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Executives

Lars Machenil - Chief Financial Officer

Analysts

Jean-Pierre Lambert - Keefe, Bruyette, & Woods, Inc., Research Division

Lorraine Quoirez - HSBC, Research Division

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

Delphine Lee - JP Morgan Chase & Co, Research Division

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

Alex Koagne - Natixis S.A., Research Division

Flora A. Benhakoun - Deutsche Bank AG, Research Division

Nick Davey - UBS Investment Bank, Research Division

Kinner R. Lakhani - Citigroup Inc, Research Division

Stefan-Michael Stalmann - Autonomous Research LLP

Kiri Vijayarajah - Barclays Capital, Research Division

Geoff Dawes - Societe Generale Cross Asset Research

Cyril Meilland - Kepler Cheuvreux, Research Division

Omar Fall - Jefferies LLC, Research Division

Anke Reingen - RBC Capital Markets, LLC, Research Division

Pierre Chedeville - GSN North America, Inc.

Sara Minelli - Morgan Stanley, Research Division

BNP Paribas SA (OTCQX:BNPQY) Q3 2013 Earnings Call October 31, 2013 9:00 AM ET

Operator

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

Lars Machenil

Thank you very much. Good afternoon, ladies and gentlemen. Welcome to our third quarter results presentation on this sunny autumn day in Paris or wherever you are. And before starting off, and in our usual way, I would like to take 10 to 15 minutes going through the key slides. And then, I will hand it over to you for your questions.

So if we start on Slide 3 of the presentation that I'm sure you all have in front of you, you'll see that BNP Paribas has closed the third quarter with a net profit of EUR 1.4 billion, despite a still challenging economic environment in Europe.

In particular, revenues proved resilient in the third quarter despite the impact of reduced client activity and interest rate markets. Overall, revenues of the operating divisions at constant scope and exchange rates were down 2.6% compared to the previous year on the back of this effect. The third quarter on the -- confirmed our ongoing cost control benefiting from the contribution of our Simple & Efficient plan that you all are aware of. And operating divisions costs were just a tad higher, that is to say 0.6% on Q3 of last year. Cost of risk was lower in Q3, standing at 55 basis points. In absolute terms, it marked a 5.5% reduction year-on-year. And please excuse me for repeating myself, but I cannot help stressing once more that BNP Paribas really has a rock-solid balance sheet.

In fact, if we look at solvency, our fully loaded Basel III ratio increased further to a very high 10.8%. Similarly, when we look at liquidity, our immediately available reserves stands at a massive EUR 239 billion, and increased further in the quarter. Lastly, we continued to see a sustained pace of growth in our retail deposits across the different retail networks of the bank. They were up 3.8% compared to last year.

So all in all, we confirmed the significant profit generation capacity which, as you can see by flicking to Slide 5, was only marginally affected by one-off items.

In fact, in Q3, besides, as you know, the OCA DVA impact, which is kind of an accounting aberration, which was -- and so these were negative by EUR 138 million, and we also booked the transformation costs related to our Simple & Efficient plans.

Now, as I mentioned a little bit earlier, you can see by turning to Slide 7 that revenues of the operating divisions were resilient. Thanks to our diversified businesses and geographic mix. In general, Retail Banking revenues held up well and Domestic Markets showed a positive sign.

Investments Solutions performed well while, as I've said, CIB was hampered by low customer activity and the rates' activities. So if you know swipes -- well, depending on what device you are but let's assume for those who are on a swiping device, to the following Slide #8.

You'll see that we have continued to keep costs under control in our operating divisions. As I said, this was helped by the ongoing implementation of our Simple & Efficient program.

In fact, you will notice the reduction in Retail Banking, which was driven by that 3 Domestic Markets and by Personal Finance. Investment Solutions cost increased at a lesser pace than revenues, and this increase was essentially due to the high levels of activities in insurance and selective investments linked to the asset management plan that I talked about last quarter.

CIB costs were some 2% higher at constant scope due mostly to the ongoing business investments in selected geographic areas such as Asia, North America, Germany and also, the rise in systemic taxes.

Still on the costs. If you peruse Slide 9, you will see that we have provided the usual update on our Simple & Efficient plan. We have launched a few additional projects in the quarter, meaning that some 88% of the projects we have identified are now up and running. Recurring cost savings in the 9 months reached EUR 549 million, meaning that we have already exceeded our indicative target of EUR 500 million for the year 2013.

In parallel, as I've mentioned before, we have continued to incur transformation costs for a total of EUR 374 million in the 9 months.

So I guess it's clear to all that this program, Simple & Efficient, is progressing well. If we now shift to cost of risk, kindly, ladies and gentlemen, I would like to ask you to flick to slide -- to the 3 slides actually on this subject, which starts at Slide 10 of the deck in front of you.

As I said, cost of risk decreased to 55 basis points quarter. In absolute terms, it was lower than both Q3 2012 and Q2 of this year. This was essentially due to 3 reasons: first, a low-cost of risk in Corporate Banking with no significant file impacting the quarter; second, a low-cost of risk in France at 25 basis points and a particularly low one in Belgium at just 14 basis points. In Italy, the announced cost of risk to higher than a year earlier stabilized of the level of 144 basis points more or less in line with the first 2 quarters of the year; and the third element of this cost of risk at 55 basis points is Europe-Med, cost of risk was stable this quarter while in the U.S., not quite, had a 0 cost of risk, which is basically the consequence of an already low specific level of provisions, which were offset by write backs; and finally, Personal Finance showed a slightly lower cost of risk driven by an improvement in both France and Italy.

So that is with respect to the cost of risk and it basically, I think, synthesizes it well. So if you could now cast your eyes on Slide 13. I'd like to go back to our rock-solid balance sheet, which is clearly depicted by 3 indicators of our financial structure.

First, starting with solvency. Our fully loaded Basel III common equity Tier 1 ratio increased by a further 40 basis points to stand at a very high 10.8%. Main drivers of this delta were the third quarter results using a conventional dividend assumption equal to that of 2012 and lower RWA, mainly with respect to market risks.

Moving to the leverage ratio. Well, in the leverage ratio, you know how we feel about this indicator, that we consider useful solely as the backup measure. In any case, when we look at it, as it is the Basel III leverage ratio applicable to European banks as of 2018, our fully loaded leverage ratio on Tier 1 stands at 3.8%, a comfortable level considering that the bar in 2018 is set at 3%.

Finally, liquidity. Our immediately available reserves continue to increase. This stood at a massive EUR 239 billion at the end of September. This belatedly means that they now cover 155% of our short-term wholesale funding, which, said in a different way and a bit mathematically, I agree, means that these reserves give room to maneuver in excess of 1 year.

So to sum it up, I cannot repeat it enough, BNP Paribas has a rock-solid balance sheet. Now, "dulcis in fundo," as the Romans would say, please turn to your full attention to Slide 14, which is, I would say a favorite of ours, which shows you the evolution of our net book value per share.

So in Q3 2013, we confirmed our ability to consistently increase the book value per share throughout the cycle. In fact, our net book value per share has reached EUR 62.8. While for those who are in a tangible mode and look at the tangible book value, it now exceeds EUR 52. So this basically sums up the state of the union. But as usual, I would like to swiftly take you through the quarterly results by business line and I will start, of course, with Domestic Markets and this is on Slide 16.

As you can see, Domestic Markets proved yet again resilient, generating a good overall performance in a still challenging context. The pace of deposit growth remained strong with an annual growth rate of 4.5%. Overall deposits increased by EUR 13 billion with a positive contribution from all metrics. Demand for loans, on the other hand, remains even. Hello bank! continue to win new customers in Germany, France and Belgium while we successfully launched it in Italy 3 days ago.

In France, we jointly launched Paylib, which is a new online payment solution, and in Belgium, we're getting ready for the launch of the Belgian mobile wallet, the so-called BMW. An innovative solution incorporating mobile payment solutions and customer relation management. So we're all quite excited about these innovative evolutions.

