UniCredit S.p.A. (UCG) Earnings Call Transcript

Good morning, ladies and gentlemen. Before I hand over to Jaco Podalo, Head of Investor Relations. A reminder that today's call is being recorded. Sir, you may begin.

Good morning, and welcome to UniCredit's Third Quarter and 9 Months 2026 Results. Our CEO, Andreas Rachel will take you through the presentation. This will be followed by an analyst Q&A session with Andrea and with our CFO, Stefano Barra. [Operator Instructions] With that, I'll hand over to Andre.

Good morning. Thank you for joining us. Today, we are presenting another set of record results, confirming once again the strength of our strategy, our relentless ability to deliver and that our potential remains unlimited. Under unlocked between 2020 and 2025, we have radically transformed UniCredit, delivering a total shareholder return of more than 1,000%. And taking the group from industry leader from industry laggard to industry leaders. We fundamentally reshaped our financial performance with net profit increasing from EUR 1.5 billion to EUR 10.6 billion return on tangible from 7% to almost 20% organic capital generation from 160 basis points to more than 380 basis points, supporting total yearly distribution of EUR 9.5 billion, while increasing capital at the same time. A step change that speaks for itself. . At the end of '25, we enjoyed leading KPIs across all financial metrics. And after the transformation we had undergone, we felt our position was structurally sustainable. We were in a position most would have considered impossible to improve. We saw it differently, determined to build on everything we had achieved, we launched our next chapter, UniCredit Unlimited, an even more ambitious journey designed to set the pace for the industry delivering double-digit EPS growth at highest return on tangible equity and top end distributions. We were and remain convinced that the operational value we can unlock will take us well beyond today's already best-in-class levels of performance. None of this would or will be possible without our people. These results reflect their hard work, commitment and determination of colleagues across all our markets to embrace change, drove our transformation and deliver for clients, communities and shareholders. We ask a lot of them. We set ambitious goals and expect excellence, yet they continue to rise to every challenge. We drove the success of unlocked are powering unlimited and will remain the foundation of everything we achieve in the future. Let me move to Slide 2. Let me start with the 5 key messages of today's presentation. First, our best quarter ever, a clear beat overall and across all critical KPIs and the best quarter in the sector. This is our 23rd consecutive quarter of growth and consistent delivery with the best combination of revenue growth and efficiency improvement and the best net profit growth, cost income ratio, return on tangible equity, organic capital generation and shareholder returns across the sector. Second, relentless quality improvement, excelling across the board, while building long-term sustainability through disciplined investment in transformation. We are balancing all our commercial, industrial and technology levers, accelerating and improving, an already best-in-class baseline, and gaining targeted market share in every market without sacrificing margins or risk. This means that Italy is well underway to organically increase its targeted market share to 15% in the medium term, very profitably without requiring M&A. Third, industry-leading distributions, while simultaneously strengthening our capital position, we're more than doubling our interim cash dividend to EUR 4.5 billion, equivalent to EUR 3 per share to be paid on 25th of November. This is underpinned by sustainable best-in-class organic capital generation which in the first 9 months more than covered accrued distribution while lifting our CET1 ratio to 15%. Fourth, an unmatched 10-year trajectory moving from best-in-class, we've unlocked to resetting standards with unlimited. Unlimited is already delivering beyond expectations with unrivaled lines of defense protecting us against uncertainty. We are raising our 2026 net profit expectation to well above EUR 11.5 billion pre extranary charges. And fifth, Commerzbank adds to our compelling case with clarity on a faster time line and objective. It strengthened our unique pan-European footprint and will propel even further EPS growth and high return on tangible equity and distribution per share. Upon settlement, we will take control of Commerzbank with new governance and the kickoff of Commerzbank unlocked by the first quarter of 2027. And the combination with HUB which will unlock substantial additional value for all to potentially be executed earlier than initially expected. I remind you, we said 2 or 3 years. In short, we got record results today, outstanding quality and strength and a growing set of value creation opportunities ahead to further accelerate our trajectory and deliver great results in the future. Slide 3. Turning to our third quarter results. They provide further evidence of the accelerating momentum behind UniCredit Unlimited. Revenue growth accelerated significantly, 12% up year-on-year, driven by core revenues, which now account for 90% of our total revenues with fees and net insurance up 