Good afternoon, ladies and gentlemen, and welcome to the conference call of Intesa Sanpaolo for the presentation of the Q1 2023 results, hosted today by Mr. Carlo Messina, Chief Executive Officer. My name is Razia, and I will be your coordinator for today's conference. At the end of the presentation, there will be a question and answer session. To enter the queue for question, please press star one and one at any time. You will then hear an automated message advising that your hand is raised. To withdraw your question, you can please press star one and one again. You are kindly invited to ask no more than two questions to leave room for other participants. I'll remind you all that today's conference is being recorded. At this time, I would like to hand the conference over to Mr. Carlo Messina, CEO. Sir, you may begin. Thank you. Welcome to our Q1 2023 Results Conference Call. This is Carlo Messina, Chief Executive Officer, and I'm here with Stefano Del Punta, CFO, and Marco Delfrate and Andrea Tamagnini, investor relations officers. Today, I'm going to walk you through a very high quality sets of results. We delivered the best ever start to the year. We are highly profitable, liquid and capital solid. Rush exposure is approaching zero, and we have further strengthened our zero NPL status. Net income at EUR 2 billion was the best quarter since 2007. Q1 was also the best ever quarter for operating income, operating margin and gross income. Costs were stable with the lowest ever cost/income ratio. These strong results mean that we can raise our net income guidance for the year to EUR 7 billion. Rewarding shareholders while maintaining a solid capital position is embedded in our DNA and remains a priority. In Q1, we already accrued cash dividends of EUR 1.4 billion and executed the EUR 1.7 billion buyback. Common equity ratio increased to 13.7% despite absorbing the vast majority of expected regulatory headwinds. Considering DTA, it stands at 15%. Asset quality is excellent, with NPL inflows, stock and ratio at an historical low. The cost of risk is the lowest ever, with no release of overlays and a further increase in NPL coverage. We are a European leader in terms of asset quality. Our strong liquidity position remains sound thanks to a very diversified and sticky deposit base and more than EUR 100 billion in excess medium long-term liquidity. Customer financial assets increased by EUR 11 billion. Looking ahead to 2025, the final year of our business plan, we expect to comfortably exceed our EUR 6.5 billion net income target. This is thanks to the boost from interest rates, our resilience as a zero NPL and a zero Russia exposure bank, our flexibility in cost management, and our leadership position in wealth management, protection and advisory. As we have proven again and again, we will over-deliver on our promises. Our Common Equity Ratio is expected to be close to 14% post Basel IV in 2025, and 15 including DTA absorption. This does not take into account any additional capital distribution that will be evaluated year by year. We confirm our business plan target of a Common Equity Ratio above 12%. We clearly have significant excess capital. Execution of the business plan is proceeding at full speed. In particular, our technology evolution is moving quickly and our digital bank, Isybank, will be launched by the summer. Let me say a few words on the overall macro situation. The economy is already showing better than expected growth this year. I remain positive as lower energy and commodity prices are easing inflation, and this will help the Italian economy recover quickly from the slowdown experienced in Q4 last year, as shown by the positive, higher than expected growth registered in Q1. We are very sensitive to the fact that many families and businesses are struggling due to the inequalities, and we remain committed to support them. We are providing EUR 400 billion in lending to the real economy, not to mention our many social and climate initiatives, which are stepping up. All our stakeholders, not only shareholders, but also employees, the public sector, households and businesses benefit from our excellent performance. I'm proud of our results and thank our people for their hard work. Now let me turn to the details of our Q1 results. Slide number one. We had the best ever start to the year. We delivered the best quarter for profitability since 2007. Our position is, and will remain, rock solid. We achieved the best ever quarter for revenues, operating margin and gross income, even without any contribution from TLTRO. Costs were stable despite inflation and strong investments in technology. NPL inflows remained at an historical low, driving the cost of 17 basis points. NPL coverage further increased, and we reached one of the lowest NPL stock and ratios in Europe. Liquidity coverage ratio and net stable funding ratio are well above regulatory requirements and business plan targets. Please turn to Slide number 2. In this slide, you can see the impressive and positive evolution of net income, up almost 19% on a yearly basis. Slide number 3. Capital ratios are and will remain well above the 12% business plan target, which we confirm not considering any additional distribution that will be evaluated year by year. As already said, we have significant excess capital in each year of the business plan versus the planned target of 12%. At the end of March, excess capital was EUR 5 billion. If you look at Basel IV, and especially Basel IV after DTAs, because our DTAs in that period will be transformed into reality in three years' time, so we will have possibility to be really at 15%. This means that we have significant structural medium long-term excess capital. Please turn to slide 4 to provide some color on our liquidity. Slide number 4. We have a best-in-class liquidity position with a very sticky and granular deposit base. Retail funding represent 83% of direct deposits, of which 70% is households. A very large portion of deposits is guaranteed by the Deposit Guarantee Scheme. The average size of deposits is only EUR 14,000 for households and EUR 69,000 for corporates. Liquidity Coverage Ratio and Net Stable Funding Ratio are more than adequate, higher than peers. Liquid assets are more than EUR 270 billion. In a nutshell, we are in a very comfortable position, and ISP is considered a safe harbor by clients. Slide number 5. The record start to the year means that we can improve our net income guidance for 2023 to EUR 7 billion. Let me take you to Slide 7 to provide some color on the P&L. Slide 7. In Q1, net interest income was up almost 70% year-over-year and 6% on a quarter-over-quarter basis, but almost 20% not considering the net contribution of TLTRO in Q4 and when adjusting for the different number of days in the two quarters. Insurance income goes down a year-over-year and quarter-over-quarter basis, also thanks to double-digit growth in non-motor property and casualties revenues. The total contribution from net interest income, commissions, and insurance income was up 25% on a year-over-year basis and 2% quarter-over-quarter. Operating costs were stable on a year-over-year basis. We had the lowest ever cost of risk. Net income reached EUR 2.2 billion when excluding the final contribution to the resolution