Good afternoon, ladies and gentlemen, and welcome to the presentation of VNP Paribas 2018 Full Year Results. For your information, this conference call is being recorded. Supporting slides are available on VNP Paribas IR website, invest. Bnpparibas.com. During today's presentation,
you will
be able to ask a question by pressing I would like now to hand the call over to Jean Laurent Bonafay, Group Chief Executive Officer. Sir, please go ahead.
Thank you. Good morning, good afternoon. Welcome to BNP Paribas 2018 results presentation. In today's presentation, we'll cover the first three chapters of the slide presentation, Group results, division results and 2020 plan. First, I will take you through the summary of our group results, then Lars Machneil will illustrate the results by division and then I'll update you on our 2020 plan.
At the end together with Philippe Borgenave, we'll be pleased to take your questions. So now we are on Slide 3. Looking at our 2018 key messages, BNP Paribas showed good business Activity on the back of economic growth in Europe with outstanding loans progressing by 3.9% year on year. The revenue evolution was, however, penalized by the still low interest rate environment in Europe and an unfavorable market context with particularly challenging market conditions at the end of the year. In more detail, revenues at the operating divisions showed good overall resistance and were just 0.4% lower on a comparable basis despite the unfavorable market context I just mentioned.
Costs Of the operating divisions, they were by 1.7% on a comparable basis on the back of the continued development of the specialized businesses in Domestic Markets and IFS, but were down in the retail networks and in CIP. Cost of risk at group level was 4.9% lower compared to 2017, equivalent to 35 basis points of outstandings. The Group's net results stood at €75,000,000,000 3% lower than in the previous year. It recorded the point in time impact at year end of the shortfall of the markets On the remaining equity stake in First Hawaiian Bank and on assets mark to market in the insurance portfolio, one can assume that these values Returns for a large part are gradually normalized as illustrated by the sale of the remaining part of First Hawaiian Bank in January, which captured a good part back. The group is well capitalized with a fully loaded common equity Tier 1 ratio at 11.8% at year end.
So as I will illustrate in greater detail, 2018 saw good business growth and the success of our digital transformation. Advancing to Slide 6, you can see the performance of the group and of the operating divisions in 2018, which showed overall good resilience in a lacklust market context. You can see that Our net result equates to a return on equity of 8.2% or 8.8% excluding the one offs mentioned on Slide 5 And the equivalent in terms of return on tangible equity stands at 9.6% and 10.2% respectively. Now turning to the revenues of the operating divisions on Slide 7. You can see that globally they held up quite well, decreasing by 0.9% or 0.4% at constant scope and exchange rates.
They were almost stable in domestic markets The low interest rate environment continued to weigh, but the specialized businesses showed good revenue growth. They were up 3.4% at IFS on the back of good growth and despite an adverse ForEx effect. On a comparable basis And excluding the impact on insurance that I mentioned, they were actually 6.6% higher. CIB's revenues decreased by 7.5% due to a lacklust market context, which particularly challenging market conditions in the last part of the year. Despite this, CIB showed good development on selected client segments.
On Slide 8, you can see that costs of our Operating divisions were up 1.7%. Domestic markets costs were up 0.8% with a rise in the specialized businesses on the back of continued business development that actually decreased by 0.9% in the retail networks. IFS cost evolution reflected continued business growth and the development of new products, while side bill costs marked a decrease benefiting from the continued cost saving measures. Moving to cost of risk, starting with Slide 9. You can see that at group level, it decreased and stood at 35 basis points in terms of outstandings.
Looking at the different businesses one at a time, in Corporate Banking, provision were basically offset by write backs. Turning to the other business lines on Slide 10. You can see that cost of risk was still low in French Retail, very low in Belgium Retail and continued to decrease at P and L in Italy. In other retail businesses, Geomet's cost of risk was somewhat up mostly on the back of a moderate increase of the cost of risk in Turkey. BancWest cost of risk was still low and personal finance saw an increase on the back of higher outstandings that was a bit lower in basis points.
Turning to Slide 11, on the financial structure, you can see that our common equity Tier 1 ratio accounting and regulatory changes, which came into force on the 1st January 2018. Basel III leverage ratio was at 4.5% and our liquidity coverage ratio stood at 132%. The group's Immediately available liquidity reserve totaled €308,000,000,000 at the end of the year. The evolution of these ratios illustrates the very solid financial structure of the group. On Slide 12, you can see that our net book value per share stood at €74,700,000 at year end, virtually stable versus last year as it was slightly impacted by the first application of IFRS 9.
Since 2008, our net book value per share has grown at an annual rate of 5%, highlighting our continued value creation through the cycle. Going to Slide 13, we proposed for 2018 a dividend payment of €3.02 per share, fully in cash. It is stable compared to last year despite the slightly lower net result in the light. The point in time effects of the market at year end, I talked about and of our attention to the consistency of our dividend policy over the years, which is illustrated in the graph. I leave you to pursue the next two slides of this introductory part, which illustrate 2 key components of our action plan that our ambitious policy of engagement in society and the continuous reinforcement of the group's internal control and compliance can.
I now hand over to Lars for the divisional results.
Thank you, Jean Laurent. Fine, ladies and gentlemen, let's start with Domestic Markets on Slide 17. You can see that it Showed good business drive in the context of economic growth in the eurozone with loan growth in all businesses and deposits increasing in all countries. Private Banking net asset inflows stood at €4,400,000,000 with a good performance, especially in France. Domestic Markets has continued to develop new client experiences and to implement the digital transformation.
As one, for example, HelloBank has acquired new clients reaching 3,000,000 clients overall and Nickel topped 1,100,000 accounts opened, marking a 44% progress versus year end 2017. Yes, I will provide some additional color on our digital successes on Slide 22 in a minute. Now if we look At the P and L, the revenues were only slightly lower at €15,700,000,000 still impacted by the low rate environment that is, however, partly offset by the good business drive I mentioned above and strong growth in the specialized businesses. When we look at operating costs, They were marginally higher due to the continued development of the specialized businesses, but were 0.9% lower in the retail networks. Given a reduction of the cost of risk in particular at BNL in Italy, as you know, pre tax income marked a 3 point 4% increase to €3,700,000,000 If we synthesize the different business lines, I'd like to highlight in particular that In French, Retail Banking, renegotiations and early repayments confirmed a return to a normal level and as a result, revenues improved in the course of the year.
On BNL, thanks in particular to the continued cost of risk reduction resulting from its cautious positioning, BNL showed a strong rise in income in 2018. And in Belgium Retail Banking, we had good business drive, but the impact of low interest rates precise. And finally, The specialized businesses continue to deliver good growth. So to wrap up, good business drive and higher income for our domestic markets despite the persistent headwinds of the low rate environment. Now if I can ask you to flick to Slide 22 that I talked about earlier, which provides further details on domestic markets' successful implementation of new customer experience and digital transformation.
You can see that it accelerated mobile uses and enhanced mobile applications and the features ranking as France leading bank in terms of mobile functionalities according to D rating. Domestic markets continued the transformation of its operating model by streamlining and digitalizing end to end its main customer journeys as well as automating the processes, leveraging a total of 2 80 robots already in production at the end of 2018. Moreover, The operating division continued adapting its offerings to new banking uses with, for example, the development of LivePay, a universal mobile payment solution, which has already had 1,300,000 downloads in France since it launched in May 2017. If I can now ask you to advance to Slide 23, you can see on the left the 0.9% year on year cost reduction that I talked about in the retail networks. Domestic Markets is streamlining and optimizing the local commercial network in order to enhance customer service and reduce costs at the same time.
