Bper Banca SpA

MIL:BPE

Earnings Call Analysis

Company Updates 2023 Financial Guidance

The company is showing steady growth and an improved financial outlook, leading to updated 2023 guidance. Net interest income is projected to exceed EUR 3.1 billion, surpassing the initial estimate of EUR 2.8 billion. Net commission income is confirmed at around EUR 2 billion, with operating costs remaining stable at approximately EUR 2.7 billion. An additional EUR 400 million is allocated for a new early retirement plan, reflecting opportunities from previous mergers and acquisitions. Furthermore, the cost of risk guidance is improved to about 50 basis points, taking into consideration the low default rates and stable inflow of nonperforming exposures. These changes suggest a positive forecast with expectations of a recurring net profit of at least EUR 1.1 billion and a robust CET1 ratio over 14%.

Net Interest Income Surpasses Expectations, Operating Costs Hold Steady

In a positive turn, the company's net interest income is expected to exceed the previous prediction of EUR 2.8 billion, aiming for over EUR 3.1 billion. Meanwhile, the net commission income remains consistent with the latest June forecast at around EUR 2 billion. Operating expenses are also in line with prior expectations at approximately EUR 2.7 billion. These steady costs include an additional EUR 400 million allocated for a new early retirement plan targeting about 1,000 voluntary exits.

Strategic Human Resources Maneuver to Optimize Operations

The company has launched an HR initiative, yet to be fully detailed, with an indicative cost of roughly EUR 300 million. This maneuver, deliberated with trade unions, signals an optimization aimed at rightsizing the company post-mergers and acquisitions, although the exact financial impact remains under negotiation.

Conservative Cost of Risk and Net Profit Projections

A notable improvement in forecasts due to lower default rates and reduced nonperforming exposures has led to guidance on cost of risk at about 50 basis points. With these updates, the company projects to achieve a recurring net profit equal to or greater than EUR 1.1 billion. This figure is bolstered by the bank's intention to maintain a robust CET1 capital ratio over 14%.

Dividend Increase Signals Confidence

Reflecting on the company's robust financial position and optimism for the future, the dividend per share is slated to be higher than EUR 0.25. This increased dividend demonstrates both confidence in ongoing operations and a commitment to returning value to shareholders.

Detailed Guidance on Future Financials Under Assessment

Although the company has not yet provided specific guidance for net interest income in 2024, the 2023 forecasts are perceived as fair and possibly conservative. This cautious stance is intent on ensuring that expectations are met or exceeded. Additionally, there is anticipation of performance fees from Arca to be included by year-end, which were previously not factored in, hinting at possible positive surprises in the financial outcome.

National Labor Agreement Pending Conclusion

The finalization of the National Collective Labor Agreement is expected by the end of the year. This agreement is significant for forecasting the financial impact on the company's operations. Precise figures will only be available after the conclusion of the negotiations, underscoring the importance of this upcoming announcement for investors.

Earnings Call Transcript 2023-Q3

[Gian Luca Santi, executive]