fund. Slide number 8. Here you can see the strong acceleration of net interest income, up almost EUR 500 million compared to Q4 last year when excluding the net contribution from TLTRO. On a year-over-year basis, we recorded the highest growth among peers, almost 70% versus a peer average of around 25%. Net interest income is expected at more than EUR 18 billion in 2023. Slide number 9. Net interest income growth on a quarter-over-quarter and year-over-year basis was driven by the spread component, which is benefiting from the increase in market interest rates. Slide number 10. Customer financial assets increased by EUR 11 billion in Q1 due to assets under management and administration. Wealth management will continue to be an important driver for growth in the future, our well-balanced and efficient business model gives us a clear competitive advantage. Slide number 11. The slight decline in direct deposits was by further than the reduction in customer loans. That was mainly related to the rationalization of position that were EVA negative or no longer efficient capital-wise due to the unusually high liquidity of corporate clients who used their own resources for investments and at the same time, indirect deposits increased. It is important to note that the trend reversed in April with EUR 4 billion growth in direct customer deposits. Customer loans net of repos continued to decrease in Q1, mainly due to the use of excess liquidity buffers by client, while the trend of corporate deposits became positive again in April. The loan-to-deposit ratio improved compared to the third of 2022. Slide number 12. We continue to be very effective at managing costs, which are down excluding depreciation. Administrative expenses were affected by an increase in energy cost of over EUR 20 million and will be down net of these components. Depreciation is up. We keep investing for growth, especially in technology. Slide number 13. Our cost/income ratio is among the best in Europe. Please turn to slide 14 to see how ISP asset quality continues to be strong and one of the best in Europe. The net NPL ratio is at 1%, already achieving the business plan target, and NPL inflows are at an historical low. Keep in mind that we have reduced NPL stock by EUR 54 billion since the peak in 2015. Slide number 15. NPL stock and ratio are among the best in Europe. And believe me, it is impressive to look an Italian bank to be the best in class in terms of net non-performing loans in Europe. Slide number 16. Our cost of risk stood at 17 basis points in line with being a zero NPL and zero Russia exposure bank. EUR 0.9 billion in overlays is still available with no release in Q1. Slide number 17. As you can see on this slide, NPL coverage continued to grow and reached 50%. Slide number 18. In Q1, we further reduced cross-border exposure and total Russia exposure is approaching zero. Let me take you to slide 19 to give you some color on the capital position. The Common Equity Tier 1 ratio is up to 13.7% after basis points input from regulatory headwinds and a EUR 1.4 billion deduction of accrued dividends. As you can see, we clearly have significant excess capital even when taking into account the remaining close to 30 basis points of regulatory headwinds. Slide number 20. Our excellent performance allows us once again to create sustainable benefits for all stakeholders and not only for our shareholders. Our people, households, business, and the public sector clearly benefit from our increasing profitability. For example, in Q1, we registered EUR 1.4 billion in taxes, EUR 300 million more than in Q1 last year as net interest income drove increase in net income. In 2022, we gave EUR 80 million to ISP people to help with inflation. In Q1, families and businesses received EUR 15 billion in new medium-long-term lending, of which EUR 10 billion in Italy. In Q1, we helped more than 900 Italian companies to performing status, preserving around 4,500 jobs. Since 2014, we have helped more than 138,000 Italian companies. Let me remind you that almost 40% of cash dividends go directly to Italian households and to foundations to support the charitable programs for local communities. Increasing cash dividends will also favor an increase in tax revenues for the state. Slide number 22, the business plan. In addition to delivering excellent results, the people of Intesa Sanpaolo are working across all the industrial initiatives of the business plan. Technology is the key accelerator of our business plan, and our technology evolution is moving quickly with significant investments. In particular, let me underline the strong progress of two key pillars. Isybank, our digital bank, is already running its pilot phase on selected clients. We launch commercially by the summer. Our artificial intelligence program was launched with more than 60 dedicated IS people and a target of around 160 use cases to support the business plan initiatives. 30 are already set up, and another 40 operational by the end of the year. Both Isybank and artificial intelligence solution will leverage the two cloud regions in Turin and Milan, built as part of the Skyrocket deal with Google and TIM. You can go through the details of the plan initiatives in the next 11 slide. On slide 32, you can see our leading ESG position in sustainability indexes and rankings. On slide 33, you can see what we are doing for our people. I want to highlight that diversity and inclusion is a priority for Intesa Sanpaolo, the largest private employer in Italy. The key international diversity and inclusion rankings place our group in leading positions in Europe and worldwide. For the sake of time, let's move to slide 36 to see how ISP is well equipped to succeed in a challenging environment. Slide 36. The Italian economy is strong, thanks to solid fundamentals, world-leading household wealth and very resilient SMEs. Growth for this year will be higher than previously forecast, and lower than expected energy prices will help ease inflationary pressure, and as inflation slows, the economy is set to react. Slide number 37. As you can see here, Intesa is better equipped than its European peers, thanks to our rock-solid capital base, strong liquidity position and a resilient, well-diversified and efficient business model. Slide number 38. Let me recap the key points demonstrating how ISP is well equipped to further succeed in the future. Our resilient, diversified and profitable business model is over-delivering. Our capital position is and will remain strong. Zero NPL bank status has already been achieved, and our Russia exposure is approaching zero. Net interest income provides a strong tailwind. We remain a wealth management protection and advisory leader with fully owned product factories and more than EUR 1.2 trillion in customer financial assets. We are set to succeed in any interest rate environment. We have high strategic flexibility in managing costs, our liquidity position is strong, and the execution of the business plan is proceeding at full speed. To finish, please turn to slide 39 for the outlook. The best ever start to the year means we can comfortably upgrade our full year net income guidance, allowing us to reward our shareholders in a generous way, always a priority for ISP and me personally. This year, we will return at least EUR 5.8 billion, taking into account the dividend we will pay in May, the second tranche of buyback completed in April, and the interim dividend that as usual, will be paid in November based on the full year net income guidance. Additional capital distribution will be evaluated at the end of the year. I want to highlight that all our stakeholders, and not only shareholders, will benefit from our performance. Thank you for your attention, and I'm now happy to answer your questions. Thank you, sir. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, you can please press star one and on one again. Once again, it's star one and one on your telephone and wait for your name to be announced. You are kindly invited to ask no more than two questions to leave room for other participants. Thank you. We are now going to proceed with our first question. The question comes from the line of Antonio Reale from Bank of America. Please ask your question. Hi. Good afternoon, everyone. It's Antonio from Bank of America. I have two questions, please. One on the use of capital, and secondly on deposit betas net interest income, please. The first one, you've restored your excess capital in a couple of quarters with capital back above 13.6%. The organic generation that we expect to come means you're more than funding your dividend distribution going forward. Your capital is inevitably going to move further away from your 12% targets that you had. The question is, where do your strategic priorities stand, as you already have the largest dividend payout in Europe, you've just completed a share buyback. What's the best way for a bank like Intesa to allocate this capital? Second question is really on NII. What have you assumed for deposit beta in your above EUR 13 billion NII for this year? You are market leader in it. You have a large share of funding coming from retail, which has proven to be most resilient in terms of deposit betas. So I wonder what you've assumed as your end of year deposit beta, so in Q4. If you can share sensitivity around NII changes from different level of deposit betas, that would be very helpful. I'm trying to understand how close we are to peak NII and what part of this is sustainable also in 2024. Thank you. Thank you very much, Antonio. I want to start from capital, just to give you and all the other analysts and investors, my view on the capital position of Intesa Sanpaolo. As you know, we last year were surprised by the potential figures of the regulatory headwinds, and we decided to move in acceleration of some actions that was already considered in our business plan. We delivered very good performance. Also, in this quarter, we continued in the action through reduction of loans and exposure towards banks and optimization of kind of guarantees, what we call accuracy in our risk-weighted assets. In a sense, more than compensated the impact of the regulatory headwinds. We remain with a portion of this impact that could happen in the next quarters as soon as our model will be reviewed and the probability of default of our clients will be moved in the different files in the next quarters. On looking at capital position also for 2023, we remain in a very comfortable position, and we can talk in a figure that could be within 13.5% and 14%. We remain in a number that can allow us in 2024 and 2025 to have significant real excess capital in comparison to our risk profile, especially if you look post Basel IV, because now we are approaching, and all the other banks will have to make a clear disclosure on this point of post Basel IV. Our way of looking at medium term excess capital is to consider the impact of Basel IV, but at the same time also considering the impact of DTAs that on fully phase-in are not considered, but on fully loaded we are going to consider. Within 2028, in 3 years' time from the adoption of Basel IV, at the end, we will have the recover of another 100 percentage points that is equivalent to a capital increase. We can stand easily at 15% during the period of Basel IV. This means that looking at our risk profile with zero NPL, very low Level 2, Level 3 assets, a very low risk profile in our group leave us with a significant excess capital in 2023, even more in the next years, looking at the future of Intesa Sanpaolo. In terms of capital allocation, 12% is already considering a portion of capital that we have to consider, not only for the business mix of the activity, but also to be part of a company in a country with a significant public debt. With a number of point of strengths that are, in my view, underestimated by the market, by the majority of the international community, because in Italy, households and SMEs now are probably the best in Europe. In Italy, you cannot find a place in a hotel, so also the levers of tourism, it totally underestimates in the potential that we have in GDP growth for the future in our country. In any case, 12% is something that for us is already with a significant portion of capital to face unexpected losses. The point of usage of capital could be the usage in terms of an acquisition or a redeployment to the shareholders. In terms of usage for the acquisition, we do not see any kind of acquisition that can create value for our shareholders. I want also to remain strongly concentrated in executing the business plan, because I'm convinced that our business model is the right business model to remain in an environment of interest rate that could be between 3% and 4%, and then with the decrease in interest rate. In any case, now the environment is an environment in which interest rate will not move more to 0. Could be 2%, could be 2.5%, could be 3%. In this environment, a wealth management and protection company will be the winning business model. Starting from 2024, again, we will be a clear leader in terms of business model. Having said that, remaining concentrated on business plan is a priority. We have an excess capital that could be redeployed to our shareholders. The real point is to make the right check in the right timing. In this year, we are already giving a significant amount of cash dividends to our shareholders. For the time being, I do not see any kind of need to make a clear disclosure of a further capital that can be redeployed. At the end of the year, it is clear that we will have to consider a portion of excess capital to be redeployed to the market in some form. For the timing, we will have to evaluate our position in terms of price to book, because the price to book above 1, in my view, it is not so in favor of share buyback, but could be more in favor of distribution of reserves, but we will see what can happen at the end of the year. It is absolutely clear that now we are in a mood of excess capital position. From the other part of the story that is net interest income, the short-term assumption is that today we are in a unique condition looking at net interest income. That was not a surprise for the manager of Intesa Sanpaolo. We had such a negative markdown during the negative interest rate that for us to have this benefit in case of rebound of interest rate is something that we can consider normal. In the last two or three years, we increased our market share in the country, reaching in the real region, a position in