UniCredit S.p.A. (UCG) Earnings Call Transcript & Summary

Good morning, everyone. Warm welcome also from my side. My name is Antonio Reale. I am responsible of Italian and Nordic banks here at Morgan Stanley. I'm very pleased to be joined today by our opening speaker for our conference this year. It's his first conference as CEO of a bank, we take a lot of pride of that, that is doing it with Morgan Stanley. And it's Andrea Orcel, CEO of UniCredit. Andrea, thank you very much for coming.

Thank you very much.

We've -- obviously, there's a lot happening, and there's lots of topics that I would like to talk with you. We're going to make sure, we're going to leave plenty of space also for Q&A from the audience. But in the interest of time, if you agree, why don't we start from -- well, the topic that's on everyone's mind, as you can imagine, the last few months have been challenging. We're testing again the resilience of the bank's business models. Why don't you start by talking through sort of how you see fundamentals in this environment, your exposure to Russia, you have a local bank on the ground. You've talked about cross-border lending. And remind us sort of what is the worst-case scenario for UniCredit and perhaps under what circumstances you would see yourself walking away from Russia?

Okay. Well, let's start with the last piece, which is probably the most contentious. Obviously, it would be quite easy for me to say that we're leaving Russia, is what we all want to do, and it is what our minds and bodies demand. However, UniCredit has about 4,000 people in Russia. We cover 1,500 corporates, of which 1,250 are Europeans that are trying to disentangle themselves from the country. And as I will explain later, we have a EUR 7.5 billion exposure at maximum loss on the country. So while I'm shocked with a conflict and with the atrocities of war, I also need to balance these -- the consequences of whatever I do there. So we are reviewing and we -- well, we are completing an urgent review on the country and we are considering exit. But obviously, we need to seriously consider the impact consequences and the complexity of this entangling a full bank from the country. Hopefully supporting our employees and the European corporates that are trying to exit as well. So that's where we are at the moment. With respect to our exposure to a country, as we said, we have EUR 7.5 billion of total exposure. The local bank has about EUR 8 billion in loans, EUR 9 billion in RWAs. They are backed by local deposits. They are not funding by the group. Actually, the group has a positive funding from them. We view our maximum loss to be the equity that we have in the entity, which is about EUR 2.5 billion, which we have hedged. So the maximum loss at the moment is about EUR 1.9 billion. In addition to that, we have cross-border exposure in a variety of areas, lending, trade finance and others, but net of state guarantees is another EUR 4.5 billion. And finally, we have a net of collateral, a EUR 300 million exposure in derivatives, maximum loss if the ruble went to 0, and we didn't have any collateral posted anymore, would be about EUR 1 billion. So those numbers altogether create the EUR 7.5 billion or about 200 basis points of capital. We have not provided a scenario of what we expect, I think it's premature. The scenario changes almost every day. So we have assumed that the entire amount is lost. If we assume that the entire amount is lost, we have the ability, and we have said that we will to pay in full our EUR 1.2 billion dividend for 2021. And stay just above 13%, which is our -- the upper level of the range in CET1 that we want to have. With respect to the share buyback, we were clear that we would perform a share buyback as we recover from Russia. So we're not mortgaging 2022. We're saying we had a CET1 at the end of 2021. The CET1 is shocked with 200 basis points of Russia maximum exposure. We pay the dividend as we physically recover, we execute our share buyback. As you know, our share buyback is anywhere between 80 and 100 basis points. So rough cut, if we recover about 40% to 50% of Russian exposure, we will be performing the share buyback in form. So this is how we will be proceeding. I think it's the prudent thing given the situation. We're still working hard to perform as much of a share buyback as possible, but at the moment, it's difficult for us to tell you exactly what the total impact will be. But what -- for us, the way we look at it is, we have a bank with Russia. We're dealing with Russia on the site, about EUR 7.5 billion maximum. The rest remain -- what remains is impacted in 2 ways. Well, 1, the CET1 that before was going to be at 14.20% is going to be at 13% plus. It's still at the top end of the range of the capital range that we have given. The net income will be affected by about EUR 200 million in 2022 from Russia and EUR 300 million in 2024 from Russia. So we adjust for those 2 things. From there, the remaining of the group is exactly the same as it was before with our Russian risk, if you look at it that way. And we're executing on what we have separately.