Revenues exceeded EUR 3.9 billion this quarter, with a pickup in financial fees coupled with a good contribution from Arval in the third quarter in conjunction with lower loan volumes. Cost control proves again very effective as we managed to reduce costs in our 3 main markets. At constant scope and netting out the cost of Hello bank!, operating costs were down 1.2%. This in turn meant that we improved the cost income ratio across all the networks of our domestic markets. And gross operating income improved to EUR 1.4 billion.

In conclusion, despite a higher cost of risk in Italy year-on-year, Domestic Markets confirmed high levels of profitability with EUR 0.9 billion of pretax income.

Still on retail, beyond the Domestic Markets, if you now advance to Slide 20, you have Europe-Med, which continued to show good commercial and marketing drive with significant volume growth both on deposit and loans. The top performer was once more TEB in Turkey, which showed strong growth on both fronts. There's a little thing why one has to be attentful to it, is that this quarter was marked by significant currency fluctuation and particularly that of the Turkish lira. So we refer here to variations at constant scope and exchange rate, and so revenues progressed under that metric by 2.4%, and this is actually despite the impact of new regulations in Turkey and Algeria. So this is why you have this little difference between volume growth and P&B growth this quarter.

Cost increased essentially due to continued investments in the commercial setup. And again, in particularly, in Turkey. This was partly offset, as I said before, by continued actions to improve operating efficiency especially in Ukraine. So overall, thanks to an essentially stable cost of risk and an improving contribution from Bank of Nanjing, in line -- in the end, which of course, as you know, is in the line of associated companies. Europe-Med closed the quarter with EUR 71 million of pretax income, just a tad below last year's.

For those who are on personal computers, please scroll to Slide 21, where we now reach the U.S. and where BancWest continued to show dynamic commercial activity both in terms of deposits and loans.

Loan growth was boosted by strong corporate lending, which benefited from the business investments in the area that I have been talking about in the last couple of quarters. Private Banking also continued to rev up, with assets under management that increased 35% on the previous year and stand at $6.5 billion. Revenues remain subdued due to the interest rate environment and lower capital gains on loan sales compared to last year. Costs crept up somewhat on the back of these continuing investments, as I said, in both Corporate and Private Banking setup. So BancWest confirmed a strong contribution to the group results with a pretax income that just topped EUR 200 million in the third quarter so we're very pleased with that.

So concluding the retail review of the group, please glance at Slide 22, where we have the remaining activity, Personal Finance, which continued to prepare its future growth to joint ventures and partnerships agreements. In France, the agreement with the -- for those who would know, that the supermarket chain, Cora, will add some EUR 200 million of outstandings of more than 400,000 clients. In Russia, the next step of the joint venture with Sberbank was completed with this transfer to the JV of the new car loan production that has -- that is being originated through our partnerships. So Q3 revenues, if you look at them, were lower but that is, of course, due to the continuing reduction of our mortgage stocks. And as you know, this is part of the adaptation plan. So on the other hand, consumer credit in France continued to be burdened by the impact of regulation but it showed -- consumer find [ph] that it is -- showed good trends in Germany and Belgium. And, of course, also part of that adaptation plan is the effective cost reduction that you see, which leads to an improvement of the cost income ratio to a competitive 44%. So all in all, pretax income improved by 5% to reach EUR 322 million in the third quarter.

So switching now to the world of Investment Solutions, and if I can kindly ask you to peruse Slide 24, where we see that revenues progressed by 5% this quarter with a good contribution from all 3 business lines at constant scope, of course, and so that's the 3 business lines making up what we call the business of Investment Solutions. So Wealth Management and Asset Management, so WAM, as we call it, marks a good overall performance while insurance progressed on the back of good savings activities. Securities Services saw higher revenues thanks to increased transaction volumes and assets under custody. Operating expenses increased at a lesser pace than revenues, as we like it. Insurance costs were up, reflecting increased levels of activity while in Wealth and Asset Management, it was mostly related to selected investments linked to the asset management plan.

Securities Services benefited from the implementation of operating efficiency measures. So on the back of this performance, operating efficiency improved as did gross operating income, which increased by over 11%. Pretax income for the quarter topped EUR 500 million, marking an 8% progress on the previous year. So I think I can qualify this as a good performance.

Now, last but not least, let's go to Slide 26 and look at our Corporate and Investment Banking or CIB. So on this Slide 26, you can see that Advisory and Capital Markets revenues were down 15.5% as a result of the -- what I would call, wait and see attitude of investors, pending market uncertainties such as, well, the Fed tapering. What's more, our value at risk was at a very low level this quarter, as you can see from the chart in -- on the right hand of that slide. If we now drill into fixed income, and I remind you, first of all that in Q3 of the last quarter, that quarter had been doped by druggies' [ph] OMT announcement. Having said that, that Q3 2013 client activity in rate markets was low. Credit activity, on the other hand, had a good quarter. And so in the third quarter, we consolidated our leading positions in bond issuance as shown by our improvement to the #2 spot for all bonds in euros, and we confirmed our #8 position for all international bond issues. If we turn to the other part, within Advisory and Capital Markets, namely the Equity and Advisory, they performed well thanks to an upswing in client flows in equity derivatives markets, especially in Europe and renewed client interest for structured products. And so, equity-linked performed quite well and we confirm the #3 ranking in Europe.

Turning to Slide 27. There is the other part of our CIB, which is Corporate Banking. The revenues there were still affected by lower outstanding loans on the back of the 2012 adaptation plan.

Nonetheless, we continue to grow our revenues in Asia consistent with our development plan. In syndicated loans, we confirm the top positioning in Europe with excellent rankings in all main sectors, and we continue to book some landmark originate-to-distribute, OTD, deals. Such as -- but you can find them at the back of the presentation, but Silica, Peabody Energy on the U.S. side of these things, and Schneider in France.

On the funding side, deposits marked a 10% increase to nearly EUR 59 billion, thanks to deposit gathering and continuing development of our cash management offering. In fact, in cash management, we have won some major mandates and we approved, among others, but we were reviewed and we're now ranked #4 with corporates on a global ranking. So all in all, pretax income was essentially stable in the third quarter just shy of EUR 300 million. So in a nutshell, we are progressing well with the implementation of our new business model related to these the activities. So this basically makes me turn to the last slide and this is, basically, what I wanted to say to you.

And so just to conclude, that you have seen that our Q3 results have shown good resilience, that our balance sheet remains rock-solid, and as you all know, the next step for us will be the presentation of our business development plan that we will unveil on February 13. So, ladies and gentlemen, thank you for staying with me. And now, over to you for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from Mr. Jean-Pierre Lambert.

Jean-Pierre Lambert - Keefe, Bruyette, & Woods, Inc., Research Division

I have 3 questions. The first one was related to the accumulation of capital. I mean, you have now 10.8% Basel III co-equity Tier 1. What is your view regarding the buildup of excess capital? And the priorities, which you think at this point, of usage? I refer to that news about a potential bid on a Polish bank, BGZ, as you know. That's the first question. The second question is regarding the write backs, we saw write backs at BancWest. Is there any prospects of write backs in the CIB for a period of a quarters like we've seen in previous recoveries? And then, the third question is if we look at the cost saves, about EUR 219 million, how much of that is actually reinvested? Is it 50%, is it 60%? I mean, by that, reinvested in Hello bank! and the expansion in Asia, for example?

Lars Machenil

Jean-Pierre, thank you very much for your questions. I'll take them one by one. I think the first one on the capital, I guess, you basically have several questions. The first one, with respect to, let's say, how we are going to handle the stream of earnings in the sense that how much are we going to plough back into the business? Or how much might be dividend payout and it is just a tad too early. You know that in the past, we ploughed 60% to 70% back into the business and the remainder was basically dividend payout. Where those yardsticks will be? Well, we'll clarify that in beginning of the year because we have to finalize our plans which we will bring to you at that time and that will allow us to put the parcels [ph] where they are. So you have to wait a bit for that but I can reconfirm that we are not in the business of accumulating capital. But we want to be -- have run all our insights before we clarify the cursors [ph]. With respect to Poland, as in general, but I think there's a couple of things -- well, you know what, I mean, we never comment on these kinds of rumors in the press. But as you know, I mean, let's -- with respect to a major M&A, you know that, well, in the current regulatory reform, these things are not really what regulators wants because if you would do that, your stiffiness [ph] would dramatically increase, which would weigh on all of your other businesses. So that is not on the order. With respect to -- from time to time, there are bolt on or bolt off things that we do. But you know that if you do those, we always pay the fair price and never beyond that. So that will be my answer on your first question on capital. With respect to your question on write backs on CIB, I think there are -- as you have seen last year -- so, let's put it the other way around, and as a reminder of all, and so, if you are in a cycle where typically, you buildup these kinds of provisions and then, you go into the other part of the cycle, you can have some write backs. But let's not forget that the main, major downturn cycle is actually on the credits, is already a bit behind us, and so we already had write backs actually in the previous years. If you look at, for example, in 2012, we had several quarters and also, in 2011. So I think that part of the cycle, which you're right, which you typically have, might be behind us. And with respect to your third question on cost savings, while we do not explicitly give the number of investments. So I will stay shy of that. So that would be my 3 answers to your 3 questions.

