BNP Paribas CFO Discusses Q2 2013 Results - Earnings Call Transcript

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BNP Paribas (OTCPK:BNPZY) Q2 2013 Earnings Call July 31, 2013 8:00 AM ET


Lars Machenil - CFO


Jean-François - Goldman Sachs

Lorraine Quoirez - HSBC Bank

Delphine Lee - JP Morgan

Jon Peace - Nomura

Kinner Lakhani - Citigroup

Nick Davey - UBS

Geoff Dawes - Société Générale

Pierre Chedeville - CM-CIC

Sergio Gamez - Bank of America

Flora Benhakoun - Deutsche Bank

Jean-Pierre Lambert - KBW

Cyril Meilland - Kepler Cheuvreux

Anke Reingen - RBC

Maxence Le Gouvello - Credit Suisse

Federico Salerno - MainFirst

Alex Koagne – Natixis


Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas Second Quarter 2013 Results. For your information, this conference is being recorded. Supporting slides are available on BNP Paribas IR website,

(Operator Instructions) I would like now to hand the call over to Lars Machenil, Chief Financial Officer. Please go ahead, sir.

Lars Machenil

Operator, thank you very much. Ladies, gentlemen hello, and welcome to our second quarter results presentation. As you know I would like to quickly flip through some of the introductory slides, zoom in on some specific topics before of course handing it over to you for your questions. So bare with me for these couple of overviews and may be let's start with Slide 3.

So BNP Paribas closed the second quarter with a net profit of €1.8 billion, and this despite the persistence of a challenging lackluster economic environment in Europe.

In particular, revenues proved resilient in the quarter, as they benefited from our diversified businesses and geographic mix. Overall, revenues of the operating divisions were stable compared to previous year.

Also, the second quarter confirmed our respected and continued cost control as the first benefits of Simple & Efficient started to accrue. Operating divisions indeed marked a 1% reduction in the cost base.

Now, cost of risk, it remained at a moderate level in spite of the economic backdrop as depicted in the second quarter it stood at 68 basis points.

Most importantly, we confirmed that BNP Paribas had a rock-solid balance sheet. In fact, if we look at solvency, our ratios are among the strongest as shown by our fully loaded Basel 3 ratio at 10.4%. Likewise, if we look at liquidity our available reserve stands at a massive €236 billion, increasing further in the quarter. And lastly, we continue to see a sustained base of growth in our retail deposits across the different networks, these were up at about 6% compared to previous year. This is the (inaudible).

And now, if we turn to Slide 5, we concerned a significant profit generation capacity, which was only marginally affected by one-off items and actually less so than in the previous year, in the quarter besides the OCA DVA impact, which was a small negative. We booked of course the capital gains from the asset sale of Royal Park Investment, as well that of our Egyptian subsidiary.

So if I continue and if I directly end back at what I said a little earlier, you can see on Slide 7 that the revenues of the operating divisions were pretty resilient, thanks to the diversified business and geographies.

In general, Retail Banking where revenues were that higher, driven by strong performance in Turkey and own domestic markets and particularly Arval, as part of the domestic markets. Investment Solutions was from the back of strongly results in insurance, while CIB was only 0.4% lower on a comparable basis.

Now, next to the revenues, let's go to Slide 8, and let's look at the cost and you'll see that we have continued to keep a lid on the cost in our operating divisions as the first effect of Simple & Efficient started to peak in.

In fact, you will notice the reduction in Retail Banking and particularly in domestic markets with a good contribution from its three main markets. Investment Solutions cost was a touch higher and good cost control, especially in Asset Management was countered by higher cost in insurance to cope of course with the higher levels of activity. Finally, CIB cost were 1.8% higher at constant scope as the effects of Simple & Efficient were more than balanced by continuing business investments in places such as easier as we had discussed earlier this year when we shared our Asia and Pacific.

Now, if we remain on costs, and if you can through Slide 9, where we provide an update on Simple & Efficient, which as I just mentioned has already started to contribute recurrent cost savings. In fact, in the first half these arrived at €330 million, of course benefitting from some quick wins and also from the anticipation of some projects, which were launched at the end of 2012.

And as you can see from the pie chart these were savings came for just over half from Retail, actually from CIB, and 15% from Investment Solutions, as we announced at the moment that we shared the plan with you. Now, what we also provide is the transformation costs, which are booked in the first half, which totaled to €229 million of which €74 million were booked in Q2, and basically investments for the second part of the year are currently of course being prepared.

And as a reminder Simple & Efficient is a far reaching and well structured cost optimization and simplification plan, centered over more than 1000 programs, which included total of more than 2000 projects, and until now 86% of these projects have already been launched, which basically means that there is a merger, a budget, a timetable. So I guess that this confirms that our Simple & Efficient plan has got off to a rapid and very promising start, making us confident of achieving our ambitious goal of totally enhancing the organization or reducing by recurring €2 billion of cost base as of 2015.

So, enough said about cost, if I touched upon the cost of risk. I said in the introduction it remained moderate at 68 basis points, as you can see on Slide 10. The main variables for cost of risk in the second quarter were the one-off impact of single ticket in Advisory & Capital markets for €65 million. I would call it a more than normal level of cost of risk in Corporate Banking, where actually the year-on-year comparison is meaningless due to the substantial write-backs that we had mentioned in Q2, 2012. When I say we are more than normal levels that means, we are more around expected loss for Corporate Banking.

Then, if I look at all the retail activities we observed a low cost of risk in France at 24 basis points, and in Belgium at 20 basis points, while in Italy the amounts was higher at 146 basis points even though it was in line with the level of the previous quarter. Previous quarter, meaning Q1.

And also you will observe a continued improvement of BancWest cost of risk, which attainted a particular low level this quarter and you also observe stabilization at Personal Finance and Europe-Mediterranean's cost of risk was that lower this quarter.

So, I guess this is already a first sign that with respect to cost of risk our balance sheet is in good shape. And Slide 13 makes me change the objective and makes me call it a rock-solid balance sheet, because if you look at the levers that we basically have aggregated for you. And let's start with the solvency, where our fully-loaded Basel 3 common equity CET1 ratio increased at sort of 40 basis points to stand at, I have no other objective ladies and gentlemen, sorry that a very high 10.4%. This increase was due 50:50 on the back of the reserves in the quarter of course and a decrease of (inaudible) rates related to the relatively low demand for loans.

However, I know that some of you will say, but what about the leverage ratio right. Well, as you know we are not transfer this metric, let me kill this already first. I still believe that there has been 10 years of work in order to really link and tie-up the risk adjustments. However, I mean the leverage has been cast in gold into the CRR that have been voted in April and has been clarified further since, and so if we apply this, this Basel 3 fully loaded leverage ratio for BNP Paribas stood at 3.4%, which where we presently consider just the common equity CET1. So, I remind you that this a metric for 2018, it has to be at 3% and actually it is on full Tier 1, which if we would apply full Tier 1 so adding the hybrids at the level where they are today this would be at 3.8%.

Now, and also about this, this metrics, let's not forget liquidity and where our immediately available results continue to increase we stood at a massive €236 billion at the end of June, covering 145% of our short-term wholesale funding to put it differently, these results, it has room to maneuver in excess of one year in the case of liquidity shock.

So, if there is one message, I would like to rethink is this one, BNP Paribas really has a rock-solid balance sheet.

Now, and all these, where does it bring us, if we look at Slide 14, and to conclude essential liquidity part, if you can encage through our old favorite, the net book value per share, on Slide 14, where you can see that for the cycle we have been consistently increasing the book value per share and this remains true at the end of June. In fact our net book value per share has reached €61.6, and for those of you who are looking at tangible book it is now exceeding €61.

So, with this, I basically end the introductory part. Bare with me for a couple of more minutes to allow me to touch upon some of the elements of our operating entities.

Let's start at Slide 16, synthesized Domestic Markets on it, and as you can see Domestic Markets proves very resilient, generating a good overall performance in a challenging context. The pace of the deposit growth remained strong in all networks. Overall deposits increased by more than 6% in one year. Loans on the other hand, as I said earlier continued to slowdown.

In the second quarter, we successfully launched, and I handed that in my first sentence at the start of this call, we successfully launched Hello Bank, first in Germany, Belgium, and then in France, and Italy is to come. And initial indications are encouraging, but I mean, we are in for the long run, so we will give you an update on this wonderful initiative by year-end. And so in the context of persistently low rates, we managed to clock in €4 billion of revenues, this was also what by a pickup in financial fees after several dull quarters and as I said earlier by a contribution from Arval.

