Earnings Call: H1 2020

Jul 23, 2020

Ladies and gentlemen, welcome to the First Half Results 2020 Conference Call and Live Webcast. I am Moira, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Robert Altmaier, CEO Mr. Pascal Perita, CFO and Mr. Volker Klo, COO of Chamber Money Bank. Please go ahead, gentlemen. Yes. Thanks, Amora, and good morning, everyone. I'm here my name is Robert. I'm here with Ms. Pascal. And Ms. Volker to talk about the first half year results from CHEMRA. If you go to the summary page, as you see, there's a net income of €74,100,000 which is 6% lower than last year, but quite resilient. In MAPFIO also, the financing receivables are quite resilient. They went down 3% with lower volumes and lower attrition. So we had some lower application levels in the Q2, but what we see is that people stay where they are, they are twice less. So you see quite resilient receivable levels. Net revenues increased by 22%, mainly driven by the acquisition of Cascade. And you see in the 11% Turkish EUS income and fee, really linked to the lower car spend as a result of the lockdown. And we'll give you some more insight, of course, in this one afterwards. Loss rate, very stable, 0.9% during the 1st 6 months of this year. Return on equity at 13.8 percent, there's a capital ratio at 70%. And last but not least, the cash gain integration successfully completed at the 4th July. So if you move to the next page, I want to talk a bit about the markets. Let's start with the personal loan market. So the personal loan market went down 2% year over year, which is also very resilient. If you look at the chamber receivables, we went down 4%. And basically, I would say that is a very good number. When we remember one thing when we did the Cascade acquisition, we said that we would expect to lose some receivables due to the Cashgate acquisition in both personal loan and in auto. So far, the market share will be stable at 44%. The dis synergies from the cash cat integration so far has been very limited. I think we have to be a bit cautious with this because also remember that didn't get too much new volume in there. We had a lot of low attrition. People normally stay in this kind of situations in their loans and they don't go. So I think basically we should lose a bit of market share after the cash cat integration. But so far, it's very stable at 44%. Same story, basically on the auto, Our market share is at 22% versus 23% in December 2019, so very limited dis synergies from cascade integration. Also, we haven't lost a lot there. The market is a bit different there. You see that new cars went down 34% in the first half of twenty twenty, and then the used cars only 7%. But typically, what you see is that in this time of crisis, people move a bit more to the used car market. Also, when you order now a new car, you probably have a waiting time of 4 or 5 months because some of the factories has been closed for about 2 months. So you see that the used car market is still doing quite well. With this whole crisis in the new car market, 34% is, of course, a huge decrease and also the expectation for the full year 2020 are not very positive on the new car market. Our net financial receivables went down 3%. We've been doing quite well on the used cars. We saw basically when after the reopening of the market at mid May, 11th May, that we saw a lot of auto applications coming in again. So the auto business, in my view, is in relatively very good shape. Credit cards. We went over the €1,000,000 credit cards. So the cards issued were 7% up year on year. I mean, over €1,000,000 The good news is that CHEMBA outperformed the market in the 1st 5 months because those numbers are from the 1st 5 months. The market was down 19%, we were down 9% on the transactional volumes. Why was that? I think we are more a local card, so we are not a typical travel card. We're also very strong in Migro. So also the retail spend on cards has been quite nice in the first in the second quarter, sorry. And I think we are, in that sense, more resilient. Market share slightly increased at 14 percent and NFC very strong still, 20% market share as of May 2020. On the next page, I'd like to give you a bit more insight in the cards' transaction volumes and the revenues. What you see is basically, and this is the first time that we really disclose the volumes by the month. You see strong start of the year in January, February. Then in March, went down and now 69% to 16%. April, really the down the biggest downtime, basically not a lot of spend. Then in May recovery, and basically in June, in my view, very positive numbers at the same level as last year, even a little bit better than last year. You also see the market there. So we're outperforming the market. The revenues are not recovering as quickly as the volumes. So what you typically see is that 2 events probably important. 