Good afternoon, ladies and gentlemen, welcome to the presentation of BNP Paribas 2018 full year results. For information, this conference call is being recorded. Supporting slides are available on BNP Paribas IR website, invest.bnpparibas.com. During today's presentation, you will be able to ask questions by pressing zero one on your telephone keypad. If you would like to ask a question, please make sure to be in a quiet area to maximize the audio quality. I would like now to hand the call over to Jean-Laurent Bonnafé, 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 Machenil will illustrate the results by division, and then I'll update you on our 2020 plan. At the end, together with Philippe Bordenave, we'll be pleased to take your questions. Now we're 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 evolved by 1.7% on a comparable basis on the back of the continued development of the specialized businesses in Domestic Markets and IFS, but were down in the retail networks and in CIB. 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 EUR 75 billion, 3% lower than in the previous year. It recorded the point-in-time impact at year-end of the sharp fall of the market 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 have 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. As I will illustrate in greater detail, 2018 saw good business growth and the success of our digital transformation. Advancing to slide six, you can see the performance of the group and of the operating divisions in 2018, which showed overall good resilience in a lackluster 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.
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 as 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 lackluster market context, with 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 CIB cost marked a decrease benefiting from the continued cost-saving measures. Moving to cost of risk, starting with slide nine, 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, provisions were basically offset by write-backs. Turning to the other business lines on slide 10, we can see that cost of risk was still low in French retail, very low in Belgium retail, and continued to decrease at BNL in Italy.
In other retail businesses, 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 increased by 20 basis points to 11.8% compared to the pro forma level at the beginning of the year, net of some accounting and regulatory changes, which came into force on the 1st of January 2018. Our Basel III leverage ratio was at 4.5%, and our liquidity coverage ratio stood at 132%. The group's immediately available liquidity reserve totaled EUR 308 billion at the end of the year.
The evolution of these ratios illustrates the very solid financial structure of the group. On slide 12, you can see that our net book value per share stood at EUR 74.7 at year-end, virtually stable versus last year, as it was slightly impacted by the first application of IFRS 9. Since 2008, our net book value per share has grown at an annual rate of 5%, highlighting our continued value creation through the cycle. Going to slide 13, we propose for 2018 a dividend payment of EUR 3.02 per share, fully in cash. It is stable compared to last year, despite the slightly lower net result in the light of the point-in-time effects of the market at year-end, I talked about them, 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 two key components of our action plan that are ambitious policy of engagement in society and the continuous reinforcement of the group's internal control and compliance system. Now I 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 EUR 4.4 billion with a good performance, especially in France. Domestic Markets has continued to develop new client experiences and to implement the digital transformation. As one, for example, Hello bank! has acquired new clients, reaching 3 million clients overall, and Nickel topped 1.1 million accounts opened, marking a 44% progress versus year-end 2017. I will provide some additional color on our digital successes on slide 22 in a minute.
If we look at the P&L, the revenues were only slightly lower at EUR 15.7 billion, still impacted by the low rate environment that is, however, partly offset by the good business drive I mentioned above and strong growth in the specialized businesses. When we look at operating costs, they were marginally higher due to the continued development of the specialized businesses, but were 0.9% lower in the retail networks. Given a reduction of the cost of risk, in particular at BNL in Italy, as you know, pre-tax income marked a 3.4% increase to EUR 3.7 billion. If we synthesize the different business lines, I'd like to highlight, in particular, that in French retail banking, renegotiations and early repayments confirmed a return to a normal level, 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. In Belgian retail banking, we had good business drive, but the impact of low interest rates persist. Finally, the specialized businesses continue to deliver good growth. To wrap up, good business drive and higher income for our Domestic Markets, despite the persistent headwinds of the low rate environment. If I can ask you to flick to slide 22 that I talked about earlier, which provides further details on Domestic Market's successful implementation of new customer experience and digital transformation. You can see that it accelerated mobile uses and enhanced mobile applications and the features, ranking as France's 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 280 robots already in production at the end of 2018. Moreover, the operating division continued adapting its offerings to new banking uses with, for example, the development of Lyf Pay, a universal mobile payment solution, which has already had 1.3 million 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 2016, we've closed 262 branches or 7% of the total in France, Belgium, and Italy. Also in 2018, we removed a 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. Revenue are a tad better than expectations, we have identified an additional EUR 150 million of recurring cost savings in 2020. On the back of this, we expect a significant improvement in operating efficiency and positive jaws. All in all, we confirm our Domestic Markets pre-tax return on nutshell equity for 2020. 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. IFS reported good net assets inflows, EUR 13.4 billion increase, and the assets under management of the savings and insurance business were, however, down slightly at EUR 1.028 billion due to the sharp drop in valuations at the year-end. I'll come back to that. In 2018, the results of IFS were affected by an unfavorable Forex effect related to the depreciation of the Turkish lira and also the US dollar that was partially offset by some scope effects. In the terms of P&L, revenues were up 3.4% versus 2017.
If we exclude the point-in-time impact of the drop in markets at the end of year on assets accounted on mark-to-market basis in insurance, they actually rose by 6.6% at constant scope and exchange rates. When we look at the costs, they evolve by 5.4% year-on-year on the back of this business development and new product launches. The other non-operating items totaled EUR 208 million and included the exceptional impact of the EUR 151 million capital gain from the sale of First Hawaiian Bank shares. In 2017, let's not forget, they comprised a EUR 326 million capital gain from the initial public offering of SBI Life in India. As a result, IFS pre-tax income was down by 8.8% compared to 2017, but up by 3.3% on a comparable basis and excluding the point-in-time impact in insurance due to the markets drop at year-end.
