Banco Bpm Societa Ord

Good afternoon. This is the Corosco Conference Operator. Welcome and thank you for joining the Banco BPM 9 months 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 Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.

Thank you very much, everybody. Thank you for being with us tonight for the presentation of the third quarter result. As usual, before leaving the floor to Mr. Castagna for the presentation and then up to you for the Q&A, Let me remind that the presentation you can find on our website on Investor Relations page and the Q&A section is reserved for a financial analyst. Thank you very much. I leave the field to Mr. Castagna.

Good evening, everybody. Thank you for being with us this evening. I will try to be as much quick as possible in order to give you time to make your Q&A section. So starting on page five, We want to highlight the very resilient and the path of recovery, which is characterizing our first nine months, particularly significant in a difficult environment like the one we are still involved with the COVID-19 threat. As a matter of fact, Q3 was very good in terms of core revenues, 9.5% Q&Q, for the reduction in cost minus 5.2% Q&Q healthy build up in pre-provisioning income which is not only is 44% better than Q2 but is also better 6% relating to 9 months 2019 which as you know was a very good year for us on top of that I would like to stress that we decided as we anticipated in Q2 a further reduction of MPE through disposal. We have managed to close a deal, two deals actually, for 1.2 billion of total consideration of which 1 million of UTP and 200 million of leasing bed loans. The total risk in consideration since the start of our merger is now at 21.4 billion, and I remind that all this is done without any capital increase, any request of capital from the market. The cost of risk is confirmed at 100 basis points as a guidance for 2020, including the extraordinary transaction we are mentioning. On top of that, we have reserved some slides for give you an hint about how we are dealing in order to strengthen the intentional credit management on the moratoria and also on the total loan portfolio in these difficult times. Last remarks on the capital position as you can see already considering the Q4 Edwin that we expect in the next quarter we have performed a common equity TR1 fully loaded at 13.6% which is 13.6% which is 14.1% without the Edwin. On page 6 a quick reminder about the technically operational solution we adopted in order to minimize the impact of Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord utilizing of course smart working up to 8,000 people with a with a shift of branch presence adopted during the COVID and the reduction of physical presence both in head office and in headquarter on top of that of course we are now fully provided with masks plexiglass gloves and sanitizing gel in order to allow our colleagues to perform at every day on their duties also in terms of cyber we were very active in order to check carefully all the assets also the device we allow to our customer our colleagues to use by during smart working and we have nowadays fully deployed all the tools needed in order to perform correctly also in smart working with our clients. On page seven some numbers about the commercial effort we have done which we feel will help us also to face this second wave of COVID. As you can see on all the digital banking figures we are registering a double-figure increase year-on-year. Mobile transaction, which we mean only mobile and tablets, is up 62%. The user of app, client using app, are up 35%. Online transaction are up 23%. And so almost the same also with digital sales and order executed via web. All in all, considering households, we increased the utilization of direct banking from 77% of last year to 84% of September 2020. This allows us also in terms of commercial volumes to rebound in Q3 vis-à-vis all the main figures of our activity. Investment product placement went up again to 3.2 billion from 2.4 last quarter. The new lending is 7.9 billion vis-à-vis 6.9 in Q2 and especially with the moratoria measure guaranteed by the state which went up 5.2 billion in Q3 vis-à-vis 1.9 billion in Q2. Let me give some further indication about these measures. On page 8, as you can see, we had 9.5 billion of requests for lending assisted by public guarantees in June. This increased to 12 billion in September. Now we are up in October to 13 billion. of the 12 billion in September 7.1 billion were already granted to our clients 4.9 billion are of course in our pipeline 3.5 of these already approved by the credits and 1.4 is under approval because a recent request from our clients the distinction of these 12 billion between 100% guaranteed Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord also in terms of moratoria we are basically at the same level we announced in June is around a bit below 16 million the total amount is still 15.6 billion a small reduction of which 12 billion from state moratoria and 3.4 million of Italian Banking Association kind of moratoria also in October this figure is stable Let me spend some words about how do we see this situation because of the many concerns we hear about the potential disruptive effect of the end of moratoria. Let's say that thanks to our geography there is a first consideration very important in our view which is the difference between the market share of moratoria measures and the market share of public guarantee issued vis-à-vis our natural market share. As you can see, due to our geography, we are very much involved in new lending with public guarantee in which we have a market share of 11% of 105 billion of total loans granted by the Italian banking system we have again 12 billion meanwhile out of the 300 billion of moratoria we have a stake of only 5% which is the 15 billion 15 and a half billion I mentioned before this means in my opinion that the quality of our kind of client due to the very much developed manufacturing in our region is much more addressed to state guarantee loan rather than to moratoria. Having said that, also