Unicaja Banco SA

MAD:UNI

Earnings Call Transcript 2021-Q3

[Manuel Menendez Menendez, CEO & Director]

Thank you, [ Alberto ]. Good morning, everyone. Thank you for attending this first presentation of Unicaja after merging with Liberbank. Before going into the presentation, I would like to inform you that we will be hosting a Strategy Day on December 10, which I hope you can all attend. We will now review the main developments since the merger.Going to Slide 3. As you can see on the left-hand side, we keep making progress with the integration. The next important milestone for us is to close an agreement with the labor unions for the implementation of the transformation plan that we have been discussing. We expect to close this before year end. I would like to emphasize a couple of other things.The first one. On corporate governance is that right after the merger, we put in place the Executive committee. We have already approved all the remaining committees. The second one is in IT. We have been working for quite some time, and we have a detailed road map, which is well on track. The target for the corporate -- for the core banking IT migration is second quarter of next year. Next slide shows the final merger adjustments in the purchase price allocation exercise. As you may well know, in this exercise, we accounted all the assets and liabilities coming from Liberbank according to IFRS 3. I am not going to get into all the details, but you can see final valuation adjustments of EUR 994 million net of taxes. This is slightly above our initial number, mainly because of 2 reasons. Wholesale assets and liabilities implied around EUR 90 million higher adjustment than initially expected. Nevertheless, this will have a positive impact on NII going forward. Credit provisions were around EUR 100 million higher after taking the most conservative approach from both entities on the different portfolios. This will allow us to enjoy a lower cost of risk going forward.We also have 2 additional adjustments that do not have an impact on capital. The first one is the cancellation of a macro hedge that is offset by another hedge. And the second one is the write-down of EUR 225 million of deferred tax assets and EUR 23 million of goodwill. Finally, as you can see on the bottom left of the slide, we still have some restructuring charges to account for in Q4 after we close the negotiations with the unions. To summarize the slide, we currently hold a 13.6% CET1 fully-loaded ratio without taking into account the final restructuring charges. This is a very comfortable capital position for our bank with risk profile and especially after deploying capital in order to improve the profitability of the bank going forward.On Slide 5, we have an update of -- on our cost synergies initiatives. On the top left of the slide, you can see that we are upgrading our expected cost synergies. We will obviously give you more detail in our strategic review, but initial analysis are going well, and we expect to be able to do a bit more than initially estimated. We are upgrading our target from around EUR 192 million to around EUR 210 million cost synergies in 2023. On the bottom left of the slide, you can see a summary of the specific measures that have already been taken. The initiative related to the agreed level of absence employees coming from Liberbank will bring EUR 40 million of yearly savings and the intangible write-down EUR 50 million. These 2 measures account for EUR 55 million of yearly savings already. On top of that, we have closed 153 branches since the announced -- since we announced the merger, and this will also imply some savings as well. On the right-hand side, we show our estimated cost base for 2023. You can see we are looking at around EUR 770 million for the year 2023. This could be around EUR 190 million lower than the combination of both banks in 2020, circa 20% cost reduction. We expect an inflation on cost and additional investments to be partially absorb with business as usual savings initiatives.On Slide 6, we want to show you a few initiatives that we could consider [ wins ] as they could generate revenue synergies in the short term. On the left side of the slide, we are showing an opportunity based on the balance sheet business growing. We are confident that we can generate additional EUR 80 million from this business by 2023. Regarding asset allocation, current best internal practice portfolio is 30 basis points more profitable. Also, the internal best practice was able to improve profitability by more than 20 basis points in just 2 years. If we are able to have a similar asset mix in the entire portfolio, we would improve around EUR 35 million per year. On top