Unicredito Spa Ord New

Good morning and welcome to Unicredit's fourth quarter and full year 2024 results conference call. Andrea Orchel, our CEO, will take you through the presentation. This will be followed by a Q&A session with Andrea and Stefano Porro, our CFO. Please limit yourself to two questions. With that, I hand over to Andrea.

Good morning. Good morning. It is my privilege to present the successful completion of the first phase of Unicredit Unlocked, crowned by our fourth quarter and full year 2024 results. We're now moving to the second phase of Unicredit Unlocked, acceleration. This will include our expectations and levers for the next three years, the guidance outlook and inorganic activity. Our performance would not be possible without the continued support of all our stakeholders. I would like to take this opportunity to thank our client for their trust, our shareholders for their belief and unwavering support, and above all, the people of Unicredit whose passion, dedication, and hard work make Unicredit what it is. I will start directly with slide five as I speak to all points in slide three and four later. Unicredit's transformation from 21 to 24 has been nothing short of exceptional, particularly as it has also consistently delivered outstanding financial results, quarter after quarter, while setting a new benchmark for banking. We have unified and refocused the entire organization around a single vision, strategy, and culture. We have simplified and streamlined our organization processes, and way of working. We have restored trust and empowerment among our 13 banks and our employees, all coming together as one group. By leveraging our scale, we have put to common denominator our product factories, building an ecosystem of partners. We have put our technology and data under one cohesive framework, driving efficiencies and innovation. These actions have been taken putting our client always at the center and have not only transformed Unicredit into a stronger, more competitive institution with leading financial KPIs, but also set us on a trajectory of continued success in the future. While the emphasis shall now shift, our transformation is far from over. We have surpassed all our targets. While macro tailwinds have favored our results in some areas, they have also masked the extent of our achievement. Our 14% net revenue growth was achieved with discipline. NII ROAC increased from 4% to 19% and is now best in the industry. Fees grew 6% ahead of our peers to 33% of total revenues. the impact of our investment in our factories has just started to show. Despite inflationary pressures particularly significant in our perimeter, we reduced costs by around $1.7 billion while reinvesting circa $1.4 billion to strengthen our group. Our cost-to-income ratio declined further to 37.9%, despite our complexity beating peers by a significant margin. Capital efficiency moved from laggard to leader, supporting 26 billion of distribution, 65% more than the original 16 billion target, while building an excess capital chest of 6.5 billion, taking 3.6 billion of integration cost in the period and 700 million of additional overlays. This excess capital shall now either boost our 25-27 distribution or provide us with strategic flexibility. Our net profit is more than double what we planned in 2021, no matter which definition you take. Our return on tangible equity is also more than double the Unicredit unlocked target despite the building of our excess capital. This performance balances excelling in the short term and preparing for the future. It is a testament to the dependability of Unicredit and its people. Unicredit now consistently delivers quality, profitable growth. We have generated positive jaws across all our key metrics. Our revenues have grown while focusing on profitability rather than volume in our chosen client segments. We not only reduced absolute cost in the face of inflation, but did so while investing for our future and increasing our top line. Unicredit remains a leader in the industry across all KPIs. We begin the next phase of our journey from a position of significant strengths. We delivered total shareholder return of 513%, four times our European peers. We delivered the best share price performance despite derating. We delivered the most generous distribution whilst building our excess capital. We're strong and able to offset the normalization of macro. We intend to grow our net profit at a high-teens return on tangible equity, delivering the highest sustainable distribution of a peer group. The trajectory ahead for our shareholders remains bright. Let's now focus on our Q4 and full year results in detail. Given the different definition, of net profit used by our competitor, lend-me-share hours, under the different views. Our stated net profit exceeded $9.7 billion for the full year. Our net profit, excluding DTAs, is now well ahead of the $9 billion we guided to, reaching $9.3 billion, up 8% year on year. Both are after absorbing $1.3 billion in integration costs and legal provision for Russia, without which our beat would have been much greater, and with which we furthered the risk 2025 and beyond. Our underlying net profit without integration cost and the extra legal provision for Russia reached 10.3 billion, a very strong base. These outstanding bottom line