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Executives

Jean-Laurent Bonnafé - Group Chief Executive Officer and Director

Philippe Bordenave - Chief Operating Officer

François Villeroy de Galhau - Chief Operating Officer

Georges Chodron de Courcel - Chief Operating Officer

Georges Chodron de Courcel

Lars Machenil - Chief Financial Officer

Analysts

Lorraine Quoirez - HSBC, Research Division

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

Piers Brown - Macquarie Research

Anke Reingen - RBC Capital Markets, LLC, Research Division

Kinner R. Lakhani - Citigroup Inc, Research Division

Bruce Hamilton - Morgan Stanley, Research Division

Nick Davey - UBS Investment Bank, Research Division

Jeremy Sigee - Barclays Capital, Research Division

Delphine Lee - JP Morgan Chase & Co, Research Division

Stefan-Michael Stalmann - Autonomous Research LLP

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

Cyril Meilland - Kepler Cheuvreux, Research Division

Alex Koagne - Natixis S.A., Research Division

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

BNP Paribas SA (OTCQX:BNPQY) Q4 2013 Earnings Call February 13, 2014 10:00 AM ET

Jean-Laurent Bonnafé

Good afternoon, ladies and gentlemen. We can start, I imagine, yes. So in today's presentation, we will illustrate the group's 2013 results and the many features of our new 2014-2016 business plan. BNP Paribas revenues proved quite resilient in 2013, considering the challenging European economic backdrop. In fact, revenues of the operating division were 1.6% lower at constant scope, mainly on the back of lower client demand in fixed income. In terms of cost, we continued to keep our operating expenses under control. The cost of the operating divisions were 0.5% lower at year end. Cost of risk was moderate. At group level, it stood at 63 basis points as a percentage of customer loans and increased by only 2.9% over the year.

2013 results were impacted by 2 main one-off items: First, by provision related to U.S. dollar payments involving parties subject to U.S. sanctions for EUR 798 million; second, by transformation cost for EUR 660 million in the context of the cost savings plan, Simple & Efficient, we announced a year ago.

Despite this, the group still managed to generate EUR 4.8 billion of net income. And if we exclude exceptional items, the yearly result stands at EUR 6 billion. The dividend per share proposed for 2013 stands at EUR 1.5, stable as compared with 2012.

Our balance sheet is rock-solid. Our solvency is high, with a fully loaded common equity Tier 1 ratio under Basel III standing at 10.3% at the end of the year. The immediately available liquidity reserves were further strengthened to a massive EUR 247 billion at year end. And BNP Paribas continued to increase its deposit base as confirmed by Retail Banking deposits, which increased by 4.3% compared to the previous year.

Finally, 2013 represents a springboard for the launch of our new 3-year plan that I shall discuss in greater detail later.

I will now hand over to Philippe, who will take you through the main financial aspects of 2013.

Philippe Bordenave

So good afternoon. So we start with the exceptional items as they are particularly high this year. And if you -- and let's focus on the main ones. If you look at the far right column, last -- in 2012, the previous year, we had -- there were 2 main exceptionals that were offsetting each other: The own credit adjustments, EUR 1.6 billion negative; and the sale of our stake in Klépierre, EUR 1.8 billion positive. So the net, at the bottom of the column, was close to 0, slightly positive even, plus EUR 184 million.

In 2013, it's a different story. The 2 main exceptionals are both negative, adding one to the other. First, the Simple & Efficient transformation cost, representing minus EUR 661 million. And second, we have the provision related to the U.S. dollar payment. And the total, net of taxes, is negative by EUR 1.2 billion. So it's a big swing from plus EUR 200 million to minus EUR 1.2 billion from 1 year to another. And even in absolute terms for the 2013, it's a big negative number.

Now a few words about the provision concerning the U.S. dollar payment, which is an event of the fourth quarter. It's a $1.1 billion provision, that has been translated into euros, which makes EUR 798 million. This provision is related to the retrospective review of certain U.S. dollar payments, which could be considered impermissible under the U.S. laws and regulations and could thus result in fine or penalty. This review has been conducted over the last few years as we explain in the financial -- in the past year's financial statement. And what's triggered the provisioning in this quarter is that we -- this review is now completed, has been completed and has been presented to the U.S. authority. With this exceptional in mind, let's move now to the results themselves.

And you see that the revenues at EUR 38.8 billion are slightly down by around 1%. 1.6%, if you take the operating divisions at constant scope and exchange rate. The operating expenses are down as well, which is offsetting somewhat the impact, with a reduction of also around 1%. 0.5% stands for the operation -- operating divisions. And the gross operating income of EUR 12.6 billion is up 1%, and indeed negative by around -- in minus 3.4% for the operating divisions on a like-for-like basis.

Then the cost of risk at EUR 4 billion remains moderate, so slightly up, but very moderate, which is noticeable. Then comes the provision and then the nonoperating items at EUR 357 million that are, well, down by 80% because in 2012, it was in this line that the sale of -- the capital gain coming from the sale of the Klépierre stake was recorded.

And which leads to the pretax income. The net income of 4 -- net income group share of EUR 4.8 billion. And this figure, excluding exceptional items, translates into a result, excluding exceptional items, of EUR 6 billion, which is down by 5% compared with the same net income, excluding exceptional items, the year before. So this minus 5% is comparable to the minus 6.4% you see on the right-hand side column as the pre -- the evolution of the pretax income of the operational divisions, which is, well, kind of trend of the year.

This trend, we think, is decent in a lackluster economic environment in Europe. Indeed, the euro area, while in recession in 2013, minus 0.4%. And even the whole European Union was at 0 growth. Well, and so in this environment, we are the bank of the Eurozone. We are the bank of Western Europe, largely. So in this very difficult environment, well, managing to reduce the pretax income by 5%, 6% shows a resilience, a decent resilience.

In terms of return on equity, it means 6.1%, and 7.7% excluding exceptional items. And in terms of net earnings per share, it means EUR 3.69.

If we look a little bit further into the revenue breakdown, you see that the slight contraction of the revenues is coming from complete stability in retail. And each -- well, you see that among different pieces of the retail, most of them are close to 0% growth indeed, with a special mention for the Europe-Mediterranean division, which is growing rather fast at 6.9%. Investment Solutions is growing at 3.8%, which is quite consistent with the fact that this, well, division is one of the most dynamic and has been such for a few years. And CIB is down by 8.3%. Those evolutions are at constant scope and exchange rate.

The expenses, again, at constant scope and exchange rates, the Retail Banking managed to reduce slightly its expenses by around 1%. And again, it's relatively the same for all parts, different parts of the retail. The most, well, growing part, Europe-Mediterranean, of course, increasing its own expenses by 4%, 4.6%. CIB is contracting its expenses as well by 2.4%. And Investment Solutions being in a growth mode is increasing its expenses by 2%. So we managed to overall contain the operating expenses, but fine tuning in order to allow for some growth in the areas that are, well, able -- susceptible of growing.

And the cost of risk. So I said that there is a moderate increase. Indeed, it's an increase by EUR 113 million versus 2012. And so from 58 to 63 basis points as a percentage of the outstanding, customer loans outstanding. This increase of EUR 113 million is not coming from the Corporate Banking. That was roughly stable, plus EUR 5 million. But coming, as you can see here, coming entirely and more than entirely from BNL bc, our Italian retail activities, where the cost of risk grew by EUR 244 million given the fringe recession and sharp recession in Italy.

All the other parts of the retail here are managing to keep their cost of risk stable or even to decrease it. In the case -- in France, as you see, cost of risk is still low. The same in Belgium, at the bottom left, with a low, low cost of risk. In Europe-Mediterranean, cost of risk is even significantly down. As -- it's the case as well in BancWest, where the cost of risk is now extremely low at 13 basis point. And even Personal Finance, which is consumer lending, well, in Europe, in a recessionary environment, managed to keep its cost of risk roughly stable and even slightly, slightly down.

If we make a short zoom on the fourth quarter, the trends are not significantly different, indeed. As you can see on the right-hand side, the pretax income of the operating divisions on a like-for-like basis was contracted by 5%, which is similar to the 6% for the whole year, with the revenues slightly, well, basically stable. Operating expenses slightly up and cost of risk slightly down, but it's not very different from, well, very stable. And indeed the net income attributable to equity holders, excluding exceptional items, was EUR 1,359 million. Adding the impact of the exceptionals, that is reducing it to EUR 127 million.

