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Executives

Lars Machenil - Chief Financial Officer

Analysts

Delphine Lee - JP Morgan Chase & Co, Research Division

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

Jon Peace - Nomura Securities Co. Ltd., Research Division

Kinner Lakhani - Citigroup Inc, Research Division

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

Benoit Petrarque - Kepler Capital Markets, Research Division

Andrew Lim - Espirito Santo Investment Bank, Research Division

Virginia Martin Heriz - Evolution Securities Limited, Research Division

Jean-Pierre Lambert - Keefe, Bruyette, & Woods, Inc., Research Division

Sebastien Lemaire - Societe Generale Cross Asset Research

Anke Reingen - RBC Capital Markets, LLC, Research Division

Thibault Nardin - Morgan Stanley, Research Division

Pascal Decque - CA Cheuvreux, Research Division

Jeremy Sigee - Barclays Capital, Research Division

Alex Koagne - Natixis S.A., Research Division

BNP Paribas SA (OTCQX:BNPQY) Q1 2012 Earnings Call May 4, 2012 8:00 AM ET

Operator

Ladies and gentlemen, good afternoon, and welcome to the presentation of BNP Paribas First Quarter 2012 Results. For your information, this conference is being recorded. Supporting slides are available on BNP Paribas Investor Relation website, www.invest.bnpparibas.com. [Operator Instructions] I would like now to hand the call over to Lars Machenil, Chief Financial Officer. Sir, please go ahead.

Lars Machenil

Thank you, operator. Good afternoon, ladies and gentlemen, and welcome to our first quarter results presentation. For those of you that I have not yet had the pleasure of meeting, I'm the new CFO of BNP Paribas, having taking over from Philippe Bordenave at the beginning of March. Philippe, as you all know, has become the CEO of the group, and I would like to publicly thank him for all the knowledge he has passed on to me and for his unending support. Nevertheless, there might still be some items on which I will have to look up the figures, but I hope you bear with me.

Now let's move to the results. And as has become customary, I do not intend to comment each and single slide in the presentation, but I would like to make a few introductory remarks on the key features of our quarterly results and then hand it over to your questions.

So if I take a bird's eye view to the first quarter of the year, which has seen a good rebound in many areas compared to the lows of the second part of 2011, but overall, we had not really come back yet to the levels of early 2011. In particular though, in our domestic markets, we have observed the dynamic commercial activity, which has led to growing volumes, both in terms of loans and in terms of deposits.

If I look at capital markets, we saw good resilience, with revenues climbing back almost to the level of the first quarter 2011. Then our strict risk management approach meant that we managed to keep cost of risk at a low level of 55 basis points compared to customer loans. As you know, we report them. This was essentially in line with the quarterly average of 2011, of course, if we exclude Greece.

In the first quarter, as you noticed, we booked a significant deal in our deleveraging plan, namely the sale of 28.7% of Klépierre, which has -- which was finalized in preparation for the switch to Basel III, which will no longer account for the minority interest in the computation of the solvency ratios. But I remind you that gross capital gain generated amounted to EUR 1.8 billion. But I said, with no tangible benefit under Basel 2.5, but with a true benefit only under Basel III.

So if we exclude from the quarterly results some significant or exceptional impacts, of which the 2 most relevant ones are Klépierre that I just said, and the other one being the own debt revaluation which impacted the accounts for -- around EUR 840 million. So if we correct for those and some others, you can find them back in the slides, we arrive at a net income. So earnings of around EUR 2 billion for the quarter.

And on that object of the own debt revaluation, which impacted negatively, of course, I wish to remind you that at BNP Paribas, we calculate this on market replacement value. And so this impact basically reflects the improvement in the market conditions at which BNP funds itself.

So if I now take you through a couple of slides, and particularly if I can ask you to cast your eyes on Slide 4 where you basically see the key elements, you see that by the end of March, we have completed 80% of our adaptation plan. I remind you the adaptation plan has an objective to improve with 100 basis points the core Tier 1 ratio. So we've done 80%. And of course, this has ramifications on Basel 2.5 as well, and we have a handsome 10.4% core Tier 1 ratio.

Also, our U.S. dollar plan to deleverage for $65 billion has been achieved when we include the sale of RBLs, or the reserved-based lending to use on activities. So I would say we are quite well on track for those.

Before switching into the evolution of the businesses, allow me to give you a quick update on the solvency, the liquidity and other elements around it. So if I can ask you to flip or slide, depending on the device you are, to Slide 7. And on Slide 7, we look at the solvency or the adaptation plan as it impacts the solvency. And as I just said, we have achieved 80% of the overall plan, where under other activities, you find back the sale basically of Klépierre. In Retail, you find the progress with respect to Leasing and Personal Finance. You know these are the elements for which there are also adaptation plans being rolled out.

And then in CIB, we have the reserved-based lending deal that we talked about in the U.S. that we have sold to Wells Fargo. And in addition to that, of course, we have further reduced the risk-weighted assets by EUR 6 billion in the quarter. And of course, all these elements had some impact on the P&L. So there's -- we will see that as EUR 84 million in terms of adaptation costs. So the costs are impacted in this quarter by EUR 84 million due to all these adaptation plans, and of which roughly 2/3 are at CIB.

And then there is also EUR 74 million impact related to the sale of EUR 2 billion worth of assets. So that is part of the EUR 6 billion that I talked about. There is EUR 2 billion that came from sales, and we had a little discount, and so led to a loss, one-off loss of EUR 74 million.

So that is the status of the overall implementation plan -- adaptation plan. So if I can ask you to now cast your eyes on the next slide, which is 8, which is still on the solvency, I wanted to give you a quick update on the sovereign exposure. As you know, the sovereign exposure, in particular, is impacted under Basel III as its sensitivity involves to the changes in the capital ratios, as it will no longer be filtered out as it is today.

And what you see is that we basically have reduced it. We stand -- at the end of April, we stand at an exposure of EUR 66 billion. You can see that we -- well, in the appendix, you will see that we have basically reduced it in most countries. And also, with respect to Greece and the PSI, we have tendered our Greek government bonds in line with the exposure. And you will see in the details that our exposure to Greece has reduced to around EUR 200 million. So we consider this chapter closed.

Lastly, and this is just for your information, we have also introduced the reporting of the sovereigns in what is called group share view, which is basically representing the economic risk of the exposure of the shareholders. And as you know, we have minority shareholders. If we do as what we do with the P&L, we reflect the minority shareholders out of that. You will see that basically, our exposure at end of April stands at EUR 58 billion, of which EUR 42 billion is in the eurozone. But you can find all the details of it line by line in the appendix.

Then on the Slide 9, the balance sheet. So the balance sheet, you see the evolution of the cash balance sheet. I know that you know the concept of how it works. We basically net our balance sheet and then we basically represent the real elements which need funding.

I would like to make a little remark. You will see that under the title, it used to say excluding Klépierre and Insurance, and it now says banking prudential scope. This is just a small change into the reporting, but we basically ensured that the cash balance sheet is fully in line with the banking prudential scope. And so this will make it easier going forward to link the cash balance sheet to the balance sheet because they are now entirely in the same banking prudential scope. So meaning without Insurance and also without Klépierre, and we'll restate it end of December for Klépierre being in the -- reflecting it the way it is today, no longer consolidated.

So if we look at this, what do we see? We see that the surplus between the client deposits, so you wish, and the client loans has increased to EUR 51 billion, up from EUR 31 billion last time. And so what basically do we see? Well, you see the increase in the deposit at the central banks. This is a bit continuing on what I said earlier. We reduced the sovereign, and we, of course, increased it at the deposits at the central banks, which is more advantageous under Basel III.

On the other hand, you see the fixed income securities that increased. And this might be a little bit peculiar, because I just told you that the sovereigns have reduced. But you should remember that in that caption, Fixed Income securities, we also do not for the repos. And so basically, the reduction of the sovereign is offset by the fact that we have less repos. So we basically reduced that amount. We netted for a lower amount as we have less repos. Why is this? This is because there is this increase in the short-term funding from the LTRO, the second one, and also some return from money market funds. So we basically had less recourse to the repos in the Ireland [ph] business. And that is how it is reflected in here.

Moreover, you see that the trading assets with clients have reduced, which is what we wanted to do, as well as the customer loans. If I switch to the other side of the balance sheet, you see that the MLT funding evolved in line with the natural runoff and that the client deposits are slightly up. And finally, the equity is just reflecting the earnings and the EFS reevaluation.

And as I just -- just a little remark if we would do this in U.S. dollars, the surplus reached USD $38 billion, in line with the achieving of the deleveraging in dollar.

So that is basically it. If I sum it up on the liquidity on -- which is on Slide 29, you see that we have further increased our liquidity buffers in the first quarter. And so our liquid assets reserve immediately available now stands at EUR 201 billion, up from EUR 160 billion at the year end. And so it basically almost covers our short-term wholesale funding. And you will also observe the EUR 78 billion deposits that we have with the central banks, out of which $41 billion with the Fed.