results have been achieved thanks to strong performance across every single line of our P&L and balance sheet. Net revenue increased 4% to $24.2 billion in the year, remaining flat in the quarter and up 1.3% if adjusted for the Commerce Bank hedge one-off. This is a result of strong profitable NII and fees and low and stable LLPs. Trading profit for the full year would have increased, excluding the one-off impact of the Commerce Bank hedge. NII grew on a quarterly and yearly basis despite the recent decline in rates due to excellent management of the pass-through and our replicating portfolio and investment portfolio results. In the fourth quarter, we also benefited from a $30 million contribution from the consolidation of Alfa Bank Romania and a $50 million one-off in Italy. Our NII remains highly profitable, with a ROAC of circa 19%, thanks to our continued focus on our target client segments and product and profitability over volume. Our asset quality remains strong and stable, with a gross NPE ratio of 2.6% and a net NPE ratio of 1.4%. Our gross NPE stock is half what it was four years ago. Our cost of risk remains structurally low at 15 basis points for the year and 34 basis points for the quarter, including an increase in our specific provision with overlays on touch at $1.7 billion. We're still benefiting from write-backs, confirming quality origination and conservative provisioning. The overall cost of risk is flat year on year with a default rate of 1.3% and only 1% flat versus fourth quarter 23, excluding a single name one-off in the fourth quarter. Fee growth has been strong across all categories, accelerating this year and even more so in the quarter of 9% year over year. our fee-to-revenue ratio stands at a top tier 33%, notwithstanding strong quality and high growth, highlighting the quality and diversification of our fee base. Overall fee performance has been driven by continued strong momentum in investment and P&C insurance, with growth at 17%, driven by increased client appetite, a broader product offering, and our ongoing shift towards affluent and private clients, Strong fee growth will remain central to our future success, fueling capital-light revenues and delivering exceptional results to clients and shareholders. This will allow us to extract positive differential value from any partnership or acquisition that we may make. Over the last three years, we have consistently reduced our absolute cost base of setting inflation while investing in the business. In 2024, we further reduced our costs by 0.6%, driven by non-HR down 1.3% and HR costs down 0.1%, despite increasing the remuneration of our people. This quarter, costs were impacted by bonus pool, two months of Alfa Romania consolidations, and accelerated digital investments. Without this intentional investment, costs would be flat in the quarter and lower still in the year. Our cost-income ratio improved to 37.9%, consistently leading our peer group. From disciplined cost management combined with targeted streamlining of our organization, reducing unnecessary overhead and investing efficiency. Our operational excellence has been a key factor in our success, and we intend to maintain it and defend it. Our best-in-class organic capital generation of 12.6 billion for the year allowed us to absorb headwinds, increase distribution to 9 billion, and maintain a stable CT1 ratio of 15.9%. Active portfolio management reduced RWAs by almost 13 billion. We now present our region in a way that we believe better represent very individual dynamic. We will separate Italy from Germany, from Austria, and pull together Central and Eastern Europe. So let's start with Italy. Our franchise in Italy is market leading in terms of profitability, efficiency, and capital generation by a wide margin. It is Unicredit's quality earnings powerhouse, and its results speak for themselves. Gross revenues grew 4% to $11.4 billion, driven by both NII, plus 5, and very strong fees, plus 7. We continued to focus on profitability rather than volume. NII ROAC exceeded 23%, significantly above our peers. All fee categories grew, with investment and insurance delivering a standout performance of plus 16%, and fees-to-revenue reaching almost 40%. We're leading in terms of our investment products growth in Italy. Operational efficiency improved further. Costs were down despite growth and investment in technology and our people, allowing us to reach a cost-income ratio of 34.5%, unparalleled in the country. Capital efficiency improved yet again, with net revenues over RWAs of 10.5%. Net profit rose 10% to 4.4 billion. Roarct reached 31%, the best in Italy. As a result, organic capital generation reached 5.5 billion, again, well in excess of our net profit, underscoring the quality and profitability of our growth. This outstanding performance provides the firepower to constantly deliver innovative solutions and support for our clients. This year alone, we facilitate almost 11 billion in financing to support Italian SMEs, none of which would be possible without our people. We welcome over 1,000 new team members this year and launched professional retraining and upskilling initiatives, delivering 1.3 million hours through Unicredit University. Germany. Our German bank is the most profitable and efficient in the country, with the best balance between gross and