If 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 pre-tax income clocked in at EUR 1.6 billion, up 5.9% on a comparable basis. Europe Med completed the acquisition of the core banking activities of Raiffeisen Bank in Poland, strengthening its position as the sixth largest bank in that country. Overall, Europe Med generated 24% pre-tax 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 at BancWest, we sold an additional 43.4% of First Hawaiian Bank, retaining at year-end 18.4% stake that was entirely sold in January.
Overall, BancWest pre-tax income was up 3.3% versus last year, 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 were significantly affected by the point-in-time impact of the drop in markets on assets that are marked to market at year-end, and pre-tax income was optically lower due to the SBI Life capital gain that we booked in 2017 that I spoke about. On a like for like basis, pre-tax income was only marginally lower than last year at close to EUR 1.5 billion due to the spot impact I mentioned. 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, pre-tax income was down 24%. 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 as we are being optimized everywhere with the e-signature now widely available. For instance, at Personal Finance, where already 50% of contracts are signed electronically. IFS is also continuing to successfully develop its digital banks with already 665,000 customers for CEPTETEB in Turkey and 223,000 customers for BGŻ 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, 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. IFS is targeting an improvement of the operating efficiency, which will in turn lead to positive jaws from this year on, but a tad less than expected initially due, and particularly, to the unfavorable foreign exchange effect that I talked about. The pre-tax 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.
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 third and maintained its global market share after a gain in 2017. When we look at revenues, they stood at EUR 10.8 billion, down 7.5% compared to the year before, with contrasting evolutions in the different business lines. Costs were down 1.3%, thanks to cost efficiency measures, which stood at EUR 220 million in 2018, with the ongoing implementation of shared platforms, end-to-end process digitalization and automatization of transactions leveraging 180 robots. In CIB, we already reduced costs over the past three years.
Overall, CIB generated EUR 2.7 billion of pre-tax 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 is basically slide 35 to 37, 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 FICC activities in Europe, particularly negative market context for equity and prime services at the end of the year. FICC revenues were actually down 21% year-on-year on client activity on rates, credit in Europe stayed weak due to the ECB monetary policy, while Forex activity performed poorly, especially in emerging markets.
On the plus side, we saw some good performances in primary markets and in structured products, FICC confirmed its top ranking for all bonds issued in EUR, 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, 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 situations 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%, 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, 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. If we glance at slide 37, the third part of our CIB, namely Security Services, where revenues progressed well on the back of a strong business drive with gain of significant mandates. The business line confirmed its leading position in Europe, number 5 worldwide.
If we now look at the next two slides, 38 and 39, they summarize the active implementation of the 2020 plan in our CIB, which has continued its good development on targeted clients with over 300 new corporate groups onboarded worldwide over the last two 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 close to 10,000 clients and has gained 1,500 clients in 2018 alone. As I mentioned earlier, CIB has delivered EUR 221 million of cost savings in 2018, thanks to the ongoing implementation of cost saving measures in areas such as mutualized platforms, which are being ramped up.
Thanks to the active implementation of its plan, CIB has successfully reduced its cost base by 3.5% over the past three years and has achieved its target for risk-weighted assets reduction one year ahead of schedule, allowing for 6.3% allocated capital reduction since 2016. The unfavorable market context in 2018 and the resulting decrease in profitability have meant that we need to intensify and amplify CIB's transformation to get it back on the right trajectory for 2020. Looking at slide 40, you'll see that CIB will be acting on three main axes to this end. The first is a review 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 vivits is in the range between EUR 200 million and EUR 300 million of revenues, and for a cost income above 100%, and expressed in capital EUR 5 billion of RWA. That's the first axis. The second axis is the intensification of the industrialization of CIB in order to further structurally reduce cost, particularly through the adaptation of the flow businesses to the fast electronization in financial markets, in particular global markets, the development of shared platforms at corporate banking, and the industrialization of the multi-local operations model at securities services. All this together with a streamlining and mutualization of IT and back office. These actions will generate a further EUR 350 million of additional cost savings in 2020, bringing the total cost savings in the two years ahead to EUR 850 million at CIB.
This is the second axis, the third axis of our three-pronged action plan, as you can see on page 41, focuses on an even more selective and profitable growth, allowing to continue strengthening on targeted client segments in a context of only moderate growth of the global revenue pool. Based on these three lines of action, we've adjusted the 2020 trajectory of our CIB, as you can see on slide 42, focusing on profitable growth with a downward revision of its revenue target, which should, however, be up compared to a weak 2018 base, a significant improvement of the operating efficiency, leading to positive jaws, thanks to additional cost savings versus the initial plan, and a rise in the pre-tax return on notional equity to a level close to the initial objective. This basically concludes the division results section.
I now hand it back to Jean-Laurent for the last part of the presentation.
Thank you, Lars. Let's now look at the last part of today's presentation, the update of our 2020 plan. On slide 44, you can see that the environment in which we are operating is a contrasted one. In fact, while economic growth remains favorable on the whole, it is nevertheless expected to somewhat slow down, as you can see. 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 or 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 five 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 the businesses.
