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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Banco BPM 9 Months 2020 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Roberto Peronaglio, IR Manager of Banco BPM. Please go ahead, sir.

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

Good evening, everybody. Thank you for being with us this evening. I will try to be as much quick as possible in order to give you time to make your Q&A section. So starting on Page 5, we want to highlight the very resilient and positive recovery, which is characterizing our first 9 months. Particularly significant in a difficult environment, like the one we are still involved with the COVID-19 trait. As a matter of fact, Q3 was very good in terms of core revenues, 9.5% Q-on-Q. Further reduction in cost, minus 5.2% Q-on-Q. Healthy buildup in pre-provisioning income, which not only is 44% better than Q2, but it's also better 6% relating to 9 months 2019, which, as you know, was a very good year for us. On top of that, I would like to stress that we decided, as we anticipated in Q2, a further reduction of NPE through disposal. We have managed to close a deal for -- 2 deals actually, for EUR 1.2 billion of total consideration, of which EUR 1 million of UTP and EUR 200 million of leasing bad loans. The total derisking consideration since the start of our merger is now at EUR 21.4 billion, and I remind that all this then is done without any capital increase, any request of capital from the market. The cost of risk is confirmed that 100 basis points as a guidance for 2020, including the extraordinary transaction we are mentioning. On top of that, we have reserved some slides for giving you an hint about how we are dealing in order to strengthen the internal credit management on the moratoria and also on the total loan portfolio in these difficult times. Last remarks on the capital position. As you can see, already considering the Q4 headwind that we expect in the next quarter, we have performed a Common Equity Tier 1 fully loaded at 13.6%, which is 14.1% without the headwind. On Page 6, a quick remind about the technical operational solution we adopt in order to minimize the impact of this period and preserving the commercial effectiveness vis-à-vis customer. We announced all our digital efforts in order to empower the omnichannel approach. I will give you some details later on. As much as we were very careful in terms of caring of our employees and clients in order to minimize the impact of the COVID, utilizing, of course, smart working up to 8,000 people, with a shift of branch presence adopted during the COVID and the reduction of physical presence, both in head office and in headquarter. On top of that, of course, we are now fully provided with masks, plexiglass, gloves and sanitizing gel in order to allow our colleagues to perform at every day on their duties. Also in terms of cyber, we were very active in order to check carefully all the assets, also the device, we allow to our customer -- our colleagues to use by -- during smart working. And we have, nowadays, fully deployed all the tools needed in order to perform correctly also in smart working with our clients. On Page 7, some numbers about the commercial effort we have done, which we feel will help us also to face this second wave of COVID. As you can see on all the digital banking figures, we are registering a double figure increase year-on-year. Mobile transaction, which we mean only mobile and tablets, is up 62%. The user of app, clients using app are up 35%. Online transactions are up 23%. And so almost the same also with digital sales and order executed via web. All in all, considering households, we increased the utilization of direct banking from 77% of last year to 84% of September '20. This allow us also in terms of commercial volumes to rebound in Q3 vis-à-vis all the main figure of our activity investment placement went up again to EUR 3.2 billion from EUR 2.4 billion last quarter, the new lending is EUR 7.9 billion vis-à-vis 6.9 billion in Q2 and especially with the moratoria measure guaranteed by the state, which went up EUR 5.2 billion in Q3 vis-à-vis EUR 1.9 billion in Q2. Let me give some further indication about these measures on Page 8. As you can see, we had EUR 9.5 billion of request for lending assisted by public guarantees in June. This increased to EUR 12 billion in September. Now we are up in October to EUR 13 billion. Of the EUR 12 billion in September, EUR 7.1 billion were already granted to our client, EUR 4.9 billion are, of course, in our pipeline, EUR 3.5 billion of this already approved by the credit and EUR 1.4 billion is under approval because of recent request from our clients. The distinction of this EUR 12 billion between 100% guaranteed below EUR 30,000 of loans is a total consideration of EUR 1.4 billion. Meanwhile, the SMEs lending guaranteed from 70% to 