which there is a lot of wealth, a position close to 30%. We are by definition a player in the retail deposits and wealth management in the local field. This means that you can benefit from an increase in terms of net interest income that is much higher than all the other peers in Europe. This increase will continue. We have no pressure to increase our cost deposits. We remain with a very low beta, below 10% and in a mix between retail and corporate deposits. In the mix, the medium is below 10%. Having said that, and having listened to other peers talking about a beta of 40 basis points, we decided to try to use the same approach of other peers, not because is our estimate, because April we continue to be in the same position of beta, and May is starting in the same way. There will be a timing in which, there will be a pass-through of this increase to depositors that are not penalized from this decision because, a depositor can decide to ask for bonds, for medium-term instrument to move into, liquidity, products. Also this pressure to say, "Yeah, you are penalizing your clients," in my view, is something populistic. There is a clear, proposition for the bank that is, you have a service in current account, but if you want to have something different, you can ask, and you have a lot of product that can be used. The position of 40% beta is moving from, at this point from May, at the end of the year, is to consider there could be a request to have some more remuneration for medium. Is an assumption that in my view is really conservative, but it is what we have considered to reach the EUR 7 billion net income forecast that we have disclosed to the market. Thank you. We are now going to proceed with our next question. The question comes from the line of Delphine Lee from JP Morgan. Please ask your question. Yes, good afternoon. Thanks for taking my questions. My first one is just to come back to NII, because I don't think you answered the question. I mean, is the deposit beta assumption for your EUR 13 billion 40% by year-end? As a result, I mean, is it still 35%-40% for the average of the year, or has that come down a bit towards 30%? Also, what's the sensitivity in terms of deposit beta to 1 percentage point higher or lower from here? My second question is on fees and commission, which were quite weak this quarter. Could you maybe just give us a bit of favor of, you know, what kind of runway we should expect for the full year? I think previously you were talking about something that could be stable, but are you seeing some improvement so far in the quarter in terms of the trends? If you could just give us some color, that would be helpful. Thank you. Net interest income. The deposit beta, starting from May, 40% means that we will have on a yearly basis, below 30% beta on the total amount of deposits. This figure, as I told you and I told to all the investors is in my view really conservative. That's my view looking at the position of the bank. I think that at the end, the expectation on this figure could give us a positive surprise also considering this forecast. The 1% sensitivity should be more range between 35 and EUR 40 million per 1% beta. Again, what I consider really important on this analysis on net interest income is also the correlation with the asset under administration and with the loan book of our clients. If you allow me, I want to give you my managerial view on net interest income and on deposit base. At the end, what we are seeing today in Italy is a phenomenon of a number of corporate counterparties. Not only large corporate, but also medium-sized company that during the period of the pandemic decided to increase their request of loans and in a different way from the past, receiving loans with some guarantee, with some form of positive coming from the government, from the bank. They decided to redeposit, not the usual 20%, that was the historical way. Receiving 100 of loans, you deposit 20. Receiving 10 of loans, you deposited the 60. The point today is that these companies, that are good companies, A portion of this extra deposit to finance their needs. This reduce the loan book demand Improving the quality of the system of the SMEs in the market. This will reinforce the quality of the cost of risk in our country. At the same time, in the movement of the some part of the savings of the Italian families into asset under administration, we are creating the condition for in 2024, as soon as the interest rate will have a trend of reduction to realize, to make in evidence capital gains in this portfolio of clients. This will be the perfect environment for a wealth management company to move these funds or to work with the clients in order to have the movements of these funds into asset under management. That was the original delivery of Sanpaolo in moving the movement. To look only to a line of economic figures is for sure important in this phase in which you have a clear dominant position of the Net Interest Income. I ask you and all of you to not forget the correlation that you can have between deposits, loans, assets under administration and the business model of an organization. In terms of fee and commission, in this quarter, some point of attention of the strong derisking that we realized in the Q4 and a portion of the revenues that were related with this amount of loans are in the commission side, especially in the Corporate & Investment Banking Division. We had something like a pit stop in the commercial revenues. At the same time, we decided to reduce the contribution from the upfront commissions that in this quarter are the minimum level, absolutely the minimum level, and are EUR 100 million, and EUR 100 million below than the Q2 of 2022. We do not need to increase the revenue to something that is substantial anticipation of revenues. We are working in order to be sure not to create an environment of upfront fees, but to create an environment in which we can have a significant rebound in 2024. That's the position. Thank you. We are now going to proceed with our next question. The next question comes from Giovanni Razzoli from Deutsche Bank. Please ask your question. Good afternoon, thank you for taking my questions. The first one is related to the deposits. Basically what you are saying is that you are incorporating a 40% deposit beta at year-end. That, by the way, was the same assumption of the last quarter, if I'm not mistaken, but you don't see any pressure to increase the pass through on the deposit. I was wondering whether sooner or later, do you think that as a bank or given your funding structure, you will be reverting your commercial policy and start offering also time default to your clients or bonds, and this may inflate the cost of funding. It's more an issue of mixed effect and not an issue of pricing per se in terms of inflation of cost of funding. My understanding is that given the loan-to-deposit ratio is so low, this may happen, you know, later in 2025 or even, or even further in time. I was wondering whether this understanding is correct, because in that case, you still have a strong, you know, tailwind in NII also in 2024 regardless of, you know, the evolution of your funding base. The second question, allow me to ask again about your dividend start because the line was