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Edited Transcript of UCG.MI earnings conference call or presentation 7-Aug-19 8:00am GMT

Q2 2019 UniCredit SpA Earnings Call

Milan Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of UniCredit SpA earnings conference call or presentation Wednesday, August 7, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Francesco Giordano

UniCredit SpA - Co-Chief Executive Officer of Commercial Banking for Western Europe

* Jean Pierre Mustier

UniCredit SpA - CEO & Director

* Mirko Davide Georg Bianchi

UniCredit SpA - CO-CFO & Senior EVP

* Olivier Nessime Khayat

UniCredit SpA - Co-Chief Executive Officer of Commercial Banking for Western Europe

* Thiam J. Lim

UniCredit SpA - Senior EVP & Group Chief Risk Officer

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Conference Call Participants

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* Adrian Cighi

RBC Capital Markets, LLC - Research Division

* Andrea Filtri

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

* Andrea Unzueta

Crédit Suisse AG - Research Division

* Andrea Vercellone

Exane BNP Paribas - Research Division

* Anna Adamo

Autonomous Research LLP - Analyst

* Anna Maria Benassi

Kepler Cheuvreux - Research Division

* Antonio Reale

Morgan Stanley - Research Division

* Axel Jeremias Finsterbusch

JPMorgan Chase & Co - Research Division

* Azzurra Guelfi

Citigroup Inc - Research Division

* Carlo Tommaselli

MainFirst Bank AG - Research Division

* Domenico Santoro

HSBC - Research Division

* Giovanni Razzoli

Equita SIM S.p.A. - Research Division

* Hugo Moniz Marques Da Cruz

Keefe, Bruyette & Woods Limited - Research Division

* Ignacio Cerezo Olmos

UBS Investment Bank - Research Division

* Jean-Francois Neuez

Goldman Sachs Group Inc. - Research Division

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Presentation

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Operator [1]

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Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the UniCredit Second Quarter First Half 2019 Results Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions)

At this time, I would like to hand the call over to Mr. Jean-Pierre Mustier, CEO of UniCredit. Please go ahead, sir.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [2]

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Thank you very much, and good morning to you all, and welcome to our second quarter 2019 analyst call. Before we start, I would like to point out 2 things. First, we had a number of exceptional items this quarter. The reason is that we took a number of strategic decisions such as the disposal of Fineco and the sale of Ocean Breeze. Some had a positive impact, such as Fineco, while others had a negative impact, such as Ocean Breeze. The overall impact is net positive. To give you a true and fair view of our operating performance in the quarter, we will focus our discussion on the adjusted net profit that excludes this nonrecurring item. We will accrue our dividends based on the 30% of the adjusted net profit.

Second, on a more technical note, please be reminded that we restated all figures for the sales of Fineco and other accounting changes. We published this a few weeks ago, and the details can be found in the annex. Our IR team is also happy to explain more in depth.

Now let's take a quick look at the highlights of the second quarter 2019 before Mirko takes you through the figures. We had a very strong quarterly result. They benefited from net positive exceptional items. Our adjusted net profit of EUR 1 billion is up 0.4% year-on-year. The first half 2019 group adjusted RoTE is 8.8%, and we confirm our financial year 2019 RoTE target of above 9%. First half 2019 Group Core adjusted RoTE is 10.7%, and we confirm the financial year 2019 core RoTE target of above 10%.

In a tough macro environment, our commercial dynamics remain resilient as evidenced by flat commercial revenues quarter-on-quarter. We are fully focused on the execution of Transform 2019, which is well ahead of plan. We have already achieved our planned net FTE reduction and close to 100% of our planned branch closure. The recast of EUR 10.1 billion cost target for 2019 is confirmed.

Our second quarter cost of risk came in at 60 basis points. The financial year target of 55 basis points is confirmed, including 4 basis points of model. Non Core gross NPEs reached EUR 15.7 billion in the quarter, down EUR 5.8 billion year-on-year. Our CET1 ratio reached 12.08% for a fully loaded MDA buffer of 201 basis points. Our 2019 TLAC subordinate funding plan is completed, and our TLAC ratio stands at 20.69% with a buffer of 112 basis points. We upgrade our target to be at the upper end of our range of 50 to 100 basis points. As we guided at the start of the year, tangible equity has increased every quarter since the third quarter 2018. It is now EUR 50.7 billion, up 9.5% from the trough.

Let's move to Page 4. We report an adjusted net profit of EUR 1 billion, which is 0.4% up versus last year. The group gross NPEs are down 19.2% year-on-year at EUR 34.4 billion.

Let's move to Page 6. We finished the quarter with a CET1 ratio of 12.08%. For the end of 2019, we confirm our CET1 ratio MDA buffer at the upper end of our target range of 200 to 250 basis points.

Rating agencies are appreciating the progress of Transform 2019 and have recently upgraded us. Standard and Poor's, now as UniCredit outlook on stable versus negative for the Italian sovereign. And Moody's has upgraded both our stand-alone and Tier 2 rating to investment grade.

The de-risking of our balance sheet continues. In June, we signed an agreement with our partners to upsize our very successful Sandokan program managing UTPs in real estate.

As regard to NPE disposal, they were EUR 2.1 billion in the quarter, EUR 1.1 billion of which in Non Core. The second quarter '19 group gross NPE ratio came to 6.98%, so we are finally below 7%. The Group Core and gross NPE ratio stood at 3.9%, close to the EBA average.

With these achievements in de-risking the balance sheet, we have already, in the second quarter 2019, materially beaten the original Transform 2019 target for the financial year '19 of a group gross NPE ratio of 8.4%, Group Core gross NPE ratio of 5% and Non Core gross NPEs of EUR 19.2 billion. The operating with transformation is well ahead of schedule with 98% of our branch reduction target reached. The net FTE reduction have already been achieved. We confirm our 2019 cost at EUR 10.1 billion. All these actions have materially beaten the original Transform 2019 target of EUR 10.6 billion of costs. We have already significantly over delivered the self-help element of Transform 2019. In our new strategic plan for 2023, we will continue to focus on elements that we can control such as cost and risk.

Let's turn to Slide 7. Our client continue to embrace our multichannel offers and increasingly use digital solution. We have recently relaunched our mobile banking app. This is our first platform across Western Europe, and the rollout in Italy will be followed by Germany and Austria. We continue to support the real economy in countries where we operate. In this quarter, in Italy, we issued a dozen Minibonds for Italian SMEs to further develop a capital market culture among this important client group. And our corporate center streamline is on track, with the group corporate center first half '19 cost at 3.3% of total cost below target.

Now let me hand over to Mirko.

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Mirko Davide Georg Bianchi, UniCredit SpA - CO-CFO & Senior EVP [3]

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Thank you, Jean-Pierre, and good morning, everyone. I will now take you through UniCredit's second Q financial performance for the year.

Please bear in mind, as Jean-Pierre has said that past numbers have been recast to reflect accounting changes and the consolidation of Fineco. Our recast divisional database was published a few weeks ago, and we have also summarized the relevant changes in the annexes on Page 64 and 65.

Our Core has delivered an adjusted net profit of EUR 1.2 billion in the quarter. The main divisional contributors this quarter were CEE and Commercial Banking Italy. On the right-hand side, you see the adjusted net profit for each division while the stated net profit are shown in footnote 1. Adjusted Group Core return on tangible equity was 10.7% for the first half 2019. We confirm that 2019 Core RoTE target of above 10%.

Let's turn to Slide 10. Revenues were down 4.1% year-on-year. On a quarter-on-quarter basis, however, commercial performance was resilient with commercial revenues stable. We enjoyed good commercial dynamics across the group. We gained more than 400,000 gross new clients in the first half 2019 while writing almost EUR 46 billion of gross new loans in the same period. While new loans production in the first half 2019 was below last year, a big pickup in the second Q '19.

The execution of Transform 2019 continues to deliver tangible result quarter-after-quarter Costs are down significantly, 4.5% lower year-on-year. The gross NPE ratio stands at 3.9%, down 65 basis points year-on-year. This is the first time we are below 4%, which is a great achievement and well below our original fiscal year 2019 target of 4.7%.

Let's turn to Slide 11. Let's now look at the figures for the group. I would like to point out 3 items on this page. First, as previously mentioned, there were exceptional items in this quarter relating to a number of strategic decisions we took, namely the positive impact from Fineco disposal and some negative one-off items. The latter relates to the reevaluation of Ocean Breeze ahead of the sale and increased provision for items which predate Transform 2019. This mainly affect other charges and provisions and profit on investment in the Italian perimeter. The exceptional items are by nature nonrecurring, and we have adjusted the net income accordingly in line with past practice. Second, loan loss provisions were up 41% year-on-year due to exceptional write-backs in the second Q 2018, which led to a very low cost of risk in that quarter. Third, our stated first half tax rate was 27.1%, heavily impacted by the exceptional items in both quarters. For fiscal year -- for the second half 2019, we expect a lower tax rate.

Let's turn to Slide 12. NII was lower in the quarter, down 0.9% stated and down 1.8% adjusted for days FX and FX, a very good result given the macro environment. The main drivers of the quarter NII walk were the following. First, the contribution of deposit rates was a negative EUR 17 million as the mix in CEE changed slightly from site towards term deposits, especially in Russia. Second, term funding contributed a negative EUR 18 million. We have now concluded the prefunding of the most expensive TLAC subordinated instruments and the TLAC funding plan for the year is essentially completed. We, therefore, expect the contribution to be much less negative in the second half of the year. Third, we have aligned the asymmetric accounting treatment of FX swaps in treasury so that both legs of the swaps affect net interest income. Compared to the first quarter 2019, this corresponds to a low double-digit shift from trading to net interest income. The past numbers are not restated for this but as the swaps as are very short term in nature, the second Q 2019 should already be a clean quarter.

