Ladies and gentlemen, welcome to the Societe Generale Conference Call. Frederic Oudea, Chief Executive Officer and Philippe Heim, Chief Financial Officer, will present the group's Q1 2018 results. Gentlemen, please go ahead.
Good morning to all of you. Thanks for ending our conference call on the Q1 results. I suggest that you proceed Like usually, we'll make with Philippe Heim, our CFO, a short presentation. And then we will deliver with our management team, answer your questions. I'd like to again highlight the good discipline that we keep usually 2 questions for each person.
So let me start immediately with the first slide, Page 4, to have an overview of our Q1 results. In an environment which was robust in terms of economic activity, mainly across the world and in secular in the Eurozone. And with market environment, where we commence with sharp contrast from one region to the other. When we look at this Q1, first of all, let me look at the Profitability on an underlying basis normalizing for the year, a 3rd 2021. A return on tangible equity of 10.9 We have still work to do, but I think you're encouraging.
When we look at the net banking income, First of all, good developments for all our retail activities. In French retail, good commercial momentum With revenues still affected by the low interest rate environment and also by the effect of the last Sure, renegotiations on the mortgage, which create, to a certain extent, an unfavorable base effect. Fundamentally, we are advancing in line with our expectations toward the stabilization of revenue we expect for the full year 2018. Regarding International Retail Banking and Financial Services, we have positive momentum across the board. We will look at this more in detail.
And regarding the Global Banking and Investor Solutions, of course, we start first from the meaning of The dollar versus the euro, we have roughly on these activities 40% of our revenues, which are influenced by the eurodollar foreign exchange rules. And also, as I said, by a sharp contrast that we've seen between our different activities and geographies. In a very awkward quarter, which was already commented by Of the banks, we have a strong start, but then something more sluggish in February March. We saw in particular very strong activity on the flow equity business in the U. S.
While on the other hand, in Europe, We saw low demand, for example, on structured products with probably some impact related to MiFID. All in all, so a positive performance with a decrease of revenues, but of course, which is influenced by the business model in the Capital Market activities. We maintained a strong decision on the cost. Of 1st, the cost base, for example, in retail has and overall, let me just remind you that all our Transformation costs are allocated to the businesses. And you will notice, in particular, this Q1 that we have a corporate center She's at the breakeven.
So we have all our cost of transformation on the businesses. But beyond this, we maintain a strong discipline on the cost. Can I just highlight the increase of the commission to the Singapore Resolution Fund? This first quarter, we will, of course, the IFRS twenty one effect, we have booked EUR 430,000,000 that's net of tax, it's not predictable, which represents an increase of €78,000,000 compared with last year and again, of course, allocated to the business. Regarding the cost of risk, It remains very low at around 18 basis points.
Let me just remind you that it was a similar figure for 2017 at 19 basis points. Again, underlying net income at €1,200,000,000 And I've mentioned already, this return on tangible equity at 10.9%, again normalizing the impact of IFRS 21. Regarding just Slide 5, the objective on the 3 main businesses. As you know, for this year, it's a very important year of transformation. We want to progress and take care of the utilization of our process, we effectively currently closing back offices.
We are reducing the number of branches And at the same time, deploy the new growth initiatives. I'd like to highlight that we will look at more detail in particular The strong dynamic of both Suramar with more than 126,000 new clients during just the Q1. And I've already commented on their expectation of stabilization of revenues in 2018. Regarding all our international retail banking and financial services, we are posting, as I said, Strong revenue growth, in particular on the International Retail Banking and the Insurance business. We talked about an 8% Revenue growth on a like for like basis and with good performances across the board.
Return on normative equity. The underlying return on normative equity stands at 17%. We are basically at our target for 2020 and above. Fundamentally, we want to pursue, and we are very confident that we will see the kind of this kind of perspective for 2018. In Global Banking and Investor Solutions, what we are seeing is, again, the impact and the effect of The transition towards a more normalized monetary policy, Europe is behind the U.
S. It's very clear, as I said. We saw all the elements of the markets in the U. S, effective or higher rates, the positive impact Of lower tax cuts, which means a better result for the U. S.
Stocks, But also potentially share buybacks, the volatility effect in particular impacting big tech Stocks, the VIX impact on certain products, we had not the same thing in Europe and we have, Again, in mind the progressive normalization, but it might take some time. Overall, what we want to achieve is focus on our 2 main strategic objectives in terms of European products. And I'd like to highlight Our number one position, for example, in terms of the euro denominated bond for corporates As well as, I must say, number 1 position, for example, for global securitization. So we see the benefits of strong positioning. In Capital Markets, we will see that more in detail.
Let me highlight we had confirmation of market share in 2017, And you will see the more precise figures. That's true on all the product. What we want to achieve is, again, to pursue the development also of our derivative franchise and what it is With a selective and strong optimization of capital usage, When you look at RGBI's results this quarter, we post more than 10% return on normative equity after tax That shows discipline, and we want to achieve globally this capacity to outperform our European peers in terms of Profitability. Now I will turn to Philippe, who will answer more into the details. Thank you
very much, Frederic. So now let's have
a look
on other aspects of, let's say, the group results, starting with the cost of risk. If you move to Slide 6, the description of what we've got in terms of cost risk. At the group level, you see that we had a very low cost of risk in Q1, standing at 18 basis points versus 24 Last year, it reflects, of course, the once again, the structural efforts we delivered in the past 3 years. It reflects also the buoyant and trade economic environment. You can note also that in terms of nonperforming loans Over the same period of time, we moved down from 4.8% to 4.2%.
And then all across the board in every business line, we had the same pattern. So cost of risk had 29 in Q1, 28 in International Retail And net, let's say, reversal, so positive cost of risk in GBIS minus 5 basis points. So What is the outlook now going forward? I may anticipate very good results. We have indicated during the Investor Day that It's reasonable from this point to anticipate a gradual normalization across the risk during the cycle and continue progressively To something between 35 and 40 basis points, 2020.
Our guidance for this year was for cost of risk between 25 30 basis points. Obviously, given the low level we see in Q1, This guidance can be qualified as very conservative. On capital, I will be short. No surprise at all on capital. You have the CET1 ratio standing at 11.2 Down by 20 basis points, but related to 2 elements I mentioned before during the year end results.
You have the first time application impact of IFRS nine, and we decided not to adopt, Let's say the phasing approach, so to take in one go the impact of IFRS nine. As all French banks, we have this methodological Add on on irrevocable commitments on single restaurant funds with the fact of 8 basis points. On the top of that, we have the usual seasonal effect for IFRIC 21. So bottom line, If the CET1 ratio is down by 20 basis points, if we neutralize the effect I mentioned before, We created this quarter 7 basis points of capital. So on a yearly basis, something between 25 30 basis points or Let's say, right in the middle of our usual guidance in terms of capital creation.
I confirm that we expect CET1 ratio at 11.5% at the end of this year. Regarding the other metric of the balance sheet, you see that with the benefit of The issuance of the Unit 1 instruments beginning of April. We have a TC capital above 17.1%. Leverage ratio stands at 4.2%. We are already TELAC compliant.
So overall, we have a very solid balance sheet structure and we basically from an upgrade from modules our senior debt rating being lifted from A2 to A1. Page 8, I will be brief. This is a summary of the consolidated results with the elements already described. So revenues down by 2.5% affected by exchange effects. Operating expenses, if we linearize or annualize if we're 'twenty wise, if 'twenty one Effects operating expenses were up by 1%.