As you can see on the right hand side, since 20 16, we've closed 262 branches or 7% of the total in France, Belgium and Italy. And also in 20 18, we removed regional management level in the French retail network. If I can now ask you to continue and look at Slide 24. It showed that domestic markets is in line with its objectives and its 2020 trajectory is thus confirmed. Revenues are better than expectations and we have identified an additional €150,000,000 of recurring cost savings in 2020.
On the back of this, we expect a significant improvement in operating efficiency and positive jaws. All in all, we confirm our domestic markets pretax return on notional equity for 2020. So this synthesizes domestic markets. If I can now ask you to swipe to Slide 25, where we turn to the second part of our retail activities, International Financial Services, which continued its growth and showed sustained business activity. Expressed as outstanding loans, they were up 3.8% compared to 2017 or 7.1% at constant scope and exchange rates.
NIFS reported good net assets inflows, €13,400,000,000 increase and the assets under management of the savings and insurance business were however down slightly at EUR 1,028,000,000,000 due to the sharp drop in valuations at the year end. I'll come back to that. In 2018, the results of IFS were affected by an unfavorable ForEx effect related to the depreciation of the Turkish lira and also the U. S. Dollar that was partially offset by some scope effects.
In the terms of P and L, revenues were up 3.4% versus 2017. If we exclude the point in time impact of the drop in markets at the end of year on assets accounted on mark to market basis In insurance, they actually rose by 6.6% at constant scope and exchange rates. When we look at the costs, they evolved by 5 point 4% year on year on the back of this business development and new product launches. The other non operating items totaled €208,000,000 and included The exact low impact of the €151,000,000 capital gain from the sale of First Hawaiian Bancshares. In 2017, let's not forget, They comprised a €326,000,000 capital gain from the initial public offering of SBI Life in India.
As a result, sorry, IFS pretax income was down by 8.8% compared to 2017, but up by 3.3% on a comparable basis and including the point in time impact in insurance due to the market's drop at year end. If we now look and synthesize the different businesses In International Financial Services, I'd like to highlight in particular the following. First, Personal Finance continued to show strong business drive in 2018 and pretax income clocked in at €1,600,000,000 up 5.9% on a comparable basis. Europe Med completed the acquisition of the core banking activities of Raiffeisen Bank in Poland, strengthening its position as the 6th largest bank in that country. Overall, Europe met generated 24% pretax income growth versus the year before.
At historical scope and exchange rate, income growth was still double digit, but affected by the marked devaluation of the Turkish lira that I spoke about. If we now cross the Atlantic and at Banquest, we sold an additional 43.4% of First Hawaiian Bank, retaining at year end, 18.4% stake that was entirely sold in January. Overall, Bank's West pretax income was up 3.3% versus last year, but down 1.4% at historical scope and exchange rates. If we look at insurance, revenues progressed 6.6% for the full year, thanks to good business drive, but we are significantly affected by the point in time impact Of the drop in markets on assets that are mark to market at year end and pretax income was optimically lower due to the SBI Life capital gain that we booked in 2017 that I spoke about. On a like for like basis, pre pretax income was only marginally lower than last year at close to €1,500,000,000 due to the spot impact I mentioned and that of course we should recover over time.
The last part is Wealth and Asset Management. Revenues were up 3% year on year, driven by real estate, but were impacted by the unfavorable markets at the end of the year and by the introduction of MiFID II regulation in 2018. Globally, pretax income was down 24%. So The IFS division, as you know, just like the other divisions are actively implementing digital transformation and new technologies across all its businesses as you can see on Slide 32. Client experiences are being optimized everywhere with the e signature now widely available.
For instance, at Personal Finance, where already 50% of contracts are signed electronically. IFS is also continuing to successfully develop its digital banks with already 665,000 customers for Ceptetep in Turkey and 223,000 customers for BGZ Optima in Poland. The operating division is also developing new technologies and artificial intelligence with already over 130 robots handling automation of controls, reporting and data processing tasks. If I now can ask you to advance to Slide 33. IFS is showing a 2020 trajectory, which is in line with the plan despite an unfavorable foreign exchange effect and hence confirms its role as a growth engine of the group.
Revenue growth is in line with the plan, thanks to good business drive and the bolt on acquisitions that have been finalized. NIFS It's targeting an improvement of the operating efficiency, which will in turn lead to positive jaws from this year on, but at that less than expected initially due in particularly to the unfavorable foreign exchange effect that I talked about. The pretax return on notional equity should thus increase to a level very close to the target. This completes the overview of both parts in Retail Banking and Services. And if I now can ask you to turn to Slide 34, where I draw your attention to the Corporate and Institutional Banking.
It faced a very unfavorable market context in 2018, but confirmed its leading positions in Europe where it ranked joint 3rd and maintained its global market share after a gain in 2017. When we look at revenues, they stood at €10,800,000,000 down 7.5% compared to the year before with contrasting evolutions in the different business lines. Costs were down 1.3%, thanks to cost efficiency measures, which stood at €220,000,000 in 2018 With the ongoing implementation of shared platforms, end to end process digitalization and automatization of transactions leveraging 180 robots. In CIB, we already reduced costs over the past 3 years. Overall, CIB generated €2,700,000,000 of pretax income down 21% compared to the previous year as the negative market was somewhat mitigated by cost reduction and effective Control of Risk.
If I can now ask you to turn to the next three slides, that's basically Slide 35 to 37, And let's look at a bit more detail on CIB's activities. If we start on Slide 35 with Global Markets. Revenues were down 15.4% on the back of a lackluster context for fake activities in Europe and particularly negative market context for Equity and Prime Services at the end
of the year.
FIC revenues were actually down 21% year on year On client activity on rates and credit in Europe stayed weak due to the ECB monetary policy, while ForEx activity performed poorly, especially in emerging markets. On the plus side, we saw some good performances in primary markets and Instructure Products and FICC confirmed its top ranking for all bonds issued in euros and number 9 internationally. If we now turn to equities, revenues were down 6% year on year due to the impact of extreme market movements towards the end of the year and the loss on index derivatives hedging in the U. S. As you know, our equity business is focused on derivatives and has little or no cash equity, which in market situation like that of end 2018 provides a buffer for revenues.
On the other hand, client activity on Equity Derivatives and Prime Brokerage progressed in the year. If we now Swipe to the next slide, Page 36, where we look at Corporate Banking, which is another part of CIB. Revenues were down 5%, but actually a tad higher excluding some capital gains that we booked in 2017 as well as the impact of our retrenching from some sectors on the back of our CSR policies as well as some Parameter Effects. Cash Management and Trade Finance, for example, continued their good development, consolidating their leading positions in Europe and developing very well in Asia. We also confirmed our number one position for syndicated loans in the EMEA region.
Now if we glance at Slide 37, the 3rd part of our CIB, namely security services, where revenues progressed well on the back of a strong business drive with gain of significant mandates. The business line confirmed a leading position in Europe and number 5 worldwide. If we now look at the next two slides, 3839, they summarize the active Implementation of the 2020 plan in our CIB, which has continued its good development on targeted clients with over 300 new corporate groups onboarded worldwide over the last 2 years. The successful implementation of CIB's digital Transformation is epitomized by the continued client onboarding via Centric. Centric, its online platform for corporates, which already has closed to 10,000 clients and has gained 1500 clients in 2018 alone.
As I mentioned earlier, CIB has delivered €221,000,000 of cost savings in 2018, thanks to the ongoing implementation of cost saving measures in areas such as mutualized platforms, which are being ramped up. Thanks to the active implementation Of its plan, CIB has successfully reduced its cost base by 3.5% over the past 3 years and has achieved its target for risk weighted assets reduction 1 year ahead of schedule, allowing for 6.3 VNP Paribas. However, the unfavorable market context in 2018 and the resulting decrease in profitability has meant that we need to intensify and amplify CIB's transformation to get it back on the right trajectory for 20 Looking at Slide 40, you see that CIB will be acting on 3 main axis to this end. The first It's a review of the and the potential stopping of non strategic and insufficiently profitable business segments such as the recently announced stopping of our proprietary trading called Opera Trading and of Commodity Derivatives in the U. S.
