Intesa Sanpaolo S.p.A.

Carlo Messina - Managing Director and Chief Executive Officer

Azzurra Guelfi - Citigroup Adrian Cighi - RBC Capital Markets Delphine Lee - JPMorgan Chase & Co. Jean-François Neuez - Goldman Sachs Group Alberto Cordara - Bank of America Merrill Lynch Andrea Filtri - Mediobanca Ignacio Cerezo - UBS Group AG Andrea Vercellone - Exane BNP Paribas Domenico Santoro - HSBC

Good afternoon, ladies and gentlemen, and welcome to our first-half results conference call. This is Carlo Messina, Chief Executive.

And I'm here with Stefano Del Punta, CFO; Marco Delfrate and Andrea Tamagnini, Investor Relations Officers. The first-half of the year has been solid.

Net income is up 25%, including the capital gain from the Intrum agreement. We have already achieved around 70% of last year's net income.

And we are very confident that the net income for the full year will be higher than €3.8 billion booked in 2017. As communicated in our Business Plan, this year the payout ratio will be 85%.

And we are already well on track to deliver a very satisfactory cash dividend. We and I personally are committed to remunerating our shareholders.

And we have demonstrated the ability to do that over the past years. Our capital position continues to be very solid.

Our Common Equity Tier 1 ratio increased further and they are well above 13% despite the negative impact of 35 basis points due to the sovereign bonds spread widening. These results rely on ISP's top-performing delivery machine and the resilient well-diversified business model.

Last but not least, a best-in-class capital position and the ability to deliver solid economic results allow Intesa Sanpaolo not only to reward the shareholders, but also give back to society. I'm proud of our contribution to Italy in terms of support to the real economy with around 8,000 companies back on track, over 40,000 jobs preserved, and over €25 billion in medium/long-term loans to Italian families and corporates in the first semester; support to people in need, a reduction of child poverty by providing food, shelter and medicines; support to those Italian families, who were victims of earthquake and other natural disasters; promotion and innovation, and culture with ISP Gallerie d'Italia, which is about to become one of the top-five museums in Italy by number of visitors.

Slide number 1; let's now look at the key highlights for the first semester: €2.2 billion stated net income, the best first semester since 2008; €2.6 billion net income, including the interim capital gain; the best ever semester for commissions and the best semester since 2008 for operating income. Cost/income down to 49%, among the best in Europe, with a decrease in operating costs of more than 3%, while still investing for growth; for example, in training, IT digital, and property and casualty, and wealth management.

We deleveraged €25 billion of non-performing loans since the peak of September 2015 at no cost to our shareholders. ISP common equity ratio increased to a solid 13.6%.

In a nutshell, we have already achieved around 70% of the 2017 net income and 50% of our business plan non-performing loans deleveraging target. On top of that, actions, the lever on the 3 pillars of our Business Plan, de-risking, cost reduction and revenue growth have already been activated.

I'm very proud of these results. And as always, I want to thank all Intesa Sanpaolo people for their hard work and commitment to the Business Plan.

Let's now go through the presentation, and at the end I will be glad to take your questions. Slide number 2; these excellent results are powered by a combination of factors that ISP management has built over time.

A top-performing delivery machine that works on Business Plan priorities and a business model that is both resilient and well diversified. We have state-of-the-art credit recovery capabilities that allow proper management of the new credit originated.

We enjoy strategic flexibility in managing costs, just in case revenues do not match expectations. We are a wealth management and protection company driven by a client-centric approach.

In this challenging environment we have confirmed once again our prudent approach in managing our clients' assets of around €1 trillion with family sight deposits increasing by €10 billion, €10 billion increase over the past 6 months. In addition, our business model is naturally hedged, because our financial market activities offset any negative impact of market volatility on our fee-based business.

Our sustainable profitability is also the result of a strong capital position, further improved, thanks to recent capital actions. I'm proud to report that over 8% of our people participated in the Long-term Incentive Plan, contributing to the further strengthening of Intesa Sanpaolo, and once again proving their commitment to our Business Plan.

Slide number 3; overall, our performance in the first semester has been solid, in particular, operating costs, revenue, net income and common equity ratio. And we are well on track to deliver on our business plan commitments.

Slide number 4; the speed at which we are delivering our business plan is even more remarkable if you compare our revenue growth performance to our European peers. As you can see, ISP, an Italian bank stands out as the best player in Europe among the peers that have reported their six months result.

Slide number 5; during the first six months, we continued to improve across all key indicators. In particular, cost/income is down by more than 6 percentage points.

Net income is 25% higher than 1 year ago. Gross NPS stock reached the lowest level since 2011 and the net NPL ratio stands close to 5.4%.

Our capital position remains very strong, around 430 basis points above regulatory requirements, and our capital buffer is 170 basis points above the average of our peers. Slide number 6; this is our best first semester since 2008 for net income.

