Stephan Engels - CFO

Britta Schmidt - Autonomous Research Heiner Luz - Goldman Sachs Johannes Thormann - HSBC Benjamin Goy - Deutsche Bank Guillaume Tiberghien - Exane BNP Paribas Riccardo Rovere - Mediobanca Anke Reingen - RBC Paul Fenner-Leitao - Société Générale

Good morning, ladies and gentlemen, and welcome to the Commerzbank AG Conference Call. Please note that this call is being transmitted as well as recorded by audio webcast and will subsequently be made available for replay in the Internet. At this time, all participants have been placed on a listen-only mode. The floor will be opened for questions following the presentation. Let me now turn the floor over to Stephan Engels.

Good morning ladies and gentlemen. Welcome to Commerzbank's conference call for the figures of the third quarter 2015. I do understand that our announcement from yesterday afternoon is at least as interesting for you as today’s figures. However I do know that this is matter of the Supervisory Board and Martin Blessing, let me only say this that I personally regret that Martin Blessing will not extend his contract. Now coming back to the third quarter. Let me start with our summary on page 2. In Q3, we have reached a Group operating result of EUR429 million, which is EUR44 million above the previous quarter and as well an increase compared to the third quarter of last year. Our net result of EUR207 million in Q3 leads to a net result of EUR853 million after nine months of 2015 and exceeds the result of nine months 2014 by 62%. Q3 revenues in the Core Bank have decreased by 12% quarter-on-quarter, predominantly driven by the challenging capital market environment, burdening Corporates & Markets and Treasury. On a nine months basis, the picture is different as revenues in the Core Bank have seen a good increase of 7% or around EUR450 million. Loan loss provisions in the group were at a low level of EUR146 million in Q3 reflecting the high quality of our loan book and the benign phase in the credit cycle. Expenses of EUR1.73 billion in the third quarter are in-line with our expectations and around EUR20 million below the previous quarter. In our non-core asset segment the rundown of the portfolio continues, EUR4 billion in Commercial Real Estate and EUR1.1 billion in Ship Finance account for a reduction of around 19% in the third quarter of 2015. The remaining exposure in Ship Finance has now been downsized to EUR9.7 billion, a single-digit billion number for the first time. NPLs and NCA has been half since year-end 2014 to EUR3.1 billion. The NPL ratio now stands at 4.5% respectively. While RWAs remain stable, our Core Tier 1 capital has further increased. Therefore our fully-loaded Core Tier 1 ratio now stands at a comfortable level of 10.8% including the full 2015 dividend accrual. This means that we have already achieved our 2016 target of more than 10% even if the positive effect from the capital increase in Q2 of around 70 basis points. Our fully phased-in leverage ratio as of Q3 stands at 4.1%, which is already above our target level of 4%, 4.6% [ph]. Coming back to Q3, slide 3 summarizes the key financial figures. Let me highlight the increase of the operating and net result in the group as well as the Core Bank on a nine-month comparison. When you turn to slide 4, we can have a look at the development of the group P&L. With an operating result of EUR429 million, we are well above the result of Q3 ‘14 and Q2 ‘15. This adds up to around EUR1.5 billion operating result in the first nine months of 2015, an increase of almost EUR600 million or 62% compared to 2014. We already mentioned low level of loan loss provisions more than compensated for lower revenues due to weak capital markets in Q3. We continue with our ongoing cost efficiency initiatives and have booked EUR28 million restructuring charges in Q3. In the corporate tender, we will optimize the setup of our administrative functions in Germany while in Corporates and Markets, we will further streamline our back office operations in the New York branch. The tax rate in the third quarter increased to 41%. This includes a swing on deferred tax assets from temporary differences, which is a technical accounting effect and largely capital neutral. In addition, we saw a one-off tax charge for prior periods. After deducting minorities of EUR29 million, we have achieved a net result of EUR207 million. On page 5, we can take a more detailed look at our cost base. Expenses, excluding European bank levy show a stable development and are in-line with our expectations for the full year 2015. Besides our ongoing strategic investments, expenses have increased on a nine months basis. This is due to effective cost increases as well as the ongoing pressure from recent regulatory requirements and compliance. The cost base of the first nine months is additionally burdened by a negative FX effect of EUR65 million from the weaker euro compared to 2014. The overall increase has been largely offset by further staff reduction from our ongoing efficiency programs. As already highlighted, in-line with our effort to optimize the cost base, we have booked EUR28 million restructuring charges in Q3 to further streamline our administrative functions and back office operation. Loan loss provisions as shown on page six amounted to EUR146 million for the group in Q3, which is well below previous year’s figure. The Core Bank again showed a low level of EUR72 million. This favorable LLP trends in the Core Bank is driven by the high quality of our loan book and the ongoing robust condition of the German economy. As already stated, we are currently benefiting from the benign phase and the credit cycle, which