Good afternoon, ladies and gentlemen, and welcome to the presentation of BNP Paribas third quarter 2026 results with Jean-Laurent Bonnafé, Group Chief Executive Officer, and Lars Machenil, Group Chief Financial Officer. For your 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 your questions by pressing star one on your telephone keypad. I would like now to hand the call over to Jean-Laurent Bonnafé, Group Chief Executive Officer. Please go ahead, sir.
Thank you. Good afternoon, ladies and gentlemen. We are proud to present very strong third quarter results, which further strengthen our conviction that we will beat our 2026 trajectory. We are well on track towards our 2028 target of double-digit earnings growth CAGR over 2025, 2028. We expect to reach a CET1 ratio in excess of 13% at year-end, and we are pleased to announce today that we will launch next Monday our EUR 1.3 billion share buyback program as part of the 2026 distribution. As you know, we are finalizing the preparation of our next strategic plan, which we will present to you on the 2nd of February next year. We are vigilant given the current political environment, but the reality is that our group continues in the direction that we have set. Our reliance on France is limited, as we are very internationally exposed.
We are working on growing our corporate, institutional, and affluent client franchise in CIB, CPBS, and IPS, and we are preparing our next strategic plan, including our efficiency plan. These are our priorities. I will now discuss all these elements, starting with a summary of our results on slide four. Q3 was very strong. Revenues rose at close to double digit, with a particularly strong performance of CIB and CPBS, and a solid performance of IPS. The jaws effect accelerated further at 4.1 points, and our cost/income ratio improved more than two points, in line with the trajectory we envisage in the next strategic plan. Cost of risk was stable at 39 bps and remains within our guidance of less than 40 bps, which we observe through the cycle. All in all, this means that operating income was up nearly 18% and net profit was up nearly 14%.
We now focus on our capital. Our CET1 stands at 12.9%, reflecting the acquisition of Athlon, but we expect to be strictly above 13% at year-end. And we will be launching next Monday our share buyback program of EUR 1.3 billion in anticipation of the distribution of 2026 earnings. Let's now move to slide five, which is a reminder of our cost savings ambition in the next strategic plan. After three quarters in 2026, we have achieved EUR 540 million of cost savings, and we are well on track to reach our savings target for this year of EUR 700 million. And the savings will further accelerate from next year, reaching EUR 1 billion per annum, equivalent to about 3% of our cost base annually, or EUR 4 billion cumulative over the four years of the strategic plan.
As we indicated to you, we're preparing this year a transformation of our support functions, and we anticipate savings between 15% and 20% of their cost base. This will represent about 60% of our total EUR 4 billion cost savings over 2027-2030. We now move to slide six, reminding you of our targets. After a strong first nine months of the year, we confidently reconfirm both our 2026 and 2028 trajectories. Given the strong progress we have already made towards exceeding our 2026 target, we're fully focused on accelerating EPS growth and delivering on our double-digit growth target over 2025-2028. We expect our return on tangible equity to exceed 13% in 2028, and this will be driven by strong revenue momentum, very well illustrated in the third quarter, but also tight cost and risk discipline. We'll come back to this later.
Our strategic plan will be presented on the 2nd February, followed by deep dives throughout the year, starting with CIB on the 25th of February. Our return on tangible equity and cost/income ratio targets will be much improved compared with our 2028 ambition, and this will allow us to accelerate our distribution based on a strong capital position. This strong capital is well illustrated on slide seven. As you can see, our capital path has improved regularly in the last 15 years, and this has been combined with increased distribution to shareholders. We also expect our CET1 to exceed 13% at year-end, and we'll consider additional distribution on an annual basis, and we'll provide more clarity on the 2nd of February. Let me now hand over to Lars, who will present our third quarter results on slide nine.
Thank you, Jean-Laurent. Good afternoon, everyone.
I will now spend time on slide nine. As you know, all our numbers, but all of our aggregates are very strong this quarter, and our cost/income ratio improves with more than two points. Over the first nine months, our cost/income ratio fell to 59%, underpinning our target of 60% for the year. Let me now move to slide 11, where you see that our revenues are up 9.5%. Let's look at the divisions. CIB first. CIB had an excellent quarter with revenues up around 17%, and they're basically up in all three divisions. First, Global Banking accelerated sharply in the third quarter, as we anticipated in the second quarter, and we maintained our number one position in EMEA investment banking amongst European banks and gained over 60 basis points market share.