As I've already mentioned, we are in a very good position to deliver a 2018 net income higher than 2017. Slide number 7.

Shareholders are not the only ones benefiting from our strong performance. During the first semester, employees received €2.9 billion in salaries.

And all our excess capacity of around 5,000 people are in the process of being re-skilled and redeployed. The public sector received €1.5 billion in taxes.

Households and businesses received over €30 billion in medium/long-term lending, of which over €25 billion are in Italy. In addition, over the same period, we helped 8,000 companies to get back on track and preserved over 40,000 jobs.

If we consider our social impact since 2014, the total number of companies helped has been above 80,000. And the total number of jobs preserved around 400,000.

In the next slide, I will give you a sense of what Intesa Sanpaolo does to support Italian society and promote culture. Slide number 8.

As set out in our Business Plan, Intesa Sanpaolo is committed to becoming a world-class reference model on social and cultural responsibility. In this slide, you can see just a few examples of our impact on Italian society during the first semester.

We have created new partnership to support Italian people in need and reduce child poverty. And we will soon be able to deliver our Business Plan commitments, providing food, shelter, medicines.

We continue to support Italian families who were victims of earthquakes and other natural disasters. We continue to support innovation and start-ups as well as the circular economy, with our dedicated credit Plafond, fully designed and expected to be launched in the last quarter of 2018.

We continue to promote culture in Italy and internationally, thanks to the activity of our Gallerie d'Italia museum. Also, we have designed our Fund for Impact that will be able to lend of around €1.2 billion to categories with difficulty accessing credit, set for launch in the final quarter of this year.

Slide number 9. Returning to our first half results on this slide, you can see the key highlights of our strong performance in the first semester.

Let me take you to Slide 10, and give you some color on the P&L. The first six months of the year were very strong.

Revenue were up 6%, and operating margin was up 17% on an annual basis. Within our revenues, insurance income benefits from property and casualty business growth of more than 40% year-on-year, so this is core revenues.

We have continued to be very effective at managing costs with personnel expenses down 2.3%, and administrative expenses down by 6.6%. Depreciation is up slightly as we keep from making investments for growth.

Our loan loss provisions went down by 18% on an annual basis, while coverage increased. Gross income was up 22%.

Net income is around €2.6 billion, when including the capital gain from the Intrum agreement. Slide number 11.

Q2 has being challenging with several factors contributing to negative market performance and increased volatility in a prolonged low interest rate environment. In spite of these, we have performed solidly, with net income for the quarter above €900 million, demonstrating ISP capability to deliver even in a challenging environment.

On a yearly basis, revenues are up 2%, operating costs are down 5%, and the operating margin is up double-digit. But really remarkable is the growth in sight deposits that could be engine for future growth in asset under management in the next quarters.

Slide number 12. In the second quarter, despite a good performance of the commercial component, net interest income recorded a slight reduction, when compared to the first quarter, due to the impact of the NPL disposal.

But also due to the strong increase in sight deposit that we had in the last quarter. On average, €5 billion increase in sight deposits, so negative markdown, but optionality for the future in transforming into asset under management.

On a yearly basis, the first semester net interest income decreased marginally despite a strong increase in the commercial component. Net interest income, as I told you, is affected by this strong growth in direct deposit that in a low interest rate environment impact the interest margin in the short-term, but boosts our Wealth Management engine in the long run.

Then let me highlight that ISP net interest income is highly sensitive to an interest rate rise. Indeed an interest rate increase of 100 basis points would generate a benefit of €1.7 billion in net interest income.

Slide number 13. Despite a challenging environment with negative market performance of the main stock exchanges and higher volatility, the first semester has been our best ever for commissions.

Also this quarter is our second best quarter ever. Slide number 14.

Really very important to understand our ability to manage Wealth Management in all the amount of direct deposit, asset under management and the assets under administration. In spite of this challenging environment, we were able to increase family sight deposit by €10 billion, of which €5 billion in the second quarter, together with the relevant stock of assets under administration currently at €176 billion.

These assets will be the fuel of our Wealth Management engine in the coming months. We managed to fully offset to the negative impact of market performance on our assets under management by gathering more than €6 billion of new net money.

Overall, customer financial assets increase by €21 billion year-on-year, out of which €4 billion in Q2 and we are now very close to the €1 trillion mark. Slide number 15.

Once again in this semester all our divisions made a positive contribution to group results. Half of our gross income comes from the Wealth Management & Protection business, making Intesa Sanpaolo a clear European leader in Wealth Management, but with a natural edge from financial market activities in case of market volatility.

Please let me say a few words about our protection business. We have successfully completed the setup with over 200 dedicated insurance specialists' already in place in Intesa Sanpaolo branches and rebranded as bancassurance outlets.

