Good morning, ladies and gentlemen. Today's conference call will be hosted by UniCredit's CEO, Mr. Jean Pierre Mouncier and the Co CFO, Mr. Mirko Bianchi. At the end of the presentation, there will be a question and answer session.
Today's conference call is being recorded. At this time, I would like to hand the call over to Mr. Jean Pierre Mouncier. Sir, you may begin.
Thank you very much, and good morning to Elephine, and welcome to the analyst call for our 2nd quarter results. While we continue to face the challenges of the ongoing COVID-nineteen pandemic during the period, we finished the quarter in a strong position. Now ready to see the opportunity that lies ahead, thanks to our effective business continuity measures, our accelerated digitalization and our stable cost base. As we began to ease the Christmas of our core market, we are seeing the first signs of commercial recovery. You can see more clearly in our monthly fee performance with growth fees for June now slightly higher than the level of a year earlier, demonstrating the resilience of our commercial franchise.
We are already unopened for business and in a strong position to capture commercial opportunities. We have maintained our discipline with management, the hallmark of Transform 2019, And we confirm our financial year 2021 cost of full guidance. The full bank burn of the non core by 'twenty nine is also confirmed. Musier. With our very strong balance sheet, we can continue to finance the economy and support all our stakeholders.
We have committed to reinstating our TIM22 Musier, in 2021, including returning a mix of capital to shareholders. Let's turn to Slide 5. I would like to remind you of what Uniqredit stands for. Our performance this quarter reflects not just the conservative revenue in the National Bank and our Baidu Cipay business model. It also reflects our culture.
This culture is best summed up as doing the right thing for all our stakeholders, Musier, to long term sustainable outcomes of our short term solution. This commitment to sustainability has recognized in June by MSCI, We upgraded our ESG rating to A after many years with a BBVA team. We are further reinforced this Commitment with the appointment of a new Head of Group E and C Strategy and Impact Banking. In this week, we have updated our core policy to industry leading standards. We have made a direct commitment to fully exit all coal sector financing by 2020 worldwide.
And we will have 0 exposure to thermal coal mining and coal fired power plant project by 2023. Further details on the new coal policy can be found in the Annex Musier. Sustainability is feeling better in how we run the bank. Let's turn to Slide 6. We believe in the quarter were down 4.8% compared to the Q1.
We have been going place for much of the target across our core markets Musier. With a significantly lower economic activity and lower fees as a consequence. We are missing a recovery in activity. Now, Nico will provide more color shortly. I would like to highlight the performance of Commercial Banking in Italy and Germany.
In the annex on Page 36, we have provided a detailed managerial breakdown of our monthly fee performance with both geography and broad products. Gross NPEs are more than €10,000,000,000 lower than the year ago. Monsieur. And I see thanks to you for the hard work and disposal in our non core. As a result, our gross NPE ratio improved further to 4.8%.
Our capital position continues to strengthen. Our fully loaded CET1 and the above trend at the end of the quarter was 4 81 basis points, an increase of 44 basis points over the quarter and 2 18 basis points higher than the year ago. Musier. Thanks for the proactive decision we took to strengthen our balance sheet over the past year. The strength of our balance sheet also allowed us to absorb significant provisions over the last three quarters to prepare 1423 and Chief Executive Officer for the effect of COVID-nineteen.
This provision totaled EUR 4,300,000,000 pretax and in Q1, €1,200,000,000 for updated teen 'twenty three and core vendor strategy by 'twenty one €1,400,000,000 for forward looking business provision and €1,800,000,000 for restructuring costs, which allow us to accelerate further the transformation of our business model. Notwithstanding the substantial provision of tangible equity is stable year on year. Now let me hand over to our co CFO, Niako Blenky. Now go ahead, Jean Pierre.
Thank you, Jean Pierre, and good morning to everyone. We are on Slide 8. Revenues were down $208,000,000 or 4.8 Musier. As Jean Pierre already noted, we felt the full effect of lockdown in this quarter. The lower revenues were particularly offset by lower cost as we maintained our strategic discipline and focus on efficiency with operating costs down €49,000,000 or 2% on the Q1.
I will comment on revenues and cost Trying in more detail in the following slides, but I would like to make 3 specific comments on items below the net operating profit line. Systemic charges in the quarter increased by 40% year on year, mainly due to an additional contribution to the single resolution fund in the 2nd Q20. As a result, we have revised up our fiscal year 2020 outlook for systemic charges guidance from €850,000,000 to €900,000,000 Profit on investment in the quarter included a charge linked to the accelerated rundown of noncore and an impairment in Austria, partially offset by mark to market gains on our remaining stake in Yaping. The group tax rate of 14.42 percent in the 2nd Q 2020 was driven by the economic by the geographic mix of Taxable profit mainly in CEE and a tax credit recognition in Italy. Let's turn to Slide 9.
If we look at our profit distribution across the group in the quarter, you can see that our diversified business model underpins our Fertility at group level, notwithstanding the varied timing of lockdowns across our markets. The contribution of CE and CIB stand out in this quarter. As you can recall, we introduced Underlying net profit at our Capital Markets Day last December to create a relevant and true measure of profitability, one that provides a better reflection of income that can be distributed to shareholders. To calculate underlying net profit, we exclude after tax non operating items from stated net profit. This quarter, We had limited non operating items.
The underlying net profit was therefore EUR528,000,000 Please see the annex on Page 42 for all adjustments in Q1 and in Q2. I would also like to comment on our return on allocated capital year to date. To put things into perspective, If we adjust for the IFRS nine macro provisions, the impairments in Austria and spread the systemic charges equally through the year, The underlying return on allocated capital in the first half would have been 7% in Italy or 8% in Germany and above 5% in Austria. Given the macroeconomic background, this is a good performance underpinning Our fiscal year 2021 guidance of $3,000,000,000 to $3,500,000,000 underlying net profit and 6% to 7% underlying Rote. Let's turn to Slide 10.
Net interest income was down 4% quarter over quarter. I would like to remind you, however, of the tax related one off item in Germany in the Q1 that contributed a positive EUR 50,000,000. Adjusting for this one off, net interest income was down by only 2.1%. Loan volumes contributed positively to the net interest income in the quarter. This contribution is based on the average volume of performing commercial loans, which were up 2.4% quarter over quarter.
The contribution from customer loan rates was impacted by both Lower rates and a mix effect. Lower base rates in CE and U. S. Were partially offset by a positive impact on the contribution from deposits. Please bear in mind, however, that the closer interest rates get to 0, the harder it is to offset pressure on the asset side with liabilities.
The mix effect reflected our prudent risk appetite. We maintain our cautious stance on consumer finance, a strategy that predates on COVID-nineteen crisis. We continue to focus on higher rated clients more generally. The Q2 also included the 1st loans issued under government guarantee Musee. These accounted for 16% of the group's overall new production in the quarter and 30% in Italy.
