Societe Generale's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.12.14 | About: Societe Generale (SCGLF)

Societe Generale (OTCPK:SCGLF) Q4 2013 Results Earnings Conference Call February 12, 2014 10:30 AM ET

Executives

Frédéric Oudéa - Chairman and CEO

Philippe Heim - Group CFO

Bernardo Sanchez - Deputy CEO

Analysts

Lauren Torres - HSBC

Nick Davey - UBS

Jean Francois Neuez - Goldman Sachs

Anke Reingen - RBC Capital Markets

Francesca Tondi - Morgan Stanley

Kinner Lakhani - Citigroup

Delphine Lee - JPMorgan

Flora Benhakoun - Deutsche Bank

Alex Koagne - Natixis Securities

Stefan-Michael Stalmann - Autonomous

Frédéric Oudéa

Okay. Good afternoon to all of you. It’s a pleasure to have you (inaudible) to present our Yearly Results. As we just highlight that we have actually people who hear sitting in London, people also sitting in Paris, and I hope that you can hear us. And also of course people on line.

When we try to organize the Q&A session, I will first lead the floor to people in London, then Paris and then people on the line. We try to organize that's organization and make it work.

So I would just introduce the results and then I will leave the floor to Philippe. I have just to go through the presentation briefly and go page four. We try to summarize how do we see 2013. For us it is definitely a year of achievements. The first thing I would like to highlight is that we've been able to really have despite of tradition environmental world growth of the NBI and grow for the gross operating income and Philippe will give you more flavor on that. We will so the implementation of our cost saving program and we are ahead of schedule regarding this. And so you know about the figures in terms of net profit and underlying return on equity.

The second thing which is very important for me as a CEO is that at the same time we’ve put in place the new organization smoothly and I think it would be a very efficient one. Three pillars, we see already the synergies between the businesses and I think we will get advantage of that.

Third of course on the balance sheet the transformation of the balance sheet is completed. Philippe again will comment on that. Growth in terms of capital we stand at fully loaded called Tier 1 Basel 3 and when I say this it is really taking everything into the competitive we were in 2018 at 10%.

Well the issue of legacy assets behind us and we just have now 700 million which is of non-investment rates scattered a little bit everywhere, but no more impact in 2014 on the P&L, limited charge in terms of capital.

Really also regarding the liquidity big change, Philippe will again elaborate, but let me just say the structure of the balance sheet has came dramatically with a very strong improvement of the loan to deposit ratio and reduction also of the wholesale funding short-term wholesale funding, reimbursement of the LTRO, full reimbursement of at the group and at any subsidiary levels. So really something again [which worked].

So on that basis control the page and I will comment on that focus on the transformation of the businesses. On page six let me just say also, because yearly results it’s the opportunity to take a step back and try to think about what make bank work. And in this environment, in this regulatory environment I think very important focus also on that.

The first thing I would like to highlight is that this business, this universal banking model today is focusing on client. And really we’ve made a lot of progress I meet personally with clients, I am very comfortable with the quality of the franchisee.

Secondly as we are universal bank, clearly the idea is to have strong businesses in diversified geographies with diversificational risk, of course being able to take advantage of a strong balance sheet both in terms of capital liquidity it’s needed and with the new regulation it’s done. And I would say also and I pay a lot of attention to that in terms of staff, both a strong commitment and team spirit within teams and of course strong risk management culture.

And we are in terms of differentiating factors we will further pay attention on two things the synergies and we will have a few new initiatives which highlight the capacity we have to leverage on synergy, between businesses, between geographies and of course the innovation because I think banks going forward in the next 10 years will in my view to make a difference have a capacity to further innovate of course innovation for the clients.

Page seven the client satisfaction. As I said that the heart of the strategy you have here a few awards which is the recognition of the quality and again of the things that we still saw and again come back to the staff maturation. We had also put in place in 2010 a share issue, you know with the idea to say to the staff you will get 40 shares provided in three years time, we need collectively all together a certain objective in terms of quality of service. Both in terms of individual clients, SME, large corporate, in France, abroad and these were common objectives. At the end of 2013 so hence again this year, we have been able to meet these objectives. And this year which is a bit special for us as you know because it’s our 150th birth day, all the staff which were there in 2010 will receive 40 shares and I am very happy about it.

Page eight. Same thing on innovation here again you have a few highlight of certain number of innovations we have commented during 2013 and I don’t want to go through all of them, but let me highlight in particular on the retail, the innovation. And of course in retail particularly driven with the new technology, the new digital technology, the new applications which have to deliver added value, which are simple plus of course the capacity we have to (inaudible) command on the strong development of this online banking. It’s really at the heart of our strategy and the idea is to really keep the momentum remained ahead because of course it’s difficult to protect these kind of products (inaudible) but again we have the capacity to move a little bit faster than the other and I think that it is the case in our different networks.

Now we’d like to turn to give the floor to Philippe for the financial results.

Philippe Heim

Okay. Good afternoon, everybody. So I will give you a good overview of good results. First, and then of course I will give you some more color regarding the different businesses.

The first (inaudible) I would like to highlight this afternoon is that our portfolio now gives you the idea for bank with a pretty balance which is resilience and pretty regular business model. And this demonstrated through the evolution of the gross operating income from 2011 to 2013. We have seen that last year. We have seen the NBI going up 5.5%. But what is very let's say very interesting is that the gross operating income from the group itself and all the businesses came up also 5.5%. And this is a trend you can see across the board in every businesses. So, the French Retail of plus 2.5% and International Retail Banking and Financial Services plus 8% and also Global Banking and Investor Solutions plus 6%.

I'd like also to highlights that, there is no branch with 60% of the capital allocated to other activities with, this is something very important. And out of the 40% allocated to the GBIS, Global Banking Investor Solutions, only 20% are allocated to the market activities.

A word on our cost reduction program, this is something also -- excuse me [bench strength] this is something important for us. So, we announce this program in Q1 later. So, what we can say at this stage that we confirm this objective to reduce the cost base by EUR 900 million. And the positive development of that program is that so far we have secured EUR 360 million between cost savings already secured so far. We have a lot of projects underway and one of the key element of this program was to know the confirmation plan of our (inaudible) in Paris, so we have adapted some parts in Paris. So we have got the work force by roughly on that position. In terms of those recurring savings, we have 220 one-off costs.

I move now to page 11 to focus one moment on the cost of risk. If you take a broad perspective cost of risk between 2011, 2013 if you take the headlines, the bold headlines on this page what you can see is that an overall stability of the commercial cost of risk between 2012 and 2013 was 75 basis points.

This global stability depicts itself initials in the first quarter (inaudible) our coverage ratio and especially in the retail in France, but also in the international network. So, we have seen in the French retail the cost of risk moving up slightly between 2012 and 2013 between 50 basis points and 62 basis points. But what is important is that the underlying trend is an increase in the coverage ratio in the French retail coming from 69% to 73%, so an increase of 5%.

Regarding specifically Romania, we decided to strengthen significantly provision in Romania. We booked EUR 250 million in terms of cost of risk and we increased the gross non-performing loan coverage ratio coming from 52% to 69%. And so, this is a [new thought] we decided to do.

Regarding global banking and investor solutions, this is globally a situation of stability so we have net bought back in Q4 reflecting the pretty sound nature of this portfolio. Going forward what is our guidance, clearly we want to highlight that we see the cost of risk to be three times in 2014.

I move to page 12 and we decided to (inaudible) because you have a lot of question regarding (inaudible) and you know that it’s impossible for us to make any comment because all the results could be disclosed at the same time after the first in October and November next year. What we can do practically is to give you some flavor and let us to take some leverage on [EBA] some time (inaudible) as last conducted last December and this is the useful exercise because it is a way for benchmark let’s say the industry in terms of non-performing loan ratio and coverage ratio.

