single country has a specific treatment in terms of risk weighting, capital, liquidity. Much more has to be done in order to favor these kind of deals.
Thank you very much.
Our next question comes from line of Britta Schmidt from Autonomous Research. Please go ahead with your question.
Yeah. Hi there. I've got two questions, please. You alluded to the stress test, waiting the stress test for making any further statements regarding distributions. Can you give us a little bit of color on how the process has gone so far for Mediobanca? What are your views on the toughness of the assumptions, do you think that there's a lot of explaining to do around the business model, especially on the consumer finance side? Sorry. Secondly, on the UTPs, on the increase this quarter, shall we assume that these are all regulatory UTPs related to, for example, the Dear CEO letter? Or how much of that are UTPs that you would have classified for pure accounting purposes? Thanks.
Sorry, Britta, the line was very bad, I could hardly listen to your second question. Could you repeat the second question, please?
The second question was just relating to the classification of Stage 2 loans and potential changes in unlikely-to-pay exposures that you've accounted for, to give us a little bit of color on what impact the Dear CEO letter had on your classification of exposures.
Well, as you have seen, we have taken a more prudent approach in what is left out of the moratoria. From the moratoria. The part which was not going back to full repayment or full normality, we have, on average, classified them Stage 2 and Stage 3, we have started to set aside in order to cover those kind of evolution. Honestly, I don't think that this classification at the end will stay, because back on what we have seen, this is prudent, every single maturity part of this Stage 2 and Stage 3, normally they got back to a previous stage, either Stage 1 or Stage 2.
It was a matter of prudence. We wanted to, in particular, to enter into the moment of full year account, end of stress test, or stress test results, in order to be, I would say, well prepared to ask for the distribution of dividend. The first element, in the stress test, what I can say is that consumer already in the previous stress test, but even more in this one, showed a very good resilience on cost of risk and on NII trend. As we enter in the stress test at the end of 2020 with very solid asset quality, I don't think that the exercise will have a very significant impact. It has to have some impact because if not, it's not a stress test, but I think our business stands very well this kind of stress. Let's see anyhow the final results.
Starting also from 16.2 of quarter one, we have a SREP, which is very low. We have ample margin of buffer to absorb stress test.
Thank you.
Thank you. I don't see further questions. If I may, I would conclude this call. Thank you for attending, for asking such a good number of questions. I hope to have you all in July for the full year results. Thank you very much. Bye.
Ladies and gentlemen, thank you for your participation today. This concludes today's conference. You may now disconnect your lines. Thank you.