Ladies and gentlemen, welcome to the Societe Generale Conference Call. Frederic Coudinard, Chief Executive Officer and William Cadouch Chassain, Chief Financial Officer, We'll present the group's 2nd quarter and first half twenty eighteen results. Gentlemen, please go ahead.
Thank you. Good morning to all of you, and thanks for attending this conference call on our 2nd quarter interest What I suggest, as usual, is to go through briefly our slides. I will leave the floor in a minute to William Catouchacin, our CFO. And then we will So if we turn to the presentation and the first slide, let me just highlight Very shortly, the main items and characteristics. First of all, we have, in the second quarter, a progression of our revenues By more than 2% on a like for like basis and at constant exchange rates.
And thanks to a very strong discipline on cost and risk, We have also a profitability return on tangible equity above 11% this quarter, 11% also for the first half. 2nd, we have started the journey to complete The refocusing of the group, let me just remind you that we have a plan. I will comment on this and we see the first Decisions regarding this plan in the Q2. 3rd, we are progressively putting behind us Our litigation issues in the Q2, we put behind us the LIA and index, I work cases. Regarding the late last significant regulatory litigation regarding OFAC, Although the timing and the financial impact of the potential agreement remain uncertain, it is possible that the pending discussions Those could lead to an agreement in the coming weeks.
And 4th, we have solid balance sheet And we are compliant to all regulation, including the environmental requirements that we just received. William will comment more in detail on this. If I turn to the next slide, let me just comment on the overall business performances. In the French retail, we are on track in our regarding our transformation plan. You know how 2nd, the transformation of the business model is, as in all Eurozone retail activities with the new technology.
We have good credit flow. We are conquering clients. Let me in particular highlight that Boursorama Has now reached 1,500,000 clients in July and that we target the 2,000,000 clients Figure 1 year in advance. Regarding the revenues, commissions are up Year on year, net interest margin is still going down with still a low rate environment. We are now have a Slight decrease of revenues in mind for 2018 between 1% 2% for this year.
Regarding International Retail Banking, all our activities, all our geographies confirm the capacity To grow with positive jaws and with good profitability, it's clear that Having good franchises in these non Eurozone countries is an advantage with Good growth of retail activities as well as the more normal rate curve. This is the same insurance and financial services It is where we have across the board good growth and very strong return on normative equity. So when I look at these Two categories and activities. It's very clear that growth is confirmed and profitable growth. And regarding Global Banking and Investor Solution, we posted a solid second quarter.
First of all, with a rebound of our market activities versus the Q1 of this year, But also an increase by 2% on the current parameter and on the like with constant exchange rates compared with last year. And in still relatively low volatility environment in Europe. And regarding financing and advisory activities, we have very strong With a very solid origination. Again, we'll come back more in detail. Next slide, let me just comment a little bit more about, Again, the completion of the refocusing and optimization of our capital allocation.
Let me just remind you that we have announced We have as an objective to refocus for the equivalent of 5% of our group That's true to 2020. That represents roughly a range between 50 This quarter, we announced the disposal of Four businesses, the signing of 4 disposals, the sale of 2 subsidiaries in Central Eastern Europe, Bulgaria and Albania, The sale of our Private Banking business in Belgium and the sale of a self trade bank in Spain. These transactions will have an Estimated impact of 15 basis points on the quarter in 1. We expect this transaction to be closed in 2018, At least the vast majority. And further to this transaction, in line with what we said, which is that we plan To announce, we have in mind to announce for at least half of this program, we will have further announcement we expect further announcement in the second half.
Let me mention that these disposals, which again fit with a strategy to concentrate on businesses which have The critical size to compete going forward and of course, the level of synergies which justify us to keep these assets, Let me just mention that the benefit will be used on one hand to Size opportunities, if they make sense, and we have also in the second quarter announced a unique opportunity to strengthen 2 core franchises with the acquisition Commerzbank EMC Business and of course, increase our capital ratio. Let me now leave the floor to William, I will comment more in detail on figures.
Thank you, Frederic. Good morning, everyone. I will ask you to turn to Page 8 On the group results for the quarter, let me point you first to the group revenues, which are up this quarter By 1% in current terms, 2% when adjusted for perimeter and for any change. This is mainly driven by the international Division with an increase of 6% in excess of 6% for the quarter when adjusted for perimeter and foreign exchange, 3% For the Investment Bank and minus 2% for the Retail Bank in France. The second element I would like to point you to is the operating expenses.
As Frederic said, we have a Very disciplined cost management this quarter. You need to adjust the number we provide on the page, 1.3% Growth from 1 quarter from last year with the reversal of The provision we made in the International Banking division for about €60,000,000 for the same quarter of last year. Adjusted for that factor, the costs are flat from 1 year to the other in Q2 2018. The third element is the cost of risk. I will come back on it later.
It is down again this quarter And we end the quarter with a cost of risk at 14 basis points. As a result, We have an underlying net income for the quarter of €1,300,000,000 up Nearly 9% year on year and which translate into an underlying return on tangible equity of 11 0.2%, it's 11% for the first half of the year in total. Turning to the next page on cost of risk, a few elements I would like to again point you to. The first one is again the cost of risk for the group, which decreases again, as I said, From 18 basis points last quarter to 14 basis points this quarter. The second element I would like to highlight It's the decrease the further decrease in the non performing loan ratio.
We ended the quarter in To the Q2 2018 with a 3.9% NPL ratio, below the 4% threshold After a constant period of decrease over the past quarters. And thirdly, I'd like To raise your attention to our new guidance with regard to the cost of risk, we expect the Cost of risk for the year to stand between 20 basis points 25 basis points, let me say that we Consider this guidance still as a little conservative. Regarding balance sheet, on the next page, A few items. First of all, on capital, we have a slight decrease And the capital for the core Tier 1 by about 10 basis points. So we ended the quarter with the core Tier 1 At 11.1%, this is mainly due to a number of Technical factors and adjustments, which I will comment if you have questions, including some TRIM adjustments.
The leverage ratio is flat adjusted for the recent decision of General The European Union, which allows us to deduct some savings exemptions. The point which I think is very important for the quarter, as Frederic highlighted, is the fact that we have been notified as the other banks On the MREL ratio by the Single Resolution Board, we can now confirm that This is 8% of total liability and own funds, the TLOF That we need to comply with, which translate into a 24.36 percent RWA equivalent on the basis of the December In balance sheet, the main information beyond the notification of the threshold is the fact that we are amongst the banks in Europe that are already compliant. TLAC, we already mentioned it in the previous quarters. We're already ahead of the expected threshold For 2019, when it will be put in place, we should be at 19.75%. You can see we ended the quarter With 21.8 percent, the rest of the solvency and equality ratios are stable or up.