And so a quick update also on our MLT funding program where by mid-April, we basically have funded 3/4 of our EUR 20-billion program for the whole of 2012. And you can see that this has an average maturity of around 6 years and average price related to mid-swap of 111 basis points.

So lastly, with respect to that, there is a cost of risk. If you turn to Slide 11, you will see that what I mentioned at the beginning, we were successful in keeping the cost of risk at the low level, essentially stable compared to the previous quarter and to the quarterly average of 2011. Basically, the result of continued low levels at CIB in the French and the Belgian Retail Banking. And you observe that in Italy, showed a moderate increase related to the adverse economic environment. And you also see that in Europe-Mediterranean, the cost of risk remains somewhat high, and particularly due to the situation in Ukraine. And BancWest and Personal Finance both showed an improvement.

So if I can just ask you on Page 30 to wrap up this first part, which basically sums it up. So it says that all the activities of the first quarter lead us to a Basel 2.5 common equity Tier 1 ratio, which increased by 80 basis points, reaching in the first quarter 10.4%. And so basically, benefiting from both capital strengthening and risk-weighted asset reduction.

If I simplify the evolution and I say that Klépierre has a limited -- exposure of Klépierre has a limited impact, then I would synthesize the evolution as follows, saying -- that state the EUR 2 billion of profit that I mentioned as being correctors for Klépierre, which I take out, and the reevaluation of own debt, which doesn't play. Then you basically see that 25 basis points of the improvement is coming out of this EUR 2 billion profit. I take into account the 25% payout assumption, and then there's 50 basis points roughly, which is coming from the RWA reduction. And this RWA deduction is mainly driven by the adaptation plan, but also the low level of market risk.

And in a nutshell, if you would from the Basel 2.5 reduct the EBA buffer, which stands at 40 basis points, and you know that by June, whatever the number is, has to be above 9%, today, it stands for BNP Paribas at 10%. So that gives us confidence sailing into the second quarter.

And just to sum it up. In Slide 31, we remind you of the elements bridging to Basel III. Giving -- well, we'd say the uncertainties around CRD IV, although one might hope that the Ministers of Finance made progress yesterday and that things might crystallize, but as long as it hasn't done, we stick to our interpretation of CRD IV, which you know is based on the so-called Danish proposal, and you basically see the roll forward and you see -- although there are uncertainties. But if mathematically all these elements would play out as we have drafted for you, you see the amount of organic profit generation that we need in order to reach the 9%. But we remain around the 9% given the uncertainties about many elements in there.

So that is a bit, if I will put it, the view of the corporate side of BNP Paribas. If I now spend a couple of words on the business side of BNP Paribas in the first quarter, and I will do this starting at Slide 15, where I start with the Retail Banking or more specifically, I'll start with domestic markets. And as a reminder, this segment basically consist of 3 key markets, which is France, Italy, Belgium. But it also contains Luxembourg retail and some specialized activities, which are personal investors, Arval and leasing.

And as you can see on Slide 15, business activity remains sustained. Deposits grew at an average 3.6%, with an improvement basically in all businesses. We continued to develop our Cash Management businesses where we are the leader in Europe and the eurozone. And at the same time, we continue to assure financing to our clients, with loans increasing by nearly 3% towards trend points to a slowing demand, of course, in the recent months. But that is where we stand.

And this lift in volumes contributed to achieve a positive result in terms of revenues, which progress to close -- close to 1% despite lower financial fees due to the market situation. And also, the decline in Arval's used vehicle prices. You know that the vehicle price is basically re-evalued to its part of vehicles, and given the lowering of these prices, that has an effect on the P&L.

Costs remain closely under control, decreasing by 0.7% if I look at constant scope. Hence, the gross operating income showed a 3% increase where the GOI effects stood at 1.5, which we always find pleasing. So that is the result as they stand.

And despite an increase in the cost of risk, which in any case compared to a lowest base in Q1 2011, pretax income held up well and showed a small plus sign year-on-year. If I look in particularly to the 3 main countries, in France, deposits were up 3.5%, helped by a strong performance in the savings accounts. Loan growth was even a little bit higher at 5%, particularly driven by corporate activities. And revenues were driven by the net interest income. Our fees, as I mentioned above were affected by the lower financial markets, as well as some regulatory impact.

And then effective cost control led to an improvement in operating efficiency; and cost/income ratio, improving as you can see; and the pretax income, topping EUR 600 million as the cost of risk is still low.

In Italy, BNL, Banca Commerciale, saw a 1.6% growth in deposit, driven in particular by corporate and local authorities. Whilst if you look at the figures, the individual current accounts, we actually gained a little bit of market share as we managed to contain -- to decrease better than the system. But there is the overall decrease.

Evolution in lending activity was flat as for the whole market, with an accelerating demand especially in terms of mortgages. And in this context, revenues proved resilient, as especially the corporate segment performed well. Operating efficiency was further improved due to good cost control, and pretax income was somewhat penalized by the moderate increase in the cost of risk, which is essentially resulting from an increase in the SME segment and also a seasonal increase in past due, often seen in the first part of the year. But it is, in any case, reflecting an evolution that we observed in the economy.

And then last but not least, we go back up north and we go to the Belgian Retail Banking which showed good volume growth. Deposits increasing by 3.3% and loan by 6.7%, though loan growth was further enhanced by the acquisition of the Factoring business. So it's a little bit flattered by this acquisition. And if we would look through that, the growth rate would be around 5%.

Revenues held up well, while operating -- I know I sound like a broken record, but the operating expenses, they held up well as well from the actions being implemented to improve the operational efficiency. And the pretax income due to all this was up 9% as cost of risk remained at low levels.

So this is basically the key elements of domestic markets. Then in that same constellation of the Retail Bank, we still -- I still want to draw your attention to 2 more.

First of all, to -- on Slide 21, Personal Finance, which continued to implement its adaptation plan on the mortgage funds where basically growth in outstandings stopped. So you know that basically we have consumer finance, we have also mortgage in there. That basically -- that part, mortgages, we basically stopped growing. You can see that in the exposures. But in terms of the core business of consumer loans, outstandings showed a moderate growth of 1.3%, basically on the back of the successful partnership that we have in Germany with Commerzbank, in Russia as well and in Belgium. In Belgium with BNP Paribas Fortis, of course.

And then what happened is that the effect of new regulations in France penalized revenue growth while cost, on the other hand, were impacted by an additional one-off adaptation cost and continued business development. So we are having 2 streams in this Personal Finance. We have on one hand a -- or 3 actually. There is a part in France which is impacted, and particularly by the regulation. There is a part in the access of countries that I mentioned, which have growth in consumer finance. And then, of course, we have the reduction, but that will take time, of the adaptation plan on the mortgage fund.

And last one in this Retail part, I would like to draw your attention to Slide 20. And I apologize that I hip-hopped a bit around, but it's probably the best way to give you a flavor is BancWest, which show quite a healthy rate of deposit gathering, which increased at a rate of 12%. Loans were up 1.9%. Particularly, also here, corporate loans. Revenues were just positive. Also, I need to -- well, the revenues, facially, are a little bit flattered due to the evolution of the dollar between the first trimester, so we should look at what we call constant scope. You will see that it is actually rather flattish. And so how do you bridge growing volumes with relatively flattish revenues has also here to do with the impact of the regulatory changes on, amongst others, fees, which basically impact that.

And the expenses, they rise a little bit because we are in the process of investing here also in various aspects of the business to leverage the knowledge that we have. And I could highlight the Private Banking as one, but there are also some others at which we invest.

And so finally, the improving economic environment in the U.S. had positive repercussions on the cost of rich -- risk, sorry, which continued to decrease and leading to a double-digit growth in pretax income this quarter.

And then maybe to end up because otherwise, it would seem as if I don't want to talk about it. Europe-Med also showed dynamic activity in terms of volumes, where deposit is up with 12.8% and loan 7.5%. However, here also, contrasting elements. You have Turkey, which enjoyed particularly strong growth on lending and deposit side. And on the other hand, Ukraine continued to decrease. You know that we have created [ph] banks, so elements are decreasing. And so the profits, of course, are reduced. And this is basically what you see in the pretax income of Europe-Mediterranean.

So this for the Retail part. If I then switch to the remaining half of the bank and start with Investment Solutions, which are on Slide 22 and 23, but I'll synthesize it on Slide 22 to avoid you flipping too much around. And in this first quarter, actually, Investment Solutions realized a net intake of EUR 12.6 billion. Basically, all business units contributed positively.

