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Executives

Philippe Bordenave – Senior Executive, Vice President, Head – Group Finance and Development

Analysts

Jon Peace – Nomura

Delphine Lee – JPMorgan

Pascal Decque – Cheuvreux

Jean-Francois Neuez – Goldman Sachs

Guillaume Tiberghien – Exane

Anke Reingen – RBC

Virginia Martin – Autonomous Research

Omar Fall – UBS

Alex Koagne – Natixis

Jean-Pierre Lambert – KBW

BNP Paribas SA (OTCQX:BNPQY) Q3 2011 Earnings Conference Call November 3, 2011 9:00 AM ET

Philippe Bordenave – Senior Executive, Vice President, Head – Group Finance and Development

Hello everybody, good afternoon and welcome to our third quarter results presentation. I thank you especially because I understand that discussion with Mario Draghi holding a press conference at the same time. So, it’s really kind of you to come to our press conference, our analyst conference. As usual, I would like to start with a few introductory remarks on our quarterly results before taking your questions.

The past quarter has been dominated by tremendous volatility in financial markets and the very challenging operating environment. And however, I would like to take you through the – before I take you through the business performance of the quarter I would like to highlight some key messages. The first thing I would like stress is referring to the page six of our presentation is about the new agreement on Greek debt. The agreement of 27 of October, so we have raised in order to take this supplement into account, we have raised the total impairment of our Greek exposure to 60% both on our banking book and on the insurance activities books generating an impact on the quarterly results of €2.3 billion and the slide is showing the breakdown.

Our residual exposure to Greece is thus reduced to €1.6 billion now. Then and more generally speaking about the sovereign exposure I would like to may be comment on slide 41. We had significantly reduced our global sovereign exposure. And in order to reduce the sensitivity of our Tier 1 ratio to the mark-to-market of sovereign debt. We have acted in response to Basel III in order to be sure to be fully compliant as early as of 1st of January, 2013. As we have said meaning that in order to be sure of the target we had to reduce the volatility of our sovereign portfolio market valuation and the only way to that is to reduce the size of the portfolio itself. And the decision by the European banking authority to create buffer based on the same metric for the target of mid-year next year has confirmed our analysis, hence it must be very clear that our sale of sovereign loans was across the board as you can see on the slide 41. And that’s motivated by here of specific country.

We kept our global sovereign exposure by 23% in the four months to October entering losses of €362 million in the third quarter and an additional €450 million in October. Third moving back to slide seven, I’d like to comment on the immediate target set by EBA as of 30th of June, 2012, 9% common equity Tier 1 plus the buffer against sovereign exposure. So, for us the EBA has reported a moderate short fall simply because it only accounted for the negative impact of Basel 2.5 that is say 60 basis points plus the mark-to-market of the sovereign portfolio 40 basis points. Without considering benefit occurring from our deleveraging plan and from returned earnings, if you achieve only – if you assume that only half of the deleveraging plan will be achieved by June 2012, you see that BNP shall be in a position to exceed the 9% target without any need to tap the market and returned earnings will come on top of that.

Now the deleveraging plan moving on to slide 27 we are giving more details about deleveraging plan, it’s well underway. We have already identified and launched actions and projects accounting for some 80% of the overall plan and plan I’ll remind is expected to lead to an increase of common equity Tier 1 ratio of 100 basis points by year- end 2012. That said, equivalent of €70 billion risk weighted assets reduction. These measures are expected to have a recurring annual impact on gross operating income of €750 million of which €500 million deriving from CIB. The CIB reduction represents the combined effect of lower revenues for approximately €1.4 billion mitigated by re-pricing actions was some €400 million and by lower costs estimated in the region of €500 million.

What’s more these measures will generate restructuring costs estimated at €400 million spread over five quarters backing from Q4 with a probable concentration at the start of the period and probably less at the end of the period. And in addition asset disposals are expected to generate losses of around €800 million. In terms of CIB funding in US dollars that is a significant part of the plan is targeting the US dollar assets. And you can move to slide 28 and 29, we have announced the plan reduction of 60 billion by end 2012 of which we had said 20 billion by the end of 2011. And in deed in the third quarter we have already achieved the 2011 target mostly from stretching inventories in capital market businesses. So, we’ll be well ahead of our target by completing with an additional 20 billion reduction in the fourth quarter.

As a result of this action on US dollars, we have almost matched spending needs of our business lines in dollars with clients and medium and long-term resources. You can look at slide 29 to each respect and you see that the funding needs of customer activity is almost matched by the addition of equity the client deposits and medium and long-term funding the gap is €2 billion not material anymore. And we expect to have reached full balance before year-end due to the further deleveraging of our US dollar assets. And having achieved that as for short-term resources you see of which you’ll see the US money market funds or our deposits at 36 billion at the end of September. Should they continue to decrease, we shall act first by taping the 56 billion liquidity reserves. For example reducing cash deposits with the Fed that are shown at 30 billion at the end of September or reporting liquid fixed income securities. And even beyond this liquidity buffer we can reduce inter-bank loans and we can also reduce further the swaps that are creating other currencies out of US dollars.

If we move now to a more – broader view all currencies included. We have continued to fund our business through the crisis with medium and long-term resources. And I’d like you to move slide 32. And we have leveraged on our access to diversified medium and long-term funding sources. Since July we have raised €8 billion in addition to our 2011 funding program through private placement distribution in our networks and the CRH, the French home loan refinancing entity. The average cost of these medium and long-term funding although the summer was 89 basis points, it represents a limited increase compared to the first-half of the year and for 2012 we have set the medium and long-term program at €20 billion in addition to the €8 billion we have already raised.

Due to this term solid medium and long-term funding we come to the slide 30 meaning the global all currencies included cash balance sheet. And you see that the total is around €1 trillion and you can see that all currencies included, our funding medium/long-term funding plus client deposits plus equity is clearly exceeding the funding needs of customer activities. So, we at €786 billion compared to €763 billion and it follows that short-term resources therefore only financed liquidity reserves and short-term assets. And the Group’s immediately available liquidity reserves totaled €170 billion at the end of September 2011 as shown in the following slide.

So, those were I think the most important I’d say messages I wanted to raise again. Having said that I would like to turn your attention to the Group’s underlying operating performance which net of debt provisioning has been very resilient in this third quarter with the bottom line of close to €2 billion and €500 million plus the Greek impact.

Revenues on slide nine exceeded €10 billion with the proceed contribution from retail banking investment solutions especially offsetting the contraction in CIB revenues which were penalized by the market condition and by the losses on the sale of sovereign debt. Operating costs decreased accordingly helped also by CIB cost flexibility Cost of risk net of Greek impairment continued to show a downward trend in all business units representing 50 basis points of outstanding customer loans. And as a result of that on slide 33, the book value per share continued to climb slowly but surely to the contrary of the share price. And our nine months annualized return on equity stood at the still competitive spend, despite the impact of weak impairment that is included in that figure.

Thank you for your attention. I’m now ready to take your questions.

Question-and-Answer Session

Operator

Thank you, Mr. Phil Bordenave. (Operator Instructions) And I’ll move to our first question from Jon Peace from Nomura. Please go ahead.

Jon Peace – Nomura

Yes, thank you. Good afternoon, very short questions please on the Corporate and Investment Bank. The first one is that you used to give us an idea that revenues will be between the first quarter and the second quarter 2010 run rate in other words between about €2.8 billion and €3.8 billion and I just wondered given the deleveraging plan and with the current market outlook, would you look to redefine that range?

The second question is on cost control in the corporate investment bank. It was very impressive this quarter. I just wondered if you would be able to split the advisory and capital markets for the whole business, compensation versus non-compensation cost. I want to know if you’ve got the same flexibility going into the fourth quarter. And the final question is the disposal losses of 800 million. They are relatively high. I'm sure you can finance that given your profitability. But I just wondered what are these assets? Why do you anticipate the losses being so high, and what sort of sensitivity is there in the 800 million number? Thank you.