Net cost of risk is very low at €208,000,000 So we have reported gross net income at €815,000,000 but with Smoothing out the effect of IFRS twenty one, we come up with an underlying group net income at €1,200,000,000 representing ROTE of 10.9 key of, let's say, the businesses, particularly with the French retail. And we'll focus first on individual customer segment, where we continue to deploy our model. Regarding Societe Generale and Traminor, As a forward, I think that in Q1, we have maintained our strong discipline on the quality of our origination, both in terms of margin levels and risk appetite and focusing on mass affluent and wealthy clients. Borsthor Ammar, and I will elaborate on this, demonstrate the strength of its customer acquisition engine. And regarding specifically to, let's say, the client base, the number of Mastercard and Wealthy clients was up by 5% in Q1.
Regarding the commercial activity, a word first on the real estate market. Our production was down by 90%, but it was high base points Q1 of last year. If you analyze sequentially, the production is up by 4.7% compared with Q4. We were last year in the middle of renegotiation wave. This movement is now over.
The current Annual renegotiation base stands at 3% in Q1 versus 26% last year. In consumer credit space, the production is up by 16%. The outstanding is up by 2.4%. It's interesting, I think, to mention that we have other consumer credit activity in France, namely in auto Auto loans in CGI booked in Western Europe. If you put together all our consumer credit Book.
In fact, we have an increase of 7%. Regarding the key initiative this quarter, you can see that, let's say, the net inflows of Private Banking actually is well oriented, an increase of EUR 1,100,000,000. We have been in both store and land record quarter in terms of acquisition with more than 126,000 new clients, close to 1,400,000 clients. And I have to highlight that Box 4 Ramain, contrary to some market players who only develop Payment Services. Bouygues Pharma is a full fledged bank delivering a comprehensive set of products and services.
Switching to professional and corporate clients on Page 11, you see that we continue to develop the supply base With a growth of 2.5 percent of the corporate clients, the book is up by 3.3%. We decided this quarter to make a specific focus on the model. You know that 50% of customers and professionals are professionals or SMEs with A very high level of customer satisfaction that is a clear differentiating element. We have a network of regional banks capable of addressing specific local characteristics, characteristics and needs of our clients. And this model is powerful in terms of acquisition.
In Q1 alone, we have 6,200 new relationships. A word on transformation. We describe largely, Let's say the strategy we deploy on the French market, the idea is to completely reshuffle overall The distribution platform and the operating model by 2020 with a reduction of number of branches by 20%. This will be, of course, accompanied by roughly 3,400 redundancy. This transformation program, of course, requires investments and expenditures.
The HR aspects These are covered by the exceptional provision we took in Q4, roughly €400,000,000 As you may know, in early March, Societe Generale, we have signed we leveraged on the new The team introduced by the Martin Ordinance reforming the French labor code. In this context, we have signed a majority agreement with the trade unions For collective mutual agreement termination, what you call, of more than 2,000 positions and we are one of the first corporates using this scheme. Of course, above HR aspect, there are Other operating expenses, other investments to cover regarding the adaptation of The network coverage, we plan to close 1 of our branches this year. We have also expenses or investments to Overall, an upgrade to customer experience and processes. In that respect, we have landmark delivery This year, with innovative tools like biometric face recognition of 360 view to have real time and At the end of 2018, this is an important milestone, 50% of our main processes We have been digitalized within the Societe Generale network.
So what is the magnitude of this investment? What is important to keep in mind is that fully consistent with our trajectory. So between 2016 and 2020, as indicating during our Investor Day, The cost increase will be the annual cost increase will be contained within 1%. And more specifically regarding 2018, Costs are expected to increase by less than 2%. So moving to Slide 13, to give you an overview of the results for the French Retail division.
Revenues are down by 1.6%. So we confirm that progressively We are heading towards the stabilization expected for the full year. It will be progressive because indeed, if we take the example of Interest margin revenues, they are down by 4.2%. We have the usual, let's say, effect of Interest rates on the reinvestment of deposits. But on top of that, A part of, let's say, this decrease is related to the renegotiation wave of last year, during which we perceived fees and revenues associated with our negotiation and early termination of around €27,000,000 This effect will be fully absorbed between Q2 and Q3.
That's why the normalization and the full year stabilization will be seen more lately in the year. Regarding commissions, they are slightly down by 0.9% Due to, for example, the disposal of Onvista Harmani, the subsidiary of Borxorama, we have also beaten ticket of Chief Agroboe Basis Defect. Bottom line, this is a good start of the year, for example, in Private Banking. Operating expenses increased by 4 point Chassagne, net cost of risk is virtually stable compared with last year. All those elements leading to a contribution to Europe net income of €270,000,000 So now let's move to IBSS, starting with Europe, Russia and Africa, delivering altogether a return on domestic equity of 15.5%.
We continue to enjoy in Europe very strong results in a sound economic environment with solid both of outstanding loans, up by 8%, ranging between 12% in Western Europe in the consumer finance space To 5% in Czech Republic in a more mature market, but still a good performance given the characteristic of the market. In this context, revenues were up by 6%. We have clear positive jaws and the profitability stands at 21 Thanks for Europe. Regarding Russia, of course, the situation I've described is one of the quarters starting in 1st of Jan and ending end of March In the context of progressive normalization and inflation of 2.5%, stable at that time ruble, interest rates brought down to EUR 7.25 by Central Bank with Russia. We had the usual seasonality effect in Q1 And the continuity of the patterns we have identified in past 2 quarters.
So progressively A catch up in, let's say, in the retail space. With recovery of retail loan, the production is up by 29%. Overall, revenues are up by 9% in Russia. In Africa, the economic environment is still very solid Between the Mediterranean Basin and Southern Africa, we had loan book up by 10%, revenues up by 13%. The point for us in Africa is to lift the return on normative equity above 15% By both developing our revenues and increasing improving our operating efficiency, will accelerate deployment of regional ops where support functions and expertise will be located.
A word on The bank insurance model at year 15, an activity which generated €2,100,000,000 of revenues in 2017, up by 8%. Those revenues are between the insurance business unit, collecting €800,000,000 of revenues and the retail network for €1,300,000,000 through distribution fees, we went down the road to further increase the contribution of insurance activities through Lifting the equipment rights of our retail banking clients. For example, you know our objective in the P and C space, I want to lift the P and C equipment rate from 9% to 17% to 12% into 20%. And also, we want to increase the share of Unit Linked products in Life Insurance outstanding. And one of the key factors of success, of course, will be to deploy to improve The simplicity and the fluidity of the customer experience.
In that regard, we have already implemented several innovations. For example, the fact with electronic signature to subscribe in a fully autonomous manner, Car Insurance or Property Insurance. Page 16, you have the big picture on IDFS. So revenues up by 3.9 percent adjusted for changes in group structure and at constant exchange rates. Our organic expenses rose at the same time by 3.2% because we need to accompany the movement of development.
Overall, IBFS delivered high level of contribution, €429,000,000 Stable with last year and this is a quite nice performance given the fact that we now consolidate only 80 percent of ALDI following the IPO. And you remember that we had the benefit last year after the sale of Commercially Banca head office for post tax effect of 17 year. So we managed to cover those elements and to stabilize construction for net income. And we have a return on normative equity standing at 17% this quarter, adjusted for IFRS 21%. Now moving to GBIS.
And before commenting the results, let me share with you the data we collected from coalition on market share. And I think that before commenting the year on year evolution on specific segments, bottom line, it's very relevant and very To see that over the span of time between 2018 2017, all across, let's say, the activities and all across geographies, We are one of the bank capable of increasing market share. So globally speaking, we moved from 3.5% to 3.7%. We strengthened our market share in equity in fleet and in commodity. So now moving to the results of JV, starting with Global Markets and Investor Chief and Regent.
Starting first with fixed income. Activities declined significantly by 27%, Mentioning that Q1 of last year was a 5 year record. We suffered in productivity from Extremely low volatility in Europe in particular. Financing, which was a growth driver last year, was weakened by increased competition. On the other hand, we have a pretty resilient performance of a structured product with FICOM NORIN in Q1.
