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Executives

Lars Machenil - Chief Financial Officer

Analysts

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

Lorraine Quoirez - HSBC, Research Division

Delphine Lee - JP Morgan Chase & Co, Research Division

Jon Peace - Nomura Securities Co. Ltd., Research Division

Kinner R. Lakhani - Citigroup Inc, Research Division

Nick Davey - UBS Investment Bank, Research Division

Geoff Dawes - Societe Generale Cross Asset Research

Pierre Chedeville - CM-CIC Securities, Research Division

Sergio Gamez - BofA Merrill Lynch, Research Division

Flora A. Benhakoun - Deutsche Bank AG, Research Division

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

Cyril Meilland - Kepler Cheuvreux, Research Division

Anke Reingen - RBC Capital Markets, LLC, Research Division

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

Federico Salerno - MainFirst Bank AG, Research Division

Alex Koagne - Natixis S.A., Research Division

BNP Paribas SA (OTCQX:BNPQY) Q2 2013 Earnings Call July 31, 2013 8:00 AM ET

Operator

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

Lars Machenil

Operator, thank you very much. Ladies and gentlemen, hello, and welcome to our second quarter results presentation. As you know, I would like to quickly flick through some of the introductory slides, zooming on some specific topics before, of course, handing it over to you for your questions. So bear with me for these couple of overviews, and maybe let's start with Slide 3.

So BNP Paribas closed the second quarter with a net profit of EUR 1.8 billion, and this is despite the persistence of a challenging lackluster economic environment in Europe. In particular, revenues proved resilient in the quarter as they benefited from our diversified businesses and geographic mix. Overall, revenues of the operating divisions were stable compared to previous year.

Also, the second quarter confirmed our effective and continued cost control as the first benefits of Simple & Efficient started to accrue. Operating divisions, indeed, marked a 1% reduction in the cost base.

Now cost of risk, it remained at a moderate level in spite of the economic backdrop. In particular, in the second quarter, it stood at 68 basis points. Most importantly, we confirm that BNP Paribas had a rock-solid balance sheet. In fact, if we look at solvency, our ratios are among the strongest, as shown by our fully loaded Basel III ratio at 10.4%. Likewise, if we look at liquidity, our available reserve stands at a massive EUR 236 billion, increasing further in the quarter. And lastly, we continue to see a sustained base of growth in our retail deposits across the different networks. These were up a tad, about 6%, compared to previous year.

This is the synthesis. And now if we turn to Slide 5, we confirmed a significant profit generation capacity, which was only marginally affected by one-off items and actually, less so than in the previous year, in the quarter besides the OCA/DVA impact, which was a small negative. We booked, of course, the capital gains from the asset sale of Royal Park Investment, as well that of our Egyptian subsidiary.

So if I continue and if I basically hand back at what I said a little earlier, you can see on Slide 7 that the revenues of the operating divisions were pretty resilient, thanks to the diversified business and geographies. In general, Retail Banking revenues were a tad higher, driven by strong performance in Turkey and the other domestic markets, and particularly, Arval as part of the domestic markets. Investment Solutions was up on the back of strong results in Insurance, while CIB was only 0.4% lower on a comparable basis.

Now next to the revenues, let's go to Slide 8, and let's look at the costs. And you'll see that we have continued to keep a lid on the costs in our operating divisions as the first effect of Simple & Efficient started to kick in. In fact, you will notice the reduction in Retail Banking, and particularly, in Domestic Markets, with a good contribution from its 3 main markets. Investment Solutions costs were a touch higher as good cost control, especially in Asset Management, was counted by higher cost in Insurance to cope, of course, with the higher levels of activity. Finally, CIB's costs were 1.8% higher at constant scope as the effect of Simple & Efficient were more than balanced by continuing business investments in places such as Asia, as we discussed earlier this year when we shared our Asian Pacific plan.

Now if we remain on costs and if you can peruse Slide 9, where we provide an update on Simple & Efficient, which, as I just mentioned, has already started to contribute recurrent cost savings. In fact, the first half is arrived at EUR 330 million, of course, benefiting from some quick wins and also from the anticipation of some projects which were launched at the end of 2012.

And as you can see from the pie chart, these first savings came for just over 1/2 from Retail, 1/3 from CIB and 15% from Investment Solutions, as we announced at the moment that we shared the plan with you.

Now what we also provide is the transformation costs, which are booked in the first half, which totaled to EUR 229 million, of which EUR 74 million were booked in Q2. And basically, investments for the second part of the year are currently, of course, being prepared.

And as a reminder, Simple & Efficient is a far-reaching and well-structured cost optimization and simplification plan centered on more than 1,000 programs, which include a total of more than 2,000 projects. And up until now, 86% of these projects have already been launched, which basically means that there is a manager, a budget, a timetable. So I guess that this confirms that our Simple & Efficient plan has got off to a rapid and very promising start, making us confident of achieving our ambitious goal of structurally enhancing the organization or reducing by a recurring EUR 2 billion the cost base as of 2015.

So enough said about costs. If I touch upon the cost of risk, as said in the introduction, it remained moderate at 68 basis points, as you can see on Slide 10. The main variables for cost of risk in the second quarter were a one-off impact of a single ticket in Advisory and Capital Markets for EUR 65 million. I would call it a more normal level of cost of risk in Corporate Banking, where actually, the year-on-year comparison is meaningless due to the substantial write-backs that we had mentioned in Q2 2012. And when I say we are more in normal level, that means we are more around expected loss for Corporate Banking.

Then if I look at other retail activities, we observed a low cost of risk in France at 24 basis points and in Belgium, at 20 basis points, while in Italy, BNLs was higher at 146 basis points, even though it was in line with the level of the previous quarter, previous quarter meaning Q1. Also, you observed the continued improvement of BancWest's cost of rich -- risk, pardon, which attained a particularly low level this quarter. And you also observed stabilization at Personal Finance. And Europe-Mediterranean's cost of risk was a tad lower this quarter.

So I guess this is already a first sign that with respect to cost of risk, our balance sheet is in good shape. And Slide 13 makes me change the objective and makes me call it a rock-solid balance sheet because if you look at the levers that we basically have aggregated for you -- and let's start with the solvency, where our fully loaded Basel III common equity Tier 1 ratio increased a further 40 basis points, so stand at, I have no other objective, ladies and gentlemen, sorry, but a very high 10.4%. This increase was due 50-50 on the back of the results in the quarter, of course, and the decrease of the RWAs related to the relatively low demand for loans.

However, I know that some of you will say, but what about the leverage ratio, right? Well, as you know, we are not fans of this metric. Let me kill this already first. I still believe that there has been 10 years of work in order to really link and tie up the risk adjustments. However, I mean, the leverage has been cast in gold into the CRR that has been voted in April and has been clarified further since. And so if we apply this, this Basel III fully loaded leverage ratio for BNP Paribas to the 3.4%, which -- where we prudently considered just the common equity Tier 1. So I remind you that this is a metric for 2018. It has to be at 3%, and actually, it is on full Tier 1, which if we would apply full Tier 1, so adding the hybrids at the level where they are today, this would be 3.8%.

Now enough about this metric. Let's not forget liquidity and where our immediately available reserves continue to increase, this massive EUR 236 billion at the end of June, covering 145% of our short-term wholesale funding. To put it differently, these reserves give room to maneuver in excess of 1 year in the case of liquidity shock.

So if there is one message I would like to retain is this one. BNP Paribas really has a rock-solid balance sheet.

And all this, where does it bring us? If we look at Slide 14 and to conclude this introductory part, if you can gaze to our old favorite, the net book value per share on Slide 14, where you can see that through the cycle, we have been consistently increasing the book value per share. And this remains true at the end of June. In fact, our net book value per share has reached EUR 61.6. And for those of you who are looking at tangible book, it is now exceeding EUR 51. So if we did -- I basically end the introductory part. Bear with me for a couple more minutes to allow me to touch upon some of the elements of our operating entities.

Let's start at Slide 16. I'll synthesize domestic markets on it. And as you can see, domestic markets proved very resilient, generating a good overall performance in a challenging context. The pace of deposit growth remained strong in all metrics. Overall deposits increased by more than 6% in 1 year. Loans, on the other hand, as I said earlier, continued to slow down.

In the second quarter, we successfully launched, and I hinted at it in my first sentence at the start of this call, we successfully launched Hello bank!, first in Germany, Belgium and then in France, and Italy is to come. And initial indications are encouraging, but, I mean, we are in for the long run, so we'll give you an update on this wonderful initiative by year end. And so in the context of persistently low rates, we managed to clock in EUR 4 billion of revenues. This was helped somewhat by a pickup in financial fees after several low quarters and, as I said earlier, by a good contribution from Arval.

We continued also our cost efforts, as I said, which were reflected in the further reduction of the cost base. And so net of this launching of Hello bank!, operating costs were down 1.3%. And this, in turn, allowed our 3 main markets to show, yet again, an improvement of their cost-income ratios. And with all that, gross operating income improved to EUR 1.5 billion.