The financial structure after this fourth quarter is -- well, it keeps, well, being strong and is even stronger. This is stronger than ever. The fully loaded Basel III common equity Tier 1 ratio stood at 10.3% at the end of last year. If you remember that at the end of September, it used to be 10.8%. And we had said that the acquisition of the Belgian stake in Fortis was reducing it essentially by 50 basis points. So we were expecting this, something close to this figure.

And if you compare with the beginning of the year. The 40 basis points that have been added over the year are coming basically from the retained earnings. The other effects offsetting each other, meaning that in front of those minus 50 basis points are due to the acquisition of Fortis stake. There are other positive elements. Namely, the revaluation, the LatAm gains in the bond portfolio, for example, and the reduction of the risk weighted assets over the year and other balance sheet effects.

So this is for the solvency ratio. So we are more than 1% over the threshold of 9%. That is the threshold for us. 7% plus 2% of CC buffer for -- in our case at the moment. So we are clearly above the minimum and close to our target of 10%.

In terms of leverage ratio, we stood at 3.7% at the end of last year. This is calculated on total Tier 1 capital, of course. It's based -- well, it's not very different if you make this calculation according to the CRD or to the latest Basel proposal. It doesn't make a significant difference. So it's 3.7% in both cases. And the regulatory threshold is the 3% starting on the 1st of January 2018. So we are well, again, we are well above the target.

And liquidity, the third chapter of Basel III, the liquidity reserve was up to EUR 247 billion, so further increased. It's now a huge 150% time to the short-term wholesale funding or meaning that we have 1 year or 1.5 year of room to maneuver. And it's the level which was necessary to reach the LCR. So we are now above the LCR 100%, which is required, which is going to be required. So on that chapter, as well, we are now in line with the regulatory requirements. And we can, well, now start to, well, looking further to the future rather than, well, coping with the new regulation.

The net book value per share increased further this year, from EUR 60 to EUR 63 -- from EUR 60.5 to EUR 63.6. So again, an increase of around 5%. And over the whole crisis, the compounded average growth rate was 6.1% per year. So it's really a very steady achievement, as you can see. And it shows our -- the ability of BNP Paribas to grow the net book value per share throughout the cycle.

And now the dividends. So we -- subject to shareholder approval at the shareholder's meeting, BNP Paribas will distribute EUR 1.50 per share in cash, of course. It's a payout ratio of 40.8%. And well, as you can say, it's exactly in line with the dividend of last year.

So this is the overview of the results, and we are now going to dive to the divisional result with François.

François Villeroy de Galhau

Good afternoon. I now come to our domestic market result. I'll remind you that our domestic market activities include our 4 domestic networks, Belgium, France, Italy, Luxembourg; and 3 specialized business line, which work closely together with this networks, leasing; Arval, our fleet management; and Cortal Consors, our broker online.

If I look at the global picture, we had a strong satisfaction with the rise of our deposits, 5.1%, and you see it on the bottom right. We had it in all geographies, including Cortal Consors in Germany. We had a slight decrease of loans due to the continued slowdown in demand. And we had another satisfaction regarding the development of our One Bank for Corporates networks with our CIB colleagues, 4,000 new accounts linked to our Domestic Markets clients since the launch of this network 3 years ago. Cash Management, Greenwich just published its results for last year. And we are confirmed, still stronger as #1 in Europe.

Our meeting is also the opportunity to share the results, the first results of our new digital bank, Hello bank! It was a successful launch last spring in Germany, Belgium, then France in June and following in Italy in November. We are very satisfied with the promising start, 177,000 customer. It's in line with our expectations, perhaps you remember, 1.4 million for 2017. It also already brought a strong contribution in liquidity, mainly in Germany, as a whole EUR 1.8 billion deposits.

If I now to come to our economics, revenues, we were able to maintain them with a slightly positive figure, plus 0.2% despite an unfavorable environment of persistently low interest rate and, obviously, an unfavorable economic context. The good news are the turning point in financial fees, almost everywhere you will see it, and a very good contribution by Arval.

We have also been very cost efficient with the strong growth effect due to the -- of 1.2% due to the decrease of our operating expenses of minus 1%. So everywhere, you see it on the right, we have been able to improve our cost/income ratio. This led to an increase in gross operating income, but due to the Italian cost of risk, which Philippe already mentioned, a slight decrease of the pretax income, minus 4.7%. As a whole, it remains a very good overall performance in an unfavorable environment.

I now make 3 focuses on our 3 main markets, beginning with France. We have the same trends looking at our business activities, strong growth in deposits, decrease in loans due to less demand. It has also been a strong year for innovation. And we are very pleased with the figures you see on the right, an accelerated development of our mobile users. We begin with 0 mobile users at the beginning of 2010. And also regarding cross-selling, to give a very important example. The growth in cross-selling with insurance including protection.

Focusing on small businesses and SMEs, we developed our activities with the best SMEs in France. And we announced a new program 2 weeks ago called 2016 BNP Paribas Entrepreneur. This led to an evolution of revenue slightly negative, minus 0.5%. With the same trend which I already mentioned of a slight rise in financial fees, which is a good trend. We were able to reduce our operating expenses in a stronger magnitude, so an improvement of operating efficiency. And due to the fact that we remain with a low cost of risk in France, 23 basis points, pretax income is almost stable at minus 2%. We maintained the high profitability of our French Retail Banking operation.

Let us now go to Italy. In Italy, obviously, the economic context is more difficult with a recession expected in 2013 at minus 1.8%, which hits all Italian banks. Despite this context, we have been able to achieve a strong growth of our deposits, still stronger than the average, you see it, with plus 7.4%. Decrease of loans, especially on small business and mid-corporate segments. But looking at large corporates, we increased strongly our activity with synergies with all the group's offering, including CIB Milan. We are also #1 in cash management in Italy and strengthening our positioning. And if I now turn to individuals, we are especially satisfied with the strong development of our Private Banking business, which is very promising for the future. All in all, same evolution of revenues than in France, minus 0.5%, with more or less the same explanations.

Italy has been very cost effective, with the diminution of operating expenses of minus 2.3%. And this leads, you'll see it on the bottom right, to an increase of gross operating income despite the slowing down of revenues of plus 1.7%. Then there is the increase of the cost of risk, plus 25% in the Italian economic environment. And a decrease, a significant decrease of pretax income of minus 46%. So our Italian teams are adapting the business model and looking stronger and stronger to large corporate and export-oriented corporates. And Jean-Laurent will come back to BNL in the 2016 plan a bit later.

Let me finish with Belgium. Here, the economic growth is stronger and stronger than the Eurozone average, which helps us to achieve not only a growth in deposits, but also a growth in loans, plus 1.7%. It's true for individuals and for small business. You probably remember that we announced last March, the so-called Bank for the Future plan, an adaptation of our network and workforce to the new behaviors of our customers, including a diminution of the number of branches in Belgium of 16% in 3 years. We are completely on track implementing this plan. We are also on track developing our digital offering, hello bank!, like in other countries. And also a very promising evolution of our e-wallet called Sixdots or Belgian Mobile Wallet, BMW. We were the first to create this wallet at the beginning of 2013, and we were joined by all the other Belgian banks at the end of last year. So it will be the market standard in Belgium in the next year. The slight stabilization of revenues, a decrease of operating expenses, so the growth of 2% of gross operating income. And due to a low cost of risk, 16 basis points only in Belgium, was a reduction compared to last year, an increase of pretax income of 3%. I would say that for Belgium, it has been a very good year, including the fall acquisition by BNP Paribas of its Belgian operations last November, as you remember.

I now give the floor to Georges going to International Retail. Thank you.

Georges Chodron de Courcel

Thank you, François. Good afternoon. I am now going to speak of all geos of business lines of BNP Paribas. First of all, European and Med -- Europe and Mediterranean, this is very good news. We also announced some things in the fourth quarter, which is a project of acquisition of BGZ in Poland. As you all know, we were on the small size, a little self-pity hole in Poland. Thanks to this operation, which probably will be completed mid-2014, depending on the legal authorizations, we will -- we'll be able to be at the seventh position in Poland. And then to develop our business model in Poland.

