UniCredit SpA

MIL:UCG

Earnings Call Transcript 2018-Q1

[Operator]

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the UniCredit First Quarter 2018 Group Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Jean-Pierre Mustier, UniCredit Group's Chief Executive Officer. Please go ahead, sir.

[Jean-Pierre Mustier, executive]

Thank you very much, and good morning to you. And welcome to our first quarter 2018 conference call.

Looking back, I can say it was a busy quarter where we have steadily progressed in the execution of Transform 2019, and we continue to deliver tangible results.

Let's take a quick look at the highlights of the quarter before Mirko takes you through all the figures.

Our core bank shows a very solid performance with an RoTE of 10.4%, up 1.1 percentage point year-on-year. The gross NPE ratio of the core bank is 4.7%, improving 0.9 percentage point year-on-year, getting closer to the EBA average.

The core bank KPIs are of strategic importance to us. They are seen more and more by investors as the relevant metrics of the group performance, and they clearly show that our core bank performance is strong.

To make sure the core bank becomes the relevant reference for the group valuation, we have decided to take additional decisive action and bring forward the rundown of the noncore portfolio to 2021, previously planned for 2025.

We are helped by our strong capital levels and a more liquid NPE market in Italy. This will bring the noncore to closure within the time horizon of the financial projections of investors and analysts. And as we usually do, we have decided to address the most difficult asset class first, which is residential mortgage.

We are satisfied with our financial performance, which, for the quarter, was driven by positive sustained commercial dynamics across the group. Our strong underlying performance led to a group net operating profit of EUR 1.9 billion, up 25.5% year-on-year.

It is actually the best first quarter UniCredit has seen since the first quarter of 2007. All divisions are doing well. And thanks to a our renewed customer focus, we reported an increase in fees of 2.8%, driven by both investment and transactional fees. Transform 2019 is on track in terms of cost and de-risking.

Overall costs are down 5.2% year-on-year and 2% quarter-on-quarter. Our first quarter 2018 cost of risk came in at 45 basis points. The 2018 target of 68 basis points is confirmed.

Our CET1 ratio stood at 13.06% at quarter-end. Mirko will comment later about the details of the IFRS 9 first time adoption and FINO.

Let's move to Slide 5 for some highlights of the first quarter. This is UniCredit's best first quarter in more than a decade. We reported net profit of EUR 1.1 billion as positive commercial dynamics continued to drive performance across all divisions.

Revenues in the quarter held up well at minus 0.7% year-on-year, mainly driven by fees. First quarter costs were down 5.2% year-on-year, supported by lower HR costs. Our first quarter cost of risk came in at 45 basis points with no impact from model change yet. Our adjusted RoTE for the group was 8.9%, up 1.8 percentage points versus last year.

Let's move to Slide 7. Slide 7 and 8 give you more detail of the progress of Transform '19. Our strong capital position allows the group to accelerate the noncore rundown to 2021. We have taken decisive action to deal with the most difficult asset class first, namely residential mortgage. We'll do this through a combination of disposals and write-off, which leads to a higher IFRS 9 FTA impact. Despite this, our fully loaded CET1 ratio stood at 13.06% at the end of the quarter. We also expect our year-end 2018 CET1 ratio between 12.3% and 12.6%, and for 2019 above 12.5%.

In line with the prime objective to further reduce our cost of capital, we continue to de-risk the balance sheet. The last tranche of FINO transaction closed in January. The group gross NPE ratio stood at 9.5% at quarter-end, finally below 10%, and is steadily moving forwards to the 2019, 7.5% target. We are already at our 2019 target for gross NPE ratio for the core bank. The operating model transformation is ahead of schedule, reaching 78% of the target for branch reduction and 75% for FTE reduction.

On Slide 8, you see that commercial dynamics for the group are positive and sustained. We have launched Samsung Pay in Italy and are now the only bank that offers all 3 major mobile payment solutions, Apple and Samsung Pay as well as Alipay. This clearly demonstrates that we are not afraid of any potential competition when it comes to financial services offering for nonbanks. Partnering with companies like Apple will lead to a small loss in payment revenues, but on the other hand, allows us to acquire many new clients and merchant relationships.

CIB retained its strong position in European bonds. The fact that CIB was involved in the highest number of bond transaction in Europe, underline the strength of the platform and show that the fully plugged-in business model works.

And finally, we have completed the strengthening of our corporate governance. At the AGM in April, the list of candidates proposed by the board obtained a 90% vote of confidence. Fabrizio Saccomanni was elected Chairman shortly thereafter.

Now, let me hand over to Mirko, who will give you more detail on our financials. Mirko?

[Mirko Bianchi, executive]

Thank you, Jean-Pierre, and good morning to everyone. I will talk you through UniCredit's financial performance for the first quarter.

Our stated net profit reached EUR 1.1 billion. All business lines showed a good underlying sustainable, commercial performance. Adjusted return on tangible equity was 8.9% in the first quarter. We confirm the 2019 target of above 9%.

Let's turn to Slide 11. As Jean-Pierre just said, the KPIs of our core bank are of strategic importance. They are seen more and more by investors as the relevant metrics of the group's performance and they clearly show that our core bank performance is strong. To make sure the core bank becomes the relevant reference for the group valuation, we have decided to take additional decisive actions and bring forward the rundown of the noncore portfolio to 2021 previously planned for 2025.

In the first quarter, group core RoTE stood at 10.4%. The corresponding net profit came at EUR 1.2 billion, up 11.8% year-on-year. The group core gross NPE ratio was 4.7%, getting ever closer to the EBA average.

Let's turn to Slide 12. NII was stable in the quarter in line with our guidance. Fees increased by 2.8% year-on-year, driven by both investment fees and transactional fees.

Costs were down 5.2% year-on-year as our Transform 2019 plan is progressing ahead of schedule. Cost of risk was at a seasonably low 45 basis points.

Below the line, we had some developments worth mentioning. The group tax rate was low as we had the impact from IFRS 9 first time adoption and a change in geographical mix of profits. For the fiscal year 2018, the tax rate should be around 20%. Systemic charges were seasonally high as we booked more than half of overall systemic charges in the first quarter. Please also bear in mind that we resumed paying DTA fees in Italy of about EUR 30 million per quarter.

Let's turn to Page 13. NII was resilient in the quarter, down 0.4%, but up 1.4% when adjusted for days effect. As the first quarter has 2 days less, we collected EUR 58 million less in interest.

