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Executives

Baudouin Prot – CEO

Jean-Laurent Bonnafe – COO

Jacques d’Estais – Head, Investment Solutions

Philippe Bordenave – Senior EVP, Head of Group Finance and Development

Georges Chodron de Courcel – COO

Analysts

Delphine Lee – JP Morgan

Robin Down – HSBC

Alessandro Roccatti – Macquarie FBK

Jean-Francois Neuez – Goldman Sachs

Omar Fall – UBS

Jeremy Sigee – Barclays Capital

Virginia Martin – Evolution

Jacques-Henry Gaulard – Autonomous

Shailesh Raikundlia – MF Global

Kinner Lakhani – Citigroup

BNP Paribas SA (OTCQX:BNPQY) Q4 2010 Earnings Call February 17, 2011 9:30 AM ET

Baudouin Prot

Thank you very much. Good afternoon. Well, the key message for the year, we see the real news is EUR43.9 billion in the new perimeter of BNP Paribas after the acquisition of Fortis. We are going to reevaluate our synergies for Fortis from EUR900 million to EUR1.2 billion, certainly declined the cost of risk due to an improved economic environment with very much characters of last year; and we’re going to continue to rend this 2/3 of our profits, therefore keeping a payout ratio of 1/3.

The next income group stood at EUR7.8 billion. The ROE was 12.3% compared to 10.8% in 2009, and the return on tangible equity increased to 15.8% last year. In terms of the consolidated group numbers, in 2010, so for the first year in the new scope with the integration of Fortis, the group generated EUR43.9 billion of revenue, up 9.2% compared to 2009. Now I think to be more significant we should move directly to the like-for-like basis, and that is this and for the operational divisions only. There we see the revenues slightly decreased by 3.4% compared to the high base in 2009, entirely due to the fixed income exceptional first half results. 2009 was characterized by an exceptional revenue contribution from fixed income in the first half, and on a like-for-like basis therefore CIB revenues in 2009 were 18.8% lower in 2010 than in 2009, whereas costs decreased by 4.5%.

On the other hand, on the whole of the banking, we show a positive plus two points in 2010 compared to 2009 on a like-for-like basis, and for Investment Solutions it’s 3.1, so three points of positive gross effect. So we definitely had positive last year for the full year, positive gross effects of two points for Retail on a like-for-like basis; positive gross effect of 3.1 points for Investment Solutions. And the only reason for revenues to be lower was the very high base, especially in the first half of 2009 for fixed income revenues which we very much mentioned at the time.

Thanks to the sharp decline in the cost of risk, pre-tax income was sharply up 32.8% and then we get back to the net income attributable to the equity holders also up 34.5% at EUR7.8 billion. There you see the return on equity, the net earnings of 12.3% as I’ve already mentioned. Net earnings per share was 6.30, up 21.7% compared to 2009, and the net booked value per share at EUR55.50 was up 9% compared to 2009. So we had a strong increase in results in the new dimension for the group.

As for the PNB Paribas/Fortis synergies, at the end of 2010 we have realized EUR600 million of synergies against EUR230 million, EUR229 million announced. Due to this very strong move in realizing synergies, we therefore are increasing the total expected synergies from EUR900 million to EUR1.2 billion in 2012. Retail banking and functions includes now the plan of our new, well the new merged bank in Turkey that merged on the 11th of February. Jean Bonnafe will come back to that when getting back to the Retail operations. In Investment Solutions and in CIB, we really see the possibility of higher cost synergies in both divisions in various business units, and also in CIB more cross selling. And altogether this is how we increase from EUR900 million to EUR1.2 billion.

Restructuring costs increased from EUR1.3 billion to EUR1.65 billion, including EUR600 million that should be posted in 2011, this year. So I think this is significant revision upward confirming the integration skills of BNP Paribas.

As far as the net income attributable to equity holders, you see here that we are, well close to (inaudible) there and Citi, and just, well ahead of the others. I think this very significant net income group level reflects BNP Paribas’ position in the banking industry. In terms of ROE, our ROE of 12.3% is also comparing favorably well. We are really in the first tier of the industry and it shows that the profitability of the group in last year’s environment was relatively high considering the new environment and the overall environment.

As far as, this is the operating divisions’ Q4 numbers. We see here, so we now switch to Q4 performance in all of the different divisions. Revenues stand at EUR10.2 billion and we’re up 7.9%. This is quite a significant increase of revenues. Gross operating income increased by 8.1% to EUR3.8 billion, taking into account an increase of 8.1% of operating expenses due to investments made to accommodate the growth of our operational divisions. Actually, operating income, gross operating income increased by 7.5% to EUR3.8 billion and the increase in operating expenses was 8.1%.

Here again we had the positive gross effects of 0.8% in Retail, again, and a positive gross effect of 2.4% in Investment Solutions. Only CIB had a negative gross effect and we will come back to it later when we comment in detail on the last quarter CIB performance. So for the full year as for the last quarter we had positive gross effects in Retail and IS and a negative gross effect only on CIB but still keeping a very efficient cost income in absolute and comparative stances for CIB. Thanks to the decline in the cost of risk by 1/3, pre-tax income increased by almost 60% to EUR2.7 billion, so strong increase in activity and revenues and in results for operating divisions as for the last quarter of last year.

Exceptional items in the last quarter, as for the group as a whole Q4 results include one of the appreciation of EUR534 million of investment (inaudible) for accounting reasons. I think we took the kosher and prudent decision for our long-term investments in a highly volatile market and an application of the accounting rule we had to value at the stock market price of the last day of last year, which was EUR12.45. Actually however, part of this has already been recouped with an unrealized gain of more than EUR350 million at the end of January, 2011.

And one of amortization, the other one of these items is an item of amortization of the Fortis PPA of EUR176 million due to earlier redemption and exposure. So all together we booked in the last quarter in the corporate center revenues combined, well negative of EUR360 million, and after that well negative impact on the corporate center revenues we came out of the Q4 with a net income attributable to shareholders of EUR1.5 billion.

Getting back to the Q4 revenues and of the operating divisions, we see that Retail banking was up, revenues were up 4.7%. Investment Solutions were up 13.8% and CIB revenues were up 10%. So altogether the three divisions had good sales and marketing drive across all business units. I won’t get to the detail of the different Retail entities’ revenue increase because Jean Bonnafe will just in a few minutes comment in detail on the main entities’ performance for the last quarter of last year.

Regarding the cost of risk, at group level the cost of risk in the last quarter stood at 68 basis points. This is a steep decline compared to the Q4 of last year – 39% decline and about a EUR700 million decline. This is a stable on-year decrease of 5% compared to the Q3 of 2010. What I think is important is that we see a standardization of the doubtful outstanding in the Q1 compared to the Q3. This is the first time we’ve seen it in the last few years, and I think this is a good indication of things regarding the cost of risk for the near future, for the future.

In terms of CIB financing businesses, the cost of risk was well, 12 basis points and it was very, EUR100 million than the last quarter of 2009; and it was compared with a limited ride back in the Q3 of 2010. Again, limited provisions offset by ride backs and we most probably think that going on we should continue to have a limited, very limited cost of risk in CIB financing businesses because we see somehow more of maybe these ride backs compensating for provisions in the next few quarters.

In terms of our key domestic franchise, in France the cost of risk was 41 basis points. We have the seasonal impact of the last quarter which is always a bit higher. It was 47 basis points the last quarter of last year. Overall, the cost of risk is, we think that the cost of risk is low and should most probably we would expect a slight decline for French Retail in the coming quarters.

PNLBC, the cost of risk standardized at 105 basis points. The last few quarters as you see them have been 109, 107, 108, 108, and now back to 105. So this is really a stabilization of the cost of risk. And for the third significant domestic market, Belux cost of risk at 32 basis points, so low-moderate level confirmed and well, very, very similar to the previous quarter. And there also we might expect a slight decline in the coming quarters.

In terms of Europe/Mediterranean, for Europe/Mediterranean we see that the cost of risk at EUR122 million for the last quarter is well, really EUR133 million lower than the last quarter of 2009, is up EUR33 million compared to the Q3. This is mostly due to the EUR25 million portfolio provision that we took on a portfolio basis for Tunisia and Ivory, and we’ve seen apart from that a stabilization in the cost of risk in Ukraine. And so nothing else really to mention.

Regarding BankWest, 79 basis points, cost of risk of EUR75 million, well down EUR200 million compared to the last quarter of 2009 so a very steep decrease; and also down EUR38 million compared to the Q3 of 2010. We see an improvement in the quality of the portfolio in the more favorable economic environment, so after this very steep decline we’ll see whether we can have some further declines in the cost of risk has come really to a much lower level regarding where we were a few quarters ago.