Philippe Bordenave

Yes, about, it’s true that we were saying that the run rate for CIB as a whole was between €2.5 billion and €3.5 billion per quarter, meaning that for the capital market it was something like between €1.5 billion to €2.5 billion, having in mind that the financing businesses are generating €1 billion per quarter around. And it’s true that this quarter was exceptional. I mean we have gone through a quarter that was really, extremely, I mean dramatic, with surprises, especially in the equity business that was, dealt with, I think the equity prices went down more than during the fourth quarter of the 2008. So we have seen a crisis that was really a kind of after-shock of, significant after-shock of replica of what happened in 2008. And yes, we are, we fell out of the range. And I agree with that. I hope that it will not last too long, but as you see the ups and downs of the market not necessarily over, it seems and October has been relatively shaky. So before assessing something else, I think we have to see the market coming back to more stabilized situation.

About cost control, I think you have the combination of two things. If you refer to the fact that, well, on the one hand we benefit from Fortis synergy. You remember that a significant part of Fortis synergies were based into CIB because we have integrated both CIB, so Fortis one and BNP Paribas one. And so, we have said and you have somewhere in the presentation the synergies coming from the Fortis integration and you can see that CIB’s representing a significant part on slide 44. And CIB is representing 43%, the biggest part of all businesses on synergies. So, this explain was, as a kind of basis if you want. The cost control is good at CIB, especially good at the moment because they are benefiting from the synergies. And on top of that you have the natural flexibility of the bonuses. And as we have just said the revenues were outside of the range and the benefit has been outside of the range as well.

And I repeat, and I remind you that in the past we have always managed, we have always managed to take 100% of the bonus charges in the year where the bonuses have been generated. You remember we don't have any overhang or any past bonuses being paid each year. So each year is self-sufficient in terms of bonus payments of bonus accruals even if the bonuses are deferred. So we have always charged, accounting wise charged our bonuses to the year where they have been generated. Even if they were deferred and this explains, so why we don't have some negatives from the task and this quarter is bad, the bonus accrual is very low well.

And the disposals, I mean we have taken the view that it would cost us, that’s on average we would sell those assets with some discounts and some. So we have taken the view that maybe the discount would be in the region of 3% to 5%. And this is what explains the figure of €800 million. Of course, we are really in the process of selling those assets with, I would say, with care, and certainly not at any price. And so we try and limit that cost as much as possible. We’ll report, in the report we will report all those figures to keep you informed of the implementation of the plan. And we see, yeah, the end we can do better, but at the moment we think it's reasonable to think that we will have that kind of haircut.

Operator

Thank you. Our next question comes from (indiscernible) Merrill Lynch. Please go ahead.

Unidentified Analyst

Good afternoon. I have two questions on the sovereign bonds management and portfolio. Well, I'm interested why have you cut Italian government bonds by €8 billion to €9 billion and have not made anything regarding your Belgian government bonds which all in all I know is the highest pocket within your sovereign portfolio? Second question can you break down €0.8 billion loss that you had between that the third quarter and the month of October on these bonds? And what is the impact you expect on your recurring revenues? Otherwise I mean, how do you re-employ the proceeds of these bonds? I mean just to measure what could be the impact from this kind of de-leveraging? And third and last question, if I may, on the 60% that you have retained from Greece, I mean why have you chosen this 60% number? Thanks.

Philippe Bordenave

Patrick, hello. I'd start with the 60% because it's the easiest question. The 60% is coming from the – you try and translate the agreement health on the 21 of July, the first agreement. We try and translated in our accounts. So, at the end it was not implemented, and so we have a new agreement and this new agreement to a large extent is taking more or less the same, well the same kind of feature the first agreement with the exception that significant difference that we are cut by 50% before everything. So, on the one hand you are losing 50% and on the other 50% you have seen the same kind of corporate bond with the collateral of €30 billion bought by the FSS and so on. So we expect, we have still thought that probably we would lose around 20% of those 60%, makes 10%, so total 60%. Clear?

Unidentified Analyst

Very clear, thanks.

Philippe Bordenave

That being said, we still don't know what the term of details, important details of this plan and it remains to be further discussed, but we think that we are on the safe side this time.

Now about the sovereign bonds, I mean, we have and we will, we have reduced the exposure on an opportunistic basis, I would say, and we will keep doing so. So, there is no other explanation, no other answer to your question.

Unidentified Analyst

Sorry, to interrupt. So, it was opportunistic to sell €8 billion or €9 billion of Italian (govis) in September, at October that’s your appreciation.

Philippe Bordenave

To start with, it was our biggest exposure and we sold across the board a certain number of bonds depending on the market and what was possible to given in the market. So I would say 41, slide 41 again you have indication of what we have sold, we have sold a total of €25 billion of government bonds. So the €8 billion of the Italian govis is only part of gross 25. And well it was just depend on the opportunities we find in the market at acceptable prices. And we will keep being opportunistic in the future. We don't give the breakdown by bond. I have just given the total cost of those sales. And in terms of loss of recurring revenues, I mean those bonds, I mean they were government bonds. So they were not high margin bonds in any measure. We’ve seen the money we get from the, with the proceeds on those sales, we do two things, at first we increase our central bank deposits and we think it’s important to remain very flexible in terms of short-term liquidity, and we think it's important to increase the buffer that way. This indeed is generally less remunerated that the bond itself, of course. And also we have reduced our short-term funding and we’re still selling some cost.

Overall, yes, there are some losses of recurring revenues due to lower sovereign bond portfolio and those reduced revenues are included in the gross operating income. The cost of the deliberating plan we have mentioned in terms of cost operating income.

Unidentified Analyst

Okay, that’s very clear. Thanks. And very, very last, how much of further disposals that you expect to do?

Philippe Bordenave

Well, we’ll keep being opportunistic and we don't want to commit to any amount beforehand.

Unidentified Analyst

Okay, thank you.

Philippe Bordenave

Thank you.

Operator

Thank you. And I move to our question from Delphine Lee from JPMorgan. Please go ahead.

Delphine Lee – JPMorgan

Yes, good afternoon everyone. Yes, just a few questions. First of all on the AFS the reserves in your equity came down a lot from the €0.8 million gain we had at the end of June to €1.1 billion loss. Is it possible to get some flavor or color on that? Secondly, on the risk-weighted assets reduction, you achieved 20 billion this quarter, but the risk-weighted assets at the group level didn't really move. What was the offset from the reduction, if we can have some color on that as well? And finally on the de-leveraging, the €70 billion in total that you have announced, I'm in terms of compliant to the liquidity coverage ratio, does that get you there, or did you think that further de-leveraging could be needed towards 2012? Thank you. Hello?

Philippe Bordenave

Sorry, sorry, hello. Yes, about the AFS reserve, the reduction in, well the increase in the latent losses from, as you say from €0.8 million to minus €1.1 million is coming mostly from, well this is coming from both fixed income securities and equity and equity securities indeed. The distinct securities, the latent losses on fixed income securities increased by €700 million compared to the end of June, and the latent gains on equities decreased by €1.2 billion. So it’s coming from both sides due to the widening of spreads on the fixed-income side, and due to the big drop in equity prices in market levels throughout.

Delphine Lee – JPMorgan

On the fixed-income side, is that related to government bonds or corporate bonds, essentially?

Philippe Bordenave

Both, both, I would say.

Delphine Lee – JPMorgan

Okay.

Philippe Bordenave

Now the risk-weighted assets, you have to bear in mind that during the quarter the dollar went up quite a lot, and so we had an increase in the risk-weighted assets just due to the Forex effects. So, if you compare the third quarter dollar level with last year’s third quarter, the dollar was down. But if you compare the end of the quarter with the end of June, so doing the quarter the dollar went up significantly, and linked to the Euro crisis, to the Euro zone crisis. And this explains why we had an adverse Forex movement in terms of risk-weighted assets reduction.

And your last question about the de-leveraging, I think it's too early to say because the LCR, I think is probably poised to change. Again I remind you that the liquid assets according to the LCR are only government bonds and I think that today is something that’s very difficult to keep after what happened. And I think that well, it has been said both by the Basel Committee and by the European Union Commission that they would look at it another time. And so we will have some changes in the rules of the LCR. So it's too early to say our de-leveraging targets, and our de-leveraging at the end of 2012 will be not to put us in true compliance with the LCR. We’ll assess the situation at that time. I think we’ll have new information in between and we’ll be able to decide at that time.