90% amounts to a total of EUR 10.6 billion, of which EUR 6 billion already granted and EUR 4.7 billion still to be provided. Also in terms of moratoria, we are basically at the same level we announced in June is around a bit below EUR 16 billion. The total amount is still EUR 15.6 billion, a small reduction, of which EUR 12 billion from state moratoria and EUR 3.4 billion of Italian Banking Association kind of moratoria. Also in October, this figure is stable. Let me spend some words about how do we see this situation because of the many concern we hear about the potential disruptive effect of the end of moratoria. Let's say that thanks to our geography, there is a first consideration, very important in our view, which is the difference between the market share of moratoria measures and the market share of public guaranteed issued vis-à-vis our natural market share. As you can see, due to our geography, we are very much involved in new lending with public guarantee, in which we have a market share of 11% of EUR 105 billion of total loans granted by the Italian banking system. We have, again, EUR 12 billion. Meanwhile, out of the EUR 300 billion of moratoria, we have a stake of only 5%, which is the EUR 15.5 billion I mentioned before. This means, in my opinion, that the quality of our kind of client due to the very much developed manufacturing in our region is much more addressed to a state guarantee loan rather than to moratoria. Having said that, also the moratoria are quite safe in our opinion. Because the distribution of loans under moratoria by rating class at September still amount at a very comfortable 77% in the low medium risk class of rating. Meanwhile, we have 13% of mid- high-risk and only 10% of high-risk client. If we extrapolate the client in these 2 categories, which also are in the more exposed selected sector potentially, highly potentially impacted by COVID, we have at risk EUR 400 million in the mid-risk client and EUR 300 million in the high-risk client. I will explain what -- how we are dealing with this client in the next page. Another very consistent figure, which I think can give you an idea of the liquidity that our clients are getting from these measures, is the increase in deposit from our nonfinancial corporates. As you can see, these kind of clients in March stand at EUR 25.6 billion of deposit. Meanwhile, in October, the increase of 28% up to almost EUR 33 billion, which is, as you see, EUR 7.5 billion more. This means that of course, the most of the loans we have granted are still there in the current account of our client, and they are taking in full consideration all the installment of the moratoria that are going to expire in the next months in order to comply with this maturity. Let's also say that almost EUR 2 billion of this increase in deposit come from the same client who apply for moratoria. Meanwhile, the other EUR 5 billion comes from the other client, mostly the one who applied for the new loan guarantees. Some of you hint about what we are doing in order to monitor and check continuously the client who applied for moratoria. First of all, out of the EUR 12 billion applied for the government moratoria, we extrapolated a more risky portfolio, the one we were mentioning before, which amount to EUR 2.7 billion. We are selecting and contacting the almost 9,000 clients pertaining to this category in order to ask each of them the current liquidity situation, the potential need for any further measure in order to comply with moratoria and so on. Up to now, we have contracted or received answer by almost 20%, 22% of our clients. In this cluster, 70% of them, they don't need anything further in order to comply with the installments that are going to mature in the next months. So the perception is that only a few part of this will be engaged and this, of course, is what we are doing in order to find further measure, possibly also new government-guaranteed loans in order to face potential liquidity needs. The same exercise we are doing also on the total performing portfolio. We have completely renewed our workflow-driven monitoring platform with a new early warning system, which is allowing us -- now us to have a consideration of EUR 6 billion in the watch list of credit, of course, which are running in different clients. And 70% of this kind of client comes out in our watch list without any overdue. So this is just to say that we don't wait for a client to enter into some difficulties to have some quick hint about potential difficulties. Up to now, 94% of the client entering the watch list come out without any difficulty. Again, on the new lending. So we are now in 9 months at around EUR 20.3 billion, which is more or less the total over the last -- of the full last year, 65% is ordinary business, 35% is COVID measures. If you only consider the Q3, these amounts switch completely in the opposite situation. If you