Bper Banca Spa Unsp/Adr

Good afternoon, this is the Coruscall Conference Operator. Welcome and thank you for joining the BIPER 3rd Quarter 2020 Consolidated 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. Alessandro Vandelli, CEO of Viper. Please go ahead, sir.

Thank you. Good evening, ladies and gentlemen. Thank you all for joining this conference call today. This is Alessandro Vandelli, CEO, and I'm here with Roberto Ferrari, CFO, Alessandro Simonazzi, of the Head of Planning and Control, and Gilberto Borghi, Investor Relations Manager. First of all, let me say once again that I hope you and your families have been keeping safe and healthy. This second wave of the pandemic is keeping everyone under pressure, but I'm confident that we'll be able to overtake this emergency soon and turn back to our ordinary life. At the beginning of this conference call, I'd like to greet all our staff. You have put your commitment, passion, and incredible dedication in supporting our clients in these tough times. This is the best way to face the emergency and invest in the future. Thank you all. The analysis of the nine-month results returns very positive messages in line with our strategy focused on enhancing profitability, improving further the asset quality, maintaining a very solid capital position, while seeking, when possible, new growth opportunities. In summary, net profit of over 200 million euro, a gross and net NP ratio respectively down to 8.8% and 4.7%, and the check-in ratio at 13.03% from 12.57% in June, are overall a concrete testimony of our strategy, and at the same time, a good starting point for our future planners' growth. 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 nine-month results. I think that nine-month results deliver three main messages. Resilient profitability, a remarkable step up in already sound capital and liquidity position, a further significant improvement of the asset quality. On the profitability, the net profit is at €200.6 million, showing a very positive increase of profitability, also thanks to the confirmed ability to generate revenues and contain operating costs, despite the difficult economic and financial environment. It must be highlighted that the result of the period includes, in addition to the contributions to systemic funds for 64.7 million euro, some other non-recurring items already accounted in the first half 2020, such as the accounting of additional loan loss provisions for over €19 million related to the worsening of the macro context caused by the health emergency and other extraordinary charge for approximately €36 million. The cost of credit analyzed is at 101 basis points, including the additional loan loss provisions and also the impact of the sale of the mezzanine and junior transits of the bed loan securitization spring, equivalent respectively to 35.6 basis points. Looking at results of the third quarter, I cannot hide the great satisfaction with results achieved, thanks to the extraordinary commitment of all the staff of the group. The net profit was 98.6 million euro, which benefits from the growth in core income by 5.8% quarter-on-quarter and the decline of operating costs by 7.4% quarter-on-quarter in the presence of a reduction of the cost of credit. Moreover, this result includes the ordinary contribution to the deposit guarantee fund estimated at 30.5 million euro. The second message is on capital and liquidity. Also in this quarter, we have been able to further improve, once again, our already solid capital and liquidity position. Set-to-end ratio preloading increased significantly at 13.03% in the third quarter, up by over 100 basis points versus December 19th. To complete the positive picture, our liquidity position is very strong as shown by LCR index at 175.8% and the liquidity buffer raised over 15.5 billion euro compared to 13.7 billion in June 20. All this moving on page six, introducing the third message about asset quality. We must underline another very positive step forward in improving asset quality. Our strong focus and commitment about it allowed us to get the lowest NPE ratios and stocks over the last 10 years. Thanks to the further reduction of the NPE stocks, also thanks to the bad loan securitization called Spring closed last July, gross and net were down respectively. 20% and 17% since the end of 2019, the gross and the net MP ratios dropped to 8.8% and 4.7% from 9.1% and 5% in June and from 11.1% and 5.8% December 19. Nevertheless, the decline of MP stocks and ratios is also associated with an improvement in coverage in all administrative status, which is some details later. We have been recording improvement of asset quality quarter after quarter over the last four years, and believe me, we do not intend to stop this trend. The normalized default rate significantly improved by 40 billion at this point. at 1.3 percent from 1.7 in June, and at the same time, the Texas ratio dropped to 68 percent, showing a significant reduction by 11 percentage points since December 2019. Finally, talking about business, we experienced a growth in performing loans both versus June 20 and December 19, also supported by the activity related to the measures promoted by the government for the health emergency. Total funding reached €177.3 billion, up by 1% versus December, showing a direct funding increase by 3% since December 19. And indirect funding is now in line with the end of 2019 level after the strong contraction in the first part of the year, supported by a strong performance in Q3. Very positive numbers come from the Bank S1 segment, which continue to show a strong performance, reaching €7.2 bn with an increase by 2.9% versus June and 6.2% versus December. So overall, we can be very satisfied by this very good set of results, which are a positive base to address economic and financial uncertainties of the rest of the year, in particular related to the second wave of the health emergency. Now we can move on to page seven. Also this second part of the year, we have been committed to work on several fronts. First of all, our attention was focused on strengthening and promoting further initiatives in support of families and businesses in this moment of economic and social difficulty caused by the protracted health emergency. Also thanks to the support of our branches and central services which are fully operational in compliance with current regulations. To date, we have accepted over 100,000 applications for a moratorium and disbursed funds for state-guaranteed loans