So, what you can see on this page that the situation is high on the retail segment and on the corporate segment. We are pretty much well positioned as compared with our peers and notably regarding coverage ratio.

I move now to page 13, to address now solvency ratios. So, one matter of satisfaction as you see was the fact that we uplift the core Tier 1 ratio of the firm by more than 200 basis points in 2013. So, we are now at 10% in terms of core Tier 1 fully loaded core Tier 1 and I must say this is 100 pure core Tier 1 there is no treatment of gain.

Regarding the Tier 1 ratios, the Tier 1 ratio after two (inaudible) insurance stand at 11.8%. In terms of total capital we are now at 14.4% and the target as you know to be in the range between 14% and 15%.

Regarding ratio it was for your matter of great interest last summer, let’s say that we are now above the cash flow and well above so we made let’s say seen improvement of let’s say roughly 15 basis points in Q4 so we stand at 3.5% according to before. Let’s say that you know the Basel Committee published a new set of rules beginning of January. We don’t expect major impact of this new tax going forward.

So now I move to liquidity page 14, let’s say that on liquidity few let’s say positive elements. First you see on this page the strong improvement in the loan to deposit ratio moving from let’s say 140% in end of 2011 to 104% end of last year. Some very important elements in terms LTRO well above the threshold of 100% we have truly higher most LTRO so we have no more LTRO coming at the group in our subsidiaries. We have reduced as mentioned by Frédéric our short-term self funding we have increased our liquidity buffer and we continue to benefit from very competitive funding conditions as mentioned on this page.

So, now if I move to page 15 this is just to -- this is a quick wrap up of all the elements mentioned before so in terms of revenues we have seen revenues up 5.5%.

Regarding cost if you -- let’s say [materialize] the impact of (inaudible) of EUR 146 million and ensure summarized one of course of our confirmation plan. Let’s say, the growth were up only 1% roughly, so the group net income expand at roughly at EUR 3.9 billion representing a return of 8.4%.

Page number 16, just to give you let’s say, a better hold to let’s say to represent simply how we come from the 2013 results as we proceed and to the earnings. So now I suggest we move to the businesses and I would start with French retail banking. So let’s first start with -- look at the French environment you know since 2012 economic activity in France has been and remained panic. And we don’t expect I mean a significant surge in the French GDP going forward.

Households in France are faced with depressed market and companies in France face low margins and low capacity each region. So, in this challenging environment our network showed a pretty good momentum let’s say in terms of deposit collections of 9.5% nearly stable loan outstanding minus 0.8%. So, we have seen loan to deposit ratio continuing significant improvement at 113% globally on average in 2013.

Life insurance net inflows were positive at EUR 1.2 billion and also another matter of satisfaction we see that Boursorama was a very rich target offering infrastructure 500,000 clients. In this context, we were able let's say to increase our revenues by 1.5% at excluding fed.

Operating expenses were stable versus the previous year. And so, the contribution to the group result stands at EUR 1,164 million. Going forward as mentioned before, so as consensus for the French GDP next year would be an increase of 0.8%, we don't expect a shift in terms of indirect way that will remain pretty low. We don't expect a further levering of (inaudible) And so we have take into account practicing a pressure on our commissions, we renew banking now in France taking into effect the 1st of January on commissions.

So, what we do this year we will continue to focus on claims transactions to really and gradually adopts our French Networks, we'll hands force our living position in mobile banking and invest in our transaction banking platform that's all it says was an amount we develop next May during our Investor Day.

One element, page 20 to illustrate what was mentioned by Frédéric the fact that we want to focus on client satisfaction and developing synergies between our various businesses. And let's say this is -- what we have done by combining the proximity of the French Retail and discussing of the private banking. So, we try to uplift the offer we can provide to our customers. So we want to serve clients with asset under management of above [EUR 80 billion] want to extend let’s say the offer of services. So, this new offer will target more than 40,000 households in France, representing 50 billion of asset under management. And what we expect clearly from this initiative is to increase our GOI on this period by 25%. So, this is just as an example of the synergies we can extract from our portfolio and there are between private banking activity and the French retail.

Now, I can move to international retail banking and financial services.

Once again, I think it’s useful to begin let’s say this presentation just to --with the quick overview of the economic situation. And clearly what we can see end of Q4 and beginning of 2014, a slight improvement in economic situation in this area of the world, in Europe as compared with the depressed situation prevailing until mid-2013 and this is thanks to the new dynamism we can find in Germany. And clearly Germany is a driving force in Europe. And so the German GDP is expected to grow but 1.5% in 2014 and 1.7% in 2016. And clearly this is a good news for Czech Republic for example. And you know that Czech Republic, the GDP started to rise again in Q2 after sixth consecutive quarters of contraction.

In Romania the economy is on a recovery trends with the growth rates at 2% in 2013 and an expected the gross rate between 2% and 2.5% in 2014.

So our performance in the region is as following. In Germany, in our consumer finance business we’ve seen let’s a pretty good momentum and with business moving up 6% on a like-for-like basis. In Czech Republic, KB maintained a pretty solid and pretty profitable activity in 2013 with a good commercial momentum in terms of both deposit up at 11% and loans at 5%. In Romania, situation was a bit more challenging but let’s say that BRD improved its gross operating income, thanks to a 5% decrease in cost. And in this context what we decided is to (inaudible) our provision significantly in Q4 with the cost of risk charge of EUR 252 million and as mentioned before, we raised the loan coverage ratio from 52% in 2012 to 69% at the end of 2013 that’s why BRD will let’s say finish 2013 with a lot close to EUR 100 million.

Moving now to Russia, so let’s say in Russia, so the fourth quarter was marked by our decision to increase our stake in Rosbank with the acquisition of the 10% stake held by the VTB Group. Let’s say clearly 2013 was a promising year with the good commercial momentum, we’ve seen the deposit up 20% both in retail and corporate segment. We’ve seen an increased loan activity with plus 8%. And regarding NBI, we’ve seen NBI up 16% helped by capital gains from asset sales in Q4, still a continuous disciplined cost management policy with just 1% increase in operating expenses versus inflation in Russia of 5% and contribution to group net income outstanding at EUR 165 million representing let’s say roughly 12.7% in terms of return equity on normative basis.

Moving now to the financial services to corporates. Let’s say that those different businesses remain an engine of profitable growth for the group and this is a matter of satisfaction. Let’s take for example ALD automotive. ALD automotive managed to reach symbolic threshold of 1 million car managed. And that and I will repeat it later on but ALD make good performance and good contribution to the group results, in the difficult economic environment yes where equipment finance continue to, we focus on geography of businesses more profitable. And regarding insurance, the [values] insurance businesses continue to show very good positive trends with let’s say outstanding in the life segment up 6% and regarding personal protection, property and casualty, we see premium up 25% with pretty good momentum in our international network.

So now I can move to the financial results of this pillar. So we have seen for international retail banking and financial services total revenues up 3% while costs were slightly down 0.7% that’s why as mentioned before the GOI for this pillar was up roughly 8%. So the contribution of the division to the group net income stood at EUR 1 billion. For example, Czech Republic was resilient with contribution of EUR 223 million. ALD’s profitability reached record level with the contribution standing at EUR 270 million. Equipment finance contribution was solid to roughly EUR 120 million and insurance contributed at EUR 320 million. So much for international network, so I can now move to the mobile banking and industrial solutions.