the moratoria are quite safe in our opinion because the distribution of loans under moratoria by rating class at September still amount at a very comfortable 77% in the low-medium-risk class of rating. Meanwhile, we have 13% of mid-high-risk and only 10% of high-risk clients. If we extrapolate the clients in these two categories, which also are in the more exposed selected sector potentially highly potentially impacted by COVID we have at risk 400 million in the mid high risk client and 300 million in the high risk client I will explain how we are dealing with this client in the next page another very consistent figure which I think can give you an idea of the liquidity that our client are getting from these measures is the increase in deposit from our non-financial corporates. As you can see, this kind of clients in March stand at 25.6 billion of deposit. Meanwhile, in October, they increased of 28% up to almost 33 billion, which is usually 7.5 million more. This means that, of course, the most of the loans we have granted are still there in the current account of our client, and they are taking into full consideration all the installment of the moratoria that are going to expire in the next months in order to comply with this maturity. Let's also say that almost 2 billion of these increase in deposit come from the same client who applied for moratoria. Meanwhile, the other 5 billion comes from the other client, mostly the one who applied for the new loan guarantee. Some few hints about what we are doing in order to monitor and check continuously the clients who applied for moratoria. First of all, out of the 12 billion who applied for the government moratoria, we extrapolated more risky portafoglio, the one we were mentioning before, which amount to 2.7 billion. We are selecting and contacting the almost 9,000 clients pertaining to this category in order to ask each of them the current liquidity situation, the potential need for any further measure in order to comply with the moratorium and so on. Up to now, we have contacted and received answers by almost 20-22% of our clients in these cluster seventy percent of them they don't need anything farther in order to comply with the installment that they are going to mature in the next months so the perception is that only a few part of these will be engaged and this of course is what we are doing in order to find further measures possibly also new government guaranteed loans in order to face potential liquidity needs. The same exercise we are doing also on the total performing portfolio. We have completely renewed our workflow driven monitoring platform with a new early warning system which is allowing us now to have a a consideration of 6 billion in the watch list of credit of course which are running in different clients and 70% of these kind of clients comes out in our watch list without any overdue so this is just to say that we don't wait for a client to to enter into some difficulties to have some quick hint about the potential difficulties up to now 94% of the client entering the watchlist come out without any difficulty again on the new landing so we are now in nine months at around 20.3 billion which is more or less the total of the full last year 65% is ordinary business, 35% is COVID measures. If you only consider the Q3, this amount is switched completely in the opposite situation. If you consider enterprise and corporate, 74% of the new loan granted in Q3 is assisted by state guarantee. you can see also how we are proceeding continuously with the new loans lending and also in November we are still continuing at this pace on page 12 some figures about Q3 and the nine months as you can see are all very positive figures NII is up 8.4% mostly thanks to the TLTRO, but also to the increase in loans. Fee and commission is up 11%. Total revenues is up 14%. Operating cost is down 5%. And pre-provision income, as I said before, is up 45%. But more important, it's up also vis-à-vis nine months 2019. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord very comfortable results. Just a glance also to the common equity R1 evolution. As you can see on the green side, the phase-in went up from 14.6 to 15.4, the fully loaded from 12.8 to 14.1, and even though we apply 50 basis points of headwind due in Q4, we end up with the 13.6 which we feel very comfortable and the same is in terms of MDA buffer you remember that our guidance was to be up to 150 basis point we are in a comfortable 414 basis point some word about the risking we announced the early We are performing, we have of course, we have a binding offer for 1.2 billion of GBV. One billion is related to the project Django, which is a true UTP sale, portfolio sale of mid-size dimension. These are all positioned between amongst 500,000 and 25 million of GBV each, more or less 50% real estate, 15% other industrial sector with quite an average vintage of almost five years for which we have received the formal binding offer from a couple of bidders. The same, we are of course expecting to close this by year end, but we anticipated this quarter the effect of the after S9 impact on cost of risk. Project Titan instead is a securitization multi-originator GAX for which we will contribute for a figure between 150 and 200 million. also this is due to be concluded during the year and also for this transaction we have anticipated the IFRS 9 impact on page 15 let's see the results of this further reduction we have been down from the numbers that you can see in September 19 we have 10.5 billion down to 10.1 billion in December. We are now at 8.6 if we consider the effect of the Django and the Titan transaction, which means go down year on year 18% and 12% only in Q3. As I remember before, this means 21 billion of the risk since the merger. Also, the ratios were down. before Django and Titan 8.6 gross 4.7 net with the effect of the announced transaction we are down to 7.7% of gross MPL ratio which is further reduced to 6.7 if we include loans to bank as per EBA definition. This has been possible also for the very good migration rates. Of course, they were due to