This brought total assets under management to EUR 881 billion, which is up 4.6% since year end, but is still below 2.5%, below the first quarter of 2011. As you know, we're French, we always compare basically to the first quarter of 2011. It basically means that the revenues were flat, basically as the reduced contribution from Asset Management, which was most impacted by these evolutions, was compensated by the Insurance and the Securities Services activities.

Operating cost for Investment Solutions were all pretty much unchanged and as we reap benefits or some of the first benefits from the adaptation plan in Asset Management. But at the same time, as I said, we also keep investing. We don't go stop and go. We continue to invest especially in Asia.

Then if I turn to CIB, which is on Slide 24, as you can see from the graph on the top right-hand corner of this Slide 24, revenues bounced back after a lower second half of 2011. However, as I said, without reaching the highs of the first quarter 2011, as the impact of the delevering actions weighted on the results. We have to be adamant about this.

However, as I said at the beginning, advisory and capital markets show good results, while the corporate bank and particularly had showed a decrease, which is in line with the adaptation plan. You might also have noticed that we have changed the name of our financing businesses to corporate banking, and this is to reflect the fact that the emphasis has pretty much shifted away from lending towards deposit gathering in this kind of line of business. And I will go into a bit more detail on this in a second.

But allow me to first finalize the CIB as a whole by reflecting on the costs, which were actually marginally higher if we look in terms of constant scope and exchange rate instead of, facially, the amount that you see. So if we exclude the EUR 54 million resulting from the adaptation cost, the one -- that's the 2/3 of the total that I mentioned earlier. And we correct for the dollar which basically appreciated over the periods, the adaptation cost and the dollars, though. The delta is actually negative at 1.7%. So the cost in that scope reduced by 1.7%.

In any case, BNP Paribas could fund one of the best cost/income ratios in the business. I mean, even without correcting for the elements, we stand at 60.6%. So 6-0.6%, which further improves to 57.5% if we exclude the impact of the adaptation plan. So all things considered, CIB delivered a good performance despite the impact of the deleveraging, which is underway.

If I can ask you now to go to Page 27 as I would like to spend a couple of minutes on this corporate banking. Here -- so as I said, we changed the name. We re-stressed the refocused approach to the business. And let me remind you this business, which is a business comprising some 11,000 corporate and institutional clients with a global reach and a commercial set up, which, of course, is articulated with what we have in domestic markets.

In terms of financing activities, we have been placing the emphasis on advisory and structuring services. As is the case -- for example, they are -- in the [indiscernible] is the case for EUR 170 million term loan deal for Telenet in Belgium or Invepar mandate in Brazil, which was basically a pure advisory aspect on -- for example, on the last one, on the first Brazilian airport privatization where Invepar was basically granted a 20-year concession for Sao Paulo Airport for an overall value of EUR 9.4 billion.

So that is basically an illustration of -- that we stress the advisory and structuring. We also, of course, stressed distribution, which has been integrated further with fixed income. As also in the case that we mentioned, the 9-year $1.3 billion project bond for Dolphin Energy or a deal in Germany which basically form a good combination example of how financing -- so the corporate banking and fixed income can successfully work together.

But nevertheless, you might say these are things that you have heard before. So the real novelty, so to speak, is in the increased development of the deposit base, thanks to a proactive and targeted client approach, coupled with a development of the global cash management platform, where we start already from, I believe, a handsome positioning as we are ranked fifth on a worldwide basis.

So the way forward here is for client loans to decrease further while we grow the deposit base. So that is basically what in a synthesis I wanted to talk about on the corporate bank. And I probably believe probably that you are now tired of my ramblings and you want to get over to the next one, so it's probably the good moment to do so.

So I hope that I've illustrated and gave some color to the first quarter results, which actually, in our belief, show good operating performance. We have significantly strengthened during the first quarter our solvency to the point where capital is no longer an issue, so to speak, but actually is becoming a relative strength. And we are progressing -- progressively positioning ourselves as one of the best banks positioned to serve clients in the new economic and regulatory environment.

Fine ladies and gentlemen, I thank you very much for your kind attention this Friday afternoon, and I am now more than happy to take your questions. So I hand it over to all the fine people in the operation rooms.

Question-and-Answer Session

Operator

[Operator Instructions] We have a first question from Delphine Lee, JPMorgan.

Delphine Lee - JP Morgan Chase & Co, Research Division

Delphine Lee from JPMorgan. Just a few questions. First of all, just to come back on the Basel III guidance of 180 basis points, would it be possible to get a little bit more flavor on the risk-weighted assets increase and the deductions, please? Secondly, just on your delevering plan, it looks like you're 80% done now. So my question would be more on the liquidity side, because it looks like on the Basel III, you can easily achieve 9%. But on liquidity, what else are you actually working on, on your balance sheet? You increased the surplus to EUR 51 billion. So from here, what's the road map? And then thirdly, maybe just a quick one on the risk-weighted assets reduction. Can we get some more color on the EUR 13 billion that you've reduced this quarter related to -- you mentioned a low level of market risks?

Lars Machenil

Thank you for your question. If I start with the second one, which is the 80% deleveraging. So indeed, the plan has progressed well. I would like to reiterate that while I would like to caution against too much optimism -- I mean, there are still uncertainties around it. So yes, we are well positioned, but we aim to be around 9%. With respect to liquidity, indeed there we still have to progress. So if you look at the total of our adaptation plan. We have still to further reduce our asset base. So as I said -- so we will continue. There is more than EUR 10 billion still to be reduced, and we will keep on doing that over the quarters to come. So we consider that, on U.S. dollars, we have reached our level. We still have other currencies that we are working on, and so we will continue over the next quarters to do so. With respect to your question on the RWAs, what we did, what we do see. So indeed, if you look at the overall evolution that there is a couple of elements, there is indeed, as I said, the implementation of the adaptation plan, which has reduced. On the other hand, as you see from our elements with CIB, you see that the results that we generated are basically also accompanied by a low VaR. It is somewhere in the appendices, I don't have exactly the page in front of me. But you basically see the VaR. And so basically, this is one of the elements which play in the lower ROE -- RWA situation as it stands today. Then with respect to your guidance on the 180 basis points, I remind you that we basically took already a while back, a while back when we announced our bids on our impacts on Basel III, we basically announced that we calibrated ourselves on the so-called Danish proposal, which is basically, today, in its version 4 and has been debated here yesterday and should probably find or be cast in stone hopefully soon. And so basically, that is what we have taken into account. And so what does it take into account? For example, it takes into account that we will have an impact of minorities. The example is in the 180 was included, the impact that we would lose minorities such as, for example, Klépierre. We have also taken into account in there, with respect to the Danish proposal, the aspects related to Insurance. Insurance is also something that is into those elements, and then we have also taken into account the concepts which are in there, with respect to RWA related to CVA on derivatives and others. So we basically oriented ourselves on those, and the elements that I mentioned are basically the big bulk of those that we have impacted.

Delphine Lee - JP Morgan Chase & Co, Research Division

You're not providing any more of breakdown with that...

Lars Machenil

No. We stay at this -- listen, there is still a lot of uncertainty around it. We will be more than happy. I think we are in the -- we hopefully are in the last straight line. The moment we have clarity, we will come back to you. We did it when the V1 came out. The day it comes out, we will give you -- not maybe the day but soon thereafter, we will give you an update on what it tangibly means.

Delphine Lee - JP Morgan Chase & Co, Research Division

And just on the risk-weighted asset reductions. So that's a result of -- I mean, yes, the VaR was -- inventories declining or in specific areas? Or is there anything you can add?

Lars Machenil

No, I think that's the main thing. You see it's a bit on most of the aspects that it occurred. That there is some -- there is in CIB some, there are some elements which are also playing on -- elements such as principal investments and others, but there is nothing specific to it.

Operator

We have a question from Jean-Francois Neuez, Goldman Sachs International.

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

I would have a few questions please. I would have a question on your, let's say, desired level of assets and maybe VaR in the CIB business. So on the loan side, on the financing business, what's the level that you're targeting once you're, in a sense, fully delevered on that particular area in corporate banking? And then also in terms of VaR in the capital markets business, obviously -- declined quarter-on-quarter, whilst we've seen, for example, that, that sovereignty increased. I just wondered whether now that you're sort of almost there, so to say, on your deleveraged Basel III target, whether you're feeling more free maybe to open the taps a little bit more there or you're continuing to be cautious? My second question is on the mark-to-market of the 40 bps of the EBA buffer. I just wondered whether you had an idea of how much it is as of today. And my last question is on the jaws affecting your retail businesses where we've seen some encouraging trends this quarter again. And I just wondered whether you had a sense of -- maybe by business, maybe big countries or something like that, of what you can expect for this year, for the full year.