of that, of the -- on top of the asset mix, there is additional EUR 45 million. We expect to generate just from achieving initial volume growth. Right now, we do not compare all that well with the sector in terms of penetration of mutual funds over total customer deposits. We are at around 13% when the sector is at 18%. We are assuming we can get closer to the sector average in the next couple of years, and that would mean additional EUR 45 million in fees.Another initiative and a very clear one is residential mortgages, which is a key product for us. We do not have an estimated number here but on the chart, you can see the loan book growth in the last 3 years from internal best practice. On the right-hand side, you can see how Unicaja new lending has gone up by 50% this quarter versus the same quarter last year. This is a very positive news for us in a difficult quarter with the summer and the integration taking place. We expect this momentum to continue.Lastly, a few other initiatives. This is public information. We currently have 3 agreements on the life insurance business. We are in negotiations to restructure that business, and we will keep you updated on the process. Also, the distribution agreement from Liberbank with Caser will start generating an additional EUR 6 million to EUR 8 million starting in 2023. And finally, there is a couple of very important business, important businesses where we know we can improve by just working with our existing customer base of 4.5 million new clients. These are payments and consumer lending. Payments has been evolving quite positively, and we expect this to continue. And in consumer lending, we aim to improve our footprint.The final slide on the merger is a recap about coverage levels. With the additional provisions from the PPA, we currently sit on a 72% NPL coverage ratio and 67% NPA coverage ratio. These, together with a conservative loan book were around 75% in public sector and pure retail lending will allow us to have a very low-cost of risk of around 20 basis points in -- by 2023. Foreclosed assets coverage is at 62% now. This is a very comfortable coverage level for us to speed up the disposal of our foreclosed assets. We expect the NPL ratio to be below 5% in 2023. Another drag for the sector in recent years has been legal charges. So we have also booked provisions for these risks.Now getting into the activity of the third quarter. Please keep in mind that this quarter includes just 2 months of Liberbank into Unicaja legal accounts, although we have tried to normalize all the information [ backwards ] on a like-for-like basis to facilitate comparability. Business activity remains very strong. Our core 2 products, mutual funds and residential mortgages keep delivering good growth even in a challenging quarter with the integration and the summer holidays. Mutual funds are up 27% year-on-year, and we are gaining market share from the competition. Residential mortgage book is up 4% year-on-year, and the new lending in the quarter was 10% higher than the same quarter last year.On profitability, net interest income has suffered this quarter due to 3 reasons that we think are temporary. The first one is the repricing of the loan book to lower Euribor, that is almost over. The second one is the lower contribution of the ALCO portfolio. And the third one is the extra liquidity that came in this quarter, mainly deposits from the public sector. We are in the process to reverse these impacts. We plan to continue deploying part of the liquidity into our growing loan book, transferring on balance sheet products to our balance sheet and lastly, reducing the negative carry we have from some deposits, charging negative rates to corporates and public sector at a larger extent.Regarding fees, there is some very good news. It is up 3.3% quarter-on-quarter and 22% in the year. This is a result of significant growth in mutual funds, residential mortgages, insurance and payments. Asset quality is still going in the right direction. The final impact on COVID crisis seems to be less negative than initially expected. Recurrent cost of risk in the quarter was 29 basis points and as I pointed out, we are positively looking forward. Coverage levels, I have already commented. After the PPA, you can see very comfortable levels both on NPLs and NPAS.Finally, about capital. CET1 fully loaded ratio stands at 13.6%, pending of final restructuring charges. We have a very comfortable capital position for our risk profile, and we expect to keep generating capital.Brief ending note on dividends. Our target is to distribute 50% of results. And now, Juan Pablo will review the business activity in this quarter in more detail. Thank you.

