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Edited Transcript of BAMI.MI earnings conference call or presentation 6-Aug-19 4:30pm GMT

Q2 2019 Banco Bpm SpA Earnings Call

VERONA Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Banco Bpm SpA earnings conference call or presentation Tuesday, August 6, 2019 at 4:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Giuseppe Castagna

Banco BPM Società per Azioni - CEO & Director

* Roberto Giancarlo Peronaglio

Banco BPM Società per Azioni - Head of IR

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Conference Call Participants

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* Andrea Vercellone

Exane BNP Paribas, Research Division - European Banks Analyst

* Azzurra Guelfi

Citigroup Inc, Research Division - VP

* Christian Carrese

Intermonte SIM S.p.A., Research Division - Research Analyst

* Domenico Santoro

HSBC, Research Division - Analyst

* Giovanni Razzoli

Equita SIM S.p.A., Research Division - Financial Analyst

* Ignacio Cerezo Olmos

UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst

* Jean-Francois Neuez

Goldman Sachs Group Inc., Research Division - Executive Director

* Riccardo Rovere

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM's First Half 2019 Results Conference Call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, Investor Relations manager of Banco BPM. Please go ahead, sir.

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Roberto Giancarlo Peronaglio, Banco BPM Società per Azioni - Head of IR [2]

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Thank you very much, and good afternoon. Thanks for being here for this presentation. As usual, before leaving the field to Mr. Castagna for the presentation, I remind you that you can find the presentation on the website, on the Investor Relations section. And after the presentation, there will be a Q&A section reserved to financial analysts. Now I leave the field to Mr. Castagna.

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [3]

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Thank you. Good evening, everybody. Thank you for being with us. Unfortunately, we are always very late, very close to the holidays. So I hope that after the presentation, you can enjoy some week of holidays, as we will do.

I will start immediately on Page 5. I will have a shorter presentation rather than the previous one, in which we will be concentrating especially on the quarter-on-quarter results, coming as you very well know our bank from restructuring and derisking, which impacted very much on different figures over the last year. So of course, the presentation is complete with all the details of last year and this year, but I would rather prefer to be concentrated on the pattern we are following now, which gives also a sort of title to the presentation, From Derisking to Profitability.

Let's talk about revenues. We have a quite satisfactory 3.1% quarter-on-quarter of combined NII plus commission. Commission went up 4.4% because we have requalified the certificates which, in the first quarter, were in the next financial results. If we would have excluded these certificates, the increase of commission would have been 6.9%.

Operating costs still continue to be under control. We have of reduction of 1.2% like-for-like, excluding extraordinary amortization -- depreciation, which I will give you some detail further on.

More satisfactory results. Volumes growth both in core performing loans, going up 3% year-to-date and 1.1% in this quarter, as well as current account and deposit, which grew 5.6% year-to-date and 2.7% in this quarter. I have to say that this growth, this phase of growth, is still continuing in July, and up to now, we have close to another EUR 2 billion of increase in current account and EUR 500 million in performing loans.

The risk profile, finally, as you know, with the first quarter '19, we have basically terminated the extraordinary disposal, so we are going on with the ordinary workout. And still, we are able to reduce the nonperforming loan ratio. Both gross ratio going down from 10% to 9.7%, and Net NPE ratio going down from 6.1% to 5.9%. The Texas Ratio was down also 61% vis-à-vis 70% almost last quarter.

Let's talk about liquidity and financial asset. Also in this respect, we think we are going to put the bank -- the balance sheet of the bank in a very safe profile and picture. Italian gov represents 56% of the total debt securities. LCR is over 150%. As well, above 100% in NSFR. Also the reserves on the portfolio are doing very well. We recovered almost EUR 100 million, EUR 96 million, up to -- in the second quarter vis-à-vis the results of the first quarter with unrealized gains on HTC growing to EUR 300 million positive.

Frankly, as of today, we have reduced even that increase in these 2 reserves. The HCTS up to now is almost EUR 140 million positive. Meanwhile, unrealized gains under HTC are almost EUR 550 million of positive reserves.

The capital position is better at almost 12%. If you consider also the pro forma, including L-ACE, the leasing transaction disposal we did in April with a limit, which, of course, is concluded -- completely concluded as a contract, but will be deployed the effect during the year. Considering this, we are 12%; without, 11.9% stated. But also with a very satisfactory and safe, I would say, phased in at 13.8%. This is, of course, without considering the increase in the reserve I was mentioning before.