Lars Machenil

Thank you very much for your questions. So I'll run down by them, with -- to start with the corporate banking, which indeed were -- as I said, the objective is -- if you look at the slide in the deck, which shows the graphs, which is Slide 26, so you see that we already have substantially reduced over 15 months, the loans by 14.5%, and we have been starting to increase. We will definitely continue -- the idea is to continue that trend. What is the optimal level? The optimal level will depend a bit on where, amongst others, the regulation will end up. I mean, if the regulation would end up with a situation where the LCR is treating the assets and the liabilities of those clients differently, or if it would, in some way or another, evolve to something where it treats the both sides of the asset of the balance sheet more in [indiscernible] way, it could mean that the targets will have to be different. So it is a bit -- we focus on the client. We actually further develop this on the client, but there will be a kind of regulatory environment that will, of course, be guiding into what the optimal is. So I cannot yet give you a figure. Again, this is something which over time we will come back to you once these elements are clear. With respect to the VaR, again, here the same thing. I think today we are at a relatively probably low VaR. We'll have to see how this evolves. Listen, I wouldn't have a crystal ball to tell you, but I think it is something that still might evolve a bit. I wouldn't say -- so with respect to Basel III, I reiterate what I said earlier. I think we're in good shape. I wouldn't expect us to be at 10%. So I think we will keep on keeping a good eye on how things evolve. With respect to the question on the 40 basis points, indeed, today, one could assume that we don't stand at 40 basis points because we have, of course, been reducing on one hand the sovereigns, and the spreads are also a bit different. But here also, I would like to caution you because the EBA stress test is basically focusing on a part of the sovereigns. Whereas in the available for sale, you have also other elements which are in there, which are not captured by that. So I would still guide you, if I may, to caution on this one and not discount -- or let's say up-count this effect too well. And then with respect to your last question, I'm not sure if I understood it. Is your question on a guidance of what the jaws would be going forward for the domestic markets? Is that the question?

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

Yes.

Lars Machenil

Again, I think we have a track record as you look for the first quarter, which is probably well representative for what we have been doing and what we will continue to be doing. So I would leave the guidance to that.

Operator

We have a question from Jon Peace, Nomura.

Jon Peace - Nomura Securities Co. Ltd., Research Division

Just 2 quick questions, please. Firstly, I just wanted to make sure I understood the very useful Slide 31 on Basel III correctly. The 3 basis points you have to be realized from organic generation, it's just really a plug figure. Is that correct? To show how you can get to 9%? And actually, we should assume that there will be rather more organic generation through the rest of the year so that you could be perhaps well above 9% by the 1st of January 2013. That's the first question. And then the second question is that previously, you've been kind enough to give us an idea of the direction of the cost of risk by division. Obviously, it's been very stable. But within that, there's been a few interesting moves. A little bit of a pickup in corporate banking and a fall in Personal Finance. So I just wonder if you could outline whether you think there will be any other significant changes to trend through the rest of the year given the economic outlook?

Lars Machenil

The short answer to the first question is twofold. Yes and no. Meaning, indeed, the 3 bps is a plug in the sense that we kept all our hypothesis the same, but now starting from, of course, the reality of March, which indeed suggests that the balance that is to be realized through organic generation is 3 bps. And then you can say there is 9 months to come. However, I would like to urge you still to caution. There is still uncertainty as I said about how the CRD IV will land. There are other elements, for example, in the mark-to-market of those that are uncertain. So I personally, I wouldn't get carried away too much on the end percentage. With respect to your question on the cost of risk, indeed, thank you for allowing me to give you a little bit of color. I think you indeed saw that in CIB corporate banking, that we have been having very low levels over the last kind of quarters. And so I believe that what we have now is a bit more of a return to what you could expect and you might consider going forward. As a reminder, for several of the activities like CIB, like Italy, we basically said that we anticipated some pick up in the economic environment. I think this is what you do start to see. So I think this bodes a bit for what is to come in the year, both on corporate banking and I think on Italy. With respect to Personal Finance, Personal Finance indeed intrinsically is on an intrinsic trajectory and will improve its cost of risk. However, I would like to mention that the first quarter is somewhat flatter by recuperation of some elements. So you shouldn't expect that the cost of risk will be at the improvement level that you have seen it now. But it would be generically indeed still going down versus what you had in the past.

Operator

We have a question from Kinner Lakhani, Citigroup.

Kinner Lakhani - Citigroup Inc, Research Division

High-level questions and then just come back to CIB. Just wanted to get a sense on the surplus stable funding, which has obviously improved substantially over the last 2, 3 quarters. What do you see as the kind of "go to" level on that? And also, what part of the improvement is driven by LTRO, and what part is the underlying efforts? Number two is you have historically -- or you've occasionally shown us your leverage ratios relative to some of your peers, including your global peers. If I remember correctly, I think, were in the low 20s. And that, compared to U.S. banks, maybe 1/3 lower. And I guess the question that some people are asking is what is the right level for BNP? Does it have to go to a U.S. bank? Is it trued somewhere in between? So maybe if you could help us with that. And the third question, just on CIB deleveraging. So the EUR 45 billion plan of which you've achieved EUR 32 billion, just trying to understand, the part that relates to loan disposals is a smaller part of what has been realized. So if you could give us just a bit more color on the other part. So the part that's not loan sales.

Lars Machenil

All right. Maybe start indeed with this, with -- I'll start with your last question. And so on this deleveraging, indeed we have a blend of activities that we do. So the sales is indeed a part of that, not necessarily the largest part. There is another part which is coming from more selective origination. So we basically really see that we can originate with clients that are able to generate cross-selling or that can deliver cash deposits or that can warrant our margins. So that is one thing. So that is another element which basically reduces the stack, and then -- so that is in lending activities. And then also, within capital markets activities, we have reduced some of the funding requirements in some of the legacy books around that. So that is a bit the blend of things that we try to achieve. But you're reading is correct, that the disposal of assets is only a part of that. With respect to your question of the leverage, we -- indeed we haven't put it typically in the slides. We aim to limit it to the ones where there are relevant movements. That is what we show, otherwise you would get a Bible or whatever your reference book is of more than 100 pages. But if I look back at the slide as we published it, I think at the end of last year, you can indeed see that if you calculate the leverage ratio and what -- first of all, you have to make sure that you compare things which are comparable. So not going into the U.S. GAAP versus IFRS. We basically focus ourselves on the IFRS where we took out, maybe a too-simplistic approach, I agree, but we avoided the whole netting discussion, and we basically took out all the elements which could be netted. So like derivatives and the likes, we took them out first and for our European peers. And you indeed see that maybe we were a quiet champion 6 years ago. Today, we are even a bit below the middle of the pack of the European ones. And so I would like to -- allow me not to go into the discussion about the U.S. versus Europe. I mean, there is many discussions on what the gaps [ph] are, what the RWAs are and stuff like that. So let me limit it -- to comparing it to things which are comparable, which is in the IFRS zone where we -- if we compare it, we are, let's say, in the pack of where our competitors are. So if with this I turn it to your first question, which is so, if I understand it correctly, the EUR 201 billion of surplus that we have, which has improved over -- with EUR 40 billion over the quarter, then there are indeed...

Kinner Lakhani - Citigroup Inc, Research Division

Sorry, I was referring to the EUR 51 billion. I apologize. I apologize.

Lars Machenil

Oh, the EUR 51 billion. Okay. So with respect to the EUR 51 billion, what has happened? So you can see there are several elements in it. So you see that if I look at -- if you go to Slide 9 and you look at the dark green part first, so you see that the customer loans and the customer deposits have improved in the sense. So meaning the loans have gone down, the deposits have gone up. This is one hand. Then this is, to some extent, mitigated of course by our mid- and long-term funding, which has decreased. Which has decreased in the sense that we have, of course, a run-off of portfolio, and we have a plan for the year. And so it is in line with our expectations. As I said, 75% has been reached. But then a big part actually is coming from the light greenish part on the left, which is the trading asset with clients. And the trading asset with clients, we indeed basically have reduced those with EUR 17 billion. So both on the CIB side where we have these kind of repo, reverse repo activities as in the BP2S. So the securities-related activities. So that are the elements that we have focused on and that we continue hammering as the quarters go by.

Kinner Lakhani - Citigroup Inc, Research Division

And just on that -- I mean, from EUR 51 billion, is there a level that is consistent with your thought process on NSFR or your thought process on what is a comfortable level? And also, what part of getting to EUR 51 billion was underlying? And what part was LTRO? And maybe you can't give us all the detail there, but if you get a sense.

