U.S. Markets closed

Edited Transcript of BPE.MI earnings conference call or presentation 8-Feb-19 8:30am GMT

Full Year 2018 Bper Banca SpA Earnings Call

Modena Feb 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Bper Banca SpA earnings conference call or presentation Friday, February 8, 2019 at 8:30:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Alessandro Vandelli

BPER Banca S.p.A. - MD & Director

* Alessandro Simonazzi

BPER Banca S.p.A. - Head of Planning & Control

* Matteo Bigarelli

BPER Banca S.p.A. - Head of Equity Investments and Special Projects

* Roberto Ferrari

BPER Banca S.p.A. - CFO

================================================================================

Conference Call Participants

================================================================================

* Andrea Vercellone

Exane BNP Paribas, Research Division - European Banks Analyst

* 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

* Hugo Moniz Marques Da Cruz

Keefe, Bruyette & Woods Limited, Research Division - Analyst

* Jean-Francois Neuez

Goldman Sachs Group Inc., Research Division - Executive Director

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning. This is the Chorus call conference operator. Welcome, and thank you for joining the BPER Full Year 2018 Consolidated Results and Strategic Transaction Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Alessandro Vandelli, CEO of BPER. Please go ahead, sir.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [2]

--------------------------------------------------------------------------------

Okay. Good morning, ladies and gentlemen. Thank you very much for joining this conference call today. This is Alessandro Vandelli, CEO, and I'm here as usual with Roberto Ferrari, CFO; Alessandro Simonazzi, Head of Planning and Control; and Gilberto Borghi, Investor Relations Manager.

Today, we have also Matteo Bigarelli, Head of Equity Investments and Special Projects.

This morning, I guess, the call is going to be a bit longer than usual because as you saw early this morning, we announced not only the expected full year 2018 results, but also 2 important strategic deals regarding Banco di Sardegna minorities buyout and transactions with Unipol Group.

So I'd like to go through the full year 2018 results first and then give you some details about the 2 transactions, leaving enough time for the Q&A session at the end.

We prepared 2 different presentations that you can find on our website. Let's start with the 2018 results. As introduction to this conference call, I'd like to highlight 3 key points, try to keep my comments as shorter as I can. Please go to the executive summary of the presentation on Page 5 available on the website.

First point, profitability. We realized in 2018 a net profit of EUR 402 million. This is the highest result in the history of the group. We are proud to such significant profit, especially in this challenging environment, meaning the group has been working in the right direction. What are the main factors? It's actually 3: Positive trend, number one, commission, plus 4.8% year-on-year; number two, trading; and number three, cost of trading with significant reduction to 47 basis points in 2018 from 112 in 2017.

Positive trend in the main P&L items allows the absorbing of significant nonrecurring charge relating among others to bad loans disposal and impairment on goodwill and tangible assets. Conversely, positive income taxes impact was recorded during the year, largely due to the effect of deferred tax assets recognition. We have demonstrated a high level of ability in generating profit and then through this building capital.

The second message is our capital resiliency. We are shown to be able to manage capital in a very effective way even during a period of financial turmoil. Our CET1 ratio fully phased at the end of 2018 was broadly stable close to 12%, confirming resiliency. The CET1 phased in came at 14.3% and well above the SREP level 9% for 2019.

As you know, this morning we released the SREP 2019 results, which are positive even considering the economic environment.

How did we manage to be so resilient? We are probably familiar with the story, but in brief: first, retained earnings through higher profitability. Second, RWA efficiency. Third, wise managing of the financial portfolio. In these days, being able to increase capital solidity moreover of this magnitude means that we are doing a good job. Third (sic) [Fourth], asset quality. I'd like to underline that we keep focusing on the NPE Strategy targets, and we delivered what we promised. The notable drop of the NPE stock minus EUR 3.5 billion just in 1 year minus 33.1% led to a gross NPE ratio of 13.8%, down by 6.1 percentage points from 19.9% at the beginning of 2017 -- of 2018, sorry.

I'd like to remind you that in mid-2016, we were at 23.5%. So in about 2.5 years, we were able to shrink the NPE ratio by about 10 percentage point, so a big improvement. We completed the 2 bad loans securitizations, 4Mori Sardegna and AQUI, for a total amount of about EUR 3 billion. The asset quality now looks much better, and I consider this to be a great achievement of this group. It is also a very good starting point to be -- to do even better in the coming years.

Now let's go quickly into the analysis of the 2018 results, leaving enough time for the Q&A session at the end of the presentation.

On Page 7, we can appreciate the growth of the total funding at EUR 91.3 billion in 2018 plus EUR 0.5 billion. We record a substantial stable direct funding at EUR 50 billion and growth in indirect Bancassurance bucket at EUR 0.7 billion. We continued to increase asset under management in Bancassurance sector, which now accounts for 45% of the total.

On Page 8, we show a breakdown of our direct funding, which comes at EUR 50 billion in December 2018, broadly stable since 4th January 2018. Direct funding is mostly based on customer deposit, which weighed for 90%. Customer funding comes at EUR 45 billion, substantially unchanged since January 2018, showing a strong increase in current accounts and side deposits, broadly offset by decreasing retail bonds and CDs. We are still working to decrease certain forms of the institutional funding, which are particularly expensive, and at the same time, we are focusing on switching direct funding in favor of indirect one. Retail outstanding bonds are declining, and at the end of the year, they are below EUR 1.5 billion, down by 38% since January 2018.

Finally, I'd like to highlight the wide level of flexibility in managing our group's funding strategy. As we do not have any foreseeable maturities in 2019 and only EUR 0.4 billion on retail, I think that in this challenging environment is particularly positive.

Page 9. This is one of the sectors we care most about and where we are doing an excellent job. Stock of indirect deposits and Bancassurance grew by 1.7% since January 2018. Bancassurance segment reached the level of EUR 5 billion and showed growth by 6.4% year-to-date. This is one of the sector we are investing a lot. We think we have great opportunity to develop further. Assets under management stock are EUR 19.3 billion, affected by the negative market effect due to the financial market volatility. We are confident that we continue to grow also here going forward.

Despite market stress in the second part of the year, net assets under management inflows exceeded EUR 1 billion that we can consider a solid performance given the difficult market conditions.

Moving on to Page 10. You'll see the trend of customer loans. We note an increase of EUR 0.6 billion, plus 1.3% since January 2018 of net loans, including also gross stock trend was largely affected by 2 secularization of bad loans, 4Mori Sardegna in June and AQUI in November, for a total amount of nearly EUR 3 billion. Net mortgages showed an increase of 1.5% year-to-date, showing the ability to be supportive on commercial business despite the worsening economic conditions. We can see that the derisking trend is continuing. Overall, we recorded positive signal coming from credit demand, especially in the last part of 2018, even though it's too early to say, if it would be sustainable in the coming quarters given the projection of weak economic growth for 2019.

