Good afternoon, ladies and gentlemen. Welcome to BNP Paribas' third quarter 2019 results presentation. In the usual way, I'll take you through the first two chapters of the results presentation, which I assume you have under your eyes, and that's before handing it over to you for Q&A. Give me just 10 seconds. As it is relatively warm in this room, I'm going to take off my blue tie, so I'm all ready to go. As you can see in slide three, the key takeaways for this quarter are, first, business activity progressed in all three operating divisions with outstanding loans up 5.5%. In Europe, we saw this in particular in France. On the back of such business growth, group revenues were up 5.3% year-on-year. Two, the group delivered positive jaws, and this in each operating division.
This was achieved on the back of the continued implementation of the cost-saving measures in line with the 2020 plan. Third, the group cost of risk remained low at 41 basis points over outstandings. Fourth, group net results clocked in at €1.9 billion, down 8.8%, but up 3.4% when you exclude the exceptional items the group had recorded a year ago, which I remind you, we had €286 million capital gain on the sale of 30% of First Hawaiian Bank. Lastly, the Common Equity Tier 1 ratio, which reached 12%, up 10 basis points on last quarter. All this as a consequence of BNP Paribas being a diversified bank. Looking more broadly at the first nine months of the year, the group generated €6.3 billion of net income, up 3.9% year-on-year with a positive jaws effect.
If we now turn to slide five, you can see the exceptional items of the third quarter, which had an impact of minus EUR 178 million net of tax, with the difference from last year that explained, as I mentioned, by the impact of the 30% sale in First Hawaiian Bank in the third quarter of 2018. Exceptional items included the 2020 plan transformation cost, restructuring costs of the acquisitions, and additional adaptation measures as we announced this year, in BNL and asset management. This to address the evolution of the economic environment for these businesses. If you now swipe to slide six, you can see the positive jaws effect. Net income, excluding exceptional items, rose by 3.4%. As you can see, the nine-month net results generated an annualized return on tangible equity of 10.3%, which is equivalent to an annualized return on equity of 9%.
Now moving to the revenues of the operating divisions on slide seven, we see that they increased by 5.1%. They were up in each operating division, with Domestic Markets showing a 0.5% increase on the back of growth in the specialized businesses, largely offset by the effect of the low euro interest rates. They were up 5.1% at International Financial Services, our engine of growth, this on the back of good business development and a favorable foreign exchange effect this quarter. Thirdly, CIB delivered a strong revenue performance with a 12% increase on last year and a rise in revenues of all the businesses in CIB. This attribute to us adapting the business and remaining present for our clients. If with this, you swipe to slide eight, you will see that the cost in the operating divisions were up 2.9% and 1% on a like-for-like basis.
If we look in detail, we see that Domestic Markets had its costs up just 0.1%, leading to positive jaws with a 0.9% cost reduction in the networks and a rise in the specialized businesses of Domestic Markets accompanying the growth of this activity. When we go to the second one, IFS cost evolution, up 4% and 0.4% on a comparable basis, reflected cost containment and continued business growth, all accompanied by positive jaws effect. If we now turn to the third one, CIB, costs increased by 4.8% on the back of the growth that we discussed before at CIB, and benefited from the continued and accelerated implementation of cost savings, which led to very positive jaws effect. To sum up, you can see the impact of the cost-saving measures generated by our transformation plan and a continuous focus on delivering positive jaws.
If we look at those jaws, as well as the fact, as I said earlier, that our Common Equity Tier 1 stands at 12%, you clearly see that we deliver on what we set forth. Now, if we stay on costs, and if you advance to slide nine, you have the detail of the implementation of our transformation plan. In the third quarter, we generated an additional EUR 166 million of recurring cost savings, taking the accumulated cost savings since the launch of the program to EUR 1.7 billion. As you know, the target next year is to generate a EUR 3.3 billion recurring cost savings. Also, we booked transformation costs for EUR 178 million this quarter, taking the period spending in the first nine months of this year to EUR 568 million, in line with the target of EUR 0.7 billion for the whole of 2019.
We confirm that there will be no transformation costs in 2020. In a nutshell, the bank delivers on its 2020 plan with great success in its digital transformation. The focus on costs has stepped up in the beginning of the year, led to an offsetting of the group's natural cost evolution stemming from supporting growth and natural waste. Our cost remains stable at +0.4% on a like-to-like basis, translating into a +2%, mainly due to the strengthening of the dollar. With this, we turn to the cost of risk. Please flick through the three dedicated slides, starting with slide 10. As I mentioned earlier, it clocked in at a low 41 basis points over outstanding. The increase versus the previous quarter is essentially due to significant provision write-back in those previous quarters.
If we take the businesses one by one, we start with corporate banking. In corporate banking, cost of risk was low at 23 basis. It was up on the third quarter of last year on the back of significant provision write-backs in the third quarter of 2018, and one significant file this quarter. These one-off write-backs in CIB last year lead to a pickup in CIB's cost of risk when we express it in EUR 134 million. This increase of EUR 134 million on the back of these write-backs is actually the main part of the group effect, which stood at plus EUR 161. In synthesis, and I'll detail it in a second, but in this low rate environment, we do not see a deterioration of the quality of outstandings.
With this, we move to Domestic Markets on slide 11, cost of risk was low in French retail, very low in Belgian retail, and confirmed its decrease at BNL in Italy. In the other retail businesses on slide 12, Personal Finance saw a low cost of risk over outstanding, up on the second quarter, which had recorded significant non-recurring provision write backs. Europe-Mediterranean's cost of risk remained at a moderate level, while BancWest's cost of risk remained low. We now swipe to slide 13 to look at the financial structure.
