Afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the Banca Sistema first half 2026 results conference call. As a reminder, all participants are in listen only mode, and after the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Christian Carrese, Head of Investor Officer. Please go ahead, sir.
Good afternoon. Thank you very much for joining the first half 2026 conference call of Banca Sistema. Before starting the call, the conference, I would like to remind you that all the press release presentation and analyst kit can be found in the website of bancasistema.it, in the Investor Relations section and results. Now I hand over the call to the CEO of Banca Sistema, Mr. Iacopo De Francisco.
Thank you, Christian. First of all, good evening to everyone, and thank you for joining on August the sixth at five o'clock. Thank you for being here now. Let me start with the headline. This is the quarter where the integration stopped being a plan on a PowerPoint page and became a running business. The mandatory tender offer is closed. KK, Kruso Kapital, has been deconsolidated, and both boards have approved the reverse merger. We are on schedule, and in some respects, we are ahead of it. Today, what I want to give you is a couple of things, a couple of messages. First of all, I want to, let's say, give you a clean read of where the numbers stand. Second, I would like to give you a clear view of where this platform is going.
Both the reported figures and adjusted figures will be very helpful to give you a sense of where we stand and where we are going. One very important point, one additional remark is the following. A clarification on the perimeter, because it's not the same on the consolidation perimeter, I mean. It's not the same if you look at the balance sheet or if you look at the P&L. Because on the P&L side, Q1 includes CF+ only, and Q2 includes CF+ and Banca Sistema, but not Kruso Kapital that has been deconsolidated. On the balance sheet side, Q1 includes CF+, Sistema, and Kruso Kapital, while Q2 does not include Kruso Kapital. This is very important because we have a moving perimeter, and the perimeter will change.
It is very important that we are able to give you the sense of what is happening on our numbers, both P&L and both balance sheet. Christian will be at your disposal to, let's say, clarify your doubts regarding our consolidated numbers. First of all, let's go to page two of the presentation, on the integration process. This slide gives you a very clear evidence of where we stand. Let me work through it, because execution is the story in this quarter. On June 15, the mandatory tender offer closed. CF+ stake in Sistema is 85.6%. On the 22nd, we completed the translisting of KK, and deferred consideration was paid. Kruso Kapital stake at the time was reduced to a little bit less than 5% and has been deconsolidated.
If I have to give you the number of our participation in Kruso Kapital, as of now, we are roughly above 2%. We sold also a small remaining part, and our target is to completely reduce to zero our participation. On the 24th of June, Sistema and CF+ boards approved the reverse merger and exchange ratio. By September, we expect the authorization of Bank of Italy on the reverse merger. By mid-November, the legal and IT migration on top of all the operational merger will be complete, and by year-end, we present the new business plan. Every milestone here on this slide, either we hit it or we are on track to hit it. Page three. Last time, I brought you through our three key measurement priorities this year.
I would like to give you a sense of where we stand on each of these points. First of all, I already mentioned the industrial integration. OPA is completed. KK has been deconsolidated, both in terms of legal, organizational, and IT merger, and synergies we are, let's say, fully on track, and we confirm the timing. On our second priorities, I called that last time stabilize NHS, NPA factoring, and roll out a new normal operating model. What we will describe in details today to you is that the assurance on the operational compliance to the new definition of default regulation and on credit and collection processes, you remember that was asked in relation to the inspection that Banca Sistema had in 2024, was asked by the regulator, has been completed.
We'll give you a sense of where we stand, what we have found, what are the financial impact of what are the findings. Back book. We told you that we were studying securitization. We were studying a disposal of the past due back book. In first half results, you don't see yet those evidences, the impact of what we have done, what we achieved. Actually, that does not happen in first half results because we submitted to Bank of Italy an SRT authorization. We show up all the full numbers when Bank of Italy will complete its authorization process. We will give you now a sense of where we stand and what we have done. We are keep on working on the front book. On number three, lay the foundations to unlock the platform's full potential. This is where our energy is shifting now.