also the current situation with the moratorium measures. As you see, the default rate on page 16 went down to 1%. In Q3, only 150 million of flow. MP danger rate down from 11% to 7.7% and of course all secure rate was down from 5.1 to 3.5% and this was the reason why we decided to increase again our disposal plan. The figure we have after the FRS 9 impact is a coverage of 48%, 51% including write-off, bad loans 57%, 64% including write-off, and an increase from 39% to 42.7% of UTP. Of course, this will go back more or less at the same level of the previous quarter once the two transactions I was mentioning will be executed. the cost of risk including the FRS9 impact of this transaction is up to 324 million which allow us to be still into the range of 100 basis points which we gave you as a guidance for this 2020 on page 17 some figures about our Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord mostly because of the current situation, the uncertainty of the forecast for the next months due to the COVID. Even considering, of course, that we have already a pace in new product sales of asset management product in line with the first months of this year. also in October we are still registering some increase loans went up 0.6% October on September core funding plus 3% only in one month October versus September not to mention the very comfortable liquidity and funding position we have an LCR of almost 200% NSFR most comfortably above 100% eligible securities unencumbered around 26 billion and as you know we have performed during this year all the kind of issue of the bond issue both in 81 senior non-preferred and T2 lately in September 500 million The debt security portfolio performance is very good. We have increased our reserves on health to collection and sale from 32 million of June to 166 million of September with a contribute to our common equity tier 1 of 134 million or 23 basis points. and as much as the unrealized gains on amortized cost went up of 211 million in September and June. Let's also mention that as of today we have a further increase of another let's say 170-180 million in total consideration between these two categories. Net interest income on page 18 as you see the 8.4% increase Q&Q was mostly due not only to a slight increase in commercial transaction operation but mostly with TLTRO of course what we included 47.4 million is not the total contribution of TLTRO on the Q3, which is higher, but we have to consider the downside of the extra liquidity reinvestment for a portion of TLTRO, which we are not investing in loans because of the growth also of the deposit where we were mentioning before. The total results, as I mentioned, is almost 520 million. In terms of commercial spread, notwithstanding the shift from short-term lending to medium-term transaction guaranteed by the state, we are keeping an asset spread in the region of 182 basis points, one basis point better than last quarter, and the reduction in commercial spread of 15 Bpm is all a consequence of the reduction of Euribor in the quarter for 18 Bpm. Of course the quality of the portfolio is bettering because we are substituting basically short-term loans with medium-term guaranteed loans. on page 19 a sound rebound also in terms of fees commercial banking fees at the same level of Q1 management advisory still a bit below Q1 but 11% above Q2 this is also due of course the difference with Q1 also to August in the Q3 but as you can see on the box on the right Box, basically July and September were very consistent at around 143 million. We also wanted to show you the commercial recovery in investment product placement, the monthly trend. As you see on the down right side, apart from the very massive impact in March, April and May, in which we reduced very much the capability of placement since June we have relaunched this activity and apart from the Q3 also October is very sound is 1.2 billion in terms of value date corresponding to the commission in Q3 but in terms of sale we are up to 1.4 billion which means that we have already a reserve of new commission for Q4. On page 20, operating cost also for these very sound results. I have to spend some words in order to make you understand some one-off savings in terms of personnel. We were down total cost from 8.4% with a VQ1 at 5.2% with a VQ2. As you see on the right box, there is a massive reduction vis-à-vis the first year of the merger. We have almost reached 500 million of current reduction in cost, but a part of this comes from some benefit related to the COVID. As you can see, staff cost is down 15% from Q1 and 10% from Q2. Both Q2 and Q3 benefit from the reduction of variable remuneration due to the constraint of the economic situation and also from some one-off COVID-related savings from the government. no much more to mention for administrative cost even though in this case we have some negative one-off due to cost of COVID measures last page some final remarks very sound we feel performance considering also the risking 263 million of net income a strong pre-provision income at 1.3 billion. The risk strategy would allow us to point 7.7 of MPL ratio going down toward our final target. A very solid capital buffer in terms of common equity tier 1 even considering the headwind of Q4. and a quality of loan portfolio supported by the state guarantee and by the many measures we are activating in terms of monitoring and early warning. Some hints about the outlook of the last quarter. We think in core revenues if nothing disruptive happens in terms of COVID. We can be in line both in terms of Q3, both in terms of NII and fees and commission. Let's say that we have already utilized all the one-off for cost. So we think the guidance for Q4 will be more similar to Q1 rather than Q2 and Q3. Asset quality, we are still exploring some opportunity for single names disposal during Q4, but also considering this, we think we can confirm the guidance of cost of credit around 100 basis points. Finally, the target of capital, of course, remains 250 basis points, but we are comfortably above 400, so we think we can reach easily this target.

