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Earnings Transcript for BNP.PA - Q4 Fiscal Year 2023

Operator: Good afternoon, ladies and gentlemen, and welcome to the presentation of the BNP Paribas 2023 full year results with Jean-Laurent Bonnafe, Chief Executive Officer; Lars Machenil, Chief Financial Officer; and Yann Gerardin, Chief Financial -- Chief Operating Officer, Corporate and Institutional Banking.
For your information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website at invest.bnpparibas.com. [Operator Instructions]:
I would like now to hand the call over to Jean-Laurent Bonnafe, Group Chief Executive Officer. Please go ahead, sir. :
Jean-Laurent Bonnafe: Thank you. So good afternoon, ladies and gentlemen. I'm pleased to welcome you alongside Lars and Yann for the presentation of our 2023 results. We'll be pleased to take your questions at the end of the presentation.
So we are halfway through our GTS '25 plan. We would like to share with you through 5 key messages what I take away from our '23 results, our '25 outlook, our model, our long-term strategy, and finally, our long-term value creation policy.:
My first message, looking here at Slide 4, is with our intrinsic performance in '23, which I would call very good. BNP Paribas delivered an 18% increase in distributable earnings per share in '23 compared to '22. Distributable net income, which stands at EUR 11.2 billion, was up 10.2% compared to '22 and was in line with our announced objectives for '23 despite a fourth quarter that was more challenging than usual. Lars will give you all the necessary details for each division and will comment on the one-off items booked in particular in Q4 '23, which we absorbed over the full year through distributable net income in order to reflect the group intrinsic performance. What you should also keep in mind is that they will not weigh on future results.:
Overall, on a distributable basis, our revenues rose by 3.3% in '23 compared to '22, and our operating expenses decreased by 1%. The jaws effect is therefore positive. The cost of risk was low and came in at 32 basis points, driven by the structural improvement in our risk profile over the past 10 years.:
Many of you have asked us about the redeployment of capital freed by the sale of Bank of the West. The process is well underway based on the disciplined approach. As of the end of '23, where we deployed EUR 3 billion or 40 bps, 1/3 in organic growth and 2/3 through targeted partnerships and bolt-on acquisitions, 70 bps remains to be redeployed.:
Our financial structure is solid and our CET1 ratio trajectory is on track to absorb the new CRR 3 requirements by '25. I will come back to this point in a moment.:
Distributable earnings per share came to EUR 9.21, an 18% increase versus '22 reported. We confirm our 60% shareholder return policy, and we'll propose a EUR 4.6 dividend per share at the Annual General Meeting on May 14. We have also requested the ECB's approval to launch a EUR 1.5 -- EUR 1.05 billion share buyback program.:
One last thing. In '23, we continued to invest in technology and in artificial intelligence based on the same type of industrial approach that made our platform so successful. I will come back to this point in a moment.:
Beyond the very good results we achieved despite the headwinds, '23 was a pivotal year. Now with that in mind, I would like to send out a message of confidence in our medium-term outlook.:
Looking now at Slide 5, my second message today is about our '25 outlook. The economic outlook in Europe and geopolitical uncertainties have obviously made us cautious. However, despite these headwinds, BNP Paribas should continue to grow faster than its underlying economy, serve clients and get market shares across all phases of the business cycle. This all phases of the business cycle is important.:
Personal finance and real estate have been particularly affected from the current cycle. But we're dealing with that. We have set up some robust adaptations plans, which should pay off as early as '26. In '23, we also took note of several decisions by public authorities, the end of ECB remuneration of minimum reserves, the new Belgium tax, and the issue of Belgium government bonds.:
For the sake of transparency, we cannot avoid mentioning the temporary impacts they have. In the end, taken together, these measures could bring our projected RoTE by '25 in the range of 11.5% and 12% and translate into a CAGR '20 to '25 in net income, group share of circa 8%.:
Thanks to our diversified and integrated model and the adaptations underway, we're confident in our ability to deliver a return on tangible equity of 12% by '26. Lars will detail further the growth targets by operating division in his presentation.:
Looking now at Slide 6, this is a good way to transition to my third message, which is a remainder of what makes our client-centric, integrated, diversified and model at scale so valuable. The new figures in Slide 6 illustrate quite simply the resilience of our model, which can generate long-term growth, our discipline in allocating capital between our businesses -- 1/3 to CIB, 1/3 to commercial and personal banking, 1/3 for specialized businesses and IPS -- the continuous evolution of our risk profile and the steady improvement in our cost-to-income ratio.:
Some might argue that the solid track record and rock solid reputation are not enough to make BNP Paribas an investment case. Nothing is ever taken for granted. This is why we feel it's important to reiterate on Slide 7 our vision of the main challenges for the banking sector in Europe and how our long-term strategy is extremely well positioned to create above average value.:
And this is my fourth message, where we have a clear view of these challenges. First, gain market share at marginal cost; second, optimize the capital cost constraint; 3, adapt to business cycles; 4, support the energy transition; and 5, invest in people and technology.:
BNP Paribas' long-term strategy is nothing new and has demonstrated its efficiency as just evidenced in the previous slide. We record it in Slide 7 around 20 key points that are methodically addressed by each operational division. You will not be surprised to recognize most of the GTS '25 strategic priorities that we shared with you.:
I will stop here for one final point before I turn it over to Lars. This is my final message, our commitment to creating shareholder value over the long term. A good illustration of this commitment can be found in the 3 graphs on Slide 8 that record the average annual growth rate since 2008 of tangible net book value per share, plus 7%; of net earnings per share, plus 8%; and of the cash dividend per share, plus 11%. We are mobilized and focused on continuing this trajectory.:
I would like now to hand over to Lars, who will take you through the group and divisional results. :
Lars Machenil: Thank you, Jean. Good afternoon also from my side, fine ladies and gentlemen. Let's start with Slide 10 in the section of 2023 results. So as mentioned by Jean-Laurent, our 2023 distributable net income at EUR 11.2 billion is in line with our objective. This year, the number and amount of one-off or what we call in our lingo extraordinary items are high. I would, therefore, like to give you some color to this conjunction of external and internal factors and give you all the necessary transparency.