Slide number 16. We continue to be very effective at managing costs and we are extremely proud of the strong reduction achieved in the first six months.

Operating cost went down by more than 3% on a yearly basis, while still investing for growth in key areas such as training, IT, digital, property and causalities, and wealth management. The main sources of saving were workforce reduction, optimization of real estate, reduction of legal entities, and reduction of administrative expenses.

ISP maintains high strategic flexibility in managing costs and remains a cost/income leader at the European level as you can see in Slide 17. Slide number 18.

In the first semester, loan loss provision declined to the lowest half-year level, despite further increasing our coverage level. As a result, cost of risk is now down to 49 basis points from 81 in 2017, well on track to deliver on our Business Plan targets of 41 basis points.

Today, even when taking into account the Intrum agreement, our NPL coverage ratio increased above 33%, a level that will facilitate future additional deleveraging. So we increased the coverage ratio in this quarter through the increase in provision compared to the first quarter.

Slide number 19. Gross NPL stock continue to decrease in Q2, the 11th consecutive quarter of NPL reduction, reaching the lowest level since 2009.

The gross NPL ratio has decreased by around 8 percentage points since the peak of September, 2015 to less than 10% and the net NPL ratio is more than halved down to 4.6%. As of the end of June, we have already achieved half of the deleveraging target of the 2018-2021 Business Plan.

As already mentioned, ISP has been able to deliver these impressive deleveraging at no cost to shareholders. Slide number 20.

As you can see in this slide, in order to reach our Business Plan NPL deleveraging target, we need to reduce the NPL stock by around €13 billion over the next 3.5 years, which is €2 billion less than the €15 billion we already deleveraged during the past 2.5 years, when the coverage was by far lower. Slide number 21.

NPL inflows are stable down 52% versus the average of the past 12 semester, also due to our proactive credit management. Slide number 22.

Our strong capital base improved further in the first semester and we maintain a buffer of 430 basis points versus regulatory requirements, well above our peers. This capital buffer already includes around 35 basis points of negative impact deriving from the sovereign bond spread widening during Q2.

Slide number 23. When it comes to capital strength, ISP continues to be a market leader in Europe and this clearly helps us our generous dividend policy.

We have one of the highest capital buffer in Europe, equivalent to more than €11 billion. Slide number 24.

We also have a best-in-class risk profile in terms of capital on illiquid assets and we continue to maintain a very strong liquidity position. Slide 25.

We confirm the 2018 outlook for ISP. We expect growth in operating income versus the past year and this revenue increases coupled with continued cost management will drive operating margin growth.

In addition, we continue to expect the decline in the cost of risk compared to 2017 that will trigger further growth in gross income. Our expectation of growth in net income this year is confirmed by the excellent results of the first semester with around 70% of 2017 net income already achieved.

Italy, 26, the Italian economy relies on solid fundamentals. Employees is on the rise, business confidence remains close to a 10-year record, Italian real estate transactions are experiencing significant recovery in terms of volumes with prices starting to rebound.

The Italian economy is benefiting from this positive evolution and Italian GDP is projected to grow by more than 1% in 2018 and 2019. Slide 27; to sum up, we are very satisfied with our first semester of 2018 and our excellent delivery against the Business Plan targets.

De-risking, we have already achieved half of the Business Plan deleveraging target. Cost reduction, operating cost down by more than 3% with cost/income down to 49%, while still investing for growth.

Revenue growth, operating income was the best since 2008. We have reinforced even farther our already solid capital position.

We are firmly on track to deliver a net income higher than 2017 and a very generous cash dividend. All-in-all, solid first semester performance is strong upside going forward.

Thanks to the contribution of all our people. Thank you for your time and attention.

And now, I'm happy to answer your questions.

Hi, good afternoon. Azzurra from Citi.

A couple of questions, mostly on revenue, so fee income was not a drama in the quarter despite all the volatility that we have seen in Italy and this is a positive. Could you give us some color on what you think could be the main risk in this area, if any, if the volatility in the environment would continue.

I see the deposit point that you make and all of that. On the NII, the other question that I have is, when I look at the number included the Intrum deal, excluding the impact from this the second part of the year could be a bit better if the competitive environment start to normalize a bit.

Would that be a fair assumption? And lastly on sovereign, the capital has been affected by the sovereign volatility.

Could you give us some indication in terms of sensitivity and is there is any way that you could reduce this going forward? Thank you.

So thank you, Azzurra. We can start from fee income.

So, risk, I have to tell you that I see opportunities on our fee income, because if you look at fee income of this quarter we have a reduction compared to last year in terms of contribution from Corporate Investment Banking activities. So the possibility to have a recovery in Corporate Investment Banking activity in the second part of the year is significant.