I will not comment the next page on group results with the detailed numbers. Should you have any questions, we obviously will be pleased I will now turn to the business performance, starting with the French Retail. As said by Frederic, the main message with regard to the French retail operations is the fact that we are Progressing well in our transformation. Transformation is, on the one hand, the reshuffling of the business model And secondly, reshaping of the distribution and the operating model. With regards to the business initiatives, Many of them have been announced during our Investor Day.
We are pleased to see progresses. As you can see, I will not comment all of them, but the main items on the pages are we are progressing well in the selectivity of our client base and especially the growth of the of our client base and especially the growth of the Wealthy and Massafluent client base, plus 5% Over last year, this is associated with an increase further increase in AUM for the Private Bank in France Which are up 2.6% relative to last year, the AUM for the private bank in France Stands at €63,000,000,000 Another element I would like to point out, but I will come back to this is the acceleration of the Client acquisition of Boursorama with 1,500,000 clients by the end of July 20 I think we are well ahead of Siquetron. The bank interest progress well on all accounts, be it life or non life. One area we are particularly satisfied with is a consumer credit production with a double digit growth relative to the previous quarter of last year. And overall, we're making also good progress on Professionals and Corporate.
With regards to the business Thanks. Things I would like to highlight are 2 fold. 1, you can see that we have decreased discretionary the production of home loans, which is a sign of our selectivity, both on the planned acquisition as well as on the risk. By the same token, we're increasing the fees this quarter, now up 2.5% Relative to the same quarter of last year. If I turn to next page, transformation, as I said, encompass as well the distribution and the operating model.
We're making there again good progress. We are very well In check with our plan, sometimes even ahead, so we announced the 1st branch closure For up to 50 branches in the mature networks in the first half of twenty eighteen, We have closed one back office for the quarter. Out of the 6, we have committed ourselves to close through 2020. At the same time, we have opened 75 professional corners as part Our redeployment of the initiatives related to towards professionals. The digitalization of the offer mix Also good progress.
The dematerialization of the offer with electronic signature spread out Very successfully towards clients. Also for the agents, we have developed We're allowing them through a digital interface to have a 360 degree view on their relationship. We're also making progress on the discussion with the Works Council, implementing the new legal framework in France in our company. I would like to point you to the cost development for the quarter. We are up 0.7% in the freight Eaton network.
Adjusted for the IFRIC, it's 1.2%. For the whole half first half of the year, It is 2.5%. So it is, as we stand, below the 2 the 3% cost developments that we expect for 2018. One point which I would like to stress It's Boursorama in the next page. There are usually three questions on Boursorama.
First of all, is Boursorama Caprebon to keep its leadership? And the answer is quite straightforward. BeauSorramax increased its leadership Again, in the first half of the year, as I said, we end up with 1,500,000 clients by the end of July. We produce 1 client per minute. So we are confident that we should reach the 2,000,000 client as early as 2019, 1 year ahead of schedule.
The second question is, is Boursorama a full fledged banking model? And there we can reaffirm, stress Quite strongly that relative to many of us, it is indeed more comprehensive to what you can find in the market. We provide you For the first time, with some data with regards to client outstanding, with the saving or loans as well as the growth pattern of The different products we deliver to these clients on the saving or on the loan side, You can see hefty 2 digit numbers from 14 to 16. 3rd question, is Bouyguesorama Profitable and with BeauSarnier will ever be profitable, and then we provide you with numbers that To prove the efficiency of the model on the top of the page, more importantly, we would like to stress the fact that Bossa Rama As a positive debt income, excluding marketing expenses, let me remind you that these marketing expenses, The majority of them are variable. So they directly associated to the client acquisition.
Should we Stop. The model would be immediately profitable. Its profitability ex marketing expenses has Increased by 2.5 points between 2016 2018. Last but not least on the French Retail, the numbers, most of it I've already mentioned. I pointed you to the Revenues decrease of 2.1% this quarter with a mixed Composition, +2.5 percent increase in the commissions, Minus 9%, around 9% on the net interest income.
Operating expenses, when adjusted So, IFRIC are up 1.2% or 0.7% non adjusted for the quarter, 2.5% for the first half, I've already mentioned. Overall, despite the strong transformation, a resilient profitability. Let me turn now to the International Retail division. The story here, as mentioned by Frederic, and as you can see on the page, is a story of unambiguous widespread growth across all geographies. You can see we provide this number traditionally on the left hand side of the page on the top, The very good dynamic with regards to production, whether this is on the loan side, on the deposit side and across all regions, Let me point you to the, again, double digit numbers for both Russia and Africa.
European part benefits Strongly from increasing volumes, but as well more favorable rates environments than what we see in the Eurozone, particularly in France, we can we provide you with the rate curve of the Czech Republic and Romania. In Russia, as already mentioned, we have very strong production. And in Africa, very strong Production associated with a good mass range of costs, which we intend to improve further by the launch of For new hubs, we are just launching an IT hub in Casablanca for the whole operations in the region. So overall, This translates in higher return on normative equity. As you can see, close to 20% for the European Business Unit, 16% for Russia and 15% or above 15% for Africa.
You will find on the next page some data on The Financial Services division and insurance, and here again, you'll find evidences of the strong growth In these areas, life insurance outstanding are up 3% with an improvement further improvement In the short unit linked in the total portfolio, but personal protection and casualty are also Up 7% outstanding premiums, sorry, also up 7% over the quarter. ALD fleet is up 10% and the loan and business outstanding for our Guess' subsidiary, the vendor finance entity, Up 8% year on year this quarter. I would like To make a little point on ALD, the reason why we do it is because we are not dissatisfied with the performance of ALD, which is One of the key growth drivers that we have stressed in our Investor Day, but it's also because we are just 1 year After the IPO of ALD, I will start with the last comments. The market cap of ALD stands now at €6,200,000,000 Which is up 7% from the IPO. Ayli is experiencing since the beginning of the year the best Performance in this quarter in this sector and one of the best out of the SPF 120 companies.
Now the reason why we like the story is much go goes much beyond the IPO is because of the return. You can see The first half return on equity is above 26%, but it's also this combination of return with growth. And here again, we provide you with 3 elements. 1, we reiterate what are the Structural growth drivers of A and D and actually we're quite satisfied to see that all of them materialize. The traditional one, which is The trend towards outsourcing of the corporate, we have seen it for a certain period of time and it continues to materialize with large corporate.
