Ladies and gentlemen, welcome to the Societe Generale's Conference Call. Frederic Guerilla, Chief Executive Officer and Guillaume Cadouch Chassain, Chief Financial Officer, will present the group's Q1 2019 results. Gentlemen, please go ahead.
Good morning to everybody. Thanks for attending this presentation of our Q1 results. As usual, let me just make a Few introductory comments, give the floor to William to answer more in detail and our full management team will be available to answer your Questions. So 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 on our 41 at 55 basis points with a 40 Tier 1 ratio, which stands at 11.7 percent factoring Discrete option dividend with a 50% assumption.
We will enter more in the detail, but It reflects clearly our capacity to meet our trajectory as soon as possible of this 12% Ratio target. Beyond this, I would say I would like to highlight the good and resilient performance of our businesses. The overall net income underlying net income stands at €1,000,000,000 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%. And 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 is planned today as well as we will do, of course, on the 7th May. I will turn the floor immediately to William to answer into the detail.
Good morning, everyone. So turning to Page 6 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 Frederic said is above €1,000,000,000 underlying. We have adjusted for the well known IFRIC profession.
Reported is a 6 3. 1, the RoTE is 8.4% for the quarter. It's very important Overall, to keep in mind that this is the business performance is quite stable. Business revenues are up this quarter plus 0.3%. And the net income for the businesses is very slightly down flat year on year.
The big difference that you can see in the underlying net income for the quarter
Hence principally
from the corporate center, corporate center has a normal Negative minus €113,000,000 gross operating income for the quarter, very much in line with the guidance. But if you remember, in the Q1 2018, the corporate center had an exceptional performance with some Starting with French Retail. French Retail has again this quarter A resilient profitability at 10.4% return on normative equity, good commercial 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. Yet 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 minus 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 jaws. 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 gained very strong revenues up close 4%, broad based Across insurance, public management and leasing and profitability improved further 100 and By 110 basis points relative to the Q2 of last year at 20.5%, so clearly very 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. You were helped as others by the turnaround this quarter. Very strong performance on financing and advisory revenues up 19 percent, 1.9 percent, current in constant term, plus 16%. The global markets are down, but Resilient, especially the equity is only down minus 5%, which fares well relative to competitors.
Let me Finally, highlights on the Corporate Center. We'll come back on it that we had a little IFRS 5 impact of minus EUR 50 €3,000,000 stemming from impairment of goodwill, especially of our Slovenian subsidiary, the The sale of which we've announced this morning, this is a non cash impact. And let me stress that we So this entity for a good price, just it's no one that according to IFRS rules, we impair the goodwill if appropriate. On risk profile, Frederic said the most important things, 21 basis points is low. It's 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 to 30 basis points. Very importantly, we continue to increase the asset Non performing loans are down further at 3.5% this quarter. This is again a quarter where we managed to decrease it Proactively, WIP's coverage ratio is up at 55%, which is one of the best coverage ratio in the Street, obviously, with some normalization in the market, Stretz Va and Va are down this quarter. I will come back to you. I'll spend a little more time on Page 8.
I know this is a Keith Focussarea for you guys as analysts for The Street as a whole. She's our management of capital ratio. As Frederic said, core Tier 1 is up 55 basis points this quarter on a pro form a basis stand at 11.7% in Q1 relative to EUR 11,200,000 in Q4. Let me stress the key elements of this improvement. Number 1, 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, Laurent, they are down minus 5.5 €1,000,000,000 which is approximately 16 basis points equivalent. On top of it, You have a very strict 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 for the most profitable businesses, and those have to obviously be down or flat. On top of it, We have announced some optimization about the best growing measures, especially more distribution For off loans and de risking measures of RWA, which have a very positive As Frederic 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 2,300,000,000 In the Q1, the equivalent of it being 7 basis points. Nothing to mention, Rick, that We are on track. The 3rd key element on the performance is obviously M and A. We had said that we were foreseeing close to 20 basis point impact in the Q1 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, Not in the EUR 11,700,000,000 that will come through in the next quarters, and we expect that the E and T acquisition will cost us in total 10 basis points in spanning from 2019 2020.
So 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 Three requirements for this year of 19.5%. Let me stress that not only we are 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, average ratio Stable, liquidity ratios are strong.
The liquidity buffer is up €5,000,000,000 And as you can see, And we achieved 60% of our funding program, at least 80% of the senior non preferred programs already, So nothing to worry about, so I think you need this concern. Then I will turn to if you know 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%. So it's again announced a 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 WLCA and Massaflione clients, which is a core client base that we target and Bouyguesdorama had another very good quarter, plus 30% Number of clients year on year, I. E, 123,000 new clients on Boursorama, Which is equivalent to an inventory of €1,800,000 at the end of the quarter.
