Intesa Sanpaolo SpA

MIL:ISP

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the 2021 first quarter results hosted today by Mr. Carlo Messina. Chief Executive Officer. My name is Keith, and I will be your coordinator for today's conference. [Operator Instructions] Today's conference is being recorded.

At this time, I would 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 2021 results conference call. This is Carlo Messina, Chief Executive; and I'm here with Stefano Del Punta, CFO; and Marco Delfrate and Andrea Tamagnini, Investor Relations officers.

Let me once again express my sorrow for all those affected by the pandemic. Now we are seeing light at the end of the tunnel, and the global vaccine rollout is moving us much closer to a post-COVID world and the return to normal life. Even under stress from the pandemic and while successfully completing the merger with UBI Banca, our robust and profitable business model delivered excellent performance.

In Q1, net income reached EUR 1.5 billion. We are firmly on track to deliver a full year net income well above EUR 3.5 billion. Resilient profitability, best-in-class efficiency were matched by a further increase of our rock-solid capital position and further NPL deleveraging that led to the lowest NPL stock and NPL ratio since 2007. We did this while Italy experienced multiple lockdowns and while merging Italy's #4 bank and performing Italy's largest ever branch disposal. Our people were very busy, but ISP never stopped being a delivery machine. My appreciation goes to all those who made this possible.

These Q1 results do not yet benefit from the over EUR 1 billion per year in synergies arising from the combination with UBI. Our resilience makes ISP one of the best positioned European banks to pay high sustainable dividends, assuming, of course, the ECB allows it. We confirm a 70% payout ratio for this year with an interim dividend to be paid in Q4. We have already accrued EUR 1.1 billion of dividends in Q1.

Now let's dive into the details on Slide 1. We had an excellent start to the year. Net income was up 32% on a yearly basis. It was our best quarterly net income since 2008, and Q1 was the best quarter ever for gross income. Commissions were up 9%, the best ever Q1 performance, and insurance income jumped 70% versus Q4. The growth in customer financial assets added an additional EUR 13 billion to fuel our wealth management engine.

Operating costs decreased 2.6% on a yearly basis, and the annualized cost of risk is now down to 35 basis points. Even considering the fact that in 2020 we over-delivered on our full year NPL deleveraging target 1 year ahead of schedule, in Q1 we still continue our NPL deleveraging effort. NPL ratios are the lowest since 2007, 4.4% gross, 3.5% according to EBA definition and 2.3% net. The common equity ratio further increased to 15.7%.

Now let's turn to Slide 2. ISP is ready to succeed in the future, thanks to our solid fundamentals built over time. The common equity ratio is well above regulatory requirements. Last year, we allocated more than EUR 6 billion pretax as a buffer to succeed in the coming years and we carried out impressive NPL deleveraging. We have distinctive internal capabilities for proactive credit management, coupled with our strategic partnership with leading industrial players for the late stage. We are an efficient wealth management and protection company with EUR 1.2 trillion in customer financial assets. The combination with UBI will deliver synergies of over EUR 1 billion per year. We have successfully evolved towards a light distribution model, and we have a strong digital proposition.

Slide #3. Our solid fundamentals will allow us to continue delivering best-in-class profitability. Paying a generous cash dividend to our shareholders remains a priority. This month, we will pay EUR 700 million in dividends. And once the ECB lifts restrictions, we will seek permission to deliver the equivalent to reach the total of 75% payout for 2020 through EUR 1.9 billion additional cash distribution from reserves. For 2021, we remain committed to a 70% payout ratio partially distributed through an interim dividend in Q4, subject to ECB approval.

Slide #4. The Italian economy remains resilient and can count on solid fundamentals, strong government intervention and significant EU financial support. After multiple lockdowns in the past 15 months, restrictions are now easing and the vaccination campaign is gathering pace. GDP is expected to recover this year and in 2021 and will be further sustained by the new national recovery and resilience plan strongly focused on investments and reforms. In this context, ISP will provide more than EUR 400 billion in medium, long-term lending to businesses and households to support the recovery and resilience plan.

Slide #6. Let's take a look at the points of strength that will sustain Intesa Sanpaolo in the future. In recent years, we reduced the NPL stock by more than 2/3. Gross NPL ratio is down by 13 percentage points. We have further increased our rock-solid capital base while also buying UBI and paying EUR 15 billion in cash dividends over the past 7 years. We improved the cost income ratio. Overall, we have a very resilient business model with 54% of gross income coming from wealth management and protection activities.

Slide #7. Last year, we allocated more than EUR 6 billion to buffers to succeed in the future. And this allows us to further strengthen the sustainability of our results, consolidating our position as a leading bank in Europe.

Slide #8. We are far better equipped than our peers to tackle the new environment. We have a best-in-class risk profile. We have one of the highest capital buffers, and we are one of the cost income leaders in Europe.

Slide #9. Despite a challenging environment, we delivered the best quarterly net income since 2008. We are firmly on track to deliver a full year net income well above EUR 3.5 billion.

Slide #10. As you know, we immediately responded to the COVID emergency, and we continue to do so with a complete set of actions to care for our people and customers, support the real economy and society, and ensure business continuity.

Slide #11. The COVID emergency has shaped new trends, and we are ready to leverage our competitive advantages. For example, we are set to benefit from the growing demand for health, wealth and business protection by leveraging on our leading positioning in insurance as well as in wealth management.

Slide #13. On Slide 13, you can see the highlights of our strong performance. Let me give you some color on the following pages.

Slide #14. In Q1, we continue to improve across all key indicators. In particular, net income was 32% higher than last year. And we deleveraged the NPL stock by more than EUR 14 billion on a yearly basis, and our common equity Tier 1 ratio improved significantly.

Slide #15. Our excellent performance allow us to create sustainable benefits for all our stakeholders.

Slide 16. Intesa Sanpaolo has a duty to leave a positive mark on broader society and to support the transition towards social, cultural and environmental improvement. In this very challenging moment, we remain committed to being the engine of sustainable and inclusive growth. Among other initiatives, we launched an ESG program with a dedicated governance aimed at consolidating the group leadership around ESG/climate topics and prioritizing ESG/climate themes that are most relevant for the group and its stakeholders.

You can go through the details on the next page, but for the sake of time, let's now move to Slide 18. In this slide, you can see that we are the only Italian bank at the top of the main sustainability rankings.

Let's now turn to Slide 19 to analyze the P&L. Slide 19. In Q1, while merging UBI and despite several lockdowns, we delivered excellent performance driven by high quality earnings. Commission grew about 9% on a yearly basis, which more than compensated for the decline in net interest income, which, as you will see on the next slide, was due to the financial components. Profits on trading were very solid and fully realized. Revenues grew by 9% and operating margin by 38% versus Q4 with insurance income up 17% driven by solid growth in non-motor P&C revenues.

Let me highlight that in Q1, as usual, we managed the revenues in an integrated manner. We have continued to be very effective at managing costs, and annualized cost of risk is down to 35 basis points, and gross income reached EUR 2.6 billion, the best quarter ever. Net income reached EUR 1.7 billion when excluding costs concerning the banking industry.