No, we get stronger and stronger evidences that SMEs are part of the game through our partnership, which is a unique differentiation for ARD, associative shift, which is a shift from ownership to use with the retail consumers It's something that we see very strongly through our private lease, which goes by 40%. And we now see tangible evidence At the beginning of the mobility services economy, with ventures we've launched in car sharing In Finland or Italy and different models of telematics or pay as you drive Experiences we do in different geographies. 2nd element, which proves again true and we expect Continue and last is the profitability of the model, strong revenue growth, high single digit. You have here the numbers of the Leasing contract margin and services margin, plus 7% in this half year relative to the previous year And a very satisfactory costincome ratio of about 50%, which actually improves relative And last but not least, you know that AMD is a company that is innovative and that digitalized much of its process. You can see some examples here.
I mentioned already the mobility, but remember that on the resale of cards, the process is Mainly digitized with car dealers and we also launched the private lease through fully digitalized offers, whether this is In U. K, as provided by this example, all in France via an offer provided for some days by Bouxorama. Overall, the numbers of the division are in sync with what I've just said. Revenue increased Of 6.1% on adjusted for perimeter and foreign exchange for the quarter, so that's quite strong. Operating expenses up 4.3 percent adjusted for this €60,000,000 reversal of restructuring provision I mentioned in Q2 2017, the cost of risk remains low.
So if you see the number up on the page, in fact, you Need to adjust for reversal of provision in Romania in the Q2 2017 for about €34,000,000 To go to the real number, which is more a decrease in the area of 20% of the cost of risk, as a result of these positive jaws, low cost Risk and high growth, we have a return of normative equity, which stands at in excess of 18% over the quarter. Turning to the Investment Bank and starting with the market operations. I would like to point you to the growth pattern this quarter of the market operations. We are up For Global Market and Investor Services revenues, excluding foreign exchange impact, 2% over 1 year. We obviously have a much stronger growth even from a quarter to another in Q2 2018.
The fixed income operations are up 2%. Equities are slightly down 1%, but again, Strongly growing over the quarter. We have different sets of revenue growth, Obviously, between geographies, remains very strong in Americas, in Asia, in Americas through the whole spectrum. In Asia, a little softer on the fixed side, overall solid revenues. In Europe, obviously, We suffer a little from the low volatility environment on the flow side.
We Very positive trends through better volatility in that segments in commodities, ForEx and Rates. Security services were very strong this quarter, such as Prime Services. I would like to provide you, I know this was well expected, with some more data points Regarding our EMC acquisition, the market operations we acquired from Commerzbank On July 1, I won't come back on the story. If you have some questions, we are happy to answer. But you know This is a very complementary platform.
The point I would like to stress is the synergistic aspect Of the platform and this acquisition, we expect the great move transfer to happen between 2018 2020 With integration costs of circa €150,000,000 over the period, the important numbers are the fact that we expect GOI gross operating income above €150,000,000 after the transfer And the restoration of the operation and in any case, we expect the acquisition to be accretive To the group ROE and obviously the division ROE. I mentioned the market. I would like to point you now to the financing advisories. This is similar to what I've said on the International Retail, again, a story of strong growth over the quarter. Financing and advisory revenues are up 8% From 1 year to the other, after neutralizing for foreign exchange impact, this is still a hefty Plus 5.2 percent at current exchange.
What we can see, it is broad based Across all financing categories, particularly strong in real estate, shipping, energies and acquisition finance, I would like to mention to you the double digit growth of our global transaction banking operations. This is a key Element of our growth story that we have highlighted in our Investor Day. For Asset and Wealth Management, The picture is more muted. It's a little mixed. Let me remind you that we start to we had a very good performance in Private Banking in Q2 2017, overall, we continue to increase our AUM, both for Private Banking as well as for Luxor and the margin, Corporate Banking, remains in sync with the best standard in the industry, I.
E. Above 100 basis points of ROA. To finish on the numbers for this division, they are the revenues for the total Global Banking and Investor Solutions Divisions are up nearly 3% for the quarter, 2.9% when adjusted for foreign exchange impact. They are up 0.5% current. This is again one area where we experienced positive jaws, operating Expenses adjusted for FX impact are up 1%.
In current terms, they are down 1.3%. So we have obviously a strong jump in the net income relative to the past quarter and an underlying Return on Normative Equity, which is very resilient at 12%. One word to finish on the Corporate Center. 2 things I would like to mention. The first one It's the new allocation of €200,000,000 to the provision for disputes.
We have no as of June 30, 2018, an inventory of stock Provision for disputes on our balance sheet of 1 point north of 1,400,000,000 The second point I would like to point you to is on the gross operating income for the first half. As you can see, the number is minus €200,000,000 Should you adjust for what I've just said about the provision, It means that the gross operating income of the Corporate Center equals to 0. Let me remind you that We have given guidance for the full year of gross operating income of the Corporate Center of minus EUR400 1,000,000. I would finish there and hand over to Frederic for the conclusion.
Thank you very much, William. Just to again say that When you look at the Q2 as well as the first half, I think that our achievements and performances correspond to our objectives in our 3 year Transform to Grow strategic plan. First of all, again, growth of revenues, 2nd quarter plus more than percent on a like for like basis and that constant exchange rates. 2nd, the transformation across all our businesses It's, I think, a fundamental element, while at the same time maintaining a strong discipline on the costs. So we work on that, and it's Also strong management of risk.
We benefit from all the efforts in the last few years, And we have a 14 basis point cost of risk and across all the businesses, which I think is a good sign. And We are reducing our target for this year to 20 to 25 basis points, probably still a little bit conservative. And we should not, of course, forget again this refocusing and the item of responsibility, it's an important thing. Beyond putting the litigation of the past behind, it's also to enshrine a culture of responsibility across all the businesses And comply with our objectives in terms of contributing to the climate change, we are now more than 50% 50% of our objectives for the full period 2016 to 2020 in terms of contributing to the financing of renewable energy. And last point before entering to Q and A, let me just invite you to a digital journey that we would like to organize on the 22nd November.
We want really to spend time to explain more in detail the transformation that we are implementing in our I think it is relevant. It's a revolution. It's a technological revolution. But beyond, I would It's also a cultural revolution, and it is impacting all the businesses and the functions. And I think it's worth Spending some time with you to explain exactly how we do that.
So we are now ready with our management team to answer your questions. Let me just remind you the good discipline, which is to limit to 2 questions per people. And now the floor is yours.
The first question is from Delphine Lee from JPMorgan. Please go ahead, madam.
