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Executives

Baudouin Prot – CEO

Jean-Laurent – Deputy CEO

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

Analysts

Jean-François – Goldman

Omar Fall – UBS

Rob Down – HSBC

Jeremy Sigee – Barclays Capital

Alessandro Roccatti – Macquarie

Delphine Lee – JPMorgan

Jon Peace – Nomura

Anke Reingen – RBC

Alex Koagne – Natixis

Guillaume Tiberghien – Exane

Kinner Lakhani – Citigroup

Pierre Chedeville – CM-CIC Securities

Pascal Decque – Cheuvreux

Bnp Paribas Spons Ad (OTCQX:BNPQY) Q2 2011 Earnings Call August 2, 2011 9:30 AM ET

Operator

Ladies and gentlemen, welcome to our BNP Paribas Second Quarter 2011 Results. We’re going to be starting with a presentation and presentation will be followed by Q&A session. We’re going to be starting by questions in the room and then we’re going to take questions from the conference call. And I would like to ask people in the room please to turn-off your cell phone as the presentation is webcasted on our internet website and also conference call through the telephone. Thank you.

And I’m leaving now the floor to our CEO, Baudouin Prot.

Baudouin Prot

Thank you very much. Good afternoon to everyone. We are going to present you with Jean-Laurent and Philippe the second quarter result of BNP Paribas. I think the highlights of this result are that we had a strong growth in volumes in all our domestic networks. Deposits grew 7.4% and loans all together 4.7%.

We’ve increased the cost of risk as a result – entirely as a result of provisioning of the new programme for Greece where we are going to tender our bonds and we are going to take €534 million provision on our second quarter P&L.

We’ve been including this negative impact of cost of risk for Greece. Our profit capacity and our profit generation capacity is maintained at €2.1 billion up 1.7%, compared to the second quarter of 2010 in the challenging environment.

So I think that our solvency is also improving, it’s now stand – the common equity Tier 1 ratio stand at 9.6% against 9.5 as of the end of June and 8.4% as of the end of March and 8.4% as of the end of June of last year.

The annualized return on equity for the first half is 13.8%. So I think these are full results confirming the strength of the Group business model and in a challenging environment. And as far revenues, the goods revenues at €10 – €11 billion are down 1.7%.

This is entirely due to the corporate center where we’ve had a sharp decline in revenues against the high level of the second quarter of last year of which we – this time we have only 14 million of own debt revaluation against €235 million in the second quarter last year, so this is the biggest item of difference.

For Operating Divisions, so outside from the corporate center revenues are up 3.4% which I think is a good number. Operating expenses for Operating Divisions are up 3.2%, excluding the new systemic taxes they are at 2.3%, therefore there with a positive drive effects against the revenues of 1.1%.

The systemic taxes because they represent €55 million in the second quarter, therefore it’s around €220 million on a yearly basis, €130 million is the French tax and €70 million is the U.K. tax with some overlap as you know between the two taxes.

Gross operating income is down 8% for the full Group because of the corporate center up 3.7% for the Operating Divisions and then net income attributable to equity holders at €2.128 billion, is up 1.1% so a steady performance despite the significance impact on the provision of Greece.

Regarding the assets of the Greece, Greek Assistance Programme, I would say as part of the voluntary participation by private investors of the Greek Assistance Programme, BNP Paribas intents to exchange all its eligible debt bonds under the programme. And this – the – actually, as of the end of June, BNP Paribas exposure to Greece bonds in the banking group have been reduced to €4 billion.

This is important because everybody keeps in mind the €5 billion that it’s not five, it’s four, which is big difference. So from this €4 billion actually of which 2.3 billion are within the plan because their maturities are between July this year and December 2020 and the remaining €1.7 billion of maturities beyond 2020 are outside of the plan.

And the depreciation in the P&L and at fair value of the bonds eligible under the Greek Assistance Programme, it’s a – its – well, it’s a provision at 21% against for €2.3 billion and 2 point – 21% time €2.3 billion, then we get to €516 million in the cost of risk. You have to add it to that €17 million in the cost of risk for the €500 million in outstanding in the insurance.

And this is – the effect there is mitigated by way of specific provisions for the insurance sector and then we have another €26 million in associated companies for minority stakes in certain subsidiaries, including (inaudible) in Belgium. So this is the impact of the Greek Assistance Programme on the second quarter of BNP Paribas.

And I say that the 21% discount is, well, is discounted under 9% long-term normalized rate for the Greek debt against the present interest rate we’ll get on the new bonds that will be 4% for the first five years, 4.5% for the years five to 10 and 5% for the remaining 20 years.

So moving now to revenues of the Operating Divisions, I said 3.4% altogether, it’s 1.5% for Retail Banking with just over €6 billion of revenue. It is 6.8% of strong increase for Investment Solutions at €1.6 billion and it is 5.7% at €2.9 billion for CIB. So we actually had revenue increase in all of our Operating Divisions in the last quarter.

Operating expenses were under control and Retail Banking expenses excluding the effect of systemic taxes were up 0.7%, so with due effect of 0.8% against the revenue is up 1.5%.

Investment solutions, cost excluding systemic taxes were up 3.8%, therefore three full points of positive due effect against the revenues at 6.8% and therefore, the cost income ratio improved in both Retail Banking and investment solutions. Investment Solutions we had really two full points of improvements at 68.6% and CIB 56% cost income ratio, 1% increased second quarter of last year, still the best level in the industry with cost up 7.3% and 5.4% excluding the systemic taxes.

The cost of risk, well, the cost of risk for the quarter stands at €1,350 million of which €534 million relates to the Greek Assistance Programme, excluding this Greek Assistance Programme impact €534 million cost of risk stood for the second quarter at €860 million, which is down 11% to the first quarter and down 24.5% to the second quarter of last year.

So, all together, excluding Greece, this is 48 basis points net provision to customer loans and analyzed against 54 in the first quarter of this year and against 66 in the second quarter last year. So, as we have, well, predicted a slight decrease in the cost of risk in all of our main division.

And regarding, the cost of risk for CIB financing businesses, we actually have the write-back of €14 million, actually we had more write-back than new one-off, well, additional provision and for our retail operation, France and BeLux retail at respectively 23 and 21 basis points maintained a low level of cost of risk, whereas in Italy for BNL Banca Commerciale will break – we broke the 100 basis points to 98 basis points, so we see the improvement clearly cost of risk with respect to continue over the next two quarters to materialize at P&L.

Europe-Mediterranean, cost of risk €47 million, 85 basis points, a decrease in all region this quarter. BancWest cost of risk of €62 million, 69 basis points down also, well, see a continuing improvement of loan book quality and continuous reduction of the cost of risk for now the last five consecutive quarters.

At Personal Finance, cost of risk €406 million, now I would like to remind you that this is a big chunk from the €836 million of cost of risk at Group level. Personal Finance a big chunk because it’s really half at €406.

That number and the cost of risk is under downtrend 883 basis points. It was 186 in the first quarter of this year and 231 in the second quarter of last year. We do believe that this ongoing trend of reduced cost of risk should continue to prevail in the next few quarters for Personal Finance.

The pre-tax income, good performance in all business units, the increase in Retail Banking is very strong, up 25.5%, well over €1.5 billion, Investment Solutions up 16.6% at €550 million and CIB up 2.4%, a very good performance in relative term and better than the above €1.3 billion.

For the first half, revenues down 0.2% at Group level, up 1.5% for Operating Divisions and the net income attributable to equity holders for €1.744 million, up 8.1%.

The Group was very much delivering on the business model of BNP Paribas, Retail Banking 66% of the revenue, CIB 29%, Investment Solutions 16%, nothing new, I think, this is very much what we go for.

In terms of pre-tax income, Retail Banking is 44%, CIB 41%, so CIB is 29% of revenues, 41% of pre-tax income and will get back to the high profitability of our selling platform in a minute or it will be state around, Investment Solutions 15-15 [ph] exactly the same contribution to revenues as to profit.