Just to mention a couple of examples, Domestic Markets already has over 8 million digital clients in retail banking and was ranked number 1 bank in France in terms of mobile features, according to D-Rating. IFS is extensively deploying electronic signatures, which already accounts for 50% of contracts signed at Personal Finance. Robotics and artificial intelligence are developing rapidly with over 500 robots already operational. Processes are being industrialized and optimized everywhere. Now end-to-end digitalized customer journeys are being implemented. In addition, products have been launched, such as Lyf Pay, a value-added mobile payment solution with already 1.3 million downloads in France. On slide 57, you can see that transformation costs related to this transformation total EUR 2 billion in the two-year period 2017, 2018, and were in line with the plan.
The recurring cost savings generated by the end of 2018 total EUR 1.15 billion, also in line with the objective. They were split 40% in CIB, 35% at Domestic Markets, and 25% at IFS. Beyond 2018, if you 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 EUR 600 million of additional recurring savings over and above the ones already planned. 55% will come from CIB, 25% from Domestic Markets, and 20% from IFS. These additional savings will be achieved in particular through the combination of several actions.
The streamlining of the IT organization 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 2020 recurring cost-saving targets is just raised from EUR 2.7 billion to EUR 3.3 billion, 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 EUR 300 million to EUR 700 million. 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 cumulative cost of risk rise under the adverse scenario is markedly lower than the sample average, reflecting our diversification and selectivity at origination, and basically a cautious approach, which is designed to favor the quality of longer-term risks, rather than short-term revenues. A word finally on this year's SREP, for which we do not expect any change in our Pillar 2 requirement. To sum up, let's go to slide 50. As we've seen, the trajectories of Domestic Markets and IFRS 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, which entails 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 improve in all three operating divisions by 2020. On slide 51, you will find the updated 2020 estimates for the group, with an expected 16/20 revenue growth equal or above 1.5% per share versus 2.5% in the original plan, and a EUR 600 million increase in recurring cost savings from 2020 to a cumulative total of EUR 3.3 billion.
Based on what we see today, we expect the return on equity to improve to a level of 9.5% in 2020, equivalent to a return on tangible equity above 10.5%. The common equity Tier 1 ratio will be equal or above 12% in 2020, given organic capital generation. Overall, we expect an increase of the earnings per share of more than 20% between 2016 and 2020, leading to an increase of the dividend per share of 35% over the same period, based on a dividend payout of 50%. This concludes today's presentation. I would like you to retain that BNP Paribas is focused on its 2020 ambition, and that our digital transformation is a success, and we are continuing to actively roll out 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 well at EUR 7.5 billion, and we're proposing a EUR 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, I thank you for your attention. Together with Philippe and Lars, we'll now be pleased to take your questions.
Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypad. This leaves your handset, ensure that the mute function on your phone is switched off, and that you are on 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 zero two. Again, please press zero one to ask a question. 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. 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. 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. You seem to have a little bit of a negative bias towards BNP Paribas. You've been the object of a documentary several months ago, which was completely innocuous, but which was negatively biased. Obviously, when you have problems now, it seems that press leaks appear.
I remember as far as just five or 10 years ago, there was no press leak around BNP Paribas. Overall, it seems the perception around the bank has changed, and it has not changed positively, and I wanted 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 adjustment of EUR 180 million. 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.
I will answer in more details about the origin of the, I would say, situation, the loss in New York for equity derivatives. What I can tell you is there is nothing that can be, I would say, linked to any misconduct 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. Philippe, if you want to answer the technical issues.
Yes. This is about flow derivatives book. We are market maker on options on the S&P 500. It's a very old standing business for more than 10 years, we are doing that. It's a client's business. The counterparties, the clients are U.S. fund managers, insurance companies, mostly long-only fund managers trying to improve the return on their portfolios by mostly selling, sometimes buying also options. We are market makers on that, and we answer on different exercise prices, different maturities and so on. That book, 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. We tend to try and keep some margins by hedging it globally.
Well, the team was an experienced trader with two others, a small, very classical thing. Just it happened that in the movement of last years, well, starting already towards the end of November and even more and more in December, the big slide which occurred in the U.S., in a market which at the same time was becoming less and less liquid, with a lot of difficulties to change the hedges and to adjust the hedges. The guy in charge of the book made, I would say, wrong choices on the way he should hedge the book. It was a kind of a mishandling, poor handling, unfortunate choices in the hedging without any breach of any kind. Not only all the limits were respected, well, 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. At the end, it's not that problem. In the same period, we lost more due 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. This unfortunate event or incident is explaining 70 odd million EUR out of the kind of 300 EUR difference between 2018 and 2017 in the fourth quarter. It's relatively a quarter, if you want. It's no more than a quarter of the total thing. It's an event which is quite, there is no negligence or no misbehavior at all.
Okay. Thank you, Philippe.
On your negative, or your technical insurance topic.
Yeah.
Maybe-
Sure. Very quickly, as a reminder, insurance is still accounted for under IAS 39. That basically means that the majority of the instruments in which insurance invest, they are accounted for under what is called available for sale, AFS. Whatever of investments that are available for sale, they do not impact the P&L except when there is a sale. Now, there is a very small part of the instruments which are accounted for in mark-to-market. This is what? This is, for example, instruments that have hybrid instruments like derivatives in it, or that are part of a fund, which are of a nature of floating NAV, which have to be accounted for in the mark-to-market. 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 four weeks starting of the year. Jacques-Henri, that will be the answers.
Thank you very much.
Thank you. Next question from Delphine Lee, from JPMorgan. Madame, go ahead.