Let's now turn to Slide 20. In this slide, you can see that on a yearly basis, net interest income decreased due to financial components, which were affected by the reduction in size of security portfolio as a consequence of the integrated management of ISP and UBI portfolios and by NPL deleveraging. On a quarterly basis, net interest income was affected by the different number of days in the quarter, the NPL deleveraging and the reduction in the average size of the security portfolio with significant realized capital gain. And the commercial component is stable when taking into account the impact of the different number of days in the quarter.

Net interest income was also affected by a EUR 17 billion increase in retail direct customer deposits on a yearly basis, which impacts net interest income in the short term, but boosts our wealth management engine in the coming quarters and years. We will continue to work hard to improve the commercial component while continuing to manage our revenues in an integrated manner to create value.

As you will see in the next slide, in Q1, we recorded strong yearly growth in commissions, which more than compensated for the decline in net interest income.

Slide 21. While successfully merging UBI and despite multiple lockdowns, the first quarter was our best Q1 ever for commissions.

Slide #22. Customer financial assets increased by more than EUR 117 billion on a yearly basis and reached EUR 1.2 trillion. Assets under management, the net inflows were positive by EUR 4 billion in Q1. In the past 12 months, we recorded an extraordinary increase in corporate and household deposits, which will fuel our wealth management engine in the coming quarters and shows once again the resilience of Italian companies.

Slide #23. Costs. We continue to be very effective at managing costs, down 2.6% on a yearly basis, while keep investing for growth. We reduced headcount by more than 3,000 on a yearly basis and we have agreed and fully provisioned more than 7,200 voluntary exits related to the combination with UBI, of which 500 left in Q1 with up to 3,500 hires in the coming years.

Slide #24. We are proud to have one of the best cost income ratios, and this chart illustrates our leading position in Europe.

Slide #25, nonperforming loans. Nonperforming loans stock has continued to decline sharply with 22 quarters of continuous deleveraging.

Slide 26. As you can see in this slide, loan loss provisions declined by 25%, and annualized cost of risk is down to 35 basis points. And we recorded the lowest ever gross NPL inflow.

Slide 27. Capital. Our fully loaded common equity Tier 1 ratio is 15.7%. Our capital buffer versus regulatory requirements is well above our peers. And our fully phased income on equity Tier 1 ratio is at 14.4%.

Slide 28. Our best-in-class capital buffer versus regulatory requirements was further strengthened in Q1.

Slide 29. When it comes to capital strength and leverage, ISP continues to be a European leader.

Slide 30. We have a best-in-class risk profile in terms of the ratio of capital to illiquid assets and ISP also enjoys a strong liquidity position and more than EUR 110 billion in excess medium-, long-term liquidity.

Slide #32, on the UBI Banca merger process. I'm very proud to highlight that while delivering the best quarter since 2008 we successfully completed the merger and IT integration of UBI Banca into ISP, and the largest disposal of banking branches ever done in Italy. Our top-performing delivery machine successfully completed the migration of 2.4 million UBI clients and the onboarding of close to 15,000 colleagues, ensuring full business continuity to all the 1,000 former UBI branches and digital channels.

Slide 33. Let me remind you that the integration with UBI will add significant value and that our estimates of pretax synergies stands above EUR 1 billion per year. Q1 did not yet benefit from these synergies.

Slide #34. As you can see from this slide, we have implemented a large number of governance and business activities to complete the merger, speed up the integration and guarantee a smooth process.

Slide #35. Here, you can see that ISP is really a delivery machine, and we successfully completed the merger with UBI Banca by meeting quarter after quarter all our goals and commitments.

Slide 37. In closing, let me recap the key points that demonstrate the sustainable strength of Intesa Sanpaolo. Our resilient, well-diversified and profitable business model outdelivered even under continued stress from the pandemic and while successfully completing the merger with UBI Banca.

Net income was EUR 1.5 billion in Q1 without yet benefiting from merger synergies. On the revenue side, we saw strong growth in commissions, while costs were down significantly. Our cost income is, once again, among the very best in Europe. In Q1, we further deleveraged NPLs and saw the lowest ever gross NPL inflow and NPL stock. Our rock-solid capital position got even stronger. The UBI merger was completed with great success and synergies will reach EUR 1 billion per year.

Our resilience makes ISP one of the best positioned European banks to pay high sustainable dividends. This month, we will pay the maximum allowable dividend on 2020 net income. We will also ask the ECB to allow us to pay an additional EUR 1.9 billion in cash from reserves to meet the 75% payout ratio envisaged in the business plan.

And for 2021, we confirm a 70% payout ratio, and we have already accrued EUR 1.1 billion in dividends. Intesa Sanpaolo is an unstoppable delivery machine, fully equipped to succeed in the future and deliver a full year net income well above EUR 3.5 billion.

Let me thank, once again, all the Intesa Sanpaolo people, who make this possible. And now I'm ready for your questions.

[Operator]

[Operator Instructions] And we'll now take our first question. It comes from Adrian Cighi of Credit Suisse.

[Adrian Cighi, analyst]

This is Adrian Cighi from Credit Suisse. 2 questions from my side. Your updated outlook of well above EUR 3.5 billion drops to reference that 70 basis points cost of risk for the year. Can you give us an update on where you see this for full year '21 in light of the 35 basis points achieved in Q1? And in addition, giving a sizable overlay provisions, can you give us any indication where you see a normalized cost of risk, say, in full year '22? And then on NII, the reduction in NPL stock has already subtracted some EUR 100 million this quarter. With margins continuing to compress and volume growth still relatively subdued, how do you think the impact from further NPL deleveraging will impact your NII going forward?

[Carlo Messina, executive]

Thank you. We decided to move into a well above EUR 3.5 billion outlook. We think that absolutely, we are in a good shape and much better position to succeed in this 2021 to deliver significant net income and dividends to our shareholders. Looking at the figures of the first quarter of 2021, the most important part of the story for my perception managing Intesa Sanpaolo is, for sure, the cost of risk and the outlook on the asset quality of my company but also of the Italian environment. I think that the 35 basis points is the clear evidence that due to the fact that we posted EUR 4.3 billion of provisions in the last quarter of 2020, a portion on figures -- in economic figures, the other portion using the badwill arising from the UBI transaction. We are now in a position to say that our cost of risk is really correlated with new inflows and not with the stock or nonperforming loans and not with the generic reserves. So we need only to be ready for inflows. And the most important correlation is with inflow.

Looking at the quality of portfolio and the dynamics of the different asset class and especially the areas in moratoria, I can confirm you that our expectation is not to have such a significant impact during 2021. I can tell you that my perception is that close to 60 basis points could be the cost of risk for 2021 looking at the evidence that we have today. And in this case, I think we can remain also conservative looking at the quality of our portfolio. Also looking at the cash flows of the Italian companies because the areas that is really affected by the negative coming from the pandemic is a limited portion of sectors in the SME retails. Obviously, the sector that were impacted by the lockdowns, by the cash flow in the companies and also the amount of deposits that we have related to our clients that are in moratoria and in performance are absolutely in line with an expectation of being in a position to deliver a good 2021. And 60 basis points could be, in my view, a good proxy of an evolution that could be realistic and probably conservative in 2021.