And the €4.7 billion of net income attributable to equity holders for BNP Paribas after JPMorgan, HSBC and Wells Fargo, well, I think well in the peer group, concerning the profit generation capacity and in terms of return on equity at 13.8% just ahead of JPMorgan at 13% and BBB at 12.9%, this time was seem to be best-in-class in terms of ROE. This is for one set, for the first half. This is annualized, but I think it’s still significant.

We’ll now leave the floor to Jean-Laurent.

Jean-Laurent

Thank you. Good afternoon. As Baudouin told you that the net result pre-tax for the retail is up 25% this quarter, this quarter strong results, I would say. You will see that this is the product of two strong elements, first one in the domestic markets, we’ve been able to post a positive effect of more than one point is on France, Italy or BeLux. And on the other hand we benefited from quite a strong increase in terms of cost of risk, especially in BancWest and with Personal Finance.

So to start with the French retail, strong business activity, loans are up by 4.7%, especially with mortgages, but also with some kind of a pick-up in the corporate loan part of the business, especially with small and very small companies.

Deposits are again up, plus 10.1%, which is strong and current accounts are up close to 8%. And on top of it, we enjoyed with the new mobile banking services, quite a strong development with more than 3,000 users monthly – on a monthly base and we have just announced an exclusive partnership with Orange, we will comment more in details late this year.

Based on that revenue we’re up by 2.5% at €1, 767 million, with net interest income up 1.9% and fees up plus 3.4%.

Based on the operating expenses that are quite under control at plus 1%, plus 1.3%, the gross operating income is up 4.7% at €651 million.

And based on a small decrease in cost of risk, pre-tax income is at €536 million that more than 10% up as compared to the second quarter of last year. So in a nutshell, quite consistent growth of volumes and income for the French retail.

In Italy, revenues even stronger, with a growth of 3.6% at €782 million, loans were at 4.2%. This is the main driver together with financial fees like in the insurance life products. Deposits were down 3.7%, this is based upon the very strong competition was in this market especially with local authorities and very large corporates.

Operating expenses are up 2%. This is the continuous effort we have to do – to continue to invest in that market, especially with opening of new branches, six new business centers in this quarter and six new retail branches this quarter and four small business centers opened.

As a result, cost income is down 1 point this quarter. Due to a slight decrease of the cost of risk, pre-tax income is up 25% at €129 million, so all-in-all, good sales, marketing and operating performance.

For BeLux, this is the domestic market in which we enjoyed the stronger development. Loans are up 5.1%, with quite a good balance in between individual customers and SMEs. Deposits are up 8.4% with current accounts up close to 8%.

We have just closed the acquisition of Fortis Commercial Finance. This company, together with the BNP Paribas sector company will enable us to create the number one player in that field in Europe. So, based on this activity, revenues are up 4.4% at €876 million, especially driven by net interest income due to volume growth.

Operating expenses are at plus 3.3%. This represents the high level of investments we’re doing in this market, especially with internet, multi-channel banking, private banking, commercial banking and based on that gross operating income is up 7% at €254 million.

Based on the very low cost of risk, pre-tax income is at €194 million. That is to say close to 25% up compared to last quarter to the second quarter of 2010, so all-in-all a very good performance driven by volume and growth.

Europe-Mediterranean, even if some geographies are still difficult, overall we had rendered good sales. Deposits are up 8.8% with a very good growth in most countries.

Loans are up 5.8%, especially in Turkey close to 23% and despite the continuous decline in Ukraine minus 17%.

Revenues are plus 2%, €385 million, 3.3% excluding Ukraine 7.8% in the Mediterranean Basin and minus 4% in Ukraine when we continued to restructure the bank.

Operating expenses at plus 6%, therefore the opening branches in Morocco, 22 branches since in one-year and seven branches this quarter and the strong organic growth plan we’ve been following.

Based on the reasonable cost of risk this quarter, pre-tax income is at €40 million versus €20 million second quarter of 2010. So we can start in that division some kind of turnaround in the pre-tax income even if the absolute level is not satisfactory enough.

For BancWest, revenues are at plus 1%, €541 million this is very much linked to the growth in deposits plus 5%, especially with a strong and regular growth in core deposits plus 10%, loans are down minus 1.2% due to the mortgage loan business that is down 7%.

Operating expenses are up 5.5%, this is based upon the fact that the base in 2010 was low after the cost-cutting program we did in 2009. Well, paying for further investment in business development and of course, we are continuously adapting the bank to the new regulatory framework.

Pre-tax income is up close to 29%, €177 million due to a sharp decline in cost of risk. Annualized pre tax return on equity is 23% first quarter this year. So as you can see BancWest is really back to a very good profitability level.

Personal Finance’s now well went out some kind of good growth in most countries Italy, Germany and Central Europe and of course, in the countries of the Mediterranean environment division, Poland, Ukraine and China. We have closed and we have acquired the final remaining stakes in domestic as it was decided two years ago and announced two years ago. Revenues are up 4.3% at €1,298 million.

Consolidated outstanding are up 6.4% and of course were same in France and Italy due to the new restrictive legislation for commercial consumer lending.

Operating expenses are up 4.1% and all-in-all due to the decline in cost of risk, pre-tax income is up 42% this quarter at €299 million that is almost €200 million. So here you can see that Personal Finance is back to a very strong profit generation capacity and we believe this to be steady for the quarters to come, so (inaudible).

Moving to Investment Solutions, I think it is important to see that asset under management stood at quite close to €900 million, exactly €896 million as of the end of June, against €901 million as of the end of the last year, this is especially due to a foreign exchange impact of – negative impact of €13.7 billion, this is the depreciation of the U.S. dollar.

In terms of net asset inflows, the net asset inflows stood at €5.2 billion in the first half of this year, leading to a 6.1% annualized asset inflow rate. In Private Banking were strong asset inflow of €7.7 billion, especially in Asia and in domestic market, personal investors particularly in Germany had a significant also positive outflow.

In asset management, we had negative asset outflows of €7.9 billion this was accentuated by client’s decision to end the outsourcing of its management for €3.2 billion, that also notably by the impact of outflows from many markets trends and the switch to bank deposits, the trend we have seen in the last few quarters.

And for insurance, outside of France, we had a strong inflow especially in Italy, Luxembourg and Taiwan for the total of €3.9 billion. So asset under management outflows were more than offset by the good asset inflows in other business units.

And Investment Solutions revenues were up 6.8%. So Wealth Asset Management and Real Estate Services the – we had good performance that partly offset, well, a small decline in revenues from asset management but it was a negative figure for asset management.

Insurance revenues were up 15.6% driven by the good performance of protection insurance products as far as France, especially and security services a strong double-digit growth of 10.7% against the second quarter of last year. The result of asset growth in terms of assets under custody and also the affect on the positive impact of IR higher short-term interest rates on the, well, big balances that are security services customers keep with it.

Our operating expenses up 4% so we think positive due effect on the pre-tax income and while on operating expenses I mean just want to mention the investment partners costs were down 10.5%, which was the positive impact of the Fortis’ integration plant synergies.

Pre-tax income at €550 million, up 15.6% against the second quarter of last year, we had a one-off disposal our asset management JV we have two asset management JVs in China because we got the Fortis’ high joint venture. We kept this one and we sold the other ones and we had €67 million one-off, well, gain – capital gain out of this disposal. We also had the impact of the new Greek Assistance Programme, which I remind you for total of €43 million – negative €43 million, so altogether a good income growth.

Corporate and investment banking, revenues are €2.9 billion, up 5.7% against the second quarter of last year. A good performance in equity derivatives, equity derivatives at €680 million had, well, nearly close to the €690 off the first quarter, so strong performance in equity derivatives.

Last year performance was a very low because we had only 270, so we’re booking 2.5 times more revenues in equity derivatives and advisories than last year. I think this strong performance in equity derivatives is especially interesting, because it came with a very low VAR and very low allocated equity, which we’ll get to in a minute drove the return on equity to a high number.

