Conference call for the Commerzbank AG regarding the Q3 2026 results. Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay in the internet. At this time, all participants have been placed on a listen-only mode. The floor will be open for question following Bettina Orlopp's and Carsten Schmitt's presentation. Let me now turn the floor over to our CEO, Bettina Orlopp.
Good morning, everyone, and welcome to our presentation of the third quarter results. Carsten and I will walk you through a set of very good numbers with a record nine months profit. They confirm that we deliver on our Momentum promises and continue on our path of predictable, profitable growth. Our performance is a direct result of the trust of our clients and the outstanding dedication of our people. In times of strategic change and a complex market environment, this is not something we take for granted. We are grateful for these partnerships which form the bedrock of our success. Before we dive into the financials, let me briefly comment on the economic landscape. While uncertainty persists, our own economic research experts take a cautiously optimistic view. They expect the German economy to grow by 1.2% for the full year 2026.
This is reflected in a significant rise in sentiment indicators with the Ifo Business Climate Index rising for the sixth time in a row. This sentiment of resilience was also central to the government's recent Invest in Germany summit, which aims to promoting Germany as a destination for investment, a goal we actively support as Commerzbank. The macroeconomic environment in Germany provides potential tailwinds for banks and Commerzbank in specific. This supports our unchanged targets for revenues, profitability, and efficiency from 2026 through 2030. We have, however, adjusted revenue composition for 2026. Slightly lower growth in net interest income will be compensated by a higher projection of revenues from net fair value and others. Furthermore, we are very much aware that the ongoing situation with UniCredit creates questions for our clients. We are addressing their concerns proactively through clear communication.
Hence, we welcome the press release of UniCredit last Friday, which highlighted their commitment to support the German Mittelstand and the two banks' international presence. Let's turn to our performance, which clearly demonstrates the financial Momentum we have built. We are well on track to deliver a record result for the full year 2026. In the first nine months, our revenues grew by a strong 8% year-on-year to EUR 9.7 billion. We demonstrated strong operating performance as our operating result increased by 17% to a new high of EUR 4 billion. Ultimately, this operational strength translates into a record net result of EUR 2.7 billion for the nine-month period. Our firm cost discipline remains a key pillar of this success, with our cost income ratio improving significantly to 50% when excluding compulsory contributions.
The net return on tangible equity reached an excellent 12.4%, providing clear proof of our capital-efficient and profitable business model. We have achieved all of this while maintaining a strong CET1 ratio of 14.2%. Our strategy is designed to create sustainable value for all our stakeholders, and the progress we have made is visible across the board. For our customers, we are delivering concrete improvements and innovations. The satisfaction of our corporate clients has climbed to an all-time high of 80 points on our client satisfaction index. This demonstrates our deep commitment to service and partnership, confirming our position as the leading bank for the German Mittelstand. In our retail business, we are actively preparing for the upcoming state-subsidized pension reform. Our two brands will offer tailored solutions.
Commerzbank will provide an advised model based on actively managed funds from Allianz Global Investors, while comdirect will offer flexible digital ETF solutions for self-directed investors. We see this as an important entry point into securities investment for many clients, lowering the barrier for them to build up their portfolio with further products in the ETF and fund space. Across the bank, we are leveraging artificial intelligence to enhance the client experience and to increase our efficiency. Our AI-powered assistants are now supporting all our teams in customer service, and we are working to automate processes like complaint management, where we see an automation potential of around 60%. For our employees, we are managing our transformation in a socially responsible way. Our new early retirement program has been very well received, with more than 1,100 colleagues having opted in so far.
This adds to already 1,800 signed contracts, which are especially early retirement programs as well. At the same time, our appeal as an employer is stronger than ever. This year, we received a record high of around 12,000 applications for our trainee and student programs, which is a very good sign of trust from the next generation of bankers. Most importantly, it is the strong commitment and performance motivation of our team that makes the record results we are presenting today possible in the first place. This is also documented in a very high satisfaction score from our latest employee engagement survey that just finished this week, and that despite all the noise we had in the past quarters. Finally, for our shareholders, we are delivering the best financial performance in our history.
This is underpinned by strong growth in our core business, with corporate loan growth at 14% and fee growth at 8% year-on-year. Based on this performance, we confirm our net profit and cost income ratio guidance for the years 2026 through 2030. The strong performance directly supports our capital return policy, which remains a central pillar of our equity story. Our current share buyback is well underway, leading to overall EUR 7 billion we have already returned to our shareholders since 2022. We remain committed to the full distribution of earnings to our shareholders. We expect another EUR 2 billion for distribution this year, which reflects our 100% capital return until we have reached our target CET1 ratio of 13.5%. In short, we stick to our targets and deliver. This management and communication style has shaped our journey over the past years.
We started our Strategy 2024 with ambitious goals for restructuring, cost reduction, and rightsizing, and we delivered. We returned to a positive net result in 2021, executed our first-ever buyback in 2022, and rejoined the DAX index in 2023. We delivered on our strategy one year ahead of schedule and kickstarted our Momentum strategy in early 2025 to grow and transform our business and deliver double-digit returns. Back in May this year, we introduced the acceleration of Momentum and added the view towards 2030. The strategy leverages our proven strength to deliver faster, more profitable growth. A key enabler for this is artificial intelligence, which accelerates our business transformation and helps us reach our ambitious targets of a net RoTE of 21% and a cost income ratio of 41% by 2030.