especially holds true for Germany. The loan loss provisions in NCA decreased due to charges of EUR51 million in Q2 from the portfolio sales in Commercial Real Estate. Thus loan loss provisions in NCA almost completely referred to Ship Finance, which accounted for EUR70 million in Q3. On a nine-month basis, loan loss provision for Ship Finance of EUR239 million are 38% lower than in 2014. This is a result of our prudent approach in Ship Finance. We have already started to build up what we have considered an adequate level of loan provisions for this portfolio at a relatively early stage and has maintained this level over the last year. We expect that the LLP trend in Ship Finance that we have seen in this quarter is likely to continue in Q4 depending on the market environment, which remain challenging. As always, for the last quarter of the year, we expect a higher level of loan loss provision for the group due to the periodic year-end effect. Let’s have a look at the result of the Core Bank on page 7. On a quarterly comparison, the result in our core business has decreased in Q3 driven by lower revenues and challenging capital market. After the first nine months of 2015, however, the Core Bank has delivered a decent return levels with an operating result of more than EUR1.8 billion, exceeding previous year’s level by almost 20%. The operating return on tangible equity after nine months ended at sound 13.2%. While private customers and CEE showed a sound performance in Q3, overall revenues in the Core Bank decreased by around EUR300 million. This was driven by Corporates & Markets and Treasury, reflecting the overall difficult capital market environment. Furthermore the Core Bank was burdened by a net CVA/DVA evaluation effect, which in particular materialized in Mittelstandsbank. The third quarter revenues were affected by a few one-off items in the Core Bank, which roughly level out in total. PC shows a positive net one-off gain of EUR81 million compared to the last quarter due to the netting of an extraordinary dividend from the payment transaction provider with an additional provisions for litigation and recourses. Mittelstandsbank saw a negative quarterly effect on revenues largely caused by a one-off burden of minus EUR41 million due to the insolvency [ph] of a technical services provider and from a movement of CVA/DVA valuations of minus EUR47 million. Excluding these effect, Mittelstandsbank, showed a stable operating result. In Others & Consolidation, the initial recognition of funding value adjustments through P&L of minus EUR131 million has mostly been compensated by a release of evaluation adjustment. The recognition of funding value adjustment in the P&L reflects the involving market standard and peer practice on IFRS 13 and in our case, is capital neutral since we reflect prudential valuation in our Core Tier 1 already since 2014. Now, let’s continue with the segment’s performance starting with the private customer’s division on slide 8. The EUR230 million operating profit in Q3 2015 includes a positive net one-off effect on revenues of EUR81 million from an extraordinary dividend and higher net additional provision for litigation and recourses as already mentioned. The positive one-off dividend item refers to EURO Kartensysteme payment which is the payment transaction provider for the German banking sector and recently sold its shares in MasterCard. Adjusted for these effects, the segment has achieved an operating profit of EUR149 million in Q3 and therefore is continuing the profitable growth path. Compared to the third quarter of last year, PC increased the operating result by almost EUR30 million. Net interest income in PC excluding the positive one-off item was lower due to the consistently low interest rate environment. Nevertheless, our growth trends in the residential mortgage business remains intact. After nine months of 2015, we have made a new business - we have made new business in mortgage loans by more than EUR9 billion. Thus, the overall loan book grew by 2% versus the previous quarter and 8% on a year-on-year basis. The consumer loan business is developing very positively as well. We almost doubled the new business in consumer loans to more than EUR500 million compared to the third quarter of last year. Despite summer seasonality, net commission income remained stable. In the branch based business, we have again increased the level of assets in premium and managed account from 44% to 46% in the third quarter. We continue to be well on track delivering on our strategic target to gain customers and market share in the German retail business. With additional 87,000 net new customers in Q3, we have already gained 753,000 net new customers in 2012. Accordingly, we are well on track of our 1 million customer target by the end of 2016. And Mittelstandsbank is show on pages 10 and 11; we have seen an almost stable operating performance in Q3, driven by one-off item and CVA/DVA effect. The operating results decreased to EUR216 million. Revenues from our underlying client base have remained almost stable in the low interest environment. This general picture is burdened by a quarterly net CVA/DVA movement amounting to minus EUR47 million, due to the softer macroeconomic environment. In addition, we saw a negative revenue effect of minus EUR41 million quarter-on-quarter from the impairment on an equity holding and technology service provider. Revenues in our domestic German Mittelstands business slightly increased versus Q2. This was driven by higher net commission income in the light of increased currency hedging and corporate finance activities of our client. On a nine month basis, we