We developed we are on track to develop our new setup for professional and corporate coverage, And 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, minus 3.2%, again, Mostly focused around the net interest income margin Being down year on year. Fees are down this quarter. We have to differentiate the story here.
After many quarters of increasing fees, we had obviously a missed service 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 yellow jacket measures. The costs are very well controlled at plus 0.4 percent and cost of risk is low even down year on year for resilient Fertility 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 He's strong, as I said, across the board, across geographies.
You see here the data, high single digit or even double digit for Russia As far as loan production or deposit outstanding are concerned, revenues are up 8% in Europe, 12% 0.5% in Russia, 7% close to 7% in Africa. And you can see that the group net income for international retail is up 10% year on year With the return on normative equity up 20 basis points, as I said, to 15.7. Having said that, and I'm sure you will have questions that Philippe, I and myself will be happy to answer. We want to make further progress in international retail, and 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 dynamic.
We have GDP growing in Central and Eastern Europe In between 2% 3% per annum with very low unemployment and satisfactory public finance. In Russia, this is a little lower with 1.5, but still the market the banking market is very underpenetrated And the Central Bank sees loan production growing double digit in the next years. And Africa is an area where In each and every country where we operate, the growth outlook is in between 3.5% 7%, so very strong with positive Demographic. What we're doing here is, number 1, invest in the commercial platform, be it the retail banking in Through digital investments, you have here an example what we do in Russia. You can now have an approval for a mortgage Online in Russia in 10 minutes with Rosebank.
Commerzbanca was the 1st bank or is still the only bank Having introduced Apple Pay in the Czech Republic. In Consumer Lending, we have done a deep dive. We have very nice, Very focused, very specialized consumer finance operation, profitable across all geographies and working on the 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, our partner, Autofersant, in Germany through ANSCHET Bank has been provided by us instant payment tools. And 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, developed our CIB capabilities, leveraging an increasing trend of corporate growth across the board, Especially in Africa, with agreement we've spoken with ABSA. Operational efficiency is an area where we invest. You have seen that we have announced the refocused central organization of the pillar. We expect downsizing of about 40% of central function through 2020. And we obviously have set up Perhaps in Africa that will help us on the back offices.
We're also implementing The merger between Rosebank and Wealth Aquatic in Russia on 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 across the board, as you know. We have EUR 2,300,000,000 revenues in 2018. They have grown 13% Per annum from 16 and they continue to grow.
You can see the protection premiums were up 10% In the Q1, continued to have strong growth in life insurance outstanding 4%. We also invest in digital. We have created quite unique startup, which offers digital contextual insurance, and we will roll it up Through an Indian partner with whom we have struck an agreement for the whole of Europe in the next quarter, you see that ELD on the financial services has a fleet up 9%. Revenues for A and D 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. And 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% to 18% return on You see that the operating expenses are very well contained. As I said, in 2019 CIB, the picture is more mixed with a very strong and probably the strongest At least for those who have published so far performance in financing and advisory revenues up plus 19%, 16% in constant terms. Global markets are resilient, but in an unfavorable environment for Market activities overall, so it's minus 7%, including Investor Services revenues.
For market itself, market It's about minus 10%, with minus 16% in FICC, minus 5% in equity, which again, I think is a good performance relatively speaking. You can see on securities revenue securities This is as well as Private Banking that we had the benefit according to IFRS 9 rules to offer re evaluation of our stake in the Swiss Stock Exchange, EUR 6,000,000 for about 60 EUR 6,000,000 in total this quarter. Overall, as you can see for Global Banking and Investor Solutions, revenues are up in Things are up in current term, plus 1.1%, minus 1.8% In a constant term, operating expenses are very controlled, flat in current term, down in constant In terms of all the return on nonmaterial equity is 8%, to be compared with our ambition to raise it to 11.5 to 12.5 percent. And 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 May on GBS 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 8 By €8,000,000,000, we are the Perfume allocated to market activities, €2,300,000,000 have been already achieved, 80% revolves around the Flow product. The strategy in a nutshell, this is on the left hand side of the page. We will come back to it on the 7th May, revolves about Focusing where we think we have fundamental competitive advantage, leadership and above average profitability, which is Investment Solutions, which 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 AutoCord as a case in point will provide this on a cross asset basis and we will continue to grow there These businesses have in above par profitability. 2nd, we want to continue operating as a leader in Financing based on assets,
which is something where
we have a competitive edge. And 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 core corporate client franchise. We have already announced the closure of the OTC principal community, the closure of the Descartes Corporate trading activities, we have already said that we will be much more selective in crime and subsidies and clearing And that we downsized fixed income, I've already mentioned. We will detail that more on the 7th 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 term by 2020 being positive jaws again for CIB as for all the other divisions. So the saving plan for €700,000,000 in addition to the existing savings plan has been launched, will be executed As early as the second half of the year, 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 revolves around market activities. Now the information we're providing you with, at Page 21, is a sequencing of events.