You've alluded to your capital position, which by all means is very solid. You stand at 15% CET1, if I exclude the buybacks you've announced, and that's a buffer of 600 basis points, one of the highest in Europe above your minimum requirement. Now if we take this point in time, it's equivalent to about EUR 19 billion of excess which is actually not too dissimilar from what your market cap stands today, implying essentially very little value for the bank in isolation. Now obviously, there is market dislocation, and we've talked about some of the risks related to Russia. But more generally, how do you explain that valuation element?

I think they are -- I can try to have an explanation, but all of you who invest in the bank probably have a explanation than I have. I think there are 2 different times, 1 before the Russian prices and 1 now. Before the Russian crisis, I think we had a market cap that didn't fully capture what we had promised in the plan. I think people were -- wanted to simply be sure of our ability to distribute and our ability to execute given that execution drives the distribution, people wanted to see how confident we were on the execution of our plan. With respect to -- after Russia, I think that there has been a undifferentiated sell-off of banks and UniCredit has been beaten up more than others just because our exposure is higher than others. I think what has been missed is 2 things: one, exactly what you say. And unless we assume that the second degree confidence through the macro is going to completely erase the bank we are trading below -- well, we are giving 0 value to the bank. And the second thing that their view is that maybe the exposure to Russia is greater. So the way we look at it is, we have first degree consequences, that's a maximum of EUR 7.5 billion, and we hope to do much better than that. The second degree consequences, which is clearly the macro environment that we're going to face going forward is very different. Assume stagflation, I don't know to what extent, but we assume stagflation. That will change the macro underpinning the plan. However, I would say the following things: number one, is our plan did not incorporate any macro effect. We didn't assume rising rates. We didn't assume any improvement in the macro. So our starting point in the plan is not an optimistic underpin, it's actually a stable underpin. The second thing is that if you look at now the macro that we are facing you would need to separate Russia because we dealt with that separately. And now you look at what the bank that remains. No Russian risk. I would say that we are 1 of the most provisioned banks in Europe. We still have a CET1 above 13% after all of that. And the levers of the plan are to a large extent under our control. We said we had a cost lever that was about EUR 500 million. But we also said that we were cutting costs by EUR 1.5 billion. EUR 1 billion was going to be reinvested, frontline, IT and a number of other things. Depending on the macro, we may deprioritize certain investments. So we have a buffer in there. Cost is under our control. We've always executed on that. The second thing is capital efficiency. And there are, I think, 2 levers on the capital efficiency that are under our control. The first one, just as an aside, Russia is a very high-density RWA country. So not growing in Russia means a significant release of RWAs. So as we separate Russia out, that needs to be incorporated in. The second thing is this is a bank that never prioritized capital efficiency or never prioritizes the profitability of the revenue line rather prioritize the volume of the revenue line. As we prioritize the profitability of the revenue line, we can move a large part of our portfolio over time and release capital. And I think in a macro environment that is more challenged, it's going to be slower, but it's still going to happen because it is a lever under our control. And then the third thing is clearly, if the environment is particularly negative, we will have a different environment on our revenue line. But again, I would say the following: number one, on our NII, we -- well, on our net NII, how we look at it, we enter with very substantial overlays and over-provisioning in terms of what we see others have done. And that will allow us to absorb the first element of a shock. The second thing, reduction of NII also means reduction of loan volume, reduction of loan volume means release of RWAs. So there is a buffer bearing capital efficiency. And with respect to fees, fees are not driven necessarily by investment. Actually investments grow substantially below 4%. They're driven by other things like transaction fees, financing fees, protection, other things where we think that this current environment has actually not changed the perspective very significant. So they are more defensive. Does it mean we have no worry. Of course, we have a worry. But when you put all this together, we're still confident on achieving a good part, if not the totality of the plan at the moment. So that's a little bit where we go. And then obviously, last but not least, we have said very clearly that our distribution would be linked to our organic capital generation. organic capital generation is equal to net income plus RWA -- the impact of RWA release or minus the impact of RWA used to grow. During the course of the plan, we could more than compensate the RWA we used to grow by the RWA release. So that allows us to be very close in excess of our net income in terms of our distribution. Always without touching 13%. So the math is correct, and it is. If we start at 13% and we distribute the organic capital we generate every year, we will end at 13% every time. So the distribution of -- in excess of EUR 60 billion are now caveat -- well, they were before caveated by our ability to achieve the plan and to achieve the organic capital generation of the plan, which we are more confident than the plan overall because organic capital generation can be achieved with a lower level of profitability. And that was a caveat that remains because the EUR 16 billion or in excess of EUR 16 billion come for that. And obviously, 2021 has the caveat of Russia. So the distribution in 2021 are linked to the amount that we recover from Russia. If we recover 50% or above, they are maintained from 50% and below, we start apportioning.