[Pablo González Martín, CFO & General Director of Finance]

Thank you, Manuel. Let's start now with customer funds. You can see here a significant increase in public sector deposits in the quarter. This is explained by the reception of some next-gen EU funds. This had a cost on NII in this quarter, although this should be something transitory as those funds start moving to the different projects. Actually, we wanted to focus a little bit more on these institutional deposits on the right. And you can see that right now, we've got EUR 21 billion, of which we are charging negative rates of 20 basis points on EUR 2.9 billion of them. As commented, we are currently working on this deposit base, and we expect to charge negative rates on a higher amount of deposits in the short term.Regarding of balance sheet funds, they keep doing really well. They are up almost 13% versus last year. And the most profitable product right now are the mutual funds that are 27% up. Here, we see a big opportunity going ahead, not only thanks to a better mix as the CEO just commented, but also switching deposits and other less profitable of balance sheet products into mutual funds.Next slide, we take a closer look to our mutual fund business. On the left side, you can see the AUMs evolution in the last 4 years. We are growing at 7% compound growth rate, and this is accelerating during the last quarters. This compares to 20% growth over the same period of time of the best internal practice. Again, here, we see a big opportunity applying the best practice to a larger network. We will provide more and more details in December on our strategic review. On the top right, net inflows in the third Q shows that the integration is not distracting the network, the opposite here. And on the bottom right, the most important part. Our growth is translating into increased fees that grows above the increase of the AUMs.Moving to the next slide. As it happens every third Q, there is an impact from the seasonality, together with a payback of EUR 700 million pension advancement. Going through the main portfolios, corporate book is falling after a strong 2020, supported by the ICO loans. Mortgage stock keeps growing even in this quarter, and consumer is flattish year-on-year although this is already changing right now, as we speak, with new production increasing, thanks to preapproved loans and top-up loans with existing customers are getting more traction. On the right-hand side, the breakdown of our portfolio, in line with previous quarters, around 75% is pure retail public sector. Moving to the new lending, new mortgage is almost EUR 1 billion in the quarter, and this is 10% higher than third quarter last year. This is very good news as this was a challenging quarter, and we have not lost commercial momentum in a competitive market, in a competitive quarter. It's also a great starting point to grow more, thanks to applying the best practice across the entire work, as commented. As always, we say mortgages are not only reflected in NII, but also fee income as our usual cross-selling is over 3 additional products.Then consumer lending is slightly below the same quarter last year. As commented before, we are already seeing a change in the trend, and we expect in the 4Q to show a better performance with new production growth at double-digit for the year. Corporate lending has slowed down a little bit due to the extra liquidity coming from ICO loans and ICO loans also affects the total new lending comparison. In the next slide, we show a little more detail on our 2 biggest portfolios. You can see the main KPIs of the residential mortgages. In terms of geographic exposure, we have a leadership position in our original regions and we are also able to grow -- generate good volumes in other big cities that we like as it is the case of Madrid. On the bottom of the slide, mortgage moratoriums have almost expired in full.On Slide 16 and before moving into the financial results, a quick look to our ESG focus. This is very important for us as we want to play a key role in the environmental issues we are facing. For instance, this quarter, we launched Green Mortgage. This is just part of our sustainability action plan that integrates ESG in our business model.

[Manuel Menendez Menendez, CEO & Director]