You can see that our common equity one reached 12% at the end of September, up 10 basis points from the previous quarter. This due to the effect of, on one hand, the third quarter results after, of course, as usual, taking into account 50% dividend payout, and secondly, stable risk-weighted assets at constant exchange rate, thanks to the more significant effect of securitization this quarter. As a reminder, certain securitizations were deferred in Europe from the first half of this year, and so we had a tad more in the third quarter of this year. When we look at the other metrics, the leverage ratio was standing at 4.0%, and the Group's immediately available liquidity reserve totaled a massive, for the lack of a better word, of EUR 351 billion at the end of the third quarter.
The evolution of these ratios illustrate the very solid financial structure of the group. If we sum up the group overview on slide 14, you can see that our net book value per share stood at EUR 78 at the end of September. Looking at the period starting from year-end 2008, the compounded growth rate stands at 5.1% per annum. This slide basically highlights BNP Paribas' continued value creation through the cycle. I'll leave you to peruse the next two slides of this introductory part. Slide 15, our ambitious policy of engagement in society with very concrete examples, such as our early commitment towards the principle of responsible banking in line with the United Nations Sustainable Development Goals, SDG. Slide 16, summarizing the continuous reinforcement of the group's internal control and compliance system. With this, I kindly ask you to move on to the results by division.
There are three. Let's start with the first, which is Domestic Markets, and that is slide 18 to 24. As you can see, in the third quarter, Domestic Markets showed increased business activity with loan growth at 4.1% in the retail networks as in the specialized businesses, with growth in particular in corporate loans. Besides, private banking saw net inflows at EUR 1.6 billion in the third quarter. Domestic Markets have continued to expand its footprint in digital banking services, as evidenced by the increase in mobile usages with over 78 million connections to mobile apps this quarter alone, up 35% year-on-year. Besides, Domestic Markets has simplified and digitalized its mortgage loan application process in Belgium, France, and Italy.
If we look in terms of P&L, revenues were up 0.5% at EUR 3.9 billion on the back of increased business activity and a good drive in specialized businesses, offset by the impact of low interest rates on the retail networks. Operating costs were up just 0.1% year-on-year, with a 0.9% decrease in the three networks. This generated a positive jaws effect, which has been achieved thanks to the ongoing implementation of the digital transformation, as well as the new operating models illustrated, for example, by the adaptation of the three branch networks, which have already been reduced by 356 since the launch of the 2020 plan. Cost of risk at Domestic Markets remain low, with a continued decrease at BNL, in total, pre-tax income was up 2% at EUR 975 million. For Domestic Markets, that is a good evolution.
Looking now swiftly at each country and business, I'd like to highlight in particular. First, French retail banking continued to show good business drive, with revenues a tad lower and positive growth on the back of cost-saving measures. Second, BNL continued to gain market shares in the corporate segment. Despite a slight decrease in overall loans, revenues were slightly on the rise thanks to higher fees, and pre-tax income was up 23.7% on the back of our continued decrease in cost of risk. Thirdly, Belgian retail banking. It showed sustained business activity, whereas revenues continued to be impacted by the low rate environment. The business adapted its cost, which were down significantly, thanks to the effect of the transformation plan, and resulted in positive yields. Fourth and final, the specialized businesses continued to deliver sustained business growth with positive yields and a significant rise in income.
If we sum up our first division, Domestic Markets delivered positive operating yields and a rise in income in the context of low interest rate, a tribute to our diversified setup. If you now advance to the second division, International Financial Services, slides 25 to 32. You will see that this division confirmed good business growth in the third quarter, with loans up 9.3%, 4.5% on a like-for-like basis, and assets under management up 4.1% year-on-year in our savings businesses. IFS businesses have continued to implement their digital transformation with, for example, the continued rollout of the e-signature at Personal Finance, with over 1.3 million contracts signed electronically and 28 million monthly statements made available electronically to customers. Second, the development of new self-care features, which contributed to the development of mobile usages.
With over 70% of wealth management customers being registered users of myWealth, the new online private banking tool, and 62 million self-care transactions undertaken by customers at Personal Finance. We now turn to the P&L. We see that revenues were up at 5.1%, clocking in at EUR 4.2 billion. A positive foreign exchange effect and up 1.9% on a like-for-like basis. Given effective cost control, operating yields were positive, leading to a pre-tax income of EUR 1.3 billion, up 6.7% year-on-year and 5.7% on a comparable basis. Like the other divisions, let me zoom quickly on the main components of IFS. We start with Personal Finance, slide 27. It continued to show business growth, with revenues up 4.1%, while costs evolved at a slightly lower pace, thus translating into positive yields and a pre-tax income of EUR 434 million, up 2.4%.
We now switch to Europe-Mediterranean, slide 28. Long story, we're slightly down on a comparable basis with a decrease in Turkey due to selective positioning, but growth in Poland and Morocco. On a like-for-like basis, revenues were up 1.5%, while costs were quasi-flat, thanks to cost savings, thus generating good positive yield. Cost of risk was lower year-on-year, and pre-tax income was up 15.5% on a comparable basis and 26.3% at historical scope and exchange rate, thanks to the appreciation of the Turkish lira. We now turn to BancWest, slide 29. On a like-for-like basis, it showed moderate loan growth compared to last year. Private banking assets under management continued to progress at EUR 15.3 billion.
On a comparable basis, revenues were a tad lower due to the less favorable interest rate environment. Costs were down 4.2% as BancWest is continuing to rightsize its headcount, nearshore, and mutualize support functions. On the whole, BancWest delivered a largely positive yields effect, as well as a pre-tax income up 7.4% on a like-for-like basis or 10.5% at a historical scope and exchange rate. This, of course, given the dollar appreciation. Lastly, slide 30. Our savings business, which saw assets under management rise to slightly over EUR 1.1 trillion at the end of September, in particular due to a very positive performance effect as well as net inflows of EUR 13.8 billion since the beginning of the year. There is two main parts in this. The first, slide 31, insurance business continued to show continued growth, especially in international savings and protection insurance business.