Such loans are naturally at lower rates. Finally, let me now address the topic of TLTRO. As you know, we repaid all TLTRO outstandings in June 2020. At the same time, took the maximum allotment of Muthier. PN203 of €94,300,000,000 As we do not to carry trades, rather deposit the excess unused liquidity back To the ECB, the nominal gross benefit is around €300,000,000 per annum.
At the same time, however, We lose the benefit of the previous TLTRO programs. The incremental net NII benefit From these transactions combined, it's ever expected to be around €75,000,000 per annum throughout the 3 year life of TL3. Our IR team is happy to take your calls on the details. Let's turn to Slide 11. Fees were down 11.8% year on year that was with signs of commercial recovery towards the end of the period.
We saw the full effect of lockdown this quarter. In contrast, the Q1 was only affected from mid March onwards and included a very strong commercial performance in January February. As Jean Pierre said, we have seen Clear signs of recovery in June. This rebound in fees income as lockdowns were lifted demonstrates the resilience of our commercial franchise. We are, however, seeing a variety of commercial recovery in terms of geographies and Mucier.
In part, this reflects where each market is in term of the easing of lockdown restrictions. Austria and Germany opened up 1st, followed by Italy, while CEE, some countries are still in lockdown or in the process of tightening restrictions. Ioannes, on Page 36 provides a detailed managerial breakdown of monthly fleet trends by geography and product. So I will limit my comments to the following. Investment fees are rebounding well, driven by a Strong performance in Commercial Banking Italy towards the end of the period.
By June, investment fees for the group We're 9% higher than June last year, which being this being said, was a low month and we expect this to recover to be sustained. Initial data from the 1st few weeks of July also confirmed that. The relative stability in financing fees in the quarter reflect two trends: A very strong demand in debt capital markets across CIB and lower credit protection insurance sales in Italy. The latter are expected to remain subdued in line with our cautious stance on consumer finance. Transactional fees in the quarter were impacted by the effect of lockdowns on economic activity.
GDP sensitive transactional fees such as cards, payment services and non life insurers were all lower. And currently, in June, we saw transaction volumes of issued cards match the same levels seen a year ago across Italy, Germany and Austria. As economic activity resumes, we Musier. Expect this GDP sensitive transactional fees to partially recover through the second half, following the expected recovery in GDP in the markets where we are present. Current account fees were Siebel in the quarter compared to last year.
Overall, we would expect total fees in the second half to be broadly consistent with the first half. Let's turn to Slide 12. Trading income in the 2nd quarter was very strong at $357,000,000 up $184,000,000 quarter on quarter. Client driven trading was solid, contributing €372,000,000 up 79% quarter on quarter excluding the volatile ex vehicle component. The strong performance came from fixed income as well as equities and commodities, the latter benefiting from strong sales of certificates in the network.
Non client driven trading income also performed well, up EUR113,000,000 quarter on quarter. As we said in the Q1, we expected the mark to market losses in our treasury portfolio to recover. I am sure many of you compare the trading income performance of banks across Europe and beyond. Please note that unlike some banks, we take own credit spread adjustments straight to equity and not through the P and L in the group trading income line. If instead we had taken these adjustments through the P and L, Our trading income would have been EUR 210,000,000 higher in the Q1 and EUR 133,000,000 lower in the 2nd quarter then reported.
The lower contribution from dividends year on year was driven by the lower profitability in some financial investments in Austria and the impact of strategic disposals of stakes in YAPI and Mediobanca. Let's turn to Slide 13. Our continued cost discipline allowed us to offset increased COVID-nineteen related costs in the quarter. This included additional expenditures on real estate, security and personnel protective equipment following the evening of the lockdown. The total COVID-nineteen related costs amounted to $50,000,000 in the quarter $69,000,000 in the first half.
For the full year, such costs will be in the region of €100,000,000 but we will be fully absorbed by savings made elsewhere, including lower variable compensation. The decrease in cost year on year In the Q2, it's mainly thanks to lower FTEs and lower bonuses. The decrease comes despite a tough comparison Musier. With the 2nd Q 2019, which benefited from a positive €24,000,000 DBO release in Commercial Banking Austria. For fiscal year 2020 overall.
But we also for 2021, we expect Costs to be broadly in line with fiscal year 2019 and well below teen 'twenty three guidance. Let's turn to Slide 14. Let me start by explaining our way of looking at cost of risk from now on. We have split loan loss provisions into specifics, regulatory headwinds and overlays. Specific provisions, which relate to non performing loans, I.
E. Those classified as Stage 3. Regulatory headwinds, which include the impact as usual on loan loss provisions from models and the new definition of default and Overlays, which represent all loan loss provisions that are neither specific nor regulatory headwinds. These include IFRS 9 macro scenario provisions, sector related provisions and provisions arising from preemptive classifications as stage 2. These additional provisions are on performing loans, I am stage 1 and stage 2 and aim to proactively capture future default dynamics in the loan portfolio.
In the future, some of these overlays will be set against specific provisions, while defaults materialize and the loans are classified as Stage 3. This is how we will be looking at cost of risk going forward. For future details of our approach, please see Page 51 in Neonics. In Neonics, we also provide further disclosure on our loan portfolio, including classification as Stage 2 by corporate demand from analysts and investors. Let me now turn to our performance in the first half and explain how we expect provisioning to evolve through the rest of the year and into the next.
Our cost of risk in the first half twenty twenty stood at 91 basis points. Within this, 32 basis points was accounted for by specific non loss provisions for loans that were in Stage 3 or moved to Stage 3 during the first half. This is a low number and lower Then the 43 basis points in the first half twenty nineteen, reflecting our conservative approach to loan origination. Since part of the loan portfolio is likely to be under moratorium for a large part of fiscal year 2020, Specific loan loss provisions will likely be lower and they would otherwise have been given the economic environment. Consequently, we will have additional overlay long loss provisions in the second half twenty twenty as we head in the first half twenty twenty.
To properly reflect the forward looking economic impact of COVID-nineteen on our portfolio. The 100 to 120 basis point cost of risk for fiscal year 2020 as per our guidance is therefore confirmed. Some of these overlays will be set against specific provisions With the share of loans being classified as Stage 3, expected to rise more significantly in 2021 once the moratorium expires. Considering these assumptions, we also confirm our fiscal year 2021 guidance of 70 to 90 basis points. Finally, please note that there were essentially no loan loss provisions from regulatory headwinds in this quarter.
Let's turn to Slide 16. In the Q2, our gross NPE ratio for the group, Excluding non core, was stable at 3.4%, demonstrating our good underlying asset quality. Using the EBITDA definition, the group NP ratio excluding non core is up 2.7%, now below average of other European banks
for the first time. As a
pan European bank, that is the peer group that we should be compared to. As we look ahead, consistent with the underlying assumptions of our projected cost of risk, we Expect the NPE ratio to rise as monetalia expire and the default rate increases. The coverage ratio was down by 2 percentage points in the quarter. This is largely a mechanical effect resulting from the disposal of unsecured NPE portfolios where naturally the coverage was much higher than average. The quarter on quarter increase in UTPs was mainly due to Italy and the proactive management of flows to the fall.
