Good morning. This is the Chorus Call Conference operator. Welcome and thank you for joining the UniCredit Group First Quarter 2020 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Jean-Pierre Mustier, Chief Executive Officer of the UniCredit Group. Please go ahead, sir. Jean-Pierre Mustier: Thank you very much. Good morning to all of you and welcome to our analyst call for the first quarter 2020 results. Before we start, let me make a few introductory remarks. This quarter was not a normal one for us or anywhere else. The COVID-19 pandemic that is currently sweeping the globe has turned the daily lives of most of us upside down. It has resulted in health care system of nation states being brought to their limits, sometimes even beyond them. It has resulted in human tragedy and economic disasters for individuals or small business, and it will have a profound impact on the global economy and may change forever the way we live, work or interact. And this is true as well for UniCredit and our stakeholders. As a result, this presentation will look different from our usual quarterly presentation. For the first quarter 2020, we have added several pages dedicated to COVID-19 and the profound effect it has had on our group and on all its stakeholders. As we start a new financial reporting cycle, we have also simplified and streamlined the core part of the presentation. The overall deck contains the same information as before, but some of it has been moved to annexes or the divisional database. So moving on to the results. We had an excellent start to the year with commercial revenues up significantly. The performance in the first two months allowed us to close the quarter with commercial revenues up 0.1% year-on-year despite the COVID-19-induced slowdown visible from mid-March. As per our CMD19 guidance, there were some nonoperating items in the quarter such as the transaction reducing our Yapi stake as well as the integration costs in Italy. As a result, we have a stated net loss of €2.7 billion, while the underlying net profit is close to breakeven at minus €58 million. Our capital is a very strong. Our CET1 MDA buffer strongly increased to 436 basis points even after absorbing almost €1 billion of impact from the update of our IFRS 9 macro scenario. The core pillar of Team 23 plan will remain our strategic priorities. We will be updating the strategic plan and present our new assumptions when the environment stabilizes at a Capital Markets Day towards the end of this year or early next year. As I said in the beginning, this was an unusual quarter, and we adapted the presentation to the situation. For information no longer in the core document, please go to the Annex, where we have also added information on our ESG positioning. Let's turn to Slide 4. These are key financial figures. Mirko will give you more details about these later. Our capital saw a sharp improvement with an end-of-quarter CET1 MDA buffer of 436 basis points, up 124 basis points quarter-on-quarter and 218 year-on-year. Mirko will give you the details later. As you would be expecting, on top of the additional LLPs from the IFRS 9 macro, the P&L this quarter saw some impact from COVID-19 on revenues. They were down almost €500 million in the quarter. A large part of that is explained by nonrecurring items that are not linked to the operating profitability of the group. Examples include quarter-on-quarter changes in XVA for almost €175 million negative, nonrecurring valuation adjustment on participations like Visa for a total of €65 million negative or swing in the balance of other income, including Ocean Breeze, for a total of €120 million negative. Also, dividend went down quarter-on-quarter following our disposal activity such as Mediobanca. Our balance sheet asset quality remains strong with our gross NPE ratio below 5%, at 4.9%, for the first time in many years. Let's turn to Slide 5. UniCredit was a pioneer in terms of responding rapidly to the challenges posed by COVID-19. We put and will continue to put the safety of our employees and clients at the heart of everything we do. We were the first in Europe to close branches in a major way, starting in Italy. In branches remaining open to support client at this time of need, we immediately provided protective equipment, including mask, hand sanitizer and protective screens. The majority of UniCredit team members rapidly transition to working from home with stable and secure access to all our system. Thanks to this initiative in Italy, we were able to share best practices quickly with all the other countries where we operate, significantly improving our integrated response across every geography. Our IT teams are doing an outstanding job supporting group-wide working-from-home setup. In a few days, we were multiplying our remote capabilities by 15 times and secured 8,000 laptops before the worldwide rush to snap up such equipment. We have done our very best to support all our stakeholders in this unprecedented situation through various actions. We supported the frontline fighters in the war against the virus by sourcing and distributing protective equipment and respirators to hospital and also carrying group-wide fundraising activities. We also proudly sponsored the question of the first prototype of the so-called CURA pod; which is an open-source project to create plugged-in intensive care units, ICUs, in converted shipping container. And I and the top management waived our financial year 2020 variable remuneration and donated the proceed to the fight against COVID-19. Thanks to the incredible commitment and hard work of all our team members, we have remained fully open for business. We have continued to support our clients in these challenging times. We have completed numerous transactions for multinational corporates, raised funds in support of government agencies in their fight against COVID-19 and worked with clients' supply chain to help stabilize cash flow for SMEs. We have also helped our own suppliers in a similar way. Let's move to Slide 6. Over the last three months, we have made more progress in our digital transformation than in the last three years. Our ability to do so is thanks to the significant investment made in our digital and mobile capabilities as part of Transform 2019. Our customers have rapidly and increasingly embraced digital solution. Active mobile users are up 27% year-on-year, while digital sales as a percentage of total sales increased by 47% in the same period. This crisis has structurally changed client behaviors for both individuals and corporates. The adoption of multichannel is accelerating and represents an opportunity to accelerate changes, leveraging on investments made in mobile banking, call centers, internet banking and paperless branch. We will reallocate our investment priorities for IT and staff training to support such an evolution. Let's move to Slide 7. We were the first bank in Italy to offer moratoria to our clients affected by COVID-19, well before regulations were put in place. Following in our footsteps, many governments have now introduced moratoria by law. In total, we have provided €28 billion of loans under moratoria. We work closely with all government agencies involved in COVID-19-related loans backed by state guarantees. In total, we have provided €1 billion of loans backed by state guarantees so far. Guarantee processes have only recently been put in place by different administrations. UniCredit was the first bank in Italy to close a guarantee under SACE scheme, and we expect the number to increase meaningfully in the coming weeks. Talking only for UniCredit, we expect the biggest volume to come from Italy. We expect to reach around €15 billion of guarantees in Italy. Such guaranteed loan will provide much needed liquidity to clients and help face them of this unprecedented situation and consequently will positively impact our cost of risk. Let's turn to Slide 8. Our strategy is, and will remain so, to be a simple, successful pan-European commercial bank. This lends great resilience to our business model. We have a strong presence in our 13 core markets in Italy, Germany, Austria and CEE, where the expected impact of COVID-19 is markedly different. We are fully focused on delivering efficiency services to our 16 million clients, even more vital in this current operational environment. Our geographic and business diversification provides stability not only in the current environment. And thanks to our strategic investments, we're accelerating our digital transformation. Let's move to Slide 9. We have and will always be focused on disciplined risk management. We clearly demonstrated this during Transform 2019, and it remains a core principle of how we do business. We took decisive actions in order to do the right thing to safeguard our shareholders' capital. To mention just a few examples, we reduced our BTP holdings by more than €10 billion year-on-year; we prefunded most of our TLAC subordinated instruments early this year; we accelerated our noncore rundown and reduced gross NPEs by more than half while significantly increasing coverage; we sold non-strategic assets, such as stake in Yapi, all our holdings in Fineco and Mediobanca as well as real estate in Germany, for a total of more than €7 billion. And with 20/20 hindsight, we chose a good time to do so. We shall keep that discipline going forward. There is no COVID-19 impact on our underlying cost of risk yet. This is expected to evolve during the year, and we'll give you more details later in the presentation. Now let me hand over to our Co-CFO, Mirko Bianchi. Mirko, all yours.

