Banco Bpm Societa Ord

Good afternoon, this is the Coral School Conference Operator. Welcome and thank you for joining the Banco BPM first half 2020 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Roberto Peronaio, IR Manager of Banco BPM. Please go ahead, sir.

Thanks a lot. Thanks, everybody, to be present with us at the presentation of Banco BPM First Half Result. As usual, before leaving the floor to Mr. Castagna for the presentation, I would only remind you that you can find the presentation on our website at on the investor relations page and that the section Q&A is reserved only to the financial analyst. I leave the floor to Mr. Scastagna.

Hello, good evening everybody. I know it's 6.30, over 6, so I have to be quick. I'll try to do my best. Thank you for being with us. I know it's been a long day also for you. I start on page 5 basically some news about how is our reaction to the COVID what we can say almost as all the other banks we are back to normal of course with much more digital business grown over these weeks and months basically we have reopened all the branches we will terminate our full reopening by beginning of September and now we have more than 90% of our people in the branch and almost 50% into head office compared with the 35% in the branch and 20% in head office during the peak of the COVID I won't spend time about digital you can see the figure how they've grown they are consistent also now that we are basically with all the branch open basically the digital experience has been appreciated by our client and also I would say by our colleagues back to normal also in terms of business as you can see investment product placement and fees and commission which were the two items eaten by the Bpm Bpm Bpm Bpm Bpm Bpm and 121 in May. The average of the Q1 was 147. On page 6, some comment about the government support measure and how our bank is proactive trying to have a granular approach at client level in order to exploit all the opportunity given by the state measures. and also the possibility to try to cover at our best the needs of our client. Basically, we had a three-step approach analyzing all the corporate and SME clients. The drivers were the pre-COVID rating, the capital solidity, the sector outlook, and the share of wallet. Having done that, we then segmented our client into different groups, homogeneous groups, in order to assess which kind of impact they would have had by the COVID and which kind of measure they would need on our side in order to be the safest possible. As you can see, the output was to give a target list for each relationship manager basically indicating the strategy to be adopted at single client level. On page 7, the new lending activity which grew a lot into Q2. The results of full semester was 12.4 billion of new lending. up 15% vis-à-vis first half 2019 and the impact of the guarantee as of June was 2 billion out of the 12 billion just to mention the pace of the growing guarantee measures in July we are up to 4 billion so 2 billion only in July the amount and the pipeline of the public guarantee amount as of today to 11.5 billion of which already granted in July 4 billion as I mentioned before and out of the 7.5 billion still to be granted we have 5 billion which are already authorized by our credit department and waiting for being drawn by our client. Only 2.6 billion under approval. Going to the moratoria measure on page 8, just a quick number. We had suspended installments for 2.3 billion out of which 0.4 out of Abbey Moratoria and 1.9 billion for the Cure Italia Decree Moratoria. The total underlying exposure related to this installment amounted to 16 billion, out of which 3 billion Abbey Moratoria, 12.9 billion Cure Italy Decree Moratoria. As you know, the Abbey Moratoria has 12 to 24 months of Extension. Meanwhile, the decree is supposed to expire by September this year, but is most probably to be renewed with the August decree, as far as we know, at least to January 2021, giving us, of course, time to intervene in order to have the best possible measure for our clients to comply with the installment basically also to this regard we have a distribution by rating class mostly in the low-medium risk class applying for moratoria differently from the financing guaranteeing by the state the moratoria was basically applied by everybody the majority of which are in the low-medium risk, 76%, only 14% in the mid-high risk and 10% in the high risk categories. The exposure to selected sectors, which we mentioned also in our Q1 results, which are the most exposed to COVID, is only 500 million for mid-high risk and 300 million for high risk. Let's have another look on this issue on page 9. As you can see, out of 102 billion of loans portfolio, we have 86% from 87.8% in the low, medium, low and medium risk categories and 8% in the medium-high, 5% in the high risk category. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord of this 8 billion, almost 5 are already covered by either real estate guarantee or state guarantee approved under the liquidity decree. The remaining 3 billion are still under examination in order to find the best solution and try to give also to them the support as much as possible of state guarantee. if we go to the level of high risk rating and mid high risk rating the 8 billion became 400 million for the high risk 1 billion for the mid high risk and only 100 million and 400 million are still to be secured on page 10 we have the scenario that we applied on the performing loan exposure in order to consider the ECL impact on H1 result which as you know was 140 million on the performing exposure this was extrapolated with a more conservative scenario vis-a-vis the Q1 as you know in the Q1 we had our own scenario which was more or less 8% of lower GDP meanwhile the new scenario is the one approved by ECB and is a multi-scenario approach which give us more or less 9.6-9.7% of lower GDP, but we were able to disaggregate by sector the impact of the relevant GDP reduction for each specific sector. And again, the COVID impact was 140 million on the performing exposure. On page 12 You can find the results of Q2 compared with Q1. As you see, we reported 105 million of net profit, which was 128 adjusted. On the left of the slide, you find the disposition considering the fair value on liabilities under net financial results. in order to give you a more comprehensive and comparable effective result we have re-exposed the fair value on the liabilities and the net income before tax in order to give you a comparison of the line by line result Q2 on Q1 as you can see on the right side of the slide 12 we were able to