Bper Banca Spa Unsp/Adr

Good afternoon. This is the Coastal Conference Operator. Welcome and thank you for joining the BIPER First Half 2020 Results Conference Pool. 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. Alessandro Vandelli, CEO of Viper. Please go ahead, sir.

Okay. Good evening, ladies and gentlemen. Thank you all for joining this conference call today. This is Alessandro Vandelli, Chief Executive Officer, and I'm here with Roberto Ferrari, CFO, and Gilberto Borg, Investor Relations Manager. First of all, let me say once again that I hope you and your families have been keeping safe and healthy, and I'm confident that if we all are patient and act with caution, we'll be able to overtake this emergency and turn back to normality. Today we will have a bit longer presentation than usual. as we'd like to share with you our view about three main topics. First of all, the key points of the first half 2020 results, then an update on the strategic deal with Intesa San Paolo, and finally, the revised outlook for 2021. Before starting the presentation, let me say that, as you all know, our strategy has always been driven by seeking new growth opportunities enhancing profitability with a strong focus on the risk and capital solidity. Our recent history clearly confirms this strategy. We acquired banks, last was Unipol Banka, simplified our banking group, last month we completed the streamlining process with a corporation of two seven banks based in Pindamon, raised a good level of profitability and improving at the same time our asset quality and capital position. Check-to-earn ratio reached 12.6% from 12.1% in March 2020. Overall, a good starting point to look at the future, another step forward following the same strategy, growth and profitability with the same attention to asset quality and capital. Looking at the past, I'm confident we will be able to deliver well also in the near future. Now, if you turn on page five of the presentation, which should be already available on our website, we can start with the overview of the first half results. And before going through details, I'd like to underline a couple of key points updating the current situation relating to the health emergency. As I mentioned to you during the last conference call, we reached very quickly during the lockdown. We reacted very quickly during the lockdown with in mind few key priorities, such as to protect the health of employees and customers, to implement support measures for households small businesses and companies, while ensuring operational continuity of corporate processes, also by introducing innovative working methods. Now the peak of the crisis seems to be over, at least in Italy. We confirm that currently all our branches and central services are fully operational. Our quick response to support families and businesses during the crisis has allowed us to accept to date over 100,000 requests for a moratorium and to provide funds for loans granted by the state for over one billion. We have been promoting at the same time many other initiatives and fundraising at the service of the territories and communities. We are convinced that the collective effort that the country's deployment can drive recovery, but we are aware that the context remains particularly fragile. Now we can go through our first half 2020 results. Please move on to the next page, 6. I think that the first half 2020 delivers three main messages. First, resilient profitability. second a remarkable step up in our already sound capital position third a further significant improvement of the asset quality profitability first half net profit came at 104.7 million euro showing a resilient profitability also thanks to the confirmed ability to generate revenues and contain operating costs in a contest characterized by the slowdown of the economy and by the effects of the health emergency. It must be said that the result includes some non-recurring items, such as the accounting of additional loan loss provisions for approximately $90.5 million related to the worsening of the macroeconomic context caused by the health emergency, and other externally charged for 36.1 million, partially offset by positive income taxes for the period for 68.9 million euro. The cost of credit annualized is at 71 basis points, excluding non-recurring items relating to the worsening of macroeconomic scenario and the sale of the mezzanine and junior tranches of the bad loan securitization spring. equivalent respectively to 35 bps and 6 basis points so the stated cost of risk is at 112 basis points the second quarter net profit was 98.6 million euro much higher than the 6.1 million in q1 capital the quarter we have been able to this quarter we have been able to further improve our radius solid capital and sound liquidity position. We have been able once more to manage capital in very effective way, increasing our check-to-earn ratio fully loaded by 50 basis points at 12.57% versus the level of 12.07% in March 2020. In addition, our liquidity position is very strong as shown by LCR index at 162% and the liquidity buffer reached 14 billion euro compared to 11 billion in March 2020. All this moving on page 7, introducing the asset quality. We must underline another very positive result. In fact, our strong focus on asset quality allowed us to get the lowest NP ratio in stocks since 2009. Thanks to the further reduction of the NP stocks, also thanks to the recent bear loan securitization called SPRING, gross and net were down respectively 18.2% and 12.2% since the end of 2019. The gross and the NPA ratio dropped to 9.1% and 5%. Also, the Texas ratio dropped to 70.8%, showing a significant reduction by 8 percentage points since December 19. Meanwhile, the analyzed default rate remained stable at 1.7% versus 2019. finally talking about business we experienced a very positive performance of loans also supported by the activity related to the measures promoted by the government for the half emergency the total funding which includes the bank assurance sector is at 173.4 billion euro recovering by plus 4.7% for the low-level REITs in Q1, which was affected mainly by the market effect relating to indirect deposits. Now let's go very quickly into the analogy of the four-step results starting from the balance sheet. We can move on to page nine. We start with an overview. of the funding, total funding in Q2 is 173.4 billion euro, including a contribution of asset under management from ARCA holding over 16.5 billion euro. I remind you the total asset under management of ARCA are about 31 billion euro in June 20. Direct funding recovered in Q2 after a slight decrease in Q1. plus 4.7% compared to March 20. Indirect deposit and bank insurance recovered as well in Q2 versus the end of March 2020 at the same pace, plus 4.7%, showing a resilient trend in bank insurance and sustained net inflows in Q2 more than doubled compared to Q1. Moving on to page 10, net customer loans up by 3% since March 20 and by 1.1% since December 19, also supported by the measures of the government to sustain the economy. This result is also even more positive if we take into consideration the bad loan securitization called SPRING, which helped to lower significantly the gross net MP stock as we are going to see in a while in the next slide. In the fourth half of 2020, loan origination has shown a very positive trend, up by 18.6% versus the fourth half of 2019. The good quality of the performing loans book is still confirmed by a particularly low bucket of high risk exposure, only 3.5% of the performing book. Let's turn to page 11. This is a very important slide because it is the confirmation of how we were committed and focused on improving asset quality, and here you have the results. we were very successful in driving the improvement of asset quality, just few numbers. In mid-16, we had a gross and net MPI ratios respectively at 