BNP Paribas SA Management Discusses Q1 2013 Results - Earnings Call Transcript

 |  About: BNP Paribas ADR (BNPQY)
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BNP Paribas SA (OTCQX:BNPQY) Q1 2013 Earnings Call May 3, 2013 8:00 AM ET


Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas First Quarter 2013 Results. For your information, this conference is being recorded. Supporting slides are available on BNP Paribas Investor Relations website, [Operator Instructions] I would like now to hand the call over to Lars Machenil, Chief Financial Officer. Please go ahead, sir.

Lars Machenil

Thank you, operator.

Fine Ladies and gentlemen, good afternoon. Welcome to our first quarter results presentation. As I take it you're all very eager to ask questions, I will just take only a couple of minutes to zoom in on a few selected topics and then hand it back over to you so you have ample time to ask questions.

So if I can ask you, I will -- as I said I will select a couple of slides. I will start on Slide 3 of the presentation, where basically you see that BNP Paribas closed the first quarter with a net profit of EUR 1.6 billion, and this, despite the persistence of a challenging economic environment in Europe.

In particular, revenues in Retail Banking and Investment Solutions held up well, while CIB had a transitional quarter. Overall, revenues of these operating divisions showed a 5.9% contraction. However, these lower revenues were essentially offset by effective cost control. As you know as -- with the operating divisions, marking a 6.4% reduction in the first quarter. Moreover, strong risk management ensured that our cost of risk showed only a slight increase of 3.5%.

On some other parameters, we have liquidity where you see that our situation continues to be very favorable. For example, we further increased our stable funding surplus, which reached EUR 79 billion at the end of March, up EUR 10 billion in the quarter. Concurrently, we continue to grow deposits across the board in Retail Banking. They were 6.2% higher than a year earlier, while in Corporate Banking, they were up 14%.

And finally, in terms of solvency, we confirmed our position as one of the best capitalized banks. In fact, a fully loaded Basel III ratio stood at a very high 10% at the end of March.

So with this, I'll skip to Slide 5 and basically say that all in all, we confirmed a significant profit generating capacity. And as you can see on Slide 5, which was basically in 2013, overall not affected by one-off events, which basically tended to cancel each other out in the quarter. I remind you that it was not the case. As you see on the slide, the first quarter 2012 when the net balance in terms of bottom line had been a positive EUR 829 million; that is net profit, and is mostly due to the capital gain on the sale of the stake in Klépierre. And so this distortion, of course, should be taken into account when reading the results as on Slide 6.

But allow me to touch quickly upon those specific one-off entries in the quarter, which I said that -- which basically cancel out. But let me zoom in on the 2 main ones. So the first is the, what, is the first-time adoption of the DVA. That's the Debit Value Adjustments. DVA is now an explicit requirements with IFRS 13. And due to the interactions with funding aspect, for the time being, we basically treat the DVA similarly to the OCA, so the own credit adjustments on debt, and we fully allocate it into the Corporate Centre.

As the first-time adoption took into account, the realization of the stock, its trend this quarter is, of course, is not aligned with that of the OCA, which is just the flux evolution, and you can see that this first-time adoption basically generated a positive impact of EUR 364 million.

The second one is I want to draw your attention that we booked the first transformation costs related to our Simple & Efficient project, which is totaling EUR 155 million. I will talk more about it, but this basically confirms a rapid start of this very important initiative.

With this, if we go to Slide 7. And as I mentioned at the start, revenues of the operating divisions held up well in Retail and Investment Solutions. And as I said, CIB had a transitional quarter, as you can see.

More in detail, Retail Banking revenues were 0.2% higher, while revenues in Domestic Markets were slightly softer. Revenues decreased in France, marginally in Belgium, while BNL in Italy remained positive.

Elsewhere, Europe-Mediterranean showed double-digit growth, driven by volume. And Turkey, with the other Mediterranean countries, also performing well.

Personal Finance was a touch lower, as a relatively good performance in consumer lending was offset by the continuing decrease of mortgages. As you know, this continued decrease is entirely in line with the adaptation plan of Personal Finance.

Investment Solutions, secondly, saw revenues climb 3.4%, as Insurance and Wealth Management continued to show positive dynamics.

And last but not least, CIB, whose revenues were lower, as on one hand, Advisory and Capital Markets were hampered by lackluster market conditions in Europe, while on the other, Corporate Banking, as you know, which is also an important part of our CIB, was still affected by the adaptation plan.

So if I can ask you to swipe to the next slide, which is #8, you'll see that we have continued to decrease costs strongly in our operating divisions. In fact, you'll notice that retail and also, of course, Domestic Markets showed significant reductions. Indeed each country in the Domestic Markets delivered a cost reduction. And particularly noteworthy is the contraction in Personal Finance, thanks to its adaptation plan, to which I referred earlier. Investment Solutions costs were marginally higher, as good cost control, especially in Asset Management, was accounted by an increase or increase costs to corporate higher levels of activity in Insurance.

CIB's cost contracted sharply amongst other as a result of the adaptation plan, and as always, did this -- a part of this benefit was somewhat to reused to continue business investments, such as, for example, in Asia, as we have announced earlier.

If I remain on the costs and we look at Slide 9, where we provide an update on our Simple & Efficient plan that we launched at the beginning of the year, I remind you that this plan has the aim to generate recurring savings of EUR 2 billion from 2015 onwards. And that to achieve this, we shall incur one-off transformation costs of EUR 1.5 billion in this 3-year period until -- or including into [ph] 2015. And as I said, EUR 155 million were already booked in Q1, and this is ahead of the quarterly pro rata that we announced -- of the pro rata that we announced of EUR 450 million but is essentially driven by the fact that we booked the cost related to early retirement plans in Belgium and Italy. And as such, the guidance that we gave for the full year of EUR 450 million remains unchanged. And as I said, many of the initiatives that we announced have become projects that have been launched or that are in the process of being launched.

Some of these are included, for example, in Belgium in the "Bank for the future," which has been announced specifically. Others relate to information technology environments, such as streamlining of software programs, industrializing program development and the likes. And still some others centered on going paperless projects, whereby we are increasingly using electronic documents and electronic archives and the likes.

As such, Simple & Efficient, as I said, a very important program for the bank, has got off to a rapid and promising start, and we are confident of achieving our ambitious structural goal.

And so if I leave the cost with this and you turn to Slide 10 on the cost of risk. And as I said in the introduction, we saw a slight increase compared to the first quarter 2012, as is visible on this Slide 10. The main variables for cost of risk in this quarter were, first of all, a lower cost of risk in CIB, especially if compared to the previous quarter, where if you remind -- I have guided you that this was impacted basically by the provision of a single file.

Secondly, you observe the low-cost of risk in France, 22 basis points, especially in Belgium. While in Italy, BNL's cost of risk was higher at 145 basis points but only slightly above the level seen in the last quarter of 2012.

And thirdly, a continued improvement of BancWest's cost of risk and a stabilization at the Personal Finance front.

Now with this, that is basically the bank. If I swiftly move through the gears and go through the businesses, and we start on Slide 14 with the Domestic Markets, you see that they basically delivered resilient performances despite a challenging context, as I said earlier. Deposit growth accelerated to over 6% in the first quarter, with growth in every business. Overall, deposits were EUR 16 billion higher than a year earlier. Slowing demand, of course, affected loans, which were 1.6% lower.

Another event or thing to remark is that we aligned our Cash Management offer to corporate clients in the Domestic Markets, while consolidating our leading positions in those areas. In fact, according to the latest Greenwich rankings, we were #1 in France and Belgium and #3 in Italy, and we're kind of proud of that.

You've also seen that we have progressively been rolling out digital applications in our networks and while we shall take this a step further on May 16, when we shall launch our new European so-called digital bank, which will basically be an all online, so you wish, or online and mobile bank, which shall be launched in Belgium, Germany, France and Italy. So more on that on the 16th of May. Mark it in your calendars.