So I'm relying on a rebound in terms of commissions coming from Corporate Investment Banking. Then if you look at Wealth Management, it is clear that our people in the branches decided not to push with our clients in order to have net inflows.

But at the same time, we gained market share in terms of deposits towards our competitors. So the big impact deriving from the reinforcement that we made in our Private Banking division, and also in the area of Banca dei Territori devoted to this area, is that we increased the sight deposit.

And our people decided not to push for conversion into asset under management. But we increased our potential by minimum €5 billion compared to last quarter.

So if you look at the sustainability, and the medium/long term value of Intesa Sanpaolo, we increased in a significant way this value in terms of potential of management of wealth from our clients. It is typical of Intesa Sanpaolo not to push for conversion, and to pay attention to the volatility and the position of our clients.

But I have to tell you that, starting from the month of July, we are now working with clients that are asking for life insurance products, traditional products. So we are now moving also into some recovery in terms of net inflows, but paying a lot of attention to the sustainability of results for our clients.

But net-net, I continue to see significant opportunity in terms of fee income for Intesa Sanpaolo. Looking at net interest margin is the other side of the growth in sight deposit, because the Intrum agreement, we had such a significant benefit in terms of quality of portfolio and quality of the bank.

If you look at net non-performing loans in terms of stock we have today the same stock of 2009. So in this period we were able to bring back the bank a pre-crisis level, pre-sovereign crisis level.

So we made an incredible job in term of reduction. And it is also clear that you have to lose something related to net interest margin.

But in the same time, we have such a strong growth in terms of commercial component, volumes and also spread, because if you look at the slide, net interest margin, Slide 12, we have the slight negative, but with a significant impact coming from a negative markdown due to this strong growth in terms of sight deposits. So I think that the possibility that the net interest income, apart from the reduction of other €10 million related to the - per quarter related to the Intrum agreement, so moving from €20 million to €30 million per quarter.

But apart from this, my expectation is that net interest margin can give us very positive results during the second part of this year. Sovereign volatility, we made a unique job in Europe in terms of reduction of concentration of government bonds of our own country, because today we are at 44% of concentration of the Italian govies on the total amount of portfolio.

And 25% of our portfolio today is Tripoli companies. So this is also part of the story of diversification, reduction of impact.

But it is clear that in any case that when you have a movement in terms of spread, you an impact on your capital. So 35 basis points related to the increase of spread could be a proxy of a possible 100 basis points which in the curve of spread BTP-Bund.

So if we have another increase of 100 basis points, we can have more or less a similar impact. And our view is not to reduce again our Italian government portfolio.

But our capital position, due to this capital increase related to the LECOIP and the conversion of the saving shares into ordinary shares is so strong that we can easily have above 13% capital position also with another 100 basis points increase in the spread BTP-Bund.

Thank you.

Thank you, Azzurra.

Hi, there. This is Adrian Cighi.

Thank you for taking my question. Two questions please, one on net interest income and one on tangible book value.

On net interest income a follow-up please, do you expect more headwinds from hedging and financial impacts, particularly as you have reduced the duration of the Italian sovereign bond book in the quarter? And do you have any sort of additional headwinds from the commercial dynamics like loan syndications that you might expect into the second-half?

And then on the tangible book value, obviously we have seen a decline of 8% quarter-on-quarter on a per share basis and 11% quarter-on-quarter. And given your high dividend policy, we would see sort of limited organic growth in this target.

How does management look at this? And do you see sort of a development of this positively going forward?

Any thoughts on that would be most welcome. Thank you.

So looking at the net interest income, you have to consider that looking at the financial components, we made in this quarter, probably, the last part of our diversification move into Tripoli companies. So we do not expect to have much more than 25% concentration in Tripoli companies govies that are really less risky, but also they can give us very low limited contribution to our net interest income.

My expectation is that the next quarters we can have a recovery also from the contribution from financial components. The other part of the story could be positive, could be a recovery in terms of medium-term cost of funding, because we have a lot of medium-term funding expiring in the next semester that used to have originally cost much higher than the one that we can replace in the market.

So this is another source of possible increase in terms of net interest margin, and then you can add the story that I told you on sight deposit. If we switch a portion of sight deposits, we can have a positive contribution due to reduction of negative markdown.

So our volumes, we continue to have positive volumes on the loan book and also markup can recover in the next quarter. So my expectation is that I am really confident on the positive part of the net interest margin.

We remain with this negative coming from the Intrum agreement and some slight reduction related to the hedging facility. But net-net, I think that should be - we should be really at the minimum level on - of net interest margin.

On tangible book - okay, so we are very happy to pay dividend. There are some spike, when you accrue the net income.

On the other side, when you pay dividend, you have a reduction in tangible book. Organic growth for us is something that, when you reach a Common Equity well above the 13% okay, you can consider to have some growth in capital.