Yes, good morning. Thanks for taking my questions. So 2 on my side. First of all, just wanted to get back on go back on the French retail guidance. Would it be possible to get a bit of color around what you're assuming for fee growth versus NII growth?
And This guidance seems to be a little bit more negative versus peers. So I'm just wondering if there is any, let's say, Negative for this year that we should be aware of, which is explaining a little bit the difference. And also in terms of your 2020 plan, If that's the case, if it's down minus 1% to minus 2%, it sort of implies 4% per year for 2019 2020, is there any risk around the performance of French retail versus the plan for top line? My second question relates to capital. Just wanted to clarify the 11.5% CET1 guidance for Year end, is that including disposal or is it not?
And how much of the 15 basis points disposals that you have announced is actually coming through by year end. Thank you very much.
I will let in Delphine, good afternoon. I will let in a minute Philippe Henrique comment On the outlook on the revenues, on the capital, let me just remind you, we target 12% above 12% 2020, we have effectively a target of 11.5 percent, around 11.5 percent at the end of the year. That include that could include potentially, as I said, the bulk, if not 100 percent of the 15 basis Point that we've just announced. Let me just remind you that we have in mind an accretion of Core Tier 1 by roughly 25 basis points a year, which is geared towards the second half because of the just IFRIC accounting issue, which reduced the Perhaps, Philippe, on our guidance on the revenues and the dynamic on the 2 components.
Hello. So first thing, as you noticed, the momentum on the fee, it's quite strong And it reflects the shift of our business. I mean, we don't really want to focus on this kind of revenues. And during the first half of the year, again, the momentum is strong, notably on fees related to And this is really important because it reflects also the growth of the customer base. Regarding the net margin And notably the ones related to deposit, that's true that there is a significant impact.
We are to short term euro interest rate. And because a part of the current deposit is considered as volatile, but So that's why I'm also taking into account very beginning of the year, which was A little bit slow. We have revised our guidance for the end of the year. We are We're committed to deliver 2020. As you know, we have many initiatives in progress.
We are overall in advance Focusing on the key clients, focusing on the key segments. And again, coming back to my first commentary related to the fees, I think we think that the shift of the business is working.
Next question?
We now have a question from Mr. Tarek El Mejade from Merrill Lynch. Please go ahead, sir.
Hi, good morning everybody. Just a couple of questions. First on the growth in RWAs. I mean, I understand why your Capital one to pick backwards, but one of the areas is really very strong growth of RWA is 2% quarter on quarter and that's mainly driving from CIB or GBIS plus 5%. So my question is, do you really need to commit that much capital sorry, that much balance sheet Should we deliver actually what was good numbers in GBIS this quarter or there's another reason that you might want to explain us And second question is on Boursorama.
I mean, the growth is impressive in terms of client acquisition. That's probably Twice faster than N26 or Revolut in France that they used to do like 5,000 clients per week. But I mean, and it's very different from your growth just a year ago. So can you maybe clarify a bit How much of these are like active users or just users getting there to take some welcome credits? Because I think in the past, Boussromat was very well known about, especially before you needed minimum income, so all the clients that we subscribe were actually large parts of them active users.
So is there a shift towards less profitable clients now, but is it not just a race to who has the highest number of clients? So any numbers of clarification would be very useful. Thank you.
Tarek, I will leave the Florent to elaborate on your first question. Philippe, Henrique also on the dynamic in Boursorama. I just would like to say one thing on these mobile banks. You cannot compare Borsell, Hammad, with the kind of banks you mentioned, whether they are new banks or even other models. We are by far and we have been able to have speakers the number one Online bank, but with the full range of products and services.
And Philippe will comment that we have effectively And it's much more than very, very specific and limited range of service Just provided, for example, by some of the new banks you mentioned. And I think really it's a key competitive edge for us. Severin, first of all, the risk weighted asset and Philippe on Dofarma.
Yes, good afternoon, Tarik, and thank you for this question. It's hard So that this quarter, I always put it out that the volume has been a bit high. And but we have not taken that as a structural question. And now, Dan, as you know, we had NBI growth target during the next 3 years, which is much more or less in line in GBIS with the risk weighted asset evolution. So we have one quarter where we are consuming a Bitcoin capital, but it's not structural and it's really depending on the type of credit we are doing.
And this quarter, it's fair say that we have a bit high, but I remain committed and we are committed to our plan where the evolution of the risk weighted asset will be online with the top line.
Philippe, that's qualitative comments on
the clients in Botswana. Yes. Of course, client Acquisition is very important, but we are also very focused to make sure that we are equipped with these clients. And One of the strengths of Boursorama as mentioned by William is that we do offer to our clients the full range of products and services. And if we look at what took place during the last 6 months, for example, we have the significant increase of the Exposure on consumer loans, we have also, what, by 40%, to be clear, we have also a Significant increase on the deposits on the insurance, life insurance contracts.
We're also tracking many indicators such as the use of a credit card, and all of them are moving into the Same and the positive direction. And so this is not only a risk to acquire clients, but to make sure But we are also providing them all the services and products and therefore, developing the NBI.
Thank you. Thank you. Next question?
The next question is from Jon Peace from Credit Suisse. Please go ahead, sir.
Yes, thank you. So my first question is about litigation reserves, your EUR 1,400,000,000. Would you be happy to see that run to 0? Or do you think of having a sort of an underlying level of litigation provisions to cover And then my second question was on costs in French Retail Banking. And on one of the slides, you've got sort of an indicative evolution of costs.
And I just wondered how literally we can take that. In other words, After the 3% growth this year, should we be expecting, it looks like 1% to 2% growth in 2019 and then
John, hi. I will again leave the On the cost side, on the litigation, let me just remind you that what we have done in the last 3 years has been a prudent regular provisioning policy on the litigation, Which allowed us effectively to close settle for 2 Of the 3 major regulatory litigations in the 2nd quarter in line with our provisioning. And with this slight delay on the third one, as we've said, and we are really exactly where we are, Let me just remind you what we've said, which is, yes, there's still some uncertainty on the financial impact and time frame, But it is possible also that the active discussion we are having could lead in a settlement in the coming weeks. So in line with this policy, we've decided this quarter to add this €200,000,000 Clearly, going forward, it's not a recurrent item. If we have this kind of time frame, we will have put behind us These litigations of the past, which fundamentally come back to a period pre financial crisis, These processes can take time.
We are not the only bank where, again, there are still these remaining elements. But after this, We don't, of course, have this kind of policy in mind, and we will have put all this behind us. Philippe, perhaps on the cost of French Retail? Yes, on the cost.