have better results basically in every items Q2 on Q1 both in terms of NAI in terms of total income revenues were up 5% not in terms of fee and commission where I told you we have registered more are the fact of the COVID lockdown. We also were able to reduce 3.3% operating cost and have profit from operation at 387 million compared to 320 million of Q1 2020. provision were up almost 50 million 263 compared to 213 for a pre-tax profit 2.6% higher of Q1 106 million versus 103 million after systemic charge we had the net income before the line that I mentioned before and the PPA which was 76 million positive compared to 20 million of Q1 2020. The final net income including the fair value on liabilities is negative 46 million compared to 151 million Q1 which in turn was affected by this item. Let's go to the sort of sum up of the most important item on page 13. We have, frankly speaking, a quite solid H1 performance in in these COVID context. Total revenues again up 5% cost down 3.3 with very good pre provision income. Also in terms of reserves and unrealized gains we got the most but our Govis portfolio as you can see quarter on quarter we had 230 million of reserves on fair value on cost which of course apply to our common equity R1 and impact for 40 basis points Meanwhile, we also registered a very comfortable 245 million of positive performance in terms of unrealized gains on debt at a much higher cost. But as you know, this is not going neither in the profit and loss nor in the common equity tier one. It's still a reserve which is very comfortable for the months ahead. also in terms of volumes we had a quite comfortable growth both in terms of loans which grew 4% year on year and 1% quarter on quarter the real growth is still to come if you consider that only in July we registered another 1 billion of increase in stock which is another 1% compared to the second quarter of this year the same in terms of current account and deposit the increase was 8.7% year on year 3.2% quarter on quarter in July we have another 2.1 billion of deposit growing 2% versus Q2 2020 asset quality we are experiencing a slow decrease of our MPE exposure going down from 9.1 to 8.7 gross and 5% net MPE ratio with the Texas ratio down to 49%. Very comfortable also our liquidity and funding position of course couldn't be different because of the possibility and the opportunity that we exploited drawing 25 billion of TLTRO. We still have 24 billion of unencumbered eligible securities and we still could draw another 10 billion of TLTRO3. The LCR of course was up 193%. Capital ratios also in these also on the capital side we had some strengthening Common Equity Tier 1 grew 40 basis points fully loaded to 13.3% mainly due to the strengthening of the Govis performance meanwhile phase-in Common Equity Tier 1 was up 14.7% also in terms of MDA buffer we were up 335 basis points as you may remember our guidance is 250 basis points meanwhile on common equity tier 1 ratio versus minimum requirement we are up 480 basis points let's go to some specific figure of the balance of the P&L net interest income is up 5 million on the right you can see the different contribution to the growth of the net interest income is interesting to notice that also in the three months of the quarter we had a slight increase month by month from 154 million in April to 164 in June the commercial spread is up some basis point We feel that this could experience some decrease in the next months due to both the lowering of the Euribor and also the increasing volumes of state guarantee which of course have lower spread. I already mentioned the volume both in June and also the increase we registered in July. So I skip page 17, going to page 18 where we have some details about our performance in lending. Strong increase, 13% vis-à-vis same period last year. 22% up in terms of corporates. 30% down in terms of household but if you look on the left low side of the slide you can see that also the household in the Q2 is growing from 0.6 to 0.8 likewise of course enterprise and corporate then there is another figure that scheme that you can see the different figure month by month as you can see we are increasing quite dramatically the lending taking advantage from the state guarantee let's say that in Q2 the amount of state guarantee represented 29% of the total new lending only in July the amount of state guaranteed loans was up to 60% and this of course is going to better our loan portfolio quality on page 19 just one minute about the funding. Of course, we are not issuing anything. First of all, we had some very interesting and very good in terms of rate issue in January and February. Nowadays, we are waiting for normal time to restore, but first of all, we haven't drawn so much in terms of TLT Altro. We are we have almost covered all our needs. I would say that the only thing we will issue by this year is for regulatory requirement if needed and not for liquidity needs. Talking about liquidity on page 20 again 24 billion of unencumbered eligible securities up to 28 billion in July I already mentioned that we can draw another 10 million of TLTRO the total effect of the TLTRO drawing will be in H2 2020 because of course as you know the drawing was done at the end of June let's go on page 21 to net fees and commission as you can see we were down 8% year on year and 14.6% Q2 and Q1 I can say that we are optimistic if we see the right side of the slide you can see both in terms of revenues on the upside of the slide and in terms of monthly product placement trend on the lower part of the slide, the restoring of the normal activity. I would say that after experiencing a very low April with 104 million of revenues coming from commission, we went up to 121 in May and 150 in June, which is in the average of the best two months beginning of the year. the same as you can see on the low side of the slide we went from 1.2 or 1.5 billion of product placement January and February down to 0.9 0.3 0.7 now we are back to almost the normal activity of course coming from the reopening of the network again on the financial next financial result as I mentioned before the results is minus 82 million compared with plus 206 million but these are mostly due to the fair value of the own liabilities on the certificate issuing from our bank if we exclude these lines which you know is not going to affect the common equity tier 1, we register a comfortable 82 million of NFR compared to zero in the Q1. Mostly of these revenues came from disposal of Govis for 34 million, from some revaluation of fair value assets for 29 million and negotiation activity for 18 million. I don't