You had many questions In Q4, so 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. And 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, but the savings will fall through partly in 2019 and from 70% to 80% in 2020. So we basically We confirm that we expect the full impact of recurring savings by 2020 onwards. We confirm that the restructuring cost should be between €250,000,000 €300,000,000 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 that is the total restructuring cost, which is slightly different from the accounting an accounting provision. We will be come back to you in Q2 with the possible accounting provision Related to this cost to achieve. And finally, you had questions on the impact on revenue stemming from our deleveraging. We are being more specific. We have said between €203,000,000,000 €300,000,000 So we give you a €300,000,000 number For the revenue impact, let me remind you that the whole division of GBRS accounts for about 9,000,000,000 revenues.
Corporate Center, I've already mentioned the minus €113,000,000 gross operating income, which is Consistent with the guidance of minus €500,000,000 for the year, I also mentioned the minus €53,000,000 IFRS 5 accounting impact. Let me stress again that you can see the difference between in Q1 2019 versus Q1 We had a very positive impact in Q1 2018. We are back to normal and that explains some of the gap Between the 2 years.
Thank you very much, William. As you
know, we will meet On the 7th May, we've
much more detail on the content of the businesses and their perspective both for the French Retail and the Global Banking and Investor Solutions. But we are done for the presentation of the Q1. So now we can enter into the Q and A. Again, let me just remind you this good discipline of 2 questions for each person. And the floor is yours.
We have our first question from Sherik Emejjad from Bank of America Merrill Lynch.
Hi. This is Tarek Emeljad 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.
But I mean Q1 was a bit weak in revenues, but still we're expecting more pressure on revenues from this deleveraging. So what I want to understand here is that still to come in next quarters? Or and how this RWA leveraging was split over the quarter? Is it Happening like in last few days, then hence the revenues are not impacted or is it through the quarter? And the second question is still on RWAs and market risk.
You reversed all the higher market risk that you've had in Q4, around €7,000,000,000 in Q1. Is that EUR 15,000,000,000 of risk of market risk, or does it is the new number to have? Or should we expect some reversal Around EUR 2,000,000,000 or EUR 3,000,000,000 in the next quarters from market risk. Thank you.
Hello, Patrick. I think I will leave the floor to Severin On these two questions,
is Serran? Yes. Regarding the worst weather that's deleveraging we have experienced in the Q1, We have started early in February, in fact, to start that positive announcement we made to you after the 1st quarter results. So you can consider that in Jan, we didn't do anything, but we started over the last 2 months. And you had Necessarily also is more impact on NBI due to this Feb March, specifically on fixed income.
But it's not material at that time.
Perhaps what we can say would be more probably spread, I suppose, the year rather than a one off On
the revenues, I mean, so absolutely, we'll be spread over the year, yes, you're right. And we will deliver about 75% as mentioned by William in terms of data opportunities this year. So We will have also a slight impact next year.
And regarding the second aspect of
your question, perhaps, William. Yes, Taric, you're perfectly right. We had, as others, a big increase in the market of W3 in Q4, Largely reversed this quarter. It fundamentally reflects the normalization of market conditions. As we have said in Q4, in our capital work that we provided you for a in Q4.
We have a rather conservative approach of market risk at the Belgrade, which means that Our plan that factors some the fact that the normalization is not As big as the increase in 2018.
Yes. But just to follow-up on that, I mean, now you run can you run the Global Market division at 15% RWA market risk? That's Like at the low end of what you've done in the last 2 years? Or is more EUR 16,000,000,000, EUR 17,000,000,000 in 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. But 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 Q4 situation was abnormal. So I think that Again, you can have a small fluctuation, but if you have normal conditions, not the one we had in the Q4.
Difficult to tell you more than that, Tanisha.
Okay. Thank you very much. Very clear. Thank you.
You're welcome. Next question?
Next question comes from Laurence Curres from IBS.
Hi, hello. I have two Two questions, perhaps one a bit generic. So you're restructuring mode now. Basically, you're shrinking a bit to generate some capital. But 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.
