BNP Paribas SA Management Discusses Q4 2012 Results - Earnings Call Transcript

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BNP Paribas SA (OTCQX:BNPQY) Q4 2012 Earnings Call February 14, 2013 9:30 AM ET

Jean-Laurent Bonnafé

Okay. So good afternoon, ladies and gentlemen. I'm very pleased to be here with the top management of BNP Paribas to comment on 2012 group results. So let me start first with the key messages for the year. The main feature of our 2012 results was certainly the Adaptation Plan that we announced back in September 2011, and that were fully completed and the first 2 phase done as we originate the plans. Just in 2012, we managed then to reduce our risk-weighted assets by EUR 62 billion. And despite significant de-leveraging, especially now with CIB, our operating divisions showed good resilience as revenues were actually 0.8% higher than in the previous year.

The difficult economic environment put some pressure on our cost of risk, which showed a moderate increase at group level to 58 basis points, making out quick impairments, the actual interest in 2012 is in the region of 9%. We continued to improve our liquidity position quarter-to-quarter, more than doubling the excess of several resources compared to year-end 2011. This now stands at EUR 69 billion. We confirm one of the highest levels of solvency in the industry with a common equity Tier 1 ratio under fully-loaded Basel III at 9.9%. All this contributed to an 8.3% improvement in net income which reached EUR 6.6 billion for the full year 2012. And as you can see, these were solid results despite the challenging economic environment.

Now, let's move to the detail on the results. I would like to take a look at the main exceptional items that have affected the year. As you can see in the fourth quarter, the overall impact was negative for over EUR 650 million, mostly due to home credit adjustment and to goodwill impairments, the latter mainly in connection with a EUR 298 million adjustment on the goodwill of BNL.

Looking at the full year 2012, the main elements were own credit adjustment on one side and the capital gain on the disposal of 28.7% of Klepierre [Indiscernible] leading to a negligible impact.

Going through the actual 7.8% lower at EUR 39 billion for the year, while cost were 1.7% higher. Cost of risk was lower at EUR 3.9 billion, down 42%, adjusted for the impact of weak debt provisions, it actually showed an increase of 9.2%. Pretax income increased 7.5% to EUR 10 billion. On the right column, you can see the operating division which showed good revenue resilience.

Taking into account slightly higher operating cost and a moderate increase in cost of risk, this led to a 0.8% improvement in the pretax income for operational divisions. Hence, as I've already mentioned, our net income improved significantly to EUR 6.6 billion and due to sizable increase of our solvency in the course of the year, the return on equity remains essentially in line at just under 9%.

Key to the good resilience of our operating divisions has certainly been our significant business diversification. As you can see, Retail Banking revenues, as a whole, was 0.4% higher, while those for domestic markets were a bit lower, minus 0.4%, due to a more challenging economic environment in Europe. Investment Solutions revenues marked a good progress driven in particular by the Insurance business, while CIB revenues add up well despite the full implementation of the Adaptation Plan.

Looking at costs of the operating divisions, Retail Banking showed good growth -- cost control with a 0.1% reduction. Domestic markets were even better with 8.8% contraction in the year. Investment Solutions costs were up 1.4%, they benefited from the Adaptation Plan in Asset Management but at the same time, continued to invest in the development of its main businesses. CIB costs were 2.4% higher but at constant scope and exchange rates, they were actually down by 1.1%. Savings started to accrue the benefits deriving from the Adaptation Plan, in particular, from the completion of the staff reduction plan, but continued to invest in the development in some of its activities.

Cost of risk, at group level, remained moderate in 2012 despite an unfavorable context. As I previously mentioned, cost of risk stood at EUR 3.9 billion for the whole of 2012. This was 40% lower than in 2011 but adjusted for weak debt provision, it marked a 9.2% increase. The fourth quarter showed an increase of 17 basis points compared to the previous quarter, which was mostly attributable to 3 main factors: 6 basis points to provision on one last ticket in CIB; 3 basis points for the impact of the micro and economic context on BNL in Italy; and 2 basis points for one-off impairments by Personal Finance.

Let me look at the evolution of cost of risk by business unit now, starting with French Retail Banking. We saw cost of risk remaining low, essentially in line with the previous year. As I've mentioned, BNL, initially was affected by the difficult context, especially in the latter part of the year, and Belgium Retail Banking showed a slight increase in cost of risk but remaining at moderate levels.

Moving on the Euro-Med. Cost of risk remains significant at a level essentially in line with the previous year. BancWest in the U.S. continued to benefit from the more favorable economic environment confirming a decreasing trend, and Personal Finance saw a lower overall cost of risk for the full year, but with an increase in the last quarter probably due to the one-off adjustments I mentioned earlier.

Finally, cost of risk in our Corporate Banking was higher compared to the previous couple of years, which were at exceptionally low levels and had benefited from significant write backs. The fourth quarter was affected by the single last ticket I mentioned earlier.

Based on the full year results published up to now, our 2012 net income of EUR 6.6 billion ranks among the best vis-a-vis our comparable peers confirming BNP Paribas profit generation resilience through the cycle.

As I repeatedly said, the key element in this resilience of our profitability has been and remains our diversified business mix. You can see from the chart of the allocated equity of our operating divisions how the well-balanced mix of our businesses and geographies has been maintained. And to conclude with this introductory part, just to refocus on the fourth quarter results.

The last quarter of the year showed revenues at $9.4 billion, 3% lower than in the fourth quarter of 2011, while costs showed a 1.9% increase. Cost of risk were 21% below the level which is in the fourth quarter of 2011. However, adjusted for provision on increase debt, it actually showed a 26% increase. Pre-tax income exceeded EUR 1.1 billion. You can see in the right column that the operating divisions showed a good operating performance as compared to the previous year, which was impacted by the sovereign crisis. Gross operating income was up 32% driven by good revenue gross and effective cost controls. Cost of risk, as already seen, was higher due to the challenging economic environment.

As we look at the bottom line, net of one-off. The fourth quarter showed a net income of close to EUR 1.1 billion. And now I would like to hand over to François, who will take you through the performance of our domestic markets.

François Villeroy de Galhau

Thank you. Thank you, and good afternoon. So some words about domestic markets, I remind you that our domestic markets operation cover our full domestic networks in Western Europe, France, Belgium, Luxembourg and Italy, and 3 specialized business, Gigin Arval Fleet Management and Total [Indiscernible], our broker online.

Domestic markets had to deal with a very adverse economic environment, obviously, last year, with flat growth and low interest rates. But despite this adverse environment, we had strong satisfactions, the first one being the punch you see with the growth of deposit in each of our network at an average of 4.7%. We also had an increase of loans but with a deceleration through the year, due to a slowdown in demand on each of our markets. Despite this environment, we were able to maintain with minus 0 -- 1% the level of our revenue, and we were very reactive in all networks on our expenses which was a decrease you see at 1.5%. This leads to an increase of our gross operating income of 2.5%, and you see it on the right bottom, further improvement of our cost/income ratio in each of our main countries, Belgium, France and Italy, I will come back to them.

As a whole, and due to the increase of cost of risk mainly in Italy, we had a very slight decrease of our pre-tax income, minus 1%, so we are more or less at the historical high we reached in 2011. These are solid results with an improved operating efficiency we are very pleased with. If I now turn to our 3 main countries beginning with France, you see the same evolution regarding deposits and loans. We focused on the development on small businesses and especially important, we were able to innovate for our individual customers, a strong acceleration in mobile banking services, I will come back to them in the future. And we're also very pleased with the quick development of a new line of products, protection insurance, bank insurance for our customers, which are low capital requiring and which brings to us a new purpose for revenues.

