Ladies and gentlemen, welcome to the Cervitaine Generale Conference Call. Frederic Udea, Chief Executive Officer and William Kadoush Sazan, Chief Financial Officer, will present the group's 4th Quarter and Full Year 2018 Results. You will hear music until the presentation begins.
Okay, great. Good afternoon to all. Thanks for participating to this A presentation of our yearly results. As usual, we have a team in Paris with Members of our general management will also participate to the Q and A session. Let me perhaps start with the first slide, Page 3.
Just first of all to highlight that this 1st year results is an opportunity to see what we achieved And effectively give you, I think, a lot of visibility for the next 2 years, and we'll come back to that more in detail also with, Of course, our CFO, William Cadouche. In a nutshell, first of all, when we look at the performances of the businesses, we consider we have Delivered in most of our growth initiatives. We'll come back to that. We've a few Few limited exceptions, but of course, in particular, the capital markets, and that's an area where we want to effectively improve. Knowing that after the Q4 results of other banks, you've seen that the disappointing performance was probably better and actually Sure, the good quality of risk monitoring, but nevertheless, we want to improve.
2nd, in terms of efficiency plan, we are on track, but we'll come back to that. One of the objectives is really to enhance the cost cutting, in particular in GBIS. We'll give more detail. Cost of risk is absolutely in line with our guidance on the low range. It's very important because it gives comfort in terms of Asset quality, and we are also giving precise guidance for the next 2 years on the cost of risk.
Let me highlight one thing which Very important, which is the litigation. You will remember that we have put behind us the uncertainty, the financial uncertainty behind The 3 litigations that we had opened beginning of last year, we have currently no litigation which Can, in our view, distort in any way the P and L in the coming 2 to 3 years. In particular, let me just take The opportunity to mention that we have received no demand from the European Commission regarding the survey that just announced launching on the trading of Sovereign bond, and we are not part of these apparently 8 banks. So again, it should give you a lot of comfort in terms of P and L generation And last thing, in terms of delivery, we have launched very efficiently, you will see more detail, also our refocusing plan. We are selling assets.
We are selling good assets at good prices, as William will elaborate. That's for, I would say, the 2018. When I look now going forward for the next 2 years, which is a Pretty short term horizon. First of all, and I can, who will elaborate a bit later, but I really believe the environment has changed Mid-twenty 18 and effectively with a slower growth perspective in particular and in particular more in 2020 actually than We have taken lower rate interest rate assumptions, which weighed In particular, on the French Retail, but we'll come back to that. But more importantly, structurally, again, when we look at our Where we did not deliver, it is in the Capital Markets.
You will see that on the financing side, things have gone on the contrary very well. We are addressing that. We have gone through a full review of the portfolio of activity, and we want effectively to refocus On the fixed income, and when I say fixed income, it's credit rate and commodity. And when I say this, it's taking into account Not only the environment, and it's not a reaction just to a Q4. It's a reaction to the fact that when we see now the next 5 years, The way the market is evolving with the regulation in Europe, whether it's more capital demand, whether it's MiFID, we will not if We don't act to meet an acceptable return on normative equity, and that's why we will refocus and concentrate the capital allocation To our areas of excellence, as well as having an efficiency plan, an additional €100,000,000 at the horizon of 2020 in this division.
We are also we have a clear target on the capital. You will see the granularity of our forecast for the 2 years with, on one hand, I would say, more visibility on Things such as what we have called TRIM, it's actually the sum of the evolution that we can expect today in the next 2 years In terms of modeling, following all kind of audit, etcetera, from the SSM, it's not just the TRIM as such, And we are giving you a range between 30% 50%. On the back of that, we are also in order to complete the trajectory and give a lot of comfort, Again, you will see the detail. We have also decided to raise the target for the disposal program. As we said, we have been able to sell well and we increased our target range from 50 to 60 basis points to 80, 90 basis points.
And hence, you should have a lot of comfort in our ability to finish the trajectory of meeting our target, which does not change, which is 12%. That's what I wanted to say in a nutshell. And now I will turn the floor for more detail to William.
Thank you, Frederic. It's a pleasure to meet you in person this time around Rather than just on the phone, so the presentation which you have is organized around 3 topics. As you would expect, 1st topic is Q4 and full year results. 2nd topic is reflecting Upon 2018, where do we think we are in sync with the plan Transform to Grow and where do we think we have More challenges or work to do. And thirdly, what are the adaptation to our assumptions and execution, We will articulate to you.
Moving on to the first section, I'm on Page 5. Here you have the highlight for Q4. The first thing I would like to stress is obviously the fact that we have an underlying net income for the quarter Standing at €744,000,000 in published terms, this is €624,000,000 The return on tangible equity For the quarter, it's close to 6% for the year. The published result is close to 3.9%, underlying result 4.5%. The published result is up quite significantly.
We had one offs last year. And the underlying return It's at 9.7%. So on track with the plan as far as 2018 is concerned. For the quarter, what you find on this page is very consistent with what we already articulated to you and the market a few weeks ago. It's a contrasted performance across businesses, very strong in International Banking and Financial Services, very strong in some areas of either French Retail Banking or Global Banking, mainly financing and advisory in the latter.
In line overall in French Retail, very disappointing on Capital Markets. If I start with International Retail Banking and Financial Services, you can see revenues are up close to 10% in International Retail. This is very broad based. Across the board, we have a very good volume growth as well as revenue developments in our retail geographies. Insurance and Financial Services, you find here 2.2%.
Adjusted for the residual value impact on ALD, you would find 7 It's very strong on the gross margin for ALD, ex residual value, 5% on insurance, Close to 10% in Equipment Finance for the quarter. So overall, this is consistent with also strong return on equity, Respectively for the quarter, 18% on retail, 20% a little more than 20% on insurance and financial services. You have also the stats For the year, Fresh Retail Banking, we have a decrease in revenues for the quarter of 5%. Let me stress though that for the whole year, we are well within our guidance. We had set forth a guidance of minus 1% to minus 2% In terms of revenue decrease for the year, we end up at 1.8%.
In fact, and we will discuss this later, We have good commercial dynamics, good volumes on the credit side, good fee production. The Fee increase for the year is 1.4%. For the quarter is 0.5%, particularly strong on services fee, less strong obviously on financial fees. The drawback is obviously on the NIM, especially on the deposit margin. I'm sure we will discuss it.
Overall, the return on equity for French Retail stands at 10% for the quarter, close to CHF 10,900,000,000 and about CHF 11,000,000 for the year. Moving on to Global Banking and Investor Solution, you see a disappointing revenue base here, very consistent with what we had said. In fact, when you look at Financial Financing and Advisory, we're up 19%, 1.9% This quarter compared to last year, for the whole year, it's 8% increase in that business. So quite strong, including compared To some of the peers who have already published their results in Europe, let me remember this accounts for a good third of the Global Banking Division. Nevertheless, in Capital Markets, we have the decrease very much in line with what we expressed In our press release on 17th January, minus 19% for Q4 Relative to Q4 2017 of the same period of last year, minus 8% for the year compared to the minus 20% and minus 8% that we had announced.
Corporate Center, let me just comment the minus €288,000,000 This is the number you should compare With our guidance of minus €400,000,000 underlying GOI for the year. So as we already said in Q3, We were expecting that we would beat the guidance, which is what we've done. I won't comment all the details on the next pages. You have the numbers. But Moving on Page 6 to the French Retail Banking result.
Let me stress the numbers on commercial Activities because this also span on to next year in terms of commercial dynamics. Still very strong On client acquisition for Boursorama, for the year we had 460 ks new clients. The client base of Bolso Rama stands now at 1,700,000. Remember, we had initially an objective to reach €2,000,000 by the end of 2020. So clearly, we will be done as early as 2019.
Home consumer credit production is very strong double digits, so is as well the production on corporate Loans, the corporate loans outstanding are up 5% in the year and the retail client Credit outstanding are up 3% for the year. Bank insurance has high single digit increase in P and C and Protection and still an increase despite The last quarter was obviously less temptation to invest for clients, an increase in the life insurance. Over the years, the private banking in France is as net new money up €3,300,000,000 in the client base, grew 3%. So this is clearly the good part So of the story here, the less so good part is the fact that the net interest margin is down in the quarter 8%, Down for the year minus 5%, very focused on the fact that we have an important buffer of deposits, which we invest in the low end of the curve, I. E.
Still negative rates. And That obviously has increased in the past quarters given the temptation of people to invest rather in site deposits With a zero rate rather than in mutual funds. Let me stress finally on the cost side. We had said for the year that we would be investing very much in transformation. We are on track.
We said that costs would go up a little less than 3%. They are up 2.6%, so within the guidance. International Retail Banking and Financial Services results have already commented pretty much that the growth here has been broad based. This growth is associated with positive jaws and hence a very strong increase in profitability both relative to last year as well as in terms of profitability ratio. Would like just to highlight if I focus on the international retail that in the European area, Comercity Banca, Romania and our consumer credit activities across Western Europe, revenues are up At constant perimeter and change 8% for the year.