Thank you, Jean-Pierre, and good morning to everyone. We had a strong start to the first quarter with excellent commercial performance in January and February. Then, during the course of March, sales activity started to decline with the advent of COVID-induced lockdowns in all our countries. Our revenues are down €472 million or 9.7% quarter-on-quarter, of which, as Jean-Pierre said, €390 million are due to some nonrecurring items not linked to operational profitability of the bank. Trading is down €300 million, of which minus €174 million from XVA and minus €65 million from nonrecurring valuation adjustments on participations like Visa. Dividends are down €31 million due to disposals such as Mediobanca. Balance of other income and expenses is down €120 million, mainly from Ocean Breeze disposal. Our costs continued to trend down, as in Q1. COVID-related operational expenses remain marginal. Let's turn to Slide 12. Below the line, in our nonsystemic risks and charges, it was a straightforward quarter. With regards to integration costs, we closed our Team 23 negotiation with the Italian trade unions as planned and consequently booked the integration costs after CMD19 guidance. Let me remind you that we closed two transactions in Yapi shares during the quarter. Taken together, they took our indirect ownership of 41% to a direct ownership holding of 20%. This changed our regulatory consolidation from proportionate to at equity. As a result, we no longer consolidate the pro rata risk-weighted asset of Yapi but deduct the equity stake from our CET1 capital. The net impact of the transactions was plus 58 basis points in core Tier 1 ratio. The P&L was affected mainly by the reversal of the negative FX reserve through the P&L, which was capital neutral. There were also some transaction-related expenses. Finally, we changed the reporting – segment reporting of the Yapi stake from CEE to group Corporate Center as it is now a nonstrategic investment. Taxes in the quarter were negative, almost entirely driven by a taxable gain on real estate in Germany. The normalized tax rate in the quarter was close to zero. Let's turn to Slide 13. Let me remind you that our last CMD in December, we introduced the concept of underlying net profit. This was done for strategic reasons. We wanted to ensure that the relevant and true profitability of the bank is clear and to show how it evolves. To calculate underlying net profit, we exclude nonoperating items from stated net profit. This quarter, as per guidance, we had a total of negative €2.6 million of nonoperating items that were excluded. Details can be found in the Annex at Page 49. As you can see from the profit distribution across the group, we have a diversified business model. The performance of CEE stands out and underlines that this division is an important driver of the diversification and profitability of the group as it contains many countries with a strong contribution such as Romania. The post-tax impact of the IFRS 9 macro update additional group-level impairments was €902 million. Without this, the divisional performance would have been different and underlying group return on tangible equity would have been 6.5%. You can see the details in the footnote on the page. Let's turn to Slide 14. Net interest income in the quarter was down 0.5%. The main driver of this were the customer loan rates, which contributed a negative €48 million in the quarter. Half of that is due to lower base rates in CEE, while the other half is driven by competitive pressure in Germany. There was also a tax-related positive one-off in Germany, which contributed plus €50 million to NII. And finally, let me remind you that the first quarter days effect was lower than usual because 2020 is a leap year. Let's turn to Slide 15. Fees were up 5.2% year-on-year. The foundation for this strong performance was an excellent commercial start to the quarter in January and February across a number of areas. Commercial Banking Italy had one of the best first two months ever in terms of investment fees. CIB had one of their best quarters in debt capital markets. Post mid-March, COVID-19 has had a strong impact on a number of key categories. Gross AUM sales in the last two weeks of March, for example, were down low- to mid-double-digit percentage points depending on geographies. Levels in April had only recovered somewhat. Let's turn to Slide 16. Overall trading income in the first Q 2020 was €165 million, down €300 million quarter-on-quarter. We saw a solid performance in equities and commodities with an increase quarter-on-quarter of almost €50 million, which was more than offset by XVA. The client-driven trading income, excluding XVA, was only down €103 million quarter-on-quarter, €65 million of which was due to nonrecurring valuation adjustments such our stake in Visa. For the other trading income, which was down €23 million quarter-on-quarter, there was a mid-double-digit impact from mark-to-market losses on government bonds from treasury positions. These are expected to recover fully. The dividend line went down following the disposal of our nonstrategic stakes in Mediobanca and Yapi. While this will result in lower dividend income in the future, the disposals strengthened our balance sheet and put us in a position of strength as to face COVID-19. Let's turn to Slide 17. Costs continued to trend lower both quarter-on-quarter and year-on-year. In the first 2020, we regained some of the fourth Q 2019 seasonality. As we said at our Capital Markets Day in December, Team 23 is more about bottom-up process optimization. As a result, our cost efficiencies will be more back-end loaded to offset cost inflation, leading to overall flat costs over the planned period. These savings will be – will fund the necessary IT spend over the plan period. COVID-19 had so far a limited impact on our cost base. Year-on-year, we had €5 million less of travel expenses largely related to the current situation, while in the quarter, we had €12 million in extraordinary COVID-19-related costs of branch refitting and remote working. Let's turn to Slide 18. As you can see, our underlying cost of risk at 29 basis points is so far unaffected by COVID-19. We are even below our previous guidance of 34 basis points. Cost of risk is, as previously announced, estimated to be in the range of 100 basis points to 120 basis points for the full fiscal year 2020. This will be a combination of the IFRS 9 macro update loan loss provisions we took this quarter and the expected recognition of sector and specific loan loss provision throughout the year as risks materialize. The latter are likely to occur towards the end of the year once the moratoria expire. There were essentially no regulatory headwinds in the quarter. Let's turn to Slide 19. Since the introduction of Transform 2019, our loan origination is expected loss driven. You can see the impact of that on the left-hand side, where the expected loss of new business is below the expected loss of stock for all periods. Also, both numbers steadily decreased over the quarters. Last year, we made an extra effort in light of the late business cycle and focused on new business on the best rated clients. The result can be seen in the right-hand side, more than 70% of new origination and more than 60% of the stock had an expected loss below the average. Let's turn to Slide 20. The shape of COVID-19 trajectory with regard to GDP remains unknown with different expectations for each country. In Western Europe, we're only just entering the start of the lockdown exit strategies, and it is too early to tell how things will evolve. As an illustration, we have shown here for a Western European country two possible exit trajectories that defer by how long they remain at the low point of the lockdown. Our economists have estimated that an additional two months at the low point will cost six percentage points of GDP growth, which for Western European countries is massive. This is consistent with the latest commentary by the ECB, which expects Eurozone GDP to fall between 5% and 12% this year depending on the trajectory of the low point of the lockdowns and the speed of the removal of the containment measures. ECB's 7% delta between the trajectories is very similar to our 6% delta. As per sensitivity – as the sensitivity is high, it is of paramount importance that assumptions taken by the bank are realistic. Let's turn to Slide 21. In order to estimate the impact of COVID-19 on our cost of risk, we have taken the GDP assumptions that you can see on the left. We have applied them to our €485 billion credit portfolio, which you can see on the right. We have clustered the portfolio by GDP sensitivity and arrived at four segments from high to low impact. Only 10% of our loans fall into the high-impact category, and these are the sectors most sensitive to COVID-19 headwinds such as airlines, shipping and tourism. For more than half of our portfolio, on the other hand, we only expect a low impact, including for mortgages of private individuals. Let's turn to Slide 22. As a first step, for first Q 2020, we have updated the IFRS 9 macro assumptions with our GDP growth rates. In ordinary times, we do this only in the second and fourth quarter. But COVID-19 warranted an extraordinary update. Then we applied the updated macro assumptions to our performing portfolio, which resulted in higher probability of default and thus increased loan loss provisions. These provisions for our performing portfolio amounted to €902 million additional loan loss provision in the quarter on our loans. You can see that while the high-impact portfolio comprises only 10% of our loans, it is responsible for 33% of the additional loan loss provisions. The low-impact portfolio, on the other hand, results in a comparable amount of loan loss provision but is more than five times bigger. Let's turn to Slide 23. For the full fiscal year 2020 cost of risk forecast, we started from the first quarter that already includes the additional provisions from our IFRS 9 macro scenario update and added both sector-specific overlays and the individual provisions that we expect later in the year as risks materialize. These will occur as exposures migrate down the rating scale and make get classified as nonperforming more often than not after moratoria expire. There will also be LGD effects. As you can see, total cost of risk is expected to be between 100 basis points and 120 basis points, including the IFRS 9 macro, while the regulatory headwinds contribute less than 10 basis points as [Technical Difficulty] into fiscal year 2021. As seen previously, also for this analysis, the high- and medium-impact segments generate over 54% contribution to cost of risk, reflecting our conservative approach to the provisioning. The provisioning for fiscal year 2020 takes into account the migration effects of the announced government measures. Let's turn to Slide 25. Our gross NPE stock for the group, excluding noncore, was stable in the quarter. Our gross NPE ratio stood at 3.4% on our own definition and 2.8% using the EBA definition. These are almost exactly matching the average of the EBA sample of European banks, which is 2.7%. Let's turn to Slide 26. The noncore rundown progressed well, even better than expected in Q1 that is traditionally a seasonally quiet quarter. Gross NPE in noncore were down €0.5 billion to stand at €8.1 billion. We are currently assessing the impact that COVID-19 will have on the NPE secondary market. We will update our noncore rundown strategy in due course. Let's turn to Slide 27. Our CET1 capital is at a very strong 436 basis points buffer over our MDA level. This is the result of two separate effects. On the one hand, we saw an organic increase of the absolute level of core Tier 1 ratio, thanks to the release of the fiscal year 2019 dividend and share buyback as well as lower risk-weighted assets from the change in prudential consolidation of Yapi. On the other hand, our MDA level decreased significantly, thanks to application of CRD5 article 104a for 77 basis points as well as our lower SREP P2R for 25 basis points. We expect to remain well above our target range of 200 basis points to 250 basis points CET1 MDA buffer throughout 2020. The recent changes from the revision of the CRR and the ECB's strong recommendations for the banking sector to use additional flexibility such as, among others, moving to IFRS 9 phase-in instead of fully loaded will bring additional improvement to the CET1 ratio in fiscal year 2020. On a transitional basis, this amounts to more than 0.8 percentage points, while on a fully loaded basis, more than 0.2 percentage points. Please note that there is a shift of around 0.5 percentage points of regulatory headwinds from fiscal year 2020 to fiscal year 2021 mainly following the flexibility rules recently published by the ECB in response of COVID-19, partially offset by the updated macro scenario. This is purely a time translation and does not change the overall amount. Let's turn to Slide 28. In line with the strong increase of our CET1 MDA buffer, our TLAC MDA buffer has increased to 391 basis points, well above our target range. This was driven by significant prefunding activity in the first quarter pre-COVID-19, when we successfully raised €4.5 billion of subordinated TLAC instruments at a very attractive level. Thanks to this, we have already completed close to 80% of the subordinated TLAC funding plan for fiscal year 2020. Let's turn to Slide 29. Tangible equity stands at €51.2 billion, more than €2 billion higher than a year ago. We took decisive reduction in the first Q 2020 to put the integration costs in Italy and the impact of the IFRS 9 macro update behind us. As a result, quarter-on-quarter, tangible equity decreased by €1.8 billion. This was driven by the €1.2 billion stated net loss, net of Yapi, and a decline in the revaluation reserves of €1.3 billion from FX and securities that was only partially offset by a €0.6 billion gain from the DBO. Jean-Pierre, back to you. Jean-Pierre Mustier: Thank you, Mirko. Before I conclude and we go to Q&A, let me briefly talk about the easing of lockdowns and what we are doing. As governments across Europe start to lift the restrictions, we're ready for the so-called Phase 2. Just as we demonstrated flexibility and speed when it came to the initial lockdown, we will apply the same principle in the coming weeks. However, we will base all our actions on scientific data, not dates. The safety of our people and clients remains at the heart of what we do. Remote working for central functions will remain in place for quite some time. Some of our people will be invited, not required, to come to the office, and we will listen and adapt to our people's needs. We are confident that in Phase 2, we should be able to open 90% of all our branches in Italy and Austria, followed closely by Germany. Thanks to our strong multichannel platform, we will continue to be fully operational regardless of how many branches are physically open. Let's turn to Slide 32. Before we go to Q&A, let me reiterate the three key messages of this quarter. First, our business model is diversified and resilient. We have pan-European scale, 16 million clients that bank with us, we're accelerating our digital transformation and we have a very strong capital base. These factors will help us ease the impact of COVID-19. Second, the core pillars of Team 23 strategy remain. We will be updating the strategic plan and present our new assumptions when the environment stabilizes at the Capital Markets Day towards the end of this year or early next year. Last but not least, we will continue to protect our employees, support our clients and contribute to our communities. This is also the best thing we could be doing for you, our investors. Once more, our interests are completely aligned. Before taking your question, let me extend my deepest thanks and appreciation to all UniCredit team members whose commitment, resilience and incredible hard work in this unprecedented situation as well as UniCredit to prosper, enabled us to do the right thing for all our stakeholder. May all our employees, clients and you, our investors, stay healthy and safe. I wish you the same for all of your loved ones. Now, Mirko, the rest of the team and I are ready to take your questions. [Operator Instructions]. Many thanks. Operator?