Due to the environment, revenues decrease minus 1.4% but the same activity on expenses improving operating efficiency. Due to the success in maintaining a low level of risk, which Jean-Laurent mentioned, with risk-to-asset ratio of 22 basis points, French Retail was able to maintain its high level of pre-tax income, a bit more than EUR 2 billion.

If I now go to Italy, we are especially pleased with the growth in deposits. You perhaps remember that last year, at the end of 2011, we had a decrease of deposits in Italy. We were able to reverse this trend, especially, in the field of corporates and local public entities. Loans decreased through the year due also to the evolution of the market, but we were able to maintain a significant growth of revenues, the main explanation of it being, the fact that margins, on credit side, held up well in Italy. BNL was very reactive in managing its cost, so we have a growth effect of 3.6% in Italy between the evolution of NBI and the evolution of expenses. And you see it on the bottom right, again, a strong increase of gross operating income of 7%, so a very strong operational performance for la BNL. The challenge, obviously, in Italy is the evolution of risk. We had, like all Italian banks, probably in a lesser proportion, an increase of risk and so a decrease of pre-tax income of minus 12.9%, but we are very confident in our Italian operations and very pleased with this profitable result of la BNL despite the challenging risk environment in Italy.

Belgium, which is our third important country, here, we have an evolution of volumes in deposits and loans which remains a bit stronger than in our country due to a slightly better economic situation. The Belgian Retail has been also very innovative with this as the easy banking application, which is a hit in Belgium and even in Europe, and we were pleased on the corporate side to develop our cross-selling with the various business line of CIB Fixed Income and cash management in first line. Positive evolution of revenues, slight decrease of operating expenses and it's a new and important step in the necessary improvement of the cost/income ratio in Belgium. Due also to the low level of risk we had in Belgium, and this is a very good performance, an increase of our pre-tax income, as you see it, of 8.4%.

I now come to our action plan for next year, for domestic markets, as a whole. We like speaking about preparing the retail bank of the future, what does it mean? If we take our 4 clients' business lines, the main evolution is obviously for individuals with strong development of all online and digital innovations. I mentioned mobile, I mentioned Easy Banking in Belgium. We will also be very active in all the new payment solutions, contactless and on the mobile. We intend to be among the first European and worldwide banks for these new kind of digital services.

Second business line, Corporate. You know about what was the project what is now a reality, what we call One Bank for Corporates in Europe and beyond, with our CIB colleagues. We were very successful in acquiring new customers throughout Europe and we want to leverage on our cash management capability. We are acknowledged as a leading actor in the Eurozone. It's very important for our European customers but now more and more for American and Asian firms also.

Third business lines, very small enterprises and small and medium enterprises. We developed a network a Small Business Centers, very successfully, in France and in Italy and the 2 specialized businesses I mentioned leasing and Arval can develop synergies with the network for this kind of clientele.

Last line, Private Banking. It's also clientele where we are seeing is very strong in Europe. We are the leader in the Eurozone. We have been awarded by the Private Bankers, the best private banking in Europe. We have a strong growth in Italy, where we are now implementing this model of cross-selling between retail and private, and in all our geographies, we would like to have more synergies with corporate and small businesses. Through these 4 business lines, an adaptation of our networks, there will be still branches in the future but they contend will significantly change, more advisory, less daily banking or transaction-related services, more diversified form outs [ph] and much more technology in the branches.

We presented in Belgium, just before Christmas, a plan called bank for the future, which is exactly the implementation in Belgium of this strategy I just presented to do you. We took into account the evolution of the behaviors of our customers and we intend to develop significantly mobile banking and customer relation centers. So key objective for Belgium remains to improve its operational efficiency. We have a step, as I said it last year, but we intend to go further and further in the few years to come. So as a whole, strong commitment to our clients through the crisis, we did it last year, we will do it this year. Investing in innovation despite a constant effort to improve our operational efficiency.

Thank you. And now I'll give the floor to George.

Georges Chodron de Courcel

Thank you, François. We will now move to -- good afternoon, first of all. We will now move to all the other business lines of BNP Paribas. So I will begin with International Retail Banking, Europe-Mediterranean, then BancWest.

Europe-Mediterranean, I would like to focus especially on 2 of these things. First of all, we will continue and we have continued to develop deposits, you know it's important to have deposits for the new liquidity ratio and so the deposits are up to 13%. This is the first part I would like to mention. Second, the success of the merger between our 2 subsidiaries in Turkey, the former subsidiary of Fortis and the former subsidiary of BNP Paribas.

And you see, the cost/income of Turkey has declined a lot from 90% to 60% due to very good operating performance in Turkey, we've seen that Turkey is a very good for growth because a lot of people and we think we can develop a lot. Also thanks to cross-selling with CIB and Investment Solutions inside TEB. Just a comment about Ukraine. Ukraine naturally continued to be difficult but, let's say, now we think the difficulties are over and we think now we are back to normality except, if naturally, in Ukraine we have more difficulties. On top of that, in Morocco, which is also a problem growth area, we continue to open new branches because we think we can develop the business.

BancWest now. BancWest is now back to strong profitability. You see that the pre-tax income is now EUR 860 million. We have continued to grow the deposits, global policy of BNP Paribas at a lower level to loads. We are going to develop our private banking activity as we are making in all the other domestic markets, as Francois mentioned before. And so operating expenses are growing little just because we are strengthening the corporate and small business and also because we develop, as I mentioned, the private banking. In fact, the pre-tax income increased just because we have enjoyed a decrease of the cost of risk. As you know, the activities are much better now in U.S. than it was previously. So very strong engine for profitability at the level of the group.

Globally, what is our action plan for 2013? Let's say, continuity. The business is okay. So first of all, in BancWest, as I mentioned, we will continue to develop cost-selling with [Indiscernible] investment banking and to develop cash management. Cash Management is actually very good for deposits, and we will continue to develop Wealth Management, as I mentioned. And actually, we'll continue to optimize the branch network.

In Europe-Mediterranean, naturally, we will continue to invest in our growth area, I mentioned Turkey, also Morocco. And we will continue actually to also invest in cash management. Turkey, let's say we, as I mentioned, we think it's here -- growth area for BNP Paribas.

So now I move to the second large part of BNP Paribas, Personal Finance. You know that in personal finance, in fact, there are 2 activities, the consumer loans, which we continue to grow, and the mortgages, which are in the runoff model. And so that's the reason why you see that something flat but in fact, we decreased the mortgages and we increased the consumer loans. What's interesting in that, is that we have developed lots of very interesting commercial relationships, we are signing some partnership with [Indiscernible] and we are in the process to sign with other partners but it is not public so I cannot comment. And on top of that, we have a new model of development in some market where we have no funding, for example, Russia. In Russia, we have a specific joint venture with Sberbank. They give the funding and we bring the know-how and naturally we anticipate to be the first in Personal Finance in Russia, so we develop a new model to our funding with local actor. At the end, the result of that, unfortunately, the revenues are a little down due to 2 things, first of all the outstanding [Indiscernible] are flat and second, we have naturally new regulations mainly in France what we call [French], which are not very, very favorable for personal finance but we adapt because we have -- as you can see, we have reduced our operating expenses of around 4% if we exclude adaptation cost.

All in all, we have delivered strong pre-tax income, EUR 1.2 billion, just increasing a little because of cost of risk has begun to decrease, as we have announced to you during the previous quarter. So globally, we think despite the challenging environment, we will continue to deliver good results.