profitable NII and quality fees. One of our two key anchors for the group, it delivered its highest profit ever. This is the financial result of our successful transformation. Gross revenue grew 1% to $5.5 billion, driven by fees up three to $1.6 billion, accelerating plus eight in the quarter. Fees compensated NII down 3.5% in the quarter while maintaining the leading NII ROAC in the country above 18%. Operational efficiency improved yet again. Costs were down 8% despite growth and investment in technology and people. Cost income declined to below 41%. Capital efficiency improved yet again with net revenues over RWAs of 7.5%. Net profit rose 12% to 1.9 billion. ROAC reached 20%. As a result, organic capital generation reached 2.8 billion, well in excess of net profit. Our disciplined approach to profitable growth stands out. We have restrained ourselves from chasing some competitors who have recently significantly reduced pricing to inflate revenue which are well below the cost of equity and will impact their profitability over time. This success is thanks to the caliber of people who make our business. In the last year, we hired more than 300 new colleagues and announced the creation of over 140 new jobs as part of our integration of the custody business. We have been awarded Top Employee Germany for the 15th time in a row. Our team is united behind a common vision and ambition and in a market-leading position from which now accelerate. Austria. Our bank in Austria is the most profitable and efficient bank in the country. The second anchor to our group, it continues its transformation, showing improvements on every line and delivering its best net profit ever. Gross revenues grew 3% to $2.7 billion, driven by fees up 8% due to strong investment and client hedging fees, and resilient NII plus 2%. We are maintaining discipline as compared to Chase volumes, reflected in our NII ROAC of 15%, well ahead of all peers. Operational efficiency improved yet again. Costs were down more than 1% despite gross and investment in technology and in people. Our cost-to-income ratio declined below 38%. Capital efficiency improved yet again with net revenues over RWAs of 7%. Net profit rose 14% to 1.3 billion. ROAC reached 24%. As a result, organic capital generation reached $1.5 billion, again in excess of our net profit. We supported the growth of our SMEs through the provision of $3.4 billion in new lending and rolled out a digital trade decision engine to provide SMEs faster access to it. We kept a strong focus on supporting our customers, employees, and communities, launching a special tranche of mortgage loans with favorable conditions for young families. And under the umbrella of Unicredit University Austria, we continued expanding our development and upskilling program, while our new well-being framework reached more than 1,000 people. Central and Eastern Europe. Our Central and Eastern Europe franchise also leads in profitability and efficiency. It is the growth engine of our group. It demonstrated excellent performance as our local countries lead in their own right, in their individual markets, whilst leveraging benefits from our group-wide factories, network, and platforms. Gross revenues grew 8% to $4.5 billion driven by fees, plus 13%, and resilient NII plus 5%, with an NII ROAC of 26%. We are maintaining discipline without sacrificing market share as competitors chase volumes. Operational efficiency improved yet again, with cost income at 33%, whilst capital efficiency remained high, with net revenue over RWAs at 8.7%. Net profit rose 3% to $2.2 billion. ROAC reached 30%. Organic capital generation reached $1.6 billion. I would like to underscore that Central and Eastern Europe's underlying growth is twice that of a core European Union, with low FX risk. We have unchallenged leadership in corporate and a significantly growing retail contribution, which should further be enhanced by our re-entry in Poland, leveraging Vodeno Ion. Four banks contribute 70% of our region's revenue. In Bulgaria and Croatia, we have a leadership position in both retail and corporates. In Romania, we are top tier, and in Romania and Czech and Slovakia, we lead in corporate. We are complemented and accelerated by our other five banks, which, while smaller, deliver outstanding performance. This year alone, we upskilled 900 branch managers, set up bespoke initiatives to recognize and nurture talent within our Gen Z cohort. We continued with our dedicated development to build a solid pipeline of future managers. Russia. We have been working towards an accelerated, orderly wind-down of Russia from day one. always within both the letter and the spirit of a complex legal, regulatory, and sanction limitation. We met the target communicated in H1 one year early. Local deposit declined to 900 million, 89% down since first quarter 22. Net local loans declined to 1 billion, 86% down since first quarter 22. Cross-border exposure declined 94% to date and will become practically nil this year. We minimized our loss to only 11% of principal. Cross-border payments are below $10 billion, 64% down since Q1 2022. They are now almost exclusively in euro and US dollar. We have reduced the capital impact of a full write-down of Russia from circa 130 basis points on a 14% CT1 in Q1 2022 to now circa 50 basis points, 10 basis points lower