Let's turn to Slide 17. Throughout COVID-nineteen lockdowns, we have continued to work hard on the non core rundown and the process remains well on track. As you will have seen last month, we were the first And we remain the only bank to close multiple market based transaction this year. The sale of 3 Unsecured nonperforming loan portfolios were all accounted for in the 2nd Q 2020. As a result, gross NPE in the non core were down EUR 1,100,000,000 in the quarter to EUR 7,000,000,000.
The NP market was effectively closed during lockdown. Our strategy and processes, however, remained in place. It allowed us to quickly reenter the market as the outlook became clearer to investors. The Italian MP market for unsecured asset classes was the first to reopen. Prices in such transactions are largely driven by timing effect on expected cash flows.
They are therefore less affected by the macroeconomic environment. We are now in the market with secure and UTP portfolios. This market was sure to reopen. Investors required more time to conduct on-site due diligence and became comfortable with the timing of the legal processes. We are confident that our disposal program will be successful.
We expect a Further reduction of the non core portfolio reaching our initial target of below €4,300,000,000 by year end. The full rundown of the known core in 2021 is confirmed. Let's turn to Slide 18. Our CET1 capital fully loaded is a very strong is at the very strong 4 81 basis points buffer over our NDA level. To give these numbers some context, our NDA buffer is of the same order of magnitude as our current market cap.
Please note that this quarter, we've started to report transitional CET1 values again following ECB guidance on certain items. Our NDA buffer on a transitional basis is 549 basis points at the end of the second quarter. We will disclose it for as long as the guidance remains. But we will, as always, continue to manage the bank on a fully loaded basis. Please see the annex on Pages 54 and following for additional disclosure.
The 44 basis points increase in the NDA buffer over the quarter was largely thanks to a reduction in risk weighted assets of more than $10,000,000,000 in the quarter. Lower risk weighted assets were driven mainly by the early adoption of the SME supporting factor, lower Loan volumes at the quarter end as well as the increase in guaranteed loans. The directional contribution of loan volumes To risk weighted assets this quarter diverges from the directional contribution made to NII. This is primarily because NII is linked to average volumes, which were up quarter on quarter, while the risk weighted assets are based on end of period volumes, which were slightly down in the quarter. This mainly reflects the timing of WEN Corporate drew down on and subsequently partially reimbursed liquidity facilities.
The change in the regulatory treatment of software assets also introduced in the so called CRR Quick Fix takes effect in the Q3. It is expected to have a positive impact of around 10 basis points. Looking forward, we expect our NDA buffer in fiscal year 2020 and fiscal year 2021 to remain above 300 basis points, which is well above our target range of 200 to 2 50 basis points. As confirmed in our announcement last week, If the ECB does not prolong its payout recommendations, we are committed to gradually returning excess capital. This will be based on the sustained excess capital over our target NDA buffer.
Let's turn to Slide 19. In line with the strong increase of our CET1 NDA buffer, our TLAC NDA buffer has increased to 534 basis points, well above our target range. It was driven by the successful completion of our subordinated TLAC funding plan for fiscal year 20 Moncier. In 2020, raising €8,100,000,000 of eligible instruments at a very attractive levels. In July, We executed €1,250,000,000 of senior non preferred as prefunding of the fiscal year 2021 deal act needs.
For the remainder of the year, we will be ready for potential additional 2021 prefunding subject to market conditions. Let's turn to Slide 20. And finally, a quick look at our tangible equity, which was stable quarter on quarter to EUR 51,100,000,000 Musier for the Q2. For the remainder of the year, we expect a steady increase in tangible equity and tangible book value per share. Let's turn to Slide 22 and Jean Pierre, back to you.
Thank you very much, Nico. As I said at the This quarter has been characterized by the early signs of commercial recovery. We are ready and open for business. As always, we will continue to run and manage the bank in a conservative and disciplined way and prepare for all eventualities. We confirm our ongoing net profit target for 2021 of €3,000,000,000 to €3,500,000,000 We also confirm Our financial year 2020 cost of goods guidance of 100 basis points to 120 basis points as well as our financial year 2021 guidance of 70 to 90 basis points.
Our balance sheet will remain strong. We expect our fully loaded CET1 and the above trend to remain above 300 basis points in both prime fiscal year 2020 2021. This is well above our target range of 200 to 250 basis points. We have committed to reinstating our TIM23 distribution policy in 2021, subject to the ECB dividend recommendation not being extended. This means a payout of 50% of underlying net profit, the mix of cash dividend and share buyback.
It also means you have only returning excess capital to shareholders for extraordinary capital distributions. As of 2021 and for the remainder of King 23, the excess capital The debate on the sustained exercise over the target fully rated CET1 NPL buffer of 200 to 2 50 basis points. Before taking the questions, let me extend my deepest thanks and appreciation to all of UniCredit team members This commitment, resilience and continued hard work in this unique situation has allowed UniqCredit to prosper And to do the right thing for all our stakeholders. Marie Curle, the rest of the team and I are ready to take your question.
Musier.
Thank you, Mr. Musier. We will now begin the question and answer session. Muncieres. Muncieres.
The first question is from Adrian Chigi with Credit Suisse. Please go ahead.
Hi, there. This is Adrian Ching from Credit Suisse. Thank you for your presentation, for taking my questions. Two questions, one on capital return and one on cost of risk, please. On capital, can you please give us a bridge from today's NDA buffer of 481 basis points to be sustained 200 to 250 At a fixed point target rate.
And what over what period would you expect to get there? And on the cost of risk outlook, can you reiterate the full year Sort of cost of risk guidance of EUR 100,000,000 to EUR 120,000,000 What explains the expected increase in H1 From the H1 levels, in light of the front loading of IFRS 9 environment and the full effect of the lockdown in Q2,
do you expect things to get worse? Or is this sort of additional overlay
that you're expecting to take based on additional information to be received in the second half? Thank you. Thank you very much. On the capital return, as you pointed out, we have a very strong and the above On a fully diluted basis of 2 81 basis points. We said we expect on the buffer to be well above 400 basis points in both at the end of 2020 2021.
Bear in mind that we have regulatory headwinds in 2020, Which has been partially shifted to 2021. And so we target regulatory headwinds, which Would there be in 2021, at the end of the year, maybe at 140 basis points and then Musier. For the moment, there's no change in 20222023. So basically, the capital NDA buffer Monsier. We'll on each side, we'll go with the net earnings.
And on the other side, we'll negatively affect it in 2021 at the minus 140 basis points, which is 60 basis points above the initial target, I'd say sorry, 1 of the basis points above the initial Musier. As we have more than 60 basis points time translation from 2020 Plus a 20 basis points of impact of basically the impact of the higher expected loss And 20 basis points of positive impact of 1st year RR, which has been taken in 2020. So overall, 200 basis points above for our NDA buffer in 2020, 2021, which is partially Musier. Compensurate in the net earnings by the regulatory environment. For the cost of risk outlook, I will hand over to TJ, but also we have pointed out on Slide 51 of the presentation where we Explain what we mean by overlay.