Now revenues, as we saw earlier, were slightly softer, due to persistently low interest rates and scarce demand for credit; fees with continuing revenue pressure. We are being successful in rapidly adopting our cost base and thus, reduce cost at a faster pace, as you know, we all typically do. In fact, gross operating income remained stable in the period, and this was also reflected in the slight improvement in the cost-income ratio, which was particularly noticeable in Italy.

So in conclusion, despite a higher cost of risk in Italy, the Domestic Markets converted high levels of profitability, with EUR 1.1 billion of pretax income.

Now if we stay in retail, we go to Slide 18. And we look at EM, so Europe-Mediterranean, had a very dynamic quarter, with significant volume growth, especially in terms of deposits.

TEB, in Turkey performed particularly strongly. Revenue growth was, hence, sizable, while expenses remained at the check despite continuing investments to rightsize networks in Turkey, Morocco, Ukraine. And pretax income more than tripled, getting close to EUR 100 million, and we're very happy with that.

Swiping now to Slide 19, takes us to the other side of the Atlantic, and I welcome those who got up early this morning to connect to this call, and we're in the U.S. where BancWest continue to benefit from sustained volumes, both in terms of deposit and loans. The latter driven, in particular, by the corporate activity. This helped counter the impact of lower interest rates on revenues, which were slightly softer, also due to lesser security sales compared to the first quarter in 2012. Costs were higher, as we continue to invest in strengthening our corporate and small businesses, set up to better serve the clients all across the products. And so for example, also stepping up our Private Banking service offering. A continuing reduction of the cost of risk on the BancWest side meant that pretax income was virtually stable at EUR 119 million, and as I said, confirming BancWest as a sizable contributor to the group profits and here also. We're very pleased with that.

Now if I can ask you to cast your eyes on Slide 20 and to complete the retail overview. A quick glance shows that Personal Finance continued to develop its sources of growth, as depicted by the success of the joint venture with Commerzbank in Germany and the development of its savings offer, with already EUR 1.2 billion of outstanding and here also primarily in Germany. Revenues were softer due to the continuing reduction of mortgage stocks, in line with the adoption plan, as I said earlier. On the other hand, revenues from consumer lending were stable and this, despite the impact of new regulation and particularly, in France.

So good cost control, if I can say, coupled with a very -- visually higher cost of risk. As I remind you that in the first quarter 2012, as we announced at that time, the cost of risk had benefited from some write-backs. So that good cost control and that evolution of cost of risk meant that Personal Finance contributed over EUR 270 million to the group's pretax income.

Now let's peruse Slide 22, where we will have a quick look at Investment Solutions, where revenue growth continued, driven essentially by the Insurance businesses and by Wealth Management with a good development in Asia. Asset Management was down due to lower average managed assets over the period, while persistently low interest rates and lesser volumes, transaction volume, that is, weighted on Securities Services. Operating expenses increased at a lower rate than revenues, which is always typically good. This was essentially due to lower costs in Asset Management, thanks to the adaptation plan and, as I said earlier, offset to some extent by Insurance, which, given its growth in business also follows on the cost side.

In any case, operating efficiency improved, as the cost income ratio decreased, so which is an improvement by 1.4 points. And while I have been in the numbers for a while, pretax income showed a double-digit improvement compared to the previous year, reaching EUR 541 million.

Now last but, what, last in order of slide but definitely not least, we have CIB on Slide 24. You can see that our Advisory and Capital Markets revenues were affected by uneven business in the first quarter, as tensions resurfaced in Europe on several occasions. It must also be kept in mind that the Q1 2012 represented a high base, in particularly for us as a European bank. And the effect of the LTRO, which was just launched at that time, had significantly buoyed the European markets, with revenues benefiting from benign trading conditions in that first part of 2012. So this is basically what is impacting. And despite this, in Asia, we actually continue to see revenue growth.

If I look a bit more at the businesses, and let's start with fixed income where credit and rates were down, while ForEx performed quite well. Now as I said, fixed income activity was penalized by the relative higher than peers' exposure to Europe, and by Europe -- or European issuance faring comparatively worse than in the U.S. However, we confirmed our leadership for all corporate bonds in euros, while consolidating our global position, as shown by our #8 ranking for all international bonds.

And moreover, if you ask me, some of the European jitters, which basically materialized end of March, might have led to some of the business, which was basically foreseen in that period, basically being pushed into the month of April.

Now if I turn to equities. That suffered from lower volumes but structured products business has actually showed a pickup, especially in Europe and Asia. We did quite well in equity linked issues where we ranked #1 at bookrunner and #2 volumes in the EMEA region. And in spite of fluctuating customer demand, as I said, Advisory and Capital Markets still returned a pretax ROE in excess of 28%.

Now on Slide 25, if I turn to the other part of our CIB, which is Corporate Banking, where revenues were lower but basically on the back of our deleveraging plan. In addition, revenues were affected by low demand in this, as I said earlier, unfavorable European context. And so loan stocks at the end of the quarter were slightly lower than at the year-end 2012 but have basically bounced back from a lower level, which was intermediate [ph] of the quarter. And this was due to the progressive relaunch of the origination activity, which has allowed Corporate Banking to start rebuilding its deal pipeline towards the end of the quarter. At the same time, we strengthened our #1 position in syndicated loans in Europe.

Alongside this, as I said already earlier, we continue to develop our Cash Management offer where we have been gaining significant pan-European mandates. And as such, deposits continue to increase, as Corporate Banking becomes increasingly self-funded, and this strength was particularly noticeable also in U.S. dollars. And this basically concludes my focus on the different business lines.

I would like to show you a few significant evolutions in our balance sheet, as well in our liquidity and solvency before handing it over to you. So bear with me for a couple of more slides starting at #27, which is our global cash balance sheet. You can see that in the first quarter, we have further increased the surplus of stable funding, which is the dark and the pale green parts over -- so the surplus of stable funding over the funding needs of our client activity. This increased by another EUR 10 billion in the quarter and now stands at a high EUR 79 billion, equivalent to 111% of the financing needs of our customer activity.

This holds true also in U.S. dollars where the surplus has increased to EUR 57 billion by the end of March.

And then in the orange parts, so the upper part of the cash balance sheet, which basically reflects the short term, you notice the reduction of the LTRO, both on the assets and the liability sides of that cash balance sheet.

Now if I step up the pace a bit and we go to Slide 28 and we look at funding. You see that our liquidity buffer remain sizable. Our immediately available liquid and asset reserves stand at EUR 231 billion and cover a huge 137% of our short-term wholesale funding. So BNP Paribas retains a situation that I would call of ample liquidity.

This is also the case if you look at the update on our 2013 medium- and long-term funding program. We have estimated that we will need to issue EUR 30 billion in 2013. And by April, we have practically achieved 2/3 of the early -- of the yearly plan, so 4 months out of 12, retaining competitive funding conditions, with an average price of 76 bps above the 6 months mid-swap, considering an average maturity of over 5.7 years. In early April, we also issued first cover bond of the year for EUR 1 billion, with a 7-year maturity at mid-swap plus 22 bps.

Now we're almost there. Let's look at solvency on Slide 29. You will see that our Basel 2.5 ratio shows a slight reduction, while our fully loaded Basel III Tier 1 ratio climbs to a very high 10%. And we further describe the 10 basis points progress under Basel III, which stems from a 20 basis points progress on the back of retained earnings, reduced by 10 basis points due to IAS 19R, which has a onetime impact due to removal of the so-called corridor. And I remind you that I mentioned earlier and we also published it in our financial statements that with the advent of IAS 19R, there was EUR 570 million of impact that is pretax on the equity, and this is basically what leads to this one-off correction and 10 basis points drop.

