Caixabank SA

MAD:CABK

Earnings Call Transcript 2021-Q1

[Edward O'Loghlen, Director of Investor Relations]

Good morning, and welcome to CaixaBank's financial results presentation for the first quarter of 2021. I hope you and your families are well. For today's presentation, we are joined by the usual management team of the CEO, Mr. Gonzalo Gortazar; and the CFO, Javier Pano. Please note that for reporting purposes, the merger with Bankia took place on the 31st of March, and as such, the P&L for this quarter does not include any Bankia figures, whereas the balance sheet and capital figures do. We have provided Bankia's current and historic P&L accounts in the appendices in order to facilitate comparisons restated to CaixaBank's presentation standards. Moving on, just a reminder that we plan to spend around 30 minutes presenting with 45 minutes or so after that available for live Q&A, for which you should have received instructions via e-mail. Let me just end by saying that my team and I are available after the call. And without further ado, let me hand it over to the CEO, Mr. Gortazar.

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you, Eddie, and good morning, everybody. Thanks for joining us and joining this first quarter presentation, which is the first one of the combined entity. And I have to say I'm very satisfied with what we have achieved this quarter. Obviously, we have finally closed the merger project in the end of March, as Eddie said, But I think in this period, we've been particularly successful in terms of our activity. And I think that is to be remarked.You can see in -- on the slide, 2 areas in which we have done particularly well in the quarter, which is our protection business, the MyBox premia, as you see, growing 73% quarter-on-quarter versus the first quarter of last year; and on the long-term savings business, where we have had a very significant increase, including over EUR 3 billion of net inflows, which bodes well for the future in terms of the fee income coming from that business. Obviously, the payment business has been less active in the quarter as there have been restrictions, which we are expecting to be gradually lifted and, hence, also make us confident on that front for the rest of the year.Revenues have been above last year, 1% for core revenues. And you will see the detail later on in the presentation, very strong performance on fees and particularly, insurance, and we have managed to control expenses down 3.3%. So on the quarter a very good performance. Beyond that, I think it's very relevant to look at what's our balance sheet and there we're highlighting 2 things here. First, asset quality and fair value adjustments. The cost of risk has been coming down in the last few quarters, and clearly, on this first quarter, annualizes well below previous levels. We have built the COVID reserve. It's at EUR 1.8 billion. It is still unused. We have been very prudent in terms of overlay stage classification, et cetera. And we feel very good about our position for the rest of the year and how we have already managed to be prepared to face increased asset quality issues coming from the pandemic. You can see our coverage is now at 67%. We've obviously built it up further through fair value adjustments and with that EUR 1.8 billion of COVID provision. The nonperforming loan is at 3.6%, is basically flat, slightly up in absolute numbers for the quarter. And then there's the impact of 0.3% from the integration with the bank.Then capital, capital is, again, another area where we have outperformed in the last quarters. What we present now at the end of the first quarter is a 3.6% fully loaded ratio and pro forma for the TRIM, the low default portfolio for CaixaBank would be at 3.1%, and this gives us plenty of room to absorb depending M&A impacts and end up with capital ratios in terms of CET1 that are above -- well above what we had announced in September at the time of the transaction. So those are the highlights. Again, I think a very strong quarter. The quarter makes us confident vis-a-vis the rest of the year and a quarter in which we have obviously done quite a lot in terms of closing the transaction and getting ready for the new life of the combined entity.Some basic numbers of our size, you know them well, became a very clear leader in the Spanish market in insurance and in banking and market shares ranging from 25% to 30% but particularly in areas like long-term savings and health insurance where we are closer to the upper range. Some details on activity, which I mentioned, long-term savings, very strong, over EUR 3 billion in net inflows, both life risk and nonlife risk, very strong performance and -- particularly on MyBox in terms of premia. We've also done well in -- on the lending side, particularly on business and mortgages, with new production lending sort of higher than what we did in the first quarter of last year. Consumer lending is weaker associated to the current economic crisis. We are also expecting this to gradually change as the recovery takes place in the second and particular -- in the second quarter and particularly in the last half of the year. Some details on the customer fund evolution, EUR 580 billion of customer funds now. And as you can see, very significant growth on the long-term savings, offset by a reduction in current account deposits, which obviously is good news from the P&L point of view. But worth highlighting, again, when we look forward, you see AUM balances at the end of April were well above 114 versus 100 was the average for 2020. So obviously, the mathematical implication of this is we have in-force, I think, already built a good performance on fees coming out of AUM for the rest of the year, assuming obviously markets continue around these levels. On the loan book, not much new, I would say, slight growth on the business side, which is good, also good for TLTRO purposes, continue to see the mortgage portfolio deleveraging, even though we have higher new production. As you know, there's a structural decline of that book. And probably consumer lending is the one that I would highlight, negative in this case but, again, very much associated to the current sort of economic points, which we expect to be reversed during the year. So all in all, a stable loan book and an appropriate performance on this beginning of the year. A comparison of net income from last year to this year, obviously, was very affected by the COVID provision that we decided to take in the first quarter of 2020. Beyond that big jump, because of lower provisions, you see how fees and insurance revenues are offsetting the decline in NII, offsetting by a very large margin. This is what really the name of the game is for us. And as we do very well in fees and insurance, historically, and we have confidence and continue that way. We're going to be able to offset those pressures on NII. Solvency, I mentioned that already at the executive summary page. I will not repeat myself on both nonperforming loans and coverage at very high levels of absolute numbers, historical numbers relative to the current situation, relative to competitors. So that gives us, as I said, plenty of comfort that we are prudently or more than prudently provisioned to face the current situation. The macro scenario we're facing is basically unchanged from the one we have presented in previous quarter. We still see it as being fairly reasonable erring on the side of conservatism. We compare there our scenarios with the Bank of Spain recently published the scenarios. And as you can see, ours are slightly more conservative but very, very aligned. And some news that are quite relevant, particularly in moratoria, we have been arguing for some time that moratoria was not going to be an issue in terms of credit quality. We have had significant reduction on the moratoria book, particularly in April. And at this stage, we have reduced the original moratoria numbers by approximately 50%. And as you can see, out of the nonperforming loans in our loan book, 0.4% correspond to moratoria, but actually 0.3% were already problematic before the pandemic. So really, the delta is just 0.1%. And I'm saying this now in early May, having seen, as I said, the bulk of the moratoria and the mortgage moratoria expired all the consumer moratoria, practically expired as well. And the remaining moratory in Spain will expire in -- during the second quarter. I think this is now an issue that we have overcome, as we had expected initially that this portfolio was not going to be an issue. With respect to the ICO loans, you see the total exposure we have now is the EUR 22 billion, 6% of the loan book with 76 average guarantee, and Javier will expand on how we are doing on that front. Certainly, no bad news so far. A few comments on ESG matters. I just want to remind you that ESG is critical for us. I'd like to say that we were born sustainable. This is part of our DNA and some of the statistics that are more, I would say, remarkable is how large we've been in terms of issuer in ESG, where we have now the leading position for the last quarters, in terms of ESG issuance out of CaixaBank. But we will continue to strengthen our credentials, our activity in this front. And we feel the current market trends are welcome and certainly are playing to our favor because this is the direction in which we have positioned the bank for decades. And obviously, we will continue pressing ahead with the strength. To finalize, in terms of the timetable for the merger, big milestones have completed, the approval of the mergers, the closing. We are in the middle of a quarter of strong progress that we need to make with discussions we're having with labor unions, which we expect to be finalized by the end of the quarter, obviously, with an agreement. That's what we are working for. And then at the end of the year, as indicated previously, complete the integration of our systems. We're providing some guidance for this year. As you all remember, we did not provide guidance at the presentation of the full year results, given that the merger with Bankia was in pending order now. Giving you some color on revenues, which we expect core revenues, again, as we always discuss, insurance fees and NII. We expect core revenues to be flattish year-on-year. We expect expenses to grow up slightly by around 1%, and we expect cost of risk to be below 50 basis points. These are 3 obviously, big numbers, which we have confidence in achieving at this time of the year. We obviously are expecting them to deliver the vast majority of the synergies from this merger for 2022, which obviously will have very positive impacts from that point of view. And I guess that is all, and I'll let Javier continue. Thank you.