[Audio Gap]Very rapidly. So there is growth in total funding for plus 4% year-on-year and 1.1% quarter-on-quarter in direct funding, we had a first half of the year with a substantial growth in current accounts. The substantial drop in current accounts due to the dynamics interest -- in net interest income. And in the third quarter, we said -- unlike what we expected because we thought the situation would be flat, we were, in fact, capable of increasing the growth, particularly in current accounts with some products. And at the same time, we would also like to focus on the shift that we've had on mid long-term deposits to improve the situation of our liabilities.I would say that there is a good performance in assets under management. So the net funding is positive by EUR 579 million in the 9-month period and EUR 135 million in the third quarter. Whereas as far as the indirect funding is concerned, there is a substantial stability year-to-date since the beginning of the year, there is the effect of 2 different trends. One is the loss of stock from Amissima, because we closed the -- we terminated the contract with Amissima after the merger of Carige. And then there is another factor. So there's a EUR 1 billion growth in direct funding.Moving on to loans. I would say that the decline reflects some extraordinary situations like the EUR 500 million from the merger of Unipol Rental and FIFA, because of the risk of concentration since Unipol Rental is controlled by Unipol, we had to decrease the position there, and refinance by EUR 500 million. So there has been an actual drop that is traceable to SMEs and corporates, that of course, as you know, the SMEs and corporates are in fact trying to use their own liquidity to avoid incurring the cost of debt [ to direct ] increase lately. Then the cost of credit is absolutely good for the Bank, particularly in a situation the macroeconomic situation like the one we are experiencing.We confirm the absolute quality of loan book and credit. And in terms of coverage, we are best-in-class in the Italian banking system. And of course, it has -- I mean, the gross and net NPE ratio has slightly worsened because, as you can see on Slide 9, we have this dotted line in red that shows that there has been a reduction in the -- in loans. And so, the denominator in the ratio is subject to this reduction. It's more of an accounting thing and it reflects a drop in the -- or a decline in the denominator.The Stage 2 loans also show a very positive performance. As you can see, they have gone down by EUR 200 million. And as you will see later the quality of credit is in fact good. So we could have expected some deterioration connected with the dynamics of interest rates. But instead, this deterioration was not to be seen. We have not experienced it. And on the contrary, we had some improvements that we'll talk about later on. As far as the financial assets portfolio or securities portfolio is concerned, our idea is that of reducing it, downsizing it. The reduction has been EUR 500 million year-to-date, and it's a reduction due to the fact that the portfolio is more of a leverage portfolio. The leverage is expensive. And so, in terms of profit and loss, the return is such that we prefer to downsize it.The effects are that, of course, we're working on the Italian government bonds. And as you can see, since September last year, EUR 600 million is the reduction, which, of course, covers for the entire portfolio. So there has been also a slight reduction in the duration because we're looking at long-term Italian government bonds. And there is a yield on average for the quarter of around 2.77%.I would go directly to net interest income. Our net interest income is going up again by 2.2%. And if we take away the TLTRO effect then the actual commercial growth is 6.1%. Then within the EUR 14.7 billion worth of growth, there's also a reversal of EUR 18 million. That is the help and aid that the Bank offers to the territories in Emilia-Romagna that were exposed to and hit by the floods. So if we take account of all of this, then the net interest income growth would be of about 8.3%, 8.4%, which is a good trend in terms -- for the third quarter. As you can see, the spread is further improving. We are now settling at 4.34% in terms of receivable, let's say, spread. But this is inclusive of the Ecobonus effect, which, in fact, if we strip the Ecobonus effect off the numbers. I mean then the profitability is 3.42%.Then our net commission income is, in fact, one of the pieces of the information that were more found of. In this quarter, we've been able to in fact keep our commissions flat in a period of time that is very complicated, let's consider that there has been also the effect of the summer seasonality. And so, we are in line with the EUR 500 million that we promised on a quarterly basis at the beginning of the year. And of course, within this figure, you will not find the rappel concerning the premiums that we will have for the placement of products coming from the product factories. As at September, these rappel were for an amount of [ EUR 500 million ]. So I would -- we would confirm the guidance that we gave and that honestly, frankly speaking, from a commercial standpoint makes us confident that we will -- I mean, about the evolution for the future.Within this EUR 485 million, there's also that reversal or that we had to take on request of the supervisory authorities. For the manoeuvres that we had made on the current accounts because of negative interest rates, and it's about EUR 20 million worth of interest that we could recover and make up for with other income.In terms of costs, the third quarter for BPER is always a positive quarter because it reflects, let's say, of the accounting of the holidays of the employees leads to a release of the funds and the benefit compared to the previous quarter for about EUR 37.5 million. On top of that, in this quarter, we're starting to see the effect of the exits of personnel during the year. So as at September, the net exits of 330 employees also led to a further benefit compared to the previous quarter by about EUR 7 million. I would say that on the 9-month period, it's worth considering that we had 1,500 exits, 556 entries. And so the reduction in the headcount is 934 people; 936 people instead will leave the company on the 1st of October, which we think will -- is a further step forward to optimize the cost, the operating costs of people.I would say that cost/income is very important for the quarter that settle that 46% annualized on the 9-month period settles at below 50 basis -- with 50%. I think, that BPER never saw -- has never seen these amounts and numbers before, so they are important numbers. Then in terms of cost of credit, as you can see, it's true, we have been conservative, but we were looking at a default rate at the beginning of the year that was of about 1%. Quarter-by-quarter, instead, what happened is that what we are observing led us to a 0.1%, which in fact made us decrease the cost of risk, which at September on an annualized basis leads to 54 basis points, which means that in the quarter, we have settled at around -- at above 50 basis points annualized, 40 for the quarter. So we can confirm the overlays the cumulative total of about EUR 323 million, which enables us to maintain a coverage that is among the best-in-class in the Italian banking system.We can observe a strong position in terms of liquidity, which is confirmed. You can see that the LCR is at around 160%. And NSFR, is of around 131%. We repaid the EUR 3.7 billion worth of TLTROs in September. So despite this repayment, the liquidity position we have is extremely solid and makes us confident for the next part of the year then -- next quarter and the last part of the year.Let's move on to capital. You can see that there is an organic generation of capital that is shown in the slide, that includes the accrual for dividend of $0.25. And of course, deductions are positive because on the back of the DTAs for about 90 basis points to be deducted, and then goodwill and the intangibles lead us to a net of 12 basis points. And so, 32 basis points as you can see in the RWAs are the effect of the reduction in the stock of our loans.I would give the floor back again to the CEO at this point

[Piero Montani, executive]

