Intesa Sanpaolo SpA

MIL:ISP

Earnings Call Transcript 2018-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2018 First Quarter Results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is George. I'll be the coordinator for today's conference. At the end of the presentation, there will be a Q&A session. [Operator Instructions] For your information, today's conference is being recorded.

At this time, I'd like to hand the call over to Mr. Carlo Messina. Sir, you may begin.

[Carlo Messina, executive]

Good afternoon, ladies and gentlemen, and welcome to our first quarter result conference call. This is Carlo Messina, Chief Executive. And I'm here with Stefano Del Punta, CFO; Marco Delfrate and Andrea Tamagnini, Investor Relations Officer.

Before diving into details, let me highlight that we are very confident that the net income for the full year will be higher than the EUR 3.8 billion booked last year, allowing us to pay also this year a very generous dividend. This is thanks to our very positive first quarter, high-quality results and the solid capital position, with 40 basis points increase in the common equity ratio, leading us to an excess capital of more than EUR 11 billion.

Including the capital gain from the interim agreement, we have already achieved 43% of last year's net income. As communicated in our Business Plan, this year the payout ratio will be 85%, and we are already well on track to deliver a very satisfactory cash dividend. We, and I personally, are committed to remunerating our shareholders, and we are demonstrating the ability to do that over the past years.

On top of that, thanks to the interim agreement, which is a benchmark transaction in the European NPL market, we have already achieved half of the Business Plan deleveraging target. Therefore, to reach that target, we need to deleverage around EUR 3.3 billion per year over 4 years, totaling EUR 13 billion, which is the same amount we deleveraged during the past 2 years when the coverage was, by far, lower.

So Slide #1. Let's now look at the key highlights for the quarter. EUR 1.25 billion stated net income, the best first quarter of the past 10 years.

EUR 1.65 billion net income, including the interim capital gain. A double-digit growth in revenues with net interest income growing for the second quarter in a row and the best first quarter ever for commissions. So net interest income growing and best first quarter ever for commissions.

Cost/income down to 47.8%, among the best in Europe, with a 1.3% decrease in operating costs.

We deleveraged around EUR 25 billion of nonperforming loans, including the Intrum agreement since the peak of September 2015, at no cost to our shareholders.

ISP common equity ratio increased to a solid 13.4%. In a nutshell, we have already achieved 43% of the 2017 net income and 50% of our Business Plan nonperforming loan deleveraging target in the quarter.

On top of that, initiatives to deliver on the 3 pillars of our new Business Plan, derisking, cost reduction, revenue growth, have already been activated and results will start to be visible in the next quarters. I'm very proud of these results, and as always, I want to thank all Intesa Sanpaolo's people for their hard work in helping achieving them.

Let's now go through the presentation, and at the end, I will be glad to take your questions. Slide #2. During these 3 months, we continued to improve across all key indicators. In particular, cost/income is down 7.2 percentage points. Net income is 39% higher than 1 year ago. Gross NPS stock, after the Intrum agreement, reached the lowest level since 2011, and the gross NPL ratio stands below 10%. Our capital position remains very strong, 410 basis points above regulatory requirements. And our capital buffer is 140 basis points above the average of our peers.

Slide #3. Q1 is our best first quarter since 2008 for net income. Including the capital gain from the interim agreement, we have already achieved 43% of the EUR 3.8 billion 2017 net income. And so, as I have already said, we are in a very comfortable position to deliver a 2018 net income higher than 2017 and to pay a very generous dividend also in 2018.

Slide #4. Shareholders are not the only one benefiting from our strong performance. During Q1, employees received EUR 1.4 billion in salaries. And all our excess capacity of around 5,000 people will be reskilled and redeployed. The public sector received EUR 0.8 billion in taxes. Households and businesses received EUR 15 billion in new medium/long-term lending, of which EUR 12.5 billion was in Italy. In addition, over the same period, we helped 3,600 companies to get back on track.

Slide #5. On Slide #5, you can see the key highlights of our strong performance in Q1.