1 is the left of May when the dealerships and the rebounds. And then the next big event was, of course, 16th June where the international borders reopened again. So in the first half year numbers, you don't see a lot of FX from the international volumes because only the 16th June, the Board has reopened. We see some nice traction now. It's coming back step by step. But in the first half year, you see volumes recovering where the international spend has not been recovering a lot. The other message what it gives you is that the market is moving from cash to cards more and more. We have seen several studies where the cash payments are going down and down. Also, I think, helpful was the increase from the limits, the contactless limit from CHF 40 to CHF 80. You see more and more people spending the cards and not paying cash anymore. One last remark on this page is on the interest income that went up. So you see that interest income went up from €38,300,000,000 to €41,600,000,000 which tells you that the revolver rate also went up quite a bit. Moving to the next page, cash cat integration. A few words on this one. The Redis network is completely consolidated. So we combined already the headquarters in Zurich in December 2019. Also the service center was combined in December 2019. The branches has also been now completely integrated in July, too much later than planned due to the COVID situation. We couldn't move the people. We also took advantage of the whole situation to accelerate the branch consolidation. We have bank now down from 17 to 13 branches, what you should consider as a stable number for the next period. I think the whole situation showed us that the digitalization is accelerating, and we took advantage to close a few more branches. On the business integration, the complete integration was done early July. So 95% of the transactional service agreements are terminated. 1 is still in place. It was also foreseen. That will be the collections TSA until next year. We transferred already all the employees to Chimbra, and all the systems were migrated as well. So basically, the integration was completed in 11 months with no surprises on cost and benefits. A few words on the commercial consolidation. So we're originating basically from 1 system on auto and on for brokers since the 1st Jan. We also built Cascade as an online brand. So there, we're also completely on track on the commercial combination. What has to be still done is basically through the legal merger, which is foreseen for next year, some further back end consolidation, which is probably in 2022 and some synergies. I think the synergies are gradually coming in, and we're well on track to deliver on the benefits as we announced last year with the Cascade acquisition. With that, I would like to hand over to Pascal, who would like to give you more details on the first half twenty twenty financial results. Thank you, Robert, and good morning, everyone. Gemra reports resilient half year's results with a strong business performance during the COVID-nineteen pandemic and the consequence lockdown in the Swiss economy, as already mentioned by Robert. Let me dig deeper into the numbers, starting with the P and L, the Page 8. The interest income grew by 22% as a result of the Cashkate acquisitions. And excluding Cashkate, the underlying interest income growth would have been around 1%. The interest expense was 28% higher at €13,700,000 and this reflects the €1,400,000,000 increase in funding for the acquisitions of Cashgate. The overall 11% decrease in commission and fees income was due to lower card spend as a result of the lockdown in Switzerland, partially offset by higher insurance and loan and lease fees, mainly from the acquisitions. Swiss billing mainly drives the increase in over. As already mentioned by Robert earlier, the overall cards revenues decreased by 11% with interest income up 9%, as you can and as you can see here, the commissions and fees income decreasing by 27 percent or €13,000,000 During the COVID situations, we observed a shift in our source of revenues from cards with higher interest income driven by higher interest bearing assets and lower commissions due to the significant reductions in spending abroad mainly due to travel restrictions. The number of car tissue continued to increase, up 7%, above €1,000,000 with the transaction volume declining by 7% year on year, respectively, as of 9 percent for the 1st 5 months compared to the 19% reductions in the market. We also observed different very different differences in volume by industries for the 1st 6 months, and I just want to give you here some examples. So transactions volume for grocery stores went up 40%. Volume also for electronics went up 31%, Furniture, 20%. On the opposite, travel agencies, car rental went down 60%, airlines, 50%, hotels lodging 45%. The provisions for losses increased by €11,000,000,000 and this is primarily due to the acquisitions. And despite the unfavorable environment, this result in a loss of 0.9%, in line with the prior years. Volker will mention later, we also