have seen an increase of lending volumes by 4% in Germany, while margins remained stable. Revenues from our business was large and international client was significantly burdened in Q3 by the one-off item and the CVA/DVA effect already mentioned. While loan volumes increased by 2% compared to the previous quarter and by 9% on a nine month basis, we saw pressure on NCI due to the lower hedging activities from our client and the subdued NII resulting from lower margin. In the financial institutions business, revenues from client business remained almost stable due to our strong market position in the trade services. Loan volumes decreased compared to Q3, mainly due to the economic slowdown in the BRICS countries, furthermore the active derisking on the Russian portfolio led to a significant reduction of EUR1.7 billion in the last three quarters to remaining exposure at default of now EUR4 million in Russia. Overall, the loan volume in Mittelstandsbank remained stable versus the previous quarter and grew by 5% compared to the nine month level in 2014. In Central and Eastern Europe, we have seen a further sound operational development at Polish mBank shown on slide 12. Revenues compared to Q2 rose by 10%, driven by active interest margin management as well as a sound net trading effect. The higher revenue base and well managed expenses led to a significant increase in operating result by 45% to EUR93 million. mBank continued its growth path and again showed a strong performance of net commission income in the first quarter, which is benefitting from the cooperation with AXA. The loan volume with corporate as well as deposits with retail and corporate clients could be further increased in Q3. After the first nine months of 2015, CE achieved sound operating return on equity of 19%, annual return on tangible equity of 23%. Even excluding the positive one-off effect from the sale of mBank’s insurance business in the first quarter, the return on tangible equities stand at 19%. Let me spend a few words on the political development in Poland after the elections on October 25. There is still uncertainty with regards in the political initiatives on converting Swiss franc mortgages to Polish zloty and in new banking tax which may led to potential material burden for our Polish subsidiary mBank. We will continue to monitor closely how the new government will proceed with these initiatives and what it means for mBank and Commerz. From that perspective of today, I cannot give you any new assessment on the situation in Poland. In the meantime, the Polish regulatory has set increased capital targets for Polish bank [ph] with Swiss franc mortgage portfolio. mBank has already communicated that its current capital position remains strong and exceeds the legal criteria and recommendations of the Polish regulatory even taken into the account the latest additional capital requirement. Let’s carry on with Corporates and Markets on Page 13, which was significantly affected by concerns over global growth in line with the general industry trend. This additionally weighs on the seasonally slow third quarter. The operating result in Q3 further declined to EUR32 million excluding effects from OCS and net CVA/DVA. The client activity in Corporates and Markets was affected by increased uncertainty in September in addition to traditionally slow summer quarter. This resulted in very weak primary issuances and certain trading activities. The challenging market conditions were felt in all three divisions; corporate finance, equity markets and commodities and fixed income and currency. Loan loss provisions and expenses in Corporates and Markets remained stable in Q3. We booked restructuring charges of EUR7 million for the segment to further streamline our back-office operation in the New York branch. In this context, we are leveraging the back-office infrastructure for Corporate and Markets as we are currently setting up operations in Central Eastern Europe as part of our center of competence approach. On the following page 15, we can have a look at the risk profile of the core bank. We managed to further decrease the non-performing loan ratio in the core bank to only 1.3%, which is a further proof of our ongoing good portfolio quality. Our default portfolio in the core bank was again reduced compared to the last quarter and now stands at below EUR5 billion, which is another sign for our good risk profile. With the low LLP level of only EUR72 million in the core bank, we continue to benefit from the robust condition of the German economy and the benign phase of the credit cycle. This trend is underpinned by the cost of risk in the core bank which has declined from 14 basis points to 9 basis points over the last three quarters. We show the P&L development of our non-core asset units on slide 16. NCA achieved positive operating result of EUR13 million significantly benefiting from valuation effect in public finance. In the last quarter, we sold sizeable Commercial Real Estate portfolios and our restructuring transformation in Ship Finance. Those transactions were successfully closed in Q3. The Commercial Real Estate transaction has resulted in the loan loss provision of EUR51 million in Q2 for this portfolio. This explains the positive quarterly swing in loan loss provisions in the third quarter in NCA. Due to the accelerated asset run down we only expect slightly positive revenues from the underlying loan portfolios in the division going forward, which of course remain subject to valuation effect. I would like to continue with the successful reduction of our non-core assets on page 17. We managed to run down the Commercial Real Estate portfolio