[Javier Pano Riera, Chief Financial Officer]

Okay. Thank you, and good morning, all of you. Let me first elaborate on the evolution of the P&L and then also some comments later on the balance sheet. First, an overview on the consolidated income statement for this first quarter. Let me highlight that I would rather focus on year-on-year evolution because, quarter-on-quarter, it is affected by seasonality and fourth quarter one-offs. Let me remark that core revenues have been up by 1% year-on-year. On this front, NII is slightly down by 0.7% but showing resilience to lower yields and average volumes. On fees, we have done better. We are up year-on-year by 0.2% on this front with AUMs offsetting lower payment revenues and also lower CIB this first quarter. Then we have revenues from insurance, life risk, doing very well on this front close to up by double digits. And we expect that this trend is set to continue in coming quarters. And then in noncore revenues, we have, what, better trading performance this year. Last year affected by volatility in markets, obviously. And then let me also comment on expenses with -- Gonzalo has already commented, down year-on-year by slightly more than 3% on the back of restructuring and some still tailwind from COVID-related savings. Note please that we have booked this quarter already EUR 40 million of extraordinary expenses related to the M&A transaction, mainly IT expenses. And as a consequence of all these provision profit is up by close to double digits.Below, we have lower loan loss charges, EUR 174 million, clearly reduced following a prudent buildup of COVID-19 reserves last year. And also note, please, that on gains and losses, we have included that EUR 4.3 billion bad will from the business combination. Excluding those, let's say, M&A impacts, our recurring net income this first quarter is EUR 514 million, well above the levels of last year, resulting in a return on tangibility equity at 8%. Let me also give you an overview of our operation in Portugal. You may see that we keep improving our operating leverage there. Core revenue is also up by 4%, and you may see that NII is up by close to 3%, fees up by close to 5%, also some tailwind from expenses, down by 3%. And as a consequence, our core operating income year-on-year goes up by 17%. You see a very positive evolution considering circumstances in the loan book in Portugal up by 1.4% and growing, I would say, across all segments. We have year-to-date had the expiry of EUR 1.3 billion of mortgage moratoria in Portugal. And now the amount outstanding is EUR 4.3 billion. And let's go to the details. First, on NII, that we are down quarter-on-quarter. But as commented, we have, in the fourth quarter of last year, positive one-offs that obviously impact and also a different day count. If were not for this, NII would have been down by approximately 3% quarter-on-quarter. You have all the details in the central part of the slide, the impact of the day count, client NII affected by lower yields and rival resets mainly affecting the back book and the ALCO compensating to some extent, thanks to lower funding cost.On the right-hand side, you have all the details about back book yields and margins. The back book yield down by 7 basis points to 183 basis points, mainly as we've filled those rival resets. Also, we give you the figure pro forma the loan book coming from Bankia. With it, the back book loan yield would be 171 basis points. As you may see, on the front book yield at 184, in line with the back book and also impacted this quarter with strong weight of CIB in the new production at slightly lower yields. Also, let me note here that we have increased our exposure to TLTRO by EUR 8.5 billion, and this is going to provide support to NII in coming quarters. Related to NII, let me summarize a little bit the impacts on the ALCO portfolio. The Bankia ALCO portfolio is adding approximately EUR 22 billion. With this, the size of the portfolio is EUR 62 billion. Those securities have been incorporated mainly as -- at AC. So this is the way amortized cost that we have incorporated those. You may see that, as you know, that those securities have been mark-to-market and as a consequence at much lower levels. And you may see that the impact on the yield book is that now it stands at 0.3% from 0.6%. The average life and duration is fairly stable, slightly up. But you also have here the maturity profile from 2025 to 2027. Those are the buckets that have been filled. And also the sovereign exposure, that remains broadly unchanged as we have already made a small restructuring on the portfolio. Interestingly, also on the liability side, also, there is a mark-to-market of new issuances from Bankia, approximately EUR 20 billion that are also fair valued. And as a consequence, the -- now the cost of our funding is lower. And you have here the figures, 83 basis points over 6 months at rival. This is down by 30 basis points, which is approximately the same amount as on the asset side that's offsetting the impact approximately. Let me now continue with fees, also a slight decline quarter-on-quarter. But also when adjusting for the fourth quarter asset management success fees and the lower the account fees would have been up by approximately 3.5%. You know that is mainly -- the main headwind on that front is payment fees that are clearly below previous years, also below 2020 as the first quarter was not affected. But on the right-hand side chart, you have precisely the detail for this impact. If were not for this, you may see that our fee revenue pool would have been up by approximately 5%. Thus, we expect that when all this recovers, also, we will do better on that front. You have, in the central part of the slide, the breakdown by segments, asset management and insurance distribution recovering very strongly, growing double digits year-on-year. And to finalize with core revenues and overview of other insurance revenues. On that front, revenues from our life risk business doing very well, up by close to double digits and also the equity accounted from SegurCaixa Adeslas contributing with more volatility or with seasonality. But you may see that year-on-year up by more than 15%.As said, core revenue is up by 1% with insurance and fees more than offsetting headwind on NII. You have also the figures for pro forma with Bankia for the first quarter EUR 2.8 billion and also the pro forma for the 2020 fiscal year, which is the one that is going to be used for our guidance to be flattish for core revenues year-on-year on a like-for-like basis. A brief comment on costs. I will not read much on the quarter-on-quarter evolution because it is affected mainly by own property taxes and year-end positive adjustments in the fourth quarter. But let's focus on the guidance for the year, which -- well, you have also the pro forma figures for recurring costs for the combined entity. Here, we are guiding for costs to be up by approximately 1% this year. And finally, on the P&L, loan loss charges, clear reduction and a downward trend already on cost of risk, 61 basis points from 75, only EUR 174 million of loan loss charges. And on that front, I would say that we have not changed IFRS 9 macro scenarios. Thus, we don't have changes on our COVID reserve, although Bankia is adding EUR 550 million. Thus we have EUR 1.8 billion of COVID reserves that remain completely unused. And you also have the breakdown by stages, minor changes in stage 2, fine-tuning our overlays. And with -- well, this COVID reserve and use and the really sound