And so all in all, 10 basis points improvement in Basel III. So what is happening to Basel 2.5, which where you would expect basically a similar evolution? Well, there is a one-off change in regulation, which has to do with the equity investments in insurance companies, which basically aligns it in anticipation of the CRD IV. And this impact, which is a onetime impact, has a 20 basis points reduction on the Basel 2.5.

So in all in all, as I said, 20 basis points progress due to retained earnings. RWA basically being flat, under Basel III, reduced by 10 basis points, due to IAS 19R and the Basel 2.5 onetime effect of minus 20 basis points, due to change in regulation in anticipation of CRD IV.

And then to conclude on Slide 30, our favorite slide since a while, the net book value per share on Slide 30. So throughout the cycle, we have been consistently increasing the book value per share. This remains true in the first quarter of the year, so take a good look at that number. In fact, our net book value per share has reached EUR 61.7, while the tangible book now exceeds EUR 51.

So in conclusion, BNP Paribas has delivered a sound set of results despite the European context, which has been lackluster, especially for CIB activities in Europe. We have successfully countered revenue pressure through a very good cost control and strict risk management, which meant that our cost of risk increased only slightly in the quarter. The preparation of our new business plan is progressing well. We enjoyed a rapid start for our Simple & Efficient plan. And in just under 2 weeks, we shall disclose our plans for our European all online bank to be launched in Belgium, Germany, France and Italy. Now with this fine ladies, gentleman, it's over to you for your questions.

Question-and-Answer Session


[Operator Instructions] We have a question from Jean François Neuez, Goldman Sachs.

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

I had 3 quick questions, please. The first one is on the Investment Banking, particularly Capital Markets. You rightly said that the European activity as a share of the total worldwide activity is declining, and that's clear. But within that, BNP seems to be also losing market share faster than the European market itself. And I just wondered what the -- what's your thoughts about that and whether you've seen anything to do about remediation action -- remedial action. And for example, like it -- the logic seems to suggest maybe that you're starting to pick up a little bit in Q2 compared to the first quarter, I think, in relation to your market share. My second question is with regards to future regulatory changes, which we haven't so much talked about so far, in particular the Tarullo, the FTT potentially EMEA [ph] swaps on exchange and so on and so forth and whether you can give us some sort of flavor about what you think in terms of your fixed income line going forward, with all of that taken into account. And lastly, yield, long-term yields on sovereign bonds are reaching record lows and I had 2 question -- at least in countries where you operate. And I had 2 questions about that. The first thing is have you got -- could you give us a sense of what you expect for full year for revenue guidance in retail funds, in particular, and whether you expect another cut of the Livret A, by the way? And secondly, how you think about your inventory of sovereign bonds whether you want to keep them for the hedging, or whether you think of realizing some gains along the way even where [ph] bond are not trading?

Lars Machenil

Jean François, thank you very much for your questions. I thought you said 2 but I noted 3 questions, but maybe I was wrong at the beginning. So if I start with your question on CIB Capital Markets. So indeed, if you look at the metrics for the quarter, you see that EU has declined. Now if the EU basically business declines, that doesn't mean that every product, every country or whatever declines in the same way. So the decline also came with a little bit of a different mix. And so which basically, in these kinds of situations, you might be better positioned in some markets, in some regions, in some products. And then when you have this nonparallel decline,, that basically can lead to kinds of shifts in league tables, as you have seen. So that is a bit explaining that. And as I said earlier but don't bank on it, I indeed suspect that there was a lot of turmoil at the end of March that some of that business has basically been shifted into April. But we'll see that in the second quarter. Now if I switch to your second question on the regulatory, that's a mixed bag of questions. If I start with the FTT, so the financial transaction tax that 11 European countries are contemplating, our point of view is that we are very strongly suggesting and pushing that there is a full-sized assessment done of the impact. Because if we calculate it, there seems to be that the stocks will be a one-off tax because it will basically be of such a ramification that it will have a lot of unintended consequences. So at this point of view, we wait for that. We have also seen that some officials like, for example, in Germany have outspoken in a similar sense. So although I do not think that the tax will disappear, I think it will evolve its shape and form. Tarullo, Tarullo has just ended, actually, his request for comments [ph] . And so we expect in the near future to have a clearer view from the things that we see where it's basically going into the direction of having holding companies, which are sufficiently capitalized and so forth. I remind you that we already have 2, and that they are basically well capitalized. So here also, I mean, we have to wait, of course, what it brings. At this stage, it doesn't change anything to our view and plans with respect to U.S. activities. But I have to use my joke around this one as we'll have to wait a couple of weeks before we have further clarity on this. With respect to the yields, now, it's a nice try to try to get an outlook out of me. But you know us, we are quite boring, and these kinds of things is typically not what we engage into. But I think what is important is that with respect to these yields, what is very important is your repricing capacity. I mean, that is the most important thing. And I think, and as I have been saying before, overall, the repricing capacity of BNP Paribas is not bad at all. And I know that it is depending on country-by-country. And in some countries, you can do it fast. In some countries, it takes time until it ripples through like to the Livret A. But for example, to give you an idea in Belgium this morning, for those who will be there and would have seen the press, you will have seen that this morning, we announced that we basically dropped by, depending on product, but on average, by 20 basis points, our payment on the deposits. So I think the answer to that question from that point of view has been given. I think we're well positioned for that. We'll continue to do that. We work on it every day. And with respect to your sovereigns, as I said earlier, we basically use that as an overall hedge. And I don't want to start jeopardizing this. And we have given our objectives on sovereigns. And at this stage, we are not moving from it. So all in all, repricing is the name of the game. And that concludes my answers to your 2 questions that became 3.


The next question is from Delphine Lee, JPMorgan.

Delphine Lee - JP Morgan Chase & Co, Research Division

Delphine Lee from JPMorgan. Just 4 questions on my side. First of all, just coming back on your EUR 2 billion cost savings. So all those debts [ph] , you have EUR 700 million from retail. Just wondering how much of those savings are actually coming from early retirement in those countries you mentioned. Secondly, just wondering in terms of capital, the drop in core Tier 1 -- not core Tier 1 but in Tier 1 capital, as well as total capital, which is more significant than just 10 basis points. So if you could maybe just comment on that. I mean, I guess, it's related to Insurance, but if you could just -- could explain that. Thirdly, if it's possible, could we get the NPL ratio and coverage for France and Italy? And lastly just on revenues in France -- French retail, if you could maybe just maybe give a bit more color on how you see net interest margin evolving in France, in particular, on the assumptions you have for lending volumes and also deposit margins?