Secondly, Global Markets was particularly strong, up 22%, including a 55% pickup for Equity & Prime Services, with revenues exceeding those of FICC this quarter and highlighting strong client appetite and client franchise. Turning to FICC, revenues were stable at a high level, supported by APAC and Forex products. Finally, the third division, Securities Services, grew 18%, taking advantage of high market levels, volatility improved margins, but also the ongoing client onboarding. That's the first division. Now look at CPBS, up by about 4%. As Jean-Laurent explained earlier, our Eurozone commercial banks are enjoying very strong top-line growth and once again, a double-digit net income growth on the back of an interest rate environment that, as you know, is quite favorable for us. Notably, thanks to the stability of our non-remunerated deposits. Moreover, client activity was strong, as illustrated by the healthy uptick in financial fees.
Moreover, the specialized businesses benefited from improved volumes and margins when it comes to Personal Finance. Regarding Arval, let me start with the underlying momentum, which remains very strong. Organic NBI growth was 12%, supported by fleet growth of 6% and growth in outstandings of around 7%. This strong momentum is currently being impacted by headwinds in the used car market across the industry, exacerbated by the geopolitical environment leading to higher fuel prices. These higher fuel prices mainly affect ICE vehicles. Given the limited visibility on the conflict in the Middle East, our current assumption is that the trend in used car prices might continue. Having this in mind, and given the average two-year life cycle of the vehicles, it would be reasonable to assume that the benefits from Athlon integration will be offset by used car sales.
With Arval and Leasing Solutions, gross operating income remaining broadly stable in 2027 compared to 2026. This before a pivot that is to come in 2028, which is based on the repricing of the vehicles of 2024 and a further improvement in 2029. No impact on our 2030 objectives. Having said that, Arval is actively managing the environment through lease extensions, international remarketing, and vehicle re-leasing, all shown strong traction. Athlon will also improve the mix, with EVs representing 31% of its fleet at the end of the third quarter. Importantly, our long-term objectives, as I mentioned, remain unchanged. Used car sales should trend towards zero over time, making Arval's earnings increasingly driven by fleet management and recurring revenues rather than used car sales.
At group level, our diversified model also enables us to offset this headwind, notably to strong performance of CIB and the positive revision to our corporate center guidance. That's CPBS. If I turn to the third division, IPS, revenues were up 5% thanks to strong commercial momentum, and we are pleased with the solid ramping up of the AXA IM integration. If with this, we move to slide 12 and 13, where I would like to discuss our cost trajectory. If we look at 12, our jaws were very strong this quarter, 2.8 points for the operating divisions and 4.1 at group level. All our businesses, except obviously Arval and BNP Paribas Leasing Solutions, generate positive jaws between two and 11 points. This is something we are particularly proud of, as you can see in the performance of all the businesses at the bottom of the slide.
At group level, we are on track for substantial cost/income ratio improvements, still trending to below 56% in 2028, laying a firm foundation for our next strategic plan. If with this, we turn the page, we go to 13, where we show a chart you know well that reflects our cost savings. EUR 200 million this quarter, reaching EUR 540 million year to date. The cost/income improvement is particularly impressive in CIB, but we are also very pleased with strong progress in the commercial and personal banking in Europe and Personal Finance. IPS will obviously benefit in 2027 from the significant acceleration in the synergies from AXA IM, and the restructuring charges booked in the corporate center will reduce. Let me now take a look at the asset quality and our risk profile on slides 14- 16.
Fourteen, where you see that the cost of risk stands at 39 basis points this quarter-over-quarter and year-on-year. Compared to last year, the Stage 3 provisions, so the ones that are really linked to non-performing loans, are lower due to a specific file a year ago. Moreover, we did not benefit from Stage 2 releases as we did last year. Intrinsically, that is the evolution. So stable in basis points, but intrinsically an improvement on the S3. Bar an unforeseen step-up in geopolitical tensions, we anticipate the cost of risk to be below 40 basis points over the year 2026. If we turn to slide 15, we remind you of our diversified risk profile by sector, but it is also true by geography.