So, first slide here, just to remember that this new pillar was to achieve let’s say to put together range of businesses able to offer a comprehensive and integrated solutions, matching the need of sharp client, and what is depicted on this slide, something interesting is that between 2011 and 2013, and through let’s a pretty volatile and challenging environment, this pillar was able to let’s say to put to maintain an overall stability in terms of revenues being stable at EUR 8.6 billion, (inaudible) apart from stability and it was addressed in 2010 when we communicated during our investor day, our motto was to deliver growth at the lower risk. Clearly you can see here our market activities that we have decreased significantly our risk appetite and this is demonstrated here with the market success.

So I can move now to the global markets. And this is let’s say a new format of disclosure. So, we give you full P&L disclosure regarding the global market activities and quickly (inaudible) So, we've seen revenues in global markets coming at 4% on a like for like basis with clearly a strong contribution from equities which represents more than half of the division revenues, fixed income business let's say more normalized environment as compared with 2012. So, equities had year at 2.5 billion of revenues at 32%. So, clearly being a leader in industry, whereas at the same time, revenues were resilient, down 19%.

Regarding financing and advisory, it should neutralize let's say the impact in 2012 of deleveraging, revenues were down 9%. We have to bear in mind that this division is still impacted by the growth in terms of loan outstanding for the impact of deleveraing policy we conducted into 2011. But we keep very solid commercial position and the origination capacity is very solid and we will demonstrate it down the road in 2014.

I can move now to assets and wealth management, a new pillar of the Group, page 28. So, say that in private banking we had a good year with NBI 11%, with dynamic inflows driven by the French market and Luxembourg. We took a set of values commercial initiative in private banking. We mentioned before France, but we can also mention Morocco and Croatia. (inaudible) enjoyed also a good momentum with a asset under management up by EUR 5 billion euro [EUR 80 billion] with an increase in NBI of 8%. And I am contributing to the group net results by EUR 106 million.

I can move now to the financial results of the global banking industrial solution division. So you have clearly revenues of the (inaudible) at on a like-for-like basis 11%, but if you take just let’s say as a form of CIB, because to have the figure in minds, so revenues of the former corporate investment banking division were up 7% on a like-for-like basis. And so for the formal, let’s say code in CIB were a cost income of 62% and a pretty good performance in terms of return because return of core [IGCIB] remain at 18% because of full year.

So we are on the (inaudible) portfolio just to mention that we have seen let’s very significant and very important evolution into starting. We might not reduce our portfolio, starting the year with roughly EUR 3 billion, EUR 3.1 billion of the investment asset and the remaining part is below let’s say EUR 0.7 billion. So let’s say negative assets are no longer an issue for Societe Generale. And remember that end of 2010 EUR 8 billion of non-investment assets. It was a pretty impressive evolution. And going for long we don’t expect any P&L impact on this portfolio. We have now positive (inaudible) on the remaining part.

Let’s flow for the contribution of the [pillar] to group results stands at EUR 1.3 billion roughly. The world under corporate center, so the corporate center this year as in 2012 affected by the revolution of our own financial liabilities, a total impact of more than EUR 1 billion. One important issue localize of the volatile demand also non-economic and non-recurring revenues so the GOI remain below the guidance we disclosed last year EUR 1 billion because we finished the year with negative GOI of roughly EUR 800 million. But I can later on comment this element and I will leave the floor now to Frederic for the conclusion.

Frédéric Oudéa

Yes, thank you Philippe. Just a few words of conclusion. We really turn the page if you wish a chapter of Societe Generale highlights 150 year history with the end of 2013 and we are entering into 2014 with the strong balance sheet and good level of provisioning. We now view the strong business model we’ve also a new organization which in our view will be more efficient and really now we enter in chapter I would say over the next two years. We have an environment which we consider there should be progressive improvement of the Group in the world that we can answer your questions on our views on that, but it’s something progressive that slightly better.

But of course we see volatility potentially on the market and we should not under-estimate that the U.S. growth is basically hosted by an extraordinary monetary policy and (inaudible) that we bring which is (inaudible) itself also very progressive will have probably some impact.

So in this environment the focus is on the transformation of the businesses and the challenge of profitability to move from this 8.4 underlying 10.4% return at the end of this period 10% return that’s really all the focus of our teams.

I must say I am very confident to deliver we will give you the detail of that on the 14th of May and may I say again priority for the front retail is really the digital. There are many projects new initiatives on the client side and of course to adapt to the digital transformation.

International banking, we expect progress, there is still more work to be done in Romania, Russia certainly but clearly we expect progress across the board there and on the GBIS. And I see take advantage of the disintermediation and of course for example integrate new edge which is in our view a promising project overall. I must say the start of the year is encouraging and as a CEO I can tell you really the moral of the teams is very good across the board running conditions for it success.

If we just finish to say a few words on the dividend. For 2013 as you have seen we will propose to the growth of our shareholders EUR 1 dividend per share. It is inline again to calculation, what we do is take the net profit per share. We modify correct the non-economic elements such as the negative impact of the owned debt and then we have also to on the other hand subscribed the dividend which are paid on the hybrid instrument. And so all in all the EUR 1 per share represents the 27% payout ratio inline with what we had announced and for 2014 the target payout ratio calculated in the same way is 40%.

That’s what we wanted to say as quickly as possible and now the floor again is open to you. For those of you who had just joined.

Question-and-Answer Session

Unidentified Company Representative

Yes. So we take the question, but you know the rules; only two questions per person, because to (inaudible) all the question.

Frédéric Oudéa

And we try to be as short as possible in the answers, and for those of you who have just joined in London, let me just say we start with London then we go to Paris and then we have questions on the line.

We will do this in order, and first lady. We start with Lauren.

Lauren Torres - HSBC

Hey, Lauren from HSBC. Few questions first.

Frédéric Oudéa

Two questions. Two please, yes.

Lauren Torres - HSBC

Two questions. Could you give a bit of color on the corporate center? Basically it would be helpful if you could quantify the cost of liquidity for the quarter. And then I would like to know what should we think about validation risk going forward?

Frédéric Oudéa

Okay. I am sure that some other questions will be covered by all the people in the room. And if you want come back you can. Perhaps on the corporate center first.

Philippe Heim

Sure, on the corporate center, as you are seeing. So we finished the year with (inaudible) of just the north of EUR 800 million. To bear in mind that in the corporate center this is a mixed bag of different elements. So of course you’ve got the liquidity (inaudible) was so volatile element like mark-to-market on aging swaps. We have also capital gains, capital losses on specific residual set disposal.

Bottom line what we expect down the road into ‘14, we expect on the (inaudible) being at EUR 900 million for the corporate center. And we confirmed our guidelines for 2014 and negative July of minus EUR 800 million in 2014.

Frédéric Oudéa

Now regarding the liquidation rates first of all in my condition we need to think the banking business to have litigation rate going forward. I mean it's (inaudible) I think of the business at this moment next two to three years.

Secondly, we don't have, we didn't have any additional litigation, big litigations compared with the list that you have in our reference report last year. Third I think we put the maximum level of provision we could end of the this year. And we had to put together collected provision we started in 2012, what we decided to do at the end of 2013 to be as conservative as possible I mean to have the impact of the fine for a year ago, while maintaining the EUR 700 million collected provision.

I think we're well provisioned and after that for that we will see how every litigation goes. Again it's not that difficult by essence, we need to see how it goes. But I would say my (inaudible) impact would proceeding into the 2014, that's the reason when I look at where we stand with the litigation rate, interest bearing on it.

Next question yes. And then….

Nick Davey - UBS

Good afternoon everyone. I'm Nick Davey from UBS. A couple of questions please, two questions please. The first one on tax, you continue to enjoy a slightly lower than usual tax rate. I just wanted if you would be willing to share with us what tax rate you assume when you are budgeting pure 10% ROE. And the second question please on the net stable funding ratio on the changes to the proposals that was submitted earlier this year. If you could give us any flavor of where you stand now on that ratio, will the impact of those changes, whether or not you think this is a ratio we should be looking at and so? Thank you.