Revenues rose by 2.7%, with costs up 5.6% as a result of business development. As you typically do in insurance, you have to look at the year to date and actually even the full year effect. If you do, you'll see that after nine months, there is a positive yields effect in that activity. Pre-tax income was slightly higher year-on-year. If we now end with wealth and asset management, slide 32, revenues were up 1.5%, driven in particular by real estate services and wealth management. Costs decreased by 0.8%, thanks to the effect of cost-saving measures, in particular in asset management. As already mentioned, this business line is implementing additional measures to streamline its product offering, regional organization, as well as entities, and this to result in additional cost reduction. Overall, wealth and asset management delivered positive yields and pre-tax income up 18.3%.
To wrap up, IFS showed continued business growth and rise in income in this third quarter. With this, we reach the third division, we switch to slide 33 on Corporate & Institutional Banking. Indeed, CIB has stepped up the implementation of its transformation plan. To illustrate this, it has achieved EUR 62 million of additional and recurring cost savings this quarter on the back of its continued industrialization. Besides, it kept up its selective growth on targeted clients, with, for example, the signing of the agreement with Deutsche Bank to provide service continuity to their prime brokerage and electronic execution. Also, CIB pursued the streamlining of its activities, which is illustrated by the recent signing of an agreement with Allfunds, a leading WealthTech platform in fund distribution services, whereby CIB will contribute fund distribution businesses to Allfunds in exchange for a 22.5 strategic stake.
If we now look in particular in Q3 to CIB, how it further strengthened its leading client position and gained market share, as evidenced by its number one position for all bonds in Europe and syndicated loans in EMEA. This led CIB's revenues to clock in at EUR 2.9 billion in the third quarter, marking a 12% year-on-year increase. This increase basically in all three of its sub-businesses. Costs were up just 4.8% on the back of sustained business activity, leading to a 7.2-point positive jaws effect and benefited from the cost-saving measures as well as from the implementation of end-to-end digitalization processes. As a result, CIB generated EUR 834 million of pre-tax income, marking a 13.5 year-on-year increase. As I said, this positive evolution is witnessed in the three businesses of CIB.
If we take them one at a time, and let's start on slide 34 with Global Markets, which delivered again a sustained business and revenue growth, with revenues up 14.7% and even up 17.2% when we exclude the effect of the creation of the capital markets platform. On that basis, FICC revenues were up 38.7%, with a sharp rise in primary markets and credit and a rebound in forex and emerging markets. Equities revenues were down 15%, with a lackluster market on flows partly offset by structured products and a slight increase in prime services. As I mentioned before, Global Markets has now signed the agreement with Deutsche Bank to provide continuity of service to the fund manager clients of its global prime finance and electronic equities. If we now turn to the second part of CIB, which is Corporate Banking.
Revenues increased by 11.7% and 8.7%, excluding the effect of the creation of the Global Markets platform, on the back of growth in the three regions, in particular, a strong business development in Europe, the other one being the U.S. and Asia. It is driven by a ramping up of the new Global Markets platform with significant number of transactions in the third quarter. Finally, if we go to the third part of CIB, Securities Services delivered business growth, with revenues up 6.4% on back of increased volumes, with assets under custody and under administration up 10% year-on-year. This concludes the three divisions, in a nutshell, a good performance for our CIB, which delivered revenue growth, positive jaws, a strong rise in income. With this, ladies and gentlemen, this concludes my introductory remarks for the group's third quarter results.
The main takeaways from today's presentation are in Q3, we continued to successfully implement new digital customer experiences. The group enjoyed revenue growth and positive jaws in the three operating divisions. Besides, the group generated an annualized ROTE of 10.3%, and our CET1 ratio increased further to 12 or so. I thank you so far for your kind attention, and I'll be pleased to take your questions.
Ladies and gentlemen, if you would like to ask a question, please press number one on your telephone keypad. Please lift your handset, ensure that the mute function on your telephone is switched off, and that you are in a quiet area to maximize audio quality. We will take questions in the order received, and we will take as many as time permits. If you find that your question has been answered, you may remove yourself from the queue by pressing 02. Again, please press 01 to ask a question. We have a first question from Jon Peace from Credit Suisse. Jon, go ahead.
Thank you. Good afternoon, Lars. My two questions to these would be, number one, could you just remind us what you think the potential revenue benefits might be in the timing of the Prime purchase from Deutsche Bank? The second question is on the outlook for French retail banking. We see it's been a little bit negative this quarter, one of your peers has guided to negative growth for next year. How do you see the outlook there? Would you still expect to see positive revenues in 2020? Thank you.
Jon, thank you for your questions. If we take the first one. As you know, we're very pleased to be able to onboard the Prime brokerage activities. As you know, the deal still has to be closed, which will happen soon. We start a phase of transition. It's a transition where that is gradual and that will take time. Let's be clear. It will take a year or a bit more before we have the full transfer. What we anticipate that once this is done, the full-year effect, for example, on the top line, would be around EUR 400 million. If we go to your second question on the French Retail. What we see is in this low interest rate environment, we see that there is growth in France, so we capture that growth.
At the same time, as you know, we serve our clients with more than just lending products. We provide them servicing products. Basically, if you look at it today, after nine months, you see that overall, the top line is flattish, and that is the guidance for this year that we have given. For the moment, we are in the process of doing the budgeting to see what the latest updates and orientations of the ECB will be. At this stage, we stick to our outlook, and we will be able to give you an update once we've done all this process. Those will be my two answers, Jon.