Lars Machenil

All right. Delphine, thank you very much for your questions. With respect to the EUR 2 billion in cost savings, as we said, this is basically a series of projects, which are being -- which are basically being rolled out. Now, and I remind you that in general, this is a mix of things, which leads to the cost reductions. So it is a thing of automization. It's a thing of reducing external help. And it's indeed using, as you know, as we do everything within the social or respectable way of doing so-called natural attrition. And so basically, normally, that is how that works. And we have not specified any numbers of headcount reductions. So I will not be able to give you that. And the only reason is why did we do an early departure in Italy and why did we do it in Belgium is -- well, let's take the Belgium example, as you know, we are reducing there also the branch set-up. And therefore that means that your impact on reduction is typically slightly above what you have in natural attrition. And in order to ensure that we can still hire, because we still keep on hiring talent in that bank, we have chosen to use this early departure approach. So that is basically my answer with respect to the cost savings. With respect to your capital question, you're absolutely right. I forgot to mention one thing or I should maybe clarify one thing. When I said that there is a 20 basis points impact negative on Basel 2.5 with respect to the new regulation, actually that minus 20 basis points on the core equity Tier 1 consists of 2 movements. It consists of a movement in the RWAs, so it's basically, and that's where it is anticipating Basel III. We basically having a part added into the RWAs, and that's basically leading to a minus 55 0 [ph] impact. And at the same time, what was deducted from the capital core equity Tier 1 capital is now being deducted from the Tier 1 capital. And that is basically, in the core equity, leading to a 30 basis point improvement, and the delta between the 2 is the minus 20. So that is what gives you a movement in the Tier 1. And then of course, I remind you if you going into the total capital, you have also other products. And there, in the normal life of what we have, we have evolutions of these products. And so that basically, the rationale is for the movement on the capital. With respect to your question on NPLs and coverage, as you know, we basically give you the one for the bank. You've seen the one for the bank and the trend of the one of the bank is basically general for what you have. So you see that basically on the NPL itself, it is roughly, I would say, stable. And on the coverage, it is actually somewhat improving, which is basically in line with what we have that in situations like this, we ensure that our guarantees are stepping up, are being stepped up, and so that is something we basically do everywhere. So you can take that as a guidance. Then with respect to your question on French retail, I admire your second attempt following Jean-François' to get an outlook out of me. But sadly, this is not what you -- what we have the habit of doing. But you are right. With respect to net interest income, as you have seen, we have deposit growth. And so basically, repricing is an important element. You have seen that the Livret A has been set to 50 basis points downwards. We'll have to see what happens in August with that benchmark yield, given Draghi's statements of yesterday. So -- but as you know, as I said, we will work hard, basically, to keep a very high net interest income and basically work very hard to reduce our costs in order to warrant and to -- and the value creation. So that will be my 4 answers to your 4 questions.


The next question is from Kinner Lakhani, Citigroup.

Kinner R. Lakhani - Citigroup Inc, Research Division

So I've got several questions. I won't pin myself down on how many they are, but starting off with the liquidity buffer, I noticed the liquidity buffer is still going up at the same time the LTRO repayment coming down -- or we're starting to see the LTRO repayment. My question is how should we think about the cost of the liquidity drag by the Corporate Centre Q1 and then going forward in future quarters? Second question is did you see anything kind of post-Cyprus in terms of deposit flows and any kind of competitive advantage in attracting flows? Question 3 is on the Basel III guidance. And I just wanted to get a feel from you on how you're treating the CVA exemption that Europe has in terms of corporates, if that's already in. And I understand there's some kind of SME relief coming through as well, and whether it's in the numbers or not. And if it's not, how much it might be? And the final question was less a BNP-specific question, although I think it also applies to BNP. It seems like the independent asset managers seem to be having a much better kind of performance in terms of the tailwinds of the markets and year-on-year revenue growth compared to the bank-owned asset managers, and this would clearly apply to BNP Asset Management as well. So I'm trying to get a sense for what's kind of letting the more kind of bank-owned asset managers down at this point in time.

Lars Machenil

All right. Thank you very much for, I did the counting, for your 4 questions. So let's start with the liquidity buffer. Now first of all, that liquidity buffer indeed has been going up. But what can I tell you? I mean, people keep on depositing money with us. I'm not going to put a halt to that. So that's a fact. And the second thing, as I said, some, given our deleveraging, some of the reemployment, for example, of Corporate Banking is somewhat bottoming out. So you are in a situation where, well, this inflates somewhat liquidity buffer. The second thing is that you know that in the liquidity buffer, we have our medium- and long-term funding. The medium- and long-term funding is somewhat in advance. You know that, well, we are 4 months into the year and we have done 2/3 of what we need to do. So that means the picture today is impacted by that. So how to think about the cost? Well, in my view, there are, of course, some moving parts that is comprising, but I think I said earlier -- not earlier, but as I said at a previous conference that in my mind, the cost will be hovering for the year around EUR 900 million. And you don't have to believe me, but at least the first quarter seems to be somewhat in line with it. So I, today, I think I still stand until further notice by a yearly cost, which will be hovering around that amount. With respect to Cyprus, well, you might have been tempted, or your question might be triggered by our quite relevant inquiries in Italy. But when we inquired at this stage, we have not the impression that there is a big movement of people's deposits between banks following Cyprus. So at least, we didn't really notice that. With respect to your question on Basel III and the CVAs, well, as we said, even though that the CRD has been voted, there are still many moving parts, which are in there. And as I said, we made a bit of a judgment call more than a year ago, taking into account some uncertainties, which is basically still what we reflect in our Basel III. And indeed on some things, we might turn out to be a bit more conservative but there are still other uncertainties on which we do not know yet, which might play against that. So the long and short is that within our calculation, the exceptions on corporates is not in. So that means that our calculation could be a bit conservative. But there are all other elements, which are uncertain. So allow me to be a boring CFO and basically suggest that until we have further clarifications from the BNB [ph] and others that we basically stick to the figure that we have. With respect to your final question on Asset Management, yes, there might be different views and different trends of what you see in asset managers. I just remind you that for us, we have taken a stance where we have adapted, so that we remain very profitable. And as I said for us, we consider Asset Management as strategic for our Wealth Management and network franchises. And why is that? Because it allows us to have the control of the product we distribute to our clients. So that is the total package, which is maybe a little bit intangible. But it is important to us because in a tangible way, it also generates significant cross-selling towards CIB customers. And as long as we have ROEs, which are above 30%, I'm relatively okay with that.

Kinner R. Lakhani - Citigroup Inc, Research Division

Can I just ask on the SME relief on the Basel III guidance? I know you mentioned the CVA...

Lars Machenil

Yes, but that one is not in either, but we -- and -- but we don't expect that to be a major one.


The next question is from Nick Davey, UBS.

Nick Davey - UBS Investment Bank, Research Division

Three questions, please, from my side. The first on the mortgage book and Personal Finance, I was interested to hear you talking about the corporate book in Corporate Banking beginning to grow in the middle of the quarter and the adaptation plan there basically complete. So my question on the mortgage book really is how much further does that have to shrink really before your adaptation plan in Personal Finances seemed to be complete? The second question please on your VaR, which again is ticking down on the quarter. I just wanted to get a flavor from you, if possible, as far as how much of that is enacted decision and how much of that is therefore driving your revenue momentum in CIB? And how much of that is just, let's say, the memory of your models, so let's say losing some of its memory from its crisis? And then the third question please on asset quality. I think I saw some commentary in an [ph] interview this morning from management saying that the Q1 run rate on provisions was a relevant number for the full year. Could you please just elaborate a little bit on that, maybe either at the group level or in some of the divisions where you think you are at a relevant level for the full year and where things might deviate?

Lars Machenil

Nick, thank you for your 3 precise questions. And so as a reminder, as we said with Corporate Banking, we wanted to reach some objectives also with respect to funding. And so we said we -- let's not forget that our corporate -- I'll come to your piece [ph] , but I'll answer it by first reflecting on Corporate Banking. So our Corporate Banking, which was called financing before, we wanted it to be -- have a footprint, which is a footprint, which can correspond on one hand to the cash that it can attract and to originate, to distribute that it can do. So that means that there was this size that we looked for, which we have now achieved and basically where -- which is, as I said, the starting point for the growth with respect to Corporate Banking. Our mortgages and PF are on a different trend. Our mortgages and PF, we basically decided that the mortgages that are in our domestic markets will basically be handled through the Domestic Markets. And basically all the other ones, it is [ph] where our capacity could generate liquidity in front of them is much more limited is basically being ramped down. And so we basically ramped that down, the speed at which it goes -- depends at it. Sometimes in some areas, we can accompany clients to other banks. In other areas, it's more difficult. So we will continue this trend, and the speed at which it goes will depend a bit of the overall market. So our idea is not to basically restart these activities. So that is on that. With respect to the VaR and how much, as you said, is a choice. Well, a lot of that is a choice. I mean, one might say that in some of the things that are happening this quarter, one should be very careful not to have the seeds of future bubbles to basically be planted. And therefore, it is -- a big chunk is, of course, a conscious choice. Because as you said, in your question, how much is the memory or the losing of memory, I remind you that since Basel 2.5, our VaR in the calculation also of capital and the likes has been complemented by a stressed VaR, which basically, well, aims to add, of course, this. And so that is basically the way we manage it, even though that might not necessarily be directly visible into the VaR. So yes, there is a component of a choice of the environment that we are monitoring closely. With respect to your question on the cost of risk for the first quarter, I would say the following and as I've been saying, I mean, I would say there's basically 3 trends in there. You have, in our domestic kind of markets, I exclude for a second Italy, where you have economies, which are 0 plus-ish, whatever it is. This is something in which the cost of risk is something, which might held up. In Italy, it will depend, of course, on the economic evolution. And as I said earlier, in CIB, it depends a bit on you. I mean, we are at a run rate -- I told you last time in Q4 that there might always be in CIB, I say, one-off files. I mean, as you know, CIB is not provisioned to track retail. Retail has statistical portfolio who does that. In CIB, you have watch lists and things that you look at. And from time to time, something might blind side you and you might have a file, which has some peculiar thing which happened to it, which basically makes it -- that you provision it. Which doesn't mean you have lost the money because the group can be restructured or whatever it is. And so the amount of files as such that you will have, honestly, I do not know. And so we have one in the first -- in the last quarter. We don't have one now. Honestly from that point of view, I cannot guide, but the trend is what you see in our publication.

