Earnings Call: Q1 2019

May 3, 2019

Ladies and gentlemen, welcome to the Société Générale conference call. Frédéric Oudéa, Chief Executive Officer, and William Kadouch-Chassaing, Chief Financial Officer, will present the group's first quarter 2019 results. Gentlemen, please go ahead. Good morning to everybody. Thanks for attending this presentation of our first quarter results. As usual, I will just make a few introductory comments, leave the floor to William to enter more into detail, and our full management team will be available to answer your questions. Let's start immediately by the first slide on the key highlights for the quarter. Let me first highlight, obviously, the strong increase of our capital ratio, our CET1, at 55 basis points, with a CET1 ratio which stands at 11.7%, factoring discrete option dividend with a 50% assumption. We will enter more into detail, but it reflects clearly our capacity to meet our trajectory as soon as possible of this 12% ratio target. Beyond this, I would like to highlight the good and resilient performance of our businesses. The overall net income, underlying net income stands at EUR 1 billion, our return on tangible equity at 8.4%. We will enter into the detail, but you will see overall good commercial activities and interesting trends in our different activities. The risk profile of the group remains very sound. We have a cost of risk at 21 basis points. The NPL ratio further decreases at 3.5%. As you will see, we have started to implement the strategic adaptation of our business model in the wholesale activities. We are definitely on track to execute this plan, and we are giving more information regarding this plan today, as well as we will do, of course, on the 7th of May. I will turn the floor immediately to William to enter into the detail. Good morning, everyone. Turning to page six, with the key highlights on the performance of the group per division, including corporate center. Let me start with the red line at the bottom of the page. Group net income, as Frédéric said, is above EUR 1 billion underlying. You have to adjust it for the well-known IFRIC provision. The total is at EUR 631. The ROTE is 8.4% for the quarter. It's very important overall to keep in mind that the business performance is quite stable. Business revenues are up this quarter, +0.3%, and the net income for the businesses is very slightly down, flat year-over-year. The big difference that you can see in the underlying net income for the quarter stems principally from the corporate center. Corporate center has a normal negative minus EUR 130 million gross operating income for the quarter, very much in line with the guidance. If you remember, in the Q1 2018, the corporate center had an exceptional performance with some one-offs. Starting with France Retail. France Retail has, again this quarter, a resilient profitability at 10.4% Return on Normative Equity. Good commercial performance. I will come back to it in a minute. The net interest margin is down again, which does explain the fact that the revenues are down 3.2%, principally the quarter, especially the deposit margin. Let us stress the fact that net interest margin increases in Q1 relative to Q4, which makes us confident that we shall be in the territory we had indicated in Q4 for the revenues for the whole year 2019, i.e., in between 0% and -1% of revenue development gain for the whole year. International Retail Banking is, for another quarter in a row, showing strong performance. Revenues are up 8.3%. Solid commercial momentum across all geographies, positive JOBS. The Return on Normative Equity stands at 15.7%, which is up 20 basis points relative to the same period of last year. Insurance and Financial Services, again, very strong. Revenues up close to 4%, broad-based across insurance, fleet management, and leasing, and the profitability improved further by 110 basis points relative to the same quarter last year at 20.5%. Clearly very satisfactory performance. Global Banking and Investor Solutions obviously have a more mixed picture. Revenues are up 1.1% in current term, minus 1.8% when adjusted for foreign exchange, we were helped as others by the USD this quarter. Very strong performance on Financing & Advisory, revenues up 19%, current in constant term, +16%. The global markets are down but resilient, especially the equity is only down -5%, which fares well relative to competitors. Let me finally highlight on the corporate center, we come back on it, that we had a little IFRS 5 impact of -EUR 53 million stemming from impairment of goodwill, especially of our Slovenian subsidiary, the sale of which we've announced this morning. This is a non-cash impact, and let me stress that we sold this entity for a good price. It's normal that according to IFRS rules, we impair the goodwill if appropriate. On risk profile, Frédéric said the most important things. 21 basis point is low, is down from the previous quarter. It is in line with the whole year of 2018, and it's down relative to our guidance for the year of 20 to 30 basis point. Very importantly, we continue to increase the asset quality. Non-performing loans are down further at 3.5% this quarter. This is again, a quarter where we managed to decrease it proactively. Risk coverage ratio is up at 55%, which is one of the best coverage ratio in the Street. Obviously, with some normalization in the market, stress VAR and VA are down this quarter. I will come back to it. I'll spend a little more time on page eight. I know this is a key focus area for you guys as analysts for the Street as a whole, which is our management of capital ratio. As Frédéric said, Core Tier 1 is up 55 basis points this quarter on a pro forma basis, stands at 11.7% in Q1 relative to 11.2% in Q4. Let me stress the key elements of this improvement. Number one, organic RWAs. You see on the page a plus 23 basis points. What you have behind it is a portion that is linked to a normalized market risk RWA level. They are down minus EUR 5.5 billion, which is approximately 16 basis points equivalent. On top of it, you have the benefit of a very strict management and allocation of our credit RWAs across businesses. As we said in Q4, some businesses are allowed to grow RWAs, especially those who are the most profitable businesses, and those have to obviously be down or flat. On top of it, we have announced some optimization of RWA measures, especially more distribution of loans and de-risking measures of RWA, which have a very positive impact. We will continue that policy. Second element is a deleveraging of global market RWAs. As Frédéric said, we are on track to execute our plan. We started the plan as early as Q1. We decreased market RWA through strategic decisions for about EUR 2.3 billion in the first quarter, the equivalent of it being seven basis points. Nothing to mention on regulatory, we are on track. The third key element on the performance is obviously M&A. We had said that we were forecasting close to 20 basis points impact in the first quarter stemming from closed transactions, and we have 20 basis points this quarter. On top of it, we have announced a number of transactions which should translate into 25 basis points capital creation in the next quarters. They are obviously not in the 11.7%. They will come through in the next quarters, and we expect that the EFG acquisition will cost us in total 10 basis points spanning from 2019 and 2020. As you see, we are very well on track on the execution. TLAC is up to 25.2%, which is to be compared with the regulatory requirement for this year of 19.5%. Let me stress that not only are we above, but we are above the ratio only with junior debt, which is very satisfactory. We are already meeting our MREL requirement. As