than recently, on a 16% CT1 today. We are now compliant with this ECB order. Turning to our product factors, we see strong delivery of our sustainable capital-light fee-based revenue. Client solution revenue grew by 9% to $11.3 billion, two-thirds of our fees up 8%. Individual solution rose by 14% to $3.3 billion, driven by investments up 18% and protection up 13%. We're increasing the use of our markets products within our investment offering to create better solution for our clients. Our one market funds reach 14.5 billion and our own managed funds gross to total sales reach 31% up from 14% in 2023. Corporate solution revenue rose by 9% to 5.4 billion driven by client risk management up 17 and advisory and financing up six. Payment solution rose 4% to 2.3 billion, driven by payment, up seven. We are entering the next phase on Unicredit Unlocked, in which we focus on accelerating our top line, driven profitable growth. Our goal is to solidify our position as the leading pan-European bank and further widen the gap versus competitors. the industry faces headwinds such as net interest income pressure, cost inflation, normalization of risk, Russia, and ongoing digital evolution. We are confident in our ability to complete our transformation while building on our unique structural advantages through targeted alpha initiatives. This will allow us to not only overcome the impact of headwinds on our record net profit, but also grow it to over $10 billion, excluding DTAs, maintaining return on tangible in the high teens and our organic capital generation broadly in line with net profit. Structural advantages. Our roadmap is clear. We are a transformed bank. Now harnessing its structural advantages, which are an attractive geographic footprint, combined with a quality client and product mix, to deliver superior profitable growth and distribution over time. We operate as a federation of 13 individually empowered banks, each executing independently, yet benefiting from being part of one group. This profitable and diversified footprint, Italy's quality earnings, anchored by Germany and Austria resilience, and powered by our Central and Eastern European growth engine, strikes the ideal balance between highly capital-generative, stable markets and dynamically expanding one. We serve 15 million clients with 60% of our revenues from high-value segments such as SME, private and affluent, and we intend to increase that weight. By leveraging our global product offering, centralized procurement, and technology and data infrastructure at scale, we further enhance our competitive edge. This is how we drive our fee-to-revenue ratio towards 40%, outpacing market growth through internalization, superior fee, and profitable lending products. No other peer is in such a favorable position. Alpha initiatives. To build on our structural strengths, our targeted alpha initiatives are split into commercial and operational. Together, they support our ambition financial goals, ensuring we continue to build on our momentum and unlock new avenues of value creation. Turning to our geography, all regions will maintain strong performance throughout the plan. Our powerhouse for quality earnings will see its share of group net profit shift from 45% to around 40%. Having benefited most from rising rates, Italy will feel the impact of rate reversal more acutely. Yet, the quality of its earnings will continue to improve. Fees as a share of revenue will rise from circa 40% to 48%. And Iraq will normalize at 17%, well ahead of cost of equity. The overall country, Iraq, will normalize at 25%. Germany and Austria, both high-rated economies, serve as resilient anchors for our group. They have benefited much less from the positive rates impact, hence are now much more resilient on the way down. Combined with the continued improvements in their operational and capital efficiency and their readiness to now again gain profitable market share, Germany and Austria will bring their net profit contribution to 35% and ROAC to 22%. Finally, Central and Eastern Europe, our proven engine of profitable growth, will increase its contribution to about 25% of net profit despite a normalization of provision. Their growth should then accelerate from there. The region's operational and capital excellence will persist. Their cost-income ratio will further reduce to 31%, with ROAC reaching 30%, and strong top-line growths. This attractive, diversified geographic mix will allow Unicredit to deliver superior profitable growth and capital generation, supporting outsized distribution. Building on these structural advantages, we will strategically increase allocated capital and investment across all regions. We will, however, prioritize those with the highest profitability and growth potential. with Central and Eastern Europe receiving the most, but all regions growing. Our clients remain at the heart of our strategy. While we strive to add value to all, our gross initiative focus on targeting the most attractive segment with strong capital light potential. we are decisively shifting our focus towards SMEs and private and affluent individuals, which currently account for 60% of our revenues and 75% of our fee growth going forward. We have built market-leading product factories that enable us to better serve our clients' diverse financial needs, a key competitive