Societe Generale's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Feb.13.13 | About: Societe Generale (SCGLY)

Societe Generale Spo (OTCPK:SCGLY) Q4 2012 Earnings Call February 13, 2013 10:00 AM ET

Executives

Frédéric Oudéa – Chairman and Chief Executive Officer

Bertrand Badré – Chief Financial Officer

Analysts

Jean Francois Neuez – Goldman Sachs

Nick Davey – UBS

Delphine Lee – JPMorgan

Alex Koagne – Natixis

Operator

Ladies and gentlemen, welcome to the Societe Generale Conference call. I now hand over to Mr. Frederic Oudea. Sir, please go ahead.

Frédéric Oudéa

Good afternoon. Do you hear physically in London, and we are trying something, we are trying to innovate with people in Paris listening to this conference call, analysts in Paris, and I say also (inaudible) to them and then people on the line.

So, I hope everybody can hear and the sound is fine. We’ll go through the presentation briefly and then of course after that, answer your questions from the different sources. I’ll just introduce this presentation and then I’ll leave the floor to Bertrand who will go through the results more in detail.

Just in a nutshell, if you remember one year and a half ago roughly of something like this end of 2011 clearly the major objective for 2012 was the transformation of the balance sheet following the crisis in December.

And when I look back at 2012, I think we have achieved all our objectives. And this slide is summarizing this achievement. First of all, in particular, of course, the deleveraging of SGCIB altogether €35 billion of assets sold since end of June 2011, both I would say a legacy assets as well as usual loans, the normal loans and it’s completed.

Secondly, we had announced a disposal programme for the next two years the 2012, 2013 with an impact between 50 basis points and 100 basis points of Core Tier 1 benefits. We have I think done very well by disposing of assets effectively in practice reaching this 50 basis points hurdle, but more importantly, I think on one hand enhancing the strategic profile of the route and reducing the risk. And in particular of course the disposal of our subsidiary in Greece, the disposal of TCW, which was completed last week. And as you know the agreements to sell our Egyptian subsidiary NSGB with a public offering, which is about to be launched and with a deal which will be closed end of the first quarter 2013.

Third, the strengthening of the liquidity profile Bertrand will go through the balance sheet and detail that clearly, we’ve done I think very well in 2012. And I must say that the beginning of 2013 more than ever we are definitely online with our target, both in terms of capital between 9% and 9.5% Core Tier 1 Bertrand again will go through all the figures. And I’m sure that we’ll admit for 2013. We’ve increased our Core Tier 1 by 165 basis points in 2012, 40 basis points in the last quarter.

But also in terms of liquidity, we don’t put a figure yet on LTI the rules have yet to be adopted with the SGCIB. But let’s say our view is that we are already in line with the requirements and certainly will be at year end. That’s the first thing and it was really the major focus as I said for this year. Secondly, something which is I think very important which is, I think to get an further enhanced contribution generation of the businesses and that’s important for the profit this year and beyond.

In retail, you will see that we’ve maintained the activity we had overall good commercial activity in France and in specialized financing, while at the same time, we put pressure on the resources on capital and liquidity, so there are more resources allocated to specialized financing and the contribution is increasing. We’re seeing international retail in the fourth quarter and overall in the second half, all the benefits of the work we’ve made in Russia.

In Russia, we make money and we disclosed in the appendix the contribution of our Rosebank subsidiary taking into account the attrition bits. So we disclose, we speak into pieces the different parts of Rosebank actually in our reporting.

All in all, it’s $100 million net profit for this year. It’s not enough and we will do more. But this is positive and going I think in the right direction. And third, CIB which was of course, an important challenge also, if you remember, one year ago, we had to start with the restructuring. We had to cut staff by something like 13% and of course again, made this deleveraging.

When you look at the results and beginning of this year confirmed that with good volume. I think we have here a CIB which is in order and which can work and gain further market share. We’ve gained market share in the last four or five years.

My ambition is to confirm that in 2013. Third, if you look into the cost income, we’ve made also very good progress in terms of cost monitoring and cost all down. This has been an effort permanent effort, and I think we get the benefit including from of initiative, which has started three years ago, for example, on the IT side when we put together all the infrastructure on a worldwide basis, 2012 is the year during which not only we improve the quality of the IT, but we see the benefit in terms of cost savings. And this will be of course, a focus for attention going forward. And that means that the underlying net profit of the Group basically has remained stable at $3.4 billion. I would conclude and tell you how we see 2013 and beyond. There is a second step of transformation to make of course this Group even more efficient in a very different environment.

Exactly, as previously announced, we are resuming also the payment of the dividend. We have rounded that at $4.45 per share, I mean 26% payout ratio in terms of Group net income and excluding the revaluation of given that which is non-economic. And we also has quit dividend option as again previously announced.

So now I will turn the floor to Bertrand who will go through the results and again we’ll conclude.

Bertrand Badré

Okay. So I think we have time to go through the, once more new merits exceptional also called non-recurring items, which may exist picture for ours as like as for many banks that it will be difficult to decipher at first sight. I will not spend too much time, because I think you’ve been able to go through the appendix which make line by line and how you see of these exceptional. What is more interesting is to imagine what will be 2013 from that perspective.

Regarding the third block, which relate to legacy assets under deleveraging, I think the deleveraging is the eye notes. We have done 100% of what we have said in October 2011, so it’s behind us. We have another $10 million this quarter and then it’s over.

Regarding legacy assets what we say is that this quarter we’re still around $100 million, which is close to our initial guidance. Based on our perspective regarding the legacy assets, we can say that this $100 million should decrease to $50 million that quarter relatively rapidly.

And so it should it be non-material item going forward. I think it’s also an important milestone that we’ve reached. Beside the fact that we are now below (inaudible) EUR 10 billion in total and roughly at 3 billion regarding the money about assets on the legacy portfolio, so this is the first block.

Second block is also likely to evolve in the future. It’s a mixed bag of both goodwill impairments and impact of disposals. Going forward, we already expect a positive impact from the disposal of Egypt, likely took close before the end of this quarter end of this quarter.

We’re getting good win impairment again, we are carefully as usual at year end reviewed our goodwill. The only significant item and agreements if I may say or in full agreements with out partner Credit Agricole; we have depreciated the entirety of the goodwill of Newedge which is now down to zero. And this was really the only item that was really part of this goodwill review nothing else. So no need to do the (inaudible) we say in French.

Third block, this will continue, unfortunately, because we have nothing to face that in a clean way. It’s our own debt. I mean I can’t announce you, provided the conditions are the same, that’s where we’ll have those are getting impacts in the first quarter and there is nothing we can do against it. As the other, it’s a mix of mostly two elements on the positive side as the profit we made second quarter on the purchase of our own debt. And on the negative side the impact of the EUR 7 million provisions was taken for litigation, generic provision we’ve taken on mitigation this quarter.

So, that’s really what it is about. So if we move this page, I mean Frederic said, whereas everything which need to be said. A point number one, we have reached 100% of our bit of urging objective, and we have significantly reduced the legacy asset portfolio and more importantly, because it’s been weighted for a long period of time. We have been able to fix here also some disposal, we have closed the disposal of Greece in December. We’ve just signed the closing of TCW last week. And as I said, we’re likely to close NSGB after they offer by the end this quarter.

Bottom line and we do not include a bench of smaller disposal, which together also added a few bps of capital, but more importantly, which also participate to the restricting and I would say the rationaling of our portfolio of businesses. The bottom line, starting where we were in mid-2011, basically we have achieved what we say, we wanted to achieve on that perspective.

Basel 3, so Basel 3 is still up in the air. We still even though know exactly when it’s going to be voted. So we still expect this to be in place by the end of this year or beginning of next year, I mean there is a slight difference between 31 of December and 1 of January. So this year, in between especially as far as insurance is concerned and I come back to that in a minute.

As far as I saw Basel 2.5 is concerned, we are at 10.7. We’ve been able to grow by close to 170 bps of capital this year. As the main elements of quartile, our retained earrings net of the dividend as we’ve been paying, our debt average is also very significant mostly on legacy assets. There is also a decrease in risk-weighted assets your gain will tweak there, you might have noted that reasonable asset decreased by $13 billion this quarter out of which you have roughly $2 billion which are related to methodological impact, so very limited. As the majority of the impact is related to either the leverage or the fact that credit is lower than it used to be. I mean, we have lower activity.

If you add to that foreign exchange impact, and more importantly, probably I didn’t spend that much time expressing that because it’s a bit technical. The fact that we have moved some in the legacy portfolio, some rescheduled assets have moved to the deduction. So we have less rescheduled assets, more deduction, total impact is neutral to even negative. But it has a significant impact in terms of rescheduled assets.

So this is the mix of all this which makes us go up to 10.7%, that’s a 2.5 core tier 1 ratio this quarter. Starting from there, so we have reset our road map to buy their suite, we have reset the road map. We have not reset the objective. The objective is still to be at 9%, 9.5% by the end of this year.