We continued also our cost efforts as I said which were reflected in a further reduction of the cost base, so natural dislaunching of Hello Bank, operating costs were down 1.3% and this in turn allowed our three main markets to show yet again an improvement of their cost income ratios and with all that gross operating income improved to €1.5 billion. In conclusion, despite the higher cost of risk in Italy, domestic market confirmed high levels of profitability at €1 billion of pretax income.

If I continue on resale issue, can ask you to cast your eyes on Slide 20, where we have EUROMED, which enjoyed another dynamic quarter with significant volume growths especially in terms of deposits, the star, if I can say so, with TEB in Turkey, which performed particularly well. The revenue growth remained double-digit, while expenses remained under check, more than under check, actually despite continuing investments to right size the network in Turkey. Indeed the costs benefitted in Q2 in EUROMED from operating efficiency measures in both Poland and Ukraine, and so which leads to this charming evolution of a pretax income growth, which had basically lapsed by over 50% on a comparable basis. I mean, there was of course also the impact of the sale of our Egyptian operations.

So, for those on iPad, please swipe to the next Slide which is 21, and which takes us to the other side of the Atlantic, to the well, to the Pacific even, mainly where we have BancWest, which continued to show dynamic commercial activity both in terms of deposits and loans, probably also assigned over the shape of the U.S. economy. Loan growth was driven in particularly by good corporate activity, where we started reaping the benefits of the investments we have been making in the commercial setup. Private Banking also continued to develop well as managed assets reached $6 billion up 32% versus last year. Of course, here also the persistence of low interest rates and that's a long sales wait on the revenues, while cost being stuck a bit, on the back of what I've been selling for a couple of quarters now of continuing investments in more strategic areas that I've just mentioned, which is Corporate and Private Banking setup where we basically rollout the diversified BNP Paribas resale concept. So, all in all BancWest confirmed a strong contribution for the Group of which we are very happy with a nice round €200 million of pretax income in the second quarter.

Now, if we finally to complete the retail review, quickly glance at Slide 22, where we have Personal Finance, which continues to lay the foundation for further developments as shown by the partnerships signed in China with the Bank of Nanjing to develop consumer lending solutions. In addition, Personal Finance we see it as a deal certification for its key financial trends a renewable credit offer. Revenues were a touch softer due to the continued reduction of mortgage stocks in line with the adaptation plan. Right, so the adaptation plan totally, which has related to mortgages of course takes a little bit more time to invade.

So consumer credit if we look at it, in France continue to present by regulatory impact, while it showed good trends in Belgium, Germany, Central Europe, Brazil all that coupled to a good cost reduction on the back of the adaptation plan, which was launched in 2012, and directly leading to a cost income ratio of 45%. And so all in all, Personal Finance closed the quarter with a sizable €312 million of pretax income.

So let's draw line under retail and let's go and through to Slide 24, which leads us into the Investment Solutions space and its performance in particularly in Q2. So revenue growth continued and particularly good contribution from the insurance activities especially on the protection side in Asia and Latin America. Also Security Services revenues were up, thanks to higher transaction volumes and also Wealth Management confirmed its growth trend.

Asset Management revenues continue to be penalized by decreasing average outstandings as this quarter also witnessed outflows particularly in the money market funds given the yield environment.

Noteworthy, for further development I would point the recent agreement signed with the Bank of Nanjing in China if that is really needed to stratify, where else would it be I guess, to develop the life insurance business.

Now, operating expenses decreased thanks to the benefit of the adaptation plan in Asset Management coupled with as you know BNP Paribas the effective cost control in Security Services.

Insurance was given a little bit of lead way and the costs were up but of course reflecting the increased level of activities that I consider. So, all in all pretax income showed 6% improvement compared to previous years reaching €564 million.

Now, finally in this part of what I wanted to share with you Slide 26, you can see the Advisory and Capital market revenues picked up in the second quarter, driven by stronger clients' activity. Although this was a bit dampened by the recessing of market tensions following Fed announcements towards the end of the quarter, right which was generous that came from that and this volatility towards the end of the period weighted actually and particularly on the rate activities in our fixed income. While within fixed income Credit and Forex had a good quarter, moreover activity and condition was pretty good as I said and it's demonstrated by the fact that we retained our top spots in all corporate bonds in Europe and ranked eighth for all the international bond issues. So that is basically the fixed income part.

On equity and advisory it posted a good list, as stronger client flows and renewed infrastructure products was confirmed in the second quarter especially in Europe and Asia and also equity linked performed quite well and we kept our top positioning in Europe. So that's on the Advisory and Capital markets, Paribas.

If you now turn to page -- Slide 27, where you have the other elements of our Corporate and Investment Banking, namely the Corporate Banking where the revenues were lower as a result of the remaining of the 2012 adaptation plan. Right, remember we embarked more than a year ago on the deleveraging plan, which was basically done in 2012, but of course if you compare the 2012 Q2 outstandings and the revenue that we generated, well of course before deleveraging and so of course the Q2 has a lower volume base and therefore also a lower income base. But this adaptation is totally behind us and basically if you look at it compared to the previous quarters of Q1 we saw that the revenues were up 9%.

We saw a rise in commissions on the back of good client activities as seen by rising in Leveraged, Acquisition, Oil & Gas, Media Telecom, which crystallize if you want, the loan number by our number one position for all syndicated loans. So all this illustrates that the current activities was good.

We also have some further illustrations for some landmark deals in Originate to Distribute such as Cable Vision in the U.S., the refinancing at Brussels airports in Belgium, and a gas terminus in Russia. So that's basically summing it up for our divisional results.

I'm not yet going to hand it over to you, you have to bear with me a couple of more minutes, as I said before we are prudentially ready so I have the pleasure and take a little bit more of your time to talk about some further steps in our business development plan and thereafter I will hand it over to you.

So, if we can turn to Slide 29, where you find a recap of what we have already announced. As a reminder, we have started with Simple & Efficient on which we did a progress report. We have given you details on Asia-Pacific. We've told you about Hello Bank, and together with what I'm going to talk about now, which is the Asset Management business and our further development of operations in Germany.

And so, as you all know with as a gentle reminder, our intention is to present one new group plan in the first part of 2014, and you basically get the first flavor of it, when we publish our 2013 full year results, just to already attract some crowds for that event.

So, if I can ask you to kindly swipe to Slide 30, and we will get going with the Asset Management plan. So investment partners, as you know, as a strong investment culture buildup over the past many years, and went step after step, it is a strategic business for BNP Paribas as it basically manages the assets of our clients and we consider critical to have full control of the quality of products proposed to our clients. And also, it's an already very profitable business and it is key with regards to institutional costs. Also I remind you, that we already have a global reach in asset management with 3200 people, 40 countries and managing €375 billion at end June.

Our setup of the plan is basically centered around three key areas. First, the institutional arena where we are already a major player ranking seventh in Europe, moreover in various capabilities our investment management is recognized by the top global consultants and industry reviews.

Second, another area where we have a natural strong position is with retail and private banking clients, thanks to the distribution in our four domestic markets. And beyond this we also enjoy access to large global distributors.

Third, we also have an attractive setup in 17 emerging markets with €50 billion of distributed assets. This presence is complimented by local partnerships, such as Shinhan in South Korea and HFT in China.

So, if we move to Slide 30 -- sorry Slide 31, apologizes institutionals, emerging markets, and distributors, represents as I said the three main assets of development of our Asset Management plan. For the institutionals, the focus is on developing new expertise, spending the presence, and with all that improving further, the recognition. In Asia and emerging countries, the plan is to consolidate our presence in key markets, such as China, Brazil, South Korea, as well as strengthening local expertise and forging new partnerships with local placement. For this purposes, our vision is to become one of the top three distribution platforms in Continental Europe through a rationalization and optimization of this effort. So different dynamics for the three, one, which basically through investing we will grow, another one, which is similar but might take a little bit more time in the emerging markets, and the third one, which is basically on the back of rationalization.

So, with this, if we look at Slide 32, so clearly to achieve core trends in Asset Management, as I said we have to make selective investments, particularly in the institutional segment. Assets, attracting and retaining the best investment managers will be a priority.

Over the planned horizon, we're targeting a progressive relaunch of the inflows by 2016 we expect €40 billion of net new cash in the value added segments, as shown by the pie charts on this Slide 32, the lion share of this new cash, will come from Institutionals, followed by Asia, and emerging markets. Revenues are expected to progress by 10% during the period, following the evolution of the average Assets Under Management. This should basically ensure strong profitability going forward for this core business of the Group, and also of course in view of its limited capital source.