Delphine Lee – JPMorgan

Okay, thanks

Operator

Your next question now comes from Pascal Decque from Cheuvreux. Please go ahead.

Pascal Decque – Cheuvreux

Yes, good afternoon Philippe, good afternoon everyone. I have four quick questions. The first one just to be sure, the €450 million losses you announced in October on your new sales of govis. Are they included in €100 million of losses you plan on your de-leveraging part or is it coming on top of that? The second question is regarding the dividend payment, do you have any new scenario here following a meeting with the French authorities and the EBA stress test?

Next question, it’s not very clear to me if in the EBA capital requirements, the de-leveraging process is forcibly included or not in the calculation in order to avoid any credit crunch or not? I know that you only take half of your target here, but I don't know if indeed EBA this is included or not. And the last question is on the balance sheet, could you give us a number regarding the balance sheet at the end of September? And I have an add upon that is would you be able to quantify a little bit more precisely the impact of the dollar on the risk-weighted assets in order just to have an idea of the real decrease of your risk-weighted assets? Thank you

Philippe Bordenave

Well, Pascal, the losses – well there are two separate chapters, the 800 million is about CIB, I would say ordinarily risk de-leveraging, and client assets de-leveraging, and so the sales of loans portfolio, obviously. and €450 million in addition to that, clearly. But the €800 million are going to be spread over five quarters, so it's not going to be €800 million in the fourth quarter. But the 450 million are concentrated on October and they are related to the sovereign portfolio. So it’s clearly two separate chapters.

About the dividend, well you know that just in the current figures we have calculated the payment of one third of our earnings in cash for the dividend, so it’s currently the equivalent of €1.7 billion or €1.6 billion, €1.3 billion. That’s already deducted from the current ratio 9.6%. Now the decision about dividend is a decision that is taken once a year by the Board. And so, there is no change to that respect, strictly no change to that respect.

Now the EBA target, that's very clear. The only thing that is, I would say, frozen is the buffer for the sovereign debt, meaning that the first buffer or the deduction that is going to be taken in the calculation is the actual end of September figure. So far it’s 40 basis points. And this is not going to change any more in the exercise, even if we would de-leveraging too more, I mean the 40 basis point would remain 40 basis points. But, just they are in the process of checking the figures for whole banks, so those probably are not yet checked and approved, but this is our own calculation. But once it will have been checked and approved by the EBA, it’s going to be frozen until next June. But for the rest the target consist in being at 9% including those 40 basis points. But by all means in this, and de-leveraging, reducing the risk, the planned risk-weighted assets is something that is definitely possible.

And at the end about the dollar effect, about the dollar effect on the balance sheet, you have there are two questions, about the dollar effect and the risk-weighted assets in the region of, the total for Forex effect was €8 billion in the quarter. And as for the balance sheet at the end of September, you know that we are not, fully closing the balance sheet in odd number quarters, but what we think is that probably due to this dollar effect, the balance sheet was slightly higher than at the end of June, and probably slightly higher than the end of June due to dollar effect.

Pascal Decque – Cheuvreux

Despite the beginning of the de-leveraging.

Philippe Bordenave

Despite the beginning of the leveraging, yes.

Pascal Decque – Cheuvreux

Okay, thank you very much.

Philippe Bordenave

Welcome. And also Pascal also there's another reason why the balance sheet is probably higher is because of all the moves in the market prices, and the net present value of swaps has widened as well.

Pascal Decque – Cheuvreux

Okay.

Philippe Bordenave

That's an important part as well as this was already the case at end of 2008. And then I came back.

Pascal Decque – Cheuvreux

Okay, thank you sir.

Philippe Bordenave

Okay. Next question?

Operator

Thank you. The next question now comes from Jean-Francois Neuez from Goldman Sachs. Please go ahead.

Jean-Francois Neuez – Goldman Sachs

Hi, I have a small series of questions if you allow. My first question is on the new comment of the EBA last week about the contingent capital eligibility to core Tier 1, I think endorsement looks quite a big change compared to what Basel III was implying I know that you said in the past that you were focusing on equity Tier 1, but nonetheless given the concern that you are now faced with by the same EBA and given the fact that you have north of 10 billion of Tier 1 securities, I wondered if this new endorsement is something that changes your view on this type of instrument and whether that’s something that you would be then looking at?

My second question is on the deleverage, so you have 230 billion in short-term funding you show and 166 billion in long-term, with the deleverage of the asset side of the balance sheet what are you looking at in terms of the relationship between these two numbers at the end of your plan. Should we assume that most of the deleveraging will affect the short-term funding? Then on the other activity, I see that you plan a loss of about 150 million in recurring GOP out of 20 billion of risk weighted asset disposal is backing this out, it’s less than 5% ROE in a sense that this business would be generating which is good to see that cost you much, but is why were you in these businesses in the first place just out of curiosity?

And the last question is we see with the increase of the authority let’s say of the EBA we also see that the EBA has an agenda of checking the risk rates of various banks and I wondered how you see this and how comfortable you are with the projections of your models or let’s say robustness of your models in regards to the risk rates in particular in light of other geographies criticizing a lot of banks with lower risk rates? Thanks.

Unidentified Company Speaker

Jean-Francois, well, I think your first question I think well you know we are complying with the regulation and we are trying and optimize our behavior in the framework of the regulation not if well if some new products are becoming eligible to core Tier 1, while we would look at them, but at the moment, there is not a lot of clear information about that. And so we – well, I think it’s too early to go find the….

Unidentified Company Speaker

The second question, first I would like to say that the medium and long-term funding in terms of 100 statistics, €166 billion you are mentioning, you know we have said that you can mentally, you can add the 49 billion that are also bond issues, but one that we place within our home network. And so depending the way you look at it return to well, this is what, well it can looked at as being client deposit to a certain extent, but at the same time, there are kind of depositions that are completely secured for the medium and long-term maturity of the bond or note they have got. So, you find 200 plus issue at both. In this, we have issued more than 200 medium and long-term securities.

Now, our aim in the deleveraging and our aim is certainly not to well have a kind of proportion, increase that proportion of short-term funding and long-term funding. I think that clearly we have shown on slide 13 and also on the other slide concerning the graph, we have shown how we look at it. I mean we look at it the way that we think that the customer activity has to be funded with stable resources and the stability being provided either by the fact that turning from clients and clients here are purely retail and corporate clients only. So we have from the accounting figures we have deducted the deposits coming from institutionals even if there are clients and we have put that in this other category that shutdown to me, so is a client kind of loyal clients, individual or corporate, because they are supposed to be more loyal than the institution, and over medium and long-term maturity. And so this is why we are comparing the customer activity funding needs with the addition of equity plus client deposits, plus medium and long-term funding.

And this I think this is the way we are looking at it, so rather than focusing on a proportion between medium and long-term and short-term. And that being said to complete my answer, clearly, yes, the bulk of the deleveraging will be kind of used in order to reduce the short-term funding of course because the two other categories. By definition you can’t change them, I mean, that path, the medium and long-term funding we issued here and then it selectively sticky and the plan is we posit to try and increase well and they are also relatively stable. The flexibility is in the short-term funding. So when we are reducing our assets, it’s the balance which is on the liability side is made by reducing the short-term funding.

About your, yes, you worked – what you have in the other category I remind you, I mean, those questions were raised lot of days ago and seen the crisis, I mean, the other category was not under this slide. So, in the other virtual member, you have all the property share investments of the bank and all the participations, the industrial participations of the bank including the Paxar participation and quite a lot of others and also the theme portfolio if you remember the…

Jean-Francois Neuez – Goldman Sachs

Okay.