Yes. As you heard, I think there's a good reason for being very much satisfied. The data is very good. And just to conclude the presentation and also look into the future and in particular, the closure of the year, we decided to align our expectations to the results that we have delivered so far and thereby decided to update our guidance for 2023. The current environment, the interest rate dynamics and the excellent performance of the business that we are currently witnessing every day allow us to update 2023 guidance for the most important metrics.So we expect that net interest income will land over EUR 3.1 billion, which we had communicated EUR 2.8 billion. With net commission income being confirmed that -- for the latest guidance we gave at the end of June of approximately EUR 2 billion. Operating costs are likewise confirmed at approximately EUR 2.7 billion and on top in the guidance, we're also adding something because we have seen that there is a big opportunity to be seized looking through the future. You know that the Bank comes from a series of mergers, needs to settle down a little bit in terms of consolidation of all of these mergers and acquisitions, and in terms of scale and sizing. And so the Board of Directors [ reserved ] upon a new early retirement plan for around 1,000 voluntary exits. So by seizing this opportunity on top of the operating costs, there's EUR 400 million for this new retirement plan and also considering the 2023 impact from the renewal of the National collective labor agreement.The low -- the default rates are extremely low, as Gian Luca was saying before, and low net inflows of exposures, our nonperforming exposures allow us to improve our forecast for the cost of risk with our guidance now being in the area of 50 basis points. So considering all the improved forecast for 2023 and factoring in all of the extra components that I have just described. We expect we will be able to deliver a net profit, a recurring net profit higher than or equal to EUR 1.1 billion, maintaining a CET1 ratio of over 14%.Thanks to the organic generation of capital. And as Gian Luca was saying before, I would say to conclude that, the dividend per share will be higher than EUR 0.25 that have already been earmarked at the end of September, and we will define further based on the trends in this period and based also on what we are planning to do, as we said before. So we're very happy and satisfied. We're convinced that the work we've done was excellent, both for the present but also look into the future.We're almost a little bit forced to look to the future with some sort of a cross-eyed approach, with one eye we have to look at the tip of our foot and with the other at the corner of the street. So the third quarter results are excellent. And as I was saying before, the profitability is going up continuously. And there is a further improvement in credit quality, just to summarize what we have said, and the sound capital and liquidity position. So ahead of the business plan schedule, we are in fact, delivering both projects and economic financial targets. And based on that, BPER ready to face the challenging macro scenario from an actual position of strength.So, I would thank you for your attention, and we'll now take your questions. Thank you.

[Operator]

[Operator Instructions] First question is from Domenico Santoro from HSBC.

[Domenico Santoro, analyst]

Good evening, I have a few questions on the targets. First of all, on net interest income, you are giving a target for 2023 of above EUR 3.1 billion for 2024, I guess. And so, this can mean a lot of things. But if I look at the fourth quarter, I would say that we are at EUR 100 million below the third Q. And so, I would ask you, are you being conservative as usual? Or should we consider some additional things for the quarter?And then for 2024, I remember that your guidance -- you gave a best case guidance in line with 2023, and the worst case guidance was a little bit below. So can you give your color also on net interest income for the next year? Do you expect some -- introducing some measures or actions, if there is a decrease in interest rates since the curve has shifted a little bit in the last week.And then as for commissions, I would like to ask you if Arca's performance fees have an impact? So could those performance fees from Arca be recognized in the fourth quarter? And then out of the EUR 400 million that you are mentioning for the HR manoeuvre, can you give us a breakdown? How much is due to the renewal of the contract and how much to the actual HR manoeuvre? And considering that there's another basically substantial downsizing in the headcount, can you give us some forward information about the renewal of the business plan too, and the trend in headcount for [ 2024 and 2024 ] and the phasing process for the reduction and the downsizing of the personnel based on voluntary exits.Then I have another question about the core Tier 1, since manoeuvre is going to be self-financed basically. I would like to understand how come that there is a reduction in the CET1. So 14.2% can mean a lot of things. So I'm considering the delta, are you considering some extra one-offs? Or are there any supervisory, regulatory impacts on the third quarter, fourth quarter, that will have an impact because the manoeuvre is self-financed. So are there any regulatory impact?I understand also the guidance for the dividend, but above EUR 0.25 can mean a lot of things. And so, the -- your share is trading at multiples that are much more penalizing that can be compared to the banks. And so the results that you're showing, quarter-on-quarter are exceptional. So I would like to understand, will there be some reflections on your part in February to understand, if there could be a share buyback? Are you considering that? Because your capital is strong, and so, the payout could be higher?

[Piero Montani, executive]

Well, let's start with the answers. I would start with the last question -- I'm sorry, with the second question you made. I simply, are not remembering correctly about 2024 because I think we never gave guidance for net interest income 2024. We can give it now, but I don't think we gave here before. As far as the forecast for 2023, you believe they are conservative. In fact, we thought they were fair and generous because we said we will be over EUR 3 billion. And so, I think that's a good guidance. The increase would be by EUR 300 million, which is a lot.Then in terms of the fees of Arca, the performance fees of Arca, as Gian Luca says, they were not included. And so, you will find them at the end of the year.Then as for the breakdown between the National Collective Labor Agreements and the HR manoeuvre and the breakdown between the 2, I will start by saying something. We resolved upon the HR manoeuvre, but the HR manoeuvre, as you know very well, needs to be communicated and we are communicating it to the trade unions. So of course, work teams will be opened up. negotiations will be opened up. It will be discussed. I cannot give you details now. I can give you some guidance, we can indicatively say that the manoeuvre may cost indicatively, tentatively EUR 300 million or a little bit more than that.And then the difference -- the delta is going to be about the National Collective Labor Agreement. And after I talked with ABI, the Italian Banking Association yesterday. What I would say, but it's just my initiative, because I'm not deciding I'm just one of the components deciding about that. I expect and wish that the national labor agreement will be happily concluded for everybody by the end of the year. But in order for us to know how much the impact will be, we will have to wait for the final stage of the negotiations. And so, that's why I gave you some guidance, but when we have clearer data, we will be more precise.Then in terms of self-funding, it's true that the manoeuvre is going to be financed by the funds of the Bank. But we envisage that and plan that all of the transactions that we are working upon by the end of the year, we will have to look at the data that I am starting now. But we gave a guidance for 14.2% over that, and you said it may mean a lot of things. What it means, in fact, is that it's going to be at least 14.2%. It will not be -- I cannot be precise about how much it would be. But until we have the numbers that are not fixed, we cannot say more.