[Operator Instructions] The first question is from Francois Neuez of Goldman Sachs. Please go ahead.

Hi, good morning and thanks for the presentation. I would have, therefore, two questions. And the first one would be on asset quality in particular with a focus on your scenarios and reaction on the moratorium. So you're showing a balance of around €28 billion of moratorium loans, a 10,000-foot view on that could argue that once they lift, they could all become potentially or there is a risk that they don't return to – or they migrate to nonperforming. I just wanted to understand what's your strategy to make sure that this doesn't happen, and in particular, whether you think that there is a risk of nonfinancial, let's say, politically-driven action to make these loans maybe – or to extend this moratorium and make them less likely to become – to stay performing. And secondly, I just wanted to understand whether – the cost of risk trajectory that you've given. On the other hand, what is – would be the base case of the ECB GDP prediction. And my second question is on capital. Mirko has given some sort of update on the regulatory headwinds and potential delays, et cetera. I just wanted to understand what's included in there, in particular with SME discount factor, infrastructure discount factor and software intangible, et cetera, so the recently announced measures and also whether the previously disclosed headwinds, whether they change or not with regards to all of the measures that have been taken in order to understand fully the walk of the capital ratio going forward. Jean-Pierre Mustier: Thank you very much Jean-Francois. Jörg? Jörg Pietzner: Jean-Francois, so thank you very much for the question. And because we're doing this virtual for the first time, let me just see if I get this work. So I think the first one on asset quality and the moratoria, was to say, how are we thinking of the risk content of that? And what's our strategy to prevent that this will turn NPE once the moratoria lift? And as well as what's our view on any political actions for the moratory had to be extended? And then on the capital, the question was around regulatory headwinds. So what's included of the recent CRR revision measures such as SME supporting factors, software deductions, et cetera. And is our old regulatory headwind guidance that we gave at the Capital Markets Day is still valid. So with that, I'll give it to Jean-Pierre. Jean-Pierre Mustier: Thank you very much, Jean. Jörg? Jörg Pietzner: Yes. And so Francois, so thank you very much for the question. And because we're doing this road show for the first time, let me just see if I got this right. So I think the first one, on asset quality and the moratoria, was to say how are we thinking of the risk content of that and what's our strategy to prevent that these would turn NPE once the moratoria lifts as well as what's our view on any political actions so the moratoria had to be extended. And then on the capital, the question was on regulatory headwinds, what's included of the recent CRR revision measures such as SME supporting factors, software deductions, et cetera. And is our old regulatory headwind guidance that we gave at the Capital Markets Day still relevant? So with that, I give it to Jean-Pierre. Jean-Pierre Mustier: Thank you, Jörg. Let me make an overall comment. And afterwards, I hand over to Tj for most of the point. On the moratoria, we have taken specific actions on our side and then we applied as well the government request that came. We have €28 billion, as illustrated on Page 7 of the presentation. There's a specific case for the CEE of €7 billion. Also, €5 billion are in what we called, opt-out countries. In other words, in a specific country, the government ask to have all the loans under moratoria, and clients who don't want to be under moratoria can choose to opt out. So – I mean so clearly, create €5 billion of opt-out volume, and gradually, the client cannot opt out anymore. €2 billion in opt-in, so meaning the client choose to be in moratoria. Besides CEE, the biggest impact is in Italy, where we have the €19.4 billion, which comes from 100,000 clients. We have €3 billion of mortgages and €16 billion of loan to corporate. And investment to corporate, we more or less have 80 – €8 billion. So 80% of the €16 billion which are for corporate of good credit standing and 20% or more than €3 billion of corporates which are in the lower credit rating, so which might be a bit more sensitive, but Tj can elaborate a little bit more on that. Before I let Tj comment more on the moratoria, I just want to point out as well, and Tj can comment about it, as you asked, what could be the cost of risk evolution in the base case of the ECB that we are giving sensitivity of the cost of risk in evolution based on the GDP evolution. You can see that in the Annex basically. And Tj will comment about it, but the sensitivity at the current level of GDP is nonlinear, and for 1% of GDP is between four to six basis points, but Tj will get you for that later. And I will let Tj comment as well on the capital regulatory headwinds and the impact of the change of CRR. So Tj, all yours.

