Banca Monte dei Paschi di Siena SpA
MIL:BMPS
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Banca Monte dei Paschi di Siena SpA
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Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the MPS Group Second Quarter 2018 Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Marco Morelli, Chief Executive Officer of MPS. Please go ahead, sir.
Good morning, everybody, and thanks for attending our presentation this morning. I'm here with Andrea Rovellini, our CFO.
A quick introductory remark before we get into our half 1 presentation. You do remember at the end of last year I repeatedly mentioned that the goal for Monte dei Paschi in 2018 was to invert the trend of performance, restore a sound commercial position in our core markets, reignite the effort of the network and making sure our people got back into a confident mood in terms of doing business, and meet, if not anticipate, some of the targets of the restructuring plan.
So getting into half 1. And this is Page 2. A key message for the second quarter. Core revenues increased 6.4% quarter-on-quarter, with net interest income at EUR 449 million, which is due to volume growth and positive effect from the securitization senior notes. Commission is basically flat quarter-on-quarter and it's up close to 3% if we exclude EUR 15 million of one-off booked in Q1.
We consolidate the trend in cost control and our operating costs are 9% down year-on-year and 1.5% up quarter-on-quarter for seasonal acceleration of the spending cycle. And pre-provision profit is EUR 251 million, with a negative impact of EUR 50 million due to other financial income. That means that our normalized pre-provision profit per quarter is going to be between EUR 250 million and EUR 300 million average for the first 2 quarters and this is the trend we would like to keep and maintain for the rest of the year. Q2 was clearly impacted by the BTP-Bund spread. And I'll take you through later on the actual number.
Overall, the key messages for half 1. As you recall, I stated that our guidance on cost of credit was 60 basis points area for 2018 and that is borne out by Q2 cost of credit of 56%, so we stick to our guidance for 2018. We continue to throttle forward on the reduction of our UTP and bad loans. There's going to be a vertical drilling later. But in the first 6 months, we posted a reduction of EUR 900 million on the UTP and we do have a target overall NPEs of EUR 3.7 billion for the overall year, which is well in excess -- more than EUR 1 billion in excess of our 2018 target, original target of EUR 2.6 billion.
On capital. Our core Tier 1 is 13%, which is impacted by ex-AFS reserves impact. And risk-weighted assets are down. That turns into a 10.6% fully-loaded IFRS9 in 2023. We received this morning just 10 minutes before this call a formal communication by ECB on the LGD wavier, which has been formally confirmed. And again, in light of the fact that there is a consolidated capital generation in our plan, we do assume we will meet all the targets for capital requirement ratio throughout our plan.
This overall picture is clearly achieved in the context of, allow me to say, a unique situation in the market, because, on the one hand, we need to go through a pretty hefty and cumbersome restructuring plan -- and restructuring means having less room to maneuver in terms of investment initiatives and push for the business overall. And on the other hand, we are very involved in the re-launch of the bank. So to reconcile the 2 different situation, as you might expect, is not a straight forward exercise. Numbers for half 1 are clearly a sign that we are heading towards the right direction.
Page #3, right hand side. These are the main key messages for the objectives on the restructuring plan. So revenues fixed at EUR 1.7 billion. Operating cost, EUR 1.15 billion, with additional savings expected in 2018. Cost of credit, as I already mentioned, we confirm the guidance at 60 basis point.
In the second half of the year, our estimate is book one-offs in the region of EUR 200 million in order to meet the objective and the target set by DG Comp, and that is mainly due to Solidarity Fund personnel exit, which we are going to execute before the 31st of December this year.
Positive trend confirmed on the commercial revamping and asset quality. So guidance for the revenues is going to be in the region of EUR 3.35 billion, EUR 3.4 billion. Cost projected forward, overall operating cost between EUR 2.3 billion and EUR 2.4 billion. Loan loss provision, 60 basis point.
Page 4, focus on commercial revamping. On the left-hand side of the page, you do have the trend in our corporate mortgagees and retail mortgages. That turns into 7% quarter-on-quarter growth on corporate mortgage and 27% quarter-on-quarter growth in retail mortgages. Lending growth has been recorded in spite of 435 branch closed since inception of the restructuring plan. Our market share in new asset under management flow is EUR 5.3 billion, which is up quarter-on-quarter.