Russia is up 10%. Africa is up 10%. And if I move on to the Financial Services, ALD for the full year, very strong, plus 10% in the fleet, 7% for the gross margin increase, insurance plus 5%, as I said, equipment finance plus 3%. Global Banking and Investor Solution results, as I said, this is more mixed And obviously, a disappointment on the capital market relative to what we had expected earlier in the year and relative To last year, you can see that the overall revenue of the division are down minus 2% at constant perimeter and foreign exchange For the year, we're obviously down a little further for the quarter already committed on it. Still very strong, as I said, on financing and advisory, and we continue to see the momentum in the building up of our books And on the Capital Markets, still despite the disappointment, let me stress the fact That we did not incur a loss in the market division for the quarter.
So we have a small profit Not satisfactory return, but we did not incur a loss at all. Operating expenses are up 2%, so negative juice. That explains the disappointing less than 8 Corporate Center have already commented. I will leave it, if you don't mind, to the questions, but we are very much In line, we beat the guidance. Let me comment Page 10 on the balance sheet and funding.
Starting With the right hand side of the page, at the extreme right, you can see the pro form a ratio of 11.5%, Pro form a for a 50% take up in the option of the scrip dividend that we have decided To propose our Board has decided to propose to the General Assembly in May and pro form a as well. The already signed and announced and accounted for at least for the IFRS 5 part, as you know, Disposals as well as acquisitions. Overall, the pro form a ratio stands at 11.5%. We when we issued our press release back in January, we said it would be between 11.4 percent and 11.6 percent. It ends up at Pretty much in the middle, as you can see, we have Consistent with what we have said, a very strong increase in the market risk RWA for the quarter, which obviously is something we are happy to explain stemming mainly from Marc, from technical factors, we didn't breach any of our risk limits.
This is very important to stress, Including our stress tests did not provide numbers. That means we had Problem with the overall risk assessment and management of the division, yet there are mechanical factors. We had breaches For valves, we had the mechanical impact on the calculation of the RWS associated to spread valves. So we would expect that in more normal conditions some of it would reverse through 2019. Let me stress As well on this page, moving on to the left hand side, the fact that we are TLAC and MREL compliant With quite a margin on TLAC as early as now, the requirement by 2019 will be We stand at EUR 19,500,000,000.
We end up the year at EUR 22,900,000,000 which means that it is all in subordinated debt. It's not a requirement. The requirement allows for CHF 2.5. But in fact, we're already compliant with all general debt. MREL, we are among the 50% of European banks compliant from the beginning.
As far as this ratio is concerned, Our leverage ratio increases from 4.1 to 4.3 in the quarter. Nothing to comment on Equities are comfortably above 100%. The buffer stands at EUR 372,000,000,000 I won't comment Page 11. Leave it to the questions if you have. I'd like now to move To the second part, which is reflecting upon 2018.
We announced Our trajectory through 2020 back November 2017, so clearly 2018 is the 1st year Out of 3 years of execution in our plan, and the first thing I would like to discuss with you It's where we stand in terms of revenues. We had articulated during our plan that we believe strongly we are A bank that is able across its various pillars to deliver effective growth. And in fact, I think we can comment on it. There are many areas where we've launched growth initiatives that works very well, sometimes above plan. And there are 2 areas which are significant, obviously, in the P and L where we have disappointment.
As Frederic already said, global market is 1. The deposit obviously and the NIM on deposits It's too less relevant is the disappointment we have relative Our international private banking activities. Across the board, however, I already commented upon many of those. Bouyguesoramas, the Wealthy and Massaflouen clients in France, consumer credit, professional corporate In France, I commented upon the volumes, but I should have also commented upon the client base, which does increase on the corporate and professional side. These are real growth areas for us.
I already commented On the geographies and financial services in IBFS, we continue to think that it will Materialize in the next quarters. Global Banking and Investor Solution, very strong on financial and advisory. Let me pick Global Transaction Banking, this is an area where we believe we don't have our fair share because of maybe not focusing on it Enough in the past years. The increase in revenues in that division is plus 16% For the year, and French Private Banking and ETF have already commented at least a first. If I move to Page 14, the second commitment we had made is on the cost efficiency.
Clearly, We were of the mind that this cost efficiency plan was primarily meant To compensate also for some structural investments we would make. And our view remains That after 2020, there will be more to come in terms of efficiencies when we have, for example, fully digitized all the processes to keep to take One example. So what you can see on this page, especially on the right hand side, which I'm sure is more of interest to you, It is that we are on track basically. We are sometimes even a little in advance in French retail, especially turning on to the Back office disclosures and the automation of key processes. I mean this We'll leave it to questions.
This is a this plan is based on a lot of granular initiatives. Some are more structuring. I talked about the French Retail. You know well the transformation we have embarked into. Another thing I would like to stress is what we do on technology.
The fact that we were amongst the very first to push strong on cloud adoptions as well as open source Allows us, of course, to decommission some of the operating systems or apps As well as to decrease the cost of usage of the bandwidth. Page 15, very important thing for us. And as Frederic said, we think this is an area Where we achieve our goals, this is risk management. And particularly on the credit side, we have what we would qualify as reasonably low cost Of risk at 21 basis points for the year. You may remember in the previous quarter, we had discussed About our exposures, especially in the geographical exposures, but our sector exposures, we also explained how we Manage the non investment grade segments, we're happy to discuss this.
But clearly, this translates Into this cost of risk that is very satisfactory, let me remind you that the initial target We had set forth was 25% to 30%. We moved it down to 20% to 25%. We ended the year at 2021. We still think that there will be normalization in the cost of risk. So we expect for next year 25 to 30 basis points.
We don't hope that we will reach that level, but we expect At least we embedded in our business plan. I would like to point your attention to the non performing loans. We continue to have A very active policy of decreasing those non performing loans. They are down to 3.6%. And last on 2018, I think it's fair to say that we are on track, if not in fact in advance relative to our Refocusing plan and our M and A plan, you remember this is above in the page that we had said, We would decrease we would sell assets for the equivalent of in between 50 60 basis points of capital.
We have announced that we have concluded the sale for the equivalent of 37 basis points. So this is more than half Of the plan already achieved, we give you some more data this time around because we know these are questions you have, I. E. The net income impact, Both on the disposals compared to the GOI we expect on the acquisition of EMC, Happy to discuss it, but you can see that this is an okay rationale for a rotation economically. And more importantly, We give you some indication as to the multiple that we have concluded those sale at.
You see that they range from 1.2 To hefty 1.5 times book, so we conclude reasonably well this disposal. Now as Frederic said, there are headwinds. One headwind we mentioned on the economic environment. And there are also some underperformance in some of the businesses, which leads us to adapt our execution and adapt some of our assumptions. There are really 3 things we want to discuss here.
1 is a new rate assumption and the implication on our revenues going forward. 2 is the Global Banking and Investor Division reshaping and both on the strategy as well as on the deleveraging and cost plan And 3, the capital journey towards creating a buffer above our 12% objective. So the first one is very self explanatory. We give you here our new assumptions For the NIM across the group and we calculate we consider That the impact for the revenues of the group by 2020 relative to our previous plans, I'm not talking 2018, 2020, but relative to our previous plan is in the area of €500,000,000 Strategy in global markets is clearly something that I'm sure We will discuss with you, but something that we are very focused on. This will be done, And we're happy to provide you with as many details as we can.
At this stage, It's focused on 3 key elements. 1, we will refocus some franchises where we consider we don't have Enough scale, maybe not enough competitive advantage and where we do think that we won't achieve the profitability That we want consistently with our objectives. And this is mainly revolving around the FICC Franchises, we will discuss it more in details, but it can imply things such as Flow credit, for example, but also in other areas. We can also Talk about other areas such as the legacy prop trading or the cash equity where Obviously, we could do some moves. 2nd, we want to concentrate more our client portfolio, And it is clear that there are costs associated with operating with some Tier 2 accounts, Sometimes cost associated as well with onboarding too many accounts, which will not generate enough revenues.
And third, we want to concentrate on key areas where we have leadership, especially on equity derivatives. As we already said, This is consistent with our recent acquisition. The conclusion of this refocusing would yield an EUR 8 €1,000,000,000 deaveraging impacts through 2020, starting from 2019 onwards in the execution. This is a very consistent effort. Let me remind you that the RWA for our market Activities are in the area of €70,000,000,000 So this is more than 10%, to which we will add €2,000,000,000 in the other areas.