Together with the capital return potential that reflects full distribution of our earnings, this is our roadmap for the future. A significant element of our path forward is, of course, UniCredit. Following the approval from the regulatory authorities, we will enter a new chapter. This slide outlines the journey ahead in clear phases. We are currently transitioning from phase zero, the status quo, where we operate completely independently, into phase I , where Commerzbank will become a consolidated part of the UniCredit Group, but will stay listed with 51% minority shareholders. This is a structured process, and we have already begun the necessary preparations for an upstream consolidation. Looking further ahead, phase II outlines the potential for deeper in-market integration, which could unlock the full synergy potential. Let's focus on the immediate step ahead, phase I. We are convinced that this first stage of integration offers significant and tangible value potential.
We have entered into constructive discussions with UniCredit and look forward to jointly detail and validate the assumptions for value creation. On the cost side, we see synergy levers in areas like joint procurement, aligning our technology platforms, and sharing knowledge, for instance, in cybersecurity or AI development. On the revenue side, a strategic CEE partnership and closer cooperation on product platforms and joint financing for larger deals can enhance our offering for clients. Our clear objective is to realize this value for our stakeholders while managing revenue dis-synergies along the way as much as possible. By entering this new chapter, we do this from a position of strength. Commerzbank brings significant strategic and financial value to the table. We will be committed to serving the requirements of UniCredit as controlling shareholder and the requirements of all minority shareholders. This is our duty as Managing Board of Commerzbank.
Our foundation is a strong client franchise, both as a leading bank for the German Mittelstand and as a top provider for private and small business with our two powerful brands, Commerzbank and comdirect. We are deeply anchored in the German economy, holding an approximate 30% market share in foreign trade finance, benefiting from the huge deposit base in Germany, and support the development of our country and its large investment programs. We deliver attractive financials with a consistent track record of revenue growth and cost discipline, an attractive capital return policy, and continuously improving profitability. This is the foundation we will build upon as part of UniCredit Group and in the best interest of all our stakeholders. This leads me to my key takeaways for you today. First, we delivered our best-ever nine-month result, and we confirm our key targets from 2026 through 2030.
This bank delivers on its promises. Second, our focus remains firmly on our client business as a driver for sustainable success. Third, we are fully committed to maximizing value for all our stakeholders and are confident about the additional potential that can be created within the UniCredit Group. Our shareholders will benefit from our proven delivery and the additional strategic opportunities ahead. With that, I hand over to Carsten for the financial deep dive of the third quarter.
Thank you, Bettina, and a warm welcome also from my side. As Bettina has already outlined our strong nine months performance, I will now take you through the financials of the third quarter. It was a very good quarter. We have delivered in all key metrics, proving our resilience even as Q3 brought intensified deposit competition in Germany. Our revenues have continued to grow year-on-year, while we have kept costs ex-mBank stable, thereby achieving positive operating leverage. The risk result is fully in line with expectations. With our EUR 1.3 billion operating profit, we achieved a result significantly above Q3 last year and even came close to the record Q2 result, which is remarkable since Q3 is typically the slower summer quarter. The CET1 ratio stands at 14.2%.
That is well above our targets, but 20 basis points lower than in Q2, mainly due to market moves in FX, rates, and credit spreads that had an impact on OCI. Let us now look at the figures in detail. Q3 revenues are up 9% compared to Q3 last year. This is an extremely strong development and reflected in high expectations by the market. But we must take note of intensified deposit competition. We therefore have adjusted our NII guidance by around EUR 100 million-EUR 8.5 billion for the full year, as we are actively balancing deposit volumes and margins. Crucially, we are fully maintaining our outlook for total revenue, EUR 13.2 billion, as we expect higher contributions from net fair value and other income. This is partially due to a swing between NII and net fair value.
Looking at the line items, net interest income increased by 3.5% year-on-year, driven by the Private and Small-Business Customers segment in Germany with 12% higher NII. NII from mBank and others in consolidation was somewhat lower, reflecting interest rate movements. This was largely offset by higher net fair value. Net commission income is again very strong at EUR 1.1 billion, 9% above last year's third quarter and well above our targeted annual growth rate of 7%. This confirms the quality of our revenue growth, particularly driven by the securities business in Germany. The net fair value result is better than last year and more than compensates for the effect in NII. Other income is negative in the quarter. Contributions from dividend income, hedge accounting, and realizations were offset by one-offs in O&C and provisions related to customer protection at mBank. In contrast, Q2 had benefited from one-offs.
For the full year, we raise our outlook to around EUR 400 million for net fair value and other income combined. The next two slides cover our fee income, and I will jump straight to slide 15. The main driver of our strong NCI growth has been PSBC Germany, where we have impressive growth of 14%, driven by the securities business and higher fees in the payments business. Asset management also performed well, with the main driver being the portfolios we manage on a discretionary basis for our customers. In corporate clients, growth has mainly come from trade finance-related guarantees and payment transactions. Now let's move on to interest income on slides 16 and 17. Net interest income is up 3% from Q2. This is driven by increasing contributions from the loan and deposit business in all our customer segments.