The outlook is now finally we can devote all our attention and commitment to commercial action, to continuing strict cost control and of course, normalizing the cost of risk through further reduction of NPE ratios.

The results are on Page 7. The second quarter has an almost 2% increase in NII, 4.4% in commission. 3% as core revenues increase. Total income are down 4% for 2 different impacts. In the first quarter, we had the results of EUR 6 million from the Nexi transaction. And on the other side, in the second quarter, we preferred not to realize consistent gain from NFR, leaving the reserves in our book.

Operating costs are EUR 5 million more than the first quarter, but with sort of extraordinary one-off in depreciation related to some devaluation in real estate. I will explain later on what we are going to do, but most probably we are going to recover also this effect in the second part of the year.

Profit from operation are up to EUR 345 million, with the cost of credit of below EUR 200 million, EUR 197 million higher than the first quarter. As you know, in the first quarter, there is always a sort of seasonality, and on top of that, we had also some positive effect from the ACE transaction. Pre-tax profit growing to EUR 478 million, thanks to the 2 extraordinary transactions that we already know, which, of course, are the ProFamily captive disposal to Agos and the disposal of the NPL platform to the new joint venture with them. After tax, we have a very consistent EUR 442 million vis-à-vis EUR 150 million in the first quarter. Excluding the extraordinary impact, we have EUR 135 million of profit, net adjusted income profit, vis-à-vis EUR 155 million including the Nexi transaction.

Let's go to the net interest income. As I mentioned, there is an increase which, excluding extraordinary items, is 3% quarter-on-quarter. On the right side of the slide, you see the different addendum to this evolution. EUR 12 million of the increase are related to the commercial banking activity. A slight reduction of EUR 2.2 million is to be assumed because of the reduction of the UTP volumes. Meanwhile, different items are for the remaining EUR 4 million.

All in all, again, 3% increase coming from a good combination of loan growth and lower cost of said funding, together with an asset spread, which is still reducing 3 basis points impact equally because of the loan growth we are having with the very high rate on the customer and on short-term lending. We have already in place a maneuver on short-term lending, which should impact positively on the global access spread.

On Page 9, the volumes. I already mentioned the increase year-to-date and quarter-on-quarter. We have year-to-date a 3% increase in core customer loans and 5.6% of deposit. As I mentioned before, we are still registering an increase also in the first part of the third quarter.

On the production of new loans, on Page 9, bottom left, you see vis-à-vis last year, we have 21% of more new grants in loan to almost EUR 11 billion vis-à-vis EUR 9 billion of first half of 2018.

In terms of wholesale bonds issued, we basically have done 90% of the total wholesale funding maturing in 2019. But still we will have some further remission in both senior and lower Tier 2 in the second part of the year, most probably in the last quarter.

Let's go to net fees and commission. Also in this respect, on Page 10, we have an increase which is 4.4% quarter-on-quarter; 8% on management and advisory fees; and 1.2% on commercial banking fees.

If we go through the management and advisory fee on the right side of the slide, you see that we grew 8% globally. If we exclude the classification of the certificates, the growth would've been 13.5%, vis-à-vis the first quarter. You have all the details on the bottom part of these slides.

On the clear blue -- light blue of the histogram on the up side of this slide, you see the upfront fees coming up from EUR 65 million to EUR 72 million, both better than the last 2 quarters of 2018.

You can see very clear what I said. On Page 11, you see that the quarterly trend of asset under management placement in terms of volumes grew both in the first and second quarter 2019. Meanwhile, in 2018, there was an effect driven by the reorganization of the commercial model and from the spike of the BTP, which didn't allow us to grow in terms of volume -- of placement in asset under management.

On the right side, you can see the blue line is the profitability, which is consistent 2%, 2.2% on the new product. Meanwhile, the impact, the percentage of the upfront fees on total net and commission is recovering in the last 2 quarters to the level of the first quarter of 2018.

On Page 12, you have the stock of the asset under management and asset under custody. There is some indication about a slight increase in the volumes, in particular, in funds and SICAV, but I have to say that these were -- really we want to better a lot in the next quarter. We have, of course, again, back to the good level of placement as shown in the previous slides. But still, the increase in asset under management due to the big growth that we are experiencing in deposit is a very consistent ammunition that we have all intention to exploit since this quarter and for the future quarters, and we think we have a lot of growth to do in this respect.