consider enterprise and corporates, 74% of the new loan granted in Q3 come -- is assisted by guarantee -- state guarantee. You can see also the -- how we are proceeding continuously with the new loans lending. And also in October, we are still -- in November, we are still continuing at this pace. On Page 12, some figures about Q3 and the 9 months. As you can see, are all very positive figures. NII is up 8.4%, mostly thanks to the TLTRO, but also to the increase in loans. Fee and commission is up 11%. Total revenues is up 14%. Operating cost is down 5%, and pre-provision income, as I said before, is up 45% but more important is up also vis-à-vis 9 months 2019. The net income of the quarter is EUR 157 million, which lead us to EUR 263 million of net profit. Of course, during this quarter, we also registered the SIA stake and the Nexi and SIA stake revaluation. As you know, we are both shareholders in SIA and Nexi. And I would say that we were rewarded to keep this strategic participation, which produces this very comfortable results. Just a glance also to the Common Equity Tier 1 evolution. As you can see on the green side, the phase-in went up from 14.6% to 15.4%, the fully loaded from 12.8% to 14.1% and even though we apply 50 basis points of headwind due in Q4, we end up with 13.6%, which we feel very comfortable. And the same is in terms of MDA buffer, you remember that our guidance was to to be up 250 basis point, we are in a comfortable 414 basis points. Some word about derisking. We announced early we are performing. We have, of course, we are binding offer for EUR 1.2 billion of GBV. EUR 1 billion is related to the Project Django, which is a true UTP sale portfolio sale of mid-sized dimension. These are all positioned between amounts EUR 500,000 and EUR 25 million of GBV each, more or less 50% real estate, 50% other industrial sector, with quite an average vintage of almost 5 years, for which we have received the formal binding offer from a couple of bidders. The same -- we are, of course, expecting to close this by year-end, but we anticipate this quarter the effect of the IFRS 9 impact on cost of risk. Project Titan instead is securitization, multi-originator GACS for which we will contribute for the figure between EUR 150 million and EUR 200 million. Also, this is due to be concluded during the year. And also for this transaction, we have anticipated IFRS 9 impact. On Page 15, let's see the results of this further reduction. We have been down from the numbers that you can see in September '19, we are EUR 10.5 billion, down to EUR 10.1 billion in December. We are now at about EUR 8.6 billion if we consider the effect of the Django and Titan transaction, which means go down year-on-year, 18% and 12% only in Q3. As I remember before, this means EUR 21 billion derisking in the -- since the merger. Also, the ratios were down before Django and Titan, 8.6% gross, 4.7% net. With the effect of the announced transaction, we are down to 7.7% of gross NPL ratio, which is further reduced to 6.7% if we include loans to bank as per EBA definition. This has been possible also for the very good migration rates. Of course, they were due to the -- also the current situation with the moratoria measures. As you see the default rate on Page 16, were down to 1%. In Q3, only EUR 150 million of flow -- NPE danger rate down from 11% to 7.7%. And of course, also cure rate was down from 5.1% to 3.5%. And this was the reason why we decided to increase again our disposal plan. The figure we have after the IFRS 9 transact -- impact is a coverage of 48%, 51% including write-off, bad loans 57%, 64% including write-off. And an increase from 39% to 42.7% of UTP. Of course, this will go back more or less at the same level of previous quarter once the 2 transactions I was mentioning will be executed. The cost of risk, including the IFRS 9 impact of this transaction is up to EUR 324 million, which allow us to be still into the range of 100 basis points, which we gave you as a guidance for this -- 2020. On Page 17, some figure about our balance sheet. Core performing loans up 5% year-on-year, 1.6% quarter-on-quarter. Current account and deposit, 10.8% year-on-year, 3.7% on the quarter. Unfortunately, as you see, all these available amounts are not yet fully utilized in terms of conversion into asset under management, mostly because of the current situation, the uncertainty of the forecast for the next months due to the COVID. Even considering, of course, that we have already a pace in new product sales of investment of -- asset management product in line with the first 10 months of this year. Also in October, we are still registering some increase. Loans went up 0.6%, October versus September. Core funding plus 3% only in one month, October versus September. Not to mention the very comfortable liquidity and funding position. We have an LCR of almost 200%, NSFR, most comfortably