Given you've touched on distribution, and it's an important topic for your equity story. By the way, we have Andrea as a guest today from the SSM and the ECB later at 12. But you've led the way when it comes to planned capital returns in Europe and you've been open and transparent in sharing your modus operandi and your thoughts with the regulator. You've told us very clearly that you're not intending to pay the excess capital you've reiterated it today. But instead, you pay most of your organic capital generation. Net of RWA growth, as you said, until steady state CET1 is reached and you flagged to be the upper end of the range, 13%. Why is that the right approach? And maybe give us an update on your conviction levels with respect to your capital distribution after considering what you said on Russia?

So I think that in my opinion, it's quite obvious why it's the right approach. In a bank, what matters is not necessarily how much money you make, but it's -- let's call it, your free cash flow. Your free cash flow is the net income, which generates equity minus the capital you used to generate net income. So I could be distributing 70% of my net income, but using a significant amount of capital to generate it and still eat into my capital every year. That's not ordinary. That's not sustainable, because at some point, even if I only distribute 70% of my net income, I will end up eating all my capital and at some point, I need to stop. In a number situation, I could be distributing 90% of my net income, but if the RWAs that I use to generate the net income are less than 10%, I remain stable. That is ordinary, that is sustainable. I think we have all taken when we take net income or net income payout as a basis to evaluate distribution, we're making 1 assumption. That assumption is that every bank has the same capital efficiency and every bank uses the same capital in year to distribute that to generate the net income. That is not correct. A bank that has a lot of fees in their revenue, will use a lot less capital to generate that net income than a bank who only has lending. And therefore, a bank that only has lending should distribute a much lower portion than a bank who only has fees as an example. In our case, there is an ulterior derivative or complication. Because the starting point of our balance sheet is inefficient, i.e., we have a substantial part of our loan book deployed at below cost of equity. We can roll that book out and either not redeployed or deployed only when it is above cost of equity. Those levers of capital optimization allow us, if you take what we look at the next 3 years before the shock, we said net income generates 120 basis points per year of extra capital organically to generate the net income and given the regulatory headwinds that we are considering, we have 20 to 30 basis points of RWA increase to generate it. So effectively, I should say 120, minus 20 to 30, or it might go to 90 or 100 basis points. However, the optimization of my back book and the shift towards fees means I'm actually generating or offsetting the usage of RWAs with 20 basis points a year of capital that I'm releasing. So effectively, my capital use is offset by my capital optimization, which brings us to an ability to distribute the entire net income or slightly more if what I say, occurs. Now is that sustainable forever? No, it's not. We think that the part of optimization will end within the next 3 to 5 years, depending on how efficient we are in optimize our bank or how speedy we are in optimizing our bank because the loan book needs to grow. When it finishes what? Well, when it finishes, hopefully, we have a bank where fee income has moved from 38% of a total to over 40%. So it's less capital intensive, and we have a bank where we have executed our cost reduction and everything else. So our profitability has moved from where it is today to the higher profitability. And so we think that at the time of 24 onward, the increased profitability and capital efficiency of the bank will allow us to maintain the distribution gently treating thereafter. That is in the scenario of macro that we assumed before. It is not the scenario of macro we have now. We need to see what the new macro does to the assumption. But in terms of direction of travel, it doesn't change. And it is exactly what it was before. So everybody has focused on in excess of EUR 16 billion of capital distribution. But those are directly linked to an organic capital generation in excess of EUR 16 billion. And that comes from us being able to deliver the net income and deliver the optimization in a balance. We believe we're going to be able to still do that within certain macro scenario. The extent of the entire shock is still not clear.