And now moving to the next slide, and we start with the financial results. Here, probably we will comment more in detail in the next slide. So let me here just to highlight the main items. First, the NII decrease is something temporary, and we will reverse in the next quarters. The main impacts are coming from the lower Euribor that is almost over. The restructuring of the ALCO and increasing excess liquidity. Fee income is performing really well, up 21% compared to the same quarter last year. Regarding OpEx, personnel expenses. So already part of the synergies coming from the exit of Liberbank employees on agreed leave and you can see next quarter the full savings from more than 700 employees on agreed leave. And depreciation, you can already see, almost EUR 3 million savings coming from 2 months lower amortizations on the back of Liberbank intangible write-downs. Credit impairments keep coming down. And regarding other profits or losses, we expect to be lower in the next quarters.Now going into a bit more detail in Slide 19. On the left side, you can see Euribor is 14 basis points down compared to the same quarter last year. And this is the main reason why customer spread is 6 basis points down quarter-on-quarter. On the right-hand side, we show the front book and back book of the total loan portfolio and our main book, the residential mortgage. You can see there, the front book for the total portfolio is influenced by the yield of consumer lending, which as we explained a few slides before, we expect to increase its relative weight on the loan book.In the next slide, I will spend a bit more time here to show the quarterly evolution of the NII. We have 3 main impacts this quarter, which should be transitory. First one, if we talk about lending, here, we have the impact from the repricing to the lower Euribor, which is almost over. We could even start to see some positive repricing in the short term. As you can see, loan volumes continue to support the NII. All in all, we expect lending to increase its contribution to NII in the next quarters. Second block, the lower contribution of the ALCO portfolio, as we restructured part of the portfolio in the integration process, and we have some liquidity to reinvest. Third, the increase in liquidity in the quarter, mainly from the public sector deposits caused a negative carry, and we expect this to revert in the short term. And finally, you can see the wholesale issuance have a positive impact of EUR 6 million in the quarter. This is thanks to lower interest rates and this is a consequence of the PPA adjustments that we were commenting before.Moving now to the next slide. We can probably focus on the right. You can see banking fees. This is mainly payment and current account maintenance fees increased 25% in -- during the first 9 months of the year. Mutual funds are performing even better, 28%, and insurance is also growing at double-digit in the first 9 months. All in all, fees are growing almost 20% during the first 9 months of the year.In the next slide, talking about OpEx, we believe we are moving fast. Since the merger was announced, we have already closed 10% of the branch network, and the average number of employees decreased by 9%. As we explained before, this is already reflected in our P&L, and it will be even more visible in the next quarter. We also expect to close an agreement with trade unions before year-end.Next slide. You can see cost of risk is normalizing. As we have already seen in the recurring cost of risk in the quarter is down to 29 basis points. And then we had a nonrecurring impact of EUR 16 million. We will provide more and more detail in the Strategy Day review presentation, but we wanted to share with you that our expectation is cost of risk to normalize at 20 bps by 2023. As we have always commented, the strong coverage levels at the top level among the listed banks, together with a conservative loan book with 70% of the exposure being mortgages and public sector, make us comfortable with this guidance. And now I pass the word to Pablo.

[Pablo González Martín, CFO & General Director of Finance]

Thank you. I'm Pablo. Let's move now to asset quality. On the top left-hand side, you can see the good evolution of NPL coverage that stands now at 72%. NPL entries were affected this quarter by a reclassification of a small portfolio. At the bottom, you can see that half of our NPLs are coming from mortgages. Following up on this, on the top right hand, you can see a bit more detail regarding the coverage ratios by portfolios. We believe it explains by itself, especially in portfolios with a strong collateral and low LGD like the mortgage portfolio. Lastly, at the bottom, we show a comparison with the sector. And you can see that we stand with lower NPLS, higher coverage. And as explained before, with more collateral than our peers.In next slide, foreclosed assets were 1% down quarter-on-quarter. Coverage ratio also increased significantly. This should support an acceleration of disposals going forward, which will have a reflection on P&L as we reduce the costs associated with these assets. Looking to NPAs altogether, our coverage stands at 67%. We think that it is interesting looking to the NPAs, net of the coverage that reflects the coverage reinforcement and shows a net NPA ratio of 2.6%. As Manuel said, at the beginning of the presentation, we expect the NPA ratio to be below 5% by 2023.Moving now to Solvency. Let me explain the main movements in the bridge. First of all, the starting position is very strong, more than 16%, CET1 fully loaded. Then the PPA adjustments we saw at the beginning of the presentation that Manuel explained had 178 basis point impact. In addition to this, we generated DTAs from temporary difference, that together with the impacts on the thresholds had 82 basis points negative impact on capital. These are DTAs that will become capital, thanks to the increasing profitability. Having said that, we also took a conservative approach and wrote-off EUR 225 million of tax loss carryforward that were on balance sheet and were already deducted from capital.Next, the organic generation in the quarter was strong 15 basis points, and this continues to support our 50% payout dividend accrual that deducts 7 basis points from capital this quarter. All these bring CET 1 fully loaded to 13.6%. This is the reported figure as of September '21. This figure still does not take into account the final restructuring charges, which we will book once we close negotiation with the trade unions, and we will inform you in due time.Very quickly on the next slide, on solvency. We show the different capital ratios, and you can see we comply very comfortably with the SREP requirements. In December, we announced an issuance plan that will reinforce even more our capital ratios and allow us to comply with our MREL requirements.Moving to the next slide. You can see that the size of the fixed income portfolio have decreased in the last quarters. First, there were around 3 billion maturities related to our so-called TLTRO portfolio. And then we have restructured the fixed income portfolio coming from Liberbank as the balance sheet and liquidity structure of the bank defer. The size of the portfolio has decreased around EUR 7 billion during the last 12 months. This means we have the liquidity and room to invest. We are actually suffering the negative carry of that excess liquidity. As we commented in the second quarter results presentation, we believe the yields were too low, and we were comfortable to pay that all of the excess liquidity in the short term. I can tell you that we have started to reinvest part of that liquidity, and we are reinvesting at higher yields. Although in the fourth quarter, the ALCO contribution to NII will still be slightly lower than this quarter. Obviously, depending on how market evolves. Another comment on the size of the portfolio is that we expect it to be lower than in the past as we allocate part of the excess liquidity to a growing lending book and -- of balance sheet products.On liquidity. The message in the last slide is the strong liquidity position that we expect to be more profitable and a bit more balanced in the future. And on the right, we show capital market outstanding funding. These are mainly cover bonds and the EUR 600 million Tier 2 that we have achieved. You can see the maturities, they are well spread in the next years and coupons are relatively high. This is all from our side. And now we're ready for the Q&A. So [ Alberto ], please?