The main drivers of NII were the following: average loan volumes were up 0.5% and customer rates were essentially unchanged. Lower-term funding contributing positively for EUR 51 million. The drop in the TLTRO benefit is just a base effect, last year included some spillovers from fiscal year 2016. Our outlook remains unchanged. We still expect customer loan rates to drop in the second quarter of '18 and stabilize in the second half 2018.

We confirm our NII guidance for the year, which means we have -- we expect NII to remain stable in the first half 2018 at the average fiscal year 2017 underlying run rate and to increase in the second half 2018, thanks to the combined effect of higher volumes and stabilizing customer rates.

Let's turn to Slide 14. I will highlight 3 points in this slide. First, in group core, average loan were up EUR 2.8 million or 0.7%. Second, the average customer loan rate was stable. On a stated basis, they increased by 1 basis point versus last quarter. Excluding one-offs, they were down 1 basis point in group core. Third, in terms of customer spread, CEE and CIB are improving, while Germany and Austria still decrease. If you want to have more details on this topic, feel free to call our colleagues in IR.

Slide 15. As we said previously, loan volumes were restated for line adjustments. We show this in the Appendix on Pages 62 and 63. End-of-period customer loan volumes for group core were up EUR 5.1 billion in the quarter, 1.3% and 3.1% year-on-year. This compares with EUR 9.6 billion for the whole of fiscal year 2017 and underlines our positive commercial dynamics. Some divisions were affected more on a [ relative ] basis by nonrecurring FX. In commercial banking Italy, for example, stated loan volumes were flat. Adjusted for IFRS 9 FTA impact, they were actually up 0.4% in the quarter.

Let's turn to Slide 16. Fees in the quarter were up 2.8% year-on-year, Let's look at the 3 categories separately. Investment fees were up 2.9% in the quarter and 2.3% year-on-year. AUM net sales were up 8.4% year-on-year, which is a very good result in this challenging market and testimony to the strength of our commercial dynamics. AUM stock was down in the quarter, as negative market performance more than offset positive net sales. The investment fees outlook should be viewed in light of the strong base effect and the good first Q 2018 performance.

Financing fees were down 4.4% year-on-year due to the lower fees on overdrafts and guarantees in Italy.

Transactional fees were up 9.3% year-on-year, mostly driven by current account fees in Italy. We confirm our fiscal year 2018 growth rate for total fees at approximately 3% but expect some quarter-to-quarter volatility.

Let's turn to Slide 17. TFAs reached EUR 815.4 billion in the quarter, increasing 2.4% or EUR 19.4 billion year-on-year. AUM in the quarter were EUR 217 billion, benefiting from net sales amounting to EUR 3.9 billion, up 8.4% year-on-year. This is an outstanding achievement considering the challenging market environment in the quarter. They were offset by an AUM market performance of minus [ EUR 4.7 billion ]. The decline in AUCs is mainly driven by Commercial Banking Italy as we have stopped selling retail bonds and expiries are converted into AUMs. For the group, more than EUR 6 billion of AUCs decline year-on-year came from retail bonds.

Let's turn to slide 18. Trading income in the quarter was down 19% versus last year as we had some large client-driven transaction in the first Q 2017. We saw a rebound of trading income to EUR 478 million in the first Q, up 23.2% on an adjusted basis. This is still above our normalized run rate, which is EUR 350 million to EUR 400 million per quarter.

Please be aware that since the beginning of the year, all valuation adjustment related to our own credit spread are flowing through equity. As a result, volatility of our trading income is expected to be lower going forwards.

Our dividends, the contribution of Turkey was up 29.7% versus last year at constant FX. Turkey had a strong first quarter, which underlines the sustainability of its business model in a very volatile environment.

Let's turn to Slide 19. Our focus on cost efficiency is yielding tangible results. The operating model transformation continues to be ahead of schedule. We have already achieved 75% of our planned FTE reductions and 78% of our planned branch closures. As a result, operating expenses are down 5.2% year-on-year and down 2% in the quarter. We confirm our cost targets for 2018 at EUR 11 billion and 2019 at EUR 10.6 billion.

Let's turn to Slide 20. Both HR and non-HR costs are down on a year-on-year basis. HR costs are down versus last quarter as FTE reductions continues. Non-HR costs are up 1 percentage point versus the first Q 2017 as a result of expense recoveries normalizing from their seasonally high in the fourth Q 2017.

Let's turn to Slide 21. Regarding asset quality, I would like to point out 4 items. First, loan loss provisions are seasonally low in the first quarter as this year was no exception. Second, there was no impact from the model changes in the first quarter. The majority of the models impact is expected in the second half. Third, the IFRS 9 first time adoption affected the coverage ratios in the first Q '18. And last but not least, the line adjustment from accounting changes affect both cost of risk and NPE ratios. Numbers for fiscal year '17 have been restated.

We still can -- we still saw write-backs in Austria and low cost of risk in the CEE. They should normalize in the course of the year. We confirm the 2018 cost of risk target of 68 basis points, 50 basis points of which from models.

Our overall asset quality is steadily improving. The coverage ratio improved from 56.3% to 60.3%, mainly thanks to IFRS 9 FTA. The group's gross NPE ratio has come down to 9.5% in the first Q 2018, below 8% (sic) [ 10% ] for the first time.

Let's turn to Slide 23. In Commercial Banking Italy, net interest income was down 1.4% quarter-on-quarter as pressure on customer loan rates overweighed higher average volumes. Adjusted for the days effects, customer rates were down 2 basis points and average volumes grew by 0.6%. Fees were up 3.2% year-on-year, mostly thanks to strong transactional fees from current accounts. AUM net sales reached EUR 2.4 billion, up 18.5% year-on-year. This is a good result in a very challenging market environment.

We attracted 90,000 gross new clients despite closing another 50 branches in the quarter. The asset quality is improving, cost of risk is down to 64 basis points in the quarter. The risk discipline for new loan origination remained strong. As expected, loss on new loans was 35 basis points, well below the expected loss on the stock at 53 basis points, both metrics significantly improved quarter-on-quarter. Return on allocated capital for the quarter was 14.2%.

Let's turn to Slide 24. In commercial banking Germany, NII was down 8.1% quarter-on-quarter, driven by the high amount of prepayment in the fourth Q 2017. While we see some encouraging signs on loan volumes growth, we still experience pressure on customer rates.

Fees were down 6.9% year-on-year, mainly due to investment fees. And first Q 2018, did not reach the level of the unusually strong first Q 2017, which benefited from closed-end fund sales and the nonrecurring item.