And let me take you directly to Page 6 and give you some color on the P&L. Slide #6. The first 3 months of the year were very strong. Net interest income was up 1% on a quarterly basis. We have recorded a 4.5% growth in commissions compared to the previous year. Operating income was up double digit, and operating margin was up 24% on an annual basis. We have continued to be very effective at managing costs, with administrative expenses down by 2.2%. Our loan loss provisions went down by 31% on an annual basis, while coverage increased to 57%. Gross income was up 31%. Net income is around EUR 1.4 billion, when excluding costs concerning the banking industry, including EUR 150 million full year charges for the resolution fund.

Slide #7, net interest margin. Net interest income increased for the second quarter in a row, driven by positive dynamics on commercial components, volumes and spread, despite the prolonged low interest rate environment. In particular, we registered a 3% increase when considering the different number of days versus Q4. On a yearly basis, net interest income decreased marginally due to the effect of hedging and financial components despite the positive contribution of volumes and spread. Let me highlight that ISP net interest income is highly sensitive to an interest rate rise. Indeed, an interest rate increase of 100 basis points would generate a benefit of EUR 1.7 billion in net interest income.

Slide #8. Despite a difficult market condition, Q1 is our best first quarter ever for commissions, with solid growth versus the same period last year. We are well in line with our Business Plan target. We are a leading bank for growth in commissions, and we had net inflows of around EUR 5 billion in assets under management. Total assets under management stands at EUR 338 billion, and total customer financial assets stands at EUR 942 billion.

Slide # 9, business model. Once again, in this quarter, all our divisions made a positive contribution to group results. Half of our gross income comes from the Wealth Management business, making ISP a clear European leader in wealth management.

Slide #10. We continued to be extremely focused on cost management, and we will continue to be extremely focused. Operating costs went down by 1.3% on a yearly basis, driven by a 2% reduction in administrative expenses and 1% reduction in personnel costs. ISP maintains high strategic flexibility in managing costs and remain a cost/income leader at European level.

Slide #11. We are really proud to have a top tier cost/income ratio, and this chart illustrates our leading position in Europe.

Slide #12. As you can see in this slide, in Q1, cost of risk strongly declined, thanks to the lowest-ever Q1 NPL inflows and to the high level of NPL coverage at 57%.

Slide #13. Our masterpiece. Gross NPS stock decreased by EUR 1.5 billion in Q1, reaching the lowest level since 2009. Let me remark that to reach the Business Plan target, we need to deleverage around EUR 3.3 billion per year over 4 years, totaling EUR 13 billion, which is the same amount we delevered during the past 2 years when the coverage was, by far, lower. The gross NPL ratio, including the Intrum agreement, decreased by around 8 percentage points since the peak of September 2015 to less than 10%, and the net NPL ratio is more than half, down to less than 5%. As already mentioned, ISP has been able to deliver this impressive deleveraging at no cost to shareholders.

Slide #14. We recorded the lowest-ever Q1 NPL inflows, down 7 -- 67% versus 6 years ago, also due to our proactive creative management.

Slide #15. As you already know, in mid-April ISP reached a binding agreement with Intrum to form a strategic partnership with respect to nonperforming loans involving 2 transactions, the creation of a leading services -- servicer in Italian NPL market through the integration of the Italian NPL platform of Intesa Sanpaolo and Intrum and the disposal of a EUR 10.8 billion bad loan portfolio of Intesa Sanpaolo at no cost to shareholders. In this slide, you can see the key terms of the agreement, which represents a landmark for the Italian and European market.

Slide #16. The agreement with Intrum has a strong rationale and clear benefits. We strongly accelerated NPL deleveraging, firmly on track to deliver our 2018-2021 business plan targets. We will improve our performance in bad loan recovery by leveraging international best practice and by sharing with Intrum our complementary experience in retail and corporate segments. We will hold a 49% stake in a leading player in the Italian servicing market, which is the largest in Europe for NPL and offer strong growth potential. Moreover, we will benefit from favorable deal conditions, with evaluation of the EUR 10.8 billion disposed bad loan portfolio at no cost to shareholders and the EUR 500 million valuation for the servicing platform, with a EUR 400 million net capital gain.