We have a specific cost of risk, which is going to be for the full year at around 50 to Musier. So that's in line with what we can see for the portfolio. We have an overlay of cost of risk of 40 to 50. The overlay is a mix of A preemptive classification between Stage 1 and Stage 2, sector based provision and the conservative macro assumption. We are doing overlay ready for Q1 of 83 basis points, as for annual price 9.34 in Q2, And we expect to take additional overlay in the second half.
And we have 10 basis points of negative
Thank you very much. We will take
this overlay in order to anticipate the future specific risk that we have when the moratorium expire. Probably the moratorium will be extended from most of them Musier. And since in Italy, we expire at the end of September for the corporate for the individual, it's more in the near June next year. And so probably for the corporate, the material will be extended to January next year. So we are not going to see Specific provision in 2020, which is why we called this overlay to anticipate the future specific provision.
And this overlay Musier. We'll basically be turned into specific provisions on this billing car or moving to Stage
Thank you. Next question, Katie.
The next question is from Andrea Filtri with Mediobanca. Please go ahead.
Thank you. One question on Musier. Capital and one question on Costa Breasco. On capital, Slide 63, could you tell us what is the positive That is implicit on regulation when we exclude the impact of procyclicality and of the SME supporting factor. Did you include any regulatory hurdles, which were previously meant to come in 2021 already in this quarter?
And on NII, if you could tell us what the future contribution you expect From your pipeline of government guaranteed loans and updates On your ALCO portfolio, what is your position and what is how it can move to Q on Q duration breakdown contribution to NII? Thank you. Sure. Thank you very much, Andrea. I will hand back and if you comment on the NII for your second question.
And the first question is We go to, let's say, the 53 IndiraMAX, which is the breakdown of the risk weighted asset evolution. We have a certain number of positive, as you said, and so on the regulation side. So on the regulation side, we had a decrease of the risk weighted asset by EUR 2,400,000,000. We had an increase of restricted asset of €4,900,000,000 which was into profitability. We had a total Increditing impact for the first half of twenty one basis points, so 2 basis points EBITDA in the Q1, 18 basis points in the second.
We expect for cyclicality on the Q3 to be around 14 basis points and on the Q4 to be around 10 basis points And for 2021, 20 basis points. So that's the forecast for profitability by quarter. This increase of risk weighted asset due to profitability was offset by the FME supporting factor, which was originally anticipated in 2021. So for a decrease of €4,400,000,000 of liquidity assets. So basically, SME She put in fact offset the profitability.
We had a decrease of €1,200,000,000 Musier. Of course, Coty Bancet. Thanks to the new sovereign temporary benefit. So it's a risk weight of exposure to certain gains in FX, So which has been moving from 50% to 0%, and this will last up to 2022. And we have a decrease of €800,000,000 of risk weighted assets, meaning to the new regulation and setion uquinta do steep and deal, so CQI, which is Musier.
Basically, loans and credit loans, because there has been a decrease in the rent density from 75% to 35 Musier. So that's the program which you noted is the reduction of €2,400,000,000 of which we did have set for the quarter. And I'll let Nico comment on the NOL side.
Yes. Thank you, Jean Pierre. Musier. First of all, in terms of the GOVIS, we have GOVIS exposure of EUR 43,400,000,000. So it's down basically EUR 500,000,000 from last quarter.
As you know, basically more than half is classified into Musier. Correct. And the rest is fair value to OCI. We have a calculation of the portfolio of 3.3 years. So it's in line with last year.
Now in terms of the contribution, in terms of contribution of the NII, I don't have the exact breakdown here. What I can say is that quarter over quarter, We were quite stable in terms of the NII that we were able to extract for from a quarter on quarter basis. So we will continue to reduce this exposure as we go Musier towards the target of 50% of our total tangible equity. Musier. Next question please.
The next question is from Britta Schmidt with Autonomous Research. Please go ahead. Yes. I've got 3 questions, please. Firstly, with regards to your guidance
of EUR 3,000,000,000 to
EUR 3,500,000,000 of underlying net income in 2021, Are
there any material non operating items that
we should adjust for? And where do you see the biggest potential year on year improvement Musier. In this moment, I'd like to explain the gap versus market expectations. The second one is could you update us on the macro assumptions regarding the loan and provision, GBP outlook. And the first one is could you give us some specifics on the NII outlook for 2021?
Sure. Actually, I will take the first and third question in one group, and I will let Tidjie comment on the second question. So as far as the EUR 3,000,000,000 to EUR 3,500,000,000 net income for 2021, as we said in the previous quarter, We expect from what we were projecting for TIM23 to have an NII done by more or less 5%, so Musier. From convenience to 1.5. We expect our fees to be done by single Musier.
It was in good digits, so there should be a recovery of fees versus what we have planned in 14/23. We expect the cost to be more or less flat Musier. This is the cost of the year at the end of 2019, so lower than what we had the 14.23 And the LNPs, they follow the guidance of 70 basis points to 90 basis points. So we are speaking about the underlying net income. So when you look at the combination of dark and the specific change in the DKK3.5 billion to DKK3.5 Musier.
The $1,000,000,000 net income, I'd say, we have confirmed. So no under the line item, just coming from the normal Operating activity of the bank is stabilization of the NII, normalization of the fees I've been present profit, which is back to normal, discipline and cost of lower and provision lower than in 2020, within the range of 72 Unity Systems. TJ, do you want to comment on the macro assumption?
Yes. Thank you, Jean Pierre. In Q2, we do not see any need to update our macro assumption. And we're comfortable that our macro reflect the environment. And we confirm both our cost of risk guidance Musier.
For near €100,000,000 to €120,000,000 with this assumption. And before we move to the next question, just a point, Britta, on the Non operating items, if you meant the difference between stated and underlying net profit, these remain as per CMD 'nineteen guidance. So it's only The record wins part of LAPs and any potential impact from the YAPI FX campaign. Next question please.
The next question is from Antonio Reale with Morgan Stanley. Please go ahead.
Hi, good morning. Thank you for taking my questions and thanks for the presentation. I Mouncier. I have 2 follow ups and more questions. The first one is on your guidance Musier for the second half of the year.
I think if I understood correctly, I think that's in the underlying profits in the first half Musier of just shy of €100,000,000 The first half was affected by a number of relatively large one offs. And in the second half, if I understand correctly, by looking at your guidance, will be affected by obviously higher numbers provisions. But can we help Musier. So can you help us understand impact or what that means in particular for Moncier. And our IPs and cost to the best amount and perhaps comment on the tax rate, which is always difficult to forecast.