Frédéric Oudéa

Okay. So on tax. This is a pretty tough quarter we've seen there is always pretty low tax at 18% that it is not a run rate. And this is due to let's say to let's say weather, volatile or it’s the consumer element. So as we kept that gain on Egypt, we kept that gain of more than EUR 400 million. And this was mainly due to the hybridization of our own liabilities in terms of [P&L] this is more than EUR 1.6 billion. So those two elements explain why compared with (inaudible) is 25%, we keep down to earth before profit and operating 25%. That’s why we’re listing two separate elements explaining (inaudible) 2014.

Regarding NSFR at the stage we don’t disclose why we spend on NSFR, so the new text has been disclosed by values (inaudible) so we are still let’s say calculating where we stand in that contribution so we can let’s say forecast some sort of amendment to this set, but it’s too early to communicate.

Regarding liquidity as mentioned before, the Group has been demonstrating significant improvement so far, with headcount ratio constantly [above] 100%. We have reduced the short-term funding where this will improve Group stability ratio. And if there so we'll increased by EUR 20 billion our liquidity buffer.

Down the road, NSFR is another element in let’s say the complexity of equity management, but we (inaudible) as soon as all those elements will be clarified we’ll come back to you.

Unidentified Company Representative

We would be able to meet the (inaudible) one particularly, especially because also in 2014 you would see higher deposit growth and loans. And this structural change will be maintaining in 2014, I don’t expect the growth of loan in France as I said are in progressive recovery even in terms of Eastern Europe, progressive recovery deposit collection will remain significant.

So it is for me one of the major change that we should tackle. Going forward looking at the retail banks taking into account the best (inaudible) something we don’t take into account for 2015 if rates go up that’s in my view a game changer in the structure of the bank.

Unidentified Analyst

Two questions, first one is on the dividend. You had the previous guidance of 35 to 50 from ‘14 and onwards and now you only talk about ‘14. So is that because you want to keep some potential news for the Investor Day? What is your thought process as to why you don’t give a new guidance now beyond 2014? The other one is on CIB, you have 18% ROE in core CIB in ‘13 and your guidance was 15%. So what will be worse in the medium-term compared with 2013?

Philippe Heim

So, I guess on the dividend we want to keep some news otherwise you will not come on the 13th May. So, I think it’s enough to give you for 2014, but I see probably the 40% is a sign. Secondly, let me just elaborate a bit more, I think if you wish. This 40% should deliver a good yield to our shareholders, but at the same time that reflects the view that we can reallocate capital to the business with a good profitability. And I would like to spend a bit more than 10%. The 10% if you wish is fundamentally 15% on the businesses based on capital allocation and the corporate sector would see the way on the profitability because the goodwill are not allocated. And also because of the hybrid dividend, which do not impact the P&L, but by essence reduce the return on equity and by essence are not impacting the return on equity on the businesses as such. But let’s say the idea is that return has more capital progressively moderately, moderate growth with this channel of hurdle return are low in the businesses. So that’s the plan and we have the condition that we can very well grow in our business model.

The second thing, the CIB, as I said, I think we have a particularly good and strong business model. 15% for me is I would say again a hurdle, a minimum hurdle it could when we couldn’t do a bit better.

Jean Francois Neuez - Goldman Sachs

Hello, this is Jean Francois Neuez from Goldman Sachs. On the CIB on this question of return on equity what’s been striking in your slide with the stability of the revenues over there are three years yet at the same time I think that your Group Basel 3 risk weighted assets are lower than your 2011 Basel 2.5 risk weighted assets and also lower than in 2008 Basel 2 risk weighted assets. So what’s been striking here is the amount of mitigation that you have been able to pull through and that’s been obviously a big driver of the return on equity because of the in-component if you want rather than because of the out-component I suppose.

The question here is, where we stand in that process first of mitigation and of risk weighted assets? And secondly, whether there is anything that could come as a bit of a curve ball as we go into asset segment and this type processes, which could potentially impact because the review of books and this and that?

Philippe Heim

Keep in mind again, the amount of develeraging which has been done in the last 24 months and towards a model which is towards much more decent in addition and much less profit [trading]. So again today it’s in the low which is pretty efficient in terms of reducing the amount of technical which again stays in the balance sheet.

Regarding again the future, we have to wait for the -- I don’t know about the trading thing, but I would like to say just is that we think we have adequate level of capital for better opportunities from what we can see. And as I said, I speak to this 15% return on capital for CIB, as well as for the other businesses actually. And again why do I say the 15% because in terms of value creation again as I said, you have the hybrid.

And if you don’t have that kind of hurdle with the hybrid, which makes the total return a bit lower for the shareholders, we need to have to challenge the business model. As I stand up where I am very confident, we don’t have to destroy in top of the business. It’s a business which I think will remain pretty sustainable. And we still have the financing part and I don’t see the regulation going forward to reduce the financing. We need -- if you want growth in the world, you need financing throughout corporate energy and et cetera. And so, I remain pretty confident on that.

Secondly, our liquidity business is pretty much (inaudible) keeping that in mind. First of all was collection of deposit when we sell future products to retail and private banks. So this kind of business is in capital markets, but (inaudible) savings in the world. And the equity guarantees first of all that and order flow is not particularly impacted by the new regulation, it's not the target of the regulators, regulators target the loss credit rate and CBI business.

And further to think on business which is we have very much towards again corporate and with -- this is in addition which is taking place and I don’t know where we stand today, but just a few days ago for example [digging] earlier we are number one in the issuance of bonds for corporate.

I'm pretty confident with that we are on top of that new edge, but we see there is a platform being able to capture what does not exist today, but the new business on the clearing side with new products. Thus the regulators want to destroy specialty product and have this product to get an interest rate in particular.

So, I really believe that it's a pretty good model, which means I would say a sustainable client niche, a pretty consistent management team and the teams work together. And I think it's pretty well suited model for the future. And so whatever happen in the regulation, I think the thing we would able to do a good profitability.

Jean Francois Neuez - Goldman Sachs

Just wanted to ask a quick second question on DAQR, I saw that your NPL on group level were flat this quarter, some could have expected that reclassification of whatever four bond exposure could have taken place there. Should I redeem to these that there is no re-class to happen ahead of DAQR according the [EBA] definition or anything?

Frédéric Oudéa

Yes, let's say we increase our provision this quarter, but there is let's say most efficient clean with actual going down the road and so (inaudible) let's say what we could actually [pension]. So, we conducted a survey that decisions with (inaudible) we expected a lot of data from our systems and will have the results, let’s say after this summer, in September and October.

Unidentified Company Representative

The lady behind, will you go back to the front line.

Anke Reingen - RBC Capital Markets

Thank you very much. It’s Anke Reingen from RBC. Two questions please. The first is on international retail banking. Your revenue trend, could you give us some outlook of do you think Q4 could be somewhat of a trough for how long do you think it’s going to be quite challenging and at what point will you address your cost base in some of these regions?

And then secondly on French retail, your comments were quite muted on the revenue outlook, so it’s like 1% revenue growth is best case? Thank you.

Philippe Heim

We’re going to try something as [Paris] is able to hear see us; I see Bernardo Sanchez who might take the question on international retail. Bernardo, the floor is yours and I hope that we will hear you here in London.

Bernardo Sanchez

Yes, I think I...

Philippe Heim

We can hear you.

Bernardo Sanchez

So there is a question about the cost base in the international retail.

Philippe Heim

Revenue outlook.