Deposits. We continue our consolidation on current accounts and time deposits, so it's positive EUR 4.1 billion since the beginning of the year. And our cost of funding continues the downward trend vis-à-vis of the average cost of funding of 2017 and it's 11 basis point since yearend 2017.
Page 5, focus on nonperforming exposure. We are in the midst of the process of disposing EUR 2.7 billion small-tickets in 2018. You do have a breakdown of these small-ticket portfolios. This is the target for 2018. The strategy is to focus on large-tickets to start with, with higher recovery potential and then in parallel pursue the commitment on the disposal of small-ticket with a high vintage, high coverage in order to meet the target.
We do put portfolios split in clusters and we expect to receive binding offers for this overall EUR 2.7 billion stock by Q4. The impact of the small-ticket bad loans portfolio has already been factored in IFRS9 first time adoption.
Page 6, disposal of the EUR 1 billion leasing bad loans. As you might recall, the original plan was for an overall stock of leasing nonperforming of EUR 1.3 billion in the original restructuring plan. We now increased the number of these disposals to EUR 1.7 billion because we do had an additional EUR 700 million of leasing related UTPs.
We are completing the loan data type preparation and remediation. We do expect to put -- to receive nonbinding offers in Q3 and binding offers in Q4. And let me say that I'm pretty confident we can meet this timeline in the light of the fact that our team is pretty used now to deal with the timing, loan data type, interaction with potential buyers having gone through the motion of the major and largest EUR 24.1 billion disposal of nonperforming completed a few weeks ago.
Page 7, UTP reduction. Again, this is another target we would like to not only meet but beat. The original plan for 2018 is EUR 1.5 billion, and we are actually working of an overall reduction which is well in excess of this number. As I mentioned earlier, EUR 900 million have already been completed in half 1. We do have an additional EUR 1.8 billion we are currently working upon.
EUR 800 million, we do have already offers received and that is going to be completed ideally by Q3, beginning of Q4. We're going to have another EUR 200 million in the market by September and then the addition of EUR 700 million of UTP disposal on the leasing side.
I confirm the aim to anticipate 2021 target of NPE. Our original target in the restructuring plan is to get to 12.9 NPEs ratio by end of 2012. In the light of the work we are currently performing on the NPE environment, we would like to move to an overall target in the region of 10% by the end of the plan and -- if the pace is the one we're currently experiencing, possibly anticipate this ratio in terms of timing.
That if everything we've been doing on the nonperforming, and that goes in a way hand-in-hand with loan loss provision, controlling cost of credit -- if we do put all of this activity in the context of the LGD waiver, which was one of the key element of the overall strategy in terms of reducing NPEs ratio in the context of the development of the commercial activity of Monte dei Paschi, that allows me say that we are pretty much beyond expectations and internal targets vis-à-vis of everything we negotiated with European Commission last year.
I now pass to Andrea Rovellini for some vertical drillings on the key items of our P&L and our balance sheet. And I will come back for some closing remarks at the end.
Thank you, Marco. We can provide you some more detail on the different line of our profit and loss, starting from Page 9, net interest income. In this case, we have a very positive result in the quarter, so net interest income is up EUR 28 million quarter-on-quarter. And this thanks to the increase in the commercial component that -- I believe we have not considered the nonrecurring interest we received in the quarter from nonperforming exposure present and in gradual increase, that is around 1% in the average lending volumes and also in the deposits volumes if we compare the average volumes in the second quarter compared with the first quarter.
We are maintaining the overall amount of the spread in line with the first quarter and we lose only 1 basis point. And this is very helpful in order to maintain the growth of the commercial part that is the main -- the most important part of our net interest income also for the future.
Starting from the middle of May, we have the full contribution of the interest coming from the senior notes of the securitization that we retain and then the additional contribution quarter-on-quarter is lying around EUR 9 million. So we can say that as a secondary effect on the disposal of bad loans, we had the benefit to increase the interest-bearing securities by EUR 3 billion and this is something that would be repeat I believe in a decreasing way also in the next quarter.