Operator

The next question comes from the line of Lorraine Quoirez, HSBC.

Lorraine Quoirez - HSBC, Research Division

Well, I'm going to try one question on investment but it's just to understand a little bit better the cost income ratio in the Capital Markets activity? So, I understand there is obviously -- but also you mentioned systemic taxes and investments. So I just wonder if you could possibly quantify them? Also, I can see the liquidity reserve went up to 155% of the short-term funding. Is that related to some concern possibly following the fact that the Fed has come up with new liquidity rules? And finally, could you comment possibly a little bit on the stress test? It looks like there could be an interest rate sensitivity on the sovereign debt exposure. Would that possibly affect you?

Lars Machenil

Lorraine, thank you very much. So, 3 questions. So, indeed, with respect to -- so, the cost income in capital markets, we do pride ourselves always to be in the better part of the ratios. And so that basically means that there is, of course, adaptations on the bonuses, which as you say, there might be some seasonality on the third quarter. And indeed, this time, we also had systemic taxes. So I remind you that there are several kinds of systemic taxes. So there is the -- there are some, like the French one, which are relatively stable. I mean, they are calculated basically once a year on a metric, which is known at the year before. So basically, in France, it's on the RWAs, and so you know it and that's relatively stable or it goes a bit with the business. There are others, which are calculated on different footprints and are, therefore, sometimes more volatile. So I think for example of the one in the U.K. and I think of the one in Belgium. And so, there can be swings from quarter-to-quarter, which can run in some multiples of -- so that would be on that. And as always, I mean, given that seasonality, it's always easier to look at your cost income over 9 months than just on a quarter-by-quarter basis. And then, if you do that, or at least, what -- when we look at that, we see that we are in, let's say, the good part of the comparison. So that is on the cost income for that.

With respect to your liquidity and reserves. Now, the liquidity and reserves that we stack up has, for a big part, to do with the uncertainty of the regulation. Because let's be fair, with respect to the regulation for us, a big chunk of our activities are Europe-based. And so we'll be, let's say, impacted by the European regulation. I'll come back to that on the LCR regulation that you just talked about that the Fed published last week. And so, as we said, we wait for clarification which should come normally, the EBA, by the end of the year, should qualify that. But in its current shape and form, basically, these things prevent us from basically redeploying all the deposits that we attract, from redeploying it into lending into the direct economy. The absence of filtering basically prevents it from putting it into available-for-sale instruments and the LCR prevents it from putting it into -- interbank. So that's basically not much that is remaining and so you basically see, typically, the evolutions of the 1 remaining category that is still available, which are Central Banks. So it's basically that, that you see, and I hope to be able to clarify positioning once the regulation is clear. And with respect to the regulation of the Fed -- well, not yet regulation, it's the NPR that came out. What we see is that it looks -- from what I read, I read 118 pages over the weekend, and well, it looks like they're going to implement Basel with maybe some things a bit stronger, some things a bit weaker so we'll have to see but as I said, for us, the majority for the activities would be bound by the CRR and clarifications that the EBA and thereafter, the commission will vote into effective operation.

With respect to your third question on the stress test, so I remind everybody that in the lingo of stuff of the ECB, you will first have the asset quality review, where -- which will look at the asset side of things. Particularly, it will look at the credit book and it will look at the trading. And indeed, that will be followed by a stress test and both of them will be published on October 15. I'm telling you all things that you know. And so yes, it's very likely that in the stress test, I mean, sovereigns will be looked at, just as they had been looked at, at the previous stress test, which was done by the EBA. And In that, how would I say, you know that we have been trimming down our sovereign portfolio since 2011. You know that we have that, particularly in our domestic markets, as a way of hedging interest rates, because I mean, there are a couple of things that we -- in our rock-solid balance sheet, that we aim to manage, which is the -- and I'm little bit ironic here. So, it's our credit risk and it's our interest rate risk. So we have them for that purpose. We scaled them down. We told you it's EUR 10 billion in each of our domestic markets. And so we believe that, that should be a manageable amount. So that's that, and I think in general, for the AQR and the stress test, given the levels of capital where we are, I think that should be okay. So that will be my 3 answers to your questions, Lorraine.

Operator

The next question comes from Mr. Jon Peace, Nomura.

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

I have 2 questions, please. The first one is in your ROE outlook. I realize you're going to give us some more detail at the Investor Day but as you build capital, as you're starting to dilute your ROE, and your peers have tended to come up with a range of between about 10% and 12%. So I'm just wondering, are you thinking you would go and set a target at the bottom end of that range and make it easy to achieve or do think 12% is a feasible number? And what are the main drivers to get from the sub 10% today to that sort of that level? And then the second question is related to this. But as you think about the potential unknowns of the asset quality review and the stress test, does that make you extra cautious on capital return over the next year? Are we likely to see you run throughout the AQR process with quite a high level of core Tier 1 just in case you get an uncertain outcome? So it's not really till 2014, perhaps, that you can deploy some of this excess capital.

Lars Machenil

Jon, thank you very much for your questions. With respect to the ROE, as you mentioned it yourself, I mean, I could be telling you something, which would not be based on sufficient facts because we are in the process of finalizing our plans, which will basically lead to the answer. I mean, the things that you know with that, we're running at -- I mean, if you -- let's say, an 8-ish kind of ROE, you know that we have a Simple & Efficient plan, so that will basically improve that. And then, of course, you have business development, which could take it beyond but at the same time, there is still a lot of headwind, there is still a lot of headwind of regulation that could come and so it's too early. I mean, there is still sets of information that I need to know, that I assume we will -- will be clarified this year. Things like the liquidity ratio, things like BOs with the foreign banking in the U.S. and so and so. So the dynamics there are, of course, those 3 levers. But honestly, let's talk again about this in -- on February 13. With respect to the AQR stress test, well, the thing is, first of all, we really welcome this. I said -- we said this before, I think, having one rulebook for Europe, having one regulator, I think it is really what the doctor ordered. And so on top of that, I think we're very pleased that the AQR is doing this in a granular way. I mean, sometimes, some regulators want to jump to the easy way, if I can say, and put floors and things like that, which I think is not what you should do. So what you should do is indeed look at it in detail and look at underlying and elements like that. So what we have received so far is really saying just that. So I think that is very good. At the same time, if you look at the AQR, we understand that there -- well, the yardstick is to that 8% of the saved-in capital level. We are at 10.8% fully loaded. So I guess -- well, I'll leave it at that. You draw your conclusions from that. So that will be my 2 answers, Jon, to your questions.

Operator

The next question comes from Delphine Lee, JP Morgan.

Delphine Lee - JP Morgan Chase & Co, Research Division

A few questions on my side. First of all, just to come back on the cost income in investment bank. For the 9 months -- first 9 months, it was 67% and I recall your long-term target is closer to 60%. So I'm just trying to get a feel of Q4, if we should expect some kind of adjustments to get closer to that level. Or is the 60% more of a long-term target? And secondly, on your cost savings that you have achieved so far already, EUR 550 million, just wondering if we should expect given that it's going ahead of schedule, anything beyond the EUR 2 billion that you're targeting for '14, '15? And then just -- maybe just lastly on regulation, if you have any thoughts, early thoughts on the Basel trading book review?