The preliminary scope of the potential exits and visits is in the range between €200,000,000 €300,000,000 of revenues and for our cost income above 100% and expressed in capital €5,000,000,000 of euros of RWA. That's the first act. The second act is the intensification of the industrialization of CIB in order to further structurally reduce costs, particularly through the adaptation of the flow businesses To the fast electronization in financial markets, in particularly global markets, the development of shared platforms at corporate banking and the industrialization of the multi local operations model at Securities Services. And all this together with the streamlining and mutualization of IT and back office. These actions will generate a further €350,000,000 of additional cost savings in 2020, bringing the total cost savings in the 2 years ahead to €850,000,000 at CIB.
So this is the 2nd axis. And then the 3rd axis of our 3 pronged action plan, as you can see on Page 41, focuses on an even more selective and profitable growth, allowing to continue strengthening on targeted client segments in a context of only moderate growth of the global revenue pool. Based on these three lines of action, we've adjusted the 2020 trajectory of our CIB, As you can see on Slide 42, focusing on profitable growth with a downward revision of its revenue target, which should, however, BNP Paribas. Be up compared to a weak 2018 base, a significant improvement of the operating efficiency leading to positive jaws, Thanks to additional cost savings versus the initial plan and a rise in the pretax return on notional equity to a level close to the initial objective. So this basically concludes the division results section.
I now hand it back to Jean Laurent for the last part of
So thank you, Lars. Let's now look at the last part of today's presentation, the update of our 2020 plan. On Slide 44, you can see that the environment in which we are operating is a contrasted to 1, in fact, while economic growth remains favorable on the whole, it is nevertheless expected to somewhat slow down as you can see. And interest rates, which are particularly low in Europe, are expected to increase only gradually. Turning to Slide 45, You can see that an important part of the group's 2020 ambition consists in pursuing our ambitious CSR policy and Our commitment to making a positive impact on society through tangible initiatives.
As an example of this commitment, We have stopped financing companies whose primary business is shale oil, our oil production in the Arctic as well as tobacco companies. The group aims in particular to finance the economy in a sustainable way, promote the development of its employees, support initiatives with a social impact and play a major role in the transition towards a low carbon economy. In so doing, it wants to be a major contributor to the United Nations Sustainable Development Goals. The success of our digital transformation, which is a key component of our 2020 plan is summarized on Slide 46 and is being achieved by effectively acting on the 5 transformation levers identified to provide a new customer experience and a more effective and digital bank. As you've seen in the presentation, digital is strongly stepping up in all Just to mention a couple of examples, domestic markets already has over 8,000,000 digital clients in retail banking and was ranked number 1 bank in France in terms of mobile features according to D rating and IFS is extensively deploying ElectroLink signatures, which already accounts for 50% of contracts signed at Personal Finance.
Robotics And artificial intelligence are developing rapidly with over 500 robots already operational. Processes are being industrialized and optimized Everywhere and now end to end digitalized customer journeys are being implemented. In addition, new products are being launched such as LifePay, a value added mobile payment solution with already 1,300,000 downloads in France. On Slide 57, you can see that transformation costs related to this transformation totaled €2,000,000,000 in the 2 year period 2017, 2018 and we're in line with the plan. The recurring cost savings generated by the end of 2018 Total €1,150,000,000 also in line with the objective.
They were split 40% in CIB, 35% at domestic markets and 25% at IFS. Beyond 2018, if you flick to Slide 48, you can see that we have enriched Our transformation plan, given in particular the need to intensify transformation at CIB and higher regulatory costs, We want to generate €600,000,000 of additional recurring savings over and above the ones already planned. 55% will come from CIB, 25% from domestic markets and 20% from IFS. These additional savings will be achieved in particular So the combination of several actions, the streamlining of the IT organization and the use of the cloud, The reinforcement of the industrialization of the supporting activities with increased use of artificial intelligence, the streamlining of the setup in connection with mutualized competence centers and the optimization of real estate costs. The 20 2020 recurring cost saving targets is just raised from €2,700,000,000 to €3,300,000,000 as you can see on the top right graph.
At the same time, the successful implementation of the strategy has led us to revise down the expected cost to achieve. Therefore, for 2019, the envelope of transformation costs has been revised down by €300,000,000 to €700,000,000 On the back of this additional cost saving effort, we expect to generate a positive jaws effect in each operating division. If you advance to Slide 49 now, I'd just like to draw your attention to our superior risk profile, which has been confirmed by the recent European stress test. When considering the adverse scenario, BNP Paribas showed a significantly more limited impact than the average of the 48 banks tested. Similarly, the cumulated cost of risk rise under the adverse scenario is markedly lower than the sample average reflecting and selectivity at origination and basically a cautious approach which is designed to favor the quality of longer term risks rather than short term revenues.
A word finally on this year's SREP for which we do not expect any change in our Pillar 2 requirement. To sum up, let's go to Slide 50. As we've seen, the trajectories of domestic markets and IFS are essentially in line with the 2020 plan, whereas CIB requires an amplification of its transformation. We forecast risk weighted assets to grow around 2.5% per year, Bearing in mind that they will be stable for CIB, we plan an active management of the balance sheet with intense Sales of non core equity stakes and or assets. In terms of capital management, we're not envisaging a new acquisition and we expect an organic capital generation of at least 30 basis points per year after dividend distribution.
Globally, we expect the return on equity to approved in all three operating divisions by 2020. On Slide 51, you will find the updated 2020 estimates for the group With an expected 20 sixteentwenty twenty revenue growth equal or above 1.5% per share versus 2.5% in the original plan and Plan and a €600,000,000 increase in recurring cost savings from 2020 to accumulated total of €3,300,000,000 Based On what we see today, we expect the return on equity to improve to a level of 9.5% in 2020, equivalent to return on tangible equity above 10.5%. The common equity Tier 1 ratio will be equal or above 12% in 20 VNP Paribas. Overall, we expect an increase of the earnings per share of more than 20% between 16 20, leading to an increase of the dividend per share of 35% over the same period based on the dividend payout of 50%. This concludes today's presentation.
And I would like you to return that BNP Paribas is focused on its 2020 ambition and that our digital transformation is a success and we are continuing to actively We rollout new customer experiences and that an integral part of the 2020 plan is our ambitious policy of engagement in society. In 2018, The group showed good business development with a very unfavorable market context at the end of the year. Net income held up We are at €7,500,000,000 and we are proposing a €3.02 dividend stable compared to the previous year. Our group has a very strong balance sheet with a fully loaded core Tier 1 ratio at 11.8% at year end. Ladies and gentlemen, thank you for your attention.
And together with Philippe and Lars, we'll now be pleased to take your questions.
VNP Paribas. We will take questions in order received and we will take as many as time permits. If you find that your question has The first question that we have is from Mr. Jacques Henri Gaulard from Kepler Cheuvreux. Sir, please go ahead.
Yes. Good afternoon, gentlemen. I have two questions. One is quite generic. It's a question on culture, okay?
Your poor revenue in Equity and Prime Services seems to have been explained partly by negligence in your index derivatives hedging business. And it seems a little bit disappointing in light of the fact that since 2014 and the DoJ settlement, You were supposed to have boosted a lot of your control. So what really went through the net? It's specific, but more generally, I'm surprised by the negative press that Seems to be around you now, and you seem to have a little bit of a negative bias towards BNP Paribas. You've been the object of a documentary several months ago, which was completely innocuous, Which was negatively biased.