Slide 17. Our strong capital base further improved in Q1, and we maintain a buffer of 410 basis points versus regulatory requirements, well above our peers. This capital buffer has been built entirely through internal capital generation, with no capital increase in the past years, and having paid EUR 10 billion in cash dividends in the past 4 years. In addition, we continue to apply a deliberate strategy of low leverage, with a leverage ratio of 6.3%, which is among the best in Europe, and we maintain a very strong liquidity position. And a net stable funding ratio medium-term excess liquidity, exceeding EUR 70 billion.

Slide #18. When it comes to capital strength, ISP continues to be a market leader in Europe, and this clearly helps the generous dividend policy. We have one of the highest capital buffers in Europe, equivalent to more than EUR 11 billion.

Slide #19. We also have a best-in-class risk profile in terms of capital on illiquid assets. Net nonperforming loans, level 2, level 3 and net repossessed assets.

Slide #20. Italy. The macroeconomic environment in Italy continues to improve. Employment is on the rise, reaching a 9-year record. Business confidence remained close to a 10-year record. Italian real estate transactions are experiencing a significant recovery in terms of volumes, with prices starting to rebound. The Italian economy is benefiting from this positive outlook, and Italian GDP is projected to grow by 1.5% in 2018.

Slide 21. We confirm the 2018 outlook for ISP. We expect growth in operating income and this revenue increase, coupled with continued cost management, will drive operating margin growth. In addition, thanks to the improved credit environment and as a result of our credit management actions, we expect a decline in the cost of risk that will trigger further growth in gross income. Our expectation of growth in net income this year is confirmed by the excellent results of the first quarter, with 43% of 2017 net income already achieved.

Slide 22. To sum up, we are very satisfied with this excellent start to our Business Plan. Derisking: we have already achieved half of the Business Plan deleveraging target. Cost reduction: operating cost went down by 1.3% on a yearly basis. Revenue growth: increase in net interest income for the second quarter in a row, even without the benefit of interest rate growth and best Q1 for commissions. We further increased by 40 basis points, our already solid capital position. We are firmly on track to deliver 2018 net income higher than 2017. And so a very generous cash dividend. All in all, excellent Q1 performance and strong upside going forward, thanks to the contribution of all our people.

Thank you for your time and attention. And now I will be happy to answer your questions.

[Operator]

[Operator Instructions] Today's first question is coming from Mr. Jean-Francois Neuez calling in from Goldman Sachs.

[Jean-Francois Neuez, analyst]

This is Jean-Francois from Goldman Sachs. I have 2 questions. The first one is in reference to the slide where you say that you have -- where you show that you have already achieved 43% of last year's net income. I just wanted to understand that the moment you reach 100%, and obviously, that secures the dividend, et cetera, whether you'd be willing to do some other actions to even faster -- to even get to your NPL target faster or rebuild coverage or anything? Or can the bottom line from hereon be driven purely from essentially the organic trends? And my second question is, through this result season and the last -- of the last quarter, we've seen a lot of banks missing their cost targets, and a lot of them was invoking maybe IT investments and so on. This is not necessarily something that we've seen featured in your presentations as much as others. And the question we often received is whether there is a risk of underinvestment or anything of that sort? What would you say to reassure investors on that?

[Carlo Messina, executive]

So starting from cost target, we have a clear cost target in our full year Business Plan. I have to tell you that we started already in this quarter with projects in capital budget, and the evidence is the depreciation figures in the operating expenses. So we are not reducing the rhythm of investments. In reality, we have a lot of potential of reduction of cost, deriving from a lot of synergies that we can extract in all our group, working on branches, legal entity, real estate costs, consultancy. So it is part of the culture of Intesa Sanpaolo to reduce the cost base. Then we are also able to activate contingency plans in case of need. But I can reassure you that our ability to manage cost, to reach the 4 years' target of reduction in cost base is absolutely there, and we are really confident also on the cost base. Looking at the net income target. So it is clear that we have already, in our pocket, the target of exceeding the 2017 net income in 2018. The ability to pay dividend will be on stated net income. So that's the new rule of the game for Intesa Sanpaolo. For -- looking at our coverage ratio, so 47% today, we are pretty confident that the coverage ratio is in such a way to allow us to be really safe in the nonperforming loans area. But during the different quarters, we will see what could be the different approach on the final net income. And for sure, the -- our attitude, my personal attitude, is to have my shareholders really very happy as usual. So we will not miss also to have our shareholders happy and very happy in 2018.