Lars Machenil

Okay. Two things. Basically, the LTRO for us has nothing to do with the surplus. So let me answer this one first and then I'll answer your strategic question. So for us basically, we consider today, the LTRO, as basically as a substitute for repos. So basically, the LTRO for us, if I can ask you to cast your eyes on Slide 9, is in the yellow part, which is the short-term funding, which basically means that having the LTRO implies for us that we take less repos. And that is the reason why I explained earlier that the orange part, the fixed income securities which have netted for the repose, have basically gone up. So I basically took less repos because I had the LTRO. So that one is above that greenish part, and so it doesn't play into the EUR 51 billion. So then back to your question, what is a good level? Well, again, the Basel III on LTRO and NSFR will, for certain, give some guidance. But intrinsically, if I look at it today, that I'm able to cover with more than EUR 51 billion my client loans with client deposits, it's already a situation which I think is quite handsome. Secondly, that I have at -- available deposits with central banks and unencumbered assets eligible to central banks, which roughly cover my short-term funding, so that is now -- I am now am talking about the yellow and the oranges part, gives a situation which should allow us to sail through quite some weather. But what will be the exact ideal figure will again will have to depend on what will come out of the regulation. Again, if the regulation says that your assets and your liabilities and your stress test are treated differently, that will mean that the excess that you will need will be different. So I will have to hold my final answer on this one until we have some more clarity because, otherwise, I'll make a statement which is basically based on nothing.

Operator

We have a question from Maxence Le Gouvello, Credit Suisse.

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

I would have 2 questions. The first one is regarding the funding of BNL. Can you give us an update of where you are in term of intragroup funding? You were giving us some guidance about the target to be in the range of EUR 20 billion. Are you there, and how the [indiscernible] have been for you to get there? Also on BNL to commence the slowdown on the -- which is linked to the first question is the slowdown on the corporate side. Clearly, does it mean that you decide to close the credit activities until you reach a certain point of funding? Second question will be to follow up on the June 1 regarding the Personal Finance. As you said, there has been some adjustment on the French side where we move from 198 bps to close to 50 between the 2 quarters. What should be the run rate on -- into the Personal Finance on a normal basis, please?

Lars Machenil

Thank you for your questions. If I start -- so I have 3 questions. I have your question, the funding of BNL, the origin of the slowdown of corporate loans on BNL and then a guidance on the run rate of the cost of risk at PF, right? That's -- okay. So if I indeed look at the overall funding gap that we aim to reduce, it is fair to say that this has been helped by the LTRO. It was already helped to some extent at the first LTRO. I think we made statements that we did -- at LTRO 2, we had a smaller part that we solicited, and basically that part has helped to calibrate the funding into BNL. With respect to the business activities, that didn't really tie in to that. What we see today is that we are faced with an overall market evolution in Italy so that the corporate loans slowdown that we see, for us, we perceive it as a system level, so the country level. And basically, we aim just like with the deposits, we aim to stay on a market share, eventually grab a little bit of market share. But here, we are faced by what in the economy is happening. Then with respect to your question on Personal Finance...

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

Just to come back on that one is are you below your target of EUR 20 billion of intragroup funding between BNL and the mother? Or because if we do the gap last year, you placed something close to EUR 15 billion of BNP Paribas bonds into the BNL network? And then if we want to get to your target of EUR 20 billion, that means you have these -- used at least EUR 4 billion of the LTRO for BNL. Is my conclusion wrong or is it roughly that?

Lars Machenil

I would say that we are roughly around EUR 20 billion.

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

Okay. Perfect. And then just to finish on that part. On the corporate deposit, if we look the difference between the year-on-year growth and the q-on-q growth, we can see that definitely there is a massive slowdown. Is also strict will on your side or the competition on the pricing is so high that you are getting to a level that there is no more economic rationale?

Lars Machenil

No, I don't think -- as I said, we are going with, I would say, going with the system in Italy. There are some elements on which we are probably a more natural player, which is like on the corporates where we try to grab a little bit of market share. But as we said, we are not going to be the one who is going to, let's say, push for and equilibrate the market situation. With respect to PF, as I said, if you look at Slide 13 where you see the evolution, you see the trend. You see the trend as it is, and probably the trend as you saw it the first quarter, the second quarter, the third quarter of 2011 is probably the right trend. I think there is a little bit of a distortion on the fourth quarter on the, let's say, on the deteriorating side, which has recuperated a bit in the first quarter on the positive side. So I think, if you would take the first 3 as a bit of a guidance, that would be good. But again as I said, be aware the dynamics in PF are more and I'd say it is more difficult because we now have 2 trends. And we have Consumer Finance, which is basically growing in some regions, as I said, and you have the real estate, which is slowly ramping down as it stands.

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

If we look to Slide 59, my question was clearly regarding France where you made a lot of assessment in terms cost of risk.

Lars Machenil

Yes, yes, yes, exactly. I'm sorry. I saw -- it's the same thing. So the slide on 59 said the same thing as what I said, which is the figures instead of the bar, you see the evolution that we have. And I said the evolution that you see a bit based on the first trimester is the right one. And as I said, the first quarter of this year is somewhat impacted by, let's say, a catch-up in provisioning, which is not something you should, let's say, discount going forward.

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

Okay. And last point, in term of disclosing for the European-Mediterranean division, can we have the Turkish part separately?

Lars Machenil

I do not think that we disclosed this. I think we disclosed...

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

No, no, it's for the future. It would be quite useful.

Lars Machenil

I'll take note of your question.

Operator

We have a question from Benoit Petrarque, Kepler Capital Markets.

Benoit Petrarque - Kepler Capital Markets, Research Division

A couple of questions on my side. Just to come back on PF. I see a decline in risk-weighted assets around EUR 5 billion, which does not really make sense in our opinion because I know there was all this deterioration on the macro in Italy and Spain. So do we need to kind of expect RWA inflation in the coming quarters on PF? And also if I could just come back on France again. The 51 bps, I noticed, is the cost of risk without this one-off in Q1 that will be useful. And then also to come back on this RWA on the capital market, it's a decrease of EUR 25 billion, mainly coming from market risk. I think it's around EUR 16 billion coming from market risk, yes. How much is likely to reverse in the coming quarters? Could you kind of give a guidance because you are now back to pre-Basel 2.5 levels? And then finally, on the group center. If I take the pretax of the group center and adjust for Klépierre and the own debt reval, I've have got a negative -- around negative EUR 200 million pretax, which is a big negative as you've seen -- or what we have seen at previous quarters. So where is this figure going to end up in 2012? And could you guide us a bit more on that one?

Lars Machenil

Yes, a couple of things. So if I walk down through them. So on Personal Finance, with respect to RWA, allow me to answer it by giving you a bit more color on the business dynamics around it because I hear you pick up on the southern part. There's a couple of things. So on the southern part, what we see is that we are producing a good margin. So that is one thing, so that gives us comfort. And as I said, the growth that we basically experienced is coming out of the more Nordic belt, if I can say it. So that is relatively that. With respect to your question on normalized basis point ratio, I will have to give you the answer a bit later. I'm trying to see how I can give you that when I've done the end of the questions. With respect to capital markets and your EUR 16 billion and how much could reverse, it's a bit the same thing. It's -- today, it reflects the situation where it is with respect VaR, with respect to the kind of fluxes that we see into the market. How will it evolve? I honestly, I don't know. It will depend on how we see the market and how these things evolve. So I cannot guide you that you should lock it in and see that we will not move up nor can I tell you that you should take the EUR 16 billion as foregone. I think this one, you will have to play it by ear and see it quarter after quarter. With respect to your question on group center, thank you for asking, because indeed there is maybe some relevant things that have been going on there that I can share with you. The long and short of it is that there are several elements which are typically in corporate center. So we have a revaluation of our own debt is in there, but you can retreat for that. That is what you've done. You have the amortization of the PPA in the banking book, which is in there, which you also know, as time goes by, becomes lower and lower. And then you have indeed some exceptional elements as we mentioned and as you probably have corrected for, you have losses for sales on sovereign bonds. So we have reduced by EUR 9 billion our sovereign bonds in the first quarter that had a negative impact of EUR 142 million, which is in there. We also had the exchange of convertible. So the CASHES would have a fiction cost of EUR 68 million. There is one that we didn't mention in here and actually we should have, is that with respect to the PSI, so with respect to Greece, do you know that for Greece, we had provisioned 75% at the end of the year? The exchange basically left to a pricing which was not, let's say, at the right value of 25%, but of 23.2%. So which basically led to an additional EUR 54 million of impairment, but that didn't make the threshold so we didn't put it on. So there is indeed a set of exceptionals. But your intrinsic question is right, is right in saying if I correct for it, I'm at a figure which is maybe different from the past. And here, allow me to qualify. If you would look at our publications of last year and you look at the Corporate Centre and all the exceptionals out of it that we have mentioned, you would see that we basically have a [indiscernible], so an income, sorry for my French. We have an income that is around EUR 200 million a quarter. That is basically the average run rate that we have last year. And I can tell you now that in your models, you have to replace it by 0. Why do you have to replace it by 0 a quarter? Because there are a couple of elements which are coming this far -- or which are already there. The first one is that we recomposed our segments. So we didn't change anything, of course, on the boundaries of the group. But we recomposed our segments, as you know, by taking into account 9% of remuneration of equity. So you know that we basically allocate capital to our segments based on the RWA, and we basically charged them for it in the past for 7% and as of now for 9%. So that means there is a 2% extra that is being allocated to the segments. Of course, as the boundaries of the group don't change. The delta is booked somewhere. The delta is basically booked in Corporate Centre. It has more than EUR 550 million of delta over full year. So it's around EUR 150 million that you have to take out of, let's say, the EUR 200 million that you would have observed last year. The other thing that you will see is that, of course, Klépierre will no longer be into the income today, and other Klépierre is in the income. As of now actually, it will no longer be and it will be in share of earnings and associates. So if you take these things into account, you will indeed see that your run rate has been reviewed, and your run rate for the income you should put it at 0.