Unidentified Company Speaker

Yes, the theme portfolio inherited from Fortis and also PPM, so this is what is in the other portfolio. When we say the equivalent of 28 billion of risk weighted assets, you have to bear in mind that it means equivalent meaning that it also, it can come also from a release from the numerator of the ratio, because some of those investments are weighing on the numerator of the ratio, and so because they have the deducted from our Tier 1 capital. So, when we say equivalent risk weighted assets, it can be a mix of actual risk weighted assets and some addition of less deduction from the numerator.

Jean-Francois Neuez – Goldman Sachs

Okay. And the risk weighted assets question?

Unidentified Company Speaker

Sorry. I missed one question on the risk weighted assets.

Jean-Francois Neuez – Goldman Sachs

Yes. It’s just that we can see EBA has more power than it probably was first told. And it looks that they have a big agenda on this risk control across geographies in particular due to the modern implementation of…

Unidentified Company Speaker

Yes, yes, yes. So, yes, sorry, sorry, yes, well, first we welcome the authority of EBA and we have always been in several of harmonization in Europe, because we always felt that the rule that were actually implemented in France were somewhat stricter than rules implemented elsewhere. So, we welcome harmonization firstly under the ages of the EBA. Second, this big question is about how risk rates are computed. I think the answer is very simple. The main treaty came from the U.S. because some U.S. banks were staying that their risk weighted assets on assets ratio was higher or is higher than the risk weighted assets on asset ratio of European banks.

Jean-Francois Neuez – Goldman Sachs

And Spanish banks concerning the debate it looks like?

Unidentified Company Speaker

And Spanish banks are joining the debate. Okay, I didn’t know about Spanish banks, but I look – well I have looked into that and through a very simple way, the proof of the (indiscernible), so if you compare, I have made the kind of practice thing of risk weighted assets of assets just comparing the risk weighted assets on assets average of the recent period. With the actual losses incurred during the crisis, because after all, the risk weighted assets are about capital, are about unexpected losses, so it’s relevant to compare with what happened during the crisis. And so if you do that and you take the Bloomberg, you know crisis related cumulated write-downs and losses that is publicly available. And if you try and put that on a chart, you see that yes U.S. banks have higher risk weighted assets on assets ratio, but they also have much, much higher level of losses on assets ratio. And particularly, if you look at that, I mean, it seems even that the risk weighted assets should be even higher to be in line with the ones of Europe.

Now, within Europe, there are some discrepancies that can be seen as well through this kind of practicing. The main discrepancy being that the investment banks, the pure investment banks were probably kind of favored by the way the risk weighted assets were calculated on market activity. And I think it’s commonly accepted now that risk weighted assets on market risk and contemplative risks were probably underestimated by Basel – individual Basel I already, Basel 1.5 if you remember. And clearly when you look at the figure, it’s striking. And this of course is helping with something they call was helping the pure investment banks more than the universal banks, like ourselves and the universal banks more than the pure retail banks and that explain the attitude of the comments on Spanish banks and also maybe Italian banks controlling the group, because, yes, the risk weighted assets associated with market risk were probably underestimated. This is going to be adjusted, completely fixed by Basel 2.5 already and even more Basel 3.

Of course, market activities will have a significant additional layer of the risk rates as this kind of anomaly is going to be fixed. And then further potential heterogeneity between countries, well, I hope they are going to be progressively corrected by EBA.

Jean-Francois Neuez – Goldman Sachs

So, you are confident that you will not be asking more risk weighted assets than you currently have?

Unidentified Company Speaker

As far as we are concerned we are extremely confident. The first thing is that as far market risk are concerned you know that we have suffered only 11 days now one additional day in this third quarter of either way, but since the beginning of 2007, we have and maybe suffered 11 days of losses higher than to that showing that, however, U.S. risk was really robust. Our valuated risk model is robust. So, we are very proud of that.

Second in terms of Basel 2.5 and Basel 3, because we were already relatively conservative in a certain number of measurements, especially on counterparty risk, the additional risk rates that we are going to take are (indiscernible) as you know much more modern. So lot of us are investment banks. And you know that 2.5 is for example is certainly €40 billion additional risk weighted assets and it makes only 60 basis points. So, it’s completely relative much less than the lot of us, because we were already relatively conservative. So, we are extremely relaxed under this debate about risk weighted assets. And as far as credit is concerned our – robust than we are extremely well relaxed on that debate and also losses, the cost of risk we are, as you can see again this quarter, the actual cost of risk is lower BNP Paribas has always been low and so the comparison between our gain – our risk weighted assets on assets ratio and our losses on assets ratio is putting us in a very favorable position.

Jean-Francois Neuez – Goldman Sachs

Thanks.

Unidentified Company Speaker

Welcome.

Operator

Thank you. Our next question now comes from Guillaume Tiberghien from Exane. Please go ahead.

Guillaume Tiberghien – Exane

Yes, good afternoon. I have got a few questions. One of them relates to Italy, you had said historically that owning government bonds allows you to manage your interest rate risk, so I was wondering whether we should now expect a little bit more net interest margin volatility? The second one is on the dividend accrual do you accrue the dividend on the reported earnings including fair value gain on that, because otherwise I guess if you exclude it then there has been no accrual, because there has been no earnings? The third one relates to our equity revenues, would you be able to sort of give us a feel as to how much of the pool revenue performance is due to hedging cost and how much is due to the fact that you had reduced inventories? And the last question relates to Belgium, I am not sure I have heard whether you have answered the question on the why is there so an increase in Belgium government bond or why is it your largest portfolio of government bonds? Thank you.

Unidentified Company Speaker

Well, interest rate risk, we have two, basically two means that we can use to manage our structural interest rate risk. It is the government bonds the derivatives and we were using both and we are using both. The only thing is that now the proportion will change and we are going to use more derivatives and much less amount, but the aim to hedge the interest rate risk remained the same. So you should not expect more volatility net interest margin because of that. The dividend we accrued the dividend in a very simple way. We accrued one-third of the net profit group share. So, yes, the factor it includes on that revaluation at the moment. It’s yes, because we do that simplest way placebo.

Then the hedging one, it’s about the equity derivatives, the bulk of the relatively low performance is coming form hedging costs, indeed, given the huge crisis that procured in the equity markets in the summer, while they had this very few clients indeed. The business – the plan business was low, very low compared with the normal and really limited to corporate demand for some equity derivatives that all the demand from individuals and instituitionals dried up almost completely and they just had to hedge their current books and they did that in a very methodic way, because market was so impredictable and so volatile that it was necessary.

And if you remember the second quarter of 2010, well, I mean, one year ago when we had the first Eurzone crisis if you remember with the volatility that was comparable with what we have seen in the third quarter of 2011, the equity derivative they have made to €260 million in that quarter, so much less than our product than what they made while fixed while comparable with what they have made this quarter to 260, 290. So clearly we are in this kind of institution where we will have much less clients rose, so much less opportunities to make margins, a lot of volatility requiring constant dynamic hedging and lot of leasing cost.

The fact that inventory aspect is limited indeed what we will try and do is to replace cash inventory with future and listed options until and so with derivatives plus over that can provide with a similar hygiene or to of course you cant do that for aggression because at the end you have to go down to the single stuff but for the step and part of the hygiene you cant just replace the big portfolio that stocks with the indexes or future or index or option on indexes that are representing the same rates.

And about your last question what I will give you the same answer I think we gained we have a well the policy of reducing the sovereign, that is across the board that’s unique it just happened that during this period while as for entering bonds there was no trend its not increasing so almost of change the equivalent from 16.9 to 17.2 so it’s a (indiscernible) so its not material while this is just incident only I would say this does not especially in support and the will keep as an opportunity (indiscernible) this general policy in the future and so the one the Belgium portfolio may decrease as well.

Guillaume Tiberghien – Exane

And thank you very much and maybe just one final request which is, would you remind me in the future giving us the end of quarter (indiscernible) per division because its quite helpful for our models?

Unidentified Company Speaker

End of quarter as of (indiscernible) instead of an average.

Guillaume Tiberghien – Exane

Yes okay I understand.

Unidentified Company Speaker

We’ll consider that okay.

Guillaume Tiberghien – Exane

Thanks.

Operator

Thank you our next question comes from (indiscernible). Please go ahead.