In the 4Q 2018, we still see the decline of the NPE stock, about which we are going to be -- bring to details later. The quality of the performing book is still improving as shown by the ratings in the top right box. The high-risk bucket is declining quite significantly, reaching 3.8%, more than half in the last 4 years.

Let's turn to Page 11. You can appreciate the asset quality further improvements. You can see the strong decrease of the gross NPE stock at EUR 7 billion. The gross ratio stands at 13.8%, down by 6.1 percentage points from 19.9% of January '18. The net NPE ratio now is 6.8%, falling from 9.2% in January.

The focus here is to confirm the high-quality job we are doing in delivering our NPE strategy. In 2018, we finalized 2 bad loan securitization, 4Mori Sardegna in June for a gross book value of EUR 0.9 billion and AQUI in November for a gross book value of EUR 1.9 billion. We considered them to be successful deals, perfectly in line with our plans and our schedule. It is important to analyze that between 2016 and 2018 we were able to decrease the NPE ratio from 23.5% to 13.8% with a drop of almost 10 percentage points. From here, we are convinced that we are able to improve further NPE ratio. NPE coverage is still high at 54.5%.

Moving on to Page 12. After the big drop in the NPE inflows and default rates between 2016 and 2017, we have another decline in 2018 with a default rate now at 1.9%, and we expect further improvement in the coming quarters. Bad loan recovery rate higher than 5% demonstrating that our service platform, BPER Credit Management, is a very efficient machine and it is doing an excellent job and playing an important role within our overall NPE strategy.

Page 13. The securities portfolio increased in Q4 versus Q3 through further diversification in core Europe bonds. We continued to -- the derisking trend of the portfolio reducing the weight of Italian exposures. The long-term trend of reducing the Italian government bonds ratio on total assets continues and now Italian govies stand at 7.4%, down from 10% in 2014. The overall exposure to the domestic risk is almost half versus 2014. Currently, only the 44.8% of the securities portfolio is invested in Italian issuers, both govies and other assets. Italian govies account for 30.5% of the securities portfolio.

Now we can move on to profit and loss figures on Page 15. As you know, 2018 figures are not fully comparable to 2017 once because of a change in the scope of the consolidation due to the New Carife acquisition. On this slide, the most important figure is the net profit in the year, which reached EUR 402 million, the highest result in the history of the group. We can really be satisfied of this achievement, is explained in particularly by the very positive trend in net commissions, the net profit from financial activities and a significant reduction of the cost of risk. Positive trend in the main P&L items allows to absorbing of significant and nonrecurring charge relating among others to bad loans for disposal and impairment on goodwill and tangible assets. Conversely, positive income taxes impact was recorded during the year, largely due to the effect of deferred tax asset recognition.

Now let's go on to Page 16. NII performance seems to stabilize, a slight increase when considered net of the IFRS 9 reclassification effect. You have to bear in mind that NII trend in our case is strictly correlated to the strong derisking activity on loans and the significant improvement of the performing book to our low-risk rating bucket.

Looking ahead, the NII position should benefit from expected increase of volumes as well as an improvement in spread, helped by the pricing reactions in place and cost of funding containment.

On Page 17, we can show the very positive performance of net commission, up by 4.8% year-on-year. Going into more details on commissions, we see that the growth is supported mainly by Bancassurance plus 47.1% year-on-year and assets under management plus 7.3% year-on-year. And recording also a positive increase of traditional fees plus 2% year-on-year. In Q4 '18, we noticed relevant increase of net commission related to Bancassurance segment.

On Page 18, trading income was highly supported in the year plus EUR 104 million, including the realized gains on bonds in Q1 and a nonrecurring charge related to the disposal of the mezzanine and junior tranches of the AQUI, their loan securitization, of EUR 56.7 million. We must also add EUR 34.3 million of dividends, of which EUR 15.7 million nonrecurring related to Nexi.

Moving forward on Page 19. The 2 12 periods are not comparable due to the different parameters. Q4 '18 operating costs increase mainly affected by net impairment adjustments to tangible assets, nearly EUR 30 million, and the other nonrecurring administrative expenses related to a large number of special projects finalized in 2018 by securitization and operational M&A. We perfectly know that cost reduction is one of the main priorities of the group going forward, and it will be one of the milestones of the new business plan, which will be presented to the market on the 28th of February.

Cost of credit on Page 20. Here, we continue to have a very important reduction. Loan loss provisions came at EUR 225.8 million, more than half than 2017. Cost of credit is at 47 bps versus 112 in 2017. This is a confirmation of the expected trend. The improvement of the cost of risk is one of the main contributors to profitability in 2018. Currently, with the asset quality improvement, I think, taking a prudent approach to project the 2019 plan, I can confirm a guideline of around 50, 60 basis points for the current year.

Page 22, liquidity. Our liquidity position is solid, thanks to the growth of the total eligible assets by 17.7% since the beginning of the year to EUR 18.7 billion, along with bucket of unencumbered eligible assets of EUR 5.7 billion and asset liquidity of EUR 0.9 billion made by deposits with the ECB. Both LCR and NSFR ratios stand above 100%.

With reference to the capital position, we show, on Page 23, a very solid capital position with a Common Equity Tier 1 ratio fully phased at 11.95%, broadly stable versus 12% as of 30th September. I think this is a remarkable result, particularly in light of the changing economic and market environment. It is the demonstration of our ability in capital management and of the greater tension we put on the solidity of the capital position. The main positive effects comes from retained earnings, which include the 4 quarter dividend and the decrease of the [goodwill] deductions from capital.

On the negative side, we mention increase of deduction related to DTA, an impact of fair value as a comprehensive income reserve and an increase of RWA, both credit and market.

As you read on our press release this morning, we received notification from the European Central Bank of the new prudential requirements as we have come off the 2018 SREP process. ECB has established that from the 1st March 2019, BPER will have to maintain a minimum consolidated Common Equity Tier 1 of 9% versus 8.125% in 2018, an increase of 87.5 bps. This is mainly attributable for 62.5 bps to the progressive application of the transitional arrangements to create the Capital Conservation Buffer foreseen by the Supervisory Authority for the banking system and only 25 bps for the pillar 2 requirement.

Now, in conclusion, let me highlight the key final messages on Page 25. So first of all, in a very challenging economic and financial environment, we have been able to close the year with a strong Common Equity Tier 1 close to 12%, maintaining a very solid capital position. This is enforced by a very good liquidity situation at very low levels. In a few words, we are very resilient and committed to maintaining a solid capital base. The second remark is that it must be recognized that we are delivering very well on asset quality. We were able to shrink the NPE ratio to 13.8% from a peak of 23.5% in mid-2015, almost a drop of 10 percentage points. While doing this, we have maintained a sound level of capital as we said before. We plan to even further improve our asset quality going forward. All of these achievements came in combination with a highest level of profitability in our history. Linked to this, we are delivering a dividend of EUR 0.13 per share, confirming the trend of constant growth of shareholder remuneration over time.