Thank you, Jean-Pierre. As Jean-Pierre already mentioned, for the moratorium, we have seen a leveling off, firstly, in terms of the number of requests. And already, Jean-Pierre has mentioned of the €19 billion in Italy, €16 billion is to corporate clients, 80% is good rating. So it's a good sign that a large part of the portfolio are in very good clients, and €3.2 billion of mortgages, the LGD is lower and these are really high-rated clients. So we are closely monitoring the evolution of that. And where they're eligible for government-guaranteed financing, we will clearly help them to do so. On the capital side, clearly we will use ECB flexibility rule. There's a time shift of close to 50 basis points from 2020 into 2021, and clearly we will monitor that. And we have not factored in the so-called SME supporting factor from our discussion with ECB. They're very constructive to ensuring that they do not add more even in terms of work burden or capital burden in this stage of the cycle. So thank you, Jean-Pierre. Jean-Pierre Mustier: Okay. Maybe just, I think, on the regulatory headwind capital impact, just to come back to the question of Jean-Francois, is the revision of the CRR and kind of anticipate a certain number of items I know we put on page four – I mean, there's some impact, too. So basically, the SME supporting factor for us, which should be anticipated in the second quarter, should be around 19, two basis points, basically. So that's something which was supposed to come later in 2021. And so it will come in 2020 on the second quarter. We have a certain number of other impact. The software exemption for CET1 adoption will be around 10 basis points as well, and that's anticipated probably for the third quarter instead of 2020, instead of the end of 2021. So these three factors, 30 basis points, which has an impact in terms of a fully loaded capital, are moved forward to 2020. There are a certain number of other items which have a low impact, and the IR team can comment about that, if you need, on a bilateral basis. But the ECB has been relatively vocal for asking for the banks, and it's more a phase-in issue, to shift the IFRS 9 into a phase-in rather than fully loaded, for those who are in fully loaded. And as you know, we always want to take the most conservative side, so we're fully loaded. So we will do that in the following quarters. And that does have an impact in 2020 of 52 basis points, but that's a phase-in level, which will be reduced by – to 25 basis points in 2021. So this is why on a phase-in basis, between SME supporting factor, software and IFRS 9, we have an impact which is above 80 basis points. And on a fully loaded basis for this year, we should be above 20 basis points but probably closer to 30 basis points. Jean-Pierre Mustier: The next question please.

The next question is from Alberto Cordara of Bank of America. Please go head sir.

Hi, good morning. My question is about taxes. I see that we have a profit before tax that is deeply negative and yet you've got a positive tax rebate. So if you can explain that d if's you can give us a bit of a guidance for what we should expect this year. Jean-Pierre Mustier: Okay. On the tax side, I will let Stefano maybe or Mirko comment on the tax impact and potentially guidance for the year. So Mirko?

You're right, in terms of the tax base for the first Q, the tax base in Italy basically got affected by the one-offs. So Yapi integration costs. So therefore, the taxes were driven primarily by the gains in real estate in Germany. So it's the sale of asset that we have done and a normal, let's say, tax rate in the industry. Yes, we gave a guidance in Capital Markets Day of 18% to 20%. At this point, today, there's not enough visibility for updating our previous guidance. So we're going to update as soon as we have better data in order to be able to guide you properly.

Thank you. Thank you very much. Jean-Pierre Mustier: Next question please.

The next question is from Adrian Cighi of Crédit Suisse. Please go ahead.

Hi, there. Thank you very much. Thanks for the presentation. I have two follow-up questions, one on cost of risk and one on capital. On the cost of risk outlook, you expect over 200 basis points cost of risk for Italy this year, more than double the outlook of some of the other peers in the same geography. However, you have one of the highest coverage ratios and have, over the last year, risk for the performing and nonperforming loan book in Italy. Given the inherently opaque nature of the risk profile of your loan book or any loan book of a bank, what reassurances can you provide investors that this isn't a consequence of some material difference in underwriting standards but it's just sort of a more conservative take on the outlook? And the second on capital. You wrote back the capital of 37 basis points CP from full year 2019 dividends. Does management still expect to pay the dividend as the base case economic scenario plays out and if the ECB allows it? Jean-Pierre Mustier: Thank you very much. Let me take the – that question and I'll give you some hint on the cost of risk, and Tj will comment as well. We will – on the dividend 2019, we will wait until the fourth quarter to see how the situation evolves and to see what is the ECB recommendation. So at this stage, we are in a wait-and-see position, and we will decide later in the year. On the cost of risk, maybe you're right to point out that we have one of the highest coverage of actually any GCC in terms of the LLP at the group level at 65%. In Italy, we have the highest negative GDP impact of anybody at this stage at minus 15%, which is an extremely strong impact and, of course, with an exponential impact when the GDP gets into more negative territory basically. And as you know, we want to be always extremely conservative in what we do, so this is why, I mean, we have, based on this minus 15%, the 200 to 240 basis points. But it's a natural evolution, if I may say, of the cost of risk because of the GDP evolution. These being said, to go back to your question on underwriting standard, and Tj can add more on that, we have shown in the presentation what we do in terms of the origination of the new business, and you can see in the page that we have originated new business on the mostly investment-grade category in the coming years, and it is translated into an expected loss which is actually much better the average expected loss of the portfolio. If you go to Page 19 of the presentation, you can see, for instance, that the expected loss on new business in the first quarter of 2020 was around 29 basis points while the expected loss on the stock of the portfolio was 36%. So we are actually working very hard to be very disciplined, and 72% of the new origination in the first quarter 2020 was with clients which are strongly into the investment-grade category. So the team has instruction and is working to make sure that we shift the portfolio toward a good credit. And it's not a first quarter 2020 action. You can see that in the past, in the first quarter 2019, we had expected loss on the new business well below the expected loss on the stock as well. So we keep having a very disciplined risk approach, and that should translate into an improvement, as you can see, of the expected loss of the portfolio, everything else being equal. I don't know, Tj, if you want to add anything else.

Jean-Pierre, thank you. I would add clearly, we're taking a very prudent approach to the cost of risk assumption. You're right that the cost of risk expectation is around 200 to 220 for Italy, as you can see in the annex of Slide, I think, 48. Just as a comparison, if we look back to 2008 and 2009 versus the current period, and here, like-for-like, clearly we strip out the so-called noncore portfolio. And there we have taken a look and see at that point in time between the 2008, 2009 the default rate went from 1.7% to 2.5%. Today, if you look at our assumption, the default rate in 2009 for Italy ex noncore is about 1.76%, and our expectation for this year in the prudent assumption is about 3.5%. So this is almost double. So clearly, we're definitely taking a very conservative approach to the provisioning, as Jean-Pierre has mentioned, and our asset quality has improved over the last few years with a very, very disciplined underwriting, as you have seen and expect it was like. Jean-Pierre Mustier: And as we've said, we gave you on Page 48 as well the sensitivity. So just let me be clear about the sensitivity. For any additional 1% growth in GDP, the cost of risk, group level, should increase by between four to six basis points, and that includes both IFRS macro scenario as well as the specific provision evolution and includes as well the impact of government guarantee, where the sensitivity is nonlinear. So that's at around the current level. Operator, next question.

The next question, sir, is from Andrea Vercellone of Exane. Please go ahead.