byEUR4 billion exposure at default compared to Q2. As envisaged, this revenue decline was to a large part driven by the sale of two portfolios of Commercial Real Estate loans totaling EUR2.9 billion in the second quarter. The volume effect of these sales were lagging and have materialized in the third quarter. Furthermore, we have also run down our Ship Finance portfolio by EUR1.1 billion or 10% respectively. We achieved this reduction without tailwinds from material FX effects on the Ship Finance run down in Q3 due to the more stable euro/dollar development. Ship Finance now stands at EUR9.7 billion at closure at default as single digit billion number for the first time in this division. At this point, I would like to highlight that three years ago the shipping portfolio still amounted to EUR20 billion, which means that we have more than half at this time. This reduction has been managed throughout the most severe crisis in the industry as experienced and it does not show material signs of recovery. On the same period, we have significantly derisked this portfolio. We have decreased NPA book in Ship Finance by 66% from EUR4.1 billion to EUR1.8 billion today and almost doubled the LLP coverage ratio excluding collateral and the non-performing loan book from 30% to 56% as of Q3 2015. Overall, the exposure at default of Commercial Real Estate and Ship Finance adds up EUR22 billion as of Q3. In the last three years, we have run down NCA by EUR92 billion with special focus on reducing the high and medium risk classes in Commercial Real Estate and Ship Finance in a value serving manner. This has been very successful. Today, large part of the asset which remain in our non-core units are still non-strategic, rather as well not problematic. The way how we will treat these remaining assets going forward is something that we are currently discussing in our management team. The non-performing loan ratio was reduced from 7.1% to 4.5% compared to the last quarter mainly due to the sale of EUR0.7 billion non-performing loans of German Commercial Real Estate in summer. The default volume in NCA now stands at EUR3.1 billion comparing with EUR6.8 billion one year ago. Page 18 highlights development of our risk weighted assets in Q3 2015. Group RWAs marginally decreased by EUR1 billion in Q3. Risk weights for market and operational risk have remained stable versus the previous quarter. On page 19, you can see the development of our regulatory capital leading to fully phased in Core Tier 1 ratio of 10.8. In the light of our comfortable Core Tier 1 ratio and reflecting the business development year-to-date, we have made a dividend accrual of EUR0.20 per share after nine months of 2015. From today’s perspective, this is the full year dividend amount that the board plans to propose always provided that there will be no material negative surprises in the fourth quarter. With the 10.8% Core Tier 1 fully loaded ratio, we have increased the ratio by 150 basis points since year end 2014. This ratio includes the effects from our capital increase in Q2, our regulatory deduction items and the dividend accrual of EUR0.20 per share after nine months. This means that we have already achieved our capital ratio target of more than 10% in 2016 organically even if the positive effect from the capital increase of around 70 basis points. Taking a closer look at the regulatory capital deduction items, we have a positive effect of EUR0.3 billion in the IRB shortfall due to the reversal of temporary effects from the previous quarter. This is a lagging effect of the sale of the Commercial Real Estate loan portfolio in Q2, effect on capital [indiscernible] and the revaluation reserve and the currency translation reserve to level out in Q3. Our leverage exposure, as shown on slide 20, has remained almost flat in the third quarter. Due to the increase in regulatory capital, this has led to a fully phased in leverage ratio of 4.1% at the end of Q3 2015. This is already above our target level of 4% for the year end 2016. To conclude, let me provide you with our outlook for the financial year 2015 on page 21. First, we will continue on our growth track in the core bank and aim to further grow revenues and market shares by expanding our customer and asset base. Second, we expect loan loss provisions of less than EUR0.9 billion for 2015 with lower LLPs and NPA as well as at the core bank. Third, we expect expenses to be slightly above EUR7 billion excluding the European bank levy. Fourth, we expect the Core Tier 1 fully phased-in ratio of at least 10.8% at the end of the year. From today’s perspective, we are planning for a dividend EUR0.20 per share for the full year 2015 and has already accrued the full amount as of the end of the third quarter. Having said that and already looking ahead of the last quarter of the year, we of course have to keep in mind that Q4 is traditionally the weakest of the year due seasonality in revenues as well as higher loan loss provisions. Last, from today’s perspective, we remain on the right track on our operating business. As I can imagine, the booking of further restructuring charges of the mid double digit amount and as well possible further tax burdens also in Q4, I would rather expect significantly lower positive net result for Q4 2015 compared to Q3. Let me sum up the last nine months. We are on track, we have shown a steady progress and further strengthening our market position by gaining clients and market share. In addition, we have continued to significantly run down our non-core assets and strengthen our capital ratio. Ladies and gentlemen, thank you for your attention, I am now looking forward to your questions.