thank you very much and I leave you the floor for the question 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 one on the 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 Cristian Carrese of Intermonte. Please go ahead.

Good evening. Thank you for taking my questions. The first one is on the fees. I would like to understand what kind of products are you selling to your clientele and the upfront fees booked in the third quarter. compared to the first quarter. The second question is on the costs. So the $160 million one-off is one-off, so back to first quarter level in the fourth quarter. I was wondering if you see any additional room to make efficiency, taking into account that you show in the slide the digital usage from 20 they came up from 77% to 84% so in the past you you mentioned the possibility to reduce further the branch networks also if you can share with us your thoughts on that for the question on net interest income I was surprised from the fact that asset spread went up in the quarter What do you think could be the trend in the coming quarters? And finally, on Agos Ducato or joint venture and your relationship with Criteria Recall, if you can give us an update on the put option aspiring next year and also if you can some update on what we read on the newspaper. Thank you.

Thank you, Mr. Carrese. Good evening. Upfront amount for 15 million more Q3 and Q2. The total fee are 20% coming from running fees, 80% from increasing global sales. Which kind of product is split between... Bpm Societa Ord Bpm Societa Ord but to try to make them understand that is better to convert to their current account holdings costs basically yes as I mentioned before we have exploited at the maximum level we are beating probably the 100 million reduction of cost that we had the guidance we have as a guidance in Q1 when we announced the the the results of Q1 due to the COVID frankly speaking we are doing better in revenues but we are still exploiting at maximum level the cost savings of course this is for the current situation then of course we will still be very proactive in terms of efficiency and cost efficiency so as soon as we will announce the new plan for next year of course we will give you also some new number about the branch personnel and so on but for the time being of course and especially during this period we think it's better to wait and see for understanding how the situation will evolve I am happy one thing is if you allow me that when we presented our business plan of course was the beginning of the COVID and we said we think our bank after showing that is able to reduce cost massively year on year would like to be more concentrate on revenue growth rather than on cost saving but saying that of course if the revenue growth was not going to show up because of the situation we would have been able in any case to reduce costs and this is exactly what we have done spread notwithstanding we are very very good we cannot give a comparable of our contribution on state guarantee measures but is very, very consistent, much higher than our mid-sized player. We were very good at keeping in terms of spread, as you have seen in our figures. We think that having already granted the vast majority of this lending guaranteed the spread is not going to go down more. The only reduction we are experiencing is because there is not so much short-term lending, which as you know, especially in the current account utilization, normally is much more convenient for the bank. Last August, I think I already said some time that we were working with Credit Agricole in order to Bpm Societa Ord Bpm Societa Ord the the the put maturity which was do by June next year you also acted about other things about to create a call yes yes and now did the room was on newspaper they got the potential M&A consolidation so no I don't know if you want to share with us your thoughts on that there are my usual consideration on that we are I would say the first mover and we consider ourselves the one available for further consolidation we are very confident of the results we are having stand alone but having said that we are open to discuss with everybody as a strong project for build up a solid bank project in Italy in the region that we are stronger, we will be available to talk to everybody. And of course, I see also the rumor, we are not commenting on rumor, but we are interested in exploring any potential move in order to strengthen the bank even more, to factorize potential cost synergies and so on. so we will see the COVID doesn't help of course is a period in which we are all into our let's say house either real house or in the office it's difficult to have contact and it's complicated but we are here on the market and we will see what happens thank you very much