23.5% and 14.5%. The same numbers are now at 9.1% and 5.0%, almost 1 third. Gross and net stocks are back to 2009 levels. Net bed loans are well below €1 billion, also as a result of €5 billion of bed loan disposals in the past two years, along with the very positive work out made by our servicing company and internal structures. We know that our job is not over, especially because the expected macro scenario seems not to be as favorable as it was some months ago, but we reiterate our commitment to focus on further quality improvement going forward. The translation within TESA Sao Paulo addresses also this angle among others. Moving on to page 12, we show an annualized default rate at 1.7% at the same level of 2019, and a very positive number of the recovery rate at 7% from 6.3% in 2019. It was 3.7% in 2016, the first year of our specialized company, Bipro Credit Management. On page 13, the securities portfolio reported an increase by 3.3 billion euro compared to December 19, and by 2.4 billion since March 20, mainly led by our large buffer of liquidity and positive market expectations. We invested mainly in Italian and core Europe government bonds and agencies. Italian government bonds stock increased to 7.5 billion euro, weighing 33.9% of the financial assets portfolio and 11.5% of the total asset. Now we can move on to profit and loss figures on page 15. A few comments here. net profit for the first half of the year of 104.7 million, thanks in particular to high capacity to generate revenues and effective control over management costs. It was highlighting that this result includes the impact deriving from the accounting of additional credit adjustments for approximately 90.5 million euro, relating to the worsening of the macroeconomic context caused by the health emergency. The result includes also other sterling expenses for €36.1 million, and you can see details in the call-outs of the slide. The previous non-recurring charts were partially offset by positive income taxes for the period mainly due to the tax credit relating to the conversion of DTA person to legislative decree called Italia and the release of intangible assets goodwill for the tax purposes. We can move on very quickly to page 16. As for the Q1, I'd like to remind you that the comparison between the first half and the first half of 2019 detailed profit and loss data is not on a like-for-like basis due to the acquisition of the control of ARCA and UniforBanca since July 2019. So my comments will be focused, when necessary, on the quarter-on-quarter trends because the first two quarters of the year are not comparable are comparable only with the last two quarters of 2019. About the distilling income, we show a comfortable NII growth, plus 0.7% quarter-on-quarter at 310.3 million euro, and also at ordinary NII that is net of IFRS 9 and IFRS 16 effects, we have an increase by 1.3% quarter-on-quarter. NII resiliency is mainly due to the improvement of the spread plus eight basis points led by the decrease of the cost of funding and a slight increase of the asset yield. Given the current difficult microeconomic scenario and the low negative interest rate environment, this can be considered overall a positive result looking at the outlook for the year. On page 17, the net commissions amounted to 245 million euros in Q2, down by 8.4% quarter-on-quarter due to the effects of the health emergency and the prolonged period of the lockdown. Even in the presence of a slowdown, we recorded resilient performance in the banking sector substantially unchanged quarter-on-quarter, while the lockdown impacted on the other segments, such as asset management commissions, with a decrease by 10.6% quarter-on-quarter, cards, collections, and payment sector, minus 8.2%, and the company referring loans and guarantees commissions dropped by 5.6%. It's worth highlighting that the analysis on the monthly trend of net fees in Q2 leads to be cautiously optimistic about the possible recovery of net fees in the coming quarters. In fact, the data shows that in June, net commissions return to the pre-crisis level in line with the first month of the year. after a negative trend in april and may in conjunction with the lockdown period on phase 18 in 20 in the second queue trading income where was very positive showing a strong increase at the 46.8 million versus 5.6 million in q1 influenced by the rebound in financial markets after the turmoil following the health and medicine crisis. The quarter sees also dividend for 12 million euro. Moving forward on page 19, operating costs amounted to 410.1 million euro, down by 0.2% compared to the Q1, showing in particular a positive performance in staff cost. down by 2.5 percent quarter on quarter, benefiting from the first positive effects of the redundancy plan and able to absorb some inflation effect relating to the renewal of the national labor agreement signed in last part of 2019. Other administrative expenses amounted to 116.9 million euro with an increase by 2.1% quarter on quarter mainly due to higher costs related to the extraordinary projects we have been working on. On page 20, we are counting loan loss provision for 157.8 million euro in Q2. including additional provisions of approximately €40.5 million due to the worsening of the macroeconomic contest, €50 million had already been recognized during the fall skew, and then €16.4 million referring to the sale of the Madeline and Junior tranches of the securitization of Spring Bed Loans portfolio. The cost of credit analyzed is at €71 basis points, excluding no recurring items. It is at 112 basis points, including additional loan loss provision related to Delta Medigee, which count for 35 BIPs, and the sale of Medellin Junior branches of the bandwidth securitization spring for 6 basis points. Net provisions for risk and charge amounted to 17.2 million euros. About liquidity on page 22, we consider our liquidity position as very solid. Our total eligible assets increased at 27.1 billion euro, along with a bucket of an encamber eligible asset of 11 billion euro. And that's the liquidity of 3.2 billion euro made by deposits with the ECB. ECBO exposure of 15 billion in June 20, mainly composed by 14 billion of TL-303. I remind you that we entirely reimbursed the 9.7 billion euro of TL-302 in June. LCR index is at 161.8%. as well as the NSFR ratio stands well above the regulatory floor. Page 23 on capital, another very important slide. This is the third pillar of our management action after the other two represented by the resilient profitability and the strongest equality improvement. Our capital position is confirmed to be very solid As we were able to increase significantly the CHET-1 fully loaded by 50 basis points in the quarter, bringing the ratio to 12.57% from 12.07% in March. The CHET-1 ratio phased in stands at 14.11%. with a very large buffer of 600 basis points over €2 billion versus the minimum capital requirements set by the ECB at 8.125%. The main positive effects on the CHET-1 ratio in the quarter have been retained earnings, 31 basis points, the SME supporting factor, 22 basis points, the positive contribution of the fair value other comprehensive income reserves for 21 basis points and lower goodwill on intangible assets for only 3 BIPs. On the other hand, we have an increase in RWA for a total negative impact on CHAT1 over 27 BIPs due to the increase of loans and the securities portfolio. We have also some extra buffer to exploit by the end of the year. As you all know, the IB model extension to the ex-Unipol bank credit portfolio and the CR Saluzzo. On the next page, 25, my brief final remarks. So in conclusion, the main takeaways from the first half result are resilient profitability, despite a very difficult economic scenario and a conservative approach to credit risk with significant additional provision of $90 million in the half year. Again, a step forward in improving