Intesa Sanpaolo S.p.A.

Marco Del Frate - IR Andrea Tamagnini - IR Carlo Messina - CEO Stefano Del Punta - CFO

Azzurra Guelfi - Citigroup Matteo Ramenghi - UBS Benjie Creelan-Sandford - Macquarie Delphine Lee - JPMorgan Adrian Cighi - Royal Bank of Canada Alvaro Serrano - Morgan Stanley Alberto Cordara - Merrill Lynch Johan de Mulder - Sanford Bernstein Ignacio Cerezo - Credit Suisse Andrea Filtri - Mediobanca Domenico Santoro - Autonomous Jean-François Neuez - Goldman Sachs Hugo Cruz - Redburn Partners Andrea Vercellone - Exane BNP Paribas

So, good afternoon ladies and gentleman and thank you for joining us on this call to discuss Intesa Sanpaolo's 2014 results. This is Carlo Messina and I’m joined by Stefano Del Punta, our Chief Financial Officer; and by Marco Del Frate and Andrea Tamagnini our Investor Relations Officers.

2014 has been a very good year and the key message is that we over delivered on our business plans despite the challenging macro-economic environment. In particular we delivered 1.7 billion net income; 1.2 billion cash dividend; a common equity ratio fully loaded at 13.3%; a 7% increase in core revenues and an overall 4% increase in total revenues, the highest among peers that have already communicated their results, a 37% increase in pre-tax income.

So now let's go through the presentation and then I will open the call up for questions. Slide Number 2 in 2014 we exceeded the business plan in all the key performance indicators.

Net interest income grew 0.7 percentage points; commission grew more than 3 percentage points, core revenues grew more than 2 percentage points and pre-tax income grew almost 7 percentage points compared to our business plans. These quality results are driven by the improvement of the key business drivers, for instance in Greece in assets under management and improvement in mutual funds mix, and therefore show our resilience against the difficult market environment improved the sustainability of our performance overtime.

Slide Number 2, all stakeholders benefiting from our over delivery on our business plans, because shareholders received 1.2 billion cash dividends, 20% more than our business plan commitment. Families and businesses received around 34 billion of new medium long-term lending financing thousands of new investments.

Employees received 5.1 billion in salaries including incentives to trigger growth that were not paid in 2013. Public sector received around 2.7 billion from taxes.

Slide Number 4, adjusted net income is up at 1.7 billion, stated net income is up at 1.3 billion, pre-tax income is up 37% on a yearly basis, operating income is up 4% mainly driven by the positive trend in net interest income and double-digit growth in net fees and combinations, operating margin is up 5% with the cost income ratio down to 50.6%. Loan loss provisions decreased by 36% with lower NPL inflows and increased NPL cash coverage.

ISP demonstrated once again the solidity of its balance sheet already confirmed by the Comprehensive Assessment. We have low leverage in the common equity tier-1 ratio after dividends is up to 13.3%.

Our liquidity and funding positions are very strong liquidity coverage ratio and net stable funding ratio well above 100%. Slide Number 5, as you know rewarding shareholders with a sustainable dividend is a priority for ISP management.

Here we will pay 1.2 billion in cash dividends for 2014 and this is an increase of 44% with respect to last year. The solidity of the bank remains in any case ISP priority but it is important to underline that capital ratios remain very high if even after dividend payments.

Slide Number 7, the year-on-year comparison is very positive, revenue grew by 4% but it will be 7% excluding profits on trading. The main driver being increase in net interest income mainly driven by reprising and lower cost of funding and a double-digit growth in commissions up 10% and the insurance income up 16%.

Our ambition to change the mix of revenues towards a more fee intensive business is continuing to show results. The increase in operating costs was due to the planned incentives to trigger growth, incentives that were already factored into the business plan.

Operating margin is up 5% but it will be 12% excluding profits on trading. Loan loss provisions decreased 36% as a result of better macro economic conditions and our effort on proactive credit management.

Pre-tax income grew by 37% despite the negative effect of more than 380 million of provision and charges related to the Hungarian business. Net income is up 39% and stands at 1.7 billion excluding the one-off tax charge.

Slide Number 8, Q4 as you can see in the chart we delivered high quality earnings also in the fourth quarter, with a 5% growth in revenues versus the same quarter last year and in particular remarkable 12% growth in commissions. In addition operating margin grew by 2% despite the incentives paid to personnel that was zero in 2013.

Loan loss provisions are down by 67%, pre-tax income decrease is due to the capital gain of Bank of Italy stake book in Q4 2013. Net income at 48 million, which becomes 335 million excluding 213 million of Hungary loss that we decided to take this quarter and more than 100 million pre-tax of charges for integration and personnel exit incentives, this last component is driven by the generational transition of our senior staff which is a consequence of our change in management strategy and reorganization of the group.