Page 13, debt securities portfolio and liquidity position. As I mentioned before, we went down from EUR 27 billion to EUR 19 billion of Italian Govies out of a portfolio of around EUR 34 billion. The split of this EUR 19 billion is EUR 6.2 billion of HTCS, EUR 11 billion of HTC and EUR 2.2 billion of trading, mainly into Akros trading activity.

On the right side, you see the improvement that we have registered in July, both in terms of reserves on debt security on the upper side and reserves on HTC and unrealized gains on the lower side, which is really quite consistent, all in all almost EUR 700 million vis-à-vis beginning of the year.

SGR, I already mentioned before, eligible securities were plenty. We have EUR 22 billion of eligible securities in order to offset any liquidity needs.

On Page 14, we have operating costs under strict control. Of course, we have almost terminated the action that we performed during the merger. But now we are at a very better level than we expected when we started the merger which, consistently, can drive our cost base lower than it is. If you see the bottom part of this slide, you can see almost 2% reduction in staff costs, almost 2% reduction in other administrative costs and of course, as I mentioned before, this EUR 20 million increase in depreciation due to some depreciation on tangible asset, on real estate mostly. As I was mentioning before, we are changing and adopting our accounting principle, adopting the fair value evaluation for real estate portfolio which, by the year-end, should bring to a recover also of what we have gone up to now in terms of depreciation, having a better reflection of the quality and value of our real estate portfolio.

On Page 15, derisking. As I was mentioning before, there is still a very important reduction even though only with the ongoing workout. I already mentioned the figures before. I can only say that as far as bad loans, we are down to 3% gross and 1.4% net. And also UTP are going down. I have to mention that out of the figure of the UTP loans, almost 70% of the global amount of UTP is secured.

On Page 16, some number -- some figure related to the stock. We have going down from EUR 11.8 billion beginning of the year to EUR 10.6 billion 3rd of June. The inflow are also good, 7% less of the first half 2018 for inflows in NPE and 25% less of inflows in bad loans from UTP. The coverage is still consistent with the derisking we have done so far. Including write-off, we are above 62%. Coverage on UTP is 35% and so on.

LLP, as already mentioned, the increase in cost of credit which is still in the guidance we have done to you. 65 basis point is the guidance that we also have for the full year.

Finally, the capital position. I am very satisfied to show you a very strong capital position, both in terms of phased-in. As you see, we are 13.8% of Common Equity Tier 1 phased-in, which is 444 basis point higher than our set requirement. Meanwhile, on the fully phased, we have a very satisfactory 12%, including 4 basis points from L-ACE RWA transaction, 11.9% stated. The different elements which allowed us to grew from 10.8%, you already knew of the first one, were 100 basis point -- 105 basis point of capital action already announced but finalized by the first part of 2019, Agos and NPL platform. 20 basis points is the negative effect, the negative TRIM impact of 26 basis points plus some recovering we had with the some related add-on. So the global impact was 20 basis point negative. Meanwhile, the performance impact on Q2, both of the profit and the gain on reserves -- unrealized gain on reserves brought the Q2 performance to almost 30 basis point. All in all, 11.9 plus some basis point from L-ACE, we are to 12% of pro-forma fully loaded CET1.

Let's say, on Page 18, we are very confident now that we have left to our back old problems, and all the activity which engaged us mostly during the first 2 years of the merger. Frankly speaking, I have to say that it was -- they were very odd time. Maybe not really understood being outside the bank, but we had to perform a massive derisking in an unexpected problem for the bank and the reconstruction of the capital through capital management action. This, of course, allow us now to be at the best level in terms of NPE ratio and the very good and safe level of common equity. Having already sent the new -- as I mentioned many times before, we have also sent the pre-application for the [higher B perimeter] to ECB. Do you know that we have still the famous sort of waiver on the massive disposal we have done? Of course, now we have much more confidence having the new rules, the new rules about Article 500, but we also sent a new model change in order to include the derisking and the specialized lending into the new number.

I already mentioned about the TRIM effect. We still have to factor the SME supporting factor, which we can next year. But moreover, I think that we show we have a lot of significant room for further increase in Common Equity Tier 1 coming from other disposal of nonstrategic stakeholdings in financial companies. Likely now we can show a stable and consistent profitability, which will grow quarter-by-quarter and also unleash the DTAs in the near future. And as I mentioned before, we can also exploit the potential buffers, say in real estate asset and debt securities, which I mentioned before, which are a consistent buffer in order to offset any potential headwind from a regulatory environment.