Last, but not least, let me remind you the next important appointment with financials. We announced the presentation of the new strategic plan 2019-2021 during the Investor Day scheduled on February 28 in Milan. I really hope that many of you would be interested to follow us in this very important moment.

Thank you all for your time and attention. And now we are ready to start the second important session of this conference call about the extraordinary transactions.

You should have the presentation of the 2 strategic transactions in your hands as they are available on our website.

Let's start to go through the slides. On Page 4 and 5, you have a snapshot about the growth of the 2 deals. Let me say that we are particularly proud to announce that these transactions given the strong strategic rationale and value they deliver to our group. In fact, they will enable us to achieve, at the same time, a number of objectives. An increase of scale in terms of loans, total funding and distribution network, further simplification of the group's structure, a relevant consideration of the derisking, a significant value creation through synergies and all these maintaining a solid capital position.

Looking at Page 5. Thanks to the acquisition of Banco di Sardegna minorities, we will further recognize our group's structure and obtain significant capital uplift which will further strengthen our already solid capital position. A special thanks to our strong capital position. It has been possible to contemplate the 2 transactions with Unipol Group. The first one is the cash acquisition of Unipol Banca, a bank that has been completely restructuring today demonstrates solid financials and a strong asset quality. The second one is the disposal to Unipol Group of a bad loan portfolio for a gross book value of around EUR 1 billion at a price broadly in line with our [current] value, and therefore, with no material impact on our capital.

The transactions with Unipol Group will enable us to increase our scale, taking our total assets to over EUR 80 billion, our total funding in the EUR 150 million area and adding more than 500,000 new clients. The second is, accelerate our asset quality derisking process. And third, create significant value, thanks to the synergies which we describe in the next few slides, but also further cooperation initiatives with Unipol, which are being further explored.

Now let's focus on the details of the transaction, and let's move to Page 7. With regard to the acquisition of Banco di Sardegna minorities, BPER has agreed to acquire from Fondazione di Sardegna all ordinary and preference shares that they own in Banco di Sardegna. As consideration for this acquisition, BPER will issue 33 million new ordinary shares through a capital increase without pre-emption rights entirely dedicated to Fondazione di Sardegna. A convertible additional Tier 1 instrument with a nominal value equal to EUR 150 million entirely subscribed by Fondazione di Sardegna. This is an instrument compliant with ECB regulatory standards incorporating a temporary write-down should our Common Equity Tier 1 fall below 5.125% threshold and a call option in the hands of Fondazione di Sardegna to convert into new BPER shares. Slide 21 of the appendix contains the full details on the instrument, and our CFO is available to answer any technical questions you might have during the Q&A session.

Post transaction, BPER will own 100% of Banco di Sardegna's ordinary shares and 98.6% of Banco di Sardegna's preference shares, implying a [93%] share of Banco di Sardegna's total economic capital. At the same time, Fondazione di Sardegna will increase its stake in BPER by around 6.4 percentage points.

The strategic rationale of this transaction is very clear. We benefit from a significant capital uplift of 50 basis points to our fully phased CET1 and 90 basis points of our fully phased Tier 1, with additional upside should additional Tier 1 will be converted. We simplify further our group's structure and improve our efficiency with cost synergies mainly driven by rationalization of the distribution network and of its controlled subsidiaries.

Now let's move on Page 9 to focus on the transactions with Unipol Group, which include the acquisition of Unipol Banca for a total cash consideration of EUR 220 million, implying the multiple of around 0.4x its tangible equity as of 31 December 2018. A cash disposal to Unipol Group of a bad loan portfolio with a gross book value of around EUR 1 billion, of which 32% is made of secured exposure and 68% unsecured. The agreed consideration is broadly in line with our carrying value, and therefore, there would be no material impact on our P&L accounts and no burden to our shareholders.

Moving to Page 10. Again, the strategic rationale of these 2 transactions is very strong. On the one hand, BPER is acquiring a clean bank with no legacy issues. In fact, as you may know, since 2017, Unipol completed an important restructuring of Unipol Banca's balance sheet, which included a carve-out of around EUR 3 billion of bad loans and a significant increase in provisioning levels. As a result, BPER will increase its scale and broaden its distribution footprint. The second point is BPER's assets will increase by broadly 17% in excess of EUR 80 billion and total funding, direct and indirect, will increase by around 70% to the EUR 150 billion area. Moreover, we will gain access to over 500,000 new clients and our branch network will be strengthened all over Italy.

In addition, BPER's gross NPE ratio will significantly improve from 13.8% at the end of 2018 to 11.6% pro forma, thanks to Unipol Banca's lower gross NPE ratio and the disposal of the EUR 1 billion bad loan portfolio to Unipol Group. The transactions will generate significant value through both cost and funding synergies, which we estimated conservatively at around EUR 85 million, EUR 95 million per year. The largest part of these synergies will be cost synergies of around 70% of the total amount, corresponding to around 20% of Unipol Banca's cost base. We estimate that these synergies will be fully implemented by 2021, and we will book around EUR 70 million of integration costs. The remaining 30% is mainly funding synergies. Whereas, at this stage, we do not factor into our estimate any meaningful net revenue synergies. We feel very comfortable that these synergies are both prudent and achievable, and we will update you regularly on the progress of our interim financial plan.

Please also note that these estimates do not include any capital synergies arising from the transition of Unipol Banca from standard to AIRB method. Just to provide you some context, when we acquired C.R. Ferrara, the ECB allowed us to switch from standard to AIRB and post ECB greenlight, C.R. Ferrara's RWA declined by around 20%, 25%. In addition, we are exploring, with Unipol, ways to announce our partnership in the area of Assurbanking where we see potential for further revenue synergies. These are not included in our estimates at this stage.

Page 11 is to provide you with some key financials of Unipol Banca versus BPER. Today, Unipol Banca has around EUR 8 billion of gross customer loans, which corresponds to 14% of the combined entities. Unipol Banca's total funding, direct and indirect funding, is around EUR 50 billion, of which EUR 40 billion of technical service from Unipol Group. Tangible equity is around EUR 550 million at the end of 2018 and the return on tangible equity was around 6%.

Page 12 is to provide you with an overview of Unipol Banca's distribution and business model. Unipol Banca has quite a unique distribution model, which includes more than 250 branches well distributed across the Italian territory with 0.9% market share in Italy and On-Line platform branding "My Unipol Banca" and a network of 254 Promotori.

