BNP Paribas' (BNPQF) CEO Jean-Laurent Bonnafe on Q4 2018 Results - Earnings Call Transcript
BNP Paribas (OTCQX:BNPQF) Q4 2018 Earnings Conference Call February 6, 2018 8:00 AM ET
Company Participants
Jean-Laurent Bonnafe – Chief Executive Officer, Member of the Executive Committee and Director
Lars Machenil – Chief Financial Officer
Philippe Bordenave – Chief Operating Officer and Member of the Executive Board
Conference Call Participants
Jacques-Henri Gaulard – Kepler Cheuvreux
Delphine Lee – JP Morgan
Jon Peace – Credit Suisse
Jean-Francois Neuez – Goldman Sachs
Pierre Chedeville – CM-CIC Market Solutions
Anke Reingen – Royal Bank of Canada
Bruce Hamilton – Morgan Stanley
Omar Fall – Barclays Capital
Stefan Stalmann – Autonomous Research
Flora Benhakoun – Deutsche Bank
Maxence Le Gouvello – Jefferies
Kiri Vijayarajah – HSBC
Jean Pierre Lambert – KBW
Nick Davey – Redburn
Matthew Clark – Mediobanca
Jean-Laurent Bonnafe
Good morning. Good afternoon. Welcome to BNP Paribas 2018 Results Presentation. In today’s presentation we’ll cover the first three chapters of the slide presentation group results, division results and 2020 plan.
First I will take you through the summary of our group results. Then Lars Machenil will illustrate the results by division. And then I’ll update you on our 2020 plan. At the end together with Philippe Bordenave, we’ll be pleased to take your questions.
So now we are on Slide 3. And looking at our 2018 key messages BNP Paribas showed good business activity on the back of economic growth in Europe with outstanding loans progressing by 3.9% year-over-year. The revenue evolution was, however, penalized by the still low interest rate environment in Europe and unfavourable market context, with particularly challenging market conditions at the end of the year. In more detail, revenues at the operating divisions showed good overall resistance and were just 0.4% lower on a comparable basis despite the unfavourable market context I just mentioned. Because of the operating divisions evolved by 1.7% on a comparable basis, on the back of the continued development of the specialized businesses in Domestic Markets and IFS, but were down in the retail networks and in CIP.
Cost of risk at group level was 4.9% lower, compared to 2017 equivalent to 35 basis points off outstandings. The Group’s net results to that €75 billion, 3% lower than in the previous year. It recorded the point-in-time impact at your end on the shortfall of the markets and the remaining equity stake in First Hawaiian Bank and on assets mark-to-market in the insurance portfolio. One can assume that these values returns for a large part [Audio Gap] normalized as illustrated by the sale of the remaining part of First Hawaiian Bank in January, which captured the good part back. The Group is well capitalized with a full loaded common equity Tier 1 ratio at 11.8% at year end. So as I will illustrate in greater detail 2018 saw good business growth in the success of our digital transformation.
Advancing to Slide 6, you can see the performance of the Group and of the operating divisions in 2018, which showed overall good resilience in a lacklustre market context. You can see that our net result equates to a return on equity of 8.2% or 8.8%, excluding the one offs mentioned on Slide 5 and the equivalent in terms of return on tangible equity stands at 9.6% and 10.2% respectively.
Now, turning to the revenues of the operating divisions on Slide 7, you can see that globally they held up quite well, decreasing by 0.9% or 0.4% at constant scope and exchange rates. They were almost stable in domestic markets, the low interest rate environment continued to wait, but the specialized businesses showed good revenue growth. They were up 3.4% at IFS on the back of good growth and despite an adverse ForEx effect. On a comparable basis and excluding the impact on insurance, that I mentioned, there were actually 6.6% higher.
CIB’s revenues decreased by 7.5% due to a lacklustre market context with particularly challenging market conditions in the last part of the year. Despite this SREP showed good development on selected client segments.
On Slide 8, you can see that costs of our operating divisions were up 1.7%. Domestic markets, costs were up 0.8% with a rise in the specialized businesses on the back of continued business development, but actually decreased by 0.9% in the retail networks. IFS costs evolution reflected continued business growth and the development of new products like CIB costs marked a decrease benefiting from the continued cost saving measures.
Moving to cost of risk starting with Slide 9, you can see that at group level it decreased and stood at certified basis points in terms of outstandings. Looking at the different businesses one at the time, in Corporate Banking, provision were basically offset by write-backs.
Turning to the other business lines on Slide 10 you can see that cost of risk was still low in French Retail, very low in Belgium Retail and continued to decrease at BNL in Italy. In other retail businesses Eu-Med’s cost of risk was somewhat up, mostly on the back of a moderate increase of the cost of risk in Turkey. BancWest, cost of risk was still low. And personal finance saw an increase on the back of higher outstandings that was a bit lower in basis points.
Turning to Slide 11, on the financial structure, you can see that our common equity Tier 1 ratio increased by 20 basis points to 11.8%, compared to the pro forma level at the beginning of the year net-off some accounting and regulatory changes which came into force on the 1 January, 2018.
Our Basel 3 leverage ratio was at 4.5%. And our liquidity coverage ratios stood at 132%. The Group’s immediately available liquidity reserve totaled €308 billion at the end of the year. The evolution of these ratios illustrates the very solid financial structure of the Group.
On Slide 12, you can see that our net book value per share stood at €74.7 at year-end, virtually stable versus last year, as it was slightly impacted by the first application of IFRS 9. Since 2008, our net book value per share has grown at an annual rate of 5% highlighting our continued value creation through the cycle.
Going to Slide 13, we proposed for 2018 a dividend payment of €3.02 per share fully in cash. It is stable compared to last year despite the slightly lower net result and the like. The point-in-time effects of the market at year end, I talked about then, of our intention to the consistency of our dividend policy over the years, which is illustrated in the graph. I leave you to pursue the next two slides of this introductory part which illustrate two key components of our action plan that our ambitious policy of engagement in society and the continuous reinforcement of the Group’s internal control and compliance system.
I’ll now hand over to Lars for the divisional results.
Lars Machenil
Thank you, Jean-Laurent. Fine, ladies and gentlemen, let’s start with Domestic Markets on Slide 17. You can see that it showed good business drive in the context of economic growth in the Euro zone with loan growth in all businesses and deposits increasing in all countries.
Private banking net asset inflows stood at €4.4 billion with a good performance especially in France. Domestic Markets has continued to develop new client experiences and to implement the digital transformation. As one, for example, Hello Bank has acquired new clients reaching three million clients overall and Nickel topped 1.1 million accounts opened, marking a 44% progress versus year-end 2017. Yes, I'll provide some additional color on our digital successes on Slide 22 in a minute.
Now, if we look at the P&L, the revenues were only slightly lower at €15.7 billion, still impacted by the low rate environment that is, however, partly offset by the good business drive I mentioned above and strong growth in the specialized businesses. When we look at operating costs, they were marginally higher due to the continued development of the specialized businesses, but were 0.9% lower in the retail networks. Given a reduction of the cost of risk in particular at BNL in Italy as you know, pretax income marked a 3.4% increase to €3.7 billion.
If we synthesize the different business lines, I'd like to highlight in particular that in French Retail Banking, renegotiations and early repayments confirmed a return to a normal level and as a result revenues improved in the course of the year. On BNL, thanks in particular to the continued cost of risk reduction, resulting from its cautious positioning BNL showed a strong rise in income in 2018. And in Belgium Retail Banking we had good business drive with the impact of low interest rates presides. And finally, the specialized businesses continued to deliver good growth. So to wrap up, good business drive and higher income for our Domestic Markets despite the persistent headwinds of the low rate environment.
Now if I can ask you to flick to Slide 22, that I talked about earlier, which provides further details on domestic market’s successful implementation of new customer experience and digital transformation. You can see that it accelerated mobile users and enhanced mobile applications and its features, ranking as France’s leading bank in terms of mobile functionalities according to the rating.
Domestic Markets continued the transformation of its operating model by streamlining and digitalizing end-to-end its main customer journeys, as well as automating the processes leveraging a total of 280 robots already in production at the end of 2018. Moreover, the operating division continued adapting its offerings to new banking uses with, for example, the development of LyfPay, a universal mobile payment solution, which has already had 1.3 million downloads in France since it was launched in May, 2017.