The next question is from Antonio Reale of Morgan Stanley. Please go ahead.

Hi, good evening. Thank you for taking my questions. I've got a couple. Just the first one is a follow-up on NII. I mean, looking at your hybrid trend, we've seen a further drop into Q4 and deposits have been growing, which in a negative rate environment is clearly a headwind on margins. I'm wondering how you see loan demand dynamics. So what's the outlook for loan growth into next year. I mean, obviously, there's still a pipeline for government loans, but I wonder if you have any visibility beyond that that you can share. That's my first question. Second question is on moratoria loans. And I would like to understand sort of what your cost of risk estimates for the full year assume in terms of potential defaults on these loans, both looking at this year and if you have any visibility on next. So what percentage of your 15.6 billion do you assume could migrate potentially into non-performing? You show good color on slide nine. I wonder if that's a good proxy to use. We're now entering also into the final part of the year. I wonder if you're in a position to comment a bit more on the outlook for cost of risk for next year. That's my second question. And lastly, You're back active on the NPL market after the lockdown. We've been negotiating a relatively large unlikely pay ticket, and I would like to hear from you anecdotally what you're seeing in terms of NPL bids compared to before COVID. I mean, we don't necessarily go into a lot of details given your negotiations, but just big picture pre- and post-COVID anecdotal call would be very useful. Thank you.

Thank you Mr Reale yes of course deposit growing is not something that we are happy with together of course with the strong liquidity that we have also due to the TLTRO you know that we are not drawing all the TLTRO just because we have so much deposit growing let's say that it's not black and white of course up to one month ago we were thinking that the confidence of potential more comfortable situation in terms of pandemia would have lead our client to convert more deposit into asset under management of course we know that now this is not the case but maybe then if this will go up for some months maybe there will be some more measures from this ECB so it's difficult to make you know forecast because there are also the intervention from ECB which try to compensate potential downside. Loan growth is a bit the same of course up to now they've been fostered by the state guarantee and I would say again that we were one of the most active Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Otherwise, of course, if the situation stays as it is, I don't think we can imagine a lot of long road for next year. Unfortunately, almost the same from cost of risk, but please keep also in mind what we have said quarter by quarter since the beginning of the pandemic. We say that we wanted to be very prudent. We wanted to make provision also on performing loans in order to prepare a potential higher inflow into non-performing. This is what we have done in the first two quarters. Q3 was much better also for the confidence in the economy which was going on and so we thought it was the best moment in order to perform a disposal. and let's say that I think our timing was very very good because most probably I don't know if going ahead we will find the same availability we found during the last month in order to conclude the deal today of course for us the UTP market was completely new I would say that probably also for the market a straight sale was completely new We are happy that we have showed that it's possible to have different players at the table dealing with each of them. UTP, I was one of the few who said that already for bad loans there is not only one price. If this was true, exposed for bad loans, it's even more different from UTP. utp is not an asset that you have to dispose is a company working producing sporting and so the feeling that each of these players can have on the single asset is completely different this is the reason why we split the amount of 1 billion between two different players thank you the next question is from Azzurra Guelfi

