Banco BPM S.p.A. (BAMI) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM's Strategic Plan 2020-2023. You may download the presentation from the Banco BPM corporate website. [Operator Instructions] I will now leave the floor to Mr. Giuseppe Castagna.

Good morning, everybody. Thank you very much for being with us also today for this very important for us, strategic plan presentation. Of course, we would have hoped to be in a different situation, not affected by the environment that we are experiencing during these days. But notwithstanding that, we were very determined and convinced that the best solution, to be very open and transparent also in a difficult situation. And we would like so therefore to present what is our plan, what are our strategic options, what are our action that we think we can implement during the plan time lag, even in a situation like this. Let me spend some words, first of all, to thank all my colleagues and all my staff for being in a business-as-usual situation. Also during this week, our bank is open, our branch are open. Our -- my colleagues are working every day in a normal situation even though, of course, the sudden outbreak of the COVID-19 has been affecting our activity in some way. Let me explain what we are doing on a day-by-day situation activities. We, of course, immediately set up a Crisis Committee, governing the emergencies to secure ordinary operations, to secure the continuity business support for our clients. Of course, our commitment is at the maximum level in order to minimize the impact on clients, on colleagues, on their families and to ensure, of course, a responsible role for the overall economic system. We feel also this is an opportunity for the bank to show the commitment towards its territory and its community. The implication on the plan. Of course, the plan has been rooted on a pre-emergency consensus macroeconomics, fine-tuned, of course, day-by-day with taking into account the actual indicators. We have preferred to extend 1 year the business plan from 2022 to 2023 in order to give the opportunity to deploy all the action that we will be taking during the plan to realize full targets. Of course, we have also imagined to test and to stress our plan with what we call the V-shaped scenario, in which we imagine a below 0 growth in 2020. Even under this scenario, the strategic plan is resilient across the main action and the main targets, in particular, in terms of capital, sustainability and shareholders' remuneration. What are the main output which we want to convey to you today? First of all, let's have a look to the recent past. We have been going through the only real merger under ECB during the last 3 years, building up a bank, which is now the third bank in Italy with 4 million clients, which with a very clear strategic vocation as a commercial bank, building over the year a solid capital position with reducing the risk profile. As you know, the presence of our banks is especially in what we consider the richest area of our country, even though now are affected the most by this contingent situation. I think that also we have to stress the credibility of our team, the capability to deliver a very performing track record, well ahead of the schedule of the first business plan, even in a very complex macroeconomics and regulatory environment. I think that the capability to delivery, exceeding cost savings, derisking, capital generation without requesting additional funds to shareholders was maybe the main target that we reached during the first 3-year plan. But we also were able to build a strong capitalization. We were able to terminate 2019 with a very solid profitability, which in a -- paved the way to a very consistent and credible 4-year strategic plan. We also would like to give you some flavor about what we are already doing and we will continue to perform in terms of sustainability of building a sustainable bank for the future in terms of digital omni-channel banking opportunity. Of course, you know very well that we have, on Page 5, successfully completed the integration. I wouldn't go through what you already know. The launch of the digital transformation program is already in place. We were able to complete the migration in a very short time frame. And you know very well that we were able to derisk and reorganize and simplify the bank organization in order to deploy the further step, which is the full digital transformation. Let me start from a solid point, the track record on capital generation. On the left of Page 6, you see the implication and the need that we were able -- were obliged and were able to perform in order to build over the 3 -- the past 3 years, the capital impact coming from derisking, regulatory headwinds and additional impacts that you very well know. The total absorption was more than 1,100 basis points in terms of common equity Tier 1 capital. Notwithstanding that, we were able to present quarter-by-quarter, a resilient capital position, almost in line with the 12% of common equity Tier 1 over the last 3 years, constantly improving up to 12.8% in the last quarter '19. At the same time, the derisking allowed us to reducing to 52% from 162%, the Texas Ratio. And also, I would stress that this prudent approach allow us to significantly improve the MDA buffer, which has been enforced also last year and beginning of this year through the issuing of AT1 instruments. Of course, this is a further demonstration for allowing us a secure and constant dividend distribution for our shareholders. The main driver of the last plan were basically based on derisking and cost saving. I would start from cost saving, which is on the top left side of Slide 7, in which we can see how we almost doubled the cost synergies of the original business plan. We reached the total saving for almost EUR 500 million, EUR 482 million, which taking in account in actual growth is around EUR 600 million of cost synergies equal to 20% of the previous business plan. This shows how the flexibility that we have in driving the cost depending of the revenues capability that we, from time to time, are able to perform is one of the main tool that we are -- were able and are still able to perform in order to be more flexible in terms of cost. Of course, most of this was done through the derisking that you already know. I want only to underline how also the UTP coverage during the 3-year plan was exceeding for 12 full point the coverage forecast of the initial business plan. Just a few words about the revenues of the previous plan. Most of the analysts ask for the unrealized revenues of the former business plan. We are trying only on Slide 8 to show how most of the element, which didn't allow us to reach the performance forecast in the plan, were due by exogenous factors, likewise Euribor going to minus 0.34% rather than plus 10 basis points; the GDP growth, which was much less stronger than what we forecast; the perimeter which is changed due to the disposal of Gestielle of Banca Depositaria and others; the reduced contribution to NII from the strong reduction in UTP, more than EUR 5 billion vis-à-vis the business plan. The residual EUR 300 million in lower revenues are counterbalanced by the EUR 300 million of cost savings, exceeding the business plan. Let's have a look on Page 9 to the final results and the final target of 2019 balance sheet. As you know, we are back finally to the dividend distribution, 4% dividend yield. We have built up a solid capital position with an MDA buffer of almost 300 basis points. We have reached 5.2% of net NPE ratio with a solid liquidity position. Also on the commercial activities, I would say there are signal of improvement, likewise the constant growth in core performing loans, almost 3% year-on-year; the increase in deposits and accounts, more than 8% year-for-year; and the increase in assets under management, even though lower than our competitors. This was done not forgetting our digital region, especially driven by the WeBank knowledge and know-how. Both in the family banking customer on the left side and on SME customer, we have continued to develop updating on digital banking, both on the private, again with the many WeBank app that we developed all over the year; the many tools for purchasing directly on digital, family and motor insurance; and also an SME customer, which will be specifically the driving of the new business plan, we are developing many instruments to have a fully digital offer for small business, which we'll go through this in the next page. Let me say also on Page 12 that we have -- we are deeply involved in our communities. As you know, we come from more than 10 previous Banca Popolare cooperative banks, which has a strong rooting into the territory. And we will continue to invest and to support our territory as we are doing also in this occasion. And here, I just wanted to mention some of the many contribution we are trying to give to the community in terms of social support, artwork restoring, sports and general need of our territory. I just want to remember that we have in our stage already added possibility to give to the territory up to 2% -- 2.5% of our profits. Let's pass to the current situation. On Page 14, we have an outlook of the current global economy we are facing. Of course, apart from the recent outbreak of the COVID-19, the situation was, in any case, not very clear and safe: slowdown in global trade due to the trade war; uncertainty from U.S.