As for personal finance, for personal finance we really have a cost of risk which is much lower than last year at 210 basis points against 290 basis points, 287 basis points in the last quarter of 2009, and also lower than in the Q3. We see this decline in the cost of risk continuing in the next few quarters and it’s a very significant number because in absolute terms it is one of the important sources of provisioning for the group considering the type of business of personal finance.

Moving to the pre-tax income per operating division, there was really a strong increase in the pre-tax income of all three operating divisions. There certainly was quite a rebalancing of the divisional contribution to the group. Starting with Retail, Retail went from EUR480 million to EUR1.75 billion, so it was more than double, more than twice the last quarter of 2009 pre-tax income. So a very strong rebound. We will see that this rebound was mostly due to BankWest personal finance and European/Mediterranean increase. And now we see this Retail banking being just ahead of CIB. The first contributor to the group’s pre-tax profit, quite a change to the previous quarters.

Investment Solutions’ pre-tax income grew 40% to EUR550 million, so quite an increase, and CIB also had a significant increase of 23% to EUR1.71 billion. So we had really in the last quarter of last year a strong operating performance in terms of pre-tax income for every division of the group.

I will now give the floor to Jean-Laurent.

Jean-Laurent Bonnafe

Good afternoon. For French Retail, we enjoyed a strong commercial growth for the Q4 and for the full year. Loans were up 4.6% especially with mortgages at plus 9.3%. Deposits are up 8.8%, especially current accounts at 11.7%. All in all based on this very strong growth in deposits and loans we have an increase of 2.3% of the global revenues, well-balanced between net interest income plus 2.1% and fees, plus 2.6%. And due to a slight decrease in cost of risk, pre-tax income was up 8.4% at EUR337 million. So a very good year for the French Retail.

As for B&L is concerned, well amidst a slow recovery of the Italian economy we posted a very slight increase of revenues last quarter at 0.8%. On one hand, we see a weak growth for loans, 1.2%, a slight decrease in deposits, minus 0.5% in line with the market; and on the other hand we see quite strong revenues in terms of fees based upon product offering and cross-selling. On a yearly basis fees are up 8.5%. Operating expenses are down 0.8%. This is linked to the effects of the first synergies of [Banca GB] and Fortis Italia, and on the other hand we are still expanding the network with 23 new branches open this year. So we are now halfway to our mid-term target which is 1000 branches in Italy.

Cost income, again, improved while down to 48.4% on a yearly basis. We can say now that we have fully closed the gap this year with the banking sector after four years of quite hard work, I have to say. And pre-tax income this final quarter of 2009 is up 16.7% thanks to a slight decrease of the cost of risk at EUR91 million. So an in-between situation that are up well compared to the market.

For Belux, well, what can we say? After this full year Belux posted strong and promising results for this final quarter as for the full year. This is especially based on good sales and marketing drive, in particular with respect to successful cross selling with CIB, syndicated loans, acquisition finance, bond issues. Loans were up 4.7% including market mortgages at 13% and entrepreneurs at 4.7%. Deposits are up 11% and the private bank assets under management are up 13%, so it’s a very good start for this joint venture between the private bank and the Retail network for the first year.

Based on that, revenues were up 5.1% at EUR840 million. Operating expenses are up 3.4% so we are still continuing to invest in the development plan in Belgium and in Luxembourg. We’re still running out IT investments, and all this plus the fall in the cost of risk gives us an increase of close to 30% in the pre-tax income for Belux. So this is a very nice result for the first full year of the integration in Belgium and in Luxembourg.

For Europe/Mediterranean, well of course this division encompasses a large variety of different geographies. All in all we can say that we benefited from a good sales and marketing drive plus 200,000 customers as compared to the Q3 of 2010, a Strong increase in development for credit finance and cash management. Fees are up 11% and good growth in outstanding loans, plus 3.2%, especially with Turkey plus 24%; and despite the decline in Ukraine, minus 16.7%. Revenues are up 1%, 5.5% excluding Ukraine and minus 21% in Ukraine.

Operating expenses are up 5.8%. We are pursuing investments. We have been opening 34 new branches and we are running out the multi-channel banking services program in Morocco and Ukraine. Thanks to the fall of the cost of risk of the division again, this Q4 is break even, close to EUR10 million in terms of pre-tax income as compared to a loss of EUR91 million last year. So all in all I would say a satisfactory situation as compared to the 2009, last year, and we have reached the main objective that was to be break even this year.

For BankWest, all in all revenues for the final quarter are up 2.2%. This is based mainly on net interest margin data that is growing, and despite the decrease in deposits – minus 3.5% – but more importantly we are looking at the core deposits that are up 5.6%. Loans are at minus 2.5% but recently we’ve been seeing a pickup for corporate and consumer loan production. Operating expense are up 7.5%. This is based first on the revival of marketing spendings and the fact that we are entering into a new phase with BankWest so we are starting new investments for the years to come. But more importantly this is also the impact of the new regulation in the US so we have to adapt in many dimensions the bank to this new reality. Pre-tax income is at EUR156 million compared to a loss of EUR49 million last year. So all in all BankWest with a net income of close to EUR600 million is really back into positive territory.

Personal finance continued this year and for the final quarter to adapt its business model in a very successful way. We have managed a good sales and marketing drive especially in France, Italy, Germany, Brazil, and Turkey with low risk profile and good profitability. Revenues are up 5%, consolidated outstanding is 5.8%. The company’s improving its operating efficiencies. Cost/income ratio is down by 2.4 points so we are now at 46.3%, and pre-tax income is at EUR272 million in the final quarter due to the sharp decline of the cost of risk. So all in all, this year personal finance booked the best result ever in the very long story of personal finance within the (inaudible) banking group so it’s a very nice performance, I would say an excellent operating performance.

If we look at the 2011 action plan for domestic networks, well of course first as always we continue our dedication to serving the economy, individual customers, entrepreneurs, corporates. For individuals we keep on investing in new technologies – internet, mobile banking, multi-channel. In Belgium we will roll out continuously the private banking business model. In France and Italy we’ll expand to cross sell in between with the insurance businesses, life insurance products but also non-life insurance products; and in Italy we will continue to grow the network with this mid-term objective of 1000 branches in Italy.

For corporate and small businesses we will keep on expanding the product offering and to cross sell with CIB and business solutions. We will continue to develop the cash management services. This is part of the global program of the bank that is “One Bank for Corporate in Europe.” In France we will open certain new business centers, more business centers; and in Italy we will continue our move towards the mid-cap segment. So again, this is the full rollout of the integral model that is going out.

For the other details as our networks, for BankWest 2011 will be the first year of the new business development program. We will continue to invest in technology but also into the private bank, into the corporate bank, so we are expecting quite nice results over the mid-term with this bank. For Europe/Mediterranean we’ll say a word about Turkey in a minute. In Poland we are pursuing the business development plan we announced 18 months ago with the integration of Fortis. And in Ukraine we will keep on carrying on the turnaround of the bank, optimizing the cost base and developing selected business lines like consumer lending and cash management, for example. We expect the bank to be breakeven not this year in 2011 but next year in 2012. So this is the main target, to be break even in 2012.

About Turkey, well, you know how the Turkish market is attractive, close to EUR80 million in [epitence]. Half of the population is under 30 years old so a very promising banking market. On top of it, banking penetration is quite limited, 39% as compared to 148% in the Euro-zone, so this is basically the picture. And in terms of geography it’s a gateway between Europe and Asia and this geography is very strongly connected to our (inaudible) regions of the group, such as Western Europe, Central and Eastern Europe and of course the Mediterranean area.

Basically we’re merging the two local operations, so this is first the merger of two domestic banks and this will contribute to ¾ of the total synergies; and the second part is that we are going to roll out the full business model of the BNP banking group from the Retail to the businesses of CIB and Investment Solutions. Based on the merger of the two banks we start with a number 9 position in Turkey. This is for the pure domestic banking business, but in a number of other businesses we are among the top five banking groups, especially for consumer lending, card issuing, leasing, asset management and insurance. So it’s a very strong operation we have now in Turkey.

In terms of synergies, the objective is EUR86 million in 2013, 2013 because this project started one year after the integration of BNP Banking Group together with Fortis. Three quarters is coming from the pure Retail integration of the two local banks, one quarter is coming from the investment bank. Restructuring costs would be around EUR123 million over three years, so a very ambitious and attractive program for us for the three years to come.