In conclusion, despite a higher cost of risk in Italy, Domestic Markets confirmed high levels of profitability with EUR 1 billion of pretax income.

If I continue on Retail, if I can ask you to cast your eyes on Slide 20, where we have Europe-Med, which enjoyed another dynamic quarter with significant volume growth, especially in terms of deposits. The star, if I can say so, was TEB in Turkey, which performed particularly well. This revenue growth remained double digit, while expenses remained at a check, more than under check, actually, despite continuing investments to rightsize the network in Turkey. Indeed, the costs benefited in Q2 in Euro-Med from operating efficiency measures in both Poland and Ukraine, and so -- which leads to this charming evolution of a pretax income growth, which had basically leapt by over 50% on a comparable basis, I mean, because, I mean, there was, of course, also the impact of the sale of our Egyptian operations.

So for those on iPad, please swipe to the next Slide, which is 21, and which takes us to the other side of the Atlantic, to the Pacific even, mainly where we have BancWest, which continued to show dynamic commercial activity both in terms of deposits and loans. Probably also a sign of the shape of the U.S. economy. Loan growth was driven, in particularly, by good corporate activity, where we started reaping the benefits of the investments we have been making in the commercial setup.

Private Banking also continued to develop well as managed assets reached $6 billion, up 32% versus last year. Of course, here also, the persistence of low interest rates and lesser loan sales weighed on the revenues, while costs inched up a bit on the back of what I've been telling for a couple of quarters now of continued investments in some of the areas that I've just mentioned, which is Corporate and Private Banking setup, where we basically roll out the diversified BNP Paribas retail concept.

So all in all, BancWest confirmed a strong contribution to the group, of which we're very happy, with a nice round EUR 200 million of pretax income in the second quarter.

Now if we -- finally, to complete the Retail review, quickly glance at Slide 22, where we have Personal Finance, which continued to be the foundation for further development, as shown by the partnerships signed in China with the Bank of Nanjing to develop consumer lending solutions. In addition, Personal Finance received a Vigeo certification for its Cetelem France renewable credit offer.

Revenues were a touch softer due to the continuing reduction of mortgage stocks in line with the adaptation plan, right? So the adaptation plan for PF, which is related to mortgages, of course, takes a little bit more time to unwind. So consumer credit, if we look at it in France, continued to be burdened by regulatory impacts, while it showed good trends in Belgium, Germany, Central Europe, Brazil. All that, coupled to a good cost reduction on the back of the adaptation plan, which was launched in 2012, and basically leading to a cost-income ratio of 45%. And so all in all, Personal Finance closed the quarter with a sizable EUR 312 million of pretax income.

So let's a draw a line under Retail, and let's go and peruse Slide 24, which leads us into the Investment Solutions space and its performance, particularly in Q2. So revenue growth continued with a particularly good contribution from Insurance activities, especially on the protection side in Asia and Latin America. Also, Securities Services revenues were up, thanks to higher transaction volumes, and also, Wealth Management confirmed its growth trend.

Asset Management revenues continued to be penalized by decreasing average outstandings as this quarter also witnessed outflows, in particular, in the money market funds given the yield environment. Noteworthy for further development, I would point out the recent agreement signed with the Bank of Nanjing in China, if that is really needed to specify, where else would it be, I guess, to develop the life insurance business. Now operating expenses decreased, thanks to the benefit of the adaptation plan in Asset Management, coupled with the, as you know, BNP Paribas, the effective cost control in Securities Services.

Insurance, while given a little bit of lead way and the costs were up, but of course, reflecting their increased level of activities that I talked about. So all in all, pretax income showed a 6% improvement compared to previous year, reaching EUR 564 million.

Now finally, in this part of what I wanted to share with you, Slide 26, CIB. 26, you can see that Advisory and Capital Markets revenues picked up in the second quarter, driven by stronger client activity, although this was a bit dampened by the resurfacing of market tensions following said announcements towards the end of the quarter, right? It was jitters that came from that, and this volatility towards the end of the period weighted actually and particularly on the rate activities in our fixed income, while within fixed income, credit and ForEx had a good quarter. Moreover, activity in bond issuance was pretty good, as I said, and it's demonstrated by the fact that we retained our top spots in all corporate bonds in Europe and ranked 8 for all international bond issues. So that is basically the fixed income part.

On Equity and Advisory, it posted a good lift as stronger client flows and renewed interest for structured products was confirmed in the second quarter, especially in Europe and Asia. And also, equity-linked performed quite well, and we kept our top positioning in Europe. So that's on the Advisory and Capital Markets part.

If you now turn to page -- Slide, sorry, 27, where you have the other elements of our Corporate and Investment Banking, namely the Corporate Banking, where the revenues were lower as a result of the remains of the 2012 adaptation plan, right? Remember, we embarked more than a year ago on the deleveraging plan, which was basically done in 2012. But of course, if you compare the 2012 Q2 outstandings and the revenues that they generated, they were, of course, before the deleveraging, and so, of course, the Q2 has a lower volume base and therefore, also a lower income base. But this adaptation is totally behind us. And basically, if you look at it compared to the previous quarters, so Q1, we saw that the revenues were up 9%. We saw a rise in commissions on the back of good client activities, as seen by ranking in leverage acquisition, oil and gas, media, telecom, which crystallized, if you want, in one number, by our #1 position for all syndicated loans. So all this illustrates that the client activities was good. We also have some further illustrations for some landmark deals in originate-to-distribute, such as Cablevision in the U.S., the refinancing at Brussels Airport in Belgium and Gazprom Neft in Russia.

So that's basically summing it up for our divisional results. I'm not yet going to hand it over to you. You have to bear with me a couple of more minutes. As I said before, we are prudentially ready, so I have the pleasure and take a little bit more of your time to talk about some further steps in our business development plan. Thereafter, I will hand it over to you.

So if we can turn to Slide 29, where you'll find a recap of what we have already announced. As a reminder, we have started with Simple & Efficient, on which we did a progress report. We've given you details on Asia-Pacific. We've told you about Hello bank! And together with what I'm going to talk about now, which is the Asset Management business and our development of our presence -- further development of our presence in Germany. And so as you all know, but as a gentle reminder, our intention is to present our new group plan in the first part of 2014. And you basically get the first flavor of it when we publish our 2013 full year results. This will already attract some crowds for that event.

So if I can ask you to kindly swipe to Slide 30, and we'll get going with the Asset Management plan. So investment partners, as you know, has a strong investment culture build-up over the past many years, step after step. It is a strategic business for BNP Paribas as it basically manages the assets of our clients, and we consider it critical to have full control of the quality of products proposed to our clients. And also, it's an already very profitable business, and it is key with regards to institutional clients. Also, I remind you that we already have a global reach in Asset Management with 3,200 people, 40 countries and managing EUR 375 billion at end June.

Our setup of the plan is basically centered around 3 key areas. First, the institutional arena, where we are already a major player, ranking seventh in Europe. Moreover, in various capabilities, our investment management is recognized by the top global consultants and industry reviews. Second, another area where we have a natural strong position is with Retail and Private Banking clients, thanks to the distribution in our 4 domestic markets. And beyond this, we also enjoy access to large global distributors. Third, we also have an attractive setup in 17 emerging markets with EUR 50 billion of distributed assets. This presence is complemented by local partnerships such as Shinhan in South Korea and HFT in China.

So if we move to Slide 30 -- sorry, 31, apologies. Institutionals, emerging markets and distributors represent, as I said, the 3 main assets of development of our Asset Management plan. For the institutionals, the focus is on developing new expertise, expanding the presence and with all that, improving further the recognition. In Asia and emerging countries, the plan seeks to consolidate our presence in key markets such as China, Brazil, South Korea, as well as strengthening local expertise and forging new partnerships with local players.

For distributors, our ambition is to become 1 of the top 3 distribution platforms in Continental Europe through rationalization and optimization of the setup. So different dynamics for the 3, 1 which, basically, through investing, we will grow. Another one, which is similar but might take a little bit more time, in the emerging markets, and the third one which is basically on the back of rationalization.

So with this, if we look at Slide 32, so clearly, to achieve our plans in Asset Management, as I said, we have to make selected investments, particularly in the institutional segment. As such, attracting and retaining the best investment managers will be the priority. Over the plan horizon, we are targeting a progressive relaunch of the inflows. By 2016, we expect EUR 40 billion of net new cash in the value-added segments. As shown by the pie chart on this Slide 32, the lion's share of this new cash will come from institutionals, followed by Asia and emerging markets. Revenues are expected to progress by 10% during the period, following the evolution of the average assets under management. This should basically ensure strong profitability going forward for this core business of the group and also, of course, in view of its limited capital absorption.