[Domenico Santoro, analyst]

But can I add a follow-up question though, Mr. Montani?

[Piero Montani, executive]

Mr. Montani says no, there are no negative surprises to be expected. No negative expectations we may have that may have an impact on this. Apart from some numbers that we cannot give you now, we are not in a position to give them now because they are not yet defined. But the forecast and the expectations we have for the better, and there are no extra regulatory elements. And the same applies to the EUR 0.25 of the dividend per share that you were referring to, we said that EUR 0.25, as Gian Luca was saying before, and I would reassert that now, if we were not clear, they were earmarked as at the 30th of September. So that means that they are starting from the 30th of September onwards, we're working to improve it. But the payout means like 33%. It would be like having a payout of 33%, so to say. I'm just saying it tentatively. But of course, if it improves, then the payout improves.The business plan that we delivered -- that we produced last year, in that business plan, we said that the Bank would have committed to a payout of 50% by 2025. The trend we are witnessing in operations based on a supportive macroeconomic system has improved the expectations a lot. And so, we are working towards that payout 2 years ahead, though. I would remind you, but I'm not, of course, pleading for your support. But I would like to say that the Bank 2 years ago was less than half than it is today in terms of volumes, in terms of credit quality that has improved a lot based on a number of actions of derisking that the bank has pursued. But of course, those actions were costly. So the Bank had to commit itself to earmarking some quite substantial amounts. And this bears witness to the efforts we made.Then in terms of the evolution, what I can say is that we are going on to produce these results, to deliver these results, to improve the basis for the future. The voluntary exit plan that we have defined goes in this direction. We could have prevented it. We could have excluded it, of course, we could. But excluding it, would have meant to be shortsighted and only look at today's horizon and missing the opportunities for the future. So instead, we want to focus on all of these aspects and improve. The Bank needs to work and become lighter on some aspects. It will have to favor the exit of some people that are asking for leaving the Bank. Of course, we have to focus on reskilling our human resources that cannot be done across all of the levels of the population we have. It's true that the average age of the population we have is 47 years, which is among the best in the system, but we want to further include the situation. I think we have covered all of your questions.You were asking what benefits we will get in terms of this measure. So, we will have to understand how costly the renewal of the labor agreements will be, and we do not know now. And also, in terms of defining the HR manoeuvre, we need to enter into negotiations with the trade union. So I cannot give color now. I expect a benefit and an upside once the transaction is and the measure is concluded. Now we are paying for the amount to be earmarked, but the benefits will be cash, so to say, and collected later on. So I expect a benefit of about EUR 55 million, EUR 60 million a year, but I'm giving this as -- it needs to be taken with a pinch of salt, because we need to look at what happens in the future.

[Domenico Santoro, analyst]

What about the net interest income?

[Piero Montani, executive]

Yes, you were asking about net interest income. Well, we have not given guidance because it's a difficult exercise. It's not that difficult. We may even try to make it. But the first aim we have is that of closing the year well, so that we can consolidate the basis for us to be looking to the future with a good optimism. And for the next year, we will have to look at what happens.I can tell you what I have on my table today. I would say that the Euribor maybe flat or even go down a little bit towards the second part of the year, or I would say, the last quarter. So we expect that the net interest income would be flat. And if the volumes move better than we expect, then we may even go up. I cannot tell you by how much. But tentatively, I would say that this is what I expect. We have not given guidance for 2024 before. We did not give guidance before. But the indications I'm giving now goes in line with what you hinted at.So it's clear that not only are we reviewing the guidelines for the business plan, because I remember your questions before this session, but we are also trying to, in fact, review the entire business plan because we understand that the new metrics have modified the entire scenario. So we have to look to the future backup. But I cannot tell you more, because we are working on all of this. We'll have to submit this to the Board of Directors, which will decide. And so, I expect I will submit this to the Board of Directors in early in 2024. And when we have information to give you, you'll be the first one to have it.

[Operator]

Next question is by Giovanni Razzoli from Deutsche Bank.

[Giovanni Razzoli, analyst]

I have a question about Slide 16 that is the one about the default rates for the 9-month period compared to the to the rest of the year, basically. And so, I would like you to have -- to make and give us a general comment about what you're witnessing in terms of the quality of assets, because you said there was and there is a little bit of a deterioration. But in the newspapers, we are seeing that there is a little bit of a deterioration in terms of default rates. So there's a little bit of a contradiction between the sector in general, and what the banks are saying. Could you give us your comments about what you expect for the future?And then my second question is about the potential joint venture for the platform, the UTP that is part of the plan. Should we expect something for 2024. Is there any update you can provide?