If you make the calculation, you will see that with all the pluses and minuses that we put together, we are at 9.5% which gives us some room to further increase the assets used by businesses which can even be improved if we do some further disposals. I think Fredric will comment on that later on.

So what else remaining facts? Of course, earnings with a dividend provision, from that perspective the fact that there will be or there will not be, we don’t know yet this (inaudible) does not impact, it’s considered being paid in cash, if you consider end of this year.

So net to net, 85 bps, 75 bps sorry, of net earnings, that’s the dividend. Legacy asset is a bulk of the deleveraging behind us. We will continue working on this. But again, as we often see, they have less to do. We want to do as much as we can, but it’s more and more difficult. The disposals close to 250 bps, 45 bps to be very precise. Now we have all the economics of this transaction.

We had already mentioned, but now I think we give the figure regarding the impact of AF 19 which will be taken on board first quarter this year, 15 bps negative. And we have also that’s where the reset has happen, nothing really surprising there moving from 210 to 240 bps. Here again, I would say in full transparency. The major impacts which are related to the volatility of certain aspects of (inaudible) where you handle the initial tax assets and calculations are pretty difficult. And also the way you handle the war on CVA, which is also quite difficult to stabilize actually.

So we have taken 240 bps to be under the safe side. Here again, we’ll of course, update you, if changes happen in between, I think we have the safe side which is 240 bps. The other element relates to the fact that we are basically at Basel 2.75 as far as insurance is related. This concern as you know until the end of last year, Insurance was deducted from total capital starting with Basel 3.

Next year, insurance will be treated as re-figured assets and does a (inaudible) comprise. But this year, we are back to the situation before, which is the mix of [reduced] asset and deduction, which will have negative impact towards the very significant and the Basel 2.5 at the end of this quarter roughly, probably 60 to 70 bps orders of magnitude we have to finalized the details.

But moving in 2003, then you would regain part of this, so we estimate and this is for business, best figure you have to remember we say that have to remember. We say that net, net impact of moving from Basel 2.5 to Basel 3 is 30 bps for insurance. So that’s really, so there will be two impact on capital, negative impact on capital at the end of this quarter, IAS 19 and insurance, and the positive one which is the capital gain we will make on Egypt. So that’s basically in terms of capital. So rest again, we’re seeing this is pretty secured and that’s why we did not hesitate that much to use the word secured in the headline of this page.

On the balance sheet, we have tried as well as, that’s why we had some discontinuity with the funded balance sheet we have used previously. I think now we will stabilize this. And to my senses there on the long-term side, the surplus of stable resources of the long-term assets has grown while based on this methodology at minus 14, end of 2011 and now we are plus 51. So this is a very significant change due to increasing deposits and increasing and decreasing the loan to deposits ratio, increase of capital even if its marginal or you are not talking about billions, but still it’s positive.

And also the fact that we’ve been able to raise more money on the long-term front than we’ve anticipated in last year, in the market, so we have a real restructuring, in-depth restructuring of the funded balance sheet which I think is a critical element.

Regarding the short-term side, the main factor is the fact that we have moved from covered ratio if I may say of our short-term liabilities of 71% a year ago to more that 100% now, not including the 25 billion as existing margin on top of that.

Here again it’s a mix of I mean something which is very difficult to assess, the fact that we receive money and there is liquidity, so we receive money and we transfer that money basically to the Central Bank, so you move two sides, in terms of the cost. We have reduced that cost and see we were closer if my memory is correct over $140 billion. So we are trying to end out that situation. But more importantly, the fact that we are using less short-term money within our business line and on top of that as we are in proportion, more long-term resources and short-term resources also to this year again, it’s a strong rebalancing of the balance sheet.

Spending conditions, I will not spend too much time, yeah again last year was pretty good from a volume perspective, from a price perspective, and more importantly from a diversification perspective. A year ago our initial show that we wanted to raise $10 billion to $15 billion and we saw the vast majority of this money will be a secured money. Bottom line we have raised more than double what we expected and only 20% was secured spending. We’ve been able to like other banks to go back on the U.S. market, we’ve been able to go in Japan for the first time. We’ve been able to go to try to China, where it’s a very symbolic, we’ve raised the total of more than 100 million. We have been able to issue Tier 2 at the end of last year.

And more importantly from a business perspective, our specialized financial services have been very active on the securitization front, which is also a way to reduce as the need of Group spending for these business even it’s, I think very important going forward.

Our long-term funding program, $18 billion to $20 billion is taking into account the fact that we have redemptions next year $23 billion. The fact that we have started to reimburse part of the Ed show and we’ll continue to manage this, I mean very good early over the next two years. The fact that the businesses will use less long-term money, so this is basically the mix of all this increase, the fact that we have to take into account the pre-funded with except of long-term resources raised in 2012, pre-funded 2013.

So this is really what is behind is $18 billion to $20 billion figures. In terms of cost of risk and if I read correctly with some of you have read in this morning and the reaction of people on the phone, I understand there is an area of concern regarding French Retail it’s neither as good nor as bad, what I mean with that is that we are at 50 bps throughout the year which is exactly what we said a year ago, the profile is not exactly what we have in mind, it’s been exist with a significant up, I mean at the end of the year. Looking forward, we think that we should be at 60 bps for the French Retail, so it’s not a drama, it’s not a policy, but it’s not a drama, going forward, I think it’s important, the rest again is very stable, although the stability of international retail banking is made of at this additional cost of risk in Romania and a low cost of risk in Russia.

Going forward, we anticipate that the cost of risk in Romania is actually to start decreasing first half, but this would be more material in the second half this is really what we have in mind, whereas in Russia we have the low point and is slightly to increase a little bit, but without any problem looking ahead. CIB nothing to mention, SSS is being driven down by good management of the cost of risk in the consumer credit business.

So bottom-line we have raised the cost of risk from 67 bps to 75 bps, and again if you look forward, we’ll not anticipate as a group level deterioration, going forward, but for France where we expect to move from 50 bps to 60 bps going forward. So again it’s an issue but it’s not as bad as what I’ve read sometimes in the morning. In terms of millions of shows that’s where you have impact its taken in corporate center the impact of this 100 million provision for litigation.

In terms of consolidated results I mean the figures are what they are, if I take a step back and compare 2011, 2012 in big figures. Underlying top-line is more or less the same, slightly below about €25.5 billion, €25.6 billion. So stability in terms of top-line, costs are down and I think it’s very important. Not only was the budget that we adopted a year ago down compared to 2011, but on top of that, we have pushed throughout the year to reduce the cost.

Unfortunately it has been mitigated by some Forex impact but bottom line, the real cost in real Euros are down €600 million, I think it’s a very, very important achievement along with the balance sheet restructuring. In terms of risk, I mean if you look at the figure, the risks are down. In reality, underlying with, if you exclude the Greek impact in 2011, the cost of risk is up and this is mostly due to France and to a lower extent part of international retail.

So these are the main figures. Stability of the top-line, from one year to another in a difficult environment, cost is very well managed, down €600 million, the risk, slightly up €200 million out of €4 billion. So nothing gained to worry too much about at that stage. So these are the main figures. Underlying group net income, I mentioned is €3.4 billion which is very comparable to last year as well.

If we move to the various businesses and I will not speak to all the pages. I will leave Fredric to comment on the perspective of 2013 for each business. French Networks in three elements, first of all, good commercial performance. Second, stable growth operating income made of stable revenue as you see. Going forward, we’ve already said and we are looking at this very carefully.

It’s likely to be either flat or slightly down this year. I mean there is no, I mean we don’t see upside in the French revenue this year. Costs will be under control. so stable revenues, stable cost, stable gross operating income, which is in this environment is already an achievement, all this are being impacted by the rising cost of risk plus 20% of results. These are the main items that we wanted to share with you this afternoon.

International retail settlement, first of all, as a disposal of Greece, we have a positive impact on our bottom line definitely whereas the disposal of Egypt, we will have negative impact on this line. So it’s a significant change in the scope of international retail. Russia, I think 2011 and 2012 were years of restructuring and transformation. And the third quarter was starting to be promising. So either fourth quarter and so we are looking forward with some kind of comfort on Russia I mean most of the efforts are behind us now, we have to basically reaps the fruit and start entering growing revenues.

Romania as I see key item not only as revenues under pressure given the cost structure and the price structure of Romania but going forward, the key would be the cost of risk. Cost of risk has been impacted by two elements, the major one being the current situation in Romania, the GDP of Romania is still 6% below where it was in 2008. So we have the significant impact. It doesn’t impact on the cost of risk.

On top of that as you know we have been impacted by (inaudible), which is now fully provision impact in the last quarter of $25 million, in total $180 million over the last two year, fully provisioned, we don’t expect additional cost. So the vast majority of the deterioration of the cost of risk is not related to that full also the recent element of food that is related to the deterioration of the current situation in Romania.