Okay, thank you.
Thank you. We have another question from Lorraine Pellas from UBS. Lorraine, please go on.
Just you now, a few questions from me. The first one is, should we expect more adaptation costs in the next quarter? Still on cost, I'm guessing, given we're getting closer to the end of the plan, could you confirm exactly what your absolute cost target for 2020, before the benefits of potential additional adaptation costs, please? Thank you.
Lorraine, thank you for your questions. On line, let's be fair, if you look at the overall, somewhat exceptional kind of costs. We, of course, we have the transformation costs, which we are accompanying our 2020 plan with, and basically, those costs will end this year. We will not have them next year. At the same time, we have had some adaptation costs in areas where we had to adapt ourselves, given the economic situation. This is what we have in asset management and BNL. We are continuously looking at the situation, what we can adapt. It cannot be excluded that there will be some of those adaptation costs to come. If you look at the size compared to that with what we have on the transformation cost, it's totally not comparable, and on top of that, these adaptation costs, they lead to savings.
They lead to savings of 1.5 times, typically the investment, and they come fast. It's a different nature than the transformation cost. It's really adaptation costs that we have. When you look at your overall cost, what we do is, I said, we guide on what the reduction is of cost. For the rest, there is, of course, the traditional kind of wage drift which is there, and then there are the variable costs of the business that we accompany. Intrinsically, the cost savings that we have are definitely there to compensate the typical wage drift and evolutions. Lorraine, those would be my two answers.
Thank you.
Thank you. We have the next question from Jacques-Henri Gaulard from Kepler Cheuvreux. Jacques, please go on.
Yes, good morning, Lars. Afternoon, actually. Two questions from me. Honestly, you've delivered the results which are really good considering the really bad environment you have. On the back of what Jon was mentioning at the very beginning, about the revenue and the impact of negative interest rates on domestic retail. The outlook you give on that is really not exactly at French retail level, it's more really at the beginning of the press release, right? When you said that the new monetary policy measures occurred at the end of the quarter, will produce their full effect only into the low 2020. The question is, you've given revised targets of plus 1.5% TCAM between 2016 and 2020. Wouldn't it be wiser at this point to just give up on this revenue target?
That's the first question, and irrespective of how good you can do, but the environment is what it is. The second question, I was quite surprised to see on page 31 of your press release how much the balance sheet has really increased significantly. It seems to be linked to financial instruments at fair value, the repo line has shot up by like EUR 200 billion. I know that those are just fixed photographs from one period to another, but it would be helpful to know where those increases were coming from. Thank you, Lars.
All right. Thank you for your question. With respect to the targets, it is true that when we provided those targets, the overall market outlook of rates and the likes were a bit different. One assumed that there was going to be a rate pickup somewhere at the beginning of the 2020s, which is maybe a bit different now. However, if you look at our results after nine months, if you look at it at the bank, you can clearly see, as I said, the credits are up by 5% and so is the top line, which is a bit of a tribute of being a diversified bank because yes, I know we have twice Paris in our name, but French retail is 13% of our balance sheet.
We are the diversified bank, which in an environment of today, basically plays out because some elements are impacted by low rates, but others are impacted on the other side, on a positive side on it. For the moment, it is too early. We are looking at what the current elements of the ECB and the elements to come, what they are going to be, what it basically means on pricing, what it basically means on the economy. As of today, we are actually going through the budget process to see what it would mean, what we can adapt, and how we can optimize. It's a tad too early to make a statement on those targets. That's the first thing.
Secondly, when it comes to the balance sheet, yeah, the balance sheet has grown, but you've also seen that there is one business in particular that has grown, right? You've seen that CIB has been there accompanying the clients, and that basically led to also some growth in the balance sheet. That's basically it. There's nothing more to say. Jacques-Henri, that will be my answers.
Thank you very much, Lars.
Thank you. We have the next question from Jean-Pierre Lambert from KBW. Sir, please.
Jean-Pierre?
Mr. Lambert, your microphone is open. You can ask your question.
Let's take the next one.
Okay, we have the next question from Stefan Stalmann from Autonomous Research. Sir.
Yes, good afternoon, Lars. I have two questions, please. The first one on M&A. Sometime earlier this year, I think it was you basically ruled out bolt-on deals for the rest of the medium-term plan. Now it seems that mBank in Poland is becoming available. Would you consider making an exception for looking at mBank, please? The second question regarding Belgium, where top-line momentum continues to look quite weak. I think from the data that you provide, you can back out that the net interest margin in Belgium has contracted by about 20 basis points year-on-year, which is much worse than in France.
I know you say that it's coming from the impact of the low rate environment, could you maybe add a bit of color on what exactly is driving this, whether this is coming through more on the asset side or the liability side, and whether you think this erosion will continue or whether it's now at a point where it will stabilize. Thank you.
Stefan, thank you for your questions. When it comes to the M&A, we indeed said we are not interested in bolt-on acquisitions or, for example, the things like branch networks. We basically said that the growth, we are much more interested in doing the digital developments, which allows us to attract customers without needing to buy branches. That is basically what you see. For example, the discussions we had with Deutsche Bank or the ones that we had with Allfunds are basically allowing us to strengthen our business position without buying branch networks. That's basically where we stand. When it comes to your question on Belgium, on the top line, let's not forget, if you look at the impact of the low interest rates, country to country, it can be quite different.