Action plan. Very simple, we will continue to develop our business model. I remind you that Cetelem now, we not only deliver loans but we try to attract some deposits and to sell some insurance products, protection insurance. Globally, it is the beginning of success. We will continue. Naturally, we have also an industrial approach. We have some platform with BPC just to be more productive. In Italy, same type of model, we know that -- you know that we have both, one with [Indiscernible] Findomestic so now we can deliver the synergy and we develop the same model as in France. With Findomestic Banka which is to try to get some deposits. And as I mentioned, in other countries where we have some Retail Banking activities outside our domestic networks, such as Turkey, and that we developed PF Inside, which is consumer finance inside banks. And as I mentioned, we have great -- we think that we will have great opportunity with Sberbank and probably also other partners such as European manufacturers, [Indiscernible] European manufacturers. So globally, we think it will continue to be good profitability, in general.

Investment Solutions now. Well, we have developed our asset under management not due to net asset -- positive net asset first, but due to performance effects. You know very well that the markets were good, equity and bonds. So globally, we are now close to EUR 900 billion under management. Our net assets inflows, we can say that it is negative if we take into account the decision of our clients to re-internalize some operations. If we exclude that, in fact, our net asset inflows is positive of EUR 5 billion. Business line by business line, naturally, you know that Asset Management is under pressure and that's, let's say, our clients, your clients or other clients were risk adverse in 2012, so we have outflows in equities and reserve, but inflows in money market and bond funds. Wealth Management it was okay, mainly in Asia.

Insurance, good asset inflows everywhere, and also in France, small asset inflows which is, let's say, not so bad in challenging environment because I think, I remind you, that globally, in France, where asset outflows at the level of the global insurance position. So the results very clear, good, let's say, good job, positive effects, revenues plus 5% and operating expenses minus 0.6% at the constant scope and exchange rates like that. First of all because we have strong business such as Insurance and Securities Services, as I mentioned.

Asset Management is under pressure but we have decreased the cost. If you remember, we expect that we would add last year an Adaptation Plan, now it's over and you can see that the cost of Asset Management are down 10% as we have explained that last year.

So all in all, the pre-tax income is now at more than EUR 2 billion, it is a first time, EUR 2 billion and EUR 100 million, which we are very proud of this activity of Investment Solutions. Action plan, very simple, as I mentioned as before, continuity. We were, let's say, we were looked at very good for private banking in high net worth individual and also for institutional clients, so we will continue. Specific for Security Services. As you know, there are some change in regulation in Securities Services. We think we can use that to develop our business in Security Services. And actually, in general, we'll come to that later. We will develop in Asia for Investment Solutions and so naturally in the Gulf countries. So globally, our Investment Solutions is very place for stability and growth at the level of the book.

I come now to CIB, so corporate and investment banking, you can see that the decrease of the revenues is low. In fact, it is a little higher than 2%, it is around 10%. If we compare what is comparable taking into account the fact that in 2011, there were some specific losses due to the sales of loans as we mentioned at that time. But globally, we think it's a good performance. Just to comment concerning the corporate activities, corporate banks, you can see that now globally the revenues are down 15%, which is in line with the fact that we reduced assets of roughly 15%. It was our de-leveraging plan. We explained that last year. And concerning the investment banking, let's say the first quarter, you have to remember that in December, the client activity was very low because of the market was not very active, and on top of that, Christmas was -- let's say, during Christmas and New Year, there were no activity at all, lack of seasonality. And naturally, we are proud to have been the [French] Bank of the Year by IFA.

The reserves, the operating expenses, we are decreasing our operating expenses by minus 1%. This is the result of 2 different effects. First, we have reduced our workforce as we mentioned last year and we are investing a little in new activities -- not new activities, but activities which are very interesting for us, which are cash management and global deposit gathering because as you know liquidity [Indiscernible] as Phillipe will mention in a moment to develop cash management and deposit.

All in all, our cost-income ratio, if we exclude the Adaptation Plan is around 62% which is, let's say, compared to all our competitors, as you can see, we will continue to be one of the best-in-class, vis-a-vis our competitor. All in all, the pretax income is close to EUR 3 billion minus 20% due to the fact that, on top of that, the cost of risk has increased, as Jean-Laurent mentioned. Now we are to notional and classical level because last year, if you remember, the cost of risk was very low and -- not normally, it was not classical -- so globally, now it's a normal cost of risk. So at the end, the pre-tax return on equity is more than 18% which is correct in this challenging environment.

If I look in some detail, Advisory and Capital Markets, you can see that we continue to use low value at risk. You know that the business model of BNP Paribas is client-oriented, not a lot of proprietary selling activities, so globally. We continue to have very low level of [Indiscernible], too low by the time being at 34, but let's say we'll continue to manage correctly this indicator.

All in all, what have we done? We at first adapt to the new environment Basel 2.5 and Basel III, and second, 2 different things, in Fixed Income the activity was good and you know that there were a lot of bond issuance and so on. In equity, the market was not very active, as you know all, so the results are -- the revenues are down of 20%. All in all, the pre-tax income is at EUR 1.5 billion, which is nearly 20% and we continue to be #1 in all bonds in Europe banking. I think -- we think it's very important in disintermediation of the market. So we think we are showing some resilience in this market.

Corporate Banking. You know we have changed our model because now Corporate Banking is deposits and loans and the good franchise of BNP Paribas CIB is to have a lot of clients, that's the reason why we can continue to collect client deposits without overpaying these deposits which is very important for the results and to continue to manage our new model which originated through these [Indiscernible] reports for example interesting and we are very pleased to have been named [Indiscernible] of the year. Now we continue to originate [Indiscernible] activity. We don't keep the loans of any engagements in our books because now we go to the market selling aviation [ph] bonds. We continue to be there for the clients. And it is not -- no more in our balance sheet. We continue to develop, as I mentioned, client deposit.

All in all, the pretax income is lower, as I mentioned, because the revenues are lower due to the de-leveraging and because of cost of risk have increased to, let's say, a normal level. Action plan. Just to continue to transform our business model, to develop client deposits, and as Jean-Laurent will mention in some moments, to have a specific plan in Asia as it will be explained later. And we will try to continue -- I'll originate to distribute model. As you can imagine, this is evolution for the staff so we are in the process to continue and to -- also to differentiate our action, region by region, because we think that our clients in Asia are not at all the same type of clients, for example, than in North America. So globally, we'll continue and we think that we are well placed and then our franchise in CIB, it is good. Because on top of that, some of our competitors are leaving the floor.

So now I leave the floor to Philippe just to speak of our whole financial structure.

Philippe Bordenave

Good afternoon. The group financial structure. So we speak about liquidity first, then insolvency, and then the book value per share.

Liquidity. You know this chart now, well, so I'm not going to turn to much details, just I would like to stress that our stable funding surplus was more than doubled in 1 year. So moving from EUR 31 billion to EUR 69 billion, so plus EUR 38 billion. And more or less, it is to be connected with the increase in the Central Bank deposits in yellow, at the top left, that was increased by EUR 45 billion. So basically, we have increased our [Indiscernible] funding surplus and the additional surplus has been put in the Central Bank account. And the total of this surplus, to a certain extent, the $69 billion, being also included in a certain way in the EUR 100 billion deposits at Central Bank. So we are building -- we have plenty of long-term liquidity, we are building a surplus, we're depositing it at the Central Bank for the sake of complying with the ratio and, of course, this has a cost now because we are being long-term liquidity and we've paid almost nothing at the Central Bank. And the cost is in the corporate sector as you have noticed.