In a nutshell, we have been in a position to absorb these negative extraordinary items occurring particularly in the fourth quarter of 2023 at no immediate cost to shareholders with respect to the 2023 distribution. They will not weigh either on future results neither because we put them behind us.:
If you look at Slide 10, the waterfall gives a good picture of the restatements between the net group share result reported and the distributable result in '23. So if we look at it beyond the EUR 2.95 billion capital gain from Bank of the West, there are 2 main types of items that were adjusted from the distributable result in 2023 to reflect BNP Paribas' intrinsic performance. Because that is why we introduced the distributable one, it is coherent with the result of '22 and it is the base for the one-off '24.:
So if we look at them, the first of these corrections is linked to the European banking regulatory environment, the Single Resolution Fund. We have decided to anticipate the impact of the end of the ramp-up of the Single Resolution Fund for EUR 1 billion. I remind you that we have been paying for the last 8 years something around the neighborhood of EUR 1 billion in order to construct that fund. That fund is now there in '23. So there will no longer be contribution in '24. And so, we basically took them already out in '23 to make it coherent.:
Secondly, there is the TLTRO. Well, there is the TLTRO or in particularly the change of terms that the ECB applied. And therefore, the adjustment that was required on the hedges that we're facing it. And so, that is just shy of EUR 1 billion of impact.:
So beyond these roughly EUR 2 billion restatements, there are also some more idiosyncratic ones. Like for example, the extraordinary adaptation costs of EUR 280 million, partly related to personal finance -- Jean-Laurent told you that we're taking care of it -- as well as provisions related to legacy portfolios amounting to EUR 780 million. These are legacies, they are way gone, and we basically put them behind us as well.:
So these provisions, for example, include the extraordinary ones for mortgages in Poland and provision for litigations to personal finance and provision for receivables. So we also put that one -- those ones behind us. So that's the part on the distributable income.:
I propose to skip Slide 11 because it's basically the P&L. Jean-Laurent has given it in color. And I draw your attention -- it was already mentioned -- but an ROTE of 11% and an EPS growth of 18% on the back of the earnings growth and the share buyback.:
I also propose to skip Slide 12. It just reminds you that there are the extraordinary, so the one-off elements I just discussed. There are also the exceptional elements, which are basically stable compared to what we had the year before. And I'd just remind you also the impact of hyperinflation weighing for EUR 200 million additionally on the year '23.:
So that's basically what I wanted to share with you before switching into Slide 13, and the Slide 13 talks about the revenue evolution in the businesses.:
So overall, you see the pickup, which is basically attribute to our diversified setup, and that diversified setup at the level of BNP Paribas, but also in each of its divisions. So look at CIB: CIB revenues growth, strong increase at Global Banking, rise at Security Services, and an activity more normalized at Global Markets. We'll come back to that. But there also you see the elements.
If you look at CPBS, sustained revenue growth; strong increase at Commercial and Personal banking, driven by growth in net interest revenues -- we'll also come back to those -- and a strong increase at Arval & Leasing Solutions; and a less favorable environment in Personal Finance. Nevertheless, you see overall doing well.:
And then IPS, good performance, up 3.7% when we look at insurance, wealth management and asset management, as indeed, there is real estate which is being restructured and weighing a bit on IPS.:
So that's the view of the revenues as we see them. And before we move on and go to the results on a yearly basis, I want to make a comment on the fourth quarter. And you will find the fourth quarter and the details in the appendices. But I would like to make 4 very important points.:
First, the distributable net income clocked in at EUR 2.007 billion in the fourth quarter and led to a distributable net income of EUR 11.2 billion in '23 as guided on the back of a 9 months restated distributable income of EUR 9.2 billion and a fourth quarter of EUR 2 billion. So that's the first.:
The second thing. If extraordinary one-off items weighed on the reported P&L, they are excluded from the distributable net income that reflects the intrinsic performance of the group and the base for the return to shareholders. So that's 2.:
And then the third. When talking about those extraordinary one-off items that were very negative in the fourth quarter, around EUR 933 million negative, due mainly to extraordinary provisions for litigations, around EUR 645 million, and they are recognized in the fourth quarter and as such will not weigh on the future results. So we took them out and we took them out of the distributable amount. So that's the third.:
The fourth. Don't forget that, as usual, the fourth quarter results include some seasonality, and moreover, this year, the impact on cost of risk of some provisions on nonperforming loans to be sold. I remind you that we have those elements provisioned. They were deducted from capital. But with the intention to sell, we have to recycle that element in the P&L. So there is no impact on the common equity Tier 1. These things are gone. It's just a blip in the cost of risk and it will not impact our future lookout.:
I also remind you that we had a similar thing but on the opposite side in the fourth quarter '22, where we had an idiosyncratic release due to alignment with European standards, so we had to write back around EUR 200 million. So no impact whatsoever on our 2024 outlook of this cost of risk, and so we really stick to our 40 basis points guidance.:
So having done the one, 2, 3, 4 on the fourth quarter, in a nutshell, these negative items and seasonality which are in some ways very specific to the fourth quarter should not divert you from having a look at a very solid intrinsic performance on a yearly basis.:
With this, I can ask you to turn to the next page, 14, on cost. I'll be brief. You see basically that the operating divisions have cost contained, so up 2.3%. I don't have to remind you that in the Eurozone inflation is 5.6% and something similar in the U.S. So you clearly see that there is -- the operating expenses are contained despite the inflationary context.:
If we continue on Slide 15, it's also a reminder. It's basically a reminder of the structural improvement of the risk profile over the last couple of years. You know these slides, so I'll be brief. So on the left, you see 10 years of cost of risk expressed as basis points over outstanding, and you see them going down. And they don't come down just by luck. They come down because the 2 main elements like Personal Finance and BNL have structurally been adapted. I'll come back to that. And so, we stick to our guidance of below 40 basis points.:
And you see the same thing on the right, where you see the evolution upwards of Global Markets' revenues and you see stability of the VaR, which is basically the metric of the measure for market risk. So that's where we stand.:
I'm going to skip the next one because it's basically a variation on the theme cost of risk is low. And so, I'll take you to Page 17 on the solid financial structure. Solid is probably also a too sweet of an adjective as we have a common equity Tier 1 at 13.2%. You know that we want to fly at 12%. So we are well above that. So we are well prepared for accompanying growth, redeploying the capital gains of Bank of the West, and basically be ready for the new regulation to come.:
So you see this. So we are very well capitalized. And it's not only on capital; it's also on liquidity. You know that our LCR ratio, which has to be above 100%, is like at 148%. Maybe that number doesn't mean much. I always translate it in the immediately available liquidity reserves, which are like almost EUR 0.5 billion. And as you know, we don't have [ Vault ] anymore. So that EUR 0.5 billion, we basically put it for a big part at the ECB. And that is one of the reasons why the impact on the mandatory reserves have an impact. So that's basically on the capital position and the regulatory ones.:
So if we then take the next page, which is the redeployment of the capital of Bank of the West. So we heard you that we wanted -- we needed to synthesize what we're doing, and we're basically doing well. So we had like around EUR 7 billion to redeploy. EUR 3 billion of them are basically redeployed. And we initially had the intention to do 2/3 organic and 1/3 inorganic. It's basically the other way around given the economic environment in which we are.:
And what are the levers that we use this for? For example, we use it to get access to new distribution networks. For example, what we've done in Belgium with the Belgian Post. Or secondly, it gives an expansion of offerings or even new expertise, what we've done, for example, with Jag. Or it can deliver us new technological platforms, like what we've done with Kantox. So we're really well on track and we will continue to do so.:
I propose to skip the next 2 slides, 19 and 20. So you know that we are very dedicated to it and you see that we are well on track of delivering.:
So we basically of the plan, GTS, we've talked about growth, we've talked about sustainability. And on the next pages, 21 to 23, you have the synthesis of the T, the technological and the operational efficiency.:
So I talked to you about what we're doing on the cost so you know. So we keep on optimizing our premises, that's on one hand. On the second hand, we keep on industrializing and pooling activities. Like our shared service center, we'll really staff them up by 25% of people by 2025. And then we're also working on the infrastructure and the technologies, AI and several of them. So that's basically where we stand on the results.:
So let me now quickly go into the divisions. So if we start on Page 27 with CIB. So CIB, overall, revenues reached a record level of EUR 16.5 billion in 2023, up 2% year-on-year on a like-for-like basis. This [ with ] serving clients, leveraging strong franchises and confirming a change of scale in the European landscape with strong market share gains.:
Total CIB costs were up 1.2% year-on-year or 2.9% on a like-for-like basis, with positive jaws for Global Banking and Securities Services. All in all and considering a lower cost of risk, CIB generated a pretax income of EUR 5.7 billion in 2023 and a record level by historical standards, up 6.4%.:
Now moving into some further details about the business drivers of the various divisions. So if we start with Global Banking, a very good performance, supported by market share gains and our European leadership on bond markets and syndicated loans. Bond markets have been particularly active and transaction banking activity has been buoyant with accelerated growth in deposits late in the year. In this context, Global Banking revenues were up 14% in 2023. And so that's doing fine.:
If we move to Global Markets. Global Markets' activities were still resilient compared to a high base in 2022, decreasing by 6% compared to last year on a like-for-like basis. If we dive in, Equity and Prime Services delivered a good performance with revenues increasing by 1% and supported by good business momentum in equity derivatives and prime brokerage. In particular, the rise is very strong if you look at the fourth quarter, up 69%, with a very high level of activities across prime brokerage and equity derivatives. In a nutshell, demonstrating again how powerful it is the diversification, not only at group level, but also at businesses.:
With normalized activities on rate and foreign exchange, FICC revenues were down 10% year-on-year. And please note the very good performance in credit activities, offset by more normalized activities in EMEA from a very high '22 base in rates and foreign exchange markets and, in particularly, commodities. You remember the high volumes at the end of '22.:
Finally, Security Services, the performance confirms the relevance of a diversified model with the benefits of new mandates. So that's CIB.:
If we now turn to Slide 31 with respect to CPBS. It delivered solid results, consolidating on the good performance of '22. Overall, revenues clocked in at EUR 26.6 billion with a 4% increase. Good performance Commercial and Personal Banking, and solid increase in revenues in the specialized businesses. Last, favorable, I told you so, in Personal Finance.:
Loans were up 2.9% and essentially lifted by the specialized businesses with a slight increase in the Eurozone for the Commercial Banking. If you look at deposits, they were down 1.6%, but were almost stable versus the third quarter. As you know, we are very well when it comes to liquidity, and the main impact is the fact of the competition by the Belgian state bond.:
So please note, Private Banking net asset inflows were solid, reaching EUR 12.5 billion, representing 5% of underlying assets under management, confirming our distinctive franchises and favorable client position. It's a good example of how efficient our model is, attracting strong inflows through external client acquisitions and synergies with entrepreneurs, which supports the shift into savings products, meaning more fee business.:
CPBS operating expenses up 3.5%, generating positive jaws. With the evolution of cost of risk, pretax income was down 2.6% compared to a year ago, clocking in at EUR 7 billion.:
Now if we look a little bit in the departments of CPBS and if we start on the Eurozone. So in the Eurozone, in total, the Commercial and Personal Banking revenues are up 4.6%. Net revenue is up 8%. So what do we see? In France, our good relative performance is supported by our strong franchises. Net interest income decreased by 0.7%, but increased by 2.2%, excluding the impact of the inflation hedges. I talked about it, and I'll come back to that in a minute.:
Our exposure to regulated savings remained low compared to the market. Our loan outstanding was up by 1%, and we continued to adjust our margins. Fees remain healthy, up 17% when you compare to pre-crisis 2020. As announced, the net interest revenues were impacted by the inflation hedges, which accounted for minus EUR 21 million in the fourth quarter.:
If we go to Italy, the positive impact of interest rates on deposit margin for BNL was quite substantial with an acceleration in the fourth quarter. Results were up sharply in Belgium with net revenues up 9% and a positive jaws effect. Still a good momentum on credit, and deposits were quasi stable when excluding the impact of the issuance of the Belgian state bond. Also in Luxembourg, growth, interest revenues up 31%.:
If you now move to Europe Mediterranean, loans outstanding were up by 2% and targeted origination was prudent in Turkiye and Poland, particularly with individual customers. Deposits increased by 8%, with an increase in all countries. Revenues at EUR 2.7 billion were up very sharply by 19% due in particular to the good increase in net interest revenues in Poland. Please note, the hyperinflation situation in Turkiye led to a decrease in non-other operating income of EUR 200 million, as I mentioned at the start.:
Moving to our specialized businesses. In CPBS, revenues were up 3.8%. When excluding Personal Finance, growth was 14%. On the back of continued expansion of the finance fleet, plus 7% year-on-year, as well as favorable volume impact in relation to shorter delivery times on new cars, Arval & Leasing Solutions saw a healthy increase in revenues, up 12%. Personal Finance, the shift to mobility is materializing and the transformation is progressing well. So that is the key elements of CPBS.:
If we now move to Slide 35 on IPS. Business momentum was contrasted due to the high base for principal investment and a significant slowdown for real estate. The activity was sustained thanks to good net asset inflow over 12 months, for wealth management, EUR 17 billion, and asset management, EUR 13 billion.:
So focusing on P&L. IPS revenues stood at EUR 5.6 billion, excluding the contribution of real estate, which is affected by a market that showed considerable -- that slowed considerably, sorry, and principal investment because of the negative base saw a very high level before.:
So indeed, if we look through the key elements, very strong performance for Wealth Management, revenue is up 6%; also Insurance, revenue is up 4%. So back to IPS, if we bring it all together, operating expenses were up 1.7% with positive jaws when you exclude real estate and principal investments. So that's IPS.:
So that's basically the synthesis that you see about the results. So we've looked back to '23. If I now look rapidly forward to '25. So looking forward to 2025, so I can share that my optimism of what I see in '23 is going to be carried forward into what we have planned to do.:
And so even if we look at Slide 39, where you see an update of all the interest rates, GDP and inflation, which are a tad different than when we made the plan, intrinsically, a lot of it -- if you look at the rates, they changed a lot in December. But nevertheless, in the environment and the diversification that we have, we feel ready that we can continue our growth.:
Then talking about growth, if we go to the next page, on Page 40, there is an additional EUR 1 billion in net interest income to come. So I remind you that we are for a large part in a fixed rate mortgages environment. And so that basically means that the repricing takes time. Overall, the repricing is there, but it takes time. You can see it on the chart. A loan that was originated 10 years ago -- and you see basically the forward curve on it -- it basically gets repriced today and you see the rates are higher, and that should basically translate.:
And so that's basically -- there is a year to come -- there is a year of EUR 1 billion to come. There is already EUR 1 billion in the bank. So we confirm the overall picture. So that's on that. We see that.:
Moreover, if we go to the next page and we look at the growth ambitions that we set forth for our divisions, and that's also where you again see the advantage of a diversified and complementary business. So overall, we have some that in this environment, changing environment, steps up its outlook, that's CIB. So CIB, which has been demonstrating the success of its long-term strategy, we review upwards the top line growth.:
Then if you go to CPBS, in particularly with the impact of the environment that I talked about, both being the Frankfurt and Brussels, if I can say, and -- is leading to a review that you see. And then, thirdly, there is IPS, which indeed has the impact of real estate, but also is faced by the new framework of IFRS 17, and so that's what we see.:
So all in all, you basically see it. There are in the evolution, given the environment changing, also the adaptation and the reaction of these divisions is different and compensates. So that's basically what we have at the outlook.:
I think we can skip 42, which is basically saying, you know that we look at growth at marginal cost, and therefore, have that objective over the plans of jaws of 2 points, of which half is basically done by the falling off of the Single Resolution Fund. And then if I go to the next page, you also know that our cost of risk is well targeted. I already discussed it earlier, we guide to remain below 40 basis points. You do know what our setup is, you do know that we have restructured Personal Finance and BNL, which basically represents 60% of the cost of risk. And then in the Stage 1 and 2, we have EUR 5 billion in the bank of additional reserves. That's that then.:
And then when we look at the slide on capital, and so on capital, we're basically ready. So I told you that we are at 13.2% of capital. And what you see is that we are already at the end of '25 to be at 12%. So what are the levers? Well, we're going to continue to be profitable, as you know, and more profitable every time and so forth generate 50 basis points organically.:
Then there are some other elements, meaning we're going to continue to securitize, we're going to underwrite insurance, we're going to have the consolidation prudentially of Arval. So that basically will be neutral. We're going to continue to redeploy the remainder of Bank of the West. And then, of course, we have an inflation of the risk-weighted assets by 7% with the advent of finalization of Basel. And if you look at that, we will be at 12%. This is where we want to be. So we are ready to accompany the [ situation ].:
With this, Jean-Laurent, over to you. :
Jean-Laurent Bonnafe: Thank you, Lars. So overall, our '23 performance was very strong and in line with the announced objectives. Distributable net income was up 10.2% and net income distributable per share was up 18% in '23 compared to '22, amplified by our '23 share buyback programs.
'23 marks a turning point for the group in the financing of low-carbon energies and a new technological milestone with the widespread adoption of AI. This is important because it will shape our future growth.:
Beyond our '23 results, being [ prepared by solid ] and well-positioned in the new phase of the economic cycle, our priorities for '24 are very clear: deploy our platforms and sales force at full speed to gain market share and remain focused on cost constriction and risk control. And I'm very confident with this approach looking ahead.
Thank you for your attention. We look forward to your questions now. :
Operator: [Operator Instructions] The first question is from Stefan Stalmann with Autonomous Research.
Stefan-Michael Stalmann: I have 2, please. So the one -- the first is on your target tweaks. You have basically left the EUR 2 billion incremental NII guidance intact. But at the same time, you are explaining the fact that you're tweaking the return on tangible equity target down a bit with NII-related impact from minimum reserve compensation and then Belgian retail bonds. And also, I wonder how the slightly lower return on tangible equity target fits with the fact that you're actually not changing your operational targets really in terms of revenue, CAGR, jaws, cost of risk, et cetera.
So I wonder how the fact that your return on tangible target comes down actually jives with otherwise stable guidance on these other metrics.:
And the second question is on capital. If I start with your current CET1 ratio, and I have taken out Arval and I take out Basel IV and I take out these model adjustments, I'm basically at 12%. And so that means there's basically no excess capital anymore, whereas at the same time, you still think you have about EUR 4.5 billion of Bank of the West excess capital to reinvest. So where is this excess capital to go to this reinvestment? :
Jean-Laurent Bonnafe: Lars?
Lars Machenil: Yes, Stephane, thank you for your questions. So if I'll start with the second one, if you look at the slide that we have on Page 44, you basically see the evolution. So on one hand, the 13.2% is where we stand. And you see that over the period '23 to '25, we're going to generate organically 50 basis points. So you know that we generate between 20 and 30 per year. So let's take 50 basis points. That's one.
Then on the second one, yes, there are further optimizations that we do, take on, we're going to sell something, we're going to do originally to distribute, we're going to do securitization. That will have a positive effect, but that will basically be compensated by the fact that prudentially, we have to reconsolidate Arval. So that's neutral.:
Then you have the bucket 3, which is basically talking about the redeployment of capital. And that's why you see we have still 70 basis points to grow, and that's what you see. And then the last bucket is the impact of Basel where we said that our impact is 7% of risk-weighted assets. So if you do the math, yes, you will end up at 12, but that is after having absorbed Basel, having had the redeployment of Bank of the West and doing our natural growth. :
Stefan-Michael Stalmann: But last isn't now the redeployment of capital just redeploying your organic growth capital that you're generating?
Lars Machenil: No, there's 2 buckets. So we basically -- we basically have, if you look at it. So on one hand, the second -- the bucket number 3 is the EUR 70 billion that we redeploy. Redeploy in the sense of that is the capital that we have. On the first one, the organic growth additional, that is basically what is remaining after the natural growth. So we have the natural growth that we do over and above.
So to make it very simple, we return 60% to shareholders, then we basically use capital to cover the organic growth, and then we have the additional one. So that's basically that. And so you clearly see the growth objectives that we have. And then on your other question on the target, I understand your point. It is indeed what -- the main thing is the pivot that happened in December. So when we had our outlooks which were basically done in October and we gave them also with our third quarter results, we basically had the impact on net interest income was basically above EUR 2 billion.:
And what happened in December with the new -- if you look at the forward-looking the guidance and the rates that we see, we basically see that above EUR 2 billion has basically become EUR 2 billion. And that's the delta which is the answer to your question. :
Stefan-Michael Stalmann: Right. Makes sense.
Operator: The next question is from Anke Reingen with RBC.
Anke Reingen: I just wondered about your out year adjustment. I mean bringing it down from 12% to 11.5% to 12% as well -- obviously, it's small and absolute terms. Why did you think it was necessary to revise the target at this stage?
And then with respect to the adjustments in '23, are you planning to continue to adjust now for the distributor profit going forward? :
Lars Machenil: Yes. Listen, on the extraordinary -- listen, this is something the introduction of extraordinary and therefore, leading to a distributable income was only for '23. We have '23 -- let's be fair, we had some exceptional elements, which basically fall at the same time. Yes, we had Bank of the West of the West sale. Then we have the ECB changing the terms of its TLTRO. And then we basically allowed it to handle the Single Resolution Fund, we allowed it to handle heritage litigation. So that's basically it.
But now we will return to the run of the mill, and so that's basically what we will see. And it's that run of the mill that we will continue to grow on which we will pay the dividend and so forth. So that's on the extraordinary items.:
And then on the ROD, listen, you know us. So we have that guidance. We know that intrinsically we are diversified. So headwinds we can compensate. We see some headwinds on the horizon with slowing GDP. So that is basically what we can compensate. But we wanted to be transparent that these 2 events might weigh on it. And yes, that we are prudent, but we prefer to guide it with you, and we know that by '26, we will have compensated it. :
Operator: The next question is from Delphine Lee with JPMorgan.