The cost Based off GBIS as a whole will also be an area of work for us in the next quarters. Page 20, You have here what we aim for. We aim for a decrease in the cost base from 20 And 16 pro form a and clearly from 2018. The pro form a number for the cost of the GBIS division SEK 7,300,000,000 as we put it. We already decreased it slightly to SEK 7,200,000,000 And despite the EMC acquisition, we aim for circa 6.8.
So that is to compare with what we had articulated to you back in November 2017, A stabilization of costs, we clearly aim with this €500,000,000 cost plan to decreasing the base. French Retail Banking, I would say we will comment on it more in details in a deep dive in Q2. So I will not go into too much details. We're not changing dramatically the perspective here. Obviously, we have already On the rates impact, most of the EUR 500,000,000 I mentioned, let's call it 2 third, are within the French Retail Banking.
One thing I would like to point you to is the first line. We're working in an environment that is also tougher on commissions With the yellow jackets in tax Translating into the French Banking Industry committing to some measures, this will have an impact on our revenues of about EUR 70,000,000 from 2019. In terms of Retail and Financial Services, we continue to see a very good growth associated with positive jaws And good momentum in terms of earnings creation. So the only thing I would say on this page is that in the streamlining Of our capital distribution to the businesses, discriminating more across businesses, this is clearly an area that we will protect going forward. So the outlook, which we have on Page 23.
Group RoTE is now forecasted Revised down from the 11.5% we had initially set forth to 9.10 Downward revision for Freight Retail Banking, 11.5%, 12.5%. If you input what I've said on rates As well as the Yellow Jacket commission impact, you pretty much get from the 14,500,000 We had so let me stress that we don't abandon our ambitions in other areas of revenues and cost. We increased the target for International Retail Banking and Financial Services from 17% to 17% to 18% With the momentum we see, Global Banking and Investor Solution was 14%, moving down to 11.5% to 12%. Obviously, we Consider we have a lag in revenues. So we will have some revenue growth obviously in the next years in our plan, Although we have factored in some lags to be still in the books, and we obviously, we have the benefit of the cost plan.
The rest doesn't change. Target Core Tier 1 12% and the dividend policy doesn't change. Let me stress now the journey on the capital. Starting with the idea that We don't change the target of 12% core Tier 1. We continue to think and this is very consistent with the We have with our supervisors that 12% is the right level to steer Societe Generale.
However, We want to make sure that everyone understand that we're taking the measures that will allow us to be at a comfortable buffer above the 12% So that there is no surprises. How do we do that? You have it Page 24 articulated. First thing, we have a growth In revenues in mind, however, we want to be much more focused And we will decrease the overall RWA growth for the next years from an initial 3% we had in the plan every year, compound A rate of growth to 2%. That is an economy of about 30 basis points Of capital relative to the previous plan, so we will have an impact of obviously of this consumption of minus 50 relative to minus €80,000,000 initially forecasted.
Global Markets at the WA, I already commented on it. It's €8,000,000,000 according to about a +25 basis point impact. On the contrary, there are additional RWA optimization For at least 10 to 20 basis points, that includes as well some additional originate to distribute we want to do In the CIB, we'll comment with Severin if you have questions, but also some measures we're taking to be more agile on the balance sheet. We have some regulatory headwinds, which we wanted to commit to communicate about. One is a question you some of you asked in the Previous quarter, I.
E, the impact on IFRS 16, we said it would be not material. It's actually not material. We expect minus 5 basis points starting from Q1. And on TRIM, let me say we say it's TRIM, but it's actually the whole modeling of the size, Including TRIM that we refer to on this page, we expect it To be between 30 50 basis points through 2020 with the main impact in 2019. The disposals, We raised the bar from 50 to 60 to 80 to 90 basis points, meaning we're already at half of it as we speak.
So we have 2 years to go for the second half. And when you look at Page 25, it is clear that if you do, You add up all the metrics I mentioned to you with earnings, which obviously are more consistent with the new target, A little revised down relative to the previous plan. You will find a 25 basis points around Organic capital generation, to which you would add the various measures I talked about deleveraging, RWA optimization, more M and A. We have an employee share scheme that will also yield some capital. Less the headwinds I mentioned, we should be between EUR 2,300,000,000 EUR 2,700,000,000 by the end of [SPEAKER JOSE RAFAEL FERNANDEZ:] 2020, so pretty much well above the 12% target.
[SPEAKER JOSE MARIA ALVAREZ
PALLETE:] Thank you, William. Just perhaps next slide to reflect that we are increasing the net asset value This year, the EPS is stable and the dividend, too. And if I move to the last Slide just to really highlight again for the next 2 years, which is a relatively, as I said, short term horizon, Five main objectives: grow we will grow the revenues at a lower rate than expected Because of what William expected, but we will grow the revenues of the group. The transformation of digital side is absolutely crucial. I remain absolutely convinced It is the number one operational topic for any bank in Europe.
We are happy with The progress that we make step by step, it's going to be, of course, a long journey, but we are convinced of the long term benefit of what we are doing. 3rd, the cost, we have again highlighted that we are increasing our cost plan with EUR 500,000,000 on 1.1, the refocusing in order to build a group which will be more compact, simpler and concentrating on the core geographies and Printing on the core geographies and the core businesses, very confident to complete the journey with assets, Which again, where we've seen show signs of interest. So there's, in our view, no issue. And 5th, last but not least, Again, I would like to insist on this issue of responsibility in the banking sector. 2018 has been a year during which we've seen The emergence of new issues, we are from that point of view, we are starting this To your journey with a clean sheet and no issue touch wood.
As I've said, what we try to do is that the way we do business today will not trigger, Of course, an issue in the coming years. And I think we've put behind us where they were lax In the culture, in particular in CABE, when you look back at the end of the day on the litigation of Societe Generale, we will have less litigation than most, Let's face it. We will have paid less than most, very concentrated in CIB. We did not have any big commercial issues, so very concentrated in CIB. I think that what we've been doing in the last 10 years is a change of culture, which I think is fundamentally more robust.
And if I may say, of course, also on the other element of social responsibility, we are also in line with our climate change ambition We have 69% of our plan of EUR 100,000,000,000 of financing to the renewal, which is achieved, and this is also something which is more and more important And to which we are very committed. That's what we wanted to say for the presentation. And now the floor is yours for Q and A.
Yes, good afternoon. Thanks for the presentation. So I have two questions. First of all, just wanted to go back to your comment around the €500,000,000 impact from Rates.
Just to understand a little bit,
I guess this is mostly French retail, But just wanted to understand if you have made some assumptions on the impact of global markets of GBIS around that issue. And what if rates don't go up as per your slide on the pickup in OAT and Euribor? What would that mean for your 2020 targets in terms of revenues? The second thing is just to understand also the impact of Disposals, which are now a little bit bigger, I mean, do you expect much impact from those That would be reduction, but also from the optimization that you have in GPIS. I mean, obviously, there's a €500,000,000 cost savings, Any color you can give us as well on the €8,000,000,000 reduction of RWAs and any earnings related to that, that would be helpful.
Thank you.
Perhaps first, William, on the rates and then, Severin, on the Impacts of the EUR 8,000,000,000 on the revenues for GBIS? And of course, it's different. We should not there is the EUR 8,000,000,000 Reduction and then, of course, the disposal what we call the disposal is something different and the sale of business, to make it clear. William? So on
the assumption, the number of EUR 500,000,000,000, obviously, we start with a new rate assumption, which we have set forth here. We actually do some sensitivities because we the forwards you could see in the market are a bit below these rate assumptions. And the forwards are somewhat volatile metrics, so we take some sensitivity around it. But first of all, you're right. This is more than 2 thirds revolving around French retail.
Then the rest of the impact would be mostly in the GBIS, Less than 20% of the total and a bit in IBEFS, but not very significant. Why is that? Because fundamentally, you have to take the part of our deposits, which are euro denominated. I mean, this would be the ones 70% of our DKK 400,000,000,000 deposits are euro denominated. Then you have to take the fixed part.
And in order to have the biggest impact in a negative rate environment, you have to focus on those Well, very short term. So especially in the recent year, as we already explained, we have Created a buffer of what we qualify a volatile buffer for putting aside A portion a significant portion of our deposits because we felt that the growth of these deposits was totally due to the fact that we were And so we will not expect that these deposits would be sustainable should the rates pick up. So This is mainly this portion and a bit of what you have in AGSS and in the transaction banking Cash activities in transaction banking, so but the bulk is in French retail. So we have already taken some sensitivity. So yes, there is always a risk that it goes even further down.
But I think relative to the previous plan, we are quite comfortable that we are more cautious In this calculation. Severin, GBIS?
Yes. Thank you For the question, the total deleveraging plan for Tugayas as you noticed is €10,000,000,000 of which €8,000,000,000 are Focused on our global market activity. The remaining EUR 2 billion will be delivered in financing activity, thanks to a higher Distribution ratio. So coming on the market activity, we have reviewed in the detail and at the very granular level The projected capital allocation and the projected return on capital of all our activities in the global market. And this review will allow us really to reduce by EUR 8,000,000,000 the capital allocated to global markets.
