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 afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the MPS Group Third Quarter 2018 Results Conference Call. [Operator Instructions]
At this time, I would like to turn the conference over to Mr. Marco Morelli, CEO and General Manager of the MPS Group. Please go ahead, sir.
Good morning, everybody, and thanks for attending this call. I will take you through a few slides with Andrea Rovellini, our CFO, and then we are, as usual, open for questions. We are presenting and commenting upon Q3 and the first 9 months of 2018. So let me start with Page 2, a few introductory remarks. As everybody knows, we are moving in parallel with a very cumbersome and -- overall Restructuring Plan, along with a revamp in the commercial efforts of the bank and with the aim of making sure our commercial network do work in a proper manner. So moving along those 2 parallel lines simultaneously, as you might appreciate, is not an easy task altogether. In spite of this, at the beginning of the year, our message was we need to show that we are consistently meeting the targets of the Restructuring Plan, which goes until the end of 2021. So in this respect, I think we are pretty much in line with what was set for the Restructuring Plan approved by the European Commission and the ECB. Pre-provision profit 9 months is EUR 803 million, stable vis-à-vis of the same period of 2017, net of one-offs. EUR 248 million of pre-provision in Q3, which is pretty much in line with the average of EUR 250 million of the 3 quarters and is plus EUR 60 million vis-à-vis of Q3 2017 net of one-offs. We confirmed the status of the cost of credit with 55 basis points, which is in line, again, with the guidance of -- guidance given when we presented Q1, 60 basis points area. That results in a net consolidated income of EUR 379 million, EUR 91 million of which are related to Q3.
Our gross NPE ratio target year-end is confirmed at 16%, which in turn means 9% net. And this is due to the different process of disposal that we are implementing and we will dwell upon that in a few minutes.
Core Tier 1 transitionally is 20 -- sorry, is 12.8% and fully loaded is 11.2%. This number is the result of Q2 and Q3 net income and the rework of the DTA on the tax losses, ACE and convertible DTA under the same assumptions we used for the probability test, as explained in the footnotes.
Page 3. As I mentioned earlier, a stable trend of pre-provision profit. In spite of a net result, again, positive. It is the third quarter in a row where we showed a positive net income both before taxes and after taxes. And that in spite of the fact that we posted EUR 86 million of nonoperating restructuring costs. Again, links to the assumptions and the commitment made in the Restructuring Plan. Good performance overall if we factor into this analysis the fact that we closed 14% of the branches we had at the beginning of the year and we decreased the workforce by 6%.
Capital position, Page 4. It's really self-explanatory. We are above regulatory requirements both on the pro forma Core Tier 1 ratio and total capital ratio. We do expect and we do hope that the new SREP targets, which will be given shortly by the ECB, will encompass and will include in the overall assessment the performance of the bank both from a quantitative and a qualitative point of view. The bad loan and UTP reduction is pretty much in progress; EUR 800 million already posted in the first 9 months. We had an ongoing EUR 3.3 billion of bad loan disposals in the pipeline. Binding offers are due before the end of 2018, and that would -- allowed us to shoot for a 16% gross NPE ratio. We reduced the sensitivity on Italian govies, and there is a specific drill-down later, to 3.3 million from 5.6 million same period of 2017 and the duration accordingly. Risk-weighted assets net of the add-on on the UTP and bad loan portfolios, which amounts to EUR 4 billion, are down since December 2017, for EUR 1.4 billion. Page 5, the commercial strategy. I think, again, at the beginning of the year, we stated that the aim of the bank was to reignite the commercial impact of the network on the mortgage business, and I do believe the numbers speak for themselves, is over -- well above 100% year-on-year and 13% Q3 on Q2.
On the corporate, same thing, we have already reached the target and forecast for 2018. We're now moving towards a more selective loan granting policy, which will be implemented in order to preserve the top line of the bank and the creditworthiness of the counterparty. We migrated in line with what we stated an additional 150,000 customers to Widiba, our digital banking platform, and this transaction has been successfully completed 2 weeks ago. And these results and the input that we are receiving, both from the commercial impact and the quality of the service as far as clients are reporting that is very, very positive. You know that the initial aim was to move 0.5 million clients towards the plan, so we are pretty much on track in this respect.