For personal finance, we believe that in 2011 personal finance will continue to take advantage of its strong growth potential, both in developed and emerging countries. In France we will launch a full range of savings products – (inaudible), insurance, life – and we’ll implement a new multi-channel device to better get advantage from the customer base of the company. In Italy, this is the second year, 2011, of the development plan we have implemented after taking full control of this company. The first year was quite successful and was betting a lot from 2011. In Belgium we are going to speed up the distribution of our off-equity products. Off-equity is the brand of the loan consumer business in Belgium, so the BNP Paribas/Fortis network. In Germany we should get substantial growth from the partnership with Commerce Bank and we have a lot of other geographies in which we can expand. These are networks of the groups around (inaudible), North Africa and even China, and of course Turkey, where we took recently control of the [Setalam] and is going to start new partnerships, especially in the automotive sector. So this is for [Setalam] in 2011.

So I’ll pass the floor to Jacques for Investment Solutions.

Jacques d’Estais

Thank you, Jean-Laurent. I’m now going to speak to you of Investment Solutions first. What’s interesting is that the assets under management of Investment Solutions are now at EUR900 billion, which is naturally a good level to begin 2011. We can see that in all the businesses the assets under management are higher and this figure is higher of 7.5% compared to last year. The net asset inflows was positive in the Q4, which is let’s say good due to seasonal effect because you know that normally at the end of the year we suffer some asset outflows mainly in money market funds, and so this is a negative effect on money market funds. But despite that, asset management at the end was positive outflows.

We suffered some negative asset outflows in wealth asset management, mainly due to what I call post-G20 events, or mainly in Switzerland and in Luxembourg. So all in all, with EUR900 billion of assets under management we think we begin at a very good level the year 2011, and let me remind you because we speak naturally of the Q4, that the whole year of 2010 we have to recall here for investment solutions with a net asset income of more than EUR2 billion.

So if I come back to the Q4 you see that the revenues are up 14% compared to the Q4 of 2009, mainly due to wealth and asset management for 8%, for insurance 27%. Mainly for those operations due to the high levels of asset under management for securities services main effects, rising asset of (inaudible) but also a turn in transaction. We have seen at the end of last year a bit of a better transaction and development made by investment securities services.

Operating expenses are up 11%. We continue to invest in Asia, mainly in Asia and Latin America and also Italy and France, but we enjoy a positive gross effects in all the business lines of this full investment solution. At the end we have delivered a pre-tax income of EUR547 million, plus 40% compared to the Q4 of 2009. So globally we are absolutely on track in a very good shape to begin the 2011 year.

What is our action plan for 2011? Very simple – to continue to develop by organic growth. We like organic growth at the level of Investment Solutions. So clearly, we continue to take advantage of cost savings between Investment Solutions and Retail banking, and cost savings between Investment Solutions and CIB. Jean-Laurent, for example, mentioned Turkey, so naturally we will make a lot of (inaudible) with the new tab. We continue to develop our wealth management model in our domestic market but also in our new retail markets – I mean Poland and Turkey for example. In CIB we have joint operations with (inaudible) to hedge fund for Pembroke hedge, and we continue and we are in the process to develop more alternative asset management between Investment Solutions and the equity development.

To gain new customers, we constantly gain new customers in wealth management, naturally, but also in asset management for institutions. And in insurance we want to make a particular push on protection insurance in France and outside of France. Naturally we have an Asian plan. You all know that Asia is a growth area and first we continue to invest in new staff, and we naturally have new staff; and mainly in insurance we will continue to develop our activities with our joint venture in India. We are partners with the State Bank of India as you know. In wealth management we’ve continued to develop in Hong Kong and Singapore, so globally, all in all the Investment Solutions is on track to develop good organic growth for 2011.

I move now to CIB. For the Q4 of 2010 the revenues are EUR2.7 billion, plus 10% compared to the Q4 2009. It’s due to the fact that we are in a very close relationship with our clients despite some let’s say some uncertainty surrounding some indexes. Globally our operating expenses are up 15%. It’s due to the fact that we continuously invest to develop our franchise and we will go into that in a minute, and all in all our pre-tax income is EUR1 billion for this quarter. I think it’s interesting, you see that on the slide, to see the level where we are now in 2010 with EUR12 billion of revenues. We are far above the level where we were before the crisis. That means that the business model of BNP Paribas as I mentioned last year is well positioned just to be in the situation of the new business model after a crisis. And so you see that our Q4 is very good compared to the Q4 of 2009, and we see and we enjoy very good contribution of sixteen terms of equity derivative and our financing business. So our equity venture business model is up after the crisis.

I think it’s important to look to our cost income ratio issue. Clearly we continue after the crisis to be one of the best compared to our competitors with 54% of customers for this year. Let’s say that for the Q4 naturally we added a negative total effect of 5% because despite the fact that the revenues went up 10% the other expenses were up 15%, it is due to the fact that we are invested in Asia and in the US. But if you make the calculation you see that our cost income ratio for the Q4 of the year is 57.7%, which is far below the cost income ratio of our competitors on an annual basis. So you see that we are naturally on track to continue to deliver a good cost income ratio compared to our peers, and so I think it’s very positive for the future.

Going back to the Q4 for capital market activities, you see that the revenues are up 20% compared to the Q4 2009, and we continue let’s say to increase our position. You see our fixed income that we are naturally we are first, in all (inaudible). We work very closely with corporate but also with investors. In equity and equity derivatives, the business is back. We now continue to sell the guaranteed capital structure products and we continue to affirm, we increase our offering of hedging operations for institutions. In (inaudible) we are now there in Asia, we are number five excluding Japan M&A regarding to (inaudible) and we are very strong naturally in Equity Linx in Europe. So globally quarter after quarter we show that our franchise is here and we’ll continue to develop year after year.

Concerning financing business, let’s say we see a slight decrease in our revenues from this quarter. It is due to the fact that in CTBA we have just changed a little the profile of our customers, so now we think we are in the bottom in terms of revenues and we think that 2011 we’ll show good stats for CTBA let’s say all over Europe. In personal finance you see the situation – 40% in Western Europe, 10% in Eastern Europe, so a good equity balance. And naturally we continue to be there in energy and commodities and telecoms and in acquisition planning. So globally we continue to be with our clients with meeting their needs in their financing operations.

So action plan for CIB for 2011 is very simple. It is to continue to develop and continue to increase our market shares. Clearly we are a leader in Europe so we will continue to do so, just not only for finance, for the financing business but also just to help to develop the strategy programs – so through advisory and M&A. And so that’s the reason why we have invested a lot of senior people in that business channel all over Europe. In CTBE, which is let’s say their day-to-day business with our clients all over Europe, we think we can develop as Jean-Laurent mentioned, for all our clients in Europe we want to develop cash management and (inaudible) finance. We have been awarded Best Bank Cash Management in Europe for this year, and so we will continue to make a push specifically in this part of the business in Europe.

For North America, let’s say naturally we continue to see facility growth. Clearly we are a strong debt house in US. We help clients to issue bonds in US, we will continue to do so, and naturally we will also continue to develop our energy and commodity franchise. Probably I think we will add some M&A franchise in specifically the US for the advisory service for this sector, and naturally we will continue to develop our derivative business activity in North America.

In Asia, the same – we will leverage on our strong position worldwide, by that I mean fixed income and derivatives, and mainly offer also structured finance and equity derivatives. And naturally we’ll continue to invest in staff in China, in Japan, and (inaudible). So globally we think we are on track to continue our organic growth at the level of CIB. I give the floor now to Baudouin.

Baudouin Prot

Just to have a word on liquidity, I would like to highlight that the BNP Paribas intrinsic strength allows the group to have access to a wide variety of liquidity sources. We benefit from a large deposit base of EUR550 billion thanks to our strong position in retail banking at the heart of the Euro-zone. We also benefit from EUR160 billion of available collateral eligible to central banks. The good quality of our assets we have on the balance sheet enables the group to issue covered bonds. There are currently two programs: one is using our very good credit of Euro mortgages as collateral, and the second is the one constituted of export credits, guaranteed AAA export credit agencies.

All this gives BNP Paribas the ability to issue medium- to long-term papers in attractive conditions with a global reach and encompassing major financial centers. It also gives us the possibility to be one of the few in a position to issue up to ten year maturities for sizable amounts as well as to issue a broad range of issues to various types of investors. And you see here that private placements, well the retail banking, senior unsecured public issues, covered bonds, long-term (inaudible) – all of them in our program of 2010.