11% and net interest income up and accelerating. Core revenues, which now account for more than 90% of total revenues are complemented by strategic investment at circa 7%. Our transformation continued to deliver with costs down 1%, leading to a record low cost/income ratio at 32.8%, down 4 percentage points and best among our peers. Asset quality remained excellent with cost of risk at 18 basis points fully within target and more evenly distributed throughout the year with underlying net operating profit growing 18%. Profitability reached another record with net profit up 24% to EUR 3.3 billion and return on tangible equity up 4 percentage points to 25.5% despite significant excess capital or [indiscernible] CET1 ratio. Value creation per share in the quarter was outstanding. Earnings per share, up 27% and dividend per share up 21% and tangible book value per share up 17%. For the first 9 months, net profit reached EUR 9.4 billion, up 16% and excluding the second quarter 2025 insurance stake revaluation one-off, while return on tangible equity increased 2.1 percentage points to 24.3%. Organic capital generation totaled EUR 8.2 billion or 275 basis points. As such, CET1 strengthened further to 15% best-in-class despite the EUR 7.3 billion already accrued for shareholder distribution. We increased integrating dividend to EUR 4.5 billion bringing total 2026 dividends to EUR 7.1 billion, an in-year yield of 6.5%. This reflects our confidence in the future and our commitment to our shareholders to minimize the year 1 dividend per share dilution from the Commerzbank acquisition. Over the 9 months, earnings per share were up 11% with dividend per share and tangible book value per share was up 17%. Overall, these results demonstrate the strength of our business model and our ability to translate growth into profitability, capital generation and sustainable shareholder value. Slide 4. Turning to revenue. Our client-driven strategy continues to accelerate, gaining targeted market share profitably with Italy leading the charge and aiming to reach a 15% market share in targeted segments products and regions in the medium term, preserving margins and risk. Total revenue increased by 12% and core revenue by 9 increasingly driven by deeper client engagement and new client acquisition rather than external market factors. Net interest income grew by 8% year-over-year and 5% quarter-on-quarter, supported by high-quality volume growth at flat margin and flat risk with NII ROAC stable at the best-in-class 20%. Looking ahead, we see further profitable acceleration of NII as the benefit of increased commercial volumes and supported rate dynamics continue to crystallize. At the same time, we have maintained our discipline on deposit pricing with pass-through remaining tightly manage managed at 32.2%, leveraging our low loan-to-deposit ratio of 88% and the flight to quality nature of our franchise. We expect significant acceleration in quality deposit growth in the next few quarters. Fees and net insurance income increased by 11% with broad-based trends across all product lines and geographies, reflecting the diversity of our product factories and the increasing value we deliver to our clients. As a result, fees and net insurance now represent 36% of total net revenue. Slide 5. Cost of risk remains structurally low. At 18 basis points, it is fully within our 15 to 20 basis points guidance, even after the ongoing normalization of the write-backs that supported past years. It is also much more stable and evenly distributed in 2025 when provisions were overly concentrated in the fourth quarter. The year-on-year comparison is therefore negatively affected by that. The underlying picture is much less so. Asset quality is strong and improving overall. Net NPE ratio is low at 1.42%, down 3 basis points. Coverage is broadly stable at 45.3%. Default rate is low at 0.9%, down 23 basis points, and we remain further protected by our unique overlays buffer of $1.5 billion, the highest stock among peers. Slide 6. Our operational discipline continues to translate into tangible results. We further improved our best-in-class cost/income ratio by 4 percentage points to 32.8% as we accelerate our transformation, leveraging AI. Importantly, this is not a story of simply spending less. While total costs were down 1% with non-HR, down 2% and we doubled down on our transformation-related investments. We continue to fund growth initiatives, technology and transformation programs, reallocating resources to where they generate the greatest value for clients, employees, shareholders and the long-term competitiveness of the franchise. The result is a very strong positive Joe's dynamic with revenues growing 12% while cost declined 1 demonstrate that our 2 strategic pillars: acceleration of top line and transformation of the operational machine are working together exactly intended driving sustainable growth while continuously improving productivity and operational efficiency. Slide 7. Turning to capital. We continue to demonstrate the strengths of our capital generation and the efficiency of our capital deployment and shareholder returns. Our CET1 ratio increased by 70 basis points to 15% and supported by strong organic capital generation and the positive impact of the Danish compromise. Organic capital generation contributed 92 basis points or EUR 2.8 billion this quarter, more than offsetting 84 basis points of accrued distribution despite continued RWA growth, supporting high return on tangible equity market share gains. Over the 9 months, we generated EUR 8. 