coverage ratio, we expect loan loss charges to be below 50 basis points this year. On the balance sheet now. On NPLs, you may see the NPL ratio stable before the Bankia integration at 3.3%. Bankia is adding EUR 5.4 billion of NPLs, and with this, the NPL ratio goes slightly up to 3.6%. But you may see that the pace of inflows remains really stable. So we are not observing any kind of deterioration on this front. You have also the breakdown by segments. I will not remark any significant changes in those by segment. As commented, this coverage ratio at 67% with fair value adjustments also supporting to maintain this coverage ratio after the merger. And this is, as I said, a key support for our cost of risk guidance for this year. Bankia is adding EUR 1.4 billion of real estate exposure, thus the total exposure now is EUR 2.5 billion. Some details on moratoria. Well, on this front, the most remarkable thing is that -- and those are figures as recent as April, so a few days ago. So we have already had year-to-date, EUR 6.5 billion of moratoria that has expired. And the remaining exposure is 8.5% in Spain and 4.3% in Portugal. And well, Gonzalo has already been clear. So the delta of the nonperforming moratoria is really low. So we are pretty confident that this is not going to be an issue, and we are very focused on the developments on this portfolio but quite -- we are quite confident, as I say. Liquidity-wise, well, as you know, ample -- and a very ample liquidity position. Total liquid assets at -- approaching EUR 150 million. You have all the metrics here, the liquidity coverage ratio, the net stable funding ratio at very sound levels. You have the total amount outstanding of TLTRO funding, EUR 81.2 billion. You have also the MREL position comfortable with pro forma ratio at 25%, 39% above -- clearly above requirements. You have all the layers comfortably above all of them. And in terms of issuance, we have already been in the market for 2 green bonds, senior nonpreferred and a Tier 2 successfully, very successfully, I would say. And going forward, the focus for insurances is only for MREL purposes, looking to comply with requirements, mainly through subordinated instruments. We are planning to issue from now to the end of the year up to EUR 1 billion of Tier 2 and approximately around EUR 2 billion of senior nonpreferred and also planning to diversify to other currencies other than euro. And finally, 3 slides, 3 important slides about the M&A impacts and our solvency evolution. First, on the bad will. Here, you have the numbers, the Bankia's book value by the end of March, EUR 13.1 billion. Then we have fair value adjustments post tax for EUR 3.5 billion, and taking into account the price consideration with the new shares issued, we have this bad will at EUR 4.3 billion. You have all the breakdown for the fair value adjustments higher than our initial announcement as this mainly reflects the nonrecognition of tax losses carried forward and total impact of those fair value adjustments, 89 basis points. And on this slide, plenty of detail, but I think it's worth commenting it. This is the CET1 waterfall. Please note that all figures are ex IFRS 9 transition. So we ended the year at 13.1%. From there, we have 30 basis points of organic capital generation. We have an additional 32 basis points of value adjustments and other, mainly this is market and some extraordinary risk-weighted asset optimization, plus 32 bps. As I say, with this premature, the CET1 ratio stands at 13.71%. We have the impact of the Bankia integration. This is adding the regulatory solvency of Bankia plus the risk-weighted assets. This is adding 76 basis points, the before-mentioned minus EUR 89 million of fair value adjustments. So we are closing the quarter with, let's say, an official CET1 ratio at 13.58. But after the closing, we have received the final letter from DCB on the TRIM on the low default portfolio of CaixaBank. This is going to have an impact of minus 49 basis points. We have already commented on this in detail in the past. Thus, on a pro forma basis, we closed at 13.1. On top of, we have 52 basis points of IFRS 9 transitional.On the right-hand side, you have the evolution of our tangible book value per share, up by 8% quarter-on-quarter with, well, EUR 0.12 of organic, let's say, generation, and then the Bankia merger adding EUR 0.17 for a final tangible book value at EUR 3.78.And looking at our solvency through a different lens, remember the pro forma CET1 ratio for the combined entity by the end of the year, 13.87%. Then we have capital generation at -- from CaixaBank and also from Bankia in the first quarter, the before-mentioned impacts from fair value adjustments and the TRIM and this 13.1. And from here and considering our best estimate of pending impacts mainly M&A, we have still some small regulatory pending impacts, but our view is that as of today, at the end of March, considering all those pending impacts, our CET1 ratio stands on a pro forma basis at around 12%, well above targets we set earlier. And finally, from my side, just to close by saying that the merger has been closed successfully. CaixaBank keeps having sound credit metrics and strong solvency post the merger with an ample buffer to absorb pending M&A impacts. Going forward, the focus is on keeping commercial momentum and later on the year on integrating IT. And I wrap up on our guidance for this year, core revenue is flattish, recurring costs up by approximately 1% and cost of risk below 50 basis points. Thank you very much. And we may be ready for questions.

[Edward O'Loghlen, Director of Investor Relations]

Okay. Thank you, Javier, and thank you, Gonzalo. It's now time to proceed to Q&A. Operator, please go ahead with the first question, including the name and the company of the caller.

[Operator]

The first question comes from Alvaro Serrano from Morgan Stanley.

[Alvaro Serrano Saenz de Tejada, Lead Analyst]

I had one question on revenues and another one on provisions. On revenues, your core revenues grew 1%, I think, you've said in the first quarter. I just wanted to get -- if you can give some color, that 1%, how it compares to your flattish outlook for the full year. Because if I think about the fee element, I think you were guiding before the loss of EUR 125 million in payment fees. If I think that those are coming back on, presumably, sequentially, your fees should continue to grow. So I don't -- I'm just trying to get a bit of color if fees are going to get stronger during the quarter, NII in Q1 with seasonality should have potentially troughed or at least not deteriorating. Why -- maybe a bit of color on why you expect flattish versus that plus 1% that you're doing so far. Maybe I'm mostly missing the Bankia side of the equation. But is there any integration disruption that we should be aware of? Or any color that you can provide there and what I might be missing? And the second question on provisions. You did 300 -- what is it -- sorry, I don't have the number in my mind, but annualized in -- sorry, EUR 174 million loan loss provisions in the quarter. Any reason why we shouldn't annualize that number? Obviously, you've taken a lifetime provisions for Bankia. Now the economy looks like it's doing better. And if I annualize that, that's about 700 in consensus. It's got about EUR 2 billion. So there's a big chunk delta there of about EUR 1.3 billion, which is a big chunk of your market cap. Any reason why we shouldn't be annualizing that, which is -- would imply obviously well below that 50 basis points?