But I want to confirm you that I'm more happy to pay dividend than to increase my capital above 13% just for the sake of increasing capital and tangible book.

That's very clear. Thank you very much.

Very helpful.

Thank you.

Yes, good afternoon. Thanks for taking my questions.

First of all, I just wanted to come back on the impact of the Intrum transaction. I just wanted to understand a little bit on the RWA side.

How much is actually coming in 2019? And if you don't mind giving us the billion number in terms of RWA inflation, which would be related to that.

And is that spread over the next - over the several quarters or does that come in instead of one go. Are you adjusting your models progressively?

And also just to come back on net interest income?

Sorry, sorry, sorry, Delphine. Sorry, I didn't understand very well your question.

So if you can repeat slowly, because it is not easy for me to understand. So if you can repeat your question, so I can elaborate the right answer to your question.

Yeah, sorry, if I wasn't clear. I was just asking around the impact of the Intrum transaction on RWAs inflation, because I understand that - because, I guess, you assume you are not going to get the LGD waiver, so I understand there is some RWA impact in 2019.

I just wanted to understand when that's coming. And also in terms of billion how much are we talking about, so in terms of capital impact?

And then my second question was more on net interest income, because - so there is definitely different components and you seem to be positive around the second half, around commercial components and financial components. Do you see the minus 2% decline that we saw in the first half sort of partially reversing?

I just wanted to get a bit of a feel of sort of the - how the full year in terms of net interest income, how it looks like? And just to finish on asset quality.

I can see that your - the coverage on NPL is still increasing again this quarter. What kind of level would you sort of be happy with, and I assume you have made some assumptions in your Business Plan.

Is it close to 55% in terms of NPL coverage?

So I will start from the last question. So just on increasing the coverage, we had a lot of net income this quarter, and we decided to increase the coverage in order to reduce the future seasonality of our provision.

So my expectation is that in the second semester we will have provisions that could be considered, on average, in the range of 60 basis points for the total year. So that's the reason why we decided to increase provisions and to increase the coverage ratio.

The coverage ratio is absolutely in line with the potential of recovery and the historical track. And so probably it is well above this possibility, because also 47% was the right level in combination of our ability to reduce, and to recover, and to maintain a trend of a recovery related to provision.

So the increased coverage is really the result of a conservative approach from provisioning, deriving by a significant amount of net income. And I have to tell you that in this phase of your as investors and analysts perception of Italy, I decided not to see any kind of need to have a net income above €1 billion just for the sake of telling to the market that I am creating €1 billion.

So I want to be sure that my profitability is one of the best-in-class. My ability to pay dividend is clear to the market.

But I decided to take a conservative stance in this quarter, because I am pretty sure that in the next quarters, we will not have a significant seasonality related to the usual last quarter that we had each year. So it is a managerial and strategic approach that of increasing coverage.

But our coverage is really well in excess of our ability to make a recovery. Looking at net interest income, I am looking for a real reversing of trends in the second part of the year.

So that's my expectation. My expectation is that apart from another €10 million that you have to add to the Intrum agreement had negative impact on net interest margin per quarter.

My expectation that is that all the other parameters can have a positive contribution to our net interest margin, then I cannot tell you that we will grow by 5% in net interest margin. But my expectation is that the forecast of a significant portion of analysts are considering a very negative results.

So net interest margin is not related to what we see in the performance of the bank. Then net interest margin is difficult to make a forecast and we will see at the end of quarter-by-quarter.

But my expectation is that we can have a clear reversing. On risk-weighted assets related to Intrum.

The expectation is that to have an impact related to the benefit of reduction of risk-weighted assets in the last quarter of this year, so that could be a positive that we will have on our risk-weighted assets. And then, we will have a negative deriving from junior tranches, related to the subscription of 49% of the special purpose vehicle related to the acquisition of the assets, non-performing loans made by majority Intrum.

And in 2019, we will have an impact of loss given default, but it is already factored in, in the impact of the EBA guidelines that we gave to the market in the presentation of the Business Plan. So net-net, our expectation is to be in a position to easily maintain a Common Equity Tier 1 ratio above 13%.

Okay. And how much of EBA guidelines of 80 basis points are you actually going to take in 2019 or 2020?

Now, that we will see, sorry. But I want to tell you a figure that we have to check during the period.

There could be a portion of this. Probably it could be a majority of this portion in 2019.

But the right figure, we have to wait until the end of 2018 to give you the right figure.

Great, thank you very much, Carlo.

Thank you.

Hi, good afternoon. This is Jean-François Neuez from Goldman Sachs.

I just wanted to ask you - my first question is on your capital buffer. So you - there has been many quarters now, for many years that you've shown a very, very high capital buffers versus your minimum, also twice as high as the European average at least.