These people will leave the group in 2015. So the figure is 335 million net income excluding Hungary loss and charges for integration and personnel exit incentives.

Slide Number 9, as you see from this chart ISP has recorded the highest year-on-year improvement in operating income compared with its European peers. So if you compare Intesa Sanpaolo with all the other peers we're number one in growth in revenue base.

There is one element that makes this performance even more remarkable because our Q4 revenues were slowed down by our decision to implement a very timely securities portfolio strategy, in a year characterized by a leverage BTP-Bund spread of 160 basis points and in expectation of the quantitative easing a strategy which is already benefiting our 2015 figures and we continue to do this, January has been a very good month continuing this strategy. More specifically in the first nine months of 2014 we reduced the concentration risk in the security portfolio by diversifying new Govies in favor of high rated countries with reduction in Italian Govies of €17 billion.

We think that this diversification is in the spirit of the banking union and in line with ECB expectations. We partially rollover Italian Govies which had expired in Q4 and this led to a natural decline in blended yield which constituted a wait and see position versus the quantitative easing.

We decided not to realize all capital gains in the last quarter of 2014 which allows us to enjoy even higher benefit in 2015 especially in January as a consequence of further spread tightening. Slide Number 10, as already mentioned in 2014 we had 1 billion increased in core revenue.

Slide Number 11, just to focus on net interest income, net interest income increased by more than 250 million in the past 12 months, our re-pricing efforts on the asset side and the lower cost of funding on the liability side we’re able to deliver a positive year-on-year evaluation. This more than offsets the reduction in volumes and the lower contribution from core deposits hedging and the impact of the securities portfolio management.

The decrease in the fourth quarter versus the third quarter is due to the securities portfolio. However also in the fourth quarter ISP performed well in client-driven activity and especially on asset re-pricing so ready to wait for growth in volumes and loans.

Slide Number 12 our performance in commissions has consistently improved overtime driven by strong and sustainable growth in asset and the management. This year we added the highest commissions income ever.

We saw an accelerating trend in quarterly performance with growth of 12% in Q4. This confirms the growth trend in this business and underlines our ability to extract value from all components, which are under management control.

Slide Number 13 business mix, in the past two years the bank has been focused on rebalancing the business mix towards fee intensive business and as you can see the results are extremely positive. Over the past 24 months the relative wave of commissions consistently increased reaching 40% of operating income.

This is even more remarkable if you consider that commissions’ wave over total revenues increased by 10 percentage points compared to 2012. This is fully consistent with our business plan targets where we expect to further increase commissions as a proportion of revenues to 43% by 2017.

Slide Number 14, volumes assets under management continue to grow up 43 billion on a yearly basis, €43 billion on a yearly basis and there remains considerable potential for further penetration of the management asset products in our customer base. This growth allowed us to already achieve 54% of the 2017 business plan target for asset under management net inflows, also the relative wave of assets under management compared with indirect deposits increased to 64% up 5 percentage points in the past 12 months of which one point has been delivered in the last quarter.

Again in 2014 we succeeded in reaching around 18 billion from assets under administration to assets under management versus 10 billion per year in our business plan and still as around 164 billion of assets under administration and in addition approximately 50 billion reserve of access medium-term liquidity it could potentially use. Slide Number 15, as you can see the slide ISP has been focused on rebalancing decline in portfolio mix towards more sophisticated asset classes, in particular the share of equity balance sheet and flexible mutual funds significantly increased from 43% to 52% in 2014.

Slide Number 16, as the slide illustrates ISP has recorded the highest year-on-year improvement in commissions compared with its European peers. It is clear evidence of our strategy aimed at growing this part of the business.

Slide Number 17, as already mentioned in the last quarter, ISP results are decoupled from the Italian zero-growth economy. Let me remind you of the main reasons, Italian households has the second highest savings in the world.

Italian banking service penetration is still fairly low. The bund BTP spread is now very low and finally the excellent results achieved are justified by our superior execution capability.

Slide Number 18, as you can see from this slide our penetration has improved for mutual fund, pension fund and life insurance but we have our wealth management products remain, this will remain under penetrated both in Italy and by ISP, and this represents another factor in support of ISP sustainable growth and profitability. Operating costs the 3% growth in operating costs is entirely due to the increase in personnel cost determined by the payment in 2014 of the incentive to trigger further growth already factored into the business plan.

As a reminder we didn’t pay any incentive in 2013. ISP continues to be extremely focused on cost management as demonstrated by the factored reduction in administrative expenses so it is better to have cost in 2014 than in 2015.

Going forward we expect operating cost to grow at a much lower pace to achieve the 2017 business plan target with a strong focus on administrative expenses reductions. As you can see on Slide 20 our cost income ratio of 50.6% in an industry where the average is 63.1 positions us among the most efficient players in Europe.