Yes. Good afternoon. Thanks for taking my questions. I just have a few quick ones. Before that, I would like to start with revenues. Just to come back on your new targets of at least 1.5%. Given that there has been no growth in 2017 and 2018, basically that would imply some 4% growth in 2019 and 2020. 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 the 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 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% CAGR between 16 and under 1.5%, sorry. Just wondering what that kind of implies right now, given you have additional cost savings. Just wondering what's the cost growth. Also at the group level as well, including your additional EUR 600 million, how does that compare to your old target of EUR 29.9 billion for 2020, which you had before, given there are quite a lot of moving parts. The two last quick questions, if you don't mind, is just the DPS of EUR 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 in 2019 and 2020 to 50%? Then, if you don't mind reminding us the impact of TRIM and IFRS 16. Thank you very much.
On the revenues, we want to keep a little bit of flexibility, so we are not going to give you the detailed P&L anticipated for 2020 business by business. What we can say is that your calculation is right. It implies a 4% growth per year on average in the next two years for the group. You're right to stress that Domestic Markets will be certainly below that figure. We think positive area, but certainly below 4%. It implies that CIB and IFS 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 a relatively small revenue and high cost income, and 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.
The impact of the exits should be marginal in terms of revenues. For example, well, the two businesses that we have a process of closing already are representing a very marginal level of revenues together. That should not be a big impact on the path of the revenues of CIB. In terms of cost growth, well, it's difficult to answer to your question as well because, well, another aspect is the Forex foreign exchange evolution, which is going to have a big impact, well, a significant impact as well, potentially. 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%. 50% is 50%, it's very clear, the last slide.
The only thing is that this year, if we had just given 50%, it would have been slightly 6% below last year, or in terms of 6% below last year in terms of distribution. It was not warranted because as we have explained, the kind of exceptional point in time marking of certain portfolios are, if you adjust for that, indeed the group is stable in terms of results. The underlying, I would say, performance of the group this year is very similar to last year. As the prospects are really positive, we saw that it would be, well, not warranted to dent the dividend somewhat, so we decided to keep the dividend stable. It's not a new standard, it is just an adjustment of the standard, which remains 50%.
As far as TRIM is concerned, we have already gone through the market risk TRIM and through the French retail credit TRIM, credit portfolios of the French retail. Well, I touch wood, but those two up to now, the impact was limited. Now we have the other credit portfolios that are to come, and we have also the counterparty risk, which has to come as well in 2019. We are just maybe one-third of the journey, so it's not over.
Sorry. Sorry. Delphine, I think you had one last question, which was what is the impact of IFRS 16? 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 Jon Peace from Credit Suisse. 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? Also, I think a comment was made around M&A about the acquisitions not being on the agenda. Does that rule out all M&A activity or is that just for the larger deals and smaller bolt-on deals could still be part of your activities? Thank you.
The second part of the plan, the 2019, 2020 years, we are 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, where we are very much on track, and we have to concentrate on the, I would say, new cost reduction initiatives. This is why we are not considering any more, any kind of external growth. This is the first point. The second one was about markets. Looking at the global market divisions at BNP Paribas, we are back to normal. We are never commenting in terms of reserves, level of activity, but I would say we have exited the situation we went through at the end of last year. The business is back to normal.
That was the comment we made this morning. To go back to the story of the dividend, we have to say again and stress again the fact that not only the stress on the equity derivative business was a kind of one-off last year, and post-tax is the equivalent of more than EUR 200 million. Also, there were 220 post-tax effect of point-in-time IFRS 5 related books. The one with First Hawaiian Bank and the one with some of the portfolio at Cardif. If you look at the real underlying business of BNP Paribas last year, even if we suffered from low rates, even if we suffered throughout the year of a kind of lack of volatility in the FICC business, the underlying business is minimum at the level of 2017.
This is why from just an economic standpoint, it makes sense to deliver just the same dividend. Since the ratios and the solidity of the balance sheet allows it, we decide to proceed that way. It's not only because the balance sheet is strong enough. It's also because the reality of the underlying business of last year is just the equivalent of the one of 2017. This is why we are in the two dimensions, I would say, in good shape. We decided to go for the 3.02 EUR per share. This is again, what has to be stressed, and also this is because we are confident of the cash flow generation of the group. The 12% target for Q1 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. Everything is factored, and the cash flow generation of the group is basically the equivalent of minimum 30 basis points per year.
Thank you.
Thank you. Next question from Jean-Francois Neidecker from Goldman Sachs.
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 exotics, 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? Also, can we understand where the part of the hedging losses or market drawdowns are something to be recovered, or they're just past us and that's it? 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 two years to be still only a touch growing. 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 two years, the cost-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 a little more than EUR 200 million, if you compare to the fourth quarter of 2017 and the fourth quarter of 2018.
This can be divided into two parts of EUR 300 million each. One is, just as I mentioned, 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, structured derivatives, equity derivatives for asset managers. This is not going to come back. This is just an opportunity that has been lost and a 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 first quarter, and then to continue, to stay. The other one is also probably a little bit than EUR 100, is the dislocation of the markets, the different segments of the markets toward the end of last year.
There were big movements down and then up at the very last days, and in a very small and empty market, indeed, the movements of the different products were not respecting the normal correlations. The cash, the shares, the options were 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. 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 EUR 100 million, as I said. This is in the process of coming back. With the liquidity back in January, this part of the revenues is in the process of coming back and completely, I think, during the quarter.