Finally, Unipol Banca has access to 1,700 Unipol agencies out of a total of 2,900 agencies and 5,500 subagencies of Unipol Group.

In terms of business model, Unipol Banca's strategic focus is on retail and SME clients, and the main products sold are mortgages around 50% of total customer loans and short-term loans around 35% of total customer loans. Unipol Banca has also fully owned subsidiaries in Italia, a financial intermediary specialized in the personal loans and financial insurance premiums of policies issued by Unipol Group. I think that the Unipol Banca's strategic focus is absolutely in line with our expectations and has a great fit with our business and strategic focus.

Page 13, I will skip since this has already been described [briefly] in Page 10. Let me just add that our estimated pretax cost synergies are around 20% of Unipol Banca's cost base. This is a conservative estimate. If you look at what other Italian banks have announced in recent M&A transactions, 20%, 30%. Most of the revenue synergies are funding synergies, where we have conservatively assumed only a partial realignment of Unipol Banca's funding mix and cost to BPER.

On Page 15, we show the impact of the bad loan portfolio in total and the acquisition of Unipol Banca on BPER's asset quality metrics. Post transaction, BPER's gross NPE ratio will go down by 2.2% from 13.8% to 11.6%. And therefore, we will de facto meet well ahead of schedule of 11.5% target what we have set in 2018-2020 NPE plan for and 2020. If you look on the right-hand side of the page, you see how our group is getting closer in terms of gross NPE ratio to the best-in-class Italian banks. And on the 28th of February, we will show you our strategy to get there with our new business plan.

Page 16. Overall, following the 2 transactions, we confirm our solid capital position with a Common Equity Tier 1 fully phased of 11.4% and a Tier 1 of 11.8%. These ratios don't include the effect of the potential conversion of the additional Tier 1 and the potential transaction of Unipol Banca from standard to AIRB models, which we are confident will be granted in due course. In addition, our capital will benefit from increased organic capital generation, thanks to the implementation of significant synergies.

Page 17, we measure the value creation of the transactions, measured in terms of earnings per share accretion for BPER shareholders. If you look at 2021, the year in which synergies will be fully implemented, the combined earnings per share creation for BPER shareholders would be of around 33%, plus 15% if we exclude all the synergies. The high accretion would be mainly driven by the acquisition of Unipol Banca. The calculation excludes the potential conversion of the additional Tier 1, but we can already anticipate that also taking into account the potential additional Tier 1 conversion, the transaction will still be highly accretive.

Page 19, so just to wrap up. Today, we are very proud to announce these 2 important transactions, which will enable us to enhance our scale, market share and client base; create significant value, thanks to the realization of significant synergies with very strong earnings per share creation under very conservative assumptions; significant improvement of the gross NPE ratio from 13.8% at the end of 2018 to 11.6% pro forma broadly in line with 11.5% target set for 2020. All of these by maintaining a solid capital position with a number of potential levers to further boost our capital ratios. Naturally, these transactions are subject to a number of conditions, including regulatory approvals, our EGM, which will vote for BPER's share issuance to us from Fondazione di Sardegna with reference to the 33 million new shares and a new share implied in the potential conversion of the additional instrument. We do not expect any major hurdle to meet these conditions and our goal is to close all transactions by the third Q 2019.

I would like to thank you all very much for listening, and I look forward to meeting all of you in Milan on the 28th of February when we present our new period business plan.

Let me thanks to all, also all the staff of BPER group for this really important year. I would like also to thank my teams that's supporting me in these 2 important transactions, and I'm very proud to work with my staff. Thank you. Thank you very much. And now let's move to the Q&A session, and thank you very much.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question is from Christian Carrese with Intermonte.

--------------------------------------------------------------------------------

Christian Carrese, Intermonte SIM S.p.A., Research Division - Research Analyst [2]

--------------------------------------------------------------------------------

I have a few questions on the 2 deals, some technical questions and then going to the numbers looking at the EPS accretion that you're pointing out. The first one is on the saving shares. They've not been included in the deal, if you can elaborate on that. The second question is on, what do you expect to be the capital in 2019-2020 because you are saying that you are going to book some restructuring cost EUR 70 million in 2019 and then the synergies to arrive in 2020, 2021, so if you can give us an idea of the trajectory. On synergies, if you can elaborate a little bit on revenues, 20% of the cost base on cost and the 7% on revenues seems a little bit higher than other past transaction, so if you can give some details on that. Then on restructuring costs, again, you are going to buy some additional 600 -- more than EUR 600 million likely to pay from Unipol Banca. What kind of due diligence have you done on those loans? If you can give us some details on the secured, unsecured, collateral and (inaudible) portfolio? And I suppose that the SREP decision does not include the data structure that announced today, so if you can tell us if ECB was aware of this transaction or not? Last question is on the NPL disposal -- EUR 1 billion NPL disposal, the negligible impact to P&L has been already embedded in the fourth quarter results. And finally, I don't want you to anticipate the business plan target or your strategic issues, just if you can tell us the already known deal that you are going to do -- I mean, in terms of capital, for example, the BRA model immigration should give some boost to capital, if I remember properly, 20, 25 basis point. And then if there is any other deal we know, Arca, we read on the press, maybe, we have a negative impact on capital, so if you can give us an idea of the capital in 2019?

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [3]

--------------------------------------------------------------------------------

Okay, thank you very much, Christian. I don't know if I have enough time to answer to all these questions, but I try to do my best. Anyway, [semi] share are not including the -- in the deal with Foundation Sardegna, only ordinary share and preference share. I would like to remember you that we have something close to 50%. If I remember correctly, 48.8% of all the ordinary -- semi share that are today in the market. So we see what will be the best approach managing also the semi shares. About the capital position, let's say that we have many element -- let's say that in the last year, I think, that we were able to manage correctly our capital position and also with many challenges thinking about, for example, the activity for the [divestment]. My expectation is to have also in 2019 a capital CET1 ratio between 11.5%, 11.8% following this year's our idea, and then a better position in the next 2020. But please take into consideration also the Tier 1 because I think there is value in the structure of the deal with the Fondazione di Sardegna to have also an additional Tier 1 is probably in the capital structure of BPER is the first time that we have a significant amount of additional Tier 1, and I think with good condition for BPER. I think to take some of your questions, I ask to my colleagues to complete the answers about SREP. I would to confirm that obviously these transactions are not included, but ECB was aware that what we were planning to do with Fondazione di Sardinia and Unipol Group. I confirm also that about the EUR 1 billion disposal of bad loans with Unipol Group that the coverage at the end of 2018 on this portfolio is in line with the price of this portfolio. Let's say that this portfolio is a little bit lower than the EUR 1 billion of gross book value is largely of unsecured loans, so close to 70% and probably it was a portfolio not with the characteristics for a securitization with GACS. So in our view, this was an opportunity, at the same time, we know that the Unipol Group is working with Unipol (inaudible) to have probably a larger amount of bad loans managed [for extract] synergy. I confirm that there are rooms for our capital position for the Bra alignment. Probably they wait to complete in deeper the [trim] exercise, and so only after this, probably they are ready to recognize the alignment in Bra. Probably there is one question and on synergies, so I ask to Matteo Bigarelli to give some details on the synergies and the (inaudible) and then we try to see if there are other elements to answer to you. So Matteo, please go ahead.