Fixed income, down against the backdrop of significant service in debt market and fall in revenues, well, fall in revenue from the financing businesses against the record level in the second quarter of last year. So the pre-tax income is up 2.4%.

I think it’s important to mention two key ratios for our corporate investment banking, each of them I think stands like best-in-class in the industry and they are very important to meet both of them.

The first one is the cost income ratio. Cost income ratio at 54.2%, still best-in-class within the industry. Let me remind you that JPMorgan is at 60.1%, Citi is at 62.3%, Deutsche Bank and Barclays respectively at 64% and 65% and two Swiss players are enjoying 80% cost income ratio.

And then we have the very important also the pre-tax return on equity, due to the combination of efficient capital allocation, good revenues, cost control and cost of risk – low cost of risk. The pre-tax return on equity stood at 44% for the second quarter. So no doubt that the CIB platform at BNP Paribas is enjoying very strong creation for the shareholders, we’re seeing that consistently and we’re going hopefully to continue to see that in the foreseeable future.

And as for CIB capital markets, I already commented the equity and advisory, let me say that fixed income we had – its 12.2% less than the second quarter of last year and 32.2% less than in the first quarter this year.

Certainly, the business was affected by the strong volatility and investor’s wait and see attitude in credit and rates. But we maintained a significant activity because of a ranking. We are in primary markets. We are the number for those in Euro and we are for all international bonds, for major currencies, we are now the number four fixed income platform in the world against being number nine in 2010 and number 13 back in 2007.

So we enjoy a quite a strong and footprint and we see many of our customers even in a rather adverse environment generating business both primary and secondary for BNP Paribas.

And again commodity derivatives we had a good performance under difficult market condition. As for corporate and investment banking businesses in the second quarter revenues were down 8.5% and the record level of last year was, well, was significant, well, changing reference and the U.S. dollar was down 11.6% and that certainly impacted our revenues. And we had some declines in outstanding due to the depreciation of the U.S. dollar and the new regulatory environment.

The new regulatory environment capital requirements and liquidity requirements is starting to show its effect on the availability of financing both earnings wise and price wise. I think we’re going to see more of that if we – as we go on currencies this is what the regulators want and they will get it.

Structured Finance, we had a very solid performance driven by fees and in corporate banking and flow product we continue a strong push in cash management and trade finance services with significant business developments in those regions with increased volumes of 15 lower margins.

I think that I want to, in conclusion I want to move now to liquidity and as far liquidity our 2011 mid and long-term issue programme of €35 billion is 100% completed as we speak and this year we raised US$20 billion much more than last year. The average maturity was six years and we’ve had an access to diversify its funding sources.

We not only could rely on, well, many different countries, but as you see in this slide, private placements was 26%, Retail Banking 13%, senior unsecured public issues 37%, covered bonds mostly with mortgage collateral 21% and our long-term Repos 3%.

In terms of our short-term liquidity, we kept to an active management. We had a significant extension of the average maturity of short-term funding since the crises. We are financing in all currencies Sub-LIBOR 3-month and we keep €150 billion of unencumbered assets eligible to Central Bank of which US$30 billion eligible to the Federal Reserves.

As for solvencies, our common equity Tier 1 ratios stands at 9.6%, we had organic generation of 20 basis points in the second quarter and the equation of finance of the outstanding stake in Findomestic that we now count for 100% represented 10 basis points decrease up or equity Tier 1 ratio therefore plus 20 minus 10 this is why our common equity increased from 9.5% to 9.6% in the last quarter.

The shareholder’s equity stands common equity Tier 1 stand at €57.4 billion and our risk-weighted assets stood as of the end of June at €595 billion unchanged against the end of March figure.

Earnings per share and earnings per share €3.8 for the first half up 7.3% and the net book value per share €56.7 up 7.2% and the net tangible book value per share €55.5 up 9.4%.

In addition to that, now I’d say that in terms of unrealized capital gains on our AFS portfolio. And as of the end of June this unrealized capital gains stood at positive €814 million. And so I think we’re continuing to generate robust growth in asset value through this cycle.

On the better, I think the second quarter results show that we enjoy growth in business and volumes allowing BNP Paribas to fully absorb the negative impact of the cost of Greece Assistance Programme maintaining a high profitability and solvency. And I just remind you that the return on equity with 13.8% and for the first half analyzed the return on tangible equity stands at 17.3%.

So all together, we saw resilience of the diversified integrated business model anchored into solid Retail Banking market. We now are ready to answer your questions. Thank you.

Question-and-Answer Session

Jean-François – Goldman

Hi. Jean-François from Goldman.

Baudouin Prot

Yeah.

Jean-François – Goldman

I had a small series of questions if I may…

Baudouin Prot

Small series…

Jean-François – Goldman

Yeah. Small series…

Baudouin Prot

Okay.

Jean-Laurent

Okay. Yes.

Jean-François – Goldman

The first one being in the financing businesses. Can we have some color on the ratio of productivity of product that you raise in this division and where you think you directionally going from here?

Baudouin Prot

Productivity?

Jean-François – Goldman

Of risk-weighted assets. Thank you.

Jean-Laurent

There the financial business is up slightly.

Jean-François – Goldman

That’s right. Then the second question is on the terming of funding. You said that you issued bonds with an average maturity of six years? How far you think you are down that process of further lengthening the maturity profile of your liabilities there?

Then in the retail, so you have the strategy of hedging the net interest income with sovereign bond portfolio and obviously that there has been a bit of a paradigm shift with regards to sovereign holding symposium. Just wanted to have some color whether there is any plan to change that or to alter that strategy there?

And then lastly, I think to notice that there is a slight reduction in Basel 2.5 impact. Is that correct? Thanks.

Baudouin Prot

I think Philippe will answer most of your questions.

Philippe Bordenave

I’ll start with the easy one and the six years, indeed we, I think, we try and adapt to circumstances of course and we try and optimize the cost, so during the crisis it was a bit difficult to issue very long-term bond to the average maturity of new issues were somewhat lower, you will remember. We are proud enough to be able to issue much more than two, three years like those, but average was more like four, five years and so we have taken the opportunity of, I’d say, actively shaky, but overall good first half to issue a little bit longer.

But indeed, I would tend to say that although the long run, we don’t need that kind of average maturity because this is average maturity, so we have issued up to 12 years during the first half. And indeed, our loans, really that loan 12 year so, on average I think something like four and half to five years would be enough. So indeed, we’re not necessarily going to try and issue longer than that. It’s probably well enough and maybe already too much and to just a kind of catch-up effect compared with the crisis they in.

And then about the impact on Basel 2.5, it – while we stick to €40 million – €40 billion for our risk-weighted assets, additional risk-weighted assets and we had already announced so there is no real change. That being said, as we’re growing the ratio as a proportion it is becoming smaller and smaller. So this why – now it was only – we have said that it would represent 70 basis points, in that case it’s rounding up effect, it’s only 60 basis points, but it’s 40 billion that’s not been changed.

Now, the productivity of risk-weighted assets in the financing business, you have the series of figures, because you have each quarter we give the risk-weighted assets and/or cumulatively year-after-year you have – you can look at historical series, I mean, each year, you have the risk-weighted assets of the financing business and the revenues and so you can take the ratio.

I think, it has moved up and down. Clearly, there was a kind of peak in terms of margins, right after the crises, you remember early 2009. Since then it has come down somewhat. But at the same time while we have, well, so at the moment I would say it was stable. I would say we keep risk-weighted assets in the financing business system to come down and revenues are more less stable so it’s stable plus I would say at the moment.

Jean-François – Goldman

And then going forward, have you got any expectations?

Philippe Bordenave

No. I mean, it’s difficult to give predications on that front. Our, well, if I have to get something I’d say that given the fact that everybody in the world is trying and reducing their risk-weighted assets, especially in that kind of business. Normally margins should widen and so the productivity should improve progressively.

And last question about the strategy of having sovereign bonds in order to hedge the interest rate, first of all interest rates. And I think, well, you should not exaggerate what happen and what is happening. Clearly, one has to make good choices and clearly the decision of investing in Greek bonds was not good choice. I mean, after the fact it’s easier to see that and but I think that the Greek situation is totally exceptional, it has been said and repeated by the Ukraine Governments.