[German] Slide 33, plans for Germany. So kindly flick to Slide 33, where we crystallize this topic because it's maybe not yet fully perceived, but BNP Paribas has a sizable and diversified setup in Germany covering all client segments. And a strong German franchise is an important element in the group's European strategy, of course, for a number of reasons, the importance of Germany as an economic partner for key BNP Paribas domestic geographies. There is also the export orientation and the internal exposure of a large part of German companies, and also, the relative strength of German Mittelstand in the current scenario, which might see them lead the pack on consolidation moves in Europe and internationally. So we've added the charming slide of charming Germany, where you can see the 12 operational entities in the country, growing some 3,500 people. And so you can see the different business locations where each of those are. But to crystallize it out and to give you an idea of our presence in Retail Banking, we have some strong specialized franchises like Cortal Consors, which is operating Hello bank!, which has -- I mean, for Germany, which is a leader in online investment advisory. Personal Finance, where we are the third player for point-of-sale, consumer finance and leasing solutions. We are a leader in farm equipment and have strong positions in what we like to do very well, and that is vendor financing.

In CIB also, we have a long-standing footprint in the large corporate and institutional segments, leveraging on 6 business centers. And they are, of course, an integral part of the group's approach, One Bank for Corporates.

And finally, in Investment Solutions, we have also some strong positions. For example, Securities Services, where we are #1 in depo bank; and real estate, where we're also #1 for commercial real estate transactions; and then our beloved insurer, Cardif, which is a key player in credit protection insurance.

So you can see with this that we have strong positions on which we intend to build our future developments. So we're not basically starting from scratch. We're doing wild things. We basically capitalize on this.

So looking at this strategy on Slide 34, where you see that it basically consists of a global growth initiative building on this existing experience while, of course, fostering even more cross-selling at group level in all segments. So we basically intend to boost deposit collection from individuals, leveraging on the recently launched Hello bank! Concurrently, we intend to increase lending, especially to mid and large corporates with a specific focus, as I said earlier, on Mittelstand-owned and sourced subsidiaries of multinationals. Our aim here is to be, in the long run, among the top 5 players with mid and large caps. And I really say we're here for the long run, so this is more a 2018 kind of objective than one for tomorrow.

So in conjunction with all this, we're, of course, also aiming to further reinforce the strong positions that I mentioned in specialized businesses. A good example of this logic is in Securities Services. We have just signed an agreement with Commerz to take on the depo bank activities.

So if we synthesize all this on Slide 35, you can see that our main target is to increase revenue generation from the current EUR 1.1 billion to EUR 1.5 billion in 2016, which implies a CAGR, compounded annual growth rate, of 8%. And in order to do this, just like with all the other plans, we have to put boots on the ground. In this case, we have to hire some 500 staff. This is, of course, banker, credit analyst, the whole drill, and work on enhancing the commercial effectiveness and visibility. For example, we shall create some BNP Paribas houses to work together the different German teams. And so over that plan horizon, we are targeting a strong growth of commercial commitments in line with the development of the business activities and of the client base.

So overall, we intend to develop a long-term franchise in Germany, which represents an important market, as I said, for European reach.

So with this last, 36, and in conclusion, before I hand it back to you, BNP Paribas has proven resilient in Europe while showing a good drive in fast-growing markets. It has continued to deliver on the operating efficiency front, also benefiting from the initial effects of Simple & Efficient. It has demonstrated its superior risk management by keeping cost of risk under control despite the economic backdrop in Europe. And if I have one thing I can have you take away, it has a rock-solid balance sheet, while it continues to make good progress towards the preparation of its plan 2014 and 2016.

And now, ladies and gentlemen, I turn it over to you for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] We have a question from Jean-Francois Neuez from Goldman Sachs.

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

I would have a few questions, if you wouldn't mind, very short. The first thing is with this new releases from the U.S. on the bucketing of banks according to their capital constraint locally, I just wondered whether you could tell us where you sit, where your operations in the U.S. would fit and to what sort of leverage or capital constraint they would be subject locally. The next thing is I couldn't help noticing that unlike in the previous slide for the first quarter, you noted that your capital formation this quarter was 20 basis points net of your conventional dividend payout ratio. That conventional word wasn't there before, so maybe I'm over-interpreting there. But is there something we should understand that could be unconventional going forward? And lastly, I just wanted to try to understand when I look at group-wide jaws effect, clean for all the one-offs, they're starting to improve slightly, but they're still negative. And I was just trying to understand at what sort of time horizon you expect to have this going back to the old sort of BNP habit of having an improvement in the cost-to-income ratio? And that would be it.

Lars Machenil

Jean-Francois, thank you for your very interesting questions. Particularly, your second one makes me feel a bit like Bernanke. I have to be very careful when I talk about conventional or tapering. But I'll take them one after the other. So first of all, on the U.S. bucketing, well, you know my stance or the stance of BNP Paribas. We overall leverage, and it's not the kind of metric we believe is the one which should be the most -- or the one which should be the guiding beacon. So we still believe that overall, in the way we manage things, risk weighing over assets and related capital and management is what it is. But indeed, there has been some crystallizing out of leverage ratios. For us, as a bank, it is the one, as articulated by Europe, which is important, which is articulated in the CRR in April and clarified over the last couple of months, which is what we have published. Our understanding from what is developing in the U.S., which hasn't chiseled in gold yet, is that you would have -- if I choose my lingo clear, when I talk about the leverage in the U.S., I basically talk about the one that we use to call Basel 0. So you basically take your balance sheet and your capital. So my understanding is that the proposal will be that all banks will be at 4%. Then the thing is that the translation of the Basel III leverage, which is the one that we call CRR, which, in the U.S., translate into something which is called supplementary leverage, would be 3% basically for those who are in advanced models. And then you have a slew of banks, which are [indiscernible], which would be at the modicum [ph] at 5% and for some of their FDIC-compliant entities even at 6%. Now what we understand is that our activities would probably be a link to the first 2. So a simple leverage of 4, which would be applicable to all banks. And as we would be in advanced mode, we would also have a supplementary one of 3%. So that is our current understanding of the current things which float around. I remind you, which is not yet cost in anything else and is not necessarily worth much more than the paper it's written on today. Onto your second question on conventional, we aim to be precise, and we thought that it was useful to remind everybody that when we calculate and publish things like retention and dividends and whatever, there is a convention. There is a convention which is just during the year, to take conventionally the payout of last year. So it is not note on this. It is just to remind you that the 29.7% doesn't mean anything else and that this is basically a conventional number. I'll also remind you that what you are probably probing after is a hint of a dividend policy, where we basically said that this will be something we announce when we announce our plan because we need to have finalized our plan in order to know at what rate we can bounce back earnings into the business and basically give you a view. As long as we haven't done that, we have this conventional view. And then thirdly, with respect to growth jaws, let me remind you that what we have set forth on the Simple & Efficient is basically saying in a lackluster environment, jaws are maybe not necessarily the right thing to do. So we want an absolute yard stick, and so we basically said we fight inflation. So, well, if nothing would have changed, our costs would basically beat inflation and our revenues would get a little kicker by inflation. So you would, if all being equal, you would find jaws back. But again, that all depends on other things which are happening. And as you know, we are also investing in some plans for growth. But all in all, as you know, our cost -- focus on cost remains core. That is why we basically continue to give you leave, but we ask you to bear with us that we have a couple of investments which, we believe, are very sensible in those very lovely businesses that we have. So I've quite taken a long time to answer your questions, but I thought they were very pertinent, so thank you.

Operator

We have a question from Lorraine Quoirez from HSBC Bank.

Lorraine Quoirez - HSBC, Research Division

Just a few questions. One is I was looking at Slide 74, where basically, you compare your Basel III leverage ratio with these of some other banks. And I can see that if we use the Tier 1 calculation, you're already at 3.8%. However, I was wondering whether you would be planning to issue additional Tier 1 securities once you get the finalized guidelines, so basically, not just replacing them but also adding some more. Then another question will be maybe a follow-up on previous questions. Where do we stand in terms of the intermediate holding company? And if you were to have all 3 main U.S. units under the same umbrella, what would be the leverage ratio as of now? And finally, you give quite a bit of color on strategy in Asset Management and in Germany. I was wondering whether this investment -- you will make some room in the cost program to invest in this 2 area or whether we should be thinking about planning a bit of cost before actually revenues comes in.

