Banco Bpm Societa Ord

Excuse me. The Coruscant Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. We can be asked to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Giovanni Razzoli of Equita. Please go ahead.

Good afternoon. Quite a few questions on my side. The first one is the guidance for the cost of risk on a full year basis. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord I was wondering what was the contribution of this, and I ask you this because I've seen that the elder to collect and sell reserves related to the government bond portfolio had a massive negative impact in the Q1 on the CT1, minus 47 basis points. So without those benefits, the CT1 would have gone down significantly, and this reminds me To the other question, I was wondering whether in the context of the new business plan, you may consider an in-depth revision of your exposure to the BTP that is just increasing the volatility of your CT1 in conditions like this. I understand there is a strong contribution to profits, but we see that the profits probably are significantly more volatile. The very last few questions. Can you tell us, out of the $4 billion of state-guaranteed loans that you expect to issue as part of the decreto liquidita and decreto cura Italia, what is an estimate of the rates that you expect to apply to these loans? I ask you this to understand what kind of Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord or is it going to be a brand new business plan? I ask you this because we had more or less the same period as you did the plan, Unicredit, Mediobanca, and Bipper, and they still stick to their business plan and strategic actions. So I wonder whether you may reconsider in depth what you've done with the new board, with the

beginning of March business plan or whether it's going to be just a rolling of the new economic estimates on the same action thank you this is more a private session for you Mr. Razzoli but I will try to do my best also because I don't know if I was able to take care of all your questions but starting from guidance of course we were very attentive in trying to have the best of our capability in understanding the situation right now given the amount of also taking into account of course the impact from guarantee and moratoria which is something very consistent in the light of a very bad GDP provision for this year so the average as I mentioned to you sensitivity was minus 8% for this year plus 4% far and a half percent for 2021. To this, we applied different sensitivity related to the effect of the moratoria and of the guarantee. Of course, in different scenarios, which I simplified when I mentioned the potential amount nowadays possible. We don't know the evolution. And the final number was 70 million, which increases the cost of risk to 80 basis points. I am not giving you already a guidance, of course, as I mentioned before, it's very difficult to have a guidance right now, but if our assumption, more than on GDP, on the effect of the guarantee would have the effect that we expect in terms of LGD mitigation and PD enhancement, the first through the guarantee, the second through the moratoria, I feel that 80 to 90 basis points could be a good assumption. With this, I think I took the first two questions. Herakle contribution was minimal, so I don't think that has contributed a lot to offset the big impact of the H2 collecting sales, negative effect. I think Heracle was worth 7 basis points, so not a big amount. I think it was bigger, if you allow me, the dividend distributed by Agos, which, as you know, lowered the threshold of our participation above 10%, which had an impact of 12 basis points BTP we have not changed a lot our approach in BTP as I mentioned to you the only differences are related to the training activity we have an average maturity of few months and we are very able to offset these quarter by quarter Meanwhile in terms of health to maturity portfolio increases of around 1 billion and in terms of health to collect and sales is almost the same amount but reducing the duration to 2.3 years. So I would consider that also the loss already applied to our capital as a very short span in order to potentially recover. The average rates, I can be very open on the 25,000 because we announced that we are taking the overall spread of 1.2%. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord interest rate given by the by the government and of course most of these transactions will be due in a normal and fair competition environment and so will apply possibly and I imagine lower rates than the current one because of the effect of the guarantee but all in all would be an enhancement of the return on capital of this transaction. Business plan, if I can simplify, I would say that we stick to the revenue side strategy of the old business plan as of today because of course as I mentioned if we were able to do a new business plan today we would do that so if the situation will not change too much and the results of the first quarter confirm the idea that we had about the fast growing line of our revenues meanwhile we are of course learning some lessons from Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord

The next question is from Cristian Carrese from Intermonte. Please go ahead.