Lorraine, hello. I will leave the floor in a minute to Philippe de Maric to answer your question on the French retail. I think that on the second of May we highlight that actually we have a selective approach in terms of capital allocation. And I would not say that we are in a restructuring 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. Then 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 we sell activities, if sometimes volumes are good, likely in France, of course, it suffers from low rates, But we are here transforming effectively the business model step by step, but I think efficiently.
And then as Stephane, as I And William, in the CIB, we have very strong dynamic in the financing activities and that will stay, But we have effectively a reallocation of capital regarding the market risk the market activity, sorry, To improve the profitability, factoring all elements, environment, regulatory headwinds, etcetera. So I think, if I may, it's The strategy which is adapted for the different businesses. All in all, we are confident To see further progress of the group in terms of profitability, cost efficiency and cost operational efficiency step by step. Today, yes, it's 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, we have 3 quarters of the savings in that division. Perhaps Philippe, can you answer the question on the French Retail?
Good morning. So Two components, of course, on the interest margin. The first one is on loans. And definitely, it's Stabilize for, I mean, two 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.
And also because we are very selective and we are So quite cautious at the origination with our prices. So that's the first demand. And that's why on the credit side, The net interest margin, basically, it's stabilized. It's Actually, it's minus 1% compared to Q1 of last year and it's plus 5 Compared to the Q4 of last year. Regarding the deposit, there is also favorable trend.
I can share with you some numbers. Compared to Q1 of 2018, There is a decrease of minus 5%, but compared to the Q4 of last year, it's only minus 3%. So again, on this one, the stabilization, I can remind you that when we compare Q1 of 2018 versus
Q1 of 2017, and
we are in short In Versu's Q1 of 2017, and we are in sharp decrease of the rest. On the rate, the decrease of the margin was minus 9%. So we are definitely now in the stabilization, down, I would say, for the net interest margin for credit And good progress with the proceeds. Thank you. Next question.
Next question comes from Jack Henry Zallard from Kepler Cheuvreux.
Yes, good morning gentlemen. I just have one really. When I look at your results this morning, it's roughly €630,000,000 net income. BNP was €1,900,000,000 Consensus expects credit card record at 850. Natixis is at 600 as well.
And it's true you've been in attrition for a while. And can you say now that at the end of all this, in Q1 2019, we're really at the end of the attrition process? And Can you really start from that base now to grow again?
Jean Francois, there's no attrition. I do not By this concept of attrition, as I said, we are in the process of completing a refocusing of the group, which is At the end of the day, we're relatively limited. We have completed the refocusing on the banking and we've done Regarding the International Retail Banking. And as I've said, it's quite interesting to see that this division despite actually the fact that, for example, Bulgaria is not any longer in the in the Q1, 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 7th May.
But As we said, we have in mind to have a progressive improvement of the revenues. It's minus 0 Minus 1% this year and back to growth with effectively also on the cost the benefit of the beginning of the decrease in 2020. And effectively, as in GBIS, the whole process which is to fundamentally improve the profitability and go back to But 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 1 quarter. The whole banking sector is changing.
We are adapting. We are, I think, adapting in the right direction in terms of The balance of capital allocation, we will again also comment more on this. And we are very positive on what we can She is in the coming quarters, of course, through the P and L and the capital and be in a good position to further grow also beyond survival and Obviously. If I may add
just one point, I think once you're not confused attrition with Better Management of Capital and Resources, which is basically what we are doing now.
Thank you, gentlemen.
The next
question?
Next question comes from Jean Francois Neuez from Goldman Sachs.
Hi, good morning. The first question I wanted to ask was, I know it's only still the Q1, 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, is it I know it's a broad decision and ultimately a shareholder approval decision, but 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, And is this your plan to propose a cash or still a scrip option? And 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 4 or 5 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%, Mayet, the return on equity is still not necessarily all that high. And 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 Just wanted to understand what's your budget for growth in that business?
Thank you very much.
Jean Francois, I will let Cyril answer your the
second part of your question.
The first part The dividend, there is no change of policy. We have, as you know, a capital trajectory. And 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, and we will apply the floor, And it is in cash. As we have said, this year, we decided based on the decrease of the Q4 and The headwind on the regulatory side that we have calibrated at between 30% 50%. Probably upfront this year.
It might be postponed actually not to the Q2, but probably more the Q1. But again, that was making sense. In order to meet also as quickly as possible the 12% level going too low to make the decision. But for 2019 2020, we are doing everything to precisely absolutely be comfortable with This policy has been delivered and the capital trajectory is based on that. Now back to Sylvain on the financing.