Regarding Equity, revenues were down by 5% If we address the foreign exchange effect, the Rolffek noted 4 factors. We have a pretty good performance on Store Products And specifically in the U. S, but we are less exposed on the risk activity and geography. Regarding sort of products, which represent our core franchise. We have less, let's say, buoyant environment, in particular in Europe, with a more pronounced weight and attitude adopted by our clients and at some point a more conservative bias after the volatility which spiked in February.
Moving to Credit Services, a very good quarter. Revenues up by 9% It's a good level of commissions. Moving to Slide 19, financing and advisory. 50% of our revenues in this division are in USD. So if we neutralize this effect, let's say, And we don't realize the foreign exchange impact.
The revenues were roughly stable, minus 1%, With good performance in all asset based activity, export financing, real estate, project finance, Revenues in securitization were up for the 9th consecutive quarter. We also quite nice Achievements in this year. Finally, in Wealth and Asset Management, revenues were down by minus 2% for the quarter. We have good, let's say, momentum in terms of inflows, more than €7,000,000,000 Altogether, Luxor and 1, Wealth Management. We reached an all time high of €234,000,000,000 of IUM.
So the summary of the results for GBIS. Revenues down by 13% due to negative foreign exchange effects. OpEx were up by 1%, impacted significantly by The increase of the contribution to the Single Resolution Fund, and I can elaborate on this later on. Cost of risk remained very low. And the contribution of GBIS to gross debt income stood at €166,000,000 And excluding, let's say, smoothing the effect for 321, we stick to profitability at 10.2%.
For GBX, a word on the corporate center, Slide 21. I would like to remind you that with the new IFRS nine standards, we have, let's say, the effect of the evaluation of our own financial abilities And we'll now go directly to the shareholder equity. We have this quarter a positive plus €36,000,000 Regarding our guidance of corporate center GY of minus 400. We can state that this guidance is conservative and we'll come back to you Turning, let's say, the guidance later on this year. Last year regarding disputes, We can confirm that we have entered into a phase of more active discussions with relevant authorities The transactional agreement on LIBOR and LEA cases within the next few weeks.
We have good visibility regarding the Financial impact. We are comfortable with the run around €1,000,000,000 provision. We set aside within our provision of €2,300,000,000 So much for me. I leave the floor to Frederic for the conclusion.
Thank you, Philippe. Just in a few words, Slide 23, to recap our main objective for 2019, I think we already commented on the revenues. I'd like again to highlight that this year will be a very significant year of transformation, In particular, in the French Retail, but not just on the French Retail. I'd like to again reemphasize on our commitment to Deliver on cost and maintain a strong discipline. The outlook cost of risk, as we've already mentioned, is good, and our Current guidance appears to be conservative, very conservative.
On the refocusing that we had announced, I can say that the Processes are underway to deliver our target, and you can expect some material announcement by year end. And of course, at the same time, we are fully committed to objectives in terms of responsibility of CSR, for example, in terms of climate change And the deployment of our Culture and Conduct program. Can I just, of course, finish also by saying a few words on the change of our management team that we have announced also yesterday? As you know, Board had to face the unexpected departure of Didier Valle, who was In practice, our younger Deputy CEO in a team of 3 Deputy CEOs with myself as the CEO. So having to deal with the situation, the Board organized a very structured process with a very clear time frame With 2 objectives.
1st of all, of course, ensure full continuity and capacity to deliver our strategic plan And at the same time, preparing the future, the succession plan. The process was and we generally use that process to explore all the internal and of course, review the potential external options with these two objectives in mind. In practice, Between the different internal options, we decided to go for the most ambitious one. We could have the Board could have made the choice just to replace Didier and then implement progressive changes alongside the Strategic Plan. The Board decided to go for something more ambitious.
On one hand, ensuring continuity and In particular, announcing a little bit ahead of the usual framework that they will effectively propose the renewal of my mandate as CEO to the vote of our shareholders in the General Assembly of 2019. And at the same time, change effectively the composition, in particular and more marginally, Going for 4 Deputy CEOs instead of 3. First of
all, let me say
in that context, Bernard Baus Sanchez decided to leave the group to Two other opportunities. As you know, Bernardo has been with us 8 years, has That you heard a great contribution with the strong current influence of the results in IBFS as reflected also in the Q1 as well as in 2017 and has launched successfully this long term transformation of the French retailer. And I would like to thank him and really highlight the top contribution to ARPU. We have decided to appoint alongside Kevin was already Deputy CEO. 3 new Deputy CEOs, which I think share The same.
I mean, they are all very seasoned experienced bankers With different backgrounds, let me just review that Philippe Haimrich is appointed the Deputy CEO in charge of all the French retail activities and the Transva Sol Resources. What I mean by this is IT Procurement and Real Estate. And he has spent 30 years at Che Desjardins mainly in Corporate Investment Banking activities in the Risk function. He had been the CEO of the U. S, Deputy CEO of the Respansion and was before CEO of Credit Union.
Philippe Haim, our current [SPEAKER FREDERICK OUDIA, CHIEF EXECUTIVE OFFICER AND FELIP HAME. [SPEAKER FREDERICK OUDIA, CHIEF EXECUTIVE OFFICER AND PHILIP HAME. [SPEAKER FREDERICK OUDIA, CHIEF EXECUTIVE OFFICER AND PHILIP HAME, CHIEF EXECUTIVE OFFICER AND PHILIP HAME.:] he's taking over as Deputy CEO in charge of International Retail Banking Activities and Financial Services as well as Insurance. Severin, who, as you know, is also has a diversified profile in the industry and joined us more than 10 years ago. He's taking over Didier Valle d'Orleans, something that he is activity that he supervised in the past And with, again, the objective, thinking about the strategy and further nurture our timelines.
And Johnny Lebaud, and I'm very proud to appoint the first woman as the deputy CEO in is also a seasoned banker, Greek by background. Spent more than 30 years with us, mainly on the businesses in the Wholesale Banking business. She was, for example, head of the U. S. Activities since 2012.
She has had also responsibilities in the structure financing business as well as in the coverage Business of Wholesale Clients and was since 2015 Head of our Risk Department. Alongside these appointments, I'm very happy also to have been able to appoint additional strong talents of Societe Generale. William Cadouche is taking over as CFO. William, the same thing, joined us in 2017, he has had an experience of senior banker in U. S.
Banks. Then he was also a senior banker with us And follow the same path, I'm most likely than Philippe. After senior banker experience, he was appointed Head of Strategy and now Yes. So you can see that we are building a career development with a very long term plan to fit our succession planning objectives. And Sylvie Raymond is taking over, Denis Lebourg as Head of ARREST.
Same thing, a long experience with the bank, Societe Generale, mainly in the structured finance business. She had been already Scott Deputy Head of Risk and she was currently Co Head of our coverage activities. So if you wish, what I'd like to highlight and looking at these profiles, their background, their ages, I must say, I'm very proud to have a team of very seasoned bankers who know How to work together, who have been fully committed in the preparation of the strategic plan, who are diversified. We have a real The diversity of the team. And I must say, I think we are effectively delivering on the 2 objectives, continuity Chief Executive Officer and Philippe Haim, Chief Executive Officer.
So that's what I wanted to say, and we are now open to your questions.
We have our first question from Mr. Tariq El Mejjad from Bank of America Merrill Lynch. Sir, please go ahead.
Hi. Good morning, everybody. Thank you for asking my taking my question. I have two questions, please. First on CIB.
So what happened? So all your peers showed very good numbers. Frances was relatively low to beat. So my question here is, I mean, I hear your answers about the flow in U. S.
And structural products But I mean, I think the structural question here is like for last three quarters really you underperformed the market despite the market share gain actually. Haim. And is really actually the engine, structural engine of the equity market is working as it used to be at Foxtion Or do you think there is something more structural to fix there? Is it maybe management changes and discussion by the side? Just really to understand what's going on there.