Delphine Lee: I've got 2. My first one is on '24 because there's no -- there doesn't seem to be much guidance for '24. Just wanted to confirm that your 8% increase per annum on net income also applies to '24? And then my second question is on the revenue growth. Just wondering, because in '23, your revenue growth in your core divisions were around 2.5%. And now you're targeting by '25 more like mid-single digits. So there is like a decent acceleration. Maybe can you just give us a bit of color of where do you see that change in terms of the volumes or in the different divisions?
Is there -- I mean, how much of the one-offs or negatives on real estate or some of the divisions are going away? If you could just like explain a little bit that step-up that we are going to see in '24, '25. :
Lars Machenil: Listen, you know what we typically do in guidance is we give a guidance over a period. And so that is what we've done. I mean, I know there are banks that are forward guiding that give you every quarter and the like, but that's not what we do. We have a long-term plan. You've seen that we basically deliver on that plan. So that's basically where we stand on the outlook.
Then on the NBI, if you look on the overall NBI, what do you see? Well, you have evolutions. If you look at it, indeed, if you take CIB, there is a pickup because we really see that the model, the integrated model, is really stepping up and the role that we play. So that's what we see.:
And then on the other activities, indeed, there will be a part coming from the fact that there is personal finance, there is real estate that will basically happen. So it is indeed a rebound that we will see on IPS. So that will be my answer, Delphine. :
Operator: The next question is from Tarik El Mejjad from Bank of America.
Tarik El Mejjad: So you said in your introduction remarks that you want to send a message of confidence to the market. But I mean, you did just the opposite by the small downgrade of the ROTE. I mean I understand you want to be transparent, as you said, but you also said you can easily offset some of these elements. I mean what are -- Lars, what you can really go through is that a lot of these headwinds that you mentioned that will push you to cut EPS by 1% is actually 2024 events, the Belgium notes and the other elements. So what really is impacting '25 to impact the ROTE of '25?
And the second question, I mean, Q4 has been quite poor in most of the divisions. And we won't go through them all, but if you have any area that you think should recover quicker than the other one, and that would be really seasonality and maybe just some market effects just to have a sense of what's the trend in the coming quarters? :
Lars Machenil: Well, unfortunately, away from the, let's say, the Belgium bond, the decision by the ECB not to give any payment on interest on reserves and Belgium tax, banking Belgium tax are both to stay forever. So they cannot be, I would say, just quantified as '24 events. This is going to stay in '25, '26, '27. This is the way it is. And the Central Bank is not going to pay any more, in my opinion, interest on reserves.
And again, banking tax in Belgium is going to stay. So unfortunately -- and this is the bulk of the impact, the bond is not the bulk. The bulk are those 2 elements. So unfortunately, they are impacting as well '25. This is unfortunate, but this is the way it is.:
To some extent, you are mentioning that we are marginally adapting the target. This is true. But when we started with the plan in '22, we said above 11% as ROTE, and we were commenting that well. It was above 11%, but under certain circumstances, it could be close to 12%. And then we exited Bank of the West and thanks to the redeployment of the proceeds, we said, okay, 12%. So this is the same kind, I would say, of approach.:
And well, being transparent, we have to give the information. And the business model, the diversification can clearly can't balance the European economy that is slowing slightly more than expected. I mean, even more than slightly more than expected. But at the end of the day, if you had this slowdown that was unexpected and those negative news, let's say, Central Bank, Belgian banking, Belgium taxes, at the end of the day, it's slightly more and more difficult. So this is why we are adapting the, I would say, the target.:
And well, only '26 with the rebalancing, the complete rebalancing of Personal Finance and the real estate business will be able to counterbalance completely those 2 effects. So this is why we postponed the 12% target in '26, knowing that, of course, starting in '24, Personal Finance is going to be one of the business that will start to rebound. Probably real estate will start, to some extent, to rebound, of course, in '24. Yann Gerardin, for sure, will comment around the fourth quarter for global markets and maybe looking globally at the situation in '24 the beginning of the year.:
So well, there are, I would say, elements that will progressively rebalance the, as we said, the trend of the fourth quarter that is, well, weak, but that is not to stay. So this is the vision we have around this situation. Maybe Yann can comment on the global market. :
Yann Gérardin: Yes. So as far as the global market is concerned, when I do analyze the performance of a given business, obviously, I do look at currency impact, euro/dollar in that case, the business mix and geographical mix impact and then the true performance impact. So I guess you are more interested by the FICC performance and then like the stellar equity performance.
So to come back on FICC, what is FICC? It's a combination of ForEx rate, credit and commo in 3 different regions: EMEA, Americas and APAC. Fair to say, then, our FICC is very different from the average FICC you have been looking at since the early announcement on the other one this morning. Our FICC is much more European and much more macro and commo oriented than the other ones, which means that last year we had a very strong business mix and geographic mix effect, because last year all the action was happening in Europe in the rates and in commodities in a nutshell. While this year and specifically in Q4, the action was more in the U.S. and more in the credit world.
That's why last year Q4 '21 to Q4 '22, we posted a stellar performance in the FICC world, triggered by what I just described, a combination of business mix, geographic mix impact together with a strong real performance. And we were significantly above last year all the other players in the FICC world. This year, the business and geographic mix plays a disadvantage and certainly in Q4. Hence, this performance.:
As far as the future is concerned, the -- I'm quite sure that what is happening on the [indiscernible] environment, inflation side, the macro activity and the commodity activity will normalize in the near future and will be less subdued than what it has been in Q4. :
Operator: The next question is from Geoff Dawes with SG.
Geoff Dawes: It's Geoff Dawes here from SocGen. A couple of questions, again on targets, but a very quick one. You reiterate more or less the EPS target of being, sorry, 40% above the baseline of 2022. If there are more headwinds, the quickest way to stabilize that is obviously to increase the buyback envelope. Is that something that would be a consideration if more headwinds come up over '24 and '25 that you could increase the buyback envelope to stabilize the EPS target rather than look at the ROTE target, which obviously can be moved in different ways? So that's the first question.
Second question, consumer is something you've mentioned as one of the headwinds that you've already identified. Can you just give us a little bit of color on the duration of the wholesale funding there? Obviously, I don't need specific numbers, but just is it more, less than a year? How quickly is the funding cost benefit going to spill over into the net interest income and revenue on the consumer line?:
And then finally, just a very quick one. The portfolios of NPLs held for sale come up again and again. Are they opportunistically being sold? Or are they on the market right now? Is that something we should expect to see? So sorry, that's 3. :
Lars Machenil: I'll take your consumer headwinds. So as you know, we basically aim to finance a bit at the same duration that we redeploy. And so if you look at it -- you have some parts. If you take the credit card and the likes, they are rather short funding, and there the impact should come. But then with the new portfolios, which are like car financing, it tends to be a bit longer. So yes, that's a bit the mix. So you should think of it as in the analogy of the duration. So it depends a bit on which activity it is. But on average, more than a year is an orientation.
Geoff Dawes: Perfect.