Looking at the future, the cost of risk will depend on the -- mainly from the inflows because at the end, the majority of deleveraging we have already completed on the nonperforming loans. So between 30 and 40 basis points, I'm talking about medium-term trend of the cost of risk could be a cost of risk of a company like Intesa Sanpaolo, probably close to 40 basis points in the sense that we can maintain some reserves in terms of further provision for the future. But this could be the medium-term cost of risk for a company like Intesa Sanpaolo.

Looking at net interest income, the impact coming from nonperforming loans deleveraging could be -- in comparison with 2020 for the total full year 2021 could be EUR 150 million. I don't think that this could be much higher than this figure. The net income -- the net interest income for the first quarter is really the bottom because we had all the negative that we expected because we were in a position to have all this information related to nonperforming loans and the financial portfolio, the government portfolio that we reduced by EUR 20 billion in the last quarter of 2020. So initially, we had a reduction in this quarter, but we are still gaining momentum. And also the other portion of TLTRO III that we've decided to take in -- at the end of March, will bring for sure benefit in the next quarter. And my expectation is that now starting from this quarter, net interest income on a quarterly basis will increase quarter-by-quarter. That's my estimate.

[Operator]

Our next question comes from Antonio Reale of Morgan Stanley.

[Antonio Reale, analyst]

It's Antonio Reale from Morgan Stanley. I just have a couple of clarifications and one question on net interest margin, please. So the first one is, I mean, I look at your recent guidance history. Firstly, it was EUR 3.5 billion for Intesa stand-alone, then I think you have upgraded to above EUR 3.5 billion after including UBI and now to well above EUR 3.5 billion. On my estimates, correct me if I'm wrong, UBI accounts for about EUR 280 million, EUR 290 million, give or take. And judging by the speed of the integration, you will see some synergies already this year. And so my question is, it feels like you've taken a more conservative stance. Part of your previous optimism was coming from a recovery of loan demand in the second half. And so I wonder if that's changed and what we need to see for you to bridge the gap between the sort of well above EUR 3.5 billion and EUR 4 billion net profit? That's my first question.

And the second question is on NII, which, of course, was affected by a number of items you've talked about. And I remember, you were aiming for flat to slightly up NII for 2021. How is your expectation looking now after Q1?

And lastly, you've derisked your balance sheet, and that's visible also on looking at your NII. I wonder if that allows you to sort of go up the risk curve and relever some of the marginality loss. If so, what are the options you can pursue? I mean you have the balance sheet and levers to do so. I'm thinking about consumer finance, for example, that's a product which has not been very present in -- and now with the integration of Prestitalia from UBI may give you a decent market shares to sort of grow organically. Anything else you can do? How are you thinking about sort of defending margins going forward and in consumer finance in particular?

[Carlo Messina, executive]

Thank you. So looking at the expectation for 2021 net income, the contribution from -- coming from UBI in 2021, probably could be more in the range of EUR 200 million than [ EUR 208 million] , [ EUR 209 million ], considering that in the first quarter there was a clear trend of being involved into the merging process. We will see what could be the real figures. I have to tell you that starting from this quarter we decided to make the real divisionalization of the results of the group. So we'll not consider more UBI as a single entity, but within the division. I don't want to enter into the specific number for 2021. But I have to tell you, I'm absolutely bullish on 2021 performance because the contribution of UBI will be, in any case, positive and significant. But also the trend of asset quality, in my view, is absolutely in line with a very good performance in terms of net income and also commissions that are the real lever, which we are investing because I know that all of you are interested in net interest income, but I have to tell you that from my perception, the sustainability, the strength of the business model of Intesa Sanpaolo is related to commissions, wealth management.

So net interest income is a combination of different areas, in which, if you improve the quality of the portfolio through government guarantees, it is clear that you can have reduction in terms of net interest income because the guarantee of the state can allow to clients to have a lower interest rate. But at the same time, you have a reduction in risk-weighted assets and EBA, you can create more value for your shareholders, having a much lower cost of risk. At the same time, the reduction in terms of nonperforming loans will bring a reduction in contribution from net interest income, but at the same time, EUR 150 million lower net interest income, but you can have EUR 1 billion, EUR 1.5 billion reduction in terms of provisions.

So there are a number of areas that are correlated with net interest income. At the same time, the government portfolio is a dynamic in which my people in Banca IMI and the Treasury departments are managing this area, not line by line, but total revenues. So I cannot guarantee that EUR 10 million of net interest income can be related to the increase in the next quarter, but at the same time, having EUR 100 million more in capital gain from trading activities. So net interest income is an area that is not so easy to make in terms of forecast. And at the same time, the quality of net interest income is much more important and qualitative from my side. So to have a very high-quality net interest income is strategic for us because this means to have a reduction in terms of cost of risk, this means to have an increase in net income.

Having said that, as I told at the beginning of this conversation, I think that this quarter is really the bottom, and we will move into increasing quarter-by-quarter. I think that it is possible to reach a flattish situation in comparison to 2020, but this will depend also on what kind of benefits can I -- I will -- I can have in the future in terms of reduction or provision or increase in capital gain. And if this will bring me to have a significant increase in terms of net income, I will be ready also to accept a reduction in terms of net interest income.

So this will be something that we will monitor quarter-by-quarter according to the different implication on cost of risk, risk-weighted assets and on trading portfolio. But my expectation today is to have a rebound in terms of net interest income during the next quarters, and on a yearly basis, to reach something that could be flattish dynamics in comparison to 2020. But quarter-by-quarter, we can update and look together at the dynamics of the different implication of the net interest income.

We made a lot of derisking. It is true. And we have a lot of opportunities to increase areas in terms of loans. Consumer finance is an area that could be in an investment mood for the group because the legal entity devoted to this sector will be reinforced. And so this could be an area in which we will invest a lot. So this could be, for sure, an area in which in the next quarters, but mainly concentrated in the last part of this year, we can accelerate during 2021 and especially in 2022.

[Operator]

Our next question comes from Delphine Lee of JPMorgan.

[Delphine Lee, analyst]

Just have 2 quick questions. First of all, sorry to come back on net interest income. Just to clarify, so you mentioned the EUR 20 billion reduction in the govies portfolio, which I would assume would have probably on a full year basis, something like at least EUR 200 million impact on a full year basis. So just trying to understand if your -- this portfolio is due to increase over time or are you trying to offset this negative impact from your investment portfolio? Or -- just trying to understand what's the strategy here. And then on TLTRO, just on the extra EUR 36 billion you've taken in March, should we see the benefit already of 1% already in Q2? Or do you need to get a bit more clarity on whether you can meet the benchmark in terms of lending? My second question is on moratoria. Now that it's been extended to December in terms of the expiry, I mean, should we expect any -- from your perspective on contracts that you have with your own clients, any changes or any decline in the moratoria amounts in the next few quarters? Or is the bulk of the EUR 30 billion really just expected by December?