In corporate clients and in mBank, the main driver has been volume growth, while in PSBC Germany, the main driver has been the replication portfolio. While solid, the overall increase is slightly below our original expectations. Corporate clients saw only a small increase in NII due to higher funding costs in the capital markets business, but these were more than compensated by a strong net fair value contribution from the respective positions funded. For PSBC Germany, the main topic has been the deposit competition that intensified in the third quarter. Several competitors have offered exceptionally high rates for fresh money. We have decided to not match these teaser rates, and this has led to the outflow of around EUR 3 billion of very rate-sensitive call money while stabilizing the deposit beta, which has decreased to around 40%.
In Q4, we started to introduce more attractive offers for new call deposits while remaining below the rates offered by the most aggressive competitors to maintain reasonable margins. We, therefore, expect volumes to increase again in the fourth quarter. The market is dynamic, and we will continue to adapt our offerings ability in the medium term. We continue to use AI to optimize offers and find the best price for different customer groups. Before we come to our NII outlook for the remainder of the year, I will cover the lending business of corporate clients. In the last 12 months, corporate clients achieved loan growth of EUR 15 billion, or 14%. Again, this confirms the benefit of our setup supporting clients worldwide, not only in Germany. The pattern is a continuation of what we've seen in recent quarters.
Loan growth with our clients remains largely international and is well diversified geographically and by customer groups. There is activity in Germany with selective investments, not only in defense and infrastructure. Taking repayments into account, this translates into a steady net growth of around 2%-3%. Internationally, growth remains strong, particular with our DACH-connected corporates. As a general industry trend, loan margins have seen some pressure, which has slightly affected the average margin of the portfolio by a few basis points. Now to our NII outlook for 2026. Given the headwinds from deposit competition and loan margins, we have adjusted our outlook for NII from around EUR 8.6 billion to around EUR 8.5 billion. This means we expect an increase in net interest income of around EUR 300 million, or approximately 3.5% for the year. Thus, we are heading for record NII in 2026, and the longer-term outlook remains positive.
The main reason for this is the replication portfolio, which I will cover on the next slide. On slide 20, we have an updated simulation of the expected contribution from the replication portfolio for the next years. For the calculation, we assume an unchanged structure and volume of the portfolio and apply the current forward rates. We do not expect the portfolio to remain constant for such a long period, as we always strive to optimize, but this simulation gives a good baseline. Compared to the simulation from Q2, on current forward rates, the portfolio will annually deliver an additional EUR 200 million-EUR 400 million interest income in the next years. We expect these additional revenues from the replication portfolio to fully cover potential headwinds from intensified deposit competition and loan margins. Now to costs on slide 21. Year-to-date group costs are at almost the same level as last year.
As planned, costs, including investments at mBank, are rising, while costs in the rest of the group are managed flat. We achieved this while investing more in IT and AI and absorbing salary increases by leveraging active cost management. We also benefited from lower valuation effects for equity-based compensation and no contribution to the German deposit guarantee scheme. Altogether, we remain fully committed to our cost-income ratio target. The risk result came in at EUR 210 million. This is fully in line with our expectations and outlook. There have been no new material developments in the quarter. The portfolio remains highly resilient, with a non-performing exposure ratio of only 1.2%. Reflecting our disciplined risk management amid economic and geopolitical uncertainties, we prudently maintain our full-year guidance of a risk result of around EUR 850 million. This concludes the view on the key line items.
Slide 23 summarizes the drivers of the EUR 859 million net profit. The tax rate was 28% in the quarter. For the full year, we continue to expect a tax rate close to 30%, mainly driven by the higher corporate tax rate in Poland. As I have covered the main developments already, I will only briefly comment on the results of the segments. Corporate Clients increased its Q3 operating result year-on-year, driven by 5% higher revenues. Mittelstand delivered 4% revenue growth, mainly from the deposit business and transaction banking. International Corporates was broadly flat, as better lending and transaction banking revenues could not fully compensate lower contributions from capital markets. Institutionals had a very strong quarter, with revenues up 18%, with increases from all product areas, in particular from secured financing and the FX business. PSBC Germany delivered its best-ever quarter.
This year, every quarter has been significantly above the corresponding quarter of the previous year, as fee income is growing strongly and NII is benefiting from the replication portfolio. This is very visible in Private Customers, where most of the benefits from the replication portfolio accrues. In combination with a healthy fee business, revenues increased by 17% year-on-year. Small Business Customers' revenues are up by 5%, while revenues in the asset management subsidiaries are slightly lower. A significant part of the business is based on real assets. Across the industry, these are negatively affected by higher interest rates, and this will weigh on revenues also in the next quarters. Moving to mBank. mBank again delivered an excellent quarter. Loan and deposit growth is continuing apace, and fee income is rising.