--------------------------------------------------------------------------------

Matteo Bigarelli, BPER Banca S.p.A. - Head of Equity Investments and Special Projects [4]

--------------------------------------------------------------------------------

So. Thanks a lot. Talking about synergies, please bear in mind that our data, we are estimating at the moment includes on the revenue side mostly as mentioned cost funding synergies. So we are pretty confident to be able to reach this target. And another question about our due diligence on Unipol Banca. We performed an ordinary due diligence process on different areas of the bank. And talking about UTP, we didn't find any extraordinary risk on this portfolio and please bear in mind that this portfolio as highlighted in Page 15 of our presentation is covered with 46%, so a high level of coverage. So we didn't include any further risk on this UTP portfolio.

--------------------------------------------------------------------------------

Christian Carrese, Intermonte SIM S.p.A., Research Division - Research Analyst [5]

--------------------------------------------------------------------------------

What kind of [vintage] if you can give us an idea, the average of the UTP?

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [6]

--------------------------------------------------------------------------------

So we can check and give you probably later the detail. Let's say also that one another important point is the high level of coverage. The second point in our view is that in the last 3 years, we implement significant, our ability managing UTP. And if you look at, for example, the level of our UTP at the end of 2018 is around 5% of the total amount of loans. And so probably it's in line with some best-in-class in Italy. I think it demonstrates our ability in this area. Some words about Arca. We think that there's now -- the process is close to the end. So we expect in the coming days probably to have a communication. My expectation is that BPER together with (inaudible) are going to buy the stake of 40% of Arca. And when this will be clear, my intention is to have a conversation with the friends of (inaudible), in particular with Dr. (inaudible) to have a meeting and to analyze the potential evolution of Arca itself. So my idea is -- we tried to manage together all the decision on Arca in the last year. This was very important to give stability to this important asset manager, and we try to do the same also in the future. So this will be my intention in the coming days.

--------------------------------------------------------------------------------

Christian Carrese, Intermonte SIM S.p.A., Research Division - Research Analyst [7]

--------------------------------------------------------------------------------

And your capital guidance, 11.5%, 11.8% for 2019 takes into account the possibility you're going to close with Arca?

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [8]

--------------------------------------------------------------------------------

Yes, I confirm this but anyway. Today, what I can say that it is -- the impact of Arca is very, very low. And -- first of all. Second, we have to decide on the future of Arca; and we have many options, and so we'll see what will be the best for BPER and [Sondrio]. But let's say, it's absolutely manageable. We are satisfied also for the result of 2018 of this company because the performance also in 2018 are absolutely positive. And so for this season, I consider a great opportunity for BPER and Sondrio to buy this (inaudible) and I repeat, we must think together on the strategic option for Arca.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Next question is from Jean Neuez with Goldman Sachs.

--------------------------------------------------------------------------------

Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [10]

--------------------------------------------------------------------------------

Congratulations on the transactions. I just wanted to ask a question on the outlook from just operationally speaking. When you use the -- firstly, when you use the consensus numbers for 2021 in order to base the accretion, do you believe that this number is a good base to assess the profitability of BPER going forward, obviously, because you based your -- the strategic rationale of the transaction partly on that? And secondly, I just wanted to ask, there was, as part of the transaction, many mentions of the fact that the AT1, which you are issuing as part of the Banco di Sardegna transaction has a conversion features, and it was repeated a number of times. Do you actually expect to convert this? Or is this something which you would prefer to keep in your capital stack as an AT1 going forward? And if you did confirm them, would you want to have another one issued after that? Or would you just go with core Tier 1 as opposed to having the AT1 replaced as well as being converted?

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [11]

--------------------------------------------------------------------------------

Okay. About the first point, the effect on [earning] per share. First of all, we believe that we were conservative in the estimate of synergies. So we try to put in the -- our analysis only the area of synergies, of cost and only partially on revenues where we were absolutely sure to extract in this deal. And so I think it's the right base to analyze our business plan at the end of February. So you can imagine that we tried to put into our business plan also these 2 transactions and the value for our shareholder in 2019, 2021, the period covered by the new business plan. About the Additional Tier 1, I ask to Roberto Ferrari, our CFO, to give you some elements to analyze these new components of our capital structure.

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [12]

--------------------------------------------------------------------------------

So the convertible Additional Tier 1, nominal value is EUR 150 million, but the issue price is 120% of the principal amount. So it embeds the value of the conversion option. And it's important to say that the conversion option is in the not holder end, and the strike price is EUR 4.2. So clearly, the conversion depends on the market evolution in the future and the maturity of the conversion opportunity is 8 years. So it has a long maturity. Clearly, it is important to say that we consider that the AT1 will make a good coupon with an efficient bond in our capital structure. So in the future, we don’t know, if we have a conversion, we could consider a new issuance.

--------------------------------------------------------------------------------

Jean-Francois Neuez, Goldman Sachs Group Inc., Research Division - Executive Director [13]

--------------------------------------------------------------------------------

And I just wanted to ask, the coupon will be recorded straight through equity or in the P&L?

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [14]

--------------------------------------------------------------------------------

The coupon will be recorded straight to equity, okay? The common equity.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

The next question is from Domenico Santoro with HSBC.

--------------------------------------------------------------------------------

Domenico Santoro, HSBC, Research Division - Analyst [16]

--------------------------------------------------------------------------------

I have 4 questions. Again, on the synergies from Unipol Banca. Can you give us more idea on the cost side where this synergy will come from? Headcount reduction, branches closures, any details will be helpful. On the revenues as well, given that we don't have a lot of visibility on the funding mix of Unipol Banca and funding synergies are not pretty obvious in this market, just wondering whether you can you give us more details, any switch into the funding mix of the bank? Then, on Banco di Sardegna, I know that you're going to give us more details in the plan. Wondering how much is the cost synergies that you consider in your target in terms of EPS accretion as a percentage of the cost base of Banco di Sardegna? And then on the addendum of the ECB and your extension to the stock. You sound pretty confident in the press release that the ECB is going to consider the level of collateralization, other remedial actions. So there is not going to be an impact, as you mentioned in your press release on capital and provisions? But now you're embarking more UTPs with a lower coverage compared to the target that ECB is asking. So given that for us mathematically from the external, it's pretty difficult to understand why there is no impact. Can you give us more details about this? Shall we consider restructuring loss in the calculation? Shall we consider write-off? Or can you give us more visibility on the (inaudible)touch please?