Lars Machenil

Thank you, Delphine, for your questions. So yes, on the cost income. As we said, we always want to be, let's say, in the bottom part of these kinds of elements. And now the thing is you also know that these ratios, or the range in which you are depend a bit also on the overall activity. I mean, this is not a one-on-one where all your costs are variable and so on and so forth. So I think that's how you have to see it and that is how you have to roll it into the fourth quarter. Secondly, on cost savings. Here, it's also a tad too early. So yes, we're pleased to see that the start is good but I mean all starts are easy. I mean, if you do the marathon, if I would be quoting Philippe, who is a marathonian, I mean, the start is probably easy but then it gets harder. So it's a tad too early. I think we'll look at it now. We are now running 9 months. We'll look at it and we'll see if we have to draw any conclusions on reviewing the bar. But if we would do so, we would do so at the beginning of the year. With respect to the regulation, so you're referring to the BCBS text on the trading book, which is a follow-up of things that we have seen. If I build on what I said previously on the EQR and what I said on the leverage, is that we believe that banks do take intrinsically different risks. So there are different risk profiles. I mean, for most of you and those on the phone now, I think you've all seen my slide where we benchmark for 5 to 6 years the cost of risk versus the returns and you -- independent of where we are, which is the good side, of course, anyway, but you see a diversification between banks. So we believe that there is a difference in risk and that your regulation and your capital requirements should take that into account. And so we're all in favor of things like what the AQR is doing. It's basically doing that back-testing, testing of if your things are in the good buckets. And if indeed the past basically reconfirms all those things. And so the same is true for the trading book. So intrinsically, they look at those things, it's fine. However, I still now -- this is the second reiteration of this, I still see things coming up of saying, we should do a floor standardized and so on and so forth. And so intrinsically, I do not think this is a wise idea. If they would do it, then they should go all the way, and then they should say, voila this is standardized, you can obtain and you have a discount versus standardized, which will intrinsically lead to having a plain-vanilla approach everywhere. So I keep on thinking that this is not the wise thing. I mean, if I take it to the extreme, it would basically mean for you guys, investors, that all banks will be the same. Because if you take a little risk or a high risk, it would all be the same. It's the same comments I have about the leverage ratio. So that is where I stand at. But of course, there's many good things in there still. There's many good things because, of course, there is some uniformization that has to happen. There is -- we see a lot of different tests that there are still differences between regulations, so that should be good. So I guess, it's an ongoing consultation. So that's what would be my reply, Delphine, to your 3 questions.

Operator

The next question comes from Jean-Francois Neuez, Goldman Sachs.

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

I just have a question on efficiency and a question also on single supervision, if I may. The first one on efficiency. So you've launched the Simple & Efficient plan but -- and you're ahead of target in the synergies, as you mentioned. However, your cost to income ratio for the first 9 months has actually increased. And one of the particular area where you're becoming less efficient is in the investment bank where you're seemingly investing some more. But having said that, the revenues are not really -- I mean, we can't see them quite yet, actually. The market is in difficult position in particular in fixed income. I'm just wondering to what extent that makes you maybe think again? Or if you feel the need to review some of your earlier thought on that? Or if you're essentially looking at these as a bleed more or less. And my second question on single supervision. We -- the single supervision has just been voted. We hear more and more regulators talking about full tangibility of deposits across the eurozone and I just wanted -- obviously, this is very uncertain, but if that were to happen, what would change precisely for you in the way you manage your balance sheet and that impact that could have on your top line and your efficiency, actually?

Lars Machenil

Okay. Thank you, Jean-Francois. So with respect to your first question, so indeed, as I said, of course, we are deploying Simple & Efficient. Of course, we said that Simple & Efficient is there to offset inflation. So let's be clear. I mean, for those of you who are in an inflation-free world, you would, of course, expect that we go lower. But let's remind ourselves that the idea is to offset inflation. And of course, we have embarked on some development plans, which indeed stepped that up a bit. Now a lot of this -- let's be fair, and as you spotted correctly, Jean-Francois, is that a lot of these plans are in the CIB environment. I mean, look at what we said about Asia, look at what we said about Germany and what we haven't said yet but -- that we are also doing in the U.S. So there is a set of investments that we are doing. And of course, yes, I agree with you that today our client -- the client demand in the rates business has been poor. I think as we have seen, actually, over the last 2 years that demand is indeed often impacted by some events or concerns about some regions or about comments made by regulators, monetary and so on and so forth. So we do believe, we still believe that also contrary maybe to some other banks, we are well-positioned with respect to our CIB. So our CIB, we basically are offering rate businesses, credit business, which have done well. I mean, we see those OTD kind of things. And we do that well and we do that because we are such a big bank for corporates. We are the bank for corporates in Europe. And so we do have a flow of clients, which if they are not cared by Mr. Bernanke, if I can say so, do really profit and need and use the products that we have. So we really, as I said, I mean, ours is -- I'm not saying other banks are, and I'm not talking about Goldman Sachs, of course, Francois, I wouldn't dare to. But I mean, we are a CIB that is tailored towards our clients and we do have a lot of them in Europe. And so we believe that this is right. We believe that Europe intrinsically wants to deleverage its banks but not its economy, meaning that Originate-to-distribute is the only way to go, which basically means that a CIB has a role to play. But of course, that means that you have to take your positions on that. It also means, of course, that at the same time, CIB is getting a whole slew of regulation on top of it and so it has to adapt. So it's all these kinds of things. But we really believe and particularly, as I said, in the line of what it is that the kind of CIB activity that we do and the kind of bank that we are with our pan-European focus on individuals and corporates is really the way that the regulator wants us to go. So that is a bit a long answer on your first question. With respect to the single supervisory mechanism, I interpret your question as on the banking union. So the banking union, which basically contains 3 elements. So the first one, which is indeed the single supervisory mechanism, which has been voted. And then, there will be other pillars, which is a resolution mechanism and the Deposit Guarantee Scheme. Now I think with respect to the single supervisory mechanism, in particular, I mean, at least my life will be a lot easier because I will not have so many different regulators as I have today with different rulebooks and so on and so forth. So that will be one thing which is good. I mean, it could also mean that given that, that Europe as one entity will be less systemic. As I said, if we are in 5 countries -- 5 states, sorry, in the U.S., that doesn't make you more systemic. If you're 5 states in the eurozone, it does. Maybe with the event of the SSM, maybe CCNS might do down. So that is something that might be the case. As I said, if you read the document on the SSM, it's something which really has the building out of Europe in mind. And so the building up, including the free flow of capital liquidity, so I think that is something which would be to the benefit as well. So as I said, as a total for a European bank as us such a eurozone-ish kind of regulation, I think, we welcome that very much. So that will be my 2 answers, Jean-Francois, to your questions.

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

Would that be too early to try and quantify a little bit the funding benefits? Or is it too early now?

Lars Machenil

I think it's too early. I think for -- well, there's 2 reasons: I mean, as I said, I mean, we'll have to see. I mean, what I say is what I could imagine that is happening. It's not what I hear. It's not what I see. I said it could have that impact. It could have an impact that, as I said, if you have balkanization, you will have frictions everywhere. That friction will go away, but it might go away, it might go away to what extent but it's a tad too early to quantify.

Operator

The next question comes from Alex Koagne, Natixis.

Alex Koagne - Natixis S.A., Research Division

A few questions from my side, if I may. The first one is in respect of the next accrual. Would it be possible to have like the outstanding restructure rate loan [ph] of BNP? The second question has to do with the French retail banking. You really enjoyed a very good revenue this quarter. Could you please update your guidance in terms of renewables for the year as a whole? And of your shares, still on the question on your loan growth. Obviously, you're losing market share. I was just wondering when would you consider to start growing your market share again? And therefore, seeing some kind of loan growth going forward? Lastly, I was just wondering whether as of today, is it possible for you to give kind of a breakdown of the capital you're generating like if you consider 40% in terms of the payout ratio, which part is used to grow your balance sheet and which part is used to adjust your model going forward?