asset quality, and obviously this will continue to be a focus for our group. All this combined with a very solid capital ratios and large liquidity buffers. Here again our commitment is to preserve and even improve this comfortable situation in the future. So we are going to face new challenges but confident that we are well equipped to do a good job in the interest of all our shareholders. Now let's go to page 27 to share with you an update about the Intesa San Paolo transaction and then finally an overview of the revised 2021 economic and financial outlook. We now move on to a brief update on the acquisition of the going concern from Intesa San Paolo, which we announced back in February 2020. On slide 27, you can see a summary timeline of the key events of the transaction. Following the initial announcement in February, today we announced the agreement on revised transaction terms within Tesa San Paolo for the acquisition of the going concern. In particular, this agreement envisages the definitive methodology for the calculation of the consideration for the going concern, which we'll describe in detail in our next slide. Given the successful conclusion of the public tender offer of Intesa-San Paolo and UBI, the acquisition of going concern is now subject to BIPER obtaining regulatory approvals. And this is a cushion of BIPER's right issue, which we expect to launch as soon as practicable in the second half 2020. On slide 28, you can find a recap overview of the perimeter being acquired and the key transaction terms. Based on yesterday's agreement, the price of the going concern is now determined in a definitive manner as equal to a multiple of 0.38, the checkpoint capital of the going concern. bearing in mind that the capital allocated to the going concern will be in line with the one of UBI which recorded the CHET-1 ratio of 13.4% as of June 2020. All other terms remain as previously communicated to the market and include items conceptually defined such as 532 branches up from the originally agreed 400-500 in February agreement, mainly located in the northwest regions of Italy and Lombardy. Approximately 26 billion loans to customers, RWAs capped at 15.5 billion. Asset quality is aligned to that of UBI for a portfolio of 21.5 billion, plus 4.7 billion in performing loans. Gross NP ratio for the going concern of 6.5% based on UBI's figures as of June 2020. I would also like to remind you that the going concern will be composed of assets and liabilities strictly related to the branches acquired with no head office no central structures, and no future obligations with reference to current distribution agreements. On slide 29, we want to stress once again the strong strategic rationale of this transaction for Beeper. This acquisition will enable Beeper to enhance its scale and positioning and increase its client base by more than 50%, with new clients mostly located in the northwest regions of Italy, one of the most dynamic areas in Europe. From this, we expect significant returns in terms of greater efficiency as well as revenue generation as further illustrated in the following pages. On slide 30, you can see more clearly what we have just mentioned in terms of enhanced scale and positioning of BIPER. vis-à-vis other Italian listed commercial banks following the acquisition of the coin concern. Let me repeat once again, this transition is about client growth, revenue growth, greater efficiency rather than simply expanding our branch network. Moving on slide 31, we provide you with a detailed overview of the contribution of the going concern in term of distribution network, which again you can see is mostly represented by branches in the northwest region of Italy, more than 57%, and in particular Lombardy. The highly complementary footprint of the going concern with significantly enlarged beer pair multi-regional presence in the wealthiest northern Italy, Italian regions, bringing in total approximately 1.4 million additional clients. In particular, the contribution of the going concern will increase per market share in Italy by 2.2%, bringing it to 7.6% based on number of branches. Lombardy will see a market share increase for BIPER from 1.3% on a standalone basis to more than 6% pro forma for the going concern. Following the acquisition, BIPER will count on a market share of more 5% in 11 regions in Italy from 7 on a standalone basis. On slide 32, we illustrate with additional details how this branch network is expected to contribute to BIPER's franchise, not only in terms of branches, but also in terms of business volumes. As you can see, based on the data available to BIPER at the present date, we estimate that more than 70% of contributed assets and liabilities are located in the Northwest regions, This contribution is expected to leading to a threefold increase in loans market share for both the Northwest and Lombardy, as well as a six times increase and nine times increase in Lombardy and in Northwest regions. Now moving on to phase 34. we'd like to give a quick overview about the economic and financial outlook for 2021. In light of the outbreak of COVID-19 pandemic, which is expected to result in an iteration of the macroeconomic scenario on one side and the acquisition of the growing concern on the other, the outlook and the economic financial expectations related to B per group vis-a-vis what previously outlined in the industrial plan 2019-2021 have changed. In this regard, we have revised the economic and financial targets as presented in the 2019-2021 industrial plan while maintaining continuity with the strategic guideline previously defined. The economic outlook at the base of the rise projections reflects a significant decline in the GDP for 2020, equal to minus 9.4%, with only a partial expected recovery in 2021, plus 5.4%. Despite revised macro estimates, we believe Viper is strongly positioned to face proactively the change environment with improving asset quality ratios, solid capital position, and strong liquidity ratios, as well as a more diversified business mix where commission-based volumes over total revenues have grown by four percentage points versus the same period of the last year. In this context, the acquisition of the going concern is even more relevant for both industrial and strategic point of view. Lastly, the right issue will allow BIPER to maintain a strong capital position to support a broader RWA base. Moving on to the last slide, number 35, we provide you with a summary overview of the revised estimates for BIPER on a standalone and pro forma basis for 2021. Taking into consideration the scenario outlined before, as well as the key strength of BIPER coupled with the composition of the going concern, we estimate that the group is well positioned to achieve a net income of more than €375 million in 2021, driven by revenues in excess of €3.4 billion, operating costs of €2.1 billion circa, corresponding to a cost-to-income ratio of 60%, with 90 basis points of cost of risk. In terms of asset quality, the ad hoc actions currently being assessed, coupled with the better asset quality profile of the going consort, lead us to expect the gross NP ratio of the combined entity BIPER group, including the going consort, in the 9% area. We expect the group to maintain a very solid capital position, with the CHET-1 ratio fully loaded in the region of 13% in 2021. on a combined basis, incorporating of course the impact of the right issue while delivering a return of tangible equity in the 6.5 region. Let me conclude by confirming our commitment as management team to deliver the completion and subsequent integration, the growing concern with maximum rigor and continued focus on profitability, asset quality, and capital strength in the interest of all our stakeholders. Thank you all for your time and attention. Now we are ready to start the Q&A session and to take your questions. Thank you.