Outside Poland, let's say, we enjoyed a strong business performance. You can see that the deposit are up 12% and the loan are up 7%. So it's better now due to the leverage, LCR ratio and also liquidity ratio to have -- to go more in deposit than in loans. So it is the case in the Europe-Mediterranean zone. So globally, the revenues are going up around 7%. So the expenses just below 5%, so we enjoy a positive jaw effect.

So all in all, the pretax income, let's say, come back to a much better situation, around EUR 500 million, which is up 50% compared to the year before.

I now come to BancWest. BancWest, let's say, we have very good business results concerning also deposit, loans, private banking activities. We have also launched mobile banking activity. But despite all of this good performances, net sales or revenues are down. Why are they down? First of all, because last year, we enjoyed -- last year in 2012 -- we enjoyed capital gains in loan, for which is not the case -- which was not the case for 2013. And on top of that naturally, due to the Fed policy, the level of interest rates are not very favorable for a retail bank in U.S.

We have increased operating expenses because we want to continue to invest, to develop our corporate and small business activity and also our private banking activity. All in all, BancWest had a pretax income of around USD 1 billion, which is around EUR 770 million, due to the fact that naturally, as Philippe mentioned before, the cost of risk was low in 2013 at the level of BancWest.

Personal Finance now. Personal Finance is a very, very strong business and time for BNP Paribas. Let's say, globally, we continue to deliver what we've announced, which was that we are in a rundown model, in a runoff model for all, let's say, the mortgage activity, and we continue to develop consumer loans. And if possible, deposits at the level of 2011 in domestic and the other. So our business model is very simple, just to develop and to extend on our expertise. And to develop, let's say, good partnership abroad when we have no local funding, which is the case, for example, in Russia. So we delivered, I think, a good partnership with Sberbank. And now we are in the process to continue in China with Bank of Nanjing. You note that BNP Paribas has more than 15% of equity of Bank of Nanjing. But also with automobile maker, Geely, the Chinese automobile maker which is a strong automobile maker in China. So globally, we continue to develop our business model. Our revenue are a little down due to the fact that we continue to decrease our mortgage activities. But naturally, we strictly control the cost because operating expenses are down of roughly 5% due to the effect of our adaptation plan. So our pretax income continued to increase. Now we are at the level of nearly EUR 1.2 billion. So year after year, we continue to generate good profit for the group.

I now come to Investment Solutions. So first of all, the asset under management. The asset under management are roughly stable at EUR 885 billion. In one hand, we have the good performance effect mitigated by foreign exchange effect because, as you know, Euro, is by the time being a strong currency. And on the other hand, we are negative net asset inflow, so asset outflows, mainly in asset management due to the fact that in money market funds, we suffer large asset outflows because it's not -- it's clearly not in the interest of our clients to have money market funds. But the good news is that in the fourth quarter, we are roughly 0 in terms of outflows, so we think we can be more optimist for the future regarding the inflows in asset management.

Wealth Management continued to develop, mainly naturally in Asia, but also in cost saving which François mentioned in Italy and in Belgium through our local private banking. And naturally, as we have mentioned 6 months ago, we worked very hard through a strategic plan for Asset Management. You know very well that Asset Management is a business under pressure, so we react very strongly just to continue to develop our business. We think it's a key business for BNP Paribas. Let's say, at the level also of Securities Services, which is a very good business, we continue to develop some international business development, as you can see in the slide.

Coming to the result for investment solution. Let's say, we continue to develop year after year. This is a growth engine for BNP Paribas, with a positive jaw effect. The best in class is probably insurance company because we continue to develop saving and protection in Asia and in Latin America. And we have good partnership in those businesses.

Securities Services continued to develop. It's not so simple to increase revenues for Securities Services because the cash balance are not well remunerated and due to the very, very, very low interest rate. But I think it is very promising for the future because we continuously gain new clients in this business. Operating expenses are under control. We continue to develop some businesses such as insurance, which is the reason why we are up more than 6% concerning to expenses in insurance.

All in all, let's say, we continue to, first, to bring good profitability for the group, more than EUR 2.1 billion. And naturally, we bring liquidity to the group because Securities Services, insurance company, Asset Management and Wealth Management are putting some money in BNP Paribas products, which is very good, for example, the liquidity coverage ratios. So Investment Solutions is really very key for BNP Paribas.

I now come to Corporate and Investment Banking. And as Philippe mentioned earlier, we are, let's say, we are in a lackluster environment. I will say a challenging environment in Europe in 2013. You all know that situation. So let's say that we have 2 different activities, the Advisory and Capital Markets, we suffer because our clients were not very active in fixed income business. I will come back on that. In Corporate Banking, let's say, the decrease of the revenues is mainly due to the end of our deleveraging plan. Now our deleveraging plan is over. And normally, we will enjoy increase now in revenues in Corporate Banking. I have mentioned Asia in this slide because, as you know, we have launched a strategic plan in Asia. And we see the first results in Asia with very good performance.

The operating expenses are down less than the revenues because we have some impact of our development plan in Asia, in U.S. and in Germany, but also in cash management. You know that we want to be one of the first in the world in cash management. But on top of that, in Corporate and Investment Banking, let's say, there is an increase of cost of doing business, regulation, audit and so and so. Unfortunately, we suffer on that as all the other banks. But all in all, we have delivered EUR 2.2 billion of pretax income. And you see that for the fourth quarter of 2013 is better than the fourth quarter of 2012. You know that normally there is a seasonal effect on the fourth quarter because, let's say, the second part of December is not -- generally not very good because the client are on vacation.

So coming back to Advisory and Capital Markets. Let's say, first of all, we continued to conduct a not risky business. Our value at risk is at a low level. I would say at a very low level because our client are not very -- were not very, very active in 2013. It is possible that it will increase a little in 2014, so we will see.

Then we have the fixed income on one side and the equity derivative on the other side. As I mentioned, the fixed income activity was very challenging, mainly in Europe, for all the other competitors because our clients were not very active in the rate and credit market, but you have to see that on a long-term view and a strategic position, and I think Jean-Laurent will come back on that, we are well-placed in bond issuance. We were first in all corporate bonds in euro last year. This year, we are still first. And we are now first in all bonds in euro. I think it's very important for the new model of financing business in Europe and worldwide.

On the opposite, on Equity and Advisory, we continue to develop, first of all, we enjoyed a good market as the equity market was very good in 2013. But on top of that, we act as a consolidator. As you know, we bought some portfolio coming from Credit Agricole, and we are in the process to do the same for Royal Bank of Scotland. So we develop our franchise. We think on a long-term view, it's very evident that we will continue to be one of the leader worldwide. And so the profitability was up. So all in all, as unfortunately, as of today, the equity business is still lower than our fixed income business. All in all, the pretax income was down 20%, more than 25% at EUR 1 billion. But globally, we think we are in the turning point in turning this global activities on capital market.

On Corporate Banking, I mentioned that we have reduced our balance sheet of around 12%. So our revenues are below 8% compared to last year. But the move is now over. We have finished our deleveraging plan. So normally, as I mentioned, we will see our revenues increasing for the next year. The client deposits are growing. We mentioned you 2 years ago that, one, our target was to increase the client deposit, very key for the liquidity coverage ratio. And so we continue naturally to serve our clients because even if we don't want to increase our balance sheet, we developed a model originate-to-distribute. So all in all, in Corporate Banking, we are probably at the end of the process of the changing model. So now we are now ready to develop -- to continue and to continually develop our business, our 2014-2016 development plan.

So I give the floor to Jean-Laurent to explain this plan.

Jean-Laurent Bonnafé

Thank you, Georges. Let's now look at our 2014-2016 business development plan. I'll remind you that the in-depth disclosure of the plan shall be provided at the Investor Day that we're organizing in Paris on 24th March. Our plan is based on a central macroeconomic scenario of moderate economic recovery, which will be gradual and will differ from one geographical zone to another. The new regulatory framework is gradually becoming clear and should continue to do so over the period. Our strategic plan confirms the validity of our client-driven universal banking model, which revolves around our 3 main businesses: Retail Banking, CIB and Investment Solutions. This model relies on significant cross-selling and is well-diversified in terms of risk in the different businesses and geographies. It has proven its effectiveness throughout the crisis for BNP Paribas.