On the cost income, you have to make a differentiation. For Domestic Markets, clearly, the jaws are always coming from both sides. As I said, we are planning a very slow increase in the revenues, as I said. The costs are supposed to go down, and the jaws are not going to come only from the revenue side. On CIB, the costs are going to be also very flat. 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 remunerations. For the rest, of course, we are going to be careful, and we are ready to take new measures if necessary, as shown by this plan, by the way. This plan is showing that we are launching an additional EUR 600 million savings program, precisely because revenues are not completely there. It shows that we are able to react rather quickly and to adjust the trajectory on the cost side.
Can I ask just as a complement, 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 remaining scope effect. It's a good question. We'll try and get. It's Raiffeisen, essentially. It's Raiffeisen.
Portfolion.
Yes. Well, allow for some minutes. We'll say that later when we are looking at the figures.
Thank you very much.
Thank you. Next question from Pierre Chédeville from CIC Market Solutions. Please go ahead.
Yes, good afternoon. A few questions. First question regarding the cost. In the asset management division, you have emphasized on the cost of setting up Aladdin at the end of the year. I wanted to know if we are going to see in the first half of 2019, another impact of this setup in the cost. 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? 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 line, in 2019? In other words, do you intend to continue to stop financing some types of industries that could impact the top line in your corporate banking business? My last question relates to fixed income. We have talked a lot about the equity and the, I would say, exceptional revenues this quarter, but more generally, regarding FICC activities, if we look at 2018 or 2017, we can feel that. For all the industry, it's not specific to BNP, that we have an industry that seems to be much less, I would say, profitable, in terms of regulations, in terms of customers' activity, in terms of monetary policies, et cetera. What do you think regarding this industry and your position in this industry?
Do you think that you have a critical size compared to the American banks, which are more and more aggressive? You emphasize the fact that your market share is flat, I would say now. Do you think that you would need to make a significant effort regarding cost on the long term and not only for the two coming years? Thank you very much.
First, I would like to maybe come back on the question of Jean-Francois about what is to come on the kind of a tail effect of the recent acquisitions in 2019 and 2020. I think as for Raiffeisen, so the Polish, we expect EUR 250 million in 2019 and a little bit more in 2020. This scope effect will bring that type of amount. As for the Opel Finance acquisition, we had a kind of relatively low year to start with because of the reorganization of Opel by PSA. We expect also some significant increase coming in the next two years. It's more difficult to expect accounting figures, but we expect some significant boost there for PF, Personal Finance. Those are the answers to Jean-Francois. Moving now to your question about well, let's start with the tobacco, oil, and the rest.
At this stage, we don't have anything more in the pipe. If I may try these words. We're seeing that for the next two years, we don't foresee any new renouncements. These renouncements in tobacco and shale oil and Arctic oil and gas are representing something like EUR 100 million per year. We don't intend to, i t's already in the 2018 figures, and we don't intend to add to that. On the fixed income, I fully agree with you. To a certain extent, the FIC case is more worrying structurally than the equity derivative case. It's true that there is a kind of structural change. We are fully aware of this.
As you say, it's both due to regulation, MiFID II, or the customers. The only thing is that towards probably later than 2020, maybe towards the end of 2020, we will see at some point the interest rates going up with the end of the QE and maybe some increase in interest rates at some point in Europe. 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. It creates the need for more hedging or position taking.
The clients are more active around the movement than they are active around no movement at all, like it is the case in Europe at the moment. This could bring some kind of relief at some point, but still there is a structural tendency towards electronification and pressure on margins in FIC. More and more business is conveyed directly on the kind of end-to-end process from the client to the market with little opportunities to take significant margins in the middle. It's precisely why the adjustments in cost we are planning in CIB are going to be implemented in order to try and adjust to this situation. We are really conscious of this, and we are addressing that through cost-cutting. As I said, there's no other solution. On the asset management, maybe, yes.
I can maybe very quickly.
Yeah.
Indeed, we have all the Aladdin, which are not just genes in a bottle, but where we are starting to reap the benefits of the cost reduction related to it. We don't anticipate for 2019 to have a pickup in cost in asset management.
Okay. Next question, I guess. Next question from Anke Reingen from Royal Bank of Canada. Madam, please go ahead.
Thank you very much. Firstly, on your targets again, I understand that you moved your ROE target given the change in environment. I'm just wondering, what's the risk of you sort of moving the goalpost again if the environment looks worse? Is the focus of the efforts first on cost to reach the revised ROE targets? Secondly, on capital, the at least 12% target, does that mean you're happy with 12% post-TRIM, or are you really targeting above 12? Sorry, just on the capital, the increase in the VaR in the fourth quarter doesn't seem to have an impact on the risk-weighted assets. Would it have a knock-on effect only coming through in Q1? Thank you very much.
What happened in the last quarter at equities will have no impact on the, I would say, the computation of risk-weight at the beginning of next year, this year at 2019. There is nothing on that to that kind. Of course, depending on what is a kind of worsening of the situation, in any case, we are adapting the cost base to deliver the 9.5%. I would say the main issue for today, a bank in Europe is the rate scenario. I believe that looking at the CIB platform and taking into account that what occurred at equities is a kind of one-off, we have to take care of the structural, I would say, evolution of the FIC 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.
As far as we can see, what we have now in our, I would say, business plan is taking into account, I would say, the current situation and the most recent evolution of the rate curve. The 9.5% is to be considered as the target for 2020 and nothing else.