[Operator]

We'll now go to Azzurra Guelfi calling in from Citi.

[Azzurra Guelfi, analyst]

Just 2 little things. On the NII, can you tell us what has been the impact on the spread, both on the asset and the funding? Because it seems that most of the improvement comes from volume. And which are the areas that have been a little bit more, if you want, dynamic on the lending side? The second one is on the loan loss provision. They are very low. It's a good start of the year. It's very close to what would be your target at the end of the plan. And clearly, the transaction with Intrum will help. Can you split the gross provision and the recoveries benefit in terms of like what has been the potential of recovery, if this has increased? And what are your forecast in the future, because this is a key area of all your actions.

[Carlo Messina, executive]

So in the analysis of the splitting between provision and recoveries, I will ask you to be in contact with Andrea Tamagnini and Marco Delfrate. And as usual, they will give you all the specific figure. It is clear and evident that the trend is significant reduction in terms of provision and improving of recovery. So that's the trend. Then for the specific figures, I will ask you to keep in touch with our 2 friends. But in any case, the guidance is clear. Reduction -- significant reduction in provision, increase in recoveries. In terms of net interest margin, dynamics is really in favor of benefit in cost of funding and especially medium-term cost of funding. So spread is mainly driven by the excess of saving in the medium-term cost of funding that exceeded a slight reduction in markup. This quarter has been affected, probably for the last quarter, by the competition on TLTRO. What we are seeing in this starting of the second quarter is a recovery in market condition, but the majority of the benefit is on medium-term cost of funding.

[Azzurra Guelfi, analyst]

Just on loans development, which are the area that has been more dynamic? Because when I look at in the…

[Carlo Messina, executive]

It's mainly -- yes, it's mainly the export-related area and, also, the one related with investments across the sector. Because in Italy, what we are seeing, it is the clear signal of a country that is in very good shape, so that's the position. And our view on Italian real economy is that you have a significant recovery in investments from companies. So the medium-term lending is mainly devoted to investments. And if you want to have the majority of the trend is devoted to export-related company. And if you see figures, export-related companies are today probably competing with the German one. But in a significant number of situations, they are delivering much better than German economy. So in Italy, all the north of Italy and the majority of the export-related companies, are performing much better than Germany.

[Operator]

[Operator Instructions] We'll now go to Mr. Adrian Cighi calling in from Royal Bank of Canada.

[Adrian Cighi, analyst]

This is Adrian Cighi from RBC. Two questions, please. One on capital and then one follow-up on NII. On capital, as I understand it, the 13.4 fully loaded CET1 includes the full impact of the IFRS 9? However, the phased-in CET1 is 12.2. Can you help us understand how to bridge these 2 figures? And then just one follow-up question on the NII, please. The financial component was another headwind this quarter. Is this a hedge -- or a headwind come from the hedge and what's the outlook for this rest for the rest of the year?

[Carlo Messina, executive]