As you know, but we repeat that we do not depend much on France, given the European and international profile of our client franchises. Given our platform, we are more and more international every year. If I illustrate, 10 years ago, French banking was 20%, now it is 10% and below. Moreover, our exposure to French sovereign is very limited, with only EUR 3 billion of sovereign exposure that is at fair value via OCI, not even P&L. If with this, we end the review on page 16, and you will see that both our commercial and private banking in France and Belgium normalize from a low base, and Global Banking also normalizes from a high base, what I mentioned earlier a year ago. Overall, we remain comfortable with our strong asset quality, which is stable at 39 basis points, as mentioned before.
If with this, we leave the cost of risk, and we go to the capital. If you can move to slide 17. Our common equity Tier One reached 12.9%, and this evolution of 10 basis points comes from the following. First of all, there is 40 basis points that is added to net income, net of RWA growth. Of those 40 basis points , there is 25 basis points that is called return to shareholder. Then there is 10 basis points related to the OCI movement, given the spreads that we observed since August in the banking sector. Then there is 15 basis points from the acquisition of Athlon. Intrinsically, that leads to this evolution. As mentioned in the fourth quarter, we will continue to strengthen the net income, but we will also benefit from the disposal of BMCI.
That is to generate around 15 basis points. As well, we will see our accelerated capital generation and RWA optimization, which typically falls at year-end. As such, we expect to exceed the level of 13% at year-end. All this paves the way for accelerated distribution. As such, it's stepped up earnings, stepped up capital, and therefore we feel comfortable to launch the share buyback on 10% of the full-year results already in November, next week. With this, as a reminder on slide 18, there is actually even more to come. As the SIU, so the Savings and Investments Union, which is, and in particular, the securitization framework, are progressing very well and are likely to get into force at the beginning of 2027.
I remind you that this Savings and Investments Union represents a significant opportunity, well, on one hand for BNP Paribas, but also for CIB, where the originate and distribute model of CIB, but also the asset gathering platform of IPS, further strengthens with BNP Paribas Asset Management's new and leading alternative asset capabilities. That's not only the fact to CIB and IPS, but also CPBS is very well-placed to increase, with all these levers, its financing in the real economy. Let me terminate with the corporate center on slide 21, where once again, we have improved the guidance of gross operating loss after a nine-month performance that was better than anticipated. We therefore, as I mentioned just a bit earlier, we adjust our gross operating income trajectory from -EUR 1.2 billion, and we improve it by EUR 200 million to -EUR 1 billion.
I'll now hand it back to you, Jean-Laurent.
Thank you, Lars. To conclude, third quarter 2026 results are a very clear illustration of our acceleration. We're delivering strong balance and resilient earnings growth, with group revenues up 9.5% and an excellent cost/income trajectory. Our 2028 return on tangible equity trajectory is on the fast track, supported by strategic levers that are already being executed. Our earnings growth is accelerating towards a CAGR of more than 10% over 2025-2028. With our CET1 trajectory, we'll consider additional distribution on an annual basis. On February 2nd, 2027, we will announce the main targets of our next plan, taking us to 2030. We are well advanced in our preparation with top-down and bottom-up processes now aligned. We'll provide you with our divisional trajectory, and we'll continue throughout 2027 our series of deep dives, starting with CIB on February 25th. This concludes our presentation.
We will now be happy to take any questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. I would like to remind you to please limit yourself to a maximum of two questions to ensure that all attendants are able to participate.
Again, please press star one to ask a question. First question is from Delphine Lee, JPMorgan.
Yes, good afternoon. Thank you for taking my questions. First of all, just a very quick clarification on Arval, on what you said last. You are expecting the GOI, gross operating income, to be stable in 2027 versus 2026 before improving in 2028. I am just wondering because we are basically seeing a halving this year of the GOI, so the swings are pretty large. If you just clarify that. How much recovery should we expect for 2028 and 2029? The second question is on just maybe thinking about your guidance of growing the revenues in commercial banking in the Eurozone by more than 5% per annum. Do you see any kind of risk to that guidance considering the more challenging environment, especially in France? The rate environment as well, could that impact volumes, deposit growth, and the deposit mix? Thank you very much.