Thank you. The quarter one
Yes.
Thank you. Go ahead.
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.
Next question.
Thank you. Next question from Bruce Hamilton from Morgan Stanley. Please go ahead.
Thank you for taking my question. Just a quick follow-up on capital, given obviously that's keenly in focus for the market. In terms of the 2019 impact, can you just run me through? You said 10 basis points 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 capital and any exits? 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? Is it easy to find 50 basis points from other "non-core disposals" or questionable sort of business units? How should we think about that?
Well, we are not expecting -10, as you said, TRIM maybe also 10 or 20. We are not expecting huge amounts of additional requirement. It's more a kind of erosion, a regulatory erosion, I would say, of the ratio, which is kind of sustained and regular but not huge. In front of that, on top of the 30 basis points of organic creation, we have, as you say, some outlook for sales. The most, I would say, obvious one, which has already been pre-announced to a certain extent, is our stake in SBI Life in India, where we have already sold a stake and we have said that anywhere for regulatory reasons, both SBI and us, we have to manage to increase the floating part of the shares to 25%. Now that is listed also, we can of course do more.
We have here a possibility to generate significant capital gains, as you know, as we have done already once. It's a kind of reserve, which can be tapped. Sorry, I have missed most of the question. Sorry.
No, that was it really. The other impacts, IFRS 16, you said negative 10 basis points would be the other impact. There are no others you're expecting. I guess you should get, what, five basis points back or so from the exit of PropAnother. Just any other items we should be thinking about that will either hinder or help the capital build over the next 12 months?
I don't think so. Overall, being a bit at 11.8%, if this is kind of maybe reassure 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.
Thank you. Next question from Omar Fall from Barclays Capital. Please go ahead.
Hi there. Just coming back to the implied revenue growth of 4% over the next two years. I can understand a bit of a jump this year as CIB normalizes, but surely that's mainly offset by the EUR 200 million-EUR 300 million of revenue reduction from the non-strategic review. 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. Why should BNP structurally grow so far ahead of a reasonable estimate of Eurozone GDP? Secondly, and apologies if this is simplistic or I've missed something, but how are you adding EUR 600 million of cost savings while reducing the amount of restructuring costs by EUR 300 million? Why are there no restructuring costs associated with the additional EUR 600? Thank you.
Hi, Omar Fall. Well, it's a kind of a little bit shortcut to compare the evolution of CIB revenues and the Eurozone GDP, even. Beyond the Eurozone, we are growing fast in Asia and in the U.S. also. Beyond that, CIB, it's not only the global markets, it's also the global banking business. It's BP2S, which is growing and growing fast. Yes, it's ambitious. We really manage the bank in ambitious way. It's a minimum you are expecting from us, but we believe it's reasonable. On the cost-
Maybe just as a comment, Omar Fall, remember, when you talk about the 2018 equities, but there's also the 2018 effect of what we said, First Hawaiian Bank and Cardif, which were on the results. Then there is the scope effects like Raiffeisen to come. If you take it in that scope, the amounts don't seem totally out of line.
On the cost, we have cut the restructuring cost by 10%.
We have made a complete analysis of the way. We started the work early in the year, in the summer already, in 2018. We have seen that the way we were expanding the EUR 3 billion of restructuring costs, we came to the conclusion that it was possible to dent them by 10%. Without having any impact on the cost cutting, we'll have some, I would say, there will be some renouncement in the digital transformation, but to a limited extent. There are a certain number of digitalization programs or customer journeys that are going to be somewhat delayed. We believe it doesn't change the substance of the transformation, which is a success. It's something we can achieve.
As for the additional cost reductions, we are asking the businesses to take that into their normal costs, without allocating any specific restructuring cost anymore. They will have to self-finance the necessary transformation cost or the cost associated with a certain number of evolutions, which are going to make those savings possible.
Very helpful. Thank you.
On the revenue evolution, we're ready to sum up a number of elements. In 2018, we had the drop on equities in the range of, let's say, back to normal would be EUR 250 on top of what we saw last year, EUR 250. Raiffeisen full year compared to last year, it's an equivalent to EUR 250. EUR 250, EUR 250, it's equivalent of EUR 600. Pre-tax portfolios from Cardif that were marked down is around EUR 200. If you look at the 2018 revenue base, that's EUR 800, that is roughly 2% of the total of the division. That where I would say below. This has to be factored to look ahead at the remaining 4% and additional 4% to reach on average 1.5 to the plan. We have to start with this idea that 2018 in terms of revenue, basically EUR 800 below normal.
That's very clear. Thanks.
Thank you. Next question from Stefan Stalmann from Autonomous Research. 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-over-year, almost 30%. All of that seemed to happen in the fourth quarter. After nine months, it was almost flat year-over-year. The outstanding amount of these notes is also rather unchanged. The question is, was there anything particular happening in the fourth quarter? Is the full year run rate the normal run rate, or could this possibly drop back again? 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? Have you calibrated your business plan sufficiently for this kind of funding cost on this part of your funding structure? Thank you very much.
Stefan, thank you for your question. First on the TSSDI, the run rate that we see is basically the run rate we anticipate going forward. This is a bit of a step-up versus 2017 for two reasons. Yes, there is somewhat volume evolution, there is also, we had some exceptional elements in 2017, which made the cost a bit lower. All in all, 2018 is a good level to look forward. On your non-performing on the NPLs. 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. That is basically what we do. As long as it is a natural evolution that we're seeing in the price, we basically take care of that in the overall pricing.