But at the same time if you look at Slide 21, Slide 21 shows that the ISP also recorded the highest year-on-year improvement in operating margin compared with its European peers. So not only revenues but also operating margin growth.

Slide Number 22 asset quality, very good result and very good outlook. In 2014 we had a strong increase in NPL inflow which is down more than 20% with respect to the previous two years, thanks to the improving macroeconomic environment and ISP proactive credit management.

And if you do not consider three specific names the decrease would reach 35% consistent with improvement in NPL inflow we reduced provisions by 36% this year and at the same time we further increased the NPL cash coverage by 80 basis points. Slide Number 23, significant pre-tax income contribution very positive from all divisions just to have a look at the wealth management area so private banking, asset management and insurance considered as a whole is the largest contributor to the group’s results.

Slide Number 25, we are best-in-class in capital position. At the end of year we further strengthened our capital base so our fully loaded common equity ratio is equal to 13.3% up 100 basis points versus the end of last year our phased-in common equity ratio is equal to 13.6% and we confirm to be best-in-class at European level in terms of capital and leverage.

Slide Number 26, ISP capital position in Europe is number one. Slide Number 27, we continue to enjoy a strong liquidity position with nice 97 billion of liquid assets and approximately 50 billion reserve or excess medium long-term liquidity.

Our liquidity coverage ratio and net stable funding ratio are well above Basel 3 future requirements. NPL coverage ratio Slide 28 is at 46.8%, so 80 basis points up versus last year and almost 10% higher with respect to the average of Italian peers.

So cash coverage ratio on performing loans is in line with 2013 at 80 basis points around 30 basis points higher in the average of the Italian peers. Slide Number 29, before focusing on business plan initiatives, let me summarize the key numbers that captures ISP improved performance in 2014.

1.2 billion cash dividend, 44 higher than in 2013. Core revenues 7% higher than last year, operating margin up 5%, cost income further improved to 50.6%, pre-tax income up 37%, net income €1.7 billion almost 40% higher than in 2013, fully-loaded common equity ratio further increased 100 basis points to 13.3%.

Slide Number 31, on business plan initiatives, so let me remind you that our business plan encompasses a differentiated strategy that fosters three banks in one with specific missions and objectives. So the new group bank to exploit new market opportunities and boost revenues through a set of innovative growth engines.

Core growth bank to capture and adapt revenue potential from existing business, Capital Light Bank to deleverage non-core activities, so now let’s go through the new group initiatives we launched and implemented in 2014 as for Banca dei Territori it is worth highlighting the introduction of new specialized model in more than 2,200 branches with over 2,800 dedicated relationship managers, revenue per client increased from €70 to €82, the multi-channel bank that reached 5 million clients in the set up in private banking up of the High Net Worth Individuals competence center is remarkable and also in the insurance we integrated Intesa Sanpaolo Previdenza into Intesa Sanpaolo Vita. Slide Number 32, as for the revenue potential it is worth highlighting that we made a reorganization of the new service model in Banca dei Territori through the creation of three specialized commercial value chain and new 1,200 managerial roles.

In corporate investment banking we realized a new reorganization sector-oriented, so through an industry advisory relationship manager devoted and regarding the dynamic credit risk management we increased the productive credit management. What is very important for me it is the continuous cost management, we closed an additional 55 branches in the fourth quarter reaching a total of around 270 branches in 2014.

We finalized the rationalization of seven product factories into one, and merged three local banks into ISP. For the capital light bank it is worth mentioning that around 3.9 billion of the leveraging has been already achieved.

For our people we reduced the highest number of participants in the group is to the investment plan for group employees and we had an increase in people satisfaction. Slide Number 34, again all the business plan initiatives implemented are already showing very positive results and so in summary I am glad to say that we're over delivering on our business plan targets.

Slide Number 35; this is due to the contribution of all our people that are the key factor of success of Intesa Sanpaolo. Slide Number 36; the outlook for 2015.

So I would like to give you this outlook with a focus on ISP first. As you have certainly appreciated in the final part of 2014 after the outstanding outcome of the compressive assessment and with our 2014 dividend commitment already secured with the nine months results we decided to shift gear to neutral.

With the New Year we have again shifted to drive or I should say boost drive, as we're now in full acceleration and foresee a robust improvement in operating margin and a significant decline in cost of risk for 2015. So we will continue to improve our operating margin thanks to our sustained growth in commissions.

And the recent increase in assets under management €43 billion created a tailwind for this. In addition we expect a significant decline in cost of risk that will lead to additional growth in pre-tax income.

As a result we fully confirm our business plan target for the next three years and in particular we expect to deliver a 2 billion cash dividend for 2015. Slide Number 37, show macro-economic outlook.

As a final remark our positive outlook for 2015 is further sustained by the macro-economic environment both at the European and at Italian level. In particular the Eurozone will benefit from the quantitative easing the depreciation of the euro that foster exports and especially in Italy and reduced the risk of deflation and the lower oil price.