for over €2.7 billion, while promoting numerous charitable initiatives and fundraising at the service of the territories and communities served. In October, the capital increase of $802 million was successfully completed. As you all know, this is related to the acquisition of a growing concern from the Intesa-San Paolo Group, a very important strategic deal which will allow to deeper group to achieve a significant dimensional growth, both in terms of market shares and number of customers. It is a great satisfaction to have recorded the support of our shareholders and the market in such a difficult context marked by high uncertainty. This is coupled with very positive results achieved in the first nine months of the year for the extraordinary commitment of all the staff of the group which my fans go. Now we can go quickly through the to our nine month 2020 result. Please move on to the page number nine. We start with an overview of the funding. Total funding in September reached 177.3 billion euro, including contribution of asset management from ARCA holding of 16.7 billion euro. Direct funding in September is close to €60 billion, up by 3% compared to December, and substantially stable versus June 20, as a confirmation of a strong preference for liquidity of our customers. Direct deposit recorded a very strong performance in September versus June, plus 3.5%, and now in line with the same level of the beginning of the year. Asset management performed well in the quarter, up by 2.2% versus June, and almost fully recovered to the same pre-crisis levels. Bank insurance continued to show a very positive trend, reaching a stock of 7.2 billion euro, which means plus 2.9% versus June, and plus 6.2% since the end of 2018. Net inflows in assets and management and life insurance products in the nine months are at €818 million. Criticism regime is taking into account the current difficult financial environment. Moving on to page 10, net customer loans recorded a positive growth by 0.6% since June 20 and by 1.7% since December. This result is also supported by the measures of the government to support the economy, and this is even more positive if we take into consideration the bad loan securitization spring, which helped to lower significantly the gross and FPE stock, as we are going to see in a while in the next slide. The good quality of the performing loans book is still confirmed with a particularly low bucket of high-risk exposure, only 3.1% of the performing book. Let's turn to page 11. This is one of the pillars of this set of results. Once again, we record a further improvement of the answer quality. Grand Saint-Pierre stock at the end of September declined below €5 billion, with a ratio of 8 down from 9.1 in June and 11.1 in December 2019, also a result of €5 billion of bedrooms disposed in the past two years. The net NPE stock is below €2.5 billion with an improvement of the ratio at 4.7% from 5% in June and 5.8% in December 2019. Another good news, is that the decrease of DMP stocks came along with an increase of DMP coverage to 49.3 from 47.4 in June. Also, the coverage of Bell Loans and UTP improved versus June, respectively to 63.9 and 36.8. So we continue our job quarter after quarter to improve asset quality, delivering positive results. The expected micro scenario is uncertain, but we think we are well equipped to face it, and we reiterate our strong commitment to focus on further asset quality improvement going forward. Also, the transition with Intesa San Paolo addresses, as you all know, also this angle, among others. Moving on to page 12, we show a strong improvement of the default rate at 1.3 percent in September, much lower than 1.7 percent in June 20. This is likely helped by the measures taken by the government to help the economy after the crisis related to the health emergency. But it's not only this, in my opinion. I think that this positive outcome comes also as a result of our long-term approach based on effective credit policies able to foster a better quality of the loan portfolio. Moreover, the average recovery rate on bad loans remained high at 6.4% from 6.3% in 2019. It was 3.7% in 2016, showing a very positive long-term trend demonstrating that our servicing platform, deeper credit management, is a very efficient machine. It is doing an excellent job and playing an important role within our overall MPE strategy. On page 13, the securities portfolio reported an increase close to 1 billion euro versus June, and by 4.3 billion since December 19. mainly led by our large buffer of liquidity to be invested in the positive market expectations, in particular in the first income bond market. Following our conservative strategy in the financial investments, we further diversified our portfolio. Italian government bonds stock is substantially stable at 7.5 billion euro, weighing 32.4% of the financial assets portfolio. and 11% of the total assets. Now we can move on to the profit and loss figures on page 15. As usual, note that the comparison between nine month 20 and nine month 19 is not possible because of the change in perimeter of the group. The third quarter of 2020 instead is comparable to the third quarter of 2019. Having said this, we are very proud of the net profit reporting in the nine months of 200.6 million, thanks in particular to a positive ability to generate revenues and effective control of management costs realized in a not easy microeconomic environment. It's worth highlighting that this result includes the impact deriving from the accounting of additional credit adjustment for over 90 million euro letting to the worsening of the microeconomic tautness, and other extraordinary expenses for 36.1 million euros already accounted in the first half of the year. Moreover, the result includes also the contributions to systemic funds for 64.7 million. You can see details in the call-outs of the slide. We can move on very quickly to page 16. The net profit for the third quarter is at 95.9 million euro, mainly thanks to the growth in core income by 5.8 percent quarter on quarter, the reduction of operating costs by 7.4 percent quarter on quarter, the decline of the cost of credit to 20 basis points, and a low tax rate, about 6%. Moreover, in this quarter, we have accounted that the contribution to DGS amounted to 30.5 million euro. So overall, also here, I have to say that this represents a very positive set of results. We can move on to page 17 for some details of the profit and loss. We can show a very positive NAI growth