Excuse me, this is the close call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. This first question is from Andrea Vercellone with exams. Please go ahead, sir.

Good evening. A couple of questions. The first one is on your target of 13% circa fully loaded quarter one ratio for the combined entity 2021. I was just wondering whether you can share with us the size of the capital increase you have assumed to get the number. Second question is on the PPA on the UBI assets that you're buying. You had assumed 150 million, first version. What have you assumed now? And third question and last is on BIPER standalone. H1 results. I'm just wondering if you have accrued any dividends in your quarter one ratio as of now. And regardless of whether you have or you haven't, do you consider it a possibility to just not pay a dividend for the 2020 results? in order to minimize the size of the capital increase you are going to have to do.

Thank you.

Yeah, thank you very much, Andrea, for your questions. First of all, I do confirm the 13% target of the CHET-1 ratio for the combined entity. What I can say for now about the size of right issue that we estimate a right issue of 800 million euro area. This is what we estimate. Probably could be less, but anyway, this is the message. And in this 30% target, there is a size roughly between 750 and 800 million euro.

Can I stop you for a second?

Yeah, please, go ahead.

What do you see as the logic of raising 800 million and reach 13% fully loaded core tier one, where you're perfectly fine with 50 basis points less, even if you have plenty of buffer? So why would you aim high just to... the logic that underlines your thinking.