For example, if you look at France and if you look in Belgium, they are a bit on the opposite sides of how the behavior happens. If you are in France, where the facility to buy back your loan is quite different, totally different actually, you can have a relatively rapid impact of what is happening on repricing. Whereas in Belgium, it basically takes more time. That's basically the dynamic we see. We see France, which is now picking up again, as we said earlier, and Belgium is still having the impact of those low rates on its book. Stefan, those would be my two answers.
Okay. Thank you.
Thank you. We have the next question from Omar Fall from Barclays. Sir, please go ahead.
Hi, Lars. Just a couple of questions from me. Firstly, can you let us know the exact amount of securitization benefit through CET1 you had this quarter? I seem to recall in Q1 it was about EUR 10 billion of risk-weighted assets that had been delayed worth of securitizations. Is that roughly in the right ballpark? Separately, is it a concern that ex the SBI Life disposals, there's been no organic capital generation year to date? Lastly, sorry, I ask this every quarter, and I'm hoping this time it's different given the importance of the topic right now, but it would be very helpful for our modeling to know how much of the deposits of the group are reinvested at their effective duration, either via replication portfolios or bonds, and what the average duration is.
Maybe even if you give us, you know, the figures for the Domestic Markets retail units, that would be very helpful given that's what most people are talking about. Thanks.
Omar, thank you for your question. If we look at your first question of the Common Equity Tier 1. As you know, we typically, in the evolution, we generate profit. Half of that profit is basically going into the shareholders, and the other part is basically strengthening the capital. That is, as we have EUR 6.3 billion of profits after nine months, half of that is basically strengthening the capital. Now, by doing this at the same time, of course, we grow our balance sheet. As you've seen again, we've grown it for 5% this quarter. Growing balance sheet also means growing RWA. What we aim to do is that we aim to compensate a part of that RWA growth through securitizations. We basically said that our overall objective is to have the equivalent of five basis points per quarter.
Every quarter we securitize to reduce the impact on the common equity for 5 basis points. What we said is, at the beginning of the year, the first two quarters, there was a review by the supervisor to make sure that all the new concepts were applied with. There was, in Europe, a slowdown, or actually even in the first quarter, a halt of the securitizations going on. The 5 basis points that we said we would do every quarter, so like four times, well, we are now crystallizing a bit more of it in the third quarter. Instead of doing the 5 basis points we typically do, we have them at 10 basis points. That's it. That's basically their behavior.
On the run rate, we stay on that five basis points, which allows us year after year to strengthen our Common Equity Tier 1. As you've seen, after nine months, we started the year at 11.7%, and after nine months, we are at 12% Common Equity Tier 1. That basically also answers your second question, right? When you say is there a capital generation bar at SBI Life, as I said, we have a dividend policy of 50% of earnings. We have this also policy of earnings going up. That basically means that we strengthen the capital that way.
When it comes to your question on models, allow me, as you know, we are very willing to share many things, but things which are a little bit in the domain, which are also domains of interest for our competitors, I will refrain from answering that one. Omar, that would be my answers.
Thanks a lot, Lars.
Thank you. We have the next question from Matthew Clark, from Mediobanca. Sir, please go ahead.
Good afternoon. A couple of questions from me. Firstly, on transformation costs, you said none in 2020. Should we expect none in 2021 too, or will these be back again? Just trying to work out if this kind of EUR 3 billion is the last plan, is a once in a lifetime cost, or if it's going to come back in two years. Question is on the CET1 ratio. It looks like you had a fairly large OCI benefit this quarter to IFRS shareholders' equity. Was there any benefit or impact on the CET1, or does that all get offset in the regulatory adjustments? A final question, just could you give any update on TRIM? Some of your Eurozone competitors have seen some drift upwards in their guidance for TRIM impact.
Just wanted to check whether you're happy sticking with your 20 basis points TRIM impact, and if you have any more visibility on timing there. Thank you.
Matthew, thank you for your questions. To anticipate, I am a happy camper, so that should be fine. Now, if we look at it first on the transformation cost. The transformation cost that we basically booked centrally, we've done it, and you're right, we've done it in this plan and we've done it in the previous plan. Why? Because both plans had a central team. The previous plan had a central team of simple and efficient. We really wanted to streamline that. The current plan has also a team which goes across the businesses of digitalization. Those were the two teams that basically made it for a central approach. At this stage, honestly, I don't see any of those central things on the horizon. That would basically be my answer on that.
When it comes to the Common Equity Tier 1 and your question on OCI, it is true when we track the evolution of the Common Equity Tier 1, we bring it down to its really core elements. That is, we take the net income generated, we divide it by two, and that strengthens our capital. Then we look at the evolution of RWAs at constant exchange rate. Why is that? Because the effect of exchange rate, you can see it in the OCI, and that's basically what we mentioned. If there is an exchange rate, you can see that in evolution of the OCI. Typically, as we are booking our activities where they are generating results, you basically see that that impact on OCI is basically compensated by the similar impact on the RWAs.
That is why we always mention, as I said, the impact of the RNPG, so of the net income, and the impact of the RWAs excluding Forex. Yeah. There is basically no other effects because the interest rates do not have that kind of impact on the valuation. That would be that. On your third question of TRIM, listen, I don't have a crystal ball. Let's not forget TRIM is not something which is universal. It's not like saying, "Hey, I have a new way of looking at liquidity or looking at, and that basically applies to all." TRIM is a review of the models, and so it can have different impacts at different banks because the phasing of the reviews are different or the status is different.
As we said, when we look really at the TRIM exercise, for us, at this stage, the impact is limited, again, it's not done. Honestly, we've guided that there could be an impact of 20 basis points. Let's also not forget that 20 basis point, that is not one shot. That's a thing that can stem from several kind of analysis and that will be probably spread over time if it comes anyway. That's a bit the point. Matthew, those would be my three answers.