[Operator Instructions] The first question comes from Britta Schmidt, Autonomous Research. Please go ahead with your question.

Yeah, hello, good morning. I have a question regarding the non-core asset unit. Obviously given the size of it, I guess you hinted at this as well, the decision will be what to do with the remaining assets whether to reallocate them to divisions. Can you just remind us how easy it is to pull up the cost base, what part of the cost base is NCA, it’s just reallocation of centers and other costs and how quickly could cost savings occur if you were to reallocate the division? And then secondly, can you give us an update on how you are thinking about potential Basel IV impact?

Yeah, good morning. NCA cost base and cost savings, I think in general terms there are two parts of the cost base. One is connected to the very legal structure of Eurohypo. That is something which we can collect and then there is still a good part of the cost base which is just linked to the portfolio, so managing ships or managing public finance or managing real estate provides a certain level of cost regardless of whether you do it in the legal entity or Commerzbank AG or your hypos. So yes, there will be a positive effect, but it will not go down to zero. Basel IV, in general terms, I think we still don’t have a real good grip on what Basel IV really will mean in total. All I think we can refer to right now is a number of studies from the outside which has been done by several analysts and we can see that is that if you compare asset class by asset class that we tend to have at least mid-field or slightly more conservative RWA assumptions in the rest, so whatever happens I am sure that I won’t be an outlier in comparison to the total industry.

Okay, thanks.

The next question comes from Heiner Luz, Goldman Sachs. Please go ahead with your question.

Hello, I’ve got two questions. Like the first question is also on your non-core asset unit. If I look at the public finance part of it, your risk weight goes up quite a lot sort of quarter-on-quarter, sort of you have 3 billion more. Can you give us some sort of idea of how you expect the risk-weighted asset then there to further to progress and give us maybe a bit more granularity, what is sort of the underlying assets in there, particularly given you consider sort of collapsing them and I always was under the impression that that’s a very long running thing with a negative carry. And the other thing is, looking through your business, I know you look at trading and NII combined, but if I only look at NII and strip out the special dividend from currency statement that you booked in NII, you seem to have sort of a consistent very strong negative trend with rates staying low. That seems to get tougher and tougher to offset. So if you look at core revenue what are sort of the additional initiatives you would be thinking to do to counter this?

On public finance, you are right, there is an increase of total RWA and that is mainly driven by a new treatment of EU regional government and local authorities according to EBA publication, so it’s not a change of risk to entity, it’s just additional risk weights that need to be reflected following the latest EBA publication on that matter. Trading and NII, we have - specifically this combined on corporates and markets and you also need to apply that on treasury, because the account treatment does not necessarily provide for a good comparison. You can look at NII on a segment by segment basis in PC and MSV and the likes. In general, it’s pretty clear that the negative interest rate environment is a burden especially on the deposit side and that has been tackled by a number of measures and as you may see, if you compare the numbers we have seen good loan growth, which is obviously part of the comparison strategy.

Okay. And in that context, you basically took restructuring expenses of EUR28 million in the quarter, given sort of the relation of sort of the costs and your revenues, wanted to suggest that sort of probably substantially more to be done to get that back into more balance. Should we expect that to be a subs of substantially more restructuring expenses to come or is this just you feeling, okay, let some smaller items or so it’s just sort of would you be sort of looking at cost cuts going forward again.