If I can now ask you to advance to Slide 23, you can see on the left the 0.9% year-on-year cost reduction that I talked about in the retail networks. Domestic Markets streamlining and optimizing the local commercial network in order to enhance customer service and reduce cost at the same time. As you can see on the right-hand side, since 2016 we have closed 262 branches or 7% of the total in France, Belgium and Italy. And also in 2018 we removed regional management level in the French retail network.
If I can now ask you to continue and look at Slide 24, it shows that Domestic Markets is in line with its objectives and its 2020 trajectory is just confirmed. Revenues are better than expectations and we have identified an additional €150 million of recurring cost savings in 2020. On the back of this, we expect a significant improvement in operating efficiency and positive jaws. All-in-all, we confirm our Domestic Markets’ pretax return on notional equity for 2020. So this synthesizes Domestic Markets.
If I can now ask you to swipe to Slide 25, where we turn to the second part of our retail activities, International Financial Services, which continued its growth and showed sustained business activity. Expressed as outstanding loans, they were up 3.8%, compared to 2017 or 7.1% at constant scope and exchange rates. An IFS reports as good net assets inflows, €13.4 billion increase and the assets under management of the savings and insurance business were, however, down slightly at €1,028 billion due to the sharp drop in valuations at the year-end. I'll come back to that.
In 2018, the results of IFS were affected by an unfavorable ForEx effect related to the depreciation of the Turkish lira, and also the U.S. dollar, that was partially offset by some scope effects. In the terms of P&L, revenues were up 3.4% versus 2017. If we exclude the point-in-time impact of the drop in markets at the end of year on assets accounted on mark-to-market basis in insurance, they actually rose by 6.6% at constant scope and exchange rates.
When we look at the costs, they evolve by 5.4% year-on-year on the back of this business development and new product launches. The other non-operating items totaled €208 million and included the exceptional impact of the €151 million capital gain from the sale of First Hawaiian Bank shares. In 2017, let's not forget, they comprised a €326 million capital gain from the initial public offering of SBI Life in India. As a result IFS pretax income was down by 8.8%, compared to 2017, but up by 3.3% on a comparable basis and excluding the point-in-time impact in insurance due to the markets drop at year-end.
If you now look and synthesize the different businesses in International Financial Services, I like to highlight in particular the following: first, Personal Finance continued to show strong business drive in 2018 and pretax income clocked in at €1.6 billion, up 5.9% on a comparable basis. Europe-Med completed the acquisition of the core banking activities of Raiffeisen Bank in Poland, strengthening its position as the sixth largest bank in that country. Overall, Europe-Med generated 24% pretax income growth versus the year before. At a historical scope and exchange rate income growth was still double digit but affected by the marked devaluation of the Turkish lira that I spoke about.
If we now cross the Atlantic and head BancWest, we sold an additional 43.4% of First Hawaiian Bank retaining at year-end 18.4% stake that was entirely sold in January. Overall BancWest’s pretax income was up 3.3% versus last year, but down 1.4% at historical scope and exchange rates.
If we look at Insurance, revenues progressed 6.6% for the full year. Thanks to good business drive that were significantly affected by the point-in-time impact of the drop in markets on assets that are mark-to-market at year-end and pretax income was absolutely lower due to the SBI Life capital gain that we booked in 2017 that I spoke about. On a like-for-like basis, pretax income was only marginally lower than last year at close to €1.5 billion due to the spot impact, I mentioned and that of course we should recover over time.
The last part is Wealth and Asset Management, revenues were up 3% year-on-year, driven by real estate but were impacted by the unfavorable markets at the end of the year and by the introduction of MiFID 2 regulation in 2018. Globally, pretax income was down 24%. So the IFS division, as you know, just like the other divisions are actively implementing digital transformation and new technologies across all its businesses as you can see on Slide 32.
Client experiences are being optimized everywhere with the e-signature now widely available, for instance at Personal Finance where already 50% of contracts are signed electronically. IFS is also continuing to successfully develop its digital banks with already 665,000 customers for Cepteteb in Turkey and 223,000 customers for BGZ Optima in Poland.
The operating division is also developing new technologies and artificial intelligence with already over 130 robots handling automation of controls, reporting and data processing tasks.
If I now can I ask you to advance to Slide 33, IFS is showing 2020 trajectory which is in line with the plan, despite an unfavorable foreign exchange effect and hence confirms its role as a growth engine of the Group.
Revenue growth is in line with the plan, thanks to good business drive, and the bolt-on acquisitions that have been finalized and IFS is targeting an improvement of the operating efficiency, which will in turn lead to positive jaws from this year on, but at less than expected initially to in particularly to the unfavorable foreign exchange effect that I talked about. The pretax return on notional equity should thus increase to a level very close to the target.
This completes the overview of both parts in Retail Banking and Services and if I now can ask you to turn to Slide 34, where I draw your attention to the Corporate and Institutional Banking. It faced a very unfavorable market context in 2018, but confirmed its leading positions in Europe where it ranked joined third and maintained its global market share after a gain in 2017. When we look at revenues, they stood at €10.8 billion, down 7.5% compared to the year before with contrasting evolutions in the different business lines.
Costs were down 1.3%, thanks to cost efficiency measures which stood at €220 million in 2018 with the ongoing implementation of shared platforms, end-to-end process digitalization and automatization of transactions leveraging 180 robots. In CIB we already reduced costs over the past three years. Overall, CIB generated €2.7 billion of pretax income, down 21% compared to the previous year as the negative market was somewhat mitigated by cost reduction and effective control of risk.
If I can now ask you to turn to the next three slides, that's basically Slide 35 to Slide 37, and let's look at a bit more detail on CIB’s activities. If we start on Slide 35 with global markets, revenues were down 15.4% on the back of a Lacklustre context for FICC activities in Europe and particularly negative market context for equity and prime services at the end of the year. FICC revenues were actually down 21% year-on-year. On client activity, on rates and credit in Europe stayed weak due to the ECB monetary policy, while ForEx activity performed poorly, especially in emerging markets.
On the plus side, we saw some good performances in primary markets and in structured products. And FICC confirmed its top ranking for all bonds issues in euros and number nine internationally.
If we now turn to equities, revenues were down 6% year-on-year due to the impact of extreme market movements towards the end of the year and the loss on index derivative hedging in the U.S. As you know, our equity business is focused on derivatives and has little or no cash equity, which in market situation like that of and 2018 provides a buffer for revenues. On the other hand, client activity on equity derivatives and prime brokerage progressed in the year.
If we now swipe to the next slide Page 36 where we look at Corporate Banking, which is another part of CIB, revenues were down 5%, but actually that higher excluding some capital gains that we booked in 2017, as well as the impact of our retrenching from some sectors on the back of our CSR policies as well as some parameter effects.
Cash management and trade finance, for example, continued a good development, consolidating their leading positions in Europe and developing very well in Asia. We also confirmed our number one position for syndicated loans in the EMEA region.
Now if we glance at Slide 37 the third part of our CIB, namely security services, where revenues progressed well on the back of a strong business drive, with gain off significant mandates, the business line confirmed its leading position in Europe and number five worldwide. If we now look at the next two slides, 38 and 39, they summarize the active implementation of the 2020 plan in our CIB which has continued its good development on targeted clients with over 300 new corporate groups on-boarded worldwide over the last two years.
The successful implementation of CIB’s digital transformation is epitomized by the continued client on-boarding via Centric. Centric, is online platform for corporates which already has close to 10,000 clients and has gained 1,500 clients in 2018 alone. As I mentioned earlier, CIB has delivered €221 million of cost savings in 2018 thanks to the ongoing implementation of cost saving measures in areas such as mutualized platforms which are being ramped up.
Thanks to the active implementation of its plan, CIB has successfully reduced its cost base by 3.5% over the past three years and has achieved its target for risk weighted assets reduction one year ahead of schedule allowing for 6.3% allocated capital reduction since 2016. However, the unfavorable market context in 2018 and the resulting decrease in profitability have meant that we need to intensify and amplify CIB’s transformation to get it back on the right trajectory for 2020.
Looking at Slide 40, you'll see that CIB will be acting on three main Xs to this end. The first is a review and the potential stopping of nonstrategic and insufficiently profitable business segments such as the recently announced stopping of our proprietary trading called Opera Trading and of commodity derivatives in the U.S. The preliminary scope of the potential exits and visits is in the range between €200 and €300 million of revenues and for a cost income above 100% and expressed in capital €5 billion of RWA. That's the first X.