Obviously, when you have problems now, it seems that press leaks appear. I remember as far as just 5 or 10 years ago, there was no press leak around BNP Paribas. Overall, It seems the perception around the bank has changed and it has not changed positively. And I wanted to ask you if you perceive that as well and what you intend to do to change this. That's the first question.
The second is on insurance. More specifically, I'd like to understand a little bit more the mark to market adjustments of €180,000,000 Is it linked to, I would say, return to policyholder? Or is it simply the Equity of the insurance company that you have invested and where this investment had to be written down. Thank you very much.
So, I will answer in more details about the origin of the, I would say, Conduct or lack of code of conduct, this has to be understood Very clearly and honestly, I don't share your vision about our bad reputation or anything of that kind. So, Philippe, if you want to answer the question. Yes. So, this is about
Flow Derivatives book, we are market maker on options on the S and P 500. It's a very old standing business for more than 10 years. We are doing that. It's The clients business, we are the counterparties, the clients are U. S.
The return on their portfolios by mostly selling, sometimes buying also options. And So we are market makers on that and we answer on different exercise prices, different maturities and so on. And that book, well, it's We end up having a book which is diversified and it is managed and hedged globally, Because if you try and each time you buy something, if you sell it immediately, it doesn't make a living. So we tend to try and Keep some margins by hedging it globally. And while the team was experienced trader with 2 others, small ones, very, very classical thing and just it happened that In the movement of last year's, while starting already Toward the end of November and even more and more in December, the big slide which occurred in the U.
S. In a market, which at the same time was becoming less and less liquid with very a lot of difficulties to change the hedges and to adjust the hedges. So the guy in charge of the book made, I would say, wrong choices. It's still underway. I should hedge the book and it was a kind of mishandling of bad Well, poor handling, unfortunate choices in the hedging without any breach of any kind, not only All the limits were respected, while the transparency was respected, everything was clear.
The only thing is that the guy in charge made which happens in life and that's all. And it's not at the end,
it's not
Not a problem. And in the same period, we lost more due to loss. We had A reduction in revenues much more due to the lack of volumes, which created a lack of revenues compared with the previous years Due to the lack of demand and the very illiquid and the fact that the clients were not very active anymore at that period. And this unfortunate event or incident is explaining a 70 or It's no more than a quarter of the total fee and it's an event which is quite there is no negligence or
On your negative audio sorry, your technical insurance topic, Very quickly, a reminder, insurance is still accounted for under IAS 39. So that basically means that the majority of the instruments in which insurance invest, they are accounted for under what is called available for sale, EFS. And so whatever of investments that are in available for sale, they do not impact the P and L except when there is a sale. Now there is a very small part of the instruments which are accounted for in mark to market. And this is what this is, for example, instruments that have mild Instruments like derivatives in it, all that are part of a fund which are of a nature of floating NAV, which have to be accounted for in the mark to market.
So that's what it is and that's what given the evolution and the downward evolution of the market at the last quarter basically led to this drop. That is already basically for a big chunk coming back. Half of it is basically recuperated in the 4 weeks starting of the year. So, Jean Carty, that will be the answers.
Thank you very much.
Thank you. Next question from Delphine Lee from JPMorgan. Please go ahead.
Yes. Good afternoon. Thanks for taking my questions. I just have a few quick ones. And but before that, I would like to start with revenues.
So just to come back on your new targets of at least 1.5%. Given that there has been no growth in 2018, basically that would imply some 4% growth in 2019 2020. So given the relatively challenging rates environment in domestic markets, Even if International Financial Services is on track, I'm just wondering what are you actually implying for Institutional Banking in terms of revenue growth. If you could give a little bit of color around the revenue recovery that You're expecting, given you have also some exit business of exits. The second question is on CIB, More specifically on the costs, you used to have a guidance and target for 2020 of 1.5% And CAGR between 16% and under 1.5%, sorry.
Just wondering what's that kind of implies right now, Given you have additional cost savings, just wondering what's the cost growth? And also at the group level as well, including your EUR 600,000,000 How does that compare to your old target of EUR 29,900,000,000 for 2020, which you had before, given there are quite a lot of moving parts. And the two quick questions is two last quick questions, if you don't mind. Just a DPS of €3.02 is that going to be a new floor that you consider And you're willing to pay maybe marginally higher than 50% payout? Or would you stick into 2019 20% to 50%.
And then if you don't mind reminding us the impact of TRIM in IFRS 16. Thank you very much.
Keep a little bit of flexibility, so we are not going to give you the detailed P and L anticipated for 2020 business by business. But what we can say is that your calculation is right. It implies a 4% growth per year on average in the next 2 years for the group. And you're right to stress that domestic markets will be certainly below that figure. We think positive area, but certainly below 4%.
And it implies that CIB and It should be over that figure, both of them we think. As for CIB, the exits You are mentioning are going to be selected in order to represent relatively small revenue and High cost income and high consumption of relatively high consumption on capital, with the idea is just to streamline To optimize the setup, it's not to get rid of big chunks of CIB at all. So the impact of the exit should be marginal in terms of revenues. And for example, well, the 2 businesses that we have already are in process of closing already are representing a very marginal level of revenues together. So that should not be a big impact on the path of of the revenues of CIB.
In terms of cost growth, Well, the it's difficult to answer to your question as well because while another aspect is The ForEx foreign exchange evolution, which is going to have a big impact, well, a significant impact as well potentially. So we well, I don't want to answer precisely to that question. The new floor, no, there is no new floor in terms of distribution. We stick to 50%. And so 50% is 50%.
So it's very clear at the last slide. The only thing is that this year, If we had just given 50%, it would have been slightly 3% below last year In terms of 6% below last year in terms of distribution. And it was not warranted because as As we have explained, the kind of exceptional point in time marking of certain portfolios, If you adjust for that, indeed the group is stable in terms of results. And so the underlying, I would say performance of the group this year is very similar to last year. And as the prospects are really positive, We saw that it would be, well, not to answer to dent the dividend somewhat.
And so we decided to keep the dividend stable. But it's not a new standard. It is just an adjustment of the standard, which remains 50%. And as far as TRIM is concerned, we I've already gone through the market risk TRIM and through the French retail credit TRIM, credit portfolios of the French retail. And well, I touch wood, but those 2 up So now, I mean, the impact was limited.
Well, but now we have to we have the other credit portfolios that are to come. And we have also the counterparty risk, which is to come as well in 2019. So we are just maybe 1 third of the journey. So it's not over.
And so that's estimated to have an impact of 10 basis points on the common equity Tier 1.
Thank you very much.
Thank you. Next question from John Peace from Credit Suisse. Sir, please go ahead.
Yes, thank you. I wondered if you could just clarify a few comments that got reported from this morning, perhaps it was on your press call. When you talked about, firstly, a normalization of trading activity in January, how should we size that Similar to prior year. And also, I think a comment was made around M and A about the acquisitions not being on the Agenda, is that does that rule out all M and A activity? Or is that just for the larger deals and And smaller bolt on deals could still be part of your activities.
Thank you.
So the second part of the plan, the 19, 20, 20 years, we're not considering external growth. Of course, nothing that could be transformational, but even nothing that could be just bolt on. We have to concentrate on the, I would say, the achievement of the digital journey. We are very much on track and we have to concentrate on the, I would say, new cost reduction initiatives. So this is why we're not considering anymore any kind of It was about the markets.