Bernardo Sanchez

And the revenue trend. So I mean this is not an homogeneous environment and I have to make few comments depending on the regions, Let’s start by Europe. In Europe we have situation where we have a pressure on the revenues which is due to the low interest rates existing at the momentum in the market, where the efficient commercial activity that is outperforming our subsidiaries overall are having positive results and the increase of deposit basis and to a lesser extent on the credit basis. But on both sides, the net interest margins are under pressure due to the level of interest. And we have the specific situation of Romania, were due to the restructuring process that we’re performing. We have been able to stabilize the revenues on a rather low basis, so we expect this to grow in the future.

Then second region is African countries, which is our mixed region where we expect to have overall growth which is not visible today because in this miscellaneous region, we have three parts. We have the Sub-Saharan countries, mainly (inaudible) Cameroon regions which are dynamic where the revenues are still growing.

We are under pressure, we have been under pressure in 2013 in the Northern African countries and specifically in Morocco for the same reason where we have had pressure on the top-line of the NBI. And we expect overall this continent, this African continent to fuel the growth in the near future.

And the last comment is about Russia. In Russia we have today in 2013, we have from an accounting point of view, we have a significant growth of the revenues which is partly and we have to be clear with that, this is partly due to exceptional revenues of disposal of assets in Russia in 2013. So not taking into account those exceptional revenues, we have a small growth which is the beginning of the positive results of the activity of the retail banking and we have a significant growth of the deposit also in Russia but also of the credit to individuals, specifically and more specifically to mortgages to individual where we have a very positive growth. And we are starting to have positive results from the commercial activity with corporate. And it’s important to note for instance that in 2013 we have been the first bank in syndicate loans in Russia.

On the cost side, I have to say that we have been rather efficient in controlling the cost because we are operating apart from Europe in the other -- rest of the regions, we are operating in places where there is inflation. So, the fact that we have been able to contain the cost more or less at the same level than the previous year means a lot has been able to offset the inflation for instance in Russia where we have growth of cost of 1%, whereas the inflation of the country has been 6.7 in the year. The same thing applies to the African countries where we have been able to control the cost and to even when we are enlarging the investing in the networks.

Philippe Heim

Regarding the French retailer, I could not attend the meeting. I would say first of all keep in mind, we have in mind relatively low growth controls for this year of 0.6%, not particularly driven by investment by corporates, we expect that to pick up more in [2015,] so relatively on the credit side, not a particularly strong credit production. And as I mentioned still a negative impact of low interest rate and also the one-off, if I may, the impact (inaudible) or one-off impact of the low interest which has reduced the machines on over drag.

So starting from a level which was higher than we expected (inaudible) increasing will be very difficult, I think it’s more around stabilization, max I would say for the revenues. And after that we expect this to improve, because there will be less one-off hopefully in 2015, a bit more activity on the credit in the deposit and hopefully the beginning of some more positive impact on interest rate.

So 2014 more or less, I would say stabilization after that (inaudible) it’s a bit early to say. We will do ladies first and then…

Francesca Tondi - Morgan Stanley

Thank you. Francesca Tondi Morgan Stanley. Two questions here as well. Going back to international retail sensitive picture, clearly things are improving, it (inaudible) your biggest improvement actually should be the cost of risk coming down this year. Can you tell us of what you've done in 2013, how much was actually increasing coverage and how much was underlying so that actually we have more of a feel what is the run rate there, which is probably possibly lower than the 153 basis points you are forecasting and is that -- could we see, it with like lower situation in ‘13, in ‘14 compared to that. And how do you manage the FX rate in some of these countries in terms of potentially the volatility in currency and getting lower earnings?

My second question is on dividend and capital, clearly increasing the payout could bode a confidence in your capital position. But you’re still generating capital, you're talking about growth. Where do you see your capital levels directionally going especially underlying your guidance on returns?

Philippe Heim

We leave Bernardo commenting on the cost of risk. Clearly, we have a significant decrease on the cost of risk in line for 2014 and we will and -- we can comment on certain specific small countries. But on the capital, let me just remind you, we now here at 10%, we have a significant (inaudible) actually the minimum level we are expecting to have, which is 8% as a global city. And I think it's really over time really a good level. So maintaining that more or less, I mean we are actually above what we had in mind, 9.5 at mid cycle level. It's okay and as I said for the time being, we will monitor the group as we spend, beyond that we have again this 14% to 15% total capital ratio in mind at 11.8 in terms of tier 1, don't expect me to change with the overall.

Frédéric Oudéa

I can add specifically on (inaudible) International Network and leave the floor to Bernardo. Specifically on the coverage ratio, as you mentioned, so we made some efforts, so we increased specifically for international networks, so the gross coverage ration from 64 to 67. So you see by the (inaudible) we decided in Q4.

Does that all (inaudible) or I would say for example Romania, Russia

Bernardo Sanchez

Yes, we have had specifically in Romania, in Romania, we have, we made an important effort in the last quarter of the year. And the end result as Philippe mentioned before was to increase the coverage, the gross coverage from 52 to 69. This is very significant step. To remind some figures and I don’t have those with me, but I think the total cost of risk in Romania during the year has been for 180 something 80 million, for 2014.

In 2014, we expect this to be reduced I would say at least by half. And the normal cost of risk, and the normalize level of cost of risk of the country should be in the region of 40% of the cost of risk of 2013. This is not going to be the case in 2014, but in the coming years, this is the level that we should reach, mechanically it should be, it should happen.

We have had three additional regions for the increase of the cost risk of the year. One is that we’ve made a report to normalize the way we assess from a statistical point of view the risk of the consumer credit operations across the country. This has had an impact not it’s too many important but it has had an impact. And then we’ve increased the coverage in some of the African countries. And we have had specific one short increased cost of risk in Russia due to a normal operation that was originated and actually reimbursed before 2008. This is all those aspect should not be reproduced in the coming years.

Francesca Tondi - Morgan Stanley

Sorry. Will you prepare to share with us also what is the reserve coverage in the Russian business?

Unidentified Company Representative

So the gross coverage is 74. So, not speaking (inaudible).

Unidentified Company Representative

Yes. This increase just that you’ve heard the additional question, will it increase to 74?

Unidentified Company Representative

Will it increase during the year, I guess so but not so much because we’ve made a lot of efforts in the part of Russia, so a little bit.

Philippe Heim

And that’s on the financials briefing let me say first of all we are in -- our presence in major market mainly in countries which are not so impacted by the current deficit balance of payments, and to summarize and simplify in Russia we have loans in dollars for corporates but which we get their loan in dollars within traditional sectors such as energy. And then you have in certain countries like Rumania, Croatia loans in euro in economies which are euro wise if I may so. So we don’t think it’s a big risk we don’t have a big exposure in Swiss franc so it’s for us not a big risk. Next question Kinner.

Kinner Lakhani - Citigroup

So I have follow up question on the provision for disputes. I know it’s always difficult to talk about that, but there was a particular case around equalization tax in France and some dispute with the French tax administration that I keep on hearing about. And I wonder if you can maybe shed some more light on that to help us understand what the risk is and…?

Frédéric Oudéa

(Inaudible) there is one tax litigation in France which has been raised which does not concern Societe Generale or other corporates which has (inaudible) at the European level. And the European Commission has written to France and saying we agree with the corporate. So that’s typically where it’s difficult to, it seem that we are right and it’s in there. So the debate has to be pursued and we will where it goes. But I am from what I seem pretty optimistic on that.

Kinner Lakhani - Citigroup

Okay that’s helpful. And secondly just on CIB, I am sure you elaborating, but we read articles suggesting that you are expanding on investing in Asia and the U.S. in the capital market side. So I just try to better understand what your ambitions are especially in the U.S. markets?