Related to that, can you also remind us a little bit of clarity of the equity? And the second one is a follow-up on cost of risk. My question is really on the moratorium, but I would like to understand what you're asking, assuming in terms of defaults on these loans. I'm looking at price for the Ben and Maxine, Slide 51, explaining to the simulated scripts. But what percentage of the DKK35 billion do you assume In your profitability, tariff will default.
Is it fair to assume sort of 40% non investment rate? I think your cost of risk estimates for the full year And the estimate that implies that the 4% to 3.5% in first published 2.4%. Can you give us just a little bit more color? I'll underline your assumption there, it would be great. And the last point is on And I'm seeing obviously yourself as well as Ramiq Bank take a large amount of PLC alone.
How do you think Musier. Your sector or how you're seeing the sector coping even though lending spreads, pacing and changes in the competitive dynamics. I'm just trying to put together the net contribution of €75,000,000 a year, which seems quite good. And also related to that, I got you. Did you answer?
Do you see any impact in the online interest on the government income? Thank you. Musier. Thank you very much. There's more than 2 questions there, I think.
But let me give a brief answer to your first question. I will let Nico comment on the big value of CERP and then the MII And then T. J. Comment on the cost of risk of the moderate levels. On the second half guidance, we don't give a guidance.
We Musier. We gave an indication that we are taking additional overlay provision in the second half to properly reflect the evolution And so by taking this additional value, We will reach the 100 to 120 basis points cost of risk, which included 10 basis points of headwind As I previously mentioned, so we expect that the overall net income Will be of the same order of magnitude of the first half, but we don't give a detailed breakdown on anything. So And the real life, Jeff, in his voice on the acquisition of the situation. But that's the expectation that we could have. So not very different in terms of underlying net income than the first half.
And over to Nico for the
Musier. So on the book value of YAPI, it's around EUR 500,000,000 For the 20% stake that we still have. On the NII side, First of all, the current situation. The current situation is that we are down 2.1%, driven mainly by Interest base rates going down in fee countries and the dollar. So this is something that structurally We'll continue to be there.
Then there is also, let's say, a mix effect. On one side, our cautious And some products like consumer finance and then government guarantees and loan margins that, as you know, Musier. Lower than normal, let's say, lending. So in terms of trying to project this going forward, I would say that NII of all the revenue line items is probably the one that will suffer a little bit more in the next two quarters. Also, basically driven by, let's say, Competitive environment and TLTRO3 pressure.
So that's basically how you should forecast NII going forward. Other light items in the P and L look better. Fees that you're seeing what we Said, meaning we have a better outlook and we are seeing the rebound. And also trading looks like back into track into delivering What is supposed to deliver? So on that perspective, revenue probably on the NII is probably the line item that is going to slightly be Mouncier.
On the moratorium, your question on the default sort of rate, On Page 47, where you can see that Italy, we had 14% In terms of the total Southern loan portfolio, that's the focus area for us. And you can see very little on Germany in Austria. And he's look at the top end of the country, but all around is 12%. For Italy, of the €24,000,000,000 we they are roughly about €5,500,000,000 of individual. Enterprise is about €18,000,000,000 of which we have you got a breakdown by leasing and then the small business and as well as the corporate.
We confirm Sort of our guidance in Q1 of 3.5% for Italy, which is almost double the full year 'nineteen and higher than the 2,008 financial crisis, 2.5%. And clearly, we also look to Breakdown by sort of rating among the rating classes, roughly the For a weaker rating in Italy, we're assuming a default rate as high as 30%. But overall, on Italy moratorium, where CBE default rate of almost 6%, which is almost double the 3.5% of Italy. Thank you very much. Next question, please.
The next question is from Domenico Santoro with HSBC. Please go ahead.
Moncier. Hi, hello. Thanks for the presentation. Good morning to everybody. Just a clarification on your guidance Musier.
On 2021, there were €3,200,000,000 because if my understanding is correct, you're guiding for Musier. 5% on IIT node level that you guided for the in the induction plan, which is around probably €9,500,000,000 Moncier. He's out of €6,200,000,000 On the cost and provision, you're very clear. So I'm just wondering how can we bridge this Musier. So there's €3,500,000,000 Either there is a very low tax rate or there are just Monsieur.
We have to just do, you mentioned before, potentially the regulatory headwinds on the cost of risk. So can you try to help us to reconcile a little bit the €3,000,000,000,000 to €3,500,000,000 with
the guidance on
the netting P and L lines. And the other question is on the cost of risk. Whether they're retaining top up on the non core, in order to Musier. A little bit rundown on top of already booked in Q2. Thank you very much.
Musier. Yes, thank you. On the non core, there's no top up basically. We confirm the target of a full number by 2021. We actually did Over the Q2 mini transactions, well within our provisions and that came in order in Q3.
And we confirm as well our intermediary guidance for the year for the end of 2020. On the P and L lines, as I said, the NII will be around 5% lower than what we were paying in 'eighteen, 'twenty three. The fees will be on a few percent level. It's a blissable digit care decrease. So it is north of 6.2% as you said, and it's Musier.
And of course, I mean, it's lower than 6.5, but not 6.2. And we have a trading profit, which goes Back to the normalized level of trading profit, which is €1,300,000,000 to €1,400,000,000 So when you add that up Musier. And you take the cost level and the LNP guidance of 70 to 90 basis points on the net income of EUR 3,000,000,000.
Next question, please.
The next question is from Hugo Cruz with KBW. Please go ahead.
Hi, thank you. So a couple more questions. There's been some market speculation that Mr. Mouncier might leave in place to another bank. It'd be great if you could clarify and share with us your thoughts on your next steps in your opinion.
And second, around your Capital return in 2021, if we need to be announced and remove the blanket ban, how could we see kind of the timing of the capital return? And could you see some interim dividend or will you ask for a buyback as soon as possible? Then if you could discuss that, that would be great. Thank you. Thank you very much.
I certainly confirm that I'm working together with the team in order to make sure that we deliver And in 23, I think that we should close any question mark about what I'm doing. Musier. As far as the capital return is concerned for 2021, there is 2 things. 1 is we are We're expecting a normal dividend policy of the net income of 50% of the underlying net income, It should be a mid share of 30% cash dividends and 20% share buyback. We might adjust the split, if necessary, That's what we are targeting.
On top of that, we will consider gradually and gradually is important, determining the excess capital above the range of 200 basis points to 2 50 basis points based on our capital projection above the duration of the plan basically. Musier. The
The next question is from Giovanni Razzoli with Equita. Please go ahead.
Good morning. One question. A clarification on what PJ said as far as the default rate is concerned, you said that at the commercial banking, Italy Perimeter, you That's increasing the full trade from 2.4% to 3.5% in 2020. On top of that, I would like to know whether you can share with us what is the default rate at the Italian perimeter that is including Commercial Banking, Non Core and Corporate Italy. And a clarification on what you have As for before, where you do expect a 6% default rate on pure moratorium loans?
Thank you for clarifying me this.