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you, Alvaro. Let me make a couple of comments on -- let's elaborate on revenues just to say we're not expecting any disruption from the integration. So Javier will elaborate, but there's no disruption expected. On the loan loss provision, it's obviously the first quarter, we're optimistic about the economy and how things are going to come back into sort of normality, particularly in the second half of the year. And certainly, for the second quarter of the year, we also expect now quarter-on-quarter GDP growth in Spain after a slightly fall in first quarter, as you know, minus 0.5%. And hence, at this stage, we're saying, well, our cost of risk is going to be below 50 basis points. We haven't put sort of a limit on the lower side. We're just saying below 50 basis points. Obviously, we are trying to be cautious as we go through this second quarter and we get more clarity on economic recovery. But clearly, there is upside in terms of lower cost of risk versus the 50 basis points that we're putting as the upper limit. And we're going to be seeing it over the year. I'm personally confident and given the provisions we have already built in. And I expect to have, I think, a good performance on that front going forward. But it's early in the year, and we have opted to just give sort of a ceiling on where do we see cost of risk evolving. The upside from that number is obvious very relevant. Javier, please -- sure you can elaborate particularly on the revenue side.

[Javier Pano Riera, Chief Financial Officer]

Okay. Well, now it's clear that we face headwind in terms of NII. Mainly the headwind comes from LIBOR repricing. So we face a year where LIBOR is going to be lower on average, at least 12 months of LIBOR by close to 20 basis points. So we are going to have a negative repricing from this. Note please that Bankia portfolios reprice faster because they have a larger part of 12-month of LIBOR that instead of repricing every 12 months, reprice every 6 months. So part of the impact is already there. So this is going to have a negative impact on NII. Only for this, our expectation is we are going to have approximately a minus 2% impact on the year. So from here is where we have the potential positives. First thing is that we are -- and you may have noticed that we have been quite successful on controlling inflows on deposits. So we -- you know that we established the right incentives internally in order to, let's say, pass on to customers those costs or at least to try to contain deposit growth. So this is a positive development, and we are quite encouraged that this may continue -- this, let's say, deposit inflow control may continue for the rest of the year, but time will tell. So then we have volumes, clearly, that we expect that volumes will gradually pick up. A key area for us is consumer lending. You noticed that the consumer loan book has decreased a little bit. We expect that as soon as the lockdown is removed, we expect that with mobility, consumer lending will recover quite rapidly. So this is going to be a potential, obviously, lever. But when it's still uncertain, if it's going to be already the second quarter, will be the third quarter, all the uncertainty we face in terms of the back to normal. And then I will mention another level, which is the ALCO portfolio. So you know that we have been so far cautious in rolling over maturities. But as long as we have steepening of the yield curve going forward down the road, we may have some opportunities to deploy our, let's say, excess cash and also to roll over the maturities. So -- well, those are the upsides. But all in all, it's going to be extremely difficult to avoid a negative evolution the year on NII. So I think that this is the main driver of things. And this is compensated or hopefully more than compensated with the evolution of fees. We try to be as transparent as possible on average AUMs. You saw that we are already up by 14% compared to the average of last year's. This is mathematics. So this is already something that markets permitting and with, let's say, a nice pace of inflows we are having, we may do really well on this business. Also on insurance in, the part of fees that is insurance, we are recovering very nicely. All the concept of protection, health insurance, that is in that line is doing really well. And I would -- you mentioned payments. Payments so far continues to be subdued. It's -- we have still not recovered the momentum there. We have lost approximately EUR 100 million of revenues in payments, and considering Bankia, maybe EUR 140 million. If we recover all this, obviously, this is a strong positive. It's going to be 3%, 4% to fees. But when is this going to happen is unfortunately uncertain. It's much different if it happens next month and if it happens later in the summer. So -- but I only mentioned you what we have on the table and the potential upsides and downsides, and then you can decide. And finally, on life risk. On this front, you saw that we are already doing very well. We are quite upbeat on the evolution. So this commercial offer that we designed a couple of years ago, the MyBox is doing really well. We are already making more than 60% of the new production of insurance through this, let's say, commercial package. And we are quite a bit on the evolution. So I think that the trend we have observed in the quarter is sustainable. And well, to what extent all those positives will offset NII is going to be a close call. But well, obviously, the sooner the economy recovers and lockdowns are removed the better, in this sense. Thank you, Alvaro. I think I would probably have already touched everything in detail.

[Operator]

The next question comes from Francisco Riquel from Alantra.

[Francisco Riquel, Head of Research]

Yes. First one follow-up on NII, particularly for Bankia, is down 10% quarter-on-quarter. If you can please explain the weak trends of this quarter, if you have observed any distraction related to the merger. You have mentioned other reasons such as the timing of the LIBOR repricing, which is faster. I don't know if they have rotated also the ALCO portfolio or not. So any reason for the underlying performance of Bankia specifically? And then second question on capital. That has been positive surprise. You're already 12%. I see that you are accruing 30% dividend. So I wonder if now that you are at 12%, you may be looking to move to 50% payout as soon as this year already. And then if you can comment on how much restructuring are you including in this 12%? If it is the initial restructuring cost that you mentioned but -- because the proposal that you have made, you're currently negotiating with trade unions, looks also a bit bigger. If you can comment a bit about this restructuring proposal? And if you believe that you can accommodate for higher payout and restructuring and still preserving the 12% threshold in capital?

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you, Francisco. I'll take the second question, Javier. Agree on, yes, capital with this pro forma 12% post integration certainly good news. We feel good about that. We have been accruing for this first quarter the average payout for the last 3 years at 30% given the limitations that we have had in the past. The Board has not taken a decision on dividend policy yet as the focus this quarter for us is clearly to finalize the agreement with labor unions on the restructuring side and, hence, I think, explicit decisions on capital distribution will have to wait with respect to expectations of what payout will ultimately be. I think I want to reiterate what I've always said. This bank is generating and will be generating a lot of capital on an organic basis and this capital is for shareholders. Now the question is how and when it is paid out to shareholders. But there's no other logical testing for our capital, and we will be generating quite a lot in this environment. And the proof of it is that actually, we were expecting to be saying -- just the end of September, we said pro forma fully loaded. At the end of March, we'll be talking about 11.3%. We're now saying it's going to be circa 12%. So sort of we've always been conservative in estimates and, in this case, very conservative. We feel good about the outlook for -- from that point of view. In terms of the cost of restructuring, it's premature to elaborate on it. We obviously made an estimate when we presented numbers in September. And at this stage, we're in the middle of this negotiation. It will not be sensible from our point of view to elaborate a new number of estimates. We'll try to find an agreement that is reasonable and that is certainly one that will allow us to deliver on our objectives. And obviously, if we can exceed our objectives, we certainly will do. But we are taking all of this into account when talking about a 12% or circa 12% capital ratio post restructuring. We're taking -- in mind what the ultimate cost of restructuring would be, not just with the numbers that we announced in September but with our best estimate of the various ranges and approximations to what restructuring may ultimately cost us. And Javier, do you want to elaborate on NII?