at €325.5 million, up by 4.9% quarter-on-quarter and by 3% year-on-year. If you look at the ordinary NAI that is net of IFRS 9 and IFRS 16 effects, the performance is even better, with an increase by 5.9% quarter-on-quarter and by 5.3% year-on-year. The positive performance of the NII versus the second quarter is mainly related to the TLTRO take-up of June, 14 billion euros. At the end of September, we took up another 2.7 billion euros of TLTRO 3. The TLTRO 3 additional contribution in the quarter was about 35 million euros, with an excess from the second quarter of about 24 million euros. On the other hand, we recorded a reduction of the yield of the bond portfolio along with a reduction of the yield of mortgages and credit facilities due to the new issuance at lower yield related to measure approved by the government to support the economy. Let's turn to page 18. Net commission amounted to €262.1 million in the Q3 2020. up by 6.9% quarter-on-quarter, reflecting a significant recovery after the decline in Q2 due to the effects of the health emergency and the prolonged period of the lockdown. In detail, the performance of the Amsterdam minimum was particularly positive, up by 11.5% quarter-on-quarter, commissions of credit cards collections and payments rebounded by 13.2% quarter-on-quarter, while the component referring to loans and guarantees also increased by 2.6% quarter-on-quarter. So we have had a confirmation of what we expected looking at the positive trend of commissions in the last part of the second quarter, 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 page 19, in the third quarter, trading income was very positive, even if a bit lower than in the second one, equal to $43.1 million, mainly supported by fifth-income bond trading and favorable equity market performance. The quote to see is also dividends for 4.6 million euro. Moving forward on page 20, operating costs amounted to 379.8 million euro, down by 7.4% quarter on quarter and by 2.5% year on year, showing a very positive performance. Staff costs declined by 13% quarter on quarter benefiting from the positive effects of the redundancy plan, including the business plan 2019-2021, and the usual seasonality of the third quarter of the year. Other administrative expenses amounted to €120.1 million, showing an increase of 2.8% quarter-on-quarter, mainly due to higher costs related to the extraordinary projects we have been working on. We recorded also a decrease in DNA by 2.4%, quarter on quarter. On page 21, provision and other items, we account in loan loan provision for €106.5 million in the third quarter, down by 30% from the second quarter. Just as a reminder, we account to the additional provision of approximately over €90 million in the first half of the year for the expected worsening of the economic contest. Moreover, the cost of credit of the second quarter included €16.4 million referring to the sale of the Mezzanine Junior tranches of the Securitization of Spring bail-on portfolio closed in July. The cost of credit analyzed is at 101 basis points. Net provision for risk and charge amounted to 15.1 million. This quarter includes the ordinary contribution to DGS estimated at 13.5 million euros. Now we can move on to page 23 on liquidity. We consider our liquidity position as very sound. Our total eligible assets increased at €27.5 billion, along with a bucket of unencumbered eligible assets of €9.9 billion, and extra liquidity of €5.8 billion made by deposits with the ECB. ECB exposure of €16.7 billion in September 2020, entirely composed by TLT3, The 9.7 billion euro of TL302 were entirely reimbursed in June. LCR index is at 175.8%, so well above the 100% threshold, as well as the NSFR ratio stands well above the regulatory floor. Page 24 on capital, another important slide. This is the third pillar of our management action after the other two, represented by the resilience, profitability, and the strong asset quality improvement. Just a technical clarification when reading this slide, the capital and ratio are on a pro forma basis because, as reported in the food notes, the inclusion of the result of the period into CHET-1 is subject to ECB approval, which will be carried out with reference to the regulatory reporting date of December 2020. Our capital position recorded a significant increase of the common equity to when fully loaded at 13.3%, up by 46 bps versus June, and over 100 bps versus December 2019. The CHAT-1 ratio phase instance at 14.61% with a very large buffer, 650 basis point over and over, €2 billion versus the minimum capital requirements set by the ECB at 8.125%. The main effects on the CHAT-1 ratio preload in the port have been retained earnings, of the third quarter, plus 28 bps, lower deduction on DTA and intangibles worth 9 basis points, and the decrease of RWA for a positive impact of CH1 fully loaded of 7 basis points. We have also some extra buffer to exploit by the end of the year, as you all know. In particular, the IRB model extension to ex-Unipol Bank credit portfolio. So now we are at the end of the presentation. So in conclusion, page 26, the main takeaways from this set of results of the first nine months of the year are we continue to record a very resilient profitability despite the very difficult macroeconomic scenario. We are confirming the ability in revenue generation and the first benefits from the redundancy plan included in our 2019-2021 business plan. Moreover, the cost of credit at 101 basis points shows that our approach to asset quality is still conservative, justified by the expected worsening of the macroeconomic context caused by the pandemic crisis. Deposit profitability results come along with a very solid capital ratios and a large liquidity buffer. Our commitment is to preserve and even improve this comfortable situation in the future. Again, a step forward in improving asset quality, and obviously this will continue to be a focus for our group. Last but not least, as you all know, we completed successfully the right issue of 802 million in October to support the acquisition of a going concern from the Intesa San Paolo group. We confirm once more the high strategic and industrial value of the deal. We are cautious that it was only the first step of the whole process, and even though very important, but we are also confident to be well equipped to successfully finalize this deal. So thank you all for your time and attention. Now we are ready to start the Q&A session and to take your questions. So thank you very much.