Cost of funding. We do continue -- and again, in order to preserve our top line and our NII, we do continue the reduction of the cost of commercial deposits and cost of our commercial funding. And this is the reason why you also see a reduction in the overall amount of commercial deposits. The strategy of the bank since mid-year was to, basically to let go those kind of positions which were more expensive in terms of the target we are having of reducing towards the year and in the first half of next year, getting to the average cost of the projects of our peers.
Franchise. I did mention earlier the fact that we did close since inception of the plan in 2017, 435 branches out of a total target of 600 by year-end 2021. We are going to close an additional 60 branches by year-end. That would take us to 1,500 branches at the end of 2018. And again, the target, as you might remember, is 1,400 by year-end 2021.
Page 6, ongoing loan disposal process. As you might recall, the target in 2017 on the UTP, and there is a drill-down on page 7, was EUR 1.1 billion, and we got to EUR 1.5 billion. The target for 2018 is EUR 1.5 billion, and the way we are seeing year-end is something which is going to be around EUR 2 billion. So again, in excess. If I go back to page 6, this is the 2 large disposal process that we do have in place are on the small tickets and the leasing portfolio. On the small tickets, it's at EUR 2.2 billion unsecured bad loan portfolios, which is split in 3 different components, and there is an additional EUR 200 million consumer credit portfolio. On the leasing side, the portfolio is around EUR 900 million, up to EUR 900 million, EUR 600 million of which are related to real estate and EUR 300 million of which are related to equipment. We do get to binding offers in the next few weeks. And as I mentioned, the aim is to finalize and complete by financial results -- year-end financial results 2018. The impact of such disposals is already fully factored in the IFRS 9 First Time Adoption number.
Page 7. I quickly dwell upon that this is the process related to the UTP. In the light of the fact that we overperformed in terms of target and these targets last year we implemented a slightly more aggressive procedure, and that is showed in the numbers. As I mentioned, the aim is to have around EUR 2 billion UTP reduction by year-end. And by the way, the target for 2018 was EUR 1.8 billion, and the target for 2019 is in itself EUR 2 billion.
I now pass on to Andrea Rovellini for more detailed drill-down on our P&L and our balance sheet. And then I'll come back to you guys for questions
Okay. Thank you, Marco. Starting analyzing the other line of the P&L, we can see Page 9 has the trend of our net interest income. We have a slight reduction quarter-on-quarter that is mainly driven by the decrease of the average commercial spread on the loan side, and this is due to the competitive pressure that we are working on in this quarter. We have to say that in order to define the level of the interest rate starting from September, we launched a repricing campaign for the new lending for retail and corporate loans, and the result of this campaign will be evident in the coming quarters.
Cost of funding continues to decrease, 3 basis point in the quarter, also at a slower rate compared to the previous quarter. But in any case, we have still room to close the gap with the market that, at the moment, is around 13 basis points versus 25 basis points that we had at the end of last year.
Compared to 1 year ago and excluding the extraordinary component mainly related to the burden-sharing, the net interest income increased by 5% in the quarter and remains more or less stable year-on-year. A stable balance, but we can see also better quality, because the interest from nonperforming portfolio represent, at the moment, about 16% of the total net interest income. While in 2017, they represented around 25%. And the contribution from IFRS 9 is 0 because we are offsetting the positive contribution from the discount unwinding on the bad loans with the provision on the interest on unlikely-to-pay and past due. Moving to the fee and commission. Third quarter and 9 months, the net fees are almost stable on a yearly basis, and in order to manage this comparison we had to exclude the contribution of some acquiring business that was sold in the second quarter last year. But in comparison with the second quarter, fee and commission are down around EUR 50 million, and this is a result of the seasonality and also the market volatility for the wealth management products that hit the [ sent ] amount of the last quarter. But I would like to highlight the better quality and the stability of our fees, analyzing a lower contribution from upfront, now 16% on the total. We were at 20% last year. We are increasing the continuing fees around 9% year-on-year, and also the credit facilities, plus 7% year-on-year. Regarding these credit facilities, I think that it could be interesting to mention a new product we launched for corporate in the last year, a new service focus to identify financial needs and to support the strategic planning for SMEs. In 9 months, we were able to reach around EUR 8 million of new commission. That means that we are also better linked -- the relationship with our customer, but -- and at the same time, we are diversifying the revenue sources of our commissions. The stock of assets under management is stable, with a positive net inflow by EUR 0.3 billion on mutual funds in the bancassurance, and this is despite the market volatility.