This EUR 100 billion of deposits with Central Bank, a part of the EUR 221 billion that are here, that is our available liquidity buffer made of deposits in Central Bank and assets that are eligible to Central Banks' window meaning that we can get immediate liquidity against them. And so this EUR 221 billion are representing 119% of the EUR 185 billion that are in the range on the previous page and that are the wholesale short-term deposits, meaning that we have here, this time it's about the very short-term liquidity. The previous page was about the structure of long-term liquidity. This is about the very short-term liquidity. We are in excess of 50 if I may say so, first, because it's another 19%, and second, because the wholesale, short-term funding is not overnight, of course. It's 1 month, 3 months, 6 months, up to 1 year. And so we could have a hedge against that by maintaining liquidity at the same maturities but you need all these amounts up and available overnight immediately. So it's a lot of safety, a lot of security that is imposed to us by the new regulation.

In order to keep these structural buffer, long-term buffer, you have to keep issuing medium and long-term bonds and notes. And so we have set up 2013 issuing program at EUR 30 billion for this year, after EUR 34 billion last year, I remind you. The program last year was completed early November, and so we kept issuing in kind of -- ahead -- in advance for the 2013 program. So at the end of January, indeed, we have -- you need 3 months of issuing and we are already at EUR 11 billion, so we are ahead of the curve. And the average, what interesting to know is that the average cost has been reduced significantly and we are issuing an average at LIBOR plus 73 basis points -- mid-swap plus 73 basis points, sorry, on average, mid-swap plus 109. So it's a significant reduction in the cost. So we have a diversified medium- and long-term funding at competitive conditions.

Now solvency. About solvency, I would just like to stress that we have reached an 11.8% common equity Tier 1, according to the current regulation, that is applicable to us. And translated in Basel III metrics, it means 9.9%. Second thing I'd like to say is that, as you can see here on the graph, basically, compared with the end of 2008, it's a doubling, doubling of the ratio, from 5.5% to 12%. Doubling of the amount of common equity Tier 1 as well, from less than 30 to 65, so more than doubling, indeed. So we are now extremely safe in terms of solvency, having in mind that the figure at the very beginning was not so relatively safe as well as it's shown by the fact that we are relatively -- behaves relatively well during the crisis all along.

Then the net book value per share is languishing [Indiscernible] round figures, so it's easy to remember. EUR 60, EUR 60.8, EUR 60 for the net book value per share and EUR 50 for the net tangible book value per share. It's an increase -- book value per share -- it's an increase of EUR 0.065 per year since 2008 and we are relatively proud to have increased that book value per share year after year, due to 2 things. First, we enjoyed positive results year after year throughout the crisis, so positive results. We never dented the capital. And second, we avoided dilutive rights issues that could have reduced both the ratio, the book value per share as well so we protect our shareholders and we try and succeeded in avoiding too dilutive rights issues.

And so the dividend now. So we are proposing a EUR 1.5 per share at the next AGM. You remember that in the context of the Adaptation Plan, we had announced EUR 0.25 out and strip options for 2 years. But indeed, as we overperformed, it was no more necessary this year to do that, so we paid in cash and we moved up to a [Indiscernible] ratio of almost 30%. The chart is showing that in the past and again with the kind of exceptional execution last year but adjusting for that in the past, we have paid between 30% and 40% [Indiscernible] ratio in the recent past.

So this is it now. I hand it over to Jean-Laurent for the action plan of the group.

Jean-Laurent Bonnafé

So now let's move to the 2014, 2016 business development plan. The first stage of this plan is represented by the launch of simple and efficient ambitious plan to improve the group's operating efficiency, tell you more in a second. The second stage will comprise development plans, by region or business. The first example being our Asia Pacific plan which I will present to you afterwards.

Development plans will be properly announced during the year with the objective of presenting the full 2014, 2016 development plan at the beginning of next year.

Let me introduce now to you simple and efficient. [Indiscernible] ambitious plan to simplify the group's operations and improve its operating efficiency over the next 3 years. It is a far-reaching plan that involves all businesses and all geographies. Over the next 3 years, we intend to invest EUR 1.5 billion, in order to generate, by 2015, yearly cost savings of EUR 2 billion. These savings shall be split, essentially, in line with the current business mix of the group, that is to say, half retail, 1 CIB and 1 fixed investment solutions. The implementation shall be monitored transversely, in order to optimize its effectiveness and the steering of the plan shall be followed directly by the top management.

As I've said, a key point is that all businesses and all geographies, where the group operates, will be involved in the plan. The plan will center on 5 main areas of transformation, namely, reviewing processes, rationalizing tools, simplifying operations, client serving and cost optimization. In addition, there will be transversal approaches to enhance operating efficiency, such as digitalization processes, increasing delegation or simplifying internal reporting. I can tell you that, to date, we've already identified over 1,000 initiatives for this plan.

The second plan I referred to earlier, is our Asia Pacific development plan. We are already one of the best positioned non-Asian banks in that region. For example, we have a presence in 14 countries, with full banking licenses in 12 of them. This is an area where we already generate some 12.5% of our non-retail revenues. It's close to 8,000 staff in different CIB and Solutions businesses. We can leverage on a strong platform with recognized franchises. Let me mention a few significant examples. In CIB, Trade Finance. We have a setup with 25 trade centers which is performing well. In Cash Management, we rank #5 in Asia. In Fixed Income we are top player in derivatives. But this is also true for Investment Solutions. For instance, we manage EUR 30 billion of assets making us the #8 private bank in the region, and we are also #7 non-Asian Insurance with a presence in 6 countries.

Our presence in Asia Pacific is then complemented with partnerships with large local players such as State Bank of India, Shinhan Group in South Korea, Back of Nanjing in China. As you can see, we have solid platform to build our future development in the future.

BNP Paribas is fully committed to increase its presence in this fast-growing region. As you can see from the map on the right-hand side, where specific growth plans for each country. Our growth strategy will target 2 types of clients, corporate and investors. With corporate, we intend to strengthen the commercial setup with multinationals, as well as with medium, large, local companies. As a result, we intend to broaden our local client base, accompanying our global clients in Asia as well as Asian clients in the process of internalization. In addition, we shall leverage on our Corporate Banking to further develop Trade Finance and Cash Management and on Fixed Income to push development on bonds, flow products and hedging instruments.

Looking at investors, we shall increase the group's presence to boost funding capabilities and we shall develop our originate to distribute approach, strengthen local Asset Management and Securities Services, as well as expanding our private banking clientele base, especially with the wealthier ones. All this, while concurrently identifying the cross-selling between our CIB and our Investment Solutions. Moreover, we shall look to develop new partnerships with large local players especially in insurance, where we intend to develop activities especially in China and in Indonesia.

Our target is to generate a significant revenue growth over the next 4 years. In fact, we have to boost the revenue contribution of our Asian CIB Investment Solutions division to over EUR 3 billion by 2016, meaning an annual growth rate of 12% over the next 4 years. And we aim to increase our funded assets as well as our deposit base at a similar pace. In order to foster this plan, we shall be hiring some 1,000 stranded [ph] additional people locally over 3 years, and making sure that we actually get what we want, we are a member of the Executive Committee, already based in the region. We will steer it directly, the development plan. I'm confident that BNP Paribas can play an increasing important role in the development of the Asian economy and that Asia Pacific can represent an increasingly important part of our core earnings.

And now to conclude, I would like to sum it up with 3 takeaways. First, BNP Paribas has delivered solid results, thanks to its diversified business model designed to service clients in a challenging economic environment. Second, BNP Paribas model has already adapted to the new regulations, meaning that the focus can now shift to the pursuit of commercial development. And then third, we're working on the development plan for 2014, 2016 and have launched the first phase of this plan I've announced to you today that is simple and efficient.

I will now hand over to you and together with my colleagues, we shall be happy to take your questions. Thank you very much for your attention.