Frédéric Oudéa

Yes. (Inaudible) how would you comment and illustrate what we are going to do, it’s a pretty focus investments?

Unidentified Company Representative

Yes, good afternoon. Yes, we have this currency investing a bit on our fixed income difficult market and fixed income activities, I would say throughout the asset classes and throughout the geographies, just to accompany our plan from size that’s when - and we have done in 2013 some investment in Europe, Italy for example in our (inaudible) capital market activities in New York that will slow investing a bit (inaudible) in London, and we will do the same in Asia in the future.

So it’s not a huge investments, it’s just in a company to a company the developments of our plans. We have a good intention as you know to grow our market share globally speaking and we do that everywhere in the world. So I have mentioned some ironing project of some tense of people in front offices both area Asia or U.S.

Unidentified Company Representative

But we have the same businesses and again in line we give idea to distribute credit for example our corporate, our project finance in the desensitization process which is taking place.

And our purchase. There was one question and I will come to your again.

Unidentified Company Representative

And then we might go to Paris, if you don’t mind also.

Unidentified Analyst

Thanks it’s (inaudible) from Morgan Stanley. Most of my questions have been probably asked, but as I look at the (inaudible) it’s good in outperforming your pace in equities. I just want to say that there is nothing in Q4 then the (inaudible) on sustainable.

On the other hand fixed income always been a tough quarter in Q4 looks weak relatively to payers. Again is there anything that’s subdued activity beyond the obvious on rate. And so from some selective investments in U.S. and Asia and so forth. And I guess the new strategy is part of this. How can you address kind of under running and fixed income transport and ROE that is 50% in that business.

Unidentified Company Representative

(Inaudible) perhaps would you like to answer the question?

Unidentified Company Representative

Yes. As you mentioned one point in our fixed income revenue on the fourth quarter. Weakness if I may say so it's a way to drive rates activity as you mentioned that. Another point is clearly that we had all about the year more on equity, deal flow with fixed income. And specifically on our spectrum products. And the fact that we have a global approach in terms of - products, one year our investors, our clients would prefer certain products with equity underlying assets, but the case in 2013 and for that the case in ‘12. We should have a global view I would say in terms of market activities in our case, due to the structure product activities we have.

So, the weakness of our revenue and fixed income, at the - On other asset class, we had a decent quarter, not a very good one, but a decent quarter. So as I think so, it's really provide linked to our structure product activities when you have this - between underlying assets, the investors requirement.

Unidentified Company Representative

London and then we will move to Paris.

Unidentified Analyst

Hi it's Will Davidson from Jefferies. Just a quick question on the leverage ratio, you put it up to 30.5%. So a 15 bps and leverage exposures come down I think 4% q-on-q. I know you have a very deleveraging program let's say, but is there any other kind of easy wins you can do on that add on number, through (inaudible) and compressions in the PFE and whether that number can drift high without kind of at the deleveraging number? And secondly whether you can give any (inaudible) without kind of active deleveraging number? And secondly whether you can give any color on Q1 performance in, I know it’s early days, but January performance in fixed income would be just interesting if there is anything you can say? Thanks.

Frédéric Oudéa

Again for being able to (inaudible) I would say it’s pretty encouraging, so far so good. Now on the leverage?

Bernardo Sanchez

So on leverage, so we know this is a bit say predictable on this Q2, let’s say that we will provide this quarter, let’s say I have said this quarter, because we’d give you let’s say the breakdown in our leverage exposure. One element is very important, we don’t let’s say, we don’t manage the bank with bringing my -- leverage ratio, leverage ratio is a consequences of this season from (inaudible) on capital allocation, on business development. And I would say the leverage is a result of all the management decision. So don’t go to bottom-line.

What we have seen is initial improvement this year. We want of course to reduce the level of leverage, (inaudible). So we will present during our Investor Day. However short commentary where we can want to be let’s say in 2015, 2016. But let’s say apart from what is in this growth, I think everything in that in terms of leverage.

Philippe Heim

Now shall we move to Paris? Is there any question in Paris? And say hi if you can allocate the question because I will be not able to do it from London.

Unidentified Company Representative

Yes, yes. The first question will come from Delphine Lee.

Delphine Lee - JPMorgan

Hi, it’s Delphine Lee from JPMorgan. Two question, so the first one is just to come back on you target of 10% Basel III end of 2015 and how you think about capital management? You sort of kind of suggested there might be on your dividends some upside, but how are you thinking about external strategy and underlying organic growth? And the second question is on regulation, if you just could provide maybe some color on updates and where the concerns are today and what are the risks? Thank you.

Philippe Hein

Okay. Again, let me say we want you to come back in Paris on the 13th of May, we need to keep some elements of explanation in particular on the capital allocation, organic growth et cetera in a nutshell. As I said, 40% I think it gives to our shareholders a pretty good yield. We think we can use the additional 60% of capital generation if you wish to our businesses. As I said, predominantly organically we see two growth engine international retail and financial services and GBIS. On ICB it’s a single-digit, but nevertheless something which could be relatively robust. I don’t expect the front retail to we use so much capital in the coming two years. As I said, with the kind of scenario I have in mind (inaudible) beyond maybe 2015 a bit more, but not so much in the next two years.

And as I said, we can this morning also I mean we can look at the selected acquisition exactly like the one for example Newedge or additional minorities taken in those banks. But predominantly the next year I mean is focusing to run the business. I assume that the transaction if you wish that with this transformation of the business we can again create value and further reduce the discounts on the shelf is I think is not legitimate. It’s really the priority that does not prevent us to look and there will be for example in Central and Eastern Europe in my mind a consolidation process.

I think that in each Western country what you see in terms of model on the retail side is three to six banks concentrating the bulk of the assets. It is a case in Spain, already for a long time is the case in France, case in UK, Benelux, even Greece as further crisis you have four banks now in Greece. And I think it would be in one of the case everywhere in Europe maybe except in Germany.

So this I think should happen also in Central and Eastern Europe. And if to an extent we can have a look at that. And as I said, Poland for example, is still a country of interest for us. But there is no urgency. And as I said, the priority is on the organic growth because I think we have growth engines within our business.

The second thing on the regulation, let’s say here I would say two things to monitor, which are still driven largely by political considerations. First of all, all the taxation things et cetera, the financial transaction tax for example. You see many countries asking for mitigation at the end of the day I think pragmatism will prevail and pragmatism which is on the one hand to ensure that companies can access financing in competitive terms and of course avoiding delocalization of activities from Paris or Frankfurt to London. So that’s one thing which is still in here, but I would say, I think pragmatism will prevail.

Secondly there has been a recent debate again on the organizational bank, but it’s not something which will be again reduce cash or has anyway in Europe with the current condition in parliament so it’s something for 2015. Same thing in my view, pragmatism will prevail. In 2015 Europe and that’s Eurozone in particular I say. Beginning of 2015 after the banking union has one channel which is good, and Nigeria what we’ll say and other companies will say Eurozone in Europe has to ensure there is a access to [networking] financing system. And I say that have to be DAQR all the noise around the stability of the system should be also with -- because I think people will see that there is a quality of balance sheet.

Secondly in our view it’s an issue telecommunication et cetera. So I think that up to the new commission to the counsel to the new parliament to indentify the priorities, but may I see that I am not sure that again changing the organizational banks in 2015 will be the priority.

Beyond that DAQR is one thing, banking union, I don’t think I missed anything else. So we will discuss about again in the further discussions with the Basel Committee, as well as on the trading and on the trading side and it’s a fast deal that has to be decided. There are still missing pieces, but I tend to think that again more and more people will see that a lot have been already decided.