Unidentified Analyst

Good afternoon sir. I have three questions basically. First can you just trace your growth and net exposures on Spanish, Italian, Belgium and French within your interim of business? Second question can you describe what you include in the encumbered assets which are prior to the liquidity buffer and is it fair to assume they’re are not (indiscernible) to open America’s operations of central banks? And third question, what is your view on the cost of those trends in retail banking activities in the coming year and particularly in Italy firms and Belgium? Thank you.

Unidentified Company Speaker

Lets start with the cost of this trends start with the last one. And we currently enjoy the local (indiscernible) in France and Belgium I think both countries are probably going to follow the same pattern because the business needs to be similar and the production of retail industries corporate similar and the economic situation is also relatively similar. So we’re seeing that on both cases we are – we have a low cost of rate and we’re seeing the distribution should stay for some time. We are not seeing any early sign of deterioration of the credit quality as to now. That being said it’s a low level (indiscernible) there maybe some changes for Belgium look at the signals we’ve went from 16 basis points to up to 21 in the second quarter and then now down to 18 so that kind of small movement cannot trail and depending on the rise of other quarter but we don’t see a near significant increase occurring up to now – now we are seeing that in the I think in line the scenario of low growth next year and low growth in Europe between 0% and 1% depending on the country so in a scenario, but whatever it could be different, but at the moment and given where things are today we don’t see any early sign of deterioration. As far as Italy is concerned the picture is somewhat different because the cost of risk is much higher close to 100 basis points and due in part to the fact that the business mix is different with a proportion of corporate loan much higher in the total mix than in France and Belgium.

And here we I mean we well we see – well we had seen if you look at the recent quarters as kind of improving trend but very slow over the last four, five quarters. We think that this kind of improving trends could stop, could seize and due to the well the economic situation in Italy that is doing or lead to be - electricity was very, very low cost next year. And but we – but we made unseasoned some well that cost of risk was moving up somewhat again, and again we don’t expect a dramatic change but we expect the end of the improvement I would say on (BNP). And so this is for your last question.

Now moving to your – moving to your first question that is cost of risk within the insurance and funds portfolio. You will find older figures for Greece, Ireland, and Portugal in the notes to the financial statements of this second, the first half under the Interim results and they have you will find that and since then they have well they have gone down of course and they have not increased as that relatively moved down and they are truly smooth not material.

As far as Italy and Spain are concerned the figures are bigger and we are not disclosing them because they are not that big and because as the – those countries are not in the aid program like the three others, so we don’t still say this is right to disclose that. And the growth of the risk is taken is done by the insurers that you don’t indeed between depending on the – under the companies which are between 80% and 90% of the risk that is done by the insurers. So the impact on the accounts of the group and the impact for our shareholders is much lower as evidenced by the Greek situation. So that so and your second question, I missed your second question, sorry.

Unidentified Analyst

It was just about the unencumbered assets which are sort of the liquidity buffer, I’m just wondering whether it was fair to assume they were not eligible to the (indiscernible) operations of central banks?

Unidentified Company Speaker

Yes, well we had given this figure well usually we don’t well we are not disclosing that figure and I think yeah I think like 31. And we were disclosing the underlying value to the unencumbered assets eligible for central banks and 128 billion for at the end of September and a little bit with central banks were 42 billion at the end of September. Those figures are completely liquid, it’s completely available immediately and they are always liquidity buffer. But we have seen that some competitors were disclosing the total figure including the unencumbered assets and so well we felt well in order to providing the state level information we felt necessary to remind you that we also have a total of eligible assets that is much higher than 128 indeed its over 200, that total of eligible assets.

The only thing is that part of them are used, they are used either in the report with central banks themselves for the monetary policy or the day-to-day report or we report with third-party or in clearing systems as a guarantee in the clearing systems. So they are not available today but most of them are going to come back tomorrow if you want, but as of today when you make a snapshot at the end of September they are not available as such they are eligible they can be used, but at this very moment they were already used.

Unidentified Analyst

Understood. And very clear.

Unidentified Company Speaker

Thank you.

Unidentified Analyst

Thank you.

Operator

Thank you. Our next question comes from Anke Reingen from RBC. Please go ahead.

Anke Reingen – RBC

Yes, Anke from RBC here. Good afternoon. I would like to ask some questions on your deleveraging plans. Firstly you say the 750 million of your cost operating profit loss so to say is based on your expected profitability I think in the new environment under the current vendor. Just wondered if you would look on a 2010 basis what would the earnings contribution of these assets been at the time because I assume you expected profitability would potentially include your higher funding costs?

And I was also wondering in terms of split of the reduction with acquired assets in terms of disposals versus basically not renewing for example maturing debt, how are you – how this would breakout although you said earlier that you would expect about 5% discount in asset disposal which would imply about 16 billion of risk-weighted assets would be coming from disposals, if you can may be help a bit?

And then I was just wondering do you really be aiming for cost plan as well because you of course you have given a 400 million restructuring charge, so is this close to potential cost savings? And then lastly are self-interested in your deposit trends and some of your core divisions in the third quarter where they were like flat to slightly down, is this a seasonal trend or is this something you’re seeing pricing competition which you’re staying out? Thank you.

Unidentified Company Speaker

Yes, Anke. Yes, when we give the figure of the reduction in the gross operating profit in the future we are referring to the past yes we are not referring to what would have in the future without doing that because its too complicated. So we are just taking the assets we are going to drop and we deduct the amounts of revenues we are generating. And then we add back so this is as I said something like 1.4 billion for the CIB part for example and then we add back the repricing and meaning that the assets we’re willing to keep are going to well we hope and we think we’re going to be give better margin. And we also add back the reduction in cost that is going to be done because indeed lead cost if you have like I said and you will come to the 500 CIB so you don’t that at the start of the (7 or 60) you are mentioning, So its clearly as a comparison with the recent past so yes the full year 2010 for example rather than kind of in a particular future.

Anke Reingen – RBC

Okay.

Unidentified Company Speaker

And now the – about yes the 5% discount we yes it means that we are – this is the plan, we are planning to divest something like 16 billion assets but this is not in risk-weighted assets it’s in – it’s expressed in nominal value if you want, it’s in balance sheet value if you want under the $16 billion you are calculating. The risk-weighted assets, the cost coming risk-weighted assets are lower because of significant amount of those assets were very safe with low risk, low margin as well but low risk and hence will likely be lower weight. And then your question about the potential cost savings, we are well we are going to well the after all things on the one hand that they are I would say some reduction in certain teams or activities because we are going to give well significantly downside. And on top of that we are positive and also planning to be close on certain branches completely or to optimize the setup of certain branches in certain countries as well.

And again you have to bear in mind that the bulk of this plan are to – the core of this plan is related to turn our activities and hence it’s a wrong assumption to think that the bulk of the savings are going to be in our domestic markets are going to be relatively less affected, much less affected then activities to grow because by definition the dollar business is largely the goal.

And then about the deposits we have – the only countries where we are facing real deposit competition is Italy due to the peculiar situation where clearly the state is – the Italian state has already distributed and kept distributing its debt domestically through the banks network so the – this distribution channel of debt is – well I’ve already worked in Italy to the contrary to almost well those are countries where the distribution is become a really institutional and having selling to individuals is stopped.

And hence also in Italy as the rates, the yield of the government that is going up it becomes very attractive where of investing your savings, if you are an Italian saver and so the government is to the extent it is now in competition with banks in order to attract the savings of the Italian households. And because of that certain number of banks were also now obliged to raise their rates so there is a real price competition in Italy and of course as far as we are concerned having not the same kind of problem when we – we are – we look into engaging that kind of competition, so we well - so we of course we have to remain to be in touch with our clients.

So we have to be cautious but well this kind of general policy we are not completely followed and the price increases that we have seen, also rate increases that we have seen in Italy and hence we have lost some deposits in Italy. So it’s shown on page 49. And we in more than one year we have lost 2% of the deposits and mostly from individuals. The corporate deposits that are linked to especially to cash management are mostly key and as we are increasing our – as we are increasing our cash management business in Italy the deposits from corporates have gone up. As far as individuals I mean we have lost deposits a little bit like the whole of the banking system because of this competition from the state.

