Commerzbank AG
XETRA:CBK
Earnings Call Analysis
Q3-2023 Analysis
Commerzbank AG
The earnings call for the third quarter of 2023 commenced with a sense of pride, as the financial institution reported an operating result of nearly EUR 2.9 billion and a net result of EUR 1.8 billion. These figures indicate a doubling of the net ROTE to 8.6%, permitting the company to achieve its 2024 net ROTE goal a year in advance. While a forecasted decrease to 7.5% net ROTE for the year was mentioned, it still represents a notable year-over-year improvement. Furthermore, the revenue success reaching beyond EUR 8 billion comes despite a EUR 754 million drag due to Swiss franc loans issues at mBank.
The company's strong revenue performance is attributed to remarkable growth in net interest income, which has risen with the support of the ECB deposit rate increase to 4%. However, commission income has suffered a slight downturn, particularly in the securities business. On the cost side, the institution has managed to keep its cost base stable at EUR 4.8 billion for the year, aligning with targets and showing a sound cost-income ratio that is anticipated to hit 60% of the 2024 target. Looking ahead, diligent cost management remains a priority to counter expected future pressures from inflation compensation payments and IT investments.
The quarter witnessed mBank dealing effectively with the burdens from Swiss franc mortgage loans, achieving an over 85% coverage ratio on provisions for these mortgages. mBank's proactive stance was evident as they continued to offer settlement agreements, with a 35% increase in agreements in just three months. As they make strides towards resolving these loans, investors can expect further burdens in the following quarter, although the exact magnitude remains unspecified.
The company anticipates some challenges ahead for net interest income (NII) from deposits. With no further rate hikes expected and an increase in deposit beta, a decline in NII is on the horizon. Nonetheless, the corporate clients' segment shows promise with its sound operating results. As the book closes on Q3, a balanced fourth quarter is projected, with operational tweaks like a EUR 100 million increase in NII due to adjustments in the PSBC's reaction portfolio. However, legacy position cleanups may counterbalance these improvements. Increased provisions for variable compensation are also noted, which will be redistributed accordingly in the fourth quarter.
Bolstered by a positive quarter, the outlook for 2023 has been updated to reflect expected overall revenues around EUR 10.6 billion. While net commission income might trail slightly behind the previous year, net interest income is anticipated to exceed EUR 8.1 billion, even considering the forecasted impact of Swiss franc mortgages in Q4. The cost base is expected to remain at EUR 6.4 billion with a cost-income ratio around 61%. Projections for the risk result have been positively revised down to less than EUR 700 million, and a solid CET1 ratio of around 14.7% is anticipated. Additionally, an expectation for the net result has been set at around EUR 2.2 billion, corresponding to a net ROTE of approximately 7.5%. Aligning with the capital return policy, a 50% payout ratio is targeted, with a share buyback of up to EUR 600 million and a corresponding dividend to be proposed at the next AGM.
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Hello, and welcome to the Commerzbank AG conference call regarding the third quarter results 2023. Please note that this call is being transmitted as well as recorded by audio webcast and will be subsequently made available for replay in the Internet. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following Betina Alok's presentation. Let me now turn the floor over to our CFO, Bettina Orlopp.