recorded a so called environmental reserves of €2,300,000 to strength the allowance policies of the personal loan portfolio and to proactively reflect the changing economic environment in the context of COVID, Again, as of Volker will provide more insights in a couple of minutes. And finally, although the OpEx operating expense increased by 21%, The cost income was 50.3% for the 1st 6 months compared to 46.5% in the same period last year. And adjusted for the integration cost of Cashgate, the cost income would have been 47.9. I will further comment in one of the next slides. Next page, the net revenue by source. So in the personal loan business, the receivables declined by 4% And the repricing of the P loan book, though, following the implementations of the interest cap in 2016 is more or less completed. Therefore, the 23% increase in the interest income to €97,000,000 is primarily due to the acquisitions in the second half of twenty nineteen. The yield of 7.4 percent was as expected, and I would expect this yield to remain stable for the full year 2020. On the auto lease and loan, the net financing went down 3% in the reporting period. The interest income, 32% higher with a yield of 4.5%. Again, here is the increase due to the acquisitions. And I will also expect this year to remain stable for the full year 2020. In the Credit Cards, net financing declined by 4%. The interest income in the Card business grew by 9% with a yield of 8.2%. The change in the yield is not driven by pricing change, but by lower noninterest bearing assets during the lockdown. Let's go now on this to the next page and discuss the operating expense. Personal expense or compensations and benefits came to 65.8%. This is up 15%. And this is following the addition of 134 FTEs, which are related to the Cashgate Acquisitions as well as some additional FTEs to support our growth in card, Swiss Billing and online business. The increase in marketing is largely driven by Cashkate Online and the launch of the CHEMBA SME Business in February and partially offset by temporary reductions of our marketing spend during the COVID situations. The 98% increase in depreciations and amortizations are due to the €5,900,000 amortizations of the €52,000,000 intangible assets that we booked at day 1 of the acquisitions of Cashgate to be amortized over or depreciated over a 5 years period. On the cash gate, already mentioned by Robert, we are pleased with the progress we made with the cash gate and we completed the operational integrations, in line with timeline and costs related to the transactions. Integrations and transition agreements were lower than expected. After the People and the Commercial Integrations last key milestone was the successful IT carve out achieved this month. Remaining will be the legal merger planned in 2021. We incurred €6,000,000 integration and transition costs for the first half of the year related to Cashgate after the €8,000,000 incurred in 2019 as already disclosed in our full year 2019 results. In addition, we capitalized around €5,000,000 of cost to be depreciated in the next 5 years. So in total, the integrations and transactions costs related to the Cashgate acquisitions are expected to be around €20,000,000 compared to the original assumptions of CHF 25,000,000 So adjusted for the integrations cost and the transition services agreement with the seller, the costincome ratio stood at 47.9% compared to the 50.3% including this cost. Finally, last year, we announced that we would invest around €40,000,000 in digitalizations and product development for the period 2019, 2021. We incurred €7,100,000 for this H1 2020 compared to €6,500,000 for the period in 2019. €1,000,000,000 for the period in 2019. Let's go now on the balance sheet. On the balance sheet, the group total net financing receivables amounted to €6,400,000,000 but declined 3% compared to year end 2019, and this is largely attributed to the impact of the COVID-nineteen lockdown in Switzerland. The decrease in funding was in line as with the decline in assets. Finally, on the equity. The shareholders' equity decreased by 3% after CHEMRAZ, so we paid out the full dividend in April 20 20 of €120,000,000 for the financial year 2019. And this was obviously partially offset by the net income for the first 6 months of this year. On the funding, the group funding portfolio declined by 3%, as just mentioned, in line with the lower asset base. The fundings mix remained stable compared to the end of 2019, 57% deposit, 43% non deposit. The weighted average durations was slightly reduced to 2.8 years compared to 2.9 years we had at the end of 2019. And the period end funding cost was 43 basis points versus 44 we had at the end of 2019. The reductions of the cost of funds is mainly driven as hoped by lower costs related to the ABS. As already mentioned several times, we placed as an ABS in March with €250,000,000 of principles. I would like now to hand over to Volker for the provisions for