comment the reserves on debt securities and the underlying gains which we already mentioned before and which are still registered and further increase also in July. Debt securities, our portfolio has increased in the last two quarters this year. let's say that the first quarter we just recovered as we do every year some trading activities which normally end of the year we try to keep as low as possible meanwhile in the Q2 we had an increase of almost 3 billion of HTC Govis with a very short maturity Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord page 24 just to mention that the duration is very low is going down for Italian Gov is AC from 3.9 to 3.3 and for Italian Gov is ATCM from 2.3 to 1.6 and the basis point value is down to 1.5 million on page 25 some good news from operating cost we were able to still reduce as we are doing basically since the beginning of the merger as you can see on the right side of the slide basically we are down on the average result of each year 15% from 2017 and we have reduced another 4.5% Comparing H120 to the same period 19. Still we feel that we can be able to have some further reduction in cost also in the second part of the year, namely in staff cost but also in other administrative costs. on page 26 we have some figures about asset quality as I mentioned before we are down to 8.7 and 5% of total MP ratio gross and net and 3.1 and 1.4 on band loan ratios the coverage is still sound 56% on band loan 63% if you include the write-off, 80 basis points higher, a bit lower, 30 basis points lower in UTP coverage, down to 39.3, mainly due to the different composition of the UTP portfolio where we increased the guaranteed UTP versus the uncovered. a good increase also in past due coverage and the total coverage of 48.6 including write-offs of course we have also increased as I mentioned before the performing exposure to 45 by this point flows are going very well the migration rates are still very comfortable down 1.1 percent default rate down 8.1% danger rate or unfortunately also down the cure rate to 3.7% as you can see the inflows both to MPEs and to bad loans are very low of course this is also due to the moratoria effect on page 28 cost of risk The blue figure is the normal cost of risk, mainly in, of course, coverage on non-performing exposure. Meanwhile, the yellow one is COVID-related top-up in generic provision, which amount to $140 million between the two quarters. The cost of risk with this increase is up to 88 basis points on the first half and 97 basis points on the Q2. I would like to draw your attention to page 29. This is a graphic that in our opinion can explain together with the attention we are having for covering as much as possible our client with state-owned guarantee also this slide is very important it shows you how our geography helps in cost of risk containment as you can see we have split Italy in four different areas each one of course representing different regions in which you have the red one which are the one with the MP ratio the higher MP ratio you can see that most of our peers have a good exposure to this region while we have only 1.5% of exposure to our book to this region and the same of course going up where we have the bigger exposure is in the region where the gross MPE ratio is below 9% so I think this can give you some idea of how we could be able to safeguard our asset quality profile. Another very interesting, quite new slide we are going to propose is page 30. This is to show that it's very difficult to imagine a pick-up of the cost of risk to historic situation. As you can see, we exposed the different contribution to the global cost of risk for 17, 18, 19 and 20 split into the stock-driven provision, the disposal provision, the flow-driven provision and only for this year also the COVID impact. As you can see on the correlation on the right side of the slide, the most important correlation is the stock, the amount of stock that you have and so having reduced quite impressively the stock from 30 billion to below 10 billion, is quite difficult to consider a cost of the stock that can go higher than the level that we have right now I would say the same almost for the flows of course there is a lower elasticity in the flows but also this is important to show that if you see the different figure of the flows this can show you that basically our bank was already with a good clean up when we started the merger unfortunately we had a lot of stock but the quality of the performing portfolio is performing almost the same since the merger finally strong capital ratios and buffer we have anticipated the figure of 13.3% on common equity tier 1 14.7 phase in let me say some details the increase was driven by the HTCM reserves on GOVIS and from the SME supporting factor meanwhile we are already embedded in our capital the effect of the FWA deterioration following the DGDP scenario we have applied to our numbers and the shift of the PD from the best categories toward the lower one. This should bring some lower effect in terms of reduction of common equity tier 1 in the second part of the year we are really comfortable with the MDA buffer we are registering and the only possible the only effect that we are forecasting for reducing common equity tier 1 is related to the combined effect of regularly headwind and tailwind which are going to be applied by the year end and amount to some 35 basis points. Just some final remarks. We find the performance quite solid, a good net income. Moreover, a comfortable pre-provision profit up to 390 million in Q2 versus 320 in Q1. and fostered by a very good cost containment which we feel will characterize also the second part of the year. Also the provision policy is prudent. Our scenario does not forecast other potential impact on performing loans. We are deciding and we will make some Bpm Bpm Bpm Bpm of course the workout for the first part of the year was very difficult because of all the constraints of the COVID so we are having some sort of understanding and some reverse offer on the market in order to see if it's possible to have toward the last part of the year some disposal of MPL The capital position is very robust as much as the liquidity and MDA buffers. Some figures about the outlook. I already mentioned a positive outlook for the second part of the year. basically all the more significant items are going to better so both NII fees cost control as much as the cost of risk we should remain at the level we have envisaged we imagine a potential outlook between 90 and 100 business points I would terminate with this and I leave the floor to you for your questions.