Good morning, and welcome to our earnings call for the third quarter of 2023. I would like to focus on the quarter and the outlook for 2023 in this call. In our capital markets update later today, we will cover the longer-term plans and outlook.The results of the quarter speak for themselves. It has again been an excellent quarter. Let me start with the year-to-date financials before going into more detail on the quarter. The operating result reached nearly EUR 2.9 billion and the net result, EUR 1.8 billion, with 8.6%, the net RTE has doubled compared to the same period last year. While we project the net ROTE to be somewhat lower at 7.5% for the whole year, this marks a big improvement and means that we expect to reach our 2024 net ROTE target one year early.The excellent results are based on revenues that surpassed EUR 8 billion. Even so, there were burdens of EUR 754 million from the Swiss franc loans at mBank. Revenues were driven by the growth of net interest income. As expected, commission income was below last year's level due to weaker securities business in PSBC. The cost base reached EUR 4.8 billion so far this year, fully in line with our target. The cost-income ratio will reach 60% of our 2024 target. While we expect a slightly higher cost/income ratio for the full year, we are clearly making good progress. The risk result of minus EUR 367 million is well within our target for the year and together with a low NPE ratio of 1% underscores the high quality of our loan book. With EUR 435 million, our top-level adjustment is only marginally changed. We currently assume that it will be maintained into next year. Based on the good results and overall stable risk-weighted assets, the CET1 ratio increased further to 14.6%, well above requirements.Looking now at the quarterly results on Slide 2, they are even better than the already strong second quarter. Based on higher revenues and lower risk results and costs in line, the operating result and net profit of the third quarter are more than 20% higher than in the second quarter. With EUR 27 million, exceptional items are again only minor this quarter. This leads to the underlying revenues, starting with the commission income on Page 4. Corporate Clients has continued its stable performance based on the payments and capital markets business. In PSBC, net commission income is down by 3% compared to the second quarter due to the lower volume of securities transactions of our private customers during the summer months. As already guided, for the whole year, we expect overall commission income to be slightly lower than last year.Now to NII on Slide 5. Net interest income reached a new high, supported by the increase of the ECB deposit rate to 4%. All segments have performed well. Corporate Clients achieved underlying NII growth of 3% compared to Q2, mainly due to higher average interest rates. While the deposit better increased only slowly. NII in PSBC Germany is up by EUR 24 million quarter-on-quarter. However, NII from the underlying business was stable as Q2 was burdened with a one-off of around minus EUR 30 million. Even though rates were lowered in Poland, mBank managed to increase NII with continued margin management and increased deposit volumes. As in the previous quarters, part of the NII of others and consolidation is offset in the fair value result. At current interest rates, this offset is now around EUR 200 million each quarter.On the next slide, I will cover the expected developments in the fourth quarter. The deposit better has increased to around 25% in the third quarter, again, increasing slower than originally expected. Also, at the end of the quarter, it was only a bit higher than the quarter average. While we see further increases, they should be slower than originally anticipated. We therefore plan was an average of 30% in the last quarter of the year. Based on this assumption, NII should be above EUR 8.1 billion for the next years in the strategy update later today. As mentioned, mBank has been very successful in effectively managing margins and growing volumes. We have, therefore, also raised the outlook for interest income in Poland.Let's move to cost on Slide 7. Operating expenses are higher year-on-year due to general salary increases and increased accruals for variable compensation. Compulsory contributions are lower, thanks to decreases in European bank levies and the Polish deposit guarantee scheme. In total, we are below last year and on track with our cost measures. For the fourth quarter, we plan with increased costs due to further inflation compensation payments and higher IT investments.The next two slides detail the risk result. The EUR 91 million risk result is on the lower end of our expectations. This is due to unexpectedly large repayment from single cases that almost offset new loan loss provisions in Corporate Clients. The risk result in PSBC Germany and mBank are well in line with our expectations. The corresponding cost of risk on loans is only 18 basis points. Based on the experience so far, we now anticipate a risk result of less than EUR 700 million for the full year before a potential usage of our top-level adjustment. Our top-level adjustment has decreased by EUR 21 million due to a recalculation based on the current macroeconomic scenario and portfolio. The