My second question is on costs. How the €17,800,000,000 by 2020 is really relevant? What if you don't see this revenues revival actually coming mainly on CIB, I would say. Would you review that one down? Thank you.
Eric, I will take the first question and leave the floor to Philippe for the second one. First of all, again, I'd like To come back to Slide 17, and here we are presenting figures provided to us by the Coalition. As you probably know, Coalition is, in our view at least, the institution which has the most granular and precise information regarding revenues on the different segment of Capital Markets. And on the slides, you can see that we have Gain marginally, but every year market share, it is in terms of revenue. And that's true for all geographies and that's true for all products.
Now if I turn to the Q1, As I've said, we saw very contrasted activities. And just to reflect that, We had very good activities, for example, on the equity flow in the U. S. While on the other hand, it was more muted on the credit flow in the U. S.
And in Europe, we had effectively low demand on structured product at the beginning of this year as well as on the flow side. We've just made I just would like to To tell you, we've made a pretty theoretical calculation, but based on the correlation figures, which enable us, if I would say, to model, For example, an average U. S. Bank in terms of business mix, And that's, for example, for Equity. So of course, much more geared towards U.
S. Equity Cash and Derivatives Hello business than we are. And we have plugged towards that model our own performances for each segment in the beginning of this year. And effectively, in practice, we end up with increases of revenues in equity, I would say, theoretical increases, Which are pretty similar to the ones posted by our U. S.
Competitors. So we have really the feeling that we have This quarter, something very contrasted. As I said, all the elements Yes, which happened was largely centered in the U. S, the volatility on big tech stocks the events on the VIX on certain products. And we feel that explains largely the performances of our peers as well as reflected in our own performances, for example, on the U.
S. Flow. And of course, with a percentage of our business, which is smaller. Looking forward, We think that we have effectively centered our strategy on the businesses which offer in the longer term The best growth revenue perspective and there have been recently many surveys highlighting, For example, the fact that probably services to corporates might offer more growth prospects than Activities towards institutional investors and that effectively we have in mind the development of the European Capital Markets going forward. At the same time, we also had factored in our strategic plan that we would could still see in the coming quarters this awkward transition environment in Europe, in particular, Where effectively rates will increase progressively, volatility might not come back structurally And that clarity would be probably needed in Europe to have more stable conditions.
And effectively, what we have in mind is that going forward, there We give, for example, more ability to structure new categories of structured products with a different rate curve And fundamentally, further extracts more synergies from our different activities. You will have noticed That in the Prime Services, we see an increase of revenues. We have in mind to further develop this activity and, of course, take advantage of For the synergies with our client base, there is more capacity to optimize the franchise on that business. So I think that, again, this quarter is very contrasted. These conditions might last for again For a few months, but going forward, if I look at the next 3 years, we are again confident with our capacity to deliver growth in these activities.
And there was, again, nothing specific beyond a conservative and we maintain a conservative Risk approach, when we hedge our book of equity structured products, it can cost In the kind of environment we've seen, but there was, in our view, nothing specific beyond this contrasted more than ever contrasted Activity levels depending on geographies and products. Can I turn perhaps to Philippe regarding the costs?
Yes. Good morning, Patrick. Okay. So regarding the cost, you have a different way of considering the cost. So The reported view, so we have an increase of 4.7% at face value, but this is, of course, inflated by the issuing 2021 effect And David, the surge of the contribution to the Single Resolution Fund.
We have an important surge of €80,000,000 this quarter for the group. And as you know, 75% are allocated to GBIS. So The impact for GBS loan is plus €60,000,000 So it's fair to, let's say, to Smooth this effect during, let's say, the year. Bottom line, let's say, the division is leveraging on The cost cutting measures that we implemented in the past quarters, we continue to deploy Those measures, you know that we will maintain the discipline in our strategic plan. What is important To see that on an online basis, the return on normative equity of GBS stay at 10.2 In this kind of environment and this kind of situation, so I think it's a fairly resilient performance in terms of profitability.
Next question.
Thank you.
Next question from Mr. Guillaume Thibirger from Exane. Sir, please
go ahead.
Good morning. I've got two questions. The first one relates to your plan to reduce RWA by 5% in the course of the next 3 years and you highlight that you expect some Important measure to be announced before year end. Can you quantify in terms of earnings how much we should expect to lose from this 5% RWA reduction? Is it as simple as a 5% EPS cut.
And the second question relates to actually your 2020 targets, which are Admittedly not yet trusted by consensus, but if you take your €1,200,000,000 of net profit for Q1, Assuming Ifrit is annualized, if you normalize cost of risk and maybe a bit of losses in the corporate center, You're only at €4,000,000,000 of profit and you need to go to €5,200,000,000 I'm really struggling to see how you can grow 30% from there. So can you maybe in terms of building blocks, try to explain to us how we go from here to there? Thank you.
Hello. Guillaume, the first question On risk weighted assets, what I can tell you is that we are target Ching activities with overall lower profitability. So it's a way to improve the return on domestic equity of our different We see of our different activity. And we'll see what we will do with this money. Fundamentally, there will be a benefit In terms again of capital return, I can't give you at least take the magnitude, if you wish, of the earnings, but it will be positive.
Regarding your question on the 2020 plan, it would take long because we would need To go back to, again, the different components of our
revenue growth,
had presented 9 fundamental initiatives. Can I say when I look at the figures? First of all, the French retail obviously He's in the kind of trough currently. We are as we Said we will see the progressive improvement of the revenue evolution basically this year Towards the stabilization this year and then an improvement and a mechanical improvement, may I say, Just by the normalization of the situation on the rates. And of course, with the cost with cost evolution, which will benefit From all the efforts that we've made and we are investing currently to effectively transform the networks, the backup, etcetera.
So the current contribution definitely does not represent what we expect in 2020. And the cost of risk should not fundamentally vary from its current level in the French Retail. Regarding our International Retail Banking, IT and Financial Services. You remember the kind of jaws that we presented, 5.5 percent evolution of revenues, 4% on the cost. Yes, on this activity, we should have Some normalization of the cost of risk, which remains extraordinarily low.
In fact, we've seen some right banks, for example, in Romania. But we are very confident that we will maintain a strong profitability, but with a pie which will Significantly. And then on the GBIS, as I've said, here we talk about activities where I must It was reflected by our U. S. Businesses this quarter.
But you don't have necessarily a linear increase and the environment, of course, is important from that perspective. We will further develop, as I said, in the long term with a very strict focus on our activities. The paradox is that, yes, we are gaining market share. As I said, I've never seen so high lead tables On the European product in DCM, for example, then this end of the Q1, we are number 1 in all DCM issues for operating In the Eurobond market, so we see the capacity to further extract value with our clients. We have more synergies to extract.
And on the cost side, the discipline will be there with significant changes, new systems, more offshoring, things which are will structurally improve the profitability. Yes, the cost of risk should increase a little bit compared still with write backs, but we have in mind No risk appetite overall and its good picture. And on the Corporate Center, we've been discussing for quite a while Sometimes the distribution of the corporate center. I'd like to highlight that we have finished the journey to charge the liquidity cost To the businesses, we don't allocate the restructuring costs. So it means It should be more negative than what we are today in this quarter presenting.
But Philippe, we've also commented on the Gross operating income, which appears to be pretty conservative this year. So we are again confident that in a Difference environment progressively, normalization of rates, we will effectively achieve this target with the benefit. On top of that, I would like to highlight Ovaar, Executive Liaison of Capitorn. And just to finish, I'd like to say 10.9% Return of intangible equity for this quarter, precisely without exceptional performances on the market seems to me to be an encouraging Performance.
Thank you.
Next question.
Next question from Mr. Bruce Hamilton from Morgan Stanley. Please go ahead.