Moving to the dividends and the trading income, we can observe that the dividend trend is maintaining stable, and this is due to the contribution from our joint venture with AXA. We have a positive -- a little, but positive net result from trading and hedging. EUR 5 million results that improve the quarter 4 -- quarter-on-quarter, thanks to the better contribution of Monte Paschi Capital Services that, despite the higher market volatility, successfully managed the market making activity of Italian bonds. In this area, the total amount of the portfolio that is fair value to profit and loss, so the trading portfolio decrease from EUR 8.7 billion of June to EUR 6.3 billion in September, and the sensitivity in this area, that is the sensitivity that hits directly the P&L, is very low. So we are speaking about EUR 0.3 million for 1 basis point change in the BTP-Bund spread and with an average duration that is around 1 year.
If we move to the operating cost, here, we can see the real and structural progress because operating costs are decreasing quarter-on-quarter. And with the comparison with the same quarter last year, we are around 10% less. And these, thanks to the cost-containing action and also a seasonal deceleration of the spending cycle, we can expect a little increase in the other expenses for the last quarter of this year. I would like to remind that in the last 12 months, we have factored in a reduced cost base with a workforce that decreased 6% and branches down by 14% versus a year ago. And this reduction of the structure, that is also a reduction in terms of our commercial presence, was realized, maintaining more or less stable the total amount of our revenues.
If we switch to the nonoperating items impacts, we have a negative result for EUR 86 million that includes the annual contribution to the Deposit Guarantee Scheme, EUR 18 million for the quarterly contribution for the fees that we had to pay on DTA, and we had around EUR 30 million for all the other extraordinary costs that are stemming from the commitments undertaken with DG Comp.
And regarding this commitment, we have to say that the unwinding of the foreign network is almost complete in terms of cost, and we are not expecting other significant restructuring costs for the rest of the year because we have reached an agreement for sale -- for the sale of Monte dei Paschi Belgio and we are expecting the closing in the first half next year. We -- and regarding Monte dei Paschi Banca, so the French subsidiary, in summer, we started with the winding down program, which will last about -- some years in order to complete and we are ongoing on the closing activity for the branches that we have in New York, London and Hong Kong.
We can switch directly to the asset quality, Page 14, 16 -- 15 and 16. Here, we can see that the default rate is at 1.7%. That is below the target of 2% that we have under our restructuring plan for the next year. And we have a cure rate at 6.3%, danger rate that has increased, reached 15.2% at the end of this period. Loan loss provisions are at 55 basis points. So we can confirm the guidance for the full year in the area of 60. Also, including the loan loss provision that are related to the loans that are classified at fair value, all the loan loss provision linked to the signature loans, the total cost of risk remain about 50, 55 basis points, and we can say that, fully in line with our expectation, this cost of credit is driven by the cost from the performing that represents now 2/3, so around 65% of the total.
The coverage continued to remain stable. And if you compare the final results of the coverage for the total NPEs, we are at 56.4%, with a very little increase if we compare the results that we had at the end of June.
In terms of ratio, at the end of September, we have a nonperforming loss ratio of gross 19.4% and a net ratio that is below 10%, at 9.6%. This ratio could benefit from the program to dispose of bad loans and unlikely-to-pay that we are working in order to complete within the end of this year. Direct funding and liquidity. In these -- for this area, we have a reduction quarter-on-quarter that is mainly explained by our strategy to maintain the markdown at our expected level, and the reduction is mainly driven for the behavior of one of our main institutional customer, and also the other part of the reduction is linked to the large corporate activities that we manage. So the current account reduction for the retail is linked in the quarter and is linked to a bond that expired in the period. The liquidity indicators are, we can say, in a comfort zone. So net stable funding ratio is 111% and the liquidity coverage ratio close to 200%.
We can switch directly to the customer loans, for which we have an increase by EUR 1 billion since the beginning of the year and EUR 0.5 billion quarter-on-quarter. Here, we have very strong and good results coming from the new operation. So we have around EUR 8 billion of new loans granted in the 9 months that replaced loans gone to maturities, for around EUR 6 billion. We -- I have -- you could say that after the -- at the beginning of this year, after all of the difficulties that we had in 2017, we had to restart the commercial machine. And now, after getting it going, we are in a condition to manage the growth of volumes with better prices and condition maintaining strict control on the total level of our quality.