Excuse me, this is the Coruscant Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 under touchtone telephone. To remove your staff from the question queue, please press star and 2. We kindly ask to use handsets when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Cristian Carrese with Intermonte. Please go ahead.

Yes, good afternoon. Thank you for taking my question. I would say a positive set of results, in particular on core revenues. My first question is on net interest income. If you can share with us the moving parts expected in the second half of 2020, in particular in terms of customer spread evolution, I would suppose a further reduction of the spread due to new loans guaranteed. The current additional contribution expected in the second half and the possibility to increase for additional €10 billion of the TLTRO take-up. The GOV's exposure increased in the quarter. We expect to further increase that exposure. And there isn't any room to optimize liquidity, taking into account that today you have a liquidity coverage ratio of 193%. The second question is on fees. We saw a quite important increase in deposits year-to-date, I think €5 billion. We saw a positive trend in June. Do you expect this year, the third quarter, to be different from the other years in terms of seasonality? Do you expect some commercial action to try to regain what was lost in the first and second quarter? For question on cost base, you said the cost should go down further in the second half. So if you can update on redundancy plan, let's say, and the reduction of branches that you announced after the COVID outbreak. And finally a question on M&A and dividends. we saw ECB asking banks not to pay dividends to keep some capital for COVID-19 and at the same time issued a consultation paper in which clarified the rules for M&A so bad recognition and so on I was wondering if you can share with us your thoughts on M&A we saw the successful bid by Intesa for UBI