losses. Thanks, Pascal, and good morning, everyone. For the first half of twenty twenty, we can report a stable loss performance with a loss rate of 0.9%, which is in line with the normalized number from the same period last year and also in line with what we have been seeing in the years before. Translated into absolute numbers, the loss provision for the first half came in at €30,200,000 which is around €8,000,000 higher than the adjusted for one off number in 2019. The main explanation, and Pascal highlighted that already here, is the loss provisioning for the cash gate portfolio that obviously was not part of the 2019 number, and hence we also see that the loss rate as a percentage then is stable. There is one more item that should be mentioned around the loss provision in the first half of twenty twenty. The loss provision contains the booking of an additional allowance of CHF 2,300,000 that we call an environmental reserve. Due to the current COVID-nineteen environment, its implications on the macro economy and the fact that we haven't seen any material impact on the credit quality of our portfolios yet, we decided to book an additional allowance due to this uncertainty. This is obviously a very prudent approach and the macro future will then show if and to what extent this additional allowance is actually needed or not. As mentioned, so far, we and NPL ratio at 0.7% remained strong, and NPL ratio at 0.7% remains strong and stable relative to prior periods when normalized for the one off effects in the past, so in a like for like comparison. In the current environment, we obviously continue to remain cautious around our risk taking. When the outbreak of the pandemic started, we were very fast in implementing measures to protect the credit quality of our portfolios by strengthening collections activities and also by restricting specific higher risk segments in our product lines. So far, it has paid off, and we see a solid loss performance that we based on what we know today also would expect for the full year of 2020. With that, I hand it back to Pascal to talk about the capital position. Thank you, Volker. So on the capital, the CHEMRA remains very well capitalized with solid Tier 1 ratio of 17%, which is at target level compared to 16.3% as we had as of December 2019 and a core equity ratio of 44 percentage. The risk weighted assets decreased in line with the reductions of assets. And with that, I would like to hand over to Robert. Thank you, Pascal. Just a few words on the macroeconomic outlook. I just want to really keep it short here. We followed here basically the second numbers, the latest second numbers, which predicts a shrink of 6.2% in 2020 and a 5.3% recovery on the GDP in 2021. You also know probably the interest rate expectations. They are supposed to remain negative for long term. And then the unemployment rate going to 3.8% this year and 4.1% that year next year. This is basically what we've taken in general in our predictions, but I think the next page is probably more interesting. This is the H2 priorities and how we adjust to the new economic reality. Basically, 5 things on this page. So the first one is continue to deliver despite COVID-nineteen. So I think regaining organic revenue growth in all business lines is important to us. Manage costs very tightly, aligning with the revenue development. You know that we have been quite restricted on marketing expense and external expenses and then also accelerate digital transformation. So continuing to deliver in an economical difficult environment with a supposed recovery in 2021 where we will not jeopardize any of the long term plans that we have. So it's a short term management of the crisis. Then also I'll point. So continuous focus on risk performance. We have implemented tighter underwriting rules and some additional risk assessments. We strengthened Connexus processes, and we have increased the staffing and training on the Connexus side. We deployed limited debt restructuring solutions. We don't use them a lot, to be honest, because we implemented this in March. We have not seen quite high uses of those restructuring solutions. But also now focus on risk performance. I always say now being successful in Consumer Finance is being successful on risk management. And I think it proves a little bit to and it helps a lot to focus on risk performance. Then I think the cards business is very important to us. We're investing in CRM. We're also investing in the self servicing of cards. I think with the 1,000,000 cards, part of the cost management and part of the also CRM is really getting more self serving of cards. But on the Microbank, the cards launch of the Microbank has been delayed. Basically, the reason for this is that Microbank has a new CEO. They're also in the middle of a COVID crisis, and they're reviewing the project portfolio. It's not off. It has been delayed so far. Then drive existing and new partnership. We have a healthy pipeline as well for