Along with this Italy is already showing a positive trend driven by the recent government reforms, the improved consumer and business sentiment, the increasing production and the 2015 GDP growth projections likely to be revised upwards. Last but not least Italy is expecting more than 20 million visitors for Expo 2015, with a positive impact on the local economic environment.

ISP will fully exploit this situation since we're the official global partner of Expo. All this represents for us clear further potential upside for 2015 results and reinforce our confidence in the future.

So now let me take this opportunity to thank all our people who are working hard to deliver these impressive results. So thank you once again for listening and I will now do my best to answer any questions you may have.

I have two questions, one is on asset quality. I have definitely understood the trend that inflows are getting better and you are more confident on the Italian outlook getting better, is that the reason why you feel confident in having a lower level of provision in this quarter compared to the past and the guidance that you gave for next year is clearly an improvement am I correct in reading that through your presentation?

The second question is on capital and risk weighted assets and loans, we have an improvement in the lending growth which is definitely a good thing and we’ve seen decreasing risk weighted assets mostly in the credit risk weighted asset area, how do the two things get together and do you see any risk on your risk weighted asset in the future? Thank you.

So first point on asset quality review, we expect better macroeconomic condition and so we expect a very low level of cost of credit for 2015 compared to 2014 through the improvement in the inflows of non-performing loans coming from the performing loans, so it is correct that dispersion is that we have a positive outlook on this side after four years of very negative outlook, so we’re coming back to a positive outlook. Looking at the lending growth, there are signal of recoveries in this quarter so it is true also that we had a positive view also in the last quarter and looking at the risk weighted assets, we had some positive impact arriving from guarantees and improvement of collateral in our risk weighed assets.

So the correlation between these two factors in the Q4 is related to the improvement of guarantees and collateral. Looking for 2015, we can have other improvement in risk weighted assets but we expect an increase in loan volume.

Can I just have a quick follow-up so as you think about the capital it is definitely not an issue because you paid a dividend higher than the one that you promised to the market and you don’t that there is a reason big problem on potential risk weighed asset inflation unless there is an earnings growth, would you feel confident in increasing the guidance for dividend for next year as well or is it too much to ask at this point?

No, I don’t want to increase the guidance of dividend and we have remained on my business plan guidance, so you have to consider that in the plan we had a target of common equity that was in the range of 12% to 12.2%, now we’re higher than 13% so we’re in a much better position considering capital. But looking ahead the outlook and the target I confirmed €2 billion for 2015.

If I may go back to Slide 9, you’ve provide a very interesting overview of the ALM strategies to reduce concentration risk and retaining capital gain, would you able to give an indication on the size of those capital gains and again in terms of ALM I assume you could afford a bit of balance sheet expansion if lending balances pick up perhaps a slightly longer duration of the bonds and the less focus on the deposits to support NII generation so if you can provide any guidance on the NII in coming quarters? Secondly on asset management and asset gathering again a particularly strong performance and we would expect a similar pace in the foreseeable future there has been several statements regarding potential strategic move in this area to capitalize on intense position, what will be your targets and boundaries when looking at strategic initiatives in this area?

Thank you.

So the size of capital gain, I don’t want to disclose the size of capital gain but it is significant because we had a position of government bond that benefited from the reduction in the spread BTP bund, so this is something that we have already done in January both in our treasury department and in Banca dei. Looking at number two, so the NII, the net interest income and the loan volume, my expectation is that we can have an increase in loan loss and so this can change the sign of the contribution of the loans to the net interest income then we can decide during 2015 is to finance this growth with an increase in deposits or to use other kind of extra liquidity that we have in our balance sheet and using the extra liquidity to increase asset under management.

So there is the combination of this extra liquidity position that we can use both to finance loss and so gaining spread through the loan volume increase or using increasing asset under management and so gaining commissions. We decided during the 2015 having clear what is the demand for credit that for today is improving on the export related companies and it is now having also some signs of recovery in the internal demand related companies.

Looking at the asset management, it is clear asset management and private banking are clear priorities for Intesa Sanpaolo we remain clear priorities. We expect we have a significant increase also in 2015 possible targets, when I’m talking about the possibility of having growth external growth also in this area it is because I think that it is something that can fit in a very good way with my so strong wealth management areas.

There are no targets on the table but what I’m looking for is a recognized brand in international network because to tap the Italian people outside Italy I can use my brand that could be Fideuram Intesa Sanpaolo Private Banking but if want to go in people difference from the Italians I need to have brand and so what I will consider is first brand then other items in the M&A parameters for the acquisition.

Just a quick question on the NII contribution from securities portfolio I mean you are guiding when that was down quarter-on-quarter which is partially the reason for the NII weakness, but just can you just may be give us a little bit detail in terms of what the actual contribution to the NII this quarter from the securities portfolio was, and how you expect that to trend through 2015?