The second X is the intensification of the industrialization of CIB in order to further structurally reduce cost, particularly through the adaptation of the flow businesses to the fast electronization in financial markets, in particularly global markets, the development of shared platforms at corporate banking and the industrialization of the multi-local operations model at Securities Services. And all this together with the streamlining and mutualisation of IT and back office.
These actions will generate a further €350 million of additional cost savings in 2020, bringing the total cost savings in the two years ahead to €850 million at CIB. So this is the second X. And the third X of our three-pronged action plan, as you can see on Page 41, focuses on an even more selective and profitable growth, allowing to continue strengthening on targeted client segments in a context of only moderate growth of the global revenue pool.
Based on these three lines of action, we've adjusted the 2020 trajectory of our CIB as you can see on Slide 42, focusing on profitable growth. With a downward revision of its revenue target, we should, however, be up compared to a weak 2018 base, a significant improvement of the operating efficiency leading to positive jaws. Thanks to additional cost savings versus the initial plan and a rise in the pretax return on notional equity to a level close to the initial objective.
So this basically concludes the division results section. I now hand it back to Jean-Laurent to the last part.
Jean-Laurent Bonnafe
So thank you Lars. Let’s now look at the last part of today's presentation, the update of our 2020 plan. On Slide 44 you can see that the environment in which we are operating is a contrasted one. In fact, while economy growth remains favorable on the whole it is nevertheless expected to somewhat slow down as you can see. And interest rates, which are particularly low in Europe, are expected to increase only gradually.
Turning to Slide 45, you can see that an important part of the gross 2020 ambition, consciously pursuing our ambitious CSR policy and our commitment to making a positive impact on society through tangible initiatives. As an example of this commitment, we have stopped financing companies whose primary business is shale oil, oil production in the Arctic, as well as tobacco companies. The group aims in particular to finance the economy in a sustainable way, promote the development of its employees, support initiatives with the social impact and play a major role in the transition towards a low-carbon economy. In so doing, it wants to be a major contributor to the United Nations’ sustainable development goals.
The success of our digital transformation, which is a key component of our 2020 plan is summarized on Slide 46 and is being achieved by effectively acting on the five transformation levers identified to provide a new customer experience in a more effective and digital bank.
As you've seen in the presentation, digital is strongly stepping up in all the businesses. Just to mention a couple of examples, Domestic Markets already has over eight million digital clients in retail banking and was ranked number one bank in France in terms of mobile features according to D-Rating. And IFS is extensively deploying electronic signatures which already accounts for 50% of contracts signed at Personal Finance.
Robotics and artificial intelligence are developing rapidly with over 500 robots already operational. Processors are being industrialized and optimized everywhere and now end-to-end digitalized customer journeys are being implemented. In addition, [Audio Dip] products have been launched such as LyfPay, a value-added mobile payment solution with already 1.3 million downloads in France.
On Slide 57, you can see that transformation costs related to the transformation totaled €2 billion into two-year period 2017-2018 and were in line with the plan. The recurring cost savings generated by the end of 2018 totaled €1.15 billion also in line with the objective. They were split 40% in CIB, 35% at domestic markets and 25% at IFS.
Beyond 2018, if you flip to Slide 48 you can see that we have enriched our transformation plan, given in particular the need to intensify confirmation at CIB and higher regulatory costs, we want to generate €600 million of additional recurring savings over and above the ones already planned, 55% will come from CIB, 25% from domestic markets and 20% from IFS. These additional savings will be achieved in particular through the combination of several actions. The streamlining of the IT organization, the use of the cloud, the reinforcement of the industrialization of the supporting activities with increased use of artificial intelligence, the streamlining of the setup in connection with mutualized competence centers and the optimization of real estate costs.
The 2020 recurring cost saving targets is just raised from €2.7 billion to €3.3 billion, as you can see on the top right graph. At the same time the successful implementation of the strategy has lead us to revise down the expected cost to achieve. Therefore for 2019 the envelope of transformation costs has been revised down by €300 million to €700 million. On the back of these additional costs saving effort we expect to generate a positive jaws effect in each operating division.
You should advance to Slide 49, now I just like to draw your attention to our superior risk profile, which has been confirmed by the recent European stress test. When considering the adverse scenario, BNP Paribas showed a significantly more limited impact than the average of the 48 banks tested.
Similarly, the cumulated cost of risk raised under the adverse scenario is markedly lower than the sample average reflecting our diversification and selectivity at origination and basically a cautious approach which is designed to favor the quality of longer term risks rather than short term revenues. A word finally on this year’s SREP for which we do not expect any change in our Pillar 2 requirement.
To sum up, let's go to Slide 50. As we've seen the trajectories of domestic markets and IFS are essentially in-line with the 2020 plan, where as CIB requires an amplification of its transformation. We forecast risk-weighted assets to grow around 2.5% per year, bearing in mind that they will be stable for CIB. We plan an active management of the balance sheet with entire sales of non-core equity stakes and/or assets.
In terms of capital management, we’re not envisaging new acquisition and we expect an organic capital generation of at least 30 basis points per year after dividend distribution. Globally, we expect return on equity to improve in all three operating divisions by 2020.
On Slide 51 you will find the updated 2020 estimates for the Group with an expected 2016-2020 revenue growth equal or above 1.5% per share, versus 2.5% in the original plan and a €600 million increase in recurring cost savings from 2020 to a cumulated total of €3.3 billion. Based on what we see today we expect the return on equity to improve to a level of 9.5% in 2020, equivalent to a return on tangible equity above 10.5%.
The common equity Tier 1 ratio will be equal or above 12% in 2020, given organic capital generation. Overall, we expect an increase of the earnings per share of more than 20% between 2016 and 2020, leading to an increase of the dividend per share of 35% over the same period based on the dividend pay-out of 50%.
This concludes today's presentation. And I would like you to re-term that BNP Paribas is focused on its 2020 ambition, and that our digital transformation is a success, and we're continuing to actively rollout new customer experiences and that an integral part of the 2020 plan is ambitious policy of engagement in society. In 2018 the Group showed good business development with a very unfavorable market context at the end of the year.
Net income held up well at €7.5 billion and we're proposing a €3.02 dividends stable compared to the previous year. Our Group has a very strong balance sheet with the fully loaded core Tier 1 ratio at 11.8% at year-end.
Ladies and gentlemen, thank you for your attention. And together with Philippe and Lars, we’ll now be pleased to take your questions.
Question-and-Answer Session
Operator
[Operator Instructions] The first question that we have is from Mr. Jacques-Henri Gaulard from Kepler Cheuvreux. Sir please go ahead.
Jacques-Henri Gaulard
Yes, good afternoon gentlemen. I have two questions. One is quite generic. It's a question on culture, okay. You'll poor revenue in Equity and Prime Services seems to have been explained partly by negligence in your index derivatives hedging business. And it seems a little bit disappointing in light of the fact that since 2014 and the DoJ settlement, you were supposed to have boosted a lot of your control. So what really went through the nets? It's specific, but more generally, I'm surprised by the negative price that seems to be around you now and you seem to have a little bit of a negative bias towards BNP Paribas. You've been the object of a documentary several months ago, which was completely innocuous, but which was negatively biased obviously when you have problems now it seems that press leaks appear.
I remember as far as just five or 10 years ago there was no press leak around BNP Paribas, overall it seems the perception around the bank has changed and it has not changed positively and I wanted you to ask you to perceive that as well and what you intend to do to change this, that's the first question.
The second is on insurance more specifically, I'd like to understand a little bit more the mark-to-market adjustments of €180 million is it linked to, I would say, return to policy holder? Or is it simply the equity of the insurance company that you have invested and where this investment had to be written down? Thank you very much.
Lars Machenil
So we will answer in more details about the origin of the – I would say situation the loss in New York for equity derivatives. What I can tell you is there is nothing that can be linked to any misconduct or lack of code of conduct. This has to be addressed very clearly. And honestly I don't share your vision about our bad reputation or anything of that kind. So Philippe, if you want to answer?
Philippe Bordenave
Yes, sure. So this is about flow derivatives book. We are market maker on options on the S&P 500. It's a very old standing business for more than 10 years. We are doing that, it's a clients business, the counter-parties, the clients are U.S. fund managers, insurance companies, mostly lonely fund managers trying to improve the return on their portfolios by mostly selling, sometimes buying also options. And so we are market makers on that and we answer on different exercise prices, different maturities, and so on.