To illustrate my point I would like to highlight some of the most recent issues of the group. As you see we had a successful issue of a one-year floating rate note for EUR4.5 billion. And for this year, for 2011 our medium- and long-term issue program has been set at EUR35 billion, of which EUR7 billion have already been placed with an overall increasing maturity of eight years. You can see here as examples various issues in different segments. I would like to quickly comment on the first one illustrated in the graph. This graph shows that PNB Paribas has been able to issue at a longer maturity, ten years, with a lower spread – 65 basis points – than well, most of all of its peers. The amount in this case was EUR1.75 billion for ten year home loan covered bonds. So I think this illustrates the favorable issue price and maturity terms that BNP Paribas can get presently in the markets.

Moving to the balance sheet, PNB Paribas’ total balance sheet decreased again to just below EUR2 trillion at the end of last year, down EUR60 billion from 2009. I think this decrease was achieved despite a rise in the dollar of 7.5% against the Euro, and we can consider that 20% to 25% of our balance sheet is somehow US denominated. And this decrease is mainly due to the decrease in repos and trading assets for EUR29 billion as well as loans to central banks for EUR22 billion, leading to a reduction of the trading book by EUR29 billion. As for the available for-sales assets, the total amount of them was stable at EUR220 billion over the period. As you know, these assets are marked to market and changes in fair value are recognized directly in equity. I think it’s significant that the impact of this marked to market was virtually neutral as of December, 2010. As you see it was a very marginal EUR40 million, an unrealized loss for the all available for-sale assets.

In terms of solvency, well solvency, the common equity to one ratio stands at 9.2% as of the end of last year. This is a 122 basis point increase over one year, compared to the end of 2009, and a 20 basis points compared to the end of September, so last quarter. The share one ratio stands at 11.4% and is up an increase of 130 basis points compared to the end of 2009. I think what is very important is that shareholder’s equity is up in 2010, primarily through retained earnings. The common equity tier one has increased EUR5.8 billion to EUR55.4 billion as at the end of last year, and the tier one capital at EUR68.5 billion, up EUR5.6 billion compared to the end of 2009.

As regards risk-weighted assets, risk-weighted assets stood at just above EUR601 billion as of the end of last year, down EUR20 billion compared to the end of 2009 and down EUR7 billion compared to the end of the Q3. In the meantime, Retail banking risk-weighted assets grew EUR11 billion in the last quarter, showing that we have some- Well, we are managing our risk-weighted assets selectively. And while this 9.2% is a high solvency ratio and we are confirming in 2010 the ability of the group through retained earnings to continuously grow its shareholder equity and consequently to have a very solid solvency position.

In terms of the earnings per share and booked value per share, thanks to a stronger earnings generation capacity, earnings per share increased by 21.7% to EUR6.30 in 2010 compared to 2009. And I think it’s very important to see that the booked value per share reached EUR55.50, up 9% from 2009 and up 29.45 since 2006. I think this really illustrates the ability of the group to generate robust growth in the value of its assets throughout the cycle, even through a difficult period.

Last but not least the dividend, we are going to propose to the shareholders general meeting a dividend payable in cash of EUR2.10 per share. This compares to EUR1.50 last year. We will keep the payout ratio at 1/3 and we think this is, in the present environment, the right balance. We think it’s very important that we keep a very solid dividend policy payable in cash for our shareholders, also retaining the other 2/3 of the earnings to continue to build up the solvency of PNB Paribas.

I think with this, I’ll just say before moving to the Q&A session that I think the overall 2010 group performance confirms the robustness of PNB Paribas’ business model. We have improved our solvency. We keep a diversified access to liquidity, and our action plan for 2011 is very much focused on organic growth, getting new customers and leveraging the group in this new dimension; and also continuing to deliver on the increased level of synergies for the Fortis integration.

Thanks very much and we are now going to answer with Jean-Laurent and Georges and Philippe will in the meantime have come here to your question.

Question-and-Answer Session

Delphine Lee – JP Morgan

Hi. I am Delphine Lee from JP Morgan. Just a couple of questions. The first one is just a comeback on the booked value per share, and just trying to think how you think about the growth. Is that one of your targets, to make sure that the booked value per share increases every year, adjusted for any changes in the FS reserves? Or just to know how you’re thinking about that.

The second question is on retail – do you have a target in terms of gross effect in terms of French retail or at B&L like you used to have in the past? Thirdly, in terms of organic growth, your risk rate asset declined slightly this year. Is that something that you aim to achieve as well the next couple of years as well ahead of the Basel III implementation? Or do you see no more organic growth of 3%, 4%, or 5% that you used to have in the past? And lastly, if you have any updates on the current trends in investment bank by products – the equities and fixed income – just to see how it has progressed compared to the Q4 of last year? Thank you.

Baudouin Prot

Well, I’ll answer the, in terms of Retail, the reasons why we didn’t give gross effect this year is really because the new taxes we have, especially in France, are really based on the risk-weighted asset. And we’ll have to pass them on to the Retail division and they will basically negatively impact the cost. And because of that I’m not sure we can really produce the kind of overall positive gross effect between cost and revenues, but just because of that. So this tax will not only take money from BNP Paribas but make some noise on the really reported numbers for operating divisions, especially for the French Retail. We also have that, but based on deposits for Belgium so this is the reason why we didn’t give targets for gross effect for this year.

In terms of the organic growth in risk-weighted assets, I think that, I don’t really think that we should have another failure of negative growth of risk-weighted assets in 2011. On the other side, I think that we’re going to control the growth of our risk-weighted assets because of the new regulatory environment and the category requirements. So I think that we’re going to hope to, well most probably be back to some growth in risk-weighted assets but not incomparable to what we had in pre-2007 in terms of the speed or- And yes, it should be as you mentioned a sort of a low single-digit number most probably. Maybe in grouped value per share you can–

Philippe Bordenave

Yes, I can mention something about the Basel 3 because before Basel 3 we have Basel 2.5, right, if you remember end of the year. You have to keep in mind that BNP Paribas is relatively very, very well placed compared to the other competitors. And we showed from the slide, I don’t remember if it was for the Q3 or the Q2, but the Basel 2.5 is only “plus 10%” for the whole risk-weighted assets as a group. So look at what was said by other people.

And your other question was…

Baudouin Prot

[Foreign Language – French]

Philippe Bordenave

Well, it is really important. Of course we would, of course. And so yes, this is a slide back. I think while in those times, I mean it’s striking to see that the share price is not that far from the booked value of share. And while it was a return equity of 12.3%, so yes of course – I mean the value of the bank is the combination of the earnings per share on the left side, the booked value per share on the right side, and the return of equity. So now I think it’s yes, it’s all those three ingredients are very important, yes.

Baudouin Prot

Before coming to the call, Philippe, you have seen as I have mentioned we were very well placed to enter into the 2011 year, and you see that globally the mix is not so bad. If you see under the label of CIB, if you heard what lots of people say so you have the insight.

The cautious approach in BNP Paribas management is just to say “not so bad.”

Robin Down – HSBC

It’s Robin Down from HSBC. Sorry. I had two questions. One was just sort of a numbers question, really. This is the second quarter we’ve seen an exceptional sort of one-off PPA adjustment from Fortis coming through. I’ve seen that from sort of the in portfolio. Could you tell us what the non-realized gain is now sitting in that portfolio? I know you were very aggressive when you saw fair value dip in that book when you first acquired it.

And the second question is just a more sort of general question about the return on equity target for the group, the 15% number that’s bandied about, but it’s always referred to as being a challenge to get to 15%. And yet this year you’ve done 12.3% with an impairment charge that feels perhaps a little bit above where we might normally expect. You’ve got synergy benefits coming through; it sounds like you expect further operational efficiency gains, the investment management business continues to grow very nicely. Why is 15% going to be a challenge? If I go back to the Q3 stage, I think the suggestion then when it came to Basel 3 was that you felt that if you had to apply Basel 3 now in effect that you were pretty much adequately capitalized. You didn’t think you needed to be much above 7%. What are we missing? Where are the headwinds going to come from over the next two or three years that will prevent you from getting to 15%?

Baudouin Prot

Okay, maybe you can address the PPA question.

Philippe Bordenave

Well, since the beginning of the year in fact we are seeing some flow of early redemption of some assets, be it loans or most frequently bonds issued from the Fortis acquisition and that were marked to market at the moment of the acquisition. And while the two first quarters were small amounts so we didn’t mention them, and it was very big in the Q3 and significant in the Q4. While it may continue in the year to come it’s difficult to anticipate exactly, of course. The thing that we can anticipate is the normal amortization of the PPA of the banking book and we have given the figure in the last slide. It’s EUR600 million again. As for the rest, probably there will be some but we can’t give any indication more than that. And that’s it.