quite bad. You said that if you were now at year-end that you would be in favor of returning part of your excess capital to shareholders, right? Did I get it correctly? Thank you. I'm always in favor of rewarding my shareholders. The real point is to be sure not to make actions that can reduce the sustainability of results of the organization. Time being, we remain concentrated in increasing the cash dividends to the increase of net income. We are working at the same time to increase the excess capital, and the evidence are the last quarters, but the real excess capital because with zero NPL, zero risk, Level 2, zero Level 3, so excess capital is a real excess capital. To make analysis considering also the evolution of 2024. Looking at the trends, so positive GDP, positive GDP in 2024, I think that the evaluation could be to make analysis in favor of potential distribution. We will see at the end of the year, and we will take the decision also with the board of directors. For the time being, our position is that each year we'll redefine potential redeployment of excess capital, but at the end of the year. It is clear that the acceleration in terms of excess capital generation is really significant, but we will take decision at the end of the year. My personal point is that I'm positive. Looking at the deposits and the composition of our deposits. Today we have zero medium-term instruments in our deposit base, close to zero. When we talk about 40%, we are talking about using some, in some way, a mix effect. Not increasing the current account remuneration, but to move a portion into one year, two year certificate of deposits or to make, to allow our clients to have bonds and something that could be medium, long term instrument. Our perception is that in an environment in which we remain with interest rate, with a reduction but not significant reduction in 2024, interest rate and net interest income could be again a tailwind, so not a reversion of a positive trend. If reduction will be moving close to 0, we will have a clear benefit in terms of commissions due to our wealth management and protection strong base. We maintained, as you can see from our figure, the amount of asset under administration and management and so, and insurance. We can be ready also to re-accelerate in terms of fee and commission. If interest rate will remain in a positive territory and not reducing below 3%, 2.5%, my expectation is that we can have benefit also in 2024. We will check during 2023. If you ask me today, that's my view for 2024. Yes, thank you. That is very clear. Thank you. Good. We are now going to proceed with our next question. The question comes from Britta Schmidt from Autonomous Research. Please ask your question. Yeah. Hi there. Thanks for taking my questions. My first one would be on the capital with regards to the RWA management actions that you have undertaken in Q4 and also continued in Q1. Is there any more of that to come that could benefit and offset the remaining 30 basis points of regulatory headwinds to come? My second question would be on the cost of risk this quarter was very low. I was wondering whether you could give us any color on the Q1 as well as the outlook for the full year. Thank you. Yes. Starting from cost of risk. Our expectation is that the run rate for the cost of risk for this year could be 30 basis points. We can add less than 10 basis points in terms of potential need to make some of non-performing loans in order to maintain 1% NPL ratio. In any case, in our forecast, we have a cost of risk that is between 35 basis points and 40 basis points. This is the cost of risk embedded in the EUR 7 billion forecast for the market. The evidence today, so if we make an inertial trend of what we are seeing in terms of new inflows is absolutely to be in a position to over-deliver in comparison to these 35, 40 basis points in maintaining the EUR 900 million in terms of overlay. The condition in Italy, looking at our portfolio, so the quality of portfolio is really positive and we do not see any kind of threat, strategic threats in terms of cost of risk, maintaining this kind of dynamics in terms of positive GDP. Because we think that there will be an acceleration in the GDP in 2024, for the future can remain very positive. Do not forget that having reached a total amount of net non-performing loans of EUR 5.4 billion, you can have significant threats in terms of further provisions that you have to add. Russia is no more an issue, in the end, this is the run rate of a company with the very low level of net non-performing loans that we have today and with a positive GDP in the country. Let me add on this point, I made some statement at the beginning, also there is a lot of attention in our country and outside the country on Next Generation EU new funds, on acceleration of investments that are fundamental. You can call Next Generation, you can call investments by yourself within the country. We need investments as all the other European countries. In Italy today, we have this boom in term of tourism that is really unbelievable. It is impossible to find a place in Italy in a five-star hotel if you want to find and if you want to make a vacation. That's not only from the Italian people, but also from international people. The country is in a unique position, in my view, to have and to continue to have a positive GDP. This transforms into cost of risk that will remain very low. Looking at the capital position, what we realized during this quarter is to work on... We had a reduction in terms of loans, with corporate and with banks, we had the benefit from this area. We have also retained earnings 30%, 70% payout ratio, 30% retained earning. We had a positive contribution from actions that we made in recovering collateral within all our loan book. We have room to have further actions during the second part of 2023. I cannot tell you if we will be in the position to totally compensate the 30 basis points, our target is to work in order to minimize the net impact of these these regulatory headwinds that are still remaining. What we will have is, in any case, a positive then in the Basel IV environment, because at that point we will be in a unique position to have the impact in a number of areas of our portfolio that can be positive for the Basel IV impact in 2025. Net-net, we think that we can continue to have positive results in our common equity. If there will be one shot, the 30 basis points in the Q2, difficult to say that we can be in a position to have a growth in terms of common equity. If we have 30 basis point in the Q2, then we will have a recovery in the third and Q4. We will see dynamics during this quarter. Thank you. Thank you. We are now going to proceed with our next question. The question comes from the line of Andrea Lisi from Equita. Please ask your question. Hi. Thank you for taking my question. The first one is on the EUR 900 million of overlays you have. If in the next years, this year or next year, you don't see an acceleration or deterioration of the asset quality, which are your plans for these overlays? Are you planning to release them? The second question is on if you can provide some update for the following two years, 2024 and 2025. If the EUR 7 billion guidance you see for 2023 can