Hi there. Good morning guys. So I'm going to go back to CIB. I hear you about Some of the mix impacts in your business. But from conversations I've had, it sounds like even in structured products in Europe, Quite a few of your competitors saw growth.
So I just want to understand, is it something to do with the sort of retail skew in your structured book Or something else going on there. Or was there any hedging imperfection that drove some sort of unexpected moves in Q1 that might reverse? Because clearly that would help on the book forward. And then linked to that, I mean, what is normally the best quarter of the year, you've printed just over €50,000,000 of pre provision profit, down 85% year over year in the Global Markets business. Costs are flat, revenues are down 17%.
So it doesn't look like you can hold off taking more aggressive action on costs for long. So how quickly and how dynamically can you move the cost base there To improve the returns, because it looks like you're quite a way I realize some of this will build into the longer term plan, but it feels just so off So far off kilter, you need to do something fast. So how are you thinking about that?
I would maybe let Frank, we're ahead of our Capital Markets and a little bit your the first element of your question, which is Related to structured products. On the cost, we have in this division Also capacity to optimize the structure of the cost. And when I say this, it can be by reallocating resources from one sub activity to another, which will effectively at least improve the profitability on capital. 2nd, as I've said, and there are some structural further action with IT investments, which will need Effectively to further cut, for example, in support functions. And we have plans, Which are ambitious on that front.
We've also further offshoring. So it cannot be it will take a few quarters, it's not something you change from 1 quarter to the other, but we have planned as well. We have presented that Should we GBIS will contribute to the asset on the productivity in the 3 year strategy by, if I remember, something like EUR 300,000,000 I Under the control of Philippe Haim, but I have in mind that kind of objective. Frank, can you perhaps elaborate a little bit
on the First element of Bruce's questions. Yes. Good morning, everyone. Yes, it's true that our activity on structural products, We have a strong part of our revenue is coming from distribution of structured products to the retailers. It's true in Asia and it's true as well in Europe.
And compared maybe to the competition, we are more geared towards the Distribution Products, and it's especially on the equity side. And it's true that In Q1, while we are seeing a strong development of the activity in Asia, it was quiet in Europe. So we think that there was the B2 impact. And also the fact that maybe compared to Asia and the U. S, there were less story in the equity market in Q1 in Europe, Which explains as well why we have seen a relatively quiet activity on the distribution product in Europe.
Thank you. Next question.
Next question from Maxence Le Goudlo from Jefferies. Sir, please go ahead.
Yes. Good morning. I would have two questions. The first one is for Frederic. The stock is down by 6% to 7% today.
In your view, what are we missing that's I think this kind of underperformance On the day and since the beginning of the year. The second question will be on French retail. Can you share with us how much of the cost base is linked to increase is linked to the investment that you are making in Q1 and Q2? Thank you.
First of all, and perhaps I will leave the second part Your question to Philippe, Maxence. May I notice that we are down by 5% with all the European banks, which are So I noticed down today, and I will not name, but you can see that Some of the results disappointed after a performance which was not so bad since the beginning of the year. Structurally, we don't look at our performance on a daily basis, but we have, yes, to do 2 things. First, John, definitely the page of the crisis, may I say, which means put behind the We have commented on that front. You might have noticed our communication, which is to say that regarding 2 of the 3 potential settlements we have on LIBOR and LIA, We are having very active discussions, and we think we can potentially settle in the coming days Our weeks and effectively, we've anticipated potential financial impact in line With the level of provisioning that we have previously communicated around €1,000,000,000 Within our general €2,300,000,000 provision.
That's one thing. And then effectively, structurally, Show and convince the market that we can deliver a resilient level of profitability And effectively, they then have a valuation much more in line with, I would say, between the tangible book and the book. We are just at the beginning of this process. We are just starting with 2018. As I said, we've probably a mix in terms of the results, which does not reflect market At the beginning of this year.
But with, as I said, now a 10.9% return on tangible equity, which I think is encouraging just At the beginning of this journey, knowing that when I think I can The improvement on the revenue and the cost and the cost efficiency going forward. And as I said, I don't expect a very Significant deterioration of the cost of risk. So it is just the beginning of the journey. We've always felt that, yes, we have to deliver Consistent results, so it will take a few quarters. But I think fundamentally, the developments we are seeing in our businesses are in line With our anticipations, of course, in still an environment which is more contrasted in Europe than in the U.
S. Philippe, can you remember it? Yes, on cost. So the increase of cost we've seen in the French retail this quarter It's around plus 4.2%. Of course, we have to smooth the effect of IFRIC 21.
We have also to neutralize Some perimeter effect. So clean increase of those costs is around plus 3.2%. To simplify the latest debate, I think that apart from the what we can call the natural risk of expenses, Roughly around 1%. Everything is more or less relative to transformation. So to give you, let's say, an order of magnitude of, Let's say what we invest, what we dedicate to the transformation, let's say the large scale transformation of the network, both on the distribution channels and on the operating model.
Many thanks. Have a good day.
Thank you. Next question?
Next question from Denfyn Lee from JPMorgan. Madam, please go ahead.
Yes, good morning. Thank you for taking my questions. So 2 on my side. First of all, just wanted to come
back on your guidance for French retail costs on Slide 12. Just to understand the 3% under 3% because it looks like The consensus is he's expecting costs flatter. So I'm just wondering where that's coming from. And The exceptional charge I assume is only the €400,000,000 which you booked in Q4 of last year. So if you adjust for that, it looks like there is a slight increase.
I'm just trying to understand a little bit what's under
And then secondly,
just more generally for this year, Is your target to increase the dividend per share and or Anything you can comment on already on dividends? Thank you.
I will let perhaps Philippe answer your first question. I think it's very premature, first To comment on the dividend, but I must say we have announced a policy, which is to have a payout ratio of 50%, a floor at 220%. And we are not changing this policy, and we have applied this policy As early as 2017, and there's no change to be expected. Philippe, on the first question.
Yes. Good morning, Delfin. So on your question regarding the guidance, yes, the whole story of the French retail is To accelerate the transformation to deliver into 2020 a bank that is more efficient and With a return on equity, we described you now in yesterday, around 14%. So bottom line, we have to invest in the meantime. And yes, we took specific provision in Q4.
But Let's be clear. From an accounting standpoint, provision Is there to, let's say, to cover costs or to cover investments that are not producing any cash flow in the future? So you can provision, for example, on HR voluntary redundancies, Some specific training on mobility costs, but everything around, let's say, adapting the network Everything around working on the processes is in the cost base. So we are Let's say, this year and in 2019, we will specifically dedicate budget for that, And you will see that in the cost base. But ultimately, between 20 16/2020, this is consistent with the trajectory we shared with you.
So cost base between those two points, 216 through 20. Cost base containing communities increased below 1% and will deliver into 2020 Recurring savings of €250,000,000 The point is that we the effect The benefit of reducing the footprint of branches, the benefit of reducing the number of people will be seen progressively. This is an ongoing process. Thank you. Next question.
Next question from Azura Guelfi from Citigroup. Sir, go ahead.
Hi, good morning. Two questions from me. 1 on the leverage ratio and 1 on litigation. I'll start with litigation first. It's a good progress, the one that you have made on Lipian and Eibor that you have indicated.
But Can you indicate can you share with us any further progress that you have on OFAC, which seems to be the biggest and the one that is still with less Clarity for the market. The second one is on leverage ratio. The leverage ratio still stand at the end Of the peer group in terms of level and this quarter has been going backwards a little bit. Could you explain us what has been the Main impact, I don't know, liquidity effects and what could be the impact of this on your business if there is any constraint on this level of leverage ratio. Thank you.
That's why I will let Philippe comment on the leverage ratio, but There's no specific company. We maintain a point in all scales results fundamentally, like I would say probably all banks. Regarding litigation, well, I've commented already on LIE and LIBOR. On the OFAC, we Today with the idea, yes, we should in the coming weeks months. So we pursue active discussions.