In the new environment, this business model represents a real competitive advantage for the group. In fact, the group's well-established presence in Retail Banking across Europe is complemented by: First, our Investment Solutions businesses, which gathers savings and generate liquidity, which are key in the regulatory environment framework; second, our critical size in market activities to accompany disintermediation from credit in Europe due to new regulation; and third, our growing presence in fast-growing area such as Asia.

The new plan centers on 5 strategic acts of development for 2016. The first one is, enhance client focus and service. If we start with individuals, the group will pursue the development of digital innovations. Example of what we mean by these are: The successful launch of Hello bank! in Germany, Belgium, France and Italy with a target of 1.4 million clients in 2017. The launch of new online payment solutions, including value-added services for consumers and professionals such as PayLib in France or Sixdots in Belgium. The increased presence of Personal Finance in the e-commerce of the rollout of the digital offering within International Retail Banking. The plan also aims to adapt our branch networks to our clients' changing needs via differentiated and complementary branch format, while deepening client relationships. The group will also continue to further develop its Private Banking in cooperation with the networks of the Domestic Market and of International Retail Banking through, for example, the development of relationships with entrepreneurs.

If we now move to corporates, the group will leverage its European and global setup. I'm talking of our presence in 78 countries, with a unique network of almost 220 business centers grouped under One Bank for Corporates. In addition, BNP Paribas will leverage its strong positioning in cash management, where we confirm our leadership in Europe and where we rank #4 globally, allowing us to strengthen our relationship with clients. The group will also continue to develop its originate-to-distribute approach, strengthening in particular, debt, insurance and distribution platforms.

For institutional clients, the group shall implement a more integrated approach through closer cooperation between the main businesses involved, that is market activity, Securities Services and Investment Partners, providing new solutions for client and sharing operational platforms in order to improve cost efficiently.

Our second strategic act of development is to simplify our organization and processes. This part represents the Simple of our Simple & Efficient plan. Our aim is to simplify the organization and the way the group functions by clarifying roles and responsibilities in order to accelerate decision making to the benefit of our clients and our employees. Another objective is to improve teamwork through the increasing use of digital tools. Overall, 420 initiatives will be launched in this field, which is a key target in terms of management and its threshold in order to remain agile in a changing world.

Moving to the Efficient part of our Simple & Efficient program. This is the third act. Our plan to improve operating efficiency has got off to a rapid start in 2013. Recurring cost savings already reached about EUR 800 million, with transformation cost of EUR 660 million. We have increased the target and extended the plan to 2016. The target for recurring cost savings has been increased by EUR 800 million to EUR 2.8 billion from 2016, with transformation cost now totaling EUR 2 billion. The efficiency plan covers all the businesses and geographies of the group and aims at fostering transformational synergy within BNP Paribas, for example, by sharing operational platforms or IT systems. In total, more than 2,300 projects have been identified, 90% of these have already been launched.

Moving to our fourth strategic act is to adapt certain businesses to the new economic and regulatory environment. Here, we are talking of 3 specific businesses: First, BNL. BNL will continue to adapt its business model to the economic context. For individual clients, the digital bank will be developed, branch formats will be adapted and further growth of the Private Banking shall be targeted. For corporates, the commercial approach shall be focused on value-added segments such as export corporate, leveraging on our differentiated offer compared to our competitors. The group will continue to improve also operating efficiency in Italy with, for example, the creation of shared platforms for different businesses. The target is ambitious, and we intend to bring BNL's return on notional equity pretax to 15% by 2016.

Second, Capital Markets. In Capital Markets, the objective is to continue the adaptation to the new regulatory environment, while improving operating efficiency. The group will leverage its leading positions on these strategic businesses in the context of disintermediation from credit. I'll remind you that we are #1 in Europe, with a top 10 position in the U.S. for bond origination. We are, therefore, well-positioned to accompany our clients in the market. On top of that, the offer will be increasingly differentiated, processes will be industrialized for flow of products and actions have been deployed to further reduce the liquidity consumption of these businesses. The target for Capital Markets is to increase the return on notional equity pretax under fully loaded Basel III to least 20% by 2016.

Third, Investment Partners. In Asset Management, our core business whose plan has already been presented in 2013. The aim is to capitalize on the recognized expertise in certain asset classes to relaunch net asset inflows with a target of EUR 40 billion by 2016, mainly in the value-added segments. The plan envisaged the reorganization around 3 priority areas of development namely: institutional clients; Asia Pacific and emerging market; and third, distribution platforms and networks for individual clients.

Let's now move on our fifth strategic act. It will comprise geographic plans in order to coordinate and accelerate the development of the businesses and specific plans around our specialized businesses, leveraging on their leading position. Let's start then with the geographical plan beginning with Asia Pacific. This plan has been presented at the beginning of 2013. The group is already one of the best positioned non-Asian banking division. As you may remember, our aim is to boost our CIB and Investment Solution to over EUR 3 billion by 2016. The good news is that we have made significant progress in that direction already in 2013. And in fact, our revenues have increased by over 24% to approximately EUR 2.5 billion by year end 2013.

Second, CIB North America. North America, our aim is to consolidate our presence in the key market by building on our existing platform. The target is to be in the top 10 CIB and 1 of the top 3 European banks in the U.S. We intend to: invigorate our franchise with large corporates and institutional clients, providing them with our capabilities worldwide and especially in Europe; reinforce relationships with investors by, for example, distributing debt originated in Europe; adapt the model to changing market infrastructure; and further develop the cross-selling potential with BancWest. The plan here is to better serve our corporate clients within BancWest by providing all the capabilities of our CIB business line.

Now moving to Germany. Is a target market for growth in Europe. We already have there a sizable platform, with 12 businesses covering all client segments. As you may remember, the plan was launched last summer with the target to grow revenues to EUR 1.5 billion by 2016. In essence, the group intends to: significantly increase deposit gathering through Hello bank!; strengthen its positioning in the corporate segment; and step up the pace of developing strong positions in specialized businesses such as insurance, depository and real estate activity. Our target in Germany is to acquire new clients and to cross-sell our various products leveraging our unique One Bank for Corporate platforms.

As for Turkey, where we have presence in TEB, the group intends to continue its midterm development in the country. We can leverage on the multi-business presence to foster cross-selling opportunities. TEB will focus on clients with potential for the group, meaning, for example, private banking, mass affluent and corporates bringing side business. The target is to further improve the operating efficiency with the reduction of the cost/income ratio of 8 points by 2016.

Moving now to our plans for specialized businesses and starting with Personal Finance. Personal Finance is the leading player in consumer finance across Europe, with a global presence touching 20 countries. Leveraging its recognized know-how, Personal Finance will continue to develop its international presence, alongside seeking new strategic partnership agreements. In addition, this business will step up the rollout of the digital offer and develop car financing activities, as well as protection and savings gathering.

Another specialized business where BNP Paribas has a strong positioning is Insurance. Cardif is present in 34 countries and the 11th player in the Eurozone. The plan aims to: continuing its international developments through partnerships, especially in Asia and Latin America; increasing the share of protection products; and improving its overall operating efficiency.

The third specialized business I would like to highlight today is Securities Services. Here, we are talking of the leading player in Europe and the fifth player worldwide, with a local presence in 34 countries across 5 continents. This business will exploit its strong positioning in the context of the new regulatory framework, which will translate into the development of regulatory activities, asset segregation, clearing and collateral management. Securities Services will increasingly develop synergies with CIB in terms of products and client coverage. Leveraging the recent investment in several geographies, Securities Services will also accelerate organic growth and continue to improve its operating efficiency.

We have also ambitious plans also for the businesses like Arval, Leasing Solutions and Real Estate. What is important to note is that our specialized businesses are very entrepreneurial, they are quick to develop out of their own markets and have unique expertise and enter into fruitful partnerships. Hence, the group will continue to support the development of these businesses.

I have tried to briefly summarize our action and initiatives envisaged for our new business plan. In terms of targets, we have grouped these under 4 categories: growth, efficiency, profitability and capital. Starting with growth, we expect group revenues to grow organically by at least 10% over the planned horizon.

In terms of efficiency, I have mentioned, that we have significantly increase our target for Simple & Efficient, where we plan to reap recurring savings of EUR 2.8 billion from 2016. The combination of revenue growth and cost control should ensure that our cost/income ratio improve by 3 full percentage points over 3 year.