We can switch to the last 2 slides, with the capital structure and then a little focus on the govies portfolio. So, for the capital structure, we have to consider that the transitional CET1 ratio is 12.5%, excluding the second and the third quarter net income. The change to the -- in -- from June is due essentially from less EUR 100 million for further decreasing the reserves due to the BTP-Bund spread that increased in the quarter from 237 bps to 267 bps. This is corresponding to around 17 basis points in terms of capital. We have around EUR 300 million of higher deduction, mainly for the exclusion from the ratio calculation of IFRS-9 transitional adjustment. This is something that would be expiring on the fully phased evaluation. But in the quarter, we have around 30 basis points linked to this negative impact. We have an overall decrease of average weight with the add-on on the bad loan portfolio in the quarter, EUR 1.4 billion, that is more than offset by the decrease of the credit risk, and also we have a decrease in the risk weight from capital for an amount of around EUR 1 billion. And so the impact on the capital of these 2 movement is quite minimal. So the pro forma transitional common equity Tier 1 is 12.8%, and the pro forma fully loaded CET1 ratio is 11.2%. In the pro forma, we have to consider the 2 positive elements on the level of the ratio. One, on the transitional ratio, we have taken account of the profits generated in the second and the third quarter and that are currently not considered in the stated value. For this reason, the common equity Tier 1 increased by around 30 basis points, and on the fully phased ratio, in addition to this adjustment, so the pro forma for the quarterly results. And those are in addition to the main and negative impacts of the IFRS-9 First Time Adoption amortization. We have considered the positive impact of deriving from partial and conservative recovery in the next 5 years of the outstanding stock of DTA from tax losses, the ACE will be aid to the economic growth, and the convertible deferred back taxes.
Under -- and all of this, under the assumption that we applied for the volatility space, the total improved coming from these adjustments is around 60 basis points. We can analyze the figure on page 21, in which we can see the reduction of the sensitivity on the credit spread of our Italian govies portfolio. We have also a reduction in terms of total amount, but it is important to underline that now, with 1 basis point of movement in the spread of BTP-bund, we have EUR 3.3 million less gross of taxes, in terms of capital.
The total amount of the DTA that at the moment are not recorded on the balance sheet remains stable, in line with the results that we had at the end of June.
Okay. So back to a few remarks at the end, Page 24. I think the evidence is pretty much self-explanatory. Each of you can gauge, assess, analyze and draw conclusions and come up with some opinion that is your own opinion. I think, again, for us, the aim after the approval of the restructuring plan was to have consistency of performance, a stable trend, in an environment which is pretty much blurred as we speak, and in the context of, as I mentioned, our restructuring plan with a very strict monitoring from a number of authorities show, in a nutshell, that we are clearly moving with much less room and much less ability and capacity to go for our targets. In spite of that, the performance of the bank is in line, as I said, with the targets. We are meeting all our objectives that we did set ourselves at the beginning of the year, and we will continue to focus in the next few months and in 2019 on productivity, which is going to be the mantra of our commercial effort going onwards.
Now we are open for questions.
[Operator Instructions] The first question comes from Jean Neuez of Goldman Sachs.
I have the following questions, please. In your efforts to manage cost of funding in the quarter, can you please update us on whether that effort of managing that cost of funding has continued through October and whether you'd be willing to share the balance of deposits at the end of last month, for example? The second question I had is I was interested in Slide 14 where -- it's on this slide where the gross inflow from performing into nonperforming exposures has risen a bit in the quarter, and I wanted to understand whether there was anything that we should note or whether the current slowdown in, essentially, GDP indicators had any impact on that. And thirdly...
Sorry, can -- sorry. Apologies, but we could barely hear you. Can you restart again please?
From the beginning? Okay. So can you hear me better now?
Please. Yes, better.
So I just wanted to understand whether your efforts to manage funding costs and reduce expense of funding have continued in October and whether you'd be willing to share the balance of deposits as of the end of October. I just also wanted to understand why the gross inflows from performing into nonperforming had picked up slightly this quarter. And thirdly, whether, on the cost reductions, you're well ahead of targets so far in terms of the pace. I just wanted to understand whether you believe that the change in the stakeholders managing the controlling interest in the banks would potentially have anything to say about the future trajectory of the cost commitments.
Okay. I'll take the cost and the shareholders' approach. And Andrea, you want to start?