Delphine, thank you for your question. Indeed, what you have seen is that if you look at Arval, the GOI has been impacted in the third quarter. What you also saw is that as of now we have Athlon that is basically being added. That is why we basically say there has been an impact in the second quarter, in the third quarter. That impact will be somewhat limited by Athlon coming in. But overall, indeed, you understood well that the gross operating income will be stable 2027 compared to 2026. But again, as I mentioned, within 2027, there are other elements that will perform better. In particular, you have seen that our CIB is at a higher run rate, and I re-qualified our corporate center to be improved by at least EUR 200 million. Those are elements that basically compensate those two effects.
On the corporate and personal banking in the Eurozone, I remind you that our growth is stemming from several reasons. The intrinsic growth that we guided for, let us say, a minimum of 5% growth year after year, is basically stemming from the redeployment of the non-remunerated deposits. That redeployment depends on the rates. The rates have a tendency to go up, so intrinsically, that would be even better. We did not take into account in that guidance any further stepping up of the deposits. That is why we feel comfortable, given the environment where we are, the interest rates where they are, that we will deliver on this 5%, which could be even higher if there are further flows of deposits coming. But in our guidance, we did not count on that. Those would be the two answers, Delphine.
Thank you.
Next question is from Tarik El Mejjad, Bank of America.
Hi, good morning. Just on revenues, please, and one of the compensating factor you mentioned on Arval was the CIB. You had amazing quarters for Q2 and Q3 in Equity & Prime Services, and I want to understand how much of this we can extrapolate because it coincides with your, I would say, end of project of rebuilding or building the equity business. So how much is it just lifted by the market, and actually how much is the higher run rate potentially you can deliver in this division? You are suggesting that this come as an offset to Arval. Can you maybe explain a bit what's the upside there from in 2027, because that commenced with mainly down for 2027, I believe. The second question, still on CIB and Global Banking.
There've been, again, clearly a step-up as well in the revenues per quarter, but also came with higher RWA growth. Is this actually fully compensated by the SRG program you're launching of 10 bps-20 bps or 10 bps-15 bps per year? How confident you see to see good ROE on this growth of revenues that's clearly needed to deliver on the targets. Thank you.
On CIB, it's a platform we've invested in since many, many years. It's growing platform. The platform is taking market share, I would say, worldwide. It's not just a European platform. We're posting excellent results in the U.S., throughout Asia, and of course throughout Europe. Global Markets, equities are to some extent volatile businesses, but those market shares are going to stay, and we will continue to grow and to expand. We have the technology, the offering, the services, and now I would tend to say we have the right franchise. This is the way we position that platform looking at corporate banking within CIB.
Last year, starting with the second quarter, third quarter, because of a number of elements, we entered quite a weaker environment. Now we have repositioned the platform. Again, it's a global platform. It's not only Europe, but it's also the U.S., Americas, and Asia. We are doing extremely well. We have exactly the range of services, comprehensive worldwide to service those large caps. Yes, we are having, in our trajectory, already positioned those risk weights that are necessary to sustain that growth. But remember also, this is also an originate to deliver platform. We believe that this is going to be a very positive support in the years to come, especially in Europe, where you will see this phenomenon accelerating. As of today, it's a bit shy, but it's coming.
Again, for this, not only for BNP Paribas globally, but for the platform, for CIB, it is going to be one of the winning factor for the next years. The platform is there. It is growing machine. It is not only posting very good results for Europe, but now it is also becoming something, I would say, larger. Asia is full of potential, of course, the U.S. and Americas globally.
Tarik, it is really an illustration of our originate to distribute. If you look back, basically the risk-weighted assets at CIB, they haven't moved over the last years. Indeed, there is a bit of phasing within the year. So yes, there has been a pickup in the third quarter, all of this will be offloaded in the fourth quarter. So you know how this goes. The typical spikes in the securitization are year-end, so we are really on track to offload all that growth.
Thank you.
Next question is from Giulia Miotto, Morgan Stanley.
Good morning.
Thank you for taking my questions. The first one is on slide seven. I understand there will be a decision once a year on excess capital distribution. Can we expect this for Q2, I would guess, or full year results? Secondly, does this mean that probably you will stick to 60% payout and then everything will be in excess once a year? Can we assume that the excess will be mostly distributed in buybacks? Because that's the most accretive way. Sorry, a lot of small questions on capital. Secondly, just a more top-down macro questions. We have seen cost of risk miss this quarter, and if we look at the macro indicators for France, they're slightly deteriorating, if we look at the bankruptcies, if we look at the unemployment.