2 billion or 275 basis points of capital organically supported supporting our distribution accrual while increasing capital. The Danish compromise contributed a further 53 basis points, while the anticipated reversal of the temporary RWA impact from strategic portfolio at 19 basis points. Our commitment to shareholder distribution remains unchanged with 80% of net profit accrued for distribution totaling EUR 7.3 billion in the first 9 months. We are increasing the interim dividend to EUR 4.5 billion, bringing total 2026 cash distribution to EUR 7.1 billion and reducing dividend per share dilution for our existing shareholders as previously promised, confident in our sustainable performance and capital strength. Slide 8. Turning to Italy. Our franchise continue to combine strong growth, accelerated targeted market share gains and sector-leading profitability. Commercial momentum remained strong across both lending and fees, with loans up 10% and deposit is up 6% as we managed our pass-through and leveraged our 82% loan-to-deposit ratio. NII ROAC remains best-in-class at 23%, while fees and net insurance now represent 47% of net revenues. Importantly, we continue to gain share in our priority segments. Total loans, excluding mortgages, up 130 basis points to 12.5% August to August. Corporate lending up 150% to 13%. Consumer finance, up 40 basis points to above 11%. Assets under management, up 60 basis points to around 12% and protection products up 60 basis points to above 15%. These gains reflect our focus on premium segments and higher-value products where we have clear competitive advantage. We're well positioned to benefit from the ongoing market consolidation and we aim to reach a 15% targeted market share in the medium term. We're also improving efficiency while investing for growth. Costs still declined 1%, delivering a record cost/income ratio of 32.4%. This translated into further earnings growth from an already high base with profit before tax up 9% and ROAC at an outstanding 31%. Slide 9. Germany continues to deliver outstanding core revenue growth and operational excellence, reflecting the strength of our franchise and a disciplined commercial strategy. Core revenues increased 8%, driven by fees and net insurance up 10, while NII grew 6% in the 9 months and 8% quarter-on-quarter, also supported by spread widening on loans. Commercial momentum remains strong across both lending and fees, with loans up 6% and deposits up 9% as we protected our pass-through. NII ROAC remained best-in-class at 19%, while fees and net insurance now represent 35% of net revenue. Importantly, we continued to gain market share in our priority segments, corporate loans up 50 basis points, mortgage new business up 20 basis points. Total deposit market share, 16 basis points up, maintaining excellent pass-through. We're also improving efficiency while investing for growth. Costs declined again, 4% with non-HR expenses down 8% and delivering a record cost-to-income ratio of 35.8%. This translated into a gross operating profit up 8% and net operating profit up 5%. Profit before tax was flat as we absorb integration charges to invest in our future, while ROAC remained at an outstanding 23%. Slide 10. Austria delivered another strong quarter, combining high-quality growth and industry-leading efficiency to achieve record return on tangible equity. Core revenues increased 5%, driven by fees and net insurance up 9 while NII grew 3% with acceleration expected as volume growth and retail wins crystallize. Commercial momentum remains strong across both lending and fees with loans up 5% and deposits stable. NII ROAC [indiscernible] reached 16%, while fees on net insurance now represent 30% of net revenues. Importantly, we continue to gain share in our priority segments. Total loan market share increased 15 basis points to around 12%, corporate lending, up 50 basis points to 14% and Consumer Finance new business up 30 basis points to well above 11%. We're also improving efficiency while investing for growth. Cost declined 3% in Austria, while non-HR expenses were down 7%, delivering a record cost-to-income ratio of 36.6%. This translated into profit before tax, up 8% and ROAC, up 4 percentage points to 27%, reinforcing our position as 1 of the country's highest performing banking franchises. Next slide. CEE remains one of the group strongest growth engine, delivering another quarter of high-quality growth, market share gain and exceptional return on tangible. Coal revenues increased 7%, with fees and net insurance up 8%, while NII grew 7%. Commercial momentum remains strong across both lending and fees, with loans up 12%, significantly ahead of market growth and deposit up as we manage our pass-through and leverage our 86% loan-to-deposit ratio. NII ROIC remained best-in-class at 24%, while fees and net insurance now represent 30% of net revenue. Importantly, we continue to gain share in our priority markets and segments. Total loan market share increased 50 basis points to around 12%. Corporate lending across CEE, up 50 basis points to above 15%. Corporate lending in Bulgaria, up 110 basis points to 22.5%, and consumer