I can give you the trend for 2015 that it is function of the capital gains because you have to consider the dispersion of my portfolio of revenues is managed not by line-by-line but as a total revenues so I can manage line-by-line the commission side or the commercial portion of my net interest margin but on the financial portion of my net interest margin I will consider in combination with trading income. So it is clear that if you have upside you can create significant trading income.

You can lose net interest income. So at the end what I can tell you that is, the combination of net interest income and trading income will grow in a significant way, but line-by-line I cannot give you some figure because I have no idea of what could be the impact for the next year of the combination of the two.

Just a question on my side, if you could just comeback on NII growth so you are obviously ahead of your business plan if you could just give little bit more color for what you expect for 2015 given the different components and some volumes or spreads, I mean is there -- I mean should we expect as much re-pricing on the funding side for 2015 and ’16 or towards a certain extent have you already kind of frontloaded that in 2014? Thank you.

Okay. So to avoid those things of questions at this point, if you can take Page 11 and so we will enter line-by-line and so it will be clear for all of you what I can see there could be the clear trend for 2015, so if you work on the left side box so the year-on-year volumes my expectation is to have an increase on yearly basis, an increase in volume contribution.

Spread, my expectation is we have increase in spread contribution both in cost of funding and in mark cap. Hedging, my expectation is to have a reduced contribution in the range between €50 million and €75 million in 2015.

Securities portfolio as we’ve already told you it is related with trading income, so it could be lower than this level, it will depend on the trading income, so commercial net interest margin will increase financial question mark.

Two questions please, one on the asset quality and one back on capital lease. Asset quality had a very good performance in 2014 cost of risk was 134 basis points.

You mentioned a substantial decline you expect the substantial decline in 2015. Do you see a faster normalization towards a business plan target of 80 basis points?

And second question on dividend please. Your dividend payout ratio was on adjusted income 70%, however on the stated income was 95%.

While I assume you cannot disclose your ECB required minimum capital target, you are presumably in a comfortable position vis-à-vis this target. Can you talk more broadly about management's view on the appropriate capitalization level especially given you're currently above the business plan target of 12.2%?

Thank you.

So as you look at the asset quality we think that 135 is a good improvement but if you compare our current level with the revised level that was in the range between 40 and 50 basis points it is really a significant amount of provisioning. My expectation for 2015 is that we cannot arrive at the level of 80 basis points.

So this level can be reached only in 2017. So when I talk about significant improvement, I am talking about different number, not so huge and at the end it is something that we expected for 2017 and not for 2015.

But in any case you will see a significant improvement in cost of risk and a significant reduction in provisions. Looking at the capital position, it is clear that we're in the cluster number one of the letter of the ECB, the letter that ECB sent to all the different banks and so in this cluster we're well positioned looking at common equities.

So first cluster common equity tier-1. In the business plan we've considered 12 as the target because we were already at 12%, we have to wait during 2015 in order to be sure what could be the real level of capital but not for Intesa Sanpaolo but for all the European peers because there would be a normalization of criteria, we will expect the decision and the position of the ECB and we will have a better capital position compared to the minimum level, a much higher capital position and we will remain in any case the strongest banks in Europe by capital.

The point is that we've to wait all 2015 in order to have this harmonization and then as I stated clear last year in my business plan, the evaluation for the excess capital will be made according to the regulation that we will have from ECB but not Intesa Sanpaolo but all the different banks. In any case my priority is to reward shareholders.

And just a couple of short housekeeping questions more extended one. In terms of costs you mentioned there costs included some restructuring charges variable, sort of incentive payments in Q4, do you mind quantifying how much of that is Q4 standalone non-recurrent into '15-'16?

Also on fees, obviously very strong growth in the quarter and you clearly outlined you're benefiting from better business mix in year-end should we think that kind of growth is sustainable for 2015 as well? And then a more big picture about the Italian system, we've obviously heard increasing noise about the bad bank.

I don't know if there's any color you can add to the debate if you had any conversations with the government. And would you be willing with the right condition to participate in?

And what implications do you think it will have for the system that you're optimistic about it on? Thank you.

Okay so starting from the integration charges so the cost that we considered as one-off in the Q4. These are €75 million net, so a reduction on net income of €75 million due to integration charges due to this renewal of the managerial team within Intesa Sanpaolo.

And these people will leave the organization in 2015, so we’ll have a benefit in 2015. On commissions, I can confirm the sustainability of our growth in this area this area, this area will remain a top priority both for private banking divisions and for Banca dei Territori division because remember we have a volume that is much higher than €100 billion of asset under management also in Banca dei Territori so it’s more or less 200 billion in private banking division but it is also another €100 billion in Banca dei Territori, so it is a clear priority of all our business unit to increase commissions also in 2015.