Well, as you're asking a question to TJ, I will hand over to him immediately to TJ if you want to give his clarification.
Yes. For the Italian parameters, clearly non core, Musier. They are all NPE, so there won't be any default rate per se. So what we mentioned about the so called 3.5% It's indeed for the entire Italian sort of parameter. And for clearly, the we look at it By different sort of sub sectors of within between 0.5% for corporate side is For the corporate side, it's 2.4% versus the full year of 1.5%.
Small Business is 6.5% This is at 2.7% that we have in 2019. And then consumer, 7.4% and it's 2.8% and 3.6% against on the mortgage side against the 29% that we had last year. So fairly conservative consumption.
Just to clarify, your question is, this is the commercial banking economy. If we include what other banks might report for the Italian bank might report And if we include the CIB side, which has not sure of default rate, the combined CMB and commercial company in Italy, Musier. If you look for instance, the first half, we added 2.4 Musier. The default ratio for Commercial Bank in Italy should include the service hardware and then to 1.4%, which should be the default rate to compare with other domestic bank Musier.
1.4, you said 1.4, right?
1.4, yes. 1.4, yes. 1.4, yes. 1.4, yes. Yes.
Thank you very much.
Musier. Next question please.
The next question is from Jean Moise with Goldman Sachs. Please go ahead.
Hi, good morning. I just wanted to ask quickly on cost of risk. I just wanted to understand whether in your view, an extension of moratorium from the perspective, the narrow perspective of the cost of risk of UniCredit Is it helpful or the opposite is the hindrance in terms of asset quality so that we can judge whether if they are extended further, That could be essentially good or bad. It's not obvious to me at least. And my second question is more strategic.
I couldn't have noticed in that in the same week a couple of weeks ago, the ECB had 2 calls, one which extended the blanket ban for dividends By a few months. This was based on data on the presentation, which actually showed the banking system as quite resilient. But in another call a few days later, there was more encouragement for M and A. And we can see that banks around you Actually using depleting capital levels in order to pursue inorganic growth. And essentially, my question is, If the dividend bank or the share buyback bank will have to be extended further, at what level would you What would make you change your mind essentially and potentially consider is organic growth as essentially the sole avenue or another avenue for Musier.
On your first question, It's a bit difficult to see what should be the positive or negative impact of an extension of NART. I mean, as I said, I don't think they are going to be extended for the same period Musier. And so probably by a few months and up to year or ending next year as far as the Italian side is concerned. I think that probably Wagan and Cristophe is going to still look at the social aspect. And if all the Mauritanian are expecting at the same time, there could be waves Musier.
So for bankruptcies and ways of redundancies, which can create some social issues. So Musier. Starting in the end of the day, not all in different countries, like health and political and social angle. If it's an extension of 7 months, I don't think it's going to meaningfully change Musier. The perspective we have as far as the cost of risk is concerned.
And in any event, we are taking a value provision Two problems will reflect the overall risk profile of our portfolio, including the portfolio and the monetary. Munciez. As far as the ECB is concerned, it's clear that from a political point of view, Musier. It is extremely difficult to allow dividend payments in the world where the government in the different countries are expanding Musier. Credit guarantees for the bank, so that they can extend their loan to the client.
The banks are part of the solution, so So benefiting the climate, not the bank. And we are convinced and are we confident that Musier. And we believe that the recommendation makes sense to, I don't think that there's any talk about it. This is why we are seeing that the green states Musier. Confirmed that the lift and the condition are normal dividend policy as well as Musier.
From the payment and for the excess capital. Thank you, Emily. On the earnings side, as I already mentioned, Musier. We want to use our excess capital today in order to finance the economy, which is first priority in our job. Secondly, to share buyback.
We think that share buyback at the execution risk and to be able to present the other Musier. We can that we could have for several years. We prefer to transform the bank and under in 23, we have already provisioned As we said in the presentation, will be cost of restructuring, so that was a coincidence, if I would say. And so we have no additional cost. We have already agreed with the union about the FTE efficiency.
So what we are doing with the team members is to accelerate the plan we are in team 23, focusing on GreenOak Banking, which is We make advisory called Saint Pierre's digital Internet in order to make sure that we can follow and anticipate the client evolution Musier. So we did transform and integrate basically and buyback our shares where we have a little decrease in risk and immediate Musier.
The next Question is from Andrea Vercellone with Exane. Please go ahead.
Good morning. My first question is on Slide Moncier. And my second is on TLTRO NII booking. So the first one is if you can reconcile Musier. The full year 2020 cost of risk guidance with what you state for 2021.
If I take the midpoint of the seventy-ninety, and I assume Mouncier. I also take the midpoint of the 4,050 Stage 2 overlay. Let's assume you are right, spot on Musier. So we will turn to Stage 3 in 2021. Therefore, That's 45 bps.
Then we are going to have some regulatory charges also in 2021. I remember it's €400,000,000 If you can confirm that, it would be helpful. So that leads with a Very, very low specific charge for anything else. So I'm struggling a little bit to Musier. Hi, the team together.
The second question is on the TLTRO booking. My understanding is that you were planning to book the TLTRO In 2020 at minus 0.5% and then only take the benefit of minus 1% in 2021. So the question is, is that still the case? And if that is still the case, your guidance of NII for 2021, Does it include the extra bit related to 2020 or that comes on top? Thank you.
Thank you very much for getting into quite a technical issue. So I will hand over to TJ for the The continuation of the 2020 cost of risk into 2021. And knowing that I said that we have in 2021 Musier. Hi, there, regulatory headwinds start as we have in 2020. There has been a time translation, but TJ will give you the detail on that.
And then the TLTRO became the echo of Stefanie Progour, our co CFOs will comment on the very detailed TLTRO Mouncier. And the impact in the different years. But TJ, first, if you can comment on the cost of risk 20 versus 21.
Thank you, Jean Pierre. Again, if you see Slide 51, as you state, Musier. The specific cost of risk for the full year we're seeing sort of 50 to 60 And clearly, that depends on the expansion of the moratorium. Assuming no moratorium, I think this would be in this range. And you can see that we have done quite a bit of overlay, almost more, about half.
And the 10 basis points is a regulatory headwind that Also include the new definition before. So this is really taken in full year 2020. So we are fund loading, I would say, anticipating if a lot of these moratorium spillover into 2021, You will expect definitely lower cost of risk in terms of the provision is already being done. And some of the overlay Will be used against the specific LLP when the moratorium expire.
So some of the overlay that you booked in 2020, you are still planning to maintain beyond 2021. So this is what this guidance implies. And also the other extra bit, Is there a regulatory lagoon element also in 2021 or not?
Most of the regulatory headwinds in terms of the LLP Musier. Components are taken already in Q4 'twenty. And the overlay clearly are, I I would say to the extent that the timing Yes. The specific LLP charge, the overlay will be released against the specific charges.