We can start speaking about the trend of the cost of funding at the moment. So the last information that we have represents a stability in terms of cost of funding, and this is also linked to a new condition that we are applying to our customers in order to sustain the total amount of volumes. We know that we have still this 13 basis point extra cost with the market, and this is something that will be managed for next year in order to sustain the trend of our net interest margin. The level of the flow from performing to nonperforming in the quarter is hit by a large exposure. So we have 1 or 2 tickets that can explain the increase. In any case, we can say that the 1.7% in terms of default rate is something that is in line also with our expectation for the full year.
As far as your question on cost reduction and the approach of the shareholders, vis-à-vis of cost reduction, we do have a plan, which has been approved by European authorities, DG Comp and ECB, respectively. Clearly, the approval process was finalized with the full involvement of the Italian Ministry of Finance, which is the main shareholder. So we are moving according to plan. And as a matter of fact, we do -- we are repeating, as we speak, the targets of the plan. So as far as we speak, there is no different trajectory forecast vis-à-vis of the management of the cost base of the bank.
The next question comes from Giovanni Razzoli of Equita.
A couple of questions on my side. The first one is on your -- the evolution of your funding. You mentioned that you've seen a EUR 1.4 billion quarter-on-quarter reduction in the current account balances. I was wondering whether this reflects your fine-tuning of the cost of the funding that you expect also to continue in the second half of the year. And then a clarification on Slide #38 about the impact of the DTA reversal. If I got correctly what Andrea said, you expect to apply for the possibility to book the DTA that today are not recognized on the balance sheet because they don't pass the probability test. And so if you are allowed to record them into the balance sheet, you would have 60 basis points of -- at least in terms of CET1. A little bit confused because, as far as I know, these DTA are from carry-forward losses, so they anyway would be filtered out of the equity. So you can shed a little bit of -- help me to understand what's going on there. And then Slide #37, probably this is my fault, but I never realized that the contribution of your BTP portfolio was such low. If I read this slide correctly, in the second quarter, this portfolio of EUR 16 million of BTP had just a yield of EUR 3 million in the Q2 and the increase in the Q3 is only -- or mostly related to the interest accrued on the GACS securities. So my point is this EUR 16 million basically are no support to the NII and basically are breakevening. Is my understanding correct? And what's the reasoning for keeping such a high exposure? Apart from some funding consideration about the, I think, unencumbered assets and funding balances.
We can start from the trend of the current accounts. So the reduction in the quarter is linked to the large corporate, and as I say, the -- with the behavior of a very large institutional client that we have. We think that, in this area, we are more interested in the level of the retail market that is also the area for which we are able to have a cost that is very, very low, because we are speaking about some basis point. In this area, we are not seeing any kind of program in terms of maintaining a stable amount. We are, in any case, increasing the -- on the retail market, the area of the time deposits, also paying a little more than the -- that -- than in the past. And in this case, we are acquiring new volumes. So on the side on the current accounts and the trend of this kind of funding for the year but also for the next year, we are not concerned in terms of possible reduction but also in terms of our capability to maintain the -- a right condition in order to also close the negative gap that we have with the market. Speaking about the reversal of DTA that we have included in our fully loaded CET1 ratio, we are not applying anything in order to have immediately the benefit. But this is a very conservative analysis deriving from the possible recovery that we could have in the next 5 years for the DTAs that are linked to the tax losses and the convertible DTA. And this is under the -- all the assumption that we use for the probability test. So we have a test that we use in order to identify the right level of assessment, and we can say that we are sure that, in the next 5 years, the period that we have considered in order to have the fully phased for First Time Adoption IFRS 9, also having a very limited amount of net profit, of pretax profit, we could have this kind of a reversal that -- for which the common equity Tier 1 ratio will benefit. And the last question that is linked to the trend of the noncommercial net interest income, we have to consider that, in that portfolio, we have not only the results of our investment, that's all govies and all our -- the other financial investment, but we have also to consider the cost for the securitization and the cost of the institutional funding that we have to consider. So this negative result that is a cost in order to sustain the level of liquidity of the bank will -- is offsetting the total amount of the revenues on the govies.
The next question is from Giuseppe Bivona of Bluebell Partners.
I'd guess that been involved with a number of litigation, where damage has been claimed on the basis of allegedly incorrect or misleading financial reporting into 2008-2015 period. My first question is what is the aggregate amount of those claims, including civil and criminal case and extrajudicial claims? Secondly, what is the level of provisioning is aiming against those claims? And finally, is there any ongoing queries by accounts of Bank of Italy or ECB on the application of IAS 37 in connection with accounting of this particular legal liability?