[Piero Montani, executive]

Yes. Well, I do not relate that much to what you're saying, meaning that it's quite plausible, and in fact, even to be taken for granted a little bit that there will be a little bit of deterioration and impairment for the future because the interest rate trends is not having the same effects on the companies. There are some better structured companies that are using their own strategies and using their own liquidity to avoid borrowing money. And so, this does not benefit us in terms of loans and absorb liquidity.So there's another type of category of businesses instead. That is very varied because they may support the interest rates less, and so, it's -- we may expect some deterioration that may also have an impact on the accounts of the Bank. But we have worked in advance to cover for that. And so for instance, I'm just recalling that EUR 2.5 billion gross NPL and EUR 1 billion net. So out of EUR 87 billion loans, which means that the basis is very strong and resilient. And the default rate has gone down to 0.8% from 1%.And the perception I have from the market, which is supported by our colleagues that are closer to the market than we are, do not give us these signs of deterioration. And to be honest, also by talking with my competitors, if they have said the truth, they do not have this perception. So there are not actual real signs to anticipate this deterioration. But it's a common sense for us to prepare ourselves in case this happens, and that's why we were prudent and conservative with the overlays and provisions. We've got a provisioning for bad loans of about 80%; 57% is being -- I think it was, yes, 57.3% is the coverage of risk [ engine. ] So we have equipped ourselves for this, but we do not have any actual signs to anticipate this deterioration.Then I do not know if Gian Luca wants to add something. And in case I will give him the floor. But the platform and the joint venture you mentioned were part of the business plan, and we would have liked to close it even before. But because of some operational technical reasons, it will be postponed to the first or second quarter of next year, Gian Luca may add some further details about it.Why was that so? Because there was an intensive technical preparation that we have to go through. And the UTPs, for instance, we do not have a lot of self choices. We have to evaluate the UTPs well. And it's something new that we're pursuing, and that's why we're focusing on it with a lot of attention because this is interest bearing customers which need attention. And then there is some -- and the platform also involves negotiations with the unions again. So for the negotiations with the unions, what I would say, I do not want to be misinterpreted, but I think that -- in the -- in our country, the unions are fundamental and sometimes there's animated negotiations. But in the end, there's always an agreement found because it's a common interest to have an agreement in place that makes the employees happy and the market happier.So there's negotiations underway. And the unions will involves all of the unions, systems in terms of the renewal of the labor agreement, and then there's an internal negotiation for the voluntary exit plan. So you can understand that putting together all of these things at the same time would have been difficult, would have generated confusion, would have led to chaos, so to say. That's why we had to move part of the transactions, but the platform is part of our objective. It's just being postponed. We want to pursue it, and we're working on that intensively. I do not know if Gian Luca wants to add something.

[Gian Luca Santi, executive]

Giovanni, just a couple of things. One is about the credit impairments, I can confirm, we were conservative in terms of credit, because we were expecting negative deterioration, negative evolution that in fact did not materialize in the third quarter. And so inevitably, we have decreased the cost of risk. Then the indicator we look at every day is consumer credit, because that's the first leading indicator for impairment, and we have no signs of deterioration. So I'm confirming what the CEO was saying before.Then in terms of the platform, I would say that we think we will close the agreement by -- the transaction by the first quarter -- at the end of the first quarter 2024. It needs to be working well. And for bad loans, there are no problems for UTPs, there needs to be a good organizational structure, a good system of processes and procedures that works well. And that's why we prefer to be reasoning upon it a little bit longer, so that the engine works better.

[Operator]

Next question is from Azzurra Guelfi, Citi.

[Azzurra Guelfi, analyst]

I have a very short and brief question. I think I have understood that the outlook for the cost of risk is quite tough. It's considered that quite encouraging for 2024. Could you give us some details about the development of the loans that are guaranteed by the government? And those that are not state guaranteed?Third question is about deposits. Deposits are growing at least in this quarter. I would like to understand what your expectations are for the future and for this front, so the deposits?

[Piero Montani, executive]

I thought we would be speaking about 2023. Instead, I can see you're more interested about 2024, which does not mean that we are not on the contrary, but we're still very much focused on 2023. What do we expect for 2024 was your question.Well, there may be a slight deterioration. We cannot rule that out. We do not have any signs or indications for that, but it's possible that this will happen. So let's say that we expect, since we are very well protected, so to say, because of what we did, we can expect that the cost of credit will remain stable, unless big changes happen in the market, which is not the case now. But if the things remain like they are now, this is what we expect.As for state guaranteed loans are concerned, we do not have any priority or preference. We're working on many fronts. Of course, we're looking for loans that will make us more protected, and -- but it's not what we are developing only. So we are working on ratings that are, on average, very low, but not -- we do not have any preferences in one direction or the other. We are a retail bank. We are a deeply rooted bank that needs to be supportive of all of the companies that will deserve that, regardless of the guarantees. If there's a guarantee better or it's good, but it's not that because they do not have a guarantee, we should have a preference.Deposits are going up, it's true and Gian Luca in fact, talked about it. We also talked about it in the past. He emphasized the dynamics of the first half and the recovery that we had in the second, and so we're confident. And how should we deal with it? It's more of a vague answer that I'm giving. There's not a synthetic, a brief answer that I can provide to such a vast and broad question because liquidity involves a lot of components.