Well, I think that taking into consideration the macroeconomic scenario, I think that it's correct to be very prudent on the size of the right issue. I agree with you that probably looking strictly to the figures, it's possible to complete this acquisition with a lower level, but I repeat, only from a very prudent approach, I can say 800 million euro area. Then, when we are close to the right issue, we decide the right side. Anyway, I would like to stress that we think we have a very comfortable capital position, also because we have some buffer to take advantage in the second half of 2020. And so, at the other point, we didn't accrue any dividend for this first half of 2020, and it is possible to evaluate the possibility not to have a dividend to reduce the size of the right issue. On about the TPA, what I can say that at this stage we estimate 200 million euro, of additional provisioning on the going concern perimeter, and we think this is the right way to use partially the bed wheel coming from this acquisition. We estimate a bed wheel roughly around 1.2 billion euro, and 200 of this bed wheel for the additional provisioning on the credit perimeter of the going concern thank you the next question is from adele palama with ubs please go ahead madam

Yes, hi. A couple of questions for me. Can you give us a guidance on the NII evolution for the remaining part of the 2020? And I was wondering if you are considering to increase the TLTRO take-up. Then another question is on the government guarantees. I would like to know if you expect a higher use of the government guarantees by the year end. And if you can share the proportion of loans as of today that are covered by the government guarantees. And then on the CT1 ratio target of 13%, can you tell us which are, if there are any regulatory add-ins included, and which are the assumptions on RWA inflation?

Thank you.

First of all, thank you for your questions. NII, let me say that we are particularly satisfied for the trend in this first half 2020. It's absolutely in line with the second half 2019. So the same exact numbers of the second half Our expectation is to increase the NII in the second half. We think that some support is from the TL-303. And I do confirm that we are going to take the full amount of TL-303 probably in September. And so the expectation is that after 618 million euro the second half of the year is more close 650 so this is an expectation to have a good increase in the nai so for the nai this is our expectation for trt row i confirm the um uh that we are going to use the the last part in in in september uh i i'm thinking about your question on chat one there are no uh particularly negative event on on this in 2020 in 2021 what they can say on on a positive uh elements as we said before we are waiting to have the internal model applied to the perimeter of Unipol Banca and also on the small perimeter of Casa di Risperma di Saluzzo. So we expect to have an impact roughly between 35-37 basis points, so to be very close to 13% of common equity in one considering this benefit from the alignment to internal model. So, I repeat, this is absolutely a positive trend also in the common equity one. About the government guarantee, as I said before, now we have more than 1 billion covered by 100 percent guarantee these are mainly loans below 30 000 euro then now there are more or less 1.2 billion with moratorium and 33 percent covered by state guarantee and a higher level roughly 3 billion euro of other facilities temporary facilities with a state guarantee of the same level of 33 percent and now we have a significant amount around 2 billion euro of of new loans with guarantee by SACE or Medio Carito Centrale with a guarantee between 70% and 90% of the loans. So what I can say is that after the first phase where the activity was concentrated on small loans below €30,000, Now the activity is more on the corporate side, and in particular we have a significant flow of loans granted by SACE and Mediocrecto Centrale. I hope to have completed the answer to your question. And to you again, I did it for your question.

Can I ask you on the 650 million remaining NII for the second half, do they include also the NTL income loss from the sale of NTLs from spring?

Yes. What I can say, the highest benefit in the second half is from the TL-303 because the you know that the benefit from the TL303 was only for six days in June. And so the full effect we have only in the second half of the year. And the benefit we estimate between 6 and 7 million euro per month. And this is, without any other element, is playing largely the increase of the NAI in the second half.

Okay, thank you.

Thank you.

The next question is from Giovanni Razzoli with Equita. Please go ahead, sir.

Good afternoon, and thank you for the effective presentation. The first question is on the going concern transaction. Clearly, we have also now all the moving parts now fixed. Is it fair to assume that the price of the going concern cannot exceed 790 million euros. That would depend on the risk-weighted assets. If I'm not mistaken, you've said that the risk-weighted assets will not exceed 15.5 billion. So the price that you're going to pay shall not exceed 790 million euros. And so this is my first question. The second question is actually a clarification on the slide number 34. where you are showing us the contribution that you expect from the going concern that is 140 million euros. If we do the math and I see 930 million euros of operating income, 50% of cost income ratio out there, in order to get the 140 million bottom line, roughly speaking out of 26 billion euros of loans, you are implicitly assuming 100 basis points of cost of risk in 2021. That, if I'm not mistaken, is your guidance for BIP standalone in 2020. So it seems to me that you have been extremely conservative there. I was wondering whether my understanding is correct. And if we'll succeed into reducing the cost of risk by... some 10 basis points, the leverage that you have on the bottom line on these going concerns is very significant. If you, I assume, 70 basis points of cost of risk, you would end up with the same revenues to something in the region of 200 million euros. That is a major improvement. So I was wondering, first of all, whether my calculations are correct, if you do share my thoughts. And if you also can share with us what kind of synergies on the revenue side you can assume on the going concerned both. So you should have additional operating leverage to these profits because clearly that would dramatically reduce the P paid on these going concerned. Very last question. I've seen that you have increased the asset under custody as a result of a major wholesale agreement. I was wondering whether this can have a tangible impact on your fee income on indirect collection going forward. Thank you. I'm sorry for the long list of questions.