[Foreign Language] Slide 33, plan for Germany. So kindly flick to Slide 33, where we crystallized basically because it's, may be not yet fully proceed but BNP Paribas has a sizeable and diversified setup in Germany, covering all prime segments, and a strong German franchise is an important element in the Group's European strategy of course for a number of reasons. The importance of Germany as an economic partner for key BNP Paribas domestic geographies, the results of the experts orientation, and the internal exposure of a large part of German companies and also the work has strengthened Germany to start enter credit scenario, which might see them lead the pack on consolidation moves in Europe, and internationally.

So, we've added a timing slide of timing Germany, where you can see the 12 operational entities in the country growing from 3500 people. And so, you can see the difference in the different locations where each of those are. To specialize it out and to give you an idea of our presence, in Retail Banking we have some strong specialized franchise about Cortal Consors, which is operating Arval Bank, which is I mean for Germany, which is a leader in online investment advisory. Personal Finance, where we are third in point of sale; Consumer Finance and Leasing Solutions, we're a leader in farm equipment and at front positions in what we like to do very well and that is vendor financing.

In CIB also we have a longstanding footprint in the large corporate and institutional segments leveraging on six business centers, and these are of course an integral part of the Group's approach "One Bank for Corporates."

And finally, in Investment Solutions, we have also some strong position, for example Securities Services, where we are number one in depo bank, and Real Estate, where we're also number one for commercial real estate transactions and then our the last insurer Cardif, which is a key player in credit protection insurance.

So, you can see with this that we have strong positions on which we intend to build our future developments. We're now basically starting from scratch, so doing one thing we basically capitalize on this.

So, looking at this strategy on Slide 34, where you see it basically consists of a global growth initiative, building on this existing experience, while of course fostering even more, cross-selling at Group level in all segments. So, we basically intent to boost deposit collection from individuals leveraging on the recently launched Hello Bank, concurrently we intend to increase lending especially to mid and large corporates with a specific focus as I said early on middle spend, owned and sourced subsidiaries of multinationals. Our aim here is to be in the long run among the top five players with mid and large caps, and I already say we're here for the long vendors. So this more a 2018 kind of objective than the one for tomorrow.

So, in conjunction with all this, we are of course also beginning to further reinforce the strong positions that I mentioned in specialized businesses. A good example of this logic is in Securities Services. We've just signed an agreement with Commerz to take on the depo bank facilities.

So, if we turn to target for development on Slide 35, you can see that our main targets to increase revenue generation from the current €1.1 billion to €1.5 billion in 2016, which implies a CAGR of -- Compounded Annual Growth Rate of 8%. In order to do that just like with all the other plans, we have to put boots on the ground, in this case we've to hire some 500 staff. This is of course banker, credit analyst, all, and work on enhancing the commercial effectiveness and visibility. For example, we circulate on BNP Paribas Houses to work together the different German teams. And so over the prime horizon, we're targeting a strong growth of commercial commitments in line with the development of the business activities and of the client base. So overall in terms to develop a long-term franchise in Germany, which represents an important market as I said for European reach.

So, with this last 36 and in conclusion before I hand it back to you, BNP Paribas has proven resilient in Europe, while showing a good drive in fast-growing markets. It has continued to deliver on the operating efficiency front, also benefiting from the initial effects of Simple & Efficient. It has demonstrated its superior risk management by keeping cost of risk under control, despite the economic backdrop in Europe. And if I add one thing I can have you take away, it has a rock-solid balance sheet, while it continues to make good progress towards the preparation of its plan 2014 and 2015.

And now, I'm going to have ladies and gentleman, madams and misters I turn it over to you for your questions.

Question-and-Answer Session


(Operator Instructions) We have a question from Jean-François from Goldman Sachs. Please go ahead.

Jean-François - Goldman Sachs

I would have a few questions if you wouldn't mind very short. The first thing is with this new releases from the U.S. on the bucketing of banks according to their capital constraint locally. I just wondered whether you could tell us where you fit, where your operations in the U.S. would fit and to what sort of leverage or capital constraint that would be subject locally. Thank you. The next thing is, I couldn't help noticing that like in the previous slide for the first quarter you noted that your capital formation this quarter was 20 basis points net of your conventional dividend payout ratio. That conventional word wasn't there before. So maybe I'm over interpreting there, but is we should understand that could be unconventional going forward. And lastly, I just wanted to try to understand when I look at group wide jaws effect older one-offs they're starting to improve slightly, but they're actually negative and I was just trying to understand at what sort of time horizon you expect to have these going back to the old sort of BNP habit of an improvement in the cost of income ratio and that would be. Thank you.

Lars Machenil

Jean-François, thank you for your very interesting questions. And particularly your second one make me feel a bit like Bernanke. I have to be very careful, when I talk about conventional or tapering, but I will take them one after the other.

So, first of all on the U.S. bucketing, well my stance or the stance of BNP Paribas, we overall leverage and it's not the kind of metric we believe is one, which should be the most or the one, which should be the guiding beacon. So, we still believe that overall and the way we manage things risk weighting of our assets and related capital and management is what it is. But indeed, there has been some crystallizing out of leverage ratios. For us as a bank it is one has articulated by Europe, which is important, which is articulated in the CRR in April and clarified over the last couple of months, which is what we have published.

Our understanding from what is developing in the U.S., which isn't should have been goal yet is that you would have, if I choose my lingual peer, when I talk about the leverage in the U.S. I basically talk about the one that we used to call Basel zero. So, we basically take your balance sheet and your capital.

So, my understanding is that the proposal will be that all banks will be at 4%. Then the thing is that the translation of the Basel 3 leverage, which is the one that we call CRR, which is in the U.S. translate into something which is called supplementary leverage would be at 3% basically for those who are in advance models. And then you have scheduled of banks, which are G50s, which would be at the most company at five and for some of their FDIC compliance entities even at six.

Now, what we understand is that our activities would probably be linked to the first two. So, a simple leverage of four, which would be applicable to all banks and as we would be in advance mode, we would also have a supplementary one of 2%. So, that is our current understanding of the current interest fruit around. I remind you, which is not yet cost in anything else and is not necessary worth much more than the paper it's written on today.

On to your second question, on conventional, we aim to be precise and we talked that is what useful to remind everybody that when we calculate and publish things like retention and dividends and whatever there is a convention. There is a convention, which is just during the year to take conventionally the payout of last year. So, it is not done yet. It is just to remind you that the 29.7 doesn't mean anything else than that it is basically a conventional number.

And I also remind you, that what you are probably proving after is a hint of a dividend policy where we basically said that this will be something we announce when we announce our plan, because we need to have finalized our plan in order to know at what rate we can bounce back earnings into the business and basically give you a view as long, as we haven't done that we have this conventional view.

And then thirdly, with respect to growth jaws, let me remind you that what we have set forth on the Simple & Efficient is basically saying in a lackluster environment jaws are may be not necessarily the right thing to do. So we want that an absolute yardstick and so we basically said we fight inflation. And so well, if there would -- if nothing would have changed our cost would basically beat inflation and our revenues would get a little thicker by inflation. So you would if all being equal, you would find jaws back. But again that all depends on other things which are happening, and as you know, we are also investing in some plans for growth.

So all in all, as you know, our focus on cost remains core that is why we basically continue to give you these but we ask you to bear with us that we have a couple of investments, which we believe are very sensible in those very lovely businesses that we have. So far, I have taken longtime to answer your questions that I thought you were very pertinent, so thank you.


We have a question from Lorraine Quoirez from HSBC Bank. Please go ahead.

Lorraine Quoirez - HSBC Bank

Hi, Lars Machenil. Just a few questions. One is on, I was looking at Slide 74 where basically you compare your Basel 3 leverage rate ratio with resource from other banks. And I can see that if we did Tier 1 calculation you already are at 3.8%. However, I was wondering whether you would be planning to issue additional Tier 1 securities once you get to sign on those guidelines, so basically, you're not just replacing them but you're still adding some more. Then, another question would be may be a follow-up on previous question. Where do we stand in terms of entering holding company? And if you were to have all three main U.S. units under the same umbrella, what would be the leverage ratio as of now? And finally, you give quite a bit of color on strategy, asset management in Germany. I was wondering whether this investment you will make some move in the cost program to invest in this two area or whether we should be thinking about planning different cost before actually revenues comes in. Thank you.