Question-and-Answer Session


[Operator Instructions]

Unknown Analyst

When I sort of envision your program, you're taking out coffers from existing businesses, creating room for investment back in the group in areas like Asia. So do you think there will be a lot of inflation and investments to offset the EUR 2 billion cost take outs? So I was just wondering how you're thinking about the actual impact in the numbers?

Jean-Laurent Bonnafé

You have already answered your questions, so congratulations. The evolution, normally -- the evolution of our costs should be the normal inflation trend, year after year, less those amounts. And ultimately, after 3 years, less EUR 2 billion plus the one-off cost in the meantime, of course. But after 3 years, nothing anymore. And plus the cost that you did with the development plans and to a certain extent, one could say that this cost-saving efforts are, in a way, helping the financing of the development cost that we are going to incur in our development plan.

Unknown Analyst

Second, a slightly different way then. So how do you perceive this ongoing normal business-as-usual inflation and investment of the business. If you didn't have any cost programs, [Indiscernible] 3% or 4% per annum?

Jean-Laurent Bonnafé

This EUR 2 billion cost program is assuming that the cost base of the group will normally evolve along with inflation. So if we take a normal trend including a vision that might be different according to the different geographies, this is the normal evolution. Out of that, we're taking EUR 2 billion. And away from that, we have development plans in which we have to invest.

François Villeroy de Galhau

And inflation, it's 2%, 3%, 4% depending on the...

Unknown Analyst

So just to follow up on Robbins questions, I guess the natural question is to ask, how much kind of investment do you see in terms of the development plan? And then, if I may ask another question, just on the capital ratio. Basel III ratio of 9.9%. Your previous target was, I think, 9%. Clearly, this will grow in 2013, 2014 onwards. That kind of growth in your Basel ratio will weigh on your returns. So at what point do you think that you need to make a more dramatic change in terms of your payout ratios? Or alternatively, do you see that much growth in your [Indiscernible] do you use that capital?

Jean-Laurent Bonnafé

This is 2 very different questions. First one, there is no reason why the Basel III ratio would go up 9.9%, good enough. The minimum for us, including the global SIFI surcharge is 9%, it could be even go down one day. One day, it would be considered that eurozone being one single currency area with one central regulator is not anymore the addition of different countries. That day, there will be a positive effect looking at the global SIFI evaluation of the surcharge. So 9%, we consider it's the minimum for us, but it's also maximum looking at -- from the regulatory side. So we have room to grow and to invest this excess of capital, and we intend to invest that excess of capital organically. So this is first. Second, we look at the belt, this is going to be one dimension of the development plan. In 1 year time, we'll tell you basically what could be or what should be the policy of the group looking at the payout ratio. Historically, we were in between 0.33% and 40%. Looking at the size of the capital base, basically, it would push for some kind of an increase of the payout ratio, but it's too early to say. And clearly, it's one of the key dimension of the, let's say, development plan to be released in 1 year. Until then, we cannot comment more.

Unknown Analyst

And then, sir, just on the cost savings, just how much investment on the cost side you expect in the development plan? This is just a follow on from [Indiscernible].

Jean-Laurent Bonnafé

It's too early to say. The development plan will have to wait next year for the comprehensive picture of the portfolio of different development plans we'll add to these geography core businesses.

Unknown Analyst

And sorry, if I could just ask one more question. Just on BNL. The higher provisioning that we saw in Q4, just to try and better understand, was that related to higher NPLs? Or was it related to both [Indiscernible] the provision coverage of the existing...

Jean-Laurent Bonnafé

BNL has the best coverage in Italy by far compared to other Italian banks. This is simply the result of the deterioration of the economic trend in Italy last year, and well, this is it. This is the NPL.

Jean-Francois Neuez - Goldman Sachs Group Inc., Research Division

Jean-Francois Neuez from Goldman Sachs. I just have 2 questions, please. The first one is on the risk weight. So you have a very high capital ratio now, but investors continue to question sometimes the validity of the risk weighting, particular because of the modern usage and the Basel committee, if I wish to report on that, showing that BNP has some of the lowest risk weighting particularly on their trading assets. Then there is an exercise that has been asked for banks to do, but where banks are not named on how much they allocate towards standard portfolio of assets. Could you give us a sense of sort of where you stand in that hierarchy, that would be my first question.

François Villeroy de Galhau

We are among the top charge for the same portfolios.

Jean-Francois Neuez - Goldman Sachs Group Inc., Research Division

Okay. And my second question is, again, on this cost program, if I may? Have you got a sense of where you want to end up in terms of the cost-to-income ratio for the group? If not -- and you used to before in a stable environment take out about 2 points a year. Is this something that you -- is reasonable?

Jean-Laurent Bonnafé

Where the group, I think, is today and we're improving cost efficiency, we take out away from inflation EUR 2 billion. And then whether there's a dividend plan to be released profitably, and then we will add some adverse effects, it can come from either the new regulation, it can come from economic scenario. So it's too early to talk about the global cost income of the group. There is no one single figure, one single target for the group. We're going to consider each potential development, either by business or geographies. These are separate initiatives. We are going to improve the cost efficiency of the group. We will have to suffer from additional cost of doing business, that is to say, the new regulation, by adding up layers of regulations in Europe, in the U.K., in the U.S, all over the place, so this will have a cost. And, in 1 year time, we'll give you the cost income. It's going to be an aggregate figure. We're not driving the bank looking at one single figure that might be the cost income. Because there are so many different businesses, with so many different level of, I would say, cost incomes. You cannot just look at [Indiscernible] with one single figure.

Piers Brown - Macquarie Research

Piers Brown from Macquarie. Just a couple of questions. First of all, just in terms of the capital, again. You're obviously very comfortable on a quarter 1 ratio basis. I'm just wondering how you think about the leverage ratio under Basel III and whether you see that as a business constraint going forward? And the second question, is just on the funding structure. A lot of progress, obviously, in terms of deposit gathering, I wonder if you could just share with us your thoughts on what sort of manifestation would be in terms of your targets for the balance sheet structure both on a loan deposit ratio and also in terms of the short-term funding component of the balance sheet.

Philippe Bordenave

On the leverage, we are now below 20. Indeed it comes along with the right season. We have worked for 18 months, we've worked on the solvency issue, on the de-leveraging, the liquidity issue and by improving both the liquidity ratio, the solvency ratios, we ended up improving the same token improving the leverage. So less than 20x. If we translate that into the Basel III metric, that includes the off-balance sheet elements. It makes less than 30 and limit will be 33, so we are -- I think we are okay as well. About the structure, I think we have to come back to the cash balance sheet action. I mean, what is important is not the loan-to-deposit ratio. I mean, if you look at GMAC, I mean, they have no deposits. They are borrowing money and they are lending to customers and nobody questions the loan-to-deposit ratio. Indeed, what is important is the sum of deposits and stable funding and, of course, equity and reserves. So on top of that, not only the loans but also, as we are not purely a lending bank but we are also a CIB bank with market activities and markets require an inventory, so you have to take the inventory as well as something that is necessary even if it's short-term, you have a minimum inventory that is always there, so you have to take that as a kind of need for stable funding. So the figures are here, I mean, the total is that we are at 110%. And at this level, I mean, we think it's okay because to become, I think, at 100% will be okay. We were at 110% and it was quite enough as shown by what happened over the last 2 years. But the regulation in order to comply with the liquidity card [ph] ratio and the future net stable funding ratio, we found that we had to be more than that. So to pile up structural excess surplus of long-term liquidity. But we think that 110%, it's okay to be in line with the regulation. And sorry, and last element of answer to your questions, back to the same slide, sorry, about the short-term wholesale funding. I think that what is above the line, if you want the orange part and the red and yellow part on the left-hand side, this is -- it doesn't matter if you have more short-term funding, you have more short-term assets and then it's not that important indeed. What is important is to have always a good maturity matching between your short-term liabilities and your short-term assets, in order to be able to reimburse your short-term liabilities, these are not renewed. By not renewing your short-term assets, so it's what we did last year during the second part of the year, and the total amount is not that important.