Can you help us make investors comfortable that there is not a deterioration in asset quality coming? Thank you.
So on buybacks and capital distribution, it is very simple. I cannot tell you precisely what is going to be the rule of the game for the next plan, because this has to be decided by the board in the coming weeks. But we increased regularly the regular payout since 15 years. So we used to be at 30%. In the current plan, we are at 60%. And clearly, the bank, the company growing faster, being more efficient, being more competitive and profitable, will originate more free cash flow and free equity. So this is a good reason to increase the regular, I would say, payout. So one possibility is to say we go from 60%- 70%, and on top, we are going to return everything that is above 13%. Or you can say we stay at 60%, and you return everything that is above 60%.
It is basically just the same. Probably the best way is to say 70%, because it gives additional confidence. And the upgrade is going to be most probably through buybacks. This is quite obvious. So a trajectory could be moving from 60%- 70% out of which 20% buybacks. And on top of that, excess equity that will be created over the plan. So you can do the computation. But if we are at more than 13% return on tangible equity, in 2028 and 15% in 2030, clearly, 70% is throughout the period is a kind of a minimum. There is way for something that is above, meaningfully above 70%. So this is the situation. It will start based on the results of 2026, because at the end of the year, we will be above 13%.
So there will be some excess equity in the system to be distributed. One day, we will have some additional disposals. Sooner we will close the plan. So this will come on top of it. So this is very much the way we are positioned. On the situation in Europe, and let us say our two major franchise, Belgium and France in Europe, commercial banks were having really the best franchises. So we are very well-positioned, and we are absolutely not, I would say, afraid by the new cycle. Cost of cash, cost of money is higher, of course. The franchise is extremely strong and solid, and we do not anticipate a meaningful impact based on that situation. So this is the vision we are having for the years to come for those businesses through the commercial business we are having short-term.
Any other questions?
Next question is from Sharath Kumar, Deutsche Bank.
Good afternoon. Thank you for taking my questions. Coming back to Arval, I estimate around EUR 300 million of used car losses in the third quarter. Can you confirm this figure? You also spoke about few measures to address residual value risk, but given fleet growth has been so much steep in recent years, what more can you say to make us feel comfortable? On Athlon, can you quantify the restructuring costs and its timing? Those are my questions on Arval. Secondly, on Personal Finance, this is one more segment where your current revenue run rate is slightly below the midterm guidance. How should we think about the impact in the wake of higher funding costs and likely lower loan generation? Also, are you confident here of maintaining cost of risk around 150 basis points should there be further deterioration in the macro? Thank you.
Would you just rephrase your last question?
Yes. Personal Finance, I know current run rate is below your midterm guidance. How should we think about the impact of higher funding costs, maybe likely lower loan origination? Also, are you confident of maintaining cost of risk around 150 basis points, should there be further deterioration in the macro environment?
All right. On Arval, you can deduce that we do not give guidance explicitly on the used car sales because, as we mentioned before, they also give a bit of a read on what the competitor can lead into it. But if you take our growth that you see, you can assume that this is the impact in the third quarter, which will be lower again in the fourth quarter given Athlon stepping up and rolling forward. On the fleet growth, how can we give you comfort that the pivot in 2028 will be there? It is basically that we have the overall pricing as of 2024 has been materially adapted. That is why we feel comfortable that the pivot will be visible in 2028.
On the integration cost with respect to Athlon, they will be over that period, they will be EUR 170 million that is there to come. When it comes to Personal Finance, Personal Finance, you do know that we have been restructuring it on different kind of products. But that still means that whenever there is a pickup in the cost of financing and the rest, that we will further adapt the pricing and the origination. Therefore, that is why in our overall plan, we feel comfortable with the trajectory that we have given. But of course, as we have always done, we will adapt according to the situation.
Thank you. Can you reconfirm the CTA for Athlon?
EUR 170 million.
Thank you.
Next question is from Jacques-Henri Gaulard, Kepler Cheuvreux.
Yes. Good afternoon. To the first one, I think you have announced this quarter that you are merging FLOA with Cetelem. Is it a sign that you have been a bit disappointed by this acquisition? What are you going to do with the brand? The second question, sorry, back to Arval. You have changed the CEO now coming from the most significant competitor of Arval in that market. I wanted to know what was their mandate. Piggying back on the former question, can we assume now that you are just not going to grow this market very much over the next two to three years? Thank you.