be considered kind of a floor for the following years. Thank you. I didn't understand the second question was if we can consider the EUR 7 billion a floor, and then this means that in 2024, 2025, we can deliver more than EUR 7 billion? Yeah. Okay. Looking, I want to start from overlays, then I will elaborate on the trend in profitability. Looking at overlays, our estimates is that we will not use in 2023, and we will not use in 2024. It's a way of maintaining a very conservative approach. We will see. If you have a specific area of need in which you have to face some negative trend in a position, we can use also in 2023. Overlays are there because if there are unexpected events, you can use. In our forecast, we have not considered to use. Also in this, kind of brainstorming that I can make with you on the future profitability, our expectation is that, we will not use, this kind of overlays. Reality could be completely different because, it is impossible that you can have, not, a deal in which you need to have, some usage of these, of these overlays. EUR 7 billion is an amount, in which, we will have for sure a significant contribution from revenues, significant contribution from net interest income. That for sure, this will be the main driver, and probably we can exceed also our expectation in terms of trend of net interest income. On fee and commission, we will remain in an approach that is we do not need to increase fee and commissions in a year like the 2023, in which we have the boom of net interest income. What we need is to create conditions in the structural portion that can generate commission, so asset under administration. The different mix of asset under management, so increasing liquidity in order to move into equity. In a number of actions that we are creating in order to have a clear acceleration of fee and commissions during 2024. In insurance business is a machine that can generate cash quarter by quarter and can accelerate mainly due to property and casualties. Our expectation is that we can have increasing contribution during 2023, and we can continue to have increasing contribution in 2024 and 2025 and for the future, like is for wealth management. At the same time, trading income. Trading income for 2023, we do not need to have significant contribution from this, from this item. We are not considering in the EUR 7 billion. There could be some potential acceleration in this area, but, we think that the normal rate will be much higher than the one that we are having in 2023 and we can accelerate then in 2024 and other years. On the cost base, this year, we will remain a strong discipline on the cost base, and we can have a slight increase in the cost base, but 2024 can then move into a reversal of this increase with a point of attention that is the negotiation with trade unions for the renewal of the contracts with people working in the banking sector. In any case, we will deliver a reduction then in 2024 and for the years 2025 and in the future. Looking at loan loss provision, 40 basis points can be considered the maximum in a GDP positive environment. At the end. It is clear that what we can consider for the future could be a very positive profitability for our shareholders. The real figure, we need to have more information about the dynamic of the Euribor and the dynamic of the market in order to better understand the rebound in terms of commissions, but I'm totally confident we can continue to deliver very strong net income and that EUR 7 billion could be a trigger that it is absolutely something that we can improve year by year. Very clear. Thank you. We are now going to proceed with our next question. The question's come from the line of Christian Carrese from Intermonte. Please ask your question. Hi, good afternoon. Thank you for the presentation. Very good results. Just a few clarification. First of all, on net interest income, if you can elaborate on which kind of assumption on one-month Euribor you changed the guidance for 2023. In terms of loans, I would expect a reduction in the year. If you can give us an idea. Secondly, on capital ratio, the evolution of the quarter, flat issue risk credit assets. I was wondering if the regulatory headwinds included the IFRS 17 impact in the quarter. Third, on costs, I understand that there could be a slight pick up in 2023, but what kind of assumption have you done in terms of renewal of the labor contract in terms of inflation cost? Finally, on your thoughts, if you can share with us your thoughts on the hypothesis of a windfall tax that we read on the newspaper. Thank you. Starting from the tax. I made a statement just before the presentation in which I was considering the real situation that we have in not only in Italy, but all over the world. You have a lot of inequality, a lot of increase in poverty, and then at the same time, a lot of concentration of positive impact in a number of players and in increasing inequalities. This means that to have a player that can look at corporate social responsibility, like Intesa Sanpaolo, because we are the player that is managing the most important plane for inequality in the country through increasing our support to poverty, giving food, shelter, giving a lot of money for people that are in need. We are the most important player today in investing in social housing. We are the most important player investing for young people in terms of education. We are the player that is investing a significant amount of money also for women and for program that can young women to have education and to have to be of the world in which you can work with a good position. We are involved today in something that are the most important part of the intervention in our country in order to reduce inequality. If government will decide to to have a new form of taxation, extraordinary taxation, obvious, that could be only limited in one year time, Intesa Sanpaolo will respect the decision of the government. We will. We are in a position of respecting any kind of decision from government. What we ask is to have a finalization of this tax in order to work for inequalities within the country. To be sure that the money is not used to cover the public debt of the country, but to work in order to improve the conditions of people that are in difficult situation within the country. If this is the task and the purpose of a taxation that I'm not sure that they are working on taxation, but just on a brainstorming basis, I have to tell you that Intesa Sanpaolo will be in a position not to oppose to a taxation from the government, but should be finalized in order to help the people in need in our country. Having said that, in Italy, we have already the taxation that is At the level not comparable with the other countries, that the reason why taxation in case of a decision should be an exceptional taxation. Also this situation of increasing net interest income is bringing already the possibility of the state to use money in order to help people in a difficult situation. Because if you look at our figure with an increase of roughly EUR 1 billion in terms of net income, mainly coming from net interest income and then provision, but mainly from net interest income, we will have to pay in March EUR 300 million more in terms of taxes. Due