you know, leverage ratio is stable. Liquidity ratios are strong. The liquidity buffer is up EUR 5 billion. As you can see, we achieved 60% of our funding program and just 80% of the senior non-preferred program already, nothing to worry about as far as liquidity is concerned. I will turn to, if you allow me, straight to the businesses. Starting with French Retail, as we do traditionally, the commercial dynamics. As you see, they continue to be positive, starting with the loan production. Individual client loan outstanding across all categories are up 3% year-on-year. Medium-term corporate loan outstanding are up 6.3%. It is again, another quarter of growth in our loan outstanding in French Retail. The client base in French Retail is also improving this quarter again. If you look at individual clients, we have plus 3% of wealthy and mass affluent clients, which is a core client base that we target. Boursorama had another very good quarter, +30% number of clients year-over-year, i.e., 123,000 new clients on Boursorama, which is equivalent to an inventory of 1.8 million at the end of the quarter. We are on track to develop our new setup for professional and corporate coverage, we give you some indication on the right-hand side of the page, which I will not comment on, further progress in insurance, private banking, and corporate. As you can see, the commercial dynamics overall remains favorable. The results, I already commented on the revenue, -3.2%, again, mostly focused around the net interest income margin being down year-over-year. Fees are down this quarter. We have to differentiate the story here. After many quarters of increasing fees, we had, obviously, a market impact from the market conditions in Q4. In Q1, with decreasing financing fees. Service fees, which account for about 80% of the fees, are stable despite the Gilets Jaunes measures. The costs are very well controlled, at +0.4%, and cost of risk is low, even down year-over-year for risk visibility at 10.4. Turning to international retail banking, as I said, this is another quarter of very strong performance on all accounts. Performance on the commercial side is strong, as I said, across the board, across geographies. You see here the data, high single digits or even double digits for Russia, as far as loan production of deposit outstanding are concerned. Revenues are up 8% in Europe, 12.5% in Russia, close to 7% in Africa. You can see that the group net income for international retail is up 10% year-over-year, with return on normative equity up 20 basis points, as I said, to 15.7%. Having said that, I'm sure you will have questions that Philippe, Ivan, and myself will be happy to answer. We want to make further progress in international retail, we are convinced that we can further strengthen the commercial platforms as well as the operational efficiency. We benefit in the area, in all the regions, from very strong market dynamics. We have GDP growing in Central and Eastern Europe between 2% and 3% per annum, with very low unemployment and satisfactory public finance. In Russia, this is a little lower with 1.5%, still, the banking market is very under-penetrated, and the central bank sees loan production growing double digits in the next years. Africa is an area where in each and every country where we operate, the growth outlook is between 3.5% and 7%, so very strong with positive demographics. What we're doing here is, number 1, invest in the commercial platform, be it retail banking through digital investments. You have here an example of what we do in Russia. You can now have an approval for a mortgage online in Russia in 10 minutes with VTB Bank. Commerzbank was the first bank, or is still the only bank, having introduced Apple Pay in the Czech Republic. In consumer lending, you know we have done a deep dive. We have very nice, very focused, very specialized consumer finance operation, profitable across all geographies and working on a B2B2C model. What we're doing increasingly is provide digital tools to our partners. Car dealers can leverage upon our central e-commerce platform to manage the inventories, or our partner, BDK in Germany, has been provided by us instant payment tools. Last, if I focus on international retail, let me focus on the fact that being a CIB house, we are trying to do the same with partners across geographies as we did internally with our own retail franchise in the emerging market, i.e., develop our CIB capabilities, leveraging an increasing trend of corporate growth across the board, especially in Africa, with agreement we struck with Absa. Operational efficiencies, another area where we invest. You have seen that we have announced the refocused central organization of the pillar. We expect the downsizing of about 40% of central function through 2020, and we obviously have set up hubs in Africa that will help us on the back offices. We're also implementing the merger between Rosbank and DeltaCredit in Russia. All that will help secure the profitability outlook. When you look at financial services and insurance, again, this is a picture of strength. We are providing you, again, this quarter, on the left-hand side of the page, some data not only relating to the accounting data of our insurance business, but giving you the size of the insurance business for the whole group, including what is booked in insurance business unit and what is booked in the retail networks. We do roughly 8% of the group revenues in insurance, which is a very profitable business across the board, as you know. We have EUR 2.3 billion revenues in 2018. They have grown 13% per annum from 2016, and they continue to grow. You can see the protection premia were up 10% in the first quarter, continue to have strong growth in life insurance, up 24%. We also invest in digital. We have created a quite unique startup, which offers digital contextual insurance, and we will roll it out through an Indian partner with whom we have struck an agreement for the whole of Europe in the next quarter. You see that ALD on the financial services has a FIC up 9%. Revenues for ALD and leasing are up 5%. We had a particularly strong quarter in leasing in Q1. Group net income up 9%, and the return, as I said, up 110 basis points to 20.5%. So in the end, the number I think we should focus on is the 17.6%. Remember, we have said in Q4, we aim to deliver a 17%-18% return on normative equity for the division by 2020, meaning we are already on track through strong revenues and positive jaws. You see that the operating expenses are very well contained. As I said, in CIB, the picture is more mixed, with a very strong, and probably the strongest in the Street, at least for those who have published so far, performance in financing and advisory revenues up +19%, 16% in constant terms. Global markets are resilient, but in an unfavorable environment for market activities overall, so it's -7%, including investor services revenues. For market itself, market activities themselves, it's about -10%, with -16% in FIC, -5% in equity, which again, I think is a good performance, relatively speaking. You can see on security services, as well as private banking, that we had the benefit, according to IFRS 9 rules, to offer reevaluation of our stake in the Swiss stock exchange, SIX, for about EUR 66 million in total this quarter. Overall, as you can see, for Global Banking and Investor Solutions, revenues are up in current term, +1.1%, -1.8% in constant term. Operating expenses are very controlled, flat in current term, down in constant terms. Overall, the return on normative equity is 8%, to be compared with our ambition to raise it to 11.5%-12.5%. This is why we're presenting, and we will present in the next days through the deep dive that we are targeting on the 7th of May on GBIS activities, more details on our plan to restore growth and profitability in the business. Starting with the global market activities, as you can see from the right of the page, we will focus on reducing by EUR 8 billion the other revenue allocated to market activities. EUR 2.3 billion have been already achieved. 