I do not know exactly, but Alain van Groenendael must be 66 or 67 or 65. So it is a-
He was the CEO at Arval.
It is a planned move. It is something that is prepared since a couple of years, so there is nothing new, nothing that can be, I would say, linked from the current status of the business and this evolution. Again, nor Arval, nor BNP Paribas responsible for the disruption, in terms of geopolitics and cost of energy, just to make it very simple. Looking ahead, we have been through that consolidation with Athlon to have, we say, an even bigger critical mass. This is very important in that type of a business, and clearly, especially in that type of a cycle, we need to opt for the most disciplined approach. But it would have been just the same with Alain or not with Alain.
This is just a simple fact. It is a new environment, and he is moving. He is staying as the Chairman. He is a great guy. We count on him.
There is a new person coming. Those transitions are always complex, but it is going to be just the same. The only point is the cycle is different. We have now reached a critical mass, and now due to that factor and due to the cycle, we will opt, as you said, for a very strict discipline, and these have started already this year. I hope I have understood your point and-
Absolutely. Thank you.
thats my answer.
On FLOA and Cetelem. Listen, the thing is, typically, when we have an acquisition like FLOA, which is particularly in the new technology, we put it or we leave it in standalone to develop all the technologies. And at the moment, this becomes in a maturing phase, then we merge it with the other activities. There is nothing else to look into that.
Thanks a lot.
Next question is from Andrew Coombs, Citi.
Good afternoon. First question, just to follow up on equities. One of your peers this morning called out a 33% increase in prime balances. I do not know if you could just talk to your prime balances, what you see in terms of increase year-on-year, where you stand today, and also what you are seeing on the margins on that business as well, please. The second question just on the French deposit migration. Small increase in term, but could you just remind us, for every one percentage point move to term, what is the impact on net interest income? Thank you.
Can you rephrase the last question?
Yeah. I was just saying in the French retail business, you've seen a little bit of deposit migration. The proportion of deposits sitting in term or time deposits has crept up by one percentage point. Just so we can think about the impact going forward, could you remind us of the sensitivity of that migration to net interest income? For every one percentage point migration, what is the impact on NII?
Right. Listen, first on your question on the prime brokerage. You've seen that the growth has been quite strong, and typically the prime brokerage does hardly consume capital. It consumes somewhat balance sheet, but the overall consumption of the balance sheet remains very contained. If you look at it on the situation where we are, we're hovering around EUR 300 million, which is typically what we do. When you look at the non-remunerated, they are basically stable in the third quarter. There might be a flow in the remunerated one, but the non-remunerated are stable, and the impact of one point is basically EUR 25 million. [inaudible]
Next question is from Pierre Chédeville, CIC Market Solutions.
Yes, good afternoon. One question regarding more globally your specialized businesses in terms of capital allocation, because we all see that these activities are not the most profitable ones in your business model currently. But also we feel structurally speaking, if we compare with your beautiful platforms you have now in CIB and IPS, notably. I was wondering if you could consider that a reduction of the part of capital allocated in these businesses should be an option and, for instance, continue to restructure, for instance, Personal Finance that you have done in the past, but you could continue. We have some rumors about that. I do not ask you to comment, but we know that you have some part that could be sell.
I was also a little bit. I understand that it is a scale businesses in leasing, but we have one of your competitor who clearly said recently that he does not want to allocate more capital on this business currently. That would be my first question. My second question is regarding OCI. Could you be a little bit more clear regarding the evolution of the - 10 basis point? I did not catch it correctly. What could be another impact in the coming quarter? How do you see that evolve? Thank you very much.
Looking at Personal Finance in particular, as you said, we have continuously restructured, adapted the business. In the past years, the next plan is going to be very much the same. We have to extract a better return on tangible equity from that platform. The situation is quite different depending on the different markets. Not everything are exactly just the same. So we are also looking at that situation this way. You can count very much on us to allocate what is, I would say, relevant, and optimize the rest of the platform. This is simple. This is the strategy, and it is really part of the next plan. We will continue the way we started years ago.