new partnership on the parts business. A few words on the new products. We haven't spoken about SME, about Swiss Billing. So SME, we launched our SME business the 14th February, which is probably the most unfortunate date to do it. With all the COVID-nineteen loans, we stopped basically originating new business. I think we regained this one in early next year. So I don't think it makes a lot of sense now to try to book a lot of volumes on the SME side. I still believe strongly in the product. I still believe strongly in the setup. So I think we're going to restart the SME launch early next year. That will be my best guess so far. Swiss Billing. We continue to scale up Swiss Billing. They were live. They're completely live with Swisscom Directories. The live went a little bit later than planned, but they're live since beginning of April. That's probably why the revenues are a bit lower in the first half than expected. They also signed another big contract with the TX Group, which is a form of TA Media. They expect to be live early next year. It's also billing as a service, so we really see scale in Swiss billing coming up. Last but not least, on the ESG performance, I think some good successes there. We got upgraded to A in April 2020 from MSCI after the upgrade from to BBB in June 2019. SysAnalytics upgraded to low ESG risk ranked as number 1 amongst 120 12 consumer finance companies. So also I think on ESG, we're making quite some very nice improvements. Finally, the outlook before we hand over to the Q and A. In general, I think the Nokcembra is well positioned to manage the future. The assets are of strong quality, 100 percent Swiss consumer finance, proven historic risk performance. The capital position is solid, and we have secured the long term funding. So for 2020, we expect to deliver a resilient business performance with revenues being impacted mainly by overall lower volumes in credit cards and also with solid loss performance expected for the full year 2020. The midterm targets remain unchanged. So on ROE above 15% at Tier 1 capital of at least 70%, 6% to 70% dividend payout ratio and net income delivery on Cascade as planned. So with that, I would like to hand it over to the Q and A session. The first question is from Andrea Venditti from Fondobel. Please go ahead. Yes. Hi. Thank you for taking my questions. Maybe to start on the credit cards, obviously, most impacted business. And thank you very much for the additional disclosure on a monthly basis, very helpful. Did I get it correctly that basically what the usual pattern is, is that after transaction volumes increase, we should see also revenues obviously follow? And second one also is the reason for the delta there driven by foreign travel, which is obviously still very slow, I guess. Then maybe on the operating expenses side, you mentioned the branch closures that obviously had some costs in the first half. Can you maybe quantify that? And also, can you maybe quantify the benefits we should see going forward and whether these will already be in the numbers of the second half? Finally, on the maybe a bit more of color in terms of the loss performance and how you manage that basically on the risk management. So maybe you can add a bit more color in terms of what you're doing in terms of managing debt regarding the collection processes, what has been changed? And also this debt restructuring solutions you mentioned, how this really looks like? And finally, did I get it correct that by solid loss performance for the full year, basically, this means a similar loss performance of as in the past, I. E, around 1%. Andreas, I think you've split the questions nicely among the 3 of us. So I would take the first one, and then OpEx will be taken by Pascal and the lost performance is I think the piece for Volker afterwards. So on the credit cards, what you typically saw is basically as of beginning of March, the international spend stopped completely. So basically there are basically 3 ways for international spend that we normally see in our business. 1 is cross border shopping, how people go in the weekends. And again, no, we're not a travel card. It's we are our customer, only uses the card when he goes on holiday or we discuss borderscoping. We're not a frequent traveler card. So 3 ways of shopping. 1 is basically the weekend goes border shopping. 