remaining top-level adjustment of EUR 435 million is available to cover potential secondary effects.Let's now look at group results and the tax rate. The record operating result of the quarter reflects further improved revenues, the low-risk result, and ongoing cost management. While also expecting a good result in the fourth quarter, it should come in lower than the third quarter, mainly due to the increasing deposit better and likely higher risk resort. The tax rate remains at an elevated level of 36%, mainly due to the provisions for Swiss franc mortgages that are largely not tax deductible. I currently assume that the tax rate of the financial year will remain around the same level.The next slides cover the operating segments, starting with private and small business customers. Customers of PSBC Germany continue to adjust the composition of their financial investments. The volume of net new money invested in securities remained at a moderate level. And the proportion of fixed-income products and new investments has increased. Loan volumes have been overall stable as new production replaced maturities.The biggest movement has been in deposits, where PSBC attracted additional core deposits with attractive offerings, increasing the volume by EUR 11 billion in the quarter. Part of the increase is new money, but part is also shift from site deposits, which decreased by EUR 7 billion. The speed and size of this shift will be the major driver for the deposit better going forward. This leads to the performance of PSBC on Page 12 and 13. The customer business of PSBC Germany has been stable this year. To remind you, 2022 had a significant one-off benefit from the prepayment of mortgages that has not been repeated. And Commercial benefited from the positive valuation effects from some legacy positions. So, the underlying performance is even better than the numbers suggest. As mentioned, in the third quarter, the interest income of PSBC Germany is higher than in the second quarter. This is offset by lower fee income and a lower contribution from Commercial. The slight cost increase is broadly offset by a lower-risk result. The operating result is on the same level as the last two quarters.For Q4, we expect a lower operating result based on lower revenues. The main reason will be the interest income. Firstly, we will see an increase of the deposit better, not offset by higher rates. This could result in a drag of up to around EUR 100 million. Secondly, we will make some adjustments to the structure of the application portfolio of PSBC Germany. This will also have a negative effect of around EUR 100 million in PSBC, offset in others in consolidation. The adjustments improved the profile of the application portfolio and should be beneficial over time. The commission income is expected to be on the level of Q3. Let's now move on.On an operating level, excluding the effect from the Swiss franc mortgages, mBank also had a very successful quarter, slightly below the level of Q2. This is mainly due to a higher-risk results. Revenues, excluding provisions for Swiss franc mortgages, have been stable. Provisions for Swiss franc mortgages now reached a coverage ratio of more than 85% of the outstanding mortgage volumes. mBank continues to very proactively offer settlement agreements to customers as the volume has increased further in the quarter. So far, more than 11,000 settlements have been agreed, an increase of around 35% in the last three months. By making good progress on the resolution of the Swiss franc mortgages, further burdens in the fourth quarter are expected. The next two slides cover Corporate Clients. In Corporate Clients, the overall loan volume increased in the quarter, reaching the level of Q3 last year. This increase in both Mittelstand and international corporates has been achieved by raising overall profitability with the average RWA efficiency now at 7.7%. In deposits, there has been a relatively moderate shift to term and core deposits, which are now 1/3 of the volume. Correspondingly, the deposit beta increased slightly in the quarter. Due to the higher average interest rates compared to Q2, NII has nevertheless increased.We expect a decline of NII from deposits in the next quarters given that we do not anticipate any further rate rises and a continuing increase of the deposit better. Corporate clients have managed to deliver a workout operating result in the quarter. This is based on a higher net interest income, stable costs and a very low risk result. While the low-risk result has helped the operating result, also the pre-provision profit has further increased, reaching EUR 648 million in the quarter, a new high after the already exceptional Q2.Finally, a quick look at others and consolidation. Others and consolidation reports an operating profit of EUR 83 million and, excluding the one-off last quarter, interest income has been stable. As mentioned, in Q4, we expect a EUR 100 million increase of the NOI and consolidation due to adjustments in the reaction portfolio of PSBC. However, in the fourth quarter, we will also use opportunities in the current market environment to reduce some legacy positions. This cleanup will likely offset the mentioned benefit in NII. The higher costs in the third quarter are mainly due to the increased