While mBank has booked provisions related to customer protection, slightly impacting revenue growth this quarter, burdens from FX loans are no longer material. With mBank's well-established business model, continued innovation, and the Polish economy among the strongest in Europe, we expect this positive trend to continue. Others in consolidation has delivered a neutral contribution so far this year. This is in line with our expectations for the year, with some quarterly fluctuations coming from valuation effects and one-off items in other income. I will now move to capital on slide 28. There have been several changes during the quarter that CET1 ratio down from 14.4% in Q2 to 14.2% in Q3, which equals to 370 basis points above the MDA. The key driver of the RWA reduction that will also be relevant in the next quarters is the adoption of the foundation internal ratings-based approach for some portfolios.
Having received the approval by the ECB, we have released some pre-booked RWA in Q3, equivalent to around a quarter of the expected mid- to high single-digit billion EUR reduction. The remainder will gradually materialize by the end of Q2 2027. Furthermore, new SRT issued by mBank has reduced RWA in Q3. Regarding the CET1 ratio, this was more than offset by a decrease of the CET1 capital. This was driven by market moves in FX, interest rates, and credit spreads, all affecting OCI. These valuation effects should largely reverse over time. There was also an impact from higher regulatory deductions, e.g., for intangibles. In line with our capital return policy and commitment of a 100% payout ratio, we have reserved the full net result after AT1 coupon payments, amounting to EUR 2.5 billion year-to-date for distribution. This is equivalent to nearly 140 basis points of the CET1 ratio.
Looking at our capital requirements, the MDA has increased by 19 basis points this quarter due to a higher countercyclical buffer in Poland. This will be offset by a reduction of capital requirements next year, albeit marginally, as the SREP requirements were reduced by five basis points, leading to an effect of around three basis points in the MDA. Before going to the outlook, I will briefly give you an update and overview of where we stand with our preparations for the consolidation of Commerzbank into UniCredit Group. It is expected that all outstanding regulatory approvals will be granted either in Q4 this year or Q1 2027. UniCredit will then be required to fully consolidate Commerzbank in its P&L and balance sheet. However, minority interests will be deducted from the after-tax result. We have established working groups to prepare for this.
The work is ongoing, and we are jointly making steady progress on the various complex topics that need to be addressed. Preliminary analysis indicates a difference in the presentation of the net interest income between UniCredit and Commerzbank. We would therefore expect a shift between net interest income and fair value results at the level of UniCredit Group. Furthermore, the required purchase price allocation will result in differences between Commerzbank Group's figures and the corresponding figures in UniCredit's consolidated financial statements. This is relevant at initial consolidation as well as in subsequent periods. Now to the outlook. We are firmly on track for and confirm our key targets while adjusting some line items. As always, the outlook is subject to further geopolitical developments and events in Russia.
We maintain our revenue expectation of EUR 13.2 billion based on our adjusted outlook of EUR 8.5 billion for net interest income and EUR 0.4 billion for net fair value and other income. The outlook for the risk result is unchanged at around EUR 850 million. We confirm our cost outlook of around EUR 7 billion. This leads to an unchanged outlook for the cost-income ratio of around 53%, the net result of at least EUR 3.4 billion, and a CET1 ratio of more than 14%. We also maintain our target of a 100% payout ratio consisting of share buybacks and a dividend and expect a RoTE of around 12%. With that, I conclude the presentation. Thank you for your attention, and Bettina and I are now looking forward to your questions.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star nine followed by the hash key on your phone. You will receive confirmation that your question has been registered. If you wish to withdraw your question, please press star three followed by the hash key. Please note that the option to submit questions is available only if you have dialed in by phone. It is not possible to submit a question if you are participating via the web interface. We have the first questioner, and that is Benjamin Goy from Deutsche Bank.
Yes, hi, good morning. Yes, hi, good morning. Two questions, please. First, on net interest income, even with some kind of generous rounding, I calculated at least EUR 100 million needed for your net interest income guidance in Q4. Maybe you can give a bit more color and confidence on the moving parts to reach that. Also related to that, do you expect a change in your deposit strategy? Because the market is growing overall, but it seems like it's lots of rate-sensitive deposits. So, whether we should expect more bundled products, do you go more towards corporate clients, stuff like that. Then secondly, on the constructive talks with UniCredit you mentioned, just wondering whether there are any new updates with respect to what you would call phase II, meaning the go-to-market for the corporate business, in particular international network and other potential stumbling blocks. Thank you very much.
Benjamin, I am going to take the first question on NII. If I understood you correctly, you were specifically asking for the Q3, Q4 development for the rest of the year. When looking at the run rate in Q3 and given what we are seeing in the market also with deposit competition for the change into Q4, we expect a higher run rate coming mostly from incline of the replication portfolio contribution, call that around EUR 70 billion. A similar amount roughly coming from the rate-sensitive positions. We expect still a bit of uptick from the volume that we are seeing and also from mBank, while at the same point in time seeing a slight decrease over Q4 from the beta.