lending share in Croatia grew 70% to well above [indiscernible] well above 20%. We're also improving efficiency while investing for growth. Costs declined 1% with non-HR expensive down 4 delivering a record cost-to-income ratio of 32.6%. This translated into profit before tax, up 4% and ROAC at an exceptional 29% among the best in the region. Next slide. Our group product factories serve all our banks, combining best-in-class products offered locally where other competitors cannot reach. All our factories are growing with fees and net insurance up 13% to $7 billion. One market AUM grew 67% and value chain retention reached 82%, up 12 percentage point since 2021. We're #1 in unit linked in Italy and in corporate loan fees in Italy, in Germany and in Austria and our M&A and ECM revenues have tripled Central manufacturing also delivers economies of scale. Our Trade Finance Hub runs at a 30% cost-income ratio, and we are Euromoney's best transaction bank in Italy, Germany and CEE. And our factories are easily extendable to third parties with Alpha Bank 1 market now exceeding EUR 2 billion assets under management in Greece. That partnership is also boosting trade finance since it became since it began, volumes between Alpha Bank and UniCredit have doubled, while international guarantees have grown more than fourfold. Once we take control of Commerzbank, we can extend this fully fledged offering to its clients, helping our own and Commerzbank Mittelstand clients grow across borders. -- with leading trade finance solution and an extensive network of banks, branches and corresponding banks. More products, better service for clients, greater scale for our factories with much more to come. Next slide. 9 months into Unlimited, we are already ahead of plan, and we are not done. More acceleration and more transformation lies ahead. and both are still far from their full potential. Together, they will keep driving superior EPS growth at highest return on tangible equity and superior distribution. We are uniquely positioned to deliver this even in a more challenging environment, with Commerzbank adding to an already compelling stand-alone case. Next slide. Unlimited adds disciplined, profitable target market share gains to a best-in-class efficiency and profitability we built with unlocked. Under unlocked, we moved to best-in-class. We cleaned up the portfolio and exited negative EDA assets. NII ROAC rose from 6% to 20%, while loans and deposits were broadly flat. Under Unlimited, we're pushing sector boundaries. Fees and net insurance are now up 11% and launch 9 Deposit 7 at a stable NII ROAC of 20% and with a higher fee weight of 37%, still growing and we have the opportunity to keep gaining profitable share in every region. In Italy, as our flight -- as our in-flight growth strategy further benefit from ongoing widespread consolidation. In Germany, with Commerzbank unlocked once we take control, further accelerated by a potential combination with HVB in Austria as the gateway to Germany and CEE and is structurally faster-growing sea and Greece, now adding Poland Widen Bank. This trajectory is expected to continue at resilient, high margins and low risk levels. We target the most attractive client segment with higher margin products, and we leveraged our strong 88% loan-to-deposit ratio to actively manage pricing and selectively accelerate deposit growth, defending our excellent pass-through. Next slide, Unlimited is also delivering a step change in efficiency, notwithstanding the high bar. Unlock took us from laggard to leader. Cost income from 54.5% to $38.4 million. Revenue over RWAs from 5.5% to 8.5% and organic capital generation from 160 basis points to 380. Unlimited is resetting standards, we have already brought cost to income down a further 5 percentage points to 33.8%, while revenue over RWA improved to 8.9% and there is more transformation ahead from both major projects and artificial intelligence of projects such as nearshoring revamping security services, centralizing our trading engine and cloud transition and modernizing our IT infrastructure, among many others, are structurally transforming the way we operate and are almost complete. Their full effects are still to fully crystallize, and they will free up resources to further boost acceleration. AI at scale is delivering tangible outcome in KYC, transaction monitoring and corporate lending, all built on 1 centralized AI platform that has already cut time to delivery by 37% at a lower cost to serve. Next slide. Let me step back and look at where this leaves us versus our peers. UniCredit continues to deliver the fastest capital generating growth among peers despite starting from an already best-in-class position. Net profit growth of 24% in the quarter, highest among fears. Cost-to-income ratio, best and most improving in the 9 months to 33.8%. Return on tangible equity, highest and improving the most to 26.4%, normalizing for 13% CET1 ratio in the 9 months. Organic capital generation highest at 275 basis points in the 9 months. Next slide. We're highly resilient even in an environment that could deteriorate and our confidence rests on clear evidence. We are geographically diversified, leveraging market disruption in Italy to gain targeted market share in a disciplined way, exposed to structural growth in sea and Greece, soon amplified by