The insurance partnership with Allianz had a strong start.

Cost of risk is stable versus last year at a seasonally low 13 basis points.

Return on allocated capital was 7.5% for the first Q 2018. We confirm our 2019 target of 9.1%.

Let's turn to Slide 21 -- 25. In Commercial Banking Austria, NII was down 2.4% versus last quarter due to repayments in commercial real estate and pressures on rates. Customer loan rates were down 3 basis points, while average volumes were up 0.4%.

Fees are up 1.2% year-on-year, AUM were down 1.1% quarter-on-quarter as the negative market performance offset positive net sales. We still had net buybacks in the quarter, cost of risk should gradually normalize in the course of the year.

The branch closures in Austria have been completed. Costs are down 6.2% versus last year, while net operating profit is up. On a year-on-year basis, net profit is down in the same period. The reason is a contribution from discounted operation in the first Q 2017.

Return on allocated capital was 7.2% in the first quarter 2018 as the bulk of the systemic charges was booked in the first quarter a much higher proportion than for the group. We confirm our 2019 target of 13.3%.

Let's go to Slide 26. CEE continues to be our growth engine. We added 304,000 gross new clients in the quarter. While loan volume saw a decline of 0.6% in the quarter, the customer rate stabilized overall, driven by positive rate movements in Romania and Czech Republic.

Fees were flat versus last year also due to an accounting change on fee accruals. While the cost/income ratio at 34.8% continues to be best-in-class, we expect some cost increase in the coming quarters. The cost of risk is at a low 69 basis points and is expected to normalize over the course of the year.

Return on allocated capital for the quarter was 15%.

And before we move to the next slide, let me say a few words on Russia and Turkey. UniCredit is very comfortable with its business in Russia, which has delivered recurring profitability above cost of capital. As everywhere else in the group operates, it strictly complies with all rules and regulations. Overall the revenues related to the newly sanctioned entities are negligible, both in terms of revenues and overall exposure for the group.

As you will have heard at Yapi Kredi's recent Capital Markets Day, we have decided, together with our partner, Koc, to participate on a pro-rata base in their capital increase of $1 billion that will support the new strategic plan. This will enable the bank to grow profitably, backed by a strong balance sheet.

Let's move to Slide 27. In a very competitive environment -- a European environment, CIB commercial performance was resilient. NII was up 5.3% quarter-on-quarter, driven by improving [ front booked ] rates and some nonrecurring items.

Fees were up 10.5% year-on-year, driven by strong client activity in structured finance in primary capital markets.

In the trading income, we had a nonrecurring net trading gain of 2 participations for a total of EUR 39 million. Cost/income ratio at 36.3% is best-in-class in the industry.

Normalized return on allocated capital stood at 14.1%.

Let's turn to Slide 28. As most of you will have listened to Fineco's results on May 8, I will limit my comments on this slide. We are very satisfied with the financial performance of Fineco.

Let's turn to Slide 29. The performance of the Corporate Center was no longer affected by any discounted operational line in fiscal year 2017.

Costs are down 3.7% versus last year, mainly driven by FTEs. As a result, the ratio of group Corporate Center cost to total cost is stable at 3.4%. The improvement versus last year quarter is thanks to the seasonal and mix effect. The fiscal year 2019 target of 3.5% is confirmed.

Let's turn to Slide 30. As we have already mentioned, we will bring forward the closure of this division. We will write-off EUR 1.4 billion of older vintages residential mortgages and accelerate the noncore rundown by 4 years to 2021. As a result, we have also improved our 2018 targets for gross NPE disposals to EUR 2 billion and have improved our 2019 targets for gross NPEs to EUR 14.9 billion.

Let's turn to Slide 32. We continue to de-risk the balance sheet and lower our cost of capital. Gross NPEs decreased by [ EUR 3.7 billion ] year-on-year and EUR 1 billion quarter-on-quarter. Our core gross NPE ratio has fallen to 4.7% in first Q 2018. The coverage ratio improved to 57.9%, also thanks to IFRS 9 first time adoption.

Let's turn to Slide 33. In the core bank, net flows to NPEs are down, both year-on-year and quarter-on-quarter. Overall, the risk environment remains supportive. For the group, expected loss of new business was at 30 basis points, below the stock at 35 basis points. Both metrics improved versus the previous quarter.

Let's turn to Slide 34. Gross NPEs in Commercial Banking Italy declined, reaching EUR 9.5 billion. The gross NPE ratio reduced to 6.6%. The 2019 gross NPE ratio target is confirmed at 5.3%. The reduction of NPEs towards the target will not always be linear.

The coverage ratio increased to 54.8%, also driven by the IFRS 9 first time adoption.

Let's turn to Slide 35. Inflows to NPEs in Commercial Banking Italy were lower quarter-on-quarter after the seasonally high fourth Q 2017. We continue to see the overall risk environment in Italy as supportive, also evidenced by higher recoveries year-on-year.

Let's turn to Slide 36. In the execution of our accelerated rundown, we have decided to address the most difficult asset class first, residential mortgages. We will do this through a combination of disposals and write-offs of older vintages for EUR 1.4 billion, taken in the first Q 2018. We will also improve the disposal target of noncore in 2018 from EUR 1.7 billion to EUR 2 billion.

Performing exposures in noncore are down EUR 2.5 billion year-on-year and stand at EUR 2.7 billion. By the end of 2018, all performing exposures in noncore will be gone and the division will become a closed NPE book.

And finally, there was a change in the methodology of reporting for NPEs as a result of Italian banks no longer account for default interest in gross book value. This reduces NPE gross book values by EUR 0.9 billion in noncore.

Let's turn to Slide 37. Noncore loan dynamics further improved. Net NPEs were down EUR 8.9 billion, down EUR 4.2 billion year-on-year.

Gross NPEs were down by EUR 7 billion year-on-year, reaching EUR 23.6 billion. We are lowering our group -- our gross NPE target for 2019 to EUR 14.9 billion.

NPE coverage improved significantly, to 62.4%, mainly driven by IFRS 9 FTA.

Let's turn to Slide 39. The Group's fully loaded Core Tier 1 ratio closed at 13.06%. The key drivers were the combined effect of IFRS 9 first time adoption and FINO, partially compensated by a Q1 earnings generation. Regulation, models and pro-cyclicality negatively impacted by 9 basis points. We expect the EBA guidelines and remaining impact of our models to occur mostly in second Q -- in the second half 2018. This depends on a formal validation by the ECB, which we'll still expect for the second half 2018, but could slip into the first Q 2019.