2nd one is people who are start to book holidays in March April. And the third one is basically spending in the summer when they are abroad. Those are basically the main resources of international spend. Well, because border shopping stopped completely basically because the borders were closed till the 16th June, then people did not book any holidays. So hotels, airlines, all those things, they were basically not happening. And what we see now is that people go over the board and they go on holiday. They start booking holidays and also start spending money on Italy, money on France, spending on the cards. So but basically until 16th June, basically and nothing happened there. So you basically had 2, 3 completely lost months. So I'm not sure it comes completely back. I think the long haul is still far away. We don't in the U. S. Yet with holidays, but I think the European travel is coming back, and it also will help the credit cards. So really the foreign travel was the bigger issue for us in the Q2. I think the spend on itself is not so bad because you see it really coming up already in June, which is basically domestic spend. On the OpEx side, Pascal, please give some info there. Regarding the branch closure, the group we recognized an impairment loss of 500 €75,000 on operating lease for this period due to the plant closure of the various branches. So this is here though what we reported. And look, as on the synergies, ultimately, we are very pleased with the progress we make on the realizations of synergies related to Cashgate and also the synergies. So we are fine as well to confirm that we will deliver the incremental net income run rate net income between €25,000,000 to €30,000,000 in 2020 as planned and as already mentioned several times. Yes. A few comments on the loss performance and giving a bit more color on how we are managing that. I mean, obviously, an expectation of an economic downturn, the things that you obviously need to do is to manage collections for the credit risk that you already have on the balance sheet, and you need to be cautious on the additional credit risk that you are taking on balance sheet. So we were very early in March already in rolling out collections strategies and also kind of staffing up collections to ensure that the collections processes are really running smoothly. So we are monitoring them closely. We have been kind of additional resources in so that we don't run into any backlogs and collections. And we are also applying some collections tools to help customers that are in financial difficulties. And here you can think about prolongation. So if a customer has a personal loan, we've just prolonged it by 1 month in the end and the the customer has a payment free month in between or we do a short term payment plan with the customer. But as Robert mentioned earlier, these tools are actually not very much used because we put some thresholds in place so that the customer needs to evidence that he or she is actually hit by COVID-nineteen as a consequence of that. So we are quite cautious in using these tools. And over the last weeks, we actually see also that the demand for these tools is decreasing. So it's an insignificant portion of the portfolio that is affected by that. And on the underwriting, it has also been exposed segments. Think about people that work currently in the travel industry or in restaurants. Here we obviously are extra cautious in granting new credits and loans to these. Lead. And then you asked the question about the solid loss performance. So what do we mean by that? And I mean, we always think of guiding to a loss performance on a number level, but we I think we can say that we wouldn't based on what we know today expect any material deviations from the loss performance that we have seen in the past. But the environment is still very fragile. I mean, we don't know if the second wave is coming. And therefore, we chose the more cautious wording to talk about solid loss performance. The next question is from Martin Amis from UBS. Please go ahead. Yes, good morning and thank you for the presentation. I have a couple of questions please. Firstly on development of net financing receivables. But Robert, I think you alluded to the fact that some But Robert, I think you alluded to the fact that some of it actually might be just simply attrition as a result of the Cashgate integration. Could you give us some color or your best guess what is really coming from the Cashgate attrition? And then what is perhaps lower demand or on the flip side lower lending appetite from your perspective? And also maybe an outlook for the second half. How much of this could be coming back? And what could be the key levers? Secondly, a follow-up on the card fees. I think it's much appreciated the detail on the monthly revenue run rates or revenue performance versus last year. Could you talk a little bit about what has happened really since the opening of the borders and what are you seeing in July numbers? Is that trend continuing? Is really foreign spend coming back? And should we expect basically an extrapolation of the current trends, perhaps not to complete the full year, last year's levels, but something close in the second half? And thirdly, a question for Volker maybe, the $2,300,000 environmental reserve, if I understand correctly, this is a general provision. Could you give us a little insight in terms of how this is calculated? And then what are the key drivers of this? Thank you. So thank you, Matti. I will take the first two questions and then the last one is, of course, for Volker. So on the