Not much to say and these are also impacted by the economy, but the profitabilities maintain cost of risk is also slightly rising whereas the rest of our network is still doing very well with very encouraging growth. CIB a good year especially should take into account in fact that we are this, we have today 1,400 people less than a year ago that our cost are down by 13% extreme policies. So it’s a transform to streamline CIB that we are considering to date.

And despite all this engine has been working relatively well with an exception of the first quarter and exception of the third quarter and the good fourth quarter, second quarter was more difficult as you remember. And driven by global markets and within global markets driven by the fixed income business where we have outperformed the market again based on people which have already released that figure, we compare our plus 58% with something which is purely close to 20%.

So we have really outperformed driven mostly by short-term rates but not only short-term and long-term rates but not only. Equities it does not been yeah equity last year, we are slightly underperforming the market as defined today, which is mostly driven by American performance and we are left to Americas and the Americans, so it make the comparison some more difficult but still our analysis is that the market is down probably 10% and we are down 12% so far.

So that’s really where we are, where the market risk as measured by well restricted has been kept under control throughout the year. Financing advisory (inaudible) from the time that they have been also first on deleveraging, so you can move at the same time and also moving from traditional distributes to everything is transitioning. So going forward it should be better, so 2012 I don’t think it’s a representative year.

Regarding the legacy asset as I say €92 million of negative impact, here again, it will decrease significantly quarter-after-quarter and I say as guidance, probably roughly €50 million that quarter.

Regarding the last two poles before, Fredric will be more specific on figures because we’re moving from (inaudible) of insurance, not much to that; has been the great year. And those are recalled quarter, this is first quarter driven, both on the front where we still have positive net inflows while the market is seeing negative inflows.

On specialized financial services, I just want to underline the fact that was the fourth consecutive quarter, consumer credit is positive, I mean still modest, €21 million. But that’s the three years of negative results. It’s also very interesting and what I would like stress is the fact that we have external funding initiatives. This is a major shift in the way you do these businesses.

And for many-many years, this business is refunded 100% by the group and now they raise €4.2 billion. It’s only the beginning. We continue, we have already raised $500 million in securitization generally. So it’s still on a fixed rate position. It’s also raising deposits like different revenue where we have already €1.5 billion starting from scratch, mid last year. So this is very, very important.

And again, going forward the objective is really to maintain this momentum. In terms of the last full investment management and security services private banking, private banking is pursuing, it’s turning around. Cost reduction is there, inflows are starting to grow a little bit. So we are in the right direction. Security Services, so we think a competitive pressure on margins, so you have to work at all the costs which we are doing. So again, it’s doing relatively okay in a very difficult environment. Newedge, I mean you have read the presentation, of the presentation made in December; we’ve taken necessary consequences of this decision. So we’ve, as I say, impaired the entirety of the residue on goodwill, difficult environments and we’re working on the next steps with the management of Newedge. Asset management not much to add, I mean think our friends on Credit Agricole with comment and that would be performance to grow.

And I think with that, I’ll move to the last page, we see the Corporate Centre which is basically taking onboard all the consequences as I mentioned regarding the exceptional with on that whether it’s a litigation of provision. We’re gaining nothing specific, I am pretty sure; you all have ideas regarding what can be behind this provision. If we are (inaudible) if you’re having a specific provisions, so it’s really an assessment of the fact that our number of dispute litigation were with various regulators or commercial litigation, we have said that there is being on the safe side that I was putting, is also a good rate to prepare for 2012.

And there was a point, I know that there have been some questions is probably regarding the underlying figures of the Corporate Centre besides the fixed elements. We discussed (inaudible) I remember during Q3, it’s true that I would say the excess liquidity the LTRO et cetera has of course which is in the things you can thought born by the Corporate Centre here again with reimbursement of the LTRO and with better liquidity environments if everything remains equal and Frederic might comment on that this cause the decrease over time. In terms of circling the corporate centre we have re-advocated the systemic tax base as you know always with the assets and with that I think I cover most of it.

Frédéric Oudéa

Yes, thank you Bertrand. So just short in conclusion to speak a little bit more about 2013 and beyond, so based on what we have achieved in 2012. Aside from completing the roadmap from fee business you have seen, you will very comfortable on that. I think 2013 first of all will be a year where we have progressively more visibility, more visibility on the regulation we have, we should have this year before at some point hopefully first half, low in France which should be also related in mid and the end of the first half of 2013 so we should know a little bit about.

And I think the credit rules of the game. And secondly as Bertrand said on our accounts with less exception as the bulk of the transformation is behind us.

The focus is linked to be ready to the second step of the transformation and the first thing would be on the businesses and they would like 2013 to bring three confirmations. The first one is that the French networks will be resilient, yes the economy will be flattish 0.3% but in the markets where there is still some good activities coming from the demography and the commercial activity is pretty good even in the beginning of this year but again which is under pressure because of the rates we talked about this some commissions which are again under pressure because of multiple discissions, so all in all revenue which will be flat or slightly down I think, on the cost a lot of work which has been done and which is going to be done to further adopt the network of branches we adopt to the changes and behaviors of clients, there is productivity gains to be made. And of course, we carry on with a convergence of IT systems, this is a big project, you have not seen any cost on that, because we basically reallocate expenditure to this project which will bring further savings.

And on the cost of risk, we have maintained, we have said that 60 basis point, keep in mind in the French Retail it does not come from individual clients, on the real estate which represent a 55% to 60% of the loans it does not come from the self-employed professionals, it comes from I would say mid-size corporates and they are getting depend some of the ones which export are doing pretty well, some of the ones which are more domestically focused, which suffer from the current economy.

All in all, keep also in mind that we have three brands Societe Generale, Crédit du Nord and Boursorama which provide services to different categories of clients. With Crédit du Nord which has completed also the integration of Societe (inaudible) Italy and of France which has been very successful. And which, we have strong market share in the more dynamic regions of France and I can see the plus 0.3 will not be equal everywhere. The concentration of the economy, economy growth and demography will be in certain regions of France and we are more in these regions around Paris, Europe and for example the (inaudible).

In my view we should in the long-term do relatively, slightly better than others in this environment. So, that’s their first thing, second confirmation that effectively international retail and CIB can provide growth and I am convinced about this. International retail, because we are in geographies which will overall grow and certainly more than in the Euro Zone, and I’m convinced that in Russia in particular, we can further get the benefits of all the hard work which has been done by leveraging more on synergies on the retail that was very important also is now on the corporate side. As you know, we have had kind of decrease of the lending book on the corporate side, we put more resources on the ground and I consider that we should see the results of that and we’ll look at progressively to the SMEs also in Russia.

So here we should have again a growth and as we said, we are confident with the operation of the cost of risk. And in Rumania, we said that yes, we’ll adjust on the cost and on the cost of risk, we should see a progressive improvement. So again, I’m confident that we see a better contribution. You know the geography there will be growth and I’m confident that here we will further open branches, get the clients et cetera. So I think it will be a growth driver certainly, accounts which will be much better after the refocusing that Bertrand has described.

CIB, it’s a little bit different, it’s not that most of them expect a big growth for the market as such in 2013, we’ll see, as I said in January, we had good volumes, but let’s wait beginning of the year. There is nothing that if we look at for the full year, but I think we’ll gain again further market share. The organization is in place. It’s an organization which is focusing as you’ve seen on three pillars. Equity and equity derivates in particular, which works well. On the fixed income, we’ve made very good progress in 2012, number two, for example, on the bond that in Euros for corporates, same thing in the beginning of this year there was a good activity and again it’s part of the model to originate and attribute. And this is going to be further developed in our businesses, we’ve again structured credit, which will be distributed to investors.

Regarding then the FERC confirmation aside from that, (inaudible). I want to put more emphasis, even more emphasis on the synergies across the universal group with the other businesses and in terms of functions and cost. And that’s why we’ve decided for rationalization of the organization of the Group in (inaudible). So we put together the retail as a tranche and the specialized financing businesses to further enhance the synergies. In particular, the consumer credit and the retail outside from the business, they would be further refocusing of this activity then to align our presence with all presence in retail.

Regarding the businesses like operational vehicle leasing and the fleet management, we are very positive about the development, again despite less scarce resources which are being used. There also good development and insurance is doing well, and we developed again synergies across the different retail networks. And the second merger that’s we are willing to do is between SGCIB and GIMS Global Investment Management and Services (inaudible) basically part of banking custody in U.S.