It is important to underline that -- the better quality of our net interest income because the contribution of the nonperforming exposure is now at 14%. Our figure for the last year is -- was around 28%.
And then the contribution of IFRS9 in the quarter is immaterial and this because we have the positive contribution of the discount unwinding of bad loans that in the quarter is around EUR 30 million. That is offset by the provision on the unlikely-to-pay and the past due for the same amount.
Now moving to the fees and commissions, Page 10. We can see that also in this case if we don't consider the positive one-off received in the first quarter for the renewal of the distribution agreement with Compass, the net commission are up around 3% quarter-on-quarter. And the net fees are almost in line with the second quarter last year, excluding the contribution of the merchant acquiring business that we sold to Nexi in June 2017.
It is also important to highlight that we have a 6% increase in continuing fees and a decreasing contribution in terms of share in percentage from the upfront fee we received on the asset under management product that now represent a percentage below 20%, so we are 70% in the first half. And this is something that for us is very important because it's proving the better quality and the stability of our fees also for the future.
Also, on the side of the credit facilities, we are presenting a little increase year-on-year, but this is linked to the new positive commercial momentum for the growth of our loan book.
Page 11, we have some detail on dividend and trading income. So dividends come from the contribution of our subsidiary -- that is the JV with AXA -- and the dividend we receive from Bank of Italy. The negative results for trading is linked and impacted with the spread volatility, that the fact -- the result of Capital Services. These negative results is in line with the sensitivity we announced and we declared also in the past.
So we have around EUR 300 million of movement on the P&L with 1 basis point change in the Italian credit spread. But we can say that the duration of the trading portfolio of Italian govies is around 1 year, so the impact will be recovered in the next future quite easily.
And we have around EUR 33 million losses from the other financial assets that are accounted at the fair value through profit and loss, in which -- in this amount we have around EUR 20 million that are related to the valuation of loss that are classified in this line. And this is something that we can also add to our cost of credit.
The area of the operating cost is presenting, we can say, a slight increase quarter-on-quarter due to the seasonal acceleration in the spending cycle. But if we compare the results with last year, cost decreased by 9%. And we have 6% less in terms of number of employees. 14% less in terms of number of branches. And we can say that for the second part of the year, another headcount reduction is expected. And this is something that for us is very important in order to continue the decreasing of our cost bases also for the next year.
Switching to the non-operating item and taxes. So the results is negative, in line with the results we had in the first quarter, but we can say different composition. Here we have EUR 26 million one-off negative contribution for us to the National Resolution Funds; the EUR 18 million that is our quarterly fee that we pay for the deferred taxes assets; and other non-operative cost for an amount of 18 million, which include the EUR 50 million capital gain on the sale of the NPL platform, Juliet, that is offset by provision for legal risk, clawbacks and other cost relating to the restructuring plan. These costs are mainly related to the closure of our foreign branches and the situation that we have to manage for the disposal or the winding down of our 2 subsidiaries in France and in Belgium.
Taxes for the quarter are positive, $26 million, thanks to the deferred tax asset reassessment. In this quarter, the reassessment is lower than in the previous quarter mainly because the one-off negative impact on the profitability that we are expected to generate in the next year for the negative movement of the reserve on our financial assets. In this case, we are estimating to be able to recover the normal natural reassessment of DTA for the next quarter.
Asset quality, Page from 14 to 16. In this case with the positive trend that we had in the first quarter is confirmed. I want to highlight the default rate, that is 1.6%, that is compared with the target of 2% that we have for the next year. So we are well below our expectation in this case.
We have cure rate of 5.2%, corresponding to EUR 130 million moved from nonperforming of performing. Danger rate is increased. We had 10% in the first quarter. 13.5% in the first half. But in this case, we can say that the impact on the loan loss provision is very low as the immigration refers to very well-provisioned tickets, confirming our early detection system and the very conservative criteria for the provisioning in all the stages before the bad loans.