Here, we completely closed the securitization programs on tax credits. We reclassified the securities portfolio in Banca Sistema from held to collect and sell to held to collect. All the other points, so Spain JV, new business line, reviewing football securitization, and the salary backed loan business, we are fully on track. Important point on the new business line, we already hired a new desk, a new team that will be active on structure and acquisition financing. Go ahead on page four. This is something that you well know. I will be quick on the mechanics. Voluntary offer closed in March, after the opening period, and now we are at CF+ at Sorry. After the voluntary offer, we were at 80%. After the mandatory offer, we are at 85.67%. On the 22nd of June, KK deconsolidation happened.
Situation altogether, so the 85%, the deconsolidation, and so on and so forth, does have impact on the capital position. Important point is that actually we were putting in our plan the deconsolidation of Kruso in September. From a formal point of view, this happened before it happened in June. What I want to highlight is that our capital position will be additionally improved by the fact that the credit line, it is still present in CF+ related to Kruso, most of it will be closed by September, and therefore there will be an additional release of capital related to the fact that Kruso will have a securitization instead of the credit line from Banca Sistema. Page five, the assurance. This is the review that we anticipated, and it is complete. Me give you the outcome directly area by area.
First point, we verified the application of the new definition of default rules, so materiality threshold, mitigant adoption. We verified all the positions that have active mitigants. We verified all the IT and relevant systems in place. We have found, and that has an impact of EUR 40 million in terms of additional past due, so it has been a new reclassification, is related to the materiality threshold formula that has been aligned to the latest, let's say, regulation, and this is the impact that it has been already taken into consideration in half year results. We went through all the allocation of collection procedure, IT, operational processes, organization, and so on, so forth, and there is no material findings that we identified. Sorry. We reviewed tax credit and factoring litigation and the negative rulings.
The negative rulings, the result has been an additional risk and charge position of EUR 5 million. The fourth area was the analysis of the resolution. Where we assessed the classification and valuation needs, we have found that the legal construct is fully valid. In terms of additional, let's say, impairment, we put EUR 6.9 million additional impairment. The overall assurance that we completed on what are the critical areas regarding the application of DOD in Banca Sistema related to 2024 Bank of Italy inspection, have an impact of EUR 40 million of additional past due, and EUR 11.9 million of impairment. Go to another important point. July, the beginning of July, let's say, Banca Sistema signed a securitization of NPEs related to public administration exposure and submitted SRT findings to Bank of Italy.
We are waiting for the authorization, and once it lands, we will give you full details on the capital and P&L effects. What I want to give you a sense of what is that, and how it works. First of all, we are talking about EUR 115 million transferred to the SPV, and in line with the net book value. Three rated tranches by Moody's. You see here what has been the effort done by Moody's, what is the rating on the senior note, what is the rating on the mezzanine, and then we have a junior note. We signed with a third-party investor binding agreements related the sale of the mezzanine and the junior note.
The very important point here is that the price at which the transaction will be completed, once Bank of Italy will authorize through the SRT the sale, is aligned to our net book value, it does not have economic impact from that point of view. One important point here is that clearly you can understand that there will be a positive impact in terms of capital release. The senior will be hold on our books. The senior risk weighted asset, sorry, density is 78%. The impact that you see on this page comes from the overall reduction of exposure that will go out. On the other side, the fact that we will keep the senior at a 78% density on our book. Clearly, all these effects and the validity of this transaction is subject to Bank of Italy authorization. Let's go on page seven.
Now let's talk about the business itself, starting with volumes, because this is the number I care about most in this moment here. New volumes were up 36% year-on-year to EUR 3.8 billion. That tells that the capital constraint that, as I mentioned last time, historically limited the commercial potential of Banca Sistema is gone. The bank was never short on demand, but it was short on capital. You see here some evidences. Factoring is up 29%, NHS and PA is up 65%, corporate is up 13%. Tax credit is up 70%, while financing, that you will remember is mostly related to guaranteed financing, is down 44%. What is very important, let's remember, we are talking about aggregated data.