That in sum actually should bring us to roughly EUR 200 million-EUR 300 million in increased run rate, and hence let us arrive at EUR 8.5 billion for the full year. So, that's the move that we see in the portfolio. Regarding the deposit strategy that we're having, as briefly mentioned in the speech already, we have deliberately actually watched the market and assessed where to enter the market. We are very much economically driven in what we're doing and want to balance the volume and the margins that we're seeing. in Q4, we have started with additional promotional offers at reasonable levels from our point of view, and we are always driving to see bundled products and at least win the full client relationship so that we're going beyond the deposit only.
Expect us to be active in that area, again, always at economically sensible terms from our point of view, and we expect the volumes to increase again towards the end of the fourth quarter.
Yeah. Perhaps to add on it, one should also not forget that we also actively try to convert some deposits into securities, because we think it's also important that you will see hopefully more of that beginning of the next year when the new pension reform is kicking in. That is also something we always keep in mind because there's a strategy behind that one. When it comes to UniCredit, we are fully focused in the moment on two things. One is really to make sure that we are all ready for the upstream consolidation. That's number one.
Number two is to share as much information as we can when it comes to our business model, our strengths of the business model, and we do that still under the environment that we need to watch out what can we share, what can we not share, because we do not have yet all approvals in place. Then we focus very much on this phase I , where we are still a publicly listed company acting independently with HVB and UniCredit basically being a competitor. So, the phase II is not something which is in focus in the moment because it's also unclear when this will happen.
The real focus is on phase I , but as we also showed in the presentation, we think that there is a lot of value creation already in this phase when it comes to the cost side, where we definitely can align when it comes to procurement, but also when it comes to also the international network and product platforms. The other you also can hopefully benefit with respect to product offerings from the joint group. That is, which should be the focus, not to forget some important things like cybersecurity and AI, where you can definitely learn from each other and use the full benefit of the complete group.
Thank you very much.
Thank you. The next question comes from Stefan Stalmann from Autonomous.
Good morning. Thank you very much for taking my questions. I have two, please. The first one on NII. I guess the way that you describe recent developments, you have lost EUR 3 billion of not very profitable rate-sensitive deposits. That is probably not even explaining a double-digit amount of NII erosion. So downgrading the NII number by EUR 100 million probably suggests that something has happened in your core business in terms of volume and margin effects. Could you maybe provide a bit more color around that? The second question on your Stage 3 developments coverage. Let us look at it year-on-year. Your Stage 3 loans have gone up by more than EUR 1 billion, and your Stage 3 provisions have remained flat.
I appreciate that on a quarter-to-quarter basis, there can always be things that drive the ratio around, but how can we get comfortable with the fact that on a structural basis, longer term, this reduction in the coverage ratio is actually okay? Thank you.
Stefan, let me start with NII first. Again, for the development that we've seen in the quarter, we've seen the outflow of around EUR 3 billion of deposits, again, because we deliberately chose to observe the market and again, and engage in that business, which we economically see as valuable. With regards to the NII development over the quarter, we do not see an impact on the general deposit base that we're having to the country. Actually, we are continuing to apply our pricing ability and expect that also to contribute positively in the fourth quarter. What we do see is that on the loan side in the book, we see, as mentioned, a slight downtick in the margin in the single basis point range, and that in itself also had an impact on the third quarter.
Hence, including the movements we saw from the and also from funding effects, a slight erosion compared towards our ambitious goals that we had towards the year. We don't see actually an impact on the business in itself, again, as we want to keep up and catch up with volumes again. When it comes to the Stage 3 question, with regard to the change in the volume and coverage ratio, we had full write-off of highly covered exposures in Stage 3, and that results in a lower coverage ratio. So effectively, we had those engagements move out of the Stage 3 that had a higher contribution to the overall coverage. That is idiosyncratic to these individual exposures, and hence there's no structural effect that we see in the portfolio from this.
Will you say that the decline in the coverage ratio year-on-year is mostly due to these write-offs of these highly covered loans, or was it just a Q3 phenomenon?
We mostly saw this in Q3, but it is clearly linked to these individual exposures.
Right. Thank you very much for that.
Thank you. Mate Nemes from UBS has the next question.
Yes. Good morning and thank you for taking my questions. I have three of these, please. The first one would be still NII, and specifically the replication portfolio. Carsten, I think you mentioned that we probably shouldn't expect the size to remain the same over the next couple of years. I was wondering if you could give us a bit more color as to your expectations on what should be driving the volume of those. Is that simply the size or volume of non-maturing deposits in your franchise, or would you expect certain behavioral changes as well to affect the volume development here? That is the first one. The second one is on the EUR 850 million risk result expectation. That implies almost EUR 300 million net new provisions in Q4.
I was just wondering, is that simply caution, and could you give any further color on asset quality trends, I suppose particularly in corporate clients, and would you expect any further provision top-ups, for example, for macro risks? The last question is on RWA reductions. Could you update us on the expected benefits on these over the coming quarters? What is the sequencing here? Thank you.
Thank you very much. I think I am going to take the NII question and the question on RWA. I think Bettina will jump in on the risk result. On the replication portfolio size, my comment in the speech was to highlight the fact that the replication portfolio, as it stands, is also what you see in our presentation on page 20, unchanged portfolio assumption at current forward rates. The comment on a changing portfolio was more, let us call it, from a prudent perspective, saying that, of course, we will always adjust the portfolio as you have seen, for example, beginning of this year in either contributions, i.e., size increases, if we actually think that is viable given our deposit structure and behavior, or potentially reductions going forward. At this point in time, we see the portfolio as stable.