IFRS 9 became effective on the 1st of January 2018. The decision to accelerate the noncore rundown to 2021 and write-off also had an impact on the first time adoption effect. In total, the negative impact, net of tax, for UniCredit is 99 basis points of core -- of CET1 ratio, most of which is due to increased LLPs and write-offs.

Following the completion of FINO, we will get a capital benefit of 8 basis points. This effect will increase over time, thanks to the evolution of retained exposures. We expect our Core Tier 1 ratio at year-end 2018 to be between 12.3% and 12.6%. For 2019, we reinstate our Core Tier 1 ratio target, above 12.5%.

On the next page, on Slide 40, risk-weighted assets decreased by EUR 2.8 billion to EUR 353.3 billion. The biggest driver was FINO.

Jean-Pierre, back to you for the conclusions.

[Jean-Pierre Mustier, executive]

Thank you, Mirko. Before we move to Q&A, let me briefly recap our first quarter 2018.

We had a solid core bank performance with net profit of EUR 1.2 billion and an RoTE of 10.4%.

Positive commercial dynamics sustained resilient revenues, down only 0.7% year-on-year. We confirm our 2018 revenue target of EUR 20.1 billion. We also confirm our NII guidance for the year.

The operating model transformation is ahead of schedule. We confirm the 2018 and 2019 cost target of EUR 11 billion and EUR 10.6 billion.

We have further taken -- further decisive action to accelerate the noncore rundown to 2021, bringing it forward from 2025. We confirm the gross NPE disposal target for 2018 to EUR 4 billion and improve the gross NPE target for the group and noncore.

We maintain our cost of risk target at 68 basis points for 2018, 15 basis points of which will come from models.

Our CET1 ratio fully loaded is 13.06% in the first quarter '18, including the IFRS 9 FTA impact. We expect our fully loaded CET1 ratio at year-end 2018 to be between 12.3% and 12.6%, and for 2019, above 12.5%.

Naturally, we also confirm of our dividend policy of 20% payout for 2018 and 30% payout for 2019.

As I have said in the past, Transform 2019 is just the beginning on which we will build solid foundation for UniCredit to become a true pan-European winner. I am very encouraged by these results, which, again, show the tangible impact of Transform 2019.

We are now at kilometer 18 of our marathon, and I am proud of all our teams, we have been and keep working very hard and are in every way fully committed to transforming the bank. Thank you.

I and the whole management team are confident we will continue to make good progress with the transformation of the group in the remaining quarters of 2018 and achieve our objective of making One Bank, One UniCredit a true pan-European winner.

And now, Gianni, Mirko and I are ready to take your questions. If you could, please, be so kind and limit your question to 2 each. Many thanks.

[Operator]

[Operator Instructions] The first question comes from Jean Neuez of Goldman Sachs.

[Jean-Francois Neuez, analyst]

Two questions then. The first one is just housekeeping. There has been an acceleration in many banks, a settlement of past disputes with the U.S. authorities in general. And I think I remember that there is still the OFAC outstanding for UniCredit. So if you had any update on this, that would be really appreciated. And secondly, generally on asset quality. So you are taking more steps to hasten the end of noncore. A lot of that goes through IFRS 9, which, I guess, I'm not sure if it was just included just as much in the original business plan target. And with lower NPL balances, the coverage ratio, which is now 60% versus the target of 54%, I wonder to what extent the cost of risk target for 2019 can be qualified at this particular stage? So any view on this would be also very appreciated.

[Jean-Pierre Mustier, executive]

Thank you very much. Just on your first question, we have yet to get the final feedback of U.S. authorities on a possible resolution of the matter of our OFAC discussion on limited claim. We hope that this resolution can be reached in the course of the year. And we deem that the provision we already took are appropriate. On your second question, on asset quality and IFRS 9. We -- as you have seen, we have, by moving forward the runoff of the noncore portfolio, we have taken a first-time application of 104 basis points. This allows us to reduce more quickly the -- I mean, the noncore and specifically, as mentioned, to tackle the residential mortgage side, which is the most difficult asset class to deal with through disposal and the price has been adjusted, which led to the FTA increase as well as write-off. And we are writing off in the noncore EUR 1.4 billion on the residential mortgage for the quarter. As far as the cost of risk for 2019, we don't foresee any change. It is at 55 basis points, of which we have a 4-basis-point impact coming from model.

[Operator]

The last question is from Andrea Filtri of Mediobanca.

[Andrea Filtri, analyst]

You're clearly over delivering on de-risking, which had just been upped last December. And net flows are improving. How much of the EUR 16 billion nonperforming forborne that you disclosed in the presentation do you expect to migrate to performing forborne over the next 12 months? And how much room do you see to restructure nonforborne unlikely to pay loans and bring them back to performing over the next 3 years? And is this included in your business plan target anyway -- in any way? And I just wonder if you could also give us the corresponding P&L impact adjustments to your business plan targets for the accelerated runoff of the noncore.

[Jean-Pierre Mustier, executive]

We are entering into technical territories, which are well above my level of competence. So I will hand over to our risk star, TJ Lim, who is looking at the figures. So TJ, as soon as you're ready, I'll let you comment.

[Thiam Lim, executive]

For -- on the forborne for 2018, we expect a Q already in line with 2017 at 5% and this flows to performing. So we will only come from Q in a nonperforming loan. UTP, it will be in the similar magnitude.

[Jean-Pierre Mustier, executive]

The second question was on the P&L impact. Mirko, I'll let you comment on that.

[Mirko Bianchi, executive]

Yes, no. On the P&L impact, we have no P&L impact due to the FTA.

[Operator]

The next question is from Andrea Vercellone of Exane.

[Andrea Vercellone, analyst]

Two questions. One on the noncore division and one on taxes. On the noncore division that you now plan to shut down in 2021, can you give us some guidance as to what you expect the, I suspect, negative operating profit to still be in 2021, but then will be transferred to other divisions. And if it is 0, the net operating profit, why is it so? And the second is on tax. Can you just comment briefly on the element that's driven the low tax rate in the quarter? And whilst we are at it, given that it's a sizable amount, can you update us on the on-balance sheet and off-balance sheet DTAs, ideally by countries, Italy, Germany and Austria, that you still have outstanding. And how much of these, if any, you think you can use in 2018 and 2019 according to your business plan projections?