above 100%. Eligible securities unencumbered around EUR 26 billion and, as you know, we have performance during this year, all the kind of issue bond -- of the bond issue both in AT1, senior nonpreferred and T2 lately in September, EUR 500 million. The debt security portfolio performance is very good. We have increased our reserves on held to collect and sale from EUR 32 million of June to EUR 166 million of September with contribute to our Common Equity Tier 1 of EUR 134 million or 23 basis points. And as much as the unrealized gains on amortizing cost went up of EUR 211 million June on -- September on June. Let's also mention that as of today, we have a further increase of another, let's say, EUR 170 million, EUR 180 million in total consideration between these 2 categories. Net interest income on Page 18. As you see, the 8.4% increase Q-on-Q was mostly due not only to a slight increase in commercial operation, but mostly with TLTRO. Of course, what we included, EUR 47.4 million is not the total contribution of TLTRO on the Q3, which is higher, but we have to consider the downside of the extra liquidity reinvestment for a portion of TLTRO, which we are not investing in loans because of the growth also of the deposit what we were mentioning before. The total results, as I mentioned, is almost EUR 520 million. In terms of commercial spread, notwithstanding the shift from short-term lending to medium-term transaction guaranteed by the state, we are keeping an asset spread in the region of 182 basis points, 1 basis point better than last quarter, and the reduction in commercial spread of 15 basis points is all a consequence of the reduction of Euribor in the quarter for 18 basis points. Of course, the quality of the portfolio is bettering because we are substituting basically short-term loans with medium-term guaranteed loans. On Page 19, a sound rebound also in terms of fees. Commercial banking fees at the same level of Q1. Management advisory still a bit below Q1, but 11% above Q2. This is also due, of course, the difference with Q1 also to August in Q3. But as you can see on the box -- on the right box, basically, July and September were very consistent at around EUR 143 million. We also wanted to show you the commercial recovery in investment product placement, the monthly trend, as you see on the down right side, apart from the very massive impact in March, April and May, in which we reduced very much the capability of placement. Since June, we have relaunched this activity, and apart from the Q3, also October is very sound, is EUR 1.2 billion in terms of value date, corresponding to the commission in Q3. But in terms of sale, we are up to EUR 1.4 billion, which means that we have already reserved a new commission for Q4. On Page 20, operating cost also for these very sound results. I have to spend some word in order to make you understand some one-off saving in terms of personnel. We were down on total cost from 8.4% vis-à-vis Q1, 5.2% vis-à-vis Q2. As you see on the right box, there is a massive reduction vis-à-vis the first year of the merger, we have almost reached EUR 500 million of current reduction in cost. But a part of this comes from some benefit related to the COVID. As you can see, staff cost is down 15% from Q1 and 10% from Q2, both Q2 and Q3 benefit from the reduction of variable remuneration due to the constraint of the economic situation and also from some one-off COVID-related savings from the government, no much more to mention for administrative cost, even though in this case, we had some negative one-off due to cost of COVID measures. Last page, some final remarks. Very sound, we feel, performance, considering also the derisking EUR 263 million of net income -- net profit, sorry. Strong pre-provision income at EUR 1.3 billion. The derisking strategy would allow us to point 7.7% of NPL ratio going down toward our final target. A very solid capital buffer in terms of Common Equity Tier 1, even considering the headwind of Q4 and quality of loan portfolio, supported by the state guarantee, by the many measures we are activating in terms of monitoring and early warning. Some hint about the outlook of the last quarter. We think in core revenues, if nothing disruptive happen in terms of COVID, we can be in line both in terms -- with Q3, both in terms of NII and fees and commission. Let's say that we have already utilized all the one-off for cost. So we think the guidance for Q4 will be more similar to Q1 rather than Q2 and 3. Asset quality, we are still exploring some opportunity for single names disposal during Q4. But also considering this, we think we can confirm the guidance of cost of credit around 100 basis points. Finally, the target of capital, of course, remains 250 basis points, but we are comfortably above 400. So we think we can reach easily this target. Thank you very much, and I leave you the floor for the questions.