[Operator]

Next question is from Adele Palama from UBS.

[Adele Palama, analyst]

I would like to go back to the NII. Just to understand, if I have understand the guidance correctly, also the quality of guidance that you provided for 2024 that, first of all, I would like to understand if for the next quarter, we should also look to further one-offs after the TLTRO and -- or, so will there be any one-offs for the quarter?And then, I would like to understand the deposit beta. If I calculate it based on the variation of the Euribor and from 2022. I mean, that deposit beta would be around 15%. What do you expect for the next quarter? So will the number go up significantly? Or do you expect the deposit beta more or less the same level? So what is your calculation?And then, I would like to understand again for 2024, once again, on the net interest income, the dynamic is going to be quite flat? Or will there be -- I think, you said there's going to be an upward trend if some more initiatives are pursued. And so, are there any that you're considering in lending? And then any element that you can talk about one-off elements for the NII.My last question is about hedging. So you've recognized -- and the payout, you've recognized about 30%. And so, can we expect that this payout may get to 50% [ here ] already? And then I would like to understand if you had any discussions with the regulators on a possible share buyback or if you are considering this as an option?

[Piero Montani, executive]

Excuse me, I would answer -- I will start answering from the last one, because probably it was not that much clear before. I did not talk about 30%. I said we have set aside EUR 0.25 dividend per share. We did that as at 30 September. And I said that if we had to consider EUR 0.25, we would be at around a payout of 31%, 32%.I also said that in the business plan, we had declared that the objective of the Bank for the end of the business plan. So by 2025, the objective was that of a payout of 50%. But in the meantime, the Bank doubled its sizing and scale, it needed to increase its capital, so what could not be brought forward, and we're going on. But it's clear that it is EUR 0.25 that we have set aside, I mean, if things improve, then there may be an increase in the payout, but we cannot say more.Then you were mentioning the discussions with the ECB, I would say that there are discussions, and I would not call them discussions. Discussion is not a good term. We have talks and dialogue with ECB on an everyday basis. We have not talked about buyback. We think it's early. We need to consolidate what we have. And so, I would say that on this subject, we have not made any significant considerations then in terms of the distribution of dividend. There was no problem with ECB.I would say for the first 2 questions, the guidance for 2024 in terms of NII. I guess, more of forecast or expectations that we have for 2024 in terms of interest rates. And I can confirm that the Euribor is considered as being flat or possibly even declining a little bit in the last part of the year. So we consider it as being flat, which contradicts what you were saying before, what happens if the interest rates go up. Well, I do not know. We do not see an interest rate hike. For what we are expecting, based on what we know, based on what we hear, we heard that the ECB had increased the interest rates, but they said that probably they would have gone down at the certain point. And so, I cannot see any events going in the direction of an interest rate hike, but we should always be attentive. And if we evidence changes, then we will act accordingly.One-offs on the TLTRO. Well, the last trench of EUR 1.7 billion will be repaid in March or April. And then once that's closed, that's over. Then for the deposit beta, I know that Gian Luca can add a lot of extra details, but it's much lower than -- I mean, there's a difference between Corporate and Retail, but Gian Luca likes this, so please, you have the floor Gian Luca.

[Gian Luca Santi, executive]

It's not that I like it, but it's true. We are lower than 10%. As you may have seen, there were some dystonic movements, so there was a big loss in direct deposits. We were expecting a reduction in the loss in the second quarter, but instead in the second part, and instead we could grow. So analyzing the beta becomes -- it's quite complicated. But I would go -- move on to the part of your question when you were asking about hedging. We were working on natural hedging. So we have been working on natural hedging so far, so that we could benefit from the interest rate hikes quite well, and you could see that in the net interest income trend. But now, we are seeing some source of stability in the Euribor and also there may be a slight decline in the last part of 2024. So, we are starting to brace ourselves for, because we're thinking of the replicating portfolio. We're talking about a replicating portfolio.You make money only if you work on the replicating portfolio in advance. So that's why we are starting to work on hedging. And in terms of sensitivity, I think you remember that some months ago, we were around at around EUR 300 million, 100 basis points parallel shifts. Now we are reducing that. So we are at about 280 with the risk models, but it's about EUR 250 million in our finance models. And so, little-by-little we're in fact, preparing ourselves for a scenario that should the interest rate drop significantly, then we would financially also be avoiding a decline in the net interest income. And in fact, we're looking for -- and being well protected.

[Adele Palama, analyst]

Can I make a follow-up question, please. It's about the lending initiatives. Are you considering any initiatives in lending, to support the lending in the next quarter? And then I would also like to have an update on the sensitivity of NII to 100 basis points of reduction in interest rates?