[Jean-Pierre Mustier, executive]

Thank you very much, Andrea. I will let Mirko comment on the tax issues and DTAs. On the first point, once the noncore portfolio will be runoff, P&L will be 0 basically. So there might be in 2021 a remaining P&L, but from 2022 onwards, there will be 0. The non-HR cost related to credit recoveries are legal expenses and there will be no more. And the HR cost, we have currently 431 FTE, we'll progressively decrease between now and 2021. And the residual staff will be moved to other operational activities. So we will end up having no staff afterwards by 2021. I'll let now Mirko comment on the tax issues.

[Mirko Bianchi, executive]

Yes, on the tax rate, the tax rate was 15.9% for the quarter. It's lower than the budgeted rate, you are right. What has impacted this? Most of the impact is coming actually from FTA. So this is almost 80%, 90% of the impact. There is also the fact that it depends on the mix on -- of, let's say, the P&L delivered by the different countries. So there is -- it's a different mix in which we delivered more, let's say, in Commercial Banking Italy, that has let's say, a lower tax rate and automatically, this has an impact. But in order to allow for you to -- let's say, for your models, I would assume 20% for fiscal year 2018 as a good proxy for this year. On the DTA test, on -- first of all, how much DTAs we can -- we are going to be able to use? It will depend on the DTA test that we have to run on a regular basis. We are not thinking -- it depends. So, let's say, about -- it depends on the profitability levels that each of, let's say, the divisions and the legal -- no, especially the legal entities will be able to do. In terms of the amounts. We have EUR 8.3 billion of convertible DTA in our balance sheet and most of it is split between Italy, Germany and Austria.

[Operator]

The next question is from Azzurra Guelfi of Citigroup.

[Azzurra Guelfi, analyst]

Two questions, one on fees and one on capital. Fees are progressing very well. Mine is more a question about the future of the industry. Do you foresee any pressure in terms of margin going forward given the regulatory environment mix and things like that? And the second one is capital. Your capital position is clearly stronger and you have been very, very conservative. Can you share with us what's your views on the recent market concern on the accounting of the CASHES?

[Jean-Pierre Mustier, executive]

Thank you very much. Well, I will take these 2 questions. On the fees, I mean, it's natural to always have fee evolution and fee pressure in every industry. We think that, there will be 2 specific activities which will have more fee compression. One is the equity brokerage business, specifically with MiFID II. And you have seen 4 banks, which have equity broker that there is a massive pressure on fees. Luckily, I would say, with a sense of foresight, we have closed our equity brokerage activities many years ago and entered into a strategic agreement with Kepler, which is now Kepler Cheuvreux, which is now the largest broker in Europe in terms of research coverage and equity sales. So that was a lucky move, which protects us from this negative fee evolution. And we expect as well on asset management some compression of fees on the product, but there, as well, we have sold our asset management business and entered into an agreement with Amundi. So we think that on the business where we are present, we are dynamically managing our activities and our fees. And while there could be some -- overall, some fee pressure, and we think that the volume impact and the positive volume we could have, will lead, as we mentioned, to a 3% CAGR evolution of the fees in '18 and '19. On your question related to the CASHES. I mean, first of all, if you want additional information on the CASHES, we have posted more information about the main feature of the CASHES on our website. So you can find them. If you don't, ask our IR team. Just want to comment that the regulatory treatment of the CASHES has been fully disclosed to the market, and confirmed, approved and reviewed by all competent regulators. I repeat, all competent regulators. And is fully compliant with all past and current regulation. We do not see any [ other circumstances ] nor any impact on our CET1, and we have alerted the competent authorities and we are evaluating potential legal action to protect the bank.

[Operator]

The next question is from Mr. Victor Galliano of Barclays.

[Victor Galliano, analyst]

Just one question from me. Following-on on the capital, clearly, very strong capital position, even factoring in the IFRS 9 FTA. I just wanted to ask, in view of this strong capital and the faster rundown that you foresee for noncore, et cetera, why the conservatism on dividend payout? I mean, I know you expect it to go up to 30%. But is there a potential that you would review that higher? And if so, when could that be?

[Jean-Pierre Mustier, executive]

Thank you very much. We have mentioned that we will increase in 2019 our dividend payout to 30% for a dividend to be paid in 2030 -- in 2020, sorry. We have mentioned and disclosed in our Capital Market Day last year in December the overall CET1 WOC and CET1 impact of the various regulatory changes, which could happen up to 2027. We said at the time that we intend to raise the dividend payout to 50%, while maintaining a CET1 ratio above 12.5%. So after 2019, so if you think that -- it's not in 2019. So after 2019, based on the exit level of our CET1 ratio in 2019, the confirmation of the various regulatory impact, we might consider to increase the dividend payout. And just as a reminder, 10 points of additional dividend payout are equivalent to 10 basis points of CET1 ratio. So if in your projection, you see a buffer -- continuous buffer of 10 basis point of CET1 ratio, you can assume that we will increase the dividend payout by 10 points. So it will depend on where we are at the end of '19 and what will be the further regulatory impact. And we intend as quickly as possible to reach 50%, but it will depend, as I said, on CET1 ratio exit in '19 and regulatory impact.

[Operator]

The next question is from Mr. Matthew Clark of MaineFirst.

[Matthew Clark, analyst]

Firstly, our net interest margins. Could you comment whether you've seen any change in the competitive landscape since the TLTRO reference window closed? Then secondly, perhaps if you could comment on what your central assumptions are for GDP growth within your IFRS 9 provisioning and maybe give some sensitivities around what would happen if GDP growth outlook changes, plus or minus 1%, or however you would look at the sensitivities that might affect your required provisioning?

[Jean-Pierre Mustier, executive]

Thank you very much. I will let Gianni give you a bit more details and colors about the competitive -- competition dynamic in the quarter in terms of NII. But before I hand over to him, just want to remind you what we said in the presentation, which is that, our end of quarter loan volume increased by EUR 5.1 billion, which is more than 50% of the overall loan volume for the full year 2017, last year. So you can see that the dynamic -- the commercial dynamic are very good in the first quarter. And you have seen as well that we have a customer rate which have stabilized in the first quarter overall as we have mentioned in the presentation. But now I hand over to Gianni for more colors about the competitive environment.