[Unknown Executive]

Thank you, Pablo. We have received many, many questions so far. We'll start on NII. Can we please explain the evolution in the quarter? And when should we expect to hit the bottom?

[Manuel Menendez Menendez, CEO & Director]

Okay. Thank you, [ Alberto ]. I will take this one. We believe some of the impacts in the quarter are temporary. Actually, we expect NII to reach the floor in the 4Q, probably a slight decrease versus third Q, if any, and then start gradually recovering from that point. What we see going forward is that we can pull different levers. The first one is the loan book. This is the most important figure that we have. As commented, lower Euribor is over, and this had a significant impact during the last quarters. And regarding volumes, we are very pleased with the performance of the network during the first 2 months of the merger. Mortgage production increased by double digit. Consumer lending lagged a couple of months, but we are already seeing more activity. And all in all, we expect volumes to grow and be more visible on NII. The second trigger are the customer resources that are causing a negative carry. Right now, as we commented, we got EUR 2.9 billion deposits, and this is charging negative rates. And this is a small part of our corporates and public sector deposits that amount to almost EUR 21 billion. We are reverting this already as we speak, and we will charge to more deposits. And probably, we could lose some of these deposits, but we are losing money. And with our liquidity position and loan-to-deposit ratio, that's not an issue. We also plan to accelerate the shift from on balance sheet to off-balance sheet funds that will bring more fees. And lastly, the third block, the third trigger that we got is the ALCO portfolio that had a lower contribution in the quarter. The size of the portfolio is smaller compared to March, as we have been waiting to reinvest the liquidity coming from the maturities and the sale of some bonds from Liberbank that didn't fit in the current strategy of the bank. We prefer to wait as yields were too low in the third Q. As Pablo already commented, we already started to invest part of that liquidity. In any case, you should not expect the ALCO to go back to the same size as in the past, as we are planning to redeploy the cash with increasing customer loans. So all in all, you can see these 3 big blocks that make us positive for the next quarters.

[Unknown Executive]

Thank you, Juan Pablo. A quick follow-up on that. You mentioned about corporate deposits. We've received a few questions. How much room do you think you have there?

[Pablo González Martín, CFO & General Director of Finance]

Okay. Thank you, [ Alberto ]. Again, first, our liquidity position is very strong. So I guess that's the starting point here. And then we got EUR 9 billion deposits from public sector and EUR 12 billion deposits from corporates. This is almost EUR 21 billion together. We are only charging to 14% of these deposits, and we are charging a relatively low rate, 20 bps. The good news is that we have room to improve here. And actually, we are taking measures already that we expect to be visible in the 4Q. So I guess, there is a significant room. You can see we got the base, EUR 21 billion, and we are working on that. So we cannot be more specific right now, but this is something that you will see for sure in the 4Q.