Good morning. I've got three questions, but one is just a clarification or it's a small detail. So the – they're all on asset quality. The first question is on your guidance of cost of risk. It's a slightly qualitative question. Like you commented earlier on in the presentation, that the big jump, or the jump or whether it's big or not we'll see in NPLs, is back-end loaded to Q4 and next year. At the same time, we have a guidance that points to a cost of risk higher this year than next year. Regardless of where the level – the correct level will be, it's higher this year than next year. So if you can just explain why that would be since the big jump in provisions is in stage three loans, NPLs, and not stage one or stage two. And the second question relates also to Page 48 but is a slightly different directional question. You have the sensitivity saying for every additional 1% drop in GDP, cost of risk moves up by four to six basis points, but you also point out that this is not linear. I'm more interested in the other way around, and the delta is mainly in Italy because that's where you have the big gap in loss in GDP between 2020 and 2021. What if your assumption turns out to be too conservative and GDP drops less or the gap in terms of loss of GDP is null? What does that do to cost of risk? And the clarification is just on the new definition of default which you were planning to implement in 2020, if I'm not mistaken. Is that still the plan for 2020? Or does that shift back to 2021? Jean-Pierre Mustier: Thank you very much. I will take the first question and let Tj answer for the second and third one. We have given a guidance for the cost of risk for the full year of 100 basis points to 120 basis points, and we said that – I mean, most of the default will materialize on the fourth quarter because potentially, we can expect that a lot of the loans which could default are today under moratorium. So we should see the defaults or the exit of the moratorium more on the fourth quarter. These being said, behind those specific provisions to be taken in the fourth quarter, we expect to take a sector provision, which we'll then shift into specific provision when the default occur on the second and the third quarter, on the fourth quarter, which we'll anticipate default which can happen later afterwards. This is why we have a group cost of risk expectation of 100 basis points to 120 basis points for the full year. It's a combination beyond the IFRS 9 generic provision already taken. It's a combination of specific provision, bulk of it should be mostly on the fourth quarter, and a sector provision, which we'll anticipate the specific one, which can happen later, and the cost of risk in 2021, which is between 70 basis points and 90 basis points with the rebound of GDP we're seeing and the lagging effect of the decrease in 2020. I'll let Tj comment on the second question on the sensitivity of the cost of risk and what happens if the GDP improved and on the new definition of default. Tj?

Thank you, Jean-Pierre. Clearly, in terms of the cost of risk for the sensitivity, to the extent that our macro assumption is less severe than what we have built in, there will be a lower cost of risk impact. So it shows that our assumption today is we are probably one of the most conservative. So we'll see. Too early to tell. But if the assumptions are lower, it – we will have, in essence, a write-back of some of the generic provision, which we'll then monitor to see what kind of specific provision will come through. In terms of new definition of default, there's no change by EBA in terms of a time line. So we are assuming today for all of our assumption that the new definition of default will still go ahead as planned to be in place by January 2021. So we're planning today for this to be implemented this year. Jean-Pierre Mustier: And just to – one point in terms of GDP evolution. The ECB mentioned that on the SSM, they will come up with guidelines in terms of a GDP evolution for the year to be followed by various banks. Clearly, if these guidelines are more conservative than ours, we will adjust lower our GDP. If they are less conservative, we will keep our scenarios. We always want to be on the conservative end, so we will keep our scenario and only adjust when the GDP fully changes in terms of figures. So I mean for us, it's important that we take the pain first. We take a conservative approach. And afterwards, we should have only good surprise. Thank you. Next question.

The next question is from Domenico Santoro of HSBC. Please go ahead sir.

Yes. Good morning. It's Domenico from HSBC. Thank you for your presentation, and I hope all of you and your friends are okay and well. Just a follow-up on the credit quality as well. My understanding is that there were some assumptions in terms of migration from stage one to three, and that was basically the base for your cost of risk as well. Can you share with us what these assumption are? And you gave quite a visibility, actually good visibility on the positive moving parts on the capital. Just wonder whether we should expect any different direction in terms of risk for the assets at the end of the year when you're going to update your LGD. So if there is any negative on this side. And then a question on the TLTRO. I was wondering, what are your thoughts in terms of takeup in June. And what could be the impact at this point on the NII? Jean-Pierre Mustier: Well, thank you. I will let Mirko comment on the TLTRO takeup and then Tj comment on the assumptions and the LGD impact we could have in terms of capital. So Mirko, on the TLTRO first.

Yes. Yes, on TLTRO III, as you know when we presented Team 23, the assumption was to basically repay the full allotment after TLTRO II. Nevertheless, we have seen the much more favorable TLTRO III conditions that were announced by the ECB in March and then also recently on April 30 that actually are easing banks' liquidity and cost of funding, so sustaining new loan origination. So what we're going to do is we are going to revisit that. And in any case, the maximum we can take is about €87 million. And therefore, we are reassessing this. Jean-Pierre Mustier: And by reassessing that, if recollection serve us, we might be on the upper end of the maximum.

Exactly. Exactly. Jean-Pierre Mustier: TJ, do you want to comment on the first two questions?

Yes. Obviously, our so-called full year 2020 guideline in terms of cost of risk is built into assumption on the flow to default migration to the worst NP status on top of the so-called Stage 3 LLP. Most of the IFRS 9, mostly on what we call the Stage 2. And the rest is spread across flows to default migration on top of specific LLP.

On the LGD migration and capital impact, between Tj and Mirko? And Tj, when – what do you see in terms of LGD migration?

Well, at this stage, it's too early to tell on the LGD sort of migration because of moratorium less – little impact in observed, but we've clearly built into our assumption on the floor to defaults and the migration to sort of the worst status. And that's reflected in the capital and the LLP assumptions. Jean-Pierre Mustier: And we might have in 2021, maybe some adjustment coming from the PD on the regulatory capital headwinds, but actually something to be looked at a little bit later, basically.

Maybe we forgot to answer two parts of the question, sorry. One, you ask also what is the potential NII implication of TLTRO III. So it's going to be north of €300 million if we take the full take-up. And on the risk-weighted asset development, I mean, from a capital perspective, we'll be very comfortably positioned in our 200 basis points to 250 basis points in NPL buffer. Of course, the risk-weighted asset will slightly go up, but you know that the amount of guaranteed business will have a neutral capital impact. And therefore, we need to now follow the mix and how the mix will go through the various quarters. Jean-Pierre Mustier: Yes, very comfortably. And I'll comment that we will be well above for the year of 200 basis points to 250 basis points buffer, and that should be the case as well for 2021. So the capital side will remain very strong in this phase. Next question.

The next question is from Giovanni Razzoli of Equita. Please go ahead.

Good morning to everybody. I have two quick questions. The first one, can you share with us what is the default rate at the Italian perimeter, that is including not only the commercial banking in Italy, but also the part of loans and of the commercial – of the corporate investment banking that are based in Italy. And then the second question very broadly, yes, we've been quite detailed into discussing the impact on the cost of risk in 2020 and 2021 and also the sensitivity, which is actually quite low because one percentage point of GDP you said is four to six basis points of higher cost of risk, which is a good number. Can I ask you what is instead – in general terms, the impact instead on the revenue? So once this overall situation is ultimately solved, can we assume that there will be a structural impact on the fees and NII? So that there is a part – because sooner or later, the cost of risk will normalize at 2021 or 2022 or so while my point is, shall we also factor in structural contraction of the NII of the fees? And specifically on the fees, can you help us to understand what could be the impact on the overall activity in terms of volumes, traffic on the branches in the beginning of the second because it's an unprecedented situation and factoring in the lockdown is impossible. So any comment would be much appreciated because my understanding is that also we should not also forget the impact on the revenues other than the cost of risk, but there has been a lot of elaboration on your side. Jean-Pierre Mustier: Yes. Let me take the second question and I will let Tj answer your first one. I mean, first of all, I mean, we benefit from a very diversified business model, as you have seen. And we explained that in the presentation where we showed a breakdown between Italy, Germany, Australia. And we are seeing in different countries very different client reaction, basically. That's because of the lockdown has been put in place differently and the resilience of the medical system has been different between the different countries. So for instance, in Germany, in terms of AUM fees, we saw very, very little impact of the lockdown in the month of March. It was true in Australia as well, while we have seen an impact in Italy, which was much more meaningful. As was mentioned before, January, February, we were at 150% in terms of investment fees compared to the average of 2019 and we went down in March to 50% of the average of 2019 in Germany and Australia, remain more stable. So with the Phase II, we can expect Germany, Australia, which, on a combined basis, represent, in terms of loan, the same amount as Italy. We have the breakdown on Page 8. We can expect Germany and Australia to rebound, more than Italy. And CEE, which has €66 billion of loan, so half of Italy to rebound as well as CEE has been less impacted. So that means that we could have a differentiated evolution based by the country. This being said, for 2020, as we don't have, I mean, a good understanding of how the more – the lockdown will be lifted in the different countries, we don't want to give any guidance because it's more a bet than something which can be confirmed, and I don't like to say things on which I don't rely on how the evidence. It's different for the cost of risk because the cost of risk guideline we give are based on the almost mechanical application, if I may say, of the GDP evolution that we gave, taking a conservative step. So don't expect us to say something which can be too positive because we just want to remain, as we are always, conservative and say what we do and do what we say, period. In 2021, 2022, we should see an evolution of the GDP. We have – as far as the European GDP is concerned, a plus 10% rebound of GDP in 2021 versus a 13% decrease in 2020. Italy is minus 15%, plus 9%. And so clearly, the GDP will close the gap to trend slowly. And we expect this gap to be closed more quickly in Germany and Australia than in Italy from the figures we gave. And probably the depth that it was in 2022 to 2023 show – we will see an evolution back to GDP trend in the coming few years. So this is why we said during the wire call that if we look at the net income, without going into the detail of fees, NII, et cetera, because it's still a bit too early to give a precise indication, but if we look at the gap to trend of GDP versus the evolution we can have in our various countries, we think that we should be, in 2021 in terms of net income, taking to account the LLP provisioning that we have indicated, 70 basis points to 90 basis points, we should be at 75% to 80% of the net income we were planning in Team 23. So 75% to 80% of the net income plan in Team 23 was around €4.3 billion, €4.4 billion gives us a net income between €3 billion to €3.5 billion, which, in terms of RoTE, should be around 6%, 6% to 6.5% RoTE. So that's the guidance we can give for 2021, but we don't give any guidance of the revenues for 2020 because it's a situation which is, for the moment, not stabilized enough for us to be too precise. Tj, maybe on default rate?