receivables, it's not easy to say. I think if you look at the market now, the market of personal loans went down 2%. And so I would say that if you look at the performance, 2% is probably driven by the market and 2% probably driven by the Cascade integration. What we always said is, if we acquire somebody who's number 3 in the market and we combine the assets, we're going to lose some market share. And here, one example on the Tesla side now. So Tesla was working exclusively with CHEMRA and with Keeskade. They always have a second provider in the market, so they took pay now a second provider. So we will lose some of the Tesla volumes, which is logical and I think normal. So I think it's difficult to guide this for the rest of the year. But I think in our business plan when we acquired Cascade, we have really put some loss of market share in there. And we always said we think we can deliver €25,000,000 to €30,000,000 net income because we don't know how much market share it's going to be. And it's going to be a mix between synergies on the cost side and some dis synergies on the revenue side. So far, the dis synergies are very limited, but also new applications have been a bit lower than expected, so you don't really know. So I expect that we will lose some market share this year. I think that would be normal. But I'm very hesitant to give you an outlook for the second half. On the card fees, I understand the question. I understand everybody wants to know how it's going to be in the second half. Honestly, I don't know. What I've seen since the opening of the borders is that international spend is coming up, not at the level as last year because that big international volume, big international long haul level is not there, but it's picking up nicely. July and August are important months for us. I can't comment basically on the July numbers though as of so far. Think we'll be very not very prudent to tell you now what I think it's going to be. I think we see a pickup in volumes in July. We see also a pickup in international spend. But again, a bit like Falcon now, let's see if there's a second wave or not. This environment is still very volatile. You also see some releases about potential second waves, countries locked again. So I will be very, very hesitant to give you an expectation for the second half. I think I can't do it at the moment, but it's turning into the right direction for sure. Yes. And one kind of more item around the environmental reserve. I mean the standard reserving models that we are using for calculating allowances for future losses, they basically look into the past and they look into the present distribution of the receivables along kind of risk classes. But they are not looking too much into the future. But we are now in a situation where we know that we have probably a macro downturn ahead of us and the standard reserve models have not taken that into account. So there is a timing gap until they have considered that. And because of that, we put the environmental reserve in place and we kind of calculated the amount by using benchmarks that we had from the 2,008, 2009 financial crisis. And at that time, and we mentioned that before also the portfolio has been quite resilient. So we also kind of expect resilience now, but there can be a tiny impact by the change of the macro variables into what it means for the default behavior on our book. And we just didn't want to wait until we see it in reality in our book. We just wanted to anticipate that and accelerate that and took it therefore already into the loss provisioning for the first half. It's very bit prudent, but I would like to be a bit prudent and you, I think, we're known for running the business quite conservatively. Excellent. Thank you very much. That was very helpful. The next question is from Michael Koons from ZKD. Please go ahead. Yes, good morning. One question regarding the dividend. With a setback in commission income due to the corona lockdown, you might get in conflict with keeping the dividend stable and staying within your 60% to 70% range. Based on what would you decide, which of the two rules you would follow, like keeping stable or sticking to the not more than 70% by all means? Thanks. I can take it. Look, I think the dividend I think first of all, I want to remind everybody that we paid a very nice dividend this year as one of the few banks in Switzerland. We haven't changed the mid term target. So the target is 60% to 70% dividend payout. I think it's too early to say it's going to be 60% or it's going to be 70%. I think it depends on the full year. It depends on the resilience. I think but I think it should give you some comfort that we're maintaining our midterm targets. So we mentioned again that we're going to maintain our dividend target of 60%, 70%. I'm not in a position to comment if it's going to be 69% or 61%, something like this. But the target is still there. We don't think we should change it. And I think we are