Lars Machenil

All right, Alex. Thank you for your questions. On the AQR and the forbearance, thank you for asking that question. It's indeed something that is on the mind of people. And so let me remind you that the AQR will be performed under the definition recently published by the EBA. And so the EBA basically provides information on when something is NPL and/or what forbearance is. But with respect to forbearance, it clearly articulates that when a loan is restructured because -- and they give criteria, a company is in a more dire situation that basically after the restructuring, that loan has to remain NPL for a year. So this is the point. And so what I can say is that this is the case for us. So those forbearance which have been restructured in the light of the difficulties faced by the company, do remain into the NPL part. So that is on that. With respect to French retail and guidance, it's a nice try. You know that we basically do not give guidance. But indeed I can give some color that there are some exceptional elements in the Net banking income of BDDF. There's a series of things, there is a little lift in the prepayment of loans and stuff like that. So I mean, I wouldn't extrapolate this growth as necessarily going forward. So you have to take into account that, that is why I think the trend that you saw in the previous quarter or let's say the 9 months trend is probably a good guidance. On your question of loan growth and when to grow again, is that -- well, that will depend on the demand. As you know, I mean, we have our underwriting rules. We typically tighten -- see the tightening of the demand of loans in an environment like this. And so basically that is why we have less loan growth. So this is also coupled to the fact that -- or do you see that as a ramification in a very low cost of risk area. So listen, we'll have to see how the economies evolve and how these things pick up. And also, if -- so we have to see how that evolves going forward. Your fourth question, I'm not sure if I understood. So if you could repeat or rephrase your fourth question? Alex, are you still there?

Alex Koagne - Natixis S.A., Research Division

Yes. I was just wondering how do you consider the utilization of the capital that you're generating per year? Assuming that you have like a 40% payout ratio, the remaining 60%, how do you -- do you break it down with -- what do you use to increase your balance sheet and to finance your activity? And that you can use, I mean, to strengthen, perhaps, your capital or to adjust your modeling going forward?

Lars Machenil

As I said, if I paraphrase what I said before, is that we, indeed, are not in the business of accumulating capital, I get that at 10.8% [ph], I'm looking for the right adjective, ridiculous comes to mind, but that is probably a little too grave. So we're not in the business of accumulating capital. And as I said earlier, we're now doing our homework to be able to just tell you how much we can flow back in growing the business and how much we would have as dividends. So it is just a tad too early. Let's give each other a rendezvous on February 13. So that would be my answers to your 4 questions.

Operator

The next question comes from Flora Benhakoun, Deutsche Bank.

Flora A. Benhakoun - Deutsche Bank AG, Research Division

So 3 questions for me, please. The first question is on the revenues from the Corporate Centre this quarter. If we adjust for the on [ph] debt loss, we get to a, let's say, underlying revenues, which are much better in the previous quarters. So I was wondering whether there were any kind of one-offs in there? Or whether the guidance that you had provided on the negative impact on revenues coming from the excess liquidity? Whether there is some upside to that guidance? The second question is coming back to the AQR. So I heard the comments you just made on the forbearance restructured loans. I was just wondering whether you could disclose your total stock of restructured loans as of today? And how much you have provisions against this? And maybe any kind of qualitative comments on how you think you will fare in the AQR process? And the last question is on the risk coming from litigation. What's your view on this and BNP? And whether you think there is any kind of ways that you could have to book some legal provisions going forward like some banks have done? And if you already have actually some provisioning reserves for the risk?

Lars Machenil

All right. So thank you for your questions. On the Corporate Centre. So indeed, in the past, I remind you all that I've guided that the revenues on a yearly basis with respect to this negative transformation that I talked about, so the EUR 90-ish billion that we have in excess on liquidity, that would run between EUR 800 million and EUR 900 million. So EUR 90 billion take 1% cost, 0% redeployment. So that's a bit how I guided on the EUR 800 million to EUR 900 million. So on that total number, first thing is that, yes, the funding costs have come down a bit. So I guess, for the year, it's more going to be to the EUR 800 million than it is to the EUR 900 million. But I reiterate that EUR 800 million. And so what I said is that, that EUR 800 million is the impact of that liquidity. Nevertheless, as you know, there are also other elements, which are impacting the Corporate Centre. I explained in the second quarter, which is typically the dividend season, that the dividends are in there. And so basically the dividends made that impact of that liquidity look lower. Now this quarter, there is also a set of things, we mentioned private equity, which have been a bit higher than before. There are also some elements related to the PPA of BNL Vita. So there's a slew of things which basically bring down that element and bring it to a visually lower amount. So all in all, I'd say, again, excluding other positive or negative elements, I would still guide you to be prudent and take an EUR 800 million charge on a yearly basis. So that is for the Corporate Centre. On the AQR. Well, the thing is, I mean, I cannot go with the flavor of the day. So I cannot go with the flavor of the day and run numbers in X way and then in Z way and then in another way, because then in the end, I will just have to multiply my teams in order to answer all these kinds of different forms. So we have a reporting. I told you that with respect to the criteria mentioned by EBA for us, this kind of restructured loans are in our NPLs, yes? And so they are provisioned according to the rules that we do. So we'll stick it to that. If at some point in time with the ECB and the banking union, there would come a new set of disclosures, we will be very happy to switch into those. But you have to understand that I cannot run with a multitude of different ways. And I think -- and you should, I think, you also do prefer that we share with you the way we look at things and the way we manage things. With respect to litigation, I think in our financial statements, you have a view of things. There are some things that you see today like the LIBOR and the like where we, at this stage, are basically not involved. But I noticed with you that the stance of some authorities is kind of sharpening but that's basically where we stand at this stage. So that would be my 3 answers to your questions.

Operator

The next question comes from Mr. Nick Davey, UBS.

Nick Davey - UBS Investment Bank, Research Division

First, 3 questions, please, from my side. The first, if I can just come back to Flora's question on the Corporate Centre revenues, this EUR 800 million underlying negative. Question, please, I think there was some discussion a few quarters ago eventually that this, say, EUR 800 million may begin to get pushed out to various operating divisions if and when if you get more visibility on liquidity regulation and how permanent these balances at the central banks need to become. So I just wondered if that discussion had evolved at all. If there was any line of sight to which operating divisions may over time suffer from the slightly higher liquidity costs? The second question, please, on personal finance. I see in your discussions and on the slide, you talked a little bit about positioning the division for some growth. Clearly, it's still in some deleveraging phase here on the mortgages side. You were quite clear in the past about where you thought corporate banking volumes would bottom out and when they would bottom out. I wondered if I could get your thoughts on when personal financing may begin to bottom out. And how we should view that mortgage book in Personal finance, whether that is -- will it essentially run down to 0? Or what part of it will remain in place? And thirdly and finally, please, just some observations, please, about French retail and net interest margins through the quarter, whether you saw any positive developments at all?

Lars Machenil

All right, Nick. Thank you very much. So indeed, on the EUR 800 million, it is -- we typically do not change our mechanisms of allocating and analytics during the year, so we haven't changed it. Honestly, the regulation hasn't -- the dust hasn't settled yet, so I wouldn't be able to do it. So I really will need the EBA to clarify things and the European Union to endorse it in order to be able to do so. So we are at homogeneous boundaries today. When things are clearer, we will come back on this. With respect to commercial -- to real estate mortgages and personal finance, I sympathize with your concern. And I agree with you that it did well -- no, it doesn't -- no, I understand your concern and it is more difficult to see than at corporate banking because at corporate banking, we basically took a measure to basically realign, whereas, at personal finance, there are some elements of that mortgage portfolio that is basically, I would say, being run off. And so running off a mortgage portfolio does take time. So this is something technically that we will have with us still for a while. We aim to clarify to you by giving you the volumes in different ways. But I think your point, maybe we could do a bit better going forward to clarify that. So I'll take note of your remark. On French retail, I think I made the comment. I mean, as I said, the net interest margin is, I think, somewhat flattered by some one-off elements. So I think -- I mean, you should cast an eye on the previous quarter's evolution when you would estimate your fourth quarter evolution.

Operator

The next question comes from Kinner Lakhani, Citi.