Let's turn to Slide 13. I will highlight 4 points on this slide. First, average commercial loan volumes are stable, while average commercial deposit volumes continue to increase. Second, there were extraordinary items affecting the customer rates in Commercial Banking Italy and CEE. In CEE, when the extraordinary item falls away next quarter, you should expect customer loan rates to be lower by mid-single-digit basis points. Third, customer loan rates are stable at 2.57%. It seems likely that customer rates have now stabilized. Last, we marginally adjust our customer rate guidelines for the rest of the year. Following the publication of the final terms on TLTRO-III as well as lower long-term rates and spreads, we now expect customer loan rates for fiscal year 2019 to stay flat at group level.

Let's turn to Slide 14. End-of-period customer loan volumes for Group Core were up EUR 3.7 billion. This increase was driven by all the business division. There was volatility in intra-quarter volumes in Commercial Banking Italy and CIB from large tickets. As a result, while the end-of-period core loan volumes were up 0.9% quarter-on-quarter, the average core loan volumes were actually flat. As loans are lagging indicator of economic activity, we expect loan growth in fiscal year 2019 to be lower than the last year. We confirm our fiscal year 2019 target for loan -- for group loans of EUR 441 billion. End-of-period customer deposit volumes for Group Core were up 0.9% in the quarter.

Let's turn to Slide 15. Group fees were down 3% year-on-year. Investment fees were down 5% year-on-year. This decline was mainly due to upfront fees in Commercial Banking Italy on lower gross AUM sales. Group management fees was stable year-on-year on better volumes. Quarter-on-quarter, investment fees showed a strong rebound of 8.3% driven by both upfront fees on better gross AUM sales and management fees and on better volumes. Financing fees were down 11.2% year-on-year across our divisions. This is in line with syndicated loan volumes in the broader European market, which saw a percentage decrease in the mid-teens. We also had less fees from sponsor-driven leverage loan as we continue to be very selective in this area. Transactional fees were up 6.2% year-on-year mainly driven by P&C insurance fees in Italy. Quarter-on-quarter, transactional fees were up 3.4% mainly thanks to higher fees from seasonality of payments in CEE.

Let's turn to Slide 16. TFA stood at EUR 767.3 billion in the quarter, again, please bear in mind that all these numbers exclude Fineco. AUM in the quarter were $191 billion. Market performance and net AUM sales were positive, both for group and for Commercial Banking Italy. Industry net AUM sales in Italy were negative in the quarter. Asset under custody increased by 1.3% quarter-on-quarter as strong market performance across Western Europe was partially offset by AUC outflows in Commercial Banking Italy. The latter was mainly due to BTPs and equities in client portfolios. Deposits were up 0.5% quarter-on-quarter mainly driven by deposits in Commercial Banking Italy. These were up 2.4% due to the postponement of payments as the last day of June was a weekend.

Let's turn to Slide '17. Trading income in the second Q '19 was down 19% year-on-year mostly driven by a negative XVA swing of almost EUR 100 million. The quarter-on-quarter drop is more pronounced at 42.8%. This is due to a number of items: first, there was lower client activity in fixed income and certificates; second, there are less realizations from our fair value to OCI bond portfolio; third, the accounting methodology change for FX swaps mentioned earlier affected trading income negatively. As a result, we revised down our expected average quarterly run rate from EUR 350 million to around EUR 300 million.

Regarding dividends, the contribution of Yapi dropped 23.7% year-on-year on current effect but only 4.5% at constant effect. This is thanks to Yapi's strong operational performance year-to-date in a difficult macro environment. We remain conservative in our outlook for Yapi. While a stable operational performance is not unrealistic, continued FX volatility is to be expected.

Let's turn to Slide 18. Our focus on cost efficiency is yielding tangible results quarter-after-quarter. Transform 2019 is well ahead of plan. We have already achieved our planned net FTE reductions and 98% of our scheduled branch closures. We have confirmed our fiscal year 2019 cost targets, which, after the recast mentioned earlier, is EUR 10.1 billion.

Let's turn to Slide 19. The second Q 2019 HR costs were down 4.5% year-on-year mainly driven by lower fixed compensation from reduced average FTE numbers. Second Q '19 non-HR costs are down 4.1% year-on-year mainly driven by real estate and sponsorships.

Let's turn to Slide 20. Regarding group cost of risk, I would like to point out 4 items here. First, the overall risk environment remains supportive in the quarter. Our cost of risk was 60 basis points. We confirm the cost of risk target for fiscal year 2019 at 55 basis points, 4 of which from models. Second, cost of risk was affected by the new IFRS 9 macro scenario for 2 basis points in the quarter. Third, cost of risk in Commercial Banking Austria, Commercial Banking Germany and CEE is low and will be below our targets for fiscal year 2019. And last, cost of risk in Commercial Banking Italy was affected by a single name for 12 basis points and seasonal adjustments, including the new IFRS 9 macro scenario for 14 basis points. We confirm the fiscal year 2019 target of 58 basis points.

Our overall asset quality is steadily improving. The coverage ratio stood at 61%, up 0.1 percentage points year-on-year. The group gross NPE ratio improved to 7%, to be more precise, to 6.98% in the second quarter 2019, down 1.8 percentage points year-on-year.

Let's turn to Slide 22. In the second Q '19, NII was down 1.7% quarter-on-quarter mainly due to negative impact on higher deposit volumes. Loan volumes were up in the quarter. For the remainder of the year, we expect a low single-digit billion increase in loan volumes. Loan customer rates were up 1 basis points in the quarter, adjusted for days. Repricing in the Italian market this quarter has already been impacted by TLTRO-III. For the rest of the year, we now expect customer rate to remain flat.

AUM net sales in Commercial Banking Italy in the quarter were positive, beating the market, and that is independently of Fineco. AUM gross sales, however, were down year-on-year and led to lower upfront fees. Transactional fees were up 7.9% year-on-year mainly from P&C insurance that could only partially compensate the lower investment fees. It is worth mentioning that Commercial Banking Italy, our fees have a relative weight of 51% of total revenues in the second Q '19. This ratio has been improving over the last 2 years and compares very well with our local peer group.

Cost of risk in the quarter was 88 basis points due to 12 basis points from a single name and 14 basis points from seasonal adjustments, including the new IFRS 9 macro scenario. For fiscal year 2019, we confirm the cost of risk of 58 basis points. In a risk environment, we still see as supportive and stable. We still expect a contribution to cost of risk from models in the fourth Q '19. De-risking of the balance sheet continues with a gross NPE ratio of 5.6%, down 95 basis points year-on-year. The fiscal year 2019 target of 5.3% is confirmed. The normalized return on allocated capital in the first half 2019 stood at 11.4%, and we confirm our fiscal year 2019 target of around 11% on higher risk-weighted assets.

Let's turn to Slide 23. In Commercial Banking Germany, net interest was up 0.7% quarter-on-quarter. This was the result of slightly lower customer rates that were offset by higher volumes. Fees were down 2.3% year-on-year, mainly driven by lower financing fees from loans. Second Q 2019 cost of risk was exceptionally low at 2 basis points due to some nonrecurring write-backs. For fiscal year 2019, cost of risk will be low. The net profit in the second Q 2019 is meaningfully down quarter-on-quarter as the prior quarter was positively affected by both the disposal of real estate as well as the release of provisions from U.S. sanctions. The normalized first half 2019 return on allocated capital was 9.4%. The fiscal year 2019 target is confirmed at 9.1%.

Let's turn to Slide 24. In Commercial Banking Austria, NII was up 2.7% quarter-on-quarter driven by the days effect in noncommercial items. The underlying commercial NII from loans and deposits was flat. For fiscal year 2019, we expect loan volumes to be marginally higher while loan rates should be marginally lower. Fees were down 4.8% year-on-year mainly driven by lower AUM upfront fees as well as financing fees from loans on lower market volumes. Costs were down 12% year-on-year, positively impacted by a one-off pension-related topic. Without this, cost would have been down 2.6% year-on-year. Second Q 2019 cost of risk was negative 2 basis points due to continued net write-backs. For fiscal year 2019, cost of risk will be very low. The first half 2019 normalized return on allocated capital was 12.1%, affected mainly by the low cost of risk. For fiscal year 2019, we confirm the target of 13.3%.

Let's turn to Slide 25. CEE continues to be our growth engine with an inflow of more than 300,000 gross new clients in the quarter. Commercial dynamics remained strong. Revenues in the quarter was up 3.7% year-on-year at constant FX mainly driven by NII. Dividends were down 4.5% due to ERP. NII was stable quarter-on-quarter with days and FX, FX compensating higher deposit volumes and rates. In the quarter, there was also a positive high single-digit nonrecurring item from a single name. Fees were down 0.8% year-on-year at constant FX. They were negatively affected by a methodological change in CPI financing fees accruals in Croatia. Excluding that change, fees would have been up 3.9% year-on-year at constant effect.