Benoit Petrarque - Kepler Capital Markets, Research Division

Your run rate for the costs, is that going to be around flat now or...

Lars Machenil

It's going to be around it. We'll have little bit of a residue of the inflation cost, but that is going to be low.

Operator

We have a question from Andrew Lim, Execution Noble.

Andrew Lim - Espirito Santo Investment Bank, Research Division

I was wondering if you could give some color to the cost of credit outlook for France, in particular, as well as BNL where we saw a deterioration for France maybe presumably that we could expect some deterioration at some point or is it case that their stable outcome for the past few quarters can be maintained going forward? Secondly, obviously, you've got a liquid asset portfolio, which is quite large now. Is there an opportunity cost there in not being able to deploy that to higher returns? Could you talk about that in more color to us, please? And then thirdly, obviously, there's a notice for decline in your trading VaR versus SocGen, which increased 50% in the quarter. Can we infer from that actually that the effect trading result that you had was substantially flow driven with very little inventory gains?

Lars Machenil

Well, with respect to your last question I, of course, cannot comment on any of the other banks. But I can do confirm that for us, it's basically we are flow driven, as you know. And so that is where the income has been made on our side. With respect to the cost of credit outlook for France and BNL, I think today in the economic environment as we see it, I think the first quarter is a good proxy of what is to come. Again, forgive me. If the economy deteriorate, then we'll see. But today, in the environment as we see it, I think the pickup in Italy is a real one, and the stability that you see in France and Belgium is probably also a real one. But again to be taken with caution. There are many uncertainties going ahead, but at this moment I would take the first quarter as a good guidance. With respect to your second question with respect to the liquid assets portfolios and the question is if we would -- if we regret that we cannot reinvest it, I think my only remark is that we are in the signs of the times. I think this is the kind of levels that we need given the uncertainty and some of the variations that we have. So I think we're very happy to be at those levels today. And I think, well, at least from a finance director's point of view, I'm very happy to have them there.

Operator

We have a question from Virginia Martin Heriz, Autonomous Research.

Virginia Martin Heriz - Evolution Securities Limited, Research Division

I have 2 questions, if I may. The first one would be related to the Corporate Banking business. You commented that you want to -- you originally want to reduce your lending and increase your deposits. I was wondering if you have a target loan-to-deposit ratio in that business? And also once your de-leveraging is finished, if you have -- if you could give a split of how you see the part of the business, which would be plain vanilla lending versus the part which would be a structured origination business. The second question would be going back to the liquidity buffer because it's gone up from EUR 160 billion to EUR 210 billion. I was wondering how much of that's related to the fact that right now, the collateral requirement with the ECB are a little bit less hard. So how much of that is due to the -- to lower collateral requirements? And then the third question would be referring to the VaR in the Corporate & Investment Bank. It basically goes down in every single product except for interest rates where it goes up from EUR 25 million to EUR 35 million. I was wondering if that is a level where you feel comfortable with and because also your flow rates business was -- did quite well this quarter. So should we expect that going forward or will you retreat from there?

Lars Machenil

So 4 questions. Let me run them from the bottom to the top. So with respect to your VaR, indeed, well spotted. Well, but as you also saw a part of the Fixed [ph] Income was made on that kind of ForEx and rates kind of situations. I think the markets were in the opportunity for that. So we basically took that. Again, is that our right level? No. I mean, we have an overall VaR that we have a limit that we want to be. So don't lock these numbers in. I mean, it's a guidance overall below. I would leave it to that. With respect to your question of the EUR 160 billion to the EUR 200 billion, so the EUR 40 billion in additional. So as I said, it's a mixed bag of things from having all the elements that I discussed, but I think I could guide you that around some 20. So 1/4, let's say, that around 1/4 of the improvement is related to the relaxing between brackets of the rules. And then...

Virginia Martin Heriz - Evolution Securities Limited, Research Division

Sorry. If I may interrupt, you said 20 but you -- or you said 1/4, say, will be 20?

Lars Machenil

No, I said -- I'll put it in pure Arabic figures. So let's say, between 20% and 25% of the increase, okay, of the EUR 40 billion is related to the relaxing of the rules in some of the countries because they know who has done it. With respect to corporate banking, I repeat what I said earlier, is the trend is indeed loans going down and deposit going up, if I say it in a blunt way. What the target will be or the exact target will be will depend a bit what, and particularly, on how we will settle in the regulation which, as I said, depending on how asymmetric or not the assets and the liabilities of these kinds of clients are treated. And again, with the blend of activities, I think at this stage we'll have to see. We'll come back again once the regulation is clear. We will clarify our strategy on those things. But again today, I would be telling you something which would be based on thin air, and that wouldn't suit yourself nor myself.

Operator

We have a question from Jean-Pierre Lambert, KBW.

Jean-Pierre Lambert - Keefe, Bruyette, & Woods, Inc., Research Division

Just one question really, which is related to the impact of the LTRO on the revenues in the retail business. So you indicated a growth in revenues in France of 0.3%, BNL 2.3%, Belgium 3.4%, and how much can be attributed actually to the LTRO? In other words, what is the underlying revenue growth x LTRO? And related to that, of course, is the question how the benefits of the LTRO are allocated on the divisional basis, whether it's retail or CIB?

Lars Machenil

So a couple of answers to that. So the retail businesses are actually not impacted by the LTRO. And so the LTRO, we consider that part of our treasury activities, and so they basically are booked into the CIB part and are not in the business. So the business, the retail businesses are not impacted by it. And as I said earlier, for us, we consider them short term. So they are -- should go into the cash balance sheet of Page 9. They are on the yellowish part. So they're at the top. And as I said, and this is a bit of put out, but they come in substitution of repos. And so some might say that one is paying 1% for the LTRO and one might say that for repos, maybe one might even pay a bit lower. So for us, that's basically where it stands. So it's not for us that this generates a carry trade for us. It's a substitution to other products for funding.

Operator

We have a question from Sebastien Lemaire from Societe Generale.

Sebastien Lemaire - Societe Generale Cross Asset Research

I would have 4 questions basically. First, on book value. We saw a swing in the OCI reserve from a loss of EUR 1.4 billion to a gain of EUR 1.2 billion during the quarter. So I was just wondering if you could give it some detail on the driver there. Second question, back on risk-weighted assets, especially on corporate banking. I calculate a decline in risk-weighted assets of around EUR 11 billion in the division versus last quarter -- oh, EUR 12 billion, sorry, whereas client loan only -- were only reduced by EUR 6 billion. So I was just wondering where the gap came from. On risk-weighted assets also, the Basel committee just issued, I mean, on the 3rd of May the fundamental review of the trading book, which could give rise to higher capital requirements for their trading books. And I was just wondering if you had any sort of impact in terms of capital requirements or some equity on CIB at BNP. And 2 further questions. First, on French elections, I was just wondering if -- what your assumption were or what kind of assumptions you take into consideration when it comes to figuring out what could be the impact on your P&L and balance sheet of potential political decisions, sorry, that the next government will take? And by political decision, I include higher tax rates in France or rise in the cap of Livret A seating fees on no advance [ph] fees or ban on speculative activities. In addition to that, would you disclose the tax amounts that BNP paid in France last year and in Q1 '12? And final question, sorry to be long, it's on the sovereign bond portfolio. What is your strategy here? Do you want to reduce it to 0? Or could we have the size that you want to have at your end?