We think it makes sense to put that into the same umbrella, I’m just also to say some cost align functions. But also to develop the synergies, there will be changes in the markets in Europe, it will take sometime, it’s not yet there, might be the next five years, just to align on the execution clearing and custody businesses and functions, I’m convinced there are synergies both commercial and from an IT point of view. And three, if you wish, we have on one hand further synergy to develop with the retained experts, but also with this, the IT business, when I think internationally in particular with ultra high network individual. So we’ll push on that front, on the revenue side and as I said also regarding the different functions to make them more efficient, simpler, we will be able, I think to save costs. So we have been negotiating with the trade unions for three months, now an agreement and I’m hopeful to have the signature, a support from them to precisely implement the different project which will take place during 2013.

That’s what I wanted to say. We are really entering again, the second phase of the transformation. I’m confident with that. 2013 would remain a transition year from an economic point of view. We should not expect I think in Europe. The rest of the world is doing pretty well. Markets for the time being are relatively good. We see again a pick up, let me say that we are, a very clear roadmap going forward to of course, further improve the profit. Again, that’s exceptional and delivered in 2013 a good return on equity to our shareholder.

That’s what I wanted to say in the net share. And now we are ready to answer your question, both physically and on the line. Let my just again of course, thank think (inaudible) for his last presentation as CFOs for Societe Generale and we wish him all the best as managing director in charge of finance for the World Bank and of course, welcome Philip, will take over March 1 this year. Philip was the (inaudible) he has executed the program of disposal, I think is very well and then taking over, the 1st of March, we’ll have for those of you who are there, the time to meet with him and of course going forward. First question

Question-and-Answer Session

Unidentified Analyst

(inaudible) I’ve got two questions. The first one related to the cost of liquidity in the Corporate Center. And heard better on what you said earlier, but still, I’m trying to reconcile first, the liquid assets on those higher than they were a quarter ago and the cost of liquidity is much, much higher. Secondly, if I annualize the revenues of the Corporate Center excluding € 7, a know debt in the CDS, I get to about a €1.5 billion negative and consensus for next choice on these €750 million we achieved at the revenue line. So should we just put the number in between or where should we actually put that cost liquidity rather the revenues of the Corporate Center?

Unidentified Company Representative

I know because (inaudible) mentioned that question actually this morning. I’m a bit puzzled. So I had to go because there is no significant shift underlying from one quarter to the other. As you said the structure of the balance sheet has not changed significantly. So again, I don’t have these on top on my head. So we’ll come back to this. It’s a valid question. Looking forward, we are working on the Corporate Center to make it make it more readable and Frederic..

Frédéric Oudéa

I mean, you have again for the time being a kind of, I think exceptional cost as we carry. I say a lot of short-term liquidity which goes to the balance sheet and we have a sense for money in the Central bank. Going forward, I hope that we will be able to reduce both sides of the balance sheet listed there and if they get it. Secondly, we’ve had an increase between two years of our the customer issuances, and fortunately, we’ve been able to issue at lower price end of this year, and beginning of this year we’ve issued for €5.5 billion at the lower cost. So, this is, it’s again, and we need to factor that benefit policy. Then you have also all the carry of the goodwill which stays in the corporate center, which we’ve seen the corporate center, and I don’t expect that to change.

Regarding the cost, what we have decided to do is to reallocate the review and the systemic review to the businesses on which we present something, which we will present €140 million in 2013 still allocated to the businesses and we allocated at fourth quarter.

So, it’s again, we will again, come back to you and your decoration that will run the capacity to project a decoration. We will try to give you more module on the evolution of this corporate center, which I think will remain loss making, but I think which will progressively by 2015 with again the rejection of buffer and again bit more cost allocated to the businesses.

Unidentified Company Representative

Again 2012 was really exceptional because we have the impact of (inaudible) refinancing et cetera which would decrease over time, so again based on what I seem to deal we are closer to and we expect them to the end.

Unidentified Analyst

My second question is, below the net profit line, you’ve got the dividend on the undated subordinated debt and I apologize if my calculation is wrong, but it seems to actually increased in Q4, compared with previous quarters and I didn’t have that in mind. But on a unrealized basis, it’s still about $18 million more and that is (inaudible) of your EPS, as you go.

Unidentified Company Representative

Again, we check on the fourth quarter, we have issued perpetual bonds by the way in the fourth quarter, we need to check out. It probably seem to the issuance is we’ve made.

Unidentified Analyst

Thank you, very much.

Unidentified Company Representative

Yes.

Unidentified Analyst

Hi, this is Andrew Lim [Espirito Santo]. You talked about reduced liquidity buffer but I was wondering if you could disclose what your LTRO is on the new Basel 3 basis, I think presumably does actually below 100% so actually does implies an increase in Basel

Unidentified Company Representative

To complete what Frederic say in his introduction. Point number one, we will meet the target this year, point number two we’re seeing that we have already met it. Now, with two caveats, the first one decide that it’s still unstable in definition. So, I am very surprised that some competitors might produce a figure, which is very precise, because I can tell you the production of this figure is very difficult. I mean you really need to curb out with an operational deposits et cetera, et cetera, and you don’t, I mean it’s a production issue, and second this is my point is producing this ratio based on number of assumptions including assumptions we make under final tax, which is not voted yet, we think that we are already there to be. So, I put this disclaimer strong, but even with this disclaimer, I think we are already there, and we are definitely be there, officially sometime before the end of this year.

Unidentified Company Representative

So I can think about an introduction of balance sheet going forward, we are going to further collect deposits, it’s particularly and in front I think in this economy, which is not growing people we carry on saving money, I don’t expect such a strong growth lows. So I mean you can also improve or very short starting from a base, which in our view, let’s say directly at 100% plus, but with all the caveats, which we said on the interpretation and without increasing more the amount of money, which is coming from whatever in the last year money market fund. And which is there on the central banks, so there is a change in the balance sheet, which can be procured without having the same cost potentially, and we think, and again trying to optimize the usage they can insurance that we carry in the liquidity, which we think we might going forward. And then you have the cost of liquidity itself, which might improve, compared to what we had issued in the last two to three years because the stress also in the Arizona

Unidentified Analyst

Okay, that’s question on the cost of risk the French network. So you’re talking to (inaudible) is that immediately for the first quarter and then staying at that level or that just stay till 2013.

Unidentified Company Representative

We talk about very relatively more figures and when you talk about mid size Corporate not even the statistic or by this one corporate can change additional $10 to $20 million depending on you know the size of the loans.

Again very important thing to remember is the big crisis in the banking come from the real estate and mortgage loans. In France, we have a situation where there is a shortage of flats and level of construction will be particularly low in 2013, and with the demography, which is much better than else where, we have a shortage of flat. So all together prices have remain relatively we should seen of you slight decline.

Knowing that people have in France and also very low leverage, I have in mind it is something like just 30% only owners have the mortgage and probably around 60% of the households, 65% something like this. Our earnings there owns there flat, so again on that front, which again represent bulk of the loans, I don’t see any issue. Then as I said on the self employed professional the situation for remains good I think consumption have been relatively good in December from multiyear from clients that’s weaker in Feb, January, but again nothing that bad.

And so it means again, it’s more in certain sectors, constructions and like this which are very domestically oriented that you can have effectively losses. You don’t plan that. Our guess, our assumption is that it will be 60 basis points for 2013 whether it will be first quarter or not it’s too complex, there’s always a similarity in the fourth quarter keep that in mind, but it’s too complex to predict.

And keep in mind also just there’s a factor which is difficult to plug, which is that the government has decided this tax release for corporate, which will be financed in 2013. I don’t know, it could play also on the financial situation of corporates, it’s a bit difficult.

Jean Francois Neuez – Goldman Sachs

Hi, this is Jean Francois Neuez from Goldman. Three quick questions if I may. The first one was on your fixed income business which this year was exceptionally good as you mentioned before. You were talking about in particular strength in the short-term rates business. I was just wondering, if the, right now that your LIBOR is turning a little bit, I guess you’re stabilizing at low levels. Is it something which is going to be harder to extract revenue from? It is a driver or it is an indicator of these trends, well, because essentially I’m just trying to figure out what the drivers are behind that strength compared to competitors?

Frédéric Oudéa

No, we’ve been pushing for, now starting from relatively low base in fixed income. We’ve been pushing for two or three years to increase, first of all, our distribution capacity, our foreign exchange business in particular in relation with our presence in the emerging markets. We are very strong in euro rates historically et cetera. So I mean this is I think delivering and certainly it has delivered in 2012. We have a change of management and organization of the teams, which has good. And certainly on the corporate side, on the BCM side, a very good performance. We are number two with the, again bonds in euro we’ll corporate it, it’s part of the model, I think we’ve been able to align them, more the financing also with that, and I’m positive that, it will deliver at last €1 billion again the commercial volumes are good. So it’s more I think commercial activity than anything else.

Jean Francois Neuez – Goldman Sachs

Then on the French retail part you’ve talked about flat revenue, flat cost, actually I had it maybe that for the first time, we could see some outright cost decline in France, it is out of the question or how we are looking on that front?