And Doing that, we will stop or we will reduce the capital allocation to the lowest profitable, of course, activities. Now this will cover Mainly the fixed income activities as mentioned earlier by William, but in all the 3 main activities I mentioned in rates, in credit And in commodities. And we will have 2 dimensions. 1st, on some product and that we have considered that there is no ability for us to So we recover the return. We will reduce dramatically the capital allocated.
And on client side, Also, we have represented all our client return and profitability. And in some cases, we will be more selective In terms of client capital allocation, this will allow us to deliver this €8,000,000,000 Importantly to say this €8,000,000,000 deleveraging is not Counting any market parameter recovery or normalization, as you observed at the end of last year, We had an increase in risk weighted assets allocated to our global capital market activities. We can comment on that. Even if there is a normalization of the parameter, it will be on top of this So for us, it's a low return activity which will be first and it will cover also, which is under review of, for example, our From trading activity, which is, as you know, nonprofitable for the time being, so it is under review also. All that within this.
So in terms of revenue, the current level of revenue has it would be the lowest return. So order of magnitude we have At this stage of the study, it's around €200,000,000 in term of loss of NBI.
Next question.
Jean Francois Henriette from Goldman Sachs. First, I wanted to ask Again, on the €500,000,000 revenue impact from the rates assumption, having looked in the past at the Disclosure around sensitivity of interest rates in annual report, etcetera. I know they are theoretical, but the impact here compared to the change in the interest rate outlook Seemed quite a lot more than sensitivities reported in those documents. So I just wanted to understand whether you've essentially taken margins Compared to this or otherwise, could you please essentially reconcile the differences and how for us to understand if things were to change again? And secondly, on the Investment Bank, just more generally, since the early 2010s Before European banks in general, French banks also, they have done several cycles of adaptations, Starting with the dollar, etcetera, etcetera.
And this has generally led to returns improvement that have not yielded All of the expected benefit because in the meantime European banks have lot of loss of share to U. S. Banks. And I just wanted to understand what assumptions you've taken In your for share and for fee pool growth over the next coming few years and almost I read these comments this morning that you didn't expect mergers in Europe of any size in the coming years. I almost wonder At this stage, given all of these adaptation plans that have been done in a row by many banks, why In a sense, why not almost, no?
Again, perhaps on the rate, I don't think there's a difference, but
It's always difficult to comment relative to data points Specifically, you have in mind so we can discuss it later. But fundamentally, we have given an idea Of what is the impact on our revenue in a year of a plus or minus 10 basis points, Especially in the short term end of the curve, which is more relevant to us to calculate the impact. Until recently, we're seeing it was about €40,000,000 for the French retail, about €50,000,000 for the whole group. We moved it up a little because there was an increase in the site deposits. So now it's €50,000,000 for French Retail and €60,000,000 For the whole group, which is in a year impact for plus or minus 10.
So you should easily calculate Another way to calculate it and to help you on that, if you consider we have a volatile deposit buffer of about 40 basis points And we take the difference in the rate assumption we have here, especially again on the short term end of the curve. It's easy to multiply and give you the impact in 2019 2020 should the rates be Well, they are. Sebastien,
can you comment on evolution of market share?
Yes, and thank you for this question, Francois. If you just had a look on the Q4 results, which is interesting in my view, In terms of evolution of our market share in that quarter only, which is not structural, but it's only one quarter. We have been in a position to grow by 19%, for example, are S and A and BII in a market which was more or less decreasing if you compare with the competition. In the transaction banking area, we have grown last year by 15%, which is much bigger and faster than the market growth. And even if we take the equity traded franchise on the last quarter, you saw probably that our performance is not among the worst among the competition.
What I mean saying that is even if the global market is not growing at a fast We have opportunities. If we are investing and focusing our capital allocation to the area where we are leading and we are leading position, We can win market share. And exactly what I want to do now for GPRS. And when we are speaking about deleveraging, we will deleveraged On products and activities where we consider we have no competitive advantage, it does not mean we will not be able to distribute that product, that we could distribute that product And on the other hand, when we have this competitive advantage, we can grow and gain market share, exactly The sense is the meaning of what we are doing. And simultaneously, it's very important in my mind.
We are building, we are developing our ag market platform, which is a Marketplace for financial services for business clients, where we'll expose to our to the market in Europe consumer clients All our internal capabilities in terms of products and services, but also third party capabilities is a way for me to answer your question. We can win market share where we are strong And the rest will distribute the party products.
Let me take the time to elaborate on the last topic on What I said exactly is I don't see actually any consolidation in the next 2 years. Let me explain why. First of all And I think things have changed compared with 12 or 15 months ago. Let's just go back 12, 15 months ago. There was politically, I would say, Probably more optimism on Europe, the momentum, etcetera.
12 months later, it is Fair to say. I think that Europe is in a situation which is more complex. And when I just try to plug in the next 2 years what can happen, Probably, it might take and I don't even talk about the Brexit, but it might take up to the end of the year Just to have maybe the new commission established. And it means that Putting aside all the trends towards the current fragmentation that we see, before we have an agenda for this new commission, it will take time. Before we have visibility on things just as the regulatory implementation of Basel, it will take time.
First of all, So I may say we have to really try to change the mindset from a situation where There is fragmentation and still the tendency to have fragmentation. And check that at the end of the day, the way I describe it, if I may say, European Banking is a little bit like a house which has been started to be built, which is half built. But again, for the time being, There is no more work on it. And so you have to have the political, if I may say, energy to complete the job, Knowing that today, we are paying the cost of the banking union, but we don't get the benefit when I say we are paying the cost, the EUR 430,000,000 of Net of tax that we pay to the FRU, for what in practice in terms of benefit. And I think it will take time.
So in order to think about things like consolidation, you need to have more visibility. You need
to have
more Willingness to achieve a kind of strategic landscape, and it will take probably, let's be realistic, the next 2 years. And then beyond, is it a solution, I mean, by this? And I think that when I Look at the potential value creation that we can achieve by just completing this road map. First of all, There's much more there in our hands than looking at other options. And really, the priority should be that address the business model, complete the refocusing, transform the French retail further, which is not An issue of consolidation.
When you talk about the fixed income, is it will the situation on the fixed Income on certain activities be resolved through consolidation? I have my doubt. There is a need, first, I think, and for most banks To still improve structurally their profitability. And then I hope, But it's, I would say, more hope than uncertainty, and I've always said that, that again, at some point, with more visibility, the political conditions will be there To effectively complete this banking landscape, which is still too fragmented, which is not Consistent from one regulator to the other, I hope to have even then more efficiency. But what we are saying basically is that if we could have had the hope 12 months ago that the energy could have been on this, Just on the Brexit, look at the time which is fundamentally spent on the Brexit, and I could say mid-twenty 19, maybe the 1st topic will not be to complete the banking union.
You see what I mean? So there is delay there. And again, I hope it will be completed, but I'm not sure. And for us, it can mean different strategy, yes? It could mean more Europe, less Europe as a percentage of the business model.
So I think It's fair to say, the jury has to remain open. Let's see. And probably, we'll have more visibility in the next 2 years. And I think that we will have then more energy available if we achieve that and it's our strong commitment to then think about something different. That's why I don't think personally a lot will happen.
Good afternoon. Jean Pierre Lambert, KBW. Three questions. The first one is on the execution of the plan, what are the risks you're seeing? And what is the corporate governance you have to manage the project in terms of resources?
As I see, you have a turnover in terms of management level. Second question is, you have ROE target, which you indicated, this is in favorable economic conditions, let's say, apart from rates, So no slowdown, no recession. What is the over the cycle ROE you have in mind? 3rd question is, The equity derivatives, do you see a normalization in terms of trading? Some of your peers have indicated that.
Do you share that to you? Thank you. I will let Stephane explain how we want to effectively organize and adjust The management change which took place, we are factoring a slowdown. Let's be clear. And as I said, to certain extent, we are getting ready for an Acceleration of the slowdown in 2020.
We remain our economies remain relatively positive for 2019, Knowing that, yes, there is a slowdown in Germany, yes, you saw the forecast for Italy, the most recent one that There is a technical recession and minus for the last two quarters of this year, and now it's EUR 0.2 for the commission. We remain actually More positive for France because consumption will be probably supporting growth. But in 2020, our economies have a slowdown in the U. S, not a recession, it's It's hard to say, but a slowdown in the U. S, more significant.
Slowdown in China, slight slowdown in Germany, still Slight growth in Italy, a slight slowdown in France. So yes, it's a slowdown that we have input in our And for example, the cost of risk, really we have highlighted the quality of the portfolio. When we Today, number 5, it's extraordinarily low, but we are factoring even the IFRS 9 element. So that's why we are Moving from 35 we are moving from 25, 30 basis points this in 2019, and we stick to the 35, 40 basis points [SPEAKER FRANCOIS XAVIER BOUVIGNIES:] 2020. So we take that into account in the cost of risk.