do you see further consolidation need for consolidation in the current environment so it could be helpful to hear from you your thoughts thank you thank you Mr. Carrese very comprehensive set of questions I would say of course I cannot give you the right number but we expect a quite consistent increase of NII in Q2 this is both for TLTRO but also for the increase of volumes of our lending activity even though will be temperate by the slight reduction in the spread because of the bettering of the quality of the asset of the loans we are going to grant. We don't think as I mentioned before to exploit Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord a cost so he's very a dimension unfortunately a we think that we are quite good at cost reduction we have done a massive cost reduction for three years so the plan a we try to have a an unfortunate the in NASA planning which would not the captain cost so much because we told it was the time to invest Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord we will be able to consistently reduce cost base for personnel and also for other general costs Commission as I mentioned before we are quite comfortable because of the June performance the July was in line with June the normal this is for investment products the normal activity is recovering the amount of loans we are doing of course bring with them also a lot of commercial activity and so we can have some sort of optimistic approach in terms of also banking commission as we registered already in June dividend capital as you see is very strong of course we are still showing an optimistic approach but we want to see if the situation is really the one we see right now so we will take advantage from the ECB rules to wait until the end of the year and then I hope we will have a clear view of the situation to understand what is better to do but the most important thing is that we have enough capital the MDA buffer is well comfortable and the production also of profit that we mentioned for the first half we feel is possible to have also good production in the second half M&A Congratulations to Intesa for the deal. Of course, this is a new situation. We couldn't do anything and so we had to wait to see what was going to happen. For sure, this is a catalyst for new aggregation. Our job is to be ready to take any potential opportunity at our best and in order to do that we will try to work as much as possible to have a sound balance sheet, sound revenues and be ready for whatever opportunity is going to come. just a follow up would you take into consideration also a buyback having in mind the current low valuation everything is possible we every year we do this conversation which depends from the amount of revenues and profit we are going to generate and I would really take the opportunity to wait up to the end of the year but again I think you can be

comfortable from the sides of capital we have reached thank you the next question is from Giovanni Dazzoli with Equita please go ahead good afternoon some clarifications on my side the first one is on your cost guidance because if I'm not mistaken in the business plan you were assuming Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord The second question relates to the situation of Agos, which has been very good performance in this second quarter. Please correct me if I'm wrong, but if I remember correctly, you have a put option with Cardia Agricola on 10% stake for evaluation of €150 million, which expires in June 2021. Why list? You retained the option of listing the company, if I'm not mistaken, by November this year. I was wondering, as the timing is running late, what are your thoughts on this stake and what could be the impacts on your capital if the put option were to expire or if you were not succeeding to listing the company? Thank you.

Thank you Giovanni. You are right, we mentioned of course in the business plan some early retirement scheme. Of course nowadays everything is frozen because we have to wait for the update of the plan in order to start a negotiation with the union which are a prerequisite in order to make some provision on the exodus. So of course what I was mentioning before in terms of cost reduction was not taking in account the potential add-on need for redundancy of course if this will be the case we will have enough room also for that but of course I was talking like for like. Agos, we have also because of the COVID we decided together with Crédit Agricole to give some time for deciding what to do, and we are basically under negotiation to postpone the maturity of the put option. So I cannot give you any other details because it's not yet closed, but the intention of both parts is to postpone to better times, I would say, the possibility to list the company.

Okay, thank you.

The next question is from Fabrizio Bernardi with Fidentis. Please go ahead.

Hi, everybody. I have another question on M&A, the usual one on Anima. And if you can give us an update about the possibility that other asset management companies may join Anima sooner or later, maybe there is an evolution of the situation considering the UPI has gone. and deeper may be looking for a partner. Second, if you think that there will be an extension of the moratorium, as some of the CEOs that had the conference call in the last few days have told us. And third, if you can give us an idea of the capital gains on God is all to collect or at the most high cost that you may realize quarterly. just to have an idea of the magnitude of the trading line that we can assume. Thank you.

Thank you, Mr. Bernardi. Anima, as I mentioned many times, Anima is a strategic partnership for us. Of course, we took the opportunity to increase our stake Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord we don't forecast right now to increase our stake in Anima but again all the product factory for us is a core business and we want to try to be stronger in each of these product factory the extension of Moratori of course I don't know nothing for sure as far as we know we have been told that there should be some postponement in the new decree from the government the one which will be issued in August if this is the case it is very good for the banking system because as much as we have arranged the good transaction for many of the clients who needed the moratoria and the liquidity to comply with the installment we will have another 3-4 months of time as I mentioned before we have worked for the vast majority of clients but still we have some thousands of clients which we have to deal with so some postponement would be very beneficial again for the reserves and realized gains Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord

So this multiple is more a risk or a concern or a positive factor from the M&A standpoint, because at the end, UBI was taken over at 0.5, if I'm right, the tangible equity. So more than twice your multiple. So which is your consideration about the current valuation of the stock?

No, of course, I am very disappointed about the current valuation. we would like to be of course in a different position but we have to take to have respect for this valuation the market of course in the last month I think there is some realignment vis-a-vis also other banks which are reducing the market cap we will try to fill the gap and in order to be ready again, if the case may be, either to have a potential aggregation or to valorize at the maximum possible level our stock in case somebody would like to look at our bank.