City please go ahead hi good evening a couple of question one is that coming back to M&A not on a specific deal but just to understand what would be your priority in case of a consolidation I understand the strategic fit and creating a stronger bank but would it be about a minimal capital impact or like high EPS generation or definitely not as a quality compromise to be made and and so that would be one. The second question would be on the regulatory impact for 2021 because you gave us kindly the details for the fourth quarter, but if you can tell us what is the capital headwinds and positive development for 2021. And the last thing, if you have any update on the potential impact of the new definition of default on MPLs. Thank you.

Thank you, Azurva.

Priority in consolidation. Let's say, of course, I cannot be so specific because as I was mentioning before, we are really trying to understand what could be the best situation. Of course, I think the industrial project has to lead any possible idea of consolidation so I don't know during this period we are talking about to merge with somebody who can give you contribution by shareholders or so on we are all we've always been of the same idea that the first industrial project we think our equity story is of a strong bank created in the wealthy region of Northern Italy amongst the best region in Europe we would like to pursue this project and it is the first priority of course this has to be done as we did in the last merger taking in consideration value creation for shareholders which is not that difficult in our situation due to our stock price and try to emphasize what is our one of our best characteristics I was mentioning the reduction in cost of almost 500 million running in four years that we performed during the merger I think that this can be a good suggestion in order to understand which player could be the one who can allow us to make cost savings and synergy cost savings that's all basically that I can say right now because I don't have anything to discuss because I don't have any concrete project to discuss regulatory headwinds we were anticipating again the impact of Q4 I have to say that we stay with the consideration we gave on the Q2. I think last year could be in the region of around 100 basis points all in all and then reduce dramatically in 2022 and again increase in 2023 due to the Basel fall. The total is still the region that we mentioned at that time. I think it's in the region 200-230 basis points.

Last question, sorry.

We are already running, of course, all our numbers ready for January 21. we think the stock, the increase of stock for the new definition of default could be in the region of 200 million of new non-performing. In terms of capital consideration would be something lower than 10 basis points.

Thank you.

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

Good evening. I just wanted to ask on the accounting of the TLTRO benefit this quarter and going forward. I just wanted to understand how you have accounted for essentially for which rate of TLTRO funding you've essentially accounted for and whether in a year's time part of it will reverse Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord these are hard triggers so to speak which have been linked to the forthcoming of revenues earlier in the year and will come back in the future if your fees for example are better or whether this is more let's say a softer allocation and whether you think that some of these savings will stay into next year's cost base essentially on this particular item of this quarter rather than various initiatives that you have mentioned in the previous answers to the questions.

Thank you very much.

I think I was quite clear. The contribution in Q3 was 47 million, which of course is a net between what is going to be the contribution from the premium from ECB, the 100 basis points, and the part of this amount that we are not able to invest in a yield asset. So of course, as you know, if we have to go back into ECB with a part of it, we pay 50 basis points. So net or net, we think the contribution could be in the region of 50 million, and the same should be also in Q4. Going to costs, sorry, maybe you asked also for next year, if you ask also for next year, in any case I will anticipate, there should be 30-35 million more in the first two Q next year, vis-à-vis the last 2Q this year. Of course, part of this at the level of NII will be compensated by lower revenues on the Govis portfolio. Last question about cost. I think also in this we were very transparent. We had one-off of around 60 million, which is not really one-off. Part is one-off. due to the contribution of state measures from the COVID period. Another part is a reduction of the variable remuneration due to the size of the total revenues, which was already done also in Q2. So the total amount between Q2 and Q3 is almost 90 million. Of course, for next year, Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm We have also announced the reduction in personnel in our business plan and of course we are now again in talks with unions in order to decide which kind of reduction in personnel could be applied possibly starting from next year.