Yes. On the default rate for the so-called Italian parameter, which include both commercial bank in Italy and the CIB component in Italy, it's relatively stable compared to the Q4 at around 1.9%. And remember, in our projection, we have assumed that this is almost doubled to around 3.5%, taking into account the fact of the so-called government guarantee scheme. So we are taking a fairly conservative approach in our default rate assumption for this year. Jean-Pierre Mustier: Thank you. Next question please.

The next question is from Britta Schmidt of Autonomous Research. Please go ahead.

Yes, hi, there. I have two questions, please. One is just coming back to the assumptions around the macro, the cumulative GDP over 2020, 2021 of minus 6% in Italy is not too dissimilar from what we see from other banks and still the 200 basis points to 240 basis points is way above what other banks are guiding to. So do you think it's – is management conservatism baked into the translation into Stage 3 loans? Or do you see in your internal modeling, a potentially very wide range of outcomes as well? And my second question would be there has been some press reporting on the merchant acquiring business, as to whether you could potentially be doing something with that. Can you give us a comment on that? And maybe also let us know how much you contribute to the P&L? Jean-Pierre Mustier: I don't think we give – we disclose the detail of merchant acquiring contribution to the P&L, but what I can say that it is a business that we like. And we said there is no M&A for UniCredit with – in terms of combination, no disposal. Our parameter is stable. We like merchant acquiring and we will not do anything, but this being said, we don't comment on the merchant speculation. So that's to answer to your second question. On the first one, and Tj can complement what I'm doing, but the – what is important is not only the – so basically, the overall net GDP impact over the two years, but it's also the trough. If you have a 15% negative GDP in 2020, the impact on the cost of risk will be much bigger than if you have a minus 7% or 8%. So this is why we take these conservative assumptions, having a bigger trough and, of course, a rebound, which net gives you – I mean, a convergence, which might not be very different maybe from a lower trough and lower rebound, but it is more conservative and, as such, impacts more the cost of risk, knowing that we have taken into account, of course, in our assumption, the positive impact as well of government guarantees. Tj, anything else to add?

Yes. If I could add, if you look at Page 20 of the slide, clearly, we're assuming that the lockdown is going on for longer, two months. That, in itself, will impact the assumptions in terms of recovery. We never fully so recovered. And this will feed into the IFRS 9 sort of modeling assumption. That means that we will be taking a lot more provisioning in 2020 versus less in terms of anything generic. And this will help us anticipate, if any, in terms of the so-called specific LLP that will come, particularly as we approach right after moratorium in Q4. Jean-Pierre Mustier: And I think what is important as well when you make the assumption, this is why we give you the breakdown on Page 21. If you see how the portfolio is composed. And so we – just like Tj already commented, the breakdown by segment, high impact to low impact. And clearly, the high impact for us, which is 10% as a very high contribution, not only for IFRS 9 provision in the first quarter, but for the full year. So you have to look at what is the trough on one side and what is the breakdown of the portfolio between the different segments to estimate the identity.

Yes. And I would just add, for the high impact, even though it's 10% of the portfolio for the year, if you look to Page 23 of the slide, we are allocating 39% in terms of so-called – both IFRS 9 and sector sort of specific generic provision. Jean-Pierre Mustier: Thank you. Next question please.

The next question comes from Hugo Cruz of KBW. Please go ahead sir.

So two questions. First, can you please split your full year 2020 cost of risk guidance between Stage 2, progressing to Stage 3 and top-up to existing Stage 3? And second, this is the new environment. Can you be better on cost-cutting compared to previous targets? Jean-Pierre Mustier: Well, let me comment on the cost side. And I don't know if we can give the breakdown, Stage 2, Stage 3, but I will let Tj comment on that. On the cost side, we have demonstrated in Transform 2019 that we take always a very proactive and decisive actions on cost. We had a plan to keep our cost stable in Team 23, an increase in 2020, 2021 and then decrease to go back to a stable cost as a lot of the transformation has more back-end-loaded impact. With what's happening now, a certain number of development have been put on hold specifically, and we target for 2020 to have a cost base which should be stable versus 2019, basically. If situation change, then we will change. And we will – what we want to make sure that we can, within our cost base, reallocate some of our budget towards what will help us transform and – the business model more quickly. So as we said, in terms of IT priority, we will refocus a lot of our project towards a full transformation, making sure that we broaden a fully digital offering for the product and improve even further the remote advisory side. I'll let Tj comment on the Stage 2, Stage 3 breakdown if we keep it.

Yes. Clearly, for Stage 2, Stage 3, firstly, I think for the guideline for full year 2020, it's built on assumption in the body macro IFRS 9 and factor that we look through on close to default towards an NPE status, which means that some part will go from Stage 1 to Stage 2 and some will go from Stage 2 to Stage 3. And this is built up into the 100 to 120. Clearly, we have not given sort of the exact sort of breakdown, and we'll be happy to revert on this to our IRR. Jean-Pierre Mustier: But we can say that the IFRS 9 one is mostly on Stage 2, basically, and the rest is spread on the – spread to default.

Yes, yes. I think the sector-specific will be assumed in Stage 2 to Stage 3, yes. Jean-Pierre Mustier: Yes.

The next question is from Andrea Filtri of Mediobanca. Please go ahead.

Just following up on the question on costs. What are your considerations? I hear you are now targeting flat costs for 2020. How much of the, therefore, additional cost cuts you reckon will be structural because of a different way of working for the group? And therefore, can we bring some of these forward or most of this is just savings from people working remotely and not traveling and so on? And secondly, on risk-weighted assets, what risk-weighted asset impact are you expecting from cyclical changes in PD and LGD? And how much of this will be cushioned by a negative volume evolution and the government guarantees? And then finally, I'd just reiterate Andrea's question on the sensitivity of cost of risk to the upside of GDP, given this is non-linear? Jean-Pierre Mustier: Sure. I will let Tj answer on the sensitivity of the GDP evolution as well as on the impact of possibility on PD, LGD. On the cost side is – as we said, we expect flat cost in 2020. Clearly, the – meaning the clients are changing and the adoption of remote banking is – has increased de facto, if I may say. And we expect that the client will stay in much more remote banking, digital interaction with their banks going forward. So that could help simplify the process and simplify as well the business model. This being said, into cost savings that we could have in terms of process optimization, as we said in transform – or in Team 23, sorry, are more back-end-loaded because there are consequence of process simplification, so should appear more in 2022 and 2023. We are accelerating some of these changes, and that has already an impact in 2020, keeping the cost flat. And we will apply Team 23, which was already anticipating this changing. So it's not like it's something new because of COVID. It's just an acceleration for some of the impact, and we'll get the benefit maybe earlier than what we were planning in Team 23. But this day, if there is no change in terms of what we expect in terms of FTE efficiency or branch closures versus what we were planning as we had transformation as one of our four pillars. On the risk-weighted assets and sensitivity, I let Tj comment.