That's very clear. If I remember right, your plan contemplated some buffer headroom to your capital target in 2024, and that was to cover for -- to have optionality on M&A, even though you've said very clearly what your strategy is there or any unforeseen events like the one we're in today. Can you maybe just remind us your strategic priorities? And what do you see, if any, gaps you want to address in your portfolio?

So that's actually a good point because we just talked about capital return. In the plan, we said very clearly that the plan is underpinned by a CET1 between 12.5% and 13%. That's where we want to operate. That's what we think is prudent given MDA buffer and everything else, given what's happening today that was prudent. That was the right call. We, however, said that we were going to be at pro forma for all the distribution at 14.22%. That means that we had rough cut, EUR 4.5 billion of excess capital. We were very clear that, that excess capital was going to be used in 1 of 3 ways, either to do acquisitions that would reinforce our franchise or to be given back to investors in excess to the EUR 16 billion or to absorb unexpected shocks, little we knew that that's what exactly what happened. So now of those -- of that excess of EUR 4.5 billion, we're down to an excess of EUR 1.5 million if you take the lower end of our range, 12.5%. If you don't, we are 0. So what does that mean for M&A? Well, number one, it does seem to me probably coming from the industry that a lot of people want to see deals, but deals work if they work, not if you do them. And for us, we start from 1 standpoint. Firstly, we have a wonderful business. The business adjusted for excess capital at 12.5% was at an 8.5% return on tangible equity last year. Many people did not see it. Well, now that the capital will be gone, a lot of people will see it. It's just you're eliminating 1 of the element of your fraction. So to go from 8.5% to 10%, we need to add rough cut EUR 700 million of net income. You have EUR 500 million in cost. So reaching the 10% if you take a 12.5% base is actually not as far-fetched as it would have appeared. So for us, then we have a plan that if we get to that level, would substantially rerate the bank. And I view my objective in bringing the share price of UniCredit as close to book value as possible. And then hopefully exceed it. But my primary objective is to run the business for the medium term, over the long term, bringing the share price at book value or above because that would mean we are creating value. When we start from a franchise that has, as you put it, 0 or negative value, where can I generate more value, doing things internally as we are on the rationalization, simplification, technology, et cetera, or doing an M&A. M&A, the delta value in an M&A is very difficult. It can compete with the amount of value I can do internally. It just is. So if I were at book value, the debate would be different. But if I am at 0.2 a book, 0.3 a book, 0.4 book, I have substantially more value not to diverge my plan and to focus going forward than to do any M&A. Now being pragmatic, you also look to -- you need to look at opportunities. If you get the right opportunity to reinforce our franchise and -- it doesn't affect our distributions. Actually, it underpins them, and it strengthen our franchise. Of course, we will do M&A. I would say, but now with the capital excess dropping from EUR 4.5 plus billion to EUR 0 billion to EUR 1.5 billion, the bar from M&A has just jumped up significantly more. And so that's the way we look at it. So we have a team on the site that is looking at it at everything that could make sense and is looking at 100 things and excluding 99. And on the one, that we look at it because it's our duty to look at it. So nobody says, "Oh, but you squeeze the lemon and you should have". We will always have an answer why we did not do or we do, do if the conditions are correct. So that's our approach, and that's what we will continue to do.

Andrea that's crystal clear. And well, we talked a lot about unlocking the potential of the franchise today, you did that at your plan. I know you have 1 key ambition among many. And that is to make UniCredit, the bank for Europe's future. Maybe talk us through what that means to you? Why is it important? And how do you manage to run 13 banks across different jurisdictions, in 1 integrated group. I guess that's where a lot of your predecessors struggle.