[Gianni Papa, executive]

Thank you, Jean-Pierre. So well, looking forward, we still expect customer loan rates -- not customer spreads, customer loan rates to drop somewhat in the second quarter of '18 and stabilize in the second half of '18. And as a result of that, we confirm our NII guidance for the year. We are seeing a lot of activity in the first quarter. We see also transactions that we did not want to participate because there was no value in participating to activities and operation transactions where competition was really going for low spreads and low interest rates. Nevertheless, as mentioned by Jean-Pierre, we have been growing in the first quarter very nicely to more than half of the net growth of last year. So we don't have -- we don't do volume lending because we take care of the right kind of risk. But as I said, thanks to the combination of growth that we expect also for -- in the quarters to come and the stabilization in the second half of 2018, thanks to the combined effect of these, we see this improvement in the NII for year-end.

[Jean-Pierre Mustier, executive]

Thank you very much, Gianni. So on the GDP growth assumption or economic growth assumption, TJ will comment for IFRS 9. Please, TJ.

[Thiam Lim, executive]

Okay. We have assumed in the LLP estimation the macroeconomic assumptions, we have a baseline scenario consistent with group strategy. In the baseline scenario, we're assuming the EU GDP at around 1.8% for 2018 and 1.5% for 2019. We have also looked at the positive scenario for the GDP growth on the EU side with an additional 0.2%. But in this, we also look at adverse scenario in case of sovereign tension with a subdued growth. So this so called LLP assumption embed also both the baseline as well as the stress scenario.

[Operator]

The next question is from Ms. Delphine Lee of JPMorgan.

[Delphine Lee, analyst]

So 2 on my side, as well. So first of all, just wanted to come back on fees and commissions. Just trying to understand your guidance of 3% increase year-on-year. Looking at last year, it looks like the first half had a high comparison base and the trend seems to be quite supportive, particularly on transaction fees. So I'm just trying to understand where -- if you see or expect some kind of weakness or slowdown in the second half? Or if you could give us a little bit of color on the trend, that would be quite helpful? Secondly, on the asset quality. Just to understand a little bit the growth NPE that you're looking for in terms of ratio. For 2021, if you assume that the noncore deleveraging is fully done, is it fair to assume that it will be closer to 5%? I'm just trying to get a sense of where the ratio is heading to?

[Jean-Pierre Mustier, executive]

Well, I will take these 2 questions. On the fee side, as you can see on Page 16 of the presentation, our fee evolution year-on-year is up 2.8%. So it's very similar to the target evolution that we are planning for the year of roughly 3% basically. We are just mentioning that one should look at the combination of the various nature of fees, investment fees, financing fees, transaction fees. We have very good performance of transaction fees, which were helped as well in Italy by the fact that we started charging current account fees this year. So that explain part of the 9.3% evolution year-on-year. The financing fees, which were lower year-on-year, should go back with new transaction. And so we should have a very decent performance of financing fees. On the investment fees, it depends on the market environment and of our net AUM sales. We had a stronger performance of net AUM sales for the quarter, up -- I mean, EUR 3.9 billion, up 8% or more versus last year. And with the current market evolution, we need to see whether customers will shift from deposit into AUM, and so maybe there could be some adjustment on a quarter-to-quarter basis. But all in all, because of the diversification and the stronger commercial dynamic between transactional fees, which should do well for the year; financing fees, which should rebound; and evolution of the investment fees, which rely on the strength of our network, we are confident to achieve the 3% CAGR that we communicated about, both for '18 and '19. On the gross NPE ratio. Clearly, we want to run off the noncore by 2021 because it is important for us that the group is valued actually on the core bank figures. And that's important. And you can see that for the NPE ratio for the group core is actually very good for the quarter at 4.7%, so close to the EBA guidelines. And we expect the group core for 2021 to be below 5%. So that's in line more or less with where we are today.

[Operator]

The next question is from Mr. Giovanni Razzoli of Equita.

[Giovanni Razzoli, analyst]

Two questions on my side, again on the most price sensitive, in my view, element of this quarter, that is the anticipation of the rundown of the noncore unit. Basically, you are assuming to reduce by EUR 15 billion the stock of NPE 2019, 2021, if I'm not mistaken. If I look at the mix of the reduction in the Q1, 50% of the reduction quarter-on-quarter were via write-offs and the 30% were back to bond. I was wondering whether this kind of mix can be applied also for the expected run down of this business unit in 2019 and 2021. And the second question is a clarification on the default rate in Italy. If I'm not mistaken, I've seen that there hasn't been any material decrease on a year-on-year basis. The default rate is still at 2% despite improving macro outlook. I was wondering, if you can give us some details about this trend in the Q1 for Commercial Banking Italy?

[Jean-Pierre Mustier, executive]

Thank you very much. So for the -- I will let TJ comment in more detail about the acceleration of the runoff of the noncore. But clearly, this quarter, we took -- I mean, a one-off decisive action on the resi mortgage in terms of write-off for the noncore -- for the resi mortgage EUR 1.4 billion and total for the noncore, including the rest, EUR 1.8 billion. But this is not to be repeated, at least in the same scale. And then we expect the noncore reduction to occur with the mix of action, a combination of recovery as well as a sell down mostly of bad loans and UTP. But I'll let TJ comment in more detail.

[Thiam Lim, executive]

If you look through Page 58 in the Annex, clearly, you would see that we have EUR 11.4 billion of the corporate as of end of Q1; EUR 4.8 billion of mortgages; EUR 4 billion in leasing; EUR 2.5 billion in small businesses. So the mix will change as we start. And we have taken decisive steps, as Jean-Pierre mentioned, on the mortgages side, there, in the coming, I would say, quarters and years, up to '21, we will also look at disposal. Corporate side, we have been one of the most active players using, not just our own restructuring -- active restructuring, but also using platforms. You may have heard of Sandokan, Pillarstone and even IDeA. So this one is part of the whole UTP sort of rundown. And leasing, if you look at the Capital Market Day, we have articulated a clear rundown strategy, and we will continue to refine accelerating that strategy.

[Jean-Pierre Mustier, executive]

On the default rate in Italy, it is more or less stable. I mean, there has been some one-off individual files, which mean that the default rate is there. But as you can see, the NPE ratio for Italy has been improving at 6.6%. So we are happy with the work out we -- I mean, the work which is done. And we are maintaining, as Gianni mentioned, a very strict approach of a new origination, and we are monitoring, I mean, every day. But also on a regular basis, the new expected loss for -- the expected loss for the new business and, I mean, the figures for Italy are actually very good as well. So we are confident that the portfolio will keep improving. As an example, the expected loss on the new business for 2018 -- for the first quarter of 2018 in Italy, is 35 basis points versus stock, which has an expected loss of 53. So the new origination improves the quality of the portfolio. But TJ, I don't know if you want to add something else?