Costs are up 4.3% year-on-year at constant effects due to salary inflation. Overall cost increase for fiscal year 2019 will be lower and below inflation, which we estimate at around 3.5%. The division's cost income ratio remains best in class at 35% in the first half 2019. The cost of risk is low at 52 basis points in the quarter, thanks to a supportive risk environment. We expect some normalization during the year. Fiscal year 2019 cost of risk will be, therefore, well below our 102 basis points target but above the first half 2019 number.

De-risking continues at a vigorous pace, and division's gross NPE ratio improved to an excellent 5.5%. The de-risking of CEE up to the second Q 2019 is already significantly better than the original fiscal year 2019 Transform targets for gross NPE ratio and cost of risk. First half 2019 return on allocated capital was 15.6%. We confirm the fiscal year 2019 target of 13.4% on cost of risk normalization.

Let's turn to Slide 26. The performance of CIB in the quarter is affected by a number of extraordinary items. The second Q 2019 net income normalized for Ocean Breeze disposal was EUR 263 million, up 45.4% year-on-year. This is a good result despite second Q 2019 containing some one-offs as well, such as the loan loss provisions released from single names and the additional provisions for U.S. sanctions. Having said that, the CIB showed a resilient performance in a very difficult market environment.

Revenues in second Q 2019 were up 1.4% versus last year despite lower NII and fees. NII was stable quarter-on-quarter with customer rates up slightly, offsetting a very marginal decrease in average loan volumes. Fees were down 9% year-on-year. This was mainly due to lower financing fees, reflecting declining volumes in European markets for syndicated loans and structured finance. Fees were up 21.6% quarter-on-quarter driven by lower certificate volumes. As certificates get manufactured in CIB for our commercial banking clients, they generate trading income in CIB. When then sold by the commercial banking divisions, they generate positive distribution fees in commercial banking and negative fees in CIB, for a neutral impact at group level. The overall contribution to the group and CIB is, of course, positive, i.e., the trading income generated is higher than the fees paid for internal distribution.

As volumes in the second Q 2019 were much lower than in the first Q 2019, CIB had less negative fees from the certificate production and, therefore, fees were up significantly quarter-on-quarter. Trading income was up 27.5% year-on-year as a better performance in fixed income, treasuries and certificates more than offset the mid-double-digit million negative impact from XVA. The quarter-on-quarter drop of around EUR 140 million is due to 3 items: first, weaker results in fixed income from a lower client activity for a mid-double-digit amount; second, a mid- to high double-digit drop in treasury from lower fair value through OCI bond realizations and the accounting change in FX swaps; and last but not least, a low to mid-double-digit drop from lower volumes or certificates.

Cost of risk in the quarter was affected by nonrecurring single names. For the fiscal year 2019, targets of 21 basis points is confirmed. Normalized return on allocated capital was 11.2% for the first half 2019. We confirm the fiscal year 2019 return on allocated capital target of 11.7%.

Let's turn to Slide 27. In the group corporate centers, revenues were down quarter-on-quarter due to the prefunding of TLAC, lower trading profit from FX hedging operations, mark-to-market of trading book participations and some one-offs mainly related to Fineco disposal. Costs are down significantly, thanks to our efficiency actions. As a result, the ratio of group corporate center cost to total cost is down to 3.3% in the first half 2019. The recast fiscal year 2019 target of 3.5% is confirmed.

Let's turn to Slide 28. The accelerated 2021 Non Core runoff is fully on track. Gross NPEs dropped by EUR 2.1 billion in the quarter and stood at EUR 15.7 billion at the end of the second Q 2019. Our fiscal year 2019 gross NPE target for Non Core will be meaningfully below EUR 14.9 billion, closer to EUR 10 billion. The increase in risk-weighted asset this quarter is almost exclusively driven by the introduction of the EBA guidelines.

Let's turn to Slide 30. We continuously work to de-risk the balance sheet. Group core gross NPE decreased by EUR 2.3 billion year-on-year and EUR 1.1 billion quarter-on-quarter. Also gross bad loans and UTPs were lower both year-on-year and quarter-on-quarter. Our coverage ratio decreased slightly by 0.9 percentage points year-on-year driven by our strong disposal activity. Our core gross NPE ratio improved to 3.9% in the second Q 2019, close to the EBA average and already well below our fiscal year 2019 target of 4.7%.

Let's turn to Slide 31. For the group core, the default rate was at 1.2%. It was down 21 basis points year-on-year. The cure rate decreased by 0.8 percentage points year-on-year as it normalized after an exceptionally good 2018, where some big files in CIB went back to bonds following intense restructuring efforts. The migration rate was stable year-on-year at 17.1%. It improved by 2.1 percentage point quarter-on-quarter as there are -- as there was one single name moving to bad loans in the first Q 2019.

Let's turn to Slide 32. Overall, the risk environment in Commercial Banking Italy remains supportive and stable. Gross NPEs are down to EUR 8.3 billion, which is a significant reduction in absolute term year-on-year and was mainly driven by disposals. De-risking of the balance sheet continues with a gross NPE ratio of 5.6%, down 95 basis points year-on-year. The fiscal year 2019 target of 5.3% is confirmed. The first Q 2019 coverage ratio was at 54.6%, down 0.9 percentage points year-on-year due to significant disposals activity.

Let's turn to Slide 33. The default rate remained at 2.2%, up only 20 basis points year-on-year. It was mainly driven by the seasonal effects mentioned earlier. We expect a normalization of NPE flows in the second half 2019. And as we have said before, the overall risk environment in Italy remains supportive. The cure rate was stable, while the migration rate increased by 3.9 percentage points year-on-year. The latter is solely due to the change in the denominator as UTP volumes have gone down.

Let's turn to Slide 34. The execution of the accelerated rundown of the Non Core is progressing very well. Group loans in the Non Core were down 8.3 -- EUR 8.2 billion year-on-year and EUR 2.1 billion quarter-on-quarter. This reduction was thanks to a combination of disposals, write-offs and recoveries. Please bear in mind that since Non Core became a closed NPE book in the first Q 2019, files in restructuring that are returned to performing status are now in -- back to Core and go back to Commercial Banking Italy.

Let's turn to Slide 35. Non Core loan volumes kept going down and are well on track to meet our accelerated target of full runoff by 2021. Net NPEs, which are a good indicator of economic risk, were down significantly to EUR 5.3 billion, dropping by EUR 2.4 billion year-on-year. Gross NPEs decreased by EUR 5.8 billion year-on-year and stand at EUR 15.7 billion. We will be meaningfully better than our EUR 14.9 billion fiscal year 2019 gross NPE target, closer to EUR 10 billion. NPE coverage has increased by 1.9 percentage points year-on-year and 0.2 percentage points quarter-on-quarter despite the disposal activity. This is mainly due to a portfolio mix effect.

Let's turn to Slide 37. The group core Tier 1 ratio at quarter end stands at 12.08%, down 18 basis points quarter-on-quarter. The key positive items in the quarter were Fineco de-consolidation for 24 basis points and the net profit for 18 basis points. These were mostly offset by regulatory headwinds of 40 basis points mainly from the anticipation of the EBA guidelines in the credit risk models in Italy. The impact from DBO, FX and Yapi was marginal in the second Q 2019 while fair value through OCI contributed with a plus 8 basis points.

Our dividends continue to be accrued at a 30% payout ratio on an adjusted net profit which stood at EUR 1 billion in the quarter. For the second half 2019, we expect net positive contribution from our CET1 ratio from the sale of the remainder of Fineco in the third Q 2019, real estate in the fourth Q 2019 and the shift of up to 0.2 percentage points of regulatory headwinds to the next year. The latter reflects the expected timing of ECB approvals. This makes us confident that our CET1 MDA buffer at the end of 2019 will be at the upper end of our target range of 200 to 250 basis points, assuming BTP spreads at current levels.

Let's turn to Slide 38. Risk-weighted assets in the quarter increased by EUR 15.4 billion to EUR 387.1 billion. The biggest driver was the implementation of the EBA guidelines in Italy, which accounted for almost EUR 12 billion of the risk-weighted asset increase. Market and operational risk-weighted asset were flat in the quarter.

Let's turn to Slide 39. In the second Q '19, our tangible equity grew by 4% or EUR 1.9 billion quarter-on-quarter to stand at EUR 50.7 billion. The main driver was the net profit of the quarter, which more than compensated the dividend we paid. Second Q 2019 was the third quarter in a row where we increased tangible equity and tangible book value per share that has increased to EUR 22.7. Since we launched the Transform 2019 plan, we have already returned EUR 1.3 billion in cash dividends to shareholders. So from a total return perspective, one will need to add the cumulative dividends to the tangible equity. If you would do that, we would now be above fiscal year 2017 tangible equity value.

Let's turn to Slide 40. As the only Italian GC, UniCredit has to comply with the TLAC regulation, which finally entered into force in the second Q 2019. As of the end of the second Q 2019, we are well above our requirements with a TLAC ratio of 20.69%. This corresponds to a buffer of 112 basis points. We now target the upper end of our TLAC MDA buffer range of 50 to 100 basis points.

We have completed the fiscal year 2019 subordinated TLAC funding plan. Decisive actions in the first half 2019 saw us issuing 2 senior nonpreferreds, 2 Tier 2s, 1 AT1 transaction into the capital markets, all in benchmark size, tapping both the euro and the U.S. market. They were very well received by the market and were issued with little to no premium. The performance in the secondary market was excellent, in particular, following the recent rating actions by Standard and Poor's upgrading our outlook above the sovereign and Moody's upgrading our Tier 2 to investment grade. This led to a material decrease in spreads and has considerably increased our market capacity both in euros and in dollars.