But as it was the case 3, 4 months ago, there will be probably a slight time gap between The 3, but we remain optimistic to be able to put that behind us again in the coming weeks or months. And again, what I want just to say, we did not change our global provisioning in the Q1. We try every time To assess well as we can't risk, and we did not change the level of provision. On the leverage ratio, Philippe,
yes. So on leverage ratio, with the benefit of the issuance we made Beginning of April, we have a leverage ratio of 4.2. I think that we are completely in line with Our European peers. And then on top of that, as you know, there is a wide security debate on how you regulate banks in Europe. The focus is not so much on leverage ratio.
You have an American approach where everything is precisely organized on focusing the supervision on the leverage ratio and on stress test in Europe. We are more On the side of the risk based approach to risk weighted assets and the SREP. And if you analyze the leverage ratio of our peer group. We are completely in line with this peer group. Pierre, bear in mind that The threshold applied by the regulation, by the Basel framework currently is 3%.
And we are moving towards something adding to the 3% as the GSIB surcharge. So ultimately, the threshold that will be applicable to Societe Generale will be 3.5 And we want to maintain the bank's our leverage ratio between 4% and 4.5%. Next question.
Next question from Jacques Henri Gaulard from Kepler Cheuvreux. Sir, please go ahead.
Yes. Good morning, gentlemen. I have two questions on your management changes. First, Didier resigned basically on the 14th March, and I was wondering if visavis Investment Banking business, this had any impact on the level of business that you've seen, I mean over the following 6 weeks. And then I would like you to effectively give us a little bit more color on the process that led to the appointments of the management team.
Obviously, did you choose to make appointments that were exclusively internal? I was wondering if there was deliberate choice not to hire internally or if you had problems hiring externally? Thank you.
Jacques Henri,
I don't think there has been a specific impact. Of course, such a departure, brutal departure is always Difficult for the staff, the colleagues, but I would not at least say it has had any significant What is clear is that we wanted in the process to bring an answer relatively quickly, not to leave uncertainty for too long. And that's why we had this process. Regarding internal versus sectoral, let me say our General policy, and I must say, it seems to me it's the case for most companies, is at the deputy CEO or to try to bring people from internally. We pursue, of course, active policy to recruit Whether it's at 25, 30, 35, 40.
And if I may just take 2 of the appointments made announced yesterday. Typically, when I look at Philippe Heim or William Cadouche, Both of them were not in the bank than years ago. They have very different profile initially. They joined the bank. We built a carrier just to check their capacity to integrate and develop.
And we have now 2 managers who are And I think it's a better policy than trying to, by Essence recruit at such level. I must say, my experience is when you recruit, you have a 50 You make a mistake because how do you really know how people integrate their real Capacity to share the ambition, the values, etcetera, the behaviors of the team. So it's, I think, a policy which makes, in my view, still a lot of sense.
Next question. Next question from Jean Francois Neuez from Goldman Sachs. Sir, please go ahead.
Hey, good morning. This is Jean Francois from Goldman. I just wanted to ask about, in particular, coming back to the Derivatives Chief and 16 Com Businesses in the slide where you show the differences geographically. There is for all three geographies mentioning about the costly hedging That has affected this quarter. Now if I cast myself back into last year, in 2017, in particular, in Q3, you highlighted the low volatility environment as having triggered also high hedging costs.
Now the environment seems to have been different this quarter, much higher volatility. And I just wondered so I would have expected this environment to be positive for your hedges, which were Firstly, last year. And I'd like to have more granularity on that, please. And my second question was on the management, I guess, so you've explained your process. The question is, at the Investor Day, which was not so long ago, you had the management team in place who presented.
I just wanted to know whether we should expect any change in strategy or essentially what pushed The Board to decide to change the management team so soon after the release of the Investor Day. Thanks.
I will let Frank answer the first question. Jean Francois, well, what was not expected is the DTVALLEZ departure. And as I said, you can look at the profile of the deputy CEO when we presented. He was, as I said, the youngest. Okay.
So when you think about the succession plan, there's one more thing that the Board has to ensure probably The strategy is that you have effectively a succession plan which works. And we had to face the Board had to face the situation, an expected situation. But as I have commented, one of the main objectives of the changes was to ensure continuity and capacity to deliver. And I think that With people that I've just mentioned who are absolutely seasoned bankers in this particular and fully committed The plan you have this guarantee of continuity. Frank, what can we say?
I think what we said last year was that flow activities were impacted By the low volatility environment. And with the after that of the mix, we have seen a peak In volatility and in all flow activities, we have seen an increase of our revenue. After when you look at what happened after this event on the mix, especially in Europe, the volatility The volatility has been The increase of volatility has been it was just contained in the very small period Of the quarter. And again, it's on the structured product activity, low volatility environment It's acceptable even if we can take some conservative Yes, we can possibly call it. But it's mostly on the fuel activity that we are able to make money when the
Okay. Next question. All
right. Thanks, Alain.
Okay. Next question from Mr. John Peace from Credit Suisse. Please go ahead.
Yes. Thank you. So first question please is on French Retail Banking. With your guidance that you expect it to be flattish in revenue terms this year, are you adjusting for the €88,000,000 of Negative hedging costs in the Q3 of last year. Or is it going to be flattish on a reported basis ex Telcel?
And then my second question is on Russia. Your targets for an 11% revenue CAGR and 16% Return on normative equity. With the sanctions, do you still expect to be on track towards that this year or should we see some volatility? Thank you.
John, so first of all, Philippe, the guidance on the stabilization of revenues, does it include? Yes, I think it includes
Yes, John. So yes, in fact, we have to adjust our swaps, hedging The market book according to the IFRS rules. And so it has, Let's say a negative impact, if my memory is correct, of €88,000,000 in Q3. And taking into account, let's say, all the elements, We are in fact, we took in advance, let's say, some cost negative NDI. And all those elements bringing together, we progressively see a stabilization of the revenue base It's Wei Tien.
Didier Ogell on Russia?
Yes, John. On Russia, in fact, the assumption has Limited impact as basically it affects very few of our clients. Our growth is mainly driven by retail, which is unaffected by the sanctions. And so we confirm of objectives of 11% growth on the revenues and over 16% every by 2020. Next question?
Next question from Madame Laurent Juarez from UBS.
Hello. Thank you for taking my questions. So the first one would be on the French Retail. So obviously, you're guiding for flat revenue This year, I was wondering whether for 2019, we should we could expect something like plus 2% or above. And then the same thing on the cost.
Obviously, you're on a you're guiding for plus 3. This year, I was wondering whether we could expect some cost decline As early as in 2019. So then for the second question, I'd like to come back on the CIB, sorry for that. But I've seen in a video this morning an interview, I think it was Bloomberg TV, where you were saying that your structured product Performance was in line with peers. And I was a little bit puzzled with the comments you just provided During the call, so can you actually confirm whether you're doing worse or better or same as peer in structured products for the quarter?
And If it's worse and if you think it's like MiFID II related, are you seeing sign of the wait and see approach or the discovery process Actually ending anytime soon. Thank you.
Laurent, we will not we are not disclosing figures 2019 in the French Retail. And to be frank, I don't remember having said that it was such a specific comment during the interview. And I think we have already commented again on the very specific business model. On the one hand, structured product versus It's depending on the geography and on the structured product, probably the most significant part on the distribution side with retail activities. And so I don't think we have we can comment much more than that at this stage before having more analysis.
We regularly analyze our, again, relative performances, again, thanks to a company like Qualitian. It helps to understand exactly more in detail the differences beyond global figures. So I think you can comment more at this stage. Next question.
Next question from Jean Pierre Lambert from KBW. Sir, go ahead.