Sorry. So starting from net interest income, the benefit on our net interest income is mainly deriving from volume and spread. On hedging, we had a positive contribution. Probably, this will turn negative in the next quarters, but in any case, the hedging facility will have a reduction compared to last year of EUR 50 million, probably no more than this. What we are waiting for is another contribution positive from volumes, positive contribution for spread, for recovery markup, and another reduction of the cost of funding -- medium-term cost of funding and financial components more or less stabilizing. So our expectation for net interest margin is that we are confident to reach a good performance also in net interest margin. In any case, not easy to make a specific forecast for net interest income, but this would be the driver for the different items. So looking at capital, we decided to make a disclosure of the impact related to the first-time adoption. You know that you have a possibility to make, on the phased-in, a transitional on the impact of the first-time adoption. So our phased-in common equity is 13.3%. We had an impact of 100 basis points in terms of first-time adoption. And so making the difference between the phased-in transitional and the impact of first-time adoption, you have this that is IFRS 9-compliant. It's something that is asked by our accounting department to make disclosure of this figure according to IFRS 9. But it is without the benefit of making transitional on the first-time adoption. Reality is that the formal common equity that you have to demonstrate to ECB is the 13.3% that is the transitional phase-in. Then on the other side, on the fully loaded, as you know, you have the benefit of the DTAs because we have 100 basis points of DTAs that we will recover in the next 5 years' time due to our ability to generate net income. And that's the other fully loaded 13.4%. In any case, on a dynamic -- looking at dynamics, we had an improvement of between 30 and 40 basis points of capital in Q1 in comparison to the fourth quarter of 2017. So dynamics is giving us, in any case, capital generation. And my expectation is to have very strong capital generation also in the next quarters.

[Operator]

We'll now go to Mr. Andrea Filtri calling in from Mediobanca.

[Andrea Filtri, analyst]

Two questions from me, one on capital and one on insurance. On capital, what is the impact to CET1 ratio from the loss, given the [ fault ] revision, post the Intrum deal? And do you expect to receive an LGD waiver from the ECB on this transaction? And on insurance, you are the #1 in Italy for gross premiums in unit linked. Are you concerned about the recent decision of the Italian Supreme Court to classify unit linked as a financial product? And what is the average management fee you receive on unit linked and its equivalent of, say, management version, like funds of funds.

[Carlo Messina, executive]

So we are not worried at all on unit linked because they did -- the situation that was under the decision of the courts are related to products that are not our unit linked. Our unit linked are definitely compliant with any kind of insurance products. So not at all any kind of implication related to possible change in evaluation of our unit-linked portfolio. On LGD and Intrum Capital, you remember that we gave a clear guidance on EBA impact related to the -- it is 90 basis points in the Business Plan. In the EBA guidance is already included the impact of the Intrum agreement and the review of the LGD that we will have in next year. So we do not need any kind of waiver because our capital ratio will be in such a position to overcompensate any kind of negative scenario related to this point. But we have already embedded all the figures in our future capital ratio.

[Operator]

We'll now go to Ms. Delphine Lee calling in from JPMorgan.

[Delphine Lee, analyst]

Just 2 on my side. First of all, just wanted to come back on capital. You've had quite a bit of risk-weighted asset reduction this quarter despite lending volumes going up. So I just wanted to get a bit of color of what has driven this reduction and, also, what we should expect. Because, obviously, you have -- obviously you've already taken into account the 90 basis points from the EBA guidelines. But I would assume, at some point, maybe in 2019, we should see some -- or 2020, some material risk-weighted assets related to this impact. And in terms of timing, if you could give us some guidance of how that splits between '19 and 2020, or 2021. And then the second question is on asset management, where you had a decent inflow this quarter and a good outcome. Just wondering sort of in terms of the trends for the current quarter, if you could give any color. I don't know if Q1 has been impacted by the current market environment and if you're still confident to -- on your targets of growing fees and commission by above 5% per year.

[Carlo Messina, executive]

So against that for the last question, assets under management, we are really confident that we can deliver a very good performance also quarter-by-quarter. This -- the first quarter has been impacted by some performance in the market. So a portion of our clients prefer to stay on the retail deposit side, so on deposits and not to convert into asset under management. So we delivered a good result, but potential is much higher and is also related to the performance in the market. So just to make it easy, my expectation if performance condition could be better than the one in first quarter, we can also increase net inflows in the next quarters. EUR 5 billion can be considered an average run rate in case of a negative performance market, like the one that we had in the first quarter. So all in all, a very positive trend. Looking at capital and risk-weighted assets, so starting from this first quarter, we had a good management of risk-weighted assets. We continue to increase our actions of making increase in terms of collateral guarantees and work on improving the quality of information underlying the risk-weighted assets, so rating collateral and all the other items. These allow us to have an optimization of risk-weighted assets. We have still significant room to improve conditions of our risk-weighted assets. The other 50%, so more or less 50% of reduction of risk-weighted assets is related to these items. The other 50% is related to market risk. And again is a better analysis of the underlying that are related to market risk. In the credit risk, I see the major potential of having benefit also in the next quarters. Looking at the dynamics of the 2019, '20 and '21 for the EBA impact, we will see year by year. So that our expectation is, in any case, to have a very good performance in also risk-weighted assets year-by-year.