Lars Machenil

Thank you, Lorraine. Also, three very interesting questions. And well, on your first one, should I read that you have become a debt investor and interested in our Tier 1 program. No, I think honestly, the thing is, as we've always said, we're waiting basically for -- we have a set of Tier 1 which is fine, they're basically grandfathers, so we very happily can pursuit that, we're not in a rush. We will wait for clarification. All in all, we are strongly capitalized, so we're not in a rush at this stage.

With respect to your entering holding company and the things around it, well at this stage here also we basically wait some clarity from the Fed. I mean, when comments were made and proposals made with respect to the FBO things moved fast and we had a -- well, I'm not going to say glimmer of hope, but we had an indication that the U.S. would move fast and carry so fast we thought initially June and December, but the timetable seems to be skipping a bit. And so, it is not very clear for us when that will clarify. And so, further it is very difficult to understand what we would have to put in and therefore it is difficult to understand what kind of leverage and indeed where we would stand and how that we would work. So I will have to -- well, I cannot say much more about it at this stage.

With respect to your cost program and your very pertinent question and if there is room for some other things, here also I think well, initially to be frank, our cost program had as objectives as I said to basically free the cost at the end of 2012 in the scope where it was. Now, in the meantime we are what we observe, you indeed observed that we do free up resources in order to on, to reinvest. At the other time, you've also seen that our Simple & Efficient had started quite well. We announced $500 million of yearly recurring and after six months we are at $330 million. But it's just a touch too early to answer this crystallizing out, so I demand you to just give me a little bit of time to crystallize this for you by the year-end when we will be able to update all this stuff to you.


We have a question from Delphine Lee from JP Morgan. Please go ahead.

Delphine Lee - JP Morgan

Yes, hi, Delphine Lee from JP Morgan. Just a few questions. First of all, just a comeback on leverage that these are, that this estimate that you gave on 3.4% based on doesn't take into account the new proposal from Basel from June. So I was just wondering where you think you would stand on the new proposals. Secondly, if you may be could give some color on how the quarter is developing in capital markets if you could and also corporate banking. And then, thirdly, on cost of risk just if you could also give me some guidance may be on the BNL cost of risk and also in CIB where we had this quarter one-off, but what kind of run rate or it we should expect further increases in the second half. And lastly, just on the corporate center revenues this quarter it seems like the revenue were so much better than I think you initial guidance of around €800 million, €900 million per year. So if you could explain if there are any exceptional gains this quarter. Thank you.

Lars Machenil

Thank you, Delphine. There is no end to you guys having good questions. So let's tackle them one by one. Yeah, the first one, Delphine bear with me. And if I were to provide numbers on every single piece of paper that somebody write, there will be no end of day. So I mean for us, I mean we have regulation, there is a CRR which was voted, it was clarified in June, and so we have calculated on that basis, this is where we stand, which is 2.4, 2.8. I mean people can invent whatever it is; I mean you can run the numbers. You see where we comfortably stand and I'll leave my comment like that.

And with respect to your probing on the CIB in the quarter, you know that we are a foreign bank, and so we do not give any inter quarter updates or policies for that.

On your cost of risk questions and yeah, well, give me a second. I'll just pickup my crystal ball and give you an idea of how things go. Now, with respect to BNL, I think what we've seen in BNL is that we have of course have seen if we go back a year ago we saw a pickup in cost of risk following this summer. I think the return from holidays in Italy was quite dire and so that will add basically to the pickup that you've seen.

And if you look at this quarter it basically stabilize versus the next one. Honestly, I think you'll have to wait for the next couple of months and to see how things restart after the summer holidays in order to give you a kind of guidance. I think for the moment as I said it is stable. We'll need a little bit more of observation how it goes to give you further guidance on this one.

On CIB, CIB of course corporate banking, corporate banking as you compare to last quarter it looks buzzard but of course last quarter was written with write-backs. So what we have on corporate banking, as I mean last quarter -- I mean quarter-on-quarter, year ago and so where we basically stand now is roughly in line with expected loss. So it is basically in the mid of the cycle where we would expect it to be.

With respect to capital markets well, it's not that we have credit as far in there but from time-to-time there can be a counterparty issue and that basically is the reason very exceptional cases like we have now to an impact in cost of risk at the advisory and capital markets.

Then with respect to the buildup topic of corporate center let me remind you all on this. So, if you go back before I turned CFO, the corporate center had a guidance of zero income. But it also had a guidance that it said that it stripped away during the year because and particularly in the second quarter there were dividend payoffs of the participations that we had. Then I came along and I thought that zero is not a beautiful figure and basically the cost of liquidity kicked in because all the liquidity that we catch-up as you know by now and that basically lead me to a guidance for the year of €800 million to €900 million. But of course this guidance included the fact that there would and I think I said that there would be some kind of volatility within the year and particularly the second quarter.

Now, all to be fair the dividends payout had been a bit stronger than what I anticipated. So we could say that we are that better than the number that I gave but we're prudent and boring bank so if I review, there is still six months to run, and I would stick to the guidance of €800 million to €900 million for the full year.


We have a question from Jon Peace from Nomura. Please go ahead.

Jon Peace - Nomura

Actually two questions please. The first is just following on from one of the previous questions about the cost of risk. And as you look at the Group as a whole where you printed 68 basis points this quarter with a stabilization in retail and CIB at a more normalized level, is this the level you feel comfortable with going forward. And then the second question is on the capital ratios. I appreciate that you went through six business plans, before you gave us dividend guidance. But what sort of medium term targets are you thinking about core Tier 1 and/or (inaudible) what stage do they come uncomfortably high where you might think about a buyback? Thank you.

Lars Machenil

Okay. This is typically where we improved our system and so our cost of risk is difficult to say. What can I say is that for the bank level as I said earlier, we are somewhat around expected loss, what the means you are at the average of the cycle? So, it's difficult to say, I mean we are for the moment what do we see, we see that France is holding very well. We see that Belgium is holding very well. I mean Italy had a pickup, but is stable versus the last quarter. And we see that our growth markets are basically doing well. The U.S. on the back of the economy recovery is doing well. So, definitely we don't give any forward-looking guidance, which would be difficult, but this is the real situation of how I read it.

And with respect to your capital ratios, well, let me tell you I agree with you; and let me call confronted this. We are not in the business of accumulating capital as we said. And if I take the past, the past has it beaten for the future you know how it works. We were well capitalized in the past. We flew at that capital ratio. We basically took stock of how much capital -- earnings sorry we could drawback into the business and then one line of that percentage was basically the dividend payout.

In the past, we drawback 60% to 70% in the business and paid 30% to 40% in dividend. During the crisis years, it has been a step below that and we were at the conventional 29.7% last year. So, we will have to see, where we end up. The where exactly will that be, well it would probably seems a bit higher, but where exactly it will end up honestly I mean I could give you numbers. But look around as many of I'm not saying anything about anybody, but you want to observe that if you make statements, you run the risk that you will have to correct them afterwards. That is not what we do.

So, I prefer to be a mum board to you guys in saying I need to finalize my plans that's start to be just stabilization of regulation so I should be able to have a central scenario in which I can develop the plan and in which I will be able to tell something sensitive. And I know it's still a couple of months, but hang in there. I mean, we're chief there, and we're below book value and tangible book value. So, hang in for a couple of moments and then we will be able to on a tangible way clarify the statement.


We have a question from Kinner Lakhani from Citigroup.

Kinner Lakhani - Citigroup

Hi, I'm Kinner Lakhani, Lars. Three questions. Firstly, in terms of your growth programs, wondering if you had any thoughts on the U.S. virtually you've been making investments in terms of what kind of cost you see potentially what kind of payback you're looking forward to? On corporate banking, where obviously you've gone through a very significant deleveraging exercise, we're seeing some recovery in Q2, would you call it an inflection point and is BNP deploying it balance sheet more proactively. Thirdly, just on the asset quality review if you have any further update on what areas you think are particularly being focused on and if you see the possibility of an advanced program by the French regulator. And finally just a quick kind of basic question on Arval just wondering how much revenue came from the rise in used vehicle prices?

Lars Machenil

Kinner I mean there is no end to the good questions that you guys crank out. So, first of all growth in the U.S. Well as you know I mean we're very fond of it and particularly myself and so we basically like a race horse waiting to get launched. And basically crawl back as I used to say the things that we had in the past and even do better because we have so wonderful activities with the Bank of the West and our CIB activities in the life and our investment solutions.

The sad thing is that well, if we go back to where this year, when we started to work on these things it looked like there was calm weather with respect to regulation. I mean I even have most of my weekend that I didn't have to read regulation and then oh boy did it change again. And that mean that in the U.S. I mean it would be silly if I give you a plan and then I say, oh I have to change it because basically the FBO is different than what we expected.