[Carlo Messina, executive]

Thank you. So starting from net interest income, in September, the timing of the merging of the Treasury departments and investment banking departments of UBI and Intesa Sanpaolo, we decided to make a reduction in terms of concentration of government bonds because the acquisition of the portfolio coming could have been created a situation in which we would have exceeded the 50% concentration in terms of Italian government bonds. So we decided to reduce the scale of portfolio. And the reduction was for a total amount of EUR 20 billion between the third quarter and the fourth quarter. So this means that this create condition to reduce the total amount of the portfolio.

At the same time, in the management of this combined portfolio, we started to reincrease the dimension of the portfolio in terms of a unique vision on the concentration. Today, we are at 47% concentration of the Italian government bonds. We can increase the dimension of portfolio, and we can move into a possible increase of the contribution coming from financial components. So what we want to be sure not to have concentration in the Italian government bonds exceeding 50%. At the end of this process, we can also have some increase in the total portfolio maintaining this level of concentration. And in my expectation, we can have some positive contribution in the second quarter, provided that in the investment banking areas will not decide to make disposal of government bonds in order to have capital gains on making trading activities. So that's for the net interest income.

The TLTRO III will bring benefit in the second quarter -- starting from the second quarter. The contribution will depend on the reinvestments of these proceeds. In case of reinvestments with the ECB, the contribution could be EUR 45 million per quarter. Then starting from this, if we have lending activities, this can increase in the different quarter. That's the reason why I'm pretty confident that net interest income will increase in -- starting from this quarter -- the second quarter because contribution of TLTRO loan book portfolio will bring momentum to the net interest income. Then if we are able to reduce deposits through conversion -- retail deposits through conversion into asset under management, we will have also contribution coming from a reduction of the negative carry coming from markdown. So if we are able and we started the new evidence of this quarter or -- the first quarter that we are starting to move deposits into assets under management and provided that we will not have another increase in retail deposits because we are the flight to quality bank in the country, this can bring also some positive to the net interest income.

Looking at the moratoria. We think that we can have other reduction in the total amount of the moratoria. We will see quarter-by-quarter. We made an analysis clients by clients of the moratoria because we were not waiting for the postponement of the expiring date of moratoria. But we started by the end of 2020 to make an analysis client by client, sector by sector. And this will bring us, in our expectation, to have a further reduction in the second part of the year of the total amount of moratoria. But as I told at the beginning of this presentation, we are not, in any case, worried about the position of the clients that are in moratoria. The majority of them has a lot of -- have a lot of liquidity posted with the bank, both in terms of corporate deposits and also in terms of deposits coming from private banking and retail activities. So there are specific areas mainly concentrated in sectors related to tourism. But in the end, I think that this will result into something that will be absolutely manageable.

[Operator]

Our next question comes from Domenico Santoro of HSBC.

[Domenico Santoro, analyst]

I got 3 questions. One on NII, one on cost and one on capital. First of all, on NII. Thanks for giving us the direction and all the elements. I'm just wondering whether you can give us a bit of thoughts about all the measures that the government is setting up in terms of allowing you to anticipate liquidity to SMEs against tax credit, which I suppose will be sort of landing 0 weighted. I'm just wondering whether all the Ecobonus, the measures that the government is setting up are going to be significant in terms of contribution from -- for your NII. Any thoughts also qualitative would be very useful.

On cost, I know that you gave us the phasing of the synergies in 2023 and 2024. I wonder whether you can give us a little more short-term guidance for this year, next year, in order to understand and help us to build up the model given that the integration of UBI has been already completed successfully.

And then on capital, first of all, can you give us an indication of whether the 14.4%, the [ clean ] number includes everything in terms of purchase of minorities of the product companies and what is left in terms of EBA? And then more looking beyond, you keep giving us this indication of a 12% minimum core Tier 1 fully loaded for the future. I know that you're going to present in the investment plan and give us a new target in terms of capital. I just wonder whether we should consider this 12% a sort of minimum from now on and start to think about what is in excess, what you could start to think about distributing to shareholders in the future?

[Carlo Messina, executive]

Thank you. So starting from the net interest income and the implication of the -- all the areas of intervention from the government in order to reinforce liquidity and acceleration of engine for growth in the country, I have to tell you that this measure Ecobonus tax credit and all the other can bring really positive dynamics to the loan book portfolio. This can accelerate, and especially Ecobonus can accelerate in a significant way, a number of areas of investments from our clients in Italy. But at the same time, also the starting of the next-generation EU funds can bring momentum in terms investments from the Italian company. So I think that there could be, for sure, an acceleration. And also, at the same time, a reallocation of a portion of deposits from the corporate clients into real economy. So this can bring also some positive trends in terms of confidence from the corporate clients in reinvesting in the country. So my expectation is that the clear correlation between the loan book, the confidence and the trend of GDP will demonstrate to be in place. So a growth of 4% GDP in this year and next year can really bring a momentum of strong investments from the Italian companies. And at the same time, this can be absolutely transformed into a growth in terms of loan in the second part -- starting from the second part of the year.

Looking at cost and synergies, we are considering that more than 50% of the synergies can be placed at the end of 2022. So that's our expectation, more than 50%. In 2021, the amount will not be so significant. We will have the contribution from synergies, but not so significant because the exit of people will bring momentum in 2021 -- 2022. So 2021 is a year in which we can have only a limited portion of synergies. The majority will start from 2022 and then '23 and '24.

Looking at capital. We have some other minor basis points coming from the insurance companies, the last part of the acquisition of the minority of the insurance companies. But all the negatives that can come from this and from the regulatory headwinds can be in the range of 40 basis points. So some 5 basis points -- between 5 and 10 basis points can be related to acquisition of minority. And the other part is the headwinds related to the regulatory environment. Then we will have all the actions in order to have more accuracy in terms of guarantee collaterals that can bring positive into our common equity ratio for 2021. So that's our expectation.

Looking at the medium term, 12% in our expectation is the right level that we can -- that a bank like Intesa Sanpaolo in terms of risk profile should maintain also in the future. So this will be an area of analysis also for the new business plan, but I can tell you that I'm pretty confident that 12% would be really the minimum level that we can have in terms of fully phasing capital for the future. That's my expectation.

[Operator]

Our next question comes from Jean-Francois Neuez from Goldman Sachs.

[Jean-Francois Neuez, analyst]

I just wanted to clarify your last point on the absolute minimum 12% core Tier 1 ratio you would like to have. I just want to understand whether you would be happy to run Intesa in the region of 12% or whether your comments relate to -- if I was to rephrase it, we don't want to run below 12%, that's for sure, but we'd also like to keep a buffer -- a significant buffer on top of that. Just trying to understand what's the firepower that you think you have in reserve, so to speak, with regards to your current capital position.