Anke Reingen – RBC

Thank you. Just one quick question as a follow-up, the 750 million in terms of timing when does it – is it drive that it was basically be fully be seen by 2013 and may be half of this next year or how should we look at that in terms of timing?

Unidentified Company Speaker

In terms of timing we I mean the – there is one element that totally unknown is the speed of the repricing but we - I think that it’s well I have to say that probably the root pricing aspect of it is going to take more time than the two of the aspects. And so we in Italy because the repricing is completely in the books only one old book has been rolled over and this means can typically take rather three years than one year. So, we – I think that probably the bulk of the revenue last year is totally flat. If you take 2013 so that full year following 2012 probably will have normally will have the whole of the loss of revenues and the whole of the expenses in the whole of the savings and expenses, but not yet the whole of the repricing. And so the – you have to take that into account. Now between about 2012 I think probably going to be kind of half of the year or something that has to be implemented progressively I can’t tell you exactly the speed, we’ll try to be as fast as possible.

Anke Reingen – RBC

Okay, great. Thank you.

Unidentified Company Speaker

You are welcome.

Operator

Thank you. Our next question now comes from Virginia Martin from Autonomous Research. Please go ahead.

Virginia Martin – Autonomous Research

Hi, good afternoon gentlemen. Just a few questions on your deleveraging projects again, in slide 27 when you talk about deleveraging you are giving 30 billion risk-weighted asset reduction in CIB, whereas in your presentations amongst I think this was BMO conference presentation, you talked of 50 billion reduction in CIB. Could you please detail what is behind this change, is it because of market risk-weighted assets, is it related to worse than expected basis of your impact, is it simply because you are under the level as in the financing sub-division, how much of this 30 billion reduction would be linked to financing and how much to markets? And also if because I think this I imagine this amount is expressed in terms of basis free risk-weighted assets. So, would it be difficult for you to give us the equivalent of margin basis to risk-weighted assets? And also regarding this reduction the 30 risk-weighted assets how much is the reduction that you can attain by replacing cash equity derivative?

Unidentified Company Speaker

Okay. Starting with your last question I mean the replacing of cash equity derivative is not changing the risk-weighted assets that much because its about markets and risk-weighted supplements will be the value at risk and the terms, but its rather a way to reduce the cash consumption, the dollar cash consumption, but it doesn’t change the risk-weighted assets, so its typically and it doesn’t change the ratio either, so its typically the aspects, there are several aspects to tell you the (imaging) plan, you have the risk-weighted assets aspect, the ratio aspects, and also the cash aspect and the balance sheet aspect is the other one. So we are – you have several aspects and certain measures are impacting certain columns and not others so it’s a bit complicated.

But for your other question its about well between markets and markets and financing clearly the bulk of the risk part, the – overall there is a majority of the financing businesses but in terms of timing it starts with markets because its the fastest spread. So the first quarter we’re going to – well if we progress in the first quarter are going to be driven by markets but next year is going to be driven by financing businesses. And your first question is well the 20 billion missing and we had said that we I mean the projects we are showing in detail on page 27 are representing only 80% of the announced plan, so yes there is a missing part that is representing around 20% of the total plan and that we are going to disclose later on.

Virginia Martin – Autonomous Research

In particular if I take into account that missing part that’s I think 7 billion more, so there would be a maximum 37 billion reduction in risk-weighted assets in CIB whereas you gave a target of 50 billion reduction risk-weighted assets in for CIB one or two months ago?

Unidentified Company Speaker

The 70 normally is - the 70 billion of risk-weighted assets will probably be a little bit we will execute more than that.

Virginia Martin – Autonomous Research

Okay.

Unidentified Company Speaker

Why, this is why. If the main column is the ratio one if you want the main target is to cut the – to help the ratio to increase the ratio by 100 basis points and this is the main target and the rest is the way towards to get it, to get there and we had said that it will be the equivalent of 70 billion of risk-weighted assets and at the end given the fact that for 80 basis points we have already identified 63 billion of risk-weighted assets probably at the end of the buildup of risk-weighted assets will be closer to 80 billion.

Virginia Martin – Autonomous Research

Okay, okay. Just a couple or more questions, going back to the (indiscernible) question macro-hedging he mentioned Italy but I was wondering because my understanding is that you macro-hedged your interest revenues in all your core businesses. So and you said that for you the worst, the worst outlook would be a lower rate environment for a long period of time. So I was wondering how is the – this longer lower for longer rates environment can affect your macro-hedging policies whether you would see some pressue on interest income going forward or not?

Unidentified Company Speaker

Well its due to the fact that the hedges has a maturity issuance so even if we are hedging with well several years or within remain typically for five well five years or it remain if the low rate environment remains in place for five, six, seven, eight years of course at the end progressively the hedge are maturing and yes but well historically that kind of cost situation is not surely existed very often.

Virginia Martin – Autonomous Research

So, just one final question in slide eight you are giving your severance exposures net of your I imagine net of your CDS protection, now there is some debate on whether the CDS’s are going to trigger or not so would it be possible for you to give the gross exposures?

Unidentified Company Speaker

We don’t have any and sorry but it’s the work net is only written as far as Greece is concerned and it’s the cost of provisions we have taken and as far as Spain, Ireland, Italy are concerned work net is not written at all and we have relatively said that we are not using CDS make sure to write protection not to buy protection.

Virginia Martin – Autonomous Research

Okay, okay, thank you very much. That’s all.

Unidentified Company Speaker

Thank you.

Operator

Thank you. Our next question now comes from Omar Fall from UBS. Please go ahead.

Omar Fall – UBS

Good afternoon, series of questions, please. Firstly what’s unclear to me is that your deleveraging plans are focused largely on reducing U.S. dollar dependent so as you refer from that did you saw thing the only issue with your balance sheet structure is reliant on short-term dollar funding and nothing else, why not take this opportunity to make sure that what happened to you this summer doesn’t happen again to any other part of your liability structure and reduce short-term funding requirements much more broadly I mean right now what you have announced is just the shade of the 5% of the notional funded balance sheet in terms of deleveraging.

And secondly there was a big jump in the ECB borrowing by French banks in the last month in the (LCR) did you participate in that and can you give us your current amount of ECB borrowing please as a number net of deposits could be even better I know you’ve given us the deposits the 42 billion that just the borrowing net of that would be great.

Thirdly, can you touch on the drivers of the very large outflows in asset management please I think it was 15 billion in the quarter. And then lastly I’ve seen your slide this morning in the press conference that you think ROEs should be about 10 % to 11% in the coming years, barring unforeseen events. And I think that was miss you (Paul) please could you elaborate on the assumptions you make within this, I mean if I strip–out exceptionals including Fortis right backs I get to more like 10% and all those CIB were cyclically weak this is all before the deleveraging and the slowdown in GDP that was seen in Europe. Thank you very?

Unidentified Company Speaker

As that with your last question the well the current label especially issue has mean clearly true. I think we are still relatively in the lot of uncertainty before really setting a precise target in terms of return of equity given all ways its happening and all the very shorter of career than the uncertain regulation on that. So, I think probably are difficult to give a precise answer from it.

To your question what we just say that currently we are in yes in the region of 10 last year we were at 12% as we go and sort of nine months we are at 10, I mean so we can hope that one seems have stabilized and in a normalized environment of course not in the mid of the double digits or in an normalized environment and with the stabilized regulation with you we then have some hopes to further inquire to improve that current levels is that we seem we can say.

So that’s the outflows and from asset management yes we had while we’re took a significant outflows it’s the addition of several things. The main thing is that on the from the money market front clients the use is very good anymore now interest rates are very low, the money markets funds regulation prevent them from they need transformation. So they are yielding very very low returns and at the same time we try and attract our clients directly on deposits because we are whole old banks and especially whole banks are try and increasing their liquidity in order to comply with the new regulation.

So in that context of cost, clients are leaving money market fronts and especially in individual clients and so we’re I’m closed but also corresponding top the significant increase you are seeing on the site deposits and also and tax book and further way was the way or that kind of the term deposit.