80% revolves around the flow products. The strategy in a nutshell, this is on the left-hand side of the page, we will come back to it on the 7th of May, revolves about focusing where we think we have fundamental competitive advantage, leadership, and above-average profitability, which is investment solutions. We provide for distributors across the board, asset managers, private bank insurers, as well as retail banks through simple products such as the ones we're buying from Commerzbank, with listed products or more structured products such as Autocall as a case in point. We provide this on a cross-asset basis, and we will continue to grow these businesses at an above-par profitability. Second, we want to continue operating as a leader in financing based on assets, which is something where we have a competitive edge. Finally, as you have seen, we will restructure strongly the flow activities, especially on the FICC side, to focus on where we are strong and where we have cross-selling capabilities, i.e., the corporate franchise. We have already announced the closure of the OTC principal commodities, the closure of the Descartes proprietary trading activities. We have already said that we will be much more selective in prime services and clearing, and that we downsize fixed income, I've already mentioned. We will detail that more on the 7th of May with all the business managers of the CIB division. On cost, I won't go there in the details. Just to give you further information, we confirm the ambition to decrease the cost in absolute terms by 2020, bringing positive jaws again for CIB as for all the other divisions. The saving plan for EUR 7,500 million, in addition to the existing saving plan, has been launched, will be executed as early as the second half of the year, when we are finished with, especially, the social dialogue. What you have here, the new information, is a split between the various divisions. As you can see, 76% of the cost plan revolved around market activities. Another information we're providing you with at page 21 is a sequencing of events. You had many questions in Q4, we are more precise. As you can see, as far as the deleveraging is concerned, we confirm that we want to execute the bulk of it in 2019, as you have seen, we have started strongly to execute that promise. On the cost savings, we will execute part of it as early as 2019, meaning we will be done with the execution of the plan, the savings will fall through, partly in 2019 and for 70%-80% in 2020. We basically confirm that we expect the full impact of recurring savings by 2020 onwards. We confirm that the restructuring cost should be between EUR 250 million and EUR 300 million, which we have said in Q4, 100% should be incurred as early as 2019. Let me stress here that I mentioned the cost to achieve is the total restructuring cost, which is slightly different from an accounting provision. We will be coming back to you, in Q2 with the possible accounting provision, related to this cost to achieve. Finally, you had questions on the impact on revenue stemming from our deleveraging. We are being more specific. We had said between EUR 200 and EUR 300, we give you a EUR 300 number for the revenue impact. Let me remind you that the whole division, or GPAS, accounts for about EUR 9 billion revenues. Corporate Center, I have already mentioned, the minus EUR 113 million gross operating income, which is consistent with the guidance of minus EUR 500 for the year. I will also mention the minus EUR 53 million IFRS 5 accounting impact. Let me stress again that you can see the difference between Q1 2019 versus Q1 2018. We had a very positive impact in Q1 2018. We are back to normal, that explains some of the gap between the two years. Thank you very much, William. As you know, we will meet on the seventh of May with much more detail on the content of the businesses and their perspective, both for the French Retail and the Global Banking & Investor Solutions. We are done for the presentation of the first quarter. Now we can enter into the Q&A. Again, let me just remind you, this good discipline of two questions per each person, the floor is yours. Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad. We have our first question from Tarik El Mejjad from Bank of America Merrill Lynch. Hi, this is Tarik El Mejjad from BAML. Just a couple of questions, please. First of all, on the RWA deleveraging and the impacts on revenues. Clearly, in Q1, you had a good or strong start to the program, Q1 was a bit weak in revenues, still we are expecting more pressure on revenues from this deleveraging. What I want to understand here is that still to come in next quarters? And how this RWA deleveraging works splits over the quarter. Is it happening in the last few days, hence the revenues are not impacted or is it through the quarter? The second question is still on RWAs in market risk. You reversed all the higher market risk that you have had in Q4, around EUR 7 billion in Q1. Is that EUR 15 billion of market risk, whether that is the new number to have or should we expect some re-reversal around EUR 2 billion or EUR 3 billion in the next quarters from market risk? Thank you. Hello, Tarik El Mejjad. I think I will leave the floor to Séverin on these two questions. Séverin? Yes. Regarding the risk-weighted assets deleveraging we have experienced in the first quarter, we have started early February, in fact, to start after the announcement we made to you after the first quarter results. You can consider that in January we did not do anything, but we started over the last two months. We had necessarily also a small impact on NBI new to this February and March, specifically on net income. It is not material at that time. Perhaps what we can say will be more probably spread- Yes across the year rather than a one-off on the revenues. I mean, so- Absolutely. It will be spread over the year. Yes, you're right. We will deliver 75%, as mentioned by William, in terms of delivery this year. We will have also a slight impact next year. Regarding the second aspect of your question, perhaps William. Yes, Tarik, you're perfectly right. We had, as others, a big increase in the market of RWA in Q4, largely reversed this quarter. This fundamentally reflects normalization of market conditions. As we had said in Q4, in our capital book that we provided you with in Q4, we have a rather conservative approach of market risk RWAs, which means that our plan does factor the fact that the normalization is not as big as the increase in 2018. Just to follow up on that, can you run the Global Markets division at 15% RWA market risk? That's like at the low end of what you've done in the last three years. Is more EUR 16 billion, EUR 17 billion the level of RWAs that you need to have for that business? Listen, I think that it can vary. Let's face it, as we have seen. Again, there was an extreme scenario in Q4, a much more normal one, I would say, this quarter. You can have some fluctuation. What is important, I think, is to consider what we are doing also structurally, and that, again, the fourth quarter situation was abnormal. I think that, again, you can have a small fluctuation, if you have normal conditions, not the one we had in the fourth quarter. Difficult to tell you more than that, Tarik. Okay. Thank you very much. Very clear. Thank you. You're welcome. Next question. Next question