So, yes. So why is there a lot of value? Well, first of all, in the tragedy that we face now in Ukraine, there is something that could be a small silver lining for the future of Europe, I think, is that we finally come together. If we do come together and banking union is implemented and all the regulation that prevents consolidation cross-border is eliminated. And really Europe comes together with 1 banking market with 1 fiscal policy, 1 army, et cetera, et cetera. And that trend accelerates while we're uniquely positioned. At the moment, we have 13 boards, 13 management team, 13 capped capital, 13 capped liquidity, 13 different regulation. Obviously, if that gets towards unification, the value that we have is massive. In fact, some of these things are already theoretically possible today. I could branchify some of these banks. Then there are reasons why we do not and very usually of a political nature. They're not of a regulatory nature. But I could branchify 1 bank. In fact, they have 1 that is branchified and nobody has even noticed. Once we do that, the benefits from a cost structure and a technology structure standpoint are quite significant. So that's point number one. We are, who we are, and that is the, let's say, the price at the end of a trajectory. That has been delayed and delayed and delayed. Hopefully, it gets accelerated. Until then, if you look at the 13 banks, the question is, why do we prefer 1 bank in 1 country and it is simplicity and scale, have market share in 1 country. You have simplicity, you got scale, you kill every other competitors because you are there. So in theory, if I can put to common denominator, my technology, my procurement, et cetera, and get scale from that, I will bring the banks together in the back office. So if you look at what was possible 10 years ago or what is possible today, it's changed dramatically with cloud and everything else. Today, if you structure your technology infrastructure correctly, you probably have up to between -- depending how good you are between 50% and 75% reusability. What does it mean that you develop the mortgage products or anything in 1 country and you can flip it off on 13. At the moment, on UniCredit, our reusability is 0, because we have a framework for each 1 of the 13 country. As we bring convergence, we will not get to 70% tomorrow, but we will start getting a scale effect. That's on top that any bank in a single country could have. Why is that so important? And it also answers why we're in 13 countries. If I'm the fourth bank in country X, I will never have enough money to compete with a leading bank in technology because they have capacity of investment that is way above mine. But -- if I can get scale effect up to 50%, 70% on a group of my size in most of the countries where I am, I can take the leader anytime. So that's what we're trying to do. And that means that we are trying to do the opposite of what was done before. Number one, we are trying to unify what people don't see, technology, procurement, economies of scope, client solution, i.e., I could not have the new advisory team we have today, if I was breaking it down in 13 countries, I can, if I hire it for UniCredit. Same thing on protection with my partners. If I offered Bulgaria, I would have 1 type of contract, if I offer 13 countries, I have another type of contract. So that we're trying to take to the center. However, we're trying to empower completely the front end within a very clear framework of risk and risk appetite. In a way, put it that way, if you look at Italy, are you going to tell me you -- are you going to distinguish between Sicily and Lazio, probably you are because of the cost of risk or whatever it is. But you're not going to question IT and all the other things because it's the back, it's one, and they all take advantage of the combined scale. What we're trying to do is to get some way in that direction as we bring together the group. However, what we're going in the opposite direction is not being arrogant and saying everything that is being done in the group is going to be decided by the CEO in Villan. We're saying, this is the risk appetite, this is the framework, this is the strategy, this is the direction of travel. Now you are doing it because you're close to a client, you're close to a situation, you're close to a regulator locally. So this balancing is how we're bringing everything together. It goes through -- we didn't have 1 bank, but had an organizational chart that was similar to the others. We did not have 1 bank that had job description similar to the other, we didn't have 1 accounting process for closing the quarter that was similar to the other 13. So all of this coming together and simplifying and streamlining in 1 way is bringing significant impact in speed in elimination of waste, et cetera, et cetera. And that's the basis upon, which we think we can take the group to the next level after '24.

Yes. That's crystal clear, let's hope that, that progress does happen. Before we open for questions, I'm very keen to do that. We haven't talked much about operating trends. Is there any comments you'd like to make on Q1?