Kinner R. Lakhani - Citigroup Inc, Research Division

So I have 3 questions on 3 different businesses. First one is personal finance, where we look at the last years and the last quarter’s there's clearly a normalization process ongoing in terms of the provision charge. And I wanted to get a sense for where you see in the context of kind of relative economic stabilization, this charge going forward? So can we see a much -- a further improvement in the kind of 150 to 160 level that we're at? Secondly, on financing. Just noticing that obviously CIB loans still seem to be deleveraging, coming down. At the same time, reading that perhaps BNP's acquiring some loans also delevering [ph] that U.S. money market funds are perhaps allocating more money to French banks. So is there any kind of inflection point that you see on the CIB side? And thirdly, on French retail. Just again thinking about the net interest margin but much more on a forward-looking basis over the next year or 2. Where do think we are in the journey of kind of lower reinvestment rates, so reinvestment yields, impacting your net interest margin. Obviously, we have some positives from the lower lever R [ph] rate but I'm trying to understand the reinvestment yield.

Lars Machenil

Thank you, Kinner. With respect to personal finance. We are not a bank that fills in the spreadsheets for you, are we? But I can give you some -- no, jokingly, I can give you some color on how to interpret this cost of risk. As a reminder, so when we look at personal finance, let's be clear, the dynamics are driven on the cost of risk by the personal -- by the consumer finance kind of parts. So the consumer finance, you know that we are very selective, so this is typically short-term, we're very selective in the kind of things that we do and the credit underwriting. So this means that these businesses are relatively agile. I mean, in the annexes we publish the cost of risks for each of those countries and people are often surprised about our cost of risk in Spain, for example, which is not bad at all. And that -- it basically has to do because we adapt, and just as we do typically, we adapt our underwriting criteria to the shape of the economy. And given the fact that these portfolios are relatively short, that basically makes you agile. And so that is, in general, what I would say. Part of the improvement that you saw in this quarter is coming out of France and Italy, right? So that is basically what we see. Now where will that go? Will, of course, also will depend on what I just said. And at the same time, a bit of what the overall economic environment will be. So I think with those 3 elements, I think you can form a very well articulated view on how you would see the things going forward. With respect to your second question on financing, here, I would like to clarify a couple of things. So the deleveraging is done, yes? But of course, it's done now in 2013 because we ended it in 2012. However, if we compare ourselves to 2012, you still have the impact of the deleveraging. But for us, our bankers, they are not working in the morning on deleveraging, and in the afternoon, in order to grow. So the deleveraging is basically done. Then -- so we keep on growing, we have articulated our elements of our plan in Asia, have articulated our plans in Germany. So we do grow. Now let's not forget, let's not forget that you might be tempted to say, but I don't see this, Lars, in your volumes. But let's not forget that at the same time, we are orienting the CIB towards originate-to-distribute, right? So there is -- it will be more difficult from that point of view to read it but I think a proxy to see our commercial activities is basically our lead table provisions, which basically show that we are in business for our clients. And then the last point I wanted to make, just to avoid any confusion, the money markets for us when they come to us, we basically consider that short-term money that we basically do not redeploy into the business, right? So it's short-term that you can see that in our cash balance sheet. So it's short-term, we consider it short-term. What is it? Once bitten, twice shy. I mean, so we have seen that money markets can retract very quickly as we saw in 2011. So we basically redeployed them short and not long. So there should be no link between their behavior and what we do in the financing activities. With respect to your net interest income reinvestments. Well, you see -- well, you can find back from our maturity tables and I let you take a stab on what you think the interest rates evolutions are and what that will do. So we, of course, manage for those evolutions. We -- as I said, I spoke earlier, we have those sovereign bonds to hedge that kind of risk. We also have some derivatives related to that. But in the end, yes, it will depend on how you view the evolutions going forward. So I would leave it those 3 answers to your 3 questions, Kinner.

Operator

The next question comes from Stefan Stalmann, Autonomous.

Stefan-Michael Stalmann - Autonomous Research LLP

A couple of questions from my side, please. The first one, the top line in the Euro-Med segment was quite weak in the third quarter it seemed. Was anything particular going on? Or was it just within the normal seasonal fluctuation year [ph]? Second point, you have obviously increased your risk-based capital ratio but your leverage ratio has not moved. And back of the envelope, on my calculations that would suggest that your leverage denominator has actually risen somewhat during the quarter even though your assets have not. Are you writing new business in, let's say, areas like derivatives or credit commitments? Or have you remeasured something in the leverage denominator? And so maybe finally, and I apologize if something similar was asked and I missed the answer, but could you give a rough indication, how much of your cost base in the third quarter reflects growth initiatives where maybe the revenue has not come through yet?

Lars Machenil

Stefan, thank you for your questions. So on the first one, I do not think you should see anything particular in it. I think you see the effects of the regulation and then -- and of change, nothing more. Thank you on your second question. Well spotted but you give us way too much credit that we would be able to do all of these smart things that you just talked about. They affected the following: So our Basel III ratio that we mentioned is core equity Tier 1, so the 10.8% is core equity Tier 1. And so the core equity Tier 1, of course, has improved. And so you would indeed have made the reflection that, that would trigger on the leverage. Now the leverage ratio, we basically now publish it the way it's meant to be published, which is a Tier 1 ratio. And you might have seen that our Tier 1 has been going down. So as you basically know, when they come to the call date, we basically expire it. And so you have indeed the core equity Tier 1 going up and the Tier 1 going down. And then to be totally fair, because if you would look at our leverage ratio on the core equity Tier 1, it is true that I typically never round up from the bottom. I always round down. And so, indeed, if you would do one decimal more on the leverage ratio, you would see that, nevertheless, it would have improved a little bit. But insufficient, together with what I said, the drop in the additional Tier 1 to make it move up 1 point after the decimal. So that is my answer to that. And on your question on the cost base of the investments. As I said, I mean, we do not disclose this number at this stage. So that would be my answers, Stefan. Thank you very much for your questions.

Operator

The next question comes from Kiri Vijayarajah, Barclays.

Kiri Vijayarajah - Barclays Capital, Research Division

So if I could come back to the corporate bank again, the revenues did look a little bit weak there and I appreciate the loan balances are still shrinking. But I wonder if you could specifically comment on the margin development there. And maybe also on the stream of fee and commission income, just try and explain maybe some of the weakness there. And I guess, the related question is when should we expect positive jaws to return in Corporate Banking? It sounds like a lot of those investments are still going to continue for quite a few quarters to come, Asia and North America, et cetera.

Lars Machenil

Yes, thanks for that follow-up. Indeed, with respect -- and you're right, I probably wasn't totally exhaustive on the Corporate Banking. So indeed, if you look at the dynamics of Corporate Banking, they are going to somewhat change. Because indeed, as I said, in the league tables, we are well-positioned but a part of that business is going to go into OTD, which basically means it's not a carry business but it's a fee business, which also typically means that you introduce some, if I can say so, seasonality. And if you would look at it, if you would have compared Q2 to Q3, you would basically see part of that seasonality. So Q2 had a bigger chunk of that kind of OTD and fee business than had Q3. So that is a bit what it means. So I agree with you that it's difficult and so, of course, in Q3 that when we were younger, Q3 was always impacted by August. And so that is a bit what we saw and so we have stronger fees in the second quarter. And of course, if you are less fee driven but more carry driven, that irons out kind of somewhat. So I take it that it's going to be a little bit more difficult to read. And so I'll take your point, maybe we can be a little bit clearer on these kinds of things. And then, yes, on your second question on the positive jaws [ph], I agree with you that some of these investments will still go on for a bit. I mean, we keep on -- we are really convinced that being able to accomplish [ph] remains very importantly and we want to stay on the edge of it because we think it's important. Cash management is one of them. I've been hammering on our investments of cash management, indeed, for some quarters. But you saw, we basically leaped up from fifth to fourth in these kind of rankings. So yes, we are still going to continue to invest somewhat into the coming periods. So that would be my answers to your questions.

Operator

The next question comes from Mr. Geoff Dawes, Societe Generale.