So we, well, we are not going to, I mean, at the end sovereign exposure is still less than most proprietor or that kind of exposures. And so, I would then say that it’s not going to change our strategy significantly, maybe we’re going to be even more cautious in the selection of the bonds, but basically basics of the strategy is not going to be changed.

Baudouin Prot

Other question, yes.

Omar Fall – UBS

Good afternoon. Omar Fall for UBS. And three questions, please. The first one is, I think you’ve given out in the past, could you give us the amount of...

Baudouin Prot

I didn’t understand…

Omar Fall – UBS

I think, you’ve given it in the past…

Baudouin Prot

Okay.

Omar Fall – UBS

… could you give us the amount of your reliance on U.S. commercial paper and then more broadly, if you could just talk about some of the – how you’re navigating the stresses in that market?

And secondly, your 48 basis point cost of risk is almost normalized with write-back in CIB potentially offsetting a high number in Italy in the normal environment. Could you give us an outlook on how far we could go or even if that’s just a vague bit of color for our models?

And then, finally, the revaluation reserve, the AFS reserve through equity has not moved much in the half, I think, 300 million, which is surprising given the moves and spreads that we’ve seen even on that excludes the Portugal and Ireland, which is now level three, one would have thought be a bit more than that? Thanks.

Baudouin Prot

Well, maybe just to answer to your last question. The number concerning our AFS is, it is surprising but it is the number. So this is why we want you to know that we have a strong balance sheet and that’s the number. That certainly that take into account all mark-to-market revaluation of sovereigns bonds as you would expect from BNP Paribas to do as of the end of June.

And regarding the cost of risk and I think we would not go into the guidance for a Group cost of risk because that doesn’t have an effect. If you can – it’s a result of – so we would – we could potentially have an idea of guidance for CIB Financing businesses, I expect the cost of risk to remain very low in the next few quarters.

So now we have no whether it’s a positive write-back or 10 to 20 basis points. Regarding French Retail and BeLux Retail, we think that about – that is as lowest as it can go and we expect it to remain that low. For Italy we hope that we – the slow erosion in the good sense will continue as making last year.

And regarding, if we move Europe-Mediterranean, we would expect the cost of risk in Ukraine to continue to be well under control and so that overall, I don’t know maybe it could be a bit low on that but still certainly higher than in our French and BeLux Retail.

BancWest, it could go a bit low, but it’s already we have done maybe most of the way, most of the – and Personal Finance, it should continue to go down whether it’s €660, €650, but it’s very important because then the amounts are important. So altogether if you note that, you’ll still see light trend down in the cost of risk for the next few quarters, which, yeah, that’s what we would expect and your question on the reliance U.S. of commercial paper...

Jean-Laurent

Yeah. And I would like to stretch that we have several sources of U.S. dollars in the U.S. and outside the U.S. and we tried and well, like for the rest of the short-term funding we have while systematically increased the maturity of our issuance on the short-term market, including in U.S. dollar.

I think that it’s true that the figure for the commercial paper market is public, because of reporting or something, reporting and it’s in the region of $15 billion. But this is really a special figure you should, I think it’s just part of the total picture and we don’t want to give more details and to give all the breakdown of the different sources, because, well, because you can imagine that while we are always trying to find to low risk cost and we prefer to keep some kind of levy to manage that issuance programs, those issuance programs.

Baudouin Prot

Other questions?

Rob Down – HSBC

Yes. It’s Rob Down from HSBC. Couple of questions really. Firstly, could you give us a bit more color on the minority charge, which drop color on Q2 versus Q1, in other words maybe in parts with domestic and some of the Turkish operations? So perhaps if you could tell us how sustainable that Q2 minority charges?

Baudouin Prot

Okay.

Rob Down – HSBC

And second question really on coming back to the cost of risk of to the Personal Finance businesses, half of the current cost of risk. You give us very good disclosure in BancWest on area wise level and multiple loan rates? Can you just give us similar color for the Personal Finance business, some form of color if you like as to why you’re confident of charge that will continue coming down over the next couple of quarters?

And then just a final question really, coming back to the Greek sovereign debt question and it’s in your consolidated financial statement, I think page 43 that the Greek bonds were outside the scope of the agreement. I think on your, you’re now measuring on level 3 basis and the balance €790 – €770 million shortfall versus the risked exposure. How do you consider comparing those Greek bonds to the outside of the agreement? Thanks.

Baudouin Prot

Okay. Philippe, will answer to minority shares and I will answer to cost of risk and Personal Finance.

Philippe Bordenave

On minority charges, there has been quite a lot of volatility on minorities over the last year and the beginning of this year because we had all those transaction between the Fortis’ perimeter BNP Paribas Fortis’ scope and 100% BNP Paribas scope in order to align old businesses and avoid having businesses with one leg in one scope and another leg in the other scope.

And so we have the lot of internal transactions and those internal transactions created capital gains at Fortis’ all capital losses depending on the transaction. And so this is why the minorities went up and down and it just happened that this quarter, they are little bit down and this is partly due to that and partly also due to, well, part of the Greek portfolio is – was at least in Fortis and BGS [ph] and so the €500 million provision is also partly in with minority in that.

Baudouin Prot

So Personal Finance well we could expect a drop off, let’s say 20 to 25 basis points next year so this more or less the magnitude of the decrease we’re looking at for next year.

Philippe Bordenave

And on the Greek bonds that are not part of – that are not eligible to the exchange and we have not considered that they were impaired. And so just due to the fact that the public support to Greece the BSFS loans maturities has been extended also because as market has focused on the private sector involvement, but there is also a strong public support at the same time that was announced.

And so the new, well, the support to Greece has been extended including the old loans and the previous loans the maturities have been extended to 10, 15, 30 years. And at the same time, the interest rate has been lowered down to 3.5% on the public side. And so during the next 10 years, in fact until 2020, Greece will have to pay interest only, no redemption of any principle and those interests will be collectively low rates 3.5% on the public side and 4% – 4.5% on the private sector side.

And so while at the same time the Greek – Greece is in the, well, in the process of closing it fiscal deficit, there should be and the commitment is to be in primary surplus in 2014, starting 2014. And so at this stage there is really no reasons no – and at least no objective evidence of Greece defaulting on bonds maturing post 2020. So there has been no impairment on those bonds and just of course the OCI still as always up on the level three basis mostly.

Baudouin Prot

Other questions?

Jeremy Sigee – Barclays Capital

Okay. It’s Jeremy Sigee of Barclays Capital. Can I just ask two questions, one is a follow-up just on the discussion about cost of risk? In Europe-Mediterranean, there’s been a big jump in this quarter. Do we trend down from that lower level or is there any sort of bounce back that you expect, are we now its new trend that we improve from here in your Mediterranean provisions?

And then second question this one or two, the different bank levy’s are already being booked in the second quarter numbers partly in Italy and partly in CIB. I wonder if you could just remind us how much is booked in the different forms of bank tax in this quarter and how much you expect to book in the second half of the year?

Baudouin Prot

I’m not sure, well, regarding the bank levy.

Philippe Bordenave

We can talk to that and Jean and because indeed we have, well, the total amount expected for the year is €200. And with the kind of split possibly while in the U.K. it should be something like €70 and in France, the French tax something like €130. But in the U.K. it’s more or less concentrated on CIB in the U.K. because it’s based on the balance sheet of the activities conducted in the U.K. and most of them are conducted by CIB.

But as for France, the basis for this tax is the risk-weighted assets worldwide. So by the way there is some type of double taxation by the way. And those risk-weighted assets are of course, all risk-weighted for all businesses. So we have broken down the tax charge on all businesses not only Italy or whatever on all businesses.

And so even that bank for example, you will see there is a stake of these tax that is the French tax, but – that we have always – we try always to push down the constraints to the businesses. And so as the basis of the risk-weighted assets all the businesses are impacted.