-Iran tension; the EU economy measures taken in the last part of 2019 in terms of TLTRO renewal, quantitative easing restart in the measure of EUR 20 billion per year; potential economic fallout of Brexit; likewise, the Italian situation, which was in the last quarter, worse than in the full year 2019. Also, the regulatory landscape is not, I would say, favorable to the development in terms of potential lending to the system: the Basel IV implementing standards; the new guidelines on calendar provisioning; the guidelines in terms of new definition of default; likewise, the opportunity that PSD2 gives to new competitors, of course, make enough sense to understand that our industry is always in a very competitive scenario. The main assumption that we kept for the plan are the one that you see on the right side. As I was mentioning before, the only difference is given from the sustainability of the capital and the dividend distribution even in what we call the V-shaped scenario. As you see, we have imagined a neutral scenario as a base case, but also we have tested this scenario vis-à-vis this reduction below 0 of the GDP growth for 2020. The key point of the plan are developed in order to address key stakeholders' expectation. Of course, in this page, we try to mention the main stakeholders of the bank, which are clients, employees, regulators, investors, rating agencies. The plan is done in order to fulfill what we think are their expectation vis-à-vis the further development of our bank. Of course, to build up a customer-centric service modeling, highly specialized but as well highly digital, a steady growth for our investors of recurring earnings and sizable dividend stream; a reduction in utilization on TLTRO, which is something that rating agencies and regulators would like to see in the next year for our bank; the robust capital buffer; and a continued derisking in order to satisfy the target that total ECB is giving in order for a normalized banking industry. Of course, not forgetting our employee, our people, we would like to continue a story of growth. We are very proud to be composed by many local regional banks that have become together with the possibility to give opportunity also to our people and to attract talent from other banks to build up the third Italian bank. This is the page on Page 16. Basically, you see the main driver and the main target of our strategic plan. We have a RoTE growing of 4 basis points from 6.8% to 7.2%, 40 basis points. Of course, I have to remember that the total revenues coming from 2019 were generated for a good -- with a good contribution from NFR and from the sales of some HTC govies from some contribution, let's say, not forecasted from some of our stake holdings. What is our target is to try to substitute with a more stable and recurrent core revenue scenario, the target that we already basically ever reached in 2019. So it's a very small growth in terms of target of revenues but bolstered by an increase of 2% of core revenues. Of course, we will give you all the details why we think this is feasible for our bank. The same, I would say, apply to the cost/income is reducing to 2%. But we have an enormous flexibility under this ratio. Of course, we wanted to build up a plan, which was not only on cost. And in doing that, we had to foresee investment in people, investment in IT, investment in bank transformation. Of course, all this is very much linked, as we showed in the first business plan, to the capability to the bank to increase revenue stream. So I would say that the more certain figure is this cost/income ratio because if not driven by revenues, would be driven by reduction in cost. Gross NPE ratio going down only with ordinary workout below 6% to 5.9%. Cost of risk down to 51 basis points with the 3 main assumptions that we have focalized for this business plan: 250 basis points of MDA buffer throughout the entire plan; EUR 800-plus million of dividend distribution over the plan; 40% at minimum of dividend payout over the 3 -- the 4-year of the business plan. These 3 targets are fully confirmed under the V-shaped scenario. On Page 17, you see the key -- 4 key ESG-driven pillars for building these targets. How do we get to a sizable shareholders' remuneration: through a sustainable development of the car business, a digital-enabled operating models with a high flexibility in the cost, a continued asset quality improvement and a further strengthening of the balance sheet. Let's start from the commercial model. As you know, we have not only reorganized our commercial network but also specialized our 2 main subsidiary, which are 100% owned by the bank. Banca Aletti, on the left side, will be the driver for the wealth management group, not only for their own private high net worth individual client but also for what we call the affluent segment, which is the segment which include client from EUR 100,000 worth of deposit to EUR 1 million. We have further segmented this segment in order to have a better business proposition for each cluster. Of course, in the family, we will foster also the development of a robo-adviser, artificial intelligence in order to reach also the more numerous, sizable target of family business, even though, of course, this would be driven mostly by bancassurance and consumer loans growth. On the right side, you see the corporate and SME segment. We are already, I think, very well considered in terms of the corporate activity we've performed during these last 3 years. We want to strengthen this experience through a better and more integrated activity with our investment bank, Banca Akros, which will finally deploy their instrument also to foster and support what we call the enterprise cluster, which is done by clients from EUR 5 million to EUR 75 million. This will be a sort of corporate-driven activity in order to give also to mid-sized SME company the opportunity to grow into the capital bank's activity, derivatives and so on. Meanwhile, for what we call the small business activity, you see that we have posted a digital omni-channel. We want basically to reach over the plan horizon a full digital offer, and we are already at a very good point in order to reach the small business activity directly with the omni-channel tools. Very quickly, but I'm really proud and happy to present also how we think we can develop this activity. I wouldn't comment all the data. But in my opinion, it's important to show you why we feel so confident. Let's start from wealth management. Of course, a considerable part of our developing the revenues generation will be done through wealth management commission. We imagine to grow 6% of the CAGR accumulated over the business plan, which means almost EUR 200 million of more commission. This is only trying to reach the same level of ratio, asset under management and direct funding, which characterize our best competitors. On the left side, you see that we are still at 54% in this ratio. And our best peers are much higher than us. On the top of the right side of the Page 19, you see that our target is not to reach the percentage of our competitors. But we will be on target, only increasing from 54% to 69% this important ratio between direct funding and assets under management. Of course, for family business, as I mentioned before, we have still a gap to compete vis-à-vis our competitor, driven mainly by the recent reorganization that we had in both these activity with the new partnership with Agos as far as the former BPM network and with Cattolica for all the bancassurance business. Another, I think, a way to see this growth is on the bullet point 3 on the right side of the page. You see that already in the last quarters of 2019, we were able to increase dramatically the product placement to our client. And I have to say that this is continuing also in the first quarter of this year, of course, making an exception for the last week. But we are maybe overcoming the results of the last quarter '19 also in the first quarter 2020. And if you compare the growth, annualizing the growth of the last quarter '19, the gap between what we have done and what is the target is much more realizable and achievable. I already mentioned that Banca Aletti will be at the center of this business, not only because they will increase the number of private bankers, we want to increase 20% our private bankers team as well as we want to increase 10% our affluent relationship manager in a very rich segment of our clients. We have also on the right side of Page 20, remember that we have EUR 9 billion already there in our customer account ready to be shift in asset under management. This will foster since the beginning of the year our activity in this transformation. We are also to double our investment center specialists placed in Banca Aletti but -- which gives support to the entire network. The 2 main drivers on the left side will be again specialization and technological scale up. As far as the retail activity, again the focus is on bancassurance and consumer finance, again due to the new recent to the organization of our network under Agos and Cattolica joint venture. On the right, you see the selected KPIs plus 25% on consumer finance gross annual production, which is a sort of repeated business of what we already do in Agos, but of course, increased by the former BPM network. We have an increase of almost EUR 30 million in the nonlife bancassurance commission. Again, this is only trying to reach the best practice of our competitors and, of course, foster all this with a reduction in the cost to serve and a better and extended capability from generating digital-based analytics data in order to increase the multichannel marketing automation. We think that we will be able to reach EUR 23 million, 3x what we currently do in terms of client interaction year-on-year with a net rate, which should be doubling from 15% to 30% at the end of the business plan. Let's pass to the corporate. As