Lars Siedra, can you explain perhaps how we are going to execute And with which team?
Yes. Thank you. And this is referring to the new appointments We have discussed this morning also. As you saw, we have appointed Trons Rosco Mazzo, the former Head of our Wealth Management and Private Banking Activity As group transformation head and its main mission is to deliver, 1st of all, our savings plan, our cost reduction plan. And this cost reduction plan is encompassing not only tariff costs on allocated costs to GBLS, But also part of Central Coast.
And there is a group wide initiative to implement and Jean Francois will be in charge of that, Reporting directly to Guoni, to me and Frederic de Gouvea. Of course, every action and it's a very detailed plan which is under definition and will be shared In more detail with you a bit later on and with the union in France of the French part. In more every BU business unit, sorry, and service unit will have It's all part. You will have all the delivery capabilities. But at the group level, to secure the implementation and the delivery of this plan, We have appointed a very high level management team and it will be supported by the group function also to deliver that one.
So it's a group wide, if I may say
initially. You were referring, but you can comment on the change of the head of market.
Yes. Franca will pursue Francois, which is the well, has been the head of our market activity for 2.5 years and he has spent 29 years with the company, we'll pursue new opportunities. And he's replaced from this funding, Jean Francois Gregoire Jean Francois Gregoire We have spent 22 years within the bank in the global market activities and it was, yes, until yesterday, Deputy Chief Risk Officer. Jean Francois Jean Francois background is trading mainly and liquidity derivative and structured products. Jean Francois Spent a lot of his time in Asia.
He was the Head of Liquidity Product in Japan, then he had the leading the trading activity in Asia, and He became Head of Trading in the U. S. Afterwards before becoming the Global Head of Trading at the group level. And 3 years ago, we joined the Invest division as the deputy shareholder. So, Laurent Francois is at the very Think about it in terms of trading, exotic trading and liquidity derivative trading.
And on the back of that, he has also, I think, with 3, 4 years spend in risk, a perfect knowledge of what the regulators are expecting. And I think that We are changing adjusting the strategy and really trying to optimize the capital allocation, taking into account The next 5 years, if you wish, under request. And that's, I think, the adequate profile to run that when France was probably more a guy of development of activities. A few issues, our market conditions are back to normal. I would say what I think I would like to say on equity trading in particular, A strong comfort I got is precisely to look at how things have we've managed the Q4.
And compared with Some of us, we did not, as William mentioned, experience any problem with one big loss, one product. It gives me a lot of comfort. And apparently, if others start to review their own activity and we saw in the last 2 to 3 years pricing, etcetera, which I think it will be positive also for the Equity Derived and Structured Products fundamentally. These kind of events help also to make To have the industry making progress.
Flora Benhakoun from Deutsche Bank. The first question is regarding revenues. Could you shed some more light on the revenue assumptions that you're now making especially in French retail and in GBIS because obviously that's where I suppose you've cut your revenue outlook versus the initial expectations. So To get to your 9% to 10% ROTE, what assumptions have you embedded in your plan regarding revenue growth for these divisions? And why are you not being more transparent already in the presentation this morning on such targets?
The second question is regarding the regulatory impact that you expect, the 30 to 50 basis points in the quarter 1. You mentioned TRIM and other headwinds. So could you explain what other headwinds you have in mind? And one last question regarding RWA inflation. Obviously, there was some in market risk, but also in credit risk, which seems to be driven by the corporate center.
Just wanted to understand why.
Thank you. Perhaps Philippe, Emerick, on the French retail revenue outlook, C'est vrai, in April, we will update you on the French Retail and give you more figures, but on the 2 businesses. And then, William?
Okay. Thank you for the question. So maybe first, when you look at the evolution between 2018 2017 to And the evolution of NDI, so basically the evolution is the minus €150,000,000 And there are 2 important negative components. The first one, as mentioned, which is close to €190,000,000 is The impact of interest rates, especially on the margin on deposits. And the second one It's that we have approximately €50,000,000 left of fees related To renegotiation, anticipating payments and this kind of thing, you know that we have a lot of renegotiation in 20 17, and now we have stabilized this momentum.
So coming back to the first one, What you can see is that there is definitely a slowdown in the decrease of the margin on deposits. If we compare the Q1 of 2018 versus the Q1 of 2017, this margin on deposit was Minus 9%. When we compare the quarter 2 versus quarter 2, it's minus 7%. And for the last part of the year, quarter 3 and 4, it's minus 6% and minus 5%. So We have a slowdown in this finance, which help us to give a positive outlook for next year.
And same thing regarding the impact of repayments and renegotiations compared to 20 17, we are not going to have this kind of movement. So again, we see that as a stabilization. So overall, we have also, as mentioned by Unia, a strong momentum in fees, notably on the services, which is very important because it does reflect the day to day work with our clients. It does so reflect The increase of the number of clients notably in the Boursorama, so that's going We're also going to fuel a positive momentum for next year. And overall, As mentioned, we are stating that an important outlook for revenues is expected.
Severin on GBIS?
On GB, yes. We gave you a guidance on the return on normal equity for GBIS between 11.5% 12.5%, And we gave you also a cost guidance. And the reason of this trend in terms of It's mainly driven by the uncertainty on the market situation and the market activities. We don't know exactly, so we have this trend. The rest of our business is With what we shared with you during the Investor Day, we are completely on track in terms of growth initiatives, as I mentioned earlier, 3 on position banking and this and on private banking in France, which are the main three initiatives we have.
So The answer to your question, Farah, is our top line evolution is consistent with this range from return on equity.
And all in all, if you wish, what we have in mind instead of the 3% on a like for like basis That we had is around 2% for the group. I mean, if you mix the whole thing, retail in France, GBIS, IBFS, knowing that, of course, we will have also the impact of the disposal, which will reduce slightly the revenue base. Hello, Bert, the other elements? Yes.
I hope you won't be disappointed. It's a bit Boring to go into our little kitchen, but it's you're right. There is an increase in 4th quarter In the corporate center, RWA, which is made of various different elements. Some of it, I can't list all of them because it would be deeply boring for you guys. But one is the fact that we transferred some assets From businesses to the corporate center, for example, I mean, these are shares owned by businesses.
We'd like it to be quite clean when we know or disclose on IFRS 9.1. So This has an impact. This is weighted 270%. Another element has to do with some ForEx Hedging impact, we hedge our core Tier 1, but there's always a residual hedging position that we have That had some impact. One thing is related to DTAs Associated with temporary differences that would fall here.
Plus, there is also a technical factor. We do at the end of the year some Correction, when we close the account for the year, some accounting reconciliation of the RWA That would it's a mixed bag of things that would fall into the corporate center that we made and we allocate Overall, these are purely technical factors. The truth of the matter is we Obviously, we had an increase in the RWA that we want to refrain for the next years. That's the main thing. And, Pez, Joni, can
you comment on the 30 basis points to 50 basis points, the different elements regarding The so called TRIM and Modeling.
Yes, sure. Good morning. So on the TRIM side, this is our best Estimate at this stage, as you know, this is a long term process. It has started already 2 years ago. The TRIM exams have started on what we call Yes.
Hi, these are portfolios, so mainly on mortgages, to make it simple. So on these, we had decisions With the impacts which were not material, quite limited and already taking in our Existing capital. And we have more missions, which are ongoing. None of them are finished. We didn't get final decisions.
Others are going to come and this is on The low default portfolios, so mainly large corporate financial institutions market activities. So the 30, 50 basis points is our best estimate taking into account Ongoing missions and in a way benchmarked. Also, Taking into account the fact that the way these 3 missions are carried, we see that There is also an add on in capital mostly based on Improvement required in terms of documentation or stability rather than performance So the models themselves, and then they are they could be lifted once you implement the necessary changes based So all this put together, we consider that This 30 to 50 basis points is a reasonable range, This is for the rest of 2019 to 2020, probably concentrated on 2019 given The ongoing mission and what is announced in terms of program.
Yes. Hi, Andrew O'Flaherty from Credit Suisse. Just to follow-up on the question about disposals too, if I may. How should we think about the net profit impact from the remaining disposals? So you've announced 37 basis points That's linked to, I think, 125 per annum.
Should we just straight line that in terms of the second half? Is that over simplistic? I mean, just putting that, if we assume, for example, that comes from the international division, it's quite a chunky amount. It's about 20% of future net profits From that division. So how should we think about the net profit impacts of the future disposals?
And then related to that, What's the reason for the additional 20 to 30 basis points from those disposals? Is it the change in expectations? You gave some numbers on pricing or a change in the way you're thinking about disposals and your criteria as to what's non core. Just to try and understand How you've reached this extra capital positive impact? Thank you.