Ambac, strongly positioned in Germany to capture the transformation of its economy, further amplified by the value created together with Commerzbank and profitably leading in Austria, our gateway to Germany and see with bolt-on or inorganic optionality across our market. We gained market share with robust asset quality and ample buffers, including the highest overlays, stock among our peers at EUR 1.5 billion. We keep improving an already best-in-class cost income ratio, leveraging both rising revenue and declining costs. One of the few banks in Europe, decreasing cost while growing significantly protected by investment and integration costs already expensed in the past. We're #1 in organic capital generation among peers with 275 basis points in the first 9 months, supported by low expected loss, our country mix and constant capital efficiency and securitization. This allows us to keep delivering superior distribution while building capital and supporting our business. We are perceived as a safe haven for deposit. In a period of uncertainty, we see inflows accelerated combined with conservative liquidity management and an 88% loan-to-deposit ratio. Next slide. acceleration and transformation are delivering above expectation. Our 9 months results point to significant outperformance versus all the critical 2026 targets of Unlimited which I remind you, have been already upgraded in Q2 of 2026. EUR 9.4 billion of net profit, 85% of our full year target of well above EUR 11 billion. EUR 8.2 billion of organic capital generation, more than 90% of our full year target. Cost-to-income ratio of 33.8%, well ahead of our circa 36% target and return on tangible of 24.3%, well ahead of our above 20% target. We now expect 2026 net profit pre-extraordinary charges to be well above EUR 11.5 billion and to enter 2027 with strong momentum. This gives a positive read across into '27, '30 in the current environment and superior resilience with significant buffers should the environment turn substantially more negative. Even before considering Commerzbank, our stand-alone trajectory to be reviewed at year-end is compelling. Net profit well above EUR 13 billion in '28 and well above EUR 15 billion in 2030, return on tangible rising to around 25% and and EPS and DPS expected to grow at around 15% per year over '26, '28 period. And in excess of EUR 50 billion of distribution over 26, '30 or 80% of net profit is backed by more than EUR 50 billion of organic capital generation. Next slide. The path forward on Commerzbank is clear. with well-defined time line and execution plan. Following the ECB authorization received on 15th of October, all remaining regulatory approvals are expected by late November. We've then intend to immediately ask Commerzbank to convene an AGM to elect new shareholder representative to its Supervisory Board. On the German law, a general meeting must be convened at least 30 days in advance. Shortly thereafter, we expect Commerzbank to kick off, unlocked and realize the related value creation. Our CET1 ratio is expected to be equal or higher than 13% and at the point of consolidation before temporary PPA impact improving thereafter as we generate significant capital beyond what is accrued for distribution. Our 2026 distributions are unaffected, and we expect them to improve on a per share basis in 2030 versus our stand-alone case, thanks to Commerzbank contribution. Commerzbank 26, 27 distribution are expected to reflect the strong provision charges and investment necessary to deliver the increased returns of unlocked. Importantly, we expect limited execution risk in delivering unlocked as we will leverage the transformation blueprint we have already successfully executed at HVB and we remain open to a Commerzbank HVB combination, which would unlock substantial additional value subject to shareholder support. Next slide. The consolidation of a circa 50% stake in Commerzbank is expected to accelerate our absolute and per share value creation versus an already compelling stand-alone case. We expect our earnings per share well above EUR 10 and distribution per share well above EUR 828 with a further step-up in 2019 and beyond, including the full delivery of a pre combination value creation. Moreover, a combination with HVB, which could potentially take place earlier than expected, would further accelerate both absolute and per share value creation. The direction is clear. UniCredit has a compelling stand-alone plan that is delivering well above expectations. Commerzbank takes it even further accelerating our earnings growth and strengthening our distribution capacity with a benefit building progressively over time. Next slide. Let me close by reiterating the 5 key messages behind the strength of our performance and the momentum we are building. First, our best quarter ever, a clear beat overall and across all critical KPIs. Second, relentless quality improvement excelling across the board; third, industry-leading distribution while simultaneously strengthening our capital position. Force, an unmatched 10-year trajectory moving from best-in-class to resetting standards. And fifth, Commerzbank adds to our compelling case with clarity on a faster time line. of execution and objective. The momentum is firmly with us, and we are confident in what lies ahead. Let me now open the line for your questions. Thank you.