[Operator]

We'll now go to Alex Koagne calling in from Natixis.

[Alex Koagne, analyst]

Alex Koagne from Natixis. Two questions from my side as well. The number one is on the cost of risk. Obviously, you're on the very low -- I mean, you're on a low basis this quarter, very close to your 2021 guidance. I'm just wondering whether this is a target that you can update going forward and also thinking about what you said during the Investor Day, saying that any capital gain will be used to increase the provision. Is this still something that you intend to do? Or should we consider that the capital gain you will be generating this year will be used to increase the dividend and, therefore, the return to the shareholder? Second question is basically on the write-backs in the international retail. I'm just wondering whether we should consider this to continue going forward. Obviously, it seems to be driven by Hungary and Egypt. Can you just update on what is going on in those 2 countries?

[Carlo Messina, executive]

Sorry. Could you repeat the last question? Because I didn't understand very well.

[Alex Koagne, analyst]

Yes. The last question is on the provision reversal in the international retail banking, which is driven by Hungary and Egypt. I'm just wondering if we should consider this to continue or this was like an exceptional quarter?

[Carlo Messina, executive]

Okay. In the international bank division, you can consider extraordinary and probably more related to exceptional. It is a recovery in a disposal made in the international bank division. So I hope to be in a position to have recoveries in other disposal in international bank division, but I cannot reassure the market that this could be the trend for the future. In any case, that's -- are the main reasons for this situation in the provisions of the international bank division. Looking at 48 basis points, trend, run rate, increasing coverage. So my position is clear. We make provisions related to the inflows of each quarter, mainly related to inflows of each quarter, because we have already such a significant coverage on the stock that, for the time being, we have no need to increase coverage on the stock. On the other side, if during 2018 we should be in a position to need some extra coverage in the stock, because this could [ delay ] us to have better performance -- sustainable performance. For the future, I will evaluate this position during the next quarters. But today, I have to tell you that my best understanding on the situation of the quality of my portfolio is that we do not need to work in a significant way on the stock. Then we will see condition for the ending of this year. But what I can, in any case commit myself, is that we can be sure to deliver significant net income this year, exceeding the one of 2017 and paying a very generous dividend using 85% payout ratio.

[Operator]

We'll now go to Mr. Christian Carrese calling in from Intermonte.

[Christian Carrese, analyst]

Christian Carrese, Intermonte. The first question is on the former Veneto banks. I was wondering if you can give us an update on the integration and how is the response of the clientele on the new commercial policy. The second question is on the asset management business. In the Business Plan, you say that you are looking for a partnership in the asset management business. If you can give us an update.

[Carlo Messina, executive]

So we are still looking for a possible partnership in asset under management business. We started the Business Plan 2 months ago. I know that we are able to deliver in a fantastic way, making -- delivering on results, on disposal of nonperforming loans agreement. But in any case, we need to have time to make all possible analysis in the right way. What I can confirm you is that asset under management is a business of scale. We want to be a leader in this market. To become a leader, if we have the possibility to make a strategic alliance with a global player in the market, increasing the value for our shareholders, I will evaluate a possible combination, transaction, of strategic agreement with a global player. But it is something that we are still working on. Looking at the Venetian banks, I told clearly last -- in the presentation of the Business Plan that I will not give any kind of disclosure on Venetian because we will not have more Venetian banks. We have Intesa Sanpaolo, we have division of Banca dei Territori, division corporate investment banking, private banking. In the area of northeast, we are delivering a good performance. The IT integration is performing well, but that's all.

[Operator]

Next question will come from Mr. Alberto Cordara calling in from Merrill Lynch.