Okay. Thank you.
Thank you. Next question from Laura Chaillou 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 EUR 2 billion. When I look at the cost base that is implied for 2020, in the end, it's only been reduced by EUR 200 million. My question is, wasn't there more cost flexibility possible to offset this difficult revenue environment? 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. The second question is going back to the jaws, where you expect to deliver positive jaws in each division in 2019.
I'd like to know if this is something that will be rather back-end loaded and that will basically show rather in H2 2019 results? Is it something that will start already as early as with Q1 results, potentially. 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.
If we look at the, let's say the cost reduction, there are really two different situation. There is the initial plan that is very much the digital transformation, and for at least two years, and where I would say, on 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. This is one bucket, EUR 2.7 recurrent cost saving. That was the target. We've been able to optimize the investment we were supposed to have from EUR 3 down to EUR 2.7. 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 EUR 600. Could we have done that before? A doubt of it. This is not an excuse, just because to deliver that, you have to leverage IT system, you have to leverage a number of issues, even in, I would say, for our own premises. When you are going so fast in the transformation digital plan, you're onboarding, I would say, new FTs, so you cannot leverage, I would say, square meters and so on. These are really two different buckets. The EUR 600 are on top of the first initiative that is the initial plan. They are very different from that first initiative. These are two poles. Is it possible to do more, looking at 2020? Maybe. 2020, it's only one year ahead.
The impact of this EUR 600 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, we need to have delivered all the underlying projects that will deliver the EUR 600. This is why, even in theory, the EUR 600 could be maybe in the range of EUR 1 billion. If you look at the scenario, if you want the full impact of the EUR 600, you have to have delivered all the initiatives by the end of 2019. This is why, on the other side, the EUR 600 is a kind of a maximum. Let's put it that way.
The jaws.
The jaws, we are very much committed to deliver the jaws effect for all the three divisions next year, starting from the 1st of January. In any case, we have to deliver that for 2019. 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 50, 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're concentrating heavily on, let's say, midcaps. This is for sure, cost of risk at BNL will go down.
In terms of bips, cost of risk measures in terms of exposure, we do not see looking two years ahead, we do not consider that cost of risk could go up in terms of ratio. Of course, Personal Finance is a growing platform, the cost of risk in absolute terms will slightly go up. In terms of bips, it will be very much stable. We consider that 2019, 2020, in terms of ratio, bips, we should see a kind of stabilization.
Of course, with Turkey we can have some limited negative news, but limited. At BNL, we should have positive, I would say, news. All in all, in terms of bips, we should stay very much stable looking ahead.
Thank you.
Thank you. Next question from Maxence Le Gouvello from Jefferies. Please go ahead.
Yeah. Good afternoon, gentlemen. Two question on my side. First, a follow-up regarding the capital management on the question from Bruce. You haven't mentioned First Hawaiian, the last 18.5. Do you still aim to dispose it by the end of 2019? The second question is regarding the cost in the capital market in Q4. You mentioned that apparently you have already accounted for the closure of some of the activities that you aim to close. Can we have an idea of roughly what is the cost income underlying, to do our forecast? Thank you. Hello?
Yes. Sorry. Maxence, first hand, we have already sold it in December.
Yes. Sorry. A mistake.
We have not, of course, it was not included in the fourth quarter, because it happened in January. Indeed, the impact in the gain on capital is very limited. It is very, roughly negligible because the bulk of the ratio impact was taken when we deconsolidated, when the global consolidation disappeared. According to IFRS 9, it is at that time that you take the most impact in terms. 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 what we had lost in December because we sold it at a price which was 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. We have recouped already something.
About the cost income, because you had 132% on Q4. You mentioned in the slide that apparently you have already taken into account the cost of some closure. Can we have a rough idea?
Yeah, but the underlying, no. The underlying of the cost is a division. In global markets, huh?
In global market, yeah.
Question is global market.
The cost income.
Well, once adjusted for the cost of closure, I don't have the figure, sorry.
Can we assume that you will be to the usual 80, 85? Will it be even higher?
No, it will be much higher.
The cost income. Do you talk about the costing, Maxence?
Yeah.
The cost income would be better than 80%.
Okay.
Target, is that not?
Target for 2019.
Yeah. Okay. On Q4 2018 adjusted?
Adjusted for.
For the costs that we have of changing and adapting global markets.
Yeah.
If you look at the normal run rate, yes, it's definitely not something with three digit. It is more around 80% or better than that, depending a bit on the revenues.
Thank you.
Thank you. Next question from Kirishanthan Vijayarajah from HSBC. Madam.
Yes. Good afternoon, everyone. Just a couple of follow-up questions on your CIB plans, if I may. Firstly, is there a leverage exposure reduction you've got in mind to go alongside that RWA reduction target that you have? 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? Then how do the RWA cuts fall between FIC and the equities business, please?
You are referring to the EUR 5 billion risk-weighted asset equivalent that we intend to sell. Part is already in the two businesses we have already mentioned. The rest is going to encompass the global banking business as well. We are going to make a kind of a
A selective, well, 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. It's certainly not only FICC or equity derivatives. It can also be coming from the global banking business. 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.
Yes. 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. Please go on.
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? The second question, regarding the business you're exiting, is there any implication, any connection with your views on adjustment for Basel IV environment? 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 experience before you cut off initiatives? Thank you.