to the fact that interest rate increased, the state is receiving EUR 300 million more in terms of taxation. They can use this money in order to help people in need. At the same time, our approach of paying cash dividends and not share buyback is an approach that is creating benefit in terms of retail investors and foundation. Foundation are giving money for the social needs, and retail receive money they can use for their needs. At the same time on dividends, increasing dividends, states receive a taxation. There are a lot of correlation in an improving profitability for a company that also without a taxation can create and is creating benefit for the figure of of our state. Just today, Intesa Sanpaolo is increasing by EUR 300 million. From scratch, the government can have EUR 300 million more in terms of taxation that they can use for the purposes of improving condition of people that are in difficult situation. Moving to the cost and the dynamic of the cost within the company. We have considered in our EUR 7 billion a worst-case scenario in terms of impact deriving from the negotiation with trade unions, but I will not disclose the figure because there will be a negotiation and so much better to remain with possibility of making a negotiation. That's my point. We have been really conservative. Also because, I have to tell you that if my people will receive, increase in their salary, I will be happy. That's my personal view. The right mix should be the right combination for the medium term of the organization. We have to realize the negotiation with trade unions. Looking at capital evolution, IFRS 17, the impact is already embedded in March. That's the impact, and you can find in our figures in March. That's already embedded. In terms of net interest income, Your question was? Sorry, to be sure to have added- The underlying assumption in terms of- Yes, we have considered an average Euribor between 3.20% and 3.30%. Thank you very much. Thank you. We are now going to proceed with our next question. The question's come from Marco Nicolai, from Jefferies. Please ask your question. Yeah, good afternoon. Thanks for taking the question. Just a couple of quick follow-ups from me. The first one was on net interest income, just a couple of figures if you have them to hand. I was wondering whether you could tell us where the average loan or asset yield stood at in the Q1. I think it was 2.2% at the end of 2022. And also just what the average customer deposit cost was in the quarter as well, just to get a sense of the pass-through to date. The second question was just another follow-up on fee income. I think you said earlier that the measures you'd taken on RWAs in 4Q had a bit of a drag on fee income this quarter. Given that you're continuing to take, some additional measures during this quarter and potentially next, should we expect another sort of follow-on, drag on fee income going forward? I guess the simpler way to ask the question is, I think last quarter you guided to fee being flattish to slightly up, for this year. Does that guidance still stand? Thank you very much. Sorry, could you repeat the question related to net interest income? I'm not sure to have understood your question. If you can repeat the question. Yeah. it was just what the average, the level, the absolute number in terms of average loan rate, in the quarter, and also the average deposit cost in the quarter, just in terms of the absolute numbers. Looking at the figures on our liability side, we are in a range of, looking at the cost base in our retail networks, we are talking about 10 basis points. All the average, considering all the different item, is close to 30 basis points. On the asset side, is close to 3% today. Looking at this figure, you can have the clear evidence of what can be the acceleration that we can have in net interest income also in the next quarters. Looking at fee and commissions, we do not expect to continue to have a negative impact. When we are talking about negative impact, we are talking about something like EUR 30 million-EUR 40 million. We are not talking about something that can move all the level of fee and commissions in 2023 in comparison in 2022. The reduction here is with assets can have some further impact on fee and commissions. The main reason is that we change the policy of having some form of contribution from upfront fees into recurring fees. As I told in the previous answer, in March, we 2022, we used to have more than EUR 200 million upfront. Now we are on a run rate of EUR 100 million. This means that this is a reduction in terms of contribution. When we gave the guidance of flat of with not significant increase in terms of fee and commissions, we were considering upfront fees in a normal trend that could be more or less EUR 200 million. This reduction of policy that is justified by the fact that we have already significant amount, and we have not to demonstrate to the investors that we are able to increase our commission base because it is clear that we are a wealth management and protection company. The need to work for commission for us is not a priority in terms of marketing messages. At the same time, what I was expecting in this first part of the year was to have a much higher contribution from wealth management product. The majority of the attitudes from our household clients was to move into asset under administration product. As I told you, this means we had an increase in this quarter of more than EUR 8 billion in terms of net inflows for asset under administration products. This means that during 2023, you can have a lower contribution, but these are fuel for 2024, because if interest rate will have a trend in terms of reduction, these clients will have the capital gain in this product. It is typical for us, our client can have a capital gain. The attitude of this client is to be more in favor of moving his saving portfolio. We are in a position of creating condition to improve 2024 commissions. Also if we have some slight reduction, I have to tell you that I consider something that can create some negative position for the group. At the end, we are working for staying in sustainability for the result in the next 10 years, like we delivered in the last 10 years. It is not EUR 100 million of fee and commission that can change the position of Intesa Sanpaolo. That's very clear. Thank you. Thank you. We are now going to proceed with our next question. The next question come from Azzurra Guelfi from Citi. Please ask your question. Hi, good afternoon. Two questions from me. One is on the regulatory environment about the potential review of the LCR or the government guarantees. I've seen the disclosure that you've given on your deposit and the level of guarantee deposit that you have. How do you think about potential development at industry level? Would this potentially impact the assumption that the phase out of systemic charges over 2024 and 2025? The second one is on cost. You are continuing to surprise positively the market on your progression on cost. I hear about the negotiation with the trade union and everything that you mentioned. When we look in the forward couple few years, do you expect your target for 2025 to be not ambitious enough in a way in terms of savings because you are continuing