Jeremy Sigee - Barclays Capital, Research Division

It's Jeremy Sigee from Barclays. Two questions please. Firstly, can you talk some more about CIB revenues. You've talked about seasonality but you seem to have declined more than peers on a full year basis and I wondered if that's one of areas that you see scope to regrow as part of your growth plan? And secondly, also on the great plan, could you talk about how ROE comes into your thinking as you sort of like a number of banks try to get your ROE definitively above the sort of 10%, 12% level?

Jean-Laurent Bonnafé

About the return on equity, just make it simple. We're not trying to have a guess. There are too many actors that are trying to have a guess about what might be the future while building a business plan and once this is ready we're going to disclose the return on equity. So we are not going to say cost of cut people is, such or such, and we should be over -- it doesn't make sense. So we are a real company, who are servicing customers, who are trying to do a decent business out of that, who have development plans, who have cost cutting, who are improving the operation, the operating efficiency of the bank. And based on that, looking ahead, we'll get something to cost income, level of revenues and the return on equity. [Indiscernible]. We are not ready, we cannot comment. The fact is, that with 9%, close to 9%, we have the best return on equity structure. My opinion, the best way to have a decent return on return on equity, decent level of equities to go that way. Building a business case, based on customer needs, not trying to have a guess with minimum and threshold about cost of equity and that kind of stuff. There are too many banks in the past that moved that way, and we saw the results. So this is not our philosophy. And again, it's very essential to understand the way we're looking at the situation. We are a commercial operation, serving customers, we have geographies, businesses, we are looking at each of this different situation, look for 2, 3, 4 years, depending on the situation, then we have an aggregate number, but we cannot aggregate if this job is not done seriously. This is very important to us. Second, Francois is going to give an answer.

François Villeroy de Galhau

Yes. Concerning the revenues of CIB, I'm not sure if it has decreased more than the competitors'. Sometimes it is difficult to compare because let's say the business model is not exactly the same. What is sure is that, first, not to be a U.S. bank is to us [Indiscernible] the U.S. dollar [Indiscernible] in terms of funding let's say, it's not a good thing so we are compared to some of the American banks. We are let's say, it's more difficult. On top of that, you have to keep in mind that we have achieved the deleveraging. A lot of other banks are still deleveraging in front of them and they say, okay, we will sell a lot of things so I will not comment about those points. So we have done so, we have reduced our balance sheet and, naturally, as I mentioned, the word we used, have decreased. But our balance sheet, as a level of CIB have decreased. On top of that, we don't only look only at revenues, we look, as I mentioned, at cost income ratio. Because as you know, specificity of CIB, that CIB sometime -- CIB business depends on lots of things. So we have to carefully manage the cost. On top of simple and efficient, we always look carefully at the cost on the CIB and we will continue on top of simple and efficient. We look at revenues and we look at cost information which, for us, is very important. To come back to the past, you can look at the level of CIB, there's a return on equity of the CIB business is not so bad, as I mentioned. I'm not sure that a lot of banks have shown last year the same type of return on equity, which is just below 20%, before tax. So we manage revenues, cost, cost information and return on equities and naturally, as Philippe mentioned, funding because also we have -- actually, the funding and all what we have done concerning the balance sheet is that of cost because naturally we have passed all the large part of the funding cost to [Indiscernible] and naturally the other cost [Indiscernible]. But it is behind us now.

Anke Reingen - RBC Capital Markets, LLC, Research Division

Anke here from RBC. Sorry to ask again about your capital. Clearly, you're quite clear that you exceeded your 9% target. And looking at consensus and just assuming a 35% payout ratio, you have next year like EUR 4 billion of excess capital on top of this. So I just wonder, when you think about your organic and about investing your excess capital, firstly, I assume it's organic. And how should we assume it's not going to be dilutive to your returns or to your target of group returns to be delivered over 3, 5 years? And then maybe on that note, on Asia, you've given us some revenue target, but what's the profitability of the operation currently? And what's your target? And then just lastly, on IAS 19, am I right on assuming there's no impact?

Lars Machenil

So I start with IAS 19. No, as you, too, will notice with the changes of IAS 19 and then the corridor which will go away, there is an impact which at the end of this year stands at EUR 570 million. So meaning as of Q1, this EUR 570 million, which is not a P&L element, actually an OCI element which will come impacting the capital. The EUR 570 million is pretax.

Philippe Bordenave

On Asia, we have not given too many details. We have given ambition to increase revenues by 50%. But you have seen that, of course, it involves increasing the loan book by 50% as well and deposits as well. And so it will create risk-weighted assets as well. And so this is an example of organic growth. So it's just one example. Asia is not the biggest part of the group at the moment, but it's clear that if we -- well, the development plans we are going to adopt are going to be profitable, otherwise we are not going to accept them, and they are going to be risk weighted asset-consuming, of course.

Anke Reingen - RBC Capital Markets, LLC, Research Division


Philippe Bordenave

No acquisitions.

Nick Davey - UBS Investment Bank, Research Division

Nick Davey from UBS. Two questions, please, if I can. The first, could I just take you back to liquidity? And you've talked a lot today about 120% liquid assets to short-term funding and being essentially LCR-compliant at the group level. I wondered whether you think about liquidity from a currency-specific level as well. There's been some discussion in some regions about LCRs in each of the major currencies in which banks operate. Do you think about that in your various currency books? And the second question, please, on capital. You've mentioned the IAS 19 impact in Q1. Could you just talk us through any other impacts that are coming from the treatment of insurance before you move onto the Danish compromise?

Philippe Bordenave

So the first question, the answer is yes. We are looking at the ratios, currency-per-currency and even to a certain extent, country-per-country, which is not always exactly the same because at the moment, the reserves tend to have a very fragmented view of all this because they are really panicked by all what happened. So yes, it's part of the management of the liquidity, so now we have to see how all these regulations are going to be translated by -- in each country. But we are already to be obliged to comply with kind of liquidity coverage ratios per currency and per country. And about the insurance and contrary to the other French banks, we had already deducted -- we were already practicing the DME [ph]. I mean, some deductions from our capital base are due to our insurance investments. The new -- while the Danish compromise is taking things another way, so instead of deducting some things, they are weighting, risk-weighting the insurance investments. So for us, it's an additional cost but smaller than our French competitors. We are not deducting anything up to now from common equity Tier 1. They were deducting from the Tier 2 or whatever but not from the common equity Tier 1, contrary to us. And all these additional costs is, of course, included in around 200 basis points that are the difference between Basel 2.5 and Basel III for us roughly. It's already included.

Lars Machenil

So as a complement, so indeed, in our Basel III projections versus the current Basel 2.5, it is in. However, there is a slight amendment to the French regulation under ACP on the half of Basel 2.5, which goes towards that Basel III, which will lead to a little impact on our Basel 2.5. But as I said, it's a step towards Basel III. So for Basel III, it will not be impacted. But that is much larger for the other 2 French banks, who are not in the model in which we are.

Andrew Lim - Espirito Santo Investment Bank, Research Division

It's Andrew Lim from Espiritu Santo. Just following on from that previous question, could you update us on the group funding for BNL and then perhaps as a whole as well and also how much LTRO money you've paid back and how you see that developing going forward?