Considering the total amount of -- so the possible liabilities, we are following the accounting principle that you mentioned. And so all of the level of the provision are defined in order to identify the expected liabilities that we could have on these, we could say, claims and court activity. So at the moment, we are not in the condition to identify exactly the total amount of the specific provision that we have on the specific claim, and these are for the reason that we can't explain our situation, our possible liabilities in order to manage the dispute that we could have in the court.
Okay. I understand you don't want to answer the question.
The next question comes from Hugo Cruz of KBW.
I have a series of questions if I may. So first of all, can you give your LCR and NSFR ratios?
Excuse me. If I may, there is -- there was -- the last question of Giuseppe Bivona was, if I heard well, to what extent and whether the bank has received from any local or international authorities any queries, any specific requests on the application of IAS 37 or whether there was any kind of point raised in this respect. The answer is nothing has been raised. We've been asked to provide an input on the application of the accounting principle, and we provided a reply to the competent authorities.
Mr. Bivona, your line is open again if you'd like to comment, sir.
Yes. But I also ask what is the aggregate amount of this claim? And what is the overall level of provision? Now clearly, in your 30 of June disclosure, not a full list, but by my count, there must be at least, say, EUR 1 billion to EUR 2 billion of those claims, but it's not an exact figure. I mean, given the sheer size, I personally would find it very interesting to know what is the sum of these claims as of today, including criminal and civil case and extrajudicial one. And also, as you disclose the provisioning for macro categories, this macro category is not listed. So I find it important to know what is the level of provisioning, in aggregate, of this claim. And if there is not provisioning at all, then also, I mean, I'd like to understand better.
Well, basically, we kindly ask you to refer to the disclosure that we made in our latest financial statement. As far as the quantification of the claims, as you probably know, basically, the latest proceeding -- legal proceeding, which is no. 955, is basically still under quantification, considering that we have received approximately 2,000 request of -- by civil part, that must be examined, and therefore is, for the time being, setting aside what is set forth in our senior accounts, we are not in the position to quantify the request from the civil part. In addition, we refer to the press release that we made in the context of there is nothing in July regarding the decision of the bank not to pursue any legal action against the previous management, which basically gives the interpretation regarding our approach concerning the provisioning funds.
The next question is from Hugo Cruz of KBW.
So a few questions. So first, I'd like to know if you can reduce the sensitivity to govies through any accounting, like, reclassifications. I'd like to know if you have any options there. Second, how did the LCR and NSFR look like without TLTRO? And third, I think you said that in Q4, there won't be any more restructuring charges. I just want to clarify that. But then do you have any new guidance for restructuring charges for next year?
Well, we can start on the govies sensitivities. Yes, so we can reduce the sensitivity. Our goal is to reach the amount of EUR 3 million at the end of the year, so around 10% less than the results that we have in September. And this is linked with our strategy in order to have less volatility on the capital for the level of the BTP-Bund spread. LCR and NS funding ratio without the TLTRO, as you can imagine, we could have an important impact. But in any case, the net stable funding ratio remain in the area 100%, but we are not including any kind of possible effect on the liquidity that we have planned in our restructuring plan because we are ready to do the expiring of this kind of source of liquidity. And at the moment, this action are planned, and we are ready to complete it during all the quarter of the next year. For LCR, the enacting the TLTRO is less significant because, in the short term, we have a funding substitution with other kind of sources. I don't catch the -- remember the last question.
Yes, it was to know -- just to confirm that you said there won't be any restructuring charges in Q4 but also any guidance for next year.
Yes, yes. At the moment, as we can -- we have explained in one of the last slide of our presentation, Page 24, for instance, we have to say that the last important impact that we could have that we planned this year in terms of restructuring costs arise from the Solidarity Fund that, at the moment, is postponed to year-end or the beginning of next year. But this is because we are not in the condition to analyze exactly the impact of the new national regulation for entering in the -- in retirement. So in August, so when we announced the possible final result for the year, commenting on the second quarter results, we said that we could have under EUR 50 million of negative impact. That's to finance this early retirement plan. This is the amount that we have to consider. But at the moment, as we -- I say that we can shift this amount from the last quarter this year to the first half next year when we will have well defined the condition to reach this kind of -- the level of pension for our employees.