The last page that I want to present to you, of course, leaving all the details on the leaving 20 pages of the presentation is related to the original business plan. As you know, we will present a new business plan, possibly by year-end. The old business plan was done, as you can remember, before the merger of the 2 banks. Immediately after the announcement, we are very happy to now touch base on the many figures we have, of course, informed you time by time, but we thought it was very important also to give you some final flavor of all the effort we have done.

So the NPE, the target plan was EUR 23 billion. We are down to EUR 10.7 billion. The reduction in staff was 1,900 people. We are a bit above 3,000 people in reduction of staff. And branches were going to be down from 2,500 to 2,080. We are down to 1,700. This, of course, helped us to reduce almost EUR 200 million in our forecast on costs, not talking about the massive reduction that we have performed in NPEs.

Of course, there were also effects, negative effect on what we forecasted 3 years ago. In terms of revenues, we mentioned some objective, adverse condition which impacted on the reduction of revenues. Let's only mention the Euribor which went -- which in the plan was 10 basis point positive in 2019. It's now, as you know, 35 basis points below 0. The GDP was expected to be 1% plus. Now it's 0. And the spread was also perceived as a normalization of the spread vis-à-vis the Bund, what we have gone through during this period. Not to mention the action with the former, to do -- have capital strengthening in order to show -- save 12% of Common Equity Tier 1, which, of course, produced some recurrent lower revenues from the proper (inaudible).

All in all, we feel that now we have a much safer bank in terms of balance sheet, in terms of risks, in terms of -- also the possibility to make profit in the future, having left in our shoulder the problems that we had to face. So we want to give you this guidance of EUR 0.3 per share as expected EPS. Of course, we think we can do better than EUR 0.3, so we mention only major of EUR 0.3 which, by the way, is coherent with the majority of the market consensus and with the return on tangible equity of around 5%.

This is all I wanted to mention. There is also -- sorry, another aspect. When I was mentioning that the tailwind of capital, we have also, and you will find it on the balance sheet -- we have also started the final disposal of the noncaptive ProFamily business, which in terms of RWA could release something like EUR 1 billion of asset once the transaction is completed, which means around 20 basis point in terms of potential Common Equity Tier 1 increase.

That's all. I'll leave you the floor for the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Azzurra Guelfi of Citi.

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Azzurra Guelfi, Citigroup Inc, Research Division - VP [2]

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A couple of question on the NII and the UTP. On the NII, can you give us some outlook for the 2019 and 2020 NII given the move expected in rate by the market, and also the fact that I see that your spread is still contracting and probably there will be the need for some MREL compliant issuance? And the last one is on the sovereign portfolio because it still represents quite a big chunk of your NII, and with the rate environment, if there is any change in that that we can expect in the future? The other one is on the UTP. Do you still maintain your stance that you want to do all of them organic, like mainly do it organically? And if I can, one other very quick one on the DTA. Can you share with us what you expect to use of DTA in this year, if possible?

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [3]

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NII outcome. We are quite, of course, encouraged by this result of this quarter. But having said that, we know that, of course, due to the reduction of the Euribor, we will have added increase also in the stock, both of deposits and loans. We will have some mixed effect going on. We also have some more -- as I mentioned before, some more issuing in terms of senior and lower Tier 2. So we expect a slight reduction of the NII. All in all, in line with our guidance for the full year but lower than this quarter. In terms, of course, of the issuing, we think we can issue, if we can still give some good results, also in the next quarter to a very favorable condition if the market is still doing as it's doing these days. On the other side, we think we can also better our customer spread through short-term lending activity for which we think we can recover 2 to 3 basis point on the stock.

UTP, let's say that having done almost EUR 20 billion of disposal and reduction, when we think about disposing EUR 300 million, EUR 400 million, we don't even mention that. So for us, it's normal to be engaged in some small transaction related to, I don't know, real estate-linked UTP. But if I have to talk about all our UTP portfolio, I think the best guidance I can give is to go through internal workout. Of course, we are monitoring all the market. We are looking at what is happening on the market. We have many interaction with potential buyers interested in UTP, but we have accumulated quite a lot of experience during this year. We want to not continue to lose money just for the sake of selling in a hurry. So we will do the best. We have a good plan, and we will be even more clear when we will release the new 3-year plan in which we think we can organically go down to the best performing NPE ratio.

DTA. Of course, we'll use DTA this year -- sorry maybe I didn't -- sorry, I was asking for better understanding of your question on DTA. Of course, we utilized a portion, a small portion, of DTA. As you know, we have plenty of potential utilization of DTAs. And so we hope in the future to be much more effect in the debt.