[Alberto Cordara, analyst]

My first question is on your partnership with Intrum. Basically, you showed that you were able to do a larger transaction in NPS by selling at $0.29, which is a much better price than any other large deals that we have seen in Italy so far. And I think the reason why you got this good price is partly because your NPS were probably better quality, more recently [ integered ] than other banks. But also, you had the perseverance to wait and to reach an agreement with an industrial partner instead of selling at throwaway prices to a private equity. So the question to you is, you show that actually NPS are much more worthy than what many people from the outside, they think they may be. So I'm thinking of whether you can leverage this agreement with Intrum, also to buy NPS from other Italian banks. And if you're planning to do so, and when do you start planning to operate in such a way, because this can really be a revolutionary for the Italian NPL market. The other question that I have is, you mentioned before that -- I mean, all revenues here are a very strong start of the year, so probably, we shouldn't worry about this at all. But you mentioned before that, in case you may also have a contingency plan on cost, I think it is a comment that I heard from you also in the past. So I don't know if you can quantify how much you can flex the cost in any given year, if for whatever reason, revenues are falling out of budget?

[Carlo Messina, executive]

So you had possibility to listen this contingency plan but also to see that we are able to do and to realize contingency plan. So when we talk, we also use to deliver. So in contingency plan, we think to have amount of contingency plans on the cost side that is really significant. So we're talking about EUR 100 million of contingency on the cost side. Depending on what could be the scenario and the hypothesis that we have to face in case of a negative. So if it is a scenario in which -- under which we can lose revenues, so we have a significant amount of contingency plan. So if it is a structural change in condition of the markets, contingency bank can be significant. If change in the market is only temporary, we will have to use only a portion of this contingency plan because we will have to use for investments for the future. But the amount is really significant, and you have the evidence in this quarter that our ability to manage this figure, especially a significant portion of costs related to real estate, that's a portion under which we think to have significant room, apart for the IT. But this area is an area in which we are looking for other further cost reduction potential. Looking at the nonperforming loans. So it is clear that industrial partnership is the strategic area in which you can work on realizing the best value of your nonperforming loan. So it is true, the -- our ability, it is not only underwriting, it is not only the quality of [ vintage ] coverage but is also to set a transaction with an industrial partner. In this transaction, we are really interested in growing, in acquiring, servicing of nonperforming loans from other banks in Italy. And so pushing to become really the #1 servicing unit in Italy, but mainly focused on servicing. So for the time being, no analysis of starting to buy nonperforming loans.

[Operator]

We now take questions from Mr. Giovanni Razzoli coming in from Equita.

[Giovanni Razzoli, analyst]

A quick question. Back to your Business Plan presentation, you were quite vocal about -- with us regarding the fact that the regulator should focus -- should shift the focus from the analysis of the NPL to level 3 and illiquid assets. I would like to know whether you can share with us what are the feedbacks that you have got from the regulators and if they seem to become more sensitive to those issues.

[Carlo Messina, executive]

[Foreign Language] This is my answer. The real point is that -- is sooner or later also, the supervisor will have to look at other business model with the same attention that investors and analysts are using. Because if you look at the significant number of banks devoted to corporate investment banking activity, the evaluation of investors and analysts, in my view, are really accurate. And so probably in the next years could be also something that could be in the analysis of the supervisors. But for the time being, the real focus of regulators is on nonperforming loans. They are starting to look to derivatives, level 2 or level 3. This is true. This is true also that in the stress test analysis, there is a focus also on level 3 assets. But it is, in my view, only the preliminary start to something that is in such a dimension that cannot be underestimated by the supervisor.

[Operator]

We'll now go to Victor Galliano calling in from Barclays.

[Victor Galliano, analyst]

Just 3 questions from me. On OpEx, are there any one-off costs related to the Veneto in the Q1 numbers? I'm assuming that they were all done in Q4, but just in case if there's anything there. The second question is, can you give us an update or some idea of early indications of how the strategy is going, in terms of selling P&C insurance products as you outlined in the strategic plan? And also on -- lastly on NPL coverage, in particular, UTP coverage. I think this is something that is probably more of a focus of the European regulators now. Do you feel -- I see you made a move there and you did 500 basis points of additional coverage on UTP. Do you feel you're at, or close to, the right level there? Or do you think you will continue to increase coverage on your UTP portfolio? And will you look to dispose of UTP loans in the plan?