Geoff Dawes - Societe Generale Cross Asset Research

It's Geoff Dawes here from Soc Gen. I've got 2 questions from my side. I'll be relatively brief. We've obviously had quite a few already. First question is on the capsule [ph] and asset quality review side. I know there have been some questions on this already. My question would be that the ECB does provide some guidance that it will look to make adjustments to risk-weighted assets where appropriate. Do you think that's a realistic threat either for yourself or for the sector overall? Or do you think it's a bit of a, let's say, an empty promise from the ECB? My second question given that we haven't spent a huge amount of time on it would be on Italy. Obviously, we've seen a new flag, some stabilization and very small improvement in credit quality. Could you talk about some of the underlying drivers to that? And whether that continues, obviously, notwithstanding the usual fourth quarter seasonality in that line item?

Lars Machenil

Geoff, thank you for your questions. On the capital and the AQR, as I said, I think the ECB has the right intentions into doing these things. I think they're very much aware that they have to be credible because it's a start of the new regulation. But indeed, the question is how to achieve that. From what I see is -- and that's what I said that I think is good, but of course, if you are the kind of blood on the wall, Dracula-style kind of guy, it might not be the answer that you want. But it is a thorough and meticulous kind of process in the sense that, they will really look -- I'll take the credit book to start it, but they will look at the credits, they will look at humongous amount of elements in there. They will look at are your loans into your appropriate risk buckets. So, do you assess the risk in the right way? Does then the provisioning that you attach to that or not is the right. And once you've done that, with respect to credit risks, then basically you can be almost mathematical, if I can say, with respect to your risk ways because then you'll say, listen, I mean, you've done a bad testing, which apparently was fair but if I see it in the light that you're basically were in the wrong risk bucket and/or not enough provision, if you rerun that, your probability of defaults and you're a loss given defaults, or your GRRs for the Anglo-Saxons amongst you guys, is basically going to change. So I think, honestly, they are doing that in the right way. As I said, if you're the blood on the wall kind of guy, well, we'll see what that means. It might be that several people say, listen, I'm not going to wait because now that I know what's coming, I might adjust -- before, I might say, these are the rules, that's what it is. So I don't know in what kind of shape and form it will be. But I think at least, honestly, it's in a process. I think I can call that the doctor ordered. So it's meticulous, they're looking at a lot of things. And they -- as I say, when they find something on credit, then they're going to pull the wire, they're going to pull the wire until they basically trip on to the ramifications on the risk-weighted assets and so on. So honestly, I think it's off to a good start. With -- but okay, I mean, we'll all be the judge of that, right? But I -- that's my personal read on the situation. With respect to Italy, I mean, there's a couple of things here as well. I mean, Italy has been somewhat in an economy that has been in doldrums for a while. As you know, in these kinds of situations, we -- I have an Italian seating next to me who is nodding his head. And so that means that you can adapt your underwriting in that period. I mean, but a lot will depend on how that economy will evolve. I mean, some people are a bit -- a little bit more upbeat than they were before the summer. But I think let's be fair, you will have some macroeconomics here that we'll have to continue to monitor. So -- but as I said, the country has been in quite some years of, let's say, recession. So that basically means that, as I said earlier, you adapt a bit your underwritings. So you might be somewhat coming into the tail of that older production. But nevertheless, it will depend on how GDP evolves. So I'm -- I would say that at this stage, while we've seen it stabilize now for 3 quarters, let's see a bit how the macroeconomics go and interpret it from there. So that would be my answers.

Geoff Dawes - Societe Generale Cross Asset Research

Maybe just a follow-up on that first question. Would you be surprised if the ECB this time next year took the risk-weighted asset number that you report at year end and decide to go with something quite different?

Lars Machenil

They will do what I said. That means they will -- really, I think, they will -- if I see the amounts of people that they mobilize, I mean, they have asked us and all banks or they will ask to do data rooms where they will really look into files. So they will -- they want a film of a history of selected exposures. And so they will send in people who do understand these kinds of things. They will go and look at the valuations of collateral and things like that. Now -- so that is what they will look at. And so articulated on that, they will say, listen, this part for me is not ranked A or whatever it is. Or they might say, listen, this kind of thing, you should have provisioned it more because the collateral or the guarantees that you have today are not necessarily at the value that they were when you initiated that loan. So that is what they will do. And from then, they will basically pour all that into the mechanisms of LGDs and NPDs. And if from that, it says basically, I'm sorry for this kind of sector, you're PDs and your, LGDs, therefore, your risk weights are not appropriate. Then they will basically say, this bank has to review the RWAs. I honestly do not think that they will shy away from that. They will not. But they would do it in the right way. It's not like, oh, I am afraid of Dutch mortgages. Whatever. I'm not saying -- I'm not -- don't read anything in what I say. It's just an example instead of to say country X, Y or Z, and therefore we will put a fork. That is not what they will do. What they will do is pull the string on the things that I just said and I think that is what they should do. And I think by pulling the string, they will get to eventually different things. And the banks will have to adapt. And these different things can be, as I said, ratings. It can be value of guarantees, they can put themselves into a certain point of the cycle, which was different. So honestly, I think on paper, it's the right thing. They have put down a standard operating procedure. They are putting in place joint steering teams that should ensure with a peer review that all of the participating countries read the same things at the same way. So on paper, on paper, I think it looks what the doctor ordered.

Operator

The next question comes from Cyril Meilland, Capital Cheuvreux.

Cyril Meilland - Kepler Cheuvreux, Research Division

I will try and be brief because it's already been very long. I have just one question, a figure clarification, if I may. The first one is regarding the originate-to-distribute model, you mentioned the corporate banking business. Can we infer from the evolution of your revenues that, at least for the time being, this model drives to lower revenues? And can you give us at least an idea, on I mean, gross quantification of the split of revenues between commissions and net interest income? And the clarification is regarding your -- the figure you mentioned in your annual reports, I think that's on page 346 on your annual report for volume 12 [ph] regarding restructured loans or customer loans. You mentioned EUR 47 million, which is amazingly a low figure. What's -- what does it correspond to?

Lars Machenil

All right, Cyril. With respect to the originate to distribute. I don't -- you shouldn't infer from it that we would have lower revenues. What I said is that there will be maybe a little balance -- different balancing between interest income and fees. And therefore, it might be a little bit more seasonal. So that is basically what it is. As I said, I mean, we need a little bit more of experience with this to see how that seasonality would work and how -- I would say, how that will play out in the distribution of growth in each of those lines. So it's not that the revenues wouldn't grow, they will be structurally somewhat differently balanced and maybe a tad more seasonal. But I think give us a little bit more time to experience on these things, and then we will come back to you on that one. And the second one is -- I do not have -- I'm just asking, around if somebody -- yes. Can you repeat the page, Cyril?

Cyril Meilland - Kepler Cheuvreux, Research Division

346.

Lars Machenil

346.

Cyril Meilland - Kepler Cheuvreux, Research Division

Of the English version. I think it's same page.

Lars Machenil

I think -- yes, but I think it's -- yes, you are -- yes. Cyril, can I come back to you on this one because these are not -- I think for what I see, you're in the statutory ones, which have a slightly different behavior in reporting than what we have on the consolidated. So allow us to come back to you on this one.

Operator

We have a further question from Omar Fall, Jefferies.

Omar Fall - Jefferies LLC, Research Division

I will be very quick. One small question. I'd just like to touch on the costs of risk. It was clearly very low through the P&L in the quarter. However if I look at nonperforming loans, the stock actually grew in the quarter at a faster pace and your coverage ratio of NPLs went down by 1 percentage or so. Was there maybe some change in the NPL mix towards mortgages or something? If you could just touch on that discrepancy, that would be very useful.

Lars Machenil

Yes, I think you spotted it well. It's indeed that. So there is indeed the set of the NPLs that were added are indeed of a different nature than what we had been seeing in the past. And so they are typically ones which require a coverage ratio, which is lower. And so that is basically what explains this behavior of this quarter.

Omar Fall - Jefferies LLC, Research Division

Okay. Is it -- just as a quick follow-up, could you give us any more clarification as to geographically, whether there's one particular area?

Lars Machenil

I am quoting from memory here but it's a bit spread from the 5 that I have in mind, it's a bit spread all over Europe. So it's not particularly one or the other specific country.

Operator

The next question comes from Anke Reingen, Bank of America.