Third, profitability. We expect our return on equity to improve to a level of at least 10% by 2016. This equates to return on tangible equity of at least 12%.

Last but not least, capital. For the duration of our plan, we expect our fully loaded common equity Tier 1 ratio to be at 10%. And we are planning to increase the return for our shareholders with a dividend payout in the region of 45% for the duration of the plan. All this said, I would like to underline that our new plan is projecting a double-digit EPS growth on average over the first -- the period 2013 to 2016, of course, in 2016 excluding exceptional items.

In conclusion, let me summarize today's presentation with 4 main takes away. We have shown good resilience of our revenues in Europe and good trends in fast-growing markets. Second, we have continued to keep a lid on our operating expenses and our cost of risk has remained at a moderate level. Third, BNP Paribas has a rock-solid balance sheet. And finally, I've just presented our new business plan for 2014-2016. And our main driver remains a return on equity target at group level of at least 10% by 2016. I thank you for your attention. And with my colleague, I will now be happy to take your questions. Thank you.

Question-and-Answer Session

Lorraine Quoirez - HSBC, Research Division

Thank you for this presentation. So it's Lorraine Quoirez from HSBC. I will have 2 questions please. I'm quite happy to see your core Tier 1 ratio target for the first time. I've been asking this question for quite some time, so thank you. I just would like to understand how -- what gives you confidence today to provide us with a 10% Basel III core Tier 1 target by 2016? And then my second question is, I basically would like to understand better what's your interest for acquisition versus organic growth and rewarding shareholders? So basically, my question is, what sort of hurdle rate are you looking for, for acquisition and for organic growth? And indeed, is the hurdle rate for acquisition greater than the one of organic growth?

Jean-Laurent Bonnafé

When you are developing businesses, you already know an organic way. To some extent, you are taking in less risk than buying another operation. So when you are looking at an external growth somewhere, you need to ask for additional returns. This is basically the difference because whatever the business is to be bought there is an additional risk because you don't -- just don't know the people and customers. So this is the way we are looking at external growth compared to organic growth. So this is why we almost always favor organic growth versus external growth, but maybe Philippe can comment.

Philippe Bordenave

We are in a new world in that external growth is not in fashion. The Fed Reserve, they don't like big bank and, well, we are already rather big in their eyes. And so we see organic -- we see organic growth as being the bulk of it. And we are not excluding small acquisitions in order to maybe accelerate some organic growth in businesses in a bolt-on way, but it's going to be marginal in the overall landscape.

Jean-Laurent Bonnafé

Your comment on the 10%.

Philippe Bordenave

I'm sorry, you have...

Lorraine Quoirez - HSBC, Research Division

Yes, my first question was about the 10% Basel III fully loaded 2016 target, I just would like to understand how -- what gives you confidence to give you that 10% target now?

Philippe Bordenave

You mean the target of return on equity?

Lorraine Quoirez - HSBC, Research Division

No, on the Basel III fully loaded core Tier 1.

Philippe Bordenave

We are 10.3%. With confidence, I mean, we think that the Basel III regulation is now well known. The basic requirement is 7% for everybody. There is a G-SIB charge that is in our case amounting to 2%. The maximum -- the upper category is at 2.5%. And the very upper category is empty, as you know, at 3.5%. And so for the biggest banks, the target will be 9.5%. We believe that in practice, no bank can afford being less capitalized than the biggest one. So we think that the 9.5% will become the kind of minimum for everybody. And as -- if you want to be at 9.5%, you have to be slightly above that level and 10% is a round figure. We really believe that 10% will be a kind of benchmark for all banks. So we position ourselves at this level. It's not a question of confidence, it's a question of regulation.

Lorraine Quoirez - HSBC, Research Division

Isn't it also a question of where the other banks are? Because it looks like in some of your geographies, regulators are pushing for higher ratios.

Philippe Bordenave

Not true for us. As far as common equity Tier 1 is concerned, not that much. I've not heard of more than 10% requirements in a significant way. You may have a few exceptions in very specific cases, maybe in Switzerland, but for very specific and very specialized business models. So what you see sometimes is higher requirements for the total capital, but this is another story. It's -- well, but in terms of -- while we believe that as far as we are concerned there is no reason why 10% would be -- wouldn't be enough.

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

This is Jean-Francois Neuez from Goldman Sachs. I just had 2 quick questions. The first one was on the target for cost/income ratio in the context of your revenue growth. In the context of the last 3 years where we've been definitely able to see the negative effect of operating leverage, I'm surprised that there is not more positive operating leverage as you intend to grow your revenues going forward. In particular, given the significant effort of Simple & Efficient, which is something more than 10% of your cost base. And I just wanted to understand what are the limiting factor here? And my second question was on the investment bank, where, for example, if I compare with SocGen, I can see significantly more risk weighted assets in your case in comparison to the productivity for the revenue line. So we see significantly more revenue per unit of risk weighted asset in what I would imagine is your closest competitor in this business. And I just wanted to understand why that was.

Philippe Bordenave

On the cost/income ratio, yes, you are right. We are announcing a 1 point improvement, a 1 point positive jaws effect per year roughly. It's not -- well, it's not that easy indeed because we are in a situation where we have 2 types of businesses. I mean, we have -- some businesses are stuck in an environment and geography that is not growing very fast. And so the outlook for their revenue growth is not very, well, it's more or less close to 0. I mean, it's not very significant. And so we need -- in order to achieve this 1 point jaws effect, I mean, we need to reduce the cost and, hence, Simple & Efficient. And the areas of growth -- and swear, we have other activities where we have some potential for growth, be it either geographies like Asia, businesses like the insurance business. And then they have to, well, to increase their expenses as well to get those potential additional revenue. So we are not in a situation where we would have kind of unemployed production potential that would be freed by kind of a big economic recovery or whatever and that -- and without any significant additional expense, we would increase the revenues easily. It's not at all that situation. When we increase the revenue significantly, it's in areas where we have to invest, and we have to increase the expenses to get that additional revenue. And in other areas, we have to push down the expenses. And so achieving a 1 point jaws effect per year over 3 years, it's not that bad indeed. Now about the revenue per risk weighted assets for CIB, maybe Georges should...

Georges Chodron de Courcel

[indiscernible] the figures of the bank you mentioned, but concerning of the bank you mentioned, first of all, I think that is a question of business mix because probably the size, the relative size of the equity in the relative business compared to all -- to whole business is higher at the level of Societe Generale than probably at the level of BNP Paribas. You can make the calculation. I don't know. The second time -- point I would like to mention is that, at the level of BNP Paribas not only for the CIB, but everywhere, every business line there, it's all legacy. We never present, let's say, the business model as it is and not the legacy. At the level of CIB today, there is a large part of legacy which is -- because it is a fact. I've seen some banks, I don't know for the other bank you mentioned that they say, "Ah, what a good business." This is this. And for the party, it is legacy. So -- but I have not made the calculation. You have to do it. But I can confirm you that CIB has its own legacy. It is inside the figures, but you have to make the calculation.

Piers Brown - Macquarie Research

It's Piers Brown from Macquarie. Just a couple of questions on sort of regulatory and litigation risk. Just looking at the disclosure in the financial statement about the U.S. sanctions charge. I was worried to the effect that the final settlement could be possibly very different from the amount provisioned. Could you give any comfort as to whether that is likely to be a significantly higher amount and whether you feel that you are now pretty well provided on that particular issue? And just secondly, more broadly, if I look at the other disclosures on Page 118 of your report for ongoing legal proceedings. You talked to a number of smaller cases, but some of the bigger ones which have been grabbing the headlines like FX probes are absent. So just wondering if you could give a bit of comfort as to whether that is just not an issue for BNP and just generally your thoughts on the burden of litigation charge and going forward.

Jean-Laurent Bonnafé

One the first part, we have already given in writing everything we can give to you. And this is it, we are not going to comment any further. On the second part, maybe Georges can give some...

Georges Chodron de Courcel

Was it on taxation?

Jean-Laurent Bonnafé

And for [indiscernible] as the litigation LIBOR, LIBOR, I don't know exactly the topics you are mentioning.