As we've said before, we're looking constantly at possible increases of the efficiency and we deal with these locally item by item. And in that sense, as I said before, we should expect probably a double-digit million amount in Q4 as well, but we are not necessarily going for the one big program as we have said for all the previous quarters. We more believe in a consistent approach that needs to be present. In some cases, it requires the booking of restructuring churches, a lot of the efficiency gains which we have seen throughout ‘15 without any specific restructuring charges, but whenever we basically shut down allocation, then the likelihood of booking restructured charges rests behind.

Okay. Thank you very much.

The next question comes from Johannes Thormann, HSBC. Please go ahead with your question.

Good morning, everybody. Johannes Thormann, HSBC. Thanks for taking my questions. First of all, could you indicate a bit more if you just hinted at additional tax charges, on what level the 2015 tax rate could come in and could you give us an outlook for the upcoming years. Secondly, how sustainable is the current loan loss provision level in the core bank as well as on group level, because also NCA came down quit drastically? And last but not least on CEE, we see massive cost swings at the unit, which is partly [indiscernible] but still also partly difficult to understand and could you shed some light on it and also in respect of upcoming - potential upcoming 39 bps Polish banking? Thank you.

Yeah. Tax rate 2015, I think you need to keep in mind that already in Q1, we had a substantial one-off when we booked 110 million DTA write-off and we had the adjustment in Q3. In general terms and tax forecasting especially on the IFRS is not necessarily an easy - has been an easy task. I would guess that the tax rate for the full year should be somewhere between 35% and 40%. LLP, from today's perspective, I would think that is in that reliable to a certain extent, but at least sustainable, I guess as long as the interest rates are as low as they are, we will probably see not too much of a change. At least we do not have any indications which regard to that from that perspective. Definitely not for the core bank and even for NCA in the perspective of the level that we have seen so far, we are mainly talking about shipping here. I would expect not any real change going forward. CEE, if you compare cost numbers to previous year, you need to keep in mind that we have also the bank levy in there or the other stuff and going forward as I said before, it remains to be seen what exactly the new Polish government will decide on the various items that have been discussed throughout the election campaign. I think that's just too early to tell.

Please allow two follow-up questions. First of all, the tax outlook for ‘16 and ‘17 again, and what's your current view if it’s only the 39 bps banking tax, would you still expect the Polish unit to be profitable in ‘16 and following years?

Tax forecast in ‘16 and ‘17, I would like in previous years assumed that we are probably slightly below the normal German top tax rate, which is 31%, so I think 25% was what the market generally used. I would think that should still apply for ‘16 and ‘17. Again, the 39 basis points discussion, the question is, is it on assets, is it on liabilities on which asset, on which liabilities, what will be the possible countermeasures and so on and the like. So again from today's perspective, I would rather refrain from making forecasts, but I don't think that, let’s put it this way, I don't think the intention of the Polish government is to put all things into negative returns because that obviously is something that they will not come to the help anyway.

Okay, thank you.

The next question comes from Benjamin Goy, Deutsche Bank. Please go ahead with your question.

Yes, good morning. Two questions please. The first one on your capital, operational risk RWAs remained stable Q-on-Q, so I assume there was no negative effect from industry litigation settlements. Is it something that could still occur in Q4 or next year or is it something that you kind of have discussed with your regulator and your auditors and you agreed basically because of the industry topic and it doesn't affect you, there shouldn't be a negative affect going forward? And the second one is on shipping, just to clarify, it sounds rather positive the trends or slightly positive in a difficult market, but just to confirm it's still all the old stock, so you haven't seen any new NPL inflows from shipping exposures in Q3? Thank you.

RWAs on op risk, indeed, that is basically or mainly something that follows an external database, which needs to and does reflect industry litigation and as you perfectly guessed, nothing too much happened in this database, so we weren't affected at all. If and what happens if something end up into this database, unfortunately, it is a little bit difficult to predict. From today's perspective, I wouldn't necessarily expect too much to be happening in Q4. What happens next year remains to be seen in all honesty. Shipping, basically what you ask is have we seen no inflows into the NPL book, we have seen some inflow, but we have seen some outflow, you have seen the 1.1 billion that we sold throughout the quarter. In general as I said, the prices in the industry basically is, as it is for the last two, three years with some slight ups and downs, we have always been regarded as being rather bearish on this thing and I think we still have no reason to be bullish on this portfolio. But as I said before, we have been very successful in running it down and I think we are well covered.

Thank you.

The next question comes from Guillaume Tiberghien, Exane BNP Paribas. Please go ahead with your question.