In other words, if the Marriott are lifted in 2021, most of the overall will be released in 2021 And we will set the specific provisions for the loans, which move into Stage 3. Based on the evolution of the moratorium, they are extended Musier. Quarter by quarter, we could have a different evolution. So it will depend exactly in the timing of the matter we receive and Musier. And the default, Cristal.
So 2021 will be a mixture of specific provision, one side and release of overlay in the other,
Musier. Yes, we are accruing 50 basis points now. The additional will be accrued linearly in 3 years, equal to the 16 point 7 basis points yearly, so that's the delta. And we will start depending on, Let's say, the technical calculation based on the regulatory routes. So 50 is already in there now And the rest will be accrued in early over 3 years.
Musier. Okay, clear. Thank you. Next question please.
The next question is from Ignacio Cerezo with UBS. Please go
ahead. Good morning. A couple of things from me. The first one is on NII, the comment that Nicole is making around Musier. The discrepancy between quarter end loans and average loans through the quarter, I think I understood that that was attributed to these drawdowns from corporates Musier.
Throughout the quarter. So do you think about volumes sitting under pressure in the second half as a result of that? That is something that has Already come to an end. And the second one, more clarification, you can let us know that the Moncier. Tax rate you're working with in 2021 is around 20%.
Yes, I will let Nick Christie for any comment on the tax rate. On the Quarter below, we said that we have a difference between the average revenue evolution on-site Musier. At the end of the year, you have to see that because of the Jordan specific in the CLP side Monsier. Yes, at the end of Q1 2020, we actually had a sharp increase of the loan industry beside at the end of The Q1, credit loans have remained more or less stable in the 2nd quarter. So The burden are going to be partially paid back by the corporate client, but only partially.
So There should be a meaningful impact on the CIB side by in the front end, just the loan volume evolution. We have to take into account in the CIB side that we are in the second quarter a specific number of contribution And coming from the treasury side, which had a positive impact on the NII, the management of some of the treasury portfolio, which contributed positively for low double digit €10,000,000 of NMM. Musier. On the tax rate? Yes.
On the tax rate, the Moncier. 2021 guidance is confirmed between 18% 20%. We have no real guidance for 2020 considering the low level of Profit before tax affected by, let's say, relevant nonrecurring and non operating items. So it would keep the Basically, the 18% to 20% for 2021 as the valid one. Thank you.
Thank you. Next question, please.
The next question is from Patrick Lee with Santander. Please go ahead.
Hi, good morning, everyone. Moncier. I just have one thought on asset quality and one on fee income. Firstly, on the asset quality side of things. And the Stage 3 loans actually fell 5% versus the Q1, and I believe some of that was driven by disposals and buy tops.
But can you give us some color The magnitude of the underlying deterioration that was migrated from, let's say, Stage 2 to Stage 2 this quarter. And how do you square this with the doubling of In specific, loan loss provisions in the Q2 versus Q1. And secondly, on fee income And despite the typical market environment, etcetera, etcetera, your net new AUM was actually positive in the 2nd quarter, which AUM was up 6% versus the Q1. Your investment fee fell by some 20%. So I guess there's a matter of timing within the quarter when those fees came in.
But Is there something structural going there going on there with customers, if they're buying lower or less lower margin products or can we just assume a much healthier level of fees income in the second half of the year. Thank you. Thank you very much. I will let TJ first to comment on the statutory elimination. So
Musier. Thank you. As you can see in terms of the staging that we have on Slide 50, the loan, The so called Stage 1 to Stage 2 went from €48,000,000,000 to €62,000,000,000 Of which, a large part comes from Germany, about SEK 8,000,000,000. And this is a very high rate highly rated MNC Sorry, this is one of these sort of criteria. In Italy, we have €4,000,000,000 roughly about €2,000,000,000 Due to PD deterioration, €2,000,000,000 was more of a proactive action in terms of classification and €2,000,000,000 in CE.
So overall, it's 12.5%. We moved from Q1 to Q2, and it is about 30% increase. So a large part comes from Germany, which is actually a very good rating. And in Italy, of the €4,000,000,000 2,000,000,000 of our Musier. For proactive classification.
And on the fee income, we can then go to the slide Moncier. 36 of the presentation, which gives you a breakdown and month by month on the evolution Musier. Of the group by products, basically, we can see that we have a sharper increase in June This is June 2019 of the investment fees. And so clients have been more active, but we have pushed much And June certificate, basically, other than PGYM. Also clients are looking at products which are Musier.
Probably more stable this profile and less whiskey and will be shifted into more AUM in July when the situation As a stabilized and we confirm the recovery in fees in July that we have seen in June. So Musier. Investment fees rebounded and were higher in June 20 than June 2019 as you can see. And we expect that Okay. Thank you.
The next question please.
The next question is from Delphine Lee with JPMorgan. Please go ahead.
Yes, good morning. Thanks for taking my questions. Just have two clarifications to ask you. First one is on dividend. So If we think about the full year 2019 dividend, so if I understand your messaging on your capital distribution policy, We basically intend to sort of distribute that over time as potentially exceptional Distribution over time, is that how we should look at it in terms of buybacks?
The second question is on sort of domestic consolidation. You've been very clear about M and A and ruling out M and A. But just looking at sort of your Current market shares in Italy, are you satisfied with what you have right now in your current setup? Or would you Musier. The opportunity to look at adding presence potentially if the opportunity presented itself.
Thank you very much.
Thank you. Your understanding on the dividends are described, we are looking at gradually Musier. And payout of the excess capital over the years of 13, 23. We said that we are targeting NDA buffer, which will be above 100 Musier. 2020 2021.
And we want to pay back to our shareholders excess capital Over the period, we're looking at the evaluation of the plan, which is above our range of 200 basis points to 250 basis points. We will do that gradually year by year essentially to smooth out the payback to investors on top of the normal payout of 50% of Musier. As far as the domestic consolidation is concerned, we have in Italy more than 10% package share, 11% in market share. Musier. And as I said, we will grow our business on a purely organic basis.
We prefer to transform the bank rather than integrate. Musier. We have our approach by SIMCO is specifically post COVID when cost of risk is going to increase even fully. Musier. So we have seen for our own portfolio and we think that the risk profile is as such that we should just focus on our business, Benefit from the market disruption, which has been brought by COVID to target client with a very good risk profile.
It's very important to be extremely disciplined under this side and keep transforming our network and keep Moncier. Of course, I mean to the clients, which are the world clients. We are managing the bank in a very disciplined way. We have already said that Musier. And taking the right kind of risk in between parts, the best way to increase our market share.
If you compare Italy to other countries, Musier. If you compare to Spain, to the VK or to France, you can see that there could be banks Musier. High single digit, which are very well which are performing very well. So I don't think there's a magic level of the market So one could say, we need to do consolidation. We think that we should not do consolidation.