Okay. Thank you. Thank you very much, Giovanni, for your questions. I tried to give you all the answer to your question but please remind me if i forgot something um first of all price is correct the the maximum level now we can say is 790 our expectation is to be below 750 so It depends, obviously, on the size of his weighted asset, and this will be possible only when we can share with Intesa San Paolo the perimeter of, first of all, of the credit and the loan portfolio of the 532 branches of UBI. But we think that this is the range. About the going concern and the B per plus the going concern, in 2021, we estimate 90 basis point of cost of risk is, let's say, a very prudent approach also because today, We know very well that UBI has a good credit quality, but at the same time, we are out of the UBI. And let's say in these 90 basis points, there is a very prudent approach. And I think thinking about the macroeconomic scenario today is correct. Going through the details about, as you said before, operating income, cost income ratio, 50%. Why 148 income? The reason is because between the cost of risk and the gross profit, there are other costs related, for example, to the recovery fund and so and so on. So we estimate also some cost related to this part of the profit and loss and also here a prudent approach lead us to have this 140 million euro of additional net profit for BIPER with the going concern. About the As an asset under custody, I would like to say that a significant part of this asset under custody are from Unipol Group and is a quite stable amount, around 55 billion euros. There is an agreement with Unipol Group, so it's an important activity for BIPER, but at the same time, a positive contribution for BIPER in terms of commission and fees. About the synergies, in the first year of this acquisition, 2021, there is no synergies. We expect to have the opportunity to exploit synergies in the coming years. As I said many times, using our product factories, in particular in asset management, in factory and consumer credit, so are not present in 2021. The expectation is to have a positive contribution in the other years. we are thinking about also on the opportunity for a new industrial plan because if there will be the acquisition of this perimeter of branches you know there is an important increase for b per group looking at total assets from 80 billion to 120 115 120 so there is an increase of roughly 50% of the size of the group, and also considering the macroeconomic scenario we think is important to work on a new business plan. We'll see at the beginning of the year if it's possible to have a comprehension, a better understanding of the evolution of the scenario, but it's crucial to have a new business plan, and this business plan will be possible to have a better comprehension of the potential also in terms of synergies for a BIPER group thanks to the perimeter of branches from Integers and Power.

And if I may follow up, can you elaborate a bit also on the churn on the customer that you expect on this going console? Because it seems to me that the profitability of this perimeter is quite good. So it is going to be important to retain as much customers as possible. I think this kind of transaction clearly is a risk envisaging the branches disposal.

Thank you. Well, about the churn rate, typically there is an estimate around 10%. But what I can say is that today we examined, for example, the The churn rate on the perimeter of Unipol Banka because we expect also in this perimeter to have a churn rate roughly around 10%. But after a significant period today we are below 5%. So it is a very positive trend in this area. so we hope to repeat the same performance also in the going concern perimeter what they can say that now working on on unipol bank the the effect is lower than expected is below five percent we see in the coming month but anyway is an important messages for beeper that is possible to maintain under control also this important rate.

Thank you very much. Thank you, Giovanni.

The next question is from Patrick Lee in Santander. Please go ahead.

Hi, good evening. Thanks for taking my question. I have two questions, one on the going concern and one on the cost of risk outlook. Firstly, on the going concern, estimated ends of 140 million for 2021, which is I think it's kind of a follow-up question, follow-up on the earlier question. I think back in February, your estimate then was the growing concern was an income of $165 million. Now, I know, of course, the world is different now, but you're also buying a 20% bigger book with the incremental long-term to be completely performing. So on my best guess, you might be penciling something of a fall in earnings of around 30%, quite a bit higher than what UB is saying in their business plan. So can I just ask you to give us a bit of color on your initial thinking of this for this extra caution? Is it just a matter of the cost of this of the 90 basis point you mentioned, or is there some change in thinking in terms of revenue capacity or the cost income ratio? Secondly, on cost of this, with the first half cost of this at 110 basis point, would you still stand by your previous indication of around 100 basis point for full year 2020? Indecently saying the cost of risk is going to fall to, let's say, 90 basis points in the second half of the year. That's it for me. Thank you.

Well, first of all, about the cost of risk of this year. So in the first half, the cost of risk was 112, and we estimate for the end of the year 100 basis points. I repeat also here, I think it is correct to have a very prudent approach because with 90 million euro already booked in the first half as additional provisioning, we don't expect to have the same pace, the same amount in the second half. So it's possible to see something lower. Anyway, we think that at this stage, a target of 100 basis points is, in my view, correct. If it would be better, it's fine. But anyway, to be proven, we think that 100 basis points is the better estimate. So in fourth Q, 50 million of ester provisioning. In the second one, 40 million. I don't expect to have the same pace in the third and fourth quarter. But anyway, something more on the ordinary cost of risk and something less probably in extra coverage. Yes, we changed the cost of risk in the going concern perimeter. And as I said before, Without any deep analysis on the portfolio, it is very difficult to estimate what will be the cost of risk of UBI. Looking at the balance sheet of UBI, typically there is a cost of risk lower than the cost of risk of BIPR. At the same time, BIPR, as you know, completed a very strong action on asset quality where particularly proud for the results on these years. But in terms of cost of risk, to have a good coverage and ready to complete some disposal, obviously there was a higher cost of risk. Let me remember only the last disposal of BIPR, the spring securitization, we have no impact on profit and loss on the disposal. and only 16 million euro on a disposal of 1.2 billion euro of gross, only to say how it was important to complete extra provisioning in the year before the disposal. Having said that, I think that in a very prudent approach, 90 basis point is our expectation, but probably the cost of risk on the UBI perimeter could be lower. Also because, as I said before, we want to complete on the PPA extra provisioning of 200 million euro on the perimeter of UBI.