We are talking about the fact that we are putting together Banca Sistema and CF+ along the different business lines we have seen last time, and in the next pages also we will show you details on the business lines performance. On the balance sheet, loans to customers are up 3% to EUR 4.3 billion, and core funding is up 4% to EUR 5.7 billion. The funding base is growing in step with the asset side, that's a discipline that we want to see. Page eight. This is the consolidated first half 2026 performance composition. I'm going back to the consolidation perimeter, to the clarification that I gave you at the beginning as an introduction to these numbers. Here we are seeing the P&L. That means that half year results include two quarters of Banca CF+, and one quarter of Banca Sistema.
What you see here in terms of profit before tax is an overall result of EUR 91 million, which is influenced by extraordinary items in a range of EUR 75 million, and a profit before tax adjusted of EUR 16 million. First of all, let me start from the extraordinary items, because the size of the impact of these items is very relevant. First of all, the badwill release in a range of EUR 96.6 million. Then we have, as we mentioned already, EUR 11.9 million of one-off loan loss provision related to the assurance that I just described. We have, as of today, EUR 10.9 million of integration and transaction cost, and then we have other residual impacts. What does this mean? That overall, the extraordinary items have a weight of EUR 75.3 million out of EUR 91.4 million of profit before tax. The ordinary results, let me call out the adjusted result, is EUR 16 million.
Let me point one element here. On the badwill, it is real, it is IFRS compliance. It arose because we acquired Sistema below the net asset value. It won't repeat. We are not leaning on it as operating performance. What is very relevant, if you go to the next slide, is that we are trying to give you also a sense of how the operating performance is moving. In fact, from the EUR 16 million of profit before tax adjusted for the extraordinary items, what we are showing you here in the second column, what we call here aggregating first half 2026 results, which is pointing at EUR 22.3 million of adjusted, relates to the fact that in this column, what we did is including also the first quarter result of Banca Sistema, always without including KK. KK is excluded from these numbers.
It's been excluded also from the first quarter of Banca Sistema. This column that points at EUR 22.3 million, is a sort of, let's say, aggregated, consolidated results, under the assumption that the consolidation would have happened including Banca Sistema and not Kruso Kapital since the beginning of the year. This number is relevant. Sorry, I'm pointing a lot. I'm spending time to give you the sense of the numbers, because 2026 will be a year where many extraordinary items, many extraordinary situation will happen, where many one-off will be, let's say, put into the numbers, and where the consolidation perimeter will change. It is very important that you try to follow us step by step in how the numbers create, and what is the meaning of the number. If we take this EUR 22.3 million, and we compare, let's go to the next page.
To the same number in first half 2025. This is the slide I'd like you to focus on. On an aggregated basis, net banking income of EUR 285.5 million compared to last year, EUR 86.4 million. Net revenues in a range of EUR 76.5 million compared to EUR 67.9 million in first half 2025. They were all costs already started going down, and we have a profit before tax adjusted that this year is EUR 22.3 million, as we already have seen, while last year on a peer-to-peer basis was EUR 13 million. This is the result, this is the comparison that is showing how, let's say, this year compares to last year. Okay, page 10. Last time, we introduced the point of unit economics. The way from a managerial point of view, we look at our businesses, the way we analyze businesses, the way we analyze their performance.
It is a process ongoing where we are, let's say, week by week, improving the methodology, aligning the methodology. We are not yet there. One important point I would like to underline here is that both cost of funding and operating expenses allocation methodologies are still under review. I will mention, let's say clearly where especially cost allocation might have a significant impact. If you look at first half results, first of all, we are presenting here our six business lines, where one of those is in run-off, which is our legacy business, deriving from CF+. Then we have Factoring NHS, we have Factoring Corporate, we have Tax Credit, we have Financing, we have Salary Back Loan, and we have the Legacy Business.