The stock of the gross nonperforming exposure decreased quarter-on-quarter. Now we are below EUR 20 billion. The key risk indicator, in this case, are positive, so 50% of the nonperforming are represented by unlikely-to-pay. The coverage is, we could say, well above the Italian peers, so unlikely-to-pay are covered at 45%. Bad loans are young, so they have -- with the consolidation of the bad loans to the securitization, now bad loans have a lower vintage.
And Page 16. Here we can say that considering all the disposal and the reduction that are accounted in terms of impact under IFRS9 first time adoption, we have around EUR 1 billion that will affect the capital in the future. But we have also to adjust the nonperforming ratio. And if we consider the progress that we have reached in the first quarter and then the next disposals that are planned, as Marco explained you before, the pro-forma gross non-performing ratio is 13.1%. So this trend is able also to support the guidance for the full year that is confirmed in the area of 60 basis points in terms of cost of risk.
For the commercial activity, direct funding and liquidity, we have a positive trend, also considering the customer deposits. So the market share, in this case, is increasing from December last year by 14 basis points. We are at around 3.9% in terms of market share in this case. All the liquidity indicators are above the threshold and we can say in a comfort zone.
Also, the growth of the asset management product is good. Also, in this case, it is important for me to underline the market share that we are able to generate on the new business. Here we have a market share in the first part of the year that are at 5.3% on the new generation of gross inflow, that is well above the market share that we have on the stock, that is only 2.8%. So this is something that is very important to underline, all the results of our commercial activity in this case.
Customer loans are increasing. We have some area of the customer loans that decreased, but we have to consider that the decrease is related to the repos managed by Monte Paschi Capital Services that are connected with their activities. And then we have the increasing in the securities lending due to the retain of the senior notes of the securitization.
Capital structure. We have a decrease if we consider the situation at the end of last quarter. Around EUR 400 million decrease in the level of the capital for the negative impact on the reserves on our financial assets. And plus EUR 2.5 billion risk-weighted, mainly for the introduction of the add-on on defaulter assets, that in June is related only to the unlikely-to-pay.
In the second part of the year, we have to manage and consider also the introduction of the add-on for the bad loans. And we have estimated -- considering also all the disposal plans on which we are working, we have estimated to have a possible further increase for this area that is around EUR 1 billion of risk-weighted asset for the end of the year.
I would like to go directly to the Page 23 and 24. That are the page in which we compare the results of our quarter and the first half results with the results that are our target for the next year. Here we can see that on the net interest income we have reached 51% of the target of next year. So we are in a very good situation in this case.
We have still steps to go ahead for the fees and commission, for which we have reached 45%. We can consider that the asset under management growth is below our expectation. But we have also to consider the different environment and the different market in which we are working in this period.
So the total amount of the revenues is below the 50% of the target of next year, but we can say that here we have also the negative results for the losses that are related to the increase in the Italian credit spread.
Operating cost are in line with the target. And we will improve our efficiencies for the exits that are planned in the second half of this year that can contribute to improve the results. And we can now assume that in '19 we could have a lower level of operating cost considering the target that we have.
The other target important to underline, Page 24, is -- are the targets for the customer loans, direct funding, for which we can see that we have room to increase again our presence in the market. And this is important because we can sustain -- we need it to sustain the growth on increasing volumes. On the customer loans, you have seen the trajectory and the progress for the new mortgages. So we are in the condition now to sustain this growth, also for the good trend that we have on the direct funding.
Cost of risk is below our target for the next year and this is driven by the default rate that is 1.6% compared with 2% we expected in our restructuring plan. Now...
Okay, back to me. A few closing remarks. I think -- I stated at the AGM last year and the AGM this year that the Monte dei Paschi journey to recovery was indeed a long one. I don't think we can solve or restore the situation in a few quarters. We do have a plan which stretches until 2021. And as I said, we need to cope with the need for implementing a very cumbersome restructuring exercise with the need to re-launch the commercial position of the bank and put the bank in a safe and sound situation going forward. To reconcile the 2 is not a straightforward exercise.