comes from Laurence Coresse from IBFS. Hi. Hello. I have two questions, perhaps one a bit generic. You're in restructuring mode now. Basically, you're shrinking a bit to generate some capital. I was just wondering longer term, what's your vision for the bank, and how does that restructuring you're doing now change the vision that you laid out during the last investor day? My second question would be on the margin improvement in France. I would like to understand better the dynamics on how these margins actually improve given the current context. Thank you. Laurence, hello. I will leave the floor in a minute to Philippe Heim to answer your question on the French retail. I think that on the 7th of May, we will highlight that actually we have a selective approach in terms of capital allocation. I would not say that we are in a restriction mood across all the businesses. There are businesses which are growing very well, and we are very positive on that in the international retail and financial services, as we've said. Across the board, we expect further development, further improvement of the profitability and operating efficiency. You have the French retail. Again, Philippe will comment. It's a more mature market. It's retail activities, and we've seen, generally speaking, across the Eurozone, that retail activities, if sometimes volumes are good, like in France, of course, still suffer from low rates. We are here transforming effectively the business model step by step, but I think efficiently. As Séverin highlighted, and William, in the CIB, we have very strong dynamic in the financing activities, and that will stay. We have effectively a reallocation of our capital regarding the market risk, the capital market activity, sorry, to improve the profitability, factoring all elements, environment, regulatory headwinds, et cetera. I think, if I may, it's a strategy which is adapted for the different businesses. All in all, we are confident to see a further progress of the group in terms of profitability, cost efficiency, and operational efficiency step by step. Today, yes, fair to say on the CIB we announced, and we are really focusing on the execution, and we are confident on the execution in CIB, in particular in capital markets, as we've seen with three-quarters of the savings in that division. Perhaps, Philippe, can you answer the question on the French retail? Good morning. Two components, of course, on the interest margin. The first one is on loans, and definitely it's stabilized for 2 main reasons. The first one is that we have a good momentum regarding the origination, notably on corporate. The last quarter and this quarter has been very good on the corporate side. Also because we are very selective, and we are also quite cautious at the origination with our prices. That's the first element, and that's why on the credit side, the net interest margin, basically, it's stabilized. Actually, it's -1% compared to first quarter of last year, and it's +5% compared to the fourth quarter of last year. Regarding the deposit, there is also a favorable trend. I can share with you some numbers. Compared to first quarter of 2018, there is a decrease of -5%, but compared to the fourth quarter of last year, it is only -3%. Again, on this one, stabilization. I can remind you that when we compare first quarter of 2018 versus first quarter of 2017, and we are in sharp decrease of the rates, the decrease of the margin was -9%. We are definitely now in the stabilization, done, I would say, for the net interest margin for credit and good progress with deposits. Thank you. Next question. Next question comes from Jacques-Henri Gaulard from BPCE. Yes. Good morning, gentlemen. I just have one really. When I look at your results this morning, it is roughly EUR 630 million net income. BNP was EUR 1.9 billion. Consensus expect Crédit Agricole at EUR 850 million. Natixis is at EUR 600 million as well. It is true you have been in attrition for a while, can you say now that at the end of all this, in Q1 2019, we are really at the end of that attrition process? Can you really start from that base now to grow again? Jacques-Henri, there's no attrition. I do not buy this concept of attrition. As I said, we are in a process of completing a refocusing of the group, which is, at the end of the day, relatively limited. We have completed the refocusing on the Balkans, and we've done regarding the international retail banking. As I said, it's quite interesting to see that this division, despite actually the fact that, for example, Bulgaria is not any longer in the accounts in the first quarter, grow its net profit and its profitability. As we said on the French retail, we are probably at the inflection point, and we will further give you an explanation detail on the seventh of May. As we said, we have in mind to have a progressive improvement of the revenues. It's 0 to -1% this year and back to growth, with effectively also on the cost, the benefit of the beginning of the decrease in 2020. Effectively, in GBIS, a whole process which is to fundamentally improve the profitability and go back to positive jaws. I think that what we've always done is try to work on building a robust business model in this formidable transformation. Here we do not talk about just one quarter. The whole banking sector is changing. We are adapting. We are, I think, adapting in the right direction in terms of the patterns of capital allocation. We will, again, also comment more on this. We are very positive on what we can achieve in the coming quarters, of course, through the P&L and the capital, and be in a good position to further grow also beyond 2020, obviously. Okay. If I may add just one point. I think one shall not confuse attrition with better management of capital and resources, which is basically what we are doing now. Thank you, gentlemen. Next question. Next question comes from Jean-François Neuez from Goldman Sachs. Hi, good morning. The first question I wanted to ask was, I know it's only still the first quarter, but I was looking in terms of the full-year outlook with the possibility of keeping the floor that you have had in the past for the dividends, also taking into account the announcement of the restructuring charge. I know it's a bold decision and ultimately a shareholder approval decision, is this your plan to continue to offer the floor this year, even if the net income was not to be enough to, in particular with the one-off, to cover with the 50% payout? Is this your plan to propose a cash or still a scrip option? My second question was on the business side in the CIB business in the financing part, there is a very strong growth of risk-weighted asset that has resumed for the past four or five quarters after a period like 14%, I think it was, year-over-year, this quarter, after the year that was before that decline of 8%, 9%. Yet, the return on equity is still not necessarily all that high. I just wanted to understand from here, in order to push the return on equity clearly above cost of capital here, in particular with super low loan losses, are you planning continued really high risk-weighted asset growth? Or does it have also to come through the cost here and any of the cost program for CIB also relating to the financing business? Just wanted to understand what's your budget for growth in that business. Thank you very much. Jean-François, I will let Séverin answer the second part of your question. The first part is the dividend. There's no change of policy. We have, as you know, a capital trajectory. I must say again, this quarter is an important milestone to show our capacity to meet this capital trajectory, which is planning effectively a 50% payout ratio. We will apply the floor, and