Jean-Pierre, back to you.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [4]

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Thank you, Mirko. Before I give you the outlook for the rest of the year, let me remind you of the 4 financial measures we announced in May to prepare our new business strategy that we will present at our December Capital Market Day. We have already made a very good progress on these measures. We sold the remaining stake in Fineco in July, which will give us 0.3 percentage point of CET1 ratio in the third quarter '19. Our domestic sovereign bond holdings are down EUR 6 billion since the last quarter, EUR 2 billion when recasting for Fineco. The post-tax BTP sensitivity has decreased by 27% since the third quarter 2018, well on our way to our target of 35%. Non Core deleveraging continues with gross NPEs down EUR 5.8 billion year-on-year. We will keep full managerial focus on the execution of these measures throughout the year, such as the planned disposal of real estate in 2019 second half.

Our progress has been recognized by international rating agencies in their views of UniCredit SPA. S&P recently changed the outlook to stable, which takes us higher than the sovereign. And Moody's upgraded our stand-alone rating, making our Tier 2 ratings investment grade.

Now for the full year 2019 outlook. The recent change in our operating environment with ECB monetary policy likely to keep rates lower for longer as well as the introduction of the TLTRO-III will lead to lower net interest income. Please rest assured that we will maintain a very disciplined approach to loan origination and investment policy. We will not engage in transaction with the aim of increasing net interest income for the short term.

The lower client activity experienced in the first half '19 was a drag on fees and trading income. First, we adjust our full year '19 revenue guidance from the recast at EUR 19 billion to EUR 18.7 billion. This is based on currency repo rate. If that turns more negative in the future, our sensitivity on a full year basis is about EUR 180 million per 10 basis points. There could also be a spillover effect on our financial year 2020 net interest income.

While the item I just mentioned are clearly outside of our control, we do control cost and risk. Our full year '19 target for both are confirmed. We will also be meaningfully below our Non Core target at year-end and closer to EUR 10 billion of gross NPE. As regard to the bottom line, we expect the second half 2019 adjusted net profit to be on a similar level to the first half '19 with an underlying run rate for the financial year 2019 of about EUR 4.3 billion. As Mirko said earlier, we expect to benefit from a lower tax rate in the second half '19. We, therefore, confirm our full year 2019 adjusted net profit at EUR 4.7 billion. We will base our announced 30% cash dividend payout on that number.

For the financial year '20, as with revenues, the full year impact of the macro headwind mentioned earlier could possibly lower the underlying run rate below EUR 4.3 billion. As you know, there were a number of exceptional items in our P&L in the first half '19 following the strategic decision we took, such as the disposal of real estate and Fineco as well as Ocean Breeze. These are not part of the adjusted net profit from which dividend is paid in line with past practice.

For capital, we confirm our year-end 2019 CET1 MDA buffer at the upper end of our target range of 200 to 250 basis points. We expect the second quarter '19 to have been the financial year '19 trough at 201 basis point. In the second half '19, there will be both positive exceptional items, such as the disposal of the remainder of Fineco and some more real estate as well as some negative exceptional items, such as the impact of the acceleration of the Non Core rundown. We expect these exceptional items to have a net positive contribution to our CET1 ratio. Thus, we confirm that we are at the upper end of our CET1 MDA buffer range.

If I summarize in one sentence, what we have done and we intend to do, we are very comfortable. We will deliver our current planned net income and capital-wise, and we have decided to use extra headroom from a positive nonrecurring item to ensure we start the next plan with a clean slate.

So finally, Mirko and I and the rest of the team are ready to take your question.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Azzurra Guelfi with Citi.

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Azzurra Guelfi, Citigroup Inc - Research Division [2]

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Couple of questions on the outlook and one on the NPLs. When I look at your outlook, I get all the points you mentioned, but it seems to imply that the second half cost base will be flat year-on-year versus 2018. Why is that in the first half, you are showing it minus 4. Is this driven because you are upfronting something for the next plan? Or can you give us some color on this trend? And the second question -- and on the outlook still following up on that. Is it fair to assume that you have a significant improvement in the tax rate in the second part of the year? The second question is on NPL. Can you give us some color on your UTP strategy ahead?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [3]

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Thank you very much, Azzurra. I will briefly answer your question, let Mirko comment in more detail about the cost base. First of all, we confirm our EUR 10.1 billion cost target for the full year, so that's confirmed. And you know that there are some seasonality versus H1 and H2. And we have usually, in the first quarter, a slight increase of costs, which are linked to the full year invoices that we receive. So normal seasonality, nothing more to say, EUR 1.1 billion cost base confirmed for the full year.

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Mirko Davide Georg Bianchi, UniCredit SpA - CO-CFO & Senior EVP [4]

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EUR 10.1 billion.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [5]

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EUR 1.1 billion was a little bit excessive, EUR 10.1 billion confirmed for the full year. I'm anticipating on the new plan probably. On the tax rate, we have an improvement in the second half. So indeed, we confirm that the recurring organic net income should be around EUR 4.3 billion for the full year, which is twice what we had for the first half and that should be the base for 2020 onwards, model any potential change of the rate policy of the ECB. And the positive tax impact will bring us towards EUR 4.7 billion, which is above the adjusted post-Fineco disposal, which should be around EUR 4.6 billion. So the EUR 4.7 billion [profit] would be EUR 4.6 billion, and we confirm EUR 4.7 billion.

What is important is that we have said that we will pay our dividend for the full year. And going forward, it will be the same on the adjusted net income, which includes positive and negative. And so the 30% dividend payout is based on the EUR 4.7 billion for the adjusted net income, whatever it could be for the full year. As far as the UTP side is concerned, we confirm that we will, on one side, accelerate in the second half the disposal of the Non Core. We're at EUR 15.7 billion, we'll go closer to EUR 10 billion and that will be done by a certain number of transactions, including a resi-mortgage disposal. We will anticipate -- this transaction could have a higher provision, which will be put against extraordinary positive item we should have in the second half, so that will not impact the adjusted net profit.

We have confirmed as well that we will runoff the Non Core by 2021. So the runoff of the Non Core by 2021 mean that on one side that the bad loans will be fully runoff, sold or (inaudible) or covered. That's as far the UTP side is concerned. It's a mix of disposal, a mix of recovery, and you have seen that we have announced additional development of the transactional joint venture we have with third parties in order to manage the UTP side. So as far as the Non Core is a concern, we have, today, EUR 10 billion of bad loans, EUR 5.6 billion of UTPs. In the current EUR 5.6 billion of UTPs, we have EUR 2 billion in joint venture with a third party with the latest announcement we made. And we intend, at the end of 2021, to have nothing left in the Non Core. Mirko, on the cost side.

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Mirko Davide Georg Bianchi, UniCredit SpA - CO-CFO & Senior EVP [6]

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On the cost and maybe slightly on the tax side. So yes, you're right. We're basically able to manage costs accordingly almost in line with the first half. There are some seasonal effects, usually in the fourth Q and those you see in the non-HR side. And basically, those are, basically, the components of the development of the cost. But we are -- and we have a much smoother development in cost in Germany, especially on the non-HR side. And we are able to, let's say, continuously support that. On the tax side, yes, lower tax rate, probably below 20%. The full year impact depends also on the country mix profit before tax, and that also implies some swings in the actual tax rate, but assume lower.

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Operator [7]

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The next question is from Adrian Cighi from RBC.

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Adrian Cighi, RBC Capital Markets, LLC - Research Division [8]

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Two questions from my side as well. You provided us with the benefit from 10 basis points lower rate. What is the impact or the potential impact from deposit tiering? And do you feel you might have to share this benefit with customers? And then on capital, you refer a number of times to the upper end of the 200, 250 basis points buffer MDA by year-end. Can you confirm if this range represent a minimum you plan to achieve during the upcoming plan? I'm just trying to understand how much headroom you have for things like a restructuring charge you might take as part of the upcoming plan.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [9]

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On the deposit tiering, I would like Mirko to comment. And the negative rate side, we confirm the sensitivity for 10 basis points, which is around EUR 180 million for 10 basis point evolution of the 3 months Euribor. Deposit change is a bit difficult to say anything because we don't know what will be the mechanism of the ECB basically. But we have -- we're already negative rates. So we're now going to pass a positive impact of the tiering to customers. That is very, very clear. On the buffer, the CET1 buffer is confirmed to be at the upper end of the 250 basis point for the end of the year. We have taken a certain -- a number of actions in order to make sure we will be there. And we have a view that we should have a floor anyway, whatever could happen in terms of P2R at 12% of CET1. So 250 upper end confirmed, floor at 12%. And we expect for next year, whatever could be the evolution or actions in the plan, to remain at the upper end of the buffer of 200 to 250 basis points. You have to understand, and we already mentioned that in the Capital Market Day '17 that we are making sure that we can go through the regulatory headwinds going forward with most of them coming in 2021 as far as CPA guidelines are concerned. We have a much smaller impact of Basel IV going forward than EBA impact. And we want to make sure we have a high capital and high capital buffer to end 2021 EBA guidelines of realization, but we will discuss that in December. We reassure that we target the upper end of the buffer.