Yes, good afternoon. I have a couple of questions. The first one is on net interest income. I saw an increase in the spread, just a spread in the first quarter. I was wondering what do you expect due to, as you said, the guarantee. So if there will be an impact in terms of asset spread and the combined effect also on TLTRO. You reduce the TLTRO, assuming you're going back to 2019 level, 21 billion euro, what could be the impact, the positive impact on net interest income? and overall announced to connect interest income for 2020, taking into account also the disposal of MPE that you have already done. The second question is on cost. I mean, you said that you could do better than the plan. The cost we saw in the first quarter could be seen as a run rate do you think or maybe they are a little bit too low and you expect some increase in the coming quarters and finally on cost of risk 70 million generic provision in the quarter in general terms do you expect higher cost of risk in 2020 or in 2021 because I would expect and be picking up in 2021 rather than in 2020. And finally, I would like to congratulate for the presentation and the details on the loans portfolio that can help to understand what could be the impact of COVID-19 crisis. Thank you.

Thank you, Mr. Carrese. NII. so frankly speaking is difficult to talk about race we just started you know to apart from the ones the small transaction I already give you the guidance but for the big one would be really a question of competition amongst the market basically there will be a very strong part of companies applying maybe are not of the first I level but there are many company which are very good and that that very strongly negotiating with our competitors so is too early frankly speaking to give you some guidance what give comfort to me is that for sure we will have all in all an increase in NII because even though there will be a slow reduction in marginal rates there will be a big increase possibly in volumes so and of course a very good return in terms of return on capital so this frankly speaking is let's say an ideal situation let's try not to make wrong move both in terms of granting new loans and in terms of condition and interest we will try to keep our attention very high as we we're trying to do also in the Q1 as you have seen it was the first time we had an increase in asset spread so basically all in all a big increase cost I would say and this is the final word about guidance because we are not giving you already guidance but I can say that the pace of the first quarter would be the minimum level we expect in term of cost reduction of course hinting that we can be better last but not least very very interesting question about 2020 and 2021 I explained before that we are trying to do what the regulator suggested so to have a long-term view about sensitivity on cost of risk so the fact that we are increasing and possibly until we don't understand the real effect of the crisis will be still putting some more revenues facing our assets will be just because we think that in the next year basically we could have some real deteriorating effect. I never experienced also without the support and intervention of the guarantee from the state a very short lag time between a macro deterioration and the cost of risk increase in the bank. So already normally it takes a couple of quarters to be evident. In this situation in which we will have the moratoria to stop the status deteriorating from performing to non-performing. and, of course, the impact of the guarantee sustaining the probability of default, of course, I think that we are very happy to be cautious this year for something that mostly will appear next year.

Just a final question on dividend. We know ECB recommendation for this year. for 2019 dividend for 2020 taking into account your current positive capital position and maybe could we also improve thanks to the CRR anticipation rules anticipation maybe if you can I know that it's quite early but are you confident to be able to pay a dividend in 2020 or not

or it's too early? Seriously speaking, I think it's too early to make any comment. But of course, our willingness is the same that we had when we announced the final year results. And until the last day that we had in order to communicate the suspension of the dividend, we were very confident that a dividend distribution would have been possible. Bpm Societa Ord

The next question is from Jean Noyes of Goldman Sachs. Please go ahead.

Hi there. I just wanted to ask two questions. The first one, obviously, you volunteered as an answer to a previous question, the guidance of something like 80-90 basis points of cost of risk. And I just wanted to know, I mean, I'm just throwing it out there here, but for example, Unicredit is going around with a guidance of around 200 basis points, I guess, you know they don't operate very differently from you guys and I just wanted to understand how confident are you in yours you know what could be the bottom or is there any sensitivity around that and whether there is any color that you can share with regards to what you assume when you say some when you just you know give the guidance and the second thing I wanted to ask was on capital and whether you expect So you've listed the positive impact that could happen with the delay in supervisory reviews, headwinds, etc. I just wanted to know whether there was anything negative that might happen and that could lower the capital ratio this year, excluding obviously losses or just volume growth, but just in terms of rating migration, review of models, or any of these things that if NPL starts rising, might increase the density for the same amount of assets, given that other banks have talked about that also in other countries. Thank you very much.