The next question is from Tiberio Guidolin with JP Morgan. Please go ahead.

Good afternoon. Thank you for taking my questions. I just have two quick ones. The first one is on capital and what impact on RWAs are you expecting from rate migration in the second half of the year and in 2021? And then secondly, could you just please give us a better understanding on what drove the increase in associated income over the quarter? Thank you.

Thank you for your question.

Again, it's not that easy to consider the capital impact. We feel that we have already done what was needed in terms of outlook and forecast in order to adjust our deteriorating of our performing portfolio. with the scenario that we mentioned before. But on top of that, we feel that even though there should be some further deterioration, for sure we still don't have factorized at the right level the positive effect of the guarantee. So we are right now experiencing, as of June, we had only 2 billion out of 11 of potential pipeline of guaranteed loan already in our book. In July there were other 2 billion and we are growing up possibly to fill all these pipeline by the year end. If this is the case, of course, the positive impact of the guarantee will go on to completely offset in our forecast the potential further deterioration, if any, of the FWA. In terms of the stakeholders in our participation, I would say normally especially in the last year the best contributor was Agos and is also the reason why this year we are having a lower contribution and of course the second is Anima Thank you

the next question is from Jean-Louis with Goldman Sachs please go ahead Hi there I just thanks for the call I just wanted to ask on your comment about filling the guaranteed loan bucket so the question that I have is how do you expect this to play out the filling up of the guaranteed bucket because do you expect this to be loans to new clients or do you expect that even though it's not the aim that essentially over time Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord but the provisions which did not relate to COVID they the one that you call physiological cost of risk they still rolls almost 20 basis points on the quarter without necessarily having seen many new NPL so I just wanted to understand whether you'd stick to the cost of risk guidance that you gave earlier in the year and whether you think that this year is the peak or whether you think that the lag effect is going to hit 2021 as well as per the slide where you show that The stock is much more powerful in terms of provisions than the typical flow. And my second question is on costs. I just wanted to ask, the cost reduction like 5% year over year, that's a really big reduction and that's great to see. I just wanted to understand whether in there, there were any costs that you've postponed or any operations that you would normally do any investments or any items which is essentially going to have to be expensed at some point down the line and where this is a temporary decrease which will have to be refilled either in Q4 or later in 2021. Trying to find what's the right base essentially. Thank you.

Thank you. I try to give some order to your question. the guarantee if I understood well you want to know how much is a replacement of loans how much is a new loans of course especially for small medium enterprise the vast majority is replacement so I would say sixty percent is going to replace loans which are expiring as normally do during the year normally also normally we do 20 billion of new loans each year of course it's not that this is all add-on to the stock the add-on is only 2-3 billion per year so normally there is a maturity and a replacement which is more or less 20 billion this year we feel could be much higher we feel could be in the region of 26-27 billion the vast majority of course is replacing but there is also 30-40% which is going to be new loans not compulsory to new client but the new loans to existing client or to new client in terms of if I understood the question about the cost of risk excluding the performing side the increase of 40 million if you see also in Q1 and Q2 2019 there is the same increase in Q2 is quite physiological because Q1 normally comes after the end of the year and you have done a lot of provision already for year end. So I don't think it's something which is worrying us. Again, we showed the correlation between the increase of stock and increase of flows to the cost of risk and for the time being we are not experiencing neither increase of stock of MPL or increase of flows. so we feel that this could be the normal situation up to the end of the year the only new things could come from further eventual performing provision provision on performing lastly cost no we are not going we have not done any postponement we are of course Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord which, of course, for the current situation, have been postponed, but are not costs that will come without revenues.

Okay, that's great. Thanks a lot.

This was very clear to me. Thank you.

The next question is from Noemi Paruk with Mediobanca. Please go ahead. Good evening.

Thank you for taking my question. I have two. The first one is on capital. You mentioned 35 basis point headwinds in 2020. Can you please update us on the distribution over time of the capital headwinds that you mentioned in your business plan? And can you update us on the disposal and synthetic securitization in the plan? Did you make some of the securitization in 2020 already? And the second one is on fees. If I'm not mistaken, you are planning to reprice current account fees in H2 worth 20-25 million. Do you confirm this is still happening? Thank you very much.