Lars Machenil

Thank you, Lorraine. Also 3 very interesting questions. Well, on your first one, should I read that you have become adept investor and interested in our Tier 1 programs? No, I think honestly, the thing is, as we've always said, we're waiting. Basically, we have a set of Tier 1, which is fine. They are basically grandfathered, so we're very happy campers with that. We're not in a rush. We will wait for clarification. All in all, we are strongly capitalized, so we're not in a rush at this stage. With respect to your interim holding company and the things around it, well, at this stage here also, we basically await some clarity from the fed. I mean, when comments were made and proposals made with respect to their view, things moved fast and we had a -- well, I'm not going to say glimmer of hope, but we had an indication that the U.S. would move fast and clarify fast. We thought initially June then the summer. But the timetable seems to be skipping a bit, so it is not very clear for us when that will clarify. And so first, it's very difficult to understand what you would have to put in and therefore, difficult to understand what kind of leverage and, indeed, where we would stand and how that would work. So I will have to -- well, I cannot say much more about it at this stage. With respect to your cost program and your very pertinent question, if there is room for some other things, here also, I think, well, initially, to be frank, our cost program had as objective, as I said, to basically free the cost at the end of 2012 in the scope where it was. Now in the meantime, we are what do you observe. You indeed observe that we do free up resources in order to reinvest. At the other time, you've also seen that our Simple & Efficient has started quite well. We announced EUR 500 million of yearly recurring, and after 6 months, we are at EUR 330 million. But it's just a tad too early to answer this crystallizing out, so I demand you to just give me a little bit of time to crystallize this for you by the year end, when we will be able to update all this stuff you.

Operator

We have a question from Delphine Lee from JPMorgan.

Delphine Lee - JP Morgan Chase & Co, Research Division

Just a few questions. First of all, just to come back on leverage, this estimate that you gave of 3.4% is based on -- it doesn't take into account the new proposal from Basel from June. So I'm just wondering where you think you would stand on the new proposals. Secondly, if you maybe could give some color on how the quarter is developing in Capital Markets, if you could, and also Corporate Banking. And then thirdly, on cost of risk, just if you could also give maybe some guidance maybe on BNL service and also in CIB, where we had this quarter one-off, but what kind of run rate or if we should expect further increases in the second half. And lastly, just on the Corporate Centre revenues, this quarter, it seems like the revenues were much better than, I think, your initial guidance of around EUR 800 million, EUR 900 million per year. So if you could maybe explain if there are any exceptional gains this quarter.

Lars Machenil

Thank you, Delphine. I mean, there is no end to you guys having good questions. So let's tackle them one by one. Yes, the first one, Delphine, bear with me. I mean, if I were to provide numbers on every single piece of paper that somebody writes, there will be no end of day. So I mean, for us, I mean, we have regulation, the CRR, which was voted. It was clarified in June. And so we have calculated on that basis. This is where we stand. We gave 3.4%, 3.8%. I mean, people can invent whatever it is. I mean, you can run the numbers. You'll see where we comfortably stand, and I'll leave my comments at that. With respect to your probing on CIB in the quarter, you know that we are a boring bank, and so we do not give any inter-quarter updates, so apologies for that. On your cost of risk questions, yes. Well, give me a second. I'll just pick up my crystal ball and give you an idea of how things go. No. And with respect to BNL, I think what we see in BNL is that we have, of course, have seen -- if we go back a year ago, we saw a pickup in cost of risk following the summer. I think the return from holidays in Italy was quite dire, and so that led basically to the pickup that you have seen. If you look at this quarter, it basically stabilized versus the next one. Honestly, I think we'll have to wait for the next couple of months and to see how things restart after the summer holidays in order to give you a kind of guidance. I think for the moment, as I said, it is stable. We'll need a little bit more of observation how it goes to give you further guidance on this one. On CIB, CIB, of course, Corporate Banking. Corporate Banking, if you compare it to last quarter, it looks bizarre, but of course, last quarter was ridden with write-backs. And so what we have on Corporate Banking, I mean, last quarter -- I mean, quarter-on-quarter, not a year ago, and so where we basically stand now is roughly in line with expected loss. So it is basically in the middle of the cycle, where we would expect it to be. With respect to Capital Markets, well, it's not that we have credit files in there, but from time to time, there can be a counterparty issue. And that basically leads in very exceptional cases like we have now, to an impact in cost of risk at Advisory and Capital Markets. Then with respect to the beloved topic of Corporate Centre, let me remind you all on this. So if we go back, before I was -- before I turned CFO, this Corporate Centre had a guidance of 0 income. But it also had a guidance that it said that it fluctuate during the year because, and particularly, in the second quarter, there were dividend payouts of the participations that we had. Then I came along, and I thought 0 is not a beautiful figure. And basically, the cost of liquidity kicked in because all the liquidity that we stash up, as you know by now, and that basically led me to a guidance for the year of EUR 800 million to EUR 900 million. But of course, this guidance included the fact that there would, and I think I said that, that there would be some kind of volatility within the year, and particularly, in the second quarter. Now all to be fair, the dividends payout has been a bit stronger than what I anticipated. So we could say that we are a tad better than the number that I gave, that we are a prudent and boring bank. So if I was you, there is still 6 months to run, and I would stick to the guidance of EUR 800 million to EUR 900 million for the full year.

Operator

We have a question from Jon Peace from Nomura.

Jon Peace - Nomura Securities Co. Ltd., Research Division

Two questions, please, the first which is following on from one of the previous questions about the cost of risk. As you look at the group as a whole, where you printed 68 basis points this quarter, with the stabilization in Retail and CIB at a more normalized level, is this a level you feel comfortable with going forward? And then the second question is on your capital ratios. I appreciate that you want to fix this as planned before you give us dividend guidance, but what sort of medium-term targets are you thinking about for core Tier 1 and/or leverage? And what stage do they become uncomfortably high that you might think about a buyback?

Lars Machenil

Okay. This is typically where I invoke the Fifth Amendment. And so our cost of risk, it's difficult to say. What can I say is that for the bank level, as I said earlier, we're somewhat around expected loss. So that means you are at the average of the cycle. So it's difficult to say. I mean, we are -- for the moment, what do we see? We see that France is holding very well. We see that Belgium is holding very well. I mean, Italy had a pickup, but it's stable versus the last quarter. And we see that our growth markets are basically doing well. The U.S., on the back of the economy recovery, is doing well. So honestly, we don't give any forward-looking guidance, so it's a bit difficult. But this is the reiteration of how I read it. With respect to your capital ratios, well, let me tell you I agree with you, and let me confirm you this. We are not in the business of accumulating capital. Let's be fair. I mean, if I take the past as a beacon for the future, you know how it works. We were well capitalized in the past. We flew at that capital ratio. We basically took stock of how much capital -- or earnings, sorry, we could blow back into the business. And then 1 minus that percentage was basically the dividend payout. In the past, we blow back 60% to 70% in the business and paid 30% to 40% in dividend. During the crisis years, it has been a tad below that, and we were at the conventional 29.7% last year. So we'll have to see where we end up. But where exactly will that be? Well, it will probably inch a bit higher. But where exactly it will end up, honestly, I mean, I could give you numbers, but look around. There's many of -- well, I'm not saying anybody -- anything about anybody, but you want to observe that. If you make statements, you run the risk that you will have to correct them afterwards. That is not what we do. So I prefer to be a bore to you guys and saying I need to finalize my plans that starts to be just a stabilization of regulation, so I should be able to have a central scenario in which I can develop a plan and in which I will be able to tell something sensitive. And I know it's still a couple of months, but hang in there. I mean, we are cheap still. We are below book value and tangible book value. So hang in for a couple of more months, and then we will be able to, on a tangible way, clarify this to you.

Operator

We have a question from Kinner Lakhani from Citigroup.

Kinner R. Lakhani - Citigroup Inc, Research Division

A few questions. Firstly, in terms of your growth programs, I'm wondering if you had any thoughts on the U.S. Or clearly, you've been making investments in terms of what kind of cost you see potentially, what kind of payback you're looking forward to. On Corporate Banking, where, obviously, we've gone through a very significant deleveraging exercise, we've seen some recovery in Q2. Would you call it an inflection point? And is BNP deploying its balance sheet more proactively? Thirdly, just on the asset quality review, if you have any further update on what areas you think are particularly being focused on and if you see the possibility of an advanced program by the French regulator. And finally, just a quick kind of data question on Arval. Just wondering how much revenues came from the rise in used vehicle prices?