advantage. The impact that these factories are having on each one of our 13 franchises, and now also on that of our partner in Greece, demonstrate the significant value we can unlock, not only internally, but in any acquisition. Looking ahead, we will continue to invest in these factories and improve their connection to the end client, adding an additional 1.4 billion in fee growth by the end of our plant. Our ambition is to offer a truly integrated experience that blends digital innovation with personalized human interaction across both retail and corporate. This is done through the continued enhancement of our distribution model and channels, coupled with a team of motivated professionals providing prompt, high-quality advice rooted in local expertise. Meanwhile, our digital channels are secure, user-friendly, and increasingly capable of delivering an exceptional customer experience. Through our corporate portals, clients receive personalized solutions in the areas of transactional payment, trade finance, factoring, client risk management, regardless of their location. Our mobile channels provide on-the-go services tailored for digital-first lifestyles. By seamlessly integrating these channels, we can serve clients when, where, and how they prefer 24-7, delivering bespoke, outstanding service and support at all times. Bringing it all together by leveraging our attractive geographies, our factories, and our channels, we will be able to become the go-to bank for our clients. While we have achieved strong NPS gains, our true priority lies in providing a distinctive experience that sets us completely apart from our peer group. We aspire to become the benchmark for quality when clients think about financial services. Our linchpins. Our people are the linchpin between our commercial and operating machine. They are the most valuable asset and what ultimately makes our ambition possible. We remain committed to investing in them. We believe that by empowering them, developing them, offering them clear career opportunities, they will achieve professional fulfillment. While not yet there, we are committed to continue on this path. We reward talent transparently. We have increased non-executive bonuses by 30% over the last two years, higher than those of executive. We offer the highest VAP in Italy, for example. In parallel, we aim to foster an inclusive, engaging culture by promoting employee-led initiative. Most of the 2,000 simplification initiatives we have rolled out came bottom up from our people and not top down. Our gender pay gap was 4% when we started the plan. We practically closed it today. Our ultimate goal is to create an environment in which our employees feel connected, valued, and empowered because they are the driving force behind our continued success. Let's move to the operating machine and organizational processes. Our operating machine has undergone a major overhaul to better support our business and create further value for our clients. We streamline organizational structure, flatten the hierarchies, and focus resources on high-impact areas, enabling our teams to act more swiftly. By eliminating inefficiencies, our cost base remains flat whilst funding investment. We're increasingly leveraging technology and AI to automate and reduce complexity. improving our ways of working and redirecting savings towards business growth. And the result speaks for themselves. Time to approval for a consumer loan in Italy dropped from over 24 hours to just 25 minutes, with more improvement on the way, and you will see them this year. We will continue to identify and remove inefficiency, accelerate automation, and use of data, whilst treating every process, workflows, and organizational structure as a blank slate for continuous improvement. Our digital strategy revolves around two core imperatives. First, uncompromised reliability, security, and compliance fully aligned with local and ECB regulation. Two, outcome-driven technology investment with every euro spent demonstrating that it can deliver clear return and meet specific business organizational needs. Our ultimate ambition is to develop a digital foundation that not only meets but surpasses best-in-class peers and is able to compete with fintechs. Our IT spend is in line with or above our peers. That said, the efficiency of our spend has significantly improved and, we believe, trends towards market leading, allowing us to achieve more with less. With respect to technology and data, investing in the right initiative and with the lowest unit cost is far more important than the headline number of what one spends. Our security measures have become ever more effective, reflected in our reduction of incidents by 67% over three years. We have consolidated our data centers and reskilled our digital workforce, improving our tech to non-tech ratio by 18 percentage points. We maintain proactive oversight of regulatory requirements bolstered by a robust digital operational resilience strategy. We are now in a position to accelerate, leveraging technology, data, and AI to elevate our performance to the next level. By continually experimenting to meet evolving needs, we're driving innovation and expanding our offering across multiple integrated platforms and channels. You will increasingly see the outcome of that. Our ambition is to build our capacity