Yes. We know we manage this activity as all these GBS activities with our risk weighted asset limits. And it's fair to say that last year, We had an increase if compared to the end of 2017 and 2018. And now we have new target in terms of capital Allocation of all businesses within GBIES. What we will do is we will progressively reallocate more capital on more profitable businesses, and it one of the businesses which is more profitable and the total limit we have to deliver the target in terms of return on equity.
So we cannot say that the growth in terms of That you experienced during the last year was we will not forecast that for the next period of time. The second point to make, we are in the We'll comment on that on next Tuesday. We have to focus on increasing our ratio NBI investment and assets through the development of Businesses, which is more fee driven. And it is one of the key target we have to deliver more revenue and more growth return with a lower risk weighted asset
Yes. Thank you. You're welcome, Jean Stora. Next question?
Next question comes from Pierre Frederic Ville from CIC.
Yes. Good morning. Two quick questions. First question, I was surprised when I learned that you were closing your commodities business, OTC Commodities business, Because in my view, you had about the activity of commodity business of Commerzbank. So maybe I'm wrong, but what is exactly what are you going to keep or not to keep In the acquisition of commodities business and is this could have an impact regarding the 1st year one impact of the acquisition of CBK Activities.
My second question is about the Impact on your gross income in GBIS regarding the loss of revenues of €300,000,000 and The economies of €500,000,000 so it will be a net of €200,000,000 And with the gross calculation, it means for me Roughly one point of improvement in your profitability. And when we look at the current Profitability, which is around 8% last year and your target in 2020, this means that it lacks more or less 2 or 3 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 assets? Thank you.
Sure. I will leave Jean Francois Gregoire, Head of Capital Markets, if you could answer your first question and then Severin will answer the second part
Hello, everybody. So we decided that the review to exit The OTT Community Business. And by doing so, by exiting as well the operational chain that makes that the costs are decreasing at the same time. But there are some products And mainly the listed products, the warrant products that we'll be able to manage in another chain. So these products that were in the Commerzbank deal will be still on our offer.
Leroy? Yes. And yes, as you said, our target is to deliver a return on the value of equity for Global Banking Investment ambition next year around 11.5percent to 12.5percent. And the plan we are presenting to you is really to deliver that With
all the
2 levels you mentioned, we have still some growth opportunity, as I mentioned, even if it's you know that in 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. So these are 3 main The drivers where we will work and we are working on. The Q1 is just in the first phase, but the €300,000,000 mark in terms of revenue Yes, underlying Pageant Global's revenue, Angelique, we are managing today. So it's where you have 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 for me. Firstly, last quarter, you told us you'd increase the benefit Q1 from disposals to 80 bps to 90 bps of which at the time 37 bps have been closed. There's a lot of moving parts. So following the sale of Slovenia, how much of that €80,000,000 to €90,000,000 is left?
And can you give us an update on the process of identifying these further assets? Secondly, just on CenturyTel and apologies if I'm getting ahead of myself ahead of Tuesday, but 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. But are you effectively dropping The selective loan origination policy that you told us in the past would protect you from the low rate environment. 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 believe again Philippe Henrique 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. We started to close Some of the disposal beginning of this year with Post D'Aire actually. And we have effectively in the Q1 the benefit of this proposal 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 and then benefit of course to the core Tier 1 ratio.
Beyond this, as we rightly pointed 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, and I think it will be the same for the second part. So again, things are in the progress on that front. Philippe Henrique on the French Retail.
Yes, there is no change in our origination policy, See, no in the corporate market, no 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, but with a good level of margin. And also on fee, services fees, as you can see, are more or less stable despite The yellow jacket cap on fees and this is due To the good momentum on the fees related to credit and related to the corporate market. So 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 The Europe division because consensus is all over the place. What geographies will still be there in Q2? And when does that line go to 0 or close to 0 based on the expected closing? Thanks.
Listen, it's a little bit difficult to give you precise information. The closing will Equate in 2019,
normally, William. So basically, as Frederic said, compared to Q2 2019, you can see that we have announced for the equivalent of more than 50% of the program In the year, in the Q1 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 Q3, because you know, obviously, the time of regulatory approvals and antitrust approvals may depend from one market to another. But clearly, what you have 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 has been announced in Q4, I.
E. The 38 basis points that Frederic was referring to, the total impact on net income would be going forward of about €125,000,000 So you make the assumption on Slovenia and
you are too.
Brilliant. Thank you. That's excellent.
Thank you. Next question.