And that book, well we end up having a book which is diversified, and it is managed and hedged globally, because if you try and each time you buy something if you sell it immediately, it doesn't make a living. So we tend to try and keep some margins by hedging it globally.
And, while the team is experience trader with two others [indiscernible], very, very classical thing. And just it happened in the movements of last year’s while starting already towards the end of November and even more and more in December the big slide which occurred in the U.S. in a market which at the sometime was becoming less and less liquid with lot of difficulties to change the hedges and to address the hedges.
So the guy in charge of the book made, I would say, wrong choices in the way he should hedge the book. And it was kind of a mishandling, or bad, or poor and lean consulting in their choices in the hedging without any breach of any kind, not only older the limits were respected, while the transparency was respected, everything was clear, the only thing that the guy in charge made [Audio Gap] which happens in life and that's all. And it's not the all. At the end it's not – that problem – in the same period we lost more – we had a reduction in revenues much more due to the lack of volumes, which created lack of revenues, compared with the previous years due to the lack of demand and the very illiquid fact that the clients were not very active anymore at that period.
This unfortunate event or incident is explaining €70 million out of the kind of 300 difference between 2018 and 2017 in the fourth quarter. So it's relatively a quarter, if you will, it's no more than a quarter of the total thing and it's an event which is quite. There is no negligence, or no misbehavior at all.
Jacques-Henri Gaulard
Okay, thank you Philippe.
Philippe Bordenave
On your negative – sorry your technical insurance topic Machenil…
Lars Machenil
Sure. A very quick reminder, insurance is still accounted for under IAS 39. So that basically means that the majority of the instruments in which the insurance invests, they are accounted for under what is called available-for-sale, AFS. And so whatever of investments that are in available-for-sale, they do not impact the P&L, except when there is a sale. Now there is a very small part of the instruments, which are accounted for in mark to market. And this is what this is for example instruments that have mild instruments like derivatives in it or that are part of a fund which are – of a nature of floating NAV, which have to be accounted for in the mark to market.
So that's what it is and that's what given the evolution and the downward evolution of the market at the last quarter basically led to this drop. And that is already basically for a big chunk coming back. Half of it is basically recuperated in the four weeks starting of the year. So Jac that will be the answers.
Jacques-Henri Gaulard
Thank you very much, Lars.
Operator
Thank you. Next question from Delphine Lee from JP Morgan. Go ahead.
Delphine Lee
Yes, good afternoon. Thanks for taking my questions. I just have a few quick ones. And – but before that I would like to start with the revenues, so just to come back on your new targets of at least 1.5%. Given that there has been no growth in 2017 and 2018, basically that would imply some 4% growth in 2019 and 2020. So given the relatively challenging rates environment in domestic markets even if international financial services is on track, I'm just wondering, what are you actually implying for institutional banking in terms of revenue growth? If you could give a little bit of color around the revenue recovery that you're expecting given you have also some exits, the business of exits.
The second question is on CIB, more specifically on the costs. You still have guidance and targets for 2020 of 1.5% CAGR between 16 and under 1.5%, sorry. Just wondering what’s that kind of implies right now, given you have additional cost savings. Just wondering what's the cost growth? And also at the group level as well including your additional $600 million, how does that compare to your old target of $29.9 billion for 2020, which you had before given there are quite a lot of moving parts.
And the two quick questions is – two last quick questions if you don't mind is just the EPS of €3.02, is that going to be a new floor that you consider and you're willing to pay maybe marginally higher than 50% payout, or would you stick into 2019 and 2020 to 50%. And then if you don't mind reminding us the impact of TRIM and IFRS 16. Thank you very much.
Lars Machenil
On the revenues and we want to keep a little bit of flexibility, so we are not going to give you the detailed P&L anticipated for 2020 business by business, but what we can say is that your calculation is right. It implies a 4% growth per year on average in the next two years for the group. And you're right to stress that domestic markets will be certainly below that figure. We sync positive area, but certainly below 4%. And it implies that CIB and IFS should be over that figure, most of them we think. As for CIB, the exits you are mentioning are going to be selected in order to represent relatively small revenue and the high cost income and high consumption of relatively high consumption on capital.
And with the idea is just to streamline to optimize the setup is not to get rid of big chunks of CIB at all. So the impact of exit should be marginal in terms of revenues. And for example, one of the two businesses that we have already on process of closing already, I'll be presenting very marginal level of revenues together. So that should not be a big impact on the path of the revenues of CIB. In terms of cost growth, well the – it’s difficult to answer to your question as well because while another aspect is the FOREX – foreign exchange evolution, which is going to have a big impact while a significant impact as well potentially. So we – well I don't want to answer precisely to that question.
The new floor, no, there is no new floor in terms of distribution. We stick to 50% and to 50% is 50%. It's very clear in the last slide. The only thing is that this year if we had just given a 50%, it would have been slightly 3% below last year in terms of – 6% below last year in terms of distribution. And it was not well answered because as we have explained the kind of exceptional point in time marking of certain portfolios are – if you adjust for that indeed the group is stable in terms of results. And so the underlying, I would say, performance of the group this year is very similar to last year. And as the prospects are really positive, we saw that it would be while not rounded to then dividend somewhat. And so we decided to keep the dividend stable. But it's not a new standard. It is just an adjustment of the standard, which remains 50%.
And as far as TRIM is concerned, we have already gone through the market risk TRIM and through the French retail credit TRIM, credit portfolios of the French retail. And well I touched that, but those two up to now, I mean the impact was limited, while but now we have to – we have the other credit portfolios that are to come and we have also the counterparty risk, which has to come as well in 2019. So we are just maybe one third of the journey, so it's not over. I think you had one last question, which was what is the impact of IFRS 16 and so that's estimated to have an impact of 10 basis points on the common equity Tier 1.
Delphine Lee
Thank you very much.
Operator
Thank you. Next question from Jon Peace from Credit Suisse. Please go ahead.
Jon Peace
Yes, thank you. I wanted if you could just clarify a few comments that got reported from this morning, perhaps it was on your press call. When you talked about firstly a normalization of trading activity in January, how should we size that similar to prior year? And also I think a comment was made around M&A about the acquisitions not being on the agenda. Is that – does that rule out all M&A activity or is that just for the larger deals and smaller bolt-on deals could still be part of your activities? Thank you.
Jean-Laurent Bonnafe
So the second part of the plan the 19, 20, 20 years, we’re not considering external growth. Of course, nothing that could be transformational, but even nothing that could be a just bolt-on to concentrate on the, I would say, the achievement of the digital journey. We are very much on track and we have to concentrate on the, I would say, new cost reduction initiative. So this is why we’re not considering anymore, any kind of external growth. So this is the first point. The second one was both markets, looking at global market divisions at BNP Paribas were back to normal. So we are never commenting in terms of results, level of activity, but I would say that we have exited. At this situation, we went through at the end of last year, so the business is back to normal. So that was the comment we made this morning.
To go back to the story of the dividend, we have to say again and stress again the fact that not only the stress on the equity derivative business was a kind of one-off last year and post-tax the equivalent of more than €200 million. But also they were €220 million plus tax effect of point-in-time IFRS 9, IFRS 5 related books, the one with First Hawaiian Bank and the one with some of the portfolio at Cardif. So if you look at the real underlying business of BNP Paribas last year, even if we suffered from low rates, even if we suffered throughout the year of kind of lack of volatility in the FIG business, the online business is minimum at the level of 70.
So this is why from just an economic standpoint it makes sense to deliver just the same dividend. And since the ratios and the solidity of the balance sheet allows it, we decided to proceed that way. But it's not only because the balance sheet is strong enough, it's also because the reality of the underlying business of last year is just the equivalent of the one of 2017. So this is why we are in the two dimensions, I would say in good shape, we decided to go for this €3.02 per share. So this is again what has to be stressed and also this is because we are confident of the cash flow generation of the Group.
And the 12% target for core Tier 1 ratio in 2020, which is now for us minimum because our estimate is above. Of course it factors the effect of the TRIM, it factors also the effect of new norms. So everything is factored and the cash flow generation of the Group is basically the equivalent of minimum 30 bps per year.
Jon Peace
Thank you.