provisions for variable compensation that are booked in others on consolidation. That will be largely reallocated to the segments in the fourth quarter.Overall, we expect a more or less flat result in the fourth quarter. The main swing factor will be valuation effects. Credit risk-weighted assets have been largely stable this quarter. The slight increase in corporate clients due to loan growth and FX effects has been offset by PSBC with the securitization and opposing FX effects. Capital has increased mainly due to the good net result of which 50% contribute to the CET1 ratio. As a consequence, the CET1 ratio reached 14.6%. This translates to a 448 basis points buffer to the MDA. And now to our outlook for 2023 on Slide 18.Based on the positive developments in Q3, we have improved our outlook for the year. We now expect overall revenues around EUR 10.6 billion. This is based on net commission income slightly below last year and net interest income of more than EUR 8.1 billion. This outlook includes the assumption of further burdens from Swiss franc mortgages in the fourth quarter. We maintain our outlook for a cost base of EUR 6.4 billion. The cost-income ratio is expected to come in at around 61%. We have further improved the outlook for the risk result. It is now expected to come in below EUR 700 million before the potential usage of the top-level adjustment. Further, we expect a CET1 ratio of around 14.7%. We expect the net result to reach around EUR 2.2 billion. This corresponds to a net RTE of around 7.5% above our original target for 2024.In accordance with our capital return policy, we target a payout ratio of 50%. As part of this payout, we have applied to the ECB and the German Finance Agency for approval of a share buyback of up to EUR 600 million. For the remaining capital return, we will propose a corresponding dividend payment at the next AGM. Thank you very much for your attention, and I'm now very happy to take your questions regarding Q3 and the outlook for 2023.
[Operator Instruction] The first question comes from Borja Ramirez from Citi.
Hello, good morning. I have two questions. Firstly is on the deposits in PSBC in Q3. There seems to be some increase in migration in the quarter. I would like to ask if you could please provide more details. And also, what is the cost of the covered deposits in the quarter, if you could provide that? And then my second question would be, I think it has been mentioned at the press conference this morning that NII would dip in 2024. I would like to ask if you could please provide more details. Is it still EUR 7.5 billion to EUR 7.6 billion guidance for NII? And also if you could give any indications on loan losses next year? Thank you.
Very well. Let me just write that down. So on the deposit development, I mean, you see that on Page 11 of the analyst presentation. So we have seen basically an inflow of approximately EUR 4 billion coming from external for comdirect and Commerzbank. We have different offers there. Comdirect slightly higher than Commerzbank. And you also see that there is a shift from site deposits into term and coal and saving deposits, why I have to say that in the third quarter, the main part and the main shift really went into coal money. And the teaser rates are currently up to 4%, which we are offering. We have different models out there. That's the first question. The second one, guidance for, I think, 2024 on NRI and risk result. So the risk results, we believe, will be again somehow elevated. So we have in the plan something around EUR 800 million for next year. That's due to the fact that we believe that the economic development in Germany specifically will be still very weak. Our own economist is currently at a minus 0.3%. He is more conservative than the rest who still believe that there will be a small growth. That's one part, which we have included. And as I said in the speech, we intend to carry over the top-level adjustment of EUR 435 million, which gives us a lot of room for potential defaults and problems in our loan portfolio.And on NII, I will come to that in more detail this afternoon. I promise a very detailed presentation on that chart. You will love it, but it's clearly the product out of a higher average interest rate level because we will see most likely on average of 4% next year. We have seen much less this year. That's the good part of the story. The other part clearly is that deposit better, and that will drive the story will be higher than the average of this year of this year, we expect to end with an average of 25%, and we have a higher pass-through rate predicted for next year, but more details later.
The next question comes from Benjamin Goy, Deutsche Bank.
One follow-up question just income and the other on the share buyback. Just double-checking. So you said on PSBC, it's a EUR 100 million headwind from deposit mix in the fourth quarter. You have the EUR 100 million one-off impact from Repligen portfolio? And the minimum reserve requirement impact come on top as well. That will be the first moving part for the PSBC. And then secondly, the EUR 600 million up to EUR 600 million share buyback. Is the timeline still around year-end to early January? Or do you think that could flip also partly because I think it's larger than you initially thought in August?