Looking at the global market divisions at VNP Paribas, we are back to normal. So we are never commenting in terms of results, level of activity, but I would say we have exited The situation we went through at the end of last year, so the business is back to normal. So that was the comment we made this morning. To go back to the story of the dividend, we have to say again and stress again the fact that Not only the stress on the Equity Derivatives business was a kind of one off last year And post tax is the equivalent of more than €200,000,000 but also there were 2.20 post tax effect of point in time IFRS 9 IFRS 5 related books, the one with First Hawaiian Bank and the one with Some of the portfolio at Cardiff. So if you look at the real underlying business of VNP Paribas last year, even if we suffered from low rates, even if we suffered throughout the year Of a kind of lack of volatility in the FICC business, the online business is Minimum at the level of 17.
So this is why from just an economic standpoint, it makes sense to deliver just the same dividend. And since the ratios and the solidity of the balance sheet allows it, We decided to proceed that way. But it's not only because the balance sheet is strong enough, it's also because the reality of the underlying business of last year It's just the equivalent of the one of 17. So this is why we are in the two dimensions, I would say in good shape, we decided to go for the €3.02 per share. So this is the Again, what has to be stressed and also this is because we are confident of the cash flow generation of the group.
And the 12% target for core Tier 1 ratio in 2020, which is now for us a minimum because our estimate is above. Of course, it factors the effect of the TRIM. It factors also the effect of new norms. So everything is factored and the cash flow generation
Thank you. Next question from Jean Francois Neuet from Goldman Sachs. Sir, please go ahead.
Hi, good afternoon. I just wanted to ask a little bit more about equities and thank you for your explanation on the U. S. Part before. I just wanted to understand also on the rest of the drawdown in revenues compared to the prior year.
You also were mentioning some of the hedging losses In Exotix, I guess, would you mind please try to maybe quantify the rest of what can be considered abnormal So that we have a sense of essentially the ongoing business? And also, Can we understand whether part of the hedging losses or market drawdowns are something to be recovered or they're just past us And that's it. And secondly, I wanted to ask about, in general, the cost to income ratio and the jaws and Obviously, the interplay of that with the ROE. I guess from here, the costs are expected for the next 2 years to be still On your touch growing and then the improvement in the operating efficiency is supposed to come from revenues. I just wanted to understand what flexibility you have given the emphasis put on jaws throughout the presentation today.
The flexibility that you have to change the cost trajectory early enough so that you're not in the situation where like in the last 2 years, the To income ratio went backwards, but tries to get to where the target was. Thank you very much.
Okay, Jean Francois. On the equities, the rest is more than €200,000,000 if you compare to the Q4 of last 2017 and the Q4 of 2018. And this can be divided into 2 parts of Roughly EUR 100,000,000 each. One is just as I mentioned is Just the lack of demand, the lack of new business during this quarter, which was especially low in terms of Demand from the clients for our products, the index certificates, Structural Derivatives, Equity Derivatives for Asset Managers. And so we this is not going to come back.
This is just an opportunity that has been lost to and Lower level of activity and we just hope that the activity is going to come back and to normal, which Seems to be the case up to now in the Q1 and then to continue to stay. And then the other one is also probably 100, a little bit less than 100 Okay. So different segments of the markets toward the end of last year. As there were big movements down and then up the movements of the different products, we are not respecting the normal correlations, the cash, The options, we are not evolving in a correlated way like they should be according to The theory and to the arbitrage relations because there were not enough market to arbitrage those different segments. And as a result, The mark to market, which is brutal at the end of the year, makes that indeed The different hedging relationships were not functioning at that day and created a gap of around €100,000,000 as I said.
And this is in the process of coming back with the liquidity back in January. And this part of the revenues is in the process of coming back and completely, I think, I think you have to make a differentiation. I think that For domestic markets, clearly, the jaws are always coming from both sides. But we are as I said, we are planning a very slow and increase In the revenues, as I said, and so the costs are supposed to go down and The jaws are going to be they are not going to come only from the revenue side.
On
CIB, the costs are going to be also very, very flat. And it's only on IFS where we are planning a relatively robust Evolution of the revenues as it has been the case regularly. And a certain growth of cost as well. Your question on the flexibility on the cost, I would say that There is one easy case, well, easy case. Of course, on CIB and especially on global markets, There is a natural variability of the cost due to the variable part of the remuneration.
And for the rest, and there of course, we are going to be careful and we are ready to take new measures if necessary. As shown by this plan, by the way, this plan is showing that we are launching an additional €600,000,000 savings program precisely because revenues are not Completely there. So it shows that we are able to react rather quickly and to Adjust the trajectory on the cost side.
And can I ask just as a compliment, how much of the revenues Which are planned for the growth over the next couple of years come from acquisitions made recently, which are not part of the base of 2018?
The scope effect the remaining scope effect, It's a good question. We'll try and get a Strafeis and essentially It's Rafaisen. And yes, and some well, allow for some minutes, we'll That's later, we are looking at the figures.
Thank you very much.
Thank you. Next question from Pierre Chedeville from Centimeters CEC Market Solutions. Sir, please go ahead.
Yes. Good afternoon. A few questions. First question is regarding the cost In the Asset Management division, you have emphasized on the cost of setting up Aladdin at the end of the year. I want Good to know if we are going to see in the first half of twenty nineteen another impact Of this setup in the cost and also regarding more generally The Asset Management business, which is, as far as I understand, in a process of transformation and rationalization, Do we still have some transformation cost ahead in this division?
And Where do you see this division in terms of what you would like it to be at the end of the day? Second question is regarding the fact that you have also emphasized on the impact of restrictions on your business Due to the, I would say, interdiction of types of financing like tobacco, things like that, Do you think that we will have another impact of this type in the top Fine, in 2019, in other words, do you intend to continue to stop financing some types of industries That could impact the top line in the corporate banking in your corporate banking business. And my last question relates to fixed income. We have talked a lot about the equity and Activity, if we look at 2018 or 2017, we can feel that. And for all the industry, it's not specific to BNP, but we have an industry that seems to be Much less, I would say, profitable in terms of regulations, in terms of customers' activity, in In terms of monetary policy, etcetera, what do you think regarding this industry and your position in this industry?
Do You think that you have a critical size compared to the American banks, which are more and more aggressive? You emphasize the fact that your Market share is flat, I would say now. And do you think that you would need to make a significant effort regarding costs on the long term and not only for the 2 coming years. Thank you very
much.
So first, I would like to maybe come back on the question about Jean Francois about what is to come on the kind of a tail effect of the recent acquisitions In 2019 2020, I think as for Raiffeisen, more in 2020. This scope effect will bring that type of amount. And as for the Opel Finance acquisition, we had Kind of relatively low year to start with because of the reorganization of Corporal by PSA. And so we expect also some significant increase coming in the next 2 years. It's more difficult to It's not accounting figures, but we expect some significant boost there for in the personal finance.
So those are Moving now to your question about Well, let's start with the tobacco oil and the rest. I mean, At this stage, we don't have anything more in the pipe. So, if I may try this word. So, we well, we're seeing that for the next 2 years, there is well, we don't foresee any new renouncements. This renouncement in tobacco and shale oil and Liquor Oil and Gas as well, we're presenting something like €100,000,000 per year.
And while we don't intend to it's already in 2018 figures and we don't intend to add to that. On the fixed income, I fully agree with you. To a certain extent, the FICC case is more worrying structurally than the equity derivative case. It's true that there is a The kind of structural change, we are fully aware of this. And as you say, it's both due to regulation MiFID Customers, and we well, the only thing is that Towards probably, but probably later than 2020, but maybe towards the end of 2020.
And We will see the well, maybe at some point, the interest rates going up in with The end of the QE and maybe some increase in interest rates at some point in Europe. And it has been visible in the U. S. That as Soon as the Central Bank is starting to tighten, even if it's slow, it creates a lot of Buzz and animation in the market, because everybody is trying and guessing when and how much the tightening is going to occur. And so it creates The need for more hedging or position taking, so the clients are more active around the movement Then they are active around no movement at all like it is the case in Europe at the moment.