I think Q1 and Q2 2018 demonstrate that we are on the right track. We are on the right track in terms of delivery. We are showing we are able to cope with pretty stormy waters, and I do refer to the macro environmental situation in our country and the fact that in the last 5 years, as we discussed in previous calls, the asset size of Monte dei Paschi shrank close to EUR 55 billion and the commercial deposits shrank around EUR 30 billion.
So first half of 2018 was the period where we had to show we were in a position to invert the trend. And I think main focus on our commercial strategy going forward is consolidation of direct funding and wealth management in order to foster our loan growth going forward, stabilize the top line of our P&L as far as net interest income and commission line are concerned, and continue and strengthen the disciplined approach on our cost base throughout 2018 and 2019.
That goes hand-in-hand with meeting and possibly exceeding the restructuring plan targets both in terms of absolute cost of credit quarter-on-quarter, year-on-year; and anticipate targets of NPEs reduction overall; meet the objectives of our commitments vis-à-vis our operational overall structure; and look after our capital structure through increasing our capital generation from next quarters, going forward up until 2021.
We're now open to questions and please go ahead.
[Operator Instructions] The first question comes from Jean-Francois Neuez with Goldman Sachs.
Jean-Francois Neuez from Goldman Sachs. I have a few questions. The first one being on funding. I just wanted to know whether you could remind us of your TLTRO amount. And I guess it's still 2 years, but with the market tightening for sovereign bonds in Italy, I just wanted to know whether you could walk us through your refinancing strategies? How you are planning to tell the market or manage your assets to essentially get the refinancing of this underway. The second question I had on funding was, on Slide 9 you're talking about 14 bps gap versus the market in terms of cost of funding, reducing from 25 bps in December. Is that front book, new deposits or it is under stock? And do you expect to go fully down to market average in your forecast of the business plan? And these are my 2 questions.
Okay. We can start from the question. The difference is on the stock and we plan to eliminate this difference for the future. So we have a room in order to decrease the cost of funding, also to support the pressure that we have on the asset side. I think that in the last year, we were able to cut around 5, 6 basis points per quarter and the trend could be maintained also for the future. So the difference that we had in last year was much more higher than the differences that we have now. So there is room to improve the quality and the level of our net interest margin working in this area. For the funding side, we have now to consider that we want to reenter in the wholesale market for the covered bond and this is something for which we are ready to start the activity. We are adjusting all the offer in [indiscernible] and in the administrative activities. And we have also just updated the [ NPM ] program for the possible issue of Tier 2 and senior bonds. And this is something that is planned starting from the -- we can say the reopen of the market in the next September.
Can I follow-up on the question on the stock versus front book? So if the stock is at 14 bps versus the market, I suppose your new front book, deposit, if you want, or funding must be very close to market average at this stage. Is that a fair assumption?
Yes.
Okay. So you have virtually closed the gap?
So the new flow are in line in terms of condition -- are in line with the market condition. We have the benefit of the expiring of the time deposits and the condition that we gave to our corporate customer in order to sustain the liquidity last year. And we are working in order not to repeat this market condition for retaining the amount of deposits. And it is important to underline that we were going to cut the difference with the customer, increasing the volumes.
The next question comes from Domenico Santoro with HSBC.
It's Domenico from HSBC. Just 2 questions, please. The first one is on the add-on risk-weighted assets on UTP that you show in Page 20. Can you just give us more color on this and tell us whether this is related to the number of days that the regulator has recently commented -- the EBA -- for the definition on default on some specific segments? And then on the risk-weighted asset waiver, I'm just wondering whether you can work us through the process. I suppose that was a very long conversation with the ECB. Whether this was already pre-agreed in a way in your restructuring plan and whether we should expect any sort of risk-weighted assets inflation of the any other kind after the disposal?