[Thiam Lim, executive]

Just to add one comment. Our 2019 target that we disclosed is 2%. So we are around [ 2.12% ]. Again, part of it's seasonality. And as Jean-Pierre mentioned, the expected loss -- the underwriting side is strictly monitored, and we have seen it's much better than our targets that Jean-Pierre just mentioned.

[Operator]

The next question is from Mr. Domenico Santoro of HSBC.

[Domenico Santoro, analyst]

Just wondered whether you can share with us any further room to reduce the risk weighted via business action. As you mentioned in the presentation, one of your competitor in Italy is quite active there. Now that you gave out also a rundown of the noncore in 2021, I was wondering whether in December when you update the plan, you will be ready also to give us some profitability target beyond 2019. And then, if I can also -- sensitivity of capital to FX devaluation, especially in Russia and Turkey?

[Jean-Pierre Mustier, executive]

Thank you. I will take the second question and let Mirko comment on the risk-weighted asset evolution. So on the target beyond 2019, as I said, we are in kilometer 18 of our marathon, so calculate properly, we are still 22 kilometers to go, basically. And -- 24 kilometers, so I don't calculate properly, actually, 24 kilometers to go. It was a shorter marathon. So let us deliver on the plan. And once we have delivered the bulk of our plan, then we will come back to you with the next steps, and we'll see whenever it is basically. But let us work and we promise to come back with the next step as soon as we have delivered on the bulk of the plan. For -- Mirko will comment on the risk-weighted asset evolution. I just want to say that, we don't do complex transaction or tricky things in terms of risk-weighted asset. And you have the evolution of the risk-weighted asset on Page 40, but I'll let Mirko comment in more detail.

[Mirko Bianchi, executive]

Yes. No, exactly that's the point. Basically, of course, we do, let's say, marginal optimization that is ongoing optimization that we are doing to risk-weighted assets. But In terms of the development of the risk-weighted assets for the quarter, we had, let's say, business evolution was the biggest -- had the biggest impact with EUR 3.5 billion, and that was basically countered by minus EUR 5 billion, in terms of risk-weighted asset coming from business actions. In terms of regulation that we had an impact of EUR 2 billion into the risk-weighted asset WOC. So these are the 3 main pillars. Now in terms of -- you asked also about the FX sensitivity on Russia. Russia has -- for a 10% devaluation in the currency, Russia is impacting us by 5 basis points. So that's the sensitivity.

[Operator]

The next question is from Benjie Creelan-Sandford of Jefferies.

[Benjie Creelan-Sandford, analyst]

I guess, it's a slight follow-up on the last question around RWA growth. I mean, if we look over the past year at core capital generation, i.e.[ present ] earnings, less the underlying RWA growth, [ ex ] multiple impacts and pro-cyclicality. Then, the capital generation has been running on average over 30 basis points a quarter, which is obviously quite a long way ahead of the 50 basis points per year organic generation that you have in the business plan. So I'm just wondering, what closes that gap or what level of underlying RWA growth do you expect over the medium term? And then the second question was just around the IFRS 9 impact. The net impact this quarter was 99 basis points, but you've guided that that will close to around 70 basis points over the course of the year. Can you just explain why there is that lag effect or how that comes through, as it's not something that the rest of your peers have been particularly vocal about, that would be helpful.

[Jean-Pierre Mustier, executive]

I will take the second question and I will let Mirko comment on the first one. In terms of the FTA impact, we guided initially at 74 basis points. But when we presented in detail the core bank performance last year there has been a strong and positive feedback from investors about focusing on the core bank metrics. And we really want to make sure that the core bank metrics become the metrics to value the bank basically. And you see that we have RoTE, which is well above 10%, and NPE ratio well below 5%. So to do that, we have decided to shorten and move forward the runoff period of the noncore within the time horizon of analysts and investors, meaning within 3 years. We initially planned it and announced 2025, but we felt it was too far away for investors and analysts to take into account the fact that the noncore will be fully run off and to focus on the core bank metrics. So by doing that and by shortening the period, I mean, there is, of course, a price adjustment as we're going to sell down more quickly some of the asset. And we decided to make sure that we start with the most difficult asset, which are mostly resi mortgage. And so the price adjustments and the write-down meant that there has been an increase on the FTA impact that we were initially planning. So that's basically making sure that core bank becomes key for the valuation of the group and afterwards you have some kind of mechanical impact, if I may say, from the accounting side. For the first question, Mirko is commenting now.

[Mirko Bianchi, executive]

Yes. Maybe one more point on your point, Jean-Pierre. So you're right, so we go from a gross impact of 104 to a net of tax impact of 99 basis points, and then we go on a net basis to 70 bps as we are showing into the Appendix. The impact is here -- the effect is going to come through shortfall during the course of the year. In terms of risk-weighted asset growth that -- for the rest of the year, we think most of it is going to come from regulatory from, let's say, models' impact. And as discussed before, that we expect most of the models' impact to happen in the second half with a potential to slippage into the first Q 2019 on the EBA guideline's anticipation and the rest is lending volumes.

[Operator]

The next question is from Ignacio Cerezo of UBS.

[Ignacio Cerezo Olmos, analyst]

A follow-up on the Russia and Turkey's FX risk, if you're planning to take some measures basically to start hedging your earnings or your capital in those 2 countries to protect from currency volatility? And then the second question, I think, actually if I have a look at your business plan presentation in terms of rate sensitivity, you seem to be implying around 20 basis points pickup of Euribor next year, which according to your latest sensitivity is in the region of EUR 350 million net interest income. So I wanted to check, what kind of buffers do you have, in case actually Euribor ends up not going up next year?

[Jean-Pierre Mustier, executive]

I will let Mirko comment on the FX hedging. On the Euribor sensitivity to the business plan, first we -- our economy's projection are for a tightening of the ECB by the second half of next year, moving -- starting from December and moving from the minus 40 basis point to 0 basically at the end of the year. So if it does not happen, we don't have any buffer. What I'm saying by that is if the rates don't go up, the impact of the rates will not be seen. And the only 2 mitigants I can see are on one side, the loan volume, if the loan volume is higher; and on the other side, if our cost of funding is lower, because we saw the other 2 dynamics. But I would not call that buffer, I just say that we have various moving parts and I think the rate sensitivity is the, I guess, one. Just as an update, to make sure that we all have the same figures in mind, the sensitivity to 10 bps -- on an annual basis, to 10 bps movement of the 3 months' Euribor is EUR 183 million per year. And the sensitivity to parallel movement of the curve to 100 basis points -- so a parallel movement never happens, but it gives you a sensitivity, is EUR 1.1 billion -- EUR 1.1 million for a full year basis basically. So EUR 183 million on one side for 10 bps and EUR 1.1 billion on the other side for 100 bps. Mirko, on the hedging strategy on Russia and Turkey.