The next question is from Corinne Cunningham of Autonomous.
I just wanted to explore a bit more on the subject of the TLTRO. How much do you still have outstanding under the TLTRO? And could you give us a bit more detail about how you would plan to refinance that?
So at the moment, we have EUR 16.5 billion. EUR 10 billion will expire in 2020. And in order to refinance this kind of source of liquidity, we have, in our restructuring plan, a number of activity that moves from the -- all the profit that we can have on disposing the nonperforming loans, the contribution from the commercial network, all the contribution coming from the funding of all of the assets that, at the moment, are used in order to sustain the TLTRO. We have, in any case, in the period before the expiring date also a program in order to place senior bonds to the institutional market and also an issue of a covered bond that, at the moment, we are studying and we are reading in order to catch the first wind of that we could have on the market to do that. So the total amount of the -- all the action that we have defined at the moment is more than 5% in order to compensate the TLTRO expiring, also because we can manage a little part of MRO that at the moment we are not using.
And do you have any plans to try to issue some form of subordinated debt? I know the cost of your subordinated debt has increased a lot lately, but there have been market discussions and perhaps that you would attempt to come back to the market?
Yes. So we have a plan because the issue of the second part of this good net debt is also one of the commitment that we have with DG Comp. But in any case, we are managing the capital ratio in order to -- not to be obliged to do this issue in a specific moment. And all the action in order to manage the growth, the risk weight, is also linked to this unlikely opportunity that, at the moment, we could have on the market. But in any case, we are working. We have seen the market. And if there would be the condition in the next quarter, we will try to catch it and place the -- this bond, because we need this kind of capital in order to sustain the level of our capital ratio.
The next question comes from Riccardo Rovere of Mediobanca.
A couple of questions, if I may. The first one is on risk-weighted assets, and especially, could you update us on where we stand on RWA of -- on defaulted assets, if you think there is something that might eventually shape the amount of risk-weighted assets the coming quarter? Maybe TRIM, if you can shed some light on that. The second question I have is on the volatility of fee income, can you give us an explanation why this line of the P&L, in some quarters, go up and down by 15% to 20%?
We can start from the second question, so volatility of the fee income. In the third quarter, we have less commercial activity because we have -- we are in the center of the summer months, and usually, in terms of weight, when we define the seasonality of our target, the weight of the third quarter is 2.5 rather -- in terms of month rather than 3. And this is something that, usually, we have each year. We are now working in order to identify the possible trend for the first quarter, but the total amount of the level of the net commission is also linked to the total amount of the placement of wealth management product. And at the moment, we can say that the market volatility that we have is something that is not allowing us to reach all the potential that we could have. So there is a seasonality in the [ let-up ] amount, the level is linked to the placement commissions even if we are trying to switch from up front to continuing, but this is something that -- for which the results and the positive results in terms of stability could be seen only in the next quarter. In terms of trend of the risk weight, we can say that, for the year-end, we are not expecting improvement or increase in this -- for this line. We are also -- so we can consider that the main impact also coming from the TRIM process. So the main deviation that we had was linked to the risk-weighted asset on the default assets, and we recorded it starting from June. I think that the possible improvement or effect on the TRIM process could be reached or could be accounted at the end of next year, when we will complete the process in order to modify to a specific application all our model in order to fit with the less relevant finding that arose from this kind of inspection.
Right. So when you say to get it correctly, from now on, let's say, the amount of risk-weighted assets should follow, aside from TRIM, of course, the growth in the loan book? And while in 2019, we should expect possibly a lower seasonality in fee income. Is that, indeed, the message you were trying to convey? Or did I get it correctly?
No, the message on -- so the message on the risk weight is that our expectation is to maintain it stable for year-end, and we could have an improvement coming from the application of the new models for the year-end next year, so at the end of '19. In terms of net commission, I'm saying that the last quarter this year could not be -- sorry, it could be, we could say, in line or a little less than the last quarter last year. But this is not something that could affect the trend of the net -- I mean, the net commission for the next year. So this is also linked with the volatility that we have in the market. But for the next year, we are planning a number of action in order to be less dependent on the wealth management product in order to improve the total amount of our net commission.
[Operator Instructions]
Okay. Marco Morelli again. Thanks for attending and for your questions. Please feel free to come up with additional Qs if any. Our team will be on roadshow next week. Therefore, we are fully ready to tackle any additional requirements you might have. Thanks again.
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