So maybe a first comment to mention that We are investing a lot on the transformation, not only and I will come back on the improvement of back offices, but So in order to improve the client experience and the way we the clients interact with us. Coming back with the transformation of the tobacco TCs, that's correct that the investments are huge and are taking place In this year or next year, we will have the full impact of all these projects Starting 2020. And yes, we expect a reduction of your debt issuance of more than 2% by 2020.
Next question.
Thank you.
Next question is from Lauren Quaras from UBS. Please go ahead, madam.
Yes, hello. Thank you for taking my questions. So I have a few. The first one is on the capital structure. So you are And you actually issued some more AT1 in April.
So I was just wondering how we should see Your AT1 issuance going forward and AT1 cost as the impact of profitability. My second question will be on Russia. So the regulator is going for higher risk weights for new consumer loans above 10% lending rates, if I'm Correct. I think this is starting from September, and I was wondering whether this actually reduces your Risk appetite. And finally, on French Retail, can you remind me a little bit what It's into the other income category and whether the benefit of the ALM transaction actually sits in the NII
Lauren, so we will answer your 3 questions by exception, if I may say so. First of all, I will I'll start to Didier again with supervising Russia on perhaps taking Time to explain the activity and answering the specific questions. Then, William, on our perspective in terms of AT1, I'm not sure I have fully understood your question, but Philippe might elaborate. Unfortunately, the ALM that we've just described, which is a pretty conservative ALM, stands to keep a significant part of the new deposit So in a very short term, wait on the net interest margin, but Philippe will elaborate a bit. So first, Didier?
There is no change on our risk appetite in Russia. I think that we have it very conservative already. We are taking in account all the impact of There's a sanction to adjust our risk appetite. But other than that, I think that Some move of the regulatory capital from the CBR is not affecting our dynamics.
And let me just highlight now that we benefit from a good retail market dynamic overall. Mortgage is growing, and we are mentioning that. And we are really considered as the most reliable bank in the market. We benefit from what happened in the market. And so we remain very positive on Russia.
William, on the AT1 issuances.
Okay. Thank you. As you rightly pointed out, We have effectively a sample of Tier 1 and Tier 2, which is above the regulatory requirements. Let me remind you that We have already issued a Tier 2.81 earlier this year for a total of about €2,300,000,000 which is In line with what we have announced in terms of funding program in our Investor Day. So We don't need it.
We will remain pragmatic. However, we obviously are very mindful Of the cost of this instrument, and we only do it to if we can match it with proper profitability On the leverage basis of our businesses?
Thank you. Philippe, can you answer the question?
Yes, on the Over income, so there is no ILM impact in this line of revenues. It includes various topics, For example, such as the part of the joint venture we have between the Retail Banking And the insurance business, there is also the results of our real estate subsidiaries, and we have also On financial operations, dividends, regarding the variance between this quarter and the similar quarter on last year, the variances Coming from dividends actually, notably from Credit Large Montes dividends before were included in the net interest Margin. And we have also some specific Financial profits regarding some investments
capital gains, sorry. Okay. Next question?
The next question is from Guillaume Tiburrien from Exane. Please go ahead, sir.
Thank you very much. I just want to know whether you're still committed to generate the €6.5 of EPS for 2020 and dividend cash of Absolutely. We have not changed our dividend policy, and And see that actually we have provisioned exactly that same ratio for the first half and yes, we are
We now have a question from Anke Leingen
So the first question is on the disposals you announced year to date. I just Wondered if you can give us an indication of the lost earnings as a result. And then secondly, I wasn't quite sure, did You mentioned in your comments about the capital ratio being impacted by TRIM. Can you please clarify? Thank you.
Yes. Anke, on the second part, it's a relatively limited thing on the TRIM. William can comment more. Can I say that on the sale, there is a minus €27,000,000 impact Through IFRS 5, but fundamentally, we will make at closure some capital gains from the sale we've just announced? I'd like to highlight that and I think you can acknowledge that we've been relatively effective in our sales process in the last few years.
And the prices we get reflect definitely all the works which have been done To improve the resilient quality of these assets, and I think that it's the right time to sell Also because clearly, the growth perspective today is relatively The good second European banks and you see we said to industrial players. It's they have rebuilt capital base. So I think really we are effective in these processes, and I think It was the right time. Sorry, I think Sorry.
Maybe I wasn't quite clear. I meant, just like as you getting 100 €50,000,000 GOI from EMC, I'm sure the business you are selling will mean there are some earnings lost on an ongoing basis. And I was wondering if
you look at the numbers, basically, with what we sell, the total package, It's less than €50,000,000 net income. If with what we buy, we Talking to you about 150 GEOIs, the net of tax, it's well above the 50. You can compare the 15 basis points and to the 10 basis points, you can see this is not Stupid way to reallocate capital. With regard to your I hope that answers your question.
Yes, thank you.
With regard to the TRIM, it's Four basis points. So it's an ongoing process. So we try To adjust our models on an ongoing basis, this is 4 basis points mostly on the credit models spread Around across different businesses.
Okay. Thank you.
Thank you. Next questions?
The following question is from Adzora Guelphi from Citigroup. Please go ahead.
Hi, good morning. Two questions for me, both on the capital.
One When I was
looking at the breakdown of
the risk weighted asset, the increase is mainly from credit risk weighted asset. You had basically flattish Operational risk weighted asset quarter on quarter and some peers have shown grown in this area. Just wanted to know if you have any expectation for this to expand in the 2nd part of the year? And the second question is on the reshaping of the group with strengthening some area with targeted acquisition. Would there be any level of minimum capital that you would not be happy to go below in case you had a fantastic opportunity And you have not yet had the opportunity to sell some of the assets that you are planning to?
Thank you.
Cyril will comment on your first question and the perspective of the evolution of risk weighted assets on the market risk. There is no reason on the operational risk to change. On the second question, first of all, I don't see that many standard opportunities. We've qualified EMT Yes, a quite unique opportunity because the fit with our existing business for all the existing EMC business is absolutely perfect. And I think we've put some figures which reflect how accretive in terms of return on equity this acquisition will be for us.
If I may, This will be for us. If I may, I don't see that many opportunities like this. And as I said regarding the threshold of capital, I'm very clear, we want to stick to this 11.5 Guidance for the end of 2018 and the above 12% for 2020, and we stick to that. And It means the capacity of acquisition is also, of course, limited to that, but I don't see that many opportunities which would To rig any change of strategy, so we are very clear. And you will have, as I've said, definitely more disposal And then in terms of capital consumption, definitely then in terms of acquisition, it's very clear.
Severance, so perhaps outlook for market risk With greater assets?