Next question comes from Flora Benhakoun 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? And 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 all the French banks, the regulator has asked them last year either to toughen up the assumptions on the internal models or to increase the use of the standardized model. So 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 bps to 50 bps on regulatory headwinds.
Thank you.
Florent, I will turn the floor to Jonille LeGohan with the CTO in charge of monitoring, in particular, the risk division and all these elements. Please, Janine.
Yes, good morning. So regarding impact of TRIM this quarter, it's Quite small, it's 2 basis points. No further refinement of our guidance regarding TRIM. We said that we expect a further impact on TRIM and non motor reviews of around 30 to 50 basis points. At this stage, based on the information we have, the decisions we have received, and as Frederic just said, we probably don't expect So this is back to you before Q3.
And to your more precise question on the market True. Yes, we did have a review, but decisions are still pending. And most of the decisions already received and incorporated in our past core Q1. It's mostly on high default portfolios on retail. On operational risk, yes, we did have a review of Our AMAN model, 3 years ago, we did receive a decision.
It's already incorporated, and we don't plan to make any changes on our usage of advanced model.
And if I'm not wrong, we are effectively more capital than the Airbus model and we have the density, which is higher. So I don't I don't expect anything on that front, no change on
this. Thank you.
Next question?
Next question comes from Asura Wenzee 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 of what was your Basel IV expectation. There has been this quarter the review exercise published both by the EBA and I just wanted to know if in light of that you have any revised guidance wants to provide. Thank you.
As you have said, we will answer, but I must say, probably on the 7th May, we'll have More information on your second point, there's nothing we've identified nothing to change Our assumption, I've seen nothing, so no change. We will refine that in due course, There is no change on Basel IV. Yes.
So we will provide you on the main dynamics we'd see in our different businesses Next Tuesday. And we don't guide on our revenue clearly for the next quarters on that businesses, But we will give you more insights on the dynamic we are going to play.
Next question?
Next question comes from Nick Davey from Redburn.
Yes, good morning everyone. Two questions please. The first one, sorry, is just a high level question. But I suppose given this really fantastic capital generation in the quarter, I 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.
Because when I listen to you talk about The disposal still to come, the market risk RWA still to come. You're 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. So I suppose I'm scratching my head a little bit about That's scrip dividend. I wonder if you have any comments.
The second one just on the 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 jaws from GBIS this year? Or 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 May with all detail. We don't give such precise guidance. We have given lots of information for you to plug assumptions. Listen, I know the dividend. I mean, we are asking for we have decided this script to be really as soon as possible on the trust front.
What can I just say effectively with the level of Q1 and also Q1, you should just add this 23 basis points And let's see more if people think that it's effectively a good decision that the shareholder to go for the spread plus The additional disposal, etcetera, we can be on the safe side as quickly as possible, which will give you also an activity to ask the question A lot of comfort on the right of the trajectory for 2019 2020 on the dividend? So I think it's a consistent decision. We are applying our capital trajectory and we cannot change from one to the other. I mean, it's a 2 year trajectory and we are very confident with that, very comfortable. And the sooner, the better on the 12%.
Yes. Good afternoon, everyone. It's Kiri Vijrajo, HSBC. So first question, so 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.
And 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, the your kind of internal investigations and stuff are still ongoing. So any update would be useful. Thank you.
Yes. I will again leave joining Lebow with supervising all our compliance efforts. And 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, So I'm calling 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 1 CEO and we still have 1 CEO even if we sell the back end. But of course, they are also on the part where we will see whether we can adapt.
And I think that This is a short to Philippe I to explain what we are doing precisely on that. We talk a lot about GBH and L, but there is also part of the restructuring we've just announced, Which is also for the International Retail. So first, perhaps, Johnny and then Philippe Heine.
Yes, hello. So indeed, we have carried reviews related to the Activities which were recently reported and under suspicion, our expectations I have not identified any issues related to these excise activities. But More generally speaking, I think it is important indeed to highlight all the efforts which are made and remained 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 and function of compliance.
We have made significant investments in technology to enhance all transaction monitoring tools, including incorporating Machine Learning and Artificial Intelligence. And we have strengthened our governance It's a global standard applying everywhere where we operate with quite stringent Rules and independent controls on a regular basis. So overall, it remains, Of course, a high area of attention. We have done a lot, and we continue to strengthen into investing our framework and capabilities.
Thank you, Philippe. Yes, Pierre, just to come back to your points regarding Labitation,
the direct coming from the corporate center, how
can you improve in practice, let's say, our profitability? Just to share some lines of what we've done on IBSS. You see that we invented some Good momentum in commercial activity and we have indeed a good financial performance. Nevertheless, we have accelerated our efforts On many areas to improve our operational efficiency, and I would be here very specific. We are working on many fronts.