Lars Machenil: On the targets, listen, as you know, when it comes to the redeployment of capital, for us, as you know, the most efficient way is redeploying it. Even the most efficient is organic, because, organic, it's immediate bottom line, you know the risk that you take and the likes. Then next to that, the bolt-on acquisition is also very complementary. So our intrinsic objective is to stay to that track and then the EPS will follow.
Geoff Dawes: Okay. So no temptation to front-load buybacks because that's the quickest way to get EPS benefit and the numbers straight away.
Lars Machenil: As I said, for us, we want to accompany the economy. And that -- the best way we can do it is by redeploying it this way.
Geoff, you had a third question as well that I didn't fully capture. What was your third question? :
Geoff Dawes: It's a very quick one. As you go through the divisions, in a lot of places it mentioned small marks on portfolios of NPLs held for sale. Are those being packaged up to sell kind of immediately? Or is that just an opportunistic fact?
Lars Machenil: It's an opportunity. It's basically -- we mentioned them. It's basically those that weigh on the cost of risk. So as a quick reminder. So we have these kind of heritage loans. They are provisioned but in equity. And so the moment you decide to sell because you see there is an opportunity or whatsoever, at that moment, you have to recycle. So it's not something new. It's a recycling.
So yes, it's just a bit what we see in the market. We -- because the opportunity is, if we get it out of the balance sheet, well, it basically optimizes the balance sheet. But there's nothing else to read into it, Geoff. :
Operator: The next question is from Chris Hallam from Goldman Sachs.
Chris Hallam: Just 2 questions from me. So first of all, the EUR 4.6 billion of capital you intend to deploy, can I just double check? Based on Slide 44, that's all going to happen this year, right, in 2024? And so could you give us an idea of the phasing through the year? Should we assume that's gradual? Or is it back-end loaded? And would you be comfortable, I guess, on a sort of -- if you want to give a guidance on what kind of run rate revenue uplift we should assume starting from January 1, '25 from that?
And then secondly, just to come back to the release yesterday, could you walk through how you come to that decision to redetermine those 3 items as extraordinary? So should we assume future adaptation costs will normally be labeled as extraordinary? Or how should we think about the difference between exceptional and extraordinary? :
Jean-Laurent Bonnafe: Looking at basically the Swiss franc mortgages, those portfolios are quite old. Half of it basically are coming from a subsidiary of a subsidiary of Personal Finance that is closed now for many years. Progressively, we came across, I would say, adverse news. The French justice decided for many years in a quite positive way, looking at the situation positive way for us. And then in 2018, progressively this was, I would say, rebalanced. And at the end of the day, we decided to get rid of the whole situation after the last decision taken in October of this year. So it was November or October.
So this is the decision. I mean down to that moment, we were in a kind of controversial situation. But at the end of the day, we can put the decision that we had to cover the whole situation. So we had to qualify as extraordinary items books that were belonging to the end of the 2000 years. So this is why we qualified those provisions as extraordinary. And in a parallel mode, we had for different reasons the same evolution with the Polish, I would say, portfolio in Swiss franc booked into the BGZ Bank we bought in 2015.:
It's a bank that was, I would say, having those portfolios. We didn't originate it as BNP Paribas' portfolios. But progressively, it went the same way. And well, it appeared progressively in '23 that we have cover the book completely, so 100%. So again, we get rid of the full exposure. So this has nothing to do -- I would say it's something that is new. It's that progressively we were provisioning, covering the exposure, but with the expectation that ultimately there will be a kind of balanced exit. On the contrary, in '23, progressively it appeared that the exit couldn't be balanced. So at the end of the day, we covered everything.:
The important point is that doing that way, recalibrating to some extent those, I would say, provisions, including at the very beginning of the year '23, we kept the level of payout to shareholders. So in fact, what we did is a way to protect the earnings per share, protect the dividend and the return to shareholders.:
So this is the story around this, I would say, portfolio. So this is the major, I would say, hit in the fourth quarter of '23. And it's current with the fact that those portfolios are very old and they belong to businesses that are -- that were discontinued years ago. So it's something that belongs to the past story. They were originated before the year 2010, '11, '12. This is a very old story. Part of it we got them through an acquisition; part of it through a, I would say, second-tier subsidiary of Personal Finance. And so this is the story around those books.:
Looking at the redeployment of the proceeds of Bank of the West, initially, looking at the economy and the trend of the economy, we had the feeling that, let's say, 2/3 of it could be redeployed through additional organic growth. The fact is that we are looking at, especially in Europe -- but not only in Europe -- but an economy that is moving at a slower pace. It's still feasible to grab additional market share, but you cannot expect to move that far.:
We have to be conscious that potentially cost of risk could grow. So we have to be very disciplined in the way we are redeploying this equity in terms of organic growth, especially in businesses like consumer lending. I mean, on the contrary, you have to be quite restrictive in originating those types of loans. The same for SMEs, mass market and so on.:
So yes, we rebalanced, I would say, the approach and we moved towards something quite different: 1/3 organic, 2/3 bolt-on and new business model. This is a more long-term approach and it takes additional time. So ultimately, the remaining basis point, billions to be invested -- reinvested are going to be redeployed more progressively than expected in '24, of course, but also in '25. So this is the situation. It doesn't help the '25 target. It's clear that if we were in a position to redeploy more rapidly through organic growth or through equity, maybe we could have swallowed the negative news coming from the central bank and so on and so on. But this is not the situation.
So as always, we are operating in a quite prudent way. And this is going to be redeployed progressively. We need to find the right investments. We need to find the right, we say, new business model. We need to find the right bolt-ons. And it's not a question only of return on the investment we are doing. It's also around the fact that this has to fit the global business model. It cannot be something on the side of the company, kind of isolated move just because this is profitable. No, it has to be part of the story of the company. So it takes time. And yes, the EUR 4 billion to be reinvested are going to be reinvested again in '24 and '25, postponing to some extent, I would say, the full benefit of the redeployment of Bank of the West. And this will help, of course, '26. :
Operator: The next question is from Jacques-Henri Gaulard from Kepler Cheuvreux.
Jacques-Henri Gaulard: Two questions from me. Actually, I'll rebound a little bit on the previous question. Why did you remain married to this concept of distributable income so long? Because in effect to get to EUR 11.2 billion, you had to really release quite a lot of these expenses. And in effect, you are binding yourself and removing a bit of flexibility on capital, which could have been helpful for your investment case? And I appreciate you don't like share buybacks, but still people talk a little bit about it. That's the first question.
The second question, if I look at the litigation and the payment on the CH book on Personal Finance, your litigation section in your annual report is virtually empty. It's very, very full in many of the banks. You have quite a lot of detailed aspects about what is being mitigated and what. So question is, are we going to get more surprises of things that we're not necessarily aware of? And that's it. :
Lars Machenil: Yes. On the distributable, I don't think we are married to it. On the contrary, we said that the distributable we would use it for the year, and that's basically what we've done. So next year, 2020 -- well, this year, 2024, will be the traditional results. So that's basically it.