Lars Machenil

Okay, let's do them one by one. So if I start first with the book value. The book value actually as we reported, allow me to quote, it's on Page 32. And you were right. We should have put a footnote to clarify, but the book value that we show, both the net tangible one and the book value to [indiscernible] is basically not including any revaluation. So the one that you see later in the document also. So we publish, of course, our revaluation impact. But in the net debt book value, they are not retained. So you basically see the natural evolution of the retained earnings into the evolution. So that is that. With respect to your question on ROE, well, we basically, as I said, have been saying for the day, we don't have any guidance or we don't give any updates on guidance as long as there is too much uncertainty on the levers. And that's basically the same thing on your questions on French elections. I mean, we should have published our figures a couple of days later, but today I have no answer to that. The only thing I can say is -- and all the things, you can interpret them many ways, from what we see on the tax rate, you know that there might be an impact. But again, there's 25% of earnings of the group, which is coming from France and so on and so forth. So that is something to position it. Livret A, yes, there might be a ceiling that goes up a bit, but that's just a ceiling, which goes up. And we'll have to see if that really impacts. And for us, it's not that, that is a major part of our element, and the speculative parts we'll have to see. As we said, probably those aspect will more come out of Brussels than they might come out of Paris. With respect to the tax paid in France, I do not think that we published that, but you'll typically -- it also depends on how you look at it. I mean, we do pay, of course, basically the regular tax on the income. I mean, if you want to, we can add figures to it by saying we have also tax VAT and other elements in it. But we are between, let's say, on the normal tax, we are gravitating around a 30% tax rate, then you can assume that there's 25% of the income which is being generated in France. So that is a bit where it will end up. So then with respect to your sovereigns, as I said, the sovereigns, if we go before Basel III, the sovereigns we basically -- why do we use them? We basically use the sovereigns amongst others in our assets and liability management. So we basically use them in order to have a natural hedge because we have instruments, which have a fixed income, which is interesting if you look in our retail activity with respect to the deposits and the loans. So that was the reason why we have them and the intrinsic reason why we like them. However, as you know, Basel III is basically impacting that. And so we are reviewing, and you see that for the moment, we bring it opportunistically down. Will we bring it to 0? Probably not. Will we optimize it with respect to duration and other elements, which induce volatility? Yes, we will continue to do so. And you -- again, here, you will have to see quarter after quarter how these things evolve.

Sebastien Lemaire - Societe Generale Cross Asset Research

Okay. Just back on the OCI reserve. I mean, what is the driver of the -- of the swing?

Lars Machenil

Of the what?

Sebastien Lemaire - Societe Generale Cross Asset Research

Well, of the change in the OCI reserve versus fourth [ph] quarter?

Lars Machenil

[indiscernible] the yield. So I remind you that in the portfolio, the OCI, for a big change, reflects the revaluation of what we have in the available-for-sale portfolio, which includes amongst others the sovereigns, but also includes some other kind of bonds, which revaluate with the yields. And basically that the evolution of the yields have led to the revaluation and that revaluation is being reflected in the OCI.

Operator

We have a question from Anke Reingen, RBC.

Anke Reingen - RBC Capital Markets, LLC, Research Division

It's Anke Reingen from RBC. Four questions, please. The first is as a follow-up to John's question on your capital, Slide 31. Are you just very conservative or you mentioned also the potential impact of other regulatory factors and with the potential trading book will you play a role here? I'm just a bit surprised about your quarter's guidance here. Then, a commentary, not guidance. Then secondly, on Moody's rating review, can you please share a bit of your thoughts in what this would mean in terms of funding costs or potential addition of collateral requirements? Then just 2 small questions. With respect to the dividend accrual in the first quarter, is this as simple as 25% of the reported net profit? Or did you adjust for the large capital gain? And then lastly, your guidance for losses on asset sales would suggest there's a EUR 726 million left for the year. Should we still keep this number in our models? And also how would the capital gains on the sale of U.S. energy book with this EUR 726 million be net of any potential gain?

Lars Machenil

Yes, it's 4 questions. To answer at least maybe the first and the last one. I mean, you have been following BNP Paribas for a while so you know that we tend to be conservative and prudent in our approach. So that is basically why we guided like this. I mean, we just say the CRD IV has not landed yet, and so as long as it has not landed there might be uncertainties. So allow us to come back once those things are crystallized out. We hope it to be very soon and then we will be able to more precisely guide you. But this is where we stand for the moment. With respect to the EUR 720 million which is left, as I said, we still have quite some billions in disposals to go. Again, from a prudent stance, one might say that in the beginning you might do the easy thing, and that basically we will have the more complicated or maybe elements to come. So again here, for now, I will guide you to take it, take it for the year, and again, I think we will be able to give you a more concrete update by the summer. And so that is on those 2. With respect to the dividend, if I understand your question, so I think it's with respect to the return on equity where indeed in the calculation for it, which is an annualized one, we indeed have taken out the elements of Klépierre and the element of the own debt. With respect to your question on Moody's. So I remind you all that Moody's has announced earlier this year, they have announced a review of basically the whole European banking sector and the global banks with CIB activities. They aimed to -- or they suggested that they would be -- they would announce this review and basically well, as of actually I think they are going to start end of April and continue into May. And they suggested that this could lead to an overall rating decrease for the banks. But they also said that it could lead to eventually a review within the ranking of the banks. What do we observe? We observe that Moody's has announced that they basically delay their announcement. So they delayed it. For example, the BNP Paribas was to be announced mid-May. We understood that it would not be before mid-June. So I think that this is a review, which is going on. So we'll have to wait for that, and we'll have to see how that evolves in the rating. But I stress again for us, it's a total review of the whole banking sector. So it basically is a recalibration, which is still a different thing than recalibrating 1 bank or 2 bank. It's recalibrating of a view of one rating agency on a sector, and we will -- we monitor this closely.

Anke Reingen - RBC Capital Markets, LLC, Research Division

So it's difficult to say if there are any triggers from a potential rating change to collateral requirements or deposit flows or -- at such value [ph].

Lars Machenil

We'll have to see. I mean, they don't announce that the banks will be on below investment grade. So I think what you can -- what cautiously what you can see is that if there would be a cause to downgrade, there will be a recalibration which will be going on again, which would mitigate probably the overall impact. So we'll have to wait until we have more clarity on this one.

Operator

We have a question from Thibault Nardin, Morgan Stanley.

Thibault Nardin - Morgan Stanley, Research Division

I've got 3 quick questions on my side. The first one's on the cost side. If you could just please give us a bit of color on the evolution of your -- regarding expenses in the capital market activity this quarter. That would be great just to know how much of this increase in cost is driven by higher compensation. The second question is that early on, I mean, last year you estimated that you had [indiscernible] cost around EUR 760 million in your operating profit. I just wanted to know if you have a view on how much there is in Q1 number. And finally, just a general question about what's the ideal replacing repo funding by LTRO money. Is it just a -- I mean, has to do just with the reduction in balance sheet encumbrance in order to free up eligible asset or if there's any -- what's their explanation. I'm happy to hear it.

Lars Machenil

Okay, one by one. So if we start with the cost side. So as I said, if you look at constant ForEx, so if you look at constant dollars and if you take out the EUR 54 million of the adaptation plan, as I said, basically, the costs go down by 1.7%. But still, there is a couple of things. So as I said even the cost/income ratio is relatively okay, but it's still indeed a mix of 2 things. So there is indeed CIB is on one hand adapting itself. It is taking the charges indeed, as I said, for those. But the synergies, which are related to that, they do take some time to kick in. I'll give you the example. The plan in France has been announced by mid-March or 8th of March, has been announced. So these things, you cannot account for it. You cannot take it into account that these plans are visible into your accounts when these things have not happened. Also, you might have identified activities that you will close, but maybe the people are still there to do aftercare of branches that you close and what have you. So it's really something where the costs do come in advance of the synergies. So you will keep on seeing the synergies, as we said. We believe that, as we mentioned, we have EUR 400 million overall adaptation costs at CIB, which should bring us a run rate of EUR 450 million of savings. But again, as we said today, you do indeed see the costs and the savings are to come. And I would like to clarify that the EUR 450 million that we talked about is basically full year, and it's full year actually next year. So the amount that you should take, that you pencil in of, say, the savings is more around EUR 290 million to be for this year. And here, again, I stress this is additional savings over and above a normal run rate of the CIB, which still keeps on investing and growing in some areas such as Asia. So you should keep these elements into mind when you try to project yourself on to the CIB. With respect to compensation, I think you know what’s relevant. We typically have our rules of doing it. We are typically, I'd say, at the lower end of the scale. You also know that we typically book in the quarter where we do it. So it's not adapting. You know we have deferrals of our bonuses. Some only book -- don't book the deferrals upfront, but book them when they fall. We book them upfront, and so that is something that you are aware of. And indeed last year, of course, the overall compensation was lower. I think you've seen it in our documentation, it's lower, and so we are now in, let's say, in line with the provisioning that you would have for the kind of income that you have. So that is basically, in a nutshell, on the cost side and the synergies, and so we have announced earlier both impacts of the de-leveraging and of the synergies, and we basically stand by those numbers today. And so as I said, with respect to the repo versus the LTRO, we consider them basically as short term. So we did indeed have some LTRO, some repo activities in our funding. As a proven stance, we basically said we diversified it a bit and part of that we have replaced by the LTRO as a prudent stance. This is where we stand today, and for us there's nothing to say. We will come back by the year end, eventually, when there is a choice to be made on how to go forward. But there is no discussion about this topic before that.