Frederic Oudea

Again, it’s, when you talk about zero plus or zero minus, the capacity to predict, again on the revenues, let me say there are the headwinds I have discussed, but also that we might have on the other hand the benefit of the decrease of the remuneration (inaudible) what it will be in August, I don’t know. I’m just saying that, when you talk about this, it can be difficult. Revenues will be anyway overall under pressure. On the cost side, as I said, we are going to make further productivity gains, and we finance our IT system while reallocating expenses.

In 2013, I would talk more with the flat cost. On the IT side, it’s always the trending to discuss, you don’t invest. I don’t think, it will make sense in this environment, because again we expect further productivity gains from that. And having the one system shared by Societe Generale and the quickest as possible make sense. We have already one IT team. I think that postponing or delaying the investment is not necessary good idea. So I would say, managing the cost something like this more or less flat, it makes sense. Again, be careful in first quarter. The backlight is, in the fourth quarter, you will have all that. But again, overall flat should be your assumption at the stage. If we can do better, we will do better. But as (inaudible) these kind of assumption.

Jean Francois Neuez – Goldman Sachs

And have you got a sense of where you would like to still the cost of income ratio and group level over time?

Unidentified Company Representative

Again, difficult, I don’t plan very much to add different businesses on the French retail. Going forward, I think it still needs to keep a 60% target. It will mean adjusting the network if not probably for the next two, three years. We need to really extract more productivity gains. It will take sometimes and probably some kind of rebound, both from the growth in France and that’s also slightly better interest rate environment.

Regarding slide Billion, you’ve seen that the cost income ratio we have achieved on the recurrent activity is below 60. I’ve always said that 60 to 62 something like this. This is my view. The right target that fits for our overall business model, in order to deliver a return on equity based on 10% (inaudible) between 13 and 15, which again remains my target for these businesses, I think we’re there.

And again, behind the cost, there is also the level of investments you make and cost, you’re going to now just minus. It could be also some investment. And for me, this business makes sense. If we achieve precisely and confirm the capacity to make market share gain because it’s a way also to work on the growth of their wealth.

It’s a way to go beyond the horizon and our company clients beyond the horizon to capture growth. Regarding the other businesses, International Retail, certain in Russia, we need, and we will need better than the probably 70 something like this, something like this, 65%, 70%. This is a target for the next, I will say three years. In 2015, Romania for example, as the cost income which is critical as more cost of risk, and so, again, depending on the business effective changed and overall for the group where we’ll make further savings as I said on the function. So again we will give more clarity, I think we will give more clarity to the market by year-end, when I say this, when we will have more visibility on all the rules of the game in terms of financial figures for 2015 and these two or three years of horizon.

Jean Francois Neuez – Goldman Sachs

And just lastly have you got the sense of the revenues are stacking French banking law compared to your current run rates in CIB?

Unidentified Company Representative

Sorry.

Jean Francois Neuez – Goldman Sachs

The revenues which could be at stake are targeted by the French banking law and financial separation of these in that and so on?

Unidentified Company Representative

Let me see. There are really, I think two topics on the French law, the French retail itself, which is more about capping or not, certain commissions when there is an incident on the accounts, when there is a check another draft which is not denigrate, that is one thing. On the low, given the fact that it would be implemented in 2015, I don’t expect impacts immediately, and as we’ve said and you know the law, is a bit complex because there is the need to decided the speculative activity and with definition of market making which will be up to the Minister of Finance and Regulator it will take time. Given the model today, we are pretty comfortable that a very small part will be put in the subsidiary at the end of the day, these in, we have said in 2006 maybe 20% of the capital market activities, today 25% something like this not more and again it’s not certain, because the regulator will go through the balance sheet and make his mind according to the guidelines are below. So, I don’t expect an impact for the next basically two years on the row.

Unidentified Analyst

Hi, it’s (inaudible) from Bank of America, I have three questions if I may. Starting with I guess a pretty easy one, you announced this morning the streamlining of divisions from five to three and I could understand your reluctance to want to quantify that cost in revenue synergies that goes with that given your union negotiations and what not, but if I were to think that’s been if I were to quantify that €300 million to €400 million will you try to dissuade me of that order of magnitude and it will be my first question?

Unidentified Company Representative

Very well analyzed the environment in which we work, so I prefer to be very, very pragmatic, efficient and deliver, but let’s say we have ambitions there, yeah.

Unidentified Analyst

Okay. And then the second question you have given actually very clear guidance on French Retail on the revenues and the provisions and that’s predicated on 30 basis points of GDP growth next year, if I were to take a slightly more negative, but I think still possible scenario with say negative 70 basis points, so 100 basis points worse than you were going for. What changes will that make to your revenue and your provision forecast or is it sort of all broadly kind of?

Unidentified Company Representative

The revenue composition is so diversified again between the commissions, people might say then we can, then I mean, if they come back to for example equity more financial products, we get commission there. Interest rate is an important component because in the margin they are loans, but deposit is very important. It’s not necessary directly related to GDP. We have in mind low demand for full credit. I think it will not be that significant; clearly we don’t think it will be that that big.

Unidentified Analyst

And then I guess the last question is just kind of a detailed number question. And looking at your legacy assets, the capital consumption from the non investment grade as its rose from $1.2 billion to $1.7 billion, well the balances were basically unchanged, or actually slightly shrunk I guess on that basis. And so I guess we’re seeing asset quality deterioration there?

Unidentified Company Representative

It’s a purely prudential and accounting thing which will disappear in the next quarter, which is related to a name which I am not supposed to mention today where we have discussion. And we have kind of anticipated from a prudential perspective, that’s what I mentioned regarding the input pressures and decrease of risk weighted assets. So it’s a transition period but I’m not totally comfortable to disclose more than that. Don’t…

Unidentified Analyst

It’s not related to the rating of the...

Unidentified Company Representative

No, no, it’s related to a specific operation which is being discussed as we speak. But so that could theoretically have an impact on the overall Basel 3 ratios…

Unidentified Company Representative

No, no, because it is a transitory flip increase…

Unidentified Analyst

Increase, okay. But the capital consumption you gave is a fully based Basel 3…

Unidentified Company Representative

Yes, we have an increase at the end of last year…

Unidentified Analyst

Yeah…

Unidentified Company Representative

And we would have a decrease for the next quarter. And it’s really are going to, I am sorry, I cannot provide more detail but…

Unidentified Analyst

Maybe we’ll tick on that. I appreciate it. Thanks.

Unidentified Company Representative

I guess everybody wouldn’t on this on which day might have in mind with that note…

Bertrand Badré

And again on the legacy assets issue is really under the SEC that we should basically keep the money good as such investment rate the return is very good. There is no reason given the size and we will further sale the money but again depending, it’s not that easy so we’ll do that progressively we have no ROE in 2013. And we’ve seen actually still improvement of price still on these assets yet and I will turn to you…

Unidentified Analyst

Okay

Bertrand Badré

I’ll don’t forget you sorry about that, yeah.

Nick Davey – UBS

Okay, good afternoon. I am Nick Davey from UBS. I’ve got two questions please if I can. The first is on corporate banking and the revenue run rate, but if I understood you correctly you’re quite optimistic about revenues going into 2013. I just wondered, if you could expand on that little bit, we saw quite a contraction in the gross books outstanding in CIB Q4, versus Q3. So I am just trying to understand why this revenue number from Q4 wouldn’t be the run rate for 2013?

Frédéric Oudéa

What I said is last year was impacted mostly by the deleveraging process and the restructuring of these businesses. You again, we have already forgotten because time goes by that we have discontinued or severely restricted some business clients in 2011, I mean with that a cross line and shipping clients we have, we are now moving towards advisory business.

So we say this has an impact, I mean, if you look at our figures in [2007] we certainly don’t see the impact because we’ve been good elsewhere, so that’s really what that’s why I called the 2012 not really a run rate type of share and that’s why I think now we are stabilized the teams, stabilize the business clients. We are moving more towards we need to distribute with that et cetera, so going forward that’s why I’m more optimistic and so don’t again, don’t try to kind of estimate next year base on the given quarter this year it’s still rich on the (inaudible).

Bertrand Badré

Yeah and end of the fourth quarter which in particular in Europe was a relatively calm quarter and we’ll market such stuff basically mid-November. We leave them as such as activity on the financing. Again I don’t know what to further will be clearly in my mind there was more activity and more confidence coming back at the beginning of the year then I expected again maybe it is a bit more count today. Overall we are as I said confident to be able to gain further market share. In the markets which might remain relatively stable but we’ve again so in terms which are we growing still or as to reorganize, refocus we are clear in our mind in the model and the organization is in place.

I meet with lot clients myself from all over the world. And I met a lot of them end of the year because it’s the opportunity to see where we stand, where the projects are. I’m very confident in what we have achieved in 2012 and develop the potential. And so we’ve again maintaining street wise policy.