Operator
Thank you. Next question from Jean-Francois Neuez from Goldman Sachs. Sir please go ahead.
Jean-Francois Neuez
Hi, good afternoon. I just wanted to ask a little bit more about equities. And thank you for your explanation on the U.S. part before. I just wanted to understand also on the rest of the draw down in revenues compared to the prior year. You also were mentioning some of their hedging losses in [indiscernible], I guess.
Would you mind please try to maybe quantify the rest of what can be considered abnormal so that we have a sense of essentially the ongoing business? And also can we understand where the part of their hedging losses, or market draw downs are something to be recovered or are they just factors and that’s it.
And secondly, I wanted to ask about in general, the cost to income ratio in the jaws and obviously the interplay of that with the ROE. I guess from here the costs are expected for the next two years to be still on your touch growing and then the improvement in the operating efficiency is supposed to come from revenues.
I just wanted to understand what flexibility you have, given the emphasis put on jaws throughout the presentation today. The flexibility that you have to change the course trajectory early enough so that you're not in the situation where like in the last two years the cost to income ratio went backwards but tries to get to where the target was. Thank you very much.
Jean-Laurent Bonnafe
Okay Jean-Francois, on the equities the rest is little more than €200 million if you compare the fourth quarter of 2017 and the fourth quarter of 2018. And this can be divided into two parts of roughly €100 million each. One is, just as I mentioned, is just lack of demand, the lack of new business during this quarter, which was especially low in terms of demand from the clients for our products. The index certificates structure derivatives, equity derivatives for asset managers. And so this is not going to come back, this is just an opportunity that has been lost to a lower level of activity and we just hope that the activity is going to come back to normal, which seems to be the case up to now in the first quarter and then to continue to stay.
And then the other one is also probably €100 million a little bit less than €100 million is dislocation of the markets, the different segments of the markets towards the end of last year. As there were big movements down and then up at the very last days and in a very small and empty market indeed. The movements of the different products were not respecting the normal correlations, the cash, the insures, the options.
We are not evolving in a correlated way like they should be according to the theory and to the arbitrage relations, because there were not enough market to arbitrage those different segments. And as a result, the mark-to-market, which is virtual at the end of the year, makes that indeed the different hedging relationship to have not functioning at that day and created gap of around €100 million as I said. This is in the process of coming back. With the liquidity back in January, this part of the revenues is in the process of coming back and completely, I think, during the quarter.
On the cost to income, I think, you have to make a differentiation. I think that for domestic markets, clearly the jaws are always coming from both sides. But as I said we are planning very slow increase in the revenues as I said. And so the costs are supposed to go down and the jaws are going to be – are not going to come only from the revenue side.
On CIB, CIB is a cluster link to build so very, very flat. And it’s only on the IFS where we are planning a relatively robust evolution of the revenues as it has been the case regularly and certain growth of cost as well.
Your question on the flexibility on the cost, I would say that there is a one easy case, of course on CIB and actually on the global market there is a natural viability of the cost due to the valuable part of the remunerations. And for the rest of course we are going to be careful and we are ready to take new measures if necessary as shown by this plan. By the way this plan is showing that we are launching an additional €600 million savings program precisely because revenues are not completely there. So it shows that we are able to react rather quickly and to adjust the trajectory on the cost side.
Jean-Francois Neuez
And can I ask just as a compliment, how much of the revenues which are planned for the growth over the next couple of years come from acquisitions made recently which are not part of the base of 2018?
Lars Machenil
The scope effect, remaining scope effect, it’s a good question. We’ll try and get an extra phase and essentially extra phase in. We’ll allow for some minutes we’ll say that later while we are looking at the figure.
Jean-Francois Neuez
Thank you very much.
Operator
Thank you. Next question from Pierre Chedeville from CM-CIC Market Solutions. Sir, please go ahead.
Pierre Chedeville
Yes, good afternoon. Few questions, first question is regarding the cost in the Asset Management division. You have emphasized on the cost of setting up Aladdin at the end of the year. I wanted to know if we are going to see in the first half of 2019, a another impact of this setup in the cost.
And also regarding marginally the asset management business, which is as far as I understand in a process of transformation and rationalization. Do we feel after some transformation cost add in this division and where do you see, where do you see this division in terms of what you would like it to be at the end of the day? The second question is regarding the fact that you have also emphasized on the impact of restrictions on your business due to the, I would say, interdiction of types of financing like tobacco-free, things like that. Do you think that we will have another impact of this type in the top line in 2019. In other words do you intend to continue to stop financing some types of industries that could impact the topline in the corporate banking, in your corporate banking business?
And, my last question relates to fixed income. We have talked a lot about the equity and the exceptional revenues this quarter, but marginally, regarding FICC activity. We look at 2018 or 2017, we can feel that, and for all the industries not specific to BNP that we have an industry that seems to be much less a, I would say profitable in terms of regulation, in terms of customer activity, in terms of monitory policy, et cetera. What do you think regarding this industry and your position in this industry, do you think that you have a critical size compared to other American banks, which are more and more aggressive.
You insist the fact that your market share is flat, I would say no. And do you think that you would need to make a significant effort regarding cost on the long term and not only for the two coming years. Thank you very much.
Jean-Laurent Bonnafe
First I would like to maybe come back on the question about – Jean-Francois about what is to come, on the kind of a tail effect of the recent acquisitions. 2019 and 2020 I think as for Raiffeisen, so the polish we expect a 250 million in 2019 and little bit more in 2020. This scope effect will bring that type of amount and as for the Opel Finance acquisition, we had the kind of relatively a low year to start with because of the reorganization of Opel by PSA.
And so we expect also some significant increase coming in the next two years. It's more difficult to accounting figures, but we expect some significant boost there for PS that’s not fine. So those are the answers to Jean-Francois.
Moving now to your question about, well let's start with the tobacco, oil and the rest. I mean, at this stage we don't have any seeing more in the pipe, so we, if I may, try this word. So we, while we seeing that, for the next two years, there is what we, we don't, we don't foresee any new renouncements. This renouncement tobacco and shale oil and artic oil and gas as a, were representing something like a 100 million per year and while we don't intend to it's already in 2018, in the 2018 figures and we don't intend to add to that.
On the fixed income, I fully agree with you. To a certain extent the FICC case is more, worrying structurally than the equity derivative case. It's true that there is a kind of structural change. We are fully aware of this. And as you say, it's supposed to do to regulation MiFID 2 customers. The only thing is that, towards but probably later than 2020, but maybe towards the end of 2020 and we will, we see the world maybe at some point the interest rates going up in with the end of the full year and maybe some increase in interest rates at some point in Europe.
And it has been visible in the U.S. that as soon as the central bank is starting to tighten even if it's slow, it creates a lot of buzz and animation in the market, because everybody is trying and guessing when and how much, the tightening is going to occur and, and so it creates, the need for more hedging and or position taking or for the clients are more active around the movement, than they are active around no movement at all like it is the case in Europe at the moment.
So this could bring some kind of relief at some point, but still there is a structural tendency towards electronification and pressure on margins in FICC. More and more business is conveyed directly on the kind of end-to-end process from the client to the market, with the little opportunities to take a significant margins in the middle. And so, it's precisely why we, the adjustments in cost we are planning in CIB are going to be implemented. There are two to one to keep a while to try and adjust to this situation. We are really in controls of this. We are addressing that through cost cutting as there is no other solution.
On the asset management maybe.
Lars Machenil
I can maybe very quickly. So indeed we have all the Aladdin switch and not just Genies in a bottle but where we are starting to reap the benefits of the cost reduction related to it. So we don't anticipate for 2019 to have a pickup in cost in asset management.
Operator
Okay. Next question from Anke Reingen from Royal Bank of Canada.
Anke Reingen
Yes, thank you very much. Firstly on your targets again, I mean I understand that you move your hourly target given the change in environment, but I’m just wondering what's the risk of you sort of like moving the goal post again if the environment looks worse or is the focus of the efforts first on cost to HD, revised Ali targets.
And then secondly on capital the at least 12% target. Does that mean you are happy with 12%, post trim or are you really targeting above 12%? And sorry just on the capital, the increase in the bond in the fourth quarter doesn't seem to have an impact on the risk weighted assets. Would it have a knock on effect only coming through in Q1? Thank you very much.