Philippe Bordenave

No, we have not given the exact amount of LTRO we had drawn. And so we are not going to give figures for the reimbursement either. We have reimbursed a significant part of the LTRO but nothing in Italy. We have kept all the LTRO we had drawn in Italy. And that is playing a role in the fact that we were able to reduce the intragroup funding to BNL. Part of the intragroup funding was replaced by the Italian LTRO. And so that part has been kept and the intragroup funding is remaining very low now at EUR 7 billion or something like that, so it's not an issue anymore.


We have a question from Delphine Lee, JPMorgan.

Delphine Lee - JP Morgan Chase & Co, Research Division

Delphine Lee from JPMorgan. Just 2 questions. So first of all, just on the topic of regulation. I know as you comply, you're well above the minimum on capital and also quite comfortable on LCR. What kind of topic is really -- could be a potential risk issue for group returns? Secondly, just coming back on the usage of excess capital for the group. Where do you stand on the remaining stake of Fortis, which you don't own? Is that something that you would consider in the timeframe of your business plan?

Philippe Bordenave

On the second point, we are very much satisfied by the partnership we have with the Belgian stake in Belgium, so fair enough. We are the largest bank in Belgium, and they are pleased to be a minority shareholder in that bank. And this gives a lot of, I would say, fluidity in the way they are looking at the bank. And second, regulation, well, there is still a number of regulations to be decided, to be known. There will be details. Quite often, details are costly. There will be new regulation or at least implementation of recent regulation in the U.S, in the U.K., in Europe, in France, in all over the place. So all that is creating additional complexity. It's too early to understand what is going to be the additional cost of doing business, but there will be some additional cost of doing business. It's not going to be marginal. The good qualities that India, not so many banks will be able to stay in those businesses, global businesses. It can go from cash management, trade finance to capital markets or international retail or investment solutions. This is not only fixed income. So it's going to be a different universe. It's too early to say, but all that is going -- all those different layers is creating everyday an additional cost of doing business. So profitably, we'll have to organize the bank, we have to prepare the bank. This is the right way that we are entering in that simple and efficient program to be, in any case, ready to be there in any case. Not all P&Ls from any banks would allow those banks to be there in 3, 4, 5 years in all those businesses, so this is the nice point. It's going to be tougher. But in the end, there will be more clarity in the business. This is about concentration, something very classical in a global industry. We're on the verge of some kind of simplification, less global actors. And this is the way it is. We have to be ready to enter in that phase. Obviously, the global economic scenario worldwide is not the best one to enter in that kind of an evolution, but this is the way it is.


The next question is from Alex Koagne of Natixis.

Alex Koagne - Natixis S.A., Research Division

Alex Koagne from Natixis. Just 2 quick questions from my side. The first one is on the French retail banking. One of your competitors said yesterday that the cost of rates could increase by 10% in 2013. Do you share this view? Or do you see a higher increase? Secondly is on BNL. We definitely saw a very good deposit gathering. I'm just wondering whether you're offering better price than the market.

Georges Chodron de Courcel

The question with regards to risk in French retail banking, we had a low level as you saw in 2012 with 22 basis points, as I said, which is probably the best performance in the market. We don't expect a significant increase this year. We will see with the economic context, but this is our view today. Regarding BNL and deposits, we were able to deposit -- to develop especially in the field of enterprises, local authorities, public authorities, without entering a deposit wall. If I look at the individuals, you have the development of a very specific product in the Italian market called contra depositor [ph], with high interest rate for the first period. We were probably among the most reasonable and the most cautious developing this share of our deposits. So as an average, the cost of our deposits also per individual is lower than the market. That's why we are especially pleased with this growth of more than 4%, 4.3% because it has been at more moderate conditions than our competitors. We saw, let me say, with a smile, we saw some strange comments sometimes in the field of Italian products and deposits, but we were able to remain out of this curse [ph].


The next question is from Pierre Chedeville, CM-CIC.

Pierre Chedeville - CM-CIC Securities, Research Division

I have 2 questions. First question is related to your plan in the CIB. It's clear that the plan seems ambitious if you focus on Asia. But if you look at globally, it means that it could be an increase of the revenues of above 3%, 5% compared to this year revenues, for instance, we've seen for years. My question is actually when we look at the evolution of the banking industry and as we say, originate and distribute, blah, blah, blah, fixed income is strong. Don't you think that we need more global CIB banks in Europe and particularly in the eurozone? And we have today Deutsche Bank, we can say. And don't you think that there is an opportunity for BNP to become now one of French, of course, but European global bank in eurozone to counterattack, if I may say, the Anglo-Saxon banks, particularly American banks that have been reinforced in the crisis? So my question is within 5 to 10 years or recent times, don't you think that BNP could become what we call a global CIB bank? And if not, in your opinion, what prevents you from becoming that? And a more specific question on Italy. Don't you think there is a kind of contradiction because between the rise in the cost of risk and the development that you seem to have with corporations and small and medium businesses? Because from an institutional point of view, we may think that when the cost of risk and the economic situation is deteriorating, you don't -- you refrain your business with SMEs in my view. So why don't you think of that? And with the complementary question regarding the goodwill, it seems that you have increased your denominator, but you have done -- it seems nothing on your numerator, which is quite strange in the framework of an impairment test on Italy.

Jean-Laurent Bonnafé

Well, we are just a commercial operation, we are not a war vessel, so we never attack anyone, just to be very clear. So just to be clear, we are a commercial operation. So being said that, we're already in a number of dimensions, the first bank in the eurozone with cash management, trade finance, syndicated loans, fixed income, bonds in euros and some global reach in the eurozone, a number of domestic markets that we are already 1 of the 2 global eurozone banks. So it's done basically. The point is that the business is going to be modified just because the economy is going to be modified in the way it's going to be financed. We'll have to grab a better market share, that evolution, from an economic financial bank balance sheet down to capital markets. Also this is part of the game, and it's too early to say for the eurozone. We aren't going to disclose anything for BNP Paribas in the eurozone. The plan we're disclosing is only Asia Pacific. It doesn't say that we are only going to develop the bank in Asia Pacific. The only region in which the economic scenario is clear enough today to come to a conclusion of what are we going to do over this 3, 4 years to come is Asia Pacific. So we have disclosed the plan because we are ready. We're in a position to disclose the plan. For the eurozone economic scenario, it's a bit early, as for the US. So this is it. But obviously, one of the main goal, the main objective for BNP Paribas, by being a large corporate banking operation, is to be 1 of the 2 top core banks for major companies, major corporates, mid-caps in the eurozone. We are already there. But the business is moving, it's been transformed by the regulation. So basically, this is it. And we believe that this is going to be one of the key element of the plan to be delivered over the coming years. But it's too early to say just because we don't know exactly what's going to be the banking law in France or in Europe post-Liikanen. So we have to take into account that can offer a situation. So basically, this is it. But again, we never attack anyone, this is just a different universe. The goodwill, to be honest, I haven't got the question. And on SMEs, I can tell you that you can perfectly develop the bank on SMEs without taking additional risk because today, you have small companies that are multinationals. The situation is very different from 10 years ago. You can have companies that are quite small that are all over the place, in 9, 10, 12, 20 countries because of new technologies, because of a number of factors. So it's not because you are developing the bank in SMEs that you are taking additional risks. They are very good addition to SMEs, especially you have the one that are going to be the mid-caps of tomorrow. The best way to develop the bank is to choose the right entrepreneurs that are going to make it in the long term. So this is -- the best corporate clients we have within BNP Paribas are corporate clients. We used to have already 30 years ago, just to be honest. This is the way it is. In France, we have an excellent portfolio. This is just because of the former [Indiscernible], BNCI, used to have excellent corporates. And now we can see the results. Those companies that used to be very small companies are large or mid-cap companies. So well, growing in the SME market is also a way to prepare for the future because the best companies that most often are recent companies are the ones that are going to be the good mid-caps of tomorrow. So it's very important. SMEs doesn't mean taking additional risk, just to make it very clear. On the goodwill, Phillippe?