to transform, evolving with a changing environment and the needs of our clients and ensuring we continue to provide outstanding products and services. To do so, we have and will continue to invest. We are planning to add $2.5 billion of IT investment over the plan, delivering IT projects at a lower unit cost and faster time to market. as a result of a disciplined focus on efficiency within our IT and AI spend. Vodeno Ion. Unicredit's latest acquisition, Vodeno Ion, is a proprietary technology and fintech solution that aligns perfectly with our acceleration. It combines all the aspects of our alpha initiatives. Our initial pilots consist of reentering the Polish market, expanding in select Western and European countries, and offering embedded finance solution. Thanks to Vodeno Ion's high flexibility, extremely low cost to serve, and quick time to market, we have the ambition to add 2.5 million clients and build a business with a meaningful impact on group net profit, a ROAC above 25%, and a cost-income ratio of 34% within three years. We plan to progressively invest up to 200 million on an iterative basis with a payback of under two years. Our guidance on cost already includes the maximum investment that we expect to make. In summary, our alpha initiatives and our investment in Vodeno Ion are at the base of our exciting organic growth story, a story that, together with the finalization of our transformation, will allow us to absorb expected future headwinds in full and significantly grow without diluting profitability nor distributions. Similarly to phase one of Unicredit Unlocked, we are again setting ambitious targets for phase two. Our ambition is to match 2024 record net profit in 2025, absorbing all headwinds and growth from there to circa 10 billion, excluding DTAs, by 2027. We're determined to do so, maintaining a return on tangible equity in excess of 17% and an average 25-27 organic capital generation broadly in line with our net profit. Together with a return of our excess capital, we aim to distribute more than in 24 in each of the next three years. 50% of net profit will be in cash. This would result in six years of improving performance and growth at an increasing margin over our cost of equity, coupled with best-in-class distribution. This should lead to a significant re-rating of our stock. We're excited about the challenge and determined to meet it. While we are realistic with respect to the challenges from a macro environment that will normalize, we believe that we are the best place to deliver the differential value and growth necessary to offset it and grow. We have built unique lagons of defense, including 1.7 billion of overlays, to insulate us from the cost of recycle. We have front-loaded non-operating item and external charges equal to 1.3 billion in 2024 alone, absorbing these within our beat of net profit and distribution. These should trend to zero over the plan. Together with the strengths of our transform group and our alpha initiatives in flight, these lines of defense will de-risk the achievement of our net profit ambition. Finally, we will have six and a half billion excess capital to return to our shareholders by 27, which will further de-risk our distribution. 2025 is the year of interest rate normalization, cost of risk trending up, inflationary pressure on cost, and for us, further Russia compression. We expect NII to decline, over mid-single digits, starting from a high base. This includes some loan growth for the group that is driven by Central and Eastern Europe. Our cost of risk should remain stable at around 15 basis points, including partial overlay usage. Fees and net insurance results should grow by more than 5% as past investments increasingly deliver. As a reminder, in the second quarter, we expect to start reporting the insurance line as a separate line in our P&L. Trading high in 24 should reduce by a couple of hundred million, mainly due to the negative effect of lower rates on the funding of the trading book. The other revenue line should reduce by a couple of hundred million as 24 benefited from some one-off, and the contribution from insurance is reflected elsewhere. This leads to net revenue over 23 billion. Costs on the same perimeter would be slightly down. On the expanded perimeter, they will be around 9.6 billion, with cost income targeted at around 40%. Non-operating and extraordinary items will significantly reduce, providing a large buffer to absorb any operating profit shortfall. This is protection of our results. Both stated net profit, including DTAs, and net profit excluding DTAs, are expected to be broadly in line with 2024. RWAs will increase to around 300 billion due to the impact of Basel IV models, changes, and strategic investment, partly offset by further portfolio action. Basel IV impact will be around 80 basis points for the first quarter and 60 basis points for the full year, mostly from the standardization of operational risk models. Distributions are expected to be greater than in 2024. We're confident we can continue to deliver strong EPS and DPS growth. Phase two of Unicredit Unlock sees us shifting our focus on top line profitable growth while completing our transformation, aiming to maintain our leadership in operating and capital excellence while investing in digital data and our people. We aim to achieve 