So yes, I mean, we believe on PSBC, there will be a headwind out of deposit mix change, increasing deposit beta of around EUR 100 million. Then another part is really some things we do on the Repligen portfolio. That will be, however, offset on other some consolidations. So, the second part will be net 0 for the group. And our guidance also for the NII, the larger than EUR 8.1 billion. We included the minimum reserve assumption clearly, no increase of that. And I will come to that also this later today. We haven't assumed any change in the minimum reserve policy also for the years to come. On the EUR 600 million, the time plan is unchanged. We expect approval from financial agency, but also from ECB latest by the end of the year. And then we will start the program most likely beginning of January. And then we should be finished clearly before the AGM 2024, which is our clear target. And the EUR 600 million, yes, somewhat higher than we originally thought due to the good result should be finished by that.
Next question comes from Stuart Graham, Autonomous Research. Your line is now open.
Just on NII again. If I take your GBP 8.1 billion guidance, that's kind of implying EUR 1.86 billion for Q4 after you've just done EUR 2.17 million. And I hear you on that EUR 100 million in PSBC Germany, but where is the rest of it coming from in terms of that big implied Q4 decline? And then the second question was, there was a big jump in the stage 2 assets. I think you've got a new backstop indicator. Can you explain that change, please? And if you could provide an estimate of what you think the like-for-like Q-on-Q change in Stage 2 assets was, please?
So on NII, I think the focus is also on the larger than EUR 8.1 billion, I'll do the math. I would probably rather think about NII somehow between EUR 1.9 billion and EUR 2 billion. And the driving factors is what I said about private clients, indeed, then we will also see increasing deposit better on the corporate client side, which will add to the calculation. And also mBank assumes that there will be a reduction in their NOI for the fourth quarter, given that there has been also some interest rate decreases. That's basically doing the mix on it. And on the second question, yes, this is a regulatory thing, which we have included the backstop indicator. Actually, I think there were expectations that might be higher because of the Stage 2, we think it's a limited effect, and we booked it, but we do not expect more of it. So, for us, really not a significant effect, but it's important to state that it has nothing to do really with any certain companies or some of that getting it to difficulty is it's more a technical change, which we did.
So, the like-for-like Q-on-Q increase would be materially lower than that headline figure looks yes?
Yes, indeed, that's the thing. But on the other side, I mean, on corporate clients, which is a significant -- which is really low, basically there, we have different effects. I mean we have seen some adverse showing up. But on the other side, we also had some paybacks. So that equalized. But overall, I think we see lots of resilience despite the recession ongoing in Germany, which we currently see in this quarter.
The next question comes from Rohith Chandra-Rajan, Bank of America. Please go ahead.
Hi, thank you. Good morning. I had three quick ones, please. First one was you talked about the deposit beta assumption rising to 30% in Q4 and you've given us the Q3 number. I was just wondering if you could give us what the latest deposit beta is so that we can benchmark that for the rest of Q4. And then the second one was, you talked about changes to the replicating portfolio. I'd be interested to just understand what it is you're doing there? Are you changing the size or the duration of that book? And then the last question was just on the Swiss franc mortgage provisions. I think mBank's indicated somewhere between Q1 and Q2 level provisions for Q4. I was just wondering what you're assuming in your full-year earnings guidance, please.
Yes. I mean on the deposit better, I said that at the end of the quarter, the deposit better was only slightly above the 25%. So you can assume that this is somehow in between 25% and 30%. I think it's currently at 26%, 27%, something. And on the changes in replication portfolio, that's kind of a weakening effect, et cetera, so it's more smoothening, not really a change in volumes or something like that? And on the third one, on Swiss mortgages, we assume that we will most likely see provisioning in the size of the third quarter.
The next question comes from Tobias Lukesch from Kepler Cheuvreux.
Yes, good morning. Thank you. Bettina, I think there's a lot of forward-looking questions I have. Maybe I'll save them for later on. But on the corporate side and on the loan growth, I mean, we have seen Germany in general, higher loan growth this year, everybody expect that now to be kind of breakeven in terms of growth. What is the driver still like both in the PSBC and also in the corporate segment that you see that continuous loan growth? And how do you expect that in Q4 and potentially in the first half of next year?