If we saw changes to the portfolio, that is always a function of the volume in the first place. As you might recall from previous quarters, we always keep a decent buffer between the actually invested volumes that we have in the portfolio versus those that we can model. Those are still very comfortable, and hence movements, as you have seen in the third quarter, do not automatically mean that we will get into rebalancing of the portfolio. In terms of the behavioral aspects, we actually do not see changes in the individual deposit classes, but we maintain a close eye on this, of course. Plus, it always depends a bit on how we also approach these different deposit classes with respective offers. Overall, expect the replication portfolio to remain stable and contribute to our NII as described. Maybe I take the RWA question first.
On RWA reduction, we received permission by the ECB in the third quarter to introduce our foundation internal ratings-based approach on certain portfolios. As mentioned, the effect that we will see is going to be in the middle to high single digits billion area in RWA. We saw a smaller part of that in terms of pre-booked RWA in Q3, but the main effect you will see between Q4 this year into Q2. Expect this to be a relatively linear sort of development and relief over these three quarters to that full amount.
When it comes to the risk result, I mean, you are absolutely right. It is a cautious stance, and we took that very explicitly because we are just aware that the fourth quarter is a long quarter. We have now seen a long time of no growth in Germany, so there are always some effects, and we just stay cautious on it. But I would say we rather look at the EUR 850 from the lower end than from the upper end, to say it like that. Also, if I take all the signals, we are overall positive. Take the Ifo index, which has improved for the sixth time in a row. Take the improved GDP growth projections for this year to 1.2%. Some even believe in 1.3%, 1.4%.
Just this morning, we received the latest order data for German industry, which has been a worry for quite a long time because you had a very flattish development. But for the first time, it has improved significantly, which is also good news. So, all in all, I would say we are conservative, but we feel very comfortable with that.
Great. Thank you.
The next question comes from Borja Ramirez from Citigroup.
Hello. Good morning. Thanks for taking my questions. I have two, please. Firstly, is on the deposit volumes. I would like to check if it would be possible to provide some color on the volume of deposits that may have been captured quarter to date. My second question would be on NII, maybe looking into 2027 and beyond. I saw that the guidance for the replication portfolio income has been upgraded by EUR 200 million based on the current forward curve, now EUR 700 million, plus we have the ECB, expected ECB rate hikes. Taking all this in together, I mean, given the fact that your guidance already included conservative assumptions on deposit beta, I would like to ask if there's maybe upside to consensus NII of EUR 9.3 billion for 2027 based on the current curve. Thank you.
Borja, first of all, on the deposit volumes to date in the fourth quarter, as mentioned earlier, our aim is to incline again on the deposit volumes. We have started with products, active products in the market already in October. We are on an incline, and then we will report on that, Borja, I think once the quarter's done, but clear incline expected. Then on the second question regarding NII for 2027, I think there's various ways to look at it. We will exit this year with a record NII of EUR 8.5 billion, and as you rightly say, there's a strong contribution from the replication portfolio coming next year. We see this currently at around EUR 700 million. Parts of the incline that you see, given the current forward rates, will help us to counterbalance some of the pressure that we see on the deposit competition side.
That relates a bit to your beta assumption. We're very low or relatively low, let's call it that, in the current market environment in this quarter with 40%. As you also know, we are expecting an incline of the beta steadily over the next years. That will definitely be a slight negative on the development. With regard to the ECB rate hikes that are coming, they are net positive. As you know, the bank is delta interest rate positive when it comes to that. But we also see increased funding costs coming with it. Overall, Borja, if I can approach it this way, because we will talk about our 2027 guidance in February with full-year results, I would say I'm not uncomfortable with the guidance that is currently out for NII. The consensus, sorry, just to be absolutely clear, the consensus.
Thank you very much. Riccardo Rovere from Mediobanca is the next questioner.
Thanks. Thanks a lot for taking my questions too, if I may. The first one is on, you have lowered by roughly EUR 100 million the guidance on NII, but you have also increased the indication on fair value items by roughly EUR 100 million, which is a bit maybe counterintuitive considering what's happening on the fixed income market. The question is, are the two things kind of intertwined, interconnected, maybe due to accounting reasons rather than anything else, or are they completely separated, just to give us an idea? Then when it comes to the slide where you show phase II, you mentioned the word, if I'm not mistaken, Bettina, you mentioned the word potential. Is it something that you see as the most likely outcome in due course, or is just one of the possible options, just to have an idea of your thinking around, if you can?
Thank you.
Riccardo, let me start with NII and net fair value, and your question on whether that is interconnected. There's, of course, always parts that are interconnected to a degree that interest rate movements that we're seeing are partially offset by net fair value movement, so there is an interconnectedness. I would not put a full connectedness sort of into the Q3 or full-year sort of guidance that we're giving for the NII movement now towards the fair value movement. What we're generally seeing in fair value and have seen actually in the third quarter was a healthy underlying business in the capital markets. As mentioned, our corporate clients business actually has contributed a bit more than the usual run rate we would expect, and which is generally sort of providing for the underlying beat in this, or baseline, I should say, in this line item.