to make progress on these? If you can share with us what are the main action that are still pending and could result in better cost, because your cost income clearly is benefiting a lot from the revenue environment. I think we should acknowledge also the progress that you're doing on controlling your cost base. Thank you. Yes, Azzurra Guelfi, your point on cost is absolutely a strategic one. I will leave the floor for the regulatory implication to Stefano. On cost side, your point is one of the consideration that we are working on within the group. At the same time working with this environment in 2023, I'm in a process of redefinition of all the most important part of the levers that we had in our original plan in order to improve the acceleration in terms of levers or sustainability of these levers for the future. That is why on capital we started to look at 2028, the timing in which we can have this stronger contribution in terms of DTAs that can increase by 100 basis points our capital base. Moving it is not concentrated as on 2025, but looking for the real future. It is clear that the real point of attention is the technological improvement for the organization and the possibility to accelerate also what we are doing with Isybank and with all the technological improvement of the organization. This means that we will have to probably to pay some bill in terms of depreciation, and in this quarter you had the evidence of the acceleration in terms of investments. As I told in the previous question, we are here to stay for the next 10, 20 years, sustainable for the future. We want to create a bank that can be a clear leader in the market. There are two point to have a leader in the next years. One is the wealth management protection and advisory proposition. In wealth management, I consider also the retail franchise for deposits. If you are a leader in this area, you can be a winner in the next 10 years time, but at the same time you have to be a winner in terms of technology. That's absolutely what we are working on. Not easy to say what could be the real implication in the next year or in the next two years in terms of cost reduction. For sure, we are creating condition significant reduction in terms of IT cost for the future. Also the branch network can be absolutely under scrutiny for the next years. That the reason why when we are now working in this approach of medium long term, we are not only looking at 2025, but we are working for other two or three years time in order to be sure to create conditions to have the perfect organization. Revenues are by definition an area that can have a lot of volatility. As you told, cost base is strategic. We have a number of contingency plan, but if you look in this perspective of three, five year times, you need to have structural actions. The improvement in technology that we will have to test in this 2023 will be a key point to check if this proposition to move then the system of Thought Machine, sorry, just to make it easy, but the implication of the improvement in our technological framework that we will realize through Isybank can be moved with acceleration within all the organization. We'll have the possibility to reduce in a strong way the cost of the cost base with a significant improvement in terms of technological cost base for the organization. If this is the case, it is possible to continue to have cost reduction within our cost base. In any case, also looking at volatility in our cost base, if you will remain in environment between 2% and 3% Euribor interest rate, in any case the bulk of revenues that we will have will be really significant. If you add the wealth management and protection proposition and the acceleration in that area, you will be in a cost income proposition that will be really best practice also in the medium long term. On this point, I will be more precise, close to the end of the year, because for the timing, I will be in a position to evaluate or a review of our business plan with some extension of some years or a redefinition of 2025 targets. Okay. On LCR, I mean, to be sincere, we don't expect any regulatory change on LCR. You know that LCR is already a very strict and distressed measure of liquidity. You will see on our. On our third pillar of the balance sheet that there are all the numbers, you see that in our LCR, the calculation takes into account an outflows of deposit of more than EUR 80 billion. I mean, this is a very, very strong measure of liquidity loss for a retail bank. I don't think that they will change. Of course, there will be a strict application that unfortunately didn't happen with the U.S. regional banks, otherwise probably we would not be talking about this today. Don't forget that the repayment of TLTRO doesn't change the structural liquidity of a bank because TLTRO is financing that we get against collateral. On the one end, we will give back cash to ECB, but we will get back the collateral. Even so, you will see an optical effect on the LCR because, let's say, the arbitrage of taking money from ECB and redepositing ECB will finish, but the collateral is with the banks, and banks can use this collateral in market transaction, collateralized transaction to manage any potential outflows of liquidity. I don't see TLTRO to be seen repayment as a driver of any change in the structural liquidity of banks. It remains very solid in Italy and in Europe in general. By the way, the usage and the participation to main refinancing operations, so the weekly auction called MRO of ECB will go back being a standard practice as it has always been in the past. Of course, with TLTRO, MRO usage has been finished, but it will go back, and this has been clearly stated by Lagarde yesterday in the conference call. It doesn't seem that they are at all worried about the liquidity of European banks, because as you have seen, no special instrument has been created or announced to manage the repayment of TLTRO. All the banks seems to have enough reserves. The answer is no, we don't expect any regulatory, evolution there. Due to the time constraint, we are going to stop the question and answer session here. I will now hand back the conference to Mr. Carlo Messina for closing remarks. I want just to put emphasis on what we consider the hard job of all the people within Intesa Sanpaolo. I think that we demonstrated in the last years to be really committed to execute our plan to create value for our shareholders, but also to be part of a community and corporate social responsibility is part of our DNA. We think that in an environment like this in which it is absolutely likely that we can deliver EUR 7 billion in 2023, and in the next years we can also accelerate our performance and giving significant cash dividend payout and evaluating further excess capital redeployment. It is also responsibility for a bank like us to do something for that it is very important for the inequality within the country. I can confirm my personal commitment to shareholders to increase profitability, but also my personal communities toward the community in Italy to allow that Intesa Sanpaolo can be close to people in need in this country. Thank you very much, and see you next conference call. Thank you. Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.