I already mentioned before, this is maybe the cluster of clients in which we have already reached a very good target and consideration from the market. Our market share has been increasing from the natural 80% to 10% during the last business plan. Our target is to reach 12% of market share over the plan horizon. As you can see, the growth in loans is in line, a bit lower than what we have already experienced over the last 3 years from 4.7% of CAGR for the former plan to 3.8% for this new plan. Of course, introducing, and we will see that on the next page, some new business line, which basically will foster the vast majority of the core revenues growth that you see on Page 22. All these, of course, boosted by the results we are already achieving in structural finance and in trade and export finance and exploiting the strength of Banca Akros, which during the last years has been able to became the first player into the third-party intermediaries on Italian bond market; the third player in terms of Italian stock market and certificates; and as started in '19, a very profitable and promising M&A activity, which amount for the first year of activity to EUR 1 billion of the business generated. Just an explanation on how we think to reach these results. Again, strengthened client-centric coverage model, we have increased the collaboration. And we will see the effect fully deployed over this year with the sales force in order to have an upgrade on our commercial planning solution to offer to our customers based on the integration of information between the relationship manager and the product expert. Let me spend some word on the left of the Slide 23. For the partnership and the new business we were mentioning before, we have set up in 2019 an activity in the structured export finance with the collaboration of the main banks or global banks introducing to this business. We have developed the EUR 400 million of new activity only in 1 year. We think we can reach EUR 1.8 billion by the end of the plan. We are leveraging on agreement with private debt investors in order to empower our Originate-to-Share this solution business for which we think we can increase our book of EUR 1 billion. We are increasing the joint partnership with the leader player in specialty finance on public administration for which we think we can double the business over the next 3 years with EUR 1 billion more of activity as well as we are in the moment to fully exploit what we have developed during the last months, which is the launch of a supply chain finance business solution together with the leading fintech owned by TeamSystem. For SME segment, as I mentioned before, we have many opportunities. This is maybe our new target for enterprises. The first indication on the left side is that we see significant room for growth in high-potential areas. Just to mention some examples. We have an area in which we are very, very strong, close to 20% of market share, like Verona, Novara, Alessandria, Lucca. We have very strong goals in Milan. But just to make an example, few kilometers away from these stronghold areas, we are very low penetrated. Just to make an example: Novara versus Cuneo or Torino in Piedmont; Verona versus Vicenza, Treviso, Padua in the Veneto region; Lucca versus Firenze in Tuscany; Modena versus Bologna in Emilia-Romagna. This is just to mention that, of course, if our organization has been enough good to reach this market share in this region, we are investing in new people, we think we can -- I don't expect to close the gap but for sure to increase the market share in the underpenetrated areas. We also think that this segment, due to the recent reorganization, full reorganization for this segment, to exploit a better collaboration with our product specialists. And we'll -- although we are foreseeing a not-so-big growth like we have seen in the corporate, we think that we can reach a 2.4% of core revenues kind of growth vis-à-vis almost 2% of customer loans growth. Also in this case, let me say some difference between the 2 main segments in the SME area. As I mentioned before, we have now set up a new specialized vertical responsibility for enterprise from EUR 5 million to EUR 75 million. This will be driven by this new corporate-driven activity in order to up-sell the cross-selling and the wholesale banking products. Meanwhile, we think on the small business, we are in the process to develop and deploy a digital omni-channel solution, which will allow us to reach all the more than 330,000 clients that we have in our book. Let me give you the first example of this partnership we are developing. We have recently signed a very interesting open banking, I would call it, partnership with one of the main digital integrator -- ERP digital integrated for SMEs, which is TeamSystem. We have a potential, which is very, very big. Again, vis-à-vis our 330,000 small business clients, we have a potential target customer of 1.3 million. Only 100,000 are already -- are common customer between us and TeamSystem. 200,000 are only Banco BPM client, 1 million are on TeamSystem client. What do we want to do is to offer to all these clients an experience for digital integration, invoice management, payments, financing and ERP solution. This will go through a launch of a bundled offer, current account, integrated voice financing, light ERP solution, value-added services, contributing not only to increase the customer base but also to grow and to increase the cross-selling proposition. This is going through, what I already mentioned before, the deployment of a digital supply chain financial services on the TeamSystem platform, which will be financed and funded both with funds and equity also by ourself with our new proposed agreement. I think that this gives you a bit the sense of the strategy that I already mentioned many times before for our bank to be partner with best-in-class in the different client segment in order to offer either a state-of-the-art specialization or a full digital service, minimizing the cost to serve and increasing the reaches of our target. Let's pass to Page 28 to a transition to a fully omni-channel model and a paperless relationship with client. This is going through the omni-channel evolution I was speaking before. And you will see in a moment also the investment we will be devoting to this activity. We have scaled up what we called before the customer center, which now will be our digital branch organization. We will strengthen and increase more than 2x the FTE and the commercial focus on these activities, which was in the first 3 years of the plan, also due to the merger and the problem that we experienced, mostly devoted to a reactive proposition to the client. In the new digital branch, of course, this will be inverted. We will have 2/3 of the population devoted to deploy to client the digital solution and suggested by the CRM platform and only 100 people mostly in a reactive mode. This will allow us to reduce further the branch network. I remember, we started the merger with 2,500 branch. We are now down to 1,727. Our target is to reduce another 200 branch over the plan horizon, mostly branch which we call transactional, so branch with few people, mainly counter people, which, of course, do not contribute anymore also due to the interest rate scenario to the profitability of the bank. So our target is to offer an integrated omni-channel offer to our retail client, increasing instead the specialization into what we call the hub or the relationship branch, which are the bigger, the stronger and one that are able to generate value-added in the business proposition. Of course, this will pass through also an evolution of our people in terms of, of course, turnover of new skill, IT skill or commercial specialized skill for which we will devote the majority of the new program for up-skill our people. We have imagined in our business plan an evolution, which will bring to a reduction of the cost of the HR cost going down from EUR 1.7 billion to EUR 1.660 million, of course, in these, offsetting the natural growth that we would have experienced -- we would experience if we include the new collective labor agreement and the investment for our people. But thanks to the voluntary retirement scheme and ordinary turnover, we think we can reach a reduction also in cost of personnel. All our initiative will be devoted to specialist profile, both are externally, both internally driven, which, of course, adding also new skills as far as digital data scientists, security experts are concerned. Our investment and this is again a tool of flexibility that we have for our business plan. Of course, in order to enhance the infrastructure and be able to offer a cloud solution to accelerate the time to market for our business, the data analytics tool, the automation tool, to increase the partnership for an open banking approach, we have embedded in our plan a very strong increase in investment. We are go -- passing through EUR 330 million, the first 3-year plan, to EUR 600 million in the 4-year plan that we have had. And also the digital-related investment will pass from EUR 90 million in the previous plan to EUR 250 million in this new plan. Globally, as you see below on the right side of the slide, we will go passing -- increasing 40% the annual average investment in IT, passing from EUR 110 million to EUR 160 million. Needless to remember that, again this is a plan done for the growth. So if we will be able to experience the growth we are envisaging, this will be the linked and correlated investment that we will be doing. Also to prepare the bank for the future, we cannot stand with old-fashioned product service, customer cost-to-serve