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Operator [10]

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The next question is from Antonio Reale with Morgan Stanley.

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Antonio Reale, Morgan Stanley - Research Division [11]

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I've got a follow-up on your revenue -- on your outlook. It's difficult to count on revenue growth per sector. And your latest thoughts around what you mentioned in terms of appetite to move up the risk of (inaudible) margins is clearly understandable. I'm wondering what are the mitigating actions could you take across your Pan-European franchise and product base to mitigate the lower rate environment.

And second question is around capital. It's clearly trending towards the upper end of your guidance, while at the same time, you're accelerating the Non Core ramp down. Now under what circumstances would you consider doing buybacks as part of your capital return strategy going forward? And from your understanding, is there any reason to why the regulator would prefer dividends over buybacks in this environment?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [12]

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I will let the various co-CEOs of the business activities to briefly comment on client and business actions that we have planned for the second half of the year and going forward in order to increase the intensity of our client activities. But I would say that we do not do, and we do not want to do, is we do not want to put in the balance sheet risks which are going to backfire a few years afterwards or to artificially inflate our short-term profit with a speculative position. We think that the market anyway does not pay any multiple on speculative trading profit; and two, I do not want, because I'm a long-term shareholder, to put in the balance sheet items which might generate a profit short term and which can turn bad afterwards. So you can be assured that we have an extremely strict and very disciplined approach to risk and to risk/reward. But I will let the co-CEOs of Western Europe, Francesco Giordano and Olivier Khayat, and the co-CEOs of CEE, Niccoló Ubertalli and Gianfranco Bisagni, to comment.

On the capital, we, as I said, want to be at the upper end of our buffer of 200 and 250 basis point. We will comment at the Capital Market Day of what should be the payback to shareholder and whether or not we can have a mix of cash dividend and buyback or not and what could be the increase of the payback or payout to the shareholders.

I think clearly, if I look at it just from the flexibility that one could get, I mean, you have, clearly, more flexibility if you have a mix of cash dividend and share buyback because you can keep the cash dividend at a given level and adjust based on your capital level the share buyback on the year-on-year basis. So if I was a regulator, I will more encourage a mix of cash and buyback than a pure cash dividend increase, but I'm not a regulator, and we will discuss our strategy at our Capital Market Day in December.

I hand over now to the co-CEOs of Western Europe and then of CEE to comment of client actions which will help us mitigate a more difficult rate environment. Francesco, Olivier first.

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Olivier Nessime Khayat, UniCredit SpA - Co-Chief Executive Officer of Commercial Banking for Western Europe [13]

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Thank you, Jean Pierre. In terms of action across the Western European countries, action will be made on the side of the equation, on the lending side and on the investment side. On the lending side, clearly, priority will be given to working capital solution, and again, not at the expense of mortgaging the future in terms of quality of originations. So any solution that will be favored and any proposal that we are currently promoting are based on this principle. The -- which -- more origination will mean as well more risk management solution in an environment where outlook might be uncertain. And we are going to continue to promote a hedging solution and, of course, a capital markets solution for all the network.

On the investment side, clearly, the negative rate environment is advocating for more investment from our customer to escape the negative rates. Hence, a huge effort on the asset management, the capital preservation products, such as life insurance and a certificate.

On a pure regional basis, let me mention the effort -- specific effort being made on Germany where we have hired around 200 bankers in almost 1 year where we are increasing the footprint in the various region has elated with our high footprint, for example, in trade finance or our increased presence in structured finance and capital market in the Mittelstand. So that's basically the effort being made.

And on the pure segment, on private banking and wealth management, Francesco and I are working very, very hard in the various countries to increase the level of services, the quality of services and the distribution of asset management, structured product and ad hoc solution for this segment.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [14]

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So you can see, as Olivier mentioned that in Western Europe, in negative rates, we don't stay idle. We have a very focused marketing action, growth plan on a regional basis in Germany on the corporate side. Mittelstand is an activity where the return, the RoAC, on the business is actually above our cost of capital. And any of these actions, and we will have a chance to discuss that at our Capital Market day, are very focused on activities which deliver RoAC which is above our cost of capital. Capital allocation for the new business in order to make sure we deliver value to the shareholders is the key driver of what we do besides intensive marketing action.

This is what drives as well our strategy in the CEE. We don't say that the business in the CEE is easier, but at least in the CEE, we have positive rate in countries which are growing. So we have there as well a lot of actions, and you have seen that CEE is a key growth engine for the Group. And I'll let Gianfranco and Niccoló comment about CEE actions.

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Unidentified Company Representative [15]

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Yes. Thank you, Jean Pierre. On CEE, we expect our commercial spreads to stay flat around what we had on the first half with a different mix, with a little bit more pressure on the loan customer rates that will be compensated with the deposit customer rates.

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Unidentified Company Representative [16]

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On the volume, we expect still to grow in loans in the second half of the year, and we also expect to maintain a growth in deposit, which is healthy, especially in emerging market. And that's why we'll also have some effects -- effect on the rates.

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Operator [17]

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The next question is from Andrea Unzueta with Crédit Suisse.

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Andrea Unzueta, Crédit Suisse AG - Research Division [18]

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Just a follow-up on the production levels that you said are going to increase or are part of the mitigating factors for NII. Your new production levels in Italy specifically are 14% below the levels of 2018, which weren't particularly high.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [19]

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So Andrea, could you speak closer to your microphone because you are very much cut actually, so I couldn't understand you very well, yes?

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Andrea Unzueta, Crédit Suisse AG - Research Division [20]

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Sorry. My question is on the new production levels of loans in Italy specifically, which were down 14% year-on-year. I was wondering how are you expecting that to evolve going forward.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [21]

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I will hand over to Francesco Giordano, co-CEO of Western Europe. Francesco has, I mean, direct oversight of Italy that he shares with Olivier. I think that what is important to look at is on one side, the dynamic of our marketing actions. On the other side, I mean, the activity of the clients and the focus we have, as I said, on transactions or clients, which deliver RoAC, which is above our cost of capital. So if we don't find a business which is above our cost of capital, we lower the origination because we are not here to destroy value. But Francesco, I hand over to you.

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Francesco Giordano, UniCredit SpA - Co-Chief Executive Officer of Commercial Banking for Western Europe [22]

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Yes. We had last year especially strong second quarter. We have now stabilized, and we're running at a fairly stable run rate of issuance. Our impression is we're also gaining market shares in some of the more interesting areas, for example, in small business where our issuance is aligned to the one of Q2 of last year. We had especially a slowdown on the mortgage side, which we had done in line of the fact that especially on the riskier parts of the mortgage business, we had aggressive pricing, and we don't want to compete with some of the orders on that. But we are satisfied with the pace of our issuance today and confirmed, as Mirko mentioned, our growth -- moderate growth target between here and year-end.

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Operator [23]

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The next question is from Jean Neuez with Goldman Sachs.

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Jean-Francois Neuez, Goldman Sachs Group Inc. - Research Division [24]

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I just wanted to ask a question on the press article that was there a few weeks ago, which said that you are considering potential further early retirement and a fairly sizable reduction in the work the workforce. The first thing is, is -- was this right? And in a sense, is this sort of a net or gross number? And related to this, what is the typical upfront charge to -- if you express it as a ratio of potential savings? Just to try to understand in terms of the capital development heading into the new plan.

And secondly, in terms of capital elements to go into the new plan, I wanted to understand whether the recent rating actions in particular had any input or any sizable input in the potential decision for MDA levels as well as trying to understand the level of provision, which you anticipated for the rundown of the Non Core? And also potentially, given the positive knowledge we've heard from peers on the size of potential capital headwinds, EBA, et cetera, and even from some of the international peers on Basel IV, I wanted to understand whether you stood by the previous quantification of capital headwinds or whether that's something that we should discuss later in the plan?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [25]

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So Jean-Francois, many thanks for your question. Unfortunately, I'm not going to do the Capital Market Day right now, actually, but that's another point. So first of all, on the capital and capital generation maybe for this quarter and going forward, this quarter, we have a capital generation which is -- we see coming from the Fineco deconsolidation on one side, but -- which is a positive, and we have a net profit -- so for 24 basis points, and net profit for 18 basis points. The net profit include the negative actions that we took to basically benefit from the Fineco deconsolidation. So in fact, the true net profit capital generation should be 28 basis point and not 18 because we have a EUR 350 million of negative plus some Non Core acceleration as well. So it's around 10 basis points. So we have positive net capital generation on a pure organic basis quarter-over-quarter, excluding exceptionals, which I think is important. And we use some of the exceptionals to take actions, as I said, to start the new plan on the clean slate. So that's part, for instance, of what will happen for the Non Core acceleration. But we said and I said earlier that the positive we will have on the second half of the year, part of that will be used to have some negative as well. But those are outside of the adjusted net income, which is the base for the dividend payment. So we'll have positive, we'll accelerate the Non Core, we offset that. And the net of the exceptional will be a net positive and a net CET1 positive in addition to the normal organic contribution to CET1. So that's the first point. So we expect organically to grow CET1, and we use a little bit of the headroom we have from nonrecurring action to have a clean slate.

On the MDA level and on the action we take, it's clear that the more disciplined you are, the more positively the regulator should look at us. So perversely, the more capital you have, the less you need. But I will not comment more than that, and we'll wait for the decision of the regulator towards the end of the year. That I think are the various answers to your points.