Excuse me, this is the Coruscall conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Domenico Santoro with HSBC. Please go ahead, sir.

Hello, good afternoon. Thank you very much for the presentation. The first question is on capital. I mean, you are doing better, but could you detail, please, all the moving parts, negative and positive, we should expect over the next quarters? In particular, the IRBO unipolls, uh the timing as well um your view on the uh calendar provisioning as well that kicks in in q4 and any other moving parts positive or negative you can think about the second is on capital again i mean i don't see the target, including the purchase of the Intesa UBI branches. I'm just wondering whether the 13% that you had as a target before, shall we consider that a floor given that the evolution of the capital in the quarter, which was better? The other question is on the dividend, whether you're going to pay a dividend and which kind of payout ratio we should consider. And then just some anecdotal evidence on October in terms of commercial trends. Thank you very much.

Thank you. Thank you very much for your question. First of all, about the CHET-1 ratio. Yes, we expect to have the station of IB models to Unipol Bank portfolio. There is probably another positive effect coming from the decision about software, you know. And so the combination of these two elements, we estimate some mean, but roughly around 45, 50 basis points. And we expect to have a good use from the ECB by the end of the year about the unipole perimeter alignment to the internal model. Let me say something about the approach to the acquisition of going concern and the effect on our capital position. So the starting point, September 13%, let me say, probably better than expected. So we are extremely satisfied for the result of the period. And our expectation is to complete the acquisition of a perimeter with a common equity one at 13.4%. So we expect that now the combination taking into consideration also the payment of the price of the growing concern, the combination to have a positive effect on our capital position. Taking into consideration also the presence of a significant that we estimate around 1.2 billion euro. And so together all these elements together with also the right to issue completed in October, we think is absolutely a very positive base for our capital position. On dividend, let's say the positive result of the first nine months of of a deeper group and also let's say the outlook for the end of 2020 we think that leave enough room to think about a positive a possible distribution of the dividend you know also after a right issue in this period we have a strong commitment to to pay a dividend to our shareholders that supported our right issue. So we think the capital position, the elements of the going concern, the profitability of the year are all elements that we think allow to think about a dividend at the end of 2020. We can see we have to wait to know what will be the decision by the ECD. I don't know if there is something else about the calendar provisioning on the Pillar 1. You know that the effect will be only on 2023, so nothing during this period, the first effect in this period. Thinking about the other one, so the expectation by the ECB on calendar provisioning, nothing significant in this year and also in 2021. At the end, probably the most significant impact will be on 2022. But let's say we are so deeply changing the perimeter of our bed loss portfolio unlikely to pay. that I don't want to give you some figures about this point because, I repeat, when we have the first estimate, the size of the bad loans portfolio and the likely portfolio was completely different, and so we have to estimate again the EBITDA on Pillar 2. In any case, you know that this will be, at the end, the outcome of some discussion with the ECB on this element. But anyway, on Pillar 1, only 2023 will be a period in which we can see the first impact.

Sorry, can I follow up just again on the capital? The question was more with all the moving parts that you just mentioned, and given that the evolution of capital in Q4 was a bit better As you said, the 13% that I don't see any more mention in the press release and the presentation after purchase of branches and capital, shall we consider that the floor can be better considering all the moving parts? And whether that kind of target is still confirmed, of course. And second, also, if you haven't commented on trim, if we should expect any impact from this. Thank you.

Well, I start with your last question, not significant impact coming from Trim. So this is what we expect to see. About the capital position, we had in mind 13% area also after the combination with the perimeter of the Tejo-San Paolo. What we expect now is probably to have something better

All right.

So for this reason, we take into consideration also to, so we think that we have a great opportunity in the Q1 with a significant deadline. So at the end when all will be on the table, the RWA, the capital position of B per stand alone at the end of the year, everything, we can take the opportunity to use partially the bedwell to complete our strong action on asset quality. You know that we have already expressed the intention to use €200 million of the bedwell for asset coverage on the UBI perimeter of Ben Lawson and likely to pay. But if there will be room, and we expect to have, we can use partially the bed wheel also for other intervention on the perimeter. You know, our strong action on the answer quality is not completed. We are proud for the result of these last years. If you consider that in June 16, we had 23.5% of NP gross ratio. Now we are at 8.8, but our target is to go below 8%, close to 7%, we think that we have a great opportunity in Q1. Also, the combination with the going concern perimeter, you know that we expect a mixed effect thanks to better quality in the going concern and also using the bedware, we can have the opportunity to have another strong improvement in ascent quality.

All right, now it's very clear. Thank you.