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [17]

--------------------------------------------------------------------------------

Okay. So first point is about Unipol Banca and synergy on the cost side and also on the funding mix. So Alessandro Simonazzi on the cost side and probably Roberto on the funding mix. Alessandro?

--------------------------------------------------------------------------------

Alessandro Simonazzi, BPER Banca S.p.A. - Head of Planning & Control [18]

--------------------------------------------------------------------------------

From the cost side, what I can say is that we have 4 main drivers. The first is obviously branches simplification and some of the branches are overlapped with our branches. Some of them could be rationalized and streamlined when mixed with our net. The second driver is the headquarter from 2 main drivers. One is people are quite overlapped with our functions, so we can integrate the headquarters of Unipol Banca with our headquarters. And we can replace people leaving the BPER Group with the potential redundancy plan that we will deliver in our new business plan. We can replace with people coming from Unipol Banca. And the other driver is the rentals and the cost of real estate that via branches simplification, via headquarters simplification, we could save important amount of money from rentals of real estate. And the other driver is cost efficiency on the structure. These are the main drivers on the cost side.

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [19]

--------------------------------------------------------------------------------

On cost of funding, very synthetically, the cost of funding of Unipol Banca is double of BPER's. It's above 60 basis points average. And it is also linked to the fact that they have issued a senior bond at a very high level of spread and rates. So we consider -- and those bonds are maturing in the next 2 years. Actually, 80% of those are maturing in 2019 and 2020. So considering the substitution of the bonds and considering the high cost also of the side deposits, we have the possibility to reduce substantially the cost of funding. Unipol Banca has also more than EUR 2 billion deposit in ECB at minus 40 basis points, and the cost of the deposit is actually more than 1 -- 2 basis points. So also from the redepositing the ECB, we have the possibility to extract cost synergies.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [20]

--------------------------------------------------------------------------------

So speaking about Banco di Sardegna, I would like to express that we look at Banco di Sardegna and we extract synergy, but this is also a bank included -- already included in our group and [there are many actions] also in new business plan that we are going to present at the end of February. So let's say, mainly the synergy utilized for the earnings per share are from Unipol Banca. There are other synergies, but together with the action on the business plan that we are going to present by the end of the year. About the addendum, the expectation of ECB, let's say, our strong focus was, first of all, on the 3 years cover by the new business plan. I can confirm that the expectation is to have not significant impact is absolutely manageable in terms of capital position. You said, obviously, there is something different. Now we have more UTP coming from Unipol Banca. But first of all, I think it's important to underline that indeed there is a very high coverage. If I remember correctly, around 46%. We analyze that this portfolio is so -- I think that it is manageable. Also thanks a different approach by BPER in managing the UTP portfolio and you can consider the important result in the last year in this area. So let's say, probably I want to be more clear by the end of the year during the presentation of business plan because we are working on this, but I repeat -- I can confirm that if you think that our stock today of nonperforming is EUR 7 billion, and I'm sure that we are going to manage correctly all the EUR 600 million of UTP. The last one point is and my view is really important that for the first time we are also claiming some [disposal] of UTP. So probably in this year will be the first time on this project. And so I think that it's possible to include also this UTP in this project. We will see because it's too early to say, but the idea that we have after the due diligence on the portfolio that this is to be possible for the future approach of UTP.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Your next question is from Giovanni Razzoli with Equita SIM.

--------------------------------------------------------------------------------

Giovanni Razzoli, Equita SIM S.p.A., Research Division - Financial Analyst [22]

--------------------------------------------------------------------------------

I have a couple of questions. The first one, I was wondering if you can share with us whether as part of the deal with Unipol Banca there is anything involved in the DTA of Unipol Banca? And if so -- and if these are changes of the overall [phasing] of your standalone exposure to this asset class? The second question, again, on the deal with Unipol Banca. You clearly mentioned that the deal is EPS accretive, but this is only part of the value creation as value creation is also related to the change in the risk profile of the deal. And my perception is that the execution risk of the integration with Unipol Banca is extremely low because clearly you have Unipol as a shareholder of you guys, so my understanding is that also looking at the phasing of the synergies, the execution risk is going to be extremely low, while it is going to be 0 for the buyback of the minorities of Banco di Sardegna. So I was wondering whether my understanding is correct? Or if you do see any areas I don't know in terms of headcount reduction or so that may contradict my understanding. Then the last question on Unipol Banca. Everyone is focusing correctly on the synergies, but no one has asked about the standalone profitability of the bank. As back of the envelope calculations, I have here made a simulation that Unipol Banca is a standalone entity or guiding us to something like EUR 15 million of standalone profits based on the contribution of your pre-synergies EPS accretion. I was wondering whether this calculation is correct. And if it is, I was wondering what was the -- if there were any extraordinary items in the 2018 bottom line that you are showing us at EUR 33 million for Unipol Banca in Page #18 of the presentation. And last question, if you can share with us, there were a lot of questions on the UTP, can you share with us what is the breakdown between secured and unsecured UTP that you are buying as part of the deal from Unipol Banca?

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [23]

--------------------------------------------------------------------------------

Okay, thank you. Thank you very much for your question. The first one was on DTA. Our analysis is that DTA of Unipol Banca are immaterial, so nothing, including our analysis and evaluation. About the execution of the integration of Unipol Banca and BPER, I agree with you on the low risk of execution. There are many reasons for this. Probably there are many elements to manage in this integration. But let's say, there is also an element that to integrate, for example, looking at the staff, if you think that Unipol is based in Bologna, BPER is based in Modena, so this is a great support for the integration of staff and also the (inaudible) synergies in this area. Working on the branches. Let's say, this is a sort of trademark of BPER because we managed so many acquisitions and mergers in the last 10 years, and we have staff in the business areas of BPER that has a specific approach for the integration of network of branches. So from this point of view, I think that this is absolutely manageable. And also, we think that probably the branches -- looking at the branches of Unipol are spread in Italy, but if you look at BPER with Unipol, I think that there are many opportunities of good integration of Unipol branches in the network of BPER. So -- and nothing, as we said before about Banco di Sardegna. Looking at Unipol Banca, in the last 2 or 3 years, I received many questions about our interest in Unipol Banca. As I said in many meetings, my first element was without the complete activity of derisking of Unipol Banca, it was impossible for BPER also because we work also on the derisking to analyze the Unipol Banca. They completed transaction in 2018. This morning, there was the first highlight of the balance sheet in 2018. We saw that they have in 2018 a net profit of EUR 32 million, close to EUR 33 million, so with an equity of EUR 550 million, EUR 548 million. And we understand that the trend now is correct and also the cost of risks is under control. Thanks to the strong cleanup completed in 2018. So I think that today is a net profit that could add value to the network of BPER, and we hope also to have an upside looking at the relationship with Unipol and also the business in Assurbank, Bancassurance. If you remember, during the -- on the commission coming from this area, we have an incredible increase, close to 50% from EUR 40 million to EUR 50 million, and I think this is a confirmation that we are in the right direction. About UTP, probably I can give you later some details of the (inaudible) overview. What I remember there is a large portion of UTP with collateral -- real estate collateral. And so for this reason, as I said before, could be an opportunity to include this portfolio, a portion of this portfolio in our process of UTP disposal in 2019. So we will see, and if I can give you more details later.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Your next question is from Hugo Cruz with KBW.