[Javier Pano Riera, Chief Financial Officer]

Yes. Well, the NII on the first quarter for Bankia. So on this front, I already highlighted one main reason, which is the fact that the mortgage portfolios of Bankia, although also indexed at -- to the 12-months tenure, have a large part of those that reprice every 6 months. So this is quite a difference compared to cash around portfolio. So actually, I can give you the figures. So the loan book of Bankia has -- 53% is indexed to 12 months over LIBOR. And in the case of CaixaBank, it's 38. So we have a larger part that fixed. And also what I said that to a large extent this that is indexed at 12 months reprices faster. As a consequence, the back book yield of Bankia has come down by 12 basis points quarter-on-quarter instead of 7 at CaixaBank. So you see the differences. So this faster repricing obviously has to do with a more negative evolution. And also there were some one-offs in the fourth quarter as we had also in CaixaBank, if you remember, some -- also related to some asset backed securities that were canceled, et cetera, had a positive impact, and this is the main reason. But in terms of business, no disruption. So I would say that we are, as Gonzalo was commenting, fully focused and business as usual both, let's say, the CaixaBank commercial branches and Bankia that, by the way, going forward, this is like segmentation that we -- it's going to be impossible to follow. So this first quarter, we are still giving you these pro forma figures for Bankia. But moving forward, Bankia does no longer exist. So it's not going to be possible to follow separated evolutions. I hope that this helps you.

[Operator]

The next question comes from the line from Britta Schmidt from Autonomous Research.

[Britta Schmidt, Former Non]

I've got 3, please. Just coming back to the cost plan and the synergies, I know you can't be very precise given the ongoing negotiations. But can you give us a little bit of color to describe whether the targets were stuck conservatively enough to survive the challenge of the obvious political debate around cost restructuring? My second question is on the fees. Bankia in the past guided to a run rate of around EUR 300 million per quarter, and Q1 looked fairly weak relative to that. Is there any impact there from the integration? Or is that a new trend that we should be working with for the near term? And then the third one is on the PPA for loan loss provisions. What is the stock of PPA that you now have on the balance sheet that can be used? And is there any usage already employed in the less than 50 basis points guidance for this year?

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you, Britta. I will ask -- answer the first question. On the targets for cost savings, we remain committed to deliver those in any scenario, and we feel that we will be able to do that. We have to obviously continue working on this labor agreement. But we are confident, highly confident that we will be able to deliver those. On fees and PPA, maybe, Javier, do you want to answer.

[Javier Pano Riera, Chief Financial Officer]

Yes. Well, on fees on the Bankia side, what I can tell you is that -- and probably you -- they already commented back when they made the transaction, but you know that one piece of information you need to take into account is that they disposed the custody business of the, let's say, AUM business. And this is going to have a small impact going forward. We have estimated that this is going to be approximately EUR 20 million, EUR 25 million per year. So we need to take this into account. Other than this, remarkably, this first quarter probably is that on their side. On, let's say, CIB-related activities, it has been more subdued, probably ahead of the M&A. I don't know, but it's that part. The rest, I would say that is business as usual. But as I say, it's probably not the part I have more details on this front. And on the PPA, well, from the PPA from Bankia is gross is gross -- is round numbers is EUR 1 billion. Approximately 1/3 comes from this, let's say, forward-looking or lifetime expected losses for the Stage 1 portfolio. And then there are other adjustments here and there for single large exposures, also the COVID reserve has been a little bit upgraded, and you have to make things homogenous overall, and this is the result. And to what extent this is going to be used, time will tell. Probably, yes, it will be the case because we have been confident -- and so we are confident that the performance is going to be good. So probably, we will be able to release over time, but we don't have a specific time table for this, Britta.

[Operator]

The next question comes from Ignacio Ulargui from Exane.

[Ignacio Ulargui, Analyst]

And also thanks for delaying the results presentation and giving us more time to understand the results, not going to a very busy day. I have just 2 questions from my side. One is coming back to fees and insurance. Based on your previous M&A experience, I mean how long would you say it would take to roll out the CaixaBank model to Bankia customer base? And also in terms of insurance, you have said that MyBox is growing very nicely. I mean could you give us a sense how much penetration you have in that product and how much scope of growth will you have going forward? Because insurance revenues have really performed better than what I would have expected, at least. And the second one on costs. I mean what are your main assumptions in terms of inflation underlying -- the underlying cost of the guidance that you have given in terms of underlying inflation back to normality trends, et cetera? And what would be the scope to adjust that cost if revenues, for whatever reason, becomes weaker than what you expect?

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you, Ignacio. On the time that you will take to roll out the [indiscernible] to the combined client base, obviously, it will take time, but this is not sort of a cliff effect. It's going to be gradually having an impact. We have already -- 6 weeks into the merger, we have already started distributing some of the Caixa products like MyBox on the non-life side, like we buy like renting, et cetera, to Bankia clients. So the work has already started, I would say, earlier than what we were expecting, and this is going to be gradually having an impact. When we disclosed revenue synergies, we gave us a 5-year period to basically deliver the total of those revenue synergies. I am optimistic that we can do sooner than that. but this will take time. And certainly, there are certain prerequisites like the integration of systems and then the integration of the branch network, which is likely to take place in the first part of 2022 post the system integration that are going to be taking a priority.So it's a long process, the same way that we expect to deliver cost savings mostly in 2022, so in a very sort of compressed time table. The experience we have is that synergies on the revenue side will provide us sort of a tailwind of additional growth from what the market has seen for quite a few years. But it doesn't mean that all is achieved in the end of that period. It means that we have this delta of incremental growth as soon as sort of the machine is ready. What I would say the machine is not going to be completely ready until we integrate systems and integrate the network. But the machine is also partially ready now because we're already doing thing. We have one integrated -- one single network with 2 different platforms at this stage from a technology point of view, but we're moving ahead. And I have to say all the qualitative elements of how this merger is working in practice, all what I see is very positive. The degree of cooperation between our employees regardless of their origin, the degree of alignment, the degree of sort of sharing a common objective is very, very high, and I have to say higher than what I have ever seen and certainly even higher than what we expected. So we feel good about where we are. But we know we're conscious that there's yet a lot to do. To give you some specific figures in -- for instance, on life risk penetration is approximately twice at CaixaBank versus Bankia, around 22% versus 11%. So obviously, when you look at 7 million clients and doubling life risk penetration over a period, this provides substantial upside. But we're going to see similar differences when we look, obviously -- at the non-life, we've also seen similar difference. When we look at the sort of longer saving products, particularly on the insurance side, our sort of annuities business, et cetera, which is obviously not yet going to be until we find an agreement with MAPFRE with respect to the current JVs. It will not be fully operational, but this hopefully will come on pretty soon. So I think good beginning and certainly great expectations for what we can be doing along the next 5 years. And Javier, if you can maybe...