Thank you. This is the conference operator. [Operator Instructions]

The first question is from Ignacio Ulargui BNP Pariba. -- have -- the first 1 is on NII. I just wanted to ask on the progression of the group level in 2027. If you think that a high single-digit growth it's reasonable at this stage in the light of the strong acceleration in lending growth. Also linked to this, I just wanted to get a bit of your thoughts about the market share gains in Italy and how much growth productionization can you see in the light of the ongoing M&A process in the country? And the second question is on distribution and the DPS, particularly in the quarter, I mean in the interim, you have paid full forecast dividend. So we expect -- how should we expect the buyback to interact with Commerzbank. Is there any reason for that to change into the full year -- how should we think about distributions in '27? You have given a medical target for 2028 above -- well above EUR 8 DPS. How should we think about that progression from the current level?

I'll take the first pass, and then I'll be complemented by Stefano. So NII, at the moment, the NII progression is accelerating. You see it in the numbers. Q-on-Q, you see it year-on-year. Why is that? Factors are fundamentally that the increase in rates has a deferred effect. And secondly, our market share gains have a deferred effect. So first, you land and then you clock all the NII on a more consistent basis in the quarter. So because of these 2 factors, we expect an acceleration going forward. We also expect continued market share gains across all markets. And therefore, it's not -- that this process is stopping. This process is continuing. We were very clear that this was our objective when we launched Unlimited, and now it's starting to come through. With respect to the market share gains in Italy, we said last year after withdrawing from the acquisition of BPM, that we were shifting gears, and we were going for an organic growth strategy and we felt we could achieve, let's say, more targeted and therefore, in our view, higher quality market share gains as they are targeted by the precise client segment and the precise products that we feel are best for UniCredit and that we could do that without the need of an acquisition and much more cheaply. We had prepared for that, and we doubled down on that preparation. If you look at what we've done, and we commented before, we hired about 1,800 people in the last 15 months, all on the front end. That is equivalent to about a 15% increase of our commercial network. No bank has ever done that. And by the way, we absorbed the entire cost optimizing our operating machine. No bank has done that either. That's one element. But these people were able to benefit from all the investment in automation, the leveraging of AI, the new credit models we have by segment. The process redesign, the automation of processes and a number of other things that are not apparent on the outside, but that allow us to be faster, more precise and more responsive to clients. As a result of all of that, our market share has started trending up from August to August, because this is the only numbers we have public. So August of last year when we started really, we started a little bit later. And here, we gained 130 basis points of market share, excluding mortgages because we're not targeting that segment for reasons that you understand. That is more than 10 basis points a month. And I have given you the number. We do not have the numbers today to the end of the third quarter, but we estimate we are gaining about 10 basis points of market share a month. And incidentally, this is what we have done in Bulgaria in the last 5 years in retail. So it's not the first time UniCredit does this kind of facts. As we gain market share, now we have a second element that should accelerate that gain, and that is consolidation. We were very clear that post-BPM, we were going to be an observer. I know that some people did not believe it, but we said we would be an observer. And why would we be an observer, because we anticipated that in a market where of a top 7 bank, 7, 6 are engaged in M&A, in integration, in antitrust remedies in bringing organizations together and therefore, are focused on adding value in ways that are different from gaining market share profitably. The only one bank, the second largest focused on gaining on market share can gain in space. And therefore, if anything, we think that our monthly market share gains in the targeted segments are going to accelerate, let's say, from the second quarter of next year as the integration allows us to accelerate the gains. This is why we have upped our ambition with a 15% market share targeted in the medium term. And please don't start thinking that this is being done in a quarter because it will take time. But we will update you on the gains. And we are quite confident we are obviously tracking very closely margins. And for the moment, we're doing this at flat margin, which means we're not buying market share. We're also doing this I would say, at flat risk, but actually the indicators are a declining risk if you look at our indicators. So everything is leading in the right direction and we're monitoring very closely, but we are very, very happy with what is being achieved by the team. With respect to distribution, our distribution remains unchanged, 80% of net profit Ignacio, you know very well that we have been shifting mix or adjusting between interim and total over the years in response to what we felt were opportunities to accelerate certain things because we felt it was the right time or in this case, a commitment that we took very clearly to all of you that if we were to do M&A, and in M&A, in year 1, you traditionally have significant dilution of distribution, in particular, of dividends. We would do everything possible to minimize that dilution. And therefore, that's exactly what we did. We are paying the entire accrued dividend, which is 2x, more than 2x of what we paid last year in the 9 months. and we are reducing your dilution and that is completely consistent with what we have said since day 1. For the trend line, I will pass now to Stefano, who will add to what I have said.