[Unknown Executive]

Okay. Now on fees, another good quarter we've seen, what to expect.

[Pablo González Martín, CFO & General Director of Finance]

Thank you, [ Alberto ]. The trend here, you are right, it's very positive, with fees increasing almost 20% in the first 9 months. And this is a combination of 3 main pillars. First one, the mutual funds. We already commented the performance so far but also, we see opportunities going forward. We commented already some of them as they change in the fund's mix to more profitable ones across the entire network. But probably, let me highlight one more that we will develop more in our strategic review. If we look to other off-balance sheet products like saving insurance, where we got almost EUR 5 billion AUMs yield here is 20 bps. This is 4x less than the yield of mutual funds. And we have almost EUR 5 billion AUMs in pension plans, where the yield is 40 bps. And here, actually, we are seeing some change in the fiscal regulation in Spain and reducing the incentives. So if we are able also to switch part of the off balance sheet, less profitable products into mutual funds, we think this is an opportunity. But as said, this is something that we will comment more in detail in December. And then the other pillar are payments that are doing very well and insurance, where we can see the trend in the accumulated 9 months is double digit up.

[Unknown Executive]

Thank you, Juan Pablo. We have a couple more on NII. First, you said the ALCO portfolio might not get to the same volumes as in the past. Can you elaborate on your thoughts there?

[Pablo González Martín, CFO & General Director of Finance]

Let me take this. We already commented that we have started reinvesting the liquidity coming from the maturities on the fixed income portfolio and the sales that we mentioned. But we also have a plan to switch part of the structural liquidity from the ALCO book to the lending and to reduce our liquidity through their balance sheet products improvement. And regarding the contribution, as we have already mentioned, in the short term, in the fourth quarter, we still see a slightly lower contribution to NII, although the delta will be lower than the one seen in the third quarter compared to the second quarter. And from that point, starting in the first quarter of 2022, if everything evolves as we expect, we can see an increased contribution from the ALCO portfolio. Just to give you some color, the actual interest rate exposure of the portfolio remains quite low at 2.5 of modified duration, which in this environment has been proven quite positive.

[Unknown Executive]

Thank you, Pablo. We have 2 quick ones. One, is there additional impact expected on Euribor? And the other one would be if you are going to meet the TLTRO benchmark? First on Euribor.

[Pablo González Martín, CFO & General Director of Finance]

I think on the Euribor, we still have a positive sensitivity to the Euribor. And obviously, movement, the first 50 basis point increase in interest rate will have an impact, a positive impact of 10%, 10.6% once the balance sheet is fully repriced. And regarding the impact on the short term, obviously, we expect a minor impact in the fourth quarter because most of the impact has been already. And if we look at the forwards from the next year, they're an upward trend. So we don't expect a significant impact on that.

[Unknown Executive]

Thank you, Pablo. And yes, just quickly on the TLTRO III benchmark, do you expect that will fulfill the requirement?

[Pablo González Martín, CFO & General Director of Finance]

We are very active in corporate lending, and we are confident that we will comply with the requirement to benefit from the lower funding cost for the following period.

[Unknown Executive]

Thank you, Pablo. Now moving to costs. Can we explain a bit more on the decrease in the quarter and what to expect?

[Manuel Menendez Menendez, CEO & Director]

Okay. Yes, regarding costs this quarter, we can already see the first cost synergies at some restructuring charges. As I said, we have EUR 8 million savings on personnel costs coming from Liberbank's employees, agreed leave of absence that more than offset the EUR 4 million nonrecurring savings from last year. We expect to see the full savings of the employees on agreed leave, EUR 10 million in the fourth quarter. And on top of that, depreciation decreased by EUR 2.5 million in the quarter due to the 2 months lower amortization of Liberbank's intangibles. It should decrease by another EUR 1 million in the fourth quarter.