[Javier Pano Riera, Chief Financial Officer]

Yes, there was a specific question on MyBox. Now MyBox is approximately 60% of the new production of insurance products overall, the MyBox pack, we call it. It was only 30% 1 year ago. So we have increased gradually from 30% to 60%, and this is facilitating a lot the penetration, and it's going to make it much easier what Gonzalo has just been commenting to roll out the -- our commercial offer into Bankia clients. And there was a question about costs, about inflation. Well, here, a couple of comments. First thing, you know that we had this, let's say, agreement in terms of wage inflation last year that was, let's say, no wage inflation actually from 2019 to 2021. And then there is gradual pickup to up to 1.25 in 2 years' time. So this is the underlying trend. And on top of, there are additional, let's say, bilateral agreements between CaixaBank and the staff and employees, and this is also part of the discussion now because, obviously, those agreements are not the same in Bankia than in CaixaBank, and this is part of the -- there were negotiations that are ongoing right now. So if I may -- and this is a key part. I will not elaborate further, and I think that's on the front because it's part of the negotiation.

[Operator]

The next question comes from Mario Ropero from Bestinver Securities.

[Mario Ropero]

I have a couple of questions on asset quality. The first one is, have you advanced Stage 2 recognition in line with your expectations about moratoria expirations in the second quarter? Also could you please tell us how much of the expired moratoria is in Stage 2? You mentioned Stage 3, but could you please tell us also Stage 2? And then finally, related to this also, if you could tell us, please, how much ICO loans are in Stage 2 and 3.

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

I missed the last one, I'm sorry, but...

[Javier Pano Riera, Chief Financial Officer]

ICO loans. ICO loans in Stage 2.

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Okay, okay. Well, then starting by last one. I have the figures here with me. So in ICOs loans, we have EUR 22 billion, and it's 29% in Stage 2 and just 1% in Stage 1. So this is also to give you some more color on ICOs. You know that we classified the loan book by different levels of risk. So 31% of ICOs are granted to borrowers considered high risk. You have the figures in the presentation, actually, but just to update you on this. And on the moratorias, on this front, we have -- of all granted moratorias, we have 7% in Stage 3 and 34% in Stage 2. You know that both with ICOs and with moratorias, we have been proactive with those overlays to Stage 2. There was a very large overlay in the fourth quarter, if you remember. And also, we have this quarter fine-tuned a little bit once considering different criteria. Once it coincides that a borrower has a moratoria plus an ICO or it coincides that an ICO borrower that is in a high-risk sector, so considering different parameters, we have, let's say, been overlaying the stages ahead of, let's say, the process. And on the moratoria that has already expired, we have -- you had the question. It's pretty similar. So Stage 2 is 36%. So this is the number. Note here that the -- what we commented that a large extent of these Stage 3 balances were already, let's say, classified as a Stage 3 before the COVID crisis started. So in order to have access to moratoria, you could be in Stage 3 conditions. So remember were that you were -- you had no more than 2 installments past due, et cetera, but you could already be classified as Stage 3. Thus, we had an initial stock of Stage 3 before we started with this process. So the delta is really low. And this is what is important because it tells you about the evolution of what is in moratoria during this period. And as I say, it has increased very little. And as you can imagine, we are monitoring this extremely closely. We have teams on the ground. We are really close to borrowers. We have a full organization around this, and we are quite happy that this is evolving much better than initially expected, and we are now pretty confident that this is not going to be a major issue.

[Operator]

The next question comes from Sofie Peterzens from JPMorgan.

[Sofie Caroline Elisabet Peterzens, Analyst]

Here is Sofie from JPMorgan. So my first question would be if you could just give an update on the revenue synergies. I realize you have talked in detail that you expect to get revenue synergies from Bankia over the next 5 years. But if you could just confirm the magnitude that you still expect EUR 290 million of revenue synergies from Bankia. And then my second question would be that you have EUR 1.8 billion of unused provisions. What needs to happen for CaixaBank to kind of see these management overlay COVID provisions reversed? And on the other side, what would need to happen kind of from a macro standpoint for CaixaBank to have to use all of this EUR 1.8 billion? And then just finally, a quick question. If you can just remind us what your expected capital headwinds are going forward. Any more [indiscernible] impacts or other regulatory impacts that we should be aware of?

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Yes. Sofie, thank you. Let me start on revenue synergies. The figures that we disclosed to the market, the EUR 290 million included EUR 75 million to be made out of the recovery of 100% ownership in the JV. So really It's a question of looking at EUR 215 million of real sort of additional revenues. We feel that estimate still holds. We think it is sensible, reasonable. We are sort of early days, but we are committed towards delivering those numbers as -- obviously, as we keep working together teams of different origin, we continue to see business opportunities. And we are quite confident that this transaction that we have closed is going to allow us, on the revenue side, to be more successful through the various forms that we have identified and made public and some other various initiatives we're working on. I don't think at this stage it makes too much sense to try and sort of do a new revenue synergy plan, but we're tracking the ones that we identified and we feel confident that we can deliver those numbers. On the other questions, I would -- Javier, maybe let you answer, please.

[Javier Pano Riera, Chief Financial Officer]