Baudouin Prot

Yes, in terms of the ROE target, when we say 15% is challenging it is really very much in the context of the present regulatory environment where I want to really make two points. The first one is that even under the new 7.5% capital definition under Basel 3 for 2018, I mean this will be because of the new definition and this is quite a high level of capital. We have no problem, no problem that we will somehow uncomfortably reach it by retaining earnings so therefore we are piling up more and more equity every year, which means that to keep and even more to increase your return on equity you need your profits to really grow constantly at a second pace. And while this is what we want but it is a challenge.

And the second thing is that we are not yet sure that there will be a finishing line around (inaudible) which should be for BNP Paribas, which for the most part will probably be considered (inaudible) at a higher number, so that creates an even higher challenge. So this is why I think that until we get the final picture we think it’s responsible for management to continue to keep the target, to emphasize that it is challenging, it will be challenging depending on what the finishing- If we were to stay around the present rules it will be, well, it’s already a challenge. Anything higher would be even more challenging but that’s the sense, I think this is the sense we want to have.

Jean-Laurent Bonnafe

If I may add something, as to that it’s a kind of race between the phasing in of all those new regulations and the repricing of the loans. Because of course all those new constraints are pushed down to the businesses in the internal functioning of all banks, and it translates and it will translate more and more into wider spreads, higher rates for the clients; and necessarily it will, at some point there is some strong mitigating effect on the top line as well. So it’s then a kind of race and we’ll see how it evolves over the next few years.

Alessandro Roccatti – Macquarie FBK

Alessandro Roccatti from Macquarie FBK. Three questions if I may. The first one is on financing where we’ve seen revenues down 9% quarter-on-quarter. That was due to the reprofiling of the CBIT division. And just wondering if you can explain what this reprofiling is and how long will it take. The second question is on the interest rate sensitivity. On slide 52 you gave us some indications of the directions of the profits and loss in case of increase and decrease of interest rates. I’m just wondering whether you can quantify in terms of hundreds of millions what the sensitivity is to an apparent shift of let’s say 100 basis points.

And the second question related is how this government bond hedge is working, if you can give us any detail on that. And finally going back to the return on equity, the sustainable 15% which you have raised rates just today, 12% is what you are achieving now so there is an upside in the medium term of an increase of profitability of over 20%. Quite interestingly you also mentioned the profitability of the (inaudible). I’m just wondering if that’s something that has been done by the CEO of CTB yesterday, so there is some common thinking between the two banks. And I’m just wondering whether you feel pressure that the banks are not able to deliver a return on equity in line with the other sectors or above the other sectors; you think there is a possibility of a shift away from asset allocation or away from the banks into other sectors in the medium-term or long-term. Thank you.

Baudouin Prot

Well, I will start with the last question. Well, it’s apparently by chance that we have the same idea. I think that just it’s mostly to, primarily to the French audience and public that we want to tell them that it’s enough. 12% is something that we should not go down because then we need to get capital and we need to be either equal or above the other sectors, which CTB (inaudible) a bit also. So I think that was the message, and I think it’s important that it comes through. And it’s possibly maybe also a way to try to tell to the regulators and to the authorities that you know, you shouldn’t pile up equity in such a quantity that you’re going to create problems. I think that was the idea.

On slide 52?

Philippe Bordenave

Yes, yes, about the slide 52. The quantification first. You’ll find it in the financial statements on slide 85. We are giving the sensitivity of revenues to the general interest rate risk base and 100 base point increase in interest rates, and unsurprisingly, even what we are showing on slide 52 it’s almost zero. And until the aim, the mission statement of the satellite team management is to try and immunize completely the revenues of the Retail banking, of all the banking book from the interest rate movements. And while it’s done as fast, well, it’s relatively well done as shown as far as the level of interest rates are concerned.

Of course it’s a bit more difficult as far as the year term is concerned, and as you remember when the interest rates were very flat and low and when the prospect was relatively that it could last for a number of time, you were worried about that and you were asking, and we were also saying that yes, if it were to last too long it would become a difficult situation. And to the contrary, the steeper curve is something that is extremely favorable for a bank because of course- So and you have to bear in mind, and it’s also the purpose of slide 52 to impress that steeper curve, meaning long-term interest rates going up. It’s a little bit akin to a debt tension and debt market tension, and debt market being not in very good shape because when interest rates are going up bond prices are going down.

So the purpose of the slide 52 is to show that while the margin on deposits is of course going down if interest rates are going down, the bond, the government bond return, the return on government bonds is going up in that case. And because the, in case of the interest rates going down the spread we are making is improving, and then this is what goes into the P&L. So this is what I would say deep into the P&L. It’s for real, I would say it’s forever to a certain extent, but all of those bonds are classified as available for sale and they are marked to market in the balance sheet through OCI. But this is more fluctuating, and when interest rates were going down the bond value was going up and (inaudible) gains were piling up, and now it’s the opposite.

But this is more fluctuating and from temporary, and this is why we put dotted lines around the arrows to show that it’s more fluctuating in essence. And that’s it.

Baudouin Prot

Maybe you can also answer the CTB–

Jacques d’Estais

The CTB. We have generated portfolios of some–

Baudouin Prot

I’m not sure everybody understands. CTB speaks for Commercial Transaction and Banking Europe, yes.

Jacques d’Estais

Yes, it is what we mention as “One Bank in Europe” for mid-cap, I will comment on that. When we have generated some portfolio Fortis in Europe, there were some risky clients. And as BNP Paribas we prefer to lose some revenues, not to have some provisions for the first years. So the (inaudible) of CTB, Commercial and Transaction Banking in Europe, is just to offer full service for subsidiaries of large-cap all over Europe, of our large US company; and also to help mid-cap in Europe to develop in tight finance and in cash management.

So the first move naturally was to reduce portfolios so we have reduced the revenue. It’s over as I mentioned, so not going into 2011. Now we will fulfill new portfolio of new clients of the subsidiary, of existing clients of Belgium companies, French companies, Italian companies in this business. So as I mentioned we have seen the bottom in this particular area.

Jean-Francois Neuez – Goldman Sachs

Hi, good afternoon. This is Jean-Francois Neuez of Goldman Sachs. I have three questions, please. The first one, in the light of the results of this morning I just wanted to know if you could elaborate once again, I might have forgotten but how you arbitrage in terms of allocating your capital resources to stakes such as [Axel, Clippier] versus allocating that to the banking business in a sense. My second question is on the fixed revenues, I just wanted to know where we stand now in terms of the margin of that business. In 2009 obviously it was elevated, it came down. I just wanted to know where–

Baudouin Prot

What business?

Jean-Francois Neuez – Goldman Sachs

In the fixed business, fixed income, yes, in the fixed income business where the margins are at the moment; whether they’re stabilized, whether it’s going down. And the third question, I consider the combination of the following factors: you look better capitalized than your French peers, you’ve got low funding costs. You probably still have for a few years a subdued long growth outlook, then you have a great track record in acquiring banks with restructuring potential. So I was just wondering, when I look at the Italian market and the Spanish market where you have already a lot of activity, how you are thinking about that in terms of maximizing value possibly from the BNP platform now, and in particular in light of the (inaudible) situations. Thank you.

Baudouin Prot

Well, I will answer the last question. As we said, as I said I think in the moment we will be very disciplined on our acquisition criteria. We believe that in the new regulatory environment it is very important – anything you acquire in terms especially of price is really very, very disciplined because we- So most probably we believe that this year, well, we will see, but where we’re going to concentrate on our new growth. And we’re not really in the mindset except if we find something, well, an opportunity which is really financially and industrially compelling. And we need really to have both to be acquisitive.

As regards the fixed income margins, you–

Jacques d’Estais

Yes, the fixed income margins, let’s say. We have not enjoyed the situation that we were in the beginning 2009 when the market went (inaudible). There were a huge number of actors who led in the market who were very, very high. Now, let’s say. First of all in the full business we have the volume effect. When I mentioned for example that we are the first in bonds in the world, you are seeing that not only in 2010 but since the beginning of 2011. We have a big flow of new issuance of bonds so as we’re already there the margins are equal, so at the end the revenues are based on, concerning the flow business which the volumes aren’t there. Concerning the day-to-day business, let’s say, we think that we don’t see any more the margins going down. So we are at a type of stable level.

The main question we can have is what will happen after the Basel 2.5. For me I think it’s a little mystic when I’m looking at what some competitors are saying. They are saying we are using a lot of fixed income of mitigation effect. They speak of 1 billion of reduction of these weighted assets. So I would see that with very great interest, because probably either they will leave some business or they will increase their mapping So globally I think it would be very interesting from the perspective of BNP Paribas.