Sorry, Jean-Francois, Roberto Fernandes speaking. We had a problem on the line. Could you repeat the second question, please?

The second question is about procyclicality of risk weights. So we've had a number of banks across Europe saying that from here to the end of the year, maybe the rating, etc., require more risk-weighted assets for the same amount of assets. I see you've listed the positive impacts, and that's great. I just wanted to know whether there is anything also negative to offset those positive impacts in terms of regulatory relief that you've listed in your slides.

I will try to do my best to answer. Effectively, we had the time to to think about old bank announcement about forecast in cost of risk I would say that we are more or less on the same level apart from Unicredit of course I don't want to comment on other bank forecast frankly speaking I was not able of course to answer to Unicredit the assumption that led to these enormous cost of risk forecast I don't know if they consider as we did the moratorium the guarantee as a mitigation strong mitigation effect on the deterioration of the GDP so basically this depends on the famous v-shape and they are very tough from the first year but have a better recovery in the second year I don't know the assumption underlying on the longer run because as you know we had to do an exercise mixed also with the longer run expectation so I can only comment on my forecast on NWA we are it's a long time that we are trying to work on the efficiency of our RWA. Of course we will still do this exercise during this year. Let me say that the capital absorption of the potential increase of our loan book would be minimal due to the guarantee. So I really feel that we wouldn't have any material effect also on RWA.

Okay, very clear. Thanks a lot.

The next question is from Andrea Vercellone of Exxon. Please go ahead.

Good evening. Just one question left, and it's on the TLTRO. As you said in the plan, you had planned to reduce your reliance on the TLTRO. I never agreed at the time. I see it as free money, so I don't see why you shouldn't take it. Even more so now that the terms of the conditions for the TLTRO-3 have changed significantly for the better. so the question is that what do you see as the counter-argument to not take the full amount you can repay it in one year if you don't need it it's free money so why wouldn't you just take the whole lot and worst case scenario you park it back at the ECB and pocket the difference that's my question thank you Mr. Vercellone good evening

I have to say that we took all we could in the previous quarter up to 21 billion, which was the far maximum amount during the merger period. Frankly speaking, after we overcome all the problems that avoided us to go to the market when it was impossible, we preferred to give a try to the potential bettering of our rating. As you know, it's something that we are very unhappy with. It's something that we consider unfair, especially vis-à-vis some of our competitors. And the main reason why we were told before the COVID that it would have been difficult to better our rating was... the full drawing of the TLTRO and on the other side the low recourse to the market so since I would say second quarter last year we started in view of reimbursing a part of the TLTRO with the TLTRO 3 that came out only in the last part of last year we had forecast that TLTRO would have come again middle of last year so we decided to have a funding plan feasible also without TLTRO of course TLTRO had been confirmed also in better condition also with a very good premium and because there is no more room to hope that in this environment we can have a bettering of our rating of course we will do all the best in order to exploit the TLTRO advantage also because the only condition were to increase loans of course we are already above the threshold let's give us some time in order to understand what is better also because in this time of course I should need to invest in office because I'm growing with deposit I have a lot of opportunity also on a bilateral side the loans are not yet growing in the measure we expect and soon this will happen for sure we will have more recourse to TLTRO ok thank you the next question is from Fabrizio Bernardi of Fidentis please go ahead good evening

is there anything you want to share with us about Anima about Agos Ducato and what can happen to this company and if you have changed your view about M&A considering the situation that is clearly evident about Intesa and UBI Banca and the bad will arising from the deal which is massive so my question is if the current situation may actually force other banks including Banco Bpm to maybe consider deals in order to exploit the situation. Thank you.