So, I love to be able to give just if we worked on it, we have very good insights. We believe we can do wonderful things, but I need to have clarity on the regulation because otherwise I will say things by construction were not held up because and you will not necessarily materialize as it is in the papers today. So, here also if you can, when you wrote your claims to Mr. Teru (ph) tell him to hurry up. And so, as soon as we have clarity we will come back to on that one.

With respect to corporate banking, on corporate banking it has to as a result what I said earlier, you have to be careful that my words are not misinterpreted. And when you use a word inflection point and I would apply it to client activities. I would say, yes. If you look at what has been, what we've been doing I mean we've been cracking to whip on it. Look at the ranking that we came out. We were in number two in media, number two in oil and gas, number one overall in syndicated. So, we've been doing a good job there.

However, at the same time you basically ask me if we have an inflection point, which respect to the balance sheet. Now this is the different thing because at the same time we are originating and supporting our funds in it, but at the same time we are doing this OTD that Europe wants us to do and we have given some examples of it.

So, on one hand I think yes our corporate banking hit back in business. I mean, remaining mandates, we're very happy with that. But it doesn't necessarily require as much balance sheet as we did in the past, so that is how I would answer your question.

With respect to the asset quality review and advances by the funds regulated, my understanding is that there should not be an advance by any regulator because what my understanding is, that these fine ladies and gentlemen of the regulators that the ECB are camping together in wonderful Frankfurt, in order to hammer all of the details on how to conduct, so the kind of procedures the standing operating procedures of the AQR after which basically all of the local regulators will crack the wit on these regulatory, on these procedures. And then, once that is done they will all return to shine in Frankfurt and basically do a peer review to insure coherence with respect to what it is. So there is nothing advance, I mean it will just kickoff probably, I guess after the summer, so in September it will run for several months and I guess by the summer time next year we will have a review on that.

And with respect to -- well, you're very well aware as you pointed out that although it's retail, it has fair value aspect in it, and so the big fleet of cars is basically reevaluated. And on quarter-on-quarter the revelation of the fleet has contributed €26 million to the top-line.


We have a question from Nick Davey from UBS. Please go ahead.

Nick Davey - UBS

Three questions, please if I can. The first one, please on available for sale assets and yields you are getting off that? I just look at some of the disclosure you actually gave us on page 38 of your financial release, looking at around €2.7 billion I think of revenue from the AFS assets in the first half of this year. I just wanted to hear, if you could give us a little bit more color please about the split of those revenues, how much is coming through the insurance side, how much in non-insurance side and whether there is any reinvestment risk you think to the AFS portfolio? And the second question, if I can would be on liquidity coverage ratio. You've been very forthcoming in giving us disclosure now around leverage and tons of other aspects of forthcoming regulation. I just wanted whether you would be happy to talk a little bit around LCR and if there is any holdup to you disclosing that on a quarterly basis? Thirdly and finally, on billing annual debt please, just have a little bit of an update what you're thinking about I know in the past you've talked about having a view of that being measured off risk rated balance sheet now it seems off gross balance sheet, whether you think this is going to be something that will take a material path in how you plan to the Group when you present things in early 2014. Thank you.

Lars Machenil

Okay. And Nick, could you just rephrase or re-crystallize your billing question, I'm not sure I got it?

Nick Davey - UBS

So the question is, with -- in the past I think when we talked about billing debt, you talked about the quantity of billing debt being measured off a gross -- off a risk rated balance sheet, now it seems like it is going to have to become measured of a gross balance sheet. I just wondered if that's change of thinking it's all about how relevant an instruments it would proceed?

Lars Machenil

Okay. Good. Again, there is new end to your guy's good question. I mean, so if I start with the available for sale, let me remind you why basically we have available for sale, we have it for all kind of reasons. And while we were younger, we basically had lot of those in order to basically ensure our interest rate risk because let's not forget that what the bank does is basically try -- not try I think mange very well, credit risk and interest rate risk amongst others. And so, we basically constituted in the book for that, because in our AFS there is a lot of going. And as you know, all the importance which on paper are short are basically relatively long on maturity and so these basically form a natural hedge right for it. And so for us that is basically the thing, so that is what it is.

Moreover, AFS have become popular now as a way to store its query, which is useful in the thing that will come on to your second question. And so from that point of view and what we're storing into the AFS, is not just kind of a book that we have to let's say check the results but basically overall. And so, the overall aspects of yield and of replacement are much more to be seen in that kind of offsetting more than in the search for yield that's all on the assets.

On the LCR, I remind you all that at the end of the year 2012 we said that we were basically there. And in the meantime, there is a whole slew of things that have to be certified. And so in order to avoid and that we make bold statements that we would have to revisit it afterwards and I bare with you to wait until probably in October, November the EB will have dried up the ink on the LCR and we will be able to give you the precise numbers. I mean, that's why typically we don't give you any numbers as long as they don't ask it because it can lead when they are not yet crystallized to basically having to review the numbers. I'm not singling out any other bank but the message of basically in its definition credit as far as recently and so one could have been led to have a different number before than after.

So LCR it is what I said. We're basically there end of the year. There are some things which are in the wings whenever they are crystallized we'll come back to you.

With respect to the billings, for the billing I think you refer to the tax which have been proposed by the European Commission. It's rich indeed it basically crystallizing out some things so it's first of all crystallizing out that Europe is going for billing instead of for the bid outs that some of the jurisdictions like the U.S. do. And we indeed clarify that there would be a kind of a threshold of around 8% where they would bill in first. It can be brutal to the equity investments around the phone, which are probably most. So if there is trouble you basically instruct writing out rules then you wipeout hybrid and so on. And so they basically take a look at your size of your real liability and there is a percentage of that.

Now as I said for us what I basically does is the billing procedure respects the hierarchy of the liabilities. So I basically said if this works with bankruptcy then of course you would have taken out equity, hybrids and so on and so forth. So you wipeout from the bottom to the top and so that is basically what the billing respects, which I think is very wise and we welcome that.

And so I mean, if you would take a prudential balance sheet and you would take I don't want 8% and you would say let's report that BNP Paribas stays with 100 billion impact, which I mean 100 billion impact you see what that would mean and then if you would take the prudential capital so I wipeout visuals and steps like that and I attribute that. You will get something like 86 billion, so there is the delta between this which is may be 16 billion that you would take out of let's say in the order of that instruments, out of which of course I agree you have to take out some elements of debt guaranteed 100,000 and some of the SMEs.

But still if you go down the balance sheet you will see that there is a sizeable set of Paribas debt and so if you would apply the couple of billions that you would require to bill in that would be somewhere below 5% of the top debt. So I think that all this is basically tried because I mean your equity is what it is. Your junior debt it is already tried into that kind of stuff and as I said for a bank which has also a balance sheet that should be manageable.

But of course this again will polarize the banks. I mean if you have a rock-solid balance sheet that will not necessarily worry you too much and impact you. If on the other side it's not as necessary sturdy that of course might be a different thing.


We have a question from the Geoff Dawes from Société Générale. Please go ahead.

Geoff Dawes - Société Générale

This is Geoff Dawes from SocGen. Three questions all fairly brief if I may. The first one is on the rock-solid balance sheet, which you mentioned several times. And if you could just give us an indication of whether this is showing up in better issuance spread as well. So whether you're seeing a tangible funding cost benefit from this and when we can expect to see that in the profit and loss account. Second question would be on the corporate banking cost base; obviously we've seen a big restructuring lower in terms of lending volumes and also in terms of revenues. But there's really been no impact on the cost line, which this quarter versus was a higher ever really. Is that just investments or is that the underlying cost base actually coming down in line with revenues it's just cloud you by those investments. And then the third question is on the tick performance, the tick revenue performance and perhaps if you could just give us a little bit more color on the rates weakness that you saw at the end of the quarter. First of all whether it's positioning or flow business and second of all whether it's just a transitory tick down that's improved in the third quarter or something more permanent as much guidance as you can give. Thank you.

Lars Machenil

All right, thank you very much. So with refi. Thank you for identifying that I hammered a little bit on it. I have to pick every quarter in other word it can every time be French wise. So, I thought rock-solid will do this time.

Well, with respect to pricing I think of course there is diversification if you look at comparable banks I mean not picking singling out the one which is your employer? But there are in need different pricing which are fruiting around and so if moreover this rock-solidness can triple down into the cost of equity then there would be even better.