Jean-Laurent Bonnafe

On your first question, it is an interesting strategy question in fact. The two kinds of assets you are mentioning are not really competing with each other, I think. So the business is one thing, and because you are a bank and you are commencing a business you need a certain amount of equity. And well, at the time being it is even a growing amount of equity, but you always needed a certain amount of equity. And now that equity, what do you do? Because in terms of funding, as far as BNP Paribas, you have plenty of funding so you can borrow money and you can fund your activity with borrowed money. So your equity, how do you invest it?

If you invest it, what – the regulators’ dream is that we would invest it 100% in government bonds but I don’t think it would be your dream. And in recent times it was not bearing a very high level of revenues if you were interested in receiving government bonds. So at the end you end up with the idea that you have some room for kind of diversification, and maybe you are going to invest part of your equity not in government bonds but in other things – in kind of strategy stakes, with (inaudible) or in stakes like (inaudible). So it’s not, it’s not an operating business as we said; it’s classified in the corporate center but it’s something that is a way to diversify somewhat the liquid investment of our equity.

Jacques d’Estais

That’s it, but to make another answer to your question as the regulatory system is becoming tougher and tougher you can see that the absolute level of equity owned by PNB Paribas is flat or slightly decreasing. So as we increase our own equity, the part of equity is relatively decreasing clearly, and this is a long-term thing.

Omar Fall – UBS

Hi, great. Yes, it’s Omar Fall from UBS. One question, firstly, on the numbers. Just at BankWest you saw a sharp fall in the cost of risk this quarter, and I was just wondering that given usually there’s a seasonal uptick in Q4 and delinquency rates are flattish. If there was anything in there, any exceptionals that drove some of that up or is that really the base we should work off when we’re looking at our forecasts going forward? That’s number one.

Number two, on consumer credit, you’ve talked about the strong year that you’ve had which is totally fair. However, I guess being as this business is wholesale funded, how much emphasis are you going to be putting on it going forward? Do you think you can maintain the same levels of growth given some of the pressures that you’re seeing on liquidity from a regulatory perspective?

And then third question, just on the balance sheet, the notional balance sheet, you talked about the reductions that you’ve made there, particularly on the trading side. Can you just talk about where you believe you need to get to in terms of the balance between the short-term balance sheet and the longer-term balance sheet please? If there’s any more work you can do on the repo side or anything else?

And then last question, just on growth, actually, because clearly you’re very biased from a geographic footprint perspective to developed Western Europe, which has been great in terms of maintaining strong asset quality through the crisis, but as we get through slow recovery, does that concern you in any way? Are you looking for ways to rebalance your geographic footprint? Thanks.

Baudouin Prot

Maybe you can get on the BankWest and then Jean-Laurent–

Jacques d’Estais

So for BankWest, what we expect for next year is a decrease in cost of risk. We cannot expect that what we’ve seen in the last quarter is going to give the trend for the full 2011 year. The cost of risk is going down. What is more interesting in BankWest is that we are now running the development plan and there is a potential for this bank over three to five years to adjust in an organic way, and we are working on that. 2011 will still be an in between year. We need to adapt, we need to invest but just after that we should see the result of the investment program. So it’s a nice operation, it’s a business we know quite well. We can add a number of elements in relation to this franchise also. This is the future for BankWest.

For personal finance, in personal finance you have two-fold: you have the mortgage business and you have the consumer credit business. The consumer credit business is half in terms of total balance sheet, roughly speaking, and the mortgage side is also the second part. Those are in terms of balance sheet, more or less of the same size. So if you look at the new regulation, these two businesses are quite different because mortgages is a story of very long-term funding, and most probably that kind of business would not have exactly the same future as previously. And well, the key element is I’m in a position, when you are renting a mortgage loan to a customer you are in a position to transfer over the cycle this customer many more or less what you sell or cross-sell to a Retail that will do other things. These are your own retail networks or third-party retail networks, but this is from just a strategy standpoint.

It is a question for personal finance, but for the pure consumer lending business it’s a very strong franchise, full of expertise and obviously we’ve seen over the two last years a number of competitors exiting that sector. So this explains why we’ve been able to reprice as part of this, while looking also with personal finance at new countries in which we could try to have, I would say, new partnerships, even including universal banks. So the pure consumer loans business is totally adapted to the new regulations; there is no problem about that. The mortgage loan will have to be looked at in a different way.

Philippe Bordenave

As far as the balance sheet and management’s concern, up until two years ago we were not really managing the size of the balance sheet at all. We were focusing on risk and liquidity management, and since the Basel 2 talks, clearly there is a leverage ratio looming in the future so it’s not going to be very soon but nevertheless. And so we think that we have to manage the balance sheet and to make sure that we’ll be more or less in line relatively with the leverage ratio. So the leverage ratio, it’s still (inaudible) preferably on cash balance sheet plus off balance sheet – I say that that way. While we are there now at 3%, so we are happy with the current size.

Baudouin Prot

And the last question on the rules. I think that regarding the growth prospect, the first comment I would make is that regarding the Euro-zone countries, we believe that, first of all two things. Regarding Retail, we could continue to outperform the market and we’ve see this market in loan growth and in deposit growth, and some solid growth. We expect this to continue pretty well, certainly rather low single-digit numbers but over-perform the market.

Always in Europe I think CIB and IS, which is an important part of the group, we see especially for CIB but also for IS, we see a bright future in a way. In the context of the Basel 3 new category requirements, we believe that there will be significant dissemination of corporate financing and there our CIB platform, whether fixed income or all of its products, considering also our corporate position in Europe – there the organic growth of our CIB platform should be high year after year. But significant growth coming from structural changes in the market over the last ten years.

Also for Investment Solutions, considering the mix of business we have, we think that we can have well, significantly higher revenue growth than in Retail banking. So for the Euro-Zone the combined growth of revenues considering the full model of retail CIB and IS should be considerably higher than the GDP growth of those countries.

Then we have basically our emerging market Retail operations, certainly Poland and Turkey would be the best example where we are running in a significant market the full integrated model, again having Retail, CIB and IS as Jean-Laurent explains, running with a strong strategy to capture some of the growth in the different financial services segments of this key market. So that should really head growth to BNP Paribas. And then outside of Europe, in Asia and in Latin America, we have organic development plans both for CIB and IS, which by the way explains some of the relatively high organic cost growth that we’ll see in IS and CIB and that should deliver strong growth of revenues in this region. And so BNP Paribas should, with CIB and IS, capture growth.

If you just take in two examples, in Investment Solutions if we take insurance, certainly we have presently a partnership with State Bank of India in India. It has been created ten years ago. It was small, then it was medium, then it was getting bigger and bigger and it continues to grow very nicely. And so we have partnerships also in Taiwan and we have other partnerships in Asia, and we’ve also the insurance activity growing fast also for creditor product protection, insurance in Latin America, all over Latin America. And as for CIB, we have just launched an (inaudible) plan for the next two, three years to grow organically both in Latin America, mostly with CIB around Brazil and in Asia, as Georges mentioned, especially in China, India. And we’re going to organically capture some of the growth there.

So this is the picture. If and when acquisitions come to complement that we’ll see but once again, for the moment we believe that we have a lot to lever in the new group, in the group in its new dimension across these different geographies.

Jeremy Sigee – Barclays Capital

Jeremy Sigee from Barclays Capital. Two questions, please. Firstly, you touched earlier on Basel 3 obviously and the comments about other banks undergoing fairly sever mitigation programs. At the Q3 stage the numbers you gave for your own projections were relatively benign in terms of the Basel 3 impact compared to other banks, and I think you didn’t specify any litigation so again, implicitly less than other banks. Is that still your expectation? I mean do you reconfirm those projections for the Basel 3 impact on your business, which sounds like it’s a relative advantage versus some of your peers?

Second question, separately – in some of the divisions, Belux Retail, B&L and personal finance, there was an increase in costs in the quarter compared to Q3 which I think is what caused some of the variance versus consensus estimates this morning. Is that cost increase in Belux, B&L, personal finance roughly sort of 10% quarter on quarter in those divisions, is that purely seasonal or is there any underlying increase in cost trends in those divisions?

Georges Chodron de Courcel

On question one, yes, we reconfirm, and full year reconfirm. The first step which is going to occur at the end of this year already, I mean Basel 2.5 as they say should entail a risk-weighted asset increase of EUR40 billion or something like that for us, so it’s fairly small – it’s something like maybe 60 basis points ratio, something like that. So on a pro forma basis we are something like 8.6% if you want, as a way to say the same thing.

And then the whole Basel 3 up to the end, we are including those EUR40 billion. We are still confirming that our estimate is around 200 basis points, I would say smoothed out of the (inaudible) payout.