Jeremy Sigee – Barclays Capital

I'm sorry, so off that 200, how much have you booked already in 2Q?

Baudouin Prot

Well, a few half – it's more or less well, since the beginning of the year, it's more or less 50 per quarter.

Jeremy Sigee – Barclays Capital

Okay. And actually, I realized it’s slightly a different nature of tax with the small amounts that's in BNL, which is, sort of, original tax that's referred in the cost line.

Baudouin Prot

No, no. It's just the share.

Jeremy Sigee – Barclays Capital

That's…

Baudouin Prot

That's all the tax that is related to the risk-weighted assets of BNL.

Jeremy Sigee – Barclays Capital

So, that's the French tax not an Italian?

Baudouin Prot

Yes, yes, yes. There is no Italian tax. Yes.

Jeremy Sigee – Barclays Capital

Okay.

Baudouin Prot

We think we don’t incur for more taxes. Yeah.

Jeremy Sigee – Barclays Capital

And then, sorry, the other question is on Europe Mediterranean.

Baudouin Prot

Yeah.

Jeremy Sigee – Barclays Capital

Do we trend down from here?

Baudouin Prot

No. We have two elements in this quarter as compared to the fourth quarter of 2010 and the first of 2011. Fourth quarter of 2010 and first quarter of 2011, we did some provisioning in specific countries Egypt, Tunisia, Ivorian Coast. And on top of it, this quarter, we have started to see some relief in trend, so if you look at this quarter compared to the first quarter of this year, you have two elements, in the first quarter of this year, exceptional items for very specific situation in a limited number of countries. And on top of it in the second quarter an improvement of the overall cost of income.

So if you look at the second of this year and next year, we will assume that on average cost of risk is going to be in between these two numbers. Let's say around 120, but at this point that might be roughly speaking on average what we could expect for the second part of this year and for next year. But Europe and Mediterranean division is based upon very different situations, always very difficult to give an aggregate for the cost of risk.

Jeremy Sigee – Barclays Capital

Okay. Thank you.

Operator

We will take our first question today from Alessandro Roccatti from Macquarie. Please go ahead.

Alessandro Roccatti – Macquarie

Hi, good morning. I have got couple of questions. The first one is on the balance sheet. If you look at the customer deposits, they're down 4% from the beginning of the year. I was just wondering whether you can explain, if you would have increase your securities. And also the loan side decrease 2% from the beginning of the year. There has been decrease in the loan book for BancWest and from other division, is it the trend we're going to see going forward?

The second question is on job between net cost and revenues. If you look at the second quarter this year versus the second quarter of last year, revenues were down 2% and costs were up 3%. Just wondering whether you think we are going to continue to see a similar trend in the second half of the year and whether you can comment on this please? Thank you.

Baudouin Prot

I am not sure I've got your last question on the direct effect. I don't get the question. Do you said the revenues...

Alessandro Roccatti – Macquarie

Yeah. If you look at the second quarter '11 versus the second quarter...

Baudouin Prot

They are part of the group – for the part of the group.

Alessandro Roccatti – Macquarie

For the group itself.

Baudouin Prot

For the group.

Alessandro Roccatti – Macquarie

Yes. The revenues were down 2% and the costs were up 3%....

Baudouin Prot

May I comment on that. I already commented that I am glad to do it again. That revenue up, actually in corporate center. The corporate centers revenues were down 60% five year old between second quarter last and second quarter of this year. Certainly this is not operational.

The operational revenues of the group were up 3.4% and the costs were at, I think, 3%, including the systemic taxes, 2.2% including systemic taxes, but excluding systemic taxes they were up 2.3%. So, you can't compare the group, I mean, the group cost – don't relate to group, while royalty group revenues including corporate center.

The corporate center we have last year own debt revaluation of €275 million and we are in the second quarter of this year €40 million. So just on that item you have €1220 million revenue difference or revenue loss in the way or difference, this is nothing operational.

So, I personally concentrate on the operation divisions, because there I can maybe have some guidance and have full control. But the operating – the revenues of the corporate center have some volatility. I do believe personally that the own debt revolution accounting is bit well, finding strange, because as your – when your signature is getting work, your book revenues and in the bankers for the last 30 years, I find it to be bit strange. But this is how accounts should be established, this is the beauty of IFRS and we stick to it even if we don't really understand, deeply the economic significance of it.

Baudouin Prot

Balance sheet, the evolution of the balance sheet, yes, there is a decrease of all balance sheet and you have to bear in mind that over the period we had a significant decline in the value of dollar against the Euro and so I would say something like two-thirds of the decline of the balance sheet is due to a dollar effect, so it's not something that it's not really driven.

And the rest, I mean, of the decrease is due to some reduction in outstanding amount especially in the financing activities of CIB and on the other, well and I think that's – and we have also some trading volume that has been reduced specially the repos has been significantly reduced.

And also, on the more passive way, the net present value of derivative has been reduced just because interest rates have gone up and you know the net present value has gone down that's something that also somewhat passive. So the reduction in the balance sheet is explained by different movements and some of them are under – two, third of them coming from the decline in the dollar.

Alessandro Roccatti – Macquarie

That's great. Thank you.

Baudouin Prot

Okay.

Operator

Our next question comes today from Delphine Lee from JPMorgan.

Delphine Lee – JPMorgan

Hi. Afternoon everyone. I have two quick questions, first of all on your AFS gains. They were around 300 at the end of March and then increased to 800. Would you mind actually giving us some color from where that's actually coming from? Secondly also, on your sovereign bonds for Italy, Spain and Portugal and how much OCI, I mean, mark have you actually taken already in your equity? And if I just can add a last question on your short-term funding, the $150 billion of liquidity reserves that you have, is it possible to get some granularity on the currency split of that. And actually how much is excess cash please? Thank you.

Baudouin Prot

I think these are all CFO questions.

Philippe Bordenave

Yes. The AFS gains first and so this is a figure that is of course, tax and that is figure that you find in the OCI, so it's prospect. And in the increase to, while you have, of course, you have the post tax effect of the losses that have been taken on the Greek bonds by diffusion because there are no more latent. When you move latent gains into actual gains you reduce the latent gains, the latent losses, I mean, when you move latent losses into actually losses you reduce the latent losses.

And so, it increases the net positive gain, but this is relatively limited because you have to take that after tax. And the rest is coming from, is mostly coming from increasing value of equities. And because they are here, you have both equities and fixed income securities in the total.

And about the excess – well, the liquidity available, so I'm not going to give more detail than what we've given. Meaning, we have already given the $30 billion eligible to Federal Reserve. So this is – and so, we don't want to give more detail than that.

And then, it is true that part of it is just cash, short-term excess cash, especially in dollars, I have to say, because as we are – since, we are seen as a safe haven, we have a lot of very short-term deposits in dollars that according to us in excess to what we really need.

And so part of this is that and is just deposited at the Federal Reserve, but of course, the biggest – the much bigger part is made of eligible securities and eligible assets available for the windows. Your last question was about the OCI on Spain right and Portugal.

Delphine Lee – JPMorgan

Spain, Italy and Portugal.

Philippe Bordenave

And Italy and Portugal, so I don't have the figure right here. Maybe you should give a call to our investor relations. I don't know what we are – as far as Spain and Italy are concerned, actually we are – well, its market so that OCI you have the amounts, the total amount. You should look at the price and you can make the calculation yourself. I don't have that here, sorry.

Delphine Lee – JPMorgan

Okay. Thanks.

Baudouin Prot

Are there questions?

Operator

Our next question comes from Jon Peace from Nomura. Please go ahead.

Jon Peace – Nomura

Yes. Hi. I have two questions, please. The first one is on Basel III core Tier 1. After we had the systematically important financial institution disclosures, it was indicated that you might operate it to around 9.5%. So I just wondered practically how close to that limit do you think you will be able to operate, or how much additional buffer do you think for safety you might have to carry on top of that.