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Operator [4]

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The next question comes from Giovanni Razzoli of Equita.

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Giovanni Razzoli, Equita SIM S.p.A., Research Division - Financial Analyst [5]

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Two questions on my side. The first one is on your guidance of adjusted EPS for '19. I'm puzzled with the comments you have made insofar with the target you were giving us because the above EUR 0.30 of EPS to me means between EUR 0.30 and EUR 0.34, which leaves me with a net income of EUR 454 million for the full year, while the adjusted performance in the first half you showed in Slide #4 or #5 is EUR 291 million. So your guidance would imply significant slowdown in the second half of the year, but during the call you have mentioned that you would expect an acceleration of the profitability going forward. So I would expect, given this set of results, a slightly higher guidance in terms of EPS.

So what is the missing part in my calculation for the second half, and also because you are guiding to a reduction in the cost of risk for the second half of the year from 75 to 65 basis points, if I'm not mistaken? And related to this question, in the plan, you had a target of dividend payout of EUR 0.40 -- of 40%. Shall I apply the same percentage to these EUR 0.30 guidance? So my question is, are you ready to pay dividend this year looking -- in light of the fact that your capital position has strengthened significantly and your NPE ratio is materially below the target of the business plans? So that's my first question.

The second one is a clarification. If you can share with us what is the amount of the shareholdings that you can consider not a strategic deducted from the CET1 that you may put up for sale?

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [6]

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Okay. I thought it was a good guidance to say above EUR 0.30, but of course, the more I say, the more you keep asking me. EUR 0.30 to EUR 0.34, I think, is a range between EUR 450 million to EUR 520 million which, I think, is a good guidance. Having said that, of course, as I mentioned before, there will be some different results in the second half. I already mentioned to the first question that in terms of NII, we will have a slight reduction. Meanwhile, notwithstanding, we are very confident of our capability to generate commission. I have to mention that in the second half, there is August and December, which are more difficult months. And also, in the first half, there was also the Nexi transaction. So notwithstanding, frankly speaking, we consider our NFR quite consistent because we didn't realize any gain from the securities portfolio. We think we have to maneuver to adjust and to increase also the guidance. But let's say that organic, we stay on the guidance we gave you.

In terms of dividend, we never mentioned, apart from the beginning of the plan that the dividend distribution would've been 40%. Of course, as I explained in the slide of the business plan, we have changed massively the approach to the plan. We are a much better bank now than the bank we would have had we followed the plan. This, of course, had some effect on profitability. We will give much more guidance by the year-end, but I think that we can restart also to think about distribution of dividends. In terms of stakeholdings, I would say that it would be a figure in the range of EUR 200 million to EUR 240 million.

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Operator [7]

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The next question is from Andrea Vercellone of Exane.

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Andrea Vercellone, Exane BNP Paribas, Research Division - European Banks Analyst [8]

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Three questions. The first one is on rewarding shareholders. You mentioned in an interview a few months ago that a dividend is not the only way to reward shareholders. So I was thinking whether you were implying that a buyback is theoretically possible for BAMI. Now your core Tier 1 is 12% fully loaded. It's 12.2% if you sell ProFamily. If you meet your guidance, it's 12.75%. If you add the SME supporting factor, it's 13%. Plus the long list of possible positives on Slide 18. Of course, there may be some negatives in another list, which is not here, but you haven't given it to us. So I was wondering whether solvency is strong enough to go and ask to the ECB for a one-off buyback or you rather not do it because you think you'll be turned down. In my opinion, doing a buyback rewards shareholders so much better than paying dividends when you know where your price is.

Second question is on the ProFamily business that is now in IFRS 5. Can you give us some guidance on the contribution that was in H1 or in Q2, whatever you have, from this business on NII costs and net income?

And the third question is on provisions. I was just wondering whether in Q2 you have already updated your IFRS 9 parameters for the generic provisions or you will do that at year-end.

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [9]

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Okay. Hi, Mr. Vercellone. I was asked about dividends, so that's why I was answering only about this possibility as I mentioned many times, but everybody keeps asking me, so I cannot repeat every time. But of course, there are many ways that was not used in the first 2 years to think about this because I was trying to give some contribution in terms of a better balance sheet. But of course, because now we can think about that, we will think to everything. Also to the potential buyback. As you know, the regulators are not that happy about buyback, but we will examine the situation, and we will try to explore all the opportunities. I am very happy also that, frankly speaking, finally we talk now only about tailwinds and not anymore about headwinds, which, in any case, will come because there will be also some headwinds in the future, not close. We are confident with all the ammunition we have, we can overcome any potential headwind without particular problem, both in terms of profit generation and in terms of further transactions we can do in order to emphasize our Common Equity Tier 1.