[Piero Montani, executive]

Well, that has -- I mean, the sensitivity as just been mentioned, 100 basis points leads based on the risk models are [ 280 and 260 ] on the -- based on the finance models.Theoretically, we will reduce that. We want to reduce that so that we can cope with any possible scenario of interest rate reduction in a tactic way as we were tactic in dealing with the interest rate hike lately. So in terms of lending, well, mortgage -- residential mortgage loans are the key products for us as a bank. And if you look at all of the rankings, we're always ranking first in terms of the mortgage loans being not expensive and qualitatively appealing.And so, we think we're working on some initiatives for 2024 that I would not talk about now, but you will see in the future, but there are going to be quite substantial initiatives in this area.

[Operator]

Next question is from the conference [ in English ].Mr. Cruz, your line is open.

[Hugo Moniz Marques Da Cruz, analyst]

Just a few questions. So first on the NII for this year, for 2023, if I just take the EUR 2.1 billion at face value that implies a decline Q-on-Q. Obviously, your target got EUR 3.1 billion, it could be higher. But do you expect NII to come down in Q4 versus 3Q, even including any TLTRO one-offs or not?Second, the trade income can be quite volatile, I wonder if you could give any guidance there, trade income?And then finally, the EUR 400 million for the HR manoeuvre, is that before or after tax? Should we assume any tax impact or not?I'm sorry, and the final question. You've talked about the HR manoeuvre potentially impacting the capital, potentially -- and [ insure the BPER JV ] you said no regulatory headwinds there, could there be any other negative impacts on capital from other manoeuvres that you considering in Q4? Or is it really just the HR manoeuvre?

[Gian Luca Santi, executive]

Well, as far as net interest income for 2023. I was sorry to hear you mentioning something that I have a different opinion about. We do not think there is a decline on the contrary, there has been a strong increase. We talked about an increase compared to what we said by about or even by more than EUR 300 million. So I cannot see a decrease. But then in terms of the trend for the rest of the year, it's not different from what we're witnessing now. We will calculate it later. But my opinion is a little bit different than yours.And then I talked about only the HR manoeuvre that is subject to negotiations with the unions, and that will take some time. Our idea is that we need sufficient elements. We have sufficient elements for taking it this year, recognizing it this year, but I cannot give you the details because until we close it with the unions, I have no elements to say more. But in terms of impact on capital, there are not going to be any extra impact in 2024 because that HR manoeuvre is going to be taken this year.And then I think that also the same applies to the provisions for the renewal of the labor agreement, assuming that this is closed by the end of this year again. So there should be no concerns about the fact that this HR manoeuvre will lead to further impacts for 2024. What this manoeuvre can bring about is a big opportunity for the Bank. I may understand that someone may have not liked us to -- may have liked us not to do it, but we feel compelled to look to the future for all of the stakeholders, investors and so that we can favor growth and improve all of the components of this Bank. So it will bring about benefits and upside that will become visible from mid-2025 or probably by the end of 2025, but the upside will materialize quite significantly in terms of both profit and loss and also it will make it possible to have a lower average age of our population in terms of skills and in terms of age.Then I cannot see any negative impacts on top of that. But I'm trying to understand if there are any there's any other aspects that I didn't touch upon about your question. And I would say that in terms of capital, they were reminding us that -- there is something that I was forgetting, I wanted to say that, all of this is being done in the assumption and the hypothesis of a CET1 of over 14.2%, which is being strengthened. Then you were also asking about pretax or post tax? And of course, our numbers are pretax before tax.I would also add one aspect. I can confirm there's no extraordinary impact. Of course, we expect we will exceed 14.2%, but clearly 14.2% is more of a floor. So as the CEO was saying before, we have set the dividend at EUR 0.25. And by the end of the year, we will consider whether there is further room for improvement of the dividend, so that's why I'm speaking of that being more of a floor in terms of capital.

[Operator]

Next question is from Noemi Peruch, Mediobanca.

[Noemi Peruch, analyst]

I have a couple of questions. First of all, I would like to elaborate on the strategy that you'll have for deposits in 2024, in particular term deposits. Then I would like to ask you, how much do you expect you will have in terms of REL bonds for 2024 and also the last part of 2023.And then I would like to have some clarification about the HR exits, you mentioned 2025 before for those EUR 400 million worth of one-off. You said that the exits will be by the end of 2025 or as of 2025? And that's my question.Then I have a last question about digital euro. So have you launched the preparation phase? So what risks and opportunities can you see about this implementation?