Georges Chodron de Courcel

Let's see, as you know, we are a large bank, so we work in a lot of market type of operations. But let's say, concerning all the senior management for LIBOR. LIBOR will naturally fully cooperate with the authority, but you rarely see the name of BNP Paribas. So let say, if there were something significant, we will have disclosed in our consolidated financial statement, I see that there are some, let's say, some lines on that very issue. So there is nothing, as of today, that we think it is necessary to disclose specifically.

Piers Brown - Macquarie Research

Could I just put the question in a slightly different way? If I look at the provisions on balance sheet now for litigation are about 2 point -- I think the number was EUR 2.7 billion at the end of the year. Do you think that's a bit of a high watermark number in terms of the amount of reserving you need to do for litigation?

Philippe Bordenave

The bulk issue, let aside this one, the bulk of this amount, EUR 1.7 billion or something like that is just the addition of multiple small specific litigations of a lot of different kinds, including, for example, litigation with clients, including litigations with providers, with service providers or with landlords or whatever, including tax litigations everywhere in the world and so on and so forth. So all those, it makes a big figure, but it's the addition of a lot of small things. And it has always been there and always at that type of level. So the only thing that is really new and different and standing out is just this one.

Anke Reingen - RBC Capital Markets, LLC, Research Division

It's Anke Reingen from RBC. I have 2 questions. The first is on your targets, when you combine the 45% payout ratio and the 10% core Tier 1 ratio, should we assume the gap is made up by risk weighted asset goals to get to the 10% core Tier 1 ratio by 2016? And the second question is on the costs again. I mean, the EUR 800 million of cost savings are quite impressive this year. I just wonder how I prove this in the numbers because at the end of the day, your cost flexibility of the operating divisions is still a negative jaws. So I wonder, it is all about CIB? Or where -- how should I be able to prove your EUR 800 million of cost savings this year?

Jean-Laurent Bonnafé

Well, on cost saving, it's all over the place. I mean, basically, all businesses, all geographies are involved. And there is nothing different in terms of structure. Looking at the first EUR 2 billion or at the last EUR 800 million. So it's just the same while giving a longer, wider period of time to invest and to get additional results. On capital, obviously, you are good enough, all of you, to see that there is some room of maneuver. There is, of course, organic growth, but, well, so we can use that for targeted organic growth. We can use that for targeted external growth. Ultimately, in a very specific occasion, we could specifically have some share buybacks also. Yes, there is room in terms of capital looking at that plan. And if, for example, the economic scenario in Europe is better, we could have a better organic growth. This will have an impact on the global top line. And we have enough capital to follow that scenario. If we come across relevant external growth, maybe we could step in. And in 3 years time, maybe one time, we have room for -- I don't know -- some kind of share buyback. So about capital, yes, of course, there is some additional levers we could grab over the period that these are, let's say, commitments and as commitments, we have to be there in serious times. So we cannot just say, we are going to be around or close or above. So when you are saying you are above, you better have some room of maneuver.

Kinner R. Lakhani - Citigroup Inc, Research Division

It's Kinner Lakhani from Citi. So my first question was around NSFR, and also, maybe the cost of funding that total capital ratio over and above the common equity ratio, 81 Tier 2 instrument. And maybe related to that, how you're looking at the corporate center drag? So is it going to remain consistent with what we saw in 2013, as you build up those additional capital instruments or something different? And my next question for Mr. Chodron de Courcel. Did you, maybe suggest in your presentation that the overall kind of capital market full revenue, fixed income plus equities, may be reaching a turning point? Because obviously in 2013, the loss in fixed income has more than offset any gains in equities. And finally, maybe just on BNL, cost of risk, how you're looking at the outlook?

Georges Chodron de Courcel

Maybe Philippe on anything that is regulation, NSFR and any tricks, so...

Philippe Bordenave

So we are just out of the NCR battle and we're getting through the NSFR one. It's always fun. So we -- while you have seen that there is a new proposal for the NSFR, which is much better than the first one. And to start with, it's a structural, it's meant to be a structural ratio and not a stressed ratio, which makes much more sense, because it's a 1-year horizon ratio. So we, of course, we are going to contribute to the comments, the discussions about this NSFR. We hope that we'll get some further improvements. The treatment of repos and industry repos in the current project is questionable, we think. And so we have made the assumption in this plan. We have made the assumption that the NSFR was not -- we are not to add significant hurdles, or significant layers of additional long-term loads or whatever, long-term funding, I mean, whatever. Now the hybrid, while here, we have -- again, we have a clear Basel III pattern at the moment with the 1.5% of hybrid Tier 1, 2% of Tier 2. And so we have based our plan on the assumption that we would stay there. I mean, that there wouldn't be any Tier 3 or Tier 4 regulation. I know that there are some suggestions on that topic at the moment by some extreme regulators, or some weak banks that find necessary to show that they have a lot of additional cushions, because their business model is intrinsically, somewhat fragile. We think that, really, in our case, given the diversity of our business model, the granularity of it, our track record during the crisis, we -- I think we show that while we don't need additional cushions, so we have not taken that into account either. But it will be interesting discussions from the further years to come. So that I think it's not -- the regulatory I would say, the fantasy is not over.

Georges Chodron de Courcel

So the second question, concerning the investment banking. First of all, not to mention that not only did we -- the team made very good results, but fixed income delivered positive results -- fixed income. These does not -- didn't clear through a lot of value, which is different, because you have to take into account the cost of capital. And so, if you look carefully at the Slide 66, and because I'm not, and it is best if I wasn't it -- I looked at it. The capital allocated is EUR 7 billion. So as a result, is EUR 1 billion, and is roughly 15% of return on equity, including, as I mentioned, all the legacy, including all the legacy. As Jean-Laurent mentioned, our target is more than 20%, in term of return on the promotional equity under Basel III, fully loaded. Today, we are under Basel 2.5. So naturally, as I mentioned, it's a -- in dotted line. Clearly we think we are -- probably we are at the bottom, and so probably we will enjoy better. On top of that, we think that perhaps the European situation will be a little better in the future. So clearly, yet, the answer is yes.

Jean-Laurent Bonnafé

Maybe 1 complement to what he just said, with respect to your question. If we basically take into account for next year, for example, that the spreads will tighten, you can assume that basically the cost in the topline will go down. We used to guide on 800 to 900, I think 600 to 700 is more realistic in the framework reference, where we stand today.

Kinner R. Lakhani - Citigroup Inc, Research Division

And it was just BNL cost of risk, actually. The last one.

Jean-Laurent Bonnafé

Yes, as you may know, Italian banks are suffering a lot from the economic scenario and the fact that SMEs in that context tends to be [indiscernible] of economic term tends to be more fragile. BNL is an Italian bank, of course. Maybe compared to other Italian banks, that platform is suffering less or is even better provision. But nevertheless, is it an Italian platform. So for this year, 2014, I'm afraid that nothing can be expected in terms of good news. We cannot imagine that this year, cost of risk in Italy is going to go down. This is just impossible. And so this the way it is. We believe we'll have to wait for next year before to see some kind of an improvement. Again, there are some institutional, I would say, tensions. So it doesn't help, but let's see what will happen.

Bruce Hamilton - Morgan Stanley, Research Division

Bruce Hamilton, Morgan Stanley. A couple of questions. Firstly, on the capital allocation, in the targets you set for BNL, the ROE's 15%, since Capital Market's 20%. How do you apply the capital allocation used in that calculation? Secondly, in terms of the kind of Asian growth, you showed so -- I think you're saying 15% of the Capital Market Solutions business comes from Asia, in terms of revenues based on '13 and the growth is over 20%. Your targets look relatively modest, or sort of mid, high-single-digit topline growth, I know it's probably an aspirational rather than an accurate guide. But how should we think about the growth profile from here? And what are the kind of hurdles you place, and is that Asian business currently in a profitable state, and what's your gearing there? And then, just finally, on the outlook for the Turkish business in terms of the, in a quite tough environment? How should we think about the cost of risk there, in terms of the, how you think about the growth, as well?