Great. Thank you.

Thank you.

The next question is from Christian Carrese with Intermonte. Please go ahead, sir.

yes good evening i have a few questions on commercial trends the first one on net interest income i was quite surprised by the trend seen in this quarter in terms of both asset spread and liability spread if you can elaborate a little bit what do you expect Also taking into account of the government guarantee, so what do you expect in terms of asset spread going forward? And the lower cost of funding is related to maybe Unipol Bank, now lower cost of funding, so if you can give some color on that. The second question. You already answered the cost of risk 2020 still, your guidance is for 100 basis points. The PPA, the usage of PPA, OBIO PPA, you said 200 million euro or 300 million euro, if you can just clarify on that, and it will be booked by the end of the year. The third question is on MPLs. You just did the disposal of 1.2 billion euro MPLs with a positive tax effect due to the curataria decree. I was wondering if you are planning additional disposal by your end and if the tax effect, the positive tax effect has been booked in full in this quarter or there will be some additional benefit in the second half. And finally, on the common equity tier one, basically you're already on a performance basis at 13% common equity fully loaded, no headwinds, you expect no tailwinds as well in 2020, 2021. Just if you can clarify your dividend policy for 2020. If I'm not mistaken, you said no accrual in the first half. So if you can elaborate maybe on 2020, what do you expect? And after the, on a performer basis, what kind of dividend policy do you see? And finally, on the going concern, You talked about the churn rate. So in your estimates, you said on average, usually in the area of 10%. There is any, I'm going to say, no competition agreement with Integra San Paolo. Can you share with us on the deal? Thank you.

So, well, I try to remember all your I start from the last part of your question to confirm, first of all, that the extra provisioning PPA on UBI perimeter is 200, not three, 200 million euro. And so that we completed the disposal activity And this was, let's say, the last important disposal in the last two years. You know that we completed 5 billion euro of disposal. Probably there could be something before the end of the year on the UTP side, because we are analyzing some opportunities. We'll see. But anyway, the significant and positive impact on taxes was on the first Q, and we have no significant expectation on the second half. No accrual, as I said before, on dividend. We think that with this very particular year, we prefer to see quarter after quarter the trend. Let's say we are a little bit positive now after the positive trend of common equity won in the second Q, so 50 basis points more, so we are more relaxed on this side. But I repeat, we prefer to see the second half. You know that the ECB is said to be very prudent on the dividend policy, and only after the third Q is probably possible to to say something on this crucial point. Roberto Ferrari, please go ahead for the NII and some consideration about this point.

Hi. Hello, Christian. Good evening. On asset spread, we expect it marginally lower due to the growth in government-guaranteed loans. and you know that the spread on government-guaranteed loans is actually lower, and also the capital impact is very low. On the cost of funding, actually, we do expect it substantially lower due to the TLTRO 3 and the fact that we are very committed to reach the minus 1% benefit. due to the redemption of retail bonds, mainly of Unipol Bank, but something of Beeper as well. We had, for example, a redemption of a covered bond in July by $750 million. That was issued in the past. And also a lower cost of funding on the U.S. dollar, because we have a portfolio of $2.2 billion of U.S. dollar, where the cost of funding now is close to 25 basis points. So we will have an impact also on this side.

Okay. Probably the last question was about the presence or not of a no competition agreement. I confirm that is present in the agreement with Intesa San Paolo. So we think that there is the opportunity to manage correctly the churn rate, so there is an agreement for two years, and this is extremely important for people.

Just to follow up on the PPA, do you expect to use it by year-end, or...?

No. Well, it depends on the timeline of the acquisition. Let's say it is not simple to give you a clear view on the timeline because, you know, now we have no opportunity to analyze the IT system, to go deeply, to understand exactly the process. So what I can say that we would like to complete the acquisition of the going concern as soon as possible. But please, don't ask me any estimate of the timeline because now without no possibility to analyze inside the structure of UBI IT system is very difficult to explain, to express anything. So my expectation is that after the acquisition, thanks to the bad will, there will be this PPA, but Really, I am not able to give you a timeline for the reason that we are out of the UBI and we must expect, I think, after the new board of UBI and probably after that it is possible to have some insight in UBI system and to understand how many months need to complete the migration and so on i think that this will be possible probably at the end of of september but i repeat as soon as possible is obviously our objective very clear thank you thank you thank you very much the next question is from noemi peru with menu banca please go ahead madam good evening

and thank you for taking my questions. I have three on asset quality. Firstly, a follow-up on moratoria. Are the $1.2 billion you mentioned installments due by September? And if so, can you disclose the underlying amount of loans under moratorium? Secondly, can you please share with us the evolution of Stage 2 loans in the quarter? And did you migrate part of the loans under moratorium moratorium to stage two. And lastly, you're currently running with 1.7% default rate. What is the implied default rate in your guidance of 190 bits in 2020, 2021? Thank you very much.