10 billion of net profit, excluding DTA, by 27. Stated net profit and net profit should converge as DTAs should disappear. Hence, you should compare the 10 billion ambition with the 9.3 billion of today. We intend to distribute in each of the next three years more than 24, with 50% of net profit in cash. This is supported by a 17% return on tangible and average organic capital generation broadly in line with net profit and the return of our excess capital. We continue to target strong EPS and DPS growth. Our target CT1 currently remain between 12.5% and 13%, notwithstanding the impact of BAL4 and model changes, particularly on operational risk, not substantially changing our risk. We have just gone through phase two of Unicredit Unlocked, which remains our main focus and a compelling base case that we believe will deliver positively differentiated performance and distribution versus our peers. Any M&A activity shall be executed solely if it further enhances our base case. Solely if it further enhances our base case. It must be consistent with our strategy and meet our strict financial criteria, delivering returns that compare favorably to buying back our own shares. This is a high bar. We're not afraid to walk away, if not met and demonstrated this much so far. BPM, at the offer price, despite its valuation at a significant level, Price-earning and price-to-distribution premium to ours has enough potential to add value to meet our criteria. Commerce Bank, still an investment, fully hedged on the downside. Our ability to add massive value to Commerce Bank is demonstrated by HVB's transformation in only three years. But we would only make an offer at the right terms and conditions. There is no risk of overlap between these two potential deals as they would be sequential and would be led by separate local management teams in separate legal entities overseen by separate regulators. Just for transparency, we are about to announce that our total holding in Generali, including position that we hold on behalf of our client, has crossed the 5% thresholds. This does not change our position on the stake, which remains financial and does not imply any interest to acquire the company or the like. A unicredit BPM combination would build a stronger number two in Italy. Network and client franchise are complementary and would be highly protected. The combined client base of 12 million would be further tilted towards Unicredit-targeted segments, affluent, private, and especially SMEs, in which we do not expect any concentration issue, instead seeing significant growth potential. The combination allows BPM to access scale, benefiting from Unicredit's greater balance sheet, factories, superior investment firepower, particularly in the areas of technology, data and AI, and the network. BPM clients would all benefit from a refurbished branch network and an improved branch network, integrated physical and digital channels, premium product factories including consumer finance, asset management, and insurance, superior capital and balance sheet strengths, meaning improved lending capacity, access to unique Spanish-European network. BPM's people would be offered better career, development, opportunities, and reward. Any cost efficiency will be made with limited impact on the network as the efficiency will be focused on non-business overhead, back-end of the bank and external providers. This approach was effectively delivered at Unicredit and in full cooperation with trade unions. Italy will benefit from the bank's enhanced ability to support local community, institutions and families. We offer a price that incorporated a 15% premium to BPM's undisturbed share price, the level prior to the announcement of the offer on Anima, where a 100% acquisition is not a foregone conclusion. And further M&A speculation linked to a potential combination, one which is now off the table. We are offering all BPM stakeholder an opportunity for a strong, certain, and rewarding future. There is a clear performance gap between the two banks today. Unicredit Italy is the most profitable and efficient bank in the country by a wide margin. In terms of gross revenue growth, we outperformed BPM by 10 percentage points between 2021 and 2024, a comparable nine-month period. In terms of capital efficiency, our net revenue to RWA is two percentage points higher than BPM. In terms of operating efficiency, our cost income ratio is 13 percentage points lower. Our ROAC is 14 percentage points higher. Unicredit trades at a significant discount to BPM on 2026 consensus price to earnings and even more so on price to distribution. Given the strengths of our organization and our confidence in our preparedness to face the future, we believe it should be otherwise. Commerce Bank. While today Commerce Bank is just an investment and there is no offer on the table, an in-market combination with HPV would create the number two private bank in the country with minimal overlap in key regions and clients. The combined entity would be larger and more stable, operating under German law, protected by German deposit insurance, and run day-to-day with decisions made in Germany for Germany. The two banks would almost equally contribute to reaching a low teens market share in the Mittelstand. All its clients could benefit from access to Unicredit's higher quality