On the question with respect to the OCI, the easiest thing to say, if you would look at that, there is an evolution. You know, it is, I think, the European sovereigns, yeah. If there would be another 550 basis points spread widening, that would have a 10 basis points impact on the CE T1. That is kind of the sensitivity.
Thank you.
Next question is from Stefan Stalmann, Autonomous Research.
Good afternoon. Thanks for taking my questions. I have two, please. First, I am afraid it goes back to Arval. We obviously have quite a sustained setback in industry conditions here, also listening to how you describe it. Is there a risk that the residual value in Arval actually has to be impaired at the end of the year? And maybe could you give us a sense of how big this residual value actually is? And the second question is, if I look at your business opportunities right now, you can make a new French mortgage and write it at maybe 3.5% or so, or you could buy a 10-year French government bond at 5%. Does it have any impact at all about how you think about your balance sheet and your business opportunities? Thank you.
First of all, on Arval, I understand your point. When I said you take the spread and at term, the question is you have some volatility for the moment that makes it lower, but we anticipate that at the end of this period, the cars will again be sold. And again, indeed, the question is, should at some point in time be the impact negative when you would sell it, which would trigger an impairment? At this stage, we are still very far above that level, so we don't see an impairment on the horizon. When it comes to the sovereign, listen, our overall stance is that just like for every investment, we want to be diversified. Let's say diversification meaning, typically, if we have something, we don't want to be much bigger than 1% of the overall balance sheet.
We have a EUR 3 trillion balance sheet, so let's say a EUR 30 billion below it is where it should be. We're not going to stack up truckloads of it, but we are at EUR 20 billion in the overall sense. We will see what the opportunities are within that. We're not going to materially step it up given our allocations.
Thank you very much.
Next question is from Chris Hallam, Goldman Sachs.
Yeah, thank you for taking my question. First on Arval, I'm just trying to stress test 2027 a little bit. Does the recent performance change how you think about the right cost base for the business, the level of integration synergies, et cetera? Is the combined entity disproportionately exposed to any specific brands? I know you have several OEM partnerships, and I guess within the autos space, there's a broad UCS problem, but there's also some fairly big OEM market share shifts. I just wondered whether you're at risk of being on the wrong side of any of those changes on the volume side as well. Then second question, should we see a higher payout ratio as a reflection that the group has become less capital intense from a growth perspective?
In the coming plan, if you have to choose between size and ROTE, are you going to go for returns? In that context, which factors would determine your mix between divs and buybacks and ordinary versus extraordinary? I think you talked about it a little bit earlier, but I just wanted to triple-check on that.
I'll take Arval first, if you look at it. The thing is, what we mentioned going forward is that, as of 2024, we clearly adapted to pricing of the vehicles. From that point of view, we feel to have that under control. On the diversification, it is very diversified. Again, you might think that we bought with Athlon, we bought that company from Mercedes, but again, Athlon was a company before, so it is very diversified. This is things that we validated during due diligence. We again went through our portfolio, their portfolio, the combined portfolio. We feel at ease when it comes to that. On the payout, Jean-Laurent, I don't know if you want to give some color on the balance share buyback payout.
Probably, as I said, probably still to be decided. Additional distribution payout compared to the current plan will come probably again from additional buybacks. This is simple. This is obvious.
Chris, just to give you some color. We had in the past, if you take 100% as the earnings we generate, there was 60% that returned to shareholder. There is typically 20% that we use to grow and so forth. The other 20% in the last couple of years has been used in this avalanche of regulatory supervisory kind of elements. That is basically what has fallen away. That is where we have more room. On top of that, our profitability will be stepped up. At the same time, we have become a very complete business. Look at CIB, look at the things we have done with IPS. Intrinsically, we believe that we have the good footprint to grow very profitably. We will be more and more profitable.
That is then how you should read the return to you, to the investor.
Okay. Thanks very much.
Gentlemen, we have no more questions registered at this time.
Thank you for your attention. Once again, we will deliver the 2026 target and even more. We are well-positioned for the next plan. Capital distribution will go up. We are prepared. The efficiency plan is almost up and running already. We have well-positioned businesses, good risk profile. Let us say, globally, as illustrated in the third quarter, the group is in a very good shape. Thank you so much. We will see you soon, and in particular on February 2nd next year. Bye-bye.
Thanks.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.