--------------------------------------------------------------------------------

Hugo Moniz Marques Da Cruz, Keefe, Bruyette & Woods Limited, Research Division - Analyst [25]

--------------------------------------------------------------------------------

I have quite a few questions. So first, I'm not sure I understood correctly. I think you gave some Core Tier 1 guidance for the full year '19, if you could remind me of that? Second, the ratio given for Q4, it seems to be, I'm not sure, the pro forma for some DTA absorption. I'd like to know if you've changed the treatment here in any way? Or are the DTAs fully deducted? And third, on the Sardegna, 2 questions. One, do you see any reason for the foundation to covert the AT1s below the strike price? And two, again, if you could clarify how much cost cutting in your EPS accretion guidance you are assuming from the Sardegna business? And then on the Unipol side, I think you said that the cost cutting assumptions are probably low. I would agree 20% in the past has been kind of the bare minimum. However, if you cut more, do you think you'd have to have a higher amount of restructuring charges? Because again, it's around 100% of the cost cutting run rate. So again, it's not very high amount of restructuring charges. So I'd just like to know if that could go up? And on the revenue side, I take your comments on the funding, but when I looked at the Unipol Banca, just a very high-level glance, but they seem to have a NIM that's not very different from yours. So if the funding costs are a lot higher, arguably, their loan rates are a lot higher as well. And I wonder if you could comment on that. And sorry, one more question. Can you clarify -- you gave guidance on Bra before on the IRB migration. Can you give us the latest there, also on TRIM and IFRS 16, if you have any guidance? And -- sorry, and just one more. On the Unipol Banca acquisition -- sorry, on the CET1 impact, you're talking about full [bad wheel] absorption or recognition. Is this something that you have the green light from the ECB? Or is there still a risk that you might still not get this? That's all.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [26]

--------------------------------------------------------------------------------

Okay. So I try to answer the question about the CET1 and also Sardegna and the bad will. Probably, my colleagues for your other important questions. Yes, I do confirm for the -- this year that we think at the end of 2019, our expectation is to respect to the level of 11.5% of Common Equity 1. I think that we have many area where we can extract capital. Let me mention one area. In the last month of 2018, we have an important portion of large corporate loans with very low spread. Now, if we have Unipol Banca with loans with different characteristics, mainly retail and SMEs, probably this area of large corporate is not in line with our strategy. So we can save RWA in a very significant way. Let's say also that we have other part that is the alignment of CR Bra with 15, 20 basis points of benefit in terms of Common Equity 1. And so we are working also on the securities portfolio. Also here, we have some potential benefit. So let's say, as I think we confirm in the last 2 years, we are able to manage the capital position.

About the big will -- the bad will, first of all, we estimated bad will around EUR 300 million and probably more of them this year. This is an important amount and I confirm that typically there is an important focus by the ECB. But let's say that we have experienced last year the approach of ECB, because we had the acquisition of Cassa di Risparmio di Ferrara, and in this acquisition, we had a bad will of EUR 190 million. So this was, in our view, an important element to complete, for example, some important provisioning. It was absolutely in line with our strategy to complete the action of the (inaudible) that is in place also now. So it is important and it's difficult to say anything before the PPA. And so this is the first step in this process, but we are not worried about this important point.

About Sardegna, so we estimated that after the acquisition of the minority, Fondazione di Sardegna would be around 10% as a stake in our capital position. So this is more or less our expectation. So 10% tender is plus 5% -- around plus 5%, including in the convertible additional fund. Let's say -- I don't know what will be the approach by Fondazione di Sardegna, but this is a foundation. So I think that the decision of the foundation is driven by a correct approach in terms of economics and financial framework. So I think that it is important that the value of BPER share will be over strike price. As we said before, the strike price is EUR 4.2.

I don't know Roberto, our CFO, will add an element that you asked before.

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [27]

--------------------------------------------------------------------------------

Okay, Hugo. At -- when we presented business plan in 2018, we will, for example, the evolution of (inaudible) up to 2021 and those evolution will embed the impact of (inaudible) guidelines with definition of the fraud rollouts and PMI supporting factors. And you would see that the impact -- that we already have the number, but clearly, we will disclose at the end of February. You will see that the impact is absolutely manageable. I repeat, it's absolutely manageable.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [28]

--------------------------------------------------------------------------------

About the IFRS 16, we expect to have EUR 200 million of more asset. And so -- and that's probably a migration from administrative (inaudible) depreciation around EUR 40 million, but it is only migration from one area and the other of P&L. And so this is to have a -- to give you all the answer to your questions.

--------------------------------------------------------------------------------

Hugo Moniz Marques Da Cruz, Keefe, Bruyette & Woods Limited, Research Division - Analyst [29]

--------------------------------------------------------------------------------

Sorry. I didn't understand your last point, the EUR 40 million migration. What was that about?

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [30]

--------------------------------------------------------------------------------

It's about -- the EUR 40 million migration is a suite -- a change, an accounting change from administrative expenses related to (inaudible) to amortizing and to depreciation. And it's a different accountability approach.

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [31]

--------------------------------------------------------------------------------

Was the question, Hugo, from the accretion of Sardegna, accretion dilution? Actually, accretion should be around 2% in 2021 and then we will come back to you to -- with average rate of Unipol Banca lending.

--------------------------------------------------------------------------------

Hugo Moniz Marques Da Cruz, Keefe, Bruyette & Woods Limited, Research Division - Analyst [32]

--------------------------------------------------------------------------------

Okay. And just one more then. If you end up finding a higher amount of cost savings with Unipol, would you expect a higher restructuring charge as well?

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [33]

--------------------------------------------------------------------------------

Restructuring.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [34]

--------------------------------------------------------------------------------

Well, frankly speaking, at this stage, our analysis estimate, if I remember correctly, EUR 70 million, and probably we are absolutely prudent in this estimate. So let's say, we think that is manageable and the focus is on branches, is on staff, is on IT, for example, because they today paid for the IT services to a company (inaudible) and so we have a benefit coming from this. And so we think that either without any significant further impact on our cost there. So obviously, we try to have more synergies when we can be inside the company, but anyway, we estimate EUR 85 million, EUR 90 million of synergies per year as the -- with the starting point.