Okay. For the add-on, at the moment our internal models doesn't consider risk-weight on the default assets. We are updating the models and we will start the application for the end of the year or the next year. In this period, not having -- excuse me, in the first quarter next year, we will complete the application for the updating of our models. In this period, we received the request from the regulator in order to start the accounting of the risk-weight on the defaulted assets. These request start with the consideration of the -- a way on the unlikely-to-pay. I mean, this is something that we started to consider for the end of the second quarter. And the results on that are way improvement, in this case, is around EUR 2.9 billion that is related to the around EUR 10 billion of unlikely-to-pay that we have. And then we have to consider the possible other increase, also considering the bad loans that -- for which we are starting to consider the risk-weight from July. So for the presentation of the result of the third quarter, we will have this impact. This impact at the moment is expected to be around EUR 1.4 billion. And this amount could decrease to around EUR 1 billion considering also the disposal activity that we plan for the bad loans in the second part of the year. So at the end, the net-net, starting from the results of this year, we could have around EUR 1 billion more risk-weight on the defaulted assets. This is for the add-on. And we are considering that when we switch to our internal model, we don't have important difference from the initial evaluation that is based on the request of ECB. Speaking about the waiver, we receive the authorization not to include the results of the losses we recorded for the disposal of the bad loans under the securitization. We are speaking about the EUR 24 billion securitization of bad loans we complete in the last quarter together with the disposal of the EUR 1.2 billion -- or EUR 1.3 billion of bad loans that was not included in the securitization for the small-ticket and another amount -- another similar amount for the leasing. All this perimeter of bad loans was the bad loans we had at the end of '16. So we are not able at the moment to consider also the new generating bad loans or nonperforming loans included in this waiver. But this is for us a very important formal moment because even if all these -- the consideration of the wavier was one of the assumption we had in the restructuring plan. It is very important for us now to have and to have -- and to be very, very sure that the trend of the risk-weight will be exactly in line with our expectation for the future.
The next question comes from Giovanni Razzoli with
Equita SIM.
A couple of questions from my side. The first one is quite generic. But with the increasing concern about the impact on the spread on the banking business in general, I was wondering from a managerial point of view what are the areas of risk that you see immediately on your group from rise in spreads? I was wondering whether you do see an impact on, I don't know, the loans demand, the level of common equity Tier 1, the possible worsening of the credit quality? So a general comment of what are in your view the main risk areas from this sudden widening in the sovereign spread? The second question -- and sorry to ask you in very detail, but out of the 13% common equity Tier 1 that you have disclosed, what level of spread is this 13% incorporating? I understand this is a very simplistic approach, but just to have an idea of what pressure you may have from further pressure on the sovereign yields. And my last question. I've seen that you have clearly detailed you do expect some further risk-weighted asset inflation by yearend. You have also guided us with a quite strong pre-provision profit generation and cost of risk at 60 basis points as shown in the second half. You should benefit also from some cash flow generation. My understanding is that the impact of the add-on on NPLs may offset this, so you may see still a little bit of pressure on your common equity Tier 1 at yearend from the 13% you have disclosed. So if you can share with us what could be a reasonable guidance on the common equity Tier 1 at yearend?
Okay. Let me tackle the first question on the overall potential impact on loan, core Tier 1, capital in general and credit quality out of the spread. I think there is things we can control and things which we need to adjust, but we cannot control. Discipline on the way we manage the business, the cost structure, the growth of the loan book and strengthening our commercial deposit base, reducing at the same time the cost of commercial funding, I think we will continue to move towards this route. And as I said, the merit of what we did in half 1 actually goes to 23,400 employees, which managed to invert the trajectory of our overall business. I think -- the impact on the loan growth and the impact on our credit quality -- credit quality is an internal process which we've been taking care of for the last 15, 18 months. I don't think as far as we are concerned there is going to be an immediate impact on the trends on credit quality in terms of our loan book if the spreads move up. On the loan growth, this is pretty much a function of the macro environment and on the way our client base will react to a possible worsening of the macro environment and the investment mood, CapEx and working capital as far as PMI is concerned and increasing household consumption as far as the retail -- traditional retail client base is concerned. So far I think the growth in our volume bears out the fact that we are not seeing at the current spread level any slowdown in this respect. Andrea, on the impact on capital and our 13%...
Okay. And...