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

Thank you for taking my question. The first one is on net interest income. I see that in terms of liability costs, you reached almost zero cost, 0.03. I was in the battle, the asset spread was down by, I was wondering what you expect in the coming quarters in terms of a particular asset spread and what was the impact in the third quarter coming from the TLTRO take-up. The second question is on cost of risk. As you said, you are going to recognize the badwill in the first quarter. 2021 so maybe there you you will make some additional provision to increase the correlation might be higher than 200 million euro that you initially projected i was wondering for the fourth quarter 2020 you're still um confirming the guidance so that the current level one the response or taking into account that you should end up the the folia with the common equity one higher than expected expected from the area of 14.4 14 13.5 maybe could you decide to increase uh numbers provision in the fourth quarter or ready to increase the color generation to facilitate mpe disposals in 2021 and finally a two question actually trading income Good in the quarter, if you can give us an update on the unrealized capital gain on board portfolio. And finally, on the UBI branches integration, if you can give us some indication how it's going with the IT integration and so on. So give us an update on that. Thank you.

So thank you, Christian. Thank you for your question. First of all, I will take your question about the cost of risk and also about the integration of UBI branches. And I hand over to Roberto Ferrari for NII and trading. So cost of risk, we confirm the target of 2020 around 110 basis points. This is the guideline for the year. I think our strategy is to a Q1 for extraordinary intervention is, in my view, an incredible window of opportunity, and we want to use calibrating correctly the action on coverage. And as I said before, our ambition is to reach a very significant and positive level of asset quality. And we think to have room to complete a significant action in Q1 thanks to, as I said before, some better than expected result in terms of capital position, the expectation to have other room in Q4, and in particular in Q1 with the acquisition of the going concern. About integration, obviously there are a lot of activities during this period. There is a very strong commitment by our staff, in particular for the analysis for the migration. So we expect to complete everything by the end of of February, it's a crucial point because we want to have the effect on our profit and loss during the last part of 2021. Let's say we are in the schedule perfectly in line with our schedule at this stage, and we are completing some activities, but I repeat, I'm confident Then also thanks a good collaboration between BIPER and Intesa San Paolo group to be able to finalize positively the integration of branches and also the migration from UBI to BIPER systems. Roberto.

Hi, Cristian. Ciao. Ciao. We start from the TL-003. And actually, we took $2.7 billion at the end of September. We completed our total amount, and the benefit should be $1.1 million per month in the last quarter of the year. On the term of asset spread, we clearly, asset spread will go down. at the end of the year due to the impact of government-guaranteed loans that have clearly a lower spread, lower yield, and also to the fact that we are increasing the financial portfolio at a lower yield. And the financial portfolio securities have a very, very low yield at the moment. But we reckon that the volume effect will compensate the spread effect, as it was done in the third quarter. Not the same magnitude, clearly, but there will be a compensation between volume and spread effect. On the last question, and also, actually, there is the positive impact on the TL-003, on the last auction. And also we have a positive impact from the redemption of retail bonds that we are not renewing. On the last question, on unrealized capital reserve, as of today, we are north of 500 million. If you sum up the reserve in fair value OCI, and amortized cost. Clearly, the big stake is in amortized cost, and the 500 million is a cross of tax, clearly.

Thank you. Thank you.

The next question is from Jean Noé with Goldman Sachs. Please go ahead, sir.

Hi, good evening. I just wanted to ask two things, really. First, on the integration of UbiBanca Today in this, as a result, there seem to be, I think they recognize PPA in the region of 3.2, 3.3 billion, and I think initially it was planned to be 2.8. And I just wondered whether there was, you mentioned 1.2 billion of bandwidth, but I just wanted to understand whether you need to update this number later or whether there can be any moving part of this is the number which you believe is final, final. And so that's my question on the accounting itself, but also on this deal. So you didn't expect to be any synergies necessarily because you were at the time of presenting the deal because you said it's complementary as opposed to overlapping. And I just wondered whether you've refined any potential for any synergies either on cost or on revenue since last time we spoke. And then my second question would be on just on LLP. So you see, for example, now you get a guidance for 100, 110 bps for the year and it's good. But then you say, for example, we have badwill we can top up. And in the end of the day, did these one-offs happen on a regular basis and impact the growth of your book value? And they are not insignificant either. So I just wondered whether instead of cost of risk, you could maybe guide in terms of what you expect to have in terms of NPL ratio and coverage. And that's ideally, at least in terms of coverage. And then maybe that's easier to try to chart the path of your book value. Thank you.