And it strikes me as maybe slightly counterintuitive that, when you have this capital increase to employees you don't use part of that buffer to, let's say, neutralize it by buying your shares in the market, for example, or these types of things. Because when I see this buffer, I also see this capital increase and I wonder can this buffer be actually used?

And if not, what's the rationale behind keeping such a high buffer versus minimums? Is it for the funding cost or for other reasons - strategic reasons in terms of future growth or anything like that?

So this is the first question. And the second question is, on the competitive conditions right now.

So we've had a quarter of volatility as everybody has been able to see. We've seen that the CDS of some smaller banks have widened tremendously, more than that of the bigger banks, and they have a lot of TLTRO to refinancing proportion.

Are you seeing an improvement in competitive conditions either on deposits or on pricing or availability of clients to Intesa, which had maybe been taken away a little bit last year as the TLTRO was benefiting everyone? Thank you very much.

So on competitive position in Italy, we do not see any kind of competitive pressure. But at the same time I have to tell you that we are in the unique position to be the flight-to-quality part of Italy.

So in any case it is difficult that a client of Intesa Sanpaolo can move just because you can receive a 50-basis points remuneration in excess. So the historical trend of our sight deposits, of our positions in terms of deposits is that, in this period we can gain market share easily - sorry, easily is something that, if my people in the branch considered this easily, they can tell me that I'm crazy.

But there is a lot of effort made from our people. But it is also clear that the reputation and the institutional position of Intesa Sanpaolo in the country is so strong that in - for us it is unbelievable to have some kind of pressure from other competitors.

In any case, I have to tell you that I have no evidence from my people in the field that there is some kind of competitive pressure also among the other competitors in the market.

No, but towards the sense of my question, my question was about in the receding competitive pressure in last quarter.

In the market, I have to tell you that I don't see competitive pressure and no pressure in competition during last quarter. So also looking at other banks, my perception is that there are safe and sound conditions for all the players in the market.

That's the evidence that I'm receiving from my people in the field. Looking at the capital buffer, so capital buffer is always a happy problem, so just starting from this point.

When we decided to make the LECOIP, the incentive scheme from our people, we were not sure to receive such a positive reaction from our people. So this is something very, very positive for us.

But at the same time, at the end, this was the perfect hedge to the spread BTP-Bund decrease. So today Intesa Sanpaolo is a company with 13.6% Common Equity Tier 1 ratio that is absolutely in line with the spread BTP-Bund to 130 basis points.

So we are much better than our expectation just some months ago. So looking at excess capital, I have to tell you that the capital position of Intesa Sanpaolo is one of the factors that can allow us to pay very significant dividends to our shareholders.

So from one side it's the main factor of our solidity and stability. On the other side, it's a clear abilitator for being in a position to pay very good dividends to our shareholders.

So that's reality and that's the position of Intesa Sanpaolo.

Okay, very clear. Thank you.

Thank you very much.

Hi, good afternoon. Just looking now on the screen, the market is reacted - is reacting negatively to this set of numbers.

But frankly, the only - I mean, so to say negative that I can see in this set is some weakness in NII, which however I think anybody should have widely expected, because the Intrum deal was done at the end of April. It's very public, so I think anybody following the stock had a clear idea that there was some weakness in NII.

So the issue that probably the market is looking at these numbers is saying, okay, this is - Intesa is very good as usual, very solid and whatnot. But then, the question is what's going to be the next catalyst, and so it is going maybe to September to the approval of the budget, and what's going to be the attitude of these new politicians to banks.

So I just wanted to ask you a question about what is your view, –what we should expect. Sometimes we hear some rhetorics against the bank system.

But then from the information you have been giving us, not only you are doing a lot of lending to Italian corporates, but you are also involved in a lot of charitable initiatives in the Italian society, so you're doing a lot. So, the question is did you now establish a dialogue with this new politician?

And what we should expect their attitude to be in the future? And also, maybe this is not exactly regarding Intesa, but your opinion about if we should be worried about September, the budget, and anything connected to that?

And then, another issue is that, again I want to nitpick what could have been the negative in these numbers, because the market is reacting negatively. So this is really nitpicking.

But the other issue that I - that I saw in these numbers is that we have a bit of a pickup in NPL gross inflows on a quarter-to-quarter basis. So all my estimates, which is based on your half-year disclosure, in this quarter we have €1.3 billion gross NPL inflows versus €1.1 billion in Q1.

It's still a lower number than in Q4 last year that is €1.5 billion, but again, there is a bit of a pickup. So the issue is should we start to being worried about this?

Is it the setup of a negative trend in asset quality or is this related maybe to some single names? So for instance, a very recently we read in Italian press about a large contractor in the construction business to which Italian banks had a significant exposure that went into solvency.

So that would be my second question. Then very briefly, a couple of other points.

No seasonality in cost quarter-on-quarter, this was quite a surprise for me. If you can give us some comments on why this year that didn't take place.