[Mirko Bianchi, executive]

Yes. So we have -- basically on a yearly basis, we put in place hedging strategies. We -- specifically to, as you said, to Turkey and Russia, what we have done for 2018, we hedged -- partially hedged the profit of the legal entity and we have basically put in place some selective hedging on this, specifically, it's Russia and Turkey.

[Operator]

The next question is from Ms. Anna Adamo of Autonomous Research.

[Anna Adamo, analyst]

Two as well from my side. Going back to the IFRS 9 first time adoption. Could you share with us what is the updated split of the EUR 3.8 billion pretax impact between Stage 1 and 2 and Stage 3, please? That's my first question. And my second question is on NII. Could you tell us what was the contribution to NII coming from unlikely to pay in the first quarter? And whether you think that this contribution will come down as a result of the noncore rundown, please?

[Jean-Pierre Mustier, executive]

So on your first question. We have, in terms of adjustment, more or less 80 basis points -- 81 basis points coming from the Stage 2 adjustment. And we have 23 basis points coming from the write-off, if my memory is correct, plus 1 basis point of marginal adjustment. So that's more or less the breakdown. On the NII side, I didn't pick up the last part of your question. Could not hear it -- can you repeat your question? I was not quite sure what you wanted to know.

[Anna Adamo, analyst]

The question was on the contribution to NII coming from the unlikely...

[Jean-Pierre Mustier, executive]

I can't hear you actually.

[Anna Adamo, analyst]

Contribution is set to come down as a result of the noncore.

[Operator]

Excuse me, madame, could you please pick up the headset.

[Jean-Pierre Mustier, executive]

Sorry, now we can hear you, yes. So it was the contribution of...

[Anna Adamo, analyst]

Was the contribution to NII coming from the unlikely to pay? And whether this contribution would come down from the runoff of the noncore division?

[Jean-Pierre Mustier, executive]

That goes beyond my granularity, if I may say so. I will let Mirko comment on that as soon as he can get the information. And if not, IR will call you back. Mirko, do you have something?

[Mirko Bianchi, executive]

No, I have something on the previous question, because you also asked about Stage 3, Stage 2 and Stage 1, the composition. So that's about 65% is Stage 3; 27% percentage is Stage 2; and the rest is Stage 1. So that's -- and on the very last question, we have to come to you through IR on this one.

[Jean-Pierre Mustier, executive]

So we'll come back to you through IR on your second question.

[Operator]

The next question is from Adrian Cighi of RBC.

[Adrian Cighi, analyst]

Just one follow-up question on the noncore guidance, if I may. We've talked before of the self-funded feature of the rundown. Can you confirm that now that you have moved the time line to 2021 you're still looking to do it on a self-funded basis. And if for some reason it isn't possible, you would prioritize the 2021 period over doing it over self-funded?

[Jean-Pierre Mustier, executive]

We confirm it is done on a self-funded basis. And as I said, it is important for us that we can move the focus of analysts and investors towards the core bank. So we want to keep the 2021 target. And so that will be the priority on the self-funded side, if I may say so. To be clear, if there were a small remaining part, we'll do a clean-up trade in 2021.

[Operator]

The next question is from Carlo Digrandi of HSBC.

[Carlo Digrandi, analyst]

You did produce 37 bps of capital growth in the quarter, if I exclude IFRS 9. So I was wondering, what kind of expectations do you have over the next few quarters? I do realize that there are some others in your slide. So probably those are nonrecurrent or they do vary according to quarter. But if you can just give us a rough indication about capital production over the next few quarters until the year-end?

[Jean-Pierre Mustier, executive]

Well, what you could do is you could go to Slide 60, so in the Annex, where we give some kind of a breakdown of the evolution of the CET1 for 2018, basically. And so you can see on that page that we expect 40 bps -- 0.4% of regulation modeling for procyclicality, a net IFRS 9 impact of 0.7%, 0.8% of EBA guidelines anticipation. We said they will be taken in the second half. We need a formal validation of the ECB of the model, so it's a little bit off our hand. If the ECB comes later, might skip to the first quarter '19, but it will arrive and we think the ECB will formally come back to us in the second half. But a small risk of slipping in first quarter '19. And we have organic capital generation, plus some improvement, if I may say, of between 0.6% to 0.9%. So the total CET1 impact is between minus 1% to 1.3%. And so the fully loaded CET1 ratio target for the year is between 12.3% to 12.6%.

[Operator]

The next question is from Ebrahim Saeed of Deutsche Bank.

[Ebrahim Saeed, analyst]

Just quickly. I appreciate that you, with respect to the CASHES, have clarified that all competent authorities have approved the structure. But if you could spell out which in particular. And more specifically, if the EBA has also reviewed and approved this? And my second question is, when was the last -- when were the reviews done most recently?

[Jean-Pierre Mustier, executive]

Well, we don't comment what the regulators do in detail. But if you listen carefully to what I said before, I said that the regulatory treatment of the CASHES has been confirmed, approved and reviewed by all competent regulators. I repeat, all competent regulators. So I assume you should have an answer to your question. And you know that the ECB, there is a regular review of our capital structure. And they did a regular review recently and they confirmed the treatment of all our capital items. This is why we have elected the competent authorities and we are evaluating potential legal action to protect the bank and all our stakeholders. And I hope I'm very clear on that as well.

[Operator]

The last question is from Corinne Cunningham of Autonomous Research.

[Corinne Cunningham, analyst]

It's just one quick follow-up on the CASHES as well. Is there any indication that CRR2 could reopen the debate about whether the CASHES are acceptable to all of the various regulators?

[Jean-Pierre Mustier, executive]

We have no indication. And I said as well that we do not, under any circumstances, foresee an impact on our CET1. Under any circumstances, should cover your question as well.

Okay. Thank you very much for your attention, and we look forward to meet you in the one-on-one that Mirko and I will start from tomorrow in London and Monday, and then we'll go to the States in 10 days. So good to see you, again, soon. Bye-bye, then.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.