So yes, today, 1 thing is sure is whatever comment I make will be wrong given how evolving the situation is. What I can tell is what we see. Up to the first 2 months of the year opened strong. We were at plan or above plan on all the metrics. At the time -- for the time being, we haven't seen any spillover, including on cost of risk, which is lower than planned. Now that does not mean that, that's a year and we will see spill over. But the first quarter demonstrate, in my opinion, 2 things. One, that empowering the front end is working. So a lot of people felt can UniCredit deliver, can UniCredit revitalize the top line. I think about 2 months of this year and what happened last year, anything to go by? Yes, we can. And the second thing that the framing of the plan and the macro assumption we had in a normal environment, were probably the correct one. That said, we will have a shock. And that said, we expect recession and we expect inflation. I think that what we expect, given what we see on the ground is a very different recession and inflation than we have seen in the past, because it will not hit Europe in the same way we have seen the other trends. For example, our own opinion is that countries like Germany are going to be hit harder than countries like the CE, why? They're dependent on gas. They're dependent on commodities. They're dependent on grain. They will have a lion's share of immigration. Other countries, if you take Romania, for instance, independent in gas, independent in grain, immigration passes through, but doesn't stay there, goes up. So the social impact are going to be a lot more Central Europe intended as, Germany, Italy, France, et cetera, and it's going to be there. The other thing is that I think, certainly, I haven't seen it in my generation, we're going to have to struggle with availability. We say prices of energy are going up, prices of grain are going up. In the extreme scenario, there won't be enough energy or grain. And I don't think our generation since the last World War has seen anything like that. So you will want to go there and say, "I need gas to do X". There isn't any or there isn't enough. And therefore, we are going to get into the mentality of rationing. I don't think that our energy framework in Europe is ready to take the shock, we are structured with 2 heads. One is Russian, 1 is Norway, and it all comes down. If 1 is gone, we don't have the ports, the rail, the infrastructure to compensate that. And so I think we will eventually in 3 years, in 2, but I think the shock in the second part of this year and probably next year is going to be far ahead what it is. And this will put a challenge to the European unions because given that not everybody is hit in the same way, we will need to see what each country does. Do we say we're Europeans and we're helping each other because it's the right thing to do. And if we don't, it will crumble or do we say, well, I'm actually quite fine. It doesn't touch me. So why should I? I think that's going to be quite an important element of what we see and for us, that's what's very concerning because it's social, and it's a quite harsh environment that we're anticipating. But for the time being, it depends on what happens there today.

Thanks for that, Andrea. I think we've got about 10 minutes. Why don't we open up for our Q&A from the audience. I think we've covered enough topics. There will be a COVID-friendly microphone. Can we start from the gentleman in the middle there? Please introduce yourself, name and company you work for, and raise your hand, so they can see you.

[indiscernible] from Marshall Wace. Thank you for being so proactive with the disclosure on Russia. That's been very helpful. Markets are clearly stressed in other places as well. We've seen some fairly unusual turbulence in parts of the commodity market, in parts of the equity derivatives markets. Could you help me understand whether either or both of the above could become some sort of systemic issue in the way that we saw back in the financial crisis times leading to funding market instability, which can create all sorts of unintended or in your mind, are those challenges which we're seeing likely to remain discrete and losses only for those players involved rather than triggering the knock-on effects.

So it's a very difficult 1 given the disclosure you all have to go by. Let me answer this way. My personal opinion is that if when you're looking at systemic risk, you're looking at banks, you're looking at banks that are -- have a much higher degree of capitalization and a much lower degree of concentration on any risk in general. So that would argue for backstops and you also have regulators who is not necessarily a good thing, but have quite a bit of experience on what can happen and all over it. So I'm not excluding that 1 institution or another can get shocked more than others. But I am quite -- let's call it, neutral positive on the secondary degree risk. As an immediate shock. If you ask me what I see more as an issue is the general macro environment and trying to understand, which sector and which companies in those sectors are mostly suffering from the war because it's not the direct exposure -- well, it's also their direct exposure to Russia, but it's also the impact of the change in commodity prices, et cetera, on their business model. We have some clients we just are shutting down because they can't produce at the price of electricity we have now. That is what we don't have in the numbers. That is what we are trying to look at. The more commodity-type financial risk, I'm not saying it's not there, but I think it's absorbable.

Next question.

[indiscernible] group. Is there any circumstance that you envision to put good money on top of bad money in Russia? And if I may, on your comment in terms of buybacks and even dividends. I mean, as you described, this is a very uncertain environment. It wouldn't be prudent actually to have some in reserve thing last year. And instead of buying back stock, I mean, you have AT1s trading at a huge discount and with higher cost. I mean, is it the only form of the optimization of capital that we envision that is buying backs?