And the second well – the beyond those money market spend, deposits, money markets in reduction so we have seen outflows also on the equity front, you know due to the very big crisis in the equity markets and clients are sort of very desperate. And has to know for four years and of we know that performance of the equity markets. And also we have seen outflows in the Bond Fund and because all of those scenarios is about some right loans and also the widening of the spreads that creating a low and that’s very good performance in the Bond Fund.

So the outflows were little bit across the Board and I think its, its relative common in the industry. And now about you are in PCB funding as a kind of well you are referring to the sharp increase from CBA reports from French Bank and indeed there has been significant increase but its related according to what was the problem disclosure by the its made in CBA its related to the MRO and when which report find.

As far as we’re concerned as the general rule we don’t use this facility at all. So it’s very simple to answer to your question, and that it now.

Omar Fall – UBS

And there was the question on the broader balance sheet, the fact that you are so focused on reducing your spend?

Unidentified Company Speaker

Yes, yes we’re focusing on the shutdowns has been because again I would like when we hedge by gradual to compare the slide 30 and the slide on the 20 and the two slides referring to the cash balance sheet. And here we’re showing the situation at the end of September for the dollar and as I said that the funding need of customer activity only slightly above that the stable funding clients deposit plus mid-term and long term funding.

But just you know imagine what it was at the end of June because you have to decrease of those assets you see that at the end of June the gap was much bigger and clearly in dollar we have the – the kind of specific situation that was that in the cost of our trading assets where finance with short term resources, our stable medium and long term funding and client deposits where covering more than current customer loans.

But not covering to trading assets as well. And hence to a certain extent given the fact that those short term spending in (indiscernible) appeared to be a kind of unstable all of a sudden, and also having in mind the liquidity ratio of UA, we I mean we have to change that. So we well as we cannot increase the client deposit dramatically in dollar and we’re not a dollar based bank.

We currently where was the order around meaning reducing the asset so the movement we’re doing in dollar was no based on it, and the situation in the first place that was kind of a not completely funding part of the trading assets with short term funding.

So we were assuming that it was possible to reduce those trading assets very fast in case of the short term funding is coming down fast as well and its precisely what happened right away. And so but this is – in this its completely limited to the dollar because if you look at the total balance sheet on slide 13, you see that we’re covering more than the trading assets and the customer want probably in the of the after all focused on

Omar Fall – UBS

How much of the 539 of client deposits are corporates actually.

Unidentified Company Speaker

I don’t have the figure precisely in mind sorry this just relations we can tell you we find and tell you.

Omar Fall – UBS

Sure so I guess my question is so broadly for you this just the dollar funding issues you are comfortable with your short term funding strategy of x–dollars?

Unidentified Company Speaker

Yes as you, you can see on page 13 the short term spending is just financing very short term assets or liquid assets, eligible assets and hence yes.

Omar Fall – UBS

Okay. And last follow-up on their you obviously can’t see the numbers give the volume growth remains very strong but domestically in France there’s both anecdotal evidence and also if you look at credit conditions are ways run by several quarter use that show that credit conditions all tightening quite strongly post the summer. Is that something that you’re seeing as well? Have you changed some of your lending standards that’s mean the volatile?

Unidentified Company Speaker

No…

Omar Fall – UBS

(indiscernible)

Unidentified Company Speaker

I think the lending standards are not changing and we always do very straight in terms of risk and if I wouldn’t say the reason standing in the lending standards. I will just say that what’s happening is that the cost – the higher cost of liquidity is patent to decline. So, it’s a smaller question of costs and then a question of quantity. But that effectively normal.

Omar Fall – UBS

Okay, thank you very much.

Unidentified Company Speaker

You’re welcome.

Operator

Thank you. Our next question now comes from Alex Koagne from Natixis. Please go ahead.

Alex Koagne – Natixis

Yes, hello this is Alex from Natixis. Hi, Philippe…

Philippe Bordenave

Hi.

Alex Koagne – Natixis

Some follow-up question. First one, how that the leveraging will affect the impact of weather 2.5 and weather 3 in term of (indiscernible) asset. As of today do you have any calculation of your projected NSFR as per your derail engine plan? But when it’s come to short–term funding on your balance – I mean on your presentation affected your represents 23% of your cash balance sheet. Where do you think you will be by the end of your leveraging plan? When it comes to the leverage ratio do you have any target I think that you have 22.3 time do you have any specific target out there? And lastly on Italy I think that you are still decrease your cost income ratio do you have more room to decreases going forward. I mean do you think that you can adjust your cost over there. Thank you.

Unidentified Company Speaker

Yes, in Italy yes we think we can continue and we – yes I’m sure yes we’ll do that progressively as we always do in our retail, but we think we can.

Alex Koagne – Natixis

Sorry, but then do you have any target in term of cost income in Italy?

Unidentified Company Speaker

We, as far as Italy is concerned to little bit to same Italy and France and Belgium retail Belgium is a limited fund because the starting point is relatively high, but at Italy as already improved a lot, so starting from a very competitive letter now in the system now we have longer best one in Italy now. And you just to have a positive (indiscernible) so we improved by a few (indiscernible). In terms of our leverage we want to go below 20 and we should go as we expect kind of around 10% deleveraging due to the plan while we expect to be a below 20 by the end of 2012 in terms of leverage.

And then your first question about the NSFR again I will make the same answer as about the LCR. I think those ratios are even more than NSFR not yet clear if you all because they are – everybody has knowledge now that they have to be read, because clearly they are not based on be neutralities to loss expense and even the balance continue that, you should, knowledge in that has to be fine tune or refined or whatever working through. So, it’s too difficult today to know what’s going to be the (indiscernible) ratio. So, we are not dealing with this at the moment and (indiscernible) exercise puts to be 2018 or ‘17. I think it’s much too early to speak about them. And your second question, could you repeat your second question?

Alex Koagne – Natixis

Yes, I still have two questions remaining. The first one was on your short–term spending it’s represent 23% of your cash balance sheet and I was just wondering where this ratio is stand by the end of your leveraging plan in 2012?

Unidentified Company Speaker

We are not looking at that, that way, but probably I think the 230 probably are going to end up below 200 and so the proportion of the total cash balance sheet will probably go in the region of 20% something like that. I think well you know it’s actually in bottom, because it depends on how much you have of short-term assets if you want.

Unidentified Analyst

Sure.

Unidentified Company Speaker

As long as the short-term funding is purely fundings or short-term assets, you can have more or less without any – without having the whole balance of your balance sheet.

Unidentified Analyst

And I was just wondering whether that deleveraging will have an impact on, I mean, would have an impact on your projection in term of Basel 2.5 and Basel 3 when it come to risk rate assets?

Unidentified Company Speaker

No, no. No, we keep while currently we keep our estimates, so 200 basis points and the 40 basis points for up to 2.5, we keep these estimates.

Unidentified Analyst

Thank you.

Unidentified Company Speaker

60, and then 140, total of 200.

Unidentified Analyst

Yes, thank you very much.

Operator

Thank you. We will now take our next question from Jean-Pierre Lambert from KBW. Please go ahead.

Jean-Pierre Lambert – KBW

Hello, good afternoon. I have a question on the deposit base, if you look at the total deposits excluding repo, around 50% are coming from retail networks and the rest is coming from other sources. Can you give a breakdown of those sources? Is it financial institutions, I mean, no financial institutions as I said, but financials, is it corporate, is it hedge funds, because you have a large proportion of your client deposits or customer deposits which are short-term of sites. And so when you speak about matching the customer assets with deposits, I mean, I am sure you take into the mix and the stability of it? So, that’s the first question. Then I have a more detailed question so which should be easy, the restructuring charges for Belgium, do we need to assume there will be another 200 million in 2012 as per previous guidance or everything is complete at the end of 2011?

Another question is what is the amount of risk weighted assets in the corporate center which correspond to the other activities? And what is the current interbank lending intragroup to B&L, because you of course source your funding in cheaper location? And finally the 500 million impact on CIB in terms of GOI, what’s the allocation between financing in capital markets? Thank you very much.