Lars Machenil

Kinner, I mean, there is no end to the good questions that you guys crank out. So first of all, growth in the U.S., well, as you know, I mean, we're very fond of it, particularly myself. And so we basically, like a racehorse, waiting to get launched. And basically crawl back, as I used to say, the things that we had in the past and even do better because we have so wonderful activities with Banc of the West and other CIB activities and delight in our Investment Solutions. The sad thing is that, well, if we go back to early this year, when we started to work on these things, it looked like there was a calm weather with respect to regulation. I mean, I even have most of my weekends that I didn't have to read regulation. And then, oh, boy, did it change again. And that means that in the U.S., I mean, it would be silly if I give you a plan and then I say, oh, I have to change it because basically, the SBO is different than what we expected. So I love to be able to give just -- we've been working on it. We have very good insights. We believe we can do wonderful things. But I need to have clarity on the regulation because otherwise, I will say things, which by construction, will not hold up because that view will not necessarily materialize as it is in the papers today. So here also, if you can, when you wrote your clients who misses a rule, tell him to hurry up. And so as soon as we have clarity, we'll come back to you on that one. With respect to Corporate Banking, on Corporate Banking, I have to -- as Jean-Francois said earlier, I have to be careful that my words are not misinterpreted. When you use the word inflection point and I would apply it to client activities, I would say yes. If you look at what has been happening, what we have been doing, I mean, we've been cracking the whip on it, look at the rankings that we came out. We were #2 in media, #2 in oil and gas, #1 overall in syndicated. So we've been doing a good job there. However, at the same time, you basically asked me if we have an inflection point with respect to the balance sheet. Now this is a different thing because at the same time, we are originating and supporting our clients in it. But at the same time, we're doing this OTD that Europe wants us to do, and we've given some examples of it. So on one hand, I think, yes, our Corporate Banking, is back in business. I mean, we're meaning mandates, so we're very happy with that, but it doesn't necessarily require as much balance sheet as it did in the past. So that is how I would answer your question. With respect to the asset quality review and advances by the French regulator, my understanding is that they should not be advanced by any regulator because what my understanding is that these fine ladies and gentlemen of the regulators and the ECB are camping together in wonderful Frankfurt in order to hammer out the details on how to conduct the kind of procedure, the standard operating procedures of the AQR, after which, basically, all of the local regulators will crack the whip on these regulatory -- on these procedures. And then once that is done, they will all resign to shiny Frankfurt and basically do a peer review to ensure coherence with respect to what it is. So there is nothing advanced. I mean, it will just kick off, probably, I guess, after the summer, so in September. It will run for several months. And I guess by the summertime next year, we'll have a view on that. With respect to Arval, you are very well aware, as you pointed out, that although it's retail, it has fair value aspects in it. And so the big fleet of cars is basically reevaluated, and quarter-on-quarter, the revaluation of the fleet has contributed EUR 26 million to the top line.

Operator

We have a question from Nick Davey from UBS.

Nick Davey - UBS Investment Bank, Research Division

Three questions, please, if I can. The first one, please, on available-for-sale assets and the yields you're getting off those. I just looked at some of the disclosure you helpfully gave us on Page 38 of your financial release, looking at around EUR 2.7 billion, I think, of revenues from the AFS assets in the first half of this year. I just wanted to hear if you could give us a little bit more color, please, about the split of those revenues, how much is coming through the insurance side, how much in noninsurance side and whether there's any reinvestment risk, you think, to the AFS portfolio. The second question, if I can, would be on liquidity coverage ratio. You've been very forthcoming and giving us disclosure now around leverage and plenty of other aspects of the forthcoming regulation. I just wondered whether you would be happy to talk a little bit around LCR and if there is any holdup to you disclosing that on a quarterly basis. Thirdly and finally, on bail-inable debt, please, just to have a little bit of an update of your thinking there. I know in the past, you've talked about having a view of that being measured off risk-weighted balance sheets. Now it seems off gross balance sheets. So whether you think this is going to be something that will take a material part on how you plan for the group when you present things in early 2014.

Lars Machenil

Okay, Nick, could you just rephrase or recrystallize your billing question. I'm not sure I got it.

Nick Davey - UBS Investment Bank, Research Division

So the question is with -- in the past, I think when we talked about bail-in debt, you've talked about the quantity of bail-in debt being measured off a gross -- off a risk-weighted balance sheet. And now it seems like it's going to have to become measured off a gross balance sheet. I just wondered if that changed your thinking at all about how relevant an instrument it would prove for you.

Lars Machenil

Okay. Good. Again, there is no end to your guys' very good questions. So if I start with the available for sale. Let me remind you why, basically, we have available for sale. We have it for all kind of reasons. When we were younger, we basically had a lot of those in order to basically ensure our interest rate risk, because let's not forget that what the bank does, it basically try, not try, I think, manage very well credit risk and interest rate risk, amongst others, and so we basically constituted the book for that. Because in our AFS there is a lot of govies. And as you know, our deposits, which on paper are short, are basically relatively long in maturity. And so these basically form a natural hedge right for it. And for us, that is basically the thing. So that is what it is. Moreover, AFS have become popular now as a way to store HQLA, which is useful in the thing that will come on to your second question. And so from that point of view, what we store into AFS is not just kind of a book that we have to, let's say, chip the results, but basically overall. And so the overall aspects of yield and of replacement are much more to be seen in that kind of offsetting more than in the search for yield. That's on the AFS. On the LCR, I remind you all that at the end of the year 2012, we said that we were basically there. In the meantime, there is a whole slew of things that have to be clarified. And so in order to avoid that we make statements that we would have to revisit afterwards, I bear with you to wait until probably in October, November. The EBA will have dried up the ink on the LCR and we'll be able to give you the precise number. I mean, that's why typically, we don't give you any numbers as long as they're not accessed [ph] because it can lead, when they are not yet crystallized, to basically having to redo the numbers. I'm not singling out any other bank, but the leverage was basically and a definition clarified recently. And so one could have been led to have a different number before then after. So in LCR, it is what I said. We're basically there end of the year. There are some things which are in the wings. Whenever they are crystallized, we'll come back to you. With respect to the bail in. I think you refer to the text which have been proposed by the European Commission?

Nick Davey - UBS Investment Bank, Research Division

Yes, indeed.

Lars Machenil

Which, indeed, is basically crystallizing out some things. So it's, first of all, crystallizing out that Europe is going for bail-in instead of for the bailout, as some other jurisdictions like the U.S. do. And they indeed clarify that, that would be a kind of a threshold of around 8%, where they would bail in first. In fact, can be brutal to the equity investors that are on the phone, which are probably most. But so, if there is trouble, you basically start wiping out those, then you wipe out hybrids and so on and so forth. And so they basically say, "Okay, look at your size of your real liabilities," and there is a percentage of that. Now as I said for us, what it basically does is the bail-in procedure respects the hierarchy of the liabilities. So it basically said, "If this was a real bankruptcy, then, of course, you would have taken out equity, hybrids and so on and so forth." So you wipe up from the bottom to the top. And so that is basically what the bail-in respects, which I think is very wise and we welcome that. And so, I mean, if you would take a prudential balance sheet and you would take, I don't know what, 8% and you would say that supposed that BNP Paribas is faced with EUR 100 billion impact, which I mean EUR 100 billion impact, you see what that would mean. And then if you would take the prudential capital, so I wipe out goodwill then stuff like that, and I add renewed that, you will get to something like EUR 86 billion. So there is -- the delta between this, which is maybe EUR 15 billion that you would take out of, let's say, the other debt instruments. Out of which, of course, I agree, you have to take out some elements of debt guaranteed under the 100,000 [ph] and some of the SMEs. But still, if you go down our balance sheet, you will see that there is a sizable set of pari-passu debt and so if you would apply the couple of billions that you would require to bail-in, that would be somewhere below 5% of that pari-passu debt. And so I think that all of this is basically priced because, I mean, your equity is what it is. Your junior debt, it is already priced into that kind of stuff. And as I've said for a bank, which had a rock-solid balance sheet, that should be manageable. But, of course, this, again, will polarize the banks. I mean if you have a rock-solid balance sheet, that will not necessarily worry you too much and impact you. If on the other side, it's not as necessarily sturdy, that, of course, might be a different thing.

Operator

We have a question from Bill Geoff [ph] from Societe Generale.

Geoff Dawes - Societe Generale Cross Asset Research

This is Geoff Dawes from Soc Gen. Three questions, all fairly brief, if I may. The first one is on the rock-solid balance sheet, which you mentioned several times. If you could give an indication of whether this is showing up in better issuance spreads as well? Whether you're seeing a tangible funding cost benefit from this? And when we can expect to see that in the profit and loss account? Second question would be on the corporate banking cost base. Obviously, we've seen a big restructuring, lower in terms of lending volumes and also in terms of revenues, but there's really been no impact on the cost line, which, this quarter, was as high as ever, really. Is that just investments? Or is the underlying cost base actually coming down in line with revenues? It's just clouded by those investments. And then the third question is on the FIG performance, the FIG revenue performance and perhaps if you could just give us a little bit more color on the rate weakness that you saw at the end of the quarter? First of all, whether it's positioning or flow business? And second of all, whether it's just a transitory tick down that's improved in the third quarter or something more permanent, as much guidance as you can give.