Perfect. Thank you.
I think we have another question from François-Xavier de Malleray from Goldman Sachs. Go ahead.
Hi, good afternoon. François-Xavier de Malleray from Goldman Sachs. I just wanted to ask, with regards to the CIB, which has had a strong performance in FICC, as has been noted, but also in the corporate banking part. For the fixed income in particular, it was noted that it was off a low base last year as one of the reason behind the strength, in particular versus competitors. But even if you took a two-year stack, it's still a fair bit of outperformance. I just wanted to know whether you'd be able to elaborate a bit more as to what the drivers were, maybe by business line or by regions in a little more detail. Also on corporate banking, so the revenue growth has outperformed loan growth and in particular RWA growth.
I just wanted to understand as to why, if you want, the productivity of these Risk-Weighted Assets is increasing so much. The second question I wanted to ask is, again, with regards to the transformation and restructuring costs, not necessarily into next year, but simply speaking in the fourth quarter this year, is there any lump in a way that could come because your net income is likely to be above, in particular, due to the low fourth quarter last year that you might use as a budget, if you want? Just a housekeeping question here. Thank you very much.
Housekeeping. Thank you, François. If we look at CIB, first of all, let's not forget, if you look at CIB corporate banking to start with, we've been doing efforts to really stay close to our customers to provide them with services. That's, for example, why we created the capital market, to be able to bring all kind of solutions and services together. What we've seen is indeed we've been able to step up growth, in particular in EMEA. That basically means you step up the growth and then the other services basically take a bit of time after the quarter to come in. That is why there is this evolution that you saw on the credit side and the RWA side. That's basically a temporary one. When we go to CIB on FICC, yes, basically the business is good.
When you say on a low base, well, the low base was in particular on Forex and not necessarily on the other parts. What is it? For me, what we see in FICC is a tribute to all the changes we've done. Let's be very fair. If you look at what we've done, is that we've changed. In the past, to be frank, the FICC kind of activities were I would call them averagely bespoke. What has happened is that they now have become all very industrialized or very bespoke. That means that you really have to change the setup, you have to digitalize, and you have to be able to really deliver those bespoke products. That is the changes that we have been doing. That also meant that we have to do quite some changes. We have to digitalize.
We have to bring down the cost. That is what we have done. That basically means that when we have that interface, which is customer based, we are able to provide several services, and as I said, both in the standard digital kind of way and in the more sophisticated way. That is what we do, and this is why we indeed see the positive evolution in FICC. We see the positive evolution in corporate banking. Let's not forget, we also have that evolution in Securities Services. You have on the three. If you look in particular, it's in the secondary, but also in the primary. If you look at in the rankings, we're number one in EMEA when it comes to bonds, so the fixed income.
From that point of view, it's a bit, honestly, a tribute to the changes we have been doing, it allowed us to step up our market share since the beginning of the year. It's not only the Well, we don't have the October or the September numbers, but if you look until the data that is available, you see clearly that we step up our market share. When it comes to your last question of the transformation cost. Yes, there is a remainder of transformation cost to come in the last quarter, but that is basically planned. Your question is on loan cost. It's a bit what I said earlier, is that we are continuously looking at how we have to adapt ourselves to be adapting to the interest rate environment, to growth and so forth.
If from time to time, this can lead to a kind of adaptation plans to be launched, that might happen. The size of the adaptation-related costs are nothing compared to the transformation cost. As I said earlier, the things that we do is we stick to the metrics that we set forth. As you saw, we set the operating goals. We have Quarters in a row operating jaws. We set forward 12% Common Equity Tier 1. You'll see that we are there, and we also have the growth of the bottom line and the likes tool that we have in the wings, and that is what we stick to. François-Xavier de Malleray, that will be my two answers. Thanks a lot.
Thank you. We have next question from Jeff Dawes from Societe Generale. Jeff, please go ahead.
Hi. It's Jeff Dawes here from Societe Generale . A couple of questions from me. First of all, I just wanted to follow up on the earlier question on balance sheet growth and hopefully get a bit more detail on that. It's a very large jump up in the asset base, several hundreds of billions over the last two or three quarters. I just want to get a feeling for whether that's permanent, whether it's transitory, whether any revenue's attached to it, and really map out why we've seen such a big inflation of the asset base. The second question from me is on the French retail business. Domestic current accounts have increased quite substantially as well. I just want to get a feeling from you whether that's deliberate or whether it's just customer behavior coming through, and what the kind of profitability impact of that is.
Is the increase in domestic current accounts a good thing for the top line, or is it a bad thing? Those are the two questions. Thank you.
Jeff, thank you for your questions. When it comes to the balance sheet growth, as we basically said, the balance sheet grew on one hand because the credits grew. That's one thing. The major step came from two other reasons. First of all, there is, as I said, the dollar. There is the dollar appreciation, which basically inflates your balance sheet. That's also a power point. The last part is also, as I said, the step up in CIB Global Markets activity. When your question is, are there any revenues attached to it? I invite you to look at the revenue evolution at CIB, and you'll see that there are indeed revenues attached to it. That's basically on that. When it comes to French retail, yes, there is indeed a pickup in those current accounts.
That is basically what it is. Current accounts are kept to basically zero, and that's it. We serve the relationship with the retail customers. Jeff, those would be my two answers.
Great. Thank you. Perhaps just a quick follow-up on the French retail point. You notice a significant rise in revenues in Nickel. I know that's captured elsewhere in the P&L and the divisionals. Can you just give us an idea of the revenues there? How much is that significant rise in revenues? What's the base? Any kind of metrics around that?