And also, I would be interested to know if you are thinking of the possibility to listing some entities in the group like the vehicle that you have with the Intrum? Thank you.

So let me start to ask you a question. Why yesterday we increased by 4% in the share price?

So that's the way of looking at the market. Yesterday, we had an increase of 4% on nothing, because there was nothing different from the day before.

Today, we release a set of number in which we - it is pretty sure, that we will pay a dividend that could be considered a dividend of the yield between 8% and 9%, a quality result compared to all the other peers in Europe, reducing non-performing loans. And all the other peers still with significant Level 2, Level 3 non-performing loans, and we can be negative.

That's market. We will look at the medium-term value of the company and at the end the reactions are, in my view, mainly related to this unexpected growth that we had yesterday that was something really not in our expectations.

So that's the first part of the story. Looking at the fundamental of the bank, in my view, it is really - the dividend yield that we can deliver and the quality of our results are really impressive in comparison with other European peers.

Now, so we move to the Italian situation and so the cost of equity, because that's a point of attention from your side, from the analysts and investor side, and from the political conditions in the country, so the perceived political implication of this phase of the market. In reality, we have to consider that we have a government that is made by people that are elected by the majority of the Italians.

So that's the government that we have resulting from election in which a need of security and with a lot of mistakes from Europe in dealing with migrants. And on the other side, a clear need of working with unemployment of young people and especially in the south of Italy and poverty in the county are something that in my view should assessed.

So Intesa Sanpaolo, and Italy, and the government. Intesa Sanpaolo is the real economy in Italy.

So Intesa Sanpaolo is the main player and we are really the most important player working on real economy in Italy. In working real economy in Italy and also considering the kind of very positive results, bring us to make a lot of plan in order to assess inclusion of people that are out of the possibility to have credit, to work on poverty, to work on something that could be very important from Italy apart from any kind of government.

We decided in February to make all the actions, because at the timing when we made the analysis of the macro-environment, we realized that one need that could be assessed by Intesa Sanpaolo was these need of poverty, these need of having lots of food. Because in Italy, there are a lot of rich people, there are €10 trillion of wealth, so one of the strongest country in the world.

But at the same time, as in all the other European countries, you have poverty. And if you are strong with a lot of net income you can devote a portion of these in order to make something positive for the country.

We have the relation with institutional counterparties that is the normal institutional relation that we have with all - we used to have with all the other governments in the past. So we work with this government as we made with all the other governments.

So Intesa Sanpaolo is really committed to do something that could be positive for the country, because it is positive for Intesa Sanpaolo and it is positive at the end for the shareholders of Intesa Sanpaolo. Looking for the future, what could be the next move looking at the financial low in the county?

I think that this government will work in such a way not to increase the public debt of the country. It is a need of the country to have a reduction in terms of public debt.

That should be a real commitment and real priority. But if you add conversation - if you have conversation with the Ministry of Economy, this seems to be something that is absolutely a priority for the government.

So I think that at the end, there could be some political attitudes to give messages to people. But on the other side, from the institutional point of view, the Ministry of Economy, the number one of government and mainly the President of Republic are really committed the to make this country a country, in which you can be safe looking at the financial position.

On the other side, you have a perception in the market mainly derived from a miscommunication in the last month related to the program of the government. But at the same time, I think that in reality the priority is to be sure to increase growth in a country and only if you are sure to take care of the wealth of the savings of Italian people, and so not increasing the spread BTP-Bund.

So not increasing debt you can take care of Italy, because the only way to reduce poverty is to maintain saving and wealth in the best position for the country. Looking at the inflows, so starting from politician, governments, public debt, deficit, and the figures of Intesa Sanpaolo.

The only reason is some past due, because, if you look at the analysis there are €200 million spike in past due. And it is mainly related to the fact that in this quarter we made the integration on IT of Banca Popolare and Banca Nuova, so the two little companies missing from the Venetian banks.

So there is a technical spike and my people all the people within the network now are working in order to reduce this component that is - that can be considered so not as the trend of a possible deterioration in our quality of credit. In any case, we are as such at very low level of inflows that I am not worried at all of the new inflows in our cost of risk and inflows of non-performing loans.

Looking at seasonality in cost, we decided to use this, all the levers that are accelerating, the plan in terms of reduction of cost base. Because, we think that in phase of volatility, in phase in which increasing sight deposit, you can have - only an increase in commission of 2% that it is at the end the increase of UBS and all the other players that are really the king player in terms of commission.

But for Intesa Sanpaolo we can see there is probably not such a significant increase. But if you are in such a condition much better to accelerate on the cost side.

And so, the acceleration in cost made us in such a position not to have seasonality in this quarter. At a same time, as I told in the previous answer, my expectation is that we were able also to review seasonality on provisioning in the typical seasonality of the last quarter of provisioning.