So I tried to give you some elements about First of all, the moratorium, 1 billion was in installment, and the amount of the loans on the moratorium is roughly 10 billion euro. Let's say the second question was about stage two. And sorry, Michele, do you want to? So we have the opportunity to have the chief lending officer here with me, so please.

Good afternoon. We have recorded a slight increase in Stage 2 rate. Currently is slightly lower 10% on the total performing amount of fees the forming credit asset.

How big was the increase in FQ2 versus FQ1?

Roughly 1%.

Thank you.

So, in general, what I can say about the asset quality, until now, there are no significant changes in the different features PERIMETER OF OUR CREDIT PORTFOLIO AND ALSO THE CONFIRMATION OF THE LEVEL OF DEFAULT RATING AT 1.7%, THE SAME OF THE LAST YEAR. SO MY EXPECTATION IS THAT PROBABLY ONLY IN THE FOURTH QUARTER IT WILL BE POSSIBLE TO SEE SOMETHING DIFFERENT. RIGHT NOW, WHAT WE CAN SEE IS obviously a trend, let's say positive, but influenced by the moratorium, the intervention by the state with the guarantee. I repeat, I think the crucial point would be the fourth quarter 2020 to understand what will happen after moratorium and intervention by the state through the guarantee. Till now, I repeat, the trend are, in general, positive for the portfolio.

Do you mind giving us some color on the default rate embedded in your guidance?

So we estimate an increase of the default rate at 2%. this is what we embedded in our estimate and we hope that is not optimistic but very prudent and this is the figures that we have in our in our estimate okay

The next question is from Hugo Cruz with KDW. Please go ahead.

Hi, thanks for the time. Just quickly, so can you give us guidance for your tax rate in the second half of 2020? Also, if you could give tax rate guidance for 2021 to the performer. You know, I was wondering if there could be any DTI absorption, given that you now have a larger perimeter to absorb those DTIs. And then finally, I think there was a question around your dividend policy in 2021. I don't think it was answered, but if you did and if you could repeat, that would be great. Thank you.

Okay. For the 2020, our expectation is to have a positive impact rate, tax rate for the year. So let's say there is a significant positive level. I don't know how significant is to say 68, 69% positive. So we estimate to have roughly 80 million euro to add to the gross profit to arrive to the net profit. So the year is absolutely positive. Next year, at this stage, our estimate is to have roughly something between 20% and 25%. This is what we can say. Obviously, it depends on the going concern perimeter, on the size of the bed wheel, and so on. But if I have to give you a range, we think it's between 20% and 25%. The other question was on dividend policy. On our estimates on the Common Relative One target for 2021 of 13% area, we estimate a 25% of dividend yield for 2021 i think that we have to review all the elements if in 2021 we are ready to a new business plan let's say this is only in line with the dividend policy of the last year so is a confirmation also for 2021 but probably we need to review our policy when we are ready for the new business plan. But at this stage, the 2021 figures are with 25% of dividend yield.

Perfect. Thank you. Thank you.

The next question is a follow-up of Andrea Bercellone with Exxon. Please go ahead.

Sorry to ask some more questions. Two are clarifications on what I initially asked, and one is a qualitative one. On the PPA, am I correct that 200 is a net figure, so the provisions you'll be making is roughly 300? Second one is again on the size of the rights issue, which in my opinion is the only thing that matters right now. Everything else is very interesting, but that's the question. Is it fair to say that if you do transfer an amount of risk-weighted assets below the cap and you do buy the business at around the $750 million figure you gave before, then the rights issue could be $750 rather than $800, or am I reading too much into it? and the market should just have an 800 million in mind. And the final question is, when are you actually going to get access to the going concern in order to then speed ahead with all of your calculations and estimations and so on before you actually acquire it in December? Can you take a look at it before or It's just up to Intesa, and then you'll just get it. Thank you.

So I start with the easy question, and it is about the PPE 200 million is a gross figure. About also when it's possible for people to have access to data of the growing concern We think that it's possible to have end September, beginning of October. It's difficult to say because it's not a decision of BIPER, but it must be the renewal of the board of UBI, and probably after that it's possible to have access to data and information. As I said before, analyzing the right issue We, and I said 800 million area, let's say that probably we might think that we have to decide the size of the right issue before going into the details of the going concern. Because I hope that BIPER will be ready for the right issue After the summer period, my expectation is in the second half of September, hopefully. I'm not sure, obviously, but we are working on the authorities to have ready the right issue for the second half of September. So for this reason, we have a cap is 15.5 billion of RWA. We have a good estimate that we refine thanks to the data of June 20 of UBI, but to have the exact number is probably not possible before October. And frankly speaking, I hope to complete the right issue by October, probably at the beginning of October. So there is a little bit range, and let's say also considering the period, I think that now what I can say is 800 million euro area, but probably at the beginning of September is possible to have the right size of the right issue. But anyway, what must be clear that we have to decide, decide before going through the details of the going concern. So there is probably a little range of the risk-weighted assets that we must take into consideration when we decide the size of the right issue. Thank you.

Thank you, Andrea. Thank you.

Mr. Vandali, gentlemen, there are no more questions registered at this time.

Okay. Thank you. Thank you very much for your attention and sorry for a very long conference call. Thank you all. Bye-bye.