it is in cash. As we have said, this year, we decided based on the decrease of the fourth quarter and the headwind on the regulatory side that we have calibrated at between 30% and 50%, probably from this year, it might be postponed actually, not to the second quarter, but probably more the first quarter. Again, that was making sense in order to meet also as quickly as possible, the 12% and avoid going too low to make this decision. For 2019, 2020, we are doing everything to precisely, absolutely be comfortable with this policy of the dividend, and the capital trajectory is based on that. Now back to Séverin on the financing. Yes, we know we manage this activity as all these GBIS activities with our risk-weighted asset limits. It's fair to say that last year we had an increase if you compare end of 2017 and 2018. Now we have a new target in terms of capital allocation for all businesses within GBIS. What we will do is we will progressively reallocate more capital on more profitable businesses, and it is one of the businesses which is more profitable under the total limit we have to deliver the target in terms of return on equity. We cannot say that growth in terms of risk that you experience during the last year. We will not forecast that for next period of time. The second point to make, we are in a trend. We comment on that from next Tuesday, where we are focused on increasing our ratio NBI in risk-weighted asset through the development of businesses, which is more fee-driven. It is one of the key targets we have to deliver more revenue and more return with a lower risk-weighted asset consumption, also in Financing & Advisory. Thank you, and thank you for clarifying so clearly with the dividend. Yeah. Thank you. You're welcome, Jean-François. Next question? Next question comes from Pierre Chedeville from CM-CIC. Yes. Good morning. Two quick questions. First question, I was surprised when I learned that you were closing your OTC commodities business, because in my view, you had bought the activity of commodity business of Commerzbank. Maybe I'm wrong, but what exactly are you going to keep or not to keep in the acquisition of commodities business? If this could have an impact regarding the quarter one impact of the acquisition of Commerzbank activities. My second question is about the impact on your gross income in GBIS regarding the loss of revenues of EUR 300 million and the economies of EUR 500 million. It will be a net of EUR 200 million. With a gross calculation, it means for me, roughly one point of improvement in your profitability. When we look at the current profitability, which is around 8%, 8% last year, and your target in 2020, this means that it lacks more or less two or three points of profitability, which will not come from your plan of adaptation. From where this improvement will come from, improvement in market conditions, according to you, better close to 2017, for instance, or to capital allocation and reduction of risk-weighted asset. Thank you. Pierre, I will leave Jean-François Grégoire, Head of Global Markets, answer your first question, and then Séverin will answer the second part of your questions. Jean-François. Hello, everybody. We decided after a deep review to exit the OTC commodity business, and by doing so, by exiting as well the operational chain that makes the costs are decreasing at the same time. There are some products, namely the listed products, the warm products, that we keep and that we'll be able to manage in another chain. These products that were in the Commerzbank deal will be still on our offer. Jean. Yes. As you said, our target is to deliver a return on equity for Global Banking and Investor Solutions next year around 11.5. The plan we are presenting to you is really to deliver that with all the 3 levels you mentioned. We have still some growth opportunity, as I mentioned, even if it's, you know that the financial advisory, transaction banking, and private banking in France, and so on. We have also our cost reduction plan and a reduction in term of capital allocation. It's the 3 main drivers where we will work, and we are working on. The first quarter is just the first step. The EUR 300 million mark in term of revenue is underlying billion global revenue entity, we are managing today. There is a slight improvement also in the market condition in our assumption for next year. Thank you. Thank you. Next question. Next question comes from Omar Fall from Barclays. Hi, good morning. Sorry, good afternoon. Two questions from me. Firstly, last quarter, you told us you'd increase the benefit to CET1 from disposals to 80 to 90 basis points, of which at the time, 37 basis points had been closed. There's a lot of moving parts. Following the sale of Slovenia, how much of that 80 to 90 is left? Can you give us an update on the process of identifying these further assets? Secondly, just on French Retail, apologies if I'm getting ahead of myself ahead of Tuesday, you're now growing almost in line with the industry level in terms of loans, which is the first time in many years, which is very encouraging. Are you effectively dropping the selective loan origination policy that you told us in the past would protect you from the low rate environment? That if we're honest, so far, it's hard to see the positive results of that. If so, why have you changed your mind on that front? Thank you very much. Omar, I will leave again Philippe-Henri to comment again on our credit origination policy. We see that we remain selective, in particular on the market. May I just clarify? We had not closed anything end of 2018 regarding our disposal. We had announced for the equivalent of 38 basis points, nothing was closed. Okay. We started to close some of the disposal, beginning of this year with Bulgaria, actually. We have effectively in the first quarter, the benefit of disposal representing 20 basis points. We have announced today the sale of Slovenia, which means that there is a remaining 25 basis points, which has been announced, and which will be closed in the coming quarters, then benefit, of course, to the CET1 ratio. Beyond this, as you rightly pointed out, we have effectively a more global program of 80 to 90 basis points, and we are proceeding to the sale of the other assets. What I'd like to say is, I'm very happy in the way we have disposed the first part of this program with good prices. These are sound assets with strong interest of many players, I think it will be the same for the second part. Again, things are in the progress on that front. Philippe Heim on the French Retail. Yes, there is no change in our origination policy, nor in the corporate market, nor in professionals or in individuals. I think that we are starting to receive the benefits of our transformation plan. As I said, especially on the corporate market, this quarter has been very good. Yes, on origination, with a good level of margin. Also on fees, services fees, as you can see, are more or less stable despite the Gilets Jaunes cap on fees. This is due to the good momentum on the fees related to credit and related to the corporate market. No change in our origination policy. Great. Just as a very quick follow-up on that, on the first question, just to help us with the modeling of the Europe division, because consensus is all over the place. What geographies will still be there in Q2, when does that line go to zero or close to zero based on the expected closing? Thanks. Listen, it's a little bit difficult to give you precise information. The closing will take place in 2019, normally, William. Basically, as Frédéric said, compared to your 80-90, you can see that we have announced for the equivalent of more than 50% of the program. In the year, in the first quarter