Well, about the first question, looking at the very preliminary view, looking at the result of the nine months of UBI, we saw not significant change in the size of loans, so a little increase. So we expect not to have an important change in our estimates on RWA and so also on the consideration and at the end on the on the bandwidth. So we confirm our estimate of 1.2 billion, and as we said since the beginning, 200 million will be used for extra coverage on the perimeter of UBI. And having said this, we are positive for this integration. And yes, I confirm that We didn't express any synergies, but looking at our business model and also taking into consideration that Beeper has a full set of product companies, we think that there will be some opportunities, in particular using our product companies. At the same time, we think that we have a very positive ability managing asset liabilities and the return in terms of NII are extremely positive. We think that there is room also to have a positive effect on the perimeter of UBI. I think that there are these two areas in which we can have some positive elements. The last point, obviously, is on the cost-income ratio. also a deal that in which we can have some advantages on cost income because the structure of the deal is without any overlap on central structure and this is a huge opportunity to reduce our cost income and to have a better profitability thanks to this acquisition. I don't catch your question about about the coverage and the MPI ratio. Anyway, now we are at 8.8% on gross and 4.7%. We think that the perimeter coming from UBI will have an MPI ratio at 6.5%. This is the expectation. And so, the mixed effect will have a positive impact on our NPE gross ratio. So we expect only thanks to this combination to go in at 8% area and probably below the 8%. Then there are these actions of extra coverage, and this will enable BIPER to complete other disposal. and also to have probably other write-off on our perimeter. So for this reason, I repeat, we have room to complete other improvement in answer quality. I hope to have catch your question on the MPE.

Yeah, thank you very much for the answer. Thanks.

Thank you. Thank you to you.

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

Good afternoon. Two clarifications. The first one is on the NII. Can you please clarify the incremental contribution of the TLTRO 3 this quarter vis-à-vis the second one? If I'm not mistaken, you've mentioned you had 24 million euros of positive impact. I'm referring to slide number 17. And if that's the case, Is it correct to extrapolate that excluding the TL-TRO3, you would be reporting NII in the region of 300 million euros? So what's the underlying trend on a quarter-on-quarter basis in light also of the compression that you have mentioned on the asset side and the possible counterbalancing impact on the volumes going forward? The second question relates to the asset quality evolution. You have reported on a default rate in the Q3 that was 1.3%, which implies, if I'm not mistaken, a material improvement vis-a-vis the run rate of the first half that was 1.7%. So that implies that the default rate in the Q3 was significantly low or improving. I was wondering whether this was related to seasonality, to someone else, underlying trends, or whatever. Thank you.

Okay, thank you. Thank you for your question, Giovanni. About the default rate, I think that there are some of different elements. The first one, I think that the action... the moratorium on one side and also the loans with the state guarantee all together were significant to lower the default rate. This is obviously one element. The other one is that BIPA in the last years has adopted an important change in credit policies And year after year, we have some significant positive effect on the asset quality. Also this year, looking at the performing portfolio, the high risk portion is very, very low. And this is something that the effect are present quarter after quarter in the quality. Having said this, the drop from 1.7 to 1.3 in a quarter, I think there is also the impact coming from Boltonia. For the other question, Roberto Ferrari.

Giovanni, hi. On TLT03, actually speaking about the third quarter, the benefit was between 6 and 7 million per month in the third quarter. Earlier on, I was speaking about the fourth quarter. because we got 2.7 billion at the end of September. It was our residual part in the TLTRO-3, and this one should have an incremental benefit of 1.1 billion per month in the last quarter of the year.

Okay, Roberto, and what was the steady contribution in the Q2 per month of the TLTRO-3?

I gave you the incremental contribution because in the second quarter it was still the TLTRO2. We had around 10 billion at minus 40 basis point. So the impact is the yearly impact was 40 million and the monthly impact was 10 million. But I gave you, I already gave you the impact, the incremental impact, so compared to the third quarter compared to the second and fourth quarter compared to the third.

Okay. Thank you.

The next question is from Andrea Vercellone with Exxon. Please go ahead, sir.

Good evening. I've got three questions. two are related to the bit of ubi that you're buying and one is related to your guidance which is inconsistent on asset quality in my view um on the ubi bit the first one is on staff So the personnel which is going to be transferred to you, sorry, the branches that are going to be transferred to you have X number of people. These people, however, can also apply for the early retirement scheme of Intesa San Paolo. So what happens to you? You just get less people, so less costs, and maybe you pay X amount of the restructuring charge, or you get some other people that Intesa gives to you. Obviously, it makes a difference vis-a-vis the earnings that you will make in the future if you get less people. The second question is also on UBI. You contractually said that you'll get a perimeter with a gross MPI ratio of about 6.5%. However, UBI is doing an NPL securitization or an NPL sale probably before the end of the year. It's about a billion, which reduces their ratio by one percentage points. Do you take a share of it? Or again, if you don't get the NPLs of UBI, you'll get some other NPLs to compensate. And the final question is on your asset quality guidance for the future. So one month ago, in the prospectus you publish a figure saying you guys for a gross mpe ratio of 9.3 percent for the combined company in 2021 now we see the default rate going the right way big time you see the risking by the way the same was true for uh for ubi so it must be true for the bit of ubi that you get you commented quite positively on asset quality during the call. So how do you get from where you are to actually a pretty significant increase in the gross MP ratio next year? So the trends and the comments don't tie with the guidance. One of the two is wrong or too conservative.