If we start from the return indicator that as of now we are showing to you, which is not our final KPI, that will be a pure RORAC, including therefore also the costs and so on and so forth. We are in front of different businesses, which range from a return of 148% in tax to a return of 4%, 6% in terms of Factoring NHS and Corporate, down to 2% in Salary Back Loan and 3% on the Legacy Business. In terms of contribution, you see here overall net revenues contribution, you see here that Factoring Corporate and Tax Credit all together have a weight of more than half of our revenues, and then we have Factoring NHS NPA. I want to underline a point that I already made very clear last time. The overall NHS NPA activity has a limited weight in terms of exposure.
Out of an overall balance sheet of more than six billion of assets, Factoring NHS NPA has a weight of something in the range of EUR 500 million to EUR 600 million. That is the weight. Still, it has an important contribution to net revenues. Let me say that once we allocate costs, operating expenses properly, the salary-backed loan business will go negative, while all the other businesses will remain significantly positive. As we mentioned, we are reviewing our position and our strategic, let's say, attitude towards salary-backed loan business. Here we are showing, again, let's say data regarding to the group. What is relevant here is that our net NPE ratio in the period grew from 9.4% to 11%. This is related to the fact that, as we mentioned, from one side, we have done this important reclassification related to the assurance process that we put in place.
I underline that this assurance process introduced an updated methodology for the past due definition, specifically as far as concern the LPI inclusion. One second point that I want to highlight here is what we call the net NPE ratio post guarantee. You well know that a relevant exposure in CF+ is related to guaranteed financing, where on average, we do have a guarantee in a range of 75% of the overall exposure. That means that, as an additional point, also relevant for you is that as of now, considering all the situation in which we went back to SACE or MCC asking for the guarantee payment, we did have 100% hit ratio. That means that we collected everything we asked on that. Excluding the guaranteed portion, the NPE ratio goes down, is 7.4% in the first quarter and is 9% in the second quarter.
The coverage, the NPE coverage, goes up to 32%. Cost of risk on a recurring basis is 43 basis points. Recurring means that we have not included into these numbers the 11.9 one-off provision that we booked in first half related to the assurance process. I will now leave immediately to Ilaria for the following page. On this page, what I want to highlight here is that, first point, in terms of past due, if you consider the position in first quarter 2025, it was EUR 333 million. It went down in first quarter 2026 to EUR 199 million, and now as a consequence of first half 2026 reclassification related to the assurance, we are up to EUR 249 million. One important point is that the ongoing securitization is expected to remove EUR 98 million of past due loans.
That means that if I consider for a second, if I make the assumption that Bank of Italy will approve and SRT will be given, you should consider in your number a reduced number in terms of past due of EUR 98 million. Let's go to the next page. Risk-weighted assets. Sorry, Ilaria, I made a mistake on the page. In terms of risk-weighted assets, we are at EUR 2.5 billion. In terms of density, you see here that the legacy has 100% risk weight density. Then we are moving from very low density businesses, like tax credit, to businesses where we are in a range of 20%-30%, like financing and salary-backed loan.
If you look at factoring, clearly, we do have the corporate, which is at 68%, while the NHS NPA segment, if you put together the performing exposure together with the past due, on average, we stayed at 84%. If you look at how risk-weighted assets are present, you see that out of EUR 1.889 billion in terms of risk-weighted assets related to loans to customers, we have EUR 800 million related to corporate factoring exposure, EUR 463 million related to NHS NPA, and EUR 262 million related to legacy. This is very important to allocate how our capital is allocated, where we want to allocate, looking forward, our capital, and what are the businesses that do have a higher performance than others. Let's go ahead. Capital ratios. We are at 11%, we were at 11.4%. In here, you see a mix of effects.
You have plus 40 basis points due to the deconsolidation of KK. You have more or less 55 basis points related to the completion of the assurance process, and you have a reduction of 20 basis points deriving from a mix effect of the increased stake acquired and PPA adjustments. One important point I want to highlight is that related to the deconsolidation of KK, this number, this 40 bps impact, is a sort of partial initial effect of the deconsolidation. As I told you at the beginning, as of now, we do have still a credit line, which has an impact of roughly EUR 90 million of risk-weighted assets, and that will be reduced by September. Credit line versus KK. Next page. That's it. Operator, you can take control.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. First question is from Irene Rossetto, Banca Akros.