Is this regarding market risk or operational risk? It's market risk and operational risk.
So for you, I think
Okay. On operational risk, You show that the level has been stable and very much stable over the last quarter. On market, as you know, it's very much linked to our Mainly our value at risk and stress value at risk. And as we saw during the last period of time, we maintained a very low value at risk for the market activities. So this is clearly, for me, the current stand we have in terms of risk appetite, and we don't expect to change our risk appetite significantly On the market, please.
Thank you.
Next question?
I have a question from Kiri Vijay Roger from HSBC. Please go ahead.
Yes. Good afternoon, gents. I wondered, firstly, could you just go back on the Rationale for selling the Private Banking business in Belgium because I thought the aim was really to offload RWA intensive assets rather than things like Private Banking. So your Process there would be helpful. And then more generally across your disposal program, does it not make sense to maybe wait till you settle OFAC before increasing your capacity to sort of pay a potentially large U.
S. Fine. So again, your thoughts on the disposal program versus litigation Buffers as well. Thank you.
I will let Stephane comment on the profit banking business in Belgium. Thierry, If you wish, I mean, we had this debate in the last 3 years, and we're trying to find the best balance. We have a general provision, so at least there's no specific one, Which is flagged very easily. So I think, again, we showed at least in the first two settlements that Probably, it was the right policy. I guess it could be the same also for the third one.
But you're right, it's a fine balance. And of course, We try to ponder and wait what makes the most sense from that perspective. Belgium.
Yes. Thank you. Our position in Belgium is a limited one, as you should know. And The market is in Belgium, private banking industry is very well regarded. So we were in a position where we think we couldn't achieve our target In terms of development and in terms of return, and that's the reason of our decision.
And it is €6,000,000,000 that's Under management in this Belgium subsidiary and in terms of risk weighted assets, it's below €1,000,000,000 And with the return, it was nothing anywhere we want to deliver. So it's really a refocus on the geography where we think we have the critical size And we can develop the right return we want.
Okay, great. Thanks, guys.
Next question?
The following question is from Flora Benhakoun from Deutsche Bank. Please go ahead.
Yes, thank you. Good morning. The first question is regarding the capital And more specifically, the regulatory risk. I'm thinking, for example, at the operational risk where I'm sure you've seen that one of your There was announced a move towards more use of the standardized method. So is it something that, for example, you will also need to do?
And more generally, with the recent settlements on the LIBOR and the LIA, could that translate into higher operational risk RWA, for example, at the end of this year. And the second question is regarding the Corporate Center Clean Gross operating income guidance. Just to make sure I understood correctly, you reiterate today the guidance of negative €400,000,000 right, despite the very strong performance in H1? Thank you.
Regarding Flora, your first question, we don't Any change on the operational risk calculation, any specific element coming also from the first two settlements? You know that, of course, the big reform is more related to the Basel IV 1, which will be something proportionate On the revenues, etcetera, but that's not for tomorrow. So nothing at least on our side. And if I may see on the Corporate Center, probably this guidance remains A little bit conservative even if there are some volatility elements which makes us stick to it. William?
Yes, combination of seasonality elements and volatility elements in the Corporate Center, which I think has been well explained to you over the past years, It means that we want to remain cautious, but effectively, you're right, it's Probably on the conservative side at this stage.
Thank you. Next question.
We now have a question from Mr. Bruce Hamilton from Morgan Stanley. Please go ahead, sir.
Good morning. Thanks for taking my questions. Firstly, just a question on sort of capital allocation and the loan book. I guess going back to the I think Slide 42, your Exposures or outstandings in GBIS have grown by 12% Q on Q. We'll see a lot of sort of structured finance real estate from the areas you mentioned.
And yet, French retail is shrinking. Now I know in mortgages you step back, but in the corporate space, it also looks like you're undergrowing The market, is that an intentional position given your perception of risks in those two areas? Or is Q2 kind of extraordinary in terms of the opportunities you saw in your sort of structured financing unit. And then secondly, In terms of the cost of risk, obviously, you continue to beat expectations and you've given us new guidance for 2018. But as we think A few years out and as we come towards the later stages of the cycle, could you help us think about the range in terms of what a good and a bad year Might look like, because clearly if you're still trying to build to the right capital levels, that will become potentially a bigger concern.
So versus the What's the sort of volatility around the cross cycle cost of risk you'd expect through sort of good and bad times?
Thank you. Bruce, first of all, let me say, I'm personally happy with The 3% growth that we see both actually for the corporate loans in France, it's actually when you look Tricky at corporate and beyond local authority is higher than that, but let's say we are happy. And it's not, I think, a question of risk, but it's also We want to focus on an allocation of capital, which is profitable. 2nd, on the mortgage, we have effective, Yes, registered to just book too much loans at very low When we felt the clients would not in the long term be that profitable and where the cross selling Alternative would be limited. I know that in other markets, we have exactly the same thing.
Some players are more conservative On the mortgage, and I think it's the right policy. So if you wish, it's not a risk perspective, it's more a risk reward, a long term risk reward perspective, Which is driving this attitude. Regarding the on the GBIS, let me just mention, Sylvain already You commented. We all look at the quarter's figures. Let me just say you can have things like more pipeline in terms of underwriting at Some points.
So I think we need to take a step back. We are very confident strategically with our financing activities. We are one of the world leaders. We are again posting very strong leadership position end of the second quarter. And Cerrand can elaborate If you want to go more than that, these are very resilient activities, low cost The risk because we structure well the transaction.
So we are happy with the strategic allocation of capital presented 6 months ago, we need to be a bit careful at looking at every quarterly figures. Regarding the cost of risk, I'd like really to highlight that again it's not just The result of the environment, the environment is good. Growth is Good. Financing conditions are still very good. It is the result of a multiyear effort To improve the credit origination, to improve the recovery processes, and it is reflected in a low cost of risk everywhere, Including in countries with higher rates, it's across the board.
And I think we have The benefit of all these efforts and a credit portfolio, which is of good quality. We have said Yes, we expect a progressive normalization. While we reduce the guidance for this year, If you take more kind of mid cycle approach, we have said something like 45 40 basis points, if I remember well at the group level, with, of course, some differences. We have here today Cost of risk in IBFF, which is more or less in line with the French one, which will go up a little bit more normally at 70 basis We stick to that. In French, we did something like still 45 probably in mid cycle.
We'll see whether maybe there's some improvement perhaps. But again, we have in mind some kind of normalization, taking also into account IFRS nine Effect in a different cycle, but it's something which will be moderate. And I would like again to highlight the high quality of the portfolio. This is not just for this quarter. We have, in the last quarters, regularly posted a low cost of risk In absolute terms, but also in relative
terms. Great. Thank you. Very helpful.