Lars Machenil

All right. Thank you very much. So with respect -- thank you, for identifying that, I hammered a little bit on it. I have to pick every quarter another word, it cannot every time be french fries. So I thought rock solid would do this time. Well, with respect to pricing, well, I think of course, there is a diversification if you look at comparable banks. I mean, not picking, singling out the one which is your employer, but there are indeed different pricing, which are floating around. And so if moreover, this rock solidness can trickle down into the cost of equity, then that would be even better. Now with respect to your Corporate Banking cost base, so yes, indeed, I mean, we -- remember that last year we said that we, indeed, singled out adaptation costs in order to lower the structural cost of corporate banking in line with the deleveraging. But at the same time, as we said, Corporate Banking is a very important part of what we do. Look at our -- well, look at our results. Look at what I showed you on client activity. Look at what part it plays, relevant part it plays in our German plan, relevant part it plays in our Asia Pacific plan. So that means that what we have saved, we're basically investing it. So we're investing it in cash management. We're investing it in the things that we do. Let's not forget in Asia, we're putting systems underground and so on and so forth. So yes, we are using the fact of having reduced cost to give us the liberty to invest. So that's on Corporate Banking. With respect to FIG, as I said. So FIG, we have good client activities. It's basically rates which got impacted by the jitters of a certain person, which I will not name, but who is at the head of a big federal reserve thing. And so what had happened is that it triggered, and particularly in Europe, a quite an important sell-off of govies, which basically led to disruption. And if you're part of that and you're a market maker, then these jitters, and in particularly, these lead to higher prices, which basically impacted the performance in the last couple of weeks. Now I'm not going to give any guidance, but I mean, you have seen what the spreads had done since end of June. And so basically, the spreads have come down a bit. And so one could assume that part of what you have seen in the last couple of days is indeed a tip down. But I mean, don't hold me to it. We'll come back on the end of September, as you know, as to see where we stand. So, Geoff, I'm going to leave it to this.

Operator

We have a question from Pierre Chedeville from CM-CIC.

Pierre Chedeville - CM-CIC Securities, Research Division

I have 2 quick question. My first question is -- it concerns the Asset Management plan that you gave today. I'm not quite comfortable with the kind of rationalization I tried to do. When you say that you want to increase your net inflow by EUR 40 billion in 2016 and increase in the same time by 10% your revenues in Asset Management, when I made a quick calculation based on the fact that on the revenues of 2012, let's say, 60% relates to Asset Management. It means for me that out of the EUR 40 billion of net inflows, the revenue is roughly 4 basis point, which in my view seems very low. So maybe I'm wrong in my view, but I like you to give me some color on that. My second question relates to the Turkish subsidiary. I'm quite impressed, but also a little bit worried by the increase in the net banking income of your Turkish subsidiary, which is more or less 30%, because it reminds me the growth of net banking income of Greek banks in 2005, 2006. Of course, I guess, that the situation is quite different. But I like to understand how do you make such an astonishing growth? What kind of loans and what kind of growth of your credit there? Is there an increase in margining or fees? What is exactly the effect of growth and mix of prices. I don't know. But I think that it's not sustainable in my view to have such a big -- such an increase in your net banking income. At a certain point, it may be dangerous in my view. And my last question is as it relates to your maison BNP that you talked regarding Germany. Will it be something that you're going to generalize? It means that to group these are specific for Germany? Or is it something that you could do or that already exist in France, for instance, Italy, I don't know. And the economy of buildings some -- such BNPP Houses, I don't know. Is it included in the Simple & Efficient plan?

Lars Machenil

All right. There is no end to your good questions. You're -- and I thank you for allowing me to clarify the Asset Management plan because, indeed, it needs some clarification. And so as you know today, what do we have in our Asset Management? We, of course, have an existing franchise, where we have a lot of products. With that, we basically tried to construct in a very efficient way and that redistribute basically within our own core partner networks. This is 1 thing. Now the big gist of our growth plan is, of course, on the institutional side. Where, it is also much more attracting the clients with all the things that I talked about, having a developing several axis of products, having the recognition for it and basically gaining mandates with it. Now the dynamics of these things going forward are quite different. And then so if I start with what is basically, let's say, the institutional, which is a big part of the inflow, there is indeed an inflow, and it should lead to and it is high -- well, we aim to have it in high value-added products, it should lead or it should be coming with decent margins. Now a second part of that is basically saying, we going to grow that into new partnerships in emerging markets. Now that going to take a little bit more time. That's going to take a little bit more time. And so in 2016, that might not be yet fully into swing, and so that might take a bit more time. Then there is a third thing that you shouldn't forget, which is the distribution. Now the distribution is basically something on which it's not impossible that there will be some pressure, actually, on the margins. And so we will basically have to even further improve our cost configuration with respect to it in order to sustain and grow the bottom line. So we have given only the top line, but it is true that basically the dynamics are a tad more sophisticated and along the lines that I just said. So I thank you for allowing me to clarify it because you could, indeed, be misled into the wrong conclusion. With respect to Turkey. Turkey, as a reminder, I mean, we -- well, you know that we have been merging over the last couple of years. That is now behind us. And basically, the TEB organization is fully focused on growth. Well, your comparison between Greek and Turkey, I think, it is still a little bit sensitive in that area, so I'm not going to dwell on that. But let's not forget that the economy is in relatively good shape. The economy, for having been there, I've seen Turkey, well, many of you probably. But I've seen Turkey close up in 2002. And I've seen the lessons that they drawn from it, and I've seen how they've gone through the last couple of -- now through the last couple of years, so there is a sensible economic growth. And of course, I mean, we basically grow within our, what I say, within our control environment. And moreover, let's not forget and that is why it looks indeed at face value high, I mean, the degree of bankarization that Turkey has is basically catching up strongly. So that is adding basically to that. And so that's it. And you'll see that for the rest, we do, of course, provision conservatively and you'll see that the cost of risk is basically not running away. But I agree with you, I agree with you. It is something that we monitor very closely within that environment. But at this stage, at this stage, we consider it as the -- with all the lever that I said as a controlled growth. With respect to your last question on the Houses in Germany. This is something in our other entities that we have. It's called the Centre d'Affaires in France. And so we basically, as a reminder, we have 28 of them in France. So that's something which I could and which actually works well. We believe it's one of the things, why we are able to control, for example, our cost of risk well because there is, on 1 hand, a concentration, but still a little bit of detachment from the day-to-day files. And we basically think that doing the same in Germany is very useful. Because, I mean, often when I talk to people, not everybody is aware of our presence, and that's maybe a little bit of our mistake because we are indeed spread in several regions because of original, historic kind of things. And so it's important to regroup a bit around those concept of Centre d'Affaires and having a little bit more visibility about the overall BNP brand. So Pierre, I'll leave it to this on your questions.

Operator

We have a question from Sergio Gamez from Bank of America.

Sergio Gamez - BofA Merrill Lynch, Research Division

I've got 2 quick questions, if I may. The first one is you guided and announced EUR 30 billion liquidity release from the CBC [ph]. How much will the bank receive in terms of Livret A and in, maybe [ph], France from the CBC [ph]. And also, how this will impact revenues if we do assume that these liquidities will deploy to finance and meet local authorities, net of lower commissions. Secondly, the bank's drop-down liquidity buffer has continued to increase to 1 45 [ph] percent in the quarter, which obviously comes at a financial cost. Is the current guidance of underlying revenues for the corporation, that is still valid for this year?

Lars Machenil

Sergio, thank you for your question. I mean, with respect to the Livret A, when the -- I mean, as you know, for us the Livret A is not our main product. So when the Livret A was -- the ceiling was basically raised. We said at that time that for us, it's not a major product and so that it would not necessarily impact. So now when the CBC [ph] changes the degree of centralization, while it's, of course, basically the same thing. So that should not be a major impact. But, of course, it will help somewhat. It will provide a little bit more of liquidity to even more injecting into the economy. So with respect to the liquidity buffer, indeed, as I said, I gave guidance for the full year, including anticipation of some dividends under us of around EUR 800 million to EUR 900 million. As I said earlier, the dividend honestly came in, it dropped in a little bit better than I anticipated. But at the same time, indeed, the deposits that keep -- that people keep on bringing to us are also a little bit higher. So that is why I would conservatively, at this stage, stick to the full year of EUR 800 million to EUR 900 million.

Operator

We have a question from Flora Benhakoun from Deutsche Bank.

Flora A. Benhakoun - Deutsche Bank AG, Research Division

I have 2 questions please. The first question is on the cost savings. So I noticed that you have achieved in the first half of the year more than half of what you targeted for the full year in 2013. So that means you're running ahead of plans. I noticed that you said on the call that you had some quick wins, but I was wondering to what extent you front-loaded some of the cost savings for the full year. And whether we should expect, therefore, maybe a slower performance in the second half of this year? And still on the cost savings, I also noticed that the cost-to-achieve ratio, so basically if I look at the transformation cost that you booked compared to the cost savings that you did, the ratio is much better than what you're guiding for the full plan. So should we expect some outperformance there? Then I have, also, a questions please on the impact of rising rates. I mean, obviously, there's the possibility that the fed is going to reduce its asset purchases. So I was wondering whether you could maybe give us some guidance on what impact rising rates, especially in the U.S. would have on your P&L. But, also, if possible, on your tangible book value and solvency.