Let's also remember that we have a phased-in which is 13.8%, which allow us to reduce also consistently this number in order to be also compliant with the SREP. ProFamily, basically the contribution to the consolidated is very low. It's close to 0 because of the PPA. We, of course, when we merged the 2 banks, we included the PPA effect on the ProFamily assets. And nowadays, of course, releasing the asset and the company, this will come with a neutral or even negative effect. So no problem in terms of reduction of profitability. The only positive effect would be the reduction of almost EUR 1 billion in RWA.

Finally, the IFRS 9 is already included in the number we showed you, both the historical series and the new scenario. Of course, gloomier than the previous one.

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Operator [10]

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The next question comes from Christian Carrese of Intermonte.

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Christian Carrese, Intermonte SIM S.p.A., Research Division - Research Analyst [11]

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The first question is on net interest income. I understand that your guidance of net interest income is slightly down in the coming quarters. I was wondering what will be the component, it will be the noncommercial banking that the contribution will be lower or commercial banking? And in terms of deposits, you did a good job of increasing deposits in the first half. Still also quarter to date, you said in addition of EUR 500 million of additional current account, this could be -- is currently a negative. And I would like to understand also your position going to the TLTRO free auction starting in September. What are your indication? If I'm not mistaken, in the past, you said that maybe you are going to reduce the take-up in the new TLTRO.

Then on the capital, common equity now for sure is more solid than in the past. So back to 12% -- more than 12%. You are going to present a new business plan by year-end. I understand that you will not give any indication maybe, but what kind of capital do you think is the right capital to finance future growth and maybe also to do a further derisking?

And again, just a clarification -- on commission, the level of debt you're showing in the second quarter, do you think it is sustainable also for the coming quarters?

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [12]

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I think I gave you some guidance about NII. Unfortunately, the growth in deposit, until we don't switch into asset under management, is very important because it shows the confidence of our clients. But of course, it's a cost if we are not able to switch into asset under management, which we started to do, as I mentioned, a figure of the upfront we showed you in the first 2 quarters. But we have to do much, much better than that. So,= frankly speaking, I hope deposit can give us more opportunity, not to lose money because of the negative Euribor but to switch to asset under management.

The same, I think, comes from loans. We are, frankly speaking, very happy to the loan increase we have registered. We are basically now at the level of the best bank in Italy in terms of growth in transaction. Maybe we are better than the best competitor. This gives us the opportunity to be much more attentive once we have a new market share, which is very consistent in terms of asset spread. So we already started something on short-term deposit, which should bring us some comfort in terms of global commercial spread. But we still think that growing in volumes, we can have good results in commercial banking contribution.

In terms of TLTRO, as you know, we still are waiting because, as I mentioned before, we don't have any needs. And also when I gave some guidance about the global approach to the new TLTRO, for sure we will not do the same amount we have done in the past. So we are thinking of reducing quite consistently the TLTRO approach. Having said that, frankly speaking, I don't know -- I don't think that we immediately in September will start to utilize the TLTRO. Also because if we start the new one, we have to reimburse the old one, which maybe is not a good arbitrage. But we will decide.

In terms of CET1, but I think your question was more on the guidance of the business plan which, of course, I cannot give you yet. But I don't want, frankly speaking, to be worried about Common Equity Tier 1 for the plan. The name of the game for the new plan is profitability. Unfortunately -- fortunately enough, we don't have any more problem in terms of capital, any more problems in terms of the NPE stock, I mean relevant problems, so we can go ahead with the figure and the stable reduction of NPE. Stable -- keeping our Common Equity Tier 1 at the level it is, but we will be devoted to make the most of our profitability.

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Christian Carrese, Intermonte SIM S.p.A., Research Division - Research Analyst [13]

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Just a clarification on the capital. The numbers you showed in the first half, is there any dividend accrual? Maybe I missed the...

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [14]

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Not in the first half. But we gave the guidance for the profitability also on the second half.

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Operator [15]

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The next question is from Jean Neuez of Goldman Sachs.