I also wanted to understand if you wouldn't mind, your cost trajectory with regards to the number of staff in particular. So you talked about the amount of people who've accepted to leave the bank and/or to change jobs. I just wanted to understand whether you could share with us what you think the group headcount would be at the end of this year and next in -- so essentially net of recruitment and departure.

And lastly, I just wanted to ask also on the composition of fees in the quarter which were up very strongly. I just wanted to understand what came from -- if there was anything that you would think was unsustainably high or unsustainably low in particular with regards to transaction of card payments or otherwise subscription fee, which you would think might reoccur or actually provide room for further performance going into the next few quarters.

[Carlo Messina, executive]

Thank you. So the -- on capital, you have to consider what could be the minimum level of capital that you have to maintain considering your risk profile. So 12% is already a figure that can have buffer in consideration of unexpected event. So when I'm talking about a minimum level, I'm talking about a level in which you can have a buffer in case of negative situation. So then it can happen that you can maintain a buffer for a period and then you can decide to have all the extra buffer like in a situation like this. But if you are in a normal environment, our risk profile, in my view, is absolutely manageable with buffer. If you maintain a 12% in terms of fully phase-in, then we will elaborate in the next business plan because we will give the specific target of capital, but I have to tell you that I don't think that the company like Intesa Sanpaolo can move in a number that could be different from this 12% fully phased in.

Again, buffer will be related to real condition. But with 12%, we have a significant buffer in any case considering also different negative scenario and adverse scenario. So that's my perception. Then we will elaborate on this point during the preparation of the business plan. In the beginning of 2022, we will give all the disclosure on this point on capital position. But I'm totally confident with a 12% fully phased-in common equity in the medium term.

Then looking at people, we will have 7,200 people leaving the organization by the end of 2023. So we will have the complexion of the reduction of people during the timing. At the same time, within the first semester of 2024, we will have the hiring of 3,500 young people in order to reinforce the quality of the human capital of the organization, mainly in areas in which we need to have reinforcement in digital, fintech, all the area of payments, and also in areas of innovation, areas in which we need to have reinforcement of smart and young people. At the same time, we will have also to reinforce the distribution network of the organization. And so we will use these people that will enter into the organization to reinforce also areas in terms of sales force in the network in the Banca dei Territori and Private Banking divisions. So that's more or less the trend of the people within the organization. Then the final figures will be at the end of the process of this business plan that will be within the end of this year, announced at the beginning of 2022.

If I look in the fees, I'm pretty confident that fees will have an acceleration in -- during 2021 in comparison with 2020, there is a portion of commission in the first quarter that is not the trend of acceleration that we think could be reached during 2021 and especially for commercial, the payments, all these areas has also the possibility to accelerate during the next quarter, the same, the investment banking commissions. And if we look at the wealth management commission, we have such a huge potential. And also April has been a very good month in the Private Banking division and in Banca dei Territori, in which we are accelerating this kind of growth, a conversion of assets under administration and retail deposits into assets under management. And if you think that during the first quarter with the multiple lockdowns, we delivered more than EUR 4 billion net inflows.

It is clear that we can deliver an incredible, very good 2021 looking at commission starting again to be really a delivery machine in terms of conversion of retail deposit and asset under administration into commissions. This is the area which I'm totally confident that we will deliver very good performance in combination with the insurance business. So commissions in insurance and cost of risk are the 2 areas in which we can extra deliver in comparison with our original expectation at the end of 2020.

[Operator]

Our next question comes from Andrea Filtri of Mediobanca.

[Andrea Filtri, analyst]

I have a question on NII, one on cost of risk and one on fees. On NII, could you please give us the NII lost from the bond portfolio contribution in Q1? And how much will be recovered by the rebuild of the portfolio in Q2? If my calculations are correct, you did not tap all of the TLTRO III allowance that you had at group level. If so, why not? And finally, I understood that you cashed in all of the capital gains that you had on the bond portfolio, I just want a confirmation of that.

Then on the cost of risk, the ECB is saying that European Bank's internal models are failing to capture asset quality deterioration. Banks are seeing improvements in asset quality rather than deterioration and governments are extending moratoria. What is the risk to you that we will have, as a result of this, a shift of asset quality deterioration in cost of risk from 2021 to 2022? I'm asking this because the market is uncomfortable about this P&L line so far. And it's unlikely to buy into this until there is more visibility.

Final question on fees. Just very straightforward, if you see any room for further repricing to capture negative rates? And very, very final, just if you have any comments on the opportunity for Italian banks from the recovery fund approved by the Draghi government.

[Carlo Messina, executive]

Thank you. So starting from the net interest income, we lost, in this quarter, probably between EUR 40 million and EUR 50 million coming from net interest income from financial portfolio. This is a mix of the carry coming from the last quarter of 2020 and the portion of portfolio that we -- in which we make disposal in order to make the capital gain. All the capital gain are realized, so there is no valuation on this point. So the mix between the majority of this amount of margin is related to the reduction of stock that we placed in the last quarter of 2020. We can have a rebound in terms of volumes, obviously, not EUR 40 million, but we have -- we can have a rebound in quarter-by-quarter, reaching a level that could be at the end of the year not far from this. At the same time, maintaining optionality to deliver other capital gain during 2021.

TLTRO III, it is true. We had -- we still remain with roughly EUR 15 billion of TLTRO that we can ask in the next quarter. We decided to look at the combination between Intesa Sanpaolo and UBI to have more clarity on the opportunity to reinvestments of this fund. And we will evaluate, in this quarter, if also we decide to take also the -- this portion of the TLTRO III.

Looking at the cost of risk, I have to tell you that there is for sure some areas in which the internal evidence of the banks and also my colleagues in other international banks, we are, for sure, looking at difficult environment, possibility to have cost of risk that can be not in the normal attitude of the medium term with some deterioration, but it is not something like a very negative impact coming from this environment. So I have to tell you that the evidence that we have in the organization is that 2021 can be a year, which, as I told, the cost of risk can be in the range of 60 basis points.

2022, there could be some other areas of impacts coming from the crisis. Difficult to say because at the end of 2021, you will be in a position to have already accrued plus 4% in terms of GDP in Italy, but also in Europe. And in 2022, the perspective of another plus 4%.

So the outlook would be totally positive in this scenario. So the expectation to have such a significant impact also in 2022 is really very, very limited. And in any case, you will have possibility to have some recovery of generic reserves because the scenario will be positive.

So in my perception, the situation is to look with attention, but I'm not worried at all by the situation. I think that this could be absolutely manageable within the figures that I told to the market. It is clear that we made such a massive deleveraging and increase in provision, selective increase in provision that probably we are in a different position in comparison with other players that have lower provision and lower opportunity last year to make selective intervention to areas in which we think we can have deterioration during 2021.

Looking at fee and commission, we do not see any significant action in terms of pricing on negative rates and that's for sure the situation. We hope that in the next future we can accelerate the conversion of the majority of the extra liquidity placed with our accounts moving into asset under management, try to convince clients that it could be much more possibility to make sustainable money to investments in wealth management.