Now, with respect to your corporate banking cost base, so yes indeed I mean we can remember that last year we said that we indeed singled out adaptation costs in order to lower the structural cost of corporate banking in line with the deleveraging. But at the same time as we said, corporate banking is a very important part of what we do look at our results, look at what I told you on client activity, look at what part it plays relevant part it plays, German plan relevant part it plays in our Asia-Pacific plan. So, that means that's what we have seized we're basically investing it. So, we are investing it in cash management. We're investing it in the things that we do, let's not forget in Asia we're putting systems on the ground and so on and so forth. So, yes we are using the fact of having reduced costs to give it the liberty to invest. And so, that's on corporate banking.

We do expect to figure as I said so we have good client activities it's basically rates, which got impacted by the jitters of a certain person which I will not name, but who is the head of a big Federal Reserve Team. And so what has happened is that it triggered and particularly in Europe quite an important selloff of those things, which basically let to disruption and makes you a part of that and you're market baker then these jitters and in particularly these lead to higher prices, which basically impacted the performance in the last couple of weeks.

Now, I'm not going to give any guidance, but I mean you have seen what the spread has done since end of June and so basically the spread have come down a bit. So, one could assume that part of what you have seen in the last couple of days is indeed a step-down. But I mean don't hold me to it, but we'll come back on the end of September as you know as to see where we stand. So, Geoff I'm going to leave to this.


We have a question from Pierre Chedeville from CM-CIC. Please go ahead.

Pierre Chedeville - CM-CIC

I have two quick questions. My first question is comes from the asset management plan that you gave today. I'm not quite comfortable with the kind of crystallization I try to do; when you say that you want to increase your net inflows by €40 billion in 2016. And including the same time by 10% your revenues in asset management, when I made a quick calculation based on the size lot on the revenues of 2012 let's say 60% relate to asset management. It's mean for me that out of the €40 billion of net inflows the revenue is roughly 4 basis points, which in my view seems very low. So maybe I'm wrong in my view, but I like you to give me some color on that. My second question related to the Turkish subsidiary I'm quite impressed, but also a little bit worried by the increase in the net banking income of your Turkish subsidiary, which is more or less 30% because it reminds me the growth of net banking income of REIT bank in 2005, 2006 of course I guess that the situation is quite different, but I'd like to understand how do you make such an astonishing growth. What kind of flows and what kind of growth of your credit there? Is there an increase in margin of fees? What is exactly the effect of growth and mix of prices, I don't know, but I think like [questionable] in my view to have such a big asset, such an increase in your net banking income. At a certain point it may be dangerous in my view.

And my last question is related to your B&D that you talked regarding Germany. Will it be something that you're going to generalize it means that it's a group thing is it specific for Germany or is it something that you could do that already exists in France for instance, Italy I don't know? And the economy of building from such NTT housing I don't know. Is it included in the Simple and Efficient plan? Thank you.

Lars Machenil

All right, there is no end to good questions. You have to know and I thank you for allowing me to clarify the asset management plan because indeed it needs some clarification. So, as you know, today what do we have in our asset management, we of course have an existing franchise, where we have a lot of products. With that we basically try to construct in a very efficient way and that we distribute basically within our own or partner networks. This is one thing.

Now, the big gist of our growth plan is of course on the institutional side, where it is also much more attracting the clients that all the things that I talked about having developing several access of products, having the recognition for it and basically gaining mandates with it.

Now, the dynamics of these things going forward are quite different. And then, so, if I start with what is basically, let's say the institutional, which is a big part of the inflow, there is indeed an inflow and it should lead to and it is high -- well, we aim to have it in high value added products, it should lead or it should be coming with decent margins.

Now, a second part of that is basically saying we are going to grow that into new partnerships in emerging markets. Now, that's going to take a little bit more. That's going to take a little bit more and so, in 2016, that might now be at fully into swing, and so that might take a bit more tax.

Then there is a third thing that you shouldn’t forget, which is the distribution. Now, the distribution is basically something on which that not impossible, but there will be some pressure actually on the margin and so we will basically have to even further improve our cost configuration with respect to it in order to sustain and grow the bottom-line. So, we have given only the top-line, but it is true that basically the dynamics are a tad more sophisticated and along the lines that I just said. So, I thank you for allowing me to clarify it because you could indeed be misled into the wrong conclusion.

With respect to Turkey, Turkey as a reminder, I mean you know that we have been merging over the last couple of years. That is now behind us. And basically the top organization is fully focused on growth. Well, your comparison between Greece and Turkey I think it’s still a little bit sensitive in that area. So, I'm not going to dwell on that. But let's not forget that the economy is in relatively good shape. The economy, for having been there, I've seen Turkey well, many of you probably, but I've seen cruise up in 2002 and I've seen the lessons that they've drawn from it and I've seen how they've gone through the last couple of years. So, there is a sensible economic growth, and of course, I mean, we basically grow, what I'd say, within our control environment. And moreover, let's not forget, that is why it looks indeed at face value high. I mean, the degree of bankerization that Turkey has is basically catching up for me. So, that is adding basically to that.

And so, that's it. And you will see that for the rest we do of course provision conservatively and you'll see that the cost of risk is basically is not running away, but I agree with you. I agree with you, it is something that we monitor very closely within that environment, but at this stage we consider it with all the levers that I said as a confirmed growth.

With respect to your last question on the orders in Germany, this is something in our other entity that we have it's called the Sante Awareness in France. And so, we basically as a reminder, we have 28 of them in France. So that's something which a hit and which actually works well. We believe it's one of the things, why we are able to control, for example, our cost of risk well because there is on one hand a concentration, but still a little bit of detachment from the day-to-day files and we basically think that doing the same in Germany is very useful because I mean often when I talk to people not everybody is aware of our presence and that maybe a little bit of our mistake because we are indeed spread in several regions because of original historic kind of thing. And so it’s important to regroup a bit around those concepts of central effect and having a little bit more visibility about the overall BNP branding. So, Pierre I leave it to this on your questions.


We have a question from Sergio Gamez from Bank of America. Please go ahead.

Sergio Gamez - Bank of America

Thank you. Good afternoon everyone. I think it's last for the call. A couple quick questions, if I may. The first one is, you got in and the announced €30 billion liquidity release from the CDC, how much will the bank receive in terms of new variable annuity funds from the CDC and also, how this will impact revenues if we do assume that basically reduce we deploy to farmers and mission local authorities net of lower commissions. Secondly, the bank soften liquidity buffer, has continued to increase to 145% in the quarter, which obviously comes at financial cost, is the current guidance so far underlying revenues for a corporate center by for this year? Thanks.

Lars Machenil

Sergio thank you for your question. I mean, with respect to the lead rail and when, as you know, for us the lead rail is not our main product, so when the lead rail was the ceiling was basically raised. We said at that time that for us it is not a major product and so that it would not necessary impact. So now, when the CDC change in a degree of centralization, well it is of course basically the same thing. So that should not be a major impact. But of course, it will help somewhat it will provide a little bit more liquidity to even more inject into the economy.

So, with respect to the liquidity buffer indeed as I said, I gave guidance for the full-year, including anticipation of some dividends and direct overall 800 to 900. As I said earlier, the dividend honestly came in as approx in a little bit better than I anticipated, but at the same time indeed the deposit that people keep on bringing to us are also little bit higher. So, that is why I would conservatively at this stage stick to the full year of 800 to 900.


We have a question from Flora Benhakoun from Deutsche Bank. Please go ahead.

Flora Benhakoun - Deutsche Bank

I have two questions please. The first question is on the cost savings. First of all, thank you for providing some update on where you stand. So, I noticed that you have achieved in the first half of the year more than half of what you target for the full-year in 2013. So, that means you are running ahead of France. I noticed that you said on the call that you had some quick wins, but I was wondering to what extent you frontloaded some of the cost savings for the full-year and whether we should expect for maybe a slow performance in the second half of this year.

And still on the cost savings I also noticed that the cost were achieved in ratio, so basically if I look at the transformation cost that you both compare to the cost savings that you did, the ratio is much better than what you are getting for the full-time. So, should we expect some outperformance down?

Then, I also have a question please on the impact of rising rate. I mean obviously, there is the possibility that the Fed is going to reduce its asset purchases. So, I was wondering, whether you could maybe give us some guidance on what impact rising rate, especially in the US would have on your P&L, but also it is possible on your tangible book value and solvency? Thank you.