proposition to our client, which is not enabled by full digital transformation. So we don't renounce to have a good investment plan. But of course, this investment plan will be used with the most possible flexibility in order to match the increase in revenues we will experience during the year plan. A few words about the ESG holistic approach. Based on a solid governance, we would give to the Board and to the Risk and Control committee the oversight of all our ESG strategy and governance. We will link, of course, the executive remuneration to ESG achievement. We were trying to spread out the culture and the value of sustainability throughout our 4 key areas: environmental, clients, people, community. I don't have to remember that. Of course, this has been the base of our growth also during the past 3 years. Just to mention some of the main actions we are already in place or we will develop furthermore. On Page 33, you see how we will be devoting to certificates some rating in the environmental area, how we will be reaching 100% of usage of renewable energy. We are almost there. We will still reduce CO2 emission. We will devote to clients a series of investment for ESG -- series of amount for ESG investment both directly through lending into specific area, both with Akros activity in both side through a social bond issued by the bank and through the placement of ESG bonds in which Akros is already one of the main player. In terms of people, we are again up-skilling our people with increasing to 700,000 the day person formation. We will distribute over the full year of the plan more than EUR 20 million of grants to community programs, social and environmental. We will increase the corporate volunteering hours from 7,000 to 12,000. And last but not least, we will devote even more efforts to be a long-standing partner with Italian Association for Cancer Research, for which we have the sole banking support and for which we have started a 5-year partnership in 2019. Where we will focus our effort for reaching this result. Of course, we have experienced, I would say, an exceptional performance in both disposal on the left side and workout on the right side during the last 3 years. We have been 1 of the 4 banks which mostly more reduced the stock of NPL. I have to stress that we did that on the vast majority of the stock held at the moment of the merger and without recourse to capital injection. On the right side, we stress how we were able year-by-year to overperform the NPE inflows at least by EUR 1 billion in 2018 by EUR 2 billion of net NPE delta positive results. And this was, of course, fostered by the UTP coverage, which increased the 11 full point versus 7 of our peers. The results that we aim to reach is 5.9% in terms of NPE gross ratio and 3% net through credit risk data warehouse; through credit policy strengthening; monitoring and early warning system evolution, which has allowed us to detect earlier in the road map the nonperforming loans; and a new dedicated UTP management approach, splitting UTP into core and non-core activity. This will bring a reduction of cost of risk to 51 basis points, maintaining strong coverage ratios in the region of 60% for bad loans and 40% in UTP. These are the tools that we utilize for our asset quality reduction -- bettering, sorry. Let me just say that on the rollout of new specialized management approach in UTP, we will be focalizing into a core portfolio with a focus on maximization of cure rate and repositioning in performing of these loans, and on a non-core portfolio, which, of course, has a focus of maximization and a speed-up of recovery in line with the calendar provision. The global effect will be a reduction of UTP stock of almost EUR 3 billion over the time frame. Balance sheet. We still are working on maturing our balance sheet through a reduction and an alignment of our Italian govies on the total portfolio in the region of 40%, in line with peers' average. We have in mind a specific action on not only to rightsize the balance sheet but also, of course, to foster the common equity Tier 1 increase with 3 kind of specific actions. The first one is a reduction of EUR 1 billion in 1 -- in our real estate portfolio, which will free up to 20 basis points of common equity Tier 1, EUR 500 million of which are already identified. And we will go through this disposal starting from 2020 but continuing over the time frame of the plan. We have, as you all know, the sale of equity participation of -- with an impact of 40 basis points coming from the potential reduction in Agos and the disposal of Selma factory and ProFamily, which will free up 40 basis points of contribution, removing capital burden for these, which we'll not consider strategic assets. Finally, we will start, and we already started with the first one, a new dynamic activity on the -- our book -- on our loan book, in particular with SME clients, no impact on client relationship and on NII with some synthetic securitization on the existing loan portfolio, which year-by-year should give a contribution from 15 to 20 basis points in terms of common equity Tier 1. Let me ask you to give an eye toward the optimization of the funding mix over this last year. I would say we have closed very much the gap between us and our competitor. And we will try to do that over the plan in order also to converging on rating agency expectations. As you know, we have started to switch from TLTRO funding to a market wholesale funding. In doing that, we were able to reduce and close the spread differential with our competitor. We mentioned 3 examples on the left side, which show the appreciation from investors of this new policy. The senior preferred reduced very much the gap vis-à-vis the BTP reduction. And the same was for Tier 2 and Tier 1 product. On the right side, we will give you the road map to reduce up to EUR 3.5 billion, starting from EUR 21 billion, the TLTRO in December 2023. The maximum takeup vis-à-vis the EUR 16.9 billion already reached in December '19 is EUR 14 billion during the 4-year business plan. Finally, let's pass to the financial target and the capital work. We will start from 2019, 12.8% fully phased CET1 ratio. The key capital targets are on the left side, the main guidance in terms of both MDA buffer, 2.5%, and a common equity Tier 1 ratio more than 12%. In this case, we will also leverage on the further efficiency, given by the CRD V directive from 2021. And this will help us to reach a 12.5% results in our plan for 2023, allowing us to distribute cumulative dividends for EUR 800-plus million over the plan horizon and with an average payout of equal or higher than 40%. Let me stress that these results will be confirmed both capital buffer and dividend distribution also under the V-shaped economic scenario that we presented in the first page of the presentation. Going further, just a few minutes of your patience and I am done. I think this 43 is a slide that most of you were expecting. This is done, of course, as usual on our side and a very conservative assumption. We are trying to give you the more transparent understanding of the headwinds impacting both on the upside of the slide on the common equity Tier 1 ratio and on the lower part on the Pillar 2 requirement. As far as the fully phased CET1, we will have 90 basis points of impact in 2020, mostly driven by EBA guidelines. Needless to say that the large, vast majority of this could be driven by the potential LGD waiver not given during the year or not. So this is the main aspect. 2021, very negligible, 2022, fostering and factorizing already in a fully phased mode the Basel IV framework for the year forward. So global cumulative offset of 200 basis points. This would not impact the capital generation, the capital buffer that we will continue to have for MDA, which will be consistently in the region of 300 basis points. If we go on the Pillar 2 scenario and we introduce also calendar provisioning, where we'll try to give you a year-by-year impact, starting from few basis points in 2021, we are going up to a total cumulative consideration of 60 basis points, which we'll be reducing after 2025. These 60 basis points will be potentially much more than compensated by the efficiency offered by CRD V regime. So also for this, we don't think we can -- we think we can respect the guidelines also on MDA. Finally, the total wealth creation for our shareholders. In the hypothesis of an EUR 800-plus million capital distribution, this will bring to a tangible book value increasing EUR 1.2 billion, which brings to a total shareholders' wealth creation of almost EUR 2 billion of total consideration over the plan horizon. I would say, just to conclude with 4 very quick consideration. First of all, this is a plan which is already, I would say, embedded in our kind of doing business with a strong participation of our colleagues, of our client, of our territory, strengthened by the standards we will continue to adopt on ESG. This is a plan that we want to give an attractive remuneration over the years, growing over the years to our shareholders, fully confirmed together with the solid capital position with a V-shaped scenario. We want to stress the relaunch of the commercial profitability following both specialization from one side and full omni-channel offer for the other part of our client. And finally, the enabler of all these will be the consistent IT and digital investment, which will enable the transformation of the bank and the sustainability in the future of the results we have presented to you. I am finished. Thank you for your patience. It was a very long presentation, but I hope is worth to listen at what we wanted to give to you today. Thank you very much.