I’m confident in the revenue generation and the profitability of this CIB business. But our ambition is precisely to show that to you and 2013 and social that is originated to distribute (inaudible) given up in particular, we’ve got in this structure financing business. I know that you’re here but…

Frédéric Oudéa

I’m sorry I’m okay.

Nick Davey – UBS

Sorry just one final question then. How should I think about the pace with which you will repay LTRO. I’m interested to see that you have an issuance plan for this year which is below what is maturing. You talked a lot about deposit growth and obviously I would have assumed LTRO you will be replacing with stable funds, be it deposits or issuance, so shall I think that you will repay LTRO the same phase of the deposits come into the bank, is that the right way to think about it.

Unidentified Company Representative

Well, it depends also on the capacity to issue I mean again we’ve been able to issue a $5.5 billion in the first six months, including $500 million securitization on, it was car loans, we will be very pragmatic and let’s say the idea is to remember is that progressively, let’s see in the next two years, basically…

Unidentified Company Representative

I mean we would say from an airline perspective and we say that a year ago, we don’t want to create a wall at the end of the period, we don’t want to create a visual at the beginning of the period, so we try we have done some effort at the very beginning. And then we try to do every, in full agreement actually with the regulators.

Unidentified Company Representative

We can do more and more quickly, we will do but if you wish, it’s a kind of interest premium, there is a cost as we have said and the costs might disappear progressively, but we can accept to have that for the time being as a kind of insurance. At least so fast or good, including I must insist on the transformation of the financing of the leasing business and this is very important, when you think that business like GESA, which is a wonderful leasing business in Germany selling through German companies manufacturing equipment to SMEs in Germany, its finance basically 60% independently starting from more than zero, they collect deposits, you know because Germans are very happy to finance Germans. So I mean there is also a shift in the way these business of finance we have seen this for more than $4.2 billion whatever independent funding in just one year, we are going to pursue that. And again, we think that we might adjust further are need for wholesale. Overall, I would like to further diminish the wholesale funding consumption of the group in particular on the financial services. Kinner if you allow me I will come this lady and then to you.

Nick Davey – UBS

Okay.

Unidentified Analyst

Yeah, thanks a lot. I’ll go from, obviously, I have one longer and two shorter questions, please. The first is on the reorganization, and I just wanted to bit understand how important it is for you. So I just go into the lead to a presentation of detailed targets or this is going to be early into early days, and this is something which is you can do without a market recovery or is it more focused on costs or revenues? And does it also focus on balance sheet leverage? That’s the first question.

Unidentified Company Representative

It’s a question of one-hand further developing revenue synergies and cost synergy, taking just into account that I would just give you a simple example. We have already a human resources department, which is coming in Asia between (inaudible) and SGCIB, and it makes sense. So rather than having in each pillar, you know the same function inside pillars, so as to multiply or generalize this kind of experiment. For, secondly, again on the revenue side as I said, I think it’s a way to effectively further enhance synergies on the revenues, and that’s valid for reprieve, as I said on consumer credit in particular, also from a geographical point of view rather than having a business language which is organized more on the worldwide basis. It is not related to any market recovery, and we do it because it will make all sort of route simpler, and I need to reduce also the number of, how do you call that, erratical layers in kind of functions like compliance et cetera. We had multiplied the layers and I think there is a way to be more efficient by reducing this. So, we are going to implement as I said, we will probably around year end, I don’t tell you if it’s year end, or just beginning of 2014, when there is clarity, gives your more, more flesh on the figures by 2015. But I want first to know exactly if where we will spend with liquidity (inaudible) and we will not know before mid-year.

So you need to be a bit more patient. And let me say, we have in France, a process that we need to comply with and I must say, I’m particularly keen on maintaining a strong dialogue with the trade unions, so that it can work and be delivered quickly. That’s what we’ve been doing now for three months. And so, we will progressively present the different projects to the trade unions and major consolidation process. We have to comply with that. So we will do this in a very disciplined way, we have negotiated with them a period of time for that. So it will not be dragged along, but we have to comply with these rules. You had two other questions.

Unidentified Analyst

Yeah. I’d just take one. Did I understand you correctly that you said the insurance hit under Basel 2.5 would be 70 basis points.

Unidentified Company Representative

Yes, roughly.

Unidentified Company Representative

It’s a negative impact of 70 basis points and then with Danish compromise….

Unidentified Company Representative

Plus or minus (inaudible) net 70s bps as we were doing that. You had another question?

Unidentified Analyst

Thank you. So I just wanted to come back to this question on fixed income that we discussed. Last year was, I think truly exceptional in the rates environment that we had LTLO at the beginning of the year and OMT coming in, which I think provided special dividends for the industry in terms of revenues.

And it appeared that option benefited more than others. So I am trying to understand to what extent, you know we could say that this year, the rates business in particular within fixed income is likely to be down and it’s going to struggle too much anything like what we had last year. I mean there were some banks that were meeting their budget, their full year budgets fairly early on the year, given how strong this business was. So that’s first question.

Second question is just on general regulation. I just wanted to get your thoughts on the risk weighted review where we saw some obviously the report coming out from the Basel Committee. And I must say some of your peers are maybe giving us more disclosure on leverage. Even I would say a big German Bank that was not deleveraging has started to focus much more in terms of the leverage ratio and how that could improve. And also the third proposal that we have in the U.S. that came out in December whether that has any impact on your business in the U.S.

Unidentified Company Representative

Order proposal…

Unidentified Analyst

Sorry…

Unidentified Company Representative

Dilutive…

Unidentified Analyst

Dilutive proposal. And the final question is just on the cross-border funding gap, it was a big kind of issue last year. Banks trying to essentially close the funding gap, our cross-border into proliferate. We haven’t heard much about it. What’s the general view on that?

Unidentified Company Representative

I mean you kind of the cross-border funding gap for us what was not such an issue because let me just remind you, we have a presence in France. With the (inaudible), we don’t have anymore retail presence in the Eurozone. Then we have, as I said on specialized financing businesses, which were relying on the parent company and which are developing independent fundings for bank loans, deposits, securitization and all kind of funding and with the ID basically to make them more and more independent, of course, for the parent company.

Our international retail is outside the Euro zone and the same thing there are still some differences from one entity to the other, but overall the IDs do have loan to deposit ratio of 100% and let me say, when there is a decrease of loans in Russia on the corporate side and Rumania because of low activity, of course, they are growing back some of the revenues, but at the same time it reduces the funding need.

So for us, it has not been, I think such an issue and what is important after that is we can issue regularly long-term funding to finance our CIB business, again, we have a less loans in the balance sheet et cetera. So I consider, if you wish that the overall we are very close, I think to the right structure of the funding, as I said there will be a reinvestment of NTRO for the deposits et cetera.

But overall, I don’t expect such a big change in the system, we might hope to have it, because money in the Central Banks at some point, because again it’s not profitable, but again that’s it will take two years the Central Banks withdrawing liquidity. The Fed proposal, let me say beyond that, I was just registering orders, still the U.S. Regulation and I must say, it still a bit of a mess, well, when I say this (inaudible) rule, we still have the fit level we don’t have yet visibility on that after three or four years being discussed. You’ll have all the sub-dealer registration we have registered there. There is a lot of work still to be done, et cetera, but we are in assessment. We are in line with any [point] from regarding these requirements. Then there is the set proposals where effectively it could mean issuing more capital. It’s still unclear, and let’s say, I think there will be a debate with the Europe on that front and because it puts effectively pressure on non-U.S. bank.

I’m sure I’m forgetting a few of the regulation, but there is a whole menu, which I would say, will make the business and the make a little more complex on the U.S. And I don’t even add the litigation risk, structural litigation risk, which seems to increase overall with any businesses in the U.S. going forward. So I think from a strategic point of view we will remain focused in the U.S. What we try to achieve is selective development on our core franchises, typically for example, we’ll pursue the business on the energy sector. There is reserved [aid oil] financing with the high yield of refinancing, which is developing. I think the energy is big a positive for the U.S. in the next seven years.

We also developed the credit platform, because if we want to originate and distribute on the energy sector, on the mining sector, I mean, a lot is still US dollar based and with even assets, licensing if you want to engineer a system where we don’t finance ourselves, but refinance and clearly having a presence in the dollar market will be useful. And then, we are also present in equity derivatives, for example. So selective presence a lot of hard work in different projects requested by the regulation but I would say, I don’t see at this stage any strategic impact compared with that issuance from the different regulation. Leverage ratio, it’s a ratio we don’t like in particular because the accounting under the same what we do is present the balance sheet which is more funded balance sheet and I think more comparable to U.S.

The leverage ratio will of course increase going forward because we have more and more capital and overall the balance sheet will not increase that’s key, if I put aside the variation of the mark to market valuation of which is going to vary from one quarter to the other depending on market.