[indiscernible]
Yes, before it, we have the figure and the amount of the spread that we consider at the end of June. So we are in the area of 238 basis point. And so if we consider the movement that we have from June up to now, we can say that we have no strong or important difference in terms of impact on the total amount of our financial assets. Speaking about the possible trend of our common equity Tier 1 for the yearend, for sure, as I said before, we have at least EUR 1 billion increase in the risk-weight for the progress of the add-on on the defaulted assets. EUR 1 billion represent around 15 basis point in terms of CET1. We know that the progress of our loan book will continue and we could have another EUR 1 billion more in terms of risk-weighted on this side in the second quarter because we want to continue to grow in this side. We can compensate a little managing better the market risk, and so we have some room in order to compensate the growth of these risk-weight for the future. And on the other side, we have to consider that at the moment we didn't consider on our capital the results of the second quarter, for instance, because we want to wait the results of the third and the fourth quarter in order to analyze exactly what will be the contribution on the capital coming from the profit and loss. But if we are able to manage in the way in which we are thinking now, all the extraordinary cost that we will have to face in the second half this year, we can also assume to consider capital generation for the second -- for the rest part of the year that can compensate a little the level -- the natural decrease of the capital -- decrease of the capital for growing of the risk-weight. Just to give you some more detail on the wavier on the LGD. We can say that at the moment -- having received this, we can say authorization not to include the impact of the securitization, the disposal of the nonperforming on our models. So -- we don't have important movement in the trend of -- in the next trend of the LGD, so we can assume that the growth of our risk-weight will be only the natural growth that is linked with the growth of our loan book.
The next question comes from Riccardo Rovere with Mediobanca.
A couple of questions if I may. The first one is on the stock of the gross NPEs. If I look at Page 27, you say stock is EUR 19.8 billion at the end of June versus EUR 42.6 billion in the end of March. Now if I eliminate EUR 24 billion out related to the consolidation to Quaestio out of the EUR 42.6 billion, I would end up with a stock -- pro-forma stock in March of, let's say, EUR 18.6 billion. While in the press -- so what I see is theoretically a kind of more than EUR 1 billion increase. While in the press release you say that the stock is flat quarter-on-quarter. So I am a bit confused by that. If there is anything that I am missing in this argument. This is the first question. The second question I have is on -- just kind of clarification. If I understand it correctly, during the call you mentioned that you expect EUR 250 million, EUR 300 million of pre-provision profit per quarter. Is that correct? And does this include -- what kind of assumption does this include on trading, which seems to be very volatile and this quarter came negative? What should we expect as a normalized level in the line of the P&L?
We can from the first question. So the trend of the of the GBV of our nonperforming exposure March to June is explained by the recognition of the bad loans that was included in the securitization and then the little flow that we have in the quarter coming from the default rate and the cure rate. The total amount of the decrease in terms of bad loans is less than the EUR 24 billion that we have considered at the end of -- at the beginning of the structure of the securitization, because starting from that period that was at the end of last year we have all the recovery that was -- that is the activity of the reduction of the total amount of the GBV that represent a natural reduction of the total amount of the volumes that we can exclude from this operation. So we have not to consider EUR 24 billion, but the real amount that are linked with the trend of the recovery.
Sorry, Mr. Rovellini. Just to be -- just...
Please.
Would you be in the position to say what is the real amount? If it's not EUR 24 billion, I would imagine now it must be something like --
No, EUR 24 billion...
-- EUR 22.5 billion, something like that.
Yes, I mean, the -- yes, but I need some moment in order to find the exact amount.
On your second question on the EUR 250 million, EUR 300 million per quarter guidance, which is a comment I made earlier, I think this is a statement based on the current situation, i.e., with the current level of market spread. So we are projecting a top line which factors in the current situation. Then if things worsen or if the macro environment changes, we will clearly adjust accordingly. But this is a guidance made on the basis of what we are seeing as we speak.
But Mr. Morelli, just to clarify on that. Trading in this quarter came negative by roughly EUR 30 million. But this should not be the normal level, right? I mean, you should not expect it to happen...
Right, this is not normalized. My statement and my comment was on the basis of a normalized half 1 average of the 2 quarters. Then -- I do agree with you, the Q2 minus EUR 30 million is clearly an extraordinary situation.