Hi. It’s Guillaume Tiberghien at Exane. I have a question on the dividend. Given that you're at 10.8% fully loaded and you said that you expect Q4 to be at least stable, I was wondering why you decided already now to give indeed the first dividend for long-term but still a low dividend. Why not wait until Q4 to see if you can give more? And the second question also on the dividend, given the level of capital that you have today and at your end, is it really stick to expect already next year to have maybe your medium term payout policy at 40% or not and if not, is it because of Basel IV that you can't commit so early?

The reason why we wanted to show the full dividend accrual in Q3 is so that we could without any doubt make the point that we have achieved our original 10% capital goal for 2016 already now. Even if we did that so to speak, the full dividend that we want to propose as well as deducting the capital increase from this year. So I think that was clearly one of the main reasons to be a little bit early on this. And as I said, 20% is what we want to propose and I think to start with that, it’s a definitely okay-ish dividend. With respect to the payout ratio, I think mid-term is a little bit further away than already next year, in general terms and as we have also said before that also keeps Basel IV in mind to a certain extent, we will have to check and adopt the policy if necessary if the regulatory environment really changes, but for the time being, mid-term is 40%.

Okay, thank you.

The next question comes from Riccardo Rovere, Mediobanca. Please go ahead with your question.

Yes. Good morning to everybody and thanks for taking the question. Just one question from my side, still again related to Basel IV, let’s assume Basel IV brings some risk weighted asset inflation, but you still consider 10% as a minimum requirement and would be okay. So if the impact had to be more than the 80 basis point buffer that you have on 10%, that could be a matter of concern for you. And still on this topic, you would - roughly 4% leverage ratio, do you feel that confident that it is a matter of discussion this number with the regulators, they want maybe a higher number than this one and last thing if I may would you please confirm or not that you use the BMA for operational risk? Thank you.

Again on Basel IV, we need to wait until some more light is shed on the different versions and possibilities that the regulators are discussing that from all the studies, as I have said before, I feel that we are at least not atypical to the industry. My impression is we are probably even rather a bit more conservative and I think once we all know what exactly Basel IV is going to look like, we will all need to revisit and check with our business models and then find out how we can adopt to the new world in a possible way. Leverage ratio, the 4% goal for 2016, again here, it remains to be seen what the regulator do envisage for this number. My guess is that they will come up with some new information once they have put the whole package together for the time being. We keep on growing the leverage ratio and I would expect it also to develop positively overtime. It moves a little bit slower than the capital ratio as we all know, but it’s clearly something that we have focused and on the operational risk, yes, I can confirm that we use the so-called AMA database.

Okay, very clear. Thank you very much.

The next question comes from Anke Reingen, RBC. Please go ahead with your question.

Yes. Anke Reingen from RBC. Just two questions please. The first is on your disclosure on the corporate portfolio by sector, why you show the backward energy and environment, where the exposure default has remained unchanged quarter-on-quarter but the risk then is actually declined which I find a bit surprising. So I just wondered maybe I’m misreading the data. And secondly just on your - the benefit of the valuation gains and non-core assets, if you can give us some sort of indication, would have been flat year-over-year without the benefit? Thank you.

Sorry, can you repeat the second question? Sorry.

Just an indication about the benefit on the valuation gains in non-core asset revenues please.

Okay. On the energy and environment part, that is basically due to the rating change of one of the clients. That is something that you will most likely see disappear in the next quarter, so that is nothing too dramatic. And always it’s a little bit subject to defaults and the rating update. Valuation gains or losses in NCA, as you have seen over the quarters, we have been some volatility and I think in general, we probably have currently a slightly positive number, whether that will remain is, as I said, since it is subject to volatility, impossible to get.

Okay, thank you.

The next question comes from Paul Fenner-Leitao, Société Générale. Paul Fenner-Leitao: Hi, good morning. Can you hear me?

Yes. I can hear you. Paul Fenner-Leitao: Hello. Yes. Thank you very much. Thanks for taking my question. Very briefly, I wondered if you can just give us an update on whether you intend to issue any subordinated debt, in particular, additional tier 1 securities any time this year or early next year, a little behind other sizeable national champion? Thank you.

In general terms, I think what we have already said in the previous calls that we are watching these markets very closely. If we believe that there is a window of opportunity, we may or may not issue such paper. I guess you will then if it comes to that respective announcement and prospect.

There are no further questions left.

Thank you very much. I wish you all a nice few weeks to what year-end and I guess we’ll talk to each other pretty soon. Thank you very much.