But again it will be as far as I know still pillar to requirements and we look at these, what I’ve preferred to ensure is that at the end of the day we have also a clear understanding what is in the balance sheet, I’m confident in the if you look at the last five years of the evolution of the balance sheet has been tremendous with much more deposit, much more loans, much more long-term funding and very significant decrease over the short term level financing and again fundamentally aside from the further refocusing, our specialized financing I was mentioning, I’m happy with the structure of the balance sheet.

What do I miss on the rates, again it’s difficult to comment, I’d like to insist, we were starting from a low point in 2011, accelerate the fixed income as you know, overall we think that I said that’s we should have including on fixed income relatively good year by gaining market share, leveraging on additional investments in terms of sales force in additional synergies these are different presence. Again, let’s wait, because again six week does not make a full year, but our commitment is to deliver a second year in a row of good solid, I would say revenues and good contribution.

Frédéric Oudéa

The risk-weighted assets review.

Bertrand Badré

The risk-weighted assets review, there is again this debate, it’s very difficult at this stage relative to comment on that, what I hope is that they will be progressed going forward with one regulating Europe. I had absolutely no clue to check you all have a [NBVT] and what is being made on the U.S. and at the end of the day, I rely on the French Regulator which again has been a lot of time in reviewing the French models in the different French Banks and what I’m pretty sure is that there are no big differences between French banks that’s what I can say, given what they have been doing to valuate Basel 3, but the rest, who knows, you know so that’s where probably European regulator will be useful to further check.

Bertrand Badré

Question is from Patt.

Frédéric Oudéa

I will turn to the line to our friends in Paris, it’s just but, we’ll come back to the room and then…

Operator

Paris, you have the floor.

Unidentified Analyst

Good evening, (inaudible) I have many, many question, but I will discipline myself and

Frédéric Oudéa

Thank you, (inaudible).

Unidentified Analyst

But I don’t want to come back on too late. My first question relates to your organization, well, I am not very clear about the commencing between International Retail and financing, specialize financing activities. For instance, I don’t understand, why for finance or factoring or leasing in France, we’re billing to International Retail instead of your French retail for instance. Boursorama is going to work with half for finance by launching some ready consumer, I don’t see why this will not be in the area of Mr. Sammarcelli, said of the area of Mr. Incera, I thought question of but question of logic.

My second question is related to the CIB, I listen to you, carefully when you are talking to the Deputy that the French parliament, and you gave an argument regarding the separation of activities and you said for instance, in non investment grade, German company or French company you said that it is much more comfortable to make a swap a long-term swap or DCM operation with JPMorgan won with small subsidiary, small CIB subsidiary. But actually isn’t it right now much more comfortable for a company to make long-term swap or this operation, even with JPMorgan won with Soc Gen even if separation of much activities not in circumstance, and is on the wall already, because of the concentration of fixed income activities, but actually be in a consequences of that crisis. And the fact my point is the separation of activity for me is anecdotical compared to the moves in this industry and I feel that your example is already a good example that it’s not very good for Soc Gen. Thank you.

Unidentified Company Representative

Regarding consumer credit, first of all the people here, I hope that know the people refer too, first of all for the time being (inaudible). So I am not putting something in France to something International French component is something International but we will define in detail the organization and again if they are refinements, if I may say from that point of view we will decide about this general refinements, but today I am not changing at all the system and not the current situation is that spotting up which is a French business report (inaudible). So we will again refine in the next two months probably or that’s the target of the organization.

For English people listening here are being present and let me explain what I said to the Members of Parliament in France. I said to them, if you create specific subsidiary where with no guarantee for parent company and where you put all the market making all I said more than just non-client driven businesses. My view was to say this subsidiary will have the low rating I don’t see in the insurance environment, how it could have a reasonable rating, and insurance from that perspective how it could on one hand be competitive even on the market making because the cost of liquidity or the amount of capital whether it would be much higher than the large universal banks, including in the U.S. which of course benefits from on their rating from their universal and retail activities, and that’s including issuance, we’re talking about a long-term swap as seven year or whatever five year swap, same thing to issue our company you deal with the small subsidiary or something which is not rated, not guaranteeing I was saying, I have my doubt that they will have such an appetite versus universal banks.

And if you wish today well, I can challenge you there is no problem we have a good rating, their concentration is not just such and there’s a limit to concentration knowing that, I think the big change on the interest rate swaps in particular might be more than move from OTC to list of products if it expires one day it seems in the U.S. we’ve seen in Europe it might take more time, but certainly, I feel we’re able to compete on our franchises. Clearly, if we are more or less the same rating and then play with the same rules, if it we have to be totally different, I think it will then be very detrimental and personally, I think it seems we have convinced the parliament, which again we’ll select what is non-clients related very speculative to put in this rivalry, which is not being guaranteed. I’ll then answer questions in Paris in the line?

Bertrand Badré

Yes, Delphine Lee

Delphine Lee – JPMorgan

Yes, Delphine Lee from JPMorgan, just maybe two questions first of all, sorry to come back to the Corporate Center, but just to understand what’s being said previously by Bertrand, is it fair to say that for 2013 at least, we should expect a relatively, let’s say, high revenue loss in the corporate center, mid of the range, let’s say, $600 billion, $700 billion to $1.5 billion? And on the cost side, in the corporate center, if you basically transfer the $138 million related to the systematic tax, I mean, the run rate seems to be close to $160 million. Is that why we should be taking going forward or is it still a little bit higher than what we have in our numbers?

And then, secondly, on the French retail provisions, if you could give, maybe, is it possible to get some color on, let’s say, the books which are suffering a bit more, construction then mid-sized corporates and what kind of NPLs or coverage do you have at the moment? Thank you.

Frédéric Oudéa

If I start with your question, we don’t dictate by sector the NPLs, et cetera, but [effectively] as I said more of the sectors, which are domestic, which are the ones which do not expose, so typically a construction. It could be car dealers, people like this, which suffers more than, again SMEs, which can export and have just a limited amount of their turnover in front or in Europe. You can have also some mid-sized transportation companies, things like this.

Regarding the other question on the corporate center, again, you will have, yes, a negative figure. Keep in mind; you might have still some own debt impact on the first quarter. You will have the capital gain in Egypt, and again we’ve said, we’ll have this additional burden of this excess liquidity if I (inaudible) which will progressively disappear in the next two to three years. But I think these are the major elements we expect. On the cost, basically the cost is relatively small figure. There are few Corporate Centre, corporate costs which I say we have not reallocated you know like the finance division because you spend a huge amount of time to discuss with the businesses what is right, what is the right allocation team, you know, we’ve absolutely no benefit from the group. And at the end of the day, the decision of the CEO to know exactly how many people he wants to have. So it’s pointless to spend too much time. You have still also the cost of the share program that we put in place in 2010 and distributed to the staff from an accounting perspective that is something like $50 million or I think a year and I think it will have in 2013. We distributed 40 shifts of staff in 2010 depending on conditions. This is the kind of cost. I don’t expect to be change on that as I’ve said in 2013. One more question in Paris.

Unidentified Analyst

Okay, good afternoon. I have one question which is, I will limit myself to one question, which is about Russia. It’s, I don’t know what the capital allocated to Russia is in fact out of the €5.6 billion you have in international retail banking, but I will assume it to be close in $1 billion. However it’s, if I look at the book value of your holding in North Bank its probably closer to $4 billion. And this is based on our own company which is generating revenues of about $ 1 billion. So before you get to a return on this investments or even if I take only the capital allocated which it would take quite a big margin on the revenues. And I was wondering whoever you’re expecting basically revenues to go significantly up or what kind of restructuring and what kind of timeframe you expect on this. And then alternatively if you think that or if you don’t think that such a margin is achievable, why don’t you start considering just exiting this country, which seems to be a big drag on your return.

Unidentified company Representative

Again we might debate for a long time on Russia. But after the review, is to think that pressure will offer better growth than lot of European countries. And just taking into account what happens in the energy sector and I discussed that we’ve energy specialist. The events will be independent in 2020 (inaudible) more work with China and I personally consider that there is a common and long-term interest between Europe and Russia to work closely together on that front.

Secondly, regarding again our performance. As I said today its €100 million of net profits, taking into account fleet management, consumer credit, insurance all the businesses that we have on the ground with the CIB. I have in mind there is a lower figure of your 4 billion, but we will check. And again I think that, yes the idea is to given up the revenues. Because it’s more of this, which is a stake we have cut that costs significantly and we will saw that cut cost for example, may I see on the real estate side we have reorganized the network from I think 40 different regions to aids or something like this, forgive me, if I’m not absolutely accurate with the figures, we get this start by more than 2,500 people, we sold businesses and there are still some empty premises in certain cities that we have not yet either relet or sold. So, yet, there will be further cost improvement, but fundamentally, I would expect revenue increase and to get what I would call a decent return on equity by something like 2015.