A lot of changes has been made and again at the end of the day for European banking sector in particular we need to ensure also the capacity to the business to carry on financing economy with decent profitability and at some point things might not work. So reasonably I would stay optimistic even if -- we will of course remain cautious.

Operator

Next question from Jeff (inaudible)

Unidentified Analyst

Good afternoon, two questions. First question relates to the changes in your financial presentation. First of all, I was very happy to know that France now belong to international countries, which means that you’re now fully integrated the fact that we are in globalized world. And it's good for our -- but in my view for instance there is two things that I don't understand. First of all I don't understand why French consumer credit belongs to [VAT] division and for me it's more logical to sit in the French network maybe to (inaudible) And also…

Philippe Heim

Jeff you need to translate that in English.

Unidentified Analyst

I don't know in English, you never run down in English. So I guess the word does not exist in English. And more on that regarding private banking you have more or less said that you want to integrate more deeply your private banking, we've seen your retail networks particularly in France with some changes in the disposition of the branches. And once again I was surprise to see that you did not put in your reporting private banking in as branches at least first in the French network. And we can also have this reflection for insurance, it's my first question?

So, my first question, which is a question from a lazy analyst who doesn't like to change too often its budget. Are we with an intermediate reporting and are we supposed to see that change in the coming months, as soon as the figures to do that because I know as an [ex-retailer,] it’s complicated.

My second question is a little bit more global, and regarding the business. You say that you want to make some investment regarding fixed income platform in U.S. and Asia to your clients in a better way, which is perfectly understandable. My question is that you said many times about the world is changing et cetera, originate and distribute that now the balance sheet cannot finance anymore, they need the vehicle et cetera, et cetera. and my point is that so far I don’t think and you may add something on that point, but so far, I understood that the European market as they’re organized today are not about to absorb the financing needs that were but will be previously finance by French European banks. But these debts which cannot be kept anymore in the balance sheet of the banks, we’ll have to be sold to foreign markets like the U.S. and the Asian markets which means that we are going to sell the European needs of financing to foreign countries in which you are present.

And you don’t talk about these strategic investments you. You say okay we are investing to follow our clients. But do you really think that it’s enough in the globalization world with the globalization of market and with the rules that were, as in my view (inaudible) to European banks with European markets that cannot absorb all these financing needs. So what is your view on that and don’t you think that you will have to accelerate your presence in these countries in order to maintain your rank as one of the most important financer of the European economy? Thank you.

Frédéric Oudéa

Okay. I will leave Philippe commenting on the reorganization and perhaps (inaudible) comment both on the private banking side in France that is really -- it’s a strategic initiative and also on the fixed income but just one comment. I am not sure you agree with this vision that there is not enough saving (inaudible) a little bit in Europe to finance European credit, because let me just say first of all, there is still a deleveraging process which is taking place in Europe at the public level, government bonds but even in southern countries at household level. And so I am not sure that we will have such an increase of the credit demand overall in Europe.

When I just say France and the figures are from the perspective interesting because (inaudible) is taking place. And just keep in mind, the net debt of non-financial corporate in France is roughly EUR 1.29 trillion, EUR 815 billion of loans and it’s around EUR 476 billion of capital market financing (inaudible) loans are basically stable or slightly down.

Capital markets grew -- financing grew at 6% which means as if we meet the average, the net debt is growing at 2%, which I think is pretty much in line with at the end of the year, growth which is plus inflation. So, I think overall the debt to GDP doesn’t move so much.

And when I compare with the rating, the savings of French household, it’s more dynamic than that both on the insurance and the deposits. So I don’t think I have in mind anyway no (inaudible) expense markets, regional money going to regional financing. It will happen if you take of course smaller or mid-sized SMEs in France. I mean small and mid-sized not larger ones which can access the U.S. market but typically effectively I think it will be more if I may say regional financing which will be there.

But on one hand I think it’s important to be active there and of course the European market can still develop in particular on the high yield or with the private placement. But at the same time, you will have also infrastructure projects in Europe which can effectively attract because they are very big or whatever which will able to attract money coming from the U.S. and Asia. And that’s exactly why -- when we think about developing our business, not only we want to enhance our distribution capacity in the euro market but also in the U.S. And may I say maybe one day in China I tend to think that China will become a large pool of liquidity, what I am not clear is the degree of internationalization. But certainly more and more corporates will also try I think to finance their local activities, just their local activities to access the Chinese liquidity pool and with more bonds, at some point.

So I think our strategy is a global one because again we think corporates will grow from euro to U.S. and obviously it could be the same for infrastructure, and they might choose to select one on the market. And at the same time of course sort of deepening the capacity to develop capital markets in Europe in particular, because of the change of financing which needs to take place because of the regulation in the banking arena. And after that we can say it’s good or not but definitely we go towards more (inaudible) model.

I know that you are not lazy, but I mean - exactly he’s a very hard working guy.

Unidentified Company Representative

(Inaudible) I see lot of growing (inaudible) because we will disclose a new format of financial communications, so those I forgot. So in fact we have to let’s say to take into account the consequences on our figures of (inaudible) organization. So your raised such a relevant question, if we need to maintain insurance and consumer finance in the department, so let’s say and also maintain private banking (inaudible) we had a lot of internal discussion but we decided to adopt to this format of disclosure because it’s perfect. So, the synergy that now implement day-to-day, it’s a synergy between the businesses. So what we try to do let’s say to have exchange reviews so that we can stabilize, (inaudible) and so that’s down the road when present the new our strategy in May with all digested all those information in this new format.

Unidentified Company Representative

And it's not (inaudible) in terms of geography, but nevertheless for us, it's the right arbitration also taking into account the business in (inaudible). So, it's not perfect, but it's a good target as I said and we don't want to change that. And we move for example (inaudible) because it was something easy from especially financing to the French activity on the consumer credit because again they are also (inaudible) and we did not come to break that.

Unidentified Company Representative

So, (inaudible) to come back to fixed income.

Unidentified Company Representative

Yes, I think (inaudible) elaborated already about, I would just like to comment, to add point in our investment, we have purchase of credit chain from [originated] distribution, it is exactly to answer your point regarding how we distribute the assets we’re originating even in Europe as well. So, it's one of the area of our investment is all the credit chain from origination to distribute.

If I just may comment on the private banking, I would not say exactly what to say it's regarding, we have decided not to bring to the return of private banking unit. We have decided to create the new organization to develop more synergies between the private banking activity and the retail banking activity. And so it's a kind of joint organization which is led by the head of the French private banking, which is very important. So we are bringing together our private banking know-how, capacity developed services and the retail banking proximity. It’s a way we see that. And in terms of reporting, we will have two-third of the total of this activity within the French retail and one third within the private banking.

Unidentified Company Representative

Again, we'd like to take one also additional question from Paris and then I'd like to turn to the people who are (inaudible).

Unidentified Analyst

Yes, just a quick question about these, yes you are, I know you could tell us eventually about what's going on. But we have a certain number of European results are the euro area, which had a local regulation with local equity requirements, which means a part of the equity is locally frozen whether you like it or not and can be used directly to cut the losses outside their own country. Do you have any idea whether it should -- will take that into account or it will deal with that? Are we just confident at this point now from then until now it could be significant in some cases?

Second question, you are targeting of anticipated better calculation you are targeting to 10% return on equity 40% payout which means implicitly you are telling 6% equity growth per year as it maths. I guess you are not as you mean 6% organic growth in (inaudible) business volume or risk weighting asset, I guess how would you split that in term of in organic growth return to shareholder and some maybe some purchases?