First of all, on the impact, it's a little bit of both, Probably a better execution and effectively adding a few assets, a limited number of additional assets. In terms of the future profit, probably not that different, but I mean
It's difficult to just draw a line because this is sometimes we sell assets which have a profit And they are not consistent with the group strategy. And we've given you the criteria on the page again. They are the same. So sometimes they are good assets, profitable assets, but doesn't move the needle for the group. It's not necessarily synergistic.
Sometimes we're selling asset, which makes a loss, Such as private banking in Belgium, good asset, but making a loss. So in the basket of what we have in mind, which Clearly identified with processes that are about to be launched, They fall into both categories. But if you take a view starting from the SEK 125,000,000 you probably Get somewhere that is not inconsistent, keeping in mind that maybe 1 or 2 of these assets may be actually loss making. One thing I want to stress, if you may, Hello. Not all of this will be into the International division.
Two quick questions. First,
regarding Asset Management and Private Banking,
You said firstly that asset management,
you had ideas to develop some products. Could you elaborate a little bit on that? That's very clear. And regarding the Private Banking, you said that internationally it's not satisfactory. What is your strategy coming forward for this part of this business?
And regarding Africa, I'm not sure here, but I heard or read somewhere But you are trying to expand into English native countries or having a partnership with another bank, I'm not sure. Could you tell us a little bit more about that? Because I know everybody focus on risk weighted asset, but business also is interesting. Thank you.
Yes, Pierre. Perhaps, Severin on the first part and Philippe, I'm on the African development.
I am not sure to understand what you're referring to in terms of new asset management products. Perhaps it's referring to our global market activity, where we are developing today quantitative investment strategies. We are sensitive asset management products. If it is that, it's not in the Wealth Management business, but in our global market activities. And you're right to say that one of the growing Development we have in this specific area.
So in terms of private banking activity, It's fair to say that the French private banking and the joint venture we have with the French retail is very dynamic and very great today. And we are expanding this, what we call the patrimonial client in France and Philippe also mentioned that And we will continue to grow in that direction. Where we are disappointed is internationally. It's fair to say that We have launched now for a while a derisking process, meaning that we are creating some trials where we think that we are not comfortable And we have launched this de risking process for a while in Monaco, in Switzerland and in Luxembourg. And now Belgium is nearly out of the group.
So this is one of the reasons why we are not at the level of return we are expecting. We can say now this de risking process is over, meaning that now we have entered a new era in terms of assets under management collection and growth, Which is a good news. So it will take some time to refund to retrieve the right level of return. But in the next 2 years, My conclusion is because we have finished this deal with process, we will be in a position to improve the return on equity of this part of the activity. In the UK, as you know, it's an integration process, which is underway today, which is also partly.
So there is a clear vision that we will recover our return International Private IT in Hawaii. In Asset Management specifically, even if it was not your question, please sir, as you know, our 2 main activities We have the ETF franchise where we are in a leading position in Europe, which is a very, if I may say, good franchise and profitable franchise. And we have also the alternative Asset Management activities, which is where we have to improve in terms of return. And in our plan, we have also a specific action on Lxo to raise the return on equity on Luxor during the next 2 years.
Philippe, we can't hear you. It's not here. Yes, okay. Now we can hear you.
Okay. So good morning, everyone. So, Pierre, to your question on Africa, just to highlight the phenomenon. So, It's true that we've got in Africa a good momentum. If you look at the this is the top line growth, we're talking of plus 10 And more specifically, on Sub Saharan Africa, it is around 15%.
Down the road, our objective is to increase the efficiency of the setup. You know that we have localized in Casa Blanca Our IT centers, we move the IT capabilities from Paris to Skazebankar and to develop IT project at African costs. It's obvious. Then we have also decided to reorganize the set up through 2 regional hubs in Western Africa and Central Africa, Where we can, let's say, gather expertise. And It's true that the potential we got there is very significant.
Down the road, your question is how we can move maybe faster. And then we have decided to establish partnership with Absa, the spin off of Barclays in Africa. And if you look at the map, the 2 networks are very complementary. So we are putting together The French speaking countries with a lot of English speaking countries around South Africa And the corner of around South Africa. So we want to build synergies in cash management, in market activities.
And this is the first step to develop our connectiveness with this part of Africa.
More generally, I tend to think that in this world, which is so demanding for large banks, The idea of developing partnerships can make sense. When I see what we have been doing with DBS, for example, Selling good Private Banking asset in Asia, but with a scale where which was not Big enough to compete in the long term to them and then sign an agreement to sell our commercial structured products. I think it works very well. I could add OTP. OTP is buying our Balkan subsidiaries, And we signed also an agreement with UTPE.
So they are probably today better shareholders Of these relatively small subsidiaries benefiting from synergies because sometimes they have a presence in these countries And effectively not having the burden of a global SIFIs of all kind, more capital, More reporting whatever in those small businesses and at the same time trying to develop then a partnership With a bank with former subsidiaries and the capacity, whether it's with certain products themselves they might not have, whether it's on the cash management, etcetera, Something which could be positive. And Absa, it's a little bit the same. No clear option today to grow That's strongly in certain geographies. Here, we have a partner normally which would share in terms of compliance, hopefully, The same kind of culture having belonged to Western Bank, A natural complementary complement setup and the idea to develop products, in particular, for example, for cash management to large corporates and cover the whole African continent. So this is the way we think, and I I think more and more banks will also look at these avenues.
It can be in those geographies. It can be in certain businesses To share cost, to do things, I could also mention with La Banque Postale Transactisaint, which has Being able to build a common platform for everything regarding credit card, etcetera, very efficiently. So these are things avenues we are further thinking about going forward. Nick? Yes, Omer, sorry.
Yes.
Hi. Omar from Barclays. Just three questions. The first one, sorry to go back to French retail, but I'm confused by the guidance of Improved revenues in 2019 because the Q4 was the worst quarter for revenue growth and it's Progressively worse through the year. You have the €500,000,000 of interest rates and then you have the €70,000,000 of Gilejo and impact.
So I take your points on the base effect of renegotiations, but I still don't know how the numbers work out for revenues to be up. So that's the first one. The second is just on Slide 16 and the comments you made about €125,000,000 of disposals in terms of net income being good value relative to EMC, I guess it's good value because the earnings are more visible, higher return, they grow more than other parts of the bank, Which is why you get a good price. In that context, what visibility can you give us on the €150,000,000 at EMC, given that that's Now even more important given the cuts in revenues elsewhere. And then the last one is just on Originate to distribute.
Could you help us just by telling us where you are in terms of distribution rates of loans? Your peers who say they're the best at about or at about 70%, another peer say they're at 40%, just to help us Track that metric going forward. Thank you.
I will let Sylvain answer on the Philippe, Henrique answer on the franchise. Just I mean, again, we are not just comparing. What we are seeing is we have been able to sell For 37 bps, of course, Tier 1 at between 1 and 1.5 times book, Including assets making no money, let's say, sit, making no money. But why? Because they are natural buyers who get the benefit of the synergies.
Just that. I mean, it's as simple as that. And it makes sense for them, a lot of sense, same thing, more than for us. Typically, the buying a nice clean private bank with a few 1,000,000,000 of euros of assets in Belgium, if You can plug just the assets and get the synergies. It makes a difference.
So this is very rational from a buyer point of view, And it also makes sense from a seller point of view, if I may say so. And then the only acquisition that we are going basically to make, because I must say, I don't see a similar opportunity then. And I know Barclays was looking at it, by the way. But I mean, These acquisitions fits perfectly in terms match perfectly in terms of our businesses, existing businesses. And on top of that, we've synergies on the cost.
So same thing, I would say the reverse of maybe the Belgium thing with Very strong position in Germany, which is of interest for us. So this kind of arbitration of portfolio makes a lot of sense. May I say, really, we are acting on our side. I have not So much of that, and I don't see actually a similar opportunity as interesting as the EMC today in the European Banking Perhaps Philippe, can you come back to the revenue and also on the OTD,
Okay. Going back to the revenues. First, I should add regarding the Q4, In addition to what I've already said regarding the margins on deposits, 2 other aspects which had Actually a negative impact. It's true that the financial services were below the level of Of the quarter, the equivalent quarter of 2017, the markets were not good. And so we had an impact of approximately €20,000,000 of difference between the two quarters on the financial fees.
And the second aspect when you compare again these two quarters is that in 2017, We had a significant capital gains on some financial participation linked To put business of approximately €30,000,000 So again, the comparison between the 4th quarter is complicated by this element. Again, as I said, regarding the deposits, the margin of deposits, we see the trend changing. Regarding the margin on credits, we are very cautious on the origination. We are focusing On the right clients, and we are making sure that the margin at the originations make sense. And regarding the large component fees, as I said, we have many growth initiatives with additional clients, additional Products, we are delivering in banking as a platform, bank as a service.