Yes, good morning. Two questions on my side. The first one is capital management and the trajectory to 11.5%. You've been indicated in the press as interest in the Commerzbank market activities, also potential Bulgaria and Balkan Activities and further reduction in risk weighted assets, how should we see this in terms of timeline? And is there any comment you can say how you See these building blocks.
The second question is on digitization. It seems you're quite behind some of your peers in terms of automation or digitization of process even with your target of 50% by the end of 2018. And I was wondering if you had some Similar assessment. And also regarding the digitization, it seems like you are automating the process of interaction with customers, But what about the legacy systems? Are you changing them or are you keeping the old core systems with additional satellites?
Thank you.
Okay. I will let Bernardo answer your the second part of your questions Digitalization. On your first part, again, I can't give you much more comment than we expect as we saw 3 previous years, at the end of the day, we pluses and minuses of the positive contribution on the core Tier 1 from our Reallocation of capital. And regarding acquisition, there will be various shipments, so we will effectively benefit From their allocation, I've commented there will be announcements this year, but I can't say more.
Bernardo? So our current program is and we're totally specifically here about the French retail activities, which Chardet, the ones who were targeting when we talk about digitalization of their processes. The JV part is Much more digitalized already. And we will redesign and digitalize about 85% to 90% most of our processes by the end of 2019, of which 50% are already almost completed and will be completed before year end. So we assume and we think that this is a very advanced level of digitalization.
What we have done since 2014 when we started The race to digitalize the bank is that we choose, 1st of all, to digitalize the front end of Our relationship, the customers and immediately after we launched this digitalization process. We I don't have the feeling of any current competitor on the French retail that is significantly in front of our way of doing things. The rest of the bank, I can remind you that we already have a fully digital bank, which is called Boursorama, which is the leader in the market, which is growing at an extremely right fast pace And which is our most dynamic Growth already today in the French retail.
Thank you. Next question?
Next question from Alex Kony from Natixis.
Yes. Alex Kony from Natixis. Two questions from my side as well. The first question is for Frederic. I'm just wondering whether you think that you can then slow down the pace of provision for Litigation, given the pretty confidence then you have for at least 2 of them.
I think that you used to book something like for €300,000,000 to €400,000,000 per year. So just wondering whether we should expect a similar level for this year. The second Question is for Philippe. So my understanding is that you will upgrade your guidance for the DOI in In the corporate center for 2018, will it be true also for 2020, which means that obviously you will increase your target of net as a consequence. Thank you.
Alex,
Your first question, as I said, I can't say more than What we expect in terms of financial impact on 2 of the 3 is in line with Sprint. And for the third one, there is more uncertainty at this stage We are less advanced in the process. But let's say, as I've said, and we have not added the provisioning. So What I would like what I might say is we probably for the final settlement to act. Again, we tried to take all the information we have to adjust, but as I said at this stage, we have not changed the provision.
Philippe? Yes. So Alex, so few elements on the Corporate Center. So we have indicated that we have A positive GY this quarter on the compliance center and can be explained by value cinemas. You have as pretty frequently, you have the sensitivity effects due to Non qualifying hedges.
So you have usual effects and we try to park those effects in the corporate center. They are volatile by nature. On the top of that, we have better than expected funding condition for the group. So we may be linked to market conditions also the positive impact The fact that our rating has been upgraded. So let's say, all those elements being brought together, we'll see if we Can revise our guidance, but it's too early, let's say, in Q1 to have this discussion.
We'll come back to you in Q2. And if we have relevant information for 2020, we'll come back to you as well.
Next question. Thank you.
Next question from Stefan Michael Stannmann from Autonomous Research.
Sir, go ahead.
Good morning, gentlemen or good afternoon now. I have two questions, please. Revisiting questions that have been asked before, I'm afraid. But To start with the Equities business in Global Markets. Your Head of Equities, Mr.
Cassette, left in late April. Can we see this as any indication that something went wrong in the business? Or is it completely unrelated To the relatively disappointing revenue in Q1. And coming back to the French retail business and the cost outlook, You're obviously looking at quite meaningful redundancies. You're closing hundreds of branches, digitalizing processes.
Is there any reason why we should not assume that your 2020 cost base will be lower than in 2018? Thank you very much.
Hello. Stephane, first of all, totally unrelated and we will announce Successfully in the coming days. The first question your second question, sorry, you want to understand in what circumstances The cost in 2020 would be could not be lower than 2018. You mean the level of something we have in the piloting of the cost?
Yes, I would assume that with all the measures that you're taking and with transformation spending dropping out, the 2020 cost Base should be lower than 2018, but it seems that you're not too eager to commit to that.
We have communicated very precisely on the evolution of the French retail cost between 2016, 2020. So it gives you a figure for 2020. And we have now given you a figure for 2018, basically, guidance. To illustrate that effectively we are investing a lot. So I think the two figures are there.
I think the problem from my perspective is that the 20 20 guidance of your 1% CAGR gives me a higher cost number in 2020 than the now increased cost number for 2018. So it looks your guidance implies that cost will continue to grow from 2018 rather than come down?
Let us check that more in detail. All right. Okay. Thank you.
Next question.
Next question from Omar Fall from Mediobanca. Please go ahead.
Hi. Sorry to come back to equities, please, and Apologies if I missed this somewhere, but you quote in the press release that Prime Services was at a Record level in the quarter, which implies that the underlying performance in equities was Materially worse than the minus 5% you've reported. Given you've just had a restatement, which means we can't really confirm that. Can you tell us what the underlying decrease in just the equities line was, please? Second question, I recall from the investor workshop that you hosted recently that you'd flagged that The rise in some simpler products like auto calls, instructor products in the last couple of years In the rising markets drove some of the loss of market share specifically in some parts that you'd seen in the past, That a return to volatility would suit your hedging and structuring capabilities for more complex products.
So I'm just trying to understand You know why that hasn't been reflected this quarter? Sorry to retread the old ground on the call. And then just lastly, on French Retail, when we think about this rebound that you and all your peers are guiding for next year, Do you think the scale of that rebound will be the same for you as with those peers, given that you've basically not been growing the loan book Anywhere near their rates so that you can protect margins as you've highlighted? Thank you.
Your Omar, first question, auto calls, Yes, we said we have limited the growth for VotoCalls and there was no change beginning of this quarter in terms of the nature of the structured product to be Sure. So before you can also structure the products, you are precisely looking at Different rate conditions also and the volatility conditions. 2nd, the proportion allowed terms of what we report Like of the peers, we have aligned the reporting with Equity and Prime Services together. When you look back at our previous reporting, you will See that the proportion of PrimeServicing revenues as a percentage, we're right below and hence we don't have a big difference Between the so called former limited equity parameter with the new one compared with The global figure. On, again, the French retail.
So on
the French retail, it's Not possible for me to make any comments on our competitors, but what I can share with you is that for SV, you have to expect The revenue base can be split between NIM and fees and commissions. On NIM, What we expect is a decreasing pressure coming from interest rates with the much expected normalization of the monetary policy. The deposit rate of ECB is removed from 9.40 points, progressively lifted to 0 and returned in positive EBITDA. We have a positive direct and positive impact on our liquidity buffer. 2nd, we are as you know, we are very mindful of The quality of our origination.
The point is not so much increasing widely, let's say, the book. It's the quality of the book And the capacity to cross sell and when you acquire a client, progressively equip the clients and this is precisely our strategy. That's why the whole strategy that is the one in the French retail is based largely on the development of our commissions, both sell side and on the corporate side and how we intend to deliver our growth by 2020.
Next question. Thank you.
Next question from Kiri Vijayaraj from HSBC. Sir, please go ahead.
Yes. Good afternoon, gents. Can I come back to costs and specifically the resolution fund? Are there any kind of You can pull to mitigate the inflation in those costs or does those costs those levies continue to grow at this kind of pace for the next couple of years? And then on the kind of revenue side, what extent can you pass on these costs onto the end customer?