program that is supposed to be developed through 2020. What has been closed, to be extremely precise, is Bulgaria, Albania, the sale of our private bank in Belgium, the sale of a small online bank in Spain. This is what you have in Q1. I won't give you precisely what you should take in Q2 or Q3, because obviously, the time of regulatory approvals and antitrust approvals may depend from one market to another. Clearly, what we have announced further to what I've just mentioned, and which has been closed in Q1, is Poland, Serbia, Montenegro, Moldova, Macedonia, and the recently announced Slovenia. We have already, on top of it, said that for everything that had been announced in Q4, i.e., the 38 basis points that Frédéric was referring to, the total impact on net income would be going forward of about EUR 125 million. You make the assumption on Slovenia and add it too. Brilliant. Thank you. That's excellent. Thank you. Next question. Next question comes from Flora Bocahut from Deutsche Bank. Yes. Good morning. Thank you. I have two questions on capital. The first one is regarding TRIM. Just wanted to know, first of all, if there was any impact from TRIM in the Q1 core tier 1 ratio. Then more broadly, if you could shed some more light on the portfolios that have been reviewed already, and especially whether your market risk portfolio has been reviewed. The second question is regarding operational risk RWA, because you must have seen that for other French banks, the regulator has asked them last year either to toughen up the assumptions on the internal model or to increase the use of the standardized model. I just wanted to ask you whether you have had a similar review from the supervisor or if it's yet to come, and if it's not happened yet, if it's incorporated in your guidance for the 30-50 basis points on regulatory headwinds. Thank you. Flora, I will turn the floor to Diony Lebot, who is Deputy CEO in charge of monitoring, in particular the risk division and all these elements. Please, Jeannie. Yes, good morning. Regarding the impact of TRIM this quarter, it's quite small. It's 2 basis points. No further refinement of our guidance regarding TRIM. We have said that we expect a further impact on TRIM and on model reviews of around 30-50 basis points. At this stage, based on the information we have, the decisions we have received, and as Frédéric just said it, we probably don't expect this impact to be before Q3. To your more precise question on market risk, yes, we did have a review, but decisions are still pending. Most of the decisions already received and incorporated in our past quarter 1 is mostly on high risk portfolios on retail. On operational risk, yes, we did have a review of our AMA model 3 years ago. We did receive a decision. It's already incorporated, we don't plan to make any changes on our usage of advanced models. If I'm not wrong, we are actually more capital than the advanced model, and we have a density which is higher, I don't expect anything on that front. No change on this. Thank you. Next question. Next question comes from Azzurra Guelfi from Citi. Hi, good morning. Two questions from me. One is on the CIB. I would like to know if you could share with us what is the revenue growth assumption that you plan in the coming quarters, because you indicated that you expect some kind of recovery, and that would be essential for the organic generation of capital. I don't know if I have to wait for Tuesday, but in case, I just ask. The second one is on Basel IV. I know the regulatory framework is not yet set in stone, but you've been one of the few banks that have actually been kind enough to share to the market an indication on what was your Basel IV expectation. There has been this quarter the review exercise published both by the BIS and the EBA. I just wanted to know if in light of that, you have any revised guidance to provide. Thank you. Azzurra, Séverin will answer. I must say probably on the seventh of May, we'll have more information. On your second point, we've identified nothing to change our assumption. I've seen nothing, no change. We will refine that in due course, there's no change on Basel IV. Séverin? Yes. We will provide you on the main dynamics we see in our different businesses next Tuesday. We don't guide on our revenue, clearly, for the next quarters on that businesses. We will give you more insight on the dynamic we are on today. Next question. Next question comes from Nick Davey from Redburn. Yes. Good morning, everyone. Two questions, please. The first one, sorry, it's just a high-level question, but I suppose given this really fantastic capital generation this quarter, I suppose I'm just scratching my head a little bit, looking back now on the scrip dividend, in a way. I just wondered if you could comment as to whether or not you sort of stand behind that decision, or if you have any regrets on that decision. When I listen to you talk about the disposal still to come, the market risk RWA still to come, you were talking about originate to distribute being a tailwind, just come up with plenty of capital generation from here, far more than the regulatory headwinds to come. I suppose I'm scratching my head a little bit about that scrip dividend. I wonder if you have any comments. The second one, just on GBIS. I know, again, something we may come back to in the coming weeks, but just in advance, given what you've told us about the phasing of the restructuring charges and the savings, which are a negative headwind for this year, should we expect negative draws from GBIS this year? Specifically, should we expect rising costs this year, pretty much whatever the revenue environment? Thank you. Nick, I think on your second question, again, we'll come back to you on the 7th of May with all detail. We don't give such precise guidance. We have given a lot of information for you to plug assumptions. Listen, on the dividend, We have decided this scrip to be really as soon as possible on the first fraction. What can I just say, effectively, with the level of Q1 and also first quarter, you should just add these 23 basis point and maybe more, if people think that it's effectively a good decision as a shareholder to go for the scrip, plus the additional disposal, et cetera. We can be on the safe side as quickly as possible, which will give you also, and relates to other question, a lot of comfort on the rest of the trajectory for 2019, 2020 on the dividend. I think it's a consistent decision. We are applying our capital trajectory, and we cannot change from one quarter to the other. It's a two-year trajectory, and we are very confident with that, very comfortable. The sooner the better on the first fraction. Next question. Thank you. Next question come from Kiri Vittarajah from HSBC. Yes. Good afternoon, everyone. It's Kiri Vittarajah, HSBC. First question, given all the business disposals, the streamlining that you've done, and you're reducing your geographic footprint and complexity, I just wondered, are there any kind of fresh thoughts on taking a look at the drag from the corporate center and central functions as a consequence of all the kind of streamlining you've done? Secondly, just very quickly, is there any kind of update you can give us on the kind of sector-wide money laundering issues stemming from Russia? I think previously, SocGen seemed to be pretty clean on that front, but of course, your kind of internal investigations and stuff are still ongoing. Any update would be useful. Thank you. I will again leave Johny Legault with supervising all our compliance efforts. I must say, beyond this specific issue, all the efforts we have made in the last few years, and we are doing, with of course, some cost as part of the whole