[Operator Instructions] The first question is from Christian Carrese of Intermonte.

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

Thank you, Mr. Carrese. Upfront amount for EUR 15 million more Q3 on Q2. The total fee are 20% coming from running fees, 80% from increase in global sales, which kind of product -- is a split between funds. We also have an increase in bancassurance. So basically, all the normal product, very, very conservative because, as you know, the feeling for our client now is to be very, very prudent. So we are having a very fair approach in order not to stress them but try to make them understand that it's better to convert the current account holdings. Costs, basically, yes, as I mentioned before, we have exploited at maximum level. We are beating probably the EUR 100 million reduction of cost that we had the guidance -- we gave as a guidance in Q1 when we announced the the results of Q1 due to the COVID. Frankly speaking, we are doing better in revenues, but we are still exploiting at maximum level the cost savings. Of course, this is for the current situation. Then, of course, we will still be very proactive in terms of efficiency and cost efficiency. So as soon as we will announce the new plan next year, of course, we will give you also some new number about branch personnel and so on. But for the time being, of course, and especially during this period, we think it's better to wait and see for understanding how the situation will evolve. I am happy, one thing is, if you allow me that when we presented our business plan, of course, was the beginning of the COVID, and we said we think our bank after showing that is able to reduce costs massively year-on-year, would like to be more concentrate on revenue growth rather than on cost saving. But saying that, of course, if the revenue growth was not going to show up because of the situation, we would have been able, in any case, to reduce cost. And this is exactly what we have done. Spread. Notwithstanding, we are very, very good. We cannot give comparable of our contribution on state guarantee measures, but is very, very consistent. Much higher than our mid-sized player. We were very good at keeping in terms of spread. As you say, it will be seen in our figures. We think that having already granted the vast majority of this lending guaranteed the spread is not going to go down more. The only reduction we are experiencing is because there is not so much short-term lending, which, as you know, especially in the current account utilization normally, is much more convenient for the bank. Last Agos, I think I already said some time that we were working on with Credit Agricole in order to consider the COVID impact of this period and basically to postpone the put option for a considerable amount of time. We are -- we have an agreement already reached. We will inform you immediately as we sign everything, but this should postpone at least 18 months the put maturity, which was due by June next year. You also asked about other things about the Credit Agricole?

Yes. The rumors on newspaper regarding potential M&A, consolidation and so on, I don't know if you want to share with us your thoughts on that.

My usual consideration on that, we are, I would say, the first mover, and we consider ourselves the one available for further consolidation. We are very confident of the results we are having stand-alone but having said that, we are open to discuss with everybody as a strong project for build up a solid bank project in Italy, in the region that we are stronger. We will be available to talk to everybody. And of course, I see also the rumor. We are not commenting on rumor, but we have an interest and explore any potential move in order to strengthen the bank even more to factorize potential cost synergies and so on. So we will see. The COVID doesn't help, of course, is a period in which we are all into our, let's say, house either real house or in the office. It's difficult to have contact and it's complicated. But we are here on the market, and we will see what happens.

The next question is from Antonio Reale of Morgan Stanley.

I've got a couple. Just the first one is a follow-up on NII. I mean looking at Euribor trends, we've seen a further drop into Q4 and deposits have been growing, which in a negative rate environment is clearly a headwind on margins. I'm wondering how you see loan demand dynamics. So what's the outlook for loan growth into next year? I mean, obviously, there's still a pattern for government loans, but I wonder if you have any visibility beyond that, that you can share? That's my first question. Second question is on moratoria loans. And I would like to understand sort of what your cost of risk estimate for the full year assume in terms of potential defaults on these loans, both looking at this year and if you have any visibility on next. So what percentage of your EUR 15.6 billion do you assume could migrate potentially into nonperforming? You showed good color on Slide 9. I wonder if that's a good proxy to use. We're now entering also into the final part of the year. I wonder if you're in a position to comment a bit more on the outlook for cost of risk for next year? That's my second question. And lastly, you're back active on the NPL market. After the lockdown, you've been negotiating a relatively large unlike the UTP, and I would like to hear from you anecdotally what you're seeing in terms of NPL bids compared to before COVID? I mean without necessarily going into a lot of details, given your negotiations, but just big picture, pre- and post-COVID anecdotal color would be very useful.