product and services, as well as its 13 markets in Europe, where we hold leading presences. Superior capital positioning and balance sheet strengths and lower cost of funding. the impact of higher, better targeted investment capacity, particularly in technology, data and network. Poland would benefit from being fully empowered, but also capable to leverage the number one CEE franchise, a much stronger bank in Germany and leading franchises in Italy and Austria. It too would be able to access our product factories and much needed investment in its technology. Commerce Bank's people would have better opportunity as part of a wider group. Unicredit would continue to engage constructively with employee representatives and efficiencies will have a limited impact on the network. This deal would be a circa 20 billion vote of confidence on Germany, on the German banking system, on the European banking system, and on Europe. It is a sign of belief in the potential of our banking industry and ability to compete against foreign and fintech competitors that are gaining significant share. There is a massive performance gap between the two banks today, despite them being the mirror image of each other in Germany. Herein lies both the size and the credibility of the value creation opportunity, even before considering any synergy. HVB is number one for profitability, operational, and capital efficiency in Germany. Our capital efficiency net revenue, RWA, is two percentage points higher than Commerzbank. Our cost efficiency, cost to income ratio, is 18 percentage points lower. Our ROAC, is 11 percentage points higher. This gap is likely to widen, in our opinion. HVB's top line will continue to benefit from our focus on profitability rather than volume and is now ready to grow in a quality way without the hand winds of cleaning up the past. HVB will further leverage best-in-class operational and capital excellence together with the impact of past investment and future one in technology and data. Conversely, we believe Commerce Bank will both need to do the hard work, temporarily affecting the result of the next three years, and be credible in its execution given the missed of the last two efficiency plans. Regarding any potential target, we would look to understand, number one, efficiency. Has past cost management focused solely on reducing expenses without reinvestment to the detriment of strengthening the organization? Is any catch-up now needed at a particularly more difficult time? Are efficiencies supported by changes in the organization, processes, way of working, model, automation, or is the target overstretching the organization? Secondly, investment. Has the bank adequately invested in its network, people, technology, data? If not, is there a plan to catch up And how will that be funded? Preparedness. Is the bank able to sustain the turn in the macro environment as the sector is exposed to rates and cost of risk normalization and inflationary pressure on cost? How robust is the starting point in terms of NP coverage, overlays, NII profitability, and approach to lending? On Commerce Bank, we're looking for clarity on the following. Corporate center. representing almost half of the bank, on which limited information is ever provided. The opaque nature of this structure raises questions on transparency, risk, volatility, and the true efficiency and profitability of the core business. Technology and data. What is the state of technology and data system, especially obsolescence and level of integration of past acquisition in particularly Dresdener? Are future investments sufficient to maintain an efficient IT, supporting its people and the business? Strategic plan and execution credibility. Are the new target realistic, particularly given failure to achieve some of the previous one in efficiency? Or do they rely on overly optimistic assumption and the pressure to counter a potential offer? Are they overly focused on volume and dropping margins? Are sufficient steps taken to structurally improve efficiency, core banking, earnings, and reduce volatility? Given the timeline we look at today, we will have three, four, or even five full quarter to observe execution. We look forward to more clarity on all of these points. In closing, and before I open up for question, I would like to leave you with our key messages. 1. Unicredit delivered 16 consecutive quotas of profitable growth, reaching its best year ever. 2. We are now transformed into Europe's best-performing and rewarding bank, given our distributions. 3. We are entering in the next phase of our winning strategy from a position of strength and intend to widen the gap with our competitors. 4. We have an exciting organic growth and distribution story ahead. As of now, the most generous. Five, M&A will act as a further accelerator and will be executed only within our strict metrics or not at all. Overall, Unicredit remains a unique investment proposition still accessible at an attractive valuation. As our team in Bulgaria loves to remind me, the best is yet to come. Thank you. And we now open to questions.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We can be honest to use handsets when asking questions. Anyone who has a question may press star and one at this time. The first question is from Britta Schmidt of Autonomous Research. Please go ahead.