The first question is from Giovanni Razzoli with Equita.

A couple of questions on my side. The first one is Slide #44. Because clearly, today, the market and the environment is very uncertain, so we need also to understand what is announced for the short-term profitability of the bank, regardless of the preshape, let's say, the 0.3% GDP growth assumption for 2020. So that said, you are telling us that your tangible value will rise by EUR 1.2 billion 2019, 2023, with EUR 800 million cumulative capital distribution and EUR 770 million of net profit in 2023. So basically, this means that in 2020, '22, there will be something like EUR 1.2 billion of cash flow generation, which squares of something like EUR 400 million of profit average per year, which is likely below consensus in my estimates. I was wondering whether my calculation is correct. And if you can provide us with a guidance in terms of net income for 2021 or whether this calculation is more or less consistent with what also you have in mind? Then another clarification. 70 basis points of impact with Basel IV. I was wondering whether it's fully phased or phased in. I think it's phased in, but if you can please clarify this? And the very last question. I was wondering whether you may consider the -- propose to the next general meeting the introduction of an interim dividend payment as a way to reinforce your view about the improvement in the risk profile and the capital position of the bank and also give to the market a signal that you are really confident about the evolution of your earnings profile going forward, regardless of the V-shaped scenario.

Many questions. Let's start from the planned results. Of course, it's easy to have the last year of the plan. It's less easier to have the assumption under the first 3 years. I would say that, of course, as you can imagine, the first year of the plan, there would be also some extraordinary cost for the reduction of personnel, and this, of course, will impact. But I would say that, of course, during the plan horizon, you will have also a reduction of HTCS reserve. So there will be many things that you cannot consider, of course, having only the final results. So let me say that it will be a progressive growth in terms of shareholders' wealth creation, starting from 2020 which will be in line. Of course, again, we have also V-shaped scenario which, of course, is more negative in this aspect. So it's difficult to give you some guidance in this -- having in mind what we already explained, but will be progressively increasing up to a solid results in 2021, '22, '23. The Basel IV, 70 basis points are fully phased. And sorry, maybe I didn't get to the -- oh, no interim -- the interim dividend. Let's say that I wouldn't have expected the question today because everybody is very negative about the outlook. But let's say that if this situation is going ahead as we hope, normalizing very soon, I think we will have the time to talk about more frequence of dividend and so on. I don't think today would have been very credible to talk about that.

The next question is from Fabrizio Bernardi with Fidentiis.

There are a few questions on the capital base. Not getting right to the moving parts of the common equity in the sense that you mentioned a tangible equity up once for EUR 2 billion while you mentioned only 40 basis points of capital generation from ordinary business. So I mean I don't know why it's so small. Maybe I'm looking at something different. Secondly, can you elaborate a bit more on the 130 basis points of capital benefit from balance sheet and capital management measures? I mean in this 130 basis points, do we have something related to Agos Ducato or to Anima or whatever you may have? Or is something that you could, let's say, do if the regulatory headwinds are effectively 200 basis points? So to me, it seems that the 200 basis points are very tough number for a bank -- for a domestic bank like Banco BPM. So I'm wondering if this is sort of the worst case scenario or is that, let's say, the base case? And last question is about the payout. You say that the payout of 40% is an average payout. So should I get something like 0 in 2020 and 100 in 2023? Or there is a floor that you would like to expect?

First question, a bit complicated, very technical. Of course, there is a difference in the growth of the positive elements of Common Equity Tier 1 vis-à-vis the growth of the tangible. Just to make an example. We have a difference coming from -- the net profit is already inside Common Equity Tier 1, but it's not in the tangible, and this accounts for EUR 300 million. This is, as I mentioned before to Razzoli, a reduction in the HTCS reserve. There is an increase in the intangible, so it's difficult to square this number together. Of course, the 40 basis point of business development, take account also the organic development of the RWA. In terms of balance sheet and capital management, of course, we don't mention anything that we didn't say directly to you. So what we announced was a potential -- you know that there is a put of worth 10% of Agos capital, and this, of course, is inside. And the potential disposal of the other activity, product factory, I mentioned before, which basically brings no profitability -- material profitability to the bank. This makes the 40 basis point I mentioned into this action. Of course, that are conservative. I mentioned many times that I still believe in the possibility to have some sort of exemption for the LGD, what we call LGD waiver, but we wanted to give you a scenario in which all the potential negative impact also coming from very positive action like the reduction of NPE comes onboard. And if this happens up in this year's. But after this year, we don't have any other material checkpoint with ECB. For the payout, I would say, more the opposite. Meaning that, of course, the lower the net profit, the higher could be the payout vis-à-vis maintaining the global commitment to distribute EUR 800-plus million.

The next question is from Andrea Vercellone with Exane.

Few questions. The first one is on the default rate. So you mentioned that your 2023 targets are still consistent even if we have a drop in GDP in 2020. And on the slide where you mentioned the default rate, I don't remember the number, you expect default rate to trend down over the plan horizon from 1.2% currently. My question is, however, if we do have a recession in 2020, what do you expect the default rate to be in 2020 and 2021? Flat? Still down? Up? A bit of guidance on that would be helpful. Then a few clarifications also on this slide with the capital headwinds and also the one with the sources of capital. On sources of capital, you talked about Agos before. So my understanding is you have assumed you are going to exercise the put. Did you value it at that price or you made some other assumptions? And if I'm wrong in understanding that, please correct me. Same, I would like to know what assumption, if any, you have made on the Covea agreement, which expires in 2021, if any? And also on the Slide 43, Basel IV framework. Why have you got 20 basis points in 2020 when Basel IV doesn't kick in, in 2020? And also on the EBA guidance line. You mentioned that the 60 basis points in 2020 is sort of a worst case scenario if you don't get an LGD waiver. Can you comment what happened to the 40 basis points prudential buffer that you already made specifically for this issue? Because basically, 60 plus 40 is 100 basis points. It's pretty big.