And on the litigation, listen, as Jean-Laurent said, we basically accelerated it. So if you go back to the annual financial statements of 2022 on Page 273, sorry, to be specific, you basically see the impact. So they were there. What happened is what Jean-Laurent already said, during this year, we basically accelerated it and put it behind us. So Jacques, that will be the 2 answers. :
Operator: The next question is from Samuel Moran-Smyth with Barclays.
Samuel Moran-Smyth: So I've got 2, both on Personal Finance. So firstly, on the slightly revised divisional income target -- so thanks for the justification on Slide 41. But I wanted to focus on the specialized businesses, where you've decreased the CAGR from 4.5% to 3.5%. I acknowledge that the Personal Finance restructuring is going on, but this was known last year when you downgraded that CAGR for the first time. So my question is essentially why else is different in the outlook for those businesses now?
And then secondly, it appears that BNP could be twice exposed to potential U.K. motor finance claims from both a lender's perspective through PMP personal clients, but also through the dealer with [indiscernible]. I appreciate both may be small in the context of the group. But in the absence of clear disclosure, could the group confirm any sort of estimated impact? And then just a slight follow-up, just to confirm that the EUR 221 million provision taken today does not relate to that? :
Lars Machenil: Listen now, you have to reclarify a bit those 2 other questions, but I'll start with the first one. So indeed, if you look at the targets that we have updated, so, indeed, there are some, given the environment, that are stronger. That's what we talked about, CIB goes up. And then if you look at the activity, especially, if you look at the specialized financing ones, those are a bit deteriorated because the timing of the pickup of personal finance is a bit slower. I remind you that the initial idea was to have it ramping up by '25. But given the environment, what we see basically since December, we said that, that return will be '26. And therefore, on the horizon '25, that is the driver behind that.
And then can you rephrase your second question? I'm not sure I grasped it. :
Samuel Moran-Smyth: Yes, absolutely. So it was just on the U.K. motor finance claims that we're seeing. I understand you might have some exposure to that through your personal finance business, but also through your car leasing business. So any comment you could give us on the impact?
Lars Machenil: No -- well, if you look at the car leasing intrinsically, the exposure to the U.K. is limited. And so if you look at the financing going on in Personal Finance, again, the exposure we have in the U.K. is limited. So it is not a material guidance that would be needed on this one.
Operator: The next question is from Giulia Miotto from Morgan Stanley.
Giulia Miotto: My first question goes back to Slide 44. So it looks to me like if everything goes exactly to plan, you end up at 12% CET1 by 2025. Now I'm wondering, would management be prepared to perhaps temporarily drop below 12% should the earnings trajectory perhaps disappoint or should any unexpected higher WA impact come up? So that's my first question.
The second question, if I look at the capital generation and then compare BNP versus other European banks, it seems to me like BNP is slightly below, which is what also leads to a lower payout of 60% versus 70% on average. So I know that you want to buy businesses which are capital light and which should increase capital generation. But on the flip side, would you consider and are you actively looking to sell businesses which are materially below cost of equity and which perhaps are the noise to your investment case, like -- I don't know, like Europe Med, Poland, I can think of a decent list. :
Lars Machenil: Maybe I can start with the 12%. Listen, we want to hover around 12%. Now that doesn't mean that if there are opportunities, what have you not, we cannot be a little bit lower, yes. So that's fine. But we want to hover for all the environments around this, we want to hover 12%.
The reason why we wanted -- well, that basically -- if we would -- temporarily we could drop a bit below it, but intrinsically, we want to hover at 12%. And why that 12%? And that basically comes to the next question on capital generation. If you look at it the way -- we are very balanced in that sense. So there is 60% that over the plan we return to shareholders, and the remaining 40%, a chunk of that, is used to support organic growth, and a chunk is basically used, yes, if there are opportunities to grow. All of this is basically accelerated by the capital gain on Bank of the West.:
And so that is it. I mean, we are in a situation being pan-European, by having all of these platforms that we can redeploy the capital. So that is why we have a good balance, 60% is returned to shareholders, the rest is being redeployed to capture growth. So that is basically that. On selling things, I'm looking at Jean-Laurent. Jean-Laurent, do you have a list of things to sell? :
Jean-Laurent Bonnafe: No, but we are accustomed to exit businesses that doesn't fit the business model or doesn't fit the -- I would say the return on equity target. And Bank of the West is a good example. We also exited a number of retail banks in Africa. We're exiting currently a number of countries in Personal Finance. We exited the same way a number of countries in Asset Management, Consumer Lending. Looking at CIB, we are continuously rebalancing portfolios, moving to a certain approach, to other approach. So it's a continuous process.
If you look at the past 10 years, we totally delivered certain businesses. We ramp up new businesses. We've sold franchises. So it's a continuous process. So I'm not aware of a business in the BNP Paribas Group that is not good enough for the future. Or if it's not good enough, we are restructuring the business. If we are not able to restructure to get the relevant, I would say, level of profitability or -- again, if it doesn't fit anymore the business model, we exit.:
And this is exactly what we are doing, for example, with Personal Finance. Part of the solution is exiting certain geographies that for number of reasons cannot provide the level of, I would say, certainly in terms of cost of risk or in terms of profitability. And some other points are around extracting a better return. So at the end of the day, Personal Finance is going to be massively a eurozone platform and not any more a kind of global reach consumer lending platform.:
And this move is costly, it takes some time, to some extent, it's complex, because you cannot exit so many countries over the weekend. Or you can do it, but at an extraordinary price. So we tend also to move and to manage those situations the right way in the best interest of the -- of our shareholders. So -- well, so it's a discipline, and we will continue that way. :
Operator: The next question is from Pierre Chedeville with CIC.
Pierre Chedeville: First question, a quick focus on real estate, which is a business that we didn't know very much. Are you experiencing a loss today? Or is it just a big decrease in revenues and contribution? And what do you intend to do? You talked about restructuring measures about this business? What do you have in mind?
Second question is regarding the adjustment of your profitability. We all know that you are very good in reducing cost. Didn't you find any leeway to cost cut a little bit more just to balance the decrease in revenues? Or are surprised by that, because generally you know how to industrialize?:
First question is about -- third question is about the CID. I would like Yann to explain a little bit more how do you intend to gain market share? Because now we all see that investment banks who had experienced difficulties in the past -- and of course, I have in mind Deutsche Bank -- are a little bit in a better shape. And we have seen, for instance, that Deutsche Bank this morning increased its revenues perspectives from EUR 30 billion to EUR 32 billion. And what is exactly now the leeway you have to increase your market share and particularly in global markets with a very fierce competition?:
And regarding the commercial banking, retail banking, could you tell us a little bit more about the development of your strategy regarding digital banking, Hello Bank!, but also in Europe? Do you see that in Italy, et cetera, in order maybe to improve your profitability, which remains quite low in retail banking area, and maybe a better capacity to treat the mass markets online and the wealthier individual in branches? :
Lars Machenil: Yann, maybe...
Yann Gérardin: Yes. So as far as CIB is concerned, the market share gain story has been, as you know, a very long story because we took market share every year in the last year. And by the way, we took market share in '23 as well. Because the last estimate I got from the consulting firm Coalition is expecting a decrease for the CIB revenue industry by 2% in '23 in euro. As we posted a plus 0.6%, it really shows then in '23. Again, on the full year, we gained market share in global banking for sure.