And the second question related to this is, I think you made a couple of comments about return on equity and the new regulatory environment. And I wondered based on where you thought your Basel III core Tier 1 would need to get to, do you think in time – what do you think in time your ROE will look like? Can you sustain that 15%? Thank you.

Baudouin Prot

I think that regarding the Basel III core Tier 1, as I mentioned we resent it as unnecessary and excessive, but if we have to comply with the capital surcharge, if and when it is finalized, we certainly will do it. And if it's 9.5 in 2016, we are going to go for it. We will have no problems to get there by returning earnings and so we will get there.

And that will certainly – the higher your capital and equity share requirements and the higher – well, somehow the pressure on some of these common equity, so those will be trade-off. In the mean time, I think the industry will somehow adapt and reprice and then we will certainly have some management action to make sure that even in this context of high capital requirements, we will have an adequate return on equity.

Now for the moment, we stick to the 15% pre-tax return on equity, as a target and I mentioned already several times that in the new environment which I find high and even accepted in capital requirements and the liquidity requirements, the 15% looks challenging.

But I have to quote that this quarter we are 30.8% and we are at least for this quarter best in the industry. So it confirms that 15% target is challenging for everybody. But I rather start from 13.8 and some other start from 5.9 or eight. So we were going to continue, while we have to improve, that it's easier to improve from 13.8 and from much lower capital and many of our competitors currently don't make cost of equity, which is not a problem. And so we are this is how we see things.

In terms of – if we prove to be and to have a 9.5, I don't expect the BNP Paribas to meet much above that, because when you get to accept, you know, I am not going to put another personal fair chart because of fair chart and well, I don't think in the mean time, Laurent [ph] will be CEO and new Chairman, but I don't think things could change much.

And the other thing is that, so I think that's our return on equity, that's how we see things. And actually the industry, we are seeing certainly in cost management and I might view also pricing wise, where I'm going to see the consequence of this new regulatory environments in the next few quarters and I am sure that if we see the year and a half or two years may be well, significant things would have change in the industry to cope with the new capital and liquidity requirements without certainty, which our certainly in both ways not only in stringent but you might do expect it.

Jon Peace – Nomura

Great. Thank you.

Operator

Our next question today comes from Anke Reingen from RBC.

Anke Reingen – RBC

Yeah. Anke Reingen from RBC. I had some follow-up questions please on the exposure first. I was wondering the 1.7 billion of exposure to Greece not eligible for the plan. How does thus this square with the numbers you've given in the half yearly report of the 1.8 billion of risk exposure and the time value of 1 billion. And then it hopefully give us the – an update on the exposures solely in limited countries and I just wanted to confirm, that I understand the banking book and trading book exposure is correctly.

So we're basically in that short position of 1.2 billion on U.S. sovereign and 1.7 billion net loan and actually that’s on page 41 of your half yearly report. And I am always wondering if you have talked about the AFS reserve being 800 million positive at the end of the first half. Were you willing to give us an update where it would stand on as of end of July?

And then lastly, on the financing revenues you mentioned that FX had a negative impact on the financing revenues quarter-on-quarter. And I just wondered with the revenues be flat adjusting for currency? Thank you.

Baudouin Prot

I'll let Philippe answer your question, but as a general statement BNP Paribas hasn't moved yet to either monthly or weekly balance sheet and results, so for the result of July it can appear in the third quarter results, but before that – so we're sticking to end of June numbers, so Philippe please.

Philippe Bordenave

Yeah. One question is easy, couple of ways easy question. And the exposures in fact on the financial statements, we have the notes, these essential statements, that is a new note. And the number of four exposures to the top line risk on page 41, 42 and 43 and 44, so we have four pages devoted to that, so you have a lot of details and you have already looked at that I'm sure.

And the answer to your question is that the 1.7 billion we are mentioning as being bonds that are not eligible to plan are bonds. And in the page 43 we are reporting all the exposure on the sub range be there due to securities loans or credit derivatives. And this is 1.804 so the 1.7 – that is I think 17.48 that is rounded to 1.7. If you add a few loans, we have also wanted to bring – if it goes up to one to – it goes up to 1.804 billion and this is the – I would say the way to square the 1.7 and 1.8 below. And you have another question about...

Anke Reingen – RBC

Page 41. Page 41, please?

Philippe Bordenave

Yeah?

Anke Reingen – RBC

Because that is – numbers are different from the way you disclosed them before on the stress test number. What it will that be correctly the banking book exposure, for example and the U.S. is 5.4 billion and the trading book is a net charge position of 1.2 billion?

Philippe Bordenave

Yes.

Anke Reingen – RBC

Okay.

Philippe Bordenave

That's correct. Yeah.

Anke Reingen – RBC

And I really have given the trading book and the banking book separately. And we have given the net position of the trading book, net-net and on the banking book, well, the growth position is always the same as the net position indeed.

Philippe Bordenave

And that's -

Anke Reingen – RBC

Okay. And then my another question is financing revenues, please?

Philippe Bordenave

The financing revenues ex-FX impact, I think should be slightly down, but only slightly.

Baudouin Prot

Yeah.

Anke Reingen – RBC

Thank you.

Baudouin Prot

Currently expected, it's actually 250.

Philippe Bordenave

Yeah. The – CIB financing.

Baudouin Prot

Other question? Yes?

Operator

Next question comes from Alex Koagne from Natixis.

Alex Koagne – Natixis

Yes. Hello, everybody. I have a few follow-up questions. First of all, if you were to assume that you're core Tier 1 on the Basel III would be 9.5% including the deficiency risk. I mean...

Baudouin Prot

(inaudible)

Alex Koagne – Natixis

I was just wondering whether in term of bank management, the impact will take any action to decrease this level, I mean to reduce the surplus capital for CC?

Secondly, I was just wondering whether you're still looking for any kind of acquisition in Poland. We know that KBC is trying to fill in the activity over there. Thirdly, I was just wondering whether you see – when do you intend to see a decrease in term of cost to income and your appendix activities. I think that we're seeing at a level of 70%. I was just wondering whether a chance to see a level of 55% in the French retail, those are my questions?

Baudouin Prot

Okay. I think that regarding your first question the core Tier 1 and CC capital flow chart. On the – well, if we can mitigate by taking clever management decisions, why not especially if you are sure do so. But we're not going to kill the cow, to kill the business just for the sake of managing the capital surcharge. So in the capital surcharge you have a number of parameters.

One, which is especially absurd is that if you do should request where they're landing in Europe this considered as a CC criteria. This is crazy, this is your zone is a minority zone, I don't see why in the U.S. if you lend Arkansas to – it's not in Europe, so this is absurd. And we are certainly not going to stop being Euro zone bank for that reason.

Another criteria is if you are managing asset under custody or your share of payments on CC is considered a criteria for being a CC. So we don't think that you're going to stop having customer for that. So that and on the other side you also decide if you – the total size of your balance sheet is a criteria. So we are the – we have a balance sheet, which is going south and then decreasing every quarter. So we'll see how we mitigate and manage the balance sheet.

So in one sentence we'll continue to manage the group professionally and according to the best interest of our shareholders and of our customers. And if it happens to be a bit less of capital surcharge we'll take it. And as a regard Poland and BeLux, Jean-Laurent will give you the answer.

Jean-Laurent

Poland with the joint operation we are close to 2% market share. The organic growth plan is aiming at giving us close to 4% market share in the mid-term. Obviously, if there is a nice acquisition to be done at decent prices why not, but this is not part of our first plan that is organic growth. So if there is an asset at decent price then we'll have a look at it.

For BeLux, currently the cost income is about 70%, (inaudible) that is now the new CEO of the Bank as start of this year to look at 2014, 2015 plan and of course, it lack very much [ph] to reach something, I would say close to the French retail. So the French retail is around 65% cost income, yes the bank totaled 71% this year, 70, 71%; next year, we should be down to 69, so the mid-term, it could be reasonable to expect something in the range of 65, I would say comparable to the French retail, there is still a lot to do in terms of better organizing the bank, there are lot of initiative that can be taken on top of the industrial plant that is going to be closed end of this year.