Thank you, Mr. Vercellone. Let's start from the more difficult one. Also because, of course, we are still in the middle of considering -- we were very simplistic, I would say, in saying a V-shaped scenario for 2020, but amongst this scenario, there could be end of emergency in April, in May, in June, in September. So let's say that in the different scenario, we elaborated at the end of the plan that would not -- if this is the case, there would be not a material change in the cost of risk, global cost of risk, of course, through a different phasing of the number. I don't have a number because I don't have a proper scenario for that. The put, of course, as you know, we have already embedded the put price at basically EUR 1.5 billion of total consideration for Agos. We have embedded what we feel is a fair market value of the Agos business right now or let's say in a normal situation. Covea, as you're rightly saying, we'll aspire in 2021. Basically, for our plan was neutral, not because this couldn't lead to some capital gain, but because we imagined to go to the same percentage, let's say, of the Cattolica bancassurance agreement. As you know, we have a 19% in Covea, 35% in Cattolica. So we have hedged these 2 situation. Rightly enough, you saw that there is a Basel IV anticipation. This is due to the AMA standard that we will -- we have decided to go by this year. As you know, the AMA -- as far as the AMA is concerned, we had a very peculiar situation for which we had the former Banco on an advanced model and the former BPM on the standard model. Being that by 2022, every bank should go to the standard, basically, we agreed with ECB that we wouldn't go further in our request to go to validating the model for the new bank, and we will anticipate of about 2 years the effect of the switch into standard. And this, of course, will cost 20 basis point. But it's only an anticipation. If I should have given you the total consideration without this would have been the same 200 basis point, only with a phase-in different in 2022. I think I've answered 2.

The last one? Advertisement? The 40 bps buffer you had booked, what happened to that?

Sorry, it's already there. Again, into the guidance, we already consider that we have 40 basis points of, let's say, potential advantage. And this is the estimation we -- it's quite polarized this decision. Either you get sort of neutral results from the derisking we have done or having -- being so massive. Again, we showed that we have reduced the more than 75% our book. If no levy would be taken on our LGD perspective, the amount would be higher than 40 basis point, which are already embedded in our 12.8%.

What makes you then change your view at the time you have put this 40 basis points, assuming in your estimate at the time the debt would have been enough to cover this specific risk? So does this mean that your view has changed and now the risk can cost you up to 60 basis points more? I just don't understand why it was supposed to be kind of neutral 2 quarters ago and now it's 60 basis points.

Now first of all, 6 is not only related to the LGD waiver. So it's a part of the 60 basis point. I think we have gone through really specifically into each items. And of course, we can also give you some more detail, but I think it's quite detailed. The only consideration I can do -- it's not my opinion that counts a lot. Of course, my expectation is based on the previous behavior vis-à-vis Italian banking system and what I can consider in a very conservative assumption, a negative approach. So it's not my opinion that counts, frankly speaking, but is, at the end of the day, ECB decision. So in order to avoid to be, again, let's say, realistic in a so important presentation like the business plan and then maybe at the end of the year, being obliged to say I didn't reach what I wanted. I prefer to be conservative nowadays and hopefully, take advantage of some different decisions.

The next question is from Domenico Santoro with HSBC.

Just a couple of ones from my side. First of all, the 200 basis points impact from regulation on capital, is -- does it -- I mean does it affect 100% risk-weighted assets or there is also a component of which going through capital accrued against capital? This is the first question. The second is on asset management sales, in particular. I hope you don't mind me asking a question on the current situation. Of course, I mean, your plan is leveraging on the assets under management growth more or less volumes of 6%, more or less, if I'm not wrong. Do you have some data points to understand whether -- even with your branches are being open, do you have a significant deceleration of sales in asset management over the last couple of weeks? And then a question on UTP. I mean your plan leverage on the possibility of reducing significantly the UTP. Thanks very much for giving us the impact from calendar provisioning. I'm just wondering whether you might consider some sort of extraordinary deals in case the market scenario is different from the one that you imagined in the plan. And can you help us to understand, because, of course, the macro scenario is now what accounts, what should go -- I mean qualitatively or quantitatively, what should happen for your UTP now turning into nonperforming? Can you give us a sort of idea sensitivity what should happen in terms of GDP growth, what should happen in terms of probability of default?

So sorry. First of all, thank you for the question. So I can stress also another point for the answer to Mr. Vercellone, which I forgot. Just to mention that it's not that the people change mind, but unfortunately, there are things that happen that may change decision. First of all, of course, there is only comprehensive. The headwind is not only credit. As I mentioned before, there's EMA. There is market risk. There is basically everything is inside, so you don't have other potential impact. Second, asset under management expense and growth. Let's say that before the last week effect, we were doing the pace that was much better than last quarter 2019. I wouldn't like really to anticipate the results but was consistently better than last quarter 2019. Frankly speaking, apart from 3, 4 days in which we have experienced a reduction in the pace, yesterday, for instance, was a quite normal day. So of course, there is not a normalized situation. But again, our bank are open. Our activity driven, but our CRM is online. So we are doing business as usual, basically, with the constraint of the red area zones. But for the rest, I think, for us is a 4 or 5 branch involved. For the rest, of course, we are experiencing the reduction in business. But again, we don't think this is good for us -- lasts for more. UTP. Of course, in a business plan, we want to go in what we call an ordinary situation. So we were very determined to say that this is a result that can be reached without extraordinary activity, needless to say that we would not close our eye and ears for the next 4 years. We are ready to discuss and to look at any potential activity, which will allow us to accelerate the pace that we have forecasted for the next years, as I mentioned, one month earlier, without significant capital losses in terms of profit and loss in capital. As I mentioned, we have spent 800 basis point in order to rebuild our capital for the sale, for the disposal up to now without having any material advantage in terms also of LGD. So let me say, for LDG, why now there is more uncertainty? Let's consider that we are the only and first bank to be examined under the Article 500. This means a new experience for us. That means also a new experience for ECB. So we are all work with a changed model in terms of what was done before. And of course, each of us is trying to make the counterpart understand how the effect should be. But again, things change. The Article 500 was a material change, and we are still considering, together with SEB, the potential effect of this application. Maybe I lost...

[indiscernible]

No, apart from -- I was told that you were asking what driver could increase the danger rate. This is the question.

Well, yes. What should happen in a way for some of your UTP to turn significantly materially into nonperforming? 3 -- minus 3%, minus 4% of GDP...

Yes. I can imagine also a prolongment of the scenario we have for Agos. So of course, if the scenario is going to affect also 2021, for sure, there will be a material contribution in the next year to the nonperforming. We have experienced the same for other reason under other situation. Let's say that I would not consider for the time being any possibility of this kind because, again, everybody say also [ OX ] the major investment bank, the analysts and so on, the most probable situation again is a V-shaped scenario, not a prolonged scenario over the year. It's clear that this -- if this would happen, we would be obliged to change the assumption, the plan to present a new time, what are our new assumption.

Is there any impact from regulation filtering into your capital, core capital...

No. All the impact, of course, including also the shortfall and any potential impact from a different balance sheet situation.

The next question is from Jean Neuez with the Goldman Sachs.