Having said that on the third point bad bank, I didn’t see any project on this bad bank my position is that we’re very good in managing our bad loans we have a strong converge. My view on the real estate market is that during 2015 we will have a significant recovery so we will have a recovery also in collateral evaluation.

We made evolution of collateral in 2013 and 2014 due to stress test because there were no transactions in the market now that there’re coming back transactions in the market for me it is very important to wait until the recovery of the real estate market and so at that point I will have the possibility of an extra recovery it my figures, so I don’t want to lose this upside and so it is my intention if the bad bank cannot create a condition of having significant recoveries not to participate to the bad bank, so I have my internal bad bank that is the capitalized bank and I want to work with my bad bank probably it could be different for other three years in Italy that can have some need of this capital bank but it is my position.

I just wanted to get back on the asset quality situation because it is very unusual to see an Italian bank having lower credit losses in Q4 than in the previous three quarters, and actually to my experience over the past I guess 10 years I have never seen this happening at any bank, so it’s quite surprising. So on the cost of credit side, my point is, I mean it’s all looking good but in PSP rising a bit, so the additional question I do want to put over to you is when would you expect MPS all-in-all to finally peak?

And then looking at the cost line also this was surprising because it seems to me that you’ve paying quite a high variable component to your employees, if I go back in the East you have never seen such a big gap quarter-on-quarter and I just to understand that how do you pan it out next year, is this the initial start of your strategy plan and should expect a flattish cost line or all-in-all should we be looking at the evolution of the cost line and particularly personal cost and if there is flexibility in connection to the revenues that you’re going to deliver? And finally my last question, I do apologize, I heard from a colleague of mine this cost in bad bank which is clearly a hot topic today the other topic is consolidation and the synergies that banks extract from consolidation, so the question to you is how would you see consolidation in Italy for you for Banca Intesa and I mean if you think that there is any value in buying additional branches or not and why so far your message has been we don’t want to be a part it, why you don’t want to be part it, if now the opinion is within Intesa there could be any credible bargain to take an active part in this process?

Many thanks, sorry for taking it for extra time.

So looking at provisions we had seasonality in this quarter so provisions would be even better without seasonality, so my view is that we are really at a turning point on the provisioning, peak of volumes could be in 2015 I observe. Looking at cost line, the variable component is related with the impressive results we achieved then if it is possible to have also some reserve for 2015 might be again, so in looking at the -- and the outlook is to confirm the business plan cost target and so it is 1.4 on accumulated annual growth rate.

So there is no change in outlook on the cost side and then we have also a significant number on contingency plan on the administrative expenses that we can use in case of having less revenues than we are considering in our budget. Looking at the Popolari and consolidation, so consolidation in Italy it is something which I have no interest.

So zero interest in having acquisition mode in Italy. My view is that it is not easy to create synergies also for my competitors having a merger between Popolari I think that this is something that have been a merger between Popolari but at the end they will have to reduce in a significant way branches, do not forget that from the 13 point in Intesa Sanpaolo we had 6,000 branches and now we have more or less 3,800 and next year we would be 3,300.

So it would be a must see program of reduction in branches also between the Popolari if they decide to merge. And so for me this would be a unique opportunity to have a slight quality and to have a significant increase in clients moving from this Popolari to Intesa Sanpaolo.

This is extremely interesting and by the way I guess in line also with some mergers we saw in the past, so essentially you think that this consolidation could create an opportunity for you to increase your revenues, am I correct?

Absolutely, I think that this would be a unique opportunity to work especially also in the private banking area because there are lot of families that have significant amount of money in the Popolari and through the merger of different Popolari this could create some opportunity for me also to work with a very good part of clients with my competitors.

This is Johan de Mulder, Sanford Bernstein, just one quick question on asset management. So I wonder whether you can split the assets under management into what has been given by performance and what my new insurers and also overall by the business of course by a market that is growing or whether you’re actually taking more market share than competitors?

Thank you very much.

So out of €43 billion increase in asset under management €13 billion is performance 30 billion is net inflows, 18 billion coming from asset under administration, 12 billion coming from deposits. And this is mainly a work with my assets management base we had a slight increase in the market share through the increasing clients.

But our target is clear to work with our clients through these actions of decompositions of asset under administrations into asset under management.

The first one is if you can confirm whether there has been any write-offs in the quarter that explain the decline of coverage or it is just a collateral revolution you have mentioned? The second one is on the dividend, yes, out of curiosity if you can confirm actually how the process is work with ECB if you need or 0.5 million some authorization from them in terms of 1.2 billion number you have announced.

And the third one is on Hungry, you have lost around 340 million in 2014 impacted by around 200 million of extraordinary cost as far as I understand, so if you can give us a little bit of view actually, can we expect in Hungary in 2015 and going forward? Thank you.