Yes. Hello to everyone. Three questions from my side. First of all, regarding the securitization, just a confirmation. If I understood correctly, the transaction did not result in any loss for the bank, and you have already identified a buyer for the mezzanine and the junior tranches. Is that correct? Then on factoring volumes, they showed a very positive trend in the quarter. Was this also driven by the temporary absence of a securitization, or does it only reflect a genuine commercial momentum? Lastly, where do you expect the common equity to our ratio to settle once the merger and the SRT transaction are fully completed? Thank you.
Okay. Let's start from the securitization. I would say that we have more than identified a buyer in the sense that we signed binding agreement, binding contract with the buyer. So it is more than having identified somebody, an investor, but it's that we do have already binding contracts signed with this investor. Let me also make one important point that I think that is helpful to you to understand what are the impacts of a securitization like this. First of all, you are correct. If I sell, as we did, at the same price of our net book value, I do have nil, so zero economic impact. Second, in terms of capital impact, clearly, I have some exposure that have 150% risk weighting that are exiting the bank.
On the other side, I will keep on my book, the senior note, which, as we said, has a risk weighting of 78%. Then there are other, let's say, impacts that we should consider looking at securitization. The first one is that we do have some positive impact on the reduction of the forward calendar provisioning. Second impact is that I do have some revenues that likely in the next year will not be present because I'm selling exposures. A bank exposure provides some earnings, and so I do have to consider that one. The third element, which by the way, is already incorporated in the impact in terms of basis point, is the fact that once that we sell this type of exposure, the sale has some impact on our accrual models.
This has a negative impact immediately in the moment in which we will account for it, as it is only a financial impact, a fair value impact, looking forward in the next years, I will recover that. All these elements are elements that we have to consider in order to appropriately look at a securitization. I confirm that if I put together price and BV, the economic impact is zero, and in terms of capital release, is the impact that we highlighted in the presentation, which already incorporates the impact on the accrual models. Let me say one important point. The effectiveness of the transaction is subject to Bank of Italy authorization on SRT.
As the matter is relevant, and as we signed the binding agreement at the beginning of July with the investor, and the rate and the Moody's went public on the rating, we consider appropriate to start giving you a sense of, and a direction of, this important action that we put in place. On factoring, it's not related to securitization. It's related to the fact that, for instance, on a quarterly basis, due to capital limitation, Banca Sistema historically, for instance, was reselling to other factors, specific exposure in order to match capital requirements. This is something that is not happening anymore. Additionally, as you saw on page three in the presentation, we already closed the securitization program on tax. Therefore, that means that volumes that before were somehow shared in a securitization with other investor are 100% remaining on our book.
Let's also say that we are putting together, in terms of this number, CF+ and Banca Sistema. We are not only in front of Banca Sistema results, but we are in front of Banca Sistema and CF+ commercial activity, commercial productivity, and CF+, on a standalone basis, is also having very good results, especially on factoring and on tax. A great result, I would say. The financing business is a business that, as you well understand, which was mainly focused on guaranteed lending, is a business where we suffer the fact that during first quarter, the SACE guarantee scheme was not yet, let's say, made available to operator in the market. We had a first quarter, which was very slow in terms of productiveness. What was the last question?
Yes, sorry. On the capital.
Sorry. Yes. On the capital, we do expect, considering the merger, considering, let's say, the full effect of KK and other effects, we are expecting a CET1 ratio by the end of the year at 12%. 12.2%.
Thank you very much.
Okay.
Next question is from Lorenzo Giacometti, Intermonte.