Thank you, Mr. Bernardi. Our strategy, again, does not change very much about our main strategic stakeholders. We are very happy of Anima and of Anima Performance. I think that also Anima is very happy of the contribution that Banco Bpm gives to the company. We have now also a new CEO which has the responsibility to present a new business plan as soon as the market will allow him to make some more considerations. I read some lines today but of course we don't have time to talk about their strategy so let's give him the time to work about strategic issue and we will be happy and ready to give support. The same frankly speaking for Agos of course is a very different situation because personal loans in this very moment of course have not the same appeal of pre-COVID condition but happily enough this is a very safe and Prudent Company. They are still provisioning a lot in anticipation in order to have a prudent approach. As soon as this emergency gives us some idea about the potential future of the company, for sure we will have talks with our Co-Shareholders Credit Agricole and decide what to do as you know we have more than 18 months time in order to decide what to do on the stake. M&A I'm very happy this show that my idea that in these times one week accounts for more than one month because one weeks ago nobody was thinking about M&A and now basically this situation maybe give us the hope that the new season can materialize. We are frankly speaking trying to do our best to run the bank over a proper roadmap, of course on a stand-alone basis. If I can, the effort that we had two months ago multiplied during these weeks. Let's give us time to Bpm Societa Ord Bpm Societa Ord

The next question is from Hugo Cruz of KBW. Please go ahead.

Hi, thank you for the time. I wanted to ask about capital. You know, there's a few moving parts coming up in the next quarters, SME supporting factor, new treatment for software intangibles. You also mentioned that some regulatory headwinds have moved from 2020 to 2021. so if you could quantify all of these different moving parts would be very helpful.

Thank you. Thank you, Mr. Cruz. Let me give you some idea that we can materialize today in order to see the headwind. We generally gave the statement that we think a good part of 2020 headwind can be shifted to 2021 as well as a good part of 2022 would be shifted to 2023 thanks to the regulatory statement. Basically we will anticipate SME supporting factoring which for us accounts for 20 more or less 20 basis points positive. We have a sort of shift of potential negative hand wind coming from the Basel IV and as far as the internal different inspection that we were having in order to understand the magnitude of a potential impact on ARB of course also this is let's say on hold and most probably we will have some idea about that in the last part of the year.

Okay, thank you.

Thank you.

The next question is from Noemi Peruc of Mediobanca. Please go ahead.

Good evening. I have two questions from my side. The first one is if you could please break down the 6.6 impact over PPA line by line please and then the second one is if you could update us on your NIH sensitivity to a river thank you very much a better than I do sorry you can find all the detail on the PPA line by line in the explanation notes of our press release or if you need a

I can give you the detail after, but it's a public number on the press release. Thank you. And the second one, sorry, Noemi, could you repeat the second one because we had some problem to understand it on the line. Thank you.

Sure. If you could update us on your NIR sensitivity to a ribo, please.

Coming soon.

on an AI. So 100 basis points is 16% on an AI. Thank you. The next question is from Adele Palama of UBS. Please go ahead.

hi good afternoon um can i uh know um can have some color on the change in the valuation reserve uh the impact of the 47 between on the capital and then if you can give us an update or the sensitivity on the capital from the widening of the btp boom spread then um on in on asset quality um where do you see the gross NP ratio going in 12 months, especially considering that the moratorium, I mean, at the end of the moratorium, basically, you will have, if I'm not mistaken, you will have only 33% of the payments covered by the currencies for the moratorium.

Thank you.

back for you know now sorry I'm trying to go like some a.m. exact the type out sensitivity sorry I get it yes for each a.s. to go like 10 say said no this is a 1.3 million per basis point the impact of capital a.m. if I understood well you wanted to know the asset quality expectation in terms of gross MP ratio in 2021 again I think that 2021 will be the year in which we understand if the recovery is gone if the measure from the government will be will have helped the economy to and the company to restore otherwise of course we will have no other possibility rather than switch to non-performing, even though we will be covered for the majority from state government guarantee. So it's very difficult right now, frankly speaking, to give you an assumption. It will depend from Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord So sorry, but I cannot help because I don't have a right range of data to give you.

Can I ask you, sorry, on the bank insurance, what's the contribution from the bank insurance business to the fees in the quarter? How do you see the pollution for the 2020?

I'm recovering the data.

In terms of commission, you mean? Yes, just a second. protection is 11 million of commission thank you mister Castagna there are no more questions registered at this time so thank you everybody for your time I hope that the one who will meet next time we will have better time and first of all we will be safer thank you very much bye