Okay, thank you, thank you Andrea. About the two questions, let's say these elements are correct and they are under discussion because there are some moving parts also because of the, let's say the redundancy plan is not already completed by the Intesa-San Paolo group. So we don't have any evidence about the impact on our perimeter. So potentially it's possible that part of the staff that are present in our branches must be included in this maneuver by Intesa-San Paolo. But this is exactly what we have to discuss in the coming days to understand the size, the dimension of the effect, and to understand how we can manage this element. Because, obviously, beeper needs the stuff in the branches, so let's say it's not the same situation that probably has in Tierra San Paolo. So we have to start some analysis and discussion about this point. Also, the second point is present in our analysis because, obviously, we think that the effect or also the cost of the situation must be Let's say divided between beeper and and UBI in San Paulo in with proportion between the perimeter portfolio of the going concern for deeper and the other part before it isn't. This is another area in on which we are analyzing the. the effect of the securitization. On the last point, let me say, first of all, that the exercise to estimate the trend of default rate for the next year is really unpredictable. And, you know, our approach is typically very prudent, giving the estimated. When a couple of months ago we tried to give to the market the evidence of our estimate, we said that probably in 2021 we can have 9% of NP gross ratio. This was expressed clearly and was a combination of an increase in BIPR and something better because the starting point for UBI was lower than BIPR. The mixed effect of of the two banks. Now, looking at the figures of this last period, we saw something better than what was the estimate in a couple of months ago. It's better the capital position. It's better the default rate. And so we want to review our ambition on the target of the MPE. Let's say we think that this room, because, you know, this is probably the most important nation in the last year to improve the asset quality. Let's say probably we would like to have a better view in the last quarter of the year to express probably clearly at the end of 2021 the ambition for the beginning of the year.

and and this is what they can say at this at this stage okay clear thank you thank you the next question is from noemi peru with menu banca please go ahead good evening thank you for taking my questions i have a three from my side the first one is on asset quality can you give us some color on the behavior you have seen on expired moratoria in September? How much was repaid and how much rescheduled? And also, what's the outstanding amount of moratoria as of September? The second one is on the going concern. Can you share with us the effect of the extension of the insurance and asset management distribution agreements into the going concern? especially on insurance. The disposal is between Intesa and Unipol, but can you give us more color on the relationship between yourself and Unipol on the growing concern? And the last one is on M&A. You mentioned you intend to grow also inorganically in the future. I was wondering what time horizon you have in mind and whether you aim for bolt-on acquisitions or more transformational deals. Thank you very much.

Thank you. Thank you very much for your questions about the first one on moratorium. I can give you, first of all, the size of our moratorium. As I said probably in the presentation, we had more than... 100,000 requested of moratorium. And the amount of the total debt covered by moratorium is roughly 11 billion euro. At the end of September, it didn't happen nothing significant. Yes, there was some debtor that started again the payment of the installment. But a large part, as you know, of the debtor use the more period until next year. And so we wait for what will be the result of the expirement of the moratorium. What I can say is, in my view, extremely important is that a large portion of our clients that use the moratorium are clients with a very positive rating. And combining high risk rating and sector impacted by the coronavirus, the portion of loan covered by moratorium is very low. We estimate only 2.5% of our portfolio. so we think is uh that is is another important point and we expect to have a a more a clear view in in 2021 when there will be the end of the process and is possible to see also an extension of the moratorium period in october uh let's say the trend of better asset quality is going on. So there is another significant positive effect on asset quality. And this is crucial for our strategy. On the going concern, so we know that we completed an agreement about the acquisition of the going concern by Intesa San Paolo on the UBI perimeter. But at the same time, we know that there was an agreement also between Intesa San Paolo and Unipo Group for the perimeter of the insurance product included in the branches that we are going to buy with a going concern. Let's say for BIPER, it's too early to say what will be the agreement, but we expect to have a an agreement in line with the present agreement on distribution of live product and also no live product with Unipol through Arca Vita, Arca Assicurazioni. And let's say for BIPER is an important advantage to have a Unipol group ready to buy the going concern relating to the Israel product because I think it's an opportunity to facilitate the introduction of BIPER products to the customer base of the going concern. So we are extremely satisfied for this intervention by Unipol Group. About M&A, let's say for BIPER now, the focus is on the completion of this acquisition. So we completed so many steps by now, and the last one is the right issue. And frankly speaking was, let's say, a very important activity for us. We are extremely satisfied for the results. Anyway, it's not the right period for the right issue. In my view, we must be concentrated now on this acquisition to be able to complete everything in a very efficient way, and then we'll see. Let's say, in my view, if there will be some opportunity, but not through a right issue, eventually through... a merger, so using share and not cash. This is probably, in this case, as you know, when you are going to buy a going perimeter, you have no chance to, no possibility to use a different approach. And so cash was the only possibility. But I repeat, it's too early to say anyway. I don't think that the next one, if there will be will be through cash and not through share.

Thank you. The next question is from Hugo Cruz with KBW.

Please go ahead, sir.