[Unknown Executive]

Thank you, Manuel. Now moving to cost of risk. Could we give some color on this quarter? And we've given some guidance for 2023, can you give your expectations as well?

[Pablo González Martín, CFO & General Director of Finance]

Yes. Thank you, [ Alberto ]. As we commented, the trend is going down. That's clear but we cannot be more specific right now, and we will be more specific in December. But you can see our lending points. You can see in 2023, we expect cost of risk to be around 20 basis points. And here, probably, let me highlight, again, that we booked more than EUR 400 million of COVID provisions since the beginning last year, which together with the EUR 300 million within the transaction adjustment increased our coverage ratio to the highest level among the listed banks. So again, this high coverage together with the conservative profile of our loan book give us comfort on our guidance. But again, we will comment more in detail in December.

[Unknown Executive]

Thank you, Juan Pablo. A quick follow-up on cost of risk after the PPA and the provisioning, do you expect to see any release in provisions?

[Manuel Menendez Menendez, CEO & Director]

Okay. As we have now discussed, and you said, we have a very high coverage ratio and low-risk business model. But having said that, for the time being, we prefer to remain [ current ] and we are not counting with release of credit provisions. It's possible that in the future, we see lower cost of risk for a long period of time, but we don't expect to release credit provisions.

[Unknown Executive]

Thank you, Manuel. Let's move to asset quality now. The stock of NPLs has increased slightly in the quarter. Could you explain a bit what's behind that?

[Pablo González Martín, CFO & General Director of Finance]

Let me take this. And as I said, we have done some reclassification in the loan book, and that explains the NPL's growth in the quarter. They are basically subjective NPLs. And during the year, the stock of NPL has decreased. Let me also highlight that around 25 of our total NPLs are subjective NPLs up to date on their installments and another 15% are less than 90 days past due. Lastly, in terms of recoveries in this quarter, we have good news and close to 50% of the outflows were cash recoveries.

[Unknown Executive]

Thank you, Pablo. A quick follow-up on that one. Can you give us any color on when to expect the peak of NPLs?

[Pablo González Martín, CFO & General Director of Finance]

Well, this is not an easy question. But as commented, the NPL entries remain low. Past due loans below 90 days remain at historical low levels and our loan mix, mainly residential mortgages and public sector loans allows us to be comfortable. So we are comfortable and we don't expect any change in the short term, but to be more specific, let me wait for our strategic plan presentation in December.

[Unknown Executive]

And final one on asset quality. Again, foreclosed assets. Can you give us a bit of color on what to expect?

[Pablo González Martín, CFO & General Director of Finance]

Well, the disposals in the quarter were EUR 66 million, which is 11% on annual basis of the stock. What we think is not bad for a third quarter with the summer holidays. But clearly, we are more ambitions in this potential disposals in the future. As you know, the third quarter usually weaker in terms of foreclosed assets, disposals, and we have been working on the combined portfolio for some time now. And at current coverage levels, we expect to accelerate the foreclosed asset disposals in the coming quarters.

[Unknown Executive]

Thank you, Pablo. Let's move to capital now. Could we just give a brief update on our capital stance and dividends for the future.

[Manuel Menendez Menendez, CEO & Director]

Regarding capital, as you know, we have a very comfortable situation. So I think we expect not to have -- to achieve our target and in this sense, no news so far. Regarding dividends, I would like to assess 2 facts. The first one is that we are accruing a 50% payout on capital ratios during the first 9 months. And the second one is that in our merger presentation, we communicated that a 50% payout target was something we felt comfortable with. And that continues to be our target. We have not decided yet the mix of the dividend payment, cash or share buybacks. But as you know, in the recent past, both Liberbank and Unicaja paid cash and also the share buyback programs.

[Unknown Executive]

Thank you, Manuel. Another one on capital. This is regarding regulatory impacts. Do we expect any headwinds?