So, again we will present figures for Russia, my conviction when I look at the business models in Europe, I am not particularly confident in the growth in Europe in the next two to three years. I am not that confident on the evolution of retail, we have here, I think a way to improve significantly the businesses, develop synergies and effectively deliver profitability acceptable given the capital allocation and all the environment in this country. So, we will present that more in detail the momentum is positive for me 2013 is the year of confirmation for that.

Unidentified Analyst

I have a follow-up question on Russia. The question is on the, you want to develop the revenues and obviously to develop the corporate franchise and develop the loan activities. However, looking at Q4 and Q3 loans are down and if we look at the loan-to-deposits ratio is still at a high 125 isn’t the huge constraints to develop the loan activity, in fact, this equation to develop the deposit base or really to develop the loan activity itself. Thank you.

Frédéric Oudéa

It’s really built and it’s not just loans and when I talk about the development Investment Banking business and obviously certain selections I cannot comment. It’s also to help companies, not only to issue bonds locally but also on the international markets. But regarding effectively the business, it’s effectively to further develop a deposit base.

Knowing that we started with again World Bank, which had deposit, but also this Consumer Finance business, which is refinance, which has no deposits. So, here again, like for other subsidiaries, effectively, progressively to rebalance, and effectively collect more retail deposits than, again, in a very un-matured market on the retail side all together, more retail deposits going forward, and maintain a good balance between loans and deposits.

Alex Koagne – Natixis

Yeah. Hello, Alex Koagne from Natixis. Just a one real question on the funded balance sheet. I saw that the excess long-term liquidity is down Q-on-Q. I was just wondering whether this is find that you’re ever comfortable with the structure of your balance sheet right now? And that’s you should not keep on increasing the excess liquidity? Or is it just an optical, or it’s a picture? And I was just wondering if you are very comfortable with your short-term funding representing 20% of your balance sheet? Thank you.

Unidentified Company Representative

That’s all. The question is whether we are comfortable with today’s situation on that. I think we continue for a say slowly changing situation. I think where we are today compared to where we are last year that is a great achievement. No, we will, I don’t think we will see some massive changes going forward. And this being said, deposits are likely to increase, as for the say in front, (inaudible) we just discussed Russia, and this is a fundamental element for restructuring the balance sheet because of the more deposits you have, so that’s outside funding you need and within this outside funding, you can split between long-term which is kind of a given. We think that we can raise $20 billion to 100 times six to seven years as on an average duration. And then you can basically find out what kind of short-term financing you need and wherever in excess can go straight to the central bank is exactly what is happening to it. So that is really basic, it is a math of our balance sheet today.

So the main elements going forward would be really to rebalancing of this loan-to-deposits ratio which will happen to a certain extent naturally and to a certain extent with some push on our side.

Unidentified Company Representative

And after that there is a 20% short-term. I think it’s again roughly what we have in mind knowing that we use that…

Unidentified Company Representative

For market activities…

Unidentified Company Representative

For market activities and of course also to have some money in the Central Bank. So I would not expect a dramatic change today or…

Unidentified Company Representative

Again it’s not short term money used for long-term financing, it’s truly and this is one of the lessons learnt from the crisis of 2011. We have been able to at that time to adjust our market activities rapidly. And now we are driving our market activities with that in mind. So whenever there a problem we can really adjust the volumes of our market activities very rapidly. For the 20% of today, that exactly the 20% of eighteen months ago, that is…

Unidentified Analyst

(Inaudible) Just a very quick question about that so called can anybody give next tax credit. Do you expect any impact on your not French business in your…

Unidentified Company Representative

And again this competitiveness of credit is tax relief. Let me say a slight positive but overall we will pay more taxes in 2013 than in 2012 with the other increases and I will not go through all the things, but I think altogether between 2009 and 2013, the Group, we will pay an additional €300 million of additional taxes of all source, social, corporate, and systemic, and wherever. So, we had some benefits, but if we do not change the picture, which we look at the impact, of course, the French Retail is working on the structure on this tax relief. Yeah.

Unidentified Company Representative

Any other question?

Unidentified Analyst

The last question in Paris.

Operator

No more question in Paris.

Unidentified Company Representative

No more question in Paris? Yeah.

Unidentified Analyst

Just a quick follow-up (inaudible) start did you give the Basel 3 RWAs, you changed the roadmap a little bit. So have you given or could you give where you think Basel 3 RWAs were at the end of 2012 and where you see them at the end of 2013?

Unidentified Company Representative

No, I mean I think we provided some figures in last year, which is to be honest I don’t have it in top of my head, which are modest embedding, on average that’s we should rely on that. I just want, as I said, before you are right for mostly relative some volatility elements, which almost related to the structure of Basel 3 and namely the tax before assets, which is that directly out of your question. And also the (inaudible) which is still work in progress in terms of calculation.

Unidentified Analyst

Okay, thanks.

Unidentified Company Representative

Okay, okay that’s your question. Sorry, sorry, yes, yes.

Unidentified Analyst

A very quick question. So if you are thinking about stable balance sheet, you will get to a Core Tier 1 than a half by the end of the year potentially, you still have a lit dividend payout of 25%, so what could that mean for your capital ratios going forward and your dividend payout?

Unidentified Company Representative

That’s a very good question and this is something we will have effectively to address by year end and again I want to work a little bit more on that. I have in mind of course, to potentially increase the payout ratio, but there will be this question of balance between payout ratio and further investing the businesses.

What they want to check and again that’s why I need more visibility on the rules (inaudible) is of course the profitability of the businesses once everything is more or less decided and I think better to wait here and to optimize the balance going forward 2014, we will, I think we’ll see where we end 2013 as I speak at the end of the day for the time being 25% for 2013.

We will see for 2014, 2015 having a better view on again all the potential of the businesses I have in mind the potential increase of the payout ratio.

Unidentified Company Representative

One more question on the line.

Operator

We have a question from (inaudible). Sir please go ahead.

Unidentified Analyst

Thank you. Just one very brief clarification and as you are running through lside 11 with the Greek cost of risk. I believe you indicated that you thought that the Group level in 2013 will be quite similar to the Group level in 2012 by around 75 basis points. So the increase in the French networks is compensated elsewhere was that the correct understanding. Thanks.

Unidentified Analyst

Yeah, as we said we would expect this increase from 50 to 60 basis point in the French retail potentially a slight decrease in the international retail as we said basically related to Romania, the rest to be frank more or less stable, we don’t see any reason for big change in specialized financing enormously on the Corporate side. The large Corporate have overall sound situation, French retail liquidity, so yes in practice that’s what we have in mind.

Unidentified Analyst

Great, thank you.

Operator

We have no other questions on the line.

Unidentified Analyst

Hi, just one follow-on question please. I think you might mentioned this before, but could confirm what’s the possibility of the Egyptian NSGB business was in 2012, and could we take that proxy for what the decrease in the profitability of the international business will be going forward 2Q going onwards. And then just following on from an earlier question. On slide 40, you do have a notable in the CIB loans, I was wondering, if you could just give a bit more color on that going forward. And then what’s actually happen there.

Bertrand Badré

Yeah, perhaps on Egypt that, we will have first $100 million or roughly in 2012.

Unidentified Analyst

Geniki.

Bertrand Badré

Yeah that’s around $100 million contribution roughly in 2012, we have still one quarter in 2013, and the balance between the disappearance of Geniki and disappearance of Egypt should be slightly positive overall, because you have take out the losses of Geniki in 2012 and the contribution of Egypt, and I have in mind overall slight positive.

Unidentified Analyst

With respect to CIB.

Bertrand Badré

In CIB, we have a decrease of credit, is the benefit of the debt average because keep in mind, before you get effectively out of the balance sheet, you need to close the deals in practice, so you can have provisioning of the deleveraging quarter before, what else some interest, some guarantee element also and the dollar increased so…

Frédéric Oudéa

And the legacy assets.

Bertrand Badré

And the legacy assets, yeah, because as we said that the shift between risk weighted asset from the legacy asset and more deduction, so here from a capital point of view it is neutral, but it’s a treatment it’s a Basel 3 treatment, less risk weighted assets, more deduction direct from the capital, these are the three elements.

Frédéric Oudéa

And it’s also I think (inaudible) we discuss that part of this loans to the financial institutions which at year end might have some seasonal impact last year. So it doesn’t change anything regarding that are intend for new (inaudible) back to one of the question I think from (inaudible) the Corporate Book, it’s mostly related to an impact of relationship with financial institutions.

Bertrand Badré

Are we done for today?

Frédéric Oudéa

Okay, well thank you very much for you attention.

Bertrand Badré

Thank you.

Frédéric Oudéa

Thank you, good evening

Operator

Ladies and gentlemen, this concludes the conference call. Thank you all for attending you may now disconnect.

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