For the restructuring side -- sorry, for the restructuring side, we have -- on the -- sorry, I didn't comment on that. We don't comment on the new plan now. There were press articles recently. We said that we never comment on rumors and speculation. These press articles are damaging for our own staff, and so we communicated internally that any actions we could take will be done in a socially responsible way. And we pointed out that, for instance, in Italy, on the preview on the current plan, we worked with early retirement actions. And despite reducing the workforce by 20% on net basis, for instance in Italy, we hired 2,500 people, half of them being women, with an average age of 30 years. So we make sure that we work on our age pyramid and our gender balance, actually. And if there is any adjustment of the workforce, we'll discuss that in December. And any adjustment which brings a provision for restructuring are fully taken into account with our capital projection. And I said that we project to have in 2019 and beyond a buffer where we'll be at the upper part of the buffer, including any potential provision.

So the comments we make take into account all these specific actions and will discuss further in December last year. But I as well said that we will look at the adjusted net income, adjusted for exceptional like restructuring provision, to look at the net income, which will be the base for our dividend payment. So I think it is important that you look when you work on your worksheet at what should be the adjusted net income ex exceptional. We want to make sure that the adjusted net income as a base for the dividend payment will be as stable as possible. And so we'll discuss in December what it means exactly, but you can already anticipate, as much as possible, stability of the net income used for the dividend payments.

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Operator [26]

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The next question is from Domenico Santoro with HSBC.

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Domenico Santoro, HSBC - Research Division [27]

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A couple of questions also from my side. We read on the press about your project of redesigning the corporate structure. I mean this is not only speculation. I know that you don't comment, but it was also hinted in your press release a few months ago. So I was just wondering whether this project, in your view, will have significant impact on the cost of funding. Or is part of your broader strategy to reduce the cost of equity of the bank? Or again, on the better resolvability of the bank?

Then the loan loss provision, of course, you are accelerating the rundown of the Non Core. There is potentially another 2 years, more or less, and presumably also, other one-off in the coming years. I was just wondering, in a lower -- in a scenario of lower rates and more negative for longer, what could be the structure across the cycle, provisioning level for UniCredit?

And on your NII in Italy specifically, I was wondering whether -- is it possible to imagine a scenario where you start to charge corporate deposits?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [28]

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Thank you very much. So I will let co-CEOs of Western Europe to comment more specifically about the Italian side and give you some overall answer to your question.

First of all, on the corporate structure, that's one of the 4 measures we mentioned in the first quarter, we want to make sure on one side that we have the adequate funding level in order to keep financing in the most appropriate way our clients, wherever they are, corporate as well as retail. So it's important for us to make sure that we have a structure where we are immunized, if I may say, from any potential shock, macroeconomic shock, which could happen in the future. Not to say that we expect them, but it's better to be ready than sorry. So that's why we said that we will work on the corporate structure.

This will not entail in the plan an increase of the cost of funding. We just want to make sure that the structure will allow us, should there be shocks, which are not planned today, to make sure that such a shock will not impact the cost of funding. We want to have flexibility in order to be able to react when and if needed.

I just want to point out already as we said that the 4 items we mentioned, which are part of our extremely disciplined and conservative approach, have already paid as 2 rating agencies have graded us. And you have seen, for instance, that our Tier 2 have been upgraded to investment-grade and the spread of our Tier 2 went down by around 84 basis point post the upgrade. So being disciplined should have going forward positive cost of funding as our curve has actually tightened up. And that, I think, is important, and this is why we want to keep an extremely disciplined approach on the business and allows us to have a much bigger market capacity as well on the Tier 2 and other items.

On the broader structure, I mean, we are taking these actions in order to improve the profile of the group, and that should pay as well as far as the other items, which are drivers of our share price are concerned.

On the LLP side, we have a policy to proactively manage our balance sheet. So it is for the Non Core, and we are willing to run off the Non Core by 2021, and we'll make sure that we move as quickly as possible. So we'll be closer to EUR 10 billion at the end of the year, so which means that we will have "only EUR 10 billion" to reduce in 2 years. So it is absolutely under control. And if we look at the provision coverage of the Non Core at the end of the year with around 65% or 70% mean that the net exposure to the Non Core will be around EUR 3 billion maximum. So we could say that by the end of the year, the Non Core becomes relatively irrelevant, if I may say, as far as the risk profile of the group is concerned.

But as I said, we will use any acceleration of the Non Core and potential provision. This provision will be against extraordinary profit in the second half and will not impact the adjusted net income, which is the base for dividend distribution. So we want to bifurcate, if you want, what is the reference of the adjusted net income on which we pay the dividend and which should be the recurring net income versus what are the actions we take in order to accelerate and start 2020 on a clean slate, okay? And that, I think, is extremely important. And we have the benefit, which we created ourself to take extraordinary actions to realize capital gain, extra capital, and we used this capital gain and this extra capital to have actions which deal with issues which were predating Transform 2019. And so as such, we want to be as recurring as possible for 2020.

And as I said, the net income on an adjusted basis should be as stable as possible. On the base of EUR 4.3 billion, which is the adjusted net income that we expect as a base for 2020, modular any interest rate -- negative interest rate activity.

On Italy, I will hand over to the co-CEOs of Western Europe. I just want to say that the actions on the Non Core are also used on the core. And you can see in Italy on the core LLPs that we had a very positive action. The gross LLPs are going down and the NPE ratio is going down and very close to our target at the end of the year of 5.3%.

I hand over to Francesco on the Italian side. On NII for Italy, what action we can take and any the other item.

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Francesco Giordano, UniCredit SpA - Co-Chief Executive Officer of Commercial Banking for Western Europe [29]

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Okay. On NII, first of all, the direct question was if we'll be charging our customers and particularly corporate customer for negative rate. Consider that our relationship with corporate customers is usually a multifaceted relationship where we give a number of services, particular payment transactions, cash management, working capital, together with negative balances. We, therefore, offer deposit taking as part of these facilities, and we, therefore, have no need and, at this point, are not considering charging negative rates.

As Olivier said before, for NII, we have a number of initiatives in place, which are related to a careful pricing, especially for better rating classes, commercial actions for stronger counterparties and focus on small business and consumer credit with accelerated targeting and decisions in terms of issuance. We have fairly successful response so far, and we expect a moderate growth in volumes going into year-end.

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Operator [30]

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The next question is from Hugo Cruz with KBW.

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Hugo Moniz Marques Da Cruz, Keefe, Bruyette & Woods Limited - Research Division [31]

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So I have three questions, if I may. First, in the past, you gave guidance for NII plus fees for 2019. I'm not sure if you gave it already, but just to be clear, if you could give it again.

Second, the new trading guidance, the, I think, EUR 300 million a quarter, do you think that's -- that should also be applicable post 2019?

And third, your guidance on cost of risks for Italian commercial business actually implies lower cost of risk in the second half than first half. Macro is still slowing down. Is that realistic? Or just the first half reflects what are effectively kind of one-off cleanup exercise?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [32]

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Thank you very much. For the cost of risk guidance, I will hand over to Tj as far as Italy is concerned. On the NII guidance, and again, fee guidance for the year, we said that we adjust our top line from EUR 19 billion to EUR 18.7 billion, and we gave guidance for the quarterly trading profit from EUR 350 million to EUR 300 million. So basically, you can do your own calculation if you want, and we feel that this guidance is, of course, realistic.

On -- Tj, on the cost of risk for Italy for the full year and second half.

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Thiam J. Lim, UniCredit SpA - Senior EVP & Group Chief Risk Officer [33]

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Thank you, Jean Pierre. For cost of risk in Italy, as mentioned earlier, the 57 to 88 basis points is mainly driven by a single file, which is 12 basis points, and then there's IFRS 9 scenario, which is 14 basis points. So if you strip that out, that goes down to 62. So really, beside these 2 items, we expect that the cost of risk for the CMB guidance of 58 will be confirmed. At this stage, even though the Italian economy is slowing down, there are no signs of potential deterioration of the Italian portfolio. So we expect the cost of risk to stabilize in the second half of next -- of this year.

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Operator [34]

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The next question is from Giovanni Razzoli with Equita.

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Giovanni Razzoli, Equita SIM S.p.A. - Research Division [35]

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Two questions. The first one is a clarification on the regulatory headwind that you have suffered in the second quarter. During the presentation, Mirko said that they mainly refer to the migration to the EBA guidelines in Italy. Is my understanding correct or not?

And the second question refers to the Slide #31. At group level, there was a quite significant increase in the write-offs on a quarter-on-quarter basis. You basically doubled the amount to EUR 560 million. How shall we read this? Should we anticipate for the second half of the year further acceleration of the run rate of NPL disposals, also in light of the EUR 10 billion NPE ratio -- EUR 10 billion target of NPE of the Non Core?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [36]

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Thank you. I will, as far as write-off is concerned, I hand over to Tj. Just on the regulatory headwinds, we have, I mean, a guidance which is 0 for Q3, now minus 10 basis point for Q4 and minus 40 basis point for 2020. We had basically 20 basis points negative, which are moving from Q4 to 2020, which are linked to the validation by the regulator of the different model. If the regulator has not validated the model, we cannot put them in place, basically. For the second quarter, the pure EBA guidelines had a minus 34 basis point impact, while the overall negative impact of all regulatory headwinds for the second quarter were 40 -- minus 40 basis point.

Tj, on the write-off on second quarter?