If I can add the word, the synergies that we have estimated on Unipol Banca compared with the restructuring cost explain that, in less than 3 years, we could recall the restructuring costs via our synergies. And it's quite good ratio because in M&A, usually this is from 3 to 5 years.

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [35]

--------------------------------------------------------------------------------

Ratio.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [36]

--------------------------------------------------------------------------------

The ratio between synergies and restructuring cost is more than 3 years. In this case, it would be -- lower than 3 years.

--------------------------------------------------------------------------------

Operator [37]

--------------------------------------------------------------------------------

Your next question is from Andrea Vercellone with Exane.

--------------------------------------------------------------------------------

Andrea Vercellone, Exane BNP Paribas, Research Division - European Banks Analyst [38]

--------------------------------------------------------------------------------

First of all, thanks for announcing all of this at the same time. It makes life easier than getting it bit by bit.

Four questions left. On the transactions, I just like to know when you expect to close each of them? Of course, it's subject to authorizations, but what is your best guidance?

Then the second question is on NPL sales. You were quoted in the press saying you were planning to dispose of EUR 1 billion of NPEs or NPLs. Were you referring to this portfolio, which you have now sold to Unipol, or it's additive?

The third question is on deferred tax asset recognition. Obviously, you'll have the new business plan soon, so you'll be able to perform a different probability test. At the same time, you have restructuring charges falling in, in 2019 related to Unipol Banca and whatever else you'll do at BPER Group level. Is it -- in terms of qualitative guidance, would you be looking to bring back on balance sheet DTAs for losses carryforward mostly in 2019, given you have basically none on balance sheet at the moment? Or is it bit more spread throughout the next few years?

And then the last question is on PPA on Unipol Banca. Your capital position, in my opinion, is good relative to where you need to be. Is it reasonable to assume that you could make particularly conservative assumptions in assessing the NPEs that you bought in order to write them down a bit and consequently increase the coverage? Or that's not a fair possibility?

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [39]

--------------------------------------------------------------------------------

Okay. About the first question, it was about the timing of the 2 operations. Our expectation -- I start for -- from the end. Our expectation is to complete all in this year and also to complete the merger of Unipol Banca in BPER by the end of 2019 for complete this is important to have all the authorization and work on also the EGM, I hope, in the first half 2019. So this is, let's say, the first important element is the EGM and after that, we can complete the other step of the deal. So first half 2019, EGM; second half, probably the completion also of the merger in the parent company.

So our strong objective is to complete it by the end of the year and I think that it will be possible. More or less, we have it the same way in Cassa Ferrara last year. So we were able to complete the acquisitions by the end of June and we complete the merger in November '19 -- '18. So we think that it's possible to have the same timeline.

The other point was about, I think, DTA. So Roberto, please go ahead. He'll try to give you the answer.

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [40]

--------------------------------------------------------------------------------

Okay. In 2018, we already booked DTA linked to pass the losses that we assume to recover in the forward 5 years. Losses were around EUR 130 million and DTA were around EUR 40 million. And as you know, as you said, every year, we will re-perform the probability test. So now, when we present the business plan, we will re-perform the probability test and every year we will have the impact of the DTA for 1 year forward.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [41]

--------------------------------------------------------------------------------

About the NPL disposal. So first of all, let's say that we [also decided] because we present a deal -- it is a good combination of growth and there is gains and this was -- we -- what we had in mind at the beginning of the discussion. And we are satisfied with this because to go around 11.5% of the NPE gross ratio is another step in the right process of de-risking.

Let's say that we can do more. And so we think that this EUR 1 billion could be additive with other disposal. But let's say, we are working on an update of our NPE plan. We want to complete the process by the end of March, but anyway, I think that our idea is to go below 10% as fast as possible and this is an important stop -- step in this important target.

There is some other element (inaudible). So I think that, about the PPA, is also the result of our experience in Cassa Ferrara. Probably, we need more time to have something to say by the end of February if it's possible, but I repeat, it is so difficult to say it before the acquisition to say where it is possible to complete the PPA. But let's say that the big experience with Cassa Ferrara with EUR 190 million of bad will, I consider it positive and in line also with the expectation of ECB. I think that is possible to do the same in this deal today.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

(Operator Instructions) Mr. Vandelli, gentlemen, there are no more questions registered.

I'm sorry. There is a follow-up question from Hugo Cruz with KBW.

--------------------------------------------------------------------------------

Hugo Moniz Marques Da Cruz, Keefe, Bruyette & Woods Limited, Research Division - Analyst [43]

--------------------------------------------------------------------------------

I mean, on tax, so I mean, it's been very hard to model your tax. Obviously, there's still a lot of uncertainty with the cadence and so on, but can you give guidance for your tax rate for 2019?

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [44]

--------------------------------------------------------------------------------

2019 -- this is Roberto Ferrari, Hugo. Actually, we will be -- we will have a tax rate that is in the region of 10%, probably lower. And we expect around 15% 2020 and then to convert to lower current tier of rate -- of tax rate in 2021.

Okay. Probably, we had the announcement to give to you about the yield on the lending -- commercial lending of Unipol Banca. The net margin should be around 2.3. So consider the cost of funding, the average lending rate should be close to 3%.

--------------------------------------------------------------------------------

Hugo Moniz Marques Da Cruz, Keefe, Bruyette & Woods Limited, Research Division - Analyst [45]

--------------------------------------------------------------------------------

So is that because they have a different funding mix, more geared to consumer and small SMEs, that's why they would have a higher loan rate than you?

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [46]

--------------------------------------------------------------------------------

Yes, and we consider so actually. If we want to go deeper in that, we can work out.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [47]

--------------------------------------------------------------------------------

The funding mix of Unipol Banca is more balanced on medium-term and short-term funding, so more expensive. While from the customer side of the loan book, they have a lot of retail, and so mortgages and consumer.

--------------------------------------------------------------------------------

Roberto Ferrari, BPER Banca S.p.A. - CFO [48]

--------------------------------------------------------------------------------

Yes. On the funding side, you have to consider that we issue corporate bonds that are much cheaper in terms of spread and they issue only senior bonds. So I would say these are (inaudible) synergies that we have compared to BPER -- Unipol Banca. And the cost of senior bonds is actually much higher than corporate bonds.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

(Operator Instructions) Gentlemen, there are no more questions registered at this time.

--------------------------------------------------------------------------------

Alessandro Vandelli, BPER Banca S.p.A. - MD & Director [50]

--------------------------------------------------------------------------------

Okay. So no final remarks. And thank you very much for your attention and I hope to see you at the end of February for our Investor Day. Thank you. Thank you very much. Have a nice day.