Nick Davey - UBS Investment Bank, Research Division

That's very clear. If I could ask one quick follow-up question, please, on the Personal Finance answer you gave, which is very clear, but just a data point, really. Could you give us a flavor of the EUR 37 billion of mortgages and any split of how much of that is in your home markets with the deposit gathering in capacity, and how much is outside those markets?

Lars Machenil

I don't think we have disclosed it or I don't have this number with me. Nick, we'll have to come back to you on this one, all right?


The next question is from Jean-Pierre Lambert, KBW.

Jean-Pierre Lambert - Keefe, Bruyette & Woods Limited, Research Division

Four questions from my side. The first one is regarding the cost reductions. You seem to have done very well in France and Italy. And I was wondering if you could provide an indication of how you're doing compared to your plan in terms of cost reduction just like you were informing us when the mergers were taking place? That's the first question. Second one is I just would like to come back on your initial comment of transitional situation in IB? Was there anything we could read into that? Otherwise, then the LTRO and the uncertainty in the market at the end of the quarter. And third question is regarding Asset Management. There seems to be outflows of 7% annualized. It seems to be a recurring situation for quite a few quarters, and I was wondering what's the source of this. Is it structural? Is there a change in business mix, or how can you explain that you seemed to be affected by this? And the final question is quite a data point. The cost of the Corporate Centre is EUR 100 million approximately. Is that something to be assumed going forward at EUR 100 million per quarter?

Lars Machenil

All right. Jean-Pierre, thank you very much for these questions. Yes, on the first one, on the cost reduction, thank you for allowing me to clarify. So of course, as we have always done, we will provide reporting on the cost reductions. But for 2 reasons we haven't done it in the first quarter, as we typically don't do when we ramp it up, because first of all, the number is not that material as we just kicked it off. But the second thing is as we do these things kind of series, when we have to report costs, for example, an accounting system, and I'm just now looking at my Chief Accountant, who is just sitting in front of me, is very well equipped to do that. So accounting systems can very well account for what is there. However, they are totally useless in order to account for what is no longer there, meaning cost reduction synergies. So that basically means that you have to put in place a system of identifying what has gone, crosschecking, balancing, to be sure, and so on and so forth. And that basically we do in a cycle, which is just slightly defaced, with respect to the accounting, and so we are finalizing that. And as of next quarter, we will have the typical reporting on progress on cost reduction, as we typically do. So that is on that question. If I stay on the costs, with respect to your data point, yes, with respect to Corporate Centre, indeed, we guided in the past, but also again, thank you to allow me to clarify that the run rate is roughly that we are somewhat around this quarterly run rate, as you can see from the pack. With respect to the fact of transition on CIB, no, you shouldn't read anything particular in it, except -- but allow me to rephrase what I said earlier. In our CIB, we have, of course, Corporate Banking, which is, maybe in another word than transition, it's in a turning point because we're at the end of deleveraging. And the turning point is -- basically has been in the middle of the quarter as we see it. And so there is a gradual resumption of the origination. So that is the transitional point that I talked about. And as I said, with respect to Investment Banking, it is a bit similar. So we have also been adapting there, and we see it there. But I said, I wouldn't read anything more into it. The only thing, as I said, is that given the turmoil end of March that there is probably some business that crept into April, but that's basically it. With respect to your question on Asset Management outflows, yes, indeed, I mean, they have been there over the year. They are, in particularly, in money market funds, which have been happening that has been somewhat compensated by inflows in emerging markets. And as I said, we consider this a bit maybe as a new normal between quotes. And as I said, that is why we have adapted our cost base and our structure and approach to this. And as I said earlier, with an ROE of above 30, and we're still very happy with that.


The next question is from Kiri Vijayarajah, Barclays Capital.

Kiri Vijayarajah - Barclays Capital, Research Division

Just a couple of questions on the new online bank. Is there a cost on investment plan we need to think about, as you roll that out? Or a lot of the start-up costs is actually already in the numbers? And related to that, have you budgeted for any cannibalization from your existing deposit base in those 4 countries that you're rolling out? And I guess, I'm sorry, a third question. Is there a plan to roll out the online bank into newer markets where you don't already have a retail presence?

Lars Machenil

Well, I see that there is an excitement around it. The thing is I have to push this question in front of me until the 16th, where you will get much more color. The only thing that I can tell you is, of course, that going forward, we will be clear about some of the costs related to that. And -- but allow me to refer you to the 16th where we will give color on what kind of the positioning that we aim to attract in which country and how we want to proceed. So sorry to have teased you and to basically push you to the 16th, but that's the way it is.


The next question is from Federico Salerno, MainFirst Bank.

Federico Salerno - MainFirst Bank AG, Research Division

Just a couple of follow-up questions on BNL, actually. Number one, how sustainable is the 10% year-on-year increase in deposits? What's driving that? And secondly, if you could give us some more details on your outlook for the cost of risk. That'd be helpful.

Lars Machenil

Difficult question. So with BNL, indeed, we have seen a very good increase in deposits. We, of course, we don't do any silly things. I mean, we don't aim to break prices, but probably a combination of things amongst which, probably are positioning and the likes, have led to this increase, which comes with somewhat of a market share. How will this evolve? Honestly, I don't have a crystal ball. I mean, we'll have to see and the same thing with respect to your cost of risk, I mean, I think a lot of that will be dependent on how the economy evolves. So sadly, I mean, whatever I would say would probably be wrong. So we'll have to wait on how it unfolds. So that would be my two-pronged answer.


The next question is from Alex Koagne, Natixis.

Alex Koagne - Natixis S.A., Research Division

Alex Koagne from Natixis. Four questions from my side, if I may. The first one is on your loan book in France. We said that the loan book is shrinking quarter after quarter, meaning that you're losing market share or underperforming the market. I was just wondering whether this is a strategy or could you please elaborate a little bit on that. The second point is on the cost to income in general. You are at the very low level, 43%. I was just wondering whether this could be a run rate or we should expect an increase going forward. The third question is on the level of ratio on the Basel III. I was just wondering whether you have already tried to simulate the calculation, and what could be your leverage under Basel III. And the last question, if I may, is again on your cash balance sheet structure. We see that you still have a lot of access to long-term funding. I was just wondering of where is your -- where you want to stand at the end given that this has a negative impact on your revenues?