Jean-Laurent Bonnafe
So what happened in the last quarter, equities will have no impact under, I would say the computation or the beginning next year or this year 2019. So there is no senior debt and of course, depending on what is kind of worsening of the situation, in any case we’re adapting the cost base to deliver the 9.5%. And we'd say the main issue for today, a bank in Europe is the direct scenario. I believe that looking at the CIB platform and taking into account that what I call that equity is a kind of one-off. We have to take care of the structural – I would say evolution of the FICC business. That one working on with – I would say deleveraging the cost base.
The direct scenario is the most difficult one to mitigate. But as far as we can see what we have known, I would say, a business plan. If you taking into account, I would say the current situation and the most recent evolution of the direct so the 9.5% is to be considered as the target for 2020 and nothing else.
Anke Reingen
Thank you.
Jean-Laurent Bonnafe
Yes, the 12% is the target for BNP Paribas and based on our estimates in 2020, the group would be above that initial target.
Anke Reingen
Okay. Thank you.
Operator
Thank you. Next question from Bruce Hamilton from Morgan Stanley, please go ahead.
Bruce Hamilton
Thank you for taking my question. Just a quick follow up on capital, given obviously that’s key main focus to the market. When – in terms of the 2019 impacts, can you just run me through, so you said 10 bps negative from IFRS 16, obviously TRIM is a question mark? What else is there that will benefit you in terms of disposals? Did it not yet reflected in capital and any exits and what else if TRIM were a bigger number. What kind of options there at your disposal to accelerate the capital build should you need to, I mean is it easy to find 50 bps from other noncore disposals or questionable sort of business units? How should we think about that?
Jean-Laurent Bonnafe
We are not expecting, minus 10 as you said, TRIM, maybe also 10 or 20. I mean, we are not expecting a huge amount of additional requirement. It's smaller kind of erosion or regulatory erosion, I would say, of the ratio, which is kind of sustained and regular but not huge. So in front of that, on top of the 30 basis points of organic creation, we have as you said, some outlook for sales. The most, I would say, [indiscernible] which has already been preannounced was at an extent is our stake in SBI Life in India where we have already sold the stake.
And we have said that in anyway for regulatory reasons, both SBI and us, we have to manage to increase the floating part of the shares to 25%. And so – and now that is listed or so we can of course do more so we have here a lot of possibility to generate a significant capital gains as you know, as we have done already once. And so it's a kind of a reserve, which can beat that. Sorry. I have not missed…
Bruce Hamilton
No, that wasn’t really bad. And then the other impacts IFRS 16, you said negative 10 bps would be the other impact. There are no others you're expecting. I guess, you should get what, 5 bps back or so from the exit of another, just any other items we should be thinking about that where we either hinder or help the capital build over the next 12 months?
Philippe Bordenave
I don't think so but overall, we know being at 11.8%, if you see this kind of maybe, I’ll show you, we expect to be already at 12 at the end of the year.
Bruce Hamilton
Great. Thank you.
Philippe Bordenave
We expect an increase of the ratio during the year in spite of a TRIM and in spite of IFRS 16.
Bruce Hamilton
Got it. Thank you.
Philippe Bordenave
You’re welcome.
Operator
Thank you. Next question from Omar Fall from Barclays Capital, please go ahead.
Omar Fall
Hi there. Just coming back to the implied revenue growth of 4% over the next two years, I can understand a bit of a jump this year. CIB normalizes but surely that's mainly offset by the $200 million to $300 million of revenue reduction from the non-strategic review. And given that in terms of scope effect, it feels like less than 1% impact. Also the 4% target looks rather aggressive if I may. So you know, why should BNP structurally grow so far ahead of a reasonable estimate of Eurozone GDP?
And secondly, and apologies if this is simplistic or I've missed something, but how are you adding $600 million of cost saving, as well reducing the amount of restructuring costs by $300 million. Why are there no restructuring costs associated with the additional $600 million? Thank you.
Philippe Bordenave
Hi, Omar. Well, it's a kind of a little bit shortcuts to compare the evolution of CIB revenues and the Eurozone GDP. Beyond Eurozone, we are growing fast in Asia, and in the U.S. also. Beyond that CIB, it's not the only the global markets. It's also the global banking business, [indiscernible] which is growing and growing fast. So yes, it's ambitious. We are – we really manage the bank in an ambitious way. It's a minimum you are expecting from us but we believe it's reasonable. On the cost…
Omar Fall
And maybe just as a comment, I remember, I mean when you talk about the 2018’s equity, but there is also the 2018 effect of what we said First Hawaiian Bank and Cardif, which were on the results. And then there is the scope effects like IFRS 5 to come. So if you take it in that scope, the amounts don't seem totally out of line.
Philippe Bordenave
On the cost we have – yes, we have cut the restructuring cost by 10%. Indeed, we have made a kind of complete analysis of the way we have – we started the work early in the year, in the summer already in 2018 and we have seen that the way we were expanding the three billion of restructuring costs and we came to the conclusion that was possible to lend them by 10%.
And without having any impact on the cost cutting, we will have some – I would say there will be some announcement in the digital transformation, but to limit to the extent, there are certain number of digitization programs or customer journeys and that are going to be somewhat delayed. But we believe it's – well, it doesn't change the substance of the transformation, which is a success and it's something we can achieve.
And as for the additional cost reductions, we are not – while we are asking the businesses to take that into their normal cost without allocating any specific restructuring cost anymore. And they will have to self-finance the necessary transformation cost or the cost associated with a certain number of the evolutions which are going to make those savings possible.
Omar Fall
Very helpful. Thank you
Jean-Laurent Bonnafe
Again, on the revenue evolution, we’re ready to sum up a number of elements saw in 2018. We had a drop on equities. The range of, let's say, back to normal would be €250 million on top of what we saw last year, €250 million. Raiffeisen full year compared to last year, it's an equivalent to €250 million. So €250 million, €250 million, it’s equivalent of €600 million.
Then pre-tax, portfolios from Cardif that were marked down is around €200 million. So if you look at the 2018 revenue base, €800 million that is roughly 2% of the total of the division at where I would say below or this has to be factored. If you look at the remaining 4%, and it’s an additional 4% to which on average 1.5% to the plan. So we have to start with this idea that 2018 in terms of revenue, basically €800 million below normal.
Omar Fall
That’s very clear. Thanks.
Operator
Thank you. Next question from Stefan Stalmann from Autonomous Research. Sir, please go ahead.
Stefan Stalmann
Good afternoon, gentlemen. I have two questions left, please. The first one is on the remuneration of Super Subordinated Notes, which actually went up quite a bit year-on-year, almost 30%. And all of that seem to happen in the fourth quarter after nine months, it was almost flat year-on-year. And the outstanding amount of these notes is also rather unchanged. So the question is, was there anything particular happening in the fourth quarter? Is the full year run rate and normal run rate or could this possibly drop back again?
And the second question, I guess also related to funding issues. You have actually – you showed quite a lot of a non-preferred senior so far this year at quite a high price, about 120 basis points more, above mid-swaps than last year's non-preferred senior issuance. At what point could this start to be a problem for your business plan or have you calibrated your business plan sufficiently for this kind of funding cost on this part of your funding structure? Thank you very much.
Philippe Bordenave
Steven [ph], thank you for your questions. First, on the TSSDI, so the run rate that we see is basically the run rate we anticipate and anticipate going forward. This is a bit of a step up versus 2017 for two reasons. Yes, there is somewhat volume evolution, but there is also – we had some exceptional elements in 2017 which made the cost a bit lower. So all in all, 2018 is a good level to look forward.
Then on your non-performing, on the NPS; we basically as you know, the cost of liquidity that we have, we gaiter that and we take that into account in the way we price into the businesses. And so that is basically what we do. So if there is – as long as it is a natural evolution that we're seeing in the price, we basically take care of that and the overall pricing.
Stefan Stalmann
Okay. Thank you.
Operator
Thank you. Next question from Flora Benhakoun from Deutsche Bank. Madam, please go ahead.
Flora Benhakoun
Yes, good afternoon. My first question is going back to the cost flexibility. If I'm right, I calculate that when I compare the new target to the old one, you basically reduced – you're leaving your plants by almost €2 billion. But then when I look at the cost base that is implied for 2020, in the end it's only been reduced by €200 million. So my question is, wasn't there more cost flexibility possible to offset this difficult revenue environment and why didn't you go for something more drastic on cost given that this is something that is probably more in your control than revenues, which also demand on obviously the difficult environment.