remediation program. On the first part of your question, of course, we are permanently trying to see how we can further adapt to corporate center, the setup to the business model. You have one CEO, and we still have one CEO, even if we sell the Vatican. Of course, there are also other parts where we will see whether we can adapt. I think that perhaps I will give the floor to Philippe Heim to explain what we are doing precisely on that. We talk a lot about GBIS, there is also part of the restructuring we've just announced, which is also for the international retail. First, perhaps Johny, and then Philippe Heim. Yes, hello. Indeed, we have carried reviews related to the activities which were recently reported and under suspicion. Our investigations have not identified any issues related to these precise activities. More generally speaking, I think it is important, indeed, to highlight all the efforts which are made and have been made over the recent years to enhance the framework and our capabilities in terms of compliance. First of all, increasing significantly resources dedicated to compliance. We have more than doubled our headcount dedicated to control the function of compliance. We have made significant investments in technology to enhance all transaction monitoring tools, including incorporating machine learning and artificial intelligence. We have strengthened our governance with global standards applying everywhere where we operate, with quite stringent rules. And independent controls on a regular basis. Overall, it remains, of course, a high area of attention. We have done a lot, we continue to strengthen, to invest in our framework and capabilities. Thank you. Philippe? Yes. Just to come back to your point regarding levies and directs coming from the corporate center, how we can improve in practice, let's say, our profitability. Just to share some lines of what we have done on IBFS, you see that we ventured some good momentum on commercial activity, and we have indeed a good financial performance. Nevertheless, we have accelerated our efforts on many areas to improve our operational efficiency. I will be here very specific. We are working on many fronts. First, the kind of functions we need to keep in Paris to supervise and to serve this first perimeter. We have decided to acknowledge the fact that we have reduced the perimeter. We have also increased the greater maturity of our larger subsidiaries, namely Rosbank, Komerční banka, BRD. That is why we have launched last month a plan that is submitted to the approval of our trade unions, leading to a downsizing of roughly 40% of FTE supervising the perimeter of international retail banking. At the same time, as you know, we have decided to adapt the system of supervision to put our IT function serving Africa in Casablanca, to produce our new IT functions at African cost and not at Parisian cost. To accelerate the regionalization. We have put regional hubs in Western Africa, Central Africa, also in Moscow. You know that in Moscow, we have decided to merge the Rosbank and DeltaCredit. We have launched a process of de-Moscowization of our FTEs with the ramp-up of our two IT hubs in Russia, Nizhny Novgorod and Krasnoyarsk. We will continue, we will accelerate this movement. Also another element, what we are doing, what we are experiencing in Komerční banka in Czech Republic, which is very interesting, Komerční banka has embraced agile at scale movement. Currently, 40% of our FTEs in headquarter of Komerční banka are working alongside, let's say, this agile at scale methodology. This is, let's say, a pretty large movement to capture efficiency gains, and in long run, let's say, to build this sustainable and profitable growth in IBFS. Thank you. Next question. Next question comes from Matthew Clark from Mediobanca. Good morning. A couple of questions, please. First one is on the day one P&L reserve that you make against level 3 assets. Could you just confirm whether that reserve saw a build-up this quarter or a decrease this quarter? Just wondering whether it flattered or hindered the trading results compared to previous periods. Second question is coming back to TRI. You said that the market risk-weighted asset review has already taken place. Has any of the low default portfolio reviews taken place yet? I'm just trying to get a feel for where that 30-50 basis point guidance comes from. Is it more from reviews that have taken place, so where you have an idea, or is it more from reviews that are yet to take place, and so it's really just a stab in the dark what the impact will be? Thank you. Matthew, I will leave the floor again to Johnny, who is monitoring all this, and then to Séverin on the day one reserve P&L. Johnny. Thank you. Yes. We had some of the missions, or some are ongoing on the low default portfolios. These missions take quite a long time, both in getting the report and then the final decision. Some are still to come. The 30, 50 basis points we have indicated is a combination of missions already carried, but we don't have a decision yet, and missions which have not happened yet. Let me just remind you, in terms of process, we were able to provide the guidance with some comfort from the supervisor at the point in time the end of the year, again, where no decision was made. Again, missions had been launched for most of them. I think it remains a reasonable assumption with still, of course, some uncertainty. Séverin? Yes. As you know, we published this day one reserve evolution at the end of each semester. You will have the full only the figures at the end of June. Just to give you a flavor, it's fair to say that given the market condition and the product volume we had, it's a slight decrease at the end of the first quarter. Thank you. Next question. Next question come from Maxence Le Gouvello from Jefferies. Good morning, gentlemen, madam. Two question. The first one is on the VAR normalization in Q1. Did it benefit from the closure of the prop desk or is it more to come? The second question would be for Séverin. The good performance of the FNA in Q1, can we get a little bit more color where it's coming from? Is it coming from financing, M&A, and which type of sector and which region? Thank you very much. Hello, Maxence. Perhaps, first Jean-François on the VAR, then Séverin. Very quickly on the prop desk. Overall, the RWA allocated to this activity were small, it's only a very marginal fraction that has been seen in Q1, the rest will be seen in Q2. It's not big at all. Severin? Regarding our Financing & Advisory, it's mainly coming from our structured finance and asset finance activity. We had a good performance specifically on aircraft financing and on shipping financing this quarter. We have also a good plan in our payments division and in our transaction banking business with a growth by 10%. All in, I think that the demand should add also that we had a good performance in our structured finance this quarter. Okay. Do you believe that this is usually structured finance are well known to perform better in Q2? Can we expect a better outcome in the coming months, or for you, Q1 was the good run rate that you were expecting for? We have 19% Q1 growth. It's a very strong growth. We cannot say that it's a normalized, what we have to expect for this quarter. Okay. See you. Overall, again, on the 7th of May, we'll have a statistic presentation by Pierre Palmieri. He will enter and you will see the robustness of this franchise. Now we are one of the world leaders in infrastructure finance, asset finance, renewable, et cetera. There are some structural trends which are very positive. On cash management, we are also developing very well. As you can see, it would be, going forward, a clear support for the