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Thiam J. Lim, UniCredit SpA - Senior EVP & Group Chief Risk Officer [37]

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Yes. On the write-off, if I could remind you that write-off is one of the few levers that we use in terms of reducing GBV. Clearly, we also do disposal of the aggressive so-called restructuring file to bring back the bonus. And this write-off is part of our so-called, from last year, write-off policy that from a timing point of view, there were a number of positions that met our so-called write-off policies. We follow this rule according to what we have discussed last year. So this is clearly just one of the example that we are also using not just outright sales, but write-off to reduce our GBV.

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Operator [38]

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The Next question is from Axel Finsterbusch with JPMorgan.

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Axel Jeremias Finsterbusch, JPMorgan Chase & Co - Research Division [39]

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So UniCredit is selling some of the Yapi Kredi AT1 to outside investors. So my question is, how is this consistent with your single point of entry resolution strategy? Should we read this as implying that UniCredit aims to adopt a multiple point of entry approach?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [40]

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I don't think there's any link between SpA and SPV. We said that we wanted to reduce our intra-group exposure for Yapi, which, by definition, being outside of the EU, is an independent point of entry. And we wanted to reduce it to basically half of what it was at the time of EUR 2.5 billion. So within 2 years, to be at EUR 1.2 billion. We were, before the announcement we made this morning just before this call, at EUR 2 billion intra-group exposure with the disposal of EUR 200 million of AT1 that we subscribed in January. We subscribed the AT1 in January but we had a Tier 2, which were canceled for December month. So basically, when we purchased the AT1 in January, it did not increase our intra-group exposure. After the lockup period of 180 days, we decided to sell the AT1 with a negligible impact on our Q3 results, it's a Q3 item, and so our intra-group exposure now is at EUR 1.8 billion. So you can see that we are well on the way to have reduced by half our intra-group exposure on Yapi at the end of 2020 by 50%. We are SpA today, and we remain SpA, if it was the other part of your question.

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Operator [41]

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The next question is from Andrea Filtri with Mediobanca.

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Andrea Filtri, Mediobanca - Banca di credito finanziario S.p.A. - Research Division [42]

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A question on capital and one on asset quality. You have updated and confirmed your guidance throughout. You are at 231 basis points MDA buffer and sticking to the guidance of ending 2019 at the higher end of your buffer range. If this will be the case, can you confirm you will hike payout to 50% on 2020 earnings or do a buyback or a mix of these for the equivalent amount? And is the 12% floor that you indicated during this call just for now, or are you capping the relief from eventual reductions in P2R?

And the second question on asset quality. You continue to run at very low expected loss levels on the new loan production and are defending very high coverage levels. The core revenue guidance has been lowered because of lower rates. When will we see the benefits from lower rates on provisions? Do you have a sensitivity for provisions to lower rates?

And you're also running down Non Core faster than expected yet again. What is the P&L guidance of the P&L run down in the next 2 years, excluding the one-offs, write-offs or provisions you indicated? And just to understand, the cost of risk guidance for 2019 that you have confirmed for the Group, I assume, is excluding these eventual extra charges to accelerate the runoff of Non Core.

Finally, what is the macro scenario behind IFRS 9?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [43]

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So there's a lot of questions. So let me try to answer them quickly, and I will hand over to T.J. for the IFRS 9 question.

Yes, the floor of 12%, we think is adequate under CET1 on an absolute level, whatever could be the MDA buffer evolution, as far as the current business mix of the Group is concerned. So we confirm that, that should apply and we can register that at the Capital Market Day.

As far as the dividend policy is concerned, we'll discuss that at the Capital Market Day, and I will not anticipate anything now. We said that we want to make sure that our capital level is at an appropriate level in order to anticipate future regulatory headwinds evolution. In 2020, as we have a 20 basis point translation, if I may say, of regulatory headwinds from 2019 to 2020, as I just said earlier, the regulatory headwinds are 40 basis points. So we need to make sure we have enough capital buffer to absorb them. And in 2021, if you go back to the projection we gave at our Capital Market Day '17, they were higher than that. So what we do as far as capital projection and the anticipated payout is we look forward to make sure that we maintain the buffer at the upper part of the range that we have mentioned.

On the asset quality side, you're correct to say that the cost of risk of 58 basis point should include -- should exclude, sorry, any extraordinary adjustments we could have on the acceleration of the Non Core as this adjustment will be put against any specific positive that we could have otherwise, so we communicate here about what should be the recurring organic evolution of the group.

On the IFRS 9 impact, Tj? And on lower rate impact on provision, I don't think we have sensitivity. But I'll let you comment as well.

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Thiam J. Lim, UniCredit SpA - Senior EVP & Group Chief Risk Officer [44]

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Yes. Thank you, Jean Pierre. For the IFRS 9, what we've used this scenario is for GDP in Italy to go down from 0.8% that we had to minus 0.1% for 2019 and to 0.4% for 2020. Here, just to give you a sense for it, for each 1% of the GDP, over the next 3 years cumulated, we have impact of EUR 60 million in terms of the IFRS in our LLP. So in terms of the group impact, there's a 1.5 basis points cost of risk for full year and 4 basis points for Italy so far. So...

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Operator [45]

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The next question is from Ignacio Cerezo with UBS.

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Ignacio Cerezo Olmos, UBS Investment Bank - Research Division [46]

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A couple of things for me. If you can comment on net interest income, the forecast for the prospects you have from the investment portfolio and the structural hedge in the second half of the year and into 2020?

And the second one is in terms of asset quality. I know we have asked this question many times, but how sustainable very low cost of risk numbers are in Austria, CEE and Germany for you?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [47]

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Well, we'll let Mirko comment on the net interest income investment portfolio. As far as Austria, Germany and other countries are concerned, we have mentioned that we have clearly been write-back in a very low cost of risk. And we have given guidelines about what should be the evolution of the cost of risk if you look at the Page 20 of the presentation.

In Italy, we said that we have a cost of risk, which is confirmed at 58 basis points. We know that the cost of risk for Germany for the full year will be low. We have cost of risk at 2 basis points, so it will remain low. And we will afterwards go back to what could be a more, if I may say, sustainable cost of risk going forward. In Germany, if we can give guidance, the expected loss on the performing stock is 16 basis points. So at one stage, you need to have some kind of convergence. Austria has a net write-back position, and so we expect the cost of risk for Austria to be very low. As far as the full year is concerned, Austria has an unexpected loss on the performing portfolio of 25 basis points. And the cost of risk of the CEE side is today low at 52 basis points, and we said that the cost of risk for the year should clearly be well below the 102 basis point, which was the initial guidance. And we have, as far as the CEE side is concerned, an unexpected loss on the performing portfolio, which is around 57 basis points, so a very good expected loss.

So we will see how the cycle evolve, but as you know, we put very strong focus in terms of quality as well of new origination. And as far as the first step is concerned, we have a new origination, which for all the countries is at or below the cost of risk on the stock. The new origination on average improved quality of the portfolio.

Mirko, on the investment portfolio and NII?

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Mirko Davide Georg Bianchi, UniCredit SpA - CO-CFO & Senior EVP [48]

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Yes. On the -- in general, on the investment portfolio, basically, the impact that -- of course, we are not reinvesting in BTP, so that will have an impact on NII on one side, and that is in line with our strategy of, let's say, derisking the balance sheet.

On the replicating portfolio interest rate, you know that we have a 10-year rolling strategy. And if I look at the quarter-on-quarter evolution, actually, we were pretty flat in terms of the impact. If I look at the half year versus half year, we basically performed around EUR 30 million lower. Nevertheless, you have to take into consideration the evolution of interest rates going forward. So what's going to happen with Draghi in September, and that will, of course, potentially impact our, let's say, replicating performance. Nevertheless, it's a 10-year replicating portfolio, so also the implications are quite slow to basically impact the performance there.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [49]

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So I think as Mirko mentioned that the impact of lower rates have to be looked at on the investment portfolio but also on the replicating portfolio because on both, you have an impact of negative rates, basically. So the average -- if the rates stay lower for longer, the average will go down, and that's unavoidable.

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Operator [50]

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The next question is from Andrea Vercellone with Exane BNP Paribas.

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Andrea Vercellone, Exane BNP Paribas - Research Division [51]

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Only one question. Can you disclose what was the average excess deposit at the ECB in the first half of the year? And what do you believe, at this stage, your stance will be vis-à-vis TLTRO III funding?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [52]

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So I mean I don't have the -- in mind, the average excess deposit. The ECB team will look at it. If we find that now, we will tell you. Otherwise, we'll contact you -- IR will contact you afterwards.

As far TLTRO is concerned, our funding plan is not based on the participation to the new TLTRO and is based only on self-help basis, basically.

On average deposits, at this...

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Andrea Vercellone, Exane BNP Paribas - Research Division [53]

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But if it's on offer, will you -- obviously, you have currently TLTRO, which will mature in installments.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [54]

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Yes.

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Andrea Vercellone, Exane BNP Paribas - Research Division [55]

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I appreciate you don't need it, but is your stance, I don't need it, I take none? Or it's cheap, so I'll take some?