Lars Machenil

All right. Thank you for your very interesting questions. With respect to your question in France on the loan book, I don't have the latest market share figures, because they are, I think, due in a couple of days. But for us, what we basically do is that we stick to our typical origination criteria. And last time, when we looked on the latest data, we didn't see the decline in market share. But honestly, we'll have to wait. I think we're just a couple of days out, so I would be cautious on this one. So -- but we can come back to you once we have that data. With respect to BNL cost to income, there's a couple of things. Always be careful. I mean there is some seasonality, as you know, in the [indiscernible] you should be careful [indiscernible] for the year. And as I said [indiscernible] we'll keep on [indiscernible] positive [ph]. But also we'll [indiscernible] so we'll [indiscernible] this one to keep on improving it. And with respect to your question on leverage, which I take the leverage of the Basel III definition, well, allow me to be prudent again. I mean, you have seen that we all thought that the definition of the leverage ratio was relatively stable and in 2 weeks before signing, there is things that proposed to be changed, changed again and whatever. But at least, within the definition, as we understand it, we are within the 3% -- well, not within, we are -- you know the leverage ratio expressed as a 3% as it is, you have to be above. And so our understanding of the definitions basically make us be on the good side of that yardstick. With respect to your cash balance sheet, and I understand and I also admire your way to extract it out of me, but with respect to the excess of the balance sheet, honestly, I have to come back to what I said. I mean, if there is an excess of inflow of deposits, you can understand that we're not going to break client relationship and say, "No, we are closed for your deposits." And so for the moment, this is a bit the run. As I said, we are maybe a bit ahead due to the MLTs. We'll see how it evolves. I understand that it might be something which annoys because it costs. I've told you it's not [ph] with it, in general. I announced that it's EUR 900 million in my expectation. You'll see that in the first quarter. We're roughly there because if you collect for the exceptionals, you're at one quarter of that. And yes, this is the Insurance that we pay because we are a prudent bank, a boring bank. But that's the way it is. So bear with us that we keep this burden, and we'll see how the regulation, the environment evolves. And when there is something new, we'll let you know. All right? So that would be my four-pronged answer to your questions.


The next question is from Andrew Lim, Espirito Santo.

Andrew Lim - Espirito Santo Investment Bank, Research Division

First of all, I just wanted to understand the balance between the growth plan, which I understand you're going to talk about in early 2014 and your payout ratio. Is it the case that we can reasonably think that to be around the mid-30%, as it has been historically, or is it going to be higher than that, maybe in the mid-40% for that payout ratio? And then sorry, just circling back to that, liquid asset buffer, it is increasing. And I guess, people are trying to square that with the interest costs there in the Corporate Centre, and you're sticking to your EUR 900 million guidance there. But is it the case that we should expect that liquid asset buffer to keep on increasing? And are we going to see that EUR 900 million increase into 2014 going forward? And then just on BNL, I understand, of course, that you've got good growth in deposits there but it's still the case at the loan to deposit -- sorry, the loan-to-deposit ratio is quite high, but is it the case that management is more relaxed now about that ratio? And are you comfortable that it's at that level, or do you see an eventual target much lower than that?

Lars Machenil

All right. Thank you for your questions. With respect to your question on the growth plan and the payout, 2 things. So first, yes, you probably have observed -- no, there's no probably -- you have observed that our payout ratio has gone up again in this year and more in line with what we used to have in the past. Now the thing is before I can -- you asked exactly the right question between the growth plan and the payout ratio. Now in order to be able to tell you on the latter, I need the former. I mean, you know us. I mean, I can tell you whatever. I mean, I've seen banks saying, I mean, "I want my return on equity to be above post equity." These are all very lofty goals. But in order to say something sensible, I need my growth plan. So -- and that's why I said, we see step-by-step regulation clarifying. We have seen Basel III now being roughly translated into CRD IV. We still need some clarifications. The single supervisory mechanism is being clarified. We will have Tarullo. So we need all these things to basically, in the fall, be able to crystallize our plan, our growth plan. And that growth plan will then basically say how much we are able to redeploy. And then by that basically say what the payout ratio will be. So I know that it means you have to bear with us, I know. But we have a rendezvous. We have a rendezvous, early 2014. And I take it that you'd bear with us and that you understand that we want to do the job thorough. We want to do it with all knowledge and not having to refrain back and to be able to give you a very tangible guidance in February of next year. So that is on that one. With respect to the liquidity buffer, I know it, guys, I mean, if I had a crystal ball, I will be able to tell you exactly what it was. But if I had a crystal ball, I would have played on the lottery and I would be sailing in the Bahamas, right? I mean, I honestly don't know. For me, the best read I have now is that it's going to be around that. And the thing is when it's going up, when it's going down, when the things are changing, we'll tell you, okay? That's the commitment we'll do. And with respect to BNL and the loans to deposit and if management is relaxed, well, I can tell you, [indiscernible] is never relaxed. I mean, these guys are doing a wonderful job. I mean, they are working very hard in order to position the bank rightly, to participate it into Simple & Efficient in an environment, which is not always easy. I mean, if you're a banker in Italy, that is not always the easy job you have every day. So no, no, they are very much focused, as you can see, in the evolution of the balance sheet trends within BNL. So that would be my three-pronged answer to your questions.


The next question is from Flora Benhakoun, Deutsche Bank.

Flora Benhakoun - Deutsche Bank AG, Research Division

A few questions from me as well. The first question is again just to come back on the implementation of new regulations in the Investment Banking, so especially MiFID 2 and EMIR. I don't think you're giving any guidance on the potential revenue impact, but I was wondering whether you are considering potentially retrenching from some of your businesses, especially in FICC due to the implementation of these new regulations. The second question is on the consequence of the recent ECB rate cut by 25 basis points, whether you have quantified approximately how that could impact your revenue, especially in the retail base, and whether you think you can mitigate that impact with the deposit side. Then another question I have is on the Corporate Banking revenue. I think you had given a guidance in the past of approximately EUR 800 million of revenues per quarter after the deleveraging. Now it was a bit below this quarter. I just wonder whether you could give us some guidance on whether you think that the revenues have now bottomed out in that division? I've seen the slides that you make a comment, saying that the good -- the performance was good at the end of the quarter. Does that mean you think you have reached the bottom? And the last question is on the cost of the excess liquidity in the Corporate Centre. There has been talks now after the ECB meeting yesterday on potentially negative deposit rates. So I was wondering whether you could maybe quantify what kind of impact this would have on your revenues, and whether you have ways to mitigate that impact.