In terms of opportunity coming from the recovery fund for the banking sector, that's for sure there's an opportunity coming from the structural improvement of the potential of the GDP growth, and that is positive by definition for the banking sector. And in the future, we will see what can happen, and we will see also what would be the real impact of this fund in the future in Italy. But I'm pretty confident I think that the Mario Draghi is, for sure, the best person that can manage this situation in terms of reputation, credibility and in terms of possibility to allow that Italy can have a leading position in Europe. So I'm totally confident that this can be positive for the real economy in Italy and also for the banking sector.

[Operator]

Our next question comes from Azzurra Guelfi of Citi.

[Azzurra Guelfi, analyst]

A couple of questions from me. One is on the fees. Out of the EUR 4 billion of net inflows that we've seen in asset under management, how much of those are coming from deposit? And how do you think the acceleration will be more in the second part of the year, for example, for the conversion or not? And linked to your asset management and saving insurance activities and your capital position, clearly, this is an area where you could have a significant growth in the future. And would you consider leveraging more on this -- on your product factory also externally to the group? I don't know if maybe it's too early because you present the plan next year. But just to think about an alternative use of capital for you.

The second one is on moratoria. Of the EUR 30 billion more or less of moratoria that have expired, how much of these have become a comeback in bonus and any of those have opened any government guarantee position in terms of lending?

And the last one is on ESG. You have a very wide and very deep ESG policy, especially on the social component. When I look at your climate exposure, I had a question. One is how much of your loan book is on the high polluting sector in terms of percentage or if any color you can share? And if your strategy going forward is more towards greening the activities of your customers or helping them more than just cutting the exposure?

[Carlo Messina, executive]

Thank you. So looking at the fees, the net inflows, the majority of this growth is coming from the conversion of retail deposits, retail in the sense, retail and private banking deposits. So we started with this action, and I think that this will bring very positive results during 2021. And my expectation is that we can really accelerate during this year in terms of conversion of retail deposits and also in terms of conversion of assets under administration because also asset under administration could be an area in which we can have positive results. You have to consider then when spread, BTP-Bund is in the range of 100 basis points, the majority of the portfolio of other clients can become positive. So they can be in a capital gain position. So it could be easy to work with them in order to improve the financial condition. So it is not only important the net inflows but also the gross inflows, so the ability to move the portfolio. And I think that this will position us in a very good place to deliver significant growth in terms of commission on a yearly basis.

On asset under management insurance, this would be a typical area of business plan. I'm considering this sector like a really strategic part of the group. We will try to work also in terms of working with other network in order to provide products to other networks, and we will make all the analysis from a strategic point of view. But this will be, for sure, something that we want to maintain 100% within the group.

Moratoria, the majority of the expire. So only 1.5% of the expiring portion of the moratoria that is in the range of EUR 30 billion, the total amount of expiring, so only 1.5% of EUR 30 billion has been reclassified into nonperforming loans. So really a very limited amount. And our expectation is that, at the end, the trend should not be significantly worse than this at the end of 2021.

Looking at ESG policy, I have to tell you that we are really -- as you told, we are really strong on social, on governance, on climate. We are accelerating in order to improve our position. We have a lot of work to do in this area. We are trying to do our best to accelerate. And now I want also to commit myself in order to improve this area. The first target is to try to work in order to help our clients. But at the end, we will move into specific target of significant reduction in this sector. So this would be another part of the story that will be fixed in -- during 2021 in order to be ready at the beginning of 2022 to have a best-in-class policy in also looking at climate in which probably we are not, today, the best performer within our competitors.

[Operator]

We'll now take our next question. It comes from Britta Schmidt of Autonomous.

[Britta Schmidt, analyst]

I've got 3 quick questions, please. The first one is on costs. Could you just elaborate a little bit as to whether there's still some pandemic-related savings that are in the cost print that might increase inflation in a more normal environment? The second one is on provisions. Could you just confirm that the...

[Carlo Messina, executive]

Sorry, sorry. Could you -- sorry -- sorry, I lost you in the first question. Could you repeat it, please? Because I lost your question, sorry.

[Britta Schmidt, analyst]

No problem. The first one was on costs. Could you elaborate a little bit on whether there are still some pandemic-related savings in the cost space that might increase the inflation a little bit once we return to a more normalized scenario? The second one is on provisions. Shall we assume that the EUR 2.2 billion COVID provisions you booked last year are still there? Or have you used some of these macro provisions? And the third one is just a clarification on the capital. You said 5 to 10 basis points are still due to come from minority acquisitions. Is that gross or net of any potential disposal gains? I'm thinking about merchant-acquiring activities, for example. Or would that come as a benefit on top of that to offset a little bit the cost of minority purchases?

[Carlo Messina, executive]

Thank you. So the -- in terms of cost, if we look at the impact coming from the pandemic, we had an increase in our cost base due to the investments that we made in order to manage the situation of the pandemic. We have a reduction in terms of cost [of missions] of our people. So there are a mix of impact. At the end of the pandemic, we think to have in -- to be in a position to have some further savings in terms of cost base. Then from a strategic point of view, the digital implication coming from the new world can bring some acceleration in our investments in digital. But for us, the branches and the -- especially for the private banking, personal and offer segment, we remain strategic. We will accelerate reduction of branches that are focused on mass market. So this can bring acceleration also in terms of cost reduction.

In terms of provision, the amount of provision that we placed for the COVID is still there. So we didn't use the amount of provision, the EUR 2.2 billion that we placed during 2020. And our expectation is not to use this for the time being, and probably we will wait for the implication on the change in terms of scenario for 2022. So this can bring some recovery in terms of better position looking at the provisions.

Looking at the minorities, we have the minorities of Aviva Vita, Lombarda Vita and Cargeas that are under negotiations and -- under negotiation, sorry, that we have to still include this figure in our ratio. This can happen in the second quarter, but we are talking about, as I told you, 5, 7 basis points. At the same time, making the acquisition of the minority of -- making the acquisition of the minority of Pramerica and the insurance company, we will have an extra contribution in terms of net income that could be between EUR 100 million and EUR 150 million. So that's our expectation.

[Operator]

Our next question comes from Giovanni Razzoli of Deutsche Bank.

[Giovanni Razzoli, analyst]

Can you share with us what was the amount of state-guaranteed loans that you have issued? I have seen that you have a pretty much strong new business generation in Italy, EUR 21 billion. I was wondering whether the contribution of this product is still strong as in 2020, that if I'm not mistaken, was at EUR 30 billion or whether it is decreasing.

Second question is on your pipeline of NPL disposals. At the last conference, you clarified that you still had something like EUR 1 billion of net NPLs up for disposals. I was wondering whether shall we assume that you're going to complete this sale in the next quarter?