in a very good position to pay a dividend as well early next year. Okay, thanks. The next question is from Andreas Poon from Credit Suisse. Please go ahead. Hi. I have got two questions left. One for Robert. The card for Microbank is delayed. How long is it delayed actually? Can you be a little bit more specific? And then one for Pascal. If the cash grade integration is completed, all else equal, given that we had 6,000,000 dollars costs in H1 or put it differently, there will be no costs from cash, the cash grade integration in H2 anymore? Yes. Thank you, Andreas. I'll take the first one. Look, the Mikaela got a new CEO. I think he started April or May, something like this. And they also like us though, they are in a corporate situation, and they decided to review all the projects. So I can't say how long it's going to be delayed, but think it's kind of expected when you have a new CEO that the person is going to say, look, I want to look at all the projects. For them, this is an interesting project, but I cannot judge how important it is for them. So I think for us anyway, the impact is not going to be material because we didn't expect anything for this year, And we said maybe we can launch it at the end of this year. Also the income of this card is much lower than the on the Migra contract. It has nothing to do with the MIGRA contract. It's completely separate. So it's with MIGRA Bank. It has nothing to do with the MIGRA deal or with the MIGRA contract. Look, I cannot force the guy to tell me exactly when you decide on your project. So I don't have the answer. As soon as I have the answer, I'll let everybody know. Kaska? Yes. On the cash case in Croatia, Andrea. So first, at the time of the acquisitions, we announced that we would spend around EUR 25,000,000 for the integrations, for the transactions cost as well as the transaction service agreement with Adunoz and Saylor. So in the meantime, as we incurred out of this €25,000,000 so planned, we incurred €8,000,000 in 2019 as reported last year. Then we incurred for the 1st 6 months about EUR 6,000,000, so EUR 14,000,000. What I also mentioned before is that we have a CapEx of around EUR 5,000,000 in addition to that, which will be depreciated over the next around 5 years. So in total, I expect that instead of €25,000,000 now €20,000,000 of total costs related to the integrations, transactions and transition agreement. And the remaining cost now for the next 5 years is around €5,000,000 to be amortized linearly. The next question is from Benjamin Goy from Deutsche Bank. Two follow-up questions from my side as well, please. The first one also on car fees. Thank you for highlighting the importance of international spending. But just generally, I was wondering whether international spending is more important for H1 with the booking or then H2, as you said, with July and August travel holiday times. And then the second question is on your credit grade migration. I guess no big surprise that the CR1 declined a bit, then it moved into CR2 and CR3. Maybe you can give a bit more color in terms of products and the movements you are seeing there. Thank you. Yes. Hi, Benjamin. I'll take the first one on the card fees and then Volker is talking about the grid migration afterwards. So on the card fees, there is quite some volatility in the international spend and also on the total spend. What you typically see is peaks in July August on the international spend. Because this is the holiday time. And you also see quite a big peak at the end of the year in December on total spend. So there's basically the biggest month for us is July August. And December is more the total spend than July August is for the international spend. You see normally quite a low spend on January, February. Then it's backing up in March, April, May because people start booking the holidays. It peaks in July August, and then it's coming down a little bit in September and then pretty slow in October, November, quite some pickup again in December. That's normally what you see on the card fees. Volker? Yes. On the credit grade is actually very good observation that you are doing here. Because I mean the credit grade, they reflect a probability of default. So kind of what do we expect in defaults going forward. And you will see that kind of the high risk credit rate there and kind of increasing slightly. And this is driven mainly by the cost in the loan book, which is actually also logical. Obviously, secured lending unsecured lending. So in an economic downturn, these are the portfolios where we would also expect the default rates to increase or the worsening. That is exactly also the reason why when we have been talking about this environmental reserve, we have been applying it on the personal loan book and not on the other books. Good. Thank you for taking the time. Thank you for joining the call. I hope to speak to all of you very soon. And for now, bye bye. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.