Lars Machenil

Flora, thank you very much. Great of course with pleasure that we provide insight that’s you want and it’s also with pleasure that I observe that you’re reading very well. And just so indeed, we are running a bit ahead in the quick wins. However, we announced the 330 as being recurring saving. So, the quick win part means that they came quickly. It not means that they are just there for one quarter.

So, I think your observation is fair. We are running ahead in synergies and we are also running at ratios of investments to returns, which are somewhat better. But I mean, we are six month down the road, allow me to give you an updates later in the year, when we have started the second phase of the year on these things. But indeed, on the two counts that you mentioned we are indeed running better at this stage, so that’s on that.

On the rates, well let me again take out my crystal ball. I mean, honestly as I said, well, let us forget that. We try to hedge our risk, our interest rates to some extent, but if indeed in the U.S. short-term rates would go up probably long-terms would go up. I guess there are in business I mean, don't quote on me this right, but as you told that are new -- the low, the short-terms low, but that the low, long end will basically follow the U.S, so we could get keeping of the curve, which for our overall banking activities, is I would say a good thing. I leave it to that because otherwise my predictions in my crystal ball will start to be clouded. So, I leave it to this.


We have a question from Jean-Pierre Lambert from KBW. Please go ahead.

Jean-Pierre Lambert - KBW

And I have a few questions. First of all, it is number related, I know that you don’t seem to give the Basel 2 quarter 1 ratio, I was wondering what the ratio is currently? And then, also regarding the same theme, if you could give the actual, the quantitatives number of Basel 3 capital and Basel 3 risk with assets? And same for the leverage ratio, if you could give me an idea of the adjusted assets, you have in mind?

Then second question is related to Turkey that nicely here from emerging market is that the Turkish bank starting to struggle in to next two quarter due to the pressure on net interest margin. And I was wondering if you I suppose the same pressure. And the final question is Germany you basically indicate organic growth and is that why you prepare also to consider acquisition at some point or is that totally excluded?

Lars Machenil

Jean-Pierre, thank for your questions. I mean no, we didn’t speak out to the regulatory Basel 2.5. It is in the Annexure on page 71 and so Basel 2.5 capital equity ratio stand at 12.2% let me find it.

Jean-Pierre Lambert - KBW

I missed that.

Lars Machenil

So, overly capitalize that we totally bring it to 71. The main reason is, we want to avoid that there is such a plethora of metrics at Basel 3 now close to what it’s going to be in six months. We basically give you this one.

With respect to the details of all the other ones, I mean again if I give you a bridge today and then tomorrow the EBA comes with all the hiring out of the rules and then I have to change it again and explain that the things are somewhat different. So, I ask you to bear with me. I mean the EBA has promised us that they will clarify very soon. Once that is crystallized we will give you the full bridge. No worries about that.

With respect to Turkey and I not fully should that I capture the concern, if there is your concern with respect to the fact that we have a subsidiary, which we basically account for in Turkish leader so that we would have essentially on our investment that we would have eventual an exposure to that. My main answer is that we typically those investments we have typically, that investment hedges should at overall eventual fluctuations in that net asset value would basically be similar to what we have in the risk weighted asset and the capital should basically the ratios wouldn’t change.

On Germany our plan is organic. I mean of course I mean we can’t do both something you have seen what we have done with Commerzbank so on and so forth. Commerzbank I know where before it goes to haywire I mean that the Commerzbank that we are taking on so there might be things like that. But today there is no we are not shopping for large acquisitions you know my drill as long as you guys insisted I’m below book. It is very unlikely that things are going to happen.


We have a question from Cyril Meilland from Kepler Cheuvreux.

Cyril Meilland - Kepler Cheuvreux

I actually I have a couple of questions. I would like first and again to regret and not to have the detail of the other domestic markets in your press release, it's your fifth division by profit before tax and you increasingly comment about it. So, I just found it was that is. And my first question is regarding the asset management business, because you mentioned a development plan, but you still have pretty large out flows this quarter again. And of the supply that you mentioned again, but in many market fronts because actually when I compare the splits of asset management between end of 2012 and at the end of June it’s about the same, which is about 20%, I would have expected it’s the large amount of your lot share flows in the two quarters we had would be and timely driven by money market funds and money market fund parts would have regions quite significantly. So, if you could just reconfirm this. The second question is regarding the AFS reserve, you have added very small developments between at the end of 2012 and the end of June, but only minus €100 million. I was wondering where you could split that in terms of quarters, which probably have had quite a different development. And if you could maybe just clarify, whether this is coming from maybe some higher capital gains foreign, lower capital gains on shares versus some the developments in 50s. I don’t see this just a bit to be sure that is the case. And the last thing is regarding the (inaudible) sorry about this questions again. But if you could clarify the amount of additional net interest income, whether it is like to come from (inaudible) rate cuts that we expect for the beginning of August. So, just wondering (inaudible) just small older related saving deposits, which are benchmarked in that rate? Thank you.

Lars Machenil

Yes, first I share your regret on the other domestic markets. So, as I say every time I will get a soft of reflection at least I’d also say it is in the spreadsheet you can find it back. So, in the spreadsheet it is. So, I mean if you take this spreadsheet you have all the elements, we just haven’t put the spotlight on it in the presentation.

Now with respect to asset management indeed, so the outflows are the money market. I mean given the low yields this kind of asset class is less interesting and of course indeed you are queuing that you will observe as you do that of course when we take if you would do the flow the waterfall between if you do waterfall between the two periods. There is of course not only the (inaudible) which explain, there is also the performance which is explain and which is basically playing on the other asset classes.

So, but I do confirm that the big bulk of the outflows are on market performance. With respect to the, middle market sorry, I was already looking at the next one. With respect to (inaudible) you know what I mean we do not give any guidance on the (inaudible) it will of course it might give a little bit of lead way because it offers some of the repricing, but you also know that for us it is not the core products. So, I would say that the impact would be rather limited.

With respect to your question, I’m not sure Cyril I had here the numbers in front of me, but I understand correctly. So, you basically out for the reserves, the evaluation of the AFS right. So, of the AFS on the fixed income and equities portfolio right what’s that you want?

Cyril Meilland – Kepler Cheuvreux

Because over the first half you basically have a very minor change in the AFS reserve only minus €100 million. I was wondering whether there was a big different between Q1 and Q2 and whether this €100 million was just net of positive development in share and negative one debt instrument or whether it was just.

Lars Machenil

It is indeed if I can share some color it can be the trend is different between the first end of the quarter and it’s the first and the second, so it’s up in the first was down in the second to get to the net result that you have and indeed as anticipated it is basically up on the equity part and somewhat down on the fixed income part.

Cyril Meilland – Kepler Cheuvreux

This I would assume that if I give any color on the differences?

Lars Machenil

No, in what sense because it is if you look at what you would expect, if you look at what had happened in the equity markets. I mean that is basically what you find back in to the effect. And if you look at what had happen to the overall yields that is basically what’s you have. So, there is nothing particular with respect to what drive the evolution.

Cyril Meilland – Kepler Cheuvreux

It’s like with respect to my question, then I was also trying to find out what is sensitivities of your fixed income portfolio in AFS.

Lars Machenil

Fixed income the facility overall. Yeah, there if I can give you the guidance the best thing if you want to give you guidance on the first year of course you are looking at the OCI. We have somewhere deeper in the document I do not exactly aware, but we have the bridge between the OCI and AFS because as you know there is volatility when you say the fixed income you are aware that we of course have a part, which is related to insurance, which is related to basically participation and so basically the best thing is to look at note 5B, where you can deduct the overall volatility with respect to the overall book. And then how we translate because if you only look at the translation in to the OCI you will have the effect of DTA, PTA and it is complicated to do so.

I suggest that you take a look at what you have in 5B and if that with further questions I mean give us a call and we will give you further guidance.


We have a question from Anke Reingen from RBC.

Anke Reingen - RBC

I have three questions on the organic investments of the areas. And the first is on asset management just a concern the 10% growth in revenues would that in absolute terms correspond to about 100 million I just made a margin estimate though. And secondly on your Germany plans just want to see that simply a lot of effort and how capital intense that’s the 400 million revenue growth. What business is mainly driving that and what is the meaningful value equation would it be despite probably that because of what we are invested. But 1 billion investment return at the course of equities it’s only by 2016 or earlier will it be a match funding with deposits and loans.

And then lastly just on your CIB in organic investments. In the past you always said, the cost income ratio would be more like 60% quickly say that now what is about the 60% cost income ratio basically your implies your investments and how long should we expect the cost income ratio to remain about the 60%.

Lars Machenil

Anke I was referring my documents and I didn’t catch fully your second question. Could you just repeat it?