Jean-Laurent Bonnafé

So in Turkey, well, we have a well-managed bank, positioned on the, we had said the better part of the market, especially in terms of SMEs. We have always managed that bank very -- in a very cautious way, especially looking at the portfolio bond in Turkish lira. So there is no doubt that the current situation will have some effect on the real economy in Turkey. This will, to some extent, impact the overall growth, economic growth for the 2, 3 years to come. But nevertheless, we believe that we still platform, we have -- the way we have finance customers, the customers who have picked as the relevant ones. So we just confirm our confidence in that platform in Turkey. For Asia, yes. We are cautious. The targets were given 1 year ago. After 1 year, we're ahead of schedule. We have not changed the targets. The targets were 1 year ago. So since we are ahead of schedule, you could imagine that the 1 or 2 years, maybe in the end, we would be better, but we have to be also cautious, because, well there are maybe some countries in which the 2, 3 years to come will have a slightly different economic environment. So this is Turkey and this is Asia.

Georges Chodron de Courcel

On the first question, indeed, your question is yes. You are -- it's a good question because we have not specifically given the position -- in a version that -- for our plan, we have allocated 9% Basel III risk-weighted assets to each business. Why 9% and not 10%, which is our assumption for the group, it's because 9% is the regulatory level. And we think that it's fair to keep the additional cushion of 1% at the level of the corporate center. If you -- so when we say that the target is 15% in the plan, it means on equity, and all to equity, which is 9% at the time, the risk weighted assets have no balance.

Nick Davey - UBS Investment Bank, Research Division

Nick Davey from UBS. 3 questions please. The first 1, if you could please update us on the NPL coverage level in BNL. I understand your cautious outlook there for the next year. I just want to understand how much of what we've seen in Q4 is an increase in NPL coverage, and how much is reflecting underlying, nonperforming loan trends? The second question, please, a bit of a follow-up there on the corporate center, and I'm talking about holding some of their capital costs centrally. I think there was some discussion over the last year about pushing out increasingly some cost to regulation to the various divisions. So if we could just understand where those discussions have got to, please. And the third question, just coming back to these points about the revenue and cost of growth embedded in your 2016 plan. So if I look at what you're aspiring to in 2016, it looks like you're aiming for about 3% revenue growth between 2013 and 2016 CAGR, and around 2% cost growth. I just wanted to get the flavor if your macro scenario -- if the macro scenario positively surprises, and revenue growth materializes more quickly than you're planning, to what extent will the cost -- is the cost base fixed, do you think, to about 2% cost inflation per year from here? Or does it need to follow the revenue?

Georges Chodron de Courcel

While talking basically of Europe, this in the only area in which maybe, in the 2, 3 years to come, the economic scenario might be slightly better. In that case, most of the organic growth will be -- I would say, of terms to marginal cost, which is quite different from areas in which we are investing continuously, just as Philippe said. So if the economic scenario in Europe is stronger then, we are benefiting from the platform that is there and additional developments of terms through marginal costs. For the first and second point, maybe Lars can give some information.

Lars Machenil

Yes, so with respect to the allocation of the costs, with respect to the corporate center. So what you see here is in, as I said earlier, in the framework that we've always been using. And in that framework when I guided 600 to 700, it is in that framework that you have to see it. And now, however, going forward and for the plan, which is based on the new set of rules, the CRD rules, that basically means that we will switch into Basel III capital and also related elements for liquidity. And so that means that somewhere before the Investor Day, we will basically recompose the current results, and we will recompose them as we said, allocating the capital, allocating other elements. So we will clarify that, at that moment somewhere before March 24, and we will make good on that promise. And with respect to your question on the evolution, the thing is, that at the level of the group, we basically publish the nonperforming loans at the group level, which we do in a uniform way. So we do not basically provide or we do not break it down towards our regions. So I have to leave it at that.

Jeremy Sigee - Barclays Capital, Research Division

Jeremy Sigee from Barclays. This links a little bit to what Lars was just talking about. The definition of your ROE target, what's the base of equity? Is it sort of the EUR 90 billion that you have on the balance sheet, or you've often used a more restricted definition for ROE, which is around EUR 80 billion. So what's the base? I know you're just beginning to touch on that. And then the second part of my question is a bit more philosophically, the 10% target. Is that the right number for a bank of this type? Or is that the minimum in a difficult environment for the next couple of years, 3 years, and one day, you hope to do better than that? How do you think about 10% as a target?

Jean-Laurent Bonnafé

Better, you mean, that we would be below, that's what you mean, right? That we keep less capital. No seriously, jokingly aside, as you say, so the way as a repeat as the way we allocate our businesses, we basically say the consumption that they have, is on the risk weighted assets, right? So we say, this is the amount of risk weighted assets that you consume, and as Philippe said earlier, we basically allocate 9% of that as if -- as a stand-alone and that will be the minimal that they are.

Philippe Bordenave

The level of the group, and the return on equity that we're announcing, 10%, is a real return on equity on total equity of the group, so EUR 90 billion, of course. The return on tangible equity would rather -- would be, the equivalent would be 12 around, but the equity is the equity, so we don't cheat with that.

Jean-Laurent Bonnafé

And so this basically means, if you would add up once we will publish it, if you take the sum of all our businesses, you will see that there is a little difference, which is basically due to that fact that additional cushion that we keep, which basically, when you add it all up, the group is a tad below that.

Philippe Bordenave

Now philosophically, according to our -- it's late, for the philosophy. Briefly, according to what we see, the current cost of equity is around 10%. And by having a target to be above that level, at least we are bringing the return equity above that cost of equity. Now we believe that the new regulation has brought so much [indiscernible] in the banking sector, with so much capital, so much liquidity. I mean in our case, again, we are running the bank with half the same equity as today. So we double the equity for the same type of activity. If you compare before and after the crisis, and the crisis showed that the previous level was not too small, in our case. So we double the equity. We multiply the liquidity buffer by 5. We are running the bank with EUR 50 billion liquidity buffer. We're now at 250. And so, and the leverage went down hugely. We had the total balance sheet of EUR 2 trillion before the crisis. We bought Fortis, EUR 500 million. So at a certain point of time, just upon the acquisition of Fortis, we were at EUR 2.5 trillion. We are now down at EUR 1.8 trillion. So we cut the balance sheet by more than 1/3. So I mean, all this is -- all this additional safety in the system normally should translate into a lower cost of equity someday. But it's not yet the case. But we think it should come one day.

Operator

We have a first question over the phone from Delphine Lee, JPMorgan.

Delphine Lee - JP Morgan Chase & Co, Research Division

Yes, just 3 questions on my side. First of all, just to come back on your target for 2016, what kind of organic RWA growth are you assuming, roughly on the Basel III basis? And then secondly, on your revenue target. Basically, if you assume that, I mean if have macro assumptions which are quite conservative in Europe, without not much growth, I mean, if you could maybe just detail where the growth is. That should come at that 10% target that you have, in terms of revenues in '16 versus '13? And then lastly, just to come back on costs with the 800 additional cost savings you're announcing, how should we think about absolute levels of cost base, compared to 2012 or '13, let's say? Is the EUR 800 million and EUR 2.8 billion in total supposed offset investments and inflation, or basically, how does that compare to historical levels?

Jean-Laurent Bonnafé

A lot of questions, Delphine. If I start with -- in the chronological order. And so, what indeed, if you look at the plan, and you look at the revenue growth and basically the cost growth, you indeed see a different dynamic. You do see indeed a dynamic, that part of the growth is coming from several of the regions that we have labeled in our fifth step of the plan. And so that also basically means, as we said earlier, that has to be accompanied with cost growth which is more than just marginal cost growth. So 1, you could assume that a relevant part of the topline growth is coming out of the areas and the specialized businesses that we have mentioned. And so, if that -- I take that to your other question, on the cost, so as you correctly say, the EUR 2.8 billion has somewhat been calibrated and corresponds to the evolution of inflation. So we basically, through that, take out inflation, which implies that the big bulk of the remaining cost is really the cost corresponding to the investments that we do to accompany the top line, the top line growth.

Delphine Lee - JP Morgan Chase & Co, Research Division

Yes, sorry. And then, the last question on RWA?

Jean-Laurent Bonnafé

I think you can assume that the RWA growth will be similar to what we see in the topline growth.

Operator

The next question is from Stefan Stalmann of Autonomous Research.