[Carlo Messina, executive]

So looking at unlikely-to-pay, my attitude is to manage unlikely-to-pay not to make disposal. Unlikely-to-pay are related with companies that are really close to the real economy. They can survive. They can be in a position to come back [ in bonus ]. And so our efforts is mainly in the credit department and not in the Capital Light Bank division. So it is something that is core business of the bank. Our expectation is to be in a position to have significant reduction in unlikely-to-pay through a recovery in the launch of projects that are in the Business Plan. We consider our coverage is absolutely adequate with the quality of our unlikely-to-pay, with the kind of collateral, the kind of vintage. So the kind of coverage, in our view, is more than adequate. And in any case, this is part of the 57% coverage ratio on nonperforming loans and the analysis of what would be also the future that will be part also of the dynamics of the new inflows to the nonperforming loans. But our view is the coverage is absolutely adequate. Looking at property and casualties, we started to work on increasing property and casualty specialist. At the end of March, we had an hiring, so increasing of people devoted to this business of 50 units in -- at the end of April, 110. So we are accelerating in giving people to this business unit and with these activities. We are starting with the training of the relationship managers, but to see significant results, you have to wait other quarters. In any case, also, in this quarter, we have an increase, more than 10% in revenues related to property and casualty's products. Cost, no one-off in the cost -- in operating costs.

[Operator]

We'll now go to Paola Sabbione calling in from Deutsche Bank.

[Paola Sabbione, analyst]

Two questions, one on the agreement with Poste. Could you comment on what you expect from this agreement and when you -- we should see the main result from it? And the second question is on the Venetian banks' DTA. Have you benefited from them in Q1? If not, when do you expect them in P&L?

[Carlo Messina, executive]

So no benefit in Q1 from DTA from Venetian banks. This is something that we will achieve during the period of the plan. We have no specific forecast on quarters, and yes, we will see during this year what could be the timing of recovery of DTA. But in any case, I can confirm to you that in 5 years' time, more or less, we will recover 100 basis points of capital related of all DTA -- the group, including the Venetian's one. On Poste, this is a very good agreement. So in my view, we made a fantastic agreement with Poste, leveraging on the attitude of finding other distribution channel for our products and giving to Poste a possibility to use our network for their payment system. So the alliance is getting momentum. I don't want to give figures of potential coming from this agreement. These figures are not included in the Business Plan, but today, I'm not in a position to give any kind of indication to the market. But my expectation is that we can have very good results.

[Operator]

Ladies and gentlemen, today's last question will be coming from Ms. Anna Adamo calling in from Autonomous Research.

[Anna Adamo, analyst]

My first question is on Asset Management. How much of Intesa commissions are coming from upfront fees? And whether you expect these upfront fees to come down in a MiFID II environment. And the second question is on asset quality. The ECB's currently assessing the need for additional measures on the stock of NPLs. In your view, what is the probability of the ECB coming up with a paper on the stock by June this year?

[Carlo Messina, executive]

So on stock on nonperforming loans, I have to tell you that I'm not in a position to give you a timing of possible publication of something from the ECB. In any case, they have attention on this point in relation with the banks. So during the SREP process, they make also analysis of the stock. And so this is, in any case, an area in which they are concentrating. But I have to confirm you that our coverage ratio is so high that we are not worried at all. Looking at asset under management, it is, depending on the different quarter, but the average is 5% in the total amount of upfront fee. That's something that we consider sustainable in the Business Plan. Probably, there is a slight reduction of this figure, but being not so significant, it is not relevant to the dynamics.

[Operator]

Ladies and gentlemen, that will conclude today's question-and-answer session. I'll return the call back over to Mr. Carlo Messina for any additional or closing remarks. Thank you.

[Carlo Messina, executive]

So thank you very much. And we will see you in London for the road show.

[Operator]

Ladies and gentlemen, that will conclude today's presentation. We thank you very much for your participation. You may now disconnect.