We saw a bit of a stronger contribution there, hence not entirely counter-linked to the NII. When we're looking at the movement on a year-over-year basis, there is, of course, a stronger relation, especially when we're looking at the mBank movement. We saw a lower NII coming from mBank, given the drastically lower rates in Poland, which is counterbalanced in the net fair value. There's an interconnectedness, but regarding the EUR 100 million that we mentioned in both line items this quarter, that is not 100% linked. That comes from a broader base of developments, and I think mainly we saw good development in the underlying corporate clients business.
Riccardo, when it comes to the different phases, our focus at the moment is clearly on phase I , because that is the thing we are entering, and it is unclear when phase II will emerge timing-wise. It is also very clear, we all know that there is a difference whether you are a company with 51% minority shareholders, publicly listed, and independent, also due to German company law, or whether you want to get full integration, which you can only do if you do some type of merger, and where you can then basically align, I do not know, the German retail network and stuff like that. So, there are differences in the degree how much synergy potential you can achieve in these different phases. But for the time being, I think it is smart to focus on phase I.
Fair enough. Bettina, thanks for the comments.
Thank you. The next question comes from Tobias Lukesch from Kepler Cheuvreux.
Yes, good morning. Thanks for taking my questions. Quickly, again, Carsten and Stefan elaborated on that, and we also just touched on the EUR 100 million. I am also puzzled in terms of the deposit movement. The EUR 3 billion you lost, more coming from PSBC and term deposits, and obviously, we have seen the declines throughout the year, basically from the push you had in Q3, Q4 last year, when you added 8 billion in deposits in PSBC due to initiatives. So, I am wondering, what really was the assumption on deposit growth throughout the year? So, what was the natural rate you expected? Obviously, you seem to be more a bit flattish or in decline with the outflow of that kind of strong offerings over the past year.
Secondly, maybe again on cost, in terms of cost development, restructuring costs, is there anything tangible that you see might change over Q4, Q1, maybe Q2 next year, now with a more collaborative approach to UniCredit? Thank you.
Thanks, Tobias. Answering your question on the deposits first. You are absolutely right. Last year, when we were looking into the deposit development, we had an attacker out last year, end of Q2, beginning of Q3, which made us collect around EUR 8 billion roughly, as you said. These funds flowed out, ending in the first quarter, and then continuing from there. What we saw in the market, especially in Q2, was market entrance by participants that really came out with exceptionally high offers at that point in time, also significantly above ECB deposit rates. It was a market that we deliberately did not want to engage in at that point in time. Over the year, we were originally anticipating to have a deposit volume growth of around 1%-2%. That is in line with the strategy goals that we put out last year.
We are clearly now, as you said, flattish and have declined again in Q3. That we will stop in Q4, hence going out now with offers that we see as economically viable. The benefit that we saw actually by not participating clearly was a slight uptick coming from lower beta, but that is something, as we have also guided towards the next years, we see inclining given the deposit competition. For us, it is more a matter of when to engage in this and then to actively balance volumes and margins that we are having. So, pretty much all in plan with what we have seen from the market now.
When it comes to the cost development, we are a firm believer in our cost income ratio targets, and this is what we will deliver. When you look on what we have included in our strategy so far, we had Momentum with 3,900 FTE reduction, and we already booked the full restructuring costs necessary for that last year in 2025. We have now announced another 3,000 FTEs, and that one you will see bookings probably the first one in the fourth quarter. That is at least also included in our guidance. The rest we expect in 2026, and you also see that we make progress. It is in 2027, sorry. In 2027, the rest in 2027. You see that we make progress because we have already a lot of signatures when it comes to Momentum and a lot of finance when it comes to Momentum 2030 programs.
We are very optimistic that we can achieve this headcount reduction in a very socially responsible way. The question whether you have even more restructuring due to the value creation potential as laid out also in our presentation, that is something we further first need to detail out. You can expect something of it, but it should not be too much and should be easy to absorb. From my perspective, we have laid out very clear targets for the years 2027 to 2030. I think these targets can only improve. For me, they are really the bottom end of the targets, and nothing else.
Yeah. The last one, if I may. On shareholder returns, you mentioned that you try to maximize value, obviously, for all the stakeholders. Recent discussions have been much more aligned with UniCredit in terms of achieving synergies together. I think the big question also is in terms of shareholder returns, the 100% payout promise, which you reiterated, how are discussions going with UniCredit? Obviously, some investors are concerned that there might be a cut on the payout. But given that there might only be some additional restructuring costs, and that we learned with Q2 that there is definitely a big relief on the capital side, where you could argue this could cancel out each other. Therefore, return expectations that we had three, four months ago would not be negatively impacted in such a scenario. Is that a fair way to think about it? Yeah. Thank you.
This is at least the way we think about it, because if you look now just for 2026, we target a net income of EUR 3.4 billion, and we just confirmed it with a CET1 ratio, which will be far above the 14%, so very comfortable. Also above our target ratio, and that is where we stick to our capital return policy, which says that we have 100% return as long as we have not achieved the targeted CET1 ratio. If I am not totally wrong, UniCredit has a very similar capital return policy, and therefore, we are very committed.