Possibility of listing, having a joint venture with Intrum, I cannot tell you that this could be the most important implication of the agreement with Intrum. But looking at this business, I think that, if our partner can be available to made other project in this area, we are ready to follow, because we think that Intrum is a top player and we can benefit from a diversification in terms of revenues in recovery of non-performing loans.

Many thanks.

Yes, thank you. Could you update us on your thoughts around the strategic developments in your asset management company.

Have you closed the loan towards Glencore? And finally could you please detail us on the eventual capital gains from the sale of govies in Q2, including the trading income and in the insurance investment income?

Thank you.

So on assets under management, no news at all. We have no evidence of possible concentration with other players.

And having no possibility to make concentration, there would be no kind of agreement with the global players. On loan book, we are really confident that this saga with Glencore and Qatar can be closed within the end of the year, but we would see.

And I'm more than happy in any case to have a positive contribution on my figures from these loans. On capital gain, we can - I have to tell you that there are no spike in terms of capital gain in this quarter deriving from disposal of portfolio related to the spread govies.

There are an increase in activity of our Investment Banking department, but it is not only related to Italian, but also to Spanish and the other govies in the portfolio of treasury. In terms of our insurance business, we continue to work in increasing the contribution from the technical component and not the financial components.

And in this quarter we increased in a significant way, the contribution coming from property and casualties.

Thank you.

Thank you.

Yeah, hi, couple of quick ones for me. If you can tell us what percentage of the €600 million investments for growth have you booked in the first half of the year?

And the second one, I think you mentioned before that you were expecting the CIB fee stream to pick up in the second half, just curious if you have any evidence in terms of pipeline for that or it's just a…

Sorry, sorry, I lost you in the first part of the question. If you can repeat that question, sorry.

Yeah, you mentioned that you were expecting a pickup of CIB fees in the second half, if you can confirm actually if you have any evidence for that in terms of pipeline or it's just basically an estimate that the market is going to stabilize and you're going to be making more business? Thank you.

No, we have in the pipeline some transaction and so this is something that we rely on. Then it's a pipeline, so we have to deliver a completed transaction.

But the expectation is to have a rebound in terms of commissions coming from Corporate and Investment Banking. On the investment side - sorry, I lost also the first part of the question, can you repeat it?

Yeah, on the Business Plan you forecasted around €600 million investments for growth purposes. If you can tell us how much of that has been booked in the first half of the year?

Yes, we had an increase in terms of capital budget out of the €600 million in the range of €150 million. And then, looking at people, a significant portion of people related to property and casualties in the field, so in the Banca dei Territori being completed in the factory.

So in the insurance company, we hired 35 people in terms of our port or the central sanction out of 150. Then we still remain with another 200 people that could be hired in the next 12 months.

Okay. Thank you.

Thank you.

Good afternoon. Two questions, the first one is just the detail on your insurance revenues that you mentioned in the Slide 10 that P&C component is up 40% year-on-year.

Can you breakdown the €575 million into life and P&C, because we don't know what it was last year, so we can't do plus 40%. The second question is related to the dividend policy.

And I was just curious to know whether the dividend per share that you paid last year plays a managerial role for you, i.e., do you consider that as a bit of a floor for future years? And if so, hopefully, there's not going to be any need for that, but if there is any wiggle room on the payout guidance assumed in the Business Plan 85, 80 an so on, also considering where your capital ratios are, i.e., fairly solid.

Thank you.

So the commitment that we had with - we have with the market is to for 2018 to increase net income in comparison to 2017 and then to have an 85% payout ratio. That is for my commitment.

At the same time, I'm more than happy to make my shareholders happy. On the other side, the - on insurance, we start from very limited number in terms of contribution from property and casualties business, because we started this year by increasing the revenues trend to this component.

Then starting from next quarter we will have evidence on different items. But I have to tell you that the increase in terms of revenues related to the insurance income is in the range of €25 million in the first semester, the increase, the delta.

Okay. Thank you.

Okay. Thanks.

Hey, hi, good afternoon. Just a question on the bond issuance that I see on Page 43 and the €6 billion actually residual maturity is for end of the year.

I'm just wondering whether given the market where it is and the cost of funding where it is, is there any obligation at this point for any requirements that you might want to mention or you might skip these maturities and postpone to the next year? Thank you.

So we will see what could be the opportunity in the market. In any case, also at this level, we can have a good condition in comparison of the aspiring part of our portfolio.

So the attitude is to look at opportunities, but with no constraint to make any kind of issue. In any case, if we have replace this should be a cost that are in giving a positive contribution compared to the expiring one.

But we will see in the next, future.

Okay. Thank you.

Thank you.

No other questions, so thank you very much and have a good holidays for this summer. Bye.