The second question is going back to the jaws, where you expect to deliver positive jaws in each division in 2019. I'd like to know if this is something that will be rather backend loaded and that will basically show rather in H2 2019 results, or is it something that will start already as early as with Q1 results potentially.
And one last question is, something we haven't touched about the cost of risk. I was wondering if you could give us some more insight on how you see cost of risk develop at group level in your plan towards 2020. Thank you.
Jean-Laurent Bonnafe
So, if we look at, cost reduction, there are really two different situation. There is the initial plan that is very much the digital transformation, and for these two years where we'd say the verge of finishing the transformation of digital plan. We're very much concentrated on that plan. And anything that was cost reduction was linked to new customer journeys, put it that way. So this is one bucket, €2.7 billion recurring cost savings. That was the target.
We've been able to optimize the investment. We were supposed to have from €3 billion down to €2.7 billion. So this is one bucket. There's another bucket covering other initiatives, Philippe presented, that are more, let's say, regular cost efficiencies approach that we were not able to tackle before I'd say, being so advanced in the transformation plan. So this is a separate bucket and this will deliver an additional €600 million.
Could we have done that before? I doubt it. This is not an excuse, just because to deliver that you have to leverage IT system, you have to leverage a number of issues even in, I'd say, for our own premises. When you are going so fast in the transformation of costs, the transformation of digital plan, you’re onboarding, I’d say, new FTs, so you cannot deliver, I’d say, a square meters and so on and so on. So these are really two different buckets. The €600 million on top of the first initiative that is the initial plan and they are very different from that first initiative. So these are two forces.
Is it possible to do more looking at 2020? Maybe. But 2020, it's only a one-year ahead. So the impact of the €600 million as to be, let's say, already now ends by the end of 2019. If we want to get the full impact of the €600 million, we need to have delivered all the underlying projects that we deliver to €600 million. So this is why even in theory, the €600 million could be, or maybe in the range of €1 billion. If you look at the scenario, if you want the full impact of the €600 million, you have to deliver all the initiative by the end of 2019. So this is why on the other side, the €600 million is a kind of maximum, let's put it that way.
The jaws were very much committed to deliver the jaws effect all the three divisions next year starting from the 1 of January. In any case, we have to deliver that for 2019. So this is the situation we’re in.
Cost of risk, we believe that cost of risk at BNL will continue to decrease. Currency, we are 75 basis points. It will go down to €250 million or lower than that. This is very much the result of our strategy with BNL, we’re basically exited local SME business and we're concentrating heavily on, let's say, mid caps. So this is for full cost of risk at BNL will go down.
And in terms of bps, cost of risk measures in terms of exposure, we do not see looking two years ahead. We do not consider that costs of risk could go up in terms of ratio. Of course, personal finance is growing platform. So, the cost of risk in absolute terms will slightly go up. But in terms of bps, it will be very much stable. So, we consider that 1920 terms of a ratio bps, we should see a kind of stabilization. Of course, with Turkey, we can have some limited negative news, but limited. And at BNL, we should have positive, we’d say new. So, all in all, in terms of bps, we should stay very much stable looking ahead.
Flora Benhakoun
Thank you.
Operator
Thank you. Next question from Maxence Le Gouvello from Jefferies. Sir, please go ahead.
Maxence Le Gouvello
Yes. good afternoon gentlemen. Two question on my side, first to follow up regarding the capital management and the question on Bruce – from Bruce, you haven’t mentioned first, our yen, the last 18.5. Do you still aim to dispose it for – by the end of 2019? The second question is regarding the cost in the capital market in Q4. You mentioned that apparently, you have already accounted for the closure of some of the activities that you aim to close. Can we have an idea of roughly what is the cost income underlying to do our forecasts? Thank you.
Jean-Laurent Bonnafe
Yes, yes. Sorry. So, Maxence, first hand, we have already told it in the beginning.
Maxence Le Gouvello
Yes. Sorry, I missed it I think.
Jean-Laurent Bonnafe
And we have – we have not, of course, it was not included in the fourth quarter, because it happened in January. And indeed, the impact in – the gain on capital is very limited, it’s very – a fee negligible, because the bulk of the ratio impact was taken when we deconsolidated, when we went through – when we – when the consolidation – the global consolidation was disappeared. And according to IFRS 9, you said that time that you take the most impact. So, the additional impact in ratios is negligible. The additional impacting revenues of course, there is a capital gain, which by the way is helping us recouping already half of that what we had lost in December, because we sold it at a price which was halfway – roughly halfway between the mark to market at the end of December and the price that we had to mark well, when we did consolidate it. So, we have recouped already or something. Both the cost income…
Maxence Le Gouvello
because you have to add 132 on Q4 and you mentioned in the slide that apparently, you have already taken into account the cost of some pleasure, can we have a rough idea?
Jean-Laurent Bonnafe
Yes, yes, yes. But those were done I think, because I got a vision in global markets?
Maxence Le Gouvello
In global markets, yes.
Jean-Laurent Bonnafe
As far as global markets, well, once adjusted for the cost of closure, it’s – I don’t have the figures sorry.
Maxence Le Gouvello
But can we assume that you will be into the issue 80, 85 or it would be even IO?
Jean-Laurent Bonnafe
It would be how much I had.
Lars Machenil
The cost income, do you talk about the cost income, that sounds. The cost income would be better than 80%.
Maxence Le Gouvello
I’ll get to in that…
Lars Machenil
Target for 2019.
Maxence Le Gouvello
Yes. Okay. on the Q4 2018 adjusted?
Lars Machenil
For the costs that we have all changing and adapting global markets.
Jean-Laurent Bonnafe
Yes, yes.
Lars Machenil
We should look at the normal run rate. Yes. it’s definitely not something with three digit, it is more around the 80% over that better than that. It’s on the revenues.
Maxence Le Gouvello
Thank you.
Operator
Thank you. Next question from Kiri Vijayarajah from HSBC.
Kiri Vijayarajah
yes. Good afternoon everyone. Just a couple of follow-up questions on your CIB plans if I may. So firstly, is there a leverage exposure reduction you’ve got in mind to go alongside that RWA reduction target that you have and could you also sort of give us a bit more color? Is there any particular skew towards kind of U.S. or U.S. dollar type of assets or businesses that you’re potentially going to sell and then how do the cuts – the RWA cuts fall between a FICC and the equities business please?
Lars Machenil
In the – you are referring to the 5 billion, which I said equivalent that we intend to sell. So, that is already in the two businesses we have already mentioned. And the rest is most well – we are going to – it’s going to encompass the global banking business as well. So, we are going to make a kind of a selective – more selective approach of the businesses we are conducting and we don’t want to be too specific on the idea we have in order to improve this setup. but it’s not only – it’s certainly not only a FICC or equity derivatives, it can also be coming from the global banking business. It can be for a while, it can be, for example, seven geographies, where we are relatively small and where our setup could be just closed, because it costs more than it brings in certain various countries.
Jean-Laurent Bonnafe
Yes. We cannot say more about it. You’ll see it once it’s done.
Kiri Vijayarajah
Great. Thank you.
Operator
thank you. Next question from Jean Pierre Lambert from KBW. Sir, please go ahead.
Jean Pierre Lambert
Thank you. We’d like to come back to CIB. The previous plan had a cost income ratio target of 64.5. Has that target changed? We did move to towards 70, or you expect this to remain stable. And the second question regarding the business you’re exiting, is there any implication, any connection with your views on adjustments for Basel 4 environment. And the first question is regarding the ROI, return on investment for your digital investments. What kind of a minimum ROI are you do looking at based on your experience before you cut off initiative? Thank you.
Jean-Laurent Bonnafe
Yes. Sorry and with respect to your question on the cost income. can you just repeat your question, because we were working on your other question?
Jean Pierre Lambert
Sure, sure. Looking at the corporate and institutional banking, the previous cost to income targets for 2020 was 64.5% and I’m wondering which direction is it moving now under the revised plan? Is it going up, I presume yes and I was wondering if we could give some education, are you moving towards 67%, 70% that’s the question for the first question.