Well, in order to see, let's say, a write-back, this is your question. Well, the key is better performance than what we have modelized on our loan portfolios, clearly. Obviously, as long as the moratoria performs better than initially expected, this is good news. But time will tell. Remember that also in Portugal, we have to wait a little bit more because moratoria there ends in September. So we have a long -- still a long period of time to observe what's really happening. This is one thing then everything related to ICOs, to government guaranteed loans to see really which is evolution. You know all this process about, let's say, extending or narrating ICO loans. We have already close to 50% of ICO borrowers already asking for an extension or a change at least. So let's see how this evolves. You know that the government also has set up a EUR 3 billion package in order to handle all the situation about extensions, about subordinations or even a write-off. But well, let's see how all this evolves. I think that, obviously, the better -- or the sooner the lockdowns are removed, because I think that is clearly this what is preventing the economy to do better, the sooner, the better. So this is clear. So as long as the summer season is, let's say, a more normal one, it's not going to be fully normal but at least more normal than last year, and this is going to be positive because precisely those high-risk leveled as high-risk sectors, everything related to hospitality, tourism, leisure, et cetera, that is obviously more at risk and is what we are monitoring closely. And in order to have a more upbeat view, we need to see that this performs better than initially modelized, let's see. And you had a question on regulatory impacts, what we expect from here. But you know that we have been clear by saying that the TRIM on the loan default portfolio of the CaixaBank book has already, let's say, included in this pro forma CET1 figure. From here, we mainly have the negative impact on the loan default of, let's say, Bankia's portfolios. This is going to be, to some extent, offset by the rollout of IRB models on the BMN part of Bankia portfolios, mortgage portfolios, but it's not clear when. So probably all this is not going to happen in the -- at the same time. And it may happen that some quarters, we have the negatives and not the positives or negatives, and also another thing that makes us to be a little bit more -- well, this is a change we have compared to what we said is that the expected benefit from the nondeduction of the deposit granted fund seems less likely now. This was approximately 7 bps. With this, summary is that we expect additional regulatory impacts by somewhere between -- at least slightly higher than 10 basis points is what we are expecting now. But this is already included in this pro forma 12% we have already given you as of today, including all pending M&A and other impacts. Thank you, Sofie.

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thanks, Javier. I just wanted to clarify in a previous question made by Mario Ropero, I think we may have said that we had 1% of ICO loans in Stage 1. Obviously, what we meant was Stage 3. So 1% ICO loans in Stage 3, just for the record.

[Operator]

The next question comes from Maksym Mishyn from JB Capital.

[Maksym Mishyn, Director]

I have 2. The first one is on the NII. Thanks for providing detail on how loan books compare between Bankia and CaixaBank. I just wanted to follow up and ask you what is the sensitivity to interest rate of the merged loan book? And then the second one is on core revenues guidance. Does the flattish guidance include the consolidation of Bankia Mapfre Vida? And if so, how many quarters for 2021?

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you, Maksym. Let me start with the second one. The answer is no. It does not include any quarter of consolidation of Bankia Mapfre Vida. And Javier?

[Javier Pano Riera, Chief Financial Officer]

And on sensitivity, it's actually not that different because you have this faster repricing, but once -- let's say, in a 1-year horizon, the situation is the same. So it's the same, and then were parallel shift of approximately 10 basis points is 1 percentage point of -- on NII. This is to the downside. To the upside we have a more positive sensitivity. So it's -- we have more sensitivity to the upside because, well, you know that there are some loans that have a minimum of 0. This is clear. So we are not paying interest on our loans. So in some cases, we are already there. So we have a slight more sensitivity to the upside.

[Operator]

The next question comes from Carlos Cobo from Societe Generale.

[Carlos Cobo Catena, Equity Analyst]

A couple of questions from me, one on NII. It's a quick follow-up. If you could clarify if the mark-to-market of the ALCO portfolio of Bankia that you've explained should come on top of the NII figure that you reported for this quarter? Meaning that the series that you published is not adjusted for the new yield on the portfolio or if it is, that would be helpful to understand. And then a couple of questions on competitive dynamics and -- on the sector where you operate. Some peers, and it's logical, are targeting to poach clients from the banks that are merging. They actually target very, very aggressive loan expansion supported by this process. And how do you plan to stop this risk? And what's your view there? What was the client attrition that you think you could suffer? Also on competitive dynamics, we've seen a very resilient performance in fee income. Over the last year, despite the lockdowns and the GDP contraction, fee income has been very resilient. That seems to be proven that banks are successful at increasing the pricing power on fee income on the customer base. What do you think we are in terms of seeing the effect of doing the same on loan yields? Because that's precisely the area where competitive pressure remains very strong and banks are not being able to stop it. That could be a game-changer if the concentration of the system continues. And lastly, if you could touch on what's your expected default ratio ICO loan? That would be helpful if you have some color. I'm sorry for all the answers, but it's a different quarter.

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you, Carlos. Let me offer you some perspectives on your questions and then let Javier complement. With respect to competitive pressure on peers and our client base, I think at all given time, we are all banks trying to gain more clients from other institutions and other institutions are trying to get clients from us. That's the name of the game. This game is played over a long period. And over a long period, we have been net winners, and I expect to continue to be net winner. So far, so good. We have had no attrition or particular moment or changing trends in terms of our client base, both origin CaixaBank, origin Bankia And we're working in order to make sure that, that stays the case. And obviously, we're also ambitious, and we think that even with 25% market share, we're going to have a superior commercial offer, and hence, we will continue to gain clients, and certainly we'll target that. Yes, there's no question that the merger creates friction for clients. That is obvious. We will go from some of that. I expect it to be very limited. And to be honest, what we are seeing in the market is plenty of organizations that are having to do substantial changes or structuring to the way they operate bank closures, et cetera, at the same time, whether they are part of a merger or not. And hence, I don't think we're going to be particularly vulnerable to that. But it is our work as managers to try and minimize that vulnerability. We're confident that, that will be the case. Certainly so far, as I said, so good. In terms of loan yields, I think, obviously, every institution needs to make its own decisions based on their own models, strategy, sort of risk appetite, cost base, et cetera. We believe we have the right policy and it's one that generally tends to put more weight on appropriate returns on capital and on volumes. Yet we've been able to combine that with significant growth, particularly on the business and on the consumer side, where we have seen better risk-adjusted returns. But each institution does the same thing. I think the market is going to be particularly competitive on the loan side as long as we all have significant levels of excess liquidity. So the monetary policy and the excess liquidity that the financial system has is no question a great incentive to [indiscernible] asset yields. And I do not think that's likely to change in a significant way unless the structural imbalance of, in this case, excess liquidity in the system changes gradually. But even within the current competitive environment, we're obviously doing business that is positive at a risk-adjusted return every day, and we're going to continue to do so. And hence, within the environment, it's competitive, but it's consistent with us operating profitably there. We just need to do things better and better every day. And Javier, there's quite a few other questions.

[Javier Pano Riera, Chief Financial Officer]

Yes, there was a specific question on NII and the ALCO portfolio. Well, on this -- well, you may have noticed that we have had a negative impact, a fair value negative impact from the mark-to-market on assets and liabilities. So it's not only assets but also liabilities. Thus, this means that, over time, we will have positive reversion of this, but this is going to take a while. So it's quite a long period because you have issuances that had quite longer maturities, mainly covered bonds. So we have this split across several years, and it's not linear. So it's not -- at the very beginning, it's slightly positive then turns slightly negative, then becomes positive again over the years. So to your question about the ALCO, you need to look at it broadly, not only assets, but also -- it's the -- it's like, let's say, the combination of both, assets and liabilities. And obviously, in the first quarter figures, all those impacts are not affecting because this is from the closing, and the closing was at the end of the quarter. And you had a question also on the expected default on ICO loans. I think that we are not in a position to share this, if I may refrain on this. But remember that 76% of this exposure has a guarantee from the Spanish treasury, okay?