And the very last question on, sorry to ask you this, on the NII, you mentioned that you've been pretty clear in terms of trajectory and in terms of moving parts. You mentioned also the excess liquidity that is clearly an issue. My question is how much of this reduction in excess liquidity is client-driven? And how much are the action that you can make as a bank to reduce this liquidity? If I'm not mistaken, you had something like more than EUR 70 billion of deposits at year-end with the central banks. So part of it, as you said, reflects the flight to quality of the clients, corporate retail. To what extent instead you can reduce this via managerial action or via a more proactive or higher risk appetite to support the NII?

[Carlo Messina, executive]

So that's -- we start from the excess liquidity because that's a clear point of attention for us. There could be something that we -- it is not in our lever. So it's the confidence of -- I'm talking about corporate clients, and then I will elaborate on retail clients.

For corporate clients, it is something that is in the end of the governments and the attitudes to accelerate investments for the return to investments in the country. If this is the case, probably EUR 30 billion of deposits can be moved into real economy, and this will bring a positive contribution for us. This will be not in 10 days, but this could be something the effect can accelerate due to the increase in terms of the GDP.

Looking at the areas of retail deposits, a portion of this will accelerate to come back into consumption. So that's for sure, an area in which will be -- we will have a reduction of this excess liquidity. But at the same time, we need to work in terms of proposal to our clients of products of asset under management and insurance. And as I told at the beginning of this presentation, we are accelerating in terms of creating condition to move these deposits into asset under management and insurance products.

Looking at the NPL disposal, we -- I can confirm you that we think that EUR 1.1 billion can be the net amount of disposal of nonperforming loans of 2021. We are working on this disposal. We are receiving the offer for the portfolio. And so we think that we can absolutely easily work on the complexion of this transaction. This will be in the second part of the year. And -- but I can confirm you that I don't see any kind of negative situation related to this.

Looking at our loans with the state guarantee, we have more than EUR 30 billion, out of which EUR 10 billion with such guarantees. These loans are still accelerating. So we are continuing to make loans with state guarantee. The attitude of the clients for the majority is to convert the short-term indebtedness into loans with the state guarantee in order to reduce their cost -- financial cost, and this will bring a reduction in terms of net interest income. And that's the reason why we want to finance this with TLTRO III. At the same time, they are redepositing a portion with us, and that's the evidence of this attitude of being really conservative from the Italian companies but not to be in a negative situation looking at their financial needs.

[Operator]

Our next question comes from Ignacio Cerezo from UBS.

[Ignacio Cerezo Olmos, analyst]

A couple of questions for me. First one is on the loan yield, if you can give us the number for the quarter versus the fourth quarter of last year on a group basis. And the second one is around the capital return, the restriction of the ECB being lifted, et cetera. If you had to put a number, 1 to 10 of the probability of your dividend being approved, what would that number be? And what do we need to monitor in terms of events, basically, to get some information from the ECB? When do you think we're going to have that information about greenlight for dividends or not?

[Carlo Messina, executive]

Sorry, could you repeat the first question because I lost the first question, sorry.

[Ignacio Cerezo Olmos, analyst]

Yes. It was on the loan yield, just asking for the loan yield of the group in the first quarter of '21 versus the fourth quarter of 2020.

[Carlo Messina, executive]

Okay. Okay. So looking at the loan yield, we had a reduction of markup because we had an increasing contribution from the guaranteed loans. As I told you, we had the conversion of short-term loans with high yield into government-guaranteed bonds -- loans, sorry, and this will have the implication of reduction of contribution of net interest income, but at the same time, a reduction in terms of risk-weighted assets and cost of risk. So from the EBA point of view, the contribution is positive. But looking at the implication in the quarter, this has been negative. And the amount in terms of gross reduction in this quarter could be something like EUR 20 million, EUR 25 million of reduction in terms of contribution from the loan book.

Looking at the capital return and the probability of being authorized to pay dividends, I think that the most important correlation will be with the recovery in terms of GDP. Recovery in terms of GDP means that you will have a complexion of the vaccination of people and the pandemic situation would be really less significant. So my expectation is that as soon as the GDP will move into positive, there could be a different attitude from the ECB. Then probably they will move into a case-by-case because it is clear that they will make also analysis with specific banks, but I think that it is likely that we can move into a normal life after September.

And in the last quarter, we will enter into a positive evaluation from ECB according to the market. From bank specific, obviously, each bank will be analyzed by ECB. I think that also another important part of the story will be related to the stress test, EBA stress test. That's another part of the story that I think will be considered in order to remove this ban, and we will see at the end of this quarter. For Intesa Sanpaolo, I'm pretty confident, but obviously, we have to see what could be the final decision from the ECB.

[Operator]

Our next question comes from Andrea Vercellone of Exane BNP Paribas.

[Andrea Vercellone, analyst]

I have got 3 questions. The first one is on government-guaranteed loans. The second one is on insurance. And the third one is on dividends. On dividends, it's a qualitative question. You plan to distribute a special out of reserves from last year and also to give an interim dividend in relation to 2021 result. My question is, do you believe that this is part of, one, ECB decision? Or there are 2 separate decisions that the ECB will have to take and, therefore, may not be approved by the Board at the same time?

On insurance, my understanding is that the contribution of Lombarda Vita, Aviva, and of course, Cargeas because you simply don't own that one, it's not in the revenue line income from insurance. I know you gave a net income figure before. I'm more interested if you can give us a guidance on the extra revenues that could go on the revenue line, income from insurance, once you fully consolidate these subsidiaries.

And the third one on government-guaranteed loans. My understanding is that the new legislation that will be presented to parliament that extends the possibility to issue government-guaranteed loans until the end of the year will also include the possibility to extend the tenure of the government-guaranteed loans already in place, if the client asks. However, for a lower amount guaranteed. So my question is are you forced to just give them the extension if you don't want to? And does the rate that you charge for those products stays the same? Or you could increase it because the guarantee is lower and the tenure is longer? I just don't know if it's a commercial decision that the bank can take or if by law, you just need to extend?

[Carlo Messina, executive]

So we will be looking at the guaranteed loans. We will see what could be the final decision. Theoretically, I have to tell you that if there could be an extension of the guarantee and there could be an improvement in terms of the financial conditions of the clients, we will be, for sure, ready to be positive looking at this point.

Also in terms of rates, the contribution that you have in terms of reduction of risk-weighted assets to a guaranteed loans is something that can be considered positively by the bank. So I'm pretty positive on this approach, then we will see a specific rule and specific clients. But theoretically, I'm positive on this point.

Looking at the different implication of insurance, we will have this acceleration of the insurance business considered in terms of extra [indiscernible] in the production of business plan. Aviva Vita will not bring contribution in terms of revenues. But the acceleration in terms of possibility to serve clients and to give optionality will be included in the next business plan. My expectation is that, in any case, you can have extra revenues. I think you talked about EUR 50 million of extra revenues, we will be in the final figures, but there could be, for sure, also contribution in term of acceleration of revenues. In terms of...

[Andrea Vercellone, analyst]

I don't mean -- excuse me, I don't mean acceleration. I mean these businesses are making revenues today which are just not in that P&L line. They are booked as income from associates somewhere. So they are already there. We just need to reclassify them.