Stefan-Michael Stalmann - Autonomous Research LLP

3 questions, if I may. The first 1 regarding the reserve you took for the U.S. sanction issue. $1.1 billion looks very high, relative to other banks that have been in a similar situation. I think the next biggest settlement was actually reached by ING with about $600 million. Does that reflect that you think you have been a lot more active in these areas? Or does it suggests that you're extra careful in your provisioning? The second question, it looks like your tangible book value per share is up by EUR 1 per share during the quarter. Could you maybe add some color, where that is coming from? And the final question, if you look at your investment spending, as of today, and if you look at incremental revenue that, that has generated, are you above breakeven?

Jean-Laurent Bonnafé

Yes, again on the U.S. sanction and the provision we met, there is nothing we can disclose on top of what has been said before. So we are not going to comment about the magnitude of the provision. Philippe?

Philippe Bordenave

On the book value per share, it's coming partly from the well, the available for sale capital gains in the first quarter, and partly from of all the balance sheet items. It's coming from the balance sheet. And the last question, if we...

Georges Chodron de Courcel

And so, if I understand your question to be, if the investments that we have been doing so far, if they are yielding the returns, and well it depends, of course, the various stages of maturity we are in. But the ones which are in a sufficient maturity are delivering according to what we have planned.

Operator

That question is from Jean-Pierre Lambert, KBW.

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

I would like to come back to the investment in business development projects, if you could give an indication of the amount of investment for this quarter, and perhaps on the stock of investments which has been taken so far. And internally, whether you look at the tax shield as well, when you calculate the return?

Jean-Laurent Bonnafé

Well, this kind of information, I'll have to rain check, because this is not what we disclose. And with respect your question on what our internal metrics are, as you know, and may be it's good to specify, when we talk about the figures that we gave for our businesses and we explained earlier how we calculate the capital. It is basically always pretax, and so when we manage our businesses and we look at the proposals that we do, that's basically how we evaluate them.

Operator

Your next question is from Cyril Meilland, Kepler Chevreux.

Cyril Meilland - Kepler Cheuvreux, Research Division

I have a couple of small questions. The first one is maybe longest. So regarding the outlook for revenues in French retail, I was wondering whether you see any improvement, especially on the corporate side. You've had negative growth in loans, probably because, obviously lack of investment. Is there any improvement at the end of '12 and '13, or being sure that might prompt you to be a bit more optimistic? And more generally regarding, again revenues, given the negative trends in commissions and interest rates, can we expect some growth in the coming years? That's my first question. The second question is more a housekeeping one. Regarding your leverage ratio, which went down quarter-on-quarter, is there an impact from the new rules announced by the Basel committee? And if yes or no, where is the main change coming from? And the last question is regarding the EUR 800 million of cost savings you booked last year. Can we have the splits of these cost savings by and between of the 3 main divisions of Retail, Investment Solutions and CIB? I would guess that Investment Solutions is a bit ahead of schedule, compared to your final target, and Retail may be a bit behind, but can you qualify this?

Jean-Laurent Bonnafé

Perhaps, on your first question about the outlook of revenues in French Retail Banking, we don't give figures, but it will obviously depend on 2 elements. The first one is French resuming growth, which could come progressively. We expect a bit less than 1% GDP growth in 2014, and a bit more in 2015 and '16. The second element being the level of interest rates, which is at present, very low. So we could expect a positive evolution of revenues in French banking, probably not very significant to be honest this year, 2014, but accelerating on the whole duration of the term.

Philippe Bordenave

There is a question of the leverage ratio indeed the reason why we are at 10 bps below September is because of the acquisition of the Fortis 25% stake which costed a little bit in capital, without changing the total balance sheet and so on. It's a little bit, the leverage ratio.

Jean-Laurent Bonnafé

Yes, on -- with respect to your question, what we can say about the cost savings, we haven't disclosed the numbers. But it is indeed the ones which have been embarking on their plans a bit earlier, because of the situation in which they were, which is then basically CIB and IS are the ones who are slightly ahead with respect to that total. And we have disclosed in our annual report what we expect as percentages for the total objective.

Cyril Meilland - Kepler Cheuvreux, Research Division

I'm sorry, regarding the changes in the rules for the leverage ratio? Is 3.7% likely to go down, or?

Jean-Laurent Bonnafé

No, the changing in rules, if they occur, would not have material impact as far as we are concerned. So I have said that a few minutes ago, the 3.7% is either, take it as either the calculation coming from the CRR or the calculation coming from the latest proposal of Basel.

Philippe Bordenave

BCBS 271, that is.

Operator

The final question is from Alex Koagne, Natixis.

Alex Koagne - Natixis S.A., Research Division

A few questions from my side, otherwise. On the payout ratios, just to be sure, the 45% payout, is that from 2014 to 2016? Just to be sure that it is just a target for 2016? In the financing, how should we consider your previous guidance, in terms of revenue? Was it EUR 100 million per quarter? You seemed more optimistic. Could you please update this guidance for us? On the share buyback potential program, I just want to be sure, is this something that comes on top of the organic and external growth, or it is an alternative? And I was just wondering whether you can provide us with some -- with the RWA on the Basel III, at the end of 2013? Either with capita.

Jean-Laurent Bonnafé

I'll maybe start, with the reiterating that, with respect to the costs as a drag on the revenues in corporate center. Within, I said, within the current framework, we review our guidance of minus 800 to minus 900, to minus 600 to minus 700. And I think, if I understood your last question on the components of the core equity Tier 1, we went this year and the old framework we've given you, the ratio as of Q1 when we switch into the new one, we will provide a longer breakdown.

Philippe Bordenave

For the 45%, maybe yes, the Slide #37 was not quite clear. But clearly, the 45% are applying as early as 2014, and not only for the last year. The plan, and your last question, there is no share buyback program in the plan, currently. But the certainty [ph] of share buybacks are just, I would say, mentioned in case there wouldn't be any, although a meaningful way to use the potential excess of capital that is embedded in the plan, and that would be, of course, on top of the plan, not -- in spite -- it would not replace the organic growth.

Alex Koagne - Natixis S.A., Research Division

Can't provide us with some guidance?

Jean-Laurent Bonnafé

We didn't get it.

Alex Koagne - Natixis S.A., Research Division

Yes, hello?

Jean-Laurent Bonnafé

Yes, can you repeat it again?

Alex Koagne - Natixis S.A., Research Division

Yes, I was just wondering if you can update the guidance of EUR 800 million per quarter in the Financing business. How should we consider this guidance, going into 2014?

Philippe Bordenave

I think it's still more or less valid. We are there. We are there. It remains valid.

Operator

We have 1 last question from Maxence Le Gouvello, Credit Suisse.

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

I will have 3 quick questions. The first 1, can you give us a little bit of color of how you want to reach 15% ROE in BNL on the Basel III, because already on Basel 2.5, have some difficulties to be above 12%. And the second question, regarding the tax rate, can you give a little bit of guidance? And then the last point is, why you don't want to give us a full disclosure of your Basel III component?

Jean-Laurent Bonnafé

For BNL, obviously, looking at 2016, there should be some fresh items of cost of risk, so this is 1 important element. But basically, we're going to reshuffle the business model. We're going to invest more in anything that is private individuals, digital banking, private banking. And we're going to focus more on corporates that are larger mid-caps, internationally well-developed and maybe less SMEs. So all in all, you should see the final result as a mix of those different dimension.

Lars Machenil

And with respect to the tax rate, I think, at this stage, we stick to the guidance. I mean, I suppose you mean the tax rate for the whole group. So we stick to the tax rate of 31%, and for the normal run of the mill. And with respect your question on Basel III, so you are very well aware that through this year we are under the referential of Basel 2.5, which basically means that, the models, the figures that we have -- are using are being reviewed and have been reviewed by the appropriate credential instances. And we basically abide by some of the principles which have also been articulated by the FSB, and also in the enhanced disclosure taskforce, is that basically, when we publish, we do it when the referential becomes active. And so as of Q1, the new referential will be active, which will mean that prudential regulators have looked at it, so that we can with just appropriate comfort, give you all the breakdowns, and therefore, we will do it with a lot of pleasure in our next reporting.

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

Okay. Last. You are the only bank not providing it, so it's a bit weird. And can I ask you 1 favor. Can we have it ahead of the Q1 results, instead of discovering them on the day.

Jean-Laurent Bonnafé

I'll take note, Maxence. Thank you very much.

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