If I look also the way forward, the amount of net income we will deliver over the next years, and which we have not included at any point in time in our CET1 projections, provides you with a lot of positive Momentum when it comes to our equity story and the capital return.
Very clear. Thank you both.
Thank you. The next question comes from Anke Reingen from RBC.
Yeah. Thank you for taking my questions. The first is just on the replication portfolio benefit and the unchanged NII guidance. Is it basically, are you seeing more headwinds, or you're basically at this stage not changing your net interest income guidance, given, I guess, NII is going to change under new reporting anyway? In that context, you mentioned headwinds from loan margins. Can you elaborate a bit more? Is this something unexpected, and which pockets of the book? Then secondly, I think it's just coming back to the previous question. Can you assure investors a bit more about the minority shareholders in Commerzbank, a bit more about the booking of restructuring charges on how this will be adjusted in your payout ratio? I guess if there's an acquisition of HVB, how should minority shareholders think about how they're being treated in the overall process?
Thank you very much.
Okay. Thank you very much. Let me take the first question on the replication portfolio benefits. The overview that we have included also in the pack, we have updated for current forward rates, which have inclined in parts of the curve significantly since we last spoke. So, what you see as increased contribution from the replication portfolio over the next years is effectively repricing at current forwards. That will help us to actually counter the headwinds we are seeing mostly from the deposit competition and also expect a slightly higher deposit beta going into next year, and then to a smaller degree with regard to the aforementioned impact on loan margins. That is relatively small.
Let's call it a single-digit basis point impact on the book, rather broad-based, and also rather coming at this point in time from the fact that there is still a lot of supply, if I can put it this way, on the market for loans. So, you also see a bit of competition in there, but on a completely different level to what we are seeing on the deposit side. A majority to come from the deposit side, and we think that is being countered by the portfolio. Hence, you would also see us clearly confirming our expectation for NII over the next years. So, that's how it is.
Why isn't there potential to upgrade NII? Is it because you see more headwinds, or you just-
Well, it's mostly because-
Mm-hmm. Yeah.
Yeah, no, the models we will keep as they are. There is no expectation that we will change them. This is purely to address the current situation we are seeing in the market, which we have seen developing over the course of the year with the competition, also anticipating that, as mentioned, as a consequence of the competition, will also go up. This is why we are keeping it steady at this point in time. As mentioned before, we are running into the end of this year with an expectation for record NII, for the next years, expect inclines, as we have also shown with the replication portfolio. We approach it from that perspective. It will counterbalance, then let us take it quarter by quarter when we see how the increased rate expectation also materializes.
When it comes to minorities and minority shareholders, I mean, first of all, we have a really good equity story. If you look at our targets, if you look at our business model, that does not change, that will not change if we are part of the UniCredit Group. That I think is the most important message, number one. Number two is that also, if you look at the numbers, they are very strong, from our perspective, when you look at phase I , they can only become stronger, will then also balance out if there is any necessary restructuring costs in place.
One should not forget, that is, I have no reason to believe that we are aligned also with our controlling shareholder, soon to be, in our objective to maximize value, not to destroy value, which means that whatever you see here as the targets is a minimum we want to achieve, probably even achieve more. Not only the controlling shareholder will benefit from that, but also the minority shareholders. There we have our company law, the German Aktiengesetz, which makes it very clear how you have to act as a management board, but also as a supervisory board, specifically as long as you do not have a domination agreement in place. It is very clear that you have to act solely in the interest of all stakeholders, of all shareholders.
There is the little instrument which is called dependency report, where you need to have a very clear description if you have certain decisions which you take because you are part of a larger group. You also have, as a board of managing directors, the obligation to ask for a disadvantage compensation if there might be a decision which is only to the benefit of the controlling shareholder and not to the benefit of the minority shareholder. So, there are some protection things in there, but first and foremost, I would say we are aligned in our objective, in our target to maximize value for all stakeholders. Even in a phase II , which is not yet defined at any means timing-wise, minority shareholders would benefit either by becoming part of a larger group if they accept that, or they would get a cash appraisal.
If they would decide to stay within the group, they would also benefit from additional potential, synergy potential, which would then be created. So, from my perspective, there is a win-win, always assuming that we are aligned on our objective of value.
Okay. Thank you very much.
Thank you. The next question comes from Jochen Schmitt from Metzler.
Thank you. Good morning. I have one question. Your remarks on efficiency potential in phase I on slide eight of your presentation, may we expect you to provide an update on your medium-term targets in February next year, or is it somewhat too early to answer this question? Thank you.
It would be an objective, but I don't know whether we will be already prepared to do so.
Thank you.
Thank you. The last question for today comes from Oh, it has been withdrawn. Okay, thank you very much. That concludes our Q&A session, and I hand back to our CEO, Dr. Bettina Orlopp.
Thank you very much for all your questions, for your interest, and I wish you a great rest of the week and then later on a nice weekend, and see you, talk to you soon.