So this is more or less the ideal for Belgium, as for any networks, we are considering also for BNL additional plans to reduce again the cost income, we are now below 60 and we would like to be even below. So let's see what will happen.

Alex Koagne – Natixis

Okay. Great. If I may ask two little question please, the first on is still on the GCC, I mean, could we consider that being identified of the global system bank could be an opportunity income of funding, even customer gathering?

And secondly, I haven't gets the answer on the minorities, should we consider the level of Q2 as the run rate or should we pay the level of Q1 or please? Thank you.

Baudouin Prot

Maybe being the repo relative it didn't really take – we didn't need at BNP Paribas to take on the privacy, we too have a competitive advantage and European giant. So the type of quality there we were, so I don't see any kind of pressure to get there. So if you get a little bit fast, I don't take it, okay.

Alex Koagne – Natixis

Okay. Sure.

Baudouin Prot

Okay. And that's – what was your second question?

Philippe Bordenave

So the minority chart, I think this quarter is a bit low, but the previous quarters were too high, so it's probably in between

Alex Koagne – Natixis

Thank you very much.

Baudouin Prot

Other questions.

Operator

Your next question comes from Guillaume Tiberghien from Exane. Please go ahead.

Guillaume Tiberghien – Exane

Yeah. Hi. It's again – it's Guillaume Tiberghien from Exane BNP Paribas. I just have two questions one relates to your funding cost and your CDS. Have you got an idea roughly how much below your CDS you fund at the moment or during the second quarter?

And secondly with regard to the current situation in Italy, is it possible that maybe in six or nine months from Italian banks, which have done quite a lot of funding already may have some more funding difficulties due to the sovereign situation. And that you might have opportunities to grow in Italy, would that be something you would consider? Thank you.

Baudouin Prot

With regard to your second question, I mean, this is – we don't give guidance on that kind of the situation, so we will see. I think that – certainly any consideration to Italy would take for to me to write the check I'm extremely compelling as far as value creation for the shareholder, but you can't exclude that topic.

As far as the question of the funding cost, Philippe will...

Philippe Bordenave

Over the last, I'd say, one year or so there has been growing disconnection between the CDS levels and the funding cost. And so, I think the CDS spread is not representative anymore of the funding cost.

As BNP Paribas, for example, over the first half or the program of this year on average, for the same we should take the five-year senior debt that is the CDS is suppose to be five-year senior and for the same maturity, same kind of issue, the funding cost was on average something like 80 to 90 basis points below the CDS spread. So we're finding ourselves at much lower levels than in the CDS spread.

So, I think on top of that CDS is extremely volatile, reflecting a very nervous markets with some weeks without any – even sometimes any possibility to issue some weeks, because the market is closed and also adds value where liquidities are bundled. There's a lot of clients want to – lot of investors want to invest, so you have to be very opportunistic and to choose your windows for issuing. And then, of course, while we tend to choose windows where the cost is somewhat lower than the average, so it's a picture that is much more complicated than in the past.

Guillaume Tiberghien – Exane

Thank you very much.

Baudouin Prot

Other questions?

Operator

We'll now take our next question from Kinner Lakhani from Citigroup.

Kinner Lakhani – Citigroup

Hi. Just a couple of questions. Firstly (inaudible) whether you lent anything on the LCR ratio which changes your position compared what you told us before? And secondly on your…

Baudouin Prot

I am sorry. We didn't get your question.

Kinner Lakhani – Citigroup

I was saying just was on the LCR, the Liquidity Coverage Ratio, whether you lent anything from CRD4 documentation that changed your view or your position on a liquidity coverage ratio?

Baudouin Prot

Just to make sure, you ask us whether on the LCR, the recent documentation is changing anything and what we think is…

Kinner Lakhani – Citigroup

Correct. Does that change your position – does that put you better or worst position? Perhaps, because there is language speed [ph] bit different, slightly different from the language I have seen from the Basel documentation.

Baudouin Prot

Okay.

Kinner Lakhani – Citigroup

And secondly just on your – very resilient performance in equity derivatives which especially compared to the peer group, it looks pretty good. Whether there was anything going on in terms of kind of volume spreads or trading performance which would help us to understand that a bit better?

Baudouin Prot

Yes. Well, Philippe will answer on the LCR. Regarding the derivative, the feeling I have is that our teams equity derivatives have done – have been enormous management work in the last few quarters to somehow – very much reduced the level of allocated capital and level of position not proprietary, but resulting from connectivity and then also moving to flow product.

So I think extracting revenues from a less risky way of managing the equity derivative platform. And I think they have been very efficient and they had work on that consistently and tenaciously and I think this is result we see and I am pleased by the revenue performance especially considering the adverse environmental together and their low capital consumption. That's the comment I would make on equity derivative.

Philippe Bordenave

On the MCR, I think the CIB before have made probably once that more in direction that had been already shown in the Basel III paper. But more while in kind of sideway. And that you say that the regulators are acknowledging that they are not really ready to issue precise liquidity ratios. The experience they have is much less than about capital ratios and they are not completely sure of what’s right, calibration and even the right ingredients, in the ratios.

And so it's true that I think we will have real interim payers where there will be – while we report certain number of balance sheet items and some number of indicators to this creditors and they are going to observe that, they are going to make some calculation, some homework and they have several years anywhere to comeback with a ratio that hopefully will be more appropriate than the first draft we had seen in Basel.

Kinner Lakhani – Citigroup

Thanks for that. And let me, just one follow-up just on your flat risk weighted asset trends this quarter, within that was there any important kind of changes in terms of the FX impact credit risk, market risk or anything notable first in it.

Baudouin Prot

Its relatively flattish on all items I would say, including – while the biggest one is a credit risk and it's also relatively flattish somewhat down and due to more of a gain you have to dollar effect that has had, I would say that on the one side you had the dollar effect pushing the credit risk down and you had also the – well, on the volumes from volumes effect that were also pushing the ratio down in some evolution in outstanding amount.

On the other side you had some deterioration of risk weight on the sovereign side because Greece deteriorates the Ireland, Portugal and on the corporate side, you had some improvement on the risk charges, so it's a mix of different trends up and down and overall the credit risk weighted assets were rather stable and so for all the other ones as well.

Kinner Lakhani – Citigroup

Thank you.

Baudouin Prot

Other questions.

Operator

Thank you. Our next question comes from Pierre Chedeville from CM-CIC Securities.

Pierre Chedeville – CM-CIC Securities

Hi, good afternoon. Two questions, first question, we have seen many of your competitors announce from a residency plan, How do you see this phenomenon? Do you feel that these competitors are using against the crisis to get rid of some archives in the organization or do feel that they are really in big trouble? And in that case do you feel that it could be for you an opportunity to gain market share? How do you feel this kind of environment, because – with too many announcements of that kind?

And my second question is a kind of reserve question, we get to at BLB in Q1 and Q2 announced from investment in Asia in different areas, CIB, investment solution, notably. Could you give us a bit more figure in terms of whether our human resources invested in Asia? And your mid-term objectives there in terms of capital allocated to this area. Thank you.

Baudouin Prot

I think that regarding the redundancy plans, bank came out in the vast few days our competitors – you have to put them into context of – some of our competitors have low ROE and very high cost income ratio. And in that sense – and that the – so they – if you have such a low ROE and such a high cost income, I think it's a good time to reconsider. And cutting costs, if I had such a high cost income ratio and such a low ROE I don't think I would have hired so many people in the last two quarters. But I think they had a view, some of them like 18 months ago they were buying and they have been buying talents at – sometimes at the high price, but now they are going to make redundant.

And so I think that these – I'm very impressed by how dispersed the ROE and cost income are amongst heavy platform in the industry. I think this is very, very – the spreadsheet is wide. And I think it's – I understand the action. As BNP Paribas, we are not complacent with cost and we are not – it's not because we are best-in-class and we won't feel satisfied. So expect BNP Paribas to continue to manage the cost in the next few quarters and well – rigorously.