[Carlo Messina, executive]

No, no, no. That can bring, for sure, revenues and that should be in the range between EUR 50 million and EUR 30 million. But then there could be acceleration through synergies because when we prepare synergies, we didn't consider the minority. It is the specific slide in the presentation. We were not considering the minorities, and this can accelerate also the amount of synergies on the revenue side that we can deliver during next year. So there is one point that is the consolidation. So consolidation means that you can have revenues and net income and all the other items. Then the inclusion of these minorities, including the Pramerica into the analysis of the synergies, and this can bring extra revenues in comparison with the original analysis of synergies.

[Andrea Vercellone, analyst]

And on dividend?

[Carlo Messina, executive]

And on dividend, I think that probably there could be 2 different authorization because these are 2 different items. One is related to the possibility of making and usage of reserves that we need to ask in terms of usage of reserves. So I'm talking about the EUR 1.9 billion related to the net income of 2020. The other part related to the interim dividend, as soon as if will be positive and approval from the ECB on the change of bylaws in -- so on the possibility to make this interim dividend, then the Board of Directors will have to make the resolution and ECB at the end will have to approve. So probably there should be 2 different decisions. But we will see in the next month as soon as we receive the final position of the ECB on this point.

[Operator]

Our next question comes from Alberto Cordara of Bank of America.

[Alberto Cordara, analyst]

Just a clarification on a point that you made before. You said that the acquisition of the minorities in insurance and Pramerica is going to consume some capital to the range of 5 to 7 bps, if I understand correctly. Yet, on the other hand, you're going to have additional earnings. If I understood correctly, of EUR 100 million to EUR 150 million. So my question is, are these earnings included? So first of all, if this is a pretax or posttax figure? And secondly, if this figure is included in the pretax EUR 1 billion synergies that you gave us in Q4?

Then the second question is related to fees. I think you touched on it before, but I just wanted to have a bit more clarity. So I look at Q1, which is a quarter where I thought there was a lot of disruption because you sold a lot of branches, part of your employees were transferred to UBI. And yet, on a year-to-year basis, on a restated P&L, you have an 8.9% growth. So considering the quarter, it seems to me quite a spectacular figure. So the question to you is what we can expect for the full year, assuming that the market conditions do not change?

The other question that I want to ask you is, so in the call you talked about 60 bps of cost of credit that can be achieved this year and then something like 30 to 40 bps that may be achieved in the midterm. Now you would understand that this is a massive improvement. So my question is, when you talk about midterm, we should assume which year considering that in 2022 we all know that the moratory is coming to an end. So I just wanted to have a clarification on this.

And finally, my last question is, so you're taking additional TLTRO, but then on the other hand, you sold EUR 20 billion of sovereign because you thought your exposure with [ Togi ] was excessive, and you said to benchmark 50% of tangible equity in sovereign. But then why we have banks that -- where the ratio is close to 200%? So I'm not clear why you cannot push your top line even more if other banks are doing so, and they seem to be allowed to do so by the regulator, I guess. So these are my 4 questions.

[Carlo Messina, executive]

Thank you. So starting from minorities. Minorities are not included in the synergies. So absolutely not included in synergies. When I'm talking about EUR 100 million, EUR 150 million, I'm talking about posttax, so net contribution. So that's an important part of the story of having a contribution from wealth management and insurance through the acquisition of the minority of the insurance and asset under management sectors.

The commissions, you are absolutely right. This performance that our people within the Banca dei Territori and the Private Banking divisions delivered this quarter has been really a very good performance because a significant part of people were involved into the migration of the UBI branches and the disposal of the UBI branches to BPER Banca. So that's the reason why I'm really bullish on commissions. And I think that if we deliver EUR 4 billion conversions in net inflows in the first quarter, we can absolutely accelerate during the next quarters. We have such a huge amount of potential retail deposits and assets under management that can be converted.

And the expiring portion of the assets under management that is workable in this year is really an amount that can reach between EUR 30 billion and EUR 40 billion. At the same time, the amount of retail deposits that is for a maximum of EUR 90 billion. But for sure, there could be EUR 20 billion, EUR 25 billion that can be converted. So there is such a significant amount of areas in which my people can work in order to make conversion that I think can place Intesa Sanpaolo in a very good position to have a good performance in terms of commission.

At the same time, it is not only a matter of wealth management because also commercial commissions, commission related to payments and also commission in corporate investment banking areas can accelerate quarter-by-quarter. So on commissions, I'm really considering this area as a star for 2021.

Looking at cost of risk, the 60 basis points, I think that could be figures that now can be considered for the outlook. And again, I can tell you that if the trend of the exit from the pandemic situation could be the one that we have seen today with the reopening, with tourism and all the other areas, this can be absolutely easily achievable and probably could result at the end in being a conservative figures due to the fact that we placed more than EUR 4 billion in net provision at the end of 2020.

Then looking at the medium term, I'm not talking about '22 because '22 will be a year in which we can have a further reduction in comparison with 2021, but not reaching 40 basis points or below 40 basis points. But in my view, 2023 can be a year in which this can be achievable. This will be part of the business plan. So we are just talking about what-if analysis and not figures that can be part of the business plan, but I think that it is absolutely likely that we can have this kind of trend also in the plan.

If we look at the possibility to increase and improve the dimension of the portfolio, we think that there could be -- the most important limit is the concentration of risk towards the Italian government bonds. Then also limits in terms of execution of activity from the people in the corporate investment banking and treasury departments. My expectation is that we can increase the level in which we are working today, but not in such a massive, massive volume. But in any case, we will work also in terms of improving profitability coming from financial portfolio for the contribution on net interest income.

[Alberto Cordara, analyst]

Can I ask you just a follow-up on the cost of risk? So your point is very clear. Now you talk about the moratoria. And obviously, you have a higher probability of default in the moratoria than other performing loans. So I think you've been talking about 2% to 3% if I understand correctly. So far, it has been 1.5%. But when I look at the EUR 30 billion of state-guarantee loans, I mean, these are predominantly loans to SMEs. So I guess the probability of default on these loans should be pretty high or certainly higher than your normal performing loans. Can you -- do you have some data that you can share with us on this issue?

[Carlo Messina, executive]

So the -- also in terms of guaranteed loans, you have to consider that we have a portion of this that is EUR 5 billion that was the loans to FCA. So it is not SMEs, but it is corporate clients. Then there are another EUR 4 billion that is related to corporate clients. So out of the guarantee, it could be EUR 20 billion that is related to SMEs. These loans are not -- in my perception, not to be considered, in any case, related to a potentially risky situation. You have not to forget that the significant amount that we have redeposited is mainly coming from these funds that are guaranteed by the government. So my perception is that at the end, also in this area, we have not a significant amount of risk that can be considered also in the area of guaranteed loans.

[Operator]

There are no further questions at this time. I'd like to hand the call back to Mr. Messina for any additional or closing remarks.

[Carlo Messina, executive]

Thank you very much, and we will have occasion to discuss together the next results in August related to the first semester results of Intesa Sanpaolo. Thank you very much.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.