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

Good evening and thank you for taking my questions. I have a few. The first one is a clarification on cost. You mentioned indeed 60 million of positive one-off in Q3 and lower variable compensation. Can you specify the size of the one-off? Is that 40 million so with variable compensation of 20 in line with Q2 and the second one is an asset quality on the 1.2 billion utp disposal what is the average yield attached to these portfolios and the last one is on common equity what drives the quarterly reduction in RWA is it the switch from drone lines to state guaranteed loans and do the 50-bit regulatory headwinds include the positive from lower software deduction? Thank you very much.

Okay, let's take one question for time. Reduction in cost. Again, of course, apart from the one-off, there has been also normal reduction of the activity during the three months of COVID beginning first half of the year, no transfer, no extraordinary compensation and so on. So a part is a reduction due to the COVID, a part is because of the reduction of the global amount of the remuneration due to the lowering of the revenues, and the part is the one-off coming from the state. I cannot really be more precise than that, but we mentioned some figures into the comments. Sorry, can you remind me? The second one was asset quality. okay okay the demand the interest margin attached then I attached to the disposal is this the question yes okay for next year would be in the region of 15 million the last was on Edwin sir first of all let me give you some more detail about the FWA reduction because as I am right you also asked about that this of course is already into the Q3 performance when you see 56 basis point of Q3 performance and other 25 basis point comes from the profit profitability and 30 basis point comes from the reduction in FWA due to the state guarantee Going further, Q4, for the time being, we only consider the headwind. We are not yet considering some potential tailwind, which in any case maybe could be compensated by some further reduction. So we think the guidance for year-end would be the same we have today.

thank you and just to make sure I understand the NIA contribution is one five or five zero one five one five okay thank you very much the next question is from Domenico Santoro of HSBC please go ahead hello hi good evening thanks for the presentation a couple of questions also on my side very quickly

First of all, on this UTP portfolio that my understanding has been already sold, I see it's mainly real estate, so I assume it's highly collateralized. So just wonder whether you can give us an idea of the coverage on this. I see that you have done a top-up, of course, ahead of the sale and to understand whether we should expect a drop in the coverage or not. The other question is on the regulatory headwinds. These 50 bps that you're mentioning coming in Q4, was it already included in the 200 basis points guidance that you gave back in March or is something that we should consider on top of that? and then given that I mean there were other questions about the M&A I'm just wondering whether I can use your brain on this we have seen recently in all the M&A been unknown so far in 2020 in Italy in Spain there was a big chunk you know of provisioning autopop to coverage from very solid banks and filtering, of course, into the into the capital. So, I mean, you said that you are quite open to discuss with, I mean, with other partners, so you're open to M&A. Is it something that the regulator, regardless of COVID, is asking in a way and I don't know whether you want us answer to this question, but alternatively, what would be the minimum level of capital that you would accept in a M&A transaction? Thank you.

Thank you, Mr. Santoro.

OTP Portafoglio, as I mentioned, I think I mentioned 55% is a sort of real estate asset which doesn't mean normally that you have a collateral that means that you are also some company who is involved in the real estate business which could be also some construction and so on but this is the classification 55% in the large family of the real estate and 45% in other industry I cannot give you many details about the provision let's say that the coverage was consistent with the figure we showed today that you can have some idea of the IFRS now if you compare Q1 and Q2 with Q3 and if you wish I can also tell that we are considering an impact of 10-12 basis points in terms of common equity R1 regulatory headwind yes it's 50 and non-35 for two reasons one is that 35 was considering headwind and tailwind and Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord I think all the provisioning you were mentioning related to previous two transactions was coming from the badwill utilization and from the ECB willingness to give the bank the possibility to use the buffer of common equity tier 1. I think that as I mentioned before we have a very comfortable buffer to utilize so we are reducing in any case our exposure with MP so we think that if the case may be we won't have many difficulties in going down to the potential request from ECB which of course I think is supporting as Mr. Enria is continuously declaring any opportunity for consolidation so frankly speaking I don't think we will have some problem vis-a-vis ECB willingness in terms of this kind of a transaction sorry the 1015 if my understanding is correct impact from the sale what is it is it the additional provision that you have done in Q3 or is something that should come in Q4 and if it is negative or positive you are talking about the UTP yes correct no I was mentioned because you asked how much you are provisioning I was saying that all in all the impact of this of this transaction in our calculation of course the transaction is not yet terminated. We have a binding offer in these terms, but considering the DTA opportunity to utilize DTA up to 2 billion of disposal and considering the net impact, the fiscal advantage of this opportunity, we think the final impact will be in the region of 10 basis points.