[Piero Montani, executive]

Well, I have seen that there's a lot of interest about the HR manoeuvre. There are 2 effects that I will talk about. The profit and loss effect, first of all, because the impact would be on 2024. So the cost of -- the cost will be -- I'm sorry, will be in 2023, whereas the benefits and upside will start in 2025 because the time horizon is longer. It stratifies with the previous manoeuvres. And so the benefits will become visible in the profit and loss from 2025. And this will also overlap with the cost of the renewal of the National Labor Agreement, which will also have an impact. But the cost of funding this manoeuvre that will have an impact in 2023, where the upside will become visible and materialize from 2025. If everything works well, by that time, we will have from 2025 onwards, we will see a downsizing in the headcount and also improvement in the age and skills of our personnel.We cannot forget that the digitalization also erodes some of the jobs, meaning so that this also has a role to play basically. Then, I read about the digital euro in the [indiscernible]. And then I read also your survey. And I would start by saying that the digital euro is a very interesting factor and operation that is being worked upon. It's a little bit early, but we have prepared and equipped ourselves. There is a work team that is working on this that is assisted and backed by IT and the organization. And so, we are focusing on these aspects very well because we know it will have an impact. It's an initiative that also the ECB is focusing upon with determination, and this initiative was pursued even by Mr. Panetta that is now the Governor of the Bank of Italy. So we are in line with this initiative, but it's a little bit premature and early to talk about the impact it will have.From an endemic standpoint, if I had to say something, if I had to give you my opinion, I would say that the first scenario out of the 3 scenarios that you mentioned will materialize. So commissions. And then the limit of EUR 3,000 is not a source of concern. But -- of course, this digital euro will erode something from the banking system. I can tell you something based on my experience, when problems came out in this direction, Banks are always capable of compensating these things somehow. And so, the Bank is also considering other lines of business that will have to offset initiatives like the digital euro and some other initiatives so that the Bank can come to these new fronts. And the team we have is a team of people that are very skilled, very prepared, and the Bank will cope with these issues as well. And we also want to make a good impression on the supervisory authorities being well prepared for these new initiatives.Then about the bond issuances from the funding. Well, we do not have a deficit. So we are in a surplus both in terms of REL, TREA and in terms of sub requirements. So these agencies are as per the funding plan. And we are repositioning -deeper also on medium, long-term solutions. So we will use and do use these issuances to balance and offset the funding on the long term. So we have no deficit levels that we should be speaking about.

[Operator]

Next question is a follow-up from Adele Palama from UBS.

[Adele Palama, analyst]

Yes. So has a very brief short question about the tax rate. Because I saw that in the last quarter, the tax rate was 27%. So can you give us a guidance about the tax rate for the full year for this year and next year?

[Piero Montani, executive]

I'm checking with my colleagues here, it's going to be 25%. We will be more precise and accurate, but I've got the Head of Planning here, 25% in 2023. Will this apply to 2024 as well? Well, I'm telling you what I know now, but for 2024, I mean it's too early for me to tell you. Any time.

[Operator]

Next question is from Marco Nicolai from Jefferies.

[Marco Nicolai, analyst]

I've got 2 questions. One is about the number of employees you have going beyond this measure that you have announced today for EUR 300 million, the HR manoeuvre. When do you expect the headcount will land at for 2024? You mentioned 536 (sic) [ 936 ] people that exited on the 1st October. If I'm not wrong, this is a result of the -- yes, this is the result of prior HR manoeuvres. But in 2024, where will the number land at? Are there any extra exits envisaged or 136 (sic) [ 936 ] of October, were they the last ones?And then capital upside of 12 basis points from DTAs, I think you mentioned. What do you support -- what support do you expect in terms of DTAs in the short term for 2023 and 2024?

[Gian Luca Santi, executive]

Well, headcount, 20,318 is the headcount today. The objective and target was that of lending at 19,600 -- and I think we will deliver that, and it's the result of the HR manoeuvres. I would also like to underline something that because we do not want to be misunderstood. It's not something easy to have people exit the company. So we, of course, have dedicated a lot of attention to motivation. We need to have motivated employees. But there's also this type of facts that we should consider.There's quite a substantial number of employees everywhere, in banks that aspire to being admitted to these funds. So it's not that we -- it needs to be favored. Then of course, the unions will -- they are a very capable negotiators. So they will want us to compensate the exits with entries, and this is important because we need to have young people look into the future, and this is the objective. So what is -- what is the target going to be? 19,300 by the end of 2024, I would say this is going to be the number. But it also depends on a set of initiatives that we'll have to intertwine with themselves along each other.Then as far as DTAs are concerned, all of the DTAs were reabsorbed, as the CEO was saying, we will review the numbers of the business plan -- not the business plan because, of course, the business plan actions are being confirmed, it's more of the numbers that will have to be reviewed because the assumptions have changed, both in terms of balance sheet and profit and loss. Once that's done, we will understand how many DTAs will be recognized. And so that's going to be an assessment that we will make within the next few months.

[Marco Nicolai, analyst]

And what capital upside do you expect from the use of these DTAs on top of the new ones?

[Gian Luca Santi, executive]

Well, it's going to be proportional to how much we will have because once we quantify the extent of the DTAs and there are going to be some that we will evaluate and consider the impact.

[Operator]

[Operator Instructions] Mr. Montani, there are no more questions registered at this time.

[Piero Montani, executive]

Well, thank you very much. Thank you for your patience with the delay we had at the beginning, 10 minutes delay that was not due to our -- that was outside of our control, so be patient we'll try to be as timely as possible in the next future. Thank you very much. Have a good evening.

[Operator]

This is the Chorus Call operator. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.[Statements in English on this transcript were spoken by an interpreter present on the live call.]