Yes. Good afternoon. Thank you for taking my questions, and thank you for the presentation, which, very helpful to better understand the new group. I have a few questions. The first one is about the cleanup, and now that the assurance exercise is complete with the EUR 40 million exposure reclassified to past due, and the almost EUR 12 million of charges booked, do you expect the cleanup to be finished as of now? What kind of normalized cost of risk shall we assume for the second half of 2026? The second one is on the integration cost. Basically, if you can give us some color about potential integration cost also on the second half of 2026. Thank you.
Okay. Sorry, you mentioned these two are the questions, or you were saying either more question, because I understood more question than two.
Oh, no. Just these two. Thank you.
Okay. I would say on integration cost, let me say that I went through the assumption that you have made in your recent report. I will say that you could keep that specific number as a reference number. In terms of cleanup, the assurance was an important activity that was asked to us that somehow was related to the inspection that Bank of Italy ran on Banca Sistema in 2024, related to the new definition of default application, classification, and provision related to the past due. As the PA exposure was the largest source of potential risk within Banca Sistema, we started this assurance. By the way, was also, let's say, strongly asked by the regulator, and we completed that. It was an assurance on the procedures, the policies, the IT, the organization, and on the numbers, clearly.
As that topic is concerned, that assurance for us is finished, and these are the impacts. I cannot say that we won't have any other provisions, clearly, because that is part of the business. Those will be ordinary provisions related to a specific exposure or a specific deal, whatever, as a normal activity. I'm not expecting other extraordinary type of impacts as far as, let's say, the new definition, the past due topic is concerned. Now we are very focused on ordinary activities, on clearly putting together the loan books, putting together the data tape, assessing specific positions. On that topic, I would say the chapter is closed. You were talking about expectation, sorry, integration cost I mentioned, cleanup finished. Did you have another question?
Yeah. I was talking about a potential normalized cost of risk within the second half of 2026.
Okay. If I have to consider a normalized situation, without the EUR 11.9 million on that so forth, I will say that a range that we have is in a range of 60 to 70 basis point, cost of risk end of year, normalized.
Okay, perfect. Thank you.
Next question is from Davide Rimini, Intesa Sanpaolo.
Good afternoon. Thank you for taking my questions. I have three question. One is whether you might share with us your expectations in terms of cost of funding. We've seen over the last few quarters improving, and if I'm not mistaken, it has definitely had quarter-on-quarter last quarter. Seeing sort of the move in rates over the last three months, I was wondering whether you might share with us your thoughts on the cost of funding going forward. The second question is whether you might add few words. I noticed also in the presentation, the amount of badwill has been updated, and whether you might share with us some elements versus the previous number that has been given in Q1.
The last question is in terms of one of the first slides was leaving also the theme of M&A optionality, which if I'm not mistaken, was also touched upon at the Q1 results. The question is twofolds, is whether sort of it's referred to this review of the SBL business, and if that is the case, what are the optionality that you're considering, whether Instead sort of is open to added type of activities in the market since you've been in the press speculated to be looking for some other assets. Thank you.
Davide, sorry. Can you repeat the second, the point that you made on the review of the NPL activity? You mentioned that or not? Sorry.
No, sorry. It was the badwill that, if I'm not mistaken.
Okay
it has now gone up.
It was the last part regarding the M&A. You mentioned something on that we didn't get properly because the microphone didn't get your voice correctly.
Sorry. No, the point on M&A, it was just simply sort of whether you can expand. I noticed that you put sort of, if any, while.
Okay
Q1 was a bit of a more open. At the same time, if I'm not mistaken, you've been on the press, mentioned to be potentially interested in buying some assets. I was just wondering whether sort of this M&A optionality refers to the SDL review processing that sort of enlarging the footprint of the business.
Sorry about. Sorry. In terms of cost of funding, our target this year is Euribor plus 20 to 25 basis points. We all have our assumption on Euribor, but that is the target that we have. In terms of M&A, yes, we are on the newspapers. We are, I would say, active and paying a lot of attention to all the opportunities. As we mentioned last time during the call, we do have three strategic directions that could influence our M&A attitude. First one is to grow in scale in our businesses. Second one is to grow internationally. Third one is to find not organic solution regarding our, let's say, cost of funding. All these type of opportunities are strictly driven and assessed based on return and value creation.