Lars Machenil

Flora, thank you very much. Delighted, of course, with pleasure that we provide the insights that you want and it's also with pleasure that I observe that you read them very well. And so indeed, we are running a bit ahead and the quick wins. However, we announced the EUR 330 million as being recurring savings. So the quick win part means that they came quickly. It not means that they are just there for 1 quarter. So I think your observation is fair. We're running ahead in synergies. And we're also running at ratios of investments to returns, which are somewhat better. But I mean, with 6 months down the road, allow me to give you an update later in the year when we have started the second phase of the year on these things. But indeed, on the 2 counts that you mentioned, we are indeed running better at this stage. So that's on that. On rates, well, let me, again, take out my crystal ball. I mean, honestly, as I said, well, let's not forget that we try to hedge our risks on interest rates to some extent. But if, indeed, in the U.S. short-term rates would go up, probably long terms would go up, I guess -- this is, I mean, don't quote me on this, right? But I suppose that Draghi will keep the low -- the short terms, low, but that the low -- long ends will basically follow the U.S., so we could get a steepening of the curve, which, well, for overall banking activities is, I would say, a good thing. So I leave it to that because, otherwise, my predictions in my crystal ball will start to be clouded. So, Flora, I leave it to this.

Operator

We have a question from Jean-Pierre Lambert from KBW.

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

And I have a few questions. First of all, it's number related. I noticed you don't seem to give the Basel 2 core Tier 1 ratio. I was wondering what the ratio is currently? And then also regarding the same theme, if you could give the actual -- the quantitative number of Basel III capital and Basel III risk-weighted assets? And the same for the leverage ratio, if you could give an idea of the adjusted assets you have in mind? Then second question is related to Turkey, the noise we hear from emerging markets is that the Turkish banks are going to struggle in the next 2 quarters due to the pressure on net interest margins. And I was wondering if you are exposed to the same pressure? And the final question is Germany. You basically indicate organic growth. And is that why you preferred also to consider acquisitions at some point? Or is that totally excluded?

Lars Machenil

Thank you for your questions. Yes, I mean -- no, no, we didn't take out the regulatory Basel 2.5. It is in the annexes on Page 71. And so Basel 2.5 capital equity ratio stands at 12.2%, that we find it so overly capitalized that we thought we bring it to 71, no. The main reason is, I mean, we want to avoid that there is such a plethora of messes -- or as Basel III is now close to what it's going to be in 6 months, we basically give you this one. With respect to the details of all the other ones, I mean, again, I am -- if I give you a bridge today and then tomorrow the EBA comes with all the ironing out of the rules and then I have to change it again and explain that the things are somewhat different. So I'll bear -- I'll ask you to bear with me. I mean the EBA promised us that they will clarify these things soon. Once that is crystallized, we will give you the full bridge, no worries about that. With respect to Turkey and, well, I'm not fully sure that I captured the concern. If there is your concerned with respect to the fact that we have a subsidiary, which we basically account for in Turkish lira, so that we would have eventually on our investment, that we would have eventual an exposure to that. My main answer is that we typically do not -- those investments we have typically net investment hedges so that overall, eventual fluctuations in that net asset value would basically be similar to what we have in the risk-weighted assets and the capital, so that basically the ratios wouldn't change. On Germany, our plan is organic. I mean, of course, I mean, we can't do both things. You've seen what we've done with Commerzbank and so on and so forth. I mean, Commerzbank, well, before this goes totally haywire. I mean, the combined Commerzbank that we are taking on, so there might be things like that. But today, there is no -- we are not shopping for large acquisitions. You know my drill. As long as you guys insist that I am below book, it is very unlikely that things are going to happen.

Operator

We have a question from Cyril Meilland from Kepler Cheuvreux.

Cyril Meilland - Kepler Cheuvreux, Research Division

I actually have a couple of question. I would like first and again to regret not to have the details of the other Domestic Markets in the press release. It's now your fifth division by profit before tax and you increasingly comment about it. So I just find it odd, that's it. The first question is regarding the Asset Management business because you mentioned your development plan. But you still have a pretty large outflows this quarter again. And I'm a bit surprised that you mentioned, again, that it's money market funds because actually when I compare the splits of assets under management between the end of 2012 and the end of June, it's about the same, essentially about 20%. I would have expected that if a large amount of your -- a large share of the outflows in the 2 quarters we've had, would be entirely driven by money market funds. The money market fund parts would have reduced quite significantly. So if you could just reconfirm this. The second question is regarding the AFS reserve. You've had a very small developments between the end of 2012 and the end of June of only minus EUR 100 million. I was wondering whether you could split that into 2 quarters, which probably have had quite a different development. And if you could, maybe, just clarify whether this is coming from maybe some higher capital gains or less capital gains on shares. Unless it's some bad developments in fixed income. I don't think it is, but just to be sure, that is the case. And the last thing is regarding Livret A. Sorry about this question again, but if you could clarify the amount of additional net interest income that is likely to come from the new high rate cuts that we expect for the beginning of August. It's no longer Livret A, just maybe it's more all the -- those regulated savings deposits which are benchmarked on the Livret A rate.

Lars Machenil

Yes. I am, first of all, I share your regret on other Domestic Markets. So as I say every time, I will give it further reflection. It's at least, as I also say, it is in the spreadsheets. You can find it back. So in the spreadsheet, it is. So I mean, if you take the spreadsheets, you have all the elements. We just haven't put the spotlight on it in the presentation. Now with respect to Asset Management, indeed, so the outflows are money market. I mean, given the low yields, this kind of asset class is less interesting. And of course, indeed, you're skewing, that you observed. Has to do that, of course, when we take -- if you would do the flow, the waterfall between -- if you would do the waterfall between the 2 periods, there is, of course, not only the decollect, which is playing. There is also the performance which is playing and which is basically playing on the other asset classes. So but I do confirm that the big bulk of the outflows are on market performance. With respect to the -- our money market, sorry, I was already looking at the next one. With respect to Livret A. Listen, you say you know us. I mean, we do not give any guidance. I mean, the Livret A, it will, of course, it might give a little bit of lead way because it offers some of the repricing. But you also know that for us, it is not the core product. So I would say that the impact would be rather limited. With respect to your question. I'm not sure, say, I have here the numbers in front of me, that I understand correctly. So you basically asked for the reserves, the revaluation of the AFS, right? So of the AFS on the fixed income and equities portfolios, right? That's what you want?

Cyril Meilland - Kepler Cheuvreux, Research Division

Yes, because over the first half, you basically have a very minor change in the AFS reserve of only minus EUR 100 million. I was wondering whether there was a big difference between Q1 and Q2? And whether this minus EUR 100 million was just the net of a positive development in shares and a negative one in debt instruments or whatever [indiscernible].

Lars Machenil

Indeed, if I can share some color. It's indeed, the trend is different between the first and the quarter -- in this first and the second. So it's up in the first, was down in the second to get to the net result that you have. And indeed, as anticipated, it is basically up on the equity part and somewhat down on the fixed income part.

Cyril Meilland - Kepler Cheuvreux, Research Division

This I would have assumed, but you cannot give me color on the differences?

Lars Machenil

No -- in what sense? Because it is -- if you look at what you would expect, if you look at what had happened in the equity markets, I mean, that is basically what you find back into the AFS. And if you look at what has happened to the overall yields, that is basically what you have. So there is nothing particular with respect to what drives the evolution.

Cyril Meilland - Kepler Cheuvreux, Research Division

If I can rephrase my question then. I was just trying to find out what the sensitivities of your fixed income portfolios in AFS.

Lars Machenil

Fixed income? The sensitivity overall?

Cyril Meilland - Kepler Cheuvreux, Research Division

[indiscernible] change.

Lars Machenil

Yes, there, if I can give you the guidance, the best thing if you want to give you guidance on, because here, of course, you're looking at the OCI. We have somewhere deeper in the document, I do not exactly know where, but we have a bridge between the OCI and the AFS because, as you know, there is a volatility. When you say the fixed income, you are aware that we, of course, have a part which is related to insurance, which is related to basically our participations. And so basically, the best thing is to look at Note 5B, where you can deduct the overall volatility with respect to the overall book and then how we translate. Because if you only look at the translation into the OCI, you will have the effects of DTA, PPA, so it is complicated to do so. I suggest that you take a look at what you have in 5B. And if that would provoke further questions, I mean, give us a call and we'll give you further guidance on it.

Operator

We have a question from Anke Reingen from RBC.

Anke Reingen - RBC Capital Markets, LLC, Research Division

I have 3 questions on the organic investments of 3 areas. And the first is on Asset Management. Just to confirm the 10% growth in revenues, was that in absolute terms correspond to about EUR 100 million on the interest margin estimate there? And then secondly on your Germany plans, I just want to -- obviously, there seems to be a lot of effort and what -- how capital in terms is the EUR 400 million revenue growth? So what businesses are mainly driving it? And what does it mean for value creation? So should we -- would it be, despite we'll probably get the details of what they are on Investor Day, but when will the investment return, like the cost of equities? There's only by 2016 or is this earlier? And will it be a matched funding with deposits and loans? And then lastly just on your CIB in organic investments. In the past, you've always said the cost income ratio will be more like 60%. So could we say that now what is above the 60% cost income ratio is basically your -- implies your investments and for how long should we expect the cost income ratio to remain above the 60%?