So was very relevant. Number one, no, we are not putting good money on bad money as you put it. The exposure is what it is. And the only way we want to look at it is for it to go down, not up. So that's what it is at the moment. And by the way, that's how it will remain. And as I said, as we release for me releases, I have a position. I either sell it, close it or whatever. The risk is off, then that's what I consider release, okay? In terms of buyback stock and AT1 and everything else. I think there are a number of considerations. The first consideration is I feel very strongly that this is a bank that not necessarily because of itself, but because of a number of circumstances, has never lived up to expectation in the last past in terms of return to shareholders. In my opinion, it's important to show that within what is reasonable and possible, we're determined to stay by what we have promised. It also speaks to general financeability and recapitalization of the bank in general. If every time we can, we don't to wait for -- to prepare for the next rainy day, nobody is ever going to invest in the sector. That is systemic risk, in my opinion. So why do I think that, that's prudent? I think that 13% CET1 at 1 of the highest densities of RWA in Europe is a level of capital that if we thought was not enough, then it would fundamentally mean that the entire sector has an issue. We were just so much higher than everybody else. And as you noticed, I didn't say I would take the capital distribution at 12.5%. I say that we'll keep them above 13%. That's the first point. The second point is, by definition, if I recover more than 50% of my Russia exposure, not only because of the distribution but just because of the prospects of my overall business, the stock is going to be much higher and the AT1 is going to be tightened because by definition, instead of a EUR 7.5 billion capital shock, I have EUR 3 billion, EUR 2 billion, whatever it is. So that's the second consideration. But of course, it was something that we discussed to a great extent. And we need to be very clear because we took the view of saying, I am not going to give you a scenario. I am going to give you the maximum hit. Not many people have done that. So if I tell you my internal scenario, it was a lot more optimistic and thank God, I didn't give you that because it has changed and it continues to change. So my view is the scenario is probably going to be better than a complete zeroing of Russia. We are not going to put up any more in it given the situation, obviously. And at 13% CET1 with the high density, we have with being the -- probably 1 of the very few banks that built very substantial overlays in provision in 2020 and did not release them in 2021 actually, we added to them. If you look at the impact of calendar provisioning for us is 0. And so we have a very well provisioned balance sheet. We have a strong CET1 with high density. And in the environment that we're talking about, we would have no Russia. And quite a big diversification between CE, Germany, Austria and Italy. We think that, that is a good balance is more better than less -- of course, it is. But more better than less also means that it becomes uneconomical for a lot of people to look at us. So that's the way I look at it. It's a balance.

I think we're running out of time. Maybe a very last question on that we promised to answer very quickly. On the left-hand side, please.

Yes, Alex Koagne from ODDO BHF. Thank you very much for your answer and your detailed explanation. Just to understand what you're seeing on Russia, when you're saying that Russia could be not part of the good going forward, how fast can you unwind your position? And when you're talking on maximum losses, what I'm trying to understand is, is it a question of reducing the outstanding position of loans because you're having a redemption. What is the kind of unwind you can make on your CDS, I mean, how fast can you go?

So I think there are 2 pieces to Russia. There is what we have on the ground, and there is what we have cross border. The complexity and the consequences and the greater impact is the ground. It's 4,000 people, and I view them as colleagues and great colleagues. It is 1,250 European companies that have kept quarters in the markets where we are, that expect us to accompany them in the disentanglement. And it is, in that case, EUR 2 billion, EUR 1.9 billion. The cross-border and the derivatives, it's a question of unwinding netting, and how much of that portfolio rolls out and mature and what happens at maturity? Are we being paid or not. At the moment, names like Gazprom are paying and are paying in currency normally because we have a corridor on oil and gas and they're paying. So 1 is mechanical because nobody is going to buy them. It's mechanical. The other 1 we are -- what we take as a decision has impact on clients and people and as the CEO of this group, I need to take into consideration that impact. That is -- that can be very fast, if I find a solution or slower if I need to go into another direction, which is what we are evaluating.

Andrea, thank you so much. That was extremely helpful. Thank you again for opening our conference, and thank you, everyone, for joining.

Thank you.