Yes, I start from this. We are confirmed that we have postponed due to COVID whatever increase in cost of current account. This will start from January 2021. and so we are of course postponing this fee driven increase that will come from next year in terms of capital if I understood well your question the 35 basis points comes from headwinds and tailwinds I think that most of them will come in the last quarter but I cannot really be so precise with you basically they come from negative ARB markets the operational risk going to standard and the update of the historical series meanwhile the positive one comes from the software deduction and infrastructure supportive factor Most of them, I think, will come in the last part of the year.

I was referring to the distribution over time between 2020 and 2022. From your business plan, I see 100 bits of hydrants between 2020 and 2021. So is it reasonable to think that in 2021 we will see 65 bits of headwinds?

Yes, of course, we mentioned that we are going to have some shift towards 2021. Basically, everything is postponing by one year, so we will have a less impact on 2020, a bit higher impact in 2021, again a lower impact in 2022 and 2023. The global, of course, is going to be 200 basis points as we mentioned in the presentation of the business plan.

And can you update us on the disposal and synthetic securitization as well?

Thank you. Yes, of course, the Foregas was done

taking in account a lower amount of provision that we had in Foregas for the business plan of course doing more provision the shortfall is going to be reduced so possibly we will have lower impact also for that Daniel asked about disposal basically we are still working for some security station possibly by the year end. I already mentioned some sounding about MP disposal but still nothing sure to tell you for this quarter.

Thank you. The next question is from Antonio Reale with Morgan Stanley. Please go ahead.

Hi, good evening. Thank you for taking my questions. Two from me, please. The first one is on your cost of risk guidance. I'm looking at your slide 10, which shows your assumptions so far, which I think imply, from the model, which I think imply 140 million of low losses from IFRS 9, and that's exactly what you've booked in Q1 and Q2. My question is how much of your full year guidance of 90 to 100 BPs is purely model-driven, i.e. from macro, and how much is underlying, and if anything else, how much is sector-specific or any other. That's the first one. Also, it's a follow-up from your previous question, but I think what I asked for is nine models. There's a significant question or element as you decide how much to book in 2020 versus 2021. I wonder if you can share the logic there and what your numbers imply for for next year. That's the first one. The second one on your latest comments regarding the disposal of MPLs. You've been one of the most active sellers of MPLs in Italy in the last few years. You've been negotiating MPL sales pre-COVID and you seem to suggest also post-COVID. I would like to hear from you anecdotally what you're seeing in terms of MPL bids compared to before COVID. If you can share just a bit of an aspect, widening, if any, of your experience of Patent.

Okay, thank you, Mr. Reale.

So I'm sure I got the first one. I have some problem with the second one, but I'll try to go for the first one. cost of risk basically as I mentioned before the we should be done with the provision we have done on the performing loans this year of course if our forecast are correct so basically whatever will come will come in order either to increase the MP ratio the MP coverage or because of some higher flows should come to non-performing loans so I think we shouldn't be so different from the figure we mentioned in terms of performing loans as far as I understood that you make some positive comment on our disposal so thank you very much what do we feel Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord in which we have no direct experience so this is why we are having some trying to have some understanding taking also in consideration that for disposal concluded by 2020 there is also some benefit coming from the government measures in terms of fiscal So we will try to understand what is possible to do. We think that we have a very comprehensive portfolio in terms of secured, unsecured, more secured, more provisioned and so on in order to find the best possible solution.

Thank you.

The next question is from Alberto Cordara with Bank of America Merrill Lynch. Please go ahead.

Very good afternoon. I just wanted to connect to a question that you asked before by a colleague of mine. Looking at the regulatory headwinds, you mentioned that there is a net impact of 35 bps in the second part of the year. So my question is, can you give us an idea what is the gross positive tailwind from software intangible and infrastructure supporting factor? And another question related to this, of the 200 BPs that you mentioned of regulatory headwinds, how much will be taken this year in the second half, and how much is left for the next few years, and in particular for 2021? and the other question is I think before you mentioned that this state back guarantee loss comes obviously at a lower spread and the arrival is taken is on a negative path so can you give us a bit more of an idea on what we should expect in terms of NI evolution over the next few quarters thank you

For the first question, I think you make reference to the 35 basis points I mentioned before. Again, the different items, I didn't mention the right numbers, but the different items are the market, the update of the historical series, the going standard for operational risk. So this amount to some let's say almost 50 basis points and on the other side we have a positive impact between software intangible deduction and infrastructure supporting factor of more or less 15 basis points so all in all it could be 35 basis points with this we have done with the forecast we gave you with the presentation of the business plan but the IRB on credit you know that we have a long standing request application for the disposal we have done we are still waiting for that and most probably this will come in 2021 the second was NII again also for that there is increase of volumes possibly quite consistent decrease on spread because of the quality of these volumes coming from state guarantee loans or very low risk borrower which of course are taking some liquidity and the contribution of 1% for the TLTR drone this year. So it's a consistent increase in NII.