Lars Machenil

Anke, I was riffling my documents and I didn't capture fully your second question. Could you just repeat it?

Anke Reingen - RBC Capital Markets, LLC, Research Division

The second was on Germany. There was a bunch of questions. So basically, I just wondered how capital in terms of the gold list [ph]? By when it will be a value creative? And will it be match funded?

Lars Machenil

Okay, so let's start with Asset Management. So indeed, Asset Management, let's if we -- if I recreate all the things that have been said about it. So we are in a situation today where, indeed, we have to -- we are in a net decollection on money markets. So we have to turn that around, as I said. And the difference, if you go to the value creation, will be on different levers on different parts. So the main thing of what we're basically saying here is that we really focused on the institutional market and, therefore, related to the emerging markets. Now that will basically take investments, right? It takes investments to make sure that we have the appropriate skills and the appropriate products and have the appropriate recognition, have the appropriate gaining of mandates. So that is basically what we want to do, and we believe it's very strategic, very core and with a very good return for us. So that is basically what is driving the list in the top line. And as I said, with respect to the more distribution kind of activities, it is more likely that BNP sort of margin will be under pressure and so basically the value creation in that part will become from further industrialization. While we basically say, our objective is to become 1 of the 3 European platforms because we believe that we will need that kind of size in order to ensure and warrant the profitability. So with respect to timing, I think, well, our distribution platform and things should be relatively swift. With respect to institutional, I would say, this is more going to be midterms by 2016 you should see this. The third lever, which is the emerging markets, is something which will take a little bit more time. So that is kind of the phasing I would attach to Asset Management. If we then go into Germany, so Germany also here. We are in for the long run. So the thinking is, as I said, well, you know us, Anke, you know that the businesses that we have in there and we've articulated what kind of client mandates we want to win. So that basically means that, indeed, we will deploy capital. But at the same time, we have Hello bank! Yes, maybe you are our client already. And so basically, we should be able to, with all the activities that we have, we should be able to fund all of these activities and so yes, that is kind of the levers that we will grow. Also here, we're very much aware of the, as I said, of the importance of everything that is happening in the economic texture of Germany. We also know that there are several things moving, and so we are very much aware that our ambitious positioning that we want to reach will take time. And so probably, this is more going to be a 2018 kind of objective than an immediate one. But we have no problem articulating this. We are not in a quarter-to-quarter kind of friendly. We believe we're there. We have very beautiful kind of activities. We think that all this makes a lot of sense for the European bank that we are. And so we're here for the long run and we will invest and deploy the banking resources that I needed, both by boots on the ground, as by capital and liquidity. With respect to CIB, I think on our cost income, as I said, we were not the kind of a boom-bust bank in the sense that we paid immensely in the booming periods, and then basically shed the workforce in the last part, because we didn't really have boom busts. And so we believe that our cost incomes are still quite good. But as you have noticed, I mean, yes, this quarter or the previous quarter, as I said, there was some turmoil and so that means that you -- that weighs a bit on your cost income. But we've always said that we wanted to be in the waters where we want to be. And again, we'll articulate that more crisply when we come back to you with the overall plan.

Operator

[Operator Instructions] We have a question from Maxence Le Gouvello from Crédit Suisse.

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

I will have 2 question. The first one, can you give us an update on your intragov funding with BNL after this good performance in term of collecting deposit? And the second question is back on the question of Cyril regarding the outflows. Making the calculation with the pie charts, your EUR 15 billion of outflows, we can look at 9 dominated product. Can you give us more granularity what the rest and [indiscernible]. The [indiscernible] product, I believe, it's mostly coming from the network. Have you been able to capture part of it on the deposit base?

Lars Machenil

Thank you, Maxence, I mean, indeed, as a reminder, last year, we changed our concept of the funding to BNL. And we basically made the BNL attract the required additional funding itself. And we've been bringing down the remaining part to low levels, the remaining part provided by group. And this has, indeed, gone down with another EUR 1 billion in this quarter. And so, well, that's where it stands on the intra funding, so it's EUR 6 billion, the amount is EUR 6 billion so it's very tangible. With respect to the outflows, well, indeed, if you look at the monetary outflows, let's not forget that if you look at -- we have a slide somewhere. But not all of the monetaries are or within our network. Or not all the monetaries are and within the retail in particularly. Implicitly actually, the main part of the money market outflows, they are mainly on the institutional client side, which is the insurances and all the other ones. So people who, indeed, observe that in the low rate environment, there might be other asset classes in which they go. So the main bulk of the shift -- of course, part of the shift is occurring within the retail and is somewhat contributing, of course, the high list that I mentioned earlier of the deposits. But the big chunk of the monetary outflows is coming from the institutional part.

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

I'm unable to capture those outflows on the monetary. It would have flowed then something else?

Lars Machenil

Yes, right, of course, there are some, depending on the kind of asset class, in which they go. So there are, of course, a calibration that we need to do, and if there is other asset classes, that they aim for or that they could basically take on. But that is one of the reasons that you -- to your point is absolutely true. Why in the plan, why in the plan, we hammer, that we have to further invest in particularly asset classes for example, European equity, in order to have an even better position with respect to those clients.

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

But if I have read regarding your Asset Management development, the big difficulties for the in-house asset managers is to be able to amortize the cost base of all the large range of products. So if you continue to expand, it seems that you believe that we are going to go for larger cycle where people are going to be ready to pay for high-margin product?

Lars Machenil

No, no. Again, what we do is we, on 1 hand, if I put it bluntly, I say we on 1 hand, we will have the distributor role. And on the other hand, we will serve institutional clients. And so, as I said, on the distribution part, I fully agree that it is a cost gain, right? That's what it do. So we aim, we put it out. We aim to be 1 of the 3 leading platforms in Europe, because you are absolutely right on that front, cost is a gain. On the other hand, on the other hand, on the institutional, it is also having the right people and the right professionals in order to do so and that is another part in which we say, clearly, that we want to invest, not necessarily in a whole constellation of products. But very selected, as I gave examples on European equities, yellows, where we really want to strengthen our skills by adding, attracting, retaining very skilled and experienced people in order to basically win the mandates or retain the mandates on that front. Would that be the last question?

Operator

We have a question from Federico Salerno from MainFirst.

Federico Salerno - MainFirst Bank AG, Research Division

A quick question on the leverage ratio please. You have EUR 1.3 trillions in assets in the 3.4% calculation, if I'm right. When will you provide more details on that number, especially on how much is coming from your derivatives business?

Lars Machenil

Well, yes, as I said, I mean, we anticipate that the EBA will shortly clarify and iron out some of the things then. So when that is done, it will be our pleasure. But I mean, as I said, I mean, look at our balance sheet. I mean, as a reminder, you know how that works. I mean, in the meantime, we haven't spoken about it. But I mean, new banks are publishing under IFRS absolute [indiscernible] so you can see basically what the intrinsic balance sheet is that you use in the leverage. Then you basically have the whole balance sheet, which if you want brutal, take a conversion factor of 100% so you add it entirely to it. And then, you basically have the so-called future potential exposure, where you take your nominal on all of your derivatives, wherever they are, and you basically apply the ratios which are in the text. So basically, if you do that, you will come to ratios that you basically recognize. But again, as I said, we don't -- are not a bank who'll give you a number and then say, "Oops! The rules have changed. Here is a new one." We feel comfortable with that number. The day that things are cast in gold, we'll come back and we'll give you the bridge.

Operator

We have the last question from Alex Koagne from Natixis.

Alex Koagne - Natixis S.A., Research Division

Just have one very quick question, follow-up question on Asset Management. I got your comment on the margin pressure on this business and the need for more industrialization. So I was just wondering whether you can provide the cost of income for this business as of 2012? And what it should be as of 2016?

Lars Machenil

Well, nice try. But I mean, in the guidances of the intermediate plans, what we give is the top line because that one, I mean, it is what it is. With respect to the more details on what it means on the cost and the rest, you have to bear with us until we give you the full disclosures. So we will come shortly on that.

Alex Koagne - Natixis S.A., Research Division

Okay. At least can we have the cost income ratio for 2012?

Lars Machenil

We will -- as I say, we give you, I mean, we give you the things that we publish. And so what we publish is what we call WAM, which is a combination of the things. So at this stage, you'll have to stick to this until we come with all the details. All right, Alex. I'll leave it to that. I take it this was the last question. So I thank you very much for spending this last day of July with us, and I thank you for your numerous presence, your interest into the bank. And I remind you that BNP Paribas has shown a resilience in Europe, good drive in fast-growing markets, ongoing improvements of the operating efficiency, cost of risk at a moderate level, and don't forget, rock-solid balance sheet. Ladies and gentlemen, [French]. Thank you very much. Have a very good day.

Operator

Ladies and gentlemen, this concludes the call of BNP Paribas second quarter 2013 results. Thank you for your participating. You may now disconnect.

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