We can look at papers, we can look at documents, and this is what we can say on M&A. As I mentioned, salary SBL is an area where we need to come up with a decision. Today, we are under scale, and it is not performing properly as the other business lines are performing. We are clearly trying to consider all the potential strategic opportunities to cope with this situation. As far as the badwill is concerned, I will leave the stage to Luca Ghislandi, which is our Head of Planning and Control at group level.
Thank you, Iacopo. All right. With regard to badwill, what we can say is that in the second quarter, basically, as you saw, we have EUR 97 million of badwill, rising EUR 21 million from the previous quarter, mainly as a result of the deconsolidation of Kruso Kapital, which had an impact on the tangible book value of the company. As you may know, there was a sizable amount of goodwill within the Kruso Kapital company, which has been released, and so badwill increased as a result of the deconsolidation of Kruso Kapital.
While other effects are the results of basically slight adjustments on fair value of assets, which, of course, as we already said last quarter, we are still working on the PPA process, which, as you know, can last one year. We are advancing on the analysis, but still please consider these figures as provisional, which will be updated on a quarterly basis.
Thank you. If I may, just to follow up on these last two points. The first on the badwill. Shall I consider that most of despite being still 12 months to assess the PPA, but the amount of badwill won't probably change by that much, or at least compared to the delta Q2 versus Q1, if that is a fair assumption. The second follow-up, I was just wondering whether, since you mentioned three reasoning behind potential M&A, I was wondering whether, sort of in the way you presented, it was in order of preference, growing scale international, potentially solutions to improve the cost of funding, or it was just a sequence.
On the M&A part, our point is that we want to reduce our cost of funding. If you read, we might have interest in M&A that could reduce our cost of funding, as well as we might have interest in M&A that increase our scale in the businesses in which we are. As well as we might have interest in situations locally or internationally that help us diversifying both from a geographical terms and, let's say, business line terms. We do have, as you well know, high appetite and targets in terms of return. Clearly, both the strategic actions on the asset side and the potential strategic action on the liability side need to prove their, let's say, nature of being accretive. On the badwill
On the badwill, basically, let's say that it can change again, probably next quarter, but still we don't expect a sizable change as the one that happened between the first and the second quarter. Because this quarter has been impacted, as I said before, mainly by the deconsolidation of KK, which won't happen any longer in the future.
Thank you.
Maybe additionally on this, you can understand that badwill also, in some aspects, in some situation, PPA can have positive impact, can release some numbers. It's a combination of potentially negative with a combination of potentially positive. It's an ongoing process. Let me say that all the areas on which we had to identify something has been identified and been sized, and are within the current numbers. We don't expect much, but potentially could change still for some minor effects.
Thank you.
Next question is from Raoul Leonard Sona.
We cannot hear.
your line is open. Raoul Leonard from Sona, your line is open. For any further questions, please press star and one on your touchtone telephone. Once again, if you wish to ask a question, please press star and one on your telephone. Mr. Carrese, gentlemen, there are no more questions registered at this time.
Okay. Thank you to everybody. I'm still Iacopo here, no, not yet Christian. Just some conclusion maybe, and thank you for being here on August the 6th. For three things, three messages I want you to take away. First of all, execution is on or ahead of schedule. Second, the business is growing exactly where it was capital-constrained before. Third one, on the assurance, we took the hard question head on rather than let them linger. We are try to be, let's say, very effective and very pragmatic. A very important point is that we are confirming the migration to happen at the beginning of November. If that is the case, we will have completed a two-bank merger in seven months. Which definitely will be a super achievement for the teams that are involved. Our focus is really on execution.
Thanks a lot. Thanks for joining. Thanks for your question. Christian?
Thank you all, speak you for the third quarter results.
Thank you.
Thank you.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.