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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [16]

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Because you've been so kind as to have a specific slide as to what capital headwinds and tailwinds can be in the future, I just wanted to understand whether you'd be willing to share your view as to what your risk weighted asset inflation from the total implementation of EBA guideline, as well as the finalization of Basel III, often referred as Basel IV, would be, and also the calendar provisioning full effect, so that we can have a sense of how much headwinds you have versus how much tailwind you can generate as you've done in the past. That would be really good for clarification.

And my second question is, it was really nice to give the EPS guidance of EUR 0.3 a share. And I understand that this represents a floor to develop going forward. This being said, it's consistent with an original tangible equity of anywhere between 4% and 5%. And I guess, from there to meet the cost of capital in this current trend environment, which you described yourself as extremely challenging, obviously, spreads are still high and GDP growth is low, et cetera, et cetera. As you go into next business plan, how do you think to -- you need a doubling of our profitability to meet your cost of capital. What is the thinking behind trying to meet the cost of capital going forward? What actions can be taken?

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [17]

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Most of the questions are on the new plan. Of course, I cannot answer more than I already said. So we know very clearly that the current level of profitability is not satisfactory, not for the market and not even for us. We are satisfied just because, together with this level of profitability, we did also a massive restructuring and a positive reshaping of the bank. But now that we are free to be devoted only to better profitability, better exploiting all the levers that we have in terms of increasing revenues, keep under control costs, further reduction, exploiting all the digital opportunity, of course, this is the call of the new plan. And we will give you all the details when we will present to the market.

In terms -- the same more or less is in terms of the different headwind that you were mentioning. As you know, the vast majority are now postponed to 2022. We, of course, have a lot of different phased-in related to all the aspect that we faced during the year. And we are crystal clear in saying that due to our forecast, we can offset all the negative potential impact. At least until everything will be more clear starting from 2022. As you know, there are a lot of things still under discussion, not only I think for our bank or for the Italian bank but for all the European banks. We have a new -- in short time, we will have a new ECB. Let's see which kind of approach we can have from now to 2022. But in any case, we are building the ammunition to offset, without any pressure, all the potential headwind. And the same, of course, is for the negligible impact we expect in 2020 and 2021.

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Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [18]

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Can I just follow up on the -- do you think you can make -- just very simple, do you think you can -- there is any scenario where you can make your cost of capital without doing further external growth at this stage?

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [19]

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We think we can do much better than we do right now. Of course, we proved also that we are very good in managing a very difficult merger which, I think, could not have been much difficult with what we experienced due to the market, due to the regulator, due to different aspects we found out in merging the 2 banks. So of course, we think that being devoted only to the profitability, we can do much better than we did up to now. Of course, a potential merger in the future. When will be the condition? When our stock will rise? When there will be no dilution, negative dilution for our shareholders? We will be attentive to any potentiality because we think we can be able also in that. But now we are concentrated on bettering our share price, reduce our cost of equity and doing sustainable profitability on a stand-alone basis.

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Operator [20]

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The next question comes from Domenico Santoro of HSBC.

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Domenico Santoro, HSBC, Research Division - Analyst [21]

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A couple of question on my side. First of all, can we focus a bit on the UTP portfolio first. Can you give, first of all, some data or information about the vintage? Because that's not anymore in your financial reports starting from 2018. That will be very useful. The second, if you can give us also the impact on the NPE portfolio from the new definition of defaulting loans from the EBA? Then, third on your participation portfolio, my understanding from the question from the colleague, you are mentioning that only EUR 240 million might be sold or they might be salable, disposable in the short term? But you have more than EUR 1 billion deduction to capital at this moment. So I'm just wondering whether in a sort of a worst case scenario, I mean the reduction can be more significant also because ex-Agos, the contribution to P&L might be material.

And then, on UTP portfolio, again, I'd rather prefer you to be much cleaner sooner rather than start to think about the buyback of shares, to be very honest. And since we have seen a monster operation on the market, I thought that you might probably go with the same, especially now that there is -- your capital position is much more robust. So my question is, given that there is a current provisioning on the stock coming, probably might be quite helpful for you in 2021, 2022, I'm just wondering whether that's not possible because already you did a deal in the nonperforming loans area and potentially there might be some legal constraint? Any thoughts on that side will be helpful.

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [22]

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Lots of question, Mr. Santoro. Let's say, many of them about, again, nonperforming exposure, which I understand is still a concern, but likely not for us. It's much lower than before. Having said that, UTP, the vintage is more or less, I don't have the right figure now, but we can provide you. But more or less, it's 1/3 below 2 years, 1/3 between 2 and 4 years, 1/3 more than 5 years.