[Edward O'Loghlen, Director of Investor Relations]

And Carlos, you can also look, we provide some information on high-impact exposure. And within that high-impact exposure, if you want to take a look, we provide what part of that high impact is covered by ICO loans. So hopefully, that will help you somewhat.

[Javier Pano Riera, Chief Financial Officer]

I gave this information in a previous question.

[Operator]

The next question comes from Fernando Gil from Barclays. .

[Fernando Gil de Santivañes d´Ornellas, Research Analyst]

I just have 2 questions, please. So first one is on cost and jaws. So you have given and provided guidance which include a small negative jaws, while in the past, you have been able to deliver positive jaws. Can you please comment on your long-term cost targets, is this 1%? The other question is regarding the JVs, specifically the negotiation with MAPFRE. We have read in the press that there's an independent entity that has been evaluating these assets and the agreement. Can you please provide a calendar where we should expect this to be achieved?

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you. I'll ask -- I'll answer the second question with respect to the joint venture with MAPFRE. We are in discussions with MAPFRE. But at this stage, we cannot confirm or disclose where things stand, and we think that these discussions should remain between the parties, and hence, I am not able to provide you a calendar. We obviously would like to find an agreement sooner rather than later, both parties, like in any negotiation. But it's still too early to say. And because of the confidential nature of these discussions, apologize, but I would like to keep it to us. And on cost and jaws, Javier, do you want to make any comments?

[Javier Pano Riera, Chief Financial Officer]

Well, on this front, I would say that you are right, we are aiming for structural positive jaws over time, and this is going to be the case. We face a very, let's say, special year, if I may say. We are in the aftermath of the largest crisis we have faced, all of us, and obviously, this is affecting our revenues. We face the lower yields ever, and we are still not having impacts -- positive impacts from casinos. So I would say that we are in the crossroads of the wars of the combinations with the impact of lower yields at its maximum and with the benefit of this M&A transaction is still to be felt going forward. But I am sure that from next year, with hopefully a better environment in terms of yields and, obviously, with cost synergies already in, we faced a situation with a clear positive jaws and is our structural aim. Thank you, Fernando.

[Operator]

That final question comes from Pamela Zuluaga from Credit Suisse.

[Pamela Zuluaga, Research Analyst]

I have, if I may, 3 questions, 2 of them on NII. The first is, you mentioned you expect the consumer segment to recover sometime this year. But we have seen an increase in deposits that may signal that excess liquidity for households. Should we not expect this trend to maintain consumer loans subdued? The second one in NII as well as the loan book dynamics that you have been highlighting point to continuing the leverage of the consumer and mortgage books. The ICO contribution to growth will not be the level that it was last year. TLTRO then remains detailed for NII, but does not mind. How do you see the top line outlook evolving after the current deal terms expire? And then if I may hit one last one. Your isolated cost of risk of below 30 bps gave you an ROTE of 8% for this quarter. You have discussed an 8% ROTE for the merged entity. Could we assume that in a normalized cost of risk environment, this normalized ROTE could go higher as costs decline. Therefore, could we maybe hope for a double-digit target?

[Gonzalo María Gortazar Rotaeche, CEO & Executive Director]

Thank you, Pamela. I would say, on first question, obviously, we expect the people that have accumulated liquidity to use that liquidity in terms of consumer spending. But there's also people that will go beyond that and other people that they know have accumulated liquidity, but they trust the confidence to take on certain consumer good purchases. As you know, we do a lot of finalist sort of lending or undertake other projects. So I think that we will see both, a reduction of balances of excess savings and a take up on consumer lending. We obviously do not have a crystal ball, and we all are looking forward reactivation on that front, but it's difficult to ascertain how much it would be one versus the other. Time will tell what we think is that, in any case, things will get better. And even if we just have people sort of spending their excess savings, we're going to have also some positive impact because we will have sort of less surplus liquidity at minus 0.50 basis points. But still significant pent-up demand. Car purchases, for instance, housing investments in efficiency, energy, et cetera, we think that there will be good trends on that front. But again, we agree, it's very difficult to put an exact number at this stage. I think the point we're making is this has to reverse and has to reverse, I think, during the year, and we're only going to have good news out of this. Now if you see this first quarter, we had very strong sort of performance from long-term savings and protection business, while we have had a weaker performance from consumer and weaker performance from payments because of sort of the pandemic consequences. These 2 weaker performances should reverse, weaker relative to the other should reverse, I think it's a matter of time. And that gives us some confidence that we're going in the right direction. Moving on to your last question on our return on tangible equity. We discussed 8% not as a target but a pro forma of looking at consensus from the market, from analysts, what put in the synergies on that consensus would mean. And hence, I think it's, at this stage, premature to elaborate on what is the sort of mid- to long-term potential of this entity. We want to be ambitious on that front, certainly, but we need to go in order. So sequentially, this year, 100% of our attention is on delivering the synergies and sort of setting the ground for the future success. And as the year goes by and we move into 2022, we're going to be working on sort of a mid-term plan where we will be sharing our sort of longer-term objectives for profitability and others during, in all likelihood, the first half of 2022. So that will come. I'll ask you for some patience to wait until we have really the necessary elements to do that exercise in a proper way rather than giving you a very sort of top-down rough estimate of where we think we can get. We want to do these things with a lot of backup, a lot of sort of groundwork done, and that means it takes some time. And for 2021, all our efforts are being put on integration. Hence, we'll need a few quarters before we can share that with you, which we expect again to be during the first half of next year.

[Javier Pano Riera, Chief Financial Officer]

There was a question on TLTRO III expiry and what's next, so it was a little bit the summary of the question. Well, in our view, well, you know that this minus 1% funding has been designed in order to, to some extent, hedge the financial system from the negative impact of -- is having from negative yields. And let's see what happens by then that -- which is a situation if rates continue to be negative according to market estimates. Obviously, it's going to be the case. But I am sure that if the tool was designed for -- to some extent, hedge the financial system of this monetary policy measure, some kind of hedge will persist, but it's clear that I don't know. And I think on this, we are in unchartered territory, as we don't know really what's going to happen in 1 year's time or even more than this. But it's not only TLTRO. It's the [indiscernible] remember that we hold a large amount of balances now at DCB at 0% instead of minus 50 bps. So what will happen with all this in -- will depend very much on the environment, on the macro environment, on the monetary policy decisions, but what I see is that DCB is aware of what the situation -- the impact that the situation is having on the profitability of banks. Thus, I imagine that they will be so taking this into account in the future. So -- but time will tell. Thank you.

[Edward O'Loghlen, Director of Investor Relations]

Okay. I believe that was the last question, and that's what we have for today. We will reconvene for Q2 results. And in the meantime, we wish you all the best and good health, of course. Thank you.