So we have you have also to take And at the same time, we are in the guidance Regarding the evolution of cost, last year, there will be definitely a deceleration in the increase of cost, And you will see a decrease in cost in 2020. So overall, with all these components, with So a strict control on the RWA. It gives us to the new guidance regarding the return on equity. So a bracket between 11.5% and 12.5%.
And OTD, Severin?
The definition of this ratio of distribution is quite inhomogeneous. When we are referring to 70%, I know what it is really is probably the final deck, which is 30% on the primary syndication before the closing So if we take the global means we have in terms of distribution, meaning syndication, secondary site, Securitization, insurance coverage and so on. Our Global Finance business is distributing 50% of its global origination. Yes, there are many we have been doing the last 2 years, 3 years, and it's something we can increase if we need it. And it's one way for us to manage the risk weighted asset
It is very important to say that it goes beyond the CIB, what we're trying to do. And when we say On the Page 24 that we will work towards optimizing RWA. This OTD, of course, it's bank TDS insurance securitization, but that will go beyond the CIB. We're looking very actively at securitization of Corporate loans, for example, in the retail and things like this to be more agile and be able To rotate more of our assets on a more opportunistic basis.
Hi, everyone. Nick Davy from Redburn. Three questions, please. The first one, just on the financing business. You've spoken With some pride about the 9% revenue growth, but at the same time, some of your slides are warning about the clouds that are forming.
So I suppose the question to you is, How confident are you in the quality of business that you're writing? We have seen other European banks talking about slowing down here. So why are we not seeing that in your case? The second question please on the TLTRO. The ECB has said seemingly that they need some more convincing that it should be permanent.
So Can I just ask you, in your thinking for the next 2 years, do you expect it to persist? Or do you allow for its removal? And then the third question, just on the scrip dividend, and I'm surprised it hasn't got a bit more attention so far. Can you commit to a cash dividend from here? I can see in the capital plan, you're aiming for your plan is for a 50% Cash payout, but when I look at the dividend language, it's still excluding the word cash.
So can you commit or do you just plan for that? Thanks.
Perhaps I will take this last question and let Stephane and William answer. First of all, I, as CEO, cannot commit to anything on the decision which relates to the board, first thing. 2nd, We took the the Board took the decision, in particular, in light of the TRIMA. Because with this minus 30 to minus 50 2019 potential impact are largely concentrated. We did not at least I said to the board, I think it would be better to maintain a level of capital at a reasonable level.
3rd, we are clearly planning and to your horizon give you, I think, hopefully good visibility. We have not The plan, effectively, any scrip option for 2019, beginning of 2020, and we are Giving hopefully enough comfort with this 12.3% to 12.7% range to avoid having a second time this scrip dividend. But I think given the 30 to 50 basis points, I think it was the right decision to take in beginning of 2019 for 2018 dividend. Severin, the comfort we have on our credit origination?
Yes. If I have a look back into 2018, the global origination volume has increased by 38% In terms of volume last year, and so we see a real dynamic in terms of client demand And in our own franchise, specifically on asset finance area. When I mean asset finance, I mean in our case mainly shipping, Aircraft, Finance and Real Estate, we had a significant boost as we announced during the Investor Day presentation that we will invest in that direction In new geographical area where we were not very active in the past, mainly in Asia, in the U. S. And also in Europe.
So We are taking market share in that direction even. So the second area where we had a good dynamic this year It's our energy and natural resources franchise. And as you know, we are one of the leader in renewable energy, which is doing well still Good day. So when we speak about cloud, I don't know if you are referring on our own presentation regarding cloud or on our peers presentation. The cloud we are mentioning while more affecting our global market activities, there is appetite of our investment clients to buy our structured product.
But in terms of circuit finance, which is the other part of our business, I'm mentioning coming out, we think that but there is still a good dynamic in my view And this good dynamic could last for a while.
And may I say we've been very prudent on the LBO. We already commented That we were seeing stretched structures for now what, at least 18 months,
More than that, we have revisited our guidelines with thanks to the journey also support and now we have lost market It's a decision we took and we are completely assuming that this is what I'm mentioning is growth initially in other parts of the business, not LBOs.
And TLTRO? TLTRO,
3 things, we are a small participant To the TLTRO. To our funding plan, You have to go beyond the 20, yes, given the time frame of the TLTRO. Assumes that there is no replacement of TLTRO. So to be Very clear, we are not dependent upon any replacement of TLTRO. 3, should there be a replacement of TLTRO that is economic To us, maybe we'll participate to it.
That would be a very opportunistic move. But obviously, We do not depend upon it to happen again.
Personally, I would prefer to see the deposit rate to go to 0, to be frank, because It would make more sense than again building funding infrastructure and perhaps having people also lending With a lack of discipline in terms of conditions. So if I were able to make the decision, I would go more that route.
Yes, good afternoon. Kiri Vijarajah from HSBC. Could I go back to French Retail? I hear what you were saying That you've got reasonable line of sight that the revenues will grow this year in French Retail. I wonder if you could make a comment about the jaws, Particularly in relation to one of your peers yesterday committing to delivering positive jaws in domestic markets as early as 1Q.
Is that something that's a bit too optimistic For your French Retail. And secondly, just more a clarification. Did you mention that Boursorama in 2020, the Earnings contribution is going to increase meaningfully. So does that mean or does that imply a change in the customer acquisition strategy That you're going to lower your marketing costs, for instance, to try and boost the profitability there? Or did I misinterpret that?
Thanks.
Yes. Perhaps, Philippe, I just would like to highlight and on our comments, By definition, there's always a little bit uncertainty on the revenues. What we are saying is there will be, in our view, the beginning of the improvement versus 2018. One thing which I really would like to highlight, and I will again leave Philippe answering in detail. We've had, As a policy for the next 2 last 2, 3 years to be selective in credit origination.
We could have The dynamic, if we were adding mortgage, we've been, in particular, on mortgage selective. And again, you can argue whether it's the right strategy or not. I was very reluctant when I look at the price And the potential dynamic in this market of, I think, personally on the client side, less stickiness overall, at least on certain products, Such as the insurance credit, where you can renegotiate every year. We were reluctant to take too much of that if it was not for Massafruit Where and as you know, it's consistent with our view, where the Wealth Management will be at the end of the day at the heart of the future relationship, In particular, with traditional network, in 5 to 10 years' time versus the Boursorama, which is concurring client with a very high level of satisfaction And we can provide a very good service for people who might not have the same wealth needs. So I'd like I just would like to tell you this decision is looking at the next 10 years, considering that the people will have Putting take a mortgage at 1.0 something for 15, 20 years, they will not reimburse if they can Because it will be very beneficial and that we would be left with it for the next 15 to 20 years and that the People will again, will not capture as we did in the last 10 years certain products.
So that's where we have been very selective. And I think personally the right strategy, which leads also to a return on equity, which is at least we've not seen all our French peers So it's but compared with the ones which are communicated, which is much better. So we Please try to perhaps compromise a little bit the revenue dynamic and effectively maintain a better return on equity as well as actually Also a better costincome ratio. So here, it's a strategic decision.
We'll stick to it.
But I must say, I think this French market still lacks Also of discipline in the pricing of credit. And I hope that at some point, we'll see something a little bit more disciplined than what we saw perhaps because also certain players Precisely, I'll just to maintain the dynamic of the revenues, but I'm reluctant to enter into that strategy. But Philippe, if you can comment a little bit more also the other details?
Yes, for sure. I'd say, we do not foresee a positive view as early as 2019 because we consider that it is very important to complete The transformation effort we are doing, again, this is we are preparing for the long term. This transformation, there are many components related to the branches, the training of The call, there is also a very important component to IT, including in order Prepare us to give the new ways of doing banking. I mentioned earlier, bank as a platform, bank as a service. So this effort is on track.
It's a full year's effort. We have a good momentum As explained previously and including during the Digital Day, for some aspects, we are Ahead of our schedule, we are doing the reorganization of the back office here. So we see a positive impact very soon. So we want to continue this effort because we consider that it's critical to our future and not only the next 2 years. Regarding also the comparison with peers I mentioned by Frederic, you have also Look at the numbers such as costincome and return on equity in absolute terms and not only on the evolution and you will see that I think our numbers, notably the return on equity is quite attractive.
Regarding Boursorama, the priority of Boursorama is definitely to acquire clients. And Bofana is doing a very good job. I remind that for last year, They have recruited 460,000 clients. So leader regarding the number of clients and leader also regarding the number of clients Acquire, they are real clients. And so that's why that yes, both Solana and notably in 2020 We contribute not a significant increase in fees because these clients are using products.
They are buying services from Oussurab. I wanted also to I stress again that this acquisition effort, we monitor it very quickly. 90% of the cost For client acquisition are viable. And if we exclude this So acquisition cost and marketing cost, Goss Sorana is as of today an entity which is profitable.