Ignacio, thank you for the question, but I answer to the last two and then you can repeat your first, on the €1.2 billion dividends I’m compliant with the ECB letter that they sent us because cluster one. In Hungary cluster number one or the different three clusters of banks.

Looking in Hungary we add another significant loss this year so it is €380 million out of which 200 is in the fourth quarter. For 2015 it is difficult to say what will be the new change in recommendation yesterday saw some positive declaration from the Prime Minister in this country so I hope that this means that we can have only problem related with the management of this company.

The management can bring us with other losses but not so as in 2014. So if you can repeat the first question because I didn't understand very well.

Yes, it's whether there has been any write-offs in the quarter and then explain the decline of coverage or is just a revaluation of the collateral revolution?

No there was a reclassification of one big ticket, 1 billion ticket that has a coverage that was lower than the average but on this ticket we hope to have positive news in the next month. So it is only related to this reclassification.

Two questions from me, the first on asset management, if you could consider the opportunity to IPO asset management operations and whether you're seeking larger scale and more international press for this business? The second is on the macro-outlook, you have seen it improving we're seeing also the government and different associations in Italy calling for potential upgrades in GDP growth estimates.

Does this allow you to confirm the 2% the CAGR that was embedded in the business plan?

On the asset management side, just so I have considered the possibility from studying the passivity of having some form of IPO. I have not decided but this could be moved from private banking and asset management.

So it could be both of them, in any case maintaining the control in the majority of any kind of combination both in private banking or asset management. Market outlook I am really positive on the outlook of 2015, but in reality it is a recovery because you know better than me that in Italy we had negative GDP by 10% in the last four years.

So we're coming back to a positive view, so 0.1% we will see and you know that Italy it is really related with the devaluation of the euro. So I am really expecting a significant growth due to the devaluation of the euro.

So some months ago I was not in a position to confirm the 2% CAGR in risk weighted assets because my expectation could be to have lower level. Now I think that it is possible also to have a recovery in a dimension that can increase the risk weighted assets.

Sorry to be a pain again on cost and capital. My understanding is that you have anticipated some cost that you confirm basically to land to the same level on 2017 but probably with a different speed, closing.

So I just wonder whether you can give us a direction for next year and with that cost we should also expect a decline? And then the next question is on capital.

Because you're absolutely fine, you have one of the best capital in the sector. But we read every day that the ECBs are looking also the quality of capital at the DTA in Italy and Europe overall, the Danish compromise the sovereign basically you have cut is my understanding is correct in Q1.

So you are preparing also for a different risk weighted of sovereign. I wonder at this point whether the regulator might basically fix sort of payout ratio going forward.

But you don’t have the traditional bond there, so just wondering whether you see any risk on any capital items for the Italians also based on the compensation that you're starting to have with the ECB which is a new regulator also for you? Thank you.

So looking on the cost side, I can confirm the growth rate of the business plan I don’t want to enter into specific items of my cost base. Then we will have on the first quarter results the updating and then we can enter in more detail on the different components of the cost side.

But for sure in this quarter I decided to be very conservative.

So all-in-all there is an upside basically, right?

Sorry?

All-in-all there is some upside on costs this is what you're saying basically?

I am not saying that there is an upside I am saying that I am managing in a smart way a significant line of these economic figures in this quarter. Then you can make your conclusion.

Looking at capital, the point of the ECB, my understanding is that they are moving towards a process of harmonization between the different countries and the different legislations. This can have some implications in the level of capital for all the European players.

I think that they started to do a good job on this point for the Italian bank DTA can be a point to be analyzed, but it is not only Italian it is also Spanish, French and other countries. My position is that these are credits towards our government and we will see what happen, in any case to move into this harmonization, there are something that ECB can do without changing the law so they move they can increase some buffer they can put some add on, but in order to work with a situation like it is they have to change rules at Italian level and the European level or at French level European level, at Spanish level European level.

So it is a process. The point is that it will be clear faster approach from the ECB on capital for all the European players.

My hope is that the same approach will be also on leverage because what I consider and I told it is very important is leverage so if you want to be very conservative at European level, Intesa Sanpaolo will the leading player in any case, but we want also to have a clear starting point of leverage this year or the year in which they decide to have tough approach to capital because if you’re at leverage level and you know that the problem with the prices started for leverage problem not for common equity problem. And it’s Intesa Sanpaolo to tell this that is best in class in common equity, so I think I am also best in class at leverage, I am also best in class in net stable fund ratio, liquidity coverage ratio because we decide to anticipate Basel 3, but if you want to be really conservative in order to protect the system from prices you have to work on leverage because it is not acceptable that you have bank between 2% and 4% of leverage, it is a risky situation.