I'm thinking specifically in the CIB areas, which seem to be sharing and shouldering a lot of the resolution fund costs when you allocated out divisionally? Thank you.
Philippe, First of all, the mitigation elements.
Okay. So the increase we have an increase of €80,000,000 this quarter This year, we have taken in this quarter. And this contribution, I would say that Roughly 1 quarter is related to a change in the way the Signal Resolution Board asked us To compute, let's say, the contribution, so there's a change in regulation. The other part is related to The pretty important increase of deposit collected in the banking union, leading to an increase All, let's say, players according to the size of the balance sheet. And there is no obvious Way for us to mitigate this effect with, let's say, with the monetary policy we have, we all see in the Banking Industry, a surge of deposits.
Yes.
And then on the client side, we can't pass that to Haim. Because just euros, some banks are paying for that. So most of our competitors do not pay. So unfortunately, it will end in 2024. Yes.
But at this stage, we're maintaining capacity to mitigate now.
Next question. Okay, understood. Thanks.
Next question from Anke Reingen from Royal Bank of America.
Yes. From Royal Bank of Canada, it's Anke Yes. Two follow-up questions. Firstly, on French Retail Banking, I actually thought that your loan growth slightly accelerated. And I was wondering if this is something you could see continuing as in sort of like step up the volume growth there?
And then secondly, I'm very sorry to ask about the equity derivatives again. But from reading your press release this morning, I got the impression that The hedging costs and carrying costs were quite a material headwind to your performance in equities this quarter. But from the call, it sounds more that the underlying trends weren't as supportive. Can you please Confirm
that the
I mean, as much as you can, that the hedging and carrying costs were not a material headwind to the equities performance in Q2. Thank you.
Thank you. I will leave Laurent with our comments on the evolution of the credit volumes. I think we have Dynamic growth, we don't make it necessary to change that, but he will comment. I think we can't say much more, Ankur, than what we said. I said a little bit of both.
In Europe, in particular for the demand and generally speaking on the book, the book being a reflection of the new production but also The underlying inventories. The fact that as we said, the volatility increased, yes, the year over year, but it came back To very low level and we adjust our reserves, we adjust the hedging policies to mitigate the risk and we have a pretty conservative approach. So it's more here on the inventories too. Perhaps Laurent briefly on
the production of loans. Yes. Briefly,
I would say we can have different comments according to corporate loans and home loans. For corporate loans, as you can see from the documents, the new production is very dynamic at 10% increase In comparison with Q1 20,007. And when you see The outstanding, we are now at plus 3.5% and even almost plus 5% when we exclude Local authorities, it means that we are purposely closing the gap with the market and the competitors. And If we continue with the trend, I would say we will go back to the market trend at the end of the year. Concerning about the home loans, as you can say, this is a strategy we focus the prediction on the Top affluent clients, it means that 80% of the new Omelette production is dedicated to Pacheco Nogol and IEnfos people.
So and we want to continue this strategy, keeping in mind that now the level of negotiation is at very, very Low levels. So it means when we grow the loan book by 2.5%, this is completely In line with our strategy and I would say, our targets.
And just as one statistic to illustrate the difference of approach, when we look at 2017, our average Maturity of the loans is according to our statistics, 2 years below the average of the market. Next question.
Thank you.
Next question from Flora Benhakoun from Deutsche Bank. Madam, go ahead.
Yes, good morning. The first question I have is regarding funding costs. I heard your comment on a positive Surprise on funding cost in the corporate center. I was wondering whether you could comment maybe whether the widening we had in the LIBOR OIS spread had any kind Impact on your U. S.
Dollar funding costs. And the second question is going back into French retail, where I noticed that now you've changed a bit the reporting, Maybe linked to the serious change that you made, but you don't disclose the NII between individuals and corporates anymore. So whether you to comment on the NIM between these two categories, please? Thank you.
Philippe, funding cost.
Okay. So on the funding cost, The Corporate Center was mentioning among other, let's say, the fact that we've seen decreased funding cost. The amount is limited, so this is not of a huge magnitude. Coming to your point, no, there is No direct significant impact of the winding of the U. S.
Board Winding on the spread. No impact on our activity neither in terms of capacity to collect No impact on the activity. This is fairly natural for the business and no impact. The second point on the net interest margin for the 2 categories of clients. Yes, we have amended our disclosure.
We will come back to you on this aspect to give more granularity on this space.
Thank
you. Next question. Next question from Pierre Chedeville from Centimeters
Yes, good morning. First of all, I take the opportunity to thank Bernardo For the last past years and his kindness and availability to answer my long questions on Africa And Russia. Thanks, Bernardo. Two quick last questions. Regarding Luxor, Today, we have a good net inflows, but I wanted to know if you are Okay.
With the profitability of the business today, if you consider that The profitability of the business has not reached your target because We don't know exactly what it is for Luxor, which is drawn with Private Banking. But when we see the bottom line of Private Banking and IXOR, it's still very weak. And what is your view regarding IXOR? And regarding ILD, I'm sorry, I have not Time to go through the slides of ILD so far, but I was expecting A decrease in revenues due to the fact that the price per unit of sales of car sales was supposed to decrease strongly quarter on quarter. And it seems to me that The effect was not seen this quarter and I was wondering why.
Thank you very much.
Yes, I will let Did you, Gail, answer your question on residual values and impacts on net banking income? We are confident with the Because I think the bottom line itself does not reflect all the benefits of the group. There are also the benefits with some capital market It is related to our activities on the ETF. So yes, and I must say, really, Luxor is part of a strategic View that in the next 5 to 7 years, the world of asset management will change in Europe as well as it has in the U. S.
With more transparency On pricing, the development of ETFs, I think will happen a lot of things will happen in Europe and for us, sorry, should benefit from that. Didier, what can we say on the evolution of net banking income? I think that
the Dynamics of the net peaking income of LD is driven by used car sales. And you remember that basically, they guided of used car sales Per unit for 2018 between a range of €200 to €400 profit, and It ends up in a decreasing trend and it ends up for Q1 to establish at €470.17 euros per unit, so it's slightly above the yearly guidance that is confirmed for 2018. So basically, There is a full confirmation of the guidance of AMD, which is making similar calls in the same time.
Thank you. Next question?
Next question from Nick Davy from Redburn. Sir, please go ahead.
Yes, good afternoon, everyone. Two questions, please. Sorry, back to the markets business. Main question here on cost, up 3.8% on constant scope and exchange. I take the point about the single resolution fund, but even if I adjust for that, it seems like costs are flat to up.
Why is there not more cost flex here to The declining revenue line. 2nd question, one of your peers today discloses that they had 2 minor events of loss above VaR in Q1. And I can hear we're all asking a similar ish question on the drivers of the equity weakness. Could you disclose a similar number about How many events of loss of AbbVAR in the quarter? That might help.
Thanks.
Nick, we don't disclose, I think, the I don't think there was any specific element regarding this thing. And on the cost, we are also investing. If you Take out the foreign exchange and the increase of FRE. We are just 1.6% for the global GBIS business. As I said, there are investments and we are posturing a policy of further cost efficiency.
So it's not the end of the story regarding that trip.
On the bonus pool, and was it adjusted down year on year, Chief Financial Officer.
Well, can I say, if you look back at our 2017 figures, you will see that The revenue the bonus pool has been adjusted according to the performance? And I'm certain Societe Generale has a very disciplined approach from that perspective. Of course, we look each quarter after quarter to see where it will land for the full year.
Okay. Thank you.
Next question?
We don't have any more questions for the moment.
Ladies and gentlemen, we could even say for the day because I think it was and I would like to thank you for your participation and your patience. Let's finish this call. Thank you very much, and have a good afternoon. Thank you. Bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.