Anke Reingen - RBC Capital Markets, LLC, Research Division

No, I'm calling from Bank of Canada. I just have 2 follow-up questions, please. The first is on the -- can you actually give us your phased in Basel III ratio? And what you would assume. Is it like as of first of January 2014 with a 20% reduction? And what you're assumption on goodwill would be in a number you are hopefully going to give us? And then just secondly, a question on the numbers on Slide 6, you give us hopefully the change Q3, Q3 in revenues constant scope and exchange rates. And I was wondering if you can give us the sort of revenues and cost on a 9-month basis. I mean, the cost control is probably more evident on a 9-month basis than on a Q3, Q3.

Lars Machenil

Yes. Thank you, Anke of -- with respect to the phased in, I mean, I'm sad to say that I've given up on that one. I'll explain myself. I just understood that there will be a myriad of phased in kind of Basel ratios. So we're going to stick to one. I'll explain in a second why. So we really prefer to stick in our communication to the fully loaded one, which is like there is no ambiguity. I'll explain myself. I mean, when we hear about what the ECB says about the AQR, they say they're going to be phased but it's difficult to understand what they will do with the options that are still in the CCR. So will they go for filtering or not? Will they go -- how will they go with respect, for example, to goodwill? Because, as you know, we, BNP Paribas, we already deduct the goodwill entirely. So if I will go phased, I will have a whopping step up because of that. So -- which I think the French regulator, who is still the one who's going to regulate me in Q1, he will not going to let me act. So I'm afraid also for you guys that you're still going to be with a myriad of differences on phased in. And so, therefore, I think, we honestly believe that going for the fully phased is kind of the only one where there should be no ambiguity. So for that reason, I don't even know the number by heart, I wouldn't be able to tell you. With respect to your question on the -- what we call [indiscernible], so at constant parameter and change is yes, we haven't given it. But I mean, on -- so -- as I reminded, this quarter has been impacted by quite some differences, evolutions or let's say the strengthening of the euro, so the dollar and the Turkish lira. And so we gave you the change within constant parameters and change for the quarter. We didn't give it for the 9 months. From memory, the evolutions of the 9 months are quite similar to what you had on the third quarter. So somewhat a 2% drop on the PNB and somewhat similar, I think, from that. So -- but I don't have it with me here.

Anke Reingen - RBC Capital Markets, LLC, Research Division

So you don't think you're jaws will be better on a 9 months stage than the negative on the Q3, Q3?

Lars Machenil

No, no. I maybe -- I wasn't maybe clear. So what I said is that in the Q3, during the Q3, so over the summer months, we basically had the strengthening of the euro. So it's the third quarter, which is basically impacted by that. So the 9 months is basically less impacted. So the 9 months evolution in constant change or not constant change is relatively similar. So the impact is mainly on the Q3, so that got to be diluted when you do the 9 months. So if you take the 9 months at face value, that's roughly okay.

Operator

The next question comes from Pierre Chedeville, City Mutual.

Pierre Chedeville - GSN North America, Inc.

Just a quick question. First question, from months ago, Mr. Bernanke told me that he will meet or he met Mr. [indiscernible] in the United States regarding the rules for European banks operating in U.S. Can you give me some news regarding the way you see things there for your activities? And what impact for you, would it be significant or not significant in your view? And second question, BNP seems to be a beautiful exception among big CIBs in Europe. As it seems, you don't have any significant litigation provision or even balance sheet contingent liabilities. Is this because you are very optimistic or because you are not involved in any case?

Lars Machenil

Pierre, thank you for your questions. So with the FBO, sadly, we didn't get any scoop out of it. So today, our best understanding is still basically what have been published in proposals beginning of the year. And a further clarification for American banks on that. So we haven't gotten -- we are still waiting actually for the final text. As I said, I expect that the concepts that were published in the beginning of the year, so that we will have to create an interim holding company. I think that is what's going to happen. I'll remind you that we already have one for our retail activities, so we would have to put all that together with the ones that we have for our CIB activities. That's one. Secondly, with respect to the regulatory requirements, he hasn't clarified that, but he has -- or the Fed has clarified early in the summer what they believe would be the ratios for the American banks, which basically would -- if that would apply to us, will basically mean that we would have in what the U.S. called, the supplementary leverage ratio, which is basically similar to the ones that we have in Europe, which is the current Basel I, and that we would have to be at 3%, which is basically what Europe wants us to be as well. So that is a bit what it is. Of course, there will be impacts. We will have to adapt ourselves and then -- and so forth. So at this stage, but again, everything is waiting for final text. I mean, it's going to be manageable. I mean, we're going to have to do things and organize us to be aligned. But we think it should be manageable. But again, I mean, guys, don't quote me on this, I mean, until the thing hasn't been cast in gold or chiseled in marble, that becomes difficult. With respect to litigation, I said that before. I mean, you can see we have in our -- well, as Cyril already mentioned [indiscernible] in the first part of the [indiscernible], which are the consolidated figures, there is a note, which basically lists the things that we are aware of. So there are things that we are aware of. These things, at this stage, are not clear to us of what could be the impact. And so from that reason, there is nothing material in the accounts. So -- I mean, I would say, I refer you back to that note on that one and there is not much I can add to that.

Operator

The final questions comes from Sara Minelli, Morgan Stanley.

Sara Minelli - Morgan Stanley, Research Division

I have 3 quick questions. The first one, really, a clarification on the leverage ratio. I'm not sure I understood. Did you say that the leverage ratio has remained stable at 3.8% because the Tier 1 has gone down despite the increase in core Tier 1? Because if I look at the core Tier 1 ratio, it's still at 3.4%. The second question on Italy, if you could comment on asset quality trends there given the good performance of the cost of risk during the quarter. And then the final minor point on Hello bank!, I had in mind EUR 80 million of costs for the launch in 2013, is this still fair?

Lars Machenil

All right. Thank you. Yes, on the leverage ratio. Let me clarify because I think I answered a bit in a jokingly manner. So allow me to clarify. So first things first. If we look at the leverage ratio as it is intended on the Tier 1, there is basically 2 things happening -- or 3 things, if you wish. So with respect to the Tier 1, I have the -- of course, the increase in the core equity, which is somewhat tempered down, deeper down, if I might say so, somewhat tapered down by the fact that the additional Tier 1 instruments have been going down, okay? So the lift that you have in the core equity Tier 1 ratio is somewhat milder in the leverage due to the fact that you added Tier 1, additional Tier 1, which has gone down over the quarter. So that's the first thing. The second thing is that in the calculation, because the leverage ratio aims to be simple but I can tell you, oh, girl, it's not that simple at all. And so intrinsically, the balance sheet itself grew a little bit, that is because of impacts on credit conversion and the likes. So -- but in total, those 2 effects, basically lead that your leverage ratio Tier 1 remains stable. Now if I go to the leverage ratio calculated on the core equity Tier 1, that doesn't have the effect, tapering effect of the Tier 1. So normally, that one you should see a little lift. And what I said jokingly is that, that little lift is in the second number behind the decimal. So meaning it is still rounded at 3.4%. But if you -- if I would give you the number adjacent to the 4, you would see that it -- that, that one would go a little bit up. So that's what I meant to say and I probably wasn't clear. I hope I was clear now. Sorry, sorry. And you had -- sorry, I was just -- sorry, I'm getting -- I wrote your questions and the other 2 I wrote it on a different page. So I forgot your other 2 questions. So the other question with respect to Hello bank!. Yes, we said it would be -- that would be the costs that we aim for, for this year. And on the asset quality trend in Italy, as you see, we -- at this stage, it's stabilizing. It's at the levels that it was the previous quarter and the quarter before. And so, as I said, we'll have to see a bit how the economic environment evolves in Italy to see how it would further evolve.

Operator

We have no further questions.

Lars Machenil

So thank you very much for all of you -- to all of you to listen in on this call. So I think, with this, I think I've given you an update on our results, which I call [indiscernible] being good -- showing a good resilience. I know that I sound like a broken record, but I hope to have indicated to you that our balance sheet is rock-solid, and I think our next rendezvous is on February 13. So thank you very much and have a very good day.

Operator

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

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