Just two remaining questions, one just quickly, in your 8.8 billion of guidance for cost at the end of the business plan is there already to deposit guarantee fund and special resolution mechanism and truly just to make sure another bank last week reported some increase in debt that was expected and no mitigation potential on the asset. And also just on capital level purely, you have two large institutions this year one in Spain and one who raised equity to just to reach 10% and then plan to essentially spend these all these earning dividend or in volume growth.

And another one in France to just reaffirm bank much more complex than you reaffirm the 10% accruing speed and they don’t plan to change any of that at any stage. I just want to understand what’s different for you to be maybe slightly more conservative on the outlook on the actual level that there could be risk weighted asset inflation is another story but just for the target level in a sense I would like to understand where you differ or where the uncertainty remains?

So on the first point yes we have already included in our business plan the charge for the regulamentory. And looking at the level of capital, I am just saying that if you’re a 10% you have to declare the 10% is good for the future because otherwise you have to increase capital.

If you are a 13%, you can say okay, we can have a very though approach. And so I hope that there will be a very tough approach on capital because I am not a global SIFI and the other players that you mentioned are global SIFI.

So if any case I will be in a very positive a competitive advantage compared to my peers, so I think that it is better to have an higher level of capital than a lower level of capital especially in a situation in which there will be a new regulators and there will be a new regulators also for my Spanish, French and other peers because I am Italian but I am very good bank and so I can compare without any bank kind of weakness point with these other peers. So the point is that it is better to have higher capital.

If you have lower capital, you prefer to say that this level is one that you can have in the future. In any case my view on the right level of capital that could be for a global systemic bank would be in the range between 10% and 11% and for a bank that is mainly local is between 9% and 10%.

It is my personal view but in any case as soon as I have excess capital. It is better to stay in higher capital position and weight for the real decision of the regulators that would be at the end of 2015.

But at least if you’re floating from this position then there is no reason why you wouldn’t get that back if you are told that you can run around the levels of the others?

So the real point is I can confirm discipline, my discipline there was a chart, it was clear that is in 2015 I will evaluate my capital position have been clear what will be the regulatory framework because at this point it is not clear and my understanding is that if ECB is moving to have a tougher approach on capital for the European banks and also for global safety in different countries. So it is my view on this point.

I prefer with until 2016 if I will not use my capital for acquisition and this would be the case because I want only to grow in private banking and asset management by I can do also without a significant consumption of capital if I make the floatation of my private banking in asset management division and all the rest of capital will be excessive capital and I will make my position with the regulatory what I can do with this capital there is no reason as soon as the real rule of the game to maintain the extra capital and to create extra net income compared to my peers.

Apologizes if this was asked before but I just want to get a bit more color on the asset spread expansion that you talked about because that I think is quite consensus how much of that is you’re seeing from book rate ahead of the back book or is it re-pricing that you select to get to the peer’s level, if you can give a bit of color that will be very helpful?

Yes, on the re-pricing side we know that we starting to get towards our competitors on the low side that was 60 basis points one year and half ago now is in the range between 10 and 20 basis points so enough room to fill the gap with competitors. So my view is that we have other opportunity of increase re-pricing also on the asset side.

And if I can follow up, I mean do you think that will just, I mean at least to look ECD bank or Bank of Italy that front book rates keep falling, what’s that you have think will stabilize?

But the real point is spread it is not Italy grow some interest rate. So you can have a reduction in interest rate, but if you have a reduction in cost of funding and you maintain the spread or increase the spread and it is what happened in the last quarter of 2014, if you look at our chart on the net interest margin on Slide 11 you see a spread effect and this spread effect is mainly due to mark cap.

Okay.

If I were to maintain reach the interest rate will go down and you consider that we will take additional tier and tier 1 during 2015 because we took €12.5 billion but we have another €10 billion potential to be taken during 2015. So my view is positive on mark cap.

Two questions on my side, could you remind us the contribution that you mention before the European resolution fund and the deposit guarantee scheme and in which year do you expect to start making the contribution in Italy because obviously it’s not in the legislation yet in Italy? The second question relates to risk weighted assets I take all your points you mentioned on your solid capital ratios before and how comfortable you are.

But only a very specific question, if you’re done any stimulation on the RWA inflation related to operational risk and market risk as per the Basel consultation documents it will be helpful if you could share it with us. And the same for credit risk although I appreciate that one is probably seeing early days?

So if you want I can give you also the insider trading decision of my M&A plus action and I will give you all the figures for Intesa Sanpaolo. So starting from the resolution from the cost on related to regulatory framework and we have considered a cost of €155 million starting from 2015 then we will see what happens but it is what we have included in our business plan.

We made some simulation on risk weighted assets, say we remain in any case with a significant excess of capital much higher than all our European peers.

So, thank you very much. I can just confirm that this is -- 2015 will be another year of growth for Intesa Sanpaolo.

We're over delivering on our business plan and my expectation is to continue to over deliver on my business. So thank you very much.