If you look at Nickel, the overall evolution is part of the other Domestic Markets. As we said, we are stepping up materially the customer base. Again, as I said, this is an activity which is also looked in by other fintechs and other banks. It is something at this stage which we do not detail more, except that it is a double-digit rise, and it remains overall small. That would be the color I can give Jeff.
Okay. That's great. Thank you very much.
Thank you. We have a next question from Flora Bocahut from Deutsche Bank. Madam, go ahead.
Yes, good afternoon. The first question is regarding the Solvency II ratio in the insurance business. I was just wondering whether you could tell us ideally where you stand at the end of Q3, whether there have been any decline versus the beginning of this year. If so, how you can potentially offset that. The second question is regarding potentially charging negative deposit rates. Just wanted to have your view on this, what you are already doing, how much more you think you can do on that. Thank you.
Flora, thank you very much for your questions. First of all, when it comes to the insurance activity, as you know, our solvency is well above 100%. We publish it on a yearly basis because, as I said earlier, the overall stance, if you look at an insurance also how the If you look at it from a bank perspective, what it means on top line, what it means on cost, it remains a bit peculiar, so we have to look at it on a yearly basis. We were well above 100%, so there is nothing else to mention on it. Also, you know that we, the insurance at BNP Paribas, we are for a big part international, so not French. On top of that, we are for a big part non-life.
Even if what it is life, there is a lot of it which is driven by usage. From that point of view, you cannot consider that the risk with respect to that volatility will be very high. That is why we are comfortable with that. When it comes to negative rates, let's be very clear. When it comes to the retail environment, we are sticking to zero. When it comes to the institutional, we charge. When it comes to corporate, basically, if it is related to investments, we consider it also a bit different. That's basically our stance. Flora, that would be the two answers to your questions.
Thank you. We have a next question from Tarik El Mejjad from Bank of America Merrill Lynch. Sorry. Sir, please go ahead.
Hi, good afternoon, Lars. A couple of questions, please. First on capital. Would you review your priorities in terms of capital build allocation now that you reached 12%? There are discussions that Basel IV might be delayed and even watered down. Maybe you can give a
Your view on that. You have clearly an ambition now to grow in CIB and to take market share. Do you expect CET1 to remain at around 12% while you'll be opportunistic about bolt-on in CIB and growth? The second question is in CIB, do you have these revenues losses from the deleveraging you announced in Q4, or is something that you managed to offset somehow, so shouldn't expect any loss in revenues from this deleveraging? Last question on CIB. You mentioned EUR 400 million incremental revenues from the Deutsche Bank deal. I heard somewhere that your ROE for the business will be above 20%. How do you manage that, and what did Deutsche Bank miss in selling this business? Thank you.
Thank you for your questions. If we take the first one. We are at 12%, and there are discussions about, well, they call it now finalizing Basel III, but when I was younger, it was basically called Basel IV. I want to stay in a stance where I'm relaxed, and I don't have to think about it every day, and we can continue to do the business. That's basically why, until it gets clarified, we keep on accumulating capital so that if there is this final inflation, as we anticipated for us at 10%, we will be at 12%. Now, it can be that there is a different stance because on one hand, there are some reflections of saying the RWA will be inflated.
At the same time, there is the European Commission that are saying there is enough capital in the banking system, there doesn't have to be any more. How could those two things come together? It's a bit the comparison with the thermometer. If you use a thermometer to measure the temperature of your body temperature, if you are a European one and you measure it and you look on the machine and it says 37. 37, you know that's healthy and that's okay. All of a sudden, you change your thermometer by a U.S. one. You put it under your arm, you look at it, and you see 100. You get very scared. You notice that your body temperature is basically unchanged, and that the only thing is the scale that you have to change.
That is why overall, we keep on being ready for whatever might come, but what will be the form? Once we know it, we might guide differently. Now we are on a conservative stance so that we can focus on delivering the business, growing the business, being with our customers. When it comes to your question on CIB, the things that we have stopped, and one of the things that you've seen is it's like Opera. Opera is not a singing kind of context, but it was the proprietary trading that we have stopped, and there are some activities also in the U.S. that we have stopped. Intrinsically, these were good businesses. They were businesses that maybe did not lead to cross-sell in other activities, and so we said maybe there is a more logical kind of owner.
That is why the impact that you have seen of these are not the negative impact you might have expected. On your third question, when it comes to the prime brokerage activities, yes, indeed, the return on equity that we anticipate from it is around 20%. What is the difference maybe from one to the other bank is one of the differences that we observe is that the cost of funding between banks being different. That's basically direct the three answers to your questions.
Lars, just follow up on the revenues on CIB. I know I wasn't mentioning Opera and other small division businesses you stopped. I think you guided by then with two or EUR 300 million revenues from a lower EUR 5 billion exits in businesses. I was more referring to that part.
Yeah. As I said, for the moment, we gave a conservative outlook, and for the moment, we are relatively away from that impact. We'll keep you updated if there would be one.
Okay. Thank you.
Thank you. We have the next question from Kirishanthan Vijayarajah from HSBC. Sir, please go ahead.
Yes. Good afternoon, Lars. Can I just come back to the rapid growth in the repo and the derivative balances on your balance sheet? My question is more forward-looking in that can you sustain that pace of growth? Because I'm looking at growth rates of over 20% year over year on the repo line and on the derivative line. It's important because, as you alluded to, it's a big driver of the FICC revenue market share that you've delivered. Secondly, just sticking with the CIB on the prime brokerage transfer, I think you previously gave guidance that it was in capital consumption, 5 basis points off your CET1 ratio and 10 basis points off your leverage ratio. Is that guidance still valid now that you've started the migration process with Deutsche Bank? Thank you.