Lars Machenil

Thank you. You pushed one of my buttons. So you're going to -- you got me started, and so thank you for that. With respect to the new regulation and particularly, EMIR, so which I remind you for those who got up early in the U.S., which is basically the Dodd-Frank equivalent on derivatives. Well, we first have to get still some clarification on what it will really mean and how it will articulate with the CRD IV. But at this stage, we don't think we would have to -- or we plan to shut any businesses. I mean, there will of course be some adaptation. But I think if the past can be a good guidance for the future, I think you have seen that our CIB activities have adapted to the Basel 2.5 regulation, for example, 2 years ago. They have done that very well. So with respect to that, I mean, we await what it will mean. We will follow that. But at this stage, there would be no reshuffling due to that. With respect to your ECB rate cut. So for those who would have been on holiday yesterday, so the ECB indeed did a rate cut with respect to -- of 25 basis points. If I go through what it would mean for us and if I talk to our Treasurer, he basically said that in the short-term rates, this was already all priced in, so basically, not much to expect from it. On the MLT funding, it should be similar. So the pop quiz is back to the initial question, which was raised is saying basically, it is something, which you can -- which can lead to repricing on the deposits. And there I can just say what I said at the start. Please go to, and you will see that basically the deposits have been repriced or where it's been announced, and they will be as of the 15th of May. So from that point of view, that is basically what it would entitle for us. With respect to your third question on Corporate Banking, indeed, when we guided on figures, we indeed said that there would be a reduction in volumes, which basically happened. And we said that we would counter this by 2 things. We said we would counter this through costs, which we have been doing, and we said we would counter this through repricing. But the thing is of course, if your volumes are going down, the effect of repricing takes a lot of time. So from that point of view, indeed, that effect, and for example, in Q1, is not basically very present. So that explains a bit the delta between what you see and what you might have expected. And allow me to clarify and again, don't read more into what I say. I don't have the crystal ball. The only thing what we're seeing is that, that origination is basically picking up. We see the pipeline filling with respect to that in the second half of it. Now rendezvous again, in the second quarter, to see how all that crystallizes. But that is basically the glimmer of activity that you start to see lighting up, but let's not read too much into it. That is basically the situation as we see it. With respect to your fourth question on Mr. Draghi basically maybe saying something on the deposits that the banks do with him. I think this is the thing that I said at the start that you would get me started on. It's a difficult situation. I mean, if you look at our cash balance sheet, you indeed see that we deposit at the Central Banks a big chunk of our excess deposits. Now why is that? I've been telling you before that what are my other alternatives. I can put it in a securities, for example, Goviz [ph] or whatever. But as we said, with respect to Basel III, that is basically being penalized. And so we basically have our benchmarks and our yardsticks. We don't go above that. The other alternative, when we were young, we basically did enter banking, which was actually very good, because some might have some excess deposits, which they yanked into the inter-banking system, for which they got a return on the risk they took on the bank. And then they redeployed it into the real economy, which was wonderful. I mean now, today, given the LCR definition, the inter-banking market is basically closed because none of that comes into the LCR. So you're only remaining alternative is basically putting it at ECB. And I understand that Mr. Draghi, I mean, he has been articulate about it, he doesn't necessarily like that neither because he doesn't want to be the ECB to be the intermediate on that. Now -- but if charging for the deposits we do with him is a solution for that, given the situation, it's necessary. And I remind you, those Central Bankers always choose their words wisely, he hasn't said that he would do it. It's just that the technicalities or whatever he said would be there. So I think this is -- well, given the complexities that I just described, you should read it that way. That would be my 4-access of answer to your questions.


The next question is from Maxence Le Gouvello, Crédit Suisse London.

Maxence Le Gouvello du Timat - Crédit Suisse AG, Research Division

I will have 4 questions. The first one is can give us an update on the intra-group funding with BNL? The second one will be on the Asset Management to do the follow-up on the outflows. Would it be possible to give us the breakdown of the level of outflows on the money market products and the inflows on the other side? And my third question will be -- can we -- on the Insurance, can we have a breakdown of what has been the performance -- driving the performance between life and nonlife?

Lars Machenil

So on the BNL intra-group funding, it basically has moved. So as I said last time, we were just shy of EUR 7 billion, and basically that is still where we stand. So nothing new on that. With respect to Assets Management, I think, well, the disclosures we do are the disclosures that we do. And the granularity that you asked for is not what we disclose. And with respect to Insurance, as we said and if I use a gross written premiums a bit as an indicator, as you -- what we have is that, in France, the gross written premiums have basically quarter-over-quarter improved by 9%. And internationally, our gross written premiums have gone up by 6%. And if you look into that, if you want to see a big chunk of that growth -- for example, if I return back to France, it's basically related to savings activities. So 11% -- so I said 9% gross written premiums, 11% of that is saving activities. And with respect to what I said on the international, out of the 6% GWP growth, there is like an 8%, so 8% growth into savings activities. So that is basically the trend that you see with respect to what is driving the growth on Insurance. So, Maxence, that will be my 3 answers to your questions.

Maxence Le Gouvello du Timat - Crédit Suisse AG, Research Division

One more question. Just in terms of guidance for the French retail. You used to give a guidance in terms of jaws effect. Do you maintain what has been said at the year that we should be close to 0 on 2013?

Lars Machenil

Close to 0 what on jaws? No, what we said is -- to avoid confusion, we basically -- if you are in an environment just like the one we are in, jaws are not necessarily the most pertinent kind of effect. And so what we said is with the advent of Simple & Efficient, we basically clarified that what we aim to do is to fight inflation. So that is basically what we want to do. So that would mean that our costs would basically, yes, remain stable, whereas the impact of inflation should, of course, will remain impact on the revenues. So that's basically the guidance we have given on the cost side.


The next question is from Cyril Meilland, Cheuvreux.

Cyril Meilland - CA Cheuvreux, Research Division

Actually my -- the first one is only a remark. It's, again, about the over Domestic Markets. I really think it's a shame that it's not in the press release, not detailed in the press release, especially as it seems that you're contemplating buying out the minorities on this one and spending probably at least more than EUR 1 billion. So it's probably a division that deserves to be in the press release. But the question is more about the in-portfolio that you bought with Fortis. I think at the end of 2012, the net book value was EUR 7 billion, which was basically down by more than half since the acquisition. At that time, Fortis had booked about EUR 3 billion of impairments. I suspect that on the assets, you mostly expected them to mature. And therefore, I suppose were repaid at par. And so you have probably booked a significant amount of revenues, which didn't go through the PPA because it was not part of the PPA. So could you just detail the amount of revenues you got from this in 2012? And given that I think this portfolio were amortized by about half this year, how much you think you would be able to book in extra revenues in the Corporate Centre this year? And is it part of your EUR 900 million guidance of negative revenues for this business? And marginally, I think that, well, you mentioned the EUR 9 million drag from the liquidity buffer. Do I understand well that it's a net of differences because in the Corporate Centre you still have a few businesses and especially the revenues from the -- your kind of preparatory investment portfolio. So could you just give more color on this EUR 900 million?

Lars Machenil

All right. Thank you for those questions. So with respect to your Domestic Markets, I duly note, and I look at everybody here on the table, your remark. With respect to the portfolio, and so I remind you that indeed, with the acquisition in 2009 and the opening balance sheet, we had indeed -- let's first talk about the banking book. So the banking book that was entered into the balance sheet of BNP Paribas had indeed a part of PPA, and we said that basically the overall maturity was around 4 years, and so we basically said that this would amortize over 4 years. And this is what we have always been saying about the Corporate Centre. We have stated this explicitly every quarter on what it is. This is basically now done, and so this is over with. Now there are, of course, other elements within that balance sheet, which did have some PPA adjustment depending on the pricing. And amongst others, this portfolio input and others. But so the duration of these products is much longer. So the impact every year from the normal run is basically not deemed as material. However, indeed, if part of these portfolios would be sold exceptionally, it will, of course, lead to a crystallization of that effect. And when that happens, we basically disclose that. So I remind you that last year, we have disclosed that. There was one of those wonderful fish. They all have names of fish So some of them swordfish, goldfish and what have you not. And some of them basically were being called earlier, and that realized, of course, in an accelerated way. And if that does,we basically clarify that for you. And so what does that mean -- or allow me to further clarify the Corporate Centre. So there used to be a time when the Corporate Centre basically, its income, was gravitating around 0, because what was in there was not necessarily material. There were some participations. There was some private equity. And it's typically basically ironed out. Then of course, we have the 4 years of PPA, which we clarified that it basically lifted that amount that we've always been very adamant and clear about what this was. And now, we still have some of these elements as we had in the past, but over and above, as I said, comes that cost that I talked about. So that is basically the impact. And so yes, the main driver, not every quarter it is exactly 0, those other elements. So that's a bit spread depending on dividend season one quarter or not or revaluations in the period. But so the main impact of what I talked about for the EUR 900 million negative, so drag on the net banking income, is due to the liquidity situation that I talked about. So that would be my answers to your questions -- answer to your question and noting your remark.

Cyril Meilland - CA Cheuvreux, Research Division

Maybe just to follow up on the first one, do I understand well that you mentioned in the past that the PPA amortization did include the positive impact from the in-portfolio? Because I cannot remember that the EUR 3 billion impairment was not part of the PPA. It was done before Fortis, so it's -- I mean, technically it was not PPA, right?