Thanks Tobias for saving the other question for later. I mean for the fourth quarter, we would say that on private clients, probably very stable development of the book. I mean, in the moment, we really only see that maturities get replaced and carrying a little bit in the forward-looking that will continue to be a difficult market given the price levels, et cetera. On the corporate client side, we are more optimistic because we know that there is a lot of demand out there for investments. And the question only is when our corporate clients really moving that also depends on the government interventions. And if you read the papers today, German government has announced a number of things, how they want to speed up things to make more specifically also the situation in Germany more convenient and more acceptable for corporate clients. So we believe that there is further growth possible whether you really see it in the fourth quarter and in the first half year; clearly, it depends a little bit on the sentiment and also all the things going on. But midterm, we are more optimistic on that.
Thank you. If I may follow up, so we should not expect a strong contraction rate over in Q4 and the first half. So base case should be flat to up. Is that the right takeaway?
That's the perfect assumption, yes.
[Operator Instruction] I'll hand it over to the next question here, Riccardo Rovere, Mediobanca.
A couple of clarifications, Bettina, you have given a lot of kind of guidance for Q4 and maybe also to '24. Now if I understand it correctly, you are thinking about risk cost in '24, and please correct me if I'm wrong, in the region of EUR 800 million, but then a lot will depend upon the use of TLAs, which, as far as I understand, you intend to carry forward. So I would imagine you will not use any of the EUR 435 million in Q4 and everything will be the decision of the last 2024? That's the first question. The other question I have is on mBank and NII at the beginning, you stated that they experienced strong deposit inflows, and that helped them on the margins. And this is supporting NII and mBank. I would imagine they're gathering deposits, say, at whatever the cost is less than policy rate, and this is then we deploy it at higher rates is what is happening in Poland. And if that is what is happening, we should continue as long as policy rates stay above the cost of deposits. That's another question. The other one I have, if I just wanted to better understand U.S., if you expect in Q4, a level of provisions related to FX Polish loans more or less in the same size of what we have seen in Q3? I think I get it right.
Thank you, Riccardo. And you got it all right. So the cost of risk, indeed, assumption for next year is around EUR 800 million. And yes, our plan is to fully carry over the top-level adjustment of EUR 435 million into 2024. So no use in 2023 of the GLA, and we will still -- that's at least our expectation stay below EUR 700 million for this year. Secondly, on mBank assumptions, all what you said is correct. However, we have seen decreases in the interest rate level that put pressure out there. And we just think that there will be some reduction, but it will not be huge. So it's rather a smaller reduction in NII, which we expect for the fourth quarter. And then the outlook for Q4, indeed, you also got it right. I said that the level of provisioning for Q4 should be somehow in the region of Q3, which was EUR 234 million.
The next question comes from Amit Goel Barclays.
Two questions. One, just on PSBC Germany and on the deposits. So there's a pickup in the term core savings deposits. I'm just kind of curious in terms of your modeling assumptions there because I mean, I guess one of your peers I saw, ING Germany, they had their kind of teaser rates at the start of the year. They saw significant outflows this quarter. Just wondering what your thinking is in terms of how the depositors will behave as some of those rates roll off. And then secondly, just actually coming back on that, the changes to the replication portfolio. I think you mentioned that some of those changes there were to kind of do some smoothening. So I think maybe I just didn't quite catch basically what exactly has changed in the replication portfolio.
So on the first one, I mean, yes, we saw a pickup. It's primarily the increase went into the call money. And when we are determined to keep it and to manage it. So there is an active management of deposits out there. And I mean, we want to keep it stable. And at this level. This is what I can tell you about. I can't judge what's happening on competitor side, but we are closely analyzing also the competitive situation and timely react on that. I mean, it's hard to give you, and you know there are any real details on the replication portfolio, et cetera, what we do here. It's really this recompeting anything what I start smoothing out, nothing really big, but we also are reacting to the shifts in deposits, et cetera, and that's all what comes together.