So this could bring some kind of relief at some point, But still there is a structural tendency towards electronification and pressure on margins in FICC. More and more business is conveyed directly in the kind of end to end process Margins in the middle. And so it's precisely why we the adjustments in cost we are planning in CIB Well, going to be implemented in order to keep, well, to try and Adjust to this situation, we are really conscious of this and we are addressing that No, no other solution. On the asset management, maybe yes. I can maybe very quickly.
So indeed, we have all the Aladdin's which are not just genies in a bottle, but where we are starting to reap the benefits of the cost reduction related to it. So we don't anticipate for 2019 to have a pickup in cost in Assam
question, I guess. Okay. Next question from Anke Reingen from Royal Bank of Canada. Madam, please go ahead.
Yes. Thank you very much. Firstly, on your targets again. I mean, I understand that you moved your ROE target given the change in environment. But I'm just wondering, what's the risk of you sort of like moving the goalpost again if the environment looks worse?
Or is the focus Of the efforts first on cost to reach the revised ROE targets. And then secondly, on capital, the at least twelve Percent target. Does that mean you're happy with 12% post TRIM? Or are you really targeting above 12? And sorry, just on the capital, the increase in the VAN in the 4th quarter doesn't seem to have an impact on the risk weighted assets.
So that have a knock on effect only coming through in Q1? Thank you very much.
So what happened in the last quarter at Equities will have no impact on the, I would say, the computation of risk weight beginning of next year, this year 2019. So And of course, depending on what is kind of worsening of the situation, in any case, We're adapting the cost base to deliver the 9.5%. I would say The main issue for today, a bank in Europe is the direct scenario. I believe that looking at the CIB platform And taking into account that what accorded equities is a kind of one off, we have to take care of the structural, I would say, evolution of the FICC business. For that one, we have enough with the I would say, the deleveraging the cost base.
The rate scenario is the Most difficult one to mitigate. But as far as we can see what we have now in our, I would say, business plan Taking into account, I would say the current situation and the most recent evolution of the rate curve. So the 9.5% is to be considered as the target for 2020 and nothing else.
Thank you. And the quarter on quarter?
Yes. Yes. Yes, the 12% is the target for BNP Paribas. And based on our estimates, in 2020, the group would be above that initial target.
Okay. Thank you.
VNP Paribas. Next question from Bruce Hamilton from Morgan Stanley.
Just a quick follow-up On capital, given obviously that's keenly in focus to the market. In terms of the 2019 impacts, can you Just run me through. So you said 10 bps negative from IFRS 16. Obviously, TRIM is a question mark. What else is there that will benefit you in terms of disposals that are not yet reflected in And what else if TRIM were a bigger number, what kind of options are at your disposal To accelerate the capital build should you need to, I mean, is it easy to find 50 bps from other non core disposals or questionable sort of Business units, how should we think about that?
Well, we are not Expecting minus 10, as you said, TRIM maybe also 10 or 20. I mean, we are not Expecting a huge amount of additional requirement. It's more kind of erosion, regulatory erosion, I would say, of the ratio, which is kind of sustained and Regular, but not huge. So in front of that, on top of the 30 Basic points of organic creation, we have, as you say, well, some outlook for sales. The most, I would say, obvious one, which has already been preannounced to that extent is Our stake in SBI Life in India, where we have already sold a stake and we have said that in Anyway, for regulatory reasons, both SBI And as we have to manage to increase The floating part of the shares to 25%.
And so now that is listed, So we can of course do more. So we have here a possibility to generate significant capital gains as you know, as we have done already once. And so it's a kind of reserve, which can be tapped.
No, that was it really. And then the other impacts, IFRS 16, you said negative 10 bps would be the other impact. There are no others you're expecting. I guess you should get, what, 5 bps back or so from the exit of prop and other. Just any other items we should Thinking about that, will we hinder or help the capital build over the next 12 months?
I don't think so. But overall, We are being at bit 11.8%, if this is kind of maybe I'll ensure you, we expect to be already at 12 at the end of the year.
Great. Thank
you. We expect an increase of the ratio during the year in spite of TRIM and in spite of IFRS 16.
Got it. Thank you.
You're welcome.
Hi, there. Just coming back to the implied revenue growth of 4% Set by the €200,000,000 to €300,000,000 of revenue reduction from the non strategic review. And given that In terms of scope effect, it feels like less than a 1% impact. Also, the 4% target looks Rather aggressive, if I may. So why should BNP structurally grow
It's a kind of a little bit to compare the evolution of CIB revenues and the eurozone GDP Beyond Eurozone, we are growing fast in Asia Small markets, it's also the Global Banking business, it's also BP2S, which is Growing and growing fast. So yes, it's ambitious. We are well, we really Manage the bank in ambitious way. It's a minimum you are expecting from us, but we believe it's
2018 Equity, but there's also the 2018 effect of what we said First Hawaiian Bank and Cardiff, which were on the results. And then there is the scope effects like Raiffeisen to come. So if you take it in that scope, the amounts don't seem Totally out of line.
Otherwise, on the cost, we have Yes, we have cut the restructuring cost by 10%. Indeed, we have made a Kind of complete analysis of the way we have well, We started the work early in the year, in the summer already in 2018. And we have seen that the way we were expanding the EUR 3,000,000,000 of restructuring costs and we came to the conclusion that it was possible to dent them by 10% And without having any impact on the Cost cutting, we will have some, I would say, there will be some announcement in the Digital transformation, but to a limited extent and there are certain number of digitalization programs or Customer journeys that are going to be somewhat delayed, but we believe it's well, it doesn't change the substance of the formation, which is a success and it's something we can achieve. And as for the additional costs reductions, We are not well, we are asking the businesses to take that into their normal cost Without allocating any specific restructuring cost anymore, and they will have to Self finance the necessary transformation
Very helpful. Thank you.
Again, on the revenue evolution, we're ready To sum up a number of elements, so in 2018, we had the drop on equities, The range of, let's say, back to normal would be €350,000,000 on top of what we saw last year, €350,000,000 Roughly on full year compared to last year, it's an equivalent to 250,000,000, 250,000, 250,000,000, it's equivalent of 600,000,000. If you look at the 2018 revenue base, that's 800,000,000 that is roughly 2% of the total of the division. That's where I would say below this has to be factored. If you look ahead at The remaining 4% and let's say, additional 4% to reach on average 1.5% to the plan. So We have to start with this idea that 2018 in terms of revenue, basically 800 below normal.
That's very clear. Thanks.
Thank you. Next question from Stefan Thalmann from Autonomous Research. Sir, please go ahead.
Good afternoon, gentlemen. I have two questions left, please. The first one is on the remuneration of super subordinated notes, Which actually went up quite a bit year on year, almost 30%. And all of that seemed to happen in the Q4. After 9 months, it was In the Q4, is the full year run rate the normal run rate or could this possibly drop back again?
And the second question, I guess, also related to funding issues. You have actually issued quite a lot of non preferred senior so far this year at quite a high price, about 120 basis points more above mid swaps than last year's Non Preferred Senior Issuance. At what point could this start to be a problem for your business plan? Or Have you calibrated your business plan sufficiently for this kind of funding cost on this part of your funding structure? Thank you very
much. Stephane, thank you for your questions. First on the TSSDI, so the run rate that we see is basically the run rate we anticipate and anticipate going forward. This is a bit of a step up versus 2017 for two reasons. Yes, there is somewhat Volume evolution, but there is also we had some exceptional elements in 2017, which made the cost a bit lower.