I just wanted to ask a few detailed things and then maybe a broader topic question. The first one is could you please tell us -- because you said that you have a EUR 2 billion increase in tangible equity, that, I guess, is the net of everything. Can you tell us what in that is there other one-offs? And what is the underlying profitability? I would also want -- I also wanted to ask whether you will smooth the dividend in that if you have, for example, a restructuring charge in 2020 for argument's sake, whether you'll pay 40% of payout ratio, give or take, on the stated profit or under -- if you have underlying ex restructuring charge. I also wanted to know whether you'd be able to share what tax rate you've assumed throughout the plan. And then more broadly speaking, that's obviously your standalone plan, and then fair enough. The question is now -- now there is a resumption of M&A activity in Italy. And I just wanted whether you felt that Banco BPM has a need to respond to the Intesa will be announced -- well, let's say, intention to -- one-sided intention to merge?

Thank you. Let's see if I understood well the first question. We were mentioning EUR 2 billion of, let's say, wealth creation that is split between dividend paid and tangible book value. Of course, the remaining part, the EUR 1.2 billion, would be the part excluding the distributed dividend policy. These...

[ What are ] the one-offs?

Sorry, the one-offs. Yes. These, of course, could be affected in 2020 by one-off. Let's say that our target is to be able to respect the EUR 800 million plus, considering also the one-off in 2020, as I mentioned maybe in last month presentation, we don't give guidance, of course, for profitability for 2020. But I already mentioned that we would consider the dividend distribution for '19 as a sort of floor also for the year coming. So it's included in 2020. Very interest question. Thank you for having this question in the fifth question, which is M&A. Basically, I don't think we have to respond to anybody because we are doing our road map, of course, on a stand-alone basis. Let me -- allow me not to comment on transactions while live in this moment on the market and there -- regard to others, to our competitors. We will -- we basically only think that we can have the time in the next few months to show the main target that we want to reach. We think we have already demonstrated to the market that we could be very, very good in cost saving, in derisking, in capital generation and so on. We want to show that we have a sustainable profitability generated by core business. This is the main strength of our bank, and unfortunately, due to many reasons. First of all, the merger. Secondly, the accident we went through with diamond and so on. We were not able to show this strength to the market. My goal is starting from 2020, COVID-19, allowing to show that this is very consistent, and this is the real strength of our bank. If I can put together this strength with what we already showed, I think we can have a good future also on a standalone basis. If you ask me, if you think that the market is going to consolidate even more, of course, you know my answer because I already say that I see a market which is more consolidated. The only things that I can say that, of course, I hope to participate to this consolidation, I would say from the bottom and not from the top, let's say.

What does it mean from the bottom but not from the top?

My English is very poor. I mean I hope that this consolidation comes from many mid-sized banks that put together rather than, let's say, a [ hostile ] transaction.

The next question is from Antonio Reale with Morgan Stanley.

Thank you for the presentation. I have a few questions from my side. You forgive me, one of which is slightly provocative, but I just want to hear your thoughts. So you've disclosed a cumulative 260 basis points of regulatory headwinds between 2020 and 2023. Now if I understand correctly, that's about 65 basis points per year, which is exactly your organic capital generation before dividends are paid according to consensus at least. So one could argue that -- so in order to pay -- to have a payout of 40% or above, you would need to see -- a repricing, significant repricing of the asset spreads, sell some equity stakes, which you're doing, and hope that the macro environment doesn't delay. How shall we think about -- how that comment? I mean how should we think about the sustainability of that dividend payout going forward? So that's the first question. And the second one, if I look at Slide 43, I see you talk about calendar provisioning are being more than compensated by CRD V release. But you would -- that's implying that you have enough AT1 outstanding for you to see a reduction in [ P2R ]. Are you factoring in another issuance of AT1 in the plan targets? And is this included in your estimates? That's the second question. And lastly, if you could perhaps, given the IFRS 9 regime, could you please provide a sensitivity to loan loss provisions for any changes to GDP growth, please?

Okay. Thank you, Mr. Reale. No. No problem with your question. Thank you for your question. I would say, of course, the plan is a revenues growth plan. So of course, we have embedded on a long-term scenario of 4-year a progressive growth in all the aspects of the bank. As you could have seen the majority coming not from NII, of course, but from wealth management commission and generally from commission and from some new business opportunity coming from partnership. These are the 2 driver. For the rest is the cost to service exercise in order to have all our, let's say, mass-market client to be served even more by digital -- with the digital approach. In saying that, again, you can see the different results we are embedding in the plan. I would say, just to simplify, the more concrete is the increasing of commission in wealth management. But of course, there is also a repricing in 4 year. This is another reason why we went for a 4 year. In 4 year, we have the time basically to reprice all our loan book. We have EUR 20 billion per year for EUR 100 billion loan book. So it's 4/5 of the book will be repriced in 4 years, which we already started with. So again, it's an exercise, which is not easy, but it's something that we feel possible also of course with an external growth in terms of market share. So we think we can -- both for geography and for some specific attitude of our bank to grow in the enterprise, in some area, which is not nowadays very well dealt by our bank. AT1 with -- yes, for the 60 basis points, we were the first midsized bank to issue an AT1 in April last year, which was done just because we wanted to test the market also on this side. We were very successful in the last one in January with the very good results. We are expecting over the plan to increase the AT1 apart in order to exploit and, let's say, arbitrage very well at the best the capital requirement with subordinated instruments. So that's why we think it's is possible for us to reach the -- just to be frank, we have more AT1 in the planned assumption than we need in terms of capital. Security provision. I think if you are only related to the V-shaped scenario, I think, is more provision of EUR 100 million on the overall plan.

The next question is from Noemi Peruch with Mediobanca.

I have a couple of question on capital. Do the 200 bps of headwinds include also the SME supporting factor? And you're planning 15, 20 bps from securitization a year. What assets will this involve? And what are your expectations in terms of revenue loss from this? And do you have a preliminary feedback from the SSM about the application Article 104a to offset calendar provisioning? And finally, could you please disclose your MREL requirement and the date on which you should be compliant by?

Okay. Thank you. I hope to understood the real question. Yes. The SME supportive factoring is embedded in our plan. I heard this morning there's something more could be done by European Commission, but of course, we are waiting. And it is embedded what is already decided, so it's a part of the plan. As far as securitization, the SMEs business in order to have a very fragmented book building is SME loans. Basically, as I mentioned before, there is no interest NII impact, but only the payment of, well, let's say, a commission in order to have -- ensure that the first loss, which is not in terms of NII. The MREL requirements are fully matched with our plan, with our funding plan. We will -- we didn't go through, of course, the different instruments we will issue starting from this year. This year would be the one with the less buffer in terms of rail requirement, growing further very much over the plan horizon. Why this year is less buffer because, as you know, certificates are considered the inside MREL requirements, but only if issued by the parent company. In our case, we have certificates up to now and for the first half of 2020 will be the same issued by Banca Akros, which doesn't meet the MREL requirement. So for the first part of the year, we will not consider certificates under MREL. For the second part of the year, we will rebuild our capacity through issuing certificates by Banco BPM.

And do you have, by any chance, any preliminary feedback from the SSM regarding the CRD V?