Jean-Laurent Bonnafe
Yes. So indeed, if you look at what we observe in one of the changes in the plan is that the growth – the top-line growth that we foresee at CIB is it that more moderate than what we had anticipated. We of course compensate further costs, but not entirely being able to get the call. Let’s take, yes, we will be – definitely, we will be staying at a cost income, which is definitely below 70%. And so can you…
Jean Pierre Lambert
Yes, sure. And the second question was regarding the businesses you are exiting or planned to exit, is there any connection with your view on Basel 4 or is that another adjustment to come post 2020, do you anticipate some deterioration due to Basel 4 and if you exited some business on that basis as well?
Jean-Laurent Bonnafe
For the moment, let’s be fair. Basel 4 is not yet the cost in the law. So that is whatever we optimize, we are not going to take into account what potentially could be a Basel 4 environment. So, we optimize within the current setup.
Jean Pierre Lambert
And the final question was related to the minimum ROI you expect when you proceed with digital investments, because having the experience of screening these investments. So what kind of color can you give on the ROI, you – the minimum, how’d you want to see?
Lars Machenil
Most of the basements were running in the universe is we’d say transforming customer journeys, the bank that is already the current existing bank, where from the pure yellow bank or situation like say – most of it is very much taking the trend down and transforming the customer journey. So, there is no different looking at the digital investment and a regular investment, it’s exactly the same, like the same approach. When we’re moving or considering external growth, we have exactly the same standards.
So anything we’re doing should deliver, mid-term return on equity that is current with group targets. there is no thing that is below. And of course, in the digital universe, as far as we can see in any business, in any geography, revenues and especially, fees have pushed down. So even if you are much more efficient in the efficiency, the cost base, the cost income all in all is not that different compared to the old model. If you do not move that way, then you have a problem just because the market as a whole is pushing down margins, fees unsolved. So ultimately if you stay with the old model, your cost income is going to deteriorate quite dramatically. So, this is the way we consider the situation.
While looking at customer journeys, we’re addressing those situations. We deliver new customer journeys. These has to – I would say protect the bank in terms of franchise quality of execution, this is valid for CIB. This is valid for retail. And in a universe in which revenues and margins, fees and so on and so on. Regulation pushing everything down that approach is providing, I would say additional efficiency, but you are not going ultimately to see anything on the cost income just on the date on the back of the digital revolution. The back of the digital revolution, cost income can only stay at the same level. That keep protect the bank from senior kind of deterioration.
Jean Pierre Lambert
Great. Thank you very much.
Operator
Thank you. Next question from Nick Davey from Redburn. Sir please go ahead.
Nick Davey
Yes. Good afternoon everyone. Two quick questions please. The first one on the TLTRO, there’ve been a few news articles suggesting the ECB needs a bit more convincing about, maintain in the TLTRO. So, could you just talk a little around, perhaps offer them some convincing or perhaps more seriously, just talk about, how you plan for the potential scenarios of TLTRO carrying on or being withdrawn, I’m thinking about things like your NSFR possibly also how you fund BNL. Just any comment that will be interesting. Thank you.
And then secondly, just a quick one, sorry again, it’s come back on this cost discussion around that the underlying savings. The simple question is really can we expect group costs to come down in 2019, just wondering, can obviously see where you’re aiming to get to in 2020, but just so we can help to kind of benchmark here along the way, do you think we will already see absolute cost declined for the group in 2019? Thank you.
Jean-Laurent Bonnafe
Regarding your first question – we are – at the stage, we are really taking as an assumption that the TLTRO will come to an end. We’re seeing that as expected, and while we are extremely liquid and it wouldn’t be a that much program frankly. We would have to somewhat increase our support to BNL in terms of liquidity, but the group level, it’s not an issue at all. I would like to stress that in the tool kit, the Central Bank they have before going to the TLTRO they had some intermediate tools that they used for some time and they could make a step back and replacing the TLTRO with funding like two months, three months, I don’t remember how it was called – MROs. So they have a tool kit where they can adjust and the reason to drove the TLTRO without creating a big, I would say mess in the market. And in any case, in our case we are very, very, liquid.
The NSFR, now that we have the final, the final text, while it’s not yet voted, but, the trialogue as – to kind of compromise wording between the parliament conceal and coalesce. And given that text, we – I mean the NSFR will not be an issue for us. I told, I mean, as we have to issue a long-term debt anyway for the [indiscernible] the NSFR will be easily mix.
Lars Machenil
Nick, with respect to the cost, it is, if you look at and your question is specifically to 2019. So in 2019, we have still the transformation cost going on. And there is some acquisitions and particularly hi-fis and which step up the cost. So from that point of view, we more have a stability on the costs in 2019 from that point of view.
Nick Davey
Okay. Thank you. Bye.
Operator
Thank you. Next question from Matthew Clark for Mediobanca. Sir please go ahead.
Matthew Clark
Good afternoon. So, three questions please. Firstly, the tax rate is very low in the fourth quarter specifically, I understand there was some favorable tax dispute resolved. Could you quantify what impacts in euro terms they had and maybe give a bit more information on what they were about?
Secondly, with regards to the mark-to-market hit on the insurance portfolio taken in the fourth quarter, should we impute that meant in the first nine months that was a positive mark-to-market gain on that portfolio. And if so, please could you quantify what that positive mark-to-market gain was over the first nine months?
And then finally, just a clarification, you’ve commented that you expect 30 basis points of a kind of organic CET1 accretion normally, I just want to check that is before any kind of regulatory headwinds of trim or for 2016 or whatever. So that’s just baking in your kind of normal WI growth an alternative thing else that the regulators might throw you. Is that the right way to interpret that 30 basis points figure? Thanks very much.
Lars Machenil
Maybe taking that last question. So the 30 basis points we talked about. Yes, indeed, it’s the organic creation that we’re having. And what we said is, we have some other elements when we talk about optimizing the balance sheet that could generate, so more than strengthening of the capital that would be compensating some of the other events that might be decided on and by the regulator. So that is a bit from that point of view.
On your first question on taxes. You know how that typically goes? The taxes you have to look at it on a year basis and one makes every quarter, one takes assumptions and then at the year-end we really look at the overall position. So yes, during the quarters, we have probably been a bit too prudent to assume a tax rate which was high, because we saw that several discussions and litigations that we have where evolving in a positive way and so we reflected that in the taxation of the fourth quarter. And that is why it is a lower compared to that.
Matthew Clark
Can I just follow-up on that specifically. So these litigations, have they been fully resolved? So those like a favorable court decision that that’s kind of final or is this just your interpretation of things are a bit better than you were hoping? But you don’t have the all clear yet?
Lars Machenil
There are several aspects, and there are some for which there are steps which are basically taking it better. There are some which are basically concluded. So, it’s a bit of a mix depending on the situation.
Matthew Clark
Okay. Thank you.
Philippe Bordenave
Yes. On the insurance. So, as we basically said, as I said, the parts that are mark-to-market, it’s relatively a small part of the investment portfolios that they have. And given the sharp drop also in time the impact was around at 180. The impact was in this nine months before, it was overall from that portfolio was rather limited actually. So there is nothing, remarkable to mention about it.
Matthew Clark
Okay. So limited relative to that 180. So we’re talking 10 rather than hundreds?
Jean-Laurent Bonnafe
Each time it’s significant. We seek knowledge.
Philippe Bordenave
Yes. Even if it will be positive, we would live with signal it. Yes.
Matthew Clark
Okay. Thank you.
Lars Machenil
Would we have had all the questions, operator?
Operator
Yes. Back to you for the conclusion, sir.
Jean-Laurent Bonnafe
Yes. So thank you very much. Again, we consider that last year we delivered most of the digital transformation. We’re getting very positive, strong signals that these new approach is not only valid, but we’ll grow the franchise in many dimension. Ultimately if you look at past year results and we should consider that what happened that the life insurance portfolio or the mark-to-market valuation of First Hawaiian Bank to kind of one off, last year results are very much in line with 2017. So this is why the dividend in stable. And again, looking ahead, capital generation is strong, 30 bps per year. We will reach more than 12% core Tier 1 equity in 2020.
And based on the current, I would say, rate scenario and taking into account the fact that the FICC business in Europe will be ultimately different from what we expected the two years ago. We adapt the target for 2020 with that 9.5% return on equity, which correspond to an increased in dividend beginning in the end of 2016 to 35% and net result pressure of more than 20%. So in a nutshell, this is where we are, and how we intend to let’s say to deliver the second half of the plan this year and next year.
Thank you very much again for your attention and for some of you. See you tomorrow in London. Thank you so much.
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