What should we expect in the next quarter?

Is it still an increase in NII or some pressure?

It's almost even in Q3 and Q4 because of course there is this big impact also from TLTR for the full deployment of TLTRO and also a consistent increasing month by month of the new loans. As I mentioned before, in July we had 2 billion of new loans all with the state guarantee. Okay, thank you.

The next question is from Andrea Vercellone with Exane. Please go ahead.

Good evening. I've got two. One is a clarification on the moratoria or on the extension of the moratoria and the second one is a follow-up on a previous question on cost of risk. On the moratoria, you mentioned before and we also read it in the newspaper that maybe it's postponed to the end of January and you said that would be very important because that gives you more time to wrap guarantees on client positionings. I don't understand why that is the case since you are free to move anything, at least that's my understanding, from the expiring moratoria, the state-sponsored one, to the other one, which is not lapsing yet. If That is not correct. I'd like to know why and what are the differences. To me, it's more or less a carbon copy, one or the other. And the second one is on cost of risk. If I'm not mistaken, you said before that the provisions you will book in H2, whatever they will be, they will only be related to stage 3 loans, so existing MPLs or new MPL formation other banks are also doing some stage 2 overlay i.e. moving some positions to stage 2 and posting some provisions I call them a bit invented provisions is this something that you're planning to do as well or you'll just take it as it goes and and then if you have NPL formations next year, you will provide them. Thank you.

Thank you, Mr. Vercellone. First question, of course I can switch. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord But of course, if this is not coming, we can also work with the Abbey moratorium. Secondly, I want to be clear about that. We of course have forecast which are quite consistent in terms of provisioning. Also in H2, we expect that this will come from potential... Even though I mentioned... as of today we don't have either increase of flows to the deterioration neither from UTP to bad loans and so it's very difficult to make forecast but with the scenario we have there is a potential deterioration of the default rate of the danger rate and so on so if we follow these numbers we have a some consistent provision to do which will apply mostly to MPL and not to other performing if this is not the case and we will be consistent with the default rate and danger rate which we are experiencing right now which are basically the same as usual I think it would be possible to make some more provision also on stage 2 because there is not a deterioration from stage 2 to stage 3.

And your 90 to 100 basis points guidance assumes this top up or it's all underlined? My understanding is that it's all underlined plus what you have already made in H1.

I would say that it's very difficult that could happen both. So for me it's very difficult that can happen both a shift between stage 2 and 3 and at the same time a further increase of stage 2. So we think we are safe enough with our Folegas which are again the famous let's say 100 basis points we still don't know if it will be because of the increase of Stage 2 or because there will be a shift from Stage 2 to Stage 3. As of today, it's more because of the increasing of Stage 2, but it could be different in the next months.

Okay, thank you.

The next question is from Domenico Santoro with HSBC. Please go ahead.

Hi, good evening. Thanks for the presentation. Very two quick questions on my side.

First of all, on the DTAs, as other European banks have done in the Euro, you're going to potentially tamper your targets when the profit targets, of course, when you present a new business plan.

So I'm just wondering whether at the point there will be Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Can you give us a bit of visibility on the incremental contribution from TRTRO in the third quarter, given that some of the banks are also giving back to the ECB part of the liquidity?

Thank you very much.

Okay, thank you for your question, Mr. Santoro. We have very clear the effect of DTA. we know that from one side they can be very useful if the profitability is going to increase on the other side of course they are a burden to the profitability on equity so in any case we will have to do the right choice up to now we thought we still think with the last business plans we presented that was not the case to write down Let's take advantage of this month, but as of today we don't think this is the situation we are going to face. But of course we are under a very extraordinary period, so just for example if the situation should be I can use the gross profitability of TLTRO because it's very easy it's 1% split basically even Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord so is almost 60 million per quarter if you could be able not to have negative yield on utilizing this liquidity all right thank you very much gentlemen there are no more questions registered at this time

Gentlemen, would you like to add any final comments to conclude the conference?

Okay, so thank you very much to everybody. Plenty of questions. I'm very happy considering the timing. Have a nice holiday and see you on September. Thank you.