Lars Machenil

No, it's part of what we said -- the main part of the PPA that we have is in the banking book, and that is one that basically amortized over the last couple of years, and that's gone. And then indeed, as I said, PPA is something which -- PPA is just a generic term, which basically means that you have to adapt your balance sheet of elements, which are not mark to market into the situation where you put it into your balance sheet. And as I said, if you have very long-term products, that basically takes time and the yearly impact are not very material. As I said, again, except if you do an accelerated sale. And if you want, I'm -- somebody can look it up exactly what it was. I think it's the third or the fourth quarter were we had the impact of that, okay?


The next question is from Lorraine Quoirez, HSBC.

Lorraine Quoirez - HSBC, Research Division

I would just have one question. I see the reported Basel III core Tier 1 ratio to be 10%. I just would like to know how much higher you have to see this ratio go from here?

Lars Machenil

Lorraine, thank you for your question. That's a multi-dollar question. No, listen, we are not in the business of going for the record capital. I understand that some other banks are very proud to be and they apparently pursue this kind of thing, and we don't. As I said earlier, I mean, we need stabilization and the regulation in order -- in the fall to be able to make our plan. And out of that plan basically be able to tell you at what level that we fly, at what payouts that we would have and so forth. And as long as we don't have that plan, yes, we're going to keep on accumulating a bit of liquidity. We're going to keep on accumulating some of the capital. And yes, we accept that for now. We accept that for now. That's the boring bank that we are. It's kind of, call it insurance, call it being prudent, call it the way you want it. But we're going to keep it. And I know it's not obvious for you and I know it's still long until February, Valentine's Day is still a while, but that's the way we're going to proceed in order to be able to tell you something, which make sense. So Lorraine, that would be my answer to your question.


The next question is from Anke Reingen, RBC.

Anke Reingen - RBC Capital Markets, LLC, Research Division

I just had a follow-up question, please. I'm just trying to understand your very good start on the cost control into the year, and I understand there's a function as well as where the revenues are coming in. But at the current Q1 level, you're sort of like running 2% below the average in 2012 on operational -- divisional level. I just wondered is this assuming revenues are flat, is this realistic to keep them 2% down versus 2012? And I understand that you're still working on giving us the exact number of how much of the EUR 500 million is already in Q1, but just from an indication, is it just very little? Or are we halfway there? And then just on the CIB costs are down 16% Q1-on-Q1. You mentioned that this is impacted by investments. So would it -- x investments, would cost be down, in line with the 20% decline in revenues? But still -- I mean, the 16% is quite -- I mean, still a very impressive results. So has it been helped? And like what change of accrual? Or there's been no change in policy?

Lars Machenil

Okay. Thank you, Anke, for your questions. So one of the reasons why I think our costs are quite impressive in the first quarter is that, of course, last year, we embarked on this adaptation plan. And so remember, so both on several aspects of CIB, of ES, of IS and also of Retail Banking. We have embarked on adaptation plans, which we invested. And so we're basically reaping the fruits of that at this moment. With respect to your question of how much of Simple & Efficient is in, I mean, don't pin me down on the number. When you say is it material or not, well, it depends on your yardstick. But it would be probably somewhere around EUR 50 million to maximum, EUR 100 million that would be in. But don't pin me down on that. But I'm just giving you that range to qualify that versus -- it's less than 1/4 of what you would expect in the year, but we'll clarify that in the second quarter. And with respect to the comment I made that some of the savings in CIB have been reinvested into growth, it is, to some extent, appropriate for the Capital Markets activity, but it isn't particularly true for the Corporate Banking activities. Because as I remind you, the Corporate Banking activities, we are pushing Cash Management, for example, even further in Asia. And that is things, which come with quite a hefty upfront investments, so my comment, you should more see it with respect to the Commercial Banking side than to the Capital Market side.

Anke Reingen - RBC Capital Markets, LLC, Research Division

Okay. And is there any change in accrual? Because I mean, the last year's -- obviously Q1, you always had a higher cost base. Is there an element that it should be flatter this year over the quarters?

Lars Machenil

No. Anke, the way it works, as you know, in a prudent way, we typically book bonuses in the year -- and the quarter rate happens. So accounting-ly, the lady who is in charge of the accounting here, she basically books them. So even if it's deferred, she really books them. And of course, I mean, if the revenues are lower -- she's nodding yes. You can't see it. But I mean, she's confirming. And so basically, I mean, if your top line goes down, your calculation of your bonus accruals goes down. So of course and I maybe wasn't clear about that, the fact that Capital Markets have this evolution of cost, which is in line is, of course, also related to the fact of our good grandfathering or [indiscernible] grandfathering of reducing the bonuses. And so it's of course, the bonuses, which go down with the revenues and moreover, the other fixed cost, which are also going down due to the adaptation plan. So thank you for allowing me to clarify that.


The last question is from Pierre Chedeville, CM-CIC Securities.

Pierre Chedeville - CM-CIC Securities, Research Division

Not many questions left. Just a question regarding Belgium. I'm not sure I understood clearly that we can see that the cost of risk is decreasing strongly in Q1. And I understood that Q4 2012 would be, I would say, normative [ph] cost of risk, which is not obviously the case in Q1. So can you clarify that for me please?

Lars Machenil

Yes. I think both end of last year and the start of this year are probably somewhat affected and correlated to each other. And as we said, I mean, the 10 basis points that we have in Belgium here are pretty clearly -- are particularly low. So you probably, if you would put both at somewhat the average of the 2 quarters, that would probably not be too bad.

Pierre Chedeville - CM-CIC Securities, Research Division

Okay. And my second question is it related to Ukraine, even if it's not really significant now in your balance sheet and your P&L. What is exactly your policy in Ukraine? Are you closing slowly the business? Do you want to intend to repair it before selling it? Because we don't know exactly what is your Eastern policy, is the same -- more as the same in Russia? You don't talk about -- a lot about your partnership with Sberbank. What exactly is your Eastern policy now?

Lars Machenil

Yes, I don't think we have a specific Eastern policy. I mean, the regions that we focus on are growth, it's -- as we said earlier, it's basically Asia and the U.S., as we said. We of course have some activities, which we aim to rationalize. And as you rightly said, our Personal Finance activities, we're very happy that we have basically transferred them into the joint venture with Sberbank because these things kind of work very well. We see it with Commerzbank in Germany, so that's basically that. In Ukraine, we are, of course extremely prudent. I mean, we have been rightsizing this. I mean, we have again closed 41 branches. But at the same time, we keep on doing prudent business, typically short-term kind of activities that we are doing. And so that's basically where we stand on the Ukraine.

Pierre Chedeville - CM-CIC Securities, Research Division

And what is your outstanding [ph] with Sberbank? Are you sharing business finance? Do you communicate it?

Lars Machenil

No, we don't communicate that. But let's be clear. I mean, we had a startup of ourself. We've put it into the joint venture. That joint venture, of course, are now like 4 or 5 months old. So you have to give us some time -- well, not to give us some time but get it up to speed, and then we'll shed more light on that activity.

Thank you very much. Operator, that means we're at the end of the questions?


Yes, no more questions.

Lars Machenil

All right. Then fine ladies, gentlemen, I thank you very much for your attention on this Friday. For those who are in Europe, maybe you're on a long weekend, so I thank you for your interest. I hope that you have seen that the results of the group came in at EUR 1.6 billion, that we are very happy with the way we worked at the costs and at the costs of risks, and you have seen the resilience with respect to Retail Banking Investment Solutions.

And so with this, I thank you once again for your attention, and wish you a good day, thinking of our strong liquidity and very strong solvency. And I wish you a very good weekend. Thank you very much.


Ladies and gentlemen, this concludes the Conference Call of BNP Paribas First Quarter 2013 Results. Thank you for participating. You may now disconnect.

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