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Mirko Davide Georg Bianchi, UniCredit SpA - CO-CFO & Senior EVP [56]

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The reason is that we have an excess liquidity situation in the SpA in Italy, and therefore, basically, projecting forwards at this type of levels of what we know in terms of the TLTRO 3, it's not economic on one side at this point, and I still have, let's say, 1.5 years, 2 years of the old one that is cheaper. And then we're going to assess going forwards from an economic perspective where we need to be. But I think what's important is that we are in an extremely strong liquidity position in SpA, and that's very important as a starting point than to be able to deliver the internal MREL that we will have to deal with in 2021. So what I'm saying is that we are extremely well positioned from that front.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [57]

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And we don't intend to draw on the TLTRO just to play carry trade if it's the base of your question because we want to make sure that we have a very sound and recurring NII.

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Unidentified Company Representative [58]

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It seems we don't have the deposit number, I'll give you a call later.

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Operator [59]

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The next question is from Anna Benassi with Kepler.

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Anna Maria Benassi, Kepler Cheuvreux - Research Division [60]

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Just a couple of questions. One refers to your revised guidance for revenues for this year. You go for EUR 18.7 billion, that implies second half of the year higher than the first half. And you said also that because of your new trading income guidance that second half trading income should be more or less EUR 100 million lower than the first half. So I just want to be sure that the result of that is that you expect higher fees and NII in the second part of the year, which is a bit surprising considering also your comment on the sensitivity to a decline in the Euribor rate. And within this question, I am also curious to understand if you consider sustainable this 6% increase in fees in transactional activities, which sounds very strong. So if you expect some clients coming back on the proposed increase in fees?

Finally, on the cost of risk guidance. Now I realize from your previous answer that any additional provisions related to the acceleration of the NPE Non Core will be put on top, but then I don't see how it works with the lower guidance for the Eastern European part platforms, so Germany and Austria, running below the initial target. So in theory, I would expect the 55 to become lower and then you will put something on top.

And then this is certainly my mistake. I'm a bit confused on the EUR 4.7 billion confirmed target for adjusted net profit for this year and then the way you adjust. And you said the extra provisions are not included, and then you talk about EUR 4.3 billion rather than EUR 4.7 billion. I'm a bit confused probably because of lot of numbers you gave us today, a lot of details, a lot of questions. So just a final clarification on that from my side.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [61]

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We just want to make sure you're not confused. So on the EUR 4.7 billion, we confirmed the net income of EUR 4.7 billion and we said that the underlying performance and profitability of the group will deliver EUR 4.3 billion net income, which would be the base as well for 2020. But that -- the gap between EUR 4.3 billion and EUR 4.7 billion will come from a specific lower tax rate, which means that we confirm the EUR 4.7 billion, which is above the adjusted positive Fineco level, which should have been at EUR 4.6 billion because of a lower tax rate but the issue take out due to tax impacts, the underlying organic, if I may say, and operating profitability should be EUR 4.3 billion. So the EUR 4.3 billion is the reference, but the tax impact makes it EUR 4.7 billion.

On the provision for the extension of the Non Core, as we said and we did for the first quarter, we want to use some of the positive exceptional to make sure that we can offset this positive exceptional partly by some negative exception, as we did for the first quarter, we accelerated the disposal of Ocean Breeze. I don't think it is in our business to own 80 wind turbine in the North Sea, so we wanted to sell them. And we took advantage of extra profit coming from the disposal of Fineco to dispose of the Ocean Breeze side, and we took additional actions as well on some items which were predating Transform 2019. And in the same philosophy, we will put the provision which should be taken on the extension of the Non Core against this extraordinary profit on the second half, which will not impact our net income, which is the base for dividend payout.

As far as the top line evolution is concerned, the 18.7 billion is our new projection. If you look at the fees, I mean, we are very comfortable with the increase of transactional fees, which have been very dynamic in the products here. And we have a very good business from the value subcomponent of the transactional fees. But you have to see that the financing fees have been very low in the second quarter. There is a seasonality impact on financing fees where they are usually higher in the second half, and specifically, in the fourth quarter because a client close their transaction and financing fees. If they are low one quarter or higher another quarter, we can see in the pipeline we have on transactions, specifically on the CIB side, that we have much more transaction in Q3 in the pipeline than we had in Q2, which was a low quarter. If you look at the overall syndicated loan volume for the first half, it was 15% or 16% lower from MREs on overall Pan-European level than the same level for last year.

So you can see that there is quite a sharp decrease on the volume. And we think that there will be a compensation or that the financing fees will jump back up. And on the investment fees, we have seen a more positive development, which could be a combination of AUM as well as certificate for the second half. So we stick to our guidance of EUR 18.7 billion basically on -- which is coming from the fee side, coming from the NII side, while the trading side at EUR 300 million is probably more in line with what we expect them to produce EUR 350 million that we communicated before because we have a reduction of our BTP portfolio and government bond portfolio.

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Operator [62]

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The last question is from Anna Adamo with Autonomous Research.

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Anna Adamo, Autonomous Research LLP - Analyst [63]

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Firstly, on MREL, when are you planning to disclose your total MREL requirement, your subordination requirement within this? And related to this point, how confident are you that the senior exemption will apply to the MREL calculation?

Then the second question is on capital headwinds. Can you remind what is the impact of calendar provisioning rules? And maybe to follow up on this point, can you disclose the vintage profile for UniCredit NPEs, both on secured and unsecured?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [64]

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Well, on MREL, we'll let Mirko comment. We have disclosed on Page 40 of the presentation the TLAC ratio, which is binding now for the GCC of 20.69% with a requirement of 19.6%. And you know that the TLAC should be the base for the subordination requirements of MREL.

The -- on the capital headwinds, I mentioned that we have a translation of 20 basis point from Q4 2020. So we have 0 capital headwinds in Q3, we'll have minus 10 basis point in Q4 and minus 40 basis point on 2020. I don't know if there's anything else to say, Tj, on your side as far as the headwind is concerned, and then Mirko can comment on the MREL requirements. Just one thing is we are on the MREL very confident that the 250 basis point senior bond exemption will be granted. But Tj, on the capital headwinds?

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Thiam J. Lim, UniCredit SpA - Senior EVP & Group Chief Risk Officer [65]

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Yes. I think the one that you've asked, it's a calendar provision, just as a reminder, that we -- the impact that was communicated in CMD 2017 is 41 basis points, so there's one part to add. And we will update you at the CMD on December 3, all of the regulatory headwinds.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [66]

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And Mirko, on the MREL requirement, which is sensitive to the, of course, the adjustment of our Pillar 2 Requirement with the reduction we had last year.

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Mirko Davide Georg Bianchi, UniCredit SpA - CO-CFO & Senior EVP [67]

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Yes. No, we got the requirement in May 2018 of 26.03%. Of course, that was based on a year-earlier numbers that did not include, basically, our capital increase, so you can assume 1 percentage point lower. And in terms of the, let's say, the senior preferred exemption, yes, it will be part, and we are actually using it in order -- with senior preferred issuance, and we are allowed to use it.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [68]

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So basically, the MREL is calculating with 1-year delay, and the reduction of the P2R when we had the communication in May was based on the 250 basis point P2R. With the reduction we had of 200 basis point, that decreased the MREL requirement mechanically by 1%. And the SRB will communicate the final figures later on, but as far as TLAC is concerned, which is the most binding requirement, we are well above the subordinated requirement of MREL, basically. So we are absolutely comfortable to be well above any MREL requirement.

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Operator [69]

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There is one more question from Carlo Tommaselli with MainFirst.

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Carlo Tommaselli, MainFirst Bank AG - Research Division [70]

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A couple of follow-ups for me, please. The first one is just a clarification on the total revenue guidance, again, sorry for this. Basically, these EUR 300 million, down from the previous guidance. For trading, it is clear that we should expect EUR 100 million lower run rate in H2. Could we consider the commercial revenue guidance previously at EUR 16.8 billion excluding Fineco, if I'm right, down by the remainder EUR 200 million mainly for NII? Or there are any other moving parts? Any chance, again, that net fees could mitigate NII trends?

And the second question is on the NPE disposals in Q2. Could you share with us some granularity in terms of type of NPE transactions, i.e., percentage of secured and unsecured, and some price indication as well, please?

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [71]

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Well, on the disposal, we're not going to go into granularities because these transactions are private transactions, so we cannot give information which are not public. And the only thing I could say is that we have seen a very healthy bid from the counterpart, which were actually in excess from time to time of our own expectations. So I think the market is still there and there is money to be invested with regular sellers of NPEs, which have established track record of structuring and of giving the proper due diligence data room, and I think it creates a competitive advantage, which is very clear.

On the revenue guidance, the EUR 18.7 billion includes, of course, the adjusted guidance for the trading side. And on the commercial revenue side. I mean as I said, we have some fee components, which can better perform in the second half, mentioning the financing side, for instance. But the team is as well working very proactively with the clients on investments as well as on any other type of transactions. So I think that the -- as the 2 -- the co-CEOs of Western Europe and CEE mentioned, we are not staying idle in an environment which can be from a macroeconomic point of view a little bit slower. And we push very proactively our marketing actions, and that will translate into potentially higher commercial revenues, and that's what we do, both in CEE and in Western Europe.

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Unidentified Company Representative [72]

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With that, I believe, we have no more questions. If that's correct, we can close the call.

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Jean Pierre Mustier, UniCredit SpA - CEO & Director [73]

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Okay. Thank you very much for your time, and we'll be looking forward to see you in the next 2 days in London and going forward in September after I hope a well-deserved holiday break we will be able to take. Thank you very much, and speak to you soon. Bye-bye.

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Operator [74]

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