[Pablo González Martín, CFO & General Director of Finance]

I think you all know that there has been [ reasoning ] information on potential measures these past days from the European implementation of Basel III. It is still quite early to have a clear view on this, but we do not expect significant impact from Basel III. The main impact for Spain was expected to be operational risk and initial readings point to ours quite benign implementation. We have just received, as you all know, the approval of our IRB models for the retail portfolio on the Unicaja side. So if something, as you all know, we still have some tailwinds here when we managed to migrate Liberbank's portfolios on IRB.

[Unknown Executive]

Thank you, now just moving to some questions on the merger. Could you update us with how much restructuring costs are left.

[Manuel Menendez Menendez, CEO & Director]

Okay. As you already know, Liberbank booked EUR 143 million provision in Q2 corresponding to the full cost until retirement age of 726 employees that will generate savings of around EUR 40 million per year. Apart from that, in Q3, we have written down circa EUR 137 million of intangible assets coming from Liberbank. This will imply lower yearly depreciation costs in our P&L of around EUR 50 million. On top of that, in Q3, we also booked at EUR 22 million of restructuring costs related to IT migration and the closure of branches. And now in Q4, we will book the pending restructuring costs. As you can understand, we are right now in the middle of the negotiation with the trade units and we cannot provide more details. So the final amount and timing will be announced in due course.

[Unknown Executive]

Thank you, Manuel. Another one on the transaction. The PPA adjustments are a bit higher than initially announced. Can you explain a bit?

[Manuel Menendez Menendez, CEO & Director]

Yes. As I said during the presentation, there are several changes within the PPA. But to summarize, I would point out 3 main changes. The first one is the valuation adjustments on the wholesale assets and liabilities that implied EUR 156 million adjustment. This is EUR 90 million higher than initially expected, and we will recover them through higher NII in the future. The second one, we carried out an in-depth review, taking the most conservative criteria of each of the banks and also taking advantage of the strong capital position. So we have provisioned around EUR 100 million more in credit and real estate assets, which will help us accelerate the normalization of cost of risk even faster. And the third block is about the impacts. That's something that have no impact in capital. The write-down -- the write-off, sorry, of EUR 23 million goodwill and EUR 17 million coming from the cancellation of our macro hedge that was offset with the cancellation of another macro hedge outside the PPA. And this -- the impact of this block, will not have impact on capital nor in NII.

[Unknown Executive]

And after the remaining cost, what do you expect? Do you have a target in terms of capital or any guidance you can give?

[Manuel Menendez Menendez, CEO & Director]

We maintain our target of CET1 fully loaded ratio of above 12.5% and as of right now and pending confirmation on final restructuring charges, we expect capital to be above that level. As I said, we are comfortable with that level. And as you know, we are a bank with a retail model with around 70% of the loan book still under standard model.

[Unknown Executive]

Manuel, in the presentation, you gave some color on revenue synergies. Could you elaborate a bit more on that?

[Manuel Menendez Menendez, CEO & Director]

Yes. We are working on a deep strategic review that we will share with you in December with much more detail. But so far, we have some quick wins identified that some of them I mentioned during the presentation. For example, asset management business and the impact of these reviews. On top of that, we expect to generate additional revenue synergies, mainly from sharing best practice in mortgage business, insurance and payments business. We have the know-how. We have the teams. And the most important thing, we have 4.5 million clients.

[Unknown Executive]

One final question on the transaction. Manuel, we have received many questions on our alliances. If you could, please?

[Manuel Menendez Menendez, CEO & Director]

Yes, regarding alliances on the insurance side, we are in open negotiations with our 3 partners. We expect to close it during the first half of 2022. And our main goal here is to maximize the current revenues going forward. And regarding mutual funds, we have non-exclusivity agreements. So we have flexibility to restructure in order to maximize the return from the asset management business. In this sense, we plan to continue improving with the support of our partners, increasing penetration and getting closer to the benchmark in the sector.

[Unknown Executive]

Thank you, Manuel. That was the final question. The Investor Relations team is available to discuss any other questions. Thank you very much, and we hope to see you at our strategic review on December 10.

[Manuel Menendez Menendez, CEO & Director]

Thank you.

[Pablo González Martín, CFO & General Director of Finance]

Thank you.