Yes. Sorry. With respect to your question on the cost to income, can you just repeat your question? We were working on your other question. Can you repeat your question?
Sure. Looking at the corporate and institutional banking, the previous cost-to-income target for 2020 was 64.5%. I'm wondering which direction is it moving now under the revised plan? Is it going up? I presume yes. I was wondering if you could give some indication, are you moving towards 67%, 70%? That's the question for the first question.
Yes. Indeed, if you look at what we observe, one of the changes in the plan is that 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 core cost income. Yes. We will be definitely staying at a cost income, which is definitely below 70%.
Yes, sure. 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?
No. For the moment, let's be fair, Basel IV is not yet cast in a law. That is, whatever we optimize, we are not going to take into account what potentially could be a Basel IV environment. We optimize within the current setup.
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. What kind of color can you give on the ROI, the minimum hurdle you want to see?
Most of the investments we're running in the universe is, I would say, transforming customer journeys, in a bank that is already the current existing bank, away from the pureHello bank or a situation like, let's say, Nickel. Most of it is very much taking the current bank and transforming the customer journey. 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 standards. Anything we're doing should deliver midterm, a return on equity that is coherent with group targets. There's nothing that is below. 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.
Even if you are much more efficient in the efficiency, the cost base, the cost income, all in all, is not that different compared to the old model. If you do not move that way, then you have a problem because the market as a whole is pushing down margins, fees, and so on. Ultimately, if you stay with the old model, your cost income is going to deteriorate quite dramatically. 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, 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 on the back of the digital evolution. On the back of the digital evolution, cost income can only stay at the same level, it protects the bank from seeing a kind of deterioration.
Great. Thank you very much.
Thank you. Next question from Nicholas Davey from Redburn. Go ahead.
Good afternoon, everyone. 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 about maintaining the TLTRO. 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 would be interesting. Thank you. 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, just so we can help to benchmark you along the way.
Do you think we'll already see absolute cost decline for the group in 2019? Thank you.
Concerning your first question, at this stage, we are really taking as an assumption that the TLTRO will come to an end. We think that as expected, we are extremely liquid, and it wouldn't be that much a problem, frankly. We would have to somewhat increase our support to BNL in terms of liquidity. At the group level, it's not an issue at all. I would like to stress that in their toolkit, the central bank, 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 funding like two months, three months. I don't remember how it was called.
MRO.
MRO. They have a toolkit where they can adjust and withdraw the TLTRO without creating a big, I would say, mess in the market. In any case, in our case, we are very liquid. The NSFR, now that we have the final text. Well, it's not yet voted, but the trilogue has come to a kind of compromise wording between the parliament, the council, and the commission. Given that text, the NSFR will not be an issue for us at all. As we have to issue long-term debt anyway for the TLAC MREL purpose, the NSFR will be easily met.
Nick, with respect to the cost, your question is specifically to 2019. In 2019, we have still the transformation cost going on, and there is some acquisitions, in particular Raiffeisen, which step up the cost. 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 for Mediobanca. Please go ahead.
Good afternoon, sir. Three questions, please. Firstly, the tax rate was very low in the fourth quarter specifically. I understand there were some favorable tax disputes resolved. Could you quantify what impact in EUR terms they had, and maybe give a bit more information on what they were about? Secondly, with regards to the mark-to-market hit on the insurance portfolio taken in the fourth quarter, should we impute that that meant in the first nine months there was a positive mark-to-market gain on that portfolio? If so, please could you quantify what that positive mark-to-market gain was over the first nine months? 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 is before any kind of regulatory headwinds of TRIM or IFRS 16 or whatever.
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 that last question. The 30 basis points we talked about, yes, indeed, it's the organic creation that we're having. 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. That is a bit from that point of view. On your first question on taxes, you know how that typically goes. The taxes, you have to look at it on a year basis, and one makes every quarter, one takes assumptions, and then at the year-end, we really look at the overall position.
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 had were evolving in a positive way, and so we reflected that in the taxation of the fourth quarter, and that is why it is lower compared to what we had before.
Can I just follow up on that specifically? These litigations, have they been fully resolved? 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. It's a bit of a mix depending on the situation.
Okay. Thank you.
Yes. On the insurance, 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. Given the sharp drop also in time, the impact was around EUR 180. The impact was in the nine months before, it was overall from that portfolio rather limited, actually. There's nothing remarkable to mention about it.
Limited relative to that EUR 180. We're talking tens rather than hundreds.
Each time it's significant, we signal it.
Yes. Even if it would be positive, we would signal it, yes.
Okay. Thank you.
Would we have had all the questions, operator?
Yes. Back to you for the conclusion, sir.
Yes. 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 help grow the franchise in many dimensions. Ultimately, if you look at past year results, if 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. This is why the dividend is stable. Again, looking ahead, capital generation is strong, 30 basis points per year. We will reach more than 12% quarter one equity in 2020.
Based on the current, I would say, rate scenario, and taking into account the fact that the FIC business in Europe will be ultimately different from what we expected two years ago, we adapt the target for 2020 with that 9.5% return on equity, which corresponds to an increase in dividend beginning in end of 2016 to 35%, and net result pressure of more than 20%. In a nutshell, this is where we are and how we intend to, let's say, to deliver the second half of the plan this year and next year. Thank you very much again for your attention and for some of you, see you tomorrow in London. Thank you so much.
Ladies and gentlemen, this concludes the call of BNP Paribas 2018 full year results. Thank you for participating. You may now disconnect.