So all in all, 2018 is a good level to look forward. Then on your nonperforming on the NPS, We basically, as you know, the cost of liquidity that we have, we cater that and we take that into account in the way we price into the businesses. And so that is basically what we do. So if there is as long as it is a natural evolution that we're seeing in the price, we basically take care of that in the overall
Okay. Thank you.
Thank you. Next question from Laura Benhakoun from Deutsche Bank. Madam, please go ahead.
Yes. Good afternoon. My first question is going back to the cost flexibility. If I'm right, I calculate that when I compare the new targets to the old one, you've basically reduced your revenue plans by almost €2,000,000,000 But then when I look at The cost base that is implied for 2020, in the end, it's only been reduced by €200,000,000 So my question is, Wasn't there more cost flexibility possible to offset this difficult revenue environment? And why didn't you go for something more drastic on cost, Given that this is something that is probably more in your control than revenues, which also depend on obviously the difficult environment.
In each division in 2019, I'd like to know if this is something that will be rather back end loaded and that will basically show rather in 2019 results or is it something that will start already as early as with Q1 results Potentially. And one last question is something we haven't touched about, but the cost of risk. I was wondering if you could give us some more insight on How you see cost of risk develop at group level in your plan towards 2020? Thank you.
So if we look at the cost reduction, there are really 2 different situation. There is the initial plan that is very much the digital transformation and for at least 2 years and we are, I would say, in the verge of finishing the transformational digital plan. We were very much concentrated on that plan and anything that was cost reduction was linked to new customer journeys, to put it that way. So this is one bucket, 2.7 percent recurring cost saving. The investment we were supposed to have from 3 down to 2.7.
So this is one bucket. There is another bucket covering other initiatives Philippe presented that are more, let's say, regular cost efficiencies approach that we were not able to tackle before, I would say, being so advanced in the transformation plan. This is a separate bucket and this will deliver an additional SEK 600,000,000. Could we have done that before? When you are going so fast in the transformation, CAS, the transformation, the digital plan, you're onboarding, I would say new FTEs, so you cannot deliver, I would say, square meters and so on and so on.
So these are really 2 different buckets. The 600 are on top 1st initiative that is the initial plan and they are very different from that first initiative. So these are 2 fold. Is it possible To do more, looking at 2020, maybe, but 2020, It's only 1 year ahead. So the impact of the EUR 600,000,000 has to be, let's say, already in our hands by The end of 2019, if we want to get the full impact of the EUR 600,000,000 we need to have delivered all the underlying projects that will deliver the EUR 600,000,000.
So this is why even in theory, the EUR 600,000,000 could be maybe in the range of EUR 1,000,000,000. If you look at the scenario, if you want the full impact of the EUR 600,000,000 you have to have delivered all the initiative by at the end of 2019. So this is why on the other side, the EUR 600,000,000 is a kind of a maximum, let's put it that way. The jaws, we are very much committed to deliver the jaws effect All the 3 divisions next year, starting from the 1st January. In any case, we have to deliver that for 2019.
So this is the situation we are in. Cost of risk, we believe that cost of risk at BNL will continue to decrease. Currently, we are at 75 basis points. It will go down to 250 even lower than that. This is very much the result of our strategy with BNL.
We have basically exited the local SME business and we are I believe on, let's say, mid caps. So this is for sure cost of risk at BNL will go down. And In terms of bps, cost of risk measures in terms of exposure, We do not see looking 2 years ahead. We do not consider that cost of risk could go up in terms of ratio. Of Of course, personal finance is a growing platform.
So the cost of risk in absolute terms will slightly go up. But in terms of bps, It will be very much stable. So we consider that 2019 2020 in terms of ratio, pips, We should see a kind of stabilization. Of course, with Turkey, we can have some limited Negative news, but limited. And at BNL, we should have positive, I would say, news.
So all in all,
Thank you.
Thank you. Next question from Maxence Le Gouvello from Jefferies. Sir, please go ahead.
Yes. Good afternoon, gentlemen. Two questions on my side. First, a follow-up regarding the capital management on the question on Bruce from Bruce. You haven't mentioned first Hawaiian, the last 18,500,000.
Do you still aim to deposit for by the end of 2019? The second question is regarding the cost in the capital market in Q4. You mentioned that apparently you have already accounted For the closure of some of the activities that you aim to close, can we have an idea of roughly what is the cost income underlying
And we have already sold it in this.
Yes. Sorry, I
missed it.
And we have not of course, it was not included in the Q4 because it happened in January. And indeed, the impact
in
gain on capital It's very limited. It's very negligible because the bulk of the Ratio impact was taken when we deconsolidated, when we went through when we When the consolidation the global consolidation was disappeared and according to IFRS nine, It's at that time that you take the most impact. So the additional impact in ratios is negligible. The additional impact in revenues, of course, there is a capital gain, which by the way is Helping us recouping already half of the what we had lost in December, because we sold it at a price, which was halfway roughly halfway between the mark to market at the end of December and The price that we had to mark in our book when we deconsolidated. So we have recouped About the cost income,
Because you had to add 132 on Q4. And you mentioned in the slide that apparently you have Already taken into account the cost of some closure. Can we have a rough idea?
Yes, yes, yes. But the Cost of closure, it's I don't have the figure, sorry. But
can we assume that you will be to the usual 80, 85? It will be even higher.
It will be how much higher.
The cost income? Do you talk about the costing, Maxence?
Yes, yes.
The CapEx would be better than 80%.
Okay. I'll get it, but not the sorry for 2019.
Yes. Okay. But on Q4 2018 adjusted?
I mean,
what? Justed For the cost that we have of changing and adapting global markets. So if you look at the normal run rate, yes, it's definitely not something with 3 It is more around 80% of it, that's better than that. It depends on the revenues.
Okay. Thank you.
Thank you. Next question from Kiri Vijayarajab from HSBC.
Just a couple of follow-up questions on your CIB plans, if I may. So firstly, Is there a leverage exposure reduction you've got in mind to go alongside that RWA reduction target that you have? And could you also Sort of give us a bit more color, is there any particular skew towards kind of U. S. Or U.
S. Dollar type of assets or businesses That you're potentially going to sell. And then how do the cuts the RWA cuts fall between FICC and the Equities business, please?
You are referring to the EUR 5,000,000,000 Risk which is equivalent that we intend to sell. So part is already in The two businesses we have already mentioned and the rest is It's going to encompass the Global Banking business as well. So we are going to make a kind of Selective more selective approach of the businesses we are conducting. We don't want to be too specific on the idea we have in order to improve this setup. But It's not only it's certainly not only FICC or derivatives, it can also be coming on the Global Banking Business.
It can be for a while. It can be, for example, Certain geographies where we are relatively small and where our setup could be just Closed because it costs more than it brings in certain areas
or countries.
We cannot say more about it. You'll see it once it's done.
Great. Thank you.
Thank you. Next question from Jean Pierre Lambert from KBW. Sir, please go ahead.
Thank you. I would like to come back to the CIB. The previous plan had a cost to income ratio target of 64.5%. Has that target changed? Would it move towards 70% or you expect this to remain stable?
And the second question regarding the business you are exiting, is there any implication, any connection with your views on adjustments for Basel IV environment. And the third question is regarding the ROI, return on investment for your digital investments, what kind of minimum ROI are you looking at based on your before you cut off initiatives. Thank you.
Sorry, with respect to your question on the cost of income, can you just repeat your question because we were working on your other question? Can
Looking at the Corporate and Institutional Banking, the previous cost to income target for 2020 was 64.5%. And I'm wondering which direction is it moving now under the revised plan? Is it going up? I presume, yes. And I was wondering if you could give some indication.
Are you moving towards 67%, 70%? That's the question for the first question.