The following question is from Stefan Stalmann from Autonomous Research. Please go ahead, sir.
Yes. Good morning, gentlemen. Thanks for taking my questions. I would like to come back to the French retail cost base, please. Thank you very much for the helpful disclosure and the breakdown of where the growth is coming from.
I'm wondering a little bit why the run Part of your cost base is still growing at almost 1%, given
quite a
lot of the cutbacks that you have already made In 2017, on your branches, on your call centers, etcetera, and if this underlying run Part of the cost base continues to grow at 1%. How do you want to get back to the kind of dynamics That will make you reach the 1% cost CAGR target for the 4 year period. And related to this, Thank you also for the Boursorama disclosure points. If I make some really high level assumptions about what it costs to attract A new client, it would be possible probably to explain all your run rate cost growth by the growth of your acquisition cost in Boursorama. Do you think that's fair?
Or do I overestimate the acquisition cost in Bouygues Romain? Thank you.
Let me highlight the second question is a request for short answer. Marketing costs are actually deducted from the revenues in Barcelona. So that reduced the revenue line, At least the bulk of it, not all of it, but the significant part of it. And As we've said, it's very important to understand that these marketing costs are very flexible and fundamentally will decrease and are Decreased in the last quarter regularly. So we are again very positive on Vosoramas.
It's hard to say The mix of Boursorama today in the retail deteriorates to a certain extent overall the figures because we are in this acquisition mode. Regarding the traditional networks, if I may say so, on the run, again, we will not keep The same figure, but Philippe, perhaps you can explain at what stage we are exactly in the transformation and the benefits of the cuts today.
Yes. I think we have to be clear. We have not, as I said before, captured yet All the benefits of our transformation. So yes, we are adjusting our platform, just taking the example of what we have We have new branches closure during the 1st half of the year. We are closed again 50 branches In Societe Generale, on INFINITOR.
But all the efforts regarding back office, as I said, will come within In the next 18 months
to 2
years. So yes, really the turning point Will occur in 2020 2021. Regarding the cost of So running cost for this year, you have also to take into account that we are taking we are including some regulatory cost, Remediation on various issues, which of course are kind of exceptional and will not continue in the future.
Okay. Thank you very much.
We now We have a question from Pierre Chedevil from CMCIC. Please go ahead, sir.
Yes. Good afternoon. I I have one question regarding your positioning in shipping because I was surprised to see that You mentioned shipping as one of the best performing loans you did this quarter. And In my view, we are retiring more or less from this activity withdrawing more or less from this activity, sorry. And I have also a question regarding ETF and Smart Beta.
You said that you had a little A little less performance this quarter, if I'm correct. And when I heard the Of course, Amundi, I understand that they have good inflows regarding ETFs, but bad ones regarding smart beta. Is it The same for you or is it different? Thank you very much.
Yes, good afternoon. I will turn to Sylvain, if she has all the answers on your question, Sylvain. Regarding shipping, we are, as
you know, A small player in the shipping industry. Yes. And we have been very focused on some specific segments of this industry for a very long period of time, and we're still there. And today, it's Very long period of time, we're still there. And today, keeping those factors on more the best rated counterpart And the more specific ships we are ready to finance, we have got some opportunities.
As I said to say that this quarter we had a good dynamic In our strategy, in terms of shipping financing, that's the point. So, but it's not a big business for us, as you know. Regarding your second question is regarding ETF, and it's not fair to Say that the revenue on our ETF activity has been a bit subdued this quarter regarding And we are not in term it's not really in term of new money collection, but more in term of market evolution.
Thank you. Next question.
The next question is from Jean Francois Lauris from Goldman Sachs. Please go ahead, sir.
Hi, good morning. I just wanted to ask on the pricing environment, the competitive environment in France. We are seeing from the data from the Bank of France that pricing is under renewed pressure at this stage. And I just wanted to try to understand that from your vantage point, how are you seeing these developing and are you seeing Either increase or decrease in that competitive environment, essentially where I'm coming from is that with 5%, 6%, 7% volume growth at Industry level, it's very surprising I find to see this amount of pricing pressure of loans. And I just was trying to understand where we are in the cycle Of pricing, essentially of phone book pricing.
My second question is on the Investment Bank. In general, now your global peers, Almost all your global peers, if not all your global peers have a core Tier 1 ratio, which is above yours. And in the Q2, where in Capital Markets, you've been lagging The broader peer group in terms of progression, even including in U. S. Dollar to be comparable for everyone.
I just wanted To know what you would choose if you had to meet your capital objective versus maintaining your market share going forward and whether you believe that maintaining those market shares would require Putting down more balance sheet commitment from here on. Thanks a lot.
Jean Francois, good afternoon. I will let Philippe answer. I don't think that the French market is that different From other European markets where some players are fundamentally having a quality of volumes, We, as I said, want to keep a selective origination because probably we will focus more on the profitability, Yes. So and the optimization of the capital allocation. Philippe will comment more.
On your second question, first of all, let me just Fundamentally highlight that we see exactly the same thing in the Q2. And the first which is that U. S. Markets are more dynamic And provide more opportunities today that you're up and once. It's very clear in terms of volatility parameter.
It's true in terms of ITOs, etcetera, The level of activity is overall better. Depending on your business Because mix, of course, you have more or less dynamic, and we see ourselves in our own portfolio of activities. Will it last forever? I'm not absolutely sure. We will maybe discuss that in 12 months' time, but depending on how the growth outlook in the U.
S. Will be. What I'm just saying is that here, the strong influence of the immediate time, we try to build for the longer term, As I said, with the view that in Europe, the whole regulatory framework, the whole political objective is to have a better balance between Bank and Capital Markets to finance the economy and that there are not so many players which can take advantage of that. And I'd like to highlight that I think in terms, as I said, of league tables, we probably had the best ranking that we ever had In the last years, in different DCM markets and others. So we stick to this strategy.
And I think, of course, we the monitoring of the capital ratio is the strong commitment So that we have and we adjust and we monitor our risk weighted asset and capital allocation to ensure that we Speak to that, and I mean, we've delivered in the last few years on this. And of course, that remains the main And we are not market share driven for the sake generally speaking of being market share and volume driven. So clearly, we are disciplined, I think, in terms of attaining our capital ratios. Philippe, perhaps where do we stand more precisely on the cycle in pricing?