Philippe Bordenave

On the impairment test for the goodwill, of course, we addressed the business plan of BNL for the current environment and we increased the cost of risk, especially for the next year because, well, the circumstances are what they are. And we always update our business plan every year for each and every impairment test. And if we say that the impairment is due to the fact that we are linked to be obliged to increase the local equity of BNL, it's because had we kept the 7% capitalization of BNL that used to be and that is still the rule as of today, the impairment test would have been passed successfully. And so this is why we insist on this question that is a pure kind of regulatory question, and that is triggering the impairment.


The next question is from Cyril Meilland, Cheuvreux.

Cyril Meilland - CA Cheuvreux, Research Division

I would like to start with a number of requests, which is to have all the tables in your press release and especially the other domestic markets, which are badly lacking for the trending. And my question would be regarding -- actually 2 questions regarding CIB. The first one is whether you could quantify investments in the capital markets. It's quite unusual for the bank to have a 94% cost-income ratio in Q4 or even 91% if you'll exclude the other addition costs. And also if you could mention the comp ratio, this would be helpful for the full 2012. And the second question is to check whether you are worried by the possible ringfencing of market-making activities according to the new banking reform in France, according to the latest amendments.

Georges Chodron de Courcel

On the first part concerning the first quarter, there are some seasonal effect because we have first to adjust some global costs and to adjust, as you mentioned, some [Indiscernible] fees. But globally, we will maintain the fact that as we will continue to run the CIB business, not at 90 something but at little more than 60 something. So clearly, no change globally, you have just to lose that year-after-year. We don't want to disclose the comp pressure, but we have just to see that probably we have one of the lowest one. Because in 2009, when I disclosed that, a lot of people said, "Okay, we will -- all the staff will leave you." At the end, all the staff is still there. As you can see, the question [Indiscernible] is still one of the lowest compared to a lot of our competitors. So globally, you can think that we are serious concerning the compensation of the staff, serious for the shareholder, serious for the staff because at the end, I think it's a good compromise.

Jean-Laurent Bonnafé

On the disclosure, maybe Lars...

Lars Machenil

So just in case, just to be sure, all the figures as we basically have them in the segments, they can be found in the spreadsheet, which is on the side where you'll find all the elements, including the other domestic markets. We try to find a balance between simplification and transparency. But as domestic markets now are really run as one entity, I mean, we give less detail on that one. On the side, you have all the details.

Jean-Laurent Bonnafé

And the final point was about the French banking law. Well, this law is still in preparation. Most probably what we can say is that only pure speculative businesses, prop trading businesses, are going to be ringfenced. So it's a very marginal part of the total business for all of the group. So from that point of view, we do not expect anything new, basically.


Your next question is from Flora Benhakoun, Deutsche Bank.

Flora Benhakoun - Deutsche Bank AG, Research Division

Three questions on my side, please. The first question is simply whether you could maybe give us some guidance for 2013 on how you see the loan loss provisions developing by business or by region? The second question is on the LTRO repayment. So you don't communicate how much you have repaid. But could you maybe give us some guidance on how the repayment of the LTRO is going to impact the revenue run rate in the corporate center for the year 2013? And the last question is just coming back again on the solvency and the potential for acquisitions, you talked about your dividend policy and you have mentioned, I think twice on this call, that you want to invest your excess of capital organically. So am I right by saying that today, you formally rule out that you will do any acquisition over the next 2 years, for example?

Jean-Laurent Bonnafé

Well, formally, maybe it's too tough, but this is not part of the game. It's not part of our strategic, I would say, thinking. We are building an organic plan for the 2, 3 years to come. And we believe the best way for us, looking at the current situation, is to build up these businesses, to grow our balance sheet, our own client franchise, and this is it. So for external acquisition, this is the only thing we can say. We consider it's not part of our strategic thinking for the company for the 2, 3 years to come. Second, about LTRO, we cannot comment since we didn't disclose the figures initially. Basically, we kept the LTRO for the Italian operation to make it clear. So essentially, we maintain the LTRO in Italy. And third, well, it will ease the P&L this year because it was not part of our budget process. So it's some kind of a plus. It's difficult to give a more detailed figure, but you can make assumption on your own at your own cost. Then there is a final figure.

Lars Machenil

Maybe as a complement, I think, for the question. Indeed, we do not give the LTRO. If I will give you the LTRO impact on the corporate center, you would, of course, calculate what the outstandings are. But nevertheless, the LTRO is not the only thing which is weighing on the corporate center. I mean, as you've seen, we have a EUR 69 billion excess in deposits, which are basically attracted long and are basically not reemployed at this stage because of the uncertainty in the regulation. And so this will continue to weigh on the corporate center. And so our corporate center, as an impact of the [Indiscernible], of around EUR 200 million to EUR 225 million is what you probably can expect for at least the year to come -- the quarter, that is.

Jean-Laurent Bonnafé

About provisioning in 2013, basically, in the U.S., we should see some senior, I would say -- so you have for BancWest on Page 11. So we are not expecting anything in the U.S. The economy situation is improving. So in the U.S., we should get a positive effect in terms of loan provisioning. Personal Finance, we believe that we have reached some kind of a stable level, so we do not expect that cost of fees will go down or should go down. Europe-Mediterranean, there is no reason to believe that this will be impacted by the current economic scenarios. Looking at domestic markets, well, the economic scenario for the eurozone is not that brilliant, so you can expect that cost of fees should slightly increase. And for CIB, financing businesses from CIB, progressively we entered in a more normal situation. And we believe that for next year, compared to the 36 basis points we got last year, we should see some kind of a moderate increase. So basically, this is the situation we are looking at, we are compensating for, for 2013.


The next question is from Sébastien Lemaire, Societe Generale.

Sébastien Lemaire - Societe Generale Cross Asset Research

I just had 2 questions, please. The first, could you just clear the coverage ratio of nonperforming loans at BNL? That will be my first question. And the second one is what were the impacts of the increase in the ceiling of Livret A in terms of Livret A outstandings? Where did these new inflows come from, transferred from market rate saving deposits or life insurance and in which proportion?

Jean-Laurent Bonnafé

We don't disclose the coverage ratio business-by-business, so it closes the first question.

Georges Chodron de Courcel

And for the second question, Livret A, we have 2 effects regarding the evolution of regulations and conditions for Livret A in recent months. So first one you mentioned is an increase of ceiling in 2 steps, one, last fall and one in the beginning of this year. So we saw some -- it's still a bit too early to track exactly what happened. But we saw some transfers from normal regular saving accounts to Livret A but in moderate amounts. I remind you that only 10% of our Livret A are at the ceiling, so it plays a role only for 10% of our account. And we have a market share for Livret A, which is among the smallest in French banks. This is a first effect. The second effect is more favorable, that we had a sharp decrease of the interest rate of Livret A by 50 basis points since the beginning of February, and this plays a role not only on Livret A but on the interest rates of all saving accounts, which should help our interest income for French retail banking this year.

Jean-Laurent Bonnafé

We were in the end, a very marginal [Indiscernible] the Livret A business.


We have no more questions.

Jean-Laurent Bonnafé

Thank you very much, and have a nice trip back to London, I guess. Bye bye.


Ladies and gentlemen, this concludes the conference call of BNP Paribas fourth quarter 2012 results. Thank you for participation. You may now disconnect.

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