Some data points for you. As we have already highlighted in the second quarter results, -- we were expecting to accelerate on net interest income. In fact, you have already seen in Q3 is such an acceleration. So if you look the quarter-on-quarter trend is plus 5%. But when you are looking the year-on-year is plus 8%. So which are the reason why we are really confident for the future. First is rates. So for 2026, the average IBOR is 2.4%. We are expecting around 3% for 2027. 28%, let's see the overall evolution but should be around 2.8%. And our net interest income sensitivity is plus EUR 350 million or a 50 basis point improvement of the rates. So effectively, 27, there is an improvement. Then there is the replicating portfolio. So the hedging on the deposits. So the contribution next year is going to be more than EUR 500 million better than this year, and we're going to have the same pace in '28 and '29 in then we have volumes. So when you look to volumes, we are expecting to have an increase of loans at rate that is going to be even higher than the nominal GDP in countries like Italy and Germany, while in line with the nominal GDP in Ostrand. And we are expecting to grow on deposits as well. I mean you have seen in Q3 as well. Spread, we are assuming flat spreads, so don't assume that we can also keep on growing or spreads considering the size of the volumes of growth that we have, but we are keeping the margin. That is in line with our strategy. Last but not least, the positive pass-through. That's not a point of concern for us. The deposit pass-through was slightly up 1% in the quarter, and we are expecting more or less the same trend around 1% for each year. So '27, '28. So all in all, spread in not a point of attention, rates replicating plus volumes are the key elements that are explained in the acceleration of net interest income in the future as well.

The next question is from Britta Schmidt, Autonomous Research.

Yes. I've got a couple of questions on Commerzbank, please. Maybe you can update us on the discussions you're having with the management as to whether you see them as constructive -- and also whether you agree with Commercial management's assessment of the Phase 1 of synergy creation. You agree with the general direction of travel and the prospect of a combination with HVB. I think they pointed to either reverse merger or structural measures. It sounds like from your slides, you would more head on the reverse merger board, but maybe you can clarify that. And then just on the EUR 10 per share that you put on the slide with a further bus in 2 what synergies have you included in there? Does this include the EUR 0.8 billion pretax value generation you previously guided to? And is this substantially still in line with the 17% EPS CAGR that you disclosed with the previous quarterly results? Thank you.