1st, The kind of functions we need to keep in Paris to support and to serve this vast perimeter. So we have decided to acknowledge the fact that we have reduced the perimeter. We have also increased the rate of maturity of our largest subsidiary, namely Rosebank, KB, BRB. That's why we have launched last month's The plan is submitted to the approval of our 3rd unions, leading to advertising of roughly 40% of the FTE supervising the perimeter of International Retail Banking. At the same time, as you know, we have decided to adapt of the System of Strategic Survision to put our IT functions serving Africa In terms of Montairn, so to produce our new IT functions at African cost, but not at Parisian cost.
Then To accelerate the rationalization, so we have put rational hubs Investment Reflector Central Africa also in Moscow. You know that in Moscow, we have decided to merge Rosebank and Depak Philippe. And we have launched a process of demo conversation of our activities with The ramp up of our 2 IT hubs in Russia, Nishniprod and Krasnoyarsk. And we will continue and we accelerate this movement. And also another element, what we are doing what we are experiencing in KB in Equity is very interesting.
EKB has embraced natural scale Movement and currently 40% of our entities in the quarter of KB are working alongside, let's say, this Agilex scale methodology. So this is, let's say, a pretty large movement Capture efficiency gains and in long run, let's say, to build this sustainable and profitable growth in IBS. Thank you. Next question.
Next question comes from Mathieu Clark from Mediobanca.
Good morning. A couple of questions, please. First one is on the day 1 P and L reserve that you make against level 3 Assets. Could you just confirm whether that reserve saw a buildup this quarter or a decrease This quarter, just wondering whether it flattered or hindered the trading results compared to previous periods. And then second question It's coming back to TRIM.
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 to 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 hand the floor again to Jonny who is monitoring all this and then to
Yes. So we had some of the issuance or some are ongoing on the large portfolios, but Decisions take quite a long time, both in getting the report and then the final decision. So and some are still to come. So the 3,050 basis points we have indicated is a combination of emissions already carried, but we don't have a
And let me just remind you in terms of process, we were able To provide guidance with some comfort from the supervisor at the point in time beginning of the year, again, where No decision was made, but again, missions had been launched for most of time. And so I think it remains a reasonable assumption. It's still of course some uncertainty. Yes.
As you know, we published this Day 1 reserve evolution at the end of This semester, so you will have the full year in the 3 years at the end of June. Just to give you a flavor, it's fair to say that given the market conditions and The product volume we had is a slight decrease at the end of the Q1.
Thank you.
Next question?
Next question comes from Maxime Le Gubayo from Jefferies.
Good morning, gentlemen, madam. Two questions. 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? And the second question would be for Severin.
The good performance of the F and A in Q1, can we get a little bit more Where is it coming from? Is it coming from financing, M and A? And which type of sector and which region? Thank you very much.
Hello, Maxence. So, first, first, Jean Francois on the VAR and then Tyrone.
Very quickly on the PropDesk, Overall, the RWA allocated to this activity were small and it's only a very marginal fraction that has been seen in Q1 And the rest will be seen in Q2, but it's not a big help.
Sylvain, So 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 ship on financing this quarter. This is also we have also a good plan in our payments Division and in our transaction banking business, that's been the most by 10%. So, Olive, I think that the demand I should add also that we had a good performance in OE and it's a structured time this quarter.
Okay. Do you believe that this is usually structured finance are well known to perform better in Q2. So Can we expect a better outcome in the coming months? Or for you, Q1 was a normal the good run rate that you were expecting for?
No, we have 19% Q1 growth. It's a very strong growth. So we cannot say that it's normalized what we expect for the next quarter.
Okay. See you
next week. Again, on the 7th May, we'll have a fantastic presentation by Pierre Pammieri. You will enter in June. You will see the robustness of this franchise. We are one of the world leaders in infrastructure finance, asset finance, renewable, etcetera.
And there are some structural trends, which are very positive. Our cash management, we are also developing very well. So as you can see, it would be Going forward, a clear support for the P and L generation of the group.
We'll be there, Frederic. No worries.
Yes. Thank you, Max. Thank you. Next question.
Next question comes from Stefan Stohlman, 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? And is there maybe a shift change here between what you expense and what may We go into a revocable payment commitment.
And 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.
Stephane, Wilier will answer both questions. Maybe they'll answer the question of the average, but I will So first of all, the decrease of the HLS single branch refunds.