P&L generation of the group. We'll be there, Frédéric. No worries. Yeah. Thank you, Maxence. Thank you. Next question. Next question comes from Stefan Stalmann, Autonomous Research. Good afternoon, gentlemen. My two questions are as follows. The first one regarding your contribution to the Single Resolution Fund, which actually dropped by, I think, 14% year-on-year, which is quite different from the increase that we have seen at BNP. Could you explain why it has actually come down? Is there maybe a shift change here between what you expense and what may go into irrevocable payment commitments? The second question goes back to global markets, and I noticed that your allocated capital in that unit has actually gone up quite a bit, 5% quarter-on-quarter, 10% year-on-year, despite the fact that risk-weighted assets have been flat or coming down lately. Could you explain why there is this divergence between the average allocated capital and what the risk-weighted assets are doing, please, in this business? Thank you. Stefan, William will answer both questions. Maybe there's also the question of the average. First of all, the decrease of the SRF, Single Resolution Fund. Hello, Stefan. The thing we do every year together with our statutory accountant is basically look at the basis upon which we apply the rate for the Single Resolution Fund charge. We did it according to the SRF accounting rules. This year it translated into a decrease, which is rather mechanical. Depending upon the amount you have for the asset calculation, you may have a different amount. On the capital, your question was on the overall risk-weighted asset for market risk, for capital market activities? No, I mean, the overall risk-weighted assets in global markets and investment services, not just market risk-weighted assets. The GPA? Yeah, because we have also the financing, I guess. Séverin. Not really financing. It's just the markets part, where your average allocated capital has actually gone up while your risk-weighted assets have come down. Yes, you had a disclosure at the end of the quarter, which is explanation of the Q1. The average capital allocated is the average of the other quarter with some technical delay. It's a technical impact. Are your risk-weighted assets during the period a lot higher than at the end of the period? The average has been higher. Thing is, the RWA decreased, the way you calculate, the starting point is at the end of Q4, the ending point is the end of Q1, so the average mechanically is different from the end point. You have to take into account from the capital ratios, obviously the endpoint, which is actually how the RWA number we ended up with With the benefit of, again, the decrease that we have just commented on the capital treasury. Okay, thank you. You're welcome. Next question. Next question come from Hank Danayu from Bank of America. Hello? Hank? Sure, Hank Danayu. Hello. Hi. Sorry. Yes. I didn't quite recognize my name. Sorry. Firstly, is on the cost trends in the first quarter. I was just wondering about the mismatch in terms of investments and cost savings you previously guided for the full year. Is there a big mismatch? Do we have more of the investments coming in in Q1 relative to the cost savings? I wanted to confirm about the restructuring costs in the CIB. Would that be booked as restructuring charge or will it go through the cost line? Sorry, just one question on, I was still thinking about what you answered to Stefan. Just to not get the impression that you crashed the RWAs at the end of the quarter, and the allocation is a better reflection of the risk you're taking in the division. Would you say there is more conclusion or No, no. On the other way, this is not the way it works. For everyone, the RWA computation that goes into the ratio is the RWA at the end of the quarter. In order to achieve a certain level of getting RWA, believe me, you have to work quite ahead. You can't manage production in retail or financing, or you can't manage your market RWA in a matter of weeks. These are things you have to implement quite well ahead. It's just that the way, as it is standard methodology, is to account for RWA at the end of the quarter. This is a picture of the balance sheet. I think, don't get carried away with the way we then account for the average when it comes to computing things such as ROE, RONE, which, where basically, we take the average through a period. Just to be extremely clear, there is no window dressing or management of RWA at the end of the quarter whatsoever. This would be very impossible, by the way, if the way it works is very different. You can't stop a production in a week. I guess that was the question. On the cost, again, the provisioning, as we've said, the bulk of the EUR 200 to EUR 50 and EUR 300 would be probably provisioned as restructuring costs, but we might not be able to do all in provisioning, and we have more clarity in the second quarter. I'm not sure to have understood you, the first part of your question. The dynamic is the. Yes, in the full year results presentation you gave us, you talked about your investments in 2019 at EUR 400 million, and your cost savings being EUR 300 million. Is it like in Q1, would you say you've probably front-loaded some of the investments, while the cost saving take longer to come through? Just in terms of understanding your cost trend with underlying up 3%. Is there some of this mismatch that has impacted the cost trend as well year-over-year? Could you elaborate a little bit, these figures you're referring to, is it on the French retail at the group level? No, it's at the group level. At the group level. Okay. Yeah. It's our global cost-saving plan. Yeah. The investment that we make, in particular, in the French retail transformation. Your question, is there any particular phasing of that in the first quarter? I don't think so. To be frank, it's something which is more something linear, from one quarter to the other. There's nothing, I would say, significant and specific. You can have some seasonality in the cost dynamic in certain businesses. What I would say, it's not material. Okay, thank you. Next question. We have no more questions. Ladies and gentlemen, if you wish to ask a question, you need to press zero one on your telephone keypad. We have two more questions, one from Omar Fall from Barclays. Hi. Apologies for the follow-up. Could you just update us on the EMC integration, please? It was a long time ago that we had the EUR 150 million target for operating profit, obviously, a lot has gone on in that market. Does that still stand? When will we start to see the integration costs actually come through the P&L, that would be very helpful. Thank you. Yeah, Omar, who can take that? Jean-François, you can take it? Regarding this integration, we don't change anything compared to what we said in our guidance. We follow the plan as it was elaborated. We have started to integrate the first business, the structured products, via different batches that we have onboarded on our books and with associated staff. Started to work with HVB on the integration of the listed products that will happen one shot at the end of the year. No change compared to our guidance and plans. You have- Remember, when we get the full benefit in 2021, if I'm not wrong, when everything will be completed? Yes, because you will have still in 2020 some transfer during this year. Yes. The full impact will be on the 2021. Yeah. Next question, if any. No? We have no more questions. Okay. Well, thank you very much for taking the time to attend the call. See you on Tuesday. Thank you very much. Bye-bye. Ladies and gentlemen, this concludes the conference. Thank you all for your participation. You may now disconnect.