In terms of, clearly, risk-weighted assets, the model recalibration, we do not either – while we expect, clearly, the PD deterioration will impact the recalibration, we expect this to be offset by the benefit we will get from the so-called either loans that will move towards the state guarantee scheme. So overall, we don't expect any meaningful impact on the PD, LGD negative migration. In terms of sensitivity, I really mentioned earlier for 1%. To the extent that our assumption is too conservative, less it by 1%. We expect the cost of risk to improve by four to six basis points. Jean-Pierre Mustier: Next question please.

Our next question is from Antonio Reale of Morgan Stanley. Please proceed.

Hi, thank you for the presentation. I have two questions, please. The first one is on the government initiative. I guess it's from your position as a Pan-European bank. How effective you see the government across some of the key countries you operate in? Any early issues or concerns you can share from your conversations with SME and corporate clients? I'm particularly interested in Italy and Germany, please. And then the second question is, I mean, you've been de-risking your earnings, and that was a key part of your business plan. You've done lots of work on the Non Core and also have been releasing the BTP portfolio. How do you manage the large demand for credit and, at the same time, defend your marginality and asset quality? I've heard your comments on TLTRO III, but also, how should we think about your BTP portfolio going forward? I saw the reduction, over €10 billion year-on-year, but this tells about changes to the solid focus. I wanted to hear your thoughts. Thank you. Jean-Pierre Mustier: Sure. On – I mean, I will let the co-CEOs of Western Europe comment on the client activity on Germany, Italy, and government guarantees and the process. And I will take the second question afterwards on the de-risking. But first, if Olivier or Francisco want to comment about Italy or Germany as far as the SME side is concerned?

If we start from the Italian side, we believe, in general, that the schemes are significant and effective and, therefore, the – should there be ability to make a difference in allowing our corporate clients to go through the most difficult part of the economic slowdown. We are very active on all three schemes. We've been rapid in receiving a large number of requests on the GBP 25,000 100% guarantee amounts issued by Fondo with 43,000 requests already processed to date and essentially a minimum refusal rate. So that should be important in sustaining that small business, self-employed part of the clientele. The larger component will be Fondo Centrale di Garanzia run by MCC [ph]. We are currently 3,000 processing requests, and we look to a significant increase. And as mentioned by Jean-Pierre, we've been first of – such a guarantee issued already to, and we have said what are other in the pipeline, some of which may already be closed this week, expecting, as mentioned, over €15 billion of overall amounts of guarantees in Italy. Jean-Pierre Mustier: Olivier, do you want to comment on Germany?

Sure, Jean-Pierre. What we see in Germany is, first of all, a great confidence in the value circuit revenue schemes, which were already, in reality, in place with the sponsored loan. So we have an engine, if I may say so, that is working already, that has been working very, very well in Germany. And as we can see, for example, for the small business, the initiative on the National Credit for amount below 800,000 is working effectively very, very well. So what we can see in terms of reaction is that it's a strong redemption with the cab revenue model and the great confidence on the ability to bridge the situation. Jean-Pierre Mustier: So maybe on your second question on the de-risking, so I mean, first of all, on government bonds, we said that we will reduce our BTP portfolio to 50% of our tangible equity by 2023. We are – we have reduced by €10 billion, so from €53 billion to €44 billion within one year. And we keep reducing, letting the portfolio naturally amortize. We have a duration, as we have said, which is around a 3.5-year as of the first quarter 2020 for the banking book, down from 3.6 years on the first quarter 2019. And this €44 billion portfolio is for €23 billion in the [Technical Difficulty] to collect category and for €21 billion on the fair value OCI, basically, with sensitivity on capital on the after tax basis, which is around 1.7 basis points from memory, for 1.4 basis points for a 10 basis point move of the spread. On the credit side, we have – basically, we will have more demand for credit to go under the guarantee. So that, as I mentioned, generally positive impact in terms of risk-weighted assets on one side and cost of risk on the other. And we are taking into account the benefits coming from the government guarantees on our cost of risk. But clearly, the loan, in terms of the government guarantees, will be at a spread which is going to be lower than the natural spread to a certain extent. And so that should be slightly NII negative, but the TLTRO on the other side will give some benefit us, illustrated by Mirko. So a lower spread coming from the client spread, if I may say, because of the government guarantees, but improvement in the NII coming from the TLTRO, which hopefully should compensate each other. In terms of the origination, I mean, we maintain, clearly, a strict discipline. At the same time, it's important for us to support the economy and, when we can, assist our clients with the government guarantee, we do that. I mean, government guarantees move from 100% guarantees. And for instance, on the – in Italy on the €25,000 loan, we had close to 30,000 request and as of the 30th of April, we had already processed and validated 52% of that, so over 15,000 requests [ph]. So we're trying to make sure we move quickly to support the economy, to support the client and, at the same time, maintain the wide management of our – this profile.

Thank you. Jean-Pierre Mustier: Thank you. Next question please.

The next question is from Azzurra Guelfi of Citi. Please go ahead ma’am.

Hi, good morning. One question is on Non Core. Will you confirm the target of Non Core relief fully run off by 2021, given the change in the market condition? And the other one is on capital return in 2020 and onwards. You have a strong buffer. I assume that the regulatory market condition normalizes and you are allowed to take. Is the capital buffer a bigger driver than the profitability of the group? So that could be like potentially loss in 2020? Thank you. Jean-Pierre Mustier: Thank you. On the Non Core, I will let Tj comment on the current situation, but I would say that there is no reason at this stage to change our forecast to run off fully the Non Core by the end of 2021, but Tj can give you the dynamic of the evolution. On the capital returning – and clearly, the environment is very different from where we were at the end of last year or early next year. We said, as far as the dividend side is concerned, for the given 2019, that we will wait for the fourth quarter to look at what is the economic situation and prospect of economic evolution as well as the recommendation of the ECB. And from 2021 onwards, we will look at the evolution of the situation. We maintain the guidance that we gave in terms of percentage payout, which was given in Team 23. And we will see if we have – depending on the ECB recommendation, how we manage excess capital, which, as I said, we anticipate to be well above the 200 to 250 basis point buffer that we gave in Team 23 in 2020, but also in 2021. So all that will depend on the prospect of economic evolution. Tj, do you want to comment on the Non Core?

Sure. For the Non Core, clearly, we are still aiming for full runoff of the book by end of 2021. We're progressing on all initiatives. Clearly, COVID-19 has an impact on the recovery, particularly those that involve judicial because all the courts are closed. But for the so-called the unsecured portfolio, we'll continue to bring transaction to the marketplace. Three portfolio are now actually in the market. And actually, as of yesterday evening, we received, for one of the portfolio, buying bid. So it is still open, clearly, for the so-called unsecured portfolio, but for the secured where you require a due diligence on the secured asset, this clearly will have to wait until when the restriction is lifted. But overall, we're progressing on all initiatives and we still expect to run down Non Core by 2021. Jean-Pierre Mustier: I just would like to add that the coverage ratio on the Non Core with the additional provision we took in the fourth quarter is at very high 78.4%. So we are of the very strong opinion that we are provisioned to sell. So – and the market, as Tj mentioned, still remains open. So we maintain our guidance that the Non Core will be run off by 2021. If you look at the net exposure of the Non Core being provisioned at 78%, we basically – on the €8 billion that we have left, the net exposure is less than €2 billion. So I wouldn't say €2 billion are irrelevant, but you can see that it is now a very, very small amount. And so that's why we focus on the group ex-Non Core as far as the focus on the risk profile of the group is concerned. Thank you. Next question please.

The next question is from Delphine Lee of JPMorgan. Please go ahead madam.