Thibault Nardin - Morgan Stanley, Research Division

Okay. Just a follow-up question on that part. I mean, could -- should we read in the file that you consider the LTRO the short-term funding that you wish to take advantage of the window to repay if this turns early?

Lars Machenil

I think I'm saying nothing at all. I'm just saying that we have diversified, and we will come back with our stance when the moment is there.

Operator

We have a question from Pascal Decque, Cheuvreux.

Pascal Decque - CA Cheuvreux, Research Division

I still have several quick questions, if I may. The first one is could you give us the magnitude of the capital gains that you will book in Q2 on the Wells Fargo deal? I have a follow-up on a question before. I think it was on the dividend payout. In fact, do you plan to pay 25% dividend payout on reported net profit in 2012? I mean, including the Klépierre capital gains or not? The next question, I'm not completely sure that Klépierre is already de-consolidated in Q1. I mean, we would have had including beyond that of minus 80-something, the surrender impact is more than minus EUR 883 million in revenues. Then, is it going to stop next quarter? I would like next, please, some clarification on losses on sovereign debt. I've seen that there is one in the Corporate Centre revenues. My question is why is it not in the CIB revenues like it was in previous quarter? And second, if I'm not wrong on Slide 40, you mentioned another EUR 100 million losses but in cost of risk this time. Why a different treatment there on Greek bonds? And in which division is it booked? I can't find it. And the last question, if I may. I know you don't like it, but one of your close competitor yesterday gave some, it's not a guidance, but some information to the start of Q2 in CIB. They say there was a slowdown, we all know that. But they say they were quite satisfied with the first week into Q2, and they were over their own budget. Could you make a kind of a statement on this one for BNP?

Lars Machenil

All right. A couple of questions. So with respect to the capital gains on Wells Fargo, I will have to disappoint you, but we agreed with Wells Fargo that we would not share any deal parameters. So I cannot help you on that one. So sorry for that. With respect to the dividend payout of 25%, it is, of course, not the finance director who decides whatever that would be. So that should normally -- that will be decided by the Board of Directors and what it is. But normally, it is basically something that you see on your full retained earnings as we have them. On Klépierre, you're absolutely right, but allow me to make the difference between the balance sheet and the profit and loss statement. So the balance sheet, which is the picture of the end of the quarter where Klépierre is indeed de-consolidated, but you are absolutely right. But to the moment of the de-consolidation, the impact is in the P&L. So you're right. It is -- for a part, it's in the P&L. But in the balance sheet and in the cash balance sheet, it is basically out. With respect to your losses on the sovereign debt and the question of why in Corporate Centre versus last time [indiscernible]. So the last time, it was indeed in CIB because the losses that we had at that time were basically generated out of treasury. And the treasury, as you know, is allocated into the CIB activities whereas the activities that we have here are more of an ALM nature to cover the interest-free risk. And to that extent, they are basically and they are of an exceptional nature that have to do with Basel III, and therefore, they are booked in Corporate Centre. The same goes true for the booking of Greece. And so why is Greece in cost of risk? Because it is an activity which basically was impaired. And as I said, we took it to the exchange. We had impaired it up to 25%, but when we did the exchange and also basically the exchange said there is 63.5%, which is lost, okay, perfect. Not perfect, but it's lost. The 15%, which is being changed in the EFSF bonds, which are there and then you have 33.5%, which are basically exchanged into new Greek government debt. The moment that exchange took place, if you look at the markets, basically those traded at 1/4. So they at traded 25% of that. So if you basically do the sum of the EFSF bonds that we got and the trading, the real trading of the Greek bonds, you get to 23.2%. So it basically means there was an additional provisioning that was needed, and of course, that had to go through cost of risk because that is where the rest was booked, and we have to take an additional part of cost of risk for Greece in Corporate Centre, which is in line with where the other, of course, much bigger part was lodged when we took it last year. And so then with respect to your question on Société Générale, there's 2 things. Yes, indeed, I think you should look outside. You can see that the markets basically are today not in the shape that they were at the start. I mean, there was a different environment. There were the statements of ECB, which at that time were different than they are now. So there is indeed a slowdown. But on the other hand, I cannot guide you to what's the budget because this is something in practice that we do not do.

Operator

We have a question from Jeremy Sigee, Barclays Capital.

Jeremy Sigee - Barclays Capital, Research Division

Two questions, please. One's a new one, and one's a follow-up. Firstly, I wanted to talk about funding your strategy for wholesale funding. There's 2 things that surprised me in your slides. Slide 9, you've let your medium- and long-term funding come down quite a lot in the quarter. And then Slide 29 shows that actually you've done very, very little public issuance. You've mainly been doing private placements. So linking those 2, I guess my question is why have you not done more? Why have you not been more active, particularly given you're a relatively strong issuer? Why have you not done more in the quarter to boost your long-term funding, given conditions that would have probably allowed you to do that? So that’s the first question. Second question, as I said, a follow-up. I wanted to come back on CIB costs because I still don't really understand it. I mean, I take your point about the fundings [ph] and savings to come, but the sort of spike in costs previously has been linked to stronger revenues than this. And if you look here, even if we take your adjusted cost number down 1.7% year-on-year, revenues are actually down anywhere between 9% and 11%, depending on how you adjust them so it just still seems a very bafflingly big cost number in CIB.

Lars Machenil

All right. Let's start with the wholesale funding. So indeed, what you see is actually in line with our plan. So as you know, the heritage MLT funding has been set up to cover assets and so on, a bit on that same kind of tenure. Those assets have been running down also part of the de-leveraging plan, and so we basically made the overall plan for 2012 of the emissions that we wanted to do in line with that. So we're basically in line with what our plan is of the asset rundown. So from that point of view, we are in line and this is articulated by the fact that already we have done 75% of what we want to do. So we feel okay with that. And then limited public, yes, well, I mean, there is a bit -- there is, of course, a degree of balancing and opportunism in there. Private placements form a good way. I mean, I know that some might be interested in public placement or in corporate placement, but we believe that today, we have a fine mix of what our signature can do, and so we will continue on that level. But as you see, if there are opportunities, as you saw at the beginning of the year, we've done so in public, and so you will see that evolve over time. And so with respect to CIB costs, as I said, you are right to say if you make the link towards what we have on the revenues, if you look at the evolution, there are indeed many elements in there. So I repeat, I'm a bit saying that, well, first of all, you have to recast it into the appropriate currencies to see the trend. There are the effects of the adaptation plan. And then one of the things and this is indeed true, I mean, the CIB is not on a stop and go random. So there are elements in which we basically keep on investing so which provides a little bit of an extra lift. And also to sum it up, in 2011 in the first quarter, there were some elements of exceptional nature which somewhat brought the cost down. So if you go through the entire list of the elements that I have now summed up, you will see that we have a reasonable evolution.

Operator

The last question is from Alex Koagne, Natixis.

Alex Koagne - Natixis S.A., Research Division

I just have one remaining question regarding BancWest. We see that the loan-to-deposit ratio increased 6 percentage point on the quarter. I was just wondering whether you have a level beyond what you don't want to go. And the other question is more a global question regarding your activity in United States. I was just wondering whether you have an opportunity to transfer some of your loan book within the CIB to BancWest. I know that you have the annual regulated by some regulator, but I was just wondering whether you have some opportunity over there to do some transfer for funding purpose.

Lars Machenil

Two questions. So with respect to BancWest, well, first of all, there is not that there is a specific limit. We're, first of all, very happy that BancWest is again a very good and fine contributor to BNP Paribas. So we're happy with that. We see that they, on the back of the U.S. economy, are doing well. So I think from that point of view, we are happy with the evolutions of the balance sheet, and particularly, the kind of business that they do and the model that they are rolling out. So that is Bank of the West. With the respect to your last question, let me end on that. The fact that there is regulation changing everywhere is something which has been always there. I mean, as a bank or as whatever company, you always seek to optimize the environment in which you operate. And indeed, one might indeed say that there is some, what I say, calibration of activities between entities that is possible, but I think this is something that will -- that is being looked at, not specifically for BancWest, but in general in the overall structure of the bank that is being looked at by the teams. And if there are things that would lead to an improvement of serving the clients, we will definitely do so, and we will let you know at that moment.

So, okay. So with this, we basically have come to the end of the presentation. So I thank you again for being -- for your interest in BNP Paribas and being with us on a Friday afternoon. So as a conclusion, I hope to have shown you that in the first quarter, BNP Paribas had a good operating performance, that its solvency has strengthened and its adaptation plan is well ahead of the announced schedule and that with that, basically, BNP Paribas is one of the best positioned European banks to serve customers in this new economic and regulatory environment. I thank you very much, and have a very enjoyable weekend.

Operator

Ladies and gentlemen, this concludes the conference call of BNP Paribas first quarter 2012 results. Thank you for participating. You may now disconnect.

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