The next question comes from Anke Reingen from RBC.
I just had a clarification question about the comment you made about the negative and the net fair value result. So is that it's the corresponding hit to the positive NII has a corresponding negative of EUR 200 million per quarter in net fair value result. Did I understand this correctly? And does it mean that this minus EUR 200 million per quarter should reverse over time being a positive and net result by the negative in NII. So can you please clarify? Thank you
Anke, yes, you got it right. So there is basically -- when we spoke about that also before, there are these corresponding effects because we do hedges in others in consolidation. And therefore, you see a large part of the NII reflected in negative positions in fair value. That will reverse somehow over time, but only it really depends on the rate level and how rates are developing.
That would be like EUR 800 million a year. So is that very long-dated? Or I mean, it could be quite a meaningful headwind. And when you talk about moderate growth and I guess I will discuss later, but I suppose that would include the reversal of the negative and net fair value result.
Well, I mean we will speak to that also later today. But for next year, for next year, it's indeed the expectation, but you also see the effects as we speak in the NII, but that's indeed the thing.
The next question comes from Vishal Shah, Morgan Stanley. Please go ahead.
I have two questions. One is related to your net profit guidance, which you have equated to circa EUR 2 billion post 8.1. So looking at where the upgrades are coming from. One is you have obviously upgraded your NII to greater than 8.1%. You have also lowered the risk result guidance to less than EUR 700 million. But then I think you also said that you expect the bank provisions, CHF provisions to be sort of similar in Q4, which should offset this sort of increase in guidance. So am I correct in interpreting this? And then so how do you then still get to sort of EUR 2 billion. And then if you could -- I just wanted to follow up from the last question on basically the ONC NII. I know you probably touched upon this on the strategy, but I just wanted to understand the mechanics of how this NII is generated and how these hedges work? If you could explain that, please? Thank you
I mean, the guidance on the net profit is pretty clear. We have the EUR 10.6 billion revenues, which we expect. And that's the combination of NII and CI and fair value and other results. And that includes, indeed, also the effects from the Swiss franc. We have a cost guidance of EUR 6.4 million, which we confirmed. And then we have a risk result of less than EUR 700 million, if you calculate that one and take the somehow elevated tax yield, then you come to our EUR 2.2 billion. That's where we are. And the second question was on -- you have to help me on NII. The net fair value Well, I mean I discussed this with Anke beforehand. So it's really corresponding things that we see positive NII effect, but we are cautious people. So we have hedges against our NRIs, and that's basically approximately 80% of it, you have as a negative effect in the moment in the fair value.
So the last question is a follow-up question coming from Rohith Chandra-Rajan. Please go ahead.
Thank you for taking the second question. It was just on your full-year risk result guidance of less than EUR 700 million. I appreciate it's less than EUR 700 million. But at EUR 700 million, it would imply a Q4 charge that's about 2.7x your year-to-date run rate. I was just wondering where you would anticipate deterioration quarter-on-quarter. I noticed in particular that corporate clients had a particularly low charge because there was a repayment in the quarter. But it looks like that implied Q4 charge is quite conservative. So just curious as to how you set that. Thank you.
Yes, absolutely correct. It's a long quarter. I have to say. I mean, remember the fourth quarter always runs until end of February. So that's one of the reasons why always the fourth quarter is in many times higher than the other quarters. Plus, I mean, we have also in the third quarter, we had a specifically low-risk result because we also had some repayments there, which we do not expect in the moment at least for the fourth quarter. But indeed, and that's why we said less than 700 million, and we have not been more concrete on that. It can be everything between 600 and 700.
Ok, thank you.
So excellent. I think we are done very quickly. Thank you very much and talk to you or see you later during our capital markets update. We are looking forward to that. Thank you.