Hi, thank you for the presentation. So, I just wanted to come back on asset quality. Looking to Slide 21, the sector breakdown, would it be possible to have sort of the asset quality metrics on the high-impact portfolios in terms of NPE ratio and coverage? Also on asset quality, if I may ask, out of the €28 billion of loans which are under moratorium, in your assumptions in terms of full year guidance cost of risk, €100 million, €120 million, sort of how much losses are you assuming against that €28 billion of loans under moratorium? And then just one quick question on capital, just to clarify. So it looks like – I mean, you don't expect much credit rating migration. And they all definitely some positive in terms of impacts on capital by year-end from regulation. So just wondering if you – is there anything we're missing in terms of capital bridge by year-end? Or should we expect significant increase by year-end? Jean-Pierre Mustier: On the capital side, Mirko can comment in more detail, but we said that we will have, in addition to the structure we have today within the equal, we'll have additional contribution on a phased-in of more than 80 basis points of CET1 for that – the recommendation, I would say the strong recommendation of DCB to shift to phased-in for IFRS 9, which we will do when we're fully loaded, plus the change of the CRO [ph], which will impact Q2 and Q3, as I mentioned earlier, on the SME supporting factor and on the software side. So combined, more than 80 basis points CET1 positive impact for the year on a phased-in and more than 20%, closer to 30% on a fully loaded. And we said as well that we expect to be well above the 200 basis points and 250 basis point buffer in 2020 and, I would say, in 2021 as well. Basically, even if in 2021, as Tj mentioned, we will have the regulatory headwinds that we were planning in 2020, there has been a time translation as well the one we were planning in 2021. So the combined impact of regulatory headwinds for 2021 will be around 100 basis points, 120 basis points basically from what we see. On the €28 billion of loans under moratorium, we have – as we said, we gave the breakdown between what we have in Italy and in CEE mostly. And in CEE, as we said, there is opt-out and opt-in country. So the opt-in is €2 billion out of the €7 billion. For the rest, it's more mandatory shift towards moratorium. And in Italy, as we said for the moratorium, and I will let Tj comment about what we expect if we have the breakdown of the losses, but we have, on the €19 billion, €3 billion which are coming from mortgage. So the TD should be very small for any of its only the default. And on the corporate side, which is for the balance, we have 20% of the corporates, which are in the lower credit where we could have other impact of provisioning, but the rest is in good credit quality, which should be fine. So this being said, on the capital side, Mirko, any additional comments on capital leverage [ph] and Tj will elaborate on moratorium and asset quality. Mirko, first.

So as Jean-Pierre said, we expect strong capital position. The biggest driver is, on one side, for sure, the CRR relaxations and most of it is coming from IFRS 9 traditional. And then there is some risk with the asset dynamics that we developed over the rest of the year. So maybe that's the building block that you are using in your forecast. And nothing else that is major aside from movements of [indiscernible]. Jean-Pierre Mustier: Tj, on the moratorium and then on the NPE coverage metrics for the impact, yes?

Yes, yes. Firstly, on the moratorium, already Jean-Pierre has mentioned the breakdown. Just one point, it's at 80% of – for instance, a corporate that has requested a moratorium are actually in a very good rating category. And all of this, clearly, a part of our so-called bottom-up assumption in terms of the cost of risk forecast. For the sector, we clearly do a detail sector sort of impact. And on Page 21, you've seen that 10% of the so-called portfolio, we've clustered them in high impact with the transport, travel, airlines, shipping, tourism, oil and auto suppliers. We clearly have that breakdown by, firstly, by countries, and within the country, what are some of the percentages. We do have the asset quality metric and we can follow-up to IR to give you all this metrics. It's too detailed to put it in. Jean-Pierre Mustier: Yes. We’ll be in touch.

Thank you very much. Jean-Pierre Mustier: So, thank you very much. And next question please.

The next question is from Christian Carrese of Intermonte. Please go ahead.

Hi, good morning. I have two questions, one on cost, one on the capital remuneration. On cost, I was wondering if the COVID-19 crisis could delay a little bit the phasing of the exit of the personnel you agreed with the trade unions? The second question on capital. Compared to last CMD, we are expecting now lower earnings, but higher capital in certain way. You said 80 basis points up there on a phased-in basis [indiscernible] 2020. But in terms of dividend payout of 40%, I suppose that it will be difficult to ask a regulator to approve a buyback. So in theory, you have more capital. You're going to pay lower dividend based on a lower net profit. So I was wondering, compared to last December, if we look at the banking sector, we see that some banks have lost almost 50% of the value. So they are, clearly, some banks at 80% discount to tangible equity. So this year will be – if we assume that the GDP will rebound by 10% next year, it's not the right time to maybe look at other banks, smaller banks to consolidate the sector. Maybe also the same would be in favor of this – on this move and use the badwill of those banks to clean those banks as you did with the Non Core bank for UniCredit. So if you can share with us – share your view on this? Jean-Pierre Mustier: Sure. Let me first comment on the FTE exit. We have agreed with the Italian union, but on one side, a very socially responsible action in terms of early retirement for our colleagues in Italy to 5,000 net FTE reduction. And this net FTE reduction include as well an agreement to hire 2,600 people. We have, as part of this 2,600 people, already confirmed that we will transform the temporary contract of some of the appointees into a full-time contract. It is – we have a plan for FTE exit and early retirement. And this plan will be applied and then could actually maybe be slightly accelerated. It is a voluntary request of our colleagues. And I assume in the content environment, some of our colleagues might be willing to retire earlier than later, basically. So we shall see. We keep our plan in terms of FTE management, and that's fine. In terms of the capital side, we said no M&A. And we said that, we repeated that and we keep it. The – if I may say, even more today than before, it is extremely important to focus all the management attention towards the transformation. The last thing you do if you manage a bank today is to get more FTEs, more branch and more integration when what we need to do is to transform much more quickly. So we have a zero interest, I say zero interest to enter into M&A transaction domestically in Italy or somewhere else as we want to focus 100% of our attention in the transformation, okay? So I think that's clear and we will not change that.

The next question is from Ignacio Cerezo of UBS. Please go ahead.

Most of the questions are answered, but then if I can follow-up on the importance of the government loan guarantees. Especially in Italy, you're expecting a big portion of your corporate book to end up being rolled over into the guarantees. I mean, referring to the back in your lending. And then the second one is on trading. How quickly do you think you can come back to your €300 million, €350 million run rate you had in the previous guidance? Jean-Pierre Mustier: On the trading side, we have guidance, which was closer to €300 million actually, €300 million to €350 million at the last CMD. I think, with the current environment, the activity is client-driven for almost all of it. So the trading activities are consequence of the client activity. And we think that while the month of April was a good month for the CMD side, on the revenue side, we will still have in Q2 some impact of the XVA as it moves based on the market environment. But if you take out XVA, which is nonrecurring, I mean, the month of April, in terms of client activity, show a rebound of activity. And we think that we should go and be back towards a more normalized activity probably in Q4. I mean, Q2 to Q3 should be transitional quarters and Q4 should be a more normalized one. As far as the government loan guarantees are concerned, we said that we expect to have – to target more or less €15 billion of government guarantees, which, in Italy, if you look at – and that's mostly in Italy. If you look at our Commercial Banking Italy book, it's €130 billion. And most of the guarantees would be for the Commercial Banking Italy, so you can see that it's a bit more than 10% of the overall loan book.

Thank you. Jean-Pierre Mustier: Next question please.

The next question is from Patrick Lee of Santander. Please go ahead.

Hi, good morning everyone. Thanks for taking my question. I do have one question on the moratorium and also one on your cost of risk guidance. And firstly, on the moratorium, am I right in saying that any loans under moratorium now is still considered performing and, therefore, accruing interest? And if so, I guess that interest will be added at the back end as extra balance for the customers. And so if that is correct, can you give us some sort of a rough estimate in terms of the increase of the size of the interest burden for the corporates and for the retail customer post the moratorium? And secondly, on the cost of risk guidance for the rest of the year, you are pretty much guiding to pretty much the same level as you have seen in first quarter at around 100 basis points. But I just want to check with you, is it fair to assume that under the IFRS macro assumptions methodology, and given your already very conservative stance, is it fair to assume that most of the macro assumption changes is already taken in the first quarter? And consequently and for the rest of the year, your guidance, is that assuming a pretty big jump in specific risk that you're expecting for the… [Call Ends Abruptly]