As far as the EUR 240 million, we are referring only to low fluid contributors. Of course, we don't want to make a massive sacrifice in terms of contribution to profitability as we did, frankly speaking, even though at a very good price for the sale of some share of our assets -- (inaudible) during the first 2 years. So we are talking about sacrificing basically a level of ProFamily noncaptive, with a very, very small profitability contribution. That's why I mentioned EUR 220 million to EUR 240 million.

The sale of UTP. I didn't see yet -- I don't see yet the massive sale of UTP. I know there is one competitor that announced their massive sale. Let's see what will be the output. Let's see what will be the final word from everybody about the transaction. As we did for the disposal, massive disposal of bad loans, we will be very attentive. Having said that, you have to remember also that we made a lot of sacrifice in terms of economics in order to go down 15 full points of NPE ratio. We want to be a bit more cautious looking in the future, being now at the very comfortable 9%.

All the other questions about definition of default, calendar provision, I think I already mentioned to some of you that we completely reorganized our chief lending officer structure, which will take in account the new change in the definition and request from ECB coming from the calendar provision. Basically, we have moved people from the NPE unit, especially for data quality, for data -- for understanding all the potential effect of the calendar provision in anticipation -- to anticipate all the management of the UTP, and in terms of restructuring, we have people from the commercial activity coming to manage the UTP restructuring in order to give some more focus on the possibility to put back in (inaudible) this company which, by the way, is the same project that they write on the paper by other competitor. So we don't have exactly the effect, but we are ready with the new organization to face also this potential effect which, for us, frankly speaking, up to now is quite minimum.

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Operator [23]

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The last question is from Riccardo Rovere of Mediobanca.

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Riccardo Rovere, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [24]

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Just a quick clarification actually. Just to understand the 100% -- to understand it correctly, the amount of NPLs in this quarter, which are down from EUR 4 billion to roughly EUR 3.2 billion, EUR 3.3 billion, does that include the reclassification of the NPLs also limited to EUR 600 million to discontinued operation assets held for sale? Is that correct?

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [25]

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Yes, it's correct. We took already out of the NPE the L-ACE transaction. The only thing that we performed is the positive effect of this moving out the EUR 600 million we sold to Illimity.

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Riccardo Rovere, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [26]

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And then another classification, if I may. You have reclassified those a little bit of few millions euros of fees related to certificates. Is this going to be the new way you will present the income from now on, so all the quarters from now will be affected by that?

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [27]

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Yes. We thought it was better. We saw -- because we weren't issuing certificates for the last 2 years, so basically we were not prepared really to understand what was better for the understanding of the market. Having received that our competitors have this reclassification into commission, we now -- from now on, we will do the same.

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Operator [28]

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Mr. Castagna, gentlemen, there are no questions registered at this time.

Excuse me, sir, there is a question registered by Mr. Ignacio Cerezo of UBS.

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Ignacio Cerezo Olmos, UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst [29]

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Just a really quick one from me. If you can help us reconcile the fact that the assets under management including custody hasn't really grown in the quarter in the stock, with the fact that this seem to have been boosted by increased placement of products? What can we expect basically in the second half of the year? This is just a question basically of market performance eroding most of the placement.

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [30]

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I'm not sure I understood the question. You were mentioning assets under custody. So I think you are referring to page...

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Ignacio Cerezo Olmos, UBS Investment Bank, Research Division - Executive Director & Equity Research Analyst [31]

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So on Page 12, you have AUM plus AUC almost flat quarter-on-quarter, but then on Page 11, you mentioned a very significant increase of the placement of products, which has been materialized and translated into the fee number. So help me now reconcile actually why the stock hasn't gotten...

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [32]

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Okay. I understand your question now. Basically, as you know, one thing is the net increase in assets under management. The other thing is to switch product already in assets under management -- or in asset under custody to asset under management. What we lack is this kind of conversion of a new increase in assets under management. So basically, we are switching a lot of products, but not increasing the net income of asset under management. So in terms of profitability, you see the commission, you see the increase of profitability and upfront. In terms of volumes, you see the new placement. But this is not coming neither from current account or massively from asset under custody. It is more clear?

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Operator [33]

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Mr. Castagna, there are no questions registered at this time, sir.

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Giuseppe Castagna, Banco BPM Società per Azioni - CEO & Director [34]

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So if everybody is okay, again, I wish you a good summer holiday, and hopefully to see you back again in the next few weeks. Good evening.

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Operator [35]

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Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.