Kiri, thank you. First on the second one. Yes, our guidance for the prime brokerage remains the same. One thing, technically, we haven't started yet the transfer, right? It's typically going to be closed somewhere before the year-end, and that's the moment when it will start. Yes, we stay to that outlook. When it comes to the repo, let's be very fair. If you look at the third quarter, remember that I don't know exactly where you were in August and at the beginning of September, but there was little demand. What happened is that the last couple of weeks in September is where it picked up.
This means that what you saw in the balance sheet at the end of September is a bit inflated because, again, all the deals that were done, they were not unwound, they were not put into the market, and so forth. What you see as a volume is a little bit tainted by the fact that all those activities happened towards the end of September. As you can see, for us, if you look at it, the one thing for us that is important is that the leverage ratio remains fine. That is what you see, even with that pickup, it remains fine. There is no concern about that.
Okay, thank you.
Thank you. We have the next question from Anke Reingen from Bank of Canada. Madam, please go ahead.
Yeah, thank you very much. I just wanted to come back to your earlier comment about me just going through the budget. I just wanted to understand what this potentially could mean for your 2020 targets you put up at the beginning of the year. Are we thinking about another review, or is it a fine-tuning, or are we stepping away from the 10.5% ROTE targets? On the investment bank on Global Markets and corporate banking, clearly very strong revenues. Is there a risk that in Q4, there will be a cost true-up because your revenues have been stronger than you expected? I'm sorry, just lastly, because there seem to be maybe some three questions. The increase in the liquidity buffer, quite surprising. Any reason? Thank you.
Anke, can you repeat your second question, please?
Yeah, on the investment bank. Is there a risk that there we see an increase in the costs in Q4 because maybe your accrual and the course of a year have been quite low, and yet your full year performance has been stronger on the revenue side, so you have to do some true-up in Q4 costs. Thank you.
Okay, thank you. Let me answer that one first. If you look at the evolution, if you look in Q3, you see in Q3 there is a pickup in the top line of CIB or Global Markets, but there's also a pickup in cost. It is true that as the other elements are being worked on to reduce cost, you might have the impression, if you look at it rapidly, that indeed the costs do not evolve in line with the revenues, and therefore probably your question, would there be an alignment? As I said, this is stemming from the fact that we are reducing the cost materially in all parts of CIB. These evolutions are aligned. That's basically fine.
When we look on your first question, what we do see is that the overall outlook of rates is a little bit different than what we anticipated before. Now we have to see, and that is the budget exercise we're doing right now, is what is then the longer-term kind of rate going to be? What is the adaptations that we are doing? For example, we announced some adaptations going on in several of our activities. What are the adaptations when it comes to the drive, the extra drive on the businesses that are positively impacted by the low interest rates environment? That is where we are seeing what this total basically means. There are pluses and minuses, and we are doing that as a budget, and we will come back to you once we've done that finalized.
When it comes to the liquidity buffer, as you see in our evolutions, if you look at the volume of pickup in deposits versus the loans, you will see what the pickup on the liquidity buffer is. There is nothing else to mention on that. Anke, that will be my three answers.
Thank you very much.
Thank you. We have the next question from Jean-Pierre Lambert from KBW. Sir, please. Mr. Lambert, your microphone is open. You can ask your question.
I hope you can hear me.
Jean-Pierre, we cannot hear you.
Hello.
Jean-Pierre?
Yes, can you hear me?
I can hear you now.
Okay, sorry about that. I had a problem with the battery. The question I had earlier was on the Basel IV 10%, which was asset inflation. Can you give an indication of the allocation between output factors and input factors and whether this will represent a constraint for you in terms of acquisition policy? For the moment, you have no bolt-on acquisition policy. Is this Basel IV development a constraint for you in the future? Related to that, the 10%, is it before mitigation or after mitigation? Thank you.
Okay. Jean-Pierre, with respect to the details on Basel IV, there are so many moving parts into it that it's a bit the generic impact that we have. The question is it basically a constraint? As I said earlier, it's not a constraint. One of the things that we said is we are in a process where we strengthen our capital. Look, we are at 12%, and we are at 12% a year before we wanted to be there. That basically means that over time, we will accumulate further capital in such a way that at some point in time, Basel will become clear. As I said, what if we might think it is in the current text, that will be an inflation of 10%. The capital will be there.
If at the same time that Basel IV is accompanied by a reduction of the capital requirement, then we will see what we do with this capital. If in the end, Basel IV is in a different form than what it is today, leading to a lower impact, it will be the same question, and we will ask again and see how we can best use that capital at that point in time. That's where we stand. It's still a tad too early to give more clarity, but the important thing is we are positioned in such a way that it doesn't hamper the business. The business can basically grow, and for the rest, we are ready to handle Basel when it comes. That will be my answer, Jean-Pierre.
Thank you very much. On the acquisition policy, the freeze on the bolt-on, is there a firm end date to this, like this end of this year?
No, as I said, on the bolt-on and in general, buying branch networks and the likes is not what is in the wings. We want to continue to do the digitalization, service like that. If from time to time, we can strengthen a bit the business, for example, in the deal that I mentioned with Deutsche Bank or in a deal with Allfunds, that is what we will do. Again, as I said, buying a branch network is not in the wings.
Thank you very much.
Thank you.
Thank you. We haven't any more question. Mr. Machenil, back to you for the conclusion.
Thank you so much. Thank you for staying with us. As you've seen, the main takeaways for today's presentation have been that in the third quarter, we have continued to successfully implement the new digital customer experiences. We have witnessed volume growth, revenue growth, positive jaws, and this in all three of the operating divisions. We have an ROTE at 10.3% and a Common Equity Tier 1 ratio that further improved to 12%. With this, I thank you very much. Have a good day. Bye-bye.