Yes. So indeed, if you look at what we observe, one of the changes in the plan is that the growth, The top line growth that we foresee at CIB is a tad more moderate than what we have anticipated. We, of course, compensate for the costs, But not entirely being able to get the cost income. Yes. So but we will be definitely, we will be staying at a cost income, which It's definitely below 70%.
And so can you
Yes, sure. And the second question was regarding the businesses you are exiting or plan to exit, Is there any connection with your view on Basel IV? Or is that another adjustment to come post 2020. Do you anticipate some deterioration due to Basel IV and if you exited some business on that basis as well.
For the moment, let's be fair, Basel IV is not yet cast in the law. So that is whatever we optimize, we are not going to take into account what potentially could be above our environment. So we optimize within the current setup.
And the final question was related to the minimum ROI you expect when you proceed with digital investments Because you now have an experience of screening these investments, so what kind of color can you give on the ROI you the minimum hurdle you want to see?
Most of the investments we are running in the universe is, I would say transforming customer journeys
in a
bank that is already the current existing bank away from the pure yellow bank or situation like, let's say, Pont Most of it is very much taking the trend down and transforming the customer journey. So there is nothing different looking at a digital investment and a regular investment. It's exactly the same approach. When we are moving or considering external growth, we have exactly the same standard. So anything we are doing should deliver mid term Return on equity that is current with group targets.
There's nothing that is below. And of course, in the digital universe, As far as we can see in any business, in any geography, revenues and especially fees have pushed down. So even if you are much more efficient in the efficiency, the cost base, Cost income all in all is not that different compared to the old model. If you do not move that way, Then you have a problem because the market as a whole is pushing down margins, fees and so on. So ultimately, if you stay with your model, your cost income is going to deteriorate quite dramatically.
So This is the way we consider the situation. We are looking at customer journeys. We are addressing those situations. We deliver new customer journeys. This has to, I would say, protect the bank in terms of franchise, Quality of execution, this is valid for CIB, this is valid for retail.
And in a universe in which Revenues, margins, fees and so on and so on. Regulation are pushing everything down. That approach is providing, I would say, additional efficiency, but you are not going ultimately to see anything on the cost income just VNP Paribasque. On the back of the digital evolution, costincome can only stay at the same level, but it protects the bank from seeing a kind of deterioration.
Great. Thank you very much.
Thank you. Next question from Nick DeVeigh from Redburn. Sir, please go ahead.
Two quick questions, please. The first one on the TLTRO. There's been a few news articles suggesting the ECB needs a bit more convincing VNP Paribas. So could you just talk a little around, perhaps offer them some convincing? Or Perhaps more seriously, just talk about how you plan for the potential scenarios of TLTRO Carrying on or being withdrawn, I'm thinking about things like your NSFR and possibly also how you fund BNL.
Just any comments there will be interesting. Thank you. And then secondly, just a quick one, sorry, again, to come back on this cost discussion around the underlying savings. The simple question is really, can we expect group costs to come down in 2019? Just wondering, we Can obviously see where you're aiming to get to in 2020, but just so we can help to kind of benchmark you along the way, do you think we'll already see absolute cost declines for the group in 2019?
Taking as an assumption that the TLTRO will come to an end. We think that The as expected and we are extremely liquid and it It wouldn't be that much problem, frankly. We would have to somewhat increase our support to BNL in terms of liquidity, but at the group level, it's not an issue at all. I would like to stress that in their toolkit, the Central Bank, they have Before going to the TLTRO, they had some intermediate tools that they used for some time And they could make a step back and with replacing the TLTRO with call. MRO.
MROs. So they have a toolkit where they can adjust And we should roll the TLTRO without creating a big, I would say, Mess in the market and in any case, in our case, we are very, very liquid. The NSFR, Now that we have the final text, you well, it's not yet voted, but The TRILOG has come to a kind of compromise wording between the Parliament Council and the And given that text, we I mean, the NSFR will not be an issue for us at all. I mean, As we have to issue long term debt anyway For the CELA Chemoral purpose, the NSFR will be easily met.
So in 2019, we have still the transformation costs going on. And there is some acquisitions, in particular, HiFi, which step up the cost. So from that point of view, we more have stability on the costs in 2019 from that point of view.
Okay. Thank you, both.
Thank you. Next question from Matthew Clark from Mediobanca. Sir, please go ahead.
Good afternoon. So three questions, please. Firstly, the tax rate was very low in the Q4 specifically. I understand there were some favorable tax disputes Resolved. Could you quantify what impact in euro terms they had and maybe give a bit more information on what they were about?
Secondly, With regards to the mark to market hit on the insurance portfolio taken in the Q4, should we impute That meant in the 1st 9 months, there was a positive mark to market gain on that portfolio. And if so, please, could you quantify what that positive mark to market gain was over the 1st 9 months. And then finally, just a clarification. You commented that you expect 30 basis points of kind of organic CET1 accretion normally. I just want to check that, that is before any kind of regulatory headwinds of TRIM or IFRS 16 or whatever.
So that's just baking in your kind of normal RWA growth, But not anything else that the regulators might throw at you. Is that the right way to interpret that 30 basis point figure? Thanks very much.
Maybe taking in that last question. So the 30 basis points we talked about, yes, indeed, it's the organic creation that we're having. And what we said is we have some other elements when we talk about optimizing the balance sheet That could generate some other strengthening of the capital that would be compensating some of the other events that might be decided on by the regulator. So that is a bit from that point of view. On your first question on taxes, You know how that typically goes, the taxes you have to look at it on a year basis and one makes every quarter, one takes And then at the year end, we really look at the overall position.
So yes, during the quarters, we have probably been a bit too prudent to assume a tax rate, which was high, Because we saw that several discussions and litigations that we have were evolving in a positive way. And so we reflected That in the taxation of the 4th quarter and that is why it is lower compared to what we had been.
Can I
just follow-up on that specifically? So these litigations, have they been fully resolved? So there's like a favorable court decision that's kind of final? Or is this just your Interpretation of things are a bit better than you were hoping, but you don't have the all clear yet.
No. There are several aspects, and there are some For which there are steps which are basically taking it better. There are some which are basically concluded. So it's a bit of a mix depending on the situation.
Okay. Thank you.
Yes. On the insurance, so as we basically said, As I said, the parts that are mark to market, it's relatively a small part of the investment portfolios that they have. And given The sharp drop also in time, the impact was around at 180. The impact was in the 9 months before. It was overall from that portfolio was rather limited actually.
So there is nothing Remarkable to mention about
it. Okay. So limited relative to that SEK 180,000,000,000. So we're talking tens rather than 100.
Each time it's significant, we signal it.
Yes. Even if it will be positive, we would signal it, yes.
Thank you. Yes. So thank you very much. Again, We consider that last year we delivered most of the digital transformation. We're getting very positive strong signals that this new approach is not only valid, but will And grow the franchise in many dimension.
Ultimately, if you look at past year results and if you You would consider that what happened at the life insurance portfolio or The mark to market valuation of First Hawaiian Bank, a kind of one off. Last year results are very much in line with 2017. So this is why the dividend is stable. And again, looking ahead, capital generation is strong, 30 bps per year. We will reach more than 12% core Tier 1 equity in 2020.
And based on the Current, I would say, rate scenario and taking into account the fact that the FICC business in Europe We'll be ultimately different from what we expected 2 years ago. We adapt the target for 20 with that 9.5% return on equity, which correspond to an increase in Dividend beginning in end of 2016 to 35% and net result per share of More than 20%. So in a nutshell, this is where we are and how we intend to, let's say, to deliver the second half of the Plan this year and next year. Thank you very much again for your attention and for some of you, to you tomorrow in London. Thank you so much.
Ladies and gentlemen, this concludes the call of BNP Paribas 2018 full year results. Thank you for participating. You may now disconnect.