thank you the next question is from Adele Palama of UBS please go ahead yes hi good evening I have one question if you can give us some color on the incoming maturities of the Treasury portfolio and I mean What is the percentage of the government portfolio that is coming to maturity in 2020 and in 2021? And what is the yield of the bonds expiring? Thank you.

Thank you, Ms. Parana. Let's try to understand if I got all your questions. Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord Bpm Societa Ord for the Govis Portafoglio for next year in the region of 30-35 million, which will be compensated by higher contribution from TLTRO. This is the guidance for 2021. Okay, thanks. Okay.

Then...

Okay, sorry, I can give you... In che pagina erano? La duration, no?

No, the state-guaranteed loans... And the duration...

We have on page 33 the duration of the Govis split between Italian Govis and non-Italian Govis, amortized cost and ATCM. The duration of Italian Govis is 2.9 for amortized cost, 1.9 for Goci. and for non-Italian gobies, 2.3 amortized cost, 2.6 auto-collect and sale. On page 33, you will find all the figures.

Okay, thank you.

Thank you.

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

Good evening two questions The first one is just a clarification on your TLTRO Comment the contribution to an AI that you have just repeated You said the next year you expect 35 million more doesn't mean you're going to draw down more at the December or at the March auction or there's some other aspects which I can't think of and that would lead to higher contribution. And the second question is on your JV with Covea. When is the deadline to either renew, cancel or restructure the joint venture?

Thank you, Mr. Vercellone.

No, we are of course considering to increase of course as I mentioned before the situation is so liquid that of course we are also going to change some of our assumption of the funding plan assumption but in our as you know we are drawn now 26 billion out of 35 which is the total possibility for our bank maybe we will draw another couple billion and in order to then reimburse possibly in Q3 2021 all the extra drawing we have done thanks to the premium. So I think this will come from a better placing or managing of our TLTRO activity but we are not going to draw a considerable amount on top of what we have already done. As far as the next question the maturity is September 2021 and we have to decide what to do together with our partner by six months ahead of this maturity. Thank you.

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

Hi, thank you. Just sorry to insist on the headwinds. I just want to clarify what you said about headwinds in 2021. Is it going to be 50 basis points because you're front-loading something this year, or is it going to be 100 basis points? And then I understand that was before any potential benefit from the waiver for large NPL sales. Do you have any visibility now on whether you can benefit from that waiver or not? That's it. Thank you.

Thank you, Mr. Krutz. Yes, I mentioned the same amount we gave you on the next quarter presentation, which was due to the COVID. Of course, we switched ahead the impact of the headwind. We gave... in the three year plan presentation so for 2021 should be in the region of 100 basis points this of course is at our best consideration we still are waiting from ECB to give the results of the inspection on the model on the credit model of course we are still confident that they can take in good consideration the one-off situation generated by the massive disposal we have done during these years. Again, it's more than 21 billion. But, of course, I don't have a hint about what will be the output of the inspection we've got.

Okay, thank you very much. Thank you.

For any further questions, please press star and 1 on your telephone. Mr. Castagna, there are no more questions registered at this time.

So thank you everybody for being with us this evening and I'm sure we will be in touch during the next week. Thank you very much and good evening.