Anke Reingen – RBC

The second was on Germany. There was band of questions. So, basically I just wonder how capital intense the (inaudible) by when it will be value creative and will it be match funded?

Lars Machenil

Yeah, Okay. So, let’s start with asset management. Indeed asset management if I recreate all the things has been said about it. So, we are in a situation today, where indeed we have to we are in a net recollection on money markets. We have to turn that around as I said. And the different if you go to the value creation will be on different levers on different parts.

So, the main thing of what we basically saying here is that we really focus on the institutional market and therefore related to the emerging markets. Now that will basically take investments, right if the investments to make sure that we have to appropriate still and the appropriate products and have this appropriate recognition, have the appropriate gaining of mandate.

So, that is basically what we wanted to do and we believe it’s very strategic, very core and with the very include return for us. So, that is basically what is driving the less supply. And as I said, with respect to the more the solution kind of activities, it is more likely that the P&Bs of the margin will be under pressure and so basically the value equation in that part will become from further industrialization. I basically say our objective is to be one of the great European platforms because we believe that we will need that kind of side in order to ensure and warrant the profitability.

So, with respect to timing I think well, our distribution platform and things should be relatively swift. With respect to institutional I would say this is more going to be mid-terms by 2016 (inaudible). The third lever, which is emerging market is something, which will take a little bit more time. So, that is kind of the phasing I would attach to asset management.

If we then go in to Germany, so Germany also here, we are [indiscernible] long run. So, that basically mean as I said you know, as you know, the businesses that we have in there and we articulated what kind of time mandates we want to win. So, that basically means that indeed we will deploy capital, but at the same time we have other bank, maybe your client already. And so basically we should be able to with all the activities that we have we should be able fund all of these activities and so yes that is kind of the leaders that we will grow. Also here we are very much aware as I said the importance of everything that is happening in the economic structure in Germany. We also know that there are several things moving and so we are very much aware that our ambitious positioning that we want to reach we will take time. And so probably this is more going to be 2018 kind of objective than immediate one, but we have no problem articulating this.

We are not in a quarter-to-quarter kind of trend. We believe that today we have very beautiful kind of activities. We think that all this makes a lot of sense for the European bank that we have and so here for the long run and we will invest and deploy the banking resources that I needed both from the ground as by capital and liquidity.

With respect to CIB, I think on a cost income as I said we were not the kind of firm, boom-bust bank in the sense that we paid immensely in the booming period and then basically, shut the workforce in the less parts because we didn’t really have boom-bust. And so we believe that our cost incomes are still quite good. But, as you have noticed, I mean yes -- I mean, this quarter, the previous quarter as I said there was some turmoil and so that means that you -- that weight of it on your cost income, but we have always said that we want to be in the order so where we want to be. And again, we will articulate that more quickly when we come back to you with the overall plan.


(Operator instructions) We have a question from Maxence Le Gouvello from Credit Suisse. Please go ahead.

Maxence Le Gouvello - Credit Suisse

Lars, good afternoon. I will have two questions. The first one, can you give us an update on your intra-group funding with BNL after this good performance in term of collecting deposit?

And the second question is, back on the question of Cyril regarding the outflows? Making the calculation with a pie chart your $15 billion of outflows. We cannot get (inaudible) for that. And can you give us more (inaudible) what has been the rest and second, on the merger product, I believe it is mostly coming from the network are you being able to capture part of it on the deposit base bank?

Lars Machenil

Thank you, Maxence. Indeed, as a reminder, the last year we changed our concept of funding to BNL and we basically made BNL attract the required additional funding itself. And we have been bringing down the remaining part to low levels, the remaining part provided by group and this has indeed gone down with another billion in this quarter and so well, that is where it stands on the intra-group funding of $6 billion amount is $6 billion funding.

And with respect to the outflows -- and well, indeed, if you look at the monitory outflows let us not forget that if you look at we have a slide somewhere, but not all of the monitories are within our network or not all the monitories are within the retail in particular. Implicitly, actually the main parts of the money market outflows, they are mainly on the institutional client side, which is the insurances and all the other ones. So people who indeed observe that were in the low rate environment there might be other asset classes in which they go. So the main book of the shift -- of course, part of the shift is occurring within the retail and is somewhat contributing of course to the high list that I mentioned earlier of the deposits. But the big chunk of the monitory outflows is coming from the institutional part.

Maxence Le Gouvello - Credit Suisse

Yes. I’m able to capture those outflows on the monetary outflows, something else?

Lars Machenil

Yes. Well, of course. There are some depending on the kind of asset class in which they go. So they are, of course, the calibration that we need to do. And if there is other asset classes that they aim for -- that they could basically take up. But that is one of the reasons that your point is absolutely true. While, in the plan we hammer that we have to further invest in particularly asset classes for example, European equity in order to have a -- in even better position with respect to those clients.

Maxence Le Gouvello - Credit Suisse

But if I elaborate regarding your asset management development, the big difficulties for the in-house asset managers is to be able to amortize the cost base of older (inaudible) product. So if you continue to expand, it has been that you believe that having to go for largest cycle, were the people agreeing to be ready to pay for high margin product?

Lars Machenil

No, no. Again, what we do is, we -- on one hand if I put it bluntly, I say we on one hand we will have a distributor role and on the other hand we will serve institutional clients. And so, as I said on the distribution part I fully agree that it is costly, right that is what it is. So gain, we put it out. We gain to be one of the three leading top firms in Europe, because you are absolutely right on that front cost us a gain.

On the other hand, on the institutional, it is also having the right people and the right professionals in order to do so and that is another part in which we say clearly that we want to invest not necessarily in a whole constellation of products but very selected as I gave examples on European equity CLOs, where we really want to strengthen our sales by having attracting retaining very skilled and experienced people in order to basically win the mandates or retain the mandates on that front.

Maxence Le Gouvello - Credit Suisse

Okay. Thanks Lars. Have a very good (inaudible).

Lars Machenil

Thank you very much. Thank you. You as well. Would that be the last question?


We have a question from Federico Salerno from MainFirst. Please go ahead.

Federico Salerno - MainFirst

A quick question on the leverage treasure please. You have $1.3 trillion in assets in the 3.4% calculation, if I'm right. When will you provide more details on that number, especially on how much is coming from EBA derivatives business?

Lars Machenil

Well, yes, as I said I mean, we anticipate that EBA will shortly clarify and I renowned some of the things and so when that is done it will be our pleasure. But I mean, as I said, I mean, look at our balance sheet. I mean, as a reminder and you know how that works. I mean, in the meantime we have not spoken about it that I mean banks are publishing under ISO (inaudible), I'm sorry. So you can see basically what the intrinsic balance sheet is that we use in the leverage.

Then you basically have all balance sheet, which if you are truthful take a conversion factor of 100%, so you will add it entirely to it. And then, you basically have the so called future potential exposure, where you think you are nominal on all of your derivatives, wherever they are and you basically apply the ratios, which are in the text.

So basically, if you do that you will come to relations that you basically recognize. But again, as I said, we are not the bank, we give you a number and rules have changed, here is a new one. We feel comfortable with that number, the day the things that casting goals will come back and we will give you the bridge.


We have the last question from Alex Koagne from Natixis.

Alex Koagne – Natixis

Yes, hello everybody. Just have one very quick question, follow-up question on asset management. I got your comment on the margin pressure on the business and the need for more on this realization. So I was just wondering whether you can provide the cost of income for this business as of 2012 and what it should be as of 2016. Thank you.

Lars Machenil

Well, nice try. But you know I mean in the guidance of the intermediate plans what we give is a top-line because that one I mean it is what it is. With respect to the more details on what it means on the cost and the rest, you will have to bear with us until we give you the full disclosure so on. We will comfort you on that.

Alex Koagne – Natixis

At least we have the gross income ratio for 2012?

Lars Machenil

As I say, we give you. I mean, we give you the things that we publish and so what while we publish it is what we call WAM, which is a combination of the things so at this stage you have to stick to this until we come with all the details.

All right, I leave it to that. I think this was the last question. So, I thank you very much for spending this last day of July with us and I thank you for your numerous presence, your interest into the bank. And I remind you that BNP Paribas had shown resilience in Europe, good drive in fast-growing markets, ongoing improvements of the operating efficiency, cost of risk at the moderate level and don’t forget rock-solid balance sheet. Ladies and gentlemen, thank you very much. Have a very good day.


Ladies and gentlemen, this concludes the call of the BNP Paribas second quarter 2013 results. Thank you for your participation. You may now disconnect.

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