So look, Stefan, the thing we do every year together with our statutory accountant It's basically a look at the basis upon which we apply the rate for the single resolution fund charge. We did it according to the IFRS accounting rules. And this year, it translated into Chris, it's sort of mechanical, depending upon the amount you have for The asset debt prediction, you may have a different amount.
And on the capital you mentioned on the overall risk weighted asset for market risk for capital market activity,
I mean the overall risk weighted assets in Global Markets and Investment Services, not just market risk weighted assets.
The TBI is yes, because you have also the financing, I guess, now, Severance.
Yes, not the 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 core Tier 1, but the average Capital allocated is the average of the quarter with some technical delay. So it's a technical impact.
So are your risk weighted assets during the period a lot higher than at the end of the period?
The average has been higher.
The thing is the RWA decreased, but in the way you calculate, you take The 2 the starting point is at the end of Q4. The ending point is the end of Q1. So The approach mechanically is different from the endpoint, but you have to take into account from the capital ratio is This is the endpoint, which is yet shown. RWA number we ended up with
the benefit of again the Chris, that we have just commented on the capital trajectory.
Okay. Thank you.
You're welcome. Next question?
Next question comes from Han Baniau from Bank of
Hello?
Thank you.
Hi. Sorry, I didn't quite recognize my name. Sorry. First It's on the cost trends in the Q1. 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 So we have more of the investments coming in, in Q1 relative to the cost savings. And then I wanted to confirm about the restructuring costs in the CIB. Is that would that be booked as a structure in charge? Or will it go through the cost line? And sorry, just one question on I was still thinking about So just to not get the impression that you crushed 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 that's a wrong conclusion or
No, no, no.
On the RWA, I mean, this is not the way it works. I mean, for everyone, the RWA computation that goes into the ratio is the RWA at the end In order to achieve a certain lag move, forget the WA, believe me, you have to work quite ahead. You can't manage production in retail or financing or you can't manage your market as a way in a matter of weeks. I mean, 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 the delivery 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, you think such as ROE, ROE, Which where basically we take average through a period. So just to be extremely clear,
There is
no window dressing or management of Alto Permian at the end of the quarter whatsoever. This would be very impossible, by the way, in the way it works He's very different. He can stop the production in a week. And I guess That was the question.
And on the cost, I mean, again, the provisioning as we've said, the bulk of the €200,000,000 to €250,000,000 and €300,000,000 He probably provisioned a restructuring cost, but there might be we might not be able to do all of the provisioning and you will have more clarity in the second quarter. And the other I'm not sure if you have understood the first part of your question. I mean, the dynamic is
Yes. In the full year results presentation you gave us, you talked about your investments in 2019 at €400,000,000 and your cost being €300,000,000 But is it like in Q1, would you say you've probably front loaded some of the investments, while the cost savings take longer to come through? Just in terms of understanding your cost trend with underlying up 3%, so is there some of this mismatch that has impacted the cost trend as well year
But could you elaborate a little bit, these figures you're referring to? Is it on the French retailer or at Group level?
No, it's at the group level. Slide 4. At the
group level, okay. It's our global cost saving plan and then the investments that we make in In particular, in the French Retail Transformation. And so your question is, is there any particular phasing of that
in the Q1?
I don't think so. To be frank, it's something which is more something linear from 1 quarter to the other. There's nothing, I would say significant and specific. You can add some seasonality in the growth dynamic in certain businesses, but I would say It's not Matthew.
Okay. Thank you.
Next question?
We have no more questions. We have two more questions, one from Omar Fall from Bergel.
Hi. Apologies for the follow-up, but could you just update us on the EMC integration, please? It was a long time ago that we had the €150,000,000 target for operating profit and obviously a lot has gone on in that market. So does that still stand? And then when will we start to see the integration costs actually come through the P and L?
And That would be very helpful. Thank you.
Yes. Omar, who can take that? Jean Francois, you can take it.
So regarding this integration, we don't change anything to compare to what we said in our guidance. So we follow the plan as it was elaborated. So we have started to integrate the first Business, the structured product, various different batches that we have onboarded on our books and with associated staff and started to work with IT people on the integration of the listed products That will happen one shot at the end of the year. So no change compared to our guidance and plans. And if I think
we get the full benefit in 2021, if I'm not familiar, when everything would be Completed?
Yes, because you will have still into 2020 some transfer during last year. Yes, so the full impact will be on the 2020.
Yes. So next question, if any.
No?
We have no more questions.
Okay. Well, thank you very much for taking the time to attend the call, And 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.