Unidentified Company Representative

You are asking for me for the second point and then I say really we can’t answer to your question on the (inaudible) we don’t know we are still at the relatively early stage, so I’m sorry I can’t give you more. I know we’re not taking too significant anyway, now we have I don’t think it will change very much the picture.

Unidentified Company Representative

Any more questions in Paris?

Flora Benhakoun - Deutsche Bank

Two questions from me as well please, it’s Flora Benhakoun from Deutsche Bank. So the first question is to come back on the corporate center with news, I understand the guidance that you give on the gross operating income of negative EUR 800 million for 2014. Now when I look at the Q4 results, I noticed that if we retreat the owned debt loss, basically you had breakeven revenues in Q4 which grows against [CID] that you have discussed of excess liquidity. So if you could maybe elaborate on why your revenues were higher than expected in Q4 in the corporate center?

And the second question is to come back on the provisions in France. I understand there is some seasonality meaning Q4 tends to be higher in cost of risk. I also understand the points on the coverage being a one percentage point in the quarter, but still the [FY1] move was quite impressive. So if you could give some qualitative comments on the underlying development of the asset quality in France with the quarter-on-quarter underlying there has been some more defaults basically?

Bernardo Sanchez

So, I will take quickly this one and then I’ll leave Philippe answer the question on the corporate center. I mean fundamentally we’ve not seen the deterioration of the asset quality in France, so it’s seasonality plus increase of coverage ratio. And we again, let me reiterate, we expect a forward progress in the gradual decrease of the cost of risk in France starting in 2014. Yes, on the corporate centre?

Philippe Heim

Yes, on the corporate center, thanks for your question. What you have to bear in mind that it’s difficult to judge the performance as a result of the corporate center on a single quarter because we have a lot of seasonal effect. And basically Q4 let’s say the concentration -- as I mentioned before is the effect of mark-to-market on ageing swaps (inaudible) I mean there is a stream to you meet this directly on the P&L.

Operator

Thank you, Philippe. We have a question from Alex Koagne.

Alex Koagne - Natixis Securities

Yes. Hello, Alex Koagne from Natixis. Two question as well from my side. The first question has to do with the risk weighted asset in the France retail banking. We see an increase as you say due to some change in the risk weighting I was just wondering whether you can give some kind of color on what was the reason behind either on the mortgage, the corporate or the consumer finance. Is it more to -- is there more to come going forward?

The second question is on basically your liquidity buffer. You said it is increasing, which a little bit I mean it wasn’t -- the trend you want to reach to that reserve as you want to reduce the cost of funding by EUR 200 million to EUR 300 million on the coming two years. I was just wondering when should we see let’s say big decrease on your funding reserve going forward? Is in 2014 or 2015? Thank you.

Frédéric Oudéa

Yes okay. So you - take that yes revenue increase in the risk weighted assets and the credit risk weighted asset allocated to the French retail. So and in line with a slight decrease of the loan on funding and the exponential debt pretty simply that we increase that is waiting of our exposure this year on the mortgage side, but also on the corporate side. And this due to let’s say to this hibernation we made every year on regarding our models.

Regarding the liquidity, so as mentioned before, so I repeat what we have in mind in terms of guidance down the road so I remember we target to reduce let’s say negative [GY] as a corporate center by EUR 200 million by 2015 so it should be EUR 800 million in 2015. And we expect into ‘14 the reduction of EUR 100 million, if we get EUR 900 million into [stocking] having said that, bear in mind that issue your bank (inaudible) let’s say at the same time to manage all the concerns even the regulator, so you have to increase (inaudible) you have to maintain high a level of liquidity buffer. Let’s say it is pretty challenging to reduce liquidity (inaudible) pretty challenging.

So in this context, we don’t expect in short period of time capacity to finish and it can be reduced (inaudible) the proportion I mentioned in our guidance.

Can we turn maybe to the people on the line, if it’s possible?

Operator

We have the question from Stefan-Michael Stalmann from Autonomous. Please sir, go ahead.

Stefan-Michael Stalmann - Autonomous

Yes, good afternoon. Two questions please, the first on the tax situation. I’m struggling to see how you can run with 25% at the group level given your business mix and also considering that France has just increased its corporate tax rate. Could you add a bit of color how you get to that kind of assumption?

And secondly on Russia, we have obviously seen the spike in credit losses in the fourth quarter but it did not really in the area that seems to be more critical in Russia right now, where we see actually relatively poor news around credit quality on the consumer side. And what is the outlook for that core part of your business and for consumer risk in Russia specifically for 2014 piece? Thank you.

Unidentified Company Representative

Okay. Philippe for the tax and Bernardo on the corporate (inaudible) consumer in Russia.

Philippe Heim

Yes, it’s a pretty tough question regarding our effective tax rate, it’s a pretty tough question, what you have to bear in mind that (inaudible) like our European deals we’re pretty international company. So, we have let's say roughly one third of GOI in France. So, due to our international footprint, let's say taking into account the fact that (Inaudible) number in Czech Republic, the tax rate stands at 19% in Russia the tax rate stands at 20%, in Hong Kong the tax rate stands at 16%. So you have tax paradise and heavens sometimes Central and Eastern Europe, not just in well known countries, effectively in these countries which have a pretty well manage situation on the budget deficit. They want to attract investment and have really low tax rates, much lower than sometimes the ones we have in mind in developed countries.

So, our tax rate reflects and stays, (Inaudible) Then on the other one credit risk on consumer in Russia.

Bernardo Sanchez

You are right, that this is overall in the market something that has happened. The market sector made a big increase in the consumer financing in 2012 and 2011. And then there is some increase in the cost -- overall the cost of risk in 2013. But our side is, it is also the case that really moderates, because we given increase significantly our activity on the consumer finance. To give you the specific example of growth (Inaudible) which is our subsidiary specialized on consumer finance, the cost of risk went up for 240 basis points to 146 bps, if I'm not -- 46 exactly, so a slight increase. We have an increase also on the consumer side of the Rosebank, but there is no increase of the cost of risk for that credit on the mortgages side.

Stefan-Michael Stalmann - Autonomous

Right. Thank you very much.

Unidentified Company Representative

Okay. Are there question on the line? Okay there is another question in Paris, sorry.

Unidentified Company Representative

Yes, (inaudible) would like to ask a question.

Unidentified Company Representative

Still not possible to get to 25% makes sense unless you (inaudible) Virgin Island?

Unidentified Analyst

Okay. My question was regarding your target of 10% return on equity. I understand that obviously will give a wealth details on May but basically it probably means that you are expecting something like EUR 5 billion of net profit in 2015 at least. So I was wondering whoever, I mean this s significantly above consensus and at least so that's one I check. So could you give us at least some ideas about where you expect (inaudible) so in the divisions where you do think that you will do significantly better than consensus. And I understand obviously the 25% will help but probably not sufficient? Thank you.

Unidentified Company Representative

Again it’s not in 2015 in May, I say that I said end of 2015 which means to simplify to a certain extent having completed the job coming the businesses so that (inaudible) decide in the fourth quarter of 2015 we have this capacity, so it’s not in 2015. And again, may I say, for the 13 of May to give you more flash on that, as you’re aware we think we can improve. Again I would like to insist, we have a cash goal French retail with I think good commercial performance. And we think we have two (inaudible) with the benefit of lower and progressively lower, lower cost of risk and the efficiency plan also which is not delivering today now in practice, its benefits but which will be there end of 2015 if completed and we have a good benefit in our account beyond the end of 2015. So we will be (inaudible) may I say I am confident to achieve that and again we view all that on the 13th of May.

No more question on the line, no more question in Paris neither in London, everybody is exhausted. No, it’s fine? Okay. Well thank you so much for your attention. Bye, bye.

Philippe Heim

Thank you.

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