Well, that's true that there is definitely a lot of liquidity on the market. And on the day to day, we definitely feel this pricing pressure. As explained by Frederic, we are really trying to find the right mix between the volume and the pricing and also, of course, Taking into account both for individuals, professionals or corporates, the fact that we want to develop long term relationship with our clients and sell The full branch of our product and services, that's why we are definitely focusing on our target clients. The pricing is especially I mean, the pressure is significant notably on mortgages. Just to give you a number, that's True that our margin for the first I mean for the 2nd quarter on production was 19 basis points, So, to what year approximately 25 basis points below last year, there is also a pressure on corporates.
But Again, we are trying to maintain the right level of margin and taking into account the full life of relation with the clients. And of course, the risk appetite, for example, we have been very cautious on some LPO deals.
Thank you very much. Thank you.
The next question is from Maxence Le Goureault from Jefferies. Please go ahead, sir.
Good afternoon, gentlemen. I will have 2 questions. The first one is regarding the origin to distribute. You said previously in a few quarters that was the reason why the growth in corporate activities in France was more limited than the others. Can you give us A point on that element.
And also can Severin give us more color of how is it implemented into the Investment Banking? Second question will be for Didier in Russia. You did a very strong one of your best performance in terms of profitability at Can you give us more color? Can we is it a one off? Or can we expect more in the future?
Thank you.
Hello, Maxime. So I will jump to Stephane and NDD. Stephane, our origination and distribution, how do we manage this?
As you know, we have now since last 6 years completely equipped in terms of RocheNet to distribute. So we are monitoring our risk weighted asset The level of distribution clearly and we are moving on that also leveraging on other targets we have is to increase the fees and commission And we so we have some quarter, in the case this quarter, probably some more exposure and we'll add more on the writing fees and more advisory fees. And then we can adjust the consumption of capital through our OTT processes. So I don't know if what is specifically your question, but we are completely Operational in that process, and we can vary. And today, we are probably keeping more on the balance sheet for this time being than we were,
Yes, that's what my question is in terms of piloting more or less, which means that if you keep more, The yield that you have is much interesting than previously or you have less constraint on the capital side from the
No, we are monitoring and managing
our capital consumption through this whole 14 year ratio. And fair to say that in our current origination, We have good return. That is why we keep on the board. Maybe we can adjust that very quickly.
Okay. Thank you.
Didier? Yes, Maxence. There is, in fact, no exceptional items in this performance. It's in line with our plan. And I think that it's fair to say that during We have invested a lot in the platform to make it a better bank and it's paying off.
And basically, this brand is getting attractive, It's getting attractive on the labor market when we can tap talent and it's getting attracted vis a vis clients. And that is the dynamic that are taking place. You can see it on the taking off of the retail production. You can see it on the attraction of deposits as we have double digit rate growth. And you can see it also on the digital profile of the bank.
And for instance, out of 3 50 outlets, already 86 of them are equipped with biometric recognition for clients. And as this bank is one of the pilots of this very unique initiative from the Central Bank.
Thank you.
Thank you. Next question, Greg.
The last question is from Lauren Quaras from UBS. Please go ahead, madam.
Yes. Hello. Sorry, I have one last question. It's regarding the book value per Chair, I can see declines this quarter. Can you perhaps give some explanation?
William, Do you have the explanation on the book value decline? Is it OCI or things like
This is for
the dividend maybe.
The IFRS nine impact. Yes, the EUR 1,000,000,000 hit on the first half.
So IFRS 9 It's probably the explanation, Lorena. We can come back to you with more detailed intuition.
Okay. Because I thought IFRS nine was a Q1 story.
It's what I suggest is we will review that with you more in the same day, okay? Okay. Thank you. Okay. We have no Yes, sorry.
I understood that there was no more questions, yes. You told me it was the last one. So
Yes, because it was.
Are you ready to take the next The next one is from Nick Davy from Redburn. Please go ahead, sir.
Good afternoon, everyone. Sorry to hold everyone up. Two last questions then from my side, just to wrap things up. The first on operating leverage. I mean, part of the key pillar of the plan was always to do revenue growth above cost growth for the group and each of its divisions.
And just looking through the trend in the first half, Cost growth is outpacing revenue growth in all of the divisions. So just a high level question maybe and to summarize when you think the turning point is where That positive operating leverage will be evident across the business. And the second one, maybe also just to wrap up on this capital debate. I suppose Your target for 12% CET1 by the end of 2020 means 90 bps from here to there. And I just suppose it's just struggling a bit with the equation if you do this 10 ish percent return on tangible, I'm seeing credit growth accelerating in France, 6% credit growth in The international business, I just can't quite get the math to work with a 50% dividend that growth and 90 bps of capital.
So do you feel you have all the So you need to support the lending growth you're seeing in
your businesses? Thanks.
Yes, Nick. And first, let's link the 2 bigs. It's not fair to say that the costs are increasing more and actually we demonstrate a strong cost discipline. As we said, putting aside the one off effect Based in 2017 from this writeback of provision, we are basically we have costs which are flat. And when you look at the divisions, you have different picture.
You have French Retail, where yes, we still see a decrease of revenues At the time where we tend we feel we have absolutely to invest to transform the business. And we will again explain and we have explained the dynamic of the cost base. We will get the benefit in 2020 and beyond. I think it's important to understand this, of these investments, which are critical just to maintain the business going forward. In terms of the return on normative equity, we stand at Still 12% regarding this French Retail with a credit increase of 3% Of the outstandings.
And the idea is to maintain this. I don't think that there would be an acceleration. I would like to insist we are driven here by a risk reward element. Just booking, as we said, very low margin Credit for 15 years on mortgage with a limited upside going forward in terms of cross selling for us does not make necessary sense. 2nd division, International Retail Financial Services.
Here, we have positive jaws, I'd like to insist, Positive jaws, growth drivers and very strong return on normative equity, which effectively can finance its growth. And then the CIB, slight increase this quarter. First half overall stability on a like for like basis. The costs are not increasing neither, and we have effectively a more dynamic risk weighted assets increased this quarter. But as we've said, also there are quarterly elements.
So I mean, yes, we are confident with the kind of management we do of our Capital allocation, risk weighted assets with the operations we have in mind, yes, we are confident to meet our targets in terms of Capital ratios, which are 11.5% at the end of this year and 12% above 10% in 20 And we think that with the business mix we have, it's a kind of ratio which makes sense.
Okay. Thank
you. Okay. So I suggest that we stop here. Thank you for your attention. I wish you, if you have the opportunity to take some holidays, a happy holidays, relaxing holidays, and we'll see each other very soon going Back.
Thank you very much.
Ladies and gentlemen, thank you all for your participation. You may now disconnect.