Basically, we didn't ask specifically for us because as far as we understand, CRD V will be applied by -- for everybody starting from 2021. So we asked, of course, verbally this question to ECB in a recent visit to Frankfurt. And we will say that they are considering this, generally speaking, of course.

The next question is from Christian Carrese with Intermonte.

I have four questions. The first one is on asset quality evolution. You said that the V-shaped scenario would cause EUR 100 million additional provision over the plan. I was wondering if the generation -- the macro scenario would be worse than expected, would you take into account the possibility to reduce the MDA buffer expected over 300 basis points by the end of the plan to accelerate NPL or UTP disposal. So question is on unlikely to pay again. If you can elaborate a little bit on the team, the division to speed up our internal workout. The third question is on contingency plan. In case revenues will -- revenues evolution will be lower than expected due to macro deterioration, if you can give us an idea of what could be the action to reduce costs faster. And finally, the outlook on 2020 in terms of fees. I know that it's quite uncertain, the current scenario, but do you expect fees to be more or less in line with the fourth quarter or maybe to be better than the trend?

Thank you, Mr. Carrese. Okay. Again, of course, you can imagine that during the last days, we were elaborating a different scenario in order to comply with the more credible presentation possible, but also our fantasy has some limit. So we decide to give what is now they consider the most probable option, which is an impact in 2020 and a rebound from 2021. Any other scenario, of course, is not considered inside the plan. We can elaborate in many scenario. Of course, we will come more public when we think that the scenario is over, and maybe we should elaborate anyone. But this, I think, could happen only if this current situation and this sanitary condition is going to last for the next 3, 6 months. I don't know. So let's check before adding the results on our side, a sort of moral obligation, again, which is also confirmed by what I was explaining before. We are not experiencing a strong reduction in the activity of the bank. We are working, let's say, even though in a very strange scenario, but in doing business as usual. So I don't have numbers for many other scenario because I don't have many -- I have too many scenario to confirm. Let's say that I think both of us can be quite cautious in saying that the recession scenario for 2020 up to now is enough conservative to examine a business plan of a 4-year duration. Internal or -- I was explaining, is if you go back to the page in which we -- I only pointed out the workout at the end. So in the deteriorated asset, of course, there is a lot of work that starts much before starting from the credit policy going through the data analytics for monitoring and experiencing a robust perception of the deterioration or deterioration of credit through the securitization and insurance on this side of the book loan. So there are many maneuver we are doing. And I think our number are really credible in order to give you a clear idea of our potential target reach. Contingency plan. Again, in a normal or V-shaped scenario, we will be able to confirm the target. And of course, in terms of cost income to adequate immediately the cost expenses to the revenues. So again, if you see the third year of the previous plan, we have experienced extraordinary reduction in cost because we were prepared to do that. The same will be also for this business plan. We have investment. We have a lot of upselling -- technological upselling. We have investment on our people. All things that can be done quarter-by-quarter, semester-by-semester, year-by-year. So we are almost in control of the cost expenditure. And this is the best insurance for us to comply with the cost to income. Again, in 2020, again, the scenario, I cannot expand anymore, because otherwise, I would be one of the thousand of people who declare about what will happen, not knowing exactly the solution.

On MDA buffer, will you be prepared to reduce the MDA buffer to accelerate NPL disposals?

Yes. Sorry, I missed this question. Yes, I would say we have also other tools. We have a lot of unrealized capital gains. We have more opportunity to deploy during the plan. I am sure you have seen that our guidance is 250 basis points of buffer, and we are above 300 basis points. So we can use as much tools as we can in order to accelerate should the global situation suggest like it was in the first 3-year plan, a more dramatic and immediate reduction.

And just a final question, if I may, on the tax rate embedded in the plan.

It's a normal tax rate, maybe apart from the stake holdings, of course. When we will reduce the stakeholders, there will be an advantage in -- fiscal advantage, but it's quite negligible considering the plan horizon.

The next question is from Hugo Cruz with KBW.

And apologies if this has been asked. But does the plan assume any DTA benefits, I guess, not through the P&L but on against capital? And then in terms of the synthetic securitizations, is there an impact of that, I assume, on your NII or elsewhere in the P&L that is already reflected in the plan? If there is, if you could give guidance on that amount would be great.

Thank you, Mr. Cruz. DTA. So of course, there will be an impact on the net profit, reducing part of the DTA. On capital, we will have a marginal reduction in the effect of capital -- will be partial. I think EUR 100 million, EUR 150 million of impact on capital in particular into those in RWA will be an effect higher than the capital one.

And the impact on securitization?

No. I already answered before. The securitization we are building up are with the commission paid to -- let's say, to the first loss insurer rather than NII contribution.

The next question is from Alberto Cordara with Bank of America.

So my question is in Page 39. You are saying that you will align the share of Italian govies on total security to 40%, in line with peer's average. My question is if you can tell us what does it mean in terms of ratio to Tier 1 capital? If you can give us a view of the absolute value of the reduction. And I assume this is entailed in your assumption regarding the pressure on NII, but you can be specific and tell us how much NII will you lose as part of these actions? Then I wanted to come back to a question that just my colleague who ask you regarding the commissions. So the commission that you pay on the first loss, will it go as a negative in the commission line or somewhere else in the P&L? And I don't know if you can quantify how much this will amount to based on your plan. Finally, the very last question. In Slide 37, you are showing that the default rate is moving down from 1.2% that you recorded this year. I don't know if you can give us a bit of an idea of what is your assumption regarding the end of plan and default rate. And I know this is an impossible question to ask, but whether this year should we expect a rebound, an upward rebound of the default rate or not?

Okay. Meanwhile, I have some precise answers to the first question, which was very articulated. Let's start from commission paid. Yes, I confirm are under the commission line. The default rate, I think, over the plan horizon is going in the region of 1%. As you mentioned, it's an impossible answer to your question, understanding what could be the effect of the deteriorating -- of a more deteriorated scenario rather than one we presented. And one we presented, again, there is a global impact of EUR 100 million over the plan horizon. So unfortunately, I don't have other figures to give you. In terms of govies -- sorry, into -- what is this? The reduction?

[indiscernible]

Okay. Proportion common equity -- govies on common equity Tier 1, 1.8, more or less, which will be stable over the plan horizon. Of course, we have embedded this reduction in the NII. Take in account that, of course, there is, frankly speaking, during these days, we already embedded also the new yield of the govies in our forecast, which is, I don't know, if temporary or not, but it's changed since some weeks ago. I have to say sorry about NII. Yes, that NII is of course contributing a negative in terms of yield. But of course, the funding of the govies is -- up to now has been very favorable and it's a reduction in cost of fund.

Okay. Sorry, just very briefly on the commission that you pay on the securitization. Like can you disclose us what is the amount that you have in the plan? Is it possible to quantify that or you don't tell the number?

Of course, it's much lower than the NII contribution. It's a part of it. Depending on the size, it could be variable between EUR 5 million to EUR 10 million, I would say.

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

Okay. Thank you very much. Thank you for being with us today. Again, thanks to all my colleagues. Thanks to the people who is working in order to reestablish a normal situation. We will work every day in order to help on our side to have also the opportunity to confirm the business plan number. Thank you very much.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.