And then I have the figure of the reduction for the recognition of the loans under the securitization from the first quarter to the second quarter. We have EUR 22.4 billion less coming from this operation.
The next question comes from Hugo Cruz with KBW.
I have a few questions. Just starting with the RWAs. I just wanted -- perhaps you explained it, but I missed it. I think EUR 2.9 billion of add-on for the UTP, that will go down to how much once you sell the UTPs? And I thought there was going to be some RWA inflation next year related to market risk as well. So if you could clarify that. And then on the restructuring charge. Am I correct in assuming that the EUR 200 million in the second half was in the business plan already or is this new and again if you have any guidance for next year? And then on the DTA reassessment. Again, I had an assumption of EUR 270 million for the full year, which I think was from the business plan. Is this target -- is this number at risk because of this quarter? Do you have a guidance for the full year? That's basically it.
I can start from the first question, that is the impact on the disposal of the unlikely-to-pay on the trend of our risk-weighted assets. So we can say that on the leasing unlikely-to-pay that are -- for which we are considering to be able to dispose around EUR 700 million in the second half, we have a risk-weighted asset benefit that is EUR 100 million. And then the further disposal of the other unlikely-to-pay, for which we are considering to be able to cut the total amount of the stock by around EUR 800 million, EUR 900 million, can generate around EUR 200 million of release of the -- in terms of risk-weight. The other question was...
On the restructuring cost, the answer is, yes, the EUR 200 million area of restructuring cost in half 2 are fully factored in the restructuring plan. And as I -- as we mentioned earlier, they are mainly due to the FTE exits and the Solidarity Fund. In 2019, the restructuring costs are going to be lower than 2018 and 2017. And again, these are -- these forecasts are fully factored in the 4 years restructuring plan.
And then I had the question on the DTA reassessment. I mean, do you have any guidance for the full contribution this year?
On DTA reassessment, so we had a very positive result in the first quarter. Then you can say we stopped the positive contribution in the second quarter for the one-off impact that we have on the level of the reserves. We are considering that in the next 2 quarters to be able to recover the trend of the first quarter. So assuming to have a reassessment that could be in the area of EUR 50 million, 60 million per quarter.
Just one more because I forgot to ask. You said that -- I understood Q2 earnings were not included in the capital. What about the Q1? I don't remember. Can you remind me, please?
In the Q1, we included the results in the capital. So the benefit was -- the total amount of the net result we were able to account. We didn't consider this second step, so the results of the second quarter. And this is because we wanted to -- we needed to weigh exactly the trend of the net profit for the next quarter in order to be sure that each increase in the capital will be stable also for the future.
The next question is a follow-up from Riccardo Rovere with Mediobanca.
Just a clarification. If I remember correctly, the restructuring plan was foreseeing the sale of foreign banks. I imagine you are referring to Belgium and France. Now you're talking about winding them down. So you're not expecting to sell it -- to sell those anymore. And if there's restructuring cost related to winding those 2 businesses down, wasn't that included in the restructuring plan, should be on top of the amount included in the restructuring plan? Just a clarification on that.
Yes. So all the disposal or the winding down scenarios are included in our restructuring plan. And so we have 2 different targets in relation to the different strategy that we are able to reach for these 2 subsidiaries. At the moment, we are in the middle, so we are working in order to plan the winding down for one of the 2 because for the other one we have some interest from the market that we are evaluating. But in any case, we can say that all the cost for the winding down are included in the restructuring plan and this cost will be -- follow the natural if we are working with this kind of scenario. This cost will be split and spread in the year in which we needed to reduce the dimension of these banks following the winding down plan.
And continuing the business of winding down those businesses is clearly a process which will stretch throughout a number of years.
I don't think there are additional questions as far as I can see. Before we leave, we're going to be on roadshow mid-September, so we will have a chance to further go through our half 1 results. And if in the meantime any of you need additional clarification or input, please feel free to get in touch with our Investors Relation team. Thank you very much. And I'll see you during the roadshow.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.