Hi, thank you for the time. I just wanted to clarify some of your comments before on capital to make sure I understood correctly. I think you said that Unipol extension to IRB and the software treatment would come in Q4 this year. you would add 45 to 50 basis points of capital, so positive impact. And then I think you said that pro forma for the UBI branches, you would be at 13.4. Is that, if I understood correctly, that 13.4, is that pro forma for all the bed wheel utilization already? So obviously pro forma for the rights issue, but then pro forma for the RWAs and the bed wheel utilization, which I understand had 200 million of, uh you know extra um top up for mpls 60 million for restructuring charges want to clarify that and then if you can give a performance for q4 as well would be helpful even that you don't have any other ways as of q4 that's it thank you uh well uh

I take your first question about the impact on our capital position for the extension of the internal model to UNIFOR. I mentioned before two elements that we expect to see by the end of the year. Obviously, it's not in our hands, the decision of IDCB. we expect and we hope to have by the end of the year. But, you know, this is a tough period for everyone, also for the activity of BIPER, but I think also for UCB. Anyway, I said before, there are two elements, both positive for the capital position. One is the alignment to internal models of the perimeter of Unipol Banca on one side. The other one is the anticipation of something about the software present in the balance sheet that now is directly deducted by the common equity one. There is an advantage for the future. So the combination of the two effects is around 45 50 basis points so looking at the capital position of viper at the end of september 30 percent we expect thanks to these two elements to have a a positive impact around uh 45 50 basis points uh roberto ferrari

In terms of the Gemini transaction, actually the 13.40% is the capital of the coin concern. That is clearly linked to the risk-weighted asset of the coin concern. That is the real moving part because we have an estimation on that, but we don't have the real number yet. We know that the risk-weighted asset cannot be higher than $15.5 billion, and we reckon that the risk-weighted asset will be around $14 billion for the going concern. The $800 million of capital increase will cover the price. The price will not go higher than $790 million. but probably it depends on the risk-weighted asset. So probably the 800 million are more than the price, are for sure higher than the price that we will pay, but this depends on the risk-weighted asset that will be embedded in the coin concern.

Only to confirm what Roberto has expressed, let me remember that we're going to pay on the common equity of the going concern 0.38. This is the price. And the 13.4 is related to the common equity one of UBI in June 2020. So in the agreement there is expressed clearly that The going concern will have the common equity one of UBI at the end of June. And June was 13.4. So this is fixed and related to June 2020 balance sheet of UBI. And also the price now is fixed at 0.38, the common equity one of the going concern. The only moving part is the RWA that is impossible to know at present, and it's important to understand what will be close to the completion of the deal, so in February 2021. Okay, okay.

Thank you very much. The next question is from Patrick Lee with Santander.

Please go ahead, sir.

Hi, good evening. Thanks for taking my questions. I just have a couple of questions on your cost of risk guidance that you have given. Firstly, your nine-month cost of risk is currently at around 101 basis point, but if I look at the third quarter alone, cost of risk was around 80 basis point with no COVID charge. So with your guidance of 100 to 110 basis points for the full year, arithmetically, I guess it means that fourth quarter cost of risk will be 100 basis points or more, which would be kind of worse than what you've reported today for third quarter. So I guess my first question is whether that is the right interpretation. And within that, are you factoring some extra COVID-related provisions in the fourth quarter, or is it just a reflection of what you think is the underlying deterioration that you expect for the rest of the year? And then looking into 2021, I think three months ago, you indicated a cost of risk guidance of around 90 basis point for standalone or for the combined group. Now taking into account what you refer to as better group recognition, better cleanup with that, and better as a quality of the combined group, do you still think this guidance of 90 basis point is correct for 2021?

Okay, thank you. Thank you very much for your question about the first point. I confirmed the guidance for the cost of risk for 2020 of 110 basis points. So it's correct in the fourth queue we must have something around 100 basis points. Probably is something a prudent estimate for the end of the year. Because the surprise is that now we have a low default rate, confirmed also in October. So in my view, probably in this 100, 120 basis point of cost of risk, also in the last part of the year, there will be some, a portion of extra coverage. So we expect to have another increase in in the coverage ratio on our portfolio. So this is our expectation. For the next year, obviously 90 basis points is an estimate that take into consideration a possible deterioration of the environment. But on top of this, this is what we try to understand in Q1, on top of these 90 basis points is possible to have another portion of extraordinary loan loss provision, taking into account that we have an extremely high level of badwill. So looking at the different elements, the capital position, the impact of the going concern, the level of coverage, we want to use this window of opportunity to take a decision about the ESSA coverage. But this will be only in the Q1, because now we have so many moving parts that it is difficult to say before what will be the size. We can confirm only the €200 million, because it was something already decided in the process of the CoinConcern acquisition. But we want to take this opportunity, in my view, a good opportunity in the right period in the Q1, but the size of the potential further intervention on coverage will be decided only in the Q1 when all the moving parts are fixed so we can have a good estimate of what is the potential intervention using the bed wheel. And as I said before, the estimate will be for a bed wheel around 1.2 billion euro.

Great, thank you.

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

Perfect. So no closing remarks. Just thank you very much for the attention and have a good evening and see you soon. Thank you. Bye-bye.