And consolidation brought bring us more FTE. They want to Musier. We want to keep cutting branches and consolidation will bring more non loss provision and additional Moncier. Nonperforming exposure, and we keep reducing our nonperforming exposure. So basically, no consolidation, we We accelerate the transformation rather than integrate and we'll pay back to our shareholders as our first capital.
Musier.
Next question, please.
The next question is from Gonzalo Lopez with Redburn. Please go ahead.
Hi, good morning. Just a quick follow-up, please. Could you please confirm that you're expecting to take The $600,000,000 net regulatory heavy impact on cost of risk as you announced in the Capital Market Day, please. And you mentioned 10 basis points of service regulatory cost service in 2020. But could you please quantify At this point, is there going to be anything in 2021?
Thanks. I will let TJ Musier. I'll comment on that. But as we said earlier, there has been a time translation Musier. For some of the regulatory headwinds because of the COVID cost installation of the mobile by the ECB and decision by the ECB to delay Musier.
Some of the impact. So as far as 2020 is concerned, we were targeting in 2020 At the Capital Market, we get 50 basis points of regulatory headwinds. We target for 2020 The different impact and negative 20 basis points of regulatory headwinds, which includes, as I mentioned, And the activity impact from that integration, which is between 40 to 50 basis points, especially in the GTIC. So That's in 2021 because there has been a shift of some of the regulatory headwinds from 2020. Musier.
As we have a regular headwind of minus 140 basis points compared to the 50 basis points that we were giving at the Capital Markets Day. Musier. And this increase is coming from some regulatory shift and TJ can give you the breakdown. Some additional letting migration impact and the fact that there has been some positive of 2021, which shall take in 2020. And we don't expect any change, especially in 20222023 of the Capital Market Day regulatory headwinds of 1 60 basis points in 22 and 14, 23.
But TJ can give you a little bit more details.
Thank you, Jean Pierre. Just on your first question in terms of the €600,000,000, A large part is taken in 2020, over €400,000,000 There will be either remaining in 2021. And clearly, this will also depend on the evolution of the loan books and the volume dynamics. And Jean, clearly, in terms of the capital sort of point of view, We already mentioned for 2020, the original CNV was minus 50 Musier. And so today, it's roughly about 16 basis points, minus 16.
And all of these different are clearly some Due to the Regulation CR quick fix, which is positive, including some of the model Implementation postponement, then there's the so called rating migration, which is negative and other impact. All of these I have a negative 34 basis points. That's why the guidance on the teen 23 in CND In 2020, it's minus 50, it's now minus 16. And for 2021, there's obviously a shift from Musier. 2020, all of the models, other the accuracy side, something in the region of 61 basis points.
Plus, we're anticipating the regulation, Quick Fix, the SME supporting factor as well as Software F17 And then the particularity, almost 100 basis points swing from due to the postman on the model, A quick fix anticipation and further with the PD situation that Jean Pierre just mentioned of minus 20. So next year, we're anticipating the regulatory headwinds will be more in the order of around 140 Musier.
Thank you. Thank you. And I just want to continue to report this 140 regulatory headwind negative impact. We Monsieur. Thank you.
Next question please.
The next question is from Benjie Krillen Sanford with Jefferies. Please go ahead.
Musier. Yes, good morning. Most of my questions have been answered, but perhaps just one coming back Moncier. To the point on extraordinary capital returns. And I guess historically, the regulator has appeared somewhat uncomfortable with Musier.
Implicit payout, so it's up and beyond 100% of profit. I'm just wondering whether going forward, do you think that remains an implicit cap, the 100 Musier. Percent payout ratio or do you think the regulator shifts to a little more absolute capital buffers? Thank
you. Munciez.
Actually, that's what we said in terms of extraordinary payout. We never see something which would not have been in line with what the regulatory team. So Musier. As I mentioned, a certain number of 5 times in 2017, Japan market day, the regulatory headwind. Last year, Musier.
The TID filed equal number 4, we are speaking about extraordinary dividends. And each time, we make sure that we're Musier. So we are saying that we are going to gradually return our excess capital. Musier. And so I think the gradual return to excess capital could be probably an asset to your point.
Perfect. Thank you.
Next question, please.
The next question is from Cristian Tarrese with Intermonte. Please go ahead.
Hi. Just one quick question on the Italian Subbolting project. We read on the newspaper that by autumn, the project would be Dan, if you can give us an update and if this project could help to reduce faster DTA. Thank you. On the Sabolu, if you go back to the presentation we made in the Musier.
On the Slide 21, we said that in terms of group structure, we will look at the project of Sebaldy, Musier. But this project in that, we want to optimize the annual requirement. But the first stage is the reduction of infra group exposure, And we've been working on that. And the incremental group's observability for the teams are just progressing on this project. It's not A new project and a simple project.
And if there's anything to mention, we'll mention it when the project progresses. For the moment, nothing specific. And the priority is to optimize demand requirements.
Maybe the complete on the DTA, there is no benefit on DTA from an international supporting. Muncieres. Thank you. Next question
As there are no further questions, I would like to hand the call back over to Mr. Jean Pierre Mouncier for any closing remarks. Go ahead, sir.
Yes. Thank you very much. Thank you very much for the question and your continued interest in UniCredit. So before we go, I'd like to wrap up by reminding you Musier. The journey that we've been at UniCredit and why this puts us in a strong position to further develop our client franchise of your bank's ease.
Thanks to the continuous hard work and successful execution in Transform 2019. We entered the year with a significant dividend balance sheet. We have disposed of more than EUR 50,000,000,000 That's nonperforming exposure and the significantly strengthened balance sheet has invested EUR 13,000,000,000 of equity for Vatici and have been sold more than EUR 16,000,000,000 of Non strategic assets. As a result of this auction at the end of the Q2 of 2020, we achieved a significant reduction of our NPE ratio to 3 point Musier. 4% for the bank, including noncore.
And using the EBITDA position, it is at 2.7%, now below We have a range of other European banks for the first time. We have a best in class NPE coverage ratio and we have a higher CET1 fully weighted and the above share Musier. It's at 4.81 basis points and in line with our current market cap. And we have very high level of Musier. Liquidity with a point in time liquidity coverage ratio of 173%.
So we'll continue to manage the bank in a very conservative and disciplined way. We give priority to long term sustainable outcome over short term solution, even within a dividend lending nor do we do carry trades. Musier. And from this position of strength, we believe the opportunities presented by the crisis to accelerate the renewed banking and digital offering of the bank And to further outline in front of us, while maintaining a strict risk focus. Bear in mind that the Uniqrade adjustments for the former operating in provision and agreed with the union 14.23 before the crisis.
We confirm our underlying net income target for 2021 $33,500,000,000 which is according to our RoTE of 6% to 7%. And as already said, we will reinstate Musier. Our capital installation plan for 2020 and 2021 subject to ECB recommendation will be extended, targeting a distribution of 50% of underlying net profit. So that concludes our Q2 results. I would like to wish you all a nice and enjoy the summer break, and I look forward to talking with you all again in 3 months' time, if not before.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.