Jean-Laurent Bonnafe

Considering the cost these figures are not really relevant. You really need to look at the Q4 and the Q4 2009. You have a strong seasonal effect in France, Italy, Belgium. They are different but they do exist, so this is the situation.

Virginia Martin – Evolution

Hi, Virginia Martin from Evolution. I recall you gave a guidance for CIB revenues of EUR3.2 billion some time ago, and maybe I’m wrong. And I was just wondering that bearing in mind you are now talking about organic growth in emerging markets, lots of investments and so on and so forth, whether that target is maintained or whether that target’s increasing. That would be my first question.

Then the second question is related to acquisitions. As I recall last–

Baudouin Prot

The second question is regarding?

Virginia Martin – Evolution

Acquisitions, yep. Cause I recall you said in Q3 that you would be looking at acquisitions if they were interesting and (inaudible). There was, you had some interest in Poland and there were some rumors about some other acquisitions in the pipeline. And now you’re saying that you are just going to grow organically. Now it seems that there’s a change of thinking in there and I’m wondering whether that is due to maybe a worsening of the regulatory environment. Or why, I’m wondering first of all if there’s a change of thinking there or what is it due to?

And my third question would be regarding B&L, because every time we look at B&L cost to income seems to be decreasing. So my question is whether there’s a target in cost to income there? And also cost of risk seems to be high with respect to what could be achieved, so whether there could be, which would be your expectations in terms of cost of risk?

And my final question would be regarding the systemic charge, if you have any thoughts of how much it could be for a bank like BNP, and also which kinds of capital do you think it will be? Whether you think it will be core capital or whether it might be CoCo’s, or a mixture of those two. And that’s all, thank you.

Baudouin Prot

Starting with your last question, I don’t think we want to somehow be guessing what we’re going to get. I can tell you what we think we deserve. We think we’ve been very clear that the 7% high-quality Basel 3 capital is quite sufficient for our group. And I think that BNP Paribas has shown over the last five years, beating earnings and beating value per share that we were able to create value. And so we think it’s quite sufficient.

Whether this will be the final decision, the jury’s still out so we’ll see. I don’t want to somehow be guessing. Regarding the B&L, both on the cost income target and on the consumer risk, Jean-Laurent?

Jean-Laurent Bonnafe

Cost income, as I told you, we’re now in line with the market, so I would say that we did the job. It’s always possible to go down, so maybe one day we’ll be at 65, but this is very strong. Cost of risk, we would expect that over the cycle, possibly this will decrease, and be 75 basis points, or something reasonable. Most of the cost of risk on the P&L is coming from the traditional mid-sized portfolio; small to medium corporate from the P&L, and we’re shifting this business from small to mid-sized companies, so this will ease, of course, in the medium term, the level of the cost of risk.

Baudouin Prot

That’s it, I need time to add something, we said we might be interested in markets in which we’re already operating, like Poland or Italy, but we need to have targets. We need to have this in price, this is true, that last summer we were in the competition for the business in Poland, but if you look at the final price, of course out of reach of our own internal targets. This is the situation and it seems that there are no banking assists like this in France. So this is the way it is.

Jean-Laurent Bonnafe

And I think that because we feel that way we want to communicate to our shareholders, and this is the state of mind for BNP Paribas for the present time.

Baudouin Prot

And then I promised to move to your first question concerning the CIB, perhaps we can move to slide 61, and I would like to make some comments. Last year, the beginning of 2010 we wanted to be very clear to the market to express that in order to leverage the renewal of CIB of 2009 was exceptional. Our target, quarter over quarter is to be between the Q3 and Q4 of 2009, that would be between EUR2.5 and EUR3.5 billion of revenues a year. I think we have delivered. We don’t tell you now EUR12 billion is an exceptional level, we say nothing, that means that probably we don’t think it is an exceptional level. So we could say globally, if you look back just a moment to the situation of 2006/2007, the best for level for CIB was EUR8 billion of revenues.

Now we are at EUR12 billion of revenues. The global pool of competition is dark, so I don’t want to mention quarter after quarter what will be the revenues, because the markets are so (inaudible) I don’t know if there would be some (inaudible) somewhere, but the message is we will continue to grow the revenues year after year, not quarter after quarter. It’s too difficult for us, year after year to continue to increase the level of contribution because Retail will go up, but to increase absolute contribution of CIB in terms of revenues and net income, but quarter after quarter I don’t know – I don’t have any view on that. But you see the level map five years ago and now.

Virginia Martin – Evolution

(Inaudible)

Baudouin Prot

I have no flow – it’s too difficult for me. Suppose there is some (inaudible) somewhere, I don’t know – it’s very difficult to say absolutely. I’m too old to say that.

Virginia Martin – Evolution

Okay, thank you.

Jacques-Henry Gaulard – Autonomous

Hello, Jacques-Henry Gaulard from Autonomous, two questions. I would like to be like on the question of my colleague from Evolution, it’s very important. You have gained market share in CIB during the crisis; it’s very important. No other European bank except Barclays and (Boheman) did the same. However, it’s buried on slide 36. It’s one of your major growth drivers, probably, going forward. You’re investing a lot of money in Asia, you’re that, clearly; but somehow you don’t get the feeling it gets the priority into the overall presentation or the way the group is maybe perceived from the outside, and it should have.

So it’s just a question of isn’t that the big driver of the growth of BNP Paribas in the next three to five years? That’s the first question. The second question one is a bit more, I would say technical. Your presentation, you gave a one-off slide which was insisting on the PPAs and on the (inaudible), but that slide was not mentioned in the restructuring charges that you had. Did you consider the restructuring charges as recurring because you’re going to have another EUR600 million next year, or is it just the tail end of Fortis and 2011—that’s going to be it for recurring charges? Do you see what I mean? I mean, how recurring or non-recurring these restructuring charges are, because unfortunately you have to dig the information a little bit in many different places in the presentation, so how should I view them? Thank you.

Jean-Laurent Bonnafe

On the restructuring charges, while we always gave the indication, it’s a big matter, and it took us several years, and yes to a certain extent it’s not just one year. So we are saying that next year, in 2011 I mean, it’s going to be (inaudible), we are giving you an indication. After the current 17 or 18 or something like that, in 2012 you will have a kind of tail if only because of Turkey, because the Turkish restructuring is one year postponed compared with the main restructuring, and maybe some tail effect on the rest as well, but it’s going to be much lower.

Jacques-Henry Gaulard – Autonomous

(inaudible question)

Jean-Laurent Bonnafe

I don’t want to ask for a reason, I just want to give any (inaudible) why we have something like that, and then that will be over.

Baudouin Prot

Regarding your question on the – clearly CIB is a core activity of BNP Paribas, maybe because we have only one CIB entity and we have now five or six retail entities, you can have the feeling that we dedicate more time to reporting on retail than we do on CIB. But in terms of the equity we allocate, in terms of the organic investments we are making, in terms of – we are absolutely convinced that the CIB (inaudible) both in terms of revenue growth and profit generation can continue to be very significant to the future. Actually, when we look at the return on equity, and we look on the return on equity including goodwill, CIB has no goodwill, because we never acquired anything.

So I think it’s very important to say like French retail has very strong profitability and there’s absolutely no goodwill, so this CIB is very important to the group because we own a generation of CIB in terms of return, tangible equity, is very significant, and we view that as Jean-Laurent said, the Basel 2.5, Basel 3 and then the new environment will once again make for the key players of CIB who really have the right platforms, and with the right product offer, the right systems, IT, risk, compliance, all of which by the way costs more and more each year. One of the reasons, the true reasons for the cost of CIB, the cost of the CIB platform on a zero cost base, because compliance risk, all of this in the last few years, apart from organic growth in Europe and Asia to grow the platform, this is a cost plus. This is a fact.

But I think it will somehow favor some the most important, if they are also the most efficient players, and this is something really we will continue to build, and this is very, very central to BNP Paribas business model, and so if you hear where we have in this building all of our fixed income operations and the head of fixed income, this is quite a strategic and core activity for BNP Paribas.

Jean-Laurent Bonnafe

Perhaps I can answer something, inside CIB, because CIB is Corporate and Investment Banking, as Baudouin mentioned, we will probably still launch this intermediation, so we think that mainly (inaudible) will benefit a lot of this intermediation. Concerning the financing business, we will have to see all the margins will react, with the cost of liquidity. Because with liquidity we don’t know a lot about the new regulation, nobody knows exactly what will be the final goal from the figures of ACM. But we have to take care not to grow too much, the financing business if we are not sure that we are not okay between the margins and the cost of financing.