Okay. So first of all, I think that as we near the moment when Unicredit will take control of Caris Bank, dialogue and discussion with all stakeholders of Commerzbank has moved to how do we achieve the best for Post Commerzbank, HVB and more generally, UniCredit, but everybody trying to do what's best for their organization. And that means a dialogue that has taken a different shape from the dialogue that we had during the acquisition phase, if you want to call it that way. With respect to our value creation -- and I remind you all, so not to confuse that we have what we call Phase 1, which is the value we can create at Commerzbank, together with Commerzbank, obviously, apply. Sorry, the blueprint of Unicard unlocked and therefore, shifting emphasis on uncertain variables. And that is was never going to be changed. It's fully confirmed. We don't see any reason why that would be any less. And if anything, we always search opportunities to do more, not less. But the actual detailed discussion about all the elements can only take place once we get all the authorization and we can openly discuss with all the stakeholders. But we are highly confident more than we would be on any other situation because at the end of the day, we're confident about unlocked, which is a way of approaching bank rationalization as we executed successfully 13 times and including HVB, we're highly confident on being able to do it at Commerzbank because it's the mirror image of the HVB. And we will be able to, if needed, integrate their team with some other people in hours in order to get that done. But fundamentally, there is no integration in Phase I. There is only applying Unicredit unlocked, and we are highly confident. Then you have Phase I, Phase II would be if and when we execute the merger with -- between Commerzbank and HVB. That does add what I would call synergies. So this -- the synergies there are relatively less than what would be in a bank that has a highly overlapping franchise because Best Bank do not have a highly overlapping franchise but these synergies are also going to be a lot less, and we will prove to competitors that we are going to be a lot less, if any. So what we have said about HCB is given the statements made by a number of stakeholders that it would be better to accelerate a merger between HVB and Commerzbank because it eliminates uncertainty, it brings clarity and everything else, we had anticipated 2 or 3 years for Phase 1 from the moment of taking control. and then possibly doing the combination of the 2 banks, if we had shareholders, employee and broad-based support. If we now have broad-based support and everybody is wanting to do that faster -- can we do that faster we could M&A law in any case, it takes time. So forget anything in '27. But we are ready to do it faster. But mechanically, what would happen inside the banks won't change. There will still be a Phase I where we try to align the 2 banks and a Phase 2 where we try to crystallize the synergies and we will reevaluate timing, magnitude when we are able to do so, when we have all the authorization, have control and we're part of the same group. I will pass to Stefano for the rest.

Yes. Coming back to your question on the well above EUR 10 EPS target in '28. -- as commented by Andrea, we are not including any effect that having from a potential combination of HVB into Commerzbank. The EUR 1.2 billion value creation that we have communicated for 2020. And a good chunk of that is included in the EUR 10 EPS target, but following the implementation of unlocked into Commerzbank. So no integration of HVB into Commerzbank, if there is that one, the effect has to be at debt.

The next question is from Darpin Lee, JPMorgan.

My first 1 is, sorry, just to come back on the NII outlook. Thank you for giving us giving all the details. But it just feels like given the loan volume acceleration you've talked about, and it's already running high single digit, the EUR 500 million of replicating income and also rate impact and rate sensitivity. It just feels like NII should be -- could be even double digit or is that incorrect? And then my second question is on the fees. You've talked before that a lot of the initiatives that you've taken to accelerate the fees would be a little bit more backloaded in your plan towards sort of well, I guess, '27, '28, but fees have been growing already quite a bit this year. So just trying to understand a little bit what we should expect for '27? Can that very strong momentum continue to even accelerate or '26 has already benefited from relatively good market conditions. If you could just maybe elaborate on the different components of fees that would be great. .

So I will start from the net interest income. So we are very confident on the trend of the net interest income but not a double-digit growth. That's not -- this is something that we would aim for that, but that's not something that we can achieve even if we are really confident. Do consider that we have also Russia compression still ongoing -- so we have a few hundred million of Russia compression to the net interest income in '27 and also in '28 to be considered. And as I told you, we are currently assuming to have flat spread, right? So we are not assuming to increase also the spread on the loan perspective. So the overall environment is good but not to achieve a double-digit growth. In relation to CE, we are expecting to keep a similar trend in terms of -- let's start from the volumes. So in terms of loans and deposit growth, we are expecting to follow up with a growth that is in line with, let's say, nominal GDP on average of the specific countries. So in some countries, we can also be higher than the nominal GDP; in some of our countries, less, but that's overall the trend, in relative terms, we are expecting to improve or keep on improving with the growth on the net interest income in relation to the fees, the same because we're expecting to have more penetration in some product, so this is the expectation for 2027 as well, where there is a slightly different trend of the in some of the countries versus 2026, but we are not expecting a meaningful divergence of the growth we see in 2027 versus 2026. The return on capital, considering the growth for the lending, I believe that will be more like in line. So it can be slightly lower, but it will remain at a very, very high level as we have seen for Q3.