Unidentified Company Speaker

Lot of questions. Let’s start with the deposit base and you say that’s half our deposit base is coming from the retail networks but you take only the three domestic retail networks into account now. And I think that…

Jean-Pierre Lambert – KBW

Well, I take bank quest, I mean, B&L, Belgium, France and so that gives the amount, yes?

Unidentified Company Speaker

Yeah, the rest, well the rest…

Jean-Pierre Lambert – KBW

And equipment sorry.

Unidentified Company Speaker

You mean?

Jean-Pierre Lambert – KBW

(indiscernible).

Unidentified Company Speaker

Okay. Yes, the rest is coming you have the private banking deposits first that are also well taken into account in the deposit base. And then you have – yet you have corporate deposits that are coming directly in CID even outside. And also you have also the cash balance sheet of the security services, the custody and the cash balance sheet coming from the custody business. And I think that’s it.

And the main sources are private banking outside the normal retail network business, if you know that main sources are private banking. Corporate deposits as you know is a term deposit or deposits trapped in the cash management balance sheet that is more stable. And the custody, the deposit as you said with custody.

Then yes of course well starters of deposits are short-term, of course, like lot of, well and essentially all the side deposits are one day good, well, both in the reality and in the regulation, they are speaking as you sit is of course recognized and factored in. And on the other side, the customer alone also some of them are very short-term. And also both in the part regulation even more in an excessive way, but in our own asset liability management models we are also factoring in the fact that top of them are going to be necessarily renewed.

And then the restructuring charge next year for the Fortis integration you will have a kind of tail. You will have tail coming partly from Turkey because you know Turkey started a little bit later and the integration of Turkey is going to grow beyond the end of the year and also a few projects that are going to last also of the next year, start of next year, but it should be very small.

And then the intergroup lending to B&L we have in the region of 30 billion I think, but this is some part. B&L is completely integrated in the banks treasury management. And you should have in mind that, for example, the B&L network is selling BNP Paribas the bonds for example and still contributing to the group, that’s where why in the past they used to sell their own B&L bonds and so they had less funding needs. So, again B&L is completely integrated into the groups, Eurzone liquidity management in a complete integrated way. This I mean should we well up to now we still hope that this very big, I would say, is very big success upon the European integration. It’s not going to be put at risk and the trend of reinventing the liquidity county or is going to while not to taint, the Eurozone and that at least as far as Eurozone is concerned it’s going to be managed at the currency level and not at the country level and we have good hopes in this respect. It’s only because with the EBA we have also now one banking authority and also the European commission is making sure that within the Europe the movement of capital at least in the Eurozone are free.

And then about the corporate center what’s your question with the corporate center?

Jean-Pierre Lambert – KBW

Yes, I was wondering what is the amount of risk weighted assets in the corporate center?

Unidentified Company Speaker

It’s – the amount of risk weighted assets at corporate center is close to 50 billion in fact, 45 billion to 50 billion. And this well when we are saying that we are going to cut 28 billion to that, you have to bear in mind that it’s again as I said it’s not only risk weighted assets, but it’s also the equivalent of risk weighted assets coming less deduction from the numerator of the ratio. So, if we are going to give any example, but you can imagine that by selling certain participations we have some deduction from the capital that could be reduced and this is an equivalent of risk weighted assets.

And then your last question was about?

Jean-Pierre Lambert – KBW

The breakup of the 500 million gross operating income impact for CIB between financing and the capital markets?

Unidentified Company Speaker

It’s – I think it’s roughly two-third financing and one-third capital markets.

Jean-Pierre Lambert – KBW

Great. Thank you very much.

Unidentified Company Speaker

Welcome.

Operator

Thank you. We now move to our next question from (indiscernible) from Credit Suisse. Please go ahead.

Unidentified Analyst

Yeah, good afternoon everyone. Philippe, a quick question on coming back to the question on the deposit base, if we look at the (indiscernible), your deposit for that whole group has been decreasing by 15 billion and when we look to the retail activities with the exception of Italy, it’s more rising, can you give us a little bit of filling where the decrease is coming from. That was my first question.

The second one is I believe you missed the question of Omar regarding the guidance on the return on equity between 10 to 11 that has been commented at the time of the press conference this morning? And the last one just to add on the request of Guillaume, can you give it back the breakdown of the loan in the emerging countries, you used to do it last year and you stopped in Q1? Thanks.

Unidentified Company Speaker

Well, on the deposit, I mean, you have to be careful. What we have shown on page 30 is a cash balance sheet that is restated from the balance sheet itself and especially as I said earlier, but today I was not precise enough, we have kept only the retail and corporate deposit in the so-called client deposit. While if you compare with the such as accounts, I mean, the financial statements, what they client deposits or in the accounts is all kind of deposits from all kind of clients including institutions. Deposits from an insurance company or deposits from pension funds, for example, also say that, they are in client deposits for the proposal of the accounts, but here in the cash balance sheet, they have been reclassified in short-term funding.

Because here we wanted to be aligned with the regulation that is making a big difference between retail and corporates that are supposed to be loyal more or less, retail more and corporates less, but still kind of loyalty and while the institutions are supposed to be completely volatile and to disappear in case of stress.

So, short-term funding is you know, so from the – if you compare the client deposits we are showing on page 13, the cash balance and the client deposits has shown in the accounts, it’s reclassified. First we have withdrawn the institutional deposits from this figure and we have added back the medium and long-term funding that is sold to our clients in the networks as we have said and we have given the figure 49 billion. So, this is why if you compare those figures with the accounts, it’s a little difficult, but it’s not all the same classification, because here it’s a classification more oriented towards liquidity management and ratio management, liquidity ratio management. And in the accounts it’s oriented by the lecture of the instruments. So, if it’s a bond it’s in medium and long-term funding for the accounts and if it’s deposits, it’s inclined deposits, even if the bond is sold to one of your clients and even if the deposit is coming from even if it’s deposit from the medium market fund, for example. While there are deposits from medium market funds in the cash balance sheet are reclassified in the short-term funding. So you can’t compare those figures directly like that.

Unidentified Analyst

Okay. So if we compare the figures on the same basis, so at the group level, you were at 554 billion at the end of June, where are you today or if we do it on the other way around on the cash basis you are at 539 end of September what…

Unidentified Company Speaker

The answer on the cash basis, the answer is that we are stable. We were at 539 as well at the end of June.

Unidentified Analyst

Okay, thanks. After that…

Unidentified Company Speaker

Yes, the guidance on the return on equity we have well because I still have answer to another (indiscernible) answer that I couldn’t answer, I think that’s really – I think that you cannot guidance of that precise guidance without a minimum stability in the marketplace and clearly we are not present situation today. So, we are not giving any precise figure. We are just saying that the figure of 15% that has always been kind of intimate target across the cycle and is remained something that we are on par that is very challenging, but we don’t think that is completely out of reach. Again, once all the trouble time has elapsed and once again we are seeing that starting from around 10%, we can have somehow to increase that over time once market has stabilized and once the repricing has been completely achieved throughout the book.

Unidentified Analyst

Okay. Last question, do you have any kind of exposure regarding MF Global?

Unidentified Company Speaker

Negligible.

Unidentified Analyst

Negligible, okay. Thank you.

Operator

Thank you. We now move to our final question for the day which comes from (indiscernible) from Barclays Capital. Please go ahead.

Unidentified Analyst

Yes, good afternoon. I will be very quick. I wonder if you could just give us the average maturity of the sovereign bonds you have been selling and how that compares to the average maturity of the bonds that you are holding on to, on the sovereign bonds place?

Unidentified Company Speaker

No, I am not going to answer for that question, sorry.

Unidentified Analyst

Okay.

Operator

Thank you. That will conclude today’s question-and-answer session. I would now like to turn the call back over to Mr. Philippe Bordenave for any additional or closing remarks. Thank you.

Philippe Bordenave – Senior Executive, Vice President, Head – Group Finance and Development

I think the call lasted it’s too long so we stop here. Thank you to all and well see you soon.

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