Today is not so secret, so the main push we are making on investment banking, I am absolutely sure that due to the intermediation that we will have a lot of work to do. On top of that, as we are (inaudible), when you see the cost savings between retail and CIB, the more the group invest, the more CIB people is okay, because if you say, and Baudouin would say, it’s very good for CIB to (inaudible), so globally when the faster the bank is growing, the market is benefitting. So it’s clear on that. So we have to take care on those points. We have also, you mentioned solvency. Naturally we carefully look at liquidity and naturally we think, as I think Philippe mentioned, that the margins at the end will go higher. Not necessarily next year, we don’t know, because if we see five years, I’m sure. In one or two years, I’m not sure. So we have to manage the growth of the financing business, looking carefully at that.

Shailesh Raikundlia – MF Global

Yes, Shailesh Raikundlia from MF Global. I was just on the French retail side, I was just wondering whether you had the increasing – the Real rates and the net interest margin starting to come down; whether you could give some guidance as to where you think they are going, and the impact on the real, especially since February when we had the 25 basis points increase. Secondly, just on the cost of risk, is that normalized levels now, as far as French retail is concerned? And as far as further revenues are concerned, maybe some guidance as to where you think the growth – the net revenue growth is on the French retail side. I mean, we’ve seen 2% growth, is that sort of the norm levels going forward? And this final technical thing. I noticed that the tax chart was quite low in Q4. Was anything funny in that, or it’s just a one-off?

Baudouin Prot

Well, Jean-Laurent will answer on the Real and the ready growth from the French banking, and he will answer on the tax also.

Jean-Laurent Bonnafe

For the Real, it’s difficult to make an assumption. Let’s say it’s not going to increase, but this year it’s going to decrease in terms of rates given to customers. The general assumption for the French retail in terms of revenues is 2% for 2011, so this is a good target, 2% of gross of the net banking income. This is the equation.

Baudouin Prot

As far as the taxes, you have to look at taxes not on a quarter after quarter basis, because that is computed on a yearly basis. So it’s a cumulative yearly rate that is making sense, and there’s always the same in the middle of the year. It’s the year to date rate, if that makes sense. And here we’re at 30%, and it’s actually the guidance we gave, 30%, so by luck it could have been 29 or 31, but it just happens that it’s 30%. We can take our next question.

Unidentified Analyst

Yes, sorry, just one follow-up to some of the earlier ones on CIB, actually. As much as there might be growth coming from there, there’s also clearly an issue of returns. Can you tell us, in fixed income, based on 2010 results, if ball three would have been implemented today, would you have made a return above what you would consider to be your cost of capital? That 11, 12, 13%? As a follow-up to that, are you concerned that having increased the share of fixed income within your CIB revenue portfolio, this much, that that’s going to weigh on returns, relative to say equity derivatives, for example?

Baudouin Prot

We said in Q3 that impacts of (inaudible) on our business model was very limited, because we didn’t buy the credit based securities and so on. We are working more on derivatives, which is already a low level of (inaudible) as you can see. So we had said that as far as our markets are concerned, and yes, it’s mostly fixed income, the additional risk of weighted assets is in the region of 50 or 60 billion euros, everything out of which only 40, as I said for BASEL 2.5 and so if you take that into account in the return equity, it remains extremely over our goal and well over the personal equity.

Unidentified Analyst

Okay, thanks.

Baudouin Prot

So we’ll give the floor to the phone calls.

Operator

We have a question from Kinner Lakhani, Citigroup. Please go ahead.

Kinner Lakhani – Citigroup

Just a quick follow-up, actually. On the ALM hedging that you do, especially around the retail franchises, I just wanted to comment on if there has been any change in terms of the duration of your hedging. I wondered if you had shortened it any, and secondly, are you seeing any type of competition for retail bonding? And in the event that that happened, do you think BNP would feel flush about endpoint?

Baudouin Prot

There hasn’t been any significant change, I would say. We always manage the SL entity balance with a long term view. Five, eight, ten years’ view, and we have mentioned that several times in the past. I mean, I’m not discovering asset management today, and it has always been that way, just in general.

Jean-Laurent Bonnafe

for deposits, you can see from time to time some banks will go to banks or regional banks or direct banks that are pushing too far, I would say, prices paid on deposit. But those seem that as of today, like going to change the business model for domestic retail in France, Belgium, or Italy.

Kinner Lakhani – Citigroup

Thanks.

Operator

For the last question, I have (inaudible). Please go ahead.

Unidentified Analyst

Yes, good afternoon. I am a professional Fortis Bank. (inaudible) so my question is how did you prepare the most realistic solution to that? Would you prepare (inaudible) or do you want to provide the remaining (inaudible)

Baudouin Prot

I think for the moment we are certainly ready to see further – if they were like in Turkey, if there was an acquisition somewhere in the territory where Fortis is active, it would be logical that would be the vehicle. In regard to dividends, it has to be decided with the other shareholders. And regarding buying back minorities (inaudible) it’s not on the agenda. That’s not yet on the agenda.

Unidentified Analyst

(Inaudible)

Baudouin Prot

We have not decided anything in that sense or that respect, so no more here nothing more, nothing less.

Unidentified Analyst

(inaudible).

Baudouin Prot

Regarding your question, I don’t see BNP Paribas as you can imagine, as a banking monster. I see BNP Paribas as a large integrated and well managed organization to financial services. But certainly one of the reasons why I will personally be cautious on significant acquisitions of significant size in the foreseeable future is we want to make sure we can manage them, integrate them, and I see that size for size is certainly not – and getting bigger, is not really on our agenda.

As regards to management, as regard to cost of safety, we have very much increased, but like any bank we’ve made in terms of internet control, in terms of compliance, in terms of risk, market risk, we are very much increased, reinforced, both the staff, the number of full time employees and also the systems and we are dedicating quite a strong finance division. Here is central; the finance, the risk, liquidity and SAT ability and also the compliance are very strong root functions that are really keeping a tight control, I think, over the organization. We have emphasized a lot this improvement, as we have made very big investments in the last two or three years. Regarding ..

Unidentified Analyst

(Inaudible)

Baudouin Prot

I can’t frankly think in (inaudible) ratio directly, but I’m sure that between compliance and it’s hundreds of full time employees, maybe like one (inaudible) added in the last two or three years. It is really very significant. I think by the way we’ve seen it at BankWest in California, because it is a $50 billion US dollar bank in terms of the balance sheet, it is considered a complex organization. If you look at BankWest investment and compliance, and complying with the new rules, there the cost has been in the $20 million or $25 million US dollar, it’s also a big investment, and BankWest is not (Sobe). So every bank around the world will show, independent of its size, its cost of control and its cost of being regulated increase, and I think this is the cost of doing business.

This is also, by the way, a barrier to entry to the industry, that’s both with equity and entering now the banking business from the capital and equity position as much as from the compliance, regulatory, how to manage it, is a really building, to my view, a formidable barrier to entry. Getting back to your other question, (inaudible), we saw we are aware that we want to keep the right balance between business line and geography. I want you to make two concrete illustrations. We nominated in January of this year, so a few weeks ago, for the first time, a high level European bank executive by the name of Eric (inaudible) who is now posted in Hong Kong, between Hong Kong and Singapore.

He’s the new head of Asia/Pacific, will include actually Australia and Japan, and he’s the head for not only – he’s not only CEO of BNP Paribas in the platform for Asia/Pacific, but he’s also overlooking our investment solutions and even our smaller retail initiatives, so we really have now in Hong Kong a member directly reporting to the Executive Committee and really empowered more than ever before, that is posted in Hong Kong to manage our strategy. He will come back to the Executive committee every two or three months to have a direct reporting to the general manger and really this is quite new. We felt that in Asia we needed somebody who is highly powered sitting all the time out of Hong Kong, to manage the BNP Paribas strategy and in terms of risk people, HR, he has a small but team of senior people working with him to make sure that out of Hong Kong we can manage our Asian operation.

Then we made the same now, Edward Chang was the head of our New York City operations, he’s responsible for North America, which for us includes meeting with Canada and the United States, and so we have our key heads of region have more power and more responsibility than they had two or three years ago. So this is the tendency to move responsibilities to the key regions. I mentioned Asia, I mentioned New York and North America; I could also mention Brazil for Latin America. The head of Brazil is also regional head. So this is a move that we have done, so I think we agree in a sense that the world we live, we need – for a number of reasons, we need to have key executives of BNP Paribas really made accountable and in part to manage the implementation of our strategy in the different key regions of the world, to answer your question.

Unidentified Analyst

Thank you very much.

Baudouin Prot

Last question, okay. Thank you very much for your attention.

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