Hi, Jean Henri from Kepler Cheuvreux. I would like
to understand something at the collective level On French banks and actually the question is for you and probably for the guys who reported yesterday. The relationship with the supervisor and the visibility they give you On your capital levels, for me, it's really not clear. And can you shed
some light on that? Listen, we've not yet received the threat. And effectively, They don't give you a precise figure. They refuse to give you a precise figure. It's more You feel their comfort towards the trajectory.
And what I can say is our trajectory for the next 2 years, I think they are comfortable with the trajectory. So it's never a figure. It's never a figure. It's more Not just a level of capital, they look at your business model, your capacity to make money, etcetera. So it's a recurrent dialogue, but it's never do that Such a level at this point in time, it's never like this.
It's not as clear as this. So you have to interpret, you have To see an effect TV, we consider that reaching this kind of level is fine. That's what we can say. Alain, again, as part of what I was saying also in when you look at the U. S, I mean, we will have to have a discussion with Mr.
We're just landing in this position to tell him Mr. Henriard, standing in the U. S. I'm not wrong. I've not seen any details
for the fore quarter, but
I saw in the Q1 the core Tier 1s of big banks going down. You have JPMorgan, which is the largest bank in the world, which is piloting itself at 12% core Tier 1 ratio. I'm sorry, but I mean, if I may say, a bank like Societe Generale, which is much smaller and getting simpler, why should it To be above 12%, at some point, there is a question of what do you want at the end of the day for the European Banking sector. We did not have yet this discussion. It's just beginning of February.
I know Mr. Henriette very well, and I think he's someone Pretty pragmatic, able to take the whole thing. And I agree with you. I mean, fundamentally, at some point, The regulator, which should not necessarily give figures, but at least integrate all this and say, I'm comfortable with whatever the level of capital, blah, blah, blah, blah, blah, Taking into account the TRIM, the problem is probably he does not know at this stage himself because the TRIM exercise is not finished also. It's not completed.
Well, they are still in this process of looking at all the banks, etcetera, and determining blah, blah, blah. So that's why it's still in this uncomfortable situation. But what I would say, With the kind of figures that we have presented, it is fine.
And if I may add from an investor standpoint, With the 11.5 pro form a, we have a comfortable buffer above MDA, whether this is the Debt investor or whether this is equity investor, we will improve from now this buffer. And what we can say is that it will start in 2019.
I think that you've got a We have our first question coming from Bruce Hamilton from Morgan Stanley. Sir, please go Bruce Hamilton from Morgan Stanley. Sir, please go ahead.
We might have lost Bruce.
I will pass to the next question. Next question is from Maxence Luebvielo from Jefferies. Sir, please go ahead.
Yes, good afternoon. One final question on my side. Can we have a little bit of flavor regarding In the cost base and the market activities, you have a cost income ratio of 100%. It seems that you are still doing some investment. Can you give us a granularity of which part is recurrent and which part is not because it's quite surprising to see revenues to be down by minus 20% and the cost flat?
Thank you.
Severin?
The main variable part on the cost of market acuity is the variable balances. And the rest is variable, but not at the short term. If I may say, horizon of 1 year, it's exactly what we are doing in this plan when we are just guiding you on global spacing On the 18 months horizon is because there is an urgency in terms of cost base. So we will deliver this Not immediately. The only prior group part immediately is bonuses.
And when you have a low year like this year, you have also a kind of flow So when you are in a low environment and a low result by today, You have not such flexibility. The only flexibility we have is to build on the more organizational and more, if I may say, Longer term action, but we are doing now.
Okay. Thank you. Next question.
Question comes from Annke Rehmann from Royal Bank of Canada. The floor is yours.
Yes. Thank you very much for taking my questions on the phone. It's really about Plan B, so to say. Your new ROE target looks a bit from what we know as more of a top down target. So if the environment would be worse, does the ROE target still stand and you would work on the costs?
Where would you sort of like try to find the additional lever? Then on your Slide 25, which is very helpful, It's just, if I'm right, I guess, your earnings contribution assumes close to a target ROE. And also, obviously, there are additional disposals coming in on which I don't have any visibility yet. So if these Two things are not really coming through. Where is the additional flexibility?
Is it Swissquared assets reduction or the stock dividend? Or
Yes. May I say, first of all, we talk about A 23 month horizon currently, if I may say, and to a certain extent, it's not a top down plan. It's Of course, as usual, a bottom up and top down discussion taking new assumption for each of the business with a range which is relatively large, 9 to 10. It's relatively large as a return on tangible equity target. It really was effectively the end of the world.
We would Take additional measure, whether it's on the capital and certain assets or on the cost. But as I said, we have already factored A slowdown in the economy. On the cost of risk, these things, we have ways to look at watchlist, The next 12 months to 24 months outlook, etcetera, on the cost of risk, it would be very surprising if we had a big difference. You can have variation of our revenues, etcetera, but that to a certain extent factored in the range. I'm not sure to have understood your second the second part of your question.
Can you elaborate a little bit on what
Yes. In order to follow your path on Page 25, I basically have to give you credit For the 45 to 55 additional benefit from disposals and I have a similar earnings benefit from what you have factored in. But if that's not the case and it's not coming through or are you very certain on the disposals? Would you think that additional deleveraging, are your risk weighted Optimization is then the next tool or is it the stock dividend just in terms of the plan B? Thank you.
Yes. Maybe a few things. First of all, if you want to be successful, execute your plan A without having necessarily a plan B In mind, so we focus on Plan A, but taking into consideration your questions, maybe a few highlights. First of all, the earnings we have here, they're obviously more conservative than they were before. So they Factoring all the bad news we were talking about, it's really based on a granular plan business by business and it factors in A situation that is the following, softer on revenues, stronger on costs.
It does factor in as well all the impact That we can project of the foreseen disposals, meaning if we don't do the disposals, you see we still have The earnings to the extent these are profitable entities we are referring to here. So there is a reasonable buffer in this first leg. Secondly, you're right to point out that there is always a risk of execution in M and A. I would say that we had said 50 to 60 basis points through 2020. Our track record is that we've executed in 1 year More than 70% of it since 2012, we've executed A lot of disposals, so I think we have a good track record.
On some of the assets we've identified to add here on the list, We've already had proactive approaches by potential buyers, there's nothing uncertain, but we have good visibility. And last, you're very right to point out as well that our plan is also based on active work on RWAs. Trimming down the RWA growth, growth obviously would be very easy if we are in Less favorable economic environment would be less production. But beyond that, we are talking about deleveraging in market activities, Whether this should be 8 or in certain situation, we could do more, possibly. And we are talking about RWA optimization measures are referred to the flexibility we want to have going forward to touch upon Not only CIB portfolio, but also retail portfolios.
So we'll add some flexibilities. But the plan really we consider is Credibon because It's based on more conservative earnings and a track record on M and A Plus new measures we are taking here to adapt on deleveraging.
Okay. Thank you very much.
Thank you.
Next question is from Guillaume Sibergam from Exane. Sir, please go ahead.
Yes, good afternoon. The question relates to the Slide 25 on the capital path. And I was wondering, out of the 120 basis points also that we intend to deliver from disposals And optimization of RWA and shrinking of RWA, how much of that do you think you can generate this year To offset TRIM and IFRS 16, of course, you've got already the 26 bps for the disposal that are not yet in the Fully directed. The underlying question is whether you can build capital in 2019 from the level of pro form a 11.5.
So maybe I'll start with the conclusion. In our plan, we're foreseeing capital buildup in 2019, not to 12%, but we're foreseeing Capital build up, exactly. So that's the answer number 1. On EM and A, we have already 37 in the 80 2.90, that is for Jean, out of which a portion is already closed or will be closed in the next weeks. The 10 basis points of EMC will span across 2019 2020 Because you remember we had discussed it before with the analyst community.
We will have the RWA coming on our balance sheet As we onboard the portfolios, some of it is a bit back loaded in 2020. So I can't tell you exactly whether we have a 5 or 6 Basis point impact in 2019 or the reverse in 2020, but I think maybe we'll have at least 30 basis points in M and A based on what we've achieved. We're hoping to do more. Obviously, this is, as As your colleague rightly pointed out before, depending upon negotiations that always have a certain element of risk.
And then I can say we can add the shareholder plan for the staff, which is also planned for this year. And 5 basis points is a lower assumption because we have not had any right issue dedicated to the staff for Some time, so I would say at least normally it should be more on the high range of the range.
You didn't mention, by the way, the The global market RWA reduction, we plan to do a portion of it as early as 2019.
Thank you very much. Yes. Anything else? Any other question?
We have no further questions over the phone.
Okay. Well, thank you very much. And So one word of conclusion, we are committed totally committed and confident to deliver. Thank you.