In global market at the end of September, we gained market share despite the fact that the business mix was playing against us. We'll see when all our competitors will have published what it means for the full year.:
For the future, I'm very confident in our capacity to gain market share on the basis of -- the recipe and discipline we used in the past will still be powerful. If you take global banking, for instance, the combination of increased country focus in every country where we are present in Europe, mainly Germany, U.K., Scandinavia, Swiss, where we have room for improvement, a significant one. For instance, this year, we are the fifth IB in Europe despite the competition you mentioned, and the first European bank in the IB business in EMEA.:
We are improving our transaction making business every year by investing. As far as global market is concerned, the global equity franchise encompassing cash equity, prime brokerage and equity derivative is brand new, it is first year, not delivering everything it can yet. And I'm sure that in the coming years, it will -- the momentum will be even more powerful.:
Securities Services, we are the fifth security services on a worldwide basis. We are gaining new mandates and very large one every year, every quarter also. So I'm very optimistic that the scale we reach leveraging the integrated model of the bank will help us to keep on delivering the kind of market share we have been posting quarter-after-quarter and year-after-year in the past. :
Lars Machenil: Yes. And listen, maybe I can clarify your question, Pierre, on real estate. So as you know, for us, real estate is a very complementary business with all the other activities that we do in banking. And therefore, the P&L also reflects this. And this is one of the reasons why we don't publish the P&L of real estate itself. It's part of the larger entity [indiscernible] in English, yes. So that's a bit the part.
The one thing I can tell you is that -- so we like the business, we're going to keep the business, but we use the fact that there is a lower demand to review and optimize the overall structuring in the future. So that is what it is. We're really fully with that. And so by 2026, I put it the other way around, we could see an improvement which will be above EUR 200 million.:
And I remind you, this just -- I know you know, Pierre, but I tell it also to the other people. This is our real estate department, yes. This is not our portfolio in real estate book and so on. This is a division which is basically impacted by the lower demand. That's what you see. We're very happy campers with this activity. We use it to adapt it to even a better position going forward, and there would be a return of up to EUR 200 million going forward.:
Then when it comes to your costs. And so the thing is, if you want to managing the group, you really focus them on growth going after clients. And the way we do this is by basically focusing them on jaws, so saying we orient to grow at marginal cost. But at the same time, if some investments are needed to do so, that's what it is. So jaws is what we go for, jaws is what we deliver, jaws is what we reiterate. So that's basically what we go for.:
On digital, I'll maybe give a reminder of where we stand on digital. What we have in our networks is we basically segment the delivery. So if you require a very basic transactions, you have Nickel, then you can go up with Easy Go, which is then basically around Hello Bank! And you can go even one step further, which is then you can have the branches and so forth. So we have segmented through tools, and therefore, optimized the distribution of our services.:
And that -- we will then even step that up forward. So that's the system that we have. We will then further step it up using artificial intelligence, as you know. So we already have it. We will further embed it. We have now the tools to do it. We are optimizing it into the segment. And it basically covers many aspects. It covers the revenue generation because we will have a better read on what is going on. We will have better client experience. Think about the optimization in the call centers. We will have operational efficiency because things will be done in a standard and industrial way. And also on risk management, it gives us a better read. So that is a bit the segmentation that we do and how we blend AI in it. :
Jean-Laurent Bonnafe: And to go back to commercial personal finance, you have to remember that the model for BNP Paribas is not mass market, small SMEs is very much around midcaps, innovative companies, wealth management, private banking, proliferate individuals. So it could be Italy, France, whatever. I mean this is the strategy, and we do not plan to expand in the mass market area. The only business that is operating in the mass market, universities personal finance, the consumer lending arm for which we're having this deflation program. But looking at the rest of the CPBS, this is very much around, I would say, the best part of the economy, the economy that is growing faster, proliferate people, private banking, midcaps, innovative companies, the bank is really focusing at.
And probably, if you look at the situation in France, the domestic bank because we are so strong in the SME midcap innovative company and in Private Banking, Wealth Management. To some extent, we can counterbalance the very negative effect of the right scenario in the more regular mass market universe. And if you compare the performance, thanks to that structure is much better, and it's very much linked to the quality of the franchise. And this is really the strategy in any domestic market for the bank. We're moving that way in Turkey. We're moving that in Poland. We're moving that way in Belgium, Luxembourg, France, Italy. This is really the bulk of it.:
And again, it's like banking on the part of the economy on the part of the European economy that is doing much better than average and doing much better on average in terms of growth, but also in terms of risk profile, and we'll stick to it. :
Yann Gérardin: And this is typically the clients we are working with in the CIB world and composing our capital market products.
Operator: The last question is from Kiri Vijayarajah with HSBC.
Kirishanthan Vijayarajah: A couple of questions from my side. Firstly, on Belgium and the sovereign bonds, just to clarify those comments from Jean-Laurent earlier. So is it your assumption that the NII drag disappears from September 2024? Or is there some partial carryover into 2025? I guess I'm asking indirectly what are your thoughts on the risks that the Belgium government does a repeat exercise when this particular bond matures in September?
And then secondly, on Arval and we're seeing some quite large price cuts on electric vehicles at the moment. And that's obviously a growing part of your fleet mix. And I know it's early days, but what are your thoughts on Arval potentially need to take some revaluation exercise or change the depreciation curve to reflect this kind of adverse impact on EB residual values. Just your thoughts there, please, on Arval and the EB residual value risk, please? :
Lars Machenil: Yes, on the auto, so the state -- the Belgian state bond, just to position it a bit. So what they've done is basically they have -- has done an issuance for EUR 23 billion. Maybe they don't mean much to you. But basically, to position it, Belgium typically in order to stick to their undebted level, they have to issue 7. So they've done 23 and they've done it at 4%. So this comes to a term at the summer. So on one hand, I think it is unlikely that they will reissue it entirely. But there is a chunk, let's say, the EUR 7 billion of this of EUR 23 million and maybe another part. So I'm not sure what amount it will be, but it is not impossible that a part will be reconducted all of that.
But as I said, the one that is basically staying is the one, the bank tax that you have in Belgium. And so, so far, it is around -- so back to the Arval it's EUR 50 million per quarter that will last until the third quarter of this year. And then we'll see if it's -- if they end it entirely, if they ended partially, we'll see. So that is that. And then on Arval, on Arval, there is this whole dynamic also on the car pricing. What you see today is that indeed on the electric cars, the repricing is different. But on the other hand, today, if you look at the volumes, it is rather the hybrid cars that are there. So from that point of view, if you look at the P&L today of Arval, the electric and the pricing and repricing is not of a concern to the P&L.:
So Kiri, that will be my 2 answers. :
Operator: Mr. Bonnafe that was the last question. I'll turn the conference back to you for the closing remarks.
Jean-Laurent Bonnafe: So thank you very much for your time. And as you know, you can count very much on us to deliver '24 and '25. Thank you so much. Take care. Bye-bye.