And regarding our investments in Asia, as far investment in terms of – as for CIB, the investments are we have some – if we take example, security services, if we take wealth management, if we take asset management, if we take so many of our investment services business and insurance, they have planned to organically grow in the – in Asian. Those plans are measured, those plans are realistic, they are not big plans and we don't go for big push. So they are – we are pushing, if we hire people it doesn't – it's not hundred and so and if we add cost it's in the millions of Euros, so it's not – and this is why we can do it while still keeping our cost under control.

And we are going certainly the budget for next year will be decided in the autumn and the budget and then we look at expenses and trend in cost and we will update if in the context of the organic growth standard in Asia how we want to address cost stuff and organic investment in Asia. So they will be flexible and rigorous, but I think we will most probably continue to organically grow in Asia and it continues an issue from rigorous basis, I think that's the answer to your questions.

Pierre Chedeville – CM-CIC Securities

Thank you.

Baudouin Prot

Other questions.

Operator

Our next question comes from Pascal Decque from Cheuvreux.

Pascal Decque – Cheuvreux

Hi, good afternoon everyone. I have three questions please. Could we have some more number regarding the stage of Fortis, regarding the Greek impairment or the Greek exposure within the minority for instance?

Secondly question on related funds, it's basically on mortgage regarding the evolution of margins and any first signs of the announced slowdown in the mortgage in France which is probably going too fast ultimately?

And the last question is just a few numbers to square the non-operating number 197 I have to bounce missing which in corporate center beside the badwill on Antin pension funds 46 million I don't know where they are coming from and same for 21 million in CIB? Thank you.

Baudouin Prot

Well, I think Jean-Laurent will answer to your and next I will get your Fortis question. But the mortgage environmental front we...

Jean-Laurent

Well, if you look at the current situation, I would say that the evolution of stocks outstanding is still high because of production we made last year other banks. If you look at this year there is some kind of decline in the year mortgage new production. We believe that this trend will continue for the second part of the year. Is it going to have impact on margins? Maybe, so, it's very difficult to say for the time being.

We can say that margins in the mortgage business in France are still I would say too low. And in many case not very much in line with the new requirements of – in terms of capital for banks. So first we believe that this market will slow down. And second in principle should see some kind of improvement in terms of margin. But this is not for the – I guess the very short-term. For Fortis, I would say that the in contribution out of the full 500 is above 120, 125.

Baudouin Prot

And about Corporate Centre I'd say the kind of little bit less than 200 to square the gap is that due to series of small positive exceptional items that were there in the second quarter of 2010 and that are not there this quarter. You remember that our guidance on the level of revenues for the corporate center is around 300 to 400 per quarter before one ups and before PPI amortization. And here we are quite fully in line with this guidance, because that's 534 less I mean less the – on that capital gains that is negligible unless the PPI amortization you are at bit less than 400, so we are there. So the current level of the second quarter is more indicative of the run rate than the last year's level that was relatively high.

Philippe Bordenave

Other questions.

Operator

Thank you. Our next question comes from Andrew (inaudible). Please go ahead.

Unidentified Analyst

Hi, there. Sorry, for the interference at the background. I have got two questions, please first on risk weighted assets for your certain bonds, could you confirm what is your policy is specifically with Greece and do you actually raise risk weighted asset charge or do you use an asset charge commensurate with what the rating of the bond is? And certainly could you comment on bonds for Italy and Spain in particular? And then secondly, you said that there was regulatory impact on financing revenues there. And could you give more color on exactly what the interaction is on the regulations, on the revenues, and what normalized level you would expect that to be at going forward and why wouldn't we achieve that? Thank you.

Baudouin Prot

I might have said that the second question on the impact of regulatory and their returns on financing revenues.

Unidentified Analyst

Yes.

Baudouin Prot

What we at BNP Paribas we tend to be proactive and maybe I think leading the market in charging to those customers and to the clients the selling cost we consider in the new chapter depending on the equity cost we consider the new coming environment. And by doing so we are maybe certainly not taking market share in the financing this year because we see some of our competitors seems to be late in the process and we don't want to be late in that process.

And we also will see this might be a factor to letting the overall financing demand because the price is going up. And also it might there might be a second drawback with maybe some corporates going more to the capital markets and less relying less on banks for the financing. So and then we'll be get back on our capitals market fixed income platform as additional revenue. So it's difficult to me – this is a trend and we are happily going to be there for a few quarters maybe in the next maybe two, three years gradually. And we will see how things work that in a competitive market environment. As to the...

Unidentified Analyst

Yes. And if I may...

Baudouin Prot

Yes.

Unidentified Analyst

I'll just say that the redundancy plans we were just talking about a few minutes ago are part of that trend.

Philippe Bordenave

Yes.

Baudouin Prot

Because if the competitors are leading more schemes let's say, average you using their loans capacity, their production, their loans production capacity.

And well, coming to the risk-weighted assets on sovereign loans, we are working with an advanced approach in terms of credits, so we are assessing the rating to each sovereign and the risk-weighted assets are calculated on the basis of that rating and plus losses and default environment assessment as well, so probability of default, like any corporate. So, I'm not going to give you the ratings, so it's sovereign, but it's the way it works. And this is why when there is an obvious deterioration it increases the risk-weighted asset.

Unidentified Analyst

Right. Were there actually increase for given that the rating downgrades that we saw in the quarter?

Baudouin Prot

So, you are speaking about the second quarter?

Unidentified Analyst

Yes.

Baudouin Prot

In the second quarter, there has been yes, some de-rating and downgrade, internal downgrade in yes, triggering some risk-weighted assets increase, yes.

Unidentified Analyst

Not enough to impact risk weighted assets at a great level, is that what you are saying?

Baudouin Prot

I don't understand your question.

Unidentified Analyst

Has there been an increase in risk-weighted assets due to these -

Philippe Bordenave

Yes, yes. I'm saying yes. The answer to your question is yes there has been an Increase in risk-weighted asset due to the downgrade of certain country risk.

Baudouin Prot

Including risk.

Philippe Bordenave

We now have a last question.

Unidentified Analyst

Hi. It's (inaudible). I have two questions for the chairman, designate actually. You've been lobbing a lot on behalf of the French banking sector over the last three years and basically, just a little wrap-up in the form of two questions. First of all, do you think you've been successful in convincing the international regulator that there was a specificity of the French banking model that was successful under that quick goal? This was first question.

And second on behalf of the Greek plan that you initiated, what is your degree of understanding of – I would say how that euro zone politicians is getting the market dynamics. It is something that they really get right now, is it something on which you feel you have to spend a lot more time on. Are we going to sit down next year with all banks, quality banks below book value with B05 [ph] or I was about to say is there hope you on that – basically speak to that? Thank you.

Jean-Laurent

Considering the second question my ultimate conviction is that the market vastly underestimates the degree of commitment of the European leaders to their coming good, which is the euro. And I think that they are going to prove the markets wrong.

For anybody who believes that the euro is going to grow, any country is going to lead the euro. I will see that's in next few quarters as you said, I will move at the end of the year to one position, but we will be around. And I am happy to update you on that in the coming quarter.

As regarding your first question, certainly our degree of success has been limited, because if we've been very successful there would no capital surcharge for CC because I think the capital level of the first decision of September of the BCBS, was quite subsistent for the industry.

So as far as the – well, French banking model. I think that it is solid and successful and we are going to continue to make that business model certainly in BNP Paribas, success by adapting we've been I think, we're showing that we are flexible and we are going to adapt the business model to the newer environment as it is.

And we are pragmatic so if and when things get followed by regulators, this would set the rules and we are going as you could expect from BNP Paribas to play by the rules. But with the full strength of management and I am very impressed in these days how committed, talented and really professional the BNP Paribas teams are.

And I have not been concerned; once again we will continue to perform and without being out, then I think we will continue to outperform quarter-after-quarter in the new environment as we did in the present environment. Thank you.

Baudouin Prot

If you don't have any other questions, I will thank you for this, for having attended this second quarter results presentation and wish you all a very good summer left. And okay, thank you.

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