Thank you, Mr. Reale. Yes, of course, deposit growing is not something that we are happy with, together, of course, with the strong liquidity that we have also due to the TLTRO. You know that we are not drawing all the TLTRO, just because we have so much deposits growing. Let's say that it's not black and white. Of course, up to 1 month ago, we were thinking that the confidence of potential more comfortable situation in terms of pandemia would have led our client to convert more deposits into assets under management. Of course, we know that now this is not the case, but maybe then if this will go up for some months, maybe there will be some more measures from this ECB. So it's difficult to make forecast because there are also the intervention from ECB, which try to compensate potential downside. Loan growth is a bit the same. Of course, up to now, they have been fostered by the state guarantee. And I would say, again, that we were one of the most active into this market by far, I would say. This is all ammunition that I think our client can exploit if the situation will be clear or if they need to put into the market more liquidity. So if the situation is going to be better in the second part of 2021, there is the possibility of recovery also for loans. Otherwise, of course, if the situation stays as it is, I don't think we can imagine a lot of loan growth for next year. Unfortunately, almost the same from cost of risk, but please keep also in mind what we have said quarter-by-quarter since the beginning of the pandemia, we say that we wanted to be very prudent. We wanted to make provision also on performing loans in order to prepare a potential higher inflow into to nonperforming. This is what we have done in the first 2 quarters. Q3 was much better also for the confidence in the economy, which was going on. And so we thought it was the best moment in order to perform a disposal. And let's say that I think our timing was very, very good because most probably, I don't know if going ahead we will find the same availability we found during the last month in order to conclude the deal today. Of course, for us, the UTP market was completely new. I would say that probably also for the market, a straight sale was completely new. We are happy that we have showed that it's possible to have different players at the table dealing with each of them. UTP, I was one of the few who say that already for bad loans, there is only one price. If this was true, exposed for bad loans, it's even more different from UTP. UTP is not an asset that you have to dispose, is a company working, producing, exporting. And so the feeling that each of these players can have on the single asset is completely different. This is the reason why we split the amount of EUR 1 billion between 2 different players.

The next question is from Azzurra Guelfi of Citi.

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

Thank you, Azzurra. Priority in consolidation, let's say, of course, I cannot be so specific because, as I was mentioning before, we are really trying to understand what would be the best situation. Of course, I think the industrial project have to lead any possible idea of consolidation. So I don't know, during this period, we are talking about to merge with somebody who can give you contribution by shareholders or so on. We have always been, I would say, maybe the first industrial project. We think our equity story is of a strong bank created in the wealth region of Northern Italy, amongst the best region in Europe. We would like to pursue this project, and it is the first priority. Of course, this has to be done as we did in the last merger, taking in consideration value creation for shareholders, which is not that difficult in our situation due to our stock price and try to emphasize what is our -- one of our best characteristics. I was mentioning the reduction in cost of almost EUR 500 million running in 4 years that we performed during the merger. I think that this can be a good suggestion in order to understand which player could be the one who can allow us to make cost savings and -- synergy cost saving. That's all basically that I can say right now because I don't have anything to discuss because I don't have any concrete project to discuss. Regulatory headwinds. We were updating again the impact of Q4. I have to say that we stay with the consideration we gave on the Q2, I think last year could be in the region of around 100 basis points all in all, and then reduce dramatically in 2022, and again, increase in 2023 due to the Basel IV. The total is still the region that we mentioned at that time, I think, in the region, 200, 230 basis points. Last question, sorry, potential default. We are already running, of course, all our numbers ready for January '21. We think the stock -- the increase of stock for the new definition of default could be in the region of EUR 200 million of new nonperforming. In terms of capital consideration, would be something lower than 10 basis points.

The next question is from Jean Neuez of Goldman Sachs.

I just wanted to ask on the accounting of the TLTRO financing this quarter. And going forward, I just wanted to understand how you have accounted for, I mean, essentially for which rate of TLTRO funding you've essentially accounted for and whether in a year's time, part of it will reverse and the NII will fall back in case you -- depending on the way you accrue the extra bonus rates for the TLTRO? And I just wanted also to ask about the costs, which there is a one-off, you say, of EUR 60 million because of extra savings on variable compensation and so on and COVID-related expenses. I just wanted to understand whether this is -- these are hard triggers, so to speak, which have been linked to the forthcoming of revenues earlier in the year and will come back in the future if your fees, for example, are better? Or whether this is more, let's say, a softer allocation and whether you think that some of the savings will stay into next year's cost base, essentially? This is on particular item of this quarter rather than various initiatives that you have mentioned in the previous answers to the questions.

I think I was quite clear, the contribution in Q3 was EUR 47 million, which, of course, is a net between what is going to be the contribution from the premium from ECB, the 100 basis point. And the part of this amount that we are not able to invest in yields, in assets. So of course, as you know, if we have to go back into ECB, with the part of it, we pay 50 basis points. So the net-on-net, we think the contribution could be in the region of EUR 50 million, and the same should be also in Q4. Going to costs -- sorry, maybe you asked it also for next year. If you asked also for next year, in any case, I will anticipate, there should be EUR 30 million, EUR 35 million more in the first 2Q next year vis-à-vis last 2Q this year. Of course, part of this, at level of NII, will be compensated by lower revenues on the govies portfolio. Last question about cost. I think also in this, we were very transparent. We had a one-off of around EUR 60 million, which is not really one-off. Part is one-off due the contribution of state measures from the COVID period. And other part is a reduction of the variable remuneration due to the size of the total revenues, which was already done also in Q2. So the total amount between Q2, Q3 is almost EUR 90 million. Of course, for next year, this amount, we hope will not be there because this means that we are going back to total revenues, more comfortable and also to no COVID contribution because the COVID will have no effect. If this will not be the case, of course, we will have the same kind of contribution next year. On top of that, of course, as you know, and as I anticipate to Mr. Carrese, we are also -- we have also announced the reduction in personnel in our business plan. And of course, we are now again in talks with the unions in order to decide which kind of reduction in personnel could be applied possibly starting from next year.

The next question is from Noemi Peruch of Mediobanca.

I have a few. The first one is a clarification on cost. You mentioned, indeed, EUR 60 million of positive one-off in Q3 and lower variable compensation. Can you specify the size of the one-off? Is that EUR 40 million, so with a variable compensation of EUR 20 million, in line with Q2? And the second one is on asset quality. On the EUR 1.2 billion UTP disposal, what is the average yield attached to these portfolios? And the last one is on common equity. What drives the quarterly reduction in RWA? Is it the switch from drawing line to state guaranteed loans? And do the 50 bps regulatory headwinds include the positive from lower software deduction?

Okay. Let's be -- take one question for time. Reduction in cost. Again, of course, apart from the one-off, there has been also a normal reduction of the activity during the 3 months of COVID, beginning first half of the year, no transfer, no, I don't know, extraordinary compensation and so on. So a part is a reduction due to the COVID, a part is because of the reduction of the global amount of the remuneration due to the lowering of the revenues and a part is the one-off coming from the state. I cannot really be more precise than that. But we mentioned some figure into the comment. Sorry, can you remind me the second one was asset quality?

Asset quality.

[indiscernible]

Okay. Okay. The interest margin attached -- the NII attached to the disposal. Is this the question?

Yes. Yes.

Okay. For next year, would be in the region of EUR 50 million. The last was on headwinds. First of all, let me give you some more detail about the RWA reduction because it's a -- I'm right, you also asked about that. This, of course, is already into the Q3 performance, when you see 56 basis points of Q3 performance and the other 25 basis point comes from the profit, profitability, and 30 basis point comes from the reduction in RWA due to the state guarantee. Going further, Q4, for the time being, we only